NBR Transcripts-Monday, June 22, 2009
Monday, June 22, 2009What's The Federal Reserve's Game Plan?
SUSIE GHARIB: Federal Reserve policymakers meet tomorrow and Wednesday to decide what's next for interest rates and the economy. They're expected to hold rates steady. The big question though is whether the central bank will begin to unwind the many programs it put in place during the financial crisis to stimulate the economy. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: We all know this sign. It shows you how to exit. Now investors want to know if the Federal Reserve board knows how to exit its own policy strategy. Are policymakers ready to explain how and when they will reduce the Fed's economic stimulus efforts?
JAN HATZIUS, CHIEF US ECONOMIST, GOLDMAN SACHS: I don't think we are going to get that for a long time. Under my forecast for what the economy does and what inflation does, it would be inappropriate to send such a signal -- or in fact to exit -- for the foreseeable future.
MILLER: Goldman Sachs economist Jan Hatzius says policymakers face a serious dilemma about when to start raising short-term interest rates, which are at historically low levels. Raise rates too quickly and risk derailing the recovery and rattling financial markets. Raise rates too slowly and risk pushing up inflation. Economist Thomas Burner expects policymakers to keep rates low for a long time.
THOMAS BERNER, U.S. ECONOMIST, UBS WEALTH MANAGEMENT RESEARCH: Historically they have always waited until the unemployment rate peaks. I don't see the unemployment rate peaking until late first half of 2010, so second quarter 2010. So, as of now, I don' think they will hike rates until about September of next year.
MILLER: In addition to deciding when to raise rates, the Fed must also figure out how to phase out several liquidity programs. They include short-term commercial paper loans to U.S. corporations, as well as money lent abroad through foreign central banks. The Fed also has to figure out when to stop buying Treasuries and mortgage-backed securities and whether to start selling some of those assets. Many economists think the Fed's emergency lending efforts will peter out on their own.
HATZIUS: A lot of the liquidity programs are, in a sense, self- unwinding, because they are essentially lines of credit in some sense that will be wound down somewhat automatically if they are no longer needed because the financial system is normalizing. And that's already happening in a number of areas.
MILLER: Many economists expect the Fed's asset purchases to continue through the rest of the year, but there's debate about whether the Fed will eventually sell some of those securities. Many economists think the Fed will hold the bulk of its portfolio until maturity. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with Michael Thompson, Partner, PricewaterhouseCoopers
SUSIE GHARIB: President Obama announced an agreement today with major pharmaceutical companies to cut the cost of prescription drugs for seniors on Medicare. The deal discounts medications for Medicare beneficiaries who reach the so-called donut hole gap in drug coverage. The president called it a major step forward toward national health care reform.
Our guest tonight just completed a big report on how rising medical costs will impact U.S. businesses and workers in the next year. Joining us now, Mike Thompson, partner at PricewaterhouseCoopers. Hi, Mike.
MICHAEL THOMPSON, PARTNER, PRICEWATERHOUSECOOPERS: Hi.
GHARIB: So you say in your report that more employers will ask their employees to pay a bigger portion of their health care plan. So tell us what this means for employees. How much more are they going to have to pay and for what?
THOMPSON: Well what our reports shows is that we're anticipating health care costs to increase approximately 9 percent next year. And how that translates to employees is that if employees just picked up their share, they would pick up 9 percent. But what's more likely to happen is employers who are under increasing pressures for cost reduction are likely to shift some of those costs on to employees. So employees could actually anticipate a double-digit increase.
GHARIB: And what will they be paying more for, more premiums or bigger deductibles, what will it be?
THOMPSON: It could come in multiple forms. It could come in the form of higher premiums but it also could come in the form of higher cost sharing, deductibles or co-pays.
GHARIB: All right so, do you think that by workers having to pay more out of pocket, that this will bring health care costs down or really won't make a material difference?
THOMPSON: Well, there is some evidence that suggests that when employees actually share in the costs more, that they do use the services more thoughtfully. But I don't think it will have a material difference in the short run.
GHARIB: Now you also say in your report that companies will be, you know, pushing more for wellness programs. And I'm not quite clear sure what that means for an employee. Will they get special deals or deductions on their health care costs for that? But also, does wellness reduce health care costs for a company?
THOMPSON: Well, wellness -- you know, peoples' health behaviors have a material impact on their health needs, you know. The obesity epidemic and smoking does increase health care costs. And so I think what employers are hoping to do is help employees to change their behaviors, to be healthier and hopefully reduce the need for health care services and they'll save and employees will save if they do.
GHARIB: Now a lot of workers are very concerned that they are going to lose their jobs. And so as a result they are going ahead and scheduling all sorts of medical procedures while they still have insurance. What impact does that have on the companies and on the workers who are continuing to work at those companies?
THOMPSON: Yeah, so one of the factors that we did find in our report is that employer -- employees that still have coverage, employees that still have jobs are more anxious and particularly wary of not getting things done while they have coverage so they're actually increasing their use of services. And that actually drives up costs for those, for those employers and for the employees that do have coverage through their employers.
GHARIB: Now as you know, Mike, in Washington there's a lot of discussion about health care reform, nobody knows yet if it's going to happen or what kind of package will come out of Washington. But as you look at all of the possibilities, will health care reform materially change how much companies and individuals pay for their health care? Will it be more, less or the same?
THOMPSON: Well, in the short run it won't have much impact at all. It will take many years for the reforms that are being discussed to be implemented and then to have an impact on the premiums that employers are paying or what employees are paying. So we're looking at 2011, 2012 or even later.
GHARIB: But ultimately when health care reform does come about, if it comes about, will we as individuals pay less for our health care costs, our health care bills?
THOMPSON: A lot of the changes that are included in health care reform are intended to change some of the incentives in the system and build an infrastructure that allows us to better monitor what's actually happening in terms of the use of health care resources. And over the long haul I think there is an expectation. We will be able to moderate the rate of increases that we've been seeing over the past few years.
GHARIB: All right, thank you so much for coming by. We really appreciate it.
THOMPSON: Thanks.
GHARIB: My guest tonight, Mike Thompson, partner at pricewaterhouse coopers.
A Look At What's Roled Up In The Tobacco Law
PAUL KANGAS: In the eyes of the Federal government, tobacco is now akin to a drug. President Obama signed a law giving the Food and Drug Administration unprecedented authority to regulate tobacco products. The president's signature ends a long battle by public health advocates to have the industry brought under the FDA's watch. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The bill President Obama signed today is aimed at keeping cigarettes out of the hands of the next generation of potential smokers. The president includes himself in the smoking statistics.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Each day, 1,000 young people under the age of 18 become new regular daily smokers and almost 90 percent of all smokers began at or before their 18th birthday. I know I was one of these teenagers, so I know how difficult it can be to break this habit when it's been with you for a long time.
DHUE: The FDA will create a new office to regulate the content of cigarettes and how they are marketed and sold. Light and low-tar cigarettes must get FDA approval before being marketed. But the law also limits the FDA, prohibiting the agency from banning tobacco products outright. Since it could take up to three years for the FDA's new office to get up and running, analyst Philip Gorham expects the impact to take a while to be felt.
PHILIP GORHAM, TOBACCO ANALYST, MORNINGSTAR: In the longer term, I think it'll cement current market shares into place, which is great for the market leader Altria and not so great for those rivals trying to chip away at its leading market share.
DHUE: Some anti-smoking advocates say the legislation doesn't add much new, but consumer advocate Sidney Wolfe disagrees. He says the FDA now has the tools to be tough on tobacco.
DR. SIDNEY WOLFE, DIR., PUBLIC CITIZEN'S HEALTH RESEARCH GROUP: The FDA, with an adequate amount of legal authority and an adequate amount of will at the top to enforce the law, can do a good job. Whenever, whether it is prescription drugs, for example, they have not done a good job. It isn't because they don't have enough authority; it's because the people leading the agency don't have the will to enforce the law.
DHUE: A seeming stamp of FDA approval could make it harder for smokers or their families to sue the industry. But Wolfe doesn't think that will happen.
WOLFE: The idea that because this is regulated by the government that you can't sue has been thrown out recently for prescription drugs. It is highly unlikely that someone who has been injured by tobacco will not have any rights in court to sue.
DHUE: If you're a smoker, expect to pay more for your cigarettes. The new FDA office will be paid for by the cigarette makers, who are likely to cover their cost by tacking $0.06 on to the price of a pack. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The Consumer vs. Food Company Food Fight
SUSIE GHARIB: You may not know it, but there's a war going on in the aisles of your local grocery store. You're on one side, deciding what products to buy. Food companies are on the other, using strategies to make you buy their products. As Jeff Yastine reports, one key battlefield: it's not what's in the box, but what's on the box.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Last year, Americans spent more than $7 billion on packaged cookies and crackers. We look at the price and the brand, but few of us really spend that much time looking at the logos, pictures, words and colors on the package. But Barbara Kahn is not one of those people.
BARBARA KAHN, DEAN, SCHOOL OF BUSINESS ADMIN., UNIV. OF MIAMI: Something like this, with tastiness, chewiness would seem better, the cookie would seem richer if it was in the heavy location. Where the cracker which you might want to think of as healthy, like it says whole grain here, zero trans fat, I want it to be healthy, then it being in a light location would seem to be better.
YASTINE: Walking with her down a supermarket aisle.. for us, we walk along. We just see food in packages. To you, it seems like it's a whole secret language, in a sense.
KAHN: We do study them a lot. Here is another thing that is interesting we started to look at. There is this big emphasis on obesity issues. You are starting to see a lot of these 100 calorie packages. And there's been some research that came out that shows that this could boomerang. Sometimes for people who are on diets, when they think they are eating a hundred calorie package, they tended to eat more.
YASTINE: It all has to do, she says, with where the picture of the food is on the package. Food images near the top of a package are perceived as lighter. The further to the left it is, the lighter it is. Push the image to the bottom, and it's perceived as heavier. Push it to the right, and it becomes even weightier in the minds of food shoppers. That's nice to know, if, as she points out to us, you're trying to sell a box of guilty pleasures like Nabisco double-stuff cookies.
KAHN: So that this, being at the bottom right, is a very heavy location.
YASTINE: Kahn, who is now the dean of the University of Miami business school, says some food companies have known for years that certain arrangements of food packaging worked, but they didn't know exactly why. Now they do. What I find amazing about this research is how much it seems to indicate our choice in what we buy is influenced by all these very unconscious factors of which most of us would never ever think about.
KAHN: Absolutely. I mean that's what brand is all about. Why do we buy Coke over Pepsi? Do you think it is systematic? You get used to that brand.
YASTINE: So if you're a food shopper, forewarned is forearmed. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
"A Congressional Difference of Opinion"-Senator Jeff Bingaman, D-NM
SUSIE GHARIB: The House of Representatives could vote on the climate bill this week. It contains the highly debated cap and trade program aimed at reducing greenhouse emissions. So for the next two nights in our series "A Congressional Difference of Opinion," lawmakers will weigh in on climate change. Tonight we begin with Senator Jeff Bingaman, Democrat of New Mexico.
SEN. JEFF BINGAMAN (D) NEW MEXICO: In recent years, Congress has passed new laws that put us on a path to reduce our nation's dependence on imported fossil fuels. In the U.S. Senate right now in fact, we're in the process of writing another energy bill that will continue that shift. In writing this new legislation, a major objective has been to expand our ability to produce energy from renewable sources such as the sun and the wind.
One way to do that is by requiring utilities to produce a portion of their electricity from renewable sources and another big issue of course is helping them and others with the financing deployment of these new technologies. In addition to more renewable electricity, we need to implement a smart and robust national transmission grid and of course we need to maintain production of traditional sources of energy that we currently depend upon.
As a final challenge as I see it, we need to maintain the proper balance between energy and the environment, environmental policy we have. We face a serious international challenge with the problem of global warming. It demands a worldwide revolution in the energy technologies that are needed to prevent potentially catastrophic environmental changes. We need to put in place a regulatory regime to deal with climate change and I hope we can do that in this Congress. We need to look for bipartisan solutions to our energy problems and I'm looking forward to working with my colleagues in the Congress and the Obama administration to find those solutions. I'm Senator Jeff Bingaman.
GHARIB: And tomorrow, Senator Lisa Murkowski, Republican of Alaska and her take on climate change.
Paul Kangas' Stocks in the News
PAUL KANGAS: That downward revision in the global outlook sent stocks falling on Wall Street. With hardly an uptick, the Dow tumbled 175 points by noontime, with the NASDAQ Composite off 53 points. Stocks remained broadly lower with commodity-related issues leading the downturn on fear of declining global demand. Without even a hint of any technical rebound this afternoon, the market ended at the day's lowest level. The Dow Jones Industrial Average closed down 200.72 points at 8339.01. The NASDAQ Composite plummeted 61.28 points ending at 1766.19, while the Standard & Poor's 500 nosedived 28.19 ending at 893.04. Over in the bond market, the 10-year note rose 23/32 to 95 13/32 on flight to safety buying, pushing the yield down to 3.68 percent.
Most active New York exchange issue on 73 million shares, Bank of America (BAC) losing $1.28. The financial sector of course down on fears that the recent rally may have sent prices up too quickly. As far as Bank of America is concerned, two more board members have resigned amid calls for improved corporate governance. That makes seven recent board resignations.
Citigroup (C) in there with a $0.17 loss. The Fox Pitt brokerage sees possible significant pressure on Citi stock after the upcoming conversion of preferred shares into common stock.
General Electric (GE) down $0.58. Reportedly, Chief Executive Officer Jeff Immelt is strongly opposed to part of the Obama financial reform plan because it might force the company to spin off its GE Capital unit.
JPMorgan Chase (JPM) down $2.13. "New York Times" reports billionaire Len Blavatnik is planning to file a lawsuit alleging mismanagement of $1 billion account owned by its holding company. JPMorgan Chase calls the suit meritless.
Now let's see an example of some of the weak commodity stocks. Let's look at the second five actives on the big board first.
Pfizer (PFE) down $0.21.
What's this, a gainer? AT&T (T) up $0.11.
Then American Intl Group (AIG) down $0.14.
Regions Financial (RF) $0.29 loss.
And then Ford Motor Co (F) with a $0.34 drop.
Now let's have a look at those weak commodity stocks starting with Alcoa (AA) down nearly $1.
The steel company Arcelormittal (MT) down $2.76. Freeport-McMoran C&G (FCX), Peabody Energy (BTU), the coal company and Rio Tinto plc (RTP) all major losers today. And the oil stocks were no bargain either today.
The oil price dropped over $2.50 a barrel. ExxonMobil (XOM), Chevron (CVX), Hess (HES), BJ Services (BJS) and Schlumberger Ltd (SLB), another oil service company all major casualties.
Walgreen co (WAG) fell $1.79. Third quarter earnings to $0.53 from $0.58 a year ago, $0.03 below the Street estimate. Same store sales were up 2.8 percent, but expenses were higher than the company had anticipated.
Manulife Financial (MFC) down $2.90. The Ontario securities commission sent the company a notice that it doesn't adequately expose the risks of its annuity policy.
And then Goodyear Tire (GT) down $0.92. It's cutting continuous tire production at its Union City, Tennessee plant. It will be cut back to a five day, three shift operation. Also, about 555 employees or 550 employees received buyout package offers from the company.
Apple (AAPL) topped the active list on NASDAQ, down $2.11. The company sold over a million of its newest iPhones since Friday. Also, the stock gained a fraction after hours on reports Steve Jobs was seen at work today.
Research in Motion (RIMM) down $4.67.
Google (GOOG) tumbling $12.74, even though TMobile USA will begin selling a new cell phone using Google's android operating software. That will start in August.
Microsoft (MSFT) $0.79 drop. This week's "Barron's" financial magazine reported the stock looked super cheap in light of the company's new product.
Intel (INTC) $0.33 drop there.
A lot more red ink here, Qualcomm (QCOM) off $1.60.
Cisco Systems (CSCO) down $0.51.
Amazon.com (AMZN) losing $3.81.
Oracle (ORCL) $0.69 loss.
And Baidu (BIDU) American depository shares down $19.58.
Those are the stocks in the news tonight.
