NBR Transcripts-June 24, 2009
Wednesday, June 24, 2009The Federal Reserve Leaves Interest Rates Alone
SUSIE GHARIB: All eyes were on the Fed today. First, because it wrapped up its policy meeting, leaving interest rates unchanged. The central bank said the recession is slowing and inflation is in check. Second, there were allegations against Fed Chairman Ben Bernanke. California Republican Congressman Darrell Issa said Bernanke made quote inappropriate threats against Bank of America management to push through the merger with Merrill Lynch. In a statement to Reuters, Issa, a ranking Republican member of the House Oversight and Government Reform Committee said the Fed quote, also engaged in a cover up and deliberately hid concerns and pertinent details regarding the merger from other Federal regulatory agencies. So far no comment from the Fed. Tomorrow, Bernanke testifies before Issa's committee at a hearing on Capitol Hill.
Mike Holland of Holland & Company and Brian Wesbury of First Trust Advisors on What's Next From The Fed
SUSIE GHARIB: Well joining us now to talk more about all of this, Mike Holland of Holland and Company and Brian Wesbury, chief economist at First Trust Advisors. Brian, Mike, hi, how are you?
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Hi Susie.
BRIAN WESBURY, CHIEF ECONOMIST, FIRST TRUST ADVISORS: Good to be with you Susie.
GHARIB: Mike, let me start with you. Is Ben Bernanke's job on the line?
HOLLAND: I really don't think so. I think this is an unfortunate challenge to someone who has come out of this crisis as one of the few heroes. We have plenty of billing Susie over the past year for what's occurred. His lifetime's work of ethical and smart behavior belies the charges that you just read. And I think that at the end of the day tomorrow you'll have plenty of people saying that Ben Bernanke is someone that we should have reappointed next year. I hope he is, because he's been a savior of this economic system and this financial system.
GHARIB: All right. Let me get Brian in the conversation. What about the issue of credibility, though Brian? Has Bernanke's credibility been challenged and the Fed's independence being challenged?
WESBURY: Well, that's going to be the big question here. Last year in the middle of the panic, the question is, did some of these people at Treasury, at the Fed, did Ben Bernanke step over a line? I believe him when he says he didn't and even Ken Lewis says, has argued that there was pressure and I think the Fed is appropriately applying some of that. But that they didn't really go over the line. So I think his credibility will come out of this intact. In fact it could be enhanced when all of this is over. We'll JUST have to wait for tomorrow to see it.
HOLLAND: You've watched him for many years. Do you think he's too smart to have done something that dumb, don't you think?
WESBURY: I agree, he is a man of integrity. But there was, boy, it was tense last year and that's the only thing that I'm worried about, is that sometimes in those situations, even people that have a spotless track record can make mistakes. I don't think he did. But --
GHARIB: Real quickly, real quickly because we want to get on to other issues, I just want to ask though, if he did cross the line, if it comes out like that, what does this mean for investor confidence and confidence in the economic turn around?
HOLLAND: Go ahead, Brian.
WESBURY: What bothers me there is that you end up with a politicized bet. And so this whole thing is fraught with danger and it really could create a lot of uncertainty for investors. That's dangerous for the market.
HOLLAND: And the market will have lost one of the few people who can look toward helping the future.
GHARIB: Let's switch now to talk about today's Fed policy decision. Basically the statement from the Fed saying deflation isn't a threat, inflation is not a worry. So Brian, are we on our way to recovery now?
WESBURY: I think we are. I personally think we're in a V-shaped recovery right now. If you look at existing home sales, durable goods, (INAUDIBLE) I could list endless pieces of data and I think the evidence is building. I think we're going to be surprised at how strong the economy is in the second half of the year.
GHARIB: Do you agree with that, Mike?
GHARIB: Susie, Brian and I spoke earlier and I have to say the companies I speak with don't underline and underscore what he's been talking about. I hope he's right. It doesn't look like it right now, but from his lips to God's ears.
GHARIB: Everybody is talking about what should be the Fed's exit strategy, when should it begin to pull out some of the stimulus that it's put into the banking system. When do you think that has to begin, Brian?
WESBURY: I would hope that the Fed starts to do that reasonably quickly. I think inflation is a problem. But there are going to be very hesitant to take their foot off the pedal, especially because they're talking probably some of the same companies that Mike is talking to. And if there's low visibility out there, they're going to want to keep their foot on the pedal.
GHARIB: Your thoughts, Mike?
GHARIB: Susie, Brian's points are particularly relevant as it relates to Bernanke's history looking at both Japan and at the great depression here. He's learned from those mistakes. One of the reasons he's been so successful is his historical perspective. It's not going to happen. He's not going to do it too soon.
GHARIB: All right, so what happens next, Brian?
WESBURY: Christina Romer, for example, she's the head of the Council of Economic Advisors, has very clearly said that the history of the great depression, they believe the Fed and the government took their foot off the pedal, they eased up too quickly and that caused a depression within the depression. So my belief is that the Fed probably will keep rates low way into this year. But if I'm right and the economy recovers strongly, we're going to be talking about rate hikes before the year is out.
HOLLAND: And Susie, it's very important, the markets are looking at Ben Bernanke to be the captain of that ship to do just what Brian talked about. If for some reason he's taken away from that ship, the markets are going to be losing some confidence around the world and the U.S.
GHARIB: We've already seen some loss of enthusiasm for the rally in the markets, Mike, because of concerns that the economy is slowing down, that report from the World Bank yesterday predicting that global, the global economy is going to be in a retractive (ph) mode for all of next -- for this year. So what do you see as the outlook for the markets?
HOLLAND: Well Susie, I go back to one of the previous markets, which is somewhat similar to this one in the 1970s where we had kind of an ugly political as well as ugly economic environment. The stock market after hitting crisis lows continued to do well for years, while the economy wasn't doing well. If we get the V that Brian was talking about, we're going to have a wonderful time. But we can have an OK time without the economy doing great.
GHARIB: All right, gentlemen. Go ahead, Brian, finish up.
WESBURY: I was just going to say, that's 1975 and '76 that Mike is talking about. We had a 60 percent rally in the stock market in the middle of a pretty tough decade.
GHARIB: Well, I hope both of you are right about that. I'm sure many people will be happy to hear that. Thank you, gentlemen, both, for coming on the program, appreciate it.
WESBURY: Thank you.
HOLLAND: Thank you Susie.
GHARIB: My guests tonight, Mike Holland of Holland and Company and Brian Wesbury, chief economist at First Trust Advisors.
Health Care Reform May Mean Health Care Cuts
SUSIE GHARIB: A major challenge facing health care reform is figuring out how to pay for it. One place the Obama administration is looking to save is Medicare, possibly cutting what the government pays for some services. The targets of those cuts have stepped up their lobbying efforts. And as Dana Bate reports, so has the entire health care industry. DANA BATE, NIGHTLY BUSINESS REPORT CORRESPONDENT: These CT scans can help doctors diagnose disease by showing what's going on inside our bodies. But medical imaging is expensive which is why four years ago, Congress cut the Medicare reimbursement by almost 20 percent. Now, payments for imaging technology may be on the chopping block again. That's why lobbyist Tim Trysla formed the Access to Medical Imaging Coalition whose members range from the American College of Cardiology to the Lung Cancer Alliance. He wants lawmakers to hear their message.
TIMOTHY TRYSLA, EXEC. DIR., ACCESS TO MEDICAL IMAGING COALITION: What kind of health care system are we trying to deliver? We want to retain the quality or are we building a two-tiered system, where if you're disabled or over 65 on Medicare, you're not going to have access to these important tools.
BATE: The group won't disclose how much it's spending on lobbying. But so far this year, the entire health care sector has spent about $130 million to sway lawmakers. Health economist Jean Mitchell says niche groups like Trysla's want to be heard because profits are at stake. But rather than slashing payments, she thinks the entire system needs to be overhauled. Right now, providers overuse technology like medical imaging because that's where they make their money.
JEAN MITCHELL, HEALTH ECONOMIST, GEORGETOWN PUBLIC POLICY INSTITUTE: They pay you to do surgery and they pay you to do imaging and they pay you to do lab work, and all these things. You only make money if you poke people. And that's the wrong incentive.
BATE: Health expert Joe Antos points out that Congress hasn't even finished writing legislation, meaning all of this lobbying might be a little premature.
JOSEPH ANTOS, HEALTH CARE ANALYST, AEI: Until Congress becomes much more specific that, first of all, they're going to pay for reform and second of all, how they're going to pay for reform, these organizations that represent these kinds of interests really are just punching the air.
BATE: Congress is also hitting crunch time before the August recess, giving lawmakers less time to meet with lobbyists and making it hard for any message to get through. And when it comes to lobbyists, they all think their issue is the most important. Dana Bate, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS: Tonight's "Street Critique" guest says investors must tread carefully in the current market. She's Hilary Kramer, chief market strategist at Greentech Research and author of "Ahead of the Curve." And Hilary, good to see you again.
HILARY KRAMER, CHIEF MARKET STRATEGIST, GREENTECH RESEARCH: It's a pleasure to be here, Paul.
KANGAS: This market seems to be bumping up against some resistance despite bad news, here there and the other place, like today's new durable goods orders very strong and yet the Dow ends down 23 points. What's going on?
KRAMER: Well, the problem is that we have a jobless recovery going on. Unemployment continues to rise, which means ultimately people don't have money to spend. The consumer has their hand against their back pocket and therefore stocks can't rise because the earnings won't be there and the market comes off.
KANGAS: How about today's open market committee decision? Were you impressed in any way?
KRAMER: Not at all, I was very disappointed with the Fed today because they spoke from both sides of their mouth. They wouldn't be clear. We have a recovery but it will take more time, and the bottom line is the Fed implicitly told us in their statement that mortgage rates are going to rise. If that happens, all the work that they've done will be for naught, because mortgage operates rising are going to put us back into a housing crisis.
KANGAS: So what are you telling your followers to do? What kind of a strategy in this market?
KRAMER: I've been very careful, as you know and very conservative. So what I say is be very, very careful, stay on the side lines, don't worry about jumping in and missing the opportunity in any kind of correction. We could have a five to 15 percent correction. But it doesn't mean that that's your entry point. Remember, the market just went up 40 percent; it can go down significantly.
KANGAS: So they should keep their gun powder dry for the moment?
KRAMER: Absolutely.
KANGAS: But yields in the Treasury market are so low, there must be some way to generate a little more cash?
KRAMER: Well I think the reality is that prices are dropping, especially in real estate. We don't have inflation right now like that was feared. So cash can go further and cash is king, because I've never seen this little money floating around. There's such a run for cash. So it's fine to have cash on the sidelines and make 3 percent in a certificate of deposit.
KANGAS: So you're saying that anything on the up side is nothing more than a non-lasting bear market rally, correct?
KRAMER: That's right. And the reason, Paul, is that it has taken us, it took us four years to get to this point, from 2003 to 2007, excess, creating profits from nothing on Wall Street. And now we can't just have a recovery in three months or six months; it doesn't work that way. We have to work through and pay for the excesses and the crimes of a few, but we will over time and the economy will improve and we are significantly better than the rest of the world in their situation.
KANGAS: Very good. Still bearish and every market rally we see should be sold into, is that what you're telling us?
KRAMER: I would say take your profits off the table if you went into the market in 2009. However, if you're a long, long-term investor, ultimately we will recover. It just isn't overnight, so you can stay there in the market and wait.
KANGAS: All right Hilary, very good. Thanks for being with us again.
KRAMER: Thank you, Paul.
KANGAS: My guest, Hilary Kramer of Greentech Research.
"Congressional Difference of Opinion"-Rep. John Spratt, D-SC
SUSIE GHARIB: In tonight's commentary, balancing the government's budget. As we continue our "Congressional Difference of Opinion," Representative John Spratt, a Democrat of South Carolina says pay-go is the best way to go.
REP. JOHN SPRATT (D) SOUTH CAROLINA: At the start of the '90s, Congress passed a rule called pay as you go. Critics accused us of dodging the hard issues we had to face, if we were to wipe out the deficit. But by the end of the 1990s, the budget was in surplus for the first time in 30 years and it was clear that process rules like pay-go played a big part in our success. Republicans were in the majority in 2002 when the pay-go rule expired and chose not to reinstate it, knowing it would impede their tax cutting agenda. The budget plunged from a surplus of $236 billion to a deficit of $413 billion in 2004. When Democrats took back the House, pay- go was made a rule of the House on day one. Now, we take a longer stride towards budget discipline. The president proposes to make pay-go statutory. I share his support and believe that statutory pay-go will put more rigor in the budget process. We are faced with a colossal deficit, swollen largely to accommodate recovery measures we badly needed. As these pull us out of the slump, we need to focus on our longer-term fate. The long-run fiscal path, according to the Fed Chairman Ben Bernanke is simply not sustainable. Statutory pay- go is effective because it restrains new entitlement spending and new tax cuts both. Both tend to be permanent, easy to pass, hard to repeal. Pay-go buffers the bottom-line, insisting on offsets and deficit neutrality. Its terms are complex, but at its core, it is a common sense rule, one everyone can understand. When you are in a hole, quit digging. I'm Congressman John Spratt.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened with a solid rally, choosing to focus not on those disappointing new home sales, but instead on a much stronger than expected 1.8 percent rise in May durable goods orders. Two hours into the trading session, the Dow was sporting a 97 point gain with the NASDAQ Index up 40 points. The market pulled back to await the Fed's rate decision and when no bullish surprises were announced, a blue chip slump resulted in a mixed closing for the market. The Dow Jones Industrial Average ended down 23.05 at 8299.86, but the NASDAQ Composite held onto a closing gain of 27.42 at 1792.42. Standard & Poor's 500 rose 5.84 to 900.04. In the bond market, the 10-year note fell 18/32 to 95 10/32, putting the yield at 3.69 percent.
New York exchange volume leader on 38.4 million shares, Bank of America (BAC) gaining $0.12.
Then Citigroup (C) with a $0.03 advance. The company plans to raise some salaries up to 50 percent in a move to offset lower bonuses under the Obama compensation guideline.
General Electric (GE) gained $0.10.
And so did Ford Motor Co (F). Ford aims to cut the number of all of its parts suppliers by almost half to 850 or so and that's in order to return to profitability.
Wells Fargo (WFC) up $0.26.
JPMorgan Chase (JPM) down $0.11.
And then a penny loss in Pfizer (PFE).
$0.06 gain in Motorola (MOT).
ExxonMobil (XOM) down $0.50.
Sprint Nextel (S) $0.16 loss there.
Monsanto (MON) fell $3.14 despite third quarter earnings of $1.25, down from $1.45 last year, but $0.08 better than expected. However, the company warned fiscal 2009 earnings will be at the low end of its previous guidance of $4.40 to $4.50 and that's due to increased competition for its Roundup products.
Boeing (BA) down $2.55 after dropping over $3 yesterday. Today Oppenheimer downgraded it from "market perform" to "under perform" because of the latest delay in the company's Dreamliner aircraft first test flight.
And then Freeport-McMoran Copper & Gold (FCX), the commodities stocks did well today, up $1.62 here. FBR Capital upgraded Freeport from "market perform" to "out perform."
And American Greetings (AM) had some pleasant ones for its shareholders today, up $3.26 or 51 percent, nice move there. First quarter earnings came in at $0.25, down from $0.27 last year, but $0.05 better than the Street was expecting and that's even though a 3.6 percent drop in sales occurred during that period. Standard & Poor's upgraded it from "sell" to "hold."
American Tower (AMT) up $1.81. JPMorgan upgraded it from "neutral" to "over weight."
And then Amerigroup (AGP) down $2.63. The managed health care company sees first quarter outpatient medical costs higher than expected due to bigger enrollments.
And finally SuperValu (SVU) down $1.88. Company sees first quarter earnings will be substantially below Street estimates because of higher than expected expenses.
Finally, what's this a new offering, Duoyuan Global Water (DGW) however it's pronounced, Chinese water treatment company, came to public at 5.5 million ADRs at $16 each. The high of the day $23.50, backed down a little bit, still a very nice debut.
Apple (AAPL) topped the active list up $2.21.
Then Oracle (ORCL) up $1.39. JPMorgan today said it's satisfied with yesterday's fourth quarter earnings of $0.46 a share and it boosted its price target from $23 to $27 a share.
Research in Motion (RIMM) up $1.38.
Followed by Microsoft (MSFT) which gained $0.13.
Google (GOOG) up $3.61.
Qualcomm (QCOM) $0.78 gain there.
Cisco Systems (CSCO) $0.04 advance.
First Solar (FSLR) moved up $6.77.
Intel (INTC) $0.29 gain.
And finally tenth in volume was Baidu (BIDU) up $10.51. This stock has more than doubled since the beginning of the year.
