NBR Transcripts-June 26, 2009
Friday, June 26, 2009The Climate Change Debate Reaches A Fever Pitch
SUSIE GHARIB: There's an historic debate under way on Capitol Hill over what to do about climate change. A vote is expected later tonight. Proponents say the landmark bill will cut greenhouse gas emissions and make energy cleaner, but more expensive. Opponents says it will do little for the environment and cause the U.S. to lose jobs. Who's right? Darren Gersh takes a closer look.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: At its core, Democrat Edward Markey called his climate change plan a jobs bill.
REP. EDWARD MARKEY (D) MASSACHUSETTS: It will create millions of new, clean energy jobs in whole new industries with incentives to drive competition in the energy marketplace.
GERSH: At its core, Republicans like Eric Cantor called the climate change bill a jobs exporter.
REP. ERIC CANTOR (R) VIRGINIA: Do we really want to hamstring U.S. industry and put it at a competitive disadvantage to Asia? Can we be so naive to assume our businesses, jobs and emissions won't emigrate to China and India?
GERSH: Estimates of the impact on employment from capping carbon emissions associated with global warming vary widely from a loss of over half a million jobs a year to a gain of just under 200,000 jobs a year. But those estimates come from advocates for and against legislation. A more accurate answer says Paul Bledsoe of the Bipartisan Policy Center is that no one knows for sure whether this bill will create or destroy jobs.
PAUL BLEDSOE, COMMUNICATIONS DIR., BIPARTISAN POLICY CTR.: I think this bill is likely to create some long-term economic investment in clean energy, which it's pretty clear the country needs and our energy economics are trending toward. How large those numbers will be is very uncertain.
GERSH: Uncertain in part by design, the House bill phases in caps on carbon emissions. The idea is to ease the impact on factories and plants and the steepest reductions come after the year 2020. It's estimated for a typical family those reductions could increase the overall cost of living anywhere from a $100 a year to a few thousand dollars a year. Washington analyst Andy Laperriere says the overall impact will be to reduce living standards.
ANDY LAPERRIERE, MANAGING DIRECTOR, ISI: I think the total number of jobs in the country remains the same over a longer period of time, but the purchasing power of the American people is reduced if their energy costs are higher
GERSH: The most immediate employment impact of this bill may be political. Members of Congress facing a close reelection fight next year worry a yes vote could cost them their own jobs. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
GE CEO Jeff Immelt & MI Gov. Jennifer Granholm Make a $100M Deal
SUSIE GHARIB: General Electric said today it plans to open a research center in Michigan creating 1,200 jobs. It's a bright spot for the Michigan economy where unemployment is now 14 percent, the highest in the country. Earlier today I talked with Michigan Governor Jennifer Granholm and GE's CEO Jeff Immelt. My first question to Immelt, why is GE hiring now?
JEFFREY IMMELT, CHAIRMAN & CEO, GENERAL ELECTRIC: Susie, we've had to restructure going through this economy just like other people have. But I'm firmly convinced that this is also a time to make new bets, make new investments. You've seen us do that in health care, information technology and other places. And in these areas like aviation manufacturing, energy manufacturing, software, hard grid and health care information technology, these are good areas for us right now, even in this economy and so we think this is a smart investment made at the right time.
GHARIB: Governor Granholm, this must be great news for the state of Michigan. Do you see any signs of stabilizing in the state's economy or are things still pretty bad?
GOV. JENNIFER GRANHOLM (D) MICHIGAN: Well, clearly with General Motors still in bankruptcy, they haven't emerged yet in the supply chain to the automotive industry responding to the fact that many of these factories are in hibernation. We're going to have a rough summer. But the whole point right now is to invest in the areas that you know will make your state stronger in the long run. And so while this is a tough period and we know it, the fact that General Electric, for example, has decided to invest in a facility that really will take care of those, many of those engineers who are working on building the next engine while they are easily recruitable for this particular facility, these are going to be high paying jobs focused on areas that the automotive industry has been focused on. So it's very exciting for us as we diversify into technology, alternative, renewable energy, as well as holding onto that automotive base.
GHARIB: Jeff, as you look around the country, are you seeing any improvement in business activity that gives you confidence about the overall economic outlook?
IMMELT: You know Susie, what I would say, first thing is the emerging markets are strengthening, so China, India, Brazil, Middle East, these places are actually getting stronger. The capital markets are getting better and the service businesses are strong. But some businesses are still tough. Our clients' businesses, the industry in the month of June is probably down 12 or 13 percent versus last year. So our focus right now is on exports, business investments, services. We think those are the places that are strong even in a bad economy, that where GE has got a great position.
GRANHOLM: What we're interested in building those products here so they can export them elsewhere.
GHARIB: So governor, based on what Jeff is saying here, what is the best hope for Michigan? What new industries can you transform into given the effects of the auto industry?
GRANHOLM: What we are really focused on is alternative and renewable energy. We know the president is going to be negotiating with Congress a climate change bill. That climate change bill if it has a renewable energy standard, it will create a demand for the products that General Electric, for example, makes. We want to build those products in Michigan. We know that if we are shrewd about restructuring the auto industry, making a vehicle that's an electric vehicle will require a battery, the guts for that electric vehicle. That next generation battery, we're going to build that in Michigan. We also have focused on life sciences, on the film industry. We've added new sectors to our economic table to make us more diverse and we've been very shrewd about counting on experts to tell us what are our natural niches given our geography and our history with the auto industry.
GHARIB: Jeff, you've been talking a lot recently about how businesses need to reset, that they can't go back to business as usual. How does the announcement or does the announcement today fit into your definition of this new normal?
IMMELT: It really does, Susie. Again, I think it's businesses are going to have to invest through this downturn, in other words, we're not going to get an economic recovery unless businesses are willing to take new risks, so that's one part of it. Another very important part is that I'm a global CEO, but I'm also an American and I think people are going to have to reinvest back in the U.S. This has got to be an export country and this has got to -- you got to be a country that's good at manufacturing and exporting. So I think that's another part of this new normal about how you position the U.S. in a very dynamic global economy and this has got to be a big part of it.
GHARIB: Governor, as you're trying to reposition the state of Michigan, what is the Obama administration doing to help you out?
GRANHOLM: Well, for example, the Obama administration has put into the recovery act the ability to vie for grants for batteries. So we want to make sure that we're the place that gets that. We've teamed up with Ford, General Motors, Chrysler and Dow and four battery companies to make an aggressive pitch for that. The Obama administration is going to be investing significantly in the smart grid. That's what General Electric is focused on as well. The manufacturing and research and development related to that, if we have a commitment on the part of the nation to be independent of foreign oil and energy independence, we've got to be producing that stuff here in the United States, everything from for example, the recovery act is investing in high speed rail. High speed rail cars right now are all manufactured in Europe or in Canada. We have a buy American sort of preference in the energy bill or in the stimulus act, we need somebody to manufacture those cars, those rail cars, in the United States. Why not in a state that's used to manufacturing things that move.
GHARIB: Thank you so much both of you for your time. Governor Granholm, Jeff Immelt, appreciate it.
GRANHOLM: Thank you, appreciate it.
Ponzi Schemer Bernie Madoff 's Reverse Non-Profit Robin Hood
SUSIE GHARIB: On Monday, Ponzi schemer Bernie Madoff goes before a judge to be sentenced for his crimes. But those crimes affect far more than just Madoff and his individual investors. Many of his victims were nonprofit groups hoping to do good with the money Madoff made them. Erika Miller profiles one of those groups and the people Madoff hurt.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For most people coming home is not a big deal. It is for Marou Famous. Yes, that's his real name. For the past four months, he has been the proud owner of a bed and a kitchen. Before that he spent 23 years homeless, struggling with drug addiction.
MAROU FAMOUS, SUPPORTIVE HOUSING PARTICIPANT: I went from the cardboard on the sidewalk to here. I had to make a change, the in and out of the shelters. The this and the that and the fooling myself thinking that I'm going to make it work my way without assistance. But it doesn't work like that.
MILLER: The assistance came from a supportive housing program called Fuse.
FAMOUS: It has meant a new beginning to come back to where I left off years ago.
MILLER: But thanks to Bernard Madoff, Fuse could be burning out. Much of the funding came from the JEHT Foundation, which operated out of this building in Manhattan. JEHT was forced to close this year because its major donors invested with Madoff. That led to a million-dollar budget shortfall for the program, a program Deborah de Santis had hoped to expand.
DEBORAH DE SANTIS, PRES., CORPORATION FOR SUPPORTIVE HOUSING: Losing the JEHT money was really just awful because it funded important work now but it was also going to give us the opportunity to begin to reach into communities that we hadn't reached into and begin to serve individuals who so desperately needed housing.
MILLER: The foundation gave away about $30 million a year. JEHT President Robert Crane says its mission was unique.
ROBERT CRANE, PRESIDENT, JEHT FOUNDATION: Even though we weren't the largest foundation in the country by any measure in the areas that we funded, we were either the number one funder in the case of criminal justice or in the case of voting work (ph) and international justice work, we were in the top three funders.
MILLER: The closure of JEHT has also had a serious impact on Manhattan's Vera Institute. It researches ways to make the justice system fairer and more effective. Now, chief program officer Dan Wilhelm is struggling with a $3 million funding gap.
DANIEL WILHELM, CHIEF PROGRAM OFFICER, VERA INST. OF JUSTICE: We've had to downsize. We've had to lay staff off. We've had to significantly scale back our activities in the hopes that we can keep the projects on life support until other funders were able to step in and support them.
MILLER: These are far from the only programs that are suffering as a result of Madoff's scam. Over 200 charities and foundations have identified themselves as Madoff victims, although the amount of their losses is still not known. Crane is not optimistic the JEHT funded organizations will be able to raise money easily or quickly.
CRANE: I think it's not realistic to assume that this money will be in any way quickly recoverable for the not for profit community. My guess is it won't be recoverable at all for the next five to 10 years.
MILLER: For his part, Marou Famous is praying the Fuse program won't close the doors on others in need.
FAMOUS: It could hold back a lot of people who might get that same chance as I've have. I hope they find some new ways that those who want to change, who've made the choice that they want to change and want to make change can continue or proceed.
MILLER: Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Market Monitor"-Randall Eley, President of the Edgar Lomax Company
PAUL KANGAS: My guest "Market Monitor" this week is Randall Eley, president of the Edgar Lomax Company, an investment advisory firm based in Springfield, Virginia. Welcome back to NIGHTLY BUSINESS REPORT, Randall.
RANDALL ELEY, PRESIDENT, THE EDGAR LOMAX COMPANY: Thank you, Paul.
KANGAS: On your last several visits with us, you've expressed concern about the mounting debt in this nation, not just government, but personal. No improvement recently?
ELEY: I think we are seeing improvement, but in the household debt. So individuals' area. We certainly are not seeing an improvement in government debt yet. This is Federal government. But that's going to have to come, because we can't continue to have the rapid increases. But in the last six months, individual debt is down and that's good long-term.
KANGAS: Do you think that's because investors are expecting a long and tough recession?
ELEY: I think it's primarily because people can't borrow as much as they could before. Housing prices are down. Credit conditions are tighter and that credit which is available is more expensive.
KANGAS: So you don't see the debt right now undermining investors' sentiment on Wall Street, for example?
ELEY: I don't think long-term it is. I think this is a factual matter that it's difficult for people to borrow as much money as before and as a result, the economy is behaving in a slower manner.
KANGAS: What are your thoughts on the stock market's recent performance? We had a nice rally from the bottom in March, but what about now?
ELEY: I'm relieved that it's come back as strongly as it has. But I'm not sure the economic facts are going to give it room to continue rolling up. So over a number of years, actually, I expect to see some back and forth, hopefully no worse than what we saw in the 70s, but where the market rises some and then falls again. But I don't expect a break out any time soon to new all-time highs.
KANGAS: Sort of a trading range type of market, correct?
ELEY: That's right.
KANGAS: OK and of course you seek the safety of only Standard & Poor's 500 stocks in your portfolio?
ELEY: That's right.
KANGAS: Now, on your last visit you had four stock buy recommendations. Let's see how they managed to do since then. Alcoa (AA) down just a half a percent, that's not bad in the crazy market like we've seen.
ELEY: And a cyclical company at that.
KANGAS: Right and Chevron (CVX) down 9.4 percent, big blue chip, not hard hit, but certainly no winner and Dupont (DD) off one tenth of a percent. And Exxon (XOM) was the biggest loser of the group here. How do you explain that?
ELEY: I think people were looking at companies whose earnings clearly could grow, such as the technology companies and I think they simply were ignoring and making a mistake about it. Companies that clearly have earnings, but they're not going to grow rapidly.
KANGAS: Patience will pay off.
ELEY: That's right.
KANGAS: New recommendations, Randall?
ELEY: We're going to begin with Merck (MRK). Here we have a drug company with a very low P/E, 7 and a high dividend yield of 5.6 percent and I don't think there's any issue about their ability to be profitable.
KANGAS: And Chevron (CVX), you still like it? You'd buy it here?
ELEY: I want to stick with it. They are still making money and I think sooner or later investments have to (INAUDIBLE)
KANGAS: And ExxonMobil, you're still with that?
ELEY: For the same reason.
KANGAS: And a new one.
ELEY: The new one will be Johnson & Johnson (JNJ). So you notice we're not very diversified in this portfolio by industries. But there's no issue about these companies' ability to make profits. Johnson & Johnson is way down, so you can buy. They're pretty stable earnings at a lower price.
KANGAS: Everybody likes Johnson & Johnson but Wall Street, apparently.
ELEY: That's right. But sooner or later I think investors have to appreciate earnings that come in at a steady clip.
KANGAS: Right. Any last minute thoughts for our viewers? We have about 30 seconds.
ELEY: Yes. I think the primary thing to remember is that we're in an economy that has to be worked off and it's going to take some time and to be patient while doing that. Save and when investing, invest in companies with stable earnings.
KANGAS: And you're saying as far as you're concerned, the only good companies to invest in are those that are in the Standard & Poor's 500 index?
ELEY: I wouldn't say the only, but they tend to be the safest.
KANGAS: OK. Now, any of the stocks you mentioned tonight, do you personally own?
ELEY: We automatically, we buy whatever we recommend.
KANGAS: OK, personally, OK.
ELEY: Definitely.
KANGAS: As always, it's a pleasure to have you with us, Randall, thanks.
ELEY: Thank you.
KANGAS: My guest, Randall Eley president of the Lomax Company.
Paul Kangas' Stocks in the News
PAUL KANGAS: Early gains on Wall Street were short lived on mixed news. May personal income and spending were higher and so was consumer sentiment, but a sharp rise in personal savings was taken by some as a sign people are socking money away for a long recession. The Dow was off 30 to 50 points throughout the day with the NASDAQ up modestly and that's how the market closed. The Dow Jones Industrial Average ended down 34.01 at 8438.39. This week it rose only once and had a net loss of 101.34 points. The NASDAQ Composite closed up 8.68 today at 1838.22. It fell twice, rose three times this week, had a net gain of exactly 10 3/4 points. The S&P 500 lost 1.36 to 918.90 today and for the week overall it was down 2.33 points. In the bond market, the 10-year note climbed 4/32 to 96 21/32, putting the yield at 3.53 percent.
Big board volume leader on 88.3 million shares, Bank of America (BAC) with a $0.40 gain. The company's Manhattan tower is being refinanced for about $1.3 billion.
Then Fannie Mae (FNM) down $0.12.
Wendy's/Arby's (WEN) an $0.08 loss there.
Freddie Mac (FRE) down $0.15, a lot of fallen angels, low priced ones in the active list today.
Unisys (UIS) was up $0.09, fifth in volume.
Citigroup (C) no change there.
Eastman Kodak (EK) $0.37 gain.
Chimera Investment (CIM) a dime loss.
And then Ford Motor Co (F) with a $0.07 drop.
And American Intl Group (AIG), tenth in volume, showed no change. The company's annual shareholders' meeting is next Tuesday.
Moving along, stocks in the news, Chico's Fas (CHS) up $1.45, traded almost 15 million shares. The company gave a guarded outlook at an analyst meeting. The Thomas Weisel brokerage cut second quarter earnings estimate. We have to apologize for the lack of full charts today, but we did have a computer glitch.
Sanofi Aventis (SNY) down $2.20 on concerns about safety of its blockbuster diabetes drug called Lantis (ph) and its possible link to cancer.
Accenture Ltd (ACN) was up $2.08. Third quarter earnings a bit lower, $0.68 versus $0.74 last year, but $0.04 above the Street estimate and Citigroup upped 2009 and 2010 earnings estimates.
KB Home (KBH) down $1.35. Second quarter loss of $1.03, not as bad as last year's $3.30 loss, but sales plunged 40 percent in the period. New home orders are down 31 percent from a year ago. Standard & Poor's downgraded KBH from "hold" to "sell."
Caci Intl (CACI) up $2.55. The Stiefel brokerage issued a "buy" and boosted its price target from $48 to $52 a share on the company's upbeat 2010 outlook.
Robbins & Myers (RBN) down $1.65. The company had third quarter earnings lower, $0.31 versus last year's $0.76, 29 percent drop in sales and the company cut its 2009 earnings guidance from a high of $1.65 down to $1.51 at best.
Azz Inc (AZZ) $0.54 gain. First quarter earnings $0.80, down from $0.82 on a 4 1/2 percent drop in sales. The company says incoming orders are continuing to slow. The stock did trade as low as $31.06 today.
Apple (AAPL) topped the active list on NASDAQ, up $2.58. The company's tripling its stake in British chip maker Imagination Technology which supplies chips to Apple's newest iPhone.
Microsoft (MSFT) $0.44 loss there.
Google (GOOG) up $9.55.
Palm (PALM) a $2.20 gain on the smaller than expected fourth quarter loss out today, only $0.40 a share on the negative. The Street was looking for a loss of $0.62 a share.
Research in Motion (RIMM) up $1.36.
And Amgen (AMGN) $0.88 gain there.
Cisco Systems (CSCO) a $0.12 loss.
A penny drop in Intel (INTC).
Oracle (ORCL) was off $0.33.
And Qualcomm (QCOM) with a $0.15 loss.
And those are the stocks in the news tonight.
