NBR Transcripts-July 1, 2009
Wednesday, July 01, 2009Used Car Sales Get In Gear While New Car Sales Stall
SUSIE GHARIB: The scorecard for auto sales is still pretty bad. Sales in June were down again for the 20th straight month. Ford's drop was better than expected but the declines at General Motors, the new Chrysler and Toyota were worse than expected. Analysts say that while there is some stabilization in the auto market, the pain is not over. Here are the numbers. Ford sales fell 11 percent last month but the company sold more cars than its competition and says it's picking up market share. GE tumbled 33 percent as the company entered bankruptcy protection on June 1. The Treasury Department said today, that GM has until July 10 to get court approval to sell its assets. If that does not happen, the government will pull its bankruptcy financing. Toyota sales also fell by a third as consumers steered away from the company's once popular Corolla model. And sales at the newly formed Chrysler were miserable: down 42 percent. The company is still adjusting to life after bankruptcy as it deals with tight inventory and dealership closings.
PAUL KANGAS: While new car sales remain stuck in reverse, sales of used vehicles are driving higher as budget strapped consumers seek deals. Analysts expect sales of previously owned cars and trucks will show sizeable sales gains for June. Jeff Yastine has more on the rebound in used vehicle sales and why that could eventually bode well for new car sales.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's a good time to be a seller of used vehicles. According to sales tracking firm CNW Research, sales of used cars and trucks jumped nearly 7 percent in April and almost 8 percent in May. And with that jump in demand, used vehicles are now commanding higher prices. Manheim, which auctions used vehicles wholesale to car dealers, says its vehicle value index rebounded sharply in the first half of the year. Manheim Consulting's chief economist Tom Webb says used car prices are a reflection of the auto industry's new car woes.
VOICE OF TOM WEBB, CHIEF ECONOMIST, MANHEIM CONSULTING: It's just a difference in the supply demand dynamics. There are no new vehicle sales going on, so dealers aren't getting trade ins. And their used vehicle retail demand has not fallen off. For some of them it's actually improved.
YASTINE: Webb says that sales trends also depend on the dealer and the location. At Carmax, the national retailer of used vehicles, sales were down 17 percent in its most recent quarter. But Chad Kays, purchasing manager for this Carmax location in Fort Lauderdale, says business is picking up.
CHAD KAYS, PURCHASING MANAGER, CARMAX FT. LAUDERDALE: Things have been very good lately. I think now more than ever customers are very careful in how they spend their money and want to make a good car buying decision. And I think buying a used car is a better value and you get a lot more car for the money.
YASTINE: Manheim's Webb says the gains in used vehicle sales are still being driven by the recession and the troubles at the nation's auto makers. But he says increased sales of used vehicles also reflect an improvement in consumer confidence, which means a rebound in new car sales may not be far behind. Jeff Yastine, NIGHTLY BUSINESS REPORT, Fort Lauderdale.
Will The Health Care Crisis Cooperate With Health Insurance Co-Ops
SUSIE GHARIB: The drive toward health care reform is intensifying as key lawmakers put the finishing touches on proposals they hope to vote on by the end of the month. Today the president stepped up his plea for reform at an emotional forum in Virginia. Obama told the crowd reform must happen this year and that waiting will be more costly than acting now. A central goal of his plan is making health insurance accessible to all Americans. And again today, he voiced his support for a government-run public option to compete with private insurers. He says a public plan will keep insurers honest.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: There should be a benchmark there of a public plan, a not-for-profit plan that keeps administrative costs low and is focused on providing good service. And that way you can make the decision which deal is going to be better for you and your family.
GHARIB: But many Republicans are opposed to a public plan, so moderate Democrats on Capitol Hill have been looking for alternatives that could gain bipartisan support. One idea is what's called a health insurance co-op. As Dana Bate explains, these co-ops could provide lower cost options without government control.
DANA BATE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Most people are familiar with the idea of an agricultural co-op. Small farms band together to maximize their market power allowing them to buy machinery and get crops to market more easily. Now lawmakers are talking about applying that same concept to health insurance. A non-profit group of insurers would be owned by local consumers or business people offering an array of plans for members. Gail Wilensky says in rural states that lack health insurance options, co-ops could offer reliable choices.
GAIL WILENSKY, CHIEF ECONOMIST, PROJECT HOPE: You could imagine a co- op being there to provide some assurance that there is a plan that will be owned by your fellow citizens that is more likely to provide benefits that you would want.
BATE: Lawmakers like Kent Conrad have suggested the government provide seed money to get the co-ops started. But health care analyst Joe Antos worries that would just create another Fannie Mae or Freddie Mac for health care.
JOSEPH ANTOS, HEALTH CARE ANALYST, AEI: It would be something that once Congress created it, it really wouldn't want to see fail. And it's this no failure, too big to fail phenomenon that I think is perhaps the biggest danger.
BATE: It's unclear how big these co-ops would be and where they would operate. If they are confined to rural areas, they would be much smaller than a public plan. That also means they would have less influence in the marketplace to negotiate prices.
WILENSKY: As long as it's not a government plan, then presumably it's not going to have the kind of power that the government, by virtue of what it is and what it represents, can have.
BATE: But health care expert Linda Blumberg says that misses the point. She says there has been so much consolidation among insurance companies and providers that we need to catalyze competition and only a public plan has the size to do that.
LINDA BLUMBERG, HEALTH ECONOMIST, URBAN INSTITUTE: Big is better in terms of leverage in the market, in terms of getting provider payments down and really looking for efficiencies and pushing insurers, the private insurers as well, to create efficiencies in their systems.
BATE: Many on the left agree, saying these entities would not achieve the goals of a public plan. And many on the right say co-ops would create a highly regulated bureaucracy. So like many Washington deals, health insurance co-ops may end up being the compromise that satisfies no one. Dana Bate, NIGHTLY BUSINESS REPORT, Washington.
"Reviving the Economy"-Survival of the Stock Sectors
SUSIE GHARIB: It's still a matter of debate on Wall Street as to exactly when the U.S. comes out of recession. But, whether it's next month or by Christmas time, the economy will ultimately recover. And, when it does, certain sectors of the stock market will probably outperform others. As we continue our "Reviving the Economy" coverage, Suzanne Pratt takes a look at which sectors are likely to do best.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's no wonder that Colgate Palmolive has done well in this recession. After all, hands still get dirty, even when the economy suffers. As the manufacturer of consumer necessities or staples, Colgate is part of what's called a defensive area of the economy. That also includes sectors like healthcare and utilities which prosper in a downturn. But with the economy soon in recovery mode, investors wonder which sectors are next likely to perform best. Stock market veteran Joe McAlinden has four he's watching.
JOSEPH MCALINDEN, CHIEF INVESTMENT OFFICER, CATALPA CAPITAL: The market overall is poised to move in terms of the Dow back up to 10,000 and possibly a little bit higher over the next six to nine months. But, I think that information technology and materials and financials and consumer discretionary on average will move percentage wise substantially more than that.
PRATT: According to Standard & Poor's, those four sectors historically have done well as the U.S. economy stops shrinking and starts growing again. It's all part of a classic sector rotation. Investors sell defensive stocks and snap up cyclicals. With more money on hand, consumers and businesses buy more stuff, everything from new clothes to new computers. Of the 10 sectors in the S&P 500, strategist Brian Belski says technology is best equipped to lead the stock market for the next year to 18 months because of its cash position.
BRIAN BELSKI, CHIEF MARKET STRATEGIST, OPPENHEIMER: We believe the credit markets while they have improved, they are not open for business. So, we want to try to find those companies with high cash balances and positive free cash flow that are able to self fund their operations. And, technology by far is the number one ranked sector positioned to do so.
PRATT: Market pros advise against trying to time a sector rotation. No one knows exactly when the recession will end and these cyclical plays could start to move well before that happens. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Michael Farr, President of Farr, Miller and Washington
PAUL KANGAS: Tonight's "Street Critique" guest says he's still cautious on this stock market, despite the second quarter's solid gains. He's Michael Farr, president of Farr, Miller and Washington and author of "A Million Is Not Enough." Welcome Michael.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul, nice to be here.
KANGAS: The financial sector dominated in the second quarter. Do you think that leadership will continue?
FARR: I really don't see how that leadership can continue, Paul. We've seen about 100 percent gain, of course, since the lows in March from the financial sector. I think that has not been based on fundamental improvements at those banks. They're surviving, but I think that that's probably got to shift to companies and sectors that have improving fundamentals and improving earnings.
KANGAS: We'll get to that in a moment, but how about the overall market? Where is it headed in the second half?
FARR: I think that it can claw its way higher but probably not as dramatically as in the second quarter. There is a lot of, still, risk and red flags out there. I think that some of the sectors like consumer staples and perhaps health care can do better, but again, the valuations look good on health care because we have policy risk here from the world financial center in Washington still overhanging that.
KANGAS: Other red flags?
FARR: I think other red flags, certainly, continue to be the increasing unemployment and the consolidating consumer.
KANGAS: OK. Now, at the beginning of the year, you gave our viewers 10 stock picks. Let's see how they have been doing in that portfolio versus the Standard & Poor's 500 and I congratulate you. You're doing much better, 8.8 percent plus, versus 2.2 for the S&P, very good indeed. Incidentally, viewers can look for the learn box, learn more box on our website for Michael's full list of picks. Among that group, Microsoft (MSFT) and Cisco (CSCO) have performed the best, up double digits this year. Are they going to continue that, Michael?
FARR: Paul, I think that they will continue. They've done very well as all of the technology stocks, a growth year sector for the market has really outperformed. It was the top-performing sector in the second quarter but I think if you're going to commit new dollars, I would probably look again at some of those with strong balance sheets that might not have done as well. Colgate is on my list, Colgate-Palmolive is on this list. I also like Procter & Gamble (PG), a similar kind of a company and in health care where we can't seem to avoid this cloud, I like Johnson & Johnson (JNJ).
KANGAS: OK, now which ones are in the portfolio of 10?
FARR: I own them in all portfolios at the company, but in the 10, I have Johnson & Johnson and Colgate.
KANGAS: And do you personally own any of these stocks or have any other disclosure to make?
FARR: I own every one of them. I'm going to hang with them. I like them. They performed very well for us as the market was going down. They were defensive and as you can see, they've kept us nicely as we have been moving higher.
KANGAS: Michael, we have nearly a minute left. How about sharing some other thoughts with our viewers.
FARR: Paul, I'm seeing -- I'm kind of bothered by this urgency toward optimism that I'm seeing so much as I go around and talk with various investors. We have been through a very difficult and horrible period in the markets and in the economy. I don't believe it's over. The economic data don't show that it's over or behind us, so therefore, I would be very cautious about investing new dollars. I would be very deliberate about doing my research and making sure that balance sheets are solid so that you know that there is some there, there, underneath those investments if this drags on longer than any of us would like.
KANGAS: So you're saying that the economic situation really doesn't support stock prices at these levels?
FARR: I think it probably supports something around these levels, but I do expect, still, a continued pullback. What we're hearing from the Federal Reserve is that the economic decline is slowing. It hasn't stopped dropping. It's slowing. That's good, but there's some values out there if you look hard enough.
KANGAS: Understood. Michael, thanks for sharing your insight with us.
FARR: Thanks Paul a lot, great to be here.
KANGAS: My guest, Michael Farr of Farr, Miller and Washington.
"Money File"-The American Economy's Reality Check
SUSIE GHARIB: In the "Money File" tonight, the new reality for America's economy. Here's Eric Schurenberg, editor in chief at BNet Moneywatch.
ERIC SCHURENBERG, EDITOR IN CHIEF, BNET MONEYWATCH: Remember how sure we once were about the U.S. Economy? Our tech sector led the world. Wall Street housed the smartest money wizards and our consumers carried the global economy on their free-spending shoulders. Well, things look different now, don't they? It's hard to be so confident about what lies ahead. But here are three forecasts. First, growth will settle at a lower rate. For the past 20 years, economic output grew about 3 percent a year. That now looks unsustainable. First of all, 70 percent of GDP is powered by consumers and consumers have been spending more than they earned for too long. We joked we'd shop 'til we dropped. Well, we've dropped.
Second, taxes will rise. There is no other option. We don't know whether Washington's stimulus plans will work, but we do know they have to be paid for. So will Social Security and Medicare and any Obama health plan. And raising taxes won't help the economy grow. Still in spite of it all, America will remain top dog. The U.S. is still ranked first in competitiveness by the World Economic Forum. China comes in 30th. And in sheer throw weight, the U.S. economy remains the world's giant, more than three times the size of number two, Japan. No way can China catch up in the next 10 years. Yes, we've lost prestige. We're not going back to the growth rates of the past. But on the far side of this crisis, you'll still find a vibrant economy where you can make a future for your family. And that's the point, isn't it? I'm Eric Schurenberg.
"Last Word"-Fireworks Shows Fizzle This 4th of July
SUSIE GHARIB: And finally tonight, it looks like Fourth of July celebrations this weekend will have less bang because of less bucks. The reason: the recession. In many small and mid-sized cities, fireworks shows are being canceled or scaled back. For some areas, it's not just the fireworks displays getting the ax. Corporate sponsors are also pulling the plug on festivals and picnics. But surprisingly, even some beaten down cities like Detroit are still planning their fireworks displays and that's thanks to retailer Target, which is picking up the tab. And Paul, even with the economic down turn, there will still be an estimated 14,000 fireworks celebrations this year.
KANGAS: Works for me. That's for sure, love 'em.
GHARIB: I'll be watching the Macy's day parade here in New York.
KANGAS: There you go. Independence day holiday, one of the best.
GHARIB: I love it too.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street posted strong early gains as institutions bought up blue chips on hopes the second quarter rally will continue. An hour into trading, the Dow was up 131 points with the NASDAQ gaining 27 points. The market received some support from improved readings in May pending home sales and June manufacturing activity. But buyers backed off a bit this afternoon so stocks ended below the day's best levels. The Dow Jones Industrial Average closed up 57.06 at 8504.06 and then the NASDAQ was up 10.68, closing at 1845.72, while the Standard & Poor's 500 Index gained 4.01 at 923.33. Over in the bond market, the 10-year note fell 3/32 to 96 16/32, putting the yield at 3.55 percent.
Most active big board issue on 32.3 million shares, Bank of America (BAC) down $0.15. A group of public investment funds are suing Bank of America over its acquisition of Merrill Lynch.
Citigroup (C) in there showing no change. Bank analyst Dick Bove boosted his 2009 outlook from a loss of $0.52 a share to a profit of $0.34 a share.
Ford Motor Co (F) down $0.16, even though as you heard, June sales fell less than expected for Ford.
General Electric (GE) $0.06 gain there.
And Pfizer (PFE) down $0.10. The FDA has ordered the company and Glaxosmithkline to add strong black box warnings on their anti-smoking products, Chantix and Zyban respectively and that's due to possible contraction of serious mental problems. Glaxo stock actually moved up $0.70 a share.
Wells Fargo & Co (WFC) $0.12 drop.
And then Sprint Nextel (S) dropped $0.20.
JPMorgan Chase (JPM) $0.29 loss there.
American International Group (AIG) tumbling $5.12. Now this is the first day of trading for the company's one for 20 reverse stock split.
Tenth in volume ExxonMobil (XOM) moved up $0.65.
Oshkosh Corp (OSK), big gain, $3.89. The Department of Defense selected the company to supply 2244 all terrain vehicles worth a little over $1 billion and that order could reach 5000 ATVs.
The stocks of companies that didn't get that contract tanked so to speak. Let's have a look at a couple of those. Force Protection (FRPT) losing strongly, down $3.46.
Navistar (NAV) fell $1.08.
General Mills (GIS) up $2.16. Fourth quarter earnings excluding one- time items, $0.86 a share, $0.06 above the Street estimate and the company has an upbeat outlook.
Yum! Brands (YUM) doing well, up $1.68. Goldman Sachs is bullish on the outlook for the company's international division and upgraded Yum stock from "neutral" to "buy" and boosted its price target from $36 to $40 a share.
Ball Corp (BLL) up $2.69. The company will acquire four Anheuser Busch InBev beverage containing plants, container plants, for $577 million.
And then Constellation Brands (STZ) moving up $0.93. First quarter earnings came in at $0.33 a share, a penny above the Street estimate. Standard & Poor's repeated a "buy" on the stock.
And Marvel Entertainment (MVL) up $1.87. JPMorgan upgraded it from "neutral" to "over weight" on optimism over the company's upcoming "Iron Man II" movie.
Apple (AAPL) topped the active list on NASDAQ, up $0.40.
Followed by Intel (INTC) $0.49 gain.
Microsoft (MSFT) $0.27 rise there.
But Google (GOOG) down $2.60.
Research in Motion (RIMM) fell $1.13.
$6.91 drop in First Solar (FSLR).
Cisco Systems (CSCO) bucked the trend up $0.15.
And Oracle (ORCL) $0.32 gain there.
Qualcomm (QCOM) $0.04 drop.
And then Amazon.com (AMZN) losing $2.06.
And finally, Myriad Genetics (MYGN) sank $9.63 a share after the company warned its fourth quarter revenues will fall about 6 percent below Street estimates of $92 million.
