NBR Transcripts-July 8, 2009
Wednesday, July 08, 2009Vice President Joe Biden Offers Health Care Reform Reassurance
SUSIE GHARIB: More funding today for President Obama's ambitious healthcare reform plan. The nation's hospitals agreed to give up $155 billion in Medicare and Medicaid payments over the next 10 years to help pay for the plan. Vice President Joe Biden announced the agreement at the White House, saying the administration's overhaul of health care is quote, on track; it is coming. The administration is pushing for a comprehensive bill to be signed in the fall. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The $155 billion the Obama administration has wrung out of hospitals sounds like a lot but that's over a decade and $45 billion less than the administration was looking for. Vice President Joe Biden says hospitals will make up for the lower payments.
VICE PRESIDENT JOE BIDEN: As more people are insured, hospitals will bear less of the financial burden of caring for the uninsured and the under insured and we'll reduce payments to cover those costs, in tandem with that reduction.
DHUE: The agreement is contingent on health reform becoming law. The pharmaceutical industry has made a similar agreement and will spend $80 billion over 10 years to lower prescription drug costs. Physicians, labor unions and insurance companies are also being asked to do their share. Chip Kahn, who represents investor-owned hospitals, says today's deal puts a cap on the amount hospitals will have to give up in the debate.
CHIP KAHN, PRES., FEDERATION OF AMERICAN HOSPITALS: There are a lot of moving parts for hospitals in health reform and this gives us sort of a sense of security about the big picture that we can then work with the committees on the details.
DHUE: Health policy analyst Jon Glaudemans says the agreements buy a period of calm before the storm.
JON GLAUDEMANS, HEALTH POLICY ANALYST, AVALERE HEALTH: These deals, as they are staggered out over a period of days and weeks have the effect of dampening the public opposition that might otherwise arise from these organizations and essentially postpone that day of reckoning until we have an actual piece of legislation.
DHUE: Lawmakers are wrangling over how to pay for the health care bill. Proposals to raise revenue by limiting tax deductions for employers or increasing Medicare payroll taxes are unpopular. And reducing provider costs further will also meet resistance. Chip Kahn says hospitals are concerned a public insurance plan would cut costs simply by paying below- Medicare rates.
KAHN: Those rates are frequently insufficient and the last thing we need is to get both new people covered or people who have coverage now, have them covered by another payer who's not paying well enough.
DHUE: If health care reform were a patient, it would be in critical care today. The next month will be crucial to determine if reform has a chance of passing into law this year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
YASTINE: We'll talk health care reform tomorrow night with Health and Human Services Secretary Kathleen Sebelius.
Google's Chrome OS vs Microsoft's Windows 7
SUSIE GHARIB: There's a cyber battle pitting two tech titans against each other. Google said today it's preparing to launch its own operating system for personal computers, a direct assault on rival Microsoft. As Scott Gurvey reports, the bold move is the latest in a series of skirmishes between the Google and Microsoft.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The way Google has been attacking Microsoft, you'd almost think it was personal. Maybe it is. Google's announcement that it will deliver an operating system to compete with Microsoft's Windows comes just weeks before Microsoft sends a final version of Windows 7 to computer makers. Seven is the incarnation of its bread-and-butter product. But while Google's announcement certainly stirs the competitive pot, its Chrome OS is targeted at Netbooks, the small lightweight computers which exploded on the market last year. Scott Kessler of Standard & Poor's says Google is not meeting Microsoft head on.
SCOTT KESSLER, TECHNOLOGY ANALYST, STANDARD & POOR'S: Don't get me wrong, that's a very kind of exciting and compelling area with a lot of growth potential, but it really is not a major part of Microsoft's revenue and profit base at this point.
GURVEY: The Google operating system is just one of a number of areas where the monster of Mountain View is attacking the dominator of Redmond. Google is also competing with Microsoft Office, its application suite and with its Internet browser, which is bundled with Windows. Microsoft has struck back with several search advertising products, the latest called Bing, all to compete with the phenomenally successful Google search engine. The companies also battle in areas where neither dominates. Both have mobile telephone operating systems. Microsoft is believed planning a version of Windows 7 designed for Netbooks and both compete with others to provide services through networking, which is called cloud computing. Google won't deliver its Chrome OS for a year, but we do know it will be based on Linux. There have been Linux-based desktop systems on the market for years and pcmagazine.com's Lance Ulanoff says there are good reasons why they haven't dented Windows' market share.
LANCE ULANOFF, EDITOR-IN-CHIEF, PCMAGAZINE.COM: One of the reasons that Windows is sometimes seen as so big and difficult to use is because Microsoft is forced to support 90 percent of the computers in the world, 90 percent of the configurations where businesses rely on things that they have and are still working. If they get the new version of Windows, everything will still work. I don't know how Google can promise that kind of reliability.
GURVEY: Google may be sidestepping that issue buy targeting the Netbook. Scott Kessler says buyers of Netbooks may not insist on the same user experience as desktop users.
KESSLER: This is going to be largely an additional, low cost PC that people are going to use maybe in conjunction with a desktop or another laptop or what have you. So we think people might be more inclined to take an experiment and take a chance with Google especially if the price and the experience are right.
GURVEY: And Susie, Microsoft and Google are fighting it out in the halls of government as well. Each one is trying to get the investigators to take a look into the competitive practices of the other guy.
GHARIB: Scott, we just got a news flash while you were delivering your story that Google says its Chrome will be available to users at no cost. So what do you make of that?
GURVEY: Well, that was not unexpected. It's certainly one way to build market share. It's going to be very interesting to figure out in the long run how Google makes any money from this. Google really hasn't made any money from any of its applications. It makes of course a phenomenal amount of money from its web search and the advertising associated with that. But nothing else that it's done has been profitable. How will it make money this way? Will it put advertising on the desktop of Chrome users? And what will the antitrust people think about this? It raises questions.
GHARIB: But we know that Google is very popular with most users. They love the search engine. They love the e-mail services. It seems likes it's going to be an easy sell to get consumers to use the new Chrome.
GURVEY: Maybe consumers, maybe the people who like to try out new things. But, you know, you have to look in the long run at this thing. The Linux-based systems have been out for a long time. We'll have to see if they're going to have the device drivers, the support for applications and when businesses look at these things, they're going to look at that and they're going to look as some of our commentators said in the story, they're going to look to see if they can deal with the centralized control and the security, the kinds of things that have been built into Windows over the few years.
GHARIB: We have a few seconds left, so are you saying that Microsoft can sit back and doesn't need to worry about Google?
GURVEY: Microsoft can never sit back and not worry. It's the king of the hill and everybody's going to be nipping at its toes. Where they do have to worry, I think -- I think the Netbook is a short timer. I think what happens is we get bigger and better mobile phone, smart phone devices and Google is a big player there. So is Microsoft. So is Palm. So is Apple. There are a lot of players there. That may be the next wave.
GHARIB: We'll see and I'm sure you'll keep us posted on all that. Thanks, Scott. New York bureau chief Scott Gurvey.
"Street Critique"-Paul Larson, Equity Strategist of Morningstar
JEFF YASTINE: Tonight's "Street Critique" guest says the markets are on edge for a reason. He's Paul Larson, equity strategist of Morningstar and Paul, welcome back to NIGHTLY BUSINESS REPORT.
PAUL LARSON, EQUITIES STRATEGIST, MORNINGSTAR: Thanks for having me again.
YASTINE: There's always a lot of questions as we go through the seasons here about how long does this recession last and when we talk about economic green shoots, are there any real economic green shoots to speak of?
LARSON: Well, I think you can characterize the economy and the economic indicators as being less bad. Things are certainly not as bad as they were back early in the first quarter. But there's a big difference between less bad and good. And we are most certainly still in that less bad phase, still going in reverse, still experiencing economic contraction.
YASTINE: And Paul, what do we make of then the rally we've seen these last weeks and months?
LARSON: Well, I think that a lot of the rally that we've experienced was simply a multiple expansion rally, meaning that the valuations just got so low in the early March lows and that a lot of the rally that we've seen has just been a rebound and not necessarily reflecting any meaningful economic recovery. There has been, you know, some talk of these green shoots, but I don't think that there's a whole lot of substance to the economic expansion theories that are out there right now.
YASTINE: So if we're still looking to put money to work in the markets long-term, you at Morningstar focus on what you call wide moat stocks. What do you define as a wide moat?
LARSON: Well, when we talk about wide moat stocks or companies with wide moats, we like companies that have some sort of protection that is going to protect profits over the long term from competitors. And we think that these are the companies that are the really good place to focus right now. These are the companies that hold the high ground, which is really important as you're going through what you might call an economic flood that we're experiencing.
YASTINE: Paul, let's go on with the first one you have for us. It's Proctor & Gamble (PG).
LARSON: This is a consumer titan with numerous billion dollar products, very strong brands in the portfolio. I also like that this is company that has roughly a third of its sales coming from emerging market sources. And these emerging markets really are not necessarily affected by the ongoing economic malaise that we are experiencing here in the U.S.
YASTINE: Then you have a second one, Novartis, symbol (NVS).
LARSON: Yes, the stock market seems to be painting the entire health care sector with a very broad brush right now, worried about health care reform. But this is a very diverse health care giant, with big businesses in generics, vaccines, consumer products. And we think that it's going to escape any major damage from health care reform. It's a high quality company trading on the cheap and that's a combination that I really like.
YASTINE: The third and final one, the home improvement retailer Lowe's, the symbol (LOW).
LARSON: Yes, this is a little bit different. This is a company that is experiencing some very strong stress right now, negative same store sales at the moment due to the entire situation in the housing market. But the stock market seems to be taking today's very difficult situation and assuming that's going to last in perpetuity. Well, I don't think that economic recovery is imminent. I don't think that this condition is necessarily going to last forever. And if you think that a recovery will eventually come, Lowe's is certainly very, very cheap right now.
YASTINE: Any disclosures to make for us here?
LARSON: Certainly. The cook is most certainly eating the cooking here at Morningstar, and I own all three of these stocks, both personally as a well as in the portfolios I manage for Morningstar.
YASTINE: Thank you, Paul, appreciate your time on the program.
LARSON: Thank you.
YASTINE: Our guest Paul Larson of Morningstar.
"Money File"-Risk & Rewards
SUSIE GHARIB: In the "Money File" tonight, why risk doesn't have to be a four-letter word. Here's Jonathan Pond, author of "Safe Money in Tough Times."
JONATHAN POND, AUTHOR, "SAFE MONEY IN TOUGH TIMES": After what we've been through since the beginning of last year, it's no wonder that risk is viewed by many investors as something to be avoided at all cost. As a result, huge amounts of money are sitting on the sidelines earning element nothing. Of course, during the last bull market, investors loaded up on risky stocks and eschewed money market funds. It's time for a change. Long-term success requires a consistent approach, avoiding too much risk in ebullient markets and too little risk in dour markets. Rather than invest at the extremes, loading up on stocks after the markets have risen or loading up on Treasury bills or the like after the markets have fallen, you should strive to include investments in between those two extremes. For example, move some of the money that's earning a pittance in cash equivalents into short-term bonds and short-term bond funds to earn more interest without risking much, if any of your principal. While there's no such thing as a no-risk stock, you can reduce risk by avoiding speculative stocks and sector plays and instead spreading your money among a variety of U.S. and overseas stocks with index funds or exchange-traded funds. Most important, keep in mind that risk doesn't have to be a four-letter word. In fact, the biggest risk in investing is taking no risk at all. I'm Jonathan Pond.
Paul Kangas' Stocks in the News
JEFF YASTINE: Another sharp decline in energy prices put Wall Street's bull out to pasture. The Dow lost about 60 points in the first half of today's session. That tracked a sharp 4 percent decline in oil prices, a nearly $3 slide to $60.22 a barrel. But the selling appeared to bring in the proverbial bargain hunters. The NASDAQ rallied and so did the Dow back to break-even levels. The Dow closed up 14.81 to 8178.41. The NASDAQ added a point, but the S&P 500 fell 1 1/2 to 879.56 and buyers flocked to the Treasury's $19 billion sale of 10-year notes and that lead to a huge rally in bonds. The 10-year note gaining 1 7/32 to 98 16/32 and the yield at 3.31 percent.
Financials leading the list today with Bank of America (BAC) down $0.31. Most of the financials heading south.
Citigroup (C) down $0.07.
And then General Electric (GE) still acting like a financial stock, down $0.30.
Discover Financial (DFS) down a quarter.
And there's Wells Fargo (WFC) losing $0.42.
Keycorp (KEY) also down $0.21.
JPMorgan Chase (JPM) falling a dime.
And then finally, there's Alcoa (AA) gaining a nickel on that smaller -- after the hours rather -- but during regular trading down a little bit smaller than expected loss.
Pfizer (PFE) eked out a gain of $0.02.
Ford Motor Co (F) ending off $0.18.
Then Newmont Mining (NEM) falling $1.42. Gold prices fell over $20 to $909 an ounce in New York trading with that broad move out of hard assets in recent days.
NRG Energy (NRG) climbed $1.27. Exelon making a $7 billion play for this company, but NRG thinks that deal still not sweet enough and the board doesn't want to hold merger talks with Exelon for now.
Dyncorp International (DCP) rising over $2. The defense contractor will provide logistical support for troops in Afghanistan, a $650 million contract there.
Family Dollar Stores (FDO) gained $3.43. Third quarter profits rose 36 percent. The retailer boosting guidance and benefiting greatly from a decision to accept food stamps as payment for products.
And a pair of competitors bringing up in sympathy, 99 Cents Stores (NDN) and Dollar Tree (DLTR) both doing well today.
Shares in Advanced Auto Parts (AAP) rising $2.40. One research group, FTN Equity, sees the stock climbing to $50 a share as we all keep our cars longer.
And that helped two other stocks, Autozone (AZO) and O'Reilly Automotive (ORLY) shares shifting into overdrive today.
Starwood Hotels (HOT), they fell $1.04. Analysts at Baird don't see a hotel industry recovery before the second half of next year.
Then onto the NASDAQ where we have Amgen (AMGN) soared over $7. The company's pending osteoporosis treatment reportedly outperforming a competing drug made by Novartis in containing the spread of cancer in breast cancer patients. Citigroup setting a price target of $69 a share.
Apple (AAPL) gained $1.82.
There's Research in Motion (RIMM) losing $0.74.
Then we have Microsoft (MSFT) with a fractional gain.
And Google (GOOG) up nearly $6. As Scott told you, Google preparing to roll out its own operating system targeting Microsoft.
Intel (INTC) down $0.31.
Oracle (ORCL) a gain of $0.39.
Cisco Systems (CSCO) down $0.l1.
CME Group (CME) down $18. There will be a lot less volume on the Merc and other commodity trading platforms if Federal regulators move forward with proposals for limiting the number of contracts traders can move.
Qualcomm (QCOM) losing $0.13.
Shares in Whole Foods Market (WFMI) gained $1.54. Pali Research considers the weakness there overdone. They see earnings improving over the next six months.
And finally, Aryx Therapeutics (ARYX) leveled for a loss of nearly $2. Aryx said their anti-clotting drug came up short compared to Coumadin in the latest clinical trials.
