NBR Transcripts-September 25, 2009
Friday, September 25, 2009The G-20 Ends on a High Note
SUSIE GHARIB: World leaders have wrapped up their meeting in Pittsburgh with a pledge to sustain their economic stimulus programs until a durable recovery is secured. The G-20 leaders warned as economic recovery takes hold, a sense of normalcy should not lead to complacency. But as Darren Gersh reports, critics say the leaders' record on financial regulatory reform does not match their rhetoric.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president declared the G-20 summit he hosted a success, saying it had laid the groundwork for long-term prosperity.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Today, we took bold and concerted action to secure that prosperity and to forge a new framework for strong, sustainable and balanced growth.
GERSH: G-20 leaders also agreed to clamp down on pay packages for bankers, endorsing rules to tie compensation to long-term performance. They pledged to eliminate subsidies for fossil fuels that contribute to greenhouse gas emissions. They also agreed to review G-20 member nation's fiscal, monetary and trade policies to see if they are consistent with sustainable global growth. The world's rich nations tried this kind of peer review three years ago, without much success in bringing down the massive trade deficit in the United States and the corresponding trade surpluses in China and Germany. Still, former Treasury official Tim Adams says countries pay more attention to each other than they do to economists or international financial institutions.
TIM ADAMS, MANAGING DIRECTOR, THE LINDSEY GROUP: So, I think peer pressure matters and if we say we're going to do something, then our friends around the table should hold us accountable.
GERSH: But critics like economist Simon Johnson are disappointed leaders failed to tackle the tough issues of financial regulatory reform.
SIMON JOHNSON, SR. FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: In terms of what they could have done realistically and reasonably in Pittsburgh today -- managing, setting up a framework, a detailed and specific framework to manage the failure of major multi- national banks is a completely reasonable request -- and they completely dropped the ball on that.
GERSH: The real test for many G-20 leaders will come when they return home and have to deliver on the reforms they have promised. The Obama administration is already having a tough time getting its financial regulatory reform through Congress. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
The Fed Still May Raise Interest Rates...Big Time.
SUSIE GHARIB: Bizarre developments today on what's next for interest rates. A Federal Reserve official said the central bank may raise rates aggressively when the time comes. Kevin Warsh expressed his opinions in today's "Wall Street Journal" and then repeated them in a speech this afternoon. The comments confused investors. Just a few days ago, Fed policy makers said rates would stay low. So what's going on? Suzanne Pratt got some answers.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve governor's op-ed in today's "Wall Street Journal" was a potential hand grenade for financial markets. And just hours after lobbing it, author Kevin Warsh echoed much of its content at a speech in Chicago.
KEVIN WARSH, FEDERAL RESERVE BOARD GOVERNOR: If policy makers insist on waiting until the level of real activity has plainly and substantially returned to normal and the economy has obviously returned to self- sustaining trend growth, policy makers will almost certainly have waited too long.
PRATT: Warsh had many on Wall Street scratching their heads. That's mostly because his words were a 180-degree turn from what the Fed said Wednesday after its meeting on interest rates. Policy makers said economic conditions are likely to warrant exceptionally low rates for an extended period. Why is Warsh publicly contradicting his boss, Fed Chairman Ben Bernanke? Economist Chris Low says no one really knows, so investors should take the comments at face value.
CHRIS LOW, CHIEF ECONOMIST, FTN FINANCIAL: It looks like a senior official at the Fed sending this message, that even though it's not necessary right now, the markets should prepare at some point for a fairly aggressive tightening.
PRATT: Economist Bob Brusca says dissension at the Fed is normal; the way Warsh is publicizing it is not.
ROBERT BRUSCA, CHIEF ECONOMIST, FAO ECONOMICS: I don't know if he has political aspirations. I don't know if he just wants to draw some attention to himself. Maybe he's thinking of making some headlines and points about independence so he can go and do something else. And this certainly does elevate his name. Up until this point, he's been a pretty quiet governor.
PRATT: As for the future of interest rates, economists say expect them to remain low. Today's developments, however, suggest there could be a lot more debate until exactly how long they'll stay that way. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One with Saudi Oil Minister Ali Al-Naimi
SUSIE GHARIB: I'm just back from Saudi Arabia where I met with Ali Al-Naimi, the nation's oil minister. As the dominant member of OPEC, he plays a crucial role in deciding what consumers and businesses pay for energy. This week, Naimi hosted 3,500 business leaders and heads of state for the opening of a multi-billion dollar university, the King Abdullah University of Science and Technology, or KAUST, for short. Naimi guided its development and is its chairman. I began our conversation by asking Naimi how KAUST will impact the Saudi economy.
ALI AL-NAIMI, OIL MINISTER, SAUDI ARABIA: You know that Saudi Arabia today is highly dependent on one source of revenue from hydrocarbons -- production, processing and sale of oil and gas. Now, we cannot continue forever on this source of income. So the whole purpose is, let us do our best to diversify the economy, industrialize and move to a knowledge society eventually.
GHARIB: But Mr. Naimi, what are you going to focus on? What will be the biggest growth industry outside of oil, ultimately?
AL-NAIMI: Number one is food. Number two is water. Number three believe it or not, is energy and environment. These are the 3 areas of focus. Now why do I say energy? It's a different energy. It's solar energy.
GHARIB: Let's talk a little bit about oil. We've seen oil prices this year as low as 32 dollars and not long ago, as high as 147 dollars. What do you think is the right price for oil?
AL-NAIMI: We believe that around 75 dollars is a fair price for both producer and consumer. And why do I say 75? Now to produce some of the hydrocarbon sources, it requires a price which rewards the investor. Some of these investments need a price between 60 and 80 and that's why we chose a fair price of around 75 dollars.
GHARIB: Some people would say that 75 dollars is not the optimal price because the dollar is so week and so to compensate for that, the price should actually be higher. What do you say to that?
AL-NAIMI: Of course there is some truth to that. Actually in Saudi Arabia, it doesn't make any difference because our riyal and the dollar are tied together so it doesn’t make much difference.
GHARIB: Do you see prices going below $70?
AL-NAIMI: If I knew that, I wouldn't be here. I would be gambling in Las Vegas. I can tell you one thing - the price will vacillate and keep changing.
GHARIB: Will it make another run for a $140 level? Do you see that happening?
AL-NAIMI: Anything is possible. We will do our best to avoid that. Because I don't believe high prices are good nor too low prices. We need a price which allows the investor to invest and the producer to produce. And we believe $75 and if you want a range between $70 and $80.
GHARIB: As you know the U.S. economy depends on consumer spending and one of the biggest factors for consumers to spend is what they pay for the price of gasoline...what can you tell American consumers of what they can expect to pay for gasoline?
AL-NAIMI: Pay less taxes! You know, if you took the price of a gallon of gasoline and looked at what contributes to that price...in the U.S. it is probably between 30 and 33% which is not big, but worldwide you will find it ranging between 60 and 80% so the biggest chunk of the price of gasoline is really taxes.
GHARIB: But when gasoline prices not long ago jumped from $2 a gallon to $4 that wasn't because of government taxes, that was because the actual price jumped.
AL-NAIMI: Right...restrain speculators. Restrain financial institutions from playing around with the price of oil.
GHARIB: And how do you do that?
AL-NAIMI: By legislation. And I believe the subject today of trying to manage this speculation is being discussed very loudly and thoroughly in many organizations in many government institutions.
GHARIB: Minister Naimi... you have a reputation for trying to keep oil prices stable, but there are other OPEC countries that are not committed to that, what do you say to them?
AL-NAIMI: Moderation is the name of the game. That's Saudi Arabia’s motto and we always strive to be reasonable and moderate in everything we do actually. And so if I am at an OPEC conference we will have of course have differences of opinion, but eventually moderation becomes the subject of the day.
GHARIB: A big question for everyone right now... is the recession over? What do you think?
AL-NAIMI: I wish I knew the answer but because I am an optimist, I believe, based on what we have seen in the recovery of price and how it is reacting to economic growth, I believe we are on the road to economic recovery.
GHARIB: What signs are you seeing?
AL-NAIMI: Well I see it in demand for energy, I see it reflected in the price so it's there and it's happening.
GHARIB: You have an OPEC meeting coming up in December. Do you see anything going on in the markets that would call for a change in policy?
AL-NAIMI: Right now, I don't believe so. I think we will be as we are today.
"Market Monitor"-Mark Leibovit, Chief Market Strategist for vrtrader.com
PAUL KANGAS: My guest "Market Monitor" this week is Mark Leibovit, chief market strategist for vrtrader.com and welcome back to NBR, Mark. Good to see you
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Paul, glad to see you, always good to be back.
KANGAS: You have been correctly bullish on the stock market in general and gold in particular. We've had a heck of a run on the stock market since March with the Dow soaring from 6500 to 9800 level. Is it time for some profit taking in stocks here?
LEIBOVIT: It appears so. We've been in an upward channel since March, looking at the Dow industrials. There's a risk perhaps of a pullback to 9,000, 8900, maybe, but it's still an upward channel. And the work basically says we're in a bull market here which could last a lot longer and go a lot higher. We're finding that wall of worry Paul and some of the technical work we're doing, particularly a reverse head and shoulders pattern that we put together here on the chart shows potential even as high as 11,003. Originally I was talking 10,300, which was half of that 7700 point decline that we saw from the beginning of the bear market. So any pullback here in October, November, would be a buy for a move to that higher level I think some time into next year.
KANGAS: All right. So still bullish long term on stocks. Now, you have been extremely bullish on gold, predicting last April it would go from around a $900 per ounce level then, to $1,000 an ounce which it did early this week. Good call. Where do gold prices head now?
LEIBOVIT: Well, we've only started, Paul. There's also reverse head and shoulders measurement in gold up to about $1300 and you know I have a bigger picture number up at $3,000. But our annual forecast model for gold pretty much pinned it all year. It was calling for a high here in the September time frame and then maybe a little pullback. I think that's what we're starting to see now a little bit of a correction in the gold. And then I see it breaking through and the 1,000 level is going to become the floor and we're going to start moving up and up into those higher levels I think into next year.
KANGAS: That forecast model was very good. I compliment you on it.
LEIBOVIT: Back in January, we said high in September and here we are.
KANGAS: Do you like silver at these price levels, a little over 16 an ounce?
LEIBOVIT: Very much so. We have technical measurements up to at least back to the high, which is $21 an ounce and numbers way, way higher than that, but let's just take it a day at a time.
KANGAS: So you like it. On your last visit in late April with us, you had four buy recommendations. Let's see how they've done since then. First one was Central Fund of Canada (CEF) up nearly 11 percent and Hecla Mining (HL) up 83.4 percent. Are you still with them? Would you buy them here?
LEIBOVIT: I buy them every day. I dollar cost average with an uptrend in the metals that I am projecting, why not?
KANGAS: You had two more recommendations back in April. Let's see what they did. Denison (DNN) up 31 percent, Northern Dynasty (NAK) not too big a gain, but a gain. That's four for four, congratulations, good call.
LEIBOVIT: Well, the market -- the wind was at my back. Let's put it that way.
KANGAS: Do you have some new recommendations, Mark?
LEIBOVIT: Well, I would go back and stay with the Central Fund of Canada, CEF. This is 60 percent gold, 40 percent silver. And as silver move higher, it's a nice safe way of playing that market short of owning the physical metals.
KANGAS: To move along we only have a minute.
LEIBOVIT: SLV, which is the ETF for silver. I would buy that. It's trading around the $15, $16 level. If silver goes to $21-plus, that's going to go up to those levels (INAUDIBLE) SLV as well. My next play would be PAL, which is North American Palladium. This is a play on palladium and now with all these cheap cars being produced in India and China, there's going to be a lot of demand for palladium and platinum because of the catalytic converter issues. So this is a good low-price play. It's up three bucks, could probably double.
KANGAS: Twenty seconds left, one more choice quickly.
LEIBOVIT: OK, now one play for the overall market would be the total stock market index, ticker symbol VTI. Any pullback we get here in October, November, I would buy VTI. Dow goes to 11,000 you got a total stock market play here, VTI.
KANGAS: Do you personally own these securities mentioned here or have other disclosures? You do.
LEIBOVIT: I trade and own these securities, yes, Paul, thank you.
KANGAS: Our time unfortunately has run out but thanks for being with us once again.
LEIBOVIT: Thank you, Paul, for having me. Good luck.
KANGAS: My guest, Mark Leibovit of vrtrader.com.
Paul Kangas' Stocks in the News
PAUL KANGAS: The Warsh comments puzzled Wall Street this morning and stocks headed lower as an unexpected decline in August durable goods and a smaller than expected rise in new home sales had investors doubting the recovery's prospects. Stocks stair-stepped their way lower as the Dow posted a 58-point mid-day loss with the NASDAQ off 20 points. The sell-off was cushioned a bit by a bigger than expected rise in late September consumer sentiment. But the market still ended broadly lower. The Dow Jones Industrial Average closed down 42.25 exactly and for the week, it rose only once and had a net loss of 155.01 points. The NASDAQ Composite dropped 16.69 points to 2,090.92 today. It rose twice and fell three times this week, had an overall loss of 41.94. The Standard & Poor's 500 Index was down 6.40 ending at 1,044.38 today and for the week overall, it was off 23.92 points. In the bond market, the 10-year note climbed 16/32 to 102 18/32, putting the yield at 3.32 percent.
Most active New York exchange issue on 78 million shares, Citigroup (C) down $0.05 a share.
Followed by Bank of America (BAC) with a $0.38 loss. The bank today filed a formal response to the SEC's complaint over its disclosures on bonuses paid to Merrill Lynch executives. Bank of America said it committed no wrongdoing. The case heads to trial incidentally in February.
General Electric (GE) $0.21 loss.
Ford Motor Co (F) fell $0.04.
And so did Pfizer (PFE).
Moving along in the active list, Schering-Plough (SGP) up a nickel.
And then Synovus Financial (SNV) a $0.03 gain.
A new issue, Select Medical (SEM), this is a hospital operator, 30 million shares offered to the public at $10, opened at $9.75, got as high as $10.15, settled back a bit, but still $0.09 higher from the offering price on the day.
Tim Horton (THI) $0.37 gain.
Wal-Mart Stores (WMT), tenth in volume, down $1.23, the biggest point loser in the Dow apparently on concerns about the strength of the economic recovery.
KB Home (KBH) down $1.50. The company in with a third quarter loss of $0.87 a share, no where near as bad as last year's loss of $1.87, but Wall Street was looking for a loss of only $0.58. Standard & Poor's meanwhile repeated a "sell" recommendation.
Holly (HOC), a refining company, up $1.73. Goldman Sachs upgraded it from "neutral" to "buy." The whole refining sector was quite firm on that news.
Brunswick (BC) up $1.51 and RBC Capital brokerage upgraded it from "sector perform" to "out perform."
Electrical parts maker Azz (AZZ) up $2.10. Second quarter earnings just a touch lower from last year, $0.89 versus $0.92 then, but that was $0.20 better than expected and the company boosted next year's earnings guidance from $2.90 a share at best to as much as $3.10 per share.
Cabot Oil Gas (COG) down $2.73. The department of environmental protection has ordered the company to cease all natural gas well hydrotracking (ph) operations in Susquehanna County, Pennsylvania until the company completes a number of safety tasks.
NASDAQ's most active, Research in Motion (RIMM) plunging $14.15. After the close yesterday as we reported, second quarter earnings came in at $1.03 a share, $0.03 above the Street estimate, but revenues were short of projections and that's what's been hurting the stock.
Apple (AAPL) down $1.45.
Microsoft (MSFT) $0.39 loss there.
And then Google (GOOG) fell $4.29. AT&T is accusing Google's (INAUDIBLE) service of preventing consumers from calling certain phone numbers and that violates the FCC's Internet neutrality rules.
Cisco Systems (CSCO) $0.03 loss there.
Qualcomm (QCOM) $0.04 gain.
Intel (INTC) $0.17 drop.
Oracle (ORCL) was off $0.31.
And then another new issue, Shanda Games (GAME). This is a Chinese video game operator, 83 1/2 million shares, I should say American depository receipts offered in an IPO at a price of $12.50, opened right there and got as high as $13 and then slumped to a closing loss of $1.75.
Baidu (BIDU), tenth in volume on NASDAQ, down $2.67.
And those are the stocks in the news tonight.
