NBR Transcripts-October 30, 2009
Friday, October 30, 2009Lack of Consumer Spending Scares Wall Street
SUSIE GHARIB: Investors got spooked today on worries about the durability of the economic recovery. The Dow tumbled 250 points, erasing yesterday's gains, while the NASDAQ lost 52. Several economic developments were the catalyst behind the selling: a government report showing consumer spending fell a half a percent in September, its biggest drop in 10 months and the University of Michigan consumer confidence index also fell. Erika Miller takes a look at whether October's sell-off will continue to haunt the markets.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you want to know what put Wall Street in a sour mood today, it's you, the consumer. Today's personal spending and consumer sentiment reports cast doubt on American's willingness to spend and that is calling into question the strength of the economic recovery. But economist Christopher Low says he's not worried.
CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL: The consumer is battered and bruised by the recession, but beginning to recover. And we're going to have a Christmas that's better than last year, from a retail sense, not as good as the year before. But by the first quarter, if we start to see some job growth, then things should start to improve at a faster rate.
MILLER: If he's right, today's market sell-off may just be a long overdue correction, not the start of a bear market. The S&P 500 benchmark has risen more than 50 percent since March and as market strategist Mike Ryan points out, the index has gone up almost in a straight line.
MICHAEL RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: We didn't see a correction of more than 7 percent and that's really unheard of. Typically, you get these periodic setbacks of 5, 7, 10 percent in the market. The fact that this market ran up in an almost uninterrupted manner suggests that there was some room for profit taking and certainly some room for consolidation.
MILLER: Most analysts think we'll see more volatile days like today in the coming months. The CBOE volatility index staged its biggest one-day surge this year, as nervous investors bought options protection for their stocks. The stock market is expected to continue to take its cues from economic data, including next Friday's employment report.
RYAN: If you look at it in terms of the most comprehensive, timely data report, typically is the employment report. It gives you sort of a window into what's happening in the overall economy. So, I do think there's going to be a lot of emphasis placed on that payroll report.
MILLER: October has a reputation for being one of the worst months for the stock market and today's market losses wiped out all of October's gains in the S&P 500, leaving the index with its first monthly loss in seven months. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
The Natural Gas Glut
PAUL KANGAS: Consumers who heat their homes and power their businesses with natural gas should get a big break on their fuel bills this winter. The U.S. has a surplus of natural gas in storage and as Diane Eastabrook reports, even if the U.S. gets hit with a cold winter, prices for the fuel should remain fairly stable.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Chicago, customers flock to the Swedish bakery for its decadent pastries, colorful cookies and hearty breads. The bakery's profits depend on how much it sells and how much it pays to make those goodies. Right now, sugar and dairy prices are rising, but natural gas prices are falling. Owner Dennis Stanton says his natural gas bill is roughly 20 percent less than last year.
DENNIS STANTON, OWNER, SWEDISH BAKERY: It has helped in terms of, you know, one price that's decreased where other prices have increased, so it's been an offset. So, if the natural gas prices hadn't decreased, we'd be facing some more pressure on our prices, so, yes, it's helped a great deal.
EASTABROOK: So, why are the Swedish bakery's natural gas prices dropping so much? Quite simply, there is a glut of the fuel on the market now and experts point to three reasons: a sour economy, Mother Nature and technology. The first two reasons are tied to demand. Since the economy tanked last year, big natural gas users like manufacturers have cut consumption. Additionally, cooler temperatures last summer kept many consumers from cranking up air conditioners. The third reason is tied to supply. When natural gas prices soared earlier in the decade, energy companies invested in global positioning satellites and horizontal drilling technology so they could get fuel from once hard-to-reach places. The investment paid off. The U.S. currently has about 11 percent more natural gas in storage than it did a year ago. Veteran energy analyst Phil Flynn calls this a new era for energy.
PHIL FLYNN, SR. MARKET ANALYST, PFG BEST: We've really entered a situation where prices could be low for decades to come. I mean, we have found the mother lode of natural gas.
EASTABROOK: The futures market has been flummoxed by the natural gas glut. Prices crashed to a five-year low in September, but rebounded slightly on speculation energy companies will cut natural gas production to boost prices. Oppenheimer and Company energy analyst Fadel Gheit says so far, they haven't.
FADEL GHEIT, ENERGY ANALYST, OPPENHEIMER & CO: It is uneconomic for most companies to curtail production, no matter how low gas prices get, unless on a cash-on-cash basis, it becomes a loss. For example, if they can sell gas at a higher than what it costs them to produce it, they will continue to do so.
EASTABROOK: Baker Dennis Stanton is crossing his fingers, hoping fuel prices don't rise. In previous years, he's locked in his bakery's natural gas prices in an effort to avoid volatile fuel bills. But this year, he says he won't.
STANTON: Maybe it's a gamble at this point, but I think it's worthwhile taking a chance just to see where we're going to wind up.
EASTABROOK: Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"The Climate Economy"-CEOs and Investors Take Notice
SUSIE GHARIB: With sweeping legislation moving forward in Congress and negotiations on a new global treaty underway, climate change is very much in the news and it is becoming a top concern for CEOs and investors. Tonight as we continue our series, "The Climate Economy," Darren Gersh reports on what climate change could mean for the bottom line.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's hard to imagine one ton of an invisible gas like carbon dioxide floating in the air. But the price of sending CO2 into the atmosphere is becoming much easier to understand. A reasonable estimate is somewhere around $20 a ton. Now, multiply that by the roughly four billion tons of greenhouse gases the companies in the S&P 500 emit every year.
ANANT SUNDARAM, FINANCE PROF., TUCK SCHOOL OF BUSINESS: Think of that as the collective check that the CFO of the S&P 500 has to fork over to society, somewhere between $60 and $80 billion annually.
GERSH: Finance professor Anant Sundaram teaches what may be the nation's first MBA course on climate change, which is why he is translating carbon costs into numbers future CEOs can relate to. If you do the financial math, the nation's largest companies together are facing a liability of roughly $1 trillion.
SUNDARAM: This is a massive sum. To put that number into perspective, on the upper end, that is close to one tenth of the entire market cap of the Standard & Poor's 500 group of companies.
GERSH: Which is why some corporations and investors are beginning to track carbon emissions as an indicator of financial risk. And for 40 percent of the S&P 500 companies, the risks are low, affecting 1 percent or less of their earning. But for utilities, especially those relying on coal, carbon costs could cut the sector's profitability almost in half. Heavy energy users like mining companies and steel makers could also be hit hard, followed by food makers and chemical companies. That's the bottom line of a study commissioned by the Investors Responsibility Research Center Institute. Its program director, Jon Lukomnik, says the potential profit hit from climate change means investors will pay more attention to what's known as carbon intensity.
JON LUKOMNIK, PROGRAM DIRECTOR, IRRC INSTITUTE: It costs different companies different amounts of carbon to produce a dollar of revenue. And once you have to pay for that as an input, much like you have to pay for electricity or steel or brain power, it is going to affect the cost structure and therefore the profitability of companies and it's going to affect them differently.
GERSH: Many companies understand that and they are already looking at ways to reduce their carbon emissions. And that's already affecting decisions about new investments in plants and equipment. Jim Connaughton headed up climate policy under President George W. Bush. He says climate change may not have a dramatic impact on the overall amount of new investments companies make, but it will shift where those investments are made.
JIM CONNAUGHTON, EXEC. VICE PRES., CONSTELLATION ENERGY: Well, we have to replace the old coal-fired power plants with something and so, if we are going to spend money on new power plants, the question is what kind of power plant. It will be a lot of money, but we are going to have to spend it anyway.
GERSH: Most of the plans addressing climate change propose a gradual ratcheting up of carbon costs and most economists agree that will produce a manageable hit to the corporate bottom line. The challenge corporate America faces is becoming as creative at controlling carbon as it's been at burning it. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-Eugene Peroni, Portfolio Manager for Advisors Asset Management
PAUL KANGAS: My guest "Market Monitor" this week is Eugene Peroni, portfolio manager for Advisors Asset Management. Gene, welcome back to NIGHTLY BUSINESS REPORT. Good to see you.
EUGENE PERONI, JR., PORTFOLIO MANAGER, ADVISORS ASSET MGMT. Great to be here, Paul, thank you.
KANGAS: Wall Street certainly didn't give investors any Halloween treat today. What was behind the sell-off?
PERONI: I think Monday's reversal date kind of spooked investors, especially traders. Since then, we have seen a volatile index move up very sharply. So there's a bit more fear in the market. But still, when you look at the overall context of the losses that we've seen this week, especially today, it's pretty normal in technical terms.
KANGAS: You are a market technician mainly and did we see any key support levels broken today?
PERONI: No key support levels. We've seen some very short-term levels breached in individual stocks and in some of the indices. But these really I don't think are terribly significant for the longer term. I think they simply mean over the short run we'll probably remain lodged at trading range, some very expansive trading swings over the next several weeks.
KANGAS: Give us your thoughts on the U.S. dollar. Did the recent bouts of strength like we had today suggest the Federal Reserve may soon boost interest rates?
PERONI: I don't think so. I think the dollar is rallying because of conjecture about the Fed raising rates. But when you look at the dollar's rally here to date, it really is simply a correction. That is, a rally correction in the context of still what seems to be a pretty significant downtrend.
KANGAS: Where do you see oil prices heading?
PERONI: Over the short run, I think we could see a little bit of weakness. But the recent breakout that we saw in oil around the $73-a- barrel level will probably now prove to be the support area. On the upside though, I think oil could move to the 90-plus level over the next six to 12 months.
KANGAS: Does all this recent volatility in the stock market suggest the bull is not so healthy?
PERONI: I don't think so. This is a real shake out, but you see these shake outs along the way in most market advances, especially ones of this magnitude where you do have these sudden shakers that get the week hands out but then I think you'll see some of the strong hands come in. As we hit 10,000, the market I don't think is over bought. We didn't have capitulation so I really don't see the ingredients for a major top at 10,000. I think this is simply a reaction to that level.
KANGAS: So the bull still lives.
PERONI: I believe the bull still lives longer term.
KANGAS: On your last visit in June, you gave our viewers four stock recommendations. Let's see how they've done since then. Alliant Tech Systems (ATK) down 14 percent but Freeport-McMoran (FCX) did very well, up 25.4. Are you still with those two? Would you buy them here?
PERONI: I like them both here, yes.
KANGAS: OK and the two others that you gave us back then, Noble Energy (NBL) down less than 2 percent, Powell Energy (POWL) 11 percent drop. You still like those two, buy them here?
PERONI: I like them both on this weakness, yes.
KANGAS: OK. How about some new recommendations, Gene?
PERONI: After a day like today, I think Apple Computer (AAPL) is very attractive. It sold off pretty sharply from the recent highs above $200. We think that it could move considerably above $200. So this weakness I think is an opportunity.
KANGAS: AAPL on the NASDAQ. OK. Number two.
PERONI: Allergan (AGN), symbol AGN, the company that makes Botox. Good earnings recently. This stock is holding up quite nicely. A little bit of flight to quality or flight to safety right now that we're seeing, but longer term outlook for Allergan I think is very attractive.
KANGAS: A third choice?
PERONI: Core Labs (CLB), an oil and gas service company. Symbol is CLB. This stock, too, I find attractive because it has been a momentum driven stock lately in a strong energy category. The weakness that we saw today and recently I think provides another buying opportunity in the stock.
KANGAS: we have just enough time for a fourth selection.
PERONI: We think there's going to be more M&A activity during the course of this next year. So one of the companies that we like there is Evercore, EVR, a boutique investment bank-related company. So we think this presents an opportunity. The stock recently made a new 52-week high, but we still like it near these high levels.
KANGAS: OK. Interesting selection of four stocks. Do you personally own any of these stocks that we talked about?
PERONI: No, I don't.
KANGAS: OK. But does it make you more objective if you don't own them?
PERONI: Well, actually, I own them through our unit investment trust.
KANGAS: So indirectly.
PERONI: Yes.
KANGAS: OK, very good. Gene, I want to thank you for being with us once again.
PERONI: My pleasure, Paul, it's great to be with you.
KANGAS: My guest Eugene Peroni of Advisors Asset Management.
"Last Word"-iPhone The Costume
SUSIE GHARIB: And finally tonight, if you're looking for a clever Halloween costume, you'll be hard pressed to top these Florida iPhone fans. John Savio and Reko Rivera have taken their tech worship to a new level, actually becoming iPhones. They did it by hooking their iPhones to 42-inch flat screen televisions and powering the whole get up with a car battery. These guy phones don't just look good. They're fully functional! The get-ups cost about a thousand dollars apiece to make. And Paul, they hope to get some of that money back by winning costume contests. They get my vote.
KANGAS: So this is the latest, the latest thing in Research in Motion? What do we call this?
GHARIB: Well, I think that's a different company, but right idea.
KANGAS: OK.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks opened with a computer glitch at the New York Stock Exchange as a heavy influx of orders caused opening delays on some quotes. But it didn't take long to see most of those orders were on the sell side, sending the Dow down 80 points in the first hour of trading, with the NASDAQ off 12 points. The selling grew much worse during midday when several big futures-related sell programs kicked in as some indices broke below their support levels. End-of-month portfolio shuffling added to today's volatility and stocks went on to end near their worst levels of the day. The Dow Industrial Average tumbled 249.85 points to 9712.73. This week, it rose twice, but fell three times, had a net loss of 259.45 points. The NASDAQ Composite fell 52.44, ending at 2,045.11 today. It fell four times this week for a net loss of 109.36 points. Standard & Poor's 500 lost 29.93 today and for the week was down 43.41 points. Over in the bond market, the 10-year note rose 29/32 to 101 31/32, putting the yield at 3.39 percent. Big board volume leader on nearly 89 million shares was Citigroup (C) losing $0.22. Accounting expert Robert Willins (ph) said the bank is likely to have a big $10 billion fourth quarter charge on its deferred cash assets. A company spokesman said he was puzzled by that observation.
Bank of America (BAC) down $1.15. That was the biggest percentage loser in the Dow Industrial 30. There were no gainers in that average.
General Electric (GE) $0.61 drop there.
CIT Group (CIT) off $0.23. Carl Icahn is in a truce with the company. He now backs the company's prepackaged bankruptcy plan.
Pfizer (PFE) a $0.52 loss.
And as this blizzard of minus signs continues, Wells Fargo (WFC) losing $1.05.
AT&T (T) down $0.56.
Ford Motor Co (F) a $0.30 drop.
JPMorgan Chase (JPM) down $2.58.
But Las Vegas Sands (LVS) managed to come in a winner, up $0.33. Standard & Poor's raised its price target by $2 to $17 a share.
Metlife (MET) down $2.81. Third quarter operating earnings were higher, $0.97 versus last year's $0.84, but the company said it may have to inject capital into its life insurance business and it's also cautious on the outlook.
Cummins (CMI) down $2.86. Third quarter earnings fell to $0.48 from $1.17 last year. Sales fell 31 percent and the company sees a challenging year ahead.
Harman International (HAR), which makes high quality audio equipment, up $4.61. First quarter loss of only $0.05. The Street was looking for $0.23 loss.
CEC Entertainment (CEC) up $3.88. This is the parent of Chuckie Cheese restaurants and it had nicely higher third quarter earnings of $0.55, up from $0.43 a year ago and the board has approved a $200 million stock buyback.
The big jewelry chain Zale (ZLC) losing $1.66 or nearly 26 percent of its value. The company posted a fourth quarter loss of $2.81 versus a loss of only $0.30 last year and get this, the SEC is launching a probe into the company's accounting practices.
Estee Lauder (EL) $1.36 gainer. First quarter earnings, $0.71, way up from $0.26 last year.
Manitowoc Co (MTW) $1.31 loss, big percentage drop there. The company had earnings in the third quarter of $0.04 and that was $0.04 below the Wall Street estimate and way down from $0.71 last year. Nevertheless, Standard & Poor's repeated a "strong buy" on Manitowoc.
Stanley (SXE), this is an IT services firm, second quarter earnings higher, $0.49 versus $0.37 a year ago, $0.07 better than expected and Wells Fargo upgraded it from "market perform" to "out perform."
Apple (AAPL) topped the NASDAQ's most active, down $7.85, got hit by selling.
Microsoft (MSFT) down $0.49.
Google (GOOG) off nearly $15 a share.
Intel (INTC) $0.11 loss there.
Amazon.com (AMZN) down $3.77.
And the red marks continue, Cisco Systems (CSCO) down $0.71.
Research in Motion (RIMM) losing $2.63.
Baidu (BIDU) $15.48 loss.
Qualcomm (QCOM) down $0.94.
And Oracle (ORCL) fell $0.35.
In other NASDAQ trading, MicroStrategy (MSTR) bucked the trend, up $13.83 or almost 19 percent after reporting third quarter earnings of $1.73. The Street was expecting earnings of only $0.94, so much better than expected.
On the downside however, Novatel Wireless (NVTL) losing $3.27. Third quarter earnings came in at $0.20, $0.10 better than expected, but the company's forecasting fourth quarter revenues will be below Street estimates and that's what hurt the stock.
And those are the stocks in the news tonight.
