NBR Transcripts-November 4, 2009
Wednesday, November 04, 2009The Fed Leaves Interest Rate Alone
SUSIE GHARIB: The Federal Reserve kept its key interest rate unchanged today at 0 percent. The central bank wrapped up a two-day meeting saying it'll keep rates there for quote, an extended period even though policymakers noted economic activity is picking up. The decision was unanimous. The Fed made only small changes in its policy statement, including several comments about inflation, saying it is quote, subdued and stable. The Fed's benchmark rate is used to set the rates for business and consumer loans and has been at zero since December of last year. So did the Fed do the right thing today? For answers, we turned to Mike Holland of Holland and Company and Michelle Girard, senior economist at RBS.
MICHELLE GIRARD, SR. ECONOMIST, RBS: I thought it was very interesting that they didn't change the extended language, but they did state conditions under which they might be willing to change the language and eventually change rates. They said you have to have low resource utilization, low inflation and steady inflation expectations. So those are the key things to be watching here in looking ahead and trying to figure out what the Fed will do and when.
GHARIB: Mike, do you agree with that? Did they make the right decision?
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: They made the right decision, but I thought it was interesting the way Michelle just described it, which I think is exactly what the Fed wanted people to do, which is to look -- they actually put something new in there, but it really wasn't anything new. I think we were aware these are the things they were looking for. Having said that, they did nothing, which is what the markets wanted.
GHARIB: Michelle, let me give you the contrarian view though. Some people say there's too much stimulus in the economy. Inflation is heating up and you're going to have to start raising interest rates soon, otherwise the economy is going to be in trouble. How do you respond to that criticism?
GIRARD: I had a lot of sympathy for that argument. I think we already have signs that the risks are going up that the Fed will over stay their welcome. But this Fed does not want to make the mistakes that have been made in the past by raising interest rates too soon. So they are certainly going to wait through the end of the year, look at how the economy does, how the holiday season goes and how we look in early 2010 and I think at that point, we'll start to hear more about the Fed starting to position for actually hiking interest rates. I don't think the hike will come until June.
GHARIB: Mike, I thought that the Fed was very defensive about inflation. You look at that statement, I think they used the word subdued three times, stable. I mean, they were really making the point. What do you think of the Fed's inflation stance?
HOLLAND: We still have people around the world and in Washington who are worried about deflation, not inflation. So I think that at this point, it's not a surprise what they did. The Fed has two mandates, as we all know. One is for price stability. The other is for the economy and jobs, which was given to them by Congress years ago. They have to worry about this Friday number that's coming out. We're at 9.8 percent unemployment. That number could go to 10 percent. It's the highest it's been since the early 1980s. They are very concerned about the jobs market and they should be.
GHARIB: Actually it's interesting that you bring up the employment report, because there are going to be two employment reports between now and the Fed's next meeting in December. What's going to be the most important thing to watch, those jobs numbers or the whole school of other economic numbers, Michelle, Mike?
GIRARD: I think the job story is so important here because we all know consumers need income if they're going to be able to spend. And so that's really the one piece of this recovery puzzle that still has to fall into place. I definitely think we need to see decelerating job losses. That will come before we get the unemployment rate coming down. We need to see those job losses start to end and actually we think early in the year we'll actually start to see job gains. That is absolutely critical to getting people believing this recovery is for real.
GHARIB: Mike, you mentioned something about the market just a moment ago. It was pretty confusing of how investors felt about this Fed decision. Initially the Dow rallied and by the close, the rally fizzled out. So what's the message here?
HOLLAND: The market is very, very wary right now Susie. Any piece of information seems to be amplified in terms of how much it affects the market. There doesn't seem to be a lot of liquidity in either direction, which usually is a turning point in the market. I don't know if the next big move in the market is up or down. We've got a huge move in the world markets, including the U.S. market from the bottom in March so that people are very wary and the bond market is quite placid, which is interesting also. There's probably more risk in the bond market than the stock market. But the stock market right now is hanging on every word that the Federal Reserve was printing today. That's why they said nothing.
GHARIB: Mike, are you changing your strategy right now?
HOLLAND: No, no. Mine is glacial, Susie. They seem to have priced everything in the world that is - can be denominated in dollars at very high levels, Shanghai real estate and gold and a lot of other things. The U.S. stock market still looks to be one of the better values out there with a lot of things having gone up dramatically since March. The Taiwan stock market is up 60 percent for example. Hong Kong real estate can be up a lot more than that.
GHARIB: Let me just wrap it up. We have just a little bit of time left. Michelle, you said you don't see rate increases until June. Most people, the consensus view is maybe December or January. What's your thinking on that?
GIRARD: Oh, I don't think that the Fed is going to be looking to raise interest rates, as they said, until they're sure the economy is on solid footing. I do think there's concern that they overstay their welcome. I'm not as complacent. I'm not as comfortable believing inflation's going to be as low for as long as they think, but I don't think that they're going to raise interest rates until they are absolutely sure this economy and this recovery is sustained and on a self-sustaining basis it's growing.
GHARIB: All right, we'll leave it there, talk to you at the next meeting. Thank you both so much, Mike Holland, Michelle Girard.
FIAT Outlines New Survival Strategies for Chrysler
SUSIE GHARIB: A pep talk and survival plan from Chrysler today. The struggling auto maker's new boss, Sergio Marchionne of Fiat, spelled out a new five-year business plan to rev up Chrysler which emerged from bankruptcy five months ago. Marchionne kicked things off with some good news. Chrysler is sitting on $6 billion of cash. He also said Chrysler will break even next year, doubling sales by the year 2014 and increase its market share from 9 to 13 percent over the next five years. Marchionne's remarks were part of a marathon briefing session with analysts and journalists at Chrysler's headquarters. Our Diane Eastabrook was there and is standing by in Auburn Hills, Michigan with more. Hi Diane.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Susie. Believe it or not this meeting has been going phone for seven hours and it's still going on. A couple of highlights to talk about. Everybody is wondering about products. There are a few things that are going away, the Chrysler PT Cruiser, the Dodge Viper, the Dodge Caliber. At the end of next year, we'll be seeing the Fiat 500, which is a sub compact kind of like the Mini Coopers. That will be coming to market here in the U.S. And then in 2012 and 2013, we'll see a handful of small cars, sedans, some sport utilities that are built on the Fiat platform, coming to market here in the U.S. Joining me now to talk more about the five-year plan at Chrysler is Rebecca Lindland from IHS Global Insight. Not a lot coming to market new over the next couple years. Is that a good thing for Chrysler?
REBECCA LINDLAND, AUTO ANALYST. IHS GLOBAL INSIGHT: It's definitely a big concern that we have. When we looked at all the information we've gotten today, a lot of it is really good. We really feel like they've been able to exploit some synergies with this partnership with Fiat. They've been able to leverage it. But I would say that probably the weakest point of today has been the products and the details of what is coming to the market.
EASTABROOK: They're talking about breaking even in 2011. Is that overly optimistic given the kind of economy we're in right now and the way we've been seeing consumers shopping?
LINDLAND: Their targets are impressively aggressive and more power to them if they can make this work. But I think that we are still dealing with a market that is very conservative. You know, consumers still aren't feeling really great about going out shopping. They are still worried about losing their jobs. And as long as we're in that environment, to grow and gain market share at the pace that Chrysler laid out today is going to be a tremendous challenge.
EASTABROOK: One of the things I noticed that sounded like they're very high on Jeep, not so much on Dodge. Are we going to see Dodge go away?
LINDLAND: I don't think you'll see Dodge go away. Actually their strategy that they present today is to separate Dodge cars from Ram. So now they have another brand, a fourth brand and they are really marketing the pickup trucks, specifically under the Ram brand. So it's a very interesting strategy. I'm not completely sold on it yet. We'll have to get more details about that.
EASTABROOK: They also talked about doubling truck sales at a time when it seems like people are pulling away from trucks. How are they going to do that?
LINDLAND: They're expanding. They're going into more commercial, more heavy duty. They're looking at hauling (ph) in (ph) diesels, which is a great application for trucks, so they are looking at again using some synergies with Fiat, who is popular in heavy duty trucks.
EASTABROOK: They also talked about being able to pay back all of the TARP money by 2014. Is that going to be doable?
LINDLAND: Very aggressive, very aggressive. All the moons need to align for that to happen. And right now again we're just concerned about getting the market back on track. So their goals are incredibly aggressive and hopefully they can do it.
EASTABROOK: You and I were talking earlier. You wanted to see some kind of product, something that you could touch. Is that going to be tough for them to sell?
LINDLAND: You know, we've been seeing these wrapped up cars for a while now, these little drawings, little pictures of wrapped up cars. In fairness, they've only been married for five months. It's tough to produce a legitimate child in five months. So I understand that, but it would have been really great to see even a computer generated drawing, something beyond what we saw, definitely the weakest part of the presentation today.
EASTABROOK: Is there enthusiasm though? That's one of the things I was hearing from some of the executives, that there's renewed enthusiasm at Chrysler.
LINDLAND: I will say I really appreciated the passion that we saw demonstrated, both from people that have been at Chrysler for a long time and from the Italians. One thing that we loved today was the emphasis on the Chrysler building. It is gorgeous art deco, incredibly elegant iconic building, we had sort of forgotten about. And I love the idea that that really was emphasized today.
EASTABROOK: Thank you very much, Rebecca. Chrysler will be rolling this out to all its dealers next week. Susie.
GHARIB: It's an ambitious agenda, as you said, thanks a lot Diane. That's our Midwest bureau chief Diane Eastabrook reporting from Chrysler headquarters.
"Money File"-Raises in a Recession
SUSIE GHARIB: In tonight's "Money File," negotiating a raise during a recession. Here's Donna Rosato, senior writer at "Money" magazine.
DONNA ROSATO, SR. WRITER, MONEY MAGAZINE: Are you working more but earning less? Pay freezes, pay cuts and furloughs have became standard operating procedure at many companies since the great recession began. But just because unemployment is expected to keep rising into the middle of next year does not mean you have to rule out a pay increase again next year. While companies continue to be reluctant to hire, they're also concerned about retaining the workers who remain on the job. In fact, if you've managed to hang onto your job and taken on more responsibility, you have a good case for asking for a salary bump. More than 80 percent of companies are planning to give pay raises to their workers in 2010 according to Mercer Consulting. So, how do you position yourself to be among that group? First, read the tea leaves and assess your company's financial health. Has the profit picture improved? Is your firm adding clients? If your company is improving along with the overall economy, you can feel more confident about asking for a salary increase. Next, make a list of your accomplishments and write down the extra work and additional tasks you've taken on. And, if you can't get an increase in your base salary, ask if you are eligible for a performance-based bonus. Finally, be flexible. If your employer isn't open to a salary increase or bonus pay, don't be discouraged. There are other forms of compensation that you can negotiate. Ask for your company to contribute more to your health care costs or even your commuting expenses. Just because times are tough, does not mean you have to toil without a pay increase. I'm Donna Rosato.
"Two Ways to Play"-Kevin Depew of Minyanville
SUSIE GHARIB: There's a lot of controversy these days over huge bonuses going to the top brass at the nation's big banks. So tonight's "Two Ways to Play" tackles the question, exactly what do you mean by bonus? Here's Kevin Depew of Minyanville and Minyanville's Kevin Depew.
KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: With the financial crisis now well into its second year, Americans have good reason to be angry about the culture of risk taking behavior on Wall Street and about the excessive bonus compensation of bankers. There's something wrong with this system where someone on Wall Street earned more in one year than many Americans will in a life time. In most industries, bonuses are paid out of the profits, while on Wall Street they are paid out of revenues, revenues generated by our bailout funds. We've reached a point where the disconnect between Main Street and Wall Street has crossed the line from bizarre to offensive. The current debate over Wall Street bonuses is missing the point. The argument right now that it's about bonuses when it should be about cash bonuses. From that standpoint, there's actually an easy solution to this pay debate. Simply put, there should be no cash bonuses this year. All bonuses should be in the form of equity, which doesn't vest for at least three years. Give the bankers equity and then let's see how the so-called recovery unfolds. If the bankers are right and we're recovering, then they should be thrilled to be getting cheap stock right now. If they're wrong, then hey, welcome to our world.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened sharply higher in anticipation the Fed would hold rates steady. An hour into trading, the Dow jumped 141 points with the NASDAQ up 22 points. The rally was also linked to a weaker dollar which boosted the commodity sector. Somewhat supportive were two private reports showing job losses were slowing down. Even so, the market lost ground in choppy afternoon trading, resulting in a mixed close. The Dow Industrial Average salvaged a gain of just 30.23 at 9802.14. The NASDAQ Composite lost 1.80, ending at 2055.52, while the Standard & Poor's 500 Index edged up 1.09 to 1046.50. In the bond market, the 10-year note fell 14/32 to par and 28/32, putting the yield at 3.52 percent.
Big board volume leader as it's been so often recently, Citigroup (C) today on 66 1/2 million shares, down $0.07.
Followed by Ford Motor Co (F) $0.17 loss there.
Bank of America (BAC) dropped a dime.
General Electric (GE) a $0.13 loss.
But Pfizer (PFE) bucked the trend with a $0.20 gain.
Ambac Financial (ABK) up $0.39, big percentage move. The bond insurer reported a third quarter profit of over $2 billion after accounting gains from credit derivatives.
Wells Fargo (WFC) $0.87 loss.
JPMorgan Chase (JPM) down $0.49.
But Merck (MRK) did well today, up $1.97 after it merged yesterday, completed the merger with Schering Plough. The company today predicted high single digit earnings increases from this year through 2013.
Burlington Northern (BNI) up another dime after gaining almost $21 yesterday on Warren Buffett's Berkshire Hathaway buyout bid of $100 a share, 60 of it in cash and 40 percent stock.
General Dynamics (GD) up $1.30. Credit Suisse upgraded it from "neutral" to "out perform" with a $74 a share target on GD.
TRW Automotive (TRW) up $1.27, a real turnaround. Third quarter earnings of $0.68 versus a loss of $0.22 a year ago. Those earnings $0.52 better than the Street was expecting.
Magna International (MGA) an automotive company, up $3.41. That stock up in relief that the company won't be buying a big stake in General Motors Opel division.
Baker Hughes (BHI) oil service company down $2.54, sharply lower third quarter earnings, $0.18 versus $1.39 last year.
But a good gain posted today by Rehabcare (RHB) up $5.29, $0.37 in third quarter earnings, well above $0.22 last year. The company gave an upbeat outlook and it's acquiring Triumph health care for $570 million which it said will be accretive to earnings next year.
Davita (DVA), which provides kidney dialysis, up $3.53, higher earnings, $1.06 in the third quarter versus $0.89 last year, also boosted its 2009 guidance.
Apple (AAPL) topped the NASDAQ active list with a gain of $2.06.
Followed by Microsoft (MSFT) down $0.53.
Not much impact of that lawsuit on Intel (INTC) which moved up $0.23.
Cisco Systems (CSCO) $0.38 gain. After the close, Cisco announced first quarter earnings, $0.36 a share, $0.05 above the Street estimate and the company plans on buying back an additional $10 billion in stock. The stock moved up $1 from this price in after hours trading.
Google (GOOG) was up $3.04.
Research in Motion (RIMM) a $2 loss there.
And Qualcomm (QCOM) fell $0.62.
Amazon.com (AMZN) off $1.27.
Oracle (ORCL) edged a penny higher.
And then Comcast (CMCSA) with a $0.45 gain, tenth in volume.
Elsewhere, Garmin Ltd (GRMN), which makes GPS products, third quarter earnings, $1.02, $0.33 better than expected, but Garmin warned that its holiday sales will fall below last year's levels and Wall Street was concerned about tougher competition from Google.
And then Stec (STEC) a major loss, down $9.01. The company makes flash memory products. Third quarter earnings sharply higher, $0.50 versus a dime last year, but the company also warned of its largest customer, EMC, has to work off a lot of inventory before ordering more Stec products and down went the stock.
And those are the stocks in the news tonight.
