NBR Transcripts-November 5, 2009
Thursday, November 05, 2009The Feds Announce More Insider Trading Arrests
SUSIE GHARIB: One of the biggest insider trading cases in years got even bigger today. Federal prosecutors filed criminal charges against 14 investment professionals, including a former Moody's analyst, an executive at Atheros Communications and the founder of Incremental Capital. Those firms had no comment. Today's arrests are an expansion of the investigation into Galleon Group, a major New York hedge fund. Prosecutors say the alleged ringleader is a former Galleon employee and the fraud he helped commit netted $20 million in improper profits. The SEC's enforcement director says the suspects had access to inside information and didn't hesitate to use it.
ROB KHUZAMI, SEC ENFORCEMENT DIRECTOR: We expose today the apparent ease with which Wall Street professionals, corporate insiders, analysts and lawyers disregarded the rules and their duties to clients and shareholders for kickbacks and easy payoffs. Their misconduct threatens to undermine the confidence upon which our capital markets depend. We take that threat very seriously.
GHARIB: So far, five people have pleaded guilty. Among them, hedge fund managers in Massachusetts and California, along with the witness at the center of the case against Galleon founder Raj Rajaratnam.
The House & Senate are Divided Over Financial Reform
PAUL KANGAS: There's a split emerging in Washington, DC over how best to clean up the financial industry. Rewriting the nation's financial rulebook is a top priority of President Obama and Democratic lawmakers. But there are now far different plans emerging from the House and Senate and getting a bill on the president's desk will not be easy. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It took the Federal Reserve 14 years to use the power it had to rein in predatory mortgage lending. Senate Banking Committee Chairman Chris Dodd says if they didn't use it, they should lose it. And that's one reason he wants to replace the alphabet soup of bank regulators with a brand new one.
SEN. CHRIS DODD, BANKING COMMITTEE CHAIRMAN: I'd like to begin there. I think that's -- because otherwise what you get is what they call charter shopping. You create within your financial institution a definition of yourself that allows you then to pick the regulator and so you pick the weakest regulator, the one that's going to let you get away with murder on this stuff and then you end up with the kind of messes you did.
DHUE: That approach is at odds with legislation the House is writing. The House bill puts the Federal Reserve in the driver's seat, supervising the largest financial firms. But Dodd thinks that doesn't do enough to change the system.
DODD: We want to go back and look at what went wrong and where were the gaps and they were huge gaps. One where there was no regulation, number one and that's serious enough and two, where they have regulation, but there were no cops on the beat.
DHUE: Dodd does support a new consumer financial protection agency, which is also being championed by the House and the administration.
DODD: How silly it is that -- if you buy toys for your children and they're wrong, you can call somebody and fix it. You can take something off the market. Yet someone absolutely rips you off on a credit card or an overdraft fee, you can't call anybody and that's got to stop.
DHUE: But the banking industry wants to put a stop to that new consumer watchdog, saying it's the wrong approach. The Banking Committee's ranking Republican, Richard Shelby says it's critical to keep consumer protection with the regulator who oversees safety and soundness of banks.
SEN. RICHARD SHELBY (R), ALABAMA: I believe that any consumer protection should be in the same office under the same roof with a regulator that deals with all of it.
DHUE: There is an area of broad agreement. Lawmakers want tougher, more effective regulation. But getting there is clearly the hard part and could take until the end of the year, but analysts say probably much longer. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
One on One with Cisco CEO John Chambers
SUSIE GHARIB: Shares of Cisco rose sharply today, up almost 3 percent on an upbeat forecast for tech spending. The network gear maker expects revenues in the current quarter to grow as much as 4 percent and CEO John Chambers says the recovery is quote gaining momentum. When I talked with Chambers today, I asked him to explain the trends he's seeing in tech spending.
JOHN CHAMBERS, CHAIRMAN & CEO, CISCO SYSTEMS: The first quarter of this year the calendar year we said it feels like the bottom. Second quarter of this calendar year we said it looks like there's a tipping point occurring starting up and this quarter was kind of the proof point. So we're in the early phases of the recovery, but our business parameters in terms of order rates, especially in the U.S. are all headed in the right way in a very strong quarter-over-quarter and year-over-year direction.
GHARIB: John is this tech spending broad based or are things just good at Cisco?
CHAMBERS: I think it will be broad based, but it won't necessarily apply to all technology companies. It really speaks to many of the businesses and governments have done as much as they can on cutting expenses. They now need to think about how do you grow the top line or how do you deliver your services, not with just incremental costs to those. So now they are saying how do I really, what I want to look like as I come out of this economic slowdown. So those areas of technology that really tie to productivity -- health care, education, broadband build out I think will do very well over the next three to five years.
GHARIB: I know you talk to CEOs all the time who are your customers. Are they sounding more upbeat about economic conditions or and are they beginning to see that business is getting back to normal?
CHAMBERS: Well, back to normal would be too strong a statement. I think you will see most CEOs more optimistic the second half of this calendar year than they were the first half. And most of them believe that the recovery is starting. They will probably watch how this next quarter goes before they set the budget for next year. So that goes back to my comment earlier. While the trends are in the right way it is still fragile and still could come off course. But if I had to bet where we are as a company, acquiring four companies in the last month alone, we have got our foot off the brake. We got it on the gas pedal. We're hiring again. We're optimistic about the future but we're not naive that there are still bumps in the road that could get us off track.
GHARIB: You mentioned that the U.S. economic conditions are good. What about the rest of the world?
CHAMBERS: Well, the U.S. economic conditions are good but they are improving in the right way Susie if I can just put a little bit of balance on that. Our large customers just one quarter ago were decreasing their orders with us year over year by 20 percent. This quarter they increased it year-over-year by 10 percent. In terms of the rest of the world, I think China, India are picking up steam and doing a very good job. Latin America, it varies by country. Brazil doing pretty well. Mexico tied to the U.S., a little bit more challenging. Europe was perhaps the biggest surprise. I felt that Europe would lag behind the U.S. by at least two and maybe three quarters. We saw some good trends in northern Europe, southern Europe still kind of challenged.
GHARIB: Let me talk to you a little bit about competition. IBM and Hewlett-Packard used to be Cisco partners but not any more. As they try to catch this wave of tech spending, is that going to make things difficult for Cisco? Are we going to see a clash of the tech titans?
CHAMBERS: Susie, the exciting thing about what Cisco is doing is if you look down to the consumer level, we're competing against very good companies like Apple. Steve Jobs actually brought our flip product on stage the other day and said it is the first time he has ever done that and said here is a very good company, but we're going to beat them. That is a good compliment and a shot across the bow. You begin to think about where we are going in the data center. Clearly we'll be taking on some very good companies like at HP and an IBM. You begin to think about where we are going in traditional communications. You still got Alcatel, Lucent, Nortel, et cetera. We will not lack for competition in every area, Microsoft collaboration. But we're often viewed as a company, we move into a market. We usually become the number one player. We will see how successful we can be in these new markets. And candidly, the competition -- if you haven't got good competitors, you're probably not in a great market.
GHARIB: Real quickly John, your stock it up today. You also announced that you are buying back $10 billion of shares. What is the rationale behind that?
CHAMBERS: Well, if you really think about where we are going in the future and if we believe that our growth rates can be with the appropriate caveats 12 to 17 percent year-over-year ought to be our measurements. Our gross margins are improving which means our financial controllers are in very good shape. Then you are optimistic about the future of the company over the next five to 10 ears. If you believe that, you ought to be buying back your own stock and that helps your shareholders use the $35 billion in cash that we've accumulated and positioned ourselves well for this economic turn around.
GHARIB: All right, John, thank you so much, enjoyed talking to you.
CHAMBERS: Uh-huh, Susie it is fun as always. Thank you for having me on your show.
Droid Phone Debut Preview
PAUL KANGAS: It's not "Star Wars," but there are Droids involved and the battle is just as tough. The Droid phone we're talking about is the latest offering from Motorola and it debuts tomorrow on Verizon's network into an already crowded field. As Scott Gurvey reports, the Droid and its rivals have sparked a sort of smart phone war.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: When this Verizon Wireless store in Manhattan closes for the day, employees will not be going home. They'll spend the next few hours setting up displays and will re-open at midnight. That's when Droid arrives. The Motorola Droid is a smart phone, a category where products are distinguished by applications they offer beyond simple calling. The Droid runs Google's new android operating system, hence the name. The reason for the hype says S&P analyst Todd Rosenbluth, is that customers with smart phones spend more on hardware and data services.
TODD ROSENBLUTH, TELECOM EQUITY ANALYST, STANDARD & POOR'S: Smart phones are growing at a faster pace than traditional handhelds or traditional phones and smart phones are now becoming more than 15, 20, 25 percent of the customer bases of the U.S. carriers and Verizon, in particular, is really focused on growing that customer base.
GURVEY: Although Nokia and Research in Motion's Blackberry lead the smart phone segment, Verizon has been running commercials targeting Apple's iPhone -- sold exclusively by AT&T. The ads have noted things the iPhone cannot do. Verizon executive David Small says the ads serve a purpose.
DAVID SMALL, AREA PRESIDENT, VERIZON WIRELESS: We believe customers should be fully informed about their purchase decisions and a 3G device is only as good as the network it's riding on. So, a little bit of fun. But I think it also opens up consumers' eyes to the power of the network and what we have versus some of the other networks that are out there.
GURVEY: People who have tested the Droid have been writing generally favorable reviews -- finding it to be short of an iPhone killer, but a credible competitor for customers who prefer the Verizon network and Gogle's chief Droid Erick Tseng says more improvements are on the way.
ERICK TSENG, PRODUCT MANAGER FOR GOOGLE ANDROID (BY TELEPHONE): We're constantly looking to push the envelope and the kinds of innovation that you see today with navigation, you can expect to see the same caliber of progress and new features and functionality going forward.
GURVEY: In spite of the recession, mobile phone use is growing. Both Verizon and AT&T are adding about a million consumers a month. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Todd Harrison, CEO of Minyanville.com
PAUL KANGAS: Tonight's "Street Critique" guest says he respects the market's uptrend, but he still sees problems ahead. He's Todd Harrison, founder and CEO of Minyanville.com. Welcome back to NBR Todd. Good to see you.
TODD HARRISON, FOUNDER & CEO, MINYANVILLE.COM: It's great to be here, Paul.
KANGAS: You've been bearish in recent visits but we're still headed higher, much higher today. What's your take on this current market?
HARRISON: Well, I am looking at the market through a technical context, Paul. And looking at it through that lens we broke the uptrend in both the S&P and the NDX, the uptrend from the March lows. We broke those and have been trading sideways since then. This past support is future resistance. S&P, 1075 and NASDAQ NDX 1750 should be a resistance level, resistance levels in the marketplace.
KANGAS: Now you brought along a chart so we can graphically see the technical breakdown on the Standard & Poor's 500. What is it telling investors?
HARRISON: They say the trend is your friend and this is one context with which to measure risk. I'm looking at this once we broke support. Now it becomes resistance. And if we get back up through it, then we are looking at 1120 on the S&P which is a level I have been eyeing all year. That is the downtrend from the highs in October of 2007. That's a 50 percent retracement of the entire decline and that too will serve as resistance. So we have some layered resistance in the S&P and on the NASDAQ and I think that warrants a little caution going into year end.
KANGAS: Tell us a little bit more about the NASDAQ tech heavy. Speaking of tech we heard some very upbeat comments on the economy from Cisco's chief Executive Officer John Chambers. What do you make of his optimism?
HARRISON: Well, you know, I think fundamental analysis is yet another metric and it's one metric. And I think that warrants respect. But you know, I don't think that the financial crisis has necessarily disappeared. I think it's simply changed shape and it is entering into a new socioeconomic realm, if you will. You know, and that I think warrants caution as not necessarily on a trading basis, but just through a broader lens. I think Paul, one of the great misperceptions in history is that the crash caused the great depression when it reality, the great depression caused the crash or social mood and risk appetites are what shaped financial markets. And I think that is going to continue to continue for a while for the foreseeable future.
KANGAS: We just have 30 seconds left, but has crisis really changed our habits when it comes to money?
HARRISON: Well, I think so. And I think that this is, we've entered into, from an age of conspicuous consumption into an age of austerity. And I think spending habits and social mood again are changing. And I think that is a process. It's a prolonged process. If you look at what has gone on over the last 10 years in the market, it has been pretty stagnant overall. There is going to be great rallies. There's going to be pretty nauseous declines but I think capital preservation is going to serve investors in great stead. Once we get through this, there's going to be fantastic opportunities. We just need to go through it to get through it.
KANGAS: OK, Todd, thanks for sharing your insights with us.
HARRISON: Paul, congratulations on the lifetime Emmy award achievement. That is fantastic.
KANGAS: Thank you, my guest is Todd Harrison, CEO of Minyanville. SUSIE GHARIB: Verizon Wireless' new Droid phone hits the market tomorrow. We've told you what it will mean for the company, but will consumers like it? For answers to that and other tech questions, we're introducing a new segment from "The Miami Herald" tonight called "Cache and Carey."
"Cache and Carey"-Smart Phones
SUSIE GHARIB: Verizon Wireless' new Droid phone hits the market tomorrow. We've told you what it will mean for the company, but will consumers like it? For answers to that and other tech questions, we're introducing a new segment from "The Miami Herald" tonight called "Cache and Carey."
BRIDGET CAREY, REPORTER, THE MIAMI HERALD: Hi, Bridget Carey here and this week Verizon customers can finally own a touch-screen smart phone that they can proudly show off in public. It's the new Motorola Droid, the first Verizon phone running on Google's Android mobile operating system. It's 199.99 after rebate and two year contract. It's got 16 gigs of memory and a great five megapixel camera with a flash. There's also this very impressive GPS navigation system with a voice search function. So I would say map of gas stations or navigate to the "Miami Herald" and it will give you spoken directions. Now if you've seen other Android phones, the interface is pretty much similar. You have these three customizable home screens for icons, widgets and lots of app to play around with in the Android store. It slides open to reveal a full qwerty keyboard but the keys are kind of flat so I found myself typing kind of slow with my nails, but it gives you the option to use an on-screen keyboard so you get the best of both worlds. The flat keys were my only real disappointment. But overall, it is a solid smart phone. From the "Miami Herald" I'm Bridget Carey.
Paul Kangas' Stocks in the News
PAUL KANGAS: A bigger than expected drop in weekly jobless benefit claims helped Wall Street stage a sharp opening rally. Buyers were also motivated by a solid jump in third quarter productivity and higher October retail sales. The Dow was up 180 points by 1:00 p.m. with the NASDAQ up 46 points. The market went on to close at the day's very best level thanks to buyers afraid of missing out on the rally and short covering. The Dow Industrial Average soared 203.82 points ending at 10,005.96. The NASDAQ Composite vaulted 49.80 to 2,105.32 while the Standard & Poor's 500 Index jumped 20.13 ending at 1,066.63. Over in the bond market, the 10-year note lost 2/32 to par and 26/32, putting the yield at 3.53 percent. Big board volume leader on nearly 50 million shares, Citigroup (C) gaining $0.09.
Followed by Bank of America (BAC) up $0.43.
Then a major casualty, CVS Caremark (CVX) plunging $7.28. Third quarter earnings were a bit higher out today, $0.76 versus last year's $0.60, but the company had some big client losses in its pharmacy benefits business which is called Caremark (ph). Also the Federal Trade Commission is probing the company's business practices and on top of that, Standard & Poor's downgraded the stock from "strong buy" to "buy."
Ford Motor Co (F) $0.18 gain.
General Electric (GE) moved up $0.24.
Pfizer (PFE) a $0.09 gain.
IMS Health (RX) went public today. Private equity funds, didn't go public actually. It was taken over by TPG Capital and CTP Investment board. They'll acquire this firm IMS for $22 a share in cash.
Ambac Financial (ABK) down $0.30. JPMorgan says the company may be placed into receivership due to the liquidity shortfall.
Sprint Nextel (S) down $0.08.
And then Hyatt Hotels (H), this one is the one that went public today at a price of $25, 38 million shares offered, had a good debut, moving up three points from the offering price.
The Dow stocks that did very well today included American Express (AXP), Boeing Co (BA), Caterpillar (CAT) and Dupont Co (DD), nice gains all over $1.
JCPenney Co (JCP) however down $1.76. October same store sales fell 4 1/2 percent and the company sees just a little improvement heading into the holiday season.
Another retailer, Aeropostale (ARO) losing $4.56. Its October same store sales were up 3 percent, but the Street was thinking they'd be up 14 percent. Meanwhile, Keybanc brokerage downgraded it from "buy" to a "hold."
Insurance company Allstate (ALL) down $0.57. Third quarter operating earnings, $0.99, way up from a loss of $0.35 last year, but those earnings were $0.02 below the Street estimate.
Protective Life (PL) down $3.65. Third quarter earnings, $0.55, down from $0.88 and $0.21 below the Wall Street estimate.
Sara Lee (SLE) up $0.42. First quarter earnings up 23 percent from last year, $0.41 versus $0.32.
And then finally we see Medtronics (MDT) a gain of $1.87. Credit Suisse brokerage upgraded it from "neutral" to "out perform."
NASDAQ's most active Apple (AAPL) up $3.22.
Cisco Systems (CSCO) $0.64 gain. After the close yesterday as we reported, first quarter earnings came in at $0.36 a share, $0.05 better than the Street expected.
Qualcomm (QCOM) up $2.25. Fourth quarter earnings out today, $0.48 versus $0.52 last year, but the stock is up on news of an extension of a licensing pact with Samsung.
Microsoft (MSFT) $0.41 gain.
Directv (DTV) up $1.70. Third quarter earnings, $0.37, $0.02 below last year, but revenues were better than expected and the company added 136,000 subscribers.
Intel (INTC) $0.30 gain there.
Research in Motion (RIMM) up $0.18. It's going to buy back up to $1.2 billion worth of its stock.
Amazon.com (AMZN) up $3.51.
Liberty Media (LMDIA) was up $1.76.
And then Google (GOOG) finally up $8.32.
