NBR Transcripts-November 6, 2009
Friday, November 06, 2009Unemployment Rate Returns to Triple Digits
SUSIE GHARIB: The nation's unemployment rate stands at 10.2 percent tonight, the first time it's hit double digits in 26 years. President Obama called the new statistic quote, a sobering number. And no matter how you look at the October job numbers, they are sobering. American businesses cut 190,000 jobs. They have reduced payrolls for 22 straight months. The total number of jobs lost in the recession has now reached 7.3 million. This latest employment report shows that the job market is still weak, even though there are other signs of improvement in the U.S. economy. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: One out of every 10 workers in America is not working and not by choice. Today's data show almost 16 million of people are looking for jobs, a harsh reminder of the pain caused by the great recession. Economist Bruce Kasman warns things are likely to get worse.
BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN: I think it's a reasonable chance that by the time the labor market reaches its worst point, we are actually going to have the worst labor market we've had in the United States since the great depression and that's a pretty sobering reality.
MILLER: Speaking of sobering, by one measure, the jobless rate is actually closer to 17.5 percent. That's the figure if you include part- timers who would rather be full-time and people so discouraged looking for work, they've given up. However, today's report did have some glimmers of hope. Though the economy lost 190,000 jobs last month, that's still well below January's peak. Economist Milton Ezrati says the creation of 34,000 temporary positions in October is also a positive sign.
MILTON EZRATI, ECONOMIST, LORD ABBETT: What happens is-- at a turn in the economy -- and I think there's good evidence that we are seeing a turn toward growth. Business, of course, is very wary and they're not likely to increase their staple payroll, their own payroll, until they are really sure that new sales levels are climbing and that they have secured a higher level of activity.
MILLER: The big unknown is how the Federal Reserve will interpret today's data. The central bank may be reluctant to raise interest rates while the unemployment rate is going up. But the Fed will have to weigh the jobs data against recent positive reports, including the rise in third quarter GDP suggesting recovery is underway.
EZRATI: I think the Federal Reserve is in a bind now. They want very much to change policy to start reabsorbing all the excess liquidity they've poured on the markets, but they know from a political point of view and from an economic management point of view -- it's not all politics -- they really can't move until they see some improvement in the labor market.
MILLER: An improvement in the labor market is not expected anytime soon. Some economists predict two or three years from now, the unemployment rate will still be around 9 percent. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Unemployment Takes a Toll on Teens
SUSIE GHARIB: The job market is even harder on teens. The unemployment rate for teenagers surged to 27.6 percent in October, up almost 2 percent from the previous month. That is as high as it's been since the Department of Labor began tracking unemployment. As Darren Gersh reports, that has important implications for the future.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: For young people looking for work now, this recession feels more like a depression.
UNIDENTIFIED FEMALE: I've been meaning to get like a second job, but people tell me like, it's so hard to find a job nowadays.
UNIDENTIFIED FEMALE: Everyone, everyone I talk to, um, is saying how hard it is to find a job.
UNIDENTIFIED MALE: I've been walking around campus, going outside of campus looking for jobs. There's just nothing available.
GERSH: For teenagers, unemployment rates look more like batting averages than economic stats. Thirty percent of 16 and 17 year olds, one out of three, are unemployed. That's up from 20 percent before the recession began. Twenty five percent of 18 and 19 year olds, one out of four, can't find work. Economist Heidi Shierholz says rising teen unemployment is a troubling sign for the rest of the economy.
HEIDI SHIERHOLZ, ECONOMIST, ECONOMIC POLICY INSTITUTE: Teen workers are the first people fired during a recession and they're the last people hired at the end of the recession. If an economy is doing well, teen workers get brought in, because there's lots of opportunities there. If it's not, they really flounder.
GERSH: Holiday hiring may provide some relief. Human resources consulting firm Aon surveyed big retailers and found 20 percent of them intend to hire more students this season.
PATRICK TOMLINSON, SR. VICE PRES., AON: Additionally, since it's been so uncertain in the economy, a lot of the employers kind of held off a little bit later than they normally would to fill those jobs. So if you're looking very, very short-term to go ahead and try and find an opportunity, that opportunity is really still there.
GERSH: While many teens can avoid the tough labor market by heading for college, not all are so fortunate.
SHIERHOLZ: There are 19 year-old high school graduates who are providing a significant portion of their family income who should be starting on their careers or on their apprenticeships and if those jobs aren't there for them, that sets those young workers back for their entire careers.
GERSH: With the labor market looking sluggish, Shierholz expects teenagers will face high levels of unemployment for another five years. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Elizabeth Warren on TARP Distribution
SUSIE GHARIB: AIG posted today its second consecutive quarterly profit, but its shares tumbled almost 10 percent. The giant insurer warned that its businesses are still weak as sales and premiums continue to decline. Excluding charges, American International Group earned $2.85 a share in the third quarter. That compares to a stunning loss in the year ago period because of huge writedowns from credit default swaps. AIG also said today it plans to take a $5 billion charge in the fourth quarter as it spins off two smaller insurance units. The company is struggling to sell assets so it can repay more than $182 billion in government bailout loans.
JEFF YASTINE: And speaking of bailouts, when Uncle Sam bailed out AIG and the big banks last year, it did so with direct cash injections and government guarantees. Those guarantees have allowed a handful of giant firms to save billions of dollars on their borrowing costs. Elizabeth Warren chairs the congressional oversight panel that's monitoring the bailouts. Stephanie Dhue spoke with her today about their program and its current risks and rewards.
ELIZABETH WARREN, CHAIR, CONGRESSIONAL OVERSIGHT PANEL FOR TARP: In terms of losing that money, the risk is substantially reduced. In fact, probably we never could have lost all of that money. A big part of it was guaranteeing money market funds. The real difference, however, is that while we still have some big guaranties outstanding -- Citibank being the biggest with $300 billion which is still a lot of money -- we really changed the market with those guarantees. And think for example, of money market funds. So up until a year ago, money market funds were uninsured and they paid about a point higher than passbook savings, which was insured. And when the money markets threatened to break the buck, a combination of Treasury and you know, the Fed and the FDIC came in and said we're going to guarantee those. They paid some fees. We ultimately as the taxpayers never had to pay off on those guarantees. And that guarantee expired September 18 -- no fanfare, no notes. Think about it. Is there now anyone left in America who doesn't believe that if money markets break the buck that the Federal government won't race right back in and guarantee them again?
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Your panel also found that a handful of giants, GE Capital, Goldman Sachs, reduced their borrowing cost to the tune of $25 billion. How does that make you feel about the program?
WARREN: So that again, is one of the consequences about what guarantees do. And they distort pricing. So that two financial institutions, otherwise similar in terms of their risk profile, one can borrow with a guaranty to back them up. They borrow much more cheaply and frankly suck capital away from the other financial institutions that don't have the guarantees, that aren't too big to fail and really begin to distort our marketplace.
DHUE: So with the regulatory reform making its way through Congress, will it address these moral hazards?
WARREN: Frankly, that's our only hope. If it doesn't address these moral hazards in an effective way, then we live in a new economic world and it's a world in which government guarantees, whether implicit or explicit, will drive powerful distortions in the market. So they really are right now in Congress deciding our future on that question.
DHUE: You're championing a consumer financial protection agency. But how will that one new agency be any better than a half dozen agencies that already have consumer protection authority?
WARREN: The problem we have right now is that Washington is structured not to do consumer protection. It's structured to take care of the banks. It's structured to take care of big monetary policy and let the consumer take the (INAUDIBLE). This is an agency that will be directly responsible to consumers, that will report to Congress and to the president of the United States to say, here's what we've done for the consumer credit market and here's where we failed. And you can hold us accountable.
DHUE: Now Congressman Barney Frank wants you to head that agency and your critics say you haven't had a -- any bank experience. What's your thought?
WARREN: I haven't proven my love for the banks. You know, my response
DHUE: You hate them.
WARREN: You know this really amazes me. I hate banks that cheat. I don't like practices like burying trips and tracks in 30 pages of fine print. I don't like practices that tell people this is what the mortgage looks like and it's only after they've signed that they find out what it really is. I actually want to see banks transparent, offer good products that are available to consumers. I want to see them innovate in ways that are helpful to consumers.
DHUE: Elizabeth Warren, thank you so much for joining us.
WARREN: Thank you.
"Market Monitor" -David Darst, Chief Investment Strategist at Morgan Stanley Smith Barney
PAUL KANGAS: Our "Market Monitor" guest tonight says we're in a quote multi-year bull market. He's David Darst, chief investment strategist at Morgan Stanley Smith Barney. David, welcome to NIGHTLY BUSINESS REPORT. DAVID DARST, CHIEF INVESTMENT STRATEGIST, MORGAN STANLEY SMITH BARNEY: Susie, thanks for having me. All of my colleagues at Morgan Stanley Smith Barney, we love your show and congratulations on the show and congratulations to the world champion New York Yankees, Susie. GHARIB: Well, we're happy about everything you just said. Now, let's talk about the market. So you're bullish, even though some of the numbers on the economy today, like those jobs numbers, were not very good. DARST: Well, you're right and this has been expected. Everybody knows that house prices have been under pressure. Jobs have been under tremendous pressure and also toxic assets on the banks' balance sheets. These things have been known by the market. What we see as positive influences, Susie, are stimulus. That's the low interest rates, also the government actions to extend the first-time home buyer tax credit, things like that. Secondly, leading economic indicators. These are advanced indicators of how the economy is likely to perform. They're up 5.7 percent in the last six months. And you mentioned at the top of the show, how the unemployment numbers are the worst since way back in the 1980s. The lead economic indicators are the strongest since back in 1983, 26 years ago. Number three, Susie, outside the United States, economies are growing. Big economies -- Canada, Australia Japan, Russia, Brazil. The employment is actually expanding there. You had John Chambers of Cisco talking about their outlook and how much better it looks to him because of the international aspect. The last three things, four, five, and six, retail sales numbers look OK to us for October, the retailers, that is. The -- there's a lot of liquidity out there and inflation remains low. It remains subdued. The individual investors put about $215 billion out of money market funds into bond funds and not into stock funds, Susie. SUSIE GHARIB: So now let's take those scenes (ph) and look at the stocks that you're recommending. This is your first time on NIGHTLY BUSINESS REPORT as a "Market Monitor" so tell us. You have Bank of America (BAC) at the top of your list. Ticker symbol BAC. Why do you like it? How does it fit into everything you just told us?
DARST: We see gradual improvement of the financial system. They manage to buy and to take over very, very prized assets, the Merrill Lynch franchise -- not only in the United States but globally in investment banking franchise. Countrywide, the mortgage there, we see that company able in a couple of years' time -- 2011, let's say -- able to earn $27 billion after taxes. This is the estimate Morgan Stanley researched. (INAUDIBLE) Our lead banking analyst, $27 billion, Susie. You divide that by nine billion shares outstanding, put a 10 multiple on it, that stock ends up being 30 which is roughly double where it is today. That's one reason we like Bank America.
GHARIB: OK. Let's move around. Your other stock pick you told me about, Microsoft, ticker symbol MSFT up a bit today. What's the attraction there, David?
DARST: Microsoft we see as entering a brand new cycle with this Windows 7, also in their server business, Susie and in their operating system business. We see this -- we just raised, Morgan Stanley research raised earnings estimate from $0.85 per share up to $1 a share. We see this as entering a huge growth cycle. The early reports on Microsoft are very positive. The numbers three and four reasons there is cost cutting. They've really managed to keep their expenses under control there. We've seen that add to the bottom line and also-- also, buying back stock. We see a tremendous stock buyback program of around $7 billion per year annualized for Microsoft.
GHARIB: Let me see if we can squeeze in. You made a very good case for Microsoft. Give us your case for WIP, these are inflation-protected bond ETFs. How does this fit in?
DARST: Susie, thank you so much. I would say I own Microsoft personally. I do not own Bank of America right now, personally. I got plenty of Morgan Stanley stock. So that's the reason why not. The WIP, that's world inflation protection, is the symbol of an exchange-traded fund, Susie that invests in inflation-protected securities outside the United States -- England, Canada, Australia, Brazil. There are 17 countries in that portfolio that follows the index and we think you get a currency play plus an inflation play and that becomes..
GHARIB: They're telling me we got to go. I hate to interrupt you because you got really good stuff. David, thank you so much. Hope to get you back on the program.
DARST: Thanks, Susie, thanks for having me.
GHARIB: Our "Market Monitor" tonight, David Darst, chief investment strategist at Morgan Stanley Smith Barney.
Paul Kangas' Stocks in the News
JEFF YASTINE: Wall Street took the employment numbers in stride. The Dow and NASDAQ moved sideways through much of the session. The jobs data likely means more of what's already propelled this months-long rally: low interest rates. It also led to a big drop in oil prices down 3 percent and that helped lift some consumer related stocks today. So the Dow rose 17.46 to end at 10023.42. This week, the index rose in four out of the last five sessions for an overall gain of 310.6 points and the NASDAQ Composite advancing a little over 7 to 2112.44. And like the Dow, it fell only once this week for an overall gain of 67 1/3 points. The S&P 500 rising 2.67 to 1069.3, for the week up a little over 33 points. And in the bond market, the 10-year note rose 7/32 to 101 1/32, putting the yield at 3 1/2 percent.
Citigroup (C) topping our list unchanged today.
General Electric (GE) jumping $0.90. The company's $30 billion garage sale of assets in coming years should help the stock, say analysts, especially with lower risks in place at GE Capital. Analysts say to see NBC Universal appears to be progressing.
Ford Motor Co (F) picked up $0.30.
And then Bank of America (BAC) down $0.08.
Motorola (MOT) losing $0.42.
CVS Caremark (CVS) rose $0.92. Investors stepping into the void today after a probe (ph) by the Federal Trade Commission came to light yesterday.
Pfizer (PFE) ended $0.06 lower.
Then we have Merck (MRK) off $0.12.
Fannie Mae (FNM) finished down $0.08. Fannie posted a lower third quarter loss but the spike in foreclosures prompted the firm to ask for another $15 billion draw from its $200 billion government credit line.
Wells Fargo (WFC) dropped $0.17.
And Lowe's (LOW) rose $0.87. Analysts at Bank of America Merrill Lynch are knocking on wood hoping that Lowe's and Home Depot will boost their dividends if an economic recovery really takes hold.
Shares in Travelers Co (TRV) rose $1.26. Goldman Sachs highlighting the insurer's strong balance sheet. They issued a "buy" on the stock.
And International Game Technology (IGT) picked up $1.62. IGT isn't hitting the jackpot yet with slot machine sales, but the company says more casinos are stepping up to the pay line (ph). Fiscal fourth quarter profits were better as well.
Macy's (M) gained $1.16. JPMorgan upgrading those shares. Monthly sales are improving so analysts see the potential for earnings surprises in the fourth quarter.
On the downside, Sunoco (SUN) fell more than $3, a third quarter loss there on weak demand for its fuel and chemicals and the company does not see a significant improvement in the refining market until 2010.
CVR Energy (CVI) dropped $1.81. A Goldman Sachs affiliate will sell seven million shares, cutting their stake from 36 percent to 28 percent. Last month, CVR said it would cancel an (INAUDIBLE) which it had had in position for a while and the affiliate of Goldman Sachs (INAUDIBLE) Rosetta Stone (RST) off $2.13, Wall Street not liking the company's financial language. Profits were 12 percent lower than year ago levels. Executives said U.S. consumers are not spending on language products because of the recession.
Now onto the NASDAQ, Apple (AAPL) rose $0.31. Steve Jobs was named CEO of the decade by "Fortune" magazine.
Amazon.com (AMZN) jumped more than $5.50, the online retailer getting an upgrade from analysts at Bernstein. They see a price target of $160 on the shares.
Microsoft (MSFT) up a fraction. Steve Ballmer said yesterday that Windows 7 sales have been quote, fantastic with more revenues booked in 10 days than any other previous version of Windows.
Baidu (BIDU) advanced more than $13.
Google (GOOG) gaining nearly $2.50.
Research in Motion (RIMM) picked up $0.93.
Cisco Systems (CSCO) dropping $0.11.
Intel (INTC) up $0.04.
Directv (DTV) and Qualcomm (QCOM) both gaining a nickel.
Starbucks (SBUX) jumped $1.42. The turn on continuing there. Sale store sales were lower. Revenues were lower, but earnings more than doubled. CEO Howard Schultz says the chain is now shifting from cost- cutting mode to growth mode.
And finally, Freightcar America (RAIL) shares ran off the track, falling almost $4. The company did not see a single order during the entire third quarter compared to 2300 rail cars ordered in the year ago period. So if there's an economic recovery going on Susie, this builder of new freight rail cars has not seen that recovery yet.
That's a look at our stocks in the news tonight.
