NBR Transcripts - November 9, 2009
Monday, November 09, 2009The Dow Reaches a New 2009 High
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Good evening everyone. A big stock market rally today as the Dow surged to a new high for the year. The blue chips rose 203 points with 29 of the Dow's 30 components in the green, except for Kraft Foods. Investors were encouraged to buy on word that policymakers from the world's 20 largest nations agreed over the weekend to continue providing stimulus to the global economy. Gold prices also hit a record high but the U.S. dollar fell to a 15-month low against the euro.
Analysis of the Dow's 203 Point Run-Up
SUSIE GHARIB: So what do all these developments mean for investors and the economy? Joining us now, Drew Matus, U.S. economist at B of A Merrill Lynch Global Research and Scott Wren, senior equity strategist at Wells Fargo Advisors. Gentlemen, welcome to NIGHTLY BUSINESS REPORT.
DREW MATUS, U.S. ECONOMIST, BANK OF AMERICA: Thanks for having us.
SCOTT WREN, SR. EQUITY STRATEGIST, WELLS FARGO ADVISORS: Hi, Susie.
GHARIB: Scott, let me begin with you. What's behind the rally and will it continue?
WREN: Susie, I think overall rally has been built on number one on earnings. We've had two blowout earnings quarters in a row. I think earnings estimates are too low. I don't think it's any surprise at all that the G-20 is going to leave a lot of stimulus measures in place. I think a lot of our trading partners were starting to talk tough about interest rates and liquidity and things like that. But in the end I think it's -- one could expect that hey, these stimulus measures are going to be in place for a while. Interest rates are going to remain very low for a while. So all of those things have helped to drive the market higher.
GHARIB: Drew, I was talking to somebody today and he said that this is a liquidity bubble masquerading as a recovery. If you pull the stimulus out. there is no recovery. How do you respond to that?
SCOTUS Examines Patent Policies
MATUS: I wouldn't say there is no recovery but certainly when the Fed is deciding when they're going to raise interest rates, they're going to be looking at it through the lens of all the additional liquidity they've added and asking themselves that exact same question. What happens if we pull it out? And that is one of the reasons why Bank of America, Merrill Lynch doesn't expect them to move until 2011.
GHARIB: Scott, let me go back to something that you said about earnings are coming in better than people are expecting. Are companies really doing better or are they -- is it just a matter of them having cut costs and that's why we're seeing some growth?
WREN: Susie, we get questions about the revenue growth type situation all the time. And really if you think about it, at this point in the cycle when you are coming out of a bottom, you know companies, the way that earnings improve are always because of cost-cutting. Revenue growth is later. And I think it's going to be no different in this particular recovery. Probably we have sequentially earnings are getting better. Sequentially earnings are going up, but on a year-over-year basis we're going have to wait a little while. But cost-cutting is always how earnings improve off the bottom.
GHARIB: Drew, should we be concerned that the dollar is hitting these lows and stocks are going up? Is that a good or bad thing for companies and for the markets?
Investment Income Options
MATUS: Well, the dollar is often seen as some sort of view on the health of the U.S. economy. In some ways it might be correct, but you have to remember that the S&P 500 more closely mirrors the global economy rather than the U.S. economy. And so the dollar going down actually is somewhat helpful for those companies. And as we look ahead too we also have to remember that a weaker dollar means better U.S. exports, more exports because they are cheaper and that will be helpful as well.
GHARIB: And Drew, let me also ask you this. A lot of people are looking at the stock market rally. They are scratching their heads because they also saw that unemployment is at 10.2 percent. Is there a disconnect between what's going on in the economy and what is going on in the markets?
MATUS: No, there are lags. And the lag in the unemployment rate is a well-known thing, so about two quarters after the economy lags the unemployment rate will peak and about two quarters after that you could start worrying about inflation. But you know if you just kind of remove the lags from the equation, it just doesn't work. There are always lags. There will always be lags. And so I think what we are seeing is perfectly normal.
Paul Kangas' Stocks in the News
GHARIB: Scott what do you say to that, about this disconnect? I'm sure a lot of your clients are asking you this.
WREN: They definitely are. And I've been doing a bunch of client events here lately, Susie. And that is certainly one of the big questions on their minds. As Drew said, you know, employment is always a lagging indicator. I think that right now we're in that part of the cycle where productivity growth is high. Companies are trying to do as much as they can, produce as much as they can with fewer inputs, in other words, fewer employees. So they don't want to hire people until they absolutely have to. I think this particular cycle, employment's probably going to come back slower than it has at least for the last few cycles.
GHARIB: All right, gentlemen. Thank you very much for coming on the program and analyzing this. We really appreciate it.
MATUS: Thank you.
GHARIB: Thank you very much, my guests tonight, Drew Matus of B of A Merrill Lynch Global Research and Scott Wren of Wells Fargo Advisors.
JEFF YASTINE: The Supreme Court today seemed skeptical of the idea that new ways of doing business should be granted the same patent protections as new machines and technical breakthroughs. That was the issue before the court today in the case of Bilski v. Kappos. As Darren Gersh reports, it could set the standard for patent protections in an increasingly knowledge-driven economy.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: These two inventors Bernard Bilski and Rand Warsaw are trying to patent a way to hedge against the risk of rising energy bills. Michael Jakes represented the inventors before the high court, arguing their work is a product of a knowledge economy.
MICHAEL JAKES, ATTORNEY FOR BILSKI: The real reason people are getting patents is because there has just been a huge surge in innovation in financial engineering and operations research, things in that area that now should be eligible for patenting.
GERSH: Under the law, no one can patent an abstract idea and Chief Justice John Roberts asked whether risk management wouldn't fall under that category. The only physical step in the process Roberts said was picking up the phone to buy and sell commodities. Justice Ruth Bader Ginsburg pointed to other patents granted for ways to pick a jury or avoid taxes. The court wanted to know where to draw the line on these kinds of business methods which don't involve machines or technology. Jakes argued as long as the business method is new and not obvious, two traditional standards for patents, it should be approved. Law professor Pamela Samuelson filed a brief with the court on behalf of an online civil liberties group arguing such patents provide little benefit to society.
Teen Entrepreneurs
PAMELA SAMUELSON, LAW PROFESSOR, U.C. BERKELEY: It's just difficult to do searches and impose huge amount of cost on society if everybody who decides that they are going to engage in a hedging strategy has to go check the patent office records to see whether or not they have to clear rights.
GERSH: Law professor Kevin Collins says the court today showed it clearly wants to rein in the patent system, but isn't sure how hard to pull.
KEVIN COLLINS, LAW PROFESSOR, INDIANA UNIVERSITY: Either the case could go from a relatively narrow exclusion that affects only business method patents to quite a broad exclusion from patentability that could affect the patentability of a number of software and biotech inventions.
GERSH: Which is why companies like Yahoo! and Microsoft filed briefs in this case and are watching it closely. A decision is expected next spring. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Commentary - Exposing Hidden Leaders
JEFF YASTINE: Also in the bond market today, $40 billion in three-year notes were successfully auctioned off in the first leg of this week's massive quarterly refunding. Traders said demand for the notes was stunning. Investors have been gobbling up government debt despite extremely low yields. But as Suzanne Pratt reports, there are other places to look for investment income while the economy recovers.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Courtesy of the Federal Reserve, interest rates are at historic lows. Those low rates flow through to everything from bank accounts to bonds and that means investors searching for yield are having a tough time. So what are the choices? If you are risk averse, you can get a two-year CD for more than 2 percent. Experts recommend avoiding longer-term CDs in favor of waiting for rates to climb higher. Money market accounts currently pay less than 2 percent. They're more liquid than CDs but only those from chartered banks are FDIC insured. Ten-year Treasury bonds pay about 3.5 percent. But, unless you're planning to hold them until maturity, experts say they're a gamble because if inflation heats up, Treasuries will fall in price and in value. That brings us to TIPs, the inflation protected twist on conventional Treasuries. Financial planner Stacy Francis likes them for the next few years.
STACY FRANCIS, FINANCIAL PLANNER, FRANCIS FINANCIAL: With the huge stimulus package that we've seen over the last year, year and a half, that eventually may cause some inflation. Your best protection against inflation when it comes to bonds is TIPs.
PRATT: And then there are municipal bonds. They can be attractive to investors in high tax states. But inflation risk plagues munis, too. Experts advise sticking with short to medium term maturities to reduce that risk. But don't forget equities, particularly dividend paying stocks. While it's harder today to pick good ones, experts say there are solid choices yielding as much as 4 percent. Standard & Poor's posts a list of companies on its website that it says generate enough cash to pay dividends. Still, S&P's Howard Silverblatt says there's a new reality even in the dividend world.
HOWARD SILVERBLATT, SR. INDEX ANALYST, STANDARD & POOR'S: If you're looking for 5 or 6 percent return you're not going to get it. At least if you do get it, you're not going to be able to sleep. You're going to have to set your sights a lot lower and be dealing with the 2, 3 and 4 percent range and accept some risk because there is risk everywhere.
PRATT: It is widely presumed that interest rates will remain very low for the next year. That means income investors are unlikely to find yields north of 4 percent without venturing into riskier products. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
JEFF YASTINE: There was just one decision on Wall Street today and that was buy. The Dow rose 150 points in the first half of the session fueled by that G-20 pledge to keep the stimulus going and the NASDAQ saw gains on word global shipments of micro processor chips hit an all-time quarterly high. All of that spoke to resurgent confidence on Wall Street, with the blue chips ending at a fresh high for the year, the Dow rising 203.52 to 10226.94. The NASDAQ adds 41.62 to 2154.07 and the S&P 500 jumping 23.78 to 1093 and a fraction. In the bond market, the 10-year note rising 5/32 to 101 5/32 and the yield at 3.48 percent.
And there's Citigroup (C) advancing $0.13 leading our list today.
Ford Motor Co (F) rising $0.43. The auto maker raised just under $3 billion thanks to a successful offering of convertible notes.
Sprint Nextel (S) rising $0.58. After the close, the company said it will take an $80 million charge to cover 2500 layoffs and that move expected to save $350 million annually.
Bank of America (BAC) up $0.72.
And then there's General Electric (GE) gaining $0.52.
Pfizer (PFE) advanced $0.47.
And Merck (MRK) up $0.84. The drug maker's back at the patent and trade office, making another case for the validity of its patent covering the asthma drug Singular.
Wells Fargo (WFC) up $1.28.
JPMorgan Chase (JPM) rising $0.87.
AT&T (T) up $0.41.
Then we have McDonald's (MCD) where we see the shares heating up, rising $0.92. The fast food giant managed to post a 3.3 percent jump in global same store sales despite the weakness in the U.S. Decent growth in Europe and Asia taking up the slack there.
Las Vegas Sands (LVS) spiked up $1.44. The company shepherding an IPO of its Macau unit to raise $3.4 billion.
RadioShack (RSH) jumped over $2.50. They've got questions. Steve Jobs has answers. The iPhone will soon be on sale at the Shack. This may bode well for upcoming holiday sales. Analysts excited about the earnings prospects certainly.
Revlon (REV) soared over $4. The cosmetics giant now refinancing some of its long-term debt after lenders signed off on the deal.
And speaking of refinancing, Sunrise Assisted Living (SRZ) nose diving $1.38, 32 percent drop there. The nursing home operator posted yet another quarterly loss as it faces a drop in occupancy rates and some talk about bankruptcy there.
Shares in Devry (DV) taking it (ph), falling nearly $2 on a negative report from "Barron's" that questioned the industry's enrollment practices and low graduation rates.
And MBIA (MBI) up $0.45, but tanked $0.80 in after hours on disappointing, disappointment rather over mounting losses in insured credit derivatives. The result was a quarterly loss of $3.50 a share.
On the NASDAQ, Apple (AAPL) rising over $7 and those shares now posting yield highs of $208 a share set back late last month.
Microsoft (MSFT) tacked on $0.47. That stock also approaching yearly highs set in late October.
Research in Motion (RIMM) up nearly $3.
Google (GOOG) shooting up over $11. That company acquired a start up provider of ad placement technology on mobile phones, $750 million.
Baidu (BIDU) advancing more than $16.
Cisco Systems (CSCO) rising $0.17.
Amazon.com (AMZN) up more than $0.47.
Intel (INTC) rising more than half a dollar.
And Qualcomm (QCOM) up $0.85.
Directv (DTV) losing just a fraction.
Wynn Resorts (WYNN) jumped nearly $4. The casino operator declaring a special dividend, $4 a share. That will pay back nearly $500 million to shareholders.
East West Bancorp (EWBC) gaining $4.76. (INAUDIBLE) from the FDIC, East West will take over deposits of the now insolvent United Commercial Bank based in San Francisco. East West chairman calls that deal a transformational event.
And finally Adobe Systems (ADBE) rising $1.80. Goldman Sachs believes sales of Windows 7 will encourage more sales of Adobe's creative suite file.
Those are our stocks in the news tonight.
JEFF YASTINE: While we've all heard entrepreneurial success stories like Apple's Steve Jobs and Sam Walton of Wal-Mart, you may not have heard of 19-year old Jessica Cervantes, but you will. She's part of the new documentary "Ten-Nine-Eight Shoot for the Moon." It focuses on a high school business plan competition that had students competing for seed money.
The film follows some of the 24,000 teens through the competition, as they pitch their business plans to investment professionals. Jessica developed a new food product: popsy cakes. And this is Jessica Cervantes today. Her popsycakes, think cupcake on a stick are now in the research and development phase at this commercial kitchen. She and her advisors are still tinkering with the formula, presentation and packaging. But she has become a veteran at promoting her product, compared to her early efforts shown in the film.
JESSICA CERVANTES, INVENTOR "POPSY CAKES": I'm not a business major. So I didn't know what I was doing. Sometimes my numbers wouldn't add up. I didn't know my materials costs. I didn't know what that was. So it definitely took awhile for this to go smoothly. And there are still some obstacles along the way and we're just trying to deal with them.
YASTINE: The kids in the documentary know plenty about obstacles, with many facing challenges in their personal and family lives, says Alice Horn of the National Foundation for Teaching Entrepreneurship. The group, called Nifty for short, organized the business plan competition for high schools students in 21 states.
ALICE HORN, EXECUTIVE DIR., NFTE SOUTH FLORIDA: They take that business opportunity and they connect it to the business plan. Then they are able to also connect that business plan to academics, to math, to research, to writing and then as an outcome of that, they become more connected with their academics and with their futures.
YASTINE: In the documentary, Macalee Harlis came up with a protective visor, the kind running backs wear in football, which darkens or lightens in response to conditions on the field. Harlis is now a chemistry major in college.
MACALEE HARLIS, INVENTOR "MAC SHIELDS": I was inspired. And I really wanted to do it. And I knew it was something that would be in demand on the football field because I was a football player at the time. So I was throwing these ideas at my fellow players and they were like, yeah, that'd be good.
YASTINE: And remember Jessica Cervantes? Her business plan for Popsy cakes won it all. She's using her winnings to launch her business and get an education.
JEFF YASTINE: The documentary "Ten-Nine-Eight" debuts in theaters nationwide this week. And tonight's commentator coaches teen entrepreneurs and she says teens make natural business leaders. She's Shonika Proctor.
SHONIKA PROCTOR, TEEN ENTREPRENEUR COACH: When I mentor teens, I see their determination, power and potential as they put business ideas together. This experience has made me realize that entrepreneurship is not a course or a class, but a level of consciousness that many teens have, but are unaware of. When given encouragement and opportunity, they see their strengths and how they can be a teen entrepreneur now.
In experimenting and trying to figure out how to create their own identity, teens instinctively use the personality traits shared by successful entrepreneurs. They are creative, opinionated and tend to challenge authority. They do not segregate work, learning and play, which through the eyes of a parent can be misinterpreted as being unfocused. Teens who are seen as unmanageable by their parents or teachers are often the ones displaying early signs of innovation, fearlessness and leadership.
If you have seen these personality traits in the teens in your life, maybe it is time you reassess your perception of their potential. I have worked with teens that fit this profile who have overcome life challenges and negative labels to beat the odds in school, life and business. They have written and published books. They have designed and manufactured products. They have even been featured on national television. So I leave you with this thought. Take your teens' aspirations seriously. Although they may not conform to the world around them, perhaps this is exactly the trait that will allow them to create their own world, a world we call a business. I'm Shonika Proctor.
