NBR Transcripts- November 16, 2009
Monday, November 16, 2009S&P 500 Gets a Rise Out of Fed. Chairman Bernanke's Statements
SUSIE GHARIB: Moderate growth, subdued inflation and low interest rates: that was the message today from Ben Bernanke. Those comments about the U.S. economy from the Federal Reserve chairman were just what investors wanted to hear. The S&P 500 closed above the psychologically important 1100 level for the first time in a year. In a speech to business leaders in New York, Bernanke also spoke up about a subject most Fed chairmen avoid: the U.S. dollar. Suzanne Pratt has more on that and analysis of Bernanke's economic forecast.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Expectations were high today that Fed Chairman Ben Bernanke might say something that could rock financial markets. That did not happen. Instead, Bernanke gave a detailed assessment of the economy, saying he expects moderate economic growth to continue into next year but, that the U.S. still faces challenges.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: The flow of credit remains constrained, economic activity weak and much too high. Future setbacks are possible.
PRATT: The Fed chairman did stray from central bank tradition, talking a bit about the declining value of the dollar. He said the central bank is committed to a strong dollar and will watch the situation. Former Fed Vice Chairman Alan Blinder said Bernanke's comments were unusual but not unprecedented.
ALAN BLINDER, ECONOMICS PROFESSOR, PRINCETON UNIVERSITY: Fed chairs usually don't like to say anything about the dollar. I thought what he said was eminently reasonable. I say things like that all the time, but nobody cares what I say about the dollar. If the Fed chairman says it, even if it's obvious, it can tend to be newsworthy.
PRATT: As far as the Fed and interest rates, Bernanke repeated rates will stay exceptionally low for an extended period. Economist Josh Feinman says that probably means no change in monetary policy anytime soon.
JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MGMT.: The earliest I could really envision the Fed starting the process of exiting would be the second half of next year. And that would be the earliest.
PRATT: Bernanke's speech underpinned a rally in stocks that was well underway before he took the podium. UBS strategist Mike Ryan says the Fed chairman assured investors the Fed would maintain the status quo.
MIKE RYAN, HEAD OF WEALTH MANAGEMENT, UBS: I don't expect policymakers to make any moves that are going to jeopardize the recovery process. In other words they are not going to go out and start raising rates prematurely, nor are they going to go out and start withdrawing stimulus.
PRATT: On the subject of the labor market, Bernanke was not particularly positive. He said jobs will remain hard to find, keeping consumers cautious about their spending. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
President Obama Talks Jobs in Beijing
SUSIE GHARIB: American jobs are one issue President Obama will bring up when he meets with Chinese leaders in Beijing tomorrow. It all comes down to Chinese exports and the value of the country's currency, the yuan. But as Darren Gersh reports, it's unlikely the Chinese will make any sudden change in policy.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The holiday season is when U.S.-China economic relations shift into high gear. Low- priced Chinese goods stock our shelves and a flood of dollars head back across the Pacific. Keeping that going is a top priority for party leaders in Beijing, says currency analyst Win Thin.
WIN THIN, SR. CURRENCY STRATEGIST, BROWN BROTHERS HARRIMAN: They favor stability in times of crisis. I think if you read the official comments, they believe they are still in the crisis.
GERSH: American exporters argue the yuan is kept artificially undervalued in order to boost Chinese exports, a complaint President Obama will raise in Beijing. But Win Thin expects Chinese leaders will not allow the yuan to budge until the financial crisis is safely behind them, meaning next summer at the earliest. Even so, the Chinese are aware a loose yuan policy may overheat their economy.
THIN: Where does all that liquidity go? It does go to buying goods. It goes to buying -- perhaps into investing in plants and infrastructure. But a lot of it is going into asset markets. The property market is approaching bubble territory. Equity markets are very frothy. So I think the policy makers are concerned.
GERSH: Trade expert Dan Griswold is somewhat less concerned. He argues U.S.-China trade has provided stability to the global economy.
DANIEL GRISWOLD, CENTER FOR TRADE POLICY, CATO INSTITUTE: Part of the rebound in east Asia is countries ability to export to China and to hitch their wagon to China's continued strong growth. So I think it is in China's interest to liberalize its currency, but I don't see any crisis.
GERSH: While many U.S. manufacturers would like to see China boost its currency, they are not expecting rapid results. At the National Association of Manufacturers, Frank Vargo thinks the Chinese aren't quite sure how to settle this currency debate.
FRANK VARGO, VP INTERNATIONAL, NAM: And I think within the Chinese government there are different schools of thought. There are the old- liners from the industry ministries who say you just can't do this. And there are those I think from the financial ministry who say we've got to do it.
GERSH: The Chinese are facing some tough math. They own almost $2.5 trillion of our debt, so a large increase in the yuan means a large loss on their investment in the U.S. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
GM's Big Payback
SUSIE GHARIB: Today's retail report showed an uptrend in auto sales. But, those sales weren't strong enough to push General Motors back into the black as the auto maker reported its first quarterly results since emerging from bankruptcy. GM lost more than a billion dollars in the third quarter but the results were a lot better than a year ago. As Diane Eastabrook reports, GM now says it's finally on the road to recovery and is ready to start paying back taxpayers.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: CEO Fritz Henderson says GM is showing signs of progress, giving the company enough confidence to begin repaying nearly $7 billion in taxpayer loans.
FRITZ HENDERSON, CEO, GENERAL MOTORS: We certainly felt given our liquidity position that we're able to do it and we're committed to do this. We have to begin the process. It's a personal commitment. It's a commitment of the entire leadership team of the company.
EASTABROOK: HIS Global Insight auto analyst Rebecca Lindland also applauded the plan.
REBECCA LINDLAND, AUTO ANALYST, IHS GLOBAL INSIGHT: I think that it's a good thing. I think it's a good sign. I think it's a signal to the American public that they took those loans very seriously and they understand that it's very important that they start paying the government back. So I think that's a positive for them.
EASTABROOK: Henderson says GM is ahead on its turnaround efforts. He's especially encouraged by the $3 billion in cash the company generated in the last quarter through cost-cutting and improved sales in Asia and Latin America. Still, the CEO was disappointed by the quarterly loss.
HENDERSON: It's certainly better than our plan going into bankruptcy. But nonetheless, it's a loss and you cannot be satisfied with it.
EASTABROOK: The outlook next year for GM is a bit murky. U.S. auto sales could have trouble gaining traction if unemployment keeps rising and consumer confidence keeps falling. Lindland is encouraged by the progress GM is making and is optimistic the company will break even next year or possibly turn a profit.
LINDLAND: Once they sort of bit the bullet and went through bankruptcy, then the American public has actually responded pretty well. Their sales did not decline as much as we expected. So, I think that when we look at their prospects, this has been the worse that they've come through and I think they're starting to come out of it.
EASTABROOK: GM thinks an initial public stock offering could come by the middle of next year, provided the capital markets improve and auto sales shift out of neutral. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"Your Mind and Your Money"-Herd Mentality
SUSIE GHARIB: While there are many reasons to buy a stock, many people do it just because others are buying. And that tendency to follow the crowd can lead an investor astray. As we continue our series "Your Mind and Your Money," Dan Grech reports that herd mentality seems deeply embedded in human psychology.
DAN GRECH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Have you ever noticed how animals tend to move together in groups? Whether its birds, elephants or cows, they all seem to share the same instincts to herd. The question is: do we as humans share the same herding behavior?
DR. RICHARD PETERSON, AUTHOR, INSIDE THE INVESTOR'S BRAIN: Herding is a response having not enough information and thinking that others around us can actually give us a shortcut to how to make a decision.
GRECH: Dr. Richard Peterson is a psychiatrist who now manages hedge funds. He says the impulse to stick with the group dates back to our earliest ancestors.
PETERSON: If were in a group of people in the Serengeti and one person starts running, we probably want to pay attention to what they're running away from or start running with them, because those who didn't do so, would be a meal to the lions.
GRECH: Today, lions are less of a problem. But the desire to be part of a group still runs deep. Safety in numbers is one reason people join investment clubs like the Polaris investment club in Palm Beach Gardens, Florida. Once a month, club members meet to invest the cash they've put in the treasury. Sally Escott helped found the club 15 years ago. She says one strength of the group is that members do not always agree.
SALLY ESCOTT, POLARIS INVESTMENT GROUP: We don't get to the fisticuff stage. We just debate and if you're on the winning side of the vote, that's fine and if you are not, that's OK. You go do it on your own.
GRECH: That range of independent views has helped the Polaris club win a national portfolio contest eight years in a row. Co-founder Len Gilman says in other investment clubs, group think often prevails.
LEN GILMAN, POLARIS INVESTMENT CLUB: Our club does not have anybody who is monopolizing or strong arming or over influencing others. And this has been the downfall of some investment clubs.
GRECH: Studies have found that going against the majority is incredibly hard. People will generally suppress their own opinions instead. Dr. Gregory Berns is a neuro-economist at Emory University. In one of his experiments, volunteers were shown three-dimensional blocks in various configurations. They were asked: are the blocks identical? When the volunteers were alone, they almost always gave the correct answer: the blocks are the same. But when they were put with people coached to give the wrong answer, the volunteers changed their minds. They said the blocks were different. Berns says brain scans revealed why. The desire to please the group was so strong, it actually altered the way the volunteers saw the blocks.
DR. GREGORY BERNS, NEUROECONOMIST, EMORY UNIV., SCHOOL OF MEDICINE: There is, as far as our brains go, kind of no reality. The reality is what we construct in our minds. And that's influenced by other people.
GRECH: So studies of the brain confirm that people are very sensitive to peer pressure. But some people are able to withstand that pressure. They're not afraid to go against the crowd. They're called iconoclasts. Among investors, Warren Buffett is an iconoclast. He often goes against conventional wisdom on Wall Street. Peterson says being an iconoclast may seem risky, but it's often profitable.
PETERSON: In the financial markets of today, if you see a danger you can probably bet that everybody else has seen that danger as well. And in fact, it turns out it's probably best to buy at that time when you see the danger. It's very ironic but financial markets are completely counter intuitive.
GRECH: So herding may be good for cows. But if you're an investor, even a bullish one, it's one form of animal behavior you may want to avoid. Dan Grech, NIGHTLY BUSINESS REPORT, Cherry Grove Farms, New Jersey.
"Commentary"-Global Entrepreneurship
SUSIE GHARIB: Today is the start of global entrepreneurship week and tonight's commentator says entrepreneurs hold the key to jump starting employment in this country. He's Tim Kane, senior fellow in research and policy at the Kauffman Foundation.
TIM KANE, SR. FELLOW, RESEARCH & POLICY, KAUFFMAN FOUNDATION: With the U.S. unemployment rate spiking into double digits, Americans are wondering where are the jobs? New research suggests we might look in the mirror. Would it surprise you to know that since 1980, all net job creation has come from firms under five years old? Sure, the big companies make the headlines, but the mantra of the new economy is here to stay. Out with the old, in with the new. But for baby boomers and an aging America, those words make a bleak employment situation even starker. It's because our stereotype of an entrepreneur is a pimply faced Harvard dropout by the name of Bill Gates or a young Steve Jobs. But their stories are celebrated because they are anomalies. This is the start of global entrepreneurship week, a celebration of startups in over 87 countries and a perfect time to get our facts straight. New data from the Kauffman firm survey, a longitudinal survey of nearly 5,000 companies, reveals that two-thirds of firm founders are between the ages of 35 and 54. What about the tech 20-somethings? Even for technology companies, there are twice as many founders over 50 as under 25. This is good news for the recovery, but also for the decades ahead. Baby boomers are less and less inclined to simply retire at 65 and the modern knowledge economy is taking advantage of their expertise. Now if just a few more of us, ahem, seasoned citizens will take the risk with a new startup, we might lay this recession to rest. I'm Tim Kane.
Paul Kangas' Stocks in the News
PAUL KANGAS: Weakness in the dollar gave solid gains to Wall Street this morning. Investors also welcomed a 1.4 percent increase in October retail sales. Surprisingly, much of that gain came from an uptick in auto sales. At 11:00 a.m. the Dow jumped 135 points with the NASDAQ up 30 points. More buyers came off the sidelines as investors seemed to like the Fed chief's forecast for a modest economic recovery. Oil and other commodity stocks lead the rally as the market closed near the day's highs. The Dow ended with a gain of 136.49 points at 10,406.96. The NASDAQ Composite advanced 29.97 ending at 2197.84 and the Standard & Poor's 500 added 15.82, closing above 1100, 1109.30. Over in the bond market, the 10-year note gained 20/32 to par and 7/32, putting the yield at 3.35 percent. Most active big board issue on 56 million shares, Citigroup (C) down or up $0.13. The Paulson hedge fund bought 300 million shares or about $1.4 billion of Citigroup stock in the third quarter.
But Paulson sold a 5 percent stake in Bank of America (BAC) which dropped $0.11 today. Bank analyst Meredith Whitney says the stock market rally is not rooted in fundamentals and she said now is the time to cut waiting in large cap bank stocks.
Sprint Nextel (S) was up $0.40, good percentage move there. Credit Suisse upgraded it from "neutral" to "out perform." The company has paid down $1.08 billion of its revolving credit facility.
General Electric (GE) $0.34 gain there.
Ford Motor Co (F) up $0.30.
Wells Fargo (WFC) a $0.53 advance.
Pfizer (PFE) was up $0.35.
JPMorgan Chase (JPM) a $0.14 advance there.
Bristol Myers Squibb (BMY) was up $1.12. The company will split off its holdings in Mead (ph) Johnson. That's the baby formula company whose stock has more than doubled since February. This also according to analysts makes Bristol Myers more vulnerable to a takeover.
Hewlett-Packard (HPQ), tenth in volume, was up $0.90.
Exxon Mobil (XOM) closed up $1.96. After the close, it was announced that Warren Buffett has boosted its holdings in Exxon from 854,000 shares to a total of 1.28 million shares.
Meanwhile, Wal-Mart Stores (WMT) was down $0.04. Warren Buffett nearly doubled his stake in Wal-Mart on the third quarter to a total of $37.8 million shares.
Boeing Co (BA) was up $1.80. The company issued a very positive outlook for sales from the Mideast.
And gold was glittering today. In New York, the December contract up $22.50 to a record $1139.20 an ounce and the gold stocks as you might imagine all did well. Anglogold Ashanti (AU), Barrick Gold (ABX), Freeport- McMoran C&G (FCX) and Newmont Mining (NEM) nicely on the upside.
The steel stocks did well today after JPMorgan said it's going to add two of them to its focus list. One of them was AK Steel Holding (AKS) up $1.38.
Nucor (NUE) wasn't on the list, but it road along for the ride, up $1.18.
US Steel (X) was on the list, up $1.88.
Devon Energy (DVN) a gain of $3.20. The company will divest all of its Gulf of Mexico and international assets and direct the proceeds to its high-return U.S. and Canadian offshore operations. It'll also use some of the proceeds to retire debt.
Major loser, American Dairy (ADY) plunging $6.89. The company imports Chinese baby formula among other things. Third quarter turnaround, earnings of $0.52 versus a big loss a year ago but the company sees fourth quarter revenues below its previous expectation. That hurt the stock.
NASDAQ's most active, Apple (AAPL) up $2.18.
Microsoft (MSFT) a $0.09 loss.
Intel (INTC) moved up $0.41. The company will boost its quarterly dividend about 13 percent. It'll go from $0.14 a share to $0.1575.
Google (GOOG) up $4.23 although George Soros said he cut his stake by 16 percent to 3700 shares.
Amazon.com (AMZN) $1.38 loss there.
Cisco Systems (CSCO) a $0.16 gain.
Research in Motion (RIMM) was down $1.42.
Oracle (ORCL) moved up $0.49.
And then Baidu (BIDU) a $5.82 advance.
Tenth in volume, Qualcomm (QCOM) losing $0.26 a share.
Those are the stocks in the news tonight.
