NBR Transcripts-November 19, 2009
Thursday, November 19, 2009Mortgage Delinquencies Build
SUSIE GHARIB: More Americans are falling behind on their mortgages. The Mortgage Bankers Association says the number of homeowners who are delinquent on their payments is at a record high. Loans in foreclosure or at least one payment past due made up more than 14 percent of all outstanding home loans in the third quarter. Just a year ago, that number was less than 10 percent. As Stephanie Dhue reports, last year, the trouble was sub-prime loans; now, more good loans are going bad.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Even borrowers with good credit and fixed rate loans are running into trouble. Three out of every 10 defaults in the third quarter came from prime loans. Mortgage Bankers' Association economist Jay Brinkmann says that's because more prime borrowers are losing their jobs.
JAY BRINKMANN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSN.: Economic growth doesn't pay the mortgage bill. It's a paycheck that pays it and while we've had fewer and fewer people with paychecks, that's translated directly into higher foreclosures and delinquencies for prime fixed rate loans.
DHUE: States with steep home price declines -- Nevada, Florida, Arizona and California -- have 25 percent of mortgages in the country. But they also have more than 40 percent of home loans in the foreclosure process. With so much at stake, the challenge now is finding solutions. The government is using Fannie Mae and Freddie Mac to modify loans, lowering borrowers' monthly payments. Credit losses put Fannie and Freddie on Federal support last year. Since then, the government has pumped over $100 billion into the firms. ISI analyst Andy Laperriere expects that to grow.
ANDY LAPERRIERE, MANAGING DIRECTOR, ISI GROUP: The real hidden bailout here that people aren't watching is the cost associated with bailing out Fannie and Freddie and they are incurring billions of dollars of cost, maybe tens or perhaps even more billions of dollars in cost in these loan modifications.
DHUE: Unlike the TARP money, those billions of dollars in taxpayer funds will probably never be repaid. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Asset Price Bubbles
SUSIE GHARIB: You probably heard about the real estate bubble or the tech bubble. Now we may have new bubbles to worry about. The recent run-ups in many markets have fired up debate about what's being called asset price bubbles. Is this a problem or just normal market behavior after a financial crisis? Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Watch out, there may be bubbles forming everywhere. Of course, we're not talking soap, but asset bubbles, like in the gold market or in Chinese real estate. And from Beijing to Wall Street, experts say low interest rates, courtesy of the Federal Reserve, are fueling a run-up in asset prices beyond what economics suggest is reasonable. Economist David Malpass sees the biggest bubbles in commodities.
DAVID MALPASS, PRESIDENT, ENCIMA GLOBAL: The reason for that is because, when the Fed pushes too much money into the system, the easiest thing for people to buy is commodities -- gold, oil, copper, things like that.
PRATT: Gold, oil and copper are all up sharply this year. There's also evidence of bubble trouble in emerging equity markets, with the Australian dollar and even the NASDAQ. Symptoms of frenzy are most obvious in Asia, where economies are recovering quickly. Still, global market expert James Sweeney says worries about new bubbles are overblown.
JAMES SWEENEY, GLOBAL STRATEGIST, CREDIT SUISSE: It's something to watch as we get into next year. If the recovery were very strong, you could see prices start to go up very sharply. But to date, we are still significantly below in nearly all risky assets price levels of a couple years ago.
PRATT: On Monday, Federal Reserve Chairman Ben Bernanke said he sees no evidence of what he called large misalignments in U.S. financial markets. But he also said identifying them is tough.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: You've just introduced perhaps the most difficult problem of monetary policy of the decade, which is how to deal with asset bubbles.
PRATT: Dealing with asset bubbles is critical because the bigger the bubble, the bigger the mess to clean up if it bursts and because excessive speculation means there may be less money available in areas that really need it.
MALPASS: Money is being channeled away from the growth, the job producing part of the U.S. economy and sent to foreign countries. It's being sent into commodities. That doesn't help Americans at all.
PRATT: Those most worried about bubble trouble say the solution is simple. The Fed needs to start raising rates sooner rather than later. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One with Brian Gardner of KBW
SUSIE GHARIB: Late today, the Treasury said it will sell some of the securities it received from big banks in exchange for bailout money. It plans to auction off warrants from JPMorgan, Capital One and TCF Financial. The move comes after Treasury and the firms failed to reach a price on those warrants. Meanwhile, the controversy over the bailout fund known as the TARP is very much alive on Capitol Hill. Under tough questioning today, Treasury Secretary Timothy Geithner said he would be happy to get out of the business of helping prop up troubled firms.
TIMOTHY GEITHNER, TREASURY SECRETARY: We are working to put the tax - - the TARP out of its misery and no one will be happier than I am to see that program terminated and unwound. And I want to point out that we are moving very aggressively to close down and terminate the programs that define TARP at the beginning of the crisis.
GHARIB: Joining us now with more about TARP and the Treasury secretary, Brian Gardner. He's Washington research analysts at KBW. Brian, nice to you have here with us.
BRIAN GARDNER, SR. VP & POLITICAL ANALYST, KBW: Good evening, Susie.
GHARIB: How realistic is it that they really shut down TARP? A lot of people thought that Treasury was going to extend it.
GARDNER: I think they are under a tremendous political pressure. They floated the other day, they floated the idea that they were going to shut down TARP or turn it to the Treasury, reduce the deficit. But they're also having a competing conflict that they want to help small banks. There is a perception that TARP was for big banks and small banks were left out. There is still a lot of money left in TARP that can go a long way to helping small banks. So they have two competing ideas of what to do.
GHARIB: How much is left of TARP? I've heard numbers like $200 billion, $300 billion. What is it?
GARDNER: I think is around $200 billion. It depends on some of the accounting and how you deal it. There are different methodologies, but I think $200 is basically the number that I look at.
GHARIB: Let me get back to what you were saying about TARP. Do we still need it?
GARDNER: Some of the small banks I think you can make an argument yes. Small banks are loaded down with commercial real estate. It is going to be an enormous problem for the FDIC going forward. That's what is going to take down all the bank failures that people were anticipating. We have had 120 this year, 125 last year, 150 over the last year and a half, two years. We're expecting a total of the high hundreds. It's mostly due to commercial real estate. Putting $200 billion in to some of the small banks, some of the healthier smaller banks could help stabilize them. I think that is the goal. Whether it is the right idea or not is up for debate, but that's I think what Treasury is trying to get at.
GHARIB: Some of the lawmakers today at that congressional hearing were criticizing Treasury Secretary Geithner, saying that TARP money went to bail out Wall Street firms and it didn't do much to put Americans back to work. I think the question that a lot of American taxpayers want answered is what did TARP really accomplish?
GARDNER: Right and I think you felt that in the questions that were coming through today. I think what TARP accomplished was a stabilization of the financial system. Did some large institutions benefit more than others? Probably, yes. But in the grand scheme of things what happened? The entire system was stabilized. I think when we look back 10, 15 years down the road and we use cooler heads to figure out what happened, I think we will determine that this was the right idea. Not without flaws, there were problems. There were mistakes but overall it was a very good idea.
GHARIB: This hearing today there was a lot of heat and a lot of passion. Some lawmakers said to Geithner that he wasn't doing a really good job and they called for his resignation. How do you think this is going to play out in the White House and on Capitol Hill?
GARDNER: I don't think the White House has any intention of firing the secretary. I think he is around for the long haul. We've heard some of these calls back about a year ago just after he was confirmed when he went through some contentious hearings for his confirmation. He survived those. I think once he survived those, he is around for a while. If there is a further meltdown, if there is a problem in the markets, that calls into question his judgment then, then you will have fresh calls. But this is what is going on right now is a lot of political theatre today. There is some valid criticisms of what the administration is doing and how they are handling financial rescue plans, financial regulatory restructuring. But it's not going to result in Mr. Geithner's head.
GHARIB: One thing that has come up also, some economists say that if you pull this money, if you pull this TARP out, it could derail the economic recovery. Is there a risk of that happening?
GARDNER: I have my doubts about that. In the grand scheme of it, it is around $200 billion, in a much larger economy. The Fed continues to have liquidity facilities at its disposal. The Fed has proven itself to be very resilient, very resourceful, very imaginative in rolling out new liquidity programs. So if we have another letdown the Fed also has tools at its disposal. This is not the only thing. And I think, suggesting that we are relying on $200 billion left in TARP as the linchpin to keeping the economy going, I think is a little farfetched.
GHARIB: All right, so what happens to all that money? You said small businesses, others say maybe pay down the deficit.
GARDNER: You know, $200 billion, if it goes for one thing can go a fairly long way. If it is $200 billion for smaller banks and small company lending, that can have some bang for the buck. If it is $200 billion for deficit reduction, even as big as the deficit is, that's real money. If they start --
GHARIB: Not going back to taxpayers.
GARDNER: I think if you pay down the deficit it is going back to taxpayers. Eventually taxpayers are going to pay for the deficit either through reduced spending or increased taxes. This is another revenue source in a way for the government and I think that it does go back to taxpayers.
GHARIB: OK, to be continued.
GARDNER: Absolutely.
GHARIB: Thank you so much --
GARDNER: Thank you, Susie.
GHARIB: .for coming on the program. My guest tonight Brian Gardner, Washington research analyst at KBW.
Sir Richard Branson's Focus on the Globe
SUSIE GHARIB: Sir Richard Branson is a believer when it comes to the economy. The founder and chairman of the Virgin Group has reason to be. Branson says his airlines are doing much better than their U.S. competition. Jeff Yastine sat down recently with the billionaire entrepreneur and began by asking a simple question. How's business?
SIR RICHARD BRANSON, FOUNDER & CHMN., VIRGIN GROUP COMPANIES: Well, I wouldn't say it's been the best year ever. But I think because the various Virgin airlines is a good quality airlines, we haven't suffered like the really major airlines. And an airline like Virgin America here in the states has actually done remarkably well, you know, in the downturn. Virgin Atlantic that relies quite heavily on the business market, maybe slightly less so.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Are you seeing areas where perhaps, business is better or improving to any degree?
BRANSON: The last four months has definitely been quite a dramatic pickup, throughout all our airlines and so the airlines are full. Yields are still low, tremendous time for the traveling public to travel. But definitely a lot more people are back flying again.
YASTINE: Global climate change and reducing carbon emissions is one of your passions. How does the airline industry reduce its carbon footprint?
BRANSON: Well, the Virgin Group has done is we said that we'll take 100 percent of all the profits we make from our airline businesses and we'll invest them in trying to come up with alternative clean fuels. Now that would be obviously the best way of dealing with the problem. In the meantime, we've been urging the aircraft manufacturers to try to produce lighter blends. You know, one of the problems is that the 787 that Boeing had produced which is lighter has been horribly delayed with technical issues. But we're trying to get the airline manufacturers to hurry up and produce much lighter planes, hopefully all carbon composite planes which will be very much lighter. And that will -- that would save dramatically on fuel in the short-term.
YASTINE: Some have talked about instituting some sort of a tax on tickets that air travelers would pay. Do you have a position on that?
BRANSON: I think as long as it's a uniform tax on a global basis and all that money from that tax goes towards tackling climate change, we wouldn't object to that.
YASTINE: What is your sense about whether we'll see in the United States some sort of binding carbon emissions law that carbon output will be regulated to some degree within the United States?
BRANSON: I very much hope that America participates in the Copenhagen talks and that an outcome comes from the Copenhagen talks in December. I mean you know it's beginning to look a bit worrying. But hopefully at least the Copenhagen talks can get us to a stage where very soon thereafter a conclusive agreement can be reached.
YASTINE: Some people say that if we see carbon emissions regulated in this country, it will cost jobs, perhaps cost certain industries. What do you say to those people?
BRANSON: Look, enormous amounts of jobs are going to be created from the green revolution. It stops you sending all this money abroad to the Middle East and other countries. You keep all that money within America and you create, you know, hundreds of thousands of jobs. And that's -- that is what you should be doing. And you know, yes, you know, I mean the airline industry may, you know, have a little bit of an extra tax on it but we will take it on the chin. Fuel prices go up $40 anyway. They have done in the last you know three months. We have had to put up with it. So you know, so it's not going to make an enormous difference.
GHARIB: You can watch Jeff's entire interview with Sir Richard Branson on our web site, NBR on pbs.org.
"Cache and Carey" -Garmin Phone
SUSIE GHARIB: Thinking of buying a new phone for a holiday gift or perhaps a GPS unit? Now, you can buy both in one. In tonight's "Cache and Carey," Bridget Carey from the "Miami Herald" reviews a device that does double duty.
BRIDGET CAREY, TECHNOLOGY REPORTER, THE MIAMI HERALD: Our phones can do practically everything these days. But here I have a device that's more like a GPS trying to be a phone. It's the Garmin phone 360 which you get from AT&T for $299.99 after rebates and a contract. The entire menu has large buttons to give it that GPS feel, but there are a few features that could have been designed better. You could check multiple pop or I map e- mail accounts about but it is a pain to change settings. Texting is fine but going online can be a drag depending on the site. For example facebook has yet to recognize this as a mobile device it loads the full web site.
Some of these features like getting traffic updates, weather, movie times, gas prices requires an extra charge of $5.99 a month. That's lame especially when we live in a world where there are freer, cheap apps for that stuff on smart phones. The camera is good with an auto focus and (INAUDIBLE) But overall for someone that does a lot of traveling but maybe doesn't use their phone much for anything else but calling. It is a great GPS but if you are going to go with AT&T, might as well get an iPhone for cheaper and pay for a GPS application on it. For the "Miami Herald" I'm Bridget Carey.
Paul Kangas' Stocks in the News
PAUL KANGAS: Weak European markets and a stronger dollar set a negative tone on Wall Street today. The Dow tumbled nearly 150 points after just 30 minutes of trading, while the NASDAQ Composite posted a hefty 42 point loss. That tech index was undermined by a brokerage downgrade on several major chip stocks. The market stabilized over the next several hours, but then a smaller than expected .3 percent rise in the leading indicators subdued the rebound. So while stocks cut their losses, the markets still closed broadly lower. The Dow Industrial Average ended down 93.87 points at 10,332.44. The NASDAQ Composite tumbled 36.32 ending at 2,156.82, while the Standard & Poor's 500 Index lost 14.90 at 1,094.90. In the bond market, the 10-year note rose 7/32 to par and 9/32, putting the yield at 3.34 percent.
New York volume leader today on 41 1/2 million shares, Citigroup (C) losing $0.09.
Bank of America (BAC) down $0.27.
Sprint Nextel (S) lost a dime.
Ford Motor Co (F) dropping $0.21.
And General Electric (GE) a $0.33 loss, fifth in volume.
Pfizer (PFE) down $0.08.
Advanced Micro Devices (AMD) down $0.27, but chip stocks hurt by that Bank of America/Merrill Lynch downgrade.
Taiwan Semiconductor (TSM) same reason, down $0.36.
And then Synovus Financial (SNV) $0.22 loss.
Wells Fargo (WFC) off $0.54, not a green arrow to be seen.
Texas Instruments (TXN) closed down $0.87, once again a victim of the Bank of America/Merrill Lynch downgrade and in the case of Texas Instruments, it was specific from "buy" to "neutral."
Donaldson Co (DCI) which makes filtration systems, up $3.27, $0.44 in first quarter earnings, down from $0.60 last year, but $0.10 better than the Street was looking for and the company boosted its 2010 earnings guidance.
Trina Solar Ltd (TSL) up $2.82. Third quarter earnings higher, $1.29 versus last year's $1.17. The Street was looking for only $0.76 a share, much better than expected then.
Dicks Sporting Goods (DKS) down $2.30. Third quarter earnings almost better than double, $0.16 versus $0.07 last year, but the company sees fourth quarter around $0.41 to $0.46 a share and that's well below last year's $0.54 per share earnings period.
Pre-Paid Legal (PPD) tumbling $7.86, traded as low as $30.68. The company received a proposed draft complaint from the Federal Trade Commission alleging the company's identity theft shield system violates part of an FTC act regarding misleading representation.
Navios Maritime (NMM) down $1.44. The dry bulk carrier plans a four million share public offering of stock to fund fleet expansion.
And Williams Sonoma (WSM) $1.05 gainer. Third quarter earnings of $0.16 versus a loss of $0.10 last year. Third quarter same store sales up 1.7 percent and the company expects that to double in the fourth quarter.
NASDAQ's most active, Apple (AAPL) in the weak high tech group down $5.45.
Directv (DTV) up $0.46. Liberty Media shareholders who control Directv plan to merge Liberty Entertainment with Directv and eventually spin off the merged company.
Intel (INTC) down $0.82, traded as low as $18.95. Bank of America/Merrill Lynch downgraded it from "buy" to "neutral" and as I mentioned, that undermined the whole chip sector today.
Microsoft (MSFT) losing $0.33.
Google (GOOG) a loss of $3.66.
Cisco Systems (CSCO) fell $0.32.
Research in Motion (RIMM) down $1.01.
Amazon.com (AMZN) off $2.30.
Qualcomm (QCOM) off $0.40.
But a gainer, Liberty Medial (LMDIA) up $0.12 a share.
Dell (DELL) $0.19 closing loss. After the close, the company reported a 54 percent drop in third quarter earnings to $0.17, well down from $0.37 a year ago and $0.11 below the Street estimate. In after hours trading, Dell stock fell $1 from the price you see here.
And those are the stocks in the news tonight.
