NBR Transcripts-November 20, 2009
Friday, November 20, 2009Health Care Reform to be Put to a Test
SUSIE GHARIB: The clock is ticking toward an important vote tomorrow on health care reform. At 8:00 p.m. Eastern time, the Senate will take a procedural vote on health care. It needs to get 60 votes so lawmakers can begin debate on the Senate's $848 billion health care plan. The outcome hinges on dollars and cents. As Darren Gersh reports, holding down costs is a key concern.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Senate health care bill contains almost every cost-saving strategy known to Washington. First, there is the tax strategy. By taxing high-cost insurance plans, health analyst Joe Antos says Congress is giving employers and workers an incentive to cut costs or pay higher taxes if they don't.
JOE ANTOS, HEALTH CARE ANALYST, AEI: If we don't try to put some financial pressure on insurers and on providers to find some way to create more efficient practice styles, then we'll never get out of this box.
GERSH: Then there is the payment strategy. Congress is pushing to tweak the wages Medicare pays doctors and hospitals. The idea is to encourage them to use more cost-effective treatment options. The Senate bill also counts $210 billion in other savings in payments to doctors. But Antos thinks this is a budgetary illusion, because every year for the last seven years, Congress has rolled that cut back.
ANTOS: In the end, they will succumb to the inevitable pressure from senior citizens especially and from doctors, hospitals and others who are going to say we can't put up with this.
GERSH: The other big cost-containment idea is the expert strategy. A commission of experts will convene and search for savings beginning in 2015. Budget expert Chuck Marr says the cost cuts would go into effect unless Congress said no or found savings elsewhere.
CHUCK MARR, CENTER ON BUDGET AND POLICY PRIORITIES: Sort of a back stop for insurance over time to provide more savings, if costs get more unsustainable.
GERSH: Many of these strategies will take years to enact and the exact savings are difficult to predict. But health economist Tim Waidmann says millions of Americans shouldn't have to wait for a perfect solution to rising health care costs.
TIM WAIDMANN, HEALTH ECONOMIST: And then if we wait to do access until after that's done, then we're going to be 20 years in the future before we say, OK, now we can afford to cover everybody.
GERSH: The final cost containment strategy is the China option. Everyone on Capitol Hill knows if we don't hold down our health care spending, the rest of the world may one day grow tired of lending us the money to pay our bills. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Oprah Changes Channels
SUSIE GHARIB: Oprah Winfrey made it official today. The multi-millionaire media mogul will leave her trail-blazing talk show in 18 months. She will devote her time to creating a new cable channel. It's a move that says as much about the television industry as it does about Winfrey herself. Scott Gurvey reports.
OPRAH WINFREY: Our viewers have enriched my life beyond all measure.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It will have been a great run, 25 years, when the syndicated Oprah Winfrey show fades to black in 2011. Winfrey's ratings have fallen along with the rest of broadcast television. Morningstar's Michael Corty says her decision to move to cable makes sense in light of the rapidly evolving business of television.
MICHAEL CORTY, ANALYST, MORNINGSTAR: It's a great step for Oprah to kind of expand her brand beyond her show. In terms of the effect on the local television market, we think audience has been shifting from local broadcast stations to the cable networks for some time and this is just one more step in that process where the programs, we expect audience to continue to shift over to cable networks.
GURVEY: In truth, the loss of the Winfrey show will not have a huge impact on broadcasting's bottom line. Revenue for syndicator CBS amounts to just $50 million a year. Many of ABC's biggest stations air the program, but it costs local stations so much to buy, it is a loss leader for most. It is unclear if the loss of Winfrey's program will hurt the ratings of the local news programs which often follow it. What is clear is that Winfrey will now be able to focus on OWN, the Oprah Winfrey network. It's a joint venture between her Chicago based Harpo, Inc. and Discovery Communications. Harpo also produces the Dr. Oz Show, Dr. Phil and Rachel Ray. It also has radio, magazine, film and Broadway productions. Revenue for the privately held company is reported to be about $350 million. Forbes estimates Winfrey's net worth at $2.7 billion. Brand expert Lorraine Shanley says the Oprah brand is solid, even without the daily talk show.
LORRAINE SHANLEY, OWNER, MARKET PARTNERS INTERNATIONAL: She's making moves, sort of deciding what exactly the next step is, how she wants to use her enormous power. So she'll still have it, but she'll use it in ways that she considers most beneficial and good for her.
GURVEY: This will be Winfrey's second cable start-up. She co-founded the Oxygen channel, which she and her partners sold to NBC Universal in 2008. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Royal Caribbean's "Oasis of the Seas"
PAUL KANGAS: Today the cruise line officially unveiled its "Oasis of the Seas," the biggest of all. Owning the world's largest cruise ship gives Royal Caribbean a competitive advantage. But given today's choppy economic climate, it also represents a huge bet on the part of the company's Chairman Richard Fain. But as Jeff Yastine explains, it's Fain's passengers who can make RCL a winner.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet Sue and Eddie Egan. They haven't been on a cruise ship since the days of the "Loveboat," but they drove four hours to see the "Oasis of the Seas."
EDDIE EGAN, CLEARWATER, FL: It's just a ship.
SUE EGAN, CLEARWATER, FL: It's the biggest one in the world. I mean, it's pretty impressive over there.
YASTINE: Royal Caribbean is banking on that impressiveness with a shopping and eating area, the royal promenade, that's longer than some land-based strip malls, a central park, a carousel and other amenities for a boardwalk experience, all to fill the ship's 2700 cabins. The cruise line's chairman says it's all part of their plan.
RICHARD FAIN, CHAIRMAN & CEO, ROYAL CARIBBEAN INT'L.: The model is remarkably simple. If we offer people more of what they want, more choice, more variety, they'll pay more. At the same time, when you make it larger, which in fact you have to do to give them that more choice, you get an economy of scale. So if you can get better revenue and an economy of scale, the combination is a winner and quite frankly it's simple but it works.
YASTINE: What kind of a bet is Royal Caribbean making when you're building a ship as big as the Oasis is?
FAIN: Any time you enter into a major project, there's a certain amount of luck involved. There's a certain gamble involved. Certainly six years ago when we started this whole process, we never imagined that we would be in the midst of such a horrible economic climate when it came out. You also have a gamble, can you pull it off? Can you actually make something that people, all accept as being fundamentally better. And though we have excellent architects and excellent engineers and we put a lot of thought into it, there always a little bit of a gamble it won't quite come together. There really is serendipity involved with something like this.
YASTINE: As you know, there are some, including competitors, who doubt that the Oasis model makes sense -- too big, too expensive to build. What do you say to that?
FAIN: The team of people working to design the ship and also equally important is the team of people who work on board the ship to provide that great vacation, cruise in, cruise out, have basically shown this thing an amazing success. We're getting inquiries from all over. Our forward bookings have been very strong. We have higher prices and higher volumes than we've ever experienced. And that's giving us a rate of return on our investment even in this economy which I think is the envy of almost anybody in not only the cruise business, but the vacation business.
YASTINE: But bigger doesn't always mean more profitable say some analysts like Ryan Wahlstrom of Cruise Market Watch.
RYAN WAHLSTROM, PUBLISHER, CRUISE MARKET WATCH: Historically is that Royal Caribbean ships have cost about 7 percent more on a per berth basis compared to Carnival. And Carnival's actually had about 7 percent better yields over time. So the more expensive ship hasn't necessarily been borne out to date as being the more profitable alternative.
YASTINE: So the Oasis has a considerable wow factor. But Wall Street has raised eyebrows at the expense, about $1.23 billion and it joins the fleet at time when U.S. economy and consumer confidence is weak. So no one really knows if people will pay full price to ride on the Oasis or if bigger discounts are required. Like most analysts, S&P's Ben Bubeck is taking a wait and see approach on the ship and the company.
BEN BUBECK, ANALYST, S&P CREDIT RESEARCH: I think that Royal navigated pretty nicely through the challenging environment. We're concerned that the challenge is not fully behind them and our expectations for 2010 is that pricing remains at sort of a depressed level and so cash flow may not rebound as quickly as some would hope.
YASTINE: As for the Egans, they're not on the inaugural cruise of the Oasis but perhaps on the next trip out of port.
E. EGAN: Knowing that it's the largest passenger ship in the world and when you're looking at it, it's like looking at a hotel, it makes you want to take a ride in it. Of course we're going to be looking into it.
YASTINE: Jeff Yastine, NIGHTLY BUSINESS REPORT, Fort Lauderdale.
"Market Monitor"-Stan Weinstein, Editor of the "Global Trend Alert"
PAUL KANGAS: My guest "Market Monitor" this week is Stan Weinstein, editor and publisher of the "Global Trend Alert," a financial advisory service for institutional investors. Welcome back to this program. Pleased to have you.
STAN WEINSTEIN, EDITOR & PUBLISHER, "GLOBAL TREND ALERT": Always a pleasure Paul.
KANGAS: You've always said that it's not the news, but how the markets react to the news that really matters. So the economic fundamentals are a little on the shaky ground, why the big rally since March?
WEINSTEIN: You put it very well. That's what I wrote my book. Once the news no longer took the market down, you saw January, February, really crashing. In March, the news was still bad. Market didn't go down any more. That was a bell ringing. Then in addition, you take a look at the number of stocks hitting new lows. In October 2008, you had almost 3,000 stocks hitting new lows. You made a new low in the market. When you dropped down to 6500 in March, you only had 800 plus new lows, that was another bell ringer. It's supply and demand. We've been going up since.
KANGAS: Yes, that's right. But where are we in the market cycle?
WEINSTEIN: I think we're now in the later innings of this bull market. It's not over yet but I definitely see signs that we're now in at least the seventh inning of this bull market. We have to be a bit more cautious here.
KANGAS: What's the best investment strategy under these market conditions Stan?
WEINSTEIN: I think it's important to realize that what we've seen before, once you get in the late innings, one, it's more likely going to be moves to quality. I see that happening already. Take a look. Which average made a new high this week? It was the Dow. Which average lagged? It was the Russell 2000 which is more speculative stocks. So you want to move toward quality stocks. I see them going there, big name stocks like a Merck here. Those are the kind of stocks they're going to and a lot of the speculative stocks, which originally led the rally, they're starting to lag now. We have to be much more careful there.
KANGAS: What other groups look for good gains, where we find good gains coming?
WEINSTEIN: I think you want to be looking still, I like the industrials, a lot of industrial stocks are very good. The metals look good, even the near term correcting. The pharmaceuticals, rotating to pharmaceuticals, good area. Just as important, you have to avoid certain places. I see a lot of restaurants making big tops. You want to avoid the restaurant stocks. A lot of buyer technology is not great. Steel stocks not great. I think it's so important to be selective here.
KANGAS: You liked on your last visit the banks and the airlines. The bank have done extremely well. Are you out of them now?
WEINSTEIN: I think the banks -- there's always exceptions. But in general I think the banks are starting to roll over. Not short sales, reducing banks going to places that I just told you.
KANGAS: Are there any special investing tactics you'd use at this stage?
WEINSTEIN: I think so. When you get this late into the cycle, one as I said earlier, you want to do quality stocks. I think that is important. Two, I think it's important that everybody learns to use stop loss orders, but properly placed. Don't just say 15 or 10 percent below where you are now. If you place them under moving averages, if you place them under prior important support levels, that will stop when it turns down. You're getting killed when the market turns against us.
KANGAS: What about gold and the gold stocks?
WEINSTEIN: First of all, the bullion, I'm sure you're saying yourself, has done much better than the gold stocks. Bullion's at another new all-time high. The stocks OK, but they haven't gone to new highs, at least the indexes haven't. Here is even though gold is temporarily extended here is where I think the fundamentals and technicals come together. The technicals are great. The fundamentals with this government spending like crazy, we're going to have inflation I think that you want to buy all collections in billion.
KANGAS: OK. How about bonds at this level?
WEINSTEIN: I'm kind of neutral on bonds. I would say in general you should buy shorter-term maturities and definitely higher quality issues.
KANGAS: Are there any foreign markets out there that you like, maybe even better than our own markets here at home?
WEINSTEIN: Yeah. I think that there two we have to be very selective Paul. If you take a look, Hong Kong looks good, Singapore also looks very interesting. Conversely I wouldn't want to go invest in Japan. Japan looks to me like it's rolling over. I'm not thrilled with the way the Japanese market looks.
KANGAS: We have about 30 seconds left. Any last minute thoughts that you can give our viewers?
WEINSTEIN: I think that what we've been through the past two years is unbelievable, we should all learn from it. To just have the simple buy and hold strategy can be very, very dangerous, investing health and wealth. So I think it's almost biblical, there's a time to sow and a time to reap, a time to buy, a time to sell . We all have to get a sense of trading and technicals can help you here.
KANGAS: In other words, don't lock them in a box and keep them there.
WEINSTEIN: Couldn't say it better myself Paul.
KANGAS: OK. I want to thank you once again for sharing your insights with us, Stan.
WEINSTEIN: Always my pleasure.
KANGAS: My guest, Stan Weinstein of "Global Trend Alert."
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened modestly lower as stocks were pressured by a stronger dollar. Selling, especially in the tech sector, was also linked to Dell's lower earnings we told you about last night. Just before noon, the Dow posted a 56 point loss with the NASDAQ off 19 points. In the absence of any major reports on the economy and with the weekend approaching, stocks drifted about in a narrow range for the rest of the session and settled slightly lower across the board. The Dow Industrial Average closed down 14.28 at 10,318.16. This week, it rose twice and fell three times, had a net gain of 47.69 points. The NASDAQ lost 10.78 to 2146.04 today and like the Dow, it rose twice and fell three times this week, but had a loss of 21.84 points. Standard & Poor's 500 fell 3.52 to 1091.38 today. For the week, it was down 2.10. In the bond market, the 10-year note fell 8/32 to par and 2/32, putting the yield at 3.37 percent.
As usual, the most active big board issue was Citigroup (C) today showing no change on the day. Then Bank of America (BAC) edging a penny higher.
General Electric (GE) a $0.17 loss. GE agreed to pay Vivendi for one third of its stake in NBC Universal as they continue to hash out the specific price. This is all part of GE's effort to sell NBC Universal to Comcast.
Pfizer (PFE) up $0.25 in a very firm health group today.
Sprint Nextel (S) a $0.09 loss.
And then Merck (MRK) did very well, up $1.13. It got positive recommendation from the European Union advisory panel for its new fertility treatment.
Wells Fargo (WFC) down $0.45.
Ford Motor Co (F) a $0.09 loss there.
Same story for AT&T (T).
And then a new issue, Cloud Peak Energy (CLD). This is a coal company spun off from Rio Tinto, went public today on 30.6 million shares at a price of $15 and didn't do very well in this market, down $0.16 from the offering price.
Then another new issue, 7 Days Group Ads (SVN), American depository shares. This is a hotel chain in China and it went public, 10.1 million ADS. It priced at $11 and it did very well indeed, up $1.50 from the offering price on the day.
Goldman Sachs (GS) was down $2.82. "The Wall Street Journal" reported that large shareholders have asked the company, which is about to award employees their biggest bonuses ever, to pass more profits onto investors.
DR Horton (DHI), the home builder, down $1.88. Fourth quarter loss of $0.73, nowhere near as bad as last year's loss of $2.53, but the Street was looking for a loss of only $0.30 not over $0.70. Down went the stock.
JM Smucker (SJM) did well, up $2.87. Second quarter earnings rose to $1.18 from $0.94 last year and that was $0.14 above the Street estimate. The company said its Folgers acquisition was a big plus factor.
Dillards (DDS) up $1.38. Deutsche Bank upgraded it from "hold" to a "buy."
And then Noble (NE), the offshore driller, down $1.38, $1.68, let's make that, on indications that Mexico's Pemex Corp. is cutting back on jackup rig contracts for next year.
Then we see Brink's Home Security (CFL) losing $1.24. Morgan Stanley downgraded it from "over weight" to "equal weight" on a valuation basis.
And then Griffon (GFF) moving up $1.15. Fourth quarter earnings of $0.21 versus a loss of $0.20 last year, nice turnaround.
NASDAQ's most active, Apple (AAPL) down $0.59.
And then Dell (DELL) losing $1.58. After the close yesterday as we reported, third quarter earnings came in $0.11 below Street projections.
Microsoft (MSFT) down $0.16.
Directv (DTV) edged up $0.04.
Google (GOOG) a $3.03 loss.
Research in Motion (RIMM) up $0.88.
Intel (INTC) $0.06 loss.
Cisco Systems (CSCO) down $0.22.
Amazon.com (AMZN) up $0.67.
And Qualcomm (QCOM) edged a penny higher.
Elsewhere in NASDAQ trading, we saw Netlist (NLST) a big percentage move, up $1.60. The computer storage products company got positive comments on "Barron's" online which reported its Hypercloud product is getting a lot of attention.
And those are the stocks in the news tonight.
