NBR Transcripts-May 15, 2009
Friday, May 15, 2009GM's Axe Falls on 1100 Dealerships
SUSIE GHARIB: Another round of bad news for car dealers today. General Motors told 1,100 of its dealers to close shop as the struggling auto maker prepares for possible bankruptcy June 1. GM said most of the closings will happen next year, the first step in reducing its sales network by 40 percent. Just yesterday, Chrysler announced a big reduction in its dealer network. The shutdowns are expected to result in thousands of job losses, another blow to the U.S. economy. But another, less obvious economic impact is how the closures could affect the commercial real estate market. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The closing of auto dealerships will flood the already depressed commercial real estate market with property. How the land will ultimately be used will depend on local market conditions. Suburban locations where many dealers are located are often highly valued. Many dealerships have been in business for decades, are family owned and own the land. That land value may be the only thing left once the dealership is shuttered. Thomas Tourso of developer Eden Property recently bought an almost two-acre New Jersey dealership that folded. He's about to open a 28,000 square foot shopping center at that site.
THOMAS TOURSO, PARTNER, EDEN PROPERTY CO.: We basically look for sites for a Walgreen's with auxiliary uses. I think there'll be a lot of opportunity with all these dealerships closing. Unfortunate for the automotive industry, but for the few people that are out there still developing and still working with strong tenants, I think there is definitely some opportunity.
GURVEY: The auto dealerships that will close will be the latest addition to the growing problem of a glut of commercial property now available in this recession. Some agencies which specialized in real estate services are now working on dealership sales. Owen Cone of Miami- based Colliers (INAUDIBLE) has 25 dealer clients and expects that number to double over the next few months.
OWEN CONE, SENIOR DIRECTOR, COLLIERS: It depends on the real estate and where you are and what the circumstances are and whether it's a good retail site or if it makes another good use. You know, we've sold properties for use as a hospital, office buildings, retail centers. Wal- Mart is a big shopper these days for real estate. It really just depends on the site.
GURVEY: The sale of some of these dealerships may run afoul of local zoning laws. That's because some local governments tried to maximize sales tax revenues restricted use of the land to auto dealers and nothing else. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Reviving the Economy: Government Responds"-How Marco Island is Using Its Stimulus Funds
JEFF YASTINE: Federal stimulus dollars are now flowing to thousands of counties and municipal governments across the nation and they're ready for the cash. As we continue our series, "Reviving the Economy: Government Responds," we look at how one Florida town is using stimulus money to span a long-running public works controversy. The city of Marco Island. On the tip of southwest Florida's Gulf coast, it has more than a hundred miles of canal-front properties, palm- fringed streets and beaches. The main route to the island is the Jolley bridge, named after a former judge. And thanks to $28 million in Federal stimulus money, there could soon be a second Jolley bridge right next to the first. The blueprints for the new span have been drawn up. The project is considered shovel-ready. The existing 40-year-old structure already handles more traffic than it was designed for and city Councilman Bill Trotter says that single span was not built to handle a major category five hurricane.
BILL TROTTER, CITY COUNCILMAN, MARCO ISLAND, FL: With the increase in population here and the number of visitors and business community that's been developed, there's more congestion, particularly in the rush hours and high season. But the main reason was the health and safety concern of the only category three bridge versus a category five that the new bridge would be.
YASTINE: Now people here have talked about a new bridge for years but the question was always, who will pay for that new structure? A toll bridge was proposed and just as quickly, shot down. No one, it seems, was interested in building that new bridge if the money was to come directly out of the pockets of local residents. The concern among many here is that they already pay more in taxes than they receive back in services. So why should they have to pay a toll on top of that? Now, with Uncle Sam footing the bill, residents like Mike Minozzi say the time is right to build it.
MIKE MINOZZI, MARCO ISLAND RESIDENT: My own personal feelings on the overall stimulus package on a national level, I was not in favor of it, for many reasons. But the fact is that it's there. It's part of what we're doing. It's part of what we're going to be paying anyway. So if there's a way that we can get something out of it, by all means, let's do it.
YASTINE: So, after 15 years of talk and studies, the stimulus plan will pay for a second bridge. Construction of the new span could start as soon as this fall.
Meet Larry Felix, Director of the U.S. Bureau of Printing and Engraving
SUSIE GHARIB: Imagine making a product that's in high demand around the world, so high that even during an economic downturn, more and more people want it. That's a regular day at the office for Larry Felix, who makes U.S. currency. Shon Gables of "Black Enterprise Business Report" takes a look.
SHON GABLES, BLACK ENTERPRISE BUSINESS REPORT: Every day, $650 million is printed here.
LARRY FELIX, DIR., U.S. BUREAU OF ENGRAVING & PRINTING: It's just ink on paper.
GABLES: ... Under the watchful eye of Larry Felix, the first African- American director of the U.S. Bureau of Engraving and Printing
FELIX: People love to -- love to ask can they get samples when they come on the tours and we do give them samples. But we shred it up first and give it to them.
GABLES: Felix's position oversees the production of U.S. paper currency and security documents for U.S. passports, customs and the Defense Department. What made you decide to take this career trajectory? Do you need to be good in math?
FELIX: No, you don't need to be good in math. I've always loved public service. Public service was my calling.
GABLES: And in 17 years, this native Trinidadian but Brooklyn raised public servant climbed from marketing manager to engineering operations to his most important job -- America's keeper of the currency, who manages 2,000 employees, including scientist and engineers. So, who do you answer to?
FELIX: My boss. My immediate supervisor's the secretary of the Treasury. It's a collaborative effort. Clearly, we do the design, but it has to -- we have to work with the U.S. Secret Service so they can be educated on what the features are. And we have to work with the Federal Reserve, the board of governors of the Federal Reserve, because they are responsible for distributing those notes and educating the financial institutions on what's acceptable or not.
GABLES: With the state of the economy that it's in right now, would it not be sufficient to say that, right now, cash is king?
FELIX: What we've found is that great demand for U.S. currency's not so much in the United States, because Americans have credit cards, debit cards and the like. And so we have to do everything possible to make sure currency becomes part of the payment options for people in the future.
GABLES: As Felix sets out to make his product more desirable with new innovative design, there is one cool thing he realized about his job that not everyone can claim.
FELIX: I don't know anybody in this world that doesn't want a piece of my product. They all want it! And so where can I get that joy? Where can I get that thrill? You go to the store and someone looks at a $100 bill -- man! You know, you can't get that anyplace in the world. So, you know, I love it and I wouldn't give it -- trade it for anything in the world.
GABLES: This is Shon Gables reporting.
"Market Monitor"-John Manley, Sr. Equity Strategist , Citi Smith Barney
SUSIE GHARIB: Our "Market Monitor" guest tonight expects the stock market to move higher over the next six months. Joining us now, John Manley, managing director of global wealth management at Citi Smith Barney. And John, so nice to have to here at the exchange.
JOHN MANLEY, SR. EQUITY STRATEGIST, CITI SMITH BARNEY: Great to be here.
GHARIB: Well, we see that the economy is struggling. So are corporate profits. So how do you see if the stock market is going to go up?
MANLEY: Well the market has gone up but I think it's for the improvement. I mean the market goes on the rate of change and I think what's happened now would be coming inured to the idea that any economic weakness, any undue or unwanted economic weakness will be met with stimulus. I don't think weakness or stutter in the economy is going to pull us back so much. I think the risk comes six or nine months when the economy starts to recover. I think between now and then we're at valuation still allows to make a decent amount of money.
GHARIB: The markets are up now. The Dow at least is up more than 20 percent over the last couple of months. How much higher do you see it going between now and the end of the year?
MANLEY: I can see the S&P hitting 1000 by the end of the year which is pretty good from here. It's still an investable amount. We'll have to worry about what happens after that, but I think there's still enough just coming back. We're only back to where we were three, four, five months ago where we just barely undone what we done since January. I'm not so sure that should have happened. I think things were actually stabilizing in the first quarter and it was a terrible quarter. So the bounce back is just that, a bounce back but I think there's some more on top.
GHARIB: Since the last time you were here which was back in October, we have gone through a very difficult path. So some of the recommendations you made back then struggled. Kimberly-Clark (KMS) was one of your recommendations as well as Conagra (CAG). Are those stocks still in your portfolio?
MANLEY: Well Kimberly would be one of my top recommendations. It's still a very high quality company. We were playing the idea that asset and prices of commodities will be coming down and Kimberly should benefit from that. Stocks didn't benefit as much as we should have. Conagra I think is still a good story. I think that would be among the top recommendations right now. That's simply, it's a turn around story that I think we got a little bit early but we haven't seen any real downside. It's kept pace with the market and we've seen in the most recent quarter signs that it is working. Costs are coming down. It is a food distribution -- first I think food commodity prices are still under control. They consolidated a few industries. They are trying to bring down their costs. And I think that's the real key for them. If they can bring down their costs on an operating level, I think they can show better profits.
GHARIB: Let's get a look at your fresh stock recommendations. At the top of the list, you have Hewitt Associates. The ticker there is HEW. What do you like about this stock?
MANLEY: Hewitt is one of the leading outsourcers, one of the leading consultants in the United States, in the world. And I think story here is they would, with the healthcare system changing, with COBRAs changing, they tend to pick up a lot of market share and I think you will see signs of a consolidating industry. It's cheaper for foreign firms to use or to do it themselves.
GHARIB: Back to international, another healthcare kind of company, medical instruments, ticker (BAX).
MANLEY: I think Baxter is a wonderful story for playing the increased spending that we're going to see for government on medicine. You can't play the big drug companies because they have got overhang. It's hard to play the HMOs. I think Baxter gives you very good story in terms of new products and leverage on top of the old products.
GHARIB: Let's go down the rest of the list. Corning Glass (GLW). What do you --
MANLEY: It's a great store. (INAUDIBLE) What you had if you had reduced inventories are going to come back. You have reduced capacity and you have continued demand. I think it's a wonderful combination for a stock that's down from where it was a year ago.
GHARIB: It was $27 last summer and it's now 14. So what is your target on that?
MANLEY: I think it can go back towards the old level. I don't know if it gets there right away or within the six to 12 month period but I think there's a great story because the demand for flat panel TVs, demand for any kind of screens is going up and with changes that are going to happen, the stock down. As I said everything else down, it's a great story.
GHARIB: CVS is the other one (CVS). That's the drugstore company that so many of us are familiar with. Ticker symbol is CVS.
MANLEY: Again, consolidation. They're putting a few corporations together. They're achieving we think economies to scale. It is not so much a turn around story as a consolidation of these industries to gather more efficiencies as they go forward. And I think again, not a particularly boisterous economic story but a wonderful story in terms of getting to the bottom line without having to have a big top line growth story.
GHARIB: Do you own any of these, any disclosure?
MANLEY: I do not.
GHARIB: Is there any one guiding principle that ties together all these recommendations in terms of your investment strategy?
MANLEY: I think it's the idea we're looking for individual stories. It's almost as if they're not tied together. They're all good companies. They're all companies we can live with, different sizes. But they're all well managed. They have strong cash flow and I think that cash flow is probably, if I had to pick one stream (INAUDIBLE) .
GHARIB: John, thank you so much for coming on the program. We appreciate it. My guest tonight, John Manley, managing director of global wealth management at Citi Smith Barney.
"Money File"-Government The Protector
JEFF YASTINE: In the "Money File" tonight, the government's role in protecting investors. Here's Jason Zweig, personal finance columnist at "The Wall Street Journal."
JASON ZWEIG, PERSONAL FINANCE COLUMNIST, WALL STREET JOURNAL: How could Uncle Sam help make the markets safer for investors? Here are a few modest proposals. First, Congress could mandate that anyone giving financial advice must act as a fiduciary, putting the clients' interests first. Investors may not realize that stockbrokers, insurance agents and many financial planners are held to the lower standard of what's called suitability. That means a broker only needs to have a reasonable belief that an investment is right for you, regardless of how much it costs you or pays him. A fiduciary, on the other hand, must disclose any conflicts of interest and take the costs of any investment into consideration. Second, Congress should reform the system of arbitration that settles disputes between investors and brokers. When you open a brokerage account, you essentially sign away your right to sue over any mistake or misconduct that your broker may commit. If you can take your surgeon to court for sewing up a pencil inside your stomach, why shouldn't you be able to take your broker to court if he puts you into investments that were wrong for you? Finally, the government should encourage all shareholders, large and small, to communicate with each other about companies and mutual funds. Shareholders need to be completely free to band together to demand lower pay for management, suggest new leadership or set more consistent standards for long- term success. Ultimately, the best thing the government can do is to give investors the unfettered right to raise their voices. I'm Jason Zweig.
Paul Kangas' Stocks in the News
JEFF YASTINE: Fresh economic data had Wall Street cheering this morning, but investors had second thoughts later in the day. Fears of deflation moderated as the Labor Department said consumer prices were unchanged in April. That helped the Dow to a 50-point gain in the first hour of trading. Those early gains disappeared as oil prices tumbled, losing more than $2 a barrel. That acted as a drag on energy stocks and the rest of the market. The Dow went on to close the day down 62.68 at 8,268.64 and this week, falling three times and rising twice for a net overall loss of 306.01. The NASDAQ Composite fell 9.07 today to 1,680.14 and that marked its fourth down session this week, logging an overall net weekly loss of 58.86. The S&P 500 ending off 10.19 to 882.88 and it was down 46.35 points on the week. In the bond market, the 10-year note falling 12/32 to 99 30/32 and the yield at 3.13 percent.
The financial Bank of America (BAC) topping our list tonight, losing $0.64. And there's Citigroup (C) Citi falling (ph) $0.07. They sold $2 billion in investment grade bonds without the backing of the U.S. Treasury. It's the first time Citi has sold its own bonds outside of the FDIC's temporary liquidity guarantee in quite a while. The bonds were rated with a single A by Standard & Poor's.
And there's Ford Motor Co (F) gaining $0.33.
American International Group (AIG) slipping $0.12. Fitch downgraded AIG's bond rating. Its mortgage business unit is now at junk bond status.
General Electric (GE) finishing down $0.18. The dredging of (INAUDIBLE) by Hudson River began today removing mud contaminated with PCBs. GE is paying for that clean up effort. It could cost $750 million or more.
Fortress Investment (FIG) dropped $1 and a penny. The publicly held investment firm will raise $125 million by selling more Class A shares of stock.
Wells Fargo (WFC) off $0.82.
And then Pfizer (PFE) dropping $0.33.
JPM Chase (JPM) sliding $0.63. They sold $2.5 billion in five-year notes. Analysts expect that money to be used to repay the government and be free of the TARP program.
And US Bancorp (USB) off $0.17.
WuXi Pharmatech (WX) jumped more than $2. The company reported strong demand for its China-based lab services. Executives believe the deal will hit their yearly profit targets.
And Red Hat (RHT) capped a gain of $1.74. The Jefferies brokerage issuing a "buy" there and a price target of $21.
American Dairy (ADY) soaring over $9. It certainly looked like a cash cow today, rising to an all-time high. The company getting top dollar for premium milk powder products including baby formula.
Anixter International (AXE) jumping almost $2.50. If you want a stock to watch in anticipation of an economic rebound, this is one to watch. So say analysts at William Blair. Anixter delivers electrical and cable products.
Nordstrom (JWN) up $1.63. The retailer beat earnings estimates last night. Executives see even better results in the year ahead.
And Firstenergy (FE) losing nearly $4. Barclays and Jefferies both downgraded the stock. They see lower profits based on lower wholesale power rates set by Ohio utility regulators yesterday.
And Chemed (CHE) (INAUDIBLE) $2.32. Their VITAS health care unit received subpoenas from the Justice Department. Investigators are looking at hospice services including patient records, policy and procedure manuals going back 6 1/2 years.
Over to the NASDAQ where Apple (AAPL) backed down $0.53.
Cisco Systems (CSCO) losing $0.17.
Microsoft (MSFT) up $0.16.
Google (GOOG) gaining $2.50 even.
Research in Motion (RIMM) up $1.22.
Intel (INTC) fell $0.35.
And then we have Dryships (DRYS) gaining $0.75. The dry boat shipper struck a waiver deal for $650 million in outstanding loans covering 23 ships in the fleet. Analysts say it's a step in the right direction but Dryships has issued a lot of new stock and the effect of that dilution isn't fully understood yet.
Qualcomm (QCOM) gaining $0.19.
Amazon.com (AMZN) down $1.51.
CME Group (CME) losing a little over $7 after some run ups of recent days.
Rightnow Technologies (RNOW) picking up $1.04. Roth Capital upgraded that one.
And OSI Pharmaceuticals (OSIP) falling $1.90. Clinical tests found their Tarceva cancer drug was helpful to lung cancer patients, but not to the extent analysts had hoped for. And expanding the drug's use, Cowan and Company keeping its "neutral" rating on the stock.
And those are our stocks in the news tonight.
