10/10/05:
Delphi's Bankruptcy Makes A Dent In The Auto Industry From Parts To Personnel
SUSIE GHARIB: Delphi`s bankruptcy sent ripples through the
auto industry and Wall Street today. The world`s largest auto parts
supplier filed for Chapter 11 on Saturday. And today the news put a big
dent in shares of Delphi and its former parent, General Motors. Delphi`s
filing not only has major implications for auto makers, but also auto
workers. We have two reports tonight, beginning with Diane Eastabrook.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: While
Delphi`s bankruptcy has been anticipated for weeks, Wall Street still
reacted harshly today to Saturday`s announcement. Investors dumped the
stock, sending its price plummeting, despite the company telling investors
that business will go on as usual. Analysts say bankruptcy should help
Delphi get out from under the massive legacy costs that have plagued it
since General Motors spun off the company six years ago.
JOHN NOVAK, AUTO PARTS ANALYST, MORNINGSTAR: This is a company that
has suffered from a high wage structure. They had massive pension and
employee and retiree health care liabilities. They had excess capacity.
And basically Chapter 11 will provide a process where they can go ahead and
restructure a lot of those items.
EASTABROOK: Through the first half of the year, Delphi listed assets
totaling $16.5 billion and liabilities totaling nearly $21 billion. In the
second quarter, the company suffered a loss of $741 million versus a profit
of $206 million in the same quarter last year. Industry watchers say
Delphi has been suffering more than some of its competitors because it
derives about half of its revenues from General Motors. That auto maker
has been losing market share because of slumping light truck sales.
Analysts say Delphi is likely to shed its unprofitable component business
and focus more on large systems manufacturing. Novak thinks it could also
branch out more into non-automotive areas.
NOVAK: Delphi has also been diversifying outside the auto industry as
well into areas such as medical technology and electronics. The problem is
that`s a relatively small portion of their overall business and the
problems with GM and with their wage structure were just too great to
overcome.
EASTABROOK: Industry watchers agree Delphi`s biggest challenge is
cutting wages and benefits to its 25,000 unionized workers in the U.S.
Analysts estimate those workers make at least a third more than their non-
union competitors. At this point Delphi says it has not decided if it will
terminate its pensions. So far the United Auto Workers and Delphi have
been unable to negotiate wage and benefit concessions. Responding to the
bankruptcy filing, UAW President Ron Gettelfinger said quote, we will
vigorously use our experience, expertise and resources to represent the
interests of UAW-Delphi workers and retirees throughout the process,
unquote. Delphi hopes to emerge from bankruptcy sometime in the middle of
2007. Analysts say since it`s already arranged for some bank financing and
its European operations are fairly healthy, it has a good chance of meeting
that timetable. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Erika
Miller. Delphi`s bankruptcy is sending shock waves throughout the
automotive industry, but not all of them will be bad. To be clear, most
analysts agree that short term, Delphi`s Chapter 11 filing creates
uncertainty for major auto makers, especially GM.
EFRAIM LEVY, AUTO ANALYST, STANDARD & POOR`S: There`s a couple of
negative factors, such as the pension costs, the healthcare costs and if
there is a strike, what the disruption will be.
MILLER: GM says Delphi`s default could cost it as much as $11 billion.
But analysts expect GM`s obligation will probably be closer to $4 billion.
GM will also be facing higher borrowing costs. Today Standard & Poor`s
downgraded the auto maker`s long-term corporate debt rating, but many
analysts agree Delphi`s bankruptcy could potentially have some beneficial
effects down the road.
LEVY: There are some potential positives over the longer term, where
if Delphi becomes more competitive, it`ll be cheaper to get the products
from Delphi than it is now.
MILLER: But lower prices are not the only potential benefit for
automobile makers. Delphi`s bankruptcy may also help them lower labor
costs. Delphi is seeking major labor and benefit concessions from the
United Auto Workers union. And if the firm is successful, analysts predict
that could give auto makers leverage in pressing for their own cuts.
ROBERT HINCHLIFFE, AUTO ANALYST, UBS: At some point here, you could
see this come to a showdown and I think that`s where the biggest financial
impact could happen.
MILLER: GM has been a client of UBS over the past year. Many industry
analysts caution investors against buying auto stocks, hoping for an
industry turnaround.
HINCHLIFFE: It`s a tough group. I mean, forgetting Delphi just for a
second, the fundamentals are very tough right now. High energy prices make
the sale of the more profitable pickup trucks and SUVs that much harder to
convince people of right here. So that`s one of the tough fundamental
things the industry is facing.
MILLER: So what would it take for analysts to turn bullish on the big
three auto stocks? They want to see new, innovative vehicles that consumers
can`t wait to buy. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Nightly
Business Report transcripts are available on-line post broadcast.
The program is transcribed by eMediaMillWorks. Updates may
be posted at a later date. The views of our guests and commentators
are their own and do not necessarily represent the views of
Community Television Foundation of South Florida, Inc. Nightly
Business Report, or WPBT. Information presented on Nightly
Business Report is not and should not be considered as investment
advice. Copyright
(c) 2005 Community Television Foundation of South Florida,
Inc. ALL RIGHTS RESERVED. Terms of use.
10/10/05:
Market Outlook With Robert Doll, CIO, Merrill Lynch Investment Managers
SUSIE GHARIB: Our guest tonight expects double-digit earnings
growth for the third quarter, but also many disappointments.
And he says, be prepared for the stock market to quote, muddle
through. Joining us now, Bob Doll, chief investment officer
of Merrill Lynch Investment Managers. Hi, Bob.
BOB DOLL, PRESIDENT, MERRILL LYNCH INVESTMENT MANAGERS: Good evening,
Susie.
GHARIB: Let`s begin talking about Alcoa, because it was the kickoff
stock for the earnings season, third quarter earning season. As you look
at the numbers, anything there that tells you about what we might be able
to expect this season.
DOLL: Well, as you -- as Paul just pointed out, better than recent
expectations, but the company came out a few weeks ago and took
expectations down a lot. Companies that have done that have a chance of
beating. But our concern is the 17 or 18 percent gain that folks expect
for this quarter and the consensus, Susie, it could be tough to meet that
with energy prices up, short-term interest rates up and the economy
softening just a little bit.
GHARIB: So what are your expectations for earnings performance for the
quarter and what impact will have that on the market?
DOLL: I still think, Susie that it will be double digits but let`s
fine tune it by saying up 12 or 13 instead of 17 or 18 and 12 or 13 in the
long-run is great news, but when you expect something 500 basis points more
than that, that is a disappointment and the companies that don`t make it,
those stocks will struggle. Those that do or beat will hang in there, and
to use the phrase muddle through.
GHARIB: Let`s talk a little bit about your outlook on the markets
because you say it is going to muddle through. What is going on? What is
this malaise and this downturn all about?
DOLL: As you know, Susie, the S&P 500, even a week ago was still up on
the year. Then we have a bad week last week and a tough day today and now
we are down. But we`ve got a lot of crosscurrents here. The good news
continues to be, corporate earnings are pretty good. Corporate cash flows
are incredible, profit margins at peak levels, unemployment rate, pretty
low. That`s among the positives. But on the negative side, we have this
constant creep up in short-term interest rates. The pressure from higher
energy prices, folks are now concerned as you know, about inflation and all
of that is weighing on the market here in the last bunch of days.
GHARIB: What are your views about these renewed worries about
inflation and higher interest rates?
DOLL: Well, inflation, Susie, has been very, very low until the last
few months. And I would argue, in the bigger picture, it`s moving from
very low to still pretty low. But the direction is wrong and with interest
rates as low as they have been across the yield curve, the Fed is saying
we`re going to stomp on them. Alan Greenspan wants to get out of office
known as the inflation fighter, doesn`t want to risk it. And so rates are
going higher first.
GHARIB: You said in your report today that the Fed, with the Fed funds
rate at about 4 percent, that that would be quote damaging to economic
growth. Now from the Fed (ph) ex-group (ph) I`ve been talking to, we`re
going to get to that four percent level at the November meeting and then
it`s going to even go higher at the December meeting. So what does all of
this mean for where we go from here in terms of the markets and the
economy?
DOLL: Our view is above four, we have to begin asking questions,
Susie. The Fed obviously is more concerned in their rhetoric about
inflationary expectations than they are about weakening economic growth and
to the extent they fight the inflation concerns, the economy risks slowing
down some more. The good news is we`ve come through many quarters in a row
of 3 percent real GDP or higher in the U.S., the longest stretch in many
decades. So that`s good news. But we don`t want to threaten that and the
Fed could if they take rates to 4 1/4, 4 1/2, flatten the yield curve,
invert the yield curve.
GHARIB: Bob, are you still sticking by your prediction that stocks
will be up for the year?
DOLL: Yes, we think they will. Obviously we need a fourth quarter
rally for that to happen of a few percent, Susie. And we could have more
of a selling squall here before we reverse direction. But we think there
is some oversold aspects to the market. We still think there will be a
year-end rally and we will close modestly higher.
GHARIB: I hope you are right. We will check in with you as it gets
closer. Thanks so much Bob. We have been speaking with Bob Doll, chief investment officer of
Merrill Lynch Investment Managers.
Nightly
Business Report transcripts are available on-line post broadcast.
The program is transcribed by eMediaMillWorks. Updates may
be posted at a later date. The views of our guests and commentators
are their own and do not necessarily represent the views of
Community Television Foundation of South Florida, Inc. Nightly
Business Report, or WPBT. Information presented on Nightly
Business Report is not and should not be considered as investment
advice. Copyright (c) 2005 Community Television Foundation
of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.
10/10/05: The Who's Who of Candidates
For Fed. Chairman Alan Greenspan's Job
PAUL KANGAS: As Bob Doll just mentioned, the Federal Reserve has January
31, 2006, marked on its calendar. That`s not only the first open market
committee meeting of the year. It`s also the last day of Chairman Alan
Greenspan`s term in office. The Bush administration is expected to name a
successor soon. As Washington bureau chief Darren Gersh reports, the
frontrunners for the job are well-known inside the beltway.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Who will get to
sit in this chair? Right now there are three candidates widely considered
to be on the short list to take over once Alan Greenspan steps down. Many
consider Ben Bernanke the man to beat. A former Fed governor, Bernanke is
currently chairman of the president`s Council of Economic Advisers. Next
is Glenn Hubbard, also a former chairman of that panel. Harvard economist
Martin Feldstein is said to be in the running, too. Those who know the Fed
well say all are good candidates.
ALICE RIVLIN, FORMER FED VICE CHAIRMAN: The lists I`ve seen are all
very qualified, very competent people who would do a good job at the Fed.
I haven`t seen any kind of odd-ball, dark-horse name so far.
GERSH: While none of the men would, as one analyst put it, scare
financial markets, each comes with some baggage. Before landing at the
Fed, Bernanke was an academic with little experience in the private sector
and financial markets. Feldstein`s star has fallen recently, in part
because of his age, 65, and because his background is in public finance,
not monetary policy. William Niskanen served with Feldstein at the Reagan
Council of Economic Advisers.
WILLIAM NISKANEN, CHAIRMAN, CATO INSTITUTE: He showed in his position
as chairman of the council that he has somewhat of a tin ear for politics.
GERSH: Hubbard also specialized in public finance, even helping write
the 2003 Bush tax cuts.
NISKANEN: He has the huge asset of having the confidence of President
Bush. That I think, to my point of view, makes him the most likely
nominee.
GERSH: Some speculate the White House wants someone with practical
experience with money and markets -- in other words, someone like Alan
Greenspan.
RIVLIN: It is hard to find both, somebody with business experience
and a good knowledge of economic policy.
GERSH: There are many names floated as long shots to replace
Greenspan, but after the controversy over Supreme Court nominee
Harriet Miers, analysts say the White House is under pressure
to play it safe and pick a known quantity for the Fed. Darren
Gersh, NIGHTLY BUSINESS REPORT, Washington.
To learn more about this topic, click
here.
Nightly
Business Report transcripts are available on-line post broadcast.
The program is transcribed by eMediaMillWorks. Updates may
be posted at a later date. The views of our guests and commentators
are their own and do not necessarily represent the views of
Community Television Foundation of South Florida, Inc. Nightly
Business Report, or WPBT. Information presented on Nightly
Business Report is not and should not be considered as investment
advice. Copyright (c) 2005 Community Television Foundation
of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.
10/10/05: "Commentary"-The Deficit: Know When To Hold It Know When To Fold It
PAUL KANGAS: There`s an old saying that you get what you pay for or as tonight`s
commentator sees it, what you don`t pay for. Here`s Alan Blinder, partner
in the Promontory Financial Group and former vice chair of the Federal
Reserve.
ALAN BLINDER, PARTNER, PROMONTORY FINANCIAL GROUP: Sometimes
a lesson can be learned too well. It took economists decades
to persuade politicians and the public that the Federal budget
should not necessarily be balanced every year. There are times
when it makes sense to run a deficit as, for example, during
a recession. And there are times when it makes sense to run
a surplus as for example, when huge Social Security and health
care expenses loom in the future. But the notion that government
expenditures and revenues need not match year by year doesn`t
imply that there should be no relation whatsoever between
the two. According to Dick Cheney, Ronald Reagan taught us
that deficits don`t matter. Did he? If so, why did he approve
a huge tax increase just one year after the massive tax cuts
of 1981? It is President Bush, not President Reagan, who has
adhered to the Cheney doctrine. Unlike Reagan, Bush followed
his mammoth 2001 tax cuts with another large tax cut in 2003
and several smaller ones, too. He also added an expensive
new drug benefit to Medicare without even suggesting a way
to pay for it. Likewise, the Iraq war has been financed by
adding the bill to the deficit. And it now appears that hurricanes
Katrina and Rita will be dealt with in the same way. See a
pattern here? Apparently, this administration needs to be
reminded of a simple principle of sound finance, that you
need to pay at least some of your bills. I`m Alan Blinder.
Nightly
Business Report transcripts are available on-line post broadcast.
The program is transcribed by eMediaMillWorks. Updates may
be posted at a later date. The views of our guests and commentators
are their own and do not necessarily represent the views of
Community Television Foundation of South Florida, Inc. Nightly
Business Report, or WPBT. Information presented on Nightly
Business Report is not and should not be considered as investment
advice. Copyright (c) 2005 Community Television Foundation
of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.
10/10/05:
"Paul Kangas' Stocks In The News"
PAUL KANGAS: Stocks opened lower with General Motors sliding on the heels
of the Delphi bankruptcy. Another negative was Citigroup`s downgrade of
the energy sector to underweight. So the Dow fell 20 points at the outset
of trading. The NASDAQ lost 10 points. The market rebounded with modest
midday gains after analyst upgrades on IBM and Dell, but the upturn failed
amid jitters over inflation and corporate earnings. So the Dow industrial
average closed down 53 1/2 points at 10,238.76. That`s a five-month low.
The NASDAQ Composite lost 11.43 ending at 2078.92. That`s a three-month
closing low. Standard & Poor`s 500 was off 8.57 at 1187.33. No bond
trading today. The market was closed for the Columbus Day Federal holiday.
The big board volume leader on 20 million shares, Pfizer (PFE) edging
up $0.06, even though Express Scripts, the big drug benefit manager is
going to Pfizer`s Lipitor drug from its list of preferred drugs and replace
it with a generic version. Pfizer is retaliating by cutting off its
rebates to Express Scripts beginning next year.
Then came General Motors (GM) tumbling $2.81. Bank America downgraded
it from "neutral" to "sell," saying Delphi`s Chapter 11 bankruptcy boosts
the likelihood of a GM bankruptcy from 10 percent to 30 percent. Standard &
Poor`s repeated a "strong sell" on GM and of course Delphi plunged 70
percent to $0.33 a share.
Then came Refco (RFX) tumbling nearly $13 or 45 percent. The company
will have to restate its financials from all the way back to fiscal year
2002 to the first quarter of fiscal 2006 because an internal probe found
receivables owed to the company were controlled by its chief executive
officer, Philip Bennett, who is now on a leave of absence. Although Bennett
has repaid the $430 million, you might recall that stock went public in
August as $22 a share.
Wal-Mart Stores (WMT) up $0.51, positive comments in this week`s
"Barron`s" financial. One analyst sees the stock rising 40 percent over the
next year.
Ford Motor Co (F) was down $0.30. That was fifth in big board volume.
General Electric (GE) lost $0.23.
ExxonMobil (XOM) lost $1.10 on that Citigroup downgrade of the energy
sector from "market perform" to "under weight."
Lucent Technology (LU) down $0.06.
No change in Time Warner (TWX).
Tenth in volume Motorola (MOT) losing $0.78.
Jefferson Pilot (JP), there you see it, up $3.02. That bid from
Lincoln National, 1.1 shares of Lincoln or cash worth about $55.96. Lincoln
today fell $1.54 to $49.19 per share.
Then came the other auto parts makers following Delphi down on that
bankruptcy. American Axle & Manufacturing (AXL), ArvinMeritor (ARM), Borg
Warner (BWA) and Dana (DCN) - Dana, even though it`s in that tough group
today, on top of that is going to restate earnings for the last six
quarters due to improper accounting. That made the sell off there even
worse.
IBM (IBM) moved up $0.75. Citigroup upgraded it from "hold" to "buy"
because it`s gaining share in the high end server market.
And then came Northrop Grumman (NOC) down $0.57. The company says
hurricanes will cut third quarter earnings by up to $0.30 due to delayed
contracts, mainly for its shipbuilding operations in Mississippi and
Louisiana where it employs up to 20,000 people.
Then Unisys (UIS) losing $0.82 or 12 percent of its value. The company
warned it`s going to lose $0.07 to $0.09 a share in the third quarter
versus its previous estimate of earnings of $0.04 to $0.06. Standard &
Poor`s repeated a "sell" on Unisys.
Maverick Tube (MVK) up $1.43. Raymond James Financial brokerage
upgraded it from "under perform" to "market perform."
And then a good gainer, MSC Industrial (MSM) which makes tools for
industrial use. The stock was added to the Standard & Poor`s 500, Standard
& Poor`s madcap 400 after the close today, replacing Patterson Companies.
Google (GOOG) topped the active list on NASDAQ, down $2.34.
Microsoft (MSFT) $0.13 loss.
Similar drop in Cisco Systems (CSCO).
And then Apple Computer (AAPL) losing $0.93.
Intel (INTC) dropped $0.40. That was fifth in dollar volume.
Xilinx (XLNX) plunging $4.35. The company sees 1 to 2 percent drop in
second quarter sales compared to the first quarter.
Dell (DELL) was up $0.74. The Needham brokerage upgraded it from "buy"
to "strong buy" on a valuation basis.
Patterson Companies (POCO) up $1.95. As I touched on, it was added to
the Standard & Poor`s 500 index after the close today.
Yahoo! (YHOO) $0.37 gain.
$0.56 rise in Ebay (EBAY), tenth in big board volume.
Biocryst Pharmaceuticals (BCRX) up $1.33 or 11 1/2 percent. There is
speculation the company`s anti-viral drug may be effective against the bird
flue.
And those are the stocks in the news tonight.
Nightly
Business Report transcripts are available on-line post broadcast.
The program is transcribed by eMediaMillWorks. Updates may
be posted at a later date. The views of our guests and commentators
are their own and do not necessarily represent the views of
Community Television Foundation of South Florida, Inc. Nightly
Business Report, or WPBT. Information presented on Nightly
Business Report is not and should not be considered as investment
advice. Copyright (c) 2005 Community Television Foundation
of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.
10/10/05:
Market Stats
NET PERCENT
CLOSE CHANGE CHANGE
DOW CLOSE 10238.76 -53.55 - .5
HIGH 10323.12
LOW 10237.80
NASDAQ COMP. 2078.92 -11.43 -.6
HIGH 2093.23
LOW 2078.11
VOLUME 1,636.9
PREVIOUS 1,609.8
UP VOLUME 325.6
DOWN VOLUME 1,285.8
DOW TRANSPORTS 3665.85 -12.90 - .4
DOW UTILITIES 406.03 -7.79 - 1.9
CLOSING TICK -77
S&P 500 1187.33 -8.57 - .7
S&P 100 550.00 -2.92 - .5
MIDCAP 400 687.80 -5.06 - .7
REUTERS/CRB 325.96 +.75 + .2
NYSE COMPOSITE 7385.57 -49.62 - .7
VALUE LINE 393.79 -4.19 - 1.1
RUSSELL 2000 637.97 -6.36 - 1.0
DJW 5000 11867.40 -86.44 - .7
U.S. TREASURIES
5-YEAR NOTE 3.875%
Sept. 15,2010 98 14/32 unch. + 4.23
10-YEAR NOTE 4.25%
Aug. 15,2015 99 4/32 unch. + 4.36
30-YEAR NOTE 5.375%
Feb. 15, 2031 112 2/32 unch. + 4.57
LEHMAN BROS.
LONG BOND INDEX N/A N/A
DOW CLOSE 10238.76 -53.55 - .5
ADVANCES 940
DECLINES 2331
NEW HIGHS 17
NEW LOWS 156
NET PERCENT
NYSE MOST ACTIVES 4PM CLOSE CHANGE CHANGE
PFE Pfizer 24.45 +.06 +.3
GM GM 25.48 -2.81 -9.9
RFX Refco 15.60 -12.96 -45.4
WMT Wal-Mart Stores 44.54 +.51 +1.2
F Ford Motor Co 8.93 -.30 -3.3
GE GE 33.99 -.23 -.7
XOM Exxon Mobil 58.50 -1.10 -1.9
LU Lucent Tech 3.13 -.06 -1.9
TWX Time Warner 18.01 unch. unch.
MOT Motorola 20.82 -.78 -3.6
NASDAQ CLOSE 2078.92 - 11.43 - .6
VOLUME 1,433.8
PREVIOUS 1,486.0
ADVANCES 1063
DECLINES 1918
NASDAQ ACTIVES
GOOG Google 310.65 -2.34 -.8
MSFT Microsoft 24.46 -.13 -.5
CSCO Cisco Systems 17.49 -.14 -.8
AAPL Apple Computer 50.37 -.93 -1.8
INTC Intel 23.42 -.40 -1.7
XLNX Xilinx 22.77 -4.35 -16.0
DELL Dell 32.82 +.74 +2.3
PDCO Patterson Cos 39.96 +1.95 +5.1
YHOO Yahoo! 34.53 +.37 +1.1
EBAY eBay 40.46 +.56 +1.4
AMEX CLOSE 1651.07 - 23.83 - 1.4
INDEX SHARES
DIA DIAMONDS TRUST 102.32 -.62 -.6
QQQ NASDAQ 100 38.13 -.21 -.6
SPY S&P DEP.RECEIPTS 118.59 -1.00 -.8
STOCKS IN THE NEWS
AXL American Axle 20.80 -1.38 -6.2
ARM ArvinMeritor 14.28 -1.14 -7.4
BWA BorgWarner 54.27 -2.03 -3.6
DCN Dana Corp 6.04 -3.15 -34.3
JP Jefferson Pilot 53.81 +3.02 +6.0
IBM IBM 81.25 +.75 +.9
NOC Northrop Grumman 53.48 -.57 -1.1
UIS Unisys 6.01 -.82 -12.0
MVK Maverick Tube 28.09 +1.43 +5.4
MSM MSC Industrial 36.55 +2.29 +6.7
BCRX Biocryst Pharm 12.98 +1.33 +11.4
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