Interview: G.M.
>> discussions between general motors and its largest union, united auto workers. at the heart of the attack, how to bring down rising healthcare costs. u.a.w. president discussed the healthcare issue.
>> it’s the $5.6 billion problem that won’t go away. g.m.’s chief executive, rick wagoner, trying to deal directly with the issue. a month ago, u.a.w. officials said g.m. threatened to cut healthcare benefits if the union didn’t agree to concessions by june 30. the deadline passed without incident. now, the president of the united auto workers union says g.m. can’t touch healthcare benefits without union agreement.
> general motors cannot unilaterally make those changes and as to what would happen, i’ll just leave that for them to think about. but obviously that is an area that is a permissive subject of bargaining. they did bargain these healthcare benefits. they are part of our contract and certainly i don’t believe that general motors wants to violate their contract.
>> a g.m. spokesman responded to the comments saying “we’re in discussions and i wouldn’t want to go into any detail about what’s being discussed.” you may recall that wagoner said in april that healthcare spending made the automaker uncompetitive and he couldn’t forecast the earnings for the year until the healthcare cost crisis was resolved. the union president today said the problem goes beyond healthcare costs.
>> well, i don’t think the auto industry is in crisis right now, it’s just a matter of adjusting inventories and getting their market share back.
>> the company and the union have been in discussions since april. after g.m. reported a first-quarter loss topping $1 billion. the union president did not say if the two sides were closer to resolution. ellen?
>> brett, thanks so much. certainly, another major story for investors has been the fallout, reaction to the terrorist attacks in london and the market ‘s resilience in the face of the attacks. that was the discussion today with laszlo birinyi, president of brina associates. bob bowden has more of what he had to say. everyone looking closely to what he had to say.
>> indeed. certainly today no exception to that. birinyi always draws attention. he was the head trading strategist at deutsche bank and salomon smith barney. to explain yesterday’s robust response to the london bombings, birinyi told bloomberg that the market is callous and unemotional, part of why the acts of terrorism did not hurt stocks.
>> the critical issue is whether the glass is half empty or half full and i think it’s half full. all we need is a catalyst or trigger to get people to stop looking into the rear-view mirror for all the concerns and i don’t think of yesterday had any effect on that so our attitude is positive going forward.
>> birinyi still likes homebuilders and energy stocks. despite energy stocks having rallied over 40% in the last 12 months as you see on the one-year chart. and home building stocks nearly doubling compared to a year ago. laszlo says they are good places to put new money.
>> if you look at fundamentals of home building and energy, they really haven’t changed. prices have gone up a lot but so have earnings. on a valuation basis, many are almost where they were four, five years ago. so, i think looking at it objectively, both areas are poised to go higher.
>> energy stocks he likes include exxon-mobil, conocophilips and valero. speaking of liking stocks that have enjoyed large gains, birinyi expressed enthusiasm for google shares, explaining the signs that will tell him when it’s time to sell google.
>> i’m looking for the last analyst upgraded, i’m looking for at some point when somebody comes out with an outrageous prediction when the market responds to. that’s one of those stocks where you use your experience rather than your quantitative and fundamental inputs.
>> google shares up 54% year to date, more than tripling since going public a year ago. back to you.
>> in addition, certainly, to the fallout from the terror attacks, investors focused on the jobs report out this morning. the mon ser.com index points that online job postings at 1500 websites across the country, according to the president of monster.com, north america, the recovery in the labor market , he says, will continue.
>> i think combined with the may and june numbers and what we’ve seen with payroll claims dipping in our index, we’ll see gradual strengthening of the labor market economy. there are strong industries and occupations and regions around the country and we see momentum throughout the summer months.
>> he says job growth is strongest in the mountain states and new england and that finance and insurance are the hottest industries at the moment owing to the passage of sarbanes-oxley, also contributing to labor market activity, he says, is higher wages.
>> another key factor is turnover. we surveyed 5,000 employers, asking them why the jobs were posted and 50% of the jobs were posted because of turnover and having to replace it. people have the opportunity to go across the street for more money.
>> he says the index shows strong hiring will continue for at least the next six months. when we return wharf the break, more about job growth. economists saying it’s proof the fed was right when the fed said job growth would be gradual.
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Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)
Deloitte & Touche --- Allan (slow)
Interview: Law Professor with Columbia University
the prior two months that were revised higher. the jobless rate falling to 5%, the lowest since the september 2001 terrorist attacks. economists say the data will prompt the federal reserve to continue raising interest rates gradually to head off faster inflation. we’ll talk about this and much more with former fed governor susan phillips in a few moments. first off, showing you how the stock markets settled on this friday with a surge of 147 points for the dow. that’s a gain of 1.4%. the s&p ending higher by just about 1.2%, erasing its decline for 2005. and the nasdaq, a gain of 1.8%. in the treasury market , prices were lower today on the heels of the jobs report. also, treasuries reached their lows of the day as stocks continued to climb. as for currencies, the dollar recorded its third straight weekly gain against the yen. in commodities, crude oil fell after flirting with a record. there was speculation hurricane dennis may miss the majority of oil rigs and platforms in the gulf of mexico. prices, keep in mind, had been climbing in anticipation of the hurricane’s effect on production. pointing out that natural gas futures did rise 1%. in terms of stocks, quite a rally on wall street today. let’s get details on the rally from deborah kostroun.
>> gains today and of course, remember, it was a shortened trading week. most of the gains we saw this week in all the major averages coming in today’s session with the major indices having gains over 1%. the rally started late in the day yesterday. one of the things that helped things out was the jobs report. the jobless rate falling to 5%, the lowest since september 2001 terrorist attacks. although we added a smaller number of jobs than expected, the market took that as positive. alcoa’s earnings helped material and cyclical stocks to perform well. the dow jones industrial average had its second largest gain so far this year. if you look at the gainers, what really led the market , a little bit surprising. we saw a little bit of a change in leadership. semiconductors, we typically don’t see them, but they performed well. teradyne had positive comments. also texas instruments hit a 52-week high today. transports did well as oil prices fell and material stocks did well as alcoa reported earnings better than expected. among the 24 industry groups in the s&p 500, the laggards, only a couple of laggards, only one laggard, energy stocks. these are the best performers so far this year. so a little bit of a change in leadership there, as well. and of course, energy stocks lower as crude oil actually ended out the day lower. the russell 2000 closing at a record high today. other notables that we want to look at. small cap stocks also hitting a record high. you can look at some of the small cap stocks. also, the midcap stocks hitting a record high, as well. many of the midcap stocks like raymond james, upgraded by wachovia securities. so midcap stocks also performing well. in the dow jones industrial average, alcoa leading the way. second quarter profit was better than expected despite higher energy prices and alcoa said they had a rise in the sale of alumina, the main ingredient to make aluminum. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> deloitte & touche is being investigated by federal regulators over a 2003 audit of the truck maker navistar international. the formal investigation is the first one to target one of the so-called big four accounting firms. our allan dodds frank has the story.
>> the investigation is being handled by the public company accounting oversight board. an a.u. shoot of the securities and exchange commission. the investigation became public inadvertently when a document was misfiled at the s.e.c. that document, authorizing the investigation, and not explain what deloitte may have done wrong but focusing on the audit of navistar’s fiscal unit in 2003. the problems may include checking for fraud, performing work in a professional manner and preparing reports for financial statements. navistar restated results for 2002 and 2003 and the first three quarters of 2004. as for deloitte, this is not the first time its audit practices have come under scrutiny. in april, the accounting firm paid $50 million to settle s.e.c. charges that its audit should have detected fraud at adelphia communications. allan dodds frank, bloomberg news.
>> for more insight into the federal probe of deloitte & touche, we’re joined by john coffee, law professor with columbia university, joining us from columbia’s campus in new york city. professor coffee, welcome. thanks for taking time.
>> my pleasure.
>> how serious is this investigation?
>> it may be serious but i would caution anyone from putting great weight on it at this point. we really can’t know that the p.c.a.o.b. has singled out deloitte in any respect. they’re probably investigating most or all of the big four and the other major accounting firms. this one story has leaked out because the s.e.c. stumbled. if we knew everything what the pcaob was doing right now, we might find that they were less skeptical and less critical of deloitte than of other firms so it’s not a fair comparison. all we really do know is that the pcaob seems to be doing their job because this is exactly what they were suppose to do, go through audit results turned in by major audit firms and see if they approved of how the accounting decisions were made.
>> in terms of the investigation and then we’ll get into the fact that it came out inadvertently in a moment. but in terms of the investigation, what happens from here? >> they will look at these audit results and say we don’t think you made a right decision here, this was a poor accounting judgment. that will lead to a response from the accounting firm. there will be a proceeding by which an administrative law judge may hear charges and make a determination. ultimately, the pcaob is entitled to impose sanctions and penalties and all of those determinations could be appealed to the s.e.c. and possibly on to the courts.
>> what kind of time frame is involved?
>> i think you would get a decision from the pcaob. their investigation probably could be completed by, let’s say, the end of this year and first quarter of next year. it depends on how many cases they have and whether this is given priority treatment. we really don’t know.
>> in terms of the fact that this did come out inadvertently, that the public was not suppose to know about the investigation, you’re saying that we don’t know if other investigations are underway, what’s your sense in terms of how much activity, how much investigating there will be of this in terms of the companies?
>> i’m sure there is more than one case. and i would suspect that the pcaob wants to come forward with a broad range of investigations against a number of accounting firms rather than singling out one. their real focus is on the accounting judge judgments that have been made. that’s something that the s.e.c. in the past couldn’t do. they were more of an anti-fraud agency and this was a judgment call deferred to the profession. pcob can say this was a poor professional judgment and based on that, we’re going to censure you, for example.
>> how effective do you think the oversight board will be able to be?
>> i think at the present time they look like an aggressive, strong body that is well led and that i think will have impact on the industry. i think accountants in the past didn’t believe professional judgments could be second guessed by the s.e.c. but they can be second guessed by a body of professional accounting experts and that’s what the pcaob really is.
>> give us one or two areas you think are ripe for improvement in this industry?
>> the area they’ve come up with already and the s.e.c. has also come up with is the old area of professional independence. within the last year, the s.e.c. joined one major firm, ernst and young, from taking on any new clients for six months, an extraordinary sanction because they had a variety of conflicts in which they were engaging in joint ventures with the clients they were auditing. with navistar, it looks like it’s based upon accounting judge thements. did you have a basis for using this principle, was there adequate documentation for these costs being deferred. there are always questions about soft judgments and what is involved in navistar, we don’t know. i looked across all of accounting america right now, i would suspect that the kind of issue they’re finding coming up the most is premature revenue recognition, either because of booking of income what are only handshake deals that aren’t binding or channel stuffing where you sell much more product than you ever expect will get passed through the distribution stream in order to book revenue early. that’s been the major problem over, say, the last two or three years.
>> professor coffee, thanks so much for joining us this friday afternoon. john coffee with columbia university. taking a quick break and returning with comments from laszlo birinyi. we’ll learn what he makes of the fallout from the terrorist attacks.
