Interview: Oil price
>> it is the king of all gas guzzlers, the hummer. if you wanted to fill it up last week t cost a record $74. new evidence that americans may feel pain at pump. wholesale gas prices reached a record $1.71 ra gallon last week. adjusted for inflation, the highest level since march 1984. here to put it in perspective is editor-at-large tom keene in our “chart of the day.” we have been tracking for months the inflation-adjusted number. seems like it is moving back to some levels that people are getting concerned.
>> you know about the hummer because i have seen you on the west side driving your hummer. $74 to fill it up. here’s the chart. up to record highs today in the spot price. green line is the one-year moving average. that’s what economists look at. it smooths things out. what is important here is the green line is above the moving average near the persian gulf war in 1991. nicely above that. 20% higher in price. not back nearly to the teens in the 1970’s and 1980’s. we’re getting there. it’s moving along.
>> you were listening to the interview i did with brendan kyne. he talked about prices for this particular point of a season which is interesting when you think of being in the peak driving season and the prices at this level.
>> that’s true. there’s an ebb and flow to it, nuances to it that i don’t typically cover because we are talking about broader economics. our team in new york and london are looking at those nuances and we’re in the summer. the weather matters, travel mat aers. part of this up move, what i’m hearing from economist sincere about a buoyant economy. a buoyant economy creates a greater demand for hydrocarbon given slower moving supply growth.
>> what are the economists following on this chart?
>> what they’re following on this chart more than anything is a smooth average. they may not look at one-year moving average. they may look at the three-month moving average. what they’re interested in is a persistencey. that may be where they’re most wrong. not we’re at $50, $60, $70. the issue is we sustained above $50. the 200-day moving average well above $50 a barrel. it’s that persistencey. do we keep moving up and raising that overall level.
>> let’s talk about differences between the 2005 economy and that 1984 economy since we’re trying to make comparisons.
>> i aou see the white arrow going back here. what a difference. much more service sector. much more commodity-based. not using hydrocarbons as a percent of g.d.p.’s like we used tofplt i spoke to mr. taylor of the kcato institute and he emphasized incomes of americans are so much greater now on an inflation-adjusted basis. that’s another reason we’re not feeling the pain. as a society which is wealthier than back in the 1980’s t.may take a higher price for that to click in.
>> that’s a key question for economists and investors looking at this market . at what point do consumers start to react? what things are you hearing?
>> i heard many people a year ago telling me $2.40 a gallon. we are only now see ago shift from heavier-weighted cars like a hummer to smaller cars. some say as high as $3. inflation adjusted back in 1979 is $4 .70 a barrel give or take a dime. so we’re a long way from that pain of $4 a gallon, $4.20 a gallon in today’s dollars where you start to see a kind of habit that we saw in the 1970’s and 1980’s.
>> it will be interesting to tie it into the economic data this week. inflation data and retail sales.
>> very much so. how will hydrocarbons fill into the c.p.i. number? more importantly when you take it out what is left with the core data, particularly with the fed speeches coming up.
>> always a pleasure. tom keene, editor-at-large at bloomberg news. let’s take a quick break. when we come back, continuing to be about energy. more details on the surge we saw in natural gas. one of the world’s biggest movers. that’s next on “after the bell.”
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Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)
Pepsico --- June (slow)
after the bell.” i’m ellen braitman. 30 after the hour. let’s recap the day on wall street where the s&p 500 rose. investors speculate aing second quarter profit will be stronger than forecast. benchmark exceeding this year’s highest close in the last hour of trading. then retreated closing at 1,2122. stocks held back, however, as oil prices closed above $60 a barrel. the dow, as you see, just losing shy of four points. let’s go to deborah kostroun at the new york stock exchange to get an update in terms of activity we saw.
>> thras, ellen. we did see stocks closing just a little lower. really kind of saw the rally fizzling out a little bit. look at n.c.r. lower all day. as we talk about earnings, the world’s largest maker of automated teller machines forecast 1.40 to 1.45 a share. five analysts expected 1.46. that stock a little lower. as we talk about earnings, pepsi reported better than expected profit. in fact, pepsico said their second quarter earnings rose to 70 cents a share, exceeding the 67-cent analyst expected number. this is a $15 billion market cap company and a broad array of businesses like g.e., also a proxy for the economy. perhaps as you look at hotels, tobacco and most importantly also insurance. not very often that we get to talk about that in the business report. we’ll talk about it now, though. forest labs was higher. maker of celexa. gained after a stroke drug based on vampire bat saliva would be ready for regulatory approval by 2007. that company was raised to a buy by smith barney. back to you in the studio.
>> ok, deb. thanks so much. also making news today, credit suisse first boston banker frank quattrone appealing his conviction of obstructing a probe into csfb. in the first day of oral arguments, his attorney cited a supreme court ruling that overturned the conviction of the accounting firm, arthur andersen. he argued that the may 31 ruling reinforced claims that jurors should have been told that quattrone could be convicted only if he intended for subordinates to destroy documents he knew the government wanted. quattrone will argue that the judge in his trial barred him from offering evidence that would have proved his innocence. quattrone is trying to reverse a conviction that may send him to prison for as long as a year and a half. in another courtroom, bernie ebbers denied a motion for a new trial. u.s. district judge barbara jones making the ruling. ebbers was sreubgtd of conspiracy, securities fraud and filing false statements with the s.e.c. in the $11 billion accounting fraud at worldcom. federal prosecutors recommended he receive life in prison and his sentencing is scheduled for tomorrow. let’s turn to corporate news right now. pepsi’s second quarter earnings rising 13% topping estimates. june grasso has more on what drove the earnings.
>> hi, ellen.
>> a surge in demand for non- carbonated drinks. quaker foods in the u.s. led net income at number two soft drink maker to climb. pepsico shares rose as much as 2.5% on the earnings news. net income climbed to $1.19 billion or 70 cents a share from 61 cents a share a year earlier. three cents above analyst estimates.
>> once again the company beat expectations. there was concern going into the quarter about competitive activity from the coca-cola system as well as impact from rising oil prices from frito lay. they weathered the storm once again.
>> the product diversification allowed the company to post double digit earnings growth over the past several years. revenue for quaker foods soared at 16% in the second quarter led by oatmeal which pepsico marketed as healthy for consumer frito lay snacks revenue grew 6% because of higher sales of lays, cheetos and tostitos lines. north american beverage sales rose 4% because of gains for aquafina and propel. sales of soft drinks declined. they expanded gatorade in markets including china and boosted promotions for the merinda soft drink brand in argentina and international sales jumped 15%.
>> it is key. it’s more than 30% of their business. growing high teens. growing more than 20% from a profit perspective this quarter. you will continue to see strong double digit growth from the business.
>> pepsico sales have risen an average of 7.5% the past five years compared with 2.3% for coca-cola. it’s pepsico’s lead in selling non-carbonated drinks. the chief executive said he will boost market spending for beverages in north america in response to coke’s plan to raise spending by $400 million.
>> you take the beverage side of things it looks like pepsico is funding more coupons to respond to what coke is doing. one thing interesting about the coupon sincere they’re mail-ins.
>> mail-ins are intended to drive volume with coke and pepsi hoping they won’t get redeemed. 15 rate pepsico as a buy and three as a hold. the stock has added 4.5% year to date. back to you.
>> thanks so much. in terms of market activity today, we saw energy stocks rise. we saw the s&p energy index reaching a new record high today. coming back, we look at energy sector. please stay with us.
