Interview: The outlook for the dollar and the economy
>> james tisch is chief executive of loews and diamond off shore. his companies are involved in a wide variety of industries. earlier today, suzy assaad spoke with him about the outlook for the dollar as well as the economy.
>> called the goldie locks economy, not too hot, not too cold, it’s just right. inflation is very low, growth at 3.5%, 4%, for the time being, things are very good. my guess is the economy will continue to grow at the 3% to 4% rate but inflation will pick up significantly.
>> assuming, then, that interest rates will go much higher and that will skew your goldie locks scenario, now?
>> it eventually will, that’s right. when i mention the goldie locks scenario, that’s for this point in time, not a forecast for the future.
>> what kinds of areas do you think we are going to see strength in? over the medium term outlook, what kind of sectors of the economy do you think will do better than others?
>> i think we’ll continue to see strength in the energy sector because in the energy sector there’s been significant underinvestment for a very long period of time. so it’s going to take a lot of time to recover on that. my guess, also, is that some of our export industries will improve simply because of the dollar’s decline which has been dramatic. recently, the dollar has had strength but in the historic context of the past several years, the dollar has declined a lot and i think that at some point in time, we’ll start to see some improvement in the current account deficit as a result of that.
>> you mentioned that you think inflation is going to be an issue for us down the line, rates will go higher. how does that impact your decision as the c.e.o.? how does that impact your hiring people? are you changing your hiring? are you looking for more people?
>> generally maintaining the same head count. we have six different businesses in six different industries and each one of those is run separately. but for each one of those businesses, we’re generally not increasing our head count. we’re able to accomplish what we’re doing with the same head count.
>> do you think―we’re hearing a lot of people saying, oh, how hiring should be better right now and the economy is doing so well and it’s expect dodd even better and we should be seeing increased employment numbers down the line for 2005. would you disagree with that given what you are seeing and what you’re doing in your own company?
>> my guess is that what we’re going to see for 2005 is employment gains on the order of 150 to 200,000 individuals per month which, again, is sort of a goldie locks number, not too hot, not too cold. it should keep the unemployment rate at about 5% to 5.5% level where it currently is right now.
>> the other issue we’re facing is business reinvestment. what do you do, what are your decisions on bolstering your r&d spending, for example?
>> well --
>> will you increase them, will they stay the same?
>> we do significant capital spending in two of our subsidiaries. one is our diamond offshore subsidiar in the offshore drilling rig business and we recently committed to a $250 million upgrade of one of our rigs combined with the $100 million of capital spending we do every year to keep the rigs operating. we also have capital spending programs in place for our natural gas transmission business. as we grow our system in order to accommodate all of our customers. so we’re seeing actually significant levels of capital spending for us.
>> from your friends, your colleagues, others in the industry, do you get the same sense? are they very much where you are in terms of where this economy is and more importantly, where it’s headed into the rest of 2005 and 2006?
>> i think the people i speak to are relatively sanguine about the economy, about the economic growth continuing in the 3% to 4% area. they’re concerned about certain bubbles they see, including real estate and housing prices. housing prices have grown significantly in a real rate of return sense and that’s giving some of us real pause for concern. the other thing is inflation we’re seeing in many, many commodities. we see it in steel, in oil, in food goods and at some point in time, that’s going to push its way through from producer prices to consumer prices and then my guess is that will happen starting in the second half of the year and then that will give the bond markets and the fed real cause for concern.
>> that was james tisch speaking with suzy assaad. we want to update you on a developing story today. u.b.s., europe’s largest bank, must pay at least $9.1 million in damages in discriminating against a former employee who sued the firm for sex bias. the jury is now awarding $21 million in punitive damages, bringing the total award to $21.9 billion in the sex bias case. we take a break. when we return, we’ll give you a headstart on the likely market moving events in europe tomorrow.
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microsoft saying the resignation of former chief financial officer, john conners, was effective march 31. it was announced back in january that he was departing. john conners going to a venture capital firm. the company, in an s.e.c. filing, saying that resignation was effective march 31. it is half past the hour right now. on wall street today, stocks came off the highs seen in the trading session, however, the dow and s&p showed advances -- that did temper concern that the federal reserve will view rising energy prices as contributing to faster inflation -- time now for the latest in the bidding war over m.c.i. the nation’s second largest long-distance phone company sticking with verizon, accepting a lower bid. the decision comes after qwest refused to comply with a request to raise its bid of almost $9 billion. what is the next move? su keenan says analysts and investors predict the fight will continue. su?%
>> many are expecting nothing less, ellen. there’s growing anticipation the takeover battle will be hostile. people familiar with the situation say m.c.i.’s directors wanted a $30-a-share bid from qwest and qwest’s chief executive, richard notebaert, refused. m.c.i. officially rejected qwest’s final offer at midnight saying in a statement that qwest refused to sweeten the offer and many customers were opposed to the deal. m.c.i. also says “it remains open to the possibility of further discussion.” while qwest said it would pull its offer if rejected, a number of analysts, such as friedman, billings, ramsey’s michael bohen, say qwest will consider a hostile takeover.
>> i think qwest will put in a hostile bid at this point because qwest needs m.c.i. much more than verizon does. qwest has shown this by bidding over and over again. they’re now at $27.50 versus $23.10, which is where verizon’s bid is. i believe qwest will probably try a hostile because it’s the last option for the company.
>> qwest released a statement saying it is currently weighing its options and shareholders will dictate the next move. qwest has also hired proxy adviser, the altman group, a firm specializing in building shareholder support for hostile takeovers. the company’s c.e.o. made about $10.7 million in total compensation last year, by the way. blalock and partners rick black says qwest’s network and customer reach put it at a competitive disadvantage and as a result, long-distance operations have been dragging down the company’s overall financial performance.
>> they also have a large debt load, about $17.3 billion, which can’t be covered by their current operating capacity so the deal for them is much more a financial gain for them to deleverage their balance sheet as well as a strategic one.
>> both analysts predict the story ends with verizon as the winner in terms of which company winds up with m.c.i. shareholder leon cooperman says if a vote were held today, the m.c.i.-verizon combination would lose. he gets a vote from john paulsen who clearly favors qwest’s offer. the bond market tells a different story. m.c.i. bonds gained on confidence that the combination with verizon represents the stronger company.
>> thanks for the update. turning our attention to the retail sector. sales at u.s. retailers probably rose in march, yet the gain was not as big as it could have been and analysts are blaming gasoline for taking a bite out of retailers. june grasso has the story.
>> retailers across the board are going to report their same-store sales tomorrow and according to the head of the international council of shopping centers, sales probably climbed as much 4.5% last month. it’s the calendar shift of the easter holiday to march from april this boosted sales. he says an earlier easter may have shifted as much as 3% of sales into last month’s numbers.
>> the year-to-year comparison gets inflated for march of this year. it’s a big deal. it’s a big deal every year. it’s typically in the order of 100 to 200 basis points for an individual retailer.
>> on the downside, cold weather and record gasoline prices limited the boost that came from easter. lower income consumers were hurt by rising gasoline prices but it was the cooler, wetter weather that affected almost all shoppers.
>> overall, it’s probably not been a great month for the retail industry but we do think the teen group will stand out as a result largely of spring break business which happens rarld of the weather trends.
>> he says the best performers last month were probably american eagle outfitters and abercrombie & fitch, teen retailers likely to see double-digit increases. high-end stores like nieman-marcus should also do well as they are less affected by gas prices than stores like wal-mart.
>> tomorrow will look very mixed. it will be a high and low-end story with pockets of success, a lot of confusion, a lot of uncertainty considering the volatile month that we had.
>> still, he says it will be a bumpy ride for retailers the next two quarters in light of the surging gasoline prices. back to you.
>> thank you very much. investors would be able to get the disciplinary history of stockbrokers on the internet, that is under legislation approved today by the house of representatives. since 1990, the nasd has had to make information on brokers available through a toll-free number. today’s bill would allow the nasd to put that information online. the measure goes to the senate for action. coming up, an interview of james tisch of loews.
