Interview: Bank of America Senior Economist
>> peter kretzmer, bank of america senior economist, raised his forecast for federal reserve interest rate increases. he is here to discuss whether the beige book data underscores his forecast. let’s start right there, does the beige book information underscore your forecast or contradict it?
>> it basically underscores the draft. the beige book showed resilience in the u.s. economy to the hurricane, continued expansion, definite cost pressures and in that environment, the fed certainly is not going to slow its tightening process and it rationalizes their concerns about heightened costs getting into expectations.
>> let me dial into particular areas within the beige book, starting with retail. it’s original analysis but in most areas the beige book says retail sales of general merchandise increased though were below plan or weak in several districts. do you read all of this as the consumer taking a pause? what is your view about the consumer?
>> the beige book covers a particular period of time just between the meetings, really just october in this case or late september, and of course in this case, time, an extraordinary time with the hurricane just having passed and it’s anecdotal so while i take it seriously, it’s possible to overread it. i think basically consumer spending as we saw in september’s report remained pretty strong in the month of september, surprisingly strong, although there was weakness in a few areas and vehicle sales have come off as employee discount programs have been discontinue.
>> one of the issues talked about is a possible housing bubble and the banal book said―beige book said nation wide the housing market showed signs of cooling. it said new york and boston districts had homes sitting on the market longer. did you get anything out of the beige book regarding housing?
>> again, i think this would be sort of short-term perturbations, if you will. there’s been a bit of a trend toward a bit of slowdown in housing but this morning we saw housing starts for september jumping right back up there so i think this is within the statistical noise at this point, what’s probably most amazing about the housing market is these data were unaffected by the hurricane activity and the market activity remains strong and mortgage applications were strong this morning.
>> the bloomberg news running the news that san francisco fed bank president yellen said yesterday that the neutral fed rate level ranges from 3.5% to 5.5%. do you agree?
>> that’s a broad interval and certainly we agree it’s in that interval and in fact our move from 4.5 to 4.75% reflects the idea that as yellen herself said, the fed may want to do a little more than take their foot off the accelerator here and maybe tap on the brakes a little bit, once you get past 4.25 and 4.5, perhaps you’re tapping on the brakes a little bit.
>> thanks for your time on the program today. we have news after the bell on ebay. wanted to get to those numbers. the company reporting 20 cents a share for the third quarter. that meets the 20-cent analysts’ estimates, also, the company sees fourth-quarter profit excluding items of 21 cents a share, including a one-cent cut from the purchase of skype, the internet telephone company, the luxembourg based internet telephone company it purchased. so 21 cents a share for the first-quarter forecast compares to 22 cent analysts’ estimates. ebay shares down in extended hours on that news. moving on, we also have allstate in the news. allstate reporting a loss of $2.52 a share. in the regular session, up almost 2% in advance of the earnings news but the third-quarter operating loss, $2.52 a share for allstate. the company sees 2005 operating income of $2.35 to $2.50 for the full year. we’ll have the comparison analysts’ number on that in a bit. that’s the latest on allstate news. checking actually allstate trading, still halted since that was released. moving on, next, we have a commercial coming up. when we return, we’ll talk about more earnings news and also in light of refco, exchanges like the cbot are going public. a question many people have these days. we’ll speak with the chief regulatory officer of the new york stock exchange on what is ahead for regulations in the exchanges.
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Listen Market briefing --- Bob (fast)
Ebay --- Brett (slow)
Refco --- June (slow)
NYSE --- Deb (fast)
>> welcome, from world headquarters in new york city, i am bob bowden, this is “after the bell.” stocks surged overcoming earlier declines as better-than-expected profits from altria, j.p. morgan and yahoo sent the s&p 500 index to its biggest gain since april. the settling numbers after an hour, the dow up 1.25%, s&p 500 up 1.5% and the nasdaq at 1.71% higher. the last time the dow had a 100-point gain or more, september 6. the s&p’s highest gain today since it was up on april 21. shares of ebay are down in the after-hours trading. the world’s largest online auctioneer said third-quarter profit surged 40% but forecast earnings per share for the current quarter below what analysts were expecting. brett gehrig has details.
>> this pleased meg whitman, the c.e.o. of the company, but not investors. investors appeared to be responding to the projected profit per share for the quarter. ebay says it will earn 21 cents a share due to dilution of the acquisition of skype technologies. that said, ebay boosted its fourth-quarter revenue to between 1.25 and 1.29 billion dollars. as for last quarter, revenue beat expectations, coming in at $1.1 billion. sales in europe and asia outpaced growth in the u.s. chief executive meg whitman added listings in germany and the u.k. and expanded ebay’s paypal, online payment service to china to bolster the auction business. the net income increased to $255 million or 18 cents a share, up 40% from the same period last year. taking out a one-cent tax charge, third-quarter per-share profit beat analysts’ estimates by a penny. whitman asked ebay chief financial officer to join skype technologies. the 46-year-old was named president of skype. you may recall ebay acquired the company to expand into internet telephone service. the company’s $2.6 billion purchase of skype has raised concern that ebay is straying from its auction business to boost sales. that skepticism wasn’t reflected in the company’s stock price throughout the third quarter, though, after falling in the first half of the year, ebay shares rebounded 25% last quarter. bob, back to you?
>> thank you. amgen, world’s biggest biotech company by market cap, said quarterly profit increased to $967 million. checking shares in extended hours, amgen shares down 6.33%, similar to ebay. this after sales of its anemia drug gained on johnson & johnson’s rival product. third-quarter net income surged to 77 cents a share from 18 cents a year earlier when the company had costs from its purchase of toularic. revenue rose to $3.51 billion. it’s the revenue coming in at $3.15, missing the $3.6 analysts’ estimates, the explanation for the after-hours’ decline. there has be three companies interest in buying a chunk of refco. we’ll have the latest from june grasso live outside the u.s. bankruptcy court in lower manhattan.
>> the attorney for refco described refco as a large ice block melting at an extraordinarily rapid pace and told the court this was no way to guarantee he could stop that. in five days he has represented the company, it started with $7.5 billion of customer accounts and as of last night, it was $4.1 billion. he said he wanted to stem the tide and stabilize the company by putting money into the unregulated businesses from the regulated business by selling the futures trading business to a group led by christopher flowers who has made an offer of $768 million. christopher flowers spoke to bloomberg earlier today.
>> it’s our ambition, as i mentioned, for refco to continue with all the businesses it was before so we we hope to resuscitate the derivatives business and securities business and that probably will mean that we will buy some of the assets that are in bankruptcy.
>> the attorney for refco mentioned there were 30 other bidders, three bids of which they considered to be credible, that they had considered, as well as flowers’ bid. at the hearing, the attorney for one of the three credible, so-called credible bidders, the dubai investment group, spoke up, as well as the attorney for the interactive brokers group, complaining about the lack of information to even make a bid, the lack of what they called due dill diligence in the case. i spoke to the attorney for the interactive brokers group and he said he thought his group could outbid flowers’ bid.
>> with the limited information we have now, we think that we may well be able to bid more than that. the flowers’ offer is only 3% more than net regulated capital of refco, the regulated entities and we think that that on its face appears to be relatively low offer and we are optimistic that we will be able to offer more, including the breakup fee, which we would have to cover.
>> that breakup fee is 2.8% of the offer. now, what’s going to happen is on monday, the judge is going to hold a hearing at 10:00 a.m. to discuss the terms of the sale, basically, the rules and regulations of the sale, the potential bidders will be there and disclose, they’ll try to set terms for what the disclosure or due diligence should be. back to you on this very windy downtown bankruptcy court.
>> speaking over the jackhammers downtown, we appreciate that, june grasso. earnings from j.p. morgan helped that stock to be one of the biggest gainers on the dow jones industrials on the day. deborah kostroun is at the new york stock exchange and filed this report on today’s stellar rally.
>> stocks closing at their best level of the day, a lot of factors in the session helping to lead this afternoon rally. one of the things, the fed’s beige book survey showed the economy weathering hurricane katrina better than expected and crude oil prices falling 3% over the past couple of days, helping things out, as well. housing starts came in better than expected. earnings abound, as well, 904 earnings reports coming out this week and 272 earnings that will be released tomorrow and it will be a very busy day. gainers in the dow jones industrial average, j.p. morgan at the bottom of the list but a big gainer, releasing earnings, said third-quarter profit came in better than expected. bank of america was up on the day, they helped underwrite the refco i.p.o. they said quarterly profit climbed 10 percent. financial earnings coming out tomorrow, a pretty long list. the homebuilders rebounded in today’s session after taking a pretty big hit yesterday. all the concerns about higher interest rates have been keeping the homebuilders lower but really performing quite well on that better than expected housing starts number. eastman kodak falling on the day, third-quarter profit was disappointing as they struggled to make the transition to digital imaging. film sales climbed, also they recorded a record quarterly loss of more than $1 billion. we saw this rebound in today’s session, even the s&p energy index made a bit of a turnaround, rebounded, closed higher even after oil and gasoline was lower. crude oil down 3% in the past couple of days and gasoline futures down 8% in the past two days and gasoline falling to a three-month low. dow laggards in the session, honeywell fourth-quarter profit expected to be less than expected, the biggest drag in the dow jones industrial average. the chicago board of trade holdings had their yop and saw a―it was up well above the $54 offer price. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> the federal government released its latest beige book today, the report on regional economic conditions members will use in policy deliberations november 1. the report said that while economic activity expanded in september, most districts described the pace of activity as moderate or gradual. no surprise, the atlanta fed district including alabama, mississippi and louisiana, where katrina hit, reported significant negative effects on the district economy from the hurricane damage. retail sales increased in most districts but a number said sales were below plan or weak. service industries continued to expand and manufacturing advanced in all districts, except st. louis and atlanta. all districts reported cost increases for energy, petroleum-based products, building materials and shipping. we heard from four federal reserve officials. federal reserve governor donald kohn said the economy is most likely on a solid upward track and the central bank has not reached the point where it can stop the measured increases in interest rates. treasuries rose the second day after federal reserve vice chairman furgeson said higher energy costs will slow the economy. the two-year at 4.24%. dallas fed president richard fisher said the fed must remain on guard against expectations of higher inflation taking hold in the aftermath of hurricanes katrina and rita. the dollar fell against the euro after a rally earlier today stopped short the currency’s highest level of the year. the u.s. currency’s highest level of the year. thanks for watching. stay with us.
