Interview: J P Morgan
>> another big story today is the 10-year treasury with its biggest one-day gain in seven weeks after the economy grew at a slower-than-forecast rate in the fourth quarter. g.d.p. officially coming in at 3.1% in the fourth quarter. the final three months of the year. slower than the growth rate in the fourth quarter. as you see, 4% there. what does this report mean going forward in terms of growth, in terms of the fed, how they’re going to perceive it? they’re scheduled, the federal open market committee, to meet on tuesday. jim glassman, senior economist with morgan stanley, joining -- with j.p. morgan, joining us to discuss his thoughts. g.d.p., was it a disappointment at 3.1%?
>> it was soft but not a disappointment for wait i don’t think we’ll know until the iraq election is behind and spring weather coming. folks got blasted with the frigid weather and nervous about oil. you keep hearing stories about opec, thinking maybe they’ll raise the price but they’re not doing anything to make you think they’re not doing their best to get oil on the markets . they’re pumping far beyond their quotas. and i think the world’s got plenty of oil. it’s just that we’re in the nervous zone right now and it’s related to iraq.
>> if you look at iraq and the elections on sunday and opec’s meeting. which is more important?
>> iraq is important for getting it behind us. i don’t think anyone expects a light to come on but i think it’s a huge step in a new direction and i think folks anticipate this might get some of this news off the front page, start moving them in a different direction and the worries about the middle east and the disruptions in the probability of civil war, those kinds of things, i think, start to die down. so i think iraq really has the potential to be more important in terms of how it affects sentiment. opec, doesn’t sound like they’re going to do much. although we’re very frigid here, spring is coming, oil demand will drop. i think folks are sensing where we’re going there, maybe why oil prices eased off today.
>> the market has done a nice job on behalf of the opec ministers in terms of pushing the price back up so arguably they don’t need to do anything with production right now.
>> what opec is worried about, this is a short-term thing, what opec is worried about is that come spring, world demand drops sharply. they’re acting as if they’re worried about a glut of oil which is hard to believe because oil prices are here but we got a break today and oil prices came down a fair amount.
>> if you were on the federal open market committee and gathering your notes for tuesday’s meeting and all the recent data and the proprietary reports they read, what would you forecast today?
>> i think i would be comfortable about where the economy is and where it’s going and i think that’s what they’ll tell us when we see the report next month, i think i’d be saying to myself, got to get the funds rate a little higher. what i would not be worrying about is inflation. that seems to bother some of them. they worry a little bit about the risks. they worry, if productivity slows down, that could be a problem related to labor costs. we got a report today showing labor costs extremely tepid. if anything, wage trends milder than they should be. there’s nothing coming from the labor sector that tells you there’s an inflation threat.
>> jim glassman, thank you for joining us, senior economist at j.p. morgan. january has not been a good month for stocks and the nasdaq has been hit particularly hard. after the break, we’ll look back at nasdaq in january and what it may mean for stocks for the rest of the year.
在线播报
Listen Market briefing --- Matt (slow)
NYSE --- Julie (slow)
P & G --- Tom (slow)
>> welcome back to “world financial report.”% i am matt nesto.% let’s walk you through wall street for the day and the week. the dow, s&p and nasdaq finishing lower today. big open then gave it all back there. that g.d.p. figure coming out. also today, we’re going to have the weekly gains to tell you about, the first one of these five-day advances we’ve seen this year after three back-to-back-to-back losing weeks. julie hyman always covering the nyse, joining us now with a wrap of some of the day’s action. julie?
>> hi, this, matt. we talked about merck at 4:00, one of the top market stories today behind p&g and gillette. wanted to give you more detail on that. the u.s. appeals court has ruled that its once a week―patent for once-a-week fosamax is invalid. tim anderson at citigroup saying that could take up to 35 cents out of the company’s earnings per share and cause flat earnings growth between 2007-2008. this drug accounts for 14% of the company’s revenue, at least it did in 2004. there was another piece of news on merck today, and that is that the securities and exchange commission opened a formal probe of merck’s recall of vioxx on september 30. this was widely expected by investors. nonetheless, that contributed to the decline we saw in the stock today. most analysts saying that fosamax ruling was more important for the stock reaction today. also in drug-related news, we had news from eli lilly. eli lilly, and a german partner, withdrew a u.s. election to sell one of their medicines as an incontinence drug because they thought regulators would not approve it and those shares are down, down a little more than throw.5% in today’s -- 3.5% in today’s session. we continued to have earnings-related news today, as well. halliburton down in today’s session, leading energy stocks down. halliburton saying its earnings are coming in behind expectations with a fourth-quarter net loss that narrowed but backing out items, it did worse than expected. energy stocks falling today. the price of crude down today. wanted to mention events to watch for this weekend and next week that investors have been looking for. first of all, the iraqi elections on sunday, an important focal point for so far. the opec meeting, as well. both of those items are more important probably for the price of oil. nonetheless, we see equity investors watching the price of oil, as well. the fed meeting as well as continued earnings. matt, back to you.
>> thank you very much. analysts beginning to rework their theses on procter & gamble tom keene, editor-at-large and latin expert.
>> not a latin expert. i’ll pass on that term.
>> a lot of praise after the fact, the monday morning quarterbacks, where were they 72 hours ago?
>> i kept score of that today.
>> what could go wrong in this deal, some are asking.
>> we’ll hear from that in that coming days and weeks. this is that day of glow, everyone’s happy and positive. i talked to a number of analysts and the one that got me attention is william schmitz of deutsche bank. i asked him what’s the emotion of a certain ratio and he turned that to operating margin. operating margin is sales and you take away the costs of doing business, the costs of goods sold and another thing, the cost of selling general and administrative costs, heats call it office costs. and that’s a margin before taxes. let’s go to the chart, except today it’s not a chart. this is from the bloomberg professional service. six charts that fundamental analysts use and the one i want to focus on is in the lower left corner. this is the 10-year success of procter & gamble. this is what they have done. they’ve moved from 8%, 9s and 10% here, nicely up. this is that big success and big shareholder return of procter & gamble. that’s great, matt, very good. now, they’ve moved up to 19 or 20%, which is a huge number, much like gillette. the magic of the deal, as we heard from the chief financial officer of procter & gamble in the interview this morning, they’re going to move that number up to 24% and that’s the real tension point here. how do you cut costs, how do you boost revenues to build up that operating margin from a wonderful 19% to 24%.
>> i asked an earlier guest if they paid too much. one of the things you look at, just the forward price-to-earnings ratio, gillette trading at 30 times the group, the household group trading on average 20. and p&g trading at about 20 times. so a 50% premium for the much smaller but faster-growing gillette. so they pay that fair price, as we heard the analyst say.
>> we can all say that gillette’s a premier name. i think that’s understood out there, that a premium is expected in these deals. what’s fascinating is there is uncertainty. you don’t know how the deals will work out until the quarter is out and even the year is out. some work out, many do not. certainly in the first day of merger, that glow is there and with an $8 billion premium, time will tell.
>> 20 seconds left, this is the chart of the who knew what, somebody knew something yesterday. 4200 contracts of the gillette, 45 calls trading ahead of the news. what do you think of that?
>> you see it in every deal. they’ll look into it. but i think it’s a very good observation of how information leaks out.
>> forty-fold increase of average volume on that particular options contract. tom keene, thank you very much. on we go, the economy expanded slower than economists had been forecasting. we’ll talk about the g.d.p. numbers for the fourth quarter, full year and what the fed will do next year.
