Skip to main content

tv   Closing Bell  CNBC  July 29, 2009 4:00pm-5:00pm EDT

4:00 pm
welcome back. what is this? is this good news? bad news? is it a victory for the bulls or is it not? is it a sign of market resiliency or not? i'm going with market resiliency. look, folks, the market should have dropped today and should have dropped more than we're seeing today. when you get a day where you get a strong dollar two days in a row, you get china down 5%, you get commodity stocks getting kicked all over the place, you get oil down 6%, you get energy stocks getting kicked all over the place, then you have a poor five-year auction, the yield curve in the middle and upper end of the range backed up and interest rate-sensitive stocks like real estate investment trusts and home builders and
4:01 pm
autos and some of the capital-intensive companies under pressure, that doesn't sound like good news. and the market should have moved down. we were only 80 points down on the dow at the weakest part of the day and there was one point less than half an hour ago when the dow was almost positive. that's why i'm going with the idea down 28 given the news we had today, this is a very positive reaction from the stock market overall. the market does not want to drop dramatically. this was a day it should have happened. even the interest rate-sensitive stocks, and on the other side i'll show you, like real estate investment trusts that got hit, they've come back in the last half hour. retail stocks like home depot have also made comebacks in the last half hour. now, heaven knows what's going to happen with the seven-year auction. maybe that will change everything and be a real breaker for the market. but right now we have essentially moved sideways for the last three or four days after an 11% move up in the s&p 500. that's a victory for the bulls. tradertalk.cnbc.com for more.
4:02 pm
there's the closing bell. melissa francis is next. it is 4:00 p.m. on wall street. do you know where your money is? welcome to "the closing bell." i'm melissa francis in for maria bartiromo. and here's what we're following at the close. stocks retreating for a second straight day after a weaker than expected report on durable goods orders and a disappointing five-year treasury note auction. but the markets did recover a little bit after the fed's latest beige book report showed four regions of the country are seeing signs of stabilization while two others report a moderatie ining pace of decline. and oil getting crushed, crude today down 6%. to close at $66.35 a barrel because of a much higher than expected rise in weekly inventories. here's a look at how we finished the day on wall street. the dow trading down 24 points. not bad compared to where we were earlier in the day. only a quarter of a percentage
4:03 pm
point. the nasdaq down a little more than seven points. it's about .4%. the s&p 500 down almost half a percentage point. bob pisani, our eye on the floor of the new york stock exchange, long time no see, bob. >> indeed. the important thing is the market is resilient again. i know, you're tired of hearing that line. but let's take a look at what happened. of all the things that went wrong and all the things that went right. there was more things that went wrong here today. so look what we had to contend with. the most important thing was a very weak five-year auction. that caused a real backup in interest rates. then we had a stronger dollar for the second day in a row. and you know what that does to the stock market, particularly commodity stocks. then we had a poor durable goods report earlier on, although ex transportation it wasn't that bad. then we had china getting the stuffing knocked out of it overnight. they were down 5%. all the big commodity stocks over there were down. so in the middle of the day things looked a little grim after 1:00 and athaeshz treasury auction came out. interest rate sensitive stocks like builders and reits were
4:04 pm
weak. but we came back. there's your five-year note pup see that big backup up toward 2.7%. it came off those highs here as you can see late in the day. take a look at some of the interest rate-sensitive sectors. that's what you want to look at. the home builders have had a great run. d.r. hortonon dropped along with other building stocks. but you can see a modest comeback late in the day. on the down side. same with the real estate investment trusts. interest rate sensitive. s.l. green, office reit, dropped. back in the last hafrks still down but not bad given the news. how about the dollar intraday? putting pressure on the stocks, particularly commodity stocks, second day in a row we've had a nice rally. there's your dollar index here. want to talk about energy because in the middle of the day and sharon will give you a lot of the details here, we saw a 6% decline in oil today. that put pressure on all the big oil stocks right across the board. didn't matter what sector you were in. finally, take a look at the steel stocks. very cautious commentary from all the big names. arcelor mittal, u.s. steel, and
4:05 pm
nippon doesn't trade here, but big japanese company. all of them very cautious on the second half of the year. finally just take a quick look at the dow jones industrial average. i want to remind you we were down 80 points. still not bad. and there in the last half hour or so came back rather nicely. melissa, back to you. >> thanks, bob. investors raising new concerns about the economy after a weak rating on durable goods. commerce department reports durable goods orders dropped by a much larger than expected 2 1/2% in june. it's also the largest decline in five months because of falling demand for automobiles and commercial planes. investors also digesting the federal reserve's latest beige book report. cnbc's senior economics reporter steve liesman has the details. steve. >> thanks, melissa. the beige book didn't offer too much up side hope on the economy. it did say the pace of decline moderated but the collection of economic anecdotes from the fed's 12 reserve districts say the economy continues to be weak. the beige book said retail remains sluggish but some manufacturing improvement had been noticed. dem for bank loans was tepid
4:06 pm
while residential real estate is getting a bit better. commercial real estate worsened. the labor markets were "extremely soft." but one up side was that there was little or no inflationary pressure in the economy. new york fed president bill dudley saying in a speech today that the pace of economic contraction is waning but he does not foresee a robust recovery. >> regardless of the precise timing of recovery there are a number of factors to suggest that the pace will be considerably slower than usual. in particular i expect that consumption, which accounts for about 70% of gross domestic product-s li product, is o'likely to grow slowly. >> dudley did suggest there was some possibility of faster growth for a brief period of time if manufacturers all rebuild their inventories altogether. and the beige book suggested there had been some inventory growth. overall the message from the fed is one of moderation in the recession but little elation over the recovery. melissa? >> all right. steve liesman, thanks so much. >> pleasure. >> a democratic stalemate in the house over health care reform coming to an end. the so-called blue dog democrats
4:07 pm
reaching a deal with the party's leadership over the cost of the legislation. the deal will cut about $150 billion off the plan's $1.50 trillion price tag and exempt some small businesses from health coverage for workers. later this hour we're going to get reaction to the news from the ceo of aetna as well as the cfo of wellpoint. in other news google's biggest rivals uniting as microsoft and yahoo finally reach a search engine deal after months of negotiations. cn cnbc's julia boorstin is in los angeles with the details. julia. >> hi, melissa. well, a year in the works. microsoft and google are hoping that a ten-year search advertising partnership will help create a real competitor to google search dominance. microsoft will provide its new bing search engine to yahoo sites with no large up front payment, instead sharing revenue with yahoo, which gets to keep 88% of search ad sales for five years sxhaz the right to sell ads for some microsoft sites.
4:08 pm
yahoo estimates the deal will boost annual operating income by $500 million while saving it $275 million standing alone mic yahoo are not a threat to google. now together it's still going to be an uphill battle but at least they have a fighting chance. we'll see if they can actually pull it off, though. >> search competition is sure to pull down ad prices. wpp ceo sir martin sorrels tells me he is delighted by the deal saying "we think it brings better balance to the search marketplace. anything that brings better balance to the search marketplace would be welcome by our clients." so what does this mean for google, which has over 70% of search market share? the search giant released this statement, saying, "competition brings out great things for users, and they are interested to learn more." now the deal, which is expected to close early next year, heads to washington where it will be reviewed by antitrust regulators. we'll be watching this closely
4:09 pm
and see how it all evolves. back over to you. >> julia boorstin. let's break down today's market action with scott wren, senior equity adviser with wells fargo. also global strategist with jpmorgan. thank you so much for joining us. >> pleasure. >> some people have said today that higher interest rates, stronger dollar on the day, yet markets are still essentially flat, that's pretty much a bullish indicator. do you agree with that? >> well, melissa, i think we're probably at the top end of at least a near-term range. but certainly we had some news that could have taken the market lower. bob mentioned that earlier in his commentary. but i think really we've got three things going on here. one is of course earnings are better than expected. i think the market expected earnings to be on a slow improvement thing but this has been a little better. certainly some economic news has been better than expected. i think the market expected that. and then also i think probably some of these headwinds that the obama administration is experiencing on the cap and
4:10 pm
trade, on health care reform. i think the market is liking that and thinking maybe there's less of a chance that this high tech type of program or these adjustments are going to actually occur. those three things contributed to a pretty well-bid stock market here. although i would expect some consolidation in the near term. >> stuart, are you expecting consolidation? do you think we're going to see a top to this sometime soon? >> well, melissa, i think it's actually helpful to have a little consolidation because if we go up too far too fast i think expectations could get overblown. but i think we've got to recognize that the fundamental driver here of better corporate profits, of better than expected corporate profits, is the aggressive cost cutting that corporate america's been engaged in. now, the silver lining there is that that enables us to compete much more effectively globally but unfortunately it does mean a weaker labor market for longer, and that's a constraint on the consumer. so i see a little bit of growth. more growth than profit. but i do think this economy's
4:11 pm
going to be restrained for some time to come. >> a lot of people are saying what stuart just said about their earnings outlook. why do you think we're going to see a u-shaped recovery? >> i think we are going to have a slow recovery here. and i would agree with stuart. a lot of these improvements in these earnings have been cost-cutting but really if you think back at this point in the cycle, you know, i can think back over the last three or four cycles, that's what a lot of people are arguing is that hey, most of these improvements have been due to cost cutting. it's pretty typical at this point of the cycle. and i think you can expect some very slow consumer spending growth and things like that coming out of this. i would agree this is going to be a slow comeback to, you know, what we had before, and i think we're going to be -- this is a multiyear period of recovery, i think. >> stuart, so how would you play that? >> well, i do think we're in an up phase for now. and if that's right and we've got some cyclical momentum in this economy, i think small cap stocks outperformed big caps. normally they do in a cyclical
4:12 pm
upswing. and we had a little bit of outperformance by small caps, though not nearly as much as i think we have the potential to go. the other area that i think we've got to recognize as a key driver of growth in the global economy is non-japan asia. and sure china got set back by 5% overnight. also not a totally unhealthy thing that people are thinking that they can't go for the moon and the stars over there. but i think the push globally is going to come from asia ex japan and the u.s. those are the two areas i want to play but in small cap in the u.s. right now. >> scott, do you agree with that? >> i think as we move down the road and we look out to the end of 2010 i think the stock market's probably going to be 20% higher and i think we're going to get there with very cyclical sectors. i think we're going to be moving toward small cap value. i think those are going to be the drivers. and i also think we are going to see these emerging markets do pretty well. >> scott, what would change your opinion on that? what would make you think we're not going to progress on that plan? >> for one thing it would be
4:13 pm
much higher taxes here. and i do believe, melissa, that probably -- >> i do too. >> -- all of us are going to be paying higher taxes. i don't care what the politicians are saying. but probably in the end we all are. it's a matter of are we going to be paying a lot more or just a little bit more? i think that's one thing. i also think that, you know, this employment situation, if we get much over 10%, and we're pretty close now, that's really going to dampen things down. and it's just going to draw it out even further than what a lot of people are thinking. >> all right, guys. thanks so much for inning us today. we appreciate it. >> thanks, melissa. >> pleasure. just ahead we have two big names in the executive suite. first a closer look at the chip sector with the ceo of texas instruments. he's going to give us his exclusive take on consumer and business spending and the outlook for technology the rest of this year. plus, we're going to have a conversation with the ceo of aetna. democrats in the house ending a stalemate and reaching a deal on health care reform. he tells us how that legislation could impact his business and the entire health care industry.
4:14 pm
that's a "first on cnbc" interview right here on "the closing bell." you don't want to miss that. we're going to have that right when you return. we'll be right back. undefeated professional boxer floyd "money" mayweather has the fastest hands boxing has ever seen. so i've come to this ring to see who's faster... on the internet. i'll be using the 3g at&t laptopconnect card. he won't. so i can browse the web faster, email business plans faster. all on the go. i'm bill kurtis and i'm faster than floyd mayweather. (announcer) switch to the nation's fastest 3g network and get the at&t laptopconnect card for free.
4:15 pm
4:16 pm
here are some of the other stories we're following on the "closing bell" ticker right now. cruise line operator royal caribbean swinging to a $35
4:17 pm
million second quarter loss compared to an $85 million gain a year ago as consumers book fewer trips because of the economy, of course, but also swine flu fears. company also warning third quarter earnings will miss wall street estimates. royal caribbean shares trading much lower on the day, look at that, down about 15%. railroad operator norfolk southern second quarter profit tumbling 45% to $247 million because of a steep slowdown in shipping demand. while that was slightly better than wall street's forecast because of cost cutting, revenue did fall by a larger than expected 33% to $1.9 billion. and shares of that stock trading down on the day but only by 2%, not too bad. and coca-cola enterprises posting a $313 million second quarter profit after losing more than $3 billion a year ago. according -- excluding restructuring costs, that easily beat wall street's estimates thanks to price increases. the nation's largest coca-cola bottler also boosting its full-year earnings outlook in raising its dividend by 14%.
4:18 pm
take a look at that stock in after hours, up about 2 1/2%. signs of stabilization in the semiconductor sector. intel and texas instruments unveiled upbeat outlooks in the industry in the last week, and t.i. shares have advanced 55% this week on that optimism, bouncingback from a seven-year low in december. joining me now in a cnbc exclusive is rich templeton, chairman, president, and ceo of texas instruments, sir, thank you so much for joining us. >> it's great to be here. >> we saw some upbeat comments overnight out of european and asian chip makers, st micro among them, infineon, all saying they're going to see higher sales this quarter. what's your outlook? >> well, you know, melissa, as you commented even in your introduction, we were out i think it was a week ago monday with good strong performance in the second quarter. and really very solid growth outlook in the third quarter. so we see things getting a lot more constructive after a very difficult third quarter and
4:19 pm
fourth quarter in the semiconductor market. >> where do you see that increased demand coming from? is it coming from asia? how would you characterize it? >> yeah, it is. it's asia, and it's really inside of asia. you've got to talk about strength in china. we continue to see that they will probably have some gdp growth this year. we tend to see it specifically in a lot of the high volume applications like notebook computers or tvs, some of the gaming players have been pretty strong. on the other side, we haven't seen it in what i would call the industrial-type markets that you would typically see in the u.s. or in western europe or in japan. so it isn't broad-based yet. >> what does that tell you? does that tell you that the rest of the world is lagging, or how do you interpret that? >> yeah. i think it does say that in general. it says particularly the industrial segment because of capital spending because of the situation from an economics point of view is down. but it also says that asia and china in particular are going to be very important markets for the long term.
4:20 pm
and there are areas that we've been investing quite a bit in, both india as well as china. we're pleased about those choices and the results we're seeing. >> i mean, you've heard the criticism of earnings pretty much to almost everybody this quarter. it's that cost-cutting has been fantastic but it's the failure to deliver top-line growth. how do you address those comments? >> well, i think if you look at the performance we just turned in, we were up sequentially 18%. and we had started out the quarter actually with expectations a lot closer to 3% or 4%. good strong growth and really a surprise during the quarter that as good as that was it was also down i think it was 26% or 27% year on year. so it's really a case that we're coming back from a very tough fourth and first quarter. i think we've got the opportunity now to grow again in the third quarter. but the fact is we need strong economies longer term to be able to grow. and we're going to be with a lot of different industries on that front. >> yeah. i mean, what is your outlook on the economy?
4:21 pm
when do you see a broader recovery and what do you think next year's going to look like? >> well, the way we're viewing things right now is we've got good expectations for growth in the third quarter. we're also very cautious. and in our report last week we talked about staying flexible. and flexible means you've got to be able to ramp up pretty quickly, which we just did in the second quarter, we'll do again in the third. but we're also careful that we don't confuse this with a long-term or a near-term recovery going out into 2010. so we're going to be flexible. china looks like it's going to do well. we'd love to see the u.s. and europe join in on that. hopefully, it's as you get into early 2010. >> you know, you talk about the ability to ramp up quickly. one of the things that people worry about is a so-called jobless recovery. do you have any plans to go out and hire anyone? >> well, if you look at how we handled that on the direct manufacturing side, as our utilization or the amount of
4:22 pm
product we build in our factories goes up we certainly have to get people in place, and we've been doing that through the second quarter and in the third quarter. the research and development and the sales and the marketing side, or the operating expenses, that's where you'll see us being more measured, making sure that we have a better sense of what the economy wants to do in 2010 before we let those numbers get up. >> analysts talk about a basic shift in your strategy from focusing on analog chips, or focusing on analog chips and away from chips that are used to kex connect phones and cellular networks. i'm sure i butchered that. tell us about your strategy. >> no, i think you did just fine, melissa. it really is a fun change. and it's an exciting time. analog and specifically embedded processing, two particular types of chips that we're focused on, are simply going to be our primary growth engines for the next i'm going to guess at least ten years. and to a much different extent we've been a very big player in the wireless handset
4:23 pm
marketplace. but that business is changing, and we're changing the way we're approaching that. so as a result we're not focusing on the old voice-only phones but we are investing very importantly in what i call smartphone technology, and those are doing quite well also. >> all right. rich templeton, thank you so much for joining us today. we appreciate your insight. >> it was great to be here. >> the pros and cons in the housing sector. some recent data offering a glimmer of hope for real estate. but are we really seeing a bottom in we're going to see if there are really signs of life in the housing sector. that's coming up next. oof!
4:24 pm
i hope he has that insurance. aflac! you really need it these days. how come? well if you're hurt and can't work it pays you cash... yeah to help with everyday bills like gas, the mortgage... ...and groceries. it's like insurance for daily living. so...what's it called? uhhhhh aflaaac!!!! oh yeah! that's it! aflac. we've got you under our wing. a-a-a-aflaaac!
4:25 pm
4:26 pm
he. the mortgage bankers association reports mortgage applications fell 6.3% last week. that's because rising rates for a 30-year home loan inched up, resulting in an 11% drop in refinancing. cnbc's diana olick has more on what those numbers and the rest of the data we've gotten this week is saying about the state of the housing market. diana, you have had a very busy week already. tomorrow's going to be no different. we get some foreclosure data, right? >> yeah. it's just a slew of data this week. and the mortgage applications number geez week to week. and i don't like to look at the week to week because it changes so much. it's a volatile number. the four-week moving average tells us a little bit more. and we are seeing that purchase applications have fallen .5% in the four-week moving average.
4:27 pm
now, this is a forward-looking indicator because it tells us what we're going to see in sales because these are the folks who are getting the mortgages as opposed to the backward-looking indicators that we saw yesterday with the case shiller price home report that went back to may. what's so interesting here is that purchases are just so reliant right now on price and price point is everything and that's why you have the mortgage applications moving when you see just a little tick up in the rates. what's interesting, though, is i asked the national association of realtors to pull some numbers for me this morning on what's selling at what price point. take a look at what they sent me. it's really interesting. this is what we've been saying all along-s that the action in the real estate market is all happening on the lower end. look at that. 39.4% increase in sales of homes under $100,000. 9.4% increase, and this is june year over year, in sales 100,000 to $250,000. then you start getting over 250, it starts going the other direction. and when you get to the $1 million to $2 million range sales are way down.
4:28 pm
27% up to 2 million. almost 40% on the 2 million plus. tha that's showing you where the action is, it's on the low end, the foreclosure, the distressed sale. >> you can really see there exactly where the line is. that's so interesting. what are you expecting from the foreclosure numbers tomorrow? because foreclosure obviously some think a bad sign. i think a good sign because it's showing clearing in the market. but i'm kind of alone on that except for larry kudlow. what are we going to see? >> it does clear the market to see foreclosure sales. to see foreclosures rising is not such aw good thing because there are only so many investors out there and so many people ready to jump in. what's important about this report we'll see tomorrow from realty track is they're looking at local markets. it's a report they do every six months and it's going to show you the cities they're seeing the highest foreclosures. of course we're probably going to see the same ones in california and florida and arizona and nevada being the big numbers. but what's interesting to see, and this is what we've been talking about, is we're starting to see those foreclosure numbers rise in cities that we didn't expect them-n cities that were
4:29 pm
not the big bubble cities-n areas that did not see huge home price appreciation. why is that? job losses. the job losses are going to be showing up in these foreclosure numbers. >> also an article in the "wall street journal" caught my attention today. it was about the modification program. it was saying the white house hauled in a bunch of the bank officials and different mortgage companies saying you haven't done as many modifications as you should, i think only about 200,000 had been done, they were aiming for 3 to 4 million. what's going on with that program? and do we still need it? it seems like things are turning around. >> no, we definitely still need it. they want it ramped up. that's why they hauled the servicers in to say you haven't been doing enough here you need to do more now, i spoke with the bankers association yesterday who represent all these servicers who said yes, we all have the same goal we want to stop the foreclosure but when somebody doesn't have a job there is nothing you can do. simple. end of statement. also they're saying that the administration keeps kind of changing the rules on some of these modification plans and that even fannie and freddie
4:30 pm
have different forms and different papers and it's slowing everything down. you can argue about it as much as you want. but what the administration is saying is look, we want to do it this point, we wanted this many modifications. but the landscape has actually changed. the economy got worse than we thought, more job losses, so we need you to ramp it up because without these modifications we're going to be in real trouble. the question i have, though, which nobody has yet to answer, is are these modifications working because they're all in the trial period. they're all these three-month trials. we don't have the data yet of how many of these are redefaulting. and what's so interesting, what the mortgage bankers told me yesterday, is even now with all the media attention on this, borrowers facing foreclosure, 50% of them will not talk to their servicers. that's when the servicers are going after them, sending them letters, even going to the property, saying we're here to help, we want to try to modify. 50% of those borrowers don't want any part of it. >> but diana, you follow this story so closely. why do you think we're not seeing more modifications? i mean, it seems like the banks want to do this because they
4:31 pm
want to keep someone in the home and paying, even if it's at a lower rate, because inevitably it seems that's more cost effective than foreclosing on the house trying to get rid of it. that's going to cost more money. or am i wrong? >> it depends on each particular property. it depends how much that property value has depreciated. it depends a lot on the borrower, whether or not the borrower, a, has a job or, b, wants to stay in the home. there are a lot of borrowers out there who say look, i will never get back to even even equity of what i had in this home, so why keep paying for something? we have the debate over walkaways and jingle mail and how many people are abandoning their homes voluntarily. the zrangs will say it's very small. but more and more i'm hearing that that number of people is growing. and with 50% of borrowers in trouble not talking to their servicers, that's a problem. >> diana, always a pleasure. you are the expert on this topic. i love it. thank you so much for coming on. >> sure. wellpoint shares under pressure today on concerns about the health of its earnings outlook. should investors stay cautious for the long haul? we're going to talk about that
4:32 pm
and the potential impact of the democrats in the house reaching a deal on health care with wellpoint's cfo. that exclusive interview is coming up next. >> announcer: here's a look at some of today's winners and losers. tdd#: 1-800-345-2550 if i'm breathing, i'm thinking about trading. tdd#: 1-800-345-2550 i always have my eye out for a stock on the move. tdd#: 1-800-345-2550 doesn't matter if a company sells computer chips tdd#: 1-800-345-2550 or, i don't know, fish and chips.
4:33 pm
tdd#: 1-800-345-2550 i'll look at all kinds of stocks before i settle on one. tdd#: 1-800-345-2550 if i think i'm onto something i'll check it out, tdd#: 1-800-345-2550 you know, see what other traders are up to. tdd#: 1-800-345-2550 when everything feels right though, tdd#: 1-800-345-2550 that's when i get serious. tdd#: 1-800-345-2550 and the minute i get into something, tdd#: 1-800-345-2550 i already know when i want to get out. tdd#: 1-800-345-2550 of course, every now and then i'll talk with somebody tdd#: 1-800-345-2550 who knows what i'm trying to do. tdd#: 1-800-345-2550 (announcer) switch to schwab today. tdd#: 1-800-345-2550 you'll get the tools, the technology tdd#: 1-800-345-2550 and the support to trade your way. tdd#: 1-800-345-2550 go to schwab.com/trader tdd#: 1-800-345-2550 or call 1-800-540-7304 tdd#: 1-800-345-2550 right now. tdd#: 1-800-345-2550 but opportunities can vanish like that... tdd#: 1-800-345-2550 ...so most days, i'm right there tdd#: 1-800-345-2550 when the market opens.
4:34 pm
4:35 pm
so-called blue dog democrats have worked out a deal with house leaders on funding in their health care reform bill. it's a process in which health insurers of course have a great stake. wellpoint is the nation's largest managed care company. today it reported a 7.6% drop in second quarter earnings, pushing shares down more than 5% in trading today. we're going to go inside the numbers and look at how president obama's health care overhaul could impact the company. an exclusive interview with wayne deveydt, the cfo of wellpoint. thanks so much for joining us. so much to talk about. let me get your reaction to health care reform right now. what do you think about the deal that blue dog democrats have struck? >> well, obviously, there's still a lot to be done at this point. i would still say we're kind of in the sausagemaking phase. but we are happy to see that there's a bipartisan process
4:36 pm
moving forward at this point. so you know, obviously the devil's always in the details. i think we'll get more information as we work through it over the next several weeks or so. but so far we've been pleased with the fact that really the american voice is being heard and people are listening to not only what we have to bring to the table but what providers are bringing as well. >> what do you think about possible tax on health care companies in order to pay for all this? what would that do to your business and customers? how would it change the landscape? >> it's interesting when they talk about the taxes i do think there's a belief that the health care companies are driving a big part of the health care rising costs and the problems that are out there. but if you look at the entire industry, and this includes all the not for profit managed care companies, the total profits in a noormal year, and last year's been anything but normal, is about $15 billion. that equates to two days of health care costs for then tire country. you're really not moving the needle in terms of what's really driving the rising costs in this
4:37 pm
country. >> let's drill down on that a little further. what do you think would change the cost structure? >> i think one thing that is very important is we support the administration, we support the house when they talk about coverage for all. this is still insurance at its simplest sense, which is that you need everybody to participate and you need the healthy lives to participate to help subsidize the unhealthy. and that is really something that has to happen. so we are very supportive of universal coverage and very supportive of everybody participating. then what you do need is a combination of enforcement or mandates to help ensure everybody participates. and you need government subsidies for those that really can't afford it. >> what do you think when the president says that if you like your health insurance plan you can keep it? i mean, you're one of those providers. do you believe that that's true? >> well, it depends. i think americans want choice. and if they like their plan, and the vast majority do today, they would like to keep it. but i do think if there's a government-run program put forward, a public plan, if you will, that i do question whether or not it will actually be a level playing field and it will be a truly competitive playing field.
4:38 pm
i think it's important that it's the right things that are being said. i think what's important is to make sure the administration comes forward with a solution that really does allow americans to keep their coverage. >> it sounds like your answer to that question was no, you think that if, you know, there are other plans out there operating the public plan is operating not for profit, then at some levels at least you won't be able to compete with that. am i mischaracterizing your outlook? >> again, i don'ts think that if there is a government plan it will be a level playing field. i think it's very difficult to say how we would compete. that being said, we compete today with not just 10 or 20 but with hundreds and thousands of carriers on a national level. and we are the largest provider in terms of members of health care coverage. i think we compete and we compete very well in this environment. the combination of the blue brand name and the fact that we have the lowest discounts available to our members and the best quality services provided. we compete extremely well. 9 question will be in a government-run plan will it in fact be a level playing field? >> wayne, you're not going to like this question, but when you look at the plan what do you look at and say that's a terrible idea, i don't like that
4:39 pm
part of the plan? give me something. >> well, i think probably the most unique part about it is that there's concerns about how do you really enforce all individuals to participate in a plan. so essentially, what you have to do is you have to find a way, you have to find a way to get to 45 million americans today that are uninsured all to participate. there's been concerns about whether or not they should put forward mandates, and i'm going to use the word enforceable mandates that are meaningful, that have meaningful bite. you have to find a way to have every american including the healthy ones to actively participate. the other thing i would say is there's a lot that happens today with managed care organizations. we actually manage the care that goes on. we don't just simply process payments or process bills. so if you go to a pure what i'll call government plan, somewhat as medicare as it exists today in some capacities, and you're just processing bills, you're not doing anything to curb, if you will, or bend the trend around what is actually driving health care cost. >> yeah, okay. i like that. i've got to ask but earnings. they're yelling at me. you lowered your full-year 2009 earnings per share and revenue
4:40 pm
forecasts. i know in your conference call you said operating earnings growth are unlikely next year. what is driving that and when do you see the outlook improving? >> if you look at the first half of our year we had very strong earnings. we beat consensus again today for the quarter as well as the first quarter. but we took a cautious outlook for the second half of the year. unemployment continues to rise at a pace much faster than anybody had anticipated. you look at our blue states alone and the unemployment rate is at 9.7%. so when we went into the year, we assumed 10% unemployment, but we are seeing it rise at a faster pace. what's most interesting is when you look at our membership that we've lost this year, over 75% of the membership loss was due to in-group change which means we did not lose the customer but they had layoffs within their underlying population. our cautious outlook was to say we don't know what will happen with the economy and where it will go over the next six months. we've had a very strong first six months of the yeah, generated over 1.6 billion of positive operating cash flow, and had earnings per share growth on an adjusted basis year over year. we think having a cautious
4:41 pm
outlook relative to the economy is the right place to be. obviously-f it doesn't pan out and we perform better than expected that will be good for our shareholders. i think going into 2010, though, we are not expecting a recovery in 2010. we do expect unemployment to level off. and at some point when the economy starts to ramp back up you will see the employment level increase and as it increases many of hoes customers we have today we will bring that membership back in. >> wayne, thank you for answering the questions. you know, some people dance around. we appreciate that. >> you're welcome. >> the issue of health care reform continues. we're going to get more reaction to capitol hill with the chairman and ceo of aetna. plus we'll get his take on why the firm cut its earnings outlook for the second time in as many months. tats "first on cnbc" interview, another sxwurngs that's coming up next.
4:42 pm
4:43 pm
4:44 pm
unlike its peers, health insurer aetna is adding members rather than losing them. on monday the company reported a profit of nearly $347 million in the second quarter, a 28% drop from a year ago. joining us in a "first on cnbc" interview to discuss the quarter and the company's outlook and the battle over reforming health care is aetna chairman and ceo ronald williams. there were a lot of things that were different about your earnings report. the first was that you're adding customers. how are you doing that? >> well, i think it really is a result of our strategy, which really has been very focused on what we can do to help our customers with affordability in
4:45 pm
the managed medical costs and quality. >> what do you mean by that? you're cutting costs or premiums or how are you doing it differently? >> i think what we're doing differently very specifically is our strategy is really based on information and data and our assumption is when we have medical information, dental information, behavioral health, and pharmacy we're able to take all that data, get a richer sense of the programs and interventions, it really can help the member and help the physician and what we find is that helps lower costs. >> the other thing you that did that's completely the opposite of the trend is profits for the second quarter fell but revenue increased. everybody else is having sort of the opposite situation. why was that? >> well, i think what we found is we had a very strong performance in the marketplace that we found our cost from last year was greater than what we anticipated. so we found some expense related to strengthening our medical reserves as it related to 2008. that had an earning impact on 2009. and we're addressing that in a course correction that we're very comfortable with.
4:46 pm
>> one other thing that you did is you gained market share in commercial risk. what is that all about, and do you think that's going to continue? >> i think the market share in commercial risk really comes back to the strategy that i've outlined-s that we really focus on understanding the specific needs of our customers. we apply consumer marketing research techniques to really understand what specific products, services, and capabilities are important to a begin set of customers, and we build them at a price point that we think is attractive to the customer. >> what are you seeing people do differently right now in tougher economic times? i mean, are you seeing more people go on cobra because they're losing their job, maybe fewer people take cobra because they can't afford to keep it? industrywide, what is going on right now? >> i think one of the things that we're seeing is that consumers are making better use of their preventive benefits, which we think is a good thing. that they're going to the doctor, they're getting their test, they're getting their screenings, and we do see that people who are laid off are able to take advantage of the cobra option, which gives them the ability to maintain their group insurance as a result of the subsidy that the federal
4:47 pm
government is providing. so those would be two important new trends. >> we just had the cfo of wellpoint on a few minutes ago. they recently sold their pharmacy benefit management service. there's rumors that you're thinking about doing the same thing. would you comment on that? >> well, there's lots of speculation about lots of things in our sector. i think what we're focused on is our strategy, which really is a strategy, we refer to it as integration. and it's a notion that when we have the medical benefits, the dental, the behavioral health, the disability, we really are able to link that with the pharmacy data and do a better job, produce better quality and lower cost. >> let me take you to the health care debate a little bit. what do you think about the plan that's out there right now? what do you like about it? what do you not like about it? >> well, i would say there are lots of plans out there, and what i like specifically is the elements of the plans that hopefully will result in bipartisan collaboration that focus on fixing the individual insurance market. i think there's a huge opportunity to make certain that individuals with pre-existing conditions are able to get access to health care.
4:48 pm
and i think the industry's embraced that and said that we should not use that kind of health status data. but that means we have to have everyone in the health care system. so we need to get and keep everyone covered. and those aspects of the plans are very positive. >> what do you mean by individual health care coverage? i mean, are you saying that you want to move away from employer-based, or what did you mean by that? >> what i mean is that if you look at the composition of the insurance market in the u.s. there are about 180 million people who have employer-sponsored insurance. and that system while there's room for opportunity works reasonably well. where there's room for improvement. the market works reasonably well. there also are about 18 million people who buy their own individual health insurance programs. there also are about 45 million uninsured, some of which could come into the individual insurance market, the balance of which mostly are small employers. so the way to fix the insurance market in terms of access to insurance is to improve the individual market and focus on
4:49 pm
the small group -- >> interesting. i agree with you there. are you saying the way to do this you want people to buy their own insurance rather than going on the public plan? that's basically what you're saying, right? >> yes. we think -- >> how do you do that? >> i think the way -- >> tax incentives? >> i think the way we do that, which we believe is you really should recognize shared responsibility. we should encourage people who can afford insurance to buy it, and for people who can't afford it we need tax incentives or some form of subsidy or other approach to make certain they get access. >> so what is it you don't like about this plan? is it the public part of it? do you think it's going to drive -- it's going to hurt companies like yours and maybe drive smaller companies out of business? >> well, we think the public plan is a good idea. we -- excuse me, the public plan is a bad idea. we think it's impossible for an entity to be both the referee of the game and a player in the game. >> yeah. >> we do believe that one of the things that we like about the plan is its focus on individual and small group. again, what we don't like is the fact that there is an insufficient emphasis on
4:50 pm
controlling medical costs. we need payment reform so that we pay physicians more for managing the health of the population as opposed to for each activity. and physicians need to be paid fairly and compensated in a way that they can really responsibly look after the health status of their population. >> i wish i had more time. ronald williams, thanks so much for joining us. we appreciate it. >> thank you. >> up next on clbl clblt, former treasury secretary hank paulson has a new job. we'll tell what you it is when we come back. this is "the closing bell." today there's a way to save more for retirement,
4:51 pm
with annuities from fidelity. turn your savings into income -- guaranteed, and get a retirement "paycheck" for life -- guaranteed. call... to get started, and learn how to secure retirement income that won't go down -- guaranteed. call fidelity at... for details about guaranteed income for life, and change the way you think about your retirement savings.
4:52 pm
4:53 pm
taking a look at today's business headlines. merck will sell its stake in its animal health care business to sanofi-avent sanofi-aventis. merck is trying to sell some of its animal health assets. the trustee overseeing the liquidation of bernie madoff is suing ruth madoff for nearly $45 million. he says that money was transferred from madoff's business in the last six years directly to his wife. ruth was allowed to keep some money in a deal with the justice department but that money is not exempt from investor lawsuits.
4:54 pm
former treasury secretary hank paulson has been appointed to the board of advisors of coda automotive, this just a day after cods received $54 million of funding from paulson. i guess that means he's in private equity now. now over to the nasdaq marketsite where rick santelli has a preview of what's coming up on "fast money." i love rick santelli on "fast money"! >> listen, moments away, "fast money." the markets fall once again. we'll show you how to protect your profits and take your position in the mouse house. they report earnings tomorrow. we've got your trade. melissa, good to talk to you and back to you sglp hey, rick, what are the guys saying about the close today? we tried to rally back. it was a pretty bullish day especially after that auction. right? >> the boys have a lot to say about it, including, we're still kind of hanging up in the upper zone. there are two days to look at
4:55 pm
it. tune in to find out. >> rick, i want to know what you think of that seven-year option tomorrow? prediction good, bad? what's it going to look like? >> the two-year was a "c," "c-plus." i'm a little bit of a dog. >> can't wait to see the show. the latest data on jobless claims tomorrow and find out what else can move the market when we come back. announcer: some people buy a car based on the deal they get. - others buy the car of their dreams. - ( beeps ) during the lexus golden opportunity sales event, you can do both. it's an opportunity today. it's a lexus forever. special lease offers now available on the 2009 es 350.
4:56 pm
4:57 pm
4:58 pm
tune in tomorrow, 1:00 p.m. we had a c-plus for a two-year, "d" for dog, five-year. what lies ahead? tune in. i'm mary thompson. this is what i'm watching for on thursday. dow component exxon mobile reports second quarter results and profits for the oil giant are forecast to fall 55% from last year. on the call analysts want to hear more about the company's cost cutting estimates as well as their outlook on refining. tomorrow we're watching for the 8:30 jobless claims report.
4:59 pm
economists see a rise to 588,000 from 554,000 in the prior week. numbers have been rising recently after falling from their peak in april which was almost 660,000. the recession continues to take a bite out of virtually every sector of the economy. professional sports really are no exception. most leagues have taken a hit but there is one that's thriving. the ultimate fighting championship. it is the best known brand and the violent and controversial sport of mixed martial arts. in tonight's premier of "ultimate fighting," cnbc's scott wapner caught up with the co-owner of the fight club when it was on the brink of bankruptcy and has seen his gamble pay off in a big way. >> ladies and gentlemen, we are live! >> reporter: in 2008, pay-per-view events

322 Views

info Stream Only

Uploaded by TV Archive on