tv Nightly Business Report PBS October 18, 2011 1:00am-1:30am PDT
>> susie: no progress on debt crisit talks in europe hits stocks on walltreet. wall street gets whalloped anew as hopes for a deal to fix the european debt crisis fade. meanwhile, this economist coined the phrase "flash recession." we'll tell you what it is and what it could tell us about the economy. it's "nightly business report" for monday, october 17. is made possible by:
by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. my colleague tom hudson is on assignment tonight. it was all about europe again here on wall street. investors have new doubts that europe is close to announcing a definite plan to solve its debt crisis, and that led to a steep stock sell off today. a representative for german chancellor angela merkel said it would be impossible to resolve the crisis at a eurozone summit this coming weekend. so the major u.s. stock averages fell by 2% or more. the dow tumbled 248 points, with all 30 dow components in the red. the nasdaq lost 53 and the s&p
fell 23. >> susie: also weighing on the markets? more concerns about the financial sector. some mixed earnings news from two of the nation's biggest banks. citi said it earned 84 cents a share in the third quarter, three cents better than analyst estimates. but revenues came in below expectations, down 8% to about $19 billion. the quarterly numbers from wells fargo disappointed. it earned 72 cents. analysts were looking for 73 cents. wells revenue also came in lower than expected, down 6% to $19.6 billion. >> susie: joining us now to talk more about outlook for banks? fred cannon, director of research and chief equity strategist at k.b.w. fred, great to you have you back. >> great to be here, susie. >> susie: so you know, earnings of the ones that have been coming out so far, citish and wells fargo as i just reported, jpmorgan reported better-than-expected numbers last week. what's your take away on
these earning coming is out so far? >> well, pretty much it's to the about the numbers that are reported. what investors are looking for is can these big banks make money over a long period of time and there's a lot of doubt. that's why you saw wells fargo down 7% today i believe. >> and we're seeing tomorrow the numbers from bank of america and goldman sachs, will the story be any different or more of the same? >> more of the same. we're expecting good man sacks actually to post-- gold man's sacks to post a loss. nobody has big expectations for b of a given their mortgage headaches and everything else going on with that company. >> susie: the kbw bank index is down 30% year-to-date through today. and all 24 of the banks in that index are also have been in the redl all year long. so how much longer before these banks turn around? >> that's a great question. a couple things are tying the bank's hands right now. number one is europe. if you look at what's going on with the bank stocks in europe and the bank stocks in the u.s. they are tied
very closely. so a little clarity would go a long ways. secondly, the overhang of regulations, in particular the boca rule is really having a flaing on-- plague on companies like goldman sachs. but third, the interest rate that the federal reserve has set up just make it very difficult for the banks to earn money in this current environment. >> susie: and that's probably why we heard from the c.e.o.s, jpmorgan and city over the last couple of days, they are all saying this current quarter, the fourth quarter, they are cautious about it and cautious going into 2012. is that your expectation as well. >> that's right. and a lot has to do with the fact that benn bernanke said he was going to keep interest rates low through 2013. that just makes it tough for the c.e.o.s to get very excited about the banking environment. what he is doing pay be good for the economy, it makes it very tough on the banks. plus we have that regulatory overhang on the banks in terms of earnings. >> susie: and still over the weekend "barron's" has this big story and the headline says, buy the banks. is it time to buy the banks?
>> well, they certainly are cheap. that is something they have going for them. we are not quite there in terms of buying the banks. what we do believe is in buying selective banks because what's going on right now is we have to decide within the financials which banks are value, and which are value traps. we've seen a number of banks that have looked keep for the last couple of years. bank of america in particular. but every quarter the earnings come below expectations and analysts are lowering their estimates. that's not a value stock, that's a value trap. what you have to look for is a company that can hit the numbers even in a tough environment because those are the companies that will really come out of this thing well and be able to pay dividends in the long run. >> so you gave me three bank stocks that you are recommending, jpmorgan and here's a stock chart of his year-to-date performance. also u.s. bancorp and suntrust banks. so what is it about these three that you are singling them out? >> we especially like these larger regional banks within the u.s. bancorp and
suntrust. why? number one there's no direct impact in europe. so that is off the table. number two, the retail side of most of the banks don't have a lot of regulatory headwinds right now. that's really the investment banking side. so we think that positions well. and third we think there's going to be capital deployment build it's dividend and share repurchase going forward. so those banks we feel pretty good about, pretty isolated and the values are compelling. now jpmorgan we think from a global standpoint given its valuation and given what it can earn today even in this environment is the large bank you go to. >> any disclosures on the three recommendations? >> not from me. >> all right. thank you so much for coming on the program. really appreciate it. >> always great to be here, susie. >> susie: same here. we always love having you on. we've been speaking with fred cannon, director and chief equity strategist at kpw. there was some encouraging economic news for investors today. industrial production rose 0.2%
in september and a gauge of new york state manufacturing hinted at stabilization this month. these fresh signs of life in the nation's factories are helping to calm recession fears. but as suzanne pratt reports, there's concern about a new breed of recession. a month of zero job growth and two months of stagnant consumer spending economist tom porcelli is calling it a "flash recession." the idea? the u.s. experiences short patches of recessionary conditions. the term "mini recession" also fits. it doesn't meet the traditional definition of a recession, which is two straight quarters of a contracting economy. but, those short periods of economic trouble do make headlines. and, porcelli says therein lies the danger. >> particularly now in a sentiment-driven backdrop, if people think economic prospects are so dour-- which most, actually, people do-- then all of the sudden it can become self-feeding, and i think that's part of what we're seeing right now. >> reporter: just look at the wall street protestors for proof
that at least some americans think their economic prospects are dour. the risk is other americans will start to feel the same way, and if that sentiment translates into less spending, we could see more flash recessions. >> the backdrop could be dotted with these flash recessions, and the longer that that happens that means that confidence is still being weighed down by factors. that means the higher the odds of a traditional recession coming about grows. >> reporter: to be sure, most recent economic data suggests the economy is not currently in a recession, traditional or flash. but, experts agree the u.s. is still teetering on the edge of an economic precipice. economist jeremy lawson says the concept of a flash recession captures the nation's vulnerability. >> in circumstances where you're already facing a lot of headwinds, and in a world that's very sensitive to shocks, and where firms and planners are very cautious about the future, shocks of even moderate
magnitude can be enough to send you off course. >> reporter: experts say the good news is that with flash recessions could come flash recoveries. while that doesn't mean we'll get a blast of economic activity, we could at least get a uptick in consumer spending or, perhaps, job prospects. suzanne pratt, "nightly business report," new york. >> susie: still ahead, tonight's "word on the street"? "apple." thestreet.com's james rogers joins us to preview the tech giant's earnings and look at whether investors should be taking a bite. lowe's, the big home improvement chain, said today it's closing 20 stores as it tries to boost profits. those closures will result in the loss of nearly 2,000 jobs. lowe's called the job cuts a tough decision. still, they account for just a fraction of its 160,000 full- time workers. the retailer also sharply cut plans for new stores. it now says between 10 and 15 will open next year, down from the 30 that were previously
planned. from job cuts to job creation, senate democrats today rolled out a new strategy to get president obama's jobs plan passed: small doses. the move came just hours after the president launched a three- day tour promoting the bill. as nbr's darren gersh reports, the new piecemeal approach could lessen the bill's economic impact. >> reporter: the president started his bus tour with a political challenge to republicans. if you don't like all of my plan, are you willing to vote against keeping cops and teachers on the job? >> maybe they just didn't understand the whole thing, so we're breaking it up into pieces. if they vote against taking steps that we know will put americans back to work right now, then they're not going to have to answer to me. they're going to have to answer to you. >> reporter: but political analysts warn breaking up the obama plan means only the smallest pieces are likely to pass.
the big tax cuts and spending plans all require offsetting tax increases or spending cuts that are hard to pass piece by piece. >> so, take the very substantial infrastructure investments that the president called for in his plan. i think they'd be great near- term fiscal support for the economy. i don't think, on their own, they have any chance at all of passing a republican house. >> reporter: republicans and some democrats already oppose the millionaire's surtax the president has backed to pay for his jobs bill. and conservatives doubt key portions of the obama plan will boost job creation, even if they are passed one by one. >> you take a rotten bill like that and break it up into a bunch of little rotten bills... doesn't make any of them any better. >> reporter: so what might pass? an extension of the current 2% payroll tax cut. limited infrastructure spending and a small extension of unemployment benefits. the impact on the economy would be somewhere between $160 billion and $200 billion, less than half what the president was hoping for. but congress is likely to do
something, even if it is only extending much of what is already in place. >> we're moving into an election year, so the congress will stand behind workers. congress will come through with legislation. hopefully they'll come through with legislation that works, but there will be something passed, and it will probably be passed in the next, you know, four weeks. >> reporter: if congress doesn't act, that will be a surprise to many economists, who have built into their forecast at least an extension of current policy. darren gersh, "nightly business report," washington. >> susie: despite today's stock sell-off, two companies bucked the trend: el paso and kinder morgan. shares of el paso surged over 25% on word that kinder morgan is paying $21 billion to buy the rival natural gas pipeline company. the offer values el paso at $26.87 a share. the merger also creates the largest network of natural gas pipelines in the u.s. with natural gas prices under pressure, oil and gas analyst fadel gheit expects to see more
deals like this one. >> we are entering a period of consolidation which will probably be in the next six to 12 months. i would not be surprised at all if five or six companies would be taken out in the next three months. >> susie: kinder morgan wasn't the only merger announced today. let's take a closer look with tonight's "market focus." the other big merger today? statoil, the norwegian energy group, will acquire texas oil company brigham exploration for nearly $4.5 billion. the deal gives statoil control of fields in north dakota. brigham shares up 21%, making it the most actively traded nasdaq stock. another active energy stock? halliburton. the oil services giant posted a higher-than-expected quarterly profit, but still fell nearly
8%. halliburton earned 94 cents a share, topping wall street's estimates by two cents. shares fell on concerns that demand for fracking has peaked. still, halliburton remains upbeat despite the recent decline in oil prices. in other energy news, anadarko petroleum has agreed to a settlement with b.p. over the deepwater horizon rig explosion and oil spill. anadarko has agreed to pay $4 billion to b.p. both parties will mutually release all claims against each other and forego reimbursement for any future costs related to the disaster. anadarko shares rose almost 5.5%. b.p. ended the day fractionally higher. while energy was the foc during regular trade, tech took over in after hours. big blue was a big miss for wall excluding items, i.b.m. earned $3.28 a share-- six cents better than wall street was looking for. but the company brought in revenue of $26 billion, slightly lower than analysts anticipated.
in after hours, i.b.m. shares dropped nearly 4%. in the regular session, shares were down 2%. vmware also modestly beat expectations. the company, whose software is used to build cloud computing data centers, earned 53 cents a share excluding items. that's three cents better than wall street was looking for. in other tech news, shares of western digital sank on concerns over flooding in thailand. the disk drive maker sees reduced production from its facilities there and results for the december quarter will take a hit. w-d-c shares closed down 7% to $26.25. gannett was the second weakest s&p 500 stock on new concerns about the newspaper industry. the "u.s.a. today" publisher met wall street's revenue and profit expectations but shares fell on new worries about advertising sales.
gannett was down nearly 9% today after reporting a 17% drop in national advertising at its publishing business. and finally, green mountain coffee got roasted thanks to comments made by hedge fund manager david einhorn. he said the market for its single-cup brewers is "limited" and accused the company of shady accounting practices. green mountain tumbled more than 10%. it had been one of the highest- growing stocks in terms of share price so far this year. and that's tonight's "market focus."
>> susie: apple stock traded briefly in record territory, but was dragged down by the market sell-off. one other record the company talked about today? the sale of more than four million of its new iphone 4s over the weekend. those are topics apple's new c.e.o., tim cook, alll talk about tomorrow when he discusses the company's latest quarterly earnings with analysts. we get a preview now with thestreet.com's technology reporter, james rogers. >> susie: so james, as i said, earnings come out after the bell tomorrow. whether or not are you hearing, it's going to be another another strong quarter. >> yeah, no one is expecting apple to post a loss tomorrow. this is a company which traditionally puts out stellar quarterly results and we're expecting to see the same again. apple was at the end of an iphone cycle during the fourth quarter. but we're still expecting to
see good iphone numbers. the same for the ipad. the mac book air. apple has seen really good growth in emerging markets like china. so we expect to see cook focus on those issues tomorrow. >> susie: so this is the first time that tim cook will be speaking to analysts as the official c.e.o. since steve jobs passed away. what do you think is going to be his message to the wall street community? >> well, i mean, wall street is looking for certain things from tim cook. we all know that he can manage. we all know he can control the company. we need to see how well. what everybody wants to know is how well can he innovate. obviously steve jobs is arguably silicon valley's greatest ever innovator so that is a big, big gap that needs to be plugged. so i think people are going to be looking to see how he is going to deal with that. personally i think the innovation at apple will be a team effort moving forward. i think we will see people like the apple industrial design guru, a fellow brit, i think we will see people like that come to the floor. i think cook is going to
face a lot of questions about the innovation moving forward. >> susie: the other topic that i think a lot of people will be thinking about is what is apple going to do with its huge cash pile, $72 billion, and i think a lot of them are hoping for a dividend. what are the chans of that happening? >> i don't think we're going to see anything happen immediately and i certainly don't think we are going to see them suddenly announce a dividend on tomorrow's call but i do think it will be something people are going to be looking at moving forward. as you say, apple entered the last quarter with more than $76 billion in cash. it's the largest company in the planet in terms of market cap and a lot of investors are saying look, are we going to see you carve this up, are we going to see a dividend or share buyback. in the past apple has holded cash for strategic opportunities. it's not clear what these actually are though. whether we're talking about some high end mna or specific research and development effort. so i think that we're going to see cook face a little bit of pressure to explain himself. like if the company is keeping all of its cash,
than what is it actually going to be used for. >> susie: that's a good point. and the other question that i think on a lot of investors minds that we hope t get out of this call tomorrow, is what is the future of the stock. some analysts were saying time to sell. others are saying this stock is going to go higher and higher. what is your take on the whole stock debate? ness well, i mean there is a couple of things investors should be aware of. typically when apple puts out its results, as we know it usually overperforms quite dramatically. the stock typically declines in the session immediately after. so that could potentially present something of a buying opportunity for investors. i personally think will is a lot more runway ahead for this stock. i think that we've got things coming down the pipe that could be significant. we're hearing rumors about a low price ipad maybe in the early months of 2012. an ipad 3 probably in the second quarter of 2012, and then obviously there's all this talk about the eggerly anticipated iphone 5 sometime after that. >> susie: we're going to have to leave it there. thanks so much, james.
one quick question, dow own apple stock. >> no, none whatsoever. >> susie: okay. thanks a lot. great talking with you. >> thank you very much. >> susie: and we've been jaking with james rogers. here's what we're watching for tomorrow: quarterly results from bank of america, coca-cola, goldman sachs, intel and yahoo, as well as producer prices for september. treasury secretary timothy geithner testifies before a senate committee on the small business jobs act. also tomorrow? anger arithtic. we look at the economic realities behind the occupy wall street movement. have you ever been surprised with extra charges on your cell phone bill? the federal communications commission says tens of millions of people suffer from "bill shock" every year. now, wireless providers have agreed to warn customers when they're close to going over their limit or about to get hit with roaming fees. those warnings will come in the form of text messages or voice mail, and the regulator says
they'll start within a year. research in motion is hoping $100 in free applications will help soothe angry users of its blackberry smartphones. from europe to asia to the u.s., users around the globe were hit with email and messaging outages for four days last week. the incident was a black eye for rim as the smartphone maker continues to lose market share to apple and android phones. rim says the free downloads will be available for about a month on the blackberry app world site.
with the 2012 race for the white house heating up, tonight's commentator weighs in on the economic cornerstone of the latest republican front-runner. here's jared bernstein. he's with the center on budget and policy priorities, and as former chief economist to vice president joe biden, he's no stranger to presidential politics. >> the long american election cycle is upon us. i do not take the privilege of democracy lightly. what matters most to the future of our country is that voters clearly understand the issues at hand. there is too much at stake to throw up our hands in confusion on the policy, only to decide which candidate we'd like to share a beer with. so lets talk facts. candidate herman cain claims that his 9-9-9 tax plan will lower the federal tax bill for the middle class. yet every independent analysis i've seen shows this to be false. the tax bill for a $50,000
household with two kids would go up by $5,000 under his plan, and because the plan exempts so called non-labor income like capital gains and stock returns from taxation, the tax bill of the very wealthy would fall. this would exacerbate our already severe inequality problem, yet that candidate claims that his plan is notable for its fairness. both republicans and democrats, are arguing for a tax repatriation bill that will allow american businesses with overseas profits to bring those profits back to america at a much reduced tax rate. they claim that this corporate tax break would lead to more jobs and investments here at home, but last time we tried this, in 2004, all it did was lead to stock buybacks and dividend payouts. meanwhile, the tax scheme is scored as adding $80 billion to the deficit. it's not exactly a newsflash that advocates distort the impacts of their favored policies, but it's getting worse-- it seems fine to just
say anything you want these days. forget truth. forget even truthiness! well, i still think facts matter. and i suspect you do too. i'm jared bernstein. >> susie: we've invited mr. cain or someone from his campaign to appear on nightly business report to talk about his 9-9-9 plan to overhaul the nation's tax code. we await his response. that's "nightly business report" for monday, october 17. i'm susie gharib. good night everyone and we hope to see all of you again tomorrow nigh "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you.