tv Nightly Business Report PBS June 21, 2011 6:30pm-7:00pm PDT
>> tom: what's next for the federal reserve and its chairman, ben bernanke. should it do more to kick-start the economy? can it do more? >> if anything, the fed is going to just hunker down, keep the size of its balance sheet constant so it keeps its current stance accommodative. >> susie: we ask bond guru bill gross about the fed's next move, greece's debt crisis, and the health of the global economy. it's "nightly business report" for tuesday, june 21. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
>> tom: good evening and thanks for joining us. a triple-digit rally in blue chip stocks today as u.s. investors were counting on a crucial vote of confidence in the greek government after the market close, susie, and that's how it played out. a short while ago, the greek parliament supported prime minister george papandreou. >> susie: tom, that removes a lot of uncertainty and could set a positive tone for trading here tomorrow. another important factor for investors-- a key meeting of the federal reserve. the central bank kicked off a
two-day meeting today and is expected to continue its policy of keeping interest rates near 0%. >> tom: investors will be looking to the fed's statement and tomorrow's news conference with chairman ben bernanke for any subtle hints about where policy is headed. darren gersh reports. >> reporter: inflation is higher than the federal reserve expected, unemployment somewhat worse, and growth a little slower. so the first order of business at their meeting this week is for fed chairman ben bernanke and his colleagues to adjust their forecast. but analysts like tom gallagher expect the fed will continue to argue the recent slow-down in economic growth is temporary. >> but i think they do have to worry that the sustained path for the economy may just be weaker than they've been anticipating. >> reporter: the fed is almost certain to keep interest rate policy where it is-- very loose- - for an extended period. how extended will depend on the economy. >> i think you have to measure it in terms of conditions, and as long as unemployment remains
high and wages are not growing strongly, i don't think they have any reason to think about raising the fed funds rate. >> reporter: but that doesn't mean the fed couldn't do more to stimulate the economy if it showed clear signs of sliding back into recession. economist vince reinhart wrote papers with then-fed governor ben bernanke about unconventional policies the fed could use to boost growth. >> in principle, it could set the six-month interest rate to 0%, or it could go to the two- year or the five-year. and so, you expand the waterfront of what you cover. they could do that. i bet they'd be very uncomfortable about that. >> reporter: capping interest rates could be the third version of quantitative easing, a policy the markets have come to call "q.e.-3." in the first two rounds of q.e., the fed bought $2 trillion in bonds in order to drive down interest rates. actually capping interest rates would require the fed to buy as many treasury securities as needed to hit the cap, even if that meant buying up most of the
market. and the only way the fed would do that, reinhart says, is if there is another economic crisis or clear signs of another recession. >> if anything, the fed is going to just hunker down, keep the size of it's balance sheet constant so it keeps its current accommodative stance, and just hope that provides enough stimulus to get the economy back on a better track. hope is not always the best strategy, though. >> reporter: the fed did cap interest rates during world war ii. that helped finance the war effort, but doing something like that today might be seen as financing the deficit effort, and calling that politically unpopular would be an understatement. darren gersh, "nightly business report," washington. >> susie: joining us now for more analysis, william gross. he is the founder and chief investment officer of pimco, the world's largest bond fund. >> thank you, susie. nice to be here.
>> susie: so bill you've been very busy. you've been tweeting and on twitter and have a lot of people following what you're tweeting and i'd like to start with one of the ones that caught everyone's attention. you said recently the fed will stress extended period of time language or even a period of interest rate caps. you just heard our report about interest rate caps. will it really make a difference to help the economy if the fed goes that way. >> i think ultimately it would, susie. it's importance in quantitative easing programs to help asset prices that's been ben bernanke's main objective and the least controversial way is to keep interest rates at current level and that's what the call an extended period of time but historians and others like you just spoke to have also noted that over the past century more formal caps or ceilings have accomplished the same
purpose. i think ultimately if the economy deteriorates we might just see a new form of quantitative easing three in the form of cap but not tomorrow. >> susie: you talk about the economy possibly d possibly det. are we in for another recession? >> i don't think so. much depends on the continued successful resolution of the greek and portuguese and irish crisis in terms of debt burdens. absent that i think the developing world china, asia, other strongly developing coutries in terms of growth are serving as the engine for the global economy where in the past united states has. i think we stay above the line but it will be a period of real economic growth that's slow in comparison to what we're used to. >> susie: you talked about greece and we just reported about that crucial vote of confidence for the greek prime
minister. you were tweeting about that as well and look at what with you were telling. you said the risk rally is dependent on continuing good news from greece. now that they got the vote of confidence can investors now cross greece off its worried list? >> goodness, no. i think ultimately the resolution for greece involves a compromise between labor and capital which to a certain extent means a haircut or a small default in terms of greek bonds. this is just the first step really in terms of the global battle between labor and capital. it's most visible in athens but ultimately i think it will occur around the world. it speaks to wages, retirement and entitlement and we'll continue to see it for years to come. >> susie: as the you know, bill, tomorrow ben bernanke chairman ben bernanke will hold a briefing after the fed policy meeting. if you were a reporter at that
gathering what would you ask the fed chairman? >> well, i'd refer him to his helicopter speech of 2002 in which he spoke to the possibilities for capping interest rates. yes at six months and two years and five years and ask him specifically whether or not during the two-day meeting of the fed that was discussed and what the possibilities would be going forward. >> susie: and what do you think he would say to you? what would be his answer? >> i think he would obfuscate to some extent. i think he we refer back to his own helicopter speech and we're not there yet and that isn't an option actively on the table. . >> tom: big gross having
technical troubles the founder and chief investment founder of pimco. here are the stories in tonight's "n.b.r. newswheel." stocks rose ahead of a confidence vote on greece's government-- the dow rose 109 points, the nasdaq was up 57, and the s&p 500 added 17. trading volume rose slightly from yesterday's pace, almost 850 million shares moving on the big board and 1.9 billion shares on the nasdaq. home sales slumped again during the height of the spring selling season. sales in may fell to their lowest level in six months. the national association of realtors says existing home sales fell 3.8% to 4.8 million units. the median sales price was also down, falling almost 5% to $166,500. j.p. morgan chase will pay almost $154 million to settle charges it misled investors in
certain mortgage-backed securities back in 2007. specifically, the securities and exchange commission says the bank allowed the magnetar hedge fund to pick mortgages that went into the bundled securities, while separately betting against those same mortgages. harmed investors will get all of their money back. still ahead-- from the greek debt crisis to the debt ceiling debate here in america. what's at stake for the u.s. dollar? and how could the dollar help or hurt corporate profits? >> susie: it was a volatile day in world energy markets as traders focused on spain, as well as greece. that's as the international monetary fund warned that spain faces considerable risks to its economic recovery. in new york trading, crude oil futures gained 14 cents to settle at $93.40 a barrel. but crude prices are down more than $20 a barrel in the last several weeks. and experts say that decline
should be good news for the u.s. economy. suzanne pratt explains. >> reporter: it might be hard to tell from the signs at this manhattan gas station, but crude oil prices have recently dropped a lot. july crude futures at the new york mercantile exchange are down nearly 20% in the last month. that's after hitting a high for the year of $114 a barrel in late april. why are prices falling? experts say because of concern in energy markets about u.s. oil demand. that's as recent data shows the american economy hit a soft patch. trader ray carbone says europe's escalating debt crisis is also raising questions about global oil demand. >> i think everyone is waiting to see what happens with the no confidence vote in greece, the selling of the package of austerity to the parliament, what's going to happen with the eurozone debt and contagion fears. >> reporter: lower oil prices couldn't come at a better time for the u.s. economy.
not only has the nation's unemployment rate remained stubbornly high this spring, but escalating food and gasoline costs are taking a big bite out of consumer spending. economist joe davis says the drop in oil prices has made him more optimistic about the second half of the year. >> i think that will be one reason why more likely than not that this will turn out to be more of a soft patch than the start of a new recession. i think, fairly, it feels like more of a pothole to many americans, in part because of volatility in the financial markets, food and energy prices both being up, as well as the disruptions in japan. >> reporter: still, experts say a spike in prices at the pump hurts the economy more than a decline in prices helps. that's because energy cost increases act as a tax on consumers and raise uncertainty for businesses. as a result, some say it would be helpful if crude oil prices were to fall even further in the coming weeks. and traders think that's certainly a possibility. >> i think we're approaching the
mid-$80 level, $85 to $88. that's where we began this whole rally from, with libya and tunisia spurring us higher. i think we may revisit that price level. >> reporter: it takes longer for prices at the pump to catch up with a decline in crude oil futures. the price of gas has only dropped about 5% in the last month, but experts say look for gasoline prices to drop further in the coming weeks. suzanne pratt, "nightly business report," new york.
>> susie: okay, tom, four sessions for the blue chip rallying here at the new york stock exchange. a little more confidence, less fear in the markets especially as you reported on that greek confidence vote. >> tom: absolutely. we've seen confidence creep into this market due in large part because the spring lows have held with the major stock indices. let's roll with tonight's market focus. we saw steady buying interest for stocks all day long as investors seem to get more confident of a rescue for greece. the s&p 500 spent the entire day in the green, hitting its high price of the day about an hour and a half before the closing bell.
let's see where we are over the past 90 sessions. the march lows held last week, and the index has been swinging higher. its up more than 2% of the low last wednesday. drugstore giant walgreen turned in earnings two cents per share better than estimates. but it also announced it has been unable so far to renegotiate a deal to be part of the express scripts pharmacy provider network. that hurt shares to the tune of more than 4.5% today. despite the market swoon over the past six weeks, walgreen has been a picture of relative health before today's weakness. investors are worried that, without a deal with express scripts by january 1, walgreen's could lose millions of drug prescriptions. no deal would cost walgreen 8% of its annual sales. this was the weakest stock in the weakest sector today-- consumer staples. the strongest stock in that
sector was grocery store operator whole foods. shares jumped 6%. the co-c.e.o. told an investor conference stores are gaining market share and sales have not slowed down in the past two months. while we're talking about consumer stocks, retailer best buy saw some buying interest. shares have had a tough go since last december when it issued an earnings warning. the company okayed a $5 billion stock buyback plan and increased its quarterly dividend. the materials sector was the strongest today, led by this trio. fertilizer maker c.f. industries rallied almost 6%; international paper added almost 5%; alcoa was up more than 4%. alcoa was the biggest gainer inside the dow jones industrial average. home building stocks found buyers, even if existing homes aren't. as we mentioned in the newswheel, existing home sales fell last month. this is the past 90 sessions of the exchange traded fund following home builders.
it's most recent bottom was about a week before the latest market bottom. it has turned up since, adding almost 2% today. we saw buying back in several chinese online stocks. sina, baidu and sohu-com are online media companies in china. sina rose between 18.5%, baidu up 8% and sohu was up 6%. these stocks have seen wild price swings in sympathy to trading halts on other chinese- based u.s. listed stocks over accounting concerns. but they have not been involved directly in the controversy. semiconductor maker advanced micro devices advanced almost 5% on heavy volume. there's speculation about a new c.e.o. the firm has been without a permanent chief executive since january. and that's tonight's "market focus."
>> tom: the return of the greek debt crisis and the approaching deadline of america's own debt ceiling has the u.s. dollar caught in the middle. a weaker dollar may be good for american exports, but a stronger dollar could help bring down energy prices. wolfgang koester is c.e.o. of currency management firm fire- apps. >> i think that a lot of the economic factors are people starting to have for the confidence in the united states dollar than in other currencies. the play here is it's not as
week as other currencies. not meaning an a strong dollar but not as weak as others would think. >> tom: is the confidence well put in the u.s. currency at this point? >> i think if you're looking at a safe haven there had been a lot of discussions about is china the new current reserve currency for europe or switzerland and fact is that none of them could actually support the world economy with a reserve currency like the united states dollar comes and people are starting to see the reserve currency is still the us dollar. >> tom: is the dollar the may have been beneficiary of the problems we've any in europe. >> that and some commodity bases countries like switzerland. it's been interesting to even watch today as the vote is about to occur in greece you're starting to actually see the
euro strengthen which is a big surprise to me because structurally i don't think the euro is where it needs to be. >> tom: i want to ask about the euro in a moment and international business in europe is a big part of profits for shareholders. do they get hurt if the dollar rally is able to continue? >> if the dollar rally continues then what really happens is whenever you're selling a product in europe it tran trans to less dollar backs and if it goes to 140 you're getting 140 instead of 150 if you sold it for 100 euros. you're right. it's a little counterintuitive you would think it would be great for the united states but roughly 50% of the profits from abroad when they bring it back if you have a strong dollar you'll get less money.
it translates into less profitability for corporations not managing the risk properly. >> tom: and you mentioned the swiss frank earlier. we see the dollar continuing to weaken and the swiss frank benefiting because of gold and what not. what does this portend for u.s. investors? >> you've got a lot of corporations working through switzerland and these corporations need to understand where those exposures are. from an investor point of view if you have weakening gens the swiss frank it's a good thing. the swiss frank has been intervened by the central bank to sell it off because it's over heating their economy. >> ed: wolfgang always appreciate it from the nasdaq. wolfgang koester with buyer-apps.
>> susie: here's what we're watching for tomorrow: as we mentioned, the federal reserve's policy setting committee releases its decision and statement. then, fed chair ben bernanke holds a news briefing. we'll also see quarterly results from fedex and carmax. also tomorrow, hilary kramer is our "street critique" guest. email your questions to firstname.lastname@example.org. >> tom: the biggest changes to cigarette warning labels in a generation were announced by the government today. they include graphic images of diseased lungs, rotted teeth, and a cadaver. just over 20% of adults are smokers. the director of the center for tobacco products, dr. lawrence deyton, thinks there's an economic savings to scaring smokers to quit. >> almost $200 billion are lost every year in our economy directly related to smoking. >> tom: but morningstar tobacco stock analyst philip gorham says prices drives down smoking rates more than health threats. >> the decline of consumption is less linked to health scares;
wonders for the nation's charities. he's economist todd buchholz, author of "rush: why you need and love the rat race." >> charity and competition are two different worlds, right? charity is about tossing money into the plate; competition is about swiping the last cookie off the plate. woody allen said hollywood is such a competitive place, it's worse than dog-eat-dog-- it's dog won't return other dog's phone call. but in the u.s., we have become more generous, precisely as we've become more competitive. my kids come home and hand me pledge forms-- readathons, walkathons, swimathons, knitathons! and don't forget the susan g. komen race for the cure, raising $2 billion for breast cancer research. charities are more effective because competition forces managers to prove they don't waste money on fancy cocktail parties. by the way, low taxes spur giving. during the 1980s-- the maligned decade of greed -- the growth
rate for individual giving jumped 67%. giving lifts our spirits. when nerdy bill gates and warren buffett open their wallets, from certain angles, they even look chic and stylish-- almost. so when that kid jogs up to you breaking a sweat, please break open your piggy bank. you'll feel better and we'll all be better off. i'm todd buchholz >> susie: that's "nightly business report" for tuesday, june 21. i'm susie gharib. good night, everyone, and good night to you, too, tom. i'm tom hudson. good night, everybody. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: