tv Nightly Business Report PBS May 16, 2012 4:30pm-5:00pm PDT
>> this is n.b.r. >> susie: i'm susie gharib. the federal reserve's worried the u.s. economy is headed for a fiscal cliff. we look at what policymakers are saying now. >> tom: i'm tom hudson. pump prices continue to slide, and that could mean cash in your pocket this summer. >> susie: and when it comes to individual investors, will they or won't they buy the facebook i.p.o.? >> tom: that and more tonight on "nightly business report." they're could soon be more help for the u.s. economy. federal reserve policymakers say they're ready to step in with
more help if needed. the central bank released minutes from its most recent policy meeting today. they show policymakers are worried the u.s. economy is heading over a fiscal cliff. that cliff is the expiration of tax cuts and the start of deep spending cuts in the federal budget scheduled early next year. darren gersh reports. >> reporter: just like the rest of us, the federal reserve is waiting to see where the economy goes next. at its late april meeting, minutes released today show several members of the fed's policy making committee thought more bond purchases might make sense. "if the economic recovery lost momentum or the downside risks to the forecast became great enough." after the fed's last meeting, only a couple members felt that more so-called quantitative easing might be needed. so what are the risks for the american economy? deeper trouble from europe, for one. or trouble could come from the fed's neighbors in washington. if congress and the president can't resolve their difference
before tax breaks expire or spending cuts take holnext year, the fed minutes show bernanke and his colleagues are worried the fighting over the debt limit could hold back business and household spending. the fed also plans to tweak its messaging, considering how to tell people exactly what economic conditions would warrant keeping interest rates low through late 2014. darren gersh, "nightly business report," washington. >> susie: still ahead, our agriculture economy series is trucking on. grain prices are one of the best ways to check in on farming. we get an in-depth look from the head of grain futures at the u.s. intercontinental exchange. "nightly business report" is brought to you by: captioning sponsored by wpbt
>> susie: stocks u-turned on the minutes from the federal reserve, tom, turning early day gains into a fourth straight closing loss. >> tom: susie, the blue chip dow had been up nearly 100 points, but it closed down 33. the nasdaq fell 19 and the s&p off nearly six points. some early optimism on wall street came from an improvement in housing starts. home construction increased 2.6% in april. it actually would have been more, but march's numbers were revised higher. >> susie: joining us with more on those f.o.m.c. minutes: brian jacobsen, chief portfolio strategist at wells fargo funds management. hi, brian. as you heard our reporting, several members of the federal reserve are ready to add more stimulus into the u.s. economy, what everyone is calling qe 3. do we need it? >> i'll be perfectly honest with you, i don't think that the economy really needs
another dose of quaunity tateive easing. the previous ones did a little bit to important the financial markets, they did a little bit to bring down interest rates. but if the fed attempted to do anything now, i don't think it would have much of an effect. the problem is that it's not a lack of liquidity in the financial system that's the problem, it's a lack of job creation that's the problem. >> susie: but it also seems another problem is that the fed is very concerned about what's going on in europe. to what extent do things have to get so bad in europe that the fed would be prepared to take some action to prop up the u.s. economy? >> well, i think that what the fed would really do isn't so much to prop up the u.s. economy, because if you look at some of the trade data only about anywhere from 1.7% to 4% of the u.s. gross domestic product depends upon trade with europe. if the fed were to act i think it would be more to support the financial system. so it would be something along the lines of what they are currently doing with the swap
lines with varied central banks, basically providing dollars to foreign banks instead of having to provide dollars to u.s. banks. so from an economic perspective, the fed, their hands are really tied. there's not much they can do right now to prop up the economy. all they can really do, i think, is do no harm. >> susie: and it sounds like the fed and you are me focused on what's going on over here on the u.s. economy. based on what you learned from the fed today, are you more optimistic or pessimistic about the outlook for the economic recovery and the job market? >> yeah, a lot of it really does unfortunately depend upon what the fed has identified as the fiscal cliff. i tend to identify it more as being a tax wall that the economy can hit, because i think that better focuses on what some of the issues are. it's more a matter of will payroll taxes go up for all working americans next year. will we suddly have an increase in income tax rates, capital gain tax rates,
dividend tax rates, those are inhibiting job creation. although believe it or not i am optimistic that despite some of the dysfunctionality coming out of washington d.c. over the past few years they will be able to come to some sort of agreement to at least punt the problem into next year and not have the economy hit that wall. >> susie: so a lot of questions hanging over the u.s. economy and what's happening in washington. what about the stock market, doesn't like this kind of uncertainty. what's your take on where stocks go from here and will we see a summer rally with all of these question marks hanging over the market? >> i think we could see a summer rally if there is some sort of agreement coming out of washington. but unfortunately i'm not optimistic it that will happen this summer. it might have to you wait until after the election until there's more of a definitive answer from the voters as to which direction they would like fiscal policy to go. so i'm expecting a continued choppy and stormy summer, a lot like what we had last year, unfortunately, although hopefully not with the same debt ceiling drama that we had
to contend with then. >> susie: all right, fasten your seat belts, thank you so much, brian jacobsen of wells fargo. >> susie: oil prices slid for four strait sessions on worries about a drop in global energy demand and mounting crude supplies. in new york trading, oil prices dipped below $93 a barrel. that's the lowest level in six months. erika miller takes a closer look at what's driving that decline. >> reporter: there's good news for anyone heading out on a road trip this memorial day: gasoline prices are down 23 cents from
last year. the even better news? they could fall another 23 cents in the next few weeks. regular unleaded is averaging $3.73 a gallon nationwide, but lipow oil associates is expecting a drop to $3.50 by the end of summer. but there is also some bad news: worries about the global economy are fueling the decline. >> what's driving prices lower is the instability in the eurozone and the uncertainty that austerity versus growth. what will happen to the euro and the eurozone, and how will it affect and ripple through the rest of the world? >> reporter: especially china, the world's second largest oil consumer, which is already seeing a slowdown in economic growth. there's another factor that could help push down prices: a glut of crude supplies. >> u.s. production is going up dramatically. in north dakota, all around, the success of hydro-fracking and the fracking story has increased supplies dramatically.
>> reporter: crude inventories are now at record levels at cushing, oklahoma, the delivery hub for u.s. futures contracts. typically, lower prices at the pump are good for the economy, but they may not matter much this time. >> the beneficial efforts of lower prices are probably being offset by the increase stress in financial markets, by the likely weak growth in u.s. export partners. so, overall, its a bit of a wash. >> reporter: of course, much depends on how fast prices fall. if gasoline drops another 25 cents this summer, it would mean roughly ten bucks in savings a month for every car on the road. erika miller, "nightly business report," new york. >> tom: the federal reserve issued what amounted to a warning to congress and the white house; that if lawmars n't rge a deal over expiring tax cuts and mandatory spending cuts due to take effect next year, it presents a sizable risk to the economy. tonight's "street critique" guest is looking at how this fiscal cliff could impact corporate profits.
adam parker, the chief u.s. equity strategist at morgan stanley. so adam, what is the impact on the corporate profit outlook for next year? >> well, the analyst estimates are for 12.5% earnings growth for the s&p in 2013, and accelerating and improving set of engs that they arele beding, despite the fact that the way the law iswritten now that fisc cliff could be 5% impact on gdp so, we think that's inconsistent and the risk is negative to those estimates. >> tom: so you're saying that wall street is too optimistic that corporations and their profits, their bottom lines can with stand the fiscal cliff. so what's the likely jut come? >> we think the earnings estimates have to come down, we think they are too optimistic, and we repositioning the portfolio defensively in light of that. >> susan:. >> tom: one of those defensive areas you're going overweight is health care, etf's to illustrate your ideas here, ma whaix you like health care in this environment? >> it's really three things.
it's estimate achieve ability, we think the broader markets are too high, there will be less risk in places like pharmaceuticals. number two it's, the stocks are quite cheap versus history. and number three it's the capital deployment, they offer pretty high dividends relative to the 10-year interest rate or the broader market. >> tom: always nice to get paid while you're waits aring for cap pal appreciation. what about the supreme court and the coming decision on health care reform, could that impact health care and provide volatility for that sector? >> certainly could, i think most professional investors have heard of the cliff, they're aware of health care reform and the good news is the analyst estimates generally don't accelerate in that sector. so i do think if you compare health care to another classicly defensive sector like staples, it's never ever been cheaper, so some of what those issues could be is discounted in the stocks today. >> tom: looking at things that consumers need. but you're under weight things that consumers want, the
consumer discretionary sector. in this environment what makes you shy away from consumer stocks like this? >> it comes down to that estimate achieve ability point, the analyst estimates really accelerate for increasing profit margins next year, obviously the consumer will have some difficulty in places like department stores or casual diners, spending the amount of money for those analyst estimates actually prove to be realistic. so we're more cautious where we think the estimates are too high. >> tom: energy prices though have been coming down, that's been putting more money to stay in the pockets of consumers. could that provide an up side surprise? >> it certainly could. i think gas at the pump is a potential positive. but it's always about the starting point, i would have argued it would be an impediment two or three weeks ago. so i'd say yes it's better than two or three weeks ago, but it's really more about the jobs data, the wage data, the hours worked, the savings rate, et cetera, that i think makes it hard for things like department stores, select
apparel and restaurants to really act well, particularly relative to an increasing set of expectations of. >> tom: do you have any positions in the funds we ntioned, adam? >> no, i do not. >> tom: our street critique guest, adam parker, thanks, adam. >> thanks, tom, have a good night. >> susie: the clock is ticki to what's expected to be the biggest trading debut ever: the facebook i.p.o. demand is so heavy, the company today boosted the size of its offering to more than 400 million shares. but will investors buy in? facebook fan, jerome cleary, has never bought a stock in his
life. that will change this friday. >> i've read things that say you should invest in companies you like or know. and i know this company very well. i really decided this is going to be my big splurge. >> susie: but a study by motley fool sho individual investors are divided on whether facebook is a buy. 30% say they'll wait this one out; they're worried about the business model. they say it's overvalued, and others say there's just too much hype. but 26% are ready to buy in. they like facebook's unique position in the advertising market and say it's giving google a run for its money. still, 42% are undecided. >> i really think it's just more of the experience of seeing these i.p.o.s come and go, and ey understd th there wil be so much excitent oundhe facebook i.p.o. that they're willing to let the air, kind of, get out of the bubble before they go thinking about investing in facebook. >> susie: facebook shares could price as high as $38 tomorrow night. the company begins trading on
friday. c.e.o. mark zuckerberg will ring the nasdaq opening bell remotely from facebook headquarters in menlo park, california. >> tom: not a lot of excitement to own stocks through the day today. the early day buying interest dried up by this afternoon, sending the major stock indexes lower, deepenin t selloff we've seen this month. let's get you started with our market focus, begining with the s&p 500. initially, stocks found buyers this morning with the s&p 500 touching its best level of the day before 11 am eastern time. by the time the federal reserve meeting minutes were released, and their worries about expiring tax cuts and government spending cuts, the index already had gone red. the drop continues pushing the index back to prices not seen since february, down 6% from its early april high. the financial and materials sectors caught the brunt of the selling, down more than 1% each. the tech sector, which had been one of the big winners this year, was down almost 1%.
but a stand-out against the weak market today was general electric. during the financial crisis, g.e.'s huge financial division was waylaid, helping contribute to the company cutting its dividend. but that unit now has the federal reserve's okay to pay a dividend to its parent company, encouraging investors that g.e. may raise its shareholder pay- out. shares jumped more than 3%. volume more than doubled. g.e. financial business will pay a $4.5 billion special dividend to its parent firm later this year. the company's board is scheduled to next consider g.e.'s dividend in december. we saw lots of activity around two retailers today as investors reacted sharply to disappointing first quarter results. first, j.c. penney losing a fifth of its value today after losing more money than feared in the first quarter and suspending its dividend. this is penney's lowest share price since october. teenage clothing seller abercrombie and fitch fell 13% to a new 52-week low.
the company blamed europe for revenues coming in short of expectations in the first quarter and for dropping its sales outlook for the year. an in-home test for h.i.v. is one step closer to drug store shelves. a u.s. food and drug administration advisory panel okayed the test kit made by orasure. it's using a swab of your mouth, and it's already used by health care professionals. if it gets final okay, this would be the first at-home h.i.v. test. >> it's a significant opportunity both for the company as well as for public heal. the opportunitfor the company, obviously, is being the first test and the only test available. we can raise awareness and en current people to buy the product for that purpose that will be grit. we have our operations in place, manufacturing is in place. we've met with the retailers, we believe that we're going to have broad distribution upon launch. >> tom: michels, the c.e.o., says they're targeting 65% margins, in what could be a $500
million a year market. shares took off today in reaction to the expected final approval, raising 20%. volume exploded 23 fold over its average. one of the main beneficiaries of all the uncertainty surround greece is the u.s. dollar. and while the dollar continues climbing, commodities remain under pressure, especially gold. the precious metal fell to a ten-month low today, settling at $1,536 an ounce, down more than $20 today. and down more than $250 from its late february high. money has been coming out of silver as well. silver is at its lowest price since january of last year, a 15 month low. our exchange traded fund market flash, down across the board, led lower for the financial sector and emerging markets funds, down about 1.5% each. and that's tonight's "market focus."
>> tom: all this week we're looking at the agriculture economy and the most direct way to check in on the health of american farmers. look at prices, look at grain prices, corn for instance, corn is trading around $6 a bushel, while that's down from last summer's high around 8, it's almost double what it was going for two years ago. benacks ithe chief operating officer of ice futures u.s. tshs intercontinental exchange began trading agricultural futures for the first time this week. why decide to tray ag product
now when a competitor, the cme and board of trade in chicago has been doing it for more than a century? >> thank you for inviting me here. so we decided to launch our grain contracts alongside our long standing agricultural contracts in sugar, coffee, cotton, cocoa and orange juice, based primarily on custom demand. wer inundated with customers that asked us to provide an alternative venue to trade these types of products. >> tom: so who are those customers, growers, speculators or overseas traderss? >> no, it's primarily the customers, the commercial interests. so think of your large farmers, your small farmers, your grain silos and el variouss, all those types of markets came to us asking us to provide an alternative venue. th ase recve tat type of support, it branched out from there to banks, market
makers, brokers and other market participants that you would need to have a contract like this be successful. >> tom: you get that lick quidity that you need and you're still trying to build the volume. to that point when speculators like banks and funds get involved, have ag products overall like corn and soybean futures become more financial assets than sirm my commodities? >> no, they are commodities and they have a very specific utility. th theare utiliz f in the trade. what they fundamentally do is they help to give predictable prices for producers and consumers of all kinds of goods that we consume every day. so for that burrito you may have for lunch and the price of that tortilla that's made in that, the input costs of corn associated to making that would be very volatile to the end consumer and that price would be very volatile to the end consumer if the producer of that commodity wasn't able
to use a futures contract to give more predict ability on the cost of that input into their production. >> tom: will it be interesting to watch here, the fight for volume and business, when it comes to agriculture trading between the ice and the cme board of trade, weeping watching. ben jackson with the intercontinental exchange. >> susie: our look at the agriculture economy continues tomorrow on "nightly business report." from the cows to the production line, we meet the people behind the petaluma creamery, a family farm and cheese making business thriving in california's wine country. >> tom: as we reported earlier, the federal reserve is worried about government inaction on the u.s. debt problem and the impact on the economy. tonight's commentator has a plan for balancing the books. he's bob pozen, former chairman of m.f.s. investments. >> after the november elections, congress will face a fiscal cliff.
the expiration of various tax cuts, together with automatic spending reductions, could take $500 billion out of our fragile economy in 2013. to avoid this disastrous result, congress will need to pass a ten-year package of revenue and spending measures which will gradually put us on the road to fiscal discipline. the core of this package should be a progressive reform to social security, which currently faces a long-term deficit of $8.6 trillion. we can dramatically reduce that deficit by slowing the growth of social security benefits for middle and higher earners, while making sure that these benefits still grow least as st as consumer prices. but we should maintain the current schedule for low earners who depend entirely on social security for their retirement income. unlike wealthier workers, most low earners don't participate in heavily subsidized 401(k) plans or i.r.a.s.
since the financial prospects of social security have recently gotten worse, its reform should be a key part of any legislative package to avoid a year-end crisis. such gradual reform would be far perior to e sudden shock of automatic cuts. i'm bob pozen. >> susie: and finally tonight, your wallet may be the only thing downsized by skechers "shape ups" toning shoes. so says the federal trade commission. the agency reporting today that skechers will pay $40 million to settle accusations it made deceptive statements about it's toning shoes. skechers has advertised the shoes by saying they help customers tone muscles, lose weight and even improve cardiovascular health. one ad even prisedo he wearers get in shape without setting foot inside a gym. the f.t.c. says the claims aren't backed by science. >> either shape up your
subject standing yation or tone down your claims. the standard is direct ask clear, any health benefit claim requires current ask reliable scientific evidence. >> susie: skechers denied the claims in a statement today but said they settled to avoid the cost and distraction of a legal dispute. to see if you're eligible for a refund, go to www.skecherssettlement.com. there's no magic bullet, you've got to go to the skbrooim jooim, right? >> doesn't matter what kind of shoe, it what you do when your foot is in the show and not the shoe itself,. >> suzanne: i. >> susie: have a great evening. >> tom: good night, susie, and everyone. we'll see you online at www.nbr.com and back here tomorrow night. "nightly business report" is brought to you by: