tv Nightly Business Report PBS September 17, 2013 4:30pm-5:01pm PDT
>> five years later, is the mortgage market any safer are consumers protected more now than before the crisis? all that and more on "nightly business report," for safer ar consumers protected more now than before the crisis? all that and more on "nightly business report," for tuesday, september 17th. good evening, everyone, i am sue herrera. >> and i am tyler mathisen. welcome. it is almost here and the world awaits. the federal reserve kicked off two day policy meeting today. by this time tomorrow, investors the world over know whether ben bernanke and his fellow fed heads slow the pace of bond buying. now $85 billion a month, designed to help the economy. here is what the waiting looked like today on wall street. the dow adding 35 points. the nasdaq up 27, closing at a fresh 13 year high. the s&p 500 up seven, closing above 1700 the first time in five weeks and closed higher for the tenth time in the past 11
sessions. will they or won't they and what do the experts think will happen? just out today, a cnbc poll of wall street pros predicts the fed will pull back on stimulus plans by about $15 billion a month. as for when, a majority of respondents say they'll start tapering tomorrow. >> here with his perspective on tomorrow's announcement, chief strategist at black rock. welcome back, russ. >> thanks for having me. >> are you one that thinks the fed will begin ne taper, i so, biby how much? >> probably and i think a modest tapering, somewhere in the neighborhood of 10 to $15 billion. starting the process, also recognizing the economy is still moneta accommodation. >> withdraw monetary accommodation. >> russ, if this happens, what is likely to happen in the
market stocks and bonds, what should i do with my money? >> couple things. first, the amount of taper, based on the poll you referenced, i think it is well discounted into the market. if the fed goes back 15 billion, i don't think that will provoke much market reaction. there will be color around that guidance that might move investors one way or the other. the reality is we're in an environment, the economy is getting better, rates are likely to continue to rise, albeit a slow pace. this means a couple things for investors. overweighting equity versus bonds. with equity portfolios, look for stocks less rate sensitive, to more cyclical parts of the stock market. >> interest rates you said are likely to continue to rise, what kind of move up are you expecting, is it going to be slow and steady, if so, where's the ceiling on rates near term? >> i think it is going to be slow. now, steady may not be the right
word. as we've seen, we're likely to have more volatility in the bond market, giving investors adjusting to less monetary accommodation. we don't expect rates to melt up. we think rates will rise to three in 2014. the market can live with that, assuming it happens in the context of a normalizing economy. the risk is if rates back up too fast, and the fed knows this, you could stop the recovery. >> you mention avoiding interest rate sensitive stocks and leaning towards i believe you said more cyclical names. could you give us some examples without naming names particularly of where you find those interest rate sensitive stocks, where you find the ones you should lean toward. >> let's start with what we think you want to be cautious on. historically at least parts of the market that have been the most sensitive have either been
bond market proxy, stock that trades like bonds, utility companies in that category, and parts of the market where leverage is high. again, companies with high leverage levels are going to be more exposed, as the cost of money goes up. what typically is likely to do better? first of all, companies that are more resilient, and companies that will benefit in the form of faster top lying growth if the economy heals. in that category i would include technology companies, energy companies, also some manufacturing companies, particularly those that are likely to benefit from lower u.s. domestic energy costs. >> russ, we will leave it at that. thank you for joining us. chief investment strategist at black rock. and shares of the dow component microsoft ended only slightly higher, despite making bold moves and costly ones to attract more interest in its stock as the company prepares for a lot of changes in the months ahead. josh lipman has more.
>> reporter: this morning, microsoft announced a $40 billion stock buy back as well as boosting its quarterly dividend by 22%, 28 cents per share, the board approving the stock repurchase plan to replace the previous program set to expire at the end of the month. microsoft, known for shareholder friendly actions, paying a regular quarterly dividend since 2004. colin gillis covers microsoft, says he wasn't surprised by the relatively mooted reaction to the news. >> they increase the dividend, last year in september you got a 15% increase, this year it is a little stronger, 22% increase. but the yield is still stuck somewhere 3.4%. that's somewhere between a 10 and 30 year bond. better than the yield from owning apple who just started to pay a dividend, but lower than you get from owning intel.
>> coming with a lot of change, the software giant announced earlier this summer they would launch a major reorganization which would help shift the company focus to tablets and smart phones. earlier this month microsoft surprised analysts when they decided to buy nokia's device business in attempt to compete with apple and samsung in the global smart phone market. last month microsoft announced its long time ceo would be retiring during the next 12 months. the stock today moving higher on the news, now over 20% this year. last year remember it was up just 3%. that stock is currently on track for the biggest yearly gain since 2009. for "nightly business report," josh lipton. while microsoft grows, the federal deficit is expected to shrink. they expect the national deficit to decline to 2% of gross
domestic product by 2015 from the current rate of 4%. they also forecast it to rise back up to 3.5 of gdp by 2023, due to soaring health care costs for an aging population. another warning to congress from the treasury secretary, jack lew, telling congress waiting until the last minute to raise the debt ceiling could cause harm to the economy. >> if congress doesn't act and the u.s. suddenly can't pay its bills, the repercussions could be serious. the impact on families and businesses could be significant. investors losing confidence in full faith and credit of the united states could cause damage to our economy. >> the treasury is slated to hit the borrowing limit of $16.7 trillion about a month from now, mid october. between tackling the next debt ceiling deadline and the budget deal, congress has a lot on its plate that directly impacts the economy, the stock market, and your investment.
the big question is are lawmakers ready to work with president obama and can they really get any of these deals done. john harway joins us from washington. where do things currently stand? >> reporter: pretty bleak now, sue. there's still time for the house and senate to strike a deal on extending government funding that runs out on september 30th, but there's no sign of an agreement that can pass both chambers. the house is likely to extend a couple of months to allow negotiation, but attached to that de-funding or delay of obama care, demand of many conservative activists, that can't pass the senate. the question is how can they get something going that keeps the government funded and remember, two weeks after the government is supposed to run out of money, the debt limit needs to be raised according to treasury. that's an additional problem, a harder problem than extending funding. >> john, tactically speaking as you mentioned, the house gop are
tying actions to the de-funding of and some cases calling for repeal of the affordable care act. that's a nonstarter. when does that melt away as a tactical device? >> reporter: not clear, may melt away once the house caucus sees that it can't pass the senate, maybe it melts away once the senate advocates like senator ted cruz of texas try to get votes and run against a brick wall when they see it can't pass. some people think, i talked to democratic leadership aide today that said it may take a government shutdown with a lot of heat generated on the republican party. that's what both sides expect would happen if we have a shutdown before they will buckle, give up that demand. >> the president in his news conference yesterday, the rhetoric was strong. he is obviously very aggravated with inability to bring the two sides together. does either side have to soften the rhetoric, john, or try to reach across the aisle a little
bit to make some head way or is that really off the table completely? >> reporter: they have to get to a place where the offers or demands are things that the other side could conceivably accept. there's no possible way that the president named obama will accept the stopping of something called obama care. so that's not going to happen. the question is when the republicans discover that. republicans are not likely to pass a straight, clean cr or debt limit increase, cr being a continuing resolution extending government funding. so there's going to have to be something that change the dynamic that currently exists before we get a solution. >> very quickly, the president said he will not negotiate on the debt ceiling, right? >> reporter: he won't. he was burned by that in 2011. republicans were also burned and that is a memory that democrats are counting on that will impel republican leaders to at some point force members to accept a solution they don't want to accept now.
>> john, thank you very much. more on yesterday's deadly rampage at a naval facility that left 13 dead, including the shooter, who investigators now say acted alone. his actions are raising questions about government contract workers and the security clearances that give so many of them access to military or other sensitive bases. and ton pierson has more on what's being done. >> reporter: as civilian and military employees return to work at the navy yard today, the white house says it will review standards for government contractors after the shooting of 12 people by a contract worker with security clearance to be there. >> they're undertaking review of security clearance policy for certain contractors and i can tell you at the president's direction, omb is examining standards for contractors and employees across federal agencies. >> reporter: more than 4.9 million people in defense and homeland security have those clearances, according to the latest figures from director of
national intelligence. so how did the deceased gunman, 34-year-old aaron alexus with two gun related brushes with the law in texas and seattle as well as mental health issues get a security clearance that gave him access to a military facility in the heart of the nation's capital? it turns out the secret clearance for civilian it contractor is at the low end of the security bar, and security experts say given the sheer volume of background checks, alexis' profile did not set off any alarms. >> it is not that difficult to get a security clearance if you do not have major red flags in your background. if you have anger management issues but have not seeked treatment, if you have an arrest record that doesn't trigger any type of indications of violence, that there's nothing else in there, then there's no reason to deny a person a security clearance from a safety perspective. >> reporter: even with a security card, how did alexis
get a shotgun into the building? 52 convicted felons got access due to flaws in an access control system. a former national security official says in the end there's no substitute for hands on inspections. >> i think really it comes down to increasing random inspections, not trusting anybody 100%. understanding anybody at any time could in theory be a viable threat. >> reporter: whether it is the government or private employers, security experts say possible solutions include periodic background checks, perhaps even using social media, and having an emergency plan for a worst case scenario, a mass shooting event in the workplace. for "nightly business report," hampton pearson in washington. still ahead, jp morgan may be in trouble again. why does it seem different this
time? first, a look at how the international market closed today. gas prices have gone where they've never gone before. aaa says as of today, the average price at the pump has remained above $3 a gallon for the thousandth day in a row. if you're counting, the streak began december 23rd, 2010, since the average is now $3.52 nationwide, look for that streak to continue for a good long time. well, ty, now to the skies. boeing's newest took flight from seattle. this is the 7879, a longer
version of the original dream liner, designed to carry more passengers, 290, travel 300 miles further without refueling, allowing them to sell more seats on longer routes. for more, head to our website. safe way wants to prevent a hostile takeover. the super market developing a poison pills, allows existing shareholders to buy more at a discount price. hours before that was announced, head of janna partners exposed a stake in the company. shares gained 10% to close at $30.99. sycamore partners has taken an 8% stake in air oppose tal. they call the retailer an attractive investor and has a history of taking private and hot topic and tal bots.
shares soared 18%. beauty cosmetics producer coty reporting a higher than expected profit, then warned revenue may decline. they say u.s. customers are cutting back on purchasers, growth is slowing in europe. that sent the stock lower by almost 4% to15.64. andexperimental drug to treat double chinsits stocgo ro. that company went public just la walststreet journal reported that even as jp morgan chase prepares to pay upwards of $800 million in fines to settle regulatory charges, the bank may face criminal actions related to last year's so-called london whale trading fiasco. the paper says the fbi and manhattan prosecutors are collecting evidence that could
lead to criminal charges against the firm. the company could face yet a third action tied to the trades. that would come from the commodity futures trading commission which regulates derivatives. here to discuss the trouble the bank faces, former securities and exchange commission chairman harvey pit. welcome, good to have you with us. >> good to be with you. >> what's significant here, sir, apart from the size of the problem and settlement since it is massive, apparently the sec chair has to admit to wrongdoing. how big a deal and what will it mean to jp morgan. could they lose clients? >> i think it is a very big deal. they're going to admit they didn't discover the london wales trades quickly enough, and had lax procedures or lack of significant systems of internal control. those admissions will be used in subsequent proceedings that may
be brought against jp morgan, so this is a major new step for the sec, will have serious ramifications for jp morgan. >> as we said, they may face criminal actions, if the probes by the fbi and manhattan prosecutor's office bring them about and the ftc may do that. are there ramifications beyond jp morgan in the fact that they're paying a lot of money to make this issue supposedly go away, and having to admit some responsibility? >> i think there are ramifications. first of all, this tarnishes the reputation of the bank, which has prided itself on being very well run and has that reputation. secondly, i think for the sec this is going to elevate the standards that it will apply. $800 million in a collective settlement is a huge amount of money. getting admissions from jpmorgan
of the nature that are involved is also highly significant and it is going to raise the bar for future enforcement actions against banks. >> turning back now to something that happened five years ago, it is the fifth anniversary this week of the apex of the financial crisis. i want to get your perspective. do you think banks are safer today, markets fairer today than they were then, should ordinary investors have more confidence in the system overall? >> i would like to tell you that they should, but i think there are too many problems that we're witnessing. investors are watching the markets constantly being subjected to technological glitches. now, while the glitches are probably unavoidable to some extent, what is avoidable is not knowing how to respond when there's a glitch, and not knowing how to limit the amount of damage that can be done. it appears we're not learning a lot of lessons, and the sec
chair efforts to bring the exchanges together is a great first step, but we need a lot more ultimately if we're going to restore confidence. >> thank you very much as always for being with us. >> my pleasure. >> former sec chairman. with new lending rules set to take effect, is the mortgage market safer than before the financial crisis? a look at how things changed and stayed the same. first, a check on how commodities, treasuries and currencies performed today. only 98 days to christmas, and already predictions of slow down in spending growth.
shopper trak says retail sales are expected to rise less this holiday season than recent years because many customers are cautious with their money while the economy slowly recovers. five years after the financial and fiscal crisis and crash of the markets, new rules are set to take effect months from now. designed to protect borrowers and investors. some say it is the start of a safer mortgage market. others argue the nation is no better off than before. and that raises the question, can the housing market collapse again. >> reporter: we didn't need a sign or thousands of signs like these to tell us that during the housing boom lenders paid little attention to what their borrowers could and could not pay. >> somehow they're forgotten that rule. >> reporter: that's why congress added the ability to repay rule to the reform legislation.
all lenders must look at the borrower's finances to determine if they can repay the loan. >> i think we have gone full circle back to having the customer at the center of ability to repay. they can show they can have sustainable home ownership rather than necessarily having products that investors buy that may not make sense for the customer. >> we did not have this five years ago. >> reporter: wells fargo takes borrowers through clear steps to determine which product is right for them. >> this is specifically in reaction to what we learned from consumers about what they want to make good decisions. >> reporter: and there are new rules to protect lenders. the consumer financial protection bureau or cfpb created the qualified mortgage, a qm mortgage must meet federal standards, including that a borrower can pay no more than 43% of income on debt. the loan cannot have risky features that were popular in the last decade. a qm loan gives mortgage bankers
protection from borrower losses and can be sold to fannie mae and freddie mac. >> we created more rules and regulations to protect the consumer than have been applied in the history of mortgage banking today. are there going to be unforeseen risks? absolutely. >> reporter: that's where critics argue that qm by giving safe harr to lenders leave borrowers in the lurch again. >> if you get a certain kind of loan that meets certain terms, you have no recourse against the bank. that should never be the case. >> reporter: big lenders like wells fargo do the bulk of lending in the future under stricter new regulations but they can also operate outside them, it is perfectly legal. they just have to hold onto more risk. >> these are important changes for consumers. >> reporter: one of the architects of the new rules left the cfpb to start a firm that will lend to borrowers that don't meet qm standards. the loans will be more pricey. >> nonqms are the only place to
make decisions and bear the risk and reward where you can count on being paid for risk. that's where we are. >> reporter: that's where the greatest risk could lie in the future. >> i think we're going to see the worst behaviors in the marketplace are new breeds of companies coming into the nonqualified mortgage area, where they can see higher yields. >> reporter: the difference today is that mortgage investors have to have skin in the game. instead of betting on rising home prices, they have to ensure their borrower can pay, and face the consequences if they can't. for "nightly business report," diana olec. demine, iowa. >> what a concept, make sure they have to have the ability to repay. >> i hope they get it right. i don't want to go through again what we went through. we have seen several of those for our time. that's "nightly business report" for tonight. i am sue herrera.
for more on the business stories, head to our website. >> i am tyler mathisen. thanks for joining us tonight. have a great evening, everybody. see you back here tomorrow night. big fed day. >> yes. "nightly business report" brought to you by: saving through the heart, historic cities and landscapes on the river. get close to iconic landmarks, local life, to cultural treasures. viking river cruises, exploring the world in comfort.