tv Nightly Business Report PBS May 28, 2010 6:30pm-7:00pm EDT
and can have a significant impact even on the world's price of oil, depending on what's going on with supply and demand out there. >> susie: oil prices could spike if new drilling in the gulf of mexico is delayed beyond the obama administration's six month time frame because of the b.p. disaster. >> tom: that blown out well continues gushing thousands of barrels of oil each day despite new efforts to cap it. you're watching "nightly business report" for friday, may 28. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible
by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. president obama saw for himself today the economic and environmental damage caused by last month's massive oil disaster. tom, the president visited the louisiana coast and he said dealing with the catastrophe is his highest priority. >> tom: susie, mr. obama pledged to increase the manpower in the area by a third, adding to the more than 20,000 people currently working to contain and clean up the crude. he toured a beach to see how the coastline has been affected by the oil spill, now in it's 39th day. meantime, late today b.p. once again stopped it's so-called top kill procedure to stop the gushing oil. the company says it won't know until sunday if the strategy working. >> susie: the disaster reaches
beyond the gulf, it might be felt in the form of higher oil prices. it could happen, some say, as the u.s. takes a go-slow approach to new offshore exploration. as jeff yastine reports, the impact on prices could be felt for years to come. >> reporter: prepare for another impact from the deepwater horizon accident: higher energy prices. it's not the rupture of the well itself that's going to influence prices, but a six month extension of the moratorium on new deepwater drilling projects, declared yesterday by the obama administration. bernstein research predicts if the moratorium continues for a year it would cut global oil supplies by 500,000 barrels a day between 2013 and 2017. that may not seem like much, but it's nearly the margin right now between world oil production-- at 84.1 million barrels a day-- and world consumption-- at 83.7 million barrels a day. that extra half million barrels a day, says the american petroleum institute's rayola dougher, could make all the difference if and when the u.s.
and world economies began to gain ground again. >> that is a significant impact, and can have a significant impact on the world's price of oil, depending on what's going on with supply and demand out there. right now we have plenty of supply on the world market, but we have seen in the past how rapidly that excess capacity can be sopped up by growth in the economy. >> reporter: the moratorium comes at a time when deepwater production in the gulf makes up an increasingly large portion-- nearly 10%-- of total u.s. oil production. there will be other costs associated with safer deepwater drilling. the bernstein report expects new regulations to raise the price tag of new deepwater production by about 10%. u.s. drillers will get hit first, but if the new tougher regulations become the worldwide standard, then offshore producers everywhere will need to pay up as well. another casualty of the deepwater horizon accident. jeff yastine, "nightly business
report," miami. >> tom: drilling rigs in the gulf of mexico produced 80% of domestic offshore oil and nearly half of the nation's natural g supply last year. while the moratorium on new drilling applies only to deep water platforms, the safety recommendations given to the president this week also apply to drilling in shallow water. stephanie dhue just returned from a rig in the gulf, finding life has changed since the b.p. explosion as the industry awaits the new rules. >> reporter: life on a rig has a rhythm. the crew works 12 hour shifts-- 12 days on, 12 days off. driller david pardon has been in that groove for six years. he says the b.p. catastrophe has brought new tension to the job. >> it's put a lot stress on this industry, everybody's concerned with how things are going to turn out, as far as government policy and restrictions that are going to be placed on this industry. >> reporter: oil gushing uncontrolled into the gulf 5,000 feet below the surface has cast
doubt about the industry's ability to operate safely. can offshore drilling be done safely? >> yes, ma'am without a doubt. >> reporter: the rowan drilling company has 24 rigs in its fleet, nine operate in the shallow waters of the gulf of mexico. kent lanier supervises the rowan mississippi, which is drilling for natural gas in 20 feet of water. he says safety takes vigilance. >> the well's always talking to you, the guys are taking the flow rates, the pump strokes, monitoring all the systems during drilling, and it's constantly talking to you and you need to rely on what it's telling you, it's up to you to interpret that and it's up to you to put the safeguards in place to prevent any kind of incidents from happening. >> reporter: in the last 60 years, more than 45,000 wells have been drilled in the gulf, almost all of them in water less than 1,000 feet deep. this shallow drilling taps known and more predictable formations, where gases are under less pressure.
>> one of the key differences between deep water drilling and shallow water is this: the blowout preventer, called the bop in the industry, in shallow water it sits on top of the water's surface. >> reporter: but drilling in shallow water doesn't mean it's safe. equipment failure and human error can happen no matter what the water depth. the 30 day safety report by the interior department recommends re-certification of all blowout preventers, stronger well control, and more safety training for rig workers. while safety is critical, rowan president david russell still wants deep water drilling to be part of his company's future. >> i hope that we're not all painted with the black brush and because of hopefully a one time event, i hope that b.p. and our government is able to contain the spill, get the spill stopped quickly, and that we're able to move forward. >> reporter: moving forward in
deeper water is on hold for at least six months. the investigation into what went wrong on the deep water horizon will determine whether the risk is worth the reward. stephanie dhue, "nightly business report," in the gulf of mexico. >> susie: here are the stories in tonight's "n.b.r. newswheel." rekindled worries about european debt pushed the markets lower. the dow fell 122 points, the nasdaq lost 20, and the s&p 500 was off 13. selling picked up after fitch cut spain's credit rating, saying the country's efforts to cut debt would weigh down economic growth. big board volume was a touch above yesterday's pace. on the nasdaq, volume was slightly slower. americans kept a close grip on their purse strings last month. consumer spending was flat, the weakest showing in seven months, according to the commerce department. incomes rose slightly, helped by a gradual turnaround in the job market. still ahead, tonight's "market monitor" focuses on how longer- term trends affect the economy
and financial markets. he's kurt reiman, head of thematic research at u.b.s. wealth management research americas. >> tom: next month, the federal reserve will test what may be a way for it to reverse some of the emergency lending during the economic crisis. the fed announced today it will hold its first auction on june 14 on term deposits. these work similar to a traditional bank certificates of deposit. but in this case, a bank loans some of its extra cash to the fed for a short period of time. initially just 14 days. the fed then pays an interest rate back to the bank. and for the time the money is at the fed, the bank can't use that money. the effect is designed to begin draining some of the cash the fed pumped into the banking system during the crisis but the fed says these tests have no near-term implications for its interest rates. >> susie: as we mentioned earlier, jitters about financial problems in europe continue to weigh on financial markets.
and the crisis which began in greece is being felt in greek communities and businesses here in the u.s. the queens section of new york city has one of the largest greek populations in the country. it's home to krinos foods, north america's largest importer, distributor, and manufacturer of greek foods. erika miller started there in her quest to see how financial problems in greece are affecting u.s. businesses. >> reporter: if you are looking for massive amounts of olives, vats of yo gurt or a whole barrel of feta cheese, krinos foods has it. the company manufacturers, imports and distributes mostly greek products world-wide. the owner says ongoing strikes at greek trucking companies means frequent delays of vital supplies. how are you doing business differently now than you were, say, a few months ago before this crise erupted? >> we're accelerating shipments
to build inventorys in anticipation of having some suppliers that will go out of business or that will be unable to ship on time. we're coming to the aids of some of our suppliers with financial assistance. we've dealt with many of them for decades and don't want to see them go under. >> reporter: the greek financeial crise is not just affecting businesses. many people who work here have family and friends living in that country. he spent much of his childhood there and his entire family still lives there so he worries about their safety. >> i'm concerned about some of the civil unrest, which we don't read about in the papers. there are crimes on the rise. people are getting very frustrated and nervous, and that's a source of concern since my family is there. >> reporter: he is not the only one. according to the last census data, queens is home to 46,000 people of greek heritage. convenience store owner nicole says he is doing whatever he can
to support businesses back home. >> we would like to help them, anyway, but it's sometimes over your head to help your native country. >> reporter: how do you help? >> we buy greek products. >> reporter: over at the neptune diner, the greek crisis is a major topic of conversation. some customers hope greece will encourage foreign investment, creating new business opportunities. the owner of titan food says he's optimistic greece's austerity measures will put the country on better economic footing. >> i believe the greek people will prevail and greece will eventually be a better country. >> reporter: so you think something good might actually come of this? >> yes. grooks used to say all bad comes with the good at the end of it. >> reporter: so it's clear the impact of the greek financial crisis is not limited to that country.
touching businesses and lives 5,000 miles away. erika miller, "nightly business report,". >> susie: billionaire investor warren buffett will testify next week before a federal panel looking into the financial crisis. but it took a subpoena for him to agree to do it. berkshire hathaway says its chairman turned down earlier requests to appear voluntarily. buffett will be joined by the c.e.o. of moody's, to be questioned about credit ratings by the financial crisis inquiry
commission. berkshire owns 13% of moody's. tom, i think it's fair to say may was a volatile month and i understand you have a recap of all the ups and downs. >> tom: the dow industrials in better than a year. let's take a look at tonight's market focus. >> tom: the month began weak with worries about europe, and it ended much the same. one big day of buying didn't quite make up for four down days dow the dow industrials. for the week, the dow was down 0.6%. the dow has been down four out of the past five weeks. thursday's big rally was enough for the nasdaq to claim a gain for the week. the nasdaq was up 1.3%. that buying on thursday also pulled the s&p 500 into positive territory on the week. it was up 0.2%. all the major stock sectors
finished the month in the red. leading the way lower were those sectors heavily tied to the global economy. energy, industrial, and basic material stocks were the three biggest losers for the month. the s&p energy sector saw double digit losses. the industrial and material sectors each fell almost 10%. the weakness in energy comes as president obama temporarily banned deepwater drilling and b.p. continues struggling to control its spill. the ten biggest percentage losers on the s&p 500 were all energy companies today. halliburton led the way, falling 8% to new six month lows. since the oil rig explosion last month, h.a.l. stock is down 25%. driller baker hughes was next, falling 7%. it was the worst energy performer in may. diamond offshore drilling hit a new 52 week low on today's sell- off. and f.m.c. technologies works on wellhead and underwater systems for offshore rigs. it dropped almost 7%.
not all were losers in energy, though. driller nabors was the best performing stock of the s&p 500, jumping 3.5%. what may set nabors apart is it gets only 4% of its drilling income from offshore work. more than a third of its drilling profits come from land drilling in the lower 48 states. shares have caught a bid since the middle of the week, lifting them from seven month lows. stocks were weak throughout the day as spain joined greece and portugal in having its credit rating cut. even though its bonds remain investment grade, it served as a reminder of the problems in europe. stocks of big exporting firms got hit. here's a three month chart for dow chemical. about two-thirds of its sales come from outside u.s. shares hit their most recent low in early may, before the rest of the market. today, d.o.w. stock was down 4%. these three happen to be members of the dow industrials. 3m, caterpillar, and boeing are global giants. and each fell at least 1.5% today.
one big winner and one big loser. blue coat systems is the loser. it is a computer network security and management firm. shares lost a quarter of their value. wells fargo cut its rating over worries about the company's european business. this is the stock's lowest price since last fall. and, the winner: c.k.x. this is the company that owns the rights to the american idol brand as well as the rights to elvis' image. shares took off, jumping more than 22%. it has received a buyout offer. the reported price tag is around $600 million. tonight, the company has a market value of just under $500 million. and finally, with the wild swings in the market, there was just one initial public offerings this week. a medical testing firm genmark diagnostics. it was a tough opening even after it cut its i.p.o. price down to $6, and still fell. and that is tonight's "market focus".
>> susie: employees of japanese automaker toyota will be burning the midnight oil at the copy machine. a federal judge today ordered the company to turn over up to 100,000 documents dealing with problems of unintended acceleration of its cars. it's part of a huge class action suit. the plaintiffs are looking for information that toyota knew the cars had problems but sold them anyway. the judge gave the company 30 days to turn over the english- language documents, 60 days for the ones in japanese. >> tom: here's what we're watching for next week. our friday "market monitor" guest is bernie schaeffer, chairman of schaeffer's investment research. we'll also see auto sales for may and may's employment report. monday, the markets are closed
for memorial day. we'll bring you a special program "a guide to buying bonds." you'll learn the basics about the advantages and risks of investing in bonds. >> susie: toys r us today filed paperwork to go public again in a move that could raise $800 million. the retailer was taken private five years ago by three private equity firms. going public again in this turbulent market could be a dicey move, and experts say the filing is a trial ballon to see if there's investor interest. the filing didn't include the number of shares to be sold or a price range for them. >> tom: still no progress tonight in talks between british airways and its striking cabin crews. negotiations broke off with no agreement and no date set for any new discussions. the unite union is planning another walkout beginning sunday and running for five days. the labor strife has already cost british airways more than $63 million and grounded about half of its flights from london's heathrow airport.
management research americas. he joins us from new york. welcome to "nightly business report", kurt. >> thanks for inviting me on the show, tom. >> tom: an historic month of may finally on the books. what's your view of the market here after this month? >> it definitely was a tough month. we saw heightened rick aversion as investors clocked out of equitys and into safer-haven assets like gold and government bonds. we started off the year with very strong momentum, momentum turned, and certainly last month was clearly a sign of that. and now coming into the rest of the holiday-shortened weekend, we can certainly take a pause and take a breather and look at the markets now and have a chance to reflect. >> tom: maybe a well-deserved time-out at this point ahead of the holiday. it clearly was a risk-off idea in the month of may, out of stocks and other assets into more safer ones. what kind of longer term trends do you see playing out here? >> one of the things that we did see coming out of the financial crise was growth in advanced
economies was going to be structurally lower because of factors like lower consumer spending and less spending on residential construction. another one was this issue that government debt and deficits in advanced economies that was needed to bail out economies, but, of course, that creates stranz on the ability to finance this spending. and we see that this has come fast forward in the euro area where today governments are trying to figure out austerity measures and whether this is going to lead to a potential break up of the euro zone and we found signs the economic recovery process was losing momentum. that's also another weakening factor that markets had to digest. >> tom: and we saw them digesting and materializing a flotof folk fleeing safety into u.s. government bondss and i.o.u.s. what's your view of the bond market these days? >> well, recently we've de-risked our portfolio. we scaled back our equity position to-- first from an overweight to neutral weight
back in april, and then we recently scaled back that even further and put some of that money into cash. in the government bond mark, we're also seeing yields on roughly on it the 10-year treasury of 3.28 doesn't look attractive. if you add in the process of cyclical recovery and the risk of the strtural deficits and debt we're seeing accumulated by governments, that also poses a risk to government bonds. so we remain underweight in that sector as well. >> tom: you're not shying away from all i.o.u.s. we're going to take a look at an e.t.f.. you do like corporate bonds. why is that? >> within the fixed income states we are focusing on the investment grade segment of the market because corp raamerica does look strong, balance sheets look good, earn investigation turned higher. the yield pickup we can generate in the investment space, again, stwik higher quality names, higher rated seg am segments to us makes sense at this point. >> tom: the ticker is l.q.d. despite problems in europe you mention earlier, you ragoing
overseas and looking for opportunities but in emerging markets, e.e.m. following this sector. what makes emerge markets interesting? >> the emerging market story is one of continued strong economic growth and also we have to remember that emerging market governments emerged from the financial crisis relatively unscathe. they haven't racked up the kind of debt lose that advanced economys have experienced so we think growth is more sustainable. there's a chance for them also to get the earnings needed to support this and we think the valuation and equities look compelling right now. >> tom: kurt, as you know energy has been in focus all month since the deepwater horizon explosion in late april. energy say sector you like. how do you approach the energy space, even with all the activity still happening in the gulf? >> well, in the energy space, what we've seen is a sharp decline in the-- in that particular sector of the equity market. it is a cyclically expose sector, and we do like a mix of
cyclical and defensive sectors and one we're focusing on right now is energy because we have to admit valuations have improved. some of the regulatory results that are going to happen as a result of the spill in the gulf, we think have been mostly priced in, and we're also looking for higher oil prices throughout the course of 2010, which should also support the energy sector. >> tom: how high, by the way, what kind of price? >> we're looking for about $85 on average for the year on balance. >> tom: any disclosures with the e.t.f.s? >> no, no disclosures for me, neither myself nor my immediate family owns any of these e.t.f.s. >> kurt reiman joined us. >> susie: and finally tonight, june is traditionally wedding season but before you walk down the aisle, you might want to work out a budget. a new survey done by visa shows nine out of ten married couples believe they overspent on some part of their nuptials. the big ticket items like food, clothing, and a honeymoon were
the biggest places people thought they coughed up too much cash. the average wedding runs about $8,700, one of life's most expensive events. amazingly, tom, the survey also found that some people claim they spent nothing on their wedding. how did they do that? how does that happen. >> tom: maybe a memorial day barbecue at a friend's place. i'm not sure how that happens. >> susie: maybe a seen of the nufrl galt we keep talking about that's "nightly business report" for friday, may 28. i'm susie gharib. good night everyone, have a wonderful holiday weekend. you too tom. >> tom: good night, susie. i'm tom hudson. goodnight everyone, we hope to see all of you again monday night. "nightly business report" is made possible by: this program was made possible
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