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tv   Nightly Business Report  PBS  November 30, 2011 6:30pm-7:00pm EST

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>> susie: stocks rocket higher. the dow industrials surge nearly 500 points, closing over the 12,000 mark. the sharp rally comes as the federal reserve and other central banks make it easier for european banks to borrow money. >> it's a net positive for the global economy, but it's not going to be a game changer. >> tom: meantime, china makes it easier for its banks to lend money. the global effort to avoid another credit crunch. it's "nightly business report" for wednesday, november 30. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening, everyone. up, up and away here on wall street and in stock markets around the world today. a surge of buying powered a massive rally after the federal reserve and five other central banks teamed up to pump money into the global financial system. tom, investors everywhere cheered that united action. >> tom: the buying, susie, was dramatic, coming on the last trading day of november, which has been a tremendously volatile month for investors.
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stocks rallied right from the opening bell and never let up. all of the major stock averages were up by at least 4%. the dow skyrocketed almost 500 points, the nasdaq jumped 104 and the s&p rose 51. >> susie: so why was this worldwide effort such a market- moving event? and what does it all mean for american investors? erika miller explains. >> reporter: many european banks are starving for cash, so central banks around the globe are riding to the rescue. in an important show of unity, the federal reserve joined central banks in europe, canada, and japan to make it cheaper for european banks to borrow dollars. bank of new york's michael woolfolk says that speaks to the magnitude of the problems in europe. >> it does provide a backstop. it ensures the e.c.b. has the tools and liquidity necessary to endure a worst case scenario. >> reporter: the details of the program are fairly technical. from december 5 through february 1 of 2013, central banks will
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lower the cost of dollar swap lines by a half a percentage point. the important thing is that more dollars will be available to european banks at a lower price. >> the u.s. is unique in the global financial system. it's at the center of the financial system. in the current environment, the u.s. dollar is the first and the last currency for safe havens. >> reporter: the goal of the coordinated intervention is to try to prevent another global credit crisis. investors worldwide are worried about the possibility that some european nations might default on their debts, causing serious shocks to the global economy. the move comes on the same day that china cut reserve requirements for its commercial banks. that move is also designed to encourage lending and help the chinese economy, which has slowed recently. improving access to money helped shore up investor confidence today, but economist drew matus says the bigger worry is whether greece and other european nations will get a handle on their debts.
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>> i think what the fed does is buy a little more time, and it seems to be what everyone is in the game of doing lately is buying more time, so it's a net positive for the global economy, but it's not going to be a game changer. >> reporter: central bank efforts to help stabilize the bank system are likely to continue. the european central bank widely expected to cut interest rates next week, and there's growing expectation the fed could announce a plan to buy more mortgage-backed securities at its dec. 13 meeting. erika miller, "nightly business report," new york. >> tom: nick colas is the chief market strategist at convergex group. particularly the european action, nick, does it a dress the underlying problem of european government debt? >> it doesn't really. what it does is put a band aid over the near-term problem making sure the banks open every day for business, but it doesn't address the longer term impacts of the fiscal imbalances in it little or greece that still have to be resolved.
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>> tom: so if it does not help those governments pay their bills, help explain the big stock market rally we saw today. >> there's an old saying that you never want to fight the fed. meaning that when lower interest rate makes money easier to borrow, that tends to drive up stock price, and you don't want to fight the fed plus all the central banks that were involved in today's action, so it feels like investors are trying to figure out if they want the play this rally for more than just one day, and think that perhaps money will be easier over the course of the next month, perhaps we'll get a year end rally. >> tom: with that in mind does it raise expectations for more help from the u.s. economy for the federal reserve coming up in december? >> it does. what we've seen over the course of today and this morning is the fact that central banks are acting in a coordinated fashion, which means they probably have a play book that extend beyond just today's action into other activities such as some kind of kiwi three or other activity by the fed at their next meeting. >> tom: what about the chinese action lifting some
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restrictions on lending, is that a consequence of the slowdown in chinese exports? >> it really is more of a parochial issue to china specifically. they're trying to battle inflation while not letting their economy slide into recession. growth in china is really still quite strong, north of 6% even by the most pessimistic estimates. but at the same time they've been trying to clmp down on lending, and today's action is really an effect to try to fine tune the economy there to make sure it doesn't risk falling into a recession. >> tom: these two actions taken together at all change your outlook for the end of the year for the first quarter of 2012? >> i think at the very best you can saw that the central bank is going to do everything it can to make sure that markets stablize and perhaps move a little higher between now and the end of the year. but looking much past that, you can't be all that optimistic because you are city faced with the issues in europe and the essential threat of a recession in europe in the first half of next year. >> tom: finally, one of your investment strategies is the best performing sector so far
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this year is the utility area, xlu is the exchange traded fund here, how much higher do you think it can climb? >> i think utilities are one space that investors can feel relatively confident that they're getting a pretty good dividend yield, it very much of a bond substitute in the equity market and the we think that rates there continue to trend downward. so utilities one way to play that. >> tom: nice dividend yields there. do you or your clients own -- >> we recommend that they buy utilities and also technologies, the other end of a so-called dumb bell strategy that combine a high risk and will risk strategy to hopefully outperform the market. >> tom: our guest, nick colas with convergex. >> susie: despite today's big market rally, the job market is still weak and the housing
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market is still impaired. that's the upshot of the federal reserve's latest survey of regional economies. in its beige book, the fed says, "overall economic activity increased at a slow to moderate pace across all federal reserve districts except saint louis." meanwhile, hiring is looking a little better in the private sector. payroll processing firm a.d.p. reports 206,000 jobs were added to private payrolls this month. and a bit of encouraging news in the housing sector: contracts to buy homes hit their highest level in a year in october, rising 10.4%. but the national association of realtors says the gain doesn't signal a recovery, as it comes on the heels of a three-month decline. >> tom: still ahead, from facebook to farmville, are you working i.r.l.? don't worry-- if you don't know what that means, harry lin will explain. >> susie: we continue our look at the enron scandal, marking the tenth anniversary of the energy giant's collapse. for many, enron symbolizes more than one company's fraud. it's shorthand for many other concerns for the american public: weak regatioul questionable accounting
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practices and corporate corruption. as we continue our series, "enron ten years later," darren gersh reports congress is revisiting the tough corporate accounting rules it put in place to prevent another spectacular financial fraud. >> reporter: the images were riveting. top executives from a company that was once one of the nation's most admired taking the fifth before congress. congress responded to enron's fall by passing the sarbanes- oxley act, one most sweeping laws to tighten accounting rules and governance standards for corporations since the great depression. but that was ten years ago. today republicans, joined by some democrats and with some support from president obama, are marking enron's fall by easing the rules it created. new jersey republican scott garrett says sarbanes-oxley was a costly over-reaction. >> now, it's the 10-year anniversary, so its not like we're moving in a knee-jerk reaction in response to undo it, or to change it.
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its been 10 years to see how it played out, and we've seen that it played out pretty poorly. >> reporter: garrett is backing legislation that would exempt companies with a market capitalization of less than $350 million from the toughest sarbanes-oxley accounting controls. the president's jobs council suggested an exemption of up to $1 billion. securities law professor john coffee estimates that would cover roughly half of the companies listed on the new york and nasdaq stock exchanges. >> so we are seeing a cycle. there is a crisis. congress tightens controls. thereafter, the industry quietly lobbies step by step, cutting little slices off the salami at each stage to escape that regulation, usually saying it is costly and interferes with job creation. >> reporter: garrett says sarbanes-oxley cost far more than originally estimated and did little to improve the quality of corporate governance and audits. as proof, he points to the collapse of m.f. global and the 2008 financial crisis.
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>> the whole meltdown back in '08, it's a different risk analysis that you're looking at there, but it didn't prevent any of those companies from going through those problems. >> reporter: but a recent review by the securities and exchange commission found the costs of complying with the law is fairly small and has come down in the last four years. in addition, the s.e.c. says the rules does not chase companies offshore as the critics argue. supporters of sarbanes oxley say rather than relaxing corporate rules, they should be tighter, calling it all too easy to mislead investors with faulty financial reports. >> it's been very slow, though, and it's been very disappointing. in terms of how little has been accomplished, how little we seemed to have learned from enron and m.c.i., worldcom and the global financial crisis of 2008. >> reporter: regulators say exempting more companies from sarbanes-oxley will not save enough money to justify the increased risk for investors, but many members of congress believe the money spent complying with sarbanes-oxley would be better invested in the
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economy. darren gersh, "nightly business report," washington, d.c. >> susie: our next guest headed the securities and exchange commission when those new regulatory rules were written in the aftermath of the enron fraud. he's harvey pitt. he is now c.e.o. of kalorama partners, a consulting firm. hi, harvey, nice to have you with us tonight. >> good to be with you. >> susie: you heard our report. are we setting ourselves up for another fraud for scandal by repealing parts of the sarbanes oxley rules? >> i think that we're never going to prevent fraud just as a matter of fact. there are always going to be corporate scandals and people who think they can cut corners. we needed something, but what we need is not either more regulation or less regulation. we need smarter regulation. >> susie: well, you know, the s. e. c. has been criticized, you have been blamed for not having tough enough regulation in your tenure, and also then
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being weak on enforcing those rules. so we continue to have these cycles of frauds and scandals and financial crises. what do you say to that? >> first of all, we adopt dozens and dozens of rules, we performed the her kulian task aand met every congressional deadline. and the seeds of enron were sown in the 90s. i was in the job about four weeks when enron exploded. we took effective action and set records for enforcement action. but i was even more proud of our ability to help people understand what they had to disclose and how to disclose things, which i think is part of smarter regulation. >> susie: let me ask you, now that some years have passed, is there anything you would have done differently so that we might have been able to prevent the financial crisis of the last couple of years? >> i think there are things we could have done. we needed a better regulatory
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system. the current regulatory system is antiquated and outmoded, regular it's people based on -- regulates people on what they were born as. and we have a 300 page statute i that is full of all sorts of unintended consequences. they were very simple things that we needed to do, and could have done, and still should be doing. >> susie: like what? >> well, first, make sure that everyone who takes money from the public for investment purposes or has an effect on our capital or financial markets, is required to report continuously on significant data. second, make sure that the government understands that it has a responsibility to review that data, analyze it, and then get it out back to the market so that the markets are fully informed. and then instead of all this
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heavy handed regulation, what we needed were a series of trip wires that would have permitted regulators when they saw trends they didn't understand to say let's stop, look and listen, and figure out what needs to be done before the situation gets worse. >> susie: let me just jump in quickly. the american public has gts en to fed up with all these crises in the corporate corruption, and the questionable business practices. what needs to be done to restore confidence, and can you answer that quickly in half a second? half a minute. >> absolutely. the business community has to start taking responsibility for those among its members who are doing things they shouldn't be doing. >> susie: all right, we'll leave it there, a very heavy duty topic. we appreciate your coming on and talking with us. >> my pleasure. >> susie: we've been speaking with harvey pitt, former chairman of the s. e. c..
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>> tom: big and broad. that describes today's stock buying, pulling the dow industrials into positive territory for the month. with november closing on a big rally, the dow gained 0.75% this month. the buying today wasn't enough to erase losses for the s&p 500 and the nasdaq.
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the s&p 500 lost 0.5%. the nasdaq dropped more than 2% this month. today's move had some rocket fuel behind it, thanks to the action by the central banks today, making it cheaper for cash-crunched european banks to borrow u.s. dollars. on the big board, more than 1,800 stocks were up, while fewer than 100 declined. --400 declined on the nasdaq, almost 2,000 stocks advanced, fewer than 500 fell. the financial stock sector led the way today. this exchange-traded fund follows the sector, jumping more than 6%. still, it trades below its october high, and so far this year, the financial sector is the worst-performing stock sector, down 20% year to date. it was a mix of financial companies leading the sector today. regional bank regions financial jumped 14.5%. big bank morgan stanley closed higher by 11%. real estate management firm c.b.r.e. also gained 11%. the strength in the major sectors was mirrored by the strongest dow industrial stocks. j.p. morgan rallied more than
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8%, as did caterpillar. in the materials sector, alcoa was close behind, rising 7.5%. boeing stock jumped 5%, rising to its highest price since july. the jump came a day after american airlines declared bankruptcy, but the company has a tentative deal with its biggest labor union. if okayed, the union would end its objections to boeing building its new 787 dream-liner in at a new non-union plant in south carolina. today's action by the central banks led to a bit of a sell-off in the bond market, sending bond yields higher and prices lower. the closing yield on the 10-year u.s. government note finished above 2% for the first time since halloween. this is the past 30 sessions. commodity markets joined the rally. gold gained 2%. coffee futures rallied almost 4%. brazil's coffee crop outlook continues to get worse, and thanks to the china loosening bank reserves, copper prices ended up more than 5.5%. china is the biggest consumer of copper.
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the backdrop for the rally? the drop in the u.s. dollar. the dollar index saw a sharp sell-off after rallying to its october high. a cheaper dollar can mean more expensive commodities. and that's tonight's "market focus." >> tom: just when you thought interest rates couldn't go any lower, comes today's complicated action by the federal reserve and other central banks, effectively lowering interest rates for european banks borrowing u.s. dollars. tonight's "street critique" guest thinks interest rates have only one direction to go. he's bryan perry, editor of >> i guess if the national debt were to head down, then i'd say that's probably true,
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but i don't see that happening. i think we'll see the bond auctions have a hard time pulling in the same interest without raising rates. >> tom: so if your photograph is for higher interest rates borrowing cost, you're trying to take advantage of that with a fund, jro, owns corporate ious with the interest rates that can change. how much more do you see the up side? >> it definitely the place to be right now. i think the stock can head back up to 10.35 to 13. nice thick about it is trading at a 6% discount. so we're in the very early innings of the floating rate story here. >> tom: do you think it can move to a new high in the next 12 months or so? >> if rates go to from 2% to 4% then this fun was up 119% during that same period. >> tom: you also like energy this this environment where we're seeing higher interest rates. this is royalty interest in nat gas 'oil wells in texas, domestic production, went
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public at 18, now 19 and change. >> another great theme, on shore, oil and gas exploration, keeps us out of the gulf of mexico, gets our people out of the middle east and creates lots of jobs and high quality jobs. it's a real awakening there because of hydraulic drilling, which is getting though those deposits. oil production is up 20% in west texas, i think it's a great story going forward for on shore drilling and exploration. >> tom: i know you're in the a macro economist, but both these picks seem to foretell a stronger economy, don't they? >> well, i think we can do okay. but even a 1.5, 2% economy is fine. the p. e. r. is going to pay out 926789%, that's pretty steady even if you don't get i lot of capital gains, you'll probably beat the s&p 500. >> tom: how about disclosurees, do you or your clients have long positions? >> clients are long positions on both names. >> tom: you can e-mail us questions at
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bryan perry, editor of >> susie: here's what's coming up tomorrow: november auto sales are released, along with an update on manufacturing from the institute for supply management. also tomorrow, we'll see quarterly results from barnes & noble. it's one of the last major bookstore chains left in the country. we'll find out if sales of its nook tablet are helping its bottom line. goldman sachs c.e.o. lloyd blankfein may soon find himself under oath again. a judge says blankein can be called to testify in an insider trading civil case against former goldman board member rajat gupta. that trial begins in october. in april, gupta will be tried on charges he conspired to commit fraud with his friend convicted hedge fund manager raj rajaratnam. blankfein also testified at rajaratnam's trial. >> tom: online games giant zynga is on track for its stock market debut next month. the company is best known for internet games farmville and
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mafia wars. they are especially popular on facebook. it's preparing to kick off a much-anticipated roadshow to investors on monday. shares are expected to price on december 15. zynga filed for an initial public stock offering of up to $1 billion a few months ago.n, it's the most hotly anticipated tech i.p.o. of the year, after groupon.
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>> susie: as we spend more and more time online on sites like facebook and twitter, tonight's commentator says our real lives and our online lives are merging. he's harry lin, executive-in- residence at idea lab, a technology incubator in pasadena, california. >> there's an acronym used by some tech geeks called i.r.l. it stands for "in real life." you type "i-r-l" when you want to distinguish between the mediated, anonymous world of the internet and, well, real life. kind of ironic, huh? there's a fascinating tension in the internet between "real life" and our virtual lives. an increasing number of news- and-editorial sites force you to use your real identity if you want to post comments or ask questions. a lot of startup services force you to log in using your facebook account before you can do anything on their sites. and any number of smartphone services are tied directly to the real you.
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see, these businesses have decided that value is unlocked when you must be you online. however, at the same time that many internet businesses are forcing you to use your real identity, there's an ever- increasing number of places to be whoever you wanna be. from online multiplayer games to persistent virtual universes to music discovery networks to fantasy sports leagues, all these businesses foster what i call the "avatarization" of you. which makes for interesting identity confusion. is the facebook you the same as your you the same as your farmville you the same as your yahoo! finance you? real life is so complicated these days! i'm "the real" harry lin. >> tom: that's "nightly business report" for wednesday, november 30. i'm tom hudson. good night everyone, and good night to you too, susie. >> susie: good night tom. i'm susie gharib. good night everyone. we hope to see all of you again tomorrow night.
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"nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt captioned by media access group at wgbh >> be more. pbs.
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