tv Nightly Business Report PBS July 20, 2012 6:30pm-7:00pm EDT
>> this is n.b.r. i'm susie gharib. tom has the night off. stocks slide as spain cuts its growth forecast. global strategist nick colas joins us with an update. i.p.o.s were a brightspot. strong market debuts today from palo alto networks and travel site kayak. a look at whether i.p.o.s are making a comeback. and just two years ago, president obama signed the dodd frank financial reforms into law. a look at how that's changed the financial landscape. that and more tonight on "n.b.r.!" two new tech i.p.o.s debuted on wall street today and investors
gobbled up shares of both, despite a wave selling in the broader markets. online travel company kayak software gained 28% to close at $33.18 a share. kayak upped its i.p.o. price last night and raised $91 dollars with the offering. meanwhile, shares of the security software firm palo alto networks soared almost 27 percent in their market debut. today's offerings cap off a busy week for i.p.o.s and suggest the market for new deals is back. suzanne pratt reports. >> reporter: two months ago, facebook and it's feeble public offering cast a dark shadow over the i.p.o. market. deals were pulled and investors got nervous. kayak software was supposed to price in may, but following facebook's flop it delayed its plans. on the other hand, palo alto networks said facebook didn't scare it away. today, palo alto's ceo was
pleased with his company's debut. >> we're happy with the way we priced this stock and you know we look at things on a long-term basis. so we like to see it up today, but we're thinking about the future. >> reporter: thanks to facebook and volatile global markets only a handful of i.p.o.s happened in june. yesterday, guitar maker fender postponed its i.p.o. citing current market conditions. while the i.p.o. dealmaking may not yet be back, some say it's healing. >> the i.p.o. market certainly isn't dead. companies that are able to grow revenue and earnings consistently and are in the early stages of the growth cycle, especially within the healthcare, consumer and technology sectors, those should continue to do well. >> reporter: thursday, facebook releases it first quarterly earnings since going public. no matter how the numbers go, facebook's i.p.o. troubles are expected to have little impact on the i.p.o. pipeline going forward. suzanne pratt, "n.b.r.," new york. >> i'm sylvia hall in washington.
still ahead, a new government report shows the private market for student loans operated a lot like the sub-prime mortgage market last decade. we break down that report. "nightly business report" is brought to you by: captioning sponsored by wpbt >> susie: stocks on wall street fell today, breaking a three-day rally. worries about europe's debt crisis dominated trading on word that spain's government said its economy will remain in recession next year. the downbeat forecast came on the same day that spain received approval for its first round of bailout money from european finance ministers. the dow tumbled 120 points, the nasdaq fell 40 and the s&p down 13. those economic problems in europe will weigh on the u.s. economy.
that's the forecast from tonight's market guest: nick colas, chief market strategist at convergex group. nick, worries about europe have been on the back burner. are we back to worrying about europe again? >> i'm afraid we are. we got that news out of spain this morning which just brings home the fact that the economies of southern europe, spain, italy, obviously greece, are weak, and all the efforts to install austerity are going to make them weaker. so it's on the headlines. >> susie: what do you make of the forecast from spain. how much is it going to spread to other countries in europe? >> well, it certainly was not a great surprise, i think. i think the market took it poorly because it came on a light volume friday. i'm not sure the market was all that surprised that spain is in recession for longer.
it's big for the concern of europe policy making, and how much appetite do do the germans have to write large checks to keep the euro zone together. that's the critical political question markets wrestle with now. >> susie: and also worrys about what the recession, and a slowing european economy means for the u.s. you were telling me earlier that there's a likelihood the u.s. economy k go into a recession. >> absolutely. we're not really decoupled from the rest of the world even though the u.s. economy is doing better than many parts of europe. the critical linkage is what happens to large multinational companies. a lot of them have large operations that experience losss and need restructuring, and how companies sppd to that challenge in u.s. operations to maintain the overall level of profitability will be a critical driver. promises to wall street, to investors. they want to keep those promises, and if it means cutting back on u.s. costs we
can go down that path. >> susie: what's your take on oil prices? we've seen oil prices going up for a while ask now coming down again. is that a positive, the fact that oil prices are going lower? is that a positive for the global economy? >> oil prices going down help the consumer in the u.s. in the near time because we buy a lot of gasoline in this country. it's important part of the budget. however, from a capital market standpoint you want to see oil rise because it indicates confidence in the economy. confidence is what investors lack. see oil prices rise would be a hope for growth in the back half of the yor. >> susie: as you know, nick, we've had a lot of testimony from fed chairman, bernanke this week and he had a pessimistic look on the economy. everyone is focused on the july 31st fed meeting. is it a matter of -- should we just count thalt fed is going
to have to do something based on the forecast and all the problems in europe? >> yes, absolutely. i think you hit the nail on the head. most of our large customers at convergex are concerned about the next fed meeting and looking for bernanke to come to terms with quantitative easing. that's the next critical catalyst for markets. the job market is slowing down, and the market is looking for the fed to come in and provide additional stimulus and hope that takes hold in the back half of the year. >> susie: all right, nick. thanks a lot. nick colas, chief market strategist at convergex group.
>> susie: happy anniversary dodd-frank. that landmark reform of the nation's financial system celebrates its two-year anniversary tomorrow. since president obama signed the dodd-frank act, the legislation has grown to over 8,800 pages of rules and regulations. but there are still many more rules required by the law that have yet to be written. still, many industry watchers think we're now better prepared to handle a financial crisis. >> banks have built capital, they've rebuilt capital. they're stronger hopefully. they're risk management practices are improved, it's a stronger system. >> susie: our washington bureau chief darren gersh reported on the ups and downs of passing the dodd-frank bill and he joins us now. so, darren, do you agree with that news, that the financial system is better off, better prepared, stronger through all of this? >> well, i think part of it is the key word.
hopefully. >> yes, to a degree it is stronger. the honest answer is, we're not going to know for sure if the tools work until we have another financial crisis, maybe from spain -- we hope not. regulators have new tools. they can look at insurance companys and hedge funds and other places they couldn't look before for trouble. they can also wind down firms. they couldn't do that with lehman, now thigh have the authority to do that. conservatives will say regulators have too much authority to wind down firms and that causes its own problem. >> susie: you know, the one thing that i hear a lot of from ceos and bankers is that all these rules and regulations are holding back companies from growing, and it's putting a strain on the economy. i don't know what you've heard. is that a fair to say, that dodd franks is hurting the economy? >> we hear it. i hear the same thing that you
do. but i have to say, it depends who you talk to. you talk to the u.s. treasury they say bank lending is up 15% since crisis began. that's want evidence that there's a problem there. you talk to other people, macro economists, and they don't really get the dodd frank. they talk about the overall economy, and europe. a lot of people say banks would lend to people, but only to people who don't need money with really great credit. so they're very risk averse. >> i think it's fair to say this is a lolt lot of regulatory clogs, and giving people jobs writing rules. hard to judge that. >> susie: and more rules to come. the one thing that people at home want to know is has the way of dog business in the banks and the financial institutions khiefrjed? as the culture changed? what is the attitude toward taking risk?
has that changed? what's your sense? what are you hearing? has the culture changed? >> that's a great question. here's what i was told today. banks when they look at making investments and decisions they start to think about regulations. some say good, they're being more careful. they're thinking about what they can and can't do, and maybe after what we've been through, we want banking to be a quiet boring business again. other people say no, like the ceos are saying it's innovation. the real challenge is striking a balance between risk taking, safety, and you know, a vibrant economy. hard to do. >> this debate is going to go on for a while, darren, and you're going to be covering it for us. thanks so much. >> many more birthdays. >> the terrible 2s. darren gersh reporting from washington. one agency that came out of dodd frank, the consumer financial protection bureau.
today it released a report on private student loans and revealed surprising details about loans issued before the financial crisis, and it offers ideas to reform the industry. sylvia hall reports. >> reporter: from scholarships, to grants, to federal loans, there are plenty of ways to get here. but what happens when they just don't cover the cost of college? for eternanda fudge, the answer came directly from a private student lender, offering a loan with an 11% interest rate. >> i just said, yeah, sure. at that time, i just needed, you know. i needed to get through college. >> reporter: she left college in 2009 with $33,000 in private student debt. now, it totals more than $80,000. >> don't do private loans. if you can't afford it, find another college. >> reporter: but college students do take out private loans and a government report issued today, says early in the 2000s, those loans were being issued, bundled and sold to investors just like sub-prime loans. but lenders didn't always explain the terms of those loans to borrowers and they didn't
consider whether borrowers could repay them. >> they didn't always verify that the student was actually enrolled. they didn't necessarily check that the student wasn't borrowing too much money or that they knew about their other cheaper federal loan options. >> reporter: those practices propelled the private student loan market from $5 billion in new loans in 2001 to more than $20 billion in 2008. but that lending fell just as quickly. last year, private lenders originated less than $6 billion in student loans. and students are still struggling to pay it back. all told, there are more than worth more than $8 billion. analysts say lenders are now being much more careful. >> especially with the lessons they've learned, they would be much more strict about who they give money to. >> reporter: but regulators say they'll be watching.
>> we're going to be monitoring the market closely to see how things shake out. as you know, the financial markets are rapidly changing and capital markets conditions could evolve such that new products develop, and we'll be looking closely at it. >> reporter: even though fewer private loans are being issued these days, total private student debt is still growing. the consumer financial protection bureau is urging congress to re-think its stance and allow private student debt to be discahrged in bankruptcy. sylvia hall, "n.b.r.," washington. >> susie: 20 million people
using direct-tv can now watch m.t.v. and their other favorite programs. after a ten-day blackout, viacom channels like m.t.v., nickelodeon and comedy central were restored to the satellite service early this morning, when the companies reached a deal on program fees. directv had balked after viacom demanded a 30% jump in pay for its channels. the companies didn't put a number on today's seven-year deal, but insiders estimate those fees will rise by 20%. >> susie: shares of both viacom and direct-tv were down on the news in sync with the downbeat mood on wall street toy. as we mentioned worries about europe's financial mess resurfaced today, overshadowing recent good news on corporate profits. today's selloff put a damper on the gains we've seen the last few sessions. for the week overall, each of the major averages saw their gains cut to less than 1%. many big name companies reporting earnings today. general electric.
posted slightly better than expected profits, but results were still down from the same period last year. g.e. says solid demand in emerging markets and the u.s. helped offset weakne in europe. g.e. earned 38-cents a share, a penny ahead of expectations. general electric stock was up fractionally, close to $20 as shares try to find their footing since their peak in june. xerox also talked about europe, saying depressed demand took a toll on its business during the second quarter. the maker of copiers and printers earned 26-cents a share in line with expectations. sales for the quarter were a little lighter than what wall street was predicting. since january, shares of xerox are down 16%. today they fell nearly 7%. the latest numbers from two oilfield services companies paint a different picture. schlumberger and baker hughes both reported results that topped wall street forecasts. shares of both companies gained on the session with baker hughes t posting a 9% gain.
and taking a look at the oil markets today, prices for west texas crude and brent fell, after rising steadily for the last several days. investors sold oil futures on concerns about slower economic growth in the eurozone and what it could mean for oil and gasoline demand. one oil trader says he sees crude prices stabilizing at lower levels. >> near term, we're going to ease back a bit. i think we're probably going to be in the high 80s, maybe 85.5, maybe 87.5 will be where we are going to settle back here. until then, i don't see any reason for us to go much higher. we basically overshot our objectives here. >> susie: last night we told you about chipotle's disappointing sales growth. the upscale burrito maker blamed a cautious consumer and slowing u.s. economy. today, chipotle shares got burned. they fell almost $100 in early
trading, but they were able to cut their losses and end the session down $87. restaurant rivals starbucks and panera bread also lost ground in today's trading. the past few weeks we've been and if you're planning a european summer vacation soon, you could be spending less money. the euro fell as low as $1.2143 against the u.s. dollar, its weakest level against the greenback in about two years. and finally, taking a look at e.t.f.'s, they were all lower across the board. and that's tonight's market focus.
>> susie: "the worst news about the economy is in the rear view mirror". so says our market monitor tonight, he's kurt reiman head of thematic research at u.b.s. wealth management research. hi, kurt. you know, it's hard to be confident about the outlook for the economy after hearing our earlier guest, and talking about recession. why are you so upbeat? >> i don't want to paint stereo rosy -- too rosy a pict but we've seen the economy weaken in the second quarter, and we think the worst is behind us. we saw it globally whether china or the euro zone, but looking in the united states, is woe think we'll get about a 2% growth rate for the second half of the year, and that's going to be spurred on by bank lending and lower gasoline prices and real disposal income turning up in the
united states, and the fed appears to be accommodateive if need be. this suggests a better half. >> susie: against that backdrop, you are recommending to clients four sectors you think they should be investing in, let's take a look. you start with energy. why do you like energy? >> first off, i think you can say that with the energy sector, it's underperformed this year significantly, and even back 52 weeks. and oil prices started to turn around. that should be good for the energy companies and we think structurally we have a story around north american energy independence which supports u.s. domestic energy companies and keep if mind they pay a pretty good dividend and grow it consistently over time. >> susie: as you heard earlier, the forecast for oil
prices coming down to the $80 level, would that change your view on energy as an investment? >> no, it won't. we think there's a risk that oil prices can move lower because it's oversupply. but the next year and beyond, oil prices will be higher than where they close today. >> susie: move on to the next sector, technology. we've seen strong earnings from technology this week, when you look at google, ibm and microsoft. what's the attraction here? >> technology is one of the cheapest sectors that we see in the s&p 500. a lot of corporate spending going on to boost productivity and remain competitive. they're buying right into the i.t. sector across the board, whether it's software or hardware, semiconductors, all of these are supported by corporate. and we have to keep in mind, the second half we're going to see a product refresh, lots of different product tac are exciting and consumers and business will be part of this. and the technology sector has a lot of cash on the balance
sheet and are paying it out in dividends too. >> susie: you also like the consumer sector. in particular, consumer staples. things like food, beverage, household product companies, classic defense investments, right? >> that's true. the first two seblgtor sectors cyclical, but the defensive part of this portfolio which is the consumer staples seblgtor is one that pays a consistent dividend, grows it over time, and then importantly, we have additional exposure that the stable sector has versus emerging markets. emerging markets there's better growth, so u.s. companies with strong brand presence and a foothold in emerging markets, we think will do well. >> susie: less than 30 seconds. consumer discretionary. last sector, cars, appliances,
apparel. why is this compelling? >> it's a diverse sector. we're focused primarily within the modeia subcomponent of consumer discretionary, and what we're thinking is that there's going to be a fair amount of corporate spending going on in advertising budgets, and also, we think about the overall consumer, the discretionary sector. if we have a better economy in the second half, that should support it, and with lower oil prices, lower gas prices. that's a good thing. >> susie: thank you, curt. kurt reiman of ubs. all this week on "n.b.r.," we've been looking at the impact of immigration on the u.s. economy. tonight's commentator wraps up our coverage. he's adam looney, policy director at the hamilton project. >> immigrants now make up 12% of the u.s. population, the highest level in almost 80 years. so it's natural to ask how this affects the job opportunities of american-born citizens. the consensus of the economic
evidence is that on balance immigrants actually increase the employment and incomes of americans. immigrants are 30% more likely to start a business, three times as likely to engage in research that results in patents, and almost twice as likely to earn a ph.d. but it's not just high-skilled immigrants who contribute to increased economic opportunities. even less-skilled immigrants help expand the use of our natural resources, increase the productivity of american craftsmen, and lower the prices of key services for american consumers. american businesses grow in response to immigration by opening stores, restaurants, or production facilities; for them, more workers translates into more business. of course, immigration policy is determined by a variety of considerations. however, the economic evidence is clear, and it suggests that immigrants contribute to our nation's prosperity. i'm adam looney. >> susie: and finally, being able to successfully describe
what you or your company do is key to succeeding in business. tonight, lou's been thinking about the art of the elevator speech. here's author and educator lou heckler. >> do you ever have trouble so what is your elevator speech? this is the description you give when someone meets you on an elevator, or at the grocery store, a school function with your children or grandchildren, at your place of worship. what do you say? a long-time colleague of mine suggests that you combine a brief naming of your job with an example of a recent project. i might say, i am a business speaker and writer. just recently i spoke at a major bank conference and talked about how to get the best from people around you. one of my favorite elevator speeches came from a friend in california who is a successful financial advisor. he says, i'm a financial advisor, but what i really do is help people sleep at night. have some fun this next week by asking the people who work for and with you write down how they'd like to describe what your organization does. limit each person to one sentence. i can't wait to hear your elevator speech. i'm lou heckler.
>> susie: that's "nightly business report" for friday, july 20. have a great weekend, everyone. we'll see you online at nbr.com and back here monday night. "nightly business report" is brought to you by: captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org vo:geico, committed to providing service to
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