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tv   First Business  KICU  July 29, 2013 4:00am-4:31am PDT

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couldhow bond market swings cod soon affect college costs. in today's cover story, the fiscal fiasco in detroit: why the city is spending millions when it's supposedly broke. plus, meals on the move: why food imports are sparking new safety measures. and, how americans lose money by avoiding the stock market. first business starts now! you're watching first business: financial news, analysis, and today's investment ideas. good morning! it's monday, july 29th. i'm angela miles.. in today's first look: the emphasis is on the economy this week. the federal reserve, the central bank of england, and the european central bank all meet on what's being called "super tuesday." trading volumes in the stock market could slow down ahead of the
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fed's announcement. friday, the dow bounced back from a 150-point drop to gain 3 points. the nasdaq edged up 8 points, and the s&p tacked on 2. gold picked up 4 dollars, and oil fell 80 cents. at the pump, gas prices are on a slow drip. a gallon of unleaded is 4 cents less than about a week ago. and, as backdrop to trading, israeli and palestinian negotatiors meet this week in washington for peace talks. we are off to the races on this monday morning with scott bauer of trading advantage. good morning, always good to see your face on our show. thanks for coming on, and what do you expect ahead of the fed? we have a big fed meeting happening this week. - not only fed meeting, but just a slew of economic reports. and you know, the market actually finished strong last week on the heels of some earnings which weren't really
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that great, but the market was really resilient. i think we're going to see early in the week probably a little bit lighter volume, and a little bit of complacency coming into the reports in the fed later in the week. and then i would expect volatility to rise up. - and it could rise on the jobs number coming out on friday. are you going to be positioning for that early on? - i really am focused on a few earnings stocks, and then the fed on wednesday, and as we get later in the week, i'll position myself and really look to see what the momentum of the market is doing. now, all signs indicate that we are going to get a good number still, and the market, really there are so many indicators that are looking like the market is still going to grind upwards. - going upwards. what do you think about earnings here? you mentioned that you're very focused on earnings now. what names are on your list? - a couple from last week that i think are unbelievably interesting were... amazon for sure. on friday- earnings were actually out thursday night- on
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friday morning, the stock was down $15, $20, whatever it was, because they were disappointing. the stock rallied back and was just so strong. we saw that with google a week or so ago, also, where it came out, earnings were light, revenues were light, stock was down considerably - rallied back. so some of these big tech stocks are just incredibly, incredibly resilient. this week, we have about 20% left of the s&p 500 companies. i think we're going to see a very similar pattern. probably decent earnings, light on revenues, but the market's holding in there. - thank you for coming on, scott. - thanks angie. it's setting up to be a cautious trading week. traders are in a waiting game with the federal reserve. the two-day fed meeting kicks off tomorrow and curiousity continues as to when the fed might pull the plug on its bond-buying program. meanwhile, reports say president obama will announce a replacement for outgoing fed chair ben bernanke in september. rumors are circulating democrats are
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pushing for current fed vice chairman janet yellen to take over the post. jp morgan may be moving toward a break-up. friday, reports surfaced that jp morgan chase is pursuing strategic alternatives for its physical commodities business. it follows a recent new york times report the bank has warehouses filled with commodities such as gold and aluminum and may be inflating prices. the federal reserve said last week it's re- visiting a 2003 decision allowing banks to trade commodities. "for people who cover the fed, this was a one-sentence statement on the one hand, but on the other hand, it really showed how this surge of media attention surrounding this was creating political pressure. up until now, the fed wouldn't really even acknowledge that it was reviewing morgan stanley and goldman sachs' commodities activities." according to cnbc, jp morgan could spin off or even sell its commodity assets. jp morgan says it's committed to traditional banking.
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a major bank in the uk may be scrambling to come up with capital. the wall street journal reports barclays plans to raise billions in new money to cover a $10 billion deficit. the bank reports earnings tomorrow and may reveal plans to issue convertible bonds and new common stock to boost capital levels. congress votes wedesday on student loan interest rates. the senate overwhemingly approved a bill last week calling for millions of students to pay 3.9% in interest this year. going forward, the interest rates undergrad students pay on stafford loans will be connected to the 10-year treasury. we turned to ben lichtenstien of trader's audio for his thoughts as a bond trader. "you have the potential and you're always going to go through these swings where the market migrates away from value and then back to value, whether it be to the upside or the downside. i mean, that's the market's job, is to find the value area. but in the process of finding that value area, the
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market always overshoots one way or the other and then kind of corrects itself. i think that there is a concern that potentially a student loan could be impacted by these market swings." although the student loan measure is likely to pass in the house, critics are stepping forward, including senator elizabeth warren, who says it's morally wrong that loan deal will allow the government to generate $184 billion in profits during the next decade. even as the u.s. economy improves, college enrollment is dropping. in 2012, new student enrollment fell 2%, the largest decline in two decades. in some cases, adults who returned to school during the recession are back at work. the new york times says for-profit and community colleges are those affected most. however, this fall nonprofit schools are expected to see declines that could continue for years. ivy league schools will likely see no impact. greece appears to be making progress with budget cuts. european union officials are expected to approve the latest bailout for greece today. next on the calendar, a meeting in
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athens this fall with officials determining whether the greek government is on track to meet its 2015 budget. organized labor is appealing to the white house and congress to save the pensions of retired city workers threatened by detroit's bankruptcy filing. our cover story takes a look at what's next, including a chance that motown may become no-town. in the 1950's, detroit was america's fifth largest city, with 1.8 million residents - and motor city built nearly all the cars sold in america. 60 years later, competition from japan and europe has cut the big 3's u.s. market share by more than half. gm leads at 18.1%; ford, 16.5%; and chrysler, 11.6%, for a combined 46.2%. "where detroit went wrong was not diversifying their industrial base, the manufacturing base. that's what went wrong." detroit's population is now 700,000, spread out across 140 square miles, some neighborhoods, barely populated. now, faced with a shrinking tax base, cutbacks in detroit's share of state funds and $18.2 billion in unfunded liabilities - $3.5 billion in pensions - detroit could no longer borrow what it needed. pensioners say don't blame them. so far, michigan's governor says pensions will remain intact for six months. "but after that, it's all in the hands of the judge. and what
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he'll decide is unknown." but economist lawrence officer thinks it's unlikely pensioners will be first in the line of creditors. "there's a good reason for that. you've got to pay bond holders first. if you don't, they'll never finance detroit again." anticipating a potential bailout request, republicans in congress are trying to block all attempts legislatively. but it may not come to that. "the administration and emergency manager have been saying detroit doesn't need a bailout." michigan's governor is forging ahead with public funding of a $450 million hockey arena for the detroit red wings, owned by billionaire mike illitch. the governor says it will create jobs and business. critics say perhaps, but at the same time, artwork from detroit's museums may be sold. "the law says these are assets that the city may use to pay them off."
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one possible solution is for detroit's surrounding suburbs to share the burden of public safety and municipal works - the beginning of blurring the line between where detroit ends and its suburbs begin. halliburton is pleading guilty to destroying evidence in the 2010 deepwater oil spill. the company will pay the maximum $200,000 fine, and donate $55 million to the national fish and wildlife federation. the justice department charged the drilling company with deleting data related to the spill. shares rose friday on halliburton's plan to buy back $3 million in stock. airlines in europe are taking preventative measures with boeing dreamliners. the faa is asking airlines to inspect or remove the jet's emergency locator transmitters. the part is linked to the fire aboard an ethiopian airlines 787 at london's heathrow earlier this month. also, united airlines is the second airline to uncover a damaged wire in the emergency transmitter. japan's all nippon
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airways was the first. boeing faces a $2.7 million fine from the faa for failing to fix issues on its 777 jets within a set time period. deckers, the company famous for ugg shoes and boots, is hitting the skids. the stock fell more than 9% friday as the company disclosed a suprising decline in sales in the ugg brand. deckers also cut back on marketing in the first half of the year. overall earnings results, however, came in better-than-anticipated. shares of black and decker powered more than a dollar higher as earnings topped estimates due to strong growth in the do-it-yourself and industrial construction business. samsung is taking the top spot from apple in terms of profits from handsets. samsung's second-quarter operating profits hit $5 billion. that trumps apple's profits of $4.6
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billion, according to a report. samsung's sales are due to large inventories, high wholesale prices and tight cost controls. analysts say that apple is under more pressure now to launch more iphone models at cheaper prices - and with larger screens. pepsi is dropping the word "natural" from its "naked" line of juice drinks. the beverage company is paying $9 billion to settle a lawsuit that claims ingredients in the juices are not all-natural. pepsi says it adds vitamins to some of the drinks, but according to the lawsuit, the vitamins are synthetic. consumers are eating more meat -specifically, hamburgers. according to restaurant consulting firm technomic, 95% of americans chow down on burgers at least once a month. also, more restaurants are moving away from the dollar menu mentality, and are offering higher-quality beef. still to come, should you fear what you eat from overseas? why the fda sees a need for new rules. plus, why the sac insider trading case is critical to
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federal regulators. and, how americans lose millions over trust issues with wall street. that's next, after this "in the know" message.
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the sac saga continues! the hedge fund that manages billions of dollars pled "not guilty" to criminal charges, including securities fraud and wire fraud. sac capital says it never encouraged insider trading and abides by securities rules.
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however, the indictment mentions how sac capital founder steven cohen sold his multi- million-dollar stake in dell computer within minutes of receiving an email warning of low earnings. "now that there are criminal charges being levied against the actual company, which is very, very rare - the last time this happened was with arthur andersen, the accounting firm for enron - it's to be seen whether firms like goldman sachs, morgan stanley or jp morgan can actually justify trading with one of their best customers." that was antoine gara, reporter with he says that while the firms are loyal to sac now, their compliance departments could change that. it's well documented: most americans fear putting money into the stock market. greg mcbride of is with us this morning. good morning, greg, and where are people stashing cash? - alarmingly, angie, when we asked people "for money that you're not going to need for 10 years or more, where do you think the best place to invest
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it would be?," 26% said "cash." that was the most common response, and that's very alarming, because not only do people not save enough, but the fact that they're going to put that meager savings in a very conservative investment that's not going to grow their buying power over time is going to leave a lot of people well short of where they need to be for those long-range financial goals. - where else are they putting their money? - real estate was the second most common response, which is a little troubling, too, just because that's very cash- intensive and very difficult to diversify, particularly when you're talking about modest sums to invest. precious metals was the third most common - an asset class that's absolutely been pummeled this year. "stocks" was well down the list
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- only bonds came in behind stocks, and that one's pretty understandable given the meager rates of return and the volatility we've seen in bonds in the past couple months. - this is unbelievable, greg. so when people put their money in just the bank, or, say, a money market account, how much do they get back? what's the rate of return? - the rate of return is a fraction of 1%. even those that are shopping around and seeking out the highest-returning investments, you're maybe earning 1% on your cash, which is below the rate of inflation. we have low inflation right now, and even now you can't keep pace with it, and that really highlights the real danger of putting long-term money into a very conservative investment - that you won't maintain, much less grow, that buying power over time. - clearly people are afraid of going to the stock market. now we have this case with sac, where there was alleged insider trading happening. do you think
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this will be just one more reason for people not to get involved with stocks? - yeah, there's definitely a carry-over from the financial crisis - a lot of people feeling burned not once but twice by the equity markets between the dot-com bust, the financial crisis, and then just sort of the feeling that people are fighting an uphill battle. whether that's correct or not, it's another reason why people are staying on the sidelines and favoring conservative investments. - how are people feeling about the economy? - much better, actually. we saw for the fifth consecutive month consumers say their financial security is better relative to where it was a year prior. it's currently at the second-highest level, and we're really seeing this on multiple fronts, so it's not just a reflection of the housing market or the job market, it's really across the board, people are feeling better. - greg, thank you for your update today. - thank you, angie. coming up, one trader is going long on linkedin ahead of earnings. why he's connecting to that stock is later on in chart talk. up next, what regulators are doing to protect you from imported food on your plate. that's after the break.
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♪ ♪ ♪ ♪ the fda is cracking down on food imported into the u.s. fda commissioner margaret hamburg joins us now. good morning to
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you. and commissioner, why is this happening now? - this is part of an ongoing effort to make sure that the food supply in the united states is as safe as possible. i wouldn't say we're cracking down. what we're doing is trying to work more effectively with people that are growing or producing food anywhere in the world that's being eaten here in the united states. the focus on imported food matters, because increasingly much of the food supply here is coming from countries overseas. in fact, about 15% of the food we eat here is coming from other countries, and about 50% of fresh produce and 20% of vegetables. - i would think it matters because 3,000 people die from food-related illnesses each year. is that number growing? - our job is to make sure that that number doesn't grow - in fact, that it shrinks. we are now implementing a law that congress passed several years ago called the "food safety modernization act," which really gave us the mandate and new authority to do a couple of important things: one is to really transform our food safety system so that it focuses on prevention, preventing
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problems before they occur instead of responding to an outbreak after it happens. it also recognized that the global food supply chain changes how we have to do business, and it's given us new authorities and new responsibilities to work in partnership with companies and other regulatory authorities around the world to make sure that there's a level playing field and that the standards for foods eaten in the united states are the same in terms of the quality and safety of the food, and when there are reasons to be concerned about how foods have been produced and whether they're meeting our standards, we can do more to stop those imported foods from coming into this country and getting on your table for on mine. - it sounds like good timing considering this smithfield foods deal that just might happen with food coming in from china. so good to have you on the show this morning,
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commissioner. thanks again. - thank you, thank you. still to come, a trading edge: why linkedin's earnings could blow past wall street's expectations. chart talk is next. i'm going to pass chemistry, and i'll take it from there. i'm going to do what makes me happy. i'm going to work hard. be independent. live large. make the most of every opportunity. i knew i wanted to go to college. but figuring out how to pay for it? i didn't have a clue. the u.s. department of education has over $100 billion. and that's a lot of money. to help students pay for college. and the free application? you mean the fafsa. i did it online. it was easy.
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i'm never giving up on my goals. i will make a difference. i'm going to find out how to pay for college. i'm going to
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following "like"-able earnings coming from facebook, a disappointment from zynga. traders are now watching for
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what will happen with linkedin. good monday morning to andrew keene, president of andrew, what do you see in the charts for linkedin? - linkedin is a beast. on friday, they made a new all- time high. with the story in facebook, facebook's climbing, people have high expectation for linkedin. i've actually started using linkedin a lot more than i used it in the past, and i actually love it now. i didn't realize with linkedin premium - which you have to pay for, so they're getting revenue from that - you can basically find people in the industry that you want to have possible business synergies with, so it really works well for a professional or business person. everybody knows i'm pretty big on social media. linkedin up here is very expensive. can't look at the p/e, which is about 800. i'm going to be looking to get long it on a pullback. we've seen this happen: google, amazon, they've sold off on earnings just to get snatched right back. $180 is the level to the downside. the at-the-money straddle i always talk about
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implying it's going to move around $20, so that puts the stock at $228 or around $185. on a pullback i would look to get long. i can't get long it up here, though. - you like it long. so what do you need to hear as a trader from the earnings report out this week that could motivate a larger move in the stock? - i don't even think it matters. google's earnings were so bad, amazon's earnings were so bad as well - amazon ended up up $10 on friday, google got down to $875. buyers came into the market - it was $900 in a heartbeat. so i think any weakness, if they have a weaker revenue, if their guidance is a a little bit weak, i think investors are going to step in and buy it. we have the 50- and 100-day moving average at $180, so if it gets into about $185 to $188, i'm going to look to get long, and i'm going to have my stop under that $180 level. but, i'm not getting long it up here. - thank you, andrew. we will be watching, too. - thank you. that does it for today. coming up tomorrow, bp contends false claims are being made in the wake of the oil spill in the gulf. we take our cameras to florida for an investigation. from all of us at first business, have a great monday.
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