tv Nightly Business Report PBS April 16, 2014 7:00pm-7:31pm PDT
oceanographer, oceanograp . this is "nightly business report," with tyler mathisen and susie gharib. >> falling short, two tech titans, ibm and google report disappointing numbers, trending lower, what is the one key takeaway that investors need to know now? hiring, china, federal chair janet yellen, the fed chair sends a message to wall street, don't worry about interest rates. and slow moving sector, leading the way on wall street this year, all that and more tonight on "nightly business report" for wednesday. april 16th. good evening, everyone, we begin tonight with ibm and google. they are two iconic tech
companies, two big disappointments and two stocks that carry a lot of weight. one of them the dow, the other the nasdaq, big blue's quarterly report out after the market close was another in a long line of revenue misses, income continues to be hurt by sharp declines in hardware sales. ibm earned $2.54 a share, right along with predictions but revenue missed coming in at $22 and a half billion, less than expected. that sent shares initially lower in after-hours trading. morgan brenner has been looking through the report and has more on that. so morgan, as you look through the numbers what do you see as the key takeaway from ibm. >> well, ibm is one of the ones with the bigger numbers, but shares have continued to weigh on their growth, countries like brazil, china, revenue falling in those countries about 11%
from a year ago. but none more so than china. so revenues in the world's second largest economy actually fell about 20% from a year ago. that is as demand for servers and storage products continue to fall. also weighing on the hard-hit hardware division of the company. and ibm says that is not likely to let up any time soon. investors have been piling into the stock recently, favoring the stability and dividend. but whether ibm makes a good investment will ultimately come down to the fundamentals in four key areas, services, software, hardware and emerging markets, the services is by far the biggest, accounting for 40% of the revenues. but cloud storage helps other companies reduce the need to tech outsourcing. ibm's second largest division is softway, a bright spot thanks to
the business programs and cloud computing offering, the real trouble is in hardware, a division that lost half a billion dollars in 2013, analysts expect similar losses this year and hope the trend can be reversed by 2015. >> the transition period now is getting away from some of the commodities stuff like hardware to some of the more higher margin value services like the cloud. >> but there is an area crucial to ibm, emerging markets. countries like china have accounted for double digit growth in recent years but that slowed when demand for equipment dragged on the overall company revenues. so the company has been implementing changes and they say they expect to see the changes push towards better growth in the second half of this year, we'll have to see if it takes place. now to google that reported earnings that both missed wall street estimates, the internet's giant profit shares came in at
27, analysts expected $6.40. revenue light here, $16.4 billion, enough to make the investors edgy falling initially after the report. more on google from the nasdaq, sheila, beyond the up-front numbers is there anything else underneath the surface that the investors need to focus on, with this report? >> yeah, bottom line, the devices like tablet or smartphone just are are not as profitable for google. here is the issue, google can't charge as much for mobile ads as they do for ads on pcs, even if the ads are growing they just don't make as much money on top of that. on top of that you have to add to the fact that google gets charged any time they want to add to the market, so the trends are going up. google's company did acknowledge
some of these issues on the conference call and said they would give more transparency on the numbers, interestingly they also said in the long-term they said they believe mobile pricing will be better than pc pricing but of course we'll have to wait to see if that actually happens. >> all right, sheila, thank you very much. janet yellen delivered a strong message for investors today. in so many words she said stop panicking about interest rates. the fed chief's reassuring speech boosted the idea. the dow soared 162, the nasdaq jumped 52, the s&p added 15 points. and now more on that speech by janet yellen, in a major address in new york yellen said interest rates will stay extremely low for a considerable amount of time. she said they're trying to thread the needle, that is getting inflation up closer to
the target of 2% and get unemployment down closer to its target of full employment, between 5 and 6%. that, she believes, could take a couple of years and will acquire a generally accommodative monetary policy. >> good evening, new fed chair janet yellen in a major speech today before economists in new york, suggesting it could take two years before the economy meets the goals. >> it is a far sign on how far the economy has come, the return to full employment is for the first time since the crisis in the medium term outlooks of many forecasters. it is a reminder of how far we have to go that the long-awaited outcome is projected to be more than two years away. >> the fed sees full employment as between 5.2% and 5.6%. it is currently at 6.7. and yellen says the shortfall is
significant, significant enough that she suggests the feds will keep trying to help the economy as long as the goal is not being met. overall, yellen said she is in no hurry, keeping short-term interests rates low for an extended period. in fact she is more worried about inflation being too low rather than too high. >> with inflation running at 1%, at this point as i mentioned i think the risk is gre/oater tha we should be worrying about inflation under shooting our goal and getting inflation back up to 2%. >> meanwhile, two federal reserve reports today suggest that the economy is rebounding from the effects of the harsh winter weather. the collection of anecdotes from the fed's 12 districts say consumer spending and manufacturing have both picked up as the severe weather has gone down.
and the predicted estimates in march came well above estimates and february was revised higher as well. only housing was disappointing, but not by much, so they expect a spring snap back and the fed chair says she is in no rush to slow the economy down. i'm steve liesman. and more on the fed and the economy, chief economist at ihs. so i thought that in her speech, in janet yellen's speech, the best part actually was in the question and answer where she was pinned down, will she fall down behind the curve? will she control inflation? and she seemed to give very comforting answers that no, the fed will do the right thing regarding raising interest rates at the right time. what was your take on it? >> i think it was very reassuring, she got the message right this time compared with a month ago when she was speaking
perhaps on a little impromptu basis and spooked the markets, this time she was very clear, upbeat on the economy, and yet dovish on the monetary policies, essentially saying we're in no hurry to raise rates. and that is the right policy at this point. we're still a ways away as she said from full employment. until we get there, until inflation shows signs of life, which it has not, no reason to raise rates. >> you know, i was curious as i listened to her today. she said we're probably two years away from full employment which suggests an accommodative monetary policy. until then, how do we get from six months from the end of qe to two years in one month's time? >> yeah, i agree with you, i don't know what was on her mind when hshe said that, maybe she felt trapped or clearly misspoke. but the fed, raising rates,
truly we think qe will be over by the end of this year, but raising rates, that is probably mid-2015 and that is very consistent with what she said today. >> so what is your take on how the economy is doing, your own volunte volunteers and also -- views and also how she was doing. yellen was talking about the job market and believes things are moving in the right direction, generally what is your view on the economy? is that how you see it? >> well, the first quarter was badly affected by the weather. when we get the first gdp, the numbers which will be at the end of this month it will show a very weak quarter, less than a percentage, 1%, the underlying growth rate is more like two and a half to 3%, which is more consistent with what she is saying. and we're actually seeing that coming back in the second quarter. steve mentioned the production numbers, the base book, we have had the employment numbers
starting to look better. so i think the answer is fairly clear. bad weather hurt the first quarter, but by the second quarter we're back to that set of sort of underlying growth of 2%. we're going to talk a little more about china's growth in just a moment. but if you broaden out your prism from the u.s. economy how do you see the global economy right now? >> well, ironically, it is the developed economies doing better in the emerging world. they're contributing to growth. you have the u.s. picking up this year. europe going from a negative to a positive this year. japan doing okay. whereas a lot of the emerging markets growth has fallen quite a bit in the last few years. and probably will continue to disappoint this year. brazil, less than 2%, russia, probably in recession. india, okay, doing a little bit better but maybe half the growth rate of two or three years ago. so very disappointing.
>> all right, thank you as always, for giving such good analysis, we appreciate it. more now on that economic don data from china, showing the latest growth dropping to the lowest in the first quarter. the figures were a tick above the forecast and seen as evidence that the government might stimulate the economy soon. >> reporter: in its first quarter, china's economy grew at its slowest pace in a year and a half. gdp growth came in at 7.4% from a year ago beating consensus and coming close to where the chinese leadership wants the economy to grow for the year at about 7.5%. now, most economists believe that the better than expected numbers mean that if the government won't feel the need to stimulate the economy, at least in the short-term the analysts here look at the growth and the jobs decision to support
the economy further. the latest figures show that wage growth and employment are holding up. exports and the property markets, though, were weaker. as for other data, retail sales and production recovered slightly. but the figures did slip on where china's economy heads from here. in beijing, i'm eunice yun. and why is toyota giving an industry makeover, we head to the toyota auto show next. general motors wants a u.s. court in texas to bar ignition switch recall-related lawsuits
for now until a bankruptcy court clarifies whether the claims violate gm's 2009 bankruptcy. the agency filed a similar motion in california. keneth fineberg, advising them on this matter, say they are developing a program to compensate the victims. >> i'm assuming, and it is early, i'm just assuming based on initial conversations with the company that they're asking for me to help develop some sort of program that might be used to compensate eligible claimants. now, who is eligible, whether there will be a fund? how much money, what is the definition of how you're going to calculate the damages or what proof will be required? all remains to be seen. >> fineberg said it may still be several weeks before he has a sense of how the fund will be structured. now, even though those
faulty ignition switches have been getting lots of attention, general motors is also looking forward. it is exhibiting its newest models along with the world's other automakers at the new york auto show. phil lebeau has been at the auto show kicking the tires and has the latest. >> reporter: here at the new york auto show, three of the most well known names in the industry are getting plenty of attention, starting with this car right here, the all-new toyota camry. they are changing virtually everything to pump new life into the sedan, toyota has given the camry a likely more aggressive look and a more refined interior in hopes of keeping the car on topment speaking of being -- speaking of being on top, look at what is on top of the empire state book, the limited edition mustang. ford is selling over a thousand editions of the copy of the car
to commemorate the fact it was unveiled in 1964 here in new york. >> we literally had about five hours to bring the vehicle up in the elevators. and the team had five hours to put it back together galloagain. they had to deal with the rain and sleet and wind, and had it looking terrific this morning. >> finally, looking great, the sleet 44 c, going on sale in june starting at just over $55,000. even though alpha romero's comeback has been expected, it has been understated. no press conference, no big dog and pony show, just the 4 c letting everybody know that alpha romero is back in business. >> a sweet ride. credit card customers spent more money, that is where we
begin on tonight's market focus. the world's biggest credit card issuer says that revenues are increasing, rose from last year, the shares down a little, stock ended at $87.40. $6 billion in legal charges weigh on bank of america's first quarter earnings, the fdic says that that stems from the financial crisis, the assets did manage to top earnings expectations after you take out special accounting items. separately there are reports the bank is in talks with the department of justice to resolve a probe of merrill lynch's sale s of flawed securities. shares tumbled 1 and a half percent in trading to close at 6%. and talks for a large investor, sending shares way up in today's
session. pepsico, dr. snaple and starbucks all mentioned in the report as potential suitors. shares popped to $40.75. shares of gap rose on news it plans to triple sales in china over the next three years, making that asian nation its second largest market. gap opened its first old navy store in china earlier this year. the plans were announced at the annual retailer's meeting, shares closed at a gain of more than 1 and a half percent. and united health the worst-performing component today after a downgrade from city. the share is expected to be strong in the first quarter. but there are limited opportunities for earnings growth this year, the firm lowered its rating, shares fell to $78.19. and the utility sector up
11% so far this year, but is there still more room to run and should you own utilities in your portfolio? joining us now is james key, president of south texas money management. mr. key, utilities are at an all-time highs earlier today. certainly multi-year highs. is their run the best part behind them? >> well, the right way to look at valuation on utilities is probably their dividend yield compared with other alternatives like ten-year treasuries. you know, utilities are kind of a bond-like stock. but the way to think there it, i think it is instructive to look at it. in the first quarter, who thought about that in the beginning,ñi you know, nobody, r firm at south texas money management, the momentum stocks like the biotech stocks, the utilities are forever trading off alternative trading places, rather than trying to outsmart
the market, trying to get in or out, trying to figure out when they're over or under-valued. own both, always own some utilities, always own some all-sector in your portfolio. that is why we tilted a little more in the utilities this month when we started to see some of the momentum stocks shift. >> jim, let me pick up on that, you said the utilities are a bond-like stock. you know, we hear from so many other experts, rotate out of bonds, given our uncertainty of where the interest rates are going, how do you know as an investor where you should be in the utilities or is it time to fully get out of them now that the economy is picking up a bit? >> well, you're still going to want the bonds, even with rising interest rates we think to own individual bonds with the pretty short maturity so you can re-invest when the rates rise,
they're going to dampen the rates, within stocks, utilities are automatically going to offset some of the declines in some of the higher beta stocks, some of the momentum and growth stocks. >> all right, so let's mention some names here, i gather you are the believer that the best way to get into utilities is through etfs, why, and which ones? >> that is right, we usually like individual stocks, the utility sector is very unique and regulated. the returns are basically held to the cost of capital, the ioi, it doesn't really reward putting a lot of time into companies and analysis and security sections, we own the group, buy a low-cost etf, we use state street's spider etf. but it is important to just make sure you have a place in your portfolio waiting of utilities,
at least consistent with the market weightings. right now utilities are at about 3 and a half percent of the market. >> all right, james, we appreciate that, james key from san antonio tonight. all right, coming up, tuition bills from the fall semester will soon be ready. how can you make paying the bills less painful? we'll take you through it step by step. the new york attorneys has reportedly subpoenaed a half dozen high-frequency trading firms. this is according to dow jones,
eric schneiderman is looking to see if some firms have advantages over the others and is looking to see if there are exchanges that give them the ability to trade ahead of others. millions of college seniors are receiving if they have not already college acceptance letters and financial aid packages this month. as families talk about which schools to use, relatively few of them talk about how they're going to pay for this big nut. sharon epperson has more. >> reporter: many students already decided where they want to go to college this fall. meanwhile, their parents are still figuring out how they will pay for it. many parents seem to be overwhelmed by the cost of college which has ballooned since they were in college. families spent an average of 20,000 at least last year. but there is no need to panic, financial advisers say.
remember this. >> it doesn't mean you have to do the whole thing, there are various funding options for college. >> reporter: most families pay for a third of college costs with free money, scholarships and grants according to a sally may survey.ñr 27% of the college tab is covered by students and parents loans and the same percentage comes from parents' income and savings. a plain vanilla savings account is often their top choice. >> 529 accounts are built to give people tax benefits in saving for college and people who are not using them are missing out on those tax benefits and potentially having less money for college when it comes time to pay for that. >> reporter: with 529 plans, funds can be withdrawn to pay for college expenses, including tuition, fees, room and board, books, supplies and equipment. but how much should parents withdraw from 529 plans each year? >> my advice in general is to
take your money out as quickly as you can to be sure, as long as it is tax-free because that way you lock in the tax-free gains, even if you decide to turn around and put more money in the account i believe that is the best strategy. >> reporter: some may be eligible for the american tax credit, as well, for tuition expenses up to $4,000, this creates a tax credit of up to $2500, to be strategy ic, famils may want to wait to withdraw money from the 529 plans to take advantage of these savings. >> they shouldn't take their money from the 529 plan, they should take it out of other sources or loans because you cannot double dip. you cannot take that tax credit and take tax-free distributions from your 529 plan for those same expenses. >> reporter: many families may also turn to loans to pay for at least a portion of the college bill. if your child qualifies for the federal stafford loan, she says it is a good deal with zero
percent interest while in college and a very low interest rate after graduation. for nightly business report, i'm sharon optiepperson. >> and they better major in something they can get a good job afterwards to pay back some of the loans. >> to pay back some of the loans, that is it. >> thank you for joining us, i'm susie gharib. and i'm tyler mathisen, have a great evening, everybody, we hope to see you right back here tomorrow night.
find out how the return of a feared predatort"... is altering a vast wilderness... wirsing: we live in a world where big predators are largely missing. sethi: ...why a movement to save seeds helps safeguard our food supply... and how a photographer captures the wild spirit of a changing landscape. forsberg: everything is connected to everything else. announcer: major funding for "quest" is provided by the national science foundation. sethi: for nearly two centuries, scientists have been assembling collections like this one