tv Nightly Business Report PBS October 10, 2011 6:30pm-7:00pm PDT
>> susie: a red-hot rally for blue chips-- the dow scores one of its best trading days in over a month. investors snapped up stocks as france and germany promise they will fix europe's debt crisis. >> tom: but one stock getting bad reviews? netflix! shares tumble 5% as the company drops plans to split its business in a very public about- face. it's "nightly business report" for monday, october 10. 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. a dramatic wall street rally on this columbus day holiday. stocks surged on word france and germany are committed to deliver a rescue plan for europe's debt crisis by november 3. tom, that's when the leaders of the top 20 global economies meet for a global summit. riding that optimism, the major averages were up 3% or more. big monday here. the dow soared 330 points, its biggest one day gain since august.
the nasdaq jumped 86 and the s&p rose about 40. but volume was lighter due to the columbus day holiday and the fact that the bond market was closed. 887 million shares traded on the big board. the nasdaq traded 1.6 billion. >> susie: after months of worries and waiting, investors are hopeful the latest effort out of europe to solve that nasty debt crisis may finally go far enough. >> reporter: it looks like french president nicolas sarkozy and german chancellor angela merkel are finally getting their act together. they say they're on track to deliver a plan to recapitalize european banks and prop up the region's bailout fund. there is no deal just yet, but a promise for one. any plan is expected to include a compromise between europe's two strongest economies. france and its banks are likely to take a bigger loss on greek government i.o.u.s and germany would pay more into europe's bailout fund. global investment manager patrick armstrong says the focus of the talks has shifted.
>> i think what they're doing is changing the emphasis on doing everything to stop a default, to putting the banks in position where they can survive a default and not pass contagion on to other banks in this system. and i think that's something that gives them a lot more control because, greece, they actually have no control of it meeting its fiscal targets. >> reporter: it's been almost two years since greek debt was first downgraded. now the french and german leaders say they want solutions in place in the next 24 days when the group of 20 meets in cannes, france. >> susie: despite today's powerful rally, morgan stanley smith barney has turned bearish. the firm told clients today it's putting more money into safe havens like cash. here's the new asset allocation for a moderate risk investor. 30% in stocks, 37% in bonds, 7% cash and 26% in alternative investments. joining us now with more analysis? charles reinhard, deputy chief investment officer at morgan stanley.
hi, charlie, nice to you have on the program. >> thank you, happy columbus day. >> susie: same to you. so tell me, what change. why the asset allocation switch now? >> well, we think in the last several weeks the risk and the uncertainty have gone up. and we wanted to be in harmony with what we saw could be a bumpier road ahead. and that's why we increased the waiting to save haven assets and we lowered the weighting to different riskier assets. >> susie: so let's talk about the safe haven. you are identifying them as things like cash, investment grade bonds, short-term debt instruments. but not gold. so tell us what your definition of a safe haven is these days. >> well, you named it. these are actually different investments that when we hit bumpy times having a higher exposure to them can make the bumps feel smaller than they otherwise might be. and we felt it was prudent to increase our exposure to items like you just ticked off. cash, high quality bonds and so forth.
>> what about treasury-- treasuries, do they fit not safe haven any more? >> they do. we don't think treasuries are a great value so although we increased the wait we still have less than what we would normally recommend. we really increase the weight in investment grade corporate bonds. these are bonds of companies that have very strong balance sheets sudz you're still putting money into stocks, 30% of the portfolio is in stocks. you like roll stocks overvalue. you favor large-cap stocks. tell us the thinking there. >> sure. we think that there is a value advantage in owning growth stocks relative to value, in owning large-cap stocks relative to small-cap stocks. and we also think in the case of growth stocks that as easternings begin to slow, the pace of earnings slows, historically they hold up better. they tend to have higher quality earning streams and that's something that investors like and they tend to reward those issues. >> now charlie, you talk a lot about risk and you said in your report and i'm quoting it, that morgan
stanley has turned against risk, the risk on position. we are now risk off. what dow mean by that? >> for more than two years now we have upped the exposure to our portfolio to what we would call an overweight position. and saw that the economy was pulling out of the deep great recession of a couple of years ago and that the market would probably post its best returns early on. we have experienced that now. and some of the indicators that we look at suggest a dimmer outlook in the future. and so we thought that this was a pretty good time to not be a hero. to take some of the profits generated during the last two plus years and to have a portfolio that might be better positioned for bumpier times. but of course at some point in time hopefully that there will be a light at the end of the tunnel and it will be able to redeploy some of that again. >> so does that mean that you are selling into the
rallies on days like today where there's a big buying momentum that morgan stanley is selling some of those what you call riskier assets. >> well, there's today, tomorrow and then longer term. and so we have a nice big up day. and since earlier this month the market is up nicely so it's to the a bad entry point if you wanted to take some thoughts. throttle back your exposure a little bit. so you are better prepare for the days ahead. we make moves we typically are looking six, 12, 18 months ahead. >> tell us about your outlook real quickly about 30 seconds of how long are you going to be speaking with this kind of bearish outlook. >> nobody knows. when change when the efd changes but in terms an outlook we think growth will be chat enged for the economies for the remainder of this year and next year. growth should be better, pretty good for the emerging market countries so the global economy will grow and we think inflation is proceeding and will be lower than it is today, pretty much in every region around
the globe. >> ale very to believe it there. thank you so much for coming on. we appreciate it. >> we've been speaking with charles reinhart, dpep tee chief investment officer at morgan stanley smith barney. >> still ahead tonight. the word on the street "default." debra borchardt of thestreet.com joins us with three ways to protect your portfolio if greece can't pay its bills. netflix livestreamed a drama of its own today as it abandoned plans to spin off its dvd rental business. the company infuriated consumers last month when it said it would move its dvd rentals to a new website called "qwikster." that came only after a big public backlash to a price hike announces in july. that's when its stock, which had traded as high as $300 a share in early summer, dropped to just $150. washington bureau chief darren gersh has reaction from analysts
and consumers about this about- face. >> reporter: netflix proved today it is far better to sell entertainment than to become entertainment. the twitterverse was clearly enjoying netflix's embarrassing reversal. one tweet compared the abandoned netflix dvd service qwikster to new coke. some customers were more generous, thanking the company for listening and abandoning plans to split off the dvd by mail business from the streaming video business. >> so i think netflix kind of wised up here and made the right decision. >> reporter: analysts like michael corty credit the company for recognizing a clear mistake. >> the decision to split the businesses really made no economic sense and just seemed to upset customers, so i thought the decision would eventually be reversed, but i'm surprised at how soon they eventually changed their mind. >> reporter: in a statement, c.e.o. reed hastings said: >> there is a difference between moving quickly-- which netflix has done very well for years-- and moving too fast, which is what we did in this case. >> reporter: customers will now get unlimited streaming and dvds, and the company won't
rename its dvd-by-mail business "qwikster." >> awful name! >> reporter: still, "motley fool's" joe magyer worries about erratic decision-making at netflix. >> reed hastings seems like a very super-bright guy. six months ago, we would have said he is one of the best c.e.o.s on the planet. now everybody is panning him. realistically, maybe he wasn't one of the best. and today it's probably unfair to be trashing him. >> reporter: maybe, but analysts are now wondering just what netflix's strategy is and they're worrying over the possible loss of hundreds of thousands of customers, all of which could make owning this stock a dramatic experience. darren gersh, "nightly business report."
>> tom: the bonds market may have been closed because of come bus day. but big, big buying across-the-board. let's get you updated. optimism from europe helped fuel a broad-based rally in stocks. the s&p 500 jumped right at the open. continued to gain steam, then the buying stabilized midday before picking up into the closing bell. here are the past 90 sessions. the index is up almost 9% since its low earlier this month. it remains in the range it has been trading in since the sell- off in early august.
the financial sector led the way, jumping more than 5%. energy stocks came along, up 4.5%. oil is back over $85 dollars a barrel. buyout activity helped this sector. and material stocks gained more than 4%. let's spotlight the best in each sector. beginning with financials. citigroup rallied 7.5%. citi is due to turn in its quarterly financial report card a week from today. look at the share price. back in may, the stock conducted a reverse stock split, turning every 10 shares into one. since then, citi stock is down 40%, split-adjusted. independent energy producer denbury was the best in its sector, up 9.5% percent. as oil prices had been under pressure, independent oil explorers saw their stocks follow suit over the summer. today, a buyout in energy also helped the sector.
this deal came from services side of the energy business. the buyer was superior energy services, based in louisiana. it focuses on services and equipment for drillers. the seller was complete production services from houston, texas. complete concentrates on specialized oilfield services. it is a $2.7 billion cash and stock deal. the buyer, superior, saw its share price plummet-- down almost 14%. the target? complete production. at tonight's closing price, the deal is worth just over $29.30 per share for complete. it closed up almost 40% at $28.42 per share. in the materials sector, iron ore producer cliffs natural led the way-- up almost 9%. its stock has been volatile thanks to steel prices and demand. apple stock saw a decent pop today, up 5% on lighter-than- usual volume. on the first day of accepting
orders for its newest iphone, apple has a record-breaker on its hands. the iphone 4s was unveiled to a lackluster critical response last week, but more than one million people have placed pre- orders, a new record. meantime, sprint's inclusion in the iphone club isn't helping the stock. shares fell another 8% today, hitting a new 2.5-year low. the company has committed to buying millions of iphones and will spend more upgrading its wireless network. today, standard & poor's warned it may cut sprint's credit rating further into junk territory, which would increase the company's cost to borrow money. finally, in the commodity markets, a drop in the u.s. dollar helped sugar futures jump 4.5%. silver also gained as the dollar dropped. and there's crude oil back over $85 per barrel. and that's tonight's "market focus." >> susie: if you hit the columbus day sales this holiday weekend, you might've spotted early signs of christmas at many stores.
for the nation's retailers, christmas can't come soon enough. but, as suzanne pratt reports, this year's holiday shopping season is likely to be rather ho-hum. >> reporter: today, manhattan's fifth avenue was filled with italian pride at the annual columbus day parade. in two months, the same street and its toney stores will be brimming with holiday shoppers. the question is whether they'll be spending or just window shopping. according to accenture, it's likely to be a bit of both. the consulting firm's annual holiday survey found that 72% of consumers expect their spending to be cautious or controlled. 88% intend to spend the same or less than last year. >> if you're a mid to low-end consumer, there's not a lot of cause for excitement in your holiday spending this year. the more affluent consumers we see still spending. >> reporter: it's a balmy 80 degrees on this columbus day, but already there's a serious chill in the air regarding the
all-important holiday season. experts say would-be shoppers are likely to stay homeecause of worries about their jobs, the u.s. economy and what's going on in europe. the international council of shopping centers, i.c.s.c., is forecasting a tepid 2.2% increase in this year's holiday spending. last year, retailers saw a joyous 5% gain in holiday sales, compared to two negative years during the financial crisis. but, the group's economist mike niemira says there's a chance this year's forecast is too conservative, thanks to the recent decline in gas prices. >> if you asked me that same question two months earlier, i was much more pessimistic. and i'm becoming a little bit more optimistic simply because of some of the inflation story unwinding a little bit. that's good news. >> reporter: good news because less money spent on food and fuel, puts at least something other than coal in holiday stockings. but anyone looking for holiday sales to lift the economy out of
its current downturn may be disappointed. unless, of course, all the expected discounts and promotions inspire shoppers to spend a lot more than they planned. if that happens, they'll be something for retailers to celebrate in january. suzanne pratt, "nightly business report," new york. >> tom: u.s. investors seem to be more confident european leaders can stabilize their banks suffering due to the greece debt crisis. that brings us to tonight's "word on the street," default. debra borchardt is a markets analyst at thestreet.com. debra, greece has not defaulted on any of at ious. do you think the plan being talked about to shore up european bank capital is in advance of maybe a planned default? >> well, that's exactly it. that is what most of the people on wall street feel that they are doing. that they are taking the steps right now to shore up the banks so that when this event happens and most people feel that the event will happen, whether it's a
default or a restructuring of their debt, something is going to happen. but when that event does take place, then the leaders can say well the banks are okayment we shored them up. don't panic. everything is going to be all right. >> plan for the worst, hope for the best. you've got ideas that if greece does in fact default on its debt one place to look is the currency. you brought along euo, the ticker symbol for the ultra short euro exchange traded fund. that moves two times in opposite of the euro. so if the euro moves down, this would likely move up. the opposite happened today, though. >> well, that's true. what we had happen today was sarkozy and merkel saying over the week enwe've got a plan. they have had years to come up with a plan. they haven't done it so all of a sudden they are going to do this in three weeks in don't think so but the market did go up. although it is a holiday and it was light training. >> why should investors concentrate on the currency? >> well, here's the thing. when this event happens and again most people believe
that this event will take place, then obviously the euro will come down and so when the euro comes down, you will make money. >> tom: this fund makes money. saz the ticker symbol for another leveraged dtf is the idea. the direction financial bear exchange traded fund. this moves three times in the opposite direction of the finance services sector. we know how much concern there is for banks, big rally today though. does that mean this trades off the books? >> absolutely not. i think today was an aberration so here's the thing. all these banks own the sovereign debt, whether it's the european banks or our banks. now they haven't even decided on how much of a discount they're going to take on say greek bonds. they're still arguing over that. so even if they take the lowest amount which is 50%, that is a 50% discount on their assets. so they are pulling their assets down by quite a bit. they're arguing over how much this haircut is going to be. eventually when they do take
this haircut the banks are going to suffer on that and they will go down. >> finally again volatility has been rising, no doubt and your last idea is an exchange traded note, s&p 500 midterm following medium term volatility which is actually less volatile than the other two. give a 15 second pitch on why volatility could increase. >> well, today is a perfect example. up 300 points, that's crazy. so expect tomorrow will probably go down. we have had huge swings. so rather than getting-- by this market moving up crazy, down crazy, make money on the move itself. >> gotcha. >> don't get jerked around, make money on the jerking around. >> do you own any of these funds, can you? >> i do not. >> you can read deborah's-- debra's article, a link on the web site. word on the street, debra borchardt. >> susie: here's what's on the calendar for tomorrow: the senate debates president obama's american jobs act. and the f.d.i.c. is expected to vote on the so-called volcker rule banning banks from certain types of risky trades.
also tomorrow, alcoa kicks off third-quarter earnings season. c.e.o. klaus kleinfeld joins us to discuss those results. contract negotiations between chrysler and the united auto workers will resume tomorrow after an around-the-clock bargaining session failed to secure a new national contract. neither side will discuss the progress on negotiations. chrysler is the last of the big three u.s. automakers to sit down with the union in this year's contract talks. general motors workers have already ratified a new contract and their counterparts at ford are voting on one now. >> tom: if you were expecting a message from a blackberry user in europe, the middle east or africa today, you may still be waiting. the service had a hard time sending texts and emails today from those locations. blackberry maker research in motion is investigating the problems. they apologized for the outage, but no reason for the problem was given.
despite competition from apple's iphone, blackberry usage remains high throughout europe and the middle east. >> susie: the senate takes up the president's jobs bill tomorrow, but tonight's commentator has another way to boost jobs. he's bernard baumohl, chief global economist at the economic outlook group.
>> the latest jobs report was, once again, disappointing, with the unemployment rate still stuck above 9%. is there is anything-- anything- - that can turn this job market around? well, actually, there is-- and it's not that costly to implement. the answer can be found in exports. u.s. exports are at a record- high level, but it is the large multinationals that have mostly benefited by selling to the fast-growing emerging countries. yet, the real job creators in this country are the 25 million small and mid-size businesses, who hire nearly three out of every four workers, but those firms have completely missed out on the huge opportunities in the foreign marketplace. incredibly, 99% of small- and mid-size businesses do not export at all because they lack the know-how or resources to do so. that has to change, since 95% of the world's consumers reside outside the u.s. to revive job growth in this country, i believe washington should move with greater urgency
to bring together leaders from americas small business community with foreign buyers who seek out u.s. products. by gaining a foothold in the export market, which is where all the action is, small and midsize firms will be in a much better position to ramp up hiring and finally bring the jobless rate down. i'm bernard baumohl. >> susie: you can keep up with n.b.r. any time. we're online at n.b.r. on pbs.org. there you'll find all the market data from the program, and you can watch any programs you may have missed. you can also follow us on twitter, @bizrpt, or my personal feed, @sgharibnbr. we're also on facebook at bizrpt. >> tom: and finally, two american economists are the winners of the 2011 nobel prize in economics. princeton's christopher sims and new york university's thomas sargeant were honored for their groundbreaking research on how different events affect economies. both men developed methods that
untangle the relationship between economic policy and different macroeconomic variables, things like g.d.p., inflation, employment and investments. at a news conference today, sims dismissed critics who blame the science of economics for the current financial crisis. >> my view is that technical, careful, statistical analysis based on macroeconomics is our hope for getting out of the current difficulties. >> tom: congratulations to both. that's nightly business report for monday, october 10. 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. "nightly business report" is made possible by:
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