tv Nightly Business Report PBS October 26, 2011 6:30pm-7:00pm PDT
>> unfortunately, there's no real long-term fix. greece is in the situation that it is today because its economy is fundamentally not very productive, not very competitive in trade. finally, the bill has come due and the greeks are unable to pay. >> tom: european leaders agree to strengthen their banks and boost their bailout fund as they try to contain the region's financial crisis. it's "nightly business report" for wednesday, october 26. 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.
captioning sponsored by wpbt >> tom: good evening and thank you for watching. susie gharib is on assignment tonight. european leaders made progress today working to solve their debt troubles. they agreed to force their largest banks to increase their capital reserves. strengthening europe's banks is a crucial step to finally getting a grip on the debt crisis that has gripped the continent for almost two years. european summit leaders arrived to a red-carpet welcome in brussels for what turned out to be a long day of developing the euro debt crisis plan. today, leaders cleared a huge hurdle when the european central bank agreed to buy bonds of several troubled states. that opens the way for more cooperation among the nations. british prime minister david >> we need to have the greatest possible support for the most comprehensive solution possible, and that's what we'll be discussing tonight. >> reporter: leaders from the union's 27 countries now have to hammer out details of any solution. among the specifics to be decided?
how much of a loss do investors in greek government bonds have to take. how the euro-zone will use its $610 billion bailout fund. and how to ensure the stability of european banks. the top priority is planning for a structured debt default by greece. >> i think the best we can hope for at this point is that europeans reassure markets that greece will be allowed to default in an orderly way and the greek default will not affect italy, because the european leaders will, as a second important step, take steps to backstop and support the italian government bond market. >> tom: stocks moved higher as european leaders worked towards a debt resolution. the dow rose 162 points, the nasdaq added 12 and the s&p 500 up nearly 13 points. big board volume continues above one billion shares while nasdaq volume climbed above two billion. sales of new homes were up last month following four straight monthly declines.
the commerce department says sales jumped nearly 6% as builders lowered prices in a soft market. separately, another report shows companies ordered more heavy machinery and computers in september. overall demand slipped by just under 1%, but that was largely because of a big drop in commercial aircraft orders. still ahead, tonight's "street critique" guest says the road to financial ruin starts with arrogance. michael farr tells us how that plays into an investment strategy. ford motor can thank strong profits in north america for better-than-expected earnings in the third quarter. the auto maker reported earnings of 46 cents per share, two cents better than estimates, excluding one-time items. while revenues actually dropped slightly in north america, ford's average pre-tax profit per vehicle increased to more than $2,300. alan mulally is the c.e.o. of ford. he joins us from dearborn, michigan.
congratulations to you and ford on a strong third quarter. strength in north american profits, but you last money in europe. how much of a break is europe going to be in 2012 do you think? >> well, i think with all the uncertainity we are continuing to watch that very carefully. the good news is that the industry, the automobile industry is staying very robust at around 15 million units, and ford is, as you know, very well positioned, we're number one, number two, number three and most of the markets throughout europe, and the fastest growing in russia. so i think that all of the work in the fiscal monetary policy to deal with the sovereign debt and focus on the growing the economy is the most important thing we do for everybody, because there's such a pent up demand also for the automobiles, especially for the new fuel efficient vehicles. >> tom: let's talk about october sales in the u.s. and looking forward to the fourth quarter. what's the outlook for ford?
>> well, looks very good. we reaffirmed our guidance today that based on our performance to date and what we see in the fourth quarter that we reaffirmed our guidance that we will improve our year over year performance, in both operating profit and free cash flow, 2011 over 2010. which is part of our plan to generate the precash that we needed to pay down our debt and improve our balance sheet and continue to invest in these great products in the united states and around the world. >> tom: i want to ask you about the impact of the balance sheet on the possibility of restoring the dividend. but first the new labor deal with the united auto workers union has been ratified. some analysts estimate that ford still has the highest cost per hour for employees. is the profit improvement you're forecasting sustainable with this deal? >> absolutely. and it will just get better over time. in addition to the wages and benefits which are now very
competitive, we also have enhanced the flexibility of our work rules so, that we can flex the operation to produce the vehicles in the amount that people really do want and value, and do it more efficiently. so that's absolutely a key part to us improving the fish en sip of our operations. >> tom: with that sustain ability of the improvement, you mentioned improving the balance sheet, paying down the dealt, you ended the quour with 20 billion in cash. what's the tipping point for ford restoring that shareholder dividend? >> well, we've explained that over time we want to get to probably in debt is around 10 billion. but clearly this is a very positive development for us to be able to pay another 1.3 billion of our debt down, and also have our credit rating start to move up, reflecting the balance sheet and the strength of the business. so this is a very positive thing that we can talk about now and have it be a priority, sooner rather than later, we want to restore that dividend.
>> tom: alan, we appreciate the insights from ford looking into 2012 worldwide, our guest this evening, alan mulally, the c.e.o. of ford. >> thank you. >> tom: despite the better-than- expected earnings today, ford shares fell 4.5%. investors were responding to ford's guidance for 2011. the automaker said sales in the u.s. would likely be at the low end of its $13.5 million estimate. freddie mac's c.e.o. is stepping down. charles "ed" haldeman will leave the company by the end of the year. he will remain at the mortgage giant until a replacement is found. haldeman joined the troubled firm in 2009 and received nearly $4 million in compensation last year, according to "forbes." >> tom: we got a glimpse of the challenges facing lawmakers working at hammering out a debt- reduction plan. the so-called super committee held a public hearing today. the 12-member congressional group is tasked with finding huge budget savings in the next few weeks and, as darren gersh reports, the committee is showing few signs of progress.
>> the congressional super committee has now helped three public hearings, two of them featuring congressional budget director douglas el men dorf who warned lawmakers of the consequences of failure. the uncertainty about fiscal policy is probably weighing on household and businesses. they can recognize that there will have to be as a matter of arithmetic changes in taxes and or spending relative to current policy. but they don't know what those changes will be. and i think that sort of uncertainty is natural an inhibiting factor in decisions. but there are are few signs the super committee is close to making its own decisions. democrats on the panel suggested negotiations begin where the president and house speaker john boehner left off. a package somewhere in the range of $3 trillion, much of it from tax increases. but republicans dismiss that as political posturing, and the deadlock is one reason analysts are pessimistic the super committee will deliver a significant agreement.
>> they don't have the gumption right now. to take on medicare, medicaid, to take on tax reform, which is really been an economic deterrent in our economy. and -- in our country. and they're all just sitting on pins and needles. >> there is one thing they seem to agree on, cutting discretionary spending from food to space ex plration is not enough. >> nondiscretionary spending represents less than one fifth of total federal spending. listening to the debates here in d.c. over the last few nights you would think that small piece of pie was a whole lot bigger. >> thus the challenge before us remains, that we must find quality health care solutions, quality retirement security solutions, for our nation, at a cost that does not compromise our national security, does not compromise job growth in our economy, and does not mortgage our children's future. >> one likely option for the
super committee, package together some relatively small cuts with a requirement that other congressional committees find further reductions next year. darren gersh, "nightly business report", washington. >> tom: president obama is trying to reduce debt for college graduates with student loans. if you don't owe money for education loans, you likely know someone who does. americans now owe more on student loans than on credit cards, with total outstanding loans exceeding $1 trillion for the first time. today, president obama announced steps to help graduates to repay those loans. the plan pushes up the start date for more favorable terms on a special loan repayment program based on income. another measure encourages graduates with two or more kinds of federal loans to consolidate them and get a break on interest rates. speaking of taking on debt, christmas is less than two months away. as you prepare to make your shopping list, more and more are going online to save money. 51% of consumers plan to shop on the internet to find better
prices-- that's a 10% jump from last year. almost half plan to buy more items that qualify for free shipping. this data comes from deloitte's 26th annual survey of holiday spending intentions and trends. but even with the growing popularity of online shopping, will it be enough to save this year's holiday season? suzanne pratt reports. >> reporter: point and click. point and click. this is power shopping in the 21st century. and, during the coming holiday season, many consumers are expected to let their fingers do the buying, making e-commerce one of this year's few retail bright spots. >> we think that a slowing macroeconomic picture, but balanced with increased ecommerce adoption from consumers, sets the stage for a pretty strong year of ecommerce growth. >> reporter: several firms predict a 13% to 15% increase in u.s. web sales in november and december over last year. in the bricks and mortar world, retailers will be lucky to see a 3% gain in holiday sales.
stores recognize the power of the web, and as a result, many are upping their efforts to harness it. most ecommerce sites say they'll offer free shipping at some point before christmas. also, consumers should expect to see online promotions in their mailboxes even earlier this year. analyst jharonne martis says people have come to expect big savings when venturing into cyberspace. >> retailers are very aware that in order to bring the consumer in, they have to an even extra promotion that is not offered in the stores to entice them to shop online. >> reporter: still, online shopping accounts for only about 5% of total u.s. retail sales. and, while it has grown steadily in the last decade, some had higher hopes for the sector. retail expert joe peltier says internet sales could grow to 20% of the total retail pie in the next decade. >> as the demographics grow up with this kind of technology, i think you'll find more and more
people will trust it for those things and it will start to spread across the demographic. i don't know if it will be 20 or 25, but it's very likely it could get to that. >> reporter: experts say iphones, smartphones and tablets will also help drive people to the internet for purchases. after all, why wait in long lines this holiday season when you can shop on line ? suzanne pratt, "nightly business report," new york.
>> tom: the autumn rally continued today with broad-based gains. here's tonight's "market focus." we saw buyers move back into the market with more reassuring words from european leaders regarding efforts to avoid a messy debt default. the dow started the day adding to its recent gains, dropped down to unchanged just before 11:00 a.m. eastern time, and just after 1:00 p.m., prices started climbing again, ending up more than 1%. boeing helped the dow take flight thanks to a strong third quarter. earnings were much better than anticipated, beating the street by 36 cents per share. better profit margins helped. the airplane maker boosted its full-year forecast.
that pushed the stock up 4.5% up to its highest price since the last day of august. boeing calls its outlook "strongly positive." boeing's commercial airline business is a bright spot, while other defense contractors sold off over worries about leaner government budgets. lockheed martin fell 3% despite better-than-expected earnings. general dynamics and northrup grumman fell about 2% each. sales for general dynamics and northrup fell short of forecasts. another company coming under pressure over government spending is thermo fisher scientific. it makes medical instruments. after meeting profit expectations, the company slashed its outlook. shares fell 9%. that pushed the stock down to a new 52-week low intraday today. energy was the strongest sector today, with big oil stocks heating up. hess jumped almost 3% despite a drop in quarterly earnings, partly because of the violence in libya. exxon mobil added more than 2%.
exxon earnings are due tomorrow. conoco phillips was up almost 2%. we saw shares of independent refiner valero shoot higher, rocketing up 15% on heavy volume. the trading was fueled by press reports valero may be a buyout target. after the bell, internet traffic-measuring firm akamai turned in profits one penny better than estimates. the firm's outlook was optimistic for the first time in several quarters. it has been a difficult year for akamai shareholders. through today's session, the stock has lost half its value since january. but after its upbeat forecast tonight, shares jumped $3 from today's closing price. if that buying holds, it would take the stock to its highest price since the july selloff. updating different kind of
internet firm, amazon. volume more than tripled as shares fell almost 13%. disappointing earnings and outlook last night sent the stock below $200 per share for the first time since mid-august. and that's tonight's "market focus." >> tom: arrogance has led to debt crisis in europe and the occupy wall street movement here in the u.s. that's the contention of tonight's "street critique" guest. he's michael farr, president of investment firm farr, miller and washington and author of "the arrogance cycle." it's great to see you, welcome back to "nightly business report". >> thank you tom, always nice to be here. >> tom: if arrogance led us here, humility gets it out. does that mean a more modest investment strategy? >> i think a tempered investment strategy is always
adviseable. but if you start feel, if you get a little too far out over your skis and feel like you can't lose, you're in a very dangerous position. so a little bit of humility when you're making an investment decision or any big decision will leave you in better stead. >> tom: what do you make of the market here, are we too far out on the skis? >> this kind of bounceback rally strikes me as a classic bear market rally. we touched into bear market territory about 20, 21 trading days ago and since then we've seen a 14% straight up rally. you see these kind of violent ralies, if you want to buy low and sell high, we're not low any more, so i'd be very cautious at these levels. >> tom: so would you be looking to sell stocks overall right now? >> no, i really wouldn't. if there were stocks that i really was becoming uncomfortable with, yes, i'd start to trim positions. if i had a really big run in some. but no, i wouldn't do much in terms of a trading position. if i were a short-term trader i'd sell this rally.
but i would certainly have my shopping list together to try and fine those really good companies with solid balance sheets that i'd like to own and i'd start picking my buying points. >> tom: we do have your shopping list with us, pepsi is on the list, trading in the mid 60s. it was up in the $70 region this spring. >> right, pulled become a little, the stock i think has been somewhat out of favor because it has been defensive. it hasn't ralied when the risk trades come on. 13 times earnings or so. it's got earnings growth we think of around 11% over the next several years, they're in different countries, different currencys, and a 3.3% dividend. i could keep some money there for a while. >> tom: sounds a lot like the story of johnson and johnson, although clearly a much different product there in health services and medical services, medical devices. the stock is clearly had some trouble in the mid 60s. hasn't been able to get out of this range for a long time. >> well, they've got legislation risk and risk from policy makers in d.c., it's also been one of those safe stocks. but again you're hearing the
consistent theme with all my investing 10% growth, 3.5% dividend. when you get a 10-year treasury paying you 2% or 2.75, 3.5 out of a company like johnson and johnson to me looks pretty attractive. >> tom: that comparison to the treasury i'm not sure is fair any more with uncle sam paying so little. >> that was the ratio that greenspan looked at, right? >> susan: absolutely. >> that's an important ratio. >> tom: quality com, smart phone chips, big growth in this industry, but the stock price doesn't necessarily exhibit that kind of growth as the market has. >> well, it hasn't recently and the earnings have been doing pretty well. so i'm giving you three here today, i've each en got a fourth for your website. we've got johnson and johnson, quality com, and pepsi. you know, here's a tech stock, the food and johnson and johnson for the medical. so at 14 times earnings not overly priced at all. 12% grower or better, and
again a 1.6% dividend. this is a global company, and it's not going anywhere. it got great patents on thought air chips and parts. >> tom: how about disclosurees, do you own any positions? >> i own all of them, my clients own them, my family owns them, i own them. >> tom: unmichael mentioned one more pick, it on our website. you can e-mail us with any questions you may have for our experts. it's michael farr with street critique tonight, author of the arrogant cycle. >> thank you. >> tom: here's what we're watching for tomorrow: it's another big day for earnings. we'll hear from colgate- palmolive, dow chemical, exxon mobil and royal dutch shell. we'll also see weekly jobless claims. and the government's initial report on third-quarter economy is out, letting us know if the recovery regained any of the strength it lost earlier in the year. a former board member of goldman sachs and procter & gamble is out on bond tonight.
rajat gupta pleaded not guilty to charges of conspiracy and securities fraud. prosecutors say gupta used his position at goldman to feed convicted hedge fund manager raj rajaratnam inside information. gupta faces up to 105 years in prison. his lawyer says the case is based on unreliable evidence. b.p. its first new permit since last year's oil spill to drill a new oil well in the gulf of mexico's deep waters. the company can resume exploration after the record spill last spring. regulators say b.p. has met strict safety requirements implemented since the disaster. the proposed exploratory well is located about 250 miles south of lafayette, louisiana, in water more than 6,000 feet deep.
third-quarter corporate earnings reports we've seen have been a mixed bag, but the stock rally this month continues. what is it that makes a company good? is it solely profit? reputation? or something else that signifies a business is "good"? in tonight's "money file," manisha thakor finds bigger and bigger may not always make for a better company. >> as a former buy-side equity analyst and portfolio manager, it was drilled into my brain
that "growth is good." when earnings season would roll around, my analyst colleagues and i would breathlessly await the opportunity to dissect the revenue and profit growth of our potential investments. last week, i read a delightful new book called "the big enough company" by adelaide lancaster and amy abrams. the authors put forth a quaint and powerful concept-- that the real goal of business is to generate high-quality goods and services in exchange for a profit, not necessarily to be the biggest, baddest firm out there. business magazines love to highlight lists of the fastest- growing companies. they slice them by sector, by geography, by revenue. but never have i seen such a list correlating growth to the customer experience. in the iconic movie "wall street," the character gordon gecko famously said... >> "greed, for lack of a better word, is good." >> in the 1990 onward, that mantra changed to "growth is
good." maybe it's time for us to change our goal to "good is good." as in "creating good products and services that exceed and delight." now, that's what's really good. i'm manisha thakor. >> tom: finally, hard economic times aren't scaring americans away from halloween spending. people are expected to spend more on candy, costumes and decorations this year. the national retail federation says overall spending will reach a record-high average of $72 per person. figure $40 for costumes, $22 dollars on candy and ten bucks on decorations. that comes out to nearly $7 billion nationally. if that feels a little steep, there are plenty of tips online to make free costumes and decorations. that's "nightly business report" for wednesday, october 26. i'm tom hudson. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is