tv Nightly Business Report PBS October 27, 2011 6:30pm-7:00pm PDT
>> tom: after months of trying, a new european agreement aims to put greece's debt problems behind it. >> this is voluntary in the same way that when a guy comes up to you with a gun and says "your money or your life," you choose to hand your money over. >> tom: and back in the u.s., the economy does more than limp along, taking the threat of recession off the table for now. >> the message is that the economy is still recovering. it's a slow growth recovery, it's a bumpy one, but the recovery is ongoing. >> tom: it's "nightly business report" for thursday, october 27. 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 >> tom: good evening and thanks for joining us. susie gharib remains on assignment. we have good news from both sides of the atlantic ocean today, pushing major stock indices into positive territory for the year. it was a big day of buying for shareholders. the dow rocketed up 339 points to close above 12,000 for the first time since early august. the nasdaq shot up almost 88 points. the s&p 500 rallied more than 42 points. big board volume spiked to just under 1.5 billion shares, while nasdaq volume surged over 2.75 billion shares. here's what sparked the buying. first, european union leaders agreed to cut greece's debt and
strengthen their bailout fund to keep larger economies from suffering the same fate. then, we got welcome news in this country. the economy regained some much- needed momentum in the third quarter. but it's clear the recovery still faces challenges. we begin our reporting with erika miller on the u.s. economy. >> reporter: 2.5% growth is welcome relief the economy is not on the brink of recession. better yet, the data may be just the sign some firms need to start hiring again. >> 2.5% to 3% growth is strong enough for businesses to ramp up hiring. right now, businesses have been subdued-- one, because they're concerned about the events in europe; and two, we did have this first-half growth slowdown. >> reporter: the economy has been expanding for nine straight quarters. in the latest reading, stronger consumer spending was the key driver of the gain. consumers are responsible for more than 70% of economic growth. but economists are also pleased that businesses are investing more in equipment and software.
>> corporate spending was strong. it looks like large corporations that have a lot of cash on their balance sheets are still deploying it, even in this environment of uncertainty. >> reporter: the focus now is whether the momentum in the third quarter will continue into the fourth. many economists think it will, with growth coming in above 2%. the real concern is what happens next year. >> i would imagine that recession fears are going to stay with us into 2012. the situation in europe is not completely resolved. there's still a lot of volatility, a lot of concern about the european banking sector, about the european markets. >> reporter: she also worries that many firms will be cautious about hiring and spending until after the 2012 elections, when there's more clarity about tax policy and entitlement reform. but a more immediate risk is the expiration of the payroll tax cut in about two months. >> if the payroll tax cut is allowed to expire at the end of
the year, as current law suggests, then taxes will go up by about $110 billion on january 1, the taxes paid by households. and that could give consumers less money to spend. >> reporter: what's clear is that, even if the economy does manage to keep growing, many americans won't feel it. until there's a significant drop in the unemployment rate, millions of americans won't be able to distinguish the difference between recession and slow growth. erika miller, "nightly business report," new york. >> tom: more now on the agreement in europe. leaders there worked out a plan to handle the region's debt crisis. the deal calls for investors to lose half of what they have invested in greek government bonds. banks will have to recapitalize in order to ease the burden of that write-down. european union countries also will reinforce their bailout fund to about $1.5 trillion to prevent larger economies like italy and spain from being dragged into the crisis. governments think the deal
should be concluded by year-end. but as darren gersh reports, while leaders iron out the details of the plan, they still have many questions left to answer. >> reporter: a "haircut" is what bankers call it when they take a small loss on a bad debt. douglas elliott, a former investment banker, says a 50% loss on greek debt is not a haircut; it's a huge hole in european bank balance sheets. >> that means that many banks which own greek debt have problems, and other banks which have, say, portuguese or italian or spanish debt-- where there is a concern the same thing could eventually happen-- they are dicier than they otherwise would be. >> reporter: the solution to that problem is more money. as a first step, the e.u. plans to pump $70 billion into greek banks to keep them afloat. the agreement also requires many of europe's other big banks to raise capital quickly. >> so they are given some time to come up with the money on their own.
otherwise, it will be forced down their throat in some way not yet specified. >> reporter: hoping to end fears of a meltdown all at once, european leaders are also raising a huge pot of money. the european financial stability facility, or "efsf," will be expanded through additional leverage far beyond the current size of 440 billion euros. >> they are going to turn it magically into something of a trillion euros or more that's available, and there are multiple ways they can do that. we don't know yet what way they are going to choose. >> reporter: economist roberto perli says the likely result of all this is that much of europe will now focus on cutting their budgets and trimming their debts. >> i think it also puts europe, ultimately, down the road in a better position. but in the near term, i think the risk of recession remains, and is probably actually higher because of this. >> reporter: it is still not clear how many greek bondholders will actually agree to take a 50% loss. and if everything goes right, a decade from now, greece will still be left with a debt surpassing its annual economic output.
european leaders clearly have many more details to work out. >> this is probably the turning point, but it could easily be a mirage. >> reporter: darren gersh, "nightly business report," washington. >> tom: to jim awad, managing director add zephyr management. he joins us from the nasdaq. jim, welcome back to n.b.r. nice to see you again. >> thank you. >> tom: we have strong, u.s. economic growth and finally it seems like a european agreement to deal with greece. is that all clear for investors to go in and buy? >> no, in the very short term it is because you've lifted the curtain on the two main worries, a., groos would cause an implosion in europe this week, and, b., that the u.s. was going into a double-dip recession. corporate earning reportes, g.n.p. growth have alleviated fears of the latter, and the agreement today alleviated fears, for now, of the former. this is all still a work in progress. we will immediately cycle into the employment report next week
and then the super committee report, the end of november, and then, of course, they do have to implement and put meat around the agreement in europe today. so this is a relief rally, short covering. it's better than nothing. it's nice to have it. most of the indices are now positive for the year, but you cannot go into cruise control by any means. >> tom: you're skeptical here about this. is the euphoria we're seeing today sustainable through the end of the year? >> well, i'm trying to be realistic. i feel that extreme bears and extreme bulls will be disappointed. the u.s. economy does seem like it's going to continue to grow. corporate earnings are in good shape. and unless there's an accident, it would seem to me that we have a chance for a positive single-digit year. but there are risks to the downside, and that is the political process, the super committee, and also the implementation in terms of europe. there's a lot to be done between the announcement of an agreement and putting all the nails in the
wood. what i would say is you're in a low-return environment. there are risks to the downside. you and the butt for the short term, it seems like the sealing is clear enough that we have a reasonable shot for a low single-digit return for indices this year, which considering where we were a month ago, is not so bad. >> tom: not so bad but compared to a month ago today we're talking about a double-digit return for the major market indices. have the markets run up too far too fast? >> i think most of the-- most of the appreciation is over. at best, you can get another 3% or 4%, assuming we don't get get any accidents through the end of the year, and corporate earnings in the fourth quarter are as respectable as they were in the third quarter. so while i don't expect a major decline. i think most of the appreciation is over. it happened very quickly. and that's the way it tend to
be. the market is an accurate forecaster, and there's tremendous volatility with all the computer trading today, and so the market seems to accomplish most of its work in a short period of time. >> tom: with that outlook, jim, with those areas of concern, the details still yet to come from europe and the super commit still yet to report on debt deals for the united states, where best to invest? what kind of sectors do you like? >> well, the big picture remains the emerging markets or where the secular growth is. irishia, china, the rest of asia, india, part of latin america, those are the countries that are accumulating wealth that have growing middle classes, that have good, sovereign balance sheet. i think you want to invest in those markets and in u.s. multinationals with a global footprint that have exposure to those markets, and that also in a low-return environment having a dividend helps. so the biggest stocks in the u.s. and the best stocks in the emerging markets i think are where you want to be for growth
in a low-return environment. >> tom: household names with global footprints and shareholders to wait for returnses. thank for the insight. at the nasdaq tonight, jim awad, with zephyr management. still ahead, the picture of risk and uncertainty with the c.e.o. of global insurance broker aon. about 45 million retired and disabled americans will pay more for medicare next year, but the increase is not as much as expected. it was a surprise move today-- the government announced monthly premiums for medicare's part "b" program will be just under $100 next year. part "b" covers doctor visits and other out-patient services. the increase is 3% more than the current payment, and lower than the $106.60 cost predicted earlier this year by medicare trustees. fewer americans filed for unemployment assistance last week, while those collecting benefits dropped to a three-year low. first-time jobless claims fell
by 2,000 to 402,000, according to data out today from the labor department. the total number of people collecting state unemployment checks was 3.7 million. but that's the fewest since september 2008, the same month lehman brothers collapsed. meantime, mortgage rates edged lower, keeping borrowing costs close to the lowest level on record as the housing market remains weak. the average rate for a 30-year fixed loan is at 4.1%, according to freddie mac. and delaware is suing the mortgage electronic registration system, also known as "mers." it's an electronic registry of mortgages used by the banking industry. delaware accuses the firm of deceptive practices and wants $10,000 per violation. new york's attorney general has subpoenaed mers, looking for information about how five major mortgage companies are using the system.
it was a big day of buying for stocks and commodities, while the dollar and u.s. bonds fell hard. here's tonight's "market focus." earnings, the economy and europe all conspired to push up stock prices. the breadth of the buying was significant. on the new york stock exchange, more than 1,800 stocks are at higher prices tonight compared to last night. only 117 fell today. on the nasdaq, more than 2,000 stocks were up, while 451 were down.
the s&p 500 jumped 3.5%. putting today's jump on a 90- session chart shows just how far the market has come since the october 3 low. this index is up almost 17% since then. to illustrate the risk appetite this month, the small-cap russell 2,000 index has gained more than 25%, with investors favoring smaller companies. the nasdaq composite is up more than 17% since its early october low. and the dow jones industrial average is a relative laggard, up about 14.5%. with so much riding on the financial sector, especially out of europe, banking stocks took the lead today. bank of america was the best dow industrial stock, moving on huge volume-- 400 million shares. today's rally puts b-of-a above $7 per share for the first time in six weeks. in the broader finance sector, morgan stanley was the leader, jumping 17%. this move added $5 billion to its market value today. shares have been hit hard over
worries about its european exposure. speaking of european banks, check out these relief rallies. u.s. shares of germany's deutsche bank closed up 18%, barclays bank from the u.k. gained 17.5%, and royal bank of scotland jumped 12%. material stocks also got a shot with the news from europe and the u.s. economic data. aluminum maker alcoa jumped 9.5%. europe has been responsible for about a quarter of alcoa's sales. other industrial material producers were hot. ak steel gained 12%. sand and gravel firm vulcan was up almost 10%. copper and gold miner freeport mcmoran was up 9%. lost in the european euphoria was exxon quarterly results. while the oil giant actually saw production drop, its profits jumped and were slightly better than estimates. exxon can credit higher energy profits and better margins. compared to the broader market, we saw a more muted response in shares of exxon, up 1%. the drop in production in the
third quarter is the first in more than two years, and it came despite the company spending a record amount of money searching and developing new energy sources. in addition to the stock-buying, we did see some economically sensitive commodities move up. oil is closing in on $94 per barrel, gold is at a five-week high, and copper popped 5.5%. hewlett-packard has seen its share of volatility, with three c.e.o.s in the past year and a half. it's newest boss, meg whitman, who used to run ebay, now says h-p will keep its personal computer business after all. back in mid-august, h-p announced it would spin off its p.c. business. the company says it would not create any more value. shares of h-p were up almost 5%. one of the big losers today was makeup company avon. shares plummeted 18%. volume sky-rocketed as the securities and exchange commission has launched a formal investigation. the focus is on whether avon broke foreign bribery laws. that was added insult to the injury of a disappointing earnings report, and worries the company's dividend may come under pressure. finally, the u.s. bond market
saw higher interest rates and lower prices. the yield on the ten-year note jumped up to almost 2.4%, it's highest yield, lowest price since early august. and that's tonight's "market focus." >> tom: two words most commonly used to describe the economic climate today are risk" and "uncertainty." those two also characterize the business of aon. it's a commercial insurance broker working with companies in 120 countries. aon's c.e.o. describes his firm as a global focus group. we spoke with greg case about today's economic environment at aon's headquarters in chicago. >> it is incredibly difficult out there, but quite varied. you think about in the u.s., a bit more stable, but fragile. we know that. just back from-- just back from
india, and across the middle east, and there's more opportunity being discussed and more growth potential being discussed, certainly our clients at the grass-roots level. uncertainty around the world and they reflect but truly they see opportunity there and in asia. europe, highly varied. also was in europe a couple weeks ago and i had the fortune of spending time with clients, someplace whom were german, some of whom were italian, some of whom were french, some of whom were spanish, and very different how they see the world. what was true across entire grurng tremendous uncertainty about what is going to exphap how it will affect our businesses. >> tom: what do you think the contributors to the risk in the united states and groblly? >> you step back and say what is driving at the core, a lot of the challenges. what is at the core of driving down g.n.p., and how that's evolving. the asset values are shrinking under pressure. unemployment is a true-- it affects our clients in such a
difficult way, very, very important. and those two things are really driving a tremendous amount of pressure in terms of what is going on around the world. and for our clients, as they think about their prospectes, tom, and this is how it affects aon, how we're going to support them, as they think about what their prospects are, it's the ambiguity and uncertainty. it's truly troubling as they think about how to invest in their businesses. >> tom: how do you think policy makers should address resolving some of this uncertainty? >> alignment, alignment. not politics, alignment. what are the policies we're going to put in place and how do we come together and stick to those policies in a way that business leaders can understand the world they can operate in. that creates more certainty. that certainty allows investment, and investment creates demand. that demand is what's going to bring us back, and generate the growth we need to build a global economy. that story is not greg case's story. i see that with clients all around the world, and that story, if we can create alignment and a little more certainty in terms of what is
going to happen, that creates possibility and right now we don't have that. >> tom: you work with clients across the globe. where are they seeing opportunities? >> the u.s., more stable but fragile. europe, highly varied, depending on the country. challenging inchallenging in th. the opportunities are seen, really, in asia, still, and certainly in latin america, in brazil in particular, lots of opportunities still from a growth standpoint. >> tom: as you do some planning and your clients are doing planning where are they seeing some of the biggest risks in 2012? >> we really come back to three things we try to help our clients understand. one what is the impact of your performance, balance sheet strength and volatility. clients are trying to understand the tradeoff between not just earnings but the volatility of the earnings. when you think about the tragedies in japan, the tsunami and the earthquake, what that really created of a global supply chain challenge for clients around the world. that created volatility. >> tom: greg, thank you so
much. greg case, the c.e.o. of aon. >> tom, it's been a pleasure. thank you very much. here's what we're watching for tomorrow: quarterly results from chevron, cigna and merck. we'll also see september personal income and spending numbers. also tomorrow, the u.s. economy is growing and europe may solve its debt problem, but where should you be sending your investment dollars? we'll ask our market monitor. he's gary motyl, chief investment officer of templeton global equity. google is stepping up its competition against the king of the daily deals business, groupon. today, google unveiled big changes with its "google offers" division. it will now gather daily deals from at least 15 other sites, including gilt city-- which concentrates on the luxury market-- and juice in the city-- focused on moms. in 2010, the internet search giant tried to buy groupon for $6 billion but was rejected. groupon is now pitching an initial public stock offering to potential investors, hoping to raise $11 billion. thousands of women want to have a second go at walmart over discrimination. attorneys representing
california female workers, past and present, filed a reformulated lawsuit today. they claim walmart denied them pay raises and promotions because of their gender. in june, the u.s. supreme court found one and a half million women working at thousands of wal-mart stores did not have enough in common to be grouped into a single class-action lawsuit. an attorney for walmart says the new argument relies on the same theories the supreme court threw out.
>> tom: steve jobs is credited with creating products people didn't know they wanted until he and apple built them. but jobs not only showed customers what they wanted, he also listened to the market, hearing what it wanted, like an easy way to legally buy music and movies online. that led to itunes. "black enterprise" editor-at- large alfred edmond, jr., finds plenty of ways for companies to listen. >> by now, most businesspeople understand that social media is here to stay, and that not having a presence on platforms such as twitter, foursquare, youtube, and facebook is tantamount to not having a presence at all. but still, many are not clear on exactly how to use social media to effectively market their business. is it an alternative or a complement to traditional marketing efforts? the answer is, depending on your situation, both. if you're a small business with limited resources for traditional marketing and advertising campaigns, social media is a low-cost alternative to help boost the brand presence
of your business, provided that consistent time and energy is invested in the effort, with the direct involvement of top management in shaping and managing the reputation of the brand. on the other hand, if you are using traditional media and marketing strategies, including print, television and radio advertising, your web site and email lists, and live event promotion, social media is an excellent way to enhance the reach and impact of those efforts. the key difference between traditional marketing and social media engagement is this-- the former calls for you to broadcast, promote and sell; the latter requires you to listen, respond and serve. entrepreneurs who understand the difference can effectively integrate both traditional media and social media into their marketing strategies and gain a true edge over the competition. i'm alfred edmond, jr. >> tom: one more note about apple and a glitch with "siri." that's the popular voice command software on the company new iphone 4s.
if you have a strong scottish accent, then the personal assistant may present you with a dilemma. listen to the word "reminder." >> create a reminder. >> james, i don't understand. create "alamane"? >> create a reminder. >> sorry, i don't understand. >> tom: that's "nightly business report" for thursday, october 27. i'm tom hudson. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible
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