tv Nightly Business Report PBS October 28, 2011 6:30pm-7:00pm PDT
>> two thirds of the economy are consumers and consumers are not going to continue to spend unless their incomes are going up. >> tom: shoppers went on a spending spree last month, even though they're bringing home smaller paychecks and saving less than they have in years. it's "nightly business report" for friday, october 28. 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 tonight. some mixed news on the economy today. let's start with the good news. consumers spent more money last month, putting off fears of a recession. spending increased six tenths of a percent, that's three times what was spent in august. americans bought big ticket items like cars and computers. but, there is a flip side. and as darren gersh reports, consumers are spending faster than they save and faster than they earn. >> reporter: if americans have learned anything in the last few years, saving less and spending more is not a recipe for long run economic health, but that's what consumers were doing last month. >> wages are stagnant. people are not getting raises, people are not getting bonuses. so what's happening is that the average consumer is having to dip into her or his savings in order to keep food on the table, in order to pay mortgages, in order to pay their bills, in order to buy gasoline et cetera,
and that is not sustainable. >> reporter: overall, savings dropped from an annual rate of $479 billion in august to $419.8 billion in september. incomes rose just zero point one percent last month after falling point 4% in august. >> this means we are in a very fragile spot. we are very vulnerable. any additional shock can really push back consumption and that would be a big problem for the whole economy. >> reporter: for now, the economy does not now appear to be falling back into recession, though sluggish income growth is likely to remain a drag. >> overall, the economy will come back, but i believe we need to be very realistic in our expectations. these economies will not surprise on the upside for a long time. this will be a very long and slow and painful transition for many. >> reporter: despite it all, thomson reuters/university of michigan's reading of consumer confidence rose slightly last month. analysts say a strong stock
market explains much of the rise, but while feeling a bit better, consumers are far from optimistic. >> i think it's a survival thing. i don't think its an increase in confidence. all of the indicators indicate that consumers are very deeply troubled and worried about the economy. >> reporter: consumers may be so cautious that some analysts expect retailers will ramp up their holiday discounts early in an effort to pry open wallets. the holiday season doesn't officially start for another month. darren gersh, "nightly business report," washington. >> tom: wall street finished the week with a quiet trading day. stocks ended mostly flat. the dow added 22.5 points, the nasdaq lost a point and the s&p 500 added a fraction. big board volume tapered off from yesterday but still above one billion shares. while nasdaq volume fell below two billion shares. this week, the dow ended with a gain of more than 3.5% thanks to yesterday's big rally. the nasdaq saw three up days adding almost 4%. a similar picture for the s&p
500, tacking on the same amount as the nasdaq. an investigation is underway into a new york stock exchange glitch that caused more than one thousands stocks to have incorrect pricing. the spider s&p 500 e.t.f. trust was among them. this glitch shows some shares were lower, based on the wrongly-coded closing price. the nyse euronext sent a list of corrected closing prices with the affected securities today. another investigation, this one done by the white house. it's looking into the energy department's loan guarantees following the collapse of solyndra. that's the solar panel maker that went bankrupt last month after receiving a loan from the energy department. the independent review will assess the condition of other existing loan guarantees. >> reporter: i'm erika miller. forget about exotic wall street securities. sometimes the best investments are right under your nose, especially if you live in new york city. that's coming up on "nightly business report." >> tom: and later on with european debt problems under
control and growth in the u.s. economy, we'll ask tonight's market monitor where you should invest. he's gary motyl of templeton global equity. president obama side-stepped congress today to help small business. today he signed two executive orders geared to spur economic growth. the first measure requires federal agencies to reduce the research time it takes to get commercial products to market. the goal is to help startups and small businesses create jobs and expand operations a lot quicker. president obama also okayed a new centralized website helping companies find information on federal services. the site, business-u.s.a., should be live within three months. meantime, visa wants to pay some companies to do business with it. visa is going after big customers, paying them to continue accepting visa debit cards. usually, it's the merchants that pay companies like visa when a customer uses a debit card. in the last quarter, visa shelled out $576 million in incentives and rebates to keep large merchants using its system. new rules allow stores to use
more than one system to process debit card transactions. visa's offer of rebates is a move to get retailers to stick with or join its transaction system. speaking of debit card fees, just one month after bank of america angered consumers by introducing a $5 a month debit card fee, the bank is doing a slight about face. according to reuters, b. of a. is likely to allow many customers to avoid the fee by maintaining minimum balances or having direct deposited paychecks. other big banks may have learned a lesson after the bank of america backlash. today, j.p. morgan chase made it official. it will not charge customers for debit card transactions. chase joins u.s. bancorp, citigroup, and others who will not impose debit fees. investment bank goldman sachs finds itself the target of a lawsuit from a disgruntled investor. an australian hedge fund sued goldman sachs for $1 billion, claiming the bank sold it a fraudulent bond derivative in 2007. the fund wound up insolvent.
this is the second time the basis yield alpha fund has gone after goldman, alleging the firm made false and misleading claims about the investments that included subprime housing mortgages. goldman denies misleading the hedge fund. >> tom: given the ups and downs of the stock market over the past several years, you may be forgiven if you feel like you've been taken for a ride. but one investment has been steadily riding higher and higher over the past few decades, surging almost 2,000%. erika miller tells us what it is and what is driving those big gains. >> reporter: forget about blue chips or a brick of gold. since the 1970s, a far better investment has been this distinctive shade of yellow. we're talking about the right to operate a new york city taxi. a pair of aluminum medallions similar to these recently changed hands for a record- breaking million dollars apiece. the purchaser does not want to be revealed publicly. but the head of new york city's taxi and limosine commission gave us some hints. >> this is a fleet that owns, i don't know how many, but i'm
going to guess a couple hundred medallions. which means that's a $200 million value, just the medallions. >> reporter: it may seem hard to believe. but when new york first issued medallions back in 1937, the price was just $10. that's only about $150 in today's dollars. but thanks to big gains in the past decade, medallions are up 1,900% in 30 years, far more than the dow or gold. >> one reason it's a million dollars is simple effect of supply and demand. there are only 13,000 taxis. and there are enough people who want to drive them to drive that price up. >> reporter: the question, of course, is whether medallion prices are a bubble ready to burst. colgate professor graham hodges has written a history of the tax industry and says no. >> you are talking about 13,000 medallions and it's in a finite place. plus, of course, this is not an industry that is going to be exported. labor costs seem to be minimal so far.
>> reporter: but what happens if the taxi and limousine commission issues more medallions-- something it's currently seeking to do. >> a thousand or more could be significant and i think you are going to see a lot of lobbying, a lot of infighting over that number. >> reporter: but you don't have to be rich to buy a medallion. medallion financial provides loans to people who want to buy them, similar to taking out a mortgage. andrew murstein is the company's president. >> the lending business is great today because we formed our own bank in 2003 and we are able to borrow money at rates as low as 0.5%. so the margins are as large as they ever have. >> reporter: the company's stock trades under the ticker "taxi" and is currently at a three-year high, in sharp contrast to other financial firms. murstein says he's not just enjoying the business success. he also feels good helping people buy a piece of the american dream. >> the typical pattern today is a driver will come here with
very little money in their pockets, drive a cab for three years, rent it by the day, take his whole life savings and put it down to buy a medallion. >> reporter: so, the next time you hail a cab, remember it's more than just a ride. it's probably owned by someone who's a better investor than you are with a meter that keeps ticking higher. erika miller, "nightly business report," new york.
>> tom: it was a much more muted trade in stocks today after thursday's big gains as october looks to go out as a winning month. here's market focus. we have one trading day left this month and barring any significant drop monday, the major stock indices are on pace to see double digit gains this month. and today's winners have been those fueling the rally since the low early this month. with today's flat performance, the s&p 500 continues trading almost a three-month high. this drop at the beginning of august came as america's credit rating was hit. tonight, the index is back at levels just prior to that event. october could be the index's best month since 1974.
investors have been worried about europe, the u.s. economy and corporate earnings this month. earnings have been decent, the economy continues growing and this week, european leaders announced a debt deal. since the october third market low, energy stocks have jumped 26.5% on hopes of a pick-up in the global economy and energy demand. that kind of cyclical optimism pushed the materials sector up 26% from october 3. by the way, these were the top sectors today. steel makers took top billing among material stocks today. they have been under pressure over rising costs and lower demand. u.s. steel jumped more than 11%. a.k. steel jumped 9% today. both of these are up more than 35% since early october. energy leaders were coal miner alpha natural resources up more than 7%. and independent energy company q.e.p. up 4.5%. alpha is up more than 60% this month. we did have oil giant chevron
turn a in better than expected quarter, beating estimates by 44 cents per share. similar to exxon mobil, chevron reported a drop in production, but that was off-set by higher energy prices. chevron stock continues its recent climb up a fraction to just below $1.10 per share. that puts the stock just below its 52-week high hit just yesterday. hewlett packard got a new bounce after yesterday's late news we reported. the company has decided against spinning off its personal computer business, saying it would not enhance value. the idea to sell its p.c. business came in august when shares were over $30. tonight, they're just below $28. drug giant merck saw a better
than expected third quarter. earnings per share were three cents better than estimates. sales of diabetes drugs and its cervical cancer vaccine helped push up the bottom line. the company also pushed up the bottom end of its outlook, helping shares push higher by more than 2%. merck stock is over $35 per share tonight for the first time since july. other stocks moving on earnings news included real estate service firm c.b.r.e. up 11%. revenues rose across the globe for the company. semiconductor maker advanced micro devices rallied 7% as it boosted its outlook. but travel website's expedia outlook was disappointing, leading to a 6% stock drop. finally, the euro currency has taken its lumps due to the situation in europe. this chart shows how many u.s. dollars it takes to buy one euro. tonight, it's at $1.41, after a
big pop this week. and that's tonight's market focus. the stock market continues trading close to three months highs but tonight's market monitor still is finding good bargins. he's gary motyl, chief investment officer at templeton global equity. gary, welcome back to nightly business report." welcome back to nbr. >> thank you, tom. >> tom: finding bargains despite a 10% rise in s&p 500 since its october lows, have we come too far, too fast? >> i think the markets have made a reasonable recovery. and the news out this week was very supportive. the news. of course, came not only from the u.s. gross domestic product in the third quarter up 2.5%, but perhaps you're referring to the news out of europe, finally having to deal with the greek debt situation. is it big enough s it enough. >> we think this is a very
strong step but a strong step and a long path. i think when you look at what's happening in europe, you are now able to provide liquidity. this should stabilize the markets. it should be supportive of the banks and the italian debt markets in particular. >> tom: does it change your investment strategy when it comes to european stocks? >> not really, because most of this was anticipated. and we expected some type of solution. this is still short term a good step. really hasn't changed anything from a valuation basis. and the prospects still look pretty good for a number of the companies there. >> tom: so perhaps it even makes you want to put some money to work in europe now that you have that stabilization, correct? >> we have a good exposure to europe and it's interesting that our analysts have come up with a number of new names in the last months. >> tom: we'll have a couple of those names in a moment they are european-based. but i want to ask you, you have the european situation at least beginning to be put to bed. the u.s. growth, where in the world are you finding the best bargain
opportunities? >> actually finding some good opportunities in asia. those markets have replace-- retraced significantly in the last few months. and some of our recent buys have actually been coming out of and some of the asia asian-- to markets. >> tom: and you look them attached to china because we have had a lot of concerns about the chinese economic growth. perhaps some talk about some of those banks being overlevered. >> we think some of the concernses on china are overdone. we not in the camp that expect ace hard landsing. i think the recent numbers out of china were very good and the gdp numbers out last week, pretty solid number. we expect that to continue as you move through 2012. >> tom: you mentioned developing asian. what about developed asia. specifically japan. the last time we had you here was after the earthquake and tsunami. you had a japanese stock pick back then. i will ask you for an update in a moment. but generally speaking do you think it's on the road to recovery? >> there as been a pretty solid recovery by most of the companies affected by the tsunami and earthquake. we are not finding quite as
many new names in skrp an it is strictly a matter of valuation. >> tom: we will update that japanese pick in a moment. you mentioned some european stock ideas, here they are. royal dutch/shell, of course the anglo-dutch oil giant here in the low 70s for us. american depositary receipts. lower production we've seen from exxon mobile and chevron but strong profits driven by energy prices. >> we like royal dutch. we think it has a very good energy profile. it has been very strong, exploration and production we expect that to continue to show good gains over the next two years. and very importantly here is a company that has excellent position with regards to the oil projects, l and g projects. >> tom: liquified natural gas. >> and they have good exposure in the tar sands year and biofuels. very well round, well diversified company with an extremely strong balance sheet. and about a 5% dividend yield. >> tom: nice there, rdsa. the a shares trading in the united states.
drug science fantasy, you like energy which has been leading this market. health care a laggard. what to expect out of sanofee. >> they started to perform better in the last few weeks, we believe that is indicative of what will occur in 2012 and 2013. >> sanofee say stock that is selling at about an 8 multiple, about a 5% dividend yield. we expect earns to rebase in 2012, that will be the end of the off patent issue. and from there we expect high single digit earnings growth over the next two years and we expect a dividend to be raised through that period as well, getting good exposure in cancer, die boat ease drugs, the recent acquisition of genzyme is coming along nicely. again another nice product portfolio there. so this looks like an excellent total return stock to us. >> tom: fair enough. let's look at those april 1st 2011 picks. we mentioned a japanese stock. that was toyota moters, down 13.5% since then. you were still in asia with china mobile but 2%. dow still like these two? >> china mobile is on track
this is not the most exciting company but the fundamentals look good. dividend yield looks pretty safe. >> tom: how about toyota. >> here is a company just back on track with their production and then the recent floods in thailand will set them back again but in the long term the company is very well-positioned, still an immensely strong balance sheet and it looks like their product array will improve never the next 18 months. >> tom: do the funds have exposure to these stocks. >> yes, they do. >> tom: glaree, always good to sigh. nice you have here. >> thank you. >> tom: our friday market monitor guest gary motyl with templeton global equities. we mentioned earlier appliance maker whirlpool plans to close a plant in arkansas, eliminating 5,000 jobs. it's just the latest american manufacturer to cut payroll. in the past four years, a third of all jobs lost in america have come from the manufacturing sector. on tuesday in iowa, five of the republican presidential candidates will participate in a forum focused on the economy and manufacturing. i am co-moderating the event. we will have coverage of it here on "nightly business report."
here's what's on our agenda for next week: mark skousen is our market monitor guest. he's editor of forecasts and strategies. federal reserve policymakers begin a two-day meeting on interest rates. their decision will be released on wednesday. next week: all eyes will be on friday's employment report letting us know if the economy lost or gained jobs this month. google is not giving up on its efforts to conquer your television. today the internet search engine giant launched its second push to bring its web tv software to the tv screen. google tv lets users search the web and watch video on their televisions. the google tv 2.0 includes new tools to recommend movies, t-v shows and online videos. its first version didn't go over well with consumers. analyst say it was too expensive. the official beginning of holiday shopping season begins in just four weeks. and target hopes to get an early start.
the great american companies of the last century were names like general electric or i.b.m. firms that were built to grow and mature into an enduring value. will we be able to say the same about today's hot companies like linked in or pandora? here's harry lin, executive in residence at idealab, a technlogy incubator in pasadena, california. >> the title of a 1990s business-book classic, built to last, is coming up a lot in tech circles. built to last examined such storied corporate giants as 3m, ford, and hp. quaint, huh? but let me not bash industry giants. let me instead highlight something very unusual, that's becoming more usual in the startup world. early-stage high-tech entrepreneurs are liquidating their equity really, well, early. used to be that founders, c.e.o.s, and first-round investors held their stakes long and strong until the startup had achieved true value. then, when the company went public or was acquired, those
parties could cash out, earning their rewards. i won't name names-- groupon, dropbox, airbnb-- but some buzzed-about startups are using their venture-capital rounds to pay-out those parties. so your startup is un- profitable, not a household name, has lots of me-too competitors, and you're rewarded with tens of millions of dollars? columnist james temple derides this as not built to last, but built to flip. or put more nicely: sucker the next investors before anyone finds out your startup won't succeed. overly harsh? time will tell. i'm harry lin. >> tom: finally, happy birthday to the statue of liberty. she turned 125 today and got a bit of a facelift with new web cameras on the torch. lady liberty was a gift from france to celebrate u.s. democracy and freedom. the u.s. was responsible for building the pedestal, but political infighting made it difficult to come up with the $100,000 to do it.
fundraising moved so slowly, publisher joseph pulitzer criticized the rich who failed to finance the statue's pedestal. the bullying was successful, but maybe not for wealthy americans. the $100,000 was raised in donations, averaging 83 cents each. and that's "nightly business report" for friday, october 28. i'm tom hudson. goodnight, everyone, and have a great weekend. we hope to see all of you again next week. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt