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tv   Nightly Business Report  PBS  October 25, 2011 6:30pm-7:00pm EDT

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>> we had slightly softer numbers on housing, the consumer sentiment has come in weaker than expected and, on top of that, there's continuing uncertainty about the resolution in europe. >> susie: investors focus on the three e's, the economy, europe and earnings. from huge jumps in profit to big misses by 3m and amazon, there was mixed news on each front. it's "nightly business report" for tuesday, october 25. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening, everyone. my colleague tom hudson is on assignment. amazon stunned investors with a big miss today. after the market close, amazon reported a 73% drop in quarterly earnings and the stock plunged as much as 20%. the company earned 14 cents a share, ten cents below analyst estimates, even though amazon reported strong sales of its popular kindle tablet. revenues surged 44% to $10.9
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billion, but that was also below expectations. amazon also warned that the earnings outlook for the rest of the year will come in lower than previous forecasts. earlier in the day, 3m disappointed investors as well, saying sales growth will be sluggish in the current quarter. that warning from a dow component was one factor weighing down the blue chips. the dow tumbled 207 points, the nasdaq lost 61 and the s&p 500 dropped by 25. one reason investors are nervous these days is the growing number of large u.s. companies issuing profit warnings. as erika miller reports, even though the third quarter reporting season is only about a third of the way through, more companies than usual have negative outlooks for the future. >> reporter: today, it was 3m. yesterday, it was netflix. and texas instruments. in the past two days, a half dozen big u.s. firms have issued negative outlooks for their businesses, worrying investors. according to s&p, a total of 43
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companies have issued guidance for the fourth quarter. of those, 28 have been negative and only 11 positive. in other words, for every company issuing positive guidance, 2.5 others have been negative. that's worse than the third quarter and the historic norm. s&p's christine short says the reduced fourth-quarter forecasts are largely concentrated in three industries. >> the companies that have provided the most negative guidance are in industrials, tech, and consumer discretionaries. really, those are the companies that have a good idea where they are going to end come december, because they already have their orders throughout the rest of the year. >> reporter: in addition to softer u.s. consumer and business demand, companies are blaming lower outlooks on the european sovereign debt crisis and weaker economic data from asia. but, it may surprise you that so far, wall street analysts have not drastically reduced their earnings estimates for the s&p 500. >> we're still looking at
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double-digit growth rate for q4. we are looking at about 12% at this point. it's still a very strong growth. i think analysts aren't going to reduce estimates as sharply at this point in the game. >> reporter: what's clear is that the increase in warnings also increases the risk that the stock market will have trouble finding its footing after three months of turmoil. that said, analyst vadim zlotnikov is not expecting a sharp sell-off in coming weeks. >> what's been driving the market and driving volatility is not a dramatic change about the fundamental outlook, it's been a dramatic change about perception of risk and policy and macro issues as opposed to company- specific issues and, until those >> reporter: in spite of the warnings about the fourth quarter, third quarter results have been coming in surprisingly strong. two thirds of companies are beating expectations and earnings growth is expected to be about 13%, which is better than the second quarter. erika miller, "nightly business report," new york >> susie: also weighing on the
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markets today? europe and some mixed reports on the u.s. economy. in europe, a plan to tackle the region's debt crisis remains elusive. two european officials say the sticking points involve how to reduce greece's massive debts and how to boost the firepower of a bailout fund. leaders are trying to come up with a comprehensive solution for the region's debt crisis in time for a summit tomorrow. questions about whether european leaders will agree on a solution pushed gold prices higher. they spiked more than $48, or nearly 3%. gold closed just over $1700. meanwhile, americans are getting more nervous about the economy. consumer confidence plunged this month to levels not seen since the recession ended in 2009. worries about jobs and business conditions are to blame. the conference board says its consumer confidence index dropped to 39.8 in october. a reading above 90 indicates the economy is on solid ground. separately, a report shows home
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prices stabilizing in some hard- hit parts of the country. the standard & poor's/case shiller index shows prices increased in august compared to july, the first straight monthly increase. of the 20 major u.s. metropolitan markets, 10 reported higher prices from a month earlier and 16 showed improved annual returns. still ahead, giving teenagers a lesson in understanding student loan debt. texas governor rick perry is campaigning to simplify taxes. the republican presidential hopeful unveiled a plan today for an optional flat tax of 20%. >> each individual taxpayer will have a choice. you can continue to pay your taxes as well as the accountants and the lawyers under the concern tax system that we got, or you can file your taxes on this postcard.
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the plan would let taxpayers choose between paying taxes in the current system or paying 20% of their income. he said his proposal would balance the budget by the year 2020 and cap federal spending by 18% of g.d.p. also, he promises to reform social security through measures like allowing young workers to have private retirement accounts and allowing state employees to opt out of social security. perry says his "cut, balance and grow plan" is a way to fuel the economy and dri dveown dthitutg icul es on taxpayers. but the proposal already has critics. >> his plan needs to be coupled with exactly where he's going to cut government spending, but a if rick perry really wants to deliver tax relief, meaningful tax relief to the american people so that we can grow the economy and create jobs, he's got to eliminate all the government programs and spending that make those taxes necessary. because at the end of the day, deficits do more harm to the
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economy than taxes. >> susie: governor perry trails in the pollt s behind front-runr erman cain, whose 9-ls9-an9 aplo incl a flat tax. meanwhile, the c.e.o. of honeywell is offering up another type of growth plan. dadavid cote says the u.s. needs an american competitiveness agenda. that was the message he proposed today to a group of business leaders and policymakers meeting in new york. honeywell is a $33 billion industrial conglomerate that has many brands consumers recognize: thermostats, garrett turbo chargers, auto products sold under the name of prestone and autolite-- it also makes aerospace systems. as we continue our series "how to fix the economy," i asked honeywell's david cote, "what should be america's competitive agenda?" >> there's six that i point. to the first is resolving the long-term debt problem. the second is chili having an energy policy. the third is path and science
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education. the fourth is infrastructure. the fifth is free trade and a more comprehensive nuanced relationship with china. the sixth is tort reform. and these are all meaty issues to address with the biggest most imminent one being debt. >> susie: so where do we start in what should we focus our efforts on? is it the debt? >> yes, yes. government wants... they're all talking about jobs, but the biggest thing they could do to stimulate jobs is to get that debt problem sorted out because if they just remove the uncertainty blanket that's over everything right now, that would do more to stimulate demand and to stimulate confidence than anything else they could do. >> susie: all right. so the debt problem becomes resolved. then what would you do differently as a businessman? >> if all of a sudden things are growing faster, i'm going to hire more people. i'm going to invest in capital more than i was before. if they don't lift that
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uncertainty blanket so that demand doesn't ever really come back the way we'd like it to, then i'm not going to invest. i'm not going to hire. >> susie: you also talk about infracture. we all know we have to fix our roads and rails and bridges. but how do we pay for that? washington is in no mood to spend money right now. >> there is such a thing as good spending. there is spending that only government can do. there are functions that only they can do, and they have to. if you don't have good roads, bridges, ports, you don't have a good air traffic control system which we need, you don't have readily accessible broadband for everybody, you're going to end up in a position where you can't grow as rapidly as you might like, no different than if you're in a business and you look at it and say, i've got a product that loses a bunch of money. well, i need to stop that from happening. but at the same time i'm fixing that, i've got these other businesses that are doing pretty well. i need to invest in those. you have to find a way to do both. >> susie: you talk about getting more kids studying math and science. where are we falling short? is it that we don't have the
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right kind of education? >> i think it's just we don't excite kids about going into engineering or math and science anymore. we need to get more of that. we need to recognize that path and science education is really what propels you. we need that... i call it that sputnik moment like we had in the '50s and '60s that got everybody focused on, wow, we really have to be doing something here. >> susie: so when you talk about "the sputnik moment," what should businesses do? what should a company like honeywell do? >> we're all going to try to make sure that we do our bit, but unless it's a huge amount of everybody doing the same thing, which we're unlikely to dork it's really not going to work. this is one of those things that seems to me needs to be driven by government, by the press. those are the places where people can start telling that story and it can become an inspiration. >> susie: a lot of the things we've been talking about here are long-term, structural changes, but what are some of the short-term fixes that will give a boost to the economy this
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year, next year? >> there's a very short-term aspect of energy policy that could be handled right away. if you could immediately have more drilling and have more availability of both oil and gas and drove gas prices down to $2 a gallon again, that's like a tax decrease for everybody who is living paycheck-to-paycheck. it just gives them more money to be able to spend on other stuff instead of spending the money overseas. that would be another big one they could do right away. >> susie: are there any other short term fixes that will create more jobs and put more americans back to work? >> no. everybody wants these little silver bullets. if all of a sudden you remove that debt overhang on people and you had money, more money in people's pockets than they had before because they're not having to spend as much money on gas, that's the sort of thing that makes a big difference. but government trying to think of all these little programs of theirs that spend some money here, spend some money there, that does nothing. all it does is make people feel
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better that something's happening, but it's not going to have an effect. >> susie: big news from big blue. i.b.m. named a new chief executive late today. virginia rometi takes the helm in january. she's been with i.b.m. for 30 years. the promotion makes her one of the highest-profile female executives in corporate america.
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>> susie: the october rally hit several roadblocks today, including more drama in the eurozone and disappointing earnings news. let's take a look in tonight's "market focus." the dow had been gaining momentum on hopes for a european debt solution, but it reversed course today. as we mentioned earlier, an earnings miss and negative guidance from 3m sparked the selloff right at the opening bell. 3m is the first dow component to disappoint wall street during this earnings season. at $1.52 cents a share, its profits were nine cents below estimates. the shares lost 6% today and are down nearly 11% for the year. engine manufacturer cummins also raised a red flag about its future sales. the stock fell after cummins revealed it now expects full- year revenue of $17.5 billion to $18 billion. the company cited growing worries about the economy.
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it was a different story for dow component dupont. the chemical giant soundly beat estimates with profits of 69 cents per share. thanks to solid demand, dupont has raised prices on many of its products, including a key ingredient used to make paint. so far this month, its shares are up nearly 17%. turning now to a trio of steel makers getting hammered in today's trading. the metals companies are becoming less optimistic about future business. a.k. steel shares fell nearly 14%. that's after the company postponed its fourth quarter outlook. u.s. steel fell about 10%. the company said it will post a loss in q4. and, the nation's largest steel maker, nucor, fell 3%. its c.e.o. blames china's unfair trade policies, in part, for the steel industry's troubles. a quick update on former wall street darling netflix. the shares plunged 35% today. as we reported last night, the company said it lost nearly a million subscribers in the third quarter.
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netflix says more defections are likely as customers continue to protest recent price increases. it was the biggest loser in the s&p 500 today. back in july, this stock briefly traded above $300 per share. first solar shares got blindsided today on word that c.e.o. rob gilette is stepping down. the company confirmed his resignation but had no further comment. the stock sank 25% today and are down 67% in the last few months due to competition from china and worries about the solyndra scandal. one stock getting pumped up was under armour. thanks to some tax benefits, the sportswear maker's third quarter profits jumped 32%, and management is forecasting 25% revenue growth next year. the stock hit an all time intraday high on heavy volume before settling out the session up 5%. and finally, a bad day for the brokerage firm that former n.j. governor jon corzine is running these days.
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shares of m.f. global buckled as the firm's exposure to europe's sovereign debt is hampering its goal to become a leading boutique investment bank. the company posted a loss of nine cents per share versus a profit a year ago. moody's downgraded the stock yesterday and today the stock sank nearly 50%. based on that drop it's lost more than three quarters of its value this year. and that's tonight's "market focus." >> susie: with the end of the u.s. involvement in iraq in sight, the obama administration announced today it will now focus on trying to secure jobs for returning veterans. president obama's first initiative calls for community health centers to hire 8,000 vets over the next three years. the president wants to use his executive powers to work around republicans in congress opposing his $447 billion jobs plan.
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the unemployment rate for veterans who've served since the 9/11 attacks is 11.7%. the national average is 9.1%. the white house is also releasing details of president obama's plan to bring relief to those with student loan debt. the plan would make it easier for students to consolidate loans. the administration is also pushing a new project, know before you owe. darren gersh recently visited a high school to find out if students really know what they're signing when they take out student loans. >> reporter: baltimore county's dundalk high school sits in a blue-collar neighborhood where many parents never went to college.
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cynthia vetri's job is to make sure her students get that chance, which means teaching them everything from how to take the s.a.t.s to how to get a student loan. >> i don't think that they realize that that's another debt in addition to a mortgage or a car payment. >> reporter: vetri talks openly with her students about the loans she is now taking on to get her masters degree, but it's
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well, to discuss that, joining >> tom: so when it comes to building a bond portfolio, what do you need to keep in mind? well, to discuss that, joining us is george strickland, managing director of thornburg investment management. and here in our studio is john radtke, president of incapital l.l.c., a chicago-based investment banking firm.
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gentlemen, welcome to "nightly business report." >> thanks for having us. >> tom: jeff yastine reported earlier about the need to diversify ones bond holding. you run a couple bond funds. would you say owning a bond fund is the best way to achieve that kind of fixed-income diversification? >> i'd have to say yes. for most people i think that owning a bond fund gives you instant diversification plus professional management plus hopefully someone that's going to watch your nest egg very closely. >> tom: john, don't you need a large portfolio to get some kind of diversification if you're owning individual bonds versus a smaller amount of money to get that instant diversification via a fund? >> i don't think so. i just looked at some information sent out by this wab that said owning ten to 15 different credits might give you inadequate diversification. >> tom: is that enough diversification, george, do you think? >> i would tend to say no. and the reason why i say this is because a bond, your upside is sort of limited to your prince
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p-l and the interest payments you're going to receive. let's say you have ten or 15 bonds and one of those defaults. you give up one to two years of returns with one bond defaulting. so we think the numbers should be up closer to 30, 40, maybe 50 bonds before you can say a portfolio's really properly diversified. >> tom: one strategy that's often recommended for people considering bonds is to ladder individual bonds, for instance. john, how does that work? >> it's really simple, tom. it's actually buying a series of securities and staggering the mature thys over time so one is maturing giving you an opportunity to reinvest which would mitigate not only inflation but certainly reinvestment risk over time, smoothing out the earnings of the portfolio. >> tom: george, what do you think of the laddering strategy? is it possible for investors to look at a bond fund as a ladder or use multiple bond funds to build the ladder? >> oh, yes, i think it is.
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we at thornburgh have used laddering for the last 20 years with our most popular fund and i think it's most effective if you use it over a number of years so that you get the yield of a long-term bond or an immediate-term bond and the risk of a somewhat shorter-term bond as the ladder ages and the bonds move closer to maturity. >> tom: we've noticed about the questions of quality of bond ratings. guys, how does that affect really how people should look at individual bonds for instance, john? >> actually, individual bonds and bond funds carry the same credit risk and one of the concerns our buyers have and why they buy individual bonds is bond funds they go to buy a a.a. bond fund. 5% of the securities in that fund may only be a.a. it's up to the discretion of the fund manager. in many cases they're purchasing lower credits to enhance the performance of the fund. >> tom: interesting you say that. george, how about that issue, about maybe lower quality bonds perhaps within that bond fund?
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>> well, i can't speak for all bond fund managers, but we look beyond the rating agencies and i think this is something that a bond fund manager can really provide for investors. and we look to the issuers themselves, we look at their financials and my particular opinion on a rating on a bond, for instance the state of california today, i happen to think it's not an a-rated credit whereas moody's just upgraded it and thinks it's... everything's rosy in california. so i think you have to look with real suspicion on rating agency ratings these days. >> tom: john and george, thank you so much for the advice and the insights. our guests: john radtke of incapital l.l.c.; and george strickland of thornburg investment management. >> susie: so there is a lot to consider in building a bond portfolio. besides selecting the right individual bonds, bond funds or e.t.f.s, every bond buyer should also keep track of what's happening with interest rates. >> tom: susie, that's absolutely
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correct. like the stock market, the bond market has its daily ups and downs, with those moves usually reflecting changes in the economic outlook. but unlike stocks, which tend to go up along with the economy, the better the economic outlook, the worse it may be for bonds. that's because the slightest hint of higher inflation or interest rates generally leads bond prices to fall. and to keep up with interest rates and the economy, be sure to tune in to "nightly business report." >> susie: that's where we leave off for now. if you'd like to learn more about the stories in tonight's broadcast, watch our streaming video or to take part in our daily blog, go to "nightly business report" on you can also email us at >> tom: that wraps up this special edition of "nightly business report." i'm tom hudson. >> susie: and i'm susie gharib. from all of us at "nightly business report," thanks for watching. "nightly business report" is made possible by:
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this program is made possible by contributions to your pbs station from viewers like you. thank you. >> more information about investing is available in "nightly business report's" video "how wall street works". to order this dvd, call 1-800- play-pbs or visit online at
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