tv First Business KICU January 18, 2013 4:00am-4:30am PST
car loans are dropping to record-low levels. how to shop around for the best rates. the financial fallout boeing might face as dreamliners are forced from the sky. gold is making a big move. why billions of dollars in gold will soon travel overseas. independent hardware stores are struggling. do the little shops around the corner have the tools to last? plus, the guys in traders unplugged talk tech, airlines and debate whether jamie dimon deserved his pay cut. first business starts now. you're watching first business: financial news, analysis, and today's investment ideas. good morning. it's friday, january 18th. i'm angela miles. in today's first look: stocks on the rise. the dow caught a bid and the s&p 500 jumped above a 5-year-high on encouraging news from home
building, which offset negative news from bank of america and citigroup. gold and oil also gained groud following the attack in algeria at a natural gas plant. intel took a revenue hit as earnings topped estimates. and today is the deadline to file caims under the national mortgage settlement. the number to call and the email address are on your screen. let's get a peek at the friday trade with john brady of rjo'brien. good morning, and the s&p 500 above a five-year high, john. can this last? what could hold it back? > > i think it is going to continue to last, and the reason is that the asset markets are moving in such a way where investors i think are just at the beginning part of selling bond funds and selling bonds to buy riskier assets in s&ps and s&p futures. so, for example, consider this: at 182 yield on the 10-year note, investors are paying about 54 times the coupon they will receive over the next 10 years, where if they
go and buy the s&p 500, they are paying about 14 times future earnings. so stocks still look cheap to overpriced treasuries. > so do you expect that that treasury tumble will continue on as that rotation happens and money goes into stocks? > i do. you know, we have division among fed members as it relates to the length and duration of q/e number four. likewise on thursday we saw a big tumble in european interest rates as european interest rates had to reprice on an ecb that has now moved to the sidelines. so selling in european interest rates actually translated into selling into u.s. interest rates, with the 10-your note quickly approaching 195 yield. > john, how are you looking into the long weekend and the short trading week that is coming up? > > i think one has to be careful, specifically because traders don't like to do this, but they have to minimize risk ahead of the long weekend. first, europe is open on monday. european interest rate markets have been very volatile. likewise, we have the situation in mali. it is a small, tiny country in africa, but it can have geopolitical ramifications, and thus we'd probably look to see crude oil probably sell a little bit higher on friday here as traders and portfolio managers become a
little bit more defensive over the long holiday weekend. > especially with that situation in algeria starting to spark up. good to have you on the show. have a good trading day and a good weekend. > > thanks much, you too. the grounding of boeing 787s is expanding. after the federal aviation administration grounded all 787s operated by u.s. carriers, the faa's european counterpart issued the same order. as our cover story shows you, that list is expanding, with a lot of attention focusing on the battery system aboard the aircraft. polish airlines "lot," the first airline in europe to fly boeing's 787 dreamliner and bought ten of them, found its plane grounded in chicago after its innaugural flight from warsaw. susan witych was booked on the 787's return flight that was cancelled. in its place, the airline will rely on an older 767 aircraft. "i think it was a good decision. if there was any problem with the batteries, that's pretty important. it was a good decision. i feel safer." the groundings follow a series of mishaps in the u.s. and
japan that include repeated instances of lithium-ion batteries aboard the aircraft overheating, causing smoke, and in one case, a fire that took 40 minutes to put out. "i think there's reason for concern. somewhere inspections failed, but i think it's too soon to think of a cover-up." a variety of subcontractors make the 787. gs yuasa corporation proclaims on its website that it makes the "first lithium battery on a commercial airliner." thales communications makes the charger. "we have dozens of planes out there and batteries are made one month and then the next month, there may be a tiny difference in how that battery is produced." polish airline lot plans to seek compensation from boeing for lost revenue during the grounding and says it will make delivery of future planes conditional "that the problems that have happened so far be eliminated" - reassuring to some lot passengers.
> > would you fly the 787 in the future? "yes, no problem." air india has also grounded its six boeing 787s following a civil aviation directive in that country. carriers in chile and ethiopia followed suit. boeing's 787 helped the manufacturer nudge ahead of airbus in orders during 2012 for the first time in ten years. a big bank is taking a leap into flying. wells fargo is starting up its own jet-leasing company. originally, the financial firm was "lending" money to customers to buy or lease jets. now it's going to lease out directly. wells is taking a majority stake in avalon jet charter. jet leasing is said to be a $100-billion-a- year market. and according to reports, other large banks are likely to follow wells fargo's lead. american airlines has a new look. the new silver jets and streamlined logo are meant to look modern and vibrant, and to reflect the change on the inside of the company, according to ceo tom horton. some unions wanted the bankrupt airline to wait to make changes until after its pending merger with u.s.
airways. the pilots' union claims such costs are what sent the airline into bankruptcy. gold is on the move from new york city to germany. germany's central bank, bundesbank, will withdraw 300 tons of gold from the new york federal reserve. germany stored the gold there during the cold war to protect it, and it has stayed there - for no extra cost - as a backup currency in case of global financial crisis. now, bundesbank has a plan to move a majority of the gold back to germany by 2020. jack ewing of the international herald tribune says some believe the move is a sign of conflict between central banks. "there are some people that do
believe that this is somehow connected to mistrust between the central banks, that the fed in washington has taken a lot of risk by buying from its quantitative easing. the bundesbank is much more conservative. there is this school of thought that says they are bringing the gold back to keep it safe." ewing says the gold is worth 183 billion u.s. dollars. bargain rates continue for mortgages while car loans are looking dirt cheap. greg mcbride of bankrate.com, who always has his fingers on the pulse of interest rates, joins us via skype this morning. good morning greg, and let's start with auto loans. what's the latest? > > well angie, they continue to hit record lows, and they are still falling. on the low end, we are seeing rates below 2.5% for both new and used cars at a number of large banks and credit unions as well. > what is your advice for car
buyers? do they need to shop around? > > absolutely. shop around, because we do see a tremendous disparity in the marketplace between the low end and the higher end of the range. but then also line up your financing before you go to the dealership. that really lets you have your cake and eat it too, because you can negotiate the price of the car separately, and you are not dependent upon the dealer for financing. > turning now to mortgage rates, there was a record low 3.31% in november. what can home buyers expect? > > mortgage rates are still at very attractive levels. they have run up a little here to start the year, but they pulled back this week, and i think we will see more of that frankly over the course of the next month or so, particularly as this debt ceiling debate really gets heated up. > thanks greg. > > thanks angie.
gm is giving its north american factories a billion-dollar facelift. the automaker plans to overhaul about 70% of u.s. auto models. so far, the remodeling includes redesigns for its full- size pickup trucks, a new chevy corvette stingray and a cadillac luxury version of the volt plug-in electric car. the kaiser family foundation is crunching the numbers on medicare. it finds if medicare's eligibility age is raised to 67 next year, federal spending drops by $5.7 billion in 2014. but, health insurance payments by other americans rise by $11.4 billion. medicare is likely to come up in the debt ceilng debate. president obama has said he is willing to make minor adjustments. house republicans want severe cuts to stop the increase of medicare spending. the employment picture remains mixed around the globe. many employers in brazil, india, russia, china and the u.s. expect to add staff in 2013, according to careerbuilder. but europe will feel the pinch of austerity. a third of employers in italy expect to reduce staff this year, and hiring will stay flat in france. the u.k. and germany are slightly more optimistic, predicting a small uptick in job growth.
get out your rulers, subway's footlong sub may be just shy of its advertised size. an australian man posted a picture on facebook showing the footlong sub at just 11 inches. the photo sparked controversy worldwide. subway has not yet responded. still to come, traders reveal tech stocks to buy as more pc users get unplugged? traders wire in late in the show. but first, is the end near for your local hardware store? paul eggers reports on big box chain versus independent hardware guys, next.
"human capital." the government plans to pour $250 billion a year into education. while the country's labor market is a skilled manufacturing force, its looking to raise the stakes for its middle class, which has been steadily growing. reports say corporations like ibm, intel and general motors are eager to hire graduates from china. competing against big box stores can be a david-versus- goliath experience for small retailers. 30 years ago, hardware chains and independents split sales 50/50. now, chains dominate. as paul eggers reports, it's making survival tough for the little guys. "gracias. que paso malala" jesus davila's hardware store, "la brocha gorda," has been a neighborhood fixture for some time, operating in a mostly mexican community on chicago's south side. "the shop has been open for 30 years already. it's been open since 1985. yolo que paso como estas" customers are still coming in, but davila plans to shut the
doors in just a couple weeks. after making countless keys and helping out on hundreds of jobs, he's had enough. "let me tell you, i can do it, but i'm tired already." longtime hardware store owner joe fronaczak can relate. "we did work 72 hours a week. we're here until 9 during the week, all day on saturday and 'til 1 on sunday. management meant you were here all the time." his shop, also on chicago's south side, closed up this past summer after 60 years as a family-run business. "my hope was that my son would take over the store, but there's not enough future with the cost of insurance and everything. you just can't make it anymore." the unique charm of independent hardware stores - these shelves were all made out of scrap wood - is quickly disappearing from the american landscape. 854 have shut down in the past 5 years according to census data,
leaving a little over 12,000 across the country. competition from fully stocked national chains has proven too much for some. 'that's part of the problem with a small hardware store. you just have to carry so much inventory. and it can stay on the shelves for 5 years. we're just lucky it doesn't spoil.' support from a strong customer base did provide a good living for davila's family. > > how much money do you think you've spent here? while great business throughout the 80's and 90's financed college for fronczak's three kids. "they were able to go to school and came out of it with no debt." overall, fronczak is proud of his success, even if shutting the doors has been a bittersweet experience. "it isn't so much the store as it is the people. we got a lot
of good letters from people we didn't even know. it was good. it was good." economists predict growth in the housing sector will bring a boost to hardware stores, but for some that might not happen soon enough. still ahead, will the grounding of the dreamliner cause boeing stock to lose altitude? traders unplugged is next.
time now for traders unplugged! from the floor of the cme group: pro traders alan knuckman and andrew keene. happy friday guys! round one: up and away. boeing's 787 dreamliner is grounded. what's next for that stock, and will airline stocks run into turbulence? > > looking at boeing, we have had a decent pull-back here, and i think you can use this as an opportunity. i am looking to sell some cash-secured puts to get in at a lower level. overall, that stock has been trading between $70 and $76 essentially for the year, so it
still has a lot more upside potential. > > obviously i am going to take the reverse side and say, where there's smoke, there's fire, or maybe where there's fire, there's actually smoke. i think boeing is headed lower. it did have a nice reversal yesterday. it came out the $72.60 level, which is the 100- and the 150-day moving average. it tested that 50-day moving average at $74.03, where i thought it actually would get a little bit of selling pressure, bounce up above $75. however, they do have earnings coming out in january. i actually bought some puts yesterday, some feb. $72.50 puts, so i'm going to buy the feb. $72.50 puts, and we're going to sell the $70s against them. > > exactly. looking at the other airlines, you have love, which is southwest airlines, you've got delta-already had some pretty extended moves, so it may be a little late to chase the airlines, and typically they have been a poor investment over the past years. > > expecially with oil pretty high. > round two: death of the pc. smartphones and tablets are pushing down computer sales. what tech stock has staying
power? > > ebay. i talked about this in my number one technology stock for 2013. what did they do? another good quarter. i think that's four or five straight quarters that ebay has rallied afterward. they have paypal, they are in the smartphone market, they are trying to do with facebook can't do, which is monetize the amount of platform of mobile. > > that is an old-school stock that has rebounded as compared to some of the others: hewlett- packard and the ibm selling the computer. so, i'm not smart enough to pick out an individual tech stock since i am an older investor. so i am just going to look at the qs and look at the nasdaq. the nasdaq as 5% more to go just to make- > > what is that, a razr? > > i have an iphone, thank you sir. > round three: a whale tale. jamie dimon is now losing money in his salary because of the whale trade. what do you guys think about that? > > i don't think it really matters if he loses money in his salary if the stock continues to go higher. we actually saw a pullback in banks for the first time this year. the market looks so strong, we saw a pullback yesterday in the banks. bank of america under the 11.5 level. we saw citigroup down. wells fargo sold off on an earnings rally- > > things were up 20% in the banking sector, so a pullback is natural. but the issue here is a $6 billion error, and he
still gets paid $11.5 million. > > is he worth it? > > is he worth it? if you look at it in perecentage terms, that's 0.002% of the $6 billion. > > so he's worth it. > > so that is quite a catch for that ceo. > i like that line, and i want to work for andrew. true or false: a u.s. software developer outsourced his own job so he could take it easy at work. > > i'm going to take the opposite of whatever you say because- > > i saw this! i actually read this. yes, it is true. he outsourced it for 1/5 of the salary. but it didn't mention which company he works for, because that is pretty genius. > it was verizon. and the story is being reported. thanks guys for playing. > > thank you. > we'll be right back.
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dan deming of stutland equities joins us now for chart talk. good morning dan. > > good morning angie. > we are taking a look this morning at the volatility index - the vix. it is a measure of anxiety in the market over the next 30 days. but the vix has been very low, basically saying there is not a lot of fear in this market. what does that tell you as a trader? you trade
the vix all day long. > > i do angie. right now we are seeing in the vix complex, you are seeing the vix level very low. it is at historic levels, basically going back pre-2006, to those types of levels. so, we are seeing a very low cash symbol. but the thing we are keeping a very close eye on in the vix markets is the futures-the spread between the futures and cash. and you're seeing february future trading at about a two-month premium to cash. so you are seeing some vol buying going on down here. we have also seen some repositioning in the vix as far as options orders coming in. we are seeing some vol buyers of like the 20-strike and selling a quarter-strike. so basically, are seeing different market participants kind of setting up for the potential for a pullback, or at least hedging some of their downside risk here by buying vix calls. > all right, so they are a little concerned out there. is there a chance though that the vix could stay low for a while here? if you take a look at a chart, say, of the 20-year on the vix, it shows that every time the vix is low for a while, all of a sudden you see these spike-ups, and that means that the volatility is high and the s&p 500 is probably having a
big sell off at that time. > > that is correct. right now we made it through one major hurdle at the end of the year. we are kind of in this little bit of a breather pattern. we are seeing the s&p push up to these new highs going back to 2007 with the s&p closing at 1480 i think yesterday. so, short-term, this seems like right now all indications are the market is going to be able to hold together, and there are some buyers coming into this market. we are seeing inflows into the market. but ultimately you've got the debt ceiling coming up at the end of february, and we have seen this before angie: the market is very cyclical, and we've seen the market get up to these extended levels - and this is a pretty extended level, with a big run off of the november lows, where i was kind of seeing, like i said, call buyers in the vix, and kind of, there was an idea or inkling that the market was going to potentially pull back here a little bit over the next month. > good to have you on the show. that is dan deming of stutland equities. thanks. > > thanks angie. that's it for this week. coming up next week, how to get a seat in the business program room by warren buffett and goldman sachs that teachs entreprenuers how to go big. from all of us at first business, enjoy the long holiday weekend.