tv First Business KICU April 16, 2013 4:00am-4:30am PDT
tragedy in boston: a treasured american event marred by a deadly bombing. the reponse from washington and wall street. in today's cover story, a commodity panic attack. what's behind the steep and sudden drop in gold, silver and oil. plus, bankrolling: will bank profits continue to climb? and why it pays to check the airport floor the next time you fly. first business starts now! you're watching first business: financial news, analysis, and today's investment ideas. good morning. it's tuesday, april 16th. i'm angela miles. in today's first look: an unsettling trading tone on wall street as traders react to
the deadly blast at the boston marathon finish line. president obama refered to the tragedy as a 'senseless loss' and responded by calling for stepped up security. "i directed the full resources of the federal government and state and local authories to protect our people, increase security around the u.s as necessary and investigate what happened." among yesterday's major market movers, a panic sell-off that started early in the session intensified on the boston blast. the dow fell 266 points, the nasdaq 79, and the s&p 37. but it was the steady, steep declines in commodities that caused concern. gold lost $153 as oil slipped $3.56. who would have thought we would ever be talking about the boston marathon in the market? joining me now is mark sebastian of option pit mentoring. good morning to you. unbelievably,
the market did move on that explosion yesterday, mark. - yes it did. it was kind of an ugly day all around. we were already going to be down on what was going on with gold and with bad news out of china, and then this boston marathon news comes out, and anybody who would have pressed the buy button pulled their finger away, and it just allowed shorts to just dominate the whole market. we saw the s&p settle below 1550, the cash threatened 1550. just an ugly day across the board, with really no reason to buy. if this has some carry-through to it, this could be that little sell-off that everybody has been waiting on. - i know you watch some of the etfs that are related to the commodities such as the glp, slv. what do you see happening there mark? - you know, i think this is a big case of margin calls. you have got some bad news, you have got some major governments, you have got inflation that isn't happening. so you see gold start to sell off, you see margin calls. margin calls lead to more selling, and so on. and now guys are going to have to
sell some s&p positions to pay for margin calls on gold. so that is part of what we might be seeing in the s&p 500. - this could get really ugly. moving on to earnings watch, specifically what earnings are you watching? we have some big names coming up this week, including ge, mcdonald's, bank of america. what do you like up there? - all of those are really interesting. we have got google coming up, which is really turning into a tech bellwether, apple next week... this is just- we are really into the meat of earnings season, and this is where we are going to see whether, really, is earnings season going to be all right, or is it going to be as poor as the last one? - good to have you on the show. that is mark sebastian of option pit mentoring. precious metals are in a free- fall. gold has fallen the farthest, but there's been a panic of sorts involving other commodities, too. our cover story explains it's the result of a combination of forecasts. gold futures dropped faster and farther than anytime since the 1980s, closing at $1361.70 monday - a more than $200-an- ounce drop since friday. what
caused it? some say 'a perfect storm' of pessimistic predictions. "if i was holding gold, i'd get out and get back in later. i don't want to stand in front of a freight train." "the free-fall will feed upon itself for the next few days." the predictions came in a cluster last week. the federal reserve hinted that it might discontinue quantitative easing - qe-3 - this year, a policy that's kept interest rates low. goldman sachs cut its forecast for gold this year from 1 $610 an ounce down to $1545. the european commission said banks in cyprus agreed to sell off more than a half-billion dollars in gold reserves to pay creditors. china reported slower-than-expected economic growth for the first quarter of this year, which also affected copper prices. "copper is a widely used industrial metal, and if there's less construction, that's a major use of copper." added to the mix - a
strengthening u-s dollar. other commodities affected: silver, down 13%; in london, copper fell to its lowest level since october, 2010. it's hurt mining stocks. oil also fell below $90 a barrel as analysts predict weaker-than-expected demand in europe. "i would look for this to turn around. it's just speculative selling." soft commodities - sugar, coffee and cocoa - were not greatly affected by the sell- off. in fact, sugar and coffee prices are already pretty low because of large surpluses. traders are paying close attention to foreign countries that buy and sell u.s. debt. new data shows the u.s. debt tops $16 trillion. china remains the number one holder of u.s. bonds, with a $1.22-trillion slice. japan is second with $1
trillion. the number fell by $6 billion in february. "what was really interesting was that china was a net seller, and so was japan. so we are going to see what happens to that data as we are moving forward with quantative easing. there's a lot of speculation in the mortgage market that japanese asset purchase program will drive valuations in the ginnie mae market up." that was glen shultz of performance trust capital. he also notes during february, some investors gravitated out of bonds and into riskier securities, thinking the economic situation was improving in the eurozone. a missouri pension fund is suing jp morgan over $6.2 billion in trading losses - losses characterized as bets in a "high-stakes casino" placed by a jp morgan trader who's come
to be known as the "london whale." the lawsuit on behalf of the st. louis police retirement system takes the bank's management to task for not having proper risk controls in place. that lack of oversight, it says, meant executives failed to catch high-risk trades and protect investors. two of the country's most high profile - and thorniest - issues, gun control and immigration, will be debated this week. the senate is shifting the immigration reform hearing from wedesday to friday. the delay reportedly is to give senators more time to read a bill that comes out today from senators marco rubio and seven other senators. meanwhile, cnn reports a compromise deal to expand background checks on guns sales does not have the support to win senate approval. the international monetary fund is holding spring talks in washington. officials at the imf, headed by christine legarde, say greece is on track to meet its economic targets, which clears the way for the next payment of bailout money. however, a deal to help egypt has floundered, and pressure
will likely be exerted upon pakistan to cut its budget deficit and replay 80% of an $11-billion imf loan still outstanding from 2008. the faa orders inspections of more than 1,000 boeing 737 jets. the wall street journal reports that the concern is with "attach pins" that may have been improperly manufactured. if the pins fail, it can cause pilots to lose control of an aircraft. the directive was not a result of any accidents caused by faulty pins. the inspections are not expected to affect flight schedules, but could spell added trouble for boeing, which is still trying to get its dreamliners back in the air. two big-name retailers are denying compensation to victims of a factory fire where workers were making garments to be sold by the retailer. the controversy involves wal-mart and sears. a fire erupted at a bangledesh clothing factory in november, killing 112 workers. according to published reports, the two companies ignored a meeting to discuss payouts to
help victims and their families. bloomberg reports both companies have said the suppliers used the factory without the permission of walmart and sears, and that the retailers are not legally required to help them. hiring is up at foxconn, and it's viewed as a hint the next apple iphone is in the works. according to reports, 10,000 people per week since the end of march have been added on at a foxconn factory in cheng- chow, china. that's same factory that turns out iphones. the companies have no comment, but reports says the next generation iphone 5s will launch in june. a low-cost version of the iphone is expected in august. people working for jc penney are relieved to learn the retailer's latest turnaround plan does not include eliminating employees or closing stores. penney's cfo revealed monday the company is tapping into its $1.85-billion credit line to buy inventory. the retailer will take out $850 million to revamp its home goods section, which should be ready next month. nursing homes are heading
toward a critical need of employees. as baby boomers move into their golden years, the wall street journal reports the elder-care workforce will need 50% more workers. the profession, however, is considered to be low-paying at $12 an hour. the job also comes with a high injury rate and is physically draining. those considerations are said to be making it tough for nursing home operators to hire. dish network offers $25.5 billion for wireless carrier sprint. the cash and stock offer beats an offer from japan's softbank corp according to dish. the deal is seen as a sign of the dwindling power in the marketplace of satellite dishes, which aren't as relevant in an age of cellphones. sprint nextel's stock jumped on the news, closing up more than 13% yesterday. typically competitors, ford and gm are working together to develop 9- and 10-speed transmissions. the new transmissions would be used in a variety of vehicles and have a goal of improving fuel
efficiency. according to gm's vice president, engineering teams are already starting initial design work on the new gear box. microsoft is reportedly developing a smart watch. suppliers in asia have been asked to ship necessary components, but that does not necessarily mean microsoft will proceed with the project. this latest report comes amid rumours that apple, google, samsung and lg are also in the race to develop a smart watch. airports are rich with pennies and more from your pocket. in its annual survey of loose change, the tsa counts more than a half-million dollars was left behind at airport security checkpoints. as dictated by congress, the abandoned cash will be spent on civil aviation security. still to come, find out why banks are rolling in dough. but first, bill moller joins us with a taxing hangover. what you need to know about next year's taxes is coming up after the break.
attorney. who would worry about this? i thought estate planning was just for the super rich. - almost everyone needs to be worried about estate planning, even if you are not over the tax limit - very few people actually are over the tax limit nowadays with the new exemption of $5.25 million. but, other people could be subject to it in the future. - there are aspects of estate planning that do affect a lot of people. for example, gift taxes. - right. the gift tax exemption was raised to the same level as the estate tax: the same $5.25 million. it was supposed to go down to a million, so this is a good opportunity for people to take advantage of this, because with the new budget proposal, there is a good chance they could lower it back to the old $1 million, and this way they could be grandfathered. if that is taken away, their estates won't be subject to this tax, and the growth will be out of the people's estates too.
- i know a number of years ago, grandparents who wanted to give just a straight gift to children, for example, it was $10,000 a year. now that is up to $14,000, and that is a real boon for grandparents to sort of offload their cash. - right. and if you are married you can double that to $28,000, and if you have a child or grandchild who is married, you can double that again to $56,000. but there are a couple of exceptions that can increase it, such as if the grandparent has a child, say, in college, if he pays the college tuition directly to the school, it doesn't eat into the $14,000 exemption. - so you still have the $14,000 you can give tax-free. - right. so you can give away a lot of money potentially, and you can pay medical expenses directly the same way. these are two exceptions to that $14,000 limit. - you are telling me about how warren buffett, with all of his billions, he doesn't even pay estate tax. it is amazing how there are apparently so many loopholes involved. - they're not even loopholes. they are all right out in front in the tax code that people can take advantage of. you have 6000 pages in the tax code, they don't want people to find out, but i know where all these
provisions are, and everyone can take advantage if they really want to. - that's why we have to hire estate tax lawyers. all right steven, thank you so much. - thanks bill. thank you bill. still ahead, why analysts are feeling bullish ahead of goldman sachs earnings. plus, what analysts can already tell about next quarter's bank profits.
citigroup reported earnings that rose 30% in the first quarter, exceeding analysts' expectations. profits totaled $3.8 billion. simliar to other banks, citigroup has been cutting costs. citi laid off 11,000 workers and unloaded $60 billion in troubled assets. joining us now with a bank account of the financial sector, sheraz mian. he's with zacks. good morning to you. how are bank profits overall stacking up? - so far so good. we have heard from some of the best players in the industry at this stage, particularly the ones we heard from on friday, jp morgan and wells fargo. the growth rates look much better relative to preseason expectations. there were surprises - positive ones, particularly on the bottom line. top-line is a bit on the weak side. loan growth is a bit
problematic. the mortgage business appears to be slowing down. and most of the positive surprise came from the loan loss of reserves, which are relatively lower quality earnings compared to the regular coal banking earnings. capital markets business is doing well. we did not see many of those issues with the citigroup result monday morning. so it is overall not a bad picture. - and you are looking into the numbers. are you noticing any positive or negative signs going forward into the next quarter that could be revealed with earnings? - absolutely. the one element that had been a strong prop for earnings this quarter and also in recent months, the mortgage and financing, that seems to be slowing down. loan growth - jp morgan, i mentioned - is slowing down. and the margins remain tight for all of these banks. on the positive side, the capital markets, business trading, investment advisory, all of that is doing very well. so that bodes well for pure play investment banks and should be a recurring theme in the
coming weeks. - good to have you on the show. that is sheraz mian of zacks. have a good day. - thank you. up next, in the wake of yesterday's panic sellng, is it time to jump in and buy, or better to stay away? matt shapiro has some thoughts after this. i wanted to be in the military since i was a kid.
i served a total of 16 years. and at 19 years old, that's the first time i ever saw somebody die. coming back, i was raging. i started having pretty horrible nightmares. i started drinking a lot. i guess i never recognized it in myself. it all starts with going to the va. there's a whole community of veterans that just want to help you out. it's for the guys who couldn't come back, you owe it to them to live well. because they're not here with their families.
now to get some closing thoughts on the market today with matt shapiro, president of mws capital. good morning to you matt. - good morning angie. - i know our viewers from home are watching the situation in the market, and they are very curious with the levels that we are watching today, what do you think? is it the time to buy more or just sit on the sidelines and wait until the dust settles? - yesterday's tragedy - i had a feeling monday was going to be a tough day, but i didn't think, of course, we would have an attack like this, which, as
an american and someone who is really proud of our country, makes me really mad, and obviously this big sell-off in gold carried over into the market, and then the news from boston really just took everything out of it. but when you assess the technical situation of the s&p 500, with the market being so strong, it has obviously come down to where, if you have been on the sidelines, you might want to start taking a look. - this is what i talk about all the time. i've mentioned this more than once. for people who were watching gold go higher we had calls that gold was going to go to $2,000 per ounce, and i talk about how when gold comes down, it doesn't just come down, it is a vicious and violent move. so, do you suspect that could continue? - i do, because a lot of people casually allocated to gold and under-allocated, actually, to stocks. so, yesterday was just an absolute washout. totally
understandable. no one wanted to be involved in the market given the gold and boston and everything like that. over the next few days, things will settle down, the country is going to come to grips with what happened, and stocks are still going to be attractive. gold, however, you just don't know what it's worth. and when you think a major commodity, worldwide commodity, can drop $130 or so, it puts a little pause in people that, "hey, we'll put 10% of our etf investment allocation in it." so, it is going to make people really consider. i am not really a buyer of gold right yet. - never good to have all your eggs in one basket, as it has been said. what goes through your mind, what are you specifically doing with your money, matt? - i am keeping to the long-term plan, angie, and that has never changed. invest in high-quality stocks and bonds, companies that pay dividends and have stood the test of time. and, you know, we are going to get through the various challenges. there are always challenges in the market, but as the all-time highs that were set recently show you, the market does well over time if yo