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tv   Nightly Business Report  PBS  August 24, 2010 6:00pm-6:30pm PST

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>> tom: housing takes a turn for the worse as july home sales plummet 27%. >> we had the stimulus medicine, now we take the medicine away and now we are feeling the withdrawal symptoms. >> susie: wall street focused on those withdrawal symptoms, as worries about the stalling economy sent stocks tumbling. you're watching "nightly business report" for tuesday, august 24. 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 >> tom: good evening, thanks for watching. another nasty day of selling on wall street, with the dow losing 133 points.
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susie, the catalyst this time was a plunge in sales of existing homes. >> susie: tom, the drop in july sales was much bigger than expected, 27%. the report kindled more fears tom: about the economy, and raises the question of how much longer before it will grow again. conflicting indicators make it difficult to answer that. investors get a daily dose of gloomy economic news, but they also see a healthy pick-up in merger deals. indicating a level of optimism. we have two reports tonight, looking at the bullish and bearish trends affecting the markets. we begin in washington with stephanie dhue, and a closer look at today's dismal housing report. >> reporter: without a buyers' tax credit for support, economists expected home sales to drop off, but not off a cliff. sales in july plunged, and with so many homes on the market, it will take more than a year to clear current inventory. national association of realtors economist lawrence yun says the
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tax credit helped sales but didn't cure the problem. >> we had the stimulus medicine, now we take the medicine away and now we are feeling the withdrawal symptoms. >> reporter: one of those withdrawal symptoms? lower prices. >> if it extends much longer, then we could see some potential decline in home prices because there is far too much supply in relation to demand-- you put pressure on prices to fall. >> reporter: mortgage rates are sitting at record lows, but that's not boosting sales. instead, more people are looking to refi where they are. and mortgage bankers association economist jay brinkman says that could eat away at future home sales. >> you would normally look at, "gee, do i want to move from a $300,000 house to $500,000 house? how much more am i going to have to pay in a mortgage relative to where i am now?" if you add, "gee on my $300,000 house is only 4.65%, versus
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wherever mortgage rates are going to be a year or two from now, on a bigger amount." i think that's actually going to be somewhat of a disincentive >> reporter: all this is a bummer for stock investors who see housing's weakness as a drag on the economy. policy analyst andy laperriere thinks the federal government is done trying to stimulate home sales. >> we spent about $30 billion to borrow home sales from the future, and what we saw today is that the future is here, so what we gained a few months ago, we lost in july. >> reporter: the outlook for the housing will depend on what happens with jobs. when more americans get back to work and are more confident in their positions, home sales are more likely to pick up. stephanie dhue, "nightly business report," washington. >> reporter: this is scott gurvey in new york. there's nothing wall street likes better then a deal. and, as citi's mark shafir notes, announced deals are up sharply. >> i'm a little befuddled by it. in that, we had seen transaction
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volume run around $180 billion a month pretty much consistently. july picked up a little bit, and then august pretty much exploded. so, it's too early to call a trend, but it's certainly encouraging. >> reporter: deals have been in raw materials, financial services, and technology. just the sectors one expects to lead a recovery. but a comparison study from standard and poor's tells a cautionary tale. while activity is up, richard peterson notes deal-making had nearly stopped. >> deal activity contracted when credit was drying up. now we're sort of going, we're reverting back almost to a normal pace of deal activity. so, in a sense that, is this a boom? i think its less of a boom as just a return to a normal level of acquisitions and consolidations. >> reporter: one factor feeding bullish expectations for the m&a market is the tremendous amount of cash sitting in company vaults. one estimate says firms have $350 billion more on hand than
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they did at the last m&a peak in 2007. >> that's a lot of buying power. in addition, there is financing pretty readily available not only in the investment-grade markets, but also in the leveraged markets as well. so financing is not really an issue. now the amounts' aggregate size of the commitments might be a bit smaller than they were pre- crash, but on balance there's a lot of money available to do deals. >> reporter: there is also a desire to grow in a slow economy, a situation where corporate consolidations may be the quickest way to bigger profits. >> if in fact we're in a new normal, looking at sluggish to anemic growth of 1% or 2%, and you can't grow your business organically, what better way than to make an acquisition? and you also see divestiturtes-- companies that are shedding divisions and units that are not performing up to par. >> reporter: several blue chip companies, including mcdonalds and i.b.m., have tapped the credit markets recently, leading to speculation they are on the
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acquisition trail. scott gurvey, "nightly business report," new york. >> susie: here are the stories in tonight's n.b.r. newswheel: stocks on wall street fell sharply as investors reacted to today's dismal housing report. the dow fell nearly 134 points, the nasdaq lost almost 36 points and the s&p 500 was off 15.5 points. as the selling picked up, so did trading volume. higher on both the big board and the nasdaq. house minority leader john boehner called on the president to get busy fixing the economy, starting at the white house: >> president obama should ask for-- and accept-- the resignations of the remaining members of his economic team, starting with secretary geithner and larry summers, the head of the national economic council. >> susie: boehner also wants the president to veto future tax hikes, keep the bush tax cuts in
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place, and an immediate 25% cut in domestic discretionary spending. vice president joe biden quickly fired back, saying the congressman is nostalgic for bush-era political rhetoric. and, worries about the stalling u.s. economy pushed down oil prices. in new york trading, october futures fell 2% to $71.63 a barrel. >> tom: still ahead, tonight's "word on the street" is "security." james rogers of joins us for a look at some under-the-radar computer security stocks. >> susie: russia's economy is picking up and recovering from the global financial crisis. as we continue our series on investing in the so-called brics-- brazil, russia, india and china-- tonight we focus on russia. its economy grew more than 4% in the first half of this year, after tumbling almost 8% in 2009. i asked about the outlook from evan checkerov, chief economist for russia at bank of america merrill lynch.
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>> because of the economic growth, there is 5.5% this year. this should be a very good performance relative to many economies, but as far as some emerging market economies like brazil, china, and india, it will not be as good. for example, for china, we expect around 10% growth. for india, 8%. and for brazil, 7%. so the 5.5 g.d.p. growth for russia for this year is relatively the worst, but, still, on a global basis, quite strong. >> susie: i understand that russia's unemployment rate has been coming down and it stands at 7%. and the inflation situation is also improving. so how would you describe the health of the russian economy? >> i think the russian economy is in very good shape at the moment. in particularly in compared to the very specific construction of the economy's experienced last year. >> susie: half of
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russia's growth comes from oil and gas. given that the oil prices are hovering around the $70 a gallon price, how could that impact the economic growth? >> indeed, russia is an economy that depends on natural resources, particularly oil. we estimate that half of the very impressive growth performance that russia boasted between 1998 and 2008 is due to oil. so if oil prices were to go to the downside, we do expect to see some down effect on the economy. in our estimate, a 10% decrease in our prices may decrease g.d.p. growth by around 100 basis points. in other words, if oil prices were to full from 70 to 60, 65, we could see the growth rate of the economy around 4%, rather than 5.5%. >> susie: let's talk a little about foreign investment. we've seen a big drop in foreign investment in
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russia from 2007, down from 120 billion, and we're talking about loans, portfolio investments, investments directly in a company. where do things going from here, higher or lower? >> that's a very good point. and we think it is very significant for the russian economy to attract foreign investments. in fact, russia compared to other emerging economies, it is faring quite, quite badly in the terms of the foreign direct investments and overall investments it attracts. i think part of the reason why the russian economy is not able to do as well on that front is because the overall business environment is not very friendly. this economy that has a lot of regulations in domestic businesses, it takes a lot of time to set up businesses. so i think that this is a factor, a combination of factors, that makes foreign investors less likely or willing to invest in our economy.
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however, as we expect, the economy will improve over the course of the year, and especially in 2011, we do expect to see some pickup in foreign investment. >> susie: as you know, there has been a lot of speculation about the upcoming elections for president in russia. how do you think the outcome of those elections will impact foreign investment in russia? >> yes, indeed, there is a lot of speculation about the elections in our opinion. if pre pred medevy were to be chosen, it will have a better outcome for the economy. i think the key question about the president at the moment is not whether he has good ideas. the key question is whether he has the necessary grit, determination, and probably most importantly, the necessary institutional support in order to implement these reforms. but, again, on the margin,
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we believe that the president will be better for the russian economy in the median interim. >> susie: ef >> susie: our series of interviews on the bric economies continues tomorrow, as we tackle india. >> susie: tom, as you know, traders like to keep score, and the one thing they're keeping score on here at the new york stock exchange is the dow, very close to the 10,000 level,
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about 40 points away from going down to 10,000 again. >> tom: yup, flirting with that 5-digit figure. let's get to it in tonight's "market focus." >> tom: weak home sales hurt investor appetite for stocks, with the major indices down for the fourth straight session. this month is shaping up to be the worst since june. since the first of august, the dow industrials have lost more than 4%. despite some high profile merger deals in tech, the nasdaq has lost almost 6%, and the s&p 500 is down 4.5%, at a seven-week low tonight. basic material stocks led the way lower today, hit by falling commodity prices, as well as worries about the housing market and slumping demand. the ishares basic materials exchange traded fund shed more than 2.5%.
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it's at a one-month low. steel stocks were among the worst performers. a.k. steel, allegheny tech and u.s. steel each fell by more than 4.5%. since topping out in april, the trio has lost at least a quarter of their value each as slowing economic data has come in. while existing home sales slowed, new home sales and housing starts will be released tomorrow. a few homebuilding stocks were able to fight the weak market to close higher. k.b. home and ryland group closed up after hitting new 52- week lows earlier today. lennar came within 40 cents of a new low before finishing higher. some analysts say the market may be anticipating a bottom in housing. medical devices provided no port in the market selling today. medtronic's latest quarter showed up with weakness in its core business. the bottom line came in as expected, but revenues were down, including a drop in its cardiac rhythm operations-- its biggest business. medtronic was unable to capitalize from competitor boston scientific halting shipments of heart defibrillators for a time. shares hit a new 52-week low
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today as the firm lowered its earnings forecast for the year. stryker focuses on joint replacements instead of heart devices, but shares got caught up in the selling. they closed down more than 6%. st. jude and boston scientific are medtronic competitors, and those two each fell on the heels of medtronic's drop in revenues. two big brick and mortar booksellers saw heavier-than- usual volume. first, barnes & noble lost more money than anticipated in its latest quarter. margins and same-store sells all dropped. the store said it faced significant legal costs last quarter, and may in the future, over its fight with investor ron burkle. the two have been battling over board of director seats. barnes & noble shares fell more than 2%. borders group, meantime, dropped more than 7%, now just a dime above one dollar per share. borders chief financial officer resigned. finally, as stocks have been sinking, investors continue
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buying up government i.o.u.'s. this is the yield of the two year government bond, dropping to a new low below 0.5%, well below the low yields two years ago, when the financial system nearly collapsed. uncle sam auctioned off $37 billion of two-year bonds today at these record-low interest rates. and that's tonight's "market focus." >> tom: while investors may not be in a buying mood, companies are. as we reported earlier, merger activity has been picking up, including in the technology industry. tonight's "word on the street?" security. as in computer security. james rogers reports for
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he joins us from the nasdaq. nice to see you again. >> thanks for having me. >> tom: intel sparked interest in the space of the $8 billion bid with security firm mcafee. so what makes them think there are more deals to come. >> i think the mcafee deal is a surprise. if you've been watching the space, a lot of the security companies have been doing really good work, growing their revenue. it is a really attractive spector. there is every indication we could see more of this. >> tom: you brought three under the radar stocks that may be right for the picking. the biggest here is check-point systems based in israel. it's market value rivals that of mcafee. it would be another sizeable deal if one would happen. does it limit its possible acquirers troag. >acquirers? >> it is is something we should be aware of. i like check-point. they're one of my top security picks of this
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year, along with mcafee. they recently put out record second quarter results and raised the outlook. i think there is a really good story for this company moving forward. some of the things i really like about them, i feel, for one thing, they're seeing strong sales growth along all of the major product lines and geographies. i think the check-point story at the end of the day has gone largely unnoticed by investors. even as a stand-alone company it is a lot of potential for them. >> tom: arc site, another one that you write about, has clearly seen a big rally off the june low, up almost 50%. arst, the ticker on this one. does that kind of rally defer any kind of merger talk. >> there is good potential this company could get bought. but even as a stand-alone, they've got a really, really great story. it has a really healthy forward to rise ratios. as you say, the company is
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currently trading around $28. it is not massively cheap, so maybe wait for the cheap point. >> tom: earnings are due out next we're for arc site, and finally, blue coat systems. not a traditional security play. the chart looks much different from the other two. weaker earnings last week took the stock down. does it take it off the table? >> i think it could present a great buy and opportunity for investors. blue coat put out mixed results, european sales in particular weighed heavy on the company's numbers. the stock was trading down and all of the annuals were giving the company by rates. but there are a couple of things that commend this company moving forward. one, they've maintained a strong operating margin, and two, and this is the most important thing, management is really saying we've got these issues and we're going to address them. this is more of a long-term play, two to four quarters, analysts
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are saying before they get on an even kill. >> tom: you can read james article on therein is a link to it you will find on our website. thanks, james, james rogers with >> susie: here's what we're watching for tomorrow: quarterly results from homebuilder toll brothers, along with the july reports on new home sales and durable goods. also, new rules for shareholders to nominate a board director. the securities and exchange commission votes on a landmark proposal that could shake up board elections at many public companies. >> susie: the justice department will appeal a ruling that bans embryonic stem cell research. that appeal is expected to be filed this week. the move was anticipated, and comes one day after a judge stopped all federally financed research using embryonic stem cells. while the courts sort it out, the head of national institutes of health said stem cell research will continue on projects that already have their
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money. >> tom: federal safety officials are investigating whether fuel tanks on three million jeep grand cherokees pose a fire hazard. the probe looks at cherokees built between 1993 and 2004. consumer group the center for auto safety says the s.u.v.'s fuel tanks could catch fire in crashes. while chrysler says the cherokees are perfectly safe, it is cooperating with the investigation. tt
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>> susie: a look at how one startup company is changing journalism, and not necessarily for the better, according to tonight's commentator. c.e.o. of internet startup firm >> there's an internet startup in santa monica, california, called demand media that filed this month to go public. demand generates more than $100 million in revenue annually, but isn't profitable. but, i'm talking about it because it's fascinating. its name is its business. follow me on this: demand media analyzes internet search and keyword popularity. based on what topics and subject matter appear to be hot on the web, demand then solicits freelancers to write short articles peppered with those keywords. demand then posts those articles online, gets them indexed by
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search engines. oh, and it plasters those articles with ads-- ads about the topic the article is about. as long as the ads generate more money than the cost of creating the article, demand makes money. but you make money on ads on web pages when they're clicked, so demand's articles sort of need to be not as interesting as the ads. demand creates thousands of these articles every day. see? it's media dictated by demand. traditional journalists, writers and media companies think demand is brilliant. and the devil's spawn. it's anti-journalism, they say. it's turned writing into outsourced piecework. it's the tail wagging the dog. and it's how sections of some hearst newspapers and a portion of "usa today" are filled. yes, newspapers are now paying for something that contributes to their own irrelevance. i guess if you cant beat 'em, syndicate their content. i'm harry lin. >> susie: that's "nightly
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business report" for tuesday, august 24. i'm susie gharib. good night everyone, and good night to you too, tom. >> tom: good night susie. i'm tom hudson. good night everybody. 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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