tv Nightly Business Report PBS July 16, 2011 1:00am-1:30am PDT
>> i am still pushing for us to achieve a big deal. >> without serious spending cuts, without real reform of our entitlement programs, this problem is not going to be solved. >> susie: republicans and democrats hold closed-door meetings, but not with each other, as both sides maintain a hardline stance on debt ceiling talks. >> tom: the white house deadline for a deal is one week away. the pressure is building as a warning is issued for life insurers holding government bonds. it's "nightly business report" for friday, july 15. 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. captioning sponsored by wpbt >> susie: good evening everyone. just one more week until an important deadline, july 22. tom, that's the date when president obama wants a debt- ceiling deal in hand. >> tom: susie, an agreement by a week from tonight gives lawmakers time to write and vote on new legislation before the august 2 deadline. >> susie: it looks like its going to be a working weekend in washington as both sides still seem far apart on an agreement. >> what i've said to the members
of congress is that you need, over the next 24 to 36 hours, to give me some sense of what your plan is to get the debt ceiling raised through whatever mechanisms they can think about, and show me a plan in terms of what you're doing for deficit and debt reductions. if they show me a serious plan, i'm ready to move. >> we're in the fourth quarter here. time and again, republicans have offered serious proposals to cut spending and address these issues, and i think it's time for the democrats to get serious as well. >> tom: as the political leaders trade barbs, standard & poor's raised the pressure on both sides today, saying it could downgrade a laundry list of companies if there is not a deal on the debt limit soon. among the firms that could lose their top credit ratings? mortgage giants fannie mae and freddie mac, all aaa-rated insurers, and federal home loan banks. s&p characterized its targets as
"entities with a direct link to, or reliance on, the federal government." >> susie: when it comes to the raising the debt limit, president obama says house republicans have to compromise. he wants them to add tax increases to large spending cuts as part of a balanced package, but house republicans are holding firm and some are refusing to vote for any debt limit increase. darren gersh spoke with one of them, georgia representative tom graves. darren began by asking graves whether there was anything the president could do to win his support for a $2 trillion deficit reduction package. >> the $2 trillion package, talking 'savings over 10, 12, 15 years, but our decrisis is today's problem, so we need today's solutions. so they're talking about long-term cuts, that's not what interests me nor the conservatives in the house of representatives. we want me cuts today, we want that in the short-term solution, then the midterm
solution is caps. bring ourselves on the glide path down. >> reporter: even republican those have looked at sort of the offers the president has been making say he's basically offering $10 of spending cut for every $1 of tax increases and a republican has said to e me this is a great deal. this is a lot of deficit reduction for a very small revenue change. do you disagree with them? >> yeah, i mean as far as tax increases this is no time to be taxing, even the president himself in 2009 said raiding taxes on americans is something you do not do in a recession. i do not believe that our economy is in a different shape than in 2009 when he said that, it's probably a little bit worse in some cases. >> reporter: now, the business community has warned about this, that failure to raise the debt limit would be a disaster, ben bernanke has said it could throw us back in recession, economists have said that, investors have said it's unthinkable, can't happen. you oppose the debt limit
increase. so do you think they're all wrong? >> they've had plenty of time to prepare for this, they've known it's been coming, yet the president himself has never put forth a plan on how to deal with the dealt crisis we have. so if it's such a clamity that is ensuing then kr happy he presentlyed a plan? >> reporter: but given all that, do you think that not raising the debt limit is really an option, are you concerned that the country could go into default? >> what concerns me more is that we continue the status quote and that excessive spending and excessive borrowing without systematic changes to the federal government and stopping this financial wreck that we're on. >> reporter: what do you think will happen august 2 if we don't have a debt limit increase? >> i believe that you'll see the sun is going to come up, the lights will be on, cars will still be operating, and washington will still be fighting about how do we move forward. you won't see a default because we have plenty of revenue as a federal government. the testimony will not quit
collecting taxes, they're going to still be taking it from the american people, still have $200 billion a month in revenue that comes in and plenty of resources to cover social security. >> reporter: standard and poors and the rating agencies say if the federal government doesn't raise the debt limit we'd be at risk of default? >> what they're talking about is the downgrading of our credit rating, and it's -- >>. >> reporter: also the failure of washington to get an agreement is what they're talking about. >> when you really read what they're saying, they're not saying that as the solution is to raise the debt ceiling. they're talking about the solution, there needs to be a plan and if there is not a plan, which could involve raising the debt limit as well, but a plan that changes the way we operate and the way we spend our money, the way we are going to move ahead in a balanced budget environment, if we don't change that, downgrading will occur either way, whether you raise the debt limit or not. so this is the time right now for america to seize the moment, do what's necessary to get this country back on the right path and save this
nation from the fiscal wreck that lies ahead. >> reporter: thank you for your time. >> thank you. >> tom: still ahead, no deal on the debt limit could be a big deal to american farmers. we'll explain how agriculture could be affected. >> susie: google helped the major averages to decent gains today, despite fresh worries about the creditworthiness of the u.s.a. the dow rose 42 points, the nasdaq up 27-- or 1%. the s&p 500 ended the day four points higher. trading volume a bit heavier due to options expirations, just over a billion shares moving on the n.y.s.e. and 1.8 billion on the nasdaq. overall, a rough week for the markets. the dow was off 177 points or almost 1.5% on the week. the nasdaq performed the worst, losing ground in three of the week's sessions for a net loss of 70 points, or almost 2.5%. the s&p 500 also down on the week, off 2%. >> tom: earnings were up, but
revenues were down as citigroup posted its sixth-straight quarterly profit. citi earned $3.3 billion, or $1.09 per share, in the second quarter-- 13 cents better than estimates. but revenues shrank, falling 7% to $21 billion. one bright spot? the bank set aside less money for bad loans-- $3.4 billion. it was double that a year ago. citi stock sold off on those lukewarm results, falling about 1.5%, closing at $38.38 a share. this year citi shares have been a huge disappointment to investors. suzanne pratt take a look at what's ailing the stock. >> reporter: citi may do business from some of new york's tallest buildings, but lately its stock has been short on performance. no doubt, 2011 has not been a good year for most bank stocks. that's due to a horrific hangover from the financial crisis and surprising weakness in the global economy. citi stock, however, has fared worse than many of its peers.
since january, the shares are down a hefty 19%. in may, the company did a one- for-10 reverse split, turning citi into a double-digit stock. banking analyst erik oja says that move has been a negative. >> reverse splits generally are not a great sign. it's maybe a sign of desperation where a $4 stock has to get converted into a $40 stock. >> reporter: citi has said its split was not a desperate act, but an effort to attract institutional shareholders such as pension funds. those investors often aren't allowed to buy stocks that trade for less than $5. but, here's the rub: it looks like reverse splits really don't work. n.y.u. professor april klein studied the performance of 1,600 reverse stock splits in a 40- year period. she and a colleague at emory university found three years after the splits occurred, the
shares were down an average of 50%. klein says it's like trying to put lipstick on a pig. >> companies tend to do the reverse stock split because their prices are low. why are their prices low? because they've been having poor earnings. so, unless they can change things around dramatically, it's not going to go back up. >> reporter: klein points out there are some exceptions. priceline is one of the most well-known. the stock skyrocketed in the years following its reverse split. s&p's oja thinks citi could ultimately be a member of that exception club. >> we think the recent decline in the shares, combined with better outlook for loan growth, makes citigroup stock attractively valued. >> reporter: attractively valued, perhaps. but most experts say a quick comeback for citi shares is a still tall order. suzanne pratt, "nightly business report," new york.
>> susie: in europe today, 90 big banks took their stress tests, and eight of them flunked. the scenarios looked at how europe's top lenders would fare in another recession. overall, 82 banks did well and 16 narrowly passed. analysts and investors were bracing for as many as 20 failures. as for the banks getting a failing grade, spain had five, greece two, and one in austria. the small number of failing grades is a reflection of the fund-raising taking place over the past year as banks have scrambled to raise money in anticipation of the tests.
>> susie: tom, a lot of the trading tomorrow was company specific, less about the big mac row issues, so google as we reported was one of the beneficiaries of all of that. and some takeover activity, and so and companies reporting earnings, i think we're going to see more and more of that over the next couple days. >> tom: absolutely, the pace of earnings picks up, over the next several weeks here. let's wrap up this week with the action in tonight's market focus. stocks spent most of the day hovering around unchanged before some late-day buying. but let's start with another all-time high, in gold. gold over $1,590 an ounce.
traders point to three items: talk of the federal reserve on standby to stimulate the economy more if it decides to, the concerns in europe and no debt solution in the u.s. gold began july just under $1,500 an ounce. it was a commodity-related sector that saw the biggest gain today, energy. this energy select exchange- traded fund moved up more than 2.5%. nice rally through the springtime, then floated. oil moved over $97 per barrel. it's the marriage of metals and energy that helped. australian miner b.h.p. billiton has offered $12 billion for shale natural gas producer petrohawk. b.h.p. sank about 1%, but petrohawk shot up more than 60%, closing just below the buyout price of $38.75 per share. huge volume spike. this would be b.h.p.'s first big play in shale energy. that deal helped prices of shale
gas producers. range resources has grown its presence in the marcellus shale area in the appalachian mountains. look at this one. nice move today. shares led the energy sector, jumping 12%. volume was five times average. the rally takes r-r-c to a new 52-week high. this is its highest close in three years. others with shale gas business saw plenty of buying interest. pioneer, cabot and chesapeake rallied at least 9% each. after last night's blowout earnings, google was the top tech stock today, up 13%-- no surprise, holding on to after-hours gains. shares rocketing just below $600 per share. with the jump, shares are at their highest price since march. nice volume for google. the laggard in technology was also earnings-related. flir systems makes thermal- imaging devices.
the stock dove 10% to drop below $30 per share for the first time since january. the company warned of weaker results due to less government spending. clorox shareholders have had quite a week. the stock ended with a 9% rally looking back over energy takeover targets there. let me tell you about clorox. after investor carl icahn offered to buy the company for $76.50 per share. icahn began building a stake in the company back in february. in a letter to the company, icahn thinks clorox will get better offers. still, the stock is about $2 below icahn's bid. finally, three smaller stocks seeing big pops in volume and big drops in price. boutique investment bank shed 12%. three managing directors have left this summer raising market worries. analytical software firm qlik dropped 10% after an analyst downgrade. and seattle genetics fell 7%. a government panel okayed its cancer drug, but with a stricter label. worries are that could limit sales.
and that's tonight's "market focus." >> susie: back now to our top story, the debt talks! as those talks continue, some popular farm programs may be killed. cuts to agriculture spending have been talked about for months in congress. now the fate of a key piece of legislation could change life as american farmers know it. anna olson explains. >> reporter: life on a farm can be unpredictable, but there's one thing corn growers know for certain. they'll wake up before the sun rises, and work hard through the
growing season. farmers also know they can count on uncle sam for subsidies when times get tough. at least, for now. >> we are trying to provide a reasonable, reliable, safe and affordable food supply for everybody in the united states. >> reporter: garry niemeyer is a third generation farmer from illinois and a vice president of the national corn growers association. he's fighting for programs that pay farmers when they lose their crops. >> we have to have that reliability of knowing that we can continue to farm. the $283 billion farm bill is up for renewal in congress next year. it's a huge piece of legislation that lasts for several years. most of the money is for nutrition programs, like school lunches and food stamps. but there's a fight brewing over how much money farmers should get for things like direct payments based on the amount of land a farmer owns, crop insurance and the acre program, which provides replacement income if crop prices drop. >> there are myths and legends that surround farming.
>> reporter: agricultural economics professor vincent smith worked with the american enterprise institute to research the 2012 farm bill. he says while farmers needed a hand from the federal government in the past, that help just isn't necessary today. >> farm families are wealthier. they have higher incomes. they're doing very well by themselves, as we would hope entrepreneurs do. >> reporter: smith claims the farmers who need money the least are the ones getting the most. >> the bigger you are, the better the programs pay for you. of course the bigger you are, generally the wealthier you are. >> reporter: smith estimates the largest farms could receive up to $200,000 per year in subsidies. garry niemeyer concedes corn growers are willing to take some cuts, like ending direct payments from the government, but he says they still need a safety net to stay profitable and continue growing food. >> we're not trying to get rich. we're just trying to stay in
business. >> reporter: but that could become harder for some farmers, as the battle over spending continues in washington and the lobbying effort prepares for a tough fight ahead. anna olson, "nightly business report," washington. >> tom: here's what we're watching for next week: our friday "market monitor" guest is kurt reiman, head of thematic research at u.b.s. wealth management research americas. get ready for it. it's another big week for earnings. we'll hear from apple, caterpillar and general electric. several banks also report results next week. monday, we look at the health of big banks like goldman sachs and bank of america. >> susie: newscorp chief executive rupert murdoch is apologizing to all of britain for the phone hacking scandal involving his "news of the world" tabloid. the apology will be carried in british newspapers this weekend with the headline "we are sorry." also today, two executives of murdoch's british newspaper operations resigned because of the scandal.
rebekah brooks, the chief executive of news international, and dow jones c.e.o. les hinton stepped down. >> tom: norwegian cruise lines is setting sail for the stock market. the miami-based company filed for an initial public stock offering today. it hopes to raise $250 million to repay debt. no word on when it will come to market, but it will trade on nasdaq under the ticker n-c-l-h. also heading the nasdaq? zillow. the real estate listing service today detailed its stock offering plans. it hopes to raise $71 million by selling 3.5 million shares priced as high as $18 a share. it gets the coveted single- letter ticker "z."
>> susie: even though investors have a long worry list, tonight's "market monitor" is still optimistic about the outlook for the markets. he's ted cronin, c.e.o. and chief investment officer at manchester capital. the vermont-based investment firm manages almost $2 billion in assets. nice to have you on the program, welcome to your first market monitor. >> thank you very much, it's a pleasure to be here this evening. >> susie: since this is your first time why don't you begin with your outlook. why are you so positive on the markets right now? >> well, i think your show does a wonderful job of detailing all the kind of somber news that we see on a daily base -- basis. but i do remain, despite all the negativity, very optimistic
going forward, that's because i believe it's not a structural or fundamental problem. i truly believe the markets are suffering from a political problem. and it heart breaking to see what's going on in washington right now with the deadlock between the political parties when many of the solutions yourself evident. and somehow i have a deep conviction in america and america's electorate that it will get together and force our politicians to come to some of the rationale decisions that are so much needed. >> susie: let's how see hour applying that conviction in your investment choices. you have a couple of etf's to tell us about and some stocks. your first pick, s&p prefered stock index, that's pff on the big board. pretty choppy performance this summer. why do you like it? >> we like pff as a conviction in the u.s. equity market, because we're still strong believers in the u.s. equity market and pff is attractive,
it represents ownership of prefered equities and it pays a very nice 7.2% dividend. investors are in essence paying while they wait for the markets to rebound. so we think it's a wonderful way for investors to get action says to the equity markets, maintain their exposure and at the same time get an income stream. >> susie: you also like the emerging markets and you have an etf that trades under the symbol dwo, for vanguard emerging markets. what's your thinking there? >> well, it's also in equity position, we like it because we think all investors should have some exposure to the emerging market equity market, and this is a security traded on the, no new york stock ex chance, over 800 different names throughout the global emerging market. the largest position, 1.5%, is actually china mobil. so for all investors that need exposure to emerging markets, this is an excellent way to
affect it. and it mass a wrackably low management fee, only .22%. 22 basis points. and that combination we fine very attractive. >> susie: we have a minute left. you have another etf, an agricultural play, deutsch bank agricultural fund. dda, up 32% over the past 52 weeks. is there more up side here for investors? >> absolutely, we believe strongly that the world will need an ever increasing amount of food, and dba, etf which provides access to corn and coffee, sugar, wheat, is a great way to play that growing population growth and also an emerging markets where people are changing their diet and wanting to increase the amounts of protein. >> susie: i want to squeeze in one more, checkpoint software. phkb on the mass. dack, this has also been on a tear. what do you like about it and what's your target price for it? >> we think that it's, we
don't normally recommend a stock that has such a strong rocket ship ride, but we do believe checkpoint has a very secure position in a niche of providing security for large corporations against hackers, viruses, computer attacks, and has the necessary components that all large industries will require. so we think it will trade easily into the 60s, fof not into the 70s. >> susie: all right. do you have any disclosures to make, do you own nip of these stocks fernlly? >> i own both checkpoint and pff. but through our company we probably own portions of these in many different climates. >> susie: thanks so much, we hope to have you back again soon. >> you're welcome, it's nice to be here. >> susie: tim cronin. >> tom: that's "nightly business report" for friday, july 15. i'm tom hudson. good night everyone, and have a great weekend.
you too, susie. good night tom. i'm susie gharib. good night everyone. 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. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org