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tv   Nightly Business Report  PBS  April 27, 2011 6:30pm-7:00pm PDT

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>> tom: in his first ever news conference, fed chairman bernanke defends the bank's actions to stabilize the economy and deflects concerns inflation could derail the recovery. >> headline inflation is at least temporarily higher, driven by gasoline prices and some other commodity prices. our expectation is that inflation will come down to a more normal level. >> susie: and breaking news on berkshire hathaway-- the company says former exec david sokol misled management about his stake in a company he pitched warren buffett to buy. you're watching "nightly business report" for wednesday, april 27. this is "nightly business report" with susie gharib and tom hudson. "nightly business report"
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is made possible by: this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> tom: good evening. thanks for joining us. two big stories tonight. federal reserve chief ben bernanke says super-low interest rates are going to be around for a while. also, news from warren buffett's berkshire hathaway, where a former top executive violated the company's insider trading rules. >> susie: tom, let's start with the fed. in the central bank's first ever news conference, the chairman
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had a lot to say about inflation. he acknowledged it's rising, and he understands why americans are impatient with the slow recovery. before the news conference, the fed released a new economic outlook. here it is. it now sees slower economic growth-- around 3.3%-- but expects lower unemployment this year, and higher inflation. and, as expected, the fed confirmed plans to complete its bond purchases in june. >> tom: our washington bureau chief darren gersh was at that news conference and has the details. >> reporter: the moment was historic, but the news at this first-ever post-meeting federal reserve news conference was fairly subtle. chairman ben bernanke offered hints about what might come next and a strong defense of what has been done so far. his tone suggested the fed is approaching a turning point, with inflation concerns moving ahead of the long-running battle to bring down a still-painful unemployment rate. >> i think, purely from an
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employment perspective, if inflation were to become unmoored and inflation expectations were to rise significantly, that the cost of that in terms of employment loss in the future as we had to respond to that would be quite significant. >> reporter: the fed chairman called the recent increases in inflation temporary-- mostly due to higher oil prices. still, projections for price increases this year jumped sharply in the forecast the fed released today. reporters pressed several times on whether the fed's slightly lower forecast of growth shows the bond-buying program known as qe2 was not worth it. the chairman disagreed. >> we were very clear from the beginning that, while we thought this was an important step, and that it was at an important time when we were all worried about a double-dip-- we were worried about deflation-- we were very clear that this was not going to be a panacea, that it was only going to turn the economy in the right direction. >> reporter: but he also made it clear another big bond-buying program to boost the economy is unlikely. >> the tradeoffs are getting
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less attractive at this point. inflation is getting higher. inflation expectations are a bit higher. it's not clear that we can get substantial improvement in payrolls without some additional inflation risk. >> reporter: credit suisse economist dana saporta said the market reaction at the end of this conference was relief. >> he did a great job, seemed very clear, very confident, seemed to answer all the questions. he didn't really dodge any questions, and i think everyone was very happy with the outcome, not least of which the fed. >> tom: our washington bureau chief darren gersh joins us now from washington. you've covered the federal reserve for several years. do you feel that the fed is more transparent after this first news conference? >> it's interesting, one of the pundits on wall street said it was sort of more visibility than transparency.
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because there was a lot of face time for the chairman. but i think i do give him points, they subjected the chairman to questioning, they thought it was somewhat of a risk. but of course they're behind other central banks. so he's pretty much tried to address head on our questions. in the limited time we have. >> tom: the two cat force of questions concentrate on inflation and energy, and jobs. and you asked a question about long-term unemployment. and how much the federal reserve is worried about it and what can the fed do to tackle long-term unemployment. >> yes. i didn't get to follow up with him. but the reason i asked is because critics say there isn't much that monetary policy can do, especially when people have been unemploy forward a long time. and the fed chairman said something similar to that, we've got almost half the people who are unemployed have been unemployed for a long time. so if there isn't much that monetary policy can do to help them, then the fed will be focusing on other areas and inflation, and it's going to be up to the government or
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some other policies that will help these people get back to work. >> tom: you mentioned you were not able to ask a follow up with question, few vurn al -- journalists were. was that part of the stage craft today? >> there were 60 of our colleagues there, so 60 of us altogether and only about less than 20 of us got to ask questions. so you start asking too many followups you get nudged by your colleagues. but it was a little bit managed, i think, it was a little bit tame in the format. they're working on this, it was the first one. but i think the market certainly took away that bernanke did a great job. whether the public believes that will, remains to be seen. >> tom: we'll know in three months when there's another one. darren gersth, joining us from washington. >> susie: joining us now for more analysis on that historic press conference and what ben bernanke and the fed are doing to fix the economy, david kelly, chief market strategist at j.p.
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morgan funds, and joe davis, chief economist at vanguard. thanks both of you for joining us tonight. >> glad to be here. >> thank you. >> susie: let me ask both of you. did you learn anything new out of this press conference? any new information that will impact the decisions that you're make going the economy? joe, you first. >> not really. what the forecast at the finish released today was very close to the forecast we've had internal alley, with respect to growth, core inflation and a gradual reduction in the unemployment rate. so from that standpoint nothing dramatic or material changes. >> susie: david? >> our view on the economy is quite similar to that of the finish. but i think we did learn something about the way in which the finish will exit -- the federal reserve will exit here. they made it clear they will probably allow their balance to drift down a built before they start raising interest rates. they also said when they talk about extended periods of time,
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keeping rates low, the fed chairman says a couple of meetings, so you can measure out in terms of meetings when the fed says it going to keep rates low for an extended period of time, how long that guarantee is good for. but i think we did learn some stuff. >> susie: what would that mean, a couple meet prosecution now, as the fed exits out of the bond market. is that the end of the stock market rally? and the beginning of more volatility? >> could be the beginning of more volatility, because volatility is low. but i don't see it as a negative for the stock market. because the fed says it's very focused on what's going on in the economy itself. the of the fed does begin to tighten, it just means the economy is doing better. and if you look at a lot of individual investors, they've got a huge amount of money into bond funds the last few years, a lot of people are positioned conservatively. so if interest rates start riding and they may move more money into the stock market so, that could fuel a stock market rally. >> susie: so bernanke got a
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lot of questions about inflation, as we were discussing earlier, and he acknowledged that there are higher prices on food and gasoline. but he says this is trancer to. what is trancer to? how bad do things have to get before the fed will do something about it? >> well, in terms of our calculations, where we need to go before it would really start to insent the fed to raise interest rates is around 125, $130 if you use the sort of economist textbook formula for where the fed fund rate should be. that's not as far away as one would think. but what the fed is relying on is the fact that you'll hear a lot about inflation expectations, that's a fancy way for saying that wage growth is fairly tepid, which means the ability of energy prices and crude prices to start to affect prices for things that have nothing to do with food and energy, furniture, housing and so forth, the things that we saw in the 70s and eight, the probability of that transmission is still low, at
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least at the present stage. >> susie: investors and americans make a lot of decisions on where interest rates are, whether you're a bow rower or saver. where do you see the fed's key interest rate by the end of the year, will it spell be near zero? >> yes, and i say that unfortunately. why on unfortunately, because i still think it's the one sacrificial lamb in this slow recovery, is the savers. the investors have benefited by and large. but those that are in saving accounts, money market funds, unfortunately are bearing the brunt of this transition. so hopefully a more sustained recovery. but i think we do have to think about the fed's strategy as a multi year process. >> susie: quickly before you go, the chairman says the reason behind the press conference twoos make it much clearer to the american public what the fed is doing about the economy. did he succeed? did he connect with the american public, david? >> i think he portrayed
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confidence and competence. i think that's very important. we were so used to hearing people who really don't know what they're talking about in washington talk about the economy, that it's very refreshing to hear somebody who obviously is a master of his craft. and i think to that extent he could carry the stock market and probably will cheer the american public somewhat to know that at least ben bernanke know what is he's talking about when it comes to the economy. >> susie: joe, what do you think? >> i would agree. i think a more intimate dialogue and discussion of some of these complex issues i think will pay dividends down the line for all of us as investors as well as central banks. >> susie: we'll leave it there. thank you both for coming on the program. appreciate your time. we've been speaking with david kelly, chief market strategist at j.p. morgan funds, and joe davis, chief economist at vanguard. >> tom: here are the stories in tonight's n.b.r. newswheel: stocks ended higher.
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after all that news, the dow leapt 95.5 points, the nasdaq added 22 points and the s&p 500 up eight points. big board volume rose to almost 960 million shares, while nasdaq volume was just below 2.1 billion. demand for heavy machinery, computers and vehicles rose in march for a third consecutive month, indicating a pickup in business investment. the commerce department said orders for durable goods rose 2.5% last month, from an 0.7% the previous month. >> susie: berkshire hathaway said today a former top executive broke insider trading rules and the company's code of ethics. david sokol resigned last month after revealing that he bought $10 million worth of lubrizol stock just before encouraging warren buffett to buy the specialty chemical company. sokol was considered a leading contender to succeed buffett as c.e.o. joining us now, tom russo of gardner russo & investments. berkshire is a top holding at his investment firm.
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nice to have you with us. >> nice to see you. >> susie: what's the next thing that's going to happen? do you think that there could be legal action taken against david sokol? >> i don't really know whether it will lead to that. i do know that this is tragedyic. it's a tragic situation. a person's career on the side rails, and really the audit committee today, i think, put clearly forth what the standards of conduct are within berkshire. and whether or not there was insider trading or whether this was a misleading transaction is really not the whole story. the whole story today was that the audit committee said that there are procedures recovered prifred individuals in berkshire like david that require a person to receive approval of before they can trade. this is something that's quite important. >> susie: the timing on this is really interesting, because on saturday barren buffet is going to meet with thousands of berkshire share holders in omaha. what does he have to say the share holders to restore trust
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and credibility? >> that the standards are intact, that this is a example of where the firm now faces something that he's always urged others to avoid, which is conduct that gets in front of the front page of the "new york times". we're not only there, we're here at the new york stock exchange talking about the subject. warren wants to avoid that because his number one asset at berkshire is their trust. >> susie: what about berkshire stock, buy, sell or hold? >> i hold berkshire. i held it when it went down as a result of the first release here. i hold it with the belief that it still remains a firm within which a properly motivated people will do things for the benefit of owners. that's a very interesting link at berkshire that's missing so many other public companies. i think the culture remains very strong. i think this is a wakeup call, as they go through transition towards succession at berkshire, that the conduct has to be enforced. >> susie: let's talk about the
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conduct, because warren buffet is famous for running a decentralized loosey goosey kind of company. does he have to have tougher rulewhat his c.e.o. dos and don't do and what employee dos about stock ownership? >> sounds like from the audit committee's letter today that those rules exist, that the procedure is if you're interested party, if you're a principal and if you're privileged, that you sudden seek approval by todd it committee before you trade personally. that seems to be already in place. but they certainly are now echoing it across the world that this is the standard of conduct inside of berkshire, that's what we have green to expect as shareholders because that's what we've been given for almost 40 years. >> susie: we're going to hear more about this this weekend, you're going to be in home aha. thank you for coming, and i'm going to be in omaha covering all this and interviewing warren buffet.
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>> susie: tom, one programming note-- with all the news on the fed and berkshire hathaway, hilary kramer won't be joining us for your "street critique" segment. >> tom: we hope to have her back next wednesday, susie. lots of news. let's take a look at tonight's "market focus." call it a fed-induced rally across stocks, silver and foreign currencies.
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let's start with stocks, and today's trade of the s&p 500. the index popped into positive territory with the release of the fed's open market committee statement around 12:30. the gains continued building through chairman bernanke's news conference. closing up with a fractional gain. here's the index since june 2008, before the collapse, and with today's small gain, it is at its highest level since the summer before the financial collapse. meantime, the russell 2000 index has broken out to a new all-time high. here's the past five years of the exchange-traded fund tracking the russell 2000. tonight's close takes it over its 2007 high. for the dow industrials today, general electric led the index up 2.7%, and volume was heavier than usual as g.e. broke above its high earlier this month.
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nice bullish move here. during its annual shareholder meeting today, c.e.o. jeff immelt called g.e. much stronger and safer than just before the financial crisis. the health care sector was among the market leaders, thanks to drugmaker watson. it raised its earnings outlook. shares jumped 3.6%. insurer wellpoint added 3.5% to a three-year high. it also upped its guidance, and medical equipment maker thermo fisher did the same, leading to a 3% rally. energy was the drag on stocks. oil equipment firm national oilwell fell 4.6% on triple its usual volume. earnings slipped, partly because of write-downs related to libya. conoco-phillips dropped almost 2% after disappointing earnings. from stocks to silver. silver prices shot up to another generational high, now closing in on $50 an ounce. silver up almost $3, and did pop over $48 before settling just below that price. this is just the past 90 sessions. silver has made up all of what it lost earlier this week. and with the dollar falling to new post-recession lows, foreign currency exchange-traded funds continue hitting new highs. the e.t.f.s following the euro, the british pound and the australian dollar all rallied to new highs.
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with about 1% gains. johnson & johnson made it official today, a $21.3 billion buyout offer for orthopedics maker synthes. it is a cash-and-stock deal. j&j calls it a growth purchase, not synergy, meaning don't look for johnson & johnson to find many places to cut costs and it will hurt earnings a little, but it expects the purchases to add sales and operating profit. shares rallied nicely-- up 1% on heavier-than-usual volume. j-n-j has jumped from $58 to over $65 in the past six weeks. to watch tomorrow, there are late rumors be the that power company exelon is in buyout talks with constellation energy. it would be an all stock deem. exelon closing up awe fraction. constellation jumped another 11% from these numbers after the close. and that is tonight's market focus.
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>> susie: prices for wheat, corn, oil and other commodities have been skyrocketing this year, pushing up the price of groceries and gasoline. and now there are rumblings that speculators could be behind the run-up. as erika miller reports, even president obama is concerned about that. >> reporter: whether it's gasoline, clothing or food, the prices of many everyday necessities are rising sharply. consumers and politicians are wondering if commodities
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speculators are partly to blame, but pinpointing them is not easy. some are big wall street firms hoping to make a quick buck. futures expert george gero says other speculators are ordinary main street businesses with >> you are a bakery. you have now become a speculator as far as washington is concerned, because you buy forward contracts in wheat and corn and cocoa for chocolate and sugar. you are no longer the big baker that's trying to make sure that their prices don't have to be raised. >> reporter: it's nearly impossible to determine the impact of speculators in the new york oil pit. even if you could remove all the speculators, trader ira exstein doubts energy prices would plunge. >> no way! no way! maybe on a daily basis a speculator could move the market 10, 15 cent-- whatever that number is. but how would you do it? because we trade three years out.
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>> reporter: president obama has put together a task force to look for manipulation in the energy markets, and some worry the government will try to restrict commodities speculation. >> too many restrictions, as you have already seen in other legislation-- well-intended legislation with unintended consequences-- has sent a lot of business overseas. >> reporter: nobody likes paying more for groceries or gasoline, but the biggest factor is the improving global economy, not speculation. and as long as that improvement continues, higher prices won't go away. erika miller, "nightly business report," new york. >> tom: here's what we're watching for tomorrow: did the u.s. economy grow during the first three months of the year? we get a preliminary look at first quarter g.d.p. lots of earnings. exxon mobil, microsoft and pepsi release their quarterly results. also, new york stock exchange shareholders meet to mull a key question-- should they merge with germany's deutsche boerse
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or take a counter offer from rival nasdaq? >> susie: if you're worried your iphone is tracking and recording your every move, apple says forget it. the company today said a data file on the phone does keep a list of wifi hotspots and cell phone towers near you, but there's no tracking involved. that data file has been at the center of a swirl of controversy ever since it was unearthed by researchers last week. apple now says it's updating the phone's software to limit the data. >> tom: speaking of controversy, sony's in the center of one after revealing its playstation web network was hacked. credit card numbers and personal information of more than 77 million users might be compromised. that would make it one of the biggest data breaches ever, and there are lawsuits against sony already in the works. the playstation network lets people play video games against each other over the web, chat online and watch movies. sony has temporarily shut it down.
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>> susie: the prospect of saving a million dollars for retirement may sound daunting, but for many people, it's doable. tonight's "money file" has some suggestions for socking away dough, regardless of your age. here's donna rosato, senior writer at "money magazine." >> one million dollars?
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that's the magic number most people aim to hit when they retire. but hitting that mark really isn't that tough, even if you've only got a fraction of it saved right now. here's what to do. time is the most critical factor. it makes sense. the longer you have, the easier it is to save and the less risk you need to take. say you're 45 and you have $250,000 saved. if you want to retire at 62 with $1 million, you've got 17 years. even if you save $15,000 a year, you won't make it to $1 million. but stick it out, work just two more years, and you'll have it! still, you're far better off being a good saver who's a mediocre investor than someone who can knock the socks off the s&p 500 and has little savings. so, how do you sock it away? max out your 401(k), because you put money away pre-tax and most employers match what you save. finally, while bsting your investment returns won't get you to a million as fast as jacking up your savings, it can help. but again, you don't have to be a hot stock-picker to get good results. you just have to keep your expenses down by using low-cost index funds and e.t.f.s.
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put all three strategies together and you're on your way to becoming a millionaire. i'm donna rosato. >> tom: that's nightly business report for wednesday, april 27. i'm tom hudson. good night everyone and good night to you too, susie. >> susie: good night tom. i'm susie gharib. good night everyone. we hope to see all of you again tomorrow night. "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.wg
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