tv Nightly Business Report PBS August 15, 2011 6:30pm-7:00pm PDT
>> susie: google brings the bulls back to wall street. its $12.5 billion bid for cell phone maker motorola mobility sparks a triple-digit rally. >> tom: from the markets to main street-- all this week, we're looking at solutions to fix the struggling economy. tonight, we begin in europe. >> they have to let greece go. they have to let it leave the euro. they have to let it restructure, which is basically a nice way of saying default. >> tom: a look at what europe can do to get the global economy back on track. it's "nightly business report" for monday, august 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. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. a big stock market rally today, making it three days in a row. after a tumultuous week of selling, investors swooped in to buy stocks today, thanks to a batch of mergers and other deals. tom, traders here on wall street are already calling it a winning streak. >> tom: susie, the dow is now back to where it was before standard and poors downgraded america's credit rating. today, all the major averages were up by 2% or more.
by the closing bell, the dow gained 214 points, the nasdaq jumped 47, and the s&p rose 25. volume down sharply from last week's volatile trading-- just over a billion shares trading on the nyse, just under two billion shares on the nasdaq. >> susie: as we said, the markets were pumped up by new deals, and the biggest one came from google. it's paying $12.5 billion to buy motorola mobility holdings. it's the cell phone unit that motorola spun off earlier this year. darren gersh has more. >> reporter: google is the place to go to find o about nascar's new winner or zsa zsa gabor's anniversary. but the company that organizes so much of the world's intellectual property has been under pressure from competitors like microsoft for intellectual property violations. which is why analysts say the deal to buy motorola mobility isn't about making handsets;
it's about using motorola's 17,000-plus patents to protect the android operating system from legal challenges. >> clearly, they needed a bigger and deeper portfolio of patents and of patent assets to be able to help either defend them and their partners, or aggressively pursue those that are attacking them. >> reporter: google says it will continue to operate it's android mobile phone system as an open- system, meaning any manufacturer can use android for free. but other manufacturers may be less comfortable relying on android if google is also a direct competitor, which may help a long-time google nemesis. >> i think we will see much more momentum around that effort to embrace the new version of windows phone when it comes out, so i think this is a net neutral to positive for microsoft. >> reporter: some analysts worry google is overpaying for motorola mobility after losing out to apple and microsoft in
the bidding for bankrupt telecomm giant nortel's patents. it will also get motorola's tv set-top business, potentially vaulting google ahead of everyone else. >> the set-top box technology that accounts for about a third of the revenues at motorola mobility really could provide an interesting way for google to whole-heartedly pursue opportunities in the living room, something that has been the holy grail across technology and media and telecom businesses for 20 years. >> reporter: that's if the deal goes through. federal regulators will look hard at whether this will violate anti-trust rules. google argues android has added competition and innovation to the mobile phone market. darren gersh, "nightly business report," washington, d.c. >> tom: the google-motorola deal sparked heavy trading in the wireless space. we'll have complete coverage in tonight's "market focus." also in focus-- bank of america. it was one of the most heavily traded stocks last week over worries about capital levels.
today, it moved to shore up its financial position. bank of america is selling its $8.5 billion canadian credit card portfolio to toronto- dominion bank. the price on the deal was not disclosed. b-of-a also said it plans to exit the u.k. and irish credit card markets this year. >> susie: our guest tonight says he's "bullish" on the markets. jeffrey applegate is the chief investment officer at morgan stanley smith barney. he believes the s&p 500 will be up 15% by the end of the year. corporate earnings will also be up by 15%. and he does not think the u.s. will slide into recession. nice to you have on the program again. >> thanks, suzie, good to see you. >> susie: why are you so upbeat, why so bullish, tell us why? >> well, i think a lot of reasons. key one being policy. if you look at the first policy event which was the political fracas over the debt limit which was very unneferning to the markets, the next and much more important policy event was the announcement we got from
the federal reserve board last week which basically committed to show holding short-term interest rates at effectively zero into 2013. now what that means is a couple of things. if you look back through history, whenever the real fed funds rate so, it is nominal fed funds minus inflation, whenever that real rate has been negative and that's where we are again, and you've also had alongside it a positively slow to yield curve, so the yield on the 10 year, 30 year, higher than the yield on the one-year and the two year, when you have had those things in place, you have never failed to have higher profits and higher gdp a year later. so policy is a key part of our call. >> susie: but you know, jeff, more and more economists are saying that they are accepting a recession, slow growth or no growth. so where is this growth and profits going to come from? >> well, if you look first in terms of the u.s., obviously we struggled, the first part of this area and
that was because of higher energy prices. and the supply destruction from japan. both of those things are now gone. plus you have another event which is interest rates have come down a lot. so the port refi index is up. and that further liquifies households. so we think consumption will be pretty good in the second half of the year, supporting u.s. growth of two and a half to three percent. also if you look at the rest of the world growth, there is a lot of focus on europe and there are issues in europe but the really strong growth continues to be in the big emerging market economies. so ining ago gatt we still think that -- aggregate we think global growth this year will be 4% and we estimate that almost half of s&p 500 sales by company in aggregate comes from outside the u.s.. >> susie: and you told me that you are investing heavily in emerging-- stocks of emerging markets. tell us more about the areas that you like and why you like emerging markets so much. >> sure. we're overweight equities. and underweight the safe haven asset classes like
cash and bonds. within equity its while we're broadly overweight, we can choose to how we want to be positioned. so we've been more overweight emerging markets versus developed markets. where in aggregate we're underweight. and that also speaks to the policy differences that we talked about a couple of minutes ago. the policy challenges in the emerging markets are generally not anywhere near the amount of challenging that they are in a lot of the big developing markets. so you have that behind you. you also have countries growing very rapidly. >> and you say you don't like u.s. treasuries but are you putting some of your client money into other bonds, right? >> that's right. into credit, broadly defined. so that could be investment grade, corporate credit. it could also be high yield if you are willing to take on that additional risk. but we think there are further opportunities for the spread between credit and high yield as compared to treasuries to come in further as we move through this business cycle. so within bonds we don't
like treasuries but we do like credit. >> so jeff, if tomorrow and the rest of the week we get big sell-off, triple digit sell-off in the dow are you still going to stick with this plan? >> unless there is some big event to say okay, the end of the business cycle is nye and we would have to then sort out why would you get those sort of triple digit sell-offs. typically if you go back to the big market event we also got last week which is a big run-up in volatility, the vicks and the vick spike f you look historically you typically don't have another spike for quite some time. that's generally the pattern. also if you look at forward equity returns, from fire spikes in volatility and looking back over a bunch of market cycle-- cycles you can see the 4 to 12 month equity return positive. >> you've given a lot of reasons to be positive. we thank you for that thank you for coming on the program. >> good seeing you, thank the. >> we've been speaking with jeffrey applegate, chief investment officer rat morgan stanley smith barney.
>> tom: still ahead-- we go beyond the scoreboard. our look at the business of sports heads to fantasy land and the millions of dollars spent every year on fantasy sports. moody's investors service thinks america is struggling to avoid another recession. it puts the odds of dipping back into recession at one in three over the next year. in light of the debt debate, the s&p u.s. credit downgrade and stock market volatility, moody's says its near-term outlook has fallen sharply in the past month. it now sees the economy growing at about 2% in the second half of this year. just last month, it pegged that same growth at 3.5%. >> susie: tomorrow, german chancellor angela merkel and french president nicolas sarkozy hold an emergency meeting on europe's deepening debt crisis. one topic unlikely to be on the agenda is the creation of so-called "euro-bonds." even though some experts believe they could be a solution to europe's troubles, germany is against the bonds as a solution. tonight, suzanne pratt kicks off
our special series-- "how to fix the economy"-- with a look at europe's debt crisis. >> reporter: for some americans, a tour of the united nations in new york city might be the only european exposure they'll ever get. but just because many u.s. citizens don't travel abroad doesn't mean they shouldn't care about our neighbors across the pond, particularly their economy. after all, europe is america's fourth largest trading partner. economist bob brusca says if europe tips into recession because of its debt crisis, the fragile american economy could be next. >> we really don't have a lot of cylinders this economy is firing on, and if we were to lose exports in a big way to some kind of european recession and its knock-on effects, that could be very serious to the u.s. economy. >> reporter: so, beyond paying close attention to european headlines, what can be done to help mitigate europe's troubles? economist constance hunter says she'd start by dumping greece from the eurozone. >> they have to let greece go.
they have to let it leave the euro. they have to let it restructure, which is basically a nice way of saying default. >> reporter: hunter explains that, ideologically, greece is not on the same page as the rest of europe, especially core countries like france and germany. >> the center of europe has a perception of what it means to be european. and that has fiscal policy implications, it has monetary policy implications, and it has working age and retirement implications, none of which greece really fits. >> reporter: other experts have been calling for the issuance of joint eurozone bonds. while some view the common bonds as just another band-aid, others say it could solve the crisis by allowing all member states to borrow at more affordable rates. and such a move could provide a blueprint for european government consolidation. >> they think they can raise money this way, and in some way unify the fiscal situation, because a lot of people think you can't just have a monetary union without a fiscal union.
we can see the big hole this is. you're going to have to fix this up. >> reporter: don't expect that fix to come tomorrow when france's sarkozy and germany's merkel are scheduled to meet. just as it took time to create the european mess, economists say it will take time to repair it. suzanne pratt, "nightly business report," new york. >> susie: tomorrow, as we continue our series "how to fix the economy," we turn our focus to the housing market and the frustrations of trying to sell when there's a glut of foreclosures on the market. meanwhile, an idea from billionaire investor warren buffett today on how the u.s. can get out of its economic mess. he's telling everyone, raise taxes on the mega-rich, and that includes him as well. warren buffett is estimated to be worth $50 billion, and he wants to pay more taxes. in an op-ed piece in "the new york times" today, buffett says his rich pals should pay more, too. he says, "my friends and i have
been coddled long enough by a billionaire-friendly congress. it's time for our government to get serious about shared sacrifice." how much would that sacrifice help the u.s. economy? not much, according to this woman. maya maccguiness is the president of the committee for a responsible federal budget. >> the changes, the money that you can make from taxing millionaires and billionaires higher is just going to be a tiny piece of the solution. it's an important piece, it's an important symbolic piece, but it's not going to fix the problem. >> susie: guess what-- the u.s. doesn't have that many millionaires. americans earning more than $1 million-- 236,883; two-tenths of one percentage point of total taxpayers. the wealthiest-- earning $10 million or more-- are even less: 8,274. raise the taxes of all millionaires by say, 2%, and macguiness figures that'll increase u.s. tax revenues by just $250 billion over the next
decade, not even close to the trillions the u.s. needs to pay down the deficit. so how much does buffett pay in taxes? about $7 million. tom, that sounds like a lot, but buffett says it's only 17% of his income, and he points out the people working in his office actually paid more on a percentage basis. >> tom: certainly some surprising numbers there. clearly continuing that big conversation that america continues to have over taxes, susie. let's go ahead and take a look at tonight's market focus. thanks to today's buying, last week's losses are a memory. here's the dow jones industrial average since last monday. with today's almost 2% gain, the index is higher tonight than before last week's wide ride began.
utility and energy stocks led the way. but it was monday deal-making that helped improve the market tone. as we mentioned, bank of america is striking two deals to exit its international credit card business. shares popped almost 8%. this is the past 30 sessions, showing that drop last week to $6.50 per share. here's bank of america since the beginning of the year-- down more than 40%. we learned today hedge fund investor john paulson cut his stake in half at the end of the first quarter. and george soros sold all of his stake. mutual fund fairholme management, though, increased its stake to almost 100 million shares. the big deal today was in technology. as darren reported at the beginning of the broadcast, google will buy motorola mobility for $40 per share in cash. at $12.5 billion, it's google's biggest buyout.
m-m-i popped more than 50%, closing less than $2 shy of the buyout price. this stock was spun out of motorola last fall. meantime, the buyer, google, saw its share price weaken a little, falling about 1%. volume was almost twice its usual pace. the deal shakes up the wireless industry, and today's market action shows that. nokia jumped more than 17%. it has had a tough time competing against smart phones. research in motion was up more than 10%. it's blackberry business has been under pressure, thanks to the iphone. apple stock was up almost 2%. as darren also mentioned in his report, the deal is about patents as it is about anything else. one patent company, inter- digital, was hit hard. inter-digital shares fell more than 14%. volume was up seven fold. the share price jumped in july when it announced it was exploring strategic
alternatives, and the market was anticipating a buyout. despite today's sell-off, the stock remains well above where it was trading before that announcement. that google-motorola combo wasn't the only thing popping in today's trading. take a look at corn-- up six cents a bushel today. it may not sound like much, but at $7.20 a bushel, this is a new high in corn. last week, a government report predicted a smaller than expected corn harvest, helping push prices up. and that's tonight's "market focus."
>> tom: fantasy sports is a very real one. 1 billion dollars a year in that business. the likes of disney, yahoo!, cbs all looking for big profits in the years ahead. tonight's beyond the scoreboard goes to fantasy land, rick horrow sports business analyst of horrow ventures, always nice to see you. fantasy sports big, big business here. one in eight americans are fantasy players, that is 12% of american adults. so how big of a business are we talking about? >> when we were kids we played ro 'tis ray league and you moved the cards around and the league said i don't want to be involved in this because this is inappropriate. you watch the game as it is played and then you stay away. now 35 million of us play. and more importantly, the leagues are embracing it by leaps and bounds and all that goes with it. >> tom: that say big, big difference from the rotisserie leg in major league baseball years ago so what sports account for this,
what is driving the. >> football, football, more football. baseball a little bit but the nfl and associated fantasy, anything college t is an $800 million business. and the leagues have also opened their technology floodgates as well. their promotional machinery, the stadium opportunities. and their media partners all available to help fantasy be even better than it is today. >> tom: when you talk about $800 million that is just the football portion. >> correct. >> tom: of fantasy sports. you have baseball and basketball and maybe hockey and golf added on top of that. >> right. just an indication of how big this fantasy business is, the fantasy sports trade association ofernlt past couple of months has put together a political action committee, getting involved in politics, targeting local legislation in these states, arizona, washington, louisiana and new jersey. why? politics and fantasy sports? the saints, the cardinals and seahawks, but it's more important than that, it's the ne between gambling and appropriate, reasonable fact see has been blurred. and they want to make sure the justice department in their zeal to stamp out
offshore gambling doesn't come over into fantasy. >> because a couple years ago when they moved to outlaw on-line sports betting, essentially, they carved out an exemption for fantasy sports. so what's the possibility of gaming in fantasy sports? >> again, the upside would be a lot nor avid viewers. not just during the weekend but the week as well. a lot more advertising dollars. and more intensity. the downside is unless it's carefully monitored, there is the gambling that needs-- feeds into it and some of it is against the law. >> tom: a lot of companies are looking for big growth potential, cbs is active with its on-line fantasy business, yahoo! sports is big in here. all looking forbig paydays whack is the growth potential. >> remember these are all media companies as well. so this is a media buy. it's advertising-driven. and the important thing is they connection panned their social media to twitter, to facebook, everybody in these global communities are now playing fantasy. plus it gives us the opportunity to relate to each other which i know is very important. >> it is sometimes difficult,
let's face it. >> i understand. beyond the scoreboard rick horrow, c.e.o. of horrow sports ventures. >> susie: here's what we're watching for tomorrow: as we mentioned earlier, french president sarkozy meets with german chancellor merkel to discuss the eurozone's economic future. we'll also see quarterly results from dell, home depot, saks, and walmart. also tomorrow, our word on the street is "insider." we'll have recommendations for low-priced stocks with fresh insider buying. royal dutch shell estimates more than 54,000 gallons of oil have spilled into the north sea off scotland's eastern coast. the spill is about 19 miles wide and three miles wide, but shell says it's not expected to reach shore. the leak began last week, but it's unclear what caused it. it's the biggest spill in the u.k. in the past decade, but small in comparison to last year's oil disaster in the gulf of mexico. >> tom: there soon could be more drilling on u.s. public lands. a federal judge has struck down
an obama administration policy requiring more extensive environmental review on some drilling permits. the judge said the interior department had no authority to adopt the policy without giving the public opportunity to comment. the agency says its reviewing the ruling. in the past, it has defended the additional up-front reviews, saying they reduce lawsuits and delays down the road.
>> susie: after days of painful market volatility, a u.s. debt downgrade and worries about a double-dip recession, tonight's commentator says now's the time for a real bipartisan deficit solution. here's richard dekaser, economist at the parthenon group. >> the past month's stock market correction reflects uncertainty about government debt to a large extent, especially in light of our recent debt ceiling fiasco. while politicians in washington were high-fiving each other for avoiding a voluntary default, almost everyone else was hugely disappointed. the debt ceiling legislation did nothing to address our short- term problem of miserable economic growth, nor our long- term problem of unsustainable entitlement programs. moreover, there are plenty of popular, bipartisan proposals to do exactly that. the simpson-bowles debt commission, the bipartisan policy center, the senate's gang of six, and even the grand bargain president obama and house speaker boehner were reportedly crafting provide
credible, long-term solutions to our nation's debt problem without kicking the legs out from under the feeble economy. each of these proposals was heavily weighted toward spending cuts, though revenue increases were also included. what's standing in the way of these sound policies? a small but influential group of legislators that senator mccain has labeled "tea party hobbits." federal receipts will account for less than 15% of g.d.p. this year-- the lowest percentage since 1950-- but the hobbits still firmly opposed to any tax increases. even closing egregious tax loopholes in exchange for a cut in the corporate tax rate has been ruled out. fortunately, there's a second chance. congress has three months to put together a real debt solution. and if it comes up short again, we should expect more of the same. i am richard dekaser. within we are getting word that president obama will put forth a plan to boost the economic when congress returns in september. specifics on job creation and deficit controls expected next month. that is nightly business report
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. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> be more.
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