tv Nightly Business Report PBS August 25, 2011 6:30pm-7:00pm PDT
>> tom: warren buffett rides to the rescue, investing billions of dollars in bank of america. analysts call it an important vote of confidence. >> today's deal takes away a lot of uncertainty-- not just about capital levels, but about management. >> susie: then, the man behind the iphone, the ipad and all things apple is stepping down. we talk with a top analyst and a management expert about apple after steve jobs. it's "nightly business report" for thursday, august 25. 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 >> tom: good evening and thanks for joining us. two iconic american companies-- apple and bank of america-- and two iconic c.e.o.s-- steve jobs and warren buffett-- in the spotlight today. susie, investors spent the day trying to figure out whether it's time to buy or sell shares of apple and bank of america. >> susie: tom, steve jobs and warren buffett are visionaries that investors pay close attention to. so it's not surprising that apple stock fell slightly today
reacting to news that the company's superstar c.e.o. resigned. shares closed down $2.23 to $375 and change. but shares of bank of america jumped almost 10% after buffett said he's making a big $5 billion bet in the beleaguered bank. >> tom: we'll have more on the future of apple in a moment, but first, a closer look at buffett's surprise deal with b-of-a. the "oracle of omaha's" firm, berkshire hathaway, will get 50,000 preferred shares and a generous annual dividend of 6%. berkshire is also getting warrants allowing it to buy 700 million bank of america common shares at $7.14 any time in the next decade. as erika miller explains, that's more than just good news for that firm; it may also be a vote of confidence in the economic recovery. >> reporter: bank of america had been in the doghouse. it's shares traded at a two-and-
a half year low this week. but today, the bank was the darling of wall street, after getting the stamp of approval of warren buffet, arguably the nation's most respected investor. bank analyst jim sinegal says that endorsement comes at a steep price. >> basically, if things go poorly and b-of-a has to raise more common equity, that will actually lower the risk of his preferred stock investment. if things go really well for b-of-a and the company is earning $1.50 to $2.00 a share, trading at $15 to $20 in a few years-- actually, any time up till the next ten years-- buffett will be able to buy that stock at $7.00. >> reporter: in a statement, buffett explained why he picked b-of-a, saying "i am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them." the deal is similar to the one buffett made with goldman sachs in the depths of the financial crisis in 2008, except this time, the dividend is less. but it's clear that b-of-a still faces big hurdles, like billions
of dollars in problem mortgage loans. analyst erik oja says b-of-a also faces liability and legal bills related to the sale of rotten mortgage-backed securities. >> those mortgage buyback liabilities, those will continue for years. in addition, there are legal costs associated with foreclosures. >> reporter: b-of-a shares are currently trading at half the level they were earlier this year, largely because of concerns it lacks enough capital. s&p upgraded the shares to buy today with a target price of $10. >> today's deal takes away a lot of uncertainty, not just about capital levels, but about management. >> reporter: buffett's investment gave a boost to most bank stocks today. analyst anthony polini, whose firm does business with b-of-a, says it's also a vote of confidence for the recovery. >> for warren buffett to make this investment-- in front of a potential double-dip in the u.s., a potential crisis in
europe-- these stocks are oversold, their capital ratios are strong. their reserves are strong. it's not like 2008 all over again. >> reporter: wall street will be watching what happens to b-of-a and other bank stocks closely. that's because they tend to be leading indicators of recoveries, as well as recessions. erika miller, "nightly business report," new york. >> susie: and now, more on that stunning change at apple-- steve jobs stepping down and tim cook taking the c.e.o. job. the question investors everywhere were asking today-- will apple continue to succeed without steve jobs, especially when you consider this statistic? since jobs took over as c.e.o. in 1997, apple stock has zoomed higher by 9,000%. joining us now to talk about apple's future, gene munster, senior research analyst at piper jaffrey, and jeffrey sonnenfeld, professor of management at yale university's graduate school of business.
thank you for both joining us. >> good evening, susie. >> susie: gene, let me start with you. certainly steve jobs is a tough act to follow, but can tim cook keep the momentum going at apple. >> yes, and i think the reasons that the road maps aren't in place for the next three-- are in place for the next three to five years, we know about the iphone and i pad but the television that steve jobs has worked on, should carry the company for the next several years. so we continue to look very good about the next five years for apple. >> susie: you know, jeff, it's an understatement to say that steve jobs brought creativity and innovation to apple. he did that and so much more. but are those characteristics institutionalized in the company and the culture so that the company does succeed even without steve jobs? >> it's hard. because steve jobs himself, of course, represented the creative edge, that sense of pav rick zeal, going against the grain, against the status quo and to you become they become the mainstream dominant player.
still, you look at great legends, whether or not it was bill gates or walt disney, or the creator of pannal, pioneer of transoceanic world travel t is hard to see somebody follow that. i think tim cook is extremely capable shall but he is an operationals guy. we see jonathan ivs who create the i pad f those folks stay, the loyalty is to the organization, more than just to steve job, that's great. but neff's gotten very wealthy and a little bit older. >> susie: let's get a little about the investor react today. you are very positive on the stock. you still think investors should be buying yet su have a $600 price target on tap el-- apple. tell us why? >> well, the markets that they are going after are enormous. if you think about the smart phone market which is about half of their business is iphone, you know, they are about 20% penetrated for smart phones. and so there is a big opportunity there and the tablet market is really anybody's guess how big that's going to be.
but there is new areas that have never been before and apple is obviously a leader. so the simple way we think about this is there are brig markets that they are in a leadership position and that's definitely good for apple. >> susie: but a lot of that is going to depends on who is inside apple. jeff, let me ask you this. you know, the question that is hanging over apple is how hard is it going to be to keep apple's top talent, those creative types now that the maestro c.e.o. isn't there? >> they came because he was so good at stirring the pot. sometimes we have seen people in the world of fashion, retail and technology take on a chairmanship role where they could still be that great mad genius, create some healthy chaos. bill gates, when he stayed on as an active chairman it was helpful. but still when he defered to ray ozzie to come in to sort of take the reigns at microsoft, it didn't happen. they need somebody to inspire them in there and of course tim cook would be the first to say it's not exactly him. so we hope they will bring
somebody along in the pipeline to do that. and we don't also want to encourage steve jobs, and hope his health is as strong as can be, but sometimes they come in and second-guess. we've seen that happen. become generals that don't fade away. >> susie: so gene, which of apple's competitors could, you know, come in and take advantage of this transition time in terms of poaching apple talent or in terms of product development, who stands to gain the most? >> well, the companies in the mobile phone markets. companies like htc. and it is hard for me to say these because the companies had such difficulties, nokia, black berry, those are the ones, potentially google with the motorola acquisition. hard to see that happening but they are the ones that potentially could gain and for sure will try to poach some of these big executives. >> susie: jeff, we have just 30 secretaries, the big question, a lot of people have been comparing steve jobs to legendary founders like walt disney, thomas edison, henry ford. and those companies just grew and flourished even after the founder was gone.
what are we going to be saying about apple, 50, 100 years from now? >> well, we hope that it repeats itself. it's going to be very hard to see this sustained. some companies can do it. we've seen that intel's founding generation had creative cantankerous folks, moore and-- were succeed by andy grove who was no shrinking violet and greg barrett, that imstas you can get some folks who can continually reinvent in different ways. and i think this board is going to be very encouraged. they are lucky to have a board that understands creativity in biotech or retails on this board. i think that is an asset. a board that has criticism about succession planning before but everything else they got right and now they have the succession planning i think done pretty well. a little late but well. >> susie: certainly an end of an era for apple with steve jobs out of the picture there. thank you gentlemen, both, for joining us and giving us your insight. we really appreciate it. >> thank you. >> susie: and pie guest
tonight gene munster of piper jaffray and jeffrey sonnenfeld, from yale u >> tom: buffett's rescue of bank of america couldn't prop up wall street-- stocks sold off as investors await a big speech from the federal reserve chairman tomorrow. the dow tumbled 170 points, the nasdaq lost 48, and the s&p 500 off 18 points. trading volume-- a bit lighter-- 1.2 billion shares moving on the big board, and just under two billion on the nasdaq. that speech by federal reserve chairman ben bernanke is scheduled to begin at 10:00 a.m. eastern time tomorrow in jackson hole, wyoming. this was the same venue where bernanke announced plans last year to buy u.s. government bonds in an effort to kick-start the economy. since that effort ended in june, the job market has stalled, housing remains in a hole, and the u.s. government has seen its credit rating downgraded.
president of the committee for a responsible federal budget maya macguineas is in jackson hole, and expects a somber tone from the fed chairman. >> how do you grow the economy in a time of excessive debt burden is quite challenging, and you add to that the layer of political challenges that we have, and i fear that the mood here is better right now than it's going to be at the end of the meeting, when everyone is going to be pretty serious and possibly pretty depressed. >> tom: macguineas expects bernanke to acknowledge the slow economy in his speech, and hopes the chairman will continue pushing congress to address long term budget deficits. >> susie: with hurricane irene gaining strength in the atlantic, the east coast is making plans for what could be a weekend of extreme weather. thousands of people in coastal cities along north carolina are being evacuated; new york and new jersey have both declared states of emergency ahead the storm. even residents of the big apple
are being urged to prepare. the category three storm is already impacting travel. amtrak has canceled all saturday and sunday service south of washington, d.c., and the major airlines have started canceling flights and moving planes out of irene's path. still, airline analysts expect just a minimal impact on revenues. as for the major retailers, supervalu, home depot, and macy's have the biggest east coast exposure, all with more than 30% of their locations in the region. >> tom: still ahead-- as the east coast braces for irene, a new idea for flood prone areas. our "planet forward" series looks at floating houses. >> helen: plenty of conflicting messages in the market. let's get you updated in with the market dpous-- focus. despite the optimism from warren buffett on bank of america, stock prices slumped ahead of tomorrow morning's speech by federal reserve chairman ben
bernanke. we did see the session start with some follow-through buying but a half hour into the trading day, the s-and-p 500 was in negative territory. and stayed there through the closing bell, losing more than 1.5%. all 10 major stock sectors were down. the financial sector performed the best, thanks to bank of america and the buffett investment, as erika detailed earlier. this is the past 30 sessions. today's better than 9% rally came on volume of more than 800 million shares for this stock. while shares are up from this new low on tuesday, they remain well below where they started this month around $10 per share. the buffett investment in b-of-a helped other big banking stocks.
citi rallied almost five percent; morgan stanley added almost three percent; wells fargo was up 1.5%. wells fargo's rally helps buffett since his berkshire hathaway is the largest single shareholder of wells fargo. the big drag on the dow industrials was insurance company travelers-- shares sank 3%. today's drop takes the stock to a new 52 week low. one analyst calculates travelers gets 11% of its insurance premiums from the northeast, which is bracing for hurricane irene this weekend. the energy sector was the weakest today. independent producer q-e-p led the sell-off, followed by halliburton, then marathon petroleum. each fell at least four percent. european stocks also saw selling. this is the exchange traded fund following germany's stock germany had been a picture of market. germany had been a picture of
strength in europe, but concerns surfaced today that a ban on short selling in other european markets may expand to germany. however, the finance ministry said there is no general plan to ban short selling. a couple of losers off of their earnings reports. dental equipment maker patterson fell hard, down 10 %after its earnings came up short. and food company hormel shed 7% after a shortfall in earnings. gold halted its selling after yesterday's $104 an ounce drop. today, prices were up a fraction the c-m-e increased the margins on gold futures. silver rebounded back over $40 an ounce. and copper jumped more than 2% to its highest price in two weeks. growing confidence regarding asian economies and speculation around bernanke's speech tomorrow in the u.s. helped push up commodity prices. and that's tonight's "market focus."
>> tom: as millions of americans from the carolinas north prepare for hurricane irene, some may like the idea of a home that floats on water, but only when it needs to. we continue our series, "planet forward," a partnership with the george washington university social media project, using your ideas to power our future. floating homes is concept that could help flood prone areas adapt, as climate change makes weather more unpredictable. here's frank sesno. thailand has had flooding
and floating buildings for centuries. what's new, taking on the challenge of being able to float at a moment's notice. >> we think one way to prevent flooding that is not too costly is to build a house that request rise or elevate base on the water level. >> plan it forward member and his partner brought this idea to plan it forward. they design the floating house. after their architecture firm built this raft house using similar concepts. plan it forward producer vickior-- victoria reese went to thailand to check it out. how does the new housework? it's built on pontoons and sits on a well. if floodwaters overtop the well, the house floats, up to three or four meters high. but it doesn't float away, because it's still tethered to the ground. seems pretty good. >> i think the floating house is a step in the right direction. >> bill worthen of the american institute of architect told us that the floating house design is sound and that it's up front
cost would pay for itself after a storm. the kind of storm that's happening more and more often. >> it is talking about survivability after a natural disaster. and we've lived in the last year or two, seen a lot of natural disasters in the u.s. where if a house could get detached and float above a flood plane you could be back in it a month later. >> right now the floating house is in the concept phase and the designers are looking for funding to build and test a prototype. for jaray, building for the future and adapting to a changing planet is personal. >> when i was seven or eight years old i remember the flooding lastsing for two or three months and we had to move up to the second floor. this event stuck with me and since then i've always known we could live with the flood. >> frank sesno now joineds us from george washington university. frank, we're talking about floating homes here as a way to prepare for flooding just as irene is really barreling down on the mid-atlantic. what is the initial cost of these kinds of homes?
what is the potential savings? >> well, it's all prototype, of course, but in the designs now out there on the drawing board, it's about 10% of the cost of home so ten grand for $100,000 home that kind of thing. remember still very much on the drawing board. >> tom: what about the savings here? >> well, savings are huge if it's, you know, if the alternative is you lose your home and everything in them. so yes there's insurance in some areas. a lot of parts of the world such as thailand, the lower ninth ward of new orleans, that kind of thing, a lot of people don't have insurance so it could be an excellent investment especially given some of the trends we have been seeing. >> tom: you talk about how these are prototypes right now. any real homes that are using this kind of design already in the u.s.? >> yeah, i mentioned the lower ninth ward. brad pitt got involved in hurricane katrina. he set up something called the make it right foundation. they designed one of these and put it in place in 2009, same sort of thing, built on piers, can rise 10, 12 feet or so but it's still a prototype, still not in mass production. >> tom: these new designs driven by climate change to
protect against more severe storms or energy savings. any other innovations? >> well, we're watching really closely and we're very excited about this at plan it forward. something called the solar decathalon. 20 competing teams, basic colleges and universities are coming to washington, will be setting up their homes on the mall. and they've got all kinds of adaptive technologies to be energy completely self-sufficient, most of them. and so many of those are already up on plan it forward.org. we're inviting the audience to go over, see what they like, vote for the best. >> tom: if. >> tom: if you do have an idea to share or comment on others you can find a link on our web site which is nbr on pbs.com. thanks, frank. >> thanks, tom. >> susie: here's what we're watching for tomorrow: as we mentioned, fed chairman ben bernanke speaks at the economic symposium in jackson hole, wyoming. and we'll get an updated look at second quarter gdp. also tomorrow, our friday "market monitor" is david kotok,
chairman and chief investment officer at cumberland advisors. he'll explain why he thinks banks and other financials are bargains. j.p. morgan chase inks a deal with uncle sam. it's paying $88 million to avoid charges of supporting terrorism and violating multiple sanction programs. treasury says the bank violated sanctions when it processed nearly $180 million in wire transfers to cuba, as well as other transactions to iran, sudan and liberia. j.p. morgan chase says the violations were unintentional and rare. >> tom: meanwhile, charles schwab is suing 11 major banks, including j.p. morgan, bank of america and citi, claiming they conspired to manipulate a borrowing benchmark used to set interest rates. in two separate lawsuits, schwab says the banks deprived investors of hundreds of millions, if not billions, of dollars, by keeping libor rates
low. j.p. morgan and b-of-a declined to comment. citi says the suit is without merit. >> susie: big yellow school busses and backpacks brimming with supplies-- the nation's kids are heading back to school. for the next several thursdays, our "kids and cash" series mines the back-to school season for
some real world lessons in finance. tonight, neale godfrey tackles budgeting. she's c.e.o. of the children's financial network. >> back-to-school means back-to- spending. but suppose you could turn it into back-to-basics? this is a great time of year to teach your child about budgeting. start by helping them make a spending budget for the two major categories of back-to- school-- supplies and clothing. the first step is to get a list of all the recommended supplies your children will need for the school year. "need" is the operative word here. give each child a small notebook and show them how to list each item and put its price next to it. ask what supplies they think they'll need or want for this year. you can see where we're going with this. you agree to pay for all the needs, and have them agree to pay for their wants. next, do the same thing with their clothing budget. their list should be specific, detailing how many of each item they think they'll need. you may be surprised at the total cost and, hopefully, they will be as well. after getting the totals, you decide the final amounts and prices. if they think that they need
five pair of designer jeans at $150 a pair, you get to say, "no, i'll pay for the $35 pair." this approach will not be an easy one, but it is well worth it. your children can now start to understand the dynamics of planning and, most importantly, budgeting. i'm neale godfrey. >> susie: finally, we asked our facebook friends if they'd be more likely to buy apple shares or bank of america. here's some of the online conversation. jonathan says he would follow buffett and wrote: "technology can turn quickly. remember how motorola was the king of cell phones? buffett likes bets where you just have to sit back and wait. very few have more patience then buffett." diane says, "near-term, b-of-c is the best buy. still, she likes apple for the long term." remember, you can find us on facebook at b-i-z-r-p-t. that's "nightly business report" for thursday, august 25. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson.
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. pbs.
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