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tv   Nightly Business Report  PBS  August 9, 2011 1:00am-1:30am PDT

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>> and this is kind of a blunt blow to the head, in the face of a market that was already selling off before the news hit. >> suzanne: the selling in stocks was swift and serious after america's i.o.u.s are downgraded. >> tom: the dow tumbled over 600 points, the worst day of selling since the 2008 financial crisis. it's "nightly business report" for monday, august 8. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioning sponsored by wpbt >> markets will rise and fall, but this is the united states of america. no matter what some agency may say, we've always been and always will be a triple-a country. >> tom: good evening. even reassuring words from president obama couldn't calm the stock market. susie gharib is off tonight. suzanne pratt joins me. suzanne, investors around the globe saw red after standard & poor's gave u.s. debt a black eye. >> suzanne: tom, an upsetting day of dramatic selling here at the big board on extremely heavy volume. the dow lost a stunning 634 points, or 5.5%.
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it now trades below 11,000. the nasdaq lost 174 points, or almost 7%, and the s&p 500 tumbled almost 80 points. trading volume the second heaviest we've seen this year-- 2.5 billion shares here at the n.y.s.e. and just below four billion shares on the nasdaq. >> tom: as for the debt downgrade, for the first time since standard & poor's first rated u.s. credit triple a in 1941, it has been cut to double a plus. the agency cites the inability of congress and president obama to do more to shrink the government's budget deficit. >> suzanne: stocks nosedived as investors reacted to s&p's downgrade of american debt. but even though the ratings agency believes treasuries are becoming more risky, investors rushed to safety there, pushing yields lower, and they bought gold like never before, sending the yellow metal to new highs. erika miller has more on today's market action.
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>> reporter: outside the new york stock exchange, reporters, tourists and regular americans tried to make sense of the market meltdown. inside the big board, there was even more activity, as the dow posted its worst decline since december of 2008. market strategist rick bensignor says the global stock sell-off was triggered by concerns about government debt loads. >> the debt ceiling issue here had been the biggest issue here. now coupled with the s&p downgrade of debt-- and you still have the credit crisis in europe, which is clearly not fixed-- and there's major issues there. so you've got, basically, debt issues both in europe and the u.s. that's dragging the markets lower. >> reporter: a big concern for the stock market is whether the s&p downgrade will be a tipping point for a global recession. investors fear a lower debt rating for the u.s. will eventually raise borrowing costs for the federal government, many companies and consumers. against that backdrop, it's understandable investors are seeking safety. but it may surprise you they're finding it in u.s. treasuries,
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despite the credit downgrade. interest rate strategist eric van nostrand says investors don't see a meaningful increase in the risk of default. >> this downgrade was very likely priced in for a long time by investors. the timing may have been a little bit surprising, but we knew that, given the rancor of the political debate over the sovereign debt issues, there was very likely to be a downgrade by either s&p or moody's. >> reporter: but treasuries were not the only safe haven. gold topped $17,000 an ounce for the first time and j.p. morgan is predicting it could hit $2,500 by year end. precious metals expert william rhind also expects the rally to continue because investors view it as the safest of assets. it doesn't have any counter- party risk. so, unlike a currency, unlike a bond, nobody issues gold. so, therefore, there's no risk of a default in gold. >> reporter: it's not clear how markets will react tomorrow, but
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experts say it could take many months-- even years-- to know the full extent of the fallout from the ratings downgrade. erika miller, "nightly business report," new york. >> suzanne: joining us now from the c.m.e. in chicago, jeff saut. he's chief investment strategist at raymond james. jeff, welcome back to the program. >> what a day. >> you bet. >> so what's the individual investor do on a day like this? >> well, this feels re like the end of a decline than the beginning of a whole other leg down. we counselled people to raise some cash back in february and march and are actually starting to put some of that capital back to work on days like this. you have to go back to 1940 when the germans blew a 60 mile hole in the line to get a day like this where less than 2% of the stocks trade product actually up on the session. >> so you really think that individual retail investors should be buying, perhaps even tomorrow? >> yes, i do. as a matter of fact. this feels more like the end of a decline than the
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beginning of a whole other leg down to me. >> and what should they be buying, of course? ness well, i think if you are looking at the s&p, i think you can buy an s&p type fund, very efficient way to invest. if you are looking at other funds, goldman sachs has some interesting funds that have less volatility, about half the volatility of the market. some of the international funds, mfs has the international diversification funds that i own and recommend run by my friend thomas mel len dez. >> do you think people should be avoiding treasury an gold and focusing primarily on stocks s that the best bet? >>. >> jimmy rogers when they asked him how he made his money, he sells says he sells yew forrian-- euphoria and buys panic. he says when price start gapping on the upside is euphoria and gapping on the downside it's panic. if you believe in that investment philosophy you wouldn't sell all your gold but would you take some money off the table in gold and treasuries and use that freed up capital to buy
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stock. >> you don't agree with that forecast today that is you will caing for gold to hit 2500 an ounce by year end, that's pretty stunning. >> i have been a bull on gold ever since china joined the world trade organization in the fourth quarter of 200 -- i think gold is going higher but from a prudent money management standpoint, when things start gapping on the upside in the charts, you rebalance that position and take some of the capital off the table. >> quickly, we only have a few seconds left what is your feeling about the u.s. economy in recession. i mean isn't that a major worry for stock investors now? >> it is a worry. i think this is more of a crisis of confidence than actually fundamentally driven. we have the steepest slope yield curve in the world and historically with a deep yield curve the economy doesn't go into a recession. >> okay. thank you so much for joining us. hold on to your hats for tomorrow, i guess. >> you bet. >> our guest chief investment strategist at raymond james.
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>> tom: when markets tank, investors often look to the federal reserve for a helping hand. will they find one this time? ben bernanke and his colleagues gather tomorrow for their regular august meeting, an event that is usually one of the most routine of the year. not this time. darren gersh takes a look at what to expect from the fed. >> reporter: does this man look like a hero? oppenheimer funds krishna memani says many market pros believe the mild-mannered federal reserve chairman will once again turn into their economic savior. >> the markets are basically hoping for somebody to rescue them, and clearly the fed is the only entity, so they are hoping for something. whether they have any big options up their sleeve, i just don't see any. >> reporter: economist michele girard says the fed likely does not share the market's new fear of a double dip recession, and a quick change of view now by ben bernanke might be seen as a sign of panic. >> we have evidence that the consumer continued to save in july despite all the bad news. auto sales are up, the chain store sales were up-- so actually, the data themselves thus far has not supported this
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idea that we are getting dangerously close to a double dip. i think that gives the fed some reason to show some patience in here. certainly, they don't want to fall behind, but again, i don't think they want to be just reacting. >> reporter: still, the fed does pay a lot of attention to the stock market and it will be looking closely for signs the slide over the past two weeks could not just signal trouble, but cause it. >> what is the risk that, if we don't do anything, things get really bad and what we thought was a soft patch turns into something bigger and what can we do to avoid that. >> reporter: memani expects the fed will lower its outlook for growth a bit tomorrow, but it is unlikely to do what markets might most want, and that's launch another round of large asset purchases. >> they, to some extent, don't want to be seen as bailing out washington, if you will, who is, at the moment, being punished for, certainly by s&p's standard, for failing to address
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the fiscal outlook here in the u.s. >> reporter: another factor taking the pressure off the fed is the monetary policy meeting in jackson hole, wyoming, at the end of the month. girard says that will give ben bernanke a chance to consider more economic reports and make a more thoughtful response to the market slide. darren gersh, "nightly business report," washington. >> today the european central bank bought government ious from italy, spain, those are europe's third and fourth largest economies, as well as bonds from greece, portugal and ireland. it's the latest effort to ease market pressures over the ability of those governments to pay back bondholders. we ask the bronwyn curtis head of global research at
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hsbc if european government debt is a bigger worry for investors than america's ious. >> it's probably more of a concern in europe because you have 17 countries you're trying to deal with at once. and of course we're seeing the problems move from one country to another. you sort out greece and then along comes italy and spain. and investors start selling their government bonds in those countries. and of course that causes a problem for everyone in europe. so neither of them are nice to look at. we call it a competition among the uglies. >> why haven't the efforts by european authorities to address the problems been enough? >> well, i think they have on a temporary basis. the problem is that until you have what i would call full monetary union, and that what mean that you would have to have close to fiscal federation in of the same way as dow in the u.s.-- say, and also you have to have a situation
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where the european central bank or the european financial stability fund can actually go into the market and buy any bonds that they want. now on friday, the european central bank said that they would start buying bonds. they have been as far as we know buying italian and spanish bonds now but this is just one step along the way. and it still makes investors nervous that it's not the end game. >> tom: what is the threat posed by italy and spain for investors, especially american investors here? >> i think spain is less of a problem than italy. now italy because it is a big country, but the funny thing is that italy since the euro was introduced has actually been very good at getting its budget deficit in order and getting it's debt down. the trouble is debt is still very high. in terms of u.s. investors, it's a problem for all investors because these are such big areas that are having problems. and that's why everyone is
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nervous. what we see now is what we call the risk off trade. you buy gold. you do buy actually u.s. treasuries and perhaps sterling bonds. and you stay out of the higher yielding periphery bonds in europe. >> tom: bronwyn what is the economic challenge for the political leaders? >> the problem is that politically and it's the same in the u.s. as well, politically there are a lot of relatively weak governments around. and it's hard to make decisions when you haven't got enough growth. the problem in the western world is we just haven't got enough growth. and while we have that situation, it's going to be incredibly difficult. because nobody really wants to accept that they are going to be poor for a very long time. >> bronwyn curtis of hsbc notes the governments and regulators are moving faster today to respond to problems than they did in 2008. >> standard & poor's shifted its focus today to the debt
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of fannie mae and freddie mac the mortgage finance companies were lowered one notch from triple a to double a plus. s&p said the loss of the federal government's triple-a status was directly responsible for the downgrades. don't forget the two companies have depended on uncle sam's support for nearly three years, when they were seized during the financial crisis. >> reporter: fannie and freddie own or guarantee more than half of the nation's $11 trillion in mortgage debt. so it's no wonder that homeowners and potential homebuyers are nervous. but, experts point out that today's downgrade of fannie and freddie applies to their corporate bonds, not their mortgage-backed securities. that may be why mortgage rates today remained at historic lows, although experts say the rally in government bonds was also a factor. mortgage rates take their lead from the 10-year treasury bond. still, interest rate strategist mike schumacher says the downgrades are unlikely to move mortgage rates. >> now they're really wards of the state, so if they lose money
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the, u.s. treasury is going to back stop them. so, it doesn't really matter that much where their debt trades, in terms of where mortgage rates might go. in addition to the fannie and freddie downgrades, s&p also cut the ratings of senior debt at 10 of the 12 federal home loan banks. those banks also provide funding for home loans. >> in the same way that we suspect that the increase in funding cost for fannie mae and freddie mac, we think that also applies to the federal home loan banks. so, it's a somewhat different program, same bottom-line result. tom, today of all days freddie mac ask the the government for another 1.5 billion dollars in aid. >> tom: trouble in the house market clearly continues it was the shot heard around the world with that debt downgrade heard late on friday. let's get everybody upgraded now with specifics on tonight's market focus. there was massive selling pressure today in stocks, making
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today's session a historic one. here's what the s&p 500 stock index looked like today. a mid-afternoon effort to stall the selling failed with the index shedding more than 6.5% by the closing bell, ending at the lows of the day. pull out though, here's the past 12 months. we have easily broken the lows from june and march, and we have fallen below this low last november. the index is back to prices last seen 10 months ago. the selling was significant. 43% of stocks listed on the new york stock exchange hit new 52- week lows. 28% of nasdaq-traded stocks hit new lows. selling was across the board, but financial stocks, energy and the materials sectors caught the brunt of it. the financial sector shed 10% today. energy and materials were down more than 8% and 7%
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respectively. the leading financial loser? bank of america. look at this share price. shares sank more than 20%. the stock is down more than 30% since last wednesday. here's b.a.c. since the spring of 2009. b. of a. also was today hit by a lawsuit brought by a.i.g. a.i.g. wants to recover more than $10 billion lost in mortgage investments. bank of america has proposed a settlement with mortgage bond investors, but a.i.g. doesn't like it, alleging "massive fraud" by bank of america. despite the stock sell-off, b. of a. says it has enough capital to operate. other leading financial losers include life insurer genworth, down 17%. citigroup falling more than 16% and student loan firm s.l.m. dropping almost 15%.
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here is a quick look at the largest financial company by market value, berkshire hathaway. these are the "b" shares, falling 6.5%. a new low tonight. s&p kept the company's credit rating unchanged-- double a plus, the same as uncle sam's-- but knocked down berkshire's outlook to "negative." as suzanne mentioned earlier, mortgage rates have been steady, but with worries about higher borrowing costs for home buyers. mortgage insurance stocks were down sharply. m.g.i.c. lost more than 40% of its value. radian group dove more than 28%. and m.b.i.a. was off over 12%. another blue chip getting bruised and battered in today's trading was verizon, falling 5.5%. this brings shares down to their lowest price of the year. what's going on? the selling comes a day after almost half of its traditional landline telephone, internet and cable tv service workers went on strike. about 45,000 walked out over contract talks. the unions have rejected company proposals to cut pensions and increase employee contributions for health insurance. and that's tonight's "market focus."
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>> tom: since friday, standard & poor's has been under fire by critics for downgrading the government's debt. it's not the first time. the major ratings agencies were blamed for dropping the ball during the banking crisis a few years ago. diane eastabrook looks at whether we can trust the watchdog. >> reporter: remember those toxic mortgage products that helped fuel the nation's financial crisis? rating agencies standard & poors, moody's and fitch had given top credit ratings to many
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financial institutions issuing those products just before the crisis. that's why some critics are skeptical about s&p's downgrade of u.s. debt. northwestern university finance professor mitchell petersen says rating companies and governments is a subjective business. >> do the rating agencies look at the same data, and are they able to come to a conclusion or make a judgement that the rest of us might not be able to? and that is a real hard one to measure. it's a question of whether the experience, the perspective, the wisdom they have means that they can look at data and see things that others can't. >> reporter: ratings agencies are paid by companies and government entities issuing debt. during testimony before congress, rating agencies admitted some financial institutions had pressured them to keep credit ratings high. sean egan's private ratings firm is compensated by investors. he competes with the likes of s&p and moody's and says all credit rating agencies should work like his. >> reporter: the investors'
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interests are diametrically opposed to the issuers' interests. the issuer wants the highest rating possible, and the investor wants a realistic rating. they don't necessarily want a high or a low. they want a realistic rating to help make investment decisions. dodd/frank brought scrutiny to credit rating firms, and experts think the u.s. debt downgrade could bring even more. diane eastabrook, "nightly business report," chicago. >> suzanne: tonight, we also hear some common-sense advice for coping with the market turmoil, and it doesn't involve panic. here's eric schurenberg, financial editor-at-large at "a.a.r.p. the magazine." >> first, go into your bathroom and grasp the edges of the sink. look deeply into the mirror, and repeat three times, "i was ready for this. i can handle this." why? because you know that bear markets are the price you pay when you invest in equities. you don't get extra rewards if you don't get extra risks, and bear markets are the risk. but you only make that money if
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you stick to your plan, even when it hurts. second, remember that you don't have all your money in stocks. go look at the statements covering your bank cds, or your fixed annuities, or your bond funds. they made money today. congratulate yourself for being so smart as to own some. number three? rebalance your portfolio. if you wanted to have 60% of your money in stocks and you now have 55%, add more stocks. it'll be hard, but had you re-balanced regularly during the crisis of 2008 and 2009, you'd have come out of that crisis smelling like roses. this is your chance to get it right this time. finally, send your boss some chocolates. bottom line, as long as you've got your job, you'll get through this fine. in fact, email your boss to let him or her know you sent the chocolates-- and send it at 7 a.m. from the office. i'm eric schurenberg. >> today, we asked our facebook friends if s&p's downgrade was a
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mistake. many of you thought the downgrades were politically motivated. but, for the most part, your opinions were evenly split. agnes said s&p made a mistake "big time!" jeff disagreed. he wrote "spending versus income is too high, and g.d.p. does not justify the level of debt." join our conversation by friending us at that's "nightly business report" for monday, august 8. we want to remind you this is the time of year your public television station seeks your support. >> tom: support that makes programs like "nightly business report" possible. >> suzanne: thanks for joining us, and don't forget to support your public televisi station. i'm suzanne pratt. good night everyone, and good night to you too, tom. >> tom: good night suzanne. i'm tom hudson. we hope to see all of you again tomorrow night. "nightly business report" is made possible by:
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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 >> more information about investing is available in "nightly business report's" video. to order this dvd, call 1-800- play-pbs or visit online at >> be more. pbs.
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