tv Nightly Business Report PBS September 19, 2015 1:00am-1:31am PDT
♪ >> announcer: this is "nightly business report" with tyler mathisen and sue herera. what you see is what you get. the federal reserve says the economy won't grow much over the next few years. so what should you do with your money? dodging the rules? the epa accuses volkswagen of evading some regulations, and it could cost the automaker billions. corporate checkup. the next big challenge for stocks is fast approaching. all that and more tonight on "nightly business report" for friday september 18th. and good evening, everyone. a fed-fueled fall. stocks started the day low and ended even lower as investors from asia to europe and here in the u.s. focused on the health of the global economy. the concern was sparked by comments from the federal reserve yesterday, when it
decided not to raise interest rates. in part because of a slowdown in china and heightened volatility around the world. the dow jones industrial average fell 290 points to 16,384. the nasdaq dropped 66. the s&p 500 sank 32. for the week the dow and the s&p closed lower. the nasdaq was higher, posting its first back-to-back weekly gains since may. but there was something else that the federal reserve said yesterday that could be cause for concern over the longer term. steve liesman explains. >> reporter: when it comes to the economy over the next several years, what you see is what you get as far as the federal reserve is concerned. the unemployment rate, it's 5.1% now in the fed's latest forecast is that it will only fall ever so slightly to 4.8% and stay there through 2018. inflation, the fed has been aiming for and missing a 2% target for several years. it's going to miss it for
several more. the latest forecast doesn't see 2% inflation until 2018. the big news yesterday -- the fed isn't even sure of that. it held off on raising rates over concerns that weak overseas growth could drag down the u.s. economy and inflation. >> we've long expected, as most analysts have, to see some slowing in chinese growth over time as they rebalance their economy. and they've planned it, and i think there are no surprises there. the question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect. >> reporter: how about the fed's growth forecast? gross domestic product, which has been a disappointing 2% since the end of the great recession, will remain the fed says an unremarkable 2% through 2018. gone are the days when the fed forecast acceleration in growth had approached 4%.
still, yellen said if it were just focused on the u.s. economic data it's good enough for the fed to have raised rates already. >> the u.s. economy is reasonably healthy. the job market is good. overall consumption should be good. the problem is the remaining part of the economy, capital spending and net exports, that remaining 20%, 30% -- 20%, 25% rather is going to look horrible. >> it's worth remembering as lackluster as the u.s. numbers may be, they're still better than japan and europe. for "nightly business report" i'm steve liesman. >> so with such lackluster predictions for growth from the fed, how can you make money on your investments? charlie bobrinskoy is vice chairman and head of the investment group at ariel investments and he joins us with his thoughts. charlie, welcome back. good to have you with us. >> hello, tyler. happy to be here. >> terrific. slow growth 2%. inflation 2% or less. interest rates relatively modestly low between now and
2018. that feels like a prettyee good recipe long term for stock investing. >> well, first of all, these are all predictions. and i guess i'm slightly annoyed that the fed is falling into the trap of thinking that they can be precise about these expectations for the future. we're seeing in our companies reasonably good growth, not great but reasonably good. unemployment is low. interest rates are ridiculously low. and so we were hoping frankly they would start the process that is inevitable of getting interest rates back to where they should be. but the fed signaled to the whole world that they're more worried about the economy and so everybody's worried they see something we don't see and so they took the market down pretty dramatically. >> so at that point when the market starts to behave that way, what are you doing? are you adding to stocks you see as longer-term values in an environment where we are going to see slow growth? >> yes. we actually are.
and the other part of this problem is it made people get nervous again and it made people move into safer stocks with higher yields, stocks that behave like bonds, reits and mlps and utilities that have a dividend yield. so everybody moved into those stocks, which frankly we think are overpriced. and what got hurt were the more sec lickal names that are dependent on the economy. they'd already been down but then they got cheaper today. so what we did was what we're recommending that others do. and that's buying the stuff that's beaten down and selling the very expensive yieldstocks. >> let me come back to my earlier question if you don't mind, charlie. over the next three years -- i don't care what they did yesterday or didn't do. over the next three years is the environment going to be good for equities in not so good for equities? and will it be better for equities than for bonds? >> that last question is the one i'm the most confident in answering. stocks will do better than bonds. bonds are historically overpriced. interest rates have really never been this low in 200 years.
you are getting nothing on your bonds. in fact, we tndnk you're going to get a negative return after inflation. stock dividends are going to grow. stocks are a better place to be than bonds. it's hard to make short-term predictions but i think three or four years from now we will get decent returns, high single digits, to low double digits in stocks. >> thank you very much. have a good weekend. charlie bobrinskoy with ariel investments. a leading economic indicator inched up in august helped by a stronger housing market. the conference board's index which measures the outlook for the next three to six months rose .1%, matching expectations. some economists say the report suggests economic growth will remain moderate into the new year. americans are wealthier than ever. this according to new data from the federal reserve. household net worth rose, this is in the second quarter, to more than $85 trillion. that's a record level. the reason for the rise includes higher home values and in the
spring record stock prices. rising household wealth can make consumers feel better and in turn spend more and if that consumer spending that accounts for nearly 2/3 of american economic activity. barclays became the latest bank to cut its outlook for earnings. but this bank didn't just trim its forecast. in a note published after the fed decision yesterday it said it expects zero earnings growth for 2015 for the s&p 500. the bank cited weakness in emerging markets and a strong u.s. dollar. it also cut its outlook for the tech sector. and earnings are the next big hurdle for the stock market. the quarter ends in just a couple weeks. and as bob pisani reports for the new york stock exchange, there's growing concern over what companies will report. especially on revenue growth. >> now that the fed has made its decision for better or worse, it's time to turn to what really matters, corporate earnings. and those earnings need some help, real help. the second half of the year was supposed to see an improvement over the first half.
flat earnings growth. but it's not happening. earnings are expected to be down over 4% compared to the same period last year. and revenues will be down almost 3% as well. now, a lot of this disappointment is due to energy stocks, where earnings are expected to be down a stunning 65%. i'm not kidding. 65%. now, besides energy, there's a broader problem. what we need, i've been saying this for over a year, it's not more cost cutting to hit the bottom line. what we need is more revenue growth. top line growth. and we're just not getting it. for the third quarter the street is pinning a lot of its hopes for earnings and revenue growth on just a few sectors -- consumer discretionary expected to be up about 11%. financials, earnings expected to be up aboutte 8%. health care, up about 7%. now, consumer discretionary is in pretty good shape. that's housing and autos. they're doing well. the retailers a little more problematic. however, financials, banks, this is a problem. now that the fed is not acting to raise rates there will be less upward pressure on u.s. interest rates, and that would
have been a benefit to banks. that's not going to be there now. this is especially true of regional banks. that's why a lot of the big names like synovus and key corp. were all down 3% or 4% today and down yesterday as well. we'll get some more insight next week when several big consumer names report earnings. home builder lennar, for example, as well as auto zone and nike. for "nightly business report" i'm bob pisani at the new york stock exchange. and still ahead, how new more secure credit cards may cut one type of fraud but potentially increase another.
the environmental protection agency is accusing volkswagen of trying to dodge emission standards by making it look like nearly half a million of its diesel cars met federal standards when in fact they did not. and now the automaker is facing a potentially hefty fine. phil lebeau has been following the story and joins us now. phil, the epa is alleging that volkswagen rigged those cars so they could pass the clean air test. how did they allege that they did that? >> these vehicles had what's called a defeat device as part of the software in the vehicle which unless you're looking for it you're not going to see it. it allows a vehicle to pass emission tests, but otherwise it will not have to meet those standards as it's going about driving around on the roads. and as a result what you're looking at is a situation where the epaays volkswagen has 482,000 vehicles basically that
were rigged to pass clean air tests and in fact they did not meet those emission standards. epa says that e volkswagen has essentially admitted to this happening. we will probably see some type of a recall remedy announced in the relatively short term because they're going to have to fix these vehicles. >> so fundamentally, what i hear you saying here is that they tricked the system so that they could beat the test but in real world use they were not going to meet the standard that they said. how big a penalty could the auto maker be facing? and what if anything has volkswagen said on the record about this? >> volkswagen is saying that it's cooperating with the epa in this investigation. and ultimately if there is a recall it has to be issued by the automaker. so volkswagen would announce that recall. the epa fine is f $37,500 per vehicle. that's the potential maximum fine. you add that up or multiply that by 482,000, you get a potential fine of 18 billion. but let's be clear here, tyler,
most likely you're looking at a fine that is going to be far, far lower than that. nobody is suggesting that volkswagen's going to pay a fine of that much. we're looking at vehicles, by the way, between 2009 and 2015, your most popular models manufactured by volkswagen that are sold here in the u.s., the golf the passat, all diesel models, the beetle, audi a-3 is another one of the models involved. >> so as we look at those models that are affected, you mentioned there's no recall yet. can people keep driving those cars? >> they can. they can continue driving them and eventually there will be some type of a remedy where they'll have to bring it into the dealership and those vehicles will then be made compliant with all the clean air standards that they were supposed to be compliant with when they were manufactured. >> thanks a million, phil, as always. phil lebeau in chicago. >> we all know credit card fraud is a big problem in this country. in two weeks the u.s. will become the last of the g20 nations to adopt chip-enabled debit and credit cards as the
national standard. and while the cards may reduce one type of fraud, they could actually increase another. and though card issuers and retailers are on board with the change, mary thompson tells us that non-bank atms may remain a prime target for criminals. >> reporter: you may have yours. a chip-embedded credit or debit card. the chip's technology seen eliminating the chance a counterfeit card can be used in a transaction provided both the retailer and card issuer are chip enabled. so while experts see these cards making a big dent in the 37% of fraud committed with fake cards, they expect criminals to turn their attention to other schemes. >> these are organized crime rings behind all of these attacks, and they are not going to sit back and take a hit to their p & l. they're going to shift their tactics. >> reporter: their focus will become online fraud or web or digital transactions where a chip's technology is worthless. as a result the financial research firm the 8 group sees card not present fraud more than doubling in the five years
ending in 2018. though network operator visa believes improved technology at online retailers will limit this increase. driving the move to chip-enabled cards -- an october 1st deadline, shifting the liability for in-store fraudulent purchases to the retailer from the card issuer. provided the retailer has systems in place to read that chip-enabled card. >> a year from october the liability for any bad transactions made with a chip-enabled card at an atm will shift from the issuer to the atm operator. >> reporter: ahead of this criminals seen upping their efforts to skim at these machines, or accessing accounts through data stolen from mag stripes on the back or cameras that reach their pin numbers. a chip-enabled card can cut this fraud, but upgrading atms to read them is pricey. estimates range from $600 to $2,000 per atm. it's an expense banks can bear but one 8 group's julie conroy says could pressure the
independent operators running two out of every three atms. >> i think we will see some higher atm fees. i think we will see some of these atms just go away. they're going to do a cost-benefit analysis on those atms stuck in the corner of a basement of a hotel and decide it's just not worth the cost to upgrade those. >> the move to keep criminals from getting your car could end up limiting the number of places where you can get your money. for "nightly business report" i'm mary thompson. shares of jpmorgan slip on a revenue warning, and that's where we begin tonight "market focus." at an investor conference today jpmorgan's ceo jamie dimon said trading revenue is down like its competitors'. this quarter dimon didn't give a percentage, but over the past two days at the conference both bank of america and citigroup have said their revenue is down about 5% this quarter. shares fell almost 3% to $60.94. johnson controls says it will cut as many as 3,000 jobs over the next two years. that move comes as the company
hopes to save $250 million a year in costs. shares fell more than 2% to $40.50. freeport mcmoran has filed to sell another $1 billion worth of its shares. it comes after the company just finished a similar stock sale. the news pressured shares since stock sales make existing shareholder' stakes less valuable. the stock slid almost 10% to $10.88. and investors got a chance to react to news that la quinta lowered its 2015 guidance for revenue per available room. the hotel operator also announced that its president and chief executive has stepped down. shares of la quinta off 15% today to 16.05. rockwell collins also disappointed with its outlook. the firm said its revenue won't meet estimates since its avionic electronics and communications business is experiencing weak market conditions. the stock was off nearly 2% today to $83.68. coca-cola says it was notified by the irs that it owes more than 3w8 in back taxes for the
years 2007 to '09. but the beverage company disagrees with the claims and plans to work to resolve the dispute. the dow component was 1% lower on this heavy down day. it finished at 38.98. and now to our market monitor, who likes stocks with yields higher than u.s. treasuries right now. he is eric ristobin, chief investment strategist at russell investments. last time he was on in february he recommended the following stocks target, which is down a fraction -- southwest airlines, which is down 10% and proof point is up 8%. eric, welcome. nice to have you back with us. >> good to be here. >> do you still like most of those stocks or all of them for that matter? >> yeah. we still own all of them. we still really like target. it's one of the stocks we think is going to benefit thematically from an improving economy. we're just not buying that china is going to send us into the economic abyss. we think the u.s. is going to
continue to grow and companies exposed to the growth are going to do well. >> let's talk about your first pick, and that is target. you like its dividend yield, almost 3%, and you like big blue chips generally. so tell us about target. >> well, target, the dividend yield is important to think about this. it's above the market. the average -- you know, the average dividend yield's closer to 2 than 3. so it's aboston market but it's not so high as to get the interest of yield specifically oriented investors. you get into really the highest yield stocks. they're a little bit pricey. so we think the yield offers a good basis for return. plus the consumer is employed and they're spending money. we think target will benefit from that and their earnings will move forward. >> you also like wells fargo in the face of a stronger economy. they may lend more. but a lot of these banks are out with statements today saying that they may have to cut costs because they were expecting interest rates to be higher and interest rates aren't going
higher right now. so why do you still like wells? >> well, our time horizon's longer than a couple of months and we think what the fed has simply done is they've delayed by three months a move they're going to make inevitably and we think the forward pressure on interest rates is up. the economy is improving. car loans are up. consumer loans are up. even at modestly lower rates we still think banks are a good buy and they got a whole lot cheaper today. >> and you like raytheon. i guess you're betting there that defense spending will continue to be pretty strong. >> yeah, government spending in general. but defense spending in particular. you're actually seeing for the first time in a long time government spending is now a tail wind for the u.s. economy. we see no reason that that is going to abate. and we think raytheon is well positioned and nice valuation, about 15 times p/e. i think we're going to see them benefit a great deal from an improving economy and government spending.
>> and very quickly, you said you think the fed's going to delay by a couple of months. that would put you on the record for a rate hike in december? >> in december. absolutely. >> all right, eric. thanks so much. have a great weekend. eric ristobin with russell investments. well, greece, believe it or not, bank on the minds of investors. we missed greece, didn't we? the debt-saddled country is holding elections this weekend to decide who will become the next prime minister. the results could have big implications not just politically but economically as greece struggles to get back on its feet. julia chatterman reports from athens. >> reporter: a lot of influential people i've spoken to said to me they actually hope that alexis tsipras and the sirsa party win this election. why? because if he's in power if he forms a coalition government he will have to stick to the bailout plan. there's no choice, that the controls are a noose around the government's neck. if in fact he's beaten and is in
opposition then he could become anti-euro, anti-bailout, and actually cause far greater problems at that point. it's an interesting take. a point i would finally make is that what we've seen from these polls is they consistently underestimate the support for alexis tsipras and just on that basis alone it seems likely alexis tsipras could win through once again when the greeks vote on sunday. for now we wait to see what his final rally here tonight looks like. and this is going to give you a real sense of just whether or not the greek people are willing to give alexis tsipras and the syriza party a second chance. for "nightly business report" i'm julia chatterly in athens. coming up, why there's growing demand for one very unusual part of the sharing economy.
all right. here's a look at what to watch for next week. dow component nike will report its quarterly results. the commerce department will release its final reading of the gross domestic product for the second quarter on friday. that is the broadest measure of the economic activity of the u.s. and janet yellen speaks along with a handful of other fed officials. so buckle your safety belts. that's what to watch next week. an update now on a story we followed over the past year, and a victory for warm workers. a california judge ruling today that garowin farming, one of the nation's largest fruit growers, committed unfair labor practices, this as the farm tried to block the united farm
workers union from representing workers there. if you've ever used ride-hailing services like uber or lyft, you may be familiar with surge pricing during peak hours. well, uber's new study aims to justify that practice. while customers may think it's greedy to hike prices when there's high demand for rides, the company says it's necessary. according to uber, this is because it offers an incentive for drivers, ensuring there are enough of them to go around so customers can get a ride within minutes. >> uber is part of the so-called sharing economy that allows people to rent out or share just about anything from a home to a dress. and now you can also rent chickens. yes, chickens. believe it or not, there's growing demand for this unusual business. morgan brennan in nanuit, new york has our story on the real value of a cluck. >> reporter: farm fresh eggs in your back yard from chickens that are rented. several start-ups have been
hatched that lease out hens and all of the necessary supplies in what's perhaps the quirkiest addition to the share economy. >> we are an affiliate farm. we raise chickens for our customers to rent for a four to six-month rental over the spring and summer, and then we'll come pick them up so you don't have to keep them over the fall and winter. >> reporter: kaye witmer owns a farm in liverpool, pennsylvania an affiliate of two-year-old startup rent a chicken.com. >> usually we make more than one delivery in a day. the majority of our customers are very interested in knowing where their food comes from. >> reporter: rental fills that yard to table design but without the hassle of a long-term investment or a long time commitment since it can take six months for a young bird to begin laying. for $400 a customer gets two hens already laying eggs daily, a coop and 100 pounds of feed, enough to last for the four-month period. >> so if i wanted to hang on to these chickens for four months it's $400 and that includes the price of the feed and the coop and obviously the chickens and their eggs. >> rent a chicken works with
farmers like whitmer to pair renters with birds. in return those farmers pay affiliate fees to the home office. company co-founder jen tompkins says by the 2016 rental season she'll have signed contracts with 20 local affiliate locations. up from just 12 this year. and rent a chicken isn't the only company cracking open this concept. maryland-based rent a coop operates in eight states, charging $180 for a one-month coop. michigan-based rent a chicken.net has clients in nine states who rent two hens for up to $450 for six months. bird flu has been a boon for business as well as egg prices have climbed to record levels after a devastating outbreak wiped out more than 10% of u.s. production. these companies say demand for back yard flocks has jumped. no small feat given the price renters ultimately pay. at $400 for four months, that breaks down to $1.79 per egg. a total of $21 per dozen. at least three times higher than the priciest organic eggs in the
store. but a premium a growing number are willing to pay, just to know where breakfast came from. for "nightly business report" i'm morgen brennan in nanuit, new york. >> i balk at that. the puns just keep coming here. >> but we will not digress because that is "nightly business report" for tonight. thanks for joining us. i'm sue herera. >> have a great weekend, everybody. i'm tyler mathisen. we'll see you back here monday. ♪
gwen: looking to break out. 15 candidates fighting for one gig. we look at the g.o.p. debates tonight on "washington week." >> no. >> the simple fact is donald you cannot say -- >> more energy tonight. i like that. >> it's not that politicians are bad people. they've been in that system forever. >> i think we are in fact the a-team. gwen: it was hot. it was sweaty. and it was on. the republican candidates for president competing for the reagan legacy. >> by the way, i think i actually flew on this plane with ronald reagan when i was a congressman. and his goals and mine really pretty much the same. gwen: the right to challenge a democratic nominee. >> this administration with president obama