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tv   Nightly Business Report  PBS  April 23, 2012 6:30pm-7:00pm PDT

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>> susie: political uncertainty in france leads to sell-offs in markets around the globe. the u.s. was no exception, the dow dips triple digits. >> tom: shares of the world's biggest retailer tumbled, not because of europe, but due to allegations of a mexican bribery scandal. >> walmart purports to be an honest good citizen, ethical with a code of ethics. but, see it doesn't live up to those promises and it won't live up to them now. that's a problem for them. >> tom: it's "nightly business report" for monday, april 23. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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captioning sponsored by wpbt >> susie: good evening, everyone. stocks fell sharply today on wall street and in markets around the world. tom, it was an edgy day for investors with new worries about europe and political uncertainty after the first-round of the french presidential election. >> tom: the worry is what the french election means for the future of solving europe's debt crisis. the stock selling started in europe, where the major averages fell by 2% or more. here in the u.s. the stock indexes were also in the red. the dow tumbled 102 points. the blue chips had been down as much as 184 points. the nasdaq lost 30 and the s&p fell 11. >> susie: for u.s. investors, european politics may continue
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to push around stock prices here on wall street. >> reporter: mark your calendar for may 6, that's when france holds its run-off presidential election and the outcome could impact your portfolio. french voters will decide between these two men: french president nicolas sarkozy and opposition candidate francois hollande. if sarkozy loses, it could alter the european political and economic landscape. he's been one of the architects of the european plan along with germany's merkel to solve the debt crisis. his opponent has pledged to renegotiate the austerity measures in the treaty. also adding to investor jitters: dutch prime minister mark rutte and his cabinet resigned today, after crucial budget talks collapsed, opening the way for new elections in the netherlands. just another reminder of the parade of leaders from ten countries including greece, italy, spain, portugal and ireland, who have been voted out
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of office since the financial crisis broke four years ago. >> susie: also some discouraging "economic" news out of europe weighing on the markets today. new data shows that business activity in the euro-zone contracted at a faster pace in april. in italy, consumer confidence fell to the lowest level in 15 years. and in spain, the economy contracted in the first quarter- - a sign that country is far from an economic rebound despite taking tough austerity measures. joining us now with more analysis-- greg peters, he's the head of global cross asset strategy at morgan stanley. >> nice to have you on the program. >> thanks for having me, susie. >> susie: what's your take on these political issues out of europe, and how does this impact american investors? why pay attention to all of this? >> american investors should pay attention because we live
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in a global marketplace, and correlations are really quite high. but i think you hit the nail on the head with the intro. the combination of backing off or away from austert measures at the same time economic weakness is really starting to rear an ugly head. those two factors is a real concern here. >> you're facing a heightened level of uncertainty, and the election backing away from previously agreed measures with the ecb making a step back. investors not only in the euro zone, but globally are faced with a tremendous amount of uncertainty. >> and these economic numbers coming out of europe makes you worryy if the recession and europe is going to get worse, and what impact it will have on the american economy, business and the stock market? >> once again, it's about
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confidence. we're in a global marketplace. investors have tried to shrug off what's happening in europe, and just looking at u.s. corporate possibility and earnings, but it's really hard to do that when the news flow and data are universally weak out of europe. at some point there's a blow back. the fed and investors are worried about the blowback of the european crisis on to the u.s. and u.s. is sovereign as well, so it bears watching. >> susie: so what kind of investment strategy are you recommending for your clients? stick with u.s. stoktss. diversify in international. what's your allocation on bonds versus equities? what are you telling investors? >> two areas of focus. one is emerging markets. secular growth in emerging markets, not developing
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markets. and we want to invest in equities there, and particularly in on a secular basis into emerging marjts and secondly, since the world still is filled with uncertainty, it's about yield, breath, and carry, and that takes you into fixed income. not treasuries necessarily, but corporate bonds and other instrument that is actually have a yield to it, and on the equity side we continue in the u.s., and in europe for that matter, our dividend paying stocks. we want to own instruments where you get payed almost every day in the form of yield and carey to insulate you and protect you from uncertainty. >> susie: all right. we have to leave it there. thanks greg for all that good information. >> thank you. >> susie: and we've been speaking with greg peters of morgan stanley. >> tom: the world's biggest retailer is under big pressure over allegations of corruption
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in its biggest internation market. the new york times reported allegations that wal-mart's mexico business used bribes to expand quickly. walmart shut down an internal bribery in 2005 and only recently notified u.s. regulators after learning of the newspaper's investigation. if the allegations are true, they could be violations of an american law known as the foreign corrupt practice act. but, as suzanne pratt reports, analysts are divided on whether there might be long-term damage to walmart's stock. >> reporter: like many large companies walmart has had its fair share of p.r. problems. and, in recent years the company has been working hard to improve its image. crisis management expert davia temin says the mexican bribery allegations could be a doosey of a scandal for walmart. >> you can't be an organization that purports to be honest, that speaks about ethics and that talks about its code of ethics and then goes ahead and breaks that code of ethics when it's convenient. >> reporter: whether there will be ramifications for walmart's business is unclear.
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but there was fallout today for shareholders. the stock is now unchanged for the year losing all of its recent gains. wall street analysts had mixed feelings on how the shares might be affected in the coming weeks and months. deutsche bank reiterated its sell rating, adding this will be hard to sweep under the rug and a material distraction for management citi, on the other hand, says the stock is a buy on weakness. j.p. morgan believes investors should overweight the shares, saying the allegations are a public black eye not a financial issue. and, standard and poor's also repeated its buy rating, predicting that any fines or legal costs resulting from the case will not meaningfully impact earnings. >> we would have expected to see about a 5% to maybe even up to a 15% decline in the stock price over the next couple of months, we think that ultimately the amount of noise will outweigh the actual impact to the business.
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>> reporter: still others say as long as walmart continues to offer products at low prices, customers will put up with a tarnished reputation. after all, we're living in a tough economy where price trumps almost everything. suzanne pratt, "nightly business report," new york. >> tom: jacob frenkel is a former enforcement attorney with the securities and exchange commission. he now pratices with the law firm shulman rogers. >> tom: how serious should shareholders take the bribery accusations? >> if shareholders are worry body whether or not it's fundamentally going to affect wal-mart business. really not at all. i really don't believe it's going to impact individual decisions whether to shop at a wal-mart on the other hand, in terms of reputational effect and corporate governance, it's
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significant. it happened a number of years ago, and there's in no way an explanation, but i think the government has come down hard on wal-mart, and right now it's doing exactly what it needs to do, and it does not happen again. >> let me ask you here. several big multinational companies have been accused of violating this law in the past, semens, for instance, paid a billion and a half dollar fine. you c halliburton, and lucent fined under this act. how serious are these allegations? >> i would expect the stul consequences, the numbers to rank among the top five. >> i wouldn't be surprised if the ultimate cost to wal-mart exceeds a billion dollars because i think we're going to
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see a significant find between the sec and the dptd of justice. there's a compelling message that this may have happened a number of years ago, but it was swept under the rug. you couldn't follow practices, and promoted individuals. so i think from a dollar standpoint and cost to the company zoo-and i think protion cushion of individuals. >> we'll talk about that in a moment. >> tom: that's less than one day revenue for walt mart. this investigation, how does it determine if the bribery was a business practice or conducted individually. >> ultimately it doesn't matter. it was conducted by wal-mart personnel or by direction based on the allegations we've head. so i think the impact is real and immediate. >> we'll see how the case
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develops. jacob frenkel from washington. >> susie: more bad news for medicare and social security. a new report by the trustees of those big programs finds big problems. the social security trust fund is now expected to run out of money in 2033. that's three years earlier than projected last year. medicare costs are also running higher than expected. darren gersh takes a look at what's driving the changes. >> reporter: 11 million people now depend on social security for disability benefits. but the money in the disability trust fund will now gone by 2016. congress could swap assets from the retirement part of social security and put it into the disability program. but that's just a temporary fix.
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and it would hurt the rest of social security. the trustees responsible for social security have downshifted their outlook for wages and tax revenues. that's why they are now predicting social security's biggest deficit since 1983. >> congress must begin the process of deciding what levels of benefits and taxation best serve the interests of younger americans who are increasingly uncertain whether they can count on social security. >> reporter: but if congress acts, the obama administration wants a balanced approach. >> we will not support proposals that sow the seeds of their destruction in the name of reform or that shift the cost of health care to seniors in order to sustain tax cuts for the most fortunate americans. >> reporter: the romney campaign concentrated its fire on medicare, saying today's reports show the president has no real reform plan. medicare's finances changed little over the last year. but, that's in part because the trustees assume congress will make dramatic cuts in payments to doctors.
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if congress blinks, as it has in the past, then medicare is going to need help sooner. >> we're not going to run out of money this year. we're not going to run out of money next year, but the day of reckoning is nearly upon us. >> reporter: while social security and medicare are under growing financial pressure, they can't go broke. tax dollars will still cover more than 75% of spending even after the trust funds are gone. darren gersh, "nightly business report," washington. >> susie: another deal for facebook, as it continues to build its businesses ahead of going public next month. today, the social media firm said it will pay microsoft $550 million for a trove of patents the software giant recently purchased from a.o.l.
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the patents, 650 in total, cover everything from a.o.l.'s current and former businesses like mobile services, advertising and e-commerce applications. we also learned today that spending at facebook has roughly doubled in the past 12 months outpacing a 45% jump in revenues during that time. net income fell to $205 million during the first quarter. tom, as you know, facebook is expected to go public next month with some on wall street valuing the firm at $100 billion. >> tom: it's an unbelievable nuer for the young company. we saw lots of eye popping numbers. and mriekly to be an eye popping ipo >> update you with the sell-off in europe. u.s. stocks were poised to fall from the opening bell in broad- based losses. the sharp drop at the open, pushed the index to its lowest point of the session with in the first hour of trading. it ended down a little less than 1%.
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it was a broad mix of sectors leading the losers with consumer focused sectors getting hurt. the consumer staples and consumer discretionary sectors fell by more than 1%. material stocks also fell sharply. wal-mart pressured consumer stocks with the company under scrutiny over accusations of bribery in mexico, but a food stock and toymaker were among the biggest consumer stock losers. kellogg dropped more than 6% after cutting its financial forecast for the rest of the year due to weaker sales in the u.s. the warning comes ahead of kellogg's first quarter results released thursday. hasbro, the toymaker fell more than 5% after a weaker than expected quarter. sales were down with retailers ordering fewer toys one other consumer stock was in focus after the close, netflix. the decline of it's tradition dvd by mail business slowed in the first quarter, but it also expects the growth of its online business to slow this quarter. netflix lost less money than feared in the first quarter as it invested heavily in its
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international expansion. that's a strategy not everyone likes though. >> we think the company should be investing more in the u.s. business for now, they don't have a lot of competition in terms of online streaming but that's going to change very soon with the likes of comcast xfinity, amazon and other players getting in to video >> reporter: netflix has taken shareholders on a wild ride. the stock tumbled last year after netflix raised prices on some customers, then canceled plans to separate its online business from its dvd business. the stock fell 4% before today's report and dropped as much as 17% in after hours action, trading in the mid-$80 range. meantime, texas instruments made more money than expected last quarter, earnings 32 cents per share. with orders up, the company said it looks like a broad based resumption of growth. t.x.n. couldn't escape the selling during the regular session, down almost 2%. but after its optimism, shares
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jumped almost 4% higher in after hours action tonight. we continue to see some buy-out activity in biotechnology. the target of this deal is ardea bio-sciences. the buyer is astra-zeneca. the price is $1.3 billion valuing ardea at $32 per share. ardea stock shot up 52% on the deal. astra-zeneca fell 1.5% the worries about european government's paying their bills has helped investors of u.s. government bonds. the interest rate on the ten- year bond is at its lowest level in two months 1.94%. rates drop as bond prices rally. rates are now only about a quarter of a percent above historic lows hit in september. and that's tonight's market focus.
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>> tom: earnings season can mean some wild swings for stock prices. we've seen that on display in just the past couple of weeks. that brings us to tonight's word on the street: short-interest. okay, that's two words. robert walberg is the chief market strategist at thestreet.com. >> words on the street tonight. short interest. this is a measurement of how many shares are sold short, expecting the stock price to go down. why is that important on the street? >> if you're looking to buy stocks during earning season, it's either good news from earnings or bad news from earnings. and what you look for is heavily shorted stocks. and obviously than the stock will go down. if the stock provides a
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positive surprise, that stock is going to buck the friend and go higher because there's so much shorting on the stock. those people short have to go out and cover to redowse their loss. so that provides even more fuel to make a bigger rax*ly. that's what you're looking for. >> tom: you want significant short interest and then a positive catalyst. kb home is one of those you have on the list. what makes you think it could have those two ingredients. there's little downside rick. and it would force people to cover because there's no more down side. kb home faums in that category. everything in the construction sector has fallen hard and has had aeraly and fallen off a little bit. i think the trends are improving, and the surprises for k bx*f are more likely to be positive than negative. with 60% of the float already shorted, i think the stock has
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a good chance of a rally of 30 to 40%. >> what about dwa. this stock price has been decimated over the past year. most of the downside news is out. madagascar is coming out in june, and production in china which is good longer term. and increasing production rate it's a candidate where the news is going to be a surprise, and provide a short squeeze. >> the kid indicator on madagascar. i know you and i have kids. they're talking about the new madagascar film for whatever it's worth. you have positions in the two stocks we mentioned tonight, bob? >> i do not. family members have positions in dream works. >> tom: you can read the article on the street.com. and it's bob walberg with the
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street.com. >> susie: tonight, we kick off a week long look at the power of the internet and its ability to bring people together to get behind an idea or business plan with both enthusiasm and cash. it's called "crowdfunding." erika miller explains. >> reporter: we all know there's power in numbers. that's the idea behind crowdfunding. the strategy uses social media to rustle up support for a cause or business idea. take change.org-- a the fastest growing website for social change. it was co-founded by ben rattray who had no background in social activism. originally, he wanted to work on wall street. >> it was only until my senior year at stanford that i came back home to santa barbara and one of my brothers comes out as gay. and it was really personally a traumatic situation because the reason he told me was really pained as a young gay man wasn't because of people who were explicitly homophobic. it was because of people who stood by and didn't do anything to stop it. i had been one of those people. so i went on this journey and changed my life.
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>> reporter: since launching in 2007, change.org has a number of high profile successes, including molly katchpole's campaign to get bank of america to stop charging a $5 debit card fee. stef gray took on student lender sallie mae. >> my issue is that sallie mae. if you are unemployed or underemployed and can't make your student loan payments, they charge a fee to prove you can't pay. they want me to pay $150 every three months to put my loans in forbearance. >> reporter: the petition went up in january and already it has 164,000 supporters. >> so far we've had a partial victory. before my campaign, the fee that they were charging was just an arbitrary fee-- it didn't go towards the student's debt whatsoever. now, they will apply the fee to your debt, but after they hold money in limbo, and require you to jump through a number of hoops. >> reporter: more than 15- thousand new campaigns are started on change.org every month. there are more than ten million active members. the organization has a staff of one hundred, which brings up the
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business model. >> you don't have to pay to sign a petition, so how does your site make money? we enable non profits to pay for sponsor petitions on the site. and then when people come on to the site to take action around an issue like global warming, you have sierra club that might recommend a campaign to take action on one of its issues. it's a sponsor petitions model similar to sponsor links on google or sponsored videos on youtube. >> reporter: he says all profits are currently invested in international expansion. today, his focus was on asia. >> the next big milestone is when we can be in dozens of languages around the world. >> reporter: what was the last petition that you signed? >> the last petition was started by a 17-year-old girl in michigan, who was fighting a rated "r" movie that is bullies, about school bulling. so she gets 500,000 people to join. it's an amazing story. and she ends up convincing the m.p.a.a. to change their rating to pg-13. >> reporter: so from small gripes-- to major issues--and everything in between, change.org is standing out in a crowded field.
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erika miller, nightly business report new york. >> tom: tomorrow, our look at crowd-sourcing continues. with a look at how small businesses are benefiting from raising money online. we're also keeping an eye on apple, results are due out after the closing bell. plus, interest rates on college loans are set to go up this summer. we'll examine the potential impact on students. >> tom: that's "nightly business report" for monday, april 23. i'm tom hudson. goodnight, everyone and >> susie: goodnight, tom. i'm susie gharib goodnight, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: captioning sponsored by wpbt
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captioned by media access group at wgbh access.wgbh.org join us online at nbr.com. there, you'll find full episodes of the program. you'll find complete show transcripts and all the market stats on our facebook page at bizrpt. and don't forget to follow us on twitter @bizrpt.
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