tv Nightly Business Report PBS August 17, 2012 6:30pm-7:00pm PDT
>> this is n.b.r. >> susie: good evening. i'm susie gharib. tom is off tonight. the nation's mood improves. consumer sentiment hits a three month high, despite rising gas prices. but tonight's market monitor guest is predicting a major sell-off for stocks. he's frank cochrane of investment timing consultants. and we head to houston for an update on efforts to get oil production back on track in the gulf of mexico. that and more tonight on "n.b.r." americans are feeling a little bit better about the u.s. economy. the latest survey of consumer sentiment improved unexpectedly in august.
the overall sentiment index compiled by thomson-reuters and the university of michigan ticked up to 73.6, the highest level since may. consumer sentiment is almost 20 points higher than it was a year ago and economist drew matus says he knows what's behind that optimism. >> i think the main reason that consumers might be feeling more positive is that initial claims have been going down so fewer and fewer consumers are filing for unemployment insurance so they still might be having trouble finding work if they're unemployed, but for people who have a job, they're less worried that they're going to lose it. >> susie: another report today confirmed that optimism. the conference board's leading economic indicators improve more than expected in july. it's a key gauge of the how the economy is expected to do for the next three to six months. all that led to modest gains on wall street. the dow rose 25 points. the nasdaq added 14 and the s&p inched up two points. for the week, the major averages closed on the upside for the sixth week in a row. today's gains in stock prices came in spite of very low trading volume, both at the nasdaq and here at the big board. sure, summer doldrums are a big factor. but, the drop in trading volume goes way beyond seasonal factors. suzanne pratt has the story. >> reporter: mid august on wall street and it's really no surprise that trading volume here at the new york stock exchange is so light. after all, it seems like nearly everyone is on vacation. but, even after accounting for all the hedge fund guys and traders enjoying the hamptons, volume is anemic. sure, tourists are plentiful outside the exchange, but inside on the floor. it's downright dull. no matter how you measure it, volume is well below the buying and selling we've seen in previous augusts. wall street veteran teddy weissberg says it's nothing new. >> it seems unusually light. but, i would remind the viewers the volume really has been light almost since this rally began going back to february or march
of 2009. there has been a lack of participation i think on the part of the public. we see in at seaport on a daily basis. >> reporter: and, it's no wonder the retail public is out of the stock market. from a ponzi scheme masterminded by bernie madoff to facebook's failed public offering, average investors feel they can't possibly win. >> i think folks are just nervous and scared. it's not a matter of not wanting to spend the money, or not having the money, i think they've just simply adopted this bunker mentality. >> reporter: still, even with all the investor anxiety, stocks have had a decent summer. since it's low in early june, the s&p 500 is up more than 10%. so, why give a hoot about low volume? sure, with fewer customers, traders make less money. but, low volume can also mean more volatility, which can be dangerous. >> what it does is it does create the possibility of exaggerated moves to the downside.
if something happens, if there's some bad news somewhere in the world, the market can drop precipitously. >> reporter: the exact same can be said for spikes higher. give the stock market some positive headlines and we could see an exaggerated rally. suzanne pratt, "n.b.r.," new york. >> susie: still ahead, from low trading volumes, to political uncertainty, market monitor guest frank cochrane explains why he's bearish on stocks now. oil prices hit a three month high of $96 a barrel today and gas prices are up nearly 30 cents in the past month alone. today. a white house spokesperson confirmed that a release from the u.s. strategic petroleum reserve is quote, "an option that is on the table." spokesman josh earnest said the administration continues to monitor the global oil market and will continue to share its findings with other g-8 nations, as promised at the group's may summit. still, oil traders doubt we'll
see a reserve release. >> it was almost like a carrot that the obama administration was going to say, "all right, we might do this." so, let's say you get toward november and the race is tight, you release it. but i mean that's not going to affect that market immediately. really what we're looking at is what's happening between iran and israel. that's our focal point right now. >> susie: with tensions running high in the middle east, there's new focus on growing u.s. oil supplies. it's been more than two years since an explosion on b.p.'s deepwater horizon drilling rig caused nearly five million barrels of crude to spill into the gulf of mexico. andrew schneider of kuhf, houston public radio, reports on the drilling industry's efforts to get gulf production back on track. >> reporter: these drilling rigs behind me are undergoing repair, waiting for orders that will send them out into the gulf of mexico. those orders are only now returning to levels they reached before the deepwater horizon disaster.
the april 20th macondo blowout back in 2010 triggered the biggest oil spill ever in u.s. waters. the obama administration imposed a moratorium on deepwater drilling that lasted more than four months. even after the moratorium ended, permits were hard to come by. that hurt drilling everywhere in the gulf, shallow water as well as deep. jim noe is senior vice president and general counsel for hercules offshore. >> what used to take about 50 days from the initial time you submitted an application is now well over 200 days to get permits back. so there's still some challenges. >> reporter: those delays made many companies reluctant to move back into the gulf. michelle foss is chief energy economist at the university of texas bureau of economic geology. >> time is money, so anything that happens that lengthens the amount of time that it takes to get projects done increases the cost, and that cost gets translated directly into the market.
>> reporter: but ian mcpherson of investment bank simmons & company says, when it comes to attracting drilling, the gulf still has a lot in its favor. he says within two-to-three years, more than 40 rigs will be operating in the gulf, well above pre-macondo levels. >> when you compare it to brazil or a lot of these african markets, which have great geology unto themselves, but they don't necessarily have the infrastructure or the human capital access, or frankly the fiscal or regulatory stability that the u.s. has. so, no, life is not as easy here as it used to be, but on a relative basis globally, its still an attractive place to business. >> reporter: one sign that oil companies are growing more optimistic about drilling in the central gulf: a successful auction of oil and gas leases. in june, the interior department held its first lease sale since the deepwater horizon explosion. bids totaled a much better than expected $1.7 billion.
andrew schneider, "n.b.r.," houston. >> susie: regulators want to make it easier for you to comparison shop for a mortgage. the consumer financial protection bureau offered up new rules for mortgage lenders today. nine out of every ten new mortgages now come from federal agencies or the federally- controlled mortgage firms fannie mae and freddie mac. to make sure fannie and freddie can keep those loans flowing, the government is changing the terms of the deal it struck when it took control of the two mortgage giants. as darren gersh explains, the
move is designed to reassure nervous markets. >> reporter: the federal government has pumped $190 billion to keep fannie mae and freddie mac afloat. but that money came with a price, a 10% dividend payment. the only problem is, fannie and freddie have been borrowing from the treasury to pay the treasury back. >> each year, they have to come up with $19 billion in dividends. which, when you're not making much money, is hard to do. so they have been borrowing money to pay the dividends to borrow the money to pay the dividends. >> reporter: to end that spiral, instead of a dividend, fannie mae and freddie mac will now simply give the treasury everything they earn. the move is timely, because at the end of the year, the mortgage giants' unlimited backstop from the treasury will expire. next year, they'll have to make do with a credit line of $210 billion. >> they still have a $210 billion backstop. but they're huge. their total obligations are about $5.5 trillion. and in that scale, it's not as much as it seems and it's certainly a lot less than unlimited. >> reporter: the treasury is also pushing the mortgage giants to get smaller, faster by winding down their massive investment portfolio's by 15% a year.
darren gersh, "n.b.r.," washington. >> susie: the former head of failed brokerage firm p.f.g. best pleaded not guilty to lying to regulators today. russell wasendorf senior is facing 31 fraud counts for allegedly cooking his firm's books and defrauding investors for two decades. the plea came despite the suicide note wasendorf left with a detailed confession when he attempted suicide on july 9. he's scheduled for trial in late october. if convicted, he could spend up to 150 years in prison.
>> susie: liberty media is getting serious about taking over sirius xm radio. c.e.o. john malone is asking the federal communications commission for approval to take over the satellite radio company, by boosting its stake to more than 50%. earlier this week, liberty disclosed that it recently upped its stake in sirius to 48%. if the regulator approves, liberty could take over in less than 60-days and would have the power to replace management at sirius. on wall street, a small but positive finish on this slow summer friday. the dow, the nasdaq and s&p all rose. and for people keeping score, the s&p just missed closing above its four-year high by a single point. technology, industrials and retail-- three economically sensitive sectors--were winners in today's session and for the week. let's start with tech darling apple, which hit a fresh all- time high. investors are growing more
excited about the possibility of a new iphone-5 and a mini-ipad in september. brokerage firm jefferies hiked its price target on the stock to $900. and today apple closed above $648 a share. more skepticism today about facebook. the stock lost another 4%... falling to 19. that's half of its initial public offering price. investors remain concerned about facebook's ability to boost revenue and make money from mobile customers. today's decline comes on top of heavy selling yesterday after the expiration of that lock-up period we told you about. another big tech decliner: marvell technology. the chipmaker's second quarter profits came in lower than expected. it also guided down estimates for the third quarter, blaming slower growth in its mobile phone chips business in china. the shares fell 14% to $10.54. the stock is down almost 40% in the last six months. marvell wasn't the only tech company feeling pain today. groupon also got slammed: down as much as 10%, but it recovered
some ground closing at $4.75. evercore partners cut its price target on the shares to $3. lots of big movers in the retail sector, women's apparel retailer ann inc. beat wall street forecasts for the eighth quarter in a row, as sales soared at its ann taylor and loft stores. the company is also seeing more full-price purchases. shares jumped 20% to just under $34. that's the highest level in nearly five years, as the company nudged up its full year sales forecast. gap was also a winner, because it, too, raised its full year profit guidance. that good news came on top of a gain of nearly 30% in second quarter earnings, helped by good fashion picks and lean inventories. investors are optimistic the retailer is on a comeback, after struggling for years to reclaim it's fashion status. the shares closed up almost 5%. a very different situation at aeropostale which posted a 98% drop in second quarter earnings. it also issued a third quarter
profit forecast that was below wall street expectations due to soft back to school sales. the stock fell 11%. now on to a pair of sporting good chains moving in opposite directions. both reported better than expected second quarter earnings. athletic footwear chain footlocker also reported higher sales, so it's share rose nearly 2%. hibbett sports fell 4% as revenues missed wall street's target. but that decline was nothing compared to the huge drop in shares of oilfield services firm ion geophysical. the shares plunged 11% after a federal jury ruled against in a patent suit. ion has been ordered to pay nearly $106 million to a schulumberger subsidiary. that stock closed down 20 cents. and, finally, a story for all you peanut butter and jelly lovers. shares of j.m. smucker-- maker of its namesake jelly and jiff peanut butter-- jumped 5% today to nearly $83 a share.
the company reported better than expected earnings and forecast strong growth for the rest of the year, as price cuts help it win back customers who traded down to cheaper brands. another strong day of gains for the most active e.t.f.s, except for the ishares emerging markets. and that's tonight's market focus. >> susie: despite the recent market gains, our market monitor tonight is calling for a major stock market correction. he's frank cochrane, president of investment timing consultants.
>> frank, why are you so bearish? >> well, first of all, the rally that we've seen the last weeks or so, the sireps of central banking, with bernanke and so on, have done a marvelous job in giving a great levitation activist to this market which i think is totally unfounded. if you look at the employment picture, 8.3%, participation rate at 63%, today, for example, the b.l.s. announced 44 states had higher unemployment than the previous month in june. these are not things that are a good foundation for the economy to do well. economic statistics are, you know, one month up, one month down, but overall i think the trend is lower, and if you look at the amount of money the government and fed has thrown at this economy over the past four years, growth is really, really pathetic. we are $16 trillion in debt.
it's just-- that combined with the fact that the election's coming up, i think it will be something that will cause people to sit on their hands, wait, and then if i look at the technicals of the market, they're extremely weak as well. the participation, the advanced decline line, new highs, new lows, everything is contracting in this advance, and, you know, the thing is, it's not something where longer term, i think-- i really think we've hit an apex here and the market will hit a wall, if we haven't already, we will certainly over the next week or two. >> susie: let's talk a little bit about timing here. when do you think this correction is going to happen, and how serious? how deep is it going to be? how deep a correction? >> i'm looking for something on the short term, as i mentioned, going into the election, maybe in the middle of november, so the next say, say, three months, starting at any time, and i think anywhere from 15% to 20% is not out of the realm of
possibilities. >> susie: that's a pretty big correction. >> it will be huge. it will be fast, it will be furious, and it will be scary, but we may hit a bottom some time and then grudgingly go up towards the end of the year into the spring. i think the next two, three, months could be very interesting for the bears. >> susie: this will be a very difficult time for investors if are you right, and you're saying investors should get out of stocks, get out of equities and put their money into 10-year treasuries, and also two-year notes. tell us why. >> well, the-- you know, the 10 year, first of all, has gone from a low on the 22nd of july to, say, 138 up to 181 today. this is a gift. i would buy into-- buy into that. that, coincidentally happened with mario draggy's comment, we'll throw anything at this market, do whatever it takes to get things done.
as far as the two year, i would be very, very liquid going into this-- into the next few months. money markets, two-year notes, 10-year notes, that type of thing and make a shopping list when this decline occurs. capital preservation i think will be key. >> susie: you're also recommending an e.t.f., as a way for investors to hedge against market volatility. tell us why you like the e.t.f.. >> the chart on that looks like niagara falls. it almost looks like facebook. this is a low-price etn, and i think if the volatility picks up, and we hit new lows today over the course of the short duration i'm talking about, there should be some good percentage gains in the e.t.m. this is a short-term trade. this is not something to fall in love with. >> susie: it's not a buy and hold. >> that's correct. and i would definitely be out of
it by some time early to mid-november at the latest. >> susie: any disclosures, frank? do you own this e.t.f.? >> that particular one, no, not at this time. from time to time we do trade in and out of that. >> susie: all right, thanks a lot. we really appreciate area insights. our market monitor, frank cochrane, president of the investment timing consultants. while the clock is ticking for the fiscal cliff deadline, tonight's commentator says lawmakers will soon have a bigger worry. he's russ koesterich, ishares investment strategist at blackrock and author of "the ten trillion dollar gamble." >> most investors have resigned themselves to another year or two of sluggish growth. there's little to suggest that the markets anticipate another one to two decades in the slow lane. yet, this could be what the future holds. the problem is the federal debt. if present conditions hold, publicly traded federal debt will hit 90% of g.d.p. by 2022, and exceed 109%, the previous all time high, by 2026.
history shows debt levels that high can reduce long-term economic growth rates by one third, and the drag on growth can last two decades or more. these realities will become clear during the next presidential term. if the next administration cant start making a dent in the nations fiscal position, investors may need to reconsider the long-term argument for u.s. stocks or at least demand a bigger discount before committing new capital. from the fiscal cliff to the federal governments long-term solvency, the markets are unlikely to permit endless procrastination. ultimately, if the us continues to stumble along with an indecisive government, europe may no longer be the biggest problem child in the global economy. i'm russ koesterich. >> susie: all next week on "n.b.r.", we take a closer look at the fiscal cliff: what it all means for the nation's economy and you. we talk about fixing the debt with former senator alan simpson and erskine bowles. we check in with doctors who worry their life-saving research could be on the line, if the
sequester isn't stopped. and monday, we meet a small town defense contractor counting on lawmakers to keep its business strong. >> susie: and finally, we end with a few thoughts on the big win in little rewards. here's author and educator lou heckler. >> i hate to admit it, but i'm now at that awkward age. it's the age where you read food before you eat food! does it have enough of this? does it have too much of that? i guess the days are gone when i could chase three pieces of pepperoni pizza with a bag of krispy kremes. as i think of the organizations i have worked for and the ones i now speak to, i do think there is a vitamin deficiency in many of our working people. i think th lack vitamin "p." the praise vitamin. i was speaking at a conference and i posed the question: what's the number one thing you hear when you've done a good job? i looked expectantly across the room of 300 people and no one offered an answer. finally, one woman up front said this: that's what we hear-- nothing!
though the room burst into nervous laughter, it wasn't because anyone thought that was funny. author michael leboeuf says its pretty simple: the things that get rewarded get repeated. we seem to know this with little children and seem to forget it when it comes to adults. the best managers i've worked for have handled praise this way: it's precise, it's periodic and it's personal. it recognizes a specific act. it isn't given once and never again. it is directed specifically to one individual and helps that person see how their exact contribution is appreciated. things feeling a little puny around your place of business? maybe your people have a vitamin "p" deficiency. you can fix that. i'm lou heckler. >> susie: that's "nightly business report" for friday, august 17. we want to remind you this is the time of year your public television station seeks your support. i'm susie gharib. have a great weekend, everyone. we'll see you online at nbr.com and back here monday night.