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tv   Nightly Business Report  PBS  July 3, 2009 6:30pm-7:00pm EDT

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captioning sponsed by wpbt >> susie: in the year's firs half, gns of recession were everywhere. unemoyment rose and real estate prices droppe consumers cut backn big-ticket puhases, and two automakers threw in t towel and declared bankruptcy >> paul: but amid the bad ws, wall street begato see light at thend of the tunnel, and stock pres did a u-turn to the up-side. >> susie: so are a new bull market and ecomic recovery at hand? stayuned, as we try to find t in "the economy and the marketat mid-year." >> this is a specl edition of "nightly busins report": featuring paulangas, susie gharib a the n.b.r. team. "nightly business rert" is made ssible by... 7//&
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>> susie: good evening, everyone. the u.s. financial markets we closed for indepennce day. soonight we'll look at the state ofhe economy and the marks at the year's half-way point. paul? in have been some hopefusign for the economy. the durabl goodsorders, but otherwise there hasn't been much to cheer about in first ha as housing pricesontinue to drop
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off and layoffs sent employment soang to a 26-year high. anconsumers delayed the buying the big-ticketitems like cars. as dana bate reports, that helped to drive general motors into bankruptcy. >> reporter: back in juary, at the detroit auto sw, g.m. and chrysler seemed hopeful out the fure. chrysler's c.e. at the time, robert nardelli, said e company was making proess. >> i think we're doing allhe right ings. it isn't that we haven'tade mistakes in 83 yea. you know peoplwho do things make mistakes. they never make the bigges stake which is to do nothing and so wre doing a lot to make ourselves viable for the fute. >> repter: but neither company s prepared for sustained double-dig sales drops, as the worst ecomic downturn in decades intensified. in february, they apaled to e government for additional money to stay afat-- up to $16.6 billion for g.m. and $ billion for chrysler. the companies bmitted restructuring ans to show the money wod be well-spent. t the white house found those plans cking and rejected them. >> we cannot makthe survival of our auto industry dendent
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on an unending flow of tax dolls. these companies and this dustry must ultimately stand on tir own, not as wards of the state. >> reporter: the ministration's auto task for concluded chryer could not survive as a sta-alone company anarranged a quick bankruptcy and shotgun marrge with italian car maker fiat it also ousted g.m. c.e.o. rk wagoner and gave the cpany 60 da to come up with a new cost- cutting pl. g.m.'snterim c.e.o. fritz hendson admitted he had a lot of work to do. the conclusion is, the environment hadone nothing other th be equally difficult ifot more difficult than it waeven let's say late last ye. and we need to do more, we ed to do more now. >> reporter: on ju first, after toh negotiations with autoorkers and bond holders, the company entered nkruptcy. and the new restcturing plan went io effect, giving the government a 60% sta in general moto. g.m.'s orinal plan assumed only modest clines in market she and had the company in the
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red for six re years. its new plan assumesn 18% market sre by 2012 and gets the company to posive cash- flow. chryslernd g.m. plans call for closing a combined 1,8 deerships-- a move that drew harsh criticm from capitol hill. but g.m.'s henderson sd his company needs a drtic overhaul. >> no maer how you look at it, whether ofessionally and personly, you to realize that this is a new beginninfor g.m., it's reinvention of the corporation. >> reporter: even their reinventio result in big changes, the future the new gm and the newhrysler hinges on one question: will ty come out of bankruptcy as profitable compies? dana bate, "nightly buness report," whington. >> susie: so ultately, will chsler and g.m. survive as leaner and meaner ayers in the auto market? talked about that with josh feinman, chief economisat deutsche asset magement and jas awad, investment stragist at zephyr management. i began by asking josh how
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g.m. andhrysler are likely to >> i thinkhey need the ecomic conditions to improve, to perform a better base for car sales. mean, theneed to see labor markets start get better and can have come ba. credit marketsimprove. i think we're starti to see a littleit of that. but we need go a lot fther before, y know, the outlook fogm and chrysler can materially improve. >> susie: w, gm and chrysler say is is a new beginning, they're reinventingthemselves. do you think they'lle able to pull tha f? in oth words, what will we be seeing from them a yeafrom now? >> i think it will sti be a work in progress. we won't admit defeat o declare victory. they will be smaller andore efficient and there will new products. we will have to look whait is they're puing in the markplace. it will be k to determining the fure success. >> sie: so josh, when do you expect chrysler to g better? >> i think it will be graduate
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procs. i think we hit bottomnd we'll see edging up over the second ha of theear and then further improve in 2010 but i think will be a lev of ca sales well below the peaks we got to before the cris. >> susie: and en consumers alady stop buying cars, they have a lot of choices, and do you think there's stigma about buyi a car from a company that's been taintedy bankptcy? >> i don't think so. it's interesting in the month after chrysler declared bankruptcy, e sales were better than excted. because people perceived the values so it's aery local decision. i think people are goi to look at the pduct that's being offered in the price, the dea that ty can, the credit that ey can get. so i think that bankruptcy will be due to sothing in the st. i know t government is hind -- in one case the govement and the fiat are behi the companies so i thi it will be level playing field. >> susie: all right. let's take a break here. and we'll be back with your thoughts. >>aul: detroit's troubles contributed to a bad wter on wall stree but spring, investors began to look forward toetter times aheafor the economy. as suzanne pratt repts, that led stock prices to get ck on
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track. >> repter: "the ultimate race to nowhere"-- that what some stock market pros call the action in the ye's first half. that's because theow jones instrial average ended the six-months clo to where it began. but a look at a dow chart ows it was really wild ride. first, thereas a steep drop then a dramatic coback as the index moved in a 2,5 point range. r.b. capital's marc harris says the pce swings were unprecedented. >> there's no doubt it extreme. i me, you have 25% moves down, and then 35% moves up. there's no mistake forhe u.s. equiti market that's dramatic. >> repter: while the dow and s&p 500 were essentially unchanged in the first s months, thnasdaq was up significantl aftethe dow reached 9,000 in early january vestors became consumed by extreme lf-doubt. rries about the solvency of banks d the market crash to resumen february and march. not even a new preside could
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keep stocks from going into tailspin. by march, the dow had fallen to 6,547, it's lowest lel in 12ears. wall strt strategist sam stovl says investors were suffering from a serious lacof clarity on the economy. >> investorsad donned their 3d glass trying to ascertain, the depth, the duratioand diffusion of this glob ression. i think they we also totally coerned about whether the u.s. govement would be nationalizing thu.s. banks. >>eporter: but, just as quickly as stos entered the abys they shot right back out. from mid-march through m-june, the bluehip index surged 34%. expes say the "game changer" was policy measures from the white house aimed atestoring confidence. investors began to thi maybe the new administration was getting its act togeth. strategist craig peckhamlso credits positive economic gns or green shootthat appeared in thearly spring. >> what yosaw happenrom
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march to today was just a radicachange in risk perceptions in the mketplace. it was born out inhat was happening in fixed incom marks as credit investment started come back into bonds and select corporateredits. that spied over into the eqty marketplace. >> rorter: experts say the market remai in a fragile state withnvestors still skeptical about the future. the good news all of the cash on the sidelines whi given incente could come pouring back io stocks market. suzanne pratt, "nightly buness report," new yk. to weigh in on this questi is tim hayes chf market stratest and joining us from new york is jeffeeb bow sit a plsure to be here. >> netavis research h
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declared the rect bear market a ter fall decline. the big question, is a w bull market underway >> wl, the water fall decline ended what we'd classify as cyclical br market and following at water fal decline, rllyigh volume nic stage back in tober we had diminished participationn the lows and fally on the marclows inhe mor average since that was t final bottom, ansubsequent to that we had enough evidence to cl ts a cyclicalull market and tt's really wheree are at right w. >> paul: mark, lasnew year's day u were the most bearish and u predicted theow would gop early in the year and then would ll back to closet 6500. are you still expecting a big drop? >> am, paul. i thk ultimately i don't know if it will be this year but the dow industrials give up 90% the value, so m pretty much a
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bear. over theear ter we can -- as we did in the 1930's we could see a 50% retracemen of decline whicgets you up to 3000 which is 11,000 i the s&p. now sht, short term, "money" mazine had a bull on its cov just o june 19. think we're at our near srt termighs here, a pull back d then maybe anoer rally try before the water fall decli resumes. so we are trading and actually lking to get short right here. >> paul: so i take it you dot shartim's view we are in a cyclical bull market? >> not at all. i think this is a reex rally and, youknow, a lot of manilation going on. you have gothe plunge protecon team out there, at love thing -- a lot of things people don't want to talk about, but the fed is getting ts market up ani think it's temporary affair. we have lower measurements en righhere, 7500. so i wouldn't surised in the ne month or two we get down to those leve first. >> pl: tim, do u see any gns that the upswing is
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running out of stm? >> not athis point. we'd have in a cyclical market -- in fact th is one of the --t's been very similar to 1974, 1975ecovery and that we only had a 4% correction over the rst three months. that's exactly at happened in 1975. when y were up 34%, the se amount that w had during the fit first three months of the cyclal bull marke we have seen normal consolidion recently but we have good solid participation, no signst this point for getting to that vulnerable point. paul: what kind of stocks to you recommd to take advantage of this cyclical bu market? we have just half a minute. >> well, we're stayingwith right wthe energy and mateals are good areaso be in. and consumer discretiona and chnology. i thinmaterials and energy, once we have more confortion that the recession has ended we'llave moreustainability d then at the end of the roa
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as we reach the d of the cyclic bull market, more defensiveareas. >> paul: mark, since you see a multiyeadecline on the horizon, what ould investors do now? >> as i to you in the previous intervws, paul, i'm a gd bug. you needo be in gold aa fensive play. i e gold running up tohat 2500, 3000 ar, wther is deflation or inflation. so that's where i think invests should be. i don't think they would be equities. i think it's a tenuouseriod that we ha entered over the next several years. >>aul: tim and mark, thk you so much r your differing perspectiv on the outlook for stocks. >> susie: like stockrices, commity prices also reversed direction in the year'first half. as jeff yastine rerts, that move was spaed by worries that moves to stimulate the enomy might a little too far. >> reporter: there'so argument thathe economy was weak in the first half, americans cut back their spending on n- esntial items. and yet, for commodities traders,he first half of 2009 waone for the record books. oil pres somehow rose 55%,
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even though the recession imped energy demand. and amid a weak home constructi market, copper prices nearly doubled. so what gives? phil flynn of aron trading says it's all about th piece of paper you have in your waet called "the doll." flynn notes that ithe economy getsorse the federal reserve can inject mordollars to try and restabilize the onomy-- but with one iortant side- effect. >>f that happens the value of our dollar get wear and commodities priced in doars get a lot re expensive. so if the economy gets wse, ev if demand for commodities mighbe bad, the demand for the dollar wl be worse. d that will drive up the cos on again. >> reporter: the pce of gold prides another example, amid worries the fed will succeedoo well in reviving the econo. doug groh of tocquevle asset management says jewelry les, ich consume a majority of th
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ld supply are way down. >> and yet gold very strong. and what's taking up t demand that jewel is not is the investment demd for gold. and it reflects the concer about inflatn. and the desire for atore of value. >> reporter:laron's phil flynn se china as a factor in e ri of commodity prices this ar. he says chese companies are stockpiling mmodities, not st for future consumption, b also as a hedge-- a ha asset-- agait a weakerollar. >> ty're very concerned about the state the u.s. economy d owning all this debt we've beenelling them in the last 10 or 20 years anwhat the value of that debt is going to be when they finallyet paid back. >> reporter: so is the cmodity somelike flynn, think it will ntinue, as traders use the commodities marketas the ultimate hedge agast an uncertain u.s. economy.
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jeffastine, "nightly business report,"iami. >> sie: so looking ahead, is inflation really a cause for concern? in my scussion with james awad and josh feinman, asked josh if inflations the next risk fothe economy. >> i d't think so. i think that t economy is going to b on raitting with a lot of -- operating wi a spare capacitya lot of slack, that will help to pit put put lid on price pressures. it will take a long period of stng growth to absorb that slack. don't see us getting that any time so. i ink if anything inflation is more likely to drift a bitower over the nexone to two years than to move much higher. >> susie: buthe message of the marketeems to be different than that, seems to be tell graphi the federal reser eds to raise interest rates take se of the stimulus out of the ecomy and, we have seen that the fed has beenslow to make cnges in the past. will they get it rht this
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time? well, it will be very difficult. ey have a narrow path between doing it too early or tolate. what's encraging to see is you know there talking about it now, when you read abouthat went on in t meeting. there were people who think that we should wait longer andhere are pele who think they should art now. at lea they're on thecase, if you will. and if they'ren the case, they ve a better than even chance of being sucssful. >> sus: josh, what is your forecast for economic owth for the rest of the year? is the a going to -- the economy going to grow sitive? >> i tnk so. i thinwe'll turn to some growth latern in this ar and 2010, but i think it will be fairly slug initte the early gog. the economyas a lot of head winds from the housing acredit crises to rk through, so it will be a while before we get to strong grow. >> susie: jim, how is this all going to play out in the markets? we had a stock market rally and's pulled ck. what's next? >> it's frustrating for investors because i ink economic groh will be stable enough, the econy will be stablenough that the bears
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won't be rig. on the other hd, there's a lot of reasons to belie that the recory will be very tepid which i think is frustrang to the bulls. so i tnk it will be market where what you own, whatsset classes yoown are going to be more important than the geral direction ofhe marke the bear mart is over, but you can't say the next bull mark has begun. >> susie: all right. we'll be back in a f moments with me of your thoughts. >> paul: as we noted, ock prices took a rn for the better in march,nd kept rising til mid-june. so what did that ral mean for holders of mutual funds? to help us fd out, joining us christine benz, director of personal finance f rningstar. christine,elcome back. >> hi, paul. nice to be here. >> paul: now, starting offet's ok at fundectors that did the best in the second quarter and at the top, latiamerican stock nds. >> right. emerging markets generally real soared i the seco quarter of this ye andatin america came out on top. inarticular, because brazil which tends to be thmost dominant mket in latin america also really rebounded cely
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after aoor performae in 08. >> paul: for the top fun of the quarter let's ben with the best pformer, burma oasis. >> righ this is a quirky nd, paul. i look at the portfolio. it's hard know wt's in here becae the manager tras very frequent, but i saw a few leveraged index funds so i tnk investors hereeally need to be on the lookout for very votile performance. >>aul: and thebest performer ong value funds was an index fund, namely sma cap pure value. >> not your typicay broadly diversified index fund. instd this i a macro cap vae index fund that is content traited inthe top holngs and in partilar in the consumer sectors, retail and restrants, especially >> paul: interesng. and no one will tnk wre
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ignoring bonds, thtop bond was fidey adviser high income average. tell us about that. >> this is a junk bo fund so it buys low quality bonds in general and tds to buy low qualit bonds than the typical junk bon fund. that ht it last year but helped more recently. >> paul: the biggest upsid moves were made by overseas, made overseas b oak mark globalelect had a negative return. >> it d. and at really is ong to its poor performance in 08. but it has rounded nicely so far this year. thanks to good performance fm both the domestic and the reign stock portions of this portfolio. >> paul: and leading the emerging funds dreyfuss and i hear lely that's really been hot. >> it has. thiss a rags to riches story, a fund that did lose a lotn 2008 but has manag to really claw its way ck over e past
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quarter. it's gained 60-plus percent in theecond quarter alone. >> paul: finally l's see what happen to the largest funds over the quarter and f a change, a loof double digit ins. >> right. this is something we have not seen from the biggesstock funds overhe past year and a half or so. bu what we seeere is tt the euro pacificrowth which is the full foreign stock funds amo the five large has performed ally well relative to the domestictock funds here. >> paul: christe, afterhe ce gains registered in this quarter is it toolate to get into the ral, yes or ? >> i don think so, paul. most fun have not regtered the kind of astronocal gains we have been tking about and our equity analysts here at morningstar continue to ink that the bro stock market is prettyundervalued relativ to their estimatesof fairvalue. >> paul: very good. >> we think the's upside. >> paul: very good indeed, thanks,hristine benz for your
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insight. >> susieso as we enter 2009's second half, probably e top queson on everyone's mind is: are we going to emer from the recession anyte soon? in my discussionith jim awad and josh feinman, i askejosh about the pposed 'green shoots' of economic recovery that have beguto appear and whether he sees thems a hopeful gn. >> think the economy is stabilizing now after the fr-fall it was. in i think we'll return to growth later this ar and into 2010 but i think thatrowth isoing be pretty sluggish in the early going. >> susie: do you agree wit that? >> yes, i do. you look at the building blocks of the econom none of them point to hi grow. business hasxcess capacity and exports inexcept foindia and china e going to be sluggish and then the govement has to
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raisthe money to -- because of the stimulus. susie: what is your outlook for the job mark and when will weee the unemployment rate come do? >> i thi it will be a whil i think the st we can hope for is a slower rate in the job market. think really going back to gnificant hiring net positive employment andeclining unemployment, i thk the earliest we can ok for that is 2010. >> susie: u know so my of thceo's say because of the financial crisis there's a new normal thathey're talking abt. is that how you see it, jim? >> well, iee the new norls for thtime being, if u look at the blding blocks of where growths from you won get above trend line growth. but this i amica, we have been through toughimes before. and someew paradigm will occur. technology and the internet came along,omething will come alon to re-ignite growth in america. as you s here today, you don't see it. >> susie: is there a new rmal fothe economy?
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>> i think it wi be an adjustnt process, t when the shakeout i er, i don't see anything that will suggest to me that potential growth in the economy has been taking a g t. productivity growth s held up really well and at some point you'll have pent-up demand. >> yesbut josh, i think that pent-up demand could bvery restrained. when people have lost is much money inheir homes and the -- >> ihink it's a question of timing. it will take a couplef years but the longer yo go withou ying a home ite bing a car, eveually the pentup demand is there. may be three four years down the road and that will lvanize us back. >>he question is how mucof the behaviorhange is permanent? in other words will pele be in smaller home will they keep a car an extra year or two? how much is cyclical or secular? don't know yet. >> whatever the new level is that they get comfortable wi, higher househo salerate,
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once theget to that, we have made that adjustment, from that point forward i ink growth can rern to what it was. >> sus: this is a cversation to be contued. thank you th so much for coming on the program and happy 4th july. >> thank y, a pleasure. >> paul: to learn more aut the subjects covered in tonighs broadcast; twatch our streaming video anto take part in our daily blogo to "nightly busine report" on pbs.org. you can also email us nbr@pbs.org. >> susie: and thatraps up this special edion of "nightly businesseport." i'm susie ghib wishing eryone a good night ana good four of july. and you, tooaul >> pl: same to you, susie. i'm paul kangas. wishing l of you the best of good buys. "nightly business report" made possiblby:
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