tv Nightly Business Report PBS June 19, 2012 6:30pm-7:00pm EDT
u.s. central bankers kick off a two-day meeting. what are the odds for more stimulus for the economy, and will it work? >> tom: shipping giant fedex delivers its take on the economy-- moderate growth, but it warns costs cuts are on the way. >> susie: that and more tonight on nbr! >> susie: a solid stock market rally on wall street today as investors are counting on the federal reserve to jumpstart the economy. central bankers began a two-day meeting today. expectations are high that policymakers will do more
to drive down long-term interest rates. >> i think there's probably the hope that something comes out of fed chairman bernanke's speech tomorrow that gives markets a positive tone. and i think there's buying being done ahead of that. >> susie: investors are speculating the fed will announce another round of bond- buying, continue its so-called "operation: twist" program, or unveil some other stimulus. the dow rose 95 points, closing at its highest level since early may. the nasdaq gained 34 and the s&p 500 tacked on 13 points. meanwhile, some encouraging new data out today shows the housing market may be healing. even though housing starts dropped in may, they were revised significantly higher for april. on top of that, builders filed more permits to build homes and apartments than they have in more than three years. >> we're kind of in the middle of a gradual recovery in housing. things are improving. demand is improving, but it is very localized and you can't read too much into it that this a robust recovery.
this is a gradual recovery that we are going through right now. >> susie: a little later in the program, we'll talk more about what actions the fed might take tomorrow. and we continue our special series on the u.s. central bank with a look at the players, and why they're often called "hawks" or "doves". >> tom: also still ahead, microsoft opens up a new front in the tablet computer battle. we take a closer look at the business of the microsoft's surface tablet. "nightly business report" is brought to you by: captioning sponsored by wpbt >> susie: to twist or not, that's one question facing federal reserve policy makers as they continue meeting tomorrow. and tom, the decision may hinge
in part on where the fed's hawks and doves come down on the economy. >> tom: susie, this isn't ornithology, but rather inflation. hawks and doves disagree, often loudly, over fears of inflation. this week, we are taking a closer look at the federal reserve and its powerful role in the u.s. economy. tonight, darren gersh looks at whether the central bank is a house divided. >> reporter: there's so much attention focused on what ben bernanke says or does that it's easy to forget he can't act alone. when it comes to setting monetary policy, ben bernanke chairs a committee, and the differences of opinion on that committee are deep. >> there are the doves and then there are the hawks. there are folks in the middle trying to thread that needle, but the two different groups are as distinct as they've been in the time i've been watching the federal reserve. >> reporter: the hawks are federal reserve bank presidents. there's philadelphia's charles plosser; from dallas, richard fisher; and minneapolis' narayana kocherlakota.
but voting on the fed's key interest rate setting committee rotates, and the only hawk with a vote right now is richmond's jeffrey lacker. the hawks think the fed's unconventional efforts to boost the economy have had little impact, and they worry that the last time the central bank pumped money into the economy, it stoked inflation. >> we saw a big surge in commodity prices, a strong rise in inflation, and that hurt the u.s. consumer. and i believe that hurt the u.s. economy. it may not be a mainstream position, but it doesn't necessarily mean its a wrong position. >> reporter: the doves focus on slack in the economy-- high unemployment and the looming risks from europe. at the fed meeting that began today, the doves will argue the facts do not favor the hawks. >> i think the numbers are moving against them. the job market is growing, but at a much slower rate. the rest of the economy looks to be on the soft side. obviously, the risks to the economy have risen, given what is going on in europe and the approaching fiscal cliff that we
have here, and inflation is low and looks like it is going to move lower. >> reporter: bernanke is considered a dove, and he is likely to have a few extra votes at this meeting from two new board members. jerome powell and jeremy stein were recently confirmed by the senate and are now at the big table. >> they are serious, sensible, main-stream economists, and so are likely to form the heart of a bernanke coalition. >> reporter: the bottom line on the fed is bernanke has the power to do what he thinks is necessary. >> if he comes into this meeting or another meeting where he says, "look, we have a deteriorating crisis on our hands," he has the votes. >> reporter: there is one issue the hawks and doves are likely to agree on-- if the congress can't find away across the fiscal cliff, the fed will likely have to act to ease the fall. darren gersh, nbr, washington. >> susie: joining us now to more about what to expect from the fed tomorrow, michelle girard, senior economist at rbs. hi, michelle. so what do you think the fed will do tomorrow? >> it's a close call. our best guess is that they will
wait in terms of announcing outright bond purchases, the so-called q.e.3, that they'll instead use very aggressive language, maybe like they used during the financial crisis, to suggest their tipping ser on the trigger, they're watching and they're ready to act but they're watching and that's i think the biggest point. the only question we have is whether, as you mentioned, they extend their maturity extension program where they buy long-term treasuries and sell short-term treasuries. it won't help the economy but it might send a psychological signal-- an important signal that the fed is trying to take some action wherever it can on the margins to provide some support. >> susie: if it's not going to help why are they doing it? do you think policymakers feel pressured because of what's going on in europe or because of all of the chatter in the markets? >> well, i do think you're right, susie. i think the markets are expecting, as we talked about, the fed to do something, and so i think if they can, this idea
about buying these long-term securities and selling short-term securityes, it's probably a low-cost way to at least do something, if you will. i mean, the hawns won't like it, but it doesn't create the inflation risk that those outright purchases might have. so this might be a way that bernanke can get a compromise on the committee and do something-- to avoid any kind of downside that would hurt the smawct. stock market. >> susie: you know, michelle, over the last couple of years, the feds and other policymake version taken so many measures and still hiring-- people are not being hired. the economy is growing slowly, millions of americans are out of work. and so the question is really, is there anything much more that the fed can do that will be effective? >> well, it's certainly important for the fed to show they're watchful and takings to go support economy where necessary. but again, this is not at the moment a probable that the federal reserve can really address. it's not even really a domestic
problem. we're facing tighter financial subpoenas the stock market being under pressure because of international events that the fed can't really control. they can take actions to provide some support to offset the tightening financial conditions, maybe take actions that will help keep the stock market bolstered. again, this is not something that the fed can address by just adding more dollars to the system. we already have a lot of dollars in the system. the problem is that those dollars are not finding their way into the economy because of the uncertainty generated at the moment by the european situation. >> susie: you worried about a recession? people are starting to talk about that again because of what's going on in europe, all the uncertainty here, businesses sitting on their hands, not doing anything? is a recession in the cards? >> i don't think it's in the cards. we do have slower growth over the second half of this year than we had just a couple of months ago. we now only expect growth of 2%. so that's subpar, and that won't be fast enough to bring the unemployment rate down. but it's a long way, still, from recession. and i don't think the risk of
recession at the moment really emanates so much from europe. i'm certainly-- certainly that's watchful, if the equity market were to take a sharp hit because of the-- certainly a crisis escalation there, that would create risk. but the bigger, i think, issue we're dealing with here for us is these tax cuts that are set to expire at the end of the year. i mean, for us, if all of those were allowed to expire, we were to hit that so-called fiscal cliff that everyone is talking about, that to me is what brings uus to the brink of recess. >> susie: we have to ask you to come back and talk about that because we've run out of time. >> thanks, susie.
>> tom: leaders of the group of 20 nations met in mexico again today, with the european leaders pledging more integration of their banking systems. that could help ease financial concerns about a credit crunch spreading across borders. a draft statement from the g-20 says its committed to solving the euro-zone's debt crisis. german chancellor angela merkel said they plan to use a combination of budget cuts and measures targeting economic growth. >> susie: now that the european debt crisis is back on center stage, investors are wored about the impact on u.s. corporate profits. as erika miller reports, second- quarter results are likely to be memorable for an unfortunate reason. >> reporter: think the last few weeks have been tough for stocks? the market will soon face another big hurdle-- second- quarter earnings season. the latest tally of wall street analysts suggests second-quarter profits will fall a half a percentage point. if it happens, it would be the first quarter of negative
earnings growth since the great recession. >> the u.s. economy has definitely started slowing since the start of the second quarter. and many european nations have also slipped into recession. 45% of s&p 500 revenues come from non-u.s. sources, so what's happening abroad is just another complication for analysts. >> reporter: materials and energy are likely to be two of the worst performing sectors, due to falling commodity prices. but remember, although second quarter results are important, it will be hints about the second half of the year that will drive the stock market. >> as you get later in the year, there are a lot of people who think third quarter and fourth quarter are not going to come in as well as expected, that all these issues will finally start catching up with the u.s., and you will see corporate profits decline. >> reporter: there is one reassuring trend-- companies typically beat wall street forecasts. in the first quarter, s&p 500 profits were 6.5% above expectations, and inveor hoping for something similar in the second.
erika miller, nbr, new york. >> tom: jamie dimon was back in the hot seat on capitol hill today, answering questions about his bank's recent $2 billion trading loss. the j.p. morgan c.e.o. told the house financial services committee that his bank followed the rules and told investors about changes in its risk strategy at the appropriate time. still, lawmakers focused on that big loss and what it says about the use of derivatives and the health of the banking system. representative sean duffy asked if j.p. morgan is too big to fail.
>> if j.p.morgan fails, i don't think anybody will pick up any tabs, we have $290 billion of unsecured debt-- i don't think there is any chance we will fail-- if we did, any losses the government would bear will go back and be charged to the bank. >> tom: also testifying today, securities and exchange commission chairman mary schapiro. she told the same panel her agency is looking into whether j.p. morgan executives hid changes to the portfolio's risk structure from investors. >> susie: walgreen's is going global. the nation's largest retail chain said today it's buying a stake in european health and beauty retailer alliance boots. walgreen's made the announcement on the same day it reported a disappointing third quarter. diane eastabrook has more. >> reporter: walgreen's says its stake in alliance boots will give it access to consumers in europe and emerging markets at a time when the drugstore chain's u.s. sales are slowing. walgreen's will pay $6.7 billion in cash and stock for 45% ownership in the swiss company.
it could acquire the remainder of the company in a few years. the additional revenue generated by the deal could help offset lost sales from its recent split from pharmacy benefits manager express scripts. walgreen's blamed the lost sales for a miserable third quarter, which ended may 31. the company made $537 million, or 62 cents a share, during that period, down about 10% from a year earlier. analysts say revenue growth also is sputtering because walgreen's is opening fewer new stores in the u.s. >> we are reaching a saturation point in a lot of markets, and maybe they can grow the store base in the low single percent going forward, but certainly not the growth we have seen historically. >> reporter: the combination of walgreen's and alliance boots will make the largest buyer of prescription drugs in the world. analysts say that kind of scale should help the company negotiate lower prices with pharmaceutical companies. walgreen's hopes its acquisition of alliance boots will be
wrapped by the end of summer. the company says the deal will make it the most relevant health and beauty chain on the best street corners here and in europe. diane eastabrook, nbr, chicago. >> susie: tom, as we reported, there's a wave of optimism and relief here on wall street, hoping that the fed is going to take some action tomorrow. but if policymakers disappoint, the markets will be vulnerable, so investors, be prepared. fasten your seat belts. >> tom: vulnerable and volatile. no doubt about it, susie. let's take a closer look with tonight's market focus. stocks were climbing on hope more help could be on the way from the federal reserve as soon as tomorrow. the s&p 500 held its early gains throughout the day, rising 1%. anticipation for more help has been building, taking the index to a six-week high. it's up 8% for the year. the strongest gains in the materials sector-- up 2%; financial, up 1.7%; and energy,
rallying 1.4%. volume-- 770 million shares on the big board; 1.8 billion moving on the nasdaq. leading the financial sector, insurance giant met-life. the company got a three-month extension from the federal reserve to submit another capital plan. its first one was rejected by regulators. the stock shot up 5% on hopes the company may be successful in passing the fed's stress test. that could open up the possibility of raising its dividend or stock buybacks. met-life has been blocked from doing so twice in the past eight months. its the only insurer subject to the fed's financial stress tests. bank of america is at its highest price since early may, up 4.5%. b-of-a reportedly is talking with a swiss private bank about its merrill lynch international wealth management business. it could bring in $2 billion for bank of america. after microsoft introduced its challenger to apple's ipad late yesterday, we saw shares moving
up. microsoft continues trading over $30 per share, up almost 3% today. volume was heavy after the company unveiled its tablet computer called surface. we will have more on that in a moment. and we have a closer analysis of microsoft's stock chart from michael kahn. it's under the "blogs" tab on nbr.com. fedex has a unique perspective on the economy. it has seen volumes of certain types of cargo shipping fall for two quarters in a row. still, earnings per share were better than expected as revenues were higher. fedex's ground shipping business has been growing while express shipping has been weaker. shares delivered a 2.8% rally, even though its forecast was weaker than expected. instead, investors focused on the company's plans to cut costs. more details aren't expected until october, though. j.c. penney is in the midst of a big restructuring effort under c.e.o. ron johnson. he came to the retailer after a successful run leading apple's
retail operations. but the stock continues falling. shares hit a new 52-week low today, falling more than 8.5%. the company called second quarter sales a "modest improvement" compared to the start of the year. but it warned a slow father's day business has sales below expectations. bep market-- steel saw investor demand harden. u.s. steel, steel dynamics and arcelor-mittal all bounced off recent lows, rallying more than 7% each. these stocks have been hurt by weaker prices and a weaker outlook for demand. we saw gains across the five most actively traded exchange traded funds. the financial and russell 2,000 e.t.f.s had the strongest gains, 1.7% each. and that's tonight's "market focus."
>> tom: this week's announcement of the microsoft surface not only goes after the apple ipad, but it will be the first computer bearing the "microsoft" name on the outside. for almost 40 years, microsoft has been known as a software company. it has put its name on only a handful of devices. the most successful is the x-box video game console. while millions have been sold, it hasn't been a huge financial hit for the company. in its last fiscal year, the division making the x-box had an operating profit margin of just under 15%. window's software had a 64.5% profit margin. scott stein is senior editor at cnet.com. scott, how big of a business shift is this for might so,
microsoft to get deeper into hardware? >> it's huge. and i think it's also an attempt for them to show they're capable of a look more integrated, like apple, to create something that feels more like the ipad. times are changing, and i think whether or not this surface tablet is going to be a flagship product, there are going to be a lot of other devices and tablets with windows 8 out there. they're definitely trying to create a presence that is a little less diffuse and that's a change. >> tom: i know you haven't got your hands on the microsoft surfasyet but what does is it need to do to compete with the ipad? >> on the consumer side, you have to show it's easy to use and i know it sounds silly but be fun and that's something apple has owned. they were able to create,pox 360, which is growing more popular and considered fun. if you combine a tablet and
laptop, and that's what the windows 8 pro tablet is going to be. it sounds great but the proof is in the pudding of the productivity of keyboard, how really cool the cover looks. and the third thing-- or another thing, would be apps. the number of apps, to pop-- windows r.t. will only run apps, where the full windows 8 will run backwards compatible windows application. previous window tablets didn't always run the apps perfectly. netbooks, which had keyboardes, weren't always that easy to use. >> tom: scott, do you anticipate m ight rosoft to use this as a loss leader, not to make any money off of it? >> possibly, and maybe create a flagship product, something to make everyone else step up. i think the danger is going to be to have this sort of "star
wars" cantina of interesting ideas. every one of their eomsystem going to be creating an interesting product-- some convertible laptops. it's going to be hard to keep track. >> tom: an interesting competition among the dells, hewlett packards and otherring. scott stein with us from cnet.com. thanks, scott. >> thank you. >> susie: tomorrow on nbr, will they or won't they extend the twist? former federal reserve governor randy kroszner joins us with the latest on the fed's policy decision. businesses took out fewer "help wanted" ads in april. job openings fell to 3.4 billion in april. that's down from a four-year high the month before. the decline is blamed on slower u.s. growth and worries about europe's debt crisis. but "the wall street journal's" simon constable thinks uncertainty is what's really bugging the job market. >> whoever gets to be u.s. president next year, one thing remains clear-- the jobs situation needs fixing. the u.s. economy just isn't creating enough new positions. well, at least part of the
problem is government itself. that's according to 2011 research from stanford university economist nicholas bloom and his colleagues, scott baker and steve davis. they point out that uncertainty over what the government is going to do is actually making things worse. they call this "policy uncertainty," and according to the trio, it's up more than three-fold since the year 2000. what's worse, they say, the increase in policy dithering between 2006 and 2011 will cost the u.s. economy 2.5 million jobs. let me repeat-- the inability of government to make and stick to clear policies will cost 2.5 million jobs. so what uncertainty could now be resolved to make things better? i see three things. a resolution to the future of president obama's health care bill. a supreme court ruling here may not be enough to fully solve it. an end to the currency crisis in europe and clarification over what happens with u.s. taxes next year.
to be clear, these things alone won't fix the problem immediately, but they are an important step in the right direction. hopefully, our leaders, and those in europe, can get their act together before another 2.5 million jobs are lost. i'm simon constable. >> tom: "beyond the scoreboard" for tonight's nba finals game four between the oklahoma thunder and miami heat is the public investment in professional sports. here's rick horrow. >> reporter: taking risks is what smart investing is about. we see the fruits of wise risk- taking with taxpayer's money in this year's nba finals between the miami heat and oklahoma city thunder. both got their start playing in an arena that was entirely publicly funded and built without a commitment from the nba. doing so required a leap of faith that, eventually, their communities could support a professional sports team. i had a front row seat in both cities. in the late 1970s through 1989, i coordinated the process for the development of the miami arene anthd attraction of the heat.
and in 1993, i helped put oklahoma city put together the largest public facility referendum in u.s. history at that time. it led to a sports commission of oklahoma city, which did not have any major professional sports team. now, the thunder are playing for an nba championship, and all the economic stimulus that can come from a major championship series. as someone intimately involved with both processes, i've had the unique opportunity to see the impact these teams have had on their respective communities. downtowns have been revitalized, civic pride restored, and most important, millions of dollars of economic impact and direct spending generated. these case studies truly are a testament to the economic, social, and cultural drivers that are pro sports. i'm rick horrow. >> susie: that's "night business report" for tuesday, june 19. have a great evening, everyone, and good night to you, tom. >> tom: good night. we'll see you online at nbr.com and back here tomorrow night.