tv Nightly Business Report PBS July 7, 2009 7:00pm-7:30pm EDT
>> susie: rampant speculation >> susie: rampant speculation driving prices in the energy markets? a key futures regulator is taking a closer look at the role of speculative trading, and could crack down on action in the pits. >> jeff: from aluminum to steel, the basic materials sector has been a high flyer. but some say the metals are looking a bit tarnished. >> susie: president obama heads to his first g-8 meeting tomorrow. economic analyst c. fred bergsten joins us for a preview of what's at stake for the u.s. and the global economy. >> jeff: worries about a prolonged economic recovery derailed rail road stocks-- a look at the sector in tonight's stocks in the news. >> susie: i'm susie gharib. >> jeff: and i'm jeff yastine. paul kangas is off tonight. this is "nightly business report" for tuesday, july 7. "nightly business report" is made possible by:
this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. another sharp drop in oil prices today-- they are now at $62 a barrel. in the past week alone, they've tumbled 13% on growing concerns an economic recovery is far away. the volatile ups and downs in the new york oil markets are getting attention in washington. regulators are trying to figure out whether wild swings in prices are a result of bets made by speculators. as darren gersh reports, the commodity futures trading
commission says it's time for some answers. >> reporter: if you buy crude by the tanker or fuel by the truckload, regulators say you have a physical demand for oil, a real need to protect your business by trading in futures markets. the commodity futures trading commission is considering stricter trading limits on everyone who has a financial need for oil, meaning investors and speculators. c.f.t.c. commissioner bart chilton says the idea is to limit the ability of any one trader to push around energy prices. >> this is an effort to ensure that people are paying a fair price for commodities. it's not our job to pick a high price or a low price, but to make sure that it's a fair price that is traded and there is no manipulation or abuse in these markets. >> reporter: the futures industry association supports sensible limits on trading positions-- the question is how they are defined. association president john damgard says its important to have investors and, yes, speculators trading with airlines and truckers who are
worried about rising fuel costs. >> i think it is important for people to not demonize speculation. speculators are an important component of our market, and if they went away, a lot of people who are trying to manage risk wouldn't be able to do it. >> reporter: but critics say last year's wild swings in oil-- up to $145 a barrel and then back down-- show the disconnect the oildrum.com's nate hagens says those demands have to come into better alignment. >> the c.f.t.c. and the their arms around this long-term disconnect that there aren't enough natural resources for everyone to have a 30-to-1 billion-dollar leveraged hedge fund geared up to invest in them. >> reporter: members of congress like bart stupak have been pushing hard for more regulatory oversight. stupak says he'll be watching the c.f.t.c. closely to make sure it cracks down on speculators, which he says have forced oil prices from $33 a barrel in december to almost $63
today. >> what incident, what occurrence would allow a doubling? nothing other than excessive profit-taking. so all we are saying is give the american consumer, give the economy, give the world economy which is in recession a break. >> reporter: it may soon be far easier to figure out whether speculators are, in fact, having an undue influence on energy prices. regulators promise to release more information about the trading activity of hedge funds and other investors in futures markets. darren gersh, "nightly business report," washington. >> jeff: alcoa marks the unofficial start of earnings season tomorrow when it reports second-quarter results after the bell. the company's the first dow component to show its cards on the second quarter, expected to post a loss for the third time in a row. because alcoa is seen as an economic bellwether, its performance will be scrutinized. as suzanne pratt reports, investors are watching for signs of life, both in the aluminum industry and the basic materials sector.
>> reporter: a hot summer and lots of thirsty people could be aloca's best hope for a pickup in demand, as soda can makers would need to stock up on aluminum. but experts say alcoa is unlikely to see acceleration in demand from other buyers of the metal, like carmakers or aircraft builders. that's because the economy has yet to show significant signs of recovery. as a result, there's little expectation the aluminum giant's earnings will buoy the stock market. nevertheless, s&p equity strategist alec young says, when alcoa speaks, investors should listen. >> when they give us forward guidance, people are going to read into that. there's a lot of interest in what this recovery is going to look like, and so there's going to be a lot of curiosity. >> reporter: others say alcoa also bears watching because it could give clues about activity in the basic materials sector, which includes metals, chemicals and forest products. basic materials is a cyclical sector, meaning it often outperforms the broader market
during the early part of an economic rebound. with the u.s. widely expected to come out of recession later this year, now might seem like a good time to buy basic materials stocks. but when commodities prices spiked this spring, those stocks rallied 30%. some experts think the sector got ahead of itself. >> we think the stocks are really driven by what the commodities do, and a lot of the industrial and base metal commodities, we think, have already run-up enough to justify the economic recovery that we're going to have. we don't see those commodities shooting up a heck of a lot more from here. >> reporter: other analysts also worry that china, which has been a big part of the recent demand picture for basic commodities, could go missing as a buyer. for example, morningstar analyst elizabeth collins says china was stocking up on copper this year, mostly to increase stockpiles, not because it was doing a lot of building. >> we're a little bit cautious on the outlook for basic materials, due to the china factor. we think that a lot of the
chinese buying of raw materials in the first part of the year can be explained by factors besides a large increase in demand for the end products. >> reporter: those who forecast earnings for basic materials companies expect to see a big improvement later this year. that's partly due to easy comparisons, and partly to the expected economic recovery in the u.s. suzanne pratt, "nightly business report," new york. >> susie: a big victory for hank greenberg today as he won a round in court against a.i.g., the giant insurance firm he once headed. a federal jury in manhattan says a company controlled by greenberg can keep more than $4 billion in stock taken from an a.i.g. fund meant for his retirement. a.i.g. claimed greenberg improperly took the stock, then sold it because he was angry at being booted from the firm. there are still other issues to be decided in this case, and a judge won't issue a final ruling until the end of august. >> jeff: declining prices for oil and metals in the commodity
markets put wall street in a selling mood. the dow stair-stepped lower from the opening bell. the biggest losers were the materials and heavy-equipment companies, like 3m and caterpillar. g.e. shares fell 4%, and the punishment in blue-chip and tech shares continued straight into the closing bell. the dow ended off 161.27 at 8,163.60. the nasdaq fell 41.23 points to 1,746.17. the s&p 500 finished down 17.69 points at 881.03. the bond market saw some flight- to-safety buying from the equity sell-off. the ten-year note climbed 15/32 to 97 9/32, putting the yield at 3.45%.
>> susie: the worst social and political effects of the economic crisis are still to come. that's what the head of the world trade organization said today. pascal lamy is worried about a surge in trade protectionism. so he's urging g-8 leaders meeting in italy tomorrow to resist making restrictive trade moves as they combat the global recession. lamy also repeated a call for approval of the doha negotiations, measures proposed back in 2001 to open up world trade. joining us now with a preview of what to expect from that g-8 summit, c. fred bergsten, director of the peterson institute for international economics. thanks for being on the program tonight. >> good to be here. >> susie: everyone always talks about the risk of protectionism. but this time are the risks real? >> the risks are real. the actions taken by government so far have not been severe. though there has been increased resort to trade barriers in latest of countries. the fear is that with the
continuation of the recession, unemployment continuing to rice in a lot of countries for another year or so, that we could get something much more serious. that means the g-8 does need to stiffen its resolve against any new barriers, but more important needs to take some forward initiative. history shows that you can only stop back lieding on trading if you're moving forward, if you're liberalizing markets. so i think the g-8 countries might come out with some serious declarations to get the doha rounds started again, start once again the process of reducing barriers, that's the best defense against protectionist back lieding. >> susie: president obama has talked for a while that he's going to give a major speech about trade. he hasn't done it. do you think he'll use the g-8 summit as a platform to make a stand on trade? >> i think he'll continue to do what he has so far, which is to resist protection, sign onto plentys not to put on new
barriers, and to contribute his full part to the resistance against trade back sliding. what the president has not yet done, however, is the second part of the equation, to move forward, to put out a positive agenda, to start aggressively pursuing the trade agenda that will resolve the protectionist problem in the united states. i don't think he'll do it at this meeting. i suspect he will make his speech on trade before the g-20 summit in september. that's the occasion where i think he will lay out a design for an obama trade policy. i think it will be in the right direction. but we'll have to wait for that to get a clear picture of his strategy. >> susie: what do you think the direction will be? >> i think he will under take some serious new initiatives to resume u.s. leadership of global trade localization. i think the doha round in the world trade organization is important to the united states. i think he'll want to change some of the details on it. but i think he'll support it strongly. i think he'll also want to
pursue new international negotiations on climate change. the climate change issue has a big trade dimension, because if countries cannot agree to avoid protectionism in the climate change context, congress here, other national legislatures, may put controls onto discriminate against imports from countrys that are not as aggressive in trying to limit climb change. that means that the -- i suspect that will be part of it. >> susie: me, let me jump ahead to the economic crisis. today a report from the european union warned that economic growth may be "permanently damaged" by the financial crisis. is there anything more that these world leaders or central bankers can do to fix the problem? >> i don't think the g-8 per se will do a lot to move forward on resisting the economic crisis now. but they will have to debate the crucial issue of continuing the stimulus
programs like our own budget stimulus here, and the expansionary monetary policy by central bank. the europeans, particularly germans, are beginning to call for reigning back the stimulus program. they are genuinely concerned and rightly so about big budget deficits that result. but the europeans are prematurely talking about exit strategies from the stimulus approach. >> susie: how is that debates going to play out at this mit? more stimulus or exit strategy? >> i don't think there will be either. but the europeans are starting to talk about exit strategy. the u.s. wants to continue the stimulus effort at least for another six months or so. i think the united states is right. it would be very risky to cut off the stimulus now, it would be particularly risky to start tightening budgets, increasing interest rates, and taking restrictive action. that would be like japan did in the 1990s, it prolonged their lost decade by several years.
so that debate may be a center piece at the g-8 summit. >> susie: all right, interesting analysis. we appreciate your time tonight. thank you so much. >> good to be here. >> susie: my guest tonight, fred bergsten, from the peterson institutes for international economics. >> jeff: as the g-8 leaders get set to meet in >> jeff: as those g-8 leaders get set to meet in italy, there's a different voice calling for economic change-- pope benedict xvi. he says the global economy should be run in a way that protects the environment, ensures world peace, and helps the poor. the pope said the world's financial systems need ethics to function properly, ethics that are centered on the needs of people. over recent months, the german- born pontiff has talked about how the financial meltdown has hurt the world's poor. his comments today included a call for a new way of understanding business, one that respects the dignity of workers, and looks out for the common good.
>> jeff: the white house wants to make the food we eat safer. every year, one in four americans is sickened by illness carried in food. so, after recent recalls of contaminated peanut butter and cookie dough, the obama administration has set up a working group to tackle the problem. the idea is to tighten requirements at food processing plants and add stiffer penalties for breaking the rules. vice president joe biden says keeping food safe tops the government's to-do list. >> we're here today to prevent and to prepare. we're here because we know american families have enough to worry about these days, just about putting food on the table, let alone whether the food they place on the table is going to be safe for their kids and their husbands and wives to eat.
they should not have to have that as a concern. >> jeff: to help keep that from becoming a concern, the u.s. senate is about to take up a bill upping the f.d.a.'s budget by almost $300 billion. much of that increase would go to food safety efforts. >> susie: it may be july, but for the nation's retailers, christmas is just around the corner. today, kodak said the retailers it works with think this holiday shopping season will be much better than last. kodak's c.e.o. antonio perez says those same retailers believe the just-wrapped second quarter will be the low point for the economic downturn. but perez remains cautious ahead of the holidays. and jeff, he also noted half of kodak's annual consumer sales come after october 15. >> jeff: susie, last year, kodak's fourth-quarter sales fell by almost a third. now, lets see what was on sale on wall street as we take a look at our stocks in the news tonight.
>> susie: another big auto parts supplier filed for bankruptcy today-- this time, it's lear. its biggest customers are general motors and ford. the company hopes for a quick bankruptcy, helped along by support from its bondholders and lenders, including billionaire carl icahn. lear has been struggling for months to stay afloat during the storm buffeting the auto industry. in papers filed with the bankruptcy court, it claimed $1.3 billion of assets, and $4.5
billion dollars of debt. tomorrow, our "street critique" guest is paul larson, equities strategist at morningstar. >> susie: the recession is hammering high tech. research firm gartner today said spending on information technology is on pace to fall 6% this year to $3.2 trillion. that's bigger than the firm's original forecast for a drop of about 4%. gartner says i.t. budgets are still being cut, and doesn't see the trend changing until businesses and consumers feel confident about the economy. >> jeff: the i.r.s. is giving a break to small businesses hit with big tax fines. the agency today temporarily stopped collecting penalties against small businesses using questionable tax shelters. the fines came out of a 2004 law aimed at big corporations using shelters to avoid taxes. lawmakers asked the i.r.s. to stop the collections while they work to change the law.
the tax fines can run as high as $300,000. >> susie: here's a look at what's happening tomorrow: the weekly reports on mortgage applications, and inventories of crude oil and gasoline are released. and, as we mentioned, dow component alcoa kicks off earnings season with second quarter results after the bell.
tonight's commentator says, when the recession's finally over, there'll be a new set of economic rules. he's alfred edmond, jr., e in chief at blackenterprise.com. >> we're not out of the woods yet, but sooner or later, our economy will recover and this latest recession will be a thing of the past. but that doesn't mean it's time to relax. the post-recession economy will be characterized by new opportunities, new dangers and new rules, but it will be far from robust. this is not the time to fall back into pre-2008 habits and assumptions. that said, with the following in mind, you can slingshot your way from mere recovery to newfound prosperity. don't lose your focus. there's nothing like fighting for survival to focus your concentration. the temptation, as the economy improves, will be to relax and take your eyes off the prize. don't do it. now's the time for businesses to take the lessons of the past two years and go from mere survival to resurgent profitability.
convert desperation into momentum. both companies and individuals made desperate moves to stay afloat during the past two years, whether by cutting personal expenses or shedding workers. it was painful, but now that you are leaner, stronger and tougher, make it your goal to dominate the new landscape. it's okay to spend, but continue to seek value. yes, in order for a recovery to be sustained, we need to spend, but we cant return to the recklessness that helped cause our economy to crash in the first place. spend, yes, but focus on strategic value and real return on investment-- whether a business or an individual, get all the bang you can for your buck. i'm alfred edmond, jr. >> jeff: recapping today's market action: concerns about the lingering recession lead to a broad-based sell-off on wall street. the dow dropped 161 points and the nasdaq lost 41 points. and to learn more about the stories in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report"
on pbs.org. you can also email us at firstname.lastname@example.org. >> jeff: that's "nightly business report" for tuesday, july 7. i'm jeff yastine good night, everyone, and good night to you, susie. >> susie: good night, jeff. i'm susie gharib. we hope to see all of you again tomorrow evening. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org