tv Nightly Business Report PBS July 20, 2009 7:00pm-7:30pm EDT
>> paul: c.i.t. reportedly reaches a deal with creditors for $3 billion in new loans. the lifeline for the small business lender helps give wall street a boost. >> suzanne: when it comes to health care reform, president obama says it's time to stop talking and start working towards legislation. but figuring how to pay for it continues to be an uphill battle for lawmakers. >> paul: weaker demand for cell phones led to a drop in quarterly profits at texas instruments. we'll take a broader look at the tech sector and what those companies say about the outlook for the economy. >> there are just too many carriers chasing too few passengers and the industry has to shrink. >> suzanne: but getting smaller may not be the only option. the future of domestic airlines in a turbulent economy. >> paul: i'm paul kangas. >> suzanne: and i'm suzanne pratt. susie gharib is off tonight. this is "nightly business report" for monday, july 20. "nightly business report" is made possible by:
>> suzanne: good evening everyone. it's rare when a financial services stock surges nearly 80% in one day. but that was the case for c.i.t. group today on reports it has found a way back from the brink of bankruptcy. dow jones says c.i.t. bondholders have agreed to rescue the century old commercial finance firm with a $3-billion loan. much of the money will be available immediately. and c.i.t. reportedly would be able to restructure outside of a bankruptcy. c.i.t. lends to mostly small and mid-sized businesses. and funds itself by selling bonds. so when the credit markets froze, it was in trouble. the treasury department had been in talks with c.i.t. for a federal bailout. but that plan didn't materialize. so far, no comment from c.i.t. on the reports of a funding deal. >> suzanne: joining me now with his thoughts on that c.i.t. deal as well as his outlook for the stock market is stuart schweitzer, global market strategist at jp morgan private bank. stu, welcome back to the program. >> thanks so much, sues ann.
>> suzanne: tell me about this c.i.t. deal. how important was it today, do you think, in continuing this overall positive tone that we've been seeing in stocks? >> oh, i think it was really important. c.i.t. has about a million customers in america. and so financing from c.i.t. is really important particularly as you said a moment ago to smaller businesses all across america. >> suzanne: not only the c.i.t. deal but better than expected earnings were also out there again. they have been for the last week or so. helping to sort of set this nice tone for the market. when you talk about earnings, you're not really talking about profits being better than expected. you say we should focus on revenue. tell me why revenue is so important to this story right now. >> sure thing. i want to see both earnings and revenues but particularly revenues, saeltz revenues, very important here, because take the first quarter. take last quarter. companies beat on earnings estimates but their revenues fell short of wall street expectations. how did do that?
how did they beat on earnings? unfortunately it was cutting by cutting so much staff, cutting jobs. i want to see revenues get better so companies can stop cutting people. >> suzanne: and do you expect this tone for better revenues to continue? what are we seeing from companys in terms of guidance about the third quarter so far? >> it's begin to go get a little bit better. so far through the early stages of this reporting season, the companies that have reported have come in with average revenue gains of somewhere around 5%. not too bad considering that the economy has been shrinking. but i wouldn't expect an immediate turn-around in the labor market. in the last couple of recessions it took basically 15 to 18 months until the recession ended until the unemployment rate peaked. i hope it will come sooner this time but i do think it will take a bit of time yet. >> suzanne: everybody has been mentioning the jobless recovery. the thing that you told me earlier when we spoke that worries you the most the the human toll of this recession. all these jobs lost. i mean, how is it possible
that we're going to continue to see a market, you know, rally, when we're seeing all these job cuts continue? >> well, i think it's very challenging. the market rally couldn't continue, in my opinion, for the long term unless consumers are able to start spending again. but in the near term, if companies produce better earnings and if output begins to increase because companies have slashed their inventory so now they see... now they need to ramp production back up, i think that can create a little bit of positive spirit around the economy and can help the market to continue to do better for a while. >> suzanne: what is your best guess? do you believe that this rally is for real or do you think that this is potentially a bear market trap? >> i think this rally is for real but it wasn't been tested yet. it hasn't been tested by continued high unemployment which we're going to have. it hasn't been tested by a financial problem that maybe doesn't have a as successful a solution. maybe something that comes out
of the european banking system where there are many problems. >> suzanne: i know you're a global strategist. which economies are likely to come out of recession first and what are the investment implications of that story. >>. >> i think it's very clear that number one out is non-asia asia. japan is kind of sluggish here. the rest of asia led by china is already coming out. china had 8% or 7.9% g.d.p. growth reported just a few days ago. the chinese government says they're going to keep up the very heavy stimulus spending that they've been doing. then i think we're actually second behind non-japan asia because we are doing ever so much to promote growth here. europe, i think, and japan, i think, lag behind. they're doing less. and they're much slower to correct the problem of rising labor costs. that is painful here when we make the cuts, but it positions us to be much more competitive globally.
>> suzanne: stu, i think we have to leave it there. thank you for joining us. >> always a pleasure. >> suzanne: my guest stu schweitzer of jp morgan private bank. >> paul: taking its cue from advancing world markets, wall street opened higher getting more traction from brokerage upgrades on caterpillar and harley-davidson. at mid-day, the dow was sporting a 71 point gain with the nasdaq up 16 points. progress in rescuing c.i.t. from bankruptcy was a positive as was growing optimism about corporate earnings. it all added up to solid gains at the final bell.
>> suzanne: a government watchdog report says the total cost of the government's troubled asset program or tarp could reach $24 trillion. that's about $80,000 per taxpayer. banks were supposed to use that money to increase lending. but neil barofsky, tarp special inspector general says they also used the funds for other things. his report surveyed 360 banks. among the findings: nearly 40% or 144 used some of their tarp money to build up capital cushions. 52 banks repaid debts and 15 used the funds to buy other banks. about 80% of the banks also said some of the money had supported new lending. to keep better tabs on those loans, barofsky wants the treasury to require tarp
recipients to submit periodic reports. we'll find out more tomorrow about barofsky's recommendations, when he testifies before congress. >> paul: with congress getting ready for its summer recess, this is shaping up to be a critical week for health care reform. it's the president's top domestic agenda item and he is making a major push to build support. but as darren gersh reports, the challenge is not just political. >> reporter: with the apollo 11 astronauts today, the president must have wondered why it took less than a decade to get to the moon, but has taken more than five decades to get this close to a health care overhaul. unlike the dramatic space race, analyst paul ginsburg says health care reform is not about winning, it's about cutting costs and keeping people from losing coverage. >> so in a sense it's preventing bad things from happening, and that's more, a lot harder to do than pointing out a positive thing that a lot of people would be eager to get to, which is very clearly defined.
>> reporter: this week, congress is focusing on things it has not been eager to do. key committees continue to search for the money needed to insure all americans. with no obvious solution in sight, policy analyst alec phillips says the white house has toned down its call for immediate action. >> the white house is starting to realize that this is going to be a very difficult push, that there are a lot of challenges not only political, but fiscal, and that some of the difficulties that they face can't really be solved through pushing congress to act quickly. >> reporter: with polls showing public support softening, the president is trying to keep the pressure on. after visiting a hospital, he said it was time to stop talking the problem to death, warning there is a cost to inaction. >> jobs will be lost. take home pay will be lower. businesses will shutter and we will continue to waste hundreds of billions of dollars. >> reporter: one option is to scale back the size of the reform package. phillips says lawmakers could focus on where they do agree:
creating a health care exchange for insurance and finding savings in medicare spending. >> so on both of those issues there is some kernel of agreement, the question is how far do you go on both fronts. >> reporter: white house health care spokeswoman linda douglass says the plan is to achieve the president's original health care goals. >> what the president wants is legislation that is going to lower costs, it's going to protect your choice of doctors and plans. it's going to assure affordable and quality health care for all americans. >> reporter: in the early '60s, president kennedy said we choose to go to the moon not because it is easy, but because it is hard. fitting words for health care reform as well. darren gersh, "nightly business report", washington.
>> suzanne: some of the biggest names in technology report earnings this week. yahoo, apple and microsoft are among them. but don't expect those numbers to tell the same story. as scott gurvey reports each company will paint a different picture about how it and the economy are doing. >> reporter: so far so good for investors in tech stocks. early second quarter earnings numbers are good, but there remain many questions for the weeks ahead. last week, intel had an encouragingly bullish forecast looking ahead to the second half. but the semiconductor sector needs to see confirmation from texas instruments, amd, sandisk and broadcom. when it comes to hardware, dell is falling way behind its rivals. one of them, ibm, raised its outlook for the year, but it said the economic environment remains tough. analyst thomas smith of standard and poor's says i.b.m. and hewlett packard are the stocks to watch here. >> both those companies have
diversified into services and through this downturn their punishment on the revenue line, if you will, has been less severe than i think it might have been had they not been diversifying over the last five years and that's helped steady their ships and they now look like strong strategic model that working pretty well. >> reporter: two other tech giants report this week. apple tomorrow and microsoft on thursday. analysts say investors need to focus more on what these companies say about the future than what they say about the past. apple is as much a phone and consumer electronics company as it is a computer firm these days. microsoft's report will be noted for its projections about upcoming sales of its new operating system, windows 7, and for progress by its bing search engine. tom lydon, editor of etftrends.com says electronically traded funds like ishares, dow jones, us tech select, and technology select spdr, let investors spread risk and avoid having to pick one technology player over another. >> the great thing about it
besides the diversification is its efficient. its liquid. it trades interday and the expense ratio is just a fraction of what you would pay in a mutual fund. >> reporter: speaking of paying, experts say as soon as businesses start paying for computers and other gadgets again, you would be wise to invest in the companies that make the parts that go into them. scott gurvey, "nightly business report", new york. >> paul: and now, let's take a look at some stocks in the news tonight.
as diane eastabrook reports, carriers are battling the global economic slump, and the loss of their most lucrative passengers. >> reporter: this isn't the best time to be an airline. fuel prices have been bouncing up and down. >> united, you broke my taylor guitar. >> reporter: there's that pesky youtube video skewering baggage handlers at united airlines. and worst of all cash-strapped business travelers have either cut way back on flying or like alex paris are only flying coach. >> we'd rather travel twice as much than to travel less at higher luxury. >> reporter: analysts say a precipitous drop in full fares is the primary reason profits are plunging at many airlines. trouble started last fall when the global economy nose dived, taking business travel with it. so, lucrative business travelers who pay more to book late or sit at the front of the plane have practically disappeared. add to that, leisure travelers
are only buying heavily discounted fares. fitch ratings airline analyst william warlick says those expensive fares are how airlines make money. >> most of the global legacy carries would rely on 40% or more of their passengers being business oriented. and obviously they pay a higher fare, they are higher yielding customers and that tends to drive half of the airlines total passenger revenue. >> reporter: the revenue hole could spell trouble for the airlines if business travel doesn't take off again. next year, the major carriers along with southwest and jetblue have more than $8 billion in debt maturing warlick says refinancing that debt could be difficult if credit markets remain tight. >> i think it's very likely that at least two or three of the big carriers will have a significant cash problem on their hands by early 2010. the question is how much cooperation do they get let's say from the banks and credit card processors to continue operating with very compromised liquidity positions. >> reporter: the airlines are
working aggressively to save money. they're cutting capacity, eliminating routes, and furloughing workers. but experts say it may not be enough to avoid bankruptcies. u.s. airways, united airlines, delta, and northwest all reorganized under chapter eleven within the last few years. morningstar airline analyst basili alukos doubts another round of reorganizations would help. he wants to see either mergers or a liquidation. >> at the end of the day there are just too many carriers chasing too few passengers and the industry has to shrink. >> reporter: there's some speculation that uncle sam could throw the airlines a lifeline. but most analysts doubt the u.s government or taxpayers would stomach another bailout, especially to an industry most experts say must get smaller. diane eastabrook "nightly business report" chicago. >> paul: tomorrow, a closer look at how those airlines are faring when continental, jet blue and united airlines report quarterly results.
>> suzanne: online broker td ameritrade will buy back almost half a billion dollars in auction rate securities owned by customers. it's part of a deal with new york's attorney general to settle charges ameritrade misled those customers. the auction rate securities market froze last year but some brokers still sold them as liquid investments. new york's attorney general is now threatening similar charges for charles schwab & company. schwab denies any wrongdoing. >> paul: meanwhile, morgan stanley has agreed to pay half a million dollars to the s.e.c. to settle charges one of its advisers misled clients. the agency said morgan said one thing, but did another, when recommending money managers who had not been okayed by the firm. the investment bank did not admit or deny the s.e.c.'s findings but agreed to pay the fine.
business and former head of the council of economic advisers. >> reducing health care costs would be a big plus for our economy and the budget. health care occupies a large share of the u.s. economy, and escalating health care costs stall wage growth and job creation. unfortunately, congress and the obama administration are on the wrong path: new mandates and the creation of new unaffordable health care entitlements. the mandates will reduce both wages and employment. the new entitlements will add to an already soaring national debt. to the extent the proposals address this concern, they do so through large increases in marginal tax rates, limiting growth and employment. and the bills will raise health care costs by accentuating current problems with health insurance. the house and senate bills would enshrine the flaws in current employer-based plans that are responsible for high and rising health care costs, flaws that stem directly from the misguided tax exclusion for employer-
provided insurance and the hundreds of state mandates for coverage of health care providers and procedures. to move forward, the country must begin two separate debates. the first: how to improve health insurance to reign in the epidemic of health spending that fails to provide value for money. the second: how to improve access to health care for those who cannot afford it. washington's reform prescription is deadly, lets not fill it and get a second opinion. i'm glenn hubbard. >> suzanne: and finally, today marks the 40th anniversary of apollo 11's landing on the moon. it was one small step for man one giant leap for technology. the practical applications of the space program have touched every area of our lives. they range from things as complicated as efficient structures for semi-conductors to the simpler aerodynamics of golf balls to better brakes on cars and trucks. space experts say for every dollar we spend on r&d for space, we get back seven dollars
in eventual economic growth, paul. i would say that is a stellar rate of return. >> paul: i wish they'd do a little more research on the golf balls i use. they're all over the place. >> suzanne: i had a feeling you were going to say something just like that. that's "nightly business report" for monday, july 20. i'm suzanne pratt. goodnight, everyone. and good night to you, paul. goodnight, suzanne. i'm paul kangas wishing all of you the best of good buys. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you.