tv Nightly Business Report PBS December 29, 2009 7:00pm-7:30pm EST
>> paul: consumer confidence seems to be coming back, despite flat home prices. a look at where the economy's been this year, and where it could be headed. >> don't put your money in last year's winners. don't put your money in high- cost funds. >> susie: vanguard group founder john bogle tells you just where to put your money in the coming year. >> we've gotten a lot of phone calls, people coming in. we're getting rid of the last inventory, and we've got some big incentives to do that. >> paul: general motors is shelling out big incentives to put the pontiac and saturn
brands out to pasture. >> susia: then, nokia tries to take the shine off apple, claiming virtually all ipods and iphones infringe on nokia patents. it's the latest skirmish in a long-running battle between the two companies. >> paul: i'm paul kangas. >> susie: and i'm susie gharib. this is "nightly business report" for tuesday, december 29. "nightly business report" is made possible by: this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt
>> susie: good evening, everyone. american consumers are feeling somewhat confident going into the new year. a key measure of consumer confidence rose in december. the conference board said today its confidence index rose for the second straight month. but the research group noted that the overall index is still at historically low levels. meanwhile, american homeowners got disappointing news today about the value of their homes. the s&p case shiller home price index was almost unchanged in october after four months of gains, and the numbers were down more than 7% from a year ago. but s&p economist david blitzter says there are some hopeful signs that housing prices have stabilized. >> the underpinnings for the housing recovery are still in place. fed policy is very favorable, and very consistent, and the consistency is very important. the one time we have a double dip back in the beginning of the 198 30s, fe policy went up
and down and up and down, and housing prices did exactly the same thing. so i think we're safe from that. >> susie: the weak housing market was just one of many issues that plagued the economy this year. as 2009 comes to a close, suzanne pratt takes a look back at the tumultuous year. >> reporter: 2009 began with the u.s. economy teetering on the verge of a depression. banks were imploding, foreclosures mounting, and pink slips flying. when barack obama was sworn in as president, he said: >> the state of the economy calls for action, bold and swift, and we will act-- not only to create news jobs, but to lay a new foundation for growth. >> reporter: part of that new foundation came in february when the new president signed into law a $757 billion stimulus plan. it promised to create millions of jobs and help pull the u.s. out of recession. help couldn't come soon enough. in early march, major stock
market indexes hit 12-year lows, with the dow sinking to 6,500. nest eggs were vaporized. veteran stock trader art cashin described it as "abject panic." >> everyone was afraid that the system was beginning to unravel and come apart. the feeling was that allowing lehman to go under was a serious mistake. >> reporter: the federal reserve, which had already slashed interest rates to record lows, came to the rescue. it used extraordinary measures to stabilize the financial system and plowed more than a trillion dollars into the economy. by early spring, fed chairman ben bernanke said he detected "green shoots" of economic recovery. and over the next few months, little sprouts appeared in retail, manufacturing, and housing. still, the rebound was sluggish, fueled mainly by the government's "cash for clunkers" program and tax credits for homebuyers. g.d.p. turned positive in the june through september period, after six straight negative quarters.
economist anthony chan says the positive turn was proof government stimulus does work. >> to have another consecutive quarter of negative growth would have certainly been devastating to consumer confidence, devastating to business sentiment, and certainly that's not what you want to have as the economy starts to hope for much better times. >> reporter: however, as other parts of the economy improved, the job market continued to deteriorate. by early november, the unemployment rate topped 10% for only the second time since world war ii. still, economist bob brusca says conditions were slowly improving. >> it was a very difficult year of transition, a very tough year for the labor market. despite that, the big job losses came front-loaded, and we made progress as the year went on in terms of diminishing those losses month by month. >> reporter: as 2009 ends, the fed still has short-term interest rates near 0%, saying the economy is only slowly
turning a corner. many experts predict we'll soon learn that growth galloped ahead as much as 4% in the fourth quarter, a far cry from how the year began. >> i think 2009 certainly was a dismal year when you look at the economic statistics, but it also showed great resiliency, because consumer spending, after the massive contraction in household net worth, still bounced back. >> reporter: resiliency seems to be a popular word for the economy in 2009. yes, it was a monstrous year, but also, experts say 2009 shows the u.s. can rebound from even from deepest, darkest recession. suzanne pratt, "nightly business report," new york. >> susie: while 2009 was a dismal year for the economy, the stock market spent much of it in rally mode. so what's in store for stock investors in the new year? and where should they put their money? for some answers, we turned to legendary investor john bogle, the founder of the vanguard mutual fund group. i by asking him for his market outlook for 2010.
>> honestly i don't do one-year market outlooks because the year is unpredictable. but i do in my new book do an outlook for the decade. i believe that stocks will return to something like 7 to 9% during the coming decade, because the dividend yield is 2% today, around 2%, a little above that, and earnings growth should be around six. so that would give us an 8% business return to underpin the market. so i think that's a reasonable expectation for stocks in the coming decade. whether they get any of that this coming year, who knows. >> susie: you mentioned your book, the 10th anniversary edition of "common sense on mutual funds." did you make any changes in the book because of what happened during the financial crisis? >> very, very little. you could see the financial crisis coming, you could see that stocks were at unsustainable levels at the beginning of the decade, and you had to realize that the stock market creates no returns at all. it's business returns that count. so the stock market had
greatlyover done by having sharply rising price earnings multiples, sharply overdone what appeared to be wealth, but it turned out to be phantom wealth, and we lost that phantom wealth during the past decade. that probably shouldn't be a plus or minus, we're about where we should be. >> susie: people are trying to assess where to put their money. what's the best advice you can give individuals investors? >> well, first a lot of negative advice. don't put your money in last year's winners. don't put your money in high cost funds. remember in asset allocation that bonds are there to help you, although bond returns will be maller than stock returns in the coming decade. they'll give you an element of stability. and just be careful and invest for the long term, or put it another way, rely on the wisdom of long-term investing and forget the folly of short-term speculation. because it's a loser's game. >> susie: one thing we've seen, one friend we've seen recently
is individual investors are reluctant to put their money into stock equity funds. we've seen a lot of fund flows into bond funds, but not into stock funds. what do you think it will take to change that? what has to happen for investors to feel confident about putting money back into stocks? >> well, we've learned in this last cycle that investors are their own worst enemy. they look backward and say, well, bonds did better than stocks last year, so i'll put my money in bonds. so this year bonds probably account for 95, 90% of all the money flowing into mutual funds, and when you get to that last 10% more than all of all of it as in berlt funds, which are doing well this year, and investors are really taking money out of u.s. funds this year. so i would regard that as investors are their own worst enemy as a sign that maybe international is getting overdone, and u.s. markets are a little under valued. >> susie: there are some new products coming out that are
hedge fund-like that are being offered to individual investors as a way to hedge against volatility. do you think that's a good thing? >> well, these new hedge funds, and andy has one, dr. lowell up at m.i.t., and they call them the boglization of the hedge fund industry. they are mimicking the return on hedge funds, but doing so at a very low cost so, i applaud that development, even as i remain deeply skeptical of hedge funds, because a hedge fund is such a big category there will be some big winners and big loser, and honestly i don't know how to tell them apart in advance. >> susie: all right. thank you for all of your good advice, jack. wish you a happy new year, hope to see new 2010. >> same to you, susie, thank you. >> paul: wall street blue chips started >> paul: after six consecutive
closing gains, wall street's blue chips continued to move higher this morning, as the report that october home prices were steady was viewed by investors as a positive, since it suggested stability. an hour into trading, the dow posted a 31-point gain, while the nasdaq was up one point. the market turned choppy over the next several hours amid year-end portfolio reshuffling, which led to a narrowly lower close. the dow jones industrial average ended down 1.67 at 10,545.41. the nasdaq fell 2.68 to 2288.40. the s&p 500 lost 1.58 to 1126.20. in the bond market, the 10-year note rose 12/32 to 96 16/32, putting the yield at 3.80%. >> susie: general motors is opening its pockets to give saturn and pontiac dealers some help in emptying their lots.
... saturn dealers had 5700 cars left on their lots. the general sales manager at king pontiac buick gmc in maryland says the incentives are working. >> we received an unbelievable amount of phone calls. we've got a lot of appointments lined up, a lot of appointments scduled to come in. like i said, it's going to be pretty easy getting these cars out of here as fast as possible. >> susie: if you're worried about parts and warranties on pontiacs or saturns, g.m. says don't be. parts are available, and its warranties are backed by uncle sam.
>> and those are the stocks in the news tonight. tom, what's on tap for tonight's street critique? >> tom: tonight's street critique guest is michael farr, author of "a million is not enough." and he's a cautious bull when it comes to stocks in the new year. michael, welcome back to n. b. r.. what's driving your cautiousness about stocks into 2010? >> tom, thank you, it's great to be back. you know, as i take a look at where we are and where we've come in the past 12 months, i
think we've seen a market that's been fueled by a lot of government dollar, trillions and trillions of dollars, and we really need to see, i think in 2010, if these levels, both in the economic activity and in business activity, are sustainable by end user demands. so can we shift from government support to real demand here and see things actually stablize and grow. and i really worry about what's going to happen if and when the government goes away. >> tom: so as you're looking for that handoff between government monetary stimulus and the private enterprise taking over in 2010, or whether or not it does, how does that play out in your portfolio picks for the new year? >> i continue to be defensive this year, and i've got a couple of themes, i'm looking for companies that are selling at a discount in terms of p. e. in 2010 to the s&p 500 or the russell 1,000. i'm looking for companies with pretty strong international growth and picturely some exposure to emerging markets where possible, and i also
want to find companies with very strong balance sheets still i'm tending toward the more defensive industries. >> tom: let's drill down to some tickers. you're not counting the consumer out when it comes to 2010, in fact looking at consumer staples the three picks that you brought with us for the new year include pepsico, also cvs caremark, the drugstore, and of cars wal-mart the world's largest retailer. what strikes you that these these three will outperform their competitors? >> i think they are all fairly defensive. pepsico with its large international base and emerging markets, cvs and wall part for two different reasons. cvs has been killed in terms of price because of their pharmacy benefit manager company hit a snag, i think they've addressed it and i think the stock is cheap at 12 times earnings. and wal-mart, 13 and a half times the stock held up better than the whole market was going down, but it's never really gone up, but their numbers internally are going up and i like the balance
sheet strength. >> tom: in washington where you are tonight gearing up for a big health care debate in the new year, you're not shying away from health care in 2010 in terms of stocks, the three choices here, medtronic, the medical device company, patterson companies, dental devices and j and j, a holdover from your 2009 picks. >> again here's an area that didn't do a whole lot in 2009. with the overhang of all the health care legislation, these stocks really never moved. so the earnings are doing pretty well in all of those companies. i think that a lot of this legislation is going to see volumes increase for a company like medtronic or j and j, and they are all kind of cheap, patser son dental is a ply company, not as cheap as the rest, but j and j, a 3% dividend, 13 times earnings, 8% compounded annual growth rate. that's a very solid company. it's got 12% annual growth rate for the last 10 years. really strong company.
>> tom: the final slate of picks include technology, giants like nokia and del. exxon mobil and united tech, all 10 of these really big cap multi-national companies as you mentioned. >> yes, and i do like that multi-national exposure. i think perhaps where we may hit some drags here on the u.s. economy these companies all have good balance heats and the ability to be driven by foreign sales. del and nokia are two companies that have just been killed. del is one of those companies you hate right now. warren buffett says buy when everybody else hates them. >> tom: the list from 2009, outperform the broader market, you provided better returns for the picks. any disclosures tonight regarding the stocks you mentioned? >> i own all of the ones from 2009, i own some of the ones for to 1010 list but as of the
first trading day will own them all. we own most all of them right now. >> tom: thank you very much for your insight and happy new year to you. >> thank you very much. it's great to be with you, and best wishes to my great friend paul kangas. he's been such a great fixture on this show and in all of our lives in the business community, and as investors around the country. he's just awesome. so best wish toes you all, and to paul. >> tom: echo those sentiments absolutely. my guest, michael farr. large copper mine in chile threatens production. the work stoppage won't start until thursday, and it's already causing fears about supply. but the mine expect it can still meet delivery commitments. even with the strike, copper prices have more than doubled this year. it's thanks to rising demand from china and a weaker dollar. >> paul: johnson and johnson is expanding its voluntary recall of tylenol arthritis medicine. the company is now pulling all
>> susie: here's a look at what's happening tomorrow. the chicago purchasing managers index for december is released, along with the weekly report on crude and gasoline inventories. tonight's commentator has some suggestions for stimulating your own economic recovery. she's personal finance journalist terri cullen. >> with any luck, we'll look back on 2009 as the start of a recovery from one of the worst economic disasters since the great depression. no doubt, the billions the federal government has spent over the last year has helped. still, a lot of american families are wondering when they're going to see an economic recovery of their own. so i've come up with a few ways to target your spending in the new year that may help stimulate your own family economy. first, look at your savings. is your retirement account still a little weak? have you spent down your emergency savings? do you even have emergency savings? the best way to spend disposable income right now is to use it to rebuild your financial cushion.
start having money transferred automatically right now into an emergency savings account. next, look at your debt. in these tough times, you may have been forced to ask a loved one for a loan to get you through a rough patch. but there's no faster way to ruin a relationship than to bring borrowed money into it. if your financial circumstances have improved, now is the time to pay back that loan. the relief you'll both feel at not having an uncomfortable financial obligation between you is worth far more than the money you'll spend to repay the debt. finally, look at your home. by spending money now to make your home more energy-efficient, you'll not only slash your federal tax bill by up to $1,500, but you'll save on future utility bills. so use these tips to help create a little economic stimulus of your own, and i hope you have a safe and happy new year! i'm terri cullen. >> paul: to read terri cullen's blog on crafting your economic recovery, go to our web site, "nightly business report" on pbs.org. you can also learn more about the stories in tonight's broadcast and email us at
email@example.com. recapping today's market action, stocks ended the day pretty much where they began. the dow lost 1 1/2 points, and the nasdaq fell 2 1/2 points. >> susie: that's "nightly business report" for tuesday, december 29. i'm susie gharib. good night, everyone, and good night to you, paul. >> paul: good night, susie. 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.