tv Nightly Business Report PBS March 26, 2010 7:00pm-7:30pm EDT
captioning sponsored by wpbt >> the big thing that has changed is that the government has realized what a deep hole the housing market is in. >> susie: with 15 million homeowners underwater on their mortgages, the obama administration is pledging more help for homeowners. will it help the housing recovery? we get some answers. you're watching "nightly business report" for friday, march 26. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program was made possible by contributions to your pbs station from viewers like you. thank you. >> susie: good evening, everyone. another fix-it plan from the white house today to end the housing foreclosure crisis. tom, this one proposes to reduce the principal on mortgages held by underwater homeowners. >> tom: susie, it's for people who owe banks more than the current value of their homes and it's similar to the bank of america plan we reported on earlier in the week. today's plan from the government also gives temporary help to homeowners who lose their jobs. >> susie: 15 million americans
fall into that underwater category. but as darren gersh reports, the new program will help just a fraction of them. >> reporter: from the beginning of the housing crisis, the government has been reluctant to give a big break to homeowners who are underwater, meaning they owe a lot more on their home than it's worth. write-downs are expensive and, the administration argues, can be seen as unfair to homeowners who are keeping up with their mortgages. now that policy has shifted, a recognition, says consumer advocate julia gordon, that previous efforts to stem foreclosures haven't been getting the job done. >> the big thing that has changed is that the government has realized what a deep hole the housing market is in and we need to reduce principal balances if we have any hope of alleviating this problem. >> reporter: under the new approach, the treasury will require lenders to consider reducing an eligible borrower's mortgage to 115% of the current value of the home. as an incentive, the treasury
will pay lenders 10 to 20 cents for every dollar the mortgage is reduced. the government is also encouraging homeowners who are current on their loans and have good credit to refinance with the federal housing administration. lenders would receive incentive payments if they agree to reduce the outstanding mortgage by at least 10%. the $14 billion to fund the f-h- a program will come from the troubled asset relief program known as "tarp." f.h.a. commissioner david stevens makes it clear his program is not for everyone. to qualify for help from the f.h.a. homeowners must be current on their mortgages and pass a credit check. >> they wouldn't do this if they didn't want to keep their home at all costs. and that's what this program is designed for. it's responsible homeowners who could afford and want to keep their mortgage and their home if the principle balance could be lowered to make it affordable for them. >> reporter: the administration is also asking lenders to lower mortgage payments for homeowners who lose their jobs.
the help will last up to six months, but economist mark calabria worries banks will use the time to defer losses, prolonging the credit crisis. we'll have a large number of people who are unemployed who will be in this for six months and then fall back into foreclosure. that allows the bank six months to put off recognizing the loss of the loan. >> reporter: the new mortgage write-down plan is voluntary and analysts warn similar foreclosure prevention plans have not lived up to expectations. still, the administration hopes mortgage reductions will help hundreds of thousands of families stay in their homes. darren gersh, "nightly business report," washington. >> susie: our guest tonight believes this new government plan could help end the housing crisis. joining us now-- mark zandi, chief economist of moodyseconomy.com. hi, mark. >> hi, it's good to be with you. >> susie: why do you think this plan is going to work this time? so many of the previous ones just didn't work? >> yeah, i think it's very-- this represents a philosophical
sea change with respect to foreclosure mitigation. up to this point, it's been about temporarily reducing the interest rate to gethe monthly mortgage payment down but not really doing anything about the fact that many of these homeowners are so deeply underwater, and many of the homeowners-- they'll take the modification if you give it to them but if anything goes wrong in their financial life, even if they spring a leak in the roof and had vto put money in, they're not going to do it. they're going to default. now with these changes, this gives incentives for mortgage servicers and owners to reduce the principal amount and get the monthly mortgage payment down. i think the combination is very powerful and will keep those homenornz their home and help solve the foreclosure crisis. >> susie: i'm sure you've seen the government report where more than half the people who got loan modifications on delinquent mortgages within nine months defaulted again. it makes you wonder, is there a flaw in all of these attempts by the government? >> that's at this is aimed at, at that very specific problem,
susie, that high re-default rate. people who don't get any break on the amount of mortgage debt that they owe, if they're so deeply underwater, they have a very high likelihood of re-defaulting in the future. but if you give them a hook, if you give them a little bit of reduction in the mortgage amount they owe and they think they have a fighting chance to get above water again they will hold on and not re-default. moreover, in the way the program is designed, you have to, in a sense, remain current on your loan for at least three years to get that principal. you have a big incentive to remain current and not re-default. >> susie: i'm sure you've heard that a lot of american taxpayers are angry over this issue. you know, they're asking why should we have to help out irresponsible bankers and borrowers and bail them out? you know, i just-- why is it that these banks and borrowers should get a free ride? that's basically the question a lot of people are asking tonight. >> and a very reasonable
concern. it isn't fair. you have a lot of hardworking homeowners out there that are really stretching and makes-- and doing the right thing and making good on the mortgage payment, and they're not going to get help. but here's the point-- by helping these other stressed homeowners getting help with their mortgage and staying in their home, and not pushing that home on to the market and causing house prices to decline you're helping yourself. helping the person is distasteful--. >> susie: i get that argument but the question is why do the taxpayers have to be part of the solution? why not have the banks work this out? why not all the banks get together and work out a foreclosure solution? >> well, they're not. they're not doing it. and for various and sundry reasons there are all kinds of problems for them to get together and actually get something done so the problem is we have this massive foreclosure crisis with prices falling so with a little bit of taxpayer money we can solve the problem,
get past it and get going. >> susie: i know this is really important, getting this housing crisis solved because it's important for the economic recovery. do you think this will human the recovery and what's basically your overall growth forecast for this year, for 2010? >> year, i think this is necessary. i mean, it could be the case we could let the chips fall where they may and see what happens and house prices may not decline. but here's the concern, that we could all be wrong. that we do-- if we don't do anything, if foreclosures amount house prices decline, and we're back in recession. we can't allow that to happen because the unemployment rate is 9.7% and we've lost jobs and just can't go back into recession. and with a little more help-- and i think this is the right kind of help-- we can bring the house decline to an end, and create jobs. >> susie: we'll see who it all goes. thanks a lot, mark, for coming on the program. my guest tonight, mark zandi, chief economist of moody's economy.com.
>> tom: here are the stories in tonight's nbr newswheel: wall street's blue chips end the week in the green as concerns about greece fade. the dow rose nine points. the nasdaq fell two and the s&p 500 gained a fraction. volume was the highest it's been week. while the economy surged at the end of last year, the growth wasn't as robust as previously thought. the commerce department revised its growth estimate lower from 5.9% to 5.6%. meanwhile, consumers are feeling better about the economy. the reuters university of michigan consumer sentiment index for march was revised higher to a reading of 73-1/2. the recovery is dependent on consumer spending. at&t says it will take $1 billion charge to cover costs from the nation's new health care law. it's the largest corporate charge on health care so far, earlier this week, caterpillar said it would take a $100 million charge. deere said it would go $150 million. still ahead on the program: our friday market monitor guest says
the rally still has room to run at least for now. he's mark leibovit, chief market strategist at vrtrader.com. >> susie: tonight, we wrap up our series-- "searching for yield": where to put your money so you get a decent return. now we turn our attention to corporate bonds. while returns have been coming down, they're still higher than treasury bonds and much better than what you can get on a savings account or a c.d. at your bank. erika miller reports. >> reporter: take a look at this bank exterior. see if you can notice what's missing. you won't find any signs advertising savings accounts or c.d. rates, probably because the levels are so paltry. but investors willing to take on more risk may want to consider corporate bonds as an alternative. financial planner jonathan satovsky says corporates can be an appropriate place to park money you won't need for at least two years. >> some people use it as a substitute for cash. you may buy corporate debt that you feel confident the company is going to be in business for the next one, two, three or four years. and you will increase your yield relative to cash.
>> reporter: another reason some people buy corporate bonds is for the income stream. the i-shares investment grade bond index fund is currently yielding more than 4%. and the i-shares high yield bond index fund yields more than 8%. the difference between the two is risk. barclays estimates that high yield debt-- otherwise known as junk bonds-- is three times as volatile as investment grade securities. the good news, according to credit stragist ashish shaw, is the ratings on corporates are more reliable than other types of debt. >> we went through a really deep recession a cycle ago-- back when we went through enron defaults, worldcom defaults, that's when the ratings agencies learned their lessons around corporate bond ratings. it's too bad they didn't learn their lessons about other types of ratings at that time too. >> reporter: but there are lessons that every investor should know before buying corporate bonds-- they're riskier than savings accounts and treasuries. there's also the possibility a company could default on its debt, particularly if the economic recovery falters.
that said, lord abbett's milton ezrati thinks high yield bonds are one of the best places in fixed income to make money these days. >> we think that if you can stand the volatility and the risk, that high yield probably offers a better trade off than the high grade and certainly over the treasuries or the agencies. >> reporter: corporate bonds can be used in many ways by investors-- for savings, for income and capital appreciation. the important thing in all cases, is to make sure you understand exactly what you are investing in and are comfortable with the risks. erika miller, "nightly business report," new york.
>> tom: the week ended with a shrug but it was a week in the green for the major indices. the industrials got turned back from 11,000 level this week. for the week, the dow 30 were up 1%. it's the fourth straight week of weekly gains. nasdaq took out its august 2008 high this week. the composite was up just shy of 1%.
s&p 500 gained six tenths of a percent on the week. healthcare stocks held the major indices down today after a plenty of focus on the sector this week. healthcare spiders exchange traded fund hit a two month high earlier this week on the passage of the health reform legislation. and since mid-week, we've seen some profit taking. meantime, apple stock has not seen any profit taking leading up to the launch of its ipad a week from tomorrow. shares of apple continue to hit new highs in advance of ipad sales. credit suisse is anticipating apple's second strongest quarter in its history. making the rounds online today was a photo of apple c.e.o. steve jobs having coffee with google chief eric schmidt this afternoon. the two compete with the iphone and google's android phone platform.
other phone makers got the call from j.p. morgan's analyst. both research in motion and nokia were boosted to overweight from neutral on the thought they can better compete on price as the smart phone business picks up. the same analyst called motorola underweight. a big retailer for some of these popular handsets saw follow through buying-- best buy. the stock has been rallying since mid february, catching a new bid after its earnings call this week. then today's new york post report that best buy may be interested in radio shack. b.b.y. at a new 2010 high. and as you would suspect, radio shack stock reacted to the rumors, jumping more than 8% to a new 52 week high. radio shack has been the subject of buyout rumors for weeks. last night, we highlighted oracle's after the close earnings and while the stock saw a little selling today, it did see heavier volume. remember, the stock came into today at nine year highs, so
some profit taking may be natural. 58 million shares traded making it the most active on the nasdaq. that's about twice average. one of the biggest stand outs today was from a very small stock. arca biopharma makes heart drugs. it's a micro-cap stock with a market cap of just $62 million. but that's more than twice what it was worth yesterday at this time. the stock shot up more than 200%. the company said it got a patent for a heart failure treatment. the patent gives it 15 years of drug exclusivity. four new tickers hit the tape this week with the initial public offering market continuing to show some signs of life. china lodging saw plenty of interest, making its debut today. it owns 236 economy hotels in china and started at $12.25, ending with a nice rally. radio-frequency semiconductor company max linear started
trading on wednesday at $14 and rallied nicely since. calix networks makers broadband-access equipment. it hit at $13 on wednesday. and this week we also saw the first bank to go public in almost three years. first interstate has 72 branches in montana, wyoming and south dakota. its initial price was $14.50 per share. the i.p.o. market wasn't without disappointment. a greek shipping company postponed indefinitely its share offering citing market conditions. and that's the market focus. >> tom: the stock market rally
has room to run. even as it sits close to 18 month highs. so says tonight's market monitor guest. mark leibovit is the chief market strategist at vrtrader.com and he joins us from phoenix. mark, welcome back to "nightly business report". >> thanks for having me. nice to meet you, tom, on the air. >> tom: nice to meet you as well. so more room to run. how much more room to run after the 18-month highs? >> well, the trend is your friend, as they say, and until we get a clear reversal pattern, and my technique using volume reversal in the volume preceding price, and get indication of important selling in the market, you let the market work for you. we have targets that still say this market could go higher, but you know, the bottom line is is the trend is your friend and we're just past that halfway retracement point they mentioned in our previous interview which was 1005. as you go through a half-way
retracement, you start saying are we going to do a 6-1-8 retramt or full retramt getting you back to the 14,000 area. i don't know if we can get there or not. i'm not thinking that. but we're going to keep looking at it and indicators to guide us. >> tom: you brought with you a model forecast for the dow industrials, and what you see here is this is basically your forecast for 2010 for the dow, the actual performance down below. and you see the dog days of summer being some tough months for long investors and the dow ending the year near the lows of the year. >> right. this is a cyclical forecast. what we do with the annual forecast is we're combining that with our volume work so it's like the proverbial weatherman looking out the window. you wait for your short-term signals. you don't stick with your big forecast until you get confirmation that it is, indeed, happening. according to this model we should run out of steam here some time this summer and have a pretty sharp correction. but how high are we going to be when we hit that top? could it be 12,000, 14,000?
you don't know. so we have to wait for that point. 1q could be quite high. >> tom: the velocity of the move higher you're unsure about but august you think will be the high for the dow? >> that appears to be the case for the moment. >> tom: let's tack a look at the chart. and you have what the technicians and yourself call a reverse head and shoulders pattern. you see the nek line. your projected target of 1230 brings us, what b5.5% where we're look at at the close of the week this week? >> right. remember, this measurement was made months and months ago, and i think in my september interview, we showed the dow forecast, so this is an existing forecast for month, and we haven't got to that target yet at 1230. we could go much higher. this just gives you an indication of where, i guess, a minimum expectation would be. so this would be about 1105 in the dow, 1103 in the dow, and if
that occurs by august that will be it. i suspect it will be higher but we'll see. >> tom: let's take a look at some of the picks you brought along with you and get a quick comment about the dollar, especially when it comes to the central fund of canada and the silver exchange traded funds, very commodities based and precious metals based. do you still like these and is this a play on the u.s. dollar? >> a dollar is still in an uptrend, which could be a problem for the precious metals, but according to the cyclical forecast, we're due fair little correction here this summer which could drive these metals higher. i'm hoping at a point we'll see the dollars and freious metal diverge and not track inskrersly as they have been. for now we're going to stick with the players because i think there could be another run in the precious metals and after that we may go into a correction as well. how do you know gold won't be 1300, 1400 this summer and correct from a higher level? let's let the time work for us here a little bit and that's what the dollar is saying and then a run later in the year. >> tom: just 15 seconds left but i want to show the previous
picks. you featured these, nice gains. still like snem. >> yes, i would hold them, all solid plays at least through the summer. >> tom: our market monitor guest this evening, mark leibovit, chief market strategist at vrtrader.com. >> susie: here's what we're watching for next week. our market monitor guest is randall eley, president of the edgar lomax company. a busy week ahead-- we'll get the latest report on personal income and spending, the january s&p case-shiller home price index, march auto sales and the march employment report. on monday, spending versus saving. most of us say we want to put money away. so why do we keep on spending? >> susie: verizon is winding down its fiber optic t.v. expansion. so if fios hasn't come to your town yet, chances are, it won't. right now, fios is in major cities like washington d.c., philadelphia and new york. but, others like balitmore and boston will go without.
where avialable, fios is usually the only competition for cable tv, except for satellite t.v. service. studies have shown that fios availability also leads to substantially lower cable t.v. prices. >> tom: more than two dozen wall street bankers could soon be in hot water. they were named today as suspected co-conspirators in a scheme to fix prices in the municipal bond market. the case is the result of a three-year justice department investigation into the pricing of securities in the $3 trillion muni-bond market. the 29 bankers work at j.p. morgan chase, bank of america and nearly a dozen other financial firms. so far, none have been criminally charged.
>> susie: some signs of recovery in the auto sector. chrysler is re-opening several of its dealerships that it shut down a year ago. the automaker is offering to reinstate 50 of the 789 dealers that it dropped when it was going through bankruptcy. meantime, ford motor plans to seal a big deal this weekend. on sunday, the automaker plans to sell its volvo unit to china's geely holding group. published reports put the price tag at nearly $2 billion. caption test caption test caption test lant in ontario, canada. the workers will help build its popular chevy equinox and g.m.c. terrain crossovers.
but while g.m. is expanding production, toyota is slowing down. the automaker is suspending work at its factories in france and britain for a total of nine days. the reason: falling sales because of all those recall problems. >> tom: that's "nightly business report" for friday, march 26. i'm tom hudson, goodnight everyone and have a great weekend, you too, susie. >> susie: good night, tom. i'm susie gharib thanks for watching, everyone. hope to see all of you again next week. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you.