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tv   Nightly Business Report  PBS  December 17, 2011 1:00am-1:30am PST

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>> susie: the former heads of fannie mae and freddie mac could be in hot water for misleading investors on subprime loans. >> fannie mae, freddie mac and the executives sought to maintain the illusion that the business involved minimal and manageable credit risk. >> susie: meanwhile, from the mall to the web, america's gearing up for a busy weekend of holiday shopping. but one thing they weren't buying: shares of zynga-- the much anticipated i.p.o. from company that makes the popular game "farmville." >> well, clearly there's a bit of disappointment that we saw it come out to the market at the top of its range at $10 per share and be unable to defend that price across the day. >> susie: it's "nightly business report" for friday, december 16. this is "nightly business report" with susie gharib
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and tom hudson. "nightly business report" is made possible by: captioning sponsored by wpbt >> susie: good evening, everyone. one of the most sweeping fraud cases brought in the wake of the subprime mortgage collapse was filed today in washington. the securities and exchange commission charged six former fannie mae c.e.o. daniel mudd and freddie mac c.e.o. richard syron the collapse of fannie mae and
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freddie mac is projected to cost taxpayers $124 billion. are fighting the charges, which syron's attorney calls quote, "fatally flawed." >> reporter: s.e.c. lawyers say, around the time the housing bubble peaked, fannie mae and freddie mac executives used misleading definitions of subprime loans to hide the truth from investors. >> as they were driving up their market share, fannie mae, freddie mac and the executives sought to maintain the illusion that the business involved minimal and manageable credit risk. >> reporter: the sec says former fannie mae c.e.o. daniel mudd and former freddie mac c.e.o. richard syron and four other top executives committed securities fraud, hiding risks that eventually brought down the mortgage giants. the case sites freddie mac's june 2008 disclosure showing the company held $6 billion in subprime loans. the s.e.c. claims the figure
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should have been $244 billion. fannie mae told investors as late as june 2008 that it had just $8 billion in subprime loan. but the s.e.c. says the true figure was $102 billion. in a statement, former fannie mae c.e.o. daniel mudd says he took the advice of auditors, regulators and even former s.e.c. lawyers. adding: "every piece of material data about loans held by fannie mae was known to the united states government and to the investing public. the s.e.c. is wrong, and i look forward to a court where fairness and reason--- not politics--- is the standard for justice." the s.e.c. case may hinge on definitions. to meet affordable housing goals set by congress, fannie mae created the expanded approval loan program to offer better financing to borrowers with limited downpayments or credit problems. freddie mac created a similar product named home possible. but attorneys for former freddie
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mac c.e.o. richard syron added: the s.e.c. has ignored the fact that the term subprime had no uniform definition in the market and that the federal government itself refused to define the term and bring clarity to the industry and the market. s.e.c. lawyers counter both fannie and freddie internally referred to many of their loans as high-risk or subprime like. >> the fact that the loans may have been made for certain goals or certain programs, doesn't relieve the senior executives from the obligation to make sure the public filings are accurate. >> reporter: robert plotkin specializes in defending clients in securities cases. his firm has done some legal work for fannie and freddie, though not in this case. plotkin says s.e.c. lawyers have a tough job ahead of them. >> if the executives can demonstrate that they relied on advice that was given to them in good faith that negates their fraudulent intent.
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>> reporter: the irony in this case is that syron and mudd were both brought in as c.e.o. to clean up the mess left over from accounting scandals. now they are charged with using accounting tricks to hide risks that have cost taxpayers dearly. darren gersh, "nightly business report," washington. >> susie: a nervous day here on wall street. worries about europe put an end to an early rally for the blue chips. fitch ratings warned it could downgrade the debt of six european countries including italy, spain, and ireland. fitch also changed its outlook on france to negative. the ratings firm said in a statement that a comprehensive solution to the eurozone crisis is technically and politically beyond reach. investors focused on that fitch news and shrugged off good news on inflation. the labor department said that the consumer price index was flat in november. by the closing bell, the dow was down two points, but the nasdaq added 14 and the s&p rose almost four points. looking at the week, the major averages were down for the first time in three weeks.
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the dow fell in four sessions for a net weekly loss of 317 points or 2.6%. the nasdaq also lower on the week, down 91 points or almost 3.5%. and the s&p 500 ending the week with a net loss of over 2.5%. just eight more days to go until the big kahuna for consumers: christmas. that's enough time for a lot more shopping, both in stores and online. recent data suggests this holiday season might be more joyous for retailers than originally thought. if so, what does that mean for the economy once santa heads back to the north pole? suzanne pratt reports. >> reporter: today in new york city it finally feels a lot more like christmas. that's good news for retailers because cold weather is a key ingredient for warming up holiday sales. but here's some more holiday cheer. after a slow start to december, it looks like shoppers are finally starting to spend. so much so that experts are
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upping their holiday sales forecasts one measure of november-december sales for general, apparel, furniture and other stores, now predicts a 3.8% gain. earlier in the season, the forecast was at only 3%. retail expert mike niemera credits a reduction in inflation for the change. >> you're seeing less pressure even on the apparel pricing side, in fact you may be seeing a little bit more discounting on that side. and, even some of the food price side is a bit more moderate. what that all means is some of the discretionary spend may be a little bit stronger. >> reporter: here at this manhattan mall, they're appears to be plenty of discretionary spending going on, most of these shops are high-end stores, and while they're not teaming with customers, they're certainly not empty. but, before we start celebrating a rosier holiday season,some economists are playing grinch. they say strong holiday sales do not necessarily mean a strong economy in 2012. >> the u.s. consumer still faces
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a variety of headwinds, not the least of which is we're still generally working off some of the excesses of the past cycle. and, we continue to face not only from the consumer, but the broad economy the potential for some form exogenous shock to the system. >> reporter: most likely that would come from the european debt crisis. but, political gridlock in washington could also dampen consumer sentiment. levitt predicts consumers will adopt a more measured approach to spending, after the holidays. >> an improving job picture, continuing working off some of this debt allows u.s. consumers to go out and spend money and support the broad economy. but, certainly no where near the level with which the u.s. consumer was able to support the economy over the prior decade. >> reporter: in the mean time, however, there's another factor that could give this holiday a last minute lift. as of sunday, only about half of americans had finished their shopping. that means the other half will be hitting the malls in the coming days. suzanne pratt, "nightly business report," new york.
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>> susie: if you're not at the mall tonight, you might be home shopping online and taking advantage of free-shipping day. consumers pay nothing to ship packages bought today from many online retailers. delivery is guaranteed by christmas eve. four years ago, a colorado couple came up with the concept and got 250 retailers to sign on. today the site boasts ten times as many stores and a sales movement that founder luke knowles says rivals black friday and cyber monday. >> earlier today, we had a merchant reach out to us and say the amount of sales that the amount of sales they're receiving today is fairly comparable to what they received on cyber monday. so this is a very big shopping day for them and becoming very important for them. >> susie: according to a survey, 90% of shoppers spent more money when offered free-shipping. better hurry though, that guaranteed christmas delivery ends at midnight tonight.
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still ahead, tonight's tax tips. taking your questions, kevin mccormally of kiplinger's personal finance. and tonight's market monitor says buying stocks with big dividends is the key to investing success in the new year. he's rich steinberg of steinberg global. >> zinca day bud on the nasdaq at top executive from the social gaming company rang the opening bell. the stock popped 10% after it started to trade but soon fizzled. analysts max wolf says it's going to take more than hype to get investors to play zinga. >> $that is a very aggressive valuation for this can. and they have to get everything right. and the next eight or nine games coming forward in their pipeline have to be exciting, engaging,
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addictive, and drive those four or five percent of users to spend significant money. >> while investors were hoping >> susie: investors were hoping zynga would give some zip to the markets, but investors got nothing but zigs and zags. let's take a look in tonight's market focus. zynga wasn't the only stock getting shunned by investors. many others were caught in the downdraft today. some big technology companies were hit hard. but surprisingly, some big banks bucked the trend. so did energy companies, which were the best performing sector. the biggest loser in the dow was i.b.m. the shares fell more than 2% to $183. it's down 6% this week. research in motion was another big loser. it fell to an eight-year low. investors hung up on the maker of the blackberry phones, as we reported last night. the company said it's delaying
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the launch of a new series of blackberries. it also drastically cut its holiday shipment forecast. the shares dropped 11% today and are down 75% this year. it didn't help that several analysts downgraded the stock on concerns that the brand is losing relevance. some investors are calling for a change in management. cablevision was also a big decliner today falling nearly 9% on a sudden management change. the cable giant said it's chief operating officer is resigning. on the flip side, shares of adobe systems jumped nearly 7%, after the software maker reported better than expected earnings and revenues. citigroup's analyst said the quarter was quote, "a blow out when most expected weakness." ebay is another tech stock scoring big gains. in an unusual move, this internet powerhouse is partnering with three bricks and mortar stores for a holiday promotion. starting today, consumers who spend a $100 online at toys 'r' us, dick's sporting goods or
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aeropostale can get a $10 voucher to spend in-store. the catch is they have to use ebay's paypal service for payment. ebay shares rose almost 3%, closing at $30.40, rebounding from this month's lows. many financial stocks rose today, which may seem surprising given the continuing worries about europe. j.p. morgan, citi and wells fargo all managed to end the day in positive in positive territory, even though the gains were modest but bank of america, goldman sachs and morgan stanley were down. fitch downgraded their credit ratings, citing increased challenges in financial markets. over in the oil patch, shares of cameron international spiked higher. the oil services company will pay $250 million to settle with b.p. over the gulf of mexico oil spill. it was cameron's blow-out preventer which failed at the mocondo well, causing the gulf's biggest oil spill ever. cameron shares surged 6% closing
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at $47.55-- a gain of $2.69. but shares of british petroleum closed unchanged today. the company plans to put the payment in its $20 billion trust fund to pay for compensation and environmental damage. and, finally, if you want to see an impressive gainer today. take a look at r.s.c. holdings. the shares lept nearly 60% today. the rental equipment maker is being acquired by united rentals for about $2 billion. and that's tonight's market focus.
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>> susie: all this week, we've been talking about year-end tax planning with kevin mccormally of kiplinger's personal finance. in tonight's tax tips, kevin joins us live to answer some of your questions. kevin, great to you have on the program, thanks so much for all your tax tips all week long. >> thank you, i'm happy to be here. >> susie: now we're going put on the spot. we have a lot of questions from some viewers and we want to get your answers on them. so let's go right to it. the first question is about college tuition deductions. here's the question. cybil wants to know if she pays college tuition for her grandchild can she take the tax deduction and will that impact the students tax situation? >> well, the answer is no and no. this doesn't work for a grandparent paying a grandchild. it's for if you pay your own tuition, a spouse or child. so if she goes back to
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school she could be eligible. what i suggest she do is rather than pay the tuition, give the money to the child's parents, let them pay the tuition and then they get the deduction. that's the way to go. but before they do that they need to make sure the deduction is more valuable to them than the tax credit for educational expenses for most people it's a better deal. and in either case it doesn't affect the student at all. >> okay. that's good. good advice. let's move along to a question about iras. jean had a lot of citigroup shares in an ira account and she wants to know how to account for citi's reverse stock split. >> that's a good one. i like to compare ira toss that slogan what happens in investigates stays in vegas. what happen nance ira stays in an ira. what that citigroup did was they gave one supershare for every ten shares a shareholder owned but no money came out of the ira so the irs simply doesn't care about it. jean doesn't have to worry about it. now folks who had citigroup in a taxable account, it's a different story. the basis of their new shares is affected by the
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reverse split and if they receive what is called cash in lew of a fractional share, they will have to report that on their 2011 tax return. but jean doesn't have to worry. >> susie: a lot of twists and turns, she better check with her accountant still despite your good advice. moving along to another subject. here's a question, wants to know about how to deduct losses on an investment in a failed start-up business. >> well, it's the same way you invest a loss in any basis, a legitimate business that went bad probably has a worthless stock deduction. the key su need to be able to point to something that happened in 2011, maybe a bankruptcy, that made the shares worthless. if he can do that, he can treat it on his tax return as though he sold the shares on december 31 for 0 dollars and invest his entire investment as a capital loss. if some sort of scam was involved he might have a theft-loss deduction instead. >> either one will ease the pain of hits loss. >> thank you so much for all this great information
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tonight and all week long. and we look forward to getting you back in the new year when you will get us ready for that important april tax deadline. >> thank you, susie. >> susie: thank you so much and hope you have a great holiday. >> thank you. >> susie: and you can find kevin a final installment of year end tax tips on our web, just go to nbr.com or on our facebook page. >> the books will end up in the hands of people versus landfills. >> susie: we hear the story >> susie: that's kreece fuchs co-founder of better world books. we'll tell his story next week, as we kick off our series on businesses helping build a better world. it's called "conscious capital," all next week on n.b.r. also on the calendar for next week: our friday market monitor guest will be thomas j. herzfeld of thomas j. herzfeld advisors. he specializes in closed-end funds. and we'll get a look at november's housing market with the latest reports on housing starts and sales as well as the final reading on third quarter g.d.p. also monday, a holiday take on the euro-zone's debt crisis.
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speaking of europe's debt crisis, it looks like the irish economy is slumping as the crisis drags on. a report out today shows that ireland's economy contracted by an unexpectedly large 1.9% in the third quarter. there are now new concerns about the country's ability to make critical cost cuts. ireland had been held up as an example of how a country can keep growing its economy, while simultaneously making both spending cuts and hiking taxes. delta airlines is looking to cause some turbulence for rivals united and american airlines. it's spending $100 million to boost its presence at new york's laguardia airport, adding over 100 of new flights that would make delta tops in the new york area. at the same time delta is cutting back on flights in and out of washington d.c.
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our market monitor guest tonight says he's quote "moderately bullish" for the new year. he expects stocks to go up by 10% over the next 12 months. he's richard steinberg, president of steinberg global asset management. of welcome back, nice to you have back with us. >> always good to see you, susie. >> moderately bullish. so what is going to drive that kind of growth.
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>> we're going have a tug-of-war between earnings being cheap with the s&p, trading at about 12 and a half times earnings and the goo political issues you have been talking about all night. so once we get some resolution or news being less worse in europe, we're hoping we can get some bind behind our back in the market and have a decent year next year with a 1350 target for the s&p. >> susie: so that's a 10% increasement can stocks really do that well given all this bad news on europe? >> yes, i think they can. because earnings right now are decent. the-- we're using 100 for next year. the streets still at 106 so we've given ourselves some wiggle room for a slowdown. and europe only represents a small portion of our total gdp so i think it is doable, yes. >> so let's talk about a little bit about what kind of stock you are recommending in this on certain environment. and it seems like the theme is buy stocks with big dividends, right? >> right, because if we're wrong on our target we want
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to at least get paid to wait. and we could be in a choppy market again. so investors need to take a the total return approach, if we can get a good chunk of that in dividends that would be our strategy. it has worked very well for us this year. we have a portfolio of about 25 dividend stocks which has been the best performer of our different models that we have this year. so we think that continues into next area. >> let's go down the list of the stocks it that you are recommending tonight. you have exc on the new york stock exchange. why do you like this one? >> is this a really well run utility that's based in the mid-atlantic, the south and midwest. they're having a merger with constellation energy. it yields 4.9%. and we have a target of $48 which is a 15%, well run conservative name. >> let's talk about reynolds american. here's a stock as you can see on the chart, had a nice move up this year. what's the attraction of rai? >> big juicy yield, 5.5%. you have a really well-run company, great earnings and cash flow.
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camerol, palmal and winstons are the brands, as long as you don't mind owning tobacco, this is a name to be in. >> susie: the next one is paycheck, a payroll outsourcing company, also has a big dividend. it trades on the nba, pa-- payx. >> this stock is more controversy because it's really a bet that ultimately over the next couple of years employment will get better. and interest rates will go up. but we think if there's upside to this name we think you could get close to $50 in the stock over the next couple of years and it has a very nice yield. >> rich, you are also recommending intel which earlier this week on monday actually reduced expectations for revenues. why should investors take a fresh look at intel. >> we think that there has been an overreaction to floods in thailand which disrupted hard drives and also the whole pc chain. the stock is now trading at ten times earnings. it yields 3.6% and over the next couple of areas you could see $30 in the stock. we think the market is just overreacted.
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>> all right. let's see if we can squeeze in your last recommendation. eaton, the stock is down so far for the year request. why do you like etn. >> the stock is basically a bet that the market and the economy will get better, yield --.3%. and they're in good businesses. they're in hydraulics. they're in trucking or the electrical business. >> they do a lot of business in europe, could that be a drag on the company? >> it but i think that's already why the stock has been down. we think that's why it's cheap. it's a good name to own. again you want to own these in a portfolio, not just one, so that you can smooth out the risks of different industries. >> all right. any disclosures to make on these stocks that you have recommended. >> we own them all. i known none of them. >> thank you so much, rich. real pleasure talking to you. i hope you have a happy holiday and a happy new year. >> i'm waiting to get the beard off at the end of the month so things stay stable. be well. >> we like that, that indicator. thanks a lot, rich. >> our market monitor guest tonight, richard steinberg,
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president of steinberg global asset management. and finally tonight, the power of social media. a couple from georgia got vocal on youtube about a home loan bank of america was dragging its feet on. ♪ >> the payment will never be late ♪ ♪. >> susie: the couple says the bank put off closing on their loan three times, in spite of an almost perfect credit score. on sunday, ken williams posted this music video about his homebuyer woes. but the story ends on a high note. bank of america says it's on track to finish up the paperwork by today. it's also giving the couple a credit at closing for their trouble. that's "nightly business report" for friday, december 16. i'm susie gharib. have a great weekend everyone and we hope to see all of you again next week.
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"nightly business report" is made possible by: captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org
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