tv Nightly Business Report PBS January 7, 2014 1:00am-1:31am PST
this is "nightly business report" with tyler mathisen brought to you in part by -- >> thestreet.com, upo-the-minute stock market news and in-depth analysis. our service provides objective, independent ratings daily on over 4,300 stocks. learn more at thestreet.com/nbr. >> historic confirmation, janet yellin will become the first female chair of the federal reserve. when she takes the helm, what will be her biggest economic challenge? >> deep freeze -- the coldest weather in decades snarls business travel nationwide. thousands of flights are scrubbed. how bad weather will hit the airlines' bottom line. >> and $2 billion deal, jpmorgan, bernard madoff's main bank of over two decades is
reportedly near a settlement over it role in the scandal. will this help the bank's massive issues? all that and more tonight on this monday, january 6th. >> good evening, everyone, and welcome. it's an historic day for the united states and its economic policy. for the first time ever, a woman, brooklyn-born economist janet yellin, is poised to be sworn in as the nastion's top banker. early this eve tng senate voted to confirm the 67-year-old yellin as the chair of the federal reserve. she's now its vice chair. eamon javers joins us live in the nation's capitol with more on tonight's vote and what it means for interest rates, the fed's stimulus plan, and the american economy. welcome. let's start with the details. how close was the vote? >> in the end, tyler, she had more votes than she needed. the final vote was 56-26. and you may notice that that does not add up to 100 senators. we have a lot of missing senators today because of some of those travel glitches around the country. senators were not able to make it back to washington in time
for this vote tonight. but 56-26 was the final margin. in the end, she got fewer "no" votes than ben bernanke, who had 40 "no" votes in 2010. that would indicate a little more support, but it's a little skewed by the weather and the travel. so it's hard to say exactly how popular the fed is and exactly how popular janet yellin is in the united states senate right now. >> all day long everybody was wondering whether this vote was going to go through or not because as you mentioned about the weather. any other surprises? any other color you can fill in on this historic vote? >> well, one of the interesting things here is that we have a number of republican votes for her, but we're going to have to take a look and break this down. one of the stats i'm going to be curious to see here is whether or not we saw the majority of the republican party vote against her. i think that would be a first if we saw the majority of a political party voting against a chair nominee for the federal reserve. and then obviously there's the historic nature of tonight's
vote. already there are some people speculating that janet yellin with this vote has just become the most powerful woman in the entire world. >> you know, eamon, there were some worries way back when miss yellin was first nominated by the president that certain senators, notably rand paul of kentucky, might put a so-called hold on her nomination. those fears, if that's the right word for it, were not realized. why? >> well, i think part of it is that they were able to go with the nuclear option in the united states senate so they were a able to lower the threshold of votes that she needed to just 50 votes in the senate. so that helped ease things along. then i think it's a political calculation on the part of some of those senators who said, you know what, do i really want to be known for this or do i want to hang around here and fight on a different issue on a different day. in the end, rand paul didn't go to the united states senate floor to speak about this until after the vote had concluded. >> thanks a lot, eamon. eamon javers reporting from washington. well, our next guest says
that janet yellin's biggest challenge will be how to unwind the fed's stimulus without derailing economic growth. he's the chief economist at ihf. thanks for joining us. tell us what janet yellin should or shouldn't do so that she's successful in unwinding the stimulus out of the economy. >> well, i think first and foremost what she provides is some continuity in terms of what the fed is doing. but very importantly, i think the key goal here is flexibility in terms of gauging where the economy tis, gauging how much t proceed with this tapering of the bond purchases, and do it in a way that obviously gets rid of that program, let's say, by the end of this year without derailing the economy. that's the key challenge i think over the next year. so flexibility is key. making sure the economy is on track, you know, not doing things too soon, not doing things too late. so it's a bit of a balancing act. >> how, if at all, do you expect
her tenure to be different from chairman bernanke? >> it's really not going to be that different. again, what we're going to get, as historic as this vote is, we're going to get continuity. she's been in the fed system quite some time now, fist as president of the san francisco fed, then as you said earlier the vice chair of the federal reserve. so what we e get is continuity and we'll get very similar policies, i suspect. there will be some nuance, some subtle differences, but in broad strokes it's going to be very similar because she by and large has supported what bernanke did. >> you were talking about economic growth, and one thing we hear from so many economists as well as fed policymakers is is that what's happened to business investment, when are businesses going to start spending and hiring and expanding. do you think that now with janet yellin in charge and starting this tamering process, that we're going to see businesses step up? >> well, that's certainly the hope. i mean, one of the biggest drags and biggest impediments, if you
will, to business investment, businesses taking big risks, if you will, is uncertainty, uncertainty about monetary policy, in this case, uncertainty about fiscal policy, there's huge uncertainty about fiscal policy in the last two or three year, and i think with yellin being in office and that continuity being more or less assured, i think that source of uncertainty is diminished and hopefully on the congressional side this agreement that they came up with on spending means at least the government shutdown's off the table for a while. good news is i think that the level of policy uncertainty is coming down a little bit. that should help investment. >> tomorrow morning your phone ring, it's janet yellin on the other end of the line. she says how quickly should i begin tapering these bond purchases that have stimulated the economy? what do you tell her? >> it should be data driven. if the economy is coming along like gangbusters, if it's strong, they should accelerate that process. if there's any kind of faltering they should slow it down. it shouldn't be tied to a
specific formula. they should just be very flexible here. >> so she does listen to you, by the end of this year where should the unemployment rate be and how fast will the economy be grow sfg. >> well, you know, i think our view is they will taper, but we do think that the unemployment rate will be down in the low 6s by the end of this year and the economy probably going between 3% and 3.5%. >> all right. we'll leave it there. thanks for coming on the program. chief economist at ihf global insight. on wall street today, the major averages closed lower again after a mixed bag of economic reports. factory orders d did climb higher in november thanks to a surge in orders for aircraft, machinery, and computers. but growth in the bigger services sector of the economy moderated in december. here's how the day ended in the markets. the dow was off 44 points, the nasdaq lower by 18, and the s&p 500 down a modest 4. with stocks starting the year with a stream of losses,
some market pros will tell you to stick with dividend-yielding value stocks in 2014. others will urge you to put your money in companies poised for growth. but as we report, there may be middle ground for investors, so-called hybrid stocks. >> reporter: confused over whether to invest in high-yielding dividend stocks or high-growth stocks in 2014? you may not need to choose. b of a writes as rates pick up and the economy accelerates, sheds extremes of high yield and high growth and find a hybrid of the two. scott clemens, brown brothers harriman, also says investing in a combination of growth and income is a strategy to be used in 2014. >> i think investors still want a mix of income and making a distinction between dividend paying stocks and other stocks can be a little dangerous. i would be hesitant to get rid of all my dividend paying stocks yet for the simple reason companies that pay dividends
tend to have stronger balance sheets and i think those will be a thing you want to be invested in as interest rates normalize. >> reporter: we went looking for the hybrid stocks that offered growth and income and found quite a few in the financial sector. bank united, wells fargo, and u.s. bancorp have all seen their earnings grow over the past three quarters. these banks also offering dividend yield that is higher than the s&p 500's average of 2%. other attractive hybrid stocks are in the technology space. cisco has seen its earnings grow by 18% over the past year. it's also sitting on $50 billion of cash plus analysts say a recovery in emerging markets could help shares outperform in 2014, and, yes, yield seekers, cisco has consistently increased its dividend payout over the past three years. another tech name that provides consistent earnings growth and a dividend, security player symantec. analysts say growing concerns over data breaches could result in corporations allocating more capital to its security software, which could provide a
boost to symantec's bottom line. while technology is generally favored by wall street in a rising-rate environment, not all expers are expecting tech shares to outperform in 2014. >> within the sector of technology, where companies have recurring revenue stream, the kind of business models like that, there are still opportunities here and there but they're not terribly widespread after the rally we saw of 2013. >> reporter: keep in mind, investing in hybrid stocks is most appealing to investors who are not willing to take on a whole lot of risk. for "nightly business report." the hits just keep on coming for the nation's largest bank and not in a good way. jpmorgan is close to a $2 billion settlement with federal authorities to resolve allegations that the bank ignored obvious signs of fraud in the bernard madoff ponzi scheme. ultimately harming investors. kayla tausche has more. >> reporter: five years after bernie madoff confessed to running a ponzi scheme, questions still remain about how
he kept his secret for so long. speaking from jail in 2011, the convicted fraudster told "the new york times," banks, quote, had to know, but the attitude was sort of if you're doing something wrong, we don't want to know. prosecutors perked up in a light shone on jpmorgan chase, madoff's bank for nearly two decades and custodian for nearly all his customer accounts. the multiyear investigation could come to a head this week with a $2 billion settlement and reportedly a deferred prosecution agreement. that would rule out criminal charges against the bank. the joint deal inked with the department of justice and the office of the comptroller of the currency closing two open cases and including a general penalty for anti-money laundering. comptroller tom curry said in october banks like jpmorgan must be better at managing risk than the status quo. >> the standard here is really strong corporate governance and individual institutions will be
prodded to take a critical look at their structure and to make improvements that bring them up to that strong standard. >> reporter: jpmorgan declined to comment but ceo jamie dimond has for months been working behind the scenes to cross off a long list of legal issues. >> we're a good company. we had these flaws. if you know your faults, you can fix them. if you deny them, you can't. we're going to fix them, and i think we're going to make the regulators happy with what we're doing. >> reporter: those measures have become costly. this year alone paying some $20 billion to settle cases largely stemming from its mortgage products during the financial crisis but also its london whale trading loss, and improper marketing of some consumer products like identity theft. shares of jpmorgan trade near a 52-week high. investors view the industry favorably as the economy recovers but worry the bank has more legal issues to come. it's the focus of nearly a dozen
open investigations, though a settlement over madoff would ease at least one concern ahead of its full-year earnings next tuesd tuesday. for "nightly business report," i'm tash tash. >> still ahead on "nightly business report," an ark tishg blast halts thousands ofan commercial flights. what could that deep freeze cost the airlines? the coldest weather in decades has hit the midsection of the country and is heading east tonight. temperatures early this evening were minus 12 in chicago, minus 14 in minneapolis, and zero in st. louis. travel especially by air has been mightily disresulted as you might expect, but in north
dakota, oil production, too, has been slowed. rural temperatures in the minus 20s make extraction and other operations extremely difficult. happily, by thursday it should be 40 degrees warmer in fargo. speaking of air travel, ha nasty winter storm has forced airlines to cancel more than 10,000 flights just since the weekend. phil lebeau has more from o'hare airport in chicago. >> reporter: as temperatures in chicago dropped to 13 below zero with a windchill factor of 39 below zero, the cancellations and long lines at o'hare airport moved higher. tom and his family had their flight to florida canceled twice and have no idea when they'll leave. can you get any information from anybody? >> the airlines basically won't even answer the phone anymore. so we're just hanging out in this line. we'll be here probably four to five hours trying to get rebooked. >> reporter: they're not alone. across the country, stranded
travelers have seen more than 9,000 flights canceled since last weekend. >> been canceled twice, and honestly, i mean, i have no idea when i'm going to be able to get out of here. >> i've been canceled twice so far, but i'm not sure how long i'll be here. i don't know. >> reporter: those flying jetblue to new york and boston will have to wait a little longer to make their trip with the airline canceling all flights from jfk, laguardia, newark, and boston from late afternoon monday through 10:00 a.m. tuesday. >> they understand the weather. they have a very good understanding what the forecast was going to be. they have a very good understanding of what their limitations are, what the limitations of their crew are. >> reporter: most airplanes can fly in extreme cold weather, but servicing and moving those planes on the tarmac is difficult. at o'hare, refueling trucks struggled with freezing equipment and because ramp workers can't be outside for long with windchills at 30 below, both american and united slowed down their schedules. >> it is kind of ridiculous. all these planes being canceled
and nobody know what is to do. >> reporter: what the airlines know is the longer this extreme winter freeze lasts the more flights they'll have to cancel and the greater the impact on the bottom line. how much this will cost is hard to say, but one thing is clear -- this frigid start to 2014 has the potential to take a serious bite out of airline earnings. phil lebeau, "nightly business report," chicago. those cold temperatures are also causing record demand for natural gas and sending spot prices higher. they should be just as high tomorrow and may set another record. even with all those grounded flights, boeing just capped off a record-setting year. the jet maker delivered 648 new aircraft in 2013, its most ever in a single year. perhaps better yet for shareholders, boeing's backlog of commercial plane orders more than 5,000 now is also a company record. some of those jet orders will be built in washington
state thanks to a crucial union vote. as we reported on friday, union machinists at boeing voted on a new eight-year contract extension that assures production of boeing's upcoming 777 x jet will happen in washington state. it was approved by the narrowest of margins. this is the same contract that union members rejected back in november because it takes away some pension and medical benefits. twitter's stock took a nosedive after morgan stanley cut its rating on the company. that's where we begin tonight's "market focus. "the firm downgraded twitter to under weight from equal weight. twitter shares had been zooming and swooning since december. the stock was at its highest levels less than a month ago after the rollout of its targeted ad program. today the shares were down nearly 4% to $66.29. shares of the mattress company select comfort took some lumps today after it warned investors that it expects holiday quarter sales to come in below estimates. the maker of sleep number
specialty beds blamed the outlook on a sales slowdown from cyber monday through december. that did not just weigh on select comfort stocks. look at these. rival seeley fell. mattress firm's shares were off nearly 3% to 4330. select comfort down 19% at 1728. it was a different story at walgreens. sales at the retailer rose more than 7% in december compared with last year. the drugstore chain said customers bought more nonpharmacy items and it saw prescription sales increase too. shares were up slightly today to 57.14. auto nation also had good sales news to report. the nation's biggest automotive dealer said new vehicle sales rose 6% in december led by premium luxury car sales. the company's ceo thinks there are plenty of reasons why the run should continue. >> the underlying forces are still there. genuine replacement need, great
finance, exciting new products, and, let's face it, the jobs situation is significantly improving, and the overall economy's rate of growth i think will be better this year in 2014. so you put it all together, we're going to have a $16 billion sales year. >> despite all that optimism, auto nation's shares fell more than 1.5% today to $48.91. general electric is buying health care unit from thermal fisher scientific, a deal valued around $1 billion and helps ge expand its like sciences unit by selling new medicines, vaccines, and diagnostics. shares of ge fell a fraction to $27.26, but thermal fisher up slightly to $110 and change. t-mobile reached a deal with verizon wireless to buy some of its spectrum licenses for almost $2.5 billion, plus about $1 million worth of its own spectrum. the licenses will help t-mobile to improve certain kinds of cell
service across the u.s. t-mobile, this is the country's number four mobile provider, needs more airways so it can compete with its bigger rival. shares of t-mobile jumped almost 4% to $33.48. shares of verizon rose a fraction to $48.69. and after the market closed today, shares of neurocryobiosciences surged. it announced positive results of a drug that helps patients suffering with a condition that causes involuntary motions. stock soared as high as 60% in after-hours trading, then in the regular the stock rose 1% to $9.76. and still ahead, the next big issue for the markets. corporate profits. and with the unofficial start to earnings season just around the corner, are there any surprises in store?
spending on health care continues to grow, but at historically low rates. new data from medicare and medicaid services show in 2012, this is the last year data was available, health care spending in the u.s. rose at a rate of 3.7% to a staggering $3 trillion. as big as that number sounds, the group says that health care spending fell as a percentage of the economy for the first time since 1997. with the holiday shopping season behind us now, many will be turning that are attention to corporate earnings season, which kicks off late they are week. john butters is senior earnings analyst and is here to tell us what he expects for the fourth quarter and the year ahead. welcome back. good to see you and happy new year. >> thanks for having me. >> which's your prediction and why? >> coming into q-4 for earnings, we're looking for 6% growth, a little better than we've seen many the past few years.
on the revenue side, growth is only expected to be 0.3%, a little lower than recent years. a little stronger earnings and a little weaker revenues coming into this fourth-quarter earnings season. >> we've heard from an unusually large number of companies that are already preparing investors to lower their expectations because the numbers are not going to be that great. i mean, how unusual is this, and, you know, what does it mean for this whole kq-4 earnings season? >> we've soon a record high number of companies in the s&p 500 give negative preannouncement at this time. a record high. if we look at the estimate revisions during this time, the numbers have only come down about 3.5%. we're at 9.6% growth preponderated at the start of the quarter, down to 6.3% today so, relatively in line with averages. even with more negative preannouncements, we didn't see the analysts take down their numbers more so than thavrge time around. >> john, where are the surprises going to be, positive and
negative? >> in terms of earnings growth, the financial sector is expected to be the driver of growth, looking for 24%. in that sector, the insurance companies are really driving the growth. they're benefitting from some easy comparisons a year ago due to the catastrophic losses for hurricane sandy last year, a number of those insurance companies had to pay out losses. this year that wasn't the case, so those companies are seeing unusually high earnings growth this quarter and that's helping to boost the overall growth for the financial sector, again up 24%. >> one thing we've heard in from a lot of people in the business world and the markets is now that the fed is tapering its stimulus, the key thing for investors is that fundamentals about companies' earnings, revenue, are really going to count. based on what you know, not just for this quarter but for this upcoming here and with the fed pulling off stimulus, what are the key take-aways for investors as they look through all these numbers? >> well, if we look ahead to 2014,nys are very optimistic on the upcoming year. they're looking for growth of
10.5% in 2014. that would be a significant improvement the 5% growth expected for 2013 and the 5% growth we saw in 2012. if you look at the earnings on a per-sayre basis, they're looking for almost $120 per share. again, that would be a record level. so the question would be, you know, how likely it is that we'll hit that number. we know that analysts do tend to overestimate at this point in time more so than underestimate, so we'll certainly keep an eye on how companies perform and do we see that $120 estimate start to come down during the course of 2014. >> all right. john, i was going to ask you a quick question on how they're going to be able to get 10% earnings growth if they're not generating any revenue growth. how do they do it? cost-cutting? quickly. >> analysts are looking for profit margins to hit record highs as well, looking for companies to squeeze more earnings out of the revenue. if we look at q-4, 9.5% profit margin expected, near the record. >> right. >> but into 2014 estimates are for profit margins to exceed 10% in three of the four quarters. >> jonk, thank you very much.
john butters, senior analyst. tonight "forbes" magazine is out with its annual list of 30 people under the age of 30 who are changing the worlds of media, education, social media, philanthropy and more. among the rising stars in the world of finances in third place, george, 28, runs a $6 billion private equity firm in the nation of georgia. next, there's 29-year-old wells fargo private bank investment researcher analyst louise alvarado. he helps oversees $170 billion in managed assets. at the time finance spot, 22-year-old lucas duplan. he raised more than $30 million from the likes of sir richard branson and is starting a company calmed crinkle. but, you know, tyler, we don't know what the start-up will do. something to do with mobile devices. >> 30 under 30. hmm. we'll see. >> not us. >> not us. no. >> that's "nightly business report" for tonight. thanks for joining us. >> have a great evening.
hope to see you back here tomorrow night. stay warm. >> "nightly business report" has been brought to you in part by -- thestreet.com, up-to-the-minute stock market news and in-depth analysis. our ratings service provides objective, independent ratings daily on over 4,300 stocks. learn more at thestreet.com/nbr. :
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