tv Nightly Business Report PBS January 27, 2014 7:00pm-7:31pm PST
. this is "nightly business report" with tyler mathisen and susie gharib brought to you in part by. >> thestreet.com. founded by jim cramer, thestreet.com is an independent source of action. his home to always multimillion dollar port follow owe. whose apple? fewer iphones sold and revenue won't be as strong as expected. what should invest tors do with shares with one of the most valuable companies. >> which countries in crisis could have the biggest impact on your money? >> and now it's the fed's turn, central bank policy makers meet this week. will they or won't they continue to cut back on stimulus, especially with the recent turmoil in the market?
that and more tonight on "nightly business report" for monday, january 27th. good evening everyone and welcome. a rough day for stocks got rougher after the market closed because apple reported the quarterly earnings. the revenue and profit numbers were fine and beat wall street estimates in fact but sales of iphones at 51 million units fell short and apple's revenue predictions for the current quarter disappointed investors and they initially sold the stock hard in after hours trading. seema mody has insight into apple's results. what are the big take aways you see in the numbers? >> the disappointing iphone sales. apple sold 51 million iphones in the first quarter where wall street expected around 54 million to be sold. that means apple is dealing with saturation at the high end of the market. the amount of iphones sold in
the first quarter fell short of street consensus so while the overall earnings and revenue numbers beat estimates, it's the iphone and ipad sales that worry the street. that's why we're looking at shares down after hours. tyler? >> all right, seema mody thank you very much. up and down session on wall street despite brief flurries and not snow, the majors extended last week's losses. investors were chilled by a 7% declining and the currencies and economies with several emerging market countries and the fed meeting that begins tomorrow. taper talk didn't cheer the markets very much today, either. the dow down 41 points, the nasdaq was off 44 with the tech sector weighing on the index and s&p lost eight. the biggest gainer in today's losing session for the dow was caterpillar. the giant equipment maker reported earnings and revenues that topped analysts estimates.
shares surged nearly 6% on that news. morgan brennan has more on what drove cat's strong quarter and why investors are buying in. with profit up almost 50% from a year ago, the world's largest maker of mining and construction equipment, blew past expectations. some are saying the better than expected numbers represent a watershed event that struggled in recent years. >> mining is weak and remains weak but construction will more than offset it and with head winds you'll have a better year in '14. this changes the outlook to a much more positive scenario for the next couple years. >> reporter: because cat's heavy manry supplies across the globe, it's a good early indicator. the numbers are partictarly encouraging after the drop in demand since 2012 taking the stock town 6% over the past year
and 20% over the past two. demand nfor caterpillar product may be coming back in north america where construction is rebounding. caterpillar cull almost 10,000 jobs in the past year and slashed inventory and they shine a spotlight on china where data is fueling worry asbility the health of the second largest economy, even so, caterpillar says sales and revenues grew 20% last year and analysts note that it's exposure means relatively small. >> china is a pretty small portion of the business and obviously, it affects the mining business quite a bit. if we can get stability in emerging markets, i think that's where you can see the stock perform well. >> but these head winds may not keep the stock down for long. shares of caterpillar hit the highest level since late 2011
and with the company planning to buy back another $10 billion worth of stock, a number of analysts continue to rate it a buy. for "nightly business report", i'm morgan brenham. >> coming up, remember 1997? many investor do and now they are wondering if this is the start of a similar currency crisis and what it might mean for your money. >> two big events this week that are worrying investors, here in the u.s. and all over the globe. the sell off in currencies and the two-day policy meeting. ma she michelle has more and why they matter to american investors.
>> the troubled markets weren't the biggest, at least not yet. turkey and argentina are the corner stone of the sell off. it started with political troubles, which made investing in those countries far morris ki and that led investors to abandon investments. when you leave a country as an investor, you sell the currency because you don't need it anymore. we see it in other parts of latin america including brazil and mexico and indonesia and india and you can add south africa to the mix, as well. these countries have the particular issues, but here is what is true of them, when interest rates were extremely low in the united states, investors were willing to go to risky places to get paid higher interest rates but as the u.s. economy improves, u.s. interest rates are expected to rise. that makes those other countries less attractive unless they rate their interest rates too.
the problem is that slows down the economy. the tour kirk central bank is expected to hike rates between two and four percent. those are extreme moves to american whose are used to the fed moving a quarter percent out a time. desperate times call for desperate measures. for "nightly business report", i'm michelle cabrera. >> more on the other big concern for the markets, the fed's meeting kicking off tomorrow. steve liesman has more on how the decisions on the asset buying stimulus plans and interest rates could further royal world markets. >> reporter: broad expectations on wall street emerging markets or a weak december employment report will stay from completing qe this year. it's expected to continue the process it began in december for another cut at the january meeting that ends on wednesday. this is, of course, ben
bernanke's last meeting after eight years in the leadership seat. janet yellen takes chair february 1st and the first meeting will be in march when there will be a press conference. for now, here is market observers think the fed is considering recent market volatility. does it change the forecast? answer, probably not. does it represent risks to the u.s.? the answer is probably not and are there underlying troubles that link the countries again? the answer appears to be no. officials who i spoke with say the events of the past several days is linked to specific events in specific country, more political. >> most of these elections have a high level of uncertainty. india is having elections. turkey is having elections. brazil is having elections for just to name a few, and these are all very complicated. >> but there is also a link to fed policy, a lot of money flooded into emerging markets
seeking higher rates of return on those countries bonds. now that the fed is reducing efforts to keep rates low here in the u.s., and interest rates have risen a bit, some of the money is coming back home. there is another reason, the outlook for growth changed with less great expected in the emerging countries and more in developed countries like the u.s. and europe, so money is following the growth. for "nightly business report", i'm steve liesman. >> the currency sell off in the emerging markets bring back bad memories of the 1997 asianen crisis. there were fears of a world-wide economic melt down but as sarah eisen reports, this time things are different. >> reporter: plunging currencies are triggering bad memories on wall street from the sharp drop set off a chain reaction in other markets, nailing economies in malaysia, indonesia and the
fi philippines. it sent shock waves around the world. investors are wondering could argentina or turkey become the next thailand? some on wall street say this time is different. >> this isn't a crisis level. this is a couple day sell off. i'm not sustained it's sustained to affect policy. >> what has changed? china is a bigger economic power house. the world's second biggest economy, share of the world economy is four times what it was in 1997. that means china could act as an anchor of stability if markets shake or cause trouble if it shows signs of weakness. >> there is capital that's come back to china. >> reporter: another difference now, the federal reserve is in the middle of a balancing act, tapering or scaling back for fighting the crisis without disrupting the economy and
market. they are much more intertwined and it could hit u.s. markets and companies particularly multi nationals that depended on faster developing nations for growth. >> the big worry, the em currencies and countries share of gdp is larger than 1997, 1998. so you had developing countries 20% and now about 40% of gdp. the ripple effect can be larger. >> while analysts say brace for more financial swings, it doesn't appear to be a full-blown crisis like 1997 yet. the key is the reaction to the reserve announcement wednesday and any news on the health of china's economy. i'm sarah eisen. well, here to discuss everything under the sun from currency turmoil to the fed and maybe the super bowl is chris, chief investment officer for u.s. trust. chris, welcome, good to have you with us. >> how are you doing, tyler?
>> let's start where sarah eisen left off with the currency turmoil rattling everywhere from thailand to argentina to turkey to south africa. is this possibly going to become a kind of contaken that can do sustained damage to developed markets or not? >> you know, when you take a look at the picture going on now versus the mid to late 1990s as you've referenced, every emerging market had a currency in 1994 to 199 and again with argentina and brazil in the early 2000s. the united states is on firm footing and getting better from a growth outlook perspective, obviously from a monetary policy perspective, there is fed tapering concerns and those countries and that need it. that's still going to be there. from a financial perspective, putting what's going on today making it very similar to back
then, complete polar opposite as far as we're concerned and the other big difference, 17 trillion in cash around the world, tyler, out there, liquid, trying to find a home to invest in for the next few years. >> on friday after the markets closed people were freaked out. there is the dow down over 300 points, and all this talk about crisis. what changed that today it was just like a normal, you know, middle of the road sale off on wall street? >> you know, part of it is the fact the selling pressure didn't pull through as much as everyone expected. they tried it around midday where they were down around 1% or so. but everyone is pointing to the fact we haven't had a big correction. we had a six to seven percent correction, may, june when tapering talk about the first initial shot. emerging markets never came back except for the one episode in the fall. but the reason it's not pulling through right now, is because
the outlook for 2014 is a much better growth outlook than last year. europe is going to grow at 1%. japan will repeat the performance and the u.s. will grow 3.5 versus two. so the outlook in fair valued markets is better than year than last year. >> let's talk about the fed a little bit since they last met, some of the economic data have not been exactly rosey. a poor jobs number and housing numbers that are soggy. do you think that will change in any way their proclivity to taper or pull back on stimulus? >> it really doesn't look that way, tyler. the only thing that will change their so-called measured tapering under the yellen fed is that this particular noise in the system around the emerging markets becomes a contagious. the job numbers back to december, there is a lot of noise in the system and any one
month jobs number, when you look at the three-month trend they are robust and not as strong as prior cycles, but i would argue there is a lot of reason for that, a lot is demographics. the one thing that investment participants are getting wrong is they are looking at the participation rate and assuming that people are leaving the job force because they are discouraged. the growth in jobs is heavier so the unemployment rate goes down. that's actually a pretty good thing and that's why we should see a lower unemployment rate than the fed expects. >> thank you. economists are not only worried about slowing growth in china but the rise of what's called a shadow banking system there. from beijing, we see what that is and the risks involved. >> reporter: joe jong is a shadow banker. he runs a micro credit firm in
southern china. a former investment banker, he funds small-time clients, from fruit growers and street hawkers to mom and pop shops. >> we are a very important supplement to the traditional banking system. small and medium size companies and under privileged consumers have no way to access a bank credit but they can come to us. >> reporter: china's financial sector has long been controlled by the government. they funnel funds to industries and projects targeted by government economic policy. the enterprises get funding for big projects like this one. that means some companies can cash in whenever they want, while others usually private companies are largely cut off fostering an alternative shadow financial sector. jong charges borrowers 24% a year on loans that need to be
paid back in three to nine months. >> that's really scapegoating people like us. we are doing an achievement business. >> reporter: but not everybody in shadow banking is. the $6 trillion industry encompasses everything from micro lenders to in direct or off balance shut loans. recently, some investments went sour raising fears of defaults in an unregulated sector that could danger the banks and ripple throughout the world. he says his clienltss are riskier but says shadow bankers like him do more rigorous credit analysis than government-backed banks. >> we're very careful with the management of our money. if our loans go bad, it hurts our own pocket. >> reporter: yet, if too many loans go bad, many believe it will hurt china and the world.
coming up, why two dow com components, both big drug makers, are having different days. some big tech firms reached an agreement on spy firms. it settles how much tech companies will be allowed to disclose to the public about the nsa's phone and internet recordkeeping on u.s. citizens. >> back to the top story. apple, our guest tonight owns shares of the company and says he's adding more to the
portfolio. he's john stevenson, portfolio manager. john, thanks for joining us. you know, everybody this afternoon was talking about what is wrong with apple and it's stock was selling off, and you're adding to your portfolios, what does apple have going for it? >> pretty much everything. the stock is cheap. that's the first thing. it's trading at nine times ex cash versus the overall market of 15 times and tech sector 13.6 and if you throw in the implications of cash, you're at 12.7 times or so, so still cheap. it's got early days with china, brazil, india so emerging markets are a great story. it hasn't done anything in enterprise, plus it has a ton of potential. it's got 575 million customers that they can tap into new services or additional offerings. that's something and a widely are you moored, i watch, i tv, combined ipad slash mac book air. there is tons of potential the
company has and it's very inexpensive. it has everything going for it. >> john, the company had record revenues until the quarter and beat estimates on the top and bottom lines and yet, investors seem to focus on two things. iphone sales that didn't quite measure up to the forecast and the outlook for the current quarter's revenues. are they getting it wrong? >> well, i think there is some concern. i mean, first quarter is seasonally weak and the last quarter, very, very strong because of the holiday season. i think what really came down to guidance. iphone sales were a little light of 51 million versus the street exspection of 56 but when you look at what happened is earnings were quite substantial. they really were 1450 versus 1409 and i think the deal was the iphone 5 s really carried the day. the good news is they are selling more of the high margin stuff and again, all of china mobile is huge and i think you have the potential of 10 billion
or more in revenue because this is just a new deal. i think overall, looks very attractive but again, the guidance was a little weak and people were disappointed. i mean, it came in quite a bit lower than people were hoping. >> i hear what you're saying, john, but i wonder, do you think apple management, tim cook will feel pressured that he has to do something to, you know, stem the sell off in the stock, maybe raise the dividend, maybe buy back shares, these are the things carl icahn the activist investor has been calling for. >> i think there will be some of that but not $142 a share coming back to investors any time soon. you're looking at some potential for share buy back, some potential for dividend increase. that's clearly where they need to go over time. i think what they should be doing is inviting for the next wave because i think that's really what the street is looking for. what is going to take it harder? will it be the iphone 6
potentially with the bigger screen? that will go head-to-head with samsung but that's where the focus will remain and should remain. >> that's one of the things i've been curious about, whether they will come out with a larger screen phone because my guess is what i hear you suggesting, john, they need to get their wow back. they haven't had the wow in the last year or two. >> i don't know if you're like me, tyler, but i have every apple product out there and it's exciting at first and then you think i know my way around the 5 and a -- 5 s and i don't see a huge implication for it. what they have done is put together a lot of really good pieces. i think the large screen iphone that's rumored to come out, will be a big game changer for them. i think the early days in the enterprise market and keep in mind the bio met tricks with the 5 s will help in terms of security going forward and a fully integrated program with both the software and hardware and that allows them a
tremendous user experience. when you buy an android phone and they are the bread and butter, you're stuck with the operating system. within a month, 70% of the people have a new operating system when ios is updated. >> thanks for that information. john stevenson, portfolio management at first asset. comcast and charter are nearing a deal to buy timewarner and that's where we begin market focus. charter agreed to sell some of timewarner cable's assets to comcast if it succeeds in buying the remaining parts of timewarner cable for itself. the deal to sell off will give charter additional funds. shares of comcast up slightly $52.49 at the close there. timewarner cable fell a little, 1 33.45.
patients given the drug did not show improved survival. the results disappointed and shares fell to $29.66. shares of merk hit a record-high from over weight to under weight. the company's prospects for a cancer drug improved and could bring more than $6 billion in annual sales to the company by the year 2020. the stock up one percent to $52.53. it was just the opposite at cisco systems. the rating was downgraded from neutral to under weight. the firm sited the high evaluation and weakness in the emerging markets. shares slipped a fraction to $22 a share. at&t told british regulators it won't make a near-term bid for vote a phone. now that at&t has denied a takeover bid, it must weight six months if it decides to make a
buyout offer. shares of at&t rose slightly to $33.51. and royal caribbean posted a beat thanks to ticket sales. it gave investor as rosy full year outlook despite an illness outbreak that affected 600 passengers on a ship. the ceo doesn't think the outbreak will detour customers. >> i don't think it has a big impact on bookings because most people understand how common this is. it's the second most common illness in america, of course, you open the door for having bad weather and the winter, this does occur. unfortunately, an outbreak is defined as only 3% of the people and it's still a very rare occurrence. >> and shares were up to $48.04. that's "nightly business report" for tonight. i'm susie gharib, thanks for joining us. >> i'm tyler mathisen.
we'll see you back here tomorrow evening. have a good night. "nightly business report" has been brought to you in part by. >> thestreet.com. founded by jim cramer, thestreet.com is an independent source for stock market analysis. crime's action alerts plus service is home to his multi million dollar portfolio. learn more at the street.com/nbr. cer:
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