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<Show: NIGHTLY BUSINESS REPORT>
<Date: April 15, 2013>
<Time: 18:30:00>
<Tran: 041501cb.118>
<Type: SHOW>
<Head: NIGHTLY BUSINESS REPORT for April 15, 2013, PBS>
<Sect: News; Domestic>
<Byline: Susie Gharib, Bill Griffeth, Bill Pisano, Jackie DeAngelis, Julia Boorstin, Kayla
Tausche>
<Guest: Nicholas Colas, Jed Kolko>
<Spec: Business; Economy; Stock Markets; Wall Street; Gold; Bombings; Boston,
Massachusetts>
<Time: 18:30:00>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you by --
(COMMERCIAL AD)
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Market selloff. The
three major indexes have the worst day since November 7th.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Losing luster. Gold
prices see their biggest one-day drop since 1980.
GHARIB: And adding to the concern on Wall Street, a tragedy today in
Boston.
This is NIGHTLY BUSINESS REPORT for Monday, April 15th.
Good evening, everyone. I`m Susie Gharib.
GRIFFETH: And I`m Bill Griffeth. In for Tyler Mathisen, who is off
this week.
GHARIB: Great to have you here, Bill.
GRIFFETH: It`s great to be here.
GHARIB: What a tough day in the markets on many levels.
GRIFFETH: Yes, a lot of drama today this Monday, Susie.
A dramatic reversal of fortune on Wall Street, stocks falling sharply,
with all 30 Dow components in the red. Commodity prices also hit hard
following a new u report with weaker than expected growth in China and a
slower rate of manufacturing in New York state this month.
Crude oil, gold, silver, copper -- I mean, you name it, it was sharply
lower on that day, dragging down shares of energy, mining, transports,
housing, other stocks as well. And adding to the jitters on Wall Street,
two explosions at the finish line of today`s Boston marathon, which killed
at least two and injured many more.
The Dow closed near its lows of the session with volatility turning
sharply higher in the final hour of trade. The Dow finished 266 points at
14,599.
The NASDAQ hit even harder, down 78 points. The S&P down by 36. Both
of those indexes falling by more than 2 percent.
Bob Pisani has more from the floor of the New York Stock Exchange.
(BEGIN VIDEOTAPE)
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It
was an ugly day for stocks, down on concern about slower global growth.
But an ugly day for the markets got uglier just before 3:00 Eastern Time
when word come of two explosions at the Boston marathon. The Dow, already
down 165, quickly lost another 50 points and closed down 1.9 percent, the
worst one-day drop since November of last year.
The VIX or Volatility Index, also known as the Fear Index, also jumped
and ended the day up over 40 percent, it`s biggest one day gain in more
than 1 1/2 years.
The day didn`t start out much better. Gold and other commodities
dropped big at the open. Gold in particular, down 10 percent, its worst
one-day decline in 30 years.
Other commodity stocks like Arcelor Mittal, Rio Tinto or Cliffs
Natural Resources were also weak.
Defensive names like Wal-Mart, Campbell and Kimberly-Clark were also
done, but fared better.
(on camera): The main catalyst for the selloff was concerns about
slower global growth. China, for example, reported GDP for the first
quarter below expectations. Now, with Europe in recession and the U.S.
posting weak economic data in March, traders are now wondering, where is
the growth going to come from?
For the NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
Exchange.
(END VIDEOTAPE)
GHARIB: Well, as Bob just mentioned, the price of gold plunged today,
recording its second worst, one-day percentage loss ever, and closing below
$1,400 an ounce for the first time in more than two years. Today was the
first time ever that the Dow and price of spot gold both recorded triple
digit losses.
So, why the selloff and what may be next for the precious metal?
Jackie DeAngelis has our report.
(BEGIN VIDEOTAPE)
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over):
Another massive selloff in the gold market today, but what`s fuelling the
furious rotation out of bullion? Several factors are at play, including
the continued strength in the equity market. As investors look to move
money into riskier assets, gold had lost its luster.
But gold is also an inflation hedge and as long as the Fed continues
with its stimulus program, investors believe inflation is likely to remain
in check.
GEORGE GERO, RBC CAPTIAL MARKETS GLOBAL FUTURES VP: People
thought
the price of gold was a good hedge against stock market moves and forgot
that the price of gold really is an inflationary hedge and then you buy
gold to preserve purchasing power. While we`re not seeing the signs of
inflation because commodity prices have not risen, interest rates have
remained low, so the cost of commodities have not really gone up.
DEANGELIS: But there`s more to the story. Part of bullion`s
breakdown is due to the cent strength in the U.S. dollar.
GERO: Dollar strength impacts gold because if the dollar is strong,
it becomes very expensive for people who do not have dollars to buy gold.
DEANGELIS (on camera): Meantime, troubles in Europe are weighing on
the precious metal as well. It`s believed that the tiny island nation of
Cyprus may need to sell some gold to help cover its deficit. While
analysts don`t feel that sell by Cyprus would have a huge impact on the
overall market, they do worry that it sets a precedent for other troubled
countries.
(voice-over): Still, some analysts believe that the selloff was
overdone and that gold will rebound, the thought is that the pile on
selling doesn`t last.
GERO: The chances are that it will go up and down for a few weeks
around then stabilize and the buyers will then step in.
DEANGELIS: And while some investors are worried about how the decline
in gold might impact their pension plans or 401(k)s, it usually tends to be
a small percentage of a diversified portfolio. The recent decline might be
balanced out by gains in equities.
And there`s even a silver lining. For those in the market to buy the
commodity itself or gold jewelry, this could be a time to jump in.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
(END VIDEOTAPE)
GHARIB: That tumble in gold prices also prompted a rare retraction
from Bill Gross. He`s the founder and co-chief investment officer of
PIMCO, the world`s largest bond fund. At a "Barron`s Magazine" event last
month, Gross called gold a decent hedge against inflation and predicted
prices wouldn`t move much unless real interest declined further or
inflation expectations rose higher.
Well, neither happened. And today, Gross tweeted this, quote, "OK,
so, I made a bad call at the Barron`s Roundtable. I would still buy gold
here. World reflating," end quote.
GRIFFETH: All right. Joining us now to make sense maybe of today`s
big sell off in both commodities and in stocks, please welcome, Nicholas
Colas, the chief market strategist of Convergex.
Nick, good to see you. Thanks for joining us.
NICHOLAS COLAS, CONVERGEX CHIEF MARKET STRATEGIST: Thank you.
GRIFFETH: You think there`s a dramatic turn for investor technology
for those investments, right now, don`t you?
COLAS: I do. Let`s start with gold, for example. Gold, for many
years, as you pointed out, has been a major inflation hedge. However, with
the threats of many central banks in Europe having to sell a bit of their
gold holding to fund their own restructuring, I think investors are worried
about a lot of supply coming to the market.
Cyprus is just a teeny bit of it. You have areas like Portugal,
Spain, France, even Italy, who have tens of thousands of tons of gold in
their vaults and any part of that comes out, there`s going to be a lot of
supply.
GHARIB: Nick, a lot of investors tonight are scratching their heads
saying, what happened? All these past couple of weeks and months, there
have been new records on Wall Street and all the stock averages and they`ve
been told that the economy is doing great, so what`s changed?
COLAS: You know, what`s changed is that we got a little complacent.
I think everybody looks at the market over the past couple of weeks and
says, well, you know, we weren`t really fully gauging what might happen if
the economy slows down or it doesn`t speed up. And I think today was
really just the reckoning for a lot of those concerns.
GRIFFETH: You know, we`ve been in a period where people have been
expecting what they call a correction, maybe as much as 10 percent pullback
from whatever highs we`ve been hitting here lately. Do you think this is
the beginning of that correction right now?
COLAS: I think we`re certainly seeing a bit of a correction. I don`t
know how much more it has to go, however, because fundamentally, we have
very low interest rates and U.S. corporations are still posting basically
record high levels of earnings against the backdrop of a very weak global
economy.
I think the concern is that if we get a big downdraft from either
whatever happens out of Boston or some other macro factor, that`s a real
risk factor. But as far as the fundamentals near term, very strong
earnings, very low interest rates, hard to argue against stocks with that
backdrop.
GHARIB: Nick, you just mentioned the Boston marathon incident. We`re
still getting bits of information. We don`t have the complete story on
that tragedy.
But events like that do impact investor psychology. How much of an
impact?
COLAS: Yes, that`s exactly right, Susie. You know, really two
factors to focus on here. First, what effect does it have on consumer
confidence? Because these kinds of events, obviously, scare people and
rightly so.
First question is, how does it affect consumer spending? How does it
affect consumer psychology?
You know, the broader issue is a bit more nebulous, which is what are
the geopolitical ramifications of the event? We`ve had examples over the
past 20 years of horrible tragedies like Oklahoma City or even 9/11, some
of them have very profound impacts on geopolitical balance and the economy
and some don`t have quite a bit as much. We just don`t know which one of
these it is yet.
GRIFFETH: Since the lows of last year, Nick, there`s been a mindset
of investors to buy the dips, as we say. As the market comes lower, they
step in and see an opportunity to buy.
Now, we`ve had a pretty good selloff in the past couple of days. Do
you -- and so far, nobody`s stepping in. Do you think they will or should
they at that point?
COLAS: You know, I think in terms of thinking about how to invest and
over what time frame you are investing, if you`re investing for a three or
five-year horizon or longer, then ultimately you`d focus on the fact that
corporate earnings are strong despite a very weak global economy and buying
made sense.
If you`re a trader or if you have seen the action over the past couple
of days and it scares you and you think you`re overexposed to equities,
then the opposite advice is true. It`s probably just time to take some off
the table because you`re overexposed and your risk comfort is obviously out
of reality.
GHARIB: Nick, you have a standard asset allocation. Sixty percent
stocks, at 40 percent fixed income, and you really don`t change it when the
market, stocks are going up or the stocks are down. So, what is your
advice to investors? What should they do right now, just sit tight?
COLAS: Yes, 60-40 is a very solid split. It maximizes return and
minimizes volatility. I think if you have seen the action over the past
few days and you`re comfortable, it makes sense to sit.
My concern is that a lot of your viewers probably are sitting on some
pretty sizable gains over the past few years. Maybe that 60-40 isn`t quite
where it should be. Maybe it`s 80-20. For those investors, for those
viewers, I would recommend paring back on equities because you`re
overexposed, even those stock markets obviously done well.
GRIFFETH: Nick Colas, the chief market strategist at Convergex thanks
for joining us.
COLAS: Thank you.
GHARIB: Well, shares of Sprint were as good as gold today, shooting
up nearly 14 percent, easily making it the biggest gainer in the S&P 500.
Now, the reason, the DISH Network is offering to buy Sprint for $25 billion
and this is the second takeover bid for the wireless phone carrier.
Julia Boorstin has more.
(BEGIN VIDEOTAPE)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wireless
provider Sprint is at the center of a takeover battle. Today, DISH,
offering to buy the company and trump the proposal from Japan`s SoftBank,
sending Sprint shares soaring.
Dish is saying its offer is a, quote, "superior alternative" to
SoftBank`s proposal, a 13 percent premium to SoftBank`s $20 billion bid to
buy 70 percent of Sprint. DISH chairman Charles Ergen saying quote, "A
transformative DISH/Sprint merger will create the only company that can
offer customers a convenient, the fully-integrated nationwide bundle of in-
and out-of-home video, broadband and voice services."
Ergen is trying to push DISH from the slower growing pay TV business
into the faster growing wireless industry and to break the mold of his pay
TV rivals like DirecTV and Comcast, by offering mobile phone services.
DISH`s bid comes at a time of consolidation in the wireless industry
and growth in the broadband business.
Ergen wants to offer a wireless alternative to broadband by making
this deal with Sprint, which he says is well-positioned to deliver high-
speed Wi-Fi in dense areas. DISH shares dropped more than 2 percent today
on the offer, a bold move in a competitive landscape that raised concerns
for some analysts.
JONATHAN CHAPLIN, NEW STREET RESEARCH SENIOR ANALYST: On the
one
hand, capital. DISH would be spending everything they have in order to
acquire Sprint. They then don`t have the capital to invest in Sprint and
extract all the value from the spectrum they would have amassed.
The second concern is operating skill. They don`t have a track record
in wireless.
BOORSTIN: Now, the ball is in Sprint`s court. If it decides DISH`s
bid (INAUDIBLE) SoftBank, Softbank could make a counteroffer. And if DISH
snags Sprint, it will push all the pay TV providers to find new ways to
distinguish their bundle.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin.
(END VIDEOTAPE)
GHARIB: Also from the wireless phone industry today, the board at
Metro PCS, this is the nation`s fifth largest carrier, has approved an
amended takeover bid from rival T-Mobile and is urging shareholders to OK
the deal as well.
GRIFFETH: Coming up, the one big bank earnings report you need to
watch this week.
But, first, a look at how the international markets closed today.
(MUSIC)
GHARIB: Despite the huge selloff in the stock market today, there
were still some bright spots. We begin our "Market Focus" with a look at
$13.5 billion deal in medical technology.
Thermo Fisher Scientific, a maker of lab equipment, is buying Life
Technologies which makes gene-sequencing machines. Both companies touched
all time highs at the open. Thermo Fisher finished down 1 percent to
$78.58 but Life Technologies jumped to $73 a share.
GlaxoSmithKline also touched an all time high after the Food and Drug
Administration gave a better than expected review of an experimental
treatment for lung disease. This could open the way for approval when the
new treatment will be reviewed by an FDA panel on Wednesday.
GSK gained more than 1.5 percent to $49 a share.
GRIFFETH: Well, as the media space reshapes itself, BTIG Research
began coverage of Netflix with a $250 per share target price. Noting that
the service is being offered as part of Internet bundles as well as cable
providers, Rich Greenfield, an analyst, said Netflix has an improved price
relationship. Netflix shares gained about 2 percent on an otherwise down
day today.
Energy, though, was the worst performing sector today as oil dropped
below $89 a barrel. Anadarko dropped almost 6 percent. The blue chip oil
major, Chevron and Exxon Mobile, they were near the bottom of the Dow, each
down about 3 percent in today`s trade.
GHARIB: Solid quarterly earnings from Charles Schwab today, but they
missed analyst estimates by a penny a share. That`s partly because the
firm weighed fees on money market funds. So, investors did not receive a
negative return due to low interest rates.
Schwab shares tumbled almost 4 percent to $16 a share.
GRIFFETH: And on a day that saw shares of nearly every bank or
financial firm lower, Citigroup shares bucked that trend, rising a fraction
higher after beating analyst estimates last quarter, chalking up a profit
of $4 billion by pulling in more revenue and its investing banking unit and
setting aside less funds for bad loans.
GHARIB: Now that Citigroup has reported its latest result, joining
Wells Fargo and JPMorgan, investors are waiting to hear from one more huge
bank and that one may reveal more about the health of the banking sector
more than any other lender.
Kayla Tausche tells us which bank and why as we begin a new series
this week, "Earnings Spotlight."
(BEGIN VIDEOTAPE)
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over):
For Bank of America, it`s been a year of reckoning. Legacy lawsuits put
behind it, the stock doubling. And after years of pushback from
regulators, capital is finally being returned to shareholders.
Earlier this month, B of A took advantage of this good news with an ad
campaign, reconnecting with customers now that it`s had a facelift.
But its the biggest test comes Wednesday when the nation`s second
largest bank reports earnings. Sturdy rival JPMorgan and Wells Fargo
reported last week, showing some first quarter weakness. The reason: the
mortgage boom going quiet.
Homeowners once rushing to refinance at low rates boosting bank`s loan
volume and canceling out thin margins. Now, it`s clear that`s a thing of
the past. Wednesday will show how much B of A has a stake there.
Then, there`s expenses. Deep into $8 billion of cost cuts, thousands
of layoffs.
Analyst Jeff Harte is looking for progress in one specific area.
JEFF HARTE, SANDLER O`NEILL & PARTNERS: Big thing for Bank of America
is how quickly can they get the problem loan mortgage servicing portfolio
down, because that`s where a lot of the expenses come into play. And
that`s an important part of taking Bank of America where it is now, which
is not a particularly efficient bank, to where I think it should and will
be as one of the more efficient banks in the country.
TAUSCHE: Harte says the banks should benefit from more companies
selling stocks and bonds in the first quarter. Investment banking, a
surprise positive for peers like Citigroup and Wells Fargo, with franchises
far less developed than B of A`s.
Nomura Analyst Glen Schorr says investor expectations for Wednesday`s
results are high, a welcome change for a bank with a troubled past.
GLENN SCHORR, NOMURA ANALYST: I think Bank of America has been
executing on their plan for a good year now, coming off bottom and proving
their capital ratios, talking out costs where they need to, and the
investment bank has actually performed pretty well.
TAUSCHE: The question, whether the momentum can continue.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche.
(END VIDEOTAPE)
GHARIB: Tomorrow, our earning spotlight series continues when we
highlight the one tech report to watch.
But still ahead on the program tonight, rising home prices, strong
demand, even bidding wars. Is this what the healthy housing recovery looks
like?
But, first, let`s take another look at commodities.
(MUSIC)
GHARIB: Shares of homebuilders got hammered today, along with the
rest of the market, after homebuilder sentiment fell in April for the third
month in a row.
The NAHB/Wells Fargo housing market index slid to a reading of 42,
down from 44 last month. The index also fell below economists
expectations.
Now, despite the housing recovery, builders say they`re worried about
getting hold of construction loans and rising costs for materials.
But our next guest is shrugging off today`s downbeat report. He says
the housing recovery remains robust.
Here to tell us why, Jed Kolko. He`s chief economist at Trulia. This
is a real estate with website.
So, we are getting mixed reports. Some places, home prices are up.
And other -- you know, a lot of demand, other markets, just the opposite.
Is this a regional housing recovery?
JED KOLKO, TRULIA CHIEF ECONOMIST: We`re seeing the recovery
strongest in two types of markets. Markets that have strong job growth
like San Francisco Bay Area, Seattle, Denver, they`re seeing strong price
increases but there`s strong job growth to support it.
But we`re also seeing strong price increases in places that were hit
hard in the housing bust. Places that saw big price declines line Phoenix,
and Las Vegas and Detroit are now seeing a big rebound today.
GRIFFETH: I was in Los Angeles over the weekend. And the lead story
of "The Los Angeles Times" on Sunday was a bubble market, as they where
describing it. Where there are options happening once again for homes that
are being sold there, mainly because of a dearth of supply. They`re not
building homes as fast as they used to out there.
KOLKO: That`s right. Inventory is very tight, especially in
California, but across the country. There are a few reasons for that.
First of all, prices bottomed about a year ago nationally and nobody wants
to sell at the bottom, but everyone wants to buy at the bottom. So people
who have the choice may be waiting to sell until the prices are higher.
There are some people who are under water, and construction levels still
are low.
Even though they`re up from where they were at the worst point of the
bust, construction is still way below normal levels. So, it`s not keeping
up with the increase in the rate of household formation.
GHARIB: And, Jed, we know that there are still a lot of homes in the
foreclosure process and at some point, they`re going to be put on the
market. So, what is that going to do to business demand, home prices?
What happens?
KOLKO: That foreclosure backlog, the shadow inventory --
GHARIB: Right.
KOLKO: -- is actually now pretty localized.
In places like Florida, New York, New Jersey and Illinois, there`s a
large shadow of inventory of foreclosed homes. Not in the most of the rest
of the country. It`s really in those places, where the judicial process,
the legal process, means the foreclosures take very long to go through the
process and then there`s therefore big backlog.
GRIFFETH: Interest rates, a key component in all of this and the Fed
has a lot to say about that. By keeping long rates low, mortgage rates are
still near record lows right now.
How much longer do you think that lasts?
KOLKO: Mortgage rates are still near historic lows. Most expect
rates to go up, maybe 0.6 or 0.7 of a point between now and a year from
now.
The biggest effect that will have is on refinancing. It will have
smaller effect on home purchases, though, because so many factors go into a
decision about whether to buy or to rent and prices are still very low
relative to rents. Even if rates went up two full points, it would still
be cheaper to buy than to rent in most of the country.
GHARIB: All right. So, here`s a question that a lot of people are
shocked with. If you`re a buyer, do you buy now when the prices are still
low as you say? And if you`re a seller, do you hold out because maybe
prices are going to go up? Is this a buy or a seller`s market?
KOLKO: It`s definitely a seller`s market. Inventory is very tight
and now that the economy is recovering, there are more buyers who are
interested and more take advantage of today`s low rates. The challenge for
buyers is even if they can halt back for mortgage and have enough for a
down payment, there`s not much to choose from. So, buyers want to jump in
before prices and probably mortgage rise raise further might find that they
have little to choose from and might have to settle.
GRIFFETH: Lenders, we are told, have still been pretty tight.
KOLKO: Right.
GRIFFETH: Not as loose as they were before the debacles of 2009. Are
they lending as much as they could be right now for people looking to buy a
home?
KOLKO: Right now, the average credit score, people are getting
mortgages is still very high. The average downpayment is still higher than
it typically is. That reflects the fact that lending is still tight.
When people asked, is there a bubble going on? One reason why there`s
not is that it`s very hard for people to borrow more than they can afford.
Those tight lending standards are one of the things that`s preventing us
from getting back into bubble territory.
We`ll have to see whether some of these new mortgage rules that are
designed to outlaw or make less common the toxic lending that we saw during
the bubble has a big impact on mortgage credit.
GHARIB: A lot to think about. Jed, thank you so much for coming by.
We really appreciate.
KOLKO: Thanks for having me.
GHARIB: Jed Kolko, he`s the chief economist at Trulia.
It`s a different market depending on where you live.
GRIFFETH: What`s the old saying, all real estate is local. And we
can talk all we want about national trends in real estate. I think it`s
clear that the housing market is recovering, but there are so many factors
that go into it, as he was pointing out.
You know, certain regions that are the hardest hit may bounce back
quicker than those that have been steady through this whole process.
GHARIB: Those auctions and bidding wars make it tough for people who
really do want to buy.
GRIFFETH: I went through that process in Los Angeles years ago. That
does not bode well, if that`s the case here.
Finally, tonight, Susie, just a friendly reminder, it is Tax Day. A
new study from a group called the National Taxpayer Advocate, which is
actually part of the IRS uses confidential tax data to determine who gets
audited for being most likely to fudge on their returns. Some of the hot
bed areas for tax cheats, Los Angeles, San Francisco, Houston, Atlanta and
Washington, D.C.
And, Susie, some of the top small businesses that raise red flags are
construction companies, real estate rental firms, because they tend to
write-off so much.
So, there`s so much going on there that we have to keep an eye on
those tax cheats.
GHARIB: First, you got to file your taxes.
GRIFFETH: And hurry up if you haven`t done it already, right?
GHARIB: You`ve got until midnight.
That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, thanks
for watching.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you
tomorrow.
END
Nightly Business Report transcripts and video are available on-line post
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on Nightly Business Report is not and should not be considered as
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