are investors and businesses waiting for the u.s. economy to go off the fiscal cliff? what the waiting games mean for your money. >> the best ideas in the world are -- >> i go inside the invented start-up that wants to use your ideas to take on the world's biggest companies. and the clock is ticking before school bells ring. retailers are reaching out and cutting prices. is it enough to get parents to spend? "t ""the wall street journal" report" begins right now.

>> here's what's making news heading into a new week on wall street. in spite of a sleepy summer season, the u.s. stock market had the strongest rally of month on the signs the broader economy may be improving as well as more central bank easing. retail sales rose nearly a percent in july, the largest gain in five months. consumer spending more than $400 billion. among the retailers reporting earnings this week, home depot, macy's and target, all beat expectations. walmart, however, included a warning in its earnings release that american consumers are buying less and buying closer to need. chancellor angela merkel said germany is committed to doing everything it can to maintain the euro. her remarks at a canadian appearance sent markets in in europe an the united states higher on tuesday, putting the dow in striking distance of its best number in four years. and social network facebook reached new lows this week as early investors were free to offload their stakes. facebook is down nearly 50% from its debut ipo.

apple may be planning the seeds for changing the way we watch television. speculation this week the tech giant is talking to local cable companies about offering a set-top box for consumers to live television and other content. it reached new highs this week. expectations are high that the federal reserve will announce a new round of monetary stimulus at the fed's next meeting in september. this week 30 regional federal reserve presidents expressed skepticism on the strength of any more quantitative easing. jeffrey lacquer and charles placer told print reporters the fed can only do so much to have a sustained impact on unemployment. this week i spoke to dallas federal reserve president richard fischer. >> i don't believe any amount of monetary stimulus is going to deal with this uncertainty and inability of companies to budget and plan. the real issue is asking congress, republicans and democrats, to get their act together. the business community can't plan for the future.

you know they're on a three-year-plus budget cycle. even quick fixes to the fiscal cliff have a macroeconomic effect. >> how does the market respond to this uncertainty? david sauerbj with loomis sales and company. david, good to have you on the program. thanks for joining us. >> my pleasure, maria. >> you heard richard fischer. he says the key issue is the debate over the fiscal cliff, the year-end deadline when the bush era tax cuts expire and the mandatory spending cuts from the debt ceiling fight go into effect. what's the danger to this waiting game? how does this play out? >> i think the dallas fed chairman's comments were spot son. in the absence of fiscal activity near term, the fed does have to continue to do it alone, provide more liquidity or easing to the economy because right now they are the only game in town.

ultimately, that's proven positive to stock prices because that money that the fed has put into the economic system is finding its way into higher prices for stock prices as well as more speculative bonds. that's probably going to continue. the market is perhaps a bit ahead of itself in the near term, but the fed will have to probably ease more and make some announcement between now and the election. >> what's the impact, david? when you think about the fact that interest rates are already at rock-bottom levels, i know you're expecting another round of quantitative easing from the fed but will it have an impact and move the needle on unemployment? >> it will have an impact modestly. the first major easing after the financial crisis in late 2008 had the biggest impact. quantitative easing two had a more modest impact and qe3 will

have even less. banks are beginning to lend more, albeit grudgingly, and that's finding its way into better economic activity. >> are we getting ahead of ourselves? the fundamental story of the economy hasn't changed. we have seen a real change to the european crisis. so where are we in this economy in your view? what should we be cautious about and optimistic about? >> we should be very cautious the fact that europe is in a recession and will continue to be weaker than expected because they're simply not getting it right for their long-term solution. china, which has become a slower growth environment, i think will slow more. probably more than wall street expects. the u.s. economy is the bright spot. frankly, if the u.s. economy is only growing about 1.5% to 2% inflation adjusted. so there's still some challenges with respect to the economy. what's most positive when alook at the micro basis and individual companies, that

they're generating very good profitability, return on equity of 16%, to put that in perspective to the viewers, that's above the long-term averages, net profit margins are at peak levels, cash flows continue to expand. that's where i get more optimistic. >> and also those corporations you're talking about are sitting on an enormous am of cash from $3.6 trillion in cash on balance sheets, so they have the wiggle room but they're not moving that money right now. uncertainty ahead of the election. do you think money starts to be moving inner terms of put nug jobs on the payroll in terms of putting money into r&d and i.t.? do you think that happens after the election? >> i think it does but slowly. if you're the ceo or the cfo and you control the pursestrings of your company and you're looking at january 1st, the prospect of a $600 billion to $700 billion tax increase because of the expiration of the bush tax cuts, the expiration of the payroll

tax cuts, to name just a few, then you're uncertain. particularly in my home state in michigan, when it comes to its impact potentially on motor vehicle sales. that leads the cfo and the ceo to be cautious with that ample amount of cash they have on their balance sheets. we'll spend on new plant and equipment because the cost of borrowing remains quite low, but with regard to the future hiring and a stubbornly high low 8% unemployment rate, that will stay at that level i think into 2013. it is going to be slow in its recovery. >> well, you're based in that politically important state in michigan. the political environment, of course, weighing heavily on the economy and vice versa. how do you think the selection of paul ryan plays out as the running mate on governor romney's ticket? is that playing well in the regional economies around the country? >> i think it frames the debate that this election will squarely be on fiscal issues, on tax

policy. that's going to be so important. and to bring it home to stock investors. years after tax increases, stock prices grow 5% below their long-term potential. years after tax cuts, stock prices grow above their long-term potential, between 4% and 5%. if we have the prospects that this $600 billion to $700 billion fiscal cliff is not solved in some form byi iajanua 1st, you'll have tougher sledding for stock prices and the economy in 2013. >> we'll leave it there. david, great to have you on the program. thanks so much. >> my pleasure. thank you, maria. >> david sauerby joining us. up next, the business of innovation. how a high school tinkerer turned a good idea into a springboard for thousands of inventors. >> i went home and convinced my parents to remortgage their house to let me start my first company. and later back-to-school

shopping is in full swing where kid and their parents are spending as fall approaches.

welcome back. differ see a product on a store shelf and think, i could have thought of that? turning your bright idea into big business may be the next thing in today's entrepreneurial industry. i visited one company with a high-tech way to solve low tech problems, proving that the crowd is king in start-up nation.-tec problems, proving that the crowd is king in start-up nation. >> the best ideas in the world are locked in people's heads. we developed a company in the worrell where everyone in the world with great ideas doesn't have to worry about the reali realities or complexities of bringing them to life. >> somebody has an idea, how do you get involved and what's the process? >> i start with a question, what problem are you solving? every great promise in the world starts with a great problem. >> from tangled computer cords to kitchen spatulas, solving

life's quirkiest dilemmas drives ben kaufman as an entrepreneur, inventing more inventors. consumer products company quirky.com taps the wisdom of the crowd. >> we launched quirky and said we want to develop a brand-new consumer product every single week. we had inventors and creativity people posting the ideas. the world comes in and votes and rates and comments on what are the best ideas on a weekly basis. those ideas actually move through the product development process. hands up if you like it. the best of the best wind up on retail shelves around the world. we have a quirky inventor unanimous. congratulations. 10% of revenue goes back to the community of inventors and creativity people who helped us come up with those ideas. >> so many people are trying to harness the power of crowds, the power of social media. how did you do that? >> the community helps us in every step of the process. they help us choose the color, the name, the material, the finishes of our product. when you post your idea on yi g

quirky, of course you'll tell your family and friends. every time you buy one unit of a quirky item off a shelf, a thousand people get paid. >> what are some of the more successful products? >> one we love was submitted by students from milwaukee, wisconsin, who noticed that he couldn't fit all his power bricks into a power strip. he wanted to create an articulating power strip. we sold close to a million units. jake is going to be making probably $400,000 or $500,000 this year. that's our inventor. the community will share about the same. >> since 2009, quirky's community has developed more than 200 products available at consumer retailers. what work is done here in this lab? >> we're doing everything from prototyping, design, development, merchandising, packaging, photo shoots, everything it takes to bring a product from sketch to store. >> i guess an inventor gets the bug early on. you're 25 years old?

>> i am. >> and so tell me about when you first started your fist company. it was in high school? >> it was. i was sitting in the back of math class trying to figure out a way to listen to my ipod instead of listening to my teacher. so i went home and i prototyped a headphone product out of ribbon and gift wrap and convinced my parents to remortgage their house to let me start my first company, which they did. everyone has product ideas. the problem is the reality associated with bringing those product ideas to life is so ridiculously complex. i thought all i needed was that second mortgage from my parents. but in reality i needed to know what manufacturing looked like, what merchandising looked like, how to get into retail, all of these different steps that just kills ideas. that's why the products we see on the shelves of the most major retailers in the world aren't really the best ideas in the world. they're just the ideas from the companies that have the chunks of money. i think our mod sell the most disruptive to a company like procter & gamble. a few weeks ago on the p&g earnings call when they put out

their projections, an analyst asked why and the ceo of p&g said because we haven't created anything new or meaningful in quite some time. that's funny because we create new new and meaningful things every single week. >> tell me about crates. how did the idea get from a college student to target stores? >> my name is jenni. i am hoping that these milk crates and a few other quirky additions -- >> i'm thinking what if we added on features to this to allow people to, you know, make it modular, make it something that they want for themselves. >> and this is the gateway to an entire system. so this may become a seat. with our seat accessories, plus the metal castors, you can put shelves in there, drawers, and then you could have all sortings of accessories on the side, cork boards, light boards. >> where does this lead? what do you think you'll do with this? how do you see a business evolving? >> i'm an industrial design student. i discovered quirky and i think the business model of product

design in general is going to change into a more collaborative approach. >> from choosing it off our website to shipping trailers, like 50 trailers worth of product to target with less than 100 days. reinventing the milk crate was big opportunity. crates is a few million dollars a year business. >> what's the biggest challenge for you being a 20-something-year-old executive? does it ever get intimidating for you? >> intimidating, no. a little overwhelming now and then. we're a pretty old school business. we make physical goods you can hold in your hand and drop on your foot. that's different. it's infinitely more complex than creating a website for a mobile app. >> entrepreneurs pretty important to the economy right now, right? >> creativity, newness, innovation, this all comes from people that don't have the hesitations that the big companies have. >> my thanks to ben kaufman of quirky.com. up next on "the wall street journal report," as summer heat hopefully dies down, what's hot with kids and back-to-school shopping.

how to find the best price. what stores are learning from teenaged vendors.

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sleep train's 100-day money back guarantee, interest-free financing, and free delivery? that's the ticket! sleep train's ticket to tempur-pedic is on now. ♪ sleep train ♪ your ticket to a better night's sleep ♪ welcome back. by age 17, the average child has outgrown 1,300 arms of clothing at a cost of some $14,000.

at that rate, it's not hard to believe retailers are cashing in on back-to-school shopping, the second largest spending season of the year. joining me is jason wiggenheim, vice president and publisher of "teen vogue," and daniel cuelet. jason, last week. i want to ask you, the teen vote nked back-to-school shopping a national holiday. >> august 11th, 2012, back to school saturday. we galvanized 5.5 million leaders to get out and shop for the best of back-to-school shopping. >> is it big enough? like a consumer experience to make this similar to a black friday? that's our goal. we created this day. it becomes like a black friday or cyber monday. part of our retail lexicon, an indicator of how our economy is doing. >> daniel, how was it for h&m? was it a success, back-to-school saturday? >> really good. really interesting for "teen vogue."

we had a lot of shoppers on saturday. it started very well for us. >> how important is back to school for you? >> really important. the deep base of our customer is teenagers in our doors, so the kickoff coming up here in august is an important month, important for back to school customers. >> what are you hearing from your clientele in terms of, jason, what they're looking for, what they may want to buy this season? >> consumers want value. they like that fashion, like brands like h&m produce. they want an experience in store and need a reason to shop because the economy isn in a sluggish place. that's why we created a holiday. >> how does this teenage shopper fit into your overall customer base? >> they -- overall, it's a fashion, quality at the best price. from the babies all the way to the grandmas. teenagers, it's a very important one, because they showed the trend, they are speaking out and

telling about what to shop. and h&m is there with current fashion every day. >> jason, technology has changed things. social media has changed the way young people shop and buy things. >> yes. this generation has so much influence, far beyond what we ever had growing up. you have kids now that go to the store and they buy something but when they drop it into their social network, pinterest or whatever, it's hundreds of thousands deep because it's social media and because of their mobile phone, which they have glued to their heads everywhere they go. >> amaze, the mobility trends. >> absolutely. 9 out of 10 readers use their mobile phone when they shop. they text photos of dresses before they purchase, look for coupons and discounts on the fly. they are tweeting what they're buying after the purchase. it's phenomenal. >> have you changed the way you operate as a result of this social media huge situation? >> sure. it's important that our brand of teen vote become relevant everywhere, not just teenvote.com but making products for her that make our brand relevant and push great fashion

and beauty advice to her on her mobile phone while she's there in the shopping experience. >> same for you, right, in terms of your clientele, daniel? have you made changes in terms of social media and how things are changed on the technology front? >> we've seen while we have increased our resources in the marketing department, especially focused on the social media. we see the customers around there and also try to interact even more. we have a lot to learn from the customer, telling us what to expect in our stores, what do you think about our quality, what do you think about your fashion. but it's a very go way to be hands on speaking with the customers directly. >> what about the growth overall in the u.s. for h&m? tell me about your plans for expansion. >> the plans we have so far, we are 250 stores at the moment. heading for another 35 stores this year. and we see that we have very strong growth in our stores at the moment and also in the store we open up in the market. of course we are very happy to

finally go into florida and texas that we have our first stores and they are very strong states. so we see a huge potential growth down there. >> what are you expecting in 2013? >> very good. >> yeah? >> i think we continue the brand in such -- it's growing in north america. and of course with all that traffic we have through our stores we can sell to more individuals. >> such an important segment of the economy, certainly, i know for you, jason, and daniel. great to have you both on the program. >> great to be here. thank you. >> jason and daniel joining us. up next on "the wall street journal report," a look at the news this upcoming week that will have an impact on your money. did you know that toilet technology hasn't changed since 1775? the world's second richest man is flushing his money into a new era. down here, folks measure commitment

by what's getting done. the twenty billion dollars bp committed has helped fund economic and environmental recovery. long-term, bp's made a five hundred million dollar commitment to support scientists studying the environment.  and the gulf is open for business -  the beaches are beautiful, the seafood is delicious.

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for more on our show and our guests, see the website. now a look at the stories coming up in the week ahead that may move the markets and impact your money. wednesday we get the minutes from the last meeting of the federal reserve open market committee. they will be a market mover. also existing home sales that day. on thursday, we get new home sales from the nation's realtors. on friday, the usda are will release its first food price outlook since raising forecasts last month due to the drought in the u.s. growing region. meanwhile, technology pioneer bill gates has his eye

on a new machine, the toilet. this week the bill and melinda gates foundation awarded a prize to the california institute of technology for building a solar-powered commode. more than a billion people globally do not use traditional toilet, leading to significant health concerns in developing nations. cal tech received $100,000 to produce the waterless toilet for those parts of the globe. who knew that flushing money into the toilet might just be what the world needed? that'll do it for us for today. thanks for joining us. next week my guests include columnist frank rich. keep it right here where wall street meets main street. have a great weekend, everybody. see you again next weekend.

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