so, the more we have to pay for food, the more we have to cut back on something else. > reporter: the other issue s that wages have not been rising,

at least not by much. still, economist dean maki points out the recent cut in the payroll tax will put more money in americans wallets. >> so, what's happening now, consumers are going to be facing higher energy bills, higher food prices. but that's more than offset by the payroll tax cut right now. if this were to happen a few months from now, it would be a potentially more serious issue. >> reporter: energy and food costs are expected to creep higher this year. but experts say it will at least a few years before we see more widespread inflation in the economy. suzanne pratt, "nightly business report," new york. >> tom: tomorrow morning begins a parade of profit reports from the banking industry. j.p. morgan chase is the first big bank to turn in its financial report card. so what can investors expect from banks? fred cannon joins us with some answers. he's co-director of research and chief equity strategist at keefe, bruyette, and woods. >> thank you, tom, good evening. >> tom: how would you characterize the industry's

earnings power ahead of the fourth quarter numbers due to begin tomorrow. >> a heck of a lot better than a year ago. we've seen some fundamental improvement for the banks during the last year and credit has gotten a lot better. so we think that the numbers will look good, certainly on a year-over-year basis. that said, there's a lot of headwind ahead of us for core earnings at the banks. which we can talk about. >> tom: exactly. i want to hear about that because diversified banks like jpmorgan tomorrow, bank of america in the week ahead, big national names are really kind of falling off the floor. a year ago they lost $11 billion. this past fourth quarter making 8 billion is the estimate from thompson reuters. a big rebound but is this sustainable with those headwinds? >> the challenge isn't so much sustainable. we think it's sustainable. the issue is growth. can these big giant trillion dollar banks grow as we move forward. we think there's some opportunities but overall for the economy, we're still delevering. most consumers out there want to reduce their debt load, not expand them. that may be a good thing for

consumers but it's tough on bank earnings. >> tom: i want to look at the kwb bank fund that follows these banks. it has rallied nicely off the late november low. you mentioned opportunities, where are those opportunities? >> we think actually a lot of the opportunities are where what we call the capital markets or the part of the big banks that deal with investments, asset management, they deal with you know capital markets and deals. because the federal reserve is still very active pumping money into the economy. that money has to go somewhere. it's going into deals. it's going into u.s. equities now that the rest of the world looks kind of scary. we think that part of the business looks good. the fundamental banking business still quite tough. >> tom: to that point, when we group together traditional banks and so-called i banks, investment banks we get this kind of earnings expectation picture from 5.6 billion a year ago, expected income according to thompson reuters 6.7 billion in the completed fourth quarter. but much of that coming from traditional bank, not investment banks. so you know, there's a lot of new regulations coming

from i banks but seem you seem pretty bullish despite those regulations. >> pretty bullish i think is the right term because we see a lot of regulations with i banks but there are a lot of regulations coming at us for the regional banks. when you think about the fees constrained, the credit card issues, some of the deposit fees coming at us on the regulatory issues. that makes it tough. the other thing fundamentally if you think about growth, loans in the united states are not going to grow in 2011, at least by our expectations. and that's really what drives regional banking. investment banking, there is some real growth there. >> tom: and some of that growth being fed by the investment environment that's outside the united states? we're seeing that with a lot of industries s that true as well in banking? >> that's right, in terms of investments. right now europe looks scary t looks bet they are week because of the portugal but overall it's scary to ef havers. and that had pushed money into asia. but recently with the drop off in some of those markets, suddenly the u.s. equities are look better. it is et er for a lot of

investment banking dealings and asset management piece of the business of banks. >> tom: fred finally s there a part of the banking industry that you're advising investors to avoid in 2011 even if the financial reports look pretty good? >> well, we really think what you need to at least be cautious is those banks that still have tarp. that means they have yet to be able to increase their dividends. that means they also are going to be probably out there raising some capital which is a tough place to be as a shareholder. so that's really the area of the banks where we're pretty cautious. on the other hand those that can raise dividends, that's a big deal for the banking industry and we think it will drive pretty big returns this year, not great but pretty good. >> tom: we've heard expectationsing look for those dividend increases to possibly begin in the second quarter. our guest is fred cannon wx with kbw. thanks, fred. >> thanks, tom. >> susie: here are the stories in tonight's "n.b.r. newswheel." that surge in new jobless claims tom mentioned pressured stocks. the dow fell 23 points, while the nasdaq and s&p 500 both lost two points.

as for trading volume, just under a billion shares on the big board, and under two billion on the nasdaq. federal reserve chairman ben bernanke expects the u.s. economy to grow between 3% and 4% this year. speaking at a small business lending forum, bernanke said that should help the lending environment continue to improve. but a warning for uncle sam from two big credit rating agencies. moody's and standard and poor's both say the united states' triple-a credit rating is in danger of a downgrade because of the nation's soaring deficit. >> tom: still ahead, "street critique" guest hilary kramer's got her eye on a couple of medical stocks on the mend. and she answers your questions. she's editor of gamechangerstocks.com. >> susie: our next guest is head of the worlds biggest money management firm, blackrock. larry fink is chairman and c.e.o., presiding over $3.5 trillion of assets. yes, that's trillion.

it's almost twice as big as its nearest rivals-- state street, fidelity, and pimco. when i met with fink at blackrock's new york headquarters today, he told me why this is going to be a good year for stocks. our government has gone quite a bit in trying to reduce the impact of the credit crisis. there's been a lot of stimulus by the federal research. and most importantly, our corporations are in great shape which would tell me we're going to have a rising stock market in 2011. and people are goinging to start putting more and more money back into equities that will drive a rising equity market. >> susie: but larry, how high can stock goes if the economy is so sluggish. >> even though our economy will be more sluggish than we otherwise would like to see and our job market certainly much more problematic than we want, but our companies are in good shape. and they're generating better earnings. and so that's the backdrop for a stronger equity market.

>> rooney: . >> susie: now you talked to a lot of ceos. what is your take away on their plans for spending and hiring this year? >> i think they're more bullish than they've been in three, four years. and i think they're beginning to take that bullishness and navigate their business with more momentum. i do believe the private sector is going to add more jobs than it certainly has for the last few years. we're seeing more mergers. we're seeing more factories buildout and more plant and equipment spend. and so we're seeing for the first time in two years the private sector starting to build momentum. >> susie: what do europe's economic problems mean for u.s. stocks? >> if i had to cite the biggest fear i have for the first six months of the year, it's europe. a great deal of maturities of government debt and bank debt are maturing. so we're going to have to have a large refinancing in europe. and if they don't navigate this combination properly,

we're going to have a failure in one of the country's, possibly portugal, people suggest maybe spain. and that would be very disruptive to the global economies, again. if europe fails. >> susie: so are investors better off with a portfolio of mostly u.s. stocks versus international. where are they goinging to get the best returns this year? >> i would avoid europe. i would concentrate on the united states. and i would put a small component of my equity investing in the emerging market area where you are seeing large growth coming from the brazils and coming from indias and other nations that are exhibiting very strong consistent growth. >> susie: let's talk a little bit about etfs. they're so popular. you have the ishares. they have huge u.s. growth. where is the next big growth going to come from. is it going to be overseas? >> atfs have not enjoyed the same success overseas as it

has in the united states. but we are beginning to see more and more companies, more and more individuals look at etfs as a component of their portfolio investing. >> susie: there's a lot of controversy about etf fees. if your competitors cut them, would you? >> we have periodically looked at fees. we have lowered fees at times. but we don't look at fees as the major component that drives an individual to invest in an eft -- etf. >> susie: municipal bonds have been a controversy. recently a number of financial heavyweights have been warning that these are risky investments because many american cities are in bad financial shape. what do you think? >> the majority of them are going to be safe. some will not be. i don't believe you should mindilessly invest in all municipals. so invest approximating in municipal are going stock much more difficult. it's going to require more research. more support from financial advisors. so it's a different market and it's goinging it to require a different process

of investing. >> susie: a lot of talk today about aig, about it going public soon. now you were an advisor to the government during the financial crisis about the whole aig mess. is aig a stock to own? >> i would buy aig at the offering, if there is an offering coming up. i like the business model. i think they've been able to protect their business platform. it's a shame that they had to sell some of their powerful divisions overseas but it's still a very strong platform of great opportunities. >> susie: let's turn to blackrock itself. the stock is up more than 1,000 percent since the firm went public 11 years ago. where do you see the stock trading this year? >> i don't like predicting our stock price. i'm generally the most pessimism about our stock price. we are looking for the stock market to be up anywhere from 10 to 12%. i think bell's be somewhat north of that. >> susie: larry, it's been a pleasure talking with you.

thank you so much. >> thank you, i enjoyed it. >> tom: there was some mild selling pressure for stocks but after the close a tech giant reported its latest quarterly numbers. let's get you updated now on tonight's "market focus" stock prices fell off their two- year highs, but after the close, the focus turned to intel.

the chip giant reported better than expected fourth quarter profits. sales and margins were stronger. strength in chips for computer servers helped make up for sluggish personal computer chip sales. chief financial officer stacy smith says emerging markets will be a very significant driver this year. >> in terms of unit growth two out of three units are coming from the emerging markets and the phenomenon there is the affordability of this technology is gettinging to the point that you now have billions of consumers if places like china that can afford the technology and it's very valuable technology to them. coming into this earnings report, intel shares were flat today. and have traded between $20 and almost $22 per share since halloween. after the close, they broke out to the top of that range. a move over $22 would take intel to its highest price since may.

chip company micron continues the rally we spotlighted yesterday. shares were up another 3% today. analysts expect memory chip prices to stabilize after falling for several quarters. speaking of technology, outsourcing company infosys cautioned about the slow recovery in the u.s. and europe could hurt its outsourcing business in india. this is a 180-session chart. after rallying through the end of last year, shares dropped 6% today. drug giant merck is changing two studies of anti-clotting medicine vorapaxar. one study will be discontinued. a quarter of patients in a second study will stop taking the medicine. merck had hoped to begin the regulatory approval process later this year. merck stock was bleeding, falling almost 7%. volume jumped six-fold. this is a 90-session chart to

highlight today's drop. let's roll out a full year chart. shares had been between $34 and $38 for the past several months. today's sell-off takes shares down to the bottom of that range. there was some concern about some european government bond sales this week, but they've gone well, and that has helped banks in troubled countries, such as spain. the spanish e.t.f. jumped 3%. banco santander and banco bilbao each saw some relief buying, fueling rallies of 4% and almost 7%, respectfully. while talking about spain, energy company repsol popped 7% on heavy volume. an indian oil firm wants to buy a 5% stake, according to reports. back in the states, marathon oil will spin off its refining and sales businesses. that led to a 6% rally. volume exploded to more than ten times usual as shares hit two year highs. marathon would keep its

exploration and production operations when the split happens in june. finally, grocery store whole foods. there's been some concern about higher food prices pinching profit margins in grocery, but jefferies reiterated its buy rating and whole foods hit a new 52 week high, up more than 4%. and that's tonight's "market focus." >> tom: the healthcare sector has lagged the market rally over the past two years, but

tonight's "street critique" thinks it will turnaround. she's hilary kramer, editor at gamechangerstocks.com. back with us, always niles to see you, welcome back. you've got a couple of smaller stocks in health care, beginning with rav met, a medical imaging company, what makes you think this is a breakout. >> more like a double for me because they are the largest operator of medical imaging centers in the country and they're buying up the smaller players, disvanged, don't have the scale or muscle to deal with insurance companies. and this is one that will continue to expand. deutsche bank just put it on their focus list as a small cap. >> tom: plays into that consolidation trend you have been talking about for weeks as well. transone is another interesting one. this is a spinal surgical procedure company. and we saw that pop last week when humana the insurance company said it would cover it. why buy now? are you buying at a top? >> no, this is just the beginning of many insurance reimbursement announcements to come. transone does the spinal

fusion surgeries, they are about 100,000 of them a year. they ran up to 100,000, niece can be done at 40,000 this is a new trend, it is in excellent position this year. >> you've gotten a lot of traction on the web site, the blogs and e mate from one of your previous picks from early december, zales. let's look the a how it has performed. almost a 90% return since december 8th. dow still like it, have you sold? >> i actually sold some of my positions. i'm still holding for the february 23rd earnings. i think we're going to have more good news here. remember consumers back spending and jewelry's in again. >> and we do have a full list of your previous picks on our web site. you can visit that. now we do have a few viewer e-mails including one looking at another previous pick of yours. in social media. tim wrote saying i made about 30% on supermedia. should i buy more or sell. now shares have come off that recent high which was earlier this month, still up about 15% from when you

originally mentioned it. dow still like supermedia? >> this is a core holding of mine for the next 12 months because any private equity firm could come in and buy this and use it as a proxy for getting into social media because they have 250 our web site these are networked to as kroot internet. >> tom: we want a note on bonds from nick. he mentioned in this e-mail, particular fund. i'm growing concerned about the bond bubble. if the bubble bursts how would it affect bond index funds mentioning the vanguard total bond market index fund. how about it, a bond bull or bear, hillary? >> well,? general i do believe we have a bubble coming. but i have owned this since 1998, this vanguard etf. and i have to tell you, i'm holding if for the long run. it's not the same as equity where i trade, i invest for six months, 12 months. you want to have asset diversification. be in this etf of all of them out there. >> hillary, you own everything we mentioned tonight. >> yes, i do. >> tom: you of course can follow her on the blog nbr

on pbs.org or emate us street critique or sent a note via twitter. nbr's own feed and on facebook. we'll feature some your questions next he week. our guest hillary kramer. are z >> susie: here's what we're watching for tomorrow: our friday "market monitor" guest is sandy lincoln, investment strategist at m&i investment management". also, as we reported, quarterly results from j.p. morgan chase, and the december reports on retail sales and consumer prices. speaking of consumers, we'll see how they're doing when it comes to paying down debt. amazon.com is adding nearly a thousand jobs in scotland. most of the positions will be at a new distribution center near edinburgh. it's expected to be up and running by the end of the year. other jobs will be added at an existing facility. amazon could also add up to 1,500 temporary jobs during busy periods. >> tom: coming soon to coffee

lovers in india-- starbucks. the seattle based chain has signed a venture with tata coffee, part of india's tata group conglomerate. starbucks likely will open its first store there this summer. the companies also will explore opening cafes at retail outlets and hotels. starbucks hopes to capitalize on the increasing popularity of coffee in india, where many people still prefer tea.

>> susie: with republicans now in charge in the house, there's a big change underway in thinking about government spending. and tonight's commentator isn't so sure she likes it. she's maya macguineas, president of the committee for a responsible federal budget. >> house republicans have replaced pay-as-you-go rules-- the rules that require any increases in entitlement spending or tax cuts be offset so they don't increase the deficit-- with "cut-go." the difference is that under cut-go, you don't have to offset the cost of tax cuts at all. okay, i get that republicans view government spending as the main problem causing the large and growing debt. hey, i agree. but if you think that the deficit, debt and high levels of

government spending are the problem, you know how you fix them? do you cut taxes? no, you cut spending. hey, we all love tax cuts, but pretending you can deal with the deficit and shrink the government by cutting taxes rather than cutting spending is cowardly and dangerous, given the high levels of debt we already face. so let's hope the new generation of cutters focus on spending, not taxes, in a real effort to fix our fiscal woes. >> susie: that's "nightly business report" for thursday, january 13. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by:

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