my colleague tom hudson is off tonight. what kind of shape is the u.s. financial system in these days, and do you feel financially safe? that was the question lawmakers on capitol hill were trying to get answered today. it's been six months since congress passed the biggest overhaul of the nation's financial rules, the dodd-frank reforms. the senate banking committee called in regulators for an update. as darren gersh reports, one key concern-- the fallout from the mortgage crisis. >> reporter: after digging through the records of the nation's 14 largest mortgage servicers, federal regulators found servicers did, indeed, break state and local foreclosures laws. but acting comptroller of the currency john walsh told the senate banking committee there was no wave of illegal foreclosures. >> despite these clear deficiencies, we found that loans subject to foreclosure were, in fact, seriously delinquent and that servicers

had documentation and legal standing to foreclose. >> reporter: walsh said regulators are now talking about finding a way to settle all the legal claims from the mortgage crisis. regulators are also ordering mortgage servicers to clean up their operations and pay homeowners who lost money. >> our work identified a small number of foreclosure sales that should not have proceeded because of an intervening event or condition. >> reporter: walsh was just one of the regulators telling congress today how they are keeping a closer eye on the nation's banks. federal reserve chairman ben bernanke said the central bank has learned a critical lesson from the financial crisis. >> the importance of being very aggressive and not being willing to allow banks too much leeway, particularly when they are inadequate in areas like risk management, which turned out to be such an important problem during the crisis. >> reporter: bernanke said the fed is also now measuring and testing bank portfolios across the industry. if that sounds familiar, it should. >> our experience in 2009 with the supervisory capital assessment program, popularly

known as the bank stress tests, demonstrated the feasibility and benefits of employing such a perspective. >> reporter: but imposing new rules is expensive, forcing cutbacks in hiring, travel, and spending on computer systems. if congress doesn't let her hire more people, s.e.c. chairman mary schapiro says she won't be able to enforce the rules required by the dodd-frank reform law. >> we don't have the capacity now to take on the examination of hedge funds, for example. >> reporter: republican senators are concerned regulators are rushing to write new rules, and urged them to spend more time considering the potential costs to the economy. darren gersh, "nightly business report," washington. >> susie: here are the stories in tonight's "n.b.r. newswheel." investors shrugged off worries about inflation and rising consumer prices. the dow rose almost 30 points, the nasdaq added six, and the s&p 500 was up four. big board trading volume fell to 880 million shares, while nasdaq

volume settled just below two billion shares. we're paying more to fill up at the pump and to stock up at the grocery store-- consumer prices rose four tenths of a percent last month. take out food and energy, and prices still went up two tenths of a percent. that's the biggest jump in over a year. jobless claims rose by 25,000 in the past week to 410,000, slightly more than expected. the treasury wants banks to follow the money, when it comes to former egyptian president mubarak. the idea is to find money linked to the deposed president or his family. and the man overseeing b.p.'s $20 billion spill fund has a new critic-- b.p.! the oil giant says kenneth feinberg is giving out too much money, overestimating future damages. feinberg's been under fire for months about giving out too little money to spill victims. and still ahead, etfs versus mutual funds-- which is the

right investment vehicle for you? more protests today in many middle eastern nations, from bahrain to iran to yemen. and workers along the suez canal went on strike. despite that turmoil, here in the u.s., all three of the major stock indexes closed at their highest levels in more than two years. so what's pushing stocks higher? and what does the unrest in the middle east mean for investors? joining us now, nick colas, chief market strategist at convergex group. hi, nick, thanks for joining us. >> sure thing. >> susie: so these recent eventings in the middle east look like a huge contagion and yet here in the u.s. we have a solid stock market rally. why is that? >> well, because so far the unrest we've seen in the middle east hasn't really impacted oil prices and that's really the critical factor for thinking about political unrest in that area of the world. it does in fact impact oil prices, oil supply, it's a

critical area for not only existing oil supply but future reserves for the rest of the world. so as long as it doesn't affect oil prices directly, the stock market still has a bit of a green light. >> susie: well looking at oil prices they did have a big move up. they were up more than $9 a barrel to about the $85 a barrel. at what price does it become a problem for the u.s.? >> i think around the 100 a barrel level is where you would start to get concerned because that translates into about $4 a gallon for gasoline. and as folks fill up their tanks that $4 a gallon number definitely is going to think about where they will cut back in other areas of spending to make up for the fact they have to continue 20 drive to work and drive to the grocery store and other very necessary trips. >> what could trigger that. today we heard about some strikes, labor strikes in the suez canal area. could that be the kind-of-thing supply disruptions that could trigger that 100 price? >> absolutely that is definitely one area of

concern for investors is what happens to the suz and whether it stays open or not. so far the news has been good there. in addition to that there is also prot tests in bahrain which is a near neighbor of saudi arabia. and that really is the most important area of concern. if you begin to see unrest in saudi arabia, then you certainly are going to get to $1 australian-- $100 a barrel quickly. >> susie: we also saw a big jump in the price of gold today it was up something like $9 to $13.84. looking at the chart here. and also silver prices at a 30 year high. they have not been at this level since the 1980s. so why is it that those prices are going up and at the same time stock prices are going up. usually it's one or the other. >> that's absolutely right. what is going on in the precious met 58s market people are interested in hedging against inflation. you reported earlier about the ppi number that came out, the cpi number that came out today. it does look like inflation is beginning to heat up and precious metals have been a great hedge over a long

period of time against unexpected rises in inflation. so far it hasn't been muff to affect stock prices and we will see if that continues but it certainly is helping gold and as you mentioned it is helping silver to highs we haven't seen in 30 years. >> so what should investors do. should they be concerned about having any international exposure in their portfolios giving what is going on in the middle east? >> well, i think for sure investors should look at any emerging markets exposure carefully because that is an area of volatility right now. where investors have really been placing their focus for the year-to-date have been in more developed markets, particularly in the u.s. where the fundamental news from earnings has been quite good. analysts are quite excited about incremental revenue growth for the rest of the year. and so far the other factors we talk approximated about haven't really affected the economy all that much. >> susie: all right. we had leave it there. thank you so much for your thoughts. an interesting, ongoing story. >> thank you. >> susie: our nest nick colas, chief market strategist at convergex group.

>> susie: the s&p 500 did it again-- for the second day in a row, it closed at its highest level since its low in march 2009. we'll see what's helping to keep it there, as we take a look at tonight's "market focus. " year to date, the major averages are all up over 6%, but some

investors and strategists are beginning to talk about a market correction. let's take a look at the best and worst performing sectors so far this year, now that we're at the halfway point of the first quarter. energy's leading the charge, up 12%; followed by industrials, up 9%. the weakest group-- telecom services, down 1%. earnings drove some big gains in today's market. shares of natural gas producer williams companies were on fire. fourth quarter earnings easily topped estimates, coming in at 44 cents a share. but what really got the stock moving was management's decision to split its exploration and pipeline businesses into two publicly traded companies. williams stock jumped over $2, or 8.5%, for its highest close in two and a half years. also in the energy sector, cliff's natural resources, the coal and iron ore producer. it benefited from surging demand

for iron ore and sharply higher prices. its fourth quarter earnings more than tripled to $2.82 a share. demand from emerging market countries is driving growth. the company expects half of its north american iron ore production will be exported this year. as for the stock, it bolted higher-- up 7% on more than twice its normal volume. investors were hungry for shares of weight watchers. its latest ad campaign starring actress jennifer hudson is apparently working-- fourth quarter profits more than doubled. the company earned 66 cents a share, a dime better than estimates, thanks to strong gains in its north american and internet businesses. looking ahead, weight watchers says it expects earnings this year to get as high as $3.85 a share, well above analyst expectations. that led to hefty gains for its stock, up over $20 or 46.5%. today, it was the best performer here on the big board. meanwhile, netapp was the worst performer in the s&p 500 today.

it reported a big jump in quarterly earnings-- up 60%. but it gave a weak outlook for the year. netapp said it could have some component shortages and margin pressures. netapp shares down 6.5% on the day, closing at $54.77. coca-cola stock bubbled higher. the company announced a 7% boost in the quarterly dividend. coke was the strongest of the dow stocks, rising almost 2%. and finally, a thirst quencher for investors of dr. pepper snapple. the stock got a nice pop on an earnings beat and upbeat outlook. fourth quarter profits came in at 67 cents per share, three cents above analyst estimates. dr. pepper plans to raise juice drink prices, and introduce new products to help offset rising commodity and container costs. the stock closed at a six-week high, $36.20 a share. and that's tonight's "market focus."

>> susie: what's the fastest growing investment around? if you guessed etfs, you're right. investors have poured about a trillion dollars into exchanged traded funds. they're similar to mutual funds, but trade like a stock. as they've grown in popularity, they've also grown in complexity. you can find an etf for almost every industry, country and security imaginable. tonight, erika miller has some tips for selecting the right one for you.

>> reporter: you wouldn't buy a car without looking under the hood. the same should be true when buying an etf. morningstar's scott burns has three tips to avoid picking a clunker. >> know what you own. know what you own. know what you own. >> reporter: that even applies to plain vanilla etfs, like those indexed to the s&p 500. spyders-- ticker symbol spy-- were the first etfs, and they are currently the most widely traded security on the planet. but the fund's legal structure has some important downsides. >> it's not allowed to reinvest dividends. so what happens for a longer term investor in s-p-y is you actually have a performance drag, because the cash is just accumulating in the fund and not getting reinvested. >> reporter: if you are investing for the long haul, burns says you may be better off with the ishares i-v-v, or vanguard's version, v-o-o, which do reinvest dividends. he thinks spyders are more appropriate for active traders. another piece of advice, from etf expert matt hougan, is to

carefully time your purchase. >> remember that they are traded vehicles. when you buy a mutual fund, you get the exact value of the mutual fund when you buy and sell, which is great. when you buy an etf, you are paying commissions and spreads. it may be trading at a premium or discount. you have to treat it like you are trading a stock, almost. and you have to use limit orders and do all those things. >> reporter: he and others also sound the horn loudly about leveraged funds. these souped-up etfs promise two or three times the returns of an index by using swaps and other derivatives. but understand, the leverage is not compounded-- it resets daily. >> if the underlying index went up 10%, a two-times would go up 20%. and if the next day, it went down 10%, the leveraged etf wouldn't go down to zero, it would actually go down to 96. so that's where you start to get this what's called "volatility drag," this kind of compounding error. >> reporter: so the best advice is to avoid etf investments with bells and whistles you don't

understand. like a car, etfs can take you to your financial destination, if you pick the right one. erika miller, "nightly business report." >> susie: as much as americans like etfs, they love mutual funds. investors have put over $9 trillion in them. they're top choice for small investors-- 401(k)s and i.r.a.s. still, exchange traded funds are gaining ground. so which one's right for you? tom hudson spoke with jim lowell, editor of the independent newsletter "fidelity investor"; and michael iachini, director of charles schwab investment advisory. tom asked jim how an investor should decide between a mutual fund or an etf. >> if they are completely self-directed and confident they can construct a portfolio themselves maybe in the past using stocks and bond, the etfs are a perfect match and actually i think a better match than individual stocks and bonds. if, however, like 99% of the population out there they

really don't feel as if they can manage their portfolio wisely and well on their own, then being able to have an actively managed mutual fund, to manage whose job it is, to deliver better returns than a benchmark to your doorstep, it's a good way to go. >> do you agree, does it come down to whether you want to pay the extra price for mutual funds and get that professional management or take the risk yourself through an exchange rated fund. >> i think is a factor but not everything. some investorser are happy to have the market return they are not seeking a market beating manager. in that case their focus is on cost. the lower they keep their cost the more they keep themselves and they might prefer an etf approach. >> most investors are not like market like returns. an active manager f they can actually lose less than the market can deliver a better long-term result than even just marginally outperforming it for three or four years. >> the downside protection is very valuable. >> tom: we know the great majority of mutual funds perform at their benchmark or below their benchmark but yet the cost is still there. >> statistically, one says

80% of active managers underperform their benchmark. >> okay. that still means there are about 1200 managers out that can outperform their benchmark and can do so. it is our job to make sure we know who those managers are. >> to the issue of cost with exchange traded funds. they do cost less, usually than mutual funds but you don't get that professional in the driver's seat making the stock selection. >> right. >> is that more risky inherently. >> with an etf you get the low cost. there is still a professional at the helm but they are just using the money to match an index, they are not trying to beat any index. >> they are not picking stocks. >> exactly. they are picking whatever is on the list. i wouldn't say it is more risky though. i would say you know what you are going to get. you are goinging to get the market return, never better, never worse, barring a little bit of expenses an things like that. >> and you get it at a lower expense. >> exactly. your known costs will be very low. >> you still have the risk imfutured there that you have to be the manager of all of those exchange traded funds. >> absolutely. >> if you hold up just a line chart of let's say all the large cap growth etfs

they perform remarkably differently so there is a lot of legwork that has to go on. >> not every bushel of apples is necessarily the same. >> lots of other differences between mutual funds and etfs. i wanted to get to the pricing because mutual funds are priced once a day with the net asset value. is that, again, a rising that an investor takes if they can't get a dynamically updated price. >> i suppose it could be but in my mind an investor is somebody who has had five to ten year time horizon and is not a trade you are really looking for, sort of pennies on the dollar, market trade late in the day. that said, i think if the mutual-fund industry had started at the same time that the etf industry had started they would have certainly looked at greater trading flexibility as something that the client, the end client typically likes to at least think is there. >> does the trading flexibility that exchange traded funds provide encourage maybe overtrading? >>. >> i think that if are you goinging to trade exchange traded funds you need to be careful because it is easy to trade too frequently and you can pileup commission

costs an things like that. it is important to be disciplined. if you are a long-term investor, invest for the long-term but not for the afternoon. >> finally one certainty, taxes that we have to deal with both etfs and mutual funds. for mutual funds the big complaint is the capital gains taxes that are there if you still own the fund that you wind up getting hit with each day, each year. >> the easy answer is this past decade we have had two monstrous recessions. most managers are tax efficient. we wouldn't invest in an inefficient, i don't know any manager of fidelity or vanguard, for example that isn't as tax efficient or even more tax efficient than an etf. >> tom: and the way to mitigate the tax efficiency in funds, etfs which are almost entirely tax efficient. >> dependses on the fund. you can't have more exotic etfs with using leverage or surprises with tax but generally speaking the structure means they can get rid of the unrealized capital gains and don't distribute a lot to investors that way. >> we appreciate you navigatinging waters. jim lowell with the nip

newsletter fidelity investor, michael iachini with charles schwab invest advisory. >> susie: here's what we're watching for tomorrow: fed chairman ben bernanke is in paris talking about how to keep world markets and economies stable. we'll also see quarterly results from campbell soup. and joe battipaglia is back as our "market monitor." he's still bearish on the u.s. economy, but says investors can make money in plenty of stocks. he's market strategist at stifel nicolaus. more than a hundred doctors, nurses and physical therapists were arrested today for medicare fraud. it's the largest health care fraud bust in u.s. history. there were raids in miami, tampa, new york city, baton rouge, dallas, houston, chicago, and los angeles. the defendants were charged in a variety of schemes, including billing for services never done. altogether, they attempted to defraud the government of almost a quarter of a billion dollars. prices for business travel took off, and then came back down in

less than a week. delta air lines raised its air fares on monday, and other major airlines followed suit. but fare trackers say the increase of up to $120 per roundtrip ticket has since been dropped. but don't count on fares staying there for long-- analysts say rising fuel prices may soon lead to higher air fares.

>> susie: with the filing deadline just two months away, it's time to get those tax forms together and get busy working on your 2010 return. and we're here to help. all this week, kevin mccormally offers tips to get you started. he's editorial director at kiplinger's personal finance. in tonight's tax tips, figuring out taxes on an inheritance. >> did you inherit stocks or other property last year? if so, do you know what your tax basis is, the amount you'll use to figure the gain or loss when you sell? this used to be simple. thanks to what i call "the angel of death tax break," the basis of inherited property is stepped up to the property's value on the day your benefactor died. any appreciation up to that time becomes tax-free, a bit of alchemy that saves taxpayers more than $20 billion a year. but 2010 is special. remember, congress let the estate tax expire at the end of

2009, and when it died, so did automatic step-up of basis. it was replaced by something called modified carryover basis, meaning heirs are stuck with the previous owner's basis, and the tax bill that accrued during his or her lifetime. but just like most of us don't have big enough estates to worry about the estate tax, most heirs didn't really have to worry about carryover basis. you see, each estate was allowed to step up the basis of assets to wipe out up to $1.3 million of appreciation, plus an extra $3 million for assets that went to a widow or widower. when congress decided late last year to resurrect the estate tax retroactively to the beginning of 2010, lawmakers gave big 2010 estates a choice-- they could either apply the estate tax and give all heirs full step-up of basis, or use the no-estate tax/carry-over basis scheme, whichever will cost the estate and the heirs the least tax. where does that leave you if you inherited property in 2010? well, if it was from a relatively modest estate, your basis is probably date-of-death

value. but if your inheritance came from a multi-million dollar estate, you'll need to check with the executor. i'm kevin mccormally >> susie: if you have a tax question you want kevin to answer, he'll be happy to do that. just log on to our web site, nbronpbs.org. that's "nightly business report" for thursday, february 17. i'm susie gharib. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org

announcer: the following kqed production was produced in high definition. ♪ >> must have soup! >> the pancake is to die for! >> it was a gut-bomb, but i liked it. >> i actually fantasized in private moments about the food i had.

>> i didn't like it. >> you didn't like it? >> dining here makes me feel rich. >> and what about dessert? pecan pie? swewe