>> tom: trouble in warren's world. berkshire hathaway is buffeted by a top executive's questionable stock buy. was it inside trading? and will it tarnish the oracle of omaha's reputation? >> berkshire hathaway has always been sort of the gold in good corporate governance and high integrity, and this is a reputational cloud that i'm sure they don't like. >> suzanne: we sort out the berkshire affair, and wrap up wall street's first quarter with s&p's sam stovall. you're watching "nightly business report" for thursday, march 31. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:

this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. susie gharib is off tonight. i'm joined by my colleague suzanne pratt. on wall street today, there was plenty of talk about berkshire hathaway and david sokol. >> suzanne: he's the executive who unexpectedly resigned from berkshire late yesterday amid surprising revelations about his personal stock trading. sokol was also considered a likely successor to berkshire c.e.o. warren buffett. >> tom: berkshire and sokol insist he did nothing illegal,

but does even the suggestion of impropriety taint warren buffett and berkshire? erika miller reports. >> reporter: there's court, and then there's the court of public opinion. both matter in determining whether david sokol did something wrong. law professor jack coffee says criminal charges are highly unlikely. >> i think he may have done something that was morally wrong, reckless, even self- destructive. but i don't think he has violated the insider trading obligation, because he wasn't an insider of the company he was investing in. >> reporter: but to many, it appears that sokol violated berkshire hathaway's code of conduct. in it is warren buffet's rule of thumb: >> "i want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper." also at issue is whether sokol's personal trading will tarnish warren buffett's golden reputation. brand expert kelly o'keefe says

the answer is unclear. >> if you have an issue in your company where somebody is found doing something that looks self- serving, and you don't look to see if anyone else is doing that, there's something wrong with you. if i was a shareholder of berkshire hathaway-- and i'm not-- i would be asking, "how far does this go?" >> reporter: many public relations executives give buffett high marks for getting out in front of the story and crafting his own press release. the next step, they say, is for buffett to personally call for an internal investigation. >> he shouldn't wait for the press to do that. he shouldn't wait for the investors to demand it. he should say "i'm taking responsibility. we're going to look at whether there's any more of this, and if so, we are going to stamp it out." >> reporter: the oracle of omaha is considered one of the greatest investors of all time. but some say he may not be keeping close enough tabs on his employees. >> i think this is very poor corporate governance. i think many companies want their senior executives to clear

with the general counsel's office any major stock purchase that could, in any way, embarrass the company. and, certainly, this is damaging to berkshire hathaway's otherwise squeaky clean, snow white image as the model of good corporate governance. >> reporter: so, this incident may be more than a wake-up call for buffett and berkshire hathaway. it may be a lesson about the importance of disclosure and proper management for other firms, as well. erika miller, "nightly business report," new york. >> suzanne: higher interest rates could be in the works as early as this fall. the president of the minneapolis federal reserve bank said today a boost in short-term rates is, "certainly possible later this year, especially if inflation heats up." also today, the central bank today released thousands of pages detailing which banks took money from the discount window during the financial crisis. in the past, that info had been kept secret to protect banks from any appearance of weakness. today's release of names was prompted by a court fight with

news agencies. >> tom: here are the stories in tonight's "n.b.r. newswheel." wall street wrapped up the first quarter with a relatively quiet day of trading. the dow fell 30 points, the nasdaq gained four, and the s&p 500 was off two points. we'll dissect the quarter with s&p's sam stovall in just a few moments. trading volume picked up-- just over a billion shares moved on the big board; just under two billion on the nasdaq. oil prices hit a 2.5-year high in new york trading, closing above $106 a barrel. the 2% jump came as libyan rebels suffered a setback, raising fears the conflict in that country could be prolonged. a new round of stress tests shows ireland's banks are 24 billion euros short of capital. the irish government likely will take majority control of the country's remaining banks and inject money. regulators in europe are good with that plan. still ahead, important advice for parents. expert tips on teaching your children about money, as we debut a new segment, "kids and

cash." >> suzanne: from an earthquake in japan to civil war in libya, the market had its share of headwinds this quarter. nevertheless, the s&p 500 posted its biggest first quarter rally in 13 years, up 5.4%. sam stovall joins us now to talk about this teflon quarter and what could be ahead. he's chief investment strategist for standard and poor's equity research. sam, always good to you have on the program. >> thanks, suzanne. >> suzanne: so are you shocked by the market's performance this quarter? >> i think that the market really did show some remarkable resilience. as you said in your intro, despite the civil inrest in the middle east the additional sovereign dead downgrades as well as natural disaster in japan we were still able to put in the best first quarter since 1998. >> suzanne: and what is the explanation do you think for that? >> well, i think in general most global investors are looking upon this half speed

economic recovery and expecting it to pick up the pace in the quarters ahead. >> suzanne: so do you think of course the big question is do we continue this rally as we move into the spring and summer? >> i think we do. we're entering into the second quarter of the year which typically is a good quarter. not as good as the fourth quarter but we're also in the sweet spot of the 16 quarter presidential cycle. and when you look to the s&p since 1990 it's up about 2.5%. all ten sectors in the s&p have posted increases in prices in this second quarter with the strongest gains being found in energy and information technology. and the weakest in telecom services and in utilities. of course past performance is no guarantee of future results are. >> suzanne: well, of course that is what my question is going to be. we know what the winners have been in the past. and we know what the losers have been. so do you think that history repeats itself this year?

>> i think there is a good possibility. we are looking for good earnings growth to take place within the s&p 500. about twice the long-term average. we do think that the likely to see good price association from many. cyclical sectors and that the defensive will probably remain the laggards. >> suzanne: and in terms of earnings growth let's look at what we are talking about for earnings growth for q1 and q2, up 13% and up 15%, those are pretty respectable numbers. explain in the current economic environment how could we have that kind of growth? >> well, i think we are finally coming off of the very easy comparison in 2010. we saw a 38% increase in operating earnings this year. we're looking for about a 15% increase combination of good earnings growth as well as revenue improvements, share-buyback programs. so i think what we're basically seeing is a

recovering economy at about a 3 plus percent rate. >> suzanne: uh-huh. of course i'm sure you have worries. something must keep you up at night. what is it that worries you the post about the market as we look ahead into the next few quarters? >> well with w i think most people anticipate that inflation and therefore interest rates are going to be rising at a fairly gradual rate. i really look to a ten-year yield above 7% to get worried about pe contractions. but if we tart to see inflation pick up very rapidly and as a result see the fed ease off on a quantitative easing and start talking about more rapid rate increases than i think that could have put a halt to this market's advance. >> suzanne: so not so much geo political, more economic that stresses or potentially worries you. >> it does. because investors focus more on earnings growth longer term. that's how they decide to invest in the market. they use interest rates as a discounting mechanism for future cash flows, future

earnings and if those two factors are what are likely to slow more than investors anticipate, they really don't have any control over geo political events but they can at least forecast earnings. >> i think we have to leave it there. always a pleasure to have you on the program. >> my pleasure. >> suzanne: sam stovall of standard & poor's. >> tom: we just heard from sam stovall about the look ahead forth rest of the year,

the fundamentals. let's get you updated with what happens today with our market focus. >> tom: trading volume was up, but the major indices saw only small moves. the materials sector saw the biggest gains. this exchange-traded fund added just under a half-percent. shows you how small the sector moves were today. the fund sits less than a dollar away from a new 52-week high. leading the sector was fertilizer maker c.f. industries. this 3% rally came on heavier than usual volume. shares have more than doubled since their june lows. agri-business giant monsanto was

a sector leader, up more than 2%. it's just below an area of resistance in the mid-70s. why the buying? i a word, corn. the u.s. ag department reported lower corn supplies. that helped corn prices jump more than 4%, and higher corn prices helped the farm stocks. speaking of hot commodities, oil is back at two and a half year highs. light sweet crude closing over $106 a barrel. brent sea crude oil ending its session at over $117 a barrel, the highest prices since the fall of 2008. now, from oil to cars: used auto seller carmax earnings came in as expected, but used car sales were light. and even though same-store sales say a double-digit pop, it was not as much as analysts had forecast. that sent shares down, falling more than 7%. volume was four times normal.

this is the past 180 sessions, and the stock is back to where it began in the year. electric car maker tesla really saw a spark today, jumping almost 17% on very heavy volume. tesla went public in june, trading in the low 20s. morgan stanley called it america's fourth auto maker, upgrading shares to overweight. its price target-- $70 per share, two and a half times over tonight's closing price. auto parts maker meritor shed more than 15% as it dropped its guidance, thanks to higher steel prices. this is the former arvin- meritor. it officially dropped the arvin, and changed its ticker symbol to m-t-o-r. finally, erika reported on the berkshire hathaway controversy over an executive stock trade. both the "a" and "b" shares of berkshire fell 2%. the former executive at the center of the controversy is the biggest shareholder of

middleburg financial, and he said he's interested in starting his own investment company. middleburg stock jumped almost 18% and that's tonight's "market focus." >> suzanne: look for higher prices from toyota. the auto maker plans a 2% increase on models sold in the u.s. the price hike is expected to start in may, but it is not related to the recent supply and production disruptions caused by the earthquake and tsunami in japan. instead, the company says the move is to counter japanese yen gains on the u.s. dollar. >> tom: one of the hottest technology buzz phrases these days is "cloud computing." amazon.com rolled out "cloud drive" this week. it lets users store certain computer files in the "cloud," meaning on the internet instead of on their own computer. lanham napier is the c.e.o. of rackspace hosting, a leader in cloud computing. he is with us from the nasdaq, welcome to nightly business report. >> thanks for having me on the show. >> narrator: your company describes cloud computing as technology services delivered on demand over the

internet. how is this changing how companies and consumers are using and buying technology. >> well, the technology is going through a shift right now. we've grown-up in a world where businesses buy technology inputs and then run that technology themselves to make it work. we're shifting to a world where we will buy outputs and buy technology delivered over the web as a service. our company is singularly focused on building the service leader in cloud computing tingz will you only buy you what need, for instance n terms of software and computing pog we are as opposed to buying a big box but not using all of it? >> that's correct. will you basically purchase exactly what you need. use it for as long as you need and then will you be able to turn it off. >> tom: just yesterday awe nounced a collaboration with dell among others called open source cloud technology, technology you are lawing others to have. what is the goal of this project? >> well, we have launched an open source project called open stackment we originally launched it in collaboration with nasa, there are now 60 companies involved. what we are doing in this project is trying to create the ubiquitous open web standard for cloud

computing. >> tom: what is the business model? if you are providing the standard, do you get paid for that standard? how do you make money? >> no, we literally donated our intellectual property here from the project. from a business view for rackspace what we going to do is build services around the standard. our customers today pay us on an sla that we provide them to provide infrastructure. >> tom: define sla for those of us who don't know. >> industry buzzword, service level agreement. >> tom: your heads is in the cloud, cloud computing. >> right. >> tom: over the past few years i want to show rackspace net wock growth. you have put up these growth numbers, double digits 50% last year. will this kind of growth continue? >> i think what you are seeing in the industry right now is that the cloud computing movingment is literally in the early stages. today was opening day of baseball season. we have a long season ahead of us. the same way with cloud computing. these are early a dorpt days so yes, we expect the shift to continue for years. >> tom: even better than a 50% net income growth we saw last year? >> well, we will certainly try our best. >> tom: okay. electricity, a big cost four because you have to power

all of that, all of the cloud, right. what are you finding for power prices? >> well, i think think flim-- any time we are in an environment where comcome prices are rise, our expectation would be based on the fuel sources for the areas in which we operate. those commodity prices would be reflected in power prices as well. >> tom: so are you finding cheap power, where are you looking to expand? >> we're looking regionally in the u.s. on the east coast as well as the pas civic northwest. >> tom: and jobs come along with that expansion, i imagine. >> that's correct. when we open a new facility we open jobs to run the facility. >> tom: i want to end with your stock price t is just below an all-time high. was was an at an all-time, up 128% in a year. is that too fast. can you keep up with that? >> i think what is happening in the marketplace right now is the investor community is starting to understand the magnitude of the cloud computing opportunity and the value of the company to truly create the service leader in the cloud. if you look at our company's performance we have posted some good numbers and i think the investor community is coming around to that.

>> tom: we appreciate you walking through the clouds. lanham napier c.e.o. of rac rackspace. >> thank you. >> it sounds like a roping, get an update from hilary kramer. always nice to see you. we've gotten a lot of e-mail and bloc traffic, horizon lines, hrz the ticker symbol t was january 5th that you

liked this stock, looked at a dividend play t is down 80% since then. what do shareholder does? >> well, shareholders should sell because the auditors of horizon have said this may not be a going concern. in my case i will hold the share because they run a dollar. but is still a very disappointing situation and management really letdown shareholders in a significant way. >> tom: so are you still going to hold on even though you've lost what, 50 to 80%. >> i will, just in case and i want to see how this plays out. but for all intents and purposes this company has to restructure l go into bankruptcy. but they gave assurances in march in two different releases that horizon was able to bring down their debt load by 60%. the base payments that they have to make down to 20 million. so i want to see if there is any imagine thake can be pulled out of the hat. that doesn't change the fact that this was a levered play t was very unfortunate and it really makes me angry when management gives assurances. and gets hit with a fine for $45 million for price-fixing

especially when they were protected between the u.s. and the puerto rican shipping zone anyway. >> tom: right. to that point, horizon's troubles have been building forth past several weeks. back in february you mentioned the price-fixing conspiracy, the anti-trust plea, $45 million in fines, proposed legal settlements on top of that. since then it eliminated the dividend and this week raising problems of substantial doubt about continuing the business so what is the lesson for shareholders? >> it is a lesson in having asset allocation. never being too concentrated in one position. understanding that what you might think is the safest play, a dividend yielding company that had over 5% dividend yield, lots of cash flow coming in, although highly levered. anything can happen. we learned it with enron. we learned it with m.c. i worldcom. we learned it with leeman brothers. but there is a flip side too. this was a play on the economy recovery. and we saw other highly levered companies like in the rest chain, whether rubby tuesday or dine equity come all the way back and

give thousand percent gains. if it hadn't been for the fine this company could have made it. they had a lot going for them. >> you are suggesting share holders sell but you yourself are holding on? >> yes, because i don't want anyone to hold on to dead money and it's probably dead money. but i'm also still investigating and seeing what is going on in the company. because i want to understand exactly what happened here and why there were these misrepresentations. >> tom: there is the update on horizon lines. with our street critique guest hilary kramer, game changer stock.com >> suzanne: here's what we're watching for tomorrow: an update on the u.s. employment picture. we'll find out how many jobs were added or lost last month. and we'll see auto sales for the month. we'll also talk global investment trends, valuations and japan with our "market monitor" guest, gary motyl. he's the chief investment officer at templeton global equity. california's pension system for teachers, known as "calstrs," is deeper in the red. a new report shows it's now $56 billion short on benefits

promised to its 850,000 members. that leaves the pension just 71% funded, and means the state will have to come up with cash. the shortfall is blamed on big investment losses from the financial crisis. the teachers pension will run dry in 2042, unless the state and its unions come up with a long-term fix. >> tom: officials in wisconsin are putting the brakes on implementing a law limiting collective bargaining rights for public workers. today, a judge there ruled the law was not in effect because it had not been officially published. republican governor scott walker had started to carry out the law earlier this week, but he agreed today to stop. however, the governor still says the bill was legally published.

>> suzanne: most parents try to teach their children good habits. the same can be said when it comes to introducing kids to money. so we're starting a new series to help you raise financially- savvy children. it's called "kids and cash." tonight, neale godfrey, founder of the children's financial network, has ideas on turning everyday activities into financial lessons. >> why is it important to raise financially responsible kids? if your answer is so they can take care of us in our old age, forget that. the answer is, because we want

them to grow up to be independent and financially responsible adults. we want them to have a healthy attitude toward money, and how to earn it, spend it, save it, share it. also, lets face it-- we want them to be able to move out of "hotel mom and dad". money can be a wonderful part of life, a part that helps you to achieve your dreams. or money can be the part of life that tears families apart and leaves them in ruins. i don't want to scare you, i want to empower you to make money lessons become life lessons for your children. many people make money a secret. how can you expect your kids to understand anything about money if it's a secret? remember, all our kids ever see us do with money is spend it. they don't see us save it, pay bills, or give it to charity. make your world your classroom for your kids. next time you whip out that credit card, explain that its only a convenience so you don't have to carry so much cash. then, explain that the bill will come at the end of the month, and you will pay it. when you use the atm, explain

that the nice bank is not just giving you their cash; the bank is giving you back your money that you deposited. i'm neale godfrey. >> tom: for more ideas on kids and cash, go to our web site. it's nbronpbs.org. that's "nightly business report" for thursday, march 31. i'm tom hudson. good night, everyone, and good night to you, too, suzanne. >> suzanne: good night, tom. i'm suzanne pratt. 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.

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