>> susie: first greece, then portugal, now ireland-- late today, irish government debt is called junk. >> tom: one of the biggest bond investors, pimco's mohammed el- erian, talks about the i.o.u. troubles and the ongoing efforts to cut the red ink in america. it's "nightly business report" for tuesday, july 12. 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. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. u.s. markets see-sawed today in reaction to a whirl of events around the world, susie. >> susie: tom, let's start with the federal reserve-- released minutes from its june meeting. with policymakers hinting they're open to a new round of stimulus, or so-called qe3. a warning from president obama that if lawmakers fail to reach a debt agreement, he cannot guarantee social security checks will go out on time. and moody's investor's service downgraded ireland's debt to junk status, saying the country might need bailout. >> tom: those developments, plus continued worries about europe's debt problems spreading to italy led to a volatile day of trading on wall street.

as the dust settled, the dow lost almost 60 points, the nasdaq fell 20 and the s&p 500 down about six points. the losses came on heavier trading volume-- 923 million shares on the big board and over two billion on the nasdaq. >> susie: joining us now to put all these developments in perspective, mohamed el-erian, c.e.o. and co-chief investment officer of pimco, the world's largest bond fund. >> a lot to talk about. >> there's a lot >> susie: let me begin with the fed. do you think the fed is going to come out with another round of stimulus? is it a good thing? >> well, they're divided. in the minutes some people said perhaps we need more stimulus. others said oh, no, not too fast. worry about inflation. i think what the fed is telling us for sure is two things. one is revised downward growth projection, not just for 2011,

but 2012, tells us that the slow down is more than cyclical. second to they're acknowledging they're driving in the fog. there's a lot of disagreement as to what the outlook looks like, and whether policy should be changed or not. so basically what they're telling us is, we will act. we just don't know what we're going to do. >> susie: is this a good time? does it make sense for investors to be buying treasuries? i understand pimco has been boosting treasury holdings. does it make sense for investors to do the same? >> what we've been doing is moving back from instruments that have outperformed to other instruments to maintain the overall position of the portfolio. more generally, susie, i think investors to to recognize something we've talk body before. this is a very volatile time. there's a lot going on. it's an uncertain outlook. it's not clear that policy

makers know what to do. europe is in crisis. we have this uncertainty about the debt ceiling. this is a time when anyone investor should fasten their seatbelt and be able to navigate the volatility. >> susie: talk about the debt problems in europe and the u.s. president obama got everyone's attention with the warning about social security. duepg that the final, final dent agreement will protect people who are dependent on social security. dependent on medicare, and will it also be constructive for the economy and the market? >> i think we're going to get an agreement that maintains the government -- checks are going to go out. what is happening and has been happening in the last few days is we've shifted away from the notion of a grand bargain. notion that we can come up with something that gives clarity to perhaps a mini deal, and even talk of a stop gap measure. so i think we will get an

agreement. but the scope and durability, it will fall short of what the economy needs right now. >> susie: i want to get your quick thoughtocityly. some people suggested that european policy makers will somehow rescue italy from financial problems because italy is just too big to fail. are we unnecessarily worrying about this situation in italy? >> we are right to worry about the situation in italy. and the reason why we're worry about this situation in italy as a marketplace is because europe failed to solve the smaller problems. they failed to solve greece, they failed to solve portugal, and now ireland downgradeed to junk as you noted in the beginning. so there's a lack of confidence in the european officials. italy is different in two ways n. a bad way, it's much bigger than the other three economys

and much more important, and therefore, much more systemic. it's also different in a good way. it doesn't have the same severity of debt problems and adjustment problems. our hope is that this will be a wake up call to europe to get its act together and once and for all to solve the problems in the peripheral economy. too much debt and an inability to grow. >> susie: mohammed, we have less than 30 seconds. let me swing back. do they have to change their time horizon on investments, bonds or stocks, shoertd term oriented rather than the long term because of the headwinds? >> i think the key is to make sure you have positions can you sustain. this is going to be a roller coaster. and the last thing you want to do is be forced to sell at the wrong time. be comfortable about what you have and try to navigate the roller coaster. >> susie: good advice. thank you so much for coming on the program. as always, a pleasure talking

with you. >> thank you. >> susie: we've been speaking with mohammed el-erian, the ceo of pimco. >> tom: still ahead, tonight's "word on the street" is "europe!" given all those problems in greece, portugal and italy, we get three overlooked stock opportunities from across the sea. spiking oil prices sent the u.s. trade deficit surging to its highest level in over two years in may. the commerce department says the deficit climbed to over $50 billion. as americans paid more to bring in foreign oil, imports rose to a near-record $225 billion. exports fell slightly from april's record to just under $175 billion. >> susie: senate republicans are looking for a plan "b" on the debt limit. under a plan floated by minority leader mitch mcconnell, the president would be able to increase the debt limit over time by $2.4 trillion. the catch? he would have to cut spending even more.

the offer comes as talks slog along. for some perspective on why this is so hard, darren gersh looks at why spending for entitlements like medicare is both extremely popular and a target for cuts. >> reporter: any program providing health care for 48 million people will be complicated, but medicare's financial problems can be summed up with a few numbers. a decade ago, spending on medicare was a relatively modest $222 billion. by 2010, that had more than doubled to $523 billion, and that is projected to almost double again to $923 billion by 2020. dr. mark mcclellan ran medicare under president george w. bush and says its rate of growth is just not sustainable. >> our health care costs are growing at a rate much more rapidly than our overall economy, and that means that any real effort to address the federal deficit must address spending on the medicare entitlement. >> reporter: the deficit talks

in washington change minute by minute, but federal health care spending might come in for cuts of around $350 billion over the next ten years. advocates for medicare say the president's health care reform act already targeted half a trillion dollars in medicare cuts. max richtman at the committee to preserve social security and medicare says that's enough. >> slashing medicare, which is what is being considered now by some, without it also addressing overall health care costs and health care inflation across the board, will not solve anything. it will just squeeze medicare beneficiaries. >> reporter: democrats have pushed for medicare savings by forcing providers to change the way they deliver care, rewarding quality over quantity. republicans come from the other side, arguing for reforms to make americans more cost- conscious consumers of health care. mcclellan says any solution to medicare's funding will have to do both. >> we need to change the way medicare pays doctors and hospitals, so that they do get

paid more when they take steps to keep people healthy and avoid unnecessary services. we also need to give medicare beneficiaries an opportunity to be more effective and powerful consumers of health care. >> reporter: given the white-hot political risks of tackling a long-run reform of medicare, analysts expect a big agreement to reduce medicare spending won't be reached until after the presidential election. darren gersh, "nightly business report," washington. >> tom: our coverage of the debt ceiling debate continues a little later in the program with the search for middle ground.

>> susie: a way to describe today's market action is confusing. to be worry body italy, the u.s. economy, the debt talks. it's such a barrage of different information points. >> tom: a lot of headline risks. especially midday through the closings bell, susie. very confusing. good description. let's see what it looked like to the market folks. it was a day of indecision, until we got to the last 20 minutes of the trading. so lets pull out and roll out. we start with today's chart of the s&p 500. it hovered around unchanged before rallying around 2:00 p.m.

eastern time, that's when the minutes from the last federal reserve meeting were released. then moody's cut ireland's government debt to junk and the index closed at its lowest price of the day. off by about 0.5%. here's the past 90 sessions. the march lows held, but the market was unable to get above its april high. back earlier this month. technology stocks saw some of the stiffest selling, especially semiconductor and semiconductor equipment stocks. this exchange-traded fund concentrated in chip stocks dropped more than 3% on more than twice its average volume. back in june and march, it found buyers at $32.50 per share. that's one area to watch. microchip technology led the selloff in the sector, down more than 12%, to prices last seen in november. january of this year. it warned about earnings due to

problems with its automotive business related to the japanese earthquake in march. others making semiconductors for the auto industry saw their stock prices hit. analog devices fell 5%. texas instruments dropped more than 3.5%. chip equipment maker novellus shed more than 11%, falling to a seven-month low. its quarterly revenues and its outlook came in a little shy of estimates. it notes customers are getting cautious. another chip equipment maker, applied material, lowered its outlook for industry spending. applied materials fell 2.6%. one tech standout today was p.c. sales have been soft as tablet sales have taken off. one tech standout today was cisco. this one 1% rise was enough to be the best dow industrial stock today. however, cisco has been a big disappointment for the past year, stair-stepping lower with a series of disappointing forecasts. as part of the company's efforts

to rejuvenate its business, bloomberg reports it will cut 14% of its workforce-- 10,000 jobs. expect some job cuts from the corporate merger of n.c.r. and radiant systems. n.c.r. makes cash registers and bank a.t.m.s. it will buy radiant for just over $1 billion. n.c.r. stock fell about 3% while radiant jumped more than 30%, closing just shy of the buyout price of $28 per share. campbell soup warmed up some today. volume was heavier than usual, up more than 1%. campbell announced plans to spend money investing in new soup products, hoping to set the stage for future growth. shares are down 4% over the past year. fastenal may not be a household name like campbell, but you may use its products, ranging from screws and bolts to pencil sharpeners. earnings were better than anticipated despite a big jump in fuel and metal prices. it was the worst-performing stock in the weakest sector today, slipping more than 4%,

coming off an all-time earlier this month. volume was pretty decent. and that's tonight's "market focus." >> susie: wall street is gearing up for a barrage of earnings reports next week, mostly from big banks. earnings season brings with it both landmines and opportunities for investors. erika miller explains why investors need to pay attention to these quarterly reports from corporate america and what they should look for. >> reporter: walk into a t.d. ameritrade branch and you'll find plenty of people checking their stocks and researching investments. yet almost none of them had any idea the second quarter reporting period is now underway. are you aware it's the start of earnings season? >> no, i was not. >> reporter: would that affect your investment strategy at all? >> obviously not. ( laughs ) >> reporter: do you pay any attention to earnings season? >> absolutely not. >> reporter: but stephen wood of russell investments says it's important to watch corporate earnings, because over the long

term, they are key to stock market direction. >> over extended periods of time-- quarter after quarter, year after year-- earnings tend to be a very strong indicator of how a company is going to perform. the consistency and the quality of earnings-- the cash flow, the revenue-- which is another word for top line-- that a company is >> reporter: this quarter in particular, wall street is hoping to see solid evidence that demand is picking up. market strategist andrew goldberg says it's no longer enough to meet earnings expectations. companies also have to show revenue growth. >> the first part of the economic recovery, we saw companies beating analysts expectations by cutting costs aggressively. now, what we've seen in the last three to four quarters is that that's transitioned from companies beating estimates because they've been able to cut costs aggressively to actually seeing top line revenue growth. >> reporter: as an investor, it's important to keep in mind that one quarter does not define a trend. sometimes when a company misses earnings expectations, it's a reason to sell a stock.

other times it is reason to buy. experts say the decision should be based on why the company fell short and by how much. it is also important to get a good sense of the company's outlook for the future. >> the saying in value investing would be "broken stock but not broken company." so, you would have some knowledge about the company longer term that would give you confidence. but in the short term, the stock is being sold off and that would give you your entrance opportunity. >> reporter: that advice is not lost on investors like ajit shah, who plans to watch earnings season closely. >> suppose they forecast very stronger-- then i buy on a dip. >> reporter: so, it's all about what they say about the future. >> future, right. >> reporter: earning season can often bring big swings in stock prices, but investors who know what to expect going in can often use that volatility to their benefit. erika miller, "nightly business report," new york.

>> tom: this is another summer of discontent over government debt in europe. and the worries have hit overseas stocks. by one measure, an exchange- traded fund that includes 50 of the biggest european stocks, european stocks have dropped to their lowest level since march. that brings us to tonight's "word on the street," "europe." robert walberg is the chief market strategist at thestreet.com. walberg is with us from the nasdaq. bob, welcome back. how are stocks of european countries impacted by the government debt worries? >> well, tom, it has been, as you mentioned earlier, ugly. the european markets across the board have some of the

worst performers in the world year to date. generally, the fears of the debt overhang and the implications that's going to have on the economies of that whether it's cutting spending, slowing down economic growth. all thaf has led to the shedding of >> tom: so you're bringing along three global players in europe thaw find value, beginning withun unilever, , an hellmans, , , and it's held up well, hasn't it. >> i think it's a dollar a share below the 52 week high, and up double digits on the year. when you're looking at making a play in europe, you want to look at the general overall weakness and concerns to buy large consumer goods type of companies, things you buy no matter what the economy is doing. that's where where the mon seflowing. unilever is a well managed company, and selling a lot of

strong bands that they have worldwide. and the big thing is the growth of the middle class market throughout much of the emerging markets as it comes up with a demand for products. very attractive play. >> tom: and you see it with pharmaceuticals in novartis, one of the strongest european countries, switzerland. clearly that's helped out the share price. what do you expect? >> again, very much the same theme. drug companies are a place where money nroeps to in uncertain times. i think we're seing that in novartis, and the company exhibiting solid double digit easternings growth. and valuation is cheap at 14 times earnings, and the stock has a 4 fnt 2% dividend yield. combine that with uncertainty and it's an attractive play. >> tom: give us 20 seconds on the british alcohol company, diageo, known for johnnie walker, smirnoff, and bailey's. they've done pretty well. >> you drink it, may make t.

and in bad times or good, people are going to have alcohol. the business has been growing, and the emerging markets are a tremendous growth opportunity for diageo. i really like the stock here. >> tom: on the rocks or -- >> i like it on the rocks. >> tom: do you own any of these? >> unilever is owned is one of the portfolioings auto the street, and the others are wanted are not. >> it's the word on the street. >> susie: here's what we're watching for tomorrow: federal reserve chairman ben bernanke heads to capitol hill to give lawmakers his semi- annual update on the economy. on the earnings calendar, a.m.r., the parent of american airlines, delta air lines and yum brands report. also tomorrow, hilary kramer is our "street critique" guest. email your questions to streetcritique@nbr.com. new pressure today for newscorp chairman rupert murdoch to abandon his bid for satellite

broadcaster b. sky b. the u.k. government says it will support a non-binding motion in parliament urging newscorp to drop the deal. murdoch has also been asked to answer questions about the phone-hacking scandal surrounding his tabloid, "the news of the world." u.s. regulators say they're not investigating newscorp, but that if issues arise with any of murdoch's u.s. media properties, they will. >> tom: the much-anticipated consumer finance protection bureau will open its doors later this month. the woman setting up the agency, elizabeth warren, said the agency will begin overseeing the nation's biggest banks on july 21. specifically, it will look at how banks with more than $10 billion in assets comply with consumer finance laws. the bureau was set up as part of the dodd/frank financial overhaul passed by congress last summer.

>> susie: when it comes to finding common ground in washington, tonight's commentator asks, what does it really mean to be somewhere in the middle? here's tim kane, research fellow at the kauffman foundation. >> after weeks of pressure to cut spending before raising the debt ceiling, president obama is ready for entitlement cuts. this may end years of name- calling. in america, liberals describe their opponents as free market fundamentalists with extreme

plans to return to a state of nature. conservatives describe liberals as socialist wolves in capitalist clothes. sure, the truth is probably somewhere in the middle, but is the middle just a question of tax rates? regulation? consider a spectrum of government engagement. on one extreme, the private sector does it all, making and selling things like books and haircuts. on the other extreme, the government does it all, financing and providing highways and f15s. in the middle? think about r.o.t.c. scholarships, a service paid for by uncle sam but provided by professor x. this framework raises two questions. first, why is k-through-12 education in america on the socialist end of the spectrum? and why is pre-school on the state of nature end? imagine if americans got cars like they get high school diplomas. you're assigned a factory, and when you get there, you're assigned a vehicle. well get more value when government realizes it has a

role in financing public goods, but no role in producing them. education. roads. and yes, medicare. so stop talking about privatizing government, and start personalizing it. i'm tim kane. >> tom: just a reminder, you catch us online at nbr on pbs.org. there you can watch any programs that you may have missed or you >> susie: that's "nightly business report" for tuesday, july 12. i'm susie gharib. good night everyone, and good night to you too, tom. >> tom: good night susie. i'm tom hudson. good night everybody. we hope to see all of you again tomorrow night. "nightly business report" is made possible by:

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