this is "nightly business report" with tyler matheson and susie gelling, brought to you by -- >> the treat.com, multimedia tools for an ever-changing financial world. our dividend stock adviser guides and enrate income during a period of low interest rates, real money helps you think through ideas for investing and trading stocks. action alerts plus is a charitable trust portfolio that provides trade by trade strategies. online, mobile, social media, we are the street.com. >> super tuesday, the 20th straight tuesday gain propelled the dow into record territory. >> hot houses. home prices spiked the most in seven years. has housing be become the driver of the economy? >> back in black, once broke, california is now sitting on a pile of cash and it's not alone.

the stunning turnaround in state coffers. all this and more tonight on "nightly business report" for tuesday, may 28th. one way up. that was the direction of the stock market today. the markets bounced back from last week's losses with the dow settling in record territory. the catalyst, housing and the consumer. home prices jumped almost 11% in march compared to a year earlier and that's according to the s&p case schiller. we'll have more on that in just a moment and the survey from the conference board shows americans are feeling more confident about the economy, the highest confidence level in five years. the dow rose 106 points to 15,409 and that's the first time the dow has closed above the 15,400 level. the nasdaq was up 29. the s&p 500 added ten points. it was a bullish way to kick off the holiday-shortened week. optimism was the word of the day in stock markets around the

world. the buying started even before the opening bell rang on wall street. stocks rallied from japan and china to london and frankfurt as central bankers promised to continue pumping money into their economies and to keep interest rates low in order to promote global growth. here in the u.s. investors were encouraged by that report showing home prices are red hot, and consumers are more upbeat about the economy. for today, investors shrugged off worries that the federal reserve will begin to taper its stimulus program. something that spooked the markets last week when fed chief ben bernanke testified on capitol hill. the dow surged as much as 200 points in the first hour of trading and then closed at a new record high, making this the 20th tuesday in a row that the blue chip average crossed into record territory. >> i think they're all interrelated and the market being up where it is and consumer confidence getting better and the housing market

improving badly. they're all interrelated and when one person feels comfortable about their condition they're more apt to go out and spend money and more apt to buy houses and more apt to invest in the market. >> how much higher do stocks go from here? the major averages are due for a correction and say that would be healthy for even more rallies. >> i don't think the tapering talk would have done it, but when it does come they would put more money to work in equaties. >> while stocks rosed bond prices and the yield hit 2.17%. that's the highest level so far this year. >> with that spike in home prices we talked about just a moment ago, best in seven years, some are wondering if the rebound in housing can drive the overall economy higher where others are concerned about prices rising too high, too fast and warning of some housing headwinds on the horizon. diana olick now digs in to the details. >> weak supply and strong demand are pushing home prices higher

at a rate not seen since the height of the housing boom. >> right now they're healthy. if we go far beyond it so we're talking in six months or a year from now about 20% gains, then i ink we get worried about bubbles again. >> home prices are still nearly 30% below where they were in 2006 and lending conditions today are nothing like they were back then. >> without the mortgage rates, the housing market would not have had near the recovery that its had and it's been the real combination and in a sense a potent brew of very low mortgage rates which has helped keep demand high and that's meeting constraint supply. >> during the housing boom easy credit allowed homeowners to cash out equity and pump it out into the economy. no such luck today and housing starts which usually drive the economy are still well below historical norms, never mind where they were during the boom. >> when you look at this, buying and selling existing home is very nice and the prices are

going up and it doesn't add anything to gdp. the recovery is, however, fueling the stock market. the homebuilders are already expensive so investors turning to alternatives like the bank, mortgage insurance even truck makers like ford and gm thanks to contractor demand. investors are going back to an old game, flipping. >> when we talk about the speculative market,a, gen, that's going to be those hardest-hit areas and that's where the speak laters will come in the home flippers and that's what will drive the bargain lookers and those deal lookers. >> the difference today is these flippers can only use cash which thankfully take the bank and the broader economic risk out of the eqtion. >> for "nightly business report" i'm diana olick in washington. >> turning to the economic and market development, mohammed is co-chief investment officer at pimco, the world's largest bond fund company. mohammed, great to have you with

us. you heard our report that investors are buying stocks on reassurances from central banks pumping money into their economy. so is this stock market rally healthy and what are investors in for when things reverse? >> so this rally which has been a wonderful rally has been driven by three factors. one, you're absolutely right, a ton of liquidity being injected by central banks. two, technicals have been into the asset class. people that were underinvested, and three, and much weaker, the fundamentals. today finally we got good news. last week, unfortunately the news was less good. so we've come so far based mainly on central banks. in order for us to stay here and go further, we need the fundamentals to pick up. we need the economic conditions to validate the high prices, otherwise this wedge that the central banks have created between fundamentals and prices will be very difficult to

maintain. >> so what we've got, mom maham if i'm understanding you, we have a deficit of real economic growth, why hasn't the sort of experimental policies that have been undertaken by central banks around the world, why hasn't it produced growth, can it , and what happens if it doesn't. one is the liquidity gap where you're in a situation where you have to put a ton of liquidity in there in order to trigger response. two, we will have structural impediments so we emerge from the crisis healthier. we can walk at an economy at 2%, but we can't sprint because of a structural impediment and third, there are genuine question marks about what will the tax system look like in two to three years so companies are holding back. if this continues and if we don't get the response that allows companies to drive up their revenues and maintain their profits then we will have an issue because prices would

have disconnected too far from fundamentals. >> all right. what does all of this mean for investors and what they should be doing? number one, you run the world's largest bond fund. i want to know what you're doing with the clients that have bond portfolios. what should individuals do with their bonds and i know you run stocks, too. so what's your advice on stocks? what should investors be doing to position themselves right now? >> so at these levels and given that we're starting overweight risk so we've been benefiting our clients and benefitting from this rally, at this level of prices we are walking away from risk. we are not running away, we're not sprinting away because central banks are committed. we are taking money off the table because we think there may be better opportunities and we're also keeping an eye and this is very important on the liquidity conditions and we saw some very strange behavior in the markets in the last few days that raise questions about the functioning of the markets. so we think that this is a good time to walk away from risk, not

run. walk away, especially if you started with an overweight position in risk assets. >> what was the unconventional behavior that you saw? elaborate on that. that sounds interesting, mohammed. >> we saw liquid the break down in certain segments of the market and you know, we pay very close attention to the functioning of the market and we're seeing a liquidity desire that's cascading across different segments -- >> where? where, precisely? for example, the high yield market today. there was an issue and there wasn't as much liquidity that we would normally expect. we're keeping a very close eye. a lot of people would say that's normal because after all, when central banks are no longer just the referees of markets and also playing on the field, they're going to change the functioning of markets. >> mohammed, i just want to follow up on what you said, walking away from risk assets. what do you put in that category? is gold in that category or stocks in that category?

what do you mean? >> mainly stocks, high-yield bonds and if you look at the absolute level of yield, susie, as opposed to the spread, the absolute yield. it's funny, but if you watch people when they are proposing, and suggesting you should buy things, it is no longer about the fundamental value. it is only that it's cheaper than something else. >> right. >> but at some point cheaper than has to be supported by fundamental value and we are worried that the disconnect is getting too big. >> okay. we'll have to leave it there. thank you so much, mohammed. always a pleasure to have you on the program. >> last week we told you about a huge deal in the works in the health care business and today it became official. generic drugmaker valiant will pay $8.7 billion cash to a private equity firm for the eye care giant bausch & lomb. shares of valiant soared when rumors started to surface last friday and shares closed 9% higher today and they're up

nearly 20% since word of that deal surfaced. >> a pleasure cruise turned into a nightmare for thousands of passengers aboard royal caribbean's grandeur of the seas. after a fire broke out on the rear of the ship monday as it headed from baltimore to the bahamas. luckily, no one was injured and the cruise line chartered flights to take passengers back to maryland fully reimbursing them for their trip. shares fell 1%. from disaster the seas to more trouble on the nation's railways. a csx freight train derailed today sparking a fire and the collapse of several nearby buildings. fire officials evacuated everyone within a 20-block radius of the incident and videos posted on facebook showed a devastating explosion after at least three rail cars overturned. hazardous material teams are on-site now trying to determine whether residents are in any danger. shares of csx closed down a fraction today.

>> and coming up on the program, call it a rags to riches story. they're turning it around and now flush with money. we'll look at what it all mean, but first, here's a look at companies hitting 52-week highs. ♪ ♪ ♪ ♪ ♪ walmart will pay $81 million after pleading guilty to charges the company dumped hass douse waste in california. the plea settle misdemeanor of dumping across the state. part of the fine will also cover charges in missouri. walmart settled similar charges in california three years ago

and agreed then to pay $27 million. california is golden again just three years after california's budget deficit hit $60 billion. the state is on track to post a surplus this year, and it's not the only state that's flush. mary thompson has more. >> california is regaining its golden globe. it's putting it on firmer fiscal footing with budget surplus now estimated at 1.2 to $4.4 billion. california's not alone. the national association of state budget officers or nasbo projects a significant majority of states will report bigger-than-expected surpluses, a better economy, a stronger stock market and an income pushed forward into 2012 in order to avoid paying higher taxes in 2013 all behind these largerr-than-expected windfalls. windfallses anticipated by strategist peter hayes. >> we've had 12 consecutive

quarters now of better revenue growth and it's been slowing a bit and we've seen this coming for some time. the extra cash triggering sparring within state legislatu legislatures. in ohio, and indiana among other state, governors want tax cuts. tennessee boosting health care and prisons. it's a far cry from late 2010 with the national economy slumping and federal aid drying up, noted analyst meredith whitney told cbs' "60 minutes" that you could see 50 sidable defaults. 50 to 100 sizeable defaults amounting to hundreds of billions of dollars. the sell-off triggered by those comments a distant memory from the muni bond markets. the states spend widely so they don't come up short again. nasbo recommends the extra cash go to a rainy day fund, and that may not seem sexy for voters,

but it could prove better for the state's fiscal future. for the nightly business report, i'm mary thompson. >> the spotlight is on the winners and let's begin with dow component merck and it led the farm as higher as jefferies upgraded it to buy from hold and it describes it as the best restructuring plays in the pharma group and a backhanded compliment. they pushed merck up almost 1% before it fell back to close at 4762. unitedhealthca unitedhealthcare, another dow component and humana announced they will offer small employers, a self-insurance option this year as companies mitigate the 2014 cost of the affordable health carry. it closed at 63.34 and humana up similarly. moody's raised the outlook from negative to stable, that and the housing news made financials attractive today and state

street, the big trust bank was the leader of the pack. statestreet shares rose more than 2% to 57.15. >> ford zoomed to a 52-week high today after kelly blue book predicted sales rise by 8.7% in may and ford boosted by a "barron's" report suggesting that europe's demand for new vehicles is bottoming and that forced profit is likely to accelerate as the european economy improves. it is up $15.28. that's an increase of more than 3%. net app, this is the data storage company announced it has certified cisco's new storage switches and will begin reselling them in its systems and that sent shares of both companies higher with net app leading the nasdaq 100. net app closed at 37.71 up almost 3.5% while dow component cisco rose 1 1/2% to $23.89. from tiffany, sterling quarterly results and earnings and revenues came in better than expected as business improve individual regions.

tiffany reported store sales up 8% for the quarter and reaffirmed its outlook for the year. shares of tiffany soared to a new high before closing up almost 4%. >> outlet malls are also seeing is stronger sales a cod other to the next guest. today it celebrated the 20th anniversary of its big board debut and there is our next guest ringing the bell. steve, welcome. good to have you backs. >> thank you, tyler. >> let's talk about what the consumer is doing today. the report is consumer confidence is the highest in five years. tell me about your customer traffic over this past weekend and how it compares to a year ago. are there more of them? are they spending more? what happened? >> initial reports from the shopping centers in 26 states and canada are that traffic was up slightly 2% to 3% and we anticipate sales will be up by a similar amount. so in spite of the weather and all of the other issues that led

to this, we are looking forward to a very positive memorial day weekend. >> tell us, steve, a little bit about the retailers. what are you hearing something? i know you talk to them a lot and you're dealing with a broad section of retailers. are they as optimistic? >> our retailers are optimistic. they come through the recession as have other businesses, focused on their purchasing, their pricing and this inventory and display is the best i've seen it in close to 30 years. so our retailers have done a fabulous job and the consumers are responding and they're coming to the outlets throughout the country in greater numbers and our sales are up. >> tell me a little bit about two things that i notice in the outlet business, and i go out to your one in riverhead on long island from time to time, but i notice two things. one, it would seem that there are more companies trying to compete in your space.

that's number one, it seems like the outlet malls which you're a pioneer of have come closer to the metropolitan areas, what risk does the dynamic pose to you? >> let me put it in reverse for you, tyler. we've been doing this for 32 you'res, and yes, outlet centers are closer to the metropolitan area or the -- of that coys. we created a true distribution channel today. so we are looking forward to many years of stned growth. we welcome competition. this is america. this is the capitalist environment, success breeds competition and our sector which is a unique sector, it's easy to announce a project and it's very difficult to get one built, but there's a long runway to grow in

the united states and in canada for outlet center, new outlet center. we anticipate in the next ten years as many as 100 new outlet centers can be built on an existing base of about 150. so we are small niche, but a high growth company and a high growth industry. >> we have half a minute left and i do want to ask you about what the market for commercial real estate is like. we've been reporting a lot about housing. we heard our report about how prices are going up and a lot more buyers. what about in the commercial space? >> well, we're in the retail space and the outlets do not trade very often and they trade at low cap rates or high valuations because these are not replaceable assets. they are world-class assets and when they come on the market there is a feeding frenzy to buy them. >> steve, thank you very much for being with us and congratulations again on the 20th anniversary if you're listening. >> coming up, are those skies safe from computer hackers.

we'll take a look, and look at today's actively traded shares. the designs of more than two dozen top u.s. weapons systems have been compromised by chinese cyber spies, that's according to a military report obtained by "the washington post" on the list the f-35 joint strike fighter. this is the most expensive weapons system ever built with a cost expected around $1.5 trillion. the white house says cyber security will be discussed next week when president obama meets with china's president. >> and with all of the talk of hacking lately it makes people wonder what's the next target?

critical infrastructure like our energy grid, financial institutions and the telecom system all get special attention. transportation also falls into that category and although there have been no cyber threats to the airlines, at least none that we know of, scott cohn tells us there is one person whohink this is a real safety concern. >> brad haines was born a hacker. >> i was one of those kids that was always curious, always liked science and took apart the vacuum cleaner as a kid and always wanted to know how things worked. >> haines who goes by render man does i.t. support for canada by day and sometimes by night he wows his friends as an escape artist, but his real passion is beating something tougher than handcuffs, high-tech security systems. >> security system is supposed to keep people out. finding ways to bypass that is kind of neat. >> his late of the target, the faa's next generation traffic control system when full ney

place is supposed to make it more dependable and what it really does is to make the whole system vulnerable to hackers. >> no good will come of this. >> the problem, he says is if the system uses gps data instead of just radar. the problem with this is that the signals that they're using are unencrypted and unauthenticated. because it's unauthenticated you can't prove this came from the real plane. in theory that means hackers could mess up the system by generating flights that don't exist. >> you could theoretically ground everybody. >> or they could target a real flight with frightening precision. everyone can generate that same kind of data and inject it it into the system for whatever nefarious reason you can imagine. it's put into a flight simulator to show what can happen if the system is hacked. >> iwe are able to create a flight and we are able to take off from san francisco airport and circle over the bay and buzz

the tower. >> the consequence of putting a ghost flight on the air traffic controller's panel could be disastrous. the air traffic controller is one of the most stressful jobs out there. if i suddenly injected 50 extra flights on to the radar screen and they hadn't expected, they're going to be panicking trying to figure out what's going on. >> todd humphries, an expert on navigation systems believes renderman is on to something upon. a potentially cat strofk flaw that could put all of us at rec. this is something using antiquated technology from the 1980 an. >> he brought his evidence to the ncfaa, but claims they ignod him. a spokesman defended the system saying the agency has a thorough process in place to identify and mitigate risks. the process is ongoing and there are backups to ensure safe operations. in a statement the faa declines to say just what the risks are that are identified and saying

that information is security sensiti sensitive. i'm scott cohn for "the nightly business report." >> finally, tonight, with summer just around the corner and some of us making vacation plans a new report says the u.s. is the only advanced economy, tyler that doesn't require paid vacation days. some airlines, norwear and for the whole month of august. >> come -- or high water because they don't care whether the economy is good or not. my country, i'm from norway, in part. >> but you're living here. >> maybe i'll get my norwegian citizenship spruced up. >> that's it for us. thanks so much for joining us. >> i'm tyler matheson deeply in need of a vacation. have a great evening, everybody. we'll see you tomorrow night. "nightly business report" has been brought to you by -- >> the street.com, interactive multimedia tools for an

ever-changing financial world. our dividend stock adviser guides and helps generate income during the period of low interest rates, options, profits helps educate beginning and seasoned actions traders and action alerts plus is a charitable trust portfolio that provides trade by trade strategies. online, mobile, social media, we are the street.com. ♪ ♪ ♪

>> the following kqed production was produced in high definition. >> next on spark, go behind the scenes of san francisco opera's "the bonesetter's daughter," based on amy tan's most personal novel. >> i'm hoping that the people who otherwise would never go to opera would have a cathartic emotional experience. >> then, renowned sculptor maya lin installs her first work in san francisco, at the new california academy of sciences in golden gate park. >> my art takes science and tweaks how we look at the world. >> finally, a day in the life of two hard working troubadours who make a living serenading mission district patrons. next on spark. >> major support for spark is provided by the james irvine