>> tom: stocks tumble as wall street spends the day re- assessing the fed's view of the economy. >> the truth is when you have this major financial shock it takes a long time for the real side of the economy to recover. >> suzanne: from the stock market to the recovery, we look at the impact of a slow growth scenario. you're watching "nightly business report" for wednesday, august 11. 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.

suzanne pratt is with us. just one day after the federal reserve confirmed an economic slowdown, wall street today reacted in a big way. >> suzanne: tom, stocks sold off sharply. the dow lost 265 points, the nasdaq was off 68 and the s&p 500 lost 31 points. volume also picked up, with over a billion shares trading hands on the big board and 2.3 billion moving on the nasdaq. >> tom: the fed's assessment of slowing growth reminds some investors of japan 20 years ago. that's when growth stalled following a deep recession. scott gurvey looks at whether we're headed down the same road. >> reporter: it is called japan's lost decade-- the decade of the 1990's when the japanese economy did not grow. the stagnation followed a severe recession, the result of a bursting real estate bubble. the similarities to america's current condition are striking. but economist jerry webman of oppenheimer funds says there are significant differences.

>> we're a major commodity producer, unlike japan. our population is growing; it's not shrinking. we've been more active than japan on both... particularly on the monetary policy side, we've restructured our financial system more quickly. so we have all those things that set us apart from the japanese experience. >> reporter: the federal reserve has taken aggressive steps to keep the american economy from stalling. the bank of japan, observes david wyss of standard and poor's, did not. >> japanese took interest rates down to zero, like the fed has done. but they pretty much refused to engage in any further quantitative easing measures. and as a result, you didn't get much improvement in financial conditions. banks were still locked up. the federal reserve has been much more anxious, much more eager to go into quantitative easing to avoid that trap. >> reporter: the catch is that avoiding the trap means positive

growth, not explosive growth. after a decade of boom, that is a difficult, although common, adjustment. >> we are in the aftermath of a major financial crisis, one that we haven't seen the likes of in 70 years, but one that economic historians are telling us the world has experienced periodically for hundreds of years. and the truth is, when you have this major financial shock, it takes a long time for the real side of the economy to recover. >> reporter: that truth is not satisfying for people used to instant gratification, but accepting that slow growth is better than no growth, is seen as key to avoiding a japanese decade. >> most of it's psychology. let's face it, everything that happens out there is caused by the psychology of the consumer, the psychology of the investor. if we all suddenly became confident again, started buying stocks, started investing more, we'd come out of this. >> reporter: after their recession, the japanese went into a psychological funk which contributed to the stagnation that followed. many economists tell me u.s.

policy makers need to be cheerleaders to prevent that from happening here. scott gurvey, "nightly business report," new york. today investigators saw the biggest drop in the stock market in a month. corporate profits are growing by more than 30% in the most recent quarter, but the economy clearly remains weak. roger ibbotson joins us from the c.m.e. group. welcome back to "nightly business report." >> great to be here. >> tom: what do you make of today's selloff, a buying signal or selling off in the months of september and october. >> obviously, we have learned once again that the market is risky. on the other hand, there are opportunities in risks like this, and i actually think the stock market is a healthier position than the economy. the economy is pretty weak. >> tom: clearly we've seen that with corporate profits up by better than 30% over the past year.

is there a disconnect between the corporate economy and the real economy? >> well, i would -- there is a disconnect because they were once doing reasonably well, and the economy is not doing really well. but what corporations have been doing is cutting their costs. if they get top-line growth, they'll actually do really well. when the real economy picks up, it will definitely help the corporate sector. >> tom: you are confident the real economy will pick up? >> eventually. not immediately. >> tom: we have seen investors flocking to things they will make on when they sell. given the selloff, isn't that prudent investing. >> well, actually, you pay a very high price if you were to buy the most liquid thing. in the stock market, where we work, actually, if you buy things that are a little less liquid, you can actually find the big bargains because there is less demand for those kind

of stocks, and you can get them as discount prices. you have to pay lot to get the most liquid type of securities. >> tom: in fact, you brought research along with you that shows investments in the least liquid stocks have come with higher profits through the past generation, going back to 1972, least liquid stocks returning annually almost 16%, compared to the most liquid stocks, under 10%. but doesn't that come with the higher risk? >> not necessarily higher risk. actually, lower beta, and a lower standard deviation. the conventional measures of risks are not actually higher, but lower. it is true, if you have to immediately liquidate your portfolio, it might be difficult, but you can design portfolios using this strategy that actually have a lot of liquidity, all of the liquidity that people need. in fact, the key to the whole thing is you want to manage your liquidity just like you manage your risks. >> tom: when you talk about beta, measurements of volatility and swings

up and down. you brought an idea, exallon, $42, with a yield of almost 5%. is this a search for a dividend yield? >> that is partially dividend yield. actually, i think of it as an undiscovered stock. there is over a billion dollars in earnings. it is improving earnings. it beat its estimates. very strong earnings, but it really is under the radar. maybe not so much in northern illinois where i'm sitting because they have electric utilities, but it is not a heavily traded stock. >> tom: okay. any disclosure for that position, roger? do you have a position? >> we do have a position. we have excellent stock. >> tom: appreciate the in sights, roger ibbotson, who is chairman and chief investment officer at zebra capital. >> here are the stories in tonight's n.b.r. news wheel, the trading deficit hit the highest level,

rising 19% to almost $50 billion. we imported a record of $200 billion of goods like cell phones and tvs, but exported only $150 billion of stuff. sales of telecom equipment. and economic worries tanked oil prices. it fell $2.23, or almost 3%, to $78.02 a barrel in new york trading. meanwhile, aaa says gas prices average $2.78 nationwide, up 3 cents from last week. still ahead, it towers over a third of all u.s. electricity. we talk to the u.s. head of siemens eric segal about the future of energy. >> tom: help unemployed homeowners at risk of foreclosure. the money will go to 17

states with higher than average jobless rates and the district of columbia. as stephanie dhue reports, the new cash goes to a six-month-old program. a program that has yet to show results. >> reporter: the idea is for state agencies to taylor solutions for unemployed americans at risk of foreclosure. treasury assistant herb alison says it is worth the effort. >> unless we continue to survey our various programs, we think it basically defines the need, and we're confident that this is going to be fully utilized. >> reporter: the administration is also putting up a billion dollars to offer interest-free loans. struggling homeowners can borrow up to $50,000 to make mortgage tax and insurance payments for as long as two years. but foreclosures continue to swamp government efforts with more than 300,000 foreclosures each month. of the 1.3 million bar rose eligible for the

program, only a third have had their loan terms chairng --changed under the five-year program. bank of america, city, and wells fargo are backing a new on-line tool to help housing counsellors work with bar rose. larry gilmore says it should help struggling borrowers. >> it is to increase communication, provide standardization and transparency with what is taking place with the loan modification applications. >> reporter: housing people can check on the application, and scan them into the system to keep them from being lost. if an applicant is denied a government loan modification, the software can help them apply for a bank program. the center for responsible lending's julie gordon welcomes the program, but says the problem needs a more serious effort. she would like to see

homeowners work out the loans through bankruptcy. >> we can't give up on six million people and substantially more who are going to lose their homes. it will continue to hamper our recovery and send us into a second recession. even if the millions of americans at risk of foreclosure were able to get their loans modified, experts say three-quarters of them are likely to default on those loans again. that's because many of those borrowers have high levels of other debt. stephanie dhue, "nightly business report," washington. é

>> tom: a day of digesting the federal reserve's announcement left traders and investors more leery about holding stocks and economically sensitive commodities. a weak start to the trading day gave way to more selling throughout the afternoon. traders were watching the 1086 level on the s&p 500. the index finished just above that level. looking at the past month of trading, remember the s&p 500 in july had its best month in a year. with today's selling, the index is back to a price last seen about three weeks ago. market fear jumped. the chicago board options

exchange volatility index, which tends to move in opposite directions as the stock market moved up 13% to its highest level since late july. it remains in a fairly tight range though. with the markets rethinking the outlook for the u.s. economy, and data out of china pointing to a slowing economy there, economically sensitive commodities got caught up in the sell-off. crude oil dropped blow $80 per barrel. this is its lowest price this month. silver straddles both the precious metal and the industrial metal markets. it's at a two-week low. this is a 2% drop in copper, falling from a four-month high hit last week. traders call it a risk-off day, as investors thought over the fed's weaker assessment of the economy and its new strategy of buying government bonds. lots of investors want to get ahead of the fed, driving down the yield on the ten-year u.s. treasury to below 2.7%. as yield's drop, prices rise. the market still has a ways to go before it threatens the low interest rate of below 2.1% set in december 2008.

after the close, tech giant cisco systems didn't help the market mood for stocks. its results were a similar refrain, good profits buysappnt. cisco's earnings beat the street by a penny per share. its sales, however came up $40 million short of analyst expectations. with cisco doing more than $10.8 billion in sales, the $40 million disappointment amounts to less than a half percent of its total revenues for the quarter. but, the market reaction was swift. cisco was down 2% before the earnings, and fell another 8% after hours. if that selling holds to tomorrow, it would take cisco to a five-week low. the cisco news may add more pressure to technology, with semiconductors continuing to see selling. chip material maker cree had a good quarter, but it was overshadowed by a mixed outlook. this is its lowest price since february. communication chip maker broadcom fell 6% on heavy volume. intel shed another 2%. intel is down 6% since monday. one bright spot in the market came thanks to the american department store shopper.

the my macy's strategy at macy's appears to be working. profits were six cents above forecast as its gross margins grew. the my macy's program customizes merchandise for stores based on their location. erika miller reported on the strategy in november here on n.b.r. macy's was the second-best- performing stock within the s-&p 500 index, rallying almost 6% on heavy volume. shares have now eclipsed last month's high. general motors is one of the world's biggest automakers. tata motors makes about a tenth the number of vehicles as g.m., and its luxury brands are driving profits. the company is based in india, but it has stock that trades in the u.s. those shares are at more than a three-year high. its luxury brands are jaguar and land rover. and that's tonight's "market focus."

>> suzanne: as tom mentioned, stocks sold off sharply today on increased worries the recovery is faltering. for a different take on the health of the u.s. economy, we're joined now by eric spiegel, u.s. head of the global engineering conglomerate siemens. the u.s. market accounts for nearly 20% of siemens' revenues, and the company operates in the industrial, energy and health care sectors. mr. spiegel, welcome to the program. >> thank you. >> suzanne: so siemens has its hand in a variety of businesses. how do you think the u.s. economy is doing right now? >> we're usually a pretty good baroómetro for the

u.s. economy. we have long cycle businesses, which means people place orders well in advance of when they'll be delivered. last quarter, our orders were up about 50%, almost across the board, particularly in areas like energy, power sector, renewables. some of our industrial and building efficiencies, and also even in the health care sector, with the health care reform now in place, people seem to be settling down with less uncertainty and starting to buy again. i think that's a pretty good indicator we think the economy is going to look up over the next 12 to 18 months. >> suzanne: that was for the quarter that ended june 30th. what about for july and august? >> we're seeing things moving up still in orders and sales. we really haven't seen the kind of slowdown, but, again, we're in longer cycle businesses in general. >> suzanne: why do you think so many c.e.o.s we hear about are reluctant to commit capital at this point? >> it really depends on

the businesses you're in and we're you're aligned against. we're aligned against a lot of businesses where we see a lot of indicators that people see a need to invest. for example, industrial productivity is a big theme we're seeing in the marketplace. people really want to improve their productivity. they've done some cost-cutting, but now they want to automate and drive more productivity in three business. energy-efficiency is still an area were where people are investing. there is a lot of money to be made by making basic in investments in more efficient motors and better manage energy demand. our wind business is way up. we're continuing to see now orders for that as on-shore wind and offshore wind seems to pick up. we're in the right businesses where a lot of new work is going on. >> suzanne: you mentioned renewables. what happens to that sector if the economy begins to falter? >> the biggest issue in

renewables and wind, there are investment tax credits -- for example, those expire at the end of 2011. the energy and climate administration didn't go through recently. that will have a negative impact long-term if we don't get some kind of a price on carbon and we don't think about getting more renewable standards in place. they will drive more growth and capital investment in renewables. >> suzanne: i want to ask you about jobs. siemens employs about 60,000 in the u.s. what are your plans for hiring in the next year? do you have plans for hiring? >> we do. in fact, we added a couple thousand jobs in the last year or so. we've got plans to do additional expansion. we're adding a lot of manufacturing. manufacturing really creates jobs. we're going to expanding our gas turbine plant in charlotte, and we're just finishing building a wind plant in hutchison, kansas, which will add several hundred jobs. we're hoping to expand our rail plant out in

sacramento. so many of our manufacturing businesses that are doing well, we're planning on expanding those in the near term and creating real jobs with those. >> suzanne: so would you say you're going against the trend in terms of hiring in this country? >> at this point, we are. we did cost-cutting early a couple of years ago, and that got us out in front and helped our profits. and now we're starting to see orders and growth pick up. it is a time we'll be hiring some people in the key sectors we seeing growing. >> suzanne: good to hear that. thank you for joining us this evening. >> thank you. >> tom: here's what we're watching for tomorrow: quarterly results from anheuser- busch inbev, general motors, and retailers kohls and nordstrom. we'll see weekly jobless claims, along with july import prices. also, bank overdraft protection. your bank probably wants you to have it, but do you really need it? we'll look at the overdraft pros

and cons with "consumer reports." >> suzanne: next month, we'll get a full report on the so- called "flash crash" that rocked wall street on may 6. that's the day the dow plunged nearly a thousand points in minutes. the commodity futures trading commission and the s.e.c. will release their final report in early september. a few weeks after the crash, the agencies launched a test of circuit breakers for individual stocks. >> tom: do you like to browse the mall for sales? well, there will soon be a new app for that. the nation's biggest mall operator, simon property group, is teaming up with a silicon valley startup to give deals to shoppers with smart phones. it's called "shop-kick." retailers beam ads and coupons to people as they pass by. the program will launch in 25 malls by the end of the month. macy's and best buy also plan to try the technology.

>> suzanne: in the "money file," if deflation is a real worry for the federal reserve, what's an individual investor to do? here's eric schurenberg, editor- in-chief at bnet.com and editorial director at cbsmoneywatch.com. >> for more than a year, the bond market has been the wal- mart of the financial world: the place the smart set shuns and the little guy loves to shop. well, yesterday one very big investor, the federal reserve,

announced that it too was a bond buyer, and would pump an estimated $250 billion into treasuries through next year. small investors, who've been pumping money into bond funds all year, were vindicated. oh, and there's this, too: so far this year, bonds are up almost 7%, stocks about 1.5%. the question, though, is what now? the reason bonds have done well this year is clear: fear of deflation. in a deflation, prices for goods and services fall and the dollar increases in value. that's the perfect time to own treasuries. you know uncle sam will always make his interest payments, and as prices deflate, you'll be paid in dollars that are rising in value. the problem is, as bond prices have risen, yields have fallen. the 10- year treasury now yields less than 2.8%. at these levels, risk enters the equation. you see, when yields are this low, bond prices become even more sensitive than usual to movements in interest rates.

if rates just go back up to where they were in april-- 4%-- the price of your 10-year bond will drop about 9%. in other words, hedge your bets. hold some stocks and some cash, even though they haven't done as well as bonds, and stocks in particular have risks of their own. yes, deflation is a danger. but before you go whole hog into any investment, you always have to have an answer to the question, "what if i'm wrong?" i'm eric schurenberg. >> suzanne: that's "nightly business report" for wednesday, august 11. i'm suzanne pratt. good night everyone, and goodnight to you too, tom. >> tom: good night suzanne. i'm tom hudson. good night everyone, and thanks for joining us. we'll see 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 >> more information about investing is available in "nightly business report's" video "how wall street works".