>> tom: it may be near freezing in washington, but the nation's capitol will soon heat up with a budget battle of epic proportions. >> all sorts of spending under the knife. if you own shares in companies that do business with the federal government, you won't like the news. >> susie: a look at the new congress and the budget battle to come. you're watching "nightly business report" for tuesday, january 4. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made ssible 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. the 112th congress will be sworn in tomorrow, but the bickering is already well underway over the government's finances. >> susie: many people are looking for this congress to usher in an era of tighter budgets and more responsible spending. that could have broad investors.. and individuals. >> tom: the questions are whether house republicans will be able to reign in uncle sam's budget and how? washington bureau chief darren gersh has a closer look.

>> reporter: first, let's look where house republicans won't cut the budget. defense is off limits. social security and medicare, too. veterans, homeland security-- no reductions there. and of course, interest payments on the national debt are protected. that leaves roughly 12% of federal spending, says william hoagland a former top senate budget staffer. >> whether it be research, education, science, technology, energy, transportation, housing- - that small section of the budget would come under extreme pressure. >> reporter: house republicans want to cut $100 billion out of that pot-- too ambitious says hoagland. most analysts expect actual cuts to be lass than half that. and house republicans will start even smaller than that, voting on a spending reduction every -- symbolic says conservative week. -- symbolic says conservative economist douglas holtz-eakin, but still important. >> there is no tradition of

cutting spending on either side of the aisle. so for legislators-- republicans and democrats alike-- to get used to the idea they have to vote on spending cuts is a very valuable thing, even if they're just small cuts. >> reporter: the year's main event will come this spring with a show down close to when the nation hits the debt limit. the result says hoagland is likely to be an agreement to put limits on spending as a step towards budget discipline. >> if you do not meet those targets, fine, congress and the president there will be an automatic process that will make across the board cuts-- not the right way to govern, but there is some penalty for not acting. >> reporter: if all this sounds like abstract washington maneuvering, it isn't. analyst stuart sweet says it will affect investors directly. >> all sorts of spending under the knife. if you own shares in companies that do business with the federal government, you won't like the news. >> reporter: republicans like the new house majority leader eric cantor call their strategy

"cut and grow," arguing it will lead to job creation. democrats fire back it will weaken the economy and hurt vulnerable americans. darren gersh, nightly business report, washington. >> susie: here are the stories in tonight's nbr newswheel: a mixed day of trading on wall street-- the dow closed up 20 points, the nasdaq lost 10, the s&p 500 slid a point. trading volume picked up from yesterday with a billion shares moving on the nyse and just over double that on the nasdaq. fed policy makers apparently can't agree on what to do about the economy. minutes from the final meeting of last year show some central bankers think the economy will pick up on its own without more money pumped into it. the minutes suggest the fed is in "wait and see" mode. and you've got a few more days than you thought to get your income taxes in to uncle sam. the irs today pushed back the deadline from april 15 to the 18, due to a holiday in the

district of columbia. >> tom: still ahead-- sending your portfolio to the dogs. tonight's word on the street: "dividends." we'll looks at the best dividend plays among the so-called dogs of the dow. >> susie: our guest tonight says 2011 looks great for stocks, not so great for bonds. and the economy will pick up sharply by the second half of the year. robert doll, the chief equity strategist of blackrock, is out with his annual list of ten predictions and he joins us now. >> susie: hi, bob. happy new year to you. >> and to you, susie. >> susie: you sound pretty upbeat. why are you so bullish. >> we think that the economic momentum in our economy has improved. that valuations are reasonable. that the deflation debt risks have lessened some what, and washington, d.c. has become a little more capital markets-friendly. you put all of that together, and we think stocks can be be okay again. perhaps the third year in

a year of double-digit gain. >> susie: prediction number one, you say that the economy is going to exand with the g.d.p. het hitting an all time high. and you expect two to three million jobs being created. bringing the unemployment back down to 9%. that doesn't sound like much of an economic recovery. >> the economic recovery, susie is devil a tepid one. we still have issues of debt and paydown on all of the stuff we borrowed on. we think it is better in '11 than it was in '10, but will not make the history books for the best recovery. >> susie: moving along to prediction three and four. big gain in stocks, and you see a move out of bonds. is this the time for investors to get out of bonds and finally buy those stocks? >> we think investors should be overweight

equities, and careful about the maturity of their fixed income rates. we think stocks will have a low double-digit percentage return. similar to what we enjoyed in 2010. >> susie: all right. let's get your global outlook. here you have a couple of points you want to make. u.s. stocks do better than the other international markets. commodities continue to rally. so are you saying here that gold and oil prices are just going to keep on going up? >> we think so. gold and oil and copper and a few other commodities kind of work straight up without much interruption in the last couple of years. i think it will be a bumpier ride, susie, but i think all three, and other comedies, will end up the year higher than where they were at the start of the year. with think the u.s. stock market, back to the first of this section, will do better than the rest of the developed market and actually outperform some emerging markets, once again, as they did in 2010.

people lost sight of the fact that the u.s. outperformed most other things. >> susan: and you think that the u.s. and germany is also going to outperform, you elected china and spain and japan. what is so special about that comparison? >> the u.s. quality of growth will improve. it will be more about final demand -- less about government stimulus. less about inventory rebuild. germany doing a great job with their export markets, and have been fiscally prudent right through this. we think that will help that market as well. >> susan: big increases in stock buybacks. how should investors take advantage of that information? >> i think investors to focus on companies with good, free, cash flow, they'll be dividend increases, share buybacks, perhaps mergers and acquisitions, and reinvestment in the business. these are all good things are that underpining a reasonable outlook for the

market this year. >> susie: and drumroll, prediction number 10. what does this mean for investors about more republican candidates, obama moving to the center? >> i think the independents are what are going to make the difference in 2012 as they did in '08 and '10. president obama got a lot of democrats in '08, and lost then in '10. a lot of republicans will be declaring for a presidency here in 2011 in our view. >> susie: all right. you've had a great track record and doing the 10 predictions over the last decade. we're going to be watching very carefully to see how these play out. thanks so much, bob. >> thank you, susie. >> susie: we've been speaking to robert doll of blackrock.

>> tom: robust december sales have the nation's auto industry revved up about the new year. from gm to fellow bailed out auto maker chrysler, the american manufacturers faired well last month. but toyota's sales continued to tumble, off 5.5% in december, on continued fallout from its safety recalls. for the full year, that pattern pretty much repeated-- ford led the sales gains, up nearly 20%, followed by chrysler and g.m., but toyota lost ground with sales falling fractionally.

tom, what's on tap in tonight's market focus, we just reported, susie, but overall it was really about three things. commodities, commodities, and commodities, and that played out into the stock market. let's take a look here as we roll on out our market focus. as we reported earlier, the major stock indices were mixed. the bigger market moves were seen in commodities. gold and silver and other commodities as well seeing trier biggest drop in more than in the last month. we've got a $44 move to the downside today. gold is on the verge of erasing all of the gains that we saw in the month of december. but let's not forget that the rally we've seen in gold clearly is much longer than the 30 sessions we're showing here. let's roll on out a full year's worth of trading in

gold. it has a low of really almost $1,000 per ounce back in february to over $1400 per ounce -- this was just yesterday's high by the way. a 52-week high. just a reminder, with our new look of charts, they may look a little different, but all of the information is the same. it was more than just gold here, silver has clearly had a more dramatic run-up over the past year. this is an 80% rally we've seen in silver. today off 5%. again, off of the new all-time high, a 30-year high we saw just yesterday. a surprise increase in november factory orders didn't really help silver. which is surprising because silver is usually a precious metal an an industrial one. the metal move had mining stocks falling. helka and cordelane -- all

of these seeing volumes double from the 10-day average in today's selling. while not clearly a minor, alcoa makes its money in metals. aalcoa shares continue to rally. in fact, as we take a look at a 12-month price chart of alcoa -- nice move from the september low, alcoa leading the shares. shares have been strong leading into the earnings report scheduled for next monday. back to the commodity selling, we saw oil fall below $90 a barrel for the first time since last month. and corn and wheat fell from the past two-year highs. you might be saying you're not a farmer, why do you care about those prices. it could mean higher food prices. at super value, you're going to look at a 30-day session. from $8 to $9.50.

morgan stanley cutts rate over worries of the high food prices. we're going to take a look at one-year chart of super value. the trend obviously beginning back in the springtime has been moving lower for super value. and other grocery stocks seeing some selling. the fresh market came public last year. it dropped more than 5%. and safeway fell almost 4%. and whole foods fell more than 3%. the telecommunications put in the best sector, led by metro p.c.s. shares added another 6.5%, four times its usual volume on this nice volume from $5.50. and optimism is building that the fourth quarter ended with a bang for metro p.c.s. b.p. shares were heating up.

it is a six month high in b.p. we've got to go back to $60 and change before the gulf oil disaster really fell off the cliff. the daily mail in the u.k. reports that royal/dutch shell may be interested in a merger. and drug-maker zoma, big pop in price and volume. 37% move higher. partnering with a french company for antii antiinflammatory medicine. look at that, back in the middle of last month, and tonight over $7 a share. we've got a video on our website, nbron pbs.com. >> susie: 2010 was a good year to be a small cap stock. those equities, measured by the russell 2000 small-cap index, far outperformed the broader market, rising 25%. will that performance continue this year? as erika miller reports, while january is traditionally a good month for the stocks of small companies, not everyone's

convinced the january effect will work this year. >> reporter: as any bite into a jalepno pepper will tell you, small things can often pack a punch. that's also true in the stock market-- small companies walloped their larger rivals last year. many on wall street are confident small firms will continue to outperform this month, thanks to a seasonal pattern called the "january effect." the most common theory is that investors often to sell losing stocks for tax reasons in december, and reinvest in january. though the strategy benefits all stocks, it tends to have a greater effect on smaller, more thinly traded companies. perritt capital's michael corbett expects the smallest of the small fries to do best. >> we see more attractive valuations within the micro cap space versus the small-cap space. so when we look at overall p/e

ratios and price-to-sales and other characteristics, valuations look a little more attractive still within the micro-cap space today. >> reporter: small caps had better earnings and sales growth than large caps the past two quarters. but some analysts don't think the momentum will continue. bank of america merrill lynch strategist steven de sanctis believes small caps are overpriced, relative to the earnings growth they are likely to deliver this year. >> obviously, the economic news has been a little bit better, but the growth rates aren't going to be that substantial. and to generate 20-plus percent earnings growth seems hard to envision. and so with that, i think estimates will fall. with estimates falling, small cap performance should lag. >> reporter: de sanctis is not saying bail on small caps entirely. he believes they should always be a portion of a person's portfolio, regardless of market conditions. he just doesn't think now is a good time to increase that weighting, expecting the russell will gain high single digits this year. >> our firm's viewpoint is that large caps will be in the mid-

teens in terms of their return possibility. so there will be a pretty wide spread between large caps and small caps this year. >> reporter: how small caps fare this year matters to more than just investors. smaller companies tend to be more domestically-focused. so when they do well, it's typically a sign the u.s. economy is improving. erika miller, "nightly business report," new york. strategy,buttheoppositemay

bethe technique for stock dividends. buy high and sell low. david pelzer is back with us. and he joins us tonight from the nasdaq. welcome back to "nightly business report." nice to see you again. >> thank you for having me. >> tom: investors would be guided to buy when the dividend is high. what's considered a high dividend yield these days. >> anything over 3% is pretty good right now. especially something over 3.5. because that will get you a higher yield in the coupon on the 10-year treasury right now. >> tom: one investment strategy that has been popular for years, the dogs of the dow theory. you buy the highest dividend yielding stocks among the 30 components making up the dow jones industrial. how has that technique worked as an investment idea? >> in 2010 it did pretty well. the top 10 yields did 15% to 16%, which beat the overall dow, which was up 11%. if you take the six

previous year. 2004 to 2009, they only onperformed one. >> tom: you said to look for the companies poised to raise dividends. how do you judge that. >> just don't buy the highest yields. i look for earnings. any good company can earn twice as much as the divid they pay out. and that will give them a little cushion. >> tom: we've got a mathematical formula. 72 cents a share, and you look two times that would equal $1.44 a share. the estimate for last year was almost $2 per share. so under your formula, intel looks like it could be poised to raise its dividend. the share prices is essentially flat over the last 12 months, despite a 3% yield. so why do you like it? >> what i like it is a

couple of things. first of all, the company is flush with cash. and the stock is very inexpensive as 10 times earnings. i think the company can gain market share, which will give the company pricing power in 2011. >> tom: added that up to a possible dividend yield, and that's one of your dogs of the dow. verizon you also like in the telecom space. it is clearly a high-yielder. over 5%. >> i like it at current left, 5.3% dividend yield. it is second only to at&t in the dow jones. one thing horizon could have is the iphone. if the iphone comes to horizon, it could move over to $40 a share. >> tom: any disclosures for intel or versus? >> no. i don't own either one. >> tom: you're article is at thestreet.com.

the word on the street is with david pelletier with thestreet.com. >> susie: here's what we're watching for tomorrow: we'll get a check on the services sector with the i.s.m. december non-manufacturing survey. and washington says hello to a new batch of lawmakers, as the 112th congress is sworn in. also tomorrow, "street critique" guest hilary kramer will answer the questions you emailed and blogged into us. she's editor of gamechangerstocks.com. and then there were two-- two motorola's that is. the company today formally split itself up. motorola mobility will handle consumer-focused business lines like cell phones and tv set top boxes. it trades here at the big board under the ticker symbol "m-m-i". motorola solutions includes professional business lines like police radios. it also trades here-- ticker symbol "m-s-i". >> tom: the big apple has set a big record-- more than 48.5 million people visited new york last year. that's despite an outbreak of

bedbugs and a volcano in iceland that grounded air travel in europe for days. tourism is new york city's fifth biggest industry. last year, it generated about $31 billion in direct spending and added 6,600 jobs to hospitality industry payrolls.

>> susie: where do corporate leaders come from? a new study shows many come from the military. tim kane did that study, and shares his results. he's a research fellow at the kauffman foundation. >> the odds of a veteran becoming ceo of a major us company are roughly three times higher than non-veterans. that either means the military is overflowing with great leaders, or it is mismanaging and driving away its best captains. let me share with you the results of a survey i conducted of 250 west point graduates from the classes of 1989 through 2004, recruited blindly. 93% say that half or more of the best officers leave the military early. do active duty officers agree? 81% do. two-thirds believe their unit commander supports creative thinking, but say the personnel system is to blame for rewarding seniority over merit, failing to weed out weak officers, and

poorly matching jobs with talent. get this-- 55% want the personnel system radically reformed. you can read the full report from nbr's web site as of today. but if you're worried that pentagon bureaucracy is harming national security, you're not alone. the graduates of west point are worried, too. i'm tim kane. >> susie: that's nightly business report for tuesday, january 4. i'm susie gharib, goodnight everyone and goodnight to you too tom, >> tom: good night susie. i'm tom hudson goodnight everyone, we hope to see all of you again tomorrow night. "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 captioned by media access group at wgbh access.wgbh.org