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tv   Nightly Business Report  PBS  February 28, 2011 6:30pm-7:00pm PST

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>> tom: stocks rally to cap off a volatile february, but traders say the bulls' path could be blocked by a huge obstacle: rising oil prices. >> there scenario where oil prices derail the stock market is real. it's not a baseline scenario. >> susie: we look at how higher crude prices could affect the market and how higher gasoline prices are putting the squeeze on small businesses. you're watching "nightly business report" for monday, february 28. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening, everyone. february was an up month for stocks and oil prices. all of the major stock averages rose about 3%, the third straight month in the black despite the spike we've seen in oil. >> tom: susie, investors were relieved that crude prices pulled back today from their recent highs. in fact in new york trading, april crude futures fell about $1 to $96.97. but for the past month, they
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jumped more than 5%. >> susie: and now there are new concerns tonight about what those rising oil prices could mean for the stock market. suzanne pratt reports. >> reporter: without a doubt what happens with prices here has a definite impact on prices here. that's especially true when energy costs spike in a short period of time. take last week for example-- the worst one for stocks since august. crude oil prices jumped 15% in a matter of days. in that same time frame, the s&p 500 lost nearly 3%. big board specialist jonathan corpina says equity investors are reacting to fear of the unknown. >> if we're going to see oil prices move higher, it's because there's uncertainty in the middle east. and, when there's uncertainty in the middle east that can reflect to uncertainty globally and any type of uncertainty, investors pull their money to the sidelines. >> reporter: in the summer of 2008, when crude prices surged to a record $150 a barrel the s&p 500 plummeted.
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from july through december, the index plunged nearly 30%. clearly much of the decline was due to the financial crisis, but oil prices also got some of the blame. the question today is whether stock investors will eventually shrug off the oil shock and see this time as a buying opportunity. or, will they continue to worry higher oil prices will unravel the fragile economic recovery. investment strategist stephen freedman says the scenario where oil prices derail the stock market is a real threat. >> we believe that from current levels where oil is at about $100, if you were to go to a $110 and stay there for a while, you could start to see some affect on g.d.p. and ultimately on the stock market. >> reporter: others say equities appear to made of teflon, shaking off europe's sovereign debt crisis as well as persistently high u.s. unemployment. >> we will continue to get headlines that are negative headlines. it just seems that the market is
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so resilient at this point that it digests the headlines and it really takes just a day or two to shake it off. >> reporter: and, experts say it's a lot easier to shake off those headlines if the u.s. economy is on strong footing. suzanne pratt, "nightly business report," new york. >> tom: for many businesses, it's gasoline prices that are worrying. and those prices are expected to continue climbing following the sharp rise in the price of crude oil. the national average price for a gallon of regular gasoline is now $3.35. that's up nearly 20 cents from a week ago, and 65 cents higher than a year ago. economists say higher fuel costs could force some consumers to pull back discretionary spending. as diane eastabrook reports, many small businesses are afraid to raise prices, despite gasoline costs eating into profits. >> reporter: the prices phillip's flowers and gifts has been paying for roses and other blossoms have been stable in recent months. that's the good news. the bad news? it's costing the chicago area florist a lot more to bring
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product up from south america. buyer barbara ergo shows me one of many bills she recently got. >> the freight bill for the product for 122 pieces cost $424.40. the fuel surcharge that's on it is $110.34. >> reporter: wow. that's a lot. >> it's huge. it's 26%. >> reporter: just as business was starting to pick up speed for companies like phillip's, pump prices-- climbing toward $4 a gallon-- threaten to put the brakes on it. big shippers like airlines and trucking companies are getting around higher fuel prices by passing them partly onto customers. that's dealing a double whammy to smaller companies like phillp's. it's not only paying higher shipping costs, but spending a lot more to gas up its own delivery trucks. chairman and c.i.o. jim phillip doesn't think business is brisk enough to hike prices to his customers, so he's cutting costs where he can. >> we do work very hard to manage our delivery costs, so we use technology like cell phones, g.p.s., computerized address
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checking to try to keep our other costs under control so we don't have to pass them along. >> reporter: mesirow financial economist diane swonk agrees that raising prices on discretionary products and services in the current economy is a huge gamble. >> it adds to the unevenness of the recovery. in fact, we've already seen this in the consumer sentiment data, which showed that all of the improvement in the consumer sentiment in february came from among the wealthiest households who could care less about these higher energy prices. there was an actual deterioration in consumer sentiment among the poorest of households, who have already had to pull back at shopping at discount stores and any discretionary spending they had anyway. >> phillip thinks his business can shoulder higher gasoline prices even if they top $4.00 a gallon. but economists say in this fragile environment some small business may be forced to cut workers if prices keep climbing. diane eastabrook, "nightly business report," westmont, illinois.
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>> susie: here are the stories in tonight's n.b.r. newswheel: stocks closed higher after oil prices stabilized. the dow rose 96 points, the nasdaq added a point and the s&p 500 up seven points. big board volume climbed 1.25 billion shares. nasdaq volume settled above two billion shares. american consumers spent slightly more last month, despite a tax cut that gave them the biggest jump in income in nearly two years. spending was up 0.2%. personal incomes rose 1%. another sign of uncertainty in the economy from the national association of realtors. it reports fewer americans signed contracts to buy homes last month. still, top economists are more optimistic when it comes to economic growth. a survey by the national association of business economics predicts our gross domestic product will grow 3.3% this year, up significantly from the 2.6% forecast in november.
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and other evidence supports that outlook. business activity in the midwest region grew at a faster-than- expected pace in february. the chicago business barometer rose to a 22-year high, led by a rise in production and new orders. still ahead, if recent history is any guide, tomorrow could be a profitable day for investors. we'll explain how successful the first trading day of the month has been and why. >> tom: it's week three of protests in wisconsin, as democratic lawmakers continue to stay away from the state legislature. they're protesting a bill that would limit collective bargaining rights for most public workers. wisconsin governor scott walker says the state faces "dire consequences" unless the 14 state senators return to vote on a budget repair bill. the battle over the budget is not limited to states. but as darren gersh reports, the budget battle in washington is taking a new tone.
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>> reporter: flexibility seems to be catching on these days in washington. speaking to the nation's governors, president obama said he'd offer states flexibility in implementing the new health care reform law. that law allows states to develop their own health insurance programs in 2017. the president says he now supports legislation to make that happen three years earlier, at the same time most of the requirements of the new law take effect. >> if your state can create a plan that covers as many people as affordably and comprehensively as the affordable care act does-- without increasing the deficit-- you can implement that plan. and we'll work with you to do it. >> reporter: but that flexibility may come with some fine print. states would still be required to implement all aspects of the new law, including provisions that everyone has health insurance. health policy analyst joe antos says it's not exactly the kind of flexibility the nation's governors are demanding. >> the language in the federal law has built a box around each
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of the states and so, as long as they stay within the box, they will have flexibility. but if they try to break out of the box, well, the president hasn't endorsed that yet. >> reporter: some flexibility also broke out on the federal budget this week. it looks increasingly likely that congress will pass a two- week extension in federal funding proposed by republicans. a government shutdown would be postponed until at least march 18. the temporary extension will be paired with $4 billion in budget cuts. but budget expert stan collender says whether it passes may depend on your definition of cut. >> my concern is that we don't have enough details about these so-called spending cuts. they might actually be gimmicks. the actual amount of spending cuts might be less than $4 billion, and if that's the case, i would expect the tea party people to revolt against their leadership. >> reporter: a sobering note on the budget today also came from economist mark zandi. he estimates republican efforts to trim the spending by $60
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billion this year could cost 700,000 workers their jobs. darren gersh, "nightly business report," washington, d.c. >> susie: tomorrow, march first, could be a big pay day for investors. our market guest says since january of 2010, the s&p 500 has been up consistently on the first trading day of the month. he calculates if you take out those first-day profits, the s&p would be up only 2.3% over the past 14 months versus the real gain of 19%. joining us now, rick bensignor, chief market strategist at dalman rose, the new york investment firm. you had, rick, nice to you have on the program. >> thanks for having me. >> susie: all right, so this is a very interesting trend. tell us why it's happening and how can investors take advantage of it? >> well there are two things to look at. one is just looking over the last 14 months, the fact that you said that the market is up 19%. but if you take away the first day of 9 month t is
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only up 2.3% so something is driving the market at the beginning of the month it is most likely some indication that the retail investor has come back into the market over the last year or so. if you think about the money that comes in at the end of the month in the paycheck and how people allocate money to a 401(k) plan t is a natural thing to see money coming in at the beginning of the month. in fact historically, and i've been in this business 30 years, and i remember hearing this when i was a young puppy in this industry, that if you take the last trading day of the month and the first four trading days typically, that five trading day span will return a much better amount than any other time during the month and if you did that you would only be invested five out of let's say an average of 22 trading days a month. >> susie: so does it make sense for investors to invest in those first trading days and then sell out. should they be much more active in their investment choices? >> well, it is certainly something somebody can do if
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they want to actively manage their account can. it takes more of a trader's mentality to buy on what night and check it out 24 hours later or if you hold it for a few days. that's not the standard way the public invests. but if you look back many, many years, and clearly this can't work every month or every year but if you look back historically this is a seasonal type of pattern that has worked for probably 50 years. >> susie: let's talk a little bit about some of your other market views. are you concerned about rising oil price and you say that if they continue to rise you expect a pullback in the s&p 500. is there a target price where oil will hit and you see that happening? >> well, we hit 103 last week on the spike up. and then we pulled right back down not mid 90s. if the market can recoup 103 and 103 was actually a longer-term target that many technicianses have looked at since oil peeked, and then down to 33 dollars. if you get back above 1303
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and stay above 103, our next target is probably in the 115, to 116 level. and at that point you really start thinking about how much is gasoline goinging to cost at the pump, and how much it affects consumers buying power. >> susie: now you also talk about a trend in gold prices. and you're calling for 2,200 on gold per ounce in the next five years. is how should investors play that. by the metal, or buy gold mining stockses? >> well, i think bullion is probably a slightly safer way to do it. because if events occur in the world that actually push gold up that much, chances are it means there's some problems in the world. if there are problems in the world, the stock markets probably sell off. although gold mining shares will track gold to some extent, su have to remember that gold mining shares are stocks first and gold mining stocks second so if they-- the stock market those stocks will come down too. bullion is probably the safer way. >> susie: we'll leave it
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there. thank you so much, there interesting thoughts. >> thanks, susie. >> susie: we've been speaking with rick bensignor chief investment strategist at dahlman rose. >> susie: some nice positive gains today, tom, in the markets and some people credit warren buffett because over the weekend in his annual market letter, he said he is was pretty bullish on stocks saying that he thinks good times are still ahead of us and a lot of people have confidence in the auricle of
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omaha. >> tom: certainly that kind of endorsement for the economy and the overall market didn't hurt at all in the last trading day of the month of february, susie. so let's go ahead and look at the impact of that and other things in tonight's market focus can. >> tom: another month of stock gains comes to an end with the major indices adding close to 4% in february. thanks to the volatility in the mideast roiling the oil market this month, the energy sector was the best performer, adding almost 7%. despite the higher energy prices, though, consumer discretionary stocks did well, followed by a small gain in the health care sector. speaking of health care, it helped lead the way today for the dow industrials. johnson & johnson jumped 3% to a five-week high.
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clearly still well off the 52- week high set last spring. shares have been trending low over the past year as it wrestles with several product recalls. the dow leader this month was disney. over the past month, it's up 12.5%. nice move for the house of the mouse. let's roll out the past year and the trend is clear: higher prices. last night's oscar broadcast on disney's abc television network saw a ratings dip, but the show sold out its ad time. and disney's own "toy story 3" was a oscar winner and a huge winner at the box office, bringing in more than $1 billion. now the worst dow stock over the past month was cisco, sliding more than 12%. this drop in early february came on a weaker-than-expected outlook. here's the past year of cisco, we can see it stair-stepping lower as its outlooks have been
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less than stellar and its margins have been shrinking. cisco sells its technology to telecommunication companies. and the telecom sector was one of the weakest this month, but today it was the best. verizon and qwest added about 2.5% each. pre-paid cellular provider metro pcs is at a new 52-week high. a deal in health care, with real estate firm ventas continuing its expansion by buyouts. it will take over nationwide health properties for $5.8 billion. it is an all-stock deal valuing nationwide health at $44.99. the buyer, ventas, saw some selling pressure, pushing the stock down 3%. still a new 52-week high. but over the past year, shares are up 25% as it has been growing its real estate portfolio of senior housing facilities and nursing homes. that continues with the acquisition today.
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the target of the buyout, nationwide health, wasn't the only nursing home stock gaining. nationwide jumped to a new high on the offer. sunrise senior living jumped 11%. it stands possibly to gain as sunrise already manages some nursing homes for ventas. speaking of buyouts, warren buffett said in his annual shareholder letter he's ready for more major acquisitions. the firm ended last year with more than $34 billion in cash. the berkshire "b" shares jumped almost 3% to a new 52-week high in fact, highest since fall 2008. after the close tonight, noble energy become the first u.s. oil driller to get a permit for a deepwater well since the b.p. oil spill. the u.s. government put a moratorium on deepwater drilling after the spill. noble's permit allows it to continue work on an existing well. before that announcement, noble shares gained almost 4%, ending
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at a new 52-week high-- well above where they were trading last april when the b.p. oil spill began. and that's tonight's "market focus." if you're an at&t wireless customer, your cellphone will soon carry coupons letting you cash them in when you're shopping. the carrier is going to use its phone's ability to figure out where you are to send you ads. at&t can only track your movements to within about a mile of your location. but that would be enough for an
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airline like jet blue, for example, to send you promotions when you're near an airport. jet blue is taking part in the program. at&t's customers need to sign up for the service. they'll be sent a maximum of four ads a week. >> susie: here's what we're watching for tomorrow: federal reserve chairman ben bernanke begins two days of testimony on capitol hill, delivering his semi-annual monetary policy report. also due out, construction spending for january and february auto sales. and our "word on the street" is "iphone." we'll look at three lesser-known stocks that will benefit from the verizon iphone. honda and subaru get top scores from "consumer reports." for the third straight year, the influential magazine says those two brands make the best vehicles overall, while ford posted the largest quality gains. and toyota still did well, coming in third despite a year of many recalls.
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volvo is the only european automaker with an above-average reliability score. and ford ranked fifth, bolstered by its crash-test results and resale value. >> tom: it's probably happened to all of us. you're at the airport and hear an announcement that your flight is oversold. the airline offers you a voucher for giving up your seat. today, the government fined american airlines $90,000 for not telling passengers that redeeming the voucher would cost up to $30. it's the first time the transportation department has fined an airline for failing to disclose those fees.
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>> susie: more now on the budget battle in washington. as we reported earlier, it looks like there won't be a government shutdown this week. and tonight's commentator believes lawmakers should work together to come up with long- term spending solutions. she's alice rivlin, senior fellow at brookings and former vice chair of the federal reserve. she also served on president obama's deficit commission. >> squabbling over federal spending for the few months left in this fiscal year is a distraction from the serious deficit threats of the future. threatening a costly, pointless government shutdown is just plain silly. our elected leaders should turn to next year's budget and start
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sorting out needed government activities from lower-priority ones we can live without. the president has offered cuts in longstanding programs to fund investment in future growth within a constrained total. he and congress should work together to decide what we most want our government to do as we all tighten our belts. this will take hard work and willingness to compromise, not posturing and sound bites. even more important, we must slow the long-term growth of medicare and medicaid and make social security solvent. we must reform our absurdly complex, inefficient tax code so it raises more money at lower rates. otherwise, we face a debt catastrophe that could destroy our prosperity and world influence. these tough decisions must involve both parties working together, so that neither side can blame the other for what has to be done. brave young people are risking their lives in the name of democracy in far places.
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can't we show that our democracy works right here right now? i'm alice rivlin. >> tom: just a reminder, you catch us online at n.b.r. on pbs.org, or follow us on twitter, @bizrpt, or my personal feed at @hudsonnbr. if tweeting isn't your thing, friend us on facebook at "biz report." that's "nightly business report" for monday, february 28. i'm tom hudson. good night everyone, and good night to you too, susie. >> susie: good night tom. i'm susie gharib. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by:
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this program was made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> more information about >> more information about investing is available in "nightly business report's" video. to order this dvd, call 1-800- play-pbs or visit online at shoppbs.org. >> be more. pbs.
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