>> tom: just over a week to go before the u.s. government defaults on its debt. both houses of congress are taking the weekend off, but talks continue between the president and house speaker john boehner. >> as this gets dragged out with every single day, the market shows more signs of stress, of getting nervous. >> susie: we'll look at what those signs mean for bond investors and what could happen to treasuries if the u.s. loses its triple-"a" rating. it's "nightly business report" for friday, june 22. 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 >> susie: good evening, everyone. still no deal on the debt ceiling. have taken a step backwards. tom, today was supposed to be president obama's deadline to have a deal in hand, instead for the second time house speaker john boehner called those talks with president obama. >> susie, the break down in talks late today came over tax increases in the american's healthcare and other kiz putes unrelated to the budget. where does this leave the issue? the hypothetical seems more and

more like a possibility here zeus see, what if congress fails to raise the federal debt limit before august 1nd. timothy geithner met with them today to talk about what could happen. they gave no details on any contingency plans. >> susie: tonight, we'll look at the impact on the bond market if there's no deal. and in just a moment, we'll talk to maya macguineas. she's president of the committee for a responsible federal budget. but first, here's the latest on what's going on with the deficit talks. >> hi, good. >> susie: well, this is really a nail biter now, isn't it. what do you think is going to happen next? >> well, it's been a rollercoaster of a couple weeks and it certainly ended on one of the highest rollercoaster hills today request leader boehner walking out of discussions with the president. obviously these conversations have to continue. i remain -- i continue to believe that it's pretty likely that we're not going to go past that august 2nd deadline, certainly not more than a little bit. they can't come to a deal whether it's large or small. it increases the likelihood that

something really damaging may happen here and we may not lift the debt ceiling in a timely way. this is tough political negotiations and obviously they're having two sides a very difficult time coming together soodz sues -- >> susie: until this latest development you saw three scenarios how these negotiates could play out. let's take a look at them. the first one here is there would be some profit to be made down the road. the second possibility was a small budget deal, one to $2 trillion over the next ten years or a big budget deal, $4 trillion with tax increases also over the next ten years. do these scenarios fill out a possibility or are they off the table. >> i think it's still going to ultimately be one of those three buckets. there's the first model which is basically politicians come together, can't hash out a deal and put in budget profits reform with targets where they'll come up with savings later or some

kind of spending tax, promising to cut spending but they don't still in the policy. that's probably too close to what we've seen in the past or politicians say they'll do something but they'll get specific about how. the other two deals are more specific policy changes that will be included with the debt ceiling increase, either a smaller deal in the neighborhood how far 1 to $2 trillion dollars and stays away from the hard issues, no taxes, no social security or healthcare or the big deal we've been calling it to fix the deficit in this situation. that's what president obama and leader boehner have talked about. that's the group of senators the gage of six proposed this week. it's really the only thing to fix our debt situation. given where we are right now i think it's actually becoming increasingly likely we have to have a temporary debt ceiling increase before we can come up with any negotiated outcomes. all three of those scenarios are hard to get for both sides to find any agreement. even though the president says he doesn't want a temporary debt ceiling increase i think we

mayor be headed in that direction. >> susie: some people suggested even before the latest developments this afternoon, even if there were going to be a debt deal on august 2nd that the ratings agency could still follow through with a down grade on u.s. government debt. now if there's going to be a temporary deal or short-term arrangement, what are the chances of a down grade. >> this is really a tough line with the rating agencies. it's been quite clear that the u.s. needs to lift the debt ceiling but needs to do more than that. we need to put in place fiscal reform so we're not facing these huge deficits in the future. i think if any commitment to keep talking and to keep finding a real budgetary fix, it's credible. the rating agencies will give us some time. >> susie: if we do this without changes in the budget we run the rill risk to face a down grade. that's something i shudder to think about the fact that's on the table. the president has invited the

republican and democratic leadership to the whitehouse tomorrow. what else does he have to say and what do the other lawmakers have to say. they can begin constructive conversations. how do you think that conversation's going to go tomorrow morning? >> well it's interesting. they have been going line by line with different parts of the budget so they all know what has to be done to get to a temporary fix or a big fix. they also know where all the political land mines are. the biggest part of the budget we have to address is the one causing most angst for the democrat and republican party. you can't do it without dealing with tax reform. in a going it teams seems it's easier to take the smallest deal the low hanging fruit. but it may prove that's not enough, we have to go really big. so the best thing for the country would be a big enough deal to put us on a stable debt trajectory. maybe, maybe they can find a political path to do that but it's going to take more time and there's no question that all parties are going to be, if we come up with the real deal, they're going to have to go back to their constituencies and say this is a bitter pill to

swallow. and the time is running out between now and august 2nd just a few days left. >> susie: maya thank you vention for your insights. >> thank you. >> our guest tonight, maya macguineas head of the committee for a responsibility federal budget. >> tom: most of america is focused on whether the debt ceiling will be raised in time to avoid default. but the outlook for u.s. bond investors will also depend on whether lawmakers can agree on a long-term deficit reduction agreement. without it, the u.s. could lose it's coveted triple a credit rating. erika miller has more on whether owners of treasury bonds should be worried about the safety of their investment. >> reporter: there are many types of safehavens in the world and on scorching hot day like today, cooling centers are one of them. but it's an investment safehaven that traders here are focused on: u.s. government bonds. treasuries have been growing in popularity for months, despite the threat by ratings agencies to downgrade u.s. debt.

interest rate strategist suvrat prakash explains what that would mean. >> what they are saying is we can't be 100% sure that the government can pay your money back 30 years from now. maybe we are just talking about 95% or 99% sure. >> reporter: if the rating on u.s. debt is lowered, it would most likely be to double-a plus. that would put the us below canada and france, but still ahead of japan and china investors are betting that the u.s. maintain its debt payments and keep its top level credit rating. but what if it doesn't? traders are divided on what would happen. >> i can make a very good case that even if we lose our triple "a" rating, the treasury yields are actually going to go down, because people are more worried about the economy. >> reporter: oppenheimers krishna memani thinks there would be such havoc in other markets that u.s. bonds would become even more attractive. >> in that environment, everybody would be selling every other asset class and piling on to treasuries.

>> reporter: but his view bucks conventional wisdom. usually a ratings downgrade leads to higher rates, as investors demand greater compensation for risk. >> it probably won't be as bad in other triple "a" nations. maybe we are talking about 25-50 basis points at the most... at the long end of the curve. >> reporter: in other words, an increase of up to a half a percentage point in long term rates. that may not be dramatic, but it would still have ripple effects. >> some people will rightly be rightly concerned and wonder should i be keeping money in my bank. it is insured by the f.d.i.c., but the f.d.i.c. is at the hands of a double-"a" not a triple-"a" anymore. >> reporter: the outlook for the bond market next week will depend largely on politics in washington. so, even as americans struggle to stay cool, they hope the heat stays on lawmakers to strike a deal soon. erika miller, "nightly business report," new york. >> tom: the lack of a debt deal led to a mixed close on wall street. the dow fell 43 points, the

nasdaq gained 24 and the s&p 500 add a point. trading volume was down from yesterday's pace with 737 million shares moving on the big board and 1.7 billion on the nasdaq. overall, a rough week for the blue chips, the dow was off nearly 245 points or almost 2% on the week. the nasdaq performed better thanks to strong earnings from apple. it gained ground in three of the week's sessions for an overall net rise of 44 points or 1.5%. the s&p 500 also up on the week rising 2%. >> susie: still ahead, tonight's market monitor says stocks have not hit their high for the year yet. he's kurt reiman of u.b.s. a setback today for shareholders seeking a stronger say in the way corporate boards are run. a federal appeals court has thrown out a securities and exchange commission rule that makes it easier for shareholders to oust board members. the rule, which was mandated by

last year's financial overhaul would have allowed shareholder groups that own at least 3% stock for three years to put their own board nominees on proxy statements. business groups challenged the rule, fearing it could unduly influence board composition and cost companies millions of dollars in contested board elections. caterpillar is is heavy equipment manufacturers disappointed investors today. $1.70 per share. that's a big increase from a year ago. not quite as good as analysts had expected. the results were $.03 below estimates. bureau chief joins us tonight from chicago. diane, you've covered cater caterpillar through the years. is this investors being too optimistic about this past quarter. >> it certainly seems that way tom. this is a company that's making money and it's also hiring workers. still the company has seen sales slow down in construction equipment here in the u.s. and

starting to see some in china. despite that paul mccarthy who is an analysts, says china is just experiencing a bump in the road. >> chinese economy, if we can believe the numbers grew 9.5% in the quarter. so the economy's continuing to bloom. the numbers on a year on year basis in terms of overall broad activity continue to be very strong and we think this will ultimately prove to be a pause in the growth of the world's largest market for construction equipment today. >> and tom despite that in china, cat is still very positive about that mark. >> tom: what about elsewhere in asia, how much did cat take a hit following the earthquake and sue maity in japan -- sue knowity in japan. >> yes, it did take a hit. their sales were off in the second quarter by $200 million. that wasn't as much as the company expected. they thought it would lose sales to the tune of 300 million. but it says that part of the

country devastated by the earthquake and the tsunami is actually recovered better than exhe can expected. >> tom: that goes with other strips as well in that part of the world. as it looks forward in the next couple quarter where do the sales come from for caterpillar. >> the sale of mining equipment is going gang busters for the company and just closed a deal earlier this month with a mining equipment manufacturer out of milwaukee. in fact earlier this week the company took out a full page ad in the "wall street journal" touting that acquisition. the company said today it thinks that the acquisition of that company will add about $.50 a share to its spoke price next year and more than $1 to its spoke price by 2010. >> tom: wow. so clearly some very optimistic numbers there. what about other air jaws for growth in the -- areas for growth in the markets. >> it's very optimistic about india. it thinks it can sell a lot of mining equipment this because of coal mining. and it's also very bullish on latin america.

>> tom: it's our mid west bureau chief tonight from chicago, diane os strks erbroork. >> you're welcome tom. >> tom: in addition to caterpillar, three more big multi-national companies reported earnings. general electric saw profits up 21% while sales picking up in china and india. earnings were better than expected and the company is sticking with its forecast for double digit growth this year. another global conglomerate, honeywell had a 40% jump in profits, earnings were better than expected thanks to its aerospace electronics business. honeywell called the global industrial outlook very good. and the golden arches see green. mcdonald's second quarter profit was up 15% as it successfully raises prices to make up for higher commodity prices. mcdonald's shot up more than 2%. the best gain in the dow industrials putting it at an all-time high today. and with that, let's get to the market focus.

with all those big companies and dow components reporting earnings, the dow was the worst performing of the big three stock indices today. phone giant verizon was among those dragging on the dow. shares fell more than 2%. volume doubled on the drop as the stock is at its lowest price of the month. second quarter earnings were two cents per share better than anticipated. but its iphone business hasn't shown the explosive subscription growth. verizon wireless sign up just two-thirds of the iphone subscribers at a.t.&t. did during the past quarter. separately, lowell mcadams was officially named the new c.e.o., beginning august first. while telecom was one of the weakest sectors, technology was the strongest thanks to semiconductor maker advanced micro devices. earnings came in a penny ahead of estimates, not a huge surprise. but it was a strong third quarter outlook that shot the stock higher. take a look.

a.m.d. was the second most actively traded nasdaq stock. volume quadrupled as shares jumped almost 20%. still, they have some ground to gain over worries about a.m.d.'s focus on net-book computers and lower end lap-tops instead of mobile devices. computer hard drive makers sandisk and western digital were tech leaders-- up 9% and 8% respectively. sandisk's earnings fell last quarter due to accounting charges but revenues were up. the rally in technology continues to push the nasdaq 100 exchange traded fund. here is that e.t.f. going back to the dot-com bubble days of 2001. we are at the highest level since february 2001. it hasn't traded over $60 since early 2001. a quick check of commodities and currencies. precious metal prices, silver

and gold continue their rallies. crude oil closed in on $100 per barrel. and the euro fell against the u.s. dollar. the pace of initial stock offerings picked up this week. some of the biggest include real estate website operator zillow. it priced at $20 and has seen a nice pop. skull-candy makes headphones for ipods, phones and mobile video games. it is down slightly from its offering price earlier this week of $20. and sun-coke, it is a spin-off from energy firm sunoco, concentrating on the raw material for steel. shares are up from its offer price of $16 per share. and that's tonight's market focus.

>> susie: it's the beginning of the end for borders group. going out of business sales began today at borders' 400 bookstores. that includes about 30 locations that may remain open as books-a- million stores. the closures will leave retail holes in many major shopping areas. borders plans to conduct a separate auction to find takers for as many of its leases as possible. >> tom: here's what we're watching for next week. our friday markt monitor guest is mark luschini, chief investment strategist at janney montgomery scott. several initial public offerings are expected to hit the market, including dunkin donut parent

dunkin bands and horizon pharmaceutical. monday, we go beyond the scoreboard. our look at the business of sports gets the latest on the $9 billion n.f.l. lockout. >> susie: facebook has won dismissal of a second lawsuit brought by cameron and tyler winklevoss. those are the twin brothers who claim facebook founder mark zuckerberg stole their idea for what became the social media giant. the winklevoss brothers were paid a $65 million settlement, but have sued to increase that amount. their attorney plans to ask the judge to reopen the case if new information that's vital to the case is produced. >> tom: apple may make a play for the hulu online video service, according to published reports. hulu would give apple a new subscription service and represent a possible challenge to netflix. hulu is owned by n.b.c. universal, news corporation, the walt disney company, and other private partners. the company has said publicly that it is seeking a buyer. apple has the cash-- $76 billion as of last quarter.

>> tom: corporate profit growth with trump anything the economy can do the rest of this year. that's the forecast from tonight's market monitor. he's kurt reiman, head of thematic research at ubs wealth management research americas.

and he joins us tonight from ubs. kurt, it's always nice to see you. welcome back. >> you two. nice to see you tom. >> tom: do you expect the economy to be stronger at the end of the year than it is today? >> yeah, that's right. the first half of this year was rather lackluster. we had a couple of external shocks that hurt growth but yes we look for the economy to recover coming into the second half. some of these disruptions will start to fade. for example the higher prices we saw earlier this year and also from the japan earthquake and natural disaster. we think the monetary policy as some as renewed hiring will boots -- boost the outlook for the economy. >> tom: has the s&p 500 seen its high for 2011 year? >> no, we don't think so. we do think the equity market will still remain rather range-bound throughout the rest of the yearment we look for it to finish off the year, over 1400. see we look for still some

modest from these levels that are close to that. >> tom: still pretty desent up side. what about the profit drivers, domestically drivennor most coming from overseas. >> a lot is coming from overseas. we also have to keep in mind that u.s. companies have gotten lean and mean and productive these days. one of the consequences that we have high unemployment rate but yes, a lot of the driver is coming from just really pairing back costs and also getting exposure over the impressive growth rates that we're seeing there. >> tom: one area we've seen domestic and overseas growth has been in healthcare, one of your new picks of healthcare and proxies were using some change traded funds. it has a nice rally over the last 12 months when it was pushed higher. >> the healthcare sector has been doing quite well. the second best performing sector of the s&p 500 so far this year. we do think a lot of the disthat faced healthcare last year -- that faced healthcare last year especially the reform, those

issues have mostly faded. a lot of the concerns about the pharmaceutical sector are -- so if you're a company now providing cost control or efficient see gains or new efficiencies to get the healthcare sector to produce lower costs that's the part of the sector we like the best. >> tom: dropping down to a nice margin expansion. back in november, you liked both the defensive and the growth area. you like consumer staples. xlp, the proxy up 10% and tech all up 8%. you still like these. xlp, consumer staples despite the high energy prices concerned about debt what's to push this higher? >> the consumer staples side, it's still this exposure, this leverage play to the emerging markets. and then on top of that, you've got not only the different dumped yield of the consumer sector paying but also dividend growth. the nice defensive story especially the time when the market is more range bound. >> tom: give the growth story

in 20 seconds on technology and what you see forward for technology. we've seen some pretty black buster earnings. >> we have to keep in mind this is cheaper and relative to the market since 1995. that's how the enterprise software and enterprise solutions that are being invested now with this sector that's delivering stronger and we think it's going to continue this momentum. >> tom: one more update from your november picks. you like the dividends that utilities were providing looking at that, xlu is 7%. do you still like this one? >> utilities we moved to under weight. the reason here is it's expensive. >> tom: fair enough. how about disclosures. do you own positions in these sectors? >> no, not myself nor my family have positions in these. >> tom: in those funds. the market monitor here on this friday. kurt reiman is with u about. s wealth management and research americas. >> susie: recapping our top story, the breakdown in the debt talks. late this afternoon u.s. house

speaker john boehner said he has walked away from negotiations with president obama on a debt limit increase and would try to get a deal through the senate. the reason: he says the two have different visions for our country. at the heart of the breakdown: a deep divide over boosting taxes. president obama spoke to the press, just after boehner's comments hit the newswires. he says the debt deal offered republicans was quote, "extremely fair" and that both sides were only about $10 billion apart on spending cuts. >> it is hard to understand why speaker boehner would walk away from this kind of deal. and frankly if you look at the commentary out there, there are a lot of republicans that are puzzled as to why it couldn't get done. >> susie: president obama has called for a saturday meeting at the white house with speaker boehner and congressional leaders from both parties and tom, everyone will be watching how this plays out over the weekend. >> tom: it's going to be a weekend of work. no doubt about it, susie.

>> susie: that's "nightly business report" for friday, july 22. i'm susie gharib. goodnight everyone and have a great weekend. you, too, tom. >> tom: good night, susie. i'm tom hudson. goodnight, everyone. we hope to see all of you again monday 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