this is "nightly business report" with tyler mathisen and susie gharib. >> 28th record close, the s&p 500 finishes at a new record, the dow back above 17,000. is your best bet in this market investing in an index fund that just taxed the market, or should you try fixed stocks? >> in their own words, tom federal reserve officials speak out on the economy. when to raise interest rates. >> lighting up the sky, why natural gas is being deliberately burned across the oil richfields of north dakota. that and more tonight on "nightly business report" for thursday, august 21st. good evening, everyone. a sweet spot for stocks today.

the s&p 500 hit a new record, points away from the 2,000 milestone and the blue chip dow closed above the key 17,000 level for the first time in a month. the mood on wall street was positive as investors and market pros are feeling confident that the federal reserve chair janet yellen will continue to call for low interest rates tomorrow when she addresses policy makers in wyoming. more on that in a moment. adding to the upbeat mood, a bach of encouraging news about the u.s. economy. fewer americans filed unemployment claims. existing home sales rose more than expected and a key report on factory activity came in stronger than forecasted. here is look at the closing numbers, the dow added 60, nasdaq up 5.5 and nasdaq closed at the new record of 1992. the rising market has rekindled the debate over what's the best way to invest. use a low cost index fund that

basically matches the market or try to beat it over time by hiring an active fund manager. well, it appears the people have spoken. in all but one of the past seven years, reports the wall street journal, net flows into index or passively managed stock and bond funds have far out paced those into actively managed funds. this year through july, according to morning star investors dumped $177 billion net into index funds into actively managed funds just 78 billion. here to tell us whether they are making the right choice is director of north american research for morning star. john, welcome. good to have you with us. >> thank you. >> are they making the right choice? >> i think for many investors out there, passive investing is certainly a very good choice. you get low fees, you get returns that are, you know, as you say, are going to generally match those of the market.

you know what is in the fund in s&p index fund. it's great. it's the kind of thing where investors today are looking at the headline of your show and seeing what the s&p 500 is doing and they will say, you know what? i feel confident i know what i'm getting in my portfolio because that's the fund i'm invested in. there are a lot of good things about it. >> john, when you compare the performance of whether it's actively managed or index fund, how do they rank? i mean, how often do the actively managed funds actually beat out the passive funds? >> yeah, well, it's interesting. i think the problems with active investment performance has been a bit exaggerated but absolutely true that on average, actively managed funds tend to trail passively managed funds no matter sort of what way you slice it, whether you look at, you know, large cap u.s. stocks or in most cases some other areas of the market that have index options, but kind of the other side of that is that, you know, the average actively

managed fund doesn't necessarily trail by all that much, and in any given sort of period of time like we were looking at the ten-year trailing period just earlier today and the u.s. large cap blend category, you know, the average manager trails by just a few basis points over that ten years on annualized basis. there are 30% of the overall universal that's outperformed indexes. so it's definitely possible to find active managers out there. it's also the case that maybe it's not so much -- >> so -- >> go ahead. >> i wanted -- because you just said something interesting, 30%, did i hear you right? only 30% or roughly 30% of active managers beat the benchmark over time? >> over the last ten years, yes, as of july, correct. >> so i'd have a 70% chance of doing bet near something that wasn't actively managed. do active managers do better in

down markets or do they do better, for example, in markets like emerging markets or alternatives? >> definitely better in emerging or alternatives. in alternatives right now, you can't really index alternatives so any passive investing options there are rules based kwaun day strategies that don't have anit. better off with active managers there. emerging markets, you know, there are areas of emerging markets where maybe you don't want to be in the at the moment and an active manager will take you out of that where an index isn't going to be able to. >> john, thank you very much. john hail of morning star tonight. >> when it comes to fed speaks, america's central bank isn't speaking with one voice these days. some members say now may be the time for the fed to raise interest rates.

others say not so fast. and it's all coming to the a head at the annual gathering of the world's central bankers in wyoming. >> reporter: as the federal reserve gathers in the mountains of wyoming to the u.s. labor market, the debate brewing on the sideline is whether that labor market and economy are strong enough to warrant earlier rate hikes. philadelphia fed president thinks it's time for the fed to move. >> i just think we're running a very risky policy, if you will, given where the stance of the economy is and seems to be going. i would prefer to raise rates sooner and raising them more gradually but the longer we wait, the more risk as us having to raise rates quickly in response to a stronger economy and perhaps more inflation. >> reporter: john williams says if the economy improves faster than the fed forecast, he would see rates rising sooner but knowing what he knows now, he

thinks the consensus of july 2015 is right. >> i think that thinking around summer of 2015 for the first rate hike is a reasonable guess given where we think the economy is going and, you know, how much progress we're making towards our goals but again, it depends on the data. if the data gets stronger, it would be earlier. it could be later. >> the labor market is the subject of the meeting, other issues on the mind include whether they should raise rates to ward off excessive risk taking in markets, born of zero interest rates, whether it should be done with regulation or raise rates and whether the market is too complacent in thinking rate hikes are more than a year away. >> the economy is showing signs. as we look ahead, does it look like it's able to sustain this? it signals an important decision point for the committee to say we will have to move at some point. i don't want us to be behind the curve in beginning normalize interest rates.

>> the key speech will be tomorrow by janet yellen at 10:00 a.m. eastern. it will be her first address to the group as the head of the u.s. central bank. it will be followed by mario who could provide some hints to measures he might take to address the renewed bout of weakness. the world will listen as bankers get hints for the outlook and so will some of the locals like this moose and her calf in tow who emerged just as the fed meeting was set to begin. for "nightly business report" in jackson hole, wyoming, i'm steve liesman. >> love that with the moose. that is gorgeous. wow. all right. many americans don't believe it when they hear the u.s. economy is getting better and a new census burro reports explains why it finds many people were in worse financial shape at the end of 2011 than they were a decade earlier. people in the bottom 60% of wage earners lost nearly 7% in household net worth or about $5,000 but people in the top

40%, they gained more than 61,000. well, prices rose today lifted by those upbeat economic reports we told you about a moment ago. brent and west texas crude prices moved higher. wti rose 51 cents settling at 93.96. one of the reasons oil prices have been capped is the increased production here in the united states. one of those oil rich areas, as you probably know is north dakota. the brkformation. with that drilling comes side effects. morgan brennan has more. >> reporter: it's the biggest issue in the bocan right now, natural gas flaring. they produce 1 million barrels second to texas but drillers are producing more natural gas, more than they can transport. the rig behind me is drilling 11 wells that will come online around the same time. this scenario is playing out across the bakken and there lies

the issue. more natural gas is coming online than the current pipeline system can handle and that's why drillers are forced to flair. across the region, thousands of wells are burning so brightly that astronauts have captured images from space. the flair rate here is 30 times higher than other producing states like texas and alaska resulting in more than $100 million worth of gas wasted each month. >> if you look at the value chain, 95% of the value is in the oil. the gas is 5% of the value part. the revenue side. >> reporter: last month, north dakota passed new flaring standards. by october, at least 74% of gas generated at existing wells must be captured. a number the industry is close to but a rate that will increase to 90% by 2020. they are searching for short-term solutions. the answer is a partnership with general electric and gas logistics company.

they are compressing excess gas and storing it used for a stat source. >> we're lowering emotions and we're burning the cheaper fuel because diesel is much more expensive than natural gas. >> reporter: that oil plans to roll this tech out to the rigs next year, and others to follow suit. just how effective is this technology? ten minutes before we arrived here, the flair you see behind me didn't exist. all the natural gas burning off here was moving into c and g. the flaring has drawn the eye of mineral rights owners. >> it's a waste. there has got to be better ways to do it. most of us are fair-minded people. if you treat us fair, we're easy to get along with. don't lie to us. we're not asking for the moon. we just want to be treated fairly. >> reporter: more than a dozen class action suits have been brought against the oil and gas

industry, but the long-term solution of this problem will take team work as farmers work with the companies to bring better infrastructure. for "nightly business report", i'm morgan brennan in north dakota. still ahead, bank of america agrees to pay a record fine but some say this is the government piling on. others say the government didn't go far enough. who is right? dow component home depot has a new ceo. the current head of the retail

operations will take over the top job at the home improvement retailer in november. he had been widely expected to replace the current ceo frank blake who had the job since 2007. ebay prepares for a possible spin off. the company is reportedly getting ready to spin off paypal, that's the fast growing payments unit might do it as soon as next year. the activist investor carl icahn has you may remember had been challenging ebay to make the move and ebay spokesperson says the company's position on paypal has not changed. ebay shares up 5%, $55.89 the close there. wall street had the first chance to react to hp's earnings as you told you last night. the pc maker posed a surprise increase in the quarterly revenue and meg whitman says she's happy with the results. >> it was a milestone for the company. after three years we put up 1% revenue growth. it's better than the declines

we've had. >> shares on a nice ride today up 5% or so to close at $37 on the button. family dollar stores rejected dollar general's $9 billion acquisition offer saying it would be too hard to pass regulators and renewed support from an officer from dollar tree. dollar general says its reviewing the options. you need a score card for this. they believe it could resolve regulatory concerns. shares of all three of the dollars fell today as you see there. the maker of turbo tax reporting a penny loss in the fourth quarter due to higher expenses. the street was looking for a gain of 7 cents, revenues, though, did come in better than expected. intuit gave weak guidance. shares finished up a fraction to $85.81 and sold off and snapped back in after hours trading. salesforce.com results were

better. revenue rose 38% helped by increased demand for web-based sales for marketing. shares were up a fraction to $55.71 and relatively flat after the news came out. and game stop posting better than expected results helped by the success of new game releases and strong sales of microsoft xbox and sony's playstation four. shares closed down 2% of the regular session to $40.49 but then spiked after hours following the result. bank of america hopes its mortgage problems are behind it after agreeing finally to a $16.5 billion settlement over the role in the 2008 mortgage melt down. the u.s. attorney general eric holder calls the settlement a historic resolution that goes far beyond the cost of doing business. >> as a part of this settlement, bank of america has acknowledged that in the years leading up to the financial crisis that devastated our economy in 2008,

it, merrill lynch and country wide sold billions of dollars of rmbs backed by toxic loans whose quality and level of risk they misrepresented to investors and to the united states government. >> bank of america ex many spects the accord to r recuseee the former chairman and ceo of wells fargo had a lot to say about the agreement between bank of america and department of justice. the government's motivation is all political. >> this is just simply a political stance and theater that has been going on for five years of bashing financial institutions. again, neither jp morgan or its employees or bank of america or its employees did anything wrong here. they just bought companies that did wrong. they have big pockets and

therefore, they get a lot of political value by having press conferences. >> it's a very controversial issue. joining us to talk more about this, christopher walin, an investment banker and senior managing director of reserve at knowls bond ratings agency. you know, chris, some people would argue that the government hasn't been tough enough on the banks. what do you think of what dick was just saying and what do you think of the public criticism. >> well, he is absolutely right. i mean, the settlements, susie, are kind of welcome in a sense that we're finally hearing the attorney general talk about this, but he's five years late. instead of prosecuting the officer's and directors of the banks that did the wrong and it sold bad securities, we're forcing investors to pay for the settlement. the investors are victims. if you look at the city settlement, bank of america

settlement, a very large percentage of the funds provided will go for ohmodification of loans, donations to worthy consumer groups. the victims are investors, pension funds, insurance companies, financial institutions and unfortunately, the politics of this as dick said are about pandering the consumers. that's the false narrative we're facing here unfortunately. >> you know, the government would say, i think, by way of rejoinlder, they have not taken prosecutions against individuals. >> right. >> nothing in this settlement precludes them from doing so. they could go after individuals. >> no, no, tim geithner, larry summers said we can't prosecute the bankers because of systemic risk. they said this publicly. they are wrong. the way you heal the markets and get investor confidence back is to show people that we have

rules. let me give you an example. we're talking for years now about getting private investors back in the mortgage market. why would any rational investor put money at risk if the attorney general can show up and take money from you? there is no reason to do it. let's bring in arthur to join this conversation. he's a professor of law at george washington university. i know you've been listening in on this conversation. what do you say to what chris said and what dick said earlier today? >> first of all, there are two groups of people whose opinions you have to change. one is the senior executives. senior executives have to be held responsible. if senior executives are not held responsible, why would their successors act differently? the other group you have to change is large institutional investors, pension fund, mutual funds. i think what the government has done in leveeing the large civil penalties against these three

banks was necessary but not sufficient. it brings to the share holders attention that there was system make wrongdoing at the banks and what is most shocking, the wrongdoing continued even after the crisis broke out. so that allegations include allegations -- actually admitted facts that they continued to sell shotty and fraudulent mortgages to the federal housing administration after the crisis broke out. there are basic conduct did not change and that's very shocking. >> let me turn the conversation back to mr. walin and get you to react to what arthur just said. the very same shareholders whom you say are paying and bearing responsibility were shareholders that made a lot of money at country wide and merrill lynch over the years through the practices being sanctioned today, and secondly, some of those very same shareholders in those banking companies benefitted from taxpayer

bailouts, didn't they? >> well, they did, but let's also remember that these large public companies bought these crippled financial institutions, you know, in the case of country wide, the firm would have failed if bank of america hadn't bought it. bear sterns bought by jp morgan. >> bank of america moved to buy country wide before the crisis was in full flower. >> yeah, but they were the warehouse lender. country wide had nowhere else to go. the firm would have failed if it wasn't acquired. >> all right. we'd like to get arthur back in. to what extent have these actions by the government you think changed behaviobehavior, something like this were to happen again, whether it's financial institution or other institutions, do you think these fines have been enough to deter bad behavior? >> well, the three settlements were quite recent. it's early to tell. i mean, i think one thing we need to look for is whether shareholders, large shareholders

will seek themselves to hold the senior executives accountable. so far, i don't think you can be confident that we have changed behavior. i agree with chris that you need to hold senior executives accountable. the government has the tool to do that, which is civil money penalties under this same statute and they need to do that but i think that chris made an important observation, these three banks were warehouse lenders to all the subprime lenders. they then packaged securities and sold them as we now know under fraud. they were deeply embedded from the beginning. >> a conversation that will continue. gentlemen, thank you both. christopher, arthur from george washington university. and still ahead on the program, the future of retail, why the mail of tomorrow will look nothing like it does today.

another unprofitable quarter for sears, making this the ninth straight quarterly loss for the retailer. the result was called quote unacceptable. the company operates sears and kmart plans to continue cutting costs, closing stores and improving pricing and promotions. fells share to $17.38. sears trying to reinvent itself as consumer habits change and since we for the most part just wrapped up the retail portion of the big earnings season, we thought it would be a good time to examine the future of shopping. here is courtney regan. >> reporter: the future of retail is new in the making. and manhattan studios, silicon

valley startups and retail labs that look like any old store but smarter. >> physical retail is the temple for your brand. it will feel like your digital retail experience. >> so if shopper and have this dress and interested in this dress, i can come over to the screen here and the screen will pick it up and know what i've got in front of it. you can pick your size and if you've logged in, you can add it to your fitting room. you're crow uaeating a shopping. >> the online information, physical product redefined a retail experience. by opting in, retailers will know who we are, what we like and how we buy as soon as we step inside. >> as i move my feet, it creates artwork on the screen. >> reporter: and personalization will be para mount like customizing converse. >> they can promote to you

individually based on your buying preferences and history and what they think you will react to. >> reporter: while it may be a challenge for retailers now, 25 years from now the separation between digital and physical will no longer exist. smart store fronts that sense what sports teams you like and display the team jersey to prompt a purchase. digital halos that tell a story, where it comes from, how it was made and peer reviews of its performance powers by the personal preferences and particulars, smart shelves will also protect you. >> that intelligent shelf understands your daughter has a nut allergy which is dangerous. imagine every single product in the store that has nuts in it or was made in a factory, they go dark. >> reporter: through all these experiences, the consumer will be in control. >> i think it's all going to come down to choice for the consumer, so i don't think it's a world where you're going to

walk in and a robot will hand you the shirt that you browsed online. there is going to be people that do want that human to human interaction. i think the difference is they will be able to order it on demand when they want it their way. >> reporter: for "nightly business report", i'm courtney regan. >> that is "nightly business report" for tonight. i'm system system. thanks for watching. >> thanks from me, as well. i'm tyler mathisen. we hope you have a great evening and we hope you come back tomorrow night.

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