this is "nightly business report." brought to you by -- falling prices, you're paying less for just about everything. that may be good for your wallet, but is it a bad sign for

the economy? >> retail bell, sales at largest retailer are slumping. what results from walmart say about the american consumer. crispy cream, a one-time wall street darling fell on hard times. we have all that and more tonight for this thursday, may 16th. good a lot of talk today about prices. what we pay for all sorts of stuff. >> we're paying less it appears for lots of things, it may not feel like that, it may feel like you're spending more. according to the latest government numbers, you're not. absolutely lower than expectations. the wholesale level came out yesterday, that showed the biggest drop in producer prices in three years. have you to wonder what happened to inflation. it's one of the key things the federal reserve looks for and right now it's nowhere

inflation is low. very low. so what does that mean for you? well, obviously it means prices are going up slowly. gas prices were down more than 8% in april. food prices were up, but only slightly. and other core costs, medical care, education and clothing showed little if any movement. take out energy and food and those core costs rose a meager one tenth of a% last month. for the year ending in april, they're up only 1.7%. for now, low inflation. it's good for your wallet, right? well, not so fast. the federal reserve wants inflation ideally to be rising at roughly 2% a year. that's it's target. if prices aren't rising, that means demand is low. why is demand low? well, it means your wages are going up slowly too. if they're going up at all. and that could be a sign that overall economic growth is weak. until the employment picture

improves, wages probably won't pick up. should we welcome or fear low inflation and what it signals? that's what everyone wants to know. >> let's get some answers to all of that. mark zandy is chief economist. and kevin ckaren. let me begin with you, mark, you heard tyler's report, so is this inflation at these levels good for us or bad for us? >> i think good, suzie. i think it means more purchasing power, so, you know, if you have to spend less to fill your gas tank, you have more to spend on everything else. that's bug plus for the economy. i think the fed can continue to be aggressive with monetary policy. net-net, i think it's a plus for the economy. >> lots of people are not worried about consumer price inflation, but some investors are quite worried about asset

inflation. are you? >> i'm not worried about asset price inflation in certain areas. if you look at where the stock market is, you're looking at the market trading at earnings power, you see yields held down, prices held up, and that is directly due in part to what the federal reserve is doing in terms of buying assets, printing money, putting it into the system. at any point in time, you're going to have markets that are going to be affected by federal reserve policy, and at some point a bond market where yields are held down too low too long, you could have a painful reversion of that, we don't see anything meaningful coming in that regard for quite a while. >> whatbout you? is there a point that the stock market gets out of whack and that it was threatened financial stability and worry the federal reserve in. >> we've had a couple stock market bubbles. think back to 2000 a2007

there's reasons to be concerned if stock prices get too high. i think we're a long way from that. the tried and true measures is the price multiple. that's about 15 on the s&p 500, and that's about average since world war ii, i don't have any concern about valuation in the equity market, i think the valuation is appropriately valued. >> you agree with kevin basically so. in this low inflation environment with relatively slow economic growth. if i'm looking at domestic stocks, where should i be putting my money? >> i think you have to look for consistency, ultimately what you're going to be looking for is a company that can perhaps deliver earnings consistently overtime, when you do have a very low kind of inflationary environment, it is sometimes more difficult for companies to generate high levels of earnings growth. so, therefore, i'd be willing to

pay a premium for consistency over -- very rapid growth. stable balance sheet, very good liquidity on the balance sheet, consistent earnings, i think all of those things make sense. >> let me ask you about another word we haven't heard in a long time, deflation. this is falling prices. just the opposite of inflation. do we need to worry about that? could that creep into the economy? >> it's always a risk, i'm not concerned about it, for that to happen, we would have to go back and do a full blown economic recession with the falling employment rising. you can't rule out. there's a lot of risk out there, i think the probabilities of that are very low. the other thing to consider is that inflation expectations, they're rock solid and they're right about where the fed wants them to be. that's a good sign that inflation is not at a significant risk. at least not at this point. >> i get two questions for the price of one here, what kinds or categories of stocks do you find have thettributes you just

described. that's question one. question two, one of the federal reserve governors or bank presidents out in san francisco today said that potentially the fed might pull back on its bond purchases as early as this summer given economic conditions, does that alarm you? >> well, i think the first question, if you're looking for stability and consistency, did you find that in places like consumer staples, maybe a little rich right now. health care, i think has an interesting attributes to it, i think if you look at technology, technology has underperformed the last year, very good balance sheets, there's opportunity there. i'm not particularly concerned about the fed pulling back in terms of their asset purchases. if anything, i would expect to see them doing more, because when you look around the world, what do you have? you have a stronger dollar recently, you have inflation expectations priced into the bond market looking out maybe 10 years, coming down shat, you

do have relatively soft underlying inflation. and with other nations around the world engaging in asset purchases now, for example, japan, their recent announcement of asset purchases and the stepped up program, that actually would encourage the fed to do more, not less. >> thank you for coming on the program, we really appreciate it. >> mark zandy, kevin terran. >> stocks retreated from record highs today, and they ended lower, they are pressured by some iffy economic data and comments from a federal reserve official saying the central bank could begin easing up on its monetary stimulus sometime this summer. on the housing front, construction of new hom ll sharply last month, down 16.5%, it was the weakest reading since november in a part of the economy that's been in recovery mode. on the jobs front, the number of workers seeking new unemployment benefits rose last week by 32,000. reversing a recent trend there. the bright spot in the market

today was cisco, which helped cap some of those losses, it closed up more than 12% on strong earnings, a dividend hike and share buy back. the dow finished lower. the&p 500 lost 8 to 16.50 and the nasdaq was down 6 at 34.65. two retailers in the news today, let's begin with jcpenney. it missed wall street estimates for earnings and sales. the struggling retailer lost 1.31 a share. even worse than the 89 cent loss that was expected. revenue fell 18%. shares were off about 1% during the day. but actually erased that loss after the numbers came out. and then there's walmart, walmart surprised investors today, notn a good way. the world's largest retailer posted weaker than expected earnings and said things aren't looking much better in the current quarter. what's going on inside this

retail bellwether and what it says about the american consumer. >> the first quarter was better than last year's, but more difficult than expected. on a taped call, mike duke saying higher income taxes and smaller increases in food prices were other reasons walmart's earnings came in at $1 a share. >> tax refunds caused customers to put off discretionary pu though no one likes to talk about weather, it was a real factor across the united states. >> total sales also light. same store sales, stores open for more than a year, fell an unexpected 12.4%. the first decline in 7 quarters. walmart saying its budget driven clients top concerns remain the economy, along with food, gas and energy prices, and to a lesser degree taxes. still, they're spending steadies and remains steady after a weak start to the first quarter. walmart's forecasting, same store sales will be unchanged up

2/10 of a%. a good sign to joe feldman. >> given the fact that sales trends are doing better right now, they sound like they're getting things in order. there's going to be some expansion issues in the second quarter. they should be able to continue that productivity loop. >> earnings forecast amidst wall street estimates. >> walmart violated the corrupt practices act. they're seen cutting into walmart's profits. for nicely business report, i'm mary thompson. >> here now with his outlook for bud bugash. your report out within the last couple of hours, you call walmart a market performed stock. i guess that means you're neutral on it, you're not urging people to go in and buy hand over fist, what do you see here? >> that's correct. >> we see a terrific retailer

and certainly an important company for consumers and for investors alike. but we think the valuation is such that it will perform at a market level. the valuation today is around 15 times our estimate going-forward. and that's actually above the five-year median right in line with the ten-year median. on that basis we find the stock as a market perform. >> if you look at the earnings that came out today and also the outlook going-forward, what's the issue here for malwart, is it specific to walmart or something that h to do with the economy and what's going on in washington? >> well, i mean the old joke as mary thompson said, while retail is detail, there are only two problems in the quarter, revenues and expenses. when you look at the detail, there are lots of moving pieces, there were bright spots in the report, and there were challenges in the report. among the bright spots in the report was the expense leverage

at walmart.us. on the other side, the sales were light. they were down 1.4%. that was a bit of a disappointment certainly below our expectations of negative 5/10 of a point. there are lots of other issues going on in international, you have much higher en the compy workin obviously fcpa was larger than expected. that's going to continue for an undetermined period of time. there are other corporate expenses that were also cutting into profits, yet there are other areas that are positive. there are lots and puts and takes on walmart as you would expect with a company of this size and this importance. >> does it concern you that their outlook for the current quarter is a little more tepid than the street consensus in terms of the earnings per share? that's number one, number two, as you talk about international expenses, one of the things that was way bigger than the things they expected, with mexican

bribery scandal, now we also have the issues of the bangladesh clothing factories which walmart is going into and investigating very closely. are these issues important to you? >> cerinly there important. thfcpa irk u has been important since the spring of last year, and the company is working, i think pretty hard to try to get their arms around it, but that's an investigation that includes some agencies of the federal government, so it's going to go on for a while. and the 73 million they spent this quarter was certainly much more than they forecast, i think that was about 40 or $45 million, that's a lot more. the next quarter, it looks like 60 to $65 million. i did ask the company offline about the 14 categories that they are looking at for compliance criteria, i think that's actually -- it would set up a pretty interesting scorecard, they're not going to disclose all of those publicly, i think walmart is to be credited with trying to get

their arms around it, i think it could be a model for many companies. obviously a bellwether corporation, it's a lightning rods for a lot of criticism, the company takes that seriously. i'm actually impressed with what they're trying to do, it costs some money to do that in the near sterm. but i think the company's to be credit with that, they have some issues with suppliers overseas that bangladesh issues not just the first, they take these seriously, they set up some zero tolerance policies to combat those kinds of misdeeds that might be going on offshore. >> thank you very much. retail analyst with raymond james. still tonight on the program, reaction to the scandal at the irs from the chairman of the house tax writing committee. let's take a look at some of the stocks hitting 52 week highs today.

president obama chose danny wuerffel to lead the irs temporarily. john has been following the story and joins us with more. >> the president continued today to try to tamp down this scandal and bring it to a conclusion as much as he can. yesterday he fired the acting irs commissioner who he replaced with danny wuerffel today.

he said we don't need a special council to investigate this. all the congressional committees, we have plenty of investigations. >> the i.g. has done an audit, it's my understanding it's going to be recommending an investigation. and attorney general holder also announced a criminal investigation of what happened. between those investigations, i think we're going to be able to figure out exactly what happened, who was involved, what wentwng, and we're going to be able to implement steps to fix it. >> of course, it's going to start right up again tomorrow because the chairman of the ways and means committee is having a hearing on this, he told me he was not satisfied with the inspector general's report, he wants answers from steve miller, even though he was fired yesterday, including about what

was the political motivation behind what the irs did. >> he's still the acting commissioner unt june. he's still the g. we have a lot of questions to answer. >> do you have any reason to believe that the white house was involved in this? >> again, i don't know the answers. we need to get answers. and we're going to follow this where it goes. >> and that's, of course a key question to how long this goes on. dave will have a hearing tomorrow. max baucus who i also interviewed is going to have a hearing as well. other congress ap committees will. but if they don't connect this to the white house at some point in a more significant way than has happened sofar, ultimately this thing may run out of steam, guys. >> there's a new acting commissioner, you think he's up to the task of handling all this? >> it's a temporary employment, he's going to serve through the end of the fiscal year, this is someone who's been working in the budget office.

the president had a to appoint a successor to doug show man, who was the last irs commissioner who was actually on his watch, that these abuses occurred. whenever that happens, that is going to trigger a confirmation process that will be a challenge and drag out discussions as even more. >> what happens next, we know about the ways and means committee hearing tomorrow. >> we have the ways and means committee hearing, we're going to watch for more personnel fallout, we have word late today thatted second official oversaw the questionable screening activity is leaving his job, choosing to retire, that's one issue. then the question is going to be how do they staff the agency. and what does congress do, do they pass legislation for example to overhaul the way the tax exempt organizations are regulated. that's one of the big questions for congress. >> a lot of questions and a lot of big issues, thank you so much, john. john harwood at the white house.

turning now to our market focus. we begin with big name tech out with earnings after the bell. dell said it's earnings fell as pc sales continue to decline. the world's third largest pc maker made 130 million in its latest quarter. sales also fell off more than 2% to 14 billion, that was actually ahead of estimates. chairman mychal bell wants to take the company private for about $24 billion, but activist investor carl icon and another major shareholder say that's too low and they want new leadership. shares were flat today to close at 13.43 but are up about 32% this year. shares of net app spiked today after reports that activist investor elliott management has taken a stake and will push for changes on the company's board of directors. th storage equipment maker is

the second best performer today. kohl's fell more than 4%. the earnings results still managed to beat expectations, the first quarter started slowly. its growth in its second quarter expects between one and three%. shares started up 5% today. at the other end of the retail food chain. tiffany has a gift for its shareholders. the jewelry store chain is raising its quarterly dividend to 34 cents a share. the company's 12th dividend hike in the past 11 years. shares of tiffany are up more than 30% so far this year. the biggest loser on the is s&p today, goldman sachs cutting the semiconductor maker to sell. saying the stock is too expensive. shares tumbled more than 12% to

$3.83. they have doubled in the past six months. coming up, a sweet comeback, how krispy kreme went from fast food favorite to flameout and back on top again. first a look at the treasuries and currency today. krispy kreme was one of the hottest brands in america just over a decade ago. the doughnuts were mouth watering for investors. the stock price kept getting sweeter. then it all sizzled. the company's comeback was anything but easy.

>> forget the dot com bubble. >> the horror. >> back in 2000, there was also a doughnut bubble as yours truly reported after krispy kreme went public in a frenzied ipo. the stock is trading at nearly 70 times next year's earnings. >> krispy kreme eventually topped $100, then the company fell down a doughnut hole. the stock plummeted and management had to go. >> now the company is reporting 17 straight quarters of same store shares growth. they have outperformed rket they promise to go from 940 to 24 stores by 2017. >> i don't know the number for the right amount of stores. but it's in the thousands. >> they just make it with less. >> for lack of a better analogy,

it's the n & out of doughnuts. >> could have dpi only represents 5% of krispy kreme's sale compared to 5% of duncan. >> i have great respect for duncan doughnuts and starbucks. they are largely beverage companies. and we're a doughnut company. >> that said, growing coffee is part of the plan. >> i think the company can be a lot better, a lot more successful, a lot smarter. >> i'm not sure everyone realizes that. >> sometimes they think it's just a doughnut. it's not just a doughnut. >> the hope is this time around, krispy kreme's financial prospects won't be filled with empty calories. for nightly business report, jane wells, burbank, california. tomorrow we wrap up our series with a look at how one company was riding high, then fell into bankruptcy and now is

taking investors on a thrill ride. an update now on two stories we brought you last night, first it was a record setting night at christie's, they raked in $495 million, making it the biggest auction in history. the top seller, jackson pollack's number 19 went for $58.3 million. jean-michel's bust head sold for $48.8 million above the estimate. and second story, the powerball jackp jackpot, $550 million. no tickets matched all six numbers in last night's drawing. no everyone was a loser. tickets in delaware and pennsylvania won $5 million. and 16 states had million dollar winners. the next drawing, get your tickets, saturday night. >> did you get your tickets? >> i didn't. >> now maybe i will have a chance. >> tempting. >> that's nightly business report for us. >> thanks for with us.

have a great evening, everybody. we'll see you back here tomorrow night.

hello there. it's friday, may 17th. i'm catherine kobayashi in tokyo. a japanese politician may be getting more than he imagined. earlier this week he said wartime brothels were necessary to provide