caioning sponsored by wpbt >> paul: federal rerve policymakers start a twoay meeting tomorr with one thing on their minds, but inveors have three things th want to know. toght, what to expect from the fed when it comes to interest rates and a possle economic recovery. >> susiespeaking of the economy, should amicans be optimistic, pessimistior somewhere in bween? we'll ask leading economists mark zandi omoodyseconomy.com and harvard university's ken rogoff. >> paul: whi the health care form debate has mostly been abouincreasing medical coverage, tonighwe shift our focus to medicalalpractice and why doctors say thisssue desees more attention. >> there are some re, real opportunits, some real money to be de over the next three to five year time frame. >> susie: tonighs of mutual interest detailshere this

father-son investing teathinks those opportunities e. >> paul: i'm paul kangas. >> susie: and i'm sie gharib. thiss "nightly business report" for monday, august 10. "nightly businesreport" is me possible by: this program was madpossible ne

thisrogram was made possible by contributions tyour pbs statn from viewers like you. thank you. >> susie: good eveni, everne. recession or recery? at's a key question that fed policymakers will be debatin this week. they begin two-day meeting in washington tomorrow,o decide what's next for the econy and terest rates. many economis have already decled that the recession is over and that the u.s.conomy is on the th of recovery. but as scott gvey reports, even the experts he lots of questions out the central bank's next move. >> reporte fed watchers would like answers to three quesons when the central bank conclus its august meeng on wednesday. first, they want to know abo plans to raise ierest rates. second, they want to know the fed thinks the econoc recovery is real. anfinally, they want to know if chairn ben bernanke will be re-appointed to a cond four- year term.

ll, answers to two out of three isn't ba first up, there ist a owball's chance in a very wa place th the fed funds rate wi be raised from its zero to .25% range this mont or, acrding to jim o'sullivan of u.b.s., anytime soon. >> most likely they'll reat the nguage, indicating that the funds rate'soing to stay exptionally low for an extended period. in addition, we uld expect the woing to be a bit more optimist sounding on the outlook for growth. thiss consistent with the idea at the economy is improving slowly. which brings us tohe second answer: bo traders are antipating higher rates as soon as the fourthuarter. but bob bruscaf fact and opinion economics says we wi not read that e fed believes the crisiss over. >> once the fed go for business as ual, then it needs to start takg out the excess reserves, getting tes back up into more neutral framework, d that's where i don't think we are y. as to thfinal question, the future of thchairman who has taken lot of political heat in recent months inashington.

wall strt will get no information whatsoever ithe fed atement, and be left guessing as to his reappointnt chances. >> it's certainly being taed about, and i think ie seen polls this. and the vast majority of economists support bnanke being re-aointed, and i rtainly agree with that. >> the easiest decision th obama has is re-pointing rnanke. other decisis will expose him to much moreisk than he needs toeal with. and frankly, hs got enough toh decisions to wade into than this one, ts one is easy. >> reporter: it's ha to find anybody on wall stet who thinks bernanke shou go. his term expes in february. scott gurv, "nightly business report," new yk. >> paul: invtor caution ahead of that upcoming fed meetingnd profit taking om last week's rally on wl street sent stocks lower today. 30 mutes into trading the dow fell about 40 pointsnd the nasd was down five points. the modest lossehelped the market stabili throughout the mid-session hours, but a pkup in sling in the steels and

timberla sectors had the dow ofas much as 70 points until me late buy programs trimmed the losses the dow jones instrial average clos off 32.12, at 9337.95. the nasdaq lost 8.01 to 19.24. ths&p 500 fell 3.38 to 1007.10. in the bonmarket, the ten-year note climb 21/32nds to 94-24/32nds,utting the yield at 37%. >> susie: more analysinow on the outloofor the ecomy. joining us, two prominent economists with fferent viewpoints: kenneth rogoff professor ofconomics at harvard universityand mark zandi, chief economist at

moodysonomy.com. >> thank you for joining . >> thank you >> suzanne: one tng we can agree is t worse of the financial crises i overut are we still in a recession or a recovery. mark, what d you say to tha >> you kno i think the recessiois just about over. this has been a ry severe downturn but ihink just abo at the end of its tenure, i think it's going to be a bit of a slo over the coming year but the gd news is this long dark period is just about done. >> sie: ken, do you aee with that. >> well, i do e i mean i think we're not falling off a cliff and jobs are stilgoing down and probably wi for a while longer. but we'll g for recovy. the questi's what's ahead. susie: and wt is ahead? >> well i think wre lookingt

five years o much slow growth than we saw befor the finanal crises. there's so many allenges. home pces. i don't think they're bouncg back i ca i consumptions going to be aeak for long time d with this debt taxes is going ve to go up. with all tse new programs taxes are ing up and that's not gd for growth eithe i see aeriod much slor grth leaving us vulrable to a receson down the road sooner than we mht normally expect. >> susie: so mark will you tackle some o those whether it's houng or gwth. >> i agree with ken over the xt 6-12 months the economy is going to struge coming out of recession but growg slowly. i'm more ccerned abo the long term in 2011 and 20 the empediments to growth will stay away. the financial system i serious but we will overcome them. the policy efforts is quite god

and other instoons willxtend more credit. in hd sectors of the economy like housing and the vehicle instry the level of aivity is incredibly low. the housing construction is aa po world war ii low as are vehicle ses. you can' keep tse levels o activiti that low for vy long. demographics are going to compel much hher levels of construction in hicle building, d that will drive a lot more growth as we make our way into t early par of the nextecade. >> susie: real critical part about growth i that what's haening in the jobarket. now so people are saying that unemploymentate that notched wn a little bit we s on friday is a statistic fluke and as long as people aretill unployed and there are a lot of people without jobs,hey are notoing to be spendinso we cannot get growth. ken, what do you say to thatn terms t ouook for the job market. >> well it's certaly challenging. i mean ihink the unemployment rate i going to get over 10% before this is over. i mean it depds on how many

pele get discouraged and pull out of the labor force but i think the big pediment is hoing prices are not goin to come down for a long time,two yearmaybe seven yearsand that's going to cause people to spend less. that's 70% of o gnp. that's a big factor demand. that's going to tough place it withnything else. >>usie: is the housing market in thatcrisesyet? go ahe, mark. >> well, was just going to say one reon for optimism is that everyoneas so pessimistic. am i think if you go back to the even of last year the financi system was collapsing, people panicked, consumers business people inveors completely panicked and business slashed investnt, they slashed pay roles and i think theoverdid it and i think they realize come this te next year they'll realize the coast is car and will srthiring much more aggressive.

n's right, the unemployment rate is going to rise before it falls buty the time it starts falling in 2011 d 2012 we'll see more job grth than anyone anticipates at ts point. >> susie: let's say consumers start getting theirobs back. will they spend likehey didin the most. can we still thin of t u.s. economy, the enge of growth i going to come from the consumer or has that changed through this financial crises? ken? >> i don'think it's going to be the same. i mean i don't tnk housing prices are goingo come back. i don't think edit's going to be the same. i hope it's not ing to be the same. i hope they're going tdo some regulation. they are being very soft now but they hav to reigng it in. we have to depend on exrts and more on the government. i think evtually there will be anotr stimulus package, eventually there will beigher taxes. >> susie: mark? >> yes, i think we're at a point with respect to consumer

ending. u.s. consumer power is growt the globaleconomy really for the past qrter century tt's evident in t declining rate and i think u.s. consumers will do tir part and no more than that going forward. but t good news is we ar seeing mh stronger and will see much strger growth from overas in many emerging economies, india, china. those consumersill spend more. their spending rates will me down and we will have the goods and service to sell to them. >> susie: et's hope they do buy thgsade in the usa. gentmen both thank you so much for cong on the progr. we really appreciate it >> thank you,hank you. >> susie: kenneth rogoff o harvard university and mark zai of moody's economy.com.

>>aul: health care reform is the t topic for congressional lawmakers on august cess and for their constituen. today, the insurance iustry's lobbyist tolreporters the batt over reform will be decidethis month. the debate has cenred on how to best cover uninsured americans. but a key issue: medical malpractice has been large ignored. as stephanie dhue repos, some doctors say it shoul't be. >> reporte for capitol orthoapedics, apparent on the bottom le. the practi spends nearly a quarter million dollars each year on malpractice surance premiums. dr. stephen ckower says the fear of being su also leads to densive medicine. >> i order a lot of tests at i know are not really nessary, but i have to do ito cover my rear e because i'll be cricized if something goes wrong.

health care reform has fused on providing insance for all americans and brging down the spaling costs. but largy left out of the debate is the ise of medical malpractice refo. neher the house nor senate lls mentions the issue. dr. ckower says that's a huge oversight. if they're not factoring th in, en they are not really taking care of eirely of what go into the medical economics of runni an office. >> reporter: in a speech to the amican medical association this spring, psident obama said he wanted to workith docts to scale back the practice of defeive medicine. but he stopped short of endoing the groups key solution, limiting jurawards in malpractice cases. i want to be honest with you i'm not advocating caps on malpractice awards, which rsonally believe can be unfa to people to have en wrongfully harmed.

>> reporter: trial attorys and patient adcates oppose capping damages. and trl lawyers contribute geneusly to democratic candides. dave levthal of the center for responsive pitics says that gives th clout. >> when you ha a group that has donated 75% to 80% democt, th're your friends, they're you're allies and you're goi toerhaps listen to them. >> reporter: and not eveone agre what problem malpractice reform shod solve, whether it's the higcost of premiums, medical rors or the random nature of jury award that makes likely e issue to be kept ouof a national bill and athe state level for now. stephanie dhue, nightly buness report, washington. >> paul:ow, let's take a look at somstocks in the news tonight.

>> paul:nd those are the ocks in the news tonight, susie. >>usie: paul, given the weak economy, these days st investors don'have much of an petite for transportation an retail stocks. but n and craig hodges, the father and son co-manars of the hodges fund, pride themselv on betting big on stocks others avoid. the fund is up 20% this ar, soundly beatinthe s&p 500. but lastear was a different story. the fund lost nely 50%. in tonight's "of mutual terest," erika miller talks the hodges. she ben by asking don hodges whether 2008's pr returns changed e fund's investment strategy. >> i can't say that we'r changing o approach from the standpnt of whate usein king our decisions. what we have done is cut back on the number stocks that we own. d we've gone over the last couple years from having around

sitions in the portfolio to probab about 45ight now. and the reasone're dng that to get more impt on the recory from o favorite stocks and it is rking. >> susie: raig, what your market outlook? how optimistic are y that the recovery is in place in rms of stock market rally? >> i think the worst is behind us. the way we look at things, the marketould go sideways f a while but we d't look for the marketo continue go straight, straig up. andit doesn't need to. we can find opportunities in a sideways market. there are some rl real opportunits out there, real money to be madever the nex three to five yearswe feel. >> susie: where do you see the best opportunities these days? >> the best opportities i think from a two to tee year standpoint are some of the contrarian pys. we've alws done welly buying stoc that areut of favor because when they d return to favor, they make substanal moves. we think tre's a l of

portunity in retail. we think there's a lo of opportuny in airlines, transportation in neral. >> susie: ne of e most intesting aspectof your fund is the fher-son dynamic. do you csider that an advantage. i think it's a great vantage. i bring perience from the standpoint of some of t traditional vestments that ha been out the for years and years. and think craig brgs much moreerspective to current technologies and things that i'm just not nearly whe he is. so think we work very well together. >> susie: and craig, let's hear your perspective. w does it cnge the office dynamic tobe workg with your faer. >> we've word together for 22 years now so it's gonereal well. we've ner had anykind of big disagreementr anything like that. weet along rea well. and he' great. >> sus: but disagrments are inevible. howdo you handle them.

>> he's alwaysight. [laughter] >> i can't really s that wve had any. >> susie: oh, come on >> i'm serus. i can't remember us havin any ki of an anger disagreement at all over that period of time. susie: it's notusthe two of you therere two other siblin that are also inhe busine. >> i think all of us fl very honored to work with him. and of coue he's 75 years old and is not evennearing a temptation to retire. >> susie: is part of that, n, the desire to go out top? is it importantto you toee the fund rever ba tots highs? >> it's very important but deer than that, i love working, i love what i do. there'sever a dull moment. it forces you to learnew ings every day. and it's just anngaging occupation. and so i feel like if i make it to 9 i will still b terested in thearket. >> sie: for a patient investors.

itay be worth the wait. morningstar, the mutual nd research firm,otes the hodges nd's impressive long term record. hower, morningstar gives it onlywo stars out of five because of volatity and above average expenses. >>aul: general motors is tryi new ways to sell cars. tomorrow, it launches trial program wi online auction giant e-bay. the partnership will let coumers place online bids for new vehicles from about 22g.m. dealers in california. buyers will be ablto choose between the two standard optns curreny offered on e-bay, negotiing a price with a dealerhrough the site or purchasingmmediately at a fixed price. and spking of g.m., tomorrow we talk with c.e.o. fritz henderson as the automaker sws off its 20 models to consumers. >> susie: warning today from one of the world's biggest stitutional investors: "stat street. in aegulatory filing, the boston firm id it's burned rough more than two-thirds o a $625 million fd created to handle lal claims. it may need to raiseore money. some customers sd, saying they

believed they re being sold low-risk iestments. but instead ey lost money from subprime mortge exposure. >> paul: the swiss gernment took a break from its summer cation today, to hold a ecial meeting over banking giant u.b.s. the ba is negotiating with the i.r.s. on handing over theames of u.s. clients suected of evading taxeby hiding money in secret u.b.s. accounts. the swiss cabinet won'release details until a deal is reacd. on wednesday, bo sides will update a fedal judge on their on negotiations.

>> susie: tonight's commentor wants regulators to crease the capitarequirements of banks. he's richard dekaser, esident of woodley park resech and the formerhief economist of national city corporation. >>eporter: most people would agree that it makes sense toet aside money during good timeto weather e bad ones. that why 90% of state governments have rainy day fds and 60% of american falies save some of their ince. but bank regulation nes to do more in this regard. as things now stand, ban are requed to hold capital at around 10% of sets to protect depositors, taxpayers and investors from their insolvey. but whenhe economy turns down d losses increase, capital disappears. en, banks have two options t

maintain their capal ratio: ise more capital or reduce assets. cause times are tough and investors are skitti, raising additional capal is expensive when possible at a. so instead ty opt to reduce assetswhich means less lending and titer credit precisely when the oppositis required. moreover, when ban dump assets en mas, as we saw last year, the rush for the exitsepresses asset values, fuher increases losses and a vicious cycle tes hold. this cycle works in reverse during good times, by the y, which is oneeason we've had this recurrence of lendingooms anbusts. now there is aetter way. if regulators reque banks to increaseapital ratios during good times, en there's more of a cushn to draw on when times are toh. and by allowing capil ratios to decline during tough mes, we caneduce the risk of a credit crunc and that, in turn, wou derate the business cycle to thbenefit of us all. i'm richard deser.

>>usie: and that's nightly business report for moay, august 10. i'm susie gharib good night, everyone. and good nighto you, paul. goodight, susie. i'm ul kangas wishing all of you the best of good bs. "nightly business repo" is made possible by: this program was madpossible by ctributions to your pbs station from viewersike you. thanyou. captioni sponsored by wpbt captioned by media access gup at wgbh ac cess.wgbh.or .w