captioning sponsored by wpbt >> the l-u-v cycle. the love cycle. "l" for europe. "u" for the united states and "v" for asia and some of the emerging markets. >> tom: what letter best describes the economic recover depends on where you are. greece's debt troubles continue to weigh on europe and investor confidence. how that may hurt your portfolio as billions of dollars have poured into international mutual funds in recent months. you're watching "nightly business report" for friday, february 26. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:

this program was made possible by contributions to your pbs station from viewers like you. thank you. >> tom: good evening, everyone. as we wrap up this week, the spotlight remains on greece. today, president obama spoke with the prime ministers of great britain and germany about european debt issues. the white house believes the european union will successfully contain the problem. as erika miller explains, why the issue is important to u.s. investors. >> reporter: greece is a small country half a world away. but what happens there-- and in other european countries-- could

affect your investment returns. over 12% of all u.s. mutual fund assets are invested in international funds. in fact, more than $36 billion has gone into international funds in the past three months alone. s&p strategist alec young warns many of those international funds are not as diversified as you might think. >> europe and the u.k. represent about two thirds of overseas market capitalizations. so anyone who owns an international mutual fund or an international e.t.f.-- there's a very good chance. if it's broadly diversified that they do have significant exposure to europe and to the u.k. >> reporter: worries about what is happening there have hammered european stocks. a widely used measure of european stocks-- the msci europe index-- has fallen nearly 10% so far this year. by contrast, the rest of the world is only down just over 1%. as a result, some strategists think investors should be selective about where they put their money. nick colas recommends focusing on emerging markets in the

international portion of your portfolio. >> the best thing about big emerging economies-- the brazils, the chinas of the world-- is they don't carry a lot of external debt. they have, in many cases, large foreign currency surpluses. so they are more than able to pay off the debt that they do have and they have local economies that are almost self sustaining in their growth. >> reporter: but even if you just own u.s. stocks-- say, an s&p 500 mutual fund-- you are not immune to europe's woes. according to morgan stanley, europe accounts for nearly a third of u.s. exports and 8% of s&p 500 company revenues. >> if the greek situation gets too far out of hand, you could see european g.d.p. cut back several points in the back half of this year, and that will slow revenues at those companies. >> reporter: the problems in greece underscore why experts think an international portfolio should be well diversified. the goal is to spread out your risk beyond one country and region. erika miller, "nightly business report," new york.

greece is just the latest country to be the focus of worries about ious, concerns still building about spain, portugal and others. nariman behravesh is back with us, chief economist at i.h.s., joining us from boston. welcome back to "nightly business report". >> thank you. >> tom: we had a rush of bond defaults in 1988. argentina defaulted in 2001. sth greek threat of default any different from those? >> not really in terms of its order of magnitude, but the worry, as you were saying, is the domino effect, somewhat somehow or other, greece and its problems could then morph into a bigger problem, say, with spain in particular, and here, you have to put it in perspective. greece is only about 3% of the euro zone. spain is almost 12%. if spain runs into trouble, the same kind of trouble as greece does, then it cook a very big deal. it's not so much greece per se, but the worries that this is just the beginning of a bigger deal. >> tom: you mentioned spain and

greece on the global scale. in it's the 34th largest economy. spain is in the top 15. clearly, a much larger domino should spain fall. so does it face the same type of inevitable pressures greece is coming under today? >> i think the fiscal problems in spain are not quite as bad as what's going on in greece. a lot depends on what spain does. unfortunately, spain is in a very dire economic situation. it's in its second year of recession already. unemployment is nearly 20%. so already the economic situation is bad. so, for example, for them to deal with their fiscal crisis would mean either higher taxes or less government spending, which in the midst of a deep recession is very hard to do. the big question about spain is what are they going to feasibley politically be able to do? >> tom: we've been asking that question here in the united states, and i know the euro zone leaders have been asking that

question of spain for, going on the better part of a month now, and there has been no clarity whatsoever, has there? >> there has not. in fact, this could be ald the so-called... countries, portugal ireland,ilityly, greece, spain, pictures none have come up with a credible plan. you could say that about the united states. >> tom: right. >> but they're a lot further along in terms of the crisis than we are. >> tom: with that in mind, here we are going on the better part of a month with greece in the headlines, and worries about the global stock market for that matter, is this priced in at this point? is this risk already acknowledge expected world is ready to move on? >> well, i think certainly a greek default, do some extent eye mean, i think it's still a low probability event, but it has been, to some extent, priced in. i don't think a sparn one has been because that's a much bigger deal. if spain were to default on its

debt, we could be look at a splitting up of the euro zone which would be pretty nasty. i don't really think financial markets priced that in. again, the good news is low. >> tom: developing economies really go off like gang busters here in 2010 already. the u.s. economy, clearly, is gaining some of the its sea legs at least in the fourth quarter with the g.d.p. report out. what does this set up in terms of economic growth across the world? >> we're talking about a multispeed recovery around the world. some people refer to it as the "luv psyche elt." l for uranium, u for the united states, v for asia, and some of the emerging markets. >> tom: and referring to the bounce as it were,-- >> that's right, that's right. basically, what we're seeing is about 2.5, 3% growth in the u.s. for this year, 2010. but only, say, 1% in europe, but

5% or 6% in asia. looking at very, very different speeds of recovery around the world. >> tom: we'll leave it there. thank you so much for the global insight. my guest this evening, nariman behravesh, chief economist at i.h.s. let's get you caught up in the stories in tonight's n.b.r. newsreel. >> tom: here are the stories in tonight's n.b.r. newswheel. a muted end to the week for the major averages. stock prices drifted higher through the afternoon after dipping slightly in early trading. at the close, the dow gained four points. the nasdaq added the same. the s&p 500 was up one and a half points. little reaction from investors to news of faster economic growth here in the u.s. the commerce department revised its fourth quarter g.d.p. reading slightly higher to 5.9%. that's the strongest pace of growth in over six years. home resales tumbled last month- - falling 7.2% on the heels of a 16% plunge in december. sales remain weak as americans struggle with high unemployment and tight lending conditions. and freddie mac says it will stop buying and securitizing

interest only mortgages in september. those along with subprime mortgages are blamed for inflating the housing bubble. >> tom: another big loss for one of the biggest tax payer investments. taxpayers own 80% of a.i.g., and today the company reported nearly $9 billion in red ink on darren gersh looks at whether your investment is stabilizing. >> tom: when a.i.g., the giant >> tom: when a.i.g., the giant insurance company was on the verge of collapse last year, u.s. taxpayers stepped in taking an 80% stake in the company. today, your company reported a loss of almost $9 billion. but is your investment stabilizing. darren gersh takes a look. >> reporter: a.i.g. calls its almost $8.9 billion loss in the fourth quarter a substantial improvement over its world- record setting loss of $62 billion this time last year. analyst cathy seifert almost agrees. >> where we once had a terminally ill patient, if you will, we now have more of a chronically ill person. >> reporter: what ails a.i.g.? what the industry calls net

written premiums-- a key measure of an insurance company's health -- down almost 14% last year. >> the industry is in sort of a soft pricing environment, but that is weaker than the industry as a whole. it tells me there are still some struggles there. >> reporter: a.i.g. sells everything from life insurance in asia to property and casualty insurance in los angeles. what's not clear says "morningstar's" bill bergman is why the company is setting aside more money than the rest of the industry on average to cover expected losses. >> that's a little bit disturbing in terms of the long- run viability of the insurance operations. they're going to be critical to the turnaround at a.i.g. and we're seeing some stabilization of premium volume, but underwriting profit would be good and we're not seeing that either. >> reporter: at it's peak, the u.s. government had committed more than $180 billion to help a.i.g. that number has come down some, but the company still borrowed $3 billion from the treasury last quarter to repay short term loans and the government still owns almost 80% of the company.

whether taxpayers get most of their money back depends on the success of a.i.g.'s new strategy. >> nuts and bolts of basic insurance. they are going to return to basics. they are going to unwind a.i.g.f.p. they are going to get out of the fancy financial stuff and get back into insurance. that's the main strategy right now. >> reporter: so what's the bottom line for taxpayers? the treasury now expects to lose $48 billion on the government's investment in a.i.g.. darren gersh, "nightly business report," washington. >> tom: the billions spent on a.i.g.'s bailout have contributed to the mounting national debt. today, president obama named four new members to his panel charged with reducing that red ink. they are alice rivlin, a former federal reserve vice president; honeywell international chief executive david cote; andy stern, president of the two million member service employees international union and ann fudge, former chief executive of young and rubicam brands. meantime, a million laid-off americans will lose their federal unemployment benefits

this weekend. starting monday, they'll no longer be able to apply for those benefits or the cobra health insurance subsidy. lawmakers repeatedly tried to approve a 30-day extension this week. but senator jim bunning, a republican from kentucky prevented the $10 billion measure from passing, saying it needs to be paid for first. still ahead on the program, we'll find out what exchange traded funds tonight's "market monitor" guest still likes. she's elaine garzarelli, president of garzarelli capital.

>> tom: let's take a look at tonight's market focus. the major indices could not stage a third consecutive week of higher prices. the dow industrials were lower three out of the day sessions this week, slipping seven-tenths of a percent. the nasdaq saw a similar trading pattern, but dropped less. the nasdaq was down three-tenths of a percent. and with earnings season slowing down, the s&p 500 closes out the week over 1,100, down four- tenths of a percent since its close a week ago. earlier darren reported on a.i.g. let's take a look at what the stock action looked like. big volume today with a 10% drop. it was just on monday when the stock hit more than $29 on a report that revenue was stabilizing. tonight, shares are below $25. one order of carl's jr. and

hardees. parent company c.k.e. received that a private equity buyout offer. $619 million or $11.05 a share. that fueled a big volume rally of the stock. with the stock closing at $11.37, investors are betting a higher price could still be coming. c.k.e. has until early april to get a better offer if it can. the private equity appetite for fast food helped fuel a small rally among others. jack in the box saw heavier volume on almost a four percent rally. wendy's arby's group had lighter than usual volume on its move up. and the smaller sonic got in on the rally as well. there's been lots of concern about the quality of the balance sheets at some regional banks. today, bancorp south delayed its annual report as it reviews some of its asset quality measurements. the stock is at an 11-month low, seeing big selling volume today.

in the fourth quarter, the bank set aside almost $35 million for bad loans. and that's one area being reviewed. a couple of footwear stocks making moves today, one up, one down. crocs stock saw four times normal volume, slipping to a six week low. over the past year, this stock has clawed its way up from under $2 a share. the selling pressure may be due to the company's c.e.o. stepping down monday. a smaller quarterly loss than a year ago didn't help. sales were up but margins dropped. its first quarter outlook was better than expected. meantime, over at deckers outdoor, the fourth quarter was way ahead of expectations with sales and gross margins both increasing. strong demand for its ugg products. you may be familiar with the ugg boots. deckers also has makes teva sandals. the stock seeing a new 52-week high on a huge volume increase. some other big moves fueled by earnings.

advertising firm interpublic group saw its earnings drop but its c.e.o. called the business tone cautiously optimistic. i.p.g. stock is back at its most recent highs. air and water purification company calgon carbon saw profit double. shares of triple-c are close to a four month high. on the downside, f.t.i. consulting is close to a new 52 week low. blame disappointing earnings and a lower than expected outlook. and finally, a couple of medical developments sent their respective companies in opposite directions. medical device company nuvasive jumped by more than a third. insurance company aetna now will cover nuvasive's spinal surgery procedure. rockwell medical technologies lost more than a quarter of its value. it received disappointing results for an experimental anemia drug. next week, pfizer may bare watching. late today, the company said it was the target of a criminal investigation in oklahoma regarding the marketing of an organ transplant drug.

and that's tonight's market focus. >> tom: a top lawmaker is questioning whether toyota has come clean about its defects. congressman edolphus towns chairs the committee that hauled in toyota executives to capitol hill this week, today, he said internal documents show the automaker deliberately withheld information about defects in past court cases. now towns wants to know if toyota kept similar details from the national highway traffic safety administration. he's giving toyota's north america president until march 12 to respond.

here's what we're watching for next week. our friday "market monitor" guest is richard steinberg. president of steinberg global asset management. january factory orders, february auto sales and february's employment report will also be released next week. and monday, as the fallout surrounding toyota's massive recall continues, we'll look at how the government may steer future regulation of the auto industry. 2009 was a lucrative year, if you held a top job at bank of america. former chief executive ken lewis didn't collect a salary, but the value of his pension jumped by more than $4 million. current c.e.o. brian moynihan earned $6.5 million. thomas montag, the president of b. of a's global banking and markets business, got nearly $30 million in salary and stock awards, thanks to an agreement he signed with merrill lynch. the figures were disclosed today in a filing with the s.e.c. the federal trade commission said "yes" today to pepsico bringing its two largest

bottlers home to roost. the regulator signed off on the company's purchase of pepsi bottling group and pepsiamericas. but that o.k. comes with conditions. those bottlers also package products for dr. pepper and canada dry. so the f.t.c. wants pepsico to set up a firewall preventing its employees from seeing its rivals marketing and brand plans.

>> tom: the winter swoon for stocks is over, so says tonight's "market monitor." she's elaine garzarelli, president of garzarelli capital. welcome back to nbr, elaine. nice see you. >> nice to see you, too. >> tom: what makes you think the dip in stock prices we've seen since the middle of january is over now? >> well, the s&p 500 declined about 8%, and the russell 2,000 by 10%, and preceding that decline, the sentiment among investment advisors was very bullish at 76%. anything above 70% is bearish. and that has since dropped to only 60% bulls. in addition to that, junk bonds have reallyed and the baa 10-year bond yield ratio has declined. both of those things have increased our indindicators to 73% from below 65. >> tom: so that's telling you in

fact there ought to be more buyers than there are in this market. what's interesting-- >> yes. >> susie:. >> tom: the swoon kind of corresponds with the earnings seasons just about completed. earning came out generally better than expected, the outlooks were out there, but the market sold off on the news. >> yes, because the sentiment was too bullish and a lot of it was already built into the market and then we had the problem with greece, and the major thing that kicked is off was china started tightening, and that really bothered the markets, in addition to talked else. >> tom: speaking of tightening, the federal reserve in the past couple of weeks has taken its first tightening measure, that discount rate, the engineer lending rate for banks. does this change your outlook at all or time period for the stock rally? >> well, i really don't think they're likely to raise the fed funds rate, and that's the most important thing, for another three meetings or maybe six months from now. evan said that today at noon and some other members have said that. so if that's the case, i'm not worried about it.

now in 2004, when the fed tightened, the leading inflation index rose for eight consecutive months. now the same leading inflation index supfor 10 months, so it seems scary, but the point is, even with this rise, you're still down 12% from the prior peak in 2004 you were up 5% from the prior peak. so inflation is still not a problem. you really can't find it anywhere. >> tom: we have seen, however, basic materials commodity stocks perform, generally speaking, pretty well. let's take a look at your previous picks last fall, in september. you were looking at home builders, traded fund up by better than 5%. industrial exchange rated fund, 14% rise. and speak of some of the other areas you were put something money to work, materials up by 5% almost and emerging markets 7%. do you like any of these quartets, still? >> they're fair. the one i really like and

continue to like is the industrial area of the economy. >> tom: what is it about the xli the exchange traded funds, and the companies included in it, that you still put your money to work? >> i think the economy is growing in the exporpt area and capital spending. it's a business-led recovery. it's not really a consumer-led recovery and that should continue. actually, with the chicago p.m.i. that came out yesterday, it's very, very strong, and in the g.d.p. accounts, last quarter 18% rise in real capital spending versus 6% for the g.d.p.. >> tom: you mentioned exports. we have seen dollar stabilize to some degree. could that derail any of that export profitability you see in 2010? >> well, slightly, but not-- not enough to derail it. i think you can still have a good 12% growth, even with a stronger dollar. >> tom: earlier you mentioned a search for yield and that has led a lot of people to take what's called credit risk, basically the io. >> risk of high yield or junk

bondss. you have a couple of picks. j and k one of the etfs that invests in junk bonds and a high-yield exchange traded fund. what do you like in this area of fixed income? >> after the fed tightens, generally you would think fixed income would sell off. you don't want to be in long-term government bonds but with junk bonds, the fed doesn't tighten unless the economy is really doing well. and that means there's less out there for the bonds and they're still yielding around 12%, and the jnx is 70%. 70% of the holdings are in the industrial area. >> tom: we just have 20 seconds here left. analogy mortgage, nly, what are your hopes for this stock in the upper teens? >> it's yielding 17%. you can't dpeet beet that. and i don't think you have to worry about it until the fed raises the fed funds rate. >> tom: any disclosures, elaine

giown all of these in my sector analysis fund and personally. >> tom: our market monitor from the nasdaq, elaine garzarelli, president of tap. garzarelli capital. the economy is showing signs of life, but it's still tough out there. and, we want to help by getting answers to your personal finance questions. use our video-sharing site to send in your thoughts, experiences and inquiries. you can go to our web site: nbr@pbs.org. look for the "riding out the storm" logo. you'll find instructions on how to upload your videos so we can get experts to answer your questions. that's "nightly business report" for friday, february 26. i'm tom hudson. goodnight, everyone, and have a great weekend. we'll see all of you again next week. "nightly business report" is made possible by:

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