>> tom: as the recovery plods along, the federal reserve today renewed its commitment to stimulate growth. the central bank will continue its government bond buying binge. it also plans to keep interest rates near zero to support the fragile recovery. will it help? and where best to invest? you're watching "nightly business report" for tuesday, december 14. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: c;n9g

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. the economy is recovering, but progress is too slow.

so said the federal reserve today. so policymakers decided to keep their key interest rate near zero. tom, that's where rates have been for the last two years. >> tom: susie, by every measure, the fed described the u.s. economy as sluggish in its policy statement. household spending is increasing only at a "moderate pace". the housing sector is "depressed". inflation is trending down, lower than what the fed considers acceptable. and the economic recovery is "disappointingly slow" and "insufficient to bring down unemployment." >> susie: that's why the central bank is sticking with its controversial plan to pump $600 billion into the financial system to boost economic growth. through june, the fed will buy $75 billion a month of u.s. government bonds in what's called "quantitative easing". analysis now from two experts-- an economist and market strategist. we begin with brian wesbury, chief economist at first trust

advisors. >> hi, brian. >> hi, susie. good to be with you. >> susie: all right. so you don't agree with what the fed is doing in this plan to pump money to the economy. you don't think it's working. tell us why? >> well, first of all, i don't think it has had the intended affect. and second thing, listen to the words tom read to the consumer, it's sluggish. today we got retail sales. they've been up 12% over the past five months. what the fed is really saying is unemployment is too high, and it wants to bring it down, and it's going to do everything, even risk inflation, in order to do that. >> susie: all right. so do you think -- whether it is what the fed does or whether it is from tax cuts or something else, do you think that the economy is going to grow faster in the new year? or is it going to just keep limping along? >> no. i think the economy is already growing faster right now. we are going to revise up

last quarter's g.d.p., gross domestic product to about 3% growth. that's the long run average. that's what the united states has grown for the last 100 years on average. this quarter, the fourth quarter, we think we're going to grow 4.5% to 5%, and next year, we think we're going to grow 4%. and, by the way, all of this is happening, this faster growth, even though the fed did not start its quantitative easing until december. so it has nothing to do with this quantitative easing. >> susie: all right. we just have a little bit of time left. let me check on a couple of things. is that growth fast enough that people who don't have jobs will be able to get them? >> sure. not everybody all at once. it takes a long time for the unemployment rate to come back down. but we've created jobs for 11 months in a row. not quite enough to bring the unemployment rate down, but people are finding jobs. it is good news. it's not great news, but

it's good news. >> susie: we're hearing from a lot of people, warnings we're going to have inflation problems. what is that going to mean for people who want to take out a mortgage? >> well, there are two things happening right now. one, the economy is catching gear, and the markets are recognizing it. that's why stocks are up. and that's why bond yields have soared in the last few weeks. >> susie: what about interest rates? >> yeah. the fed is also very worried about -- the market is very worried about the fed creating inflation that will also push up interest rates. that means higher mortgage rates. some people won't like it, but we've worked at much higher interest rates than we have now in the past. i think the economy will do very well in 2011. >> susie: all right. we're going to have to wrap it up there. thanks a lot, brian. >> thanks, sues sigh. >> susie: we've been speaking with >> tom: for an investment perspective on today's statement from the fed, we're joined by rob stein. he is the global head of astor

asset management and he joins us from the c.m.e. group in chicago. >> tom: rob, welcome to "nightly business report." do you agree with brian's assessment about 2011 growth, despite the disappointing language used in the fed's statement? >> i do. i think in 2011, the economy will surprise on the up side. it is interesting that the fed's statement was so dire and so glum because as brian pointed out. the g.d.p. in the fourth quarter will probably be 4% or better, and the third quarter will be revised to close to 3%. we'll have four quarters of positive g.d.p. growth, and a stock market up for the second year in a row, and we added approximately 400,000 jobs. and counting. so things are better. maybe things are not as good as they would like, but things are certainly moving in the right direction. >> tom: let's talk about the investment strategy. we're going to look at better than a two-year chart of the s&p 500. it hasn't been at this levels since weeks before the lehman brothers collapsed. what is the catalyst from

here and what is the investment strategy? is it all stocks? >> i do like stocks for 2011 and a little beyond. i think that growth and corporate profits are going to drive stock prices higher. you're going to see the economy to start to catch everybody's attention, not just people who are digging through the numbers. and i think, as i mentioned, the stock market will surprise on the up side. i'm not so pessimistic on bond prices. while i do think the long end has some risk, as rates normalize. i do think inflation is something very much on the back burner. inflation, tom, is caused by higher wages, not necessarily fed activity, and wages, and capacity utilization at growth -- >> tom: that slack in the economy. you mentioned bond yields, moving at in verse in relation to bond prices. back in the last fed

meeting, 2.5%, and today, 3.5%. what is a bond investor to do, rob? >> i think if this trend continues, go very short. if you go into one year or less, even 90-day bills, while you're not getting much right now, if rates continue to go up, in 90 days you reset again. history has shown during rising rate environment, the reset of your 90-day investment eventually catches up and surpass locking in a 10-year or 20-year instrument right now. i'm not suggesting we're at that long-term rising rate level. we're just normalizing, but once that begins. >> tom: that's the assessment, rob stein, nice to see you. global head of astor asset management in chicago. >> susie: here are the stories in tonight's "n.b.r. newswheel." stocks moved higher on strong november results from the nation's retailers. the dow rose almost 48 points, the nasdaq added two, and the s&p 500 up a point. trading volume-- just under a

billion shares on the nyse, under two billion on the nasdaq. retail sales gained ground for a fifth straight month in november, thanks to a big pickup at department stores. sales rose eight tenths of a percent last month. but take out autos and they were up 1.2%, the best showing since march. but a big drop in best buy shares. the electronics retailer posted disappointing third-quarter results and trimmed its full- year outlook. tom will have more in "market focus." and the nation's biggest banks could soon have to keep more money on hand. the fdic wants minimum capital standards for all financial firms, something required by the dodd-frank law. before the financial crisis, big banks decided on their own how much cash to hold. still ahead-- tonight's word on the street, "transportation". from autos and trucks to aerospace, thestreet.com's stephanie link tells us what sectors to watch in the coming

year. >> tom: the full senate is poised to pass legislation as early as tonight to extend the bush tax cuts and extend unemployment benefits. in the meantime, house democrats are wrestling with what to do once they get their hands on the bill. some democrats believe the tax deal struck by the president and republicans is too generous to the rich. they're looking at adding a higher estate tax on the wealthy. the house vote on the tax bill is expected later this week. >> susie: even though the federal reserve is keeping its key lending rate near zero, other rates have been moving higher, especially mortgage rates. they are now at a six-month high. so what impact will this rise in rates have on the fragile housing market? erika miller reports. >> reporter: in this house in scarsdale, new york, lives a happy homeowner. rob shire is happy because he recently refinanced his mortgage, lowering the rate on his 30-year fixed by almost 2%. >> we're saving about $450 to

$460 a month. so that's a sizeable amount of money, especially when you amortize it over 30 years. >> reporter: but the news is not good for borrowers who haven't yet locked in a rate. the interest rate for a typical 30-year fixed-rate loan has climbed nearly half a point in four weeks to 4.61%. if interest rates keep rising, mortgage experts are certain refinancing activity will slow dramatically. but applications for loans to buy homes are not expected to fall nearly as much. rob shire's mortgage banker peter grabel explains why. >> the purchase market, whether someone is at 4.5% versus 5%, i think relatively, rates are very low. housing prices are down significantly. so, i don't think there are too many people who are thinking about buying that won't buy now because of a half-point difference. >> reporter: but higher rates will make it harder for some buyers to qualify for larger loans. in addition, buyers are expected to shift their preference from fixed rate loans to adjustables. >> we find the five-, seven- and

ten-year arms are extremely aggressively priced, and they haven't gone up, where the fixed rate mortgages have. so whereas they might not have been as attractive a few months ago, people are saying, "maybe i should consider that long-term arm." >> reporter: economist yelena shulyatueva is concerned about refinancings drying up. >> rising rates could clearly hurt the fragile recovery in the housing market by eliminating the incentive to refinance, and therefore that could force more defaults, more defaults on the housing... on the mortgages... mortgages. >> reporter: for his part, rob shire is thankful this holiday season. >> we're saving, paying down some debt, going on vacation, doing some home improvements. >> reporter: improvements in his financial situation, thanks to refinancing. erika miller, "nightly business report," scarsdale, new york.

>> tom: a bit of a mixed today over all for the big indices. let's get you updated in tonight's "market the three major stock indices hit fresh post-recession highs off the federal reserve announcement, but they couldn't hold on to those gains. the s&p 500 was in positive territory throughout the morning and early afternoon. the high of the day came just after the fed statement was released. then, sellers took over and the index closed up a fraction for the second session in a row.

the broad market was able to shrug off the bad news from best buy. the electronics retailer had disappointing earnings and cut its forecast for the rest of the year. earnings were seven cents less than estimates. this third quarter includes black friday sales for best buy. still, same store sales dropped. perhaps most worrisome for investors-- best buy said it is losing market share to competitors. all that, plus the lowered outlook, left best buy stock not living up to its name. shares fell almost 15% on 12 times their usual volume. you can find an analysis of this chart on our blog at nbronpbs.org. morningstar analyst r.j. hottovy thinks best buy will continue to face stiff competition. >> the company has done a decent job of building out its service businesses-- the geek squad, the home installations. and that should be a multi- billion dollar revenue stream. but at the end of the day, most of the companies that its competing against are building out their service offerings, as

well, and i think it will be very difficult for best buy to stand out. >> tom: some of those taking best buy's business saw higher stock prices today, including target, sears and walmart, each gaining about a half-percent today. shares of drug developer amgen saw a pop in price and volume. the company detailed results of using its bone cancer drug with prostate cancer patients. shares added 5%, up to a six- week high. its bone cancer medicine was found to delay the spread of prostate cancer to bones. if it goes for approval, it would be the drug's third application after bone cancer and osteoporosis. while the financial sector was the weakest today, the bull run on a.i.g. continues. its chairman said the company is thinking about buying insurance businesses instead of selling off its own. that would be a reversal, as a.i.g. has been selling businesses, raising money to pay back u.s. taxpayers for their bailout. today's almost 7% rally takes a.i.g. to a two-year high. we've seen buyout activity pick up in the health care space, and

that includes services like ambulances. emergency medical services hired an investment bank to investigate a possible sale. that got shares moving-- a big volume spike along with the 17% rally. it takes the stock to a new 52- week high, valuing the firm at just under $3 billion. the buyout activity includes health care real estate. h-c-p is picking up the real estate of privately held nursing home operator h-c-r for more than $6 billion. h-c-p shares were up 1%. speaking of buyouts, speculation has been circulating around whirlpool and shares broke out to a multi-month high today. this is almost a 3% rally takes w-h-r stock to its highest price july, and the breakout came on twice its average daily volume. a reuters analyst has called whirlpool its top pick of possible leverage buyouts next year. a sunny outlook from first solar after the close tonight. the solar-panel maker now sees 2011 sales and earnings well above current street estimates. shares were up a fraction during the regular session, and added

almost 4% after the close. and that's tonight's "market focus." >> tom: the highways and skies may be packed now with holiday deliveries and travel, but what about the road ahead? tonight's word on the street-- "transportation ". stephanie link is the director of research and vice president of strategy at thestreet.com. she joins us from the nasdaq. stephanie, nice to see you. welcome to "nightly business report." >> thanks for having me. >> tom: transportation in the year ahead.

even in an environment of $90 for a barrel of oil. why? >> it is all in the context of where we are in the economic cycle. as we have the global economies cover, you'll have better demand. and this combined with the mas a avmassive underproduction gives you positive earning. >> tom: economics 101, supply and demand, and it is lining up for general motors. back recently in the public markets. offer $33. and less than a dollar away from that now. what's the catalyst? >> i do like the story. it's a cheap way of getting a play in the auto cycle as well as it's a turnaround story. new products, better products, and fewer products, and they also have very strong growth exposure to some of the strongest growth markets. they have the number one market share in the brics countries. i like the risk reward given the very cheap

valuation. >> tom: would you buy if it dropped below the initial price of $33. >> i would. i would be more excited. at 30, 31. i don't think it will get there. >> tom: cummings, cmi, it has been on fire. from the 40s to over $100. you're putting money to work at new highs? >> i like the story very much. we bought it quite a while ago. but i think this is a good story for the long-term because you have here in the states the truck replacement cycle. you have a very old aged truck fleet, 20 years high. internationally, you've got the industrial manufacturing demand. they make engines that go into both, trucks as well as industrial machinery. i think you have kind of the two-for-one play, if you will. very strong growth, and earnings power is much higher than where analyst's estimates are. >> tom: we have one from truck and now aerospace.

boeing, but clearly it has trouble rolling out its 787 dreamliner. you're not too concerned and would buy shares ahead of that? >> i would. i think you're getting a very attractive valuation for a premium company. you're seeing better loadings, better pricing. that should help overall. and, by the way, better traffic trends. i think near-term earnings are okay. and then you get this dreamliner to be launched sometime at the end of 2011 into 2012, and you have positive -- very positive operating leverage. as they get the planes out of the door, the r & d goes down and the margins go up. >> tom: looking at the world through a windshield. any disclosures for this trio, stephanie? >> personally do not own it. in the fund we own all three. >> tom: we have stephanie's article at the treat.com -- thestreet.com. and our guest is stephanie

link with thestreet.com. >> susie: here's what we're watching for tomorrow. the latest on inflation with november's consumer price index. we'll also find out how hilary kramer's stock pick, zales, is doing in our "street critique" segment. and we'll answer your questions. there's still time to contact us by email at streetcritique@nbr.com, or you can send us a note on twitter or facebook. the bitter coffee feud between kraft and starbucks went public today. starbucks released emails between top executives at both companies over the past year. dating back to january, they show starbucks' unhappiness with its distribution deal with kraft. that appears to conflict with kraft's claim that it was blindsided when starbucks announced last month that it wants to end that deal. the agreement generates half a billion dollars a year. >> tom: he's only been in charge at pfizer for about a week, but today, ian read made some management changes at the world's biggest drug maker. he kept key players like the c.f.o. and the head of research and development in their jobs,

while promoting from within on the sales and marketing fronts. read also eliminated a layer of reporting structure in an effort to speed up decision making. the changes come as pfizer faces patent losses on some of its best performing drugs. euu >> susie: there's been much talk

about the size of the tax deal working through congress. at $858 billion, it has tonight's commentator weighing the cost versus the ballooning u.s. deficit. here's maya macguineas, director of the fiscal policy program at the new america foundation. >> schizophrenic washington is at it again. just two weeks ago, the white house fiscal commission released its plan. it's an amazing plan. it saves $4 trillion over a decade, and would reassure global credit markets that the u.s. is going to brush itself off and fix its budget problems. a bipartisan group of politicians supported the plan, believing correctly that while they didn't much love it, it was filled with the compromises necessary to get bipartisan support. what was remarkable was that rather than watering down the plan to get support, the commission leaders, erskine bowles and alan simpson, persuaded all sides to compromise-- to get something the left could sign onto, the right could sign onto and,

importantly, that was good policy. then last week, the tax deal. in typical washington fashion, more and more goodies were piled on: new spending, tax cuts for businesses, tax cuts for the rich, tax cuts for the middle class, tax cuts for the poor. even tax cuts for the deceased. and no one paid for anything. here's a stunner-- the decade- long cost of this tax plan is larger than all the savings from the fiscal commission's plan. somebody better call the bowles- simpson team back to washington. we're going to need them again. listen, we need more short-term stimulus, but this was more like a drunken, debt-financed bonanza. and by not combining any short- term stimulus with a budget fix, we failed to enact the model of spend now, save later that is watching washington last week was like watching a junkie promising this hit will be the last. let's just hope our creditors don't stage an intervention before we can get this borrowing addiction under control. i'm maya macguineas. >> susie: and finally, will it be elementary for watson? that's what fans of the game

show "jeopardy" will find out when two of its best players compete against an ibm supercomputer. the name "watson" comes from ibm founder thomas watson. the computer will answer questions by sifting through a database compiled by more than 20 ibm scientists. tom, ibm hopes this technology will have practical uses, like solving customer problems at tech support centers. >> susie: that's "nightly business report" for tuesday, december 14. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by:

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