>> this is n.b.r. >> susie: good evening. i'm susie gharib. more americans are moving up: existing home sales hit a two year high. >> tom: i'm tom hudson. we continue our look at the national debt, this man says all that red ink is a national security issue. former senator sam nunn joins u.s. >> susie: and with record low interest rates continuing, where best to invest in bonds, it's tonight's "street critique." >> tom: that and more tonight on "n.b.r."! >> susie: the housing recovery is looking better and better. more economic data showing that the housing sector is getting stronger.

sales of existing homes jumped nearly 8% last month to a 4.82 million unit annual rate. that's a two-year high. construction of new homes and apartments rose 2.3%. the big gain was in single family homes. erika miller takes a closer look behind the numbers and gives us a status report on the housing recovery. >> reporter: when it comes to real estate, august is typically a slow month, but the latest housing data suggests there was strong momentum heading into the fall. the median price for a home resale surged to $187,400 during the month. that's up nearly 10% from a year ago-- the biggest year-over-year price increase since the housing boom went bust. that wasn't the only encouraging sign. distressed properties are declining as a percentage of total sales. 22% of sales in august were foreclosures and short sales. a year ago, the level was 31%. record low mortgage rates get some of the credit for encouraging home buying.

>> definitely, they are helping at the margin. obviously, that's helping to hold the refinance activity. but also to move the mortgage market. >> reporter: the housing market appears to be gaining traction, even as the economy loses momentum.stene plfl otybut eref hurdles that will keep the real estate from recovering quickly. one is tight lending standards. banks approved just over seven million mortgages last year. that's the lowest level in 16 years. it's also a 10% drop from the year before. but bankrate.com's greg mcbride says it's not fair to blame banks for fewer loans: >> the idea that people can't get a loan is highly overstated. a lot of the fact is a lot of the people that could qualify for a loan, they just don't want to. they have either already refinanced. or they are not looking to buy another house.ter:any would-be e borrowers are nervous about the outlook for the economy and job market. especially the so-called fiscal cliff:

>> when you look at the prospect for tax increases and steep spending cuts both hitting the economy at the first of the year, you are talking about the potential for an instant recession. that's what's causing businesses and consumers to hold back. >> reporter: but many americans are hopeful congress will act to avoid the fiscal cliff. assuming that happens, the housing market is expected to continue gaining momentum, helping the overall economy recovery. erika miller, "n.b.r.," new york. >> susie: joining us now with more analysis, richard dekaser, economist at wells fargo. so do you agree with that last comment and the reporter's package there about housing and the momentum that it has? >> oh, absolutely. i think we've been watching the housing market for three plus years now, and 2009, 10 and 11 were all best described as bouncing a long the bottom. we had some false hopes when perhaps tax incentives stimulated demand, but then they fall back afterwards. but what we're seeing now is

very different. the past year, nine months in particular has seen sustained increases in home prices, home sales, construction, you know. you mentioned 10% growth in prices for existing homes year over year, there's all kinds of house price metrics and they all agree now for a change. they're all talking so far in year to date gains of 5 to 10%, and if you focus on annualizing the rates of those price increases we're into double digits. home sales are up -- go ahead. >> liz: you've thrown out a lot of number there's and you know how volatile these statistics are, and often they are revived, so it makes you question, is this housing rebound for real, and if it is, is it sustainable. you mentioned that a moment ago. >> yes, i think it is. and i'll tell you the past year has been a classic case of the volatility in housing numbers. this winter, december, january and february we had freakishly

benign weather, dryer and warmer than usual, that surely stimulated home sales in the wake of those months. then we gave back a little of that in the springtime. but reading through the kind of volatility that can come from tax incentives from weather, we still see those solid increases, so again home sales, unit sales, new existing all packaged together, up 10% year over year. construction up 30% year over year. prices, again, very -- varying, but 5, 10% up year over year. these are all sustained increases. so for example the price metrics i mentioned, those have actually posted increases in each of the past five, six or seven months which is the first time we've seen that since before the bust began. >> susie: okay. let me talk to you about home prices, you mentioned that a couple of times. so what about the so-called wealth effect? are people feeling a little bit better off financially so that they are ready to spend more on other things? is that happening yet? >> somewhat.

it is true, when asset values rise when people's wealth increases their confidence improves and that does have a small impact on consumer spending. but this concept of the wealth effect which economists toss about, usually with for every dollar increase in wealth, five than cents being spent over the next year really is more of a long-term phenomenon with lags of one to three years. so i think we still have the best of that yet to come. in other words with prices having increased over the past nine months or so, that's not really had much of an effect. another area that where we have seen some benefitss as home sales improve, people will begin to purchase those add on items like furnishings and appliances, which add tick to the housing market which on its own is only about 2% of gdp. >> susie: all right, we'll have to leave it there. nice to see some positive trends coming up in had the economy. thank you so much for your time, richard dekaser, economist at wells fargo.

>> my pleasure. >> tom: still ahead, the federal reserve's ultra low interest rates and bond investors. we talk low rates and high prices with fixed income strategist kathleen gaffney. a third straight down day in the oil market. supplies are up in the u.s., and reports indicate saudi arabia has begun pumping more oil, an extra ten million barrels per day, to push prices lower. in the u.s., light sweet crude oil futures for october fell over $3 to $91.98 a barrel. >> temporarily i think the bull market is over, we hit $100 earlier in the week, and came off that level and we've now breached many technical levels on the way down, $95, and now we're at $91, and if we get below $91 the next big area is $88 to $85. >> tom: as oil moved lower, stocks moved higher. homebuilders led the way on wall street today, as investors focused on the gains made in the housing recovery.

the dow rose 13 points, the nasdaq added nearly five, the s&p up one-and-a-half. >> susie: this week we're taking a closer look at our national debt and what it means for our economy and our national security. former senator sam nunn is one of the nation's most thoughtful voices on defense policy. now he is speaking out on the connection between how we fund our government and how we protect our nation. washington bureau chief darren gersh spoke with nunn and began by asking why debt is becoming a matter of national security.

>> the debt problem, the deficit problem, we're borrowing so much from abroad and the fact that we are already operating in a fragile global economy, all those things combined mean that our national security is very much affected. for one thing you hope to get out in front and prevent wars, and that usually requires some form of development aid, it requires vigorous diplomacy, it requires a lot of things in many cases requires expenditures to shape the environment and prevent war. >> do you see signs right now that we don't have the resources to do those things? >> i think the state department budget has been under strain for the last four or five years, and i think if it continues it will be under great strain. our military budget is under strain because we are already engaged in two wars, and people forget that. our military force, stretched pretty thin right now. >> we had simpson and bowles on our program and both of them said if you look at the

u.s. defense budget it's as big as almost every other defense budget in the world added up, the top 15 certainly. >> right. >> and their point is there's room to cut in defense. do you agree with that? can defense make more of a contribution to the fiscal situation? >> two things, generally agree witness. i think the defense though is already making a contribution. the budget cuts a great deal out of the defense over the next 10 years, the other thing to keep in mine is the defense budget need to be cut over five, 10 years, not over one or two years. so the cliff we're facing in january is a very big precipitous cut that would make the cuts that have to take place if the law does come into effect really do severe damage. the defense budget within papa ram are the basically has a lot of the same problems we have in our broader budget, and that is the health care costs, and the cost per soldier that we have to put in the field, have gone up very

very rapidly. so within the defense budget, the cuts would have to be made, a lot of them are what i would call defense entitlement programs and that has to be done carefully with the two wars we still have going on, and it has to be done considering the troops ask their families, over time. so yes we can cut it, we must cut it, as we do everything else. but if you just cut defense, and you don't do something about health care, you don't do something about the entitlement programs, if you don't restrain the growth, that's where the budget is really growing. the defense budget is large as it is, is not the main problem we face in the overall federal budget, it entitlement program that are simply unsustainable. >> governor romney just got this trouble for the remarks he said about the 47% of the nation. you mentioned en titlement programs, a lot of them go to defense, a lot them go to seniors, things like that. is there an appetite in congress to actually tackle this? >> i think there are a number of people who are working

together and one of the things we're trying to do with our coalition csis, the bipartisan coalition, concord coalition, this group that have gotten together and i call the group the over the hill gang, because most of us are retired and have been retired for some time, but we're trying to get a couple messages across to the american people. number one, you got to have some revenue. announcement two, you've got to restrain the growth of en titlement programs, that's the key. number three, you have to have people willing to listen to the other side and work together. >> senator sam nunn, thank you for your time. appreciate it. >> great to be with you. thank you. >> susie: tomorrow, we'll hear what senator nunn has to say on hewhetr we should be worried about china's huge holdings of american.o.u.'s.wh

>> tom: phoning it in, american airlines has canceled over 300 flights since sunday. pilots upset with their contract situation have called in sick. the pilots union had new labor rules imposed on them by the court overseeing the bankruptcy of american airline's parent company. the new rules came after the union rank and file rejected a deal with management. the rules added more flying hours and changed rules regarding who could fly american flights. a.m.r. said it is not aware of any organized job action. >> susie: j.c. penney landing another big brand as it continues to roll out the "shops within a shop" strategy; a key element of its turnaround plan. disney boutiques will launch at 500 penney's stores by next fall. from mickey mouse to cinderella, disney will bring its goods to so-called mini-stores, with a thousand square feet of selling space. it joins levis, izod, liz

claiborne and other brands .' partnering with penney's. investors liked the news: j.c. penney stock closing at $29.09 today, up fractional. the shares have jumped 51% since mid-july. but looking at the broader markets, tom, i guess you could say it was okay cautious day despite the strong housing numbers and also lower oil prices. investors still playing it kind of safe. >> tom: yes, a cautious day, but a day we did see stock prices try to crime to post recession highs, closing just below those levels. >> tom: the stock indices managed small gains on the heels of the housing data we reported earlier. it was another session of narrow trading ranges. ssiots pont-recessionithin high during the day. some selling in the final ten minutes erased some of the earlier gains, with the index finishing up a fraction. volume picked up a little.

639 million shares on the big board. almost 1.9 billion on the nasdaq. consumer stocks were in focus, with the discretionary sector putting up the best sector gains, up 1%. energy stocks were again the drag, down 0.9%. the august housing data helped homebuilding stocks. with new home construction continuing to increase, so have the prices of many homebuilding stocks. pulte group was one of the leaders, rising 4.3%. shares hit another post-bubble high on heavier than usual volume. the stock has more than tripled in the past 12 months. other homebuilders rallying include ryland group up 5.7%. d.r. horton added 4.1%. and standard pacific gained 3.8%. all of them rising on heavier than usual volume. the housing bump also included home depot. shares added 1% to close at its highest price in more than a decade. media company gannett has been dealing with a tough advertising market, and like a lot of media companies, it continues

investing in its digital business. its stock continues rallying, up 4.3% today as it closed at its highest price since 2008. this week, 30 years after launching u.s.a. today, gannett unveiled a redesign of the national newspaper in an effort to reverse recent losses of subscribers and ad sales. coal miner alpha natural resources has been caught by low natural gas prices replacing coal demand from some power plants, and the slowdown in steel demand hurting sales of metallurgical coal. but the company's announcement this week of 1,200 job cuts and reducing its coal production has not helped the stock. shares were down 3.2%, making them the biggest percentage loser among s&p 500 energy stocks. the stock has lost almost three- fourths of its value in the past year. a stock that has struggled with its business model, group-on, delivered some encouraging news for investors. it launched its own mobile

payments service, an increasingly popular, and competitive business. shares jumped 13.9% as the new service moves group-on beyond its core daily deals business. still, the stock is down 80% since going public last november. today was a disaster for questcor pharmaceuticals shareholders. the stock unged almost 47.8% on huge volume. insurance company aetna limited reimbursements of questcor's main product acthar, which is used to treat multiple sclerosis. a mixed day of small moves for the five most actively traded exchange traded products. the financial sector fund and s&p 500 volatility note were the losers, 0.1% each. and that's tonight's "market focus." >> susie: wall street found a surprise in its cereal box this morning. general mills, the maker of cheerios and wheaties, reported better than expected quarterly earnings.

those solid earnings came courtesy of recent acquisitions. but as diane eastabrook reports the company's still facing uncertainty at home and overseas. >> reporter: minneapolis-based general mills says the tasty profit it earned in the quarter ending late last month cameoc from recently acquired brands yoplait ireland, yoplait international and food should taste good. excluding special items-- the food company earned $0.66 cents a share in its first quarter of fiscal year 2013. that's four cents better than analysts estimated and $0.02 better than the same period a year ago. while sales in the u.s. are flat compared to other regions around the world, analysts think general mills could get a bump here with better marketing and new products. >> general mills should have the opportunity to gain market share as they roll out more greek yogurt products and get more advertising behind them. i think they still have a considerable amount of catch up to do, but i do think we'll see better results out of the u.s. business the remainder of this fiscal year than we did the first quarter.

graves says general mills should be shielded from rising grain prices from the midwest drought thanks to hedges the company made through the middle of next year. still the company could face other headwinds. a stronger dollar could challenge sales in europe and if the u.s. economy continues to struggle consumers may cut back on pricier food choices. >> we think that private labels have opportunity to gain market share at the lower price point that it offers, but in the case of general mills we think the brands are strong enough to withstand that. >> reporter: and with more than 100 new products launched worldwide in recent months, graves thinks general mills should continue to lure customers back to the table for more servings of its brands. diane eastabrook, "n.b.r.," chicago.

>> tom: another three years, that's how long the federal reserve expects to keep its target interest rate close to zero. chairman of the federal reserve ben bernanke has acknowledged the hurt such a strategy puts on savers. >> my colleagues and i are aware that holders of interest bearing assets such as certificates of deposit are receiving very low returns. but low interest rates also support the value of many other assets that americans own such as homes and businesses large and small. >> tom: but low payouts from interest rate investments like bonds hasn't hurt the appetite for them. investors have been pulling money out of stock funds this year including 22 billion gone bondnd fununds cokekeue nd fe attractingoney, , big money, $33 billion poured into bond fund last month. but there is an up side to low interest rates, higher bob

places, one measure is up 6.3% this year. though that's less than half the gains of the stock income fund index, that's made up of dividend paying stocks. tonight's street critique guest is kathleen gaffney, portfolio manager for the loomis sayles bond fund. kathleen , have dividend stocks replaced bonds for fixed income investors these days? >> i don't think quite yet, although they're certainly looking pretty tempting. the problem is that there's a little more volatility in the equity market than there is this fixed income. >> tom: do you think there's more risk in fixed income with low yields and higher prices compared to perhaps dividend stocks? >> well, the fed has been very accommodating, as we've seen with q. e. 3 and has much said that rates are going to be low as long as we can see. that's a green light to look

for yield, and we're seeing that in spades with voracious demand for fixed income securities that are yielding more than treasuries. >> tom: so what's the environment like now for those bond investors today, those investors that are looking for a monthly income from bonds? >> it's really challenging. if you're going to be lookinging for income, you're going to be taking more credit risk. that's not necessarily a bad thing, because it looks like the economy, the fundamentals are improving, not as quickly as everyone would like, but the economy is moving in the right direction, and the technicals are very strong from what we can see, that the flows are coming in to corporate bond funds and that's creating this huge appetite for the supply that we're seeing as well, because issuers are trying to take advantage of very low rates. >> tom: a lot companies want to borrow money at low rates. and some highlights of your bond fun really play this out. you're a bench mark fund here

has no government bond exposure, 22% of your bonds are junk rated, speculative, and a third are nondollar denominated, in other words are held in currencys other than the u.s. dollar. is that how you're able to get that yield around 4%? >> yes. the below investment grade credits give us that yield, and again the economy is improving so we think it's a good sign to be taking credit risk. and in terms of liquidity, that's what treasuries would normally fill that position. we're concerned about the long-term total returns in treasuries, so we're using canadian government bonds as our liquidity reserve w. the added bop us that longer term, because the global economy should be doing better down the road, commodity currencys, canada, australia and new zealand, will be doing better, so we like the currency there as well. >> tom: i want to bring you back to interest rate versus bond price, because the

capital gains we've seen with these bond funds have been great for investors, but again for that need for a monthly income, how do you approach this market for the rest of the year. >> it is a challenging market. when you look at the yield on corporate bonds though relative to treasuries, you've still got a decent pickup. investment grade bopds are yielding around 3% or so, and on the high yield side you're picking up six. now that is skinny in terms of where they've been historically, but that's a good pickup for now, and i like that. i just wouldn't want to be spending new money on the new issues that we're seeing. one way to get the up side that you're seeing in the equity market is with our high yield exposure we're using convertible bonds so, that gives us some of that up side. >> tom: all right, thinking creatively, living out box when it comes to fixed income, our guest, kathleen gaffney of loom is sails bond fund.

>> susie: tomorrow on "n.b.r." from privacy concerns at google and facebook, to price gouging on the gas market, we talk with federal trade commission chairman jon leibowitz. >> tom: 19 years and counting, bill gates again tops the forbes list of wealthiest americans. gates' net worth: $66 billion; he's followed by warren buffett with $46 billion. oracle's larry ellison, and the koch "koke" brothers who have interests in everything from oil refineries, to paper products make up the top five. the children of sam walton, wal- mart's founder, round out the top ten. susie, the walton's have a combined net worth of $100 billion. doesn't hurt that the share price is close to all-time highs. >> susan: you know, tom, some country's economies don't have that much, amazing that these are individuals. >> tom: truly is. that is "nightly business report" for this wednesday, september 19. have a great evening, you too, suzie.

>> susie: goodnight tom, thanks for watching everyone, we'll see you online at: www.nbr.com and back here tomorrow night. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> join us anytime at nbr.com. there, you'll find full episodes of the program, complete show transcripts and all the market stats. also follows us on our facebook page at bizrpt. and on twitter @bizrpt.

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