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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for March 14, 2013, PBS> <Sect: News; Domestic> <Byline: Susie Gharib, Tyler Mathisen, Jackie DeAngelis, Steve Liesman, Hampton Pearson> <Guest: John Sweeney, Brian Belski, Jack Lew, Dennis Berman> <Spec: Business; Dow Jones Industrial Average; Economy; Stock Markets; Jack Lew; Government; Policies; Aviation; Travel; TSA> <Time: 18:30:00>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: A perfect 10. The Dow registers its first 10-day win streak since 1996 and posts another alltime high. The S&P is just two points away.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: New Treasury Secretary Jack Lew weighs in on the markets and the American economy. His interview just ahead.
MATHISEN: And the TSA under fire -- the growing backlash over knives on planes. What every traveler needs to know.
Good evening, everyone. And welcome to our public television viewers.
Susie, the market beat goes on and on.
GHARIB: It`s like the energizer bunny.
MATHISEN: Yes, absolutely.
GHARIB: It just keeps going and going. The Wall Street rally marches on higher for the tenth day in a row, the first time that`s happened since November of 1996. The Dow shut up another 84 points and ended with another all-time closing high, at 14,539.
The NASDAQ added 14 and the broader S&P 500 gained almost nine points, and it`s now just two points away from its own record high close.
There is some concern that the rise in the markets may have been too high too fast. And this could be the start of a market bubble. But newly installed Treasury Secretary Jack Lew tells Steve Liesman not so.
(BEGIN VIDEO CLIP)
JACK LEW, U.S. TREASURY SECRETARY: The analysis I`ve seen doesn`t give me reason to be worried right now.
(END VIDEO CLIP)
GHARIB: We`ll have more of Steve`s interview with the treasury secretary in just a few minutes.
MATHISEN: As the Dow hits unprecedented heights and the S&P 500 nears its own peak, tantalizingly close to it, there`s a battle below the surface that could determine which way stocks go from here.
Jackie DeAngelis explains.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): The bulls are at it again. Another day, another all-time high for the Dow. But despite the impressive run, there`s an underlying tug-of-war being played out in the U.S. economy.
GREG IP, THE ECONOMIST, U.S. ECONOMICS EDITOR: We had a couple of huge risks hanging over the global economy for the last year. Would China have a hard landing, would the euro break-up, would America fall over its fiscal cliff? None of those things happened.
DEANGELIS: But several good things have happened, including more signs today of a turnaround in the labor market. The number of people claiming initial jobless claims falling last week to a lower-than-expected 332,000. That following last Friday`s February employment report which showed the unemployment rate fell to its lowest level since 2008.
But while the outlook on jobs is improving, inflation is putting more pressure on U.S. businesses. Producer prices or the cost of businesses to manufacture goods rose again in February, climbing nearly 1.7 percent in just the past year, pushed higher by rising gas prices.
At the same time, the U.S. dollar has shown some relative strength, up 4 percent in just the past two months against the other major currencies.
While a stronger dollar sounds great, it can actually hurt American business, making U.S. exports more expensive to foreign buyers.
IP: To the extent that you continue to see the dollar appreciate means you want to be more cautious about buying multinational companies whose profits weaken when the dollar goes up.
DEANGELIS (on camera): So far, the tug-of-war playing out hasn`t been enough to derail this rally. But experts on Wall Street caution that even the strongest markets face headwinds.
PETER KENNY, KNIGHT EQUITIES MANAGING EDITOR: It would be completely irresponsible not to expect some sort of volatility, you know, within the first half of this year. But there`s a soft floor for equities, and any discount like that presents a buying opportunity.
DEANGELIS (voice-over): For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
MATHISEN: Let`s delve deeper into the rally and get a pulse of the individual investor along the way.
Brian Belski, chief investment strategist at BMO Capital Markets. And John Sweeney heads up retirement services for Fidelity.
Welcome to both of you.
Mr. Sweeney, let me begin with you.
I know you have a survey that you`ll give us a sneak peek look at tonight. It doesn`t really come out until tomorrow, in which you look at what you call high net worth investors, people with more than $250,000 in investable assets. And the results of those -- that survey indicate that those individuals are getting more bullish and specifically more bullish on U.S. stocks.
JOHN SWEENEY, FIDELITY INVESTMENTS: That`s right, Tyler.
So, we`re pleased to see that a message that we`ve been trying to get into the market for about 14 months now, it`s really resonating with investors. You`ve seen this in the flows into equity mutual funds over this period of time. Certainly, the recent euphoria in the market has been
something that attracts a lot of media attention. What we like to try and remind investors is not 10 days, but 10 years is what you want to be focusing on when you think about equities.
GHARIB: Brian, let me ask you about the strength of this rally. Is this just a market rally or is it something bigger? Is this the beginning of a bull market cycle?
BRIAN BELSKI, BMO CAPITAL MARKETS CHIEF INVESTMENT STRATEGIES: Well, when we take a look at major bull markets, typically, they start when doubt is very high and what I like to call the bunker bull market. Most investors are still in the bunker and not believing.
So, from a longer-term perspective, we think we`re on the cusp of the next great equity bull market that could be 15 years in length. That doesn`t mean we can`t have some periods of excess volatility and even down years.
Case in point, if you take a look at the 1982 to 2000 bull market in 1987, was a volatile year, if you remember, 1994 was a flat year. So we could have some periods like that. But the bottom line is we believe that individual investors are very under-weighted equities. And institutional investors around the world are extremely underweight U.S. stocks. And we
think from a fundamental perspective, U.S. companies are the best and most attractive asset in the world.
MATHISEN: Well, that certainly seems to be, Brian. What do folks who responded to John Sweeney`s survey are indicating, because they indicated that two-thirds of them were going to put money into U.S. stocks.
Mr. Sweeney, let me ask you -- do you see what Brian sees in your complex there at Fidelity, namely that people are still underweight U.S. stocks compared with what they ought to be, and is that behavior changing? Is the flow of funds more into equities so far this year or not?
SWEENEY: It is, Tyler. We`re seeing more flows into equities this year which is a good trend. Obviously, we`ve seen about $1.3 trillion cycle into bond funds over the last four years, and that`s really rocking the boat to one gunnel (ph) and really what we need to do is get people back to the middle.
You think about a diversified portfolio, on a long secular trend, we`re going to see people continue to buy as the population in America ages. But I think that we need to keep inflation in mind when we think about allocations and equities. Equities are the only place that is really going to outpace inflation over long periods of time. And people investing
in whether it`s for accumulation or even income distribution, you need to be thinking about inflation when they think about their allocation to equities.
GHARIB: Brian, I want to ask you about we`re all waiting for the S&P to hit its closing highs, just a few points away, for investors and I guess for a market strategist.
What`s the -- which is more important for you to see the strength of this rally? Is it these new highs on 30 Dow components or is it the S&P 500?
BELSKI: It`s really the S&P 500. For instance, we do not forecast 30 stocks. We forecast a target both in terms of price and earnings, Susie, for the S&P 500.
I remind investors that our target last year was 1,425, and the market closed at 1,426. This year`s target is 1,575. Clearly, we`re within reach of that. And it has an upward trend especially given the fundamental construct of the U.S. market, we think can improve over the second half of the year.
But the 500 stocks of the S&P clearly much more diversified way to
look at the U.S. market. And frankly, U.S. investors -- U.S. portfolio managers benchmark themselves against the S&P 500, not the Dow. So that`s really the clear component that most investors should really focus on, and it would be a really key element with respect to the longer-term strength of the U.S. market.
GHARIB: You said that bull markets go up and down and along the way. I mean, what could jolt this market?
BELSKI: Well, we think from a macro perspective, it`s employment. Employment`s the great circle of life. That`s why housing has come back. That`s why the stock market has come back. That`s why the economy has come back.
If we see some sort of bump in the road with respect to employment, I think that could really surprise people.
Now, from an historical perspective, the job gains that we`re seeing relative to history are very slow. That`s why we like to talk about the construct of the U.S. market in a bit of nursery rhyme-type situation where it`s the little engine that could. We continue to kind of climb higher and trudge higher, slow job growth, slow GDP growth, slow earnings growth and low interest rates is a great, great time to be invested in equities.
Now, bear in mind, investing is not a binary event. You have to be diversified. You`d have to own some fixed income, you`d have to own commodities, you`d have to own some real estate and you`d have own some equities. It`s not an either/or type of event.
But overall from a longer-term perspective, we still believe that people are under exposed equities because of the ills of the last 20 years.
MATHISEN: John, I really want to ask Brian, he said 1,425 close on the S&P. It closed at 1,426. I don`t know how he got it so wrong there.
But at any rate, I ask you this -- when baby boomers start to retire and pull money out of their accounts to pay for expenses, what do you think is going to happen to equities?
SWEENEY: You know, Tyler, the important thing, as Brian mentioned, is you want to keep exposure to equities within your diversified portfolio. Equities are going to be the place that outpaces inflation. So, when we ask folks to think about it, when they`re planning for a 30-year time frame in retirement, really have a significant allocation to equities.
For a 65-year-old, that means almost 50 percent of their portfolio.
Clearly, over the last five years, that`s been a difficult market to weather through. As the equities have had a significant pullback over the last five years.
But really when they keep a perspective of how long they`re going to need their money to last, 30-year time frame, equities provide a really good perspective.
MATHISEN: So, I take then, if investors do what you think they ought to do, they would have little effect on equity values.
SWEENEY: You know, I think over a long period of time, you`re going to continue to have people pull money out, as you suggested. But the economy is going to continue to grow, whether it`s population growth, manufacturing growth, the U.S. economy is well-poised to capitalize on that from our perspective.
MATHISEN: Gentlemen, thank you very much. Brian Belski, John Sweeney, appreciate your being with us.
The Treasury Secretary Jack Lew visited a Siemens plant outside Atlanta today highlighting the importance of infrastructure and manufacturing and creating new jobs.
Steve Liesman spoke with Lew about his role at Treasury, the budget negotiations in Washington and the challenges the U.S. economy still faces.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Treasury Secretary Jack Lew in some of his comments in the new position, talking about the value of the dollar, the budget deficit and the economy. I began my interview with him by asking whether or not equities which have seen new highs day after day are in what he would consider to be a bubble.
LEW: The analysis I`ve seen doesn`t give me reason to be worried right now. You know, I think one of the lessons we learned from 2008-2009 is that even when things are not a problem, we always have to ask those questions. We need to make sure that are -- we have the transparency to see what`s going on in firms and markets. We need to have the regulatory tools to deal with problems as they develop. That doesn`t mean we should jump in when we don`t see a problem.
LIESMAN: Every treasury secretary serves at the pleasure of the president. You have no way of knowing how long you`ll be in the office or how much time you`ll have to do it. But at the end of your tenure in the
secretary`s position, what is the shape of Fannie Freddie, Fannie Mae and Freddie Mac? What are they? Have they changed at all from their current status?
LEW: We`ll have more to say about it in the future. But I think the first order of business is while we have interest rates in the very attractive place they are right now -- as the president said over and over again, American families can lower their bills by $3,000 if they refinance.
It`s good for the families. It`s good to the economy. It creates jobs. There`s no reason not to do it.
LIESMAN: On the issue of the dollar, Secretary Lew said he supported the position of his predecessors in favor of a strong dollar policy. On the issue of the budget and the big battle over sequestration, Secretary Lew said he thought he heard cooler heads prevailing and seemed somewhat optimistic that a deal could be reached that would end the automatic sequestration cuts.
For NIGHTLY BUSINESS REPORT, Steve Liesman in Alpharetta, Georgia.
MATHISEN: Meanwhile, Timothy Geithner will write a behind the scenes book on the financial crisis and how he and other officials debated and worked together. Crown Publishers commissioned the book and made the announcement today. The book is due out next year. No word on what Crown is paying Mr. Geithner.
GHARIB: Well, speaking of the financial crisis, the second report card on the health of U.S. banks came out late today with mixed results. The Federal Reserve rejected the capital plans from BB&T (NASDAQ:MSDXP) (NYSE:BBT) Bank and Ally Financial which was the only bank to fail the original test that came out last week. Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) got only conditional approvals and were told to revise their plans by the third quarter.
The Fed approved the plans from the nation`s other 14 banks for dividends and their share repurchases, but American Express (NYSE:EXPR) (NYSE:AXP) will have to submit an adjusted capital plan after the feds said its proposal would have eroded its capital position too much.
Now, the central bank said the so-called stress tests show that overall American banks have sufficient reserves to withstand another severe economic downturn -- Tyler.
MATHISEN: Analysts comments sent two major to tech stocks in opposite direction today. And that tops our "Market Focus" for this evening.
Amazon (NASDAQ:AMZN) dropping as JPMorgan (NYSE:JPM) lowers the company to neutral from overweight because of gross margin profit returns. And Amazon (NASDAQ:AMZN) closed off more than 3 percent at $265 and change.
Meanwhile, Apple (NASDAQ:AAPL) was up on the day. Its competitor, Samsung, reveals a new smartphone. BTIG analyst Walter Piecyk says there are significant revenue opportunities still for Apple (NASDAQ:AAPL). And that brought Apple (NASDAQ:AAPL) up almost 1 percent to $432.50.
We`ll have more on that new Samsung phone a bit later tonight.
GHARIB: Legendary investor Kirk Kerkorian says he wants to raise his 18 percent stake in MGM to as much as 25 percent. That made MGM a big winner today, up almost 7 percent.
Men`s Wearhouse (NYSE:MW) surging after the company said it was considering strategic alternatives for it`s K&G unit. The company also said its fourth quarter loss had narrowed. Shares jumped 19 percent to $34 and change.
Teen retailer Aeropostale (NYSE:ARO) reported better-than-expected earnings after the bell today, but the company sees a first quarter loss ahead. Analysts were expecting a small gain. Shares dropped more than 5 percent in after-hours trading.
MATHISEN: And, Susie, E*TRADE`s largest shareholder, Citadel, is dumping its entire stake in the online broker. The hedge fund had been pushing for E*TRADE to sell itself. Shares of E*TRADE off 8.2 percent.
GHARIB: Intuitive Surgical (NASDAQ:ISRG) got a negative recommendation from the American College of Gynecologists, and that sent its shares down. The group`s president said there is no good data proving that robotic surgery for hysterectomies is as good as other techniques. The stock lost almost 4 percent closing at $489.89.
MATHISEN: And coming up, the change in TSA policy that could make for shorter lines at airport security. But does it come with a price?
First, though, 126 S&P 500 companies traded at new 52-week highs during today`s session. That`s about 25 percent of the index. Fifty-seven of those names hit new all-time highs. Here`s a look at some of them.
GHARIB: A lawyer who represented Chrysler during its bankruptcy restructuring has been chosen by Michigan`s governor to be the emergency manager of Detroit. Kevyn Orr will try to fix the city`s finances and try to avoid a bankruptcy.
Detroit is now the largest American city ever to have its finances placed under state control.
There`s also trouble in many of the nation`s counties. New figures from the Census Bureau show a record number of U.S. counties more than one in three are dying off as aging populations and weak economies force young adults to look elsewhere for jobs.
MATHISEN: Airport safety officials say they are allowing small knives and items like golf clubs on aircraft again to conform with international standards and make airport security checkpoints move more freely. The decision by the TSA particularly about the knives has been met with a storm of protests from a broad range of groups.
Hampton Pearson has more.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): Today, the growing backlash against the TSA`s decision to allow passengers to carry small knives on planes starting next month made its way to Capitol Hill. A coalition of flight attendants, pilots and air marshals joined Massachusetts Congressman Ed Markey who has introduced the No Knives Act to block the TSA move.
REP. ED MARKEY (D), MASSACHUSETTS: We will not rest until America`s flight attendants, pilots, air marshals and passengers are protected.
LAURA GLADING, ASSOCIATION OF PROFESSIONAL FLIGHT ATTENDANTS: Any way you slice it, a knife like this is a weapon, and it doesn`t belong on an airplane.
PEARSON: Opposition also includes the union that represents some 45,000 TSA screeners, as well as at least 3 major airlines, USAir, American and Delta. But reaction among passengers is surprisingly mixed.
GLENN SUTTON, AIR TRAVELER: I don`t think it would endanger anyone. It`s such a small thing.
AUDRA BOHANNON, AIR TRAVELER: I just think it`s totally wrong and unacceptable. I fly all the time. I do not like the idea of having knives on a plane.
PEARSON: Embattled TSA Chief John Pistole is not budging, telling lawmakers at a House Homeland Security hearing this afternoon the agency focus is on terrorists using explosives to blow up planes, not knives.
JOHN PISTOLE, U.S. TRANSPORTATION SECURITY ADMINISTRATION: It is the judgment of many security experts worldwide, which I agree with, that a small pocketknife is simply not going to result in a catastrophic failure of an aircraft. And an improvised explosive device will.
PEARSON (on camera): While the Markey No Knives Bill has bipartisan support, the question is: can it get through both houses of Congress before the April 25th TSA policy change?
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.
MATHISEN: And tomorrow on NIGHTLY BUSINESS REPORT, we`ll be looking at the impact of higher energy costs on the consumer price index. We`ll
learn how confident consumers are right now with the Michigan survey out. And we`ll get Alan Greenspan`s views on the economy right now.
But, first, here`s a look at the international markets and how they did today.
GHARIB: A big night in the Big Apple (NASDAQ:AAPL) for Samsung tonight. It`s expected to launch its newest smartphone, the Galaxy S4. The company rented New York`s Radio City Music Hall for the unveiling tonight. Samsung hopes that the S4 will help it gain share over Apple`s popular iPhone.
Apple (NASDAQ:AAPL) is still number one in the U.S. with 34 percent share. Samsung has 19 percent.
Joining us with more on what to expect, Dennis Berman from "The Wall Street Journal."
So, Dennis, a lot of hype for this new Samsung phone. What`s new? What are the bells and whistles? What can you tell us?
DENNIS BERMAN, WALL STREET JOURNAL MARKETPLACE EDITOR: Well, of course, the hype -- it`s supposed to be unveiled at Radio City Music Hall. They chose a pretty cool venue for it. They`re not saying precisely, but there have been some things that leaked out their business speculation.
One of the possibilities is perhaps that the phone follows your eye. So as you look at your phone or looking down at an imaginary phone, it knows as your eye moves, and it perhaps adjust its web browser or do a number of other functions as it monitors your own eye. So pretty crazy science fiction stuff if it happens to be true.
MATHISEN: You know, one of the things I`ve noticed about Samsung`s devices, Dennis, is that they tend to be slightly larger, particularly the screen size.
MATHISEN: That tends to be larger than many of the competitors.
Is this one of the things that they think differentiates them from the rest of the class and gives them an edge?
BERMAN: Well, Tyler, I`ve got to tell you, you go to Asia, and it is
not a taboo thing to have a large phone that perhaps almost even looks like you know, a big piece of bread you`re holding up to your ear. It just culturally is different.
And what`s interesting is that we`re really seeing that change. People`s attitudes and behaviors change here in the U.S. as well. The bigger phone, you know, of course, they now call it a phone/tablet. They`re calling it a phablet. It`s terrible name. But they`re calling it a phablet.
And it really is changing how people use their phones. They can look at a bigger screen, do more with it, they can read books more easily. And that, in fact, is killing Barnes & Noble`s own reading product, the Nook.
GHARIB: Dennis, where does this leave Apple (NASDAQ:AAPL)? It`s not going to have a new launch of its iPhone months away. I mean, what kind of damage could Samsung do in the meantime?
BERMAN: Well, we`ve really seen a change in perception. The fact that we`re talking about a Samsung phone launch is in itself sort of an important moment in time.
Apple (NASDAQ:AAPL), you know, the stock has come down, but it still
has a majority -- the leading share of smartphones in the United States. It still makes an incredible sum of money every quarter. It`s still an incredibly impressive company.
But again, the perceptions are changing. And on the margins, people are more willing to consider a Samsung smartphone. And we`ve seen it -remarkably, Apple (NASDAQ:AAPL), when Apple (NASDAQ:AAPL) executives talked to "The Wall Street Journal" and other outlets yesterday, he went on the defensive or offensive, basically trashing the product that Samsung has.
They definitely feel the threat, the heat bearing down on them.
MATHISEN: All right, Dennis. Here`s the question of the hour. What kind of phone do you carry?
BERMAN: I carry an iPhone. I`m happy with my iPhone. I used to have a BlackBerry for 10 years, Tyler. Unfortunately, it sort of went by the way.
So, that`s the other casualty through all this. The biggest loser, of course, has been Nokia (NYSE:NOK) and BlackBerry. People just aren`t carrying them as much as they used to.
MATHISEN: And is Apple (NASDAQ:AAPL) your choice because it integrates your life? In other words, your photos that you have, your music that you have?
MATHISEN: Why do you choose it?
BERMAN: Yes, I`d say that`s probably the reason. You could say it dominates my life perhaps too much.
But, you know, that`s the criticism, in fact, that the Apple (NASDAQ:AAPL) executive Phil Schiller made against Samsung, is that it`s not truly seamlessly integrated in the way that Apple (NASDAQ:AAPL) is and, of course, a lot of people in the U.S. still agree and they prefer Apple (NASDAQ:AAPL). But Samsung is going to make a difference.
We`ll see tonight whether the hype lives up to the advanced billing.
GHARIB: All right. Well, enjoy the launch. Dennis Berman from "The Wall Street Journal."
BERMAN: All right. Take care.
GHARIB: And coming up tomorrow, Jon Fortt looks at the generational shift in mobile. Why Samsung might be replacing Apple (NASDAQ:AAPL) as the cool kid on the block.
You know, I got an iPhone -- it`s not even a year yet. And I thought it was hip and cool. Now I guess I`m not hip and cool.
MATHISEN: I`m hip and cool. I`ve got -- this is a Motorola. I`m 1 of 10 percent as our pie chart there.
And what Dennis said was very interesting. I think there`s a switch that people want bigger screens. This phone is quite thin phone. It`s light. It might not appeal to ladies who want to carry something small in their purse, but it has a bigger screen. I think that`s a big selling point for a lot of these new-generation phones.
Watch Apple (NASDAQ:AAPL). I bet they come out with a bigger screen.
GHARIB: Soon it`s going to be the size of your iPad like Dennis was saying. There`s no hang-up about holding this big piece by your ear.
MATHISEN: Isn`t it interesting that the cool factor may have flowed
away a little bit from Apple (NASDAQ:AAPL), particularly among younger users.
GHARIB: I want to be hip and cool.
MATHISEN: You are. You are. Don`t worry.
GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. Thanks for watching, everyone.
And remember, support your public television station.
MATHISEN: And on behalf of your public television station, thank you so much for your support. Have a great evening, everyone. We hope to see you right back here tomorrow night.
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