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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for May 29, 2013, PBS> <Sect: News; International> <Byline: Susie Gharib, Tyler Mathisen, Kelly Evans, Michelle Caruso- Cabrera, Diana Olick, Jon Fortt, Sharon Epperson, Sue Herera> <Guest: Laura Lutton> <Spec: Business; Economy; Stock Markets; China; Food and Beverages; Children; Education; Insurance> <Time: 18:30:00>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by --
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Reversal of fortune. Investors sold stock today as quickly as they bought them yesterday. Could this volatility be a sign of what`s to come this summer?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: And hog wild. China buys America`s biggest pork producer. But could this deal already be on the chopping block?
GHARIB: Price of admission. Today is May 29th, the perfect day to look at the pros and pit falls of 529, those popular college saving plans.
We have all of that and more tonight on NIGHTLY BUSINESS REPORT.
MATHISEN: Good evening, everyone.
What goes up must come down, as the old saying goes, and that is exactly what happened on Wall Street today. It was a very broad based selloff without any really triggering event but with no major economic reports, attention turned once again, as it so often has in recent weeks, to the Federal Reserve, and when the central bank may start to scale back its bond buying program.
One clue came from the Boston Fed President Eric Rosengren who said today a modest pullback in the Fed stimulus program could make sense in a few months.
In the end, the Dow closed lower by 107 points, worst day in about a month. It ended at 15,302 and change. The S&P fell by more than 11 points to 1,648. And the NASDAQ was off 21 to 3,467.
So, as investors hang on to every word coming out of the Fed, are big gains one day and big losses the next something we should all get used to this summer?
Kelly Evans takes a look now.
KELLY EVANS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, forget the beach, this summer, markets are already making plenty of waves of their own. Take a look at what`s happened in just the last couple of weeks. Japan`s Nikkei index plunged nearly 1,000 points. Its government bond yields have roughly doubled, and here at home, the yield on U.S. government debt has also jumped, pushing mortgage rates higher.
Meanwhile, the Dow Jones Industrial Average has gone from having one of its worst week this year, to jumping more than 200 points early Tuesday to close at a fresh record high to reverse course today, giving up as much as 175 points.
Confused? You are not the only one. These sharp and erratic moves have plenty on Wall Street scratching their heads.
The question is whether it is a more volatile summer ahead. And it stems from a larger debate over how much the economy is improving and whether the market can hold on to the 15 percent gains this year if the Federal Reserve lessens its support in response.
STEVE MASSOCCA, WEDBUSH EQUITY MANAGEMENT: Question is, how sustainable it is? Is it if they walk away? I think there`s only one way to find out, is if they do walk away.
I think politically they won`t. I agree with you, I think politically they won`t. I think that`s the problem. If they walk away, does the market collapse? Who wants to make that bet?
EVANS: In past years, markets have sold off each time the threat of Fed diminishing support arose, with growth to sensitive sectors like financials and industrials hardest hit. This time around, the worst performing sectors are those like utilities most sensitive to higher interest rates. In other words, investors seem to be digesting the idea of the Fed actually tapering its support.
Given that, it`s a bit surprising and even encouraging the market has held up this well. That could change, however, if job growth starts to flag again or overseas markets like China or Japan, weaken considerably. None of these are remote possibilities, better hold on to your hats.
For NIGHTLY BUSINESS REPORT, I`m Kelly Evans.
GHARIB: Well, is the individual investor prepared for a volatile summer? That`s just one of the questions that we`ll ask Walt Bettinger. He`s the CEO of Charles Schwab tomorrow, right here on NIGHTLY BUSINESS REPORT.
Turning now to some corporate news.
The largest takeover of an American company by a Chinese buyer. Smithfield Foods (NYSE:SFD), one of the biggest pork producers in the U.S., has agreed to sell itself to a Chinese firm for $4.7 billion. The boards of both companies have already OK`d the sale. But as Michelle Caruso- Cabrera tells us, the deal will likely face heavy scrutiny.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): Headquartered in Virginia, Smithfield Foods (NYSE:SFD) is the largest hog farming and pork processing company in the world. Shuanghui is the largest meat processor in China. Shareholders of Smithfield will receive $34 of cash for every share they own, 30 percent more than where the stock was trading yesterday.
TULISHA SMITH, SMITHFIELD FOODS EMPLOYEE: I just hope at the end of the day, I still have a job.
CARUSO-CABRERA: Smithfield says, as part of the deal, the Chinese company has agreed to keep all plants and honor all labor contracts. But the deal is still facing criticism due to recent food safety scares in China. Including an incident in March where thousands of dead pigs were found in a river that supplies water to Shanghai. And Shuanghui, the company, faced issues two years ago when it was found to be selling chemically tainted meat.
PETER NAVARRO, UNIVERSITY OF CALIFORNA, IRVINE PROFESSOR: China is epidemic of poison products. So, the real question culturally is whether Smithfield is going to rub off on China or China is going to rub off on Smithfield.
CARUSO-CABRERA: Smithfield CEO Larry Pope addressed questions about safety repeatedly today on a conference call with investors.
LARRY POPE, SMITHFIELD CEO: This is not a strategy to import Chinese pork into the United States. This is a strategy to export pork out of the United States. I like to tell people, open your refrigerator door, look inside. Nothing in there is made in China, because American agriculture is the most competitive and efficient in the world.
CARUSO-CABRERA: So, experts on China say Shuanghui isn`t just buying American hogs. It`s also buying American know-how, in an effort to improve the safety of their food supply chain.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.
GHARIB: And AIG is now waiting to hear whether the U.S. government will allow the insurance giant to sell a large stake in aircraft leasing business to a Chinese consortium -- Tyler.
MATHISEN: And another cross border deal to tell you about, taken a big step forward now.
Japan`s Softbank and Sprint received national security clearance from U.S. authorities that will let Softbank move ahead with its $20 million bid for the third largest U.S. wireless carrier. The deal faced criticism from lawmakers who said Softbank`s close ties with the Chinese government could compromise Sprint`s infrastructure and leave it vulnerable to potential attacks.
The deal still requires approval from the FCC and the Sprint shareholders.
GHARIB: As we have mentioned earlier in the program, mortgage rates are on the rise and today, they hit their highest level in the year. The 30-year fixed is now at 3.9 percent. It`s not just mortgage rates that are rising but home prices, as well.
And as Diana Olick reports, the combination could be a lethal one for the housing recovery.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In Burbank, California, home prices have been on a tear lately, largely due to low supply of homes for sale and increasing buyer demand.
But that equation is quickly changing.
DAVID FOGG, SOUTHERN CALIFORNIA REALTOR: As interest rates have been getting closer to 4 percent, we have seen a real slow down in the market here in southern California.
OLICK: The average rate in a 30-year fixed rose to 3.9 percent last week, according to the Mortgage Bankers Association, that after hitting a record low last December of 3.47 percent.
While the difference may not seem that big, every 1 percentage point increase in rates, say from 3 1/2 to 4 1/2 percent, reduces the average home buyer`s maximum purchase price by just over 10 percent.
BILL GROSS, CO-CIO, PIMCO: Mortgage rates can`t go too much higher than this, then the 4 percent yield simply because it`s a highly levered economy. It`s a highly levered household balance sheet. And they can only afford so much as, you know, 2007, 2008 proved.
OLICK: And today is nothing like 2007 and 2008. Rates are lower but it`s tougher to get a mortgage. The lowest rates only go to borrowers with the very highest credit scores and those who put down sizable down payments.
Cash buyers, many of them investors, now account for a historically high one-third of the market.
(on camera): But traditional buyers using mortgages have been coming back lately, only to come up against bidding wars for what little there is to buy. One upside to rising mortgage rates could be an easing of that tight supply.
FOGG: The supply and demand is the rule. And right now, there is still a low supply of housing although you are starting to see that supply creep up as homes are not selling as fast with interest rates being higher.
OLICK: Of course, on the flip side, some who have been on the fence about buying are quickly jumping in, worried that rates could go even higher.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
MATHISEN: NASDAQ will pay the largest fine ever levied against an exchange in connection with that botched Facebook (NASDAQ:FB) IPO about a year ago. The $10 million dollar fine was announced by the SEC for poor systems and decision-making both before and after Facebook (NASDAQ:FB) started trading.
NASDAQ CEO Bob Greifeld calls the settlement an important step forward and says he has carefully reviewed the events surrounding the IPO.
Facebook (NASDAQ:FB) went public last May, only to be scarred by lots of technical problems.
GHARIB: The move away from personal computers and towards tablets is picking up by a lot. A new forecast from research company IDC says shipments of PCs will drop by 7.8 percent this year. That`s much more than the original prediction of a 1.3 percent decline.
And by the year 2015, it`s estimated sales of tablets will out-shift not just laptops, but all PCs.
MATHISEN: And tablets are surely on the menu at the All Things Digital D Conference, arguably, the preeminent tech confab of the year. It`s the gathering of some of the industry`s top players, executives, entrepreneurs, chin strokers, paradigm shifters.
So, why should we care?
Jon Fortt explains.
UNIDENTIFIED FEMALE: How do you look at yourself in this landscape?
JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the decade since it started, D has emerged as the undisputed giant in executive tech conferences.
Walt Mossberg and Kara Swisher, two veteran journalists who cover tech from different angles, are the driving forces behind the conference. Mossberg, the long time tech reviewer from "The Wall Street Journal" focuses more on technology and products. Swisher, a long time columnist, focuses on people and strategy.
They built a team of tech journalists at allthingsd.com and built a conference centered on conversations with the most influential tech executives like these two.
STEVE JOBS, APPLE: PC guy is great.
BILL GATES, MICROSOFT: His mother loves this.
FORTT: Ten years ago, the rise of the iPod was a hot topic. So was search.
Two years ago, Microsoft (NASDAQ:MSFT) showed off Windows 8 for the first time. Why? Venture capitalists, Hollywood moguls and tech execs all mingle here.
This year, the onstage luminaries include Apple (NASDAQ:AAPL) CEO Tim Cook, Facebook`s Sheryl Sandberg and Twitter`s Dick Costolo.
And the tech demonstrations include cutting edge efforts like Two Bit Circus, a company that`s trying to get people interested in engineering by creating hands on carnival games. For them, the audience here is invaluable.
BRENT BUSHNELL, TWO BIT CIRCUS CO-FOUNDER: These are people that are really crafting, you know, the content and platforms that millions of people are going to be consuming in their content.
ERIC GRADMAN, TWO BIT CIRCUS CO-FOUNDER: Things are getting invented here. I see it happened. People coming together who haven`t met before, coming up with some amazing ideas that we`re either going to be buying or seeing or using in the year or two years.
FORTT: The future of the D Conference, a little up in the air. Mossberg and Swisher`s contract is up, so they could do a deal with a different company, this time for the first time, perhaps ever, some of the M&A buzz in the hall is about the franchise itself. They`ve built quite a valuable one.
For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.
MATHISEN: Coming up, as college costs soar, not all 529 savings plans are created equal. Find out which ones are really worth owning.
But, first, a look at how the international markets closed today.
GHARIB: U.S. needs a mandatory savings policy. That`s the dire message from Larry Fink. He`s the man who heads the world`s biggest money management firm.
Fink says Americans aren`t saving enough for retirement, people are living longer and bonds are no longer providing sufficient returns. He says the lack of retirement planning is a bigger issue than tax policy.
(BEGIN VIDEO CLIP)
LARRY FINK, BLACKROCK, INC. CHMN & CEO: If you actually put your money away in bonds 10 or 20 years ago, you enjoyed some very good returns. For those who were continuing to put the money in bonds earning 2 percent or 3 percent, they are not going to get close to their needs unless they start contributing at a much greater percentage of their disposable income of which it would have some pronounced impact in our economy today.
(END VIDEO CLIP)
GHARIB: Now, according to Fink, the average American only has $25,000 of savings.
MATHISEN: Well, saving for retirement is one huge challenge and putting away enough for college is another. In recent years, more than $166 billion of collected in so-called 529 plans, those popular state sanctioned, college savings, friends with benefits -- tax benefits, that is. But are these plans the best option for your college savings?
Sharon Epperson has more on the pros and cons of 529.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): When it comes to saving for college, Jason and Caroline Miller know the key is starting early and saving often.
JASON MILLER, 529 PLAN INVESTOR: We have a 1 year old. We started the 529 plan when she was 6 months old. We also have another baby, a boy, coming August 25th.
EPPERSON: They make regular deposits into a 529 college savings plan, a kind of savings account that has garnered much attention in recent years especially for tax benefits.
MICHAEL CONRATH, J.P. MORGAN ASSET MANAGEMENT: All of the contributions and earnings come out tax free to you when use to pay for tuition fees, room and board, books, supplies and equipment. That is the core benefit of 529 plan and that`s probably the key reason why over 10 million families have invested $180 billion today in them.
EPPERSON (on camera): Nearly every state offers a 529 plan. You may also get a state tax deduction on contributions to your state`s plan. But you don`t have to choose that one. You can pick any 529 plan that`s best for you, based on your risk tolerance and how much you need to save.
And anyone, not just a parent, can contribute to a 529 plan for a child or another beneficiary.
UNIDENTIFIED FEMALE: Very good.
EPPERSON (voice-over): The millers set up a 529 plan for their daughter, Clara. But that could change.
MILLER: My daughter may get a scholarship. If that happens, then the money that we have in the 529 plan that was designated for her would then be rolled to the second child. Now,
if the second child were to also get a scholarship, then we would be left with money that we`d have to take out and be penalized for taking out.
EPPERSON: That may be one of the biggest down sides to 529 plans. Funds can only be used for qualified higher education expenses. Otherwise earnings withdrawn get hit with a 10 percent penalty and taxed at the onerous federal income tax rate.
That`s not all. An investment manager handles the money in your 529 plan. You can`t invest in individual stocks or bonds or make frequent changes to the investments you choose. Some financial advisers say custodial accounts held in your child`s name, not yours, may be a better option.
IVORY JOHNSON, DELANEY WEALTH MANAGEMENT CFP: What that allows you do are buy lower cost options and also asset classes that are diversified and can reduce the volatility. And then as an added bonus, you can take the account and transfer to 529 plan and then you can take advantage of some of the financial aid advantages that a 529 plan has.
EPPERSON: While the custodial account is considered a student asset and has a high impact on financial aid eligibility, by transferring it to a custodial 529 plan, it becomes a parental asset, with much more favorable financial aid treatment.
MILLER: With that in mind, we have a long time.
EPPERSON: Time for the Miller`s to use several options to invest in their children`s education.
For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.
GHARIB: So, which 529 plans are at the head of the class?
Morningstar (NASDAQ:MORN) recently analyzed dozens of options. Here now with the best and the brightest, and some plans that may not make the grade, Laura Lutton. She`s Morningstar`s director of Fund of Funds Research.
Laura, before we get into the list of the ones that are the best ones to invest in and not so good to invest in, let`s just start with the question of, how do you choose 529 plan? There are lots of them. They are complicated with what you can and cannot do with particular funds.
How do you get started on this?
LAURA LUTTON, MORNINGSTAR DIR. OF FUND OF FUNDS RESEARCH: I think a great place to get started is looking at your own state`s plans and seeing if there are state tax benefits that you can take advantage of if you stay local. That would be the first step.
And then after that, you know, you really just need to decide what kinds of investments do you want? Do you want to manage these yourself and go into broad indexes or you`re working with a financial planner or adviser who is going to direct you to match your savings with other investments that you might have, as well.
MATHISEN: So, Laura, I`m sensing here and I want to get to the list of the winners and the sinners here. I`m sensing here that if I get a tax benefit, a tax deduction in my state that you give that very heavy weight and maybe even above the expenses of the plan or its performance.
LUTTON: Yes, we found that those state tax benefits or other benefits from the state can make up for a lot of ills like higher expenses or maybe some investments that are solid but that we`re not totally crazy about.
MATHISEN: OK. Now, you`ve listed some of the ones that you get gold ratings from the Morningstar (NASDAQ:MORN) analysts. And everybody knows Morningstar (NASDAQ:MORN). You do your homework.
Tell me which ones they are. We`re going to put them up on the screen, and tell me why these stood out.
LUTTON: Well, I think what all of the plans have in common is they have very strong investment options at a reasonable cost. So, these are ones that we have a lot of confidence in their ability to outperform on a risk adjusted basis over a full market cycle or the life of your 529 investment.
MATHISEN: This is based on their past performance and what they own. And I can -- if I live in Maryland but I want to go to the Alaska plant I can.
Let`s transition now to the ones or at the bottom of the class. Why didn`t they make the grade?
LUTTON: Well, in some cases we had some concerns about the investments in the plan. In other cases, we thought they were just too expensive. You know, we found in our research time and time again that the less you pay for an investment, the more likely you are to outperform over the long term.
GHARIB: All right. Laura, let me ask you this that Sharon Epperson brought up in her report. Why not just put your money in a mutual fund where you have a lot of flexibility. Surely, you don`t get the tax benefit but why not just go with a mutual fund?
LUTTON: Well, I think the tax benefit is really important particularly, if we see nice gains in the stock market over the life of your investment. I mean, being able to take those out tax free to offset your college expenses I think is really significant and gives us an advantage over a standard mutual fund.
MATHISEN: Why are the expenses in most of the 529 categories higher than they are in comparable mutual funds?
LUTTON: I think because this industry is relatively small compared to, you know, the billions and billions that we see in the mutual fund world. So it`s just, I think as the 529 industry gets larger, we`ll see expenses continue to come down and be more competitive.
GHARIB: Laura, we just have about a few seconds left. Real quickly, what`s the biggest mistake that families make when they`re choosing, and what`s your best advice?
LUTTON: Well, I think, you know, leaving those state tax benefits behind is something I`d really think twice about. And then, you know, just being aware of your own tolerance for risk because you`ve got market exposure in a lot of these and you got to be prepared for that.
GHARIB: All right. Laura, thank you so much. Laura Lutton from Morningstar (NASDAQ:MORN).
MATHISEN: And "Market Focus" begins with a company tonight that is splitting itself in two.
Sallie Mae is going to divide into a company to manage the education loans and another to be involved in consumer banker. Fitch downgraded Sallie Mae into junk territory, while Moody`s (NYSE:MCO) placed the company on review. Shares lost early gains but nevertheless closed up more 2 percent at 2,348.
Priceline.com, the big travel Web site, announced a billion dollar buyback this afternoon, financed in part by a private debt offering. Shares of Priceline were off 1.5 percent in today`s session, but they did jump on that buyback news as you see there.
And Michael Kors, the pricey accessories and apparel retailer said revenues were up 57 percent and net profit more than doubled as it reported results today. Comparable store sales up more than 36 percent. Shares jumping at the open but then settled back a bit, closing more than 3 percent higher on this down day, at $63.95.
GHARIB: MidAmerican Energy Holdings, this is a Berkshire Hathaway (NYSE:BRK.A) unit, is buying NV Energy (NYSE:NVE (NASDAQ:NVEC)), a Nevada utility for $23.75 a share. It`s a deal valued at $5.5 billion.
NV provides electricity to $2.5 million customers in Las Vegas and other cities.
Shares of NV spiked more than 20 percent, after the deal was announced.
And we`ve heard a lot about the baby boomer generation`s impact as they age. Today`s example, a consolidation at the top of the funeral home and cemetery business. Service Corp International, the largest operation, buying number two, Stewart Enterprises (NASDAQ:STEI), for $13.25 a share.
Stewart gained 33 percent, closing at $13.97. Service Corp up nearly 5 percent to $18.44.
And still ahead, a modern family milestone. Why the old saying dad is bringing home the bacon no longer is true.
But, first, a check on commodities, treasuries, and currencies.
MATHISEN: Want to buy a piece of the Empire State Building? Well, now, you may get your chance. Stakeholders in the private company that owns the iconic New York tower approved a plan to sell it as part of an IPO. The proposed new company called Empire State Realty Trust would include the skyscraper and 18 other properties. The stakeholder vote was disclosed in an SEC filing today.
GHARIB: And here`s the new trend. Working moms are now the primary bread winners for a record share of American families.
For more on this morning family milestone, here is Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Data from the Pew Research Center in Washington shows that mothers are the primary bread winners in four of the 10 households with children, but within this figure, two very different stories. The majority of these women are single mothers, earning about $23,000 a year, well below the national median.
The others are married women who earn more than their spouses and those households earn an average of $80,000 a year, well above the national median. Among both groups, the data shows an increased presence in the workplace. Among married mothers, the employment rate is 65 percent. That`s nearly twice the number from 40 years ago, not a surprise when you consider that women make up nearly half the U.S. workforce today.
UNIDENTIFIED FEMALE: It just shows that if you give women a chance, they can do equal job.
UNIDENTIFIED MALE: It takes away from the tradition of being a man.
UNIDENTIFIED FEMALE: If I get married, it`s fine. OK. But I don`t want to be reliant on my husband. I want to be able to support myself.
UNIDENTIFIED MALE: I wouldn`t mind staying at home cooking so my wife could go out and do her thing.
HERERA (on camera): Overall, women are still only earning 82 percent of what men do. That`s according to the Bureau of Labor Statistics. But Pew`s Kim Parker says the higher the level of education, the greater the earning potential.
KIM PARKER, PEW RESEARCH CENTER: You`ve got a whole population of married women out there who are either as educated or better educated than their husbands. That explains why we have seen the growth in the share of wives who make more money than their husbands.
HERERA: Nearly one quarter of married women out-earn their husbands and in those cases, the entire household income is about $2,000 more per year than in homes where the husbands earn more money.
So, before kids ask dad for increase in allowance, they might want to consider because more and more, it`s mom who`s bringing home the bacon.
For NIGHTLY BUSINESS REPORT, I`m Sue Herera.
GHARIB: I want to know what you think.
MATHISEN: I think it`s all good news. I think it`s all very good news. I`m fine with the idea that it doesn`t do anything to the tradition of being a man, as one of the sources in there said.
GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for being with us.
MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody.
We`ll see you back here tomorrow evening.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.
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