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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for August 1, 2013, PBS> <Sect: News; Domestic> <Byline: Susie Gharib, Tyler Mathisen, Bob Pisani, Hampton Pearson, Mary Thompson, Eamon Javers, Bertha Coombs> <Guest: Michael Ryan> <Spec: Business; Economy; Stock Markets; Trade; Policies; Abuse; Justice; Trials; Consumers; Retail Industry; Taxes; Insurance; Health and Medicine> <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: Record breaker. The Dow and S&P 500 hit all-time highs, and the NASDAQ scores its highest close in 13 years. But will tomorrow`s employment report change all that?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Verdict. The former Goldman Sachs (NYSE:GS) trader who became a symbol of Wall Street greed and deceit during the financial crisis is found liable of defrauding investors.
GHARIB: And long-term care insurance. The industry is shrinking, premiums are soaring, and many say, the system is rife with problems. Is any there fix? Find out in part two of our special series, "How to Navigate Long-Term Care."
We have all that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, August 1st.
MATHISEN: Good evening, everyone, and welcome.
Stand back, get out of the way, stocks are on a roll. Unstoppable? Of course, not. But moving nonetheless into pricey new neighborhoods.
New all-time closing highs today for the Dow, the S&P 500, the S&P 400, the mid-cap stocks, the Russell 2000, the small cap shares and the Dow transports. And the NASDAQ shooting to levels not hit since September 2000.
At the close, the Dow ended 128 points higher, the NASDAQ ahead by 49, and the S&P 500 added 21, closing above the 1,700 mark for the first time
Crude prices also shot up today, seeing their third best gains so far this year, up nearly $3 a barrel to close just below $108. Positive economic data from China, Europe and here in the U.S. set the table for today`s stock market feast.
With more on what drove stocks to those record highs today, we turn to Bob Pisani at the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): For a good part of this earning season, we`ve heard comments from companies that lackluster earnings in the first half should improve in the second half, along with the economy. Well, today, the bulls got some ammunition as a July manufacturing report for the United States came in stronger than expected, with strong showings for new orders, as well as employment.
Manufacturing reports in Europe and China were also a bit better than expected. The major industries reacted by moving to historic highs. That`s a bit of a surprise considering that interest rates yields on this 10-year Treasury bond moved up, as well. In the past higher rates have rattled stocks but maybe that`s changing.
GORDON CHARLOP, ROSENBLATT SECURITIES: The interesting thing about interest rates going up a bit, doesn`t seem to be scaring the market. Sometimes when interest rates move higher, that can actually be a catalyst for increased economic activity.
PISANI (on camera): The bottom line: there is a lot riding on the jobs report tomorrow if it`s a little stronger than expected, say, over 200,000 jobs created, interest rates are likely to raise a bit more. If the stock market holds up, traders really will begin to believe that stocks are becoming increasingly comfortable with slightly higher rates.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani, at the New York Stock Exchange.
GHARIB: Investors will be watching those jobs numbers but here are some other stats Wall Street pros are talking about. Seven stocks in the S&P are trading at prices higher than $400. That`s only seven of the 500 companies in the index.
Here is a look at the five highest price shares. As you can see, they are up between 28 percent to 50 percent. The other two are this elite $400 club, AutoZone (NYSE:AZO) and Chipotle Mexican Grill (NYSE:CMG). And what about Apple (NASDAQ:AAPL)? It`s the only one in the group that`s down so
far this year.
MATHISEN: Well, Susie, those investors that sent stocks to records tomorrow will have even more to chew on tomorrow, that, of course, when the Labor Department releases the non-farm job report for July.
So, what numbers will Wall Street look for? And what`s driving the recent rise in hiring?
Hampton Pearson takes a look ahead to Friday`s report.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): Ahead of Friday`s government employment report, there`s been all kinds of data showing the job market gaining strength. Weekly jobless claims falling to a 5 1/2-year low. Private sector employers adding 200,000 jobs last month, according to payroll processor ADP. Even the face of the layoffs is slowing down, just under 38,000, down 4.2 percent, according to Challenger Gray and Christmas.
Manufacturing accounts for 12 percent of the economy expanded at its fastest pace in two years, fueled by demand for new autos and materials needed for the housing recovery.
For traders and market watchers, the sweet spot jobs number is the consensus forecast of around 185,000 jobs added to July payroll.
KENNY POLCARI, EQUITY TRADER: We need to see at least, if not better, if we want to continue to believe that the economy, in fact, has rounded that corner, that we`re moving in the right direction and that, you know, everything the government tells us is happening is in fact happening.
PEARSON: A July jobs number north of 220,000 would be viewed by markets as a green light for the Fed to move up its timetable for tapering its economic stimulus.
POLCARI: It`s going to give another reason for people to speculate and for Ben Bernanke to say, OK, in fact, we are data dependent, we said we`re data dependent, we`re creating these jobs, look at the pace we`re creating them. And so, it`s going to give them the leverage to say to almost have an out to start the taper comes September.
PEARSON (on camera): Market watchers and economists will be scrutinizing tomorrow`s employment report for any numbers that show the impact of sequester on job growth.
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.
GHARIB: It`s a new month with new records, so now, what happens? Let`s get some answers from Michael Ryan, who`s chief investment strategist and head of wealth management research at UBS.
Mike, nice to have you.
I mean, this has been a phenomenal year for the stock market. Are we seeing the second leg of the bull market? I mean, what is your outlook?
MICHAEL RYAN, UBS, CHIEF INVESTMENT STRATEGIST: I actually think stocks continue to go higher, but I think we have to temper our enthusiasm a little bit, because I actually thin the second part of this is going to be different than the first. You kind of have this rerating of stocks driven by an absence of malaise. We didn`t have a lot of bad news, a lot of things weren`t` melting down or blowing up.
I think in the second half, though, we`re going to have to continue to see is better revenue growth, better corporate earnings, and improving macro (INAUDIBLE). I heard Bob Pisani talking about these expectations about better growth. We need to see that validated in the second half of the year in order to extend this rally.
MATHISEN: Are you expecting that better growth to kick in or what do you think?
RYAN: We are, Tyler. I think what you are going to see now is I think was evidenced by some of the economic data this week. You know, the ISM report was encouraging not only in terms of the headline number but also the components. If you look at the more forward-looking components, that`s actually the most constructive part of the report, suggests to us that the growth dynamic over the course of the next couple months is going to be constructive.
I would also argue, obviously, that tomorrow`s employment report is going to be important in terms of setting a tone, because we need to see if we`re starting to see this business improvement picking up in terms of hiring.
GHARIB: All right. Let`s talk a little bit more about that jobs report. I mean, talk us through that if the number comes in on the high end, or if it comes in on the lower end, what impact is that going to have on the markets?
RYAN: Well, first of all, I kind of -- we have to move away from this notion that, you know, bad news is good news. I think, actually, you know, good news is good news, and that if we get an employment report that comes in at/or below consensual expectations, I think that can extend the gains we`ve seen in the equity markets.
So, I think it`s going to be really important in three aspects (ph). Number one, we have to see the rate of employment growth is still in that, let`s say, 185 to 215 range. Secondly, we do have to see improvement in terms of the unemployment rate coming down and has to be in an environment where we`re not seeing people leaking out of the labor force. It`s got to be one where the labor force remains really static.
MATHISEN: You know, a lot of the time, rising interest rates are anathema to rising stock prices. But do you think that equity investors now gotten comfortable with the idea that rates are up and probably likely to continue to move higher. The 10-year was at 270 today.
RYAN: I say it depends to a large extent on why rates are rising. You know, if rates are rising because there`s a fear that inflation is accelerating and that it may force a tightening of policy, then that`s one thing. If rates are beginning to move higher because we`re seeing a normalization of the business cycle, we`re seeing improvement macro conditions. I think that`s actually very healthy for stocks.
In fact, we argue that we`re entering sort of a sweet spot with regard to rates when you look at stocks because when rates are very, very low, it`s a sign of stress. When rates are very, very high it`s a sign, you know, price pressures are picking up and the Fed may have to tighten.
So, actually, we`re entering the period that should be constructive
GHARIB: Mike, let me go back to what you said at the very beginning, where you said, you know, investors shouldn`t get carried away by today`s rally and these new records.
So, should investors sell into these rallies, you know, get into position and take the best that they have gotten so far this year, take the process now?
RYAN: No, I wouldn`t say you want to sell them, but I do want -- I do think you need to continue to reposition during this market. For example, you know, what had worked earlier in the year is not likely to work through the balance this year. You know, there`s been this gravitation towards the higher yielding sector and more defensive sectors. We continue to see a rotation now throughout the balance this year away from those sectors that performed really well in the early part of the year against the more cyclical sectors because we think that`s where you get better opportunity for earnings growth and where we still think evaluations more attractive.
GHARIB: All right. Sounds good. Thank you so much.
RYAN: Thank you.
GHARIB: Michael Ryan of UBS.
MATHISEN: If you were bringing a company public, wouldn`t you like to do it on a record-breaking day for stocks?
Well, two companies did start trading today but only one caught the wave. Shares of Sprouts Farmers Market, an organic grocer with 160 storms across the U.S., shot up or sprouted a staggering 122 percent on their first day, trading at NASDAQ.
Different story, though, for American Homes for Rent, a Californiabased real estate investment trust that rents out single family homes. Shares there ended 2.5 percent lower.
GHARIB: Cars and trucks were rolling out of showrooms in July. It was a bonanza month for American automakers. The Big Three reported double digit gains as consumers continue to buy new cars to replace their aging vehicles. Pickup trucks and smaller more fuel efficient models were the big drivers last month.
General motors topped Detroit`s Big Three in sales growth with a 16 percent increase and as you can see there, both Ford and Chrysler posed sales increases of 11 percent.
MATHISEN: And Ford Motors, in the meantime, has agreed to pay a top fine to settle a dispute over a recall fight. Ford will pay the government
$7.35 million to settle allegations that it was slow to recall nearly a half million Ford Escape SUVs last year to fix sticking gas pedals that could cause a crash. The National Highway Traffic Safety Administration says Ford knew about the problem, back in May of 2011 but failed to take any action until the agency began its own investigation more than a year later.
The billionaire investor Carl Icahn is suing Dell (NASDAQ:DELL), in an attempt to stop proposed rule changes for tomorrow`s scheduled shareholder vote on Michael Dell`s $24 billion offer to take the PC maker private. The lawsuit is aimed at stopping Dell (NASDAQ:DELL) from rescheduling the vote and changing the record date, which is the day shareholders had to own the stock to qualify to vote. Mr. Icahn believes changing the record date could color the outlook -- outcome but letting more recent shareholders vote.
GHARIB: The International Trade Commission is delaying its decision until August 9th on whether to ban imports of certain Samsung phones for violating Apple (NASDAQ:AAPL) patents. The commission rules earlier this year that Apple (NASDAQ:AAPL) violated some Samsung patents and the ban on some iPhones will start on Monday unless President Obama intervenes.
A huge fine to tell you about, this one from one of the nation`s largest banks. Citigroup (NYSE:C) will pay a $590 million settlement to resolve a shareholder lawsuit, accusing the bank of hiding tens of billions
of dollars in bad mortgage securities from investors during the height of the financial crisis. The shareholder lawsuit cited Citigroup`s more than $27 billion on losses in 2008 after its share price plunge from nearly $48 a share at the end of 2007 to under $3 a share by 2009.
MATHISEN: A historic victory for Wall Street regulators in a New York City federal courtroom today, in the first big civil fraud case tied at the 2008 financial crisis. A former Goldman Sachs (NYSE:GS) trader found liable of six out of seven counts in a massive mortgage securities fraud case.
Mary Thompson was in the courtroom for the verdict.
And, Mary, investors have frequently criticized the SEC for either not being tough enough, others for striking out in high-profile cases like this one. What does this victory mean for the SEC?
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, this is a big win for the SEC. Lawyers that I spoke with say this will likely embolden the agency to be more aggressive in the future in going after both individual and entities or corporations in pursuing any claims that they have against them.
Basically, since the financial crisis, three of the SEC`s cases have gone to trial. It`s score card is essentially one loss, one split, and
today`s victory. And with the victory being the latest, again, this would give the SEC added, I guess you could say, swagger to its steps when it goes out and pursues additional actions.
Now, per the financial crisis, which, of course, was in 2008, running up against that five-year limit on the statute of limitations, but in the civil cases such as those brought by the SEC, they can still pursue these cases and seek penalties from whatever entities and individuals they charge. They just can`t seek a lifetime ban from the security`s industry.
GHARIB: Well, speaking of those penalties, I mean, what does this mean for Fabrice Tourre? You know, what kind of fines or penalties is he facing?
THOMPSON: Well, Susie, that will be determined in the future, in the next -- within three weeks, both sides need to present their proposals for penalties to the judge, who will then review them and decide on them.
The problem is the Judge Katherine Forrest has a trial. So, it could be some months before she decides on penalties. And at that point, Mr. Tourre`s team, if they decide to do so, could say they will appeal that decision. Something that could be quite likely.
Back to you.
MATHISEN: Mary Thompson, thanks very much.
Well, still ahead, the enemy within. A top security expert says the next Edward Snowden could come from a company like Yahoo (NASDAQ:YHOO), Google (NASDAQ:GOOG) or Facebook (NASDAQ:FB) -- one that already knows a lot about you.
But, first, a look at some of the stocks that hit all-time highs today.
GHARIB: Worries about cyber attacks are back. A posting on chat forum Pastebin warns of a wave of cyber attacks against big American banks. The message is from a group called al Qassam Cyber Fighters, and it says the attacks will be hit in the coming months. So far, only one bank, Regions Financial, has been attacked.
The group targeted nearly two dozen financial institutions over the past year, freezing their Web sites and mobile apps so customers could get access to them. Banks like JPMorgan (NYSE:JPM) have been pledging more resources to build sophisticated technology to prevent these attacks.
MATHISEN: Well, that threat is a timely reminder of why the annual Black Hat Conference is taking place in Las Vegas right now, bringing
thousands of computer hackers and cybersecurity experts together to show off their skills and the latest technology to thwart such attacks.
Much of the talk this year is about admitted NSA leaker Edward Snowden, who incidentally was given temporary asylum in Russia today, and where the next Edward Snowden may come from. The answer may surprise you.
Eamon Javers is in Sin City and joins us now with more -- Eamon.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Tyler.
Well, normally here at Black Hat, government security expert and independent hackers and private company executives who focus on cybersecurity all worked pretty well together. This year, however, a lot of tension in the room, a much different story, the number one topic of decision, as you have said, is the revelations by Edward Snowden about what the NSA has been up to.
UNIDENTIFIED MALE: People in the community are very, fairly skeptical. I mean, they are professional skeptics.
JAVERS (voice-over): The NSA`s surveillance programs are a hot topic at Black Hat this year, the first big hacker and cyber conference since
Edward Snowden leaked top secret information about the programs in June. And while hackers have made their disposal clear over just how much data the government is collecting, some say the biggest threat to our privacy comes from an unexpected source.
JEFF MOSS, BLACK HAT FOUNDER & DIRECTOR: Maybe Edward Snowden is the tip of the iceberg, but I`m waiting for Facebook (NASDAQ:FB) leaker, or the Amazon (NASDAQ:AMZN), or the Google (NASDAQ:GOOG), or, you know, some other Yendex, some other search engine, somebody that has more data than we understand that they have.
JAVERS: Jeff Moss is the founder of Black Hat and def com, two of the biggest cyber security and Def Con, two of the biggest cybersecurity and hacker conferences in the world, and is a current advisor to the Department of Homeland Security. He says people would be surprised to discover just how much these companies know about us.
According to "The Wall Street Journal", Google (NASDAQ:GOOG) has credit card information on more than 200 million Android owners and is facing push back on its privacy policies in Europe.
Facebook (NASDAQ:FB) with over a billion accounts has access to even more data on its users.
MOSS: There is no oversight committees. There is no congressional
inquiry into what, you know, these giant search engines are doing with our data.
JAVERS: And in a world that`s more reliant on technology than ever before, people may have to get used to the fact that privacy may be a hard thing to come by.
JAVERS: And, guys, actually, not everybody here is a supporter of Edward Snowden. We talked to a number of folks who don`t like what Snowden did and, of course, there are a lot of people here who are actually working for the government agencies in the Department of Homeland Security. So, there is some divided opinion here. Nonetheless, a fairly strong under current of support for Edward Snowden, Tyler.
MATHISEN: Eamon Javers, thanks very much. Eamon Javers, reporting from Las Vegas.
And to read more about the Black Hat hackers conference, log on to our Web site, NBR.com.
GHARIB: Let`s turn now to our "Market Focus".
And we begin with ExxonMobil (NYSE:XOM). It was the biggest drag on
the Dow today. ExxonMobil (NYSE:XOM) disappointed investors, reporting a 19 percent drop in quarterly profits. The company said production was down and refinery earnings fell. Shares of XOM sold off right at the open and were down more than 2 percent before making up some ground to close at $92.73, off more than 1 percent.
A different story for ConocoPhillips (NYSE:COP). Earnings fell compared to a year ago, but production gained and profits beat estimates. Shares gained almost 2 percent to $66, touching a new high as investors bought Conoco`s turnaround story.
Another positive report, Dow component Procter and Gamble`s profit fell 4 percent. But that was less than expected. Returning CEO A.G. Lafley said, quote, "We`re committed to making changes we know we need to make."
Investors were cheered by his optimism and shares gained more than 1 1/2 percent on heavy volume, closing $81.64.
After the market closed, AIG says it`s paying a dividend for the first time since the height of the financial crisis. And it also announced $1 billion buyback program. Profits in his core casualty and life insurance segments were strong, as well. Investors anticipated a good earnings report, so they were bidding up shares nearly 3 1/2 percent, to $47 and change, and they popped higher in after-hours trading.
MATHISEN: Pioneer Natural Resources (NYSE:PXD) led the S&P 500 winners today, after swinging to a profit in the quarter. Pioneer drills for gas throughout the Southwest and benefit from oil and gas prices. Investors piled sending it to a new high and a gain of 12.5 percent on more than four times the usual trading volume.
Blowout quarter for LinkedIn (NYSE:LNKD), profits up 33 percent, revenue up 59 percent, guidance increased again, as membership grows to $238 million. So, another new high in a market that had a few, LinkedIn (NYSE:LNKD) closing at $213. Shares popped more than that after the bell.
Meanwhile, Avon products said sales rose, thanks to the biggest market Latin America. But the Department of Justice rejected the company`s 12 million dollar offer to settle a bribery probe. Shares popped on the earnings, on the legal developments, ding dong Avon falling, closing down 3 1/2 percent on four times normal volume.
GHARIB: Coming up on the program: a perfect storm is hitting the long-term care insurance industry. And now with baby boomer demand expected to rise, is there any fix in sight? The second part of our special series, "How to Navigate Long-Term Care" is next.
But, first, a look at how commodities, currencies and treasuries performed today.
GHARIB: A day of rallies for insurance stocks. Many of them soared to 52-week highs today. Those companies are anticipating higher short-term interest rates coming from the Federal Reserve. Lincoln National (NYSE:LNC) and MetLife (NYSE:MET), the nation`s largest life insurer saw the biggest gains in today`s session. Prudential, Aflac (NYSE:AFL), and Principal Financial also posted solid increases.
MATHISEN: Meantime, the long-term care insurance industry has taken some real hit. Many insurers mispriced their products, misjudging how expensive nursing home and in home care would get. The industry has responded with new underwriting standards, new prices, but some say the government now needs to step in to make it easier and more affordable for more aging baby boomers to sign up for coverage.
Bertha Coombs has the second in NBR series on "How to Navigate LongTerm Care" on an industry in transition.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): Long-term care insurers paid out over $6.5 billion in benefits in 2012 to more than a quarter of a million customers according to an industry study
with some ongoing claims now topping seven figures.
JESSE SLOME, AMERICAN ASSN. FOR LONG-TERM CARE INS. EXEC. DIR: The largest claim that`s still open is from a woman. She`s been on claim for 15 years. Her insurance policy has paid out $1.8 million to date and it continues to pay. She only paid $881 for three years before her claim began.
COOMBS: It`s an extreme case of unprofitable underwriting but reflects the problems, which have rocked the industry over the last several years, leading major plan providers MetLife (NYSE:MET), Prudential, and Unum to stop selling individual policies.
MARC COHEN, LIFEPLANS, INC. CHIEF R&D OFFICER: There are a lot of reasons for these market exits. The most important of which is companies had a very difficult time hitting profit objectives.
COOMBS: Resulting in a virtual perfect storm. With long-term care costs rising faster than expected, the rate of clients letting their policies lapse much lower than estimated and investment expectations too aggressive.
(on camera): But it`s been conditions in the bond markets that have posed the biggest problem for insurers. Record low interest rates over the last several years have made it virtually impossible to generate enough
growth from their investment and bonds to meet the expected growth in future claims.
SLOME: When interest rates start to rise again and they will, this business will return to heightened profitability or at least levels where it needs to be. So, it is sustainable.
COOMBS (voice-over): The Affordable Care Act had included plans for a voluntary national long-term care insurance market but they were scrapped when underwriting proved too unwieldy. Now, a congressional commission is growing up new proposals on how to address what is expected to be a massive surge in demand from coverage from 76 million ageing baby boomers.
COHEN: Right now, we have 10,000 people that are retiring every day. We need more companies in the market to sell to meet that need.
COOMBS: Marc Cohen, co-author of a SCAN Foundation study on long-term care reform, says it will take a combination of public and private sector initiatives with government reinsurance as a backstop for long-term care underwriters and getting more employers to help workers save for long-term care as they do for retirement through 401(k)s.
COHEN: Taking advantage of the employer group market would be very important. You know, less than 1 percent of employees in the United States are working in firms that offer private long-term care insurance.
COOMBS: Industry officials say with the Obama health plan launching next year, the commission`s focus needs to be on private market solutions.
SLOME: I don`t see Americans ready to take on a new national program, a new taxpayer paid program, not in the foreseeable future.
COOMBS: For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.
MATHISEN: Our series "How to Navigate Long-Term Care" wraps up tomorrow with a look at what to do when insurance isn`t an option. And for more on the issue, log on to the Web site, NBR.com.
GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, thanks for joining us.
MATHISEN: Thanks for me, as well. I`m Tyler Mathisen. Have a great evening everybody. We`ll see you back here tomorrow night.
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