nightly business report - monday july 22 2013

7/27/2019 Nightly Business Report - Monday July 22 2013

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: How safe is yourpension? Detroit isn`t the only employer that made big promises to current and retired workers.Across the country, many are now looking very closely at their own financial futures.

GHARIB: And how to not outlive your money. How much cash can retirees safely pullfrom their savings each year? And does that 4 percent rule still work? Our special series startstonight.

We have all that and more on NIGHTLY BUSINESS REPORT for Monday, July 22nd.

MATHISEN: Good evening, everyone, and welcome.

It is the heart of earnings season -- nearly 1/3 of all the S&P 500 companies report theirquarterly profits and losses this week, including eight members of the Dow.

And today, the first of those eight blue chips reported, and shareholders are forgiven ifthey feel like they`ve eaten a soggy French fry. McDonald`s (NYSE:MCD), the world`s biggestburger chain, saw profits rise 4 percent over the past three months. That was well short ofanalyst`s expectations and the company warned of a tough year ahead due to shaky economic

conditions all over the globe.

McDonald`s (NYSE:MCD) shares, the biggest decliners in the Dow today, falling 2 1/2percent and that took some steam out of the major averages.

GHARIB: Well, that led to a cautious day on Wall Street, with investors waiting to seemore results from this week`s batch of earnings.

The major stock averages posted modest gains, but still enough as S&P 500 index closed at afresh all time high.

The Dow rose almost 2 points, the NASDAQ up more than 12 1/2 and the S&P 500 up to3 1/2 points, and as we said, its new record, 1,695.


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In the commodity markets, gold was glittering. The precious metal chalked up its biggestone day gain in more than a year as the weaker U.S.

dollar lifted the price to the highest close (AUDIO BREAK), jumping more than $43 an ounce to1,336.

MATHISEN: Also increasing today, gasoline prices. AAA says average prices at thepump up 12 cents a gallon nationwide over the past week.

Increased summer demand, unrest in the Middle East and production disruptions at refinerieshere in the U.S. all combine for that sudden spike. And AAA says higher prices will be here inthe coming weeks.

GHARIB: Existing home sales fell more than 1 percent in the month of June. But themedian home price rose to $214,000. That`s up 13 percent year over year. And while the sectorhas been on fire on Wall Street, it hasn`t been everywhere on Main Street.

Diana Olick looks at what some see as a great divide in housing.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

David and Heather Littlejohn built their Oregon home in 2005, at the height of the housingboom.

DAVID LITTLEJOHN, UNDERWATER HOMEOWNER: We`re under water becauseour timing is outstanding.

OLICK: The value of their home was cut in half by the housing crisis.

As their family grows, so too does their need for more space. So, they`re now adding extraprincipal to their monthly mortgage payment.


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D. LITTLEJOHN: We`re doing what we can to dig our way out of the hole the oldfashioned way.

OLICK: They thought about walking away.

HEATHER LITTLEJOHN, UNDERWATER HOMEOWNER: I think just from thecharacter standpoint, that`s not an option for us.

OLICK: As the Littlejohns dig, the stocks of the nation`s big homebuilders soar, up over

200 percent from their bottom in the spring of 2009.

Even with housing starts still well below normal levels, Wall Street is buying into thebuilders.

IVY ZELMAN, ZELMAN & ASSOCIATES: I think we`re in nirvana for housing.

UNIDENTIFIED MALE: Do you really?

ZELMAN: I think that -- I have to tell you, I`m probably the most bullish I ve ever been.

JOHN PAULSON, PAULSON & CO: I still feel buying a home is the best investmentany individual can make.

OLICK: But about 10 million underwater borrowers, and millions more in a nearnegative equity position don`t have that option. And every day, David Littlejohn, a financialplanner, watches Wall Street beaming all the way from Oregon.


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D. LITTLEJOHN: I have a bit of animosity toward the way the situation was handled attimes. I do think that the taxpayer bailed out a lot of these banks, I`m a taxpayer. In manyrespects, I`ve honored my contract the entire time through, and I look at it and go, wait a secondhere, why am I left with my nose against the glass? Why don`t I get the puppy?

OLICK (on camera): And it`s not just underwater borrowers, it s first time homebuyers.They usually make around 40 to 45 percent of the market.

Today, there are just 29 percent. High prices and tight lending are keeping many of them on thesidelines.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN: Some of the very same banks that have profited so handsomely have alsomade tens of millions by warehousing physical commodities, like aluminum and copper. Someindustry critics charge that some of the firms routinely engage in shell game style maneuvers thatline the banks` pockets and boost costs for end users, like soda drinkers and car buyers.

Mary Thompson has the story.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Bottlenecks of a different kind pushing up the price of a cold one these days, or at least the costof keeping it cold. It`s a long held belief among some industries -- bank-controlled warehousesintentionally delay aluminum deliveries pushing prices higher even as demand is declined.

Aluminum users pointed to a steady increase in the metal`s price since 2009, when banks beganbuying the warehouses.


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For Jorge Vazquez, managing director of Harbor Aluminum Intelligence, points to apremium on the metal that`s well above its historic average of

2.5 cents to 6 cents a pound.

JORGE VAZQUEZ, MANAGING DIRECTOR, HARBOR ALUMINUMINTELLIGENCE: That premium was trading two weeks ago at a record high of 13 cents perpound.

THOMPSON: The beer institute estimates this costs firms that used aluminum to makeeverything from airplanes to autos, to beer cans, an additional $3.6 billion each other. At theheart of the issue, Detroit`s Metro International, an aluminum warehouse controlled by GoldmanSachs (NYSE:GS). It holds the equivalent of a quarter of the North American demand for the

metal, but only offloads or distributes a required minimum of 3,000 tons a day, no more, no less,whatever the demand.

Goldman`s profits from this practice, two ways. First from the extended rents paid tostore the metal, and second, by the bets made on aluminum futures by its trading arm. Goldmandisputes it intentionally distorts prices, saying only 5 percent of aluminum used in production ofconsumer goods is warehoused. But Vazquez counters it does, given the amount of metal heldby Metro International.

The concerns about higher prices are catching regulators eye. The Federal Reservepublicly acknowledging an ongoing review to see if commodity activities are complimentary andpermissible for bank holding companies, while the CFTC launched an investigation intowarehouse practices.

(on camera): All of this setting a stage for Tuesday`s setting hearing on whether or notthey should control commodities related businesses, like oil refineries, power plants and metalswarehouses.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)


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GHARIB: San Jose, California, at the heart of Silicon Valley, has a lot of worries thesedays, $20 million in pension reforms for city workers approved by voters just last year have nowfound their way into a courtroom. Current city workers are fighting to block the measures, andkeep San Jose from taking more of their paychecks to pay for future pension costs.

MATHISEN: Meantime, after the city of Detroit filed for bankruptcy protection lastweek. Municipal workers there are fighting to keep their pensions intact. The lawsuits havestarted flying and retirees claim their pensions are protected by Michigan`s constitution.

Scott Cohn is in Detroit with a look at how firefighters are battling to keep what theythought was theirs.

(BEGIN VIDEOTAPE)

(CHANTING)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

On the streets of Detroit, firefighters staged informational pickets, trying to save their citypensions.

DENNIS HUNTER, DETROIT SENIOR FIREFIGHTER: We are not numbers. We arepeople that sacrifice our lives. We may not come home one day, to look at us as a spreadsheet isto me un-American.

COHN: The real battle, though, is in the courts. This county judge in Michigan has ruledthe bankruptcy violates a provision in the state constitution protecting pensions. But thebankruptcy is filed in federal court, and the judge in that case, Steven Rhodes, declared todaythat the feds have jurisdiction. Over objections from the city pension funds, Rhodes set a hearingin the case for Wednesday morning. It`s the beginning of a process that could take years -- farmore complex for a city that for even the biggest corporate bankruptcy.


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PETER HAYES, BLACKROCK, HEAD OF MUNICIPAL BONDS GROUP: Theycan`t sell their assets and go. They need to continue to exist before the population for itsconstituents, et cetera. So, in this case, that`s going to make it difficult, because you havestakeholders.

COHN: Including those picketing firefighters, who insist there s a basic principle atstake -- not to mention their financial well being.

HUNTER: Absolutely, I`m nervous. My family is nervous, we will survive, we will dowhat we have to do to survive. But I think that we have been promised something, and thiscountry is based on good faith and promise an American way, and American dream.

If you get rid of unions and pensions, what do we have? We have pure corporateprivatization and control. That`s not America.

COHN: Michigan`s governor says the retirees should have a voice in the bankruptcyprocess, and formalizing that will be one of the first orders of business in court. But the unionssay the time for negotiation was before the bankruptcy -- maybe to head it off in the first place.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in Detroit.

(END VIDEOTAPE)

MATHISEN: So, how safe is your pension?

Karen Friedman is the executive vice president and policy director at the Pension RightsCenter.

Ms. Friedman, welcome. Good to have you with us.


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On a scale of 1 to 10, how safe are America`s pensions and are municipal pensions anymore dangerous or less safe than corporate pensions?

KAREN FRIEDMAN, PENSION RIGHTS CENTER POLICY DIRECTOR: Well, I`dsay it depends. It`s hard to give a scale. There are definitely some issues.

Let me start by saying, we think it`s absolutely outrageous, that Detroit filed forbankruptcy in order to get rid of their pension obligations. That is a broken promise to workersand retirees.

Having said that, if you`re in a company pension, it`s a little different than a government

pension. If you`re in a company pension and let`s say your company goes bankrupt. Yourpension would be backed by a federal insurance program called the Pension Benefit GuarantyCorporation.

In most situations, especially for retirees, your benefits will be insured and you don`t have toworry too much.

You`re in a state pension -- let me say, there are a few myths around state plans. Moststate plans are well-funded. I just want to say that.

There are a few bad apples. Most of those bad apples are because state legislators made adecision not to adequately fund those plans.

Also, most state laws and municipal laws prohibit pensions from being cut. So, from thatperspective, people have less worry. But because of Detroit, there are some -- you know,dangerous things going on.

GHARIB: Karen, let`s get back to Detroit because I was very struck by that lastgentleman in the package who was saying that, you know, America`s all about good faith, that`sjust the American way.

Is that going to play out in this fight in Detroit to get pension money? How do you thinkit`s going to work out in the end?


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GHARIB: A troubling and still developing story at a Six Flags amusement park inArlington, Texas. An investigation has been launched over the death of a woman who fell froma 14-story roller coaster on Friday.

Jackie DeAngelis has our story.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Fourteen stories high, with the drop of more than 79 degrees, the Texas giant is a main attractionat Six Flags Arlington Park. But Friday evening, a tragic accident left a woman dead after shefell from the ride.

Accidents like this raise many concerns over safety at theme parks, but the InternationalAssociation of Amusement Parks and Attractions says the likelihood of being seriously injuredon a ride is one in 24 million.

BILL AVERY, AVERY SAFETY CONSULTING PRESIDENT: To be seriouslyinjured at a theme park is fairly uncommon based on the raw volume/numbers of people whovisit parks.

DEANGELIS: In the meantime, Six Flags went ahead with a scheduled earnings reportthis morning.

JIM REID-ANDERSON, SIX FLAGS CHAIRMAN & CEO: We join this call todaywith heavy hearts. As you may already have heard, one of our guests died last Friday at an


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accident at our park in Arlington, Texas. And we`ve been here throughout the weekend tosupport our team, as we work through this tragic event.

DEANGELIS: But, now, analysts are looking forward, concerned about the chillingeffect that an accident like this could have on attendance for Six Flags and other theme parkoperators.

JOEL SIMKINS, CREDIT SUISSE ANALYST: We don`t really see much of an impactfrom this going-forward. We think the company is doing a good job addressing the situation.

DEANGELIS: Six Flags says it has not seen a significant impact in attendance over the

weekend from this accident, but warns that sometimes there could be a lag.

UNIDENTIFIED MALE: I think there will be a drop in attendance.

UNIDENTIFIED FEMALE: I hate roller coasters. I don`t let my kids go on them anymore.

UNIDENTIFIED FEMALE: I`m probably going to be more hesitant now to go on aroller coaster.

UNIDENTIFIED MALE: Some people may have a second thought about going to thesefacilities.

SIMKINS: We did adjust our numbers for the third quarter slightly.

We`re expecting roughly 6 percent growth for the quarter in attendance. We think it`s more like5 percent now, that`s cautious, some potential impact and spillover for the next six months.


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DEANGELIS: A Six Flags spokeswoman commented on the accident, saying, "We arecommitted to determining the cause of this tragic accident and will utilize every resourcethroughout this process."

(on camera): The Arlington police have ruled out foul play and criminality. Six Flagswill continue the investigation. Texas is one of the 21 states that has no agency to overseeamusement park accidents. That raises the question of whether more regulation might beimposed on parks and if they`ll have to invest in safety?

SIMKINS: From a media and marketing messaging perspective, they`re going to have tospend some money to remind folks that these rides are safe.

DEANGELIS (voice-over): For NIGHTLY BUSINESS REPORT, I`m JackieDeAngelis.

(END VIDEOTAPE)

MATHISEN: We begin market focus tonight with a late day earnings report.

Netflix (NASDAQ:NFLX) profits beat street estimates, but the company was cautiousabout its next quarter and its forecast for subscriber growth wasn`t as strong as some hadexpected. So, the stock finished the day lower by about 1 percent, to $261.96. And it fell furtherafter hours.

Hasbro (NYSE:HAS) missed earnings expectations. The reason: more boys are playingwith electronics devices and with traditional action figures.

The company also announced an agreement with Disney (NYSE:DIS) to extend itsmerchandising right to Marvel characters. That may have helped lift the stock, which closed upmore than 3 percent to $46.87.


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GHARIB: Shares of Yahoo (NASDAQ:YHOO) fell sharply today, after hedge fundmanager Dan Loeb disclosed plans to sell shares in his company. His firm Third Point will stillown about 20 million shares. Loeb also says he`ll resign from Yahoo`s board of directors.

As for the stock, it finished the day $27.86. That was down more than

4 percent.

GHARIB: And Google (NASDAQ:GOOG) is taking a stake in the Taiwanese microchipmaker that makes the chips used in its Google (NASDAQ:GOOG) Glass device. Google(NASDAQ:GOOG) Glass is a computing device worn on your face with a small screen aboveone eye. The investment send shares up Himax Technology soaring more than 30 percent, to$6.74. Google (NASDAQ:GOOG) closed up 1 1/2 percent, to $910.70.

MATHISEN: And still ahead, a tricky calculation: how much should you withdraw fromyour savings each year in retirement? We`ll put the time honored 4 percent rule to the test as wekick off our week-long series, "How to Not Outlive Your Money."

But, first, let`s look at commodities, treasuries and currencies.

(MUSIC)

MATHISEN: No matter how your investments are doing, the biggest fear for manyfacing or in retirement is the possibility of outliving your savings. To make sure retirees haveenough money, some financial advisers have relied on a rule that say their nest egg should last alifetime as long as they withdraw no more than 4 percent a year. But now, some say the

4 percent rule could put your retirement at risk.

Sharon Epperson has more.

(BEGIN VIDEOTAPE)


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SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

It may seem like a fairly safe bet. Withdraw no more than 4 percent from your retirementsavings each year, and you`ll have enough money to last the rest of your life. Well, not so fast.

RICHARD COPPA, WEALTH HEALTH MANAGING DIRECTOR: You know, Idon`t think the 4 percent rule is as feasible today as it was in the past. The reason for that isbecause the market returns haven`t been as consistent as we`ve seen in the past.

EPPERSON: The 4 percent rule was calculated back in the 1990s, based on a portfolio

with a mix of 60 percent large cap stocks and 40 percent intermediate term government bonds.

But times have changed. With historically low bond yield and a volatile stock market,the 4 percent rule may no longer be as safe.

(on camera): Getting a handle on cash flow and retirement is more important than anyrule financial advisers say. Knowing what you`ll be spending is the best way to determine whatyou`ll need to withdraw.

But financial adviser Doug Lockwood says it is possible for retirees to take out 4 percenta year from savings and have the money last -- as long as the mix of assets is well-diversified.

DOUG LOCKWOOD, HARBOR LIGHTS FINANCIAL GROUP: You have to look atinterest rates and bond rates you can draw upon, but where am I getting my income from myequities, and at that point you have to look at dividend paying stocks to grab that equity yield.

EPPERSON (voice-over): Depending on your age and risk tolerance. A 4 percentwithdrawal rate is a good guideline for gauging whether you`ll have enough money inretirement. But also consider taxes and inflation.


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LOCKWOOD: With inflation and taxes, that investor who wants to draw 4 percent hasto be able to make at least 7 percent on average to be able to net net net, get that 4 percent intheir pocket. Well, that can be challenging at times, I find that a lot of folks are just not investedappropriately to be able to address that type of need.

EPPERSON: Many pre-retirees also simply need to save more, Lockwood says. In theend, how much money you put in may be the biggest factor in determining how much you cantake out.

For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.

(END VIDEOTAPE)

GHARIB: For more on how much to withdraw during retirement, we`re joined by CaryCarbonaro.

CARY CARBONARO, UNITED CAPITAL WEALTH MANAGEMENT: Hi.

GHARIB: She`s financial adviser with United Capital Wealth Management.

Cary, thanks for joining us.

Let me just begin by asking you, where do you stand on this 4 percent rule? Does it stillwork or doesn`t it?

CARBONARO: I believe that the 4 percent rule is a valid point, but there is no one sizefits all when it comes to financial planning. So, for clients, they really need to know moreimportantly, what they save, what they spend, how much they are going to leave to their heirs,when they`re going to retire and what their risk tolerance is, and those are more important thanhow much they`re going to take out of the account.


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MATHISEN: So, if it`s not 4 percent, Cary, it has to be an individual calculation basedon some of the things you just mentioned there -- like how much you saved, how much you`regoing to spend. And I would think, significantly how much money you`re going to have comingin from other sources like pension, Social Security or retirement annuities, right?

CARBONARO: Absolutely, it all factors in. You have all your different buckets ofmoney. You have your taxable money and your nontaxable money. And one of the things youhave to do is obviously take it the most tax efficient way, so you want to take it from yourbuckets that are tax deferred last. And you want to take it from your taxable first.

GHARIB: This is complicated. And, you know, it used to be so easy, when you retired,

you worked, you know, 30, 40 years and you got a pension, and you lived on in the golden years.

CARBONARO: Yes.

GHARIB: Most people are not good at saving and figuring out these buckets. So what isyour advice?

CARBONARO: My advice, I truly believe that everybody needs a financial plan, andthey should at least seek somebody`s guidance who`s going to put them on track. If they areyoung, you know, the sooner they start, the better. If you start in your 30s or 40s, it s a greattime to start, 50s and 60s is OK, as long as you`re willing to work and get the numbers and seewhere they wind up and be realistic with your goals and see where you actually, if you canactually do what you want to do.

Somebody who`s 50 years old and wants to retire at 60, and they have

$500,000 and spend $100,000 a year, it`s not going to happen.

So, you have to make tradeoffs and figure out what is the best way for you to reach yourgoals.


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MATHISEN: I want to come back to something you just touched on, that is, when itcomes time to start withdrawing money from my cluster of savings, which assets do I want totap? First, which ones last?

I think I heard you say, save your tax advantage savings until last (ph). Do I want to sellmy stocks first, my bonds first, what?

CARBONARO: Well, you really want to do it the most tax efficient way.

So, it really depends on your portfolio, where you are in the cycle when you retire, because,really, there`s -- you could have a bunch of games built up in your bonds or your stocks. Buteither way, you want to take it out the most tax efficient way, make sure you have long termcapital gains, make sure you have the lowest amount and do a spread over time with the most tax

advantage way to pull from each account.

GHARIB: All right. And the thing about taking it out in a spread, no lump sumpayments, right?

CARBONARO: No, no. When you take a retirement -- when you retire from yourcompany, you get a rollover, which is going to go directly into your IRA account, which is anontaxable event. Then when you withdraw on it, then you get taxed at 100 percent.

So, you want to withdraw that money company, since it`s 100 percent taxable. However,all your other money is already taxed. So, you only get taxed on the gains.

GHARIB: Lots of great information. Thank you so much, Cary.

CARBONARO: You`re welcome.

GHARIB: Cary Carbonaro, she`s financial adviser with United Capital Private WealthManagement.


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MATHISEN: And if your plan is to work longer to avoid outliving your savings, we`llshow you how to do it on your terms, tomorrow, in the second part of our week-long series. Andfor more into our Web site, NBR.com.

GHARIB: And as long as you`re there, we want to hear from you on which stocks wouldyou like our market monitor guests to discuss this Friday. Go to our Web site, NBR.com, clickon the link, and don`t forget to tell us where you`re from.

And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.

Thanks for joining us.

MATHISEN: And congratulations to Will and Kate.

I`m Tyler Mathisen. Have a great evening, everybody. We`ll see you back heretomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast athttp://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may beposted at a later date. The views of our guests and commentators are their own and do notnecessarily represent the views of Nightly Business Report, or CNBC, Inc. Informationpresented on Nightly Business Report is not and should not be considered as investment advice.(c) 2013 CNBC, Inc.

nightly business report - monday july 22 2013

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