nightly business report - thursday june 20 2013

7/28/2019 Nightly Business Report - Thursday June 20 2013

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bonds commodities, you name it, fear of the Federal Reserve pulling back on

the bond buying sends investors to the exits.

The Dow suffers its worst day of the year, plunging more than 350 points.

What should you do now?

On the move. Home sales spike to the highest rate in more than 3 1/2

years. But one set of buyers is on the outside looking in.

And face time. It`s good to be the face of a brand, but what happened to

companies if their founders flounder? You may not like the way it looks.

All this and more on NIGHTLY BUSINESS REPORT for Thursday, June 20th, 2013.

Good evening, everyone. Susie Gharib has the night off.

Remember those stock market gains rung up in May, and until yesterday and

today in June -- well, they are all gone now. Victims of a two-day slide

that began yesterday and only got worse today. In fact, today was the

worst day of the year for the Dow and the S&P 500 and saved for a rally on

the dollar, there was basically nowhere for investors to hide, not

equities, not bonds, not commodities.

Now, the main trigger was the decoration for the Fed that it`s ready to


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begin winding down its stimulus program. The losses were compounded

especially in commodities by weak data on Chinese manufacturing.

On Wall Street, roughly 20 stocks declined for every one that advanced on

the New York Stock Exchange. All 10 S&P sectors were down, declining more

than 2 percent each. The two-day drop was the biggest in percentage terms

with the Dow and S&P since 2011 and the Dow is now off 5 percent from its

all-time high set just a month ago.

At the close, the Dow tumbled 353 points, ending well below 15,000. The

NASDAQ lower by 78, the S&P500 down 40.

No matter where your money is, there is almost surely less of it today than

there was yesterday.

(BEGIN VIDEOTAPE)

MATHISEN (voice-over): Virtually no asset, not stocks, not bonds, not

commodities was untouched by today`s massive second-day reaction to

yesterday`s Fed speech. Words that arguably signal good news in the long

run --

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The committee believes the

downsides risk to the outlook for the economy and the labor have diminished

since the fall.


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MATHISEN: Instead, investors pulled the rip cord, as Chairman Bernanke put

firm dates on the long feared tapering of market-boosting bond purchases.

BERNANKE: The committee currently anticipates that it would be appropriate

to moderate the monthly phase of purchases later this year.

MATHISEN: And like Joe Frasier way back in `73, down went stocks, down

went bonds, down went oil and gold, and silver. All 30 Dow stocks lost

value today, so did 96 percent of the S&P 500. Treasuries tanking, yields

on the 10-year note topping 2.4 percent for the first time since August

2011.

Oil down to $95.40 a barrel, lowest in months. Gold off more than 6

percent to its lowest level in almost three years. The drop in silver was

the steepest among the precious metals, down more than 8 percent, also

cheaper than it`s been in almost four years.

And now what? If anything, higher interest rates might be a good sign for

savers, but are your investments at the crossroads? Are the good times of

2013 over? Or is this a chance to take advantage of lower asset prices

just as the economy shifts into a higher gear?

BARBARA REINHARD, CREDIT SUISSE: One point we think a lot of investors are

missing, though, is that the fiscal drag to the economic growth scenario


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for the U.S. next year becomes far more favorable.

(END VIDEOTAPE)

MATHISEN: Well, let`s get some prospective from Phil Orlando, chief equity

strategist at Federated.

Phil, good as always to see you.

Question number one, is this bull market interrupted or bull market fatally

wounded?

PHIL ORLANDO, FEDERATED CHIEF EQUITY STRATEGIST: We`re just interrupted,

Tyler. I mean, there is no question the sell-off was a reaction to the Fed

announcement. But I think the market is missing it.

The Federal Reserve in our view is going to be making a data dependent

decision. For them to be pulling the accommodation, which has been

extraordinarily aggressive now for a number of years, they have to believe

the economy is ready to grow at its own, at or above trend line, 3 percent

or better. And they wouldn`t be pulling the accommodation if they felt the

economy was weak. So that`s a positive, not a negative.

MATHISEN: Basically, it seems to me, Phil, that what Chairman Bernanke

said yesterday was basically what he`s been saying for months. Now, he did


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put some more sharp points on it, but what occurs to me is that the

sentiment in the market has changed. A month ago, when there was bad news,

the market played by it, played past it. Today, when there are signs of

good news in the economy, the market doesn`t take it very well.

Why did sentiment change so abruptly?

ORLANDO: Well, you know, the market since the middle of May, I guess it

was about May 22nd when this news first started to break, the market has

been down about 6 percent over that period of time. So there has been sort

of a shift to negative sentiment and generally around FOMC meetings you do

get this volatility.

In our view, this move today was over sold. That`s not to say we`re

absolutely at the bottom from a technical prospective you could lose

another couple percent but we think this is setting up as much more of a

longer-term buying opportunity than a chance to be running for the hills

here.

MATHISEN: So, if you agree with your point that this is a buying

opportunity, if you think that the economy is actually starting to get into

a higher gear, which is certainly what Chairman Bernanke was suggesting

there, where are the best opportunities to buy right now?

ORLANDO: What you want to be doing is focusing upon what Bernanke said.


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But right now, the market`s concern is we`re looking at an emerging market

hard landing. And while we don`t think that s going to happen, it`s very

difficult to change that sentiment in the face of data points like we saw

this morning.

MATHISEN: Phil Orlando of Federated -- always great to see you.

ORLANDO: Thanks, Tyler.

MATHISEN: You bet.

With everyone focused on today`s sell off, it was easy to overlook some

encouraging economic data. The Philadelphia Feds says manufacturing in the

mid-Atlantic region was currently at a two-year high. The jobless claims

did rise by 18,000 last week, but the moving average is still near multi-

year lows. And a read on leading economic indicators edged higher in May

to its highest level in five years, with figures for April revised upward,

as well.

And there was more good news about housing in May. Existing home sales

shot up more than 4 percent from the prior month despite tight supplies

reaching the highest sales pace in 3 1/2 years. Meantime, prices on those

homes rose 15 percent from a year ago to a median of $208,000. While the

housing market appears to be roaring back, there are still some troubling

signs.


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Diana Olick joins us from Washington with more.

Hi, Diana.

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

Tyler. And as you said, look, home sales are up, but so, too, are prices

and mortgage rates. Cash is now king and, unfortunately, first time home

buyers are paying the price.

(BEGIN VIDEOTAPE)

OLICK (voice-over): Newlyweds John and Aubrie Holman are looking to buy

their first home. They had planned to buy later in the year but rising

mortgage rates have them rushing in now.

AUBRIE HOLMAN, PROSPECTIVE HOME BUYER: Right now, we`re kind of looking at

a mortgage that would be comparable to what we`re spending for our

apartment, but we could see it go up.

OLICK: The average rate on 30-year fixed mortgage has gone up three-

quarters of a percentage point since the beginning of last month, when Wall

Street begun to worry that the Federal Reserve would begin to rollback its

extraordinary monetary measures it had been using to fuel the economy.


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That means if John and Aubrie buy a $400,000 home with 20 percent down,

their monthly payment goes up 9 percent, or $143 a month.

GREG MCBRIDE, BANKRATE FINANCIAL ANALYST: Of course, the bigger concern

for any home buyer is the fact that limited inventories is driving up

prices. And that means not only do you have to take a bigger loan, but

make a bigger downpayment as well.

OLICK: Prices have been rising by double digits annually for the past six

months. Even higher in formerly hard hit markets where investors raked up

thousands of distressed properties.

LAWRENCE YUN, NATL. ASSN. OF REALTORS ECONOMIST: Some of the increases can

be explained by the fact that it`s recovering from over corrective

situation but with people`s income rising at only 1 percent or 2 percent,

prices rising double digits, it cannot continue.

OLICK: Part of what`s boosting prices is the fact that a third of all

buyers are now using all cash, and that`s just investors. Regular buyers

are putting more skin in the game because they are now being forced in

bidding wars for what few homes are for sale.

JOHN HOLMAN, PROSPECTIVE HOME BUYER: It`s the cost of doing business here

in D.C., and being in the situation we were, we wanted to wait and make

sure we were financially secure before we jump into a home.


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billion share buyback plan. But revenues missed expectations. Oracle

(NASDAQ:ORCL) now guiding total growth gains of 3 percent to 6 percent in

the current quarter.

Now, shares had been down more than 2 1/2 percent at the close, and they

dropped further on the sales short fall. Oracle (NASDAQ:ORCL) is up,

though, 7 percent over the past year.

Dow component Caterpillar (NYSE:CAT) reports global sales down 7 percent

over the past three months because of falling demand for mining equipment

and Northern American sales down 16 percent. Cat off more than 4 1/2

percent over the past year and it was down more than 1 percent today in the

soggy market. It closed at $83.20.

Kroger (NYSE:KR) has been on the March this year, up more than 26 percent

and it reported profits today up more than 9 percent on nifty sales growth.

Kroger (NYSE:KR) sees its long-term growth rate between 8 and 11 percent.

But Kroger (NYSE:KR) shares got caught in the market down draft, dropping

more than 6 percent, more than the market did. It closed at $32.98.

One bright spot today: some of the regional bank holding companies -- they

held on to gains despite the sell off. Zions Bank Corporation, Huntington

Bank shares and M&T Bank (NYSE:MTB) among the better performer. Zions led

this group with a gain of almost 2 percent. Huntington and M&T also

positive on the day, and it was a rough day mostly.


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And as expected, Facebook (NASDAQ:FB) introduced video on its Instagram

app. Users are going to be able to record 15-second video clips putting

Facebook (NASDAQ:FB) in direct competition, that is, with Twitters` Vine

app, as more and more people stream video to each other. Facebook

(NASDAQ:FB) had gained ahead of the news and lost ground in the big sell

off, dropping more than 1.5 percent for the day.

Coming up, the co-founder of Twitter tells us how small businesses can get

an edge and yesterday men`s warehouse axed its founder and face of the

franchise for more than 50 years. How have other companies fared when

their creators got canned?

But, first, a look at some of the biggest losers today on Wall Street.

(MUSIC)

MATHISEN: Yesterday, the founder of Men`s Warehouse was fired after 40

years at the retailer, but building a company from the ground up doesn`t

guarantee a founder`s CEO stays in the top spot forever.

Mary Thompson takes a look at the dramatic downfalls and surprising staying

power of some other founder CEOs.

(BEGIN VIDEOTAPE)


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

takes a certain type of person to build a business and sometimes a

different type of person to run it once it`s built.

GEORGE ZIMMER, MEN`S WEARHOUSE FOUNDER: You`re going to like the way you

look, I guarantee it.

THOMPSON: Men`s Wearhouse founder and former chairman George Zimmer did

both.

RICHARD JAFFE, STIFEL NICOLAUS ANALYST: I think the entrepreneur founder

is very much at one with his company.

THOMPSON: The founder, chairman and spokesman for the chain since 1973,

Zimmer ran the company for 20 years before stepping down as CEO in 2011,

fired on Wednesday as executive chairman over an undisclosed dispute,

Zimmer`s departure a surprise for those who study CEOs.

(on camera): They say performance, not personality is usually the reason

for the firing of a founder/CEO, though in the case of Men`s Wearhouse,

analyst Richard Jaffe says performance wasn`t the problem.

JAFFE: Men`s Wearhouse has been at least on the last six quarters on an

accelerating trend of improved performance. So, it`s hard to look at it


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and say, it`s been underperforming. Stock is up 30 percent in the last 12

months. So things aren`t going badly here.

THOMPSON: Things were going badly for online coupon Groupon (NASDAQ:GRPN)

earlier this year, when it fired the CEO/founder Andrew Mason. Mason

noting the reason in a cheeky resignation letter, citing two quarters of

earning misses and a stock price trading at a quarter of its listing price.

Nine years after founding, Apple (NASDAQ:AAPL) disappointing Mac sales took

out Steve Jobs, returning 11 years later. His reappointment as CEO in July

of `97 marking one, if not the greatest, corporate comebacks ever.

Michael Dell`s return to his firm, less successful. Leaving on his own, he

returned and in a fight to control and take the computer maker private.

Others struggle but sour, like Oracle`s Larry Elision. The software`s

company founder still successfully steering the firm he founded in 1977.

And while Martha Stewart is still the top chef in her company`s kitchen,

it`s stark performance has been lukewarm at best.

Builders all, but for CEO founders, if it`s not built to last, they might

be shelved.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.


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(END VIDEOTAPE)

MATHISEN: And from the big companies to the smaller ones, this week is

small business week, so let`s focus on what they are saying about the

economy and challenges they face.

We`re joined by Karen Mills, administrator of the U.S. Small Business

Administration, and Jack Dorsey, Twitter co-founder, and CEO of the

technology firm Square.

Welcome to both of you.

Let me begin, Ms. Mills, with you. What are small businesses telling you

about how they view the economy today?

KAREN MILLS, ADMISTRATOR, U.S. SMALL BUSINESS ADMNISTRATION: Well, thisis

National Small Business Week and we have just finished crossing the

country. We started in Seattle at Microsoft (NASDAQ:MSFT) headquarters

with hundreds of small businesses. We went to Dallas, to St. Louis and we

talked about everything from technology to manufacturing.

And small business is really on a rising trend across the country, partly

because technology is leveling the playing field and we`re finding small

businesses that can compete with large ones and also because there is


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onshoring. Manufacturing is actually coming back to this country and small

businesses in the supply chain are benefitting.

So when we look at the trend today, despite the markets today, the long-

term trends for small businesses are accelerating recovery that has really

been quite promising in the last year.

MATHISEN: We certainly do see some of that onshoring, the return of

manufacturing jobs to the United States, but, Ms. Mills, when I speak to

small business owners they are worried about two areas of uncertainty. One

is taxes and the other is healthcare under the Affordable Care Act.

What do you tell them to expect there? What are you telling them to get

ready for?

MILLS: Well, there is nothing small businesses like better than a tax

credit and that`s one of the reasons why we`ve actually passed 16 --

actually 18 tax credits over the last several years, to make sure they have

more money in their pocket to invest in their businesses. And in the case

of Affordable Care Act, there is actually some very interesting positive

news coming because one of the things small businesses really care about is

access to affordable care, and for small businesses, particularly those

under 50, they are now going to be able to go into marketplaces starting

the first of next year where they`re going to have insurance companies

actually bidding on their business.


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You know, small businesses pay 18 percent more than big companies for the

same healthcare just because they are small. And now with the

marketplaces, they`re going to be able to make apples to apples comparisons

and get a better deal.

MATHISEN: Mr. Dorsey, you started small businesses and some of them have

become big businesses. I was speaking just yesterday with Niall Ferguson

of Harvard and he was decrying how hard he sees it today to start a small

business in America.

Do you see it that way? Is it harder than it used to be? Is it too hard?

JACK DORSEY, TWITTER CO-FOUNDER: I think it s one of the toughest things

ever to get going and to start, but technology is enabling people to start

faster, and to start with less resources. So we see a trend in people

using devices they already know how to use. Their 2-year-olds know how to

use. They can buy, you know, anywhere in America and instantly start

participating on.

So, we love this, especially at Square, where we enabled a bunch of small

businesses not only to accept credit cards with a device they`ve already

have, such as their phone or their iPad. But it also, it accounts for

their entire business. So, it makes accounting easy.


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innovations that have come from companies like Jack`s are really opening up

the playing field for small business.

MATHISEN: Mr. Dorsey, Ms. Mills, thank you vey much for being with us and

congratulations on Small Business Week.

MILLS: Thank you.

DORSEY: Thank you.

MATHISEN: All righty. Coming up, as people keep an eye on the first

strings when it comes to charity, they open their wallet but maybe not as

wide. We`ll explain.

But, first, another look at how commodities, treasuries and currencies

fared today.

(MUSIC)

MATHISEN: A federal appeals court has ruled the trustee for the banks

involving the Madoff case cannot sue those banks to recover some of that

money. There was fears, also, from that story moving to charities despite

the concerns that higher taxes and sluggish economic growth would take a

big bite out of charitable give this year, it turns out American generosity

is growing.


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Robert Frank has more.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Americans dug digger into their pockets for charity last year, despite

looming tax increases and volatile markets. Charitable giving hit an all

time record of $316 billion in 2012, up 3.5 percent from 2011. High

profile billionaires like Warren Buffet and Bill Gates grabbed the biggest

headlines, and Facebook (NASDAQ:FB) founder Mark Zuckerberg joining the big

givers club last year with nearly $500 million in giving.

But philanthropy by the masses helped drive a lot of the 2012 increase.

Gifts from individuals rose 3.9 percent to $228 billion. Giving by

companies rose even stronger, 12 percent.

(on camera): The U.S. is still the most charitable country in the planet,

but not as charitable as we were before the crisis. On an inflation-

adjusted basis, giving in America is down 8 percent compared to the all-

time peak in 2007.

(voice-over): Religion still captures the biggest share of charitable

dollars, about a third with $101 billion. Education ranked second with $41

billion.


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Education was also among the fastest growing sectors but the strongest

growth was in the arts and cultural groups with gifts up 8 percent. That

follows three years of weakness in the art sector.

The environment and animals were also popular causes. Human services and

health organization were less favored and international giving was

basically flat, perhaps due to the lower number of international disasters

in 2012.

We`ll see whether higher tax rates and the possible change in deductions

will reduce America`s giving in 2013.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

MATHISEN: And that`s it for NIGHTLY BUSINESS REPORT tonight. I`m Tyler

Mathisen. Thanks for watching. We`ll see you back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post

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Transcriptions, LLC. Updates may be posted at a later date. The views of


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nightly business report - thursday june 20 2013

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