tv Nightly Business Report PBS July 16, 2010 6:00pm-6:30pm PST
>> "you know, we're not perfect. we know that, you know that. and phones aren't perfect either. but we want to make it, make all our users happy." >> susie: a rare mea culpa from apple: c.e.o. steve jobs will give free protective cases to iphone 4 buyers to fix those reception problems. >> tom: apple has sold three million of the new phones in less than a month, we look at the apple fix and the furor. you're watching "nightly business report" for friday, july 16. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening everyone. wall street wrapped up a tumultuous week in the red, with most of the major averages closing the day down over 2.5%. tom, investors sold stocks on worries about the economic recovery, and discouraging quarterly reports and outlooks from general electric, citi and bank of america. >> tom: susie, today's losses erased the week's gains and all
of the dow's 30 stocks were down. the dow fell 261 points, the nasdaq tumbled 70 and the s&p 500 lost 31. big board volume swelled to 1.5 billion shares. nasdaq volume settled well above two billion shares. >> susie: what troubled investors about today's quarterly results were not the top line numbers, that's revenues, not the bottom line earnings. bank of america, citi and g.e. all reported second quarter earnings above analyst estimates, but their revenues were down year over year, a sign of weak business growth. >> susie: jack ablin, chief investment officer at harris private bank says at the end of the day, it all comes down to the economy. >> well, unfortunately everyone is looking at the economy. right now i think profits are taking a secondary role because that's last quarter's news. everyone is looking at what -- how the economy is shaping up and what that
means for spending, and ultimately for profits. >> we'll have more with jack albin a little later in the program. he's our market monitor for tonight. >> tom: apple has sold more than three million iphone 4's in the 22 days since they went on sale. that makes it apple's best selling phone ever. but since day one, the iphone 4 has been plagued by complaints of poor reception. as scott gurvey reports, today came an answer, straight from the top. >> you know, we're not perfect. we know that, you know that. and phones aren't perfect either. but we want to make it, make all our users happy. and if you don't know that about apple, you don't know apple. >> reporter: it was an unprecedented admission in the memory of most apple watchers. c.e.o. steve jobs saying he knows some of the three million buyers of the new apple iphone-4 are not happy. but he also said he thought the complaints of reception problems were overdone, calling it antenna-gate.
jobs said customers who buy the rubber-like bumpers which seem to eliminate the problem can get refunds through the end of september. but apple can't make enough bumpers fast enough so it will also offer buyers a free case. those still not satisfied can get a full refund on their iphone. "consumer reports" helped turn antenna-gate into a full-blown crisis for apple, when it declined to recommend the new phone to its readers. senior editor mike gikas doesn't think today's announced remedies go far enough. >> we have confirmed that whenever, you know, flesh touches the lower left side of the phone, right here, the signal's going to drop significantly and that could mean dropped calls for a lot of users and that... we consider that a flaw. we left it up to apple to address the problem and theirs is a little... i won't say wishy-washy, but it's more of an interim solution than a permanent solution. >> reporter: this is serious business for apple. the iphone contributes about 40% of the company's revenue. more than the ipod music player;
more than the macintosh computer. and in spite of all the publicity, the iphone still trails rim's blackberry in the smart phone category, and phones running google's android operating system are rapidly gaining market share. but tech sector analyst nehal chok-shi says he thinks apple can turn this crisis into a long-term positive. >> there has been a growing perception that apple is arrogant, and the fact that he comes out and says "we're not perfect," admits that they're not perfect, provides a solution, gives us here that "ok, they're not growing evil they still maintain their objectives to make the consumer happy and provide great experiences." >> reporter: apple may shed some light on how much dealing with this crisis will cost next week when it issues its quarterly report. scott gurvey, "nightly business report," new york.
>> susie: here are the stories in tonight's "n.b.r. newswheel": adding to the market's decline, new worries about consumers. the reuters/university of michigan consumer sentiment index fell over 10 points in july to levels not seen since march of last year. meanwhile, consumer prices fell a tenth of a percent last month, but take out food and energy, the core rate was actually up two-tenths of a percent-- double economist expectations. b.p. says it's already paid out just over $200 million to cover economic losses by companies and individuals hurt by the gulf oil spill. and it says "so far, so good" on how that new cap on its busted well is doing. no oil is leaking and the pressure is holding steady. >> tom: still ahead: with deepwater drilling in question, what's the earnings outlook for the energy sector? some answers as we wrap up our guide to earnings season. >> susie: is half a billion dollars enough?
that's the question many are asking today about the fine goldman sachs will pay to settle securities and exchange commission charges it misled investors on subprime mortgage securities. in an interview with washington bureau chief darren gersh, s.e.c. enforcement director robert khuzami defended the penalty. >> many people in the financial markets, like goldman sachs got off easy, that this is a small fine for a company as big at goldman sachs. i wanted to give you a chance to respond. >> there are people who comment it is too high or two little, but it is the largest financial penalty against any institution in the history of the f.c.c. it is a $550 million penalty all together, which even if you're a company with a very large balance sheet or income statement, is a significant sum of money. and, third, the fact of the matter is they made $15 million on this deal
and are paying a $550 million penalty. so market cap increases may come and go, and stock price come and go, but those are the real metrics. >> but this case went to the heart of some of the behavior that people say was responsible for the mortgage meltdown, the way mortgage products were packaged and sold on wall street. the fine amounts to by some measures, 14 days of profit. so is that the right level given how central this was to what went on in the mortgage markets? >> well, the penalty that was assessed here was not a referendum on the entire mortgage crisis. it was a penalty assessed on the basis of a single transaction that goldman sachs engaged in, in which we allege they misrepresented the circumstances to their investor. having said that, we certainly hope that the significant fine and the other aspects to the settlement are recognized by wall street firms and others to make sure that we don't have a repeat of the circumstances that
gave rise to the mortgage crisis. >> reporter: in the settlement, it says that goldman admits a mistake for the goldman marketing materials that did not say that a hedge fund manager had to help select the mortgage and bet against it. and goldman sas they regret that those materials did not contain that disclosure. why was it so important to have them say they made a mistake, but not have them admit that they have a legal liability, or made a legal mistake? >> first of all, all f.c.c. settlements are on a no admit, no deny basis since the early '70s. it is very common visit all federal agencies on the civil side. more importantly, the acknowledgement here underscores the fact that the allegations in our complaint are correct. goldman as agreed to the fact, the fact that the offering materials did not properly disclose the role of the company in selecting the portfolio or the fact that paulson had
a long position. and goldman as submitted to an injunction under securities act 1973, and so in effect they have agreed to the facts and to a fraud charge. that is a complete win in our view. >> reporter: why not have them legally be responsible for that admission? >> they are legally responsible for the case. if what you're asking is why don't we require them to admit in an alocution we do not do it for a whole lot of basis, ease of settlement, collateral consequences. >> reporter: are there other investigations into companies with a similar content. >> we are looking across wall street for firms and other players in the construction product and mortgage-based securities markets. >> reporter: what is the message to those firms and to wall street. >> i think the message is
very clear, that you will pay a heavy price if we find misconduct of this nature in structured products or in the mortgage markets. and it's much better to identify these problems in advance and correct them because there is a significant penalty to be paid. >> reporter: robert khuzami, director of enforcement for the f.c.c., thank you for your time. >> thank you. >> tom: stronger earnings earlier this week gave way to
worries. let's get to it in tonight's "market focus." strong earnings from alcoa and intel this week were offset by lackluster numbers from three others. the dow industrials fell one percent this week thanks to two days of selling, especially today. nasdaq losses were slightly more moderate, off eight-tenths of a percent. the s&p 500 fell 1.2%. the indices are down three out of the past four weeks. bank of america saw profits drop from a year ago as well as worries about a $10 billion impact on future earnings thanks to the new financial reform bill. b. of a.'s investment bank and trading operations weighed on its numbers, and across its businesses, results were less than encouraging according to analysts. however, earnings were able to beat the street. that did not help shareholders. the stock was the leading loser of the dow industrials. the stock is about 15 cents
above its low earlier this month. g.e. also pushed the indices down. while the company turned in its first profit growth in more than two years, sales were less than expected. profits from continuing operations beat the street estimates thanks to its finance unit. more than a third of g.e.'s revenues come from finance, the rest from its industrial operations. it has been repositioning its finance operation and morningstar analyst daniel holland thinks its come a long way back. >> you know, when you look at where g.e. was a years ago, it is kind of night and day where g.e. capital is the black mark on the company from a lot of investor's eyes. if only they could get rid of this thing, then everything would be surprisingly better. now you look and see a pretty decently balanced portfolio with g.e.'s capital up side offsetting a little built of disappointment you might have had i materials.
>> tom: g.e. shares got hit by its weaker than expected revenues. the stock dropping on heavy volume. a dozen dow components will report earnings next week, including these three. i.b.m. is first up on monday. last to come will be mcdonald's and verizon on friday. what sets these apart is that these are among the best performing dow stocks since the sell off began in april. citi is no longer in the dow, but it remains a very heavily traded stock. earnings dropped a chunk from last year but still beat estimates. similar to others, the quarter was marked by weak trading and loan demand. the stock had run up to a two month high earlier this week. today, it dropped 6%. losers outnumbered winners about five to one. one winner was schwab. the leading s&p 500 gainer. shares rallied despite flat earnings, but it is waiving fewer fees. this is a one month high. a quartet of new stocks hit the markets this week. most of them in technology. oxford resource is odd one out.
it's a coal miner. oxford went public wednesday, at $18.50. software firm qlik priced today at $10. reald makes movie theater 3d gear. it rallied from its i.p.o. price today of $16. and smart technologies, it makes interactive whiteboards and started at $17 yesterday. and that's tonight's "market focus." >> susie: get ready for gushing earnings reports from the energy sector. over the next two weeks energy companies will be in the spotlight as they report quarterly results. profits are expected to jump 74%
and revenues up 30%. the sector is the second-best- performing industry group within the s&p 500, just behind basic materials and ahead of technology. as we wrap up our weeklong series looking at sector earnings, i talked with energy analyst brian youngberg at edward jones and asked him if he expects the earnings momentum to continue for the rest of the year. >> i think you'll see earnings up in the third and fourth quarter from a years ago. that will probably be more driven by improved refining margins because oil prices at the end of last year were pretty comparable to where they are today. i don't see a lot of up side in oil prices as we go through the rest of the year. >> susie: brian, when you look within the energy sector, there are stronger and weaker sub groups. big integrated oils, their earnings are expected to be up the 90%, and exploration, up 67%, and
other sectors are also improving, except for the oil drillers, down 30%. is that because of the drilling moratorium in the gulf of mexico or something else going on? >> it really is something else going on. basically the shallow water drilling opportunities have really dried up for a lot of these companies. they're putting a lot of these drilling rigs aside. the ones they have out there operating are really not getting the rates they had been getting a couple of years ago. and on top of that, some of the higher-priced contracts they put in two or three years ago in the deepwater rigs are rolling off. hopefully they pick back up in 2011. >> susie: we're going to get some indication about how those drillers are doing because next week we have earnings from diamond offshore drilling and halliburton. what will they tell us about the outlook for the second half of the year? >> for the oil field service companies like haliburton and schlumberger, the first
quarter is thought to be the bottom, and second quarter should be very good. and the issue, obviously, is the drilling moratorium and how it impacts them. >> susie: we're going to be getting earnings in the very last week of july from exxon-mobil, conoco-phillips and chevron, are they going to meet or beat expectations? >> i think many of these companies will meet or beat expectations. refining margins have continued to improve. a lot of the estimate out there don't really reflect that. the companies have been doing very well on the cost control side. i would not be surprised if many of the integrated energy companies beat expecttations in the next couple of weeks. >> susie: you have given us four stock picks, conoco, halliburton, and oxidental. what do you like about these stocks? >> i think all of them are very cheap. conoco and shell have good growth opportunities. they pay great dividends, yield between 4% and 6%.
halliburton has been beaten up with the gulf of mexico. i think they'll continue to close that gap by schlumberger. and oxidental is the biggest onshore producer of oil in the u.s. very good growth prospects for oxidental, just like all of these companies. >> susie: we have a half minute left. exxon-mobil is not on your list. why is that? >> i think exxon-mobil is a little pricey. they do deserve a premium, but i think it is a little much right now. and on top of that, they don't pay as much of a dividend. it yields about 3%. and the xto position they just closed will not yield much to earnings. >> susie: any disclosures to make about these recommendations. >> i do not own any of these stocks, and edward jones does not do any investment banking with any of them. >> fair enough. brian, thank you so much for coming on the program. have a great weekend. >> thank you, you, too.
>> tom: here's what we're watching for next week: our friday "market monitor" guest is ernie ankrim, senior market advisor at russell investments. apple, goldman sachs and wells fargo report quarterly results. monday, if congress okays it, more than two million americans who've been out of work for a long stretch could soon get their unemployment benefits restored. we talk to one of them about what a new extension would mean. >> susie: federal agents conducted the largest medicare fraud bust ever today with raids in five states. attorney general eric holder says 94 people, including doctors and nurses, were charged with defrauding the federal health care program designed to help the elderly. the suspects were involved in scams totaling more than $280 million. prosecutors say they charged medicare for unnecessary equipment, physical therapy and h.i.v. infusions that patients never received. >> tom: dell may be getting a settlement. the computer maker wants to end a long-term investigation by financial regulators. the s.e.c. is looking into
is a bear on stocks. even though he thinks they're undervalued. he is jack ablin, chief investment officer with harris bank. welcome to "nightly business report." >> thanks, tomment. >> tom: how bearish you are here in the month of july? >> tom, i'm not necessarily betting against the market. what we really believe is a matter of risk management. so roughly a month ago, right at the beginning of june, we decided to really take our risk exposure down by taking stocks and other high volatility assets down and we raised a fair amount of cash in short-term bonds. >> tom: why don't you think the risk in a stock market at this point in time is worth a potential reward in the weeks, months, and quarters to come? >> well, you know, really everything in the market revolves around the economy and economic policies. and given we have this $2 trillion stimulus
package pretty much winding down, the fact remains that the economic uncertainties surrounding continued growth are still out there. and i would have liked to have seen a much stronger patient, if you will, before taking it off life support. >> tom: we are seeing, however, corporate earnings generally look pretty decent. clearly some disappointment hit the tape today as we mentioned earlier in the program. but as you look out to profit strength in the second half of the year, you're still seeing that the stock market is undervalued in your estimation, right? >> that's it. i think the stock market is undervalued, but it is certainly not cheap. and part of the underevaluation equation does rely on analysts estimates for earnings. and those may, in fact, be a little optmistic. given the fact that a forward p.e. looks reasonable by historical standards, but given the fact that analysts are anticipating roughly 30% profit increase over the
next couple of years just seems a little aggressive in my view. >> tom: all right. back in january, you were in the chair with us on january 22nd, and you were putting money to work in these three sectors: the material sector, down almost 6%, and consumer discreshnary stocks, up almost 3.5%, and you also liked technology back in late january, which down 1.3%. do you like these sectors at all anymore? >> we still will the consumer discretionary, but they have gotten pretty expensive. so we're riding the relative momentum on that one. basic materials we did sell in may. and technology we're still a small hold. so we still have a position there. >> tom: some new ideas include gws, and what makes you go overseas in small companies? >> well, you know, it's funny. it seems like dangerous waters, but international
small cap stocks are remarkably cheap. if you consider the s&p 500 is trading price to sales ratio of 1.2 times, international is at 4.2%. i'm not suggesting it will triple, but i think there is room to run. >> todd>> tom: jack, 45 minutes, and i want to get to your multi-nationals, boeing, general electric lec and microsoft and others. why do you like these big mega cap multi-nationals? >> it is mostly high-quality companies that didn't fully participate in the rally of last year. the fact is there will be growth around the world, and these are companies positioned to at least take advantage of that growth. they can move production. they've got costumers all over the place. they can have a lot of flexibility to move around and adjust for changing conditions worldwide. overall, i would say the
multi-nationals, if you're going to play the u.s.-based stocks is the place to be. >> tom: any disclosures for these ideas? >> our clients own all of the ideas, as well as i do. >> tom: our market monitor tonight is jack ablin. i'm susie gharib. we hope to see all of you again next week. "nightly business report" is made possible by: