ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by —
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Shrugging it off. A mixed jobs report and comments from Russia`s president about Syria cause wide swings in the stock market. The question now, is the taper still on for September?
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Why 3 percent matters.
The yield on the 10-year treasury is hovering near that psychological level. But should you care? We`ll explain.
HERERA: And bold predictions. Our market monitor has four stocks he says could gain as much as 20 percent in the next year.
So, grab a pen and paper because NIGHTLY BUSINESS REPORT starts right now.
And good evening, everyone. I`m Sue Herera, in for Tyler Mathisen.
GHARIB: And good evening from me as well. I`m Susie Gharib.
Well, call it a big letdown for investors today. There were discouraging developments on two crucial issues for the market. Syria, where President Obama didn`t get the international support he was looking for, to the jobs report that showed American businesses weren`t hiring much in August.
Both disappointments caused wide swings in stocks, going from triple digit losses on the Dow to closing numbers basically unchanged.
We begin tonight with the Labor Department`s August employment report
— 169,000 jobs were added to the economy last month, but that was fewer than forecast. While the numbers for June and July were revised downward.
The unemployment rate ticked to a notch lower to 7.3 percent, but mostly because so many Americans simply stopped looking for a job.
Hampton Pearson takes a closer look behind the numbers and how they could influence what Fed policy makers do next.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Joe Porter just got hired as a management trainee in the auto service department for one of the largest car dealers in the Washington, D.C. area.
He`s been on the job for just two weeks, and his boss says he`s a natural.
GARY HIGGINS, DARCARS AUTOMOTIVE GROUP: We hire people that have the passion to serve the public, and we want to create a relationship with the customer and that`s how we grow.
PEARSON: Porter says it`s a far cry from his job searches of the last several months coming up empty, and a series of odd jobs that ranged from cleaning swimming pools to repossessing cars.
JOE PORTER, NEW DARCARS EMPLOYEE: It`s awful, you know, trying to support a family and everything else. It`s just — nobody wants to give you a chance, you know? If they do, they don`t want to give you what you need to be able to survive.
PEARSON (on camera): People like Joe Porter getting new jobs because of a rebounding auto industry is one part of the August employment story.
But there is a concern — even though the unemployment rate is now at a nearly five-year low, it`s happening for the wrong reasons.
(voice-over): The labor force participation rate in August was 63.2 percent, the lowest monthly rate since August 1978, 35 years ago. Other signs job growth momentum is slowing, the Labor Department says 74,000 fewer jobs were created in June and July than previously reported.
Some leading economists say it might give the Fed second thoughts about tapering in September.
DIANE SWONK, MESIROW FINANCIAL: Decelerating momentum in the job market and that is an issue and it will muddy the waters regarding the taper.
PEARSON: Economists say weak data increases the chances for Ben Bernanke and his fellow monetary policymakers to delay tapering, but a possible compromise could be to reduce those bond purchases from $85 billion to as little as $10 billion per month.
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson.
HERERA: Well, as Wall Street was busy making heads or tails of that jobs report, comments by Russian President Vladimir Putin that his country would continue to help Syria, even if the U.S. launched a military strike there, sent investors reeling.
Steve Sedgwick has more on the G-20 summit from St. Petersburg, Russia.
STEVE SEDGWICK, N IGHTLY BUSINESS REPORT CORRESPONDENT: Here at the
G-20 leader summit in St. Petersburg, it was the issue of Syria which dominated and the wrangle and dispute between President Putin and his allies on one side, and President Obama and his allies on the other.
Of course, President Obama is looking for some form of limited military strike against the al Assad regime which he accuses of using chemical weapons in a Damascus suburb.
President Putin, for his part, believes that al Assad could not have been responsible for that chemical attack.
Elsewhere, this was supposed to be a conference about jobs, a conference about growth, but there were limited economic gains, including agreement on tax, trade and longer term infrastructure projects.
There was a note (ph) to the emerging markets who are concerned about volatility in their economy because of Fed tapering concerns. Well, there was a statement which actually said that monetary policy should be carefully calibrated and communicated throughout the entire world as well, just indicating that there was concern about that Fed tapering policy.
This is Steve Sedgwick for NIGHTLY BUSINESS REPORT in St, Petersburg.
GHARIB: Back to Wall Street — stocks eventually recovered as investors chose to focus on whether the jobs report meant the Federal Reserve would push back the start of its bond buying program. As a result, the Dow wiped out a nearly 150-point loss. In the end, the Dow lost only
15 points on the day, but finished higher for the week. The NASDAQ rose by a point and the S&P managed to eke out a tiny fractional gain.
The concerns over Syria sent oil soaring more than $2 a barrel, settling at the highest price since May of 2011, $110.53.
And the U.S. bond market rallied with yields on the benchmark 10-year treasury note falling back below 3 percent.
HERERA: And, Susie just mentioned that 10-year yield below 3 percent once again. That has ramifications for a lot of things, but what does it mean for you?
Michelle Caruso-Cabrera explains why 3 percent matters.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: When Wall Street talks about the 10-year yield hitting 3 percent, what that means is the U.S. government has to pay 3 percent to borrow money for 10 years, and that level matters because so many other loans for consumers and businesses are connected to it. Mortgage rates, credit card rates, car loans, business loans, they`re set at an interest rate based on the 10-year yield. So, when it goes up, those rates go up, too.
We`ve already seen it in mortgage rates. Freddie Mac says the average 30-year fixed rate mortgage is now 4.57 percent. A year ago, it was only
3.55 percent. That means if you buy a $200,000 home now, your monthly payment is $94 higher than if you had bought a year ago. The 10-year yield hitting 3 percent, the highest level in two years, also impacts stock portfolios in significant ways, because that higher interest rate provides competition to other kinds of investments that pay dividends or interest.
That`s because despite all the controversy about how much the U.S.
borrows, the U.S. government`s debt is concerned one of the safest in the world. In other words, you`re extremely likely to get paid back, and because the U.S. government is paying a higher, more competitive interest rate, many stocks that pay dividends have fallen or not advanced as much because what they pay isn`t as competitive.
Also, corporate debt that pays a high interest rate, what`s known as high yield or junk bonds, those have fallen in value as well because they`re seen as less competitive.
The good news about the 10-year yield hitting 3 percent is that many believe it is going up because the U.S. economy is getting better.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.
GHARIB: Here to help us put all of today`s news on the economy and the markets into context is Joe Davis. He`s chief economist at Vanguard.
Joe, always nice to have you on the program.
JOE DAVIS, VANGUARD CHIEF ECONOMIST: Likewise. Thank you, Susie.
GHARIB: I`m going to pick up where Michelle just left off. She said that that 3 percent rate is saying that the U.S. economy is doing better.
Is it really?
Looking at today`s jobs numbers, is that reflective of how the economy`s really doing, or are the other numbers that we get like on housing or auto sales that seem to be a lot stronger, how are we doing?
DAVIS: Well, we`re certainly doing better in our just a moment, where the U.S. economy was, say, two years ago. Housing, as you mentioned, Susie, is a clear example, has clearly rebounded. Consumer balance sheets are stronger. Business investment is higher today than it was two years ago.
So, despite the disappointing news today in the jobs report, it wasn`t dismal, and I think the higher interest rates that we`re seeing are reflective of a somewhat firmer economy.
HERERA: But, Joe, do you expect rates to continue to rise? I mean, is 3 percent a cap on the upside? Or are you looking for significantly higher rates down the road?
DAVIS: Well, I think if we`re bold enough to look out for at least a year, I think it`s tough to envision the 10-year treasury which was mentioned in your report, markedly above 3 percent and why that is, I think if you start to talk about higher interest rate levels, you are in a world where the Fed is raising short term interest rates. And I think it`s very likely that they`re on hold at least through the middle of 2015.
GHARIB: The other issue that everybody has been talking about, as you know, is about Syria and a lot of concerns that one way or another, we`re going to get involved as a country over there in Syria.
Can the U.S. economy handle it — I mean, at this fragile state that we`re in right now?
DAVIS: Well, I think we can handle it just in terms of what is believed to occur. I think, though, however, it will only be able to withstand the impact based upon if it`s a limited armed conflict. In other words, the damage to the financial markets and to investment confidence will be commensurate with how spread any sort of scenario would unfold in the Middle East.
So I think at present, the level of oil prices, we`re OK, but if we would start to see oil prices as just an example, $120 a barrel or higher, then I think we would start to see estimates for economic growth for later this year really come down.
HERERA: So how do you invest against that kind of backdrop that you just set up for us so nicely, Joe? Do you still continue to put money in fixed income investments? And if so, of what duration? Or do you favor stocks?
DAVIS: Well, I think again, you have to first, the key area is around balance and focusing on what the investor or what the viewer may be trying to achieve. I mean, we`ve — this has been a long tested just message from Vanguard of have equities generally speaking in your portfolio for long term growth potential, and you have fixed income to moderate equity volatility, which we had during the day today as well as to potentially devise some income stream.
But, you know, as the previous report mentioned, I think the near term focus on just yield in a rising rate environment like we saw the past several months will underscore that switching from say dividend paying stocks to fixed income. These are inherently different investments.
So, investors need to keep that in mind if they`re going to make or contemplating large changes to their portfolio.
GHARIB: So, we can`t put you on the spot here. Vanguard has fixed income funds and it has stock equity funds. Which way should an investor go? Go — which fund in Vanguard?
DAVIS: Well, I mean, that is very difficult to tell. The reason is it depends upon your risk tolerance and what we`re trying to achieve. I think for conservative investors, fixed income abroad, portfolio, fixed income investments, whether taxable or municipal, is a fantastic opportunity for long term investors and for those that have a more aggressive or moderate objective, then equities will remain the place to be.
Again, regardless of the investor`s profile, they have to look through the volatility which we saw even today to ultimately achieve the objectives in their portfolio.
GHARIB: OK. I know it`s unfair to ask an economist those kind of questions but thanks —
GHARIB: Thanks a lot, Joe. Have a great weekend. Joe Davis, chief economist at Vanguard.
HERERA: To corporate news now. Verizon (NYSE:VZ) Communications is facing a lawsuit from one of its own shareholders. That suit, which is seeking class action status, claims that Verizon (NYSE:VZ) is paying way too much to buy out Vodaphone`s 45 percent stake in their joint venture, Verizon (NYSE:VZ) Wireless.
The suit over the $130 billion deal names the company`s chief executive, Lowell McAdam, and all 12 board members as defendants, accusing them of breaching their fiduciary duties. Verizon (NYSE:VZ) says the lawsuit is without merit.
In a related note to that buyout deal, Verizon (NYSE:VZ) is expected to issue up to $30 billion worth of debtor bonds as early as next week, the biggest corporate bond deal ever.
GHARIB: Apple (NASDAQ:AAPL) also dealing with some legal headaches today. Two months after a judge ruled that Apple (NASDAQ:AAPL) colluded with five publishers to fix prices on e-books, a tough injunction was issued today aimed at keeping those prices down. Now, a U.S. district judge has ordered Apple (NASDAQ:AAPL) to modify the contracts it has with those publishers, in effect limiting its ability to set industry-wide e- book prices for the next two years.
HERERA: The chief executive of Ford Motors is going nowhere. But that`s a good thing.
Alan Mulally says that he has no plans to leave the automaker before his contract expires at the end of 2014. That follows reports that he might be asked to take over the top job at Microsoft (NASDAQ:MSFT). Last month, you might recall, Microsoft`s CEO Steve Ballmer announced that he would retire next year.
But today, Mulally says he has no changes planned going forward.
GHARIB: And coming up, get out your notebooks because this week`s market monitor says he has a handful of stocks that could see 20 percent gains over the next year.
But, first, here`s a look at how the international markets finished today.
GHARIB: A $3 billion deal tops tonight`s “Market Focus”. Looking to capitalize on the telecom boom, American Towers says it will buy MIP Tower Holdings for $3.3 billion. Now, MIP is the parent company of American Towers` rival, Global Tower Partners, which is the largest privately held operator of cell towers in the U.S.
Shares of American Tower (NYSE:AMT) added at 4.5 percent to $71.91.
Smithfield Foods (NYSE:SFD) sold a lot of packaged pork last quarter but profits unexpectedly fell on weak exports, especially to key markets like Japan, China and Russia. Revenue rose 10 percent but profits plunged by more than a third. Shares were flat today to close at $33.92.
HERERA: Dow component Johnson & Johnson (NYSE:JNJ) is in talks with private equity firms and rival health care companies to sell off its clinical diagnostics business which could net the firm an estimated $5 billion. JPMorgan (NYSE:JPM) Chase has been asked to run the sale of the unit which could take up to two years to sell. Sales of J&J gained a fraction to $87.16.
And shares of online review company Yelp touched a new high today after Deutsche Bank started coverage with a buy rating and $81 a share price target. Shares closed up nearly 6 percent to finish at $62.40.
GHARIB: Our market monitor guest is still upbeat on stocks and that despite all the hand wringing about Syria, jobs and the Fed. He`s Chuck Carlson, CEO at Horizon Investment Services.
CHUCK CARLSON, HORIZON INVESTMENT SERVICES: Hi, Susie.
GHARIB: Well, nice to know that somebody is really bullish and upbeat. Tell us why.
CARLSON: Well, one of the tools that we use to discern the market`s primary trend, that`s a trend that typically lasts six months or longer, is the Dow theory and the Dow theory`s last major signal was a bull market and when you had both the industrials and transports move to all time highs in very early August. We regard the pull-back that we`ve seen in August and early September as merely a correction within a bull market, we think that at some point here, it will run its course and it may be pretty close actually to running its course. We would expect stocks and major averages to start to trend higher through the remainder of the year.
GHARIB: All right. Let`s run through some of your picks and once again, you`re expecting some pretty significant percentage gains out of these stocks.
First on the list is Cisco (NASDAQ:CSCO). Why?
CARLSON: Well, I know it`s somewhat of a controversial stock based on their last quarterly earnings announcement. But the fact of the matter is:
(a), I think the drop in the price is giving investors an opportunity; (b), I didn`t think it was that bad of a quarter and I think there were some reasons why the company`s projections might have been a little dour because I don`t think they really wanted to be ebullient in the face of the fact they were laying off some workers in areas that weren`t generating much in profit.
So, I like the yield, almost 3 percent. I like the dividend growth.
They raised their dividend more than 20 percent this year.
All in all, I think it`s a good value right now and one that I think with the dividend yield and appreciation can be 15 percent to 20 percent gainer over the next 12 months.
GHARIB: The other stock you told us could gain by 15 percent to 20 percent over the next year or so is Dover (NYSE:DOV), ticker symbol DOV.
Tell us the story there.
CARLSON: Sure. Dover (NYSE:DOV) is kind of a multi-industrial mini- conglomerate. They have businesses across industrial, electronics, technology, et cetera. I normally don`t like companies like that, but Dover (NYSE:DOV) does a very good job of managing those businesses. They prune when they have to prune. They buy when there are good acquisitions available.
The company`s earnings are going to grow at double digit rates. They just increased their dividend 7 percent. It was the 58th consecutive year of dividend increases for the company, and you can still buy that growth at what we feel are reasonable prices.
HERERA: Next on the list is Qualcomm (NASDAQ:QCOM), the chip maker.
You not only see a percentage gain in the stock price but also the dividend.
CARLSON: Right. Qualcomm (NASDAQ:QCOM) raised its dividend 40 percent earlier this year. The stock yields 2.1 percent.
You know, we like dividend growers right now. If you`re going to play the dividend game, don`t play yield as much as growth, and try to get that
2 percent yield. Qualcomm (NASDAQ:QCOM) fits that to a T. It`s a company involved in the chip business. They have a nice annuity business because of the licensing of chip technology.
The other thing I do like about Qualcomm (NASDAQ:QCOM), the stock`s trading around $68 and it has barely buckled during the last five weeks during this rocky market period. So, I really like that resiliency and think the stock could do quite well as the markets resume their upward march.
GHARIB: Chuck, we just have a few seconds left. Tell us about your next one, Express (NYSE:EXPR) Scripts, which has no dividend, doesn`t fit into the formula which you have been talking about. Why do you like this one? It`s ticker is ESRX.
CARLSON: Right. Express (NYSE:EXPR) Scripts is a pharmacy benefits manager. It is kind of a different kind of play than the other three stocks, but I like it as a play on Affordable Health Care Act. You`re going to see more people coming into the system for prescription drugs.
That in turn is going to drive demand for Express (NYSE:EXPR) Script services.
You can buy that stock at about 14 times next year`s earnings and they`re going to grow at double digit rates this year and next.
CARLSON: Again, it`s that growth at a reasonable price story.
GHARIB: Any disclosures to make, Chuck?
CARLSON: Yes. Our firm as well as our clients own all four of those stocks.
GHARIB: All right. Thank you so much. Chuck Carlson, CEO at Horizon Investment Services.
HERERA: As many as five million Americans have Alzheimer`s disease and with an aging U.S. population, that number is expected to increase significantly. Many people are unprepared to deal with the financial consequences of such a serious illness, which slowly destroys one`s memory.
Sharon Epperson takes a look at the financial planning that is needed to support people living with Alzheimer`s.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Eighty-nine-year-old Landina Di Carlo (ph), a window for 20 years, was financially independent for decades. Today, she is living with Alzheimer`s disease in an assisted living center.
RITA JONES, DAUGHTER OF ALZHEIMER`S PATIENT: I get very emotional about this. I didn`t want to go away. It was hard. But the decision had to be done because it was getting too hard to take care of her at home.
EPPERSON: Di Carlo`s daughter Lita started handling her mother`s day- to-day finances a few years ago as the disease impaired her memory. Then, Rita met with her siblings to determine who would make other financial and health care choices for her mother, who was unable to make those decisions on her own.
JONES: My one brother has power of attorney. I have — I take care of her checking account.
EPPERSON (on camera): Caring for a loved one who has Alzheimer`s can be overwhelming emotionally and financially. In addition to doing research on your own, you can consult with an elder lawyer and a financial advisor.
CHARLES MASSIMO, CJM WEALTH MANAGEMENT: It`s really important for you to have a handle on how much it`s really going to cost you monthly, because eventually depending on how long that person`s living, all the assets you have are going to dwindle down.
EPPERSON (voice-over): Basic services at an assisted living center can cost $3,500 a month on average, according to MetLife (NYSE:MET). But costs can escalate quickly as the level of care increases. The average cost for a private room in a nursing home is about $7,200 a month.
Paying for care can be a big concern. Financial advisor Charles Massimo says taking inventory of existing assets is the first step. Then, look for other resources.
MASSIMO: Do you have a life insurance policy that has cash value in the policy. Do you want to look into doing the reverse mortgage on your home? Again, you want to take an inventory of all the resources you have available to you.
EPPERSON: Also, do some estate planning while the person with Alzheimer`s can still make decisions. Update the will. Assign durable powers of attorney for finances and health care so that someone else can make financial and health care decisions when the Alzheimer`s patient no longer can. And make sure a living will is in place to direct the patient`s health care wishes.
After consulting with a few lawyers, Rita says she is confident Di Carlo will be able to continue to afford living here, a comfort to both mother and daughter.
For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.
HERERA: Coming up, how a team turned the love of a certain kind of art into a million dollar business. It`s a great story.
But first, a look at how commodities, treasuries and currencies fared.
HERERA: Finally tonight, it`s never too soon to start, especially when it comes to starting your own business. You`re about to meet a young lady who, as Tyler Mathisen explains, came up with an idea that`s producing some pretty big money when she was just 8 years old.
MADISON ROBINSON, FISH FLOPS CREATOR: So like this one, we made a wedge.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT (voice-over): Madison Robinson`s braces belie her wisdom.
M. ROBINSON: Always have a positive mind and be open to what other people have to say about your product.
MATHISEN: Her product, Fish Flops. According to her father, Dan, the brand sold more than $1 million worth of retail merchandise in 2012.
DAN ROBINSON, FISH FLOPS PRESIDENT: Those numbers are accurate. But now, we`ve exceeded those numbers.
MATHISEN: This year, sales grew 25 percent. Now, 50 new designs due out next year.
M. ROBINSON: When you walk, they light up.
MATHISEN: They were unveiled a few weeks ago at a Las Vegas trade show.
What`s a nice girl like this doing in Las Vegas? Missing high school dance team practice for a day to compete with 1,600 footwear labels looking for buyers.
M. ROBINSON: It`s work but doesn`t feel like work. It just feels like it`s what I like to do.
MATHISEN: When she was just 8, inspired by her surroundings at home in Galveston Island in Texas, Madison combined her original fish art into a flip-flop. Yeah, the flip-flop, that staple of summer. I gave it to my dad, I was like look, fish flops. Yes, the flip flop, the bastion of beach wear, that staple of summer.
M. ROBINSON: I just gave to my dad and I was like, look, fish bowl.
D. ROBINSON: I know it was something special.
MATHISEN: Dan Robinson bought a domain name that same day.
Fishflops.com for all of $10. But nothing happened for four years. He was busy selling tee-shirts up and down the Texas Gulf Coast, a hobby that turned full-time in 2003, when he left the job at a regional bank.
D. ROBINSON: I probably sold 85,000.
MATHISEN: In 2010, he decided to cast a line in a new direction.
D. ROBINSON: I kind of came to the realization that she`s only going to be a kid for so long. Her designs were creative while she was a kid.
So, they needed to be launched while she was a kid.
MATHISEN: With $1,000 he had nine samples made, took them to a trade show in Florida. He wrote 47 orders ranging in size from 24 pairs to 72 pairs.
D. ROBINSON: So after that show, I had to make the decision, I`m going to be in business or I`m not, because to go into production in a factory, you have to obviously make more than 1,500 pair.
MATHISEN: They ordered 36,000 pairs, selling about a third of them in 2011. 2012 was better.
But Madison wanted more, hoping to make a bigger splash, Dan helped her find the name of a buyer at Nordstrom (NYSE:JWN) and she wrote an old school snail mail letter. What came back was almost too good to be true.
M. ROBINSON: I read it and my dad read it to me and I got really excited.
D. ROBINSON: The reaction from the buyer was this is very cute, cute product, cute concept, great name, nice young girl. You know, let me see what we can do with this.
MATHISEN: They did plenty. Madison worked with Nordstrom (NYSE:JWN) to create three unique designs for 64 stores this year — a bit of a step up from dad`s t-shirt business.
M. ROBINSON: I beat him. So that`s good.
MATHISEN: No wonder this teen thinks big.
M. ROBINSON: I think it can become like a lifestyle brand, pretty much.
D. ROBINSON: On the weekends when you want to kick back and relax, make you feel like you`re at the beach, put on some fish-flops.
M. ROBINSON: You can make clothes out of the characters. You can make school supplies, lunch boxes, bathing suits to your choice. I think you can pretty much do anything you can possibly like imagine.
GHARIB: And they`re making some good money. I`m sure you`re wondering about that. Madison isn`t using it at least yet. Her father says it`s safe to say that he`s been able to sock away enough of the profit to pay for his daughter`s college education.
And, Sue, he says that they`re going to be throwing the rest of the money into the business. They`re expanding into seven countries. Get this
— they`re going to make these kind of fish-flops for our age group and also for tweens and teens next year.
HERERA: Well, you can have the one with the flowers. I`ll take the one with the sea horse. My little girls will be all over that. That`s a fantastic story.
All right. That does it for us on NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us.
GHARIB: And I`m Susie Gharib. For more on all the stories we covered, go to us online, NBR.com. Have a great weekend, everyone. We`ll see you Monday.
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