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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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our guests and commentators are their own and do not necessarily represent
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on Nightly Business Report is not and should not be considered as
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