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Brennan, Steve Liesman, Michelle Caruso-Cabrera, Josh Lipton, Sharon
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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wild West. Home sales were strong in just one part of the country. And some don`t like what that may signal.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tossed and discarded. Why commodity downturns are taking a toll on an unlikely industry.
HERERA: Mini revolt? Top ranking Fed officials appear to disagree with the guidance given by the chair just one week ago and they`re making their opinions heard.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, March 23rd.
MATHISEN: Good evening, everyone, welcome.
And don`t let the quiet day in the market fool you not for one second. New light was shed today on three key pillars of the economy -- housing, autos and energy.
The housing and automotive sectors have been red hot with home prices rising and auto sales near record levels but now there are new concerns about how long it may all last. And today worries about a global supply glut of oil crept back into the energy market sending domestic crude tumbling.
HERERA: First, housing. The good news, well, new home sales rebounded in February. The Commerce Department reported a 2 percent rise last month and January`s sales face was revised higher.
But now for the bad. Most of that gain was concentrated in just one region. Sales in the West surged more than 38 percent but plunged 24 percent in the Northeast, nearly 18 percent in the Midwest, and 4 percent in the South. And this skewed data may signal an unevenness in the real estate market heading into the key spring selling season.
Diana Olick joins us with more on that.
So, Diana, this is a big month for home sales. What does the data say about the state of the housing market?
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it says it`s coming back very slowly, Sue, but in fits and starts as you said. Now, you point to the West. We have to remember this is February, so there are going to be weather impacts, of course. These are signed contracts that the Commerce Department is reporting, not closing.
So, folks who are actually out shopping in February, but remember, the vast majority of new homes are built in the West and in the South. So, the data in the Northeast and the Midwest is going to be very volatile, especially this time of year.
One thing we have to remember is that as we come up very slowly in the newly built home market, we are still 27 percent lower in sales than the 30-year average, and that doesn`t even account for population growth, Sue.
MATHISEN: What is locking down people from moving up or trading up?
OLICK: Prices. I mean, people are just very worried about can they sell at enough to get to that net move-up home? In fact, a lot of real estate agents are saying, well, we need more homes on the market, inventory is very, very tight. That`s pushing prices up higher.
And so, you`d say, well why aren`t people selling their homes if they can get such a great price? Well, what if they can`t afford the next move-up house? What if mortgage rates start to rise and they lose that, you know, 3 percent or 3.5 percent mortgage that they have right now?
There are a lot of concerns for sellers out there that the market is becoming overheated.
HERERA: What -- quickly, Diana, what about the availability of credit? It was tight then it loosened up a little bit. Where do we stand right now?
OLICK: Well, I`d say it loosened up a little bit but really not a lot. We`re still hearing complaints from real estate agents and home buyers and sellers that mortgage credit is still pretty tight.
You have to be fully documented. You have to have some skin in the game. But, you know, if you can qualify, there are great loans out there. It`s just it`s certainly not like what was back in 2006 and it`s even tighter than it`s been historically.
HERERA: All right, Diana. Thank you so much. Diana Olick in Washington.
MATHISEN: How about that pretty cherry tree right behind her there?
HERERA: I know.
MATHISEN: My hometown.
The CEO of home builder KB Home (NYSE:KBH) said late today that business got off to a strong start this year. The company reported first-quarter profit that topped expectations. Says it has a positive outlook for the full year. Shares of KB up sharply, initial after-hours trading following those results.
HERERA: A different story, though, in commercial real estate. Sales of office buildings, stores and other similar properties dropped in February, totaling $25 billion. According to a new report, that compares to $47 billion a year earlier. And it shows the commercial property values are starting to level off after climbing steadily since 2009.
MATHISEN: Now to one of those other economic pillars, autos. That sector of the economy has been on a tear as we`ve reported. Sales near record levels in the U.S. and most executives in the industry are optimistic that business is going to remain strong but there are a few warning signs that the push to sell new models may be overheating.
And according to Phil LeBeau, that was one of the big topics of discussion today at the New York International Auto Show.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Luxury, efficiency, and star power.
UNIDENTIFIED MALE: I`m excited to see this new concept.
LEBEAU: The New York Auto Show takes center stage with the industry looking like a hit show on Broadway. Sales have grown for six straight years, thanks in part to a slew of new models, but the increasing popularity of leasing, driven by cheap financing and low monthly payments worry some executives.
KLAUS ZELLMER, PORSCHE NORTH AMERICA CEO: I think it`s a discipline, it`s the market that rules demand and supply, and we just have to be very careful we`re not oversupplying our architect market at the moment.
LEBEAU: Assembly lines are running at record levels. But industry leaders know they`ll eventually face slower sales.
For now, few see it coming due to relatively healthy happy consumer confidence and low unemployment.
CARLOS GHOSN, NISSAN CEO: The U.S. market is in good shape. Frankly, we were forecasting for 2016 percent a 2 percent increase of the U.S. market. We`re on a trend of 3.5 percent, which is higher than we thought.
LEBEAU: With gas under $2 a gallon for much of the country, trucks and crossovers remain red hot.
That love of bigger vehicles won`t change any time soon. Still, Toyota (NYSE:TM) thinks a new plug-in version of its popular Prius will do well when it goes on sale later this year.
JIM LENTZ, TOYOTA NORTH AMERICA CEO: We got 13 hybrids in the marketplace, hybrid owners are very loyal to hybrids so a vehicle like this is really going to appeal to the 2 million existing Prius drivers today.
LEBEAU: New cars, but the same problem automakers have struggled with for years. Making sure they`re ready when sales slow down.
Phil LeBeau, NIGHTLY BUSINESS REPORT, New York.
(END VIDEOTAPE)
HERERA: Those low gas prices that Phil just mentioned are due to historically low oil prices. Today, the price of crude settled back below $40 a barrel down 4 percent, as stockpiles soared to record highs for a sixth straight week. That rekindling concerns of global supply glut. And it`s not just the energy industry that`s feeling the impact of low commodity prices.
As Morgan Brennan explains, one business in particular is feeling a bit down in the dumps.
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MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The commodity downturn is taking a toll on an unlikely industry, recycling.
UNIDENTIFIED FEMALE: Here you have aluminum cans you can see all digit varieties and this sells for $1,100 down a ton, down at the peak we were selling this over $2,000 a ton. You can see pretty significant decline in commodity prices in all of these grades.
BRENNAN: At a storage facility in Newark, New Jersey, race management`s Tara Hammer says whether it`s aluminum destined to become beer cans, cardboard paper to be reused in packaging or plastic finding another life in Astroturf, the market for recyclables has cratered. The latest pressure point, key depressed energy prices.
MICHAEL TAYLOR, SPI: THE PLASTICS INDUSTRY VICE PRESIDENT: It is a bit of a tough time I think for a lot of our recyclers because virgin material, the combination of natural gas being low, and crude oil being low means the material is much less expensive than it has been historically.
BRENNAN: That`s particularly true for plastics. Oil and nat gas are used to make plastic. As though costs have fallen, it`s become cheaper to make more plastic than buy repurposed items like water bottles. Overall, recycling rates are down across the board, tumbling 20 percent over the past year alone.
TARA HEMMER, WASTE MANAGEMENT AREA VICE PRESIDENT: We`re approaching a scenario where our commodity prices right now in the outbound don`t really cover our processing costs.
BRENNAN: Waste Management (NYSE:WM), the top recycler in the U.S., has shuttered a fifth of its recycling facilities over the past two years, with no plans to invest in new ones.
JAMES FISH, WASTE MANAGEMENT CFO & EVP: Commodity prices for recycling have been down four years running now and 23 percent last year, another 8 percent this year. So, at least as we look at it on the recycling side, we`re having to address it on the cost side of the business.
BRENNAN: And since the U.S. exports waste paper and scrap metal to China, that country`s economic slowdown has also crimped demand.
Yet, Americans are recycling more than ever and it needs to go somewhere.
This is the final leg of the sorting process where workers sift through materials and separate commodities like paper and plastic.
Separating all that trash is a costly process. Yet companies like waste management continue to do it unless the loss becomes too great. It`s affecting municipal coffers as well, once reimbursed for residents` recyclables, many local governments must now pay for them to be carted away.
Still, environmental advantages, state laws and sustainability pledges by companies like Pepsi and Procter & Gamble (NYSE:PG) means recycling isn`t going away any time soon.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Newark, New Jersey.
(END VIDEOTAPE)
MATHISEN: Oil, autos and housing are all things central bank policymakers take into account when they determine what to do about interest rates.
Just one week ago, Federal Reserve Chair Janet Yellen suggested that fewer interest rate hikes will happen this year, but as Steve Liesman reports, in the days since, a lot has changed -- even inside the Fed.
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STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A week after fed chair Janet Yellen convinced markets that the Fed wouldn`t be hiking rates any time soon, Yellen appears to have a mini revolt on her hands. Five Fed presidents have publicly come forward to suggest a preference for raising rates as soon as April if the economic data remains strong.
Today, it was St. Louis Fed President Jim Bullard who told Bloomberg if the jobs data is strong, quote, "You could probably make a case for moving in April," end quote.
Earlier this week, two other centrist Fed Presidents John Williams of San Francisco and Dennis Lockhart of Atlanta mentioned April as a possible month for a hike.
To be sure, Yellen herself didn`t rule out a hike next month at a press conference last week.
JANET YELLEN, FEDERAL RESERVE CHAIR: Every meeting is a live meeting. April remains a live meeting. And we will be tracking incoming data it. It`s a slightly shorter period.
We have six weeks, but there will be additional data on the labor market and on various factors that pertain to inflation, so that`s, you know, that is certainly a live possibility.
LIESMAN: But during much of the rest of the press conferences, she rang a more dovish tone. The Fed`s policy statement did as well, raising the level of concern over global economic weakness and declining to say whether the risks were balanced for stronger or weaker economic growth.
The market which had been pricing at a June rate hike decided the next hike was most likely in December.
Staying the Fed`s hand in April are the very easy policies of the European Central Bank. Another Fed rate hike could renew strength in the dollar which could hurt U.S. exporters. And the Fed might be more comfortable hiking in June which is the next month with a press conference.
Among the five Fed bank presidents pushing for April, only two, Bullard and Kansas City Fed President Ester George are voters. So, Yellen would probably still have the votes to keep rates unchanged in April. The question is whether what`s being said publicly by some Fed presidents is being thought quietly by others.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
(END VIDEOTAPE)
HERERA: On Wall Street, stocks drifted to the downside. The energy sector led the declines on that drop in oil prices we just told you about.
By the close, the Dow Jones industrial average fell nearly 80 points to 17,502. The NASDAQ off more than 1 percent, good for 52 points. And the S&P 500 lost 13 and now hovers about where it ended last year.
MATHISEN: And still ahead, Google (NASDAQ:GOOG) may dominate search but there`s one area where it is playing catch-up to its rivals.
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HERERA: As of this evens the manhunt for one of the terrorists in yesterday`s bombings in Brussels is still under way. Belgium, along with countries across Europe, remain on high alert.
Michelle Caruso-Cabrera reports tonight from the capital city of Brussels.
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MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: The manhunt still under way for the man identified in the closed-circuit TV video by police as one of the key suspects in the bombing that killed at least 30 people in Brussels yesterday.
At the same time, the airport remains closed at least through Friday for commercial flights even though they have begun to allow cargo flights and also private flights. The metro is closed tonight. We`re told not because of any imminent threat but due to an abundance of caution.
And this evening, thousands are gathering in the center of Brussels, right in front of the stock exchange where there`s a wide open plaza. It`s a traditional gathering place. And you can see there`s a makeshift memorial with cards and flowers and photos and notes -- much akin to what we saw, for example, in Paris after those attacks in November.
And perhaps this headline from the local newspaper says it all, literally translated, it means "hold on", but what it implies is "stay strong". That`s what Brussels is trying to do tonight.
Michelle Caruso-Cabrera for NIGHTLY BUSINESS REPORT in Brussels, Belgium.
(END VIDEOTAPE)
MATHISEN: The debate over encryption has taken on new significance over yesterday`s attacks. Today, the company helping the FBI unlock the iPhone used by one of the San Bernardino terrorists has reportedly been identified. That company is reported to be Celebrite, an Israeli forensic software business, and if it succeeds in decoding that iPhone, the FBI will no longer need Apple`s help. Celebrite officials declined to comment on that report.
HERERA: Major Silicon Valley companies want a big piece of the fast- growing cloud business which is basically a network of servers and Google (NASDAQ:GOOG) finds itself in the unusual position of playing catch-up to rivals Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).
Josh Lipton reports on a major cloud conference tonight from San Francisco.
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JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Google (NASDAQ:GOOG) commands just 4 percent of the cloud services market behind Amazon (NASDAQ:AMZN) web services, Microsoft (NASDAQ:MSFT) Azure and IBM, according to estimates from Synergy Research Group, that`s the business of leasing computing power on servers so that customers don`t have to buy and operate their own data centers.
Google (NASDAQ:GOOG) is hoping its Cloud chief, Diane Greene, can help the company beat the competition.
DIANE GREENE, GOOGLE SENIOR VICE PRESIDENT: We`re seeing a real acceleration in customers choosing us and why are they doing that? Well, I think it could be put into three main reasons. Better value in terms of price and performance, reduced risk, in terms of security, open-source software, and sort of my favorite, the access to the innovation.
LIPTON: To gain market share, Google (NASDAQ:GOOG) is expanding its network of data centers, cutting prices and boosting its sales force. And in a sign of just how serious Google (NASDAQ:GOOG) is about its cloud business, it paid $380 million to acquire Diane Greene`s company when it brought her on board late last year.
And so far, Google`s efforts are showing signs of success. Today, the company announced that Home Depot (NYSE:HD) is now a Cloud customer, following recent reports that Apple (NASDAQ:AAPL) is also now storing data with Google (NASDAQ:GOOG). Other clients include Disney (NYSE:DIS), Best Buy (NYSE:BBY), and Spotify.
In this fight, there is a lot of money on the line. Research firm, Gardner, says this is a $22 billion market. It will grow nearly 40 percent over the next year. Google (NASDAQ:GOOG), with today`s conference, is signaling to investors that the cloud represents a priority for the company, a big business opportunity it intends to win.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
(END VIDEOTAPE)
MATHISEN: General Mills (NYSE:GIS) reports weaker than expected quarterly revenue. That is where we begin tonight`s "Market Focus".
The maker of Cheerios attributed the lagging sales to the selloff of its green giant business and the strong dollar. The company did manage to beat its earnings targets thanks in part to cost-cutting programs. General Mills (NYSE:GIS) reaffirmed its guidance for the year and said its focus is going to be on grows that revenue. Shares up a fraction at $61.01.
A robust holiday shopping season lifted sales and profit at fashion retailer, Francesca`s. The results came in above street expectations. The company also added $100 million to its share buyback program and those shares popped more than 6 percent to $18.44.
Virgin America`s shares soared today after it was reported the airline is exploring a sale. Of what is not exactly clear and Virgin isn`t talking at all. Amid the silence, the Virgin America stock took off up 13 percent to $34.72.
And how about Pinnacle Foods? Well, they fell today after the maker of Duncan Hines products said the CEO is going to leave to become the CEO at coffee maker Keurig Green Mountain. The CEO expected to switch companies by the end of April.
Meantime, Pinnacle has begun looking for a replacement. Give me a call. Just kidding.
Pinnacle fell over 5 percent to 4363.
HERERA: I`m not letting you go.
Credit Suisse will cut an addition 2,000 jobs in an effort to reduce costs as the bank continues to suffer from weak revenues. The CEO said the company will post a first-quarter loss as a result of traders making risky decisions without his knowledge. Shares were down just a tick on the day at $14.72.
AstraZeneca`s blood thinner failed to meet its target in the clinical trial. The pharmaceutical company said the drug which was intended to prevent heart attacks in stroke patients proved to be no more effective than aspirin. Shares of the drug maker fell a fraction to $28.
Yum Brands (NYSE:YUM) is exploring a sale of a portion of its Chinese business. The owner of Pizza Hut is reportedly considering selling up to 20 percent of the operation which could be valued at $10 billion. Shares rose 2 percent to $80.55.
Utility companies Pepco and Exelon (NYSE:EXC) have received approval from Washington, D.C., regulators to merge. The proposed merger was already rejected twice in the past. Pepco`s shares rose nearly 27 percent to $26.93, while Exelon (NYSE:EXC) shares fell almost a percent to $34.72.
MATHISEN: Valeant Pharmaceuticals could be in your retirement portfolio and you might not even know about it.
The Sequoia fund, an option in many 401(k) plans, owned more than 30 percent of Valeant stock last year. It is down about 70 percent. So, how do you protect yourself when one fund has a huge position in one stock?
Christine Benz is director of personal finance at Morningstar (NASDAQ:MORN) and joins us now to discuss.
Christine, always good to see you.
You know, we talk about these individual companies and a lot of people go, well, I don`t need to worry about valiant, I don`t own it or maybe a few years ago it was BlackBerry, I don`t own BlackBerry. But your fund might. How do you find out if your fund has a significant slug of sort of a contaminated stock?
CHRISTINE BENZ, MORNINGSTAR DIR., PERSONAL FINANCE: You can go one by one, Tyler, look in each of your funds portfolios or we have a tool on morningstar.com in our portfolio manager tool called stock intersection and you can see your total weighting in a given company. It may turn out even if you`ve got one fund with a big holding in, say, Valeant, it may not turn out to be a big piece of your total portfolio. So it`s a handy tool.
HERERA: It is and sounds like it. What about protection? How do you put in protection just in case you end up with -- I mean, because no one can see the future. We didn`t, you know, a year ago Valeant seemed fine, now, it`s not obviously. How do you put in protection against portfolio problems like this?
BENZ: My thought is to accompany any sort of, like, stock pickers funds like sequoia which is kind of a concentrated portfolio. It had about 20 percent in Valeant at one point.
If you`re holding a fund like that, be prepared for bouts of volatility. Its performance was really good up until the point when it wasn`t. So, be prepared for volatility but also plan to hold something more diversified alongside of it, to help mitigate those periods of weakness.
So, it may be a total market index tracker that has the added effect of bringing your total portfolio`s costs down, and it will tend to make your performance a little smoother. It will smooth out those stock-specific mishaps when they occur.
MATHISEN: Yes, index funds you generally don`t have to worry about because the relative share of any one stock in an index fund is quite small. I guess if it`s market cap weighted, Apple (NASDAQ:AAPL) would be what in an S&P 500 fund?
BENZ: Just about 2.5 percent today, Tyler. So, not a big piece of the pie. Apple (NASDAQ:AAPL) could encounter a couple of bad years and because a portfolio like that is so diversified, it`s not going to bring down the big ship. So, I think that`s a great strategy.
MATHISEN: Sequoia wasn`t the only fund that had a fairly sizable slug of Valeant, right?
BENZ: No, it wasn`t, but it was by far the most concentrated owner. There were a handful of other funds. A couple from Diamond Hill which is actually a shop that we at Morningstar (NASDAQ:MORN) like quite a lot. They had reasonably sized positions. First Eagle Fund of America, which is a large fund as well also had a meaningful position as did Nicholas Fund. There were a few T. Rowe Price funds that had positions but because they`re so large, Valeant wasn`t a big piece of the overall pie.
MATHISEN: All right, Christine, thanks.
BENZ: Thanks, Tyler.
MATHISEN: Christine Benz at Morningstar (NASDAQ:MORN).
HERERA: And still ahead, planning a trip to Europe? What you should know following yesterday`s terror attacks.
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MATHISEN: The trader allegedly behind the 2010 flash crash may be extradited to the United States to stand trial. The trader seen at court today when a British judge ruled the 36-year-old should be sent to the United States in the interest of justice. The trader is accused of making millions from illegal trading from his parents` house near London`s Heathrow Airport. He faces federal criminal charges for fraud and commodities manipulation.
HERERA: The State Department has issued a travel alert for all of Europe following the terror attacks in Brussels. The announcement is prompting some major airlines and hotels to let travelers change or even cancel reservations but what you can do depends on a couple of factors.
So, joining us now with the details on that is Sharon Epperson.
Good to see you, Sharon.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to see you.
HERERA: All right. If you`re going to go to Europe in the next week or so, obviously, tensions are running very high, can the airlines or have some of the airlines eased those restrictions on whether you can change or cancel and are there penalties?
EPPERSON: They certainly have, and of course, you should definitely check with the specific carrier, but a couple of the major airlines have already put out statements that they are going to allow passengers to change at least one time to change their itinerary and reschedule, maybe even offer refunds. American Airlines is saying they`re allowing folks to reschedule or to change for one time no fee until March 29th. Delta until March 31st. And United until April 12th.
And another thing that they`re doing is they`re looking at some other cities. Some are saying if you have to make changes to Paris or London or Amsterdam, you can do that as well. So, it`s really important to check with the carrier to make sure and they have those policies posted on their website.
MATHISEN: Those were only changes to Brussels that you were talking about?
EPPERSON: Yes. Brussels, those are changes to Brussels, yes.
MATHISEN: You might want to call if you`re going to London or Paris or --
EPPERSON: Exactly.
MATHISEN: -- Amsterdam. You night call separately. What about cruise lines, hotels, what have they done?
EPPERSON: Brussels hotels also making some changes in terms of cancelation. We called Wyndham, we looked at Starwood. Also, we looked at Marriott. Marriott Hotels are saying you`re going to be able to cancel for the immediate future, actually, they`re looking at that.
Starwood is saying until a specific date they`re looking until March 29th arrival, you can make a change or cancelation without any penalty. And then also the cancelation is right now unended for Wyndham Hotels in Brussels.
HERERA: Wow, that may be a statement more about the fact that tensions are going to be high for a while.
EPPERSON: Exactly.
HERERA: A lot of people have been urged when they travel to buy travel insurance. How would it apply in this particular situation or would it apply?
EPPERSON: It would apply if you have a policy that has terrorism as a covered reason for cancelation. And that`s the key thing to look for in a travel insurance policy if you want to know if terror is covered. Many standard policies have that. They also indicate, though, that the attack must have occurred at or near the destination and that can vary in terms of the miles around that destination.
