Transcripts For KQED Nightly Business Report 20160101

The dow transports also had their worst year in the last seven. The nasdaq was the standout. Today the dow lost 178 points to finish the year at 17,425. The nasdaq dropped 58 thanks in part to a 2 drop in apple. Apple turning in its first negative year since, you guessed it, 2008. And the s p 500 dropped 19. For the year the dow fell more than 2 . The big winner, the nasdaq, up better than 5 1 2 . And the benchmark s p was down less than a percent but down nonetheless. Bob pisani looks at what happened. Reporter 2015 was the year almost nothing worked. It started out with a few simple ideas. Oil was weak but it would strengthen in the second half of the year. U. S. Was the best place to invest in stocks in the world. Europe was stuck in slow or no growth. And china was decelerating and also not the place to invest in stocks. Turns out it was all wrong. Oil went to new lows instead of moving up. China was a roller coaster but the shanghai market was one of the best stock markets in the world. It was up 9 . And germany and most of europe was up in the high single digits. And how about the u. S. , supposedly the best place in the world to make money in stocks . It was flat. A laggard. So what happened . The main issue was everyone was completely wrong on oil and it turns out that cheap oil has a bigger impact than stocks on the economy than many thought and in some cases a negative impact. Were any of the consensus plays right . The only big bet that worked was japan. Most traders felt that japans Stimulus Program would benefit the stock market there, and they were right about that. Japan was up over 7 . But you know it was a pretty mediocre year when up 7 was considered some kind of big victory. And the consensus for 2016, the u. S. Economy is still the best place to invest. The fed will be very cautious raising rates aggressively. Chinas growth is still decelerating. And europe is still stuck in slow growth. Wait a minute. Wasnt that the 2015 forecast . The one that was wrong. Thats right. Happy new year, ev. Im bob pisani at the new york stock exchange. Well, now that 2015 is in the books, what can we expect from the first month of 2016 . Which is not typically a strong one for investors. Dominic chu gives us some context. Reporter some investors are already looking beyond the santa claus rally season toward whats going to happen in early 2016. After whats been a volatile second half of the year some are preparing for some of that same volatility again in january. That is, if history ends up repeating itself. Now, according to market data and Analytics Firm kensho, january has been the second worstperforming month in the s p 500 at least over the last ten januarys. Now, on average the month posts a loss a little over 1 and its only a positive month half the time. You compare that to whats been the bestperforming month over the last ten occurrences. Thats april. Where the s p gains an average of 2 1 2 and its been positive 9 of the last 10 times. As for the hot and cold spots in the market keep an eye on the health care sector. During this time span its among the best performers. Meanwhile, the telecommunicat s underperformed during that same time period. Of course the usual caveats apply here. Past performance not necessarily a predictor of future performance. But some market history buffs like to use it for a little added color. For nightly Business Report im dominic chu. Here to talk more about the markets and his stock picks this week, our market monitor is rich steinberg. He is president of steinberg global asset management. Last time he was on in january of this year he recommended devon energy, which is down 48 . Macys, which is down 47 . And gilead, which is up 6 . Rich, welcome. Happy new year. Happy new year. Do you still own all three of those stocks or any of those three stocks . Yeah, we own gilead still. We sold macys earlier in the year when we saw that Cheaper Oil Prices and gas prices werent helping consumers. And unfortunately, we still own devon. We think its probably oversold. You think its oversold. All right. Lets talk about the market in general. You just heard a forecast by a number of people that 2016 may be more of the same. Do you agree with that . Yeahi think were going to have some fits and starts in this market. If you look at next years earnings, the s p we think is going to earn about 125, which gets you to about 2,200 in the s p, sue. 6 ish return. 6 to 7 with dividends a little more than that. But its going to be a dramamine kind of year. Were going to have a lot of volatility thats going to make people a little nauseous. But you contend that you can profit from volatility if your timing is right, correct . Yeah, i think if you have cash on the sidelines right now you should be picking your points of where you want entry either into the market as a whole or in individual names and let the prices come to you. So a bunch of our portfolios we have higher than normal cash levels and thats what our plan is to do next year. And youve also given us some stock picks tonight. Corning is one of your first picks here, and you think that it has some up side to it. Thats in our value portfolio. Its had a couple rough quarters. Our analysts had a 2300 target on it. Strong management. It has a good dividend yield. And the play is really in what they call guerrilla gas in the automotive space which is a lighter windshield. Also as people start to shift toward the next generation of high def tvs. Its a cheap stock. All right. Paypal, the spinoff from ebay. The target you have on this is 48. The stocks trading at 23 times earnings, and its a continuation play in both ecommerce and digital payments. Again, strong management throwing a lot of Free Cash Flow off. The stock is another bargain here at these levels. And ventus, which is a healthcare reit. Yeah, this is an interesting name. Its yielding about 5. 4 and fits into a theme of you want to own high dividendpaying stocks into next year. Strong management. And we like both the theme of aging population as well as the health care space. They are very, very strong in their cash flow and we think theyre going to be 20 up side in that name. Thank you so much for joining us tonight. Have a great new year. Rich steinberg with steinberg global asset management. Well, 2016 promises to be a big political year, and the winds of change are swirling from state wages to new laws on the books. How president ial candidates plan to deal with taxes is up next. Well tell you whos impacted. Starting tomorrow, the new inflationadjusted income brackets kick into effect. Most taxpayers wont be impacted much. But the cutoff for the top bracket moves higher to just over 415,000. And that is up nearly 2,000. So as we head into this election year, how do the candidates tax plans stack up . For that we turn to john harwood at the white house. Happy new year, john. Good to see you as always. Reporter happy new year, sue. If you have a republican, get elected with a republican congress, potential big change here in tax policy. You mentioned the 415,000 threshold for the 39. 6 rate, which is the top personal rate under president obamas term. Youve got candidates who want to raise that as low as 10 . Thats ted cruz on a tax plan which would apply to all income under 415,000. Youve got jeb bush to 28. Marco rubio has a smaller cut to 35 . But he would get rid of Capital Gains and dividend taxes which would have a huge impact on people at the top of the income scale. Absolutely. You know, this year terrorism and immigration were some of the top themes of the campaign. As we get into 2016 do you think the focus will return more to the various tax plans by the candidates . I do. Because all the campaigns started out with an emphasis on doing something about both income inequality, especially on the democratic side, and stagnant middleclass wages. I think that is going to be the mean that the campaign reverts to. And of course Hillary Clinton has been pretty aggressive in laying out policies but we havent heard about her tax plan yet. Thats going to be one of the things to watch for in january. What does she want the top rate to be . Is she going to keep it at 39. 6 and go after loopholes or is she going to increase its way Bernie Sanders wants to . Thats where the democratic competition is right now. If you were a betting man, which do you think she would do . Im thinking that Hillary Clinton is going to try to keep the do everything she can to raise the revenue she needs without raising that top rate. Thats the rate that her husband left in office at the end of bill clintons presidency. I think she doesnt want to give republicans the argument that shes going to raise taxes across the board going forward. I think loopholes a safer place to be. But well see how bold shes going to be in her plan. And what about Bernie Sanders . How do you think his plan will play with the voters . Reporter well, it plays well in the left of the democratic party. When i interviewed him some months ago, i said if we went back to the 90 top rate that obtained postworld war ii under Dwight Eisenhower i said is that obviously too high for you . He said not obviously too high. He hasnt proposed that. Donald trump is going around saying Bernie Sanders would take it to 90 . But he would go a lot higher than Hillary Clinton. You can bet on that. We havent seen a specific tax plan from Bernie Sanders but im thinking at least 50 would be where he would go. You are going to have such an interesting year, john. Thank you so much. Reporter its going to be fun. It will. John harwood in washington. Well, with a new year comes a new wave of state laws, and 2016 is no different. And they are wideranging as the nation itself. Diana olick lists just a few of them. Reporter Gun Legislation looms large in 2016 on both sides. Texas will become an open carry state for handguns, a practice banned since the civil war. It already allows openly carrying rifles and shotguns. This makes its largest open carry state. California, florida, illinois, new york, and South Carolina still ban it. Meanwhile, california restricts toy guns, requiring all realisticlooking air guns or bb guns to have more distinguishing features like colorful trigger guards so police can tell the difference if confronted with one. Speaking of toys or vehicles, you decide. California is regulating hoverboards. A new law restricts use in public places, limits speeds to 35 miles per hour, and requires safety equipment. Be warned. Riders must be at least 16 to ride in public places, and it will be illegal to hover under the influence of drugs or alcohol. And to health for humans and animals. Hawaii becomes the first state to raise its minimum age from 18 to 21 to buy or use cigarettes or ecigarettes. And illinois is making it a misdemeanor to leave pets outside during extreme weather. For nightly Business Report im diana olick in washington. And in addition to those laws, nearly a dozen states will be ringing in the new year with higher wages. Kate rodgers takes a look. Reporter on new years day ten states, as you can see here, alaska, arkansas, california, connecticut, hawaii, massachusetts, michigan, nebraska, rhode island, and vermont all implement wage increases. Now, of this group massachusetts and california, theyre the highest at 10 an hour. Those in new york and west virginia, theyre getting raises today, and these are all raises via hikes implemented during 2014 and 2015 legislative sessions. Theyre also two cost of living increases that kick in january 1st in south dakota and colorado. Now, the federal minimum wage still stagnant at 7. 25 an hour. Washington, d. C. Actually has the highest wages in the country right now at 10. 50 an hour, although this one is not a new hike. Across the country 29 states and washington, d. C. Currently have wages that are above that federal floor. Los angeles, san francisco, seattle, and chicago, theyre among large cities that have also moved independently to hike pay for workers beyond that federal minimum over the course of several years. Now, wage hikes at big corporations from walmart to target and mcdonalds in 2015 also placed added pressure on main street businesses that arent already paying above the federal minimum to shift their policies in order to compete. For nightly Business Report im kate rodgers. A game of Musical Chairs in the media industry. And thats where we begin tonights market focus. Next star broadcasting is reportedly work on finalizing a deal to acquire media general for 17. 50 a share, or about 2. 2 billion. That is according to bloomberg. But heres the rub. Media general agreed to buy Meredith Corporation back in september for nearly 2. 5 billion. Once the nextstar deal is agreed upon, meredith would have four Business Days to make a counteroffer. Are you with me on that . Well, today nextstar was up a percent to 58. 70. Media general jumped about 5 to 16. 15. Meredith was down just a fraction to 43. 25. Conoco philips said it planned to finish loading the first tanker of u. S. Oil to be exported since the government lifted a 40year ban about two weeks ago. The buyer of the cargo is Oil Trading Company vitol group, which is headquartered in geneva. Shares of Conoco Philips were up a fraction to 46. 69. And Lockheed Martin has won a contract from the u. S. Government for 78 Super Hercules aircraft, worth nearly 5. 5 billion. Yesterday the department of defense had said that it already awarded lockheed a billion dollars for the first 32 aircraft. Lockheed shares fell more than 1 today to 217. 15. Data storage firm emc said it will cut jobs as part of an 850 million restructuring. The company did not say how many jobs would be lost. But that most of the playoffs would come in the first quarter. In october dell said it would buy emc for about 67 billion. Emc shares were flat on the day at 25. 68. Well, technology had a pretty decent year. The nasdaq, the only one of the major indices to end higher. But within that group there were some major divergences. And the two biggest tech stocks headed in opposite directions this year were also dow stocks. Microsoft and ibm. Josh lipton looks at why each went their own way. Reporter microsoft Ceo Satya Nadela and his shareholders have plenty of reasons to celebrate as we head into the new year. Microsoft is the bestperforming traditional tech stock in the dow in 2015. The stock has surged some 20 . When nadella first took the helm at microsoft in february of 2014, there was plenty of doubt about the company. Skeptics wrote it off as an old Software Vendor that had missed every important tech trend, social, mobile, and the cloud. Now thats no longer true. Nadella has focused a lot of time and resources building out the companys cloud services, which will account for an estimated 17 of revenue in 2016. Still, not everybody is a microsoft believer. Weve been kind of waiting for basically a reset in the stock price here, which has kind of essentially run away from us. Reporter if nadella is celebrating 2015, then the year cant end soon enough for ibm ceo jeanie rametti. Ibm is down nearly 10 this year. Its third negative year in a row. There is no other example of ibm suffering a threeyear losing streak in its history according to factset. Ibm, though, is enjoying strong growth in several key areas such as cloud, analytics, social, mobile, and security. The problem is that these new areas of growth arent yet big enough to offset the pressures in the companys old businesses, meaning packaged software, services, and hardware. One of the few ibm bulls on wall street is brian white of drexel hamilton. He says ibm is an attractive play for contrarian and value investors. Stock trades at nine times. S ps at 16 times. You know, it has a 3. 7 dividend yield. And if you look at analyst sentiment its been the lowest recently in 20 years. White is a believer in the bets ibm is placing on fastgrowing technologies such as the cloud, and he forecasts better sales trends over the next 12 to 18 months. He is a buyer of big blue. But that is a minority opinion on wall street. Right now only some 30 of analysts rate ibm a buy. For nightly Business Report im josh lipton in san francisco. Amazon may be in a class all by itself. According to a New York Times article today, amazon steamrolled its way through 2015 as it continued to capture more market share. For every dollar americans spent shopping online this year, 51 cents of that went to amazon. And if thats not enough, the company said it had a recordbreaking Holiday Season as well. Shipping some 200 million items through its prime subscription service. But will this amazon roll continue in 2016. Ross gerber joins us, president and ceo of gerber kawasaki. Happy new year, ross. Good to see you as always. Happy new year. Good to see you too. That was a pretty glowing article in the times. They maintain almost nothing can stop adamson right now. Do you agree with that . I agree 100 . Amazon is just a gorilla of the retail industry. And with their other business aws growing so fast it really adds a second, you know, really rapidly growing business to ams ons stab amazons stable. I really dont see anybody coming close to taking share from them right now. As a matter of fact, they challenged with their prime day, for instance, which they put in in july, which is traditionally kind of a soft spot for the retailers. They almost forced the walmarts of the world to step up to the plate with them, right . Yeah. Theyre basically taking everybodys lunch who isnt moving forward with their technology. So like home depot, for example, has made some strides with their online. A place like ulta salons has a great online. And they have these little niches. But amazon is just right in the middle of everything. And now theyre going after handmade goods and etsy. As they continue to grow different markets, theyll continue to grow and capture even more maybe. You own the stock. How much upside do you think is still in this stock . Well, i think it has a lot of potential up side because we like to think long term. So when we say how much up side is left in the stock, it could grow and grow for many more years. On the short term we still see this 20 growth continuing for amazon and we expect the stock to continue to grow at the same pace we hope. How do they grow profits, though . Now, thats a better question, right . Because wall street loves the stock but they punish other stocks when their profits are this small. Its very interesting. Yeah. You know, this is a phenomenon among Growth Companies like netflix and amazon, for example, where the management understands that theyre in full growth mode. So they spend every dollar they make on growth. And what they do is they very tightly control it so that they dont actually lose a lot of money and need to raise money or anything like that. They just run it to basically break even but to grow revenues at a very high clip. With the idea theyll eventually cut back on some of the projects and the marketing costs and then youll have a nice margin in there to make a profit. So that is the risk in amazon. And i have to say, amazon is not a safe conservative investment. It has a huge valuation because we all know its a dominant player and we have to skeep that in mind when investing in amazon. If they do anything wrong, it could be a very costly investment. Very quickly, i have about 30 seconds. Do you consider it a growth stock or a Technology Stock or perhaps a blend of both . I consider it a growth stock. I think amazon uses technology incredibly efficient, but what they really do amazing is logistics management. This is the amazing part of what amazon does and why theyre so successful. But it is just a pure growth retailer in my mind. Thanks so much, ross. Have a great new year. My pleasure. You too. Ross gerber with gerber kawasaki. Well, they say a diamond is forever. And for some in the jewelry business 2015 may have seemed like forever as the demand for the stone flowed. So is there a bright spot . Well try and get some clarity next. Well, tonight in new york city 1 Million People are expected to jam times square to watch the famous ball drop and ring in the new year. The roughly 12,000pound ball is covered with nearly 2,700 Waterford Crystal triangles. It is capable of displaying more than 16 million colors and billions of patterns. The ball is estimated to be worth north of a million dollars. And while crystal will shine in times square, one sector that has dimmed this year is diamonds. Morgan brennan looks at whether the precious stone has lost its luster. Reporter when the clock strikes midnight tonight, one sector wont be sad to say goodbye to 2015. Diamonds. Despite the Holiday Season being peak season for sales, like many other commodities the sparklers had a less lus trous year. Bin company says retail sales are likely to have increased at the most 2 in 2015. A slowdown compared to 4 growth the year before. The wholesale market has fared worse. Rapaport group says prices for rough diamonds are down about 15 this year and are polished stones have fallen 8 . Wholesalers, dealers and diamond manufacturers found themselves with excess inventory. And so diamond prices took a hit. Reporter why the weakness . New yorkbased peter fabricant, who trades millions of dollars worth of diamonds wholesale each year, blames weak global demand. We lost three of our biggest consumers. Thats china, russia, and india. And what has happened is they were consuming and now theyre net sellers. Reporter diamonds are priced in dollars. He says a stronger greenback is partly to blame. Especially in russia, where the ruble has plunged. Another factor, low oil prices, which has tamped down demand in the middle east. The bright spot has been the u. S. Auction houses have been commanding record prices for multimilliondollar rare stones. The less expensive Engagement Ring market has remained rock solid. But even here tastes are changing. In the United States of america we see good demand for diamonds under the carat. Particularly diamonds, specific diamonds, and even some fancy shapes. When we look at the millennials, we find that theyre not that interested in socalled highend crazy luxury. What theyre interested in, things that have spiritual or how should i say heritage meaning. Heirloom meaning. So lynellials want to spend money on something that is lasting, that has value over time. Its not just dollar value, its emotional value. Reporter between de beers, which is owned by Anglo American and al rosa its russian rivals they control nearly 3 4 of the worlds diamond supply. Experts say both companies are now making steep cuts to restrict that supply. That should help stabilize prices in 2016. But the wild card is going to be china and whether demand there begins to recover, starting with februarys Chinese New Year. If you look at the global diamond industry and you look at global diamond demand from consumers, certainly christmas is very important. But it is almost id say that the Chinese New Year is coming up there as an equally important seasonal gifting holiday. Reporter like other Commodity Markets that are cyclical diamond experts remain optimistic that the price of these pressure stones will rebound. Ive been in this business for 50 years. I know its hard to believe. Ive seen the trend back and forth so many times. And we always end up in a better place. Reporter after all, the saying goes, a diamond is forever. For nightly Business Report im Morgan Brennan from the diamond district in new york city. And that is nightly Business Report for tonight. Im sue herera. Thanks for watching and have a happy and safe new year. [ telephone rings ] hercule poirot. Suchet hercule poirot is, for me, much more than the character on the written page. Hercule poirot, for me, almost is a real person. Youre a detective. [ chuckles ] i am the detective, colonel curtiss. He is the person who was responsible for my life for 25 years. The truth has the habit of revealing itself. Suchet ive got to know him. Ive lived him. No one can always be right. But i am. Always i am right. It is so invariable, it startles me. Hes my invisible closest and best friend