Recovery, housing . The day after the nasdaq ceo responds to yesterdays shut down but individual investors are confused and infuruated. How shaken is their trust in the system . That and more tonight on nightly Business Report for this friday, august the 23rd. Good evening everyone. Im susie gharib with bill griffith. Good to have you here. Good to be here. Michael ball mer stepping down sooner than expected and no obvious successor to take the spot. Where microsoft shares have languished for years, that was welcome news for investors. Sharing soaring from the opening bell after ending up 8 . Since 1975 microsoft only had two ceos, bill gates built the company from scratch and handed it over to ballmer in 2007. Who will be microsofts new leader . Who is next for the stock . Those are the questions for this icon neck technology question. How much do you thing. Reporter microsofts biggest salesman and cheerleader, now hes on his way out. The companion announced within 12 months it will name ballmers successor. He build it up and defended office since he took over the ceo seat in 2000. The stock is down 40 but revenue and profit are higher. Microsoft fell behind in music, smart phones and tablets. All ceos have the same job. I dont have a different Economic Situation to deal with than the guys that run competitors. So in a sense you could say whatever happens to the economy happens, we got to win with a great product, great brand, great invasion. Reporter ballmer didnt win and thats especially true of the iphone. He essentially treated it like a toy, a flash in the pan and did not do anything, even though microsoft was already in the phone software business, did not do anything to really change their projectorry. Reporter he planned to stay until around the time his youngest son finishes high school, which is three years from now. He said the Company Needs a new leader that can be there for the duration of the transition from a Software Company to devices and services company. Who will get the job . Anyones guess. Internal candidates could include Terry Myerson or key lu or maybe exapple executive or former microsoft executives. Whoever the board picks will face high expectations. For nightly Business Report, im jon fortt. On wall street, microsoft was the biggest gainer in the blue chip average today while facebook closed above 40 a share for the first time ever. That helped stocks end the day higher after shaking off early losses on disappointing new home sales data, but still closed lower for the third week in a row overall. The dow today closed 46 points higher and settled back above the 15,000 mark. The nasdaq added 19. The s p was up 6 points. As bill mentioned, the drop in home sales was bigger than analyst expected. They plunged 13. 5 in july, the biggest decline in more than three years. That meant home builder stocks suffered big losses with names like ryland, kb home and more. Until now, the booming sector was a strong sign the u. S. Economy was on the mend. Hampton pearson has more. Reporter july new home sales may be a test for what higher Interest Rates can do. Sales are down double digits to 394,000 adjusted annual rate, the slowest pace in nine months. June also saw a downward division to 455,000 from 497,000, thats according to the commerce department. Weve had a strong run in housing like the stock market and some correction was invefble. Reporter potential home buyers deciding not to pull the trigger and sign a contract now that the average 30year fix the Rate Mortgage is 4. 58 according to freddie mac, up a full percent since may. Weve seen rate increases and seeing more. We want to wait and see if maybe they go down before we sign the contract. Reporter the higher Mortgage Rates had the exact opposite effect on existing home sales. They spiked upward to a fouryear high. Thats because home buyers locked in lower Mortgage Rates ahead of the current upward spiral. Economist say rising rates are a longterm negative for new and existing home sales. Generally, the initial phase brings additional home Sales Activity but further increases the interest rate, which we anticipate will begin to diminish the full eligible home buyers. Reporter even with the july set back, new home sales are up 7 over the last 12 months but builders say Housing Starts on Single Family homes in july were the lowest in eight months. For nightly Business Report, im Hampton Pearson in washington. This housing slow down is for real. Shes Senior Housing analyst and joins us tonight. Megan, thanks for joining us. Thanks for having me. One report usually does not make a trend but this has gotten your attention, hasnt it . It has and it something were hearing about and seeing in numbers today. There will be numbers next week, pending home sales, apples to apples apples equivalent that we saw today. Things are starting to slow down in the housing market, and thats natural. I dodnt think the housing markt is broken, just not growing at the speed it was last year. So if youre in the market, buying or saling a home, what should you do . If youre a buyer, should you lock in a deal now and not wait for prices to go down any more and vice versa if youre a seller . I dont think youll see the big jump in Mortgage Rates so not another 100 basis increase that we saw, but i wouldnt expect anything to go down from these levels significantly. So dont wait around and think well, Mortgage Rates will go down back to where they were or home prices will go down back to where they were. I think they will all continue to go up just a little more gradually than weve seen, so maybe it gives you time to look at the budget and see what you can actually afford and price in appreciation over the next six months. Why dont you think rates go higher . Were at 4. 85 on the 30fixed year mortgage and thats up sharply than a couple months ago when a full 100 basis points below that. The fed is getting ready to pull back on quantitative easing, Interest Rates have been going up in the treasury market, how much higher do you think rates do go . As we know, its hard to predict what the fed is going to do and rate wills go higher. Thats a given. All i meant is that youre not going to see the big jump in a short period of time. So there is no reason to really panic and jump in and buy something you dont want, or that you cant afford. You have time to think about it, price in a little bit of an increase over the next six months and think about what is really in your budget. We saw today home builder stocks, megan, tumble across the bored and yet, you still like some of them. You have on your buy list Toll Brothers and kb home, why do you like them . These are the only two Home Builders were recommending. They are a buy if you have a 12month time frame. These are two companies that we think over the next 12 months are going to appreciate. They have good stories. Toll brothers is a luxury builder. Their buyers should not be Mortgage Rate sensitive and a niche player. As competition increases in the lower end of the market, which it absolutely will, Toll Brothers will be in a good position. We think the price and gains is sustainable over the next 12 months is go ahead. Kb home on the other hand is a different story. They are a turnaround story getting back to profitability. They have to show us they can continue to do it, but the stock is relatively inexpensive. So we think the risk reward is compelling. Quickly, i was going to ask, the slowdown is this prolonged, brief . Do we see higher prices down the road . Do you think . I think that i wouldnt be surprised to see a little acceleration next quarter, but what i think is were probably going from what we saw earlier in the year 25, 35 growth, were probably slowing down and will end up sort after 15 through the end of the year. Megan mcgrath, again, thanks for joining us tonight. Thank you. That housing news and what it means for the u. S. Economic recovery was one of the hot top picks today at the jackson hole conference in wyoming. Thats where central bankers from around the world are meeting to talk about economic policy. Steve liesman spent the day with them and report there is is much disagreement on when the Federal Reserve will make a change in the massive stimulus program. Reporter good evening. A lot of differing opinions over the direction for the central bank and the next moves for the Federal Reserve. Some came in interviews with three Federal Reserve president s. Two of them, dennis lockheart had the same opinion suggesting its full steam ahead to reduce the amount of stimulus, perhaps meeting as soon as next month. The way i think at the moment is im actually looking at the data and asking if they deny or in someway undermine the basic outlook that i have in place. And on that basis, then i can get comfortable with the move in september. I do think the data continues to progress as weve seen, then i do agree that we should edge down or taper or purchase later this year. Reporter however st. Louis fed had a different opinion. Hes more worried about the strength of the economic recovery, not quite so confident and says the Federal Reserve should take its time. I dont think we have to be in a hurry in this situation. If the place is running low, mixed data on the economy. So, you know, i would be cautious. I wouldnt want to prejudge the meeting but i think we want to take our time, assess what is going on and before we make a move here. Reporter among the Research Papers presented here today was one from noted stanford economist robert hall and says the biggest danger is to exit too quickly from the stimulus policy. He says there could be Political Forces to raise Interest Rates sooner than it should or reduce the size of the balance sheet. The managing director addressed the group at a luncheon and said the exit from the monetary policies could get mess si and she urged Central Banks to Work Together and suggested some countries affected by tighter monetary policy, they could use some currency intervention. Thats a strange thing to come from. She urged countries to wait until the recovery was firmly in place and us it to reform the financial and economic systems. Finally, a lot of debate over how effective quantitative easing is and how it works but no consensus emerged and maybe that will happen in session tomorrow. For nightly Business Report, steve liesman. After the nasdaq halted all trading for more than three hours, the ceo spokes out but did he say anything to restore investor faith in the system . First, a look at how the International Markets closed today. No problems today at the Nasdaq Exchange following thursdays massive computer glitched that knocked out all trading for three hours. A lot of questions remain about what really went wrong and why officials were so slow to inform investors and traders about the outage. As marry thompson reports, the challenge now is to restore Investor Confidence in electronic trading. Reporter when technical troubles halted trading, the ceo focussed on fixing the problem, coordinating and talking with regulators and head traders, not to the press. We took the proper amount of time, right, to make sure that the testing was done, that the communication yesterday was so strong and we got that communication done and we came back and came back successfully. Its not our job nor will it be for us to go on the press, to the press while we focus on the issue. Reporter the lack of communication perplexing scott. It troubles me more than the glitch itself. Reporter and infur rating to david seabird. The professionals were aware. They were making sure we were aware from the standpoint how stocks may or may not open but if youre sit income middle america, you have no idea. Reporter for five hours thursday, the nasdaq kept the press and public in the dark about the source of the glitch. The latest to hit the u. S. Market and shake Investor Confidence. I think it actually hurts the people trying to get ahead and put back money and invest in stocks to save for their kids College Funds and save for their retirement. Reporter Crisis Management consultant knows it hurts the nasdaqs brand. In an email he said we sleep at night because of the assumption they know what they are doing. This incident tells us they dont. Assurances need to be give and based on something other than trust us. Thursdays troubles, the second high profile problem in a year and a half. The facebook glitch resulted in a 10 Million Dollar fine and while he handled the halt investo investors say slow downs, shut downs and halt are part of digital age. Were in a fast technical world that wouldnt make me lose confidence in the system. Reporter for nightly Business Report im mary thompson. This is a deal that creates the nations the electronic markets is an advanced discussion for direct Edge Holdings a merger would unite two companies that were created by trading firms and banks to challenge the dominant New York Stock Exchange as well as the nasdaq. Both of those exchanges currently looking to merge were set up to accommodate highspeed computer trading, something government regulators are looking to reign in. The come mod dids future Trading Commission is close to developing rules aimed at taming highspeed rules to lead to the flash crash at the New York Stock Exchange in 2010 and may have contributeed to yesterdays shut down at the nasdaq. Turning now to the market focus, we begin with a look at pandora and the dramatic sell off. Late yesterday the rising cost of acquiring music and expanding the sales force would pull down fiscal 2014 earnings below expectations. Its also facing rising competition from firms. Still, none of that worried pandoras chief financial officer. We are the undisputed leader in internet radio. We have competitors large and small and establishing this category and we believe we can maintain market leadership for sometime. Investors didnt share that confidence. The stock tumbled to 18. 91. Expedia and travelocity and expedia will handle most of the operations including processing bookings and handling customer service. In turn, travel os city will focus on other issues. No trades on velocity, its a private company. Elsewhere, hibbit sports is joining retailers complaining about weak consumer spending. The Sporting Goods company slashed earnings as a result. Forecast siting Economic Uncertainty and it operates in the south, southwest and midwest regions. Shares declined by more than 8 today. Despite reporting a jump in Second Quarter profit, footlocker says its challenging now. Full year same store sales could come in at the low end of current forecasts. That stock dropped almost 3 , closing at 33. 01. Taylor seems to be the retail stand out right now, one of the few stores to post an increase in the same store sales figures and report a higher than expected rise in Second Quarter profit. The companys ceo describes business in august as strong along with a buy back put shares up 5 today to close at 34. 31. And coming up on the program, dont be afraid of investing in bonds. Not all of them are so bad. Thats what the market monitor guest says and he has one fund to recommend. But before all that, here is a check on how commodities, treasuries and currencies performed today. If you own a 2012 model of Jeep Grand Cherokee listen up, sun vice sores in that model can catch fire. Three owners reported smelling burning odor, smoke and flames coming from vizors. Its up to the Highway Administration to decide whether to issue a recall. The pursuit of the tribune companys newspaper unit after assessing the value of the eight daily papers up for sale including the Los Angeles Times and Baltimore Sun they decided it not worth it. Our market monitor is a longterm bull on stock but expects a 5 pull back between now and the end of the year. Hes senior Portfolio Manager at western assets management. Chris, welcome back to nightly Business Report. Let me talk first about your Market Outlook before we get back to specific stocks. Were hearing there will be a correction, a pull back of different sizes over the next couple months. Is this time for investors to load up for on cash and pull back from stocks . I think so. The primary reason is evaluation. The ratio for the s p 500 is above 15, among the highest among Global Stock Markets in the world and clearly typically when you see these expansions, these were lower a few years ago, its the environment of falling bond yields. What we see is rising bond yields over the last year and increasing attractiveness put pressure on stocks. Thats for sure now. Chris, we have viewer questions for you on individual securiti s securities. Linda h. Wants your thoughts on bp. Bp pays a nice 5. 3 dividend yield but earnings, growth and cash flow is below expectations and we got the second phase of the oil well trial beginning at the end of september. I think if you can deal with the share price volatility, in comes attractive, i like the stock. Tell us about i robot. Jen l. Is interested in it. Buy, sell or hold . They make small robots that mop and vacuum among other things. Its a nice product. I like it. Earnings are growing nicely and have a large patent portfolio. The evaluation is expensive and i would look for a better entry point on the stock. We hear from edward l. Who owns real estate for income. Wants to know if he should hang on to them or run for the hills, as he put it. I think its very broad category but they a great part of part of a portfolio for income investors. Office reets that office space in major u. S. Cities and mortgage reets with private residential mortgages. They pay high but the share prices are volatile. Investors need to have a longterm time and be diversified. Lets turn to one of your recommendations. Tell us about western asset high yield defined opportunity fund. Thats a mouth full. This is a closed fund that pays a 9 dividend yield and trades at a discount to the asset value and with the increase in bond yields, bonds have been thrown by the wayside by a lot of investors and this now has low share price and is particularly attractive entry point, i think, for Patient Income oriented investors. Do you look overseas at all . You can get a good dividend yield elsewhere, some bonds overseas paying a good income, as well . Do you look there or just stay in the United States . No, western assets is very much a global firm and there are some Outstanding Opportunities overseas, particular emerging market Corporate Bonds that trade in u. S. Dollars so no Currency Exposure but very high credit quality and very attractive yields. All right. So just to wrap it up here, four investors who are this is really Inflection Point in the markets in terms of what they should be doing with their portfolios, any changes, fundamental changes they should make now . I think they should stick with the income focus. If they need to load up on income, this is probably a good time to do so. And again, as long as they have a longer term time horizon and keep a welldiversified portfolio, they will be fine. The markets will have flows. Weve seen it in the past. Well see it probably in the next six month ps wis with the going on, the things you described in the program. Income is an important participant to everyones portfolio. Lots of good advice. Thank you so much, chris. Have a great weekend. Thanks, bill, thanks susie, you, too. Finally tonight, something im familiar with, the company that makes jack daniels whisky is having a hard time keeping up with customer demand. So they are building a brandnew 100Million Dollar distillery at the lynch burg, tennessee factory looking to increase production of the best selling whisky by as much as 20 . Get this, its the First Time Since prohibition that the liquor giant has built a new digitalry from scratch. I wonder why i wonder why that is . It goes in trends, but right now distadrian sutil spirits ar high. Have a great weekend everyone. You, too, bill. Thank you, susie, thanks for watching, you see you on monday. Nightly Business Report has been brought to you by. Sailing through the heart of historic cities and landscapes on a river, you get close to iconic landmarks, to local life, to cultural treasures, viking river cruises, exploring the world in comfort. Ladies and gentlemen, today we need heroes more than ever before. The men and women you will meet tonight are bright stars that light our way in the darkness of an increasingly confused. Blah deblah deblah, yada yada yada. 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