captioning snsored by wpbt susie: in the year's first half, sis of recession were everywhere. unemplment rose and real estate prices dropped. consumers cut back obig-ticket purcses, and two automakers threw in theowel and declared bankruptcy. >> paul: but amid the bad ne, wall street began see light at the e of the tunnel, and stock pric did a u-turn to the up-side. susie: so are a new bull market and econoc recovery at hand? stay ted, as we try to find ouin "the economy and the markets mid-year." >> this is a speciaedition of "nightly businesreport": featuring paul kgas, susie gharib andhe n.b.r. team. "nightly business repo" is made poible by... 7//& >> susie: good evening, everyone. e u.s. financial markets wer closed for independee day. so tight we'll look at the state of t economy and the marketat the year's half-way point. paul? in have been some hopeful gn for the economy. the durable goods orders, but herwise there hasn't been much to cheer about in firshalf as housing prices ctinue to drop off and layoffs senten employment soari to a 26-year high. and nsumers delayed the buying the big-ticket ems like rs. as dana bate reports, that helped to drive general motors into bankruptcy. >> reporter: back january, at the detroit au show, g.m. and chrysler seemed hopel about thfuture. chrysler's.e.o. at the time, robert nardelli, sd the company was makingrogress. >> i think we're doingll the rit things. it isn't that we hav't made mistakes in 83ears. you know pple who do things make mistas. they never make the biest mistake which is to do notng. and we're doing a lot to make rselves viable for the futur >> reporr: but neither company waprepared for sustained double-digitales drops, as the worst econic downturn in decades intensified. in february, they appeed to thgovernment for additional money to stay aflo-- up to 6.6 billion for g.m. and $5 llion for chrysler. the companies suitted restructuring pls to show the money woulbe well-spent. buthe white house found those plans laing and rejected them. >> we cannot make e survival of our auto industry depdent on an unending flow of tax dollar these companies and this instry must ultimately stand on the own, not as wards of the state. >> reporter: the adnistration's auto task force concluded chrysl could not survive as a standlone company and ranged a quick bankruptcy and shotgun marria with italian car maker at. also ousted g.m. c.e.o. ric wagoner and gave the comny 60 dayso come up with a new cost- cutting plan g.'s interim c.e.o. fritz nderson admitted he had a lo of work to d >> the conclusion is, the environmenhas done nothing othethan be equally difficult if not more difficult than i was even let's say late last year. d so we need to do more, we need to do more now. >> reporter: ojune first, after tougnegotiations with auto wkers and bond holders, the company entered baruptcy. and the new restruuring plan went inteffect, giving the government a 60% staken general motors g.m.'s origil plan assumed only modest deines in market sharand had the company in the red for six mo years. its new plan assumes a18% market sha by 2012 and gets the company toositive cash- flow. chryer and g.m. plans call for closing a combined,889 dealerships-- a move that drew harsh cricism from capitol hill. but g.m.'s henders said his company needs a drasc overhaul. >> no matt how you look at it, whether pressionally and personal, you to realize that this is a new beginning r g.m., 's a reinvention of the corporation. >> reporter: en if their reinveions result in big changes, the fute of the new gm and theew chrysler hinges on one question: wi they come out of bankruptcy as profitable mpanies? dana bate, "nightlbusiness report washington. >> susie: soltately, will chrysler and g.m. survive as leaner and meaner players in the auto market? i talked about that with josh feinman, chief econist at deutsche ass management and james awad, investment rategist at zephyr managemen i began by asking josh h g.m.nd chrysler are likely to >> i think ty need the econic conditions to improve, to perform a better base for car sales. i mean, they ed to seeabor markets start to get better and can have come back credit markets improve. i think we're startingo see a little b of that. but we need go a l further before, you know, the outlook for gm and chrysler can materially improve. >> susie: now, gm and chrysler y this is a newbeginning, they're reinventing themselves. do you think they'll b able to pull that of in otherords, what will we be seeing from them a year om now? >> i think it will stille a work in progress. won't admit defeat or declare victory. ey will be smaller and me efficient and there will be new products. we will have to lookhat it is they'rputting in the rketplace. it will keyo determining thfuture success. susie: so josh, when do you expect chrysler get better? >> i think it wille a graduate ocess. i think weit bottom and we'll see edgi up over the secd half of the yr and then further improve in 2010 but think itill be a level of car les well below theeaks we got to before the crisis >> susie: and wh consumers alrey stop buying cars, they have aot of choices, and do you think there's a igma about buying car from a company that's been tainted b bankrucy? >> ion't think so. it's interesting inhe month ter chryslerdeclared bankruptcy, thsales were better than expeed. cause people perceived the valueso it's a very local decision. i think people areoing to look at t product that's being offered in the price, theal th they can, the credit tha they can g. so i think tha bankruptcy ll be due tsomething in the past. i kn the government is behind -- in one case the governnt and theiat are behindhe companies so i think it will be aevel playing field. susie: all right. let's take a break here. d we'll be back with your thoughts. >> pl: detroit's troubles contributed to a bad winr on wall street. but bypring, investors began to look forward to bter times ahead r the economy. as suzanne pratt repor, that led stock prices to get ba on track. >>eporter: "the ultimate race to nowhere"-- at's what some stock market pros call the action in the year first half. that's because the d jones indurial average ended the six-months closeo where it began. but a look at a dow chart shs it was really a ld ride. first, there w a steep drop then a dramatic comeck as the index moved in a 2,500oint range. r.b.c.apital's marc harris ys the price swings were unprecedented. >> there's no doubt it's treme. i meanyou have 25% moves down, and then 35% moves up. ere's no mistakeor the u.s. eqties market that's dramatic. >>eporter: while the dow and s&p 500 were essentially unchanged in the fir six monthsthe nasdaq was up significtly. ter the dow reached 9,000 in early januy investors became consumed by extre self-doubt. worries about the solvencyf bas led the market crash to reme in february and march. not even a new predent could keep stocks from going io a tailspin. by mch 9, the dow had fallen to 6,547, it's loweslevel in 12 years. walltreet strategist sam ovall says investors were suffering from a seriousack of clarity on the economy. >> invesrs had donned their 3d asses trying to ascertain, t depth, the durion and diffusion of this obal recession. i think th were also totally concerned about whether the s. governnt would be nationalizing the s. banks. >> rorter: but, just as quickly as stockentered the abyss,hey shot right back out. from mid-march through midune, the blue-cp index surged 34%. expertsay the "game changer" s policy measures from the white house aimeat restoring confidence. investors began tohink maybe the new administrati was getting its act tother. strategist craig pecam also credits positive economic sis or green shoots at appeared in the rly spring. >> what you w happen fm march to today was just a radical ange in risk perceptions in the martplace. it was born out in wt was happening in fixed income marketas credit investment started toome back into bonds and select corpote credits. thatpilled over into the equity marketplace. reporter: experts say the market rains in a fragile state th investors still skeptical about the futu. the good ns is all of the cash on the sidelineshich given inntive could come pouring ba into stocks market. suzanne pratt, "nightly busiss report," new yor to weigh in on this questions tim hayes chiemarket strategi and joining us from new york is jeff lb bow sit a pleare to bere. >> net dis research has declared theecent bear market a water fall decline. the big questn, is a new bull market undeay? >> well, the water fall declin ended what we'd classify as cyclic bear market and followg that waterall decline, really high volume panic stage back in october we had diminished participaon on the lows a finally on the rch lows in the major average since that was the final bottom, and subsequent to that we ha enough evidence cal thi a cyclical bl market and thas really where ware at right no >> paul: mark, last w year's day yowere the most bearish and yo predicted the d would go uearly in the year and then would fa back to close a 00. are youtill expecting a big drop? >> im, paul. i thin ultimately i don't know if it will be thisear but the w industrials give up 90% of the value, so i'pretty much a bear. over the nr term,e can -- as we did inhe 1930's we could see a 50% retracement of decline which ts you up to 1000 which is 11,000 in the p. now shor shortterm,"money" magane had a bullon its cover just on june 19. i ink we'ret our near sho term hhs here, a pull back an then maybe anoth rally try before the water fall decline resumes. so we are trading itnd actually loong to get short ght here. >> paul: so i taket you don' share m's view we are in a cyclical bull market? >> not at all. i think this is a refl rally and, you know, a lotof manipution going on. you have got t plunge protecti team out there, at love thing -- a lot of things people don't want to talk about, but the fed is getting thi market up and think it's temporary affair. we have lower measurements eve right re, 7500. so i wouldn't be surpred in the nextonth or two we get down to those levelsirst. >> pau tim, do yo see any sis that the upswing is nning out of stea >> not at is point. we'd have in a cyclical market -- in fact thiss one of the -- is been very similar to 1974, 975 rovery and that we only had a 4% correction over the fit three months. that's exactly wh happened in 1975. when youere up 34%, the sam ount that we had during the firsfirst three months ofthe cyclic bull market. we have seen aormal consolidatn recently but we have good solid participation, no signs athis point for tting to that vulnerable point. >>aul: what kind of stocksto you recommento take advantage of this cyclical bullmarket? we have just half a minute. >> well, we're staying th right now e energynd materis are good areas tbe in. and consumer discretionary and tenology. i think terials and energy, once we have more conformaon that theecession has ended we'll he more stainability anthen at the end of the road as we reach the enof the cyclicalull market, more defensive areas. >> paul: ark, since you see a multiyear cline onhe horizon, what shld investors do now? >> as i told you in the previous intervie, paul, i'm a gol bug. you need tbe in gold as densive play. i se gold running up to tt 2500, 3000 area wheer it' deflation or inflation. so that's where i think investor should be. don't think they would be in equities. i think it's a tenuous piod that we haventered over the xt several years. >> pl: tim and mark, thanyou so much foyour differing perspectivesn the outlook for stocks. >> susie: like stock pces, commody prices also reversed direction in the year's rst half. as jeff yastine repos, that move was spark by worries that moves to stimulate the ecomy might go little too far. >> reporter: there's nargument that t economy was weak in the first half, asmericans cut back their spending on non esseial items. and yet, for commodities traders, t first half of 2009 was e for the record books. oil pric somehow rose 55%, en though the recession crped energy demand. and amid a weak home constructionarket, copper ices nearly doubd. so what gives? phil flynnf alaron trading says it's all abouthat piece of paper you have in youwallet called "the llar." flynn notes th if the economy ts worse the federal reserve can injectore dollars to try and restabilize e economy-- but with one imptant side- effect. >> ithat happens the value of our dollar get weakeand commodities priced in dolls get a lot mo expensive. so if the economy gets wor, evenf demand for commodities might bad, the demand for the dollar wilbe worse. anthat will drive up the cost oncegain. >> reporter: t price of gold provides another example, am rries the fed will succeed t well in reviving the economy doug groh of tocquevil asset management says jewelry sas, whh consume a majority of the go supply are way down. >> and yet gold isery strong. and what's taking up theemand that jewelrys not is the investment demanfor gold. and it reflects the concern about inflatio and the desire f a store of value. >> reporr: alaron's phil flynn sees china as a factorn the rise of commodity prices thi year. says chine companies are stockpiling coodities, not ju for future consumption, but also as a hedge-- a hardsset-- against a weaker dlar. >> there very concerned about the state ofhe u.s. economy anowning all this debt we've been sling them in the last 10 or 20 years and at the value of that debt is going to be when they finally g paid back. >> reporter: so is the comdity some, ke flynn, think it will coinue, as traders use the commodities markets the ultimate hedge again an uncertain u.s. economy. ff yastine, "nightly busines repo," miami. susie: so looking ahead, is inflation really a causeor concn? iny discussion with james awad and josh feinm, i asked josh if inflation ithe next risk for e economy. >> i don think so. i think that theconomy is going to be on raitting with a lot of -- operating with spare capacity, lot of slack, that will help to pit put -- put a lid onprice essures. it will take a long period of stro growth to absorb that slack. i n't see us getting that any time soon i thk if anything inflation is more likely to drift a bit ler over the next e to two years than to move much higher. >> susie: but e message of the market sms to be different than that, seems to be tell graphing the federal reserve nes to raise interest rates or take somof the stimulus out of theconomy and, we have sn that the fed has bee slow to make changes in the past. will they get it right this time? >> well, it will be very difficult. they have a narrow path between doing it too early otoo late. what'sncouraging to see is you know they' talking about it now, when you read about wt went on in theeeting. ere were people who think that we should wait longer and tre are peop who think theyhould stt now. at leasthey're on the case, if you will. and if they're othe case, they ha a better than even chance of being succeful. >> susiejosh, whats your forecast for economic grth for the rest of the year? is the anyoing to -- the onomy going to grow potive? >> i thi so. i think 'll turn to some growth later o in this ye and 10, but i think it will be fairly slug initia the early goin the economy h a lot of head winds from the housing an edit crises to wo through, so it ll be a while before we get to strong growth susie: jim, how is this all going to play out in the markets? we had a stock market rally and's pulled ba. what's next? >> it's frustrating for investors because i thk economic growtwill be stable enough, the economwill be stable eugh that the bears won't be right on the other han there's a lot of reasons to believthat the recove will be very tepid which i think is frustrati to the bulls. so i thi it will be market where what you own, what aet classes you n are going to be more important than the genel directioof the mket. the beararket is over, but you can't say the next bull rket has begun. >> susie: all right. we'll be back in few moments wi more of your thoughts. >> paul: as we not, stock prices tooa turn for the better in mah, and kept rising until mid-june. so what did thatally mean for holders of mutual fus? to help find out, joining us is christine benz, directoof personal finan for morningstar. christine, wcome back. >> hi, paul. nice to be here. >> paul: now, starting off l's lo at fund stors that did the best in the second quarter and at the top, latin erican stock fus. >> right. erging markets generally really soared in the second quarter of this year and lin america came out on top. in pticular, because brazil which tends to be the st dominant mart in latin america so really rebounded nily after a pr performanc in 20. >> paul: forhe top funds of the quarter let's begiwith the best perrmer, burma oasis. >> right. this is auirky fu, paul. i looked at the portfolio. it's hard know whas in here becausthe manager tradevery frequentlybut i saw a few veraged index funds so i thi investors here rlly need to be on the lookout for very volale performance. >> pl: and the st performer amg value funds was an index fund, namely small cap pure value. >> not your typicall broadly diversifiedndex fund. instea this is a macro cap valuindex fund that is content traitein the topoldings and in pticular in the consumer sectors, retail and staurants, especily. >> paul: intesting. d so no one will think we're ignoring bonds, the p bond was fidelladviser high income average. ll us about that. >> this is a junk bondund so it buys low quality bonds in general and ten to buy lower quality bonds than the typical junk bond fund. that hurit last year but helped morerecently. >> paul: the biggest upside moves were made by verseas, made overseas butak mark global sect had a negative return. >> it di and th really is owi to its poor performance in 20. but it has rebnded nicely so r this year. thanks to good performance from both the domestic an the foreign stock portions of is portfolio. >> paul: and leadinghe emerging funds dreyfuss and i hear lately that's really been hot. >> it has. is is a rags to riches story, a fund that did lose aot in 2008 but h magedto really claw its way ba over th past quarter. it's gained 60-plus percent in the sond quarter alone. >> paul: finally let see what happenedo the largest funds over the quarter and for change, a lot double digit gas. >> right. this is something we have not seen from the biggest ock funds over t past year and a half or so. but what we see he is tha the euro pacific gwth which is the ll foreign stock funds among the five largestas performed rely well relative to the domeic stock funds here. >> pl: chstine, after the nice gains registerein this quarter is itoo late to get into the ally, yes or no? >> ion't think so, paul. mostunds have not egistered the kind of astnomical gains we have been talking about and our equity analysts here at morningstar continueo think that theroad stock market is pretty undervalued relative to their estimates fair value. >> paul: very good. >> we thinthere's upside. paul: very good indeed, thanks, cistine benz for your insight. >> susie: as we enter 2009's second half, probably thtop questi on everyone's mind is: are we going to emergerom the recession anytimsoon? in my discussion wh jim awad and josh feinman, i asked sh about the suosed 'green oots' of economic recovery that have begun appear and whether he sees them aa hopeful si. >> ihink the economy is stabilizing now after the freeall it was. i think we'll return to growth later this ye and into 2010. but i think that gwth is gng toe pretty sluggish in the early going. >> susie: do you agree with that? >> yes, i do. in u look at the building blocks of the economy, none of them point to high growth business has eess capacity and exports inexcept for dia and china argoing to be sluggish and then the governnt has to raise e money to -- because of the stimulus. >>usie: what is your outlook for the job marketnd when will we s the unemployment rate come down >> i thinkt will be a while. i think the be we can hope for a slower rate in the job market. i ink really going back to siificant hiring net positive employment and dlining unemployment, i thinthe earliest we can lo for thats 10. >> susie: yoknow so man of the o's say because of the financial crisis, there's a new normal that ey're talking abou is that how you see it, jim? >> well, i s the new norma for the me being, if yolook at the buiing blocks of where growths from you won't get above trend line growth. but this is amera, we have been through tough tes before. and some n paradigm will occur. technology andhe internet came along, something wilcome along to re-ignite growth in amica. as you sit here today, you don't see it. >> susie: there a new normal for the economy? i think it will be an adjustment process, but when the shakeout is over, i don't see anything that will sgest to me that pential growth in the economy has been takina big hit. productivity groh has held up really well and at some point you'll have pent-up demand. >> es, but josh, i think that pent-up demand cou be very restrained. when people have lt this much monein their homes and the -- i think it's a questio of timing. it will take a couple of years but th longeryou go wiout buying a hometem, buying a car,ventually the pentup demand is there. it may be three fr years down the roadnd that will galvanize us back. >> the question is howuch of the behavior cnge is permanent? in other words will peop be in smaller homes,ill they keep a r an extra year or wo? how much is cyclical or secular? weon't know yet. >> whateverhe new level is at they get comfortable with higher household sales te, once they t to that, we have made that adjustment, from that point forward i thk growth can retu to what it was. >> susiethis is a conrsation to be contind. thank you bo so much for coming on the program and happy 4th ofuly. >> thank youa pleasure. >> paul: to learn more abo the subjects covered in tonight' broadcast; to tch our streaming video and take part in our daily blog to "nightly businesseport" on pbs.org. you can also email us at nbr@pbs.org. >> susie: and that wps up this special editn of "nightly business rort." i'm susie ghar wishing everyone a good night and good urth of july. and you,oo paul paul: same to you, susie. i'm paul kangas. wishg all of you the best of good buys. 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