captioning sponsored by wpbt >> paul: inflation, what inflation? prices at the wholesale level fall twice as much as expected thanks to drops in produce prices and energy. and that has inflation worries disappearing from the recovery picture. >> susie: owing more than your home is worth-- its a growing problem leaving many borrowers with few alternatives: stay put, rent, or sell at a loss. we look at the options as home prices continue to tumble. >> paul: hewlett-packard says its business is stabilizing. but the maker of computers and printers still saw a 19% drop in earnings as sales fell from year ago levels. >> susie: target and home depot are also coping with sagging sales. but the retailers both boosted their outlook and that helped stocks return to rally mode. >> paul: i'm paul kangas. >> susie: and i'm susie gharib. this is "nightly business report" for tuesday, august 18. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. >> susie: good evening, everyone. you can cross inflation off your worry list. a new report today from the labor department shows that producer prices, a measure of wholesale inflation, fell almost 1% in july, much better than expected. the so called core rate dropped unexpectedly by 0.1%. at least for now, the data is reassuring news for people concerned that inflation could make a comeback. erika miller reports. >> reporter: salad greens are costing a lot less green at the wholesale level. falling produce prices are one reason producer prices fell sharply last month. but economist steven whiting says most shoppers probably won't notice a difference at the checkout. >> in food, it's very interesting, that the more your process it, the more stable the prices are. that you absorb food commodity prices in those margins. but there's a little bit of pass through, so we've been seeing some unusual if modest roll back in final processed food prices. >> reporter: one place where consumers may have seen a big difference was at the pump. wholesale gasoline prices fell more than 10% in july and briefly showed up at the retail level. falling prices are clearly a boon to businesses and consumers trying to save money. the trend is also good for home buyers and people who buy things on credit. because the fed has greater leeway to hold off raising interest rates. but there is a downside. economist jonathan basile says today's data is bad for businesses trying to boost earnings. >> you don't necessarily have the pricing power to generate an awful lot of profits. and to be honest, you probably don't have a sustainable demand yet either. i mean, a lot of what's gone on in terms of improving balance sheets has been cost cutting. and labor is taking the brunt of that. >> reporter: the big question is where inflation heads from here. economists expect the government's massive stimulus efforts will push up prices, eventually. but they stress, that's way down the road. >> this is just not an environment that's conducive to significant pick-up in inflation. it's way too early for that. >> reporter: so for now, consumers may find low prices are the "carrot" that entices them to buy a little something extra at the store. erika miller, "nightly business report", new york. >> susie: mixed news today from the housing sector: construction of new homes dipped in july. the commerce department said housing starts fell 1%. economists expected a slight increase. construction of single family homes rose a bit but multi- family units and condominiums fell sharply. those projects are more vulnerable to the credit constraints facing some builders. applications of building permits an indicator of future activity were also down. >> paul: falling home prices have left some 16 million people owing more on their mortgages than their properties are worth. that negative equity situation is called being "underwater" in the home. and as stephanie dhue reports, until home prices stabilize, more mortgage holders are going to be drowning in debt. >> reporter: realtor tony arko sees first hand what negative equity does to homeowners. he says for many it has put an end to the idea of moving up. >> we're also seeing a lot of people who would normally sell their property holding on to it, or renting it out, so now there are a flood of rentals on the marketplace pressing the rental market. >> reporter: renting isn't always an option for owners who are underwater. some people can't afford to keep making payments, don't qualify for a loan modification and rarely have the cash to make up the loss in a sale. that puts them in a tight spot. >> really there's two options, if they have to sell, it's either selling it short or turning the keys over and going to foreclosure. those are really only the two choices because cutting a check for $100,000 is just not an option. >> reporter: nationwide, deutsche bank predicts more homeowners will be pulled underwater. 27% of mortgage holders find themselves in that position now. but that number could climb to nearly half before prices stabilize, which deutsche bank expects will happen in 2011. research director karen weaver says distressed properties aren't the only thing dragging prices down. >> in addition, we still have some issues with the availability of credit, particularly in the high end, with what are known as jumbo mortgages, we still have high unemployment, we still have low consumer confidence and all of these are contributing to weaker housing demand in the face of rising supply. >> reporter: mark zandi of moody's economy.com thinks that prediction is too gloomy. he says home prices are more affordable, now in line with rents, and the slowing of home construction will reduce supply. >> by this time next year, when house prices stabilize, roughly 30% of homeowners will be underwater, to get to half, you have to see much more measurable price declines. >> reporter: realtor tony arko says property owners in trouble are figuring out how to get their heads above water. >> if only 10%-20% underwater, they see a future, so they are going to stay and do a lot more to stay in the property then someone who is 50% underwater. >> reporter: in a housing bust, it takes on average four years for home prices to reach a bottom and ten years to fully recover. economists expect the most severely underwater homeowners to give up long before that happens. stephanie dhue, "nightly business report", washington. >> paul: after two days to the downside wall street opened with a technical rebound. some of the buying was linked to better than expected results from home depot and target. that helped offset recent worries about weak consumer sentiment. so in a steady advance, the dow posted a 74 point gain by noon with the nasdaq up 21 points. that report showing no wholesale inflation in july helped stocks hold their early gains right on through to the final bell. >> susie: even though stocks rose today, many corporate executives are selling their shares. this uptick in insider selling is often seen as an indicator of market direction. joining us now to talk about that and his market outlook, art hogan, chief market analyst at jefferies and company. >> hi, right a.>> hi. >> what's your take on insider selling? is this a sign that investors should lighten up a bit? >> it's interesting. we take that as a signal, and if you bow did back in history and look at the market timing, insider sales, it doesn't correlate very well. what it does tell us, though. is for the first time in a period of time there's a lot of insiders that feel they've gotten to a point where they're not underwater, not underwater on share prices, meaning a lot of insiders get their stock because of compensation. you know, imagine, if you will, you received stock as compensation at $20, goes to $10, now it's at $22, and up the to make a sale because you don't want to it go back to $10. that doesn't mean it will go to $10 or $25. typically the market senses a negative signal. it's something to keep an eye on. >> susie: over time, so many studies have been done, the trends in insider selling mimics what's going to happen. in march, insiders started buying up, that was the beginning of the rally. now we're seeing them selling, so people are saying this is the beginning of a bear market. should we take it seriously? >> yeah. well, the combination of things we should take seriously certainly. insider selling is one piece of that mosaic. certainly look the at the short interest that's out there, you know, the entirety of the new york stock exchange and the nasdaq marketplace. that shortage has gone down. understand that that means those folks who would have to cover those shorts are no longer in the marketplace as buyers. also understand we're heading into september, which is historically the worst month for the market. >> susie: right. >> i think there's a lot of things to keep our eye on. the largest concern we have away from those three items is certainly the consumer and how tightly the consumer's holding on to their purse strings. >> susie: let me ask you, what's changed? there's been a shift in investor psychology it seems in the last week or so. so what's changed? >> what's changed is we've gotten out of an earnings season, the second quarter than earnings season, which wases a pleasant surprise. everybody was caught off-guard. i think people were underinvested in the market coming into earnings. there's a lot of professional investors this market coming into earnings. i think the shorts got squeezed and people rushed into this market to catch momentum and to get involved, you know, when they were underinvested in the marketplace. so i think we've gotten to a point now where we look at valuations and say, wait a minute, yeah, the second quarter earnings were better, yet we still haven't seen top line revenue. we've seen corporate america's ability to cut costs. i think what's changed is we need a major catalyst to move us forward here or we we have to go through a consolidating period. >> susie: what needs to happen for positive buying? >> a few things. first of all, a shift in psychology in the marketplace right now. i would argue that right now people have been pricing in the here and now, meaning we'll price it exactly where we stand in terms of earnings growth and look at multiples as they pertain to the present versus what the market historically does, which is forward-pricing, looking forward to the first half of 2010, expecting economic growth and earnings growth, and start investing now for that growth looking forward. i think what's happened, because of this economic slow-down, is investors have gotten used to the, okay, this company is not going bankrupt, i'll buy some now. ok, earnings were not as bad as expected, i'll buy some of that now. that's living in the past and the present. investors have to start looking at the future. that hasn't happened yet, but that's the significant shift we'll see. >> susie: all right. give us your advice on what investors should do with their money right now. does it make sense to put new money into the market right now? >> i would tell you three things. first of all, look at your investment time horizon. if you've got a two-year investment time horizon or longer, it's going to be a good time to get in the market, but there's not -- there's not an immediacy, a rush. you don't have to rush into this marketplace. take your time. make your -- make your shopping list of stocks, buy on pullbacks or invest gradually. the other thing i would look at, too, look at your threshold for volatility, because we'll have more volatility, not just over the next two months, but over the next two years. if you don't have the stomach for the kind of volatility, understanding yesterday we were down 2%, today up a percent, those are pretty big moves. >> susie: right. >> you might not to be overexposed. the third thing is look at what you think is going to happen for the next 12 months. we think 2010 will have growth, but slow growth. what's important in a slow growth economy, what's going to do well? technology always does well in a slow growth economy. we need more technology to make us more productive. that's going to be a leader. >> susie: we have 30 seconds. so following those guidelines that you just told us about, give us one or two stocks that you think make sense to put money in right now. >> it's very interesting. look at technology as the top 10 market capitalization stocks in technology could buy the next 90 in the top 100. that's how much cash is on the top line. look at that bottom 90, and look at the viable takeout candidate, two stocks we talked about today, emc and cisco. they're doing very well. they've got money to spend. they could make very smart acquisitions. >> susie: all right, emc and cisco. thank you so much for the tip. thank you so much, art, for coming on the program. >> susie: my guest tonight: art hogan chief market analyst at jefferies and company. >> paul: home depot's second quarter earnings fell 7% as it cut costs to offset weak sales. excluding items, the home- improvement retailer earned 64 cents a share, beating wall street's expectations. home depot also raised its outlook for the full-year as its total number of transactions in the u.s. increased year-over- year for the first time in five years. sales of small items increased but home depot says consumers are still reluctant to spend money on major renovations. >> susie: hewlett packard also reported better than expected quarterly earnings after the bell today. excluding items hp earned 91 cents a share, a penny better than analysts expected. revenue for the world's largest maker of personal computers fell 2% to 27.5 billion. sales of printer supplies, computers and corporate hardware are down. but hp sees some improvements in its consumer pc business. and paul, looking ahead, the company expects to earn $1.12 a share in the current quarter much stronger than analysts thought. >> paul: but susie, in after hours, shares of hewlett packard dropped about 2%, when the c.e.o. said the firm may face continuing weakness in europe. now, let's take a look at some other stocks in the news tonight. and those are the stocks in the news tonight, susie. >> susie: paul, the cash for clunkers program is making a u- turn. sales fell 15% last week, according to edmunds.com the car shopping website. edmonds predicts sales will drop even more over the next few weeks. industry experts believe shoppers interested in "cash for clunkers" have already participated in the program and ambivalent consumers are steering away. well, despite that prediction, general motors is boosting production at several of its factories. encouraged by higher sales from the "cash for clunkers" program. the automaker says it will build 60,000 more vehicles than planned for the third and fourth quarters. two g.m. vehicles, the chevy malibu and the chevy cobalt have been popular with consumers participating in the government's rebate program. since last month, dealers have reported shortages of both. the move will bring more than 1,300 laid-off workers in the us and canada back to the assembly lines. a plant in ohio will add a shift, while another in michigan will increase overtime. >> paul: ford motor is charging ahead with plans to bring electric vehicles to the masses. it's working with a dozen utility companies and the department of energy on a smart charging system that will let electric cars talk to power grids across the country. ford says the system will let owners control when they charge their vehicles and for how long. its first battery electric vehicle, the transit connect commercial van comes to market next and a battery powered ford focus is due in 2011. >> susie: meanwhile, chrysler creditors are suing daimler ag for billions of dollars. they're accusing the german automaker of stripping chrysler of assets before selling it to cerberus capital management two years ago. the creditors claim daimler did that when it separated chrysler financial from its american car- making parent. now, chrysler creditors want a jury to hear the case and decide damages. daimler says the case is without merit. >> paul: tomorrow, while this looks like a normal trading floor second market's making a market in things you can't trade anywhere else. >> susie: the white house says president obama's pay czar will review the $7-million pay package being arranged for a.i.g.'s new c.e.o. a spokesperson for the president said a.i.g. needs good competent leadership that can return the bailed out insurer to profitability. still, incoming ceo robert benmosche could earn millions more in performance-based incentives. last fall, taxpayers paid $182 billion to bail out a.i.g. >> paul: just in time for the holidays, sony is cutting the price of its play station 3 by $100, to 299 bucks. it's also launching a smaller model with a 120 giga-byte hard drive next month. play station sales have fallen behind microsoft's "x-box" and nintendo's wii. but sony's c.e.o. thinks consumer reaction to the price cuts will be "phenomenal." >> susie: here's a look at what's happening tomorrow: >> susie: tonight's of mutual interest commentator says there's a change underway in the mutual fund market with growth funds gaining favor. he's john waggoner mutual fund columnist at "usa today." >> everything goes in cycles. in the spring, the swallows return to capistrano. in the summer, the perseid meteor showers light up the heavens. and every ten years or so, growth funds return to favor. this is one of those times. stock-fund managers fall into two camps: value and growth. value managers look for beaten- up stocks that will return to wall street's graces. growth managers look for stocks of companies with potentially huge earnings growth. value has been the winner for a decade. but now growth stocks are on the rally, and there's a good reason for that. growth stocks fare best with growth is hard to find. in a sluggish economy, investors adore the few companies whose earnings are soaring. the economy is probably starting to grow now, but few are looking for rip-snorting growth. and there are two very good reasons for that. the first is interest rates. when rates rise, borrowing becomes more expensive, and it becomes harder for companies to borrow and expand. short-term interest rates are currently zero, or very close to it. so it's a good bet that rates will rise in the future, and that could keep economic growth muted. given the soaring deficit and the fact that taxes are their lowest in decades it's likely that taxes will rise in the future, too. although paying the debt is a good thing, rising taxes typically dampen the economy. and, in a rare alignment of investing, growth stocks are so cheap these days that even some value managers are looking at them. the drawback to growth funds: when they fall, they fall hard. but management styles often remain in fashion for five years or more. you won't have to wait until the next cycle to jump on. i'm john waggoner. >> paul: recapping today's market action stocks rebound after yesterday's selloff. the dow gained 82 points and the nasdaq added 25 points. to learn more about the stories in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at nbr@pbs.org. >> susie: that's "nightly business report" for tuesday, august 18. i'm susie gharib goodnight, everyone. and good night to you, paul. >> paul: goodnight susie. i'm paul kangas wishing all of you the best of good buys. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org