Transcript: Friday, August 16, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by —

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Ready or not. The Dow having its worst weekly drop of the year. The S&P at its lowest level in a month. Is this the beginning of a stock market correction, or something less dire?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Social sizzlers. And while the market may have cooled off, one sector remains red hot — social media. But can the group keep trending in the eyes of investors?

MATHISEN: And turmoil in Egypt. Some big American companies are halting operations now in Cairo. And as the violence escalates, it`s putting a major defense firm`s multibillion dollar deal in jeopardy.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, August 16th.

GHARIB: Good evening, everyone.

Another milestone on Wall Street today but not a good one. The Dow posted its worst weekly decline for 2013. And it wasn`t only the blue chip struggling. It was a lousy week for most of the major stock indexes. They closed in the red for the second week in a row.

What continues to nag investors is conflicting reports about the economy — like today`s news. A closely watched consumer sentiment survey fell sharply. But there were some strong numbers from housing, and we`ll have more in just a moment.

So, investors played it safe and sold stocks. The Dow lost 30 points, the NASDAQ slipped three, and the S&P off 5.5 points.

Looking at the week, the Dow and S&P tumbled 2 percent, and the NASDAQ was down by 1 1/2 percent.

Meanwhile, in the bond market, the yield on the 10-year treasury note spiked, hitting its highest level in two years.

MATHISEN: So, as stocks taking a tumble this week after shooting higher since the start of the year, the big question is — is this the full-fledged correction that so many on Wall Street have been predicting?

Jackie DeAngelis looks at the evidence, pro and con.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The bears have one-upped the bulls this week on Wall Street, leaving most of the 10 S&P large cap sectors in the red. And the few that aren`t are barely positive. This trend raising some eyebrows on Wall Street with the concern that the long-awaited correction may be taking shape.

Here is Jeremy Siegel of the Wharton School of Business.

JEREMY SIEGEL, PROFESSOR OF FINANCE: Past August, obviously, a 10 percent correction is certainly in the realm of possibility.

DEANGELIS: The worst performers — industrials, materials, and financials. The best of the worst include healthcare, the consumer discretionary group and consumer staples.

Many analyst and market observers have been calling for a correction for sometime but haven`t been able to get the timing quite right. The Fed has been able to keep the market momentum moving, and that had the bull saying that this is just another bump in the road.

(on camera): But what`s happening now is a little different, especially if the yield on the 10-year rises, hitting levels not seen in two years. If the Fed backs off the bond buying program and yields continue to rise, it could have a significant chilling effect on the market, especially on defensive sectors that are sensitive to moves in interest rates.

MacNeil Curry the head of technical strategy for Bank of America
(NYSE:BAC) Merrill Lynch tells me that as rates push higher, so does the anxiety on the street.

MACNEIL CURRY, HEAD OF GLOBAL STRATEGY: Definitely, it is the push higher in interest rates leading to increase in anxiety in equities and obviously forcing them to correct a but to the downside.

DEANGELIS: This leaves a lot of people asking, if the markets are correcting, how big of a move will it be? Only time, of course, will tell.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

GHARIB: Home builders broke ground on more new homes in July. The trouble was that increase was mostly a 20 percent jump in apartment buildings, while construction of more profitable single-family homes actually fell 2 percent. Permits for future construction also fell slightly.

Shares of some of the nation`s biggest builders were mixed today.
Pulte and Lennar (NYSE:LEN) ended higher, while Ryland, D.R. Horton
(NYSE:DHI) and KB Homes closed lower.

MATHISEN: An update now on Detroit`s big bankruptcy. The federal judge presiding over the largest municipal bankruptcy filing in U.S.
history has ordered a mediator in the case to handle negotiations of collective bargaining agreements with the city`s unions and its two largest pension funds. The idea is to save money on litigation against the city and speed up a resolution of this historic bankruptcy.

GHARIB: Turning now to Egypt. Another day of violence and bloodshed as the military police continue their assault on supporters of ousted President Mohamed Morsi.

From Cairo, Yousef Gamal El-Din has more.

(BEGIN VIDEOTAPE)

YOUSEF GAMAL EL-DIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over): A very tense Cairo here tonight as supporters of ousted President Mohamed Morsi continue to clash with security forces, not just here in Cairo but across the country. It started after the protesters called for a million-man march, a Friday of rage after Friday prayers, and that did materialize.

And the skirmishes that happened around the Ramses Square area and also some of the bridges, a lot of people have been killed. The images we`ve seen are very disturbing, very bloody images and also mass gunmen in operation with AK-47s entrenching themselves in battle.

Politically, we have developments from the kingdom of Saudi Arabia which has positioned itself surprisingly perhaps to some with Egyptian government, saying that they stand with Egypt against terrorism. It`s a very rapidly developing story but that`s the update for now.

I`m Yousef Gamal El-Din for NIGHTLY BUSINESS REPORT in Cairo.

(END VIDEOTAPE)

GHARIB: That turmoil in Egypt still driving the price of oil higher, ramping up fears about production and supply disruptions out of the Middle East.

Today, crude rose for the sixth straight day, up 13 cents to settle above $107 a barrel.

MATHISEN: And the deadly violence in Egypt is forcing some big changes in that country`s economy. The Egyptian stock market has been closed now for days and its central bank ordered all banks to be shut during unrest.

Now, some major international firms have halted operations there in response to the unrest, including General Motors (NYSE:GM), Toyota (NYSE:TM), Suzuki, Royal Dutch Shell, and the appliance maker, Electrolux.

GHARIB: Well, the escalating violence may also impact Lockheed Martin (NYSE:LMT), as it tries to figure out what happens next to its multibillion-dollar fighter jet deal.

Jane Wells has that story.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Here is home video from 2007 of Egyptian F-16s flying over Cairo. The jet nicknamed the “Fighting Falcon” is the aerial backbone for many U.S. allies flown by the U.S. Air Force Thunderbirds before sequestration grounded the team and a long time success story for manufacturer Lockheed Martin (NYSE:LMT).

NARRATOR: The F-16 is the standard against every other fighter in the world is judged.

WELLS: But now, Egypt has turned its guns on its own people, and the U.S. is reconsidering whether to supply it with more weapons.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our traditional corporation cannot continue as usual when civilians are being killed in the streets.

WELLS: The hill is reporting a former Pentagon official believes a billion-dollar deal to sell more F-16s to Egypt may be, quote, “dead in the water.”

The Defense Department says, quote, “This is a delay in delivery, not a termination. The program is not off.”

(on camera): The Defense Department had already announced a delay of
F-16 deliveries in July as the streets of Egypt heated up but with this week`s blood bath, President Obama cancelled a joint military exercise and Defense Secretary Chuck Hagel warned Egypt`s military that it`s putting, quote, “important elements of our long-standing defense cooperation at risk.”

(voice-over): What does it mean to Lockheed? There is some confusion. Lockheed says the sell of 20 planes is worth nearly $800 million and 14 have been delivered. The Pentagon says only eight have been delivered and four are in limbo and that the sale is worth twice what Lockheed says.

Regardless, for the last two quarters, Lockheed has reported a drop in overall F-16 deliveries as business shifts to the F-35.

Two analysts tells CNBC they believe the U.S. government may end up on the hook for the jets if they do not go to Egypt as all foreign military sales have to be brokered by the Pentagon. Finding another buyer, though, may not be difficult. The only question could be at what price.

For NIGHTLY BUSINESS REPORT, I`m Jane Wells.

(END VIDEOTAPE)

MATHISEN: Coming up, this month has not been kind to the overall market but there`s one sector that would love the dog days of August to go on forever.

First, though, a check on today`s Dow`s winners and losers.

(MUSIC)

MATHISEN: There`s news tonight in the seemingly endless battle to take over Dell (NASDAQ:DELL). A judge in Delaware ruled against billionaire activist investor Carl Icahn today dismissing his attempt to fast track a lawsuit against the computer maker and its board over support for founder Michael Dell`s offer to take the company private.

This paves the way for a September 12th shareholder vote on Dell`s $25 billion buyout offer and on Icahn`s counter offer which would keep part of the company public.

GHARIB: Disney (NYSE:DIS) is turning to some of its best-known characters to boost sales. The company`s Disney (NYSE:DIS) Infinity roster of games and figurines will hit stores this Sunday featuring classic movies and TV show character like Mickey Mouse and Toy Story`s Buzz Lightyear.

MATHISEN: AOL (NYSE:AOL) is reportedly sending pink slips to as many as 500 workers, nearly half the workforce at its Patch local news Web site network. The media company it plans to consolidate or close Patch sites to cut costs and partner with other media firms in some locations.

Earlier this week, as you may have heard, AOL`s CEO Tim Armstrong took a lot of heat after he was recorded firing Patch`s creative director during a meeting on the future of Patch.

GHARIB: Shares of AOL (NYSE:AOL) closed slightly lower today but August has been a sizzling hot month for the company and several other media stocks.

Julia Boorstin breaks down some of the biggest winners and what`s driving those shares higher.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Shares of streaming music service Pandora shot as much as 6 percent higher today, thanks to a Goldman Sachs (NYSE:GS) upgrade that dismissed competition concerns pointing to the promise in local advertising growth, bringing the stock up 11 percent for the month.

MARK MAHANEY, RBC CAPITAL MARKETS: This company has had three quarters in a row of accelerating mobile modernization and they`re starting to crack the biggest cost over hang on the company, which are the content royalty costs.

BOORSTIN: Pandora doesn`t report earnings until Thursday, but several other stocks have gained on better-than-expected results.

LinkedIn (NYSE:LNKD) is up 12 percent in August, thanks to earnings that soared past expectations. The stock hitting an all-time high Monday after a Needham analyst upgraded the stock to buy on, quote, “unexploited growth opportunities.”

Groupon (NASDAQ:GRPN) benefited from signs that its local mobile strategy is working. But perhaps the biggest fact tomorrow behind the 8 percent gain this month is news that interim co-CEO, cofounder, Eric Lefkofsky, is permanently taking on the CEO role.

MAHANEY: We`ve seen the stocks do well in part because they have nicely beaten numbers on the quarter but the big picture there is they have shown success in migrating the mobile transition.

BOORSTIN (on camera): And it`s not just social media stocks bucking the market`s downward trend. Two traditional media stocks are also having a good month.

Viacom (NYSE:VIA) is up about 7 percent after reporting a 20 percent gain in net income and another 2 billion-dollar stock buyback.

While newly spun-off 21st Century Fox is up 27 percent after an upbeat outlook in its investor day presentations.

The real loser in August is Zynga (NASDAQ:ZNGA), continuing its fall since the end of July when it ditched efforts to pursue gambling in the U.S. and revealed a weak outlook.

While Facebook (NASDAQ:FB) is up just 1 percent this month, it`s up 40 percent since its better-than-expected earnings on July 24th.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

MATHISEN: Another online company getting a boost today and that leads our market focus segment tonight. Trulia, Web site real estate company, received positive comments from Goldman Sachs (NYSE:GS), the analysts there reiterating its buy rating on the stock and setting a price target of $48 a share. The stock rose more than 5 percent and settled at $46.10.

Shares of J.C. Penney are lower after the retailer came to agreement with its largest shareholder Bill Ackman that will allow him to completely part ways from the company. Under the deal, Pershing Squares` Ackman can make up to four requests to the company to sell his stock, but he has to wait until at least Tuesday, when J.C. Penney is scheduled to report earnings. Ackman recently ended his public dispute with the retailer by resigning from Penney`s board. The stock dropped 3 percent today and finished at $13.40.

And yet another retailer is issuing a profit warning. The latest Joseph A. Bank which yesterday said second quarter results will fall short of expectations. The men`s retailer said its promotional marketing campaign failed to resonate with the consumers and led to a decline in sales. The stock down 7 percent to $41 even.

GHARIB: Different story, Green Mountain Coffee Roasters (NASDAQ:GMCR), the stock getting a lift. And the stock will join the NASDAQ 100 index next Thursday replacing Life Technologies (NASDAQ:LIFE), which was sold to Thermo Fisher. The stock rising 3 percent to $76.38. It has tripled over the past year.

And shares of National Technical Systems (NASDAQ:NTSC) soaring today after agreeing to be taken private by Aurora Capital Group. It`s a cash deal for almost 300 million dollar that works out to $23 a share. National technical is a testing and engineering services company. The stock rallied
38 percent to $22.89.

MATHISEN: Well, Susie, our market monitor guest tonight says, despite the highs and lows in the market, he is maintaining the 1,700 target on the S&P 500.

And here to tell us why is Rich Steinberg, president and chief investment officer of Steinberg Global Asset Management.

Why shouldn`t I be frightened this week, Rich? It was pretty ugly out there?

RICHARD STEINBERG, STEINBERG GLOBAL ASSET MANAGEMENT: Yes, listen, Tyler, the market had a big run. This was a 2 percent throw back. I think it feels a little bit more jumpy because investors were getting greedy.
They were moving money out of bonds and into stocks, because they saw their bonds going down for the first time in 10-plus years.

So you have some people that put money into the market and then said, oh, maybe I made a mistake. So, this is all part of the process. The market will settle in here, 1,700 would be roughly 15 1/2 times our $110 target.

GHARIB: All right. Let`s turn to some of the viewer questions, Rich.
We have Michael from Berkeley, California, wanting to get your views on Salesforce.com (NYSE:CRM).

What do you think?

STEINBERG: Well, this is a classic stock that you have to differentiate between a great company, and a great product and a great stock. Great company, not a great stock, trading at 138 times earnings, of this year`s earnings. The company has made some pretty aggressive acquisitions that may not pan out. Insiders are selling.

It`s a stock that wouldn`t fit our criteria.

MATHISEN: A hundred thirty-eight times earnings. A lot has to go well.

Bruce L. owns shares of American Electric Power (NYSE:AEP), and wants to know your position on that one, AEP.

STEINBERG: AEP is a utility based in Columbus, Ohio, really well-run company. The issue with the 10-year at over 2.8 percent, utility is out of favor and yields 4.5 percent, really well-run company. Probably a name you can own but you`re going to realize that there`s going to be someone in your face with interest rates. You could buy it at lower levels but probably not right now.

GHARIB: Let`s turn now to some of your own recommendations, stocks that you are putting in your portfolio. The first one on the list National Oilwell Varco, NOV. Why do you like it?

STEINBERG: This is a really well-run company. They are in the equipment business for drilling in both oil and natural gas. The stock is trading at under 12 times next year`s earnings. They have a great backlog and we have an $85 target.

So, it fits the growth as a reasonable price. You`re being able to buy a growth company at value prices.

MATHISEN: So let`s move back to a question on the market. At $16.55 today, how close are we to the point you might be adding to your equity positions if you think we`re going to end the year at something at 1,700, maybe a little higher?

STEINBERG: We`ve had a lot of cash come in with new money, as well as we got defensive as our stocks reached targets and actually today and specifically in our dividends and our ETF models, we started to nibble stocks here, Tyler, as an entry point to ease in maybe again at the $16.25 level and, again, we picked up the evaluation support at 1,600. We could be in a trading range of 1,600 to 1,700. It gives us pretty good entry points on the names we want to own here.

GHARIB: So, what do you think investors should do, individual investors?

STEINBERG: Well, I think it depends on their asset allocation. If you`re a bond investor, you have to reduce the risk. The analogy that I would give you is like the old fashion Muhammad Ali, rope-a-dope, get in the corner, have cash around, take your punches and then come out swinging as rates go to a level where you can use that income to live your lifestyle.

For equities, nearly think about in 2008 and in bad markets, how you felt about over exposure to equities and just make sure that you`re in balance. If you have cash, don`t let frightening weeks like this where you`re down 2 percent take you off your game. Have a strategy to put money to work at levels that you think are reasonable. That`s where we`re in today.

MATHISEN: Final — final quick question, one sector that you love, one sector that you loathe right now?

STEINBERG: Well, a sector that we don`t have enough exposure to right now that I think we`re going to love soon will be Europe. It looks like they`re just coming out of recession. It`s kind of a wait-and-see.
Germany`s numbers were good this week. France numbers were good.

So, we`re starting to look at European names again for the first time since `08, and I think you have to be underweight utilities. Everybody wants to own dividend stocks and our dividend portfolio were way under weight the utility sector, and I think it`s an area that you really have to be careful of and wait until yields come your way.

MATHISEN: Do you guys own any of the stocks we mentioned? I guess we know you own Oilwell Varco and the financial. But how about any of the others?

STEINBERG: We do not own the other two.

MATHISEN: All right. Rich, thanks —

STEINBERG: And I don`t own any of them personally.

MATHISEN: Fantastic. Rich, thank you for a very helpful conversation. Rich Steinberg of Steinberg Global Asset Management.

GHARIB: And still ahead on NIGHTLY BUSINESS REPORT, blame it on the rain. Many retailers do, using the weather as an excuse for poor results.
But this time around, it might be true.

But, first, let`s get a check on how commodities, treasuries and currencies fared today.

(MUSIC)

GHARIB: It`s been a rough week for investors in retailer stocks. The nation`s big retailers have been complaining their consumers aren`t spending much these days. They also blame the weather.

But how much does bad weather really hurt sales or good weather help?

Courtney Reagan has the story.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s been a cool, wet summer for many regions of the country, and that`s hitting retailers` bottom lines. Recently, a number of retailers including Macy`s and behemoth Wal-Mart (NYSE:WMT) have cited cooler late spring and early summer weather for crimping sales of warm weather goods, resulting in larger-than-expected markdowns.

Good for consumers looking for a deal, but bad news for stores looking to build profit.

(on camera): It`s certainly harder to sell shorts and swimsuits when shopper haves goose bumps from the temperatures outside. But summer is almost over and the cooler weather is being welcomed by retailers hoping to sell corduroys and sweaters at full price for back to school.

(voice-over): The Weather Channel forecasts the weather this fall will be more typical for the season, a far cry from last year`s warm temperatures. An extension of the hottest summer in 110 years, a normal fall will be welcome news for the Gap (NYSE:GPS), Macy`s (NYSE:M) and Kohl`s (NYSE:KSS).

PAUL WALSH: The net benefit is not going to be a direct relation of the weather as much as it is the sentiment change that this cool weather has caused, meaning all of a sudden, when we were waking up in the morning and have to put on a sweatshirt and it`s just — it`s early August, that basically then translates into people thinking that they need to start getting ready for back to school.

UNIDENTIFIED FEMALE: It`s a little cooler out, you know, start thinking about bringing out winter gear, but try to avoid it, as long as I can.

UNIDENTIFIED MALE: I can probably use a couple more long-sleeve shirts.

UNIDENTIFIED MALE: I`m climate driven. Yes.

UNIDENTIFIED MALE: Until I`m sitting there, freezing cold and I realize I have nothing to wear. So, when that happens, I`ll try to run to the store and do something.

REAGAN: While kids going back to school hope for a late summer surge, retailers are anxious for the thermometers to drop. The lower the temperatures in the fall, the higher the profit margins for retailers.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: It looks like the race to be the first to come out with a wearable computer device is close to being won. Reports say that South Korea`s Samsung will unveil a wristwatch-like smart device in Berlin on September 4th, a few days ahead of an expected new product announcement from Apple (NASDAQ:AAPL) on September 10th.

GHARIB: General Motors (NYSE:GM) is recalling nearly 300,000 Chevy Cruze compact cars. The automaker has to fix a power-assisted brake failure on 2011 and 2012 model year Cruzes that have caused low-speed cashes but no reported injuries.

MATHISEN: And Ford Motors will be sending a whole bunch of checks to owners and lessees of its C-MAX hybrid sedans. That`s after the actual miles per gallon on the car, 9 percent lower than Ford claims it to be on its window stickers. Oops.

To make amends, checks for $550 to owners and $325 for people who lease C-MAX hybrid and Ford will change its claim from 47 miles a gallon down to 43.

GHARIB: And now for car lovers and investors — a look at one of the world`s premiere auto shows, the Annual Concours d`Elegance in Pebble Beach, California, is featuring a stunning array of antique and collectible cars. And with price tags that run in the seven figures, it`s the latest sign that vintage cars have become a red-hot investment vehicle.

Robert Frank has more.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The stock market may have hit speed bump but the prices for collectible cars are on a tear. Here at Pebble Beach, auction houses are expected to sell more than $300 million worth of cars. That would be an all-time record topping last year`s $265 million and that`s twice the pre-crisis record.

IAN KELLEHER, RM AUCTIONS CAR SPECIALIST: It`s been pretty hot. The values have been rising fairly consistently with certain areas and certain segments having more buoyancy and kind of a little bit more excitement behind them especially at auction.

FRANK: More than 100 cars are expected to sell for $100 million and
$10 million is the new million when it comes to these top cars.

MCKEEL HAGERTY, HAGERTY INSURANCE PRESIDENT & CEO: When people talk about million dollar cars, that`s pretty easy now for me to understand. As hard as it is to imagine, but now, it`s $10 million cars and $20 million cars, and there are actually some $50 million cars. And while that was impossible to imagine, I know people starting to talk about what`s going to be the first $100 million car.

FRANK: Right now, the wealthy are rushing into hard assets that not only bring in returns, but also have an added bonus.

MARK HYMAN, CLASSIC CAR COLLECTOR: When the stock goes down 3 percent, you`re all upset. So, buy a car, it`s more fun.

FRANK: The car that`s expected to fetch the highest price this weekend is Ferrari NART, estimate: $17 to $17 million.

(on camera): But the battle for the top price will be with this car:
a 1957, 250 GT Berlinetta that could fetch between $9 million to $11 million.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank, Pebble Beach.

(END VIDEOTAPE)

MATHISEN: Like cars like that.

GHARIB: Love them. I`m drooling. I love to test drive some of those Ferraris.

MATHISEN: We have a neighbor who has a restored checkered cab like you used to see in New York on the streets. Beautiful piece of work.

GHARIB: This is a completely different level.

MATHISEN: This is a different level than that but it`s a nice set of wheels, I tell you.

GHARIB: That`s NIGHTLY BUSINESS REPORT —

MATHISEN: And he doesn`t charge me when he takes me for a ride, unlike a cabbie.

GHARIB: Have a great weekend, everyone.

MATHISEN: All right. That will do it for NIGHTLY BUSINESS REPORT for a Friday. I`m Tyler Mathisen. Thanks for watching. We`ll see you back here on Monday.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.

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