Transcript: Monday, September 16, 2013

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

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Rally on. The blue chips close within a few points of all-time highs, as investors cheer the withdrawal of a top candidate to be the next Fed chief.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Busy agenda. A critical Fed meeting starts tomorrow. Just around the corner, the debt ceiling debate and a possible budget stalemate. How should you prepare your portfolio?

MATHISEN: And rampage at the Navy Yard. At least 13 are dead in a mass shooting at a federal installation, blocks from the Capitol and the White House.

This is NIGHTLY BUSINESS REPORT for Monday, September 16th.

And, good evening, everyone. I`m Tyler Mathisen.

HERERA: And I`m Sue Herrera. I`m in tonight for Susie Gharib.

Stocks rallied today on news that former Treasury Secretary Larry Summers dropped out of the race to be the next chairman of the Federal Reserve, saying his confirmation process would likely be acrimonious and it wouldn`t serve the interests of the Fed or the economy. We`ll talk more about Summers` decision and what`s next for the Fed, in just a moment.

For today, with Summers out of contention, traders believe the easy money policies will continue in the post-Bernanke era. So, the Dow saw another triple-digit gain despite concerns about a horrific shooting at a Navy facility in Washington, D.C. The Dow closing well off the highs of the session, but it`s still added 118 points. The S&P was up 9. But the NASDAQ ended down 4 points hurt by shares of Apple (NASDAQ:AAPL) which declined 3 percent on news that China Telecom (NYSE:CHA) was cutting back on subsidies for the iPhone.

MATHISEN: Well, even before Lawrence Summers bowed out of the running to lead the Federal Reserve this was sure to be a week where the Fed moves front and center. Tomorrow, a two-day policy setting meeting begins one of the most eagerly anticipated in years as the Central Bank weighs whether or how much to cut back its stimulus programs.

Steve Liesman spells out the stakes.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the departure of Larry Summers in the race to be the next Fed chairman, current vice chair Janet Yellen has emerged as the front-runner. In a survey on Monday by CNBC of leading Wall Street economist strategists and money managers, 88 percent now expect President Obama to nominate Yellen to succeed the outgoing Fed Chairman Ben Bernanke.

For the markets, the departure of Summers was good news. Surveys showed Wall Street preferred Yellen 5-1 over Summers. In part, Summers was seen as being less comfortable with the Fed`s current easy monetary policy compared with Yellen.

There was also just uncertainty surrounding someone like Summers coming in and taking over, who has not been part of the current board and its policies. CNBC asked respondents to grade Summers, Yellen and Fed Chair Bernanke on 10 qualifications for the top job at the nation`s central bank. In the overall score, Summers finished last.

Yellen graded higher than Summers in eight of 10 categories, including political and communication skills, monetary policy expertise, respect from other financial officials around the world and ability to manage a financial crisis, along with banking regulatory expertise.

There was some suggestion from the White House today that President Obama could move the next couple of weeks to appoint Bernanke successor. That would remove a significant cloud of uncertainty for markets, especially if the nominee is Yellen, who was well known by Wall Street expected to continue Bernanke`s policies and is seen as being easy to confirm in a fractious Senate.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: Well, the Fed`s next move on its stimulus plans and the selection for the next chairman of the Federal Reserve aren`t the only fiscal worries hanging over President Obama`s head right now. There`s the issue of how to fund the U.S. government and the battle that`s brewing over raising the nation`s debt ceiling.

John Harwood joins us with more on what`s the president`s agenda right now.

John, does the Summers exit throw a bit of a wrench into the rest of the president`s plans or not?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: I don`t think so. It`ll probably remove a heavy lift politically that the administration was looking at to deal with Democratic opposition to Larry Summers and Republican opposition to Summers as there is Republican opposition to just about anything the president wants to do. So, in that respect, a smooth confirmation for Janet Yellen in addition to fueling more confidence in the stock market as we saw today will probably make it easier to focus on extending government funding and raising the debt limit. Those problems are going to be hard enough as it is.

MATHISEN: You know, John, Mr. Summers said he was withdrawing because he feared his confirmation hearings if he were to be appointed would be acrimonious. But how acrimonious are the proceedings going to be with respect to those budget resolutions and to the debt ceiling? They`re not going to be exactly friendly, are they?

HARWOOD: Extremely acrimonious. This is a very difficult problem. We saw last week, Republican leaders in the House floated a solution to extend government funding because they don`t want a government shutdown. They believe it would backfire in the Republican Party.

But conservatives in the Republican House Caucus submarined that proposal because they didn`t like it. They didn`t think it was aggressive enough in going after Obamacare. The same dynamic is going to play out on the debt limit because Republicans have very ambitious demands for spending cuts, for reforms to entitlement programs, to changes in Obamacare that the president clearly on current terms is not willing to meet.

HERERA: John, today the president gave a news briefing, and he basically threw down the gauntlet and said to Republicans, listen, your job is to get this done, let`s not let the country default, let`s not get into this impasse over the budget, over the stalemate, but how effective do you think those words are going to be?

HARWOOD: Very difficult to know. The administration is calculating that Republican leaders` desire to avoid a shutdown or debt crisis is so strong that they are going to simply force their members to accept a solution, whether it`s something that Republican members vote for even though don`t like it, or that they allow Democrats to vote for and some Republicans to get a majority. It is simply not clear how that`s going to happen. Very tough box that both Senate Republican leader Mitch McConnell and House Speaker John Boehner and Leader Eric Cantor are in.

MATHISEN: All right. John Harwood on the White House lawn — thanks very much.

Well, joining us to talk more about the Fed, the markets and the president`s agenda and what it means for you is David Kelly. He`s chief global strategist at JPMorgan (NYSE:JPM) Funds.

So, David, why did the market see it as such a positive the withdrawal of Larry Summers as a possible Fed chief?

DAVID KELLY, JP MORGAN FUNDS CHIEF GLOBAL STRATEGIST: Well, it`s all about uncertainty. The stock market hates uncertainty, and there were two forms of uncertainty to the Summers` nomination.

First of all, he was quite right. It would have been a drawn out confirmation battle and it might have gotten stalled in committee. So, if you remove that, that removes some uncertainty.

And also even though Larry Summers is actually better known than Janet Yellen, Janet Yellen`s views on monetary policy are extremely clear. They`re very well laid out. We know exactly what we get if we have a Janet Yellen succession to Ben Bernanke.

So, removing uncertainty about those two issues I think is really what`s behind the market move today.

HERERA: And it was a strong market move as we said. We finished off the highs. But, David, how long do you think that kind of performance can last, given the fact that we`ve had some mixed economic data lately?

KELLY: Well, you know, there`s a difference between strengthening and tightening, and I think it`s very important to establish about the economy. Overall, this is not a very strong economy but the labor market is tightening. That`s absolutely clear.

And so, you know, I think the economy doesn`t look as if it`s growing very fast but it`s growing fast enough to push the unemployment rate down and I think that does mean that we will gradually see a removal of Fed easing of QE and also, you know, higher interest rates and, you know, I think the economy keeps on growing.

So I think the market will move up but it could get a lot bumpier, you know. I know John was talking about the budget battles that have gone ahead of us and I think it could be a little bumpy over the next few months. But generally, the direction I still think is up.

MATHISEN: Do you expect to hear the Federal Reserve on Wednesday when Mr. Bernanke has his press conference say that they`re going to ratchet back the bond-buying. And if so, by how much per month? And what effect, if any, do you think it`s going to have on the markets or have the markets already discounted it?

KELLY: I think they will and I think the market might be a little disappointed by that. Certainly foreign markets may think the withdrawal of Summers` nomination somehow means some sort of tilt away from this tapering but the Federal Reserve has to get rid of this program. The economy is him improving. Over the next nine months, we expect them to phase it out, you know, maybe it`s $10 billion of, you know, less purchases going forward, maybe that`s what they announced this Wednesday.

But either way over the next nine month, they`re going to go from $85 billion purchases to basically zero. And that I think will have a significant impact in pushing long-term interest rates up even further than they`ve already moved up.

HERERA: That was going to be my next question. You have ESP, David.

How much further do you think interest rate will move near term if, indeed, the Fed moves as you laid out?

KELLY: Well, I think over the next year, as we remove this program and as individual investors also rotate a little bit away from fixed income, I think you could ten-year treasury yields move up to 3 1/2, maybe even to 3 1/2 to 4 1/2 percent range. I don`t think they`ll go over four. I think the Federal Reserve will make it clear that they don`t want to see rates move that high and could, you know, halt this tapering of bond purchases if rates do move too high.

So I think, you know, moving from close to 3 percent to somewhere in the 3 1/2 percent maybe 3 inform to 4 percent range over the next year is what we pretty much expect.

MATHISEN: David, I don`t mean to push you too hard here, but what is your favorite global stock market right now for the next year?

KELLY: Well, you go look at it in terms of gains and also volatility. I think the U.S. stock market should be relatively steady in its increase. Overall European stock markets, though, got the most room to make up here. Europe is very depressed. There are signs Europe is turning the corner here and if you reduce global risk, if Europe does begin to turn the corner, you know, it`s usually those markets beaten down and there`s a lot of pessimism, that`s usually where you get the biggest gains.

So, it could be a lot more volatile overseas but I think the biggest gains probably will come in overseas markets.

MATHISEN: David, I knew I could count on you. David Kelly, always great to see — chief global strategist at JPMorgan (NYSE:JPM) Funds.

HERERA: JPMorgan (NYSE:JPM) may be close to paying an astonishing $800 million in fines to several financial regulators. The nation`s biggest bank is reportedly nearing a settlement with the Federal Reserve, the SEC, and the Office of the Comptroller of the Currency over charges of shoddy supervision related to the so-called “London Whale” fiasco and $6 billion in trading losses last year.

MATHISEN: Well, some other banks, Sue, had reported better news today. Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), Citigroup (NYSE:C) all passed their midyear stress test, proving to the Federal Reserve that they have enough capital in reserve to withstand another severe economic downturn. All three of those banks stocks finished the day higher.

HERERA: Well, Ty, we have another technology glitch which impacted trading on four major exchanges for awhile today. This time it was stock options exchanges that were forced to halt trading for about 20 minutes this afternoon following a breakdown in the data feed that supplies options price quotes to traders.

MATHISEN: Far from Wall Street, just three miles from the White House, in fact, at least one gunman opened fire inside the Washington Navy Yard, a heavily secured military installation, leaving at least 13 dead including the shooter.

Eamon Javers joins us now from Washington with the latest on a mass murder so close to the White House and Capitol — Eamon.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hey, guys. Well, what we`re seeing right now is the situation where we know that there are 13 dead here at the Washington Navy Yard, including the shooter and we`re learning more information about the man who committed this horrendous act at about 8:20 this morning. His name is Aaron Alexis. He`s 34 years old.

And there`s previous incident on his record that might have raised some scrutiny if people had paid attention to it at the time he got his clearance to work as a Defense Department or a military contractor in this facility. He was arrested September 4th of 2010 by the Ft. Worth police — excuse me, Ft. Worth police in Ft. Worth, Texas. He was arrested for recklessly discharging a firearm within the limits of a municipality. That`s considered a Class A misdemeanor. It was determined there that he was cleaning his gun in that instance.

So, we had folks on lockdown here all day today. As you can see behind me is more police officers escorting out folks from the base as they`re being released, being released in buses. So we`re having large groups of people bussed out with police escort. They`re being moved to an offsite position. Some of those people will be witnesses, of course, to today`s atrocity and they`ll be interviewed by authorities to try to gather more information.

But this facility was on lockdown today. The United States Senate was on lockdown today. Now, we`re seeing the security presence here lighten up a little bit but it is still pretty intense and they still describe this as an active scene, guys.

Back to you.

HERERA: Eamon Javers in Washington — Eamon, thank you very much.

Still ahead, the U.S. and Russia reached a deal to eliminate Syria`s chemical weapons as the U.S. confirms the use of sarin gas in the massacre last month. But getting rid of chemical weapons may be a lot easier said than done.

First, how the international markets closed today.

(MUSIC)

MATHISEN: We begin tonight`s “Market Focus” with a $1.3 billion deal. Packaging Corporation of America is buying the packaging and paper products company, Boise (NYSE:BZ.W) (NYSE:BZ). The deal expands Packaging Corp`s container board business and will boost its presence in the Pacific Northwest. Shares of Boise (NYSE:BZ.W) (NYSE:BZ) up 26 percent to $12.56; Packaging Incorporation of America up 10 percent to $60.43. The deal also giving other container board makers a boost, including Rock Tenn and Kapstone Paper and Packaging.

Well, a cash generating juggernaut, that is how Sterne Agee characterizes Boeing (NYSE:BA) over the next several years, boosting its price target on the stock to $164 a share. The investment bank says increased production of the 787 should give it a considerable boost to free cash flow and separately, Boeing (NYSE:BA) is reportedly close to sealing a South Korean fighter jet deal worth almost $8 billion.

Boeing (NYSE:BA) hit an all-time high up almost 4 percent, $115.67 the close, making it the best performing stock on the Dow.

HERERA: Allegheny Technologies (NYSE:ATI), which is a specialty metals producer, agreeing to sell its tungsten materials business to Kennametal (NYSE:KMT) for more than $600 million. Kennametal (NYSE:KMT) says that that sale will help booster its sales to the aerospace and energy markets. Allegheny, the best performing stock on the S&P today, gained 8 percent to $30.95. Kennametal (NYSE:KMT) rose just a fraction, to finish at $46.39.

And late today, Outerwall, which recently changed its name from Coinstar (NASDAQ:CSTR), slashed its earnings guidance for the current quarter and full year. The kiosk operator said red box rentals didn`t meet expectations and that promotions also hurt its bottom line. The stock fell 2 percent in the regular session to 55.97 but then dropped sharply in after-hours trading.

The United Nations says there is, quote, “clear and convincing” evidence that chemical weapons were used in an attack that killed hundreds of Syrians including many children last month. This is the first official confirmation by scientific experts that the nerve agent sarin gas was used in Syria`s civil war. But the U.N. doesn`t specify who used them. A top French diplomat, however, said that the evidence, quote, “leaves no doubt that the Syrian government was responsible.”

Ban Ki-moon, secretary-general of the United Nations, stressed the importance of the deal brokered by the U.S. and Russia over the weekend to secure those weapons and ultimately destroy them.

(BEGIN VIDEO CLIP)

BAN KI-MOON, U.N. SECRETARY GENERAL: This is the most significant confirmed use of chemical weapons against civilians since Saddam Hussein used them in Halabja in 1988. The international community has a responsibility to ensure that chemical weapons never re-emerge as an instrument of warfare.

(END VIDEO CLIP)

HERERA: The international group that will oversee the destruction of Syria`s chemical weapons stockpile says the work will begin within days. But if the past is any guide, that job could take years to complete.

And as Scott Cohn reports, no country knows that better than the United States.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): These giant canisters of the nerve agent VX were part of the deadliest chemical arsenal on earth, much of it manufactured and stored at this depot in western Indiana. When we visited the site in 1997, we had to wear gas masks and carry an injection kit just in case. A single drop could kill an adult in a matter of minutes.

That year the U.S. had just agreed to destroy its entire stockpile.

UNIDENTIFIED MALE: We don`t need it anymore. We don`t want it anymore.

COHN: Today, the VX is gone and the county is turning the site into an industrial park, including the bunkers where the VX was stored.

But getting here has literally taken decades.

RICHARD NIXON, FORMER U.S. PRESIDENT: By the examples that we set today, we hope to contribute to an atmosphere of peace and understanding between all nations.

COHN: President Nixon was the first to renounce U.S. chemical weapons in 1969. Forty-four years and $40 billion later, the U.S. still hasn`t destroyed all of its stockpile. Seven sites including Indiana are shut down but two remain, containing 3,000 tons of mustard gas, sarin and VX.

The U.S. estimates it will take another 10 years to complete the job, 16 years after the original deadline.

(on camera): What took so long? The chemical themselves are difficult to neutralize and because they`re dangerous to transport, special plants had to be built at each of the U.S. sites.

(voice-over): In Syria, the agreement calls for destroying or removing the weapons in less than a year and doing it in the middle of a civil war.

BRUCE BENNETT, RAND CORPORATION SR. DEFENSE ANALYST: You`re probably talking about, oh, 500 to 1,000 or so people that would be required to support that operation and they`ve got to get to the right place.

COHN: At about 1,000 ton, the Syrian arsenal is much smaller than even what`s left of the U.S. stash. But experts fear Syria still has the ingredients it needs to make more chemical weapons once its existing arsenal is gone.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn.

(END VIDEOTAPE)

MATHISEN: Coming up, Dick Fuld, Angelo Mozilo, Jimmy Cayne, Erin Callan, Chuck Prince, some of the biggest players in the financial crisis. Five years later, we look at where they are now.

First, the stocks that have gained the most and lost the most since the fall of Lehman Brothers five years ago.

(MUSIC)

HERERA: Chrysler may be going public. The CEO of Italy`s Fiat, the majority owner of Chrysler Motors, told “The Financial Times” that the U.S. automaker is ready to file paperwork as soon as this week to begin selling stock to the public once again. There`s a bit of a holdup, though, talks between Fiat and a United Auto Workers health care trust which owns 41 percent of Chrysler are at an impasse over how much that stake is worth.

MATHISEN: Well, you may recall that Chrysler was one of several big companies bailed out by the government during the depths of the financial crisis. Today, President Obama marked the fifth anniversary of the collapse of Lehman Brothers and the apex of the crisis by touting how much safer the U.S. economy is right now. The president says his administration has laid a, quote, “new foundation for a stronger economy,” but gave much of the credit for the recovery to ordinary Americans.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: All of this happened because ultimately of the resilience and the grit of the American people, and we should be proud of that. And on this five-year anniversary we should take note of how far we`ve come from where we were five years ago.

(END VIDEO CLIP)

HERERA: Well, one of the biggest names in banking during the outbreak of the financial crisis is speaking out about the reforms in the banking system. Bob Diamond, the former chief executive at Barclays Bank is calling for more international coordination between regulators to make progress on so-called “too big to fail laws”. Diamond says banks took on way too much risk in the years leading up to the financial crisis and that new regulations have helped reduce some of that risk.

MATHISEN: Diamond was one of the top bankers at the center of the crisis five years ago. But there are dozens of others, some of whom are still in the same jobs they held back then.

Andrew Ross Sorkin author of the definitive history “Too Big to Fail”, reports on where some others are now.

(BEGIN VIDEOTAPE)

ANDREW ROSS SORKIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Dick Fuld was a star on Wall Street, the longest running CEO of any firm. In 2007, he mounted a vicious campaign against short sellers that he said were trying to put Lehman out of business.

DICK FULD, FORMER CEO, LEHMAN BROTHERS: What I really want to do is I want to reach in, rip out their heart and eat it before they die.

SORKIN: Five years after Lehman`s collapse, Fuld is chastened. He has a small consulting firm in Manhattan, no high-profile clients or at least none that are saying so. Of the clients he does have, one warned his tarnished reputation could potentially be damaging.

Fuld has spent much of the five years ago trying to avoid criminal and civil charges. He ran up legal bills into the million of dollars, much of it paid for by the Lehman estate. The DOJ and SEC dropped their investigations after they concluded they didn`t have enough evidence against him.

While he rode his Lehman stock all the way down from a billion down to $56,000, he`s not exactly poor. He still has his Greenwich mansion worth over $8 million and he sold a Park Avenue apartment and art now $46 million. But he has told friends and others he is still consumed thinking about Lehman Brothers.

Since stepping down as Bear Stearns` CEO in January of 2008, Jimmy Cayne has stayed out of the banking business, focusing instead on the contract bridge circuit, where he`s currently ranked 23 in the world. In addition to his $25 million apartment at Plaza Hotel in Manhattan, Cayne owns a home on the Jersey Shore and condo in Boca Raton.

Erin Callan, a rising star at Lehman Brothers and Wall Street`s first female CFO. Three months before Lehman went bankrupt, Callan told CNBC the firm was headed in the right direction.

ERIN CALLAN, FORMER CFO, LEHMAN BROTHERS: We are in a great spot now with this capital behind us, with wind in our sails.

SORKIN: After she left Lehman in June 2008, she did a brief stint at Credit Suisse before leaving the business in New York altogether. She declined to do press until the recent lean-in debate prompted her to write an op-ed in “The New York Times (NYSE:NYT)” on the work/life balance debate.

In 2007, Countrywide CEO Angelo Mozilo low adamantly told CNBC that his company wasn`t going anywhere.

ANGELO MOZILO, FORMER CEO, COUNTRYWIDE: There is no more chance for bankruptcy today to Countrywide than it was six months ago, a year ago, two years ago, and when the stock was $45 a share. We were a very solid company.

SORKIN: Three years later with Countrywide having been purchased by Bank of America (NYSE:BAC), Mozilo paid out over $67 million to settle fraud and insider trading charges filed against him by the SEC. Banned from serving at any publicly traded company, he`s been laying low since then.

Former CEO Chuck Prince resigned from Citigroup (NYSE:C) in 2007, and in 2010, he seemed pretty contrite about his role in the Wall Street crisis.

CHUCK PRINCE, FORMER CEO, CITIGROUP: I`m sorry that our management team starting with me, like so many others, could not see the unprecedented market collapse that lay before us.

SORKIN: Prince currently sits on the boards of Xerox (NYSE:XRX) and Johnson & Johnson (NYSE:JNJ). He`s also for hire on the speaking circuit, represented by the same firm that represents Tim Geithner, Larry Summers and the Clintons.

For NIGHTLY BUSINESS REPORT, I`m Andrew Ross Sorkin.

(END VIDEOTAPE)

MATHISEN: What`s interesting we see some of those folks who are lo no longer in the business but you look at Jamie Dimon still in the same job, Mr. Blankfein still in the same job and several others who survived it for various reasons.

HERERA: It`s amazing that it was five years ago. It feels like it was just yesterday to me.

MATHISEN: So vivid.

HERERA: Really does. So vivid.

MATHISEN: So vivid.

HERERA: You`re right.

Well, let`s end on a high note, shall we?

Finally tonight, some familiar names topping “Forbes” magazine`s list of the richest Americans. Tyler and I are not on it.

Tied for fourth place, brothers Charles and David Koch, co-owners of Koch Industries, worth $36 billion each. In third place, Oracle (NASDAQ:ORCL) co-founder Larry Ellison with $41 billion. Warren Buffett, the head of the Berkshire Hathaway (NYSE:BRK.A), takes second place with more than $58 billion. And at the top of the list for the 20th year in a row, Microsoft (NASDAQ:MSFT) founder and chairman Bill Gates. He is worth an astonishing $72 billion.

MATHISEN: Consistency, consistency, consistency right there.

HERERA: Execution, execution, execution, right?

MATHISEN: Yes.

HERERA: We`re never going to get there.

MATHISEN: No.

HERERA: But that`s OK.

That`s NIGHTLY BUSINESS REPORT for tonight, I`m Sue Herera. Thanks for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We hope to see you back here tomorrow night.

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.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply