Transcript: Monday, September 30, 2013

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Stocks sink. As Washington fiddles, equities burn. How the budget standoff hits the markets, the economy, consumer confidence and your money. What should you do? Or should you just sit this one out?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Open enrollment. Tomorrow is the new day. So what does the individual health law mean for you if buy individual insurance, you get it from your company or covered by Medicare?

MATHISEN: And rising tide. Flood insurance premiums are set to skyrocket. So, will the very thing that`s designed to protect home and business owners against Mother Nature`s wrath be the one thing that swamps them?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, September 30th.

Good evening, everybody. I`m Tyler Mathisen.

HERERA: And I`m Sue Herera, filling in tonight for Susie Gharib.

There was a lot of fear on Wall Street today, fear about a partial shutdown of the federal government that now looks all but certain. On Wall Street, volatility spiked higher, and the stocks sank lower as the investors worried about the impact on the prolonged shutdown on a recovering economy and on consumer confidence. That weighed heavily on the markets today, the Dow closed off the lows on the session, but still lost 128 points, the NASDAQ and S&P both lost about 10 points.

Despite those sizable losses today, though, the major market averages close out September and the third quarter of the year with some very solid gains. The Dow in the third quarter, up 1.4 percent. The S&P up 4.5 percent. And the winner was the NASDAQ, shot up 10.6 percent over the past three months.

MATHISEN: Well, more now on the battle to pass a bill to fund the federal government as we inch closer to a shutdown at midnight, Eastern Time. House Republicans are digging in, sending a short term spending bill back to the Senate, one that delays portions of the Affordable Care Act for another year. Earlier Senate Democrats killed a very similar proposal and are expected to do the same thing again.

Following a meeting with the president of Israel, President Obama made a statement from the White House.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: All of this is entirely preventable if the House chooses to do what the Senate has already done. And that`s the simple act of funding our government without making extraneous and controversial demands in the process. The same way other Congresses have for more than 200 years.

(END VIDEO CLIP)

MATHISEN: And earlier today, when asked about whether a clean C.R. or a continuing resolution to fund the government with no exceptions would pass in the House, House Speaker John Boehner had this to say.

(BEGIN VIDEO CLIP)

REPORTER: Is a clean C.R. off the table? Is that not going to happen?

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: That`s not going to happen.

(CROSSTALK)

REPORTER: That`s not going to happen when? It`s not going to happen tonight before midnight, or it`s not going to happen ever?

BOEHNER: The house will act this evening and we`ll send it over to the United States Senate. Thanks.

(END VIDEO CLIP)

HERERA: So with the deadline approaching for a partial shutdown of government offices, you may be wondering what stays open, what`s going to close and what federal workers will be staying home from work.

Hampton Pearson has the rundown.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The federal government will not completely shut down at midnight, but museums, national parks and landmarks like the Statue of Liberty and other icons will be closed to the public almost immediately. That`s what happened back in 1995 when the government was shut down for 21 days. Hundreds of thousands of government workers this time will be placed on unpaid leave, including some 800,000 Defense Department civilian employees.

DARRELL WEST, BROOKINGS INSTITUTION VP GOVERNANCE STUDIES: Each agency has kind of had to go down its roster of people and decide who are the important people who still have to come to work and who are the lesser important people who can be furloughed?

PEARSON: Once the shutdown starts, there is a cutoff on any government activity where funding has stopped or it`s viewed as not essential for protecting life and property.

Financial markets could get a surprise — Friday`s release of the jobs report from the Bureau of Labor Statistics will be postponed if the shutdown lasts through Friday.

WEST: There are various administrative tasks, data collection, the release of periodic government reports that were not judged to be essential. So, those are things that people will start noticing right away.

PEARSON: Congress and the White House do agree, it is essential that Social Security and Medicare benefits will continue to be paid, and those checks delivered by the postal service.

Some 1.4 million active duty military personnel will remain on duty worldwide with full pay. Air traffic controllers and TSA screeners at airports will remain on the job for security and safety reasons and also not to harm a key sector of the economy.

(on camera): Of course, the real harm to the economy depends on how long the government shutdown lasts. Something lawmakers might want to think about between now and midnight.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson, in Washington.

(END VIDEOTAPE)

MATHISEN: Well, there are several economic sectors that could be hit hard by a prolonged shutdown because they depend so heavily on the government for a significant portion of their sales. Take Defense — Lockheed Martin (NYSE:LMT) has 97 percent of its sales tied to the U.S. government. Raytheon (NYSE:RTN), 86 percent. General Dynamics (NYSE:GD), 77.

In health care, the suppliers are particularly exposed, including Edwards Lifesciences (NYSE:EW), Stryker (NYSE:SYK), Becton Dickinson (NYSE:BDX). As are providers of care like Centene (NYSE:CNC), Molina and WellCare, which rely heavily on government contracts.

HERERA: So, joining us now to talk more about what a possible government shutdown will mean for the markets and how you should protect your investments is Russ Koesterich. He`s the chief investment strategist over at Blackrock.

Welcome back, Russ. Good to see you again.

RUSS KOESTERICH, BLACKROCK CHIEF INVESTMENT STRATEGIST: Well, thanks for having me.

HERERA: How do you approach this possible government shutdown? Do you, as an individual investor, change your investment mix? And how damaging do you think a shutdown would be?

KOESTERICH: Well, I think we`re talking purely about a shutdown. In other words, we`re not addressing the — what I think larger issue, the debt ceiling in mid-October. I think the impact of a shutdown on the broader economy is limited. In other words, this is certainly not a good thing, it`s coming at an awkward time when the recovery is still trying to gather steam.

But we`re only talking about a modest hit to the economy, assuming this only lasts for a few weeks. Some parts of the economy, arguably more affected. You spoke about those parts that are exposed to government spending.

Another segment of the economy to watch for, consumption. We`re at a point when the consumers are only beginning to get back on their feet. And the government shutdown right now, one of the risks you have is that it will undermine consumer confidence, which could hurt spending as well.

MATHISEN: In the market, Russ, do I need to prepare for more volatility? Is that a likely outcome?

KOESTERICH: Yes. I think it is. And, you know, part of the simple answer to that is, we have seen a rise in volatility. It`s important to note that by most measures, using instruments like the VIX index, which measures implied volatility, volatility is still below its long-term average, going to the VIX, an example, it close around 16 or 17, back during the debate in 2011, the VIX trade is as high as mid-40s.

So we`re a long way from that, if the temperature starts to rise in Washington, people do start to worry about the debt ceiling. It`s very likely that volatility will rise before this is all over.

HERERA: Yes, it seems to me, that from what you`re saying anyway, the market may have factored in a temporary shutdown now, because we did lose triple digits but it was much worse for much of the day. And they`re focusing now on the debt ceiling.

If Congress takes this right up to that fiscal cliff once again, what are the implications for the market?

KOESTERICH: Well, certainly, that`s going to mean some more downside on the near term. I think, you know, the market can probably absorb a short-term shutdown of the government. But if you start to get close to mid-October, this much larger issue about honoring the full faith and credit of the United States, if that starts to get called into question, that is a much bigger deal. That would provoke a much more violent reaction from investors than anything we`ve seen so far.

MATHISEN: What should I do, Russ? If I`ve got my portfolio at 60 percent equities, 40 percent stocks and I`m relatively comfortable with it, is there anything I should be doing? Or should I just play passive and watch and see what happens?

KOESTERICH: You know, I think the short answer for most investors, you probably not going to do a lot, because again, we continue to believe that this is a temporary phenomenon. It may even create some long term bond opportunities, more patient investors.

The one thing I would say, and this is not just tied to the continuing resolution, but also some of the broader trends. It probably isn`t a bad thing to consider international diversification. Last week was the first time in a while that we saw flows out of U.S. equity funds while still seeing in-flows into Europe and into emerging markets. And not that these areas wouldn`t get hit in the event of more risk of aversion, but it does point out that there are parts of the world that despite all of the issues may offer some diversifications from the events that may happen here in the U.S.

HERERA: Russ, thanks so much. Good to see you again.

KOESTERICH: Thank you.

HERERA: Russ Koesterich, chief investment strategist at Blackrock.

MATHISEN: Well, we begin “Market Focus” tonight with the stock making new highs on a down day in the market.

Chipotle Mexican Grill (NYSE:CMG), shares rising on a Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) upgrade to overweight, and a price target increase to $485 a share. The analyst says the company has the ability to continue raising prices and drive traffic. The stock up 2 percent of $428.80.

Unilever (NYSE:UN) is warning that third quarter sales growth just won`t be as strong as expected because of a slowdown in emerging market. The consumer products company which include brands like Dove, Hellman`s, Good Humor ice cream, says currency fluctuations are to blame. The stock fell about 3 percent to $38.58.

HERERA: Boeing (NYSE:BA) is focused on making its 787 Dreamliners more reliable. The plane has seen a rash of issues since its launch, but a senior executive at the company today calling that a teasing problem, not systemic. Over the weekend, budget airline Norwegian Air Shuttle grounded a brand new Dreamliner and is demanding that Boeing (NYSE:BA) repair it.

Shares of Boeing (NYSE:BA) close down 1 percent to $117.50.

Shares of Achillion Pharmaceutical dropping sharply after the FDA kept the company`s experimental hepatitis C drug on hold, leaving the future of its most promising product uncertain. The Food and Drug Administration citing the risk of possible liver toxicity, when the FDA issues a clinical hold, a drug developer must delay or suspend its investigation into the drug.

Shares cratered on the news. They dropped 58 percent to $3.02.

MATHISEN: And earlier this month on NIGHTLY BUSINESS REPORT told you that Twitter plans to begin selling stock to the public. Now, we hear the company could reveal the size and value of that initial offering as soon as this week. That is according to the news website Quartz, which also reports that the microblogging service is expected to be valued at up to $15 billion and could begin trading by Thanksgiving.

HERERA: Still ahead, on the eve of open enrollment, what does the new health law mean for you, whether you buy individual insurance and get it from your company or are on Medicare?

First, a look at the best performing sectors in the third quarter.

(MUSIC)

MATHISEN: Just one day today before state and federally-run health insurance exchanges open for business, offering individuals a marketplace to shop for a new health care plan, all part of the Affordable Care Act. That`s President Obama`s signature legislation.

NIGHTLY BUSINESS REPORT asked Americans what they know and don`t know about the exchanges opening up tomorrow. Take a look.

(BEGIN VIDEO CLIPS)

UNIDENTIFIED MALE: I`m happy with it, because I don`t have insurance right now. So, it definitely gives me the impetus to make sure that I`m as efficient as possible in the next two months.

UNIDENTIFIED FEMALE: I think it`s going to cost my husband`s company a lot of money. He might have to think about letting people go.

UNIDENTIFIED MALE: Little tough on the physicians` sides, though. It does make things difficult on our end. But I think it increases access for patients to get care.

UNIDENTIFIED MALE: I`m going to have to pay more money and receive less benefits.

UNIDENTIFIED MALE: Health exchanges, sorry, I don`t know anything about it.

UNIDENTIFIED MALE: I think it`s a good thing. We`ll have to see. I like the idea.

(END VIDEO CLIPS)

MATHISEN: So how do those insurance exchanges really work? Who should sign up and how do you shop for a new plan? And what happens if you don`t sign up for an individual health insurance plan tomorrow?

Bertha Coombs has some answers to the most frequently asked questions people have about that Affordable Care Act.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you buy insurance on your own, here are some things to think about. Open enrollment begins October 1st, but will run for six months until the end of March. Insurance coverage doesn`t actually start until January so you don`t have to sign up until mid-December.

Benefit analysts say take time to familiarize yourself with your options like subsidies. You can only get those on exchange-qualified plans.

How do you know if you qualify for subsidies? Subsidies in the form of tax credit are applied on a sliding scale, depending on your annual income. As an individual, you will be eligible if you earn up to $45,960 a year, up to $62,000 for a family of two and just over $94,000 for a family of four. When it comes to the plans, there are four premium levels for most people, ranging from top tier Platinum, which covers 90 percent of the cost, down to the lowest tier bronze, which covers 60 percent. Meaning you`ll have to cover 40 percent of your costs out of pocket.

For those under 30, there is also a low premium, high deductible, catastrophic plan option. Subsidies are calculated on a silver plan level but can also be used to lower your premium for a bronze plan. If your employer provides your insurance, many of the Obamacare changes have already been in effect, like being able to insure your dependent children until age 26.

If you`re employed by a small business with fewer than 50 employees, your firm will have access to exchange plans. If your employer offers limited coverage, so co-called mini-med plans, those no longer comply with the Affordable Care Act because plans can no longer set annual lifetime spending caps on coverage, which means if you have cancer or other critical care, you can no longer max out.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

HERERA: And for those on Medicare, the exchanges don`t apply to you. Enrollment will be the same, though the new health law does cut out-of-pocket spending for Medicare Part D patients to $4,550 this year. That is $200 lower than last year.

MATHISEN: Well, the health insurance exchanges are opening tomorrow, but questions abound, as to whether or not this health care model will work. We`ve got two different points of view on this topic.

Jonathan Gruber, a key architect of the Massachusetts healthcare reform efforts, now a professor of economics at MIT, and Ed Haislmaier, a senior research fellow at the Heritage Foundation.

Gentlemen, welcome to both of you.

Mr. Gruber, let me begin with you. I have tried for weeks now to get my head around these insurance exchanges and how and whether they will actually work. It feels to me like an awful lot has to go right.

Did it go right in Massachusetts? Did they work?

JONATHAN GRUBER, MIT PROFESSOR OF ECONOMICS: They absolutely did. I urge your viewers to go on mahealthconnecter.org starting tomorrow and see how an exchange looks. It worked very well. It was hard work getting it going and there was some glitches at the beginning, but it really worked well. It provided a really organized shopping experience that finds great favor with consumers.

It`s induced competition. We have a major new entrant to our the insurance market and prices have grown slowly on the connecter. So, I think it`s worked very well and a good shopping experience for consumers.

HERERA: Ed, you know, a lot of people are worried. If it`s almost too good to be true? And if it`s saving businesses money, it`s going to cost me money. Can you discuss whether or not that is indeed the case?

ED HAISLMAIER, THE HERITAGE FOUNDATION SR. RESEARCH FELLOW : Yes. Well, it`s — Massachusetts is a different example. That was a very popular bipartisan piece of legislation. It was a market that was very damaged to start with. There are a few states — most states aren`t anywhere near as bad off as Massachusetts was in terms of the way the market works. So, it`s a little different.

The problem with this law is it really scrambles a lot of existing arrangement, start with the 4 million to 6 million people who are going to be the Obamacare uninsured. You mentioned in the segment, the people who have mini-med or limited benefits plan. The law throws them off their coverage in January. How many those people are going to sign up for the new coverage, or they`re going to go uninsured? I don`t know.

The other thing people have not looked at, they looked a lot at the coverage subsidies for the premiums, but not the subsidies for the cost-sharing. And what that does is turn these plans really into something that have very low cost sharing, but the only way to control costs, it becomes to limit the network. So that`s what you`re seeing, the plans going in there are offering limited networks of doctors and hospitals.

MATHISEN: Mr. Gruber, why don`t you respond to what Ed just laid out there? And address the idea that — as I understand it, the individual mandate is aimed at doing principally one thing and that is compelling healthy young individuals, maybe the young, to buy insurance, a group that typically has said, I don`t get sick so I`m not buying.

GRUBER: The individual mandate is designed to do one thing, but I would describe it differently. It`s designed to allow America to move to a system where insurers cannot discriminate against the sick. Currently, insurers do. They exclude sick people or charged them more. As the other speaker mentioned, in Massachusetts, we passed the law to get rid of that. And what happened is it did mess up our insurance markets.

You can`t have your cake, which is fair insurance pricing, unless you eat your spinach, which is the individual mandate that guarantees everybody participates.

In terms of the other comments — look, what critics of this law are doing is they`re finding small pieces to pick on. Focus on the big picture, the objective Congressional Budget Office has said this law will cover 30 million Americans and lower the deficit. It will do so without affecting those with employer insurance all.

They`ll be no increase in employer insurance premiums. Employer insurance will go down slightly. It will cost — it will basically be a system where most Americans will not see a change on January 1, and many Americans will see enormous benefit.

HERERA: All right. You know, basically, Ed, there are some very valid points on that, are there not? People who didn`t have insurance before because of pre-existing conditions.

HAISLMAIER: Yes, this is very important. I wrote an entire paper on this. This is one of the great myths here. And this is, Massachusetts is a good example of what not to do. We successfully solved this problem in the HIPAA bill in 1996 with the group insurance, and all you had to do was to cover the other 10 percent of the market, you could have fixed it, and give everybody a tax credit and you could have done it on e-health insurance and you wouldn`t need the rest of this.

There is a myth that there is a big preexisting condition problem. There wasn`t. The problem was in the individual market, easy to fix. Look at what`s going on in this market, and that`s one of the things I`m working on, is to see who are the insurers going in, who is staying out?

The big insurers are staying in, the ones that are going in are the Blue Cross plans and the Medicaid managed care plans. That`s what`s going into these exchanges. That`s who is offering coverage, I`m going to come out with an analysis of that once I have the data in the next couple of weeks.

But what I see already is quite clear. That`s who is going in there, and they are offering limited networks. And that makes perfect sense because this was a bill that was really written to be a welfare program. It`s more about that than it is about health insurance.

So, for people who are below 200 percent, of the poverty, it`s going to look like Medicaid. They`re going to be the ones on it. The other people — you`re seeing this happened with Walgreens — they`re going to go to private insurers, big employers, they`re going to be out of it. They`re going to opt out of this whole thing.

MATHISEN: All right, gentlemen, we have to leave it there. I guess time will tell. We`ll get an early window beginning very shortly, i.e. tomorrow.

Jonathan Gruber with MIT, Ed Haislmaier with the Heritage Foundation — we appreciate it.

And for more stories on health care, head to our Web site, NBR.com.

HERERA: And tomorrow night on NIGHTLY BUSINESS REPORT, we`ll speak with the CEO of WellPoint, one of the big players in the exchanges, about his new expectations for the new health law.

MATHISEN: From health insurance to flood insurance — coming up, why some home owners and business owners could see their premiums skyrocket beginning tomorrow.

But, first, a look at the best-performing Dow stock in the third quarter.

(MUSIC)

MATHISEN: Some encouraging employment news today as we head toward the holiday shopping season. Macy`s (NYSE:M) announced plans to hire 83,000 temporary workers this holiday season, and GameStop says it will need 17,000 additional workers this year with the release of new gaming consoles, the Xbox One from Microsoft (NASDAQ:MSFT), and Sony`s PlayStation 4. It`s already on Santa`s list in my house.

HERERA: And in mine, too.

Lawmakers in Illinois are working hard to keep a company from moving its headquarters out of state. State officials have proposed a 10 percent break on utility taxes for up to 30 years and some credits on income taxes if agriculture products giant Archer Daniels Midland agrees to keep its corporate headquarters in Decatur. ADM says it`s been scouting locations for new main office, including sites outside of Illinois as it develops a more global presence.

MATHISEN: But it was less than a year ago that we felt Hurricane Sandy`s wrath as it swept up the East Coast of the U.S., bringing devastating floods that affected a huge swath of the country. Now, this year and next, critics claim that sweeping new changes to the nation`s flood insurance program will bring financial devastation to millions of Americans living in and near flood zones.

Mary Thompson has more.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): On October 1st, over 280,000 businesses and homeowners will be hit by flood insurance premium increases towns feared their residents can`t afford.

JOHN CASE, BUSINESS OWNER: A lot of these are mom and pop businesses, as we are, and they are just — there is just not that much profit in them, and they will not survive.

THOMPSON: Insurance agent John Case is one of those policy-holders. Flood insurance premiums on his office building in Slidell, Louisiana, set to rise 25 percent a year for the next four. His payments going from $6,000 to over $13,000 by 2016, as he`s losing subsidies granted to buildings in repetitive flood zones that were built before the government lodge the flood insurance program in 1968.

These changes part of the 2012 Biggert-Waters (NYSE:WAT) Act. It`s raising premiums to better reflect flood risks and get the program out of a $25 billion hole.

The act hitting another group of homeowners by the end of 2014. Homeowners like Dan of the Rockaways in New York, an area hard hit by Sandy. Maps re-drawn by FEMA every five years, put his home and tens of thousands of others across the country in high risk zones requiring far higher premiums. The premiums Tubridy fears will become an unaffordable $20,000 a year.

DANIEL TUBRIDY, HOMEOWNER: Obviously, we live on the water. We know that`s a risk. But the rates that we`re hearing almost 10 times what I`m paying now, it is just impossible for us to afford that, number one. And to resell this house is going to be impossible.

THOMPSON (on camera): Proponents say the change is long overdue, critics counter they leave homeowners with terrible options, pay off the mortgage so you don`t need flood insurance, raise or rebuild it to cut the premiums, sell it at a discount or abandon it altogether.

(voice-over): Towns protesting by appealing the new maps and directing their anger at FEMA — anger FEMA Administrator Craig Fugate calls misdirected, as only lawmakers can slow the increase or cap the premiums.

CRAIG FUGATE, FEMA ADMINISTRATOR: I have found very little leeway as much as I have tried, in how we can address affordability under the current provisions of the law as enacted.

THOMPSON: A law many fear will turn shore towns into ghost towns.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: Well, after 13 years at the top, Coca-Cola (NYSE:KO) is no longer considered the most valuable brand in the world. That`s according to an annual study by the marketing firm Interbrand, which ranks companies based on brand value.

Here is the list. Coming in at number five, Microsoft (NASDAQ:MSFT); number four, IBM. Coca-cola slipped to third. Google (NASDAQ:GOOG) jumped to second place with a brand value of $93.3 billion. And the new king of branding, Apple (NASDAQ:AAPL). Apple`s brand valued at $98.3 billion.

I think I might have gone for Google (NASDAQ:GOOG), because it is the only one in that group where you say “I`m going to Google (NASDAQ:GOOG) that.”

HERERA: It`s a verb.

MATHISEN: You can verb it.

HERERA: Yes, you really can. I agree, although I was just counting up in my head how many Apple (NASDAQ:AAPL) products we actually have in the house, the kids` iPads, all their textbooks are on Apple (NASDAQ:AAPL). I mean —

MATHISEN: Yes.

HERERA: I guess they deserve it.

Anyway, that does it for us on NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks for watching. And for more on the stories covered tonight, join us on our Web site, NBR.com. Susie is back tomorrow.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great everything, everybody. And we`ll see you back here on October 1st.

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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