TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Houses divided.
Stocks sink, short-term yields spike, and a credit rating agency warns it
could downgrade U.S. debt. All this as the House and Senate collide over
competing proposals to reopen the government and avoid default.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Tech tidal wave. Intel
(NASDAQ:INTC) beats (ph), Yahoo (NASDAQ:YHOO) issues poor guidance. And
this is just the start. What are the key things you should watch as the
biggest names in technology begin releasing their quarterly report cards.
MATHISEN: All that and more tonight on NIGHTLY BUSINESS REPORT for
Tuesday, October 15th.
GHARIB: Good evening, everyone.
High drama in D.C. and the fallout is already being felt. The House
of Representatives says it has a new plan to open the government and extend
the country`s debt limit. The Senate says it will wait and see.
And while this is going on, ratings agency Fitch put the United States
AAA credit rating on negative watch. That means the sterling rating is
under review for a possible downgrade.
John Harwood joins us now from Washington with the latest on the
negotiations in Congress.
So, John, where do things stand now? What a day.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a crazy
day. We thought we had a House/Senate, excuse me, a Democratic/Republican
agreement within the Senate that was going to become the basis for the
final solution, pass the Senate, go to the House. The House would take it.
But the caucus had a meeting this morning, headliners told John
Boehner they wanted to put a different plan on the floor. They`ve come up
with one. They plan to vote on it later tonight, but it`s not at all clear
that that`s going to pass. Some of the outside organizations representing
the hard line conservatives are urging no votes, and if that collapses,
then we`re back to Reid and McConnell and we`ll see whether they can have a
deal and move it through in time to avoid default.
MATHISEN: What are the elements of sort of embryonic House plan?
HARWOOD: The House plan would extend government funding, reopen the
government immediately, extend funding through December 15th. It would
raise the debt limit to February 7th, the position in the Reid/McConnell
compromise and it would also have some provisions that Democrats could not
It would bar the treasury secretary from using what we call
extraordinary measures to extend the debt ceiling by juggling accounts,
essentially, when we — Congress has not raised the debt limit. This is
something that every treasury secretary does. There`s no way the White
House couldn`t accept that.
It would also strip members of Congress, members of the cabinet and
their staffs of the employer contributions to their health benefits. This
is an attempt to embarrass Democrats by saying you would protect essential
subsides for staffers and members of Congress.
But actually, the staffers and members of Congress would be the only
people under Obama care who would be forced to do without those subsidies.
So, this is — both of these are seen as poison pills by Democrats,
and Reid and McConnell still have to come out with their plan, and we`ll
see they can pass it through the Senate.
MATHISEN: All right. John Harwood, thank you very much. We will
wait and see, and see whether there`s a vote tonight or not.
On Wall Street meantime, rate traders began the session with a wait
and see approach to talks in Washington but optimism faded quickly and
stocks plunged after Senate leaders suspended negotiations to see what
house Republicans would come up with.
The losses were steep, swift and across the board with all 10 S&P
sectors ending the day lower. The Dow fell 133 points, ending four
consecutive days of gains, the NASDAQ was down 21, S&P lost 12.
And while stocks slid, rates on short term treasury bills rose, and
how? The treasury weekly auction of three and six-month bills was not
well-received, with investors increasingly worried about the prospect of a
missed payment. Look at that spike.
GHARIB: For more on the impact of that crisis in Washington, let`s
turn now to Roger Altman. He`s the chairman and CEO of Evercore Partners
(NYSE:EVR) and he served as deputy secretary of the U.S. Treasury in the
Roger, great to have you back on the program.
ROGER ALTMAN, EVERCORE PARTNERS: Hi, Susie.
GHARIB: Let me begin by asking you about that Fitch news. You know,
people have been worried for a while now about a downgrade on the U.S.
credit rating. And now, there seems to be a whiff of it if that happens.
How much damage does this do to the U.S. credit reputation and how
serious is all this?
ALTMAN: It is very serious, although, if you look at what the stock
market did today, which was a slight decline, really, it`s not signaling
great alarm. I don`t think the market is yet convinced that a real
default, meaning missing an interest payment or missing a principle payment
is really likely.
Now, the Fitch announcement is a warning. It`s not a surprising
warning because if we actually did miss an interest payment or miss a
principle payment, they would really have no choice but to downgrade the
U.S. because under their charters, a default requires a downgrade and
Moody`s, which also maintains a AAA rating on U.S. debt, United States of
America debt, likely would be forced to do the same thing.
But that`s a symptom, it`s not a cause — because if we actually miss
an interest or principle payment and really did default, not in some high
sense but in a real economic sense, the impacts would be really quite
devastating. Every single American, every single organization, which
borrows money, mortgage, a consumer loan, any other type of borrowing would
pay more and pay more for a long time as compared to what we would have
paid if we didn`t suffer this fate.
MATHISEN: Let me broaden the discussion a little bit. You`re a
businessman. If the United States government was a business, could you do
business with it as it currently functions?
ALTMAN: I think the answer to that is yes, actually, because
corporations — as we all know, suffer financial emergencies, or often on
the edge of insolvency, sometimes actually are reorganized under Chapter 11
all the time. Look at General Motors (NYSE:GM), for example, and Chrysler,
which in 2009 both went through the Chapter 11 bankruptcy process and today
are both thriving.
So, obviously, everybody who they need to do business with is happy to
do business with them. So, because the underlying credit, meaning the
economic strength of the United States and the strength of taxpayer
payments every year in the form of taxes is actually undiminished. There
is nothing about the event in Washington diminishing that.
I think from a business person`s point of view, the answer to your
question is yes, but there are institutions around the world who would shy
away from buying treasury securities, treasury bills, treasury notes,
treasury bonds for quite sometime if, in fact, we defaulted because many of
them are prohibited for example from buying securities from anyone in
default or has been in default for a year or two or three.
So, there is no question about the interest rate impacts of this
possible action — possible fate, should we suffer it, even though I think
a business person would say, well, it`s still a strong credit and we can do
business with them.
GHARIB: All right. Roger, some interesting thoughts and issues that
are not going away just yet. Maybe we`ll circle back at some point. Thank
you so much for tonight.
ALTMAN: My pleasure.
GHARIB: Roger Altman, chairman and CEO of Evercore Partners
MATHISEN: Well, even as negotiations continue in Washington to raise
the debt limit, two minor financial institutions are preparing for a
financial default on government obligations. According to “The Wall Street
Journal`, Citigroup (NYSE:C) and State Street (NYSE:STT) Corp have been
exploring ways to impose limits on the use of short term treasury bills
once it will come due in the next few weeks, as collateral for loans or to
facilitate other bank transactions.
GHARIB: Meanwhile, the chief executive at Wal-Mart (NYSE:WMT) says
the government shutdown is weighing on the minds of his customers and he
called the global economy unpredictable. But at the annual meeting with
investors and analyst today, CEO Mike Duke also said, quote, “No matter
what environment we are in, Wal-Mart (NYSE:WMT) will win.
MATHISEN: Another sector lying right in the path of the debt crisis
is commercial real estate, construction and sales have been surging but
that could change if lawmakers and the president don`t come to a deal. In
fact, some say damage has already been done.
Diana Olick has more.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In
cities across America, the scene is similar. Bulldozers and cranes are
coming back to life post-recession. The improving economy is fueling
commercial construction as demands for offices, retail space and multi-
family apartments rises from the ashes.
SAM CHANDAN, ECONOMIST: There is a lot of momentum in commercial, a
lot of property sales. Activity is much higher than it was a year ago,
certainly than it was two years ago.
OLICK: Commercial property sales volume is on track to surpass $300
billion this year, that`s up 380 percent from the low in 2009. Sales
spiked in the final quarter of last year on speculation of higher tax
rates. Imagine what would happen in the reverse, if a debt default cause
add spike in interest rates.
STEPHEN RENNA, COMMERCIAL REAL ESTATE FINANCE COUNCIL: Commercial
property is interest rate sensitive and credit dependent and long-term.
Those are not got formulas if you have a high-interest rate environment or
and an environment in which credit is volatile.
OLICK: Commercial real estate is a highly leverage business,
depending on big banks and investors in commercial mortgage-backed
securities. Banks have been very leery of real estate risks but in the
second quarter of this year, there was a net increase in lending on
construction projects for the first time since the financial crisis.
At Maryland-based Walker and Dunlop, a commercial real estate finance
company, the view is positive for the long term, but uncertainty is
weighing on borrowers and investors.
WILLY WALKER, WALKER & DUNLOP CEO: The most discouraging thing that
we`re seeing right now is that this Congress is going to go through, yet,
another crisis, and probably end up kicking the can down the road but not
even as far as many people would like to see it get kicked.
OLICK (on camera): While interest rates haven`t moved much during the
run-up to the debt line, just the anticipation of it has hurt investor
confidence. Even if the deal ends up being a punch, that is delaying any
decision until early next year, commercial real estate financing will still
take a hit.
CHANDAN: Any of these disruptions that imply more risk, that make
investors worry about, you know, what`s happening with the bond market,
that can push interest rates higher, not because the Fed is stepping away
but because there is fundamentally more risk in the market, if those are
things that really hurt commercial real estate.
OLICK: And may already have.
Diana Olick, NIGHTLY BUSINESS REPORT, Washington.
GHARIB: Still ahead, two big tech names out with late-day earnings,
but there`s one thing in each report that investors need to know. That`s
coming up next.
But, first, how the international markets performed today.
MATHISEN: A pair of closely watched earnings after the closing bell
First up, Dow component and tech bellwether Intel (NASDAQ:INTC), which
beat Wall Street estimates, the chip maker earned profits of just about $3
billion, pulling in 58 cents a share, compared with forecast of 53 cents a
share — revenue right in line with expectations.
Seema Moody has been looking through the numbers.
What is the most important thing investors should take away from
SEEMA MOODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, the
takeaway here is that Intel (NASDAQ:INTC) was able to beat expectations and
delivered solid earnings by primarily controlling costs during what is a
very weak P.C. environment. So, cost controlling, finding a way to
maintain expenses, that`s what has led to this expansion in growth margins.
GHARIB: All right. Seema, don`t go away.
We also heard from Yahoo (NASDAQ:YHOO) after the market closed. The
Internet company earned 38 cents a share. That beat estimates by a penny,
but revenue came in at just over $1 billion. That`s down 5 percent
compared to a year ago.
So, Seema what`s the big take away on Yahoo`s quarterly report?
MOODY: Susie, the big takeaway here for Yahoo (NASDAQ:YHOO) is that
its user base continues to grow, as more than 800 million monthly users on
Yahoo (NASDAQ:YHOO), which is up 20 percent over the past 15 months. Yahoo
(NASDAQ:YHOO) CEO Marissa Mayer says this is a meaningful increase in user
engagement and traffic. The question now is, can the company find a way to
fully monetize this audience, display and search ad revenue did come in
lower year after year.
MATHISEN: Seema Moody, thank you very much.
And joining us now to talk more about other tech earnings is David
Garrity, a principal at GVA Research.
David, welcome, good to have you with us.
Very quickly, give me A, B, C, D, E, F grades for Yahoo (NASDAQ:YHOO)
and Intel (NASDAQ:INTC). And then, I want to pivot you to Google
DAVID GARRITY, GVA RESEARCH PRINCIPAL: Intel (NASDAQ:INTC) comes away
with a B grade, actually maybe B plus, to the extent of the sort of
navigating this weak PC environment. If we look at Yahoo (NASDAQ:YHOO), we
have to give them probably an A minus to the extent the audience is growing
and the challenge now for Marissa Mayer, the CEO, is how to monetize this
MATHISEN: Let`s look forward to Google (NASDAQ:GOOG). What do you
expect there? I think it comes out on the 17th.
GARRITY: Yes, so Google (NASDAQ:GOOG) at out the close on Thursday,
we`re looking for some weakness as far as revenue growth is concern. They
have been doing some things to improve their search quality, which may have
slowed activity in the third quarter. But we think that investors should
look forward to the strong year-end holiday shopping season, which is
typically in the fourth quarter, where the company gets their best results.
GHARIB: And then we have Microsoft (NASDAQ:MSFT) coming out next
week. Tell us what you`re expecting there and this has been a really
volatile year for Microsoft (NASDAQ:MSFT) stock. Is it a buy at 34?
GARRITY: At 34, we think that Microsoft (NASDAQ:MSFT) is still very
attractive. There are a number of things that actually work in Microsoft`s
favor fundamentally. First and foremost, the growth in terms of Cloud
computing. Microsoft (NASDAQ:MSFT) is coming in as a very strong contender
in that area, very strong reception for their products Azure and Office
And if we look at what`s also going on in terms of Microsoft
(NASDAQ:MSFT) from a governance standpoint, they are going to be bringing
in a new CEO. And when the new CEO comes in, there will probably be some
changes made which may actually create value for shareholders. So, we
think Microsoft (NASDAQ:MSFT), at these levels, continues to be an
attractive stock, may not beat the numbers when they come out with the
results on the 25th, but we think overall, still a good number.
MATHISEN: Let me dig a little bit deeper on Microsoft (NASDAQ:MSFT)
there — the relationship with Nokia (NYSE:NOK) and I think of Google
(NASDAQ:GOOG) with Motorola mobility. That acquisition has not exactly
paid off Mobility at Google (NASDAQ:GOOG) has not really worked for them.
What do you think is going to happen with Microsoft (NASDAQ:MSFT) and
their aspirations in the handset market?
GARRITY: Well, you have to look at the reasons why the companies are
making acquisitions. Yes, they did get into the handset business at Google
(NASDAQ:GOOG) and obviously here at Microsoft (NASDAQ:MSFT) as acquiring
But there was also acquired a fairly substantial portfolio of
intellectual property or patents, which both of them are using to grow
their base business. And from the standpoint of looking at Microsoft
(NASDAQ:MSFT), they do have a devices and services strategy, they do need
to be putting their product more in the hands of consumers, especially as
consumers starting to move towards mobile forms of computing, smart phones
Now, granted Nokia (NYSE:NOK) not necessarily a powerful name as far
as smartphones concern, but one would argue that the combination of a very
strong brand such as Nokia (NYSE:NOK) globally, if we look into the
developing markets and the technology invasion, could lead to some very
interesting upside over the next three to five years.
GHARIB: All right. We can`t talk about tech without bringing up
Apple (NASDAQ:AAPL). I know you`ve been recommending it for quite a while
now. The stock crossed over the 500-dollar mark briefly today.
What do you think of Apple (NASDAQ:AAPL) at this point and what do you
think about the stock, as well?
GARRITY: I think Apple (NASDAQ:AAPL), at this point, you do have the
new iPad that`s going to be coming out. Introduction I think is slated for
the 22nd of October. There are invitations that have gone out for that
event. So, I think it`s tradable here, ahead of that event. Also ahead of
the result of the earnings that are going to be come out shortly after that
At $500 a share, Apple (NASDAQ:AAPL) certainly, you know, one of the
least expensive stocks among the tech sector and also from the standpoint
one looks at the balance sheet, one company that`s certainly able to
continue to reward shareholders not only in terms of dividend increases but
may also possibly consider increase their buyback as well, and we do have
activist investor Carl Icahn who is talking with management and certainly
finding support from other institutional investors in this respect.
MATHISEN: All right. David, well, let me ask you one final quick
question. We talked about a lot of companies here. Is there one we didn`t
ask you about that you wish we had?
GARRITY: Well, certainly, the Twitter IPO I think is going to be very
important in terms of what it has to say about overall demand for the tech
sector names as investible themes. Certainly, so, we`re going to have the
road show starting for that transaction on the 25th of October, probably
have a pricing on the 15th of November ahead of Thanksgiving. There are
some ways to play the Twitter IPO.
There is a company GSV Capital, about 15 percent of GSV Capital
actually invested in Twitter. But nonetheless, we think transaction will
be important to give investors a read on the strength of the overall tech
sector going into the end of the year.
MATHISEN: We`ve got a little Twitter news coming up in just a second.
But let me get any disclosures that you`d like to share with us about the
stocks we just mentioned.
GARRITY: Certainly, I own Intel (NASDAQ:INTC), long. I`m also long
Yahoo (NASDAQ:YHOO). And also own GSV capital. And I also own Microsoft
(NASDAQ:MSFT) and Apple (NASDAQ:AAPL), as well.
MATHISEN: All right. David, thank you very much. We appreciate you
being with us tonight.
GARRITY: Thank you.
MATHISEN: And as promised, a little Twitter news here, David just
mentioned Twitter has chosen an exchange to lift on. According to a
filing, the social media giant plans to lift its shares on the New York
Stock Exchange, not the NASDAQ and the ticker symbol will be TWTR. You can
figure out how they figured that one out, right, Susie?
GHARIB: Really smart, Tyler.
We begin “Market Focus” tonight with more earnings, and we start with
results from the world`s biggest beverage maker. We`re talking, of course,
of Coca-Cola (NYSE:KO). The company posted numbers in line with analyst
estimates as it sold more its namesake soft drinks, but also teas and
waters, especially in countries like China, India and Russia, and that
helped offset the cost of restructuring the bottling operations in Brazil
and the Philippines, and an economic slowdown in Mexico.
But Coke shares fell almost 1 percent today to $37.66.
Johnson & Johnson (NYSE:JNJ), another Dow component, reported better
than expected quarterly results and thanks to strong growth for
prescription drugs that threat rheumatoid arthritis and prostate cancer.
That helped offset weaker numbers from its medical device and consumer
The stocks rose fractionally to almost $90 a share.
A different story for Citigroup (NYSE:C). It missed Wall Street
earning estimates. The bank was hurt by a double digit drop in bond
activity which usually slows down in third quarter, but this time, the
results were exacerbated when the Federal Reserve decided in September not
to taper its bond-buying program. City stock finished the day down by 1.5
percent to $48.86.
MATHISEN: Charles Schwab reporting better than expected earnings and
issuing a strong outlook. The retail brokerage expects revenue to rise 3
percent to 5 percent faster than expenses in 2014, adding that if the
economy continues to recover and client trading remains at current levels,
it will become even more profitable. The stock up more 4 percent, to
$23.03 and that was good for a multi-year high.
Domino`s Pizza (NYSE:DPZ), the second largest pizza chain, reported
its first earnings miss in more than a year. The reason: increased
spending on overseas outlets and on mobile apps. But it wasn`t all bad.
Sales rose more than expected in the U.S., helped by new menu items.
But that was not enough for investors. The stock fell almost 6
percent to $64.90.
And a non-earnings story to tell you about. FedEx (NYSE:FDX) plans to
add up to $32 million to an existing stock buyback program. The package
delivery company says its strong balance sheet gives it the flexibility to
do buybacks that reaffirms its confidence in the company`s strategy.
Investors seem to like the idea sending the stock up 4 percent on this down
day to $120.08.
GHARIB: Well, we`re now two weeks into the roll out of the state and
federal online health insurance plan exchanges and it`s been anything but
Bertha Coombs takes a look how the internet marketplaces have fared so
far and how much still needs to be done.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Stefanie Gordon has been anxious to shop for insurance on New York`s
STEFANIE GORDON, NEW YORK CITY: I`d really like to have health
insurance. I just can`t afford it.
COOMBS: But so far, she has not been able to get passed the
GORDON: I go to eligibility, and there is nothing. I work in online
media so I know nothing is perfect. I know that there is going to be
glitches, but it`s been over, you know, been a couple weeks now.
COOMBS: Like the federal exchange, New York State of Health makes
users complete an application before they can shop for plans. So far
100,000 applicants have made it through the process but the state is still
working out glitches.
DONNA FRESCATORE, NEW YORK STATE OF HEALTH EXECUTIVE DIRECTOR: We`ve
identified some places in the application where consumers were just waiting
simply a little bit too long to be able to get information.
COOMBS: Kentucky and Connecticut are among the states that have had a
much smoother enrollment launch, with exchanges that were designed to let
user shop before formally registering, putting less stress on the system.
KEVIN COUNIHAN, ACCESS HEALTH CEO: We try to rely on what the
customers in Connecticut told us they preferred. They wanted to be able to
go on the site and shop and look to see what the applicable subsidies might
COOMBS (on camera): The state-built exchanges also had the advantage
of more stream lined management. The federal exchange built to serve 36
states that opted out of building their insurance marketplaces involved
coordinating multiple IT companies. Most states went with a single vendor.
CECI CONNOLLY, PWC HEALTH RESEARCH INSTITUTE MANAGING DIRECTOR: You
have more of a seamless experience. You`re only dealing with one team, one
set of protocols. There is not as much of the bureaucracy.
COOMBS (voice-over): Stefanie Gordon is hoping New York works out its
glitches soon, but she`ll keep trying to enroll for as long as it takes.
GORDON: I`ve been without health insurance for about two and a half
years now, so what`s another couple months?
COOMBS: Bertha Coombs, for NIGHTLY BUSINESS REPORT.
MATHISEN: Still ahead, could a new high profile higher at Apple
(NASDAQ:AAPL) signal a major shift in the company strategy and a hint at
new products in the pipeline?
First, though, how commodities, currencies and treasuries performed
GHARIB: Apple (NASDAQ:AAPL) may be headed in a new direction. It`s
hiring Angela Ahrendts. She`s chief executive of luxury British clothing
giant Burberry. She`ll head up Apple`s retail and online operations.
Jon Fortt takes a look at Apple`s newest hire and the timing of the
JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been a tough
role to fill, retail chief for what`s arguably the top brand in the world.
But Apple (NASDAQ:AAPL) CEO Tim Cook has filled the job, with a powerhouse.
Angela Ahrendts, the current CEO of Burberry, who will join the tech giant
to lead its $19 billion retail operation in the spring.
During her seven years at the helm of Burberry, Ahrendts was known for
giving the creative shop more autonomy, cutting cost where needed earlier
in the downturn and pushing a digital agenda that has boosted the brand`s
image among high-end customers.
ANGELA AHRENDTS, BURBERRY CEO: So, we invested heavily in technology.
We call it retail theater. So, all of those big screens, that`s content is
stream from London. We can stream our shows into stores, and 180 stores
have iPads so that if what`s in the store, the customer wants something
else they`ve online — again, not a problem.
FORTT: Retail is a tough business. Apple`s first retail chief, Ron
Johnson, left the company two and a half years ago for J.C. Penney where
the board forced him out in April. The second chief, John Browett, from
U.K. tech retailer Dixon, lasted less than 12 months.
Ahrendts will have to dive right in.
LES BERGLASS, BERGLASS & ASSOCIATES CEO: So, she understands the
consumer at a level that`s extraordinary and she knows how to talk to her
with a high-end product and build volume out of that high-end product.
Very few people know how to do that.
FORTT: Those skills come at a pivotal time for Apple (NASDAQ:AAPL).
When Ahrendts starts, Apple (NASDAQ:AAPL) probably will be gearing up for
the launch of yet another iPhone, perhaps a new watch or TV.
CEO Tim Cook has talked about the stores as the main chance customers
get to interact with the brand, which is why he popped in on the iPhone
launch day last month.
It remains to be seen how core a player Ahrendts will be in Apple`s
infamously secret of culture. Will she weigh in on wearable prototypes,
new TVs? If so, she could be a major strategic player in Apple`s future.
For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.
GHARIB: Do you think she can make a difference?
MATHISEN: I think she can. I think she`s a real wizard at branding
and merchandising. We`ll see. We`ll see a Burberry plaid iPhone covers,
GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
For more on the stories that we covered tonight, go to our Web site
MATHISEN: And I`m Tyler Mathisen. Thanks for watching. Have a great
evening everybody. We`ll see you back here tomorrow night.
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