Transcript: Thursday, October 25, 2013

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

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Big moves. Microsoft
(NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) shares taking off after the bell
today — capping the biggest, busiest day of earnings this season. What`s
the most important takeaway for investors from these two tech titans?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Zero profits, big
returns. But when it comes to quarterly reports, there are companies that
don`t earn a dime, yet their stocks are soaring. We`ll explain why and
name names.

GHARIB: And, the blame game. Who is really at fault for the botched
rollout of the new health exchanges? Developers pointed fingers on Capitol
Hill. And tonight, we`ll ask a former White House health care advisor if
the problems can be fixed.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Thursday, October 24th.

MATHISEN: Good evening, everybody. And welcome.

Today was the biggest day of earnings reports we`ll get. By and
large, the numbers were pretty good. And the market took notice, moving
higher.

Late this afternoon, two of the biggest tech companies of them all,
Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).com, and here again,
investors mostly like what they heard pushing stocks higher after hours.
First up, Microsoft (NASDAQ:MSFT), the world`s biggest software maker,
beating the street estimates for both earnings and revenue, profits up 17
percent last quarter to more than $5 billion, that comes out to 62 cents a
share excluding certain items, far more than the 54 cents Wall Street was
looking for. And sales topped $18.5 billion. That was also more than
forecast.

Seema Mody joins us now with more on Microsoft`s strong results.

Seema, what`s the one big take away from these numbers?

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, the major
takeaway here when you take a look at the Microsoft`s earnings report is
that the company is finding ways to offset slowing PC sales. That`s the
big concern of late. Its devices business, which includes the Xbox, that
business continues to grow. So, improving consumer demand into space, as
well as in its enterprise and Cloud computing business, that is what helped
Microsoft (NASDAQ:MSFT) deliver that solid beat.

GHARIB: All right. We`re going to come back to you in just a minute,
so sit tight.

Now unto Amazon (NASDAQ:AMZN).com, where the world`s biggest online
retailer saw its revenue rise, but it reported another net loss for the
third time this year, 9 cents a share excluding certain items, just as
analysts predicted. But revenue came in higher than expected, topping $17
billion for the quarter, and shares took off in after hours trading.

So, Seema, back to you again. What is it that investors were seeing
in these numbers today?

MODY: Well, I think when you just take a look at that chart, that
tells you the story right there. Wall Street doesn`t seem to care that
Amazon (NASDAQ:AMZN) is not profitable, as long as it continues to deliver
strong revenue growth.

Keep in mind, Amazon (NASDAQ:AMZN) is in expansion mood, specifically
overseas. That trend doesn`t seem to be stopping any time soon, especially
when traders continue to bid up the stock.

MATHISEN: And this, of course, is not the first time in Amazon`s
history that investors haven`t seemed to care about no profits.

MODY: Absolutely.

MATHISEN: All right. Seema, thank you very much.

Well, when you look at Amazon`s performance this year, the stock has
skyrocketed 30 percent. It`s up 455 percent in the past decade. But you`d
never know it from looking at Amazon`s bottom line. In fact, there are a
number of big name companies that have seen a big run up in their shares
without making any real money.

Dominic Chu explains.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As a
company, you don`t really need to make money for your stock to go higher.
The investing world is littered with examples of companies who failed to
generate profits, yet still manage to show healthy stock price
appreciation.

Take consumer electronics giant Best Buy (NYSE:BBY). It`s in the
midst of a turnaround effort by CEO Hubert Joly. Over the course of the
past year, shares have gained over 150 percent, which translates into an
added $9 billion in stock market value. During that same time frame, the
company has posted a net loss of $234 million.

And there is online discount brokerage company, E*TRADE Financial
(NASDAQ:ETFC), you know, the company with those commercials with that cute
baby who talks about stock trading. E*TRADE shares have close to doubled
over the last 12 months, adding nearly $2.5 billion in market value. Yet,
the company posted a loss of $234 million during that time.

And let`s cap it off with a look at a brand name in computers and
technology, Hewlett-Packard (NYSE:HPQ), HP. Former eBay (NASDAQ:EBAY) CEO
Meg Whitman is now running the show at HP. Over the last year, the stock
has soared some 70 percent, which added over $18 billion in market value
for shareholders. Meanwhile, HP as a company has lost around $3 billion
during that time.

So why do companies who lose money keep getting rewarded by
shareholders? The answer lies in future expectations.

JOSH BROWN, RITHOLTZ WEALTH MANAGEMENT: Stocks basically exist to
discount the present value of what future earnings will be. So, when you
see stocks that are rising, without profits in the moment, investors are
voting that profits will be higher in the future.

CHU: So don`t be fooled. When it comes to investing, don`t discount
a stock just because the company doesn`t make money. If you think it will
make money in the future, then that might be a good reason to buy.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GHARIB: Now, before the opening bell today on Wall Street, investors
sifted through a new round of stronger than expected earnings from
companies like 3M (NYSE:MMM), Ford and Southwest Airlines (NYSE:LUV). And
they like what they saw and slugged off today`s economic report. Jobless
claims fell by only 12,000 last week. That was less than expected.

The Dow rose 95 points, the NASDAQ was up 21, and the S&P added five
points.

MATHISEN: Well, with the market in positive territory and continuing
its climb higher, is there ever a good time to start selling some stocks in
your portfolio? And is this one of those times?

We asked Scott Wren. He`s senior equity strategist at Wells Fargo
(NYSE:WFC) Advisors.

Scott, good to have you back.

You know, the market has been doing very well this year. I know you
think and many people think that it`s sort of close to fairly valued or
fully valued, not way ahead. So, I`m not asking that question.

But there is certainly a lot of stocks in the market today that have
had big, big run-ups. When did you start taking profits?

SCOTT WREN, WELLS FARGO ADVISORS SR. EQUITY STRATEGIST: Well, Tyler,
you`re right. Our target for the S&P 500 is 1,675 to 1,700 for year end.
We`re trading a little bit higher than that. I don`t think we`re going to
see a lot of follow-through from here. And you`re right. There is a
number of stocks, a lot of stocks, that really have seen some evaluations
run up.

And, for us, you know, retail investors pay the bills here at Wells
Fargo (NYSE:WFC) Advisors. And so, you mention, you know, Dominic
mentioned, you know, stocks that don`t really make money but have big
market caps and things like that. That`s fine for some people. You know,
you want to have maybe a few of those in your portfolio. You don`t want to
have 50 percent of your portfolio in stocks that don`t make money, in my
opinion.

So, I think what we want our clients to do is largely be positioned in
S&P 500 type stocks, quality stocks, dividend paying stocks that you can
build wealth in overtime.

MATHISEN: So —

WREN: Now, given the fact that we`re above what I would consider fair
evaluation, we`re not a lot above those, but for some people, particularly
those who that want to be lighter on their feet, it might not be bad to
take a little money off the table. I`m looking for more volatility. I
think we`re going to have some opportunities to buy stocks. I had lower
levels.

But really for most retail investors think about it. You know, a 5
percent, 8 percent, 10 percent pull back, retail investors can`t play that
tight of a market.

MATHISEN: Yes —

WREN: That`s not enough for them to get in and out.

MATHISEN: We talk a lot, Scott, I know on business television
generally and in the personal finance magazines about what to buy and when
and buy on this pull back, but I look at a guy like Carl Icahn who earlier
this week sold half his very, very rich stake in —

WREN: That worked out pretty well, didn`t it?

MATHISEN: That worked out well. But what he was doing there was
executing on a sale discipline that he had. How important is it for an
investor the moment they buy a stock to know when they`re going to sell it?

WREN: Well, ideally, you`d like to have an entry point and exit point
and that`s maybe more of a trade, but investors have to think to themselves
— I have an idea in my mind whether it`s through buying somebody`s
research or using our analyst here that, what is fair value? If momentum
takes it above fair value, you should start looking for ways to peel off a
little bit of the money you have, profit you`ve had, 20 percent of the
stock, 50 percent of the stock. But if it`s a good quality stock you think
has room to return in the long term, you don`t want to completely cut out
of that stock because who knows if you`ll ever get back into it.

MATHISEN: Which is kind of what icon did, he sold half the stake he
said earlier today. In an interview, he said I made five times my money in
that stock and when I do that, I want to start taking cash off the table.

But here he`s letting, I guess you would say, his profits run because

WREN: That`s right, it`s never —

(CROSSTALK)

WREN: Nobody is going to fault you and investors should not feel bad
about taking some money off the table. You still have some of that
position left. You still benefit —

MATHISEN: You never lose when you take a profit, do you, Scott?

WREN: That`s right.

MATHISEN: Let me ask you the converse question. At what point do you
decide to sell a company you bought that is losing? Should you go in and
say, OK, the minute this thing goes down 20 percent, I`m out of here?

WREN: Yes, I think really when you have a gain and a stock or even
when you buy a stock, you should have at least some sort of a mental stop.
You have to say if it`s more of a trade, you know, I think I can make $10
on this stock. Well, for me, you know, I like a ratio of about 3-1. If I
think I`m going to make $10 on a stock, I really don`t want to lose more
than about $3 or $4, something like that.

So, you know, investors, they have a big problem. Retail investors,
they hang on to losers way too long, and you have to be in the right stock
at the right time at the right part of the cycle. That`s all hard to do.

MATHISEN: Oh, yes.

WREN: But you need to have mentally in your mind when you`ll get out
of there.

(CROSSTALK)

MATHISEN: You just sit there and you go, I know this stock is coming
back. I love it.

Scott, we got to leave it there. Thanks very much for your help
tonight.

Scott Wren, senior equity strategist at Wells Fargo (NYSE:WFC).

WREN: All right, Tyler, have a good evening.

MATHISEN: You, too.

GHARIB: And we`ve got some big news tonight about the planned initial
stock offering of Twitter. In regulatory filings out today, Twitter
disclosed that it would price the stock in a range of $17 to $20 a piece.
It plans to sell 70 million shares, putting the total valuation of the
company at about $11 billion.

MATHISEN: Well, the big story in Washington today, health care and
the half billion-dollar Web site that doesn`t work right. The main
contractors for the government`s healthcare.gov marketplace got grilled by
lawmakers for their role in the glitches, errors and long wait times that
have plagued the site from the start.

Bertha Coombs was in Washington for the contentious hearing, and filed
this report.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
There was one thing all the contractors agreed on today on Capitol Hill,
whatever went wrong it wasn`t their fault.

CGI, which built the federally facilitated marketplace or FFM.

CHERYL CAMPBELL, CGI FEDERAL SR. VICE PRESIDENT: The FFM passed eight
required technical reviews before going live on October 1.

COOMBS: QSSI, which provided enrollment software, said it raised red
flags about parts of the system that didn`t work.

ANDREW SLAVITT, OPTIMUM/QSSI GROUP EXECUTIVE VICE PRESIDENT: Our
work, the data services was tested, tested well and tested adequately. We
tested every piece of code we received timely. We returned a full report
of any bugs we found.

COOMBS: The problem they say is that the system`s pieces don`t work
well together, and it was health officials from CMS, the Centers for
Medicare and Medicaid, who oversaw the project end to end and who decided
to go live despite red flags raised by testing.

CAMPBELL: It`s CMS has the ultimate decision for live, or go or no go
decision, not CGI.

COOMBS: While there were partisan moments, there was plenty of
frustration on both sides of the aisle with the seeming lack of
accountability.

REP. ANN ESHOO (D), CALIFORNIA: Are you saying that you didn`t test,
that the tests worked very well both inside and out, or that you turned it
all over to CMS? Anybody want to answer?

CAMPBELL: We had independent contractors testing our system.

REP. JOE BARTON (R), TEXAS: Do you think it`s right that 99 percent
of the people that try to go through the system get rejected, can`t even
complete the application? Is that a system that you`re proud of?

CAMPBELL: Sir, this is a system that we are working every day to make
improvements.

COOMBS (on camera): None of the witnesses today could say for sure
when the problems will all be resolved. CGI, the lead contractor,
estimates it could take another two months. The Health Department won`t
commit to a timetable, but you can be sure members of Congress will put to
that question to Health Secretary Kathleen Sebelius when she testifies
before the House next week.

Bertha Coombs, NIGHTLY BUSINESS REPORT, Washington.

(END VIDEOTAPE)

GHARIB: Our next guest has some suggestions on how to fix those
problems. He`s Dr. Zeke Emanuel, the former health care advisor to
President Obama. He`s now vice provost at the University of Pennsylvania.

I talked with him a short while ago and he began talking about what
went wrong with the government`s program from get-go.

(BEGIN VIDEOTAPE)

DR. ZEKE EMANUEL, UNIVERSITY OF PENNSYLVANIA: The first thing is that
the regulations and guidance necessary to specify what the sites would look
like so contractors can build them came in late. There wasn`t a CEO with a
lot of managerial experience who`s been involved in the health insurance
industry, we`ve been involved enough IT to really understand the system,
running it.

Instead, the people who run Medicare who know how to pay bills and
know how to issue regulations, but have never built an e-commerce site were
entrusted to build this, which didn`t make sense and to integrate all the
different components.

I`d say, also, the toxic atmosphere in Washington with one party try
to defund and constant battles and not everyone work together to make it
work didn`t help anything and we found out this week that I want wasn`t
tested from end to end.

So someone started the process and worked their way all the way
through in a testing phase before hand, which is sort of normally done
wasn`t done.

GHARIB: So, Dr. Emanuel, what`s the solution here? It`s a mess.
What are the key things the Obama administration has to do to fix the
problem?

EMANUEL: The first and most important thing is to get a CEO. They`ve
got a temporary CEO in Jeff Zients, who is a proven manager. I`ve worked
with him. He`s a very good person, a very good people person. He also has
actually done — been a consultant to the health care industry, so he
understands health care.

He`s going to be in there. But he`s temporary because he has a full-
time job to go to in January at the White House, and they need a permanent
person who has the skills I mentioned. That good manager, knows something
about the health insurance industry, knows something about e-commerce and
IT and can put up a site.

They need someone who will see the site through for the next couple
years, at least.

GHARIB: So, you`re pretty familiar with the thinking in the White
House and Obama administration, after all, you did advise President Obama
early on, on the health reform.

At what point they do come to the thinking and saying, you know, we`re
not ready, this is going to take longer than we think and we`re going to be
better off if we postpone the enrollment? What do you think? When are
they going to get to that point?

EMANUEL: That depends upon the IT solutions that you can put in place
over the next five weeks and as I understand the problem from people who
are close to it, this is not rocket science. This about blocking and
tackling and doing basic things correctly, and the question is if we can
get that, the Web site up and running in five weeks, I don`t think they`re
going to have to postpone enrollment and postpone the mandate, and I don`t
think that would be necessary.

Now, if it turns out that there are much bigger problems, and it
cannot operate at a reasonably good level by Thanksgiving, that would have
— that would force you into a different decision.

GHARIB: One of the key issues here is that the success of Obama care
depends on healthy 20 and 30-year-olds to sign up for insurance. And if
they feel that there are too many hassles and they give up, doesn`t that
undermine the program, whether it`s for an insurance company, for the
hospitals, pretty much everybody — isn`t that a risk that the Obama
administration is facing by continuing this program as is?

EMANUEL: As you correctly point out, getting people across the age
spectrum, in particular younger people who may be not clear what the actual
advantage of getting the health insurance is for them enrolled is very
important. And so, making sure it works well enough so that they can sail
through the process in 20 or 30 minutes is very important. And I do think
that`s got to be the goal.

But I, again, from what I`ve heard, that can be achieved and we know
that other Web sites around, as I mentioned, Colorado, Connecticut,
California, the District of Columbia, Kentucky, have been able to do that.
So I think this is a solvable problem. It`s not an insolvable problem.

(END VIDEOTAPE)

GHARIB: And Dr. Emanuel also had some advice for the Obama
administration. It should be totally transparent with the American people,
telling them what the problems are, how they plan to solve them, and what`s
the timeline?

MATHISEN: Still ahead, one hedge fund manager makes the case for
Apple (NASDAQ:AAPL) at $1,250 A share, more than doubling its current
price, in three years. Details, next.

(MUSIC)

MATHISEN: As NBR reported yesterday, activist billionaire investor
Carl Icahn is publicly pressing Apple (NASDAQ:AAPL) CEO Tim Cook to launch
a massive $150 billion stock buyback plan. In a letter, Icahn, who now
owns 4.7 million shares of the company says the buyback would take so much
stock out of circulation it would push the share value from the current
price of about $532 to a staggering $1,250 within three years, given the
forecasted profit growth. Also, Icahn said that if the stock buyback plan
isn`t implemented, he will, quote, “test the waters on a proxy fight
against Apple`s board of directors.”

GHARIB: If Apple (NASDAQ:AAPL) goes for $150 billion stock buyback,
it would be the biggest one ever offered by an American public company.
That would be more than Apple`s own $50 billion program from earlier this
year and equaling the next four combined, which are all Microsoft
(NASDAQ:MSFT) buybacks.

MATHISEN: We have some big names reported earnings today and we begin
“Market Focus” with positive results from Dow component 3M (NYSE:MMM), the
maker of post-it notes and scotch tape, reported profits that beat
estimates by 3 cents a share.

The conglomerate reported improved results in a number of its
businesses from industrial adhesives, to materials used in cars and
airplanes. Shares up fractionally today, $123.49. They are up 43 percent
so far this year.

An improvement in sales overseas helped drive Ford`s bottom line. The
country`s second biggest car maker cited strength in North America and a
smaller operating loss in Europe. Ford and it raised the full year
guidance. The help drive shares up more than 1 percent to $17.76, a
patriotic price.

Dow Chemical (NYSE:DOW), the largest U.S. chemical maker, reported
both disappointing earnings and revenue. The company blamed weak results
on performing units which Dow is looking to sell and which is exposed to
commodity price swings. But the CEO was quick to focus on its plastics
unit, a business growing as the economy recovers.

(BEGIN VIDEO CLIP)

ANDREW LIVERIS, DOW CHEMICAL CHAIRMAN & CEO: Another reason price
increase is thick is supply and demand gets tighter. Improving economy
means demand goes up and as just reported by the Ford result, automotive is
going up, housing and construction is going up. So, there are some markets
that are tightening that enable price and value share to occur, and that`s
really the package and plastics business.

(END VIDEO CLIP)
MATHISEN: But gains in plastics were not enough to bring the stock
up. Shares were down 1 percent to $40.62.

GHARIB: Xerox (NYSE:XRX) also down today, after issuing a
disappointing forecast. The company cut back its outlook for the year
because of restructuring charges in its outsourcing business and higher
pension settlement cost. Revenues also came in lighter than expected, but
earnings beat estimates by a penny. But investors focused on that outlook,
sending the stock down 10 1/2 percent to $9.61.

Cost cutting and improved ticket sales helped Royal Caribbean beat
Wall Street`s earnings expectations. The world`s second largest cruise
operator also raised its outlook, saying demand is improving next year,
thanks to higher bookings in most markets, including Europe, Asia and
Alaska. Shares sailed higher, up 6 1/2 percent, to $42.35.

And Pulte Group, the number two U.S. home builder, reported a rise in
third-quarter earnings, helped by an increase in sale prices. As for the
recent rise in mortgage rates and the overall slowdown in new home orders,
Pulte CEO said he believes it will be short-lived. Shares shot to $17.85,
making it the best performing stock on the S&P today.

MATHISEN: And, Susie, if you like to get a full list of all, all of
the day`s earnings, go to our Web site, NBR.com.

GHARIB: And coming up, we introduce you to one of Wall Street`s most
feared regulators. He`s putting the heat on the banks and changing the way
some big institutions do business.

(MUSIC)

MATHISEN: Federal Reserve wants big banks to have more cash available
than they do right now. The nation`s central bank proposing that large
U.S. banks keep enough cash, treasury bonds and other so-called liquid
assets on hand to survive a severe economic downturn like the financial
crisis of 2008.

GHARIB: Now, one of those banks, Bank of America (NYSE:BAC), is
laying off a lot of workers in its mortgage division. It`s already told
1,200 processors that they were losing their job. Now, “The Wall Street
Journal” reports that as many as 3,000 more workers, these are ones who
work in the troubled home loans division, may also get pink slips.

MATHISEN: Well, not many people know Tom Curry, whose title is
comptroller of the currency. But big Wall Street banks sure do. He`s one
of the bank`s most feared and important regulators. He`s responsible for
levying billions in fines just this year and keeping those banks in line.

Kayla Tausche sat down with the comptroller and has more.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINES REPORT CORRESPONDENT (voice-over):
Wall Street has got a new sheriff in town. No matter that the office of
the comptroller of the currency has been around for 150 years, Tom Curry,
who took the helm of the agency a year ago, is new blood at a place once
criticized for being too cozy with the banks. He`s out to prove that`s
wrong and he`s making the banks pay.

In 2013, the OCC has put out 152 enforcement actions and collected
half a billion dollars in fines, on the rise from previous years. Its
highest profile target, the biggest bank in the country by asset: JPMorgan
(NYSE:JPM) Chase. Anti-money laundering efforts, marketing of identity
theft products and a whopping $300 million fine for faulty disclosures in
the trading loss, just a few of the issues where the OCC has taken aim.

It`s got an eye on management, too, forcing Jamie Dimon to cede his
role as chairman of the bank`s subsidiary.

Here`s what Curry said about that move generally.

THOMAS CURRY, COMPTROLLER OF THE CURRENCY: Management, particularly,
the board of directors needs to be a credible challenge to operating
management that individual institutions will be prodded to take a critical
look at the structure.

TAUSCHE: Corporate governance just one of the areas where Curry is
stepping up his standards for banks.

CURRY: We think the bar should not be set at satisfactory in critical
areas such as risk management, audit and corporate governance.

TAUSCHE (on camera): Stricter formal guidelines for the banks are
expected later this year. Just today came a new proposal with the Fed and
FDIC that yet again capital increases banks must hold for rainy day. Now,
Washington wants banks to keep at least 30 days of liquidity on hand in
case another credit crunch comes along.

CURRY: In the banking crisis, it was important to demonstrate that
both the level and the quality of the capital is there, before the crisis
emerges.

TAUSCHE (voice-over): As regulators like the OCC`s Curry look inward
five years after the financial crisis, prevention is the priority.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche.

(END VIDEOTAPE)

GHARIB: And Kayla is right. That is — prevention, nobody wants
another financial crisis. And we were just talking about how the banks
feel they have too many regulations, and investors feel like they don`t
have enough.

MATHISEN: That`s right. And they feel — investors feel they were
burned or shareholders felt that they were burned during the crisis, of
course.

GHARIB: Well, we`re going to have to leave it there.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks
so much for watching us.

MATHISEN: And thanks from me, as well. I`m Tyler Mathisen. 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
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