Transcript: Monday, December 2, 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: December downer. Stocks start the new month with a loss. And one prominent voice says he has growing concerned about the market`s lofty level. Is he right, and can you still find value?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Cyber cash. After a holiday weekend that was not so jolly, retailers are hoping shoppers splurge in an online buying binge.

MATHISEN: And, Web diagnosis. The government says it`s getting easier to enroll for coverage on its healthcare Web site. But insurers say big problems still persist.

All this and more for December 2nd, 2013.

GHARIB: Good evening, everyone.

Red arrows on Wall Street on this first trading day of December, not the kind of kickoff investors were expecting for the final month of the year marked by stock market records. The Dow averages now back to the 16,000 mark and the S&P index stands at exactly 1,800.

So, why the selloff? Well, some blame it on disappointing consumer sales over the long holiday weekend, which pull down shares of a lot of major retailers today. And we`ll have more on that in just a moment.

Not even encouraging economic data seem to help — the stronger growth in U.S. manufacturing in November, and robust construction spending for October.

So, looking at the closing numbers, the Dow fell 77 points, the NASDAQ was down 14, the S&P lost about five points.

MATHISEN: Well, Susie, also not helping stocks today, comments from a Nobel Prize-winning economist who says, to him, the U.S. stock market is starting to look bubblicious. Now, that wasn`t Robert Shiller`s exact word in an interview with the German magazine. But that was his message. The Yale economist behind the Case-Shiller home price index says he sees the world as, quote, “very vulnerable to bubbles,” and not just in stock prices but in property markets, as well.

Shiller called the U.S. economy, quote, “still weak and vulnerable.” He says technology and financial sector stocks seem most stretched. He still sees value in energy and health care. So far this year, the broad-based S&P 500 index is up more than 26 percent.

GHARIB: Well, Jim Paulsen isn`t buying the bubble talk. He says there is still a lot of upside in the stock market. He`s chief investment strategist at Wells Capital Management.

Jim, nice to have you with us.

So, tell us why you`re not expecting any bubble trouble after a Nobel Prize economist is saying that things are vulnerable.

JIM PAULSEN, CHIEF INVESTMENT STRATEGIST: You know, Susie, I think the primary thing that creates sort of a bubble economy and ultimately a recession is just simply too much confidence about the future. When all the players — consumers, businesses, policy officials, everybody — gets really bullish about the future, they start to engage in dumb behaviors. They stretch the balance sheets, take on too much debt, hire too many people, buy that second summer home, and that`s the type of thing that ultimately has to be corrected.

And I think that confidence is better today but we`re still at confidence levels that are below average by a long-term historic norms, and I think the description I would give is we`re more comfortable, maybe, but we`re certainly not euphoric, the type of confidence that begets behaviors, that brings about a bubblicious-like risk. I don`t think we`re anywhere is close to that.

MATHISEN: But show me your Nobel Prize, Jim Paulsen. Show me yours.

(LAUGHTER)

MATHISEN: You know, I take all those points. We`ve got a low inflation. We`ve got rising interest rates that really are not at a point where they`re really posing competition for stocks. But you still have an economy that is not growing all that fast. And a market that has.

Is — can`t you concede that the market may be more vulnerable at these levels to a shock? Whether it`s something that comes from the outside or from Washington or something that we can`t foresee than it was a year ago?

PAULSEN: Well, I think that`s true, Tyler. There`s no doubt about it. Every day the market goes up, it is somewhat more vulnerable than it was when it was at very depressed levels.

But I think one of the things to keep in mind. The market is up a lot from 2009, but where it was in 2009 was equally artificial. I mean, it had fallen a lot, not necessarily because of fundamentals, but mainly out of fear. And it stayed at these levels for a while because of excessive fears about one Armageddon or another, all of which proved false, they didn`t occur.

So, in some sense, the rise in the market just gets us back to a meaningful reality, after underestimating that for so long. And do, we`re up, but I don`t think we`re extended. We`re selling at around 16 times, trailing earnings right now. And market history would suggest that market peaks, the major market peaks are in low 20s in terms of movables.

I think we`re going to continue to have earnings growth over the next few years. And we`ll probably have arise further in evaluations. It won`t be a straight line. Indeed, next year, we might get a correction at some point. But I think we`re a long ways from the type of like 20 movable markets which is more vulnerable to a major correction.

GHARIB: All right. So, then, the challenge for investors is finding value in this kind of a market, where can they find value?

PAULSEN: Well, I would look — I would look within this country, first, I would like to be a little tilted offshore, Susie, towards the international markets, I think the dollar will remain weak in the next couple of years, favoring both international development in the emerging markets.

Here, I kind of like the cyclical markets in the early part of next year. I think the market might run ahead yet for a while, into the early part of next year. And you want to have stuff tied to the economy. We`ll continue to get good manufacturing ports. I think we`re going to get good economic reports.

So I like the materials and industrial stocks, kind of the manufacturing sector. I still like the financials here.

GHARIB: OK.

PAULSEN: Maybe later in the year if interest rates back up a little bit and we get more pressure on the market, then you might want to move your allocation more defensive, maybe to the staple stock or something in that vicinity.

GHARIB: All right. We`re going to have to leave it here. A lot of good information. Jim, thank you so much for coming on the program.

PAULSEN: Thanks a lot.

GHARIB: Jim Paulsen, chief investment strategist at Wells Capital Management.

MATHISEN: Well, perhaps partly fueling those concerns about the market, investors poured money into the equity funds in November. Data from TrimTabs Investment Research show that more than $31 billion went into all equity mutual funds and insured traded stock funds last month. That is the sixth month in a row stock fund inflow has outpaced bond funds.

GHARIB: Well, Americans maybe pouring money into the stocks, but they are stingy about spending money over the long Thanksgiving and Black Friday weekend.

The National Retail Federation reporting that more Americans hit the malls this year, especially on Thanksgiving Day. But they spent less money than they did last year. Over the four-day weekend, it is estimated spending fell nearly 3 percent.

Now, many retailers are counting on online sales today known as Cyber Monday to significantly boost overall revenues. In fact, eBay (NASDAQ:EBAY) was a standout as investors bank on strong sales day.

Courtney Reagan went to eBay`s rival and got a look inside an Amazon (NASDAQ:AMZN) fulfillment center in Arizona, for the expectations and logistics surrounding today.

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COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The holiday weekend shopping sprees aren`t over yet. The National Retail Federation says 131 million Americans will shop on this Cyber Monday, expected to spend $1.8 billion today, up 13 percent over last year.

While impressive growth, the total is small compared to the estimated $57.4 billion spent over the Black Friday weekend. Some forecasters suggest that Cyber Monday has lost some of its significance now that retailers are blurring the lines between Black Friday weekend and Cyber Monday promotions.

Nevertheless, online behemoth Amazon (NASDAQ:AMZN) is projected to be one of the Cyber Monday`s and the holiday season`s biggest winners.

(on camera): This is what Amazon (NASDAQ:AMZN) calls the slam line. It`s about the midway point in the fulfillment process here at the center in Phoenix, Arizona. Now, Amazon (NASDAQ:AMZN) hasn`t given us any expectations for Cyber Monday orders today. But we know in 2012, more than 306 items were ordered per second around the world.

CRAIG BERMAN, AMAZON COMMUNICATIONS VICE PRESIDENT: These buildings have been really full. We have so much products in them right now. This is the fullest I have ever seen them. And it`s — we`re ready for what we believe is going to be a really big season.

REAGAN (voice-over): Amazon (NASDAQ:AMZN) isn`t the only beneficiary of the surge in online shopping. FedEx (NYSE:FDX) says for the first time in its history, today, Cyber Monday will not only be its busiest day of the season, but its busiest day ever, as it ships and delivers merchandise ordered over the Thanksgiving weekend and Cyber Monday orders began to enter the system.

Just another sign that the rules of the game are changing, with people shopping from their mobile devices all weekend long, we may not be talking about Black Friday and Cyber Monday as much next year.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan, in Phoenix, Arizona.

(END VIDEOTAPE)

MATHISEN: The managed care giant, UnitedHealth Group (NYSE:UNH) is now projecting its earnings and revenues in 2014 will be below analysts` expectations. The company is citing planned reductions and government funding for Medicare Advantage and other parts of the Affordable Care Act that it says will hit its earnings next year.

GHARIB: Meanwhile, the Obama administration met its self-imposed deadline to have the Healthcare.gov Web site back on track and running smoothly for the vast majority of users by December 1st. But despite enrolment numbers going up, problems are still plaguing the online market place.

Bertha Coombs has more on what`s working and what still needs to be fixed.

(BEGIN VIDEOTAPE)

HAKIM PITTS, CERTIFIED ENROLLMENT ASSISTER: Here you go.

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Hakim Pitts says, over the last week, it`s been a lot easier to enroll people for insurance on than last month.

PITTS: A couple of weeks ago, you couldn`t do anything at all.

COOMBS: Last week, he was able to help people apply and shop all in one sitting.

PITTS: People came in, and in like half an hour, found insurance. So, it`s rewarding.

COOMBS: Not so today. Although the Obama administration says it more than doubled the capacity of the insurance marketplace to handle 50,000 users at a time, after five weeks of trouble shooting. By late morning, more than 375,000 people had gone into the site, landing in a virtual waiting room that holds their place in an online queue.

But if the front end remains slow, the insurers say the big problem is the back end of the marketplace, the actual planned enrollment system continues to generate faulty information.

ROBERT ZIRKELBACH, AHIP: The health plans are still receiving enrollment files that are duplicative or include missing or inaccurate information. And in some cases, health plans are not receiving those files at all.

COOMBS: In many cases, insures have to process those enrollment by hand.

ZIRKELBACH: Having the complete enrollment information is essential for coverage to be able to begin on January 1st.

COOMBS (on camera): The state and federal exchange have generated more than 230,000 confirmed selections through November 30th. Insurers already backlogged trying to process those applications, worrying that they won`t be able to handle the new surge and get them processed in time for coverage to begin January 1st.

But administration officials say they have now fixed the major flaws with the insurance files on Healthcare.gov. And they expect that now, the process will go more smoothly. They will certainly be put to the test in the days to come.

Bertha Coombs, NIGHTLY BUSINESS REPORT, Philadelphia.

(END VIDEOTAPE)

MATHISEN: Still ahead, could proposed energy reforms in Mexico open up new lucrative opportunities for American oil companies.

But, first, a look at international markets fared today.

(MUSIC)

GHARIB: The Supreme Court has declined to get involved in the brouhaha between states and online retailers about the collections for sales taxes. In a big victory for states, the high court will not review the suit brought by Amazon (NASDAQ:AMZN).com and Overstock.com (NASDAQ:OSTK), which urged the court to clarify when states have the right to require Web sites to collect sales taxes even though the sellers aren`t located in those states.

MATHISEN: In the meantime, Amazon (NASDAQ:AMZN).com founder and CEO Jeff Bezos revealed in a “60 Minutes” interview last night that the world`s biggest online retailer is now working on a drone delivery service that he says could be up and running in five years.

Eamon Javers joins us now from Washington with more on this Jetsons-like idea, and the hurdles it faces.

Eamon, inevitably, I must say — could this plan ever really get off the ground?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I see what you did there, Tyler.

Look, these things will not fly an inch if the Federal Aviation Administration doesn`t say they can do it. And right now, there is just not the regulatory infrastructure in place to allow a swarm of drones flying over residential and commercial areas of the United States. It just isn`t possible.

But Congress has told the FAA to get ready for that and to have those regulations in place by 2015. A lot of experts say the FAA is not likely to hit that deadline. It`s going to take some time to work this all out.

Among all of the different things the FAA has to think about here are how all the drones flying over all of these areas in the United States would interact with commercial aviation and regular old piloted aircraft of the old fashioned kind? Will they be able to speak to each other? Will the drones get in the way? How will they set up the areas where the drones can fly near airports the like? All those rules still have yet t be written, Tyler.

GHARIB: Yes, a lot of issues, and also just how to — people, you know, on the streets and stuff interact with these robots in the air.

But is Jeff Bezos of Amazon (NASDAQ:AMZN) the first to come up with the idea? Or is anyone else doing anything like this or proposing something like this?

JAVERS: Well, he is the one doing it with the biggest wow factor right now in the commercial space. But interestingly enough, the U.S. Marines are doing something like that in Afghanistan. They`re flying robotic helicopters to deliver supplies to marines on the front line right now. They have had success with those robotic helicopters flying independently without pilots, delivering equipment. They`ve had some crashes, though.

And the data that they`ve been able to come up with on how that works and the expertise they`ve come up with in the Marine Corps might be something that Amazon (NASDAQ:AMZN) might want to take a look at here.

MATHISEN: It`s a fascinating idea. Lots of issues to solve here, like my copy of “Fifty Shades of Grey” just got taken out by a 747. I mean, but we`ll keep following it, Eamon.

JAVERS: Could be a problem, could be a problem.

MATHISEN: All right. Thanks a lot.

JAVERS: You bet.

GHARIB: Two big name companies are going public.

First, Hilton Worldwide Holdings, this hotel chain was bought by the private equity from Blackstone nearly a decade ago, and now plans to sell its shares to the public in about two weeks. Hilton`s initial public stock offering is expected to raise nearly $2.5 billion, valuing the company at more than $20 billion.

MATHISEN: And another well-known company also plans to begin selling stocks very soon. Aramark, the big food and uniform services company that serves lots of stadiums and amusement parks and even schools, hopes to raise more than $800 million in its initial public sale. That partial sale would mean Aramark would have a total stock market value of $5.3 billion.

GHARIB: Forest Labs announced plan to cut half a billion dollars in costs by the year 2016, and buy back more stock. And that`s where we begin tonight`s “Market Focus.”

The drug maker says it will downsize its staff to save money and buy back at least $400 million in stock to boost shareholder returns. Forest, which is facing patent expirations on its big drugs, will also buy the rights of a schizophrenia treatment from Merck (NYSE:MRK). The stock surged almost 10 percent to $56.32.

Hedge fund Starboard Value is taking aim at TriQuint Semiconductor (NASDAQ:TQNT). The firm holds one of the largest stakes in this chipmaker and is now demanding the company make changes because the stock is deeply under-valued. In a letter to the company, Starboard also suggested nominating a new board of directors. Shares fell a fraction to $7.86.

Talisman Energy (NYSE:TLM) added two directors to its board, backed by billionaire investor Carl Icahn. Icahn also upped his stake in the Canadian oil and gas company. He now owns nearly 7 1/2 percent. Look at the shares, they climbed more than 3 percent to $12.20.

Dow Chemical (NYSE:DOW) says it will sell or spin off part of its commodities chemical business. The move would mean unloading about 40 manufacturing plants. The business has generated about $5 billion a year, and the changes will affect almost 2,000 workers. Dow said it expects the revamp to go through within the next two years.

Dow stock jumped more than 2 percent to almost $40 a share.

MATHISEN: Well, 3M (NYSE:MMM) was the biggest loser in the Dow today, after the stock was downgraded by Morgan Stanley (NASDAQ:NBXH) (NYSE:MS). The company`s rating was dropped from equal weight to under weight. Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) said it likes the Post-It maker, but not as much as some of 3M`s peers. Shares plummeted more than 4 percent to $127.68.

Comcast (NASDAQ:CMCSA) (NYSE:CCS) is testing technology that puts new commercials into old on-demand TV shows. Now, the development could networks generate more ad revenue off of old shows that viewers watch after the release date. Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent of CNBC, which produces NIGHTLY BUSINESS REPORT. Shares of cable operator were down 1 1/2 percent to $49.12.

Well, the provider of in-flight Internet service Gogo received a go-go ahead, to install its satellite technology on Boeing (NYSE:BA) 747-400 aircraft. It plans to offer Internet access on that plane by the first quarter of next year. The news sent shares flying up almost 17 1/2 percent to $31.31.

And investors soured on shares of Krispy Kreme ahead of the company`s earnings reports. Then when the report came out, they sold even more. The problem wasn`t so much the profits. They met analysts` estimates. But the company`s forecast for the upcoming fiscal year was not as light and fluffy as the investors hoped. Shares initially dropped after hours. The stock ended the regular session down more than 3 percent to $24.55.

Mexico is getting closer to amending its constitution to allow foreign investment in the nation`s oil industry. That would be for the first time in 75 years.

And as Michelle Caruso-Cabrera tells us, it would provide new opportunities for U.S.-based oil companies.

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): There is only one oil and gas company in Mexico, Pemex, short for Petroleos Mexicanos. It`s been that way since 1938. In the midst of a socialist revolution, the country kicked out all foreign oil companies and the government took control of the production.

For decades, Mexico is one of the world`s top producers of crude, but not anymore. Now, Pemex`s oil production is declining, down from 3.5 million barrels of oil per day in 2004, to only 2.5 million barrels per day now.

CARLOS MORALES, PEMEX: We need to evolve.

CARUSO-CABRERA: Carlos Morales is head of exploration and production for Pemex. He says the key to a turn around, accessing the potential 50 billion barrels of oil in the deep waters off the coast in the Gulf of Mexico.

But deep water drilling is very expensive. Just renting a platform costs up to half a million dollars per day.

(on camera): Mexico`s state oil company spent $25 billion a year on exploration and production. However, they think they need $60 billion. The problem is, they don`t have that kind of money.

(voice-over): So, Mexico`s new president, Enrique Pena Nieto, is pushing through reforms which finally would allow foreign investment. The debate is expected to begin this week on just how far those reform reforms will go. The more generous they are to foreign companies, the more investment they`ll get, but they`ll also be more controversial.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Veracruz, Mexico.

(END VIDEOTAPE)

GHARIB: And coming up on the program: 12 years after Enron`s collapse, why is one accounting professor saying the company may not have been the house of cards after all.

But, first, here`s a look at commodities, treasury and currency.

(MUSIC)

GHARIB: Bank of America (NYSE:BAC) is settling claims related to a decade`s worth of bad mortgage loans it sold to Freddie Mac. The nation`s second largest bank has agreed to pay more than $400 million to the government-run mortgage giant. This resolves all remaining claims for defective loans that Freddie Mac said the bank knew would go back.

MATHISEN: And finally tonight, it was 12 years ago when Enron filed for bankruptcy. The spectacular corporate collapse has inspired movies and sweeping regulatory reforms, but what if the world got the Enron story wrong, and company could have been saved.

Scott Cohn has more.

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SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Enron was the seventh largest company in America, at the start of 2001, a cutting edge Wall Street darling, which is why its plunge into bankruptcy of December of that year was such a scandal.

SEN. PETER FITZGERALD (R), ILLINOIS: I`d say you were a carnival barker, except that wouldn`t be fair to carnival barkers.

COHN: There were congressional hearings, demands for reform. Thirty-one people were charged, including chairman Ken Lay, CEO Jeff Skilling, and chief financial officer Andy Fastow.

The story that emerged, Enron was a house of cards, propped up by cheap accounting tricks.

(on camera): But that story has holes. After all, months before it went bankrupt, Enron stock hit a high of $90 a share here at New York Stock Exchange. The company had almost no debt coming due, and on the day it filed for bankruptcy, it still had $2 billion in cash.

(voice-over): Andy Fastow, who served six year in prison for his role in the scandal told a conference of fraud examiners earlier this year that Enron didn`t have to go bankrupt. He blamed a series of decisions in October of 2001, but didn`t say what they were.

Tufts University professor Lawrence Weiss thinks he knows. “One thing Enron was not,” he says, “was an accounting fraud.”

LAWRENCE WEISS, TUFTS UNIVERSITY: Did Enron have some viable profitable businesses? The answer is yes. If they had had been able to maintain those businesses, certainly the profitable ones, of which the trading was the most valuable, then I think there`s a good argument to be made that Enron might have survived.

COHN: In a blog post for the “Harvard Business Review,” Weiss says while there were misrepresentations of the company, a fixation on Enron`s stock price caused the collapse. He says the off-balance financing arrangements that were the object of so much scorn could have saved Enron, because they allowed the company to compensate investors by issuing more stock.

WEISS: Ken Lay didn`t want to issue shares, because that would have greatly diluted the share price.

COHN: Fastow himself in comments on the blog claims he and Lay had a heated argument over that very issue, Fastow warning if Lay refused to issue stock, it would kill the company. Lay blamed Fastow for the collapse, but never fully explain why he decided to unwind the accounting. Lay died after his own trial in 2006, taking one of the great mysteries about Enron to his grave.

Scott Cohn, NIGHTLY BUSINESS REPORT, New York.

(END VIDEOTAPE)

GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight.

And we want to remind you that this is the type of year your public television station seeks your support to make programs like this one possible.

MATHISEN: And I`m Tyler Mathisen. On behalf of your public TV station, thank you for your support. We`ll see you right 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.

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