Transcript: Monday, December 9, 2013

nightly-business-report-september-25-201321-300x225ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Focus on Washington. As the budget deal inches closer in D.C., there`s a chance of a taper increase at the next week`s Fed meeting. And what does all that mean for stocks?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Taking flight. The new American Airlines, the world`s largest carrier is now open for business. But is bigger really better for flyers?

GHARIB: And priced out. Rents are rising, and rising fast. But are the soaring prices creating an affordability crisis, one that this country has never seen before?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, December 9th.

Good evening, everybody, and welcome. I`m Tyler Mathisen.

Stocks eked out small gains on this slick and slippery Monday on Wall Street, and treacherous weather wasn`t the only reason shares had trouble getting traction. There was more on the taper today. That, in case you have been away for a while, is laying (ph) for discussion over weather and when the Federal Reserve might begin winding down its stimulus measures. Today, the chatter came from two Fed bank presidents. Dallas` Richard Fisher, long an opponent of aggressive stimulus, said the bond buying program should be curtailed, quote, “at the earliest opportunity.”

Meanwhile, St. Louis James Bullard said recent labor market`s strength boosts the case for tapering perhaps as soon as the Feds meeting next week. Today`s modest stock market gains coupled with Friday`s surge suggests that the whole idea of tapering doesn`t scare investors quite the way it once did. Here are the numbers from today. The Dow up five points, the NASDAQ gained six, and the S&P added three.

GHARIB: As said policymakers consider whether or not to taper, they`re watching closely budget talks on Capitol Hill. The hope is that lawmakers make a deal before adjourning for the Christmas holiday and removing the fear of another government shutdown.

John Harwood joins us now from Washington with more on all of this.

So, John, when we were talking to you about this last week, you said lawmakers were close to a deal. Where do things stand now?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: They`re still talking. They hope to announce a deal tomorrow. But I`ve got to tell you, Susie, it`s kind of like what they say about academic politics, the smaller the stakes, the more intense the fighting.

We`re not talking about a big deal that hits the hot button of taxes and Medicare and Social Security, but you`re hearing talk that the $90 billion deal they were talking about last week may be shrinking down as low as $60 billion and it`s unclear whether or not there is going to be any significant deficit reduction in the deal or whether it`s simply going to be re-shuffling money from the sequester cuts which members of both parties don`t like, to cuts they like better.

MATHISEN: Is the heart of this, John, doing away or somehow blunting the effects of those mandatory budget cuts under the sequester, that I gather in different ways in different programs, both parties would actually like to see happen?

HARWOOD: Yes, that`s the bulk of the deal, Tyler. It would lift the caps for defense spending which a lot of Republicans, some Democrats also don`t like, and would also lift the caps somewhat on domestic programs. Again, they`re mostly Democrats but also some Republicans think those squeezed domestic spending too hard. The House couldn`t pass their transportation bill this summer. So, that`s the motivation for the deal.

But as you have a small stakes deal, members with particular constituent pressures under fire in that deal are resisting like members from the Washington area who represent a lot of the federal employees whose retirement benefits would be affected.

GHARIB: Yes, you know, John a lot of businesses, a lot of CEOs are watching this very carefully. They`re always talking about a lot of uncertainty in Washington, and, of course, a lot hinges on this deal. When do you think they expect to announce the outcome and vote on it?

HARWOOD: A lot of members have gone to South Africa for the funeral services for Nelson Mandela as the president of the United States has, so they wouldn`t vote on the deal until at least Thursday. They do hope to announce it tomorrow so that they could then move through the legislative machinery toward a Thursday vote.

But again, the longer disagreements go on the more risks you have that it could be delayed slightly, I still would expect in the end, they`ll get it done this week.

MATHISEN: All right. John Harwood reporting from Washington for us — John, thank you.

A group of economists today forecast stronger growth next year. The National Association of Business Economists predicts the economy will grow at a pace of 2.8 percent in 2014. That`s higher than earlier estimates and they also say that we`ll see job growth of about 200,000 a month in 2014.

GHARIB: Well, it`s costing a little more to fill up the gas tank. Prices at the pump rose nearly 3 cents a gallon over the past two weeks. According to the Lundberg Survey, the average price is now $3.28 a gallon nationwide. That`s still 10 cents lower than it was a year ago.

MATHISEN: Well, do you feel any wealthier these days? The Federal Reserve says you probably should. Household net worth, hit a record high in the third quarter of this year. Thanks to resurgent home values and that rising stock market added it all up. And U.S. households are now worth a total of more than $77 trillion.

GHARIB: But the soaring home values have cost a surge in the nation`s rental market, and rental prices have risen dramatically, as Diana Olick reports, there is talk now that higher rents may have created the beginning of a rental bubble.

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DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When millions of Americans lost their home to foreclosure, they had no choice but to rent, and when the mortgage crisis curtailed credit for millions more potential home buyers, the rush to rent rose even more, and so did the rent.

SHAUN DONOVAN, HUD SECRETARY: We are in the middle of the worst rental affordability crisis that this country has known.

OLICK: A new study released today in Washington by a Harvard Joint Center for Housing finds that half of all U.S. renters now pay more than 30 percent of her income on rent. That`s up from 18 percent a decade ago. For those in the lower income brackets, the jump is even worse.

DONOVAN: Over four years, a 43 percent increase in the number for Americans with what we call worst case housing. Let`s be clear what that means, they`re paying more than half of ever dollar they earn for housing.

OLICK: Apartment rent growth accelerated over this past summer, now up 3 percent from a year ago according to REIS, as vacancies continued to decline. The numbers are not lost on Annie Eccles. She`s been renting for over two years, and the rent on her Bethesda, Maryland apartment has increased by the maximum allowable every year.

ANNIE ECCLES, RENTER: It is frustrating because we pay for rent. We also pay for parking and just knowing that every June month is going to increase significantly, as you know, as frustrating —

OLICK: And Annie pays almost as much each month in student loan debt as she does in rent. That makes saving for a down payment to buy a home more difficult.

ERIC BELSKY, HARVARD JOINT CENTER FOR HOUSING STUDIES: You add in the fact that incomes for low and moderate income people have not been going up as fast as inflation, you have a situation where it`s just going to be difficult for them to buy a home.

OLICK (on camera): The good news is that construction on rental has been ramping up. And the Obama administration is trying to entice more private capital back into the market. But with home ownership still out of reach for millions of Americans, rental demand is unlikely to ease anytime soon, nor are rising rents.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

GHARIB: Uncle Sam is now officially out of the car business. The U.S. Treasury has sold the last batch of its shares of General Motors (NYSE:GM), closing out its 2009 bailout of the automaker. Taxpayers lost money on the deal. The Treasury invested almost $50 billion to rescue GM and got almost all but $12 billion of it back.

MATHISEN: Airbus is cutting thousands of jobs. The European aircraft maker, the main competitor to U.S.-based Boeing (NYSE:BA) announced it`s cutting 5,800 jobs over the next two years, many from its space and defense division as it looks to reduce costs.

GHARIB: Also making news in the aviation business, the merger of American Airlines and U.S. Airways has officially been completed, creating the world`s largest carrier. The merged airline will take the American Airlines name. Shares of the new company rose nearly 3 percent in their first day of trading.

Now, the new airline will feature 6,700 daily flights and a global network to rival giants like United Airlines and Delta. But will that be a good thing for travelers?

Phil LeBeau has more.

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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In an industry where bigger is being touted as being better, the new American Airlines is promising great service and competitive air fares now that it`s merged with U.S. airways to form the world`s largest airline.

DOUG PARKER, AMERICAN AIRLINES CEO: Nothing about this transaction is going to affect prices. As we discussed in the past, this is — we`re putting these two together. They`re highly complimentary.

LEBEAU: With routes covering the world, American now has the size and network to compete with United and Delta. In fact, that trio of airlines, along with Southwest, will now fly almost 90 percent of the commercial flights in the U.S. — each has gone through a merger in recent years, raising concerns about whether bigger really is better for fliers.

BOB CRANDALL, AMERICAN AIRLINES FORMER CEO: But in the absence, of this particular, this combination, it wouldn`t be anybody to challenge the Deltas and United.

Now, if you roll back the clock and say United never happened and Delta never happened, so now you`ve got six instead of three, there probably would have been some incremental service offered by the sixth that won`t be offered by the three.

LEBEAU: The federal government tried to block the American/U.S. Air merger saying it would hurt competition on certain routes. Eventually, it settled with American and forced the merged airline to give up a small percentage of its flights into major cities.

(on camera): This merger means that almost 100 million people will belong to the American Airline`s frequent flier program. Despite that enormous number, American says nothing will change with the program. Frequent fliers hope that`s the case.

UNIDENTIFIED FEMALE: I think that American Airlines should be able to handle it. They will be fair and right about it.

UNIDENTIFIED MALE: They just have to wait and see. It has been good up until now, so I have no idea.

LEBEAU (voice-over): Phil LeBeau, NIGHTLY BUSINESS REPORT, Dallas, Texas.

(END VIDEOTAPE)

MATHISEN: And still ahead, regulators are going to vote on one of the most contested elements of the post-crisis Wall Street Reform Act. How about the so-called Volcker Rule impact you and will it protect the system from another meltdown? We`ll discuss.

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GHARIB: In a rare show of unity, eight of the nation`s biggest tech companies have teamed up. They are pushing for new limits on surveillance by the government. Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Twitter, LinkedIn (NYSE:LNKD), Yahoo (NASDAQ:YHOO)! and AOL (NYSE:AOL) sent an open letter to the president in Congress, calling for reforms and restrictions on how the government collects data on Internet users. They also want government agencies to be more transparent on what they`re looking for.

MATHISEN: Well, some of the tech companies have seen their share prices soar this year, but not every company has been so foreign fortunate.

Seema Mody takes a look at some stocks that went to the dogs this year but that some market pros say could turn into 2014 darlings.

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SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Dogs to darlings, when some of the biggest losers one year turned into rising stars the next. It`s a trend portfolio managers keep an eye on.

JOHN STOLZFUS, OPPENHEIMER & CO: It is almost a Wall Street tradition but not one lightly taken, and especially in a year where you have seen significant out-performance by many stocks.

MODY: It happened last year when Bank of America (NYSE:BAC) more than doubled, one of the top gainers in the S&P 500. A year after it lost 58 percent signs of recovery in the housing market and better than expected earnings were good for bank stocks in 2012.

On the other hand, Best Buy (NYSE:BBY), Hewlett-Packard (NYSE:HPQ), Pitney Bowes (NYSE:PBI), and Cliffs Natural were among the worst performing stocks in the S&P 500 in 2012. But Best Buy (NYSE:BBY) and Pitney Bowes (NYSE:PBI) became two of the darlings in 2013, up triple digits. Hewlett-Packard (NYSE:HPQ) is also a winner, but Cliffs Natural continued barking, falling sharply this year.

(on camera): So, who has a chance to go from dog to darling next year? Peabody Energy (NYSE:BTU), Newmont Mining (NYSE:NEM), Cliffs Natural Resources (NYSE:CLF) and Teradata (NYSE:TDC) are on this year`s list of worst performing stocks.

(voice-over): When it comes to the miners, analysts are cautious, citing the volatility that we`ve seen in the price of precious metals like gold and silver.

For Cliffs Natural, Hugh Johnson says it`s all about the economy.

HUGH JOHNSON, HUGH JOHNSON ADVISORS: What really matters to this company is the economy has to do well. The economy is going to do a little better in 2014 and a little better in 2015.

MOODY: For Peabody Energy (NYSE:BTU), the bulls say the company did just come off a strong beaten earnings, but the bears are arguing that it came from cutting costs. Plus, gold demand in general is slower than usual.

As for Teradata (NYSE:TDC), a data warehousing firm, Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) analyst cities concerns over its lack of growth overseas. The analysts overall seem to be a bit cautious about this year`s dogs, wondering whether the economy will be strong enough to turn them into darlings in 2014.

For NIGHTLY BUSINESS REPORT, I`m Seema Mody.

(END VIDEOTAPE)

GHARIB: And Cisco (NASDAQ:CSCO) will buy its rival, U.S. Foods, creating a food distribution giant. And that`s where we begin tonight`s market focus. After the $3.5 billion deal is final, Cisco (NASDAQ:CSCO) expects annual sales to grow to about $65 billion. The combined company will now have a quarter of the food distribution market in the U.S. and U.S. Foods will take a 13 percent stake in the new company.

Shares of Cisco (NASDAQ:CSCO) were trading at an all-time high today, up more than 9 1/2 percent to $37.62.

Now, another food deal today, package food company WhiteWave Foods is buying private Earthbound Farms for $600 million. It`s part of a strategy to expand its organic offering. WhiteWave is already the parent of organic dairy brands like silk and Horizon Organics. The new purchase, Earthbound Farms, is the largest organic produce brand in North American. Shares of WhiteWave grew more than 5 percent to $22.92.

McDonald`s (NYSE:MCD) reported more sluggish sales in the month of November, a sales in the U.S. decrease as competition got tougher and traffic was flat. Global sales didn`t change from October, which also disappointed investors. McDonald`s (NYSE:MCD) shares down 1 percent to $95.72.

MATHISEN: Covidien is buying medical diagnostics company Given Imaging (NASDAQ:GIVN). Given makes a remote imaging system that lets doctors diagnose stomach diseases with its ingestible film cam, a wireless camera that sends back video of a patients digestive tract. The $860 million purchase of the med tech company is 27 percent more than Given`s Friday closing price. Shares of Covidien up a fraction, $68.13, the finish there on that news. Given soared 27 percent to $30.06.

Well, just last week, we told you that an activist hedge fund was pressing Abercrombie & Fitch (NYSE:ANF) to search for a new CEO. It doesn`t look like the teen retailer is taking the fund`s advice. Abercrombie renewed its CEO`s contract, which was set to expire in January. The chain did say however that it was tying its CEO`s compensation more closely to the company`s performance in this new agreement. The stock was off 2 percent to $34.10.

And Mosaic (NYSE:MOS) will buy back about 10 percent of its outstanding stock. A $2 billion purchase, from Cargill Trust. The world`s largest phosphate fertilizer maker said the move will wind down ties between Mosaic (NYSE:MOS) and Cargill. The transaction is expected to be finalize over the next eight months. Mosaic (NYSE:MOS) shares were down more than 1 1/2 percent today to $46.

GHARIB: And more trouble for the nation`s largest bank. Now, the U.S. government is investigating the hiring practices of JPMorgan (NYSE:JPM) Chase outside the United States. So far, federal authorities have unveiled e-mails that linked the hiring of a top Chinese company official`s son and efforts to win business sales with that government-owned company.

And JPMorgan (NYSE:JPM) isn`t alone. The Securities and Exchange Commission is also investigating similar deals at city group. Morgan Stanley (NASDAQ:NBXH) (NYSE:MS), Goldman Sachs (NYSE:GS), among others.

MATHISEN: But one of the most contested provisions of Wall Street reforms act is here. It`s the so-called Volcker Rule, named after the former Fed chairman who inspired it. Five years post-financial crisis, U.S. regulators are expected to vote tomorrow on a final version of the rule. It is the element of the Dodd-Frank reform law that is design to keep some of the nation`s biggest banks from trading for their own accounts. Many believe that such proprietary trading by FDIC-backed institutions could put taxpayers at risk if the trades melt down.

Joining us now to discuss is Dick Bove. He is a vice president of equity research at Rafferty Capital.

Dick, always good to see you.

RICHARD “DICK” BOVE, RAFFERTY CAPITAL: Thank you, Tyler.

MATHISEN: So, much discussion, Sturm Und Drang, about this so-called Volcker. But when you really cut to it, how many banks are likely to be affected by it, and how dramatically?

BOVE: Well, it`s going to affect a very tiny number of banks in the United States if it comes out the way we think it is. You have to realize they keep changing it.

But if they just, you know, would have put into effect the way we think it is, then JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Morgan Stanley (NASDAQ:NBXH) (NYSE:MS), to a lesser degree, Bank of America (NYSE:BAC), and Citigroup (NYSE:C) would be affected. And virtually all the other banks in the United States would not be affected.

If, however, they choose to put something in there concerning hedging, then the top 100 banks in the United States would be affected and would be affected pretty negatively.

GHARIB: So, explain to us that aspect of hedging because there has been a lot of complaints about that. How does that put these banks at a disadvantage?

BOVE: Well, it doesn`t put the banks at a disadvantage, it puts the customers at a disadvantage. It basically takes away from the customer the ability to lock in an interest rate or to lock in what the cost of a foreign exchange transaction would be. And therefore, it causes less activity in the banking industry, and it causes less trading.

But remember, the person who gets impacted by this most is not the bank. It`s the person who does business with the bank.

MATHISEN: I was speaking last week with one top banker who said that we like to carry in our inventory lots of stocks, lots of bonds because that`s what our customers want. And they would say that — and he, this person said that they need to hedge, that they need to trade to protect that large inventory. That`s his point of view. Is it legitimate?

BOVE: Well, I think it is. I mean, if you make the assumption that, for example, Fidelity wants to sell a million shares of IBM, then it`s only natural buyers, for 600,000 shares, then let`s say if Goldman Sachs (NYSE:GS) has to buy the other 400,000 shares. If Goldman Sachs (NYSE:GS) can`t hedge that 600,000 shares then they could stand to lose a great deal of money, or make a great deal of money. But by hedging, it can lock in what the potential gain or loss would be and therefore they can allow that transaction to occur.

Without hedging, the probability of letting that transaction occur at a reasonable price goes away. And therefore, the IBM sale occurs at a much lower price which affects all prices of all people who were dealing an IBM stock.

GHARIB: OK. You know, Dick, this Volcker Rule has been debated and criticized from banks to business and investors, does it finally passed and if so, what does this mean for the individual investor? Does it impact them at all?

BOVE: Well, for the individual investor then the big companies that I just mentioned, it would have a negative impact, I feel pretty certain about that, because basically it will reduce overall trading in the United States markets. It will have a bigger impact on the average American, however, because if it goes into effect, the probability is that interest rates will be higher than they otherwise would have been.

Cost of a loaf of bread would be higher. The cost of a gasoline of gas would be higher. It would also results in a great deal of trading, which makes the United States markets so liquid would go to Singapore, to Shanghai, it would go overseas. So, it would do quite a bit of harm.

MATHISEN: Very quickly, why is a loaf of bread going to go up because of the Volcker Rule? Very quickly. I don`t get it.

BOVE: Because the price of wheat will go up. In other words, there is no liquidity in the price of wheat, then basically the price goes up, this bid in the offer in the wheat market spreads, causing higher prices for wheat, which causes higher prices for bread.

MATHISEN: All right. Dick, thank you very much. Dick Bove, vice president of equity research at Rafferty Capital.

GHARIB: And coming up on the program, why the new health law is creating an uneven playing field for hospitals, and what some of them are doing about it.

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GHARIB: A new big worry for hospitals if the new rules in the Affordable Care Act means sharp cuts in federal reimbursements for Medicare in the New Year.

Bertha Coombs explains.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: What we`re going to do today is assist you going online and set up for the account and apply for the Affordable Care Act.

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): At Parkland Memorial Hospital, the push is on to get patients insured under Affordable Care Act plans.

MARIAN MORROW, PARKLAND HOSPITAL PATIENT FINANCIAL COUNSELOR: When we opened up at the 7:00, we typically opened up with 50-plus people coming in. With ten employees that already puts us about a couple of hours behind.

COOMBS: In 2012, Parkland provided $685 million in uncompensated care for its poor and underinsured patients. And under ACA, the hospital could still find itself in the red.

TED SHAW, PARKLAND HOSPITAL INTERIM EXEC. VP & CEO: A third of our revenue comes from special payments, if we don`t have that revenue, we can`t fund the programs they support.

COOMBS: Under ACA, federal payments to hospitals will be cut starting in 2014, on the expectations more patients will be insured. But Texas is among two dozen states rejecting Medicaid expansion which will provide free insurance for adults with little or no income who cannot afford to buy coverage.

SHAW: By not expanding Medicaid, I estimate that that is costing Parkland about $30 million a year starting next year.

COOMBS: In doctor`s offices, the worry is that patients who buy low cost ACA plans will face high out of pocket costs for things like lab tests.

DR. ROGER KHETAN, INTERNIST: Once you get that preventive care, if there is an abnormal lab and abnormal finding, what is the follow-up? Is it going to be covered by that insurance company?

COOMBS: Another worry, the most affordable plans have narrow networks, which could exclude doctors patients already seeing low income clinics like this one.

DR. CHRIS BERRY, FAMILY PRACTITIONER: Well, if patients are drawn to plans that we`re not in, then what we`re doing is we`re pursuing those plans ourselves. So, we`re trying to get enrolled into those networks so that we`ll go to take care of the patients.

This is a unique moment where we haven`t had to think that way before.

COOMBS: A commonwealth Fund Study estimates that by 2022, taxpayers and provider news states that reject Medicaid expansion will lose out on billions in federal funding. It will cost Texas $9.2 billion that year, while Florida, which also has some of the highest rates of uninsured patients would see a net loss of $5 billion.

(on camera): Hospitals in states with Medicaid expansion have yet another advantage over facilities like Parkland and others in states that don`t expand. If a patient shows up and is uninsured but otherwise eligible, they can sign them up for temporary Medicaid expansion coverage and get reimburse.

BERRY: So, it would be enormously better if we were a part of Medicaid expansion. It makes perfect sense from almost any way you look at it.

COOMBS (voice-over): Providers expect those states will expand, eventually. Until then, they will try to enroll as many patients as they can.

Bertha Coombs, NIGHTLY BUSINESS REPORT, Dallas.

(END VIDEOTAPE)

GHARIB: And to read more about Parkland Memorial Hospital in Dallas and what it`s doing to get patients insured, go to our Web site, NBR.com.

MATHISEN: And finally tonight, AMC Entertainment, which is planning on going public is planning on a unique way to reward some of its best customers. It`s setting aside some of its IPO shares just for movie lovers. The big theater chain is making a tiny part of its $368 million IPO available for its AMC stubs loyalty program members. Frequent moviegoers who pay a small fee to the company every year for perks like skipping online ticket fees and getting a break at the concession stand. Now, they`ll get a little bit maybe of the stock.

GHARIB: Get your soda. Get your popcorn.

MATHISEN: Get a share.

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

MATHISEN: And thanks from me, as well. Have a great evening. We hope to see you back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.

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