Transcript: Friday January 3, 2014

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

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Snowed in. Stocks
barely budge as the Northeast digs out. But don`t let today`s lack of
big market moves fool you. There`s one thing professional investors are
watching very closely, and it`s not the weather.

Slow lane. The big automakers didn`t sell as many cars in December
as expected and some are wondering whether the slowing pace of sales
will continue in the New Year.

Brighter future. Company pension funds are the healthiest they
have been in six years. Why that could bode well for corporate earnings
in 2014.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
January 3rd.

Good evening, everyone. And welcome. I`m Tyler Mathisen. Susie
Gharib is off tonight.

Well, no time for panic or even a double cocktail, but stocks
aren`t exactly off to a great start so far this year. Day two in the
markets, day two of declines for the S&P 500, the first such two-day
losing streak to begin a year since 2005. Yes, the losses today were
miniscule for the S&P, fractional in fact, but loses they were on this
mixed and chilly day on Wall Street. The Dow did manage a small gain.

Stock rally a bit around midday as traders watched out going Fed
Chairman Ben Bernanke give what may be his final big speech before
stepping down at month end.

Speaking to the American Economic Association in Philadelphia,
Bernanke had generally positive things to say about the U.S. economy.

(BEGIN VIDEO CLIP)

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The combination of
financial healing, greater balance in the housing market, less fiscal
restraint and, of course, continued monetary policy accommodation bodes
well for U.S. economic growth in coming quarters.

(END VIDEO CLIP)

MATHISEN: Well, the Bernanke pep talk helped but wasn`t exactly a
jolt of Red Bull. Here are today`s final numbers: the Dow up, but just
a modest 28 points. The NASDAQ was lower by 11 and the S&P was a
fraction of a point lower.

Well, big blue chip stocks have started the New York haltingly.

Dominic Chu reports now on why many market pros are watching by
contrast small, fast growing companies even more closely than those
suddenly stumbling big company shares.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The skies are getting just a bit darker for some investors. It`s not a
full blown storm yet but many traders are keeping a close eye on one
important part of the stock market, small cap stocks. They had a rocky
start to 2014 and there is a big reason why investors care. They are
considered by many experts to be leading indicators for the overall
market and economy.

KEITH BANKS, U.S. TRUST PRESIDENT: Small caps are important
because small caps companies are the largest employer in the U.S. So,
what they are doing is very reflective of what would be going on in the
U.S. employment market, which is obviously critical.

CHU: Often times, optimism about the future of the economy leads
investors to bet on smaller companies. They are the ones with room to
grow, but they`re also the ones that get hit the hardest in tough
economic times.

Since hitting a 52-week high back on December 23rd, small cap
stocks as measured by the Russell 2000 Index have under performed a
broader market. And add in under performance on the first day of
trading in 2014, and you get why there is worry brewing.

But the trend for stocks is very positive since the depths of the
financial crisis back in 2009. So, some traders think any pull back
could be considered a buying opportunity.

SIMON BAKER, BAKER ASSET MANAGEMENT CEO: I think the Russell 2000
in 2014 is definitely going to be higher. The U.S. economy is still the
place to play. I think the dollar is going to be strengthened, which
means it`s good to be good for small cap stocks, especially in a
cyclical areas like technology and industrial lines. So, I`ll be
overweight of the small cap.

CHU: No matter your view, keep on eye on the small cap stocks, a
lot of the professionals are.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Our next guest says what worked last year for investors
won`t work this year. He`s Joe Duran, CEO of United Capital Financial
Advisers.

Joe, welcome. Good to have you with us.

Before I get your answer to see why you say things that worked last
year won`t necessarily this year, let me get your overall take how you
see the U.S. economy in 2014.

Chairman Bernanke said he thinks it`s getting better. Do you?

JOE DURAN, UNITED CAPITAL FINANCIAL ADVISERS CEO: I totally agree.
I think we`ve seen a very nice recovery, especially the back end of the
year and it`s broadening and the Fed hinting at tapering is also telling
us they are seeing things that we`re not yet seeing, which makes me feel
very optimistic about the economy and a broader and stronger recovery,
maybe even 3 percent and approaching 4 percent for this coming year,
which is quite encouraging.

MATHISEN: That is a bullish forecast.

Now, let`s talk about why you say what worked so well in 2013 may
not or won`t in 2014. What specifically are you referring to and why?

DURAN: Well, I think two things — first, it`s historical that
people will typically crowd at the beginning of the year to the things
that worked very well last year. But the market is a living organism
and it changes with time.

So, what you had for most of last year was a stagnant and slow and
disappointing recovery. And in times like that, people pay up for high
growth/high revenue growing companies. You saw that with Tesla and
Apple (NASDAQ:AAPL) for awhile, very high growth, high octane, Netflix
(NASDAQ:NFLX), they get a premium.

When the broad economy starts to grow more, it changes and people
then shift to more industrial names, less exciting names like General
Electric (NYSE:GE) or United Technologies (NYSE:UTX) that provide
infrastructure. So the larger not so exciting names often do better
than in the early stages as we saw last year.

So, I think you`ll see a shift from the very well-known, top line
growers, to more stodgy, more boring companies this coming year, which
thankfully is not bad because you don`t want to invest in last year`s
winners always.

MATHISEN: You really seem to be saying that it`s not a year so
much maybe for speculation and betting on fast growers, but more a year
to be betting on underlying economic growth and earnings per share
growth.

DURAN: And the reason you want to do that in a very — in a time
when the market is already received as much as it has, remember, we had
a 30 percent year. You know, that`s really big.

MATHISEN: Uh-huh.

DURAN: So you have more speculation in the market than before and
you don`t want to do — what the most dangerous times in the markets are
when nobody sees risks and we`re approaching that now. People are very
complacent. They feel very good. So you want to be more conservative
when everyone becomes a lot more aggressive.

And so, what we`re saying is be more selective. Invest with stocks
that have not doubled or tripled in the last 18 months and be safe.

MATHISEN: Very quick thought. You think that we are due, over due
for some sharp pull backs in 2014. How sharp, and why do you say that?

DURAN: Well, it`s very unusual to go through six quarters where
you do not have a 10 percent decline. Historical average is every 18
months, you have two 10 percent declines. We`ve not had that for 18
months, and people have become very complacent.

So, I think the first pull back we have, which could be caused by
almost anything, while not a reason to sell, will be a cause for a lot
of new investors to get nervous once again. And so, the first decline
will probably be 10 percent to 15 percent decline, and we think very
likely it will happen in the next six to nine months because it`s been
so long since we`ve had one and the longer we go without one, the
sharper the decline is likely to be and the more scary the first drop
will be.

MATHISEN: We have to leave it there, Joe. Happy new year from
beautiful Irvine, California, here in snowy Jersey. Joe Duran, CEO of
United Capital Financial Advisers.

The auto industry just wrapped up the best annual performance in
six years, even though sales last month were a little bit disappointing.

Phil LeBeau has more on 2013`s blowout year for car and truck sales
and what lies ahead in the New Year.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
December was not exactly a month to remember for the auto industry.
Sales in the U.S. were well below expectations with modest gains for
Ford and Chrysler, while G.M. and Toyota (NYSE:TM) actually saw their
sales decline. Some in the auto industry blame winter storms for
keeping buyers out of showrooms.

KURT MCNEIL, GENERAL MOTORS VP SALES: The weather that swept
across the Midwest and into the Northeast had some impact, but, you
know, November was a very strong month as far as the industry was
concerned. So there was a little pay back there, as well.

LEBEAU: The average price paid for a new model last month was just
over $30,000, according to truecar.com. And because demand remained
relatively strong, automakers didn`t have to jack up incentives in order
to close sales. What did well in December? Trucks and SUVs.

They were hot just as they were for most of 2013, thanks to
moderate gas prices.

ERICH MERKEL, FORD US SALES ANALYST: Trucks are in kind of an
upward swing right now.

LEBEAU: As are auto sales for the entire industry. Just four
years after the recession when annual sales bottomed out, they steadily
climbed to more than 15 million vehicles sold last year. That`s led to
more plants adding shifts and workers as they keep up with demand that
should continue to grow, although, at a lightly slower pace.

MERKEL: As we move throughout 2014, the rate of growth is going to
slow just a bit. You`re not going to see the same rate of growth that
we saw in 2012 or perhaps not the same rate of growth that we saw here
this last year in 2013.

LEBEAU (on camera): As much as things changed in 2013 with newer
vehicles like the Tesla Model S becoming hot sellers last year, some
things remain the same. Take the Ford F-series pickup truck. In 2013,
it was the bestselling vehicle in the United States for the 32nd
straight year.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: That is some kind of winning streak. Well, a $1 billion
Internet security acquisition was announced today and Wall Street ate it
up. Shares of a company called FireEye, which is buying a rival
Mandiant shot up nearly 37 percent on the news of the deal, and some
think today`s takeover could kick-start a wave of acquisitions in the
cybersecurity space.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hacking is a
huge problem for companies in the U.S. and worldwide. There was that
massive attack on Target`s customers involving 40 million credit and
debit accounts. And just this week, there was a security breach on
Snapchat, on mobile app where more than 40 million Snapchat users had
personal information leaked.

But now, there is a deal that could shake up the cybersecurity
landscape, FireEye is buying Mandiant for about $1 billion. Mandiant
made a name for itself last year when they released a report detailing
suspected activities of a Chinese military hacking unit.

FireEye knows whether your company has been hacked and Mandiant can
tell who attacked you and the damage that has been done.

DAVE DEWALT, FIREEYE CEO: Quite a few —

LIPTON: FireEye CEO Dave DeWalt says the partnership will fight
off the growing cyber security threat.

DEWALT: Just yesterday, we saw the Syrian electronic army bring
down, obviously, Skype. We`re seeing a lot of infrastructure type
attacks like that Twitter, “The Associated Press”. And some are very
successful. Sometimes, they`re not. But there is a lot of very
egregious activities happening in the world right now.

DAN IVES, FBR CAPITAL MARKETS & CO: I view this as the tip of the
iceberg.

LIPTON: Dan Ives of FBR says this deal also creates a security
platform that poses a real challenge to rivals in the sector like
Symantec (NASDAQ:SYMC) and Intel`s McAfee. FireEye stock raised higher
today. The stock is up more than 175 percent since it went public last
September. Ives says to expect more consolidation in the cyber security
in 2014, companies like Proofpoint, Imperva and Portnet are all
potential takeout targets.

IVES: Securities become so key. Without security, customers won`t
go there. So, that`s why I see the EMCs, the IBMs, the Oracles, the
Microsofts looking for into security for acquisitions similar to what we
saw with Cisco (NASDAQ:CSCO) source fire last year. So, again, I view
this as the start of what I view as a pretty active year for M&A in the
sector.

LIPTON: FireEye was considered a possible acquisition candidate,
but analysts say the company is now signaling that it`s a consolidator,
not a takeout target itself.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

MATHISEN: Still ahead, corporate pension funds are finally getting
fit and healthier funding levels could also mean stronger corporate
profits in the New Year.

(MUSIC)

MATHISEN: Good news for some retirees. Corporate pension funds
are now in the best shape since before the Great Recession, and that
could help tone up corporate profits in the year ahead.

Mary Thompson has more now.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The 2013
stock rally and rising corporate bond yields delivering record relief
for corporate pensions last year.

ALAN GLICKSTEIN, TOWERS WATSON SR. RETIREMENT CONSULTANT: We had
everything working in our favor, liabilities went down, assets went up,
and the fund status improved sharply.

THOMPSON: Two studies by Mercer and Towers Watson (NYSE:TW)
finding pension funding for the S&P 1500 and Fortune 1000 companies both
topping 90 percent in 2013, their highest levels since 2007. The S&P`s
29 percent rally boosting the value of the fund`s underlying equity
assets, while rising yields on high corporate debt helped on the
liability side.

A liability is a present value of the future benefit payment. So
under pension accounting as high-grade corporate yields go up,
liabilities go down, and overall pension funding increases.

Alan Glickstein, a senior retirement consultant for Towers Watson
(NYSE:TW) estimates this should improve the balance sheets of a Fortune
1000 company to the tune of $285 billion.

GLICKSTEIN: That improve balance sheet also has an impact on the
charge against profits that these companies will calculate for 2014.
So, it will improve their earnings picture by lowering their cost of
pensions.

THOMPSON: Not all firms affected equally though. Reaping the
biggest benefit, firms with big pensions like telecom companies and
older industrial firms.

As the funds approach or exceed 100 percent funding. Mercer`s
Jonathan Berry expects companies to be de-risked or move the assets out
of stocks and into bonds or annuities or offer voluntary cash outs to
employees, all helping to smooth earnings by eliminating lumpy pension
expenses.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: To read more about the rebound in company pension funds,
head to our Web site, NBR.com.

Well, shares of Delta Airlines (NYSE:DAL) took off after the
company said it a per seat revenue jump more than expected last month,
and that`s where we begin tonight`s “Market Focus”. The late
Thanksgiving holiday which kept travelers away until early December
helped the airline up revenue per passenger by 10 percent last month and
the fuel cost also, 3 percent less per gallon than Delta had predicted,
that turns in the real money. And it pleased investors, the stock up
5.5 percent to $29.23.

General Electric (NYSE:GE) was downgraded to Oppenheimer to perform
from outperform. The firm said G.E. stock price now reasonably reflects
earnings expectations. That`s because according to the analyst there,
2014 will be a transitional period for the company as it refocuses on
its industrial businesses. Shares of G.E. down slightly $27.48, the
close there.

We told you earlier this week that Hertz adopted a shareholder
rights plan or poison pill to protect itself from a possible takeover.
Well, today, there are reports that Carl Icahn is the target of that
poison pill because he purchased 30 million to 40 million shares of the
car rental company. There was also buzz that Dan Loeb took a stake in
the company, as well as Corvex Capital.

Shares were down today at Hertz by 18 cents. They finished at
$28.50, down 2/3 of a percent.

And cereal maker General Mills (NYSE:GIS) started producing its
iconic Cheerio cereal, with no genetically modified content, otherwise
known as GMOs. The company switched to sugar and corn sources to
address the growing controversy over the use of those GMOs. A
spokesperson for General Mills (NYSE:GIS) said the change required a
significant investment and applies to the original flavored Cheerios,
not to other types like Honey Nut. Today, shares a fell a fraction
there to $49.26.

And Liberty Media owned by John Malone wants to make satellite
radio provider SiriusXM a wholly owned subsidiary. Liberty already owns
a majority stake, wants to buy the remaining shares. The proposal value
Sirius common shares at around $3.68.

Sirius finished the day at $3.57 and Liberty Media closed slightly
higher at $145.33.

Our market monitor guest says U.S. equity markets will post mid-
single digit returns in 2014 and he expects international markets to do
considerably better. He`s Wasif Latif, vice president of equity
investments at USAA Investments.

Wasif, welcome. Good to have you with us.

WASIF LATIF, USAA INVESTMENTS, V.P. EQUITY INVESTMENTS: Thank you,
Tyler.

MATHISEN: Why do you think the U.S. market will have comparatively
a very modest gaining year in 2014?

LATIF: Well, you`ve been on the tear of the equity markets
particularly in the U.S., the returns have been so strong for quite
awhile. As your earlier guest pointed out, as well, a pull back may be
in order but that may also reflect a reduction, a gradual reduction in
the quantitative easing or the bond buying program.

So, we think given the factors, especially the fact that the profit
margins of U.S. companies are at all-time highs, that makes for a mix
where the returns going forward for next year, for this year, are likely
to be tepid, whereas on the non-U.S. side outside the country, you`re
likely to see slightly better results because the margins are lower,
there is more room for upside of those margins and the evaluations are
more —

MATHISEN: Evaluations are better.

That doesn`t mean, though, Wasif, that you don`t have some choices
that you like to share with our viewers tonight.

Why don`t we start with your first, which is Gilead? Tell us
what`s going to drive that stock to better gains this year.

LATIF: Well as you know, Gilead, the biotech firm, has two
specialty drugs among a lot of the other ones that they have, but the
key ones that is really been driving the stock is the HIV drug, as well
as the new one that they have created for hepatitis C.

And the early test results for that hepatitis C drug are very, very
positive and that`s an untapped market if you look at the U.S. market.
There`s about 4 million folks estimated in the country to have hepatitis
C. So that creates a big market for them, and that`s just the U.S.
That`s not to mention the global market potential out there.

So it`s a pretty good growth story. The stock has run in 2013 but
we think there is more room.

MATHISEN: Let`s try and get this next three in. You go old school
with your next pick, Occidental Petroleum (NYSE:OXY).

LATIF: Yes, you know, the others are more stodgy, they are more
steady and they really is reflection of a look at the market to say, you
need to be a bit more cautious in picking and choosing. So, Occi is a
company with attractive evaluations. There`s a restructuring story
there where they are trying to sell non-U.S. assets and some of the
assets in California. But we think those assets create a lot of cash
flow that`s going to come in to help pay down debt or buy back shares.
And they have a good dividend with an increase to boot.

MATHISEN: Well, let`s get two for one here. Give me 20 seconds on
your final two picks, Cisco (NASDAQ:CSCO) Systems and Microsoft
(NASDAQ:MSFT).

LATIF: Well, you know, these are the old technology companies.
They`re not the new ones. But they`re the old ones and they`re good
value stories. They are both attractively valued and they both pay a
good dividend.

They have a lot of cash flow business that continues to generate
all of that cash flow, and the dividend is steadily growing, as well.

MATHISEN: What do you think will happen with Microsoft
(NASDAQ:MSFT) when they get a new CEO? Does it depend on the CEO?
Quick thought?

LATIF: Not necessarily. Obviously, there will be a quick reaction
from the market but it doesn`t mean that the stocks long term trajectory
based on whoever the immediate CEO will be.

MATHISEN: Do you have any disclosures on the stocks you just
mentioned. Do you own them? Your company owns them, I assume?

LATIF: We own them in our funds, the ones that I manage, we own
those stocks in our funds, yes.

MATHISEN: All right. Wasif, thank you very much. Wasif Latif is
vice president of equity investments at USAA Investments.

And coming up, the big money being invested by big gaming companies
on the Las Vegas Strip and not just casinos, but will it pay off?

(MUSIC)

MATHISEN: A big vote taking place today in Washington state.
Union machinist at Boeing (NYSE:BA) will decide whether to accept a
contract that includes some givebacks of some pension and health care
benefits. The carrot in the deal, Boeing (NYSE:BA) says if the union
goes along, the company will build its new 777X jets in the Seattle
area.

Local union officials are urging their 30,000 members to oppose the
deal, saying they have to give up too much while company profits are sky
high.

Now, Boeing (NYSE:BA) has already begun exploring moving the 777X
assembly to other states if the union rejects this latest contract
offer.

Well, after getting slammed by the recession and hit hard by the
housing crisis, Las Vegas is now betting big with new hotels, casinos
and internet complexes, slated to open this year. So, will 2014 be a
strong year for Sin City?

Jane Wells went to Vegas.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Las Vegas, America`s adult Disneyland is showing signs of life.

JIM MURREN, MGM RESORTS CHAIRMAN & CEO: We saw a demonstrable
improvement in `13.

WELLS: Nearly 40 million people visited Sin City, a new record
which should be topped this year. Hotel rooms rates are going up and in
the most surprising sign of a turnaround, $9 billion in development
projects are in the works.

(on camera): The recovery is a tale of two cities. The Vegas for
Americans is doing OK. Gaming revenues up maybe 2 percent and Vegas for
foreigners is doing great, up double digits. So, the airport just added
a new terminal to accommodate more international flights.

ROSSI RALENKOTTER, LAS VEGAS CONVENTION/VISITORS AUTHORITY:
International represents about 17 percent of the market share. Today,
we want to grow that by 30 percent.

WELLS: Challenges remain as the median age of visitors gets
younger, turns out young people don`t play slots, which account for 80
percent of gaming profits.

MURREN: At a time when the gamers, the younger people on their
smart phones have to be addressed from a gaming perspective. I think
you`re going to find at `14 and `15 for more interactive games.

WELLS: Also, the ever increasing number of clubs may be reaching a
saturation point.

JOHN UNWIN, THE COSMOPOLITAN OF LAS VEGAS CEO: The growth in
nightclubs has been significant over the last couple of years, and the
cost of running that business has increased pretty dramatically. And
now, we have three or four more clubs coming into the market this year.

WELLS: So John Unwin at the Cosmopolitan hopes to shake up the
concept with a throw-back dinner club like the new Rose Rabbit Lie.
Caesars is looking to cash in on the faster growing business outside the
casino with the new shopping experience called Link, including a Ferris
wheel bigger than the London Eye.

And the largest player on the Strip, MGM Resorts (NYSE:MGM), has
announced plans to build a new arena which could eventually host an NBA
or NHL team.

Las Vegas is really not just for gambling anymore.

MURREN: The fact that people are willing to invest again in Las
Vegas, I think is an affirmation that people see this recovery.

UNWIN: I`d say my colleagues in Las Vegas were pretty encouraged
about 2014, and they`re backing that up with a lot of capital investment
into the market, as are we.

WELLS: And that may be the biggest bet in town.

For NIGHTLY BUSINESS REPORT, Jane Wells, Las Vegas.

(END VIDEOTAPE)

MATHISEN: Finally tonight, for the first time since the revolution
in 1959, residents of Cuba will be able to buy new and used cars on what
passes for the open market there. Until now, Cubans had to get
permission from the government first and then to shop for a car but only
from state-run dealers. But it won`t be easy these new practices. Cars
are still very expensive there. The least expensive new car for sale on
the island is a 2013 Peugeot and it costs about $91,000, while the
average income in Cuba is 22 U.S. dollars per month.

Because of State Department trade restrictions, no U.S. cars, new
ones that is, are being sold there.

And that`s NIGHTLY BUSINESS REPORT for the night. I`m Tyler
Mathisen. Thanks for watching. Have a great weekend, everyone. Stay
warm. We`ll see you Monday.

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) 2014 CNBC, Inc.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply