Transcript: Monday, January 13, 2014

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: Stumbling start. Stocks tumble, extending their losses for the year so far. So, what is holding the market back? And are there more declines ahead?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Who`s buying the drinks? Bourbon maker Beam is being acquired by a Japanese firm. The price tag, $14 billion. And now, investors want to know who`s next.

MATHISEN: The aftermath. Target`s CEO speaks for the first time about that big data breach, promising significant changes as the entire industry embraces the tech sector to prevent the next strike.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, January 13th.

GHARIB: Good evening, everyone.

A troubling way to kick off a new week of trading. A major sell-off on Wall Street today. What triggered it? Anxiety about the first batch of earnings from big corporate heavyweights that are coming out this week. A Goldman Sachs (NYSE:GS) report saying stocks are too pricey. And to top it off, more comments from a top Federal Reserve official.

That was enough to give investors the jitters. The Dow posted its biggest one-day decline in more than three months. Those blue chip Dow stocks tumbled almost 180 points. That`s a drop of almost 1 percent. The NASDAQ fell even harder, losing 61 points, or 1 1/2 percent. And the S&P was down by 23.

Bob Pisani has more on today`s market action and trader talk about the New York Stock Exchange.

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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks started mixed but moved lower midday and closed essentially on the lows for the day. Goldman Sachs (NYSE:GS) issued a report on stocks saying valuations were lofty by almost any measure. Then, midday, Atlanta Fed President Dennis Lockhart said he would continue to support the Fed`s tapering program.

WARREN MEYERS, ILLUSTRO TRADING: Lockhart came out today and said the Fed would continue quantitative easing policy and after that, weak nonfarm payroll number that came out last Friday, I think that sent a little confusion in the market and really set the tone for the sell-off we saw today.

PISANI: Another issue for the markets is the strength in bonds. Many are speculating that pension funds have taken profits on their big stock gains in 2013 and are now using the money to buy longer dated bonds which now offer more attractive yields.

Now, despite these issues, there was very little sense of real panic in the markets today. Today`s decline was very orderly. The volume, however, was a little bit above average.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: Well, on a day when Goldman Sachs (NYSE:GS) is saying the market is overvalued, some companies were looking for value, finding it, and making deals.

After the market closed, Google (NASDAQ:GOOG) agreed to pay $3.2 billion in cash for a company called Nest Labs. It makes high-tech versions of devices like thermostats and smoke detectors. It`s Google`s second biggest takeover ever.

Also after the bell, Charter Communications (NASDAQ:CHTR) sent a letter to Time Warner (NYSE:TWX) Cable, offering $132.50 a share, cash and stock, that adds up to $61.3 billion for that cable operator. Staggering takeover bid that would combine two of the nation`s biggest cable TV service providers.

But the biggest deal, an acquisition in the spirits business with Japan`s Suntory buying Beam, one of America`s best known liquor makers. Price tag: $14 billion, all cash. That sent shares of Beam bubbling higher, closing nearly 25 percent to the upside.

Sara Eisen now with more on the buyout of Beam and what the deal means to the spirits industry.

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SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The company behind Yamazaki Whiskey and Midori liqueur Suntory is adding Maker`s Mark, and Courvoisier cognac to its portfolio.

BILL CHAPPELL: This was the only property you could buy. So, you kind of had to pay up for it and that`s why you see this purchase price.

EISEN: One big winner appears to be Pershing Square, the hedge fund run by Bill Ackman, which is the biggest stake holder of Beam shares as of September. He`s up more than $370 million on the position since Friday.

(on camera): Betting on booze in general has been a good strategy, thanks to growth in spirits consumption — longer-term growth in emerging markets and shorter term here in the United States. In fact, that growth rate of spirits growing faster than wine drinking, beer drinking is actually shrinking.

CHAPPELL: Millennials, the kind of younger 20 to 30 crowd, are increasingly going to spirits. And when I say that, it started a decade ago with vodka and really in the past two, three years, it`s brown spirits.

EISEN: While beer is still king when it comes to profits and size, more people are opting for harder liquor, and that`s helped the industry overall.

Bernstein Research says sales grew 5 percent to 6 percent last year, almost back to prerecession levels. Beam`s stock has nearly doubled since 2011 when it spun off from Fortune brands. Analysts saw Beam as one of the last men standing when it comes to publicly traded spirits companies available for purchase.

Now, that Suntory has made its move, who`s left? Some are pointing to Brown Foreman, the parent company of Jack Daniels, another well-known whiskey brand. And Constellation brands, which mainly sells wine and beer but does have a small spirits business, Svedka Vodka. Because when it comes to where the growth is, spirits are the sweet spot.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

GHARIB: David Lefkowitz joins us now to talk about all of these market issues.

David, let me begin — let me introduce you properly. He`s senior strategist with UBS wealth management. I wanted to jump right in because today, we saw a lot of different cross currents, different news events in the markets.

What do you think was the message of the market?

DAVID LEFKOWITZ, UBS WEALTH MANAGEMENT SENIOR STRATEGIST: When I look at what happened in the market today, I think the biggest message was that the market was a little bit concerned about some of the softer data. We saw the nonfarm payroll support on Friday that was weaker than expected, and I think you`re seeing some sort of hangover from that.

Also, we had some retailers out this morning with negative preannouncements about the holiday shopping season. So, I think that also weighed a little bit on sentiment. That being said, we still think that the economic environment looks set to improve modestly as we go into `14.

MATHISEN: David, do you think investors are worried, to put it mildly, about the earnings season and what it`s going to show?

LEFKOWITZ: I think it`s natural that you`ll have — there`s a little bit of uncertainty as we`re about to approach earnings season. It really kicks off in a small way this week with some of the big financials. But it takes a while for fourth-quarter earnings to get under way. So it`s going to build over the next couple weeks. But until we get the hard data from the companies, it`s natural to see some anxiety ahead of the actual reports.

GHARIB: David, what about this Goldman Sachs (NYSE:GS) report saying stock prices are getting a little too expensive, expecting a pullback? What would your reaction to that report — how should investors factor that into their investment strategies?

LEFKOWITZ: Valuation has been an interesting debate recently, because it really depends on which valuation metric you use in order to gauge value. The way we look at the markets, we think stocks are very close to average valuation. The P/E on forward earnings is about 15.2 times. That`s very close to the average since 1960, which is about 15.0.

Also, if you look at stocks versus bonds, stocks still look quite interesting and attractive versus bonds. So, on balance, we think valuations are still somewhat supportive for the market here. I don`t think it`s going to be a huge driver. What`s going to be more important is going to be the earnings outlook. We think earnings are set to modestly accelerate.

MATHISEN: Three reasonably sized deals including one big one, the one of Beam, the purchase of Beam by Suntory, others kind out of there in the ether, we`re not sure exactly what Charter Communications (NASDAQ:CHTR) is going to do.

What does that deal climate tell you about the overall health of the equity markets if it tells you anything?

LEFKOWITZ: Tyler, it`s — I think it`s a very good question, and I think that one of the things we think we`re going to see this year is a pickup in corporate investment. So, everyone knows that plants and equipment, that corporations have is getting old, and all the preconditions should be in place for a nice pickup in corporate capital investment.

Companies have access to low-cost financing. They`re sitting on tremendous piles of cash. And with the economy beginning to accelerate modestly — and I think the fact there`s going to be less fiscal drag this year is a big deal, and that should improve the revenue growth outlook for a lot of corporate America. I think you`re going to see companies respond by reinvesting in the business. One way to do that is through M&A. Another is through buying plants and equipment.

GHARIB: All right. David, thank you so much for coming on the program.

LEFKOWITZ: Sure.

GHARIB: David Lefkowitz, senior equity strategist with UBS wealth management.

MATHISEN: Well, as David was just mentioning, shares of well-known retailers took hits today. That`s because several of them, as he mentioned, cut their profit estimates for the latest quarter and the full year. The hardest hit was the upscale yoga wear retailer Lululemon Athletica (NASDAQ:LULU). It fell nearly 17 percent after citing already weak sales in January. Retailer Express (NYSE:EXPR) put the blame on weaker holiday sales, and PVH, which owns clothing brands like Calvin Klein and Hilfiger, warned on Friday of too many promotions during what it called a very competitive holiday season.

GHARIB: And then there`s Target (NYSE:TGT). It`s still suffering from one of the biggest security breaches in retail history. And now, the company`s CEO is apologizing to customers for the cyber attack on their credit and debit card information as he tries to reassure shoppers that it`s safe to come back to his stores.

Becky Quick has more.

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BECKY QUICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is the first time that Target`s CEO, Gregg Steinhafel, has spoken publicly about the breach that at the high-end investments affected, as much as a third of the American population. His tone was one of contrition and apology.

GREGG STEINHAFEL, TARGET CEO: I found out on Sunday. Sunday was really day one. It was in the morning.

QUICK: Sunday, what was the day?

STEINHAFEL: Sunday, December 15th.

QUICK: OK.

STEINHAFEL: And that was the day that we confirmed that we had an issue. And so our number-one priority was do the right thing for the guest. So, it was about making our environment safe and secure. We work very hard on that.

By 6:00 at night, our environment was safe and secure. We eliminated the malware and the access points. So, we were confident that coming into Monday guests could come to Target (NYSE:TGT) and shop with confidence with no risk.

Monday was about — or day two was really about initiating the investigation work and the forensic work. And we initiated that. That has been ongoing. Day three was about preparation.

We wanted to make sure our stores and call centers could be as prepared as possible and day four was notification.

So, throughout that four-day process to some people it probably felt longer than that, we worked around the clock to try and do the right thing. It`s very challenging times for Target (NYSE:TGT), I can tell you that. It`s a real punch in the gut.

But throughout this entire crisis, we`ve had a singular focus on really doing the right thing by the guest. I mean, we`re a company that has been here for 51 years. And we`ve focused on the guest and we`ve made the guest our priority for that entire time.

So, we know that our guest trust in us is shaken. But we also know they love our stores, they love our brand, and we`re going to learn from this experience and work really hard to become even a better retailer over time.

QUICK: The big question is when shoppers will feel safe coming back into the stores. Gregg Steinhafel says that as of Friday, shopping trends were almost back to normal. But, of course, that was before the latest admission that personal information for up to 70 million shoppers was also compromised.

For NIGHTLY BUSINESS REPORT, I`m Becky Quick.

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MATHISEN: Well, Target`s devastating data breach and how technology might prevent the next one were big topics of discussion at a gathering of the National Retail Federation today.

Courtney Reagan has more on how some of the nation`s biggest retailers reacted and how future attacks might be prevented.

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COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Talk about opportune timing, 30,000 attendees are gathered at the National Retail Federation`s annual big show in New York City this week. And while traditional retail executives are in attendance, the focus is on the intersection between technology and retail, and what`s being done to protect consumers` financial and identification data when they shop.

TERRY LUNDGREN, MACY`S CEO: We should look very closely, all of us, we, meaning the retailers, the banking industry, the credit card industry should be working very closely together to figure out what is the right technology to protect consumers. That should be the focus.

REAGAN: The recent data breaches at Target (NYSE:TGT), Neiman Marcus (NYSE:MCS), and reports of more yet to be named retailers are forcing CEOs to examine their own company systems and response plans if a hack occurs.

KEN HICKS, FOOT LOCKER CEO: What we have to do is make sure that, one, we`ve done everything to try to prevent it from happening. Two, if it does, to minimize it. And three, that we`re prepared, if it does happen, how we respond. And we preplan all of those.

REAGAN: But retailer strategies and systems protecting consumer data is only one part of the equation.

NRF CEO Matt Shay thinks updating the credit cards themselves is a key part of upping the ante on data security.

MATTHEW SHAY, NATIONAL RETAIL FEDERATION CEO: We need to move to chip and PIN technology. We`re using essentially an eight-track tape from the 1960s, this magnetic stripe, and it`s time to move to a computerized magnetic chip embedded in a card and a PIN reader, something that at least is in the 21st century.

REAGAN (on camera): One look around the floor here and you can tell just how important technology has become to retailers. The biggest and most popular groups here belong to Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL), and Intel (NASDAQ:INTC). Not companies you normally associate with traditional retailers like Macy`s (NYSE:M) and Foot Locker.

(voice-over): But with data security now a top priority for all the big retail CEOs, tech innovation will be key to the industry in 2014.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GHARIB: Still ahead, the biggest names in banking will begin reporting earnings starting tomorrow. And there are few key issues investors need to watch. Details, coming up next.

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MATHISEN: The annual JPMorgan (NYSE:JPM) health care conference is the biggest health care investing event of the year, with 4,000 attendees and 300 companies attending. The venture capitalists in Silicon Valley were there, because they see huge opportunities in health care, an industry they say is ripe for growth and disruption.

Josh Lipton has that story.

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JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Venture capitalists see a revolution coming in health care. They want to disrupt health care delivery in the same way that Elon Musk is transforming the car industry.

Renowned venture capitalist Bill Gurley of Benchmark Capital recently tweeted that he`s busy studying where the Internet intersects with health care and welcomed ideas from his followers.

ALEXIS BORISY, PARTNER THIRD ROCK VENTURES: It`s tough.

LIPTON: Alexis Borisy of Third Rock Ventures, a V.C. firm focused on the life sciences, sees opportunity to transform health care but also real challenges.

BORISY: This is one of the most regulated industries in the world because we`re talking about the health and safety of people. And so, I absolutely agree, this is an opportunity to make a tremendous improvement and have a tremendous disruption, but it also has to be done right, right? It has to be done in a manner that really proves it is going to make a difference for patients.

LIPTON: Start-ups in Silicon Valley are focused on different fields within health care. One example is CellScope. If your child has an ear ache, you might bring him to the emergency room and wait for hours to be seen. CellScope offers an alternative — a smartphone attachment that takes high-quality pictures of your child`s eardrum and then relays that picture to your doctor, hopefully saving time and money.

V.C.s put nearly $2 billion to work in health care start-ups last year, way up from 2012, according to Rock Health, a start-up incubator.

Borisy sees more opportunities in this space ahead.

BORISY: Fundamentally, I think the long-term trend here is very good because to come back and say that underlying innovation on science, on medicine and technology and that coming together I think is just a huge long-term opportunity.

LIPTON: Other start-ups are using big data to help consumers. Cast Light Health, for instance, lets customers, compare, contrast the quality of doctor, services, and treatments. The company has already raised $181 million from investors like T. Rowe Price. Sources say Cast Light is one to watch as a possible IPO this year.

A problem for many people is finding a doctor given the shortage of internists and family practitioners. Health Tap addresses that challenge. A mobile app that connects you to a network of 50,000 doctors, download the app, submit a question, and get an answer from a physician.

(on camera): So, two trends are fusing here in northern California. Big data and health care technology with serious money thrown into new ventures.

Josh Lipton, NIGHTLY BUSINESS REPORT, San Francisco.

(END VIDEOTAPE)

GHARIB: Merck`s stock surged today on promising product news, and that`s where we begin tonight`s “Market Focus”.

First, Merck (NYSE:MRK) said the FDA indicated that the company`s blood clot-preventing drug should be approved. Also, the company filed the first part of an application to market a drug which treats advanced melanoma. Then, on top of that, Merck (NYSE:MRK) is pursuing strategic options for its animal health and consumer businesses.

Investors like the news, shares climbed 6.5 percent to $53.12.

But investors were disappointed with Celgene`s 2014 earnings forecast. It was slightly below street estimates. But the biotech company raised its long-term outlook for the years 2015 and 2017 because of positive momentum for its blood cancer drug. Still, shares fell nearly 3 percent to $164.90.

MATHISEN: Well, last week, we told you about Intercept Pharmaceuticals, the company that saw its stock nearly quadruple after positive drug trial results. A Citi analyst thinks Clovis Oncology could be the next biotech to break out because of a promising lung cancer medication. But Intercept fell back to Earth today after the CEO said he need the larger drug maker`s help to bring its liver drug to the market.

Shares of Clovis were 3 percent higher at $76.26. Shares of Intercept plunged to 18 percent to $364 and change.

Wendy`s wowed investors when the fast-food chain predicted a fourth-quarter profit above estimates. The company said it is being helped by upbeat fame restaurant sales growth. Also, Wendy`s initiated a $275 million stock buyback plan. Now, the stock popped nearly 6.5 percent to $8.98.

And SodaStream`s shares plummeted after the company reported preliminary lower than expected profits. The maker of the create-your-own-soda machine blamed a weak U.S. holiday selling season and higher production costs for that disappointing outlook. The stock was down about 26 percent to $36.94.

GHARIB: Now, as we mentioned, this is a big week for corporate earnings. Twenty-nine companies in the S&P 500 will report their latest quarterly numbers over the next four days. A kick-start to an earnings season that will be dominated by the financials.

Kayla Tausche has more on what investors will be looking for from some of the nation`s biggest banks.

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KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Earnings season starts in earnest Tuesday. The banking industry, front and center. Dow component JPMorgan (NYSE:JPM) Chase and mortgage giant Wells Fargo (NYSE:WFC) kicking off fourth quarter results at a tenuous time for the country`s money centers.

RICHARD BOVE, RAFFERTY CAPITAL V.P. OF EQUITY RESEARCH: 2013 was an all-time record year in terms of bank earnings, but it didn`t come from the sale of more widgets at higher margins. It came because the cost structure of the industry was adjusted so that loan losses came down, reserves came down and actual operating costs came down.

2014 will be altogether different. So the fourth quarter is the pivot quarter.

TAUSCHE: With rates rising, new and refinanced mortgages have slowed, corporations are doing fewer mergers, and federal investigations have lingered. The latter, a major issue for JPMorgan (NYSE:JPM), the largest U.S. bank by assets, which will take an $850 million charge from a settlement over its ties to Ponzi schemer Bernie Madoff.

Evercore analysts say lower trading and mortgage activity could put even more pressure on the bank`s bottom line. A shrinking mortgage pipeline will hit Wells Fargo (NYSE:WFC). Analysts at Sterne Agee doubt the San Francisco bank can again plug the hole with money it formerly stowed away for bad loans. Wells will cut costs, analysts say, and investment banking could be a bright spot, earnings expected to fall slightly.

Later in the week, the rest of the sector is expected to weigh in. Wall Street has low expectations for Citigroup (NYSE:C), a year after a massive restructuring tailored the bank`s businesses and its workforce. Bank of America (NYSE:BAC) with many big ticket items behind it, has less housing exposure could be an investor favorite.

At the heart of it, banks with consumers deposit income, get loans, borrow on credit cards, an indicator of financial health on Wall Street but more importantly on Main Street.

JAMES PAULSEN, WELLS CAPITAL MGMT. CHIEF INVESTMENT STRATEGIST: The business of finance is all about confidence. You know, you don`t make a loan or take a loan without it. You don`t do an IPO without it. You don`t get involved more in the investment markets without it.

So, a lot of the benefit that`s going to bestow another doubling of confidence in this recovery is going to fall to the financial industry.

TAUSCHE: An important barometer for an economy in recovery.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche.

(END VIDEOTAPE)

MATHISEN: Coming up, the automaker stealing the show at this year`s Detroit auto show.

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GHARIB: General Motor says the company is close to doing something it hasn`t done in a long, long time — paying investors a dividend. The automaker`s chief financial officer says investors are expecting it. This would be GM`s first dividend since May of 2008. That was just before it filed for bankruptcy.

MATHISEN: And since those dark days, General Motors (NYSE:GM), of course, has come a long way, and today each of the big three U.S. automakers made headlines at the North American International Auto Show in Detroit. After a year where domestic models actually gained market share compared with foreign brands, the big buzz at this year`s auto show is the major moves by U.S. car companies.

Phil LeBeau has more from the Motor City.

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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Amidst the razzle-dazzle of new models at this year`s Detroit Auto Show, one model broke through and grabbed the spotlight. Ford`s new F-150 with a lightweight aluminum body and a new fuel-efficient engine is the first pickup truck that, according to many in the industry, will get more than 25 miles per gallon.

ALAN MULALLY, FORD MOTOR COMPANY CEO: The response has been fantastic. And, of course, a real value proposition for the F-series is the aluminum cab and the aluminum box. It will save us over 700 pounds, which then we can downsize the engines, improve fuel efficiency, plus all that extra capability. But the aluminum pound for pound is tougher than steel.

LEBEAU: While Ford`s F-150 is generating buzz, General Motors (NYSE:GM) is celebrating a rare sweep with the Chevy Silverado winning Truck of the Year and the Corvette Stingray picking up Car of the Year honors, a nice boost for GM`s incoming CEO Mary Barra.

MARY BARRA, INCOMING GM CEO: I`m so proud of the team. I`m proud of all three GM products that were part of the finalist. But the Chevrolet Silverado, it`s a great truck and I`m so glad we`ve got that recognition. And the Corvette, you know, it`s won the most awards of any vehicle ever, I think so, at least last year.

LEBEAU: Barra has been swamped by reporters wherever she`s gone at this year`s show, primarily because she`s the first woman to lead a major automaker. And she said little about her plans since being tapped to run GM.

ERIC NOBLE, THE CAR LAB PRESIDENT: Men, right, all of us, corporately, ran General Motors (NYSE:GM) into the ground, right? It was men that ran General Motors (NYSE:GM) to bankruptcy. Let`s see if a woman can do better.

LEBEAU: Meanwhile, Chrysler`s CEO Sergio Marchionne is vowing to boost car sales with the new Chrysler 200. And now that Fiat owns all of Chrysler, he admits the Italian automaker may launch an IPO of Chrysler at some point in the future.

(on camera): But an IPO is possible at some point in the future?

SERGIO MARCHIONNE, CHRYSLER CEO: Well, certainly a listing in the U.S. market, it`s possible.

LEBEAU: There`s one more reason this year`s Detroit Auto Show has an energy we haven`t seen in years. With a slew of new models coming, automakers expect sales and profits to be up for a fifth year in a row.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Detroit.

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GHARIB: And that`s it for us, NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks so much for joining us.

TYLER: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We`ll 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) 2014 CNBC, Inc.

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