Transcript: Wednesday, February 19, 2014

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


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Global hot spots. Ukraine, Venezuela, Thailand — anti-government protests in three countries on three continents. So far, pictures like these haven`t rattled global investors much, but that could change. We`ve got portfolio advice for you.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The great way to debate. Do some members of the Federal Reserve want to start raising interest rates sooner rather than later? We have the minutes of the Central Bank`s last meeting.

MATHISEN: And, energy spike. It`s not just the brutally cold winter sending the price of natural gas to five-year highs. It`s also the supply. So, what happened to that glut of gas and how high will prices climb?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, February 19th.

GHARIB: Good evening, everyone.

Topping our news tonight: violent revolutionary protests erupting around the globe. Anti-government demonstrators have taken to the streets in Ukraine, Venezuela and Thailand. Investors everywhere are closely watching those deadly clashes and hoping things will stabilize, especially as European officials meet tomorrow for an emergency session in Brussels.

Now, the biggest hot spot, Kiev, Ukraine. There`s no letup to the violence and the death toll in that city`s Independence Square as protesters who want closer ties to Europe and the U.S. but clash with others who want to be aligned with Russian-backed government.

In Washington today, President Obama warned Kiev of consequences over the escalating violence there, saying the military should not engage in a situation that can be resolved by civilians.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The United States condemns in strongest terms the violence that`s taking place there. We have been deeply engaged with our European partners as well as both the Ukrainian government and the opposition to try to assure that that violence ends.


GHARIB: That tough talk may have worked. Late today, a truce was declared between the two sides in the Ukraine, calling for the beginning of negotiations aimed at ending the bloodshed.

But no signs of peace in Bangkok. Protesters there battled riot police as they tried to oust Thailand`s prime minister amid accusations of corruption.

And in Venezuela, a sea of white as tens of thousands marched against the government, angry about the killing of protesters last week and the arrest of the Harvard-educated opposition leader, Leopoldo Lopez. Government supporters were also marching, calling the protesters traitors.

MATHISEN: One American company says that political and economic turmoil in Venezuela will cost it. Colgate-Palmolive (NYSE:CL) warned it could book one-time losses up to $200 million or 19 cents to 20 cents a share because of currency moves that the Caracas government put in place covering foreign businesses. Proctor & Gamble previously trimmed its fiscal 2014 profit forecast of the devaluation of Venezuela`s Bolivar.

Colgate finished the day lower, P&G closed higher.

GHARIB: And a warning today to all the emerging markets from the International Monetary Fund. It said developing nations, India and Turkey in particular need to tighten up monetary policies and make some structural economic changes to settle market turmoil and stave off inflation and the even greater threat of deflation in Europe.

MATHISEN: Joining us now to talk more about what the political and economic unrest might mean for markets large and small around the globe is David Kelly. He`s chief global strategist at JPMorgan (NYSE:JPM) Funds.

David, how much if at all, do I need to be worried about what I`m seeing in the Ukraine, Thailand and Venezuela?

DAVID KELLY, JPMORGAN FUNDS: Yes, I don`t think investors should overreact to this. There are specific political issues in each of the countries which are all quite different. I don`t think they really speak to a systematic problem in emerging markets.

If you look at Turkey and India, I know the IMF say they need to tighten monetary policy. Well, they have been tightening monetary policy. In fact, we`ve been seeing stabilization in the last few weeks.

So, I think that the biggest mistake investors could make here is overreacting to these events and staying out of emerging markets, which I still think are very good long-term investments.

GHARIB: All right. So, right now, it seems like OK to you. But could it possibly develop into a much more volatile situation, in which case what is the contagion risk.

KELLY: Well, I think that`s why the fact that there are more political issues than economic ones are so important. This is not because they`ve got so much debt in most cases. It`s really because of political disagreements in Thailand and Ukraine and very irresponsible economic policy also in Venezuela. But it doesn`t sound like a global financial crisis in emerging markets.

And, remember, last year, while the U.S. equity market went up by 32 percent, emerging markets actually down by about 2 percent. So, over the course of the year, we`ve devalued emerging market stocks by 35 percent to U.S. stocks. You`ve got to ask yourself, well, in the long run, did things change that much?

What this has left, it`s left emerging market stocks looking very cheap by most metrics. And I think long term investors should think long and hard about avoiding that area. I think that`s very good area for long term investors.

MATHISEN: So, you say buy?

KELLY: Yes, absolutely. Buy for the long run. I mean, I don`t think you should invest in the stock market in the short run. I think the long run, there`s a lot of opportunities in emerging markets, but you need to do it with — don`t just pick a country and also do it with a good investor who knows how to miss some of the potholes —


MATHISEN: So, buy a fund, by an ETF —


MATHISEN: — and play the demographic play which favors the emerging markets?

KELLY: I think a fund more than an ETF, because an ETF is going to be forced to mirror some indexes which in some cases are dominated by commodity companies or state-owned companies in some emerging markets. But a good well-managed emerging markets fund I think should do well in the long run.

MATHISEN: Let`s bring it back home here. There have been a lot of concerns about what`s going on with the U.S. economy, also concerns about today some of these minutes that came out of the Federal Reserve. How is the U.S. economy doing?

It seems like all the data we`ve been getting recently has been tainted by the bad weather. Is that something temporary, or is there something more long term going on here?

KELLY: I hope the weather is temporary. We`re building an igloo in our backyard right now. But if the weather — when the weather lets up, I do think the economic statistics will get better.

As we look at them, there does seem to be a little more than weather in the last few months. I mean, we`re not seeing enough perkiness in the housing numbers, the auto sales numbers. I do think that some of this is part of a long term slowdown in the supply side of the U.S. economy. But still, I think things will pick up after the weather clears here.

And most importantly, I think growth will be strong enough to keep the unemployment rate coming down, to keep interest rates moving up, to allow earnings to rise somewhat. So, I still think it means rates will be higher this year and probably U.S. equity prices will also be higher. So, still time to be a little over-weighted equities versus fixed income within the United States.

MATHISEN: David, thank you very much.

Common sense tonight from David Kelly, chief global strategist at JPMorgan (NYSE:JPM) Funds.

GHARIB: On Wall Street today, stocks sold off in the final hour as investors got spooked after the release of the minutes from the Federal Reserve`s last policy meeting. Comments from policymakers revealed little consensus on the direction of interest rates and doubts on the Fed`s timetable for tapering its stimulus measures. The Dow lost nearly 90 points, and the NASDAQ fell almost 35, ending eight days in a row of gains, and S&P (AUDIO GAP) points.

Over in bond market those Fed (AUDIO GAP) treasury prices lower and yields slightly higher. The yield on a 10-year note rose to 2.74.

Steve Liesman has more on those Fed minutes and what`s next for the nation`s central bank under new chair, Janet Yellen.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve gave a hint today of what it would take for them to stop producing the amount of bond purchases it makes and the bar seems pretty high.

In the minutes for their January meetings released today, a number of the members said they would only stop tapering, quote, “if the economy deviated substantially from its expected path.” And that`s for stronger growth in the year ahead.

And that`s similar to new Fed Chair Janet Yellen`s recent comments before Congress that it would take a notable change in the forecast.

I asked San Francisco Fed president, John Williams, today whether a weak February jobs report, that would be the third one in a row, would be enough to stop the taper.

JOHN WILLIAMS, SAN FRANCISCO FED PRESIDENT: In my view, the hurdle is pretty high on changing the pace of the step downs in our purchases that we started back in December. I think the economy has improved quite a bit, and we again want to take this medium term look in unemployment down to 6.5 percent.

LIESMAN: The Fed minutes show that the central bankers discussed the weather and said the weak December jobs report was likely the result of inclement weather. Meanwhile, the Fed had a robust debate about how to communicate its intentions to keep rates low for a long time. The Fed had said it could consider hiking rates once the unemployment rate fell to 6.5 percent.

But it`s already fallen to 6.6, and the Fed doesn`t seem ready to move.

There`s also considerable concern about low inflation rates with some officials suggesting that if it doesn`t move up sometime soon, the Fed might consider halting the taper. That was the doves on the committee.

The hawks on the committee, they fired a shot of their own with some saying they could see raising interest rates even before the middle of the year. But that right now is not the consensus of the committee.



MATHISEN: Disappointing housing data in January did not help the market`s tone today. Construction on new homes recorded their biggest drop in nearly three years in January, tumbling 16 percent with builders putting the blame on harsh winter weather and the number of permits filed for future construction also fell last month. That was the third month that row for that.

GHARIB: Also moving higher, the price of oil. Crude oil closed above $103 a barrel today, the most in more than four months, fuelling the price hike, forecasts for more cold weather which boosted demand for home heating oil.

MATHISEN: And it`s not just crude prices that have been moving higher. Natural gas prices hit a five-year high today, up a staggering 43 percent so far this year, and crossing the closely watched dollar mark.

Jackie DeAngelis has more on why consumers will be paying more for nat gas.


JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Natural gas futures up more than 10 percent today, crossing that critical $6 level. We haven`t seen these kinds of prices since December of 2008.

Now, the dramatic move puzzling some traders early on because nat gas` recent swings have been weather-related. But the extreme cold letting up at least for a bit.

So, why are prices spiking? Well, some say it`s because the damage has already been done. The polar vortex has caused nat gas finance (ph) to spike, which has taken supplies down several weeks in a row.

JEFF GROSSMAN, BRG BROKERAGE: What was considered a glut of natural gas has vanished. And right now we have already now logistical issues that come as far as delivering the natural gas, and giving people reason for concern.

DEANGELIS: The nature of the supply declines reported have been roughly twice what they were at the same time last year. Now, tomorrow, the Department of Energy will release its storage report for the week ended February 14th. Once again, traders saying it`s likely that the drawdown in supply will exceed their expectations and that spurred buying in the pits today.

Meantime, the break from the cold may be brief. Weather models suggesting that the rest of February and much of March could be very frigid.

So, what does the future hold for nat gas? Well, some are saying not to be surprised if it reaches $7. That`s because when the extreme cold finally does let up, there won`t be a lot of catch up time before the severe heat starts this summer.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis reporting from NYMEX.


GHARIB: Now, coffee prices are also spiking, but for a different reason. And it could mean you`ll be paying more for a cup of Joe. We`ll tell you why a little later in the program.

MATHISEN: Rising prices, stagnant wages, higher mortgage rates just some of the challenges U.S. consumers are facing right now. And a lot of food and personal care product makers are focusing on how to keep consumers happy and sales growing in this difficult environment.

Sara Eisen has more from Boca Raton, Florida, where industry leaders met at a conference of the consumer analyst group of New York.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: They`re the companies behind your everyday items, food, detergent, toothpaste and tobacco. Here to talk about the industry and the challenging state of the American consumer.

DONALD KNAUSS, CLOROX CEO: The consumer is still pretty fragile. You know, it`s interesting. As you said, we play in a broad range of categories.

If you look at our categories, add them all up, the last six months, they were about up a point which is kind of what historical trends have been. If you look at the last three months they`re flat.

So, things have flattened out as retailers are discounting more to get traffic into the stores.

EISEN: Executives here are downplaying the weather impact, and instead they see weak consumer spending, sluggish incomes, challenges from emerging markets. And they`re focused on innovation, including Coca-Cola (NYSE:KO)`s new partnership with Green Mountain Coffee to launch Keurig Cold, a brand-new category of do-it-yourself drinks.

BRIAN KELLEY, GREEN MOUNTAIN COFFEE ROASTERS CEO: We don`t know exactly how big it will be. We know that cold beverages are four to five times the size of hot beverages, so, in the hot beverage business today. And we think it`s a substantial market.

EISEN: Even Hillshire Farm, the company behind Jimmy Dean sausages and Sara Lee (NYSE:SLE) deli, is intensely looking for new products and new flavors.

SEAN CONNOLLY, HILLSHIRE BRANDS CEO: We have other businesses, or smaller businesses that have been more challenging. We have a corn dog business up called state fair that`s had new competition. Our philosophy there is, hey, let`s win our way out of this through innovation and brand building as opposed to price-based competition, which is really the place we`d rather not go.

EISEN: And Hershey`s here today announcing a new brand called Brookside, with new products like Crunch Clusters.

So, plenty of excitement around innovation for consumer categories, in what`s been a pretty less than exciting environment for consumer spending.



GHARIB: And still ahead on the program, who controls the Internet? Regulators want to propose new rules to make sure some content isn`t block. And the outcome could impact everyone who clicks and logs on.


GHARIB: Rules for so-called Net Neutrality got a reboot today by federal regulators. They want to make sure all the contents streamed into your home is treated the same.

Julia Boorstin has more on the new approach to an open Internet and what that means for companies and consumers.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): FCC Chair Tom Wheeler is taking a new stab at rules to protect Net Neutrality — the idea that Internet service providers like Verizon (NYSE:VZ), AT&T (NYSE:T), Time Warner (NYSE:TWX) Cable or Comcast (NASDAQ:CMCSA) (NYSE:CCS) should not selectively block or slow Web traffic. The commission does not plan to appeal a court`s decision on FCC`s lawsuit against Verizon (NYSE:VZ), which effectively threw out many Net Neutrality rules.

The FCC saying that for now, it will not look to reclassify broadband as a public utility.

What some analysts call the nuclear option. These would give the FCC more power.

Now, the commission is justifying that neutrality protection with a different part of the law.

CRAIG MOFFETT, MOFFETT NATHANSON FOUNDER: They believe they still have sufficient authority to be able to protect against any of the potential abuses that people have been worried about over the basis of Net Neutrality in the first place.

BOORSTIN (on camera): The commission is soliciting public comment on its new guidelines, focusing on transparency and making sure consumers can access all lawful content. Chairman Wheeler does not seem to be trying to regulate more strictly than the prior rules, a win for Internet providers.

This comes amid controversy about Verizon (NYSE:VZ) FiOS slowing Netflix (NASDAQ:NFLX) streaming speeds, a part of Internet service not directly connected to Net Neutrality rules.

But the FCC`s comment indicate intent to ensure weaker operators or potential competitors like Netflix (NASDAQ:NFLX) don`t face discrimination.

MOFFETT: This probably chills the whole idea that carriers will start to charge Netflix (NASDAQ:NFLX). It doesn`t necessarily prohibit it. And it also doesn`t prohibit charging consumers for using Netflix (NASDAQ:NFLX).

BOORSTIN: Key leverage Chairman Wheeler is holding onto, the potential to reclassify the Internet as a utility, which could keep Internet providers walking on eggshells to avoid triggering additional oversight.


MATHISEN: And Julia Boorstin is with us now to discuss a big late-day acquisition. Facebook (NASDAQ:FB) is buying WhatsApp for $16 billion. That`s a mobile messaging service.

So, Julia, let`s what`s up WhatsApp? I mean, why is Facebook (NASDAQ:FB) spending so much money for a service that basically gives you free text messages?

BOORSTIN: Well, $16 billion, you`re right, Tyler. This is Facebook (NASDAQ:FB)`s biggest acquisition by far. Comparatively Instagram, that only cost $1 billion.

But WhatsApp is valuable because it is massive. It is the leading mobile messaging service. It has over 450 million people using the service every month, and the engagement is high. Seventy percent of those 450 million use it every single day. It`s also growing incredibly fast, adding 1 million new active users every single day.

So, Facebook (NASDAQ:FB) is drawn to the engagement and also to the massive scale.

Mark Zuckerberg said in a press release he expects to hit 1 billion users.

So, Tyler, when Facebook (NASDAQ:FB) wants to make sure it really holds onto those valuable mobile users and also those valuable teens, they see WhatsApp as a potential rival and now, a useful way to hold on to those users.

GHARIB: So, Julia, you just said, rival. And, you know, that is the whole name of the game in this business, everybody is trying to get a position on this very competitive landscape.

So, how does this position Facebook (NASDAQ:FB) better against its competitors?

BOORSTIN: Well, it really shows that Facebook (NASDAQ:FB) is willing to spend big money, $16 billion, to hold onto that mobile and particularly that younger user base. So, we`re talking about teens here. WhatsApp is incredibly popular overseas and it also does have a business model. They do charge some of their users a dollar a year. It shows that Facebook (NASDAQ:FB) really wants to be at the cutting end of the future of mobile messaging.

GHARIB: All right. Fascinating development.

Thank you so much. Julia Boorstin reporting from Los Angeles.

And as Julia just mentioned in her Internet story, one of the service providers includes Comcast (NASDAQ:CMCSA) (NYSE:CCS). And we just want to remind you, that`s the parent company of CNBC, which produces this program.

MATHISEN: And we begin tonight`s market focus with an earnings beat out of Tesla after the market closed. The electric carmaker saw strong demand for its Model S electric car. It delivered nearly 7,000 of them in the quarter. That`s a record for the company.

Tesla also said it expects to deliver over 35,000 of those cars in 2014, a more than 50 percent increase from just last year. Shares initially spiked after the bell. The stock ended the regular session, though, down 5 percent to $193.64.

The grocery retailer Safeway (NYSE:SWY) is in talks with private equity firms about a possible sale of the company. There is buzz that Cerberus Capital Management is exploring a deal for all or part of the second largest U.S. grocery company. The firm also reported fourth quarter sales after the bell, but they were shy of estimates.

Shares initially rose on the news of that possible sale. The stock ended the regular day up 1 1/2 percent to $34.61. But you can see the jump after hours.

Kay Jewelers` parent Signet is buying smaller rival Zales in a deal valued at about $1.4 billion in total. The marriage of Zales and Signet which also owns Jared, the galleria of jewelry, would give the combined company a 16 percent share of the specialty jewelry market, and according to the CEO will give consumers more choices.


MICHAEL BARNES, SIGNET JEWELERS CEO: We believe by making a strategic accusation, you know, a transformational acquisition such as this, that we`re going to be able to give our customers, you know, much better in innovation by doing more research and development, and ultimately, it`s going to lead to more choices for `em.


MATHSEN: Shares of both companies surged on the news. Zales up 40 percent to $20.92 and Signet rose 18 percent to $93.65.

GHARIB: Eli Lilly (NYSE:LLY) rose on the news that the company`s experimental cancer drug significantly improves survival rates in lung cancer patients. The treatment which some think could be Lilly`s next blockbuster drug has shown success in treating stomach cancer. Shares rose 5 percent to $58.09.

And shares of Garmin (NASDAQ:GRMN) also up sharply. Investors snapped up the stock on news of better than expected earnings and sales. Surprisingly, it wasn`t the traditional GPS systems that drove the navigation company`s positive results, but it was stronger demand for aviation and fitness-related products. The stocks surged more than 9 percent to $51.55.

MATHISEN: Get ready perhaps to pay more for a gallon of milk, as much as 20 percent more as soon as next month. Analysts say strong global demand especially in China coupled with a drop in milk production overseas has led to a sharp increase in U.S. dairy exports, and that means higher prices here at home.

GHARIB: Well, milk is one thing, but coffee is another. The price of your morning Joe is about to get a big jolt. Supply concerns in Brazil, this is the world`s number one supplier, means java junkies could expect prices to percolate higher very soon.

Jane Wells reports.


JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Blame it on Rio. Quote, “Brazil is the name of the game when it comes to coffee,” one broker tells Dow Jones. The weather has been too hot and too dry at a critical time for the coffee crop down there in the world`s number one coffee producing country.

Coffee future is making another strong run on Wednesday, up, way up, to over $1.68 a pound, this on top of the biggest jump in prices yesterday since 2004. Prices have shot up this year after a nice, steady decline during most of 2013. Now, some expect coffee futures could hit $2 a pound until traders get a better idea of how the weather`s going to play out.

But “The Wall Street Journal” reports 10 percent of the crop in Brazil may not be salvageable at this point. One-third of the world`s coffee comes from Brazil, and 2014 has been the driest so far in three decades.

As for coffee retailers, well, if the crop turns out to be significantly reduced, this will impact them once they start contracting in a few months, then eventually, the prices will go up and impact you or at least me.

For NIGHTLY BUSINESS REPORT, I`m Jane Wells in Los Angeles.


MATHISEN: The always caffeinated Jane Wells.

Coming up, when Walmart reports earnings tomorrow, the new CEO will speak for the first time as head of the world`s biggest retailer. What will he say? What do investors want to hear?


MATHISEN: In an all employee call today, the CEO of the Gap (NYSE:GPS) announced that the company will raise the minimum hourly wage U.S. employees get to $9 this year and $10 next year. The move will cover all of its brands, and the CEO says it will benefit about 65,000 hourly employees.

GHARIB: There is now an actual price tag attached to that massive data breach at Target (NYSE:TGT) — $200 million and counting. That`s what it is costing banks and other financial institutions. That`s according to the Consumer Bankers Association and the Credit Union National Association. The two groups also say that more than half of the 40 million compromised credit and debit cards have now been replaced.

MATHISEN: Meantime, the biggest retailer is preparing to release its latest quarterly earnings on Thursday. Investors are bracing for some sobering news about retail spending, but they`re hopeful for a better outlook from Walmart`s new CEO.

Courtney Reagan has more.


COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Walmart will release earnings tomorrow morning, but Wall Street got a peek into its bah humbug holiday quarter when the retailer warned its fourth quarter profit would be at or slightly below the low end of its previous forecast, leaving investors waiting to hear what new CEO Doug McMillan says about the company`s outlook.

While he wasn`t yet overseeing the company during its holiday quarter, McMillan will lead the retailer`s pre-recorded earnings call Thursday morning, as the company shareholders wonder how Walmart will deal with a very difficult environment.

DAVID STRASSER, JANNEY CAPITAL MARKETS RETAIL ANALYST: Gas prices are starting to head up a little bit. Weather is impacting everybody in retail. And most of all, we just have a consumer at the low end that has been struggling for a number of years and doesn`t seem to be getting really any benefits from any of these real improvements in the economy that we`re seeing.

REAGAN: Well, not everything seems to be working for Walmart. The retailer has repeatedly touted its small format stores as a point of success, announcing plans to add up to 150 more of them this year.

While Walmart has traditionally grown by opening more stores, Credit Suisse analyst Michael Exstein says the world`s largest retailer should accelerate its small format store growth by buying Family Dollar.

(on camera): Credit Suisse`s research shows Family Dollar locations have the least overlap with Walmart compared to other dollar stores, which would mean a lower risk of a deal being blocked by regulators.

Plus, nearly a quarter of family dollar stores are in large urban markets, areas Walmart has had a hard time breaking ground.

(voice-over): Financially, Walmart could buy Family Dollar, but MKM Partners Patrick McKeever says some investors want to hear about a slowing of square footage growth, so the retailer can return more cash to shareholders.

While few analysts expect any dramatic announcements in Walmart`s earnings release, many are hoping McMillan has something planned to make sales growth soon.



GHARIB: And that is NIGHTLY BUSINESS REPORT for us tonight. I`m Susie Gharib. Thanks for joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great evening, everybody. We`ll hope to see you back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post broadcast at 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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