Transcript: Friday, February 28, 2014

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


Stocks wrap up a strong month with blue chips ending higher today despite
dramatic events unfolding half a world away in Ukraine. A tense weekend
lies ahead. What`s next for global equities?

Fast-rising home prices are giving borrowers back equity. But will it be
enough to put a spring into spring selling season?

MATHISEN: Facing shareholders. Apple (NASDAQ:AAPL) CEO Tim Cook
takes questions on everything from new products to potential acquisitions
at his company`s annual meeting. We`ll talk to a big investor who was

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
February 28th.

GHARIB: Good evening, everyone.

From the White House to Wall Street today, growing concerns about a
possible showdown between Ukraine and Russia. Late today, President Obama
had strong words about what`s at stake.


Ukraine`s sovereignty and territorial integrity would be deeply
destabilizing. The United States will stand with the international
community in affirming that there will be costs for any military
intervention in Ukraine.


GHARIB: Earlier today on Wall Street, investors and traders were
spooked on unsettling reports that Russia`s foreign minister confirmed that
thousands of heavily armed Russian troops moved into Ukraine`s Crimea
region, ramping up tensions between Moscow and the interim government in

Within minutes, a 126-point gain in the Dow vanished. But nearly as
quickly as those headlines sparked a final hour selloff in the markets,
stocks battled back surging higher until the closing bell, enough to see
the S&P 500 and the Russell 2000 close at fresh all-time highs. On this
last trading day of February, the Dow rose 49 points, the NASDAQ lost 10,
and S&P added 5 points for a record close of 1,859.

MATHISEN: Well, Susie, today`s volatility notwithstanding, the just
completed month of February was a doggone good one for Wall Street. A
welcome turnaround after the stumbling start of the year in January. The
Dow finished the month fully 4 percent higher, the S&P up 4.3 percent, and
the NASDAQ climbed 5 percent.

Dominic Chu has more now on this fabulous February in the markets.


wasn`t looking good. After a banner year for stocks in 2013, January got
off to anything but a rip-roaring start.

But February? That`s another story. Stocks came bursting back to
life with the Dow, S&P 500 and NASDAQ all posting gains of around 5

That means that in February, the Dow came close to a record high, the
NASDAQ composite reached a 14-year high, while the S&P 500 hit a new record
high. Mid cap and small cap companies also set new milestones as well.
That has some money managers looking for opportunities in case the market
continues its positive run.

the stock market itself, though, we think that you ought to be looking for
bargain types of stocks. We like the automobile, we like the refiners, and
we like the home builders.

CHU: But risks to the rallying stocks still remain. There`s the as-
yet unknown effect of the severe winter in much of the U.S. as well as
economic concerns in places like China and geopolitical risks in places
like Ukraine. That has some investors taking a more cautious approach to
the stock market.

JOSH BROWN: We`re not particularly bullish or bearish right now.
We`re in the market but not adding risk. It`s not about what you own or
what you buy. It`s about what price you pay. We`re very happy to see the
markets acting as well as they are. But we`re not willing to pay up in
terms of valuation for most of what`s out there.

CHU: There`s no question the bulls have been in charge. The question
is, will it stay that way in the coming weeks?



GHARIB: Bitter cold weather and unrelenting snowstorms are getting
the blame for taking a sizeable chunk out of overall U.S. economic growth
in the final quarter of 2013. The economy slowed down from more than 3
percent growth during the summer to a rate of 2.4 percent growth to the end
of the year. Meanwhile, St. Louis Federal Reserve Bank President James
Bullard says despite the dip in economic growth and more bad weather in the
current quarter, he`s still optimistic about the economy.


that we`ve been worried about and complaining about over the last couple of
years have dissipated. You`ve got household deleveraging more or less run
its course. You`ve got wealth in the U.S. because equities are up 30
percent. And stay optimistic probably 2013.


GHARIB: Bullard also suggested that as long as the economy continues
to grow, the central bank will continue to taper its bond-buying stimulus

MATHISEN: Our market monitor tonight says stocks are performing
roughly as he thought they would, moving up gradually but with more
volatility than in 2013. He`s Erik Ristuben, chief investment strategist
with Russell Investments.

Erik, good to have you back with us. You heard I assume what
President Bullard just said of the St. Louis Fed that he`s generally
optimistic about the economy. Are you?

am. We think the U.S. is going to grow about 3 percent. Data in the first
couple of months has been spotty, but the market is blaming weather. We
think that`s probably it. The numbers of retail sales since Valentine`s
Day when the weather`s been pretty good, consumer sentiment is strong.

We expect this to be a blip, and more deferred economic activity than
lost economic activity.

GHARIB: Erik, you know investors don`t like a crisis. You heard at
the top of the program all the stuff going on in the Ukraine. Yet a very
strong February.

So, how does all of this play out going into March?

RISTUBEN: Well, the Ukraine situation obviously is something you got
to keep an eye on. Normally that kind of turmoil, I mean if you go back
just to Egypt and Syria, they`re obviously catastrophic for the countries
that are involved in them but they usually don`t have a kind of systemic
risk to them unless there`s military escalation.

And I think that`s why the news is so full of potential troop
movements of Russians into the Crimea. Yes, at this point, I still think
it`s unlikely we go to military escalation but that`s the thing that would
make this a bigger problem. Otherwise, I think you`re going to continue to
see good equity returns, good risk on returns kind of across the board.

And investors should kind of look through the turmoil of short term
and maybe political turmoil that may or may not actually impact investments
and look at the fundamentals of stock prices, earnings and the economy.

MATHISEN: So, you seem to be painting a pretty positive picture for
the rest of 2013. Let`s help our viewers make some money. Your first pick
tonight is Pfizer (NYSE:PFE). Why?

RISTUBEN: Yes. Well, I think it`s a good emblem of one of our larger
over-weights which is health care.

In general, actually, we are overweight those parts of the economy
that are cyclical, that will benefit from a good economy, things like
energy, things like financials. Our hedge against that frankly is health
care. We think it is the cheapest offensive sector out there, and
particularly we like pharmaceuticals and specifically we like Pfizer

GHARIB: And you also you mentioned just financials and Bank of
America (NYSE:BAC) is another one of your recommendations. Tell us what`s
the appeal with BAC.

RISTUBEN: Well, like a lot of things we`re looking at this year,
we`re looking at valuations. We think it`s going to be a good year for
banks in general. And we think it will be a better year in terms of stock
price for those banks that are cheaper than average going into the year.
We think Bank of America (NYSE:BAC) is cheaper. We think it`s going to be
a good year for banks in general.

MATHISEN: Energy has been a little bit orphaned in this market,
hasn`t it, Erik?

RISTUBEN: Oh, absolutely. Last year was horrible for energy. A lot
of negativity was priced into commodities in general but specifically
energy stocks. We think it got overdone.

And again, our overweight in energy really is a manifestation of the
fact that we think we`re going have a good economy that`s going to be good
for energy prices, it`s going to keep oil well above $90 a barrel. And
companies like Halliburton (NYSE:HAL) will make money because they`re an
oil field services company.

GHARIB: As you know, investors have been looking to almost every
single economic report and parsing through every detail to figure out
what`s next for the markets. The big one next week is the February jobs
report. What are you expecting in that report? And how might that play
out in the markets?

RISTUBEN: Yes, we`re kind of — we`re closer to consensus. We`re
expecting about 180,000. For the remainder of the year, we`re actually
expecting over 200,000 jobs. I think, though, that — you know, you got to
be looking at the impact of whether the weather hasn`t been great. I think
the market will probably accept 130,000 jobs.

Anything meaningful below that and I think you`re going to have an
issue. It is a number to watch. But three bad numbers, really bad numbers
in a row I think is going to be problematic.

MATHISEN: Where do you think interest rates are going to end the
year? How much higher, how much lower, roughly where they are very

RISTUBEN: Higher. We think ten year is going to end up about 340,
which means that`s a headwind for stocks. We think that equities benefit
from the headwind of the stocks. And I think investors are going to be
attracted to equities.

MATHISEN: Any disclosures on those companies you mentioned, Pfizer
(NYSE:PFE), Bank of America (NYSE:BAC) and Halliburton (NYSE:HAL)?

RISTUBEN: We own them all through our funds and I own our funds.

MATHISEN: All right. Erik Ristuben, chief investment strategist with
Russell Investments — thanks very much.

GHARIB: Well, the outlook for stocks and the economy hinges to some
extent on what happens with the spring selling season. It`s looking a
little bit shaky after today`s news that signed contracts to buy existing
homes were flat in January.

Now, realtors blame that on nasty winter weather. Others say a bigger
barrier to the housing recovery is because of a shortage of homes on the

But as Diana Olick explains, that might be starting to change.


Montgomery has wanted to move Colorado for a while, to be closer for a
while, to be closer to his grandkids. But the Burbank, California
homeowner owed more on his mortgage than his home was worth.

GARY MONTGOMERY, CALIFORNIA HOMEOWNER: It`s a little terrorizing when
you`re underwater. And you`re wondering if you`re ever going to be able to
walk away from the house and not carry a debt with you.

OLICK: But Montgomery is finally free. One of nearly 4 million
borrowers who came up from underwater on their loans thanks to fast-rising
home prices.

MONTGOMERY: We`ve had a couple of homeowners sell their homes that
are within a ball throw. And they did very well. And it gave me the
feeling that we would at least get on the green side again.

OLICK: There are, however, 9.8 million borrowers still underwater on
their loans according to a report from Zillow, and 19 million more who have
less than 20 percent equity in their homes. Those additional borrowers
likely could not sell for enough profit to meet the expenses related to

(on camera): That so-called effective negative equity is keeping the
inventory of homes for sale incredibly tight, which in turn is even
limiting those who might want to sell.

GIGI SANTORO, CALIFORNIA REALTOR: Because of the tight inventory
situation, there`s nowhere for them to move. I have a number of buyers who
have their houses ready to go the minute they find something to buy. And,
unfortunately, right now, inventory is so tight in the area that we`re at,
there are 35 houses for sale. And that`s two-bedroom/one-bath all the way
up to four-bedroom/four-bathroom property.

OLICK (voice-over): Realtors are begging the builders to ramp up
production, but housing starts have been weak this winter. Yes, partly
because of the rough weather, but also because of rising prices for land,
labor and materials. For now at least, the growing tension between supply
and demand is unlikely to thaw.

Diana Olick, NIGHTLY BUSINESS REPORT, in Washington.


GHARIB: To read more about homeowner equity and what it means for the
housing market, go to our Web site

MATHISEN: Still ahead, does one big Apple (NASDAQ:AAPL) shareholder
think CEO Tim Cook did enough at today`s annual meeting to get investors
juiced about the company again?


MATHISEN: Could the United States be running out of pilot? The
Government Accounting Office says yes that, regional airlines are actually
having trouble hiring enough qualified pilots. But there`s a good reason
for that alleged shortage. Regional carriers simply don`t pay enough money
to attract out of work pilots. The average salary there just over $22,000
a year for a starting copilot. A big name airlines don`t have the same
problem because they pay significantly higher salaries.

GHARIB: The outlook for the nation`s roads and bridges doesn`t look
much better. Federal transportation officials say that more funding is
needed to address what it calls a growing infrastructure deficit of
crumbling roads, bridges and highways. In a report to Congress, the DOT
says Washington needs to spend as much as $146 billion a year to maintain
and improve the nation`s roads and crossings starting right away.

Now to retail where Japan`s fast retailing the parent company of Unico
is reportedly in talks to buy J. Crew. According to “The Wall Street
Journal”, J. Crew`s management is seeking as much as $5 billion for the
business. But it`s unclear whether fast retailing is willing to pay that
price. In a statement, the company says it doesn`t comment on market

MATHISEN: Pier 1 Imports (NYSE:PIR) cuts its outlook for the second
straight month because of snowed-in shoppers. And that is where we begin
tonight`s “Market Focus”. The home furnishings retailer blamed the harsh
winter for soft traffic, and cut both its sales and earnings guidance for
the year. The company did say it expects business to be normal once the
weather gets better. Still, shares down more than 5.5 percent today to

It was the opposite story for 3D Systems (NASDAQ:TDSC). The 3d
printer maker gave investors a strong outlook, predicting its $1 billion in
revenue in 2015. Now, this quarter its revenues rose more than 50 percent,
earnings were in line with the street`s estimates, and shares rose nearly 2
percent to $75.96.

GHARIB: Citigroup (NYSE:C) is revising last year`s earnings results
because of fraud at its Mexican banking unit. The bank will cut its 2013
net income by $235 million. Citigroup (NYSE:C) says the Mexican bank
issued $400 million in bad loans to a Mexican oil services company. Citi
shares fell slightly to $48.63 today.

Riverbed Technology (NASDAQ:RVBD) being pushed to sell itself by an
activist investor. Received a few takeover offers. Bloomberg is reporting
the company received informal proposals from firms including Silver Lake
and KKR (NYSE:KKR) for about $25 a share. Earlier today, the network
equipment maker rejected a bid from Elliott Management for $21 a share.
The stocks spiked nearly 8 percent to $22.28.

Doctors are urging the FDA to reverse the approval of Zojenix`s new
pain drug. It`s called Zohydro, which is expected to hit pharmacy shelves
next month. The drug is said to be five to ten times more powerful than
Vicodin. And critics say taking just two of the potent pills could be
deadly. Shares fell more than 4 1/2 percent to $4.35.

MATHISEN: Well, shares of Apple (NASDAQ:AAPL) have struggled lately,
as you may well know, falling 6 percent so far this year and ending a
fraction lower today. And that likely pushed a lot of stock owners to
attend the company`s annual shareholders meeting today in Cupertino,

Our Josh Lipton was there and has more on what went on.


Apple (NASDAQ:AAPL) shareholders drove and flew in from all around the
country today to listen to CEO Tim Cook speak at the company`s annual
shareholders meeting. Shareholders gathered at the company`s headquarters
in Cupertino, California, to vote on ten proposals, including executive
compensation, company practices, and its 2014 stock plans.

They also voted overwhelmingly to re-elect their directors. Toward
the end of the meeting, Tim Cook fielded questions from shareholders who
pressed the CEO on why he didn`t speak more about new products in the
company`s pipeline. Cook said Apple (NASDAQ:AAPL) didn`t want to offer a
road map to its competitors, and that the company in his words gets ripped
off enough by rivals.

He also emphasized that the company is spending a lot more money on
research and development, which he says demonstrates its commitment to
product innovation. There is also a lot of speculation about what apple`s
next product could be — a wearable device, an improved set-top box, or
maybe a new service such as mobile payments. Some analysts on Wall Street
worry that these ideas sound exciting, but not necessarily revolutionary.

Still shareholders didn`t share in that concern.

BOB LEW, APPLE SHAREHOLDER: Both because the employees themselves are
passionate about what they do, but more I was a systems engineer quite
awhile ago. I see the technology that`s ongoing now outside of the
company. And I think that Apple (NASDAQ:AAPL) can just capitalize on
technology that exists now.

LIPTON: The company stock is down about 6 percent this year, but it`s
up more than 35 percent since its low last June.

(on camera): Tim Cook made a point today of saying he isn`t
interested in the short-term moves of the stock but rather positioning his
company to benefit and prosper for the long term.

Josh Lipton, NIGHTLY BUSINESS REPORT, Cupertino, California.


GHARIB: Let`s get the reaction now to that meeting from one of
Apple`s largest shareholders, CalPERS. This is the California Public
Employees Retirement System.

Anne Simpson is the senior portfolio manager and director of corporate
governance at CalPERS, the nation`s largest public pension fund.

Anne, you have — your firm or fund has a — had a position in Apple
(NASDAQ:AAPL) for many years since the 1980s. So, you`ve been to a lot of
these shareholder meetings over the years. Did Tim Cook say anything that
you think is going to inspire and encourage investors and make them feel
confident about the direction he`s taking the company?

most impressive thing about Tim Cook is that he stays cool, calm and
collected when there is noise and distraction all around him.

The company`s been under a lot of intense short-term pressure, notably
from Mr. Carl Icahn. I think he`s been smartly rebuffed. And the voice of
reason has prevailed.

This is a company that`s very important to CalPERS for the long term.
And we`re very pleased that Tim Cook has got his eye on the ball, he`s
thinking about the long term, he`s thinking about innovation, and he`s
considering the culture and integrity and issues like sustainability,
everything that makes Apple (NASDAQ:AAPL) a good corporate citizen. We
know that`s what`s going to underpin success for the long term.

MATHISEN: Before we talk a little bit more about Apple (NASDAQ:AAPL),
since you raised the name of Carl Icahn, let me get your impressions of his
investment thrusts into several critical technology companies — Apple
(NASDAQ:AAPL), Dell (NASDAQ:DELL) within the past year, and most recently
eBay (NASDAQ:EBAY). In several of those cases he has gone right at the
question of corporate governance.

Is he acting responsibly on behalf of shareholders in his crusade from
his point of view to improve corporate governance? What do you think?

SIMPSON: Well, you know — there`s people who make a lot of noise and
get attention, and there are people who sit down and have a sensible
conversation and really work things out over the long term.

And Mr. Icahn has a very different style. We say there are three
types of shareholder out there. There are owners, there are traders, and
there are raiders.

And CalPERS, we consider ourselves to be owners. We`re there for the
long term. We expect to talk. We expect to take action when needed. But
we don`t really think it`s sensible to try to make massive changes at
companies by making, you know, rather colorful statements to the press or
tweeting a new strategy for a big — for a big company.

You know, this is probably provocative action intended to get
attention. But I think, you know, if we`re talking about long-term
strategic issues, it`s best with a cool head and probably with the door
closed, where people can sit and talk properly.

GHARIB: But one thing that Carl Icahn has done, he`s put a lot of
attention on how Apple (NASDAQ:AAPL) manages its cash. And it has a lot of

How do you feel that the conversation behind those closed doors is
changing about cash management? And are you satisfied with what`s going

SIMPSON: Right. Well, I think Carl Icahn was very late to the party
on this, because the issue of the pile of cash was under discussion two
years ago when the company first set out its plans. Since then, the pile
of cash has gotten bigger, and that`s a problem that you want to have.

You remember last year another hedge fund, David Einhorn, took a toll
(ph) to Apple (NASDAQ:AAPL) on the same issue. He didn`t make much of a
move forward from it.

And Apple (NASDAQ:AAPL) has done the right thing. It`s kept to its
plans, it`s communicated what it`s doing, it`s committed to $100 billion to
be returned to shareholders. And it`s going to review those numbers in
March and April.

And we`re satisfied that that`s a very — you know, that`s a sensible
course of action. We don`t want rash decisions made in the heat of a
dispute with a short-term activist. That`s not sensible.

GHARIB: All right. We`re going to have to leave it there. Thank you
so much, Anne. Anne Simpson with CalPERS.

And coming up on the program, the Hollywood business model is changing
from the way films are financed to where they`re produced. But as
Tinseltown gets ready to host the Oscars, can the industry reverse the


MATHISEN: There will be a lot of diamonds and other gems, not to
mention beautiful fashions on display this Sunday at the Academy Awards.

Jane Wells hit the red carpet which may be a wet carpet this weekend,
a few days ahead of Hollywood`s biggest night. She`s going to tell us now
how the business of making movies and where a lot of films are being made
has changed over the past year.


seems like there`s a lot of really good film this year —

UNIDENTIFIED MALE: I will not fall into despair.

WELLS: — it`s not your imagination.

picture nominees. All of them are absolutely worthy.

WELLS: Hollywood is being forced to put out a consistently good
product as competition from quality television is fierce, especially from
Netflix (NASDAQ:NFLX).

RICHARD SUCKLE, FILM PRODUCER: There`s a lot of choices that allow
people to see things. And obviously if there`s good material out there,
whether it`s on free TV or pay TV, I just think it`s really good for the

WELLS: This year, Netflix (NASDAQ:NFLX) is even up for an Oscar for
best documentary with “The Square”, based on the uprising in Egypt.

JEHANE NOUJAIM, “THE SQUARE” DIRECTOR: As a documentary maker, that`s
very exciting to see the kind of muscle that Netflix (NASDAQ:NFLX) has put
behind our film and the kind of attention they`ve given to it is really
exciting. It`s groundbreaking.

WELLS (on camera): But here on the soggy red carpet heading into the
weekend, so much about Hollywood is changing including the way movies are
financed. Studios are reluctant to fully fund films, so producers have to
get creative.

(voice-over): The producers of “American Hustle” lined up much of the
money to shoot the best picture nominee by selling overseas distribution
rights at Cannes Film Festival before filming even began.

sales to a lot of independent distributors and we picked up probably 75
percent of the money for the movie with that. That squeezes in a good way
your risk, but it also hurts your up side.

WELLS: And one other way to save money, shoot somewhere else.
Hollywood is no longer in Hollywood.

“Gravity (NASDAQ:GRVY)” was shot in the U.K. and Arizona, “12 Years a
Slave” in Louisiana. “American Hustle” in Boston and New York, where this
week, Disney (NYSE:DIS) announced it would shoot a new TV series. Gotham
is the new Hollywood.

ROVEN: My early movies were all made here. And now, none of them are
made here.

WELLS: The Milken Institute says California lost 16,000 movie and TV
jobs over eight years, while New York gained over 10,000. It suggests the
Golden State needs to do more to keep production here where it all began
and where it`s being celebrated Sunday night.

For NIGHTLY BUSINESS REPORT, Jane Wells, Hollywood.


MATHISEN: And a soggy celebration it may be. To read more about
Hollywood`s changing business model, log onto our Web site,

GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
Gharib. Thanks for watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a
great weekend, everybody. We`ll see you back here on Monday.


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