Transcript: Wednesday, March 5, 2014

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Winter blues. Reports on the labor market raising concerns for would-be job seekers. Will Friday’s government employment report confirm the hiring slump? And is this just a blip or a long-term trend?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Lack of energy. ExxonMobil (NYSE:XOM) disappoints investors with its oil and gas production outlook. But will new projects re-energize the world’s largest publicly traded energy company?

GHARIB: And economic priorities. China sets up course for growth and structural reform. But there’s one thing some global investors fear could disrupt the economic powerhouse.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, March 5th.

MATHISEN: Good evening, everyone. And welcome.

Old man winter has struck again. The first day of spring is just two weeks from tomorrow, believe it or not. But spring time and warmer temperatures can’t come soon enough for the recovering U.S. economy. Several reports out today blame last month’s cold bitter weather and unrelenting snow for a slowdown in economic growth in February.

Far fewer than expected private sector jobs were added last month both in the services sector in the economy fell to the slowest pace in four years, and it appears that white is the new beige as the Federal Reserve’s latest Beige Book economic survey reported that white snowy, frigid winter weather had a major impact on hiring, manufacturing, and consumer spending.

Steve Liesman has more on what it all means.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: After ravaging the nation in snow and cold, the weather hit the U.S. again today. This time in a series of frigid economic reports that showed a chilling impact in this winter’s weather. A key gauge of the job market, the ADP national employment report came at just 139,000, below the 160,000 estimated by Wall Street, and suggesting Friday’s jobs report from the government could be soft as well.

At a measure of the service sector, which makes up the bulk of the U.S. economy, fell to just 51.6 — the lowest level in four years, and in large measure due to the weather.

MARK ZANDI, MOODY’S ANALYTICS CHIEF ECONOMIST: A lot of law firms couldn’t practice because they couldn’t get to the office and couldn’t work. Accountants couldn’t work. Retailers have been significantly affected, and it affects all the things that they do. So, you know, in general businesses just couldn’t get the work done that they normally do.

LIESMAN: Inside that service report from the Institute for Supply Management, a gauge of employment dropped nearly nine points. The only bigger drop was during the 2008 recession. If that wasn’t enough evidence that Mother Nature is having her way with the U.S. economy, the Fed’s Beige Book, a collection of economic anecdote from around the nation, released today, mentioned weather 119 times. That compares with just 18 mentions a year ago.

Among the mentions, rail cargo volumes in Dallas fell because of the weather. Nine districts of the 12 reported weaker manufacturing because of weather. Crops were damaged in the Richmond and Atlanta districts. Energy drilling declined in the Minneapolis district, which includes the oil-rich state of North Dakota. Hiring slowdowns in Boston, Richmond and Chicago because of the weather.

On the upside, though, ski resorts in Richmond, Kansas City, and the Minneapolis districts, they had a good month, hotels in Atlanta and Boston because of stranded travelers, and there was increased energy demand that showed up in higher utility bills, but also softer retail and auto sales.



GHARIB: Despite all the uncertainties about the U.S. economy, Josh Feinman’s view is glass half full. He is chief global economist at Deutsche Asset and Wealth Management.

So, Josh, it looks like we are now keeping score on how many times the Fed mentions weather in its report. The 119 times that Steve just reported.

We’ve been hearing that a lot. Is that really what’s going on, or is it an excuse? Is something more fundamental happening with the economy?

JOSH FEINMAN, DEUTSCHE ASSET & WEALTH MANAGEMENT: I think it’s the main thing that’s going on here. We’re all talking about the weather, and we saw it again in the Beige Book. It’s sending chilling through people, through economic activity. There’s little doubt about that.

We can’t be 100 percent certain that that’s all that’s going on. There is also a little bit of an inventory correction dampening activity here in the first quarter, but the key point is both of those things, the weather and inventories, should be temporary. I’m assuming that before long — I’m hoping the weather returns to more normal, and the inventory correction will prove to be self-limiting. When that happens I think the economy is improving, fundamentals should, you know, reappear.

MATHISEN: Josh, how do you explain the rather sharp downward revision in GDP for the fourth quarter of last year? And that was really well before the worst of the bad weather hit.

FEINMAN: It was. I mean, we had a little bit of a bad weather in December, but I think — you know, some of that was we have a little bit too much of an increase in some of the early indicators, and they sort of tailed off a little bit, some of the weather. Not all of it.

But, you know, overall, the economy did pretty well in the second half of the year. Keep in mind the two and a half of the fourth quarter followed 4 percent in the third quarter. So, the economy did seem to be gaining momentum. It has lost a little momentum here, the weather, the inventory correction, but I think the improving fundamentals should reappear by the spring.

GHARIB: Josh, as you know, a lot of people are very concerned about the employment report that’s coming out on Friday, and I know that you have a forecast that’s not expecting too many jobs being added to businesses. How important is that? Tell us what your prediction is.

FEINMAN: I’m looking for it to be on the softer side, but I have to say I think the bands of uncertainty around that are greater than usual because of the weather impact. You know, we just don’t know how many people were held out and couldn’t get to work because of the weather. We don’t have any of them will be off the payrolls, how many of them will just see a reduction in hours.

So, I think, unfortunately, the report is going to be obscuring the underlying trends, and we’re just going to have to wait probably until the following couple of months to get a clearer picture.

MATHISEN: Josh, how long will these weather effects continue to show up legitimately in the data?

FEINMAN: Well, depends on how quickly the weather comes back more normal. If we’re assuming that, you know, we kind of get back to more normal temperatures and precipitations in March and April, then the data that starts to print in April and May should look more normal.

Actually, they could get a little bit of a bounce back. So, if I have to average through things for a few months before we get a read on the underlying trends.

GHARIB: All right. So, how do you think this is going to play out with the Federal Reserve? They’re having their first policy meeting with Janet Yellen in less than two weeks. If the numbers are weak in March, April, and May, what do they do?

FEINMAN: Oh, well, right now I think, you know, they’re just not going to have a clear hand at the meeting. I don’t think they’re going to deviate from the script that they’ve been under, which is this gradual tapering pace. I think they’re comfortable with that. They’re comfortable with their forecast about the economy. And it’s going to take a much bigger shift to get them to veer off that path.

But if we get into the spring and it turns out that this is not just the weather phenomenon, that the economy is downshifting more fundamentally, then, you know, by May, June, that type of time frame, then it would have to rethink. I don’t think that’s going to happen, but I think that’s what it would take to get the fed to veer off this course.

GHARIB: Thanks so much, Josh. Josh Feinman, chief global economist at Deutsche Asset and Wealth Management.

MATHISEN: Quiet day on Wall Street. Stocks following up their best one-day gains of the year on Tuesday with low volatility today. The major averages ending mixed, little changed basically. Despite that disappointing data on jobs and economic growth, the Dow ended 35 points lower, fairly modest decline there. The NASDAQ, however, was up six, and the S&P ended just fractionally lower.

GHARIB: ExxonMobil (NYSE:XOM) was by far the biggest decliner in the Dow today. Shares fell nearly 3 percent after the oil giant announced plans to sharply cut funding for oil and natural gas drilling this year.

Morgan Brennan has more on the cuts and where the company sees growth.


MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): ExxonMobil (NYSE:XOM) CEO Rex Tillerson telling analysts and investors that its oil and natural gas production will be flat in 2014. A big reason for that is lower CAPEX spending. With the oil giant announcing a 6 percent cut to its drilling budget.

Exxon also plans to invest less in its North American natural gas business.

REX TILLERSON, EXXONMOBIL CHAIRMAN & CEO: We have deliberately elected to let — continue to just decline rather than invest a lot in sustaining or growing North American gas capacity, which we have the opportunity to do. That’s a deliberate choice we’re making. Just because it doesn’t appear the market needs it yet.

BRENNAN: Tillerson also touching on the crisis in Ukraine, saying his company’s exploration plans in that country are on hold thanks to the current circumstances.

Tillerson clarified that ExxonMobil’s operations in Russia where a partnership was brought and is seen as having massive growth potential have so far not been impacted by the unrest in the region. Though he did hint that the company would be impacted by any economic sanctions, the west puts on Moscow.

TILLERSON: You know, governments can take actions that are beyond our control, such as sanctions, which would prohibit any businesses from conducting activities and we’ve been through that — whether it’d be with Iranian sanctions or whether it’s with Iraqi sanctions at one time, or it’s been the other countries, Libya. So, that’s just part of the risk we know is there. Always present.

BRENNAN (on camera): It wasn’t all bad news from ExxonMobil (NYSE:XOM). The company says that it will see a record 10 new projects come online this year, and that it expects annual growth of 2 percent to 3 percent beginning in 2015. But one look at how the stock finished today, it’s trading down nearly 3 percent. And it’s easy to see that today’s messages didn’t sit well with investors.



MATHISEN: Moving now to the economy in China. As the national people’s congress met today, laying up growth targets and spending plans for the world’s second largest economy.

Eunice Yoon has more now from Beijing.


EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: As they open up this year’s Chinese congress, investors got a better sense of the new leadership’s economic priorities for 2014 and China’s version of the State of the Union Address, the premier reaffirmed the country’s annual target. Economic growth is forecast at 7.5 percent. Consumer inflation at 3.5 percent.

Now, the figures have just set policymakers what really takes to slower growth than previous years. The target in the past years have been seen as a floor, but with the economy slowing down, the target is increasingly being viewed as an actual target.

Now, much of the premier’s speech focused on the costs of China’s rapid economic growth. He declared a war on pollution. The administration also said it would find ways to help local governments reign in debt, perhaps by allowing them to sell bonds.

Now, another highlight from the day China is increasing its military spend big 12.2 percent. So, that increase was accompanied by a warning by the premier that China wouldn’t allow any country to reverse the course of history, a comment that’s seen as an oblique reference that Japan, possibility the United States as China rises on the global stage.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.


GHARIB: Well, despite China’s strong growth projections, the country could see its first ever corporate bond default. A solar firm says it won’t be able to make an interest payment this Friday. It’s something investors are keeping a close eye on and Michelle Caruso-Cabrera joins us with more on all of this.

So, how serious is this, and why is this the first ever corporate bond default?

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it’s not that all Chinese corporations have been perfect and very profitable and been able to pay their debts. Except when they run into trouble before, the investors and the bonds have been bailed out either by the underwriters or by the government. So, this will be the first time where government says we’re not going to do that this time.

MATHISEN: That’s how capitalism is supposed to work. Not that they’re capitalists, but —

CARUSO-CABRERA: Right, right. So, some people are arguing this is a good thing. Like this needs to finally happen.

MATHISEN: So, tell me about why some analysts are calling this potentially a Bear Stearns moment. What does that mean?

CARUSO-CABRERA: Well, if you’ve been investing in a type of product that has always paid you back, regardless of the risk involved, and then suddenly you discover one day, wait a minute, this isn’t necessarily that good. Remember, that’s what happens with Bear Stearns when they first had their hedge funds go under, and then people thought, wait a minute, subprime isn’t as safe as everybody thought. So, that’s what they’re equating it with.

Suddenly, there was this beginning of the ebbing with confidence, and they’re worried that’s going to happen throughout the corporate bond market because maybe some corporate bonds shouldn’t be as rated as high and shouldn’t have as many investors they’re getting.

GHARIB: So, should American investors be worried about this? I mean, investors who you have an ETF and China securities, or you said just a moment ago this could be a good thing.

CARUSO-CABRERA: Well, it’s a good thing that people should learn that just because you invest in something doesn’t mean you’re always going to get paid back, right? But that’s a painful lesson to learn and can be painful for the economy. Whether American investors should be concerned, it’s something we can’t quite answer.

There’s a couple of things we know. That the Chinese financial system, if it does suffer a big freeze, it’s still actually pretty insulated from the rest of the world. It’s not as advanced financial system as we have, so it’s not as integrated with the rest of the world. We don’t think as many effects. At the same time, if China has to spend a lot of money fixing this, that’s money they can’t use to buy iron ore, et cetera.

MATHISEN: Very quickly, who would own these bonds?

CARUSO-CABRERA: Oh, these could be pension funds. These could be individuals.

MATHISEN: In U.S., in Europe?

CARUSO-CABRERA: No, it’s mostly — it’s going to be mostly Chinese holders. Yes.

MATHISEN: That’s what I was guessing. All right.

GHARIB: All right. Michelle, thanks for coming by. This was great. Really appreciate it. Have a good weekend.

MATHISEN: And still ahead, yet another delay to a key part of the new health care law. We’ll have the details right after this.


MATHISEN: The latest now on the crisis in Ukraine. In Moscow, a proposed law would allow the Kremlin to seize property and bank accounts of Western companies and individuals if economic sanctions are imposed against Russia. And with Russian troops still on the ground in Ukraine’s Crimea region, U.S. Secretary of State John Kerry was in Paris trying to drum up support for the interim leaders in Kiev.


JOHN KERRY, SECRETARY OF STATE: Russia can now choose — and we are committed to working with Russia, and together with our friends and allies, in an effort to provide a way for this entire situation to find the road to de-escalation.


MATHISEN: Meanwhile, European Union officials are offering $15 billion in loans and grants over the next few years matching the bail-out that Russia offered Ukraine’s ousted president several weeks ago. That is on top of the $1 billion in loan guarantees from Washington in exchange for energy subsidies.

GHARIB: Well, Europe gets about one-third of its energy needs from Russia. Much of it moved through natural gas pipelines in Ukraine. So the stand-off between Russia and Ukraine is being closely watched by nat gas traders here in the U.S.

Kate Kelly talked with some of the traders in Texas about price volatility in the U.S. market and how tough it is to make the right call on natural gas.


KATE KELLY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): This means a lot more of this. As people crank up the heat to keep warm, the price of natural gas has shot up, making this the most volatile winter for the commodity in decades. But unlike other commodity that are also subject to the tug of supply and demand, natural gas can shift quite suddenly, spiking during a winter like this one and quickly plummeting once the forecast changes and the thaw sets in.

In the past few weeks alone, prices have hit multi-year highs, only to follow with their worst four-day losing streak since 1996.

JEFF CURRIE, GOLDMAN SACHS GLOBAL HEAD OF COMMODITIES: Demand for natural gas and many other commodities is much more elastic today than what we’ve seen in the past. So, as a result you think about the consumer being much more price-sensitive.

KELLY: Consumers have taken notice every time they open their heating bills, and so have investors since it’s that elasticity or sensitivity to price change that has made trading natural gas much more risky.

(on camera): Traders here in Houston are open about the amount of risk they take, buying and selling contracts tied to future prices of natural gas. As hedge fund manager Bill Perkins told me, we thrive on chaos, but at the same time, Perkins says, we can lose all our money on any given day.

(voice-over): Perkins is one of the lucky few whose funds made money in January, largely by following the weather patterns in deciding how to trade.

He is not alone. David Dunn, who manages about $100 million at Lochridge Investment Advisors, is up 8 percent to 9 percent this year on a unique approach to gas that involves betting on price changes between one region and another.

DAVID DUNN, LOCHRIDGE INVESTMENT ADVISORS: What we’re doing is we’re trading two ends of a pipe, and, you know, obviously, there are two prices at each end of the pipe, and the differential between those prices theoretically on paper should be the cost of transportation. We’ve got any number of factors that influence the price that each end of the pipe, and it’s that basis relationship that we’re trading.

KELLY: But the only sure way to make money is to be right, and hedge fund managers say the only thing they know for sure is that the bumpy ride will continue.

For NIGHTLY BUSINESS REPORT, I’m Kate Kelly in Houston.


MATHISEN: Another delay in a key provision of the Affordable Care Act. The White House now wants to let you hang on to your health insurance policy until the end of 2016, even if it doesn’t comply with the health law’s stricter coverage standards for newly issued plans. Republicans claim the change was politically motivated.

Late last year, the president urged states and insurers to commit noncompliant policies through 2014, but that would have meant cancellation notices would start to hit right around the midterm elections. Some constitutional scholars warn that the move is a too broad extension of executive powers to reshape law. But the White House says it’s just trying to smooth the transition to a new health insurance system.

GHARIB: Hovnanian shares tumbled today as it reported a loss that was bigger than expected, and that’s where we begin tonight’s “Market Focus”.

The home builders saw a drop in contracts on higher cancellation rates and fewer home deliveries. It blamed the poor quarterly performance on harsh winter weather — there we go again — slowing sales and extending construction times. The stock plunged more than 10 percent to $5.44.

Brown-Forman posting better than expected earnings, thanks to strong sales of Jack Daniels. The liquor maker behind brands like Southern (NYSE:SO) Comfort and Finlandia also upped its full-year earnings outlook. That sent shares up more than 3 percent to $87.11.
MATHISEN: Private equity firm Cerberus is trying to wrap up a deal to buy Safeway (NYSE:SWY), but the supermarket giant Kroger (NYSE:KR) may be getting in the way. There are reports that Kroger (NYSE:KR) is considering a bid for Safeway (NYSE:SWY), the nation’s second largest grocery chain, but Cerberus is still seen as the top contender. Nevertheless, shares of Safeway (NYSE:SWY) today up 2 percent to $39.48, Kroger (NYSE:KR) also higher, 3 percent so at $43.68.

And the FDA won’t approve Eli Lily’s experimental diabetes drug because it’s concerned about the facility where the drug will be made. In May, the FDA warned the drugmaker that the German plant violated standards, and those issues have not been resolved. The FDA is not requesting any more tests of the drug. Shares fell a fraction there to $59.43.

GHARIB: Going once, going twice, sold. Coming up, we’ll tell you why Google (NASDAQ:GOOG), the king of search, is investing in a Web site that auctions real estate.


GHARIB: U.S. safety regulators are coming down hard on General Motors (NYSE:GM) about what the automaker knew and when it knew about a faulty ignition switch that’s been linked to 13 car crash deaths. The National Highway Traffic Safety Administration wants answers to 107 questions about that ignition problem and sent GM a 27-page order today demanding pictures, memos, emails, engineering reports, and lots of other data.

MATHISEN: Google (NASDAQ:GOOG) thinks it’s found answers about real estate. The online search giant’s investment arm just put an Internet real estate company on the map big-time, giving it a $50 million cash infusion. That’s after, which sells both residential and commercial real estate, came knocking on Google’s door. And Google (NASDAQ:GOOG) answered.

Diana Olick spoke with the CEO today about the cash infusion and the company’s new relationship with Google (NASDAQ:GOOG).


UNIDENTIFIED FEMALE: Do you have a list of properties for today?

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When the housing market crashed, was born, holding its first live auction in 2007 and launching online the next year.

UNIDENTIFIED MALE: One hundred fifty thousand —

OLICK: Twenty-six billion dollars in residential and commercial sales later, the California-based company is getting a $50 million vote of confidence from Google (NASDAQ:GOOG) Capital, an investment arm of the Internet giant.

JEFFREY FRIEDEN, AUCTION.COM CEO AND CO-FOUNDER: Management made a list of who would be the most strategic partner for, and Google (NASDAQ:GOOG) was on the top of the list.

OLICK: Auction hopes to take advantage not just of Google’s cash but of its digital marketing and product development. And while the vast majority of its residential properties are foreclosures, as that pile shrinks, its commercial side is growing. Sources at Google (NASDAQ:GOOG) Capital say commercial real estate is their primary focus in the deal, especially auction’s ability to level the playing field for smaller investors.

FRIEDEN: We have a marketplace. People bidding on $50 million apartment buildings, $25 million malls, and these sellers become your buyers. We have a marketplace. In fact, we have billions of dollars of liquidity coming to with millions of users.

OLICK: Given the amount of real-time buying and selling, Auction’s Web site sees the information the company has could be very valuable, but sources at Google (NASDAQ:GOOG) say this is not product integration. Just a pure money play and Frieden agreed.

FRIEDEN: Google’s arguably one of the best data companies in the world. That is not something that we would share with anybody other than

OLICK (on camera): is not a public company, but Frieden says an IPO is not out of the question. As for now, it will welcome a member of Google (NASDAQ:GOOG) to its board and take the relationship from there.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in New York.


MATHISEN: To read more about Google (NASDAQ:GOOG) and its investment in, go to our Web site

GHARIB: And, finally tonight, after eight years of working on a government salary, it looks like Ben Bernanke is cashing in.

In just one paid speaking engagement in the United Arab Emirates on Tuesday, the former chairman of the Federal Reserve Bank pocketed a reported $250,000. That’s for one speech, now.

And here’s the kicker: that’s more than he earned in an entire year running the nation’s central bank and steering the nation through the worst financial crisis since the Great Depression.

You know, Tyler, if he does three more of these speeches that’s $1 million.

MATHIESN: That will be $1 million, and he will be able to pay for his daughter’s education, which he lamented he was having to worry about.

GHARIB: No worries now.

That’s NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib.

And we want to remind you, this is the time of year your public television station seeks your support to make programs like this one possible.

MATHISEN: I’m Tyler Mathisen. On behalf of your public TV station, thank you for your support. Have a great evening, everybody and we 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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