Transcript: Monday, March 17, 2014

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


That`s who the markets reacted to the secession vote in Ukraine, with the Dow snapping a five-day losing streak to post its biggest gain in two weeks. But how long will the rallies last?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Big decision. Janet Yellen will lead her first policy meeting as the head of the Federal Reserve this week. And many say she may be ready to make some changes.

MATHISEN: And the CEO speaks. General Motors (NYSE:GM) head Mary Barra makes a public admission about those recalls and plans to change the way the company handles investigations. But was she persuasive?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March 17th.

GHARIB: Good evening, everyone.

It`s St. Patrick`s Day, so there was a lot of green on Wall Street today, and we`re talking about green arrows. A relief rally thanks to no violence following the referendum vote in Crimea. We`ll have more on that in just a moment.

Now, a report showing manufacturing output jumped the most in six months, also added to the positive feeling. On Wall Street, the Dow surged
181 points, the NASDAQ rose 34 and the S&P 500 up almost 18 points. All three indices had their biggest one-day gain in two weeks.

MATHISEN: As the markets rose because of that lack of violence in Ukraine, tensions between the United States and Russia are also rising.
Some call it the worst super power dispute since the Cold War. The U.S.
and European Union slapped sanctions on Russia and Ukrainian officials after a vote paved the way for Russian president Vladimir Putin to annex Crimea from Ukraine.

The economic sanctions are the most visible signs of western anger at Russia. Still, President Obama says a diplomatic solution can be reached before the tensions escalate further.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I believe there is still a path to resolve this situation diplomatically in a way that addresses the interests of both Russia and Ukraine. That includes Russia pulling its forces in Crimea back to their basis, supporting the deployment of additional international monitors in Ukraine and engaging in dialogue with the Ukrainian government.


MATHISEN: Steve Sedgwick is on the ground for us in Kiev, with a look at what may happen next.


Here in the Ukraine on Monday, everyone digesting the vote to join the Russian Federation from the Crimean people. Everybody now is turning to President Putin to see what he does next on three fronts. One, does he and his Russian parliament give annexation of Crimea the OK and give it the thumbs up in the Russian parliament? Two, does he increase the pressure on Ukraine militarily? And three, how does he react to sanctions from the E.U. and the U.S.?

Politicians in Kiev for their part are adamant that the referendum is illegal. I spoke today to the prime minister, Mr. Yatsenyuk, who said to me, he still wanted a diplomatic solution rather than a military solution to this crisis, although, he and every Ukrainian must be prepared, he said, to fight for their country, if indeed, there is an escalation of Russian intent in the east of this country.

This is Steve Sedgwick for NIGHTLY BUSINESS REPORT in Kiev.


GHARIB: Another market mover this week could be Federal Reserve Chair Janet Yellen`s first news conference. She`ll answer questions on Wednesday after presiding over her first Fed meeting as head of the Central Bank.
Now, it`s widely expected she will continue reducing the Fed`s stimulus measures.

But what`s not so certain is what Yellen will say about some key targets on employment and inflation, and whether she`s ready to make some big changes.

Steve Liesman has more.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Janet Yellen wants her first meeting as Fed chair this week and holds her first press conference having promised continuity with her predecessor Ben Bernanke.
But she`s going to have to make some changes and make them as soon as this meeting.

Here is why. Back in 2012, with her leading the Central Bank, the Fed promised not to consider raising interest rates then at zero until the unemployment rate fell to 6.5 percent. Seems like a safe and far away back then. The unemployment was at 7.9 percent and seem to be holding steady.

But two things happened. First, the unemployment rate started falling rapidly, losing more than a percentage point in a year. Second, it wasn`t clear that it fell for the right reasons. Many, in fact, were dropping out of the workforce.

JANET YELLEN, FEDERAL RESERVE CHAIR: The unemployment rate is not a sufficient statistic to measure the health of the labor market. An additional 5 percent in unusually high fractions of the labor force is working part time for economic reasons.

LIESMAN: The numbers are staggering — 7.2 million Americans are working part time because they can`t find full-time work, 10.4 million Americans are unemployed, 3.8 million of which have been employed for more than six months. Ninety-one million Americans are not in the labor force because they`re retired and became so discouraged they dropped out of the workforce.

So, the big question is this, how many more workers and working hours are out there? If we`re near full employment, workers can demand higher wages. That could threaten higher inflation.

LAURENCE MEYER, FORMER FEDERAL RESERVE GOVERNOR: There is work that suggests long-term unemployment, that`s the unique feature of this expansion at record levels. They have little or no effect on inflation.
The only effect on inflation comes from the short-term unemployed and back to normal levels.

LIESMAN: If that`s the case, Yellen could be forced to break with Bernanke on a much more fundamental issue, raising rates much sooner than markets think.

For the moment, however, Yellen is convinced there`s lots of slack in the labor market. So, look for her to find a different way to communicate that`s slack in the markets in the days ahead.



MATHISEN: Our guest tonight says the stock market is, quote, “pricey”
and tells investors to prepare for a correction. She`s Erin Gibbs, chief investment strategist at S&P Capital IQ.

Ms. Gibbs, welcome. Good to have you with us.

We could potentially see a correction of 10 percent. That`s what you say. Why do you say it and what should I do to prepare for that?

ERIN GIBBS, S&P CAPITAL IQ EQUITY CIO: So, the issue we have right now is the stocks are really priced for perfection. Right now, the S&P 500 is trading at about 15.6 times forward earnings, which means that you`re paying $15.66 for every dollar a company is forecasted to earn this year.

Now, since the financial crisis, normally, you`d pay more like $14.
It`s going back even further, 15 years you`d pay around $16. So, it`s not that we`re a bubble or that we`re, you know, way above the historical range, but we`re at the top of that range.

MATHISEN: If this happens, what should I do, Erin? Should I — should I get out of stocks? Should I lightening up on certain kinds of stocks? What?

GIBBS: No. We`re not saying sell. Again, this is not — I`m saying sell, but I`m saying, use any corrections as opportunities in get in.
Right now, it is extremely hard to find good values. Like I was just saying, we`re sort of at the top of this historical range.

Now, in good economies, you can go much more expensive, but use any pull backs, any disappointing news as opportunities to get into more equities. We still expect another 10 percent for the year.

GHARIB: Right, I mean, this is certainly a headline driven market.
We saw last week, all the worries about the Ukraine, big selloffs. Today, relief rally because of developments in the Ukraine.

Now, we`ve got the Fed, you heard Steve Liesman`s report. What`s the most important decision that could come out of the Fed this week from Janet Yellen that could impact the markets, and what do you think the market reaction will be?

GIBBS: For us, it`s all about whether she`s going to raise the rates or go further into language saying she`s not just looking at unemployment.
That`s the biggest action that could really affect the market this week.
If she raises rates, which is not Wall Street is expecting, you can see a much bigger correction.

Ultimately, I feel she`s not going to raise rates. We`re not going to look at any raising rates until at least the second half of the year or even 2015, but we`re really looking for indication of language that it`s not on the table right now.

MATHISEN: In the short term, Erin, what is the biggest risk to the U.S. market? Is it China? Is it the Ukraine, and geopolitics? Is it the underlying growth or lack of growth in the U.S. economy and corporate profits?

GIBBS: For us, it`s more about the U.S. economy. Right now, think of it as we`re firing on all four cylinders but we`re driving a Chevy Chevette, not a Ferrari. We really want to see more of the fundamentals come through and see those corporations start earning what we expected at the beginning of the year.

GHARIB: Well, carry on with that, because earnings are coming out in the next few weeks. At the end of the day, when it`s all the numbers are finally out for the first quarter of 2014, is it going to be positive numbers for the markets or negative?

GIBBS: So, we`ve seen a lot of revisions downwards, and that`s where I`m really concerned about potentially having a correction. Estimates have come down from about looking for about 10 percent profit growth for this year to a little about 7.5 percent growth this year. So, you know, pretty big revision in two months.

Now, a lot of it has been warnings about the weather has really hurt our profits and our revenues for first quarter, but that only takes you so far. Also, a lot of corporations are saying they`re going to make up for it in the second half of the year. So, we really want to see our companies able to beat those expectations as they did in 2013, and are we still going to be able to meet those gross expectations.

MATHISEN: Erin, nice to be with you this evening. Thanks for joining us.

GIBBS: Thank you.

MATHISEN: Erin Gibbs is equity chief investment strategist at S&P Capital IQ.

GHARIB: Investors are also watching closely China`s currency. The People`s Bank of China has decided to allow the yuan currency to trade against the U.S. dollar. Now, most currencies by contrast are free- floating. This may sound like a small move, but it`s actually a big step towards a more market-based economy.

And as Sara Eisen tells us, the shake up could benefit some big American companies.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): China wants a world-class economy. And to do that, it needs a world class currency, one that can compete with the dollar or the euro. And China took a big step closer to that goal this weekend, letting the yuan float in a wider range against other currencies. That could help convince foreign investors that the Chinese economy is not slowing down and encourage investments.

KATHY LIEN, BK ASSET MANAGEMENT: In the long run, I think it should make Chinese assets more inexpensive which could attract more investments, but they`ve got to get over slower growth, as well as the risk of further default.

EISEN: It may also help the Chinese economy. Currency strategists have long held the Chinese government kept the value of yuan low on purpose, making Chinese exports cheaper. But a stronger Chinese currency has a powerful upside for the global economy because the Chinese consumer will have more spending power. American companies that stand to gain from increased consumer spending in China include Yum Brand, McDonald`s and Proctor and Gamble, among others. They`ve invested billions, betting on the Chinese consumer, even if it means more ups and downs for the yuan.

WILBUR ROSS, WL ROSS & CO.: When a country is making a fundamental shift in the composition of its economy, away from investment-driven and export driven and into domestic consumption driven, that`s bound to have some bumps and pitfalls.

EISEN (on camera): Some will say that volatility will make the world`s number two economy look worse than it actually is, but for now, there is plenty of praise for China for opening up to the global economy at a time when other emerging powers, Russia for one, are pulling back.



MATHISEN: Still ahead, G.M.`s new CEO makes a public appearance and commits to resolving safety issues at the auto maker. But was it enough?


MATHISEN: More Americans are out there looking for work and many are finding it more quickly. The Labor Department says unemployment fell in 43 states in January, rose slightly in just one, Iowa, and remained unchanged in sixth. North Dakota, which is riding that oil boom, continues to have the lowest jobless rate at 2.6 percent nationally. Rhode Island, which has suffered from a housing bust and sluggish manufacturing, has the highest unemployment rate in the country, 9.2 percent.

GHARIB: Three new recalls for General Motors (NYSE:GM). The auto maker adding about 1.5 million cars to its list of vehicles that need to be fixed. Recalls that are unrelated to those faulty ignition switches that we`ve been reporting on recently.

And today, CEO Mary Barra addressed how she planned to change the way the company handles defect investigation.

Phil LeBeau has been covering this story for us and joins us now.

So, Phil, this is the first time we`re hearing from G.M. CEO Mary Barra, why did she do this and how effective do you think she was in this public statement?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: You know, Susie, I think she was fairly effective. I wouldn`t call this a home run but certainly it had to do something. And it was effective from the standpoint they are trying to get in front of the story, instead of reacting several hours, maybe a couple days after some revelations come out. General Motors
(NYSE:GM) put out these three recalls.

And Mary Barra, as you`ll hear right here, she was fairly forthright saying this is just the beginning of more revelations.


MARY BARRA, GENERAL MOTORS CEO: I want you to know that we`re completely focused on the problem at the highest levels of the company, and we are putting the customer first and that is guiding every decision we make.


LEBEAU: That`s just one of the comments that we heard from Mary Barra. This was an internal message sent to the employees of General Motors (NYSE:GM), but it was also posted on the Web site. It was also meant for outside consumption. And I think for General Motors (NYSE:GM), it was a good first step, again, not a home run but an important step to make the public aware that they realize the severity of the situation.

MATHISEN: As you pointed out, Phil, three more G.M. recalls today.
Two questions, is this a case of dumping all the bad news out at one home to get ahead of it? And secondly, does Ms. Barra need to face the press?

LEBEAU: Well, she will face the press at some point. There is no doubt about that. How soon that happens remain to be seen. And, yes, this is a case of dumping the news, being as transparent as possible.

I looked at these three recalls which cover about 1.5 million vehicles. We`re not going to get into all of this. In terms of recall notices, these are not the most earth-shattering. And I say that from the standpoint. There is no injuries or deaths involved in these recalls, and one of them was brought to the G.M. recall committee less than a week ago.
That tells you how quickly General Motors (NYSE:GM) want to be proactive here and saying anything that smells close to being a recall, get it out.
We don`t want to appear to be holding back any information at all.

GHARIB: Yes. You know what`s amazing. They have four investigations going on all at once. So, how long is this going to drag on? It sounds like she`s going to be in crisis mode for a while.

LEBEAU: Crisis mode for a little bit. Four investigations, at least two congressional hearings that we`ll have within the next month.

So, it`s going to continue for awhile. This was all about trying to get in front of the story.

MATHISEN: Phil LeBeau, thank you very much. Phil LeBeau, reporting tonight for us from Chicago.

Speaking of recalls, Honda recalling nearly 900,000 of its popular odyssey mini vans. These are models 2005 to 2010. A fuel pump cover can crack over time, increasing the risk of fire. The problem will be fixed over the summer once Honda dealers have the new part they need. Honda says it is not aware of any crashes, injuries or fires related to this problem.

GHARIB: A $10 billion telecom deal is where we begin tonight`s “Market Focus”.

Vodafone is buying Spain`s largest cable operator, Ono, as it tries to expand operations in Europe. Now, this move helps the British telecom company increase its broadband offerings and Vodafone will also gain nearly
2 million new customers in Spain. Shares rose more than 1 percent to $37.45.

Shares of Amgen (NASDAQ:AMGN) up on news that it`s cholesterol drug met study goals in a late stage trial. The company saying the treatment significantly cut bad LDL cholesterol levels among patients. The stock rose 1 percent to $123.86.

And Under Armour (NYSE:UA) shares jumped on news that its board approved the 2-for-1 stock split. This is the second stock split since the athletic gear maker went public back in 2005. The retailer CEO says he believes the move might broaden the stock`s investor base and that was certainly true today. Under Armour (NYSE:UA) rose about 2 percent to $119.67.

MATHISEN: Shares of Sears (NASDAQ:SHLD) higher on the news the retailers board OK the spin-off of Land`s End late Friday. The casual clothing retailer will begin trading on the NASDAQ in April under the ticker symbol LE. The stock rose almost 2 percent, Sears (NASDAQ:SHLD) that is, to $44.87.

Shares of VeriSign (NASDAQ:VRSN) plunge on concerns that its business may be hurt by a U.S. government plan to give up oversight of the Internet`s domain naming system. Because of that, Cowen and Company cut its rating on the Internet address manager to market perform from outperform, citing worries that VeriSign (NASDAQ:VRSN) won`t be able to renew some of its dot-com and dot-net contracts. The stock tumbled as a result, nearly 6 percent to $51.68.

Twitter`s CEO Dick Costolo is planning what`s being described as a personal trip to Shanghai, his first ever to China, where he will meet with students and government officials. The company declined to comment on what will be discussed with those officials. Twitter, as you may know, has been blocked by Chinese censors since 2009. Shares were up a fraction today to $52.05.

GHARIB: Here`s another Chinese company to tell you about, Alibaba.
It`s not a household name, but soon could be. The Chinese e-commerce company is one of the world`s biggest Internet players and plans to go public here in the U.S. in what could be the biggest initial public offering since Facebook (NASDAQ:FB).

So, what exactly does Alibaba do? And why are so many investors excited about it?

Josh Lipton explains.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s an IPO sparking a ton of buzz. Alibaba has started the process of filing for a U.S. IPO, ending months of speculation about where it would go public. The Chinese e-commerce giant runs Web sites where consumers and companies buy and sell goods with each other. Alibaba then makes money off advertising, which accounts for the bulk of its revenue.

Now, the company will make a public debut possibly one day bringing the business stateside and competing with well-known e-commerce giants.

YOUSSEF SQUALI, CANTOR FITZGERALD: Going public on the New York Stock Exchange or NASDAQ will be a great event for them. That could really help them be a very, very important force in the U.S. and in Europe, as well, competing with the likes of Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY).

LIPTON: Alibaba generated revenue of 2.3 billion in 2011, which then nearly doubled in 2012 and in its most recent quarter, revenue surged more than 50 percent year over year. Alibaba is profiting from a fast-growing Chinese e-commerce market which the company now dominates.

(on camera): Analysts at Raymond James peg Alibaba`s valuation at
$150 billion. That`s especially good news for Yahoo (NASDAQ:YHOO) which holds a 24 percent stake in Alibaba. After taxes analysts say that stake could be worth $25 billion.

(voice-over): Yahoo (NASDAQ:YHOO) stock soared nearly 80 percent in just the past 12 months. Investors are excited about the Alibaba IPO and are piling into Yahoo (NASDAQ:YHOO) to get a piece of the action.

After the Alibaba IPO, analysts say there will be pressure on Yahoo`s CEO Marissa Mayer.

SQUALI: Assuming that Alibaba goes public sometime in the third quarter, then by the end of the year, Yahoo (NASDAQ:YHOO) really needs to show a clear path to, you know, growth again and I`m talking about the Yahoo (NASDAQ:YHOO) operations not some of the parts if the market is to embrace the yahoo stock, and continue to buy it.

LIPTON: No IPO since Facebook (NASDAQ:FB) has created the kind of attention that Alibaba is now generating. Investors, bankers and analysts are all anxiously awaiting more details about its business.

(on camera): One thing is certain: the future of e-commerce, Chinese IPOs and Yahoo (NASDAQ:YHOO) will all look a lot different after Alibaba`s public debut.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


GHARIB: And coming up on the program, what the golf industry is doing to get back into the swing of things and prevent the cold, harsh winter from taking a bigger toll on business.


MATHISEN: Twenty-eight attorneys general are asking some major retailers to follow the lead of CVS (NYSE:CVS) and stop selling tobacco products. The officials sent letters to five of the country`s biggest retailers who stores include pharmacies, warning that selling tobacco products potentially undermines anti-smoking campaigns. But so far, none of the companies, Wal-Mart (NYSE:WMT), Walgreens, Rite-Aid, Safeway (NYSE:SWY), and Kroger (NYSE:KR), none of them have announced plans to follow CVS`s example.

GHARIB: U.S. home builders are slightly more confident this month, ahead of the spring selling season. A closely watched sentiment index rose thanks to a boost of new home sales in January to the fastest rate in more than five years, but builders are still concerned about a shortage of skill workers ready to build land and rising costs for materials.

MATHISEN: Senate lawmakers have released their first draft of bipartisan bill to eliminate Fannie Mae and Freddie Mac. Under the proposal, the mortgage giants would be replaced with a new government reinsurer called the Federal Mortgage Insurance Corporation. It would provide homeowners assistance only after private creditors take the first
10 percent loss. This new added entity would be financed with fees on lenders who want the government backstop.

GHARIB: And, finally, the official start of spring is this Thursday, but winter is not done yet. A storm blanketed the mid-Atlantic region today, dumping several inches of snow in the Washington, D.C. area, forcing federal offices to close, while ski resorts have benefitted from this long, hash winter, the opposite has been true for many of the nation`s golf courses.

Dominic Chu takes a look at how the golf industry is taking a swing at spring to make up for those winter woes.


DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The harsh winter and much of America has taken a toll on the game of golf.
According to the National Golf Foundation, golf courses across the country lose an estimated $50 million for each day that they remain closed for things like weather. That`s a real impact on a lot of local economies.

The golfing industry is looking to find ways to fight back against winter`s chilly grass.

(on camera): Golf equipment makers like TaylorMade are setting up these urban driving range venues to drum up interest in the game, and there is a good reason why. The golf equipment and apparel business is a $5 billion a year industry and they want golfers to start thinking a little less about winter and a little bit more about spring.

(voice-over): Celebrity golf instructor and former Tiger Woods coach, Hank Haney, is eager to get golfers back into the swing of things.

HANK HANEY, PROFESSIONAL GOLF INSTRUCTOR: I live in Texas, so it hasn`t been too bad. But obviously here in the Northeast, it hasn`t been too good. So, it kind of slows down the season. But one of our goals with TaylorMade is to hopefully kick-start the season here in New York.

CHU: Equipment and gear makers like TaylorMade, Callaway and others are hoping that the weather isn`t going to put a serious damper on sales.
There is a reason why the first part of the year is critical.
Manufacturers want to get their wares in the hands of golfers early so that they are champing at the bit to use them once the weather gets better.

The worry is that a longer winter will cause people to postpone their purchases a couple extra months or worse, postpone them until next year or indefinitely.

BENOIT VINCENT, TAYLORMADE ADIDAS CHIEF TECHNICAL OFFICER: When you extend the winter by a month, you reduce the sales almost by a month in the United States. So, it`s not exactly a ratio of 1-1. But in the toughest part of country when it`s the coldest, that`s what you find.

CHU: Now, the cold winter will eventually end, but will the golf industry be able to recover and save par or will 2014 land it in the rough?



MATHISEN: And from the greens to the day for the wearing of the green, eight out of 10 Americans are doing just that as they celebrate St.
Patrick`s Day.

The National Retail Federation says that translates into 133 million people who will feel Irish for today. The average American expected to spend $35 on today`s festivities, for a total of almost $5 billion, and that in anyway you measure is a lot of green.

GHARIB: A lot of parades today.

MATHISEN: A lot of parades today.

GHARIB: Your green tie, you`re very much in the spirit.

Happy St. Pat`s Day, everybody. That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, thanks for watching.

MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody.
We`ll 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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