Transcript: Thursday, March 27, 2014

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


What`s behind the big drop in shares of some of the biggest names in technology? And when will the bleeding stop?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Master plan. Microsoft`s CEO reveals the company`s first big product in years. Were investors excited? And will there be more to come?

MATHISEN: And know the risks. Why reverse mortgages designed to keep older adults in their homes are now closing a financial headache for some of their heirs.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, March 27th.

And good evening, everyone. I’m Tyler Mathisen.

HERERA: And I`m Sue Herera, filling in tonight for Susie Gharib.

Well, it was another down day on Wall Street, not by all that much, but the major averages did see losses. And the decline was driven by a selloff in technology companies.

But it wasn`t the small and mid-sized biotech companies we saw investors sour on last week, but now, we`re seeing a selloff in the big cap games like Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) and Netflix (NASDAQ:NFLX), all one-time darlings of Wall Street. After a choppy trading session, the Dow ended 4 points lower on the day, the tech heavy NASDAQ continued its slide, down 22, and the S&P ended lower by three.

Seema Mody has more on what`s behind the breakdown in these fast- growing tech stocks and where some of that money is going instead.


Investing in fast growth tech names has been a recipe for success. Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB) up triple digits in 2013, and Google
(NASDAQ:GOOG) up a 55 percent. But over the past one month, shares of these growth stocks have fallen sharply. Analysts say after the big run up in these games, valuation is becoming a concern. Plus, as the quarter comes to an end, traders are selling the winners.

DAVID SEABURG, COWEN GROUP: I think in general, you`re talking about the end of the quarter. Clients do not seem to be overly concerned about the movement that we`re seeing in different sectors. You`re seeing in technology, a clear rotation out of some of the high flying, you know, Internet names.

MODY: And that rotation into value-oriented tech names may already be happening. IBM, Cisco (NASDAQ:CSCO), Hewlett-Packard (NYSE:HPQ), Oracle
(NASDAQ:ORCL) all higher over the past one week. So far this year, Hewlett-Packard (NYSE:HPQ) is the big winner, up 14 percent, thanks to better than expected earnings.

(on camera): While it still remains to be seen on whether old tech is better than new tech, there`s one thing analysts agree on — old school tech names may be the new momentum trade.



MATHISEN: And joining us now to talk more about the technology sector is Skip Aylesworth. He`s portfolio manager with the Hennessy Technology Fund.

Skip, welcome. Good to have you with us.

What`s happening in technology?


MATHISEN: What`s happening?

AYLESWORTH: Well, I think this has all started we go back two or three weeks ago. The geopolitical crisis, kind of got people a little nervous, I believe. And so, the stocks that had run, the momentum stocks you just talked about, both I think in health care and technology, had become expensive. People decided to take some of the profits, take it off the table until the geopolitical issues of the world seem to settle down a bit.

So, fundamentally no real crisis. I think it`s just kind of a pause and regrouping here.

HERERA: So with this pause, Skip, would you put cash to work in tech?
And what sector of tech? The big names that have had kind of a rough patch for the last couple of days, or the newer technology stocks?

AYLESWORTH: Well, I believe technology has many sectors to it, many subsectors. I personally with the Hennessy Technology Fund, we believe certain parts are going to do well, and it`s going to be earnings and profit-driven. Those areas would be those health care technology and those that can improve productivity for corporations, individual companies, et cetera.

MATHISEN: We`re going to get to a story later this half hour on Microsoft (NASDAQ:MSFT), which came out with a new product carrying Office, its suite of software onto iPads. What do you think of Microsoft
(NASDAQ:MSFT) specifically, and its new CEO?

AYLESWORTH: Well, I think certainly he inherits a large successful company. The problem comes that it`s so large and so big and has been successful, how does he move the needle? That`s all a function of new products and new initiatives. And that will take time for those to kick in and move the needle on the revenue and profit side. Today is a start in that direction.

GHARIB: You mentioned technology that helps companies. You also, I see from my notes, like the cyber security area. Any picks in that particular area that jump out that you would add to the portfolio?

AYLESWORTH: Well, one in particular that we`ve acquired inn the fund is called CommVault. And that adds security overlays on Cloud-based storage and data management. We`re moving a lot of the data to the Cloud.
There are inherent risks on security. So, these companies that can help corporations deal with the security issues and protect their data, we`ve all seen the example of Target (NYSE:TGT) and other companies, is going to do well if they`re successful in their protective services.

MATTHEWS: All right. So, Skip, bottom line me here. Is what`s been going on basically some of the froth coming off the top or something more concerning than that?

AYLESWORTH: I believe it`s the froth coming off the top. Still, we need technology. It`s going to be in our lives. We all want the greatest and newest widget.

So, buy those companies. It`s a great opportunity to come into the sector. Those companies that you think will have profits and revenue growth.

MATHISEN: Skip Aylesworth, portfolio manager with the Hennessy Technology Fund, thanks for being with us.

AYLESWORTH: My pleasure.

HERERA: Tyler just mentioned Microsoft (NASDAQ:MSFT). Well, a coming out party of sorts today for the new CEO at Microsoft (NASDAQ:MSFT) who not only introduce add new suite of Office products for mobile devices but a whole new vision for the company.

Morgan Brennan has more.


Microsoft (NASDAQ:MSFT) entering a new era today as recently appointed CEO Satya Nadella made his first appearance in front of the media. The new chief who took the helm from Steve Ballmer 52 days ago unveiling a product that`s been long-awaited — Office for iPad.

SATYA NADELLA, MICROSOFT CEO: When it comes to Office 365, the vision is pretty straightforward. It is to make sure that the 1 billion Office users and growing can have access to the high fidelity Office experience on every device they love to use. And Office on the iPad in today`s announcement marks one more step in that direction.

BRENNAN: Office for iPad, which comes with a touch-screen version of Word, Excel and PowerPoint debuted in the App Store just as Microsoft
(NASDAQ:MSFT) was finishing its San Francisco event. Users will be able to download Office to their tablets to view documents and give presentations.
But only Office 365 subscribers will have full access and be able to edit that content.

(on camera): The shift to bring Microsoft`s most profitable business to the iPad represents a shift in company vision. From one centered closely around Windows to a fresh strategy more focused on mobile and the Cloud.

(voice-over): Even if that means bringing Microsoft (NASDAQ:MSFT) software to devices and operating systems by competitors like Apple

STEPHEN YACKTMAN, YACKTMAN ASSET MANAGEMENT SENIOR VP: We think that this is one of the things he has to offer is bringing new ideas to Microsoft (NASDAQ:MSFT) and helping break the culture that was more protective and is looking more towards opportunity in the future.

BRENNAN: Expect Microsoft (NASDAQ:MSFT) to roll out more new products and updates to older ones in the coming weeks in what Nadella is calling his innovation strategy.

But the question, of course, will be whether Microsoft (NASDAQ:MSFT) can deliver on these big ideas to catch up with competitors like Google
(NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) which are already firm leaders in Cloud and in mobile.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in San Francisco.


MATHISEN: And another set back to tell you about in housing. Pending home sales in February fell 0.8 percent, making eight months in a row of declines.

You guessed it. Cold weather, higher lending rates and a lack of available homes on the market get the blame this time for the latest drop.

Also today, Freddie Mac reporting that mortgage rates ticked a little bit higher last week, with 30-year fixed rate loans now going for 4.40 percent.

HERERA: Ty, some good news about economic growth and a fresh read on gross domestic product in the final quarter of last year. Shows the economy grew at a pace of 2.6 percent, 0.2 percent better than a reading from just one month ago.

And some positive news out of the labor market as well. The number of Americans filing new claims for unemployment benefits fell last week to a near four-month low.


MATHISEN: There could be more trouble ahead for General Motors (NYSE:GM). A federal judge in Texas will hear arguments next week on an emergency motion that would force the automaker to tell owners of more than
1 million cars with those faulty ignition switches not to drive the vehicles until the recalled cars are towed away and repaired. G.M. intends to provide evidence, it says, that the cars are safe to drive.

HERERA: Another tough day for Citigroup (NYSE:C). One day after the Federal Reserve rejected Citi`s plans to return money to shareholders, via stock buybacks and increased dividend, shares tumbled more than 5 percent.
CLSA analyst Mike Mayo slammed the bank for failing to correct a string of financial missteps since the financial crisis.


MIKE MAYO, CLSA RESEARCH ANALYST: Citigroup (NYSE:C) needs to change its CFO, bottom line. John Gerspach, the CFO, was the chief accounting officer going into the financial crisis where Citigroup (NYSE:C) had accounting mishaps. Two years ago, Citi was turned down for its capital plan by the Fed. That`s strike two. And then, yesterday being turned down again is strike three.


HERERA: Well, today`s slide in Citigroup (NYSE:C) shares was the biggest one-day loss since November of 2012.

MATHISEN: Wal-Mart (NYSE:WMT) is suing Visa (NYSE:V) for $5 billion, claiming it charges unreasonably high swipe fees on credit card purchases made by its customers. The suit was filed earlier this week. Visa
(NYSE:V) declined to comment, but the suit was not totally unexpected.
Wal-Mart (NYSE:WMT) is one of 35 retailers that opted out of a class action settlement with Visa (NYSE:V) and MasterCard (NYSE:MA) over these swipe fees.

And still ahead, health care, a milestone. The White House meets its latest goal of enrolling more than 6 million Americans in the exchanges.
What does it say about the law`s success or failure?


HERERA: New figures out today show that more than 6 million Americans have enrolled in a new health care plan through federal or state online marketplaces since October 1st. It comes just days ahead of a Monday deadline to sign up for a plan under the Affordable Care Act in time for coverage to begin in May.

John Harwood joins us now from Washington with more on today`s encouraging numbers which the White House says matches its latest target for enrollees.

So, John, you know, there was so much controversy over and the Web site. Is the number a surprise? It`s probably is a relief to the White House, certainly.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: A relief and a little bit of surprise, Sue. Just 10 days ago, the White House had said they`d hit 5 million. So the pace of enrollment has obviously been very rapid. And 6 million people enrolled was the target that Congressional Budget Office said was likely to be achieved after that difficult rollout, initially they`d said 7 million.

MATHISEN: I suspect, John, that this number in and of itself isn`t going to change anybody`s mind about whether this Affordable Care Act is a success or a failure. But what do you say?

HARWOOD: Well, no, it won`t change many minds. But it`s important for the potential health of the exchanges. If not all the information we need, though. The volume is good. The purpose of the exchanges is to spread risk among a broad group of people. But it`s really the mix of those people that`s most important to see whether it`s financially viable.

You need younger, healthier people who are less expensive to insure to offset the costs associated with older and sicker people. And we won`t know for some time what that mix of old and young is in the exchanges.

HERERA: Yes. You know, John, speak to what the expectation about where those numbers will eventually end up at the end of the enrollment period and how soon we might get a read on what those numbers look like.

HARWOOD: Well, Sue, at the pace that they`ve achieved the last 10 days, that suggests they could even get to 7 million which is what the CBO initially had said. Some of the unconventional marketing methods the president has done, like going on with Zach Galifianakis on “Between the Ferns” got a lot of criticism, but it appears to have sparked some response.

Now, as for when we`re going to know the final enrollment figures, that will probably come in a week or two. They`re extending the enrollment process for people who get in line by March 31st. But they say, officials tell me they`ll only do that for a few dates. It should be wrapped up within a week after the deadline.

MATHISEN: John Harwood reporting for us tonight from the nation`s capital.

After months of political and economic turmoil, some good news for Ukraine. Both the House and Senate today passed bills that offer Kiev a $1 billion loan and at least $150 million in immediate aid. That bill now heads to the president for his signature.

Meantime, the International Monetary Fund agreed to a two-year bailout plan for Ukraine today, making between $14 billion and $18 billion in loan guarantees available.

HERERA: The House is also poised to pass a bill that prevents reimbursement payment cuts to Medicare providers for another 12 months.
The one-year fix will avert a built-in 24 percent pay cut to doctors who treat elderly patients through the federal Medicare program. It was part of a 1997 budget law aimed at keeping a lid on exploding Medicare payments.

MATHISEN: Shares of some biotech companies have gotten hammered lately on concern by Washington lawmakers about the sky-high cost of some new medications. That is renewing the debate about why drugs cost so much here in the U.S., often much, much more than in other countries.

Sheila Dharmarajan has more.


over): Gilead`s Sovaldi is one of the most expensive drugs in the United State, costing $84,000 for a 12-month treatment.

But outside the United States, it`s another story. In Germany, Gilead has proposed a treatment price of $66,000. In United Kingdom, the company hopes to price the drug at approximately $57,000.

But in developing countries like Egypt, Sovaldi is just $900, approximately a 99 percent discount versus the U.S.

In other words, the drug companies charge what the market will bear in each country. Why is the U.S. market so much more expensive? It boils down to economics.

DAN MENDELSON, AVALERE HEALTH CEO: We have a private market for drugs in the United States. So, the pharmaceutical companies can charge a market price.

DHARMARAJAN (on camera): It is also the law. U.S. government is prohibited by law from negotiating drug prices. Medicaid gets an automatic
23 percent discounts on all list prices. Medicare can also negotiate discounts in rebates to lower the price. But it`s all off a list price which is set by the drugmaker.

That`s not how it works in other countries.

MENDELSON: Drug prices in Europe are determined by the health system.
They`re negotiated directly with the manufacturer. Whereas in the United States, the drug prices are determined competitively by the manufacturer and then offered into the health system.

DHARMARAJAN: For their part, drug companies say they need high prices to pay for the costly research and development behind these new super drugs. And also to cover all the other drugs that don`t make it to market.
While it`s Gilead and Sovaldi that`s currently in the hot seat, U.S. drug pricing is likely to come under more scrutiny. As for whether that means cheaper drugs for U.S. consumers, in the short term, analysts do not expect any major changes.

For NIGHTLY BUSINESS REPORT, I`m Sheila Dharmarajan.


HERERA: An earnings beat and some encouraging words from its CEO sent shares of Lululemon higher and that`s where we begin tonight`s “Market Focus”.

The yoga clothing maker`s chief pledged to speed up global expansion while avoiding missteps like last year`s embarrassing recall of see-through pants. Its forecast for the current quarter came in short of estimates, but investors ignored that guidance and instead pushed the shares up 6 percent to $51.20.

Shares of GameStop plunged on weaker than expected earnings. Its forecast for the year also missed as more games are sold online and because of increased competition from big retailers offering trades in for used games. The chain will reduce its footprint and close about 2 percent of its stores. The stock tumbled 4 percent to finish at $37.33.

But it was a different story for Winnebago. The motor homemaker`s second quarter profit surged 53 percent as sales and deliveries rose.
That`s topped the street`s forecast even though bad weather disrupted production. The stock was up 3 1/2 percent to $27.54.

MATHISEN: Shares of Alcoa (NYSE:AA) jumped after a favorable ruling from a United Kingdom high court. The ruling halted the London metal exchanges plans to cut the amount of time that the metal could be warehoused. This will help support aluminum prices. Shares surged to a 2 1/2-year high at Alcoa (NYSE:AA), up 6 percent this day alone to $12.59.

There is buzz that Amazon (NASDAQ:AMZN) will reveal a set-top cable or broadband box next Wednesday. The online retailer invited journalists to a New York City press event for an update on the company`s video business.
Despite the buzz, shares of Amazon (NASDAQ:AMZN) down about 1 1/2 percent to $338.47.

HERERA: Reverse mortgages are getting some buzz today. For senior citizens living on a fixed income, reverse mortgages have been appealing.
However, for their heirs inheriting that debt, it can be a nightmare. Some new rules are being put in place to safeguard those who are left holding that debt.

Let`s turn for an explanation from Paul Auslander for some answer for that.

Paul, welcome. You`re director of financial planning with Provise Management.

So, what are these new rules and what are they intended to do?

PAUL AUSLANDER, PROVISE MANAGEMENT: Well, as you correctly pointed out, it`s designed to protect the heirs from exactly what you describe.
Reverse mortgages suffer from that bad reputation that they suffered for years because that marketplace was a bit like the wild, wild west until
1989 when they came under HUD and FHA specifically guidelines in governance.

And so, over the years, those rules have developed into being a little bit easier for people to work with. If there`s a positive equity flow in the home after the residents pass away, the heirs sell the home, they pay off the mortgage and then they split the difference among themselves according to whatever estate planning was there. But if the house is under water, under those FHA rules, they are not subject to have to pay that difference back. And so, that protects them in that way.

And I might add, by the way, that reverse mortgages are really HECMs as we know them in the financial business — by their true name, Home Equity Conversion Mortgages — because that`s actually what they are.
They`re a conversion of a home equity into a mortgage for senior citizens to be able to access and use.

And so, it`s unfortunate that they have the reputation that they have because they`re a good instrument for certain families.

MATHISEN: But, Paul, there was a story in this morning`s “New York Times (NYSE:NYT)” which was a disturbing one about people who seemingly either do not understand what happens when the owner of the home, the mortgager or borrower dies, they either don`t understand it or it`s not being explained to them by the lender. And they are as a result being foreclosed upon.

What is it that they`re not understanding or not being told?

AUSLANDER: Well, I saw that story. And I`m as perplexed as you are.
The fact of the matter is, after 2008, most if not all HECMs are written by underwriters that are governed by FHA guidelines. In those guidelines, it specifically prohibits what was described in that article.

So I understand, and I was equally confused by it. But fact of the matter is, if you use a qualified mortgage broker that subscribes to those FHA guidelines, the heirs won`t be in the position described in that article.

HERERA: But you have to ask questions. In other words, if you were not the one who put in place the reverse mortgage, and you all of a sudden, you pass away, your heirs may not know the details of the reverse mortgage of the underwriter.

AUSLANDER: Well, you`re — you`re absolutely right. And to that point, full disclosure, full transparency is important. In and that case, an average 70-year-old for instance, I live in Florida and we see quite a few of these HECMs here in Florida. A 70-year-old might get 55 percent of the equity of their home to use. And when they pass away, the heirs have to then settle up that debt.

But there`s generally enough equity in the home to do so. When they went through the housing crash in 2008 and 2009 and people had HECMs written in the early 2000s, that turned some of those properties upside down. If it wasn`t an FHA mortgage, they had that problem.

MATHISEN: Very quickly, if my loan is greater than the value of my house, what happens? Very quickly?

AUSLANDER: If it`s an FHA loan, they aren`t responsible for that difference.

MATHISEN: That was quick.

HERERA: That was quick. And very insightful.

Paul, thank you very much. Appreciate your being with us tonight.

AUSLANDER: My pleasure. Thanks for having me.

HERERA: All right. Coming up, a few good men — how veterans can sell their leadership skills to land jobs at some of the country`s biggest employers.


MATHISEN: More than a million military veterans are currently unemployed. The Hiring Our Heroes initiative aims to fix that. The program connects private sector employers with military veterans and their spouses through resume` banks and job fairs like the one held in New York City today.

Mary Thompson was there.


This is military recruiting of a different type. Here, 150 companies look to tap into a deep pool of talent coming from our nation`s military — talent like veteran Joshua Chrasman.

JOSHUA CHRASMAN, VETERAN: I`ve managed a warehouse with the military.
I`ve managed $520 million worth of equipment. I can run your loading dock, or I can run logistics department or at least come up under somebody who does.

DON ESMOND, TOYOTA SENIOR ADVISOR: They`ve been trained. They`re very trainable.

THOMPSON: Don Esmond advises Toyota (NYSE:TM) and other firms about hiring veterans through a program called Hiring Our Heroes.

ESMOND: There`s a lot of employers, oh, yes, we`d love to hire a vet but we have no security guard positions open. What they fail to realize is the leadership skills, the problem-solving skills that these young men and women have. So, we`re starting to marry those two.

THOMPSON: Along with educating employers on what a veteran brings to the job, Capital One`s Ben Lamm says the program helps veterans sell their skills to the private sector.

BERN LAMM, CAPITAL ONE: It`s not about I was an infantryman or I worked on a ship. It`s I led teams.

THOMPSON: Hiring Our Heroes provides classes on interviewing and resume writing and then puts veterans face-to-face with the companies looking for their skills.

(on camera): This is one of over 680 job fairs that Hiring Our Heroes has sponsored over the last few years. The result? More than 21,000 veterans have found jobs at fairs like this one.

(voice-over): Job fairs are only part of the strategy, though.
Capital One and the Chamber of Commerce launched an initiative in 2012 with the aim of getting companies to hire half a million veterans by 2015.
While the Hiring Our Heroes resume` engine translates veterans experience into terms the private sector will understand.

ESMOND: The good news is it`s not cost the veteran a nickel. It doesn`t cost the employer a nickel.

THOMPSON: Stored at open database, these resumes can be sorted by skill or zip code. That makes it easy for employers to find what they`re looking for and provides veterans with another way to find a job.

In New York City, I`m Mary Thompson for NIGHTLY BUSINESS REPORT.


HERERA: Such a good story.

Finally tonight, something sweet is happening in Kansas. With Americans having a seemingly bottomless appetite for Snickers bars and M&M`s, the Mars Company unwrapped a brand-new $270 million plant in Topeka today which will bring 200 jobs to the area. It`s the first new plant that Mars has put in North America in 35 years. And at full capacity, it will produce some 39 million M&M`s every single day, contributing to the nearly
$20 billion U.S. chocolate industry.

MATHISEN: You know, I insist on having the blue ones removed.

HERERA: Do you?

MATHISEN: Yes, absolutely.

HERERA: I didn`t know that.

Well, that`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for joining us.

MATHISEN: 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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