Transcript: Tuesday, June 10, 2014

SUSIE GHARIB, NBR ThumNIGHTLY BUSINESS REPORT ANCHOR: Slow grind. Why the stock market’s gradual move higher could be a good thing for investors.

Shareholders meet, and protesters rally in an effort to keep the pressure on the executives at General Motors (NYSE:GM).

And, money pit? Why some Florida condo owners could be forced to sell their homes and lose everything in the process.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June 10th.

Good evening, everyone. Tyler is off tonight.

Call it the tortoise rally, the Dow crawled to a new high. Its fourth record in as many days, and it’s reaching the milestones at a painstakingly slow pace. Today, it rose by a mere 2.5 points, the S&P 500 took a breather after four straight days of historic closing highs and slipped by a fraction.

The blue chip Dow average is just points away from a new milestone of 17,000. And S&P 2,000 is also pretty close.

The NASDAQ adding nearly two points, but these puny gains and losses are a far cry from the summer tradition of dramatic rallies.

Our guest tonight says the slow grind higher in stocks is actually a good thing.

He’s Jim Paulsen, chief investment strategist at Wells Capital Management.

So, Jim, tell us why that slow and steady like a tortoise is actually a good thing for the market.

JIM PAULSEN, WELLS CAPITAL MANAGEMENT: Well, I think, Susie, that it doesn’t — as long as it goes up slowly, it doesn’t bring out the worst investment behaviors. I think if it starts to run, people panic. They start to chase it. They start making decisions too quickly and too aggressively to not miss out.

And I think in a slower moving market, it lends itself to greater rationality which makes the market more self-sustaining. So far, that’s kind of what we’ve got and I think — I think it probably has further to go. We’re probably going to see a little bit of the irrational movements before this thing finally does correct.

GHARIB: But what’s really holding back investors? I mean, what is worrying them? We know that earnings are doing better. We know that the Federal Reserve is going to keep pumping money into this market, keeping interest rates low.

Why are they holding back?

PAULSEN: Well, I think, you know, there is a great legacy of the ’08 crisis, Susie, that just hangs on the investment mindsets, I think that has really been long lasting, longer than past recessions, where there is still a great memory that boy — of how bad that was going through that. And people are still hesitant even though this market continues to go up. And actually that might be a good thing. Like I say that keeps people on their best behavior and that is the type of thing that keeps this going.

I think in addition to that people worry about, what was it with bond yields falling recently? What does that suggest? Is there panic in the European Union, that they have to come out aggressively even more. Does that mean that Europe is in trouble again? Is China bottoming out or not?

There are still plenty of issues to worry about, but I think — I think for most investors, if most are still worried, that’s a good sign.

GHARIB: You know, as we make these small advances towards new milestones, what stocks are going to lead the way? I mean, so far we have seen some not so exciting sectors like utilities being the big performers. Are we going to see more of that? Or who is going to lead the way?

PAULSEN: Well, I’ve been thinking we can get up around this 2,000 area since year end, but I also think we’ll have a difficult second half, Susie. I think bond rates are going to climb here in the second half of the year, above 3 percent towards 3.5 percent, maybe giving some difficulty for stocks as well.

So, one thing I do, I don’t want to go to bonds heavily. But within the stock market, I think I would sort of diversify between a couple more cyclical economic sensitive sectors, and a couple of defensive sectors. So, on the cyclical side, I still really like technology, I think we’re at the front end of the capital spending cycle which is just beginning going to benefit that.

I like materials because I think as the year continues to progress, we’re going to see more inflation evidence and that’s an inflation hedge.

On the defensive side, if stocks start to stumble a little bit, I do like the utility stocks and I like the consumer staples for the defensive, sort of Steady Eddy character that those possess. Right now, it may not be super attractive, but if the market starts to get more volatile, they will become more attractive.

GHARIB: Real quickly because we have half a minute, what about bonds? A number of market pros have been saying for sometime now, stay away from treasuries. Where do you stand on that?

PAULSEN: I would be —

GHARIB: A few words.

PAULSEN: Yes, I would be under way. I think the big damage coming here over the rest of this year in the next couple of years is going to be in bonds. I really think the ten-year treasury might reach 3.5 percent or more before the year is out. So, I would definitely stay under weight.

GHARIB: All right. Jim, thank you so much coming. Always a pleasure talking with you.

PAULSEN: You bet.

GHARIB: Jim Paulsen, from Wells Capital Management.

And a big management change at insurance giant AIG late this afternoon. Robert Benmosche is out as president and CEO. Starting September 1st, Peter Hancock takes on both jobs. Right now, he is an executive vice president at AIG. Benmosche is expected to resign from AIG’s board in September, but he will stay on in an advisory role. Benmosche is credited with steering the company through the financial crisis and paying back all of the $182 billion in bailout loans received from the U.S. Treasury.

In Detroit today, two very different agendas of the General Motors (NYSE:GM) annual meeting. Inside the meeting room at G.M.’s headquarters, shareholders were asked to vote about approving new directors and incentive plans for top executives. But outside, protesters were demanding G.M. executives be held accountable for defective ignition switches linked to at least 13 deaths and the recalls of millions of cars.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Less than a week after General Motors (NYSE:GM) CEO Mary Barra announced the results of an internal investigation into the faulty ignition switches that led to the recall of 2.6 million vehicles, General Motors (NYSE:GM) held its annual shareholder meeting here at its headquarters in Detroit, Michigan.

And it was a relatively uneventful meeting. There was no update in terms of the recall investigation. And G.M. CEO Mary Barra says they’re still in the process of figuring out a victim compensation program that’s being developed by attorney Ken Feinberg. She also said that she’s had the chance since releasing the results of that internal investigation to talk with employees at General Motors (NYSE:GM) about changing the corporate culture at G.M. She is optimistic that they’re on the way to doing that.

MARY BARRA, GENERAL MOTORS CEO: Our message is being clear. This really is, as I said two clear things we need to do as we come out of this, do the right thing for those who are harmed and do everything within — and I’m committing, along with the leadership team in our power to make sure we create the right organization, the right processes, support the employees, that this never, ever happens again.

LEBEAU: While the annual meeting was going on, a small group of people were protesting in front of G.M. headquarters, much as they were Monday afternoon. That group included the parents of two women who were killed in recall G.M. models. One of those parents told me he believes G.M. CEO Mary Barra is sincere when she says she wants to change the company.

KEN RIMER, FATHER OF GM IGNITION SWITCH VICTIM: I got a chance to meet Mary personally when she was doing her meeting with the congressional hearings out in Washington. It appears that she is trying to make things happen, which is good. It is good for all purposes, whether it is you know, to make sure that the cars are safer on the road. But we have to make sure that things like this don’t happen to someone else.

LEBEAU: The annual meeting had little impact on the shares of General Motors (NYSE:GM) which by the way are down about 10 percent this year.

At the G.M. annual meeting in Detroit, Michigan, Phil LeBeau, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GHARIB: Two encouraging reports today about the job market. First, small business owners are feeling optimistic. The latest survey by the National Federation of Independent Business shows that as of last month, more owners are hiring new employees and paying them higher wages, more see their businesses improving and more are raising prices.

Also, big American businesses are looking to hire new workers. The Labor Department reports that the number of advertised job openings soared to a 4.5 million in April. It’s the most in about seven years, 4.7 Americans were hired at new jobs that same month, still below the 5 million a month level seen before the recession.

New worries about another group of Chinese military hackers attacking U.S. and European aerospace and satellite networks. The group is known as Putter Panda. Experts believe it’s been stealing corporate trade secrets since at least 2007.

Eamon Javers joins us from Washington with more on all of this.

So, Eamon, tell us a little bit more about this group of hackers. What do you know about them? Who are they targeting? And why are they doing this?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Susie, this comes from the private consulting CrowdStrike. And they’ve taken a look at the Chinese military and trace a lot of these attacks back to previously unreported unit of the People’s Liberation Army called Unit (NYSE:UNT) 61486, is the designation officially in the Chinese military for this unit, which operates out of Shanghai.

And what CrowdStrike says is this unit is designed and set up entirely to go out and steal, and otherwise trick executives at high-powered U.S. space and defense consulting firms, and those in Europe, to give away their secrets, and in that way, to increase China’s economic edge over the United States. And what the idea is here, the CrowdStrike is going through and giving us new detail about how this unit operates including tracing down some of the individual members of the Chinese military they say are part of the unit and actually pulling some of their social media posts down.

So, in this report, you’ve got actual pictures of some of these Chinese soldiers at their own birthdays and things. And CrowdStrike is saying these are the guys who are responsible for this particular strike.

GHARIB: You know, we have been talking about cyber issues out of China for quite a while and a lot of hacking. How does the U.S. handling these issues? What does it want to happen next?

JAVERS: Well, it seems that the U.S. side is doing with this report is sort of a brush-back pitch at the Chinese hackers, saying, hey, we know who you are and we know exactly who you are and even what you were doing at your birthday party, so knock it off.

And the question is, is that going to be effective or not?

GHARIB: And what do the Chinese say about this?

JAVERS: Well, they have for years denied any responsibility for this, any participation in it. They’ve said that if anything, it’s the U.S. that’s guilty of cyber espionage here, and in response to some indictment last month from the U.S. Department of Justice, the Chinese said that those allegations of the Chinese hacking by the military were totally fabricated.

So, they denied this top to bottom so far.

GHARIB: Yes, same old story on that one.

Thank you so much, Eamon. Eamon Javers, reporting from Washington.

JAVERS: You bet.

GHARIB: And still ahead on the program — JetBlue, the airline that was built on the idea that all passengers are treated equally is launching a premium service capping. Will the change pay off?

(MUSIC)

GHARIB: Some positive news today for home owners at risk of losing their homes. RealtyTrac reports that foreclosures fell again in May, dropping to the lowest level in eight years. Foreclosure notices, scheduled auctions and bank repossessions were down 26 percent from a year ago.

But it’s a different story for a group of condo owners in Florida. A judge ruled that he’ll hear what could be a landmark real estate case in the Sunshine State. Investors of one condominium unit are claiming they can force condo owners to sell their homes at a lost. But those owners say their homes are literally being stolen from them.

Diana Olick has the story from Tampa.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): These Florida Condo owners are current on their mortgages, current on their condo fees but they could still lose their homes.

STEPHANIE KRASOWSKI, CONDO OWNER: I never ever contemplated that somebody could come in and just take it from me.

OLICK: Stephanie Krasowski bought her condo at just the wrong moment, when Florida home prices were about to come crashing down. She put 20 percent down on a $163,000 unit. Now, she claims investors are forcing her to sell for just $50,000, as they convert this condo complex into rental apartments.

KRASOWSKI: The termination process that’s going on here is just for the financial gain of (INAUDIBLE)

OLICK: That’s why Jackie and the remaining owners are suing, most of them bought at the height of the boom just before the Tampa homeowners lost half of their values. Many of the owners are under water on their mortgages.

JACKIE SCHAFER, CONDO OWNER: Yes, I made a terrible financial decision to buy in at the time that I did. But I did it. I’m a big girl and I’ve dealt with that. I continued to pay my bills.

UNIDENTIFIED MALE: The facts alleged are sufficient to state the claims.

OLICK: At issue is a new Florida law that says that if 80 percent of owners could agree to sell the condo, the others could be forced to sell. The law adds that 10 percent oppose, they can block the sell.

But the investors here who now own 80 percent of the unit say the bylaws of the condo override that. The investors declined request for an interview but issued a statement, saying, “The steps we are taking at Madison Oaks will add value to the property, provide desirable rental homes for the market, and improve the neighborhood while adding to the county’s tax base.”

SCHAFER: They don’t care. To them, it’s business, and to us, I mean, it’s like — it’s everything.

OLICK (on camera): The owners here at Madison Oaks are not alone. There are cases like this all over the state as the investors seek to profit from strong rental demand.

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

(END VIDEOTAPE)

GHARIB: For more on what these condo owners are up against, go to our Web site, NBR.com.

A milestone today for drone technology. For the first time ever, the Federal Aviation Commission has approved the use of unmanned drones flying over land to perform routine commercial services. The agency gave the OK to California-based drone maker AeroVironment (NASDAQ:AVAV) and to oil giant BP, which plans to use the drones to survey pipelines and roads and equipment at energy facilities in Alaska.

The United Airlines is changing the terms of its frequent flier program, rewarding people who fly more and spend money on tickets. Starting next March, the elite membership of United’s mileage-plus program will earn up to 11 miles for every dollar they spend on tickets. Travelers who fly less than 25,000 miles a year will earn only five miles per dollar spent.

Well, if you’re an elite flyer or would like to be, you might want to check out the new upscale service offered by JetBlue. They call it Mint. It’s a new business class cabin offered on higher priced cross-country flights.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): JetBlue is rolling out Mint, its premium services on flight between New York and Los Angeles starting this weekend. It’s the first time the airline has ever offered a second tier of service, having built an egalitarian brand around one cabin with extra space for fee.

The move represents a significant shift in strategy for JetBlue, as it looks to attract the industry’s highly valued trans-continental corporate travelers.

JAMIE PERRY, JETBLUE DIRECTOR OF PRODUCT DEVELOPMENT: We picked these markets because they are the biggest markets in the country for the premium up products such as the Mint experience. But also, we feel the products are extremely high and the products are relatively average right now. So, we felt there was a great opportunity for JetBlue to come in and do what it does best, which is to over-serve the underserved — giving a better product at a lower price point.

BRENNAN: One way tickets for Mint will range from $599 to $999, still less expensive than bigger competitors like Delta and United. Mint cabins will have 16 lie flat seats, including four suites with doors that offer massages at the push of a button. There will be gourmet tapas style meals and passengers have access to free in-flight Wi-Fi.

Analysts think Mint will shake up business travel. But prices may need to rise for JetBlue to see a return.

JOSEPH DENARDI, STIFEL: JetBlue is going to struggle to some extent to take away from the corporate traveler who is loyal from a frequent flier perspective, to Delta or United. I think that’s going to be a challenge for them. But again, I think at this price point, it’s going to be very successful from a bookings perspective. I just question, you know, the return that they’re able to generate at $599.

BRENNAN: But the carrier says its new premium service is only part of a larger redesign initiative, one that could maximize returns without sacrificing its core business.

(on camera): The key to JetBlue’s success lies in its new plane, the Airbus A321. They’re 23 feet longer and can fit up to 40 more passengers than the biggest plane in JetBlue’s existing fleet. And they cost the same amount to fly. That means higher margins and bigger profit.

(voice-over): So, even if Mint doesn’t take off, the streamlined seats and improved capacity in JetBlue’s core seating section could still power profits as long as customers continue to buy those seats.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan at New York’s John F. Kennedy Airport.

(END VIDEOTAPE)

GHARIB: Nasty results from RadioShack sent its shares tumbling, and that’s where we begin tonight’s “Market Focus”.

It reported its ninth straight quarterly loss. The electronics retailer is burning through cash as it tries to turn around its business. But so far, those efforts aren’t working. It blames the bigger loss on the weakness in its mobile and consumer electronics business. The stock plunged more than 10 percent to $1.38.

Chico’s is exploring the sale to a private equity firm. According to reports, the women’s retailer has been in talks with suitors, which could lead to one of the largest take private transactions so far this year. Reacting to the takeover buzz, shares rose 7.5 percent to $16.53.

Meanwhile, in another takeover saga, Botox-maker Allergan (NYSE:AGN) rejected the latest offer from Valeant Pharmaceuticals. The company said the sweeten $53 billion bid significantly undervalues its prospects for growth and it creates risks for Allergan (NYSE:AGN) shareholders.

Shares of both companies fell by a fraction. Allergan (NYSE:AGN) at $163.09, and Valeant at $125.55.

MetLife (NYSE:MET) announced its first share back program since 2008. The nation’s largest life insurers by assets will buy up to $1 billion. Shares rose a fraction to $55 and change.

And shares of Keurig Green Mountain rose on news that the company is teaming up with Subway. The company’s single serve coffee brewers will be available at Subway locations. The stock was up 1 percent to $115.38.

Well, advances in technology has changed just about everything we do, including the way banks and other financial firms keep your money and investments safe. And some of the latest tech advances were on display on today’s start at the Exponential Finance Conference in New York City.

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The Exponential Finance Conference gathered some of the leading thinkers in disruptive technologies, 3D printing, big data, artificial intelligence, genomics, and robotics.

The message? Big changes are coming.

DANIEL KRAFT, SINGULARITY UNIVERSITY MEDICINE & NEUROSCIENCE CHAIR: I think that folks need to think about how technology is getting faster, cheaper, smaller, often better, and not only one technology, not just mobile phones and big data and 3D printing. It’s that where they come together, this convergence, when you match these things up, and can layer them together in a powerful ways, that’s where new innovation, new technologies, new companies are coming together and are really shifting the landscape.

PISANI: IBM’s Michael Rhodin briefed attendees on how their Watson artificial intelligence system famous for defeating two “Jeopardy” champions is now branching out into medicine and finance.

You’ll see Watson apps for almost any kind of information soon.

MIKE RHODIN, IBM WATSON GROUP SENIOR VICE PRESIDENT: The simple phrase I use is democratization of best practice. So, imagine the best professional you can think of, the best interviewer, the best writer, the best lawyer, shopping assistant. The best call center person. If you can capture that intelligence in a system, you can now scale it and augment it. So that it can get out to the masses.

PISANI: Stanford University’s Daniel Nadler described the development of a virtual digital assistant for personal finance, a kind of Siri that can answer any type of financial questions. The implications, the advice business is about to be out-sourced to computers. The change is happening so rapidly that the conference organizer warned that most companies are not prepared for these kinds of disruptions.

UNIDENTIFIED MALE: In the next decade, 40 percent of today’s Fortune 500 companies will no longer exist. So the question you have to ask yourself is, you know, are the companies that you’re investing, on what side of the fence are they?

PISANI (on camera): This technology is moving so fast that I don’t even have to attend these meetings anymore. I can just send it by beams with a robot that will attend the meetings in place of me, while I just sit and watch the proceedings from somewhere else.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the Lincoln Center. No, really, I am at the Lincoln Center. I really am at this meeting. No, really. True.

(END VIDEOTAPE)

GHARIB: Yes, he was.

And coming up employee perks you will never guess what start-ups at Silicon Valley are offering to attract the top talent. That story is next.

(COMMERCIAL BREAK)

GHARIB: The future of the Internet will be video. Well, that’s what Cisco (NASDAQ:CSCO) is predicting, the computer networking giant says that by 2018, videos will account for a staggering 84 percent of all Internet traffic. That figure includes paid TV services, online content survivors like Netflix (NASDAQ:NFLX) or Hulu and Internet sites like YouTube.

Well, it was just a few years ago companies like Netflix (NASDAQ:NFLX) and Hulu were start-ups, struggling with revenue and fighting to attract new employees, often with perks they couldn’t find anywhere else. And as those companies kept growing, so did the perks.

Josh Lipton takes a look at the most popular benefits some Silicon Valley companies are offering right now.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Keep it close to your chest, OK? Decline for a squat to over head press.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): One popular perk? Free workouts. Gym memberships can be expensive so start-ups bring fitness into the office. At Nerdwallet, a personal finance startup, a boot camp trainer comes to the office —

UNIDENTIFIED FEMALE: There you go.

LIPTON: And gives their 80 employees a free hour-long workout. Nerdwallet’s executives say they want to create an atmosphere where employees want to come to work.

TIM CHEN, NERDWALLET CEO: I think boot camp actually does more for team bonding than even happy hour. We end up interacting with people from across the company that we don’t normally see on a daily basis. And there is something just very cool about doing push-ups or struggling through a set of kettle bells.

LIPTON: Start-ups also note that mental health is as important as physical health. Zozi.com is an online service that connects users with local activities and adventures. Its employees taking part in roof-top yoga sessions, an activity that Zozi’s cofounder says speaks to his company’s mission, getting people out of the office and experiencing the world around them.

DANIEL GRUNEBERG, ZOZI.COM CO-FOUNDER AND CEO: Running the largest company doing activity bookings is a really exciting task. But it is also a really big task. So, offering something like roof top yoga is a way for our team to take a break in the middle of the day, recharge, be healthy and then be able to go and continue to grow the company together.

LIPTON: Start-ups in the Bay Area also offer perks for getting to and from work. If you work at Evernote, the popular note-taking app, and you buy an electric vehicle, the company pays you $250 per month, which is a taxable benefit. In California, if you own an electric car, then you can drive on the car pool lane at all hours. That means those Evernote employees get to work a lot faster and probably arrive in a much better mood.

Recruiters say these kinds of perks help start-ups attract talent. But there is another motive. When CEOs offer free workouts, food and subsidized transportation, it’s one more way to ensure that their workers stay longer at the office.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

GHARIB: To read more about the perks at some Silicon Valley start-ups are offering, go to our Web site, NBR.com.

And, finally tonight, Ford Motors is taking environmentally friendly auto production to a whole new level. It’s teaming up with ketchup giant Heinz, which is owned by Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A). It wants to use dried tomato skins to make car parts.

It sounds hard to imagine, but the plan is to use tomato skins inside plastics like coin holders, wiring brackets, and under-body shields, hoping that the recycled waste products will lower cost and reduce the weight of the vehicles. And Ford says, in the future, it could also use coconuts, rice and even dandelion boots.

That’s NIGHTLY BUSINESS REPORT for us. I’m Susie Gharib. Have a great evening, everyone. And Tyler is back tomorrow. We both hope to see you then.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. 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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