Transcript: Wednesday, June 18, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Strong finish. Stocks sore into record territory after Federal Reserve Chair Janet Yellen makes it clear she’s not inclined to tighten policy early.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Delivering results. FedEx (NYSE:FDX) says business is good and getting better, sending shares to an all time high. But there is one wild card that could change everything.

MATHISEN: Under oath. General Motors (NYSE:GM) CEO back on Capitol Hill, filling some pointed questions about the biggest safety crisis in the company’s history.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, June 18th.

GHARIB: Good evening, everyone.

Investors saying a big thank you to Janet Yellen. The Federal Reserve chair said policy makers will most likely keep interest rates right where they are now near zero through the end of this year. Wrapping up a two-day policy meeting and speaking at a news conference in Washington, Yellen also reassured investors that the U.S. economy is doing well enough for the Fed to make further cuts to stimulus program, but it’s not strong enough to seek consistent growth without the central bank’s help.

Investors loved hearing that, and stocks took off. The S&P 500 index closed at a new record high of $19.57, the Dow, which was in the red before the Fed announcement at 2:00 p.m. Eastern Time shot up almost 100 points and the NASDAQ rose to 25 points.

Steve Liesman was at that news conference and has more on what Yellen said and what it means for the economy.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Was it an upgrade or a downgrade? For the Fed today and the U.S. economy, it was actually a bit of both. The Federal Reserve upgraded the U.S. economy in its statement today, saying it was rebounding from the severe winter weather swoon. At the same time because of the economy’s contraction, in the first quarter, much stronger than expected, the Fed had to downgrade its forecast for the full year, by 7/10 of a percentage point to 2.2 percent.

Still, Fed Chair Janet Yellen said she saw gathering strength in the economy.

JANET YELLEN, FEDERAL RESERVE CHAIR: I think there are many good reasons why we should see a period of sustained growth in excess of the economy’s potential. We have a highly accommodative policy, we have diminishing fiscal drag, we have using credit conditions. We have households who are becoming more comfortable with their debt levels. We have raising home prices and rising equity prices and an improving global economy, at least in high estimation, too.

So, I think all of those things ought to be working to produce above train growth and over a number of years which admittedly growth has come in at a disappointing level, we’ve still seen the labor market broadly improve, and I expect that to continue.

LIESMAN: At the same time, Yellen signaled that she was not worried about recent levels of higher inflation. She indicated it would not be an immediate factor for the Fed to hike interest rates any time soon.

YELLEN: The recent evidence we have seen obstructing from the noise suggests that we are moving back gradually over time to our 2 percent objective, and I see things roughly in line with where we expected inflation to be. I think if you look at the SEP projections that were submitted this time, you see very little change in inflation projections of the committee.

LIESMAN: The market liked what it heard, a little bit better growth. The Fed gradually reducing the stimulus in the economy through tapering bond purchases and still on track to raise interest rates but not until next year and then only gradually.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: And David Kelly joins us to talk more about the Fed.

David, welcome.

Stock investors seem to see what Janet Yellen said today and did today as green light. Did you see it that way?

DAVID KELLY, J.P. MORGAN: Yes, I think it was a generally positive report on the economy and I think it’s correct, the economy is picking up through the second quarter of the year and I think will pick up, there is a chance it will grow above trend pace over the next two years. What I thought was interesting, though, is the long-term interest rates actually came down today and I do think the bond market is a little bit complacent here.

I mean, the Fed, although, you know, changes the forecast, it didn’t change much what it’s doing in the short term but it did say, you know, the individual members said they thought short-term interest rates would be higher at the end of 2015 and 2016 than they thought before, and ought to push long-term interest rates up and it didn’t.

So, I think there is something of a bubble in the bond market at this stage. I don’t think it’s a huge bubble, but there is a bubble there. And I think interest rates are too low given the outlook for the economy.

GHARIB: David, I want to follow what you said at the beginning of your answer to Tyler’s question, this is a positive for the markets, OK, good for investors.

But what is going on in the economy and what Janet Yellen said, if you’re an American out of work and if you’re someone who has a job but your paycheck isn’t growing much or you’re somebody trying to sale your house. What does all of her comments and her forecast means for those people?

KELLY: Well, I think the story in the economy is actually getting better on all those fronts. What we’re seeing, not so much the economy strengthening but the labor market is tightening. The unemployment rate, the last time we put our forecast a few months ago has come down to another 4/10 of a percent to a now 6.3 percent. The Federal Reserve regards 5.4 percent or 5.3 percent is roughly full employment. So, we’re within 1 percent of that.

And as unemployment comes down, that’s helping some people with long-term unemployed, we’re seeing a decline in that, and it’s also beginning to push up wages. So, we’ve seen real wage growth, that’s good.

And also, when it comes to home prices, because we’re not building enough homes and the mortgage rate is still relatively low and the economy is expanding, home prices continue to go up. So, this stuff is improving. It doesn’t improve any faster because of what Janet Yellen said today, but it is definitely on the mend.

MATHISEN: David, what would you have like to have heard or seen today from the Fed that you didn’t? And how do you grade the Yellen Fed so far? Admittedly, it’s a short stint.

KELLY: Yes, I would like to see a more determination to bring interest rates back to a normal level over the next few years. I think all this quantitative easing and very low interest rate environment is a double edged sword. It has helped push up asset prices, you know, I think it threatens inflation but it isn’t really building the productive capacity of the economy.

And what I’d like to see is a normalization of interest rates more rapidly, which I think can get people back to more normal investing because this is still a very extraordinary policy for an economy that clearly is on a mend.

GHARIB: So, you know, everybody always talks about interest rates, what is the timeline end of this year, next year, the year after. But what about where interest rates are going to be? What is the number? Are you — what are you expecting 4 percent, 5 percent, 6 percent higher? Can you put a number on it?

KELLY: Yes. I think by the end of this year, on a 10-year treasury bond will be between 3 percent and 3.5 percent. By the end of next year, closer to 4 percent. I do think interest rates will go up

But one of the other things in this statements today is they have pushed down their long-term estimate and that really in the long run, the American economy is going to grow a little bit solid that they thought, that does actually implied that long-term interest rates in the end won’t be quite as high as we thought before.

MATHISEN: All right. David, thank you very much for being with us this evening. David Kelly is with J.P. Morgan Funds.

GHARIB: One big American company seeing a pick up in business and doing well in this economy, Federal Express (NYSE:EXPR). Shares shot up to 6 percent, to an all-time high, after the company reported quarterly profits that more than doubled, mostly thanks to a boost in online shopping and shipping.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): FedEx (NYSE:FDX) revenues are up for all segments, but shipments by freight and ground grew the most, powered largely by online shopping.

CHRISTIAN WETHERBEE, CITI RESEARCH: We’re seeing growth on the e-commerce side, so a lot of business coming from Amazon (NASDAQ:AMZN) and other players on the e-commerce side that’s definitely driving the domestic side of the business, and it seems like the international side is picking up as the economy globally is gaining a little bit of steam going forward.

BRENNAN: FedEx (NYSE:FDX) thinks business will be even better in fiscal 2015. Shipping volumes are increasing as the economy continues to improve and consumers spend more.

And starting in January, right after the holidays, it’s introducing a new price plan for ground packages, charging according to box size and not just weight. Yesterday, competitor UPS announced a similar plan, and this was a hot top pick on the earning’s call. Analysts say the new pricing structure will drive revenue and increase margins for FedEx (NYSE:FDX).

WETHERBEE: The company has instituted a dimensional weight pricing scheme, which is basically incentivizing shippers to use smaller boxes when they’re shipping things, because they will get charged if it’s a small item in a fairly big box. So, as they get shippers to reduce the size of those boxes, they will get more space in their trucks and their planes, and I think ultimately that’s good for everyone.

BRENNAN: In other words, FedEx (NYSE:FDX) could actually see the best return not from higher prices but from helping customers like Amazon (NASDAQ:AMZN) and other e-commerce sites, package shipments more efficiently. But there is one wild card ahead for FedEx (NYSE:FDX), fuel prices. FedEx (NYSE:FDX) bullish 2015 outlook doesn’t take that into account, despite the fact recent events in Iraq had pushed the price of crude oil higher.

DAVID ROSS: Fuel is uncertain. The company assumes flat fuel year over year. We can’t predict where the fuel prices are going to go. Spiking prices would be a head wind.

BRENNAN (on camera): Even so, investors were cheered by the numbers, sending shares of FedEx (NYSE:FDX) to an all-time high earlier today.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Switching to the crisis in Iraq where Sunni Muslim insurgents are battling with Iraqi government forces for control of a major oil refinery. With oil facilities now the target of militia groups, ExxonMobil (NYSE:XOM) has reportedly carried out what it called a major evacuation of its workers from Iraq, while British oil giant BP evacuated about 1/5 of its workers.

And late today, President Obama met with a bipartisan group of lawmakers discussing possible U.S. military options in Iraq, including airstrikes, drone attacks and U.S. Special Forces being sent to help train Iraqi troops. Meantime, the violence worsens as Iraqi security forces battle Sunni militants.

Michelle Caruso-Cabrera has more from Kirkuk, in northern Iraq.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Iraq’s largest refinery, the scene of heavy fighting today. Video clips posted on the social media Web site purported to show smoke rising from the instillation after the rebel swept into the facility early this morning. Trouble at the refinery, one of the causes of these — long lines for gasoline, hundreds and hundreds of cars in length throughout Iraq’s northeast region of Kurdistan.

RAMI HADAB: We’re supposed to live in the country of oil and gas, and suddenly, we learn yesterday that there is no fuel.

CARUSO-CABRERA: And still, the Islamic militants press on.

(on camera): We’re here in Kirkuk, in northern Iraq, it’s home to an enormous amount of energy infrastructure. One of the largest three oil fields in Iraq here in Kirkuk. And you can see over my shoulder, large natural gas facility.

We’re told that fighting is happening several kilometers down the road between Peshmerga, that’s the Kurdistan military that’s had to take over this city because the Iraqi military disappeared. They are fighting the Islamic militants.

If the militants could take over Kirkuk, it could be potentially devastating to the oil infrastructure here in the north part of the country.

(voice-over): The governor of Kirkuk is in charge of trying to keep his province safe. He says, though, the slide into anarchy isn’t caused solely by extremists. Iraq’s problems are much deeper.

DR. NAJMALDIN KARIM, GOVERNOR OF KIRKUK: The difference is between Shias and Sunnis, it’s not just difference, it’s very deep hatred, actually. I mean, can’t any longer believe people say, well, that’s not true. It’s a group of fanatics and all that. It’s not.

CARUSO-CABRERA: Governor Karim lived in exile in the United States for decades, where he was a successful neurosurgeon in the D.C. area. In a small twist of history, he was a resident at George Washington University in 1981, and was a junior member of the team that assisted in James Brady’s recovery when he was injured during the assassination attempt of President Ronald Reagan.

Karim returned to his homeland after the fall of Saddam Hussein. But he says, even though the dictator is gone, the central government still has too many dictatorial powers.

KARIM: Here in Kirkuk, I cannot appoint a police officer, a local police officer. It has to be from Baghdad. If I want to fire him because he is not doing his work or her work, Baghdad has to agree on it. And you cannot run a country like this.

CARUSO-CABRERA (on camera): The governor, like many, believes strong federalism could help save Iraq, that means a lot more power to the regions within it and a lot less power to the central government of Baghdad.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, northern Iraq.

(END VIDEOTAPE)

GHARIB: As for oil prices today, West Texas intermediate fell slightly to $105.97 a barrel, while Brent Crude was up a fraction to $114 a change.

And there was good news today regarding energy production here in the U.S. North Dakota is now producing 1 million barrels of crude every day, thanks to all the oil found in the Bakken shale formation in the western part of the state.

MATHISEN: Still ahead, hold the phone. Why is Amazon (NASDAQ:AMZN), a leader in e-commerce, jumping feet first into the very, very competitive smartphone market?

(MUSIC)

MATHISEN: Two senators have proposed raising the federal gasoline tax for the first time in more than 20 years to help Congress pay for highway and transit repairs. Democratic Senator Chris Murphy of Connecticut and Republican Bob Corker of Tennessee would like to raise the 18.4 cents a gallon federal gas tax, along with the 24.4 cents a gallon tax on diesel fuel by 12 cents each over the next two years.

GHARIB: Also in Washington today, lawmakers had a tough time believing testimony from the CEO of General Motors (NYSE:GM) about how she’s changing the automaker’s corporate culture in response to the recall of millions of defective cars. Shares of G.M. ended a fraction lower today.

Phil LeBeau has the latest from Capitol Hill on G.M.’s own investigation into the ignition switch recall, and what the company told Congress today.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Back on Capitol Hill to answer questions about faulty ignition switches and the recall of 2.6 million cars, G.M.’s CEO Mary Barra maintained that her company is changing.

MARY BARRA, G.M. CEO: This is not another business challenge. This is a tragic problem that should never have happened and must never happen again.

LEBEAU: For Barra, there were few moments where she was on the hot seat but time and again, representatives said they are skeptical Barra will be able to remake G.M.’s corporate culture, to focus first on safety.

REP. PHIL GINGREY (R), GEORGIA: Why the foot dragging? Is this typical of G.M.’s investigation into a product concern? And how do you intend to change this?

BARRA: We already have it the way we’re working through recalls today. We change that process. It’s expedited and the most senior levels of the company are involved in it, and I think again, although I don’t want to do recalls, we’re going to do what’s right for our customers and demonstrating it today.

LEBEAU: G.M. says 13 people were killed in 54 accidents, involving vehicles with faulty ignition switches.

While the auto maker is creating a program to compensate victims, their friends and families say G.M. as a whole should face criminal charges for the recall scandal.

CANDICE ANDERSON: I was convicted of a felony when G.M. was the true criminal.

LAURA CHRISTIAN: I know accountability will not bring Amber back; it’s too late for that. Still, accountability will give tomorrow’s Amber a life, a future and a chance.

LEBEAU: The hearing came just days after General Motors (NYSE:GM) recalled another 3.1 million cars to fix keys that could slip and leave those cars to losing power, an issue similar to the cobalt ignition switch recall.

Despite recalling more than 20 million vehicles this year, the company sales in the U.S. have actually increased in 2014, and G.M. stock has held relatively steady since the recall scandal started.

JAMES ALBERTINE: From a recall perspective, investors are relatively immune, it appears the stock has been less volatile with respect to each subsequent recall headline over the past few weeks.

LEBEAU: For Mary Barra, that this may not be the last time she testifies on Capitol Hill. A Senate committee may be asking her question next month. By then, General Motors (NYSE:GM) will have a compensation program in place and will have a better sense of how much the auto maker expects to pay victims of the faulty ignition switches.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Washington.

(END VIDEOTAPE)

MATHISEN: In the meantime, General Motors (NYSE:GM) got slapped with a $10 billion lawsuit today from car and truck owners who say they should be compensated for the lost resale value of their vehicles after the automaker recalled nearly 20 million cars this year.

GHARIB: General Motors (NYSE:GM) may not be the only auto maker with ignition switch problems. Federal investigators are now looking into reports of defective ignition switches in some Chrysler vehicles. They are focusing on the key moving out of the run position and disabling air bags after contact with the driver’s knee. The vehicles include the 2005, 2006 Jeep Grand Cherokee (NASDAQ:CHKE) and 2006, 2007 Jeep Commander and all Chrysler Dodge Journey crossovers covering the years 2008 through 2010.

MATHISEN: Valeant launches a hostile takeover offer for Allergan (NYSE:AGN), and that is where we begin tonight’s “Market Focus”. The latest price is about $53 billion in total. The company is offering shareholders $72 in cash and 0.83 Valeant shares for each Allergan (NYSE:AGN) share they tender. The Botox maker says its board will review the exchange.

The new bid will expire on August 15th unless it has extended. Shares of Valeant down slightly with $118.43, Allergan (NYSE:AGN) rose 1 1/2 percent to $162.94.

Shares of ConAgra tumbled after the food company cut its guidance. The maker of Hunts tomato ketchup says the new forecast is due to lower sales and its consumer foods businesses and weak profits in its private brands group. The stock was down more than 7 percent, it closed at $30.47.

And Hertz might be looking to team up with Uber. The car rental company reportedly wants to broaden its business and could allow its cars to be rented using Uber — a controversial startup with a smartphone application that connects people with drivers. The buzz drove shares of Hertz up almost 5 percent to $28.33.

GHARIB: Some of Citigroup’s biggest investors say they want the bank to go to court rather than pay as much as $10 billion to settle an investigation. That’s according to a report in “The Financial Times”. Citigroup (NYSE:C) is facing charges that it cheated investors by selling risky mortgage-backed securities which later went bad ahead of the financial crisis. Citi shares were up a fraction to $47.93.

Shares of Air Products and Chemicals (NYSE:APD) surged after the company named a new CEO. The industrial gas producer who’s biggest shareholder is activist investor Bill Ackman is hiring Rockwood Holdings (NYSE:ROC) chairman and CEO Seifi Ghasemi to take the top job. The stock closed at an all-time high up 7.5 percent to $130.72.

MATHISEN: And shares of Amazon (NASDAQ:AMZN).com moved higher today, up nearly 3 percent after the nation’s largest online retailer unveiled its first ever Amazon (NASDAQ:AMZN) branded smartphone. The big question, what is Amazon (NASDAQ:AMZN) really after with this new product?

Our Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Jeff Bezos doesn’t shy away from a fight and today in Seattle, Amazon (NASDAQ:AMZN) CEO picked a big one as he announced that the e-commerce giant is pushing hard into the hyper-competitive smartphone market.

JEFF BEZOS, AMAZON CEO: I’m excited to tell you that the answer is yes.

LIPTON: Bezos introduced Amazon’s Fire Phone today. It’s Amazon’s first smartphone. Customers can preorder the phone today on AT&T’s Web site. The phone will cost $199 with a two-year contract and ship on July 25th.

BEZOS: The phone is gorgeous. I can’t wait for you to get your own hands on it, and look at it, put a huge amount of effort into the industrial design. It’s elegant and refined, uses premium materials. We call this dynamic perspective.

LIPTON: But the real feature that Amazon (NASDAQ:AMZN) hopes will distinguish its phone from rivals —

BEZOS: There’s the Empire State Building.

LIPTON: — the screen on the phone displays seemingly three-dimensional images.

With its new phone, Amazon (NASDAQ:AMZN) is entering a very competitive market currently dominated by Apple (NASDAQ:AAPL) and Samsung. Those two companies command a 46 percent global market share, according to IDC.

DAVID LIMP, AMAZON: Obviously, first, we have to be a great phone and it’s light and it’s durable and it’s got a great screen and does e-mail and browsing — all the things that, you know, we expect customers expect from a phone today. But on top of that, when you see how the dynamic perspective reinvents the user interface that we’ve all taken for granted for the past five or six years in the smartphone market, and then also see how good Firefly is recognizing things around you, we think that will be differentiated.

BEZOS: It’s 4.7 inches.

LIPTON: But analysts say Amazon (NASDAQ:AMZN) isn’t looking to make money off the phone itself but instead hopes that consumers will use the device to shop online at Amazon (NASDAQ:AMZN).com, as well as buy digital content, such as movies, music and TV shows.

Consumers who use Amazon (NASDAQ:AMZN) divisions do tend to spend more. For example, Amazon (NASDAQ:AMZN) fans who own a Kindle, Amazon’s tablet, spend about 30 percent more than those who don’t according to RBC. Amazon’s C-suite also knows that a lot of consumers now shop using their smart phones and they don’t want to miss out on that opportunity. In the U.S., retail sales on smart phones will jump 25 percent this year to $18 billion.

Bezos clearly thinks his new phone stands apart from the competition. We’ll have to wait and see whether consumers agree.

Josh Lipton, NIGHTLY BUSINESS REPORT, Seattle, Washington.

(END VIDEOTAPE)

GHARIB: And coming up, a landmark decision, the U.S. Patent Office cancels the trademark for the Washington Redskins. The cost could be huge for the third most valuable football franchise.

(MUSIC)

GHARIB: And finally tonight, a major blow to the Washington Redskins. The U.S. Patent Office cancelled the NFL team’s federal trademark, a big step in what some hope will pressure the franchise to finally change the name.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The Patent Office ruling says the Washington Redskins should lose federal trademark protection because the name Redskins is disparaging to Native Americans. The campaign to change the team name has gained momentum with statements in recent months from President Obama, civil rights groups, and lawmakers from both parties.

Today on the Senate floor, Majority Leader Harry Reid called on Redskin’s owner Daniel Snyder to change the team name.

SEN. HARRY REID (D-NV), MAJORITY LEADER: This is extremely important to Native Americans all over the country, that they no longer use this name. It’s racist. Daniel Snyder says it’s about tradition. I ask, what tradition?

PEARSON: The Redskins trademark at issue goes back to 1967. In a nearly 50 years since, the Redskins team value soared to an estimated $1.7 billion, third highest in the NFL, according to “Forbes” magazine.

The Redskins will appeal in federal court. The team’s trademark attorney Bob Raskopf says it’s a rerun of a 1999 lawsuit that was overturned four years later.

“We’ve seen this story before. And just like last time, today’s ruling will have no effect at all on the team’s ownership of and right to use the Redskins name and logo.”

Legal experts say Native Americans suing to get rid of the trademark face an uphill battle.

ALICIA JESSOP: From a court’s perspective, you do not want to eradicate that goodwill that’s been built up for a quarter of a century or a half of a century because someone wakes up 25 years into the goodwill being built and thinks that they don’t like it or that it’s disparaging.

PEARSON: No reaction today from players of the Redskins mini camp, but team owner Dan Snyder remains the focus of fan angst for those on both sides of the issue.

UNIDENTIFIED MALE: My reaction is little Danny Snyder is going to make two fortunes: one, selling the old Redskin merchandise and two, selling the new. Eventually, he’s going to cave and he’s going to do it.

UNIDENTIFIED FEMALE: Money makes, you know, owners pay attention. So, if people refuse to buy the logo with the Redskins name on it, I think he would pay attention to that, I think he would.

PEARSON (on camera): If today’s decision is upheld upon appeal, it would make it harder for the Redskins to go after those for profit on the sale of unlicensed merchandise.

Meanwhile, the battle over the Redskins name continues in both the court of law and the court of public opinion.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.

(END VIDEOTAPE)

GHARIB: And that’s NIGHTLY BUSINESS REPORT for tonight. Thanks so much for joining us. I’m Susie Gharib.

MATHISEN: And I’m Tyler Mathisen, thanks from me, as well. Have a great evening, everybody. See you back here tomorrow night.

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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