Transcript: Friday, July 11, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Vital signs. Wells Fargo hit by a drop in mortgage lending. What that says about the health of the housing market and one of the nation`s largest banks?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tech talk. Next week`s earnings focus — technology companies. Expectations are high. So, will the numbers measure up?

GHARIB: And, the doctor is in. Why senior physicians using a computer for routine visits might be just the beginning. We have the second and final part of our series, telemedicine.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Friday, July 11th.

MATHISEN: Good evening, everybody, and welcome.

The first of the major banks to report profits did so today. Wells Fargo, the nation`s biggest lender overcame a drop in mortgage revenue to report profits of $5.73 billion. Mortgage originations were way off, down
58 percent as refinancing basically dried up, but profits were helped by stronger lending overall, securities trading and lower loan loss reserves.

Still, investors pushed down the stock of the nation`s most valuable bank. It closed about a half percent lower as analyst pointed to rising expenses.

Dominic Chu has a closer look now behind the Wells Fargo report and what it may suggest about the banks that post earnings next week.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Wells Fargo reported profits that matched and sales that beat analyst expectations. Many investors pay a lot of attention to the earning`s report because it gives a glimpse into the health of the real estate market.

Wells Fargo is so big that it makes an estimated one out of every six home loans in America. It made more loans than the previous quarter but far less than it did the same time last year when interest rates at historically low levels led to a huge wave of mortgage refinancings.

Chief financial officer John Shrewsberry thinks Americans aren`t as enthusiastic about buying homes as in the past.

JOHN SHREWSBERRY, WELLS FARGO: What`s holding people back from what we might have thought was going to happen in the purchase market is a combination of available supply, that it`s just a little bit harder to find a home in certain markets, either because people are priced out or because new home development isn`t what it was before the crisis. So, I think that`s at the margin, one of the items that we`re looking at.

CHU: That could be one of the head winds to the banks business going forward, and Wells Fargo is keeping a close eye to see if it will have an impact.

SHREWSBERRY: The purchase market should benefit from the fact that affordability is still really good, right? Home prices are up 8 percent year over year, but there`s still moderate compared to where they were at the peak. And rates, while they`ve moved up a little bit, are still at generational lows. So, if long rates move up materially over time, absolutely, that will have an impact of curtailing mortgage origination.

CHU (on camera): Wells Fargo provides a looks at the traditional the Main Street side of the banking business. Next week, all eyes turn towards the Wall Street side, with big banks like JPMorgan Chase, Citigroup and Goldman Sachs that have more exposure to investment banking and trading.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GHARIB: A decent finish to a lousy week in the stock market. Stocks bounce back from a string of losing sessions, but the NASDAQ and the S&P still posted their biggest weakly losses in three months. The Dow rose 28 points today, the NASDAQ up 19 and the S&P added about three points.

Now, for the week, the NASDAQ was the biggest decliner, down more than
1 1/2 percent. But the Dow and S&P fell by less than 1 percent.

MATHISEN: Well, we`ve just talked, Dominic Chu reported on all the big bank earnings that come out next week, but results will also come in from top tech companies. The sector has been a strong performer this year, and the results could determine whether the sector can maintain its momentum.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Expectations are high, analysts see second quarter earnings up about 7 percent, which is higher than expectations for the overall S&P 500.

And revenue growth is seen growing a solid 5 1/2 percent. That`s double expectations for the overall market. Wall Street`s strategists say many tech companies are among the most strongly managed businesses.

BRIAN BELSKI, BMO CAPITAL MARKETS: We have the strongest balance sheets of most companies in America, very strong cash flow. Their earning`s growth and overall earnings by the way since 2000 have become among the most stable earning companies in the S&P 500.

LIPTON: Tech companies now make up about 20 percent of the S&P 500, so how these companies perform has a big impact on the market. Yahoo kicks off the tech earning`s parade next Tuesday. Expectations are for flat growth, and investors are frustrated with that lack of a turnaround at the company.

Still, yahoo bulls say CEO Marissa Mayer`s focus on product improvement and user engagement will eventually pay off. And you`re looking for Yahoo to benefit from its 23 percent stake in Alibaba, which will likely go public in August.

Intel also reports on Tuesday. A few weeks ago, the chip giant raised estimates because of stronger demand for commercial PCs. The company now sees sales up by about 7 percent in the second quarter. The stock is now near a 10-year high. But the question for investors is whether any of that PC optimism is spreading to the consumer side of the business.

From chips to bids, on a Wednesday, investors will hear from eBay, where there have been a lot of fireworks of the last few months. Carl Icahn campaigned to get eBay to separate its PayPal unit until a truce is called between the activist investor and the company.

But then, David Marcus, the head of that PayPal unit left for Facebook. EBay stock is firmly in the red this year, but analysts and S&P are telling their clients to buy. They say its attractively valued and argued PayPal will remain a dominant player in the digital payments market.

The busy week is capped off with a big name, Google. Investors will focus on search volume and search pricing, which has been falling. That`s because advertisers don`t want to spend as much on mobile ads.

But Bulls point company`s very strong share in the core search business.

Tech is an economically sensitive sector.

(on camera): So any bet on tech is also a bet on the global economy.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

GHARIB: Now, as for retail earnings, those reports will come out in a few weeks but investors got a lot of ominous hints this week that they`re not going to be so good. There was a course of complaint from one big retailer after another, saying sales are weak. And the reason: no, it`s not the bad weather like we heard all winter. This time, the blame goes to the consumers.

It seems like consumers aren`t spending like they used to and as one CEO put it, they are in a funk.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Welcome to Rent-a-Center.

GHARIB (voice-over): Rent-a-Center joined the chorus today. Its CEO warned about second quarter earnings because of macroeconomic pressures and financially constrained consumers.

The finger-pointing began on Tuesday when Container Store chairman and CEO Kip Tindell said, “We are experiencing a retail funk,” an acknowledgement that lower earnings aren`t just due to the deep winter freeze anymore.

Restaurant chain Bob Evans blames ongoing macroeconomic headwinds, including higher food costs, which, of course, affect all of us.

Wal-Mart`s domestic chief Bill Simons says, “It`s not getting better but it`s not getting any worse.” He notes that consumers from the middle class and down just don`t have the confidence to open their wallets.
That`s clearly the case at Wal-Mart where sales have been down five quarters in a row and are expected to be relatively flat when the retailer reports next month.

It`s a sentiment echoed by Family Dollar, which reported profits fell by 1/3. Its CEO said it`s still pretty rough out there, and that “the low- end consumer has not benefitted in this recovery.”

(END VIDEOTAPE)

MATHISEN: So, is retail in a funk?

Let`s turn to Dana Telsey for some answers. She`s chief research officer and CEO of her own firm, Telsey Advisory Group, which focuses on the retail industry.

Dana, welcome back. Good to have you with us.

DANA TELSEY, TELSEY ADVISORY GROUP: Nice to be here. Thank you for having me.

MATHISEN: So, funk or are we just sick of all the junk that the stores are selling, the same old junk?

TELSEY: It`s a little bit of both. I mean, the weakness in the first quarter that you had carrying over into Q2 as retailers have goods to move.
The second half of the year, we should be cleaner on inventory and consumers just have more choice to see. The macro data points you suggested, they`re not getting worse, but we need to give the consumers a reason to spend, innovative product, Michael Kors, Kate Spade, what you saw at Old Navy, Victoria Secret, is carefully selected where they will open their wallets.

GHARIB: So, when you go in these stores, what are you seeing? Who`s got it right?

TELSEY: What I`m seeing who`s got it right — I think Michael Kors has it right. I think Kate Spade has it right. I think we are seeing some of the other companies, for example, like Old Navy where traffic is, and it`s the international apparel retailers.

Take a look at H&M which saw sales rise 23 percent in the U.S. this past quarter, or Uniqlo. They are giving more competition to our domestic retailers.

MATHISEN: What are they doing right, specifically, Dana? Is it the product mix? Is it artful merchandising? What is it specifically?

And you mentioned a couple of them, a lot of them are sort of higher end. H&M is not — Old Navy is not particularly, but it sounds like you`re saying the higher end retailers are more inclined to get it right.

TELSEY: They are and it`s a category, the accessories category doing better. The other category that`s working is active wear and athletic, that seems to be taken share from denim and logo.

And when you walk in a store, what do you see? You need to look for the signs of traffic, and you need to see less promotional signs. And when I look at H&M or any of fashion retailers, they`ve got trendy products that`s selling at low prices and it`s driving traffic.

GHARIB: Dana, to what extent is it that consumers trading down? In other words, instead of going to Wal-Mart, maybe they are going to the Dollar Store, Dollar General. Instead of going to the Container Store, they will go to Target.

Is that a trend that also is impacting why people say it`s in a funk?

TELSEY: Definitely a bit of that. But I think it`s they don`t have an unlimited wallet. So, they`re travelling. Are they going to restaurants? No matter what price restaurants. They can`t have everything, so they are choosing more carefully.

MATHISEN: You know, one of the stocks you like is VF Corp, which has North Face.

I don`t know a kid in my town who doesn`t have a North Face parka.
They are getting it right, aren`t they?

TELSEY: They are getting it right and they have other brands that are getting it right, too, where it`s not only North Face, but it`s also Vans, it`s Timberland. They have been very successful at running this conglomerate of product brands.

GHARIB: You also have JCPenney. You`re a fan of JCPenney, which kind of surprises me. What are they doing right or wrong?

TELSEY: It`s better than it was last year and certainly, the comparisons are easy. They put in the marketing and the promotions in order to drive traffic, and they put in the brands people are familiar with. Plus, the fact that the home business now has a better assortment today given that it`s been re-assorted than it did just a year ago. If people are looking for incremental signs of change, they`re getting it.

MATHISEN: Dana, thanks very much. You always deliver the retail goods. We appreciate it.

TELSEY: Thank you. Thank you.

MATHISEN: Dana Telsey of Telsey Advisory Group.

GHARIB: And still ahead on the program, the one piece of investment advice our market monitor says you need for this market as uncertainty and volatility creep back in.

(MUSIC)

GHARIB: Good news out of Washington. The government is reporting a June budget surplus of $71 billion. So, this puts Uncle Sam on course for the lowest annual budget shortfall since the year 2008. Part of the reason, tax receipts are up 8 percent year over year.

MATHISEN: Well, that smaller deficit may come in handy after group of business economist just cut their growth forecast for the past three months. The National Association for Business Economics lowered its second quarter outlook from 3.5 percent, just a month ago to 3 percent right now.
But the group is still optimistic about a rebound from that disastrous first quarter.

GHARIB: Also from Washington, President Obama has enlisted the help of 26 major corporations in a new initiative to get them to pay their suppliers faster. The idea here, the faster those small companies receive the money that they are owed from giants like Apple, FedEx, IBM, AT&T, the quicker they can deliver goods, get even more business and maybe hire more new workers.

MATHISEN: More workers is part of the reason three of the biggest names in business took a joint stand in blasting Congress to get to work to pass an immigration reform bill.

In a “New York Times” editorial today, investor Warren Buffet, Microsoft founder Bill Gates and casino magnate Sheldon Adelson cited immigrants` purchasing power, unique abilities and financial resources as reasons why immigration reform is good for the country.

GHARIB: The shares of some mortgage insurers fell in reaction to proposed regulations, and that`s where we begin tonight`s “Market Focus”.

Federal Housing Finance Agency wants to tighten the requirements for private insurers that do business with Fannie Mae and Freddie Mac, companies like MGIC, Investment, Radian Group and Genworth Financial. The agency says the proposed rule will make sure insurers have enough money on hand to pay claims.

Well, investors weren`t so pleased with that news. Shares of MGIC fell 9.5 percent, Radian was down 5 percent, Genworth Financial off by 2
1/2 percent.

Reynolds American and Lorillard are in merger talks, a move that would combine two of the nation`s biggest tobacco companies. Now, there has been speculation about a combination, but now the cigarette makers are confirming the talks. They are also in discussions with Britain`s Imperial Tobacco about selling some assets. Shares of Reynolds were down a fraction to $61.75. Lorillard, though, popped more than 4 1/2 percent to $61 and change.

Shares of Amazon jumped on news the online retailer has asked the aviation regulators for permission to conduct outdoor drone tests near its Seattle headquarters. The company hopes to deliver packages by drone one day. The stock rose 5.5 percent to $346.20.

MATHISEN: Shares of Fastenal dropped after the company reported earnings that were merely in line with estimates and revenue that was slightly below forecasts. The company, which sells fasteners and other industrial supplies, says it is facing gross margin challenges. But the stock fell four percent to $46.15.

Whirlpool is buying a majority stake in its Italian rival Indesit, worth a little over $1 billion. The home appliance maker says the deal will strengthen its European manufacturing operations. Shares of Whirlpool up 1 percent, $140.76 was the close there.

GHARIB: Tonight`s market monitor has one important word of advice to investors right now, diversify. He`s Bruce McCain, chief investment strategist at Key Corp`s Private Bank.

Bruce, we always hear this — diversify, diversify. But you are saying, this time, it`s different, and really important. Tell us why.

BRUCE MCCAIN, KEY PRIVATE BANK CHIEF INVESTMENT STRATEGIST: Well, I think there`s just so many conflicting currents in the market. It`s just important to have some things that will do well under a variety of outcomes, as you look to what the Fed will be doing and what overseas markets are going to be doing, as well as the trends here in the United States.

MATHISEN: When you say diversify, how do you — how do you think most people should do that, optimally? Are you talking about changing the mix of stocks and bonds, changing the mix of large and small caps, international versus domestic, what?

MCCAIN: I think having represented proportions that are there in accordance with the good solid long term plan, but certainly small cap and large cap and international, as well as domestic and making sure you have a good solid equity exposure, relative to what you need over time.

GHARIB: Bruce, you`ve given us a couple stocks that you want to recommend to our viewers, and they`re all in different industries. So, they are diversified.

Let`s begin with ConocoPhillips, COP ticker symbol.

Why do you like this, especially since the stock has really had a good run so far this year?

MCCAIN: It has had a good run, but one of the things our analysts likes about that is the fact he thinks we will get revision of multiples and they will pay more for that stock over time as they see that it`s better able to grow its reserves. So, not only do you have a company doing well with exploration and production, but you`ll get a higher multiple and you get a higher dividend yield to boot. So, you win on several different fronts there.

MATHISEN: So, let`s turn now from the energy field into the health care field. McKesson is another of your pick.

MCCAIN: Yes. With McKesson, there, we like the fact that not only do you have the increased need for health care with the ageing of the baby boomers but also with the Affordable Care Act. We`re going to look not only for increased health care provision but also cost effective provision and a drug provider wholesaler like McKesson is certainly an important part of the treatment mix there.

MATHISEN: And the other one that you`re recommending is Disney. The stock is at $86 now. Would you put new money in this now given also it`s had a pretty good run for 2014?

MCCAIN: Well, it has, but one of the things about Disney is not only is it a good growth stock with solid franchises with “Star Wars” and Marvels that give it upside potential in earnings, but it`s also a more conservative stock in the sense that when people really become worried about the markets and trends, Disney is the sort of stock that will attract new money and help to hold up the values.

So, not only does it provide a diversification into the consumer discretionary but it`s a little bit of plight to safety, quality stock.

MATHISEN: Bruce, did anything happen in Cleveland today?

(LAUGHTER)

MCCAIN: You mean, other than the fact that everybody is celebrating LeBron James coming back? No, nothing at all.

MATHISEN: Are you long the Cavaliers and short the Miami Heat or what?

MCCAIN: Well, we wouldn`t short the Heat, but let`s just says the prospects for the Cavaliers look much, much better with the acquisition.

MATHISEN: A lot better than they did 24 hours ago. I know everybody
— people — if you`re not in Miami, people are excited for Cleveland, including my co-anchor who grew up there.

GHARIB: Yes, Bruce knows I`m a Clevelander and not only LeBron news this week, what a week for Cleveland. The Republicans are going to hold their convention there in 2016. So, good things happening to the city that was once called the mistake on the lake, right, Bruce?

MCCAIN: Absolutely. We think there is a lot to be discovered here and invite everybody to come see.

GHARIB: OK. Any disclosures on the three stocks that you recommended, Bruce?

MCCAIN: No, I don`t personally own any of those.

GHARIB: All right. Thanks a lot. Have a great weekend celebrating those — that LeBron victory.

MCCAIN: Good to be with you.

GHARIB: Bruce McCain with Key Private Bank.

Tyler?

MATHISEN: And as we just mentioned, LeBron James is returning to the Cavaliers, not just a sports story, but it`s a big business story as well.
“Forbes Magazine” said last year the team was worth over $500 million with attendance at about 84 percent of capacity. That was then.

Now, the return of the King means the value of the franchise will immediately increase by as much as $150 million — on expectations of sellout crowds, higher prices, the luxury suites and premium seating, more team sponsorships, higher TV and radio advertising revenue, that is the LeBron effect.

Coming up, the biggest opportunity yet in the game and changing field of telemedicine. Bertha Coombs concludes our series next.

(MUSIC)

GHARIB: Grain prices tumble to their lowest levels in years. And that`s after the Department of Agriculture raised supply forecast. About
3/4 of the nation`s corn and soybean crops are in good or excellent condition. Ideal weather in the United States is fueling expectations that bumper autumn harvest will expand inventory.

And that`s why the price of corn and wheat as you can see there fell to their lowest prices in nearly four years. Soybeans fell to a four-month low.

MATHISEN: Good news for drivers on the East Coast. The Energy Department says its planned gasoline reserves for the northeast region is now in place and ready in case of the supply disruptions to the height of this year`s Atlantic hurricane season. The 1 million gallon gasoline stockpile was created since the 2012 super storm Sandy left many East Coast motorists and home generators without fuel for days.

GHARIB: Federal safety regulators are looking under the hood at Ford.
They are examining half a million cars for a heat shield that can rust, fall out and cause drivers to lose control of the steering. The investigation by the National Highway Traffic Safety Administration covers Ford`s Crown Victorias, Grand Marquis and Marauder models from the years
2004 to 2007.

MATHISEN: A little bit of car trouble also at Chrysler. The auto maker recalling 650,000 Jeeps and Dodge SUVs in the U.S. to replace the wiring in the vanity mirror lights to prevent a short circuit. You can never do too much for vanity. The recall includes some 2011 through 2014 Jeep Grand Cherokees and Dodge Durangoes.

GHARIB: You`ll remember that last night we told you about the growing trend in so-called telemedicine — a high tech and low cost way for patients to stay in touch with doctors anytime from anywhere. Well, today, we take a look to the doctors adapting to this form of medical care and one of the companies behind it.

Bertha Coombs has the story.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Tim Howard never thought he would leave his practice, but he got fed up with insurance red tape which left less time for patients.

TIM HOWARD, TELADOC SR. MEDICAL: My heart and soul is as a family practitioner.

COOMBS: The Huntsville, Alabama doctor found a new lease online, practicing with Teladoc.

HOWARD: I`ve really become closer to patients in that moment than having to work through all the administrative in my office.

COOMBS: Teladoc CEO says they now have a waiting list of doctors wanting to join, but five years ago, there were skeptics.

JASON GOREVIC, TELADOC CEO: People wondered whether this was real medicine. It really legitimizes and makes people more comfortable that this is a really important part of the delivery system.

COOMBS: Their corporate clients include Home Depot and a retiree plan CalPERS, which have embraced the $40 to $50 flat fee visits for routine care as a cost saver.

With 8 million users, Teladoc is a leading player in the industry, but competition is heating up. Insurer WellPoint has launched a rival service.

Jason Gorevic welcomes them.

GOREVIC: It`s really hard to scale. What we`re going to do over
300,000 remote consultations this year.

COOMBS: And not just for routine care. They are expanding into mental health.

GOREVIC: On things like grief counseling, minor depression, anxiety issues that aren`t chronic, we`re giving patients the ability to schedule multiple interactions with the same caregiver.

COOMBS: The industry`s biggest opportunity may be helping health systems monitor post op patients and people with chronic medical conditions, especially the elderly. But first, they`ve got to get state and federal regulators on board.

CECI CONNOLLY, PWC HEALTH RESEARCH INSTITUTE: The big barrier in health care, as is often the case, is the payment system. It`s very difficult to figure ways to pay for innovation.

COOMBS: So far, Medicare and Medicaid have been cautious about Telemedicine reimbursement. But the issue is hitting up in Washington and state capitals. And the American Medical Association has backed the industry on its potential to improve care and cut costs.

Analysts say now it`s a matter of time.

Bertha Coombs, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GHARIB: And to read more about telemedicine and why it`s considered a game changer for health care, log to our Web site, NBR.com.

MATHISEN: As the World Cup soccer tournament comes to an end this weekend, it`s time for us to wrap up NBR`s ultimate stock cup. Over the past month we pitted rival global brands against one another. You got to vote. And here are the stocks you picked.

In Tuesday`s challenge, Google beat out Alibaba and not on penalty kicks. The other winners looking back were PepsiCo over Coke, Apple, Oracle, McDonalds, General Electric, Toyota, and Nike. Those were the winners.

GHARIB: All American companies —

MATHISEN: And we`ll find out Sunday whether Germany beats —

GHARIB: Yes, who do you think? What are you calling for —

MATHISEN: I think Germany looks awfully, awfully good. It`s got two of the best players in the world, Mueller of Germany, and Messi, who is my son`s important player on Argentina.

GHARIB: I understand he`s a good soccer player, your son.

MATHISEN: He`s pretty good. Yes, he`s pretty good.

GHARIB: Well, that`s it for us. I`m Susie Gharib. Have a great weekend, everyone.

MATHISEN: And I`m Tyler Mathisen — I almost forgot who I was there.
I`m Tyler — I`m so giddy about LeBron and going back to her hometown.

Have a great weekend, everybody. We`ll see you Monday.

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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