Transcript: Friday, August 22, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: It`s getting better.
Fed Chair Janet Yellen says the U.S. economy is improving, but not enough
to worry the markets about moving up the rate-hiking timetable.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Flipping. Why buying
and then quickly selling house is back in vogue. But this time, the game
has changed.

GHARIB: And stripping. The Vegas Strip is back, as the first casino
in five years opens its doors.

We have all that and more, tonight on NIGHTLY BUSINESS REPORT for this
Friday, August 22nd.

MATHISEN: Good evening, everyone, and welcome.

It`s billed as a kind of summer camp for monetary policy superstars.
The annual retreat for central bankers hosted by the Kansas City Federal
Reserve in Jackson Hole, Wyoming. And today, amidst the elk, the moose and
the low-hanging clouds two speeches from arguably the two most powerful
central bankers in the world. And their stories were very, very different.

Federal Reserve Chair Janet Yellen`s highly anticipated speech
described an improving U.S. job market, albeit one that is improving
slowly, and an economy that is making progress.

But her European counterpart, Mario Draghi, described the Euro area
economy as one that is sick, and made clear that the U.S. and Europe are on
very different economic paths.

But those weren`t the only headlines out of the symposium. Something
happened there in Jackson Hole today that has never happened before —
protests.

Steve Liesman has more.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Under the shadow of the cloud shrouded Grand Tetons, both Fed Chair Janet
Yellen and ECB President Mario Draghi addressed the annual meeting of
central bankers in Jackson Hole and their speeches spoke of growing
differences in their interest rate policies and economies.

In fact, Draghi noted in his speech the, quote, “divergent paths of
U.S. and European monetary policies.” Draghi, without reservation, said
the Euro area economy was uniformly weak and that unemployment was way too
high. Draghi made a strong appeal for European governments to increase
their spending, and noted, European Central Bank was about to launch two
programs to stimulate the economy.

Yellen said the labor market in the U.S. is improving. And gave it
even-handed summary of the debate over just how much labor slack there is.
Yellen said that if progress in the U.S. accelerated, the Fed could move up
the timetable for a moving stimulus.

(on camera): Neither nor Yellen made any new policy pronouncements.
An extensive interviews with Federal Reserve bank presidents show the real
debate inside the Federal Reserve is between raising rates in the spring or
the summer of 2015.

DENNIS LOCKHART, ATLANTA FED PRESIDENT: I am holding to the mid-2015
view, as the time in which I think conditions will probably come together
to make it a sensible move. But as I just said, and as Chair Yellen said
this morning, if we see very, very strong data, and they exceed
expectations, then I think it could possibly be moved forward. But as of
now, I`m still — I`m a mid-2015er.

LIESMAN (voice-over): But Jim Bullard, the St. Louis Fed president,
thinks an earlier move is warranted.

JAMES BULLARD, ST. LOUIS FED PRESIDENT: I don`t think a little more
hawkish slant has to be bad news for the economy. You know, it means that
the committee could be more confident that the economy is going to improve
in the future, and is going to be able to handle the high rates that will
eventually come.

LIESMAN: A new appearance at the meeting this year was a small group
of around 10 protesters. They urged the Fed to keep rates low and focus on
unemployment.

ADY BARKAN, CENTER FOR POPULAR DEMOCRACY: The Federal Reserve has its
hands on the levers of macro-economic policy. And we need the Fed to know
that raising interest rates right now would send millions of people out of
work, and it would be a terrible way to try to combat asset bubbles.

LIESMAN: The conference focusing on labor is looking in-depth at the
effects of technology, demographics, Fed policy and government regulation
on wages and unemployment. And it may just influence policy in the months
ahead.

For NIGHTLY BUSINESS REPORT in Jackson Hole, Wyoming, I`m Steve
Liesman.

(END VIDEOTAPE)

GHARIB: Robert McTeer is very familiar with debating interest rate
issues inside the Fed. For many years, he was a voting member of the Fed`s
policy committee when he was president of the Federal Reserve Bank of
Dallas.

And, Mr. McTeer, so nice to have you back on the program.

ROBERT MCTEER, FMR. DALLAS FEDERAL RESERVE PRESIDENT: Thank you.

GHARIB: Well, let`s begin talking about, of course, interest rates.
When and how much? When do you think that interest rates are going to
start notching up if you were inside the Fed? And how high are they going
to go ultimately?

MCTEER: I was a July person and I think after today, I`m probably a
March person. I think Chairman Yellen titled just a little bit away from
her extreme dovish viewpoint. I don`t expect, though, once they start up
to go up very fast. They`ll just barely — barely start going up. They`ll
worry about the consequences in financial markets, and certainly you don`t
want to be very long, long-term bonds when that starts happening.

MATTHEWS: You know, Mr. McTeer, you raise a very interesting
question. I mean, the Fed in pulling — restricting its bond buying it`s
gone at sort of a $10 billion a month pace. I would expect when they start
to raise interest rates, you tell me, that they`ll move up a quarter point
intervals.

But one of the key questions here seems to me is what is the new
normal for where the Fed funds rate will end when the Fed ends raising it?
Some people think it`s 4 percent. Some people think lower. What do you
think?

MCTEER: I don`t know. Two or three points down the inflation rate, I
suppose, would be the ultimate destination.

But a lot has changed. And we don`t know what all has changed. One
of the most important debates that`s going on there is the extent to which
the labor force dropout, the reintroduction in the labor force
participation rate is cyclical phenomenon, or a secular demographic
phenomenon. If it`s secular and long-term, and based on just an aging
population, the Fed would make the mistake trying to bring that back too
vigorously. That`s the important thing.

But in addition to the dropouts in the labor force, something that did
not come up significantly in the chairman`s statement today is the very
poor record of productivity gains of the last three years. We`ve hardly
had any gains in productivity.

So, what you`ve got is fewer people working, and those that are
working aren`t producing much more next year than this year. So, it`s a
very — it augers ill for the potential output of the U.S. economy and
that`s what they`re trying to do. They`re trying to reach potential
without going beyond it.

GHARIB: I`d like to just switch our gears a little bit here and talk
about this disconnect between what`s going on in Europe`s economy and
what`s going on here and these two very different presentations at the
meeting today in Jackson Hole between Mario Draghi and Janet Yellen, to
what extent do Europe`s problems maybe change the timetable for raising
interest rates, or doing other economic moves here in the U.S.? Is there
any impact at all?

MCTEER: Well, we are trading partners with them, and extreme weakness
in Europe would have an effect on this economy. I wouldn`t expect it to be
extreme. But they appear to be going into a triple dip recession. I mean
they`ve already had sort of a double dip, and now they seem to be going
back.

The ECB is way behind the curve relative to the Fed. The Fed was
aggressive very early on, and they dawdled around for a couple of years
before they got very serious. They were even raising rates at I think in
2011. This was probably before Mr. Draghi replaced Mr. Trichet. But they
were — they`re really playing catch-up right now, I think, and need to be.

GHARIB: OK. We really —

MCTEER: Also, I might add, I might add that the European governments
were fighting recession with austerity. And we were not primarily because
we had good luck in Congress, but we`ve had a fairly expansive fiscal
policy in the early stages of our recovery.

GHARIB: So, maybe there`s a thing or two they can learn from the
stuff we`re doing here.

Mr. McTeer, thank you so much for coming on the program. It`s been a
pleasure talking with you.

MCTEER: My pleasure.

GHARIB: Robert McTeer, former president of the Dallas Federal Reserve
Bank.

MATHISEN: The reaction on Wall Street to Janet Yellen`s speech was
somewhat muted. As few clues were given about the course of interest
rates, really. Also keeping a lid on gains, a flare-up in the conflict
between Russia and Ukraine.

By the close, the Dow fell 38 points. The NASDAQ up 6. S&P off about
4. For the week, though, all three indexes were higher by more than 1 1/2
percent. That`s a good week, with the blue chip index, and the S&P turning
into their best weekly gains in four months.

GHARIB: So, it`s not surprising that new investment data show
investment — investors still have a love affair with stocks. They poured
nearly $18 billion into global stock funds last week, according to the Bank
of America (NYSE:BAC) Merrill Lynch. That`s the biggest net inflow since
October.

And a sign of increased appetite for risk, $3 billion went into high
yield bond funds. That`s the first time in six weeks.

MATHISEN: But the corporate bond market is heading for another record
year. “The Wall Street Journal” reports that companies have sold nearly a
trillion dollars of bonds in the U.S. so far this year. That`s up more
than 4 percent from a year ago. And sales are now on pace to break a
trillion faster than ever.

While some of that money is to pay for new investments, a lot of it is
being used for things like refinancing current debt, and buying back
shares.

GHARIB: Oregon is suing Oracle (NASDAQ:ORCL) over its troubled health
care website. The state`s attorney general says she`s filing a lawsuit
against the company and several of its executives for their role in the
state`s health exchange. The suit seeks more than $200 million in damages,
and alleges that oracle made false estimated and submitted false claims.

Oracle (NASDAQ:ORCL) was the largest technology contractor working on
Oregon`s health insurance enrollment Web site known as Cover Oregon. The
site was never made available to the public and earlier this month, Oracle
(NASDAQ:ORCL) filed its own lawsuit against Oregon over disputed bills.

MATHISEN: United Healthcare has applied to sell policies in 24 states
on the consumer marketplaces next year, including major markets like Texas
and Pennsylvania. This year, the insurer sold health plans in just four
states. An official says the new markets offer a growth opportunity.

GHARIB: Still ahead, did Janet Yellen`s comments today make investors
more confident about buying stocks? And if so, which ones?

Our market monitor has some answers.

(MUSIC)

MATHISEN: Federal prosecutors are now questioning General Motors
(NYSE:GM) lawyers on the recalls. According to “The Wall Street Journal”,
the government is looking at whether employees inside and outside the
automakers` legal team department there concealed evidence from regulators
about a faulty ignition switch, potentially delaying the controversial
recall. The investigation is reportedly in its early stages.

GHARIB: With car sales running at their strongest pace in eight
years, it`s easy to forget that the used car market is also in the midst of
one of its strongest years ever. It comes as the industry sees a surge in
the number of more recent in-demand models hitting used car lots.

Phil LeBeau has more on the hot summer for used car dealers.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Name your price.

At the Mannheim Auto Auction in south of Chicago, hundreds of dealers
are doing just that. Buying and selling thousands of used cars.

SANDY SCHWARTZ, COX AUTOMOTIVE PRESIDENT: We`ll have probably 3,500
cars that we`ll go through, and a car will be sold every 30 to 45 seconds.
I call it the daily miracle. And this, of course, is the wholesale auction
business here.

LEBEAU: Mannheim is seeing strong demand by dealers due to a growing
wave of used cars rolling into showrooms. Three and four-year-old models
built as automakers ramped up production coming out of the recession.

DAVE WHISTON, MORNINGSTAR: There`s going to be a lot more desirable
used vehicles hitting the market shortly. And when that happens, there
will be more interest for people who are still driving that old clunker.

LEBEAU: Yes, even the old clunkers will be resold here, as will
recalled models that have been repaired.

But the real action is with models just a few years old. They can be
turned around and sold quickly.

SCHWARTZ: The hottest thing we see today are certified pre-owned
cars. A car that is two or three years old, you remember years ago a 3-
year-old car was an old car. Today, a 3-year-old car with 36,000 miles in
many ways is like a new car.

LEBEAU: The good news for those who buy used instead of new, prices
that have been steadily rising since 2009 are expected to ease over the
next two years. As a greater supply of pre-owned cars hits show rooms.

(on camera): While the typical vehicle sold at this auction will go
for a little over $12,000, the price you and I will pay by the time they`re
cleaned up and sent to a dealership will be closer to $20,000, proof that
for these dealers, the price is right when it comes to cashing in on
America`s demand for used vehicles.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Matteson, Illinois.

(END VIDEOTAPE)

MATHISEN: The power company Dynegy (NYSE:DYN) is bulking up its
generation capacity with two big buys and that is where we begin tonight`s
“Market Focus”.

Dynegy (NYSE:DYN) is spending more than $6 billion to buy several coal
and gas power generation plants from Duke Energy (NYSE:DUK) and the private
equity firm Energy Capital Partners. The move will nearly double its power
generation capacity and allow it to retail electricity in new markets.
Shares of Dynegy (NYSE:DYN) popped almost 9 percent to $32.32. Duke was
off slightly to $72.87.

Shares of Peregrine Semiconductor surged after Japan`s Murata
Manufacturing said it would buy the rest of the radio frequency chip maker
that it doesn`t already own. Murata will pay $465 million in cash for the
company. Peregrine was up about 63 percent — 63 percent, yes, you heard
me right — to $12.53, making the small-cap stock the biggest percentage
gainer on the NASDAQ.

Some technical issues at Walgreen (NYSE:WAG) today. Hope you didn`t
have to try and fill a prescription. Half of its stores were unable to
fill because of a database failure. The drugstore chain has been able to
restore systems at most of those locations. Shares were off a fraction to
$61.05.

Ann Inc. posted earnings and revenue that topped estimates, but a weak
outlook disappointed investors. The parent of Ann Taylor cut its sales
guidance for the rest of the year because of soft traffic and continued
promotions. And that sent shares down more than 3 percent to $37.52.

GHARIB: Well, bucking the trend of downbeat earnings from retailers,
Foot Locker posted a beat on the top and bottom lines. Its second-quarter
profit was up almost 40 percent as its sales continued to climb. Shares
rose about 3 percent to $54.12.

Keurig and Kraft (NYSE:KFT) have joined forces. Now, Keurig will make
Kraft (NYSE:KFT) branded coffees like Gevalia, Maxwell House and even
McDonald`s coffee for its single-serve Keurig brewing systems. The
financial terms of the deal, though, weren`t disclosed. The stock jumped
13 percent to $133 and change.

Meanwhile, an executive shakeup at Micky D`s. McDonald`s is replacing
its U.S president for the second time in two years. The move comes as
sales at McDonald`s restaurants in the U.S. have been slumping. Shares
were off slightly at $94.45.

MATHISEN: Our “Market Monitor” guest says today`s Fed news should
make investors more confident about buying stocks. He`s Sandy Lincoln,
chief market strategist for BMO Asset Management U.S.

Sandy, welcome back. Good to see you.

What did you hear today, or over the past couple of days, out of
Jackson Hole that makes you feel a little more sanguine about stocks?

SANDY LINCOLN, BMO ASSET MANAGEMENT: Well, she did a really nice job
today, didn`t she? She went through a pretty granular explanation of why
she thought the markets and economies were in pretty decent shape I thought
and with some good specifics and then she set aside that argument for
awhile and talked about her concern about labor and some of the slack, as
well. And obviously as you point out, Tyler, she didn`t really move
markets today which is probably a good thing.

But I think what`s interesting to me is that the tantrum is finally
coming to an end. But it`s coming to an end, instead of a bang, it`s
coming — the tempter tantrum — the tantrum on the Q.E. is coming to an
end as a whimper. And basically people have completely pulled their
gravitational interest to the next interest rate hike, when that might
occur and the trajectory of it as you were talking about it with McTeer
earlier in the program. And that`s clearly where the focus is.

I think for investors the lesson here is that when interest rates do
hike, remember the causality, and that`s typically an improving economy.
And when you have an improving economy, stocks actually do pretty well as
interest rates rise.

So, for investors, I think you want to be looking at that first part
to the first half of 2015. Might see a rate hike, and if we do, stocks
should do well, and favor the cyclicals in particular, and potentially
things like technology, industrials, and even small caps in that
environment.

GHARIB: And you have some technology and small cap stocks to tell us
about.

Let`s start with the first one called Skyworks. This is trading on
the NASDAQ. SWKS is the ticker symbol there.

Why do you like this one?

LINCOLN: OK. Skyworks is a company that most people don`t know of
but they certainly use their products every day. They make analog chips.
They`re about a $10 billion technology company. These analog chips are in
the smartphones.

They`re riding a real wave of demand at this company. In China, as
they moved from 2g to 3g to 4g, that`s a tremendous increase in demand for
these chips. And here in the States, an interesting thing — and elsewhere
— is this development called the “Internet of things” where these analog
chips are used to help remotely do things like check your appliances at
home, adjust the HVAC at home, check the security cameras in your house.
And these have applications in industrial and manufacturing settings, as
well.

So, they`re riding a demand wave that we think could feed top line
sales growth for this company in double digit territory. So, even at an
entry price in the mid-50s roughly for this stock, we think for a longer-
term investor, this is a great story riding that kind of demand for the
analog chip market.

MATHISEN: Sales growth is a real theme and important metric for you.

Tri Pointe Homes — talk to me about that one and why you like it.

LINCOLN: Tri Pointe Homes is very much under the radar, Tyler, in
terms of people knowing it. They know Pulte or they know Lennar
(NYSE:LEN). This is not necessarily a name they know. Just went public a
couple of years ago.

And the big catalyst here is they bought the real estate portfolios
from Weyerhaeuser (NYSE:WY), which has some phenomenal properties in the
Southwest and California, they got attractive prices on those. They built
communities of homes. They`ve got a good sales background going on in
those as well and a good tailwind I think from real estate in general.

And we think this is place where entry point of 14 or so, you`ve got a
real good opportunity and an upside, a company like Tri Pointe Home.
Obviously, you`ve got to have some confidence that the building story on
housing has more up-leg to it than down.

GHARIB: All right. Sandy, tell us about Hasbro (NYSE:HAS). This is
a company everybody knows — the toymaker.

LINCOLN: Yes, everybody knows the toymaker.

Hasbro`s got three or four important catalysts, Susie, that I think
people may not be aware of. Over the last few years, they`ve worked hard
to improve margins — that`s been a big story. But they`ve also worked
hard in internationally, getting a lot more attraction in South America, a
lot more attraction in Asia, as well.

They`ve done a very good job at a third level of marrying toys with
movies as you know, so Transformers, comes. There`s a toy, there`s a
movie. We`re going to get a new release in 2015 on Star Wars, that will
mean a new set of toys for them. At about 15 or 16 times earnings. And,
by the way, carries a nice dividend of 3.4 percent, 3.5 percent. We think
entering here is a good time for Hasbro (NYSE:HAS) as well.

MATHISEN: Sandy, you know your stuff. Any disclosures here?

LINCOLN: No, do not own them personally or family members.

MATHISEN: All right. Sandy, thanks very much. Have a great weekend.

LINCOLN: Thank you.

MATHISEN: Sandy Lincoln is chief market strategist at BMO Global
Asset Management U.S.

GHARIB: The tale of two cities. While Atlantic City struggles, Las
Vegas sizzle. As we`ve been reporting the Revel will be the Atlantic
City`s fourth casino to shut down this year. But then, way across the
country, a new hotel in Sin City the first one in five years is opening its
doors.

So, why is Vegas doing so well?

Jane Wells reports.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Vegas
is back, mostly. As they prepare to open the first hotel casino on the Las
Vegas strip in five years, the SLS, it`s clear that this is no longer your
pre-recession Sin City. For one thing, the next generation of Vegas
tourists spend less on gambling, more on food and entertainment.

ROBERT SHORE, UNION GAMING GROUP ANALYST: We`re seeing growth away
from gaming. Las Vegas is becoming less and less gaming centric and much
more dependent on night life coverage, room rates, fine dining.

WELLS: While revenue per room spending is up almost 11 percent on the
Strip this year, gaming revenues are up only a third of that, which is good
news for the newcomer SLS, born out of the club and restaurant scene in Los
Angeles.

SAM BAKHSHANDEHPOUR, SBE PRESIDENT: The millennials right now, when
you look at night life in general, they`re spending at levels that are
astronomical compared to where it was 15, 20, 25 years ago. Because it`s
aspirational.

WELLS: Sam Bakhshandehpour says only a third of SLS revenues will be
from gaming, the rest from nongaming. That is a reversal of the
traditional Vegas model.

(on camera): And there`s another change going on, the center of
gravity in Las Vegas is shifting to the long neglected northern part of the
strip.

(voice-over): In addition to the hundreds of millions of dollars
spent by parent company SBE to put the SLS on the old Sahara site, billions
are coming in from foreign developers to take over abandoned projects
nearby. International travelers to Vegas spend on average $400 more per
trip than Americans do.

And even further north in downtown Las Vegas, Zappos CEO Tony Hsieh is
leading a renaissance. Suddenly, this part of town is cool.

BAKHSHANDEHPOUR: Literally since we broke ground here at the Sahara,
there`s been over $10 billion of investment that have gone on in to the
ground right around us.

WELLS (on camera): Too much capacity coming online?

BAKHSHANDEHPOUR: It`s complimentary capacity.

WELLS (voice-over): Vegas is growing again, but in a new direction.
Literally.

For NIGHTLY BUSINESS REPORT, Jane Wells, Las Vegas.

(END VIDEOTAPE)

MATHISEN: And from the Vegas Strip, to the house flip. Coming up,
buying and then quickly selling a home, was all the rage before the housing
crisis. Now, some are doing it again — but this time around things are
different.

(MUSIC)

GHARIB: Remember the flipping fad of buying and then selling a home
within one year? Well, it`s getting tougher now that house price gains are
pulling back. That`s why some house flippers are turning to one segment of
the market that`s still red hot.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When
this northwest D.C. home sold in January, it definitely didn`t look like
million bucks. In fact, the buyers, real estate agent Christal Goetz and
her contractor husband Eric, paid about half that.

CHRISTAL GOETZ, HOUSE FLIPPER: It`s definitely a tightening market.
You know, sellers are wise to the fact that they can get a bit more for
their house.

OLICK: So, they focus on the high end. And it`s paying off. Today,
fully transformed and expanded, this four-bedroom, three-bathroom home is
under contract for nearly a million dollars.

GOETZ: It`s like any business, really. If you go after, you know,
the small individual clients where you have to do 100 accounts, right? Or
do you go after, you know, as I used to say in the business world the white
whale, right, where you`re getting five or six clients but your profit
margin is higher.

OLICK: The house needed a major gut job. But it was in the right
D.C. neighborhood, where demand is high, and prices are still gaining fast.
The Goetz has paid about $535,000 for it in January and put a whopping
$250,000 in to it after that. A high stakes risk that paid them back
$140,000.

(on camera): House flipping is actually falling nationwide, as those
big home price jumps we saw last year ease and the margins get tight. But
high end flips, those priced at $750,000 and above, are up 21 percent from
a year ago.

(voice-over): Markets with the highest dollar amount of gross profit
are San Jose, California, Washington, D.C., San Diego, Los Angeles, and
Seattle. All have an average gross profit of more than $100,000 per flip.
These markets are the most profitable, but also some of the toughest.

DAVID FOGG, REAL ESTATE AGENT: The secret of flipping houses is
getting the property at a great price, and there`s just very, very few
properties in our area at low prices.

OLICK: It`s a needle in a haystack.

GOETZ: It`s also more work and energy, right?

OLICK: But a platinum needle if done right.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

GHARIB: To read more about the new high end home flipping trend and
for a list of the markets with the best return on flips, go to our Web site
NBR.com.

And that`s NIGHTLY BUSINESS REPORT for tonight. We`re not going to
see you on Monday and for next week. You`re going on vacation.

MATHISEN: I`m going on — I`ll see you in September, everybody.

GHARIB: Well, you have a great time, Tyler.

MATHISEN: Thank you.

All right. I`m Tyler Mathisen, thanks for watching. And I will see
you in September.

GHARIB: And I`ll be back here on Monday.

END

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