Transcript: Wednesday, August 27, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Profit triples.
Alibaba is showing off its financial strength, grabbing investor attention just weeks ahead of its expected landmark market debut.

Too late too little? Six years after the Great Recession, the Securities and Exchange Commission tightens rules on two sectors at the center of the crisis.

And new record. Apple (NASDAQ:AAPL) shares hit a new high ahead of the widely expected release of its iPhone 6. But what features do consumers really want in a phone?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 27th.

Good evening, everyone. Tyler`s off tonight.

Well, here`s a ticker symbol you`ll be hearing a lot about pretty soon, BABA. It stands for Alibaba, often called the Amazon (NASDAQ:AMZN) of China, with a little bit of Google (NASDAQ:GOOG) mixed in. You can`t buy or sell it yet, but this giant Chinese tech company is expected to launch a huge public stock offering in a few weeks, and the shares will trade on the New York Stock Change.

Now, investors all around the world are waiting eagerly for this IPO.
And today, they got some fresh financial information about this tech success story.

In a filing with the Securities and Exchange Commission, Alibaba revealed that its profits nearly tripled and its revenue surged last quarter.

Also, the company said it`s investing in more businesses with new revenue streams. Kayla Tausche has more on what`s driving Alibaba`s rapid growth and what investors are looking for ahead of that IPO.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Alibaba`s earnings engine is revving, ahead of its massive IPO later this year. The company`s latest filing showing revenues growing 46 percent to
$2.5 billion in the quarter ending June 30th. Revenues from mobile shopping doubling since March.

Investors took the numbers with cautious optimism, noting while profits nearly tripled year over year, the private value of Alibaba stock has tripled too, even as sales growth matures and slows.

Legendary tech investor Roger McNamee says even if it`s slowing, it`s
still faster than its peers.

ROGER MCNAMEE, TECH INVESTOR: I think the thing to focus on, especially with Alibaba, is that we`re in a very low-growth economy right now. So, companies with real underlying growth are few and far between.
Investors are stretching really far and really hard to get them, and are
willing to pay up quite a lot.

TAUSCHE: That quest to buy Alibaba`s growth may have other effects on your portfolio. Piper Jaffray and Bernstein believe Alibaba valuation will be north of $200 billion. “Reuters” reports money managers will make room for that 800-pound e-commerce gorilla by selling shares of its competitor, Amazon (NASDAQ:AMZN).

Meanwhile, Yahoo (NASDAQ:YHOO), a major Alibaba shareholder, could see a boost.

Alibaba is eyeing a debut here at the New York Stock Exchange in mid- September, following two weeks crisscrossing the globe to meet investors.
It will be a milestone for the market, the largest IPO ever in the U.S.
both in the technology sector and beyond.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in New York.

(END VIDEOTAPE)

GHARIB: Our guest tonight says Alibaba will be the stock to own in every investor portfolio. She is Kathleen Smith, IPO fund manager at Renaissance Capital.

Cathy, nice to have you here on the set. And you`re really not giving to exaggeration in all the years I`ve interviewed you. But this is such a bold statement. Why do you say that Alibaba is going to be such a hit?

KATHLEEN SMITH, RENAISSANCE CAPITAL IPO FUND MANAGER: Well, it`s such a fast growing company and it`s a way to own the digital economy in China.

And I think that every portfolio manager is going to take a look at
this and eventually this will find its way in all major stock portfolios.

GHARIB: How hard is it going to be to get this stock if it`s that hot?

SMITH: I don`t think it will be too hard. It`s a very large IPO. We
think $200 billion, which could make it the largest IPO ever.

GHARIB: That could make it bigger than Facebook (NASDAQ:FB).

SMITH: Yes, it would, and bigger than Visa (NYSE:V), and maybe bigger than the biggest of all IPOs we`ve seen yet. So, the company will have to work hard to attract investors. And I think that there will be a chance for many investors to own this stock either on the offering or in post-IPO trading.

GHARIB: You kind of feel some investors will be skeptics especially after what happened with Facebook (NASDAQ:FB). It had so much press, so much publicity and in the first year of trading, it didn`t do so well. It really floundered.

I mean, how do you think Alibaba will do in that first year?

SMITH: Well, we think it will do well in the long run. But with the IPOs in general, they tend to be — they can be volatile and subject to a lot of emotion. So, investors looking at newly public companies need to realize that they`re not — their stock charts aren`t set. It`s going to be some uncertainty about how it rolls out. But we do think in the long run this is going to work very well.

GHARIB: As Kayla said in her package, the next few weeks, Alibaba executives are going to be on the road with their bankers, on a road show, pitching this to institutional investors. How do you think they`re going to respond to these new numbers that we saw today about profits and revenues?

SMITH: I think the numbers look very good. We were a little worried when we saw the March numbers, which had a lower growth rate in the high 30 percent. But these current ones in June show an accelerating growth rate, and success the companies made in the mobile market, which has been a key area of interest and concern by investors.

So, they have done well. Hat tip to management. We think these current numbers look quite good.

GHARIB: That`s really impressive.

Now, the whole IPO market this year has been impressive. I think the best market since, what, year 2000, with almost 200 companies going public and now this Alibaba thing. Do you think this continues — will there be an Alibaba effect that it will attract more companies to go public? Or just the opposite, it might crowd out the other guys?

SMITH: There`s a little bit of both. The IPO market has been very active so far, and I don`t think that relates to Alibaba. It actually relates to very strong returns.

For example, the Renaissance IPO index was up 54 percent in 2013. And so far this year, is up almost 7 percent. So, those are great returns, and they encourage more companies to go public.

So, it`s been a very good market. We do think, however, that Alibaba will take some air out of the IPO room a little bit while it gets done.
It`s such a large IPO. It will represent the $20 billion deal, could be half of what we have raised so far this year in IPOs.

GHARIB: That`s amazing.

SMITH: And so, I think that and investors will make room for Alibaba in the portfolio. Maybe looking at JD.com, a comparable company that might be less interesting to investors when they can own this juggernaut, Alibaba, as an alternative.

GHARIB: Well, we`ll see what happens in a few more weeks. Maybe you`ll come back and give us analysis post-IPO.

Thank you so much, Kathy.

SMITH: Thanks.

GHARIB: Real pleasure having you on the program.

Kathleen Smith, IPO fund manager at Renaissance Capital.

And here`s another company going public: San Francisco-based peer to peer loan maker, Lending Club. It filed paperwork today for its initial public stock offering. The firm which says it has facilitated more than $5 billion in loans since it began lending in 2007 hopes to raise half a billion dollars by selling its shares to the public.

Meanwhile, stocks on Wall Street meandered today between positive and negative territory after a week of new records and milestones. And despite strong earnings from retailers like Tiffany`s, Michael`s and Express (NYSE:EXPR), investors just weren`t inspired to snap up stocks.

By the close, the Dow added 15 points, the NASDAQ lost a point, and the S&P edged up by a fraction to close just a tad above its 2,000 record level.

Over in the bond market, the yield on the 30-year treasury bond fell
to its lowest level since May of 2013, to 3.1 percent.

But here`s a sign that despite sluggish trading on Wall Street, investors around the globe are still pretty bullish. The value of global equities has now soared to a record $66 trillion. What`s powering that humongous number? The hope of more stimulus measures in Europe, the S&P topping 2,000 this week, and market rallies taking place in Japan, Brazil and at other global exchanges.

Just two more days to close out the month of August, and it looks like this has been the best August for Wall Street in 14 years. But things could turn ugly on Monday with the start of September, a month notorious for market corrections.

As Morgan Brennan shows us, there are few stocks investors should keep a close watch on this fall.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call them “back from the beach” stocks — names that tend to pop in September, as investors return to work after summering by the shore. These are stocks that have on average outperformed the brooder market over the past five Septembers, posting positive gains even when the market tumbled in 2011.

Only 17 names are just over 3 percent, of the S&P 500 actually fit this bill. Consumer discretionary stocks like Amazon (NASDAQ:AMZN), L Brands, and Tractor Supply, health care names like Cerner (NASDAQ:CERN), Celgene (NASDAQ:CELG) and Perrigo (NASDAQ:PRGO), and tech companies like SanDisk (NASDAQ:SNDK) and IBM. They`ve all returned on average 4 percent or more for the month, Turner returning the most.

Headed into this fall season, experts are again setting sights on these sectors.

JEFF KRAVETZ, U.S. BANK WEALTH MANAGEMENT: The industries we like going into the fall would be cyclicals. And those would include health care, tech, energies, energy and industrials. Those are really what we`re focused on — stocks that do well in a growing economy with low inflation, which is what we`re in.

BRENNAN: September has historically been the worst for stocks, a down month for many of the past 50 years. But market strategists note that hasn`t been the case post-crisis, thanks largely to Fed policy and the effects that`s had on the bond market.

KRAVETZ: We`re a bit cautious going into the fall, because the fall is definitely a difficult time for the stock market. And you know, we haven`t had a 10 percent correction in about three years. So, if we get a selloff in the fall, you know, we wouldn`t be surprised and it may actually be healthy in the long term.

BRENNAN: But until such a correction occurs, if it does, stocks remain at record highs. So, it`s also important to look at value.

Right now, stocks trading at a discount to their five-year averages include Kraft (NYSE:KFT), Constellation Brands (NYSE:STZ), AIG, Discovery Communications (NASDAQ:DISCA) and AT&T (NYSE:T).

(on camera): But remember, investors come back in September, and so does market moving data — starting next week, for the U.S. jobs report on Friday and the much-anticipated European central banks meeting on Thursday.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

GHARIB: The nation`s largest bank may have been hacked. According to Dow Jones, the FBI is investigating a possible cyber attack on the computer network inside JPMorgan (NYSE:JPM) Chase. When the attack took place, what was affected and the potential costs to the bank are not clear. But in a statement, a spokesperson for JPMorgan (NYSE:JPM) said a company of that size experiences cyber attacks nearly every day.

A real black eye for Christine Lagarde, the head of the International Monetary Fund. A French court has opened a formal investigation into charges of, quote, “negligence” involving a political fraud case dating back to 2008. She was France`s finance minister at the time. Lagarde says
the allegations have no merit.

Well, a sobering report today about the outlook for the U.S. economy.
The Congressional Budget Office predicts the economy will grow by just 1.5 percent this year, and that is far below White House forecasts.

John Harwood joins us now from Washington with more details.

So, John, besides that disappointing growth number, the other headline statistic that popped out was the budget deficit. Tell us a little bit more about that.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Budget deficit is going to be slightly higher, Susie, than was projected this year, just over $500 billion. That`s not because spending was higher than expected.
It`s because revenue has dropped somewhat.

But the good news is, this is below 3 percent of GDP, which is below the 40-year historical average. So, deficits are in a pretty manageable range right now. Remember, just early in the Obama administration, they —
while the stimulus bill was being passed, it was almost 10 percent of GDP.

GHARIB: So, 10 percent down to 3 percent. Does that mean mission accomplished for the Obama budget war, so to speak?

HARWOOD: Well, in the short term, yes, but not in the long term, because what we see is, over the next 10 years, as more and more baby boomers retire, go on to Social Security and Medicare, those deficits are going to go back up. They`ll go back up beyond the 40-year historic average to close to 4 percent of GDP, and that is a difficult situation and will make the deficit be higher and it will make the administration at that
time having a need to close that gap.

GHARIB: All right. And this is always such a contentious issue between the Democrats and the Republicans in Congress. What needs to be done in the long term to keep these deficits down and keep spending down?

HARWOOD: Some combination of higher taxes, lower benefits or both.
But the one good news, Susie, is that the moderation in the rise in health care costs has continued.

Right now, for the next five years, CBO projects that spending on Medicare will be $677 billion less over the next five years than they projected for those same years just a few years ago. So, those things make it easier to deal with the problem. The question is, where`s the political will?

GHARIB: Oh, yes. Those are not popular subjects to deal with in Washington.

Thank you, so much, John. John Harwood reporting from Washington.

Also from Washington today, the Securities and Exchange Commission conducting hearing on more new rules to reform Wall Street`s financial institutions to protect investors from another financial crisis. But is it too little too late for burned investors?

Eamon Javers reports.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Please signify your vote by saying yes or no.

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED FEMALE: Yes.

UNIDENTIFIED FEMALE: Yes, the recommendation is unanimously approved.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s been six years since the financial crisis and four years since the Dodd Frank reform law passed. But the Securities and Exchange Commission is still wrestling with lessons learned from the disaster. The commission approved two new set of rules today focusing on two areas that were key to the financial crisis — asset-backed securities and financial ratings agencies.

The rules would force credit rating agencies to strengthen their internal controls, beef up conflict of interest requirements, and establish policies to spot analyst reports biased by the prospect of future employment at a financial firm.

Credit ratings agencies came under fire during the crisis for issuing unrealistically high ratings, a particular problem in the housing market where bad loans were given topnotch ratings.

The new rules would also require specific loan level disclosure for certain asset-backed securities, so investors can see exactly what they`re buying.

Some SEC commissioners said the ratings took a moderate approach.

DANIEL GALLAGHER, SEC COMMISSIONER: Today`s rule makings directly address two major components of the financial crisis. A failure of confidence in the securitization markets and a failure of competence by
credit rating agencies in producing structured finance ratings.

JAVERS: Reformers, however, say the rules could have gone farther.

MICAH HAUPTMAN, CONSUMER FEDERATION OF AMERICA: We`re pleased that the agency made some of the improvements that we called for, specifically with conflicts of interest. We were a little displeased to see that they had done nothing with universal rating symbols.

So, I think that we — we`re encouraged, but not ready to declare complete victory.

JAVERS (on camera): Even four years in, only 52 percent of the rules required by Dodd/Frank have actually been completed. And that leaves a lot more work to do here in Washington.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers.

(END VIDEOTAPE)

GHARIB: Still ahead on the program, Apple (NASDAQ:AAPL) shares climbed to a record high on rumors over what the new iPhone might look like. Apple (NASDAQ:AAPL) fans tell us what features they want to see in the iPhone 6. That`s coming up.

(MUSIC)

GHARIB: Lots of rumors coming out of Silicon Valley that Apple
(NASDAQ:AAPL) is getting ready to launch its biggest tablet ever. Now, even though tablet sales have been declining, published reports say Apple
(NASDAQ:AAPL) will put out a new iPad with a 12.9 inch screen in the year
2015. Right now, the company`s largest iPad has a 10-inch screen.

Well, even before that new iPad comes out, it looks like Apple
(NASDAQ:AAPL) is just two weeks away from releasing the new iPhone 6. And with anticipation building for the new device, Apple (NASDAQ:AAPL) shares are trading at record highs, rising more than 1 percent today.

But not a word from Apple (NASDAQ:AAPL), leaving a lot of consumers to wonder, what new innovations the iPhone 6 will offer. Will it have a bigger screen? Or a longer battery life? And how much will it cost?

Josh Lipton takes a look at what people really want in a new iPhone.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): From Washington, D.C. —

UNIDENTIFIED MALE: Easier typing.

LIPTON: — to New York City —

UNIDENTIFIED FEMALE: 3D features, really cool, super light futuristic

LIPTON: — to Apple`s backyard in Silicon Valley —

UNIDENTIFIED MALE: Not too big, but a bit bigger.

LIPTON: — everyone seems to have an opinion on what they want in the soon to be announced iPhone 6.

UNIDENTIFIED MALE: I want more battery. Oh, my God. Please new batteries that last at least one day. That would be great.

LIPTON: Rumors are running rampant online, from Apple (NASDAQ:AAPL) fan and even celebrity gossip sites are getting in on the guessing game.

And while nothing will be 100 percent certain until Apple`s CEO Tim Cook takes the stage on a reported media event on September 9th —

TIM COOK, APPLE CEO: Good morning!

LIPTON: — most analysts believe that the new iPhone will be built to impress.

TIM BAJARIN, CREATIVE STRATEGIES PRESIDENT: Apple (NASDAQ:AAPL) has done and will do what consumers expect at the very least, which is make it faster, lighter, thinner, more powerful, better screen, better resolution, and more importantly, better software.

And all of that will create what I would consider an exceptional experience for those who are in the Apple (NASDAQ:AAPL) camp.

LIPTON: But potential iPhone 6 buyers we spoke with are mixed — on a larger screen size rumored to be 4.7 and 5.5 inches.

UNIDENTIFIED FEMALE: That`s too big. I don`t want like a tablet on my ear.

UNIDENTIFIED MALE: I think it would be cool to have a larger screen.

UNIDENTIFIED FEMALE: It needs to fit in your pocket still and in your bag.

UNIDENTIFIED FEMALE: The benefits of a larger screen when you`re almost 50 years old is that you can see better.

LIPTON: And while there`s excitement behind the expected launch, not everyone sees the need for something new.

UNIDENTIFIED MALE: I already have what I need. It works fine. It`s
great.

LIPTON (on camera): We`ll soon find out if Apple (NASDAQ:AAPL) can make all these consumers happy. The stakes are high, given that the iPhone still does generate over 50 percent of Apple`s revenue.

Josh Lipton, NIGHTLY BUSINESS REPORT, Palo Alto, California.

(END VIDEOTAPE)

GHARIB: If you want to read more about the features potential iPhone buyers want in a phone, go to our Web site, NBR.com.

Big trouble today for people with Time Warner (NYSE:TWX) Cable, a major Internet outage earlier today. The company says something went wrong during routine maintenance work on its Internet and on-demand cable services. Coverage in 29 states from New York to California went dark for about an hour and a half starting around 4:30 a.m. Eastern Time.

But it was all bright and shiny from Tiffany`s and that`s where we begin tonight`s “Market Focus”.

Earnings at the jewelry retailer surged in the second quarter, thanks to strong sales in the Americas and Asia-Pacific regions. The company also raised its earnings outlook for the year, noting improving sales and expanding profit margins. The stock rose almost one percent to $101.75.

Express (NYSE:EXPR) reported lower income and sales in its second quarter, but still the results came in better than analysts` estimates.
The clothing retailer also upped its full-year forecast and said profit margins are improving, and that`s despite a difficult retail environment.
Shares jumped nearly 13 percent to $16.45.

But Chico`s was the misfit of the retailers` earnings reports. Its profits tumbled more than 30 percent as price cuts to unload seasonal merchandise squeezed its margins. Sales were slightly better because of increased promotional pricing, but it wasn`t enough to help the company meet revenue estimates. The stock fell 4 1/2 percent to $15.29.

Michael`s crafted a strong earnings report. In the art supplies retailer`s first quarterly results since going public in June, the company beat Wall Street`s estimates. The chain also gave a 2014 full-year forecast that`s above consensus. The stock popped, up 9 percent to $16.54.

And Guess posted weaker than expected earnings. The apparel retailer also offered third-quarter and full-year guidance below the Street forecasts. Shares tumbled initially after-hours trading. During the regular trading session, the stock was down slightly to $25.64.

And coming up, what might happen to one of the country`s most popular ski towns this winter if the ski lifts stop running.

(MUSIC)

GHARIB: We have some good news for drivers. Thanks to a late summer slide in oil prices, gas prices at the pump this Labor Day will be the lowest in four years. This weekend, a gallon of regular unleaded gas will average $3.41 nationwide. And GasBuddy.com says they could head even lower over the next two months.

One of the nation`s most popular ski areas is worried about this winter as a big legal battle might keep skiers off the slopes.

Jane Wells is in Park City, Utah, with that story.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): This is the time of year Park City starts prepping for ski season, the profit engine for the small community.

DANA BURNS SHAW, BURNS COWBOY SHOP: Such a magical mountain. And there is so much to offer.

WELLS: But the magical mountain is a mountain divided, and there may be no ski season.

HANS FEUGI, CRUB STEAM HOUSE OWNER: You`ll have a direct impact of hundreds and hundreds of employees who won`t have a job.

WELLS: The bottom of the mountain at Park City Mountain Resort is owned by PCMR, run by a local billionaire named John Cumming. This is where there is parking and access at the bottom of the lift. The top of the mountain where the skiing happens is owned by Canadian company called Talisker. Currently, neither is letting the other have access to its property, which could hurt the whole town.

MAYOR JACK THOMAS, PARK CITY, UTAH: The impact could be somewhere in the realm of $180 million. So, you know, that`s a substantial factor.

WELLS (on camera): Here`s how we got here. For years, PCMR at the bottom of the mountain paid rent to access the top for about $150,000 a year. Then the lease lapsed and Talisker at the top found a tenant willing to pay a whole lot more, $25 million. That tenant is Vail Resorts (NYSE:MTN), which also got the resort next door thrown in as part of the deal. The problem is, PCMR still owns the bottom of the mountain.

(voice-over): When PCMR realized what happened, it went to court.
The billionaire at the bottom of the hill lost and faces eviction. But this week, a judge heard arguments to let PCMR put up a bond while appealing the eviction, so the ski season could go forward at least this year.

Both sides say they want to do what`s right for the community, and they`re in mediation. Ideally, the top of the mountain would like to buy out the bottom, but the billionaire down below has said if he doesn`t get a fair price, he may just rip out the lifts and put in a winter sports park.

Locals are tired of the whole mess.

JOHN DENICOLA: I just want the resort to be open. At this point, I not really concerned with who is going to be operating it. Just don`t shut us down for the season, please?

WELLS: Otherwise, with no skiing, it`s the Park City economy which may be going downhill.

For NIGHTLY BUSINESS REPORT, Jane Wells, Park City, Utah.

(END VIDEOTAPE)

GHARIB: A lot of companies simply aren`t raising salaries. Instead, they`re boosting bonuses. A new survey from consulting firm Aon (NYSE:AON) Hewitt shows that performance-based annual bonuses made up nearly 13 percent of all payrolls this year. That`s the highest percentage on record. Bonuses allow firms to reward and retain valuable employees, keeping them focused on doing a good job, rather than just showing up for work.

And speaking of work, some good news for anyone on vacation this week.
A new survey from audit firm EY, this is formally known as Ernst & Young, found employees who use up more of their allotted vacation days end up with better performance reviews. It seems that time away from the office helps workers recharge their batteries and helps cut down on employee turnover.

And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.
Thanks for watching. Have a great evening.

And we hope to see all of you right 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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