Transcript: Thursday, August 28, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Global tensions. The
conflict in Ukraine flares up again, pressure in stocks overshadowing
better economic data here at home. And that isn`t the only event overseas
investors need to watch.

Bounce back. A key indicator of the housing market health rises, but
there may be more to that report than meets the eye.

And, minimize the impact. Worried about the hack attack on JPMorgan
(NYSE:JPM)? Some steps you can take to protect yourself and your small
business.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Thursday, August 28th.

Good evening, everyone. Tyler is off tonight.

A tug of war on Wall Street today as investors weighed encouraging
data about the U.S. economy against geopolitical flare-ups that are
threatening markets all around the globe. Here in the U.S., a new report
showed that the economy grew faster in the second quarter, much stronger
than forecast. The gross domestic product or GDP rose 4.2 percent, as
businesses spent more money and added more jobs.

Also surprising economists, fewer people filed for unemployment
benefits as first-time jobless claims fell by 1,000.

But reports that Russian combat troops entered you crane spooked
investors and all the majors averages turned negative. The Dow lost 42
point, the NASDAQ was off by about 12 and the S&P fell by 3 points.

And then, this afternoon, President Obama made clear his stance on the
conflict.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Russia is responsible
for the violence in eastern Ukraine. The violence is encouraged by Russia.
The separatists are trained by Russia, they are armed by Russia. They are
funded by Russia. Russia has deliberately and repeatedly violated the
sovereignty and territorial integrity of Ukraine.

(END VIDEO CLIP)

GHARIB: We begin tonight with more on those Russian troops on the
ground in Ukraine and why Wall Street is worried. .

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT:
Russia faces the possibility of more sanctions from the West, due to
increased evidence the Russian military is operating in eastern Ukraine.
The leader of Germany Angela Merkel announced during a news conference that
an E.U. summit on Saturday, they will consider the possibility of new
sanctions because of the new evidence, which includes satellite images
released today by NATO. NATO says they show Russian combat military forces
doing military operations inside the sovereign territory of Ukraine and a
brigadier general at NATO estimates there are 1,000 Russian troops
operating in Ukraine.

This comes on top of Ukrainians capturing 10 Russian paratroopers
earlier in the week 12 miles from the Russian border. The Russian media
today, reporting anonymous sources say the soldiers got lost.

And it was big news in Russia, the mothers of those soldiers appearing
on national television begging for their return.

Also on Russia TV today, Alexander Zakharchenko, he`s the self-
proclaimed prime minister of the self-proclaimed Donetsk People`s Republic.
He told Russian state television that yes, 3,000 to 4,000 Russians have
fought on the separatist side since April. But he called them patriots.
Didn`t necessarily say they were members of the military.

Put all of those things together and it suggests a deep escalation of
the conflict, both militarily and also economically.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

(END VIDEOTAPE)

GHARIB: Now, another global concern for investors is what`s happening
in Europe, where banking officials are considering a U.S. style monetary
easing program. But will it work in Europe? And what are the risks?

Steve Liesman has that story.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Nobody knows what ECB President Mario Draghi and Fed Chair Janet Yellen
talked about when they met last week in Jackson Hole. What`s known is this
— Europe is in the throes of a critical debate about whether to follow the
U.S. down the path of an American-style quantitative easing program.

The debate heated up after Draghi in Jackson Hole said that inflation
and inflation expectations are falling and said he was concerned. He said
the ECB`s governing council, quote, “will acknowledge these developments at
its meeting next week.” That in turn raised expectations for further
action, if not next week, then in the months ahead.

Former Fed Governor Rick Mishkin says, quote, “They need to do shock
and awe. They are so far behind the curve”, end quote.

But there are some potential problems. Europe, after all, is not the
United States. And there could be political objections from Germany and
other countries. Plus, rates are already very low in Europe.

DREW MATUS, UBS CHIEF ECONOMIST: The idea of doing quantitative
easing sounds good because they`re doing something. Their economy is
slowing. Inflation is a little lower than they would like, let`s do
something.

But if you look at the treasury yields in Germany, Italy, Spain, most
of them are at or below where the U.S. 10-year yield is right now. And so,
the question is, if you were to go buy a lot of government debt in Europe,
what would you possibly achieve? And the answer is probably not much.

LIESMAN: Will there be any benefit? According to economists, these
are the ways Q.E. is supposed to work. There`s a credit effect which
drives down interest rates, a portfolio effect which forces investors into
riskier assets and maybe most important of all, an expectations effect,
convincing markets the central bank is all in on fighting inflation. But
the dangers include capital misallocation which forces investors to put
money in places they may not be comfortable. When rates rise back up, that
money could flee back to bonds and create a destabilizing decline in
stocks.

(on camera): The question is whether the risk of Japanese-style
inflation in Europe that could last for decades makes Q.E. a gamble worth
taking. That`s certainly a choice Yellen made as she wholeheartedly
supported Q.E. in the United States. And it`s not too far of a stretch to
think maybe, just maybe, that`s what she told Draghi when they met last
week.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: Another critical sector of the U.S. economy has some positive
news today, more home buyers were out in July than in June, sending pending
home sales up 3.3 percent to an 11-month high. But those pending sales are
still slower than they were last year and there`s some concern behind that
headline number.

Diana Olick explains why.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Home
seller Steve Rochlin is getting more realistic about the housing market.

STEVE ROCHLIN, HOME SELLER: There`s just not a lot of people spending
$1 million for houses like there was seven or eight years ago.

OLICK: Rochlin, a contractor, is downsizing from his million dollar
home in the Roswell section of Atlanta. He actually built the subdivision
in which he lived.

ROCHLIN: Everybody has gone off to college and move out. So, it`s
time for us to sell.

OLICK: Rochlin is just what the market needs right now, more sellers,
more listings. The expectation had been that there would be more
downsizing baby boomers, but the housing crash left too many of them unable
to sell.

ADESOLA BADON: There are definitely still some people that are
either, you know, flat lined in what they purchased for, or still just a
little bit underneath, you know, where they purchased. And, you know, it
is creating a situation where sometimes they do have to hold on to their
property.

OLICK: Limited supply has left little choice for buyers, and pushed
prices higher at the same time.

BADON: I would say it`s a tough market for buyers right now. It`s
still, you know, it`s floating back and forth, but it`s still a little bit
of a seller`s market where the price points are, you know, maybe a little
bit higher than what buyers are normally used to.

OLICK (on camera): Home prices are still rising nationwide, but those
gains are slowing down. As all cash investors move out and mortgage-
dependent buyers move in, sticker shock is hitting sales.

DOUG DUNCAN, FANNIE MAE CHIEF ECONOMIST: Our survey data suggests
people are more conservative about the biggest ticket item that they will
probably undertake in their life, which is buying a house, than people
commonly believe.

OLICK (voice-over): Duncan cut his forecast for home sales next year,
claiming it was too optimistic.

Rochlin, though, is still hopeful.

ROCHLIN: The market is the best it`s been in the last three years.

OLICK: But is that saying enough?

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

(END VIDEOTAPE)

GHARIB: Joining us now to talk about all of this, Lindsey Piegza,
she`s chief economist at Stern Agee. And Paul Christopher, he`s chief
international investment strategist at Wells Fargo (NYSE:WFC) Advisors.

And welcome to both of you.

Paul, let me begin with you on this tug of war, as we`re describing
it, between the health of the U.S. economy and the escalation of the crisis
between Russia and the Ukraine. Are you split on which one you`re focusing
on?

PAUL CHRISTOPHER, WELLS FARGO ADVISORS CHIEF INTERNATIONAL STRATEGIST:
No. I think the foundation for investors making investment decisions in
this country is really the U.S. economy, which is in better shape than it
was in 2008, the last time we had a lot of trouble. I think the housing
will continue to improve. Also investment, we`re seeing more about mergers
and acquisitions and a lot more buying at the operational level of durable
goods. And that will also give the economy a tailwind going forward.

GHARIB: Lindsey, do you agree with that as you hear all of this kind
of warmongering talk from overseas?

LINDSEY PIEGZA, STERNE AGEE CHIEF ECONOMIST: I do. I do agree. I
think investors right now are certainly paying attention on the global
market.

But the focus right now is very much what`s happening in the U.S.
economy. And, unfortunately, it`s been very uneven. Of course, we did see
a much better trend this morning for second quarter GDP, rising that up —
raising that up to 0.2 to 4.2 percent. But remember, that comes against
the backdrop of a very steep decline at the start of the year.

So, investors right now are trying to figure out which one really
tells the story, the health of the labor market and the economy in general.
Now, going forward, we`ve already seen that declining trend in consumption
carries forward into the third quarter. And so, I think a lot of investors
are really trying to glean exactly where the improvement is going to come
from if we do continue to gain ground in the second half.

GHARIB: Let me ask you this, Paul. You probably heard President
Obama late this afternoon talking about the whole situation in Russia. He
was asked a question about whether he was going to take any more actions in
terms of sanctions against Russia. And he didn`t really answer that
question.

But let`s say come September that there is a step up in U.S. sanctions
against Russia, or from Europe — would you be changing your investment
strategy based on that?

CHRISTOPHER: Possibly. The main risk all along has been that Russia
would infiltrate Ukraine to such a degree that Europe and the United States
would be left with no choice but to impose the maximum level sanctions,
which so far they`ve avoided.

Now, they heard the president and Chancellor Merkel say that they`re
going to huddle up this weekend and decide what to do, how next to respond.
And it is possible they would jump up to the maximum level of sanctions,
especially on the Russian energy sector.

But I rather think that they`ll still be incremental about this going
forward. I don`t think they want to go to the max sanctions because that
would really hit the European economy hard.

GHARIB: And, Lindsey, if that were to hurt the European economy, what
kind of ripple effect would that have here in the U.S. — for big U.S.
international companies?

PIEGZA: That`s a great question, because that really is where I see
the largest impact in breaking down the trade barriers — excuse me, the
trade relationship between Russia and the European economy, is that will
certainly restrict European growth, which is already very fragile. And if
we continue to see that — well, that will certainly dampen then European
demand for U.S.-made goods.

And so, while I don`t think there would be a significant direct
impact, it is that second level or second derivative impact that I`m very
concerned about.

And remember that a lot of economists were looking for 4 percent GDP
in the second half of the year, predicated on a revival from European
growth spurring demand for U.S.-made goods —

(CROSSTALK)

PIEGZA: — to export.

GHARIB: Do you still see that that`s possible to see the U.S. economy
growing in the second half, given this situation going on internationally?

PIEGZA: Certainly. But remember, we expect very modest growth,
looking for around 1 1/2 to 2 percent GDP. So, certainly, not the
gangbuster 3 percent or 4 percent that we saw in the second quarter, but
still positive growth nonetheless.

GHARIB: You know, I was interested, Paul, that you were telling me
earlier today that you`ve been putting some of your portfolio money into
Europe. I mean, given all of this uncertainty in Europe, why do you think
that that`s a good investment move?

CHRISTOPHER: Well, principally because we think this conflict will be
limited and it will be transitory. We think, ultimately, Russia will
manage to keep leverage in Ukrainian politics, enough leverage to have some
influence there. That`s all the Russians really seem to want anyway. They
seem to have achieved that.

The Russian — the Ukrainian military really is I think not going to
be able to kick the Russians out. I don`t think the Europeans will go for
full max level sanctions. I could be wrong there, but I don`t think they
opt that course.

And with that said, I think eventually this conflict becomes more
localized. And eventually, falls off investors` radar screens. And with
that in mind, I think the selloff that we`ve been seeing in Europe becomes
a buying opportunity, a real value opportunity for economies that will do
better in the future.

GHARIB: All right, thank you both so much for your comments and
analysis. Appreciate it.

PIEGZA: Thanks, Sue.

GHARIB: Lindsey Piegza at Sterne Agee and Paul Christopher from Wells
Fargo (NYSE:WFC) Advisors.

And still ahead, as JPMorgan (NYSE:JPM) and the FBI investigate a
cyber attack, what can individuals and small business owners do to protect
themselves? That`s coming up.

(MUSIC)

GHARIB: A breakthrough in the battle to contain the Ebola outbreak in
East Africa. GlaxoSmithKline is gearing up for the first human trials of a
vaccine for the Ebola virus. Shares of Glaxo rose nearly half a percent
today on that news.

Meg Tirrell has more on the growing Ebola crisis and what a successful
vaccine could mean for Glaxo and the other drug makers.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
Ebola outbreak continues to accelerate. The World Health Organization says
40 percent of the cases occurred in just the last three weeks.

The organization today outlined an Ebola response road map with the
goal of stopping the virus` spread in infected countries within six to nine
months, and preventing international spread. The plan assumes that overall
cases may actually be two to four-fold higher than what`s currently
reported and says the total number infected could top 20,000 over the
course of the outbreak. This for a disease with a 52 percent reported
fatality rate.

The WHO put a budget of $490 million on the plan.

(on camera): Separately, news came today on a potential vaccine.
Testing in people is scheduled to start next week on an Ebola vaccine being
co-developed by GlaxoSmithKline and the National Institutes of Health.
Reports are expected by the end of this year.

GlaxoSmithKline said that with a grant from the Wellcome Trust and
others in the U.K., it will begin manufacturing an additional 10,000 doses.
So, if the trials are successful, stocks could be made available
immediately to the WHO.

Donna Altenpohl, vice president of the U.S. public policy at
GlaxoSmithKline, described the goal of the studies.

DONNA ALTENPOHL, GSK U.S. PUBLIC POLICY VICE PRESIDENT: What we`re
looking for is any adverse side effects, as well as is it producing the
immune response that we need to help control and prevent the Ebola disease?
That should happen at the end of 2014.

And then it will be up to the World Health Organization what to do
after that. Will we go into phase two? Or will they make the decision to
actually use the vaccine in high-risk populations, particularly health care
workers.

TIRRELL (voice-over): Any commercial opportunity for a vaccine
remains uncertain. One reason few pharmaceutical companies have worked in
the space. Groups in the U.K. also planned to test the vaccine, and the
NIH says it has plans to test a second potential Ebola vaccine from NewLink
Genetics later this year.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

GHARIB: A nasty earnings report from Abercrombie & Fitch (NYSE:ANF)
is where we begin tonight`s “Market Focus.”

Same-store sales at teen apparel retailer fell for the tenth-straight
quarter as it struggled to attract customers. The company did turn a
profit in the second-quarter, but that was fueled mostly because of cost-
cutting and store closures. Shares fell nearly five percent to $41.87.

Dollar General (NYSE:DG) posted earnings that matched estimates, but
its revenue and sales both missed. The discount retailer blamed a
competitive environment and a cautious consumer. The disappointing results
reaffirmed its interest in consolidating: the company told investors that
it still wants to buy Family Dollar, even though its nearly $9 billion
offer was rejected last week. Shares were up slightly to $64.20.

Coty posted a big loss and a drop in revenues in its fiscal fourth
quarter. The beauty products company, whose brands include Calvin Klein
fragrances, missed on both the top and bottom lines. Coty says it`s
targeting a return to revenue growth this fiscal year. But still, shares
were down nearly 3 1/2 percent to $17.39.

And the news Apple (NASDAQ:AAPL) fans have been waiting for. The tech
giant announced that it is hosting a special event at its Cupertino
headquarters on September 9th. Now, it`s widely expected that the company
will unveil its new iPhone 6. But as expected, Apple (NASDAQ:AAPL) was
mysterious on the invitation, writing only the words, quote, “Wish we could
say more.” Shares rose a fraction to $102.25. That`s a new record.

And some of the nation`s top banks continue to work with the FBI to
determine the scope of a huge hack attack. As we reported last night,
sophisticated hackers had reportedly gained access to computer systems and
bank records of JPMorgan (NYSE:JPM) Chase and six other banks.

This latest scheme has raised questions on how consumers and
businesses can protect themselves against getting hacked. Our next guest
says there are some simple steps to safeguard their personal information.
He`s Scott Goldman, CEO of TextPower. This is a Web site security firm.

So, Scott, a lot of people have been very nervous looking at these
headlines. And a lot of people do some of the basic hack — anti-hack
attack steps and still they feel very vulnerable. How vulnerable are you
to these big attacks on the big banks?

SCOTT GOLDMAN, TEXTPOWER CEO: Well, in the ongoing cat and mouse game
between security and hackers, chalk up another one for the mice. There are
plenty of things that you can do to protect yourself. And I would like to
go through those steps with you. They are very basic and things that will
keep you protected.

GHARIB: Well, actually, you have a list here. You say choose a
strong password. We all hear this. Change it frequently.

So, what`s considered strong and how frequently do you change it?

GOLDMAN: Well, this is kind of security 101. What you want to do is
select a password that does not contain dictionary words. It doesn`t have
your birthday, it doesn`t have your dog`s name in it. You want to choose
something that`s long, complicated. It`s got a couple of symbols in it.
And if you could pick a phrase, that would be really good.

You want to change the password, probably at least once every 90 days
or so. And it would be good for businesses to have a policy that would
force their people to change their passwords at least that frequently to
keep it safe.

GHARIB: OK. The next one on your list is subscribe to a multifactor
authentication process. You`re going to have to translate what that means
because it sounds a little complicated.

GOLDMAN: Sure. That`s kind of geek speak for having another method
to identify or verify your identification. So the way that works is if
you`re a Gmail or Facebook (NASDAQ:FB) user, you`re probably familiar with
the process already. And the way that it works is very simply you opt in
to receive a text message when you are logging into your account.

And what you do is you enter your ID and password. And then a text
message is sent to your phone. In some cases, you send one from your
phone. And that message has a code in it which you then would enter into a
field on the screen and that, because it`s not associated with the Web site
or the user ID or the password, identifies you with a third mechanism.
That`s what multifactor means.

GHARIB: OK.

Let`s go through some of these other ones because they`re all good
advice. Avoid bad links in e-mails and also encrypt your computer. Tell
us what those two mean.

GOLDMAN: Yes, let`s take the e-mails first. You would really be
shocked at how good hackers have become at this. They`re really
extraordinarily artistic at developing e-mails that look exactly like what
you would get from a large firm, from Bank of America (NYSE:BAC) or
American Express (NYSE:EXPR) (NYSE:AXP). What you want to avoid at all
cost is clicking on any of the links in those e-mails.

If you get an e-mail that says your account has been hacked, you need
to verify your information, the best thing that you can do is to go
directly to that Web site by typing in the address or going to a trusted
bookmark in your browser. Don`t click on in any of those links because
they`ll either take you to a bad place or you`ll download a bad file.

GHARIB: Real quickly, if you`re a small or medium size business, you
don`t have a big IT department, what`s the best advice of what to do to
prevent an attack?

GOLDMAN: Well, I think the best advice is to have policies to prevent
people from clicking on links, downloading files. You don`t want people
downloading games or anything else, because that contains nefarious code
that can infect your entire system just by downloading it to one computer.
It can then be transmitted through your entire network.

GHARIB: Lots of good advice. Thank you so much, Scott Goldman, CEO
of TextPower.

And coming up, the arms race for innovation and how big tech companies
are partnering with national laboratory to find solutions to complex
problems.

(MUSIC)

GHARIB: We turn now to a place called the Livermore Labs. This is
the federally funded technology and medical research center that`s
attracting lots of interests and now investment from private companies.
Josh Lipton takes a rare look inside the lab and some of the projects being
worked on.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: This is a wafer that shows you what the devices
look like.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Lawrence Livermore National Laboratory is delivering a message to private
industry.

UNIDENTIFIED MALE: We`ve done a lot of upfront R&D.

LIPTON: It`s open for business. Livermore gets about $1.5 billion in
funding per year, mostly from the government, which goes to projects like
this.

UNIDENTIFIED MALE: We can create temperatures of hundreds of millions
of degrees.

LIPTON: The National Ignition Facility is the world`s largest and
most powerful laser. When fired, temperatures in the core reach tens of
millions of degrees. Scientists use it to simulate nuclear weapons
detonations, that helps the government manage the country`s nuclear arsenal
and provides insight on advanced energy research.

Livermore is also a leader in high-powered computing. It`s home to
the world`s fastest computer built by IBM, which is can do things on a
scale that industry can only dream of.

(on camera): It might be noisy in here, but that`s just the sound of
a lot of computing going on. The Sequoia supercomputer can do 23 billion
calculations per second. That`s 20 million billion or 20 with 15 zeroes
after it.

(voice-over): Companies, including General Electric (NYSE:GE), Exxon
and Boeing (NYSE:BA), use this computer when they need to complete complex
simulations, which is useful, since even the most powerful computers in the
private sector are still years behind Sequoia. And most industries trail
by a decade.

Livermore is making a push to make this computing power more available
to American industry and scientists here say companies are finally taking
advantage of it.

FRED STREITZ: We`re just beginning to get enough outside exposure
that we`re getting cold calls now. Companies are calling us and saying,
look, I hear you have this capability. Can you possibly help me do this?

LIPTON: Livermore is also a pioneer when it comes to medical devices.
This small sensor is helping the blind to see for the first time. And
through a partnership with second sight medical devices, it`s already been
implanted in 100 people. But it might be a few years before we see this on
a larger scale.

DR. SATINDERPALL PANNU: It`s going to be — take five or 10 more
years to get them adopted, just because this technology is so far out
there, the risk is really high.

LIPTON: The lab also recently partnered with Medtronic (NYSE:MDT) to
work on neural implants that can help scientists better understand brain
injuries of wounded soldiers.

(on camera): It`s all part of the lab`s push to transfer more of its
advanced technologies into the market, which they say will help keep the
American economy strong and by getting more of these discoveries out on the
market, they can help that many more people.

Josh Lipton, NIGHTLY BUSINESS REPORT, Livermore, California.

(END VIDEOTAPE)

GHARIB: And finally tonight, a gadget called the Coolest Cooler has
now raised more than $11 million for investors. It`s becoming the highest
funded project ever on Kickstarter. That`s the online crowdfunding site.
And the total could grow even more before the campaign closes at the end of
the week.

The high-tech cooler has a built in blender, a cutting board, USB
charger, a bluetooth speaker system and, of course, it keeps things cold.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks
so much for watching. Have a great evening. And we`ll see you right back
here tomorrow night.

END

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