Transcript: Monday, September 8, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The tale of three Dow stocks. ExxonMobil (NYSE:XOM) dips, Boeing (NYSE:BA) rises, and General Electric (NYSE:GE) exits a business that was once a cornerstone of the company.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Off the beaten path. The key economic reports to watch this week that most investors have never heard of.

GHARIB: And clamping down. Could potential new rules for the mutual fund industry impact your investments?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, September 8th.

MATHISEN: Good evening, everyone. And welcome.

It is Monday and stocks kicked off the new week mostly to the down side, but not by much after five weeks in a row of gains.

The big driver sending the markets lower today was a dip in energy stocks, as the price of oil continues to decline. West Texas Intermediate fell to an eighth month low and Brent crude hit a 14-month low dipping below $100 a barrel before coming back just a bit. Now, that pushed shares of oil drillers, oil refiners, oil explorers and oil services companies lower today.

Case in point, ExxonMobil (NYSE:XOM). It was the biggest decliner in the Dow today, falling 1 1/2 percent.

Chevron (NYSE:CVX), the only other energy giant in the Dow down about 1 percent. As for the major averages overall, the Dow lost 26. NASDAQ bucked the trend. It was up 9. S&P 500 down 6 but still closing just above the 2000 mark.

Jackie DeAngelis has more now on the slide in oil prices and where prices are trending and what it could mean for you at the pump.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Energy prices continued to decline weighing on the S&P 500, but bringing consumers a little bit of relief. Retail gas prices down another two cents over the last two weeks bringing prices down a quarter in the last 11 weeks.

The national average now: $3.46 a gallon, according to the Lundberg Survey. Falling crude futures prices set the tone for gasoline. Domestic crude finishing the session at $92.66 and Brent, the international benchmark, falling under $100 a barrel for the first time in 14 months. Traders calling the drop in Brent prices significant because $100 is a key technical and psychological support level.

There are several reasons for the steep drop, including a dollar that continues to strengthen, a market that is well-supplied and also traders thinking that air strikes will stabilize the Middle East rather than unnerve it. And the declines could continue seasonally the fourth quarter is the weakest time for crude and gasoline demand. Some traders think that West Texas intermediate can go as low as $88 a barrel before it takes a pause.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

GHARIB: Meanwhile, the biggest gainer in the Dow today by far, Boeing (NYSE:BA). That’s after Ireland’s low cost carrier Ryanair (NASDAQ:RYAAY) finalized an $11 billion deal for 100 brand new 737s jets which can seat up to 200 passengers. Ryanair (NASDAQ:RYAAY) also put in options to buy 100 more.

Also today, the CEO of Boeing’s commercial airplanes business said the plane maker is being pressured to raise the production rate of a 737 jetliner. Shares of the aerospace giant shot up more than 2 1/2 percent.

MATHISEN: Another Dow member making news today, General Electric (NYSE:GE). At 122 years old, G.E. continues a makeover aimed at turning itself into a high growth industrial infrastructure company with a significant finance arm. The latest step in that transformation, the sale of its iconic appliance brands to Sweden’s Electrolux.

Shares of the General Electric (NYSE:GE) industrial giant were flat today as a lot of investors wondering what’s next for G.E.

Mary Thompson takes a look.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s been a busy 2014 for Jeff Immelt. In his 13th year on the job, he’s made big moves to create what he called a culture of simplification at the conglomerate. The latest step in that simplification? Selling the appliance business to Electrolux for $3.3 billion.

Here’s Chip Blankenship, CEO of the division.

CHIP BLANKENSHIP, G.E. APPLIANCES & LIGHTNING PRES. & CEO: It’s become harder and harder to tell the story about how the G.E. appliance business is aligned with the General Electric (NYSE:GE) Company. General Electric (NYSE:GE) Company wants to be a pure play technology and infrastructure business focused on region of global growth and, you know, solving hard problems like building power plants and things of that nature.

THOMPSON: The problem Immelt’s solving for, get G.E. to where three-quarters of its profits come from higher growth, higher value industrial businesses like energy, water and aviation. The rest to come from its finance arm, a unit that once accounted for more than half of G.E.’s earnings.

With appliances profits accounting for less than 3 percent of G.E.’s total, the loss of those earnings will be more than offset by the deal Immelt struck in June, buying the power business of France’s Alstom for $17 billion. Its completion forecast to lift G.E.’s industrial profits to that 75 percent level while this year’s spin-off of G.E.’s credit card unit and expected sales of real estate holdings will cut profits generated by G.E. capital.

(on camera): G.E.’s also been selling other businesses to streamline its operations. 2014 sales of fuel and real signaling businesses, along with appliance total $4.6 billion. That’s above the $4 billion in targeted sales G.E. forecast earlier this year. Looking ahead, many expect G.E.’s other iconic brand lighting will someday go on the block.

For now, though, the sales put more money in the pockets of the 122-year-old firm, money G.E. will likely use for acquisitions in $1 billion to $4 billion range, this to build out its higher growth businesses — a steady course for a firm in the midst of ongoing change.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson.

(END VIDEOTAPE)

GHARIB: After the closing bell, Home Depot (NYSE:HD) confirmed that its systems have been breached. The retailer says the hack could affect customers who use cards at the stores in the U.S. and Canada. But Home Depot (NYSE:HD) says there is no evidence debit card PINs were compromised and the investigation is focused on the months since April.

And now to something a lot of big U.S. companies might be considering — a corporate tax inversion by reincorporating to other countries. Treasury Secretary Jack Lew slammed the practice saying it may be legal, but it’s wrong and that U.S. laws must be changed.

(BEGIN VIDEO CLIP)

JACK LEW, TREASURY SECRETARY: By effectively renouncing their citizenship but remaining here these comes are eroding America’s corporate tax base. That means that all other taxpayers including small businesses and hardworking Americans will have to shoulder more of the responsibility of maintaining core public functions that everybody particularly U.S. businesses depend on. We’re talking about national defense, education, medical research, courts and vital infrastructure such as roads, bridges and airports.

(END VIDEO CLIP)

GHARIB: Lew says the Obama administration will decide soon what actions it can take to make inversions less profitable for American firms.

MATHISEN: For most Americans, summer vacations ended a week ago and the kids are already back in school. But Washington isn’t like anywhere else. And today the kids, members of the House and Senate, returned to the nation’s capital after a five-week summer recess.

And lawmakers have a lot on their plate. But will anything get done?

John Harwood joins us now from Washington.

John, what does Congress have to do, if anything, in the short time they’ll be in session before they break for campaigning in the elections?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, you know, Tyler, those kids aren’t as mature as they always need to be. So they’re not going to get much done. The one thing they have to do is pass legislation extending government funding. Government runs out of money on September 30th.

To avoid a government shutdown, they’ve got to pass what they call a continuing resolution to keep that going. And the main threat to that possibility was the idea that the president would invoke unilateral action on immigration and conservative Republicans might have then refused to fund the government. That has now gone away. So, it does look like that one essential piece of business will get done over the next couple of weeks.

GHARIB: But we know, John, that these kids also have their own preferences. So, what is the number one project that the Republicans would like to get done? And how about for the Democrats?

HARWOOD: The Republicans are planning to have a series of message bills to emphasize conservative policies that they’ve advocated that have been stopped in the Senate on jobs and on energy. Democrats will do some messaging of their own. They also would like to extend the funding for the Export-Import Bank. Some Republican leadership would like to do that, too. Many people expect there will be some sort of a short-term extension of the authority for Ex-Im.

MATHISEN: All right. So, Congress has been put on the back burner as I understand it over the weekend, but the battle against ISIS about which the president will speak to the nation on Wednesday is anything but on the back burner. Will Congress have anything to say or do with respect to funding the fight against ISIS?

HARWOOD: The president may ask for some funding. I don’t think it is essential that it get passed before Congress leaves for the election, and I also think it is not likely the president’s going to seek specific authority to use force in Syria. He’s asserted he’s already got that authority and it would be a dicey vote that many members of Congress don’t want to take.

GHARIB: All right, thanks a lot, John. John Harwood reporting from Washington.

Now to some political turmoil in Europe that’s having a big impact on the global economy. Scotland’s threat to secede from the United Kingdom slammed the value of the British pound today on worries about currency valuation, share to debt and North Sea oil revenues. A vote is scheduled for next week, and a new opinion poll shows that for the first time Scots might actually vote for independence. The pound sterling fell today to a 10-month low against the U.S. dollar.

MATHISEN: The European Union formally adopted tough new sanctions against Russia today over its actions in Eastern Ukraine. The move was widely expected as we reported last week, but the E.U. did vote to delay the implementation of those sanctions while it assesses a cease-fire agreement reached last week.

GHARIB: Now back to here in the U.S. a lot of economists and market watchers turned to data points like the monthly jobs report or the quarterly GDP report to guide their forecasts and investments. But there are other metrics coming out this week that might be equally as important.

And as Steve Liesman show us, you might not even know about them.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Three economic reports this week will get extra attention from investors and two of them most people have never heard of. The Kansas City Fed on Wednesday will for first time release its new LMCI or labor market conditions indicators, which brings together 24 different labor reports into a single index or call it one jobs report to rule them all.

Such a report is taking on added significance since the Federal Reserve began debating how much labor slack is in the economy, and suggested the answer to when interest rates might finally rise could be pegged to a broad measure of slack, such as might be measured by LMCI and not just the unemployment rate. The LMCI brings into it other reports such as how many jobs are open throughout the country and how many Americans filed for unemployment insurance. Fed Chair Janet Yellen mentioned in a recent speech she was following a similar index.

Another indicator that will get attention is the quarterly services survey, which measures activity in such areas as health care, legal services and education. This is the one data release in the U.S. economy for the entire service sector, or about 45 percent of all GDP, showing how the kinds of data the government puts out are not really in tune with how the economy has changed in the past several decades.

(on camera): Call it destination data or data that investors don’t want to miss for following the direction of stocks, interest rates and the Federal Reserve.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Still ahead, stocks that may be priced beyond perfection, companies that may have gotten ahead of themselves, next.

(MUSIC)

GHARIB: Former SAC portfolio manager Matthew Martoma is heading to prison. In New York today, he was sentenced to nine years for engaging what authorities describe as the most lucrative insider trading scheme in the country’s history. It’s one of the stiffest sentences handed down for insider trading. The judge also ordered Martoma to forfeit more than $9 million.

MATHISEN: Americans are borrowing a lot more these days. The Federal Reserve says consumer credit rose by $26 billion in July, led by a rise in auto loans and credit card charging. That’s a nearly 10 percent increase from just the month before and the biggest one-month jump since 2011.

Stress test for mutual funds? Well, that is what the SEC apparently is considering. This according to a front page story in today’s “Wall Street Journal.” The commission said the paper is potentially developing reporting requirements and other procedures to determine how mutual and hedge funds would weather dramatic jolts to the financial system, such as a sudden, large move in interest rates.

Brian Reid, chief economist at the mutual fund industry’s main trade group, the Investment Company Institute, joins us now.

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

It seems to me that what the SEC may be most concerned about are derivatives and the leverage that they can bring into either mutual fund portfolios or into exchange-traded funds that are sometimes double and triple levered to the benchmark that they are trying to follow. How dangerous is the use of these derivatives and that leverage in the context of a mutual fund?

BRIAN REID, ICI CHIEF ECONOMIST: Mutual funds and ETFs both have the same sets of rules and the SEC has had rules in place for many years on limiting that amount of leverage, as you say, in these funds. We don’t really know what the SEC is specifically considering, but, you know, their focus is on protecting investors and making sure that those investor protections also the funds operate well and provide financial stability.

So, what we’re understanding is that they’re looking at these and have been looking at these rules for some time.

GHARIB: So, you don’t really know just yet, Brian, what these rules will entail, but from what you do know — so, these are going to protect investors but to what extent is there a cost tied to it with all the new compliance, the stress test and all that sort of stuff, will there be new fees and costs to individual investors? And how might these changes also impact performance of the mutual fund?

REID: It’s hard to know how — what the rules are considering. One of the things that derivatives can do that are often overlooked is actually help reduce risk in funds as well. So, the SEC is going to presumably be looking at all of these, the positive the features of derivatives as well as the rules that they have in place as to the extent that they can maybe carve those back or limit those if they believe that they need to be updated.

But again, the key part here is the SEC has an open process, they look at the rules, they look at what they’re proposing as well as the cost and the cost of implementing, and then they have an open process for commenting. So investors, mutual fund advisers and the ICI can all weigh in and provide input into that process.

MATHISEN: As I understand it, Brian, without getting too Washington insider here, you and the IC — not you personally but the ICI — is happier having the Securities and Exchange Commission take the lead on this process rather than the FSOC, the Financial Stability Oversight Council or, say, the Fed, which comes basically more out of a banking heritage.

Do I have that correct?

REID: Yes, we believe that the SEC is the right regulator to be looking at this. They have a 75-year history of effectively regulating mutual funds and fund advisers, and we believe that they have the expertise and the understanding of funds and this is where it belongs. Financial regulators have been looking at ways to make sure that the rules are providing financial stability, and we believe that this is just part of that overall view and we believe the SEC is the right place to be doing that.

GHARIB: All right. So, you are thinking pretty much that this is a good thing for individual investors, but are there any unintended consequences that could come out of these new rules?

REID: Well, it’s hard to know. Like we say, we really don’t know what the rules are. I think we’ll have a better idea once the SEC proposes something and allow them to look in depth at what they’re proposing to see if there are any negative effects and whether or not there are more effective or cost effective ways to actually addressing the concerns that they have and gathering the information that they believe that they need.

MATHISEN: Brian Reid is the chief economist at the Investment Company Institute — Brian, thank you.

REID: Thank you.

GHARIB: General Mills (NYSE:GIS) just got a little more organic, and that’s where we begin tonight’s “Market Focus”.

The food giant is buying organic mac and cheese maker Annie’s in a deal worth more than $800 million. The price tag of the deal is a 50 percent premium to Annie’s average share price over the past month. Investors ate up shares of Annie’s after-hours. During the regular session, the stock fell 1 percent to $33.51.

Hertz’s CEO has stepped down amid pressure from an activist investor. The car rental company’s CEO cited personal reasons for his departure. The move follows an announcement in August that Hertz would review its earnings and correct financial statements from the last three years because of accounting errors. Since then, activist investors have taken stakes in the company, including Carl Icahn. Hertz shares rose slightly on the news to $28.50.

A big bargain bonanza at Amazon (NASDAQ:AMZN). It slashed the price of its Fire phone. It was about $200, now its 99 cents. You heard me right, 99 cents, and it comes with a free year of Amazon (NASDAQ:AMZN) Prime.

The price cut comes the day before the anticipated launch of Apple’s new phone. But there are some strings attached on that Amazon (NASDAQ:AMZN) deal, you have to sign a two-year contract.

Shares fell more than 1 percent to $342.34.

MATHISEN: Activist Investor Jana Partners has scored two seats on Walgreen’s board of directors. The pharmacy operator didn’t give a specific reason for the appointments. But Walgreen (NYSE:WAG) has been under pressure after lowering its earnings forecast and because it decided not to cut its tax rate by relocating overseas. Shares down 1.5 percent to $62.96, the finish.

A sales miss at Campbell Soup (NYSE:CPB (NYSE:CPF)) made shares soggy today. Soup and snack results remained sluggish in the food company’s fourth quarter. Earnings in-line, but its profit outlook for the year disappointed investors. That’s why the stock fell 2 1/2 percent to $43.39.

And some legal trouble for drug maker Abbvie and Teva Pharmaceuticals. The Federal Trade Commission is suing the two companies for allegedly illegally preventing generic versions of a testosterone replacement drug AndroGel from getting to market. Shares of Abbvie were off a fraction to $55.57, the close there. Teva up 1 percent today to $52.58.

GHARIB: And the CEO of Alibaba was in New York City today, kicking off his company’s so-called road show presentation. As we reported on Friday, this China-based e-commerce giant is planning to launch its U.S. initial public stock offering in less than two weeks and is trying to drum up investor interest as it looks to raise more than $20 billion.

Yahoo (NASDAQ:YHOO), which owns nearly a quarter of Alibaba, was one of the winners. Yahoo (NASDAQ:YHOO) shares surged 6 percent to $41.81.

MATHISEN: While a lot of investors eagerly await those Alibaba shares, if you can get any of them, there’s a number of other stocks not getting a lot of love that appear to be priced maybe beyond perfection.

Dominic Chu tells us now which big name stocks are seeing some bearish outlooks and whether investors should avoid them or maybe see them as a buying opportunity?

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: There are around 30 stocks in the current S&P 500 index of large cap companies that have an average analyst target price that predict at least a 3 percent drop from current levels.

For instance, there’s Kellogg (NYSE:K), which makes some of the most popular cereal brands in America. Analysts who covered Kellogg’s stock have an average target price of around 63 bucks a share. If they’re right, that means a possible 3 percent drop for those shares. Some experts blame changing customer buying patterns for that particular weakness.

JONATHAN FEENEY, ATHLOS RESEARCH: The negative is that these are in the past 14 years I’ve been doing some of the worst fundamentals these companies have had with Kellogg’s specifically, a 5 percent decline in the cereal, 4 percent in their cereal business in the second quarter, very discouraging as consumers seek other kinds of food.

CHU: On the other hand, some stocks have staged huge upside moves. That’s the case with athletic apparel maker Under Armour (NYSE:UA). Shares have gained an eye-popping 65 percent this year. Analysts have a target price of currently 6 percent below its current levels.

And the S&P 500 company that could fall the most based on analyst target prices is office supply giant Staples (NASDAQ:SPLS). It’s had to deal with stiffer competition from the likes of Walmart and Amazon (NASDAQ:AMZN).com. Analysts think that this stock could drop by 12 percent.

There are a number of factors that analysts look at when putting together an investment view.

MICHAEL RYAN, UBS CHIEF INVESTMENT STRATEGY: First of all, I have to see a deterioration in fundamentals, that is we have to see that growth prospects are disappointing or that we saw concerns about the long-term business model sustainability.

Secondly, it could simply be that valuation reaches an extreme level. It could be that it’s either fully valued or well above the prices that we forecast either for the industry or for the sector. And then, lastly, it could also be a particular vulnerability to point in the business cycle.

CHU (on camera): Analysts are always looking for reasons to change their target prices for investment outlooks. Now the question becomes whether enough has happened for these companies to make the tone more positive.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

GHARIB: Coming up on the program, “Look, ma, no hands.” Are you ready to hand over control of your steering to a computer? Why self-driving cars might be on the road sooner than you think. That’s next.

(MUSIC)

MATHISEN: Shares of Tesla ending the day near an all-time high, at $282 each after the CEO Elon Musk said the company is just two to three years away from reaching a deal with Toyota (NYSE:TM) to supply lithium ion batteries for its electric cars.

GHARIB: General Motors (NYSE:GM) says it won’t be long until you can drive hands-free. It has plans to put super cruise control in some new models starting in 2017. GM and other automakers say self-driving cars are coming, but are we ready to give up control behind the wheel?

Phil LeBeau has more from Detroit.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Get ready to take your hands off the wheel.

(on camera): Is that right? Here we go.

(voice-over): At the ITS World Congress in Detroit, the auto industry is showing just how far driverless vehicles have come.

For example, the technology to let cars park themselves is already here. Beyond that, work remains.

BILL FORD, FORD MOTOR EXECUTIVE CHAIRMAN: Right now, we think in a controlled environment, autonomous driving works. Uncontrolled environment still needs more work.

LEBEAU: General Motors (NYSE:GM) is testing cars that steer themselves and control their speed. And in a few years will have a new Cadillac with super cruise control, where you can drive hands-free on the highway.

MARY BARRA, GM CEO: But it’s something that takes getting used to. That’s why it’s so important as we move toward autonomous driving and we believe it will happen in steps over the next several years, that customers understand and that they understand the benefits of the technology if customers are going to trust it, it’s got to work 100 percent of the time.

LEBEAU: Transportation Secretary Anthony Foxx agrees. Right now, automakers and suppliers are quickly developing technology so vehicles can communicate with each other or street lights and street signs, all in hopes vehicles can avoid crashes. Foxx says the federal government is ready to move as fast as the technology, to make sure autonomous cars are safe for everyday driving.

ANTHONY FOXX, U.S. TRANSPORTATION SECRETARY: There’s an awful lot of work that’s being done by a number of market players today on this. But, you know, I don’t think it’s outside the realm of possibility within the next 15 years or so, we’ll start to see that in the marketplace.

LEBEAU: But before we take our hands off the wheel, get ready for this technology to be put into semis, cars, truck, really almost all vehicles out on the road. And it will become more prominent later this decade.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Detroit.

(END VIDEOTAPE)

MATHISEN: Here comes a truck, Phil. Look out, man!

Finally tonight, the single biggest donation in the nation’s oldest college, Harvard School of Public Health, has received a $350 million donation aimed at supporting needy students and bolstering research into major global health threats like Ebola, malaria, cancer. The money comes from the Morningside Foundation which was founded by the family of T.H. Chan, a Hong Kong real estate magnate who died in 1986 whose son attended the school.

In recognition of the magnitude of the gift, the university will rename the school the Harvard T.H. Chan School of Public Health.

GHARIB: And here’s an interesting statistic. More than 50 billionaires have in one way or another have graduated from Harvard. That’s why they get these big gifts.

MATHISEN: Absolutely.

GHARIB: Pretty impressive. That’s NIGHTLY BUSINESS REPORT for us tonight. I’m Susie Gharib, thanks for joining us.

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

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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