Transcript: Friday, September 12, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Out of hiding. New data shows people are spending again and sentiment is upbeat. Is this the start of a consumer revival?

(NASDAQ:AAPL) says pre-orders for the new phone hit a new record. And now, the wireless carriers are fighting tooth and nail to win your business, but at what cost to them?

GHARIB: And big week ahead. Rest up this weekend, three key events this weekend to keep investors on edge.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Friday, September 12th.

Good evening, everyone. And welcome.

A modest stocks selloff today put the final nail in the down week of equities, their first after five straight weeks of gains, worry investors sent the major averages lower despite good news about consumer spending and a strengthening U.S. dollar. Investors lightened up on stocks as treasury yields moved higher and crude oil and prices on other commodities continued to slide.

At the closing of the bell today, let`s run through some numbers, blue chip stocks down 61, the NASDAQ skidded 24, the S&P drifted lower by about 12. For the week, the Dow was up about 1 percent, NASDAQ off a fraction and the S&P down more than 1 percent, as for the dollar it strengthened more than other currencies for the ninth week in a row.

A big factor in today`s slide, caution, ahead of three big market- moving events next week. One, the latest policy meeting by the Federal Reserve on whether or when to begin raising interest rates. Two, Scotland`s independence vote, which could send currencies and markets here and around the globe into turmoil. And three, the initial public stock offering for Alibaba, the Chinese e-commerce giant, which is expected to be the biggest IPO in history.

We had three reporters taking closer look now at each event. Steve Liesman on the Fed, Michelle Caruso-Cabrera on Scotland, and Kayla Tausche on Alibaba.

We begin with Steve and the Federal Reserve.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It could be a September Fed meeting to remember. The Central Bank is one month away from ending its bond purchases or quantitative easing program, and there is some speculation it could take steps at this next meeting to clear the way to eventually raise interest rates from the current level of zero.

All the folks will be on tours. The Fed`s policy statement says they will wait a, quote, “considerable time from when it ends Q.E. until it hikes rates.” They can`t raise rates until they get rid of those words and there`s some guessing that they could go — that those words could go as soon as next week`s Wednesday`s policy announcement.

Many on Wall Street put the odds at about 50/50. If they do go, then the speculation is that could be earlier rate hikes on the market now expects — maybe in the spring of 2015 as opposed to the summer.


MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: A key event next week is the Scottish vote for independence.

Will the Scots decide to end their more than 300-year union with England as part of the United Kingdom? The latest poll show the vote is too close to call and the turnout is likely to be extremely high, perhaps record-breaking.

The British pound has suffered on the news that the United Kingdom is not so united. And the campaigning on both sides of the question is intense. The supporters of independents say Scotland will be economically stronger if they break away.

The no-campaign says Scotland will suffer economically if it goes out on its own.

Nearly all the banks headquartered in Scotland say if the Scots do vote yes for independence, they will relocate their headquarters to London because they feel the need to be certain that they will remain protected by the Bank of England, rather than face the uncertainty of what Scotland is going to do about its currency, which isn`t clear.

The leadership of the European Union is extremely nervous about the vote. They fear if the Scots vote to leave, it will embolden other separatist movements, like other Catalonia or the Basque region in Spain, or parts of northern Italy, which has long agitated for independence.

In other words, they fear it could lead to the unraveling of a union that they worked so hard to keep together.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Demands from investors for hotly anticipated shares of China`s e-commerce giant Alibaba is stacking up ahead of the company`s IPO next week, nearly 40 large money managers have put in orders for more than a billion dollars worth of Alibaba stock.

Now, of course, they will only get a fraction of that, but the company had only said last week that it wanted to sell about $20 billion in stock, so you can see that we are already at multiples of what the company had planned to sell.

That could lead it to pricey IPO above the expected range. The company had outlined a range of $60 to $66 a share. Now, here is why investors are so interested in the deal, number one because of its growth.
Profit has tripled year over year.

And number two, because of its size. Profits of nearly $2 billion in the most recent quarter and margins of nearly 70 percent make this one of the best capitalized and fastest growing names in tech market, not to mention they do more business than Amazon (NASDAQ:AMZN) and eBay
(NASDAQ:EBAY) combined. That, along with the size that`s leading to this to be the largest IPO in the U.S. or globally and in the technology sector ever. It looks set to best G.M.`s record of selling $21.1 billion worth of stock in 2010.

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


GHARIB: Nick Colas joins us now to tell us what those three big events, as you just heard about will mean for the markets next week. He is chief market strategist.

So, Nick, which one is the most important?

NICK COLAS, CONVERGEX CHIEF MARKET STRATEGIST: It seems the one at the federal reserve is the most important for the markets as we go into the new week, the reason is interest rates, we`ve already seen them go from 3.2 to 6 percent just in the past five trading dates. Higher interest rates tend to slow the economy. They reduce the amount of houses purchased or cars sold. So, that`s really top of mind for investors going into the new week.

MATHISEN: Nick, does it really matter if the Federal Reserve raises interest rates in March, or whether it does it May, or it does it in July?

COLAS: You know, the tough thing about calling interest rates cycle with the Fed is you`re never really sure where they`re going to stop. All you know is as soon as they start, they`re going to keep going. And as soon as they start potentially, the longer REIT cycle we have — all of those create uncertainty for investors. And if there`s one thing Wall Street hates, it`s uncertainty, particularly, about the Federal Reserve.

GHARIB: All right. So, tell us about this vote in Scotland or Alibaba, which one is the big issue for investors?

COLAS: You know, the next big important issue is clearly the Scottish vote. This is something that institutional investors tell me they didn`t see it coming until two weeks ago when the polls first came in and said they were ready to leave the U.K. It has driven the currency in the market, again that is not good for Wall Street.

MATHISEN: What could it mean if Scotland secedes from the United Kingdom?

COLAS: It is a very tough question to answer, but that`s basically like breaking up a 300-year-old marriage. You don`t really know what the contours of a new Scotland would be. The upshot for investors however is a really more straightforward. It will create a lot more uncertainty in the European economy, and that will dampen earnings for companies that have European situations. In the S&P 500, fully 20 percent of revenues and earnings come from Europe over a cycle. So impinging on that growth will hurt earnings here at home.

GHARIB: Nick, we know there will be a great turnout for that Scottish vote. Any predictions on which way you think it`s going to go?

COLAS: You know, my bias is to think that they`re going to vote no, that they won`t want to leave the United Kingdom. But it is such a close toss-up, I think you will see investors step aside next week weighing that vote.

MATHISEN: Let`s talk about Alibaba a little bit. You know, you put together initial public offering. You put together stock. You put together Chinese stock, and you got a lot of risk. That said, you got a lot of demand for this company.

Is this the kind of stock — obviously, most individuals aren`t going to get a nibble at this on the open. But on the first day, they might be able to buy it, should they?

COLAS: I tell you, IPOs are very risky for a whole variety of reasons. You touched on a lot of important factors to the risk of the company and the sector. So, every investor is going to come to their own decision about how optimistic they are about Chinese internet growth.

The one thing I would say, though, is that it is kind of a silver lining in all the negatives we have talked about, that the capital markets can absorb the biggest IPO of all time and still maintain a very strong level of stability. So, where the first two points were negative, this IPO is kind of positive.

GHARIB: And real quickly, is that a positive for the markets, too?
Do you think it`s a successful offering for I guess Friday, will the markets rally on that?

COLAS: I think very much it will be a sign of just the strength of overall interest rates and stocks, all our caller from our investors base
(ph) said that Alibaba will price well and trade well. And so, it does seem like a positive.

GHARIB: All right. Thanks for all that insight. Thank you so much, Nick Colas with Convergex. And on that Alibaba news we just mentioned, Yahoo (NASDAQ:YHOO), which owns a large stake in the company, hit its highest level in more than 8.5 years, $42.88.

MATHSEN: And more now on that good news, about the U.S. consumer.
Retail sales in August rose 0.6 percent with blowout auto sales, helping lift overall spending and lower gasoline prices giving Americans more money to spend on other things. The department store sales were a bit weaker, though.

Also, out today, a fresh read on consumer sentiment for September, which notched a little bit higher, that was a bit above forecast.

GHARIB: So with the Americans spending more money and the dollar getting stronger, how could that factor into the Federal Reserve`s take on economic growth just ahead of next week`s policy meeting on interest rates.

Steve Liesman is back with us looking for some answers.


LIESMAN: The U.S. consumer looks to be making a comeback. Retail sales surging in August, the best numbers since April as Americans bought copious quantities of cars, furniture and electronics. Most important, the same report, which originally showed there was no retail sales spending growth in July, was revised upward to a healthy positive, assuming the consumer did not in fact disappear in the middle of the summer.

JOHN SILVIA, WELLS FARGO: Income growth is improving. Jobs are up but income growth is improving. Consumer sentiment is up. And certainly the wealth effect, both home prices and financial markets are up in terms of value.

LIESMAN: And looks like the strength could continue, gasoline prices are down almost 2.5 percent compared with a year ago which is like giving every driver a tax cut, and freeing money to be saved or spent on other discretionary items. Another positive, a strong dollar should lower the cost of imports just as stuff starts coming in from the Christmas selling season. So, those French wines and foreign-made toys could be just a bit cheaper.

The main trouble would be if better growth prompts the Federal Reserve to come off its zero interest rate policies sooner, increasing consumer interest rates.

DAVID KELLY, J.P. MORGAN FUND CHIEF GLOBAL STRATEGY: All the economic numbers that we`ve seen in the last month really have been adding to growth, we now think we`ll do about 4.5 percent, and upward revision to 4.5 percent for Q2, probably 3 percent growth for Q3, the lift-up in economic growth I think really should accelerate defense timetable here.

LIESMAN: None of this is to say the U.S. economy is definitely out of the woods of a financial crisis yet. There is still a long way to go, but it`s hard to imagine getting there without healthy consumers, and they look to be doing just fine at just the right time.



GHARIB: And speaking of the Federal Reserve, it`s making some new moves today to protect the nation`s financial system. Vice Chairman Stanley Fischer has been tapped to head up a new financial stability panel, which will monitor specific markets, including real estate or equities before they get too hot and before they threaten the nation`s financial stability.

MATHISEN: America is getting older and that impacts how many of us work. The economists at the Federal Reserve at the Cleveland Fed say that the decline in the U.S. workforce participation rate since the start of the financial crisis is due in large part of the aging U.S. population, not maybe so much to weakness in the economy overall. The findings also show that even if the labor market improves, a larger number of aging Americans are expected to just stop looking for a job.

GHARIB: U.S. treasury yields have been inching higher, rising for seven straight sessions and now sitting at a two-month high. Those higher rates are putting a lot of pressure on emerging markets, especially ones that rely on foreign capital for growth. Many emerging markets posted sharp declines this week, looking at the markets and the country`s most effective, Brazil and Turkey down 8 percent, South Africa falling 5 percent, and Russia and Indonesia both off by 4 percent.

MATHISEN: The White House released details today of its intensified sanctions against Russia for its actions in Ukraine, the new measures targets Sberbank, Russia`s largest bank by assets, as well as limiting a major Russian arms makers access to the U.S. debt markets and restricting U.S. companies from dealing with Russian energy companies involved in deepwater Arctic oil drilling.

Cutting off Russia`s access to U.S. oil giants may be part of the reason ExxonMobil (NYSE:XOM) fell more than 1 percent today and made it the worse performer on the Dow Jones Industrial Average.

GHARIB: Still ahead, looking to invest in dividend stocks for the long haul? Our market monitor guest has a list of stocks that you might want to consider buying for your portfolio.


MATHISEN: It looks like Apple (NASDAQ:AAPL) has another blockbuster on its hands. Apple (NASDAQ:AAPL) says it has received a record number of pre-orders for the new iPhone 6 and the iPhone 6-Plus. Although the company didn`t release figures, demand was so heavy on Apple`s Web site that parts of it choked up early this morning.

The phones will be delivered on September 19th but there are already reports of possible shipping delays due to that steep demand.

GHARIB: Well, those two new Apple (NASDAQ:AAPL) smartphones are already shaking up the telecom industry, as the nation`s biggest wireless companies fight to sign up more customers who want those devices.

Morgan Brennan takes a look at what at stake for the big phone companies with the iPhone 6 models hitting stores in just one week.


America`s biggest wireless carriers are using the iPhone 6 launch to battle it out for new subscribers, slashing service prices, offering installment plans with no contract and shelling out top dollar for trade-ins of older models.

Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile and Sprint have all rolled out aggressive offers, making big bets that those incentives will be balanced out by the smartphone`s success.

MARCELO CLAURE, SPRINT CEO: We`ve been pretty clear. We think it`s going to be the most successful launch ever on an iPhone, and we`re the only carrier putting on our own rate plan only for the iPhone. So, you can bet that we feel very comfortable with the iPhone. I mean, we`ve made it simple, $50 only with the iPhone 6.

BRENNAN: For Sprint and its rival, this iPhone launch will play out much differently than previous ones. In the past, carriers would subsidize devices in return for a two-year contract, with limited upgrades and imposed a cancellation fees.

CRAIG MOFFETT, MOFFETT NATHANSON: Now, you`ve got carriers like T- Mobile and now Sprint who are willing to buy out all the early termination fees from contracts on Verizon (NYSE:VZ) or AT&T (NYSE:T), and that means that customers are free to leave and free to shop for lower-priced plans.
That`s putting pressure on everybody`s pricing and you`re seeing all of these promotions in the market that make it easier to upgrade your phone much more often and to do it at a much, much lower cost.

BRENNAN: Carriers have also begun offering installment plans, swapping contracts and subsidies for monthly payments by consumers buying the phone at full price. All of this is fuelling the market for previously used iPhones. Bernstein Research said it expects the trade-in market to quadruple by 2018.

(on camera): How all of it impacts the carrier`s profits, though, is up for debate. Some analysts say popular installment plans will boost revenue, even as service prices drop, others like Moffett think financials will come under pressure from two directions as folks choose subsidies amid those lower prices. But whatever the final outcome, there is already a winner — consumers.



MATHISEN: Darden posts a loss amid pressure from an activist investor, and that is where we being tonight`s “Market Focus”.

The Olive Garden parent just managed to beat on the top and bottom lines, but Starboard Value, which owns a nearly 9 percent of in the company isn`t satisfied. The activist is pressuring the restaurant operator to increase its profit and its stock price. It had 300-pages of slide of advice for the company, including salt the pasta water and go easy on the unlimited breads that they needed and the activist investor to tell them this? Mama could have given them that advice. Shares slumped 1 1/2 percent to $47.58.

AT&T`s deal to buy DirecTV is reportedly being examined by a number of state attorneys general. The investigation of the proposed $48 billion deal will look into possible anti-competitive issues. Shares of both companies lower today, AT&T (NYSE:T) down 1 one percent, $34.50 the close.
DirecTV was off slightly to $86.85.

GHARIB: Alliance Data is hoping to bolster its digital marketing business by buying Conversant for more than $2 billion. Alliance manages credit cards and loyalty programs for retailers. Conversant offers online ad services. The deal is expected to close by the end of the year.
Conversant stocks soared 30 percent, closing at $34.80. Alliance rose 2 percent to $257.91.

An update on that possible cyber attack at J.P. Morgan. The bank said it has yet to detect any unusual customer fraud related to the recent alleged attack. It reiterated that customers won`t be liable for unauthorized purchases. Shares of J.P. Morgan rose slightly to $60 and change.

MATHISEN: Our market monitor tonight is Chris Orndorff. He`s senior portfolio manager at Western Asset Management.

Good to have you with us.

Thanks, Tyler. Great to be here.

MATHISEN: You know, we began the broadcast tonight talking about three issues on the horizon for next week. You heard it, I`m sure.

What would you be telling investors about the climate next week?

ORNDORFF: Well, I think in the near term, the positive momentum is still going to continue. The economic data releases as we saw today by the really strong breadth of the retail sales release today, that momentum continues to be positive and consistent with the 2.5 percent earnings growth rate. You`re going to see geopolitical flare-ups like Russia, Ukraine, like Scotland and U.K., and those typically we believe will create buying opportunities rather than a change in the market direction fundamentally.

GHARIB: Let`s talk about some buying opportunities, you have a couple of stocks you want to tell the viewers about. The first one is Ship Finance International (NYSE:SFL). Tell us about this one, $18.49 today.

ORNDORFF: Sure, this is a company that owns and charters out ships.
It`s a great play on the improving global growth environment. We also believe that in an environment where Russia is playing games with its energy exports to the rest of Europe, there is likely to be an increased demand for the transportation of liquefied natural gas or LNG, in this company that is a positive catalyst that will benefit the stock, with an
8.5 dividend yield, it pays you to wait.

MATHISEN: All right. Let`s move to your second one, you like ships, your second one is Two Harbors. You like ships and harbors.

Two Harbors Investment Corps., what`s going on with that one?

ORNDORFF: Well, the consistent theme on all of that is income which I think is important in this kind of an environment. We expect, you know, as the Fed starts to raise short-term interest rates in the first half of 2015, that is going to be a headwind on stocks. So, investors who are focusing on stocks with positive and high income or investments with positive and high income are really going to we think, weather it better.

So, this particular company is a mortgage REIT of the dislocation and the change in the mortgage market since 2008 really created an opportunity in these kinds of entities. And a mortgage REIT has more flexibility than a mutual fund, so it can deliver really very high, in this case, double digit dividend yields.

Western Asset manages a REIT just like this. They`re great opportunities and this kind of an opportunity where you have double digit yields. You really just want share price stability.

GHARIB: All right. Your next pick is also one of those with the high dividend Mercury General (NYSE:MCY) Corp, MCY is the ticker symbol. What`s attractive here?

ORNDORFF: Right, this is a property and casualty company primarily focused on automobile coverage in California. They`re branching out to other states, though. There are also other positive catalysts, a very closely held company, pays a 4 1/2 percent dividend yield.

And again, it`s a nice place to wait out that anticipated rise in short-term rates.

MATHISEN: You`re going to try to buy any Alibaba next week, Chris?


ORNDORFF: No, I think we`ll wait until the dust settles on that.

MATHISEN: All right. Chris, remember, salt the pasta water and go easy on the bread sticks as our last segment —


MATHISEN: Chris Orndorff with Western Asset Management.

And, coming up, hidden potential as housing enters the traditionally slower fall season, some are going the extra mile to sell a home that may need a little fixing up.


GHARIB: General Motors (NYSE:GM) issuing a rare stop delivery order on its brand-new 2015 Chevy Corvettes. It`s one of G.M.`s most popular models. But the automaker says it needs to fix up some minor problems with the car`s air bags and parking brakes.

MATHISEN: And finally tonight, selling high end real estate in top housing markets is getting, of course, more competitive and more technical.
Simply staging a multi-million dollar home isn`t enough anymore. So, some agents are doing virtually everything else.

Diana Olick has the story.


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This four-story townhouse in Manhattan sought after West Village will surely sell at a premium but getting top dollar will take something extra, because this is what it looks like on the inside.

MATTHEW LEONE, HALSTEAD PROPERTY WEB DIRECTOR: There`s a lot of clients out there that could see through that and have a vision and buy property based on line of sight and see where it could be. But there are others that can`t see through that.

OLICK: So, real estate agents at the Halstead company did a virtual gut renovation and added it to the web listing still showing the before pictures of the living room, but then the stunning sleek after.

And of course, what everyone wants to see, the kitchen, both before and then after. All thanks to the vision of a real architect on a virtual platform.

EMILY CHANG-ZIDAROV, ARCHITECT: Especially in the New York market and markets where there are foreign investors coming in, where they`re not actually going to see the property. It`s more kind of a statistic.

OLICK: The agents briefed Chang-Zidarov on the potential buyer pool and what kind of renovation that buyer might want to see.

LEONE: The broker is a local expert. They understand the community.
They understand the architecture. They understand what belongs in the property to help sell it.

OLICK (on camera): It clearly comes at a cost to the agent but in a market like Manhattan, it takes more than baking cookies to compete for a listing. And the agents say it`s already paying off. Leone claims Web traffic to this listing jump 30 percent after they added the virtual renovation.

(voice-over): Halstead is far from alone. Another competitor, Reba Miller, debut a virtual open house for a $10 million property on the Upper East Side. You can choose a room and walk through it, virtually impossible not to get drawn in. And agents say that`s the best way to get you in the real door.

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


MATHISEN: To read more about how real estate agents are turning to virtual renovations to make fixer uppers more appealing to buyers, head to our Web site,

I`m not sure, I want to see the way it might look, that looks like a high expense to me.

GHARIB: Yes, I was going to say they don`t say anything about how much that new kitchen or that new living room with all that beautiful new furniture is going to cost you.

MATHISEN: Imagine how great this might look if you had another million or whatever it was.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Have a great weekend.

MATHISEN: And I`m Tyler Mathisen. Thanks for joining us. Have a great weekend and we`ll see you back here on Monday.


Nightly Business Report transcripts and video are available on-line post broadcast at 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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