TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Separate ways: eBay (NASDAQ:EBAY) spins off its fast-growing PayPal unit, marking a sharp reversal in strategy, as the mobile payment landscape changes very quickly.
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DANIEL IVASCYN, PIMCO CIO: We’re going to continue to be very focused on performance and we’re a very competent group that will be able to continue to deliver those returns that our clients expect.
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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Charting a new course. PIMCO’s new chief investment officer and CEO tell investors the world’s largest fixed income asset manager is moving forward without its founder, Bill Gross.
MATHISEN: If it ain’t broke. Why Ford is taking a big risk by making a big change to its bestselling vehicle for the past 33 years.
All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, September 30th.
GHARIB: Good evening, everyone.
They say that breaking up is hard to do, but not at eBay (NASDAQ:EBAY) apparently. The online auction giant said today it plans to spin up its lucrative PayPal electronic payment division into a separately traded company sometime next year. The announcement is a dramatic reversal for a company that fought hard against activist investors who are advocating that eBay (NASDAQ:EBAY) would benefit from a split.
Investors cheered the decision, lining up to buy eBay (NASDAQ:EBAY) stock today, and sending shares up nearly 8 percent.
Morgan Brennan takes a closer look at the PayPal spinoff, what it means to eBay (NASDAQ:EBAY) and investors.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: EBay’s core e-commerce business will remain the same, but the mobile payments process will stand on its own. It’s a move the company now believes make sense, since by 2017, eBay (NASDAQ:EBAY) will only account for 15 percent of PayPal’s business.
JOHN DONAHOE, EBAY CEO: As we continue our annual assessment, looking forward to 3 to 5 years about how we can best position eBay (NASDAQ:EBAY) and PayPal, we think the competitive position and the competitive environment of commerce and payments are going through accelerating change that creates new sets of opportunities and challenges for both eBay (NASDAQ:EBAY) and PayPal, and that operating independently and separate will give eBay (NASDAQ:EBAY) and PayPal focus, strategic flexibility, and an ability to move quickly and decisively in this changing environment.
BRENNAN: Investors reacted positively to the plan, sending shares of eBay (NASDAQ:EBAY) soaring today, but none more pleased than Carl Icahn, the activist investor who first calls for a PayPal spin-off back in February, a proposal that had been met with extraordinary pushback from the company. In a statement today, he praised eBay’s change of course, calling it a no-brainer that will enhance values for shareholders. It’s a sentiment echoed by hedge fund Third Point, another activist shareholder, as well as analyst, who say this will allow PayPal to be better valued, and eBay (NASDAQ:EBAY) to become an active player in M&A.
GENE MUNSTER, PIPER JAFFRAY: It’s going to compete directly with Apple (NASDAQ:AAPL) Pay. We recently downgraded eBay (NASDAQ:EBAY) based on competitive threat. Google (NASDAQ:GOOG) Wallet is going to be more of a competitor next year. I think the one element that this really opens up is the concept that Alibaba could purchase the marketplace.
BRENNAN: But challenges do remain, on both businesses face steep competition, from tech peers like Google (NASDAQ:GOOG), to brick and mortar retailers like Walmart, and financial service companies like American Express (NYSE:EXPR) (NYSE:AXP). However, two stand-alone companies will allow investors to better assess those risks.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan at the NASDAQ in New York City.
MATHISEN: EBay’s decision to split off a PayPal is creating a lot of buzz in the payments world, the world increasingly populated by companies promising to make it easier for retailers to accept and for consumers to make payments from their mobile phones.
Mary Thompson now with the who’s who in the mobile payments space.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): EBay’s breaking up with PayPal, splitting up the business just over 40 percent of its revenue, a sign to industry watchers there is a pay off in payments.
WALTER MOSSBERG, RE/CODE: I think in a way the split which says we think there is value in the payment side by itself validates what Apple (NASDAQ:AAPL) and people like Square and other people are doing.
THOMPSON: What Apple (NASDAQ:AAPL) is doing with its soon-to-be launched Apple (NASDAQ:AAPL) Pay is hoping to get a piece from the rapidly growing market for mobile payoffs, a global market research firm the Gartner (NYSE:IT) Group estimates will reach $720 billion by 2017. That’s up from $235 billion in 2012.
Mobile payments if a fragmented space, with hundreds of firms competing for a piece of the consumer’s digital wallet, and the retailers registers.
Analyst Michael Misasi says with so many options, consumers and retailers don’t want to commit to just one.
MICHAEL MISASI, ANALYST: There is still so much that needs to be sorted out between retailers, what they prefer to accept, and then, consumers, what’s going to provide them the most value for using their phones instead of their cards.
THOMPSON (on camera): In the mobile space, there are a few firms pulling away from the crowd, thanks to new technologies or thanks to established systems that are just to expansive to replace.
(voice-over): Industry watchers say that means winners in the emerging mobile payment space will be mature network operators, like Visa (NYSE:V), MasterCard (NYSE:MA), and American Express (NYSE:EXPR) (NYSE:AXP). It doesn’t matter if a person pays for a purchase at the register, online or with their phone. If the payments are made with a credit card linked to their networks, they get a cut.
All three are working with one of the newest players in mobile pay, Apple (NASDAQ:AAPL) — a firm experts see becoming a leader. The tech giant creating an ecosystem before the launch of Apple (NASDAQ:AAPL) Pay, selling a phone with pre-installed app which hundreds of thousands of merchants say they’ll accept.
MISASI: The fact that they’ve gotten the relationships together I think that bodes well for their longer term success.
THOMPSON: Others see PayPal’s longtime success in online payments being replicated in mobile — meaning for all the change in mobile payments, things like the big players are likely to stay the same for now.
For NIGHTLY BUSINESS REPORT, I’m Mary Thompson.
THOMPSONS: A big story that broke last week is still a big topic of discussion on Wall Street. That’s the resignation of Bill Gross from PIMCO, the massive asset management firm he helped to create.
Well, today, the firm’s new CEO, Doug Hodge, and its chief investment officer Dan Ivascyn spoke about Gross’ departure and how the firm will carry on without him.
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DOUGLAS HODGE, PIMCO CEO: Bill Gross chose to resign this past week. We had I — we had in place a succession plan that had been in process all during the course of this year. Bill was going to leave eventually, we all knew that, whether it was on Friday, next year, or the year after. We put our plan in place and we executed, and we’re moving forward.
DANIEL IVASCYN, PIMCO CIO: Bill Gross was a brilliant investor. And, you know, we had a model in place that was a founder-driven model in terms of management. And now, you know, we as a team, we’re going to move forward with a model based more on teamwork.
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GHARIB: Despite reports of billions in outflows from PIMCO in the wake of Gross’s exit on Friday, Doug Hodge said the vast majority of PIMCO clients are staying with the firm.
MATHISEN: On Wall Street, stocks were up and down all session long before ending the day and the month of September to the down side. But the major averages did wrap up the third quarter with gains. The Dow fell 28 points today, the NASDAQ lower by 12, S&P 500 off by 5 1/2.
For the just completed third quarter, the Dow was up about 1.3 percent, the NASDAQ rose almost 2 percent, and the S&P saw its seventh quarter in a row of gains, but they were small, 2/3 of a 1 percent.
GHARIB: Half a world away from Wall Street, thousands of pro-democracy protesters took to the streets of Hong Kong again, closing banks and other businesses.
So, how are big companies dealing with thousands of workers being unable to get to their offices and what could be the long-term impact on business.
From Beijing, Eunice Yoon has more.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hong Kong is seen as the financial center on par with New York and London. The Chinese city is a former British colony and for many Wall Street banks, Hong Kong is an important base in Asia. So far, the disruption from the ongoing protests in Hong Kong has been minimal. Companies have been preparing contingency plans ever since the city’s pro-democracy activists signaled that they would blockade the downtown business and shopping businesses to send a message to the communist party in Beijing.
Banks, such as HSBC and Standard Chartered, had to close branches and cut services in some parts of the city. Other firms such as KPMG, Blackrock, as well as Ernst & Young, have told their staff that they can work from home. The uncertainty has dampened sentiment in the city’s stock market. Ratings agency Fitch doesn’t see any long-term effect on Hong Kong’s standing as a major financial hub, unless the protests continue and weigh on the economy.
However, others say that the demonstrations are what make Hong Kong different from the rest of China. They say the real risk is if Beijing cracks down on the city, undermining Hong Kong’s role as a gateway for China and one that is trusted by international investors because of its rule of law.
For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon, in Beijing.
MATHISEN: So, how will issues like geopolitics, earnings and the midterm elections affect the U.S. markets in the fourth quarter?
Let’s find out from Liz Ann Sonders. She’s the chief investment strategist at Charles Schwab.
Liz Ann, welcome back. Good to see you.
LIZ ANN SONDERS, CHARLES SCHWAB: Hi, Tyler.
MATHISEN: Fourth quarter, what do you expect to see? Possible pullback, what?
SONDERS: You know, when the S&P first hit 2,000, and it wasn’t because it hit that magical number, it wasn’t a technical condition, the internals of the market started to look fairly shaky. So, the soldiers weren’t keeping up with the generals as they often say. So, breadth had deteriorated, and sentiment was very stretched. So, a lot of optimism on the traditional sentiment measures.
That told us that you were — had an increased likelihood of getting your typical kind of midterm election year pullback. September wasn’t a great month. You certainly saw the pick-up in volatility. I don’t know whether that’s it, and whether we’ll see the correction just in certain areas, like small caps. But I think it would healthy to get a little bit of a pullback here. That said, I think the bull market is still intact.
GHARIB: Why is that?
SONDERS: Well, first of all, I think what started five and a half years ago was a secular bull market. Now, that doesn’t mean you don’t have corrective phases, but all of the conditions that have been in place, prior secular markets were in place this time. We haven’t built anywhere near the excesses in the economy or really the stock market that tend to precede bear market type of pullbacks.
So, corporate earnings are still moving higher, leading indicators are still moving up. Capital spending is just starting to pick up. So, most of those excesses and you can look at the same thing on the leverage side, on the debt side, are not in place right now. That’s why I think any corrective phase would likely be just that, a pull back in an ongoing market.
MATHISEN: Let’s talk about the strong dollar for a moment, Liz Ann. It hasn’t been this strong for this long in quite sometime. And that can pinch the earnings of multinationals. Have we started to see that? What will you be looking for as the earnings reports start to come out this month?
SONDERS: You know, the S&P is a little less exposed globally than it has been in the recent past, because we have been moving a lot of business back to the U.S. We’re in this renaissance right now, energy renaissance, manufacturing renaissance. And that’s why the trade deficit is coming down.
That said, you’re right — when you have a 11-week surge in the dollar, as strong as what we’ve seen, I would expect to at least hear some companies start to talk about it. That said, we’re a consumption oriented economy. Sixty-eight percent of the U.S. economy is consumer spending and you look at the impact that the strong dollar has down on commodity prices, on energy prices, it is a net big positive for not only the U.S. economy but also for the stock market.
I think we’re in a similar environment as we were in the 1990s, where the dollar will go up and so will the stock market.
GHARIB: Liz Ann, let me ask you this — at Charles Schwab, you’re obviously in touch with a lot of individual investors, many of our viewers. Number one is, what kind of feedback are you getting from them in terms of investor confidence, investor sentiment. Number two is, what kinds of things are you telling them to do? Because this is a tricky time in the market, we’re sort of in inflection point.
And don’t say everybody is different. But just roughly, I mean, what are you telling the individual investors to do with their portfolio?
SONDERS: Well, I’ll start with the latter part — and you’re right, it really depends on the investor, but as I already mentioned, we think there is frothiness in the market and that there is an increased likelihood of a pullback that tends to happen in mid-election years. More likely than not, it’s probably a buying opportunity. So, depending on where your allocation is, it could be seen as an opportunity.
You know, the midterm election year I think is a tricky piece of this, and I think that’s — you normally get — actually, the average pullback in a midterm election year is 18 percent. I don’t think we’re going to get that. Again, I think it’s an ongoing bull market, but that’s what we’re telling the investors.
I would say the mood of our investors is maybe not quite as optimistic as what some of the traditional sentiment measures tell you. There is some optimism, but there is a lot of skepticism. There’s still a lot of that — all right, I’m in the market but I’m looking for the next shoe to drop. Tell me what the risk is. What is the next thing that’s going to come around to surprise us?
So, there is a lot of wariness for the down side and I think that’s a good sign that this wall of worry that the market likes to climb is still intact.
MATHISEN: Liz Ann, great to see you again. Liz Ann Sonders with Charles Schwab.
GHARIB: Still ahead on the program: why Ford is making a big change to its vehicle, the F-150, at a time when investors are questioning the automaker’s near-term outlook. That’s next.
GHARIB: In a story that broke late today and could color trading tomorrow, the Centers for Disease Control and Texas health officials have confirmed the first Ebola case diagnosed here in the U.S. The patient had recently traveled to West Africa and is being treated at a hospital in Dallas. Shares of the drug maker Tekmira, which makes a promising Ebola medication spiked in after-hours trading, along with Massachusetts-based, Sarepta Therapeutic, and Newlink Genetics, which are also working on experimental treatment.
MATHISEN: The price of oil took a tumble today on a stronger U.S. dollars Liz Ann was just mentioning, ample global supplies factoring in as well.
West Texas crude oil off nearly $3.5 a barrel today. It ended just above 91 bucks. That is the biggest percentage drop for oil in almost two years. Brent slumped below $95 a barrel, meantime.
GHARIB: Not only are oil prices falling, so are prices at the pump. AAA says there are now 26 states where drivers can find at least one station selling gasoline below $3 a gallon, and that gas prices are expected to keep dropping in October.
Ford is betting big on a radical change for the country’s most popular vehicle, the F-series pickup. It is becoming lighter, and more fuel efficient. And while no mileage has been posted just yet, it is expected that some models could get more than 25 miles a gallon on the highway for a truck, because the panels will be made of lighter weight aluminum and not steel. But will it still be Ford tough?
Phil LeBeau takes us for a ride deep in the heart of Texas.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): This is not your typical test drive. Then again, this is not your typical truck. Ford’s all new F-series pickup is 700 pounds lighter, with fuel efficiency expected to be greater than 25 miles per gallon on the highway.
One reason why? Panels on the truck are now made out of high strength aluminum, not steel.
JOE HENRICHS, FORD: You think about all the attribute improvements that come with light-weighting on the F-150, not just the fuel efficiency, which, of course, is the big component, but the driving, the towing, the hauling, the breaking, the acceleration, this changes the game. This is the best truck we’ve ever made.
LEBEAU: That’s saying something, since the F-series has been the best selling vehicle in America every single year since 1982. It’s also incredibly profitable. Ford makes an estimated $8,000 to $10,000 in profit out of every F-series ever sold, making this one of Ford’s riskiest moves ever.
Now, despite gas prices falling, Ford believes truck viewers will embrace a lighter pickup that delivers more miles per gallon.
ITAY MICHAELI: This is a truck that does get them, you know, way ahead of the curve in terms of fuel economy regulations. Consumers do want fuel economy particularly in the pick up truck segment.
LEBEAU (on camera): The aluminum panels on the new F-series don’t sound like the steel panels on the previous F-series. But this is not like pushing in on a tin can. This is high strength aluminum alloy. And Ford says these panels will meet the latest safety and durability tests.
HENRICHS: We’re extremely confident in this truck. We’ve tested over 10 million miles of durability, other testing on this truck. Of course, remember, the frame, the strength, the hard core part of the truck has gotten stronger with more high-strength steel.
LEBEAU (voice-over): Going lighter while promising to be even stronger, in a market where truck buyers want big and bold pickups.
Phil LeBeau, NIGHTLY BUSINESS REPORT, San Antonio, Texas.
GHARIB: While Ford shakes up the pickup truck industry, General Motors (NYSE:GM) is set to announce a new road map. CEO Mary Barra is preparing to unveil multi-year financial and quality goals for the automaker tomorrow, including a strategy to boost the company’s profits and launched what it calls market leading vehicles.
Shares of G.M. have fallen 20 percent since January. That’s when Barra was appointed CEO.
MATHISEN: News Corp (NASDAQ:NWS) is expanding its digital presence, with its latest acquisition, and that’s where we begin tonight’s “Market Focus”.
The media company is buying Move (NASDAQ:MOVE) Inc. That’s the owner of Realtor.com for $950 million. The company owns one of the most trafficked Web sites for property listings in the U.S., giving “The Wall Street Journal” owner a chance to expand into the real estate data market. Shares of News Corp (NASDAQ:NWS) fell 2 percent to $16.11. Move (NASDAQ:MOVE) Incorporated up 37 percent to $20.96.
Netflix (NASDAQ:NFLX) is going to the movies. The video streaming site has announced its first original movie “Crouching Tiger, Hidden Dragon: The Green Legend,” which is set to premier in August of 2015. The film will be released simultaneously on Netflix (NASDAQ:NFLX) and in some IMAX theaters, shaking up the traditional movie-going experience, the windows for release and then post-release. Shares rose a fraction to $451.18.
European Union regulators revealed details in a letter today of why they believe tax deals granted to Apple (NASDAQ:AAPL) in Ireland were illegal. Authorities claim Ireland avoided international tax rules by letting Apple (NASDAQ:AAPL) shelter profits worth tens of billions of dollars from revenue collectors, in return for maintaining jobs. Apple (NASDAQ:AAPL) says it has received no selective treatment. Despite all of this, shares of Apple (NASDAQ:AAPL) were up slightly today to $100.75.
GHARIB: Microsoft (NASDAQ:MSFT) lifted the veil on the next version of Windows. The follow-on to the current Windows 8 operating system will be known as Windows 10, the tech company skipped number 9 in naming the new software. The next version of the flagship product, which still runs most personal computers, is aimed at recapturing the lucrative business market. Shares were off slightly today to $46.36.
And Walgreen (NYSE:WAG) posted a loss of nearly $240 million in its fourth quarter, that’s after a huge accounting charge from its recent acquisition of the Swiss beauty company Alliance Boots. It also warned that profits will continue to struggle because of lower drug reimbursement rates and higher costs for generic drugs. The stock lost 33 cents, closing at $59.27.
MATHISEN: Mixed news in housing to tell you about. The Case-Shiller home price index for July shows that prices rose a bit less than 7 percent, year over year. But that increase was the slowest in 20 months, and down more than a 8 percent jump in June. Of the 20 biggest cities in the index, San Francisco was the only metro area to see prices decline in July.
GHARIB: Despite that broad-based slowdown in home price gains, many would-be first time home buyers are not moving in and not picking up the slack in sales. But are millennials really against homeownership or are they just victims of tougher economic times?
Diana Olick takes a look.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Millennials don’t buy houses, they are young, urban, socially savvy, and generation rent.
ROBERT SHILLER, ECONOMIST: Young people today seem to have a less attitude toward housing. I don’t know why, I’m not one of them.
OLICK: But do they really?
ASHLEY WETZEL, HOMEOWNER: I wouldn’t say that the entire generation is anti-home ownership.
OLICK: Meet these millennials Ashley and Ken Wetzel, married with condo.
KEN WETZEL, HOMEOWNER: We started working right out of college. We had a job right out of college, so we were able to save money over the years.
OLICK: Yes, they have student debt. Yes, they love urban life. Yes, they see no reason for a phone connected to the walls. And yes, their rent just kept rising.
So, last spring, they bought their first home in the heart of D.C.
ASHLEY WETZEL: When it started to even out, when the numbers sort of matched up, kind of figured it was time.
OLICK: Both 28, Ken and Ashley are older than their parents were when they got married. And that’s the crux of it. Millennials are getting married and having children later in life. The two biggest drivers of homeownership. But that can be an advantage.
(on camera): Are you both smarter borrowers than your parents? Ooh.
KEN WETZEL: I think so.
ASHLEY WETZEL: One of the most important things for me was understanding what we were getting ourselves into. Understanding all of the intricacies of a mortgage and the lending process.
OLICK: By virtue of being older, millennials may also be wiser home buyers. They lived and learned through the recession, and probably know more about mortgages than their parents did. Unlike their parents, though, they do not aspire to that oversize house in the suburbs, a stereotype that for now at least seems to hold up.
KEN WETZEL: The answer is, that’s definitely not the plan. We plan to stay in the city for as long as we possibly can.
OLICK (voice-over): Bad news for the nation’s builders who still believe this generation will ultimately outgrow its urban life-style and head for greener pastures or any lawn at all. For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.
MATHISEN: Coming up: hitting the jackpot. Just how big does the gambling industry have on the U.S. economy? We’re going to Vegas, baby, next.
MATHISEN: An update now on the bankrupt Revel Casino in Atlantic. According to “The Wall Street Journal”, Brookfield Asset Management (NYSE:BAM), which owns the Hard Rock Hotel and Casino in Vegas, currently has the highest offer there, $94 million, topping that of real estate developer Glenn Straub, which made an initial cash bid of $90 million.
GHARIB: And finally tonight, the American Gaming Association is out with a report on the gaming industry’s impact on the economy. And with new casinos being built all across the country, new products are being added to keep customers coming through the door.
Jane Wells has more from Las Vegas.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Gaming in America is proving you win some, you lose some.
Las Vegas is rebounding, Atlantic City is struggling. Several gaming companies are competing to expand in states like Massachusetts.
And for the first time, the industry has commissioned a study on gaming’s economic impact on the American economy. It is kind of a big deal.
SARA RAYME: We employ 1.7 million people. It’s actually larger than the airline industry. We contribute a quarter of a million dollars to the economy, and $38 billion in taxes to local and state governments around the country.
WELLS: Hoping to grow those numbers, companies at the Global Gaming Expo this week in Las Vegas are debuting new slot machines.
UNIDENTIFIED MALE: I dare you to play this game without laughing, you cannot do it.
WELLS (on camera): At the same time, casino floor space in Las Vegas is shrinking. Millennials don’t play slots as much as older Americans do, and Vegas is increasingly relying on non-gaming revenues to make money.
(voice-over): For example, MGM Resort is building with AEG, a 20,000-seat arena, an adjacent park for half a billion dollars.
DON THRASHER: It’s a different experience and never has ever been done here.
WELLS: To keep people in the casino, machine companies are making games more social.
UNIDENTIFIED MALE: We find that slot players really like to have a community experience, so we have developed some games where they share in a bonus. Our dragon spin game, a dragon goes between the various machines and selects one of the five players of that bank to get a bonus.
WELLS: One of the biggest challenges remains a lot of regulations. Regulators are reluctant to make slot machines more skills based, like video games, even though that would attract younger players.
And then, there are all the rules for moving equipment across state line.
RAYME: If you look at all the different regulations that are in place, there are a million different regulations that manufacturers have to adhere to as they move their equipment around the country.
WELLS: As they try to move more of the equipment as the states open up to gambling, believing it will get easier could be a bad bet.
For NIGHTLY BUSINESS REPORT, Jane Well, Las Vegas.
GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks so much for watching.
MATHISEN: And I’m Tyler Mathisen. Thanks for me as well. Have a great evening, everybody. Hope to see you right back here tomorrow night.
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.