Transcript: Wednesday, October 1, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you in part by —

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Diving into October.
That`s what stocks did today and it was the worst start in three years.
Tonight, we begin a two-day look at what`s next for domestic and global
stocks, bonds and commodities.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Fast lanes.
Consumers drove off with more cars in September than they did a year ago.
And there is one automaker that`s suddenly hot with car buyers.

GHARIB: And economic contagion. The fallout when a potential health
crisis causes the fear factor to ramp up.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Wednesday, October 1st.

MATHISEN: Well, good evening, everyone, and welcome.

The markets kicking off the month of October and the final quarter of
the year with a massive selloff today, sparked by worries mostly about
global growth. Not helping? Some disappointing economic data out today
showing a slow down in U.S. manufacturing in September and a drop in
construction spending in August. Not even good news about private sector
hiring and some strong auto sales last month could blunt today`s big
decline.

So, major averages are now at their lowest averages since mid-August,
and small cup Russell 2000 index officially dipped into correction
territory, down 10 percent from its July 3rd high.

Here is a look at the damage at the closing bell. The blue chip Dow
stocks off 238 points, just off the lows, but closing well below the 17,000
mark. The NASDAQ lower by 71, the S&P 500 lost 26 points — the utilities
the only sector in the green today.

The new quarter off to a dismal start. What do traders and investors
have on their agenda for the markets and the rest of the year?

Dominic Chu takes a look.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
fourth quarter is finally upon us. It`s a period of the year that many
experts think is a more positive one for stocks. But this time around,
investors will be tuned into a number of different items on the market
agenda.

First of all, there`s the economic data, which has painted a mixed
picture as of late. Some of the most important data over the course of the
next three months will be on the jobs front, as well as consumer spending
as we head towards that all-important holiday shopping season.

Second, we`re getting ready to kick off an earning seasons. Many
investors are looking for a reason to justify the stock markets that still
hovers near record highs. Growth in corporate earnings and sales could go
a long way in setting the tune for the next few months.

And third, the impact of the Fed is still a huge variable. Our
nation`s central bank has been slowly reducing the amount of stimulus in
the system, and some experts say that there is no telling how markets will
react to the so-called Fed taper. After all, we`ve never seen anything
like the Fed stimulus program in the past or what happens when you tried to
unwind it.

Now, when it comes towards trading in the stock market, many say, look
towards the banks.

ART CASHIN: I would like to see some stuff come a little bit better
out of the financials, both in their activity, like to see bank lending
pick up, some feeling that some of the regulatory safeguards that have been
put in, are sand in the wheels.

I think if the financials picked up I would feel a little bit better
about it.

CHU: Let`s not also forget, we got what could be a huge shift in the
political landscape in America, with midterm elections just a little over a
month away.

(on camera): All of these things could be potential catalysts for the
overall market so investors are going to want to stay vigilant.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu from the New York Stock
Exchange.

(END VIDEOTAPE)

GHARIB: So, where do the markets go from here? We begin a two-part
discussion on the outlook for U.S. and international markets, as well as
forecasts for bonds and commodities. Our guests tonight look at U.S.
international investing.

Paul Christopher is the chief international investment strategist with
Wells Fargo (NYSE:WFC) Advisors, and Seth Masters is chief investment
officers at Bernstein Global Wealth Management.

Welcome, gentlemen, for joining us.

PAUL CHRISTOPHER, WELLS FARGO ADVISORS: Thank you.

GHARIB: Seth, let me begin with you, and the U.S. markets. Why did
we get this big selloff today? Is this the beginning of the big correction
that everybody has been talking about?

SETH MASTERS, BERNSTEIN GLOBAL WEALTH MANAGEMENT: Quite frankly I
don`t know. But I think over time we`ll see that the market trends upward,
we have a fair amount of volatility, because the underlying fundamentals
continued to be good. The economy is growing and companies are earning
really at very strong levels and we think in a way that is pretty
sustainable for the next few years.

MATTHEWS: All right, Paul, let`s turn to the international outlook.
Do you like international markets more than you like U.S. markets? Which
do you think will perform better over the next 12 months?

CHRISTOPHER: No, we would be with Seth on this one. We`ll take the
U.S. this time. We`re overweight U.S. large caps at this particular time.
We think the trend will be higher over time.

But we do think that maybe international is getting a little bit too
pessimistic in terms of the outlook investors have. I think Europe`s
recovery has turned a corner. It`s going to be slow. It was always going
to be slow, and we`ll see some improvement, marginal improvement next year,
and I would look for opportunities to buy into under-valued stocks at that
time.

GHARIB: And you know, Paul, we talk about geographies, can you be a
little more specific? I mean, Europe versus China, let`s say versus
Brazil, which the stock market was down 2 percent today. Any specific ones
to invest in and what countries to avoid?

CHRISTOPHER: First of all, we like the European recovery to improve
from here and we think there`s been too much pessimism. So, that said, we
would take a core approach to Europe. We like Germany, we like
Switzerland, we like the U.K. That gives us a little bit of currency
diversification as well.

In terms of emerging markets, the second rule would be: go with
countries that demonstrate a willingness and ability to do economic
structural reforms. In the good camp there, we put Mexico, we put Taiwan,
Korea and we would put China. But we would put the under-performers, the
under-achievers, Brazil, and we also would put Indonesia and Turkey in that
group.

MATHISEN: You know, Seth, I guess I hear you saying the bull market
thesis is intact, but you don`t rule out the possibility of a correction.
When interests rates start to move up, as inevitably they will, who knows
and who really cares whether it`s March or June or next August. Will that
automatically mean the death knell for the bull market?

MASTERS: Great question. And we think there is actually a fairly
logical answer, which is that while there may be short-term jitters when
the Fed begins to lift off from the zero interest rates it`s had in place
for the last few years, it`s actually probably going to be a good thing for
stocks over time. And the reason why is, when interest rates are rising,
especially from very low levels as would be the case next year, the reason
is that the economy is improving, which means that companies are actually
growing, and that generally is good for stockholders.

GHARIB: All right, so let me ask you, Paul, what you think of what
Seth just said. So, the Fed ends the stimulus program, that might be good
for U.S. stocks. But is that good or bad for some of the international
markets?

CHRISTOPHER: It`s initially going to be a headwind for international
markets insofar as the dollar should continue to stay strong, and that
would put foreign currencies under pressure. So, if you`re a U.S.
investor, you want that foreign position that you`re holding to have an
appreciating currency, not a depreciating one.

But I think what`s eventually going to happen is what typically does
happen, and that is the U.S. will pull foreign growth higher, and the
currency depreciation overseas will end up benefitting exporters in those
countries and boost their earnings as well. We could even find that
international markets will give investors a boost in their portfolios even
as the S&P eventually gets to its top.

MATHISEN: Seth, 30 seconds here. Why have small company shares sold
off so much more than large company shares? And is the point of
opportunity near?

MASTERS: I think that the reason is that people really don`t like
volatility at the moment. They`ve gotten used to very low complacent
levels of volatility. And when you look at small cap stocks, the first
thing you think about is they are riskier.

The other point is that small caps were quite expensive when they were
at their peaks in March of this year. They were trading around 20 times
their earnings. Today, they`re back at something like 18. That`s closer
to the broad market.

I think that means we`re probably closer to the point where things
will move together as opposed to the big difference between small and large
that we`ve seen recently.

GHARIB: Paul and Seth, thank you so much. Paul Christopher with
Wells Fargo (NYSE:WFC) Advisors and Seth Masters at Bernstein Global Wealth
Management.

And tomorrow, we`ll take a close look at bonds and commodities and
what`s ahead for those markets over the next few months — Tyler.

MATHISEN: More now on the solid jobs data from the payroll firm ADP
for last month. Private employers added 213,000 workers in September, a
bit more than forecasted, with gains seen across a number of sectors.

Now, the ADP report is a forerunner, and sometimes, but not always a
predictor, of the Labor Department`s official jobs tally. That one comes
out on Friday.

GHARIB: Despite today`s market slide, the of the world`s biggest
hedge fund has an upbeat outlook on the U.S. economy. Ray Dalio, the
founder of investment firm Bridgewater Associate says the economy and
current market conditions are actually in good shape.

(BEGIN VIDEO CLIP)

RAY DALIO, BRIDGEWATER RESOURCES: Well, the conditions are good.
Corporate-wise, balance sheets, everything-wise, that should continue to
have a momentum, I see no real reason for a problem in the United States
now other than too tight a monetary policy. And I don`t think you will go
to too tight a monetary policy.

(END VIDEO CLIP)

GHARIB: Dalio did say that he is concerned about another possible
downturn but says that`s at least 18 months away.

MATHISEN: The CEO of General Motors (NYSE:GM) also sounding confident
about the future. Mary Barra told investors she expects GM to reap its
first profits in Europe in more than a decade in 2016 and she predicts the
automaker will hit North American operating margin target that same year.
GM also plans to increase production over in China and give money back to
shareholders.

(BEGIN VIDEO CLIP)

MARY BARRA, GENERAL MOTORS CEO: From a shareholder return
perspective, as we deliver results, our plan is to continue to return
excess cash flow to stockholders, primarily through strong and growing
dividends. You know, that will be based on our performance, and not only
the performance year to year, but the underlying strength of the balance
sheet.

(END VIDEO CLIP)

MATHISEN: Investors like what they heard. Shares of GM up nearly 2
percent on a very down day in the markets overall.

GHARIB: Well, General Motors (NYSE:GM) was one of the big winners in
the September sweepstakes for auto sales. September was also a profitable
month for the entire industry. Sales were up 9 percent from the same month
last year, with an annual selling pace of nearly 16.5 million vehicles.
Sales at both GM and Chrysler jumped to 19 percent year over year, Ford
sales were down almost over 3 percent. But that drop was better than
forecast.

Phil LeBeau joins us now from Chicago, with more on those strong
numbers.

Phil, no question about it, September numbers very impressive. But is
it because of incentive? Is that how dealers are closing out deals, and is
that good or bad?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, the
incentives are up just a little bit, Susie. I wouldn`t call this one of
those months where you drove by a dealership and there are signs saying,
“Come on in, you`re going to get $6,000 to buy a new car.” We didn`t see
that.

We did see a little bit of juice, as they say, spread on some of those
models that are struggling a little bit. But overall, the incentive
activity was generally kept in check.

MATHISEN: What are lower gas prices meaning for the sales of bigger
cars, SUVs, trucks like the F-150 you showed us last night?

LEBEAU: Right. Oh, you`re seeing more people buy the full-size SUVs.
There`s no doubt about that. Here`s the bottom line when it comes to gas
prices. When they spike higher, people immediately pull back. When they
come down, it takes a while for people to realize, hey, you know what, I
can get a bit more with this SUV, and therefore, I`m not going to feel it
in the wallet when I go to the gas pumps.

Also remember, all of these SUVs, guys, they`re far more fuel
efficient than they used to be.

GHARIB: Phil, tell us about Chrysler. It sold more vehicles last
month than Toyota (NYSE:TM), up 19 percent. Why is it so hot right now?

LEBEAU: They`re in the sweet spot in the market with two of their
brands, Jeep, because SUVs are so hot right now, and Ram trucks, because
pickups are in demand.

And also, their lineup, when you look at the Ram trucks, especially
the eco diesel option, or when you look at the Jeep lineup, which is fresh
across the board, I mean, they`re selling right now because they have fresh
product. And that`s the bottom line in the industry.

GHARIB: OK, thanks, Phil — Phil LeBeau reporting from Chicago.

MATHISEN: And still ahead, PIMCO tells investors just how much money
fled from its flagship total return fund after funder Bill Gross walked out
the door.

(MUSIC)

GHARIB: More evidence today of how much the sudden resignation of
bond king Bill Gross from PIMCO shook up the fixed income market. Today,
PIMCO released data for September, outflows for the month at the firm`s
signature total return fund were nearly $24 billion. That is huge. The
largest withdrawal was on Friday alone, the day that Gross resigned.

MATHISEN: The market plunge today isn`t the only worry on the minds
of investors after officials in Texas confirmed the first case of the Ebola
virus diagnosed here in the U.S. So, could the fear factor surrounding
Ebola hurt the U.S. economy?

Steve Liesman takes a look.

(BEGIN VIDEOTAPE)

THOMAS FRIEDEN, CDC DIRECTOR: We do not believe there is any risk to
anyone who was on the flight at that time.

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Health officials may say that, but it didn`t stop Wall Street today from
selling off airline stocks. One index posted 3 percent on fears of reduced
airline traffic after the announcement of the first Ebola case in the
United States.

KEITH BLISS: Given the recent developments of the Ebola disease, it`s
now hitting the shores in North America, people are getting obviously
concerned about air travel, that investment specialists are trying to get
ahead of that trade a little bit and starting to dump out of the airline
stocks thinking that the business may be down.

We`re going to be watching that. We`re also going to be watching
other stocks that may be impacted by this. The hospitality industry, for
example, they could be impacted as well until the situation clears up.

LIESMAN: Health officials insist they can contain the virus in the
United States but the impact on airlines just one potential fear running to
the minds of investors.

One study estimated the SARS virus back in 2003 cost the global
economy $40 billion. Retail sales in Hong Kong plunged 15 percent in just
a single month at the height of the crisis. Airline travel to Hong Kong
fell 77 percent.

Assuming as many experts do that an outbreak never happens in the U.S.
or is contained, the broader impact could come as officials must respond to
public fears and restrict travel, or if people voluntarily decide that it`s
just safer to stay home. But all of that pales against the far deeper and
more painful impact in the Western African nations suffering from the Ebola
outbreak. Beyond the horrific cost in lives, they pay a fair price in
declines in growth, trade and transit, making it even harder for them to
respond with the financial resources needed to fight the deadly disease.

(on camera): The differing responses in the U.S. and Western African
nations highlights the biggest economic issue of all, one the world will be
dealing with for decades, and that is the economic inequality that enables
a wealthy country to potentially escape the effects of the deadly disease,
and the poor one to sever the worst possible misery the virus can met out.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: JPMorgan (NYSE:JPM) Chase is facing a big lawsuit. A federal
judge has certified a class action lawsuit by investors who claim JPMorgan
(NYSE:JPM) misled them about the quality and risk of $10 billion of
mortgage-backed securities it sold just ahead of the financial crisis.
This comes a year after the bank reached a $13 billion settlement with the
U.S. government and several states over the same allegations.

MATHISEN: And a judge throws out a Fannie Mae and Freddie Mac-related
lawsuit against the government and that is where we begin tonight`s “Market
Focus”.

A group of investors in Fannie and Freddie sought to stop the
governments from seizing most of the profits at the mortgage companies.
Now, the hedge funds, the plaintiffs here, had argued that they had been
short-changed as Fannie and Freddie returned to profitability. The
mortgage giants saw their shares surge for more than two years on that
speculation that shareholder rights to those earnings could be restored.
Well, tell it to the judge. Shares of Fannie and Freddie both down more
than 35 percent today.

Coke, bowing to pressure from Warren Buffett, announced plans to scale
back its executive compensation plan before it goes into effect next year.
Shareholders have criticized the beverage giant saying the awards were
excessive. The company says the new plan will limit its stocks
compensation and improve transparency. Coke bubbled up a little bit to
$42.74.

The New York Times (NYSE:NYT) is cutting 100 newsroom jobs and a
smaller number of other positions to slash costs. This comes as its
advertising revenue from its print business has shrunk and as it tries to
focus more of its resources on its digital operations. Shares of the Old
Gray Lady up 9 1/2 percent at $12.30.

GHARIB: Vivint Solar made its trading debut on the New York Stock
Exchange today. The company is the second biggest installer of solar
panels for residences in the U.S. It raised about $330 million after
pricing its shares at $16 a piece.

The CEO says there`s enormous potential for the solar panel industry.

(BEGIN VIDEO CLIP)

GREG BUTTERFIELD, VIVINT SOLAR CEO: Right now, we`re saving customers
15 percent to 30 percent on the utility rate that`s generated by fossil
fuels. If you look historically in the seven states where we`re at, the
average utility increase is 6 percent. And so, given the fact that the
utility rates historically continued to rise, nationally 4 percent, we
think that there is a huge opportunity to provide clean power at a lower
price.

(END VIDEO CLIP)

GHARIB: Shares closed just a penny higher at $16.01.

Shares of Angie`s List jumped on reports that the company is exploring
a sale. The online review site has hired bankers to search for strategic
options, but it`s not committed to a definite sale, according to those
reports. Shares surged 19 percent to $7.59.

And satellite TV provider DirecTV reached a new multi-year contract
with the NFL. It will be able to continue to sell its Sunday Ticket
packages of NFL games and the agreement has expanded its rights to stream
games live on mobile phones and over the Internet. Shares spiked initially
after hours, during the regular trading day the stock was up a little at
$86.59.

MATHISEN: Well, with cyber security so important these days, just how
difficult is it to recruit top technology employees, especially when you`re
the NSA and competing against the likes of Google (NASDAQ:GOOG) and
Facebook (NASDAQ:FB) for some of the same individuals, pretty tough.

Eamon Javers has the story.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Rocked by the Edward Snowden disclosures and facing stiff competition for
top talent for high-paying Silicon Valley firms, the nation`s cyber spying
agency is looking to recruit a new generation of college hackers and
through one program, cultivating students as young as the eighth grade.

Thirty-two-year NSA veteran Steven LaFountain is building a pipeline
of NSA employees by developing a cyber curriculum for tech-savvy students
at more than 20 universities and helping with NSA-backed summer camps for
middle school and high school students.

LaFountain sat down with us at the NSA History Museum where he told me
the NSA works hard to lure top talent.

STEVEN LAFOUNTAIN, NSA: Clearly, we lose a lot of incredibly talented
people to Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) and Microsoft
(NASDAQ:MSFT) and all these other places, but we also get a lot of very,
very smart people as well, because some people just have this motivation to
do what they believe is right to work for the government.

JAVERS: And LaFountain insists the students he is bringing to the spy
agency simply aren`t bothered by the Edward Snowden disclosures.

LAFOUNTAIN: Actually, I don`t think it has been damaging to our
ability to recruit talent in that many of the students that I talk to,
anyway, that I interact with, they`re interested in the tech, right? You
know, they`re not bothered by let`s say the politics of things like that.
They`re interested in the technology.

JAVERS (on camera): LaFountain said that new NSA employees need to
know that even though they`re trained to steal foreign data when they`re at
work, they can`t hack when they`re off duty.

LAFOUNTAIN: You can`t do that in your personal life, right? You
can`t do that against family, against friends, against neighbors. You
know, you got to be still a model citizen in cyber space.

JAVERS (voice-over): Eamon Javers, for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GHARIB: And coming up, the big business that is being done behind
bars, and whether it`s right to profit from prisoners.

(MUSIC)

MATHISEN: The now closed down Revel Casino Hotel in Atlantic City,
New Jersey, has a new owner tonight. Canada`s Brookfield Asset Management
(NYSE:BAM), which already owns the Hard Rock Casino in Las Vegas, was the
highest bidder in a bankruptcy auction for the Revel, topping rivals with
an offer of $110 million. Get this, the two-year-old casino which shut its
doors last month, cost nearly $2.5 billion to build.

GHARIB: The United States is home to 25 percent of the world`s
prisoners and the prison market has become quite lucrative for some
companies. CNBC, which produces this program and through a joint
partnership with the Center for Public Integrity took a look at the big
money behind bars.

Dina Gusovsky reports.

(BEGIN VIDEOTAPE)

DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The United States has the highest incarceration rate in the world — over 2
million people behind bars, which provides ample opportunity for some to be
on the front lines of profiting from prisons.

Ryan Shapiro is one of those people. He runs a company called JPay,
that took in about $50 million in revenue last year from a captive,
literally, market.

The bulk of the business is providing electronic money transfers for
corrections facilities.

RYAN SHAPIRO, JPAY CEO: The pitch is that this is more convenient for
you.

GUSOVSKY: Loved ones can put money into an inmate`s account without
ever leaving the house. Each time a family member transfers the money,
JPay charges a fee ranging from about $1.45 to $24.95 per transfer. Once
inmates get that money via JPay kiosk set up in prisons, they can then use
it to buy other services that JPay also provides. Like e-mail and video
visitation, $12.95 per 30-minute session, even tablets for inmates. Like
this JPay 4.

(on camera): How much did that cost you?

UNIDENTIFIED MALE: It was $59.99.

GUSOVSKY: The tablet holds music that inmates can download from yet
another JPay service, similar to iTunes. But it`s not just JPay that`s
profiting. The company operates in over 1,200 facilities in 32 states, and
there is a profit-sharing agreement with each state.

SHAPIRO: Government agencies can and will accept a portion of the
revenue as an incentive to put the program in.

GUSOVSKY: But those like Jack Donson who worked at the federal bureau
of prisons for decades has a problem with anyone making money on the backs
of prisoners.

JACK DONSON: I felt like it was more of the government bureaucracies
that were profiting from this, as well. The sentence is the punishment.
Inmates are not put in prison to be punished. They`re put in prison as
punishment.

GUSOVSKY: Keith Miller is doing 21 1/2 years for armed robbery in a
prison in Virginia.

KEITH MILLER, INMATE: It`s not right that my family has to pay for
the money to be sent to me.

GUSOVSKY: Critics argue this leads to gouging, and investors and
regulators have already gone after some companies especially those who
provide phone services for prisoners, like PayTel.

VINCENT TOWNSEND, PAYTEL CEO: And the reason we`re in this mess right
now on my side my industry has abused the public and I`m willing to admit
that. We have abused the public.

GUSOVSKY: The FCC had to step in and cap rates for prison phone
calls. But the JPay CEO Ryan Shapiro says that regardless of the flaws in
the system, he is providing valuable systems to those behind bars.

SHAPIRO: Before JPay came around that type of customer service didn`t
exist in corrections, period. It`s unfortunate nobody has come up with a
better model, and if somebody did, that would be fantastic. But nobody has
yet.

GUSOVSKY: For NIGHTLY BUSINESS REPORT in Bismarck, North Dakota, I`m
Dina Gusovsky.

(END VIDEOTAPE)

GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight, I`m Susie
Gharib. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks for me, as well. Have a
great evening, everybody. We hope to see you right back here tomorrow
night.

END

Nightly Business Report transcripts and video are available on-line post
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on Nightly Business Report is not and should not be considered as
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