Transcript: Thursday, October 2, 2014

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


number. Did hiring rebound in September, after a disappointing August.
What Wall Street and Main Street should look for in tomorrow`s monthly
employment report.

world`s most noticeable investor, Warren Buffet, is buying one of the
nation`s largest auto dealership chains. But why now when some experts say
demands for cars may be peaking?

MATHISEN: What`s in store? Tonight, we look at what`s next for bonds
and commodities as an increasingly fractious 2014 enters the fourth
quarter, with the year`s investing game on the line.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
October 2nd.

GHARIB: Good evening, everyone.

A turbulent day on Wall Street as stocks posted deep early losses
before closing mixed and little change. That up and down trading followed
steep declines in Asian and European markets after the European Central
Bank left interest rates unchanged today and provided few details about
plans to purchase bonds to juice the eurozone economy.

Here`s how things looked at the closing bell. The Dow lost just three
points. That`s after being down as much as 130 points. The NASDAQ
actually rose eight points and the S&P was a fraction higher.

Now, some good news about jobs might have helped investor confidence,
especially come a day ahead of the September job`s report. First time
jobless claims unexpectedly declined by 8,000 last week, falling to an
eight-year low. But will that be enough to lift hiring for the month?

Hampton Pearson looks ahead to tomorrow`s job report, who is finding
work and where those jobs are coming from.


economists predict a job market rebound in September from the surprising
downturn in August that saw employers adding just 142,000 workers to
payroll, breaking a six-month winning streak of more than 200,000 jobs per
month. New claims for jobless benefits fell again last week, the four-week
moving average is now below 300,000, moving back to pre-recession levels
and planned layoffs from major businesses are at their lowest levels in
more than a decade.

Data earlier this week predicts strong private sector job growth, up
213,000 in September, according to payroll processor ADP with the accent on
better-paying jobs.

MARK ZANDI, MOODY`S ANALYTICS: It is across every industry and across
every size, looking at other data, it`s — the quality of the job growth is
improving. If you go back early in the recovery, it was mostly low-paying,
two to three years ago, we started to see some high-paying. Now, we`re
seeing job growth across the spectrum.

PEARSON: Manufacturing and construction have slowed in the last two
months. And auto sales, while still on the rise, are off the record face
of a year ago. But those new jobs and lower gasoline prices are boosting
incomes and consumer spending. That`s according to the latest government
data. The September jobs report could be a key indicator of what lies
ahead for the economy in the fourth quarter.

JARED BERNSTEIN, ECONOMIST: Even while we have seen some positive
momentum in recent economic numbers, it really has been somewhat of a fits
and starts kind of recovery. A few good quarters and then all of a sudden,
a big negative surprise. And that makes it very hard to forecast.

PEARSON (on camera): At 6.1, the unemployment rate is historically
low, but going inside the numbers tomorrow, leading economists will be
looking for signs that people are coming off the sidelines and back into
the labor force because they believe their prospects for finding a job are

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson, in Washington.


GHARIB: And what about small businesses? What`s holding them back
from hiring? We`ll have that story a little later in the program.

MATHISEN: Sluggishness in the eurozone is contributing to a weaker
outlook on the global economy from the head of the International Monetary
Fund. Christine Lagarde said today that this year`s modest world economic
rebound has not been as strong as her group predicted just six months ago.


weaker than we had hoped only six months ago. So, there is recovery, don`t
get me wrong, but it`s weaker than what we thought. And we have forecasted
a modest pickup in 2015, as — and that`s important factor. The outlook
for potential growth has been pared down.


MATHISEN: Lagarde says the whole world needs to aim higher and try

GHARIB: And that sentiment was echoed today by the head of the
European Central Bank. After leaving interest rates unchanged, Mario
Draghi made it clear there won`t not be anymore rate cuts, even though the
economy is in trouble.


MARIO DRAGHI, ECB PRESIDENT: The economy is still fundamentally weak.
I`ve said many times, our recovery is weak, fragile, uneven, and still is.


GHARIB: But Draghi says policy makers will take action if inflation
targets aren`t met and that the threat of deflation increases.

MATHISEN: Just like stocks, oil prices also bounced up and down all
day today, on worries about weakening global demand and a glut of supplies.
Steep losses early on in the trading day saw U.S. crude sink to $88 a
barrel before rebounding and ending 28 cents a barrel. Higher as you see

International Brent crude fell for the third straight session to its
lowest level in more than two years.

GHARIB: So, how do all the global issues impact investors? Let`s
talk more about that as we continue our special look at investing themes
for the fourth quarter. Tonight, we focus on commodities and also the
outlook for bonds.

Joining us now Meg McClellan. She is global head of fixed income
strategy at JPMorgan (NYSE:JPM) Asset Management.

Meg, thanks for joining us.

Let me start by asking you — what is your outlook for bonds and for
U.S. treasuries and where do you see the yield on the tenure by the end of
the quarter, by the end of the year?

of the year that you`re going to see interest rates very range bound, and
there`s a number of reasons for that. While, fundamentally growth and wage
is picking up, you have a lot of geopolitical uncertainty out there, the
protests in Hong Kong, and slowdown in growth. Certainly we`ll watch the
labor market numbers tomorrow that will keep that potential rise in check.

There is also a lot of foreign buying from countries in Europe, also
in Asia that are looking at the higher yields in the U.S. and thinking they
look relatively cheap to a 90 basis point 10-year yield. So, that`s going
to help us keep a lid on interest rates. So, our view is probably 50 basis
point range or so, say, 250 to 3 percent, heading given the balance between
fundamentally having a good story and technicals actually driving those
interest rates down.

MATHISEN: So, it sounds like you don`t see, Meg, a lot of risks in
owning bonds, at least treasuries right now because some of that foreign
money, I was going to ask you where the money was coming from, and you just
answered. A lot of it is coming from Europe.

MCCLELLAN: A lot of it is coming from Europe. A lot of it is coming
from Asia. Also a lot of it, you know, is insurance companies here and
pension funds here domestically that have to do asset liability matching,
they need to do fixed income, and hiring, because of the purchase program,
they have been competing with the Feds for those asset. So, that also
helps keep rates low.

GHARIB: All right. Let`s bring Tim Gramatovich, chief investment
officer at Peritus Asset Management, into this conversation.

Tim, let me ask you about oil prices because you pretty much cover
commodities. They have been coming down a lot recently, and so have
gasoline prices. What is your outlook on oil price is and where do you
think they`ll be by the end of this quarter?

is obviously a short-term and a long-term. I think commodities in general
over the last — certainly the last few months have really taken it on the

And two of the three factors really relate to sort of a commonality,
one being a much higher U.S. dollar. The dollar is obviously going
parabolic here in the last month, bringing down the prices of all

You know, the second forgotten, Meg touched on it, in terms of just
global economic weakness in general, right? I mean, you got a really
recessionary conditions in Europe, very poor conditions in Japan and China
slowing. So, that`s the — you know, those are the particulars in general.

With oil, I think that you`re really putting in a bottom here. You
have a couple of issues that are going on. One obviously, the seasonality
in the oil business, meaning that refineries take turnarounds, there is
obviously a slowdown in demand as mentioned before with the dollar.

But I think what people are missing, and I think it`s a massive
opportunity for investors, is that production heading into 2015 is not
going to be anywhere near as robust as people believe it is. I think the
illusion that everybody is suffering, that somehow that because we`re
drilling out free zones in the U.S., that everything is hunky dory. It

If you look at the globe, and, Tyler, you know, you guys cover this
well. You know, you look at Libya, you look at Iraq, you look at
Venezuela, and now the information coming in from Russia based on
sanctions, et cetera. This is all going to kind of play through in 2015.
And we`re looking for a very, very — big bounce in oil.

MATHISEN: So I hear you say to consumers enjoy these low oil prices
while you can because they won`t last. Let me give your very quick thought
on two other categories on commodities. One would be the metals. I assume
you are going to say that that`s an economically-driven issue, and the
other are the agricultural commodities — wheat, corn, and so forth, whose
prices have come way down.

GRAMATOVICH: Right. Tyler, I think the issue on your first point is
100 percent right. Again, it is a nice offset right now for U.S. consumers
in terms of gasoline prices, I`m not a believer that they`re going to hold
down at these levels, turning to the metals, you know, obviously, the metal
that everybody is always interested in is gold.

You know, gold is interesting. I mean, it stopped going down. I
mean, it certainly hasn`t done anything. I mean, it`s in that low 1,200
area and we`ve done a bit of work. We`re primarily putting on our themes
with debt.

And so, one of the reasons we like debt and particularly gold bonds is
that all the sustaining costs for gold across the globe is around 1,250
bucks. So, you`re below that at this point, which simply means that your
capacity addition stop, companies start building cash instead of building
out mines and production shrinking. So, I think gold is interesting.

But, Tyler, I`ll tell you one other thing that I think gold is
interesting because of. And that is that all of this activity that the
globe has been engaged with in terms of, you know, whether it was QEs, you
know, call it government manipulation, if you will, at the end of the day,
has it worked, right? I mean, it`s done some good, yes. But I think
people will be tired of paper currency and they will come back to gold.

GHARIB: All right. Tim, we`re going to have to leave it there.
Interesting stuff, though. Thank you so much, Tim and Meg. Meg McClellan
at JPMorgan (NYSE:JPM) Asset Management, and Tim Gramatovich from Peritus
Asset Management.

MATHISEN: The Ebola crisis that`s impacting ExxonMobil`s operation,
so says the CEO there. The oil giant is prohibiting employees now from
traveling to West African countries experiencing Ebola outbreaks. And it`s
disrupting plans apparently for exploratory drilling that the company had
planned to engage in off the coast of Liberia.

GHARIB: Turning to politics now. The midterm elections are about a
month away, with the balance of power in the Senate up for grabs and the
economy playing an increasingly bigger role for candidates. One of the
Senate races that`s too close to call is in Colorado.

John Harwood has more from the Rocky Mountain State.


a month away from the election day and Democrats need to win this state of
Colorado to keep control of the United States Senate.

(voice-over): In the dozen battle ground states that matter most, the
improving economy so far hasn`t helped Democrats with voters nearly as much
as they`d like. With this week`s conference forward report showing a fresh
drop in consumer confidence, President Obama went to Chicago today to talk
up the economy and the role his policies have played in the recovery from
the recession.

hard, but it has been steady and it has been real. And it`s the direct
result of the American people`s drive and their determination and their
resilience. But it`s also the result of sound decisions made by my

AD NARRATOR: A lot has been said about women`s health recently —

HARWOOD: Instead of the economy, Democratic incumbents like Mark
Udall here in Colorado have been targeting women voters with issues like
abortion and contraception.

Udall`s Republican challenger Cory Gardner wants to change the subject
to economic anxiety, even though Colorado`s unemployment rate is a full
point below the national average.

REP. CORY GARDNER (R), COLORADO: Senator Udall is clearly is a social
issues warrior. That`s what he wants to campaign on. That`s what he`s
made his career on. I think the people of Colorado are talking about the

You know, if you look at the last several years the median household
income has declined by over $4,000. People are working fewer hours every
week, thanks to Obamacare. It really is a veneer. You scratch the surface
of the economy and there are people really hurting.

HARWOOD (on camera): Tomorrow`s jobs reports will provide another
signal of where the economy is headed as election day draws closer.
President Obama hopes to give Democrats like Senator Mark Udall something
to brag about.

For NIGHTLY BUSINESS REPORT, I`m John Harwood in Morrison, Colorado.


MATHISEN: Still ahead, would you buy a car from Warren Buffet? Why
the world`s premier investor decided to get into the auto selling business.


MATHISEN: Warren Buffet is getting into the auto business. Buffett`s
company, Berkshire Hathaway (NYSE:BRK.A), has bought the fifth largest auto
dealership group in the U.S. Selling and servicing cars has become a
lucrative business in recent years, as auto sales and the economy have
rebounded, and that`s caught Buffett`s attention.

Phil LeBeau has more.


is the big business that has made a big comeback, running an auto

Now, Warren Buffett`s is getting into the game, buying the Van Tuyl
Group, which is the majority of the 78 owners around the U.S.

very good operation. The partnership approach that he has — it worked
extraordinarily well. He`s just keep adding leadership over the years.

LEBEAU: Buffett wants to sell and service cars because it is very,
very lucrative. Last year the average dealership`s net profit was almost a
million dollars, more than doubling in the last five years, with the
biggest earnings coming from the service department, which have flourished
as Americans hold onto their cars and trucks longer.

LARRY VAN TUYL, VAN TUYL GROUP: But if you stand in the service
departments, the average mileage of the car coming to our service
departments is 70,000 miles. So, that`s the highest it`s been that I can
remember all my life, and I`ve been in this business for 40-plus years
myself. Right? So, there is a lot of old vehicles out there that still
need to be replaced.

LEBEAU: Berkshire is buying into the business at a time when auto
sales are so strong, many believe demand for new cars is close to a peak.
Which raises the question, is future growth limited?

Buffet doesn`t think so. He says there is still room for
consolidation with thousands of independent dealers around the country.
And even if the economy starts to slow, Buffett knows there will still be
people buying or servicing their vehicles.

BUFFETT: The fundamental demand for cars has not gone down. The
average dealership will do a lot more business now than it did 30 or 40
years ago, in terms of units.

LEBEAU (on camera): Don`t be surprised if Buffet drives further into
the auto business. In fact, he says he`d like to buy even more
dealerships. Berkshire Hathaway (NYSE:BRK.A) Automotive, they`ve got a
deal waiting for you.



MATHISEN: A number of auto dealerships stocks getting a bounce off
that investment by Buffett today. AutoNation (NYSE:AN) up 6 percent, Sonic
(NASDAQ:SONC) Automotive (NYSE:SAH) almost 3 percent higher, Lithia Motors
(NYSE:LAD), shares revving 10 percent.

GHARIB: An update now on that massive cyber attack this summer at
JPMorgan (NYSE:JPM) Chase. The nation`s biggest bank now admitting that
financial data on 76 million households and about 7 million small
businesses was compromised in the breach. The bank maintains that customer
money is safe.

MATHISEN: The shakeups continue at Allianz, the big German insurer.
Last week, superstar bond investor, Bill Gross, abruptly left the company`s
mammoth U.S. asset manager, PIMCO. Today, it was the CEO, Michael
Diekmann, will step down next spring after more than a decade as chief
executive. And late today, there were reports that Charles Schwab is
dropping PIMCO`s flagship fund, the PIMCO total return fund, from its 10
target date funds.

And Sears (NASDAQ:SHLD) is cutting the stake in the Canadian unit, and
that is where we begin tonight`s “Market Focus”.

The cash-strapped retailer says it will raise up to $380 million by
selling a large portion of Sears (NASDAQ:SHLD) Canada. This ahead of the
crucial holiday shopping season. The move comes after a year-long attempt
to find an outside buyer — they couldn`t. The $380 million price target
is about half of what the company had previously said it was worth. Shares
nevertheless popped about 7 1/2 percent to $27.06.

Shares of Wayfair surged in the company`s trading debut on the NYSE.
The online home goods retailer offered 11 million of its shares at $29 a
piece, above the expected range. The company will take in almost $320
million dollars from the sale. Shares 30 percent higher at $37.72.

GHARIB: The founders of GoPro announced that they are breaking a lock
up on their shares of the company, to set up a new charity and investors
weren`t too thrilled about it. JPMorgan (NYSE:JPM), which managed the
company`s June IPO, agreed to release the founders from a restriction that
prevents insiders from selling shares within a certain time frame after the
firm`s trading debut. The stock fell almost 7 percent to $85.46.

And, Real D, a company that supplies 3D technology to cinemas,
received a takeover bid from Starboard Value. The activist investor
offered $12 a share. Real D says it`s reviewing the offer. Shares rose 27
percent to $11.78.

MATHISEN: After a massive investment of capital, Alcoa (NYSE:AA)
opened the world`s largest aluminum manufacturing facility today. It will
make it aircraft parts there. So, does this mean the U.S. production for
the aerospace industry is ready to take off?

Morgan Brennan has more from Lafayette, Indiana.


of the products you are making here?

ERIC ROEGNER, ALCOA AEROSPACE: So, what this plant does is make
aerospace products, which were going into commercial airplanes, military
airplanes and other defense applications. And this plant in particular
makes the most advanced aluminum lithium alloy on Earth.

BRENNAN (voice-over): This is Alcoa`s brand-new lithium facility, the
biggest in the world. This plant will generate 44 million pounds of the
lightweight super strong alloy in years, also to be used in aerospace.
Parts will be manufactured for Boeing (NYSE:BA), Airbus, Gulfstream, and
Pratt & Whitney, which inked a billion dollar multi-year deal with Alcoa
(NYSE:AA) for a brand-new invention.

ROEGNER: What we did over seven years of development with Pratt &
Whitney, in just some credibly deep technical collaboration, is created a
fan blade that changed the game. It`s lighter than titanium. It`s cheaper
than titanium. It`s even lighter and cheaper that carbon fiber and
outperforms them both.

BRENNAN: Aerospace is a high growth, high margin business for
aluminum makers. The years-long backlog means that the business that will
last a long time.

But perhaps most importantly, it`s not a revenue stream hurt by the
weak aluminum prices that have hit Alcoa (NYSE:AA) and its competitors so
hard since the recession.

ROEGNER: If you can be on the cutting edge of application development
so that when a new airplane is being designed or a new engine is being
designed, and you`re the one at the table with the customers, then in many
ways, you`re insulated from commodities because you`re not making a

BRENNAN: Analysts say Alcoa (NYSE:AA) has been on the forefront of
the shift from smelter to advance manufacturer, from the auto industry with
Ford`s new aluminum paneled F-150 pickup to SpaceX rockets.

JOSH SULLIVAN, STERNE AGEE SR. ANALYST: The fundamental commodity
strength in the aluminum market has really propelled the stock over the
last 12 months or so. However, Alcoa (NYSE:AA) is also going through a
transition where they`re focusing more on their value-added products, and
this is in their aero — particularly in their aerospace products.

BRENNAN: Those products sold $4 billion in 2013, and analysts expect
Alcoa (NYSE:AA) sales to grow dramatically by the 2020, thanks to new
facilities like this one and the company`s $2.8 billion acquisition of
engine parts maker, Firth Rixson.

(on camera): Other aluminum makers like Constellium and Kaiser
Aluminum (NASDAQ:KALU) have been increasingly focusing on aerospace as
well. As for this brand-new facility, it already has $100 million in
revenues booked for 2017, a sign that this business is set to fly.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Lafayette, Indiana.


GHARIB: Coming up, Wall Street and Main Street are waiting for
tomorrow`s report on how many Americans got jobs in September. Tonight, we
look at why many small businesses are reluctant to hire. That`s next.


MATHISEN: Federal judges ruled there is no constitutional protection
for public employee pensions in a municipal bankruptcy case. The city of
Stockton, California, thought it had to make pension payments to CalPERS,
that`s the California Public Employment Retiree system, before bondholders
and other creditors got paid. But the ruling allows the city to treat
pension obligations like any other debt. Meaning it can start cutting
those retiree contributions. Now, that ruling is expected to be appealed.

GHARIB: Some good news about hiring from small business owners. The
latest monthly survey from the National Federation of Independent Business
shows that small companies hired workers at the fastest pace in eight
months in September. That`s a sign that the job market continues to gain

MATHISEN: That survey showed an average gain of just one quarter of
one employee, getting hired last month. That means a lot of other small
businesses are just not taking on new workers. So, what`s holding them

Ahead of tomorrow`s big jobs report, Kate Rogers (NYSE:ROG) takes a


business owners what`s bothering them and you won`t find a single answer.

UNIDENTIFIED MALE: This is for that order that we`re donating, right?

ROGERS: For Ken Jarosch, owner of Jarosch Bakery near Chicago, it`s
wages that have him worried.

KEN JAROSCH, JAROSCH BAKERY: And the reason that`s prohibiting me
from hiring more people is that many of our staff, our wait staff, are high
school kids. And many of them, I find it hard to pay them a higher rate,
like $10 or even $13 an hour, and then still have to train them.

ROGERS: On top of that, rising health insurance costs have Jarosch
concerned he`ll have to hike his prices, which could drive customers out
the door.

JAROSCH: And those expenses, those training costs add up quickly.
Just this morning, my insurance broker was here. We looked at the renewal,
it`s going up 6 percent. I can handle that. I`m not happy but we can
handle it.

We looked at potentially what next year is going to be. It`s over 30
percent increase.

ROGERS: And it`s not just wages and health care that have small
businesses concerned. Some on Main Street say and overarching regulatory
environment is adding to the frustration, with resource-strapped small
business owners often doubling as compliance officers.

remember the business owner, him or her is complying with the regulations,
when they ought to be going out and building the business, recruiting
customers, mentoring employees and building a strong business.

ROGERS: But even amidst the uncertainly, there`s been some
encouraging signs. PNC`s latest economic outlook survey for small
businesses show that the number of businesses that plan to hire hasn`t
changed over the last six months, but that hiring is still much stronger
than it was a year ago.

And the NSBA says the environment could improve further following
midterm elections.

MCCRACKEN: Well, I think there is always a bit of optimism after any
election, and especially if the optimism can snowball into a little bit of
progress on getting a handle on our long-term issues as a country.

ROGERS: But for Jarosch, whose concern that higher costs could take a
toll on his business, the outlook for hiring at his bakery is cloudy at

JAROSCH: That gives me absolutely no incentive to hire additional
staff. Replacement staff — sure, but additional staff, I don`t see it.

ROGERS: And for a labor market that`s driven by hiring among small
business owners, that could be troubling news.



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

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a
great evening, everybody. We will see you back here tomorrow on jobs
Friday tomorrow.


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