Transcript: Tuesday, October 7, 2014

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


major indexes tumbled more than 1 percent as investors grow concerned about
a slowing global economy. The International Monetary Fund also cutting its
growth forecasts but says there`s one bright spot, the U.S.

A new survey suggests the economic recovery here still has a long way to
go, and Americans may be tired of waiting.

GHARIB: And housing triple dip? They say it wouldn`t happen again,
but now, some experts are warning of yet another pullback in home prices.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Tuesday, October 7th.

MATHISEN: Good evening, everyone, and welcome.

Stocks took a real tumble today, closing at a two-month low on weak
manufacturing data out of Germany — the economic engine of Europe, and
deepening worries about a slowdown in global growth overall. That`s after
the International Monetary Fund trimmed its outlook for global growth this
year and next, singling out the troubled economies in Europe, Japan and
Latin America most especially.

With that, stocks here sold off sharply after they did in Europe. On
Wall Street, they began the day lower and stayed in the red all session
long. They sank further into the closing bell.

And the final numbers were brutal: the Dow, off 272 points, worst day
since the end of July. The NASDAQ was down nearly 70 points. And the S&P
500 dropped almost 30.

Sara Eisen now with a closer look at the IMF`s weaker forecast around
the world as well as the one bright spot in the global economy.


Mediocre, that`s the way the IMF is describing the global economy. Ahead
of its gathering of central bankers, finance ministers and other financial
heavyweights in Washington this week, the fund took down its forecast for
global growth, saying it expects the world to only grow 3.3 percent this
year and 3.8 percent next year.

The reason — geopolitical risk from the Middle East and Russia, a
weaker European economy and risks of a storm brewing and what the IMF calls
complacent financial markets.

OLIVIER BLANCHARD, IMF: I don`t think that we are at the bubble stage
or anything like this, but there are some markets which I think are a bit
too optimistic. I think we`re going to see some — you know, the exit from
the U.S. I think it has been explained as well as it could by the Fed, but
it`s still going to come with some bumps. We`re going to get moments where
the market is a bit worried. And once in a while we`re going to get
numbers like these ones which are going to make people think that the
future is not quite as bright as they thought.

EISEN: But there is a bright spot, the United States. IMF now says
the U.S. will grow faster than previously predicted and should hold up well
in a world fraught with risk.

BLANCHARD: We think it`s resilient. We think it`s a recovery which
is not running but maybe walking on all four legs. We see the housing
market steadily improve. We see a fairly balanced growth. So we are very
optimistic about the fact that the recovery will continue for some time.

EISEN: Financial markets have been dealing with diverging growth
paths around the world. For instance, the U.S. dollar has climbed for 12
weeks in a row, the longest rally ever. And increasingly investors are
turning to American companies that do most of their business at home
instead of multinationals with overseas exposure.



GHARIB: Well, Yum Brands (NYSE:YUM) is one of those multinational
companies that has overseas exposure and its quarterly earnings got hurt by
it. After the market closed today, the owner of Pizza Hut, Taco Bell and
KFC, which gets more than half of its revenue from China posted earnings
that came in below expectations.

It was a top and bottom-line myth. Yum earned 87 cents a share,
missing estimates by 2 pennies. Revenues topped $3 billion but were just
short of forecasts with sales in China plunging 14 percent after a food
safety scare, and weaker margins than Wall Street was looking for.

Investors were also disappointed that Yum also lowered its earnings
growth forecast for the full year. In after-hours trading, shares were
initially lower.

MATHISEN: Even though the IMF`s outlook on the U.S. economy is
strong, a lot of Americans see a different story. The All-America Economic
Survey done by CNBC, which produces this broadcast, has some surprising
results about how ordinary people view the U.S. economy.

Steve Liesman has more.


The good news when it comes to the American economy, the CNBC All-America
Survey finds 18 percent of the public believes the economy is in good or
excellent shape, up three points from last year.

The bad news: 79 percent in the nationwide poll of 805 Americans judge
it as just fair or poor. And both numbers remain depressed relative to
where they were before the financial crisis.

(on camera): More good news. Just 28 percent of the public sees the
economy getting worse in the next year. But in an economy marked by tepid
growth, that`s really bad news because 42 percent think it will remain the
same. And just about half see it getting better.

It`s that kind of economy. Vastly improved from where it was in the
depths of the great recession but still below the level Americans have
become accustomed to pre-crisis.

JAY CAMPBELL, HART RESEARCH: I do think that the data employment rate
being as low as it is, that`s not what people think about. What people
think is about their own jobs, their own difficulty of paying their student
loans, their own difficulty of paying for their kids` college education.
When things are improving albeit very slowly, people get tired of waiting.

LIESMAN (voice-over): What`s behind these attitudes? The outlook for
housing helps explain.

Americans look for their home values to grow by almost 2 percent in
the next year. Half of what they normally expected before the crisis but
better than it was from 2008 to 2012 when the average American thought
their home would decline in value.

Americans also don`t seem too in love with the stock market these
days. Just about a third say now is a good time to invest in equities,
down slightly from a year ago. A very large 29 percent are unsure. And
given the uncertainty in the economy today, unsure seems about the smartest
call of all.



GHARIB: But some encouraging news about the U.S. labor market out
today. The number of advertised job openings in August rose to a 13 1/2-
year high, with employers looking to fill more than 4.8 million positions.

MATHISEN: There may be a setback in the housing recovery. They said
it couldn`t happen again — another dip in home prices nationwide across
the nation. The third one since the financial crisis hit. But some are
now warning that a triple dip could be a real possibility.

Diana Olick reports.


estate agent Mia Simon doesn`t need any national reports to tell her what`s
going on in the neighborhood she works.

MIA SIMON, REAL ESTATE AGENT: I would say demand is definitely down
from the feverish high that we had in the beginning of the year.

OLICK: But what`s going on in her northern California market has
national analysts concerned.

ALEX VILLACORTA, CLEAR CAPITAL: The West, it`s really that leading
indicator of the canary in the coal mine because as the West goes, both on
the downturn and in the recovery, we`ve seen the rest of the country go as

OLICK: That`s why Villacorta is making a controversial call,
predicting home prices could go negative nationally by the end of this year
— a triple dip.

VILLACORTA: Essentially what you`ll see is it`s the first quarterly
decline since 2011. And so, what that means is that will be the first time
collectively as a nation we`ve seen prices drop since the low point or the
trough of the housing crisis.

OLICK: Prices are still rising nationally, up 6.4 percent in August
from a year ago according to the latest readings from core logic. But
that`s about half the price appreciation we were seeing a year ago, and
mortgage rates today are higher than they were last year.

(on camera): On the other hand, we`re still seeing a tight supply of
homes for sale, and that alone could keep prices in the positive. Despite
the drop in demand this fall and winter, traditionally, the weakest seasons
for housing.

SIMON: There`s some seasonality to it every year, but this time, it
feels a little bit more than just seasonality. It feels like a little
cooling of the market.

OLICK: A cooling that seems eerily similar to the ghosts of housings

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


GHARIB: Housing is one important pillar of the economy. The
consumer, another. Consumer spending accounts for about two-thirds of all
economic activity. This quarter, which includes the holiday season, is a
critical one for retailers and a test of how much consumers are willing to

As Courtney Reagan tells us, a report out today is predicting a much
better shopping season this year than last.


Temperatures may still be in the 90s in some parts of the U.S., but it`s
time to start thinking about Christmas. Holiday shopping forecasts are
looking hotter than the last several years. The job market has improved.
The stock market is strong. Gas prices continue to fall and many consumers
are feeling better about their personal finances.

The combination: pushing consumer confidence higher.

The National Retail Federation predicts the strongest holiday sales in
three years. Forecasting consumers will spend a whopping $617 billion, 4.1
percent more than last year.

and as goes retail, so goes the economy in many ways. So, I think there is
a lot of optimism about the fact that we`re going to do much better this
year than we did a year ago. And if you think about where we were on this
day a year ago, we were exactly one week into the government shutdown. And
that took billions of dollars out of the economy.

REAGAN: But not everyone`s holiday outlook is so rosy.

quite interesting because it will be very conservative. There will be
careful spending. Shoppers will be looking for lots of deals. They`ll be
going lots of stores. But more importantly, they`ll be going online.

REAGAN (on camera): According PWC, there are two very distinct groups
of American consumers. The survivalist, households bringing in less than
$50,000 per year, living paycheck to paycheck, and selectionists,
households bringing in more than $50,000 and making careful decisions when
it comes to spending. But survivalists outnumber selectionists, 2-1.

(voice-over): With so many Americans hypersensitive to deals during
the holiday season, retailers will be very calculating about when, how and
where shoppers can get the best bargains.

BLISCHOK: To keep traffic coming to the stores, it`s both about the
quality of the deal, as well the timing of the deal. We`re going to see a
significant amount of in-store traffic. However, we`re also going to see a
significant amount of traffic online.

So, the smart retailers, no matter what their channel is, will have a
balanced approach to both online and offline retailing.

REAGAN: And so will shoppers as they continue to search online and in
store for the best door buster deals.



MATHISEN: Ethan Harris (NYSE:HRS) joins us now to talk more about
both the U.S. and the global economies. He is co-head of global economics
research at Bank of America (NYSE:BAC)/Merrill Lynch.

Mr. Harris (NYSE:HRS), welcome. Good to see you.

We`ve led the broadcast with a tremendous amount of sort of economic
observations, statistics, international, domestic, how the consumer feels,
retail spending.

Pull it all together for us. How are we doing in the United States?
How`s the world doing? And how might a slowdown globally affect us?

well. I mean, probably the best indicator is to look at the labor market.
We`ve had average job growth over the last eight months of about 230,000 a
month. That`s about double the normal growth rate. So, this has really
been the first sign in this recovery of real healing in the labor market.
So, we`re quite optimistic about the U.S. We think that we`re entering a
new, stronger growth phase.

Now, obviously, overseas, things are very different. And we`ve had
had a slowdown in many major economies. I don`t think that means they`re
going into recession, and I don`t think it torpedoes the U.S. recovery.
But it is creating a bit of clash out there. It certainly has been a
factor in what we`re seeing in the U.S. stock market.

GHARIB: You know, Ethan, the new buzzword on Wall Street, I`m sure
you heard it a lot today — bifurcation. Exactly what you described — the
U.S. is strong, the rest of the world is weak. Is that — what are the
implications of that for U.S. companies? And also what does it mean for
the Federal Reserve? Is it going to have to take into account what`s going
on in the rest of the world before it makes any move on interest rates?

HARRIS: Well, I think what`s happened so far isn`t big enough to
really change the Fed call. I still think the Fed, sometime in the middle
of next year, will start moving here. But, you know, clearly, there`s got
to be a little more caution out there. The U.S. has had tremendous healing
of its economy. The zero interest rate policy, the Fed has allowed many
people to fix their balance sheets, term out their debt at lower interest

And so, there`s been a lot of healing in the U.S. economy, but there
are other parts of the world like Europe where they`ve never really come
out of their crisis, and at best for Europe, you expect slow growth. So,
it`s definitely a mixed bag out there. Fortunately, the strength is right
here at home.

MATHISEN: For equity investors, Mr. Harris (NYSE:HRS), there`s
nothing more important I suppose than corporate profits. How do you see
them this quarter and into early 2015?

HARRIS: Well, it`s going to be a little bit of a weak quarter because
you had a number of things hit in this quarter. You had the strength of
the dollar that hurts. You`ve had the drop in oil prices that hurts
earnings. So, probably, it will be low single-digit gains and profits in
this quarter.

But going forward, we do think we`re still on track for OK profit
growth. U.S. economy will look better. We`re still in an environment
where most of the income gains are going to profits rather than wages. And
so, as income — overall income picks up, profits should pick up again.

So, I think we`re still in that phase where profits can drive the
stock market.

GHARIB: And, you know, Ethan, a lot of it depends on the consumer and
consumer spending. And you heard in Steve Liesman`s report where there are
some Americans who are feeling things are just great and others are saying
the economy is fair or poor. I mean, what is your take on the American
consumer right now?

HARRIS: Well, I mean, you look at that survey, and I bet that you 18
percent or so who think things are going really well are probably upper
income people who have a lot of holdings in the stock market and have seen
big income gains because the average American has basically had flat income
in real terms and in terms of spending power over the last five years.

Those surveys reflect that flat environment. It doesn`t feel like
we`re recovering for the average person. The truth is that overall, we`re
doing OK, but it`s a very kind of narrow recovery focused on profits and
upper incomes.

MATHISEN: All right. Ethan, thank you very much. Ethan Harris
(NYSE:HRS) is with Bank of America (NYSE:BAC)/Merrill Lynch.

GHARIB: Still ahead on the program, former Treasury Secretary Tim
Geithner took the stand at the AIG bailout trial and got defensive. That`s
coming up.


MATHISEN: Walmart is cutting health insurance coverage for about
30,000 part-time workers. Starting January 1, the world`s biggest retailer
will eliminate coverage for employees who work less than an average of 30
hours a week, which Walmart says is about 2 percent of its total work
force. This comes just three years after Walmart already scaled back the
number of part-time workers eligible to receive health benefits.

GHARIB: Former New York Fed president and treasury secretary, Timothy
Geithner, took the stand today in the AIG bailout trial. Geithner defended
the tough terms of the insurance giant`s rescue, saying it was necessary to
get Congress and the public to back the deal.

Mary Thompson joins us now from outside the federal claims court in
Washington, D.C., with more.

Mary, tell us what happened today.

was on the stand for six hours during which he acknowledged he was the one
who decided on those high interest growths that were charged to AIG as part
of the $182 billion bailout of the insurance giant. Geithner did prove to
be a tough witness, though. His answers to most of the questions that were
posed by the lead`s plaintiff attorney, David Boies, “I don`t know,” “I
don`t recall,” “I don`t recall precisely.” It was a long day of

Now, Boies is here during the six-week trial, trying to prove that AIG
shareholders were treated unfairly during the bailout because of very high
rates they had to pay on loans. Rates were far higher than other troubled
financial firms during the crisis. The suit also acknowledging that the
government — or charging that the government unfairly compensated AIG
shareholders for the 92 percent stake the government eventually took in the
insurance company.

MATHISEN: So, Mary, did Geithner say anything about whether he made
any attempt to find a private solution instead of the public one for
rescuing AIG?

THOMPSON: Well, you know, he was asked about some e-mails he received
by David Boies during the testimony, and Geithner kind of shook his head
and he said, you know, if there had been any kind of credible offer out
there that would have taken this enormous risk that was AIG off of the
government`s hands, he would have pursued it. But evidently, there were
none that he considered credible out there at the time.

GHARIB: You know, Mary, there have been so many high-profile
witnesses in this case. Yesterday, former Treasury Secretary H Paulson,
today, Tim Geithner. Tell us what`s on tap for tomorrow.

THOMPSON: Well, you know, this really is kind of the star-studded
week, I guess, for lack of a better term because Geithner`s testimony went
all day today, the cross is going to take place tomorrow.

So, he`ll be here tomorrow morning, and that means they`re pushing off
testimony from former Federal Reserve Chairman Ben Bernanke. He was
supposed to be here tomorrow morning to testify. They are pushing his
testimony off until Thursday morning. And he might possibly return Friday
morning if they don`t finish up with him that day.

So, a lot to look forward to for the rest of the week and we`ll be
here. Back to you.

GHARIB: We`re looking forward to your reports. Thanks a lot, Mary —
Mary Thompson in Washington.

MATHISEN: More trouble for some of the world`s biggest banks. “The
New York Times (NYSE:NYT)” says the Justice Department is gearing up to
file charges against a number of foreign and American banks, alleging that
they colluded to manipulate the price of foreign currencies. The report
also says prosecutors may indict individual bank employees using their
instant messages to prove they fixed foreign exchange rates.

GHARIB: Shares of SodaStream fell to an all-time low, and that`s
where we begin tonight`s “Market Focus.”

The at-home soda machine maker warned that revenue will be weaker than
expected in the third quarter. The problem: finding new customers. The
CEO said he was disappointed by SodaStream`s performance and that the
company will reveal a new growth plan at the end of the month. Shares
fizzled, down 22 percent today to $21.52.

AGCO (NYSE:AGCO) also slashing its outlook for the second time in two
months. The farm machinery company said demand was weaker than expected in
the third quarter, and it will be respond by making production cuts. One
reason that farmers aren`t buying more equipment, falling corn prices,
lower prices mean lower income, leaving farmers with less to spend. The
stock lost 10 percent today to $42.13.

Bristol-Myers Squibb (NYSE:BMY) pulled its hepatitis C drug
application from the FDA. The pharma company sought approval earlier this
year for an oral drug combination to treat the liver disease. But now,
it`s halting its efforts, citing a, quote, “rapidly evolving treatment
landscape.” Gilead and Abbvie are now working on similar drugs which
promise to cure more patients in less time.

The stock fell almost 3 percent to $49.77.

MATHISEN: McDonald`s (NYSE:MCD) Japanese unit is forecasting a loss
for the year. That region`s first loss in 11 years. The world`s largest
fast food chain citing tougher competition and weakening demand that
started even before a food safety scare. Shares today fell more than 1
percent. They finished at $92.81.

Twitter is suing the Justice Department and the FBI. The social media
company wants the right to reveal the extent of government surveillance of
its users. Twitter says this is an important issue for anyone who believes
in a strong First Amendment. The stock rose fractionally today to $53.53.

Shares of Chimerix rising again today on news Ebola patient Ashoka
Mukpo is being treated with its experimental drug. He`s the second patient
to receive the drug. The first as we reported yesterday is the Dallas
patient, Thomas Duncan. The stock rose about 5.5 percent to $33.23. And
over the past two days, it has gained 10 percent. Its best two-day run on

GHARIB: Samsung shares don`t trade here in the U.S., but if they did,
they probably would have had had a pretty lousy day. The Korean
electronics giant warned that profits could tumble 60 percent this quarter,
because it`s selling far fewer Galaxy smartphones than expected. The blame
goes to the popularity of the new Apple (NASDAQ:AAPL) iPhone 6. When
Samsung reports earnings in a few weeks, it`s suspected to post the first
drop in quarterly profits in three years.

MATHISEN: Coming up, a part of the energy market that`s expected to
really heat up. That`s next.


MATHISEN: Well, this should make you feel warm all over, at least
give your household budget a lift. The Energy Department predicts that
home heating costs will be lower this winter, partly on forecasts for less
frigid temps across the country and partly on lower prices for heating oil
and propane this year.

GHARIB: Despite potentially lower home heating costs, solar roof
panels are popping up in neighborhoods from coast to coast, as homeowners
look to cut their utility bills further and help the environment.

Jackie DeAngelis takes a look at how fast the industry is growing and
the challenges it still faces.


The residential solar market is on fire. With panel prices plummeting and
companies incentivizing homeowners to switch over. This market could grow
to $6 billion in just a couple of years.

And for homeowners looking to cut their utility bills or just help the
environment, installations are easy. Solar companies can outfit homes in a
day for no money down. They provide and maintain the equipment under long-
term leases.

Customers can generate nearly all their power needs for the year from
these panels. Yet, they stay connected to the traditional energy grid for
times when solar isn`t enough. Their energy usage costs can be cut in half
depending on where they live.

PAT KENNELL: I needed to save money. I`m a retired police officer.
My wife`s 70. We needed to save some cash. And solar is good for the

I expect to save probably 25 percent off my energy bill.

DEANGELIS: And the solar market is just taking off. It has less than
1 percent penetration nationwide but could see 20 percent to 30 percent by

LYNN JURICH SUNRUN: Solar industry last year installed about 140,000
systems on rooftops. It`s about a 60 percent growth rate. And my company,
Sunrun, and many of our peers have sustained growth rates as high as 100
percent each year in our eight-year history and expect to sustain those
going forward.

DEANGELIS (on camera): But Solar`s rise could be the utility
companies` demise. The utilities have to go along with these projects
because state laws mandate that they must. But are they, in fact,
supporting the competition?

TIM FERDINAND, SOLARCITY: Well, basically, we provide power to the
customer just like utility does. It`s just at a reduced rate. We like to
consider ourselves the producer of power in the end. We don`t consider
ourselves a utility, but we provide power in the same manner.

DEANGELIS (voice-over): The question now, how will the solar coaster
progress? Will the industry meet its growth targets? Will the demand be
there, and can solar stocks which have been on a tear continue to run?



MATHISEN: And, finally tonight, Janet Yellen is apparently not making
a very big impression as the world`s most powerful banker, at least not on
ordinary Americans. A new survey by the Pew Research Center found that
three-quarters of Americans can`t identify Ms. Yellen as chair of the
Federal Reserve. In fact, about one in six people think Alan Greenspan is
still in charge at the Fed. He resigned back in 2006.

Now, to be fair, Ms. Yellen has only had the job since January, maybe
it will take her a few years to catch on with the public. I think she`s
quite unmistakable.

GHARIB: How do you think Ben Bernanke feels? That all those years
you did to rescue the world economy —

MATHISEN: And still, Greenspan is the guy people know.


GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
Gharib. Thanks for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a
great evening, everybody. We hope you`ll join us here tomorrow night.


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