Transcript: Tuesday, October 14, 2014

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Crude craters. It was one of the ugliest days in the oil pits in years. Prices drop more than 4 percent as traders continue to search for a floor in prices.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Slide snapped in the NASDAQ and S&P 500. The Dow Jones Industrial Average (INAUDIBLE) slightly lower. Will better than expected late day earnings from one of the world`s biggest chipmakers, Intel (NASDAQ:INTC) (INAUDIBLE) shape the trading tomorrow?

MATHISEN: Good, but not great. Investors had been hoping the big banks would deliver signs of formidable growth in their earnings reports.
But (INAUDIBLE) settle for something else.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, October 14th.

GHARIB: Good evening, everyone.

Stock on Wall Street stabilized (INAUDIBLE) weak global economy just look at the prices, domestic crude oil fell over 4 percent, closing below
$82 a barrel since 2012. Brent Crude, the global benchmark for oil also fell almost $4 a barrel, closing at the lowest level since 2010.

Tyler?

MATHISEN: All right. So, why is oil moving down so far so fast?
What`s next for crude, for consumers and for investors who own oil-related shares?

Here with insight is John Kilduff. He`s founding partner with Again Capital.

You again, I say it, right?

JOHN KILDUFF, AGAIN CAPITAL: I`m back.

MATHISEN: Nice to have you here.

Very simply stated, why are (INAUDIBLE)

KILDUFF: It is a one-two punch, Tyler. Part of it if (INAUDIBLE) saying this, interestingly enough. So, this is combining to put tremendous downward pressure —

MATHISEN: Where in the past they might have cut production?

KILDUFF: In the past, just last year, the Saudis cut production about a million barrels a day. They`re not doing it this time around, I think it`s because they want to send a warning shot to Russia and Iran, for what they`re doing in Syria. (INAUDIBLE) U.S. producers, the shale miracle that we`ve (INAUDIBLE) Canadian tar sands, the Saudis are drawing a line in the tar sand saying you know what? We can produce much cheaper than you.
Let`s see how long you can hold on.

GHARIB: So, John, you`re on record saying you see oil prices going down another $10. So, into the $80 high, or $70 range. Will that help or hurt businesses and the consumers?

KILDUFF: It`s fantastic for businesses, for transportation companies.
It`s wonderful for the consumer. Just like when the gasoline prices spike, it hurts consumer confidence. People buckle under and sort of, you know, just stay home and staycation. They will be hitting the road now, and it`s coming just in time for the holiday shopping season, where these extra dollars will be spent at the mall. It`s incredibly stimulus.

Now, people will get nervous that this falling oil prices are because of a slowing economy, and the recession. I got to tell you, the real big part of this story is the surge in production, not a slowing economy.

MATTHEWS: I want you to elaborate on the point you just made. You say this is a shot across the bow by the likes of the Saudis and others to U.S. oil producers in the shale sands in North Dakota, up in the Canadian oil sands, saying, you can`t keep up with us as we drive the price down?
You can`t get it out of the ground profitably enough.

KILDUFF: That`s right. (INAUDIBLE), Tyler, the Saudis did this very thing back in 1998, when Venezuela was making a move (INAUDIBLE) their U.S.-bound exports fall to the lowest level in years, we`re not importing any West African crude oil right now. So, that`s Nigeria, that`s Libya, so, this is — they`re worried. So, they`re fighting for market shares, so they`re saying, we`re going to try to drive you out of business.

GHARIB: So, OPEC, the oil cartel, has a big important meeting next month, November. What headline might we expect from them?

KILDUFF: I think the big headline is going to be that they are going to try to stand their ground and not cut production. Funny how history repeats itself, the same thing happened back about — in 1993, they go way back. On Thanksgiving Day, they didn`t cut, oil prices collapsed.

MATHISEN: (INAUDIBLE) on the oil stocks, the big integrated oil, the oil services company, the exploration and producers. What`s going to happen to their shares?

KILDUFF: (INAUDIBLE) stay away. This oil (INAUDIBLE) are very highly leveraged. A lot of borrowing. They`re borrowing base is going to be eroded because of this low oil price. Stay away from that and get out.

MATHISEN: Fascinating. John, thank you very much.

KILDUFF: Thanks.

MATHISEN: John Kilduff with Again Capital.

GHARIB: Well, despite lower oil prices and influential Federal Reserve policymaker is downplaying global risk and focusing instead on U.S.
inflation.

John Williams, president of the San Francisco Fed, says the central bank should only delay an interest hike next year if inflation or wage growth fails to pick up.

MATHISEN: Well, stocks came out of the gate with a bang today, then closed with a whimper, a trading pattern the pros say is a sign of a fragile wobbly market. The Dow up as much as 143 points early in the session, ended about six points lower. The other key barometers did finish in the green but gave back the morning`s bigger gains. NASDAQ was up by 13, the S&P was up by three.

(INAUDIBLE) ten-year treasury fell to 2.0206 percent, if you like to go to the thousands place (INAUDIBLE) closed since June of last year, and just today, the noted fund manager Jeffrey Gundlach of Double Line Capital said that the 10-year U.S. treasury bonds now (INAUDIBLE). Gundlach also said that any move under 2.2 percent on the 10-year could be a game-changer for the Fed in terms of interest policy.

GHARIB: Turning to earnings now, just after the bell today
(INAUDIBLE) increased demand for personal computers. The chipmaker earned
66 cents a share. That was 1 penny more than analyst estimates. Revenue also came in better than expected and about 8 percent higher than a year ago.

Intel`s chief financial officer Stacy Smith says there were several factors for those results.

(BEGIN VIDEO CLIP)

STACY SMITH, INTEL CFO: We`re benefitting from a couple of things here. We`ve got great technology that is coming into the PC segment, so we`re seeing growth at the high end, and we`re also seeing lower priced systems that are bringing back share from tablets. And we`re starting to participate in a wider range of devices. And then our data center business is benefitting from growth with all the clients computing and connecting to the Internet.

(END VIDEO CLIP)

GHARIB: Intel (NASDAQ:INTC) shares got an initial bump higher in late-day trading.

Morgan Brennan joins us now from the NASDAQ with more.

Morgan, you know our question. What`s the one take-away you see from Intel`s earnings?

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, and it`s a good question, and certainly a positive report. Investors were really watching Intel`s numbers very closely, because not only does it kick off earnings for the tech sector, but Intel (NASDAQ:INTC) is the biggest chip maker in the world. It`s something we touched on just last night on the show.

In the past week, we`ve seen a dramatic selloff in the chip stocks after another semiconductor company (INAUDIBLE) not the case that, in fact, Intel (NASDAQ:INTC) is forecasting sales for the current quarter that are higher than analysts` current expectations. What is even more interesting, Intel`s stronger numbers are tied to a rebound in demand for personal computers which have suffered over the past several years with the advent of Apple`s iPad.

So, seeing strong demands even in the current quarter for those chips.
That`s a relatively positive commentary about Intel`s chips but also it`s something that is likely going to push the entire semiconductor group higher tomorrow, and also potentially Microsoft (NASDAQ:MSFT) shares higher because Microsoft`s operating systems tend to run on Intel`s micro processers.

Back to you.

GHARIB: That`s a real switch in conventional thinking.

Thank you so much, Morgan. Morgan Brennan at the NASDAQ MarketSite.

MATHISEN: Before today`s opening bell, three of the nation`s biggest banks reported their latest quarterly earnings with mixed results, also mixed investor reaction. Shares of JPMorgan (NYSE:JPM) Chase slightly lower for the day. Citigroup (NYSE:C) got a 3 percent pop. And Wells shares fell almost 3 percent.

Kayla Tausche has a look at those bank earnings and what it tells us about the banking business.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Banks are a bellwether for the U.S. economy, but they are still waiting for their (INAUDIBLE) companies are reporting today with few signs of growth.
Citigroup (NYSE:C) beating estimates, Wells Fargo (NYSE:WFC) meeting them, JPMorgan (NYSE:JPM) missing.

In the third quarter, JPMorgan (NYSE:JPM) saw its profits fall in nearly every unit. Total loans up just 2 percent from the same quarter a year ago. Much of the growth coming from loans (INAUDIBLE) asset management.

Any signs of life in investment banking were wiped out by $1 billion legal charge the company signaled would likely go toward a future currency trading settlement.

Over at San Francisco-based Wells Fargo (NYSE:WFC), the mood was tempered but better. The bank met Wall Street expectations, mostly because it cut costs to offset mortgage businesses that are chugging along at a slower pace.

As the economy (INAUDIBLE) banks released funds set aside to cover bad loans to (INAUDIBLE). This time, it has less of that money to release.

Citigroup (NYSE:C) (INAUDIBLE) which helped boost the bottom line, along with above average trading revenues, and the surprise profit at (INAUDIBLE). Not all of Citi is rosy.

CEO Mike Corbat acknowledging Mexico, its biggest growth, but it`s getting costly.

MICHAEL CORBAT, CITIGROUP CEO: I think we`ve made some meaningful changes to the way we`ve come to work and think about things in Mexico.

TAUSCHE: Among those changes? Dissociating with one unit of its Banamex business where more fraud was uncovered. A federal investigation of Banamex is ongoing.

(on camera): Citi is also shuttering its consumer business in 11 countries, including six countries in Latin America.

KBW`s Fred Cannon said those ambitions had been (INAUDIBLE) the stock.

FRED CANNON, KBW (NYSE:KBW): Citi, to be honest, has been a bit of (INAUDIBLE). We keep expecting a real lift. Is this really the beginning of the lift? Maybe, but remember, Citi has an awful lot of the global exposure. Folks are concerned about it today.

TAUSCHE (voice-over): Global (INAUDIBLE) once the hallmark of big banks will now be front and center, as Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) results come out this week.

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

(END VIDEOTAPE)

GHARIB: Also out before the opening bell today, Johnson & Johnson (NYSE:JNJ), third quarter earnings shot up nearly 60 percent, thanks to stronger pharmaceutical sales and sales of the new hepatitis C drug. But a stronger U.S. dollar and weaker euro could hurt sales (INAUDIBLE) today.

MATHISEN: Still ahead, why more and more Americans are getting in over their heads when buying a used car and why that is so troubling.

(MUSIC)

MATHISEN: The Ebola crisis is getting some help, kind of, from social networking. Facebook (NASDAQ:FB) founder Mark Zuckerberg (INAUDIBLE) donate $25 million to the CDC foundation to help fight the Ebola outbreak in West Africa and anywhere else that Ebola (INAUDIBLE) fight against
(INAUDIBLE) President Obama said today that more needs to be done.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The world as a whole is not doing enough. There are a number of countries that have the capacity that have not stepped up. Those that have stepped up, all of us are going to have to do more — because unless we contain this at the source, this is going to continue to pose a threat to individual countries.

(END VIDEO CLIP)

MATHISEN: He went on to say that the U.S. health care system is strong enough, that an Ebola epidemic here is in his words highly unlikely.

GHARIB: Just three weeks to go before the midterm elections and things are really heating up in one of the nation`s most contested Senate races.

John Harwood joins us now from Washington with more on the battle between Kentucky`s Mitch McConnell and his Democratic opponent Alison Grimes.

So, John, McConnell and Grimes had their only debate, (INAUDIBLE) why is this race so important?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: What, Susie, was a really high quality debate. You had both candidates offering familiar talking points. Alison Grimes talking about change and moving McConnell out after 30 years. McConnell saying she would be a tool to Democrats hostile to Kentucky.

Take a look at this sound byte summarizing both of their arguments.

(BEGIN VIDEO CLIP)

ALISON GRIMES (D), KY SENATE CANDIDATE: Senator McConnell`s 30-year record — it`s gridlock, it`s obstruction, it`s extreme partisanship that cost this nation a 16-day government shutdown. Kentucky, $127 million, we can`t afford to go in that direction. My record speaks for itself. I`m an independent thinker.

SEN. MITCH MCCONNELL (R), KENTUCKY: Secretary Grimes` whole campaign has been designed to deceive people into thinking she is something she isn`t. It`s pretty obvious given where all of her support comes from, all the anti-coal activists in the country, that she`s going to do their bidding.

(END VIDEO CLIP)

HARWOOD: Now, of course, this race, Susie, combines two things: one, the battle for partisan control and the Senate Republican leader. But also the effort by conservatives especially in coal states to fight back against the administration`s climate change agenda.

MATHISEN: You know, John, not too long ago, most people thought the risk from Mr. McConnell would come from his own party from the right. Does this Democratic candidate have a chance to beat him?

HARWOOD: She has a chance. She`s not likely to beat him. McConnell has, I would say, has a better than 50/50 chance. But this is a close race and, of course, both sides are focusing on turnout. They can change the shape of the electorate, both in Kentucky and nationally, that is what this last three weeks is going to be about.

GHARIB: But, John, let`s just say she pulls it off. I mean, how would that affect the Republican chances for a Senate majority? Number one. And their business agenda?

HARWOOD: A big setback for Republicans if McConnell loses, not just for McConnell himself, because they`re planning on a very difficult task of picking up a bunch of Democratic incumbent seats in states that Mitt Romney. If they lose McConnell, that just steepens the hill they have to climb to get there, and the Democrats hold of the Senate, that simply means that business interest like the U.S. Chamber, which had been hoping for a new agenda out of the Senate leadership are going to be frustrated.

GHARIB: All right. John Harwood (INAUDIBLE)

MATHISEN: Well, Domino`s Pizza (NYSE:DPZ) delivers better than expected result. That`s where (INAUDIBLE).

The pizza chain beat forecasts on both the top and bottom lines.
Results were strong overseas and in the U.S., with same store sales rising more than expected. Shares popped 11 percent to $84.30.

A mixed quarter for Wolverine World Wide (NYSE:WWW). (INAUDIBLE) company`s earnings topped consensus estimates, but revenue didn`t. The maker of Hush Puppies and other footwear brands also lowered its sales outlook for the year. Still, the stock rose 79 cents to $25.44.

A set back for Pfizer`s high-profile quit smoking drug called Chantix.
The Food and Drug Administration recommended the drug maker keep a black box warning on the label. The controversial treatment has some sever side effects, including suicidal thoughts and erratic behavior. Shares of the drug maker off just a penny at $28.46.

GHARIB: Some executive shuffling at Signet Jewelers to tell you about. The CEO of that company, whose brands include Kay Jewelers and Jared the Galleria of Jewelry, has resigned and announced he will also step down from the board. He`ll be succeeded by the current president and chief operating officer. Shares fell more than 3 percent to $104.32.

Now, as we told you yesterday, semi-conductor stocks have fallen hard recently, but today a few of those chipmakers have turned around, thanks to an upbeat forecast from Skyworks Solutions (NASDAQ:SWKS), this is a supplier for Apple (NASDAQ:AAPL). Skyworks raised its quarterly profit and revenue forecast citing strength across all its businesses.

The promising outlook sent shares of Skyworks up almost 8 percent and two other chipmakers, RF Micro and TriQuint also rose more than 3 percent.

Airlines bounced back today. Part of the rise is being attributed to today`s sharp decline in oil prices, which we told you about. That in turn would put prices on jet fuel much lower. Following a turbulent month for Airlines, American Airlines surged more than 10 percent. United Continental, Delta, JetBlue and Southwest, as you see, all sizable gains today.

After the bell rail operator CSX (NYSE:CSX) reported better than expected earnings and revenue. This on an increase in freight volume across most of its markets. Shares have been up on reports that Canadian Pacific is interested in a merger and although the CEO wouldn`t comment on that, he did tell investors that business is strong across the board.

(BEGIN VIDEO CLIP)

MICHAEL WARD, CSX (NYSE:CSX) CEO: We saw growth across all of our markets, our ag shipments were up 13 percent this quarter due to the great crop that came in last year, automotive was up 8 percent, even our coal business was up 7 percent. So, we saw broad gains across most markets.

(END VIDEO CLIP)

GHARIB: CSX (NYSE:CSX) stocks rose initially after hours trading.
During the regular session today, shares were up about 3 percent to $32.61.

MATHISEN: Small business owners feeling less buoyant (INAUDIBLE) small firms by the National Federation of Independent Business found that owners are now expecting to see a slight pullback in both profits and sales in the current month.

GHARIB: Car buyers may be feeling less optimistic as well, and that`s because even used cars have surged in price over the last three years making them less affordable to more and more Americans.

Phil LeBeau joins us now from Chicago, with more on the trends in the used car market.

This is really fascinating, Phil. A new study says that the average used cars now are so expensive that many people will become over-extended paying for them. What`s going on?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, (INAUDIBLE), Susie, this study which was done by (INAUDIBLE) Cars.com
(INAUDIBLE) 25 million used cars for sale last year in 50 metropolitan areas around the U.S. And what they found is the average is almost $20,000 and as a result, people are taking out longer loans. They`re not putting down the proper down payment and they really are stretching more than they probably would like in order to make those used car payments.

MATHISEN: So, Phil, what are the ideal guidelines used for buying used cars?

LEBEAU: Well, for a long time, everybody said, look, it is the 20-4-
10 rule, Tyler, you want to put down 20 percent for the vehicle you`re buying, you don`t want to pay the loan off in more than four years, and you don`t want to spend more than 10 percent of your monthly income.

Well, unfortunately, few people are taking out loans that last only four years. In fact, the average loans now is about 5 1/2 years, they are sometimes spending more than 10 percent of their monthly income when they`re paying off the vehicles.

GHARIB: So, does this mean that people are going to lose their cars?

LEBEAU: You would think so, Susie. What you have is that people want to hang onto those cars if at all possible, even if they want to stretch.
So, we`re not seeing the repossession as well as the delinquency rates, really shoot up that much, they remain historically low.

What we are seeing is that people are saying what does it take to get my payment under $500 a month? Does that mean a 7 or 8-year loan? Fine, I`ll do that, no ideal, but that`s what people are doing.

GHARIB: Thank you so much, Phil. Phil LeBeau, reporting from Chicago.

And coming up next, the six-month grace period on most federal
(INAUDIBLE) coming to an end, (INAUDIBLE) right after this.

(MUSIC)

GHARIB: PIMCO, the world`s largest fixed income asset manager says it`s not changing anything. Scott Mather, one of the three PIMCO managers now running its flagship total return fund (INAUDIBLE) sudden departure last month.

(BEGIN VIDEO CLIP)

SCOTT MATHER, PIMCO CIO: (INAUDIBLE) we`re not changing the fund. As you know, it`s been a team process here at PIMCO. I and my colleagues have been involved in forming the investment teams which are at work in the total return fund.

(END VIDEO CLIP)

GHARIB: PIMCO also says the total return fund saw more than 30 percent outflows in September. That`s about 10 percent of its total assets.

MATHISEN: OK, new grads, get ready to enter another rite of passage.
The time is almost here for many of you to start paying back your student loans for 2014 graduates. (VIDOE GAP) six-moth period of grace on most student loans is about to expire. It is time to get a financial plan.

Sharon Epperson looks at repayment options and the consequences if you don`t pay.

(BEGIN VIDEOTAPE)

TAIMON TURNER: It`s a bill that I don`t like looking forward to when it comes.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
For 23-year-old Taimon Turner, life after graduation means managing his own expenses, most of them. He admits needing help on one of his biggest bills, his student loans.

TURNER: I owe like — my — it is going to be — I realize I`m going to be paying for the most of my life, for the rest of my life.

EPPERSON: Turner received a bachelor`s degree in broadcast journalism from Hofstra University in December. His salary as a radio producer in New York covers rent, utilities, groceries and transportation each month. But not all of his student loan payments.

TURNER: My bill can go anywhere from $400 to $600, depending on which bill I`m looking at. I`m on a payment plan, I don`t know, my mom kind of set it up, the plan and everything. I contribute as much as I can. My mom kind of helps me with the rest.

ANDREW JOSUWEIT: The real problem when borrowers get out of school this income is probably the lowest it`s going to be throughout their lifetime. And also, their student loan debt payments are the highest they`re going to be throughout their lifetime. So, they`re really facing a cash flow issue. They don`t have enough income to pay both their debt payments and afford just standard living costs.

EPPERSON: Underemployed or unemployed, many graduates may be unsure of how they will pay back their student loan debt. So, some don`t, most are unaware of their options such as asking for deferment for forbearance on federal loans, applying for an income-driven repayment plan such as “pay as you earn”. They cap federal loan payments at 10 percent of your income.
Or refinancing private loans to extend the term and reduce the interest rate.

(on camera): Many student loan borrowers are struggling to pay on time, adding significantly to the cost of their debt. Of the total federal loans outstanding, about one in every five dollars is past due, and nearly
15 percent of federal college loans are in default.

JOSUWEIT: When a borrower defaults, they essentially get 16 percent to 25 percent collection costs tacked on to their student loan principal.
So, some — you know, the average borrower has $30,000 of student loan debt, when you add 16 percent to 25 percent to that, you know, they`re racking up thousands of dollars in unnecessary costs by defaulting.

EPPERSON: Default occurs when you fail to make a payment for 270 days, which damages your credit rating and ultimately increases your debt burden even more.

Turner, who started paying back his student loans this summer doesn`t want to miss one payment.

TURNER: Once you miss it, it can become — it`s like any other bill, it becomes like a pain, a strain, and bill collectors calling you, saying, where are you?

EPPERSON: Most important, he knows the consequences could be severe.

For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.

(END VIDEOTAPE)

GHARIB: And, finally tonight, a new study by consulting firm, Mercer ranks the countries with the best overall pension funds. In the top spot, Denmark, followed by Australia and the Netherlands, China, India and Japan are among the worse. Wondering where`s the U.S.? Right in the middle, getting a grade of C in the 25-country index. Not so good.

Well, 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 to see you right back here tomorrow.

END

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.

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