Transcript: Wednesday, October 15, 2014

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: What a day. A wave of selling gripped Wall Street for most of the day, with the S&P 500 flirting with correction territory. And that doesn’t tell the whole story.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: But wait, there is more. Netflix (NASDAQ:NFLX) shares take a sharp spike lower on earnings after the closing bell as disappointed investors shun the stock.

GHARIB: And protecting your retirement. How might all this volatility impact your nest egg? The answer might surprise you.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, October 15th.

MATHISEN: Good evening, everyone, and welcome.

Take a breath — a deep, deep, deep breath. Now, exhale.

It was that kind of day on Wall Street, the kind that makes you hold your breath, the kind we have not seen in more than three years. At one point today, around 1:30, the Dow was off 460 points, the steepest intraday dive since September 2011.

But now, the reasons are familiar enough, Europe, where stocks from London to Athens tanked by roughly 3 percent to nearly 7 percent today. Oil, it skidded again. The U.S. economy, new numbers, feeble, and to cap it all off, a fresh Ebola scare.

Then, something happened. The buyers or maybe the algorithms came back, by the end of the day, the Dow was off just 173 points, comparatively comforting 1 percent drop, the NASDAQ was down a modest 11, and the S&P just 15 points.

Jittery investors file into bonds, the yield on the benchmark ten-year note dipped below 2 percent for a while, lowest in more than a year, before moving back above that level.

As for oil, domestic crude oil dropped $81 a barrel but ended just 6 cents lower. Still, oil posted its lowest decline since June of 2012. Brent Crude tumbled too, just around $84 a barrel, in the biggest one-day drop in about four years. Gold was up, hitting a one-month high.

We have two reports about today’s bungee jump in the markets.

Steve Liesman on bonds and Fed policy. But first, Bob Pisani from the floor of the New York Stock Exchange.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: What a day, the Dow Industrials were down 370 points at the open, and down 460 points at its low, before paring most of those losses.

And the turnaround was dramatic for many sectors. The Dow Transports were down almost 3 percent in the middle of the day. It turned positive. The Russell 2000 was down about 2 percent in the middle of the day. It, too, turned positive.

But there were plenty of problems through the day. Disappointing retail sales weighed on the retailers. High-end names like Tiffany (NYSE:TIF), and Coach (NYSE:COH), and Nordstrom (NYSE:JWN), Michael Kors, were down 2 percent to 3 percent in the middle of the day, as an indication that weaker U.S. growth is an issue.

Just look at the transports. Truckers and railroads were down 2 percent. Airlines were also down 2 percent to 3 percent on Ebola concerns, that had a ripple effect through health care facilities. So, big hospitals like Universal (NYSE:UVV) Health, Tenet, and Lifepoint, were down 4 percent or 5 percent in the middle of the day.

Walmart didn’t particularly help. Late in the day, it lowered its full year sales guidance.

But some investors feel that concerns about a weaker U.S. economy will pass, including Glenview’s Larry Robbins, the top performing hedge fund manager last year.

LARRY ROBBINS, GLENVIEW: Our own checks with companies indicate that the economy is doing reasonably well in the U.S. Clearly, some challenges overseas. And so, we don’t believe that this is a change in tone in the market that’s likely to be here to stay.

PISANI: Oil threatening to break below $80 for the first time since 2012, again weighed on energy stocks, big exploration and production names like Apache (NYSE:APA) and Chesapeake were down 2 percent to 4 percent in the middle of the day.

As for the refineries like Valero, because gasoline prices have been dropping as well.

As for mergers and acquisitions, the apparent demise of the $54 billion Abbvie-Shire (NASDAQ:SHPGY) deal also weighed on the markets.

Despite the problems, volume was about twice normal. And there were encouraging signs of efforts to buy when the markets were at their bottom.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.



STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A perfect storm of bad news hitting stocks today, a second case of Ebola was diagnosed in a Texas health care worker who had traveled on an airline. And the U.S. economic data came in weaker than expected raising fears that the U.S. could be coming down with the same case of economic weakness afflicting Europe.

GLENN HUBBARD, COLUMBIA BUSIENSS SCHOOL DEAN: I think the market is now pricing in things. We had a fairly rich set of valuations given underlining growth prospects. And I think now the market is beginning to price in more future Fed actions, midland growth. I think this is all beginning to come together.

LIESMAN: Retail sales actually fell 0.3 percent in September, worse than forecast. There were declines in auto and gasoline sales that were expected. But other weaknesses were broad-based including furniture and clothing sales, and even among Internet retailers.

With tremendous uncertainty over the outlook, world markets needed the American consumer to step up and spend, instead they stayed home.

(on camera): The strong downdraft in the stock market and the weak economic data had a dramatic impact on interest rates. The U.S. benchmark 10-year yield at one point on the trading session fell below 2 percent, the lowest in 16 months.

(voice-over): That came with a much more benign outlook for interest rate hikes with the Federal Reserve. With some now believing Fed Chair Janet Yellen may not even raise above the current level of zero at all next year.

Yet, some economists think the American consumer is being written off too quickly. Morgan Stanley (NYSE:MS) in a recent report said that higher wages and better job growth had put $129 billion in consumers’ pockets this holiday season that wasn’t there last year. The decline in oil prices could add another $40 billion.

What consumers didn’t spend in September, the hope for the U.S. economy right now is that consumers take their windfall from the gas station and spend it at the mall.



GHARIB: And investors have something to keep their eye on on the NASDAQ tomorrow. Netflix (NASDAQ:NFLX), earnings came out after the bell today and it wasn’t pretty. The streaming video service scored profits 3 cents a share better than analysts’ consensus, revenue was exactly in line with forecasts and higher from last year.

But shares, let’s just say, red is the new black. They took a real tumble after hours, down as much as 25 percent on disappointing new subscriber enrollment, likely the impact of charging higher prices for the service.

Julia Boorstin has the one key takeaway from these numbers.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Netflix (NASDAQ:NFLX) shares dropping dramatically after hours, after the streaming video giant reported fewer new subscribers than analysts projected, and that the company itself had forecast. So, what happens? Netflix (NASDAQ:NFLX) says it wasn’t competition from the likes of Amazon (NASDAQ:AMZN) or who, but rather the impact of its price increase back in the second quarter.

The company’s revenue was right in line with expectations and earnings per share beat projections, the selloff coming on the heels of HBO announced at Wednesday that it would launch a stand-alone streaming service to compete with Netflix (NASDAQ:NFLX) next year.

Back over to you.


GHARIB: We turn now to two experts for more analysis. Jim Paulsen is chief investment strategist with Wells Capital Management. And Rick Rieder, chief investment officer of fundamental fixed income for Blackrock.

Jim and Rick, thank you both for joining us.

Rick, let me begin with you. You know, it’s one thing for the Dow to be down 460 points. But I think what surprised a lot of people today was seeing that the yield on the 10-year treasury was below 2 percent.

What is the bond market telling us? Is it telling us that now the U.S.’s economy is weakening just like we’re seeing in Europe and we’re seeing in China?

RICK RIEDER, BLACKROCK CHIEF INVESTMENT OFFICER, FIXED INCOME: So, I think it’s telling us a few things. One is either not enough safe assets in the world. I mean, whenever there is some sort of volatility in the world, there always a flight to go to treasuries, 10-year treasuries is a big part of that. So, they dropped today.

I mean, today was one of the main volatile days. It’s actually foremost volatile days we had in the 10-year treasury market, in the treasury market, in the past 10 or 20 years. Pretty incredible move.

So, it’s, A, there’s tremendous geopolitical risk, health care risks, as you cited with Ebola. And then, quite frankly, there’s volatility coming from other markets and crowded trades in the system that the short interest rates, short duration, we call it short interest rate positioning that’s out there that causes a flight to quality and, of course, tremendous movement in the 10-year today.

MATHISEN: So, some of it was a little bit of a technical issue I would assume you’re saying there, Rick.

Jim Paulsen, let me turn to you.

You don’t exactly ring a bell and say the correction is over. But could today have been the low point for the markets? What do you think? Do we grind lower before the market moves back up? What’s going to happen?

JIM PAULSEN, WELLS CAPITAL MANAGEMENT CHIEF INVESTMENT STRATEGIST: Well, that is always really difficult to tell, Tyler. It is very difficult. I guess science leads in these market bottoms and because an art form and gut feel, I’m looking for a sense of fear. And today —

MATHISEN: You didn’t see it today?

PAULSEN: Today was the first day — today, I felt that for the first time in this entire corrective process which has been going on in recent weeks, today, it felt more not like a healthy correction or refreshing pause. It felt fearful. And so, there is that element.

The problem is, it ended very cheerily with the big rally at the end of the day and kind of removing that sense. My gut is that we’re going to go down and revisit that 10 percent correction area, 1,810, 1,820. I think we’re going to break and fall into the 1,700s yet.

But I would say we’re probably in the 5 percent or 6 percent in the lows of this market. And I would be looking now on the days of weakness to be adding to my portfolio rather than be looking to exit this market. Even though I do think there could be some downside in the next few weeks.

GHARIB: Rick, what’s your view on the whole fear and psychology of investors? Is it fear that is driving the selloff? And fear of what? Is it the end of QE, that the stimulus and the Fed is coming to the end? Is it about the health risk of Ebola?

What is it?

RIEDER: So, I think all of them. I think it’s hard to separate — separate them out. I think — you know, one of the — you know, you think about when the market rallied dramatically when the fed minutes came out last week. It rallied for a while then it started to head down. I think there is confusion on the part of the investors as to what is — where is the Fed? It looked like we were moving towards normalizing interest rates. The dollar was rallying simultaneous today.

And I think there was a bit of confusion. Then, you throw in today global growth is slowing, everybody knows global growth is slowing. But when you started to see particularly in the Empire reading and the Empire survey that came out today, that show that new orders were down and some view that maybe that global growth was infecting the U.S.

So, you take all of those exogenous events and you marry it to a couple of the factors, what’s the Fed doing, what’s the Fed seeing, plus a bit of weakness now in the U.S. That’s what created that fear.

MATHISEN: Rick, there are a lot of different types of bonds and I don’t want to paint them all with the same brush. But broadly speaking, are treasuries riskier than equities right now?

RIEDER: No. I mean, I think today’s price action was exactly the answer to where everybody goes to where there is risk in the system. They go to treasuries. I mean, fair value in the treasury we think is closer to — in the 10-year’s closer to 265, 270, we hit 186 today. And, you know, we back to 250, and I think the dynamic is incredibly liquid, arguably the most liquid instrument in the world, as well as the flight to safety.

So, I think people hold onto their treasuries and quite frankly, there are not enough in the world today because of what the Feds done and other central banks have done in terms of purchasing them.

GHARIB: You know, Jim, we’ve heard from experts over the last couple of weeks saying the markets are going to do OK because the fundamentals are good and we’re going to have good corporate earnings. And some companies have reported good numbers. Take Intel (NASDAQ:INTC) last night, numbers were good, but today, its stock was also hammered along with everybody else.

So, what’s really going on here in terms of fundamentals?

PAULSEN: I think that is the saving grace, Susie, I agree. I think the idea of a major significant global slowdown is way overblown. I think the United States is growing north of 3 percent and is likely to continue to do so. The data coming out of the United States by and large where you look at the job market and cap spending and profits is the best it’s been in the entire recovery.

And so, I think there is more fear getting built in here than the reality on the ground. That is why I think this thing is probably maybe — within 5 percent of being finished. I kind of agree with Rick’s comments. I think the bond market is really mispriced relative to growth in the United States.

I would say it’s the 10-year yield should be north of three not south of two. And given that we’re growing 3, 3.5 with employment in the fives and the factory utilization (ph) rate going over 80 percent, profits still doing well, I think the bond market may be with the biggest risk lies in portfolios. And the last thing I would do with investors is reduce the stock exposure and go to bonds.

GHARIB: All right. Interesting stuff.

Jim Paulsen with Wells Capital Management, and Rick Rieder of Blackrock — gentlemen, thank you so much.

MATHISEN: So, how do individual investors feel about the sudden return of volatility in the markets? We spoke with some of them about their investment strategies right now.


UNIDENTIFIED FEMALE: I’m pretty diversified in my investments and in my age, I’m not a whole lot. You know, I’ve got a lot of other things besides equities.

UNIDENTIFIED MALE: I don’t think the stock market is for the little guy.

UNIDENTIFIED FEMALE: I don’t really see the difference in this in gambling. I mean, you can do all the research you want and I thought I did, and you can still just lose a lot of money.

UNIDENTIFIED FEMALE: Down one month, it goes up one month, and if you watch it, it will make you crazy.

UNIDENTIFIED MALE: I hope it stays or comes back up, everything traces in cycles. So, I guess we’re just going to have to wait and see what happens.


MATHISEN: You should go to the Hershey Store. That’s what you really should do. Go to the Hershey Store in Times Square, you will be fine.

So, despite the recent gyrations and the selloff in stocks, our next guest says when it comes to your 401(k), you shouldn’t worry. He’s David Kudla, CEO and chief investment strategist at Mainstay Capital.

David, good to have you with us.

Is this a night or is this a month where I should just not look at my 401(k) statement, my balance?

DAVID KUDLA, MAINSTAY CAPITAL MANAGEMENT CEO: Sometimes, that’s the best thing to do, is to ignore the day-to-day activity in the markets, week-to-week activity. For long-term investors, you’re investing for years, for decades, and what we’re seeing now is a normal correction in an ongoing bull market.

GHARIB: You know, David, I saw this headline on a blog saying you’re 401(k) will be fine, even though stocks just tanked. And talk a little bit about the tax benefits that you have in your 401(k). So, talk us through that thinking.

KUDLA: Sure. Well, one advantage to a 401(k) account or define contribution plan is that it’s tax-deferred savings. The money goes into the account before taxes and grows on a tax-deferred basis. You don’t pay taxes until you take distributions down the road. So, there are advantages in that.

Also by definition, being retirement savings, it is a long-term account. So, our long-term investment time horizon for this account, and investors can take on that. These day-to-day fluctuations, week-to-week, month-to-month fluctuations in the market, long-term investors can remember that they have time on their side.

MATHISEN: These are days where people often do their own kind of gut-check, David. They sit there and they go, boy, do I really want to be as exposed as I am to volatile risky investments in the equity market. Can these periods be a good thing in the sense that they may make you focus in a way you had had not when things were moving up on how your funds are diversified, spread out among different asset classes?

KUDLA: Yes, as difficult as these times can be to look at your account balance or to see what’s happening in the stock market on a day like today, these are tests of an individual investor’s personal risk tolerance. Ideally, the investor or 401(k) investor has a portfolio that is aligned with their goals, their risk tolerance, their investment time horizon, so that when a period like this comes out they don’t get shaken out at the bottom, that they panic and sell out on a day like today or yesterday.

The key is to maintain that long-term plan.

GHARIB: So, tell us real quickly your key bits of advice you give your clients.

KUDLA: Sure. So, number one, don’t sell on emotion. As I just said, don’t let — in a period like this where we’ve really seen a lot of volatility in the markets, don’t sell when the market has corrected 6 percent or 8 percent or 10 percent. This is exactly the time instead that 401(k) investors should be looking to buy equities or to purchase more shares at these lower prices.

And then third, and key, is to have a long-term discipline investment plan. It’s aligned with your goals, your risk tolerance and time horizon so that you’re comfortable with the level of volatility you’re seeing in a diversified portfolio over time and you’re achieving your goals over the long term.

MATHISEN: David, sound advice, thank you very much. David Kudla with Mainstay Capital.

KUDLA: Thank you.

GHARIB: Still ahead on NIGHTLY BUSINESS REPORT: what’s the dramatic move in treasury yields means for mortgage rates, refinancing and the overall housing markets?

Diana Olick joins us next.


MATHISEN: Late day earnings also from eBay (NASDAQ:EBAY) today. That company earned 68 cents a share in the third quarter. It was a penny more than analysts’ estimates. But revenues a little lower than Wall Street expected as growth in eBay’s PayPal unit outpaced its core online marketplace. Now, it’s got plan, of course, to spin off the PayPal unit into a separate company. And with a cautious outlook for the current quarter, which includes the important holiday season, eBay (NASDAQ:EBAY) shares initially lower in after-hours trading today.

GHARIB: Shares of Bank of America (NYSE:BAC) fell despite the fact that it posted a smaller than expect loss today. And that’s where we begin tonight’s “Market Focus”.

Revenue did come in below the estimates, and that’s because the bank’s bottom line was affected by charges related to its recent settlement with the Justice Department. Shares tumbled 4.5 percent to $15.76.

Quarterly earnings at American Express (NYSE:EXPR) (NYSE:AXP) rose as customers spent more using their Amex credit cards. Revenues came in below expectations, but trends in operating expenses were favorable. After the bell, shares were volatile. During regular trading the stock lost $1.81 to $80.93.

Martha Stewart Living Omnimedia (NYSE:MSO) announced that it has inked a 10-year deal with Meredith (NYSE:MDP) Corp, sending shares up initially after hours. That company will take over ad sales, circulation and production of Martha’s magazines. The stock spiked after the closing bell. During regular session, shares were up about 3 percent to $3.70.

MATHISEN: As Bob Pisani mentioned a few moments ago, pharmaceutical giant Abbvie is reconsidering its $55 billion proposed deal to buy Shire (NASDAQ:SHPGY). This comes as new Treasury rules are making it harder, less profitable for American companies, like Abbvie, to lower their taxes through overseas deal making known as tax inversions. Shire (NASDAQ:SHPGY) down 30 percent to $170.49. That’s a $74 plunge today. Abbvie, meanwhile, up 50 cents to $54.63.

General Motors (NYSE:GM) reported a 2 percent rise in global sales in the automaker’s third quarter, that’s its best performance since 1980. China was the biggest driver here. The company saw sales there increase by 14 percent. Despite that, shares of GM off more than 1 percent in this down market to $29.69.

Qualcomm (NASDAQ:QCOM) plans to buy the British chipmaker CSR for $2.5 billion, beating out Microchip Technology (NASDAQ:MCHP). Microchip had tried to buy CSR, but was rebuffed. CSR specializes in Bluetooth technology and has been making some strides into wearable and automotive computing devices. The stock of Qualcomm (NASDAQ:QCOM) down 66 cents to $71.20.

GHARIB: Well, there was a little bit of good news on this down day in the markets, and it came out of Washington. The federal budget deficit for fiscal year 2014 fell by nearly a third to just under half a trillion dollars. That’s the lowest since President Obama took office in 2008.

MATHISEN: Well, what will today’s dip in treasury yields in the recent market selloff mean for mortgage rates and is it a good time to refinance your current loans if you haven’t already?

Diana Olick joins us from Washington with more.

Diana, that’s the key question here. I guess most people have refinanced already when rates hit bottom a year or so ago. How many people may actually benefit from this latest drop?

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, you’re right. It’s going to be a pretty small pool. But, again, you have to look at this as not just a rate to rate proposition, that is, OK, rates dropped about 3.75 percent today, and I have a 4.25 percent on my 30-year fixed, does that mean I should jump in and refi?

You have to think about what you can get from the refinance other than that just rate change, perhaps you have to do cash out. Why? Because we’ve gone a lot of equity in our homes over the past two years, and a lot of people were unable to do that cash out refi, maybe now they can.

Also, for folks who got their mortgages in the past couple of years and credit was tight and they were required to get mortgage insurance because of the value of their homes, again, with higher homes value, you might be able to refinance into a new loan where you don’t have to pay the mortgage insurance. So, maybe your rate won’t be that much different but you’ll get the savings on the insurance.

GHARIB: Diana, how about home buyers? Do you think that these lower rates are going to get people to feel much better about buying a home?

OLICK: Well, really, that depends on how long the rates stay low. This is not a knee jerk reaction for a home buyer. Remember, this is your single largest investment in general is going to be your home. So, one day of rates moving down might not be enough to get home buyers out there buying.

And remember, what pushed mortgage rates down was uncertainty and volatility in the economy and stock market. And that weighs on people again, do I want to buy a home if I’m not sure about the job and I’m not sure about the economy, even if I have a low mortgage rate?

MATHISEN: Very quickly and to the minute, Diana, how long do you expect rates to stay this low?

OLICK: Oh, I wouldn’t be able to tell that. I’ll tell you, they started moving up already this afternoon.

MATHISEN: Diana Olick in Washington, thanks very much.

GHARIB: And coming up, how the volatility on Wall Street and how energy prices are impacting business owners on Main Street. That’s next.


MATHISEN: How does the recent market volatility and this month’s steep drop in energy prices impact small business owners?

Kate Rogers (NYSE:ROG) spoke with some who are meeting at the “Inc. Magazine” 5000 Conference. She has more now from Phoenix.


KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Thousands of miles from Wall Street, small business owners meeting in the Arizona desert are already saying that the drop in oil prices might be a good thing, at least for them.

JESSE DUNDON, HATHWAY CO-FOUNDER: If the energy prices continue to fall it will decrease our operational costs in the building, as well as costs we pay for services. As we grow, it does represent a big portion of our expenses.

RICHARD MILAM, ENABLESOFT FOUNDER & CEO: When companies have more margins, they invest more. They’re more aggressive about being creative.

ROGERS (on camera): While falling energy prices may be good for the bottom lines, the ups and downs on Wall Street matter less to the small business operators on Main Street.

ERIC SCHURENBERG, INC. MAGAZINE PRES. & EDITOR-IN-CHIEF: I think the falling energy prices makes a big difference to Main Street. It’s like a tax cut. So, it should stimulate the economy.

ROGERS (voice-over): With lower energy prices filtering into the economy now, that might be exactly what’s happening. Despite the recent stock market turbulence, “Inc. Magazine” found in a survey that small business owners are optimistic about the economy. And that in turn has them feeling better about their own businesses. In fact, 57 percent rated the outlook for their own companies as excellent.

(on camera): For now the hope is that gas prices will stay low heading into the holiday season so that Main Street can reap the rewards.

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG) in Phoenix.


GHARIB: And finally, a recap of an incredibly volatile day on Wall Street, as major stock averages recovered much of their early losses, and avoided a so-called “correction”. The Dow was down as much as 460 points. But by the close was down just 173 points. The NASDAQ lost 11 points, rebounding from a 100-point drop earlier in the day. And the S&P 500 ended lower by just 15 points.

Tyler, let’s hope things are better tomorrow.

MATHISEN: Hard to take your eyes off those numbers today.

GHARIB: That’s NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks so much for joining us.

MATHISEN: And I’m Tyler Mathisen. Have a great evening, everybody. Sleep it off. We’ll see you tomorrow.

GHARIB: Have some chocolates.


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