Transcript: Friday, January 30, 2015

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Sue Herera.

closes up the first month of the year just as it started — with dramatic
ups and downs. But will the rest of the year see more of the same?

economy didn`t expand by as much as economists thought it would. But one
voting member of the Federal Reserve isn`t concerned.

HERERA: Scaling back. Chevron (NYSE:CVX) becomes the latest oil
major to cut its investment plan, slashing its drilling budgets by the most
since 2003.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
January 30th.

MATHISEN: Good evening, everyone.

I think I speak for a lot of folks on Wall Street and around the
country when we say that January really couldn`t end soon enough.

Another mixed bag of earnings leading to another tumultuous session in
the markets today. And that cap another losing week and another losing
month for equities. But it wasn`t just equities that got squeezed. After
a weak read on economic growth last quarter, government bond yields touched
record lows, new ones and the price of oil surged — sort of strangely to
its biggest one-day gain in two and a half years.

Now, with losses accelerating into the close, here`s how the major
averages ended the day. The Dow was down 251 points. That`s its worst
month in a year. The NASDAQ all fight 48 and the S&P lower by 26. Also,
ending its worst month since last January.

For the month, the Dow and the S&P were both down more than 3 percent.
The NASDAQ off by 2 percent and during January, the Dow — get this — saw
a triple digit moves, 70 percent of the time. Volatility is back.

In the bond market, the yield on the benchmark ten-year Treasury note
bounced from a 20 year low and closed a year session high of 1.66 percent.

And oil with a big day as we mentioned there, 8 percent higher.
Biggest one-day gain since June of 2012 following sharpest weekly drop in
the U.S. oil rig count in nearly three decades.

HERERA: And looming over the entire day, a dismal read on fourth
quarter GDP. The U.S. economy grew at a much slower than expected rate,
just 2.6 percent in the final quarter of the year. Half of what it was in
the summer quarter.

Steve Liesman takes a look behind that number and what it may mean to
the Federal Reserve.


spending was strong at 4.3 percent, the best number we`ve had since 2006.
But business investment did slow down and federal government spending
declined by 7.5 percent, mostly payback from a strong defense spending
number in the third quarter.

Still, some economists were concerned that this was a harbinger of
slower growth in the United States ahead, but one key policymaker, San
Francisco Fed President John Williams, he was not deterred. He`s still
very optimistic for 2015.

strong — very strong consumer spending. We also know that the consumer
confidence is quite high and we`re also seeing really good real income
growth for households. So, I feel a lot of strength in the domestic

LIESMAN: Williams expects wages to rise more than they have been
going up. They were up 2.3 percent in the fourth quarter, about half of
the level you`d expect in the healthy job market. And we also see
deflation rising to the Fed`s 2 percent inflation target but won`t happen
until 2016. Williams said he still supports the Federal Reserve raising
rates in the middle of 2015, if a data comes in the way he expects it.

WILLIAMS: The round mid-year is a good guess, but when we really are
getting close to that point that raising rates will be appropriate. I`m
not predicting that it will be June or any particular meeting.

LIESMAN: Williams says he says the unemployment rate falling to 5
percent the end of this year. We`ll get a read on unemployment next week
for Wall Street looking at the January report to come in with unchanged
read at 5.6 percent, and job growth expected to be strong again at 234,000.
Those will be critical elements the Fed will be watching to set policy for
later this year.



MATHISEN: And Michael Hanson joins us now to tell us why he revised
his 2015 GDP forecast slightly lower after the day`s weak reading on
economic growth. He`s a senior U.S. economist with Bank of America
(NYSE:BAC) Merrill Lynch Global Research.

Michael, welcome. Good to have you with us.

Where did you take your numbers and why?

brought down 2015 forecast to 3 1/2 percent to 3.3 percent. So, it`s a
modest revision. And it basically reflects the fact, as you talked about,
the fourth quarter was so soft and so, the jumping off point, if you will,
for next year is a little bit lower, and that brought down the growth rate
as a result.

HERERA: What are the components that you looked at most? I know
trade was one of them, but what else did you look at that led you to do
that revision?

HANSON: Well, there was a big mix in the data of relative
expectations. The consumer was stronger than anticipated, but you had both
trade and inventories come in on either side. That inventory number came
in stronger and that may suggest that firms have unintentionally built up
inventory, and will be drawing it down at some point beginning of this year
and then trade has been a bit softer, perhaps no surprise because we have
both the strong dollar and weaker growth abroad.

MATHISEN: We know that inflation is basically tamed right now, thanks
in part to the fact that oil prices came down sharply today over recent
months. Hiring has been very good. What do the numbers today imply about
the pace of hiring and jobs in America?

HANSON: I suspected that right now, given the consumer is looking
pretty healthy and pretty optimistic, that we`re going to continue to have
good job growth going forward. We`d say that investment spending was a
little bit softer, but it wasn`t particularly weak. So, our expectations
as we go into next week`s job report is for a pretty solid payroll growth

MATHISEN: What does that mean for the Fed? Because your forecast of
when the Fed will move is slightly different than some others on the
street. You don`t think it won`t be just one move but two, but later in
the year.

HANSON: That`s right. We think the Fed is likely to wait until the
second half of the year before they start hiking. As we just saw a minute
ago, there`s some discussion among Fed officials that whether they might
want to go mid-year.

And from the Fed`s perspective, the real challenge is the labor market
is looking very robust, where we`re going to be down in the low 5 percent
range at some point this year, which normally the Fed already start hiking
interest rates. But as we just mentioned, the inflation numbers look very,
very soft.

MATHISEN: What does the stronger dollar do to the U.S. economy and to
that — I believe you said 3.2 percent growth rate, does it sap a
percentage point of our growth or what?

HANSON: You look for 3.3 percent next year and it does definitely put
some downward pressure. It means more imports and fewer exports, right?
So, that`s a little bit downward pressure, also means less inflationary
pressure. Import prices softer as well.

So, it does make the Feds like a little more difficult, it pushes it a
little further away from achieving their — the two sides of their mandate.

HERERA: But isn`t it almost a de facto tightening anyway, the strong
dollar, or not?

HANSON: Well, to some extent. But again, the backdrop in the labor
market still looks very solid — 3.3 growth for the year is nothing to
sneeze at. We haven`t been above 3 percent for a while now.

So, that`s the challenge the Fed is facing. There`s a lot of
headwinds and tailwinds. We`ve got low interest rates, as you talked
about. That`s probably a stimulus net effect for the economy as well.

MATHISEN: All right. Michael, thank you very much. Michael Hanson
of Bank of America (NYSE:BAC), Merrill Lynch Global Research — I
appreciate it.

HERERA: Now to earnings and profits at Chevron (NYSE:CVX), which fell
30 percent last quarter on that sharp drop in oil prices. Shares were only
down though about half a percent today even after the oil giant announced
it is suspending a soft buyback plan and cutting spending on projects. And
Chevron (NYSE:CVX) isn`t alone.

Jackie DeAngelis has more.


The oil majors have begun to report and while they`re generally beating
expectations by managing costs and working on efficiencies, Wall Street is
focused on capital expenditure. A drop in oil prices has taken an ax to
spending, which not only impacts the oil patch but the broader global

Chevron (NYSE:CVX) is the latest and the biggest oil company to do so.
The company plans to cut its spending by 13 percent to $35 billion this
year, and plans to suspend its share buyback program in order to conserve
cash. The reduction to the drilling budget is the greatest since 2003.

Chevron (NYSE:CVX) that they`re cutting back on their capital expenditures
is emblematic of what`s being undergone in the industry right now. Every
company big and small is getting hurt by the collapse in oil prices.
Chevron (NYSE:CVX) sends a big signal that this is going to occur across
the board.

DEANGELIS (on camera): And while Chevron`s earnings exceeded
analysts` expectations, those same analysts focused in on its revenues,
down 18 percent from year-ago levels.

KILDUFF: The bottom line is the crude oil prices is their bread and
better. And that`s what`s going to hurt them the most going forward.
Their revenues are dependent on crude oil prices being higher than where
they are now and where they`ve been over the past couple of months.

DEANGELIS (voice-over): Earlier this week, Royal Dutch Shell
announced it would cut capex investments by $15 billion over the next three
years, and also said that 2015 spending would be less than 2014.

And ConocoPhillips (NYSE:COP) slashed its 2015 spending by 20 percent
to $11.5 billion as it deals with the plunging price of crude.

Now, attention turns to Exxon`s numbers on Monday and BP on Tuesday.



MATHISEN: And now to economic news overseas and a shocker from
Denmark. The Danish National Bank says it will stop selling government
bonds until further notice, in an effort to keep its currency, the krone,
within the tight race of the euro. Denmark has already sold enough bonds
to cover its total borrowing costs — needs, I should say — for the rest
of the year. And it comes one day after the central bank cut its interest
rate for the third time in nearly two weeks.

HERERA: And in Greece, more uncertainty after the latest sections
from its newly elected far left prime minister. Greece now says it will
not cooperate with its European bailout partners, including the European
Union and the International Monetary Fund. And the government has fired
the heads of its state privatization agency after stopping the sale of all
government owned assets.

MATHISEN: And the problems may only deepen in Russia after its
central bank made a surprise cut in its main interest rate to 15 percent
just a month after hiking that same rate to 17 percent. Can anything save
Russia`s floundering economy?

Geoff Cutmore has the latest from Moscow.


economy that`s under siege. You`ve had very high interest rates, a
continuation of Western sanctions, the falling oil price, and a lot of
ruble volatility. All of that means this economy will probably contract
somewhere between 4 percent and 5 percent, for full year 2015.

The central bank though has decided to act today. That`s taken
economists by surprise. No one had forecasted 2 percentage points move.
The central banks saying they feel there is room to maneuver on the growth
side now that inflation appears to be in check.

This is NIGHTLY BUSINESS REPORT. I`m Geoff Cutmore here in Moscow.


HERERA: And still ahead, the president is asking for millions to fund
a new medical research initiative and today, executives from health care
industry reacted to his idea.


HERERA: President Obama plans to ask Congress for money to fund the
medical research initiative as part of his budget proposal which is
expected to be unveiled on Monday. The effort is targeted at treating
diseases with pinpoint accuracy. And today, the president gave additional
details when he met with some of the country`s biggest drug makers.

Meg Tirrell has more from the White House.


invitations were mysterious. “The Office of Science Technology and Policy
would like to invite you to the White House.”

They were sent to drug makers, including Regeneron, Vertex, and Merck
(NYSE:MRK). And to testing companies Ilumina and Foundation Medicine.

Today, the details were revealed. The president announced the $200
million investment in precision medicine.

of leading an entirely new era of medicine that makes sure new jobs and new
industries and new life-saving treatments for diseases are created right
here in the United States. Because we shouldn`t just celebrate innovation,
we have to invest in innovation.

TIRRELL: So, what is precision medicine? It`s described as the right
treatment for the right patient at the right time. Therapy is more
tailored to the underlying drivers of disease. The government initiative
will start with a focus on cancer, driving understanding of its root causes
to spur drug development. It will also build a national database of health
information on at least a million volunteers, with everything from genetic
data to health records to lifestyle habits.

George Yancopoulos leads research at Regeneron. His company is
focused on using genetic research to drive drug development, a method that
led to a new class of drugs known as PCSK9 inhibitors aimed at lowering

what makes us more susceptible to disease or keeps us protected against
disease, we can use that. We can use that to come up with medicines that
mimic these mutations and possibly in the case of PCSK9, possibly help
millions of people be the equivalent of genetic superstars that are now
protected from disease.

TIRRELL: He warns, though, that this kind of work takes time.

YANCOPOULOS: Science, fortunately or unfortunately, takes a lot of
hard work and it takes long periods of time, particularly biological
science. It will depend on biological timeline. But I think this vision
and this foundation can be built here by the president`s efforts here, by
companies like us, can really contribute to making a difference.

TIRRELL (on camera): The response across the drug industry has
generally been positive. We spoke today with Tony Cole, the former CEO of
Onyx Pharmaceuticals, who told us the initiative is unprecedented and
potentially historic.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in Washington.


MATHISEN: MasterCard`s profits surged in fourth quarter. And that is
where we begin tonight`s “Market Focus”.

The credit card company saw earnings rise by about 30 percent on
increased consumer spending, meaning more swipes. MasterCard (NYSE:MA)
also bought back about 2 million shares worth of stock during the quarter.
The stock was up fractionally today to $82.03.

Xerox (NYSE:XRX) posted earnings that topped forecasts, but its
revenue came in slightly below, because sales of its printers fell. The
company also hiked its quarterly dividend to 7 cents a share, the yield on
that dividend is about 1.9 percent. But investors weren`t too happy with
the company`s decreased profit outlook, and shares were off almost 3
percent on this down day. They finished to $13.17.

Eli Lilly (NYSE:LLY) also out with earnings that beat and revenue that
missed slightly. The drug maker was weighed down by the impact of patent
expirations on some of its treatments and the negative impact of currency
moves. Shares there off slightly to $72.

HERERA: The West Coast port slowdown that we`ve been telling you
about is weighing on Tyson Foods (NYSE:TSN). The company said the issues
are starting to back up meat shipments and it could affect livestock
producers if it`s not resolved soon. It also posted better than expected
first quarter earnings. But shares were down almost 3 percent to $39.04.

Altria group, the maker of Marlboros, saw its profit more than double
on higher cigarette prices and lower costs for paying down debt. Those
higher prices offset a decline in cigarette sales and helped the company
post better-than-expected revenue. The stock fell more than 2 percent to

And Costco (NASDAQ:COST) announced a special one-time dividend. The
wholesale club`s payout is $5 a share, which will cost the retailer more
than $2 billion. The yield on the payout is about 1 percent and it will be
paid at the end of February. Shares rose more than 1 1/2 percent to

MATHISEN: What a debut, Sue, for Shake Shack. Shares of the upscale
burger chain exploded after pricing last night at $21 a share, two bucks
above the top of the range.

Here`s what happened. Shares shot up 118 percent today. They more
than doubled, $45.90 was the close on the day that practically everything
else lost money.

So, what has so many diners and investors craving those cook-to-order
burgers and crinkle cut fries?

Kate Rogers (NYSE:ROG) has the story, and what`s next for the fast
casual chain.


Danny Meyer`s Shake Shack may have started as a literal hot dog stand in
Madison Square Park more than a decade ago, but it since grown into a
worldwide brand. After making the Madison Square Park location permanent
in 2004, it took the company five years to open a second store. From
there, it`s grown rapidly to 63 locations around the world.

The burger joint is also known for its crinkle cut fries and custard
with higher prices than a McDonald`s (NYSE:MCD) or Burger King, it`s in the
fine casual space. That makes its real competition the likes of Chipotle
and Five Guys, which were equally popular with the millennial crowd.

The question now is whether people line up to buy this stock the way
they do Shake Shack burgers.

from the investment side, there`s an appetite. Whether or not, you know,
the company is going to replicate the craze that — or all the attention
it`s received in the New York metropolitan area is to be seen.

UNIDENTIFIED MALE: We`re hungry. We`re here for a real estate
conference and we`ve heard about the Shake Shack.

UNIDENTIFIED FEMALE: I like their burgers because they`re not too
thick and not too thin.

UNIDENTIFIED FEMALE: Awesome burgers at a fair price and local
favorite. We try to get in last night and the line was around the block.

UNIDENTIFIED MALE: What don`t you like? I like the burgers. The
shakes, I mean, the quality really comes down to the quality.

ROGERS: That enthusiasm from customers earned Shake Shack more than
$82 million in revenue in 2013. But same store sales have been declines
over the last three years, and some analysts have expressed concern about
whether store growth is sustainable.

aren`t a lot of great growth names in the consumer cyclical space because
of online growth — online sales growth. You know, it has opened up the
door for a lot of restaurants to get into the space, however, with the
increased competition, I think there are going to be barriers to how much
some of these concepts can grow.

ROGERS: But Shake Shack says it`s not slowing down anytime soon,
aiming to open 450 new shacks in new and existing markets in the next two

In New York City, for NIGHTLY BUSINESS REPORT, I`m Kate Rogers


HERERA: Our market monitor says, for the past five years, February
has been a good month for stocks and he thinks that trend will continue
this year.

Joining us is Jamie Cox, managing director with Harris (NYSE:HRS)
Financial Group, an asset management firm with more than $650 million under

Welcome. Nice to have you here, Jamie.

How are you today?

HERERA: I`m good, thanks.

Listen, it was a rough day on the market today in almost every sector
and do you believe the adage that as January goes, so goes the rest of the
year, or no?

COX: I tend to. I mean, that has been sort of the trend over the
last however many times we`ve cited it. But I don`t think this January has
been bad today, it`s been bad all month. I mean, this has been a terrible
month. A lot of crisscrossing data, lots of really interesting things
happening, like Q.E. in Europe.

I think that we could probably throw this one out because I think
there have been so many things that typically don`t happen in January
happen this year. I think for once, this may not indicate the trend.

MATHISEN: A lot of things caused volatility this month.

COX: Yes.

MATHISEN: Do you expect that volatility to persist or do you think
that some of those disruptions are behind us?

COX: I think we`re just gearing up for the volatility for 2015. I
mean, if you think about it, where — what hasn`t happened that will likely
happen this year to cause volatility? That`s the Fed raising short-term
rates. It`s going to happen. We saw what happened back, when we even
discussed it a couple years ago. Markets were all over the place.

So, I think we`re going to be living with it until the Fed raises
rates once. Once they do and we get used to it, I think the volatility
will come down but until that time, we`re going to be zigging and zagging,
and probably not going anywhere in the markets until that actually happens.

HERERA: You think the international markets will reward investors
more than U.S. markets this year. Quickly, before we get to your stock
picks, where internationally would you go?

COX: I think there are tons of opportunities in Europe. I mean,
there`s — European equities are going to be a real darling relative to
U.S. equities. I mean, if you look at the last two years, S&P 500 is
really outperformed the Morgan Stanley (NYSE:MS), all world index. That`s
going to change.

So, you can actually buy the index that can get you international
exposure or you can dive into Europe to get utilities, get automotive
companies, like Volkswagen. There are tons of opportunities in Europe that
don`t exist here in the United States.

MATHISEN: Why don`t we start with a utility, National Grid, which is
one of your picks, which has European exposure?

COX: Yes, it does. In fact, utilities have been sort of the sector
of the year, if you will, but they`re terribly expensive right now. P/E is
over 20. I mean, Dominion Resources (NYSE:D) here in Virginia, 25 P/E.

National Grid is the only utility that I know of that has a P/E in the
teens. So, it`s around 16 or 17 with a 5 percent yield, it is a great
place to find if you`re looking for utility exposure in your portfolio and
you`re afraid of being overweighed in the sector.

So, that`s a good spot. I think Northeast exposure in the United
States and also in the U.K. give you plenty of opportunity to grab some
revenue growth and stable cash flows for a dividend that can increase as
well as have some share appreciation in the short run.

HERERA: All right. JPMorgan (NYSE:JPM) is next on the list. Do you
think it`s been punished unnecessarily by the market?

COX: Oh my gosh. Banks have just been hammered in January. I mean,
JPMorgan (NYSE:JPM) was over 60 at the start of the year, what, 54 right
now. It`s even more attractive than it was then. It was cheap in the 60s.

So, what we`re lining up for, for the next couple of months, with
banks is the result of some stress tests that are ongoing right now and
also if rates rise, in the coming couple of months, the yield curve, excuse
me, the net interest margin will actually go up for banks and it`s very
positive. I think the future is bright for banks but with right now, with
yields dropping, the ten-year note, the net interest margins down. It`s a
terrible time to be in banking in as interest rates drop.

But as they rise, it is a good time to be a purchaser of banks.

MATHISEN: Give me a 30-second pitch on Google (NASDAQ:GOOG). Your
third choice.

COX: Google (NASDAQ:GOOG) is the AT&T (NYSE:T) of our day. You`re
going to look back ten years from now and you`re going to be, it`s a wonder
of what Google (NASDAQ:GOOG) can do. It is in every single home in
America, every single — you know, the search possibilities of Google
(NASDAQ:GOOG) are unlimited. People are sort of captivated by Apple
(NASDAQ:AAPL) right now, but the company with the staying power for decades
down the road is Google (NASDAQ:GOOG).

So, if you want a good investment, that`s the place to be if you look
for big cap tech.

HERERA: OK. Jamie, thank you so much for joining us. Great ideas
there. Have a good weekend.

COX: Thank you very much.

HERERA: Jamie Cox with Harris (NYSE:HRS) Financial Group.

MATHISEN: And coming up, finding the fakes. While fans focus on the
Super Bowl, special agents are cracking down on counterfeits and the big
money behind these criminal networks.


HERERA: There were a lot of winners in the government`s latest
auction of wireless spectrum use, to send — it`s used basically to send
video and data to mobile devices. In total, Uncle Sam netted a record $45
billion for the space. AT&T (NYSE:T) spent the most, more than $18
billion. Dish Network spent over $13 billion and it doesn`t even have a
network quite yet for wireless services. Verizon (NYSE:VZ) did $10.5
billion and T-Mobile spent nearly $2 billion.

MATHISEN: Well, two days and counting until the Super Bowl, the
biggest day of the year for players, fans, and for officials looking to
crack down on counterfeit football merchandise.

Dave Briggs has more from Phoenix.


England Patriots and Seattle Seahawks have traveled to Arizona for the
biggest game of the season. So too have agents from the Department of
Homeland Security, intent on cracking down on counterfeit Super Bowl

JOSEPH MACIAS: We`ve been hearing this initiative for about a week.
We seized approximately 3,000 items with an MSRP of over $100,000.

BRIGGS: Licensed sport apparel is a $3 billion a year business for
the NFL, accounting for nearly a third of the league`s annual revenue.

But it`s also a target for criminals. Last year, federal authorities
seized more than 300,000 counterfeit items valued at nearly $20 million.

UNIDENTIFIED MALE: We`re thinking of the package, identified possibly
containing possible merchandise. So we`re going to go in here for the

BRIGGS: And while agents are focused on Phoenix today, counterfeiting
is a national problem.

WILILIAM K. BROOKS: I think when it affects the economy of the United
States, I think we all have to agree it`s not just a local issue.

BRIGGS: Buying fake merchandise takes money away from the local
businesses that sell off empty goods. That hurts local economies which
hurts the country as a whole. Worse, say officials, the selling of
counterfeit goods is often tied to larger criminal activity.

back to other organizations, either domestically or internationally to fund
various types of criminal activity.

BRIGGS (on camera): While many counterfeit items look deceptively
authentic, the best rule of thumb in spotting the fake is if it looks too
good to be true, it probably is.

For NIGHTLY BUSINESS REPORT, Dave Briggs in Phoenix, Arizona.


HERERA: And that does it for NIGHTLY BUSINESS REPORT tonight. I`m
Sue Herera. Thanks for watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a
great weekend, everybody. Enjoy the ball game. We`ll see you here on


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