Transcript: Wednesday, February 11, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Greece is the word. Multiple reports tonight that Greece has agreed in principle to an agreement with its creditors regarding its debts.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Setting the tone. Cisco (NASDAQ:CSCO), the latest Dow component to report earnings, topped Wall Street estimates — as the NASDAQ now just sits 200 points away from 5,000.

HERERA: Eroding assets. How you can avoid making retirement mistakes that could cut your savings by as much as 25 percent.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, February 11th.

MATHISEN: Good evening, everyone. And welcome.

Lots of developments. Late in the day today, multiple reports late this evening now that Greece has reached in principle an agreement regarding its debt. Talks will continue through Monday to hammer down the details. The reports come after Greece’s finance minister today presented his plan to ease the terms of his country’s bailout to other finance chiefs of the eurozone, along with the heads of the IMF and European Central Bank.

The markets did respond to these reports. Stock futures rose as did the euro against the dollar and the treasury bond prices fell.

Bill Adams is PNC’s senior international economist. He joins us to discuss these new developments, the latest out of Greece.

Bill, earlier this week or late last week, you were on with us and you predicted that there would be some sort of deal to avoid the worst outcomes here. What do you think they agreed to? We don’t know many of the details.

BILL ADAMS, PNC SENIOR INTERNATIONAL ECONOMIST: We don’t yet and I think that is indicative of the fact that we’re probably not quite at the final deal yet. I think an agreement to agree is not quite the same as an actual agreement. We’ll have to see what we get in the next round of this, but I think we weren’t really expecting the final deal probably until later in the month. So, this is more in line with expectations.

HERERA: Ideally, what would the markets like to see contained in this deal?

ADAMS: Well, I think there are lots of different ways they can cut it and a lot depends on how Europeans want their own politics to play out. I think a deal that will ensure that Greece can eventually sustainably grow and that Greece can service its debts and that the eurozone institutions hold together is really the — those are the keys that the markets are looking for.

MATHISEN: I think most people would say that the social fabric in Greece was under extreme stress. There was high unemployment. There is high unemployment. Pensioners saw their retirement payments cut. Are those the kind of things that can really cause civil unrest? And we’ve seen it in Greece.

ADAMS: That’s definitely the case and I think this agreement is about how to balance the needs of having the financials work out in the eurozone with the social issues that cause the far left party to win in this January election.

HERERA: Bill, is it safe to say that at this point, an exit from the eurozone is probably off the table for Greece?

ADAMS: I think it’s quite unlikely at this point. It’s been unlikely coming into this. I don’t know that the news that we’ve seen today necessarily changes, my view of it. At this point, it seems pretty unlikely that it could fall apart but I don’t know I’m more convinced by an agreement to Greece at some point by than I am by where we were coming into this week.

MATHISEN: I guess the delicacy of the dance is to come to some agreement that maintains some of the strictures in the original bailout provisions but doesn’t open the door for other parts of the European Union — Portugal, Italy, Spain, Ireland — to come back and say, hey, I want what Greece got.

ADAMS: I think that’s definitely the case. That’s certainly what Germany and the northern economies are thinking about in these negotiations and for the Greeks, they’ve come, they won an election that — the current government won an election by promising an end to the bailout, an end to austerity. And so, they have to come up with something that both wins where the Germans look like they were able to hold the line and the Greek government is also able to say that they were able to increase spending.

MATHISEN: All right, Bill, thank you very much. We appreciate it. The devil will always be, of course, as always in the details.

HERERA: We turn now to earnings. And Dow component Cisco (NASDAQ:CSCO), which reported after the closing bell and the result, at least initially, may give tech investors something to smile about. Often considered a proxy for business spending, Cisco (NASDAQ:CSCO) said demands for new hardware outweighed headwinds from the strong dollar.

The company whose shares are up about 20 percent since October has benefitted from pickup in demand for its largest single product segment, switching equipment, which is what handles all the Internet data traffic. Cisco (NASDAQ:CSCO) earned 53 cents a share, 2 cents better than estimates. The company brought in almost $12 billion in revenue for the quarter, also topping expectations.

Cisco (NASDAQ:CSCO) also increased its quarterly dividend to 21 cents and shares were initially higher on the report.

Jon Fortt joins us now with his one key takeaway from Cisco’s report.

Good to see you, Jon.

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to see you, Sue.

I think the one key takeaway from this report is that Cisco (NASDAQ:CSCO) is seeing stronger growth than its other peers that sell technology to big companies and it’s seeing it even in places where you wouldn’t expect it, like in Southern (NYSE:SO) Europe.

John Chambers’ optimism on the call was almost comical. I mean, he was talking about how he ran in the morning and then lifted weights, and he just couldn’t contain himself. Normally, he says with all appropriate caveats, he’s going to say something positive. He still said stuff like that, but there was a lot of optimism here.

For a community of investors who saw quite a bit of taking down of guidance —

HERERA: Right.

FORTT: — given the strong dollar throughout earnings season.

MATHISEN: This is a hardware company, right? Basically.

FORTT: Well, they’ve got quite a bit of software too built in their system.

MATHISEN: Built into their system.

FORTT: Kind of like Apple (NASDAQ:AAPL) that kinds to try the service system.

MATHISEN: Is this then fairly called a bellwether for capital spending?

FORTT: No, it’s not anymore the way that it used to be. We look at what Oracle (NASDAQ:ORCL) is experiencing with software. We look at what the PC market is experiencing with those kind of headwinds.

It’s clear that enterprises are spending on certain kinds of things but that’s not the same sort of stuff that carriers are spending on. They’re cutting back. That’s not the same thing governments are spending on. They’re not as strong.

So, we’re seeing different pockets of strength. Cisco (NASDAQ:CSCO) has hit a strong pocket but doesn’t mean everybody is going to see that same sort of growth.

HERERA: All right. Jon, thanks for spending time with us. We appreciate it. Jon Fortt.

MATHISEN: All right. While, Cisco’s number were strong, as Jon just mentioned, it’s been a different story for other stocks in the technology sector. Coming up, a strong 2014, hopes were high for the group heading into this year, but it hasn’t worked out that way.

Morgan Brennan explains why.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (on camera): Tech was on top of the world last year, but in 2015, so far, the sector has been one of the worst performers. Why? Well, profit taking, a disappointing guidance and slowing global growth are all taking a toll on tech. Analysts are also keeping a close eye on currency, since an estimated 60 percent of the sector’s revenues come from abroad.

BEN SCHACHTER, MACQUARIE RESEARCH SR. INTERNET ANALYST: It’s going to impact a whole universe of companies based here in the U.S. So, it will have an impact. I think the internet names in general are big enough to power through it, but it’s certainly going to slow growth and hamper the international operations for a lot of these companies.

BRENNAN: That’s already playing out among the largest. Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT), two stocks that outperform the market last year have each tumbled in 2015 after providing guidance below analysts’ expectations.

But there are exceptions, most notably, Apple (NASDAQ:AAPL). The hardware giant is trading at an all-time high with a market capitalization above $720 billion, the largest ever for any U.S. company.

Apple’s recent earnings trounced expectations, and that’s had ripple effects with suppliers as well. Chip makers including NXP Semiconductors (NASDAQ:NXPI), Avago Technologies (NASDAQ:AVGO) and Texas Instruments (NYSE:TXN) have all gained on the heels of Apple’s latest report.

Another bright spot? Amazon (NASDAQ:AMZN). After tumbling in 2014, the e-commerce giant reported a fourth quarter profit, sending shares 20 percent higher since the start of the year.

SCHACHTER: We’re very bullish on Amazon (NASDAQ:AMZN). We continue to like Facebook (NASDAQ:FB). I think both of those companies are positioned very well. Google (NASDAQ:GOOG) is another name that we like over the long-term, although there are challenges in the core business slowing down.

BRENNAN (on camera): Analysts also like cyber security stocks as both the federal government and businesses beef up their defense. Names like Fortinet (NASDAQ:FTNT), Akami (ph), Spyri (ph), which reported earnings this afternoon.

But as 2015 unfolds, the broader sector continues to be a focus since tech drove the majority of gains for the S&P 500 each of the last two years.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Stocks finished mostly flat today as the markets awaited word on the developing situation with Greece. The Dow recovered from being down triple digits to finish off six points to close at 17,862. The NASDAQ was the bright spot, it rose 13.5 points, and the S&P 500 was flat.

MATHISEN: Closely watched oil prices fell once again after U.S. stockpiles hit record highs. Crude inventories up almost 5 million barrels last week to the highest level since recordkeeping began in 1992. That pressured prices, WTI settled below $50, down $1.18 to $48.84. Brent crude also fell as you see there.

HERERA: And it was a busy day in Washington. The president asked Congress to authorize a three year fight against is. The house passed the keystone pipeline bill and the debate over how to fund homeland security is really heating up.

John Harwood is in Washington tonight.

And you have a lot on the agenda, John. Should we start with Keystone first?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sure. The House is now passed the Senate bill on Keystone with 29 Democratic votes. That’s not enough to override the veto that President Obama has promised.

So, we’re looking for that bill to go to the president fairly quickly. For the president to veto it and then we’re going to find out whether or not there are negotiations between Democrats and Republicans on some sort of compromise in which the president might allow Keystone to go forward in return from some concession for Republicans, but Republican aides on Capitol Hill telling no negotiations have begun yet.

MATHISEN: The president sent I guess a resolution up to Capitol Hill today seeking the ability to wage war on ISIS. Will he get it?

HARWOOD: Yes, he’ll eventually get it. It will take weeks, perhaps months to work through this. You have Democrats who think that this provides too much room for an additional military conflict. Remember, President Obama ran for office proposing to end the Iraq war and Republicans who think that ties the president’s hand too much by committing not to have long-term ground troops. So eventually though, I think it’s not going to be tenable for Republicans to block this use of force which they’ve call for or for Democrats to undercut the commander in chief of their party.

HERERA: Yes, John, it’s interest at this time when president is talking about the threat from overseas, the threat from ISIS, the homeland security funding is all in the fight over immigration.

HARWOOD: It is. Republicans, of course, withheld full year funding from DHS in order to protest and try to roll back the president’s immigration executive order. I think that is ultimately going to be a losing strategy, one Republican senator, Mark Kirk of Illinois, said this is the wrong battle at the wrong time. The Republicans in the Senate cannot pass the measure in the House that rolls back the president’s order. So, I think we’re in a process now of Republicans climbing down from that effort.

We don’t know how quickly that will come because John Boehner said today, no, the House needs to try to pass this bill again. Mitch McConnell says he can’t do it. We’re at an impasse at least for a while.

HERERA: All right. A very busy John Harwood in Washington for us tonight — thank you, John.

MATHISEN: Well, the federal budget deficit for January was slightly smaller than economists expected. This is strong growth and rising employment helped raise tax revenue. According to the Treasury Department, the federal ran a deficit of $18 billion last month and that compares to the $10 billion short fall a year ago in January of ’14.

HERERA: Another shot across the bow of the unions and the ongoing labor dispute at the West Coast ports. The Pacific Maritime Association now says it will suspend loading an unloading of ships starting tomorrow and running through Monday. The PMA which represents about 70 shippers did the same thing last weekend as well. The association has accused the union of conducting slowdowns and other actions in an attempt to influence contract negotiations.

MATHISEN: Still ahead, the common mistakes people make that cut their retirement savings by as much as 25 percent. We’ll tell you how you can avoid them.

(MUSIC)

MATHISEN: Bank of America (NYSE:BAC) reportedly helped some clients avoid taxes. According to “The Wall Street Journal”, the bank used funds from its U.S. unit to finance transactions by its European investment banking arm that helped hedge funds avoid taxes on dividends. The bank has since phased out the program and in the statement says it no longer finances dividend arbitrage activity.

HERERA: A stronger dollar weighed on Pepsi’s fourth quarter, but its earnings still beat and that’s where we begin tonight’s “Market Focus”.

The soft-drink maker’s Frito Lay snack business came to the rescue, since higher sales in that division helped to offset pressure from currency headwinds. The beverage giant also said it would buy back $12 billion worth of shares and it hiked its dividend by seven percent to $2.81 a share.

The CFO says the company’s diversified product offerings bolstered the results.

(BEGIN VIDEO CLIP)

HUGH JOHNSTON, PEPSICO CFO: The innovation is working well and that combined with the brand support that we’ve been able to put behind it, because we have been growing R&D spending faster than sales and we have been growing A&M spending, that’s what is making PepsiCo work right now and we’re doing it in a very sustainable way.

(END VIDEO CLIP)

HERERA: Shares rose about 2 1/2 percent to $100.40.

Time Warner’s earnings beat estimates, but revenue missed. That was mostly due to declines at its Warner Brothers movie studio. The company also upped its dividend ten percent to 35 cents a share. Shares were up just a fraction to $81.01.

Time Warner’s former unit AOL (NYSE:AOL) was also out with revenue that trailed consensus. Growth in its advertising revenue did help the company post better-than-expected earnings. But subscription revenue fell, as higher pricing didn’t offset a drop in subscribers.

Chief executive Tim Armstrong said currency initiatives have been an issue but it isn’t as effective as other companies.

(BEGIN VIDEO CLIP)

TIM ARMSTRONG, AOL (NYSE:AOL) CEO: Under 20 percent is revenue but it’s under 20 percent. So, it’s probably muted than a company that’s got 20 percent coming internationally. But I think, you know, the swing in the dollar has been really large. I mean, last six months, you look at the charts. It’s hard to say that’s not one of the megatrends that will affect people’s earnings.

(END VIDEO CLIP)

HERERA: Still, shares tumbled 10 percent to close at $40.22.

Shares of Rite Aid (NYSE:RAD) rose on news of an acquisition. The chain will buy pharmacy benefits manager Envision Pharmaceuticals for about $2 billion. The move comes at the company looks to better its position itself in the changing health care environment. Shares were 6 1/2 percent higher to $8.08.

MATHISEN: Generator maker Generac reported strong results and it said it sees 2015 sales increasing. This as the company saw an increase in sales in both its commercial and its industrial divisions. Still, the stock was up about 3 percent today to $48.94.

Pier 1 saw its shares plunge after it cut its full-year guidance, pointing to higher than expected expenses. Separately, the retailer announced the retirement of its chief financial officer. The stock fell 24 percent today to $12.84.

Whole Foods’ earnings were better than expected, while sales were in line. The company was able to attract more customers to its stores during the quarter. That sent shares much higher initially after the close. Look at that graphic. During the regular trading session, they were up a fraction to $53.51.

Meanwhile, shares of Tesla plunged right after the close when it reported sales and a quarterly loss that were below estimates. The electric car maker also did not deliver as many cars as it expected to, which it blamed on a variety of factors, like the weather issues and shipping problems. As you can see, shares dropped in initial after-hours trading. Before the close, the stock was off more than 1 percent to $212.80.

HERERA: Americans are draining their 401(k) retirement accounts early. A new study out says that working Americans approaching retirement have reduced their retirement wealth by 25 percent. This leakage or preretirement withdrawal has some asking if the rules need to be changed.

Joining us to discuss this is Ivory Johnson. He is founder of his own wealth management firm, Delancey Wealth Management.

Good to see you, Ivory. Welcome back.

IVORY JOHNSON, DELANCEY WEALTH MANAGEMENT FOUNDER: Welcome. Thank you.

HERERA: What do you make of this report and why does this happen? Why are we reducing our retirement when so many of us are so worried about retirement?

JOHNSON: I think a big part of it is investors don’t have any type of a financial plan and as a consequence, they’re less likely to have a budget. They’re less likely to have an emergency fund. In many instances, they haven’t prioritized their goals and as soon as they hit a rough patch, they go to the one place where they do have money, and that would be their retirement plan.

MATHISEN: So they’re using, Ivory, their retirement plan as their emergency fund, they hit a hardship, they take out a loan. It becomes their piggy bank and they shouldn’t do it that way.

JOHNSON: That’s exactly right. When you take money out as a loan, not only are you paying it back with after tax money but that money is going tax deferred. If you take a cash out option, you pay taxes up front and then you’re paying a 10 percent early withdrawal penalty. So, it’s very punitive in nature.

But let’s not forget that even though corporate earnings are going up and this is another issue, you know, wage growth has been very tepid. And so, what that means is, you know, while they’re not being paid more, their expenses are going up in the form of higher health care, a lot of it is education. And if you look at two reasons to take a hardship withdrawal, two of them — I don’t think it’s by accident — is health care and paying for college education.

HERERA: So, should that change then? I mean, should they tighten up those rules so that you can’t touch it for that? That would be a hardship, I would think.

JOHNSON: I don’t know that you can regulate responsible behavior, for lack of a better word. If you want people to put less money out, restrict what they can take out. What I will say, though, is that employers have a fiduciary responsibility with these qualified plans to provide certain services. I think if they make the financial industry a lot more robust and create the foundation, people will be less likely to use their retirement plan as a piggy bank.

MATHISEN: And to build, as you say, that separate emergency fund.

Ivory, correct me if I’m wrong on this, if you leave a company or you’re laid off from a company and have an outstanding loan on your 401(k), what happens?

JOHNSON: That counts as early withdrawal. So, it becomes immediately taxed and you’re given the 10 percent 72t penalty. So, that’s the problem, when you borrow money —

MATHISEN: That’s a huge problem. Think about that. If you have a loan that you intend on repaying and get laid off, you either have to put that money in or it counts as a taxable penalty prone withdrawal to you, right?

JOHNSON: And to add insult to injury, as you get employment benefits, those are taxable. So, not only that you lost your income, but now, you have a tax issue.

HERERA: This is getting scary.

OK. So, let’s get some advice for our viewers tonight on what the one recommendation you would have for them to do so that they aren’t so tempted to touch that retirement account.

JOHNSON: I think they should put together a plan to prioritize what it is they’re trying to accomplish because if you have an emergency fund and you haven’t maxed out your credit card, that gives you some cushion. So when you go through a rough patch, you don’t have to access your retirement.

HERERA: All right. Ivory Johnson — Ivory, thanks for joining us.

JOHNSON: Thank you.

HERERA: Delancey Wealth Management.

Coming up, Washington state’s growing business problem. One that probably didn’t see coming just a few months back.

(MUSIC)

HERERA: The FBI wants to know how fraudulent tax returns were filed in numerous states through TurboTax. As first reported by “The Wall Street Journal”, the agency is looking into how personal information used to file the returns was obtained. As many as 19 states have been affected. Intuit (NASDAQ:INTU), the parent company of TurboTax said it did not believe the fraud resulted from a breach of its systems.

MATHISEN: Colorado collected about $44 million in new sales and excised taxes last year from its newest industry, recreational marijuana. But that was below projections of $70 million. Colorado was the first government to regulate marijuana production and sales.

HERERA: Recreational marijuana is also legal in Washington. But that state’s tax rates on pot are vastly different from Colorado, and that’s just one of the issues plaguing the new industry and causing some growing pains, if you will, for a lot of marijuana business owners.

Jane Wells reports from Vancouver, Washington.

(BEGIN VIDEOTAPE)

TOM LAUERMAN, WASHINGTON POT GROWER: And this is a kind of lifestyle that we were looking for.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Tom Lauerman hoped to ride the green wave of legal marijuana in Washington state.

LAUERMAN: Our garden is called the Garden of the Green Sun here in Washington.

WELLS: But a funny thing happened on the way to profitability. They grew too much pot, prices plummeted.

LAUERMAN: In the early days, we were able to get like $1,700 to $2,200 a pound.

WELLS (on camera): Wholesale.

LAUERMAN: Yes, wholesale.

Now, it’s like $700, $800 a pound.

WELLS: It’s still profitable.

LAUERMAN: No, it’s not profitable at all. I have all stuff stashed away for later.

WELLS: How can there be too much supply for a product where there seems to be high demand? There are several reasons. Most of them due to the difference of the way Washington has set up legalization versus Colorado.

(voice-over): First, in Washington, you can grow pot outside and the weather made for a bumper crop.

In Washington, the taxes are higher. And medical pot here isn’t taxed at all. So many locals are not switching over.

In Washington, the state handed out growing licenses more quickly than retail licenses, creating an imbalance between farms and stores, at least temporarily.

And in Washington, they are not drawing the same number of out of state tourists that Colorado does.

LAUERMAN: There’s 45,000 extra pounds floating around out there with no home right now.

ATA (NASDAQ:ATAI) GONZALEZ, GFARMALABS: Too much pot that’s going on in Washington.

WELLS: Watching this unfold are entrepreneurs like Ata Gonzalez in California, whose GFarmaLabs make the popular line of cannabis-infused products like chocolates.

GONZALEZ: This is made in our kitchen.

WELLS: Gonzalez wants to expand into other states, including Washington.

GONZALEZ: We’re going to be able to go in there and we’re going to buy facilities for pennies on the dollar.

LAUERMAN: My dream is to stay on my farm and farm.

WELLS: Farmer Tom Lauerman wants to succeed where others fail by branding his own image on product.

However —

LAUERMAN: Right now, we’re facing bankruptcy and our farm is up for foreclosure.

WELLS: He hopes to hang on long enough to put the 2015 crop into the ground.

For NIGHTLY BUSINESS REPORT, Jane Wells, Vancouver, Washington.

(END VIDEOTAPE)

MATHISEN: Organically grown it said right there.

Have you purchased your Powerball ticket yet? The jackpot now close to $500 million, almost half a billion. That’s before taxes. The third largest Powerball prize ever, but it’s big enough. The fifth largest lottery prize in history and that has people dreaming big.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I have a son who’s about to start college. I have two others to follow. I work everyday, so does my husband. And why not? A nice little bump would help.

UNIDENTIFIED FEMALE: I don’t consider myself lucky and I just feel like it’s throwing away money, but I shouldn’t really. If you don’t play, how are you going to win?

(END VIDEO CLIP)

MATHISEN: How are you going to win? Indeed. That’s the fun part.

The not-so fun part, you won’t likely win. The odds are one in 175 million. And according to the Multistate Lottery Association, you are more likely die in a lightning strike, since we’re talking happy thoughts here, one in 136,000, or to be killed by an asteroid, one in 700,000. I’m surprised the odds are that low or be attacked by a shark. Not the shark that did dance next to Katy Perry in the Super Bowl, one in 12 million there.

HERERA: You had to spoil the dream, didn’t you?

MATHISEN: Right.

HERERA: Hey, you never know, right?

MATHISEN: You never know.

HERERA: Good luck, everybody.

All right. That’s NIGHTLY BUSINESS —

MATHISEN: Hope you win.

HERERA: Hopefully, if we’re not here tomorrow night, we won.

That does it for NIGHTLY BUSIENSS REPORT for tonight. I’m Sue Herera. Thanks for watching.

MATHISEN: Thanks from me as well. I’m Tyler Mathisen. We’ll see you back here a lot richer tomorrow night.

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) 2015 CNBC, Inc.

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