TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Oiled up. Crude stages a powerful two day rally. What’s behind it and is the collapse in oil prices over?
International delivery. FedEx (NYSE:FDX) buys a European company to better compete with rival UPS overseas.
And, medical scare. Why a new billing system has some doctors concerned about their own well-being.
All that and more for Tuesday, April 7th.
Good evening, everyone. Sue Herera has the evening off.
Well, after months of cratering prices, oil has surged a bit, quickly and sharply. Over the past two days, oil has rallied 10 percent. Now, that is still way off its highs, way off where it was a year ago. But it is now near its highest level of 2015. Helping a bit today with the Energy Information Administration raising its forecast for U.S. and global demand while also forecasting lower production of domestic crude.
Jackie DeAngelis takes a look at another possible reason and it’s always a wild card.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Crude oil rallying for a second straight day. Traders highlighting the continued conflicts in Yemen with the underlying reason. “Reuters” reporting that Saudi air strikes have hurt civilians, according to traders who watched other Middle East conflicts play out and add to crude volatility, incidents like these sometimes raise the stakes in already tense situations.
Crude prices actually managed to take a breather at the open after a supply and demand note from Goldman Sachs (NYSE:GS) made the rounds. Goldman’s takeaway is that oil prices in the U.S. need to stay lower longer to have a sustainable impact on production. But even that sentiment couldn’t hold back today’s rally.
For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.
MATHISEN: One thing that could eat into that rally a bit, late this afternoon, the American Petroleum Institute said U.S. crude inventories rose way more than expected last week, up by more than 12 million barrels. The estimate was for about 3.5 million.
But on the flip side, “The Wall Street Journal” report that Royal Dutch Shell in talks to buy BG Group, a large British-based oil and gas producer. BG has a market value of $46 billion and that would make this one of the year’s biggest mergers if it actually happens. The potential deal coming as both energy companies have taken steps to adjust to falling oil prices.
Joining us now to talk more about crude oil prices is Francisco Blanch. He’s head of global commodity research at Bank of America (NYSE:BAC) Merrill Lynch.
Mr. Blanch, welcome. Good to have you with us.
FRANCISCO BLANCH, BANK OF AMERICA MERRILL LYNCH: Hi, thank you.
MATHISEN: Has oil hit its bottom for the foreseeable future, do you think? Or are we just in one of those cycles where it’s going to yo-yo?
BLANCH: I think it’s going to yo-yo for a while. As you just reported, have gone up a little in the past week, this against market expectations for even a potential draw at Cushing, the pricing for WTI.
So, we still think that the market is oversupplied. Remember, at 12 million barrels, with refineries running at utilization rates of 91 percent, it means that we have a big surplus to swallow through in this country still. So, inventories should keep on building for a few more weeks.
MATHISEN: Do you then explain the past two day rally in West Texas Crude as having everything to do with uncertainties in the Middle East or what?
BLANCH: Well, it’s hard to explain. The rally in the last couple of days had been two data points that got the market very excited. As I mentioned, on Monday, it was a report around, Genscape report around the potential draw at Cushing, which is now going the other way with the other report we got today.
I do think it’s really short covering on the one hand, and I think there’s a lot selling on a basis. If you look at the spot price of oil, it has indeed rallied to your point. But if you look at longer data contracts, it’s actually been falling.
So, we’re seeing a lot of producers looking at this post-Iran deal situation as an opportunity to start hedging 2016/2017 and beyond. So, we’re starting to see a little bit of an outside pressure on those contracts, just as the near data price moves up a little bit.
MATHISEN: Francisco, you’re one of the most respected people in this whole area of following oil prices. What do you think we’re going to see over the next year? What is the trading band for West Texas Intermediate?
BLANCH: Well, we think we’re still going to see kind of low to mid-40s for WTI and we could see prices going high as 60, 60 — maybe a little bit over 60. But certainly, it’s going to be contained and then going into next year, things might, you know, could be a little bit better.
It all depends on the Iran deal. If the Iran deal comes through and we start to get a lot of oil from Iran, it’s going to be hard for oil to rally. The Iranians could put it in the market in our view maybe 600,000, 700,000, 800,000 barrels a day of incremental oil production and, unfortunately, it’s going to come out of U.S. shale, that Iranian oil is going to take market share from America. So, the market is going to have to price that in. So, that’s a simple view.
MATHISEN: I was going to ask you what you see happening with U.S. production. U.S. is now I guess is the largest oil and gas producer by some measures in the world. How do you think this oversupply is going to reverberate backwards to the supply chain here in the U.S.?
BLANCH: Well, look, the Saudis just announced today that they’re pumping 10.3 million barrels of crude oil. That’s a lot more than we thought. We thought something like 9.8, 9.9 million barrels. They’re pumping an extra half a million barrels, just as U.S. production is going to start going the other way.
So, clearly, there is some market share issue here. Saudis want a greater market share. They made it abundantly clear, they do want to give that up and now the Iranians have to come in too.
So, I think U.S. production is going to have to roll over. Certainly, the collapse in the rig count is going to have to make that happen. And then, the question is, when is some of the shale going to come back? Is it going to come back in 2016 or do we have to wait an extra year, 2017, for the shale to come back?
And that’s going to depend I think on, of course, where demand goes.
BLANCH: If demand improves quite meaningful, maybe we need U.S. shale back coming into the market next year.
MATHISEN: Francisco, thank you very much for being with us. Thank you for enlightening us.
MATHISEN: Francisco Blanch with Bank of America (NYSE:BAC) Merrill Lynch global research.
But lower oil and gas prices have gone a long way in shaping how Americans feel about the economy and it is decidedly more optimistic.
But as Steve Liesman reports, there’s more to the upbeat mood of the public.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Americans views of the state of the economy reached new heights in the latest CNBC All America economics survey. A record 27 percent judge the economy as excellent or good, the highest level in 8 years. A year ago, just 16 percent of the public gave economy good marks and it was just 4 percent at the beginning of the 2008 recession.
The CNBC poll of 800 Americans across the nation shows how far the public’s attitudes on the economy have come, just the economic recession ended. But also, how far there is to go. The level of optimism remains about 10 points lower than before the financial crisis and yet, well above the worst levels during the downturn.
Views on the economy were helped by an upbeat outlook on expectations for wage hikes and for home values in the year ahead. On the outlook for the economy, the public’s views have further recovered. Only 28 percent of Americans believed the economy will get better in the next year — a 1 point improvement from last quarter, but below the post-recession high in March 2012.
Buoying American optimism are low gasoline prices and Americans have finally started doing something with the money. In a prior survey, 61 percent reported doing nothing new, as a result of cheap gas, but that number has dropped to 42 percent. One in four Americans now report paying down debt with the windfall and 17 percent say they’re spending it. Fifteen percent putting in the bank and saving it.
The poll asked Americans what they were doing as a result of the stronger dollar, but it ended up being not such a good question. Only about a third of the public was even aware the dollar had gone up in value.
For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.
MATHISEN: A little later, we’ll share another nugget from the survey. The surprising thing some Americans see as a threat to their employment.
On Wall Street today, stocks faded late in the day, giving up what had been a triple digit gain at one point. One of the reasons cited by investing pros — cautiousness ahead of tomorrow’s minutes of the last Federal Reserve meeting and the start of the earnings season.
For the day, the Dow lost about 5 1/2 points to 17,875, NASDAQ gave back 7 and the S&P 500 was lower by 4.
One of the early drivers for stocks today was FedEx (NYSE:FDX). The company is buying the Dutch package delivery firm TNT Express (NYSE:EXPR) for nearly $5 billion, cranking up the competition against rival UPS — this time, overseas. FedEx (NYSE:FDX) shares were up about 3 percent, while UPS was off a fraction.
Morgan Brennan has the details.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The acquisition of TNT Express (NYSE:EXPR) will dramatically expand FedEx’s reach in Europe, a market that until now it’s had little share of.
Chairman and CEO Fred Smith says there were many reasons to do this deal now.
FRED SMITH, FEDEX CHAIRMAN & CEO: The dollar and change ratio was very favorable. The quantitative easing and the lower oil prices mean that the European economy has a better outlook now than it has for some period of time and we thought that the planets lined up perfectly for this move.
BRENNAN: In recent years, FedEx’s global reach have been much more focused on Asia, where it’s a dominant player. By acquiring TNT Express (NYSE:EXPR), FedEx (NYSE:FDX) immediately boosts its European presence, absorbing an existing network and one consisting largely of ground operations, allowing it to cater to ecommerce customers and at a time when diesel is less expensive.
Analysts say this is a good move for FedEx (NYSE:FDX), one that will put in competition with Europe’s two biggest companies, UPS and DHL.
DONALD BROUGHTON, MONDALE PARTNERS: FedEx (NYSE:FDX) has been very good historically of buying companies. Look at Roadway Package Services. They expanded and blew into FedEx (NYSE:FDX) ground. They bought American Freightways, Vikings and Watkins and produced the largest LCL carrier in the U.S. called FedEx (NYSE:FDX) Freight.
FedEx (NYSE:FDX) is really good at buying fixer uppers and doing exactly that, fixing them up. This is definitely a fixer upper.
BRENNAN: But it will all come down to regulatory approval, something being watched closely since competitor UPS tried to buy the same company at a higher price several years ago. Regulators eventually blocked that deal due to worries about pricing because, unlike FedEx (NYSE:FDX), UPS already has such a large presence on the continent.
(on camera): Under European laws, FedEx (NYSE:FDX) will have to divest TNT’s fleet of cargo planes, but analysts expect officials to ultimately approve this deal.
For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in New York City.
MATHISEN: Coming up: is it only a matter of time before robots replace workers like you? We’ll tell you whose jobs on the line.
MATHISEN: We told you last night about Viacom’s restructuring and the suspension of its share buyback program. Today, investors sold shares, sending the stock down nearly 2 percent.
But as Julia Boorstin tells us, Viacom (NYSE:VIA) is hardly alone in facing challenges as more and more TV viewers get their fix digitally.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The company behind Nickelodeon’s SpongeBob, MTV’s “Awkward”, and Comedy Central’s Jon Stewart, who lives in December, has been struggling with plummeting ratings and ad dollars.
MATT HARRIGAN: Nickelodeon and MTV are geared towards younger audiences and they necessarily are fractured more intermediate consumption, things like YouTube and more short form, you know, programming.
BOORSTIN: Viacom (NYSE:VIA) announcing a massive restructuring, taking $187 million pretax charge, with reports that CEO Philippe Dauman will lay off 400 employees, the company also announcing it will pause its $20 billion share repurchase program until October.
Viacom (NYSE:VIA) struggling with the fact that the reruns that channels relied on, including “CSI”, “Community” and “Entourage” are less appealing to viewers. In the first quarter, Comedy Central ratings were off 17 percent, MTV and Nickelodeon ratings both off 34 percent in their target demographic.
And Viacom (NYSE:VIA) faces more competition than ever as the younger demographics at channels like MTV and Comedy Central target are questioning whether it’s worth paying for the cable TV bundle.
Viewers have an explosion of digital options. Viacom’s restructuring comes as Time Warner (NYSE:TWX) launches a stand alone streaming app, HBO Now. It’s the company’s first move outside the pay TV bundle.
Plus, there’s an infinite amount of niche content on YouTube, not to mention original new shows on Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Hulu.
HARRIGAN: The push to digital is really dictating even more of a focus on programming given the dollars on the screen. So, you really have to really gut the costs that are not essential you’re not seeing on the screen.
BOORSTIN: Last fall, Dauman committed to increasing the amount of revenue Viacom (NYSE:VIA) earns from mobile and other platforms that aren’t measured by Nielsen, from 30 percent to 50 percent.
Now, the company says they’ll put savings from its restructuring into data analysis and tech development, so it can compete better in this new digital content world.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
MATHISEN: Informatica (NASDAQ:INFA) is going private in the biggest leveraged buyout of the year, and that is where we begin tonight’s “Market Focus”.
The software company will be bought by a European private equity firm called Permira Advisers and the Canada Pension Plan Investment Board. The price tag, more than $5 billion. Under the terms of the deal, Informatica (NASDAQ:INFA) shareholders will get above $49 in cash for each share of common stock they own. The stock popped 4 percent to $47.79.
Starbucks (NASDAQ:SBUX) faces questions over its tax practices in Europe, this according to a report today in “The Wall Street Journal”. The coffee chain reported losses in its biggest European markets, even as it notched hundreds of millions of dollars in annual sales over there. The deal the company made with the government in the Netherlands to lessen its tax burden is also reportedly being called into question. Starbucks’ European headquarters is in the Netherlands. Shares were off slightly to $94.07.
The Canadian government has unloaded its multi-billion-dollar stake in General Motors (NYSE:GM), which weighed on shares of the automaker today. That stake, which is estimated to be worth more than $2.5 billion, will be sold to Goldman Sachs (NYSE:GS) for an undisclosed amount. The stock fell 2 1/2 percent to $35.73.
And Warren Buffett is upping his bet on the U.S. auto industry with his latest investment. Buffett took a half billion stake in Axalta Coating Systems — a company that makes liquid and powder coatings for the auto and transportation industry. Shares of Axalta were about 10 percent higher to $31.11.
And, an analyst upgrade sent shares of Splunk higher today. Piper Jaffray now rates the data management company and software firm “overweight” up from “neutral”. The firm saying the recent slide in the stock has created a better risk reward scenario. Shares were up 3 percent to $62.09.
So, how worried are you about a robot or other technology replacing you at work?
The latest CNBC All America economic survey found that one in four low income Americans live in fear of losing their job to technology in the next five years.
Catherine Rampell is a columnist for “The Washington Post (NYSE:WPO)” where she focuses on economics and public policy.
Catherine, always great to see you. I admire your work.
I guess we could say here that the benefits of technology — this is nothing new, this happened before, folks — have slowed this time maybe more than ever in the past to capital rather than labor, and that’s why people especially at the low end scale are as worried as they are.
CATHERINE RAMPELL, THE WASHINGTON POST: That’s probably part of the story, yes, but you have what economists referred to as skill bias technical change that a lot of the technological advancements that we’ve seen in the last few decades are basically complementary to the skills of higher earning people. That if you’re a boss, basically, you can control more capital than ever, you can manage more workers with a click of a button.
MATHISEN: And so, that advantages the higher skilled and leaves lower skilled and lower paid at a relative disadvantage.
Put this all into context of prior technological cycles where similar fears have been aroused and similar results have probably been seen. Is it different this time? You just cited one reason how.
RAMPELL: Well, certainly, there have been mass freak-outs over automation and robots taking our jobs many, many times before. This goes back hundreds — actually, thousands of years during the Industrial Revolution when, you know, we used to be a farming country and people were replaced by machinery. When the printing press was invented, all the people who were scribes, who used to write everything by hand, lost their jobs.
So we’ve certainly seen this kind of pattern before. But everybody flips out. But that’s kind of the nature of creative destruction. That you have some destruction of jobs, some displacement of jobs with new technology. But what typically happens is there are new opportunities, new types of jobs that are created that are, again, sort of complementary to those technological examples.
MATHISEN: So, Catherine, do we then as an economy and as a nation sit back and let the natural evolution just have run its course or is there a public policy response that needs to be considered here?
RAMPELL: Well, I think basically technological progress is inevitable. Some automation displacing jobs is inevitable. We can’t turn back the clock.
So, the question right now is, what public policy should be doing, if not to sort of like keep the robots at bay? And I think the job of policy makers is to figure out how to ease the transition for people who are displaced, whether that means retraining, for example, or, you know, guiding young people into what kinds of majors they should be studying in college, so that their careers will be more robust to these types of changes and maybe some potential, you know, labor policy changes as well that might help more of the gains from this technological progress be captured by regular people, workers, and not just the people at the top.
MATHISEN: All right. Catherine, thanks very much. Catherine Rampell with “The Washington Post (NYSE:WPO)”. If you don’t read her stuff, you should.
RAMPELL: Thank you.
MATHISEN: Coming up, what to do with the tax refund you may get.
And first, could new billing requirements cause your doctor to take her shingle? The growing concern among MDs, next.
MATHISEN: Here is what to watch tomorrow. There’s not a lot on the agenda but we’ll have the minutes from the Federal Open Market Committee’s March meeting as people pore over that one. Alcoa (NYSE:AA) reports, unofficially kicking off earnings season and two things to watch on Wednesday.
Well, this fall, the entire U.S. health system has to switch to a new coding and billing format. Big deal you say? Not so much. The growing concern that mistakes will strain the system and long reimbursement delays could even put some doctors out of business.
Bertha Coombs has the details.
BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Andrew Kleinman’s priority is spending time with patients. But the New York plastic surgeon worries next fall, he’ll spend all his time on billing problems when new medical codes go into effect. The advice from a consultant?
DR. ANDREW KLEINMAN: We should have reserves either in a credit line or in cash of 3 months of income because we might not be getting any income for a while. For a small practice, that could be devastating and could put some people out of business.
COOMBS: In six months, the U.S. health care system will switch to an upgraded medical coding and billing system called ITD 10, which will capture much more health data, but with 8 times as many codes as the current system, there’s more room for error.
MITZI CARDENAS, TRUMAN MEDICAL CENTER: We are worried about some of the payments getting delayed.
COOMBS: Mitzi Cardenas is overseeing the upgrade at Truman Medical Center in Kansas City.
CARDENAS: We’re also worried about some of the productivity impacts with their coders. It’s kind of like going from speaking and writing in English, to speaking and writing in a different language.
COOMBS: The transition has caused the hospital nearly half a million dollars in new equipment, consulting, and training.
Cerner (NASDAQ:CERN), its system provider, has been conducting end to end test with Truman and other clients to help them adjust to the new rules.
ZANE BURKE, CERNER: We don’t see any issues on the system side. The biggest impact is on the work of the clients. So, many things trigger off of that information and so many downstream processes can be impacted by that.
COOMBS (on camera): Health insurers have been conducting testing and training for providers for months, and the government has scheduled a number of end to end testing sessions between now and October. One HHS spokesman said if providers need more assistance, we’re ready to help.
(voice-over): But Dr. Kleinman still worries. With each new technology mandate, he’s watched more solo practitioners close up shop because of new administrative burdens.
KLEINMAN: There’s an increasing pressure on physicians to leave small practices and to join either large groups or to go into hospital employment situations. This is one of those things that I think is going to help accelerate the end of private practice as we used to know it.
COOMBS: The new system rolls out October 1st.
Bertha Coombs, NIGHTLY BUSINESS REPORT, New York.
MATHISEN: Kentucky Senator Rand Paul made it official today. He is running for president in 2016 and one of his goals if elected is to get that pile of cash that companies have abroad and put it to work back here in the U.S.
(BEGIN VIDEO CLIP)
SEN. RAND PAUL (R-KY), PRESIDENTIAL CANDIDATE: More than $2 trillion in American profit currently sits overseas. In my vision for America, new highways and bridges will be built across the country, not by raising your taxes but lowering the tax to bring this American profit home.
(END VIDEO CLIP)
MATHISEN: And that is the perfect segue into what we’ve been calling Tax Tuesday. Just eight days to go until the filing deadline. Eighty percent of Americans by now have either gotten or will get a refund. So what should you do with it?
Sharon Epperson joins us with some suggestions.
Good evening, Sharon.
So, if I’m lucky enough to get a refund, what are refunds running on average and what should people do with it?
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: You’re probably lucky enough, because at least three out of four Americans every year seem to be getting a tax refund and this year to the tune of some near $2,900. So, you have a couple choices, of course. You could save it, spend it, or you can invest it. And when it comes to saving, there’s a lot of things to think about and a lot of things to think about when you think about spending it, too, because you really want to make sure you spend it wisely.
MATHISEN: All right. If I want to save it, what should my priorities be?
EPPERSON: When you think about saving it, you’re usually thinking about saving it perhaps for a longer term, and maybe that’s something that you want to put into your child’s college education. You may also want to save it to look into ways to improve your life and improve your health. And so, some of that savings may be earmarks so you could have down the road, different type of insurances as well.
And then there are long-term savings as well that you may want to consider for retirement but that might be more of an investment opportunity for you.
MATHISEN: OK. Let’s talk about, what would I do if I wanted to invest it?
EPPERSON: Well, a lot of folks don’t realize that they still have time to put money into an IRA and have it count toward their 2014 tax year, as well as put money in for the 2015 tax year. You could put an IRA contribution, fund your retirement that way, add more money to step up contributions to a 401(k) as well.
And then some just want to park it. They might want to figure out to make the most money but the reality may be just invest or save it somewhere it will stay put or need it like a money market account.
MATHISEN: What — are there any things that I absolutely positively should not do with my tax refund?
EPPERSON: Well, the one thing that you probably don’t want to do is just put it in your checking account, but then you’re more likely to spend it. Yes, there are some wise ways to spend it, whether it’s a big home improvement or spending it on a health care need that you, that you haven’t been able to fund without a pocket money before. But really, you want to keep it out of that checking account because more than likely, you are going to spend it on something you really don’t need right now.
MATHISEN: All right. Sharon, thank you very much.
MATHISEN: Finally, one thing, if your refund is at large, you have to look at your withholding and adjust that.
EPPERSON: That’s true. The best number, W4 to know going into the next tax —
MATHISEN: W4 to go, there we go. Sharon, great to see you.
And that will do it, folks, for NIGHTLY BUSINESS REPORT for tonight. I’m Tyler Mathisen. Thanks so much for joining us. Have a great evening, everybody. We hope to see you right back here tomorrow night.
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