Transcript: Nightly Business Report — July 9, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Rally fades. Stocks sprint out of the gate, spurred by a rally in China overnight. But then, the market`s legs turn to lead as fears of slowing global growth trumped the optimism.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: New proposals.
Greece prepares a new plan for a bailout. But will it satisfy the country`s European creditors?

HERERA: New wrinkles to an old crime. Virtual kidnappings are on the rise. How you can protect yourself and your loved one in a third part of our series, “The Big Business of Ransom”.

All that and more tonight on NIGHTLY BUSINESS REPORT, for Thursday, July 9th.

MATHISEN: Good evening, everyone. Thanks for joining us.

Drama today on the global stage, from Athens to Beijing and it was felt back here at home. The ebullient tone here in the U.S. was set early on by China, which barred certain big investors and company insiders from selling listed shares for six months. Stocks jumped at the open here in the U.S., but the sharp move higher fell back to earth when concerns over global growth took hold.

By the close, the Dow Jones Industrial Average did hold on to a gain of 33 points to finish at 17,548. It had been up as much as 249. NASDAQ rose a dozen and the S&P added 4.

But it was the unusual move in China that sent the Shanghai composite up nearly 6 percent, its biggest daily gain in six years.

Eunice Yoon has more now from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese media is evoking images of a national sports team saying that the national team is truly taking action. We saw the results of that in the Shanghai market today, which rallied by 6 percent. The government said it`s enlisted state-owned enterprises to stop selling shares.

They`ve instructed senior corporate managers and major shareholders to refrain from selling shares for the next six months. We also learned today that police are investigating what they call malicious short sellers and they also already have said that they have found at least a dozen institutions, as well as some individuals who engaged in what they call these illegal practices.

The investors here were relatively relieved by the rally and but they are still very cautious. Many of them are angry with the government. We saw some protestors in small groups outside of the regulatory office.

Many of the investors that we spoke to also said they`re uncertain of what will happen next because more than half of the listed companies in China are still seeing their shares suspended. And so, many people here are wondering what`s going to happen once those shares resume trade.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon, in Beijing.

(END VIDEOTAPE)

HERERA: The Chinese are now the number one foreign buyers of U.S.
real estate. That`s why a sharp drop in the Chinese stock market over the past months could have a ripple effect on housing here at home.

But will it mean a boost or a bust?

Diana Olick has more.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: From newly built homes in Irvine, California, to brand new condos overlooking Manhattan skyline. Chinese buyers are pouring billions into the U.S. housing market.
Nearly $29 billion in the past year to be exact, according to the National Association of Realtors. That catapulted the Chinese past the Canadians to the top spot for foreign investment in U.S. real estate.

Now with the Chinese stock market in turmoil, the question is, will that help or hurt U.S. housing?

JOHN BURNS, JOHN BURNS REAL ESTATE CONSULTING: What we`re seeing seems to be a flight to safety from the Chinese market, and what that could lead to is even more money being poured into U.S. real estate, which is still viewed as a relatively safe investment both near term and long term.

OLICK: East West Property Advisors, a Hong Kong-based company that connects Chinese buyers with U.S. real estate agents, put out a survey yesterday on WeChat, a popular social media platform. More than have say they`re definitely looking to invest in U.S. housing.

Chinese have already been flooding into southern California and this Irvine development of homes from Lennar (NYSE:LEN), Pulte, and K.
Hovnanian.

The Chinese want security for their cash and great schools for their kids.

RICK SHARGA, AUCTION.COM: I don`t think it`s a pure investor play, but it is a long term I want to live here play.

OLICK: Some also want to live in Miami, a brand new market for the Chinese. Vanessa Grout had two Chinese real estate brokers in her office Wednesday, even as the Chinese stock market seemed in free fall.

VANESSA GROUT, CMC REAL ESTATE PRESIDENT: The interest has been there for sometime now, although certainly with the anxiety that`s been caused by the recent economic downturn, we have seen a flood of interest.

OLICK: Chinese buyers now make up 39 percent of foreign investment in Manhattan, up from 12 percent last year. They`re not just buying, they`re building.

This condo overlooking Manhattan is a joint venture between China- based Landsea and Miami-based Lennar (NYSE:LEN).

I spoke with Stuart Miller. He said he`s not exactly concerned, more
watchful. While the can real estate here becomes more expensive, he added, it also becomes more desirable.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN: So, could China`s big market selloff create a contagion and spread to other regions, hurt the global economy?

Chris Konstantinos is director of international portfolio management at Riverfront Investment Group.

Chris, welcome.

Let me just start with that question. Is what`s going on in China both in terms of the wealth lost and the wealth effect crushed there in China and the slowing of the economy there, is it likely to spread and create a contagion?

CHRIS KONSTANTINOS, RIVERFRONT INVESTMENT GROUP: Well, Tyler, that`s an excellent question. Our view for the time being, the answer is probably no. One of the things to keep in mind about the Chinese stock market and its investors there is that if you look at stock holdings as a percentage of total net worth across the average Chinese investor, you`ll find that it`s a lot different than it is here in developed markets.

So, whereas, in a place like the U.S., stock holdings make up significant portion of overall household net worth. In China, it`s much lower, somewhere, depending on who you read, somewhere around 10 percent or maybe a little lower. So, I would — I would be cautious on jumping to too many conclusions that a stock market meltdown is going to create this huge ripple effect.

And the other thing is, too, just pull up a chart of some of the most frothy of the Chinese markets. You know, the Chinex 100, or the A share market, the local market. And what you`ll see is that the recent drop has really only undone about, I don`t know, three or four months worth of gains. This market went hyper-parabolic.

So, a lot of investors, the folks who have been invested for nine or 12-plus months probably aren`t even, you know, in the negative yet. So, I think the concern about contagion might be a little bit overblown at this point.

HERERA: If China, though, is not done with its correction, and a lot of people think that it is not, if you want a play in Asia, where would you put money to work in Asia?

KONSTANTINOS: We vastly prefer Japan actually. Japan has been a highly controversial market, because as many remember, the Japan was one of the worst stock markets in the world, from the early `90s until just a few years ago. A lot of wealth was destroyed in Japan and therefore, a lot of investors who remember those times were very loathed that — ever think about investing in Japan again.

But from late 2012 until now, it`s actually been one of the world`s better stock markets, particularly if you`re hedging out the effects of the weak yet. And that`s been because there`s been a major political change over, and probably just as importantly, a major change over in central bank behavior there. That`s caused, you know, risk appetite to go up a lot.
Stocks are still relatively cheap in our opinion. We still think it`s a good value here in 2015.

MATHISEN: So, very quickly, buy Japan, China, very quickly, too risky to mess with?

KONSTANTINOS: I`ll do this as quick as I can. But really important message is that when you talk about Chinese markets, there isn`t just one Chinese market.

MATHISEN: Right. There`s the Hong Kong, the A shares —

KONSTANTINOS: A myriad of them.

MATHISEN: Yes.

KONSTANTINOS: And I would tell you that I would continue to avoid the A share market, those are the stocks mainly in China listed. I would avoid anything that`s extremely expensive, the high-tech names.

MATHISEN: Right.

KONSTANTINOS: The Chinese small cap names.

There is — there does to me at least appear to be some value in the Chinese H share markets. These are mainland Chinese companies that are listed in Hong Kong.

MATHISEN: In Hong Kong, OK.

KONSTANTINOS: These are shares that are boring and stodgy, the old — you know, the financial —

MATHISEN: Boring can be beautiful.

KONSTANTINOS: Yes, the fundamentals aren`t great, but they`re very cheap.

MATHISEN: All right, Chris. Chris Konstantinos with Riverfront Investment Group.

HERERA: Global growth is set to slow this year. The International Monetary Fund cut its forecast, citing a weaker first quarter in the U.S.
The IMF expects the world economy to grow 3.3 percent this year, less than earlier projections. It also warned that the debt situation in Greece, the market turbulence in China is clouding the outlook.

MATHISEN: Well, an important day for Greece as of this evening. As of this evening, that country they have submitted new reform proposals to the Eurogroup president, a critical development because what that document says could determine whether that country, Greece, receives a fresh round of much needed bailout funds and/or debt relief.

Michelle Caruso-Cabrera joins us tonight from Athens.

Michelle, welcome. Bring us up-to-date here, do we know anything about what is or isn`t in that document?

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: We know two things. One, that there appears to have caused a rift in the Greek prime minister`s party, Syriza, and that would be considered an optimistic sign because it is enough concessions in it that part of the extreme left party is upset and leaving and abandoning him.

It would suggest there`s enough concessions in it or more concessions.
That means they might be able to come closer to a deal with the creditors.

They also say they`re going to actually vote on it tomorrow in the Greek parliament. So, we`re going to know very quickly what`s in it and what that means is they`re trying to send a signal to the creditors that they`re very serious. They`re going to vote on this in advance of Sunday, when there`s a big meeting, to prove that they`re willing to do this and can get it done.

HERERA: Michelle, odds to seem to be changing recently on whether or not Greece will stay in the Eurozone.

What are you hearing about that right now?

CARUSO-CABRERA: Well, “Reuters” surveyed — continuously surveys economists about their opinions, and just within the last 24 hours, more than 50 percent of economists they surveyed believe that Grexit, Greece leaving the Eurozone, was the most likely outcome. So, there`s a lot riding on this proposal. We wait to see what is in it if it reverses everybody`s opinions about just how close it could be.

MATHISEN: All right, Michelle. Michelle Caruso-Cabrera, following all of the action for us as she has been doing in Athens. Thanks, Michelle.

HERERA: Well, nowhere is there more interest in Greece than in Germany, the Eurozone country to which Greece owes the most money. And German Chancellor Angela Merkel has been one of the most demanding when it comes to those reforms.

But what do average Germans think about the situation in Greece?

Our cameras were on the streets of Frankfurt.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Germany should support Greece because they need help.

UNIDENTIFIED MALE: I think it`s (INAUDIBLE) democratic future and so far, Germany ought to help Greece.

UNIDENTIFIED MALE: I think we have to do our that`s what we call in Germany, Grexit, to leave the European currency union.

UNIDENTIFIED MALE: I think it`s a shame that Germany had a bailout once after World War II, and now, they refused to give one to Greece.

UNIDENTIFIED MALE: They should get another bailout, but they have to tell the Greece government they have to improve their tax situation.

UNIDENTIFIED FEMALE: My personal feeling is no bailout.

(END VIDEO CLIP)

HERERA: We`ll have more on the ground from Germany tomorrow on NIGHTLY BUSINESS REPORT.

MATHISEN: Still ahead, one entrepreneur was fed up with his bank and that led him to do something you won`t believe. That story, next.

(MUSIC)

MATHISEN: There won`t be a nuclear deal with Iran by tomorrow.
Secretary of State John Kerry said he believes that talks are making some progress, but that real issues remain unresolved and that the U.S. will not set at the negotiating table forever.

(BEGIN VIDEO CLIP)

JOHN KERRY, SECRETARY OF STATE: This is not open-ended. President Obama made it very clear to me last night, you can`t wait forever for the decision to be made. We know that. If the tough decisions don`t get made, we are absolutely prepared to call an end to this process.

(END VIDEO CLIP)

MATHISEN: The outcome of the talks could have a big impact on oil if sanctions are lifted against Iran and that country`s oil hits the market.
Today, the price of West Texas Crude settled up 7 percent to $52.78 a barrel.

HERERA: New applications for U.S. unemployment insurance benefits rose last week to their highest rate since February. The Labor Department says initial claims for state unemployment benefits rose $15,000 to a seasonally adjusted 297,000 for the week.

Despite the rise, the level is still considered consistent with an improving labor market and it marks the 18th consecutive week of new filings below 300,000.

MATHISEN: Well, Sue, the more Federal Reserve governors speak, the more it`s apparent that there`s a real debate inside the Fed over not just when but whether to raise interest rates t the president of the Federal Reserve Bank of Chicago wants to wait, wait until mid-2016 before he considers hiking interest rates.

Charles Evans, who`s a voting member of the Fed`s rate-setting committee this year, says overseas risks have grown over the past month.
Separately, Federal Reserve Governor Lael Brainard says the central bank is taking a careful look at the global economy.

(BEGIN VIDEO CLIP)

LAEL BRAINARD, FEDERAL RESERVE GOVERNOR: We are obviously very attentive to risks emanating from the global economies, that we`re watching the risks associated with discussion in Greece closely. We`re watching developments in China closely. We`ve also taken note of some recent episodes of very sharp spikes in volatility in some financial markets.

(END VIDEO CLIP)

MATHISEN: She also said the U.S. economy is more resilient given the changes that have taken place in financial regulations.

HERERA: Well, the U.S. economy maybe more resilient, but according to a new survey, not everyone is optimistic.

Steve Liesman has more on who`s feeling upbeat and who`s beaten down.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: American optimism over the economy took a dip in the second quarter, largely the result of concern over rising prices. But the CNBC all America economic survey found the outlook of the wealthy Americans surging.

About a quarter of the 800 Americans polled throughout the country believe the economy is excellent or good right now. That`s down slightly from the first quarter. There was a similar job of those who think the economy will improve.

The decline comes with reasonably upbeat outlooks for gains in home prices and wages. That suggest most Americans are worried about the rise in prices, specifically gas prices. But those price increases did not affect the views of the wealthy. Those with incomes of $100,000 and more, and big investors were upbeat and everything from expected wage gains, to home price increases, under scoring a current economic theme of this expansion. It seems to be sharing most of its benefits on the wealthy.

MICAH ROBERTS, PUBLIC OPINION STRATEGIES VP: Over this short-term recovery, most of that positive monument has happened in the upper income brackets and among investors who have more money in the stock market. And what we see on the other side of the scale is people who may have hour household income. They are less optimistic or they basically feel like things are going to be about the same.

LIESMAN: The results also show that any extra money Americans from lower gas prices are from higher incomes goes first to paying down debt, helping explain why Americans are spending less despite having more green backs in their wallets.

When it comes to fixing the overall economy, neither political party has an edge. Democrats have the advantage in four of the seven issues asked about, the minimum wage, health care cost and corporate and individual taxes.

Republicans were tops in handling business regulation, reducing the deficit and protecting America`s trade interest.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Well, Pepsi hiked is guidance on better than expected results and that is where we begin tonight`s “Market Focus”.

The beverage and snack giant hiked prices and cut costs, that helped it post results that topped estimates. On that, it raised its earnings forecast for the year. Still, shares of Pepsi were down today at $94.59.

Walgreens Boots Alliance beat on the bottom line on higher prescription drug sales. The company also naming its interim CEO Stefano Pessina as its permanent chief. On top of that, it hiked its dividend to
36 cents a share, raised its earnings outlook for the year. And with all of that, shares popped 4 percent to $89.55.

And Coty and Procter & Gamble (NYSE:PG) sealing a deal today. P&G will sell its portfolio of 43 beauty brands to Coty for nearly $13 billion.
Procter says it hopes to structure the sale as a Reverse Morris Trust, we`ll be tested on this later, which is a tax efficient spinoff. Shares of Procter & Gamble (NYSE:PG) fell a fraction to $80.66. Coty down nearly 5 percent to $30.04

HERERA: Ty, Costco (NASDAQ:COST) saying today that stores open for at least a year saw sales fall in June. A big decline in international same- store sales led the overall decline. The stock was off a few cents to $139.45.

Sales at L Brands increased in June, but not as much as analysts were expecting. Its Victoria`s Secret brand lagged, while its Bath & Body works stores exceeded consensus. Shares fell about $2 to $83.92.

IBM announcing that it`s close to a breakthrough in semiconductor development. Big Blue working on making chips with much smaller circuitry that pack more power than what`s currently on the market. Shares rose slightly to $163.85.

MATHISEN: So, what typically happens when a entrepreneur hits a roadblock? They find a solution. In this case, a man who was frustrated when his bank rejected his loan request decided to open his own bank.

Kayla Tausche has more from Bedford, New Hampshire.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: On a sleepy strip in Bedford, New Hampshire, there is a new building going up, and to many, it`s a post-crisis milestone. It`s among the first new banks in the country since the recession.

Restaurateur Bill Greiner got the idea for Primary Bank after getting a notice from its bank, Citizens (NYSE:CIA), it would not be renewing his commercial loan. Citizens (NYSE:CIA) was focusing in bigger loans, more than $20 million, not small business like Greiner`s.

But instead of going to another bank, he went to his rolodex and then to Washington.

BILL GREINER, PRIMARY BANK CHAIRMAN: The regulators were excited about the vision that I gave them, and the vision that I gave them was this would be a grassroots effort. It wasn`t going to be five or 10 of us, but I was hoping to get 50 people to come together. That surprised them a little bit, you could see a couple of them sit back in their chairs. One particular regulator said they had not seen that before and what was I thinking.

TAUSCHE: The result, 350 investors, some $3460 million in start up capital, and one of the only charters awarded by the FDIC to new banks in the last five years. The only other bank to open its doors serves the Amish community in Pennsylvania.

Demand both for loans for themselves and banks to issue them had been pent up. More than 100 community banks started each year on average since 1980. But in 2010, nothing, low interest rates a partly to blame.

TAUSCHE: But industry observers chalk it up to tough regulatory hurdles, like costly compliance with Dodd-Frank for banks at a certain size. Also, a required seven-year business plan. They also want to make sure management and the board have banking experience.

Investors like Matt Kfoury understood early on how imperative it is for a bank to not only meet but exceed Washington`s expectations.

MATT KFOURY, PRIMARY BANK INVESTOR: I`m confident about the future of this bank because the ground has been set. We`ve been very particular about going to the FDIC, going to the banking regulatory committees, and getting everything, our I`s dotted and our T`s crossed.

TAUSCHE: The idea in Bedford generated so much minimum, Greiner`s CEO found him.

BILL STONE, PRIMARY BANK CEO: There`s certainly a place for the larger bank. But for the smaller customer, I just continue to hear that they wanted more. They wanted something local. And that is really what made my decision.

TAUSCHE: Ninety-five percent of the money behind Primary has come from the state of New Hampshire, including backing from the state`s former four-term governor.

As big banks shrug off small towns, it`s a model that many states and entrepreneurs could look to replicate.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Bedford, New Hampshire.

(END VIDEOTAPE)

HERERA: Coming up, how your next plane trip could make you vulnerable to a hack attack. A look at cyber kidnappings when our series “The Big Business of Ransom” continues.

(MUSIC)

MATHISEN: Here`s what to watch tomorrow. Fed Chair Janet Yellen will speak on her outlook for the U.S. economy, closely watched remarks there.
And a report on wholesale trade will come out, that is an important economic indicator and that`s what to watch for Friday.

HERERA: The New York Stock Exchange issued a detailed explanation of what caused trading to shut down on the floor yesterday. The exchange says it was all due to the rollout of a new software release. There was a problem with the upgrade which didn`t go as plan and eventually trading was suspended at about 11:30 a.m. Eastern Time for nearly four hours. Today, the FCC said it was meeting with the NYSE to further review yesterday`s events.

MATHISEN: An estimated 22 million people have been affected by data hacks at the Office of Personnel Management. Last month, the government agency said just 4 million had information stolen by cyber thieves. China is reportedly the source of the intrusion, though, the country has denied it.

HERERA: Criminals and kidnappers are becoming more sophisticated.
That means they are not just going after people physically but also virtually. And as the threat from cyber criminals grows, so does the industry that works to combat it.

Dina Gusovsky has more on virtual kidnappings in the third part of our series, “Held Hostage: The Big Business of Ransom”.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Get down, get down!

DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The words kidnapping and hostage bring images like this to mind. But the cyber versions of these crimes that turn you and your computer in to target are becoming more pervasive.

JOSEPH STEINBERG, INTERNET SECURITY EXPERT: Virtually kidnapping refers to a crime.

GUSOVSKY: At a New York City cafe, security expert Joseph Steinberg explained how your next plain trip, for example, could make you vulnerable.

STEINBERG: Well, if you were to share on social media that you are about to get on a flight from New York to San Francisco —

GUSOVSKY: Which I have before, not even thinking twice about it.

STEINBERG: That would give anybody the knowledge that the odds are pretty good that the next few hours, your loved ones will not be able to reach you.

GUSOVSKY: All right. So, I`m shutting off my phone as though I`m getting on a flight.

STEINBERG: So, it might send a message like this. It says that you have an information situation. Your wallet and your phone were stolen and you need someone to quickly send you money.

GUSOVSKY: So, I never sent you anything, but the message that came from you from my e-mail has this subject line “urgent – please help”?

STEINBERG: It`s correct. It looks like it came from you even though it didn`t.

GUSOVSKY: But how did they get their contact information.

STEINBERG: They`ve actually hacked an account of yours. In some cases, just looking on Facebook (NASDAQ:FB).

GUSOVSKY: There are also hackers who specialize in holding your computer hostage.

STEINBERG: One of the forms of kidnapping is kidnapping your data, or what we call ransom ware. These are pieces of malware that get on people`s computer, they encrypt your picture, you data, your movies, and everything.
Unless you pay the criminal money, the criminal will delete your files.

GUSOVSKY: But does the person sending the ransom actually have your data or is it all a trick?

STEINBERG: Usually, they actually don`t have your data. They have a key to decrypt your data. And if you don`t pay them, they delete a key and you`re data is basically lost forever.

GUSOVSKY: So they ask you, what, for your credit card number?

STEINBERG: Often, it`s using bit coin.

GUSOVSKY: But if you don`t know anything about bit coin?

STEINBERG: They give you —

GUSOVSKY: They give you instructions. OK, how nice of them.

In fact, according to McAfee Labs, ransom ware nearly doubled in the first quarter of this year, with criminal enterprises making anywhere from about $8,000 to $10,000 per month in profit, as kidnapping, ransom, and extortion become more high tech.

For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky in New York City.

(END VIDEOTAPE)

HERERA: And to read more about virtual kidnapping, head to our Web site, NBR.com.

Tomorrow, the final part of our series looks the at changing policy of the United States government when it comes to hostage negotiation.

MATHISEN: I had family members hit by that ransom ware —

HERERA: It`s so frightening.

MATHISEN: — where they said, we`ll destroy your data unless you pay us within a couple of hours. Very scary.

HERERA: All right. I look forward to the last installment tomorrow night.

And that does it for NIGHTLY BUSINESS REPORT, I`m Sue Herera. Thanks for joining us.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We`ll see you back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post
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our guests and commentators are their own and do not necessarily represent
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