Transcript: Nightly Business Report – September 3, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Make or break. Why
tomorrow`s jobs report could determine whether the Federal Reserve does
something later this month that it hasn`t done in nearly a decade.

The digital highway. Will big investments in technology help make
your commute a whole lot easier?

And too much risk? Why your portfolio may not be as diversified as
you think.

All that and more, tonight on NIGHTLY BUSINESS REPORT for Thursday,
September 3rd.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen
is off today, a day that saw a big market rally fade.

But we begin tonight with the job market. And tomorrow`s employment
report for August, which is being hailed as one of the most important in
recent memory. Not just because, it`s a barometer for the health of the
economy, not just because it lets us know how many people are working and
whether wages are rising, but because it is the last piece of the economic
data that the Federal Reserve will get before its next meeting later this
month, the one that some think could mark the first interest rate hike in
nearly a decade.

A strong report could bolster the case to raise, a weak one to wait.
And we`ll get that number before the opening bell tomorrow.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Heading into
Friday`s all-important job reports, more signs of underlying strength in
the overall economy, the trade deficit shrank in July to just under $42
billion, its lowest level in five months due to increased exports.

And service sector companies expanded at a healthy pace last month due
to robust consumer spending from job gains. On the flip side, forecast for
private sector job growth came in less than expected at 195,000, and weekly
jobless claims increased to 282,000. Above expectations, but still
consistent with a stronger jobs market.

In recent years, August headline jobs numbers have come in below
expectations, only to be revised upward in later months. So, economists
and market watchers are paying more attention than usual because it`s the
last piece of key economic data before the Fed meets in two weeks to
consider raising interest rates for the first time in nearly a decade.

CHRIS RUPKEY, ECONOMIST: They can be put off easily, the Fed, if the
numbers don`t hit their mark. So, 220,000 payroll jobs, pretty much has to
be there. Unemployment rate has to come down to 5.2 percent, and wages
have to hold at 0.2 percent for the month, 2.1 percent year over year. If
we don`t get that constellation of the data and the market rallies, I
wonder what the Fed is going to do.

PEARSON: But leading international economists say a fragile global
economy and market volatility triggered by the downturn in China may keep
the Fed on hold.

MOHAMED EL-ERIAN, ALLIANZ: The main issue for the Fed is not whether
it should have hiked, it should have hiked, OK? The main issue is not
whether the domestic economy warrants a hike, it does. Do you really want
to do this when the global economy is so fragile?

You know, if they hike in September, it will be the equivalent of what
trying to do it a few weeks ago with the currency. The right move, but at
the wrong time. And that`s why I think net-net, they`ll wait.

PEARSON: More good news for workers late today: a national survey of
small businesses found hiring increased in August, with wages for hard-to-
fill jobs going up as well.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

HERERA: While the U.S. economy appears to be chugging right along,
the same cannot be said for Europe. Today, the European Central Bank cut
its growth and inflation forecast for that region, blaming concerns over
the global economy. Mario Draghi`s down beat tone is pretty much in line
with prior comments that the European economic recovery has been
disappointing.

(BEGIN VIDEO CLIP)

MARIO DRAGHI, EUROPEAN CENTRAL BANK: Information available indicates
a continued weaker economic recovery. And as lower increasing inflation
rates, compared with earlier expectations. More recently, renewed downside
risks have emerged to the outlook for growth and inflation.

(END VIDEO CLIP)

HERERA: Many are interpreting these comments to mean that the ECB`s 1
trillion euro stimulus program could be expanded. The risk Draghi referred
to include a further fall in oil prices and slowing Chinese economy, which,
of course, is the world`s second largest.

China`s stock market which sparked much of the recent volatility
across the globe is closed today and tomorrow. This is as the country
commemorates the 70th anniversary of the end of World War II. China is
marking that occasion with a military parade in Tiananmen Square in what
some say is an effort to divert attention away from its economic issues.

Meantime, the White House is getting tough with China. In an
exclusive interview with Steve Liesman, Treasury Secretary Jack Lew
criticized that country over the way it handled its recent currency
devaluation and emphasize the importance of China`s economic relationship
with the U.S.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: If there`s
further devaluation of the yuan, will that give you concern that China`s
trying to depreciate its way out of its problems and do so in a way at the
expense of the United States?

JACK LEW, TREASURY SECRETARY: Look, I think we have been very clear
for a very long time with China, how they manage their exchange rate is a
matter of great concern to us. And that they need to be willing to let
market forces drive the value up, not just drive it down. That`s a message
I`ve delivered very clearly. You know, I think in a moment when their
economy is weakening, as opposed to strengthening, you know, it`s easy to
say the pressures are to go down, not up.

But this is not a new conversation. This is a conversation that`s
been going on for some time.

So, we need to see a serious commitment to the kind of reform agenda
that makes it clear that over time, you know, their currency will go up as
their economy is strengthening, and they need to be committed to the kinds
of policies that will contribute to stronger economic growth.

LIESMAN: Republican presidential contender Donald Trump says what`s
going on with China`s economic policies amount to the greatest theft in
history.

LEW: I don`t need to look to the political statements to focus on the
importance of the U.S.-China economic relationship. It is enormously
important relationship, it`s one, where China needs to understand quite
clearly that we expect for them to behave in a way that`s consistent with
agreements that they have made, where we expect them to behave in a way
that meets a level of transparency, where it`s credible that they`re moving
to keep commitments that they`ve made.

And they have to understand — and I make this point to them quite
clearly — that there`s an economic and political reality to things like
exchange rates. And they need to understand that they signal their
intentions by the actions they take, and the way they announce them. And
they have to be very clear that they`re continuing to move in a positive
direction, and we`re going to hold them accountable.

(END VIDEO CLIP)

HERERA: Treasury Secretary Lew also spoke with Steve about the Iran
deal, saying the U.S. will continue to implement sanctions until Iran
complies with that agreement. Lew was scheduled to attend the G20 finance
ministers meeting in Turkey this upcoming weekend.

Meantime, on Wall Street, another big rally faded. The blue chip Dow
index was up nearly 200 points early in the day on those comments from ECB
president Mario Draghi. Volatility took over and the market couldn`t hold
on to its gains.

By the close, the Dow Jones Industrial Average rose just 23 points to
16,374. The NASDAQ slipped 16 points and the S&P 500 was up two points.
The move lower in stocks followed the price of oil, which started the day
much higher than where they ended at $46.75 a barrel.

Well, the volatility in stock and bond markets are prompting some
investors to take another look at their portfolios, to determine whether
they`re diversified enough to protect against the big ups and downs. But
according to our next guest, you`re probably not as diversified as you
think.

Joining us is Ken Kamen. He`s president of the Mercadien Asset
Management.

Good to see, Ken. Welcome to the program.

You know, people put money in ETFs and bond funds and market funds all
the time, thinking that that is achieving diversification for them. But
you argue it is not. How so?

KEN KAMEN, MERCADIEN ASSET MANAGEMENT: Well, it`s not that it`s not
achieving diversification. It might not just be achieving the amount of
the diversification you`d think. So, you`ll get something like the S&P
500, one of the big ones maybe despite the result or whichever. The S&P
500, those ETFs are what they call cap weighted, meaning the largest
companies take up the most bandwidth in that index. So, when you actually
look at that, 60 securities represent 51 percent of the S&P 500 index that
most people buy.

So, another way of thinking about that is, for every dollar you put
into that, 51 cents of that is going for 60 stocks, and the other 49 cents
are going to buy the other 440.

HERERA: So, if you want to increase your diversification then, what
index do you think better reflects a diversification for a, quote/unquote,
typical portfolio?

KAMEN: Well, if you want to get representation broadly in the S&P
500, you can buy something like an equally weighted S&P 500 index. ETF —
excuse me — where it owns one share of the each 500 securities, so you get
a more broader band.

And I`m not saying one`s better than the other.

HERERA: Does it smooth — does this broader index smooth out the
volatility? T

KAMEN: Yes. What it does is, it gives you a bigger swath of the
economy than you`re participating in. You`re not just participating in the
largest 60 stocks. So, when you look back since the market took off in the
beginning of the bull market in March of `09, you actually see the equal
weighted one has done better than the one that everyone buys.

Now, that`s not necessary, again, it`s not a recommendation as much
as, you know, we`re seeing so much swings in the market. And everyone`s
concerned about the big up 1,000, down 500. What people need to realize is
that in many ways, these indexes are becoming momentum driven when so much
money is going into such a narrow swath of companies.

HERERA: It`s creating a volatility.

KAMEN: It`s creating — as it`s going up. ETF makers have to buy
more of those big stocks, and when it goes down they have to sell more.
So, it`s a momentum play people don`t realize.

HERERA: What about the broader market and volatility that we have
seen that`s linked to China, perhaps not linked to this momentum play? Do
you view that as slowing down or smoothing out a little bit or do we have
more rough seas ahead?

KAMEN: Well, I certainly think volatility is here to stay. And I
think investors need to get used to much wider swings in the market.

You know, now, markets are pretty much dominated by computers, and
these very easy-to-trade risk on/risk off trades. Things people have to
realize is that in the old days, mutual funds were priced at the end of
every day. So, you`ve got that days price, they weren`t moving markets
during the middle of the day, where ETFs trade like risk on/risk off and
you`re seeing these huge trades.

HERERA: Yes, you need a little Dramamine.

KAMEN: You might, you do.

HERERA: Ken, thank you very much.

Ken Kamen, president at Mercadien Asset Management.

Well, ahead of tomorrow`s jobs report, more than 8.5 million workers
are likely wondering whether they`ll be impacted by a recent federal
ruling. The National Labor Relations Board last week broadened the
definition of employer while redefining what an employer is, may not seem
to you like a big deal.

Kate Rogers (NYSE:ROG) explains that it could have huge implications
for franchise operators.

(BEGIN VIDEOTAPE)

MARA FORTIN, NOTHING BUNDT CAKES: Do we add another layer of
overhead? Do we add more consultants? Do we hire more attorneys? And
what do we do to make sure we`re in compliance?

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Franchisees
across the country are beginning to absorb what last week`s ruling from the
National Labor Relations Board might mean for their future. Under the
broaden definition of employer, franchise locations could be considered
joint employers, alongside their corporate parent. In an industry that has
long separated the two.

Now, the corporate parent may also be responsible for liabilities and
violations at franchise locations.

Mara Fortin, owner of seven franchise locations of a bakery Nothing
Bun Cakes across California, fears it will take away her ability to run her
business independently.

The former lawyer got into the industry seeking her own piece of the
American Dream.

FORTIN: I got into this to be my own business owner, and to have a
say in how my business ran, with the support of a brand. And what`s
happening with the NLRB is it really takes the power away from me, to run
my own business.

ROGERS: Among her concerns are higher costs from her corporate
parent, and more oversight to remain compliant under potential joint
employer policies. More broadly, the industry`s largest trade group says a
move may, quote, “create havoc within the fast growing segment of the
economy, causing fewer stores to open, and holding corporations accountable
for actions and violations at franchise locations.”

According to the International Franchise Association, the franchising
industry was expected to grow about 21.5 percent in 2015, to more than
780,000 locations nationwide.

Franchising employees have 8.5 million workers across the country and
this decision could stifle that projected growth. But wage advocates say
the NLRB`s decision is simply a reaffirmation of decades-old labor law.

REBECCA SMITH: This notion of a joint employer has been around for a
long time, at least since 1938. So, Browning-Ferris really just clarified
that franchisors and franchisees may well be joint employers, and have a
duty then to bargain with their employees.

ROGERS: It remains to be seen how this decision may impact the
separate case the labor board is weighing against McDonald`s (NYSE:MCD),
expected to resume this fall. Experts say it could very well set a
precedent.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: And to read more about how that NLRB ruling might impact
franchise operators, head to our Web site NBR.com.

Still ahead, how Disney (NYSE:DIS) plans to develop a new generation
of “Star Wars” fans. And a new generation of potential profits.

(MUSIC)

HERERA: Some good news, if you`re planning on taking a road trip this
weekend. Gas prices are falling. This holiday weekend the cost to fill up
will be the cheapest since 2004. According to AAA, the national average is
currently $2.44 a gallon, nearly $1 below where it was a year ago. And
that translates into big savings. All in, consumers will save a total of
about $1 billion on gasoline this holiday weekend alone.

And if you do plan to drive this holiday weekend, you will be very
aware of the poor state of our nation`s roads. And all the traffic that
goes right along with it. But amid the hand-wringing about our aging
infrastructure, some states are building a digital infrastructure with the
aim of improving your commute.

Mary Thompson reports from Woodbridge, New Jersey.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: More than 2
million cars a day traveled in New Jersey turnpike and Garden State
Parkway, where accidents and weather often disrupt commutes. Commutes the
state wants to disrupt and speed up with the help of technology.

BARRY PELLETTERI, NEW JERSEY TURNPIKE AUTHORITY: We`re trying to
improve our visibility of the roadway, and we`re improving that visibility
for traffic management professionals.

THOMPSON: Barry Pelletteri is the chief information officer of the
New Jersey Turnpike, at its traffic management and technology center in
Woodbridge, a massive video screen reflects information, sent from the
sensors embedded along the road`s 2,600 lane miles, and views from cameras
perched along the way.

PELLETTERI: The more data that we can bring into this center, and
then analyze, the more pertinent information we can give to our
professionals who know the roadway, that then inform all of our motorists.

THOMPSON: With Americans spending an average of 40 hours for a work
week`s worth of time stuck in traffic, New Jersey looks to ease commutes,
sending information to dynamic signs, warning drivers of accidents and
slowdowns, and providing estimated travel time. This is isn`t unusual, but
in the future, IBM`s Katharine Frase, who worked with New Jersey on the
information says the information will be used in other ways.

KATHARINE FRASE, IBM: You go from an analytics to tell you what
happened, to starting to predict what might happen, to being able to
prescribe what would be the best thing to do.

THOMPSON: That means some day drivers could be directed to less
congested roads, or barriers could be moved and lanes shifted to
accommodate heavier traffic flows. All the centers and weather data will
be analyzed to direct travelers to the best roads in bad weather.

PELLETTERI: We`re using digital technology to thermal map the
roadway. What that tells us is, is it allows us to determine the
propensity for different parts of the roadway to freeze earlier.

THOMPSON: While the current goal of this digital infrastructure is to
get better information to the signs like the one you see behind me, the
ultimate goal is to get that information directly to the cars, and their
drivers.

A shift requiring new technology in many cars, and continued
investments of technology in the roads they drive on.

In Woodbridge, New Jersey, I`m Mary Thompson for NIGHTLY BUSINESS
REPORT.

(END VIDEOTAPE)

HERERA: A food deal is where we begin tonight`s “Market Focus”.

General Mills (NYSE:GIS) is selling its vegetable brands Green Giant
and Le Sueur to B&G Foods for nearly $1 billion. General Mills (NYSE:GIS),
which owns Cheerios and Yoplait, says the deal will allow it to focus on
its other brands. Shares of B&G foods popped more than 11 percent to $34.
General Mills (NYSE:GIS) was more than 1 percent higher to $57.61.

Lands` End saw its sales continue to slip in its most recent quarter.
The company`s spring and summer apparel didn`t perform well with customers,
but the declines in profit and revenue weren`t as steep as some analysts
had expected. And that sent shares 5 percent higher to $27.45.

A big miss from Joy Global (NASDAQ:JOYG). The mining equipment
company reported earnings and revenue that came in below estimates as weak
demand for commodities weighed on its business. The company also cut its
guidance for the full-year. Shares tumbled more than 14 percent to $18.90.

And Verizon (NYSE:VZ) and Royal Caribbean are raising their dividends.
Verizon`s new payout of 56.5 cents a share will be payable in November to
shareholders on record by October 9th. Royal Caribbean increased its
dividend to about 37 cents a share, which will payable to shareholders in
October who are on record as of September 18th. Verizon (NYSE:VZ) shares
were slightly higher to $45.72. Royal Caribbean rose a fraction to $89.29.

HERERA: Disney`s big investment in “Star Wars” is entering a new
phase. This one is a marketing push like few have ever seen before, and it
starts tomorrow, months before the first film is scheduled to be released.

And Julia Boorstin said it`s not just Disney (NYSE:DIS) that`s
expected to profit from what`s being called force Friday.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Force Friday
is an unprecedented global merchandise campaign, with hundreds of new “Star
Wars” products hitting stores.

Disney (NYSE:DIS) and retailers are pulling out all the stops. The
Disney (NYSE:DIS) store, Toys “R” Us and Walmart are opening their doors as
stores around the world at 12:01 Friday morning. Plus, online, those
retailers and Amazon (NASDAQ:AMZN) are making a promotional push for toys
and deals.

It`s the start of a 3 1/2-month-long rollout of products which
licensing expert Marty Brochstein says expands Disney`s merchandising
potential.

MARTY BROCHSTEIN, LICENSING EXPERT: Four to six weeks in front of the
film is when the second wave of merchandise is going to start to appear.
So, this way everybody gets a couple of different bites of the apple.

BOORSTIN: It`s not only great for Disney (NYSE:DIS), but also Hasbro
(NYSE:HAS) which has the toy licenses, plus Lego and retailers,
particularly Toys “R” Us.

Force Friday could meaningfully accelerate Disney`s consumer products
division`s growth says JPMorgan (NYSE:JPM) analyst Alessio Kudrani (ph).
She projects about half a billion dollars in incremental revenue and $200
million in incremental profits in Disney`s fiscal 2016.

UNIDENTIFIED MALE: One, two, three.

BOORSTIN: And to maximize “Star Wars” potential, Disney (NYSE:DIS) is
turning to the power of YouTube, in the popularity of unboxing videos to
lure in a new generation of “Star Wars” fans. It`s giving its maker studio
stars with huge YouTube followings, movie merchandise to open in a live
stream on “Star Wars” YouTube Channel. Disney (NYSE:DIS) is hosting events
featuring those maker starts in 16 cities around the world.

And an 18-hour live streaming lead-up to the toy`s going on sale.

CHRIS PIRILLO: I think Disney (NYSE:DIS) bringing in maker talent was
smart, because “Star Wars” is very much community based and they understand
that. And a lot of the people who have been very excited to play with the
toys and unbox the toys are being amplified. And to be a part of that is
really showing that Disney (NYSE:DIS), star worse and maker really
understand the community connection, especially when it comes to “Star
Wars”, which is more than a brand to some of us. It`s a lifestyle.

BOORSTIN: If this strategy works, Disney (NYSE:DIS) will turn the
YouTube generation into “Star Wars” fans, while introducing older “Star
Wars” fan to maker videos.

The risk, all this promotion overdoes it, but at this point, analysts
are optimistic.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin at Lucas Films in San
Francisco.

(END VIDEOTAPE)

BOORSTIN: All right. Coming up, student housing at college used to
mean shared bathrooms and cinder block walls. But that was then. Wait
until you see what`s happening now.

(MUSIC)

BOORSTIN: To housing now where the average rate on the 30-year fixed
mortgage rose slightly last week. Freddie Mac says the rate increase to
3.89 percent from 3.84, the prior week. Mortgage rates tend to track the
yield on the 10-year treasury note which has been very volatile lately,
along, of course, with the market.

HERERA: It is one of the hottest real estate plays today. Just in
time for back to school. It`s student housing.

But here`s the twist. As the market gets more competitive, developers
are tricking out the properties, luxury living on a student budget.

Diana Olick shows us how it works from Athens, Georgia.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It may look like
happy hour at the four seasons, but it`s just a week day afternoon at the
University of Georgia, off-campus housing.

The standard developed by Athens based Landmark Properties is aptly
named because apparently this is what students today demand. The resort-
style pool, fitness center, racquetball, sauna, game room, private study
lounges, and granite-laden apartment suites that would balk at the very
idea of cinder block walls. Developers say the most expensive suites
actually lease up the fastest.

WESLEY ROGERS: We`ll be catering to the 10 percent making them super
premium, you know, offering larger square footage, more amenities for those
residents, maybe two-story rooftop town homes with private rooftop patios.

OLICK: How do students pay for all this? Prices actually aren`t much
higher than on campus where costs have been soaring. Developers charged by
the Fed, not the unit, and they target big public schools which have lower
tuition.

And then there is the foreign factor, as millennials age out of their
college years, foreign students` enrollment is climbing and more than
making up the demand. Foreign students tend to favor all these amenities.

Landmark is taking its standard brand across the nation, growing
footprint and profit. They sold the Athens Georgia property to American
campus community, the largest student housing REIT.

This as another REIT, EDR, put a waterfall into its new building down
the street.

BRENDAN COLEMAN: Now, we`re starting to see institutional quality,
developers and investors. And so, it`s getting a little more competitive
to go after the market share.

OLICK: Coleman said demand is strong and parents` pockets are deeper
than you might think.

COLEMAN: If it`s $1,000 more a semester, say, I think it`s worth it
compared to the competition. It`s going to be older, dilapidated and many
cases, in many markets, unsafe product. It`s not sprinkled. It`s not up
to code.

OLICK: Of course, the thing about the Shangri-la is — what`s going
to happen when you get out in the real world and y`all can`t afford all
that?

UNIDENTIFIED MALE: That`s what (INAUDIBLE) I`m going to move in, he`s
going to give me a downgrade after college, for sure.

OLICK: It quickly turns to paradise loft.

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

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Thanks for watching. Have a great evening. See you tomorrow.

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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