TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: An Oracle’s optimism. The world’s most influential investor Warren Buffet says, don’t bet against America. And he shares his outlook for stocks and the committee.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Blunt message. General Electric (NYSE:GE) CEO didn’t mince words, writing a no-holds barred letter to shareholders.
MATHISEN: Leaping forward. Why leap day is great time to get a hold on your financial.
All that and more on NIGHTLY BUSINESS REPORT for leap day, February 29th.
HERERA: Good evening, everyone. Glad you could be with us.
A legal ruling in favor of Apple (NASDAQ:AAPL) in one of its many cases against the government. We’ll have more on that in just a minute.
But we begin tonight with Warren Buffet’s letter to shareholders. One of the world’s most admired and, of course, successful investors remains optimistic over America’s future, saying this country’s productivity and what he calls economic magic remains alive and well.
In his much anticipated annual letter, Mr. Buffett, talked about business at Berkshire, his investments in IBM and American Express (NYSE:EXPR) (NYSE:AXP), both of which have seen their share stumble, and defended his relationship with private equity firm 3G.
And this morning, in a wide-ranging interview with CNBC, Buffett made his optimism on the stock market clear.
(BEGIN VIDEO CLIP)
WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: There’s never been a time in my life, I know what market will do over a long period of time. They will go up. In terms of what’s going to happen in day or a week or month or year even, I never felt that I knew and I never felt it was important.
I will say that in 10 or 20 or 30 years, I think stocks will be a lot higher than they are now. American business will do fine over time and if you own a piece of it, and if you don’t beat yourself, the only person that can cause you to get a bad result in stocks is yourself.
(END VIDEO CLIP)
MATHISEN: Susie Gharib, senior special correspondent at “Fortune” and an NBR contributor, follows Mr. Buffet very closely, joins us now.
His optimism, Susie, not only for the economy but for the stock market, is always very strong, unwavering and yet today in light of really tepid growth. So, how does he square the two?
SUSIE GHARIB, NIGHTLY BUSINESS REPORT CONTRIBUTOR: He is truly a long term investor, Tyler. I mean, as he said, whether it’s 10 years or 20 years, and he advises investor not to think for this month or next month or this year and really think long term.
And, you know, it really bears it out. If you look over time and over long period in history, these down markets that are so painful while they’re going through them are just a blip in the scheme of things. So, he says he’s buy and hold.
MATHISEN: I’ll say this — 85-year-old man is a long term investor is by definition an optimist, right?
HERERA: Absolutely true.
You know, Susie, IBM is one of its big holdings. The stock has not done well at all. In the interview this morning on CNBC, he didn’t give it one of his usual resounding endorsements. Take a listen.
(BEGIN VIDEO CLIP)
BUFFETT: A stock going down is a good thing unless the company is losing value. And sometimes that’s the case. Sometimes it isn’t. I don’t think that’s the case with IBM, but I could be wrong.
(END VIDEO CLIP)
HERERA: So, we’ll turn to Susie. What do you think? What do you make of that?
GHARIB: It’s more of what he didn’t say. He didn’t say anything about IBM’s CEO, Ginni Rometty, who — in the past he’s praised her profusely. So, no mention of her or her strategy that she’s been talking about. Nothing about IBM’s market share or anything about its transformation into artificial intelligence.
I think that was very revealing that he said, I don’t think we made a mistake buying IBM. He said, “I could be wrong. And if I am wrong, we’ll accept it”. And I thought that’s revealing.
MATHISEN: His rhetoric clips way he finished that as we sit here and try to do — one area he’s come in for criticism about is his relationship and his business dealings with a Brazilian business operator, private equity firm called 3G, a known and very aggressive cost cutter.
Take us through that what he said.
GHARIB: That’s right. And you know what, the last annual meeting, Tyler, there were a lot of questions about 3G’s tactics. Now, Buffet has done — has been partners with them in a number of deals, most notably Kraft (NYSE:KFT) Hines.
They share the same goals about making accusations they want, big companies for the long term. But their strategies are different. So, 3G, like you said, they go in and they make drastic cuts and layoffs and they put in new management. Buffet style and Berkshire style is by a well-run company with good management and let them do it.
Buffet is in a tough situation. Berkshire is huge. They have lots — billions of dollars of cash. And it’s getting harder and harder to find well-run large companies that will significantly add to growth. So, they’ve got to team with someone else.
HERERA: He also weighed in on apple and the security versus privacy issue that is front and center headline news. What do you think?
GHARIB: Yes, he made the case that if — you live in a dangerous world, worried about cyber threats, biological threats, and if you get credible information that there really is going to be a threat and it is important to national security, you’ve got to cooperate.
Now, he doesn’t know Tim Cook. He admires him. He said that if Apple (NASDAQ:AAPL) really knew there was a targeted threat and important to national security, this is where what he says security trumps privacy. But you can’t also say national security is national security. National security has its limits.
MATHISEN: Susie, thanks very much.
GHARIB: Good being with you.
MATHISEN: Susie Gharib, special correspondent with “Fortune” and an NBR contributor.
HERERA: And another powerful letter to shareholders was issued this morning, this one from General Electric (NYSE:GE) CEO Jeff Immelt. In it, he took on the government, political correctness and activists.
Mary Thompson has more on the surprising blunt message the shareholders.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Almost 16 years into his stint as CEO of General Electric (NYSE:GE), Jeff Immelt writing a no holds barred letter to shareholders.
JEFFREY SONNENFELD, YALE SCHOOL OF MANAGEMENT: I think the good guy back slapping is something that he’s just tired of. That right now, if business has a voice, they should exercise that voice.
THOMPSON: Following GE’s most transformative year, when it completed its biggest acquisition, started shrinking its once mighty finance arm and tussled with Congress over the funding of the import, export bank, Immelt saying the GE of the future won’t be so friendly. Noting, “The most important culture change ahead of us is to be completely intolerant of being nice for the sake of getting along.”
Immelt says the relationship with business and government is toxic and blames government for hindering global growth, writing, “Most government policy is anti-growth. In the U.S., we want exports but seem to hate trade and exporters; globally, governments love small business then regulate them to death.”
Strategist Greg Valliere saying in this case, Immelt is not alone.
GREG VALLIERE, HORIZON INVESTMENTS: What he said reflects the thinking of a lot of business people. They can get by. They can make profits. But to really grow, they need a friend in Washington, a friend among the politicians rather than adversaries.
THOMPSON: Immelt also taking on what he calls a culture of political correctness which mires companies and processes that fail to produce good outcomes, writing, “It doesn’t do any good to win awards for good governance if you are getting eaten alive by competitors.”
While Immelt says he welcomes the focus, activist investors like Nelson Peltz bring to a firm, he said it’s challenging for management to balance what activists want now and what activist regulation prevents the company from doing.
Still, Yale’s Jeffrey Sonnenfeld says it would be wrong to read the 19-page letter solely as a venting of Immelt’s frustration. Sonnenfeld says it also reflects Immelt’s pride in what GE has accomplished.
SONNENFELD: This is somebody that wants to scream from the mountain tops, hey, we’re getting there. We’re doing there. We’re getting it done.
THOMPSON: Immelt’s work, far from being done, he’s predicting GE will be a top ten software firm by 2020, as it focuses on becoming a digital industrial powerhouse, one unafraid to say what’s on its mind.
For NIGHTLY BUSINESS REPORT, I’m Mary Thompson in New York.
HERERA: A federal judge in New York says Apple (NASDAQ:AAPL) cannot be forced to give the FBI access to a locked iPhone in a Brooklyn drug trafficking case. The U.S. magistrate’s decision could bolster Apple’s case against a California judge’s ruling that the company help the government hack an iPhone used by one of San Bernardino shooters who killed 14 people in December.
MATHISEN: Stocks end the month of February on a bit of down note despite gains in oil prices today. The declines accelerated into the close and are being attributed to late day, end of month sell orders.
Also disappointing economic data and sharp losses in China’s stock market didn’t help. By the close, the Dow Jones Industrial Average fell 123 points to 16,516. NASDAQ was off by 32. The S&P 500 gave 15, almost 16.
For the month of February, the major averages where mostly flat, with the S&P and NASDAQ posting their three-month losing streak since 2012. The industrials were up fractionally.
Flat February is not necessarily though a bad omen for March.
Deirdre Bosa looks to the past to see what the future may hold.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Winter may not be over, but there are signs of spring in the air. And for the market, there’s indication that this year’s early freeze may be thawing as well.
After a terrible start to 2016, markets have managed to claw back losses from earlier in the month and end on a relatively flat note.
NANCY TENGLER, HEARTLAND FINANCIAL CIO: We do expect stocks to continue to appreciate between now and the end of the year. The difficulty in the short term is the unexpected. But the economic numbers are firming up pretty nicely. Employment has firmed and wages are now beginning to rise.
BOSA: And as history is any guide, the comeback could continue.
Over the last decade, March has been a good month to be long stocks. The S&P 500, the Dow Jones Industrial Average and the NASDAQ composite have all reliably moved higher in the month. But the real winner has been the small cap benchmark, the Russell 2000.
It has traded positive in March every year but once since 2006 and far outperform the broader the markets. The results are even better when stocks finished February flat as they did this year. In all four instances, since 2002, all indexes have been positive the following March and small caps have seen even bigger gains returning nearly 4.5 percent on average.
Some analysts are getting bullish on energy in March.
TENGLER: We like energy here. It’s been beaten up for a long time. The large integrated oil companies have begun to trade. They disconnected from the price of oil. So, ExxonMobil (NYSE:XOM) is up 5 percent year to date. We’re moving that into one of our largest holdings and have just overweighted the energy sector.
BOSA: History also suggests the sector could be due for a comeback. After flat Februarys, energy has been the best performing sector in March. But no such luck for two of the most beaten down sectors this year, technology and financial. Typically, they performed no better than a coin toss in March, trading negative about half the time.
As always, past performance is no guarantee of future results, but for investors looking to shake off a cold winter, they may find some warmth in market returns next month.
For NIGHTLY BUSINESS REPORT, I’m Deirdre Bosa in Vancouver, Canada.
HERERA: Gold is shining. The medal had its best month in four years and is the top performing asset of 2016 so far. Today, prices extended their gains, settling above $1,200 an ounce.
But why is this sector on a hot streak after years for being so cold?
Brian Sullivan has some answers from a big metals and mining conference in Hollywood, Florida.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2016 has largely been a disappointing year for most investors, investors that is in nearly everything but gold and gold stocks. The yellow metal has been red hot.
And here at the conference, the CEO of Newmont Mining (NYSE:NEM) told us why.
GARY GOLDBERG, NEWMONT MINING CEO: Fundamentals from the medium to long term are good for gold, when you look at both the supply and the demand side. On the supply side, people haven’t finished investing in new gold mines. You haven’t had the investment and exploration. You expect new mines supplier — mine suppliers rather to drop by about 17 percent over the next five years. Demand is still strong. Asia is still the major place for gold coast.
SULLIVAN: Like any commodity, supply and demand is major part of the equation, but currencies have also played a role. At the central banks around the globe have acted, currency markets have started to move. As currencies move, nervous investors look to gold as a hedge. The CEO of the world’s largest gold mining company, Barrick Gold (NYSE:ABX), explained the relationship between currencies and the metal.
KELVIN DUSHNISKY, BARRICK GOLD PRESIDENT: I’m positive. I mean, it’s a story of world reserve currencies. So, people are, you know, turning to gold in those uncertain times and we’re seeing that in the near term.
SULLIVAN: Ironically, though, it’s the fallen price of another major commodity that’s helped the gold mining companies — oil. Most of the mines operate in very remote locations. It’s expensive to bring in all the fuel needed for the big mining vehicles. And as the price of oil has gone down, profitability has gone up.
Newmont Mining (NYSE:NEM) CEO explained just how much.
GOLDBERG: For every $10 change in the price of oil, it’s about $40 million to our free cash flow per year.
SULLIVAN: Of course, many people love gold simply because of jewelry. It has after all been a valuable asset for thousands of years. But if you are new to the gold game, or thinking about becoming an investor in gold or gold stocks, know that it is more than just about beauty. You need to follow the currency markets and even the oil market as well.
For NIGHTLY BUSINESS REPORT, in Hollywood, Florida, I’m Brian Sullivan.
MATHISEN: Still ahead, why there’s heavy demand for dividend-paying stocks these days.
MATHISEN: Valeant Pharmaceuticals is under investigation by the SEC. The drug maker’s disclosure today comes on top of an existing probe into a company Valeant bought last year called Salix. A company spokeswoman declined to comment on the content of the new inquiry.
Meanwhile, the Valeant Pharmaceutical’s chief executive is back in the corner office following a severe case of pneumonia. Michael Pearson’s first order of business on this day back was to withdraw the company’s financial guidance and delay reporting fourth quarter earnings. The company says it updated outlook and its quarterly financial report will come some time in the near term. Shares fell more than 18 percent on the news to $65.80.
HERERA: It has now been one year since Lumber Liquidators began battling allegations about formaldehyde in its flooring. And the company said today that battle is not over. Despite the wider than expected quarterly loss, shares finished the session higher.
Scott Cohn has more on the company’s steep losses and why the company, one year later, is still doing damage control.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lumber Liquidators has lost more than three quarters of its market value since CBS’s “60 Minutes” alleged that company knowingly sold the tainted flooring from China. That’s more than a billion dollars in market cap.
The company is not only losing value, it said today it’s losing money — $56 million last year compared to a profit of $63 million the year before the controversy.
Sales for the year plunged nearly 7 percent, including a nearly 14 percent drop in the fourth quarter. The company has replaced its CEO, hired a chief compliance officer and eventually pulled the floor in question from the market. So, there was finally some hope that the worst would be over.
Earlier this month, the Centers for Disease Control reported the cancer risk from the flooring was minimal but that, three days later, the agency said it had made a math error and while the risk was still low, it was three times higher than previously thought.
So, now, it’s back to damage control including this full page newspaper ad saying Lumber Liquidators does not sell any products mentioned by the CDC report — though not mentioning that the company did sell the products until last May.
And here is CEO John Presley on a conference call with Wall Street analysts today.
JOHN PRESLEY, LUMBER LIQUIDATORS CEO: The report did not speak to any products that Lumber Liquidators currently sells, and perhaps more importantly, the CDC has not recommended that customers replace this laminated flooring.
COHN: But those recommendations aren’t final yet and yet to weigh in, regulators here in California, who have been investigating for more than a year.
Today, Lumber Liquidators revealed it set aside another $1.5 million for potential fines — money it can’t exactly afford.
Scott Cohn, NIGHTLY BUSINESS REPORT, San Francisco.
MATHISEN: Carl Icahn makes a bid for Federal Mogul and that is where we begin tonight’s “Market Focus”.
Icahn Enterprises (NYSE:IEP) owned by the billionaire Carl Icahn currently owns 82 percent of the auto parts maker and said it would like to buy the remaining shares. Federal Mogul said it will form a special committee of independent directors who will carefully review and evaluate the offer. The company also issued a better than earnings report for its latest quarter. Shares of Federal Mogul soared more than 45 percent to $7.26.
Tribune Media topped analysts’ estimates on both its top and bottom lines in its quarter. However, despite that beat, the television station owner saw a nearly $400 million loss and said it will explore sale or separation of select lines of business. Shares up 9 percent on that news to $35.90.
NRG Energy (NYSE:NRG) said it will cut its annual dividend nearly 80 percent. The news comes after the company said it suffered a more than $6 billion loss in the fourth quarter. The company also reaffirmed plans to spin off its stake in its home, solar and vehicle-charging businesses. Shares fell almost 3 percent to $10.76.
And Console Energy saw its shares surge after the coal and natural gas producer said it would sell its Virginia coal mine and other assets to a private equity firm in a deal valued at $420 million. Consul said it will suspend its quarterly dividend once the deal takes affect. Shares up 10 percent to $8.63.
HERERA: Taser, which makes law enforcement and military devices, issued better than expected earnings and revenue in its latest quarter. Results were driven in part by strong sales in the body camera equipment segment. Shares were up nearly 11 percent to $19.38.
United Natural Foods (NASDAQ:UNFI) saw its shares fall after the company warned its revenue and target profits will miss expectations. United Natural also said it would have a rival organic food distributor in a deal valued at roughly $217 million. Shares of United Natural Foods (NASDAQ:UNFI) plunged 21 percent to $30.86.
And Signet Jewelers and the parent company of Zales and Jared said same store sales rose nearly 5 percent after a strong holiday shopping season. And that helped its preliminary profit top forecast. The company also raised its quarter dividends by 18 percent to 36 cents a share, and said it had approved a $750 million share buy back program. Shares sparkled today, gaining more than 9 percent to $108.40.
MATHISEN: Well, investors are turning to companies that pay hefty dividends and dumping shares of fast growing industry, such as technology. The S&P 500 High Yield Dividend Aristocrats Index, that’s a name for you, is made up of companies that have increased their dividends every year for at least 20 years. It’s up this year compared to the decline in the broader S&P 500, as you see there.
The trend was highlighted in a “Wall Street Journal” article today, underscoring investor appetite for income.
The reporter on that story is Greg Zuckerman and he joins us.
Greg, always good to see you.
GREGORY ZUCKERMAN, THE WALL STREET JOURNAL: Great to be here.
MATHISEN: Why this newfound religion of dividend-paying stocks? What’s got investors attention so suddenly?
ZUCKERMAN: Well, part of it is nervousness. So, in a period when we’re unsure about the economy, China, et cetera, and those stock markets are so rocky, the solid dividends that some blue chips pay look much more attractive.
They’re also more attractive because we’re less convinced that the Federal Reserve is going to be raising rates this year and will be a series of rates. So, if rates aren’t rising, then these yields that the dividends stocks pay are much more attractive.
HERERA: But, Greg, are investors remiss if they don’t really take a look at the stocks itself and the dividends? I mean, a lot of people buy it, thinking it’s a bond equivalent, which really is not.
ZUCKERMAN: It’s interesting you say that. You do hear a lot of people who used to be sort of 60-40, saying they want to be more kind of 80-20, more equities than ever before. And as a substitute, they’re buying these dividend stocks. And as you suggested, that’s the danger.
I mean, if you look at things like utilities, which are up this year, even everything — everything else is down. They are up a good 6, 7 percent, the P/E ratio, the price earnings multiple is pretty expensive relative to history. It’s around 17 versus 15 historically. So, you’re paying up to get this kind of safety. You have to remember that.
MATHISEN: So, yes, and you look at some of these energy companies like NRG. We just talked about it. Consuls suspending the dividend. Sometimes, those dividends aren’t as secure as we think they are.
It occurs to me, Greg, that in part, what is being reflected here is the idea that growth may not be there. And that you need to go with where you can get total return and more of the total return may come from the dividend payout relatively than it has been historically coming from the growth side.
ZUCKERMAN: That’s exactly right. So, we talked about some of the dangers on some of these stocks, the reason to buy them is as you say, people don’t spend enough time focusing on the total return. That includes the price but also the dividend.
And, yes, you want to buy from fast growers, tech companies and others, when the company is advancing. But when we’re in a slow pace recovery, maybe we get 2 percent, 3 percent growth, 3 percent hopefully this year, then those that can give you a good 3 percent, 4 percent dividend return look much more valuable.
MATHISEN: Greg, thank you so much for sharing the insights.
ZUCKERMAN: Good to be here.
MATHISEN: Greg Zuckerman of “The Wall Street Journal”.
HERERA: Coming up, leaping towards your financial goals. How you can use today, leap day, to jump start your financial planning.
MATHISEN: Here’s what to look at tomorrow. Auto makers report their sales figures for February, historically the slowest month of the year for sales. And Super Tuesday, of course, the biggest day of the year for the 2016 primary season. And on Capitol Hill, Apple’s legal chief and director of the FBI are scheduled to testify on encryption and security. That will be very interesting and it’s what to watch Tuesday.
HERERA: There were plenty of ways to mark leap year, but we have come up with one you might not have considered. Why not do a four-year check up of your money, from your retirement to your career. There’s obviously plenty to think about and see if you’re on track for different milestones.
Sharon Epperson joins us with more.
Good to see you as always, Sharon.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to be here.
HERERA: So, you should always, of course, be monitoring your career, but there’s some kind of specific things to consider in this case, right?
EPPERSON: You’re always keeping tabs on what your goals are. And here’s a good time to check in and see if you’re meeting the goals that you want. Have things changed over the last four years? Are you managing people? How are you competing against your peers and how are you in terms of meeting those goals whether it’s trying to get a bonus or trying to manage other people.
Think about your goal as it is today and where you want to be in four years as well.
MATHISEN: I love any list where I only have to think about it once every four years. This is beautiful for me. Insurance, most, especially something I would like to think about every four years.
EPPERSON: Whether it’s your auto insurance, your homeowners insurance, or life insurance.
Well, auto insurance, if you’re someone like me who keeps car for a long time, after a certain number of years, you don’t need collision insurance. You don’t need to think about all these things that you’re paying for with auto insurance. So, keep that in mind, depending on how long you had your car.
When it comes to homeowners insurance, what things have you done differently in your home? Have you built a new bathroom? Have you upgraded certain things? Do you need to change your coverage in that regard?
And in terms of life insurance, what things have changed in your lifestyle? Have you recently gotten married or divorce? Who is the beneficiary on your policy? Have you made the appropriate changes?
And as your parents age, what do you know about what they have in terms of life insurance and have you had that conversation? So, those are things to check in with every four years.
HERERA: And let’s talk about retirement, the milestones to be examined. Obviously, it depends on your age.
EPPERSON: It depends on your age. One thing is you have — if you have someone helping you with your finances, now is a good time to evaluate that financial advisor. You don’t want to base it on one month’s performance or maybe even one year. But four years, good time to check in and see how that’s going for you.
Look at your risk tolerance, how you’re going with that and then see how much you’re putting away for retirement.
And here is something where leap year can really make a big difference. Just a bit of an increase in what you’re putting away can make a huge difference when you retire. Say you’re 25 years old right now, and for the next five leap years, every four years, you increase your contributions to your 401(k) by 1 percent, you could have an extra $739 in retirement income when you retire.
MATHISEN: $739 a month.
EPPERSON: A month.
MATHISEN: That’s a big difference. That’s a meaningful difference.
EPPERSON: But a lot of people say, wait a minute, I didn’t start when I was 25. What about 45, and I add another 1 percent, you can have, do that over the next four leap years. You can have as much as $263 extra a month for retirement income.
HERERA: And that’s just 1 percent.
EPPERSON: That’s just 1 percent, exactly. Of course, you should try to add more but we’re saying just small increments to make a huge difference. So, get started now.
HERERA: Always good advice. Thank you so much.
EPPERSON: My pleasure.
MATHISEN: See you in four years.
HERERA: Well before that.
All right. That does it for us on NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks for joining us.
MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. Have a great evening, and we’ll see you back here tomorrow.