SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stocks sell off. Equities suffered a sharp and steep fall as oil prices dropped and uncertainty surrounding interest rates rose.
Making changes. Wells Fargo (NYSE:WFC) drops the sales goals that led to the fraudulent opening of millions of accounts. But can bad behavior be stopped?
And in focus. Why a unit of Warren Buffett`s Berkshire Hathaway (NYSE:BRK.A) is being accused of running a reverse Ponzi scheme. Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, September 13th.
Good evening, everyone. I`m Sue Herrera. Tyler Mathisen is on assignment tonight. But we will hear from him in just a few moments.
But we begin tonight with the market`s big slide. Stocks tumbled hard, reversing yesterday`s gains. The selloff was broad. Oil prices took a dive, energy stocks tanked, financials floundered. But what did rise was uncertainty, uncertainty about oil, which some view as a proxy for the global economy. And uncertainty about interest rates.
Fed officials are now in a quiet period ahead of next week`s meeting, so there will be no more comments to dissect for clues. But investors don`t like uncertainty, and the Dow Jones Industrial Average dropped 258 points to 18,066. The NASDAQ declined 56. And the S&P 500 fell 32.
Bob Pisani was in the middle of today`s selloff at the New York Stock Exchange.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was another tough day for stocks, eight stocks declined for every one advancing, though the market did improve toward the close. All the major sectors were down 1.5 to 2 percent or more, including energy, materials, financial, and health care.
It`s mostly about the debate over whether the Fed should or should not raise interest rates. Though the odds are small they`ll raise in September, the risk is high because many traders are long both stocks and bonds, both of which might get hit if the Fed raises rates.
So traders have been lightening up on stock exposure ahead of the Fed`s meeting next week. But selling accelerated after Paul Singer Elliott Asset Management said at CNBC`s Delivering Alpha Conference that Treasuries were not safe and were risky investments.
The yield on this 10-year Treasury shot up to the highest level since June, and even banks, which would benefit from higher rates, moved down. It was that kind of day.
Oil stocks got hit by a double whammy. On top of the general risk-off atmosphere, there was also a roughly 2 percent decline in oil. So Exxon Mobil (NYSE:XOM) settled at the lowest level since April.
Bottom line, the market roller coaster continues, and likely will continue until we get a clearer sign from the Fed next week on whether they will or will not raise rates.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: As we mentioned, one of the primary reasons for today`s market selloff was the drop in the price of oil. Domestic crude fell 3 percent to settle just below $45 a barrel. And that`s because there were some very high-profile forecasts that slashed oil demand, something you don`t want to hear in a market that`s already oversupplied.
Jackie DeAngelis has the details.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Crude oil is gravitating towards $45 a barrel ahead of the OPEC conversation later this month in Algeria. But the fundamentals point to downward pressure for crude. In the International Energy Agency`s latest monthly report, a sharp cut in its demand forecast for this year and next, citing wobbling Asian demand.
The IEA says that it now sees demand growing about 1.3 million barrels a day this year. That`s a cut of 100,000 barrels. For next year, it looks for growth of 1.2 million barrels a day, down 200,000 barrels.
In OPEC`s latest monthly report, released yesterday, the cartel conceded that non-OPEC production in 2016 was stronger than it expected. OPEC`s August output was down slightly, but still over 33 million barrels a day, and near record highs.
The take-away from these reports, production still too high, especially in light of a weakening demand picture.
JIM IURIO, TJM INSTITUTIONAL SERVICES MANAGING DIRECTOR: We know the supply. We know it`s tremendously high. And now the IEA is talking about global demand ticking down a little bit too. They have never been the greatest at predicting global demand, but it`s good enough for me, because I do see the supply picture and I do think that`s going to take over.
The one wild card could be Saudis jawboning. It doesn`t seem to me like they will start doing that until it hovers around 40 and perhaps has a 30 handle about it. So independent of that, I think we probably go lower.
DEANGELIS: One other factor consider, the Fed. Fears of a hawkish move later this year have rattled equities and the dollar is seeing some strengthen. When the dollar rises, it pressures crude.
But it`s difficult to discount what OPEC might do later in September. And so the market is seeing a little support from here until it knows for sure.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
HERERA: The biggest and most influential names in business investing in policy had some warnings for investors today as they discussed the health of the economy, interest rates, and the direction of stocks. They gathered at the Delivering Alpha Conference, presented by CNBC and Institutional Investor.
And Tyler Mathisen was there.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Today at the Delivering Alpha Conference in New York City, policy-makers and the world`s top investors came together to share ideas.
The day began with Treasury Secretary Jack Lew commenting that while he thinks there is ample time to get the TPP, the Trans-Pacific Partnership, through Congress before the end of the president`s term, he sees a less bright prospect for any progress on tax reform.
JACK LEW, TREASURY SECRETARY: The political environment is not one where it has been ripe to take up something like this. But the ideas that we have been promoting will be the foundation for action in the future.
It takes a desire on the part of Congress to do something hard. Hard things don`t happen unless there`s a real, real desire to do it.
MATHISEN: On the investment front, the head of one of the largest and most interesting hedge funds of all, Ray Dalio, of Bridgewater, said that you should set your economic expectations very low.
RAY DALIO, BRIDGEWATER ASSOCIATES: Closer to 1.5 to 2 percent. But I think that the answer to the question is really, why we are — there is only so much you can squeeze out of a debt cycle. And we`re there globally.
I think that Japan is one step ahead of Europe. And Europe is one step or two steps ahead of the United States. And the United States is probably two steps ahead of China, in terms of a limited ability to produce stimulation, to produce that kind of growth. So everybody will have a lower growth rate than we`re used to.
MATHISEN: Dalio also had some pungent remarks for the Fed. He thinks, for example, that the Fed may have its eye on the wrong ball, and he really disagrees with CEO Jamie Dimon of Chase about raising interest rates.
UNIDENTIFIED MALE: Do you think that`s wrong?
DALIO: That`s right. I think the Fed`s wrong. At this stage, the risks are so asymmetric. Like, there is no doubt that you can slow the economy, the world economy, the U.S. economy, tightening will work, OK?
And when you look at the inflation pressures, you know, there`s a global thing. And you look at the demographics. All of those things means that the risks are so much more on the downside.
MATHISEN: Investment manager Paul Singer of Elliott also was critical of the Fed and harshly so. And he said to sell one type of investment in particular.
PAUL SINGER, ELLIOTT MANAGEMENT CORP.: In 5,000-ish years of history, there have never been interest rates remotely close to where we are now. It hasn`t worked. Owning medium to long-term G-7 fixed income is a really bad idea. And by removing from your portfolio things that are really bad ideas, that`s a helpful thing. So it`s not just, hey, go buy this, go buy that, it`s sell your 30-year bonds.
MATHISEN: And finally politics was a subtext here at Delivering Alpha today. And while most panelists didn`t really want to put a stake in the ground and say either whom they favored or who they think will win the election, they do say that the election and the uncertainty surrounding it has made it a much tougher environment for investing, in part because it`s tougher for business executives to know what the policies will be going forward.
Sue, back to you.
HERERA: Ty, thanks so very much.
So what should you do as an investor in this market? Michael Farr joins us, president of Farr, Miller, and Washington.
Good to see you, Michael, as always, welcome back.
MICHAEL FARR, PRESIDENT, FARR, MILLER, & WASHINGTON: Thank you, Sue.
HERERA: Let`s start with some of the comments he we just heard, because, you know, Ray Dalio was very negative, he`s looking for much slower growth, 1.5 to 2 percent. Doesn`t think the Fed is on the right track in terms of raising interest rates. What`s your reaction to some of what you heard?
FARR: I think that he is saying we`re going to see more of what we have been seeing and I think that that`s kind of logical and rational. It`s not a horrible thing, though. I mean, if we can continue to grow 1.5, 2 percent, 2.5 percent, that doesn`t seem horrible. But I wish that the Fed would get out of the way.
I mean, just go to the sidelines and leave things alone, and give organic demand a chance to return. You know, we didn`t let markets really clear. And therefore, you know, buyers haven`t had a chance to really feel real pain. They just kind of stalled everything where it was.
So I really think that we have to see organic demand. Buyers who need to go out and buy things. Our economy is two-thirds driven by the consumer. The consumer is still on the sidelines, the Fed ought to stay there too.
HERERA: You know, a lot of the volatility we have seen between Friday and today was linked to the Fed. But I think you think it`s also linked to politics.
FARR: Absolutely. I mean, I think there was a little Fed tantrum on Friday, because we had Governor Lundgren come out and say that maybe they ought to tighten sooner, and then Tarullo came out after that and said, well, maybe not yet. And markets kind of rallied back.
But over the weekend, expectations were changed when Secretary Clinton became ill, that kind of shifted the math to Mr. Trump, and perhaps a Trump presidency now is a possibility. Markets are not pricing that in. They`re looking at the Electoral College vote. I`m not making a political comment, Sue.
But the expectations have been for a Mrs. Clinton victory. That may have changed. And that came at a time when Mr. Trump was criticizing Fed Chairman Yellen rather loudly on the airwaves. Wall Street is not used to that.
Wall street is used to a president or a presidential candidate who is going to have a back-channel conversation with the Fed chairman, not out in the open. That means that Wall Street has to adjust.
So when we saw asset classes all across the board — I mean, it was stocks, it was bonds, it was currency, it was oil, it was everything kind of went lower today, it looked to me like a big readjust.
HERERA: A readjust, OK. So do you readjust then your portfolio? What do you do if you`re a longer-term investor and anticipating, perhaps, if the election is having a bigger influence, perhaps, than the Fed or vice versa, what do you do?
FARR: Well, first, I think you have to say there will be short-term noise, and there could be short-term volatility, no matter what happens between the Fed and the presidential race.
We are near an all-time high and have been there for a while. You have to remember that markets will go down. We have gone kind of straight up since 2009 with a couple of corrections. We`re due for a correction.
Corrections are normal. But it`s really important to know what you own, own good balance sheets with solid management. And make sure that when the frenetic music stops, you`ve got a chair, because this isn`t a game you can afford to lose.
HERERA: On that note, Michael Farr, we really appreciate it.
FARR: Thanks, Sue.
HERERA: Michael is the president of Farr, Miller, and Washington.
Incomes are on the rise for the first time in eight years. The median household income rose more than 5 percent last year from the prior year. And according to the Census Bureau, that`s the largest one-year rise since at least 1967.
The median point is now more than $56,000, but that is still below levels recorded before the Great Recession. Experts say this report does show, however, that the recovery is finally being felt by middle class Americans.
Still ahead, can bad behavior at banks and other companies be changed? Some surprising findings by someone who has studied that issue.
Apple (NASDAQ:AAPL) was the only Dow component to end higher today. This after Sprint and T-Mobile said preorders for the latest iPhone were strong. The wireless carriers described the preorders as being up nearly four times previous orders, but they didn`t disclose specific sales numbers.
Apple (NASDAQ:AAPL) also launched the iOS 10, the latest version of its operating system. Shares finished the day higher by about 2.5 percent.
A $3 billion deal in the semiconductor business. Renesas Electronics signs a deal to take over Intersil (NASDAQ:ISIL), and that tops tonight`s “Market Focus.”
Japanese chip-maker Renesas Electronics will buy U.S.-based Intersil (NASDAQ:ISIL) in an all-cash deal for more than $3 billion. That merger is expected to provide Renesas with a larger presence in the automotive semiconductor space. Shares of Intersil (NASDAQ:ISIL) jumped nearly 10 percent to 21.70.
Pandora has inked licensing deals with music industry giant Sony (NYSE:SNE) and Universal (NYSE:UVV) Music Group, as well as other labels. The deals are expected to provide Pandora new advertising opportunities. In addition, Pandora said it will unveil two new streaming services by the end of this year. The shares were off $0.19 to 14.10.
JetBlue`s passenger traffic growth in August outpaced capacity. The company also said it expects unit revenue, which is a key metric, to fall less than expected in the third quarter. So shares of JetBlue rose more than 2 percent to 17.19.
Macquarie Capital cut its rating on Netflix (NASDAQ:NFLX) to underperform from neutral. Underperform, which is the equivalent of a sell rating, is rare for a cult stock like Netflix (NASDAQ:NFLX). But Macquarie expects slow international growth, be increased domestic competition, and high content costs in the short term. But the firm remains optimistic about the video streaming service over the long-term. Shares, nonetheless, fell 3 percent to 96.09.
Weight Watchers shares fell after announcing late yesterday that it would replace CEO James Chambers. Chambers will step down this month after failing to turn the diet company around as consumers chose alternative weight loss plans. Oprah Winfrey, who brought a 10 percent stake in Weight Watchers last year, will help choose the next CEO. Shares fell 6.5 percent to $9.68.
Warren Buffett`s Berkshire Hathaway (NYSE:BRK.A) is being sued over an alleged scheme dealing with workers` compensation.
Morgan Brennan has more.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Warren Buffett`s Berkshire Hathaway (NYSE:BRK.A) coming under fire after one of its insurance units was accused of running a reverse Ponzi scheme. Breakaway Courier (NASDAQ:CRRC) Systems is suing the conglomerate and its Applied Underwriters company in state supreme court in Manhattan.
The bicycle courier alleging the company is using an illegal scheme that targeted New York consumers to steal workers` compensation premiums. In a court filing, Breakaway accusing it of “siphoning” premiums and then diverting them to unlicensed out-of-state insurers.
The move, it argues, amounts to a reverse Ponzi scheme with employers looking to buy affordable policies but instead purchasing expensive reinsurance, reinsurance that requires those employers ultimately cover each other`s losses.
The lawsuit seeks at least $18 million in damages, plus a declaration that these reinsurance agreements are void and against public policy. The suit coming just days after Applied Underwriters and its Berkshire affiliate California Insurance Co agreed to stop selling disputed worker`s compensation policies in the Golden State.
Neither Berkshire Hathaway (NYSE:BRK.A) nor Applied Underwriters have responded to requests for comment. But for Berkshire, which also owns Geico and General Re, insurance is at the core of its operations, providing upfront capital from premiums that the conglomerate can then invest for its own benefit. That so-called insurance float was $90 billion last quarter.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
HERERA: Wells Fargo`s CEO is defending his bank and says the company is working to stamp out the bad behavior that resulted in the creation of fake customer accounts. CEO John Stumpf said Wells Fargo (NYSE:WFC) will end product sales goals at the end of the year in order to help rebuild consumer confidence. And he also issued this apology on CNBC today.
JOHN STUMPF, CEO, WELLS FARGO: If I could just — before we start, or as I start, I want to tell you, your audience, and our customers that we are sorry. We deeply regret any situation where a customer got a product they did not request. That has — there is nothing in our culture, nothing in our vision of values that would support that.
HERERA: But the pressure on Wells Fargo (NYSE:WFC) is far from over. The Senate Banking Committee is scheduled to host a hearing next week on that issue. Mr. Stumpf will be invited to testify. And today JPMorgan (NYSE:JPM) topped Wells Fargo (NYSE:WFC) as the biggest U.S. bank by market cap. Shares of Wells Fargo (NYSE:WFC) fell today more than 3 percent.
And today Treasury Secretary Jack Lew said the behavior that we saw at Wells Fargo (NYSE:WFC) has to stop. And that the financial system is dangerous if there aren`t protections in place.
LEW: What I`ve seen from what they have done is, it`s bad behavior. They were correct to take action against. And how that flows through in terms of next consequences is going to depend on the facts of the case. What I can tell you is, there is a lot of talk in Washington these days about rolling back Dodd-Frank, about rolling back the law, changing the law that created the agency that uncovered and took action against this.
This ought to be a moment when people stop and remember how dangerous the system is when you don`t have the proper protections in place. This is something that our watchdogs found. If they weren`t there, they would still be going on.
HERERA: Here to talk more about corporate fraud in general and how government officials address it is Robert Lande. He`s the venerable professor of law at the University of Baltimore`s School of Law.
Professor, welcome. Nice to have you here.
ROBERT LANDE, UNIVERSITY OF BALTIMORE SCHOOL OF LAW: Thank you so much for having me.
HERERA: I`d like to address Wells Fargo (NYSE:WFC) in just a second, but maybe broaden out the discussion. First all, to talk about corporate America in general, and not only the consequences of fraud, but how frequent do you think we see fraud on a wide scale level in corporate America?
LANDE: It`s impossible to say. In so many areas, sanctions are simply not large enough, and we need whistleblower statutes, we need bounty statues to give people incentive to turn in corporate criminals. Otherwise they face retaliation at the company at which they work. If you really want to root out corporate crimes, you have to give people an incentive to turn them in.
HERERA: You know, they also sometimes — people who do break the law in organizations are glorified sometimes for basically taking one for the company, if you will, for lack of a better phrase. Do you agree with that or not?
LANDE: Absolutely. And in fact, in the antitrust area, my colleague and I searched to see what happened to every corporate official that was imprisoned for price-fixing during a 15-year period. And we found that after they were released from prison, about 25 percent went back to the same company at which they were caught fixing prices. And another 25 percent went to another company in the same cartel. Sometimes they even got a promotion.
So the mentality was, you took one for the team, the company made a profit, paid a small fine, and now we`re rewarding you by giving you your old job back or sometimes maybe even a promotion.
HERERA: Certainly not reassuring for consumers to hear that kind of message. In Wells Fargo`s case, a watchdog caught this type of behavior. Do we need watchdogs for other types of industries, as well? Do we have enough of them?
LANDE: No, we don`t. One of the things that we have done over the last decade or more is to slash the watchdog`s budget, the antitrust division, the Federal Trade Commission, the Securities and Exchange Commission, they`ve all had their budgets slashed to the bone.
Some of these agencies, I don`t want to denigrate the people, they`re wonderful people, working as hard as possible, but there ought to be twice as many of them. You can`t expect them to find that much corporate fraud unless they have adequate resources, and most of them just don`t, thanks to budget cuts that have been going on for well over a decade.
HERERA: Do companies need to reassess their corporate culture and perhaps communicate the tenets of their corporate culture to employees more often or in a more exacting way?
LANDE: Well, look, in theory, yes. But in so many areas of the law, and I can talk more detail about antitrust, if you`d like, the penalties are far too light. So the corporate culture overwhelmingly is to make a profit. I mean, that`s what they`re supposed to be. And if the fine for breaking the law is a parking ticket, then the incentive of the corporation is, go ahead, break the law, if you get caught, you might have to go to prison for a year or so. But don`t worry, we`ll give you a job after you come out.
But the corporation, as a whole, is going to make a profit. So when you`re asking the corporation to change corporate culture, why should they change corporate culture? They`re making a profit when people violate the law.
HERERA: All right. Stronger laws are needed. Thank you, Professor. Appreciate it.
LANDE: Thank you, thank you so much.
HERERA: Professor Robert Land at the University of Baltimore.
Coming up next, why the upcoming election is giving small business owners a bit of heartburn.
Mylan (NASDAQ:MYL) has the second-highest executive compensation among all U.S. drug and biotech firms. And that has been the case for the past five years. According to analysis by The Wall Street Journal, Mylan`s big pay packages are unusual because of its comparatively small size in the drug industry. Mylan (NASDAQ:MYL) paid more than $290 million to its top five executives over five years, outpacing bigger rivals, J&J, Pfizer (NYSE:PFE), Bristol-Myers Squibb (NYSE:BMY). Mylan (NASDAQ:MYL) has come under fire for hiking the price of its anti-allergy Epipen.
With the presidential election less than two months away, small business remains optimistic about the economy. But it`s the political uncertainty that has main street growing increasingly wary.
Kate Rogers (NYSE:ROG) joins us now with a look at that.
Kate, you have another report from the National Federation that follows small businesses and main street businesses. What did it say?
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: So, it actually found political uncertainty among small business owners hit an all-time high for this report. Forty years we`ve been studying this — they have been studying this. And this is their all-time high of 38 percent right now.
It continues to be the number two reason that small companies are citing for their lack of expansion right now. And to put that in context, at this time last year, it was at just 20 percent.
You might wonder why political uncertainty is on the rise. We know who the candidates are. We know what their platforms are, right?
HERERA: We know what their platforms are, but some of the specifics have been missing on key issues…
ROGERS: Absolutely. Specifics are missing, and you know what else? Their chief economist Bill Dunkelberg pointed out to me they`re closer than ever in the polls. So small business owners just quite literally don`t know who is going to win. So that is causing uncertainty to spike.
HERERA: Now Ms. Clinton fell ill, obviously, and that has been certainly in the press and in the headlines over the weekend. Is that something that you think is going to play out on main street? Do you think it will increase the uncertainty? Because the poll numbers are changing because of that particular incident.
ROGERS: Absolutely. I asked Dunkelberg that exact question, because it`s all we`ve been talking about in the media, it seems to be a big misstep for her campaign not disclosing that pneumonia diagnosis earlier.
He actually said he thinks it will be a non-issue because people who are for Secretary Clinton, that won`t sway their vote, people who are against her, it won`t sway their vote. And he believes that the debates will have more of an impact on independents. So we`ll have to wait and see.
HERERA: And they really are interested in health care, correct?
HERERA: And wage issues?
ROGERS: Yes, absolutely. Health care, wages. Their top three concerns in this report, as usual. Taxes coming in number one. Regulations and red tape in number two. And then the third top issue, quality of labor.
Small companies say that they are not able to find skilled workers. So that`s going to be something that continues to impact…
HERERA: And wages have been rising a little bit to attract those more qualified workers. But there is still a shortage.
ROGERS: Yes, absolutely. Wage issue is something that hits main street across the board when we see big companies continue to hike their wages, that puts more pressure on smaller companies to do the same.
Every small business, whether they pay it or not, pay high wages or not, they all say that they want to do it, it`s just a matter of pressure and a matter of finding the right workers.
HERERA: OK. Thank you so much, Kate.
ROGERS: Thank you.
HERERA: Kate Rogers (NYSE:ROG) for us.
Before we go right now, let`s take a look at the final numbers on Wall Street. It wasn`t really all that pretty today. The Dow dropped 258 points to 18,066. NASDAQ declined 56. S&P 500 down 32.
That does it tonight for us. I`m Sue Herrera. Thanks for watching. Have a great evening. We`ll see you tomorrow.
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) 2016 CNBC, Inc.