Transcript: Nightly Business Report – October 5, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Trading tips. The Supreme Court hears an insider trading case for the first time in two decades and the outcome could change the way cases are prosecuted.

Classified secrets. The FBI arrests a National Security Agency contractor on charges he stole top-secret documents. And shares of the firm he works for fell sharply.

Know your options. With all of the talk of fake accounts and record ATM fees, what alternatives do you have to a traditional bank?

Those stories and more, tonight on NIGHTLY BUSINESS REPROT for Wednesday, October 5th.

Good evening, everyone. I’m Sue Herera. Tyler Mathisen is on assignment.

A recipe for gains. Two things happened today that put investors in a buying mood and lifted the major indexes for the first time in the fourth quarter. First, oil prices settled oh so close to $50 a barrel. Then, there was a spade of solid economic reports that reversed fears that the economy hit a wall in August. More on both of those stories in a moment.

First, here are the closing numbers. The Dow Jones Industrial Average climbed 112 points to 18,281. The NASDAQ added 26 and the S&P 500 was up 9.

Let’s talk about oil first, which has its sights set on $50 a barrel. The price of domestic crude hit its highest level since June, helped by a surprise drawdown in crude inventories. The commodities settled up more than 2 percent to $49.83. But will those prices hold at these levels?

Jackie DeAngelis takes a look.


JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The price of crude oil up about 12 percent in the last month. A tentative deal from OPEC last week to freeze product near record levels, boosting prices. While analysts feel that capping production at 32.5 million barrels won’t necessarily impact the supply/demand dynamics, they do think it’s an important step, a sign, perhaps, that Saudi Arabia is admitting that lower for longer has hurt the bottom line.

But as crude flirts with $50, many questions remain. Will the OPEC deal be executed? And will it matter if non-OPEC producers continue to pump?

SCOTT NATIONS, NATIONSSHARES PRES. AND CIO: Right now, we see crude oil, at least the December contract, trading about $50, because of OPEC’s tentative agreement to cut introduction as much as 700,000 barrels a day. But that’s not going to be enough to keep us here, particularly in light of the fact that both Nigeria and Libya are ramping up full production.

We know that there is tremendous supply available out of OPEC. We also know that U.S. shale producers are going to ramp up and that there’s tremendous supply here in Cushing, Oklahoma. Production has got storage capacity there almost to its limits, as well the fact that we are now seeing traders use offshore or floating storage.

DEANGELIS: Then, there is the other side of the equation, demand. Oil producers are hoping consumers around the world will spend more and boost consumption, even though oil demand often tips at this time of year.

NATIONS: Absent some sort of magic turn-around in the industrial base in the United States, and in China, I would expect that crude oil would fall back below $50.

If OPEC refuses or fails to reach some sort of definitive agreement in November, we would revisit $40 a barrel. I would expect that for 2017, we would spend most of the year between $43.50.

DEANGELIS: And news today of a new oil reserve discovery in Alaska that could take state’s production up by 40 percent in the future, showing that a resource that the world once feared was scarce is actually in abundant supply.



HERERA: And now to the economy. Private employers continue to hire at a solid pace in September, though growth slowed from recent months. According to the payroll processor, ADP, 154,000 workers were added to payrolls. That was the smallest gain, though, since April.

And the services sector, which makes up the majority of the U.S. economy, accelerated in September. The ISM nonmanufacturing index rose more than expected to an 11-month high, and helped alleviate some of the recent anxiety in the market.

Also helping to lessen the economic nervousness was an increase in new orders for goods made at U.S. factories. The Commerce Department reported a second straight monthly increase.

And with just two days to go until the release of the monthly employment report, investors have a lot to pay attention to, including the Fed.

Steve Liesman tells us why the economy is in focus.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Strong numbers from the service sector and better factory orders got the market’s attention, along with some hawkish Fed comments. The data reverse fears that the economy hit a wall in August, and the rebound would appear to put the Fed back on track toward that elusive quarter-point increase that the market has awaited all year.

MICHELLE MEYER, BANK OF AMERICA MERRILL LYNCH: If the data continues to improve, if we get a decent jobs number on Friday, the release in the ISM survey I think helps a lot. And if you don’t see some sort move in financial conditions, that’s quite adverse, I think the Fed is clearly setting up for a December hike.

LIESMAN: Wall Street looks for gains of 170,000 for jobs to be reported Friday for the month of September. And the unemployment rate to remain unchanged at 4.9 percent. Curiously, that unchanged unemployment rate, it could actually be a good sign for the jobs market.

MARK ZANDI, MOODY’S ANALYTIC: We’ve got some folks that stepped out of work force that are now coming back in as job opportunities become more available. And that’s why the unemployment rate is not falling. We’re getting stronger labor force growth.

LIESMAN: Meanwhile, a bunch of hawkish members of the Federal Reserve spoke and their message was hawkish.

Cleveland Fed president Loretta Mester said the case would remain, quote, “compelling to raise rates in November if data comes in as expected.” Richmond Fed president Jeff Lacker said he would have dissented in September if he had the vote because interest rates need to rise. Meanwhile, Chicago Fed President Charlie Evans, a known dove, said he would be, quote, “fine” with the December rate hike if data stay firm.

Friday’s report is the last jobs number before the Fed’s November meeting. Two days after that meeting comes another jobs report. Six days later, a presidential election that many believe is both consequential and uncertain enough to stay the Fed’s hand until December.



HERERA: The International Monetary Fund is worried about the world’s pile of debt that now totals a record $152 trillion. That is 225 percent of world’s gross domestic product. According to the IMF, slow global growth is making it more difficult to pay off the obligation which it says is a risk to financial stability.

In Washington, the Supreme Court heard an insider trading case, which seeks to clarify a very murky area of securities law.

And as Hampton Pearson reports, the eventual outcome could change the way cases are prosecuted.


HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The high court is being asked to overturn the conviction of an Illinois man who made more than $1.5 million trading on nonpublic information about future health care deals. The source was his brother in law, an investment banker at Citigroup (NYSE:C) Global Markets in New York who actually passed on the information through another relative. It’s the most important insider trading case in 20 years.

VINCENT “TRACE” SCHMELTZ, SECURITIES TRIAL LAWYER: I think this is a ground breaking opportunity for the court to take an area of law that is absolutely nebulous and add real clarity to it.

PEARSON: During argument today, most justices said the insider trading violates the law, even if the person supplying the secrets doesn’t receive anything of value in return. Said Justice Anthony Kennedy, “You certainly benefit from giving to your family. It benefits you by making your family more secure.”

A similar sentiment from Justice Stephen Breyer. “Helping a close family member,” he said, “is like helping yourself.”

But the justices also challenged the government’s approach, which urged a focus on the business purpose of the insider tipster. The securities legal community is closely watching the outcome of this case.

SCHMELTZ: At the end of the day, you want clarity, you want to know what you can and can’t do. And you certainly don’t want to be in a position where the government can prosecute you criminal for something.

PEARSON: When the high court rules, it could set new legal standards for the criminal prosecution of insider trading, which would change the ground rules for both prosecutors and defense attorneys in the future.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson at the Supreme Court.


HERERA: Two congressmen today confirmed a story we told you about last week that, Mylan (NASDAQ:MYL), the maker of EpiPens, overcharged Medicaid for two decades. The lawmakers say a letter from the Centers for Medicare and Medicaid services backs their view, that EpiPens have been misclassified. That misclassification gave Medicaid a lower rebate than it otherwise would have gotten.

Still ahead, with mortgage rates still near historic lows, why have some still not refinance?


HERERA: As Hurricane Matthew heads towards Florida, a number of airlines including American, Delta and JetBlue are waiving their change fees. Some airlines have also started cancelling flights. The change fee waivers that allow customers to alter their itineraries without paying addition charges cover airports from Florida to North Carolina — though details do change by carrier.

A National Security Agency contractor was recently arrested in a story that’s reminiscent of Edward Snowden. The Department of Justice says this contractor is being investigated for potentially stealing and disclosing highly classified computer codes. The contractor worked for consulting firm Booz Allen Hamilton, the same consulting firm that employed Snowden. Shares of Booz Allen Hamilton fell in trading today.

Eamon Javers has the details from a cyber security summit in Boston.


EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: “The New York Times (NYSE:NYT)” breaking the story earlier this afternoon that the FBI had arrested Harold Thomas Martin III of Glen Burnie, Maryland, accusing him of misappropriating classified information, keeping some of that classified information at his house, in violation of rules of the United States government intelligence community.

Martin is a contractor for the NSA. He worked for Booz Allen Hamilton, the intelligence contractor. Booze Allen has put out a statement saying they have since fired him upon learning of his arrest. We’re getting a little bit more detail throughout the day today of exactly what we know here.

And here in Cambridge, Massachusetts, our own Andrew Ross Sorkin had the opportunity to talk to Jonathan Carlin. He’s the assistant attorney general for national security and he gave us a little bit of a sense of exactly what the charges are here.

JOHN CARLIN, ASST. ATTORNEY GENERAL FOR NAT’L SECURITY: I’m going to be confined to what we have charged and is what we have charged here is back on August 29th, we charged an individual with theft of government secrets, including classified information. And we take that type of conduct very, very seriously. These are allegations, but I think it’s reflected in the charges.

JAVERS: David Sanger, the reporter for “The New York Times (NYSE:NYT)” who broke this story earlier this afternoon, is also here in Cambridge, Massachusetts, and he gave us a little bit more detail about what the information was here that was allegedly mishandled.

DAVID SANGER, THE NEW YORK TIMES: It looks like Mr. Martin’s trove is mostly source code. It is the computer code used by the NSA to break into foreign computer systems, put in what are called implants that enable them to do surveillance, to do cyber attacks and so forth.

JAVERS: So many questions here about why Mr. Martin would have taken this information and whether or t he was working with any foreign intelligence agencies, in terms of taking that information out of Booze Allen and selling it or transferring it to other agencies around the world. We’ll learn more in the coming days, but there has been speculation for years now that there was a second Edward Snowden out there, another person leaking information about the NSA and its activities. No clear answer yet as to whether this is that person or not.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers in Cambridge, Massachusetts.


HERERA: There is also widespread concern among law enforcement that Russian officials may be trying to undermine confidence in the U.S. electoral system. Arizona was one of the states that saw its voter database breached. But today, Arizona’s secretary of state, Michele Reagan, said they are doing what they can to make sure it’s a clean election.


MICHELE REAGAN (R), ARIZONA SECRETARY OF STATE: What we’re doing in Arizona is we’re instituting such security protocols like multifactor authentication, different ways to log in to our systems, making sure that all users have new passwords, stronger passwords. That you can’t enter things into the entry bar that perhaps are symbols, because we know that’s how hack enter in sequel injections into programs.


HERERA: Reagan also emphasized that the hackers only accessed voter registration data, not a mechanism to tally votes.

And as we have been reporting, there we hacking attempts on election systems in 20 states. That was far more than the Department of Homeland Security previously. But how safe is your vote at the machine? One top security group thinks there is a big security gap.

Andrea Day has the story.


SAMIR KAPURIA, SYMANTEC SENIOR VICE PRESIDENT OF CYBERSECURITY: We have something that’s so critical to our country that hasn’t had commensurate security applied to it.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Samir Kapuria and his group at the cyber security company Symantec (NASDAQ:SYMC) decided to find out just how easy it would to hack in and manipulate the election system.

The first step, the team tracked down an official voting machine for sale online.

KAPURIA: It literally took a couple days and we were able to then reverse engineer all of the stuff on that system. What was fascinating is the last election’s information was still on those hard drives.

DAY: And that’s not all. They were easily able to reprogram the card voters used to cast their ballot. It could be programmed to look like the same person voted over and over. And without a paper backup, that could damage the results.

KAPURIA: There isn’t a recourse. That’s why it’s such a risk. It could create fear, uncertainty or doubt in the whole election process.

DAY: And he says another concern is the USB-type card that collects data from the machine.

KAPURIA: All it is, is something that somebody physically carries from one place to and that creates a gap in security. This could one to stuff the digital ballot in one direction or another. The likelihood of somebody going to all of those different voting machines at the same time and manipulating each of those is very low.

But if malware were to find its way into one part of this ecosystem, it could do far spreading damage.

DAY: Congressman Hank Johnson sponsored legislation to increase voting machine security.

REP. HANK JOHNSON (D), GEORGIA: The act would mandate that the Department of Homeland Security classify voting systems as critical infrastructure.

DAY: Already, 25 states have asked the Department of Homeland Security for cyber security help. Homeland Security posted this statement. We have confidence in the overall integrity of our electoral system. Nevertheless, we must face the reality that cyber intrusions and attacks in this country are increasingly sophisticated.

And Kapurias big concern isn’t so much about rigging the election, but creating doubt in the system. His suggestion: not giving up on paper ballots. So, if there is an attack, there is a very clear record.

For security reasons, Symantec (NASDAQ:SYMC) wouldn’t tell us who makes the voting machine, just that the machines are still in use.



HERERA: Customers lifted a glass to Constellation Brands (NYSE:STZ) and it raised its guidance. That’s where we begin tonight’s “Market Focus”.

The alcoholic beverage company reported higher than expected earnings and revenue with beer sales rising 20 percent and wine and spirits up 12 percent. Separately, Constellation will acquire a whiskey distillery for about $160 million. Shares were up more than 1.5 percent to $168.60.

Salesforce may be interested in taking over Twitter. “The Wall Street Journal” says Salesforce CEO Marc Benioff has expressed interest in the social media company, which is expected to receive bids this week.

But Benioff says slow down. When it comes to acquisitions, he’s all about due diligence.


MARC BENIOFF, SALESFORCE CEO: When it comes to Twitter, you have to look at it like this. You know, number one, we look at everything. It’s in our interest to look at everything. We have to go deep on everything. We have to understand what is possible for our shareholders, what isn’t.

But in the scheme of things, if you look back at my track record as a CEO, I think you’ll find that while I look at a lot of things, actually pass on most things.


HERERA: Still, Salesforce shares fell just about 6 percent to $68.42. But Twitter rose nearly 6 percent to $24.87.

Yum Brands (NYSE:YUM) posted lower than expected profit and sales. The owner of restaurant chains Pizza Hut and KFC said the results were hurt by weakness in its China division, which is expected to be spun off later this month. Shares of Yum Brands (NYSE:YUM) initially fell in extended hours and ended the regular session down more than 1 1/2 percent to $88.62.

Shares of biotech company Alnylan was just about sliced in half in late day trading. This after a discontinued phase three program for its experimental drug to treat a rare type of heart disease. They suspended it because of side effects. This was the second most advanced drug in the company’s pipeline. So, shares of the company initially fell more than 45 percent in after-hours trading.

Mortgage applications rebounded following two straight weeks of declines. According to the Mortgage Bankers Association, they rose nearly 3 percent from the prior week, as borrowers moved to take advantage of low mortgage rates. And much of the home mortgage activity was due to refinancings and not new purchases. But there are still some homeowners who haven’t taken advantage of these historically low rates and are paying a rate above 5 percent.

Diana Olick takes a look at why.


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Positive economic news on the home front, just made homes a little more expensive. As investors bailed out of the bond market, the yield on the ten-year treasury, which mortgage rates loosely follow, rose to the highest level in weeks. So, the average contract interest rate on the popular 30-year fixed is now around 3.5 percent, which is about a quarter of a percentage point higher than it was last week. Last week, rates dipped a little on fears in the European banking community.

But Matthew Graham at Mortgage News Daily says the potential for a European taper tantrum like here in 2013 will inevitably create an uptrend in rates which may have already started.

Which begs the question, if rates had nowhere to go but up, why are one in four borrowers with rates above 5 percent not refinancing?

Core Logic ran the numbers and found that a lot of the loans are either seriously delinquent or the buyers had once been delinquent. So, they wouldn’t qualify for a refi at today’s low rates.

Another chunk of borrowers have so little balance left on their loans that a refi wouldn’t really be worth it and still others have loans owned by private investors making a refi more difficult. That leaves 13 percent of eligible borrowers with rates above 5 percent that could save a lot on a monthly payment. The question, of course, is, why don’t they?

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


HERERA: And coming up, if you don’t want to use a traditional bank, what are some other options?


HERERA: The world’s largest asset management firm is cutting fees for some of its exchange-traded funds, otherwise known as ETFs. That decision will lower expenses or match those offered by Vanguard, known for its low-cost products. Blackrock believes that low-cost funds will be a bigger staple within retirement accounts in the years to come, because of new rules from the White House that require brokers to put the interest of savers ahead of their own.

Well, you probably know this, but you’re paying a lot more in ATM fees. According to Bankrate, the average fee for using an out of network cash machine is now $4.57, that’s the highest rate in ten years. Bankrate also found that Phoenix had had the highest ATM fee at $5.07. San Francisco the lowest at $3.90.

Chicago City Council is suspending business with Wells Fargo (NYSE:WFC) for one year. That ban includes bond underwriting, brokerage and trustee services that the bank provides to that city. Wells Fargo (NYSE:WFC) has earned about $20 million in fees from Chicago, from the year 2005.

But the decision comes in the wake of the fake account scandal, and it follows similar moves from the treasurers of Illinois and California. And according to “USA Today,” Warren Buffett, Wells Fargo (NYSE:WFC) single largest shareholder has lost roughly $3 billion on his holdings in the bank since that scandal intensified last month.

Federal regulators issuing new rules for the fast-growing prepaid de card industry. Issuers will now have to provide user with basic account information like balances, free of charge. Protection for lost or stolen cards will be expanded, and fees will also have to be more closely disclosed. Prepaid debit cards are used as an alternative to traditional checking accounts, particularly for those who don’t have bank accounts.

According to Pew Charitable Trust, about 23 million individual use them regularly. $65 billion was loaded on to them in 2012, up from less than $1 billion in 2003.

And for those of you disappointed with record high ATM fees at some of the traditional banks, and that recent fake account scandal at Wells Fargo (NYSE:WFC), Tim Maurer has some other banking alternatives for you to consider. He’s director of personal finance at BAM Alliance and he joins us now to talk more about that.

Good to see you, Tim. Welcome back.

TIM MAURER, BAM ALLIANCE DIR., PERSONAL FINANCE: You too, Sue. Thank you very much.

HERERA: I can understand how people would be frustrate with the big banks or the brick and mortar banks just in general, given the ATM fees that we just described. If, indeed, you are either disgruntled or your trust, perhaps, has been eroded a little bit by the Wells Fargo (NYSE:WFC) scandal, what are some alternatives?

MAURER: Well, Sue, the first alternative I’ll point out is one I found, thankfully, nine years ago. You know it’s been nine years since I’ve paid an ATM fee, because I use an online bank that does not have brick and mortar. It does not have the infrastructure that it needs to lower interest rates and raise fees.

And as a result of that, I actually get a higher rate of interest on my checking account, higher than most big banks savings account rates, and no matter what ATM I go to, anywhere in the country, they repay all of my ATM fees. Last month, I got $23.50 put directly in my checking account for ATM fees that were taken out throughout the course of the month.

HERERA: OK. So that’s one alternative. You are eligible to belong to a credit union, you say that also might be something to consider.

MAURER: Well, and it’s an option that I still take advantage of, because there a occasions, at least a few times a year, is where I might have cash that I want to be able to deposit at a bank and then move it electronically in my online bank. So, utilizing a credit union, having that relationship, can always be a good thing anyway, in case you need a personal loan, like, say, an automobile loan, they tend to have lower rates to begin with. But that’s another good option.

HERERA: Are the guarantees as good in terms of the safety of your money, with either online or with the credit union option?

MAURER: Well, they have to be, Sue. Otherwise, I don’t recommend doing it. With all online banks, I would only look at banks whose accounts have the FDIC protection, the same protection that all the big banks have, for sure.

HERERA: Some of the other options that you gave us, Tim, I found interesting, I’m not sure how many people would consider them, but treasury money market accounts, if you’re really worried about the security of your money.

MAURER: Well, yes. And in this case, it’s especial important. Say you’ve got a ton of cash that you want to put on the sidelines for an extended period of time. Where you might have enough money that it’s going to be in excess of the $250,000 FDIC limitation, then you might especially want to utilize a money market inside of a brokerage account. But I do recommend only using the U.S. treasury money market.

HERERA: I hope to —

MAURER: To ensure —

HERERA: Having a lot of money on the sidelines.

And very quickly, brokered CDs, Tim. I’ve got about 30 seconds left.

MAURER: Sure. CDs of any sort, as long as they’re FDIC insured are a great bet. In a brokerage account, you can do brokered CDs that do have that same level of protection and buy from numerous banks to max out your FDIC coverage.

HERERA: All right. Tim, thanks as always. Appreciate it.

MAURER: Thank you, Sue.

HERERA: Tim Maurer with BAM Alliance.

And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. We’ll see you tomorrow.


Nightly Business Report transcripts and video are available on-line post broadcast at 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.


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