Transcript: Thursday, August 15. 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you by —

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Down, down, down.
Stocks fell sharply today. There are real concerns about the consumer and
about corporate America. Has something changed in the economy? And what
does it mean for your money?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Wal-Mart (NYSE:WMT)
warns. The world`s largest retailer says shoppers aren`t shopping,
spenders aren`t spending, and profits won`t be what was predicted. What
the Wal-Mart`s woes say about the broader economy?

GHARIB: And the housing disconnect. Home builders are more
optimistic than they`ve been in eight years. So, why have their stocks
falling so much until today?

We`ll have all that and more tonight on NIGHTLY BUSINESS REPORT for
this Thursday, August 15th.

MATHISEN: Good evening, everyone. And welcome.

That drip, drip, drip of sliding stock prices turned into something
more today, something more like a torrent. U.S. shares fell the most since
June, albeit on light volume, as investors digested troublesome forecasts
from bellwethers Cisco (NASDAQ:CSCO) and Wal-Mart (NYSE:WMT). They also
seem to conclude that favorable news about unemployment claims means the
Federal Reserve will reduce stimulus sooner rather than later.

The Dow now sits 546 points or 3.5 percent below its all-time high hit
on August 2. The S&P 500 is 48 points or 2.8 percent below its peak also
set that day. Now, today`s selloff accounts for half of those declines
from the all-time highs. The Dow down 225 points, the NASDAQ lost 63 and
the S&P 500 lower by 24.

But it wasn`t just stocks that fell today. Bond prices tumbled, too,
largely on those Fed fears. The yield on the 10-year U.S. Treasury bond
jumped at 2.77 percent, it`s highest in two years.

Also moving up today were gold prices. They spiked more than 2
percent, settling above $1,360 an ounce as the dollar fell against the euro
and the yen.

As Tyler just mentioned, the news from Wal-Mart (NYSE:WMT) today gave
investors the jitters. Its earnings missed analyst estimates and it
lowered its outlook for the rest of the year. But what was most troubling,
the world`s largest retailer said consumer spending isn`t as strong as we
thought. American consumers are turning cautious.

The grim assessment about the consumer mood added to worries about
similar earnings reports from Macy`s (NYSE:M) yesterday.

Courtney Reagan has more.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It doesn`t get much bigger than Wal-Mart (NYSE:WMT). When the world`s
largest retailer says consumers in the U.S. and around the globe are
spending more cautiously, the market pays attention, and the bigger concern
is that the discount retailer doesn`t see it abating any time soon.

Wal-Mart`s second quarter profit comes in line with Wall Street`s
expectations, but a short fall in sales. The discount retailer also
slashing full-year forecasts for both earnings and sales. Traffic in sales
at stores open at least a year fell compared to last year — though, the
company said both improved throughout the quarter.

Wal-Mart (NYSE:WMT) executives blaming mostly the 2 percent payroll
tax hike that hit most Americans earlier this year for the reluctant to
spend.

JOE FELDMAN, TELSEY ADVISORY GROUP: I think you`re kind of seeing a
bit of a split economy right now where that lower income consumer has been
under a lot of pressure that mid to higher end. Certainly, the higher end,
maybe not middle, but the higher end is doing OK.

REAGAN (on camera): On a media call, Wal-Mart`s CFO said indications
for back-to-school and apparel and home goods seem to be really good,
encouraging, then tempered excitement by adding it`s too early to give a
read overall.

(voice-over): Still, a number of analysts say it depends on the
product category and brand, noting consumers are spending on bigger ticket
goods like cars and home furnishings, though trading down on smaller
purchases.

PATRICK MCKEEVER, MKM PARTNERS: The consumer has more capacity to
spend today than the consumer had a year ago. They are spending it more
selectively.

FELDMAN: Even as something as simple as diapers, you know, not
necessarily buying the brand of diaper, buying the more basic staples one,
maybe using some of that savings to buy something else.

REAGAN: While this round of retail earnings reflects a consumer
feeling the pinch from higher payroll taxes, a number of economists believe
consumers have begun to get over it and think spending has begun to pick
up. Retailers certainly hope that`s true, after all, Christmas is just 131
days away.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Well, shares of the nation`s biggest home builders bucked
the market slide today. Some of the best known builders, Pulte, D.R.
Horton (NYSE:DHI), Lennar (NYSE:LEN) and KB Home (NYSE:KBH) all spiked 5
percent higher on a jump in builder sentiment and a sharp drop in
foreclosures in July.

But that`s today. Those same stocks are currently in bear market
territory, off 20 percent or more from their peaks. Now, with mortgage
rates creeping higher, consumers possibly turning cautious, there is
concern that those home builder stocks which had been on fire even before
the housing recovery really took root may have been over bought.

Diana Olick has our story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
nation`s home builders are feeling good about their business, but you would
never know it from the stocks. Officially in a bear market, home builder
stocks are down over 20 percent from their highs in May. Big names like
D.R. Horton (NYSE:DHI) now at a one-year low, and Pulte being downgraded by
RBC, blame it on rising interest rates.

ROBERT WETENHALL, RBC CAPITAL MARKETS ANALYST: We`re absolutely
concerned about the rise in interest rates. The Feds` actions to taper in
October will probably make things worse, not better.

OLICK: Rising rates are not taking much out of builder sentiment,
which is up three points on the NHAB`s monthly index for August. That`s
the fourth straight month of gain. Builder confidence now at an eight-year
high. Of the three index components, current sales and future sales
expectations are both up, only buyer traffic is lagging unchanged and still
in negative territory.

So, why the disconnect between the builders and their stocks?

WETENHALL: These were companies that were literally on the ropes
three years ago, four years ago. They are back in the clover. They`ve
made some remarkable strides in the short period of time but relative to
investor expectations and what people believe the earnings power of these
companies, they are paying less for the same dollar of earnings based on
what they believe is going to transpire in the back part of the year.

OLICK: Builders say their confidence is getting a boost from the very
limited supply of homes for sale.

RALP MITCHELL, MITCHELL BUILDERS: There is a shortage of product.
People want to move in but they don`t have anything to buy. The existing
product is not there. So we`re trying to build new for them and it`s just
getting very good. I mean, all of a sudden, the houses are moving up in
price and getting enough interest to buy.

OLICK (on camera): Much of the builder confidence revolves around the
lots they`ve bought and permits and starts, because that`s their future
pay, but as one analyst notes, just because they build it doesn`t mean the
buyers will come.

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

(END VIDEOTAPE)

GHARIB: So, what do all these bulletins from housing, the consumer
and job market mean for stocks?

We turn to Jim Paulson for his thoughts. He`s the chief investment
officer at Wells Capital Management.

Hi, Jim. Nice to have you.

JIM PAULSON, WELLS CAPITAL MANAGEMENT: Good to see you, Susie.

GHARIB: A lot of negativity today in the markets. What`s your take
on today`s market action?

PAULSON: Well, you know, I think a lot of it, Susie, we`re digesting
a number of big things after a huge market move. That`s one of the things
we`re sort of digesting as we made such a big move off last fall lows in
the stock market overall. We`ve got much higher valuations than we used to
have and we`re kind of giving us investors a pause for a moment.

In audition, we`ve had just a dramatic change in long-term interest
rates. You`re talking about mortgage rates going up, the 10-year treasury
almost hitting 280 today. It was 160 not that long ago. And then, of
course, we`re going to face Feds starting to taper or to slow down
quantitative easing here very soon.

These are big events and I think it`s led to a little market
indigestion, if you will. I think that may continue. I think the market
is in a trading range for the rest of the year, but I also think we`re
going to get through it.

And as we come out the other end, maybe at the end of this year, I
think we`re going to be stronger for it. We`re going to find out that both
the economy and the stock market can stand on its own two feet without as
much support from the Fed and even in the face of higher yields. That
might put up greater confidence to drive us higher next year.

MATHISEN: So trading range for the rest of the year which implies I
guess that you think perhaps the year`s highs have been hit or maybe will
go back and go above them.

But let me ask you this. The news we`re digesting today — on the one
hand, Cisco`s report and forecast last night, on the other, Wal-Mart
(NYSE:WMT) today — suggests there may be under lying issues having to do
with capital spending, the appetite of businesses to buy equipment, and on
the other hand, the appetite of consumers to spend. Are you worried about
consumers? Are you worried about business spending?

PAULSON: You know, Tyler, I`m not too worried about it. I get some
of those companies reports. I think Cisco (NASDAQ:CSCO) particularly
reflects weakness out of the emerging world, particularly Asia, which is
obvious with the emerging world that slowed down. I see that with global
trends.

But I think — I`m looking at a consumer that`s looking at the best
job market we`ve had in this entire recovery. We created over 2200,000
jobs a month this year on average. Unemployment claims today just fell to
their lowest level since before the recession, occurred in 2007. Net
worths are back to record highs and debt service burdens to record lows.

Confidence are at their highest. They`re very close to their highest
levels among consumers of this recovery. I think they`re going to —
they`re going to be OK.

Do they ebb and flow somewhat? Absolutely. Are they probably
spending a little more on houses and autos and thereby a little less on
other things right now? I think that`s true.

But I think the trends are in place to continue to have a sustainable
consumer going forward. I`m not that concerned about it.

GHARIB: Jim, let me ask you something, pick up the comment made in
Courtney`s package a comment about Wal-Mart (NYSE:WMT) and a gentleman is
talking about, that we are in a split economy, just what you were saying.
You know, one area is doing well, housing, auto sales, and then, you hear
on the other end, maybe some consumer buying, some tech spending not doing
as well.

Are we in like this two-tiered economy because everybody always talks
about the U.S. economy is doing well, or U.S. economy is not doing well.
Are there really two economies going on here?

PAULSON: I think there is some of that, I really do, Susie. I think
it`s not necessarily totally uncommon, either as you come out of a
recession, this is a bad one and in some ways are still coming out of it.
You come out typically with the lower income groups coming out last and I
think we`ve seen that in this recovery, as well, where the upper income
groups are now maybe more of the middle income is starting to do better.

But you still got a big section of the lower income group that`s doing
bad. You know, we still have a 7.5 percent, close 7.5 percent unemployment
rate, a lot of that centered in lower income group parts of the economy.
So, I do think you see that.

So, the discounted areas, I think, might be suffering more than the
higher-quality or higher-end retailers at this point.

GHARIB: All right. Jim, thanks a lot. Jim Paulson —

PAULSON: Thanks.

GHARIB: — chief investment officer at Wells Capital Management.

MATHISEN: Well, this week`s police crackdown on protesters in Egypt
has left hundreds dead and more than 4,000 injured. Most of them,
supporters of the ousted Islamist President Mohamed Morsi.

President Obama interrupted his family vacation in Martha`s Vineyard,
Massachusetts, to condemn the slaughter of Egyptian civilians and cancel
plans for some upcoming military exercises with the Egyptian army, which
Washington helps fund to the tune of more than a billion dollars in annual
aid.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our traditional
corporation cannot continue as usual when civilians are being killed in the
streets and rights are being rolled back. As a result, this morning we
notified the Egyptian government that we are canceling our biannual joint
military exercise which was scheduled for next month.

(END VIDEO CLIP)

MATHISEN: With more on the latest in Egypt, Yousef Gamal El-Din
reports from Cairo.

(BEGIN VIDEOTAPE)

YOUSEF GAMAL EL-DIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sporadic
clashes are still taking place across Egypt between supporters of ousted
President Mohamed Morsi and security forces. The latest attack on a
military checkpoint that`s killed at least seven soldiers.

And also, the Muslim Brotherhood making it clear that this is just the
beginning. They will not cower and, quote, “will rise again.” They are
planning a million-man march for Friday.

Security forces on their side aren`t taking chances. They have been
authorized to use deadly force if necessary. A curfew is in effect, and
traffic is dying down in the background and state of emergency is still on,
as well.

Keep in mind, that we have comments from U.S. President Barack Obama.
He strongly condemned what is happening in Egypt, but also said that it was
for Egyptians to decide what would happen in the future.

I`m Yousef Gamal El-Din for NIGHTLY BUSINESS REPORT, in Cairo.

(END VIDEOTAPE)

MATHISEN: In the meantime, the deepening unrest in Egypt combined
with the civil war in Syria has been sending the price of crude oil higher,
fueling worries about a squeeze on supplies coming out of the Middle East
through Egypt`s Suez Canal.

Today, oil prices rose another 48 cents a barrel, to close at $107.33.
That`s around a five-week high.

GHARIB: Still ahead on the program, Twitter has become the new feed
to the world. Financial power players use it and move stocks. But what
about the risks of hacking and the slip of the thumb? Is Twitter raising
the amount of risk in the marketplace?

But, first, let`s get a look at the biggest drags on the Dow today.

(MUSIC)

GHARIB: We begin tonight`s “Market Focus” with a late-day earnings
report from Nordstrom (NYSE:JWN). The upscale retailer missed revenue
estimates and trimmed its earnings and sales forecast for the year as the
sales at its department store slipped. This makes it the latest retailer
to cut its outlook. It finished to $59.33 and fell shorter after hours
trading.

Dell (NASDAQ:DELL) out with better-than-expected earnings and revenue
after the bell. The company embroiled in a take over battle between
founder Michael Dell (NASDAQ:DELL) and activist investor Carl Icahn beat
analysts estimates and that`s despite shrinking sales of PCs. But Dell
(NASDAQ:DELL) shares closed down a fraction to $13.70.

Kohl`s (NYSE:KSS) was one of the few bright spots in today`s market.
The retailer benefiting from exclusive and private labeled brands like
Jennifer Lopez and Rock & Republic. And while some retailers have
struggled with back to school, Kohl says sales of kids, juniors and
footwear are off to a good start. The company met street expectations and
investors brushed off its cautious outlook for the year. The stock gained
more than 5 percent to close at $53.51.

MATHISEN: And Kohl`s (NYSE:KSS) wasn`t the only consumer related
stock in the green today. Estee Lauder saw its profit surged, topping
expectations, helped by strong sales of its skin care and makeup products.
The company saw revenue growth across geographic regions, which includes
the U.S., Australia, China and Japan.

Investors shrugged off the company`s mooted outlook, sending the stock
up more than 3 percent to $67.36.

And there was a deal in the semi-conductor business. Maxim is buying
Volterra for about $600 million. Volterra makes low voltage power
management chip sets for computer and networks. Maxim says the purchase
will give it a greater role in the enterprise and communications markets.

At the close, Maxim shares were down 3 percent to $27.76. Volterra up
53 percent to $22.91.

And a deal that may be about to fall apart is sending shares of Onyx
Pharmaceuticals lower. According to reports, the widely expected takeover
of Onyx by Amgen (NASDAQ:AMGN) is now being held up over access to Onyx`
cancer drug data. Onyx says it doesn`t want to access the data before the
study is over because it may slow the approval process. The stock fell 7
percent to $115.34.

GHARIB: It happens every quarter — regulatory filings from Wall
Street`s biggest hedge funds and investment firms. They are called 13Fs.
Most of them came out late yesterday. They give a glimpse into buying and
selling strategies of some of Wall Street`s biggest money managers.

Today, we learned that Warren Buffet`s Berkshire Hathaway (NYSE:BRK.A)
has soured on some food stocks, selling all the company`s holdings in Kraft
(NYSE:KFT) and its offshoot Mondelez, while stocking up on General Motors
(NYSE:GM).

George Soros sold off millions of shares of U.S. Airways, a good move
considering the Justice Department`s lawsuit this week to stop the carrier
from merging with American Airlines.

Dan Loeb`s hedge fund Third Point sold out of auto parts maker Delphi
in favor of shares of high-end jeweler Tiffany (NYSE:TIF).

And then there`s Leon Cooperman`s Omega Advisors unloaded most of its
Facebook (NASDAQ:FB) shares.

MATHISEN: Those regulatory filings are one way investors learned what
Wall Street`s big dogs are doing. But increasingly another way is via
Facebook (NASDAQ:FB) and especially Twitter. On Tuesday, Apple
(NASDAQ:AAPL) shares shot up 5 percent after billionaire investor Carl
Icahn tweeted that he has a large stake in the iPhone maker. Now, the
freedom to tweet is rapidly becoming a game changer in the business world.

But as Julia Boorstin tells us, with that freedom comes risks for
investors.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Twitter which
has quickly become the world`s breaking news feed is shaking up the
business of Wall Street and investing. As traders and high profile
investors take to Twitter to talk stocks, sometimes moving markets.

Carl Icahn stating in a SEC filing that he might use Twitter to
release material information before taking to the communications tool to
tweet his position in Apple (NASDAQ:AAPL), sending the stock soaring.

STEPHEN DIAMOND, SANTA CLARA UNIV. SCHOOL OF LAW: Twitter is a new
player in the financial market. It`s being fed into the algorithms of
high-frequency traders who, of course, dominate trading volume now.

BOORSTIN: In April, the SEC said it`s OK for companies to release
information on Twitter and Facebook (NASDAQ:FB), as long as they warn
investors where to look. Weighing in after Netflix` CEO Reed Hastings
announced on his Facebook (NASDAQ:FB) page that Netflix`s monthly online
viewing topped 1 billion hours.

Now that tweets have the power to yield billion dollar stock swings,
the question is what does that mean for the security of investors` Twitter
accounts? A number of high profile accounts have been hacked. From Burger
King and Jeep to “The Associated Press”. The passwords weren`t strong
enough, prompting Twitter to introduce an optional additional step to
access an account. But still, it`s far from hack-proof.

DIAMOND: It`s obviously going to be very tempting for someone to
potentially hack into or try to hack into an Icahn type account because the
significance of an Icahn player, with someone with his resources, his track
record, obviously, there are a handful of people like that or institutions
that can move markets with just a few bits of information.

BOORSTIN: What about Twitter typos? Wall Street investors used to
worry about a fat finger trade. Now, a concern is the slip of the thumb
will send the markets into a tizzy.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

GHARIB: Well, it`s not just new media you have to worry about. “The
Washington Post (NYSE:WPO)” reveals that its Web site was hacked today and
a group that supports Syrian President Bashar Assad is claiming
responsibility. This morning`s cyber attack only lasted about a half an
hour, but surprised some readers logging into “The Post” web page. They
were redirected to the Syrian electronic army site.

MATHISEN: Coming up, a number that might frighten all parents. We`ll
tell you what it cost to raise a child and the figure doesn`t, doesn`t
include college tuition.

But, first, a look at some of the most active stocks today on the New
York Stock Exchange.

(MUSIC)

MATHISEN: A judge in California superior court ruled that the Golden
State can move forward with its low suit against the ratings agency S&P.
California`s attorney general is suing S&P on behalf of its two largest
public employee pension funds. The case hinges on the sweet credit ratings
S&P assigned to certain mortgage-backed securities paper that later turned
terribly sour. S&P says it will vigorously defend its actions.

GHARIB: Another possible setback for the planned merger of American
Airlines and U.S. Airways just days after the Justice Department filed a
lawsuit to stop it. Today, a bankruptcy judge asked American`s parent
company, AMR (NYSE:AMR), to explain why he should approve the company`s
merger and exit bankruptcy protection while the federal government is
challenging those very plans.

The judge expressed, quote, “lingering doubts” about OK`ing the
merger, which that lawsuit says will raise airfares and fees and limit
choices for travelers. Although no decision was handed down today,
American Airlines says it will challenge the government`s lawsuit, continue
planning for the proposed merger and be back in bankruptcy court for a
hearing on August 29th.

MATHISEN: Apple`s online retail store and its gadgets are some of the
most popular in the world. They were also some of the most frequently
counterfeited devices. But in China, where most of those counterfeit goods
are manufactured, consumers in the growing middle class there may have had
enough. They are fighting back to stop the sale of those bogus goods.

Eunice Yoon has the story.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Wang
Hai is a crusader for the Chinese consumer. He shrouds his identity, one
way this investigator e can track counterfeiters.

(on camera): Oh, fake Crocs (NASDAQ:CROX).

(voice-over): After sniffing out fakes for nearly two decades, he
finally feels consumers here are backing him up in the fight.

“People have a stronger sense to protect their rights against
counterfeit,” he says.

China has long been the land of the fakes, famous for everything from
bogus luxury handbags and watches to gadgets. But recent health scares
involving food and iPhone knock offs are making consumers here think twice.

UNIDENTIFIED MALE (through translator): I don`t think buying
counterfeit should be normal in our lives. We should boycott them.

UNIDENTIFIED FEMALE (through translator): I don`t trust the quality
and they are harmful to genuine products.

YOON: Counterfeits have harmed international businesses for decades,
with hundreds of billions of dollars in estimated losses each year.
Beijing says it`s clamping down on violators, but to many companies,
progress has been slow. This Swiss wine importer opened shop here more
than two years ago. She`s already dealt with one copy cat and is pursuing
another.

CLAUDIA MASUGER, CHEERS WINES, CEO: So they copied our store, twice
already, from the price concept, from the wine descriptions and wine
sometimes even the uniform of our stuff, everything is copied.

YOON: Investigators Wang says the situation will only improve if
consumers are allowed to move from complaining to advocating the government
enforce the law.

“Otherwise, China will only be known for cheap, low-quality and
unreliable products,” he says — a reputation China wants to change.

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

(END VIDEOTAPE)

GHARIB: And finally tonight, if you thought raising a child was
getting more and more expensive — well, you`re actually right. It will
cost parents almost a quarter of a million dollars to raise a baby born in
2012 and until they turn 18. If you send them to college, you will save
twice as much. And if one parent opts to stay home to raise the kids,
that`s also a cost. A new study from the Department of Agriculture says
expenses are highest in the Northeast and lowest in southern cities and
rural areas of the country. And not surprisingly, it says the biggest
rises in spending are due to the skyrocketing cost for housing and
healthcare — but really worth it all.

MATHISEN: It`s worth it all. I`m sending my son Macky a bill,
though, when he gets to be 18. Here is your bill.

Remember to send us the one stock you like our market monitor guest to
discuss tomorrow. Log on to our Web site NBR.com. We`re still taking
nominees. Click on the link to submit your question and don`t forget to
include where you`re from.

GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
Gharib. Thanks for watching.

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

END

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