Transcript: Monday, August 19, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

President Obama meets privately with the country`s most powerful financial regulators to discuss the new rules that will govern the country`s biggest banks.

900 percent in nine years to the day. That`s how much Google (NASDAQ:GOOG) has returned since going public. It dominates search, and is seizing the smartphone market. But is the stock, a top holding of many mutual funds, a good buy for the next nine years?

GHARIB: Attention shoppers, you are being tracked. But are you willing to give up some privacy for a good deal? We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, August 19th.

MATHISEN: Good evening, everyone, and welcome.

His vacation over, President Obama got back to work today, and he wasted no time tackling a topic of high interest to investors, not to mention financial services executives.

At a closed-door White House meeting he sat down with the nation`s top financial regulators to get a progress report on how the government is implementing the Dodd-Frank law. It covers Wall Street and the nation`s largest banks.

John Harwood joins us now from the White House with details on who attended today`s meeting, and why it was necessary — John.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, it was financial regulators from all across the government, including the Federal Reserve, CFTC, SEC, comptroller of the currency. And this was an attempt by the president to resume his effort to sell his economic agenda, only about 40 percent of the regulations putting in place the Dodd-Frank financial regulation reform have been enacted or completed by the regulators.

This was a pep rally to try to get them to finish that job. I caught up after the meeting with Mary Jo White, the chair of the SEC. Here is her assessment of this conference.


HARWOOD: Results of the meeting?

MARY JO WHITE, CHAIRWOMAN, SECURITIES & EXCHANGE COMMISSION: A very productive meeting, talking about status and progress under Dodd-Frank and keep going.

HARWOOD: What`s the most important thing that you still have got to do on Dodd-Frank?

WHITE: Well, I think we all have a number of important things left to do. Obviously the Volcker Rule stands up.


HARWOOD: Now of course this is only one part of the president`s economic agenda this week. Later in the week he`s going to go on the road, Upstate New York, and press his case for a “middle out” path to economic growth. And, of course, he has got to select a new Fed chair. Ben Bernanke, who attended this meeting, this may be one of the last times he`s at the White House.

We know that the — or we believe that the two front-runners for the job are Janet Yellen and Larry Summers. But we haven`t heard from the president yet. We may hear from him pretty soon after Labor Day — Tyler.

GHARIB: John, it`s Susie. You know, you talked about the top priority was Dodd-Frank. But what else is on this economic agenda that you just referred to? What`s the most important thing that he has to get done?

HARWOOD: Well, of course, the president has got fiscal standoffs heading up with Congress on continuing to fund the government, figuring out what to do about the sequester, whether the burdens of the sequester get rearranged. And also to raise the debt limit so the government can continue to borrow money and keep operating.

We had a crisis in the summer of 2011 when Congress refused to raise the debt limit. That resulted in a downgrade. The administration believes that a debt crisis is the only thing that could really push this economy into recession. They`ve got to figure out a path to avoiding that.

MATHISEN: Very quickly, John, back to Dodd-Frank, why is the regulation-writing taking so long?

HARWOOD: Very complicated law. I was talking to a veteran of the Bush administration today who said the regulators have been taking a lot of flack for how slow this is going. They were asked to give — with a bunch of mismatched parts to build a new car and do it fast, not easy to do.

GHARIB: All right. Thanks a lot, John. John Harwood, reporting from Washington.

More now on the nation`s banks. Just today, the Federal Reserve spelled out new requirements for major banks to go above and beyond regulatory minimums on capital planning levels.

A new Fed study says that most big banks have made progress since the financial crisis on their plans to weather another financial shock. But the central banks says some of the stress tests run by individual firms may be inadequate, and it wants executives to better identify specific risks that their banks face in market downturns.

MATHISEN: On Wall Street, it was a milestone kind of day. But not in a good way. For the first time this year, the Dow and S&P 500 fell for a fourth consecutive session. It was the first such swoon since December 28th of last year.

Now both indexes have now traded lower in nine of the past 11 trading sessions. After last week`s slide, the worst of the year so far, the Dow today closed at lows of the session. It fell 71 points, to 15,010. NASDAQ was down 13 to 3,589. And the S&P slid almost 10 points to 1,646.

Stocks were spooked by the usual suspects, namely handwringing over what the Fed will do next and a pesky rise in interest rates. The yield on the benchmark 10-year Treasury hit a high of 2.89 percent, the highest in two years.

GHARIB: It looks as if billionaire hedge fund founder Philip Falcone and his Harbinger Capital Partners have settled with the Securities and Exchange Commission over the improper use of the firm`s money.

In a release from the SEC, Falcone and Harbinger have agreed to pay more than $18 million and to be barred from the securities industry for five years. Falcone also has to admit wrongdoing in using $133 million in fund assets to pay his personal taxes, and secretly favoring certain fund customers over others.

Falcone says he`s pleased to have settled with the SEC.

MATHISEN: The SEC is also taking a look into some hiring practices at JPMorgan (NYSE:JPM) Chase. It`s being investigated for employing the children of influential Chinese officials to win lucrative new business in that country. A case of mutual back scratching or something worse?

Kayla Tausche has the details.

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In China, it`s about who you know more than what you know. It`s called “guanxi,” doing business with a close network of people to avoid deception and to minimize risk. Where the practice extends to hiring, U.S. regulators are investigating whether JPMorgan (NYSE:JPM) and other banks used connections to win business.

In a quarterly filing, JPMorgan (NYSE:JPM) references, quote: “A request from the SEC Division of Enforcement seeking information and documents relating to the firm`s employment of certain former employees in Hong Kong, and its business relationships with certain clients.”

According to The New York Times (NYSE:NYT), the SEC is investigating the hiring process around two people, one son of a former banking regulator, and one daughter of a prominent Chinese railway official.

The SEC is exploring what role if any the children`s employment had in JPMorgan`s scoring marquee business, including work advising deals for the former regulator`s private equity firm and a $5 billion IPO in the railway industry.

The former SEC attorney, Jacob Frenkel, said the qualifications of the employees for the job will be a key focus.

JACOB FRENKEL, ATTORNEY, SHULMAN ROGERS: What was the purpose of the hiring? If what you`re describing is a scenario where I would call it a real hiring, you`re hiring somebody because they have qualifications, then there`s a strong argument it`s not for the purpose of influencing corruptly.

TAUSCHE: JPMorgan (NYSE:JPM) is investigating the matter internally and declined to comment. News of the inquiry, though, sent JPMorgan
(NYSE:JPM) shares reeling Monday, since such investigations have become costly for the bank.

Banks like Goldman Sachs (NYSE:GS) have also engaged in the practice of hiring the children of prominent politicians and executives. But JPMorgan (NYSE:JPM) has been subject to investigations and litigation over two dozen separate issues. And it`s estimated that legal cost could reach
$6.8 billion, far higher than any other bank, analysts say.

For JPMorgan (NYSE:JPM), the growing legal risk is becoming one big headache. For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche.

GHARIB: News now about jobs right here at home. And it`s not good.
The Labor Department reports that jobless rates fell in only eight states in July, and rose in 28 others. Compared to the month prior, rates stayed the same in the other 14.

Last month, Nevada had the highest jobless rate of all 50 states, 9.5 percent. North Dakota has the lowest at just 3 percent.

MATHISEN: Well, today was deadline day in Detroit for creditors to file objections to the city`s filing for Chapter 9 bankruptcy protection, and dozens of creditors did just that. Most of the earliest objections came from individual retirees worried about their pensions and benefits.
The city`s big pension funds, the largest creditors in the case, plan to file a joint objection.

GHARIB: More violence in Egypt today. The death toll is now more than 1,000 since protests against the ouster of Islamist President Mohamed Morsi erupted last week. And now a court ruled to release another ex- president, the jailed Hosni Mubarak. And that could trigger more unrest.

Yousef Gamal El-Din has the latest from Cairo.

YOUSEF GAMAL EL-DIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It has been another turbulent 24 hours for Egypt. Starting off with violence in the northern part of the Sinai Peninsula where we understand that 25 police conscripts were ambushed and executed with a machine gun. Three of them remain critically injured.

And that comes off the back of an attempted prison break, we understand, from the Egyptian Ministry of Interior, where 36 supporters of ousted President Mohamed Morsi were killed.

The violence is likely to flare further. The discussion about U.S.
financial assistance to Egypt`s military, to the tune of $1.3 billion. But here`s the drawback. Perhaps now the Saudi foreign minister making it clear that any threats in terms of cutting assistance would be met with a reaction from Saudi Arabia. They`re happy to fill that gap.

In other developments, news that the former president, Hosni Mubarak, may be able to walk free, that`s according to his defense lawyer, Fareed el-Deeb. However, experts I talked to say that it is unlikely to happen given the political tensions in this country.

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

GHARIB: The unrest in Egypt is impacting shares of Apache (NYSE:APA).
The oil and natural gas giant has 20 percent of its production and 17 percent of its net asset value in its operations in Egypt. Shares of Apache (NYSE:APA) fell 4.5 percent today following an analyst downgrade from buy to hold because of its exposure to Egypt. No comment, though, from Apache (NYSE:APA).

MATHISEN: Still ahead, Google`s stock has soared since it started trading nine years ago today. But are there other companies that are innovating just as fast that should be on your radar?

First, though, a look at how the international markets closed today.

GHARIB: LinkedIn (NYSE:LNKD) is now targeting teenagers. It unveiled today University Pages. The social networking site for professionals wants to sign up college-bound high school students to connect them with colleges and their alumni networks.

Julia Boorstin looks at whether the new strategy makes the grade.

(NYSE:LNKD) has grown to 238 million members by giving professionals tools to find jobs, learn, and network, and by helping companies recruit employees. Today LinkedIn (NYSE:LNKD) is targeting a younger demographic, launching University Pages, partnering with more than 200 colleges and universities.

KEN SENA, ANALYST, EVERCORE PARTNERS: This is something that`s very critical for their overall network, making sure that you`re getting users accustomed to it at earlier and earlier ages, on how to think of LinkedIn
(NYSE:LNKD) as a tool.

BOORSTIN: From Oxford University to NYU, universities are launching pages to help LinkedIn (NYSE:LNKD) users explore alumni careers and network with other students and graduates. Starting on September 12th, LinkedIn
(NYSE:LNKD) will reach even younger users, removing its 18-year-old age limit and allowing students as young as 14 to research colleges.

As LinkedIn (NYSE:LNKD) looks to expand its user base, it`s inching into Facebook`s territory. That social network`s minimum age is 13. And LinkedIn (NYSE:LNKD) is now encouraging the same kind of connecting and communication that Facebook (NASDAQ:FB) pages enable.

LinkedIn (NYSE:LNKD) is well-positioned to appeal to this generation of tech savvy students, raising questions about whether it will eat into Facebook`s market share. But analysts say they aren`t concerned. That the two companies aren`t in direct competition.

SENA: I think that, you know, for the foreseeable future, most of the younger demos engagement is still going to be, you know, very heavily weighted towards Facebook (NASDAQ:FB).

BOORTSIN: Now we`ll see whether looking younger opens the door for LinkedIn (NYSE:LNKD) to offer other services, like college test prep, to the valuable teen demographic.

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

MATHISEN: Well, if you want to have a new iPhone, your color choices were pretty simply, black or white. But that now may be changing.
According to reports in TechCrunch and AllThingsD, Apple (NASDAQ:AAPL) will soon offer the iPhone in gold. That touch of gold is expected to be unveiled at a company event slated for September 10th. No comment from Apple (NASDAQ:AAPL).

GHARIB: Happy birthday to another tech giant, Google (NASDAQ:GOOG).
Nine years ago today, Google (NASDAQ:GOOG) went public. It started trading at $85 a share. And if you bought the stock on August 19th, 2004, your investment would be up a stunning 925 percent to $866 today.

John Fortt has more on Google`s explosive growth, where the company and its stock may be headed next.

JOHN FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nine years ago, Yahoo (NASDAQ:YHOO)! was the most visited site on the Web with nearly twice the U.S. traffic of Google (NASDAQ:GOOG). Apple (NASDAQ:AAPL) stock was an on iPod-fueled comeback at about $17. And a little site called Facebook
(NASDAQ:FB) was just getting started.

Then Google (NASDAQ:GOOG), started by Sergei Brin and Larry Page, offered stock to the public markets for the very first time at $85 per share. A lot of people thought that was too expensive.

What a difference nine years makes. Yahoo (NASDAQ:YHOO)! is now struggling to stay relevant. It has pinned its hopes on a former Google
(NASDAQ:GOOG) exec. Apple (NASDAQ:AAPL) stock is about 28 times higher than it was, and Facebook (NASDAQ:FB) is the most visited site on the Web, nearly 700 million users touching that service daily.

Google (NASDAQ:GOOG), still chugging along at about 10 times that $85 IPO price. And it`s a very different looking business. Besides its enormously profitable search operation, it has got YouTube for video. It has bought Motorola and jumped into making phones. And it has launched Android for smartphones and tablets, now the most popular operating system in the world.

It`s enough that when Google (NASDAQ:GOOG) has a rare brief outage, like it did Friday night, the entire Internet feels a chill.

MIKE ISAAC, ALLTHINGSD: The funny thing is, 40 percent of the Internet did not go down, but it feels like that number could have been right, because Google (NASDAQ:GOOG) is basically the Internet for a lot of people right now. Think about, you know, you use it for your calendar, you use it for your Gmail, you use it your phone a lot of the time. At this point, I think it`s the infrastructure for basically most of the things that we do in our everyday lives.

FORTT: So, what`s next for Google (NASDAQ:GOOG) as it approaches its 10-year anniversary? It`s a major player in a clash of the titans, including Apple (NASDAQ:AAPL), Samsung, Facebook (NASDAQ:FB), and Amazon
(NASDAQ:AMZN): the companies now known for taking outsized risks, like driverless cars and Google (NASDAQ:GOOG) Glass.

In the next year we`ll probably see whether Google (NASDAQ:GOOG) can turn any of these new risks into profitable ventures. But so far, so good.


MATHISEN: And joining us to talk more about his outlook for Google
(NASDAQ:GOOG) and more broadly the tech sector is Skip Aylesworth. He`s co-portfolio manager at the Hennessy Technology Fund.

Skip, welcome, good to have you with us. So you heard John`s report about Google (NASDAQ:GOOG).

Thanks very much.

MATHISEN: You know what it sells for today. It has had a very nice nine-year run. Would you buy the stock at this price?

AYLESWORTH: Well, there are many reasons to. It is reasonably priced at the current price. To be specific, yes, I would.

MATHISEN: And what do — do you think there`s any chance that nine years from now we`ll be talking about Google (NASDAQ:GOOG) in the same way that we talk about Yahoo (NASDAQ:YHOO)!? In other words, a company that has seen its better days?

AYLESWORTH: Well, it`s very hard to predict out to nine years. But out of this category of large technology companies that we have today, Google (NASDAQ:GOOG) is probably one of very few that in nine, 10 years will still be a dominant player, and innovative for growth.

So I`m very positive. They spend a lot of money on research and development and capital expenditures. And that`s very good for the growth.

GHARIB: Skip, what about some of the other tech companies? There were once the darlings of Wall Street, and with every investor and users, whether you`re talking Microsoft (NASDAQ:MSFT) or Dell (NASDAQ:DELL), what`s happening with the tech sector? It seems to be limping along these days.

AYLESWORTH: Well, these larger names, Microsoft (NASDAQ:MSFT) and Dell (NASDAQ:DELL), take those in particular, they tend to be geared to older technology, PCs and Windows. So they`re like battleships trying to be turned. It`s a slow process to get them refocused on things for growth.

The innovation part of the example, Apple (NASDAQ:AAPL) has been a good example, as we think Apple (NASDAQ:AAPL) is going to come out with things, you see the price come back. If we think Apple (NASDAQ:AAPL) is not going to come out with product in the near future, the price has fallen off.

So innovation for these large companies, it is going to move the needle. It takes a lot. And it`s very hard for the larger companies to always be innovative. Google (NASDAQ:GOOG) is a prime exception to that.

MATHISEN: So technology basically has been — as a group, as a sector, has been lagging the S&P 500. But, as you mentioned, it`s a lot of large cap companies like Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Dell (NASDAQ:DELL), HP, and even Apple (NASDAQ:AAPL), until the last couple of weeks, that haven`t been performing terribly well this year.

So take me off the beaten path and tell me some companies that might be a little smaller that I might not have heard of that you like at these prices.

AYLESWORTH: Well, I`d be glad to. One is Alliance Fiber Optic. As a matter of fact, today, it split two to one. This is a company that concentrates on the optic broadband world. Google (NASDAQ:GOOG) plays in this world, too. But they deal in the final mile to the house type part of the optic network. And they`ve had tremendous growth and innovation.

Another one is Medidata. And Medidata is — combines cloud, data, management, and software, and focuses on the health care industry, managing data for clinical trials, things like this. So many of the smaller names in the technology space that are innovative, and specific product-oriented have had very good growth and hence good stock performance.

MATHISEN: Right. Skip, thank you very much.

AYLESWORTH: Last name — go ahead.

MATHISEN: I`m sorry, we`re going to have to leave it there, Skip. I beg your pardon. Forgive me for interrupting you.

AYLESWORTH: No problem.

MATHISEN: Skip Aylesworth, thanks for joining us, co-portfolio manager with the Hennessy Technology Fund.

GHARIB: And still ahead on the program, tracking your every move.
Retailers want to know what you like, what you don`t, and the price you`re willing to pay. They`re spending big bucks in technology for that inside information. But is it paying off?

But first, let`s get a check on how commodities, Treasuries, and currencies performed today.

Another sign of growing optimism in the housing market, Re/Max Holdings filed paperwork today for an initial public stock offering. In just the past two years, the national real estate agency franchise expanded into China, Hong Kong, and South Korea, and hopes to raise $100 million in the IPO.

MATHISEN: And Zillow, the real estate Web site agreed to buy Streeteasy for $50 million cash, looking to expand its coverage of the New York City housing market. Streeteasy has more than a million unique monthly users in the New York area alone, most of them searching to buy or rent an apartment or home.

GHARIB: A trio of small health care deals topped our “Market Focus”
tonight. Medical device-maker St. Jude is paying more than $300 million for a privately held Swiss company which specializes in catheter products.

Another device-maker, C.R. Bard (NYSE:BCR), is acquiring Medafor, this, a private company, makes agents to control bleeding.

And Abbott Labs completed its purchase of OptiMedica, this operates in the vision care business.

Shares of St. Jude fell slightly to $51.44. C.R Bard rose half a percent to $112 and change. And Abbott Labs lost a fraction to $34.88.

MATHISEN: Shares of Cobalt International Energy (NYSE:CIE) fell sharply today. The oil and gas exploration company did not find oil in its wells off the Gulf of Mexico. The company calls the results disappointing, but is still upbeat about other prospects. The stock plunged 15 percent to $24.90. This is its biggest sell-off in two years.

MATHISEN: Intel (NASDAQ:INTC) was the best performer on the Dow today, thanks to an upgrade from Piper Jaffray. The firm raised its rating on the stock to neutral from sell and boosted its price target to $22. The analyst says he expects revenue next year in the mid-single digits, following two years of decline. The stock rose more than 1 percent to $22.28. So maybe that analyst would like to reconsider his price target since it`s already above it.

Well, it has been a choppy earnings season for retailers. And Saks
(NYSE:SKS) contributed to it today. The upscale department store cited disappointing sales and markdowns as a reason for its deeper-than-expected second-quarter loss. The retailer reached an agreement last month to be bought by Canada`s Hudson Bay Company. The stock down fractionally today, finishing at $15.97.

GHARIB: Like Saks (NYSE:SKS), just as Tyler said, several big retailers have reported disappointing earnings last quarter. But now to boost sales, some retailers are turning to new technologies that track customer`s shopping choices and spending habits inside their stores.

Courtney Reagan has more on whether watching shoppers is actually paying off at the cash register.

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Internet generally, and Amazon (NASDAQ:AMZN) specifically, have changed how consumers shop. But physical retailers are finding new ways to use technology to win some of those customers back.

As the biggest retailers go global, offering the same products everywhere, consumers are moving the other direction, wanting customized products, but for a deal. That`s where technology comes in.

Here at Custom Apparel in New York City, 3D body scanners like this using lights and sensors take a 200,000 data point digital image of your body, cutting the cost of a custom suit by more than 50 percent.

[TC]^2, the company that makes this scanner, says Brooks Brothers uses it for custom suits in two locations, and Victoria`s Secret has five scanners to define the bust shape and bra size more accurately for inventory sizing, though not for customization.

Adidas has piloted a virtual footwear wall in some of its stores enabling shoppers to render different variations of a shoe, get live Twitter feeds about it, and even the back story of the soccer players that sport the shoe.

MICHELLE TINSLEY, DIRECTOR OF TRANSACTIONAL RETAIL, INTEL: They`ve seen anywhere from 500 percent uplift in their London pilot to 77 percent in Tokyo or 143 percent in Germany. So that`s a great example of a win-win where the customers are getting a more customized product.

REAGAN: Not all retail technology is so obvious. Some retailers are hoping to glean insights about consumer behavior from the security camera video captured daily.

TIM CALLAN, CMO, RETAILNEXT: They use it for floor plan optimization, for evaluating the appeal of various products, for looking at the effectiveness of marketing and merchandising programs, “planograms,” or even to optimize their staffing schedule and schedules and the way their staff interact with the customers.

REAGAN: Proponents of the in-store behavior tracking technology argue it is no different than monitoring and analyzing our Web shopping behavior.
While it still bothers some shoppers, others say it`s just the new reality.

UNIDENTIFIED FEMALE: It`s like airport scanners. I think you get used to it.

UNIDENTIFIED FEMALE: I don`t think much is private. And as long as it`s not affecting me personally, that`s fine.

REAGAN: And in-store technology is still only in its early stages.
So like it or not, consumers should expect to see more of these programs soon.


MATHISEN: And finally tonight, a rare 1967 Ferrari was sold at auction this weekend, for how much? $27.5 million. The red Ferrari 275 NART Spider may be best known for its role in the 1968 movie “The Thomas Crown Affair.” And is one of just 10 ever built. So no surprise that this one spent the last six years stored in a specially built garage. That`s probably why it looks so good.

The new owner, not identified, but the sellers say all proceeds from the sale will go to various charities.

GHARIB: I understand one reason why it`s so unusual and such a good buy is that it`s from the same owner, the man, you know.

MATHISEN: Was the original owner.

GHARIB: The original owner.

MATHISEN: Was the original owner of it.

GHARIB: That makes it more valuable.

MATHISEN: Wow, very cool.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Have a great evening.

MATHISEN: And I`m Tyler Mathisen. Thanks for joining us. Have a wonderful evening, everybody. We`ll see you back here 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) 2013 CNBC, Inc.

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