Transcript: Tuesday, August 20, 2013

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Engineering a
comeback, Best Buy (NYSE:BBY) seemingly did it, turning sharp losses into
big profits. What went right at Best Buy (NYSE:BBY) and what can limping
J.C. Penney and Barnes & Noble (NYSE:NE) (NYSE:BKS) learn from it?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Crunch time. Six weeks
until open enrollment, but with privacy issues still to be resolved and an
ad war breaking out, will the new health exchanges be up and running by the
deadline?

MATHISEN: And risky business, unregulated banking is a $6 trillion
industry in China. Some experts fear a banking blowup there could cripple
the world`s second-largest economy.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
August 20th.

GHARIB: Good evening, everyone.

The big buzz on Wall Street today, the strength of the American
consumer. Four of the nation`s best-known retailers came out with earnings
and the results are mixed, raising questions about how comfortable
consumers are about spending and how that could impact the U.S. economy.

First up, Home Depot (NYSE:HD). Sales soared 11 percent, helped by
the turnaround in housing. Things are so good the company lifted its sales
and earnings outlook for the rest of the year.

But losses at Barnes & Noble (NYSE:NE) (NYSE:BKS) doubled, hurt by a
20 percent drop in sales of its Nook e-reader. J.C. Penney losses tripled
and sales dropped 11 percent as it tries to recover from failed strategies
of the past.

But the biggest surprise came from Best Buy (NYSE:BBY), earnings up a
stunning 22 times from a year ago. It now looks like the electronics giant
once left for dead has engineered neared a turnaround that may be the envy
of the sector.

Courtney Reagan has more on the Best Buy (NYSE:BBY) comeback.

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is the
type of shopper Best Buy (NYSE:BBY) is trying to attract. The kind that`s
willing to come into the store and spend money.

UNIDENTIFIED MALE: There is usually quite a lot to choose from and if
you can`t find it here, you can find it online.

REAGAN: For years the company struggled to bring in paying customers.
Best Buy (NYSE:BBY) became the place for shoppers to “showroom” or preview
an extensive TV or computer before buying it at cheaper prices at Amazon
(NASDAQ:AMZN) or Walmart.

But today investors got more signs that the company may be finding its
way back to profitability.

PETER KEITH, RESEARCH ANALYST, PIPER JAFFRAY: Best Buy (NYSE:BBY) is
in the early innings that we think is a multi-year turnaround.

REAGAN: The company`s earnings came in much stronger than expected,
posting a profit for the first time in a year. Its stock jumped another 10
percent on the news. Shares are up better than 185 percent on the year,
easily making it one of Wall Street`s strongest performers.

And analysts say part of Best Buy (NYSE:BBY)`s recent success comes
from its ability to keep consumers from turning elsewhere.

KEITH: They also have their price match policy that they`re doing.
And they`re being much more aggressive on driving improved conversion rate
both online at the store level. So we think those factors drive better
sales results in the coming quarters.

REAGAN: But price-matching is not the only thing driving the
turnaround. Best Buy (NYSE:BBY) is focused on cutting costs, shuddering
underperforming stores, and revamping others for more efficient use of
floor space.

Online sales, once seen as a major contributor to the demise of brick
and mortar, have become a surprising bright spot for Best Buy (NYSE:BBY).
The store saw online revenue of $477 million for the quarter, a 10 percent
increase.

And the company has been building out its store-within-a-store models,
bringing in many Samsung and Microsoft (NASDAQ:MSFT) stores, complete with
Samsung and Microsoft (NASDAQ:MSFT) products and experts under the familiar
blue roof.

Best Buy (NYSE:BBY) is doing what it said it would when it laid out
its “Renew Blue” strategy in November, making measured improvements and
leveraging its strengths focused around the consumers` changing needs.
Perhaps struggling retailers J.C. Penney and Barnes & Noble (NYSE:NE)
(NYSE:BKS) should take note.

It`s all part of the CEO Hubert Joly`s efforts to make Best Buy
(NYSE:BBY) more inviting for customers, telling me earlier today: “We
worried less about measuring the temperature of the consumer. We know they
are looking for value and a positive experience. We focus on what we can
do to provide compelling offers and service.”

And with Best Buy (NYSE:BBY) shares at a two-year high, investors are
hoping that service is compelling enough to keep shoppers coming through
the door.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

MATHISEN: Well, on Wall Street not even those kind of sort of better
than expected retail earnings could stop the Dow from falling for a fifth
straight session, even if the loss today was comparatively modest.

One Dow stock in the spotlight, ExxonMobil (NYSE:XOM), it ended lower
today. And that means it has lost ground in 19 of the past 20 sessions.
The Dow today down 7 points, but still closing above 15,000, just barely.
The NASDAQ was up 24 points thanks to the strength of tech stocks. And the
S&P 500 added 6.

Emerging markets struggled again today though with higher Treasury
yields, continuing to drive investors into the dollar. And that sucked
money out of a host of foreign currencies, especially in Asia. Today the
Indian rupee tumbled to a fresh all time low against the dollar.

GHARIB: Well, those tumbling currencies and stocks in emerging market
countries thousands of miles away from Wall Street are the latest worry for
American investors. Joining us now to talk about why, Nick Colas, he is
chief market strategist at Convergex.

Nick, nice to have you on the program again. Let me just ask you why
are American investors worried about the emerging markets and those sell-
offs there? Connect the dots for us.

NICK COLAS, CHIEF MARKET STRATEGIST, CONVERGEX: Sure, there`s really
two factors at play here. The first is that we typically think of emerging
markets as being very fast growth with young economies that are really ripe
for a big step function increase in GDP growth and consumption.

And that growth has really tempered around the world, the classic BRIC
countries, Brazil, Russia, India, China, aren`t growing as fast as they
used to. The smaller countries that you alluded to in the prior segment,
Southeast Asia, primarily, and India, might have small and growing
economies but they are also still very fragile economies.

When you see this kind of volatility in currencies, people really take
notice.

MATHISEN: Nick, is this a short-term sell-off in the emerging markets
or something more enduring?

COLAS: It feels like it`s going to be a little more enduring than
just this week or next. And the reason for that is the uncertainty behind
the Federal Reserve policy of tapering or reducing the amount of bonds they
go out and purchase every week.

As long as we`re uncertain about the path of that tapering, we`re
going to see this kind of volatility in currency markets around the world,
and that will lead to the same kind of volatility that you`ve just seen in
equity markets, as well.

GHARIB: It was interesting listening to a lot of the chatter about
this today on Wall Street. There were some strategists saying that with
these emerging markets in trouble, some of the money that they have
invested in those countries will be coming into the U.S. That will be good
for U.S. markets.

Other strategists talking about a possible financial crisis as a
result of all of this, a la the Asian crisis of 1998. Do you agree with
that? And, you know, what should investors do?

COLAS: Yes. On the second point I think it`s way too early to really
panic and worry about an Asia crisis like we saw in `97, `98. Some of the
initial ripples are there but we`re far away from it. So I would take that
off the table for now.

I think for the moment, however, investors are basically taking very
much of a wait-and-see attitude in equity markets around the world. They
appreciate the fact that the U.S. market has rallied a lot over the past
year.

And they understand the U.S. is still a great place to invest. But
with the kind of gains that we`ve had over the past one, two, three, and
four years, I do get a sense from clients that they are a little bit
hesitant to put a lot of fresh money to work here.

They want to see how this tapering situation works out with the
Federal Reserve in the near term.

MATHISEN: Compare for me the prospects over, let`s say, the next two
years for equity investors in U.S. stocks versus the emerging markets.
Does the U.S. have the edge now?

COLAS: It feels very much that the U.S. has the edge. Not only do we
have a slowly growing economy, but we have a lot of benefits of a larger
and established economy, like the rule of law, like very consistent trade
policy, and other factors that make investors very comfortable in U.S.
stocks.

So for the near term, it does very much seem like U.S. stocks have the
upper hand over emerging markets even with the promise of somewhat better
growth over seas.

GHARIB: So are you saying bad news in the international markets is
actually good news for the U.S. stock market?

COLAS: You know, it hasn`t worked out so far that way for the year.
For the year, actually, emerging markets are down roughly 13 percent, U.S.
up 15 percent. So the numbers aren`t really there. However, over the past
five days of market volatility, emerging markets have begun to do a little
bit better and investors are taking notice. They`re actually putting more
money into emerging market funds than they are into U.S. stock funds over
the last week. So perhaps we`re seeing a little bit of a turn there.

GHARIB: That`s fascinating. Nick, thank you so much for coming on
the program.

COLAS: Thank you.

GHARIB: Nick Colas, chief market strategist at Convergex.

MATHISEN: President Obama hosting a meeting with his national
security team at the White House today to discuss the deadly unrest in
Egypt and review the nearly $1.5 billion in annual U.S. aid that goes to
Egypt`s military.

Earlier a White House spokesman had to refute reports that the U.S.
had already cut off aid to Cairo.

GHARIB: Another day, another investigation into JPMorgan (NYSE:JPM)
Chase. This time the Justice Department is looking into allegations that
bank employees manipulated U.S. energy markets. Just last month the bank
agreed to pay $410 million to settle charges from the Federal Energy
Regulatory Commission that it manipulated markets in California and the
Midwest.

But it never admitted wrongdoing as part of that settlement. Well,
that prompted the U.S. attorney in New York`s Southern (NYSE:SO) District
to take a closer look at the company`s energy practices for possible civil
or even criminal charges.

MATHISEN: A passing grade for a for-profit education provider.
Corinthian Colleges (NASDAQ:COCO) said a review by the federal Department
of Education shows the company remains financially sound enough to
participate in federal student aid programs without any other
qualifications. Shares of Corinthian up 11.5 percent today.

GHARIB: No matter where you go to college, the price of getting a
degree keeps going up, and so does the amount of federal financial aid
students are receiving.

Scott Cohn takes a closer look how many more graduates, undergraduates
are getting some form of aid and where all that money is coming from.

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Iona College, a
small school 15 miles outside New York City, they are putting the final
touches on campus ahead of the fall semester next week. And freshman
Brandon Lara (ph), along with his mother, is putting the final touches on
his registration, including his financial aid.

BRANDON LARA, IONA COLLEGE FRESHMAN: When Iona gave me such a large
package, we didn`t even discuss it at my house, I just accepted Iona`s
offer.

COHN: Virtually his entire bill, around $46,000 for tuition, room,
and board, is covered by grants, loans, work study, and loans his mother
has taken out.

NOEMI AGUILO, MOTHER OF COLLEGE STUDENT: Unless we have financial
aid, he wouldn`t have been able to make it to college.

COHN: According to the latest government figures, 71 percent of
undergraduates receive some form of college aid in the 2011-2012 school
year. And for the first time more than half, 57 percent, got at least some
of their aid from the federal government.

In part, it`s because there is more federal money to be had. Federal
Pell grants and loans are both up under the Obama administration. But
there is more to it than that.

It`s a basic squeeze. Tuition keeps rising, state support for higher
education keeps falling, and private money is stagnant. That means for
most students, a college education simply isn`t affordable without some
federal help.

And the Association of Student Financial Aid Administrators say that`s
unlikely to change any time soon with colleges increasingly relying on
tuition for funding.

JUSTIN DRAEGER, NATIONAL ASSOCIATION OF STUDENT FINANCIAL AID
ADMINISTRATORS: The federal government has been putting in more funds, but
those funds have not kept pace with that disinvestment over the last 40
years.

COHN: Iona increased its aid budget this year to help bridge the gap.
Brandon Lara, majoring in mass communications, hopes in the end it will all
pay off.

LARA: At some point, way down the road, there is going to be a return
on that.

COHN: But if he or his fellow students are wrong, some of the risk,
now more than ever, falls on federal taxpayers.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in New Rochelle, New York.

MATHISEN: Still ahead, six weeks until open enrollment for health
care. But there are still some major headwinds that could prevent the new
health care exchanges from being open for business.

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

Health insurance costs keep rising, trouble is wages aren`t keeping
up. A new study from the non-profit Kaiser Family Foundation found that
the average cost for employer-sponsored health insurance rose a modest 4
percent this year, but that`s still double, double the average increase in
worker pay. So more income is going for health coverage, which means less
is available for other expenses.

GHARIB: And for Americans considering getting their health care
coverage from new state exchanges, part of the Affordable Care Act, there
is just six weeks to go before those insurance marketplaces are scheduled
to be up and running.

So, how are states getting the word out about those new coverage
options? Will they be ready in October? And what happens if they are not
up to speed?

Bertha Coombs takes a look.

PETER LEE, EXECUTIVE DIRECTOR, COVERED CALIFORNIA: We need to educate
people, though.

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Covered
California`s Peter Lee is headlining town halls across the state to spread
the word about enrolling for the Affordable Care Act. Job one is assuring
residents the state`s online insurance exchange will be ready.

LEE: We`re testing every week new elements. We`re testing not only
what we do, but how do we relate to what`s called the federal hub. And
those tests are going well.

COOMBS: The federal hub is the Obama administration`s central data
clearinghouse that will connect state online marketplaces to systems at the
IRS and the Center for Medicare and Medicaid for applicant income
verification and eligibility for subsides.

But according to an inspector general report, the hub`s final security
certification won`t happen until the day before exchanges are due to open.

CHRISTOPHER RASMUSSEN, CENTER FOR DEMOCRACY & TECHNOLOGY: It`s
cutting the margin close. If it does actually come through on September
30th, there would be no problem. It would just be the next day they would
be open for enrollment. Of course, the problem would come if it went past
that deadline.

COOMBS: Obama officials say they`ve made progress on the hub and will
be ready. If they`re not, Lee says California will delay online
enrollment.

LEE: We will not go live if we can`t assure security of information.

COOMBS: They will start with paper enrollment, if need be, others are
planning to do the same.

CECI CONNOLLY, PWC HEALTH RESEARCH INSTITUTE: From talking to many of
the players across the country, health insurance plans, states, a number of
advocacy groups, they all are putting in place these contingency plans for
paper enrollment. Partly, it`s because of concern that maybe all of the
systems won`t be working properly on day one.

COOMBS: If the online exchanges are unable launch on time, it could
become a major PR problem for the states and the Obama administration
because just as they are preparing to launch a massive media outreach
campaign this fall, opponents are also gearing up with a counter-offense.

The Heritage Foundation has announced a $500,000 campaign to overturn
so-called “Obamacare.”

ELIZABETH WILNER, CAMPAIGN ANALYSIS GROUP, KANTAR MEDIA: There is
going to be a lot of political advertising about the law, again, mainly
negative, at the same time that insurers and state exchanges and the
government are out there trying to sell it.

COOMBS: The political controversy has insurers who are offering plans
on the exchanges treading carefully about how they`ll advertise. But if
enrollment proves popular, that could change quickly.

SCOTT ROSKOWSKI, TELEVISION BUREAU OF ADVERTISING: This health care
category, which has traditionally only been spending somewhere around $600
million in every medium, now could suddenly be a billion-dollar category.

COOMBS: California plans a slow rollout of it`s $85 million ad
campaign that builds in late fall.

LEE: We need to have a constant drumbeat of the facts.

COOMBS: Because it`s not October 1st, but the numbers come January
when coverage starts that really count.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

GHARIB: And tomorrow we`ll look at what is being done to get younger
Americans enrolled, a critical component of the new health law`s success.
For more about exchanges, go to our Web site, nbr.com.

MATHISEN: We begin the “Market Focus” tonight with more retail
earnings. Shares of TJX Companies (NYSE:TJX) soaring after that discount
retailer beat the Street estimates and raised its profit outlook for the
year. The parent of T.J. Maxx, Home Goods, Marshalls, said traffic was up
at its stores and people were spending more. The stock rose almost 7
percent to $54.26.

Shares of Urban Outfitters (NASDAQ:URBN) a bright spot among the teen
retailers. That stock sharply higher after reporting a rise in second-
quarter profit that bucked the trend of its rivals as fewer discounts
helped gross margins there. The stock finished up 8 percent to $43.19.

But consumers are spending less on camping and golfing gear. That
hurt Dick`s Sporting Goods`s bottom line, and prompted the company to slash
its earnings forecast for the year. The CEO said wet and cool conditions
discouraged outdoor activity in many parts of the country, weighing on
sales of camping, golf, biking equipment, among others, in the most recent
quarter. The stock dropped more than 7 percent, $46.64 the close.

GHARIB: Netflix (NASDAQ:NFLX) sealing another exclusive deal, this
time with The Weinstein Company. Netflix (NASDAQ:NFLX) will now be the
exclusive subscription television outlet for Weinstein Movies. The
studio`s movies have included box office hits like “The Artist,” and “The
King`s Speech.” The films will become available starting in 2016 after
their theater runs and DVD releases. The stock rose more than 5 percent to
$273.39, making it the best-performing stock in the S&P this year.

Medtronic (NYSE:MDT) shares fell today despite reporting decent
quarterly results. Profits up 10 percent, solid growth in emerging
markets, and it even reiterated its outlook for sales and profit for the
fiscal year. But the medical equipment-maker warned of soft demand for
implantable heart defibrillators. And that weighed down its shares. The
stock closed down more than 2 percent to $52.83.

And a bright day for Trina Solar. The Chinese solar panel-maker
beating earnings expectations. And it raised its forecasts for panel
shipments this year. The company is doing more business with Japan, easing
its dependence on Europe. Shares soared more than 15 percent to $7.82.

MATHISEN: Shadow banking, financial intermediaries that lend money
just like banks but aren`t regulated like banks. And in China, these kinds
of risky financial transactions are more prevalent than ever now.

Eunice Yoon has more on the concerns about the proliferation of a
shadow banking system in China, and why regulators there should be worried.

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: When you first
meet Liu Yannan, it`s hard to believe he`s a shadow banker. With
experience at a Wall Street firm, Liu now runs a Web site in Beijing that
matches companies in need of cash with small-time investors willing to
lend.

LIU YANNAN, SHADOW BANKER: So I don`t know why in China people sort
of think that shadow banking is so scary, shadow banking is bad.

YOON: Many find shadow banking scary because they fear it could
threaten China and the world. The unregulated industry encompasses all
sorts of untraditional financing, everything from private citizens lending
spare savings to indirect or off-balance sheet loans from banks.

CHARLENE CHU, FITCH RATINGS: Now that we see banks offloading more
and more assets into these hidden channels, it is difficult for anybody,
the regulators, us, to really know what the positions are of banks or
borrowers. And I think it`s a very important point that the market is
missing. An increasingly large share of the picture of what is going on in
China is happening in this black box.

YOON: This investment trust officer knows what is happening in the
black box. She agreed to be interviewed but only if we masked her
identity.

UNIDENTIFIED FEMALE (through translator): Seventy percent of our
business is shadow banking. Through trust companies the banks change the
property of their loans so the bad debts don`t show up on their balance
sheets.

YOON: Investment trust companies are less regulated and sell high-
return wealth management products based on riskier investments.

UNIDENTIFIED FEMALE (through translator): Of course, we`re very
afraid of the risks. It won`t be that risky unless the economy runs into
trouble.

YOON: That is exactly what this banker is worried about.

UNIDENTIFIED MALE (through translator): I feel that at some point the
bubble will burst and we will see a systematic financial crisis like the
subprime crisis that occurred in America in 2008.

YOON: With China now in one of the biggest credit booms in modern
history.

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

GHARIB: And coming up on the program, want to know if more Americans
are feeling optimistic about the economy? You may find the answer on the
road this Labor Day weekend. We`ll explain.

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

The Tesla electric car can obviously take a charge, but it evidently
can also take a hit. The Model S sedan has been awarded the highest rating
ever by the National Highway Traffic Safety Administration. Every major
make and model approved for sale in the U.S. was tested by the agency.

And the Model S, with its five-star crash rating, set a new record for
the lowest likelihood of injury to occupants in the event of a crash.
There is no gas tank and the rear-mounted engine allows for a much longer
crumple zone in the front of the car.

GHARIB: No matter what car you drive or how safe it is, AAA, the
Automobile Association of America, says that more of us will be hitting the
roads this Labor Day weekend.

Hampton Pearson has more on the holiday weekend travel forecast and
what it says about the economy.

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Along the
busy I-95 corridor between New York City and the Virginia and Carolina
beaches, we found lots of travelers taking advantage of falling gasoline
prices to squeeze in one last vacation before the kids go back to school
and getting a jump on what could be the biggest Labor Day travel period in
five years.

UNIDENTIFIED FEMALE: Just leaving from Williamsburg, Virginia,
heading back home. And possibly over Labor Day we would like to go away.
But the kids will be going back to school soon.

UNIDENTIFIED MALE: Gas prices are a concern but you save up for that
over the year as you go along. And unless they go way over the top, like
over $4.50, $5, we may change plans.

UNIDENTIFIED MALE: I don`t think it ever stops me from taking a trip,
to tell you the truth. If I`m going on vacation, I go.

PEARSON: An estimated 34 million Americans will travel at least 50
miles away from home during the Labor Day holiday. That`s according to
AAA. Twenty-nine million, 85 percent, will travel by automobile, up 4.3
percent from last year, with the average round trip covering just under 600
miles and consumer spending about $800.

AAA officials say it`s not just cheaper gasoline prices that has more
Americans planning to hit the road, but growing optimism about the economy,
especially housing.

HEATHER HUNTER, AAA: Americans are feeling more optimistic about
their personal financial future. Unemployment numbers have improved.
Consumer sentiment and consumer spending are also improving, as well as
those housing prices. And that`s making them feel more confident that they
can take a last summer vacation.

PEARSON: A big comeback from the recession, back in 2009, AAA says
there was a 30 percent decline in Labor Day travel.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

MATHISEN: And finally tonight, you may never get rich working for the
federal government, but you might be surprised about the net worth of a few
members of Congress. The Hill newspaper is just out with a rundown of the
wealthiest lawmakers.

In third place, third-richest, Senator Mark Warner, a Democrat from
Virginia, worth more than $88 million, he ran a technology company.

Next, Representative Michael McCaul of Texas, whose in-laws run the
Clear Channel Communications company. The Republican, he`s the chairman of
the Homeland Security Committee, and he`s worth $101 million.

Topping the list, Representative Darrell Issa of California, the
Republican chairman of the House Oversight and Government Reform Committee,
worth $355 million, mostly from his Viper car alarm business.

GHARIB: And send us a stock that you`d like our “Market Monitor”
guest to discuss on Friday. Log on to our Website nbr.com. Click on the
link to submit your question and don`t forget to tell us where you`re from.

And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib,
thanks so much for watching.

MATHISEN: 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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