Transcript: Wednesday, August 21, 2013

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


The Fed didn`t give any. The timing of the stimulus slowdown is still uncertain, leading investors scratching their heads. So, what happens next?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The young and the uninsured. A new report shines light on what this group may do when open enrolment begins — and it could determine the success or failure of the president`s health law.

GHARIB: And low octane. ExxonMobil (NYSE:XOM) shares are running out of gas, down 20 of the past 21 sessions. Should investors be worried?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 21st.

MATHISEN: Good evening, everyone. And welcome.

As a basketball announcer Marv Albert likes to say at the critical moment of a game or series — it`s all come down to this. When exactly will the Fed begin in the verb of the summer to taper its bond buying?

Well, today, investors sought clarity in the minutes from the Fed`s July meeting. They didn`t find it. The market forensic scientist probed and prodded the meaning of words like “patience” and “soon”. But how soon is soon? How patient is patient when an economy`s fate is at stake?

All that was really clear is that Fed officials seem broadly united that the bond-buying will end eventually, maybe by mid-2014, or not if the economy stumbles.

The lack of definitiveness is why the Dow swooped, swooned, soared and sank today, down 122 after the release of the minutes, then up by 17 briefly before closing down 105. The Dow finished below the 15,000 mark for the first time since July 3rd. It was the sixth straight losing session for that barometer.

The NASDAQ is lower by 13 points and the S&P 500 off by nine.

Meanwhile, treasury yields moved by like the British boy band, One Direction — up, constantly up. Up to 2.9 percent on the 10-year bond.

Now, with so much uncertainty about the market and the Fed`s tapering plan, the Fed has a lot on its plate, enough to make them head for the hills, which is what they did.

Steve Liesman has our report from the big Fed conference in Jackson Hole, Wyoming.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening from Jackson Hole, Wyoming, where the Federal Reserve gathers every year for its economic retreat on monetary policy and the economy.

And this year, there is a high but not unprecedented level of uncertainty surrounding this meeting. Every four years, they get together with uncertainty about who will be the Fed chairman? In 2009, it was whether President Obama would reappoint then-Fed Chairman Ben Bernanke and then, four years before that, it was who would succeed Fed Chairman Alan Greenspan?

Well, this year, it`s — who`s going to replace Fed Chairman Ben Bernanke? And there is two leading candidates — Janet Yellen, the vice chairman now, and Larry Summers, the former treasury secretary, who is President Obama`s economic advisor. Both have their plusses and minuses.
And the leading candidate here thought to be Larry Summers.

A big difference this year is the Fed chairman won`t be attending.
Neither will the head of the European Central Bank, Mario Draghi. Other top Fed officials will be here like Bill Dudley, the president of the New York Fed, Jim Bullard from St. Louis, and John Williams from San Francisco, along with Christine Lagarde, the head of the IMF, as well as really central bankers from around the world.

Some of the big topics this year will be whether or not quantitative easing is working and if it`s not working, what the Federal Reserve should
do instead. Also, is the Fed communication strategy adequate?

The conference begins tomorrow night with a dinner, and there will be academic papers and discussion over the next two days and I think one of the things I`ll be listening for is whether or not the Federal Reserve believes the economy is strong enough for it to reduce its stimulus for the economy as soon as September, or whether or not that will happen later.



GHARIB: We turn now to Liz Ann Sonders for her thoughts on the Fed and the markets. She`s chief investment strategist at Charles Schwab and Company.

So, Liz Ann, it seems like there was a lot of doubt, a lot of confusion about what was in those Fed minutes, what the Fed will do next.
What do you think was the message of the markets, and just what do you think in general about what`s next for the markets?

LIZ ANN SONDERS, CHARLES SCHWAB CHIEF INVESTMENT STRATEGIST: I think the skittishness of the markets may be more than just confusion about the Fed minutes today. I don`t know that that provided a lot of additional color, but we put a note out about 10 days ago saying we thought the market was going to pull back.

Now, uncertainty about Fed tapering and the implications for that is part of the reason for that. Again, I`m not so sure that the minutes specifically were a function of today`s volatility. I think we`re just in a fairly skittish environment right now for the market, at least in the short-term.

MATHISEN: You know, Liz Ann, we sort of know that the bond-buying will end. What we don`t know is when the end will begin. What`s your guess?

SONDERS: Look, I mean, we have no reason to think that it`s going to be other than what the consensus believes, which is at least an announcement on September 17th or 18th, which is the next meeting, and maybe an announcement as well as the beginning of a tapering. You know, the Treasury is issuing fewer treasuries right now.

So, I hope when the Fed does it, they put the tapering into context of lower Treasury issuance. So, they`re really not changing the supply demand balance. In fact, if they continue buying at this pace, given lower issuance, they`d be buying an even bigger portion of outstanding treasuries.

So I think they could maybe ease some concerns and really cement the idea that tapering is not tightening.

GHARIB: You know, you just mentioned your report that you came out with last week that was titled “Pause”. But you also say in that report, long-term, things look good. Why are you positive on stocks?

SONDERS: Again, I think, you know, we`re probably in a pull back mode here. I don`t think it`s going to be terribly sinister, but seasons
(ph) are against us right now, at least a week and a half ago; sentiment was against that, and technical deterioration. And we may not be through that.

But looking past some of those near-term issues, looking past other two macro issues, with the implementation of Affordable Care Act, the second round of sequester cuts, evaluation is still pretty reasonable, corporate earnings are pretty decent, and I think investors are only now four and a half years start in — starting to get more enthusiastic about the market. So, there is really very little that what I believe was a secular bull market that began in March of `09 is coming to a close.

That said, there are going to be times in a long-term bull market where you need to pause, you need to correct a little bit, sort of the pause, it refreshes. And I think that`s the environment.

But I`m not swayed by the short-term worries in terms of my long-term optimism.

MATHISEN: Are you in the camp, Liz Ann, with so many others that think the U.S. economy may be the one, sort of place that outperforms in the short-term and that, hence, U.S. stocks are a better bet over the next few months than emerging markets or foreign stocks?

SONDERS: No question, Ty. We`ve had a decidedly pro-U.S. stance in our global asset allocation views right now, certainly relative to emerging markets, which we have been suggesting investors lightening up on, particularly China. So, U.S. is our favorite market. Second to that outside of the U.S. would actually be European equities right now. But we are a big believer in the relative U.S. story.

GHARIB: Tell us real quickly, we have half a minute. You said that your clients are feeling — investors are feeling enthusiastic. What is the mood? Where are they putting their money? I`m talking about the individual investor.

SONDERS: Yes, they are feeling a little bit better and I think, you know, the market`s gains certainly support that. But I think investors are now starting to look past some of the policy, uncertainty is starting to get a little bit more enthusiastic about the fundamentals. Again, in the near-term, I think there is some hurdles, and I would say concern about Fed tapering is probably the number one list of short-term concerns in an environment otherwise of improved sentiment.

GHARIB: All right. Thanks a lot — Liz Ann Sonders from Charles Schwab and Company.

SONDERS: Thank you.

MATHISEN: Well, nearly five years after the financial crisis, not one criminal case has been brought against executives who nearly brought the U.S. economy down with risky behavior, toxic investments and reckless trades. But that could change. U.S. Attorney General Eric Holder told “The Wall Street Journal” that, quote, “anybody who has inflicted damage on our financial markets should not be of the belief that they are out of the woods because of the passage of time,” end quote.

Holder wouldn`t say who is in DOJ`s crosshairs, if anybody or specified whether any charges will be criminal or civil, but he did mention individual people, as well as institutions are being looked at.

GHARIB: A new survey says that most high school graduates are not ready for college level course work. The folks who administer the ACT college entrance exam report that only 39 percent of high school graduates tested this year met three or more of the four benchmarks in English, reading, math and science that would prepare them for higher learning.

Nearly a third of all graduates, 31 percent, met none of the benchmarks. And just a quarter of this year`s high school graduates cleared the bar in all four subjects.

MATHISEN: More Americans are working these days, but only part time.
A new report from “Reuters” shows that three out of four of the nearly 1 million new hires made this year were for part-time workers, and many of those jobs are in low-paying jobs like retail and food service. Some companies are reluctant to take on more full time staffers because economic growth has been tepid. They also say that providing healthcare coverage to workers under the Affordable Care Act would drive their business cost too high.

GHARIB: While employers worry about the cost of providing coverage for workers, we`re just six weeks away from what state and federal healthcare exchanges are slated to be operational under the Affordable Health Act. One of the biggest challenges for administrators: getting the word out to people that may need to sign up for coverage, especially to young people, many of whom say that they aren`t focused or even aware of what they have to do and spend to obtain health insurance.

Bertha Coombs has the story.


In health policy circles, they are called “Young Invincibles” — healthy 20-somethings who don`t buy insurance, it`s assumed, because they don`t prioritize it.

But a new report from the Commonwealth Fund shows otherwise.

SARA COLLINS, COMMONWEALTH FUND: Affordability is really the key reason why young adults don`t enroll in health plans.

COOMBS: Researchers found two thirds of 19 to 29-year-olds they surveyed take up insurance when offered at work.

COLLINS: Among those who don`t, 22 percent say that they couldn`t afford the policy and only 5 percent said that they didn`t sign up because they didn`t need it.

COOMBS: Fifteen million young adults in early 20s are now covered under the Obamacare provision allowing them to stay on a parent insurance plan. And the survey shows the number is rising.

UNIDENTIFIED MALE: I plan on using my mom`s insurance as long as I can.

UNIDENTIFIED FEMALE: I`ll stay under it until I`m 25 or 26.

COOMBS: While the so-called “Obamacare” remains controversial, the survey found politics doesn`t enter into coverage choices. Commonwealth found 63 percent of those who identified themselves as Republicans were covered under parent`s insurance plans, up from 54 percent in 2011. That compares to 45 percent of self-described Democrats, down from 50 percent in 2011.

COLLINS: What it says is this has been a long-term problem for all families, regardless of their political affiliation. Being able to come under the parents` policy really did benefit young adults.

COOMBS: For 2014, the challenge is getting young adults who can`t get (ph) coverage through their parents to buy insurance on their home.
The Obama administration is hoping to sign up at least $2.7 million young people through state health insurance exchanges.

The non-traditional advertising, the Department of Health and Human Services is using social media to try to reach them. But they aren`t alone. The Heritage Foundation has launched a counter-campaign to coincide with this fall`s open enrollment on social media platforms, to get young people to post pictures of themselves with the #stopobamacare.

ERICKA ANDERSEN, THE HERITAGE FOUNDATION: We want to package the information in a way that the user, the reader is going to actually be able to digest it, and we just want to meet those people where they are.

COOMBS (on camera): Both sides of the Obamacare divide will be watching young adults` enrollment closely this fall, because without their participation, the insurance market will suffer from adverse selection.
That is only older and sicker people applying for coverage which ultimately will push premium prices higher.

(voice-over): With 80 percent of uninsured young adults eligible for federal subsidies, Commonwealth`s Sarah Collins expects to see strong enrollment. But the bottom line will be the premium price.

COLLINS: Affordability is going to be key.



GHARIB: Still ahead, ExxonMobil`s losing streak is the worst performing stock in the Dow this month. What`s going on at one of the world`s largest energy companies? We`ll take a look.

But, first, here`s the check on the closing numbers for the international markets today.


MATHISEN: It is still August, but Wal-Mart (NYSE:WMT) is out with an early Christmas gift for some of its shoppers starting September 13th. The world`s largest retailer will offer a free no-interest lay away plan and will even eliminate the $5 account set up fee to help its lower income shoppers budget, their holiday spending.

GHARIB: Toys “R” Us is also gearing up for the holiday season. The nation`s largest toy store chain announced that it`s expanding its price match guarantee on toys from any online retailer, including Amazon
(NASDAQ:AMZN) or Wal-Mart (NYSE:WMT).com. Toys “R” Us already matches prices on identical items with its brick and mortar competitors.

MATHISEN: Big week for retail earnings continues with Target (NYSE:TGT). That`s where we begin tonight`s “Market Focus”. Busy night here.

The nation`s second largest retailer by sales behind Wal-Mart
(NYSE:WMT) is warning that its annual profit will likely be near the low- end of its forecast. The company says its expansion into Canada is costing more than anticipated and that sales in the U.S. are being pressured by a cautious consumer. Shares fell more than 3 percent to $65.50.

Shares of Staples (NASDAQ:SPLS) dropping sharply after reporting weaker-than-expected quarterly results. The largest U.S. office supply chain cutting its earnings outlook for the year because of the soft sales in Europe and Australia. The stock slumping 15 percent to $14.27. That made it the worst performing stock in the S&P 500 today.

Similar story for American Eagle — fewer customers shopping at the retailer which is forecasting a big drop in profits for the current quarter. The company citing increased competition and a heavy level of promotions, which the CEO calls unprecedented. The stock fell more than 9 percent to $14.76.

And the housing recovery helping Lowe`s bottom line. The home improvement retailer reporting a rise in profit and boosting its fiscal year outlook as Americans spend more to spruce up their homes. The CEO characterizing demand for home improvement products as strong. The stock rose almost 4 percent to $45.81.

GHARIB: Sticking with housing, Toll Brothers (NYSE:TOL) saw revenues jump, thanks to higher home prices. The luxury home builders says it expects to raise prices again in the quarter despite rising mortgage rates.
Toll CEO says the recovery is, quote, “real” and he sees early stages of the rebound. Shares rose a fraction to $31.65.

More signs today that the once mighty Hewlett-Packard (NYSE:HPQ) is struggling from the slump in PC sales. Quarterly earnings were in line with analyst estimates but revenues dropped 8 percent. The company reported that PC sales plunged more than 22 percent during the fiscal third quarter. HP, though, still raised the outlook for the rest of the year.
The stock dropped almost 2 percent to $25.38 in the regular session and then fell even more after hours.

And the ExxonMobil (NYSE:XOM) losing streak continues. The stock falling in 20 of the last 21 trading sessions. Exxon, along with Chevron (NYSE:CVX), have accounted for about 1/3 of the Dow`s point losses this month.

Exxon fell fractionally today, to close at $86.42. Shares are down more than 9 percent since the end of July.

MATHISEN: So, what is going on with these two oil giants, Exxon and Chevron (NYSE:CVX), especially with energy prices so very high?

Here to tell us why is Pavel Molchanov. He`s an energy analyst with Raymond James.

Pavel, welcome. Good have to have you with us.

Why are these two shares struggling so much?

PAVEL MOLCHANOV, RAYMOND JAMES ENERGY ANALYST: Sure, I mean, several reasons. One is very simple. Until maybe the last week or so, we`ve been in a bull market for equities.

Exxon and Chevron (NYSE:CVX) are inherently defensive stocks. They are simply not in favor in the context of a bull market where investors generally want something more growthy, higher beta, more speculative. This is the very opposite of high beta or speculative.

Second reason is, you know, we`re finding stocks have also been very weak lately because the spread between the price of Brent crude and WTI has compressed. And remember, we think of Exxon and Chevron (NYSE:CVX) as oil producers and for the most part they are, but they also have a big U.S.
refining business which suffered as those spreads have tightened.

And then, thirdly, yields have gone up, as we all know and yield- baring securities have generally traded off in that context and both Exxon and Chevron (NYSE:CVX) are, you know, high dividend yielding stocks, always have been.

GHARIB: Pavel, yet, you have right now buy recommendations on both Chevron (NYSE:CVX) and Exxon. Is it because they become so low that they have, you know, good opportunities? What`s the story there?

MOLCHANOV: Yes, I love these stocks here. I mean, they are — particularly if investors, as we believe, believe that oil prices are going to soften into next year. We think there is quite a bit of downside to oil. And in the context of a falling oil price, it is precisely these kinds of high-quality defensive energy stocks that tend to outperform.

Now, in the last six months, it`s been the smaller cap, more higher beta, you know, ENP independence, some of the service companies that have done better. And, certainly, we think there are opportunities in those sectors, too, but these mega caps screen very well, again, if in fact, oil prices do soften into next year.

MATHISEN: So if I own, as many of our viewers presumably do, Exxon as a core holding, maybe Chevron (NYSE:CVX) has a core holding, partly because they like the yield in those stocks, you would say definitively hold those stocks and maybe buy on weakness?

MOLCHANOV: Yes, we would absolutely be buyers on weakness. Again, if oil prices do weaken into next year and the future`s curve is telling us that, supply-demand analysis we`ve done tells us that, these stocks should do relatively better than most of the smaller, higher beta energy stocks.

GHARIB: So, tell us about oil prices. You keep saying that if they go down. How much could they go down this year or next year? Right now, West Texas crude is $104 a barrel.

MOLCHANOV: Yes, we think that by the end of the year, it will be in the low to mid-90s. So, down, you know, 10 percent, maybe more. And then next year, we think WTI could potentially get into the 70s. Now, you know, that depends obviously on a lot of factors. For example, right now, the price of oil is being propped up by Egypt, even though the Egyptian political crisis has absolutely nothing to do with oil supply whatsoever.

So, psychology has propped up the price because of the new slow on TV, but that`s all it is. It`s just a fair trade. Pure sentiment.

MATHISEN: All right. Pavel, thank you very much. Pavel Molchanov is an energy analyst at Raymond James.

And coming up, Whirlpool (NYSE:WHR) felt the pain of the housing bust and now is riding the recovery. The stock soaring, sales surging. But could the appliance maker be in for a bumpy ride ahead.

First, though, how commodities, treasuries, and currencies performed today.


GHARIB: Those western wildfires that have scorched thousands of acres of land from Arizona to Washington state just got a lot more costly.
New estimates in Boise (NYSE:BZ.W) (NYSE:BZ), Idaho, show that the cost of fighting this season`s fires has already topped $1 billion. Forty-eight wildfires are still raging and uncontained around the country and nearly
18,000 firefighters had been dispatched to fight them. Two blazes in Idaho near the resort towns of Ketchum and Sun Valley are currently the nation`s top priority.

MATHISEN: Facebook (NASDAQ:FB) founder Mark Zuckerberg wants to bring the Internet to everyone, on the planet. Zuckerberg announced the launch of, an initiative aimed at bringing Internet access to
2/3 of the world`s population that is now unable to get online, mostly in third world and emerging nations. His company is teaming up with Nokia (NYSE:NOK), Qualcomm (NASDAQ:QCOM), Samsung and others to lower the cost of Internet access and help businesses create new ways to drive Internet availability.

Zuckerberg spoke about the idea this morning on CNN.


MARK ZUCKERBERG, FACEBOOK CEO: We use things like Facebook
(NASDAQ:FB) to share news and catch up with our friends. But there, they`re going to use it to decide what kind of government they want, get access to healthcare for the first time ever, connect with family hundreds of miles away that they haven`t seen in decades. Getting access to the Internet is a really big deal. I think we`re going to be able to do it.


GHARIB: Meanwhile, another tech giant Apple (NASDAQ:AAPL) is having trouble gaining access to customers in China. Apple (NASDAQ:AAPL) share of the Chinese tablet computer market plunged in the second quarter of this year, accounting for 28 percent of shipments. That`s down from almost 50 percent a year earlier. Research firm IDC says that smartphones made by Samsung and competing products made by dozens of local Chinese companies have put the squeeze on iPad sales there.

MATHISEN: Kitchen appliances have been on a tear lately, thanks to the turnaround in home sales and home prices. One of the biggest beneficiaries of that recovery, Whirlpool (NYSE:WHR). Shares of the U.S.
appliance giant up 83 percent over the past year and the company recently added jobs and expanded its manufacturing facilities.

Jackie DeAngelis now with more on this comeback company.


Dishwasher, washing machines, microwave ovens, just some of the appliances used to outfit new homes and upgrade old ones. Today, a report showed that existing home sales jumped to their best level since November of 2009, and Whirlpool (NYSE:WHR) is one of the top manufacturers benefitting from the recovery.

LAURA CHAMPINE, CANACORD GENUITY MANAGING DIRECTOR: We think that home prices as they appreciate get the customer to buy more appliances.
The replacement cycle is really long on those products. So, an oven can last 10, 20 years. So to get a customer to invest in new appliances before they break, they have to think that home prices are improving, that they are making an investment inside an investment that is appreciating.

DEANGELIS: And Whirlpool (NYSE:WHR) stock is benefitting from that, up nearly 140 percent in two years and more than 30 percent year-to-date.
Still, analysts point out that Whirlpool`s high correlation to the housing recovery could be it`s Achilles heel, especially if interest rates continue to rise.

CHAMPINE: They have talked about rising interest rates. We think we`re at least a year off from that having any real impact on the result.
So, we expect at least another year of strong same-store sales numbers from the home improvement stocks.

DEANGELIS: Other risks include consumer spending and a slow uptick.
But if the economy sours, consumers might tighten up. But for now, they`re opening up their wallets.

UNIDENTIFIED FEMALE: The price of homes have increased so we felt more comfortable that this was a comfortable thing to do for us financially.

UNIDENTIFIED MALE: I think it`s more discretionary income. If you have income, you want to beautify your place. That`s more the natural first places you go to is, like redoing your kitchen, new refrigerator and new oven.

DEANGELIS: Also, roughly 30 percent of Whirlpool (NYSE:WHR) sales come from its international operations. Operations outside of North America typically tend to be more volatile.

(on camera): Still, investment firm Raymond James has an outperform rating on the stock, which means that it expects the company to outperform the S&P 500 over the next 12 to 18 months.



GHARIB: And, finally, tonight, are you ready for some football on YouTube? Google (NASDAQ:GOOG), which owns YouTube, is talking with the National Football League, and it looks like the search giant might make be a bid for the NFL`s Sunday ticket package, giving viewers streaming access to all games on YouTube. Right now, DirecTV pays about $1 billion a year for the rights to air the out of town game package, but that contract expires after this season. And Google (NASDAQ:GOOG), along with cable channels, broadcast networks and satellite providers, are all tackling to win it.

MATHISEN: And tell us the one stock, only one you would like the “Market Monitor” guest to discuss on Friday. Go to our Web site, and click on the link to submit your question. Be sure to tell us where you`re from and maybe we`ll tackle your question on Friday.

GHARIB: Football on YouTube.

MATHISEN: We shall see. Long way to go before that one happens.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, thanks for joining us.

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



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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