Transcript: Tuesday, August 27, 2013

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

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BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stocks knocked by Syria again. The Dow suffers its worst decline since late June. Gold spikes as money flows into treasuries. And it`s not just American investors feeling the heat of escalating tensions but equities across the globe.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Setting up for a big fall. Attention also turns to Washington where a showdown looms over the debt ceiling and whether the U.S. will be able to pay its bills come mid- October.

GRIFFETH: Securing your retirement. Whether you`re 25, 35, 45 or 55, we`ll tell you how much you should be saving right now to make sure you do not outlive your money.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, August the 27th.

GHARIB: Good evening, everyone. I`m Susie Gharib, here with my colleague Bill Griffeth. And Tyler is off tonight.

Stocks got hit hard today and the reason, in a word, Syria.
Investors here in U.S. and around the world dumped stocks, worried about the possibility of the U.S. and allies might take military action against Syria over its use of chemical weapons. And so, so investors moved their money to safe havens like gold, oil and treasuries.

Here is a rundown of the numbers by the closing bell. The major stock averages fell between 1 percent to 2 percent. The Dow tumbled 170 points, the NASDAQ lost almost 80, and the S&P down 26 points.

Over in the bond market, prices on U.S. treasuries rose with the yield on the 10-year, falling to 2.72 percent.

Meanwhile, gold jumped sharply, up $27 to $1,420 an ounce. And oil also surged. Crude futures gained almost $3.09, almost 3 percent to $109 a barrel. That`s it`s second biggest gain of the year.

GRIFFETH: Well, the rising tensions between the U.S. and Syria, which has already rattled markets around the world, is also raising questions tonight about what`s at stake to the U.S. economy and our nation`s reputation, if U.S. military intervenes in that nation`s civil war.

Michelle Caruso-Cabrera has more on why Syria matters.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT
(voice-over): Stocks fell again as the second member of the administration made clear military intervention in Syria is increasingly likely.

Secretary of Defense Chuck Hagel today while on an overseas trip.

CHUCK HAGEL, SECRETARY OF DEFENSE: I think it`s pretty clear that chemical weapons were use against people in Syria. I think that the intelligence will conclude that it wasn`t the rebels who used it. The deeper we get into this, it seems to me it`s clear and clear that the government of Syria was responsible.

CARUSO-CABRERA: Those words, the clearest signal yet perhaps the U.S. will fulfill the promise President Obama made when he said the use of chemical weapons would be crossing a red line — at stake for the United States, crude and credibility. The price of oil is rising steadily in the face of tensions.

HELIMA CROFT, BARCLAYS N. AMERICA RESEARCH: Well, if you look at the Brent market for oil, we see right six-month highs because of concerns about what`s going on Syria. What we`re closely watching now because Syria is not a big oil producer, do we have violence spilling over to key producers like Iraq, OPEC`s second largest producer. They`ve seen a run-up in violence that tied that significantly to what`s going on in Syria.

CARUSO-CABRERA: Gold went up as well, hitting an 11-week high as investors sought safety. Bond prices went up for the same reason, too, pushing interest rates lower. The 10-year yield back below 2.8 percent.
The rationale: many in the investment community believe military action is inevitable in order for the U.S. to maintain credibility.

KEN TIMMERMAN, MIDDLE EAST EXPERT & AUTHOR: Clearly, if chemical weapons have been used and that`s a big if, I believe, the United States has to do something. The president has drawn a line in the sand and for the United States to have any credibility in the region, they have to be a military response.

CARUSO-CABRERA: Analysts argue if U.S. does not act, foes such as North Korea and Iran will be emboldened.

The White House says no firm decision has been made.

For NIGHTLY BUSINESS REPORT, I`m Michelle Caruso-Cabrera.

(END VIDEOTAPE)

GHARIB: Also adding to investor jitters today, the U.S. will hit its borrowing limit in mid-October and may not be able to pay its bills.
Raising the debt ceiling, the nation`s borrowing limit could stir things up in Washington.

John Harwood has more from the White House.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, I interviewed Treasury Secretary Lew this morning and what he said was, yes, we will negotiate with Congress over funding the government, which runs one out of money on September the 30th. We`ll negotiate over the sequester, but we won`t negotiate over raising the debt limit because we can`t afford to have a repeat of repercussions of two years ago during the debt crisis.

Here`s Jack Lew.

(BEGIN VIDEO CLIP)

JACK LEW, TREASURY SECRETARY: What we need in our economy is some certainty. We don`t need another self-inflicted wound. We don`t need another crisis at the last minute. Congress should come back and they should act.

HARWOOD: Is a clean debt limit, with nothing attached to it, the only kind the president will accept?

LEW: Yes, I`m just going to have to reiterate, John. The president has made clear he`s not going to be negotiating over the debt limit.

HARWOOD: But you will negotiate over the budget, which government funding runs out at the end of the month.

LEW: And we`ve been very clear for quite sometime on fiscal policy, generally, the president thinks the right answer is a balanced approach.

HARWOOD: Is the only way sequester is replaced in whole or in part is if Republicans agree to additional tax increases, or could you see a trade of entitlement cuts, some of which your administration has said are necessary for the discretionary cuts we`ve seen now?

LEW: I don`t want to get into details of what the package would be because a small or large package might have different characteristics. You know, I think that the president made clear he was prepared to do tough things on entitlement programs, but those tough actions on entitlement programs require balance in terms of revenue both for fairness and because for economic results.

HARWOOD: How concerned are you about the reaction of financial markets to two different events, one, the possibility of military action in Syria; and secondly, the tapering of bond buying the Fed has signaled is likely to happen this fall?

LEW: You know, I focus on the core economy here. I think we have to take every step we can as we make policy to try and keep our eye on the ball of what does the economy need to keep growing in the future? We have foreign policy decisions that are going to need to be made for reasons other than core economics and, obviously, we`ll have to manage accordingly.

In terms of Fed tapering, as treasury secretary, no comment on monetary policy, but I will focus on core economics.

(END VIDEO CLIP)

HARWOOD: Now, one other thing on the fed, I asked Jack Lew, whether he thought Larry Summers could do an effective job as Fed chairman, if he`s the president`s choice and Jack Lew was the soul of discretion. He said, “I`m going to keep my advice on the Fed where it belongs, in the privacy of the Oval Office.”

GHARIB: John, let me circle back to what the treasury secretary said about not negotiating about this debt ceiling. Did you get any sense that there might be some chances of a short-term deal? I mean, reading between the lines, is there some flexibility to negotiating something?

HARWOOD: Well, there will be a short-term deal likely on government funding. That`s the so-called C.R. or continuing resolution. They`re not likely to settle all their outstanding issues by the end of September, and what I`m hearing from the hill as well from some of the administration is the prospect of a deal for a couple of months, maybe through the end of the year. That`s when they will figure out what to do about the sequester and also what to do about the debt ceiling.

GRIFFETH: So, the great fear, John, has been the last time there was a great negotiation over the debt ceiling was in August of `11. We all remember the tremendous volatility that caused in the markets. Is there a fear that that will happen this time around, as well?

HARWOOD: Well, there is if they don`t get a deal and that`s why administration is being so aggressive and out front and saying, Congress needs to act and we`re not going to negotiate.

One thing inside the White House you hear is the thing that could put us back into recession, the core economy, as Jew Lew said, it`s pretty strong. Growing at about 2 percent. But if we have a debt crisis, a downgrade, destabilized financial markets, all bets are off.

GRIFFETH: John Harwood at the White House — thanks very much, John.

Now, to join us to talk more about Syria, the U.S. economy, the markets and how investors should position their portfolios, we are pleased to welcome Mohamed El-Erian. He`s the co-CEO — CEO and co-chief investment officer of PIMCO, the world`s largest bond fund.

Mohamed, always a pleasure to see you. Thanks for joining us tonight.

MOHAMED EL-ERIAN, PIMCO CEO & CO-CIO: Thank you, Bill.

GRIFFETH: Let me ask you — there have been other geopolitical issues in the last few years around the world, and I think most recently of the toppling of the Morsi government in Egypt. And for the most part, the markets didn`t blink on those events. Today, they blinked big time.

Why do you think that is?

EL-ERIAN: It`s simple reason, Bill. And the oil market tells you.
As Susie said in the beginning, Syria doesn`t produce much oil, 50,000 barrels. That`s a margin of error in the oil market.

However, Syria is connected regionally. It`s a battlefield for proxy war that includes Iran, Iraq, Qatar, Saudi Arabia, Lebanon and Turkey. So, the concern the markets have is that the Syria instability and all the human tragedies there will have adverse regional effects that will destabilize the oil market and impact our economy.

GHARIB: All right. So, Mohamed, there is Syria. That is very important. But also, you just heard in all of our reports, there is negotiation over the debt ceiling. There is also this Fed stuff going on, tapering, a new Fed chairman coming up.

As you look at all of these trouble spots, which could be most disruptive for the markets in the U.S. economy?

EL-ERIAN: So, the most disruptive thing is for many of them to happen. So, at our last count, at PIMCO`s investment committee, we identified eight important uncertainties. You already mentioned three of them, the debt ceiling, the continuing resolution and Syria.

In the last few weeks we talked about two Fed uncertainties, who will succeed Ben Bernanke and will the Fed taper and how?

And let`s not forget Europe and Japan. So, when you put the whole picture together, there is a lot of uncertainty that the market is now starting to price in.

GRIFFETH: But your area of expertise, at least at PIMCO, would be interest rates. And right now, you`re getting crosscurrents for interest rates here in the United States, on the tapering side, rates will rise. If this conflict with Syria escalates, rates presumably would go down.

Which way do you think they are going in the near term here?

EL-ERIAN: So, in the very near term, more probably, they go down than up. And the reason why is because they over shot on the way up.
Let`s also not forget that, unfortunately, Bill, our economy is not attaining escape velocity. We`re still stuck in second gear, in 1 1/2 percent to 2 percent growth.

So, that also puts downward pressure. So, the market overreacted and understandably so but overreacted to talk of Fed tapering and now other factors are playing in.

Only the long term if you`re talking many years, we`re going to have to normalize interest rates at some point.

GHARIB: All right. So, last time that you were on, Mohamed, you were saying that investors should walk away from risk. You said, don`t run, you just walk away from risk. At that time rates on the 10-year were rising. What`s your advice now?

EL-ERIAN: So to walk away from risk at that time was really from the equity market. Don`t run. There was still further to go and it did. We only started selling off in the last few weeks and the idea was a simple one.

For a long time, the markets investors have been riding this huge wave of central bank liquidity and the market believed that this wave would continue and would overcome all sorts of obstacles, if you like, all sorts of rocks in the ocean. Now we realize that wave is not so certain because the Fed itself is worried about collateral damage. And in addition, there are other things.

So, we caution the — those investors who still believe that the Fed can deliver everything. The Fed has done a lot but it cannot deliver everything at this point.

GRIFFETH: Very quickly, Mohamed, gold is rising again. It`s a safe haven play. It`s a wild card. Would you buy gold here?

EL-ERIAN: So, I think having 3 percent to 5 percent gold in your portfolio at this level of price is a good idea. It`s a hedge. It`s an important hedge, and I think that well-diversified portfolio should have these prices at 3 percent to 5 percent share of gold.

GRIFFETH: Mohamed El-Erian of PIMCO, always good to see you. Thanks for joining us again.

EL-ERIAN: Thank you.

GHARIB: And still on the program — ahead on the program tonight: a heat wave in the heartland threatens some crops but that isn`t stopping many of America`s farmers from investing in the next big thing in farming, technology.

But first, here is a check on how the international markets closed today.

(MUSIC)

GHARIB: It looks like the Web site of “The New York Times (NYSE:NYT)” was hacked for the second time in just a few weeks. “The Times” Web site was down today and the newspaper`s vice president of corporate communications tweeted that the initial assessment was that the outage was most likely the result of a, quote, “malicious external attack.”
The company is working to get the site up again.

GRIFFETH: More troubles for America`s largest bank. “The Financial Times” is reporting that the U.S. government is demanding $6 billion from JPMorgan (NYSE:JPM) Chase to settle allegations that it misrepresented the risks of some mortgage backed securities that were sold to Fannie Mae and Freddie Mac just before the financial crisis. Many of those investments later went bad.

In a lawsuit against JPMorgan (NYSE:JPM) and 17 other banks, the Federal Housing Finance Agency said that the bank, quote, “significantly overstated the ability of the borrowers to repay their mortgage loans,” end quote. Now, in this “Financial Times” article, JPMorgan (NYSE:JPM) is saying it will resist paying that big a penalty.

GHARIB: We have some more good news to tell you about in housing.
Home prices in June shot up 12.1 percent from the same month last year, nearly matching a seven-year high. That`s according to the latest S&P Case Shiller home price index that keeps track of home prices in the nation`s largest cities.

Las Vegas saw the biggest gains, soaring nearly 25 percent from a year ago. But the pace of growth may be slowing, 14 of the 20 cities posted smaller gains in June compared with May.

Now, Robert Shiller, co-founder of the index and an economics professor at Yale University, says increases in home prices is part of an up-and-down pattern and that prices will eventually turn lower again.

(BEGIN VIDEO CLIP)

ROBERT SHILLER, CO-FOUNDER, CASE-SHILLER INDEX: The housing market has gotten very speculative and goes through big cycles. Take California, for example. This is up and down, up and down, decade by decade and it doesn`t go anywhere. That`s the way the markets have come, have become.
So for a long-term buyer, the fact they are going up now, doesn`t mean a whole lot about where it`s going to be when you finally sell.

(END VIDEO CLIP)

GHARIB: Turning now to our market focus, we begin with earnings from Tiffany (NYSE:TIF). The high-end jeweler boosted its full year profit forecast and a posted a stronger-than-expected rise in second quarter earnings. Tiffany (NYSE:TIF) says strong sales in China and higher prices made up for weaker growth here in the U.S.

Shares started the day higher, but drifted down 1 percent to close at $80.82.

Shares of Movado spiking on a sharp rise in profits. The luxury watch maker says full year earnings and revenue will come in better than previously thought and that`s thanks to strong sales of its Movado and licensed brands. The company is also hiking its quarterly dividend.
Shares soared more than 10 percent to $41.99.

GRIFFETH: Shoppers weren`t just buying Movado watches but also shoes at DSW (NYSE:DSW) last quarter. The footwear retailer reported a 15 percent rise in profits that beat Wall Street estimates. Companies cited pricing, inventory and price controls as the reasons for that stunning (ph) quarter. The stock rose almost 8 percent on an otherwise down day. It closed at $87.75.

But it was another tough day for Microsoft (NASDAQ:MSFT). There are reports today out of China that Microsoft (NASDAQ:MSFT) cut its estimates of Xbox One console shipments. And separately, the company will not allow reporters to cover the analyst meeting next month in person. Instead, those reporters will have to watch the event via a web cast.

Microsoft (NASDAQ:MSFT) was one of the worst performing Dow components today. It failed more than 2 percent at $33.26.

And in deal news, generic drug maker Akorn (NASDAQ:AKRX) is going to buy rival Hi-Tech Pharmacal (NASDAQ:HITK) for more than $600 million. That acquisition will expand Akorn`s line up of eye drugs. The all-cash deal will make Akorn (NASDAQ:AKRX) a bigger player in both prescription and over-the-counter vision products. Akorn (NASDAQ:AKRX) rose by 9 percent, $18.02. Hi-Tech Pharmacal (NASDAQ:HITK) soared by 22 percent, to $42.99.

GHARIB: Some stocks on the Wall Street return to the heartland where hot, dry, weather is threatening some crops, especially corn, soybeans and wheat. Temperatures are expected to be above average during the next week and a half with little rain expected according to one estimate. July and August will be the driest since 1936 in Iowa, Illinois, and Indiana.

But as Jane Wells reports, the recent heat wave isn`t stopping many of the nation`s farmers from investing in the new big thing in farming, technology.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Drought or no drought, the U.S. farm economy has done well for the better part of a decade. Strong balance sheets and tax incentives encourage farmers to spend, and they have.

UNIDENTIFIED MALE: It`s been an excellent couple years.

WELLS (on camera): How much does this thing cost?

JIM WALKER, CASE IH VP OF AGRICULTURE: Probably more than your house.

(LAUGHTER)

WELLS (voice-over): But as the nation prepares for what could be a record crop or close to it, corn prices have fallen 40 percent from their
$8 highs. Though a Midwest heat wave now is driving them back close to $5 again, and while all equipment manufacturers expect solid, perhaps record- breaking sales this year, next year, farmers may take a break.

WALKER: They are at a point now where buying machinery, they can if they want to but they don`t have to. And so, I think it really puts the pressure now on the manufacturers to supply them with technology that means a difference.

WELLS (on camera): That technology is the new, new thing in farming, whether it`s tractors that drive themselves guided by a satellite or software that lets machine shared data about things like yields and moisture. It`s the sort of thing that drives up productivity and drives down cost.

BARRY NELSON, AC & TURF MEDIA RELATIONS: And then the farmer can access it on his hand held device, iPad, or his home computer.

JASON MARX, AGCO (NYSE:AGCO) MARKETING VP: You might have different types of farming equipment, but by the time you put a bin on their farm, by the time you put in a hauling and trucking company, you got a lot of different technologies there, a lot of different equipment that has to be tied together.

WELLS (voice-over): Farmer Dave Steward says he just bought his first piece of software to monitor yields but says most of his colleagues are slow to join him.

DAVID STEWARD, FARMER: I don`t think there will be many gentlemen signing up here during here during a farm progress show. You know, it will have to be proven. Security is a big issue.

WELLS: Also changing, record high values for good crop land in America`s Corn Belt have not budged. One more reason farming spending spree may go fallow next year.

ANN DUIGNAN, JP MORGAN: I think we`ll see $4 corn before we see $7 corn again, which means it will slow down.

WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Decatur, Illinois.

(END VIDEOTAPE)

GRIFFETH: And coming up, you know, many Americans do not have a plan for retirement. They don`t know what to invest in or how much to put away, the result is they are just not saving enough. We`ll show you what to do so you don`t out live your money coming up.

But, first, a check on how commodities, treasuries and currencies performed today.

(MUSIC)

GHARIB: Federal safety regulators say a problem with some Chevrolet Corvette may leave drivers in the dark. The National Highway Traffic Safety Administration is looking into complaints of low-beam failures in older Corvette. The investigation concerns 103,000 cars from model years
2005 to 2007. There have been no reports of any injuries or deaths related to the defects.

GRIFFETH: Auto makers, in turns out, are not pleasing their new car customers as much as they did a year ago. A new report from American Costumer Satisfaction Index shows a slight dip this year in owner satisfaction, even though auto sales have been surging. Mercedes Benz tops the list, satisfying the largest percentage of buyers. Toyota`s Lexus brand is close behind but Detroit`s Big Three continue to lose ground against imports. The bottom three entries out of 20 name plates surveyed are all American. They are Jeep, Dodge and Chevrolet.

GHARIB: Some big changes coming to Walmart and its benefits plan.
The nation`s largest private employer will now expand health care coverage to the domestic partners of all its American employees, even to same sex partners.

GRIFFETH: And when it comes to planning for retirement, many people say they just plan to wing it, allowing fund managers to figure out their finances for them. But Fidelity, the nation`s largest retirement plan provider found the average 401(k) balance may not be enough to retire on and they are urging investors to take a more active role in planning for their financial futures.

Sharon Epperson has more.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Some workers are opting to save a little more each year.

UNIDENTIFIED MALE: I don`t have a family right now. So, there`s no one to spend it on but me. So, I might as well save it.

UNIDENTIFIED FEMALE: I try to save 20 percent of what I make.

EPPERSON: But most are not saving enough.

UNIDENTIFIED FEMALE: I think it`s impossible to educate, clothe, provide piano lessons and feed your kids and save for retirement now.

EPPERSON: Fidelity, the nation`s largest retirement plan provider found the average 401(k) balance was $80,600 at the end of June, and jumped to $211,800 for employees who are continuously employed in a workplace plan for the past 10 years. The reality is, for most workers, it`s not enough to secure retirement.

BETH MCHUGH, FIDELITY: The rule of thumb you should save anywhere from 10 to 15 percent of your income towards retirement. And even incremental changes or 1 percent change today can make a big difference and create hundreds of dollars in potential income in retirement.

EPPERSON: Fidelity gave us an exclusive look at how much 401(k) investors at various ages would need to save for every $1,000 they`ll need to generate in retirement income. They found a 25-year-old just starting to save would only need to put away about $160 a month. If you start to save at 35, you`ll need to contribute almost $275 a month to generate the same income. A 45-year-old beginning save for retirement would have to put away nearly $500 each month. And a 55-year-old boomer just start build a nest egg would have to put away more than double that amount, with monthly contributions of $1,154 for every $1,000 in monthly retirement income.

(on camera): By these calculations, Fidelity predicts that you`ll able to retire at the age of 67 and as your retirement will last until your 93rd birthday. Now, this assumes an average rate of return of 5 1/2 percent on your investments every year. But it does not take into account taxes.

(voice-over): Still, Mike Alfred of BrightScope, a company that rates 401(k) plans, says knowing how much to save, even a ballpark estimate, is critical.

MIKE ALFRED, BRIGHTSCOPE CEO: The absolute number one thing as it relates to retirement savings and planning is that most people aren`t saving enough money. And so, in the absence of actually saving an adequate amount, there is no other magic bullet.

EPPERSON: He says if you`re not saving enough each month, even the best performing investments probably won`t get you to your goal.

For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.

(END VIDEOTAPE)

GHARIB: And, finally tonight, the 2024 Summer Olympic Games are more than a decade away, but at least one big U.S. city is preparing a bid to host the games, Washington, D.C. Why Washington? Bob Sweeney, the president of D.C. 2024, the booster committee exploring the possible bid, says the nation`s capital is the safest and most secure city in the world.
And he says since the biggest cost of any Olympic games is security, quote, “we got it pretty much built in.”

But this is no done deal. Other U.S. cities like Los Angeles, Philadelphia, San Diego, and even Tulsa, Oklahoma, have already announced their interest in hosting those same games, Bill.

And, you know, the last time we did Summer Games was Atlanta, 1996.
It`s been a long time.

GRIFFETH: And I was living in Los Angeles when we had the games there in 1984. Maybe you should ask the people in the city whether they want the Olympics to come to town.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you again tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. 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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