Transcript: Wednesday, August 28, 2013

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

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Crude concerns. Oil prices rise to their highest levels in more than years. But if tensions with Syria continue to escalate, could a spike in gasoline prices be next?

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: New mortgage rules.
They are designed to take risk out of the market, but what could they mean for investors and home buyers and the pace of housing recovery?

GHARIB: And, slashing college costs. Even as tuition skyrockets, there is a way for students to get credits at cut-rate prices. Tonight, we kick off the first of a three-part series on new ways to pay for college.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 28th.

GRIFFETH: Good evening, everybody. I`m Bill Griffeth, in for Tyler tonight, along, of course, with Susie Gharib.

On Wall Street, just like everywhere else, it`s a waiting game — waiting for confirmation that the U.S. and its allies are nearing a decision on staging a military strike against Syria. That fear, of course, sent the markets into a tail spin on Tuesday.

Today, a different story, though, stocks ended higher, that after traders heard no further saber-rattling about Syria and after a surge in oil prices that actually helped lift energy stocks today. The Dow ended higher of three straight losing sessions. It finished up 48 points, the NASDAQ was up 14, the S&P added 4.

Crude oil, up another $1.09 a barrel, closing at the more than two- month high now. It`s first settle above $110 a barrel since May of 2011 and that helped the entire energy sector and sent shares of Dow components ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) each up more than 2 percent.

GHARIB: Now, even though oil prices spiked higher, prices at the pump here at home at the pump are holding steady so far this week. But that could change.

Hampton Pearson explains.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
As millions of Americans get ready to hit the road for the long holiday Labor Day weekend, gasoline prices at $3.55 a gallon on average nationwide are down about 8 cents a gallon from a month ago.

(on camera): Possible military strikes against Syria could be a game changer, with some predicting a 10 cents a gallon spike in prices at the pump in early September.

ADDISON ARMSTRONG, TRADITION ENERGY DIRECTOR OF MARKET RESEARCH:
It`s very, very likely if there is a military attack in Syria, we`ll see the highest prices since 2008.

PEARSON: In the summer of 2008, crude oil topped $147 a barrel and gasoline prices went over $4 a gallon. By October, both figures have been cut in half. What`s different this time is that oil prices began rising before the standoff in Syria, back in July when tensions in Egypt began raising concerns about supply disruptions in Suez Canal.

ALAN HARRY, SPARTAN COMMODITY FUND: What I think we`re going to have is the fear of supply interruption, which will get the futures to rally and what it might also do is prevent ships from being insured. You can`t have ships insured. Now all of a sudden, you can`t have ships in crude oil across like the Suez Canal.

PEARSON: But unless and until there are attacks and reactions, figuring out the price of crude oil or gas at the pump will keep market watchers on edge.

JOHN KILDUFF: I think you want to position for a big pullback here because the economy in the U.S. seems to be slowing. Some production issues would resolve themselves later in the year, and there is a great argument for the price coming back down I think as rapidly as it may go up here.

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

(END VIDEOTAPE)

GRIFFETH: Now aside from the tension in the Middle East, U.S.
markets are, of course, fixated on when the Federal Reserve will begin to pull back on its bond-buying program, whereas Wall Street has become fond of calling it taper, but other markets and economies around the world are also keeping a close eye on the Fed.

So, let`s take a quick trip around the globe, namely China, India and Brazil, to see how they might be affected.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in China, people feel this country would be immune if the U.S. Federal Reserve scale back. China has capital control so the money that would be flowing out of the emerging markets to the United States would mainly becoming from other Asian nations. But that doesn`t mean that China is totally out of the woods. Analysts say that the outflow of capital from this part of the world could hurt the economy out here, which would in turn depress the demand and China`s economy.

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

GOPIKA GOPAKUMAR, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in India, there`s been quite a bit of panic. Since the Fed came and look at the tapering of the stimulus program, rupee has depreciated more than 17 percent. Stock markets dropped more than 10 percent and borrowing rate has jumped in levels last seen during the Lehman crisis. A lot of questions from the FII, which have withdrawn $12 billion since the Fed announcement.

But tapering is not the only worry. India`s parliament remains dead last on social economic issues. The deficit is widening, growth is down and inflationary pressures remain high. Money managers are reading the measures taken by the RBI and the government to prop the rupee as a panic move. And that`s just adding to the pressure.

For NIGHTLY BUSINESS REPORT, I`m Gopika Gopakumar in Mumbai.

CAROLINA CIMENTI, NIGHTLY BUSINESS REPORT: Here in Brazil,
(INAUDIBLE) tapering has led to capital flight, that`s seen our currency weaken by around 20 percent against the dollar so far this year.
Aggressive rate rises by the central bank has done little to stem the weaknesses and actually threatens to fuel already high inflation. The government is trying to appease nervous investors, saying it has several weapons to fight volatility.

But you have to remember, presidential elections are just around the corner, over 13 months away and as the recent civil unrest proved, people here take the reals in their pockets very seriously.

So, let`s hope next year`s Soccer World Cup and 2016 Olympics can brighten the mood in Latin America`s largest economy.

For NIGHTLY BUSINESS REPORT, I`m Carolina Cimenti, in Rio de Janeiro.

(END VIDEOTAPE)

GHARIB: Now, some of those same countries are straddled with debt and political uncertainty and for American companies that have exposure to those markets, the risk is big.

Seema Mody reports on what it could mean for your money.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Emerging markets, once considered the saviors of the world economy thriving, even in the face of the U.S. and Europe`s receptions, but now, the brick nations are threatened by debts, inflation and political uncertainty and those risks could hit the bottom line on some of the biggest companies in the U.S.

It`s a double whammy for the multinationals, the rapid depreciation and emerging market currencies this week mixed their products and services less competitive and it also profits made in local currencies are worth less in dollar terms.

So, which U.S. companies could get hit? Agricultural names like Mosaic (NYSE:MOS) and Monsanto (NYSE:MON) have exposure to Brazil, a country dealing with political uncertainty. PepsiCo and Alcoa (NYSE:AA) generate sales in Russia, which has seen its growth rate slow. In India, a country dealing with rising inflation, American Tower (NYSE:AMT) and Peabody Energy (NYSE:BTU) do a great deal of business.

And lastly, China, companies like Advanced Micro Devices (NYSE:AMD) and Yum Brands (NYSE:YUM) all generate more than 50 percent of annual revenues there.

(on camera): According to “Thomson Reuters (NYSE:TRI)”, these baskets of stocks have exposure to emerging markets are under performing the S&P 500 on a three-month basis.

However, JPMorgan`s Richard Madigan says that multinationals with exposure to bricks could be a huge buying opportunity.

RICHARD MADIGAN, J.P. MORGAN PRIVATE BANK CIO: If you watch our currencies fall 10 percent, 15 percent, 20 percent, if you were looking at strategic investment that you were planning to build up manufacturing domestically over the next two to three years, you`re actually going to increase that investment today because you just got a haircut of 20 percent on that investment.

MODY (voice-over): While investors battle over the fate of emerging market stocks, there is one thing they do agree on, further volatility in these markets will continue as these countries assess what type of structural reform is needed to solve their problems.

For NIGHTLY BUSINESS REPORT, I`m Seema Mody in New York.

(END VIDEOTAPE)

GRIFFETH: Joining us to talk about how investors can navigate through uncertainties from Syria to oil to emerging markets, Jeff Kleintop with us tonight, chief market strategist at LPL Financial.

Jeff, good to see you again.

JEFF KLEINTOP, LPL FINANCIAL CHIEF MARKET STRATEGIST: Thanks for having me on.

GRIFFETH: We built quite a wall for worry for investors to think about right now. Should they be concerned? We`re going into the fall. We didn`t get the tapering. We got the possibility of a debt ceiling crisis as well. Should investors be concerned?

KLEINTOP: Well, I think it`s understandable why they might be feeling uncommitted here with the Fed committed to the tapering and the U.S. committed to military action in Syria and Congress committed to fighting over the debt ceiling, all those issues have left investors on the sidelines. Listen, it`s taking a long time for individual investors just to get back to even after the losses five years ago and it`s understandable it may be cautious here.

We don`t see a major pullback here of 10 percent or 20 percent, maybe another one of these 5 percent or 10 percent moves, which maybe we`re half way through already. But investors who want a hedge in their portfolio, who are willing to ride through this volatility may look to gold, may look to oil as effective hedges in their portfolio. They tend to go up when geopolitical risk rises, but you got to be quick in getting back out again because once decisive U.S. military action takes place, they quickly reverse course.

GHARIB: But, Jeff, getting back to, you next some of the political risks here — talk us through what the market reaction would be if there is any military action, if it`s prolonged or if there is some kind of diplomatic resolution. What can investors expect in those scenarios?

KLEINTOP: It`s interesting. You know, it seems to be, now that we`re committed to military action, the faster it`s over with, the decisive strike seems to be the best reaction for the markets, at least looking back historically. Sometimes the markets don`t react in `99 and in `95 in Bosnia, it didn`t really affect the markets. But if you look back to other events, the Gulf War is a great example, we pre-committed to action in August of 1990 to where we took action in January of 1991 stocks fell.

Once action was taken, stocks rose. So, I think we if take action and it`s decisive, stocks will turn around on that. It`s that lag between when we pre-committed and do it that`s the drag. I think today`s lift in the stock market tied to maybe Defense Secretary Chuck Hagel`s comments that it might just be days away rather than weeks.

But if there is a diplomatic solution, that could be positive but it needs to be decisive and clear cut or this will linger over the markets, along with those other issues we talk about — the debt ceiling and the tapering.

GRIFFETH: Right. Now, that`s the stock market. What about interest rates and the treasury markets, as we know, as the markets anticipate tapering, yields have been going up. But when they fear the military action against Syria, yields go down. So, which way do you think they are going here in the near term?

KLEINTOP: I don`t — but they didn`t come back much. That`s what is interesting. They came back a little bit but they are headed higher. I think even in the face of the military intervention, which may not be that decisive. It may go — take place over the course of several weeks.

I still think yields are probably headed higher. Not dramatically but simply because the economy that matters here, it`s domestic concerns, not foreign ones that cause this stock market pullback, and I think are affecting the bond market as well.

GHARIB: Jeff, real — quick question because we have to go now, what about cash? Is it wise to put money into cash now and sell out from stocks?

KLEINTOP: I don`t think so. Cash is still earning a negative real return. I think investors need to stay committed to their long term asset allocation.

GRIFFETH: Jeff Kleintop of LPL Financial. Good to see you again.
Thanks for joining us tonight.

KLEINTOP: Thanks. Great to see you.

GHARIB: Still ahead, what do “The New York Times (NYSE:NYT),”
Twitter, and “Huffington Post” have in common? All of their Web sites have been victims of hack attacks. How well-prepared are businesses to prevent future ones? That`s coming up.

But first, how the international markets closed today.

(MUSIC)

GIFFERTY: Some news tonight about housing now. We have pending home sales. Those are the signed contracts to buy a house that have yet to be close. That fell by 1.3 percent in July. But that`s coming off more than a six-year high in June.

A realtor`s group says the recent rise in rates now averaging around
4.6 percent for a 30-year loan may be keeping some would be homebuyers on the sidelines.

Meantime, a banker`s group reports that applications for new mortgages fell again this week with a sizable drop in refis.

GHARIB: Speaking of mortgages, some new rules out today aimed at cutting risks in the mortgage market. The FDIC, this is the Federal Agency that ensures bank deposits approved a new rule that require mortgage lenders to keep a stake in the loans that are bundled up and sold as securities.

Diana Olick joins us now from Washington.

Diana, rules, more rules, we keep getting them from Washington. Tell us a little bit about the details of these proposed new rules.

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I just want to clarify that these are proposed new rules, and they haven`t passed anything. They are still putting them out for comment. This is the second go round that federal banking regulators have done with these rules. They are about a qualified residential mortgage, that is which mortgages from the banks would be exempt from risk retention under Dodd-Frank.

And what they have done is loosened up. Their first proposal two years ago said the mortgages had to have 20 percent down. Now they are saying they will take that out. They heard from the banking industry, the banking industry did not like that. Now, they are aligning their proposed rules with those from the CFPB that have already been put into place earlier this year.

So when we say new rules, they are actually kind of copies of rules already in place.

GRIFFETH: What do they mean for investors and, oh, by the way, homebuyers as well?

OLICK: Well, look, the new rules that have been going into place, which a lot of banks are using, are going to make it more safe for investors and for homeowners, because they`re going to take a lot of risk out of the markets. So, you`re not going to be able to have the type of negative amortizations loans, the interest-only loans that were really a big part of the housing crash that these were loans that were very poorly underwritten and went back quickly and caused the housing crash.

So, it will be tighter. Things are already tighter, as we know.
What they will do is just clarify the risk retention for banks, which will make things, you know, easier for them to understand in this whole new realm of rules. It will also safeguard borrowers, even if it does make it a little bit harder to get the loan.

GHARIB: So, Diana, does — is this going to be good or bad for the housing recovery?

OLICK: Well, it depends on who you ask. I mean, there are people who say there are too many rules. There`s rules upon rules, and what we need is to loosen up credit a bit to get more homebuyers back into the market. Then you say, well, wait a minute, there are others who just want these safeguards in place, want to know that the mortgage market is going to be a place that will not crash the way it did five years ago, and that we won`t see the kind of mortgage abuses that we saw back then.

So, again, it`s kind of a double-edged sword. We need the rules to protect consumers, but the rules also will make it, you know, stricter to get a mortgage.

GRIFFETH: Diana Olick, thank you. See you later.

Elsewhere, Zales posts its first full-year profit since 2008. And that`s where we begin tonight`s “Market Focus.” Strong sales were driven by the addition of exclusive jewelry lines that offer high margins. For the quarter, Zales beat earnings and revenue expectations and plans to close more unprofitable source. And the stocks soared almost 30 percent on that news. It closed today at $11.63.

Shoppers were also spending at Express (NYSE:EXPR). The apparel and accessories retailer topped analyst sales estimates for the third quarter in a row and boosted its profit forecast for the second time this year.
The CEO says that its customers are responding enthusiastically to its selection of merchandise right now and the stock climbed as a result more than 6 percent to $21.10.

But at Chico`s, this is the women`s apparel retailer, says that sales and profits are down. The company blamed it on lower traffic (VIDEO GAP) brushed that off after the CEO said much of its inventory (VIDEO GAP) and suggested that sales in the current quarter are improving.

That was enough to send the stock up 4 percent to $15.95.

Williams Sonoma scheduled to release its earnings after the bell today, but did so about an hour before the close. The retailer posted earnings higher than analysts` estimates but its profit outlook fell short and gross margins dropped. So, that pressured the stock and it lost 4 percent to $56.97.

And a good day for shareholders of the Avago Technologies (NASDAQ:AVGO). The wireless chipmaker beat street earnings and revenue estimates and it`s forecasting a better than expected growth for the current quarter. It`s getting a boost at some of the world`s biggest smartphone makers launch new products. Avago chips are used in Apple
(NASDAQ:AAPL) iPhones as well as devices made by Samsung. The stock rose almost 5 percent to $38 and change.

GRIFFETH: A new warning out today about just how vulnerable your cell phone might be to computer virus. A new study by the FBI and the Department of Homeland Security says that smartphones using Google`s Android operating system are the primary targets now for malware attacks.
Android devices received a staggering 79 percent of all malware threats to mobile devices last year with text messages hiding about half of all the malicious software out there.

GHARIB: Following some high profile hackings this week at “The New York Times (NYSE:NYT)”, Twitter, and “Huffington Post”, a lot of companies are evaluating just how safe their Web sites are and how prepared they are against an attack.

And Eamon Javers joins us now with more on what companies and security experts are doing to protect against future intrusions.

Eamon, nice to have you here.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Thanks for having me.

GHARIB: What are they doing?

JAVERS: Well, they`re not doing enough if you talk to cybersecurity experts. Now, of course, cybersecurity experts have a vested interests in telling companies to buy more cybersecurity software.

But what we saw this week with “The New York Times (NYSE:NYT)” is an attack “The Times” said in particular was done by the Syrian Electronic Army or somebody trying to appear like the Syrian Electronic Army. That`s a group loosely affiliated with the Syrian regime, Bashar al-Assad, that`s been under such scrutiny over the past coming days and the possible subject of a U.S. military strike, which raises a whole geopolitical question here for companies and institutions that are trying to defend against cyber attacks.

Will they sort of reap some of the blowback of U.S. foreign policy decisions as hackers respond to things that the United States is doing by targeting American companies? That`s something that`s a little bit new that we haven`t seen before.

GRIFFETH: All right. This has to hit them in the pocketbook. What kind of losses are we talking about when you see these kinds of attacks on companies like “The New York Times (NYSE:NYT)”?

JAVERS: Well, so far, so good. I mean, “The New York Times (NYSE:NYT)” site was down yesterday for certain people who are trying to access it, not necessarily for everybody. They told they were able to get it up pretty quickly. So, the revenues lost by “The New York Times (NYSE:NYT)” yesterday probably not significant.

What the problem will be is if the hackers are able to get beyond just the public facing Web site and get into the guts of some of these companies and get credit card information and get into material operations of these companies. That`s where you could see significant losses.

GHARIB: The other issue on the side of the businesses, these are high-profile companies that put out news they were hacked. But a lot of companies still think it`s taboo to say they`ve been vulnerable and that they`ve been hacked. I mean, how much is that holding back from them solving their problems?

JAVERS: It`s one of the biggest problems that cybersecurity experts face, that the companies who are their clients, they are working with these companies to try to prevent these attacks, they don`t want any details getting out there, partly for liability reasons, because there is money at stake on some disputes over who is responsible, partly for brand protections reasons. They don`t want to be embarrassed by this.

The experts say they would like them to be more forthcoming, to really come clean and tell people, tell Americans, tell customers when they have been hacked because that will show the scale of the problem and the types of people who are doing it and some of the things that they can do to start to solve it.

GRIFFETH: I suspect we`ll be talking more about this in the future, unfortunately.

JAVERS: Absolutely.

GRIFFETH: Thanks, Eamon.

JAVERS: Thank you.

GRIFFETH: Eamon Javers joining us tonight.

Coming up, as tuition rates rise, some schools are letting students get credits at deep discounts now. The story when we kick off the first of our three-part series on new ways to pay for college.

But, first, how commodities, currencies and treasuries performed today.

(MUSIC)

GHARIB: JPMorgan (NYSE:JPM) Chase is facing more heaving fines from federal authorities. The nation`s largest bank may have to pay as much as
$600 million in penalties with U.S. and British regulators over those huge trading losses last year in the so-called “London whale” scandal.

Also today, word that the government`s Consumer Financial Protection Bureau is expected to fine the bank $80 million for selling a credit card identity theft protection service that didn`t deliver on promises to customers.

GRIFFETH: Well, another big fine, this one against a huge casino operator, Las Vegas Sands (NYSE:LVS), now agreeing to pay more than $47 million to settle a federal investigation after it failed to stop money laundering when a gambler with known links to drug trafficking made millions in money transfers through its gambling operations.

GHARIB: Colleges everywhere are back in session this week and tonight, NIGHTLY BUSINESS REPORT kicks off a series looking at new and creative ways that people are paying for school and making that college education really pay off.

In the first of three reports this week, Mary Thompson tells us how some schools are letting students get credits at cut-rate prices.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
There is no MOOC U, but MOOCs are massively open online courses are a small but growing presence on some college campuses, like San Jose State University.

Here is Professor Ron Rogers (NYSE:ROG).

RONALD ROGERS, SAN JOSE STATE UNIVERSITY PROFESSOR: Being able to teach effectively the larger numbers of students online is the key I think to both holding the cost down and increasing access for students.

THOMPSON: Partnering with online platform provider Udacity, San Jose State professors designed five courses for an ongoing pilot program, teaching courses online opens them up to hundreds if not thousands of more students at more flexible times and at a lower cost. The cost that`s still needed to cover fees for transferring MOOC credits and to pay professors to grade papers and test students to make sure course work is completed.

The savings can be substantial. Incoming San Jose freshman Harriet Kansiime took a move to fulfill a math requirement. The $150 she spent,
$1,550 less than the cost of a campus class. And she saved on gas money.

HARRIET KANSIIME, SAN JOSE STATE UNIVERSITY STUDENT: The cost of having to travel to San Jose like every day, that saved me a lot. And also, I was able to study on my own pace.

THOMPSON: The cost saving is important, give an year at a private four-year college cost upwards to $39,000; a public college over $17,000.

(on camera): Other schools folding MOOCs into the their programs, Antioch College and the State University of New York, which estimates MOOCs could eventually cut the cost of a college degree by a third.

(voice-over): And while educators downplay MOOCs replacing all classes, believing MOOCs work better for courses in engineering, science and math, as college costs continue to rise, mixing a MOOC in with a traditional curriculum could cut the cost of college by degrees.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

GHARIB: And tomorrow, we continue our series on ways to pay for college, with a look at how some students are turning to crowd funding to finance the high cost of tuition.

GRIFFETH: Finally, tonight, we commemorate the 50s anniversary of Reverend Dr. Martin Luther King Jr.`s I have a dream speech in Washington, D.C. Tens of thousands of people including marchers who were there for the original speech, civil rights leaders, politicians, ordinary Americans all took to the National Mall today to remember the words of Dr. King noting how far the nation has come toward equality to all and how far we still have to go.

President Obama spoke today from the very same spot where Dr. King spoke those unforgettable words on the struggle for civil rights half a century ago.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: But we would dishonor those heroes, as well, to suggest that the work of this nation is somehow complete. The arc of moral universe may bend towards justice, but it doesn`t bend on its own. To secure the gains this country has made requires constant vigilance.

(END VIDEO CLIP)

GIFFERTH: Poignant moment obviously, and I cannot it`s been 50 years since that speech, 1963.

GHARIB: I was reading the speech today. It gives you chills.

GRIFFETH: It does. Great stuff.

GHARIB: Really amazing, amazing speech.

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

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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