Transcript: Wednesday, September 18, 2013

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

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(BEGIN VIDEO CLIP)

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The committee decided to await more evidence that the recovery`s progress will be sustained before adjusting the pace of asset purchases.

(END VIDEO CLIP)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Market shocker. The Fed says it won`t slow its bond-buying for now, surprising Wall Street, and sending stocks to record highs and bond yields down. What`s next, and what it means for your money.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wave of change. Walgreens, the largest U.S. drugstore, becomes the latest major company to move its employees to a private health insurance exchange. Will others follow and is this an irreversible trend?

MATHISEN: And they`re back. The nation`s largest banks are bigger and arguably stronger than they were five years ago in the financial crisis. But are they safer? And could taxpayers still be on the hook if one of them slips and fails?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 18th.

Good evening, everyone. A record-breaking day on Wall Street. An exciting day all around. I`m Tyler Mathisen.

HERERA: I`m Sue Herrera, in tonight for Susie Gharib, on this record-breaking day on the street.

That after the Federal Reserve said that basically, it was no time to taper its bond-buying stimulus plans, not until there`s more evidence of economic progress. That lifted the Dow and the S&P to new all-time highs, sent oil and gold prices soaring and pushed bond yields and the U.S. dollar sharply lower.

Take a look at this intraday move and how the Dow did a huge U-turn at exactly 2:00 p.m. Eastern Time. That`s when the Fed announcement came out.

At the end of a wild day, the Dow closed 147 points higher, closing at a new record of 15,677. The NASDAQ shot up 38 points and the S&P surged 20 points, also ending at a new record close.

Now, Steve Liesman has more on the Fed`s surprise announcement, what`s next for the Central Bank and what it wants to see in the economy.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Ben Bernanke and the federal market committee surprised markets in a big way today by not reducing the stimulus it`s putting into the economy, maintaining its asset purchases at $85 billion, despite market expectations that it would begin reducing it today.

The Federal Reserve chairman in his press conference offered three reasons. First, the Fed doesn`t have confidence in the improvement in the economy that it will last. Second, that financial conditions — the rise in interest rates — could hamper growth in the future. Finally, fiscal restraint, the idea that there could be a big debt ceiling debate, that there could be a potential government shutdown, spooked the Fed into thinking that now is not the time to reduce the stimulus to the economy.

But it was clear in the press conference that the Fed chairman was very, very concerned about the rise in interest rates.

BERNANKE: The other factor which was at play was an unwinding of excessively risky and leverage positions in the markets. And insufficiencies of liquidity in some cases meant those unwindings led to larger reactions in prices and rates than might otherwise have occurred.

LIESMAN: All of this begs the question for investors and the nation about when the conditions will be right for the Federal Reserve to taper. It could be after the debt ceiling debate and the government shutdown is potentially avoided.

But here`s what he said when asked when he might indeed reduce the stimulus.

BERNANKE: If the data confirm our basic outlook, if we gain more confidence in that outlook and believe that the three-part test that I mentioned is, indeed, coming to pass, then we could move later this year. We could begin later this year.

LIESMAN: Finally, I asked the fed chairman about his plans, whether or not he quit or was he fired, and would he serve. And he said he would not answer that question, but he did suggest that we might get some information on his future plans soon.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: An all-star panel now to discuss why the Fed did what it did today, or more appropriately, didn`t do, and what it all means for your money.

With us is Randy Kroszner, a former Fed governor, now professor at the University of Chicago`s Booth School of Business.

Bill Gross, co-CEO of PIMCO and manager of the world`s largest bond fund, PIMCO Total Return. Fill disclosure, I am a shareholder in that bond.

And Barry Knapp is the head of U.S. Equity Portfolio Strategy at Barclays.

Welcome to all of you.

Bill, let me — let me begin with you. Three-headed question here. Did the Fed surprise you today, did the Fed do the right thing, and are you and your shareholders happy this evening?

BILL GROSS, PIMCO CO-CEO & CO-FOUNDER: Last question first — very, very happy, Tyler. You should be happy.

Did it give us a surprise? Yes. You know, the Fed gave us not only no taper, but I think importantly, very dovish modifications of the unemployment rate, which might mark the beginning of policy rate hikes at some point, perhaps as far out as 2016. Not only did Bernanke dismiss the 7 percent target that he was using, you know, for taper, almost like a magic slate.

But the 6.5 percent level, which he had referred to before, you know, you suggested that that didn`t apply either, and that it might have to be considerably lower to precipitate higher interest rates.

So, this was a positive day for bonds, a positive day for higher prices. And lower yields.

HERERA: Randy, how did almost everybody get it wrong on Wall Street? I mean, we had so many people on TV all over the country, on various different networks, talking about the fact that the Fed was going to taper and that it was kind of baked into the market. How did they get it all wrong?

RANDY KROSZNER, UNIVERSITY OF CHICAGO BOOTH SCHOOOL OF BUSINESS: I think they didn`t take the chairman`s word seriously that he really is driven by the data. And he doesn`t get boxed in by just starting to talk about the possibility of the step-down.

You have to remember, the economy looked stronger back in May/June when they were talking about this over the last three months. The employment growth has not been as strong. Although the employment rate has come down, it`s come down for the wrong reasons, because less labor force participation.

And so, he really is driven by — driven by the data. And in particular, exactly as Bill said, I think the market surprised the Fed a little bit in how much they moved rates up in response to just the talk of about the possibility of doing this. And so, the Fed kind of responded by saying, well, we didn`t think that the impact should be that much on the markets. And we`re concerned about that much of an impact on particularly housing.

So, we`re going to wait and see.

MATHISEN: You know, Barry, let me turn to you. I heard Bill Gross earlier today describe today as a risk-on kind of day and presumably moving forward, at least for as far as the next Fed meeting goes.

Is it a risk-on day for you in the world of equities, Barry? And if it is, how can it be if, as Randy Kroszner just said, the data on the economy are worrisome to the Fed?

BARRY KNAPP, HEAD OF U.S. EQUITY PORTFOLIO STRATEGY: So, I — I think I`m going give you an answer that`s a little bit counterintuitive in the sense that we don`t necessarily think — in some ways, it`s risk-on in terms of carry trades, anything related to fixed income. Our highest conviction trade at the beginning of this year, when the narrative was QE-forever, was buying stocks with bond-like characteristics.

The idea that spreads would tighten across a range of fixed-income products. Ultimately, that would push investors into parts of the stock market most closely correlated to the bond market. That trade really reached its peak of outperformance at the end of the first quarter. And then, it started to shift to cyclicals in the second quarter as the economic outlook improved. The so-called equity risk premium started to contract there, telling you that the growth outlook was improving.

Now, what happened today was, we had utilities rally almost 3 percent. There`s a real question, and first of all, we don`t think this takes us to October — probably takes us to December — where everyone will just pile into parts of the stock market that don`t really drive growth, that don`t really drive employment or capital investment.

It`s a wealth effect dynamic, but it really is not a macro economic positive. It will just be people buying what generally are somewhat unproductive assets, buying stocks with high dividend yields.

HERERA: Yes, Bill, let me turn you to one of the reasons that the Fed cited for not pulling back on its stimulus and that was the looming impasses in Washington. The debt ceiling debate, the budget impasse that we seem to be having, the increasingly vitriolic conversations that are going on between either side of the aisle and the White House.

What kind of volatility are you anticipating as we get closer to those deadlines, might be inherent in the stock market and the bond market?

GROSS: Well, we expect volatility. We expect headlines one way or the other. But we expect resolution.

We have seen this before, and PIMCO expects at some point in October for there to be a resolution in terms of the debt ceiling. There`s no doubt that Bernanke is concerned about it in terms of fiscal policy spoken to that, you know, six, 12, 18 months ago, for a long time.

In addition to that, Sue, let me just add that the Fed focused today on inflation. Their inflation target the PCE, the core PCE is really only moving up at 1.2 percent. They`ve got a target of 2 percent. And so, the Fed really wants to raise that inflation rate. They want to reflate the economy —

MATHISEN: Right.

GROSS: — and so any asset such as tips dominated by inflation should do very well.

MATHISEN: Randy, very quickly, what`s wrong with this economy if the Fed is concerned about it? And would you have voted the way all but one of the voting members today voted, and that is no taper?

GROSS: The economy has been in what I`ve been calling for the last year-and-a-half a sideways slide. We have some job growth but not really strong job growth. We have some investment but not a lot of investment.

And so, we just aren`t getting the push forward. I think with this step-down in data, I probably would have gone along with the consensus and said, it`s OK to wait and see, because as Bill just said, we don`t see inflation on the horizon.

MATHISEN: Randy, Bill, Barry, thank you very much for being with us, and clearing it all up for us tonight.

HERERA: And still ahead on this record market day, a lot of stocks made big moves and we`ll tell you all about them.

But, first, how the international markets closed today.

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HERERA: On this record-setting day for stocks, we begin our “Market Focus” with late day earnings from one of the biggest tech companies of all, and that`s Oracle (NASDAQ:ORCL). The company beat street expectations and record rise in two key metrics, new software sales and Internet based software subscriptions, weak guidance, however. And that`s what pressured the stock after-hours. In the regular session rose more than 1 percent to close at $33.87.

And FedEx (NYSE:FDX) was also out with better-than-expected quarterly results. The company considered an economic bellwether because of the massive volume of goods that it moves all around the globe, said the quarter was driven by cost cuts and improved global economic conditions. And the stronger economy is one of the reasons why FedEx (NYSE:FDX) says it will increase rates next year for express shipping. The stock rising 5 percent to $116.25.

Priceline hitting a milestone. That stock touching $1,000 for the first time ever. It now has the same market cap as General Motors (NYSE:GM). And its market value is now greater than 80 percent of the stocks in the S&P. The stock closed at $995.09 a share, up 2.5 percent.

Ty?

MATHISEN: And, Sue, Adobe`s profit shrank in the third quarter but investors brushed that off and focused on the better-than-expected number of paid subscribers to its Cloud computing business. That helped propel the stock to a new 52-week high. Shares up 9 percent to close at $52.58, making it the best performer in the S&P 500 today.

But it was a record year for Manchester United in terms of revenue. The reigning pro-soccer champs in Great Britain saw a double digit gain in commercial revenues driven by sponsorship deals as well as merchandising and product licensing, and the company, the most valuable sports franchise in the world, is projecting another strong year, assuming the team finishes at least third in the English Premier League. Shares up 2 percent today to close at $17.47.

And hold the gravy. Cracker Barrel blaming higher commodity costs for its drop in quarterly earnings and revenue, and things don`t look to be turning around any time soon. The restaurant operator forecasting current quarter profit below analyst estimates. The stock down 2 percent to $104.73.

President Obama spoke to some corporate execs at a meeting of the Business Roundtable today, urging them to implore members of Congress to raise the nation`s debt limit without any conditions, so that the government can pay its bills and avoid a possible default next month.

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BARACK OBAMA, PRESIDENT OF THE UNITED STATES: You have never seen in the history of the United States, the debt-ceiling, or the threat of not raising the debt ceiling, being used to extort a president or a governing party and trying to force issues that have nothing to do with the budget and have nothing to do with the debt.

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HERERA: The president also reiterated to the group his vow not to negotiate with Republicans over raising the debt ceiling.

But despite that, members of the House GOP say that they will tie up a routine bill to fund the federal government by attaching a clause that would end funding for the Affordable Care Act, the president`s signature health care law.

Republican leaders also said they will move very quickly to raise the nation`s borrowing limit, but only by attaching a wish list of GOP priorities, like overhauling the corporate tax code and forcing construction of the Keystone pipeline.

MATHISEN: While the White House battles to raise that debt limit and reach a budget deal, it is also preparing for the October 1st opening of state and federal health care exchanges, part of the Affordable Care Act. To reassure Americans concerned about privacy issues and the security of information they give when they sign up, the administration is setting up a toll free number for clients to report fraud or attempted identity theft under the new law.

HERERA: And with those state and federally run health care exchanges set to open in less than two weeks, officials are gearing up for a flood of applicants. So, many are now turning to private-sector health care brokers to help people navigate the new public marketplaces.

Bertha Coombs has more.

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REBECCA PEARCE, MARYLAND HEALTH CONNECTION EXEC. DIRECTOR: People are going to flood our gates.

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Rebecca Pearce is confident Maryland`s insurance exchange will be ready for the start of Obamacare open enrollment October 1st. She is rallying her staff to focus beyond the opening-day flurry of attention.

PEARCE: They`re going to want to know how they can possibly get coverage. But they may not buy right away. So, I expect another spike in early December, when people are actually coming back in and purchasing.

COOMBS: Maryland, one of 16 states in the District of Columbia, which has built its own exchange, hopes to enroll 250,000 of its estimated 800,000 uninsured residents through its online marketplace in 2014.

AD NARRATOR: What is Maryland Health Connection?

COOMBS: To get those kinds of numbers, a big part of their outreach will involve traditional insurance agents.

PEARCE: We were looking to supplement the market and not replace the market. We understand that there are people within the — within the state who have done this for an awfully long time, and we were relying on the expertise of brokers.

COOMBS: In New Jersey, one of 34 states that opted for a federally-built exchange, brokers have been told they`ll play a big role, too.

REGINALD SLATEN, CENTERS FOR MEDICARE & MEDICAID SERVICES: They have the experience in the insurance market, enrollment issues. And they are key to using those avenues to help people.

COOMBS: But for brokers like Frank Petrulla, it`s frustrating still being in the dark. Federal health officials won`t be posting insurance plans on their sites much before October 1st.

FRANK PETRULLA, RICHARD OSCAR & ASSOCIATES: Only thing we can do is be prepared for the unknown. And we`re doing our best to prepare ourselves and educate our consumers and clients as to what path they need to take, with respect to health care reform.

COOMBS: Brokers get paid through commissions from insurers. But as with other online marketplaces like discount travel sites, analysts say the exchanges may squeeze brokers out, longer term.

DAN MENDELSON, AVALERE HEALTH CEO: This is very low-cost insurance and what that means they want to engage with brokers, but they really don`t want to pay the full commission.

COOMBS: But Rebecca Pearce says buying insurance isn`t like shopping online.

PEARCE: This isn`t just buying a pair of shoes online. This is important decision.

COOMBS (on camera): What`s more, for the Obama administration, the states and insurers, it`s important that individuals and small businesses enroll in large numbers in order for the marketplaces to work economically. In this inaugural Obamacare year, brokers could help tilt the balance.

In Englewood, New Jersey, I`m Bertha Coombs for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: And the government said late today that growth in the national spending of health care will accelerate to 6 percent next year from about 4 percent this year. And for more on this story, head to our Web site, NBR.com.

MATHISEN: And also today, Walgreens became the latest big employer to end a company-sponsored health insurance program. Instead, the nation`s largest drugstore chain will pay a stipend to 120,000 current workers, and have them look for another plan through a private health insurance exchange, where they can choose from as many as 25 different plans.

The idea is to regain control of health care outlays and avoid annual premium increases.

HERERA: So joining us now to talk more about big companies making changes to their company-sponsored insurance plans for their active workers, it`s Helen Darling. She`s president at the National Business Group on Health.

Welcome, Helen. Nice to have you here.

HELEN DARLING, NATIONAL BUSINESS GROUP ON HEALTH, PRESIDENT: Thank you very much.

HERERA: I would assume as a large company like Walgreens makes a move like this, that a number of other companies are going to be watching very carefully and probably will decide to do the same.

DARLING: Well, certainly a lot of employers are looking at private exchanges now. In fact, in a recent survey that we just released, we found that 30 percent of employers were thinking about that possibility in 2015. Not this upcoming year, but the year after.

But we do have some number who will be doing the same thing in 2014.

MATHISEN: Helen, this feels to me like the switch that took place and is still taking place in many companies, away from what are called defined benefit pension plans and towards defined contribution plans — away from standard pensions and towards something that puts the investing possibility in the hands of the employee.

Have I got that right? And are we at the dawn of an era where companies are going to cease providing packaged plans from insurers to their employees?

DARLING: Well, I think you`re right in that we`re directionally headed away from employers saying no matter what it costs, we`re going to cover all of your health benefits. To a model in which they`re saying, we`re going to give you some choices, including some in which there are substantial cost-sharing and you`re going to have to make more choices to what we`re seeing a little bit with the movement to private exchanges.

And for some populations to the public exchanges, the idea that the individual, the employee, or the retiree or whoever it is, is going to have some contribution, but he or she will have to decide how rich a plan they want, what details they want to include and how much are they willing to pay of their own money.

HERERA: You know, not to be cynical, but there are a lot of people who think that if this is good for the employer, how can it possibly be good for the employee?

Can it be good for both?

DARLING: Well, it can. And actually, all these things we`re talking about now still reflects a commitment that most employers have for providing good health benefits for their employees, because it`s important to recruit and retain talent. And so, they`re definitely going to continue, most of them, to provide these benefits, especially if they`re in a highly competitive industry, where it`s very hard to attract and hold talent.

That said, as costs have risen, questions have been raised about how much you give to workers in the form of health benefits, or cash wages. And some balance. So, maybe the cash wages can grow faster, and they may not have the health benefits contribution grow as fast as it might have in the past.

So, a lot of people would prefer to have more money and be able to make more choices, and not be stuck, necessarily, paying for a super-rich plan that maybe they don`t take advantage of, and they don`t want to pay for it.

MATHISEN: Let me ask a question where the answer may, in fact, be obvious. As I understood the Affordable Care Act, it basically sets up an employer mandate. In other words, employers that have more 50 employees have to provide some form of health care coverage. Would this kind of stipend qualify under the Affordable Care Act for compliance with that part of the law?

DARLING: Well, as long as the employer is facilitating their access to a good plan that meets the qualified health plan requirements and affordability requirements, which are not over the top. There are things like bonds, plans and things like that in the exchange. So, there can be a fair amount of cost-sharing of a plan that, you know — it`s basically kind of a reasonable package. As long as that`s what`s offered, then they are compliant with the Affordable Care Act.

HERERA: Helen, thank you so much. Complicated subject, you made it seem very simple. Thank you so much.

DARLING: Thank you. Thank you.

HERERA: Helen Darling, president at the National Business Group on Health.

MATHISEN: And coming up: five years since the Great Recession, the keys to the financial crisis, have the country`s biggest banks changed? And does more still need to be done?

First, though, let`s take a look at commodities, treasuries and currencies today.

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HERERA: BlackBerry unveiled its newest flagship smartphone today. It`s the Z-30. It`s hoping to win back market share from Apple (NASDAQ:AAPL) and Samsung, despite uncertainty about the company`s future. This latest top of the line device comes with a larger, five-inch screen and faster, more powerful processor.

Separately, “The Wall Street Journal” reports the company may cut up to 40 percent of its workforce.

BlackBerry is exploring its options, including selling all or part of its smartphone business.

MATHISEN: And finally tonight, the latest in our series examining the changes in the economy in the five years since the financial crisis began. Tonight, we look at the nation`s banks and how they survived the downturn. Are they in a better position now than they were before? And if not, what else needs to change?

Kayla Tausche has the story.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Five years ago, Wall Street brought the financial system to its knees, making toxic loans and then selling them to others, all borrowing to make it happen. As investors lost confidence, the markets played musical chairs. Ten banks became six, strapped with some $200 billion in government aid, and an avalanche of regulation.

HANK PAULSON, FORMER TREASURY SECRETARY: I think that the capital program we designed and to get out and put capital into hundreds of banks very, very quickly and recapitalize the U.S. financial system is a huge success. And that money has come back.

TAUSCHE: The money took a few years to come back, but changes hit the industry immediately.

JOHN MACK, FORMER MORGAN STANLEY CHAIRMAN & CEO: We have dramatically brought down leverage, increased transparency, reduced our level of risk and made changes to how people are paid.

TAUSCHE: Most of those changes described by Mack in a 2009 testimony stuck. Leverage, the amount banks borrowed against their assets and thought to be the culprit, is cut in half. In July, Washington required it to fall even further.

Banks have raised credit standards and squeezed consumers, but now, they have fewer risky assets compared to before. And the capital backing up those risky assets doubled. Not to mention, they`re saving more cash for a rainy day, $1 for every $10 in assets.

(on camera): A big chunk of cash is also going back to the government in fines. Banks paying nearly $70 billion in crisis-related lawsuits, a number that`s still growing.

But shareholders are sitting tight. Bank stocks up 230 percent since the March 2009 bottom.

(voice-over): Many in Congress say more has to be done. Senators Warren and McCain, Brown and Vitter, all vying to break up banks once and for all.

Wall Street fighting to mend fences in Washington and with consumers.

LLOYD BLANKFEIN, GOLDMAN SACHS CHAIRMAN & CEO: One of the lessons we learn now, is they`re inextricably wound together. Wall Street can`t prosper with Main Street in poor economic health.

TAUSCHE: A lesson learned if only in hindsight.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche.

(END VIDEOTAPE)

HERERA: That`s NIGHTLY BUSINESS REPORT for a record-breaking day on Wall Street. Thanks for joining us. I`m Sue Herera.

MATHISEN: And a bit of a surprising day, as well.

HERERA: Oh, absolutely.

MATHISEN: Not many people thought there was going to be no taper.

HERERA: Yes.

MATHISEN: I`m Tyler Mathisen. Thanks for joining us. Have a great evening, everybody. We will see you right back here tomorrow night.

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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