Transcript: Thursday, September 19, 2013

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


Fed see something in the economy that others don`t? With the widely
executed cut in stimulus now on the proverbial back-burner, is it time to
rethink the way you invest?

JPMorgan (NYSE:JPM) will pay almost $1 billion more than expected and admit
wrongdoing as part of its “London Whale” trading debacle. And that wasn`t
its only big legal payout today. What the fines and settlements mean to
the firm, its business and its shareholders.

HERERA: And, buying in the sky. We don`t like it but we do it.
Shell out money for stuff when we fly and it`s becoming a big profit center
for the airlines.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
September 19th.

Good evening, everyone. I`m Sue Herera, in this evening for Susie

MATHISEN: And welcome, everybody. I`m Tyler Mathisen.

Well, yesterday stock investors were caught by surprise. Today, they
caught their breath. Stocks exhaled modestly one day after the rally on
the unexpected news the Federal Reserve would continue buying $85 billion
in bonds every month to keep the economy on track. Most on Wall Street
figured the Fed would take its foot off the gas pedal, if only slightly.

Well, yesterday, record highs for the Dow and S&P. Today, profit-
taking, not just in stocks, in bonds, too, as yields rose. The blue chip
Dow stocks saw a 40-point pull back. The NASDAQ did manage a small gain of
five points for a fresh 13-year high. But the S&P was down 3.

HERERA: Some strong economic data out today were not enough to lift
the markets. First time jobless claims rose by 15,000 last week. But
filings are still near multi-year lows. The Philadelphia Fed reported
factory activity in the mid-Atlantic region surged to a two and a half year
high this month. And existing home sales rose 1.7 percent in August,
hitting a 6 1/2-year high as potential home buyers rushed to make deals
before mortgage rates rose higher.

And reading on the economy`s future health posted a solid gain last
month as leading economic indicators rose 0.7 percent from the month prior.

MATHISEN: So, with stocks just off their record highs and some solid
economic data just out today, does Ben Bernanke and his team of Fed
policymakers know something about the economy we don`t? What are they
worried about that the rest of us seemingly aren`t?

Hampton Pearson has more on what the Fed didn`t see in the economy and
what it needs to before it tapers all that paper it`s been buying.


The day after Federal Reserve Chairman Ben Bernanke and his fellow monetary
policymakers delivered shock and awe to financial markets —

UNIDENTIFIED MALE: No taper. The Federal Reserve did not taper.

PEARSON: — economists and analysts are revising their play books for
predicting just what will it take for the central bank to pull the trigger
on tapering.

chairman is clearly saying read my data.

PEARSON: In the four months since the Fed chairman first mentioned
gradually reducing its bond-buying program that data shows job growth has
slowed to just 155,000 per month on average and mortgage interest traits
have increased a full percentage point, topping 4.8 percent last week,
putting the brakes on the housing recovery.

rapid tightening could have the effect of slowing growth.

PEARSON: Today, there was encouraging data, showing existing home
sales on the rise and the monthly average for jobless claims at a six-year
low. But the debt ceiling and budget standoff between the White House and
Republicans and its impact on a fragile recovery is, Fed watchers say, also
on policymakers` radar screen.

DOROTHY WEAVER, FMR. FED GOVERNOR: I think that it`s — the politics
it have make everybody nervous and the fact that the Fed is having to react
to not only politics in terms of what`s going to happen with the debt

PEARSON (on camera): So for now, the Fed is on hold, awaiting the
outcome of fiscal policy battles over the debt ceiling and budget to decide
what`s next for monetary policy when the Fed meets again at the end of

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


HERERA: The Oracle (NASDAQ:ORCL) of Omaha, Warren Buffett, spoke
about the economy and the Fed today. Mr. Buffett says the U.S. economy is
continuing the, quote, “gradual increase” that it started since the fall of
2009,” end quote. And as for the Fed not tapering yesterday — well,
here`s what he had to say.


expectations one way or the other and it doesn`t really make any difference
to me in terms of our business or our investments, whether it`s zero, $10
billion or $20 billion. I mean, someday, it will stop and maybe it will go
the other direction.


HERERA: Well, our guest tonight says that he was surprised the Fed
did not taper and that he`s not making changes to his investment strategy
based on whether it tapers or not.

He is Jim Paulsen, chief investment strategist at Wells Capital

Welcome, Jim. Good to see you.


HERERA: Did the Fed miss an opportunity, however, even though they
didn`t taper in your book?

PAULSEN: I think so, Sue. I think they eventually are going to have
to start to taper. That`s a sign of every successful recovery is the Fed
reins in its stimulus. I think they had an opportunity. Obviously, the
markets leading up the last several weeks fully, most of us, all thought
they were going to taper and the market seemed fine with it.

The S&P before yesterday was close to highs, the market was being led
by economically sensitive stocks, didn`t look like it was very fearful and
now, they didn`t taper and they`ve created a lot of uncertainty as a
result. They`re going to have to eventually come back and taper sometime
and now, they`ve created a lot of uncertainty around it, which they
probably could have avoided.

MATHISEN: As I was listening to Mr. Bernanke yesterday, I thought
that, well, he was — he was saying he was a little bit worried about the
economy. Are you? Should we be?

PAULSEN: You know, Tyler, I don`t think so. I`m fairly pleased with
the reports coming out.

Today`s a great example of that. Across the board today, from
unemployment claims, to housing, to leading indicators to the Philly Fed —
all suggesting acceleration in the economy. We have for the first time
ever simultaneously expansion going on in manufacturing and in housing, a
constant fall in the unemployment rate, five-year highs in confidence, as
well as an all-time high in the stock market.

I think certainly the economy is better than it was and yet the Fed is
still implying the same medicine that it was applying when we were at the
bottom of the recession. There just seems to be a disconnect to me.

HERERA: How are you investing in the environment you just laid out
for us, Jim?

PAULSEN: I would pay more attention to reports off Main Street than
the conversation around the Fed. I think that might get you down the wrong

I still think we`re on the path to recovery, slow for sure but
certainly slow, steady progress and I think that`s good for stocks in
general and it leads me more towards the economic sensitive areas.

Right now, I like the material stocks and technology stocks and the
financials. I really like the industrial sector but the stocks have done
so well, I think I`d shy away from that, as well as the consumer
discretionary stocks. They`ve just done too well.

MATHISEN: I gather, Jim, you`re of the view that all of the monetary
stimulus, the bond buying, hasn`t really done much to help or bolster the
real economy, but an awful lot of people believe that it has done a lot to
inflate asset prices. Where are you on that? And if eventually the Fed
does take some air out of the balloon, what happens to those asset prices,
including stocks, bonds?

PAULSEN: You know, Tyler, I don`t think it`s done much for the
economy or the markets, I really don`t.


PAULSEN: I think that they put $3 trillion and all of it`s come back
to the Fed in the form of excess reserves. No bank needs those reserves.
They don`t — they`re not calling for them so they sit on reserve at the
Fed, they haven`t even been in the economy.

I think the stock market has come up because the economy is doing
better and people recognize that and they`re willing to step up and pay
more for it. And I — my evidence of that is the stock market was doing
just fine in these last several weeks when everyone expected the Fed to
start to taper. It showed no fear of tapering at all.

So I think we`ll be fine when the fed does taper.


PAULSEN: What I hate is when they seem to put so much mystery around
it, it creates some uncertainty just. Jus as you said, Tyler, what do they
know that we don`t?

HERERA: Right. On that note, we`ll leave it there. We`ll see
whether we can come up with some answers on that, Jim.

Jim Paulsen, chief investment strategist at Wells Capital Management,
and be sure to head to our Web site,, to read Ty`s blog on Fed`s no
taper decision.

MATHISEN: Well, the economy has been growing, as Jim just said,
albeit slowly, and has been for years now. But new data from the Census
Bureau confirms that the economic gains are uneven.

In what`s been called a selective recovery, overall poverty is flat
compared with last year at a record 46.5 million Americans, but it is
growing sharply among single-mother household and Hispanics. The share of
the population and lowest income group, below $25,000 a year, is also
expanding. It`s now 24.4 percent up from just above 21 percent four years

And despite low interest rates, homeownership fell for a fifth year in
a row to a shade under 64 percent of households.

HERERA: Meantime, a new survey finds that most companies plan to give
workers a raise next year, but it`s not going to be very much. Towers
Watson (NYSE:TW) Data Services surveyed 910 U.S. companies and says that
nearly all of them plan to increase employee salaries next year, but says
that that increase will average only about 3 percent. That`s just slightly
larger than the ones doled out over the past couple of years.

MATHISEN: And although home owner rates are down, people who do own
homes are feeling better about them and they`re feeling better about the
term of their home loans, and that`s changing the way many Americans are
managing their debt.

Diana Olick explains.


During the recession, most Americans paid their bills in this order —
first the car, then the credit card, then the mortgage.

STEVE CHAOUKI, TRANSUNION GROUP VP: A lot of people were underwater
so they let their mortgages go if they couldn`t pay all their loans.

OLICK: Now, suddenly, the mortgage payment is trumping the credit
cards, the way it was before the housing bust.

CHAOUKI: People are more likely to pay their mortgages as the housing
values recover.

OLICK: Home prices are not only well off their lows of the crash but
they`re rising now faster than expected. That makes people feel better
about their single, largest investment.

PETER WINCH, HOMEOWNER: I think if you own a home, you have to put
your mortgage first ahead of any other debts that you have.

OLICK (on camera): Why is that?

WINCH: Because it`s the basis of all your family`s financial

CHARMAINE DAVIS, HOMEOWNER: I figure I always need a place to live.
And with credit cards, I figure you can negotiate with your left-hander.

OLICK: While the overall trend is favoring the mortgage payments, as
with everything else in real estate, the story, as well as the recovery,
are local.

CHAOUKI: States that went to the housing bubble first and are going
through a recovery first are seeing a stronger improvement in mortgage —
in the mortgage payment hierarchy.

OLICK (voice-over): In harder hit markets, the reversal will take
longer. The good news at least nationally is, that fewer borrowers are
choosing not to pay their mortgages altogether.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.


MATHISEN: Well, it was a billion dollar day at JPMorgan (NYSE:JPM)
Chase, but not in a good way. The nation`s biggest banks settling with
U.S. and British regulators agreeing to pay a $920 million fine and admit
to poor oversight that led to $6 billion in trading losses in the so-called
“London Whale” fiasco. And in a separate settlement, the bank will pay
$389 million to refund credit card customers for illegally pushing costly
services on people who didn`t want them or need them.

Kayla Tausche joins us now with more on this one-two punch against
JPMorgan (NYSE:JPM).

Kayla, does this do damage in any way to the reputation of JPMorgan
(NYSE:JPM) the bank or to its CEO Jamie Dimon?

Dimon, Tyler, has already been under siege. This investigation has been
going on for over a year. So, to say that today is the day that would
damage his reputation I think would be false. We`ll have the watch the
reputation of the company going forward. One thing is clear, which is that
with this regulatory onslaught, they`ve been cancelling new growth

In the consumer bank, for instance, they had roughly 60 new products
they were going to roll out. They stopped doing that because regulators
said you need to focus on what you`re doing now and make sure that your
existing regulatory controls are up to snuff and that this doesn`t happen
again, don`t worry about venturing into new businesses quite yet.

HERERA: Could they lose clients, though? Could it damage the
reputation of the bank to the point where people don`t want to do business
with them on a larger scale? Or is it too early for that?

TAUSCHE: Well, it depends on what regulators ultimately say. A lot
of companies really like working with JPMorgan (NYSE:JPM). They`re the
fortress bank. They have the single biggest balance sheet of any of the
banks. So, if they need a big loan, they go to JPMorgan (NYSE:JPM) and
they still will.

The problem is that the bank might not be allowed to take on new
clients. In its clearing business which is where a bank or a foreign
multi-national company would be clearing dollar business through a bank
like JPMorgan (NYSE:JPM), they can`t take on new clients because the
regulators have said this is not a well-enough observed business and you
shouldn`t be doing dealings with new clients.

MATHISEN: Today, about $1.4 billion in settlement costs. Last month,
it was, what, about $400 million with respect to the FERC settlement on
electricity trading.


MATHISEN: How much has the bank had to set aside to address these

TAUSCHE: It`s interesting. It`s like a black box. What these banks
set aside, they share that number with their regulators. They don`t share
that with shareholders.

A lot of investors have been advocating for that, saying that we need
to see that number but unfortunately we don`t get it. Analysts estimated
that JPMorgan (NYSE:JPM) has in its reserve roughly $10 billion earmarked
just to pay out these legal fines.


TAUSCHE: Unfortunately, the bank has also said that it expects to pay
upwards or roughly $6.8 billion, as much as $6.8 billion, on top of
whatever it is they have earmarked already because those fines are growing
so much.

MATHISEN: Kayla Tausche, thanks very much.

TAUSCHE: Thank you.

MATHISEN: Appreciate it.

HERERA: Well, here is another case of employees accused of behaving
badly. A former executive at Halliburton (NYSE:HAL), the oil services
company, has been charged with destroying evidence related to BP`s 2010
Gulf of Mexico oil spill. Anthony Badalamenti is accused of ordering other
Halliburton (NYSE:HAL) employees to delete computer data related to a
review of his company`s work on that doomed rig. Halliburton (NYSE:HAL)
did the cementing on the drilling rig that exploded, killing 11 workers and
triggering the largest offshore oil spill in U.S. history.

MATHISEN: And still ahead, the Syrian president doesn`t just control
a stockpile of chemical weapons but also a pile of cash. We`re following
his money trail.

But, first, let`s take a look at how the international markets closed


HERERA: A sharp drop in the shares of furniture retailer Pier 1. And
that`s where we begin tonight`s market focus.

The company lowering its profit forecast for the full year after
reporting a big miss on revenue and earnings in its most recent quarter.
The CEO says management and marketing efforts fell short and new
merchandise wasn`t put in the stores as efficiently in the past. But he
did note that Pier 1`s online traffic is up. Well, the stock market
responded by falling almost 14 percent to $20.33 on heavy volume.

ConAgra coming under pressure after reporting weaker-than-expected
earnings and warning of soft profits for the current quarter. Brand such
as Marie Callender`s frozen meals and Chef Boyardee pastas aren`t selling
as well as it hoped. And to turn things around, the CEO plans to increase
promotional activity. The stock finished the day at $30.80, a drop of 4

MATHISEN: But a different story for Rite Aid (NYSE:RAD). The
drugstore change surprising analysts with anticipated loss with an
unexpected quarterly profit, thanks to increasing sales. That`s usually
helps you. The company also raised its forecast for the year. Investors
cheered the news and sent the shares up more than 23 percent to $4.58,
nearing a six-year high.

Agilent Technologies (NYSE:A), the maker of scientific testing
equipment, is splitting into two publicly traded companies. One is going
to focus on life sciences and diagnostic equipment and will go by the name
of Agilent. The other, yet-to-be-named — maybe just call it not Agilent –
– will be focus on the electron being test and measurement equipment
business. Shares of the company rose 3 percent to $50.98.

And moving fast, shares of Tesla, all-time high, after Deutsche Bank
raised its price target to $200 from $160. The bank says the demand for
Tesla is growing in the U.S. and Europe, and the production rate at its
factory is increasing. Shares of the electric carmaker up 7 percent to

HERERA: U.S. Secretary of State John Kerry is urging the United
Nations General Assembly to move quickly in improving a U.S.-Syria deal to
secure and destroy Syria`s chemical weapons stockpile.


JOHN KERRY, SECRETARY OF STATE: The Security Council must be prepared
to act next week. It is vital for the international community to stand up
and speak out in the strongest possible terms about the importance of
enforceable action to rid the world of Syria`s chemical weapons.


HERERA: But Syrian President Bashar al-Assad denies that his forces
used chemical weapons in an August attack that killed as many as 1,400
civilians in a town outside Damascus.

MATHISEN: President Assad told reporters it could take $1 billion to
destroy Syria`s stash of chemical weapons and if the U.S. and Russia don`t
have the money, he just may. Assad is believed to be in control of a
family fortune that experts say could run in the billions.

Scott Cohn has been following the money trail, and has more.


country where the average citizen makes less than $3,000 a year, this is
the stuff revolutions are made of. Analysts have pegged Bashar al-Assad`s
personal net worth conservatively at half a billion dollars, but expand
that to his inner circle and the Assad family fortune runs well into the

ASMA AL-ASSAD, SYRIAN FIRST LADY: You have to have reform across the
field, whether it`s social, economic or political.

COHN: That`s Assad`s wife, Asma, a British-born former investment
banker in 2005. Her taste for high fashion and high society is well-known.
But the biggest repository of family wealth is likely this man, President
Assad`s cousin, Rami Makhlouf, worth billions. He claims he`s a legitimate
businessman, but the U.S. Treasury in 2008 designated him a beneficiary of
the regime`s corruption.

International investigator Jules Kroll, who unearthed assets from the
likes of Ferdinand and Imelda Marcos and Saddam Hussein, says Assad`s money
trail is a familiar path.

JULES KROLL, K2 INTELLIGENCE: Well, it`s a typical family business.
Except the family business is a country.

COHN: For years, the U.S. has targeted the Assad fortune in hopes of
destabilizing the regime, according to State Department cables uncovered by

But the success of U.S. sanctions has been limited. Since the Syrian
uprising began in 2011, the U.S. has seized just $80 million.

KROLL: They have enough people they can trade with, do business with,
bank with, that I think the amount of the effect of these sanctions would
be actually quite modest.

COHN: The sanctions did manage to head off a payment believed to be
in the millions of dollars owed to Syria Telecom by AT&T (NYSE:T), which
deposited the money into a blocked account by JPMorgan (NYSE:JPM),
according to court papers. But for the most part, Syria simply side
stepped the U.S. finance system, barely missing a beat.

(on camera): So, where does the money go? Russia is a prime
candidate and from there to points unknown. In fact, experts say the
extent of the Assad regime`s wealth may never be known unless the regime



HERERA: Coming up, getting ready to board a long flight? Well, get
out your credit card because the longer the trip the more you spend. But
you might be surprised by what people are buying.

First, how commodities, treasuries and currencies performed today.


MATHISEN: The U.S. Postal Service is looking for a special delivery.
The U.S. postmaster general testified before a Senate committee today
requesting an emergency rate increase saying the agency is, quote,
financially unsustainable and needs the money just to stay in business.

Despite layoffs and the elimination of mail routes, the Postal
Service, which lost nearly $16 billion last year, says it will lose another
$6 billion this year, unless it gets help and fast from lawmakers.

HERERA: Auto sales have been revving high are all year long, on track
for 16 million units sold by the end of December. But now, there are signs
that car buying may be easing up. J.D. Power and LMC Automotive, which
keep track of auto and truck sales, says the rate of sales in September has
slowed down considerably, putting the annualized sales rate closer to 15
million units.

The reason? Well, part of that all-important and long Labor Day
holiday weekend landed partly during the month of August.

MATHISEN: Honda Motors is issuing a recall. Moore than 400,000
Odyssey minivans and Acura MDX SUVs all from the years 2003 and `04 are
being recalled to fix faulty air bags that could deploy inadvertently.

HEREREA: While Honda makes those cars safer, the nation`s airlines
are making flying more comfortable. And new data shows those airlines are
collecting a record amount of revenue from passengers who are buying food,
drinks and other items while they`re on board. But on some flights, the
drinks and money seem to be flowing a little more freely.

Phil LeBeau has more.


is the future of flying, paying for drinks, food or on-board entertainment
like a movie or live TV.

AMY LAURIDSEN, AIRLINE PASSENGER: If you`re sitting on the plane for
that long, you like to have some extra comfort.

KIM MISCHO, AIRLINE PASSENGER: Whether it movie or anything that
makes the time go by, we`re all so used to doing something. We don`t just
sit anymore and wait for our flight to arrive at its destination.

LEBEAU: So, what are people buying in the sky?

GuestLogix, which tracks almost a billion dollars worth of onboard
sales, says 58 percent of the revenue North American airlines collected in
the first half of this year was for drinks, primarily alcohol, 38 percent
was for food, and 4 percent was for things like in-flight movies, headsets
or seat upgrades.

BRETT PROUD, GUESTLOGIX CEO: In terms of liquor sales, you see
certain destinations that definitely have higher sales per flight in those
segments, like flights to Vegas. On the way to Vegas, for sure, there`s
higher average sales, by almost double.

LEBEAU: In fact, the number one money-making route in the Continental
U.S. is between Detroit and Las Vegas, ringing up an average of $179 in
drink sales every flight.

EVAN SEARS, AIRLINE PASSENGER: I was on a flight to Vegas just
recently, last week. A lot of people, you know, getting it going early.

TONY ROSADO, AIRLINE PASSENGER: Not surprising at all.

LEBEAU (on camera): Ever been on one of those flights to Vegas?

ROSADO: I`ve been to Vegas. One time, I even got married over there.

LEBEAU: While many travelers complain about feeling nickel and dimed
by the airlines, the truth is, more people are digging into their wallets
and spending while in the air.

PROUD: Four years ago 7 percent of folks were buying at least one
item on board. Two years ago, that was at 10 percent, at least one item on
board. And now, we`re at 12 percent.

So, the numbers show that people are becoming more comfortable.

LEBEAU (voice-over): Since most airlines no longer take cash, buying
on board has become less of a hassle. But do passengers like it? Not
everyone is so sure.

MICHAEL BOYD, THE BOYD GROUP CHAIRMAN: Overall, to think that people
are going to buy normal things on an airplane that they don`t need for
their trip just isn`t going to happen.

LEBEAU: Like it or not, this is just the start. Airlines are looking
at how to get passengers to buy more things in the air.

But until that happens, drinks will remain the purchase of choice for
many travelers.



MATHISEN: Shocking people that drink on a flight to Las Vegas, isn`t

All right. With all that money being spent mid-flight and all those
cocktail being served by airline staffers, a travel web site asked readers
if they`ve ever tipped a flight attendant while flying. Make sure you
seatbelts are upright, the answer may surprise you, folks. Out of more
than 500 people who took the poll, nearly 30 percent said, yes, they have
tipped the flight attendant in the past — maybe for exceptional service,
maybe for a terrific demonstration of flotation devices, or maybe just to
keep those cocktails flowing until the plane —

HERERA: I`m so surprised. I didn`t think you were allowed to do

MATHISEN: I`ve never seen it happened. I`ve never done it, but maybe
I`ll better think twice about this.

HERERA: I think I will think twice. That`s a really tough job.

All right. That`s NIGHTLY BUSINESS — who knew — that`s NIGHTLY
BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us.

MATHISEN: And I`m — we`ll take tips, too. I`m Tyler Mathisen. Have
a great evening, everybody. We`ll see you back here — we hope — tomorrow


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