ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by —
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WILLIAM DUDLEY, FEDERAL RESERVE BANK OF NEW YORK PRESIDENT: The chairman never said that we were going to reduce the rate of asset purchases in September. He said later this year. I think that framework that he laid out is still very much intact.
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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: An influential Fed member says status quo when it comes to the taper. So why is the market not flying high? Is there something unusual going on?
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BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I do believe that if we can resolve the issue of Iran`s nuclear programs, that can serve as a major step down a long road towards a different relationship.
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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Extending an olive branch. President Obama pledges diplomacy with Iran. But which markets could be impacted if sanctions against that country are lifted?
MATHISEN: And back to business. Why big oil is making a big investment in the Gulf of Mexico three years after the BP oil spill.
All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, September 24th.
GHARIB: Good evening, everyone.
It`s now four down days for the Dow and the S&P 500. Investors still not feeling encouraged to buy stocks even after positive comments today from one of the most influential members of the Federal Reserve.
Bill Dudley, vice-chairman of the Fed and president of the New York Federal Reserve Bank, says nothing has changed at the nation`s central bank that plans to taper back its bond-buying stimulus measures this year are still on the table.
Listen to the words of Bill Dudley when asked if the Fed could pull back on its asset purchases this year.
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DUDLEY: I wouldn`t rule it out but it depends on the data. And the thing that we really want to emphasize is that it`s driven by data, not by time. So, when the chairman says later this year, that was conditioned on the economy behaving in a way in line with the Fed`s forecast. So, if the economy were behaving in a way — in line with the Fed`s June forecast, then it`s certainly likely that the Fed would begin to taper later this year. But whether that`s going to happen or not remains uncertain.
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GHARIB: Meanwhile, despite the markets in sort of a holding pattern right now, the Fed continues buy $85 billion in bonds every month just as it has for the past year.
MATHISEN: Most stocks extended their recent slide with no developments on the threat of a government shutdown in Washington and conflicting data about the U.S. economy. Home prices way up in July but consumer confidence for this month declined. Stocks moved lower into the close erasing earlier gains.
In the end, the Dow fell 66 point. The S&P was down 4, but the tech heavy NASDAQ was able to squeeze out a three-point gain.
GHARIB: Our guest tonight has a theory on why stocks aren`t rallying, even though the Fed is still stimulating the economy.
Peter Boockvar believes the markets are beginning to disconnect from what the Fed says. He`s chief market analyst from at the Lindsey Group.
Peter, it`s so nice to have you here on the set with us.
PETER BOOCKVAR, THE LINDSEY GROUP CHIEF MARKET ANALYST: It`s great to be here. Thank you.
GHARIB: All right. Talk us through the disconnect between what the Fed says and how the market`s reacted. After all, it`s only been four dates since that Fed decision.
BOOCKVAR: Yes. But it`s amazing in that four days, we had the massive rally last Wednesday and euphoria of the Fed doing nothing. And in three days we gave it back and then had the fourth day. Investors aren`t used to this. Investors are not used to this. They`re used to the Fed giving the market what they want and then the markets responding with sharp rallies.
The S&P are up about 20 percent this year, and I argue that a lot of that has to do with the Fed. Well, here the Fed was incremental in giving the markets what they wanted and the markets aren`t following through. It was 2008 was the last time that the Fed was easing but the markets ignored it because obviously the system was on the verge of collapse.
This time around, I`m wondering what`s going on. There`s something different here. The market`s saying something.
MATHISEN: So, what is trumping the Fed in this case? Is it the concern over a government shutdown? Is it concern over the debt ceiling debate that we`re going to face right after that? Is it concerns raised about terrorism in the wake of what went on in Kenya? What is it?
BOOCKVAR: It could be those. But I`m wondering if maybe the stock market, again, which has used the excuse of QE this entire year to rationalize every single rally, that maybe we`ve stretched the rubber band so far between the spread of where stock prices are and where the undergoing fundamentals say they should be.
We`ve had low single digit earnings growth this year. We`ve had 2 percent GDP growth this year. That doesn`t substantiate a 20 percent rally in the stock markets. We`ve had the expansion of the P multiple because of the Fed.
Well, in the last four days, kind of squishy trading is kind of telling me that maybe the Fed, which lost control of the bond market to some extent since May, is maybe losing its influence on the stock market now also.
GHARIB: All right. Let`s say you`re right about all of this and this is weighing on investors. What does this mean for the outlook for the markets? Are we in for a big market correction? Maybe a bear market even?
BOOCKVAR: Well, any tape watch ever that`s watched the action since Wednesday`s big rally has to take a step back and say something`s not right here. And if that is the case, we may be on the cusp of a correction. We haven`t had a 10 percent correction in a few years.
So, there`s an argument to be made that the best is in if that the Fed can no longer generate higher stock prices, the fundamentals certainly are not. And maybe we need to start reacting on the downside of that.
MATHISEN: So, is the prudent thing to do to start taking some profits, take some money off the table, go to cash? And if so, what do you sell?
BOOCKVAR: Every — the problem with the market right now is almost every asset class is expensive. And that`s the case with most sectors of the stock market.
MATHISEN: Certainly, that`s what Buffet said last week. He`s having a hard time finding bargains.
BOOCKVAR: So, raising cash in a variety of industries I think is the prudent thing to do. It`s been a great year, but the market has acted different lit last four days.
Raise some cash. It provides a buffer. It provides some dry powder. Don`t be afraid to have cash even though everyone says don`t be in it. It`s a place to be if the market`s going to correct.
GHARIB: All right. Thank you so much. Peter, it`s been great having you on the program.
BOOCKVAR: Thanks a lot.
MATHISEN: Good to see you, Peter.
GHARIB: And we`ve been talking with Peter Boockvar, he`s chief market analyst at the Lindsey Group.
MATHISEN: New job at the Lindsey Group. Good for him.
Now to housing, the S&P Case-Shiller home price index for July shows that home prices in the nation`s 20 largest market shot up nearly 12.5 percent from the same month just a year ago, but the gains happened at a slower pace, indicating to some that growth may have peaked. The biggest gains were in Las Vegas and San Francisco, up 27 percent and 25 percent respectively.
GHARIB: Two big home builders also reported some good news today. Profits at Lennar (NYSE:LEN) rose 26 percent last quarter after logging more orders for new homes and selling them at higher prices, at KB Homes profits surged to $26 million last quarter, that`s nine times more than compared to the same period a year ago. KB charged 15 percent more for its new homes but says orders are a little weaker than expected.
Considering it was a down day in the markets, look at these gains in shares of Lennar (NYSE:LEN), KB Home (NYSE:KBH) and Ryland Group (NYSE:RYL) up by more than 4 percent while some other builders also saw gains today.
MATHISEN: Well, the price of oil fell for the seventh time in the last eight sessions after the U.S. extended a diplomatic olive branch to Iran. Sanctions against Iran`s oil industry have cut the OPEC member`s exports in half over the past two years. Crude fell another 46 cents a barrel to end a day at the lowest close since July 30th.
GHARIB: Iran and international sanctions were topic A at the United Nations today. Speaking at the U.N., President Obama urged international cooperation in eradicating serious chemical weapons, and he also wants to open the door to direct talks with Iran`s newly-elected leader.
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OBAMA: We are encouraged that President Rouhani received from the Iranian people a mandate to pursue a more moderate course. And given President Rouhani`s stated comment to reach an agreement, I am directing John Kerry to pursue this effort. While the status quo will only deepen Iran`s isolation, Iran`s genuine commitment to go down a different path will be good for the region and the world.
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GHARIB: The big questions now, whether Rouhani`s conciliatory words are genuine and what that could do for energy prices.
Michelle Caruso-Cabrera joins us now with more on what this may mean for Iran and the U.S.
So, Michelle, I know you`ve been following all of this. So, let`s just start off with talking about how much oil is off because of those sanctions against Iran.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: A lot, Susie. Iran used to produce more than 3.5 million barrels of oil per day but that`s fallen by more than 1 million barrels per day since 2010. So close to a third of their production is gone, because so few countries in the world are willing to buy them. Buy oil from them.
It`s not just the United States that has sanctions against them but Europe as well. So when you lose one-third of your sale, it`s been truly devastating to the Iranian economy and also their currency.
MATHISEN: If that oil, Michelle, returned to the market what would prices do?
CARUSO-CABRERA: Well, presumably with more supply, there would be lower prices. And keep find that if it does come on line, what`s coming into the world where there is a lot of oil already. We`ve got U.S. production at a 25-year high. Libyan oil production has finally started to recover, along with Iraqi oil as well. That is offset by rising demand in Asia.
And keep in mind also, Saudi Arabia always acts like an accordion. When there`s a shortage they step in when there`s a lot they pull out. So, it`s hard to say.
But presumably it helps pressure prices downward if Iranian supplies come back on.
GHARIB: We`re still a long way off between normalizing relations between the U.S. and Iran. But let`s say it does happen somehow magically over the next couple of months or year. What could that mean in terms of trade, in terms of economic benefits for the U.S., for Iran, for the world, the global economy?
CARUSO-CABRERA: Well, the biggest up side if it were to happen and oil analysts we spoke with were very doubtful. I mean, they`re not calculating a big increase in oil production anytime soon because they want to see this play out.
But the biggest winner would absolutely be Iran, compared to everyone else in the world. They desperately need that money back. Their currency has plummeted. They have admitted their GDP has fallen by more than 5 percent. They`ve had protests within the business community because of what`s going on there, and particularly fighting inflation.
They`re the ones who would benefit the most.
MATHISEN: Michelle, thank you very much. Michelle Caruso-Cabrera reporting tonight.
And still ahead, did traders get the Fed`s no taper decision ahead of everyone else? We`ll tell you what regulators are doing to even the playing field.
But, first, how did the international markets close today.
MATHISEN: There may be a deal in the works for the embattled hedge fund manager Steven Cohen and his company SAC Capital Advisers. Federal prosecutors are proposing settling an insider trading case, criminal case, against the firm for as much as $2 billion. SAC lawyers are expected to present a counter offer in the coming weeks. Any deal would require the hedge fund to plead guilty. SAC paid a separate $616 million civil fine earlier this year and it`s still not clear if there will be any criminal charges filed against Cohen or any of his employees.
GHARIB: Well, we`ve seen this before. A major economic report comes out. And there`s evidence of millions of dollars worth of trades taking place milliseconds before the data is officially released. Now, there`s speculation that traders may have gotten last week`s Fed use about its plans not to taper its stimulus program seven milliseconds early.
And this time, members of the press are being looked at as possible leaks.
Eamon Javers joins us now from Washington with more.
This is a really fascinating development, Eamon. And it`s also very techie kind of a stuff. So, tell us simply what happened and what the Fed is about it.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Well, what we learned today is that the Federal Reserve is contacting certain news organizations to go over the rules that news organizations have to abide by when they go into what`s called the lockup room. That`s the area of the Federal Reserve where reporters get early access to market-moving information under the terms that they agree to hold it for public release until 2:00 p.m., in the case of last week`s taper announcement.
So the question is, did anybody inside that lockup room transmit any data outside the room before 2:00 p.m.?
The reason the Fed is looking at this now is because there`s an unusual pattern of trading in the market in Chicago. Now, that all depends on the speed of light and telecommunications transportation timing from D.C. to Chicago. It looks like there are trades in Chicago that happened before people in Chicago should have been able to know about the Fed`s decision, but nonetheless after 2:00 p.m. that`s because it takes about 7 milliseconds for data to get from D.C., here where I`m sitting, to Chicago where those traders were, where their computers were.
Somehow they got it before that. That would seem to be impossible. The question is how did it happen? That`s what the Fed`s looking into.
GHARIB: And so, this has happened now a couple of times. Do you think or what are you hearing that this could impact the way the government releases its data? What kind of changes can we expect?
JAVERS: Well, we`re seeing every aspect of the federal government wrestling with this question. You`ve got these old procedures for releasing information crashing up against a system of new technologies, including millisecond level trading, speed of light telecommunications transmission and the rest of it and they`re not just mixing very well. The Department of Labor is struggling with this in terms of the release of the jobs report, how to make sure everybody gets that at the same time is a very difficult question. Now, we`re seeing it again at the Fed, the Fed wrestling with it today.
I think that what we are going to see in the future is a different regime for releasing information in this millisecond speed of light kind of world.
GHARIB: Maybe Einstein was wrong, Eamon.
JAVERS: That`s the other possibility. Maybe somebody had a time-traveling DeLorean.
GHARIB: What is this going to do to investor confidence?
JAVERS: Well, that`s one of the questions. We`ve seen a number of these incidents in terms of traders and others being able to have access to news before other people were able to have access to it throughout the year. If you`re a mom and pop investor, you look at the whole kit and caboodle of this and you say, hey, wait a second, this doesn`t feel really fair to me.
But the other question is, how many mom and pop investors are actually interested in investing on a 7 millisecond level? Maybe they look at it and say, you know what, I`m not worried about that because I`m not trading that fast anyway.
So, by the time I get it — I get to it, the information is already out there on the market.
MATHISEN: All right. Eamon, faster than the speed of light?
JAVERS: There you go.
MATHISEN: Eamon Javers.
All right. For more on the story, please head to our Web site, NBR.com.
GHARIB: Here`s something to tweet about, Tyler. Twitter has reportedly picked the New York Stock Exchange to list its $1.5 billion initial public stock offering. Some Wall Streeters are saying that Twitter wants to avoid the glitches that nearly torpedoed Facebook (NASDAQ:FB) shares when that company went public last year on the NASDAQ exchange.
MATHISEN: Well, we begin “Market Focus” tonight with a $9 billion deal Applied Materials (NASDAQ:AMAT) plans to buy rival Tokyo Electron, combining the number one and three makers of chip-making gear. The company will maintain a dual listing on the NASDAQ and on the Tokyo stock exchange. This is the biggest ever deal for Applied Materials (NASDAQ:AMAT), which rose 9 percent to $17.44. That made it the best performing stock on the S&P 500 today.
Different story, though, for shares of Cypress Semiconductor (NASDAQ:CY). That stock falling after the chipmaker cut its third quarter outlook, citing weakness in mobile handset revenue from Asia. And that weakness is expected to continue into the fourth quarter. Cypress plunged almost 15 percent to $9.65.
Well, deep discounts weren`t enough to bring passengers back to Carnival (NYSE:CCL) Cruise Lines. The company said bookings for the next three quarters are below last year`s pace. Even with lower ticket prices.
The world`s largest cruise line still feeling the fallout from its three ship that is suffered mechanical problems earlier this year. Shares of Carnival (NYSE:CCL) dropped nearly 8 percent today to $34.54.
GHARIB: It was also a rough day for Red Hat (NYSE:RHT), the software-maker falling sharply after the company reported billions below analysts` forecasts and a disappointing revenue outlook. Red Hat`s open source software is free. The company makes money by charging for maintenance and support services. The stock dropping almost 12 percent to $46.75.
Things were different at CarMax (NYSE:KMX). Shares surged on news of a strong sales of its used cars. The biggest used vehicle seller in the U.S. has posted higher profits in recent quarters helped by the economic recovery. The stock finished the day higher by 3.5 percent to $51.79.
And another activist investor strikes. Sandell Asset Management this time is calling on Bob Evans Farms (NASDAQ:BOBE) to take several major steps to change its business. The hedge fund which owns more than 5 percent of the company wants Bob Evans to separate its food products business to a sale or spinoff.
According to Sandell, those moves along with other changes would unlock value to shareholders. Investors seemed to like the idea. The stock rose almost 1 percent to $57.43.
MATHISEN: There`s an oil boom going on in an unlikely place, the Gulf of Mexico, just three years after that devastating oil spill. But now, some of the biggest names in the energy sector are heading back into the Gulf, drilling for oil and gas in record numbers.
Jackie DeAngelis has more.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Before they float out into the ocean, many of these deepwater offshore platforms are built here at the Kiewit fabrication yard. And it`s been a busy summer at Kiewit as many companies are planning to invest and expand their presence in the Gulf.
Shell, Anadarko, and Chevron (NYSE:CVX), just some of the companies that have commissioned new deepwater oil platforms. It`s all part of big oil`s vestment in the Gulf three years after the BP oil spill.
JAY MACHEN, KIEWIT OFFSHORE SERVICES: We`ve been very fortunate here. It`s been not only a busy summer but a busy year.
DEANGELIS: Chevron (NYSE:CVX) is one of the companies investing in new Gulf Coast production. With two new platforms, targeting first oil by the end of 2014, including this one, called Jack/St. Malo.
(on camera): The helideck of this platform 75,000-ton platform is 30 stories high. Upon completion, it`s going to take about 10 days to get it 300 miles off the coast of Louisiana, and it has to travel through this channel.
(voice-over): The company`s engineers are working on new technologies, including seismic processing, letting them see deeper below the earth`s surface — innovation that just 10 years ago seemed unthinkable.
BILLY VORANADO, PROJECT DIRECTOR, CHEVRON: Years ago, we could not see the reservoirs below salt. Now, for Jack/St. Malo, we`re able to understand what`s below the salt, determine the size of the reservoirs and help us in developing projects like this.
DEANGELIS: But investment in technology isn`t just being made for production purposes. It`s also being made for safety.
VORANADO: When we start designing a facility, designing a well, we`re already thinking about how can we execute this work safely, how can we produce, use the facility, produce the wells, not only on day one but on the 30th year of production.
DEANGELIS: Despite the challenges BP faced in the Gulf, other oil companies are eager to get to work there. It takes roughly 20 months to get a new platform fabricated, but there`s been a wave of orders that extends beyond this year.
MACHEN: Well, it`s been a very prosperous time. Next year looks like a slower year, but 2015 is shaping up to be another bumper year, if not busier than this year.
DEANGELIS: Chevron (NYSE:CVX) is just one company betting big with an investment of nearly $12 billion in these two new platforms. But once they`re up and running, new technology, jobs and oil will flow from the Gulf.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
GHARIB: Coming up on the program, a new corporate gold rush? There`s a new up and coming consumer group and some of the world`s biggest companies are trying to tap into them.
But, first, here`s a check on how commodities, treasuries and currencies performed today.
GHARIB: While lawmakers in Washington try to hammer out a federal budget before Monday, the clock is also ticking on the nation`s borrowing limit.
And today, a dire warning from Treasury Secretary Jack Lew. He says that the government actually has less cash on hand than expected, making congressional approval to raise the borrowing limit even more critical. The nation`s debt ceiling is expected to be reached by mid-October.
MATHISEN: Shareholders of Smithfield Foods (NYSE:SFD) have approved a deal to sell the world`s biggest pork producer to a Chinese company. The $4.7 billion acquisition by Shuanghui International is expected to close by the end of this year, and it will become the largest takeover of a U.S. company by a Chinese firm.
GHARIB: Well, pork is one thing. Smartphones are another. A new report from research firm IDC predicts that China, already the world`s biggest smartphone market, could see shipments of more than 450 million devices next year. That`s about 25 percent more than this year.
Part of the reason? China Mobile (NYSE:CHL), the world`s biggest wireless carrier, is expected to carry Apple`s iPhones by next year.
MATHISEN: But with all those mobile devices in China, changes to a ban on some Internet sites were bound to happen. Now, a Hong Kong newspaper reports that Facebook (NASDAQ:FB), Twitter and other Web sites that are currently blocked by the Chinese government will be opened up for use as early as next week, but only in a planned free trade zone in Shanghai.
GHARIB: Smartphones and social media sites are the communication tools of choice for millions of generation Y members all over the world. And in China, millions of those free-spending, upwardly mobile 20-somethings have become the most sought-after consumers by big American brands and their advertisers.
Eunice Yoon has more.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): American carmaker Ford has a little insider knowledge of how to market to young Chinese. Chelsea Qian is a 20-something from Shanghai, the very consumer Ford wants to tartar get. Qian says China`s One Child Policy has changed the way her generation lives.
CHELSEA QIAN, FORD MARKETING MANAGER: Because we don`t have any brothers or sisters. So, our school mates, our colleagues, might be our best friends, I think our generation are just — we are looking for ways to group activities.
YOON: Their love for group activities such as karaoke prompted Ford to sponsor China`s version of “American Idol,” helping to sell cars like the Focus now a favorite in China. Companies everywhere see this country`s 20-somethings as perhaps the most important up and coming consumers in the world.
Market researcher PT Black says the secret to wooing them is to understand young Chinese move between a modern China and a world of tradition, and that they aspire to master these competing worlds.
PT BLACK, MARKET RESEARCHER: They`re called a chameleon — you can be someone who can fit into any circumstance, and mastering different circumstances, knowing what to wear to a picnic, versus what to wear to a movie opening. That`s the kind of mastery that kids here are really looking for.
YOON: Pepsi says young Chinese are also looking to live for themselves. So, the U.S. drink giant hired a popular amateur singer to front this international Live for Now campaign here.
DANIELLE JIN, PEPSICO MARKETING VP: They are in the process of discovering their self-identity much sooner than any of us did. They are more open-minded. And they want to debate about things.
YOON: Young Chinese are technology obsessed, checking social media when choosing brands.
(on camera): Young people in China are bombarded by brands every day. So the competition among companies to grab their attention is more fierce than ever before.
(voice-over): Though winning that fight could pay off if China`s 20-somethings become fans of your brand.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Shanghai.
MATHISEN: And finally tonight, Burger King has come up with a great way to sell more French fries to more health conscious diners. Make them with 30 percent less fat and 20 percent fewer calories and come up with a great name.
Today, the nation`s number three burger chain began selling — see if you can think of the name — Satisfries. Oh, clever. The crinkled cut friend potatoes will be sold right alongside the regular fries, but these which will absorb less oil, that`s the key, will cost just a little bit more. But don`t you think it might be very satisfrying?
GHARIB: I have to do a taste test first.
MATHISEN: We have them brought in here. The official NBR — welcome back, by the way.
GHARIB: Thank you very much.
MATHISEN: We missed you while you were away, a little time over in Turkey.
GHARIB: A little bit of time in Istanbul. It`s fascinating country. A growing economy, so —
MATHISEN: We`ll get those Satisfries over there pretty soon. Good to have you back.
GHARIB: Thanks so much, Tyler.
That`s NIGHTLY BUSINESS REPORT for us tonight. I`m Susie Gharib. Thanks so much for watching.
MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have a great evening, everybody. We hope to see you back here tomorrow night.
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.