Transcript: Wednesday, September 25, 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: The power of Wal-Mart (NYSE:WMT). A midday dive in its shares took down the Dow and brought a host of other stocks down with it. Why Wal-Mart (NYSE:WMT) matters so much, and why it may be the one stock you need to watch more than any other.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The price is right. Or is it? New information tonight on how much health insurance may cost you on those new exchanges.

GHARIB: And stuck in a rut? Manufacturing has been booming. But now, some smaller shops say things may have peaked. And that could be a troubling sign for job growth.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 25th.

MATHISEN: Good evening, everyone. And welcome.

Call it the Wal-Mart (NYSE:WMT) effect. If there was ever, ever any doubt about how much Wal-Mart (NYSE:WMT) matters to the economy, to the stock market, to suppliers and competitors, those doubts were put to rest today. Wal-Mart (NYSE:WMT) shares took abrupt 3 percent dive midday, yanking the Dow down with it, after the press report said the company is cutting orders to suppliers amid sluggish sales and rising inventories.

Take a look at an intraday chart of Wal-Mart (NYSE:WMT) and zero in on that drop. Right there, around 1:30 p.m. Eastern Time. As you see, the stock did recover about half of that loss after the company knocked the Bloomberg article as, quote, “misleading”. A spokesman characterized any order pullbacks as category by category, not across the board.

Wal-Mart (NYSE:WMT) did finish the day about 1.5 percent lower on two-and-a-half times normal volume.

Now, despite the bunch back, the episode served as a reminder when Wal-Mart (NYSE:WMT) sneezes, other companies catch cold. Shares of big discounters tumbled in tandem with Wal-Mart (NYSE:WMT), names like Costco (NASDAQ:COST), Target (NYSE:TGT), Dollar General (NYSE:DG), Dollar Tree (NASDAQ:DLTR) and Family Dollar, and retailers weren`t the only ones feeling the chill. Such Wal-Mart (NYSE:WMT) suppliers as Procter & Gamble (NYSE:PG), Clorox (NYSE:CLX), General Mills (NYSE:GIS), Kellogg (NYSE:K), all dipped right before 2:00 p.m. Eastern Time as you see on those graphs. Those companies have a ton of products on Wal-Mart (NYSE:WMT) shelves. Even apparel makers like new Dow component Nike (NYSE:NKE) went for a Wal-Mart (NYSE:WMT) ride today.

GHARIB: Joining us to talk more about Wal-Mart (NYSE:WMT), Patrick McKeever. He`s senior equity analyst at MKM Partners.

So, Patrick, Wal-Mart (NYSE:WMT) says it`s business as usual, but this report was misleading. But as an analyst who`s been covering Wal-Mart (NYSE:WMT) for almost 14 years, what`s your take on this report today and what kind of shape is Wal-Mart (NYSE:WMT) really in?

PATRICK MCKEEVER, MKM PARTNERS SENIOR EQUITY ANALYST: Well, even if inventories — even if the company was cutting back on some of its inventory purchases, it would not be a huge surprise. Their inventories were up at Wal-Mart (NYSE:WMT) U.S., which is the core business, the U.S. business, 7 percent at the end of the second quarter. And they said on the August conference call that they would be pulling back and trying to get those inventories down. Their sales grew at Wal-Mart (NYSE:WMT) U.S. only 2 percent.

So, 7 percent is high. They told the street they would be pulling back on inventories and rebalancing inventories. So, not a huge surprise.

I think it`s a little bit of a “much ado about nothing” kind of a circumstance here.

MATHISEN: But cut to the bottom line here: is Wal-Mart (NYSE:WMT) — is Wal-Mart (NYSE:WMT) signaling ever-so-subtly that the economy isn`t as strong as maybe we thought, and that`s why you see those reverberations through a passel of other stocks through Clorox (NYSE:CLX) and Procter & Gamble (NYSE:PG) to the other discounters?

MCKEEVER: Sure. I mean, I think that`s probably true. But they`ve had a tough year so far. They`ve had negative same-store sales at Wal-Mart (NYSE:WMT) U.S. They are forecasting for flat same-store sales in the current quarter, the third quarter. I think they`ll probably be right around that, maybe be light of that flat number.

But, yes, I think there`s probably a little bit of that. But I think, you know, it`s more of the same, really. I don`t know that it`s anything necessarily new.

GHARIB: You know, Patrick, I know you`re not recommending Wal-Mart (NYSE:WMT) stock, but we — as we reported, it has such an impact on other retailers, other consumer products companies. Why should investors or do you think investors should really pay attention to what`s going on with Wal-Mart (NYSE:WMT), whether you own the stock or not?

MCKEEVER: I mean, in general, absolutely. They`re the biggest retailer in the world, $400-plus billion in sales. So, they`re huge. And they matter. And sure, investors should pay attention to what Wal-Mart (NYSE:WMT) says and what`s happening at Wal-Mart (NYSE:WMT).

But I would also points out that other — there have been a number of other retailers that have been doing quite well. Look at the off-price apparel retailers, TJX which is TJ Maxx and Marshalls, has been growing quite well over the past several quarters and had a nice second quarter, and up about 4 percent same-store sales growth. The dollar stores have been doing well.

So there have been some pockets of strength. You know, Wal-Mart (NYSE:WMT) is not alone with its negative comps. Target (NYSE:TGT) also had negative — at least negative traffic in the second quarter. But I think there`s some company-specific issues at Wal-Mart (NYSE:WMT) as well that are contributing to that.

MATHISEN: Very quickly — in that space of discounters, the Dollar stores, Wal-Mart (NYSE:WMT), Target (NYSE:TGT) and others, which one do you like best?

MCKEEVER: Well, I`ve been big on the Dollar stores. I`ve got buy recommendations on all three. My top pick within that space has been Dollar Tree (NASDAQ:DLTR) and I`ve been big on the off price apparel space, as well. I`ve been recommending TJX for some time now. Ross Stores (NASDAQ:ROST), which is the number two off price apparel retailer, and I think the numbers in both of those subsectors of retail will continue to look pretty good, right on through the holidays.

GHARIB: OK. Any disclosures to make, Patrick? Do you own any of those stocks, your firm?

MCKEEVER: No disclosure, Susie.

GHARIB: OK. Thanks so much for coming on the program. Patrick McKeever —

MCKEEVER: Thank you.

GHARIB: — he`s senior equity analyst at MKM Partners.

MATHISEN: And with Wal-Mart`s 1 1/2 percent slide weighing on the market, it`s no wonder that stocks did fall today. In fact, the S&P 500 notched its first five-day losing streak of the year and the Dow logged its longest string of losses since a six-day fall a month or so ago. Now, the Dow swooning and then bouncing back with Wal-Mart (NYSE:WMT), ended 61 points lower. The NASDAQ was down 7 and the S&P shed 4.

GHARIB: Well, shares of JCPenney didn`t need any help from Wal-Mart (NYSE:WMT) to plunge again today. It tumbled another 15 percent. That followed a dire analysis from Goldman Sachs (NYSE:GS) about the retailer. It said, quote, “A combination of weak fundamentals, inventory rebuilding and an underperforming home department will likely challenge JCPenney`s liquidity levels in Q3.”

Now, the chain`s beaten down shares sold off right from the opening bell today, eventually closing at the lowest level in nearly 13 years. The Goldman Sachs (NYSE:GS) report also speculated that the retailer may be forced to tap into the debt markets just to get more operating cash.

MATHISEN: Meantime, this Halloween may be a bit scarier than expected for all retailers. Survey from the National Retail Federation says that Americans plan on spending less money this year, blaming the weak recovery for that pullback. The group predicts that people celebrating Halloween this year will spend an average of $75 on candy, costumes, decorations and the like. That`s down from about $80 spent on average last year.

GHARIB: Well, JPMorgan (NYSE:JPM) has been hit hard recently with lots of fines and settlement fees, but the latest is a big one, $11 billion. “The Associated Press” reports that the nation`s biggest bank is in negotiations with federal and state officials to settle charges that it misled investors about the quality of the mortgage-backed securities that it sold in the run up to the financial crisis. And then when the housing bubble burst, those securities tumbled in value.

But some much-needed good news today in housing. New home sales in August rose nearly 8 percent from the previous month, with potential buyers apparently rushing to close deals as mortgage rates inched higher.

MATHISEN: To Washington now, and the race against the clock as the U.S. Senate tries to hammer out a federal budget bill by Monday, and avert a government shutdown.

John Harwood joins us from Washington.

So, John, what happened in the Senate today?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: We had something rare, Tyler. A 100-0 vote in the Senate. Every single senator voted not to try to block the consideration by the Senate of this bill to extend government funding. That bill in its current form would defund Obamacare, and Ted Cruz had launched an overnight filibuster or a talk-a-thon, to try to persuade senators not to take it up.

But by the end, it was so obvious that he was going to lose overwhelmingly that even he voted with the people who said, yes, take it up. And now, there`s talk about shortening the extended time frame by which we were going to consider this bill. It looks as if Friday or perhaps early Saturday, the Senate will pass a so-called “clean extension” of government funding with no other conditions, send it back to the House and then we`ll find out whether the House is going to take it up and pass it and avoid a shutdown, or try to attach another set of conditions and then we`ll go through this again.

GHARIB: You know, John, everybody was talking about that talk-a-thon as you put it, 21 hours. Did Senator Ted Cruz really accomplish anything?

HARWOOD: Well, there are a couple things. First of all, he raised his own profile for good or bad. A lot of people don`t like him. A lot of conservatives do like him.

It`s also possible and some Democrats are expressing the idea to me that the extended discussion by Republicans of Obamacare, them seeing that this is not a viable strategy, certainly on the government shutdown bill, may hasten the time in which both the shutdown and the debt limit get settled. In other words, may serve as a bit of a shock absorber for some of the hostility and angst that conservatives want to express about Obamacare without taking it over the brink on the debt limit. We`ll see if that`s borne out. But that, at least, is one possibility.

MATHISEN: What is the path forward from here, John, for avoiding a shutdown, and what`s the likelihood that the House will send another spending bill back to the Senate with some condition that the Senate is not likely to accept such as a delay in the individual mandate requiring coverage — insurance coverage under Obamacare?

HARWOOD: Well, the earlier the house gets the bill back from the Senate and since they`re now talking to — about Senate passage on Friday rather than Sunday, the greater the chance is the House will come up with a strategy that involves sending another condition back. It could be a delay in the individual mandate. It could be something like a repeal of the medical device tax that`s part of Obamacare.

Part of the Democrats` initial hope was if Ted Cruz talked through the weekend, the House wouldn`t have any time and would be up against the September 30th deadline and they`d feel the need to go ahead and extend funding. So, it`s not entirely clear yet. We`ve got several votes to go and several days to go.

But I think the smartest bet at this point, Tyler, is that it is not likely that we`re going to have a shutdown. Not certain, but it looks like we`re not going to have that.

GHARIB: Let`s just say there is a shutdown. What happens on day one? I mean, from years past, what happens?

HARWOOD: Well, this is a different situation than we saw, Susie, say, in 1995 when Newt Gingrich and Bill Clinton had a standoff. And that`s because in 1995, about half of the government had already had their spending bills passed. So, that was in law already. It was only a half government shutdown.

Now, none of the spending bills have passed, and what that means is, that a lot of public services will not be available, things like getting a visa done. You know, those offices will be closed — national parks, monuments, that sort of thing. It`s possible that you could see a delay in some Social Security checks, although the government shutdown terms do involved allowing essential workers to continue on the job.

But it`s possible there will be all sorts of disruptions to government services. But the biggest effect, though, I think we have to say would be on federal workers themselves who would be without a paycheck. We`re talking about 800,000 people or so.

GHARIB: Nothing really good to get excited about in that scenario.

HARWOOD: No.

GHARIB: But thanks, John, for your analysis. Really appreciate it.

And that`s John Harwood reporting from Washington.

And also, speaking about the government, just six days to go before state and federal health care exchanges open their doors, offering a marketplace of health insurance plans to all Americans. It`s all part of the Affordable Care Act. And today, the Obama administration released the prices for individual insurance plans.

Bertha Coombs joins us now with a rundown of the premiums, copayments, deductibles, options, everything that people are going to face. You know, Bertha, we have been talking a long time. You have been covering this story for a long time about what are the prices going to be for these insurance plans.

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Right.

GHARIB: Today, we got a peek into what the prices are going to be. Are they higher or lower than what everybody was expecting?

COOMBS: Well, a little lower. I mean, we have heard from some of the states that have built their own exchanges. They already have revealed some of the prices and in many cases they`re lower. Now, the federal government today in a new report from Health Department analysts found that premiums will be lower than they had previously estimated on the three dozen health insurance exchanges at the federal government is fully or partly operating, because those states opted out of building their own marketplaces.

So, on average, they`ve discovered Americans will be able to choose from more than half a dozen insurance plans on these exchanges. And that`s part of the thing that is driving these costs down, more competition. They`ll have more than 50 plans to choose from. And these plans will be price — this is what you`re going to hear a lot about — on metals bases, bronze being the cheapest, silver in the middle, gold at the top end.

The average silver midpoint plan comes in at about $328 a month. But that`s before tax credits for low and moderate-income people which will reduce those monthly costs. The government gave us some numbers.

So, of course, it`s going to vary on where you live. But let`s take a family of four in Texas with $50,000 in annual income, for example. They will have a silver plan that will average about $727 a month. Now, with the tax credit that they would qualify for, that premium would be cut by about 60 percent to $280 a month.

And interestingly, I went on e-health to see what you would get in the individual market now to get a plan like that for $280, you get a plan with about a $10,000 deductible and it`s going to be much less than that on the exchange.

Now, take an individual, the young people who they really want, 27-year-old, now you can no longer be covered on your parents` plan.

In Florida, earning about $25,000 a month, would also qualify, and a silver plan will average $218 for that 27-year-old, before the tax credit. After the tax credit, about $145 a month, and that would be lower.

The interesting thing is, you don`t have to buy a silver plan. You could buy a bronze plan that`s cheaper. But your tax credit is based on the silver plan. So, it would actually bring you even lower on a bronze plan which could come down for that 27-year-old to less than $100 a month.

GHARIB: Yes, but we know when people sit down and do the math, the main reason that a lot of Americans do not buy health insurance, because they just feel like it`s too expensive, they can`t afford it, even though these numbers sound good.

COOMBS: Exactly.

GHARIB: At $328, the average, is that affordable enough?

COOMBS: Well, that`s 328 before the tax credit. So, it might be below $300. And it is affordable by comparison to what someone is paying now on the individual market. So, when you look at someone who is already trying to buy insurance, that seems much more affordable.

But everyone you talk to says, this is a very price-sensitive market. So, if you`re making $50,000 a month, that`s still a lot of money to come up with $300 a month.

GHARIB: Right.

COOMBS: If you`ve got all these other expenses.

And they need young people to sign up to make sure that we don`t just have older sick people in the insurance pool.

MATHISEN: A couple quick questions in rapid succession. Number one, are the tax credits applied after I have shelled out out-of-pocket all that money, or before?

COOMBS: You can choose. You can choose to take them before, or you can choose to take them later, get them later when you file for your taxes. If you`re on the edge, so for a family of four, your subsidies run out at around $94,000, if you`re on the edge, you`re probably going to want to wait so you don`t get clawed back on what you took beforehand.

MATHISEN: But if you have a problem with cash flow, you`re going to want that tax subsidy up front so that you can actually do it.

COOMBS: Exactly.

MATHISEN: Question number two, the plans on these exchanges are private insurers, right?

COOMBS: They`re private insurers, yes. They`re private insurers that are competing on these exchanges for your business.

MATHISEN: And what kind of coverage do you get, limited?

COOMBS: That depends, depending on the level. Remember we talked about the metal level. So, silver is a kind of 60 percent of the cost.

MATHISEN: They pay 60 percent of your medical costs.

COOMBS: Right. So you have some out of pocket. Maximum out of pocket is about $6,200 for a deductible.

On a bronze plan, it`s going to be more out of pocket. So, you might pay a lower premium, but you`re probably going to get a more limited network of coverage. And you`re probably going to have more out of pocket.

GHARIB: Real quickly. You`re required — every American is required to have some kind of insurance plan. If you don`t, there is a fine.

Really? Are you going to be fined if you opt out?

COOMBS: You know, I think this first year — and this is just my impression. This first year, from talking to people, they just want people to sign up at all costs, so they don`t want to be punitive. They don`t want to be talking about this —

GHARIB: The $95 fine.

COOMBS: Exactly. Potentially as little as $95.

GHARIB: OK.

MATHISEN: Bertha, thank you very much. We`ll be back to you on this.

(LAUGHTER)

MATHISEN: All right. Coming up, a billion than dollar deal in the medical devices space. Details next.

But, first, take a look at the international market.

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GHARIB: Amazon (NASDAQ:AMZN).com unveils a revamped Kindle tablet today. It hopes to get a leg up on rivals like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) just ahead of the holiday shopping season.

Jon Fortt sat down with Amazon (NASDAQ:AMZN) CEO Jeff Bezos today to talk about his company`s latest offering and the innovation behind it.

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UNIDENTIFIED MALE: Yes, first thing you`ll notice is our carousel.

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It starts at $139 and analysts estimate that it represents about 1 in 10 tablets sold.

(on camera): For the past two years, Amazon`s Kindle fire has challenged iPad in the white hot tablet market. I talked to CEO Jeff Bezos about how the latest models are taking it to another level in features and service.

JEFF BEZOS, AMAZON CEO: And so, for people who really want the very best hardware, that`s the right tablet to buy. The 8.9 inch form factor is very useful for doing a whole bunch of things like browsing the web and e-mail. And, of course, movies and TV shows look great on it.

And then we have for people who are, you know, buying tablet for the family, who are you know, $138 Kindle Fire HD has a same processing power that our high-end had last year, and the same display quality that our high-end had last year.

And so, at $139, it`s a real — breakthrough price point.

TECH SUPPORT: How can I help you?

FORTT (voice-over): The standout feature in the new kindles, the “Mayday” button, which summons tech support, live on the screen.

PARTRICK MOORHEAD, MOOR INSIGHTS & STRATEGY PRINCIPAL ANALYST: Best-case scenario for Amazon (NASDAQ:AMZN), they develop an aura of great support. Amazon (NASDAQ:AMZN) is known for that already. But on the tablet side, if they could lock that in, it could really expand their business to a whole different demographic.

FORTT: Bezos said ideas like that don`t come from just one person. They come while hashing out the future with a team. His style: get lots of input.

BEZOS: Sometimes I think there is a myth of the top-down leader who is, you know, inventing and the sort of what we all have in our minds when we think of Thomas Edison. And that`s not how large-scale innovation works in a company, in my experience. It really is the great strategies, the great product visions, even the great features that kind of emerge, and then somebody has an idea and somebody else has a refinement to that idea.

FORTT: Bezos is clearly hoping these new Kindles go down as a success. Preorders start today with the models all shipping by November 7th.

Of course, new surface tablets from cross town rival Microsoft (NASDAQ:MSFT) arrive in less than a month, and we expect new iPads from Apple (NASDAQ:AAPL). These new Kindles will have plenty of competition.

In Seattle, I`m John Fortt for NIGHTLY BUSINESS REPORT.

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MATHISEN: We begin “Market Focus” tonight with a $1.6 billion deal. The medical technology company, Stryker (NYSE:SYK), is buying Mako Surgical, which makes a robotic arm designed to help surgeons more precisely implant replacement knees and hips. Some analysts say the deal will give Stryker (NYSE:SYK) a very strong competitive advantage over rivals and trigger a wave of takeovers in the sector.

Shares of Mako soaring 82 percent to close at $29.46. Stryker (NYSE:SYK), by contrast, fell about 3 percent to $68.79.

AutoZone (NYSE:AZO), the world`s largest auto parts retailer in the U.S., reported a rise in earnings as the company`s commercial sales continue to improve. The firm has been benefitting from the addition of new stores and plans to enter the Brazilian market, the fourth largest car market in the world. The stock is rising more than 2 percent to $425 and change.

GHARIB: Shares of Facebook (NASDAQ:FB) also rising today, after Canaccord initiated coverage of the company with a “buy” rating and $60 price target. The analyst says the company is very early in generating revenue from its enormous user base. Shares have more than doubled over the past three months. And today, they rose to $49.46.

And Infinity Pharmaceutical said its experimental lung cancer drug failed to improve overall survival in a mid-stage trial. So, the company will now focus on a drug meant to treat a rare blood cancer, asthma, and rheumatoid arthritis. Shares fell more than 5 percent to $17.32.

And we have more ahead. First, though, how commodities, treasuries and currencies performed today.

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MATHISEN: Last week`s deadly terrorist attack in Kenya is focusing attention on the vulnerability of public spaces like shopping malls and sports arenas from similar attacks. Scott Cohn joins us now from Chicago where thousands are security personnel are gathered to discuss the latest techniques to make an unsuspecting public more secure.

Scott, what is — what is the buzz, the tenor of the conversation that you`ve been listening to and seeing out there?

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, the terror attacks in Nairobi have certainly focused attention on what security professionals call soft targets. Things like shopping malls. There`s a big one right behind me here in Chicago`s Michigan avenue, where you can come and go as you please. There are multiple entry points. They`re the kinds of places that give security professionals fits in terms of how to protect them.

But there are a few things they feel they`re doing right. One is that there`s a great deal of coordination now between mall security people and the Department of Homeland Security, law enforcement, to try and spot these threats, spot the bad guys, essentially, before they go into the mall. And to hopefully prevent some of these attacks like what happened in Nairobi.

GHARIB: So what does it mean for those of us who go shopping in these places like a mall? Are you supposed to be on high alert? I mean, it`s one thing to have these security measures in your workplace. But you`re kind of distracted when you`re shopping in a mall.

What`s the advice from these security specialists?

COHN: Well, what they`re saying is that, you know, they`re doing everything that they can. There is technology that can help them spot, you know, anomalous patterns and things like that. But they also say, and basically everyone we talked to at this conference said that it — determined attacker is going to do the damage they`re going to do.

And so that means, when you go to your shopping mall, you need to be aware of the situation around you. Have a plan in case the worst happens. Have a plan to get out, know what you would do. Gain the scenario in your mind.

And that is something that ultimately could save your life. And also, as they say, and as they have said certainly since 9/11, if you see something, say something.

MATHISEN: All right. Scott Cohn, reporting for us tonight from a big security conference in Chicago. Scott, thanks very much.

GHARIB: Just got to be alert everywhere you go.

MATHISEN: It`s amazing it`s come to that. You have to think about your escape route whenever you go into a mall or a sports event.

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

MATHISEN: And thanks from me as well. Have a great evening, everybody. We`ll see you 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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