Transcript: Wednesday, Oct. 2, 2013

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

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(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: No, I think this time is different. I think they should be concerned.

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BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Warning shot. The president has that word of advice to Wall Street and investors: be concerned. This stalemate is different.

But even as the president calls both sides to the White House to try to end the standoff, are the markets losing confidence that a deal can get done?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Applying pressure. Wall Street CEOs issue a warning to Washington. Failure to raise the debt ceiling could lead to extremely adverse consequences.

GRIFFETH: Into the unknown. Big changes are coming to the healthcare system and we ask one of the nation`s top hospital CEOs what he is doing to prepare.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, October the 2nd.

And good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen.

GHARIB: And I`m Susie Gharib. Good evening, everyone.

On day two of the government shutdown, President Obama talking tough and acting tough. The president called together the leadership of both chambers of Congress in an effort to find a solution and get the government up and running again, and he met with a group of powerful bank CEOs to discuss the risks of the financial system.

Then, in an exclusive interview with CNBC, the president singled out what he called a small faction of the Republican Party and says he`s willing to negotiate after the government is open for business again.

Our John Harwood sat down with the president today and he joins us now from the White House.

John, over to you. What happened?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, one of the things that`s been confusing to people is what exactly is the president willing to negotiate on and when?

Here`s what he said.

(BEGIN VIDEO CLIP)

OBAMA: I`m prepared to negotiate on anything. I think it`s important for us to talk about how we create a budget that is creating jobs, encouraging growth, dealing with our long-term debt issues. The deficits are coming down at the fastest pace since World War II. They`ve been cut in half since I came into office, but we still have some challenges in terms of our long-term healthcare spending, on Medicare in particular.

So, whatever the leadership wants to talk about, we got a budget, and we think we got some good answers, but we don`t expect 100 percent. But what I`ve also said is that it is not acceptable for one faction of one party in one chamber to say either we get what we want, or we`ll shut down the government, or even worse, we will not allow the U.S. Treasury to pay it`s bills and put the United States in default for the first time in history.

So, the message I have for the leaders is very simple, as soon as we get a clean piece of legislation that reopens the government and there is a majority for that right now in the House of Representatives —

HARWOOD: No negotiation until after that?

OBASMA: Until we get that done, until we make sure that Congress allows Treasury to pay for things that Congress itself already authorized, we are not going to engage in a series of negotiations.

And the reason, John, is very simple. If we get in the habit where a few folks, an extremist wing of one party, whether Democrat or Republican, are allowed to extort concessions based on a threat of undermining the full faith and credit of the United States, then any president who comes after me, not just me, will find themselves unable to govern effectively and that is not something that I`m going to allow to happen.

HARWOOD: Wall Street has been pretty calm about this. The reaction I would say, generally speaking, has been Washington fighting, Washington posturing, yada, yada, yada.

OBAMA: Yes.

HARWOOD: Is that the right way for them to look at it?

OBAMA: No, I think this time is different. I think they should be concerned.

And I had a chance to speak to some of the financial industry who came down for their typical trip, and I told them that it is not unusual for Democrats and Republicans to disagree. That`s the way the Founders designed our government. Democracy is messy. But when you have a situation in which a faction is willing potentially to default on U.S. government obligations, then we are in trouble.

And if they are willing to do it now, they will be doing — willing to do it later. One thing that I often hear is, well, Mr. President, even if they are being unreasonable, why can`t you just go ahead and do something that makes them happy now?

And I have to remind people —

HARWOOD: Or the constitutional option.

OBAMA: Right. What I have to remind people is that — what we`re debating is keeping the government open for two months. We would then be going through this exact same thing in the middle of Christmas shopping season, which I don`t think many businesses would be interested in. We saw what happened in 2011 and then we`d have to go through it again six months from now and six months after that.

And one something that I know the American people are tired of and I have to assume the vast majority of businesses are tired of is this constant governing from crisis.

(END VIDEO CLIP)

HARWOOD: And the leadership, bipartisan, is meeting with President Obama tonight. We will see whether they can make any progress, but it looks like both sides digging in for awhile, at least a couple weeks as we get to that debt ceiling deadline.
GHARIB: So, John, we shouldn`t be holding our breath that something is going to come out of that meeting tonight. I mean, where is this all going? How is it going to end?

HARWOOD: I think the administration is hoping for pressure on John Boehner, the speaker, of sufficient volume and intensity that he will put on the floor a clean extension of government funding, and then begin the negotiation process. The challenge is, of course, the president said he wants that done on the debt limit, as well. That`s also difficult for the speaker to do. I suspect that we`ll get that debt ceiling raised, but it`s going to be a wild roller coaster ride until we do.

GRIFFETH: John, do you think this will become the norm in the future, budget negotiations downed road? The president talked about that, where we talk constantly about the deficit — about the debt ceiling and things are not germane to the budget itself, adding all of these things to the negotiations before we can actually get our resolutions going, our spending.

HARWOOD: The president`s purpose, Bill, is to make sure that doesn`t happen again. He called it “breaking the fever”. He said, we`ve got to break this fever now because if we don`t, it is going to be a permanent vulnerability for a president who could be held hostage by demands of this kind.

So, that`s what`s behind his hard line, what`s behind the speaker`s hard line is the political pressure that he`s getting from hardliners in his caucus, at the threat of losing his job. And the administration hopes his line and pressure from Wall Street, from voters, from Republicans nervous about next year`s election, are going to ultimately overwhelm what`s blocking the speaker from moving right now.

GRIFFETH: John Harwood, as always, great job with the interview with the president today.

HARWOOD: Thanks, Bill.

And as we mentioned in that interview, President Obama did talk about a meeting today with top executives from some of Wall Street`s biggest banks. A politically diverse group of unlikely allies in efforts to get Congress to raise the nation`s borrowing limit, despite opposition by some to funding the president`s healthcare plan.

Here is what Lloyd Blankfein of Goldman Sachs (NYSE:GS) had to say after that meeting.

(BEGIN VIDEO CLIP)

LLOYD BLANKFEIN, GOLDMAN SACHS CEO: Individual members of our group represent every point on the political spectrum, but the one thing they have in common is, you can litigate these policy issues, you can relitigate these issues in a forum but they shouldn`t use the threat on causing the U.S. to fail on its obligations to repay the debt as a cudgel.

(END VIDEO CLIP)

GHARIB: Now, Eamon Javers was at the White House before and after those Wall Street titans met with President Obama and that`s where he joins us now.

So, Eamon, when you talk to the bank leaders, what did they think they accomplished in their meeting with the president today? What did they tell you?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, they came out after the meeting and said they agree with the president they do not want to see any breach of the debt ceiling here by the United States coming up to that October 17th deadline.

One of the interesting story lines here today going into this meeting was or was not Jamie Dimon of JPMorgan (NYSE:JPM) going to appear here today at the White House because, remember, just last week, he was negotiating with the Department of Justice for a potentially massive settlement of wrongdoing by JPMorgan (NYSE:JPM). Would a banker who`s negotiating such a record settlement show up for a meeting with the president? He did today and I had a chance to ask him on the way in whether or not this was an awkward moment for him.

Take a listen.

(BEGIN VIDEO CLIP)

JAVERS: What do you make of this moment where you here last week negotiating on a major settlement for JPMorgan (NYSE:JPM) and now, today, you`re here to talk about a political matter. Awkward timing?

JAMIE DIMON, JPMORGAN CEO & CHAIRMAN: No, not for me.

JAVERS: Is it for the White House?

DIMON: I doubt it.

(END VIDEO CLIP)

JAVERS: So, Jamie Dimon fairly blase there about the significance of this moment, obviously wearing a bunch of different hats in different capacities today in a political deal-making capacity here at the White House.

And, obviously, what that speaks to the fact the White House needs these guys. They need Wall Street to go out and spread the message up on Capitol Hill, particularly among a potentially receptive Republican audience to say this debt ceiling is just not something we want to see anybody messing with here in Washington, guys.

GHARIB: Well, you know, first of all, from Jamie Dimon, he`s such a class act. He`s a real professional. He handled that interestingly.

But, you know, it is ironic that Wall Street bankers and President Obama have not had a great relationship and now they do have this — they become new allies. I mean, looking down the way, what role can they play in these current negotiations and to help the president and the country?

JAVERS: Well, look, it`s sort of a coalition of the willing here in Washington right now. The president is rallying anybody he can to go up and make that case, particularly people he thinks the Republicans might be receptive to and that`s definitely the case with some of these Wall Street executives. Although not all of them are necessarily Republicans themselves.

John Harwood in his interview asked the president the same question, whether it was awkward or not to be meeting with Jamie Dimon, at the same time, all the settlement talk is going on with JPMorgan (NYSE:JPM). And the president said, look, I`ll meet with any CEO I can to help make this case.

GHARIB: That`s very interesting development.

Thank you so much, Eamon.

Eamon Javers reporting from the White House.

JAVERS: You bet.

GRIFFETH: Turning now to Wall Street. It was another down day for stocks. The stalemate in Washington, fears about an extended shut down and a disappointing report on jobs all weighed heavily on the markets during the day.

Payroll firm ADP reported 166,000 private sector jobs were added to the economy last month, but that was fewer than had been forecast and the figures for July and August were both revised lower.

So, by the close, the Dow was down 58 points, was down much more than that earlier. The NASDAQ dropped almost three and the S&P off by a point today.

Joining us now to talk about what day two of the government shut down means for the financial markets and your investments, Jeff Kleintop back with us tonight, chief market strategist at LPO Financials.

Jeff, always good to see you.

JEFF KLEINTOP, LPL FINANCIALS CHIEF MARKET STRATEGIST: Hi, Bill. Thanks for having me.

GRIFFETH: What did you make of the president`s comment that these negotiations are different this time and that Wall Street should be concerned about that?

KLEINTOP: Well, I think the president would like Wall Street to put a little pressure on the Republicans to act, and the markets really haven`t done a whole lot of that. The Russell 2000 is just a fraction of a percent of its all-time high. The VIX index at 16, nowhere near where it was in August of 2011, the last time we had real debt ceiling discussions. And the discount rate on the one-month T-bill, seven basis points. Certainly, the markets collectively not putting a lot of pressure on Washington to act.

I think the president wishes that were not the case.

GHARIB: So, Jeff, do you think things are going to be different tomorrow? I mean, up until now the attitude from Wall Street is, you know, long term everything is going to be OK.

This is like a short term blip. Do you think investors are going to react differently after hearing what the president said today?

KLEINTOP: Well, I think every day we go on, no matter what the president or other lawmakers say, I think we will get more pressure from the markets on Washington to act. I mean, there`s a — there`s a gravitational pull, the longer this goes on, particularly the closer we get to October 17th.

But, yes, I think tonight maybe there is hope later today as stocks rally a little bit, but there might be some breakthrough this evening, the president might offer concessions and that clearly was not the case, and so, markets may pull back a little bit.

But, remember, investors have been trained this year not to sell stocks in short term political uncertainty. We saw it with the fiscal cliff tax increases, the sequester, lots of things and yet stocks continue to power higher. That`s an important lesson.

GRIFFETH: But, as we know, the word in Chinese for crisis is the same word as opportunity. Does it present an opportunity for investors when you even bear in mind that the longer the shut down goes, you`re shaving that much growth from the economy.

KLEINTOP: Well, you`re right, Bill. An opportunity may present itself. We haven`t put additional money to work in the last couple days but certainly did, ahead as markets pulled back.

But the bottom line is this — to the extend to which the shut down and worries over breach of the debt ceiling affect the real economy, affect guidance on profits, as we get those reports. About a week from Alcoa (NYSE:AA) kicks things off. You know, that`s going that will be where it really hits the road and we really need to say, what is the impact of all of this, because in the near team, it`s really just headline filler.

GHARIB: But in the meantime, also, there are going to be a lot of government reports that investors are not going to be getting — starting with the important jobs report this Friday. And the Federal Reserve is going to be sitting on its hands to some extent, because it doesn`t have all of this information. How is all of that going to impact investor confidence, investor — what they do with their portfolios, not knowing what the fed is going to do, not getting economic data they crave?

KLEINTOP: Yes, certainly not getting some reports is important here. We`ve been paying such close attention to employment reports given that the Fed is close to tapering and not getting one on Friday, certainly an issue of uncertainty for the markets they`re going to have to deal with.

But, you know, that means more emphasis was put on today`s ADP report, which Bill had mentioned, a weaker number, stocks were weaker today. Yesterday, we had the ISM report, a stronger than expected number and stocks were up.

So, I think the market will make the most of the data points we get. We`ll still get jobless claims and start getting profit numbers in the coming weeks, that`s probably even more important.

So, there won`t be a shortage of data, but certainly some of the data points the markets were used to getting won`t be there and that will raise a little bit more uncertainty and that`s why the longer this goes on, the more there is a gravitational pull in the markets to the downside to put pressure on Congress to act.

GRIFFETH: Jeff Kleintop, chief market strategist at LPL Financials, always good to see you. Thanks, Jeff.

KLEINTOP: Thanks.

Still ahead, the Cleveland Clinic is considered a model for the health care industry. We`ll talk with the man in charge about the new health law and what it means for the future of care.

But, first, how the international markets closed today.

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GHARIB: Some tech companies are doing better than others these days, Moody`s (NYSE:MCO) the credit rating reported today that Apple`s stockpile of $150 billion in cash accounts for about 10 percent of all cash holdings by American companies and not including cash held by the banks.

GRIFFETH: Meanwhile, wells Fargo is being accused of not doing enough to help struggling borrows navigate the agreed to fixes to mortgage servicing abuses. In federal court in New York City today, the New York state attorney general said that the nation`s fourth largest bank and, by the way, biggest mortgage lender is not compiling with last year`s 25 billion multibank settlement with the Justice Department and with 49 states to end those abusive practices.

In a statement, Wells Fargo (NYSE:WFC) said the bank had taken voluntary steps to put in place the customer service changes agreed to in that multibank statement.

Well, three companies making their Wall Street debuts and that`s where we begin tonight`s “Market Focus.”

First, RE/MAX shares, they flew higher after pricing $10 million at $22 a piece. That was above the range that it had been seeking. The IPO comes at a time when mortgage rates are inching higher but that`s not a concern for the company`s CEO.

(BEGIN VIDEO CLIP)

MARGARET KELLY, RE/MAX INTERNATIONAL CEO: They could go lower, but I think most important is that we`re at 60-year lows. I bought my first house at 14.5 percent and I was thrilled to get 14.5 percent. So I think anybody over 35 years of age are looking at single digits going man, this is still cheap money.

(END VIDEO CLIP)

GRIFFETH: I paid 16 5/8th percent.

The stock anyway finished the day up 22 percent to $27 a share.

Investors also pushed in the shares of Burlington Stores on its first day of trading. The owner of the discount retailer Burlington factory priced more than 13 million shares at $17 a piece hoping to tap into the appeal of cheaper clothing in a tough economy. The stocks soared by 47 percent, closed at $25.01.

GHARIB: Empire State Reality Trust, this company owns the Empire State Building, also rose on the first day of trading but not as much as others. Shares priced at $13 a share, at the low end of the expected range. In addition to the Empire State Building, the company also owns a number of retail and office buildings. The stock finished slightly higher at $13.10.

Now, another activist investor is trying to shake up a company, this time, Third Point`s Dan Loeb is taking aim at Sotheby`s. Loeb is raising his stake in the auctioneer and calling for the resignation of the company CEO on concerns about direction and vision. Loeb is now Sotheby`s largest shareholder. Shares rose fractionally to close at $50 and change.

And BlackBerry, higher today on the report that Cerberus Capital may be interested in the troubled smartphone maker. Now, according to “The Wall Street Journal”, the private equity firm is looking into signing a confidentiality agreement that would give access to BlackBerry`s financial information. The company already has an offer for $9 a share from Fairfax Financial. The report follows disclosure that BlackBerry`s losses are deeper than first reported.

As for the stock today, it rose half of a percent to just under $8 a share.

GRIFFETH: Coming up, how the big changes coming to the health care system may affect care, one of the nation`s top hospital CEOs tells us what he is doing to prepare for that.

But, first, how commodities, treasuries, and currencies performed in today`s trade.

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GRIFFETH: Heavy volume, lots of delays on the inaugural day of federal and state health care insurance exchanges, part of the Affordable Care Act. Healthcare.org reports that it received 4.7 million unique visitors just yesterday alone. Some Americans visiting those online marketplaces or at least trying to, many encountered technical glitches that kept shoppers from finding out more information and comparing available plans. After several million visitors to New York state`s portal, the site had to be taken down for nine hours overnight in order to boost capacity.

GHARIB: Meanwhile, the renowned Cleveland Clinic says it has not yet been impacted by the new healthcare law.

Joining us now to talk more about how he is preparing for the Affordable Care Act, we`re happy to have with us, Dr. Toby Cosgrove. He`s president and CEO of the Cleveland Clinic.

Toby, so nice to have you back on the program.

DR. TOBY COSGROVE, CLEVELAND CLINIC CEO: Nice to be with you, Susie.

GHARIB: So, more people re going to have access to our health care system. But the big worry is, what is it going to do to cost? And what does it do to cost for the Cleveland Clinic?

COSGROVE: Well, we know and have known this for several years we have to reduce the cost of health care, not just for the Cleveland Clinic but really across the country. We look at it really as a patriotic duty to take down the cost of healthcare because it`s beginning to jeopardize things like education that are important.

So, we have been working hard to reduce our cost, and we`ve done several things, for example, over the last couple years, we`ve taken $180 million out of our purchasing. We`ve consolidated services that made them higher quality and lower cost and more efficient. But all of that still means that we`re going to be paid less by our private insurers, we`re going to be paid less by Medicare for what we do, and we still don`t have Medicaid extension in the state of Ohio, and we`re concerned that we need to take our cost down still further.

So, we have — need to take out about $330 million out of cost for next year.

GRIFFETH: And you warned, Dr. Cosgrove, that might include layoffs at the Cleveland Clinic. I`m curious where one of the largest most respected hospitals in the country, when you cut $300 million out of the budget, where does that come from?

COSGROVE: Well, ultimately, we realize that 60 percent of our costs are related to salaries and benefits, and we`re probably going to need to reduce our force ultimately, and we`re looking at early retirement. We`re offering that to about 3,000 people across our organization, and we`ll have to wait and see how that does to reducing our total cost of personnel.

GHARIB: And so, this raises questions for a lot of Americans, like what does this all mean for the quality of healthcare if that`s what the Cleveland Clinic is doing and we`re seeing that a number of hospital systems are merging and Cleveland Clinic made some acquisitions in the past.

Are you going to be doing more acquisitions and what does all of this mean for the quality of health care?

COSGROVE: Well, we think that one of the ways to make the health care system more efficient is by consolidating hospitals and caregivers. And we now see 60 percent of the hospitals across the United States are part of the system and that allows us to take cost out of the back end of the health care delivery system. It`s a little bit like mom and pop stores have gone away over time and we now see supermarkets. The costs are lower and quality is better as you begin to consolidate and take inefficiencies out of the organization.

GRIFFETH: Are you convinced that the Affordable Care Act will lead to lower premiums, lower costs for people buying health insurance? One CEO of a major health insurance company told me they`re going to leave those states where they can`t raise premiums enough — in other words, where the profit margins aren`t enough. So they will go to states where they can have a high enough profit margin that it makes sense doing business in that state, which says to me they are looking for higher premiums, not lower premiums.

COSGROVE: Well, what we`re really seeing that government has expected that health care costs are going to go up next year. As you know, the rate of inflation in health care has been coming down over the last several years and it was 3.6 last year and the government expecting it`s going to go up to somewhere about 6 percent next year, and that`s because you got more people coming into the system.

But I don`t think we can tell yet, you know, exactly what`s going to happen to cost because we really don`t know on several things that could affect it. First of all, we know that the population is getting older. We know we have more chronic disease. We similarly do not know who is going to be insured and who is not and how much we`ll get paid. So we`ll have to wait and see the results of this reorganization of health care across the country.

It`s an experiment that hasn`t been done before and we know we have to change. We`re going to change, and we`ll see how it turns out.

GHARIB: Real quickly, we just have a few seconds left.

We`re seeing a lot of new players get into this. You say it`s an experiment. We`re seeing Walgreens. We`re seeing CVS (NYSE:CVS) has these walk-in clinics.

Real quickly, is this good?

COSGROVE: Well, what we`re seeing is a change in primary care and I think primary care is going to be more and more taken up by physician assistants and nurse clinicians, and the reason for that is there is a about 45,000 doctor shortage, of primary care physicians across the United States. And so, those organizations are beginning to fill a gap and I think at the end of the day, you`ll see physicians practicing at the top of their profession.

GHARIB: A lot of dramatic changes. Thank you have much, Toby Cosgrove, president and CEO at the Cleveland Clinic.

COSGROVE: My pleasure.

GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.

To read more on the stories that we cover tonight, go to our Web site, NBR.com.

GRIFFETH: I don`t think you get a wait sign on that one.

I`m Bill Griffeth. Have a great evening, everybody. We`ll see you again tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.

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