Transcript: Monday, October 14, 2013

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

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Deal or no deal? On Capitol Hill, the meetings continue behind closed doors. On Wall Street, investors watch and wait, wondering whether softening rhetoric can produce a hard bargain and fast.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The world warns. The U.S. must get its act together or risk dragging the globe back into recession. And China, the largest holder of our debt, has the harshest words yet for Washington.

GHARIB: And as the health of the exchanges. And now that some of the issues plaguing the federal health marketplaces have been identified, are they too complex to be fixed?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for this Monday, October 14th.

MATHISEN: Good evening, everyone. And welcome.

There is no deal yet, but after weekend talks between the White House and congressional Republicans apparently stalled, Senate leaders are talking today, and it looks like progress has been made. All of Wall Street, like everyone else, is waiting to hear whether lawmakers are any closer to a deal that would extend the nation`s borrowing limit and reopen the federal government — at least for a little while.

John Harwood joins us now from Washington, with a look at a possible framework of a deal that Senate leaders are hammering out right now.

John, it`s been a day of meetings set and meetings canceled.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: And, Tyler, it`s not just Wall Street who`s watching, so is the White House, so is the House of Representatives. All the pressure is coming down on Washington to make a deal before we hit that debt limit, finally at the end of the week according to the treasury.

And all the pressure is on two leaders in the Senate, Harry Reid and Mitch McConnell. Both of them came out on the Senate floor this afternoon and said it`s looking good.

(BEGIN VIDEO CLIP)

SEN. HARRY REID (D-NV), MAJORITY LEADER: Constructive, good faith negotiations continue between the Republican leader and me. I`m very optimistic that we will reach an agreement that`s reasonable in nature this week.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: We`ve had an opportunity over the last couple of days to have some very constructive exchanges of views about how to move forward. Those discussions continue and I share his optimism.

(END VIDEO CLIP)

HARWOOD: And what we think know about that emerging deal, though it hasn`t been announced yet, are you`d have a continuing resolution reopening the government that would go through the middle of January, that is a shorter period of time than Republicans wanted because they wanted to preserve the lower sequester spending levels as long as they could.

The debt limit extension would go through the middle of February, February 7th to be exact, that is shorter than Democrats wanted, because Republicans want to keep the pressure on. There would be a budget negotiation during that time. There does not appear to be a rollback or repeal of the device tax that some Republicans had asked for.

There will be strengthened income verification for recipients of subsidies under Obamacare, and as a trade for that, Democrats are going to get something labor unions have asked for, which is the delay in re-insurance tax, which labor unions complain hits their members too hard, Tyler.

GHARIB: It`s Susie. Hi, John.

It sounds like some of the main issues that were on the table in the beginning have been pushed off. This is all about pushing all the problems down the line. Is this what it has come down to? There is no credible plan about getting long-term spending under control, right?

HARWOOD: Well, the plan, Susie, is to commence negotiations. You know, this is a stop gap first to reopen the government, second to remove the threat of a debt default. But it is in the service of creating a budget negotiation between the House and Senate, accelerating one that was stalled earlier in the year.

But yes, the assumption on all sides is that they negotiate some sort of deal, big or small, that relieves part of the sequester, but substitutes longer term entitlement savings. And the question which will determine whether it`s a big or small deals, whether there`s also revenue as some Democrats have asked for in the form of closing tax loopholes.

GHARIB: OK, that`s a big issue as well. Well, we`ll see what happens over the next couple of days.

Thank you so much — John Harwood reporting from Washington.

Well, optimism about a possible Washington deal sparked a sizeable U-turn in Washington today. The Dow erased an early triple digit loss, ending higher for the fourth consecutive sessions. And good things came in little packages for investors today. But the Russell 2000 index of small cap stocks and the S&P 400 index of mid-cap companies closing at historic highs.

At the end of a breathless day of waiting for any news out of Washington, the Dow rose 64 points, the NASDAQ was up 23, and the S&P added seven points.

MATHISEN: And joining us now to talk more about the latest developments in Washington and what the uncertainty means for the markets and the economy is Greg Valliere, chief strategist at the Potomac Research Group.

Greg, good to have you with us.

You heard what John Harwood just said. And I`d like you to sort of add to that if you know of anything that is different. But let me pose the question to you this way — a week or so ago there was talk we were not going to negotiate anything having to do with Obamacare as part of any deal to raise the debt borrowing limit or reopen the government. And what John just described was, that there`s going to some movement on income verification as part of the Obamacare, and that a tax on union participants that unions found objectionable is going to go away.

Should we just not believe what they say ever and just watch what they do?

GREG VALLIERE, CHIEF POLITICAL STRATEGIST: Good point, Tyler. Absolutely.

I hate to be the skunk at the picnic this evening, I`d just point out — first of all, I haven`t heard from anybody in the House. These senators, bipartisan group, were getting closer to a deal and maybe they`ll have one in a day or so. But I think the House is going to weigh in, and it might not be real warm and fuzzy from that body.

Number two: even if we get a deal, guys, all we do is just postpone the crisis. We kick the can down the road. There will be another crisis in January on the government staying open, a crisis in February on the debt ceiling.

So, it`s not as if we`re just to just wrap it up in a neat little package in the next few days.

GHARIB: And I think you really nailed it there, Greg, because everybody you talk to is so feed up by watching this process, whether you`re a Democrat or Republican or anyone around the world has been very frustrated by this. So, I guess, you know, who won and when we do get the deal, who won and who lost, and where are we going with all of this for the next round?

VALLIERE: Well, you`re exactly right. And I would say, well, obviously, there is not going to be a default. Chances of default are like 2 percent. That`s not what the market is worried about.

I would say, though, if we just have continuing crises, one after another, are we going to shut the government down again? Another debt ceiling crisis, that has a very corrosive impact on the economy. For business psychology, for consumer psychology, it`s not a good story for recovery that`s still pretty fragile.

MATHISEN: There`s got to be, Greg, a bit of a growth tax in all of this, lurching from one crisis to the other. Can you imagine a world where we really came to some long-term agreements on budget policy and tax policy and on levels of debt, and what that would do to business confidence and, hence, to economic growth in America?

VALLIERE: Amen, brother. I mean, what people want is predictability, and that`s the one thing even with a deal later this week, there`s still really isn`t predictability. We still have a lot of issues to go through.

Two very positive stories, quickly. Number one, the Fed will have to keep very dovish for weeks or months to come. I think the first time they really think about tapering would be in late January. That`s a good story.

And number two, despite all of this, the budget deficit is plummeting. We get new numbers on the couple of days on the previous fiscal year. These will be astonishing figures showing that the deficit continues to fall dramatically.

GHARIB: In a few words, Greg, just want to ask you, does the government open by the end of the week and what if there`s no deal, real quickly?

VALLIERE: Yes, I think it opens by the end of the week, but we still got a long way to go to get all this stuff resolved.

MATHISEN: All right. Greg Valliere, thanks very much.

VALLIERE: OK.

MATHISEN: Chief political strategist at the Potomac Group Research.

VALLIERE: You bet.

GHARIB: Well, with no deal from Washington to raise the debt limit or reopen the government for now, companies big and small are left in the lurch. And they can`t make long-term planning and spending decisions.

Mary Thompson has more.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As lawmakers battle over the budget, the corporations face a struggle of their own — how to plan for next year.

Here`s TD Ameritrade (NASDAQ:AMTD) CFO, Bill Gerber.

BILL GERBER, TD AMERITRADE CFO: I think the issues right now are just uncertain that people are not able to assess where they should go and what type of environment you`re going to be in. So people get in a wait and see mode.

THOMPSON: For over a year, corporate America has kept a tight grip on its cash, a grip unlikely not to be loosened by a temporary increase to the debt ceiling. That`s because the U.S. could still default if a deal isn`t reached in three to six months, and mandatory budget cuts known as sequestration could still take effect. Lastly if the deal is struck, who knows if it might contain new taxes that would impact business? Lots of questions and not enough answers to make long term plan.

Here is former Citigroup (NYSE:C) chairman Dick Parsons.

DICK PARSONS, FORMER CITIGROUP CHAIRMAN: If they had confidence that they knew what the contours or landscape they`d have to transverse were, I think they`d start investing again.

THOMPSON: But given that Washington kicked the can down the road, that`s a big if.

Gordon Bethune, former CEO of Continental Airlines, and now, a director of Sprint, Honeywell and Prudential, told us exactly it is likely the reluctance to spend is understandable, because, quote, “we don`t know what the next step is, and you don`t know if you`re going to step on a bomb or it`s going to set you free,” unquote.

(on camera): Firms of all sizes impacted by Washington`s indecision, firms like Linden, New Jersey-based Flexline, a maker of metal hoses that are used in a variety of industries.

In an e-mail, President Jeffery Scheininger wrote, “Temporary fixes do not allow our customers to plan. It makes revenue streams and therefore planning chaotic. And does so for everyone in the supply channel. Blanket orders go out the window — lead times get pushed out, which causes our costs to go up. It`s a mess.”

A mess a temporary fix won`t clean up.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: Workers at another huge private employer maybe idle if the partial government shutdown continues. Boeing (NYSE:BA), the aerospace giant, says it may begin furloughing workers at its defense space and security unit, that`s because of stock work orders, limited access to federal installations, where some of its employees work, funding cuts on joint projects with Washington and a shortage of government inspectors.

GHARIB: Some top bank executives are warning about the dire consequences of the U.S. reaching its borrowing limit, something that`s never happened before.

JPMorgan (NYSE:JPM) chairman and CEO, Jamie Dimon, described a bleak situation, saying, “As you get closer to it, the panic will set in, and something will happen. I don`t know personally when that problem starts.”

Also speaking out, Deutsche Bank co-CEO Anshu Jain, saying his company had been making contingency plans in case of the U.S. default, but added, quote, “You don`t want to go into all of it. This would be a very quick spreading disease.”

MATHISEN: And more fearful words about a possible default from Christine Lagarde, the managing director of the International Monetary Fund. Speaking on NBC`s “Meet the Press” Sunday, Lagarde warned about the disastrous impact of a default on the U.S. and around the world.

(BEGIN VIDEO CLIP)

CHRISTINE LAGARDE, INTERNATIONAL MONETARY FUND MANAGING DIRECTOR: If there is that degree of disruption, that lack of certainty, the lack of trust in the U.S. signature, it would mean massive disruption the world over. And we would be at risk of tipping yet again into recession.

(END VIDEO CLIP)

MATHISEN: Lagarde also said that creative accounting would not be the solution, that the U.S. has an obligation to the rest of the world to preserve its safe haven status.

GHARIB: But perhaps the most critical word on Washington`s inability to raise the debt limit and keep the government open came from China. That nation`s news agency has called for a, quote, “de-Americanized world,” along with the end to the use of the American dollar as the world`s international reserve currency. The Xinhua news organization also said the destinies of the people around the globe should not be left in the hands of a hypocritical nation with a dysfunctional government.

MATHISEN: That`s the view of official China. But how do ordinary Chinese people feel about what they see happening in Washington and its effect on global markets.

Eunice Yoon takes a closer look.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The political gridlock in Washington is almost as big a topic in China as it is in the U.S. That`s what happens when your country is the largest foreign holder of American debt.

“I hope they can talk it out,” this man says, “that`s our hard earned cash.”

China is frustrated that the U.S. is playing what it sees as a political game with the global economy. If American lawmakers can`t reach a deal by an October 17th deadline on raising the debt ceiling, the United States could default on its debt, potentially hurting the world and China.

(on camera): The U.S. debt ceiling debate is in all the Chinese papers. This one says, the clock is ticking, China urges the United States to clean up its debt problems. And this one says that the us debt ceiling is ruining America`s credibility.

(voice-over): In one state-backed editorial, the official news agency, is calling for a new de-Americanized world order.

But America isn`t the only one being blamed. People here are angry at their own government, too.

“Chinese politicians need to do something about this,” he says.

China maintains controls on its currency, helping to support exporters here. So, it has amassed huge dollar reserves and can`t do much about it other than invest in U.S. treasuries, $1.3 million worth.

However it works out, America`s reputation is taking a gnat in the eyes of a wildered Chinese public.

“America sees itself as a super power,” he says, “now we know they`re just like everybody else.”

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

GHARIB: Still ahead on the program, why the government shutdown is forcing one rural family into a more expensive mortgage — paying more for a new home than they ever expected.

But, first, we`ll look at how the international markets closed today.

(MUSIC)

MATHISEN: Now with the government shutdown stretches into a third week, time may have run out for some home buyers. A small but critical federal home program for rural buyers is still on hold, leaving would-be homeowners in the lurch and costing them thousands of dollars they never expected to have to pay.

Diana Olick has the story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The good news is Tom and Casey Maloy were able to sell their too small Baton Rouge home. The bad news is, the government shut them and their five kids out of a great deal on a move up home.

TOM MALOY, HOME BUYER: We get the call that, hey, you`re approved. But the government is shut down, and your government-backed USDA loan cannot be processed, so therefore you have to wait.

OLICK: The Maloys had planned to use a Department of Agriculture rural development mortgage, a no downpayment, 30-year fixed product designed for families like them. But with their current home sold, and their closing approaching for the new home, they couldn`t wait any longer.

DAVID MADAFFARI, REALTON: We were scrambling trying to figure out ways either extend contracts or as in Tom`s case, to move to less desirable loans.

OLICK: The family switched to an FHA loan, which required a $10,000 downpayment, and higher fees. Their monthly payment is $150 more than it should have been.

MALOY: My wife and I are just middle class working Americans, and to have a bickering match between Congress and the Senate and the White House cost my family their home, and my family $10,000. That`s a lot of money to us. You know, we don`t normally have that.

OLICK (on camera): The USDA program is small, barely 2 percent of the market, but it`s a big deal to rural communities who rely on this type of financing for more than just home loans. But for commercial real estate, construction, new jobs, even updating electrical and telecommunications infrastructure.

UNIDENTIFIED FEMALE: Pretty stressed out, very not sure where our country is heading and how we`re going to provide day to day for our children.

OLICK (voice-over): For the Maloys, it would have meant extra money to build a much-needed addition on the new home and to buy new furniture they had already promised the kids.

MALOY: This situation might not affect a lot of the members of the House. But it sure will affect all seven members of this house, costing us dearly.

OLICK: Diana Olick, NIGHTLY BUSINESS REPORT, Washington.

(END VIDEOTAPE)

GHARIB: Moving now to our “Market Focus” segment.

Netflix (NASDAQ:NFLX) TV could be coming to your cable box and that`s where we begin tonight`s “Market Focus”. Netflix (NASDAQ:NFLX), the largest video streaming prescription services is in talks with several cable companies about building its app into new cable boxes. The potential partnerships may include giants like Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Suddenlink.

The news sent Netflix (NASDAQ:NFLX) up by almost 8 percent to $324.36.

Shares of Whirlpool (NYSE:WHR) dropped sharply today on reports of weak appliance demand. Channel checks by Longbow Research show that customers were delaying big ticket purchases in the last week of September and into October because of the approaching debt ceiling deadline. But it`s not all bad. The research firm also expects purchases to rebound once a deal has been reached in Washington.

Meanwhile, Whirlpool (NYSE:WHR) stocks fell 6 1/2 percent today to $131.29.

MATHISEN: And shares of Expedia (NASDAQ:EXPE) dipped today after the stock was downgraded by Deutsche Bank to hold from buy in its price target cut to $51 a share. The firm believes Expedia (NASDAQ:EXPE) will be forced to cut 2013 guidance following recent management changes at hotels.com and increase competition here in the U.S. The stock lost 6 percent to $48.51.

And shares of Advanced Micro Devices (NYSE:AMD), they edged higher today after Web Bush upgraded that company to out-perform for neutral. They analyst says the chip maker will trade higher if sales of new gaming consoles grow, and predicted that the company will take a bigger share of the server market. The stock up more than 3 1/2 percent to $3.97.

GHARIB: So, how long do you think that you will have to keep working? A new survey says longer than ever. That`s because of the recession`s impact on retirement investments and home values. A new poll from “The Associated Press” and the NORC Center for Public Affairs Research shows that nearly half of respondents over the age of 50 now expect to retire later than they previously planned, and more than 80 percent of them say they`ll likely need to continue earning money even after they officially retire.

MATHISEN: Well, if you`re looking for a sizable increase next year in your Social Security check or your veterans benefits or federal pension payment, it`s not likely to happen. Preliminary figure suggests that year`s increase will be only about 1 1/2 percent. The smallest boost since the annual cost of living adjustment to federal benefits began back in 1975. The main reason, consumer inflation as measured by the government hasn`t risen very much over the past year.

GHARIB: It`s almost two weeks now since the rollout of those health care exchanges. Computer glitches prevented millions of Americans from signing up for the new insurance plans. But is there any progress in fixing those problems and can they be fixed?

Bertha Coombs has the story.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Government contractors are continuing to make fixes to the federal exchange. Last week, Health and Human Services Secretary Kathleen Sebelius promised the issues would be resolved, but couldn`t say when.

KATHLEEN SEBELIUS, HEALTH AND HUMAN SERVICES SECRETARY: We`re hoping in the very near future to have a seamless process. That`s what we`re aiming for, no wait time, straight through, make sure it all works well.

COOMBS: But analysts and insurance executives say the online flaws in the way the insurance market was constructed are more complex than a simple glitch. And it`s unclear how long it can take to resolve them.

MARK BERTOLINI, AETNA CHAIRMAN, CEO & PRESIDENT: We`re in a place where there is so much wrong, you just don`t know what`s broken and so, you get a lot more of it fixed. And I think have to plow through it.

COOMBS: It is early in the enrollment process which runs for six months. But the Obama administration has targeted covering 7 million people under the Affordable Care Act through the exchanges. That amounts to an average of 39,000 people a day for 180 days. Industry analysts say insurers have so far seen a few thousand enrollees make it through the bottleneck, and according to one consultant, many of those applications have had mistakes, which have required manual correction.

DAN SCHUYLER, LEAVITT PARTNERS DIRECTOR: Right now, it`s not that big of a problem, because the carriers can do manual intervention and clean that up. But again, once we get those applications in large numbers, there is no way that the carriers would be able to handle that.

COOMBS (on camera): The Obama administration has compared the rocky start of the federal exchange to the launch of Medicare Part D back in 2006, which was riddled with problems that were ironed out over several months. But in this case, the fix maybe more complicated, in no small part because of the problems may run deeper and the stakes are even higher.

Berth Coombs, for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Coming up, how the three winners of the Nobel Prize in economics have helped make you a better investor.

First, though, how commodities and currencies performed today, and remember, the bond market was closed for Columbus Day.

(MUSIC)

MATHISEN: The price of crude oil ended slightly higher today, but gasoline prices are falling fast. Gasbuddy.com says that consumers in 16 states can now find gas for under $3 a gallon from New Jersey to Mexico and 10 more states seeing prices dip that low later this week. A national average for a gallon of regular gasoline right now, $3.24, the cheapest price in the U.S., was found in rural Texas, just $2.70 a gallon.

GHARIB: And, finally tonight, three American professors will share the Nobel Prize for economics, not peace. They`re being recognized for their work on how the prices of stocks, bonds, and homes impact long term investing.

Steve Liesman takes a closer look at today`s winners.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Two University of Chicago economists and one from Yale sharing his year`s Nobel Prize for economics for their research into what determines a stock price`s value. Trouble is, two of them have opposite views.

Eugene Fama, dubbed the father of modern finance, from University of Chicago, believes investors behave rationale. He says all new information is immediately priced into stocks value. And after the news comes out, it is folly to try to predict its movement. According to Fama, the best thing to do is to buy index funds and don`t pay someone to pick stocks for you, they can`t do it.

But Robert Shiller, an American from Yale, says that markets can sometimes behave irrationally, given by human psychology and they go through significant periods of missed pricings when high prices are followed by low prices and vice versa. Think of the soaring housing boom, and now the long bust.

ROBERT SHILLER, YALE UNIVERSITY ECONOMICS PROFESSOR: I have a certain belief, and maybe it`s because of a habit of thought that I tend to think of my own work as a minor addendum to a huge body of work that others have generated.

LIESMAN: The third winner, Lars Peter Hansen, of University of Chicago, to Shiller`s work a step further, and found that mispricing from irrational behavior is because of changes in people`s appetite for risk.

(on camera): So, what`s an investor to do? By giving the same price to opposite theories, the Nobel Committee could be saying the state of modern financial theory is that both schools have merit and need more study. Ultimately, they`re awarding the ground-breaking research from these three that have withstood the test of time. But they forced investors to think about whether they`re investing with Fama, that is buying index funds because they can`t predict the future or investing with Shiller, betting on a bubble or a bust, or thinking about Hansen, understanding people`s changing risk appetite over time.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: Congratulations to the three of them.

It`s really interesting that they can`t really predict the short-term direction of the stock market, but they can predict the long-term. And that`s why the index funds came into existence.

MATHISEN: I think they give you the best bang most economical bang for your buck, index funds.

GHARIB: Yes, I think they do.

And that`s NIGHTLY BUSINESS REPORT for us. I`m Susie Gharib. For more on the stories that we cover tonight, head to our Web site, NBR.com.

MATHISEN: And I`m Tyler Mathisen, thanks from me as well. Have a great evening, everybody. And we`ll see you back here tonight, deal or no deal.

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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