Transcript: Tuesday, October 22, 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: The sweet spot? The S&P at a new high, the Fed is on hold, rates are low, inflation even lower, and gas prices are falling. Does this create the perfect market condition, and for how long?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: But job engine sputters. Unemployment falls, hiring slows as investors digest the first big economic report since the shutdown. What if anything could jump-start the job`s market?

GHARIB: And a surprising message. It`s not often you hear the CEO of one of the year`s best performing stocks warn of euphoria. But is the boss at Netflix (NASDAQ:NFLX) doing the right thing by trying to play down the rising stock price?

We have all and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, October 22nd.

MATHISEN: Good evening, everyone.

Bad or at least lackluster news for the economy was greeted as good news on Wall Street today. Stocks rose sharply with the S&P 500 setting yet another all-time closing high, despite a disappointing September jobs report. That`s because investors see those employment numbers as not strong enough to force the Federal Reserve to interrupt its bond-buying program or weak enough to suggest economic gloom and doom.

In short, what`s used to be called a Goldilocks scenario once upon a time. Of course, the story didn`t end too well for Goldie, bears arrive. But, today it was all nice porridge.

Here`s a look at the numbers. The Dow added 76 and get a one-month high. The NASDAQ touching another 13-year, adding nine points on the day, and the S&P 500 was up 10, to finish at a new record close for the fourth consecutive session.

GHARIB: Well, as Tyler just said, the September job`s report was a big disappointment. First of all, the report came 18 days late because of the government shutdown and then the news was pretty lousy. American businesses added only 148,000 jobs — that was much less than expected, but enough to lower the nation`s unemployment rate one notch to 7.2 percent.

Hampton Pearson takes a closer look at one encouraging piece of the weak job market.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In Baltimore, Gary Day`s American Limousine business is bucking the trend of a sluggish economy with slowing job growth. He`s hiring workers because business is up.

UNIDENTIFIED FEMALE: Good morning. American Limousine. How can I help you?

PEARSON: In business for more than 20 years, Day says his customers tell him they are willing to spend money on an occasional luxury to offset all the belt-tightening they are enduring.

GARY DAY, AMERICAN LIMOUSINE COMPANY PRESIDENT: I think people feel a little more at ease and are starting to live again. They have been trapped in their homes and tightening their budgets for so long, they are starting to have fun again.

PEARSON: With 45 full and part-time employees, Day is hiring not just drivers but sales people, as well. Among the new hires, 22-year-old Carl Rogers (NYSE:ROG).

Rogers (NYSE:ROG) spent the last year in and out of government job training programs trying to improve his education and technology skills before getting the job offer last month.

CARL ROGERS, AMERICAN LIMOUSINE COMPANY EMPLOYEE: So, I first called American Limousine and they called me back. So, got the job and I was excited. Yes, I feel good. Making money, get to provide for my family. So it`s nice.

PEARSON: Rogers (NYSE:ROG) is among just 126,000 new hires in the private sector in September, part of a job growth picture that even top White House officials admit will be impacted in the coming months by the hangover from the government shutdown and more future mandatory budget cuts on the horizon.

JASON FURMAN, WHITE HOUSE OFFICIAL: There`s no question that we like to see private sector job growth strengthening at a time like this. And there`s no question that things like sequester, brinksmanship, all of that getting in the way of that happening.

PEARSON (on camera): As for the Federal Reserve, leading economists say today`s weak job data pushes back even further the timetable for tapering, from Ben Bernanke and his fellow monetary policymakers.

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

(END VIDEOTAPE)

GHARIB: But the White House economic advisor did warn today that the government shutdown means that about 120,000 fewer jobs were created in October.

MATHISEN: So, good news about gas prices. According to AAA, gasoline can now be found for less than $3 a gallon in parts of 24 states, everywhere from Massachusetts to New Jersey in the East, all the way West to Arizona and Colorado. The lowest prices AAA found, at some Missouri warehouse club outlets was just $2.66 a gallon. Some experts now predict a nationwide average of $3.15 a gallon by Christmas, thanks to falling crude oil prices, refineries at top capacity and declining demand.

GHARIB: By spending less to fill up the tank, consumers might have more money for holiday gifts. A new holiday survey from auditing firm Deloitte says the average American shopper will spend $421. That`s up 9 percent from last year.

And the firm also says that for the first time ever, people are planning to buy gifts online, rather than at discount storms.

MATHISEN: Joining us now to talk more about their outlook for the economy and the financial markets, Millan Mulraine, economist at T.D. Securities, and Kate Warne, investment strategist at Edward Jones.

Welcome to both of you.

Millan, let me start with you.

This jobs report today caught some people by surprise in its weakness. What do you expect for the job market over, say, the next, say, six months?

MILLAN MULRAINE, TD SECURITIES ECONOMIST: Well, I think, at least over the next three months or so, one can expect significant slowing, as the fall-off from the government shutdown and the uncertainty about the debt ceiling continue to wreak some havoc on business confidence and business hiring and investment decision. But I think once we move beyond December and January, if we get the political stalemate result with this conference committee that`s been set and mandated to come to an agreement by December, I think the fundamentals are in place for us to have a sustain pushed higher, which is unlike what we`ve seen over the last two or three years.

The fiscal uncertainty has continued to stifle this economic recovery and has ensured (ph) that we haven`t been able to sustain a higher push in unemployment growth or economic growth.

GHARIB: Kate, let me get you in on this conversation because it`s pretty amazing what`s going on in the stock market, even though the economy is not growing much. You know, the way it usually used to work was the economy would pick up and grow and then stocks would go up. Now, stocks are going up even though the economy is weak.

Are these record-highs justified?

KATE WARNE, EDWARD JONES INVESTMENT STRATEGIST: I think they are. We`ve seen, obviously, four record highs in a row and historically when stocks reach new record highs like they just did, we continued to see stocks move higher. They need to be supported by economic growth and by job growth. But keep in mind that we`ve seen an average growth for the economy of just 2 percent per year for the last four years, and that`s been sufficient to support stock prices over that 4 1/2-year period.

I think we`ll continue to see more of the same. The economy looks like it`s stuck in sort of first year, more of 2 percent growth certainly hindered by uncertainty but it`s strong enough that it should support continued high stock prices.

MATHISEN: You know, Kate, Millan, and other people we talk to seem to think that all of the hesitation and the policies by lurching from crisis to crisis is fundamentally a tax on our economy, a tax on growth, because it restrains business leaders, it retrains consumers. Do you see it that way? And how much is it really hurting the economy and hurting, for example, job growth?

WARNE: I think it`s hurting the economy in two ways. It`s not just — I wouldn`t quite call it an attack. I think it`s undermining confidence.

MATHISEN: No, a tax.

WARNE: No. I think it`s undermining confidence. And it does reduce hiring. It does reduce overall economic growth. But there`s a second way, which is the cut backs in government spending, as well as the higher taxes that all of us started paying this year are actually reducing overall economic growth by about 1 percent right now.

So, the private sector, even though it didn`t hire very much in September is going closer to 3 percent.

So, I think there is two ways, we`d see even stronger private sector growth if we weren`t constantly being worried about what the government would do next and whether rules and regulations would keep changing.

So I think it is as much the rules and regulations changing, as it is the other things that you`ve already talked about.

GHARIB: What do you think, Millan? What is it going to take to get this economy really growing again? And you just heard the Deloitte survey that consumer spending is supposed to be up something like 9 percent this holiday season. What kind of shape is the consumer really in to be a driver for this economy?

MULRAINE: Well, you`d be surprised to tell you the consumers are in the best shape they have been in five or six years, for the simple reason if you look at the household balance sheet, they are far better than they were two or three years ago and what we`ve seen over the past year is higher home prices and higher equity prices. Whether or not you want to question the sustainability of that, they have pushed consumer household wealth to — close to record-high levels and that will underpin some improvement in spending that we expect this holiday season.

I think 9 percent may be toppish but somewhere closer to 5 percent or 6 percent would be justified by the fundamentals that we`ve seen and improvement in those fundamentals over the past year or so.

MATHISEN: Kate, are stocks cheap or not?

WARNE: Stocks aren`t cheap but they also aren`t expensive. (INAUDIBLE) price-earnings ratios for the S&P 500 are better in line with their average level for the past, since 1980, for the past few years. Now, you may think —

MATHISEN: So, you`re comfortable buying? You`d be comfortable buying?

WARNE: Yes, I`m comfortable buying. And the reason I was going to say that is, average sounds too good but historically, if price-earnings ratios have been average, the return over the next year has been 9 1/2 percent. So that says yes, stocks look like the best choice for many investors at this time.

GHARIB: Are you saying definitely time to get out of bonds right now?

WARNE: No, I`m not saying time to get out of bonds. I think most investors sitting on the sidelines should be putting money to work in both stocks and bonds, but I think stocks have the edge because we`re likely to continue to see moderate economic growth. I think we could see a catalyst from the rest of the world as Europe and Japan pick up and that stocks are likely to out perform.

People need to own bonds because, remember, stocks pull back periodically and bonds help buffer portfolios.

MATHISEN: Millan, 2014, what is your growth forecast for the U.S. economy right now on October 22nd?

MULRAINE: Well, we have a fairly constructive view on the growth projection for 2014. I think we are likely to see another year of two-halves. The first half driven by political uncertainty and if we do get that political uncertainty resolved, we would be in the clear for economic recovery and could see growth of 3 percent plus beyond the first half of next year, and that could push higher to 4 percent in 2015, which would bring the Fed back into play.

MATHISEN: That`s pretty nice. Three percent next year, 4 percent the year after.

Folks, thank you very much. Millan Mulraine, economist at TD Securities, and Kate Warne, investment strategist at Edward Jones.

GHARIB: The S&P 500 index isn`t the only measure at an all-time high right now, so is CEO pay. In fact, in its first ever survey of the highest paid CEOs, a company called GMI Ratings finds top executives aren`t just making millions, some are making billions.

Mary Thompson has more on which CEOs have the biggest paychecks.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s a lot to like. Facebook (NASDAQ:FB)`s Mark Zuckerberg taking home $2.3 billion in pay last year, making him GMI Rating`s highest paid CEO for 2012. Pay for Zuckerberg and others driven by two key factors.

BRUCE ELLIG, AUTHOR: The stock price in the number of stock options that these individuals are getting.

THOMPSON: When Facebook (NASDAQ:FB) went public, Zuckerberg sold $1 billion in stock. His other $1.2 billion coming from perks like the use of the corporate jet and home securities.

(on camera): GMI ranking the CEOs by total realized pay, that include salary, bonus and perks rolled out in 2012, plus any gains from exercise stock options, stock sales and increases in the value of the CEO`s pension and deferred compensation.

The second CEO to earn more than a billion dollars last year, Kinder Morgan`s Richard Kinder. By converting 30 million class B shares into common stock, he netted $1.1 billion. Though Kinder says it wasn`t all for him, part of it went to a limited partnership.

Mel Karmazin took the number three spot before leading Sirius XM Radio (NASDAQ:SIRI), he exercised tens of millions of options, generating over $255 million in profits.

Exercising 3.1 million options put Liberty Media`s Greg Maffei in fourth place. The option and a payoff of just under $255 million in 2012. Maffei took seventh place, too, earning $136 million from option linked to the other firms he oversees, Liberty Interactive.

Rounding up the top 5, Apple (NASDAQ:AAPL) CEO Tim Cook, given a million restricted stock units when named to that post in 2011. Most of the $143 million he took home in 2012 came from gains on stock grants in 2008 and 2010.

And as long as those gains keep coming, author Bruce Ellig sees little potential for investor outrage.

ELLIG: If stock prices are going up and dividends are going up, by and large, shareholders are immune to what`s happening to executive pay.

THOMPSON: And what`s happening is CEO keeps going higher.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: Still ahead, why Netflix (NASDAQ:NFLX) shares has such a wild and crazy day.

But, first, how the international markets performed today.

(MUSIC)

MATHISEN: A rough day for Netflix (NASDAQ:NFLX) and this chart tells the story. You can see that it popped after yesterday`s earnings. Look at that little matter horn like rise there on a quadrupling of profits but shares gave back those gains today trading at eight times the 50-day average volume with more than 17 million shares flipping.

So, why the incredible rise and then sharp decline, all in just two trading days?

Julia Boorstin has the story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Why did Netflix (NASDAQ:NFLX) shares pull back after better than expected earnings?

CEO Reed Hasting said this on the earnings call Monday.

REED HASTINGS, NETFLIX CEO: Any time I read a story about Netflix (NASDAQ:NFLX) is the highest appreciating stock in the S&P 500, it worries me because that`s the headline that we used to see in 2003 and, you know, you can definitely — we have a sense of momentum investors driving the stock price.

BOORSTIN: Despite the pull back, Netflix (NASDAQ:NFLX) is one of the best performing stocks in the S&P 500 this year, up about 250 percent so far in 2013. Supporting those gains by beating analyst projections for the third quarter and issuing stronger than expected guidance for the rest of the year.

Investments and exclusive content like “Breaking Bad” and Netflix (NASDAQ:NFLX) original shows like “House of Cards” and “Orange is the New Black” are paying off.

RICH GREENFIELD, BTIG: They are definitely coming out of, the starting from scratch and original programming and doing a lot better than, I think, anyone expected and that`s a large part of why the stock is where it`s at today.

BOORSTIN: One of the most important numbers in Netflix (NASDAQ:NFLX)`s quarterly earnings are subscribers. The company added 1.3 million here at home and 1.4 million overseas, laying the groundwork for big plays for international expansion.

After Netflix (NASDAQ:NFLX)`s huge run in the past year, its ongoing growth depends on a few other things, whether the originals that turns out continue to be big hits if it can secure more deals with cable companies to gain (VIDEO GAP) content cost.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

MATHISEN: Today, hedge fund manager Carl Icahn disclosed he lowered his stake in Netflix (NASDAQ:NFLX) to 4 1/2 percent a year ago. He first (VIDEO GAP) he first disclosed a 10 percent investment in the company.

And for more on Netflix (NASDAQ:NFLX), CEO Reed Hastings (VIDEO GAP) our Web site, NBR.com.

GHARIB: Meanwhile, investors bracing for a disappointment earnings report from Caterpillar (NYSE:CAT), the world`s largest maker of construction and mining equipment releases the numbers tomorrow before the market opens, but today, it said dealer sales figures for September were down 9 percent compared to the same month last year. One bright spot, equipment sales in North America rose for a second month in a row, thanks to a pickup in infrastructure and housing construction.

MATHISEN: We begin “Market Focus” today with a late-day earnings report from Amgen (NASDAQ:AMGN), the world`s biggest biotech company. Third quarter profit beating estimates as sales of more than a half dozen of its drugs increased by double digits. The company which makes arthritis and osteoporosis treatments raised the lower end of its 2013 profit forecast. Shares finished the day higher by more than 2 percent, $116.21 the close there.

And earnings beat for the Dow component DuPont, helped by strong sales of solar panels. The company says increased demands for seeds and fertilizer ahead of the spring planting season will help drive profits higher in the current quarter, but revenues did come in a little shy of estimates. And the kept the gains tepid. At the close, shares up 1 percent to $60.17.

Well, the fellow Dow component Travelers has a weak hurricane season to thank for its operating profit. The insurance company has also been able to raise prices in some of its business lines, a strategy it intends to stick with it says. Travelers also authorizing an additional $5 billion stock buyback. The stock finishing the day, though, fractionally lower to $86.71.

In the meantime, the United Technologies (NYSE:UTX), the third blue chipper to report earnings today cut its full year revenue outlook as third quarter sales missed estimates, the world`s largest maker of elevators and air conditioner said the U.S. government sequestration program, which involves spending cuts on federal projects is weighing on its defense business, most especially. Shares fell more than 1 percent to $106.13.

GHARIB: Whirlpool (NYSE:WHR)`s bottom line being helped by the U.S. housing recovery and improved consumer sentiment in Europe. The world`s top home appliance maker reported profits that more than doubled and have raised the full-year earnings forecast. The stock swirled higher by 11.5 percent to $146 and change.

Delta shares took off after a strong earnings report today. Fair hikes pushed earnings past estimates. The airline also called its revenue outlook, quote, “solid” through the end of the year. The stock gained more than 3 percent to $25.49.

Coach (NYSE:COH) is warning of continued weak sales in North America, that`s its largest market. The luxury handbag maker posting a drop in third-quarter revenue as it faces increased competition from rivals like Michael Kors and Kate Spade, something the CEO is fully aware of.

(BEGIN VIDEO CLIP)

LEW FRANKFORT, COACH CHAIRMAN & CEO: We`re late to respond to competition and the competition is doing extremely well. What the competition has done, it`s changed the dynamics of the marketplace. It has really raised the importance of the emotional quotient, and having a full head to toe look and that`s what we`re doing here in North America.

(END VIDEO CLIP)

GHARIB: Despite that enthusiasm, the stock was one of the worst performing in the S&P today. It tumbled 7 1/2 percent to $50.10.

And a tough day for Groupon (NASDAQ:GRPN). The stock sliding after an analyst warned of a drop in gross billings in North America, its strongest market. ITG investment research says September`s numbers show a slowdown and that follows a weak August. Groupon (NASDAQ:GRPN) shares fell sharply, down about 7 percent to close at $9.86.

MATHISEN: And bad news if you`re hoping to get money back on your federal taxes as early as possible next year. Because of this month`s partial government shutdown, the IRS now says that the start of 2014 tax filing season could be delayed for up two weeks. The tax season was scheduled to begin on January 21st but may now be pushed back as far as February 4th. A final decision on the start date for the filing season will be announced sometime in December.

And no matter when it begins, the April 15th deadline for filing your returns remains the same.

GHARIB: No way to escape that.

Well, the Obama administration is also scrambling to meet another deadline — getting those online health exchanges up and running and on time. The Department of Health and Human Services has called on Verizon (NYSE:VZ) now to fix the problem. It makes sense to bring in Verizon (NYSE:VZ), its division for enterprise solutions already does contract information work for the HHS and for Medicare, as well.

MATHISEN: In the meantime, “Consumer Report” has a blunt message for anyone interested in using the healthcare.gov Web site, stay away. The magazine suggests that people looking to shop for a new health plan avoid the federal online market place for another month, giving the government enough time to work out the problems that besieged its rollout from day one.

GHARIB: Coming up on the program, Apple (NASDAQ:AAPL) wasn`t the only company to unveil a new tablet today. So did Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK). But can these other tablets chip away at the iPad`s lead?

But, first, let`s look at how commodities, treasuries and currencies performed today.

(MUSIC)

MATHISEN: Microsoft (NASDAQ:MSFT) Chairman Bill Gates is making a big bet on the turn around in Spain through one of the investment funds he controls. Gates is paying $155 million for a 6 percent stake in a Spanish construction company called Fomento de Construcciones y Contratas, making him the company`s second largest stakeholder if he can pronounce it.

This follows significant investments in other Spanish based companies over the past year by fellow billionaires Warren Buffett and Mexico`s Carlos Slim.

GHARIB: And a big day for tablets, Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK) all unveiling a new device today, just in time for the upcoming holiday shopping season. Microsoft (NASDAQ:MSFT) updated its line of surface tablets, but it was apple that grabbed most of the headlines today, rolling out some updated versions of its top selling iPads.

Jon Fortt has more from Silicon Valley.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s a wrestling match now in the tablet market. Apple (NASDAQ:AAPL), the heavyweight in the category out today with a new lineup of iPads.

What`s new? The full hissed iPad gets a new name, it`s now the iPad Air, 30 percent lighter than the previous version. The iPad mini gets a major upgrade, a retina display, the latest A7 and M7 chips and a slightly higher price tag.

(on camera): This time around, the story is not just about speeds and fees or even the dimensions of the iPads themselves. It`s about how Apple (NASDAQ:AAPL) has expanded the product line for the iPad.

Now, you can get retina versions of both the iPad mini and the full sized iPad, and if you don`t want retina, just pay $100 less.

(voice-over): Heading into the crucial holiday season they will square off against more affordable tablets from Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG), and its renewed efforts from Nokia (NYSE:NOK) and Microsoft (NASDAQ:MSFT).

UNIDENTIFIED MALE: I just need a full computer so I went for the Surface Pro. No, it`s not just a tablet where you`re bound to some app store, it`s a full PC basically.

UNIDENTIFIED MALE: I bought it because it has digitized pen. But Apple (NASDAQ:AAPL) doesn`t have any of this pen or kind of devices.

GENE MUNSTER, PIPER JAFFRAY: The reason they are giving stuff away free is that`s the new battle front is around the hosted web applications, that`s something Google (NASDAQ:GOOG) does really well. What Apple (NASDAQ:AAPL) is essentially trying to do is make that value, taking that away from Google (NASDAQ:GOOG) and really empower their people to have this good echo system. So, this really was a shot towards Google (NASDAQ:GOOG) and a lot of free stuff that they give away.

FORTT: Investors are likely wondering what it means for holiday quarter sales and margins. It will be the first time we have a holiday season tablet launch with a full year of pent-up demand. So the difference could be significant.

(on camera): New iPads, lots of free software, we`ll see this holiday season whether it`s enough to fend off the competition.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

MATHISEN: And finally tonight, with the World Series starting Wednesday night, one lucky baseball fan has already snagged the deal of the a lifetime. A ticket to game one in Boston for just $6. The fan spotted the $3 ticket on Stub Hub, the secondary market vendor, paid the $3 service fee and will be sitting in right field of Fenway Park tomorrow night for less than the cost of a Fenway frank. The price does appear to be a mistake but there has been no official word from the seller.

Meantime, the latest data fro another secondary ticket marketing site, TiqIQ shows how lucky that fan is. Average ticket prices are over $1,500 at Fenway Park in Boston. In St. Louis, they`re cheaper, $962 on average. Both towns crazy for baseball.

GHARIB: I got a deal for you, come over to my house. Best seat in the house —

MATHISEN: Free, and I can watch?

GHARIB: Popcorn —

MATHISEN: Hotdogs, maybe some beverages, the whole thing.

GHARIB: Yes, anything you want, Tyler.

MATHISEN: All right, Susie.

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

For more on the stories we cover, go to our Web site, NBR.com.

MATHISEN: And I`m Tyler Mathisen. Thanks for watching, 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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