Transcript: Wednesday, October 23, 2013

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


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Opposite directions. Boeing (NYSE:BA) climbs to record highs, while Caterpillar (NYSE:CAT) warns of tough times ahead. What`s driving these two widely held stocks and which one is worth your money now?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Buy or bail? The S&P is sitting near record levels and you likely own some of the reasons why. So, which names have helped the rally, which ones have hurt, and which ones should you buy hold, sell, or sold?

MATHISEN: Decision time. Detroit officially makes its case for bankruptcy, trying to get the cash-strapped city out from under a pile of debt. But retirees and pensioners are fighting back, trying to protect benefits that could be cut.

This is NIGHTLY BUSINESS REPORT for Wednesday, October 23rd.

GHARIB: Good evening, everyone.

The tale of two big name Dow stocks, Caterpillar (NYSE:CAT) and Boeing (NYSE:BA), set the tone on Wall Street today.

For Boeing (NYSE:BA), blue skies ahead after the aerospace giant reported a surge in quarterly earnings, a huge backlog of orders and raised its outlook for this year. Shares soared more than 5 percent.

But Caterpillar (NYSE:CAT) found itself in a hole. The world`s largest maker of earth moving and mine making equipment said profits plunged last quarter. It cuts its earnings forecast again and the stock tumbled 6 1/2 percent.

Well, that mixed picture from two blue chip Dow companies rattled investors as they worry about growth forecast from corporate America. And so, the record breaking runoff in stocks took a step back today. We have two reports taking a closer look at Boeing (NYSE:BA) and Caterpillar (NYSE:CAT).

We begin with Jackie DeAngelis and those disappointing numbers from Big Cat.


JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A big earnings miss for the world`s largest maker of earthmoving equipment, Caterpillar (NYSE:CAT). Profit declined almost 43 percent from a year ago, missing analyst expectations by 21 cents a share. And it wasn`t just profit fell short, Cat`s revenue declined 18 percent. And the company`s 2014 forecast turned flat, plus or minus 5 percent, compared to this year.

Mining was Caterpillar`s main challenge in the third quarter, according to chairman and CEO, Doug Oberhelman.

DOUG OBERHELMAN, CATERPILLAR CHAIRMAN & CEO: We saw the mines really explode as India grew, China grew, the famous BRICS grew. And, you know, the world economic growth through the big recession outside the U.S. and Europe was pretty good. I think they got a little bit ahead of themselves, the markets got a little bit ahead of themselves.

DEANGELIS: He told investors the company worked to improve operating efficiency but also said those improvements unfortunately were overshadowed by a drop in sales.

OBERHELMAN: Our balance sheet is pretty bulletproof right now. We`re ready to go. We just need a recovery in mining, which at some point will come. I`ve seen cycles off and on over my 39 years. This one is pretty acute in mining.

The rest of the business is hanging in there.

DEANGELIS: Cat also announced 3,000 layoffs and warned that more come could be coming. So, it`s no wonder investors are taking a pause. Longer term, Oberhelman is staying positive.

OBERHELMAN: I`m hopeful that — I`m not going to make any forecast here, bullish forecast on mining. But my bet is it`s going to be sooner rather than later, I really hope, late `14, `15, when we start to see that.

DEANGELIS: Still analysts said, they were expecting more from a bellwether like Caterpillar (NYSE:CAT), and that for now, Cat has to keep digging for answers.




PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The plants where Boeing (NYSE:BA) builds Dreamliners, 737, and other commercial airplanes have seldom been busier. In fact, with the company on pace to deliver a record number of planes this year, it`s the commercial airplane business that is driving Boeing`s soaring profits. Last quarter, the company took in more than $22 billion, an increase of 10.6 percent, thanks to more planes being delivered.

And yet, Boeing`s backlog of orders has climbed to a record high. The outlook is a complete change for just nine months ago, when two battery fires aboard two different 787 Dreamliners led to the FAA grounding the planes and investors dropping shares of Boeing (NYSE:BA) to $70. Since then, Boeing (NYSE:BA) stock has been on a steady climb, lift in part by the Dreamliner, which is fixed, flying and bringing in new orders.

The backlog of Dreamliners stands at 890 planes with 131 ordered this year. Boeing (NYSE:BA) built seven Dreamliners a month right now and will go to 10 per month next year. Now, the company says it`s boosting 787 production even further, building 12 per month by 2016 and 14 per month by the end of the decade.

The strength of commercial airplanes is welcome news, given the pressure Boeing (NYSE:BA) is seeing with its defense business. While Boeing`s defense and space business brought in $8 billion last quarter, the government sequester and prospect of more budget cuts, means orders for new military jets and defense projects could be limited in the future.



MATHISEN: Well, another Dow component reporting third quarter profits after the closing bell, AT&T (NYSE:T), the telecom giant, beat Wall Street estimates by a penny a share. The profit there, $3.8 billion, even though revenues were slightly below forecast. AT&T (NYSE:T) added 363,000 new wireless subscribers in the quarter, but that was way behind the bigger rival Verizon (NYSE:VZ) Wireless, which that added 927,000 during the same period.

GHARIB: Those disappointing earnings from Caterpillar (NYSE:CAT) that we just told you about, and a mixed bag of quarterly results out today pulled down stocks and the S&P 500 snapped its five-day winning streak. The Dow lost 54 points, the NASDAQ down by 22 and the S&P fell eight points.

Over in the bond market, Treasury prices continue to rise, pushing the yield on the bench mark 10-year down to 2.5 percent, its lowest level since July.

Well, most of the nation breathed a sigh of relief last week after lawmakers finally resolved the debt crisis and reopened the government, at least for a few months, and mutual fund shareholders reacted by putting money to work. The Investment Company Institute says that investors in U.S. based mutual funds sent nearly $3 billion into stock funds during the week ending October 16th — marking a dramatic turnaround from the three previous weeks when investors pulled billions out of equities and put them into bonds.

GHARIB: So which are the most popular stocks found in the mutual funds, the ones people owned in retirement accounts and may want to follow a little more closely?

Dominic Chu looks at the most widely held stocks and what makes them so popular with institutional investors.


DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): If you`re not active investor or trader, chances are, if you got a mutual fund, IRA or 401 plan, you got some of these stocks. Think of them as America`s favorite stocks. Mutual fund data from Lipper says some of these stocks are the most owned by those mutual funds.

And they include names like Google (NASDAQ:GOOG). Shares are up around 45 percent in 2013, more than doubling the return of the Dow Jones Industrial Average.

Then, there is the king of America`s big banks. JPMorgan (NYSE:JPM) Chase has been at the center of scandals and alleged mortgage misconduct, but CEO Jamie Dimon has managed to steer the company through the rough waters and the stock has risen.

On the energy front, Chevron (NYSE:CVX) has been a gainer but its 11 percent risk this year has underperformed the broader market.

And then there were a couple of names that just about every investor is familiar with. Apple (NASDAQ:AAPL), after hitting a record high of $705 in September of last year, the stock steadily drifted lower, despite the rollout of new products like the iPhone 5s and 5c models. Some analysts think it could be awhile before we see the record stock gains again.

CHANNING SMITH, CAPITAL ADVISORS GROWTH FUND: The old days of seeing the big advances are probably going to be more challenge for Apple (NASDAQ:AAPL) going forward. A lot of that might be the law of large numbers.

CHU: Then, there`s General Electric (NYSE:GE), G.E. The industrial giant is becoming less dependent on its financing arm and more focused on enabling the growth of world`s energy and infrastructure efforts. Some experts believe these types of companies will be the outperformers.

STEPHEN PARKER, JPMORGAN PRIVATE BANK MULTI-ASSET STRATEGIES: In particular we want to own the stock with the greatest exposure to growth. We investors are going to be looking to industrials as the place to be.

CHU: Just because the stock is popular among mutual funds doesn`t necessarily mean that it`s the right stock for your portfolio so doing your homework is critical.



MATHISEN: You heard what Dom just said. So, should some of the stocks he mentioned be in your portfolio or not?

Let`s ask Mike Holland. He`s chairman of his money management firm, Holland & Company.

Mike, great to see you again.

MIKE HOLLAND, HOLLAND & COMPANY CHAIRMAN: Ty, great for having me. Thank you.

MATHISEN: You know, in my notes it says you see this bull market as the most comfortable bull market you`ve seen in a long time. What do you mean by that? And do you mean you would be comfortable yourself putting money into a broad S&P 500 index fund?

HOLLAND: One correction to what I said because sometimes I mumble, Tyler, most uncomfortable bull market and the reason I said uncomfortable is because people from the beginning of this in 2008 and 2009 have been skeptical of the market and that`s one reason these evaluations are so low and attractive as I find them still to be, and to answer your last question, I would absolutely if someone didn`t want to pick individual stocks or didn`t feel competent to do that or didn`t have the time, I would absolutely talk about one of the index funds like Vanguard or someone like that.

GHARIB: All right. So, Mike, let`s talk about what Dominic just reported. America`s favorite stocks, and at the top of the list, we`re going to talk about Apple (NASDAQ:AAPL). Would you buy, sale or hold this stock? It`s now trading at $525.

HOLLAND: Great question, Susie, because in Dom`s report, I would absolutely agree, this stock has been under-performer and yet, the company has been out-performer. You look at the excitement about the new iPhone, the more expensive one. I just came back from China, as you know. They are frothing at the mouth to own these things.

So, the customers in the business are doing great. The stock really to Tyler`s question a second ago, really is — the stock is underperformed because people are skeptical.

MATHISEN: All right. Let`s move on to Google (NASDAQ:GOOG) then — buy, sale or hold on that one? Do you like it?

HOLLAND: I own it and I love it. I love, Tyler, company`s whose numbers are verbs.


HOLLAND: And this one is at evaluation, it`s more expensive as Dom was just talking about than was a year ago. But still, with the economy growing over 20 percent, as large as it is and less than 25 times earnings, I think it`s a steal.

GHARIB: All right. So, General Electric (NYSE:GE) isn`t a verb, Mike, but what do you think of it at $25?

HOLLAND: I think Jeff Immelt, where we heard a second ago, has repositioned the company, a huge company, in the way that it`s going to take advantage of the changes we`re seeing around the world. I think the stock is doing better and will continue to do so. I own it, as well.

MATHISEN: How about JPMorgan (NYSE:JPM)? This has been obviously, a very troubled company, at least as far as its legal costs are concerned.

Are you — would you be comfortable owning that one?

HOLLAND: I am comfortable to use that word, and I do own it, and it`s a little reverse from where we just talked about a second ago, Tyler, with Apple (NASDAQ:AAPL). This one, the stock has actually done reasonable well given these headlines, the $13 billion going to the government, et cetera, et cetera. The stock has done reasonably well because I think in large part because the market believes here that the management can get through this and I think it is the class name and the class management in the industry.

GHARIB: What about Chevron (NYSE:CVX), Mike? It`s up 11 percent year to date. I know it`s not in your portfolio but would you buy, sale or hold it?

HOLLAND: If I had to do one of the three, I`d buy. But I would prefer, which I do, I own ExxonMobil (NYSE:XOM). Huge on managements that perform well over a long period of time and more recently, ExxonMobil`s management has done extremely well. And I expect them to continue to do so. And given the evaluation, I would certainly own Exxon rather than Chevron (NYSE:CVX).

MATHISEN: So, you think Exxon is the best. Quick thoughts, very quick on the two stocks we kicked off the broadcast with, Caterpillar (NYSE:CAT) and Boeing (NYSE:BA).

HOLLAND: Don`t own either of them, but if I had to own one or the other, I`d own Boeing (NYSE:BA), not cater pillar. The mining cycle is going to be longer than people suspect, would be my guess.

MATHISEN: Mike, you`re becoming a verb yourself.

HOLLAND: Ty, thank you. Susie, thank you.

MATHISEN: Mike Holland, chairman of Holland & Company. Nobody does it faster better than Mike.

GHARIB: Well, speaking of Apple (NASDAQ:AAPL), billionaire activist investor Carl Icahn is back on Twitter, focusing his attention on Apple (NASDAQ:AAPL) stock, its CEO, and its massive stockpile of cash. Today, who just man nearly $1 billion in profits from selling half of his Netflix (NASDAQ:NFLX) holdings set out a cryptic tweet saying, quote, “Just sent a letter to Tim Cook. Full letter will be disclosed on my Web site the Shareholders` Square Table, which will be launched tomorrow.”

Well, reports say that Icahn`s letter details his approximately $2 billion investment in Apple (NASDAQ:AAPL) and his push to boost the company`s stock buy back plan to $150 billion. That`s $50 billion more than Apple`s current program.

And still ahead on NIGHTLY BUSINESS REPORT, reinventing the way smaller company`s raise money and how new rules proposed by regulators could let you own a steak in firm just by using the Internet.

But, first, let`s take a look at how the international markets closed today.


MATHISEN: Early this week, NBR told you about the $13 billion settlement JPMorgan (NYSE:JPM) Chase is working on with federal authorities over risky mortgage-backed securities it sold ahead of the financial crisis. That would resolve a bundle of civil actions brought against the bank by several U.S. enforcement agencies.

And today, we learned the bank is nearing a separate $6 billion agreement with more than a dozen institutional investors and bond holders to settle private claims over those same failed securities.

GHARIB: Bank of America (NYSE:BAC) maybe facing some massive fines of its own. The bank was found guilty today for fraud on claims related to bad mortgages sold by its Countrywide Financial unit, ahead of the financial crisis. A process the company called hustle.

After a four-week trial in New York City, a federal jury found the bank liable on one civil fraud charge and found one former Countrywide executive liable on the one fraud that she was pacing. Now, a federal judge must decide how much to penalize Bank of America (NYSE:BAC).

MATHISEN: And a big trial began today in Detroit. A federal bankruptcy judge must decide whether the city is really broke and if its historic filing can move forward. State and city officials say there is no other alternative for the beleaguered city, but city employees and retirees who would likely see their pensions decimated in a bankruptcy filing say the whole process is illegal.

Scott Cohn has the latest from Detroit.


SCOTT COHN, NIGHTLY BUSINESS REPORT CORREPONDENT (voice-over): Protesters turned out by the hundreds on day one of a trial that`s supposed to decide if Detroit gets relief from the creditors, including them.

PROTESTERS: What do we want? Justice! When do we want it? Now!

COHN: A big part of Detroit`s $18.5 billion in liabilities is more than $8 billion in benefits for retirees like Cheryl Labash, who say she is being asked to pay for the misdeeds of Wall Street.

CHERYL LABASH, RETIRED DETROIT EMPLOYEE: We are not responsible. We should not pay. I live in the city of Detroit. I pay taxes in the city of Detroit. I own a home that`s free and clear, and is worth nothing because of what the banks did with the foreclosure crisis here.

COHN: But the attorney appointed by Michigan`s governor to take over Detroit`s finances insists bankruptcy and cutting benefits is the only option.

KEVYN ORR, DETROIT EMERGENCY MANAGER: That gives us an opportunity to have a structured environment with federal court supervision for a comprehensive solution to very real problems.

COHN (on camera): There is no denying there are real problems, a third of the residents below poverty and in some neighborhoods the abandoned homes out number the inhabited ones. But the legal issues surrounding a bankruptcy are much more complicated than that.

(voice-over): To prove it`s eligible for bankruptcy protection, the city has to show it negotiated in good faith with its creditors. The union says it didn`t and that it is insolvent. The city says there is a mountain of evidence of that.

The unions say the bankruptcy is unconstitutional and the city is using pensioners as scapegoats.

SHARON LEVINE, AFSCME ATTORNEY: You`re talking about retirees that`s making $18,000 a year. So, we`re not talking about, you know, a lot of people with a lot of money to spare.

COHN: Detroit doesn`t have money to spare, either. If the city prevails, it could restructure its finances by spring. If not, recovery, if it ever happens, will take a whole lot longer.



GHARIB: Turning now to our “Market Focus” segment, we begin with Northup Grumman, and it looks defense cuts didn`t hurt this big government contractor from reporting earnings much better than estimates. It said quarterly profits jumped more than 8 percent and despite the decline in demand for drones and a drop in its backlog, Northup still boosted its full year forecast for earnings and revenue. The stock popped 4 percent to $105.56.

Higher taxes reduce profits at U.S. Airways but the airline`s third quarter results still managed to beat expectations. The airline also said it will continue planning for a merger with American Airlines, even as the U.S. government attempts to block the deal. Shares dropped 2.5 percent to $21.40.

MATHISEN: And Cree (NASDAQ:CREE), the maker of LED lighting, warning investors that current quarter earnings will fall below estimates. The company citing higher marketing expenses, and that`s what shareholder focused on, brushing off earnings and revenues that were just about in line with expectations. Shares down almost 17 percent to $61.77.

Corning (NYSE:GLW), the maker of glass for televisions and mobile device screens, soaring on a new tie-up with Samsung and a $2 billion stock buyback. Corning (NYSE:GLW) will take control over an existing joint venture with Samsung, a deal that it says will boost earnings immediately. The stock soared 14 percent, to $17.52.

And new members and lower medical costs helped WellPoint beat analysts` expectations. The insurer raised its outlook for this year but declined to give a forecast for next year, citing problems launching those new insurance plans under the president`s health care law. WellPoint, one of the biggest insurers offering plans on the state-based exchanges.

Shares of the company fell more than 3 percent to $85.48.

GHARIB: WellPoint CEO is just one of many insurance chief executives who met with senior administration officials today at the White House. Also at that meeting, embattled Health and Human Services Secretary Kathleen Sebelius. They were there to discuss the botched rollout of the Web site and implementation of other probations of the Affordable Care Act.

Also in Washington today, some new rules on crowd funding. This is a popular way entrepreneurs raise small amounts of money from many investors. Many startup firms rely on this technique to sell small steaks in their companies to investors. And now, federal regulators are trying to open the door to the everyday investor to help finance new companies.

Eamon Javers joins us now from Washington with a look at the new rules the government is proposing.

Over to you, Eamon.


Well, crowdfundings got a lot of potential here for new entrepreneurial companies to raise money by going out on the Internet and getting thousands of new investors to contribute money to the startup`s cause. That saved them trouble of going to the big banks and venture capital firms that they`ve traditionally gone to. But now, the SEC says it`s a little bit worried about this new proposal in terms of fraudsters and scram artists that might take advantage of unsuspecting investors.

So they say these new rules are going to underlie the overall effort here and protect investors. So, there is a couple of key caveats that they put in place. They said no company would be able to raise more than a million dollars in crowdfunding in a given year. They also said that investors themselves will be limited in two key categories based on their income.

They said that they`ll be limited to investing just $2,000 or 5 percent of their annual income or net worth if they make or own under $100,000 a year. Over that, they`ll be allowed to invest 10 percent of their annual income or net worth, if — whichever is greater.

So, a couple key caveats there for the companies themselves and for the investors. The FCC saying it`s a little wary here of fraud and abuse that might take place, but they want to open this up to give as many people to have an opportunity to buy legitimate companies as they can.

MATHISEN: A lot of people, Eamon, are very excited about this and its potential — a lot of people, as you point out, worry that this is sort of send me your money over the Internet and I promise to put it to work in a good way. How long before the rules will actually go into place and these mechanisms will start operating?

JAVERS: Well, they say today that these are temporary proposed rules that got a whole process for actually implementing them. They said that could take up to 90 days and a lot of the experts say it could be well into next year before we actually see companies raising money on the Internet this way.

GHARIB: Yes, and talking about mechanisms, I understand the FCC is talking about a financial entity here, calls it a funding portal. What is it, how does it work?

JAVERS: Well, that`s the new creature in all of this. The funding portals will be Web sites that start up, places where companies can post need say I have a cool idea, send me some money, here are the details. Those entities are going to be subject to new regulation well into this.

MATHISEN: All right. Eamon, thank you very much. Eamon Javers reporting from Washington.

JAVERS: You bet.

MATHISEN: And coming up, from Brooklyn to the Bakken. Why one developer left a hot real estate market for an even hotter one in the middle of Dakota — North Dakota.

But, first, how commodities, treasuries and currencies performed today.


MATHISEN: Crude oil closed at a nearly four-month low today, falling $1.44 a barrel to finish at $96.86. Part of the reason, supplies are up. Data out today show that U.S. crude stockpiles rose last week after a 14-week decline.

MATHISEN: And nowhere in the U.S. is crude found in greater supply than in the Bakken shale. This is the massive supply of energy found in rock formations underneath North Dakota. And that`s fueling strong growth in construction of homes, restaurants, drilling rigs, just about everything in the town of Williston, North Dakota.

Brian Sullivan is there and has the story.


BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When Louis and Clark came through here more than 200 years ago, there was nothing but river. But now, the Bakken shale oil and gas boom in Williston, North Dakota, has led to construction everywhere. And I mean everywhere.

(voice-over): Roads, restaurants, houses and hotels are going up, filling up and selling out as fast as they can. That`s because people are coming from all over America to take part in the boom and they need a place to live. And if you thought housing was expensive where you are, take a look at this.

Brooklyn developer Ken Hartog bought a piece of land outside of town and now he rents trailer space and mobile homes to workers.

(on camera) So what does 400 square feet get you? What`s the rent of this place?

KEN HARTOG, BAKKEN REAL ESTATE PARTNERS: This is about $2,500 to $3,000.

SULLIVAN: Twenty-five hundred bucks to 3,000 a month for 400 square feet. That is more than Manhattan.

HARTOG: Way more.

SULLIVAN: That`s more than Manhattan.

HARTOG: Yes. And it`s in an RV park.

SULLIVAN: Fifteen miles outside of Williston, North Dakota.

HARTOG: That includes electricity, though.

SULLIVAN: Oh, that`s a bargain.

(voice-over): They can afford it, because oil field workers are routinely pulling in $10,000 per month. Fifty years ago, there were only 30 wells operating in the area. Today, there are more than 6,000 and that number is expected to keep growing.

And it`s not just big publicly traded companies like EOG, Schlumberger (NYSE:SLB) and Continental Resources (NYSE:CLR) that are benefitting.

Andy Njos is 32-year-old entrepreneur who began with one crane two and a half years ago and now has eight.

ANDY NJOS, DACOTAH WEST CRANE SERVICE: I have one there, the value is $400,000 right now.

SULLIVAN (on camera): And you could sounds like, given the strength of your business, even at 2.5 million bucks, you could pay that off quickly.

NJOS: Yes. I mean, they are an hourly rate machine but you can definitely pay them off pretty quickly here because the wheels never stop turning.

I mean, you can virtually work 24 hours a day around here, and a lot of times we do.

SULLIVAN (voice-over): Some think this piece of boom can`t continue. But as long as oil and gas prices don`t collapse, look for the story of Williston, North Dakota, and the Bakken shale, to keep on growing.

For NIGHTLY BUSINESS REPORT, in Williston, North Dakota, I`m Brian Sullivan.


GHARIB: And for more on the Bakken economy, check out our Web site,

Pretty amazing that in certain pockets of the country, there is that kind of growth going on?

MATHISEN: Midland, Texas, lowest unemployment rate in the country, and here people making $10,000 a month working on the rig.

GHARIB: Those apartments, though, so to speak, $3,000? That`s a lot.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, thanks for watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great evening, everybody. We`ll see you back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post broadcast at 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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