Transcript: Tuesday, October 29, 2013

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

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Stocks are hot, but the
economy is not. What`s driving the market holding back the economy, and
what does it mean for your investments?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Health law hurdle.
Plans canceled, sticker shock, anger, frustration. And today, a White
House official on Capitol Hill was asked to explain why millions may not be
able to keep their insurance plans.

GHARIB: And one year later. On the anniversary of Hurricane Sandy,
new legislation is being introduced that could delay big hikes of insurance
premiums, helping homeowners keep their heads above water.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
October 29th.

MATHISEN: Good evening, everybody, and welcome.

On this day in 1929, the stock market crashed, the Dow lost 30 points
— when 30 points meant 12 percent. They called it Black Tuesday.

Today, 84 years later, the Dow closed at a record high, so does the
S&P 500, the Dow Transports, the Russell 2000 and the MidCap 400. Call it
Green Tuesday, if you`d like, and some of the economic indicators market
pros watch, including several out today, are flashing yellow, maybe even
red. More on that in a moment.

Here for the record are the numbers on Wall Street today. A day of
historical irony as the Federal Reserve`s policy makers convene to discuss
the economy and what to do about it. The Dow with a last-hour sprint ended
up 111 points, the NASDAQ gained 12 and is now within 50 points 50 to
4,000, and S&P added nearly 10.

GHARIB: Well, investors enthusiastically bought up stocks, undeterred
by a batch of disappointing economic reports.

Retail sales fell in September, down 1/10th of a percent, but that was
the first drop in six months. The decline was mostly because of a big drop
in auto sales. Home prices also cooling off.

The S&P Case-Shiller index that tracks 20 cities showed home prizes
rose only 1.23 percent in August, its smallest monthly gain since March.

And consumer confidence down. The conference board index slipped to
its lowest level in six months.

So, the data points down but stocks continue to go up. In normal
times, this probably wouldn`t happen, but these are not normal times.

(BEGIN VIDEOTAPE)

GHARIB: On Wall Street, stocks keep going up. It`s been a slow grind
upward, a steady drumbeat of new highs. If it`s not the S&P 500, it might
be the Russell 2000 or Dow Transport and hundreds of companies watching the
stock prices hit new 52-week highs.

What`s going on? It`s not because of earnings.

DAVID DARST, MORGAN STANLEY WEALTH MANAGEMENT: Market sometimes
follows profit and sometimes it doesn`t.

GHARIB: And it`s not because of consumer spending. Auto sales fell
more than 2 percent last month, and the pace of home sales is also slowing.
In fact, consumers are feeling pretty lousy these days. A new survey shows
a sharp drop in consumer confidence, partly because of the government
shutdown, partly because hiring is still weak, and partly because people
are just plain worried.

So, why the disconnect between here and here? It`s because of this
man. Federal Reserve Chief Ben Bernanke has been deliberately keeping
interest rates super low, making more money available to consumers and
businesses.

The result: cash is pouring into the stock market.

DARST: This party is artificial. This party is, I hate to call it, a
Harry Potter market. OK? This is a dream world market.

GHARIB: So far, there is nothing that will rattle people out of that
dream. Policy makers meeting today and tomorrow in Washington are expected
to keep stimulating the economy, and Wall Street pros say as long as the
economy muddles along, they don`t see policy changes coming any time soon.

DAVID BERSON, NATIONWIDE INSURANCE: We have had modest economic news.
Why will that change? We continue to have growth that`s OK but not great.

GHARIB: And until economy is healthy enough to take the fed out of
the equation, it looks like stocks have an all clear to run even higher.

(END VIDEOTAPE)

GHARIB: And many market pros and economists are now saying the Fed
won`t begin trimming back on that stimulus program until April or even
later.

MATHISEN: Joining us now to talk more about the weak economy and
strong stock market is William Delwiche. He is a market strategist with
Robert W. Baird.

William, welcome. Good to have you with us.

A Harry Potter market, a dream world market. You heard what David
Darst just said. Do you agree with that?

WILLIAM DELWICHE, ROBERT W. BAIRD INVESTMENT STRATEGIST: Well, I
think to some extent, yes. There`s certainly a disconnect between what we
see in the economy and what we see in the stock market. The stock market
sitting at all-time highs, while the economy is still stuck in first gear
three years after the recession ended.

GHARIB: So, what is it going to take for the economy and the stock
market to track each other better, like more normal, the way it is in
normal times?

DELWICHE: Well, I think first, we should step back and realize that
the market and the economy can move away from each other for an extended
period of time. But given that to get them back kind of on the same page,
I think we need policymakers to get out of the way and uncertainty in D.C.
start to fade and then those underlying positives in the economy can start
to kind of bubble to the top and we can start to get going again.

MATHISEN: So, you seem to be saying that the disconnect between the
economic fundamentals, between, say, corporate fundamentals, earnings, and
stock prices can be persistent for long periods of time. Do you think
we`re in that — we`re obviously in that situation right now — what could
derail it and send everything going the other day?

DELWICHE: Well, I think an aggressive backing away from easing by the
Fed would be one thing to look at, but I don`t think that`s likely to
happen. They know kind of the boat they`re in and they know what`s going
on. So, I don`t think they`re going to step back aggressively right now,
and until then, you have to see some weakness internally in the stock
market or really excessive optimism on the part of investors, and that
isn`t present just yet.

GHARIB: And, you know, the economy is pretty weak, about 1 percent
growth, maybe 2 percent growth. What do you see as the speed limit for the
economy looking ahead?

DELWICHE: Well, I think in the immediate term, I think 1.5 percent to
2 percent growth is about what we can expect. But if you step back and
think about it, 2 percent growth and really low inflation, that`s not
really an all-together bad situation for stocks historically. So, as long
as we continue to have low inflation and some growth, I think the stock
market can continue to muddle higher.

MATHISEN: No. And you`ve also got very low interest rates, which
reduces the cost of capital for — and makes borrowing more —

DELWICHE: Exactly.

MATHISEN: More accessible to more companies.

What sectors of the stock — if you had some discretionary money to
put to work right now, even at these prices, where would you put it sector-
wise?

DELWICHE: The three sectors we`re looking at right now are consumer
discretionary industrials and materials. Those are the strongest sectors
in the market right now. They`ve been strong for awhile.

MATHISEN: But why consumer discretionary if they are low on
confidence and they`re not really spending all the much?

DELWICHE: I know. That`s the ironic thing is that you can construct
an argument about why that would be a bad sector to be in, but the reality
is that that`s a sector that continues to move higher and at the end of the
day, it doesn`t matter what you think might happen. What matters is what
is happening, and what is happening is the consumer discretionary stocks
are rallying and they continue to move higher.

MATHISEN: William, thank you very much for your help tonight.

DELWICHE: Sure.

MATHISEN: William Delwiche of Robert W. Baird.

GHARIB: Some stocks trading at sky-high. Prices actually have what`s
known as price-to-earnings ratios that would cause most investors to pull
their money out. But that`s not happening in this market.

Dominic Chu takes a look to see if those stocks and companies are
really worth it.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Stock price isn`t the only way to value a company. Many investors use
other measures, as well, like price-to-earnings ratio. Simply put, it`s
how much you pay for each share of stocks relative to the profit each share
entitles you to.

So, if a company has $100 in profits, and has 100 shares outstanding,
each shares entitled to $1 of corporate profits.

Some companies trade at very high evaluations. Take 3D Systems
(NASDAQ:TDSC), the maker of 3-dimensional printers, has surged 66 percent
so far this year, and trades at 132 times earnings — meaning you`ll pay
$132 in stock price for every one $1 of corporate profits.

Then, there`s Facebook (NASDAQ:FB). The stock is up 86 percent this
year and trades at 206 times earnings or $206 dollars in price for every $1
of corporate profits.

Another stock that has a lofty evaluation is Wendy`s. The quick
service restaurant company is up 83 percent this year and trades at 208
times earnings, which means you`ll pay $208 for every $1 of profits.

For comparison`s sake, the Dow Jones Industrial Average trades at 14
times earnings. Some investors are only going to pay up if they think the
company will be able to meet the lofty expectations that come with these
lofty evaluations.

STEVE WEISS, SHORT HILLS CAPITAL: If you have a small speck or part
of your part of portfolio where you want to take a chance, you`ve got to do
where you`re confident the management knows what they are doing. And I
don`t mean in terms of operating the economy. I mean, in terms of keeping
guidance at a level where they can beat it.

CHU: Earnings multiples are just one piece of the puzzle — but worth
considering if you`re looking to buy fresh, hot stock.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: There is no downplaying IBM`s importance to the Dow Jones
Industrial Average, because it`s so high priced, second only to Visa
(NYSE:V) among the Dow 30, when it moves, it drags the index along with it,
far more than lower priced stocks.

And today was Big Blue`s best day since January. It added $15 billion
to its stock buyback plan and said it will go over even more next October.
That juiced the stock, IBM up more than 2.5 percent, was the biggest gainer
in the Dow today, responsible for 30 of the index`s 111-point gain.

GHARIB: Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) wants to buyback more
of its stock, but it needs the Fed`s OK to do that. Big banks have to get
the Federal Reserve`s approval before they repurchase their own stocks or
pay a dividend to shareholders. “The Wall Street Journal” says Morgan
Stanley (NASDAQ:NBXH) (NYSE:MS) is looking to widen the $500 million
buyback plan that was approved earlier this year, but is scheduled to wrap
up next year.

MATHISEN: Major snag in the proposed $13 billion settlement between
the Justice Department and JPMorgan (NYSE:JPM) Chase over bad mortgage
bonds it sold ahead of the financial crisis. Dow Jones says the massive
deal may be falling apart over the inclusion of possible criminal charges
against the bank and over liability issues about who bares financial
responsibility for bad loans tied to Washington Mutual, JPMorgan (NYSE:JPM)
Chase or the FDIC. JPMorgan (NYSE:JPM) acquired that struggling lender,
Washington Mutual, during the financial crisis, from the FDIC, which
federally insures bank deposits.

GHARIB: A new turnaround plan from Sears (NASDAQ:SHLD) today. It
wants to spin off some of its successful businesses. Sears (NASDAQ:SHLD)
is considering splitting its Land`s End retail and catalog business and its
Sears (NASDAQ:SHLD) Auto Centers outlets into separately traded companies.
It also plans to close more of its unprofitable Sears (NASDAQ:SHLD) and K-
Mart department stores.

Investors like the plan. The plan shares of Sears (NASDAQ:SHLD)
Holding shot up 12 percent to $62.

And still ahead on the program, millions of Americans may get to keep
their health insurance plans, even though they don`t like them. And today
on Capitol Hill, a White House official had to explain why.

(MUSIC)

MATHISEN: Today`s kick off of the Federal Reserve`s latest policy
meeting on interest rates will be one of the last ones with Ben Bernanke as
chairmen. Current Vice Chair Janet Yellen, nominated by President Obama to
be the next head of the Fed, is now expected to have her confirmation
hearing in the Senate begin on November 14th. Even though Kentucky Senator
Rand Paul says he`ll oppose Yellen`s nomination unless the full Senate
votes on his bill supporting more transparency of the Fed`s policy moves,
Yellen is expected to win the Senate`s approval.

GHARIB: Pfizer (NYSE:PFE) reported earnings that beat estimates, and
that`s where we begin our “Market Focus” segment tonight,

Cost costs and a jump in sales of new cancer drugs helped the
drugmaker deliver strong results. But global sales fell because of
competition for generic drugs like cholesterol fighter Lipitor. But the
good outweighed the bad. Shares of Pfizer (NYSE:PFE) hit a nine-year high
to $31.29. The stock is up almost 23 percent this year.

A big earnings beat from LinkedIn (NYSE:LNKD) after the market close.
Revenue and user growth climbed and the social networking site reported
progress in transitioning to mobile devices. But the company did issue a
conservative revenue forecast for the fourth quarter and the full year,
that pushed down the stock in after-hours trading. In the regular session,
though, LinkedIn (NYSE:LNKD) rose almost to 2 percent to $247 and change.

Goodyear Tires shares tumbled today after reporting earnings that
missed analyst estimates. The biggest U.S. tire maker said revenues fell 5
percent, blaming lower sales of tire related chemicals in North America and
also changes in the value of Asian currencies.

A modest increase in global tire sales didn`t ease investor worries.
Shares plummeted almost 6 percent to $20.76.

MATHISEN: Weakness in the mining sectors hurting Cummins` bottom
line. The maker of engines and other vehicle parts reported profits below
estimates and the company cut its full year outlook. Cummins (NYSE:CMI)
said it is seeing weak demand in most markets. The stock off more than 5
percent to $127.90.

Shares of Nokia (NYSE:NOK) surged today after the company forecasts a
more profitable future for its network equipment business. The unit will
become Nokia`s main business since it sold its cell phone division over to
Microsoft (NASDAQ:MSFT). The telecom company reported an unexpected profit
but revenue missed expectations. The stock was up more than 10 percent to
$7.45.

And cuts in government funding hurt Aetna`s private Medicare business
and that sent shares lower. The health insurance company`s profits missed
estimates and Aetna (NYSE:AET) kept is cautious outlook. On the bright
side, revenue did come in above estimates, boosted by its recent
acquisition of Coventry Healthcare. The stock still dropped more than 1
1/2 percent. It finished at $60.75.

GHARIB: Well, Aetna`s CEO Mark Bertolini was also asked about the new
health law and report that says the Obama administration knew millions of
Americans would not be able to keep their insurance plans.

(BEGIN VIDEO CLIP)

MARK BERTOLINI, AETNA CEO: The only people who can keep their plan
indefinitely are people who in the individual and small group market were
in that percent market before March 23rd, 2010 and over that period from
March 2010 until now did not change their plans.

(END VIDEO CLIP)

GHARIB: Accusations that the White House misled people to believe
they could keep insurance plans, combined with troubles on the government`s
health care Web site resulted in some heated questions at hearings on
Capitol Hill today, about what went wrong and who is to blame.

Bertha Coombs has more.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Mike Salamone was surprised when Anthem Blue Cross notified him this month
his family health plan would no longer be offered.

MICHAEL SALAMONE, RETIRED EXECUTIVE: The primary reason they said is
that there is about 10 or 11 components that every plan has to carry.

COOMBS: The retired St. Louis executive say a comparable plan on
healthcare.gov will cost him twice as much, $1,400 a month, because he
doesn`t qualify for subsidies.

SALAMONE: I was very shocked to find out that my plan was being
canceled and it was not compliant. And my shock, I guess, kind of turned
maybe to anger.

COOMBS: There was plenty of that anger at today`s Ways and Means
hearing directed at Marilyn Tavenner, the chief of CMS, the Centers for
Medicare and Medicaid.

REP. DAVE CAMP (R), MICHIGAN: This man wrote me and said, “My wife
has been recently informed by her insurance carrier that her health care
policy does not comply with the Affordable Care Act.”

COOMBS: Tavenner`s defense, insurers has the option to update under
the Affordable Care Act and were known to cancel plans before the law.

MARILYN TAVENNER, CMS ADMINISTRATOR: Half the people in the
individual market prior to 2010 didn`t stay on their policies. They were
either kicked off or preexisting condition. They saw their premiums go up
at least 20 percent a year.

COOMBS: An NBC investigation found the White House knew between 45
percent to 75 percent of plans in the individual market did not comply with
ACA benefit requirement and would have to change, countering unqualified
assurances from President Obama.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If you`re one of the
more than 250 million American whose already have health insurance, you
will keep your health insurance. This law will only make it more secure
and more affordable.

COOMBS: But change was to be expected, says Georgetown`s Sabrina
Corlett, with the individual market effectively now one large pool.

SABRINA CORLETT, GEORGETOWN: If you`re in employer-based coverage, if
you`re a healthy person, you`re subsidizing your fellow employees who might
have more health care needs. It`s the same idea.

COOMBS: For Republicans, it`s another Obama health care promise not
delivered like the healthcare.gov Web site.

REP. AARON SCHOCK (R), ILLINOIS: The WhiteHouse.gov Web site says, if
you have health insurance that you like, you will be able to keep it. She
has health insurance that she likes. She`s been paying her premiums. She
wants to keep it, but she can`t. Isn`t that a lie?

COOMBS: Mike Salamone would like to see less partisan fighting and
more flexibility for millions like him.

SALAMONE: Allow choice and allow us to be better shoppers and get
something that meets our requirements.

COOMBS (on camera): It`s Health and Human Services Secretary Kathleen
Sebelius` turn in the hot seat tomorrow. In her prepared remarks for the
House Energy and Commerce Committee, she touts how for most Americans,
premiums will be lower under the Affordable Care Act. She will no doubt be
grilled about that.

Bertha Coombs for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Coming up, fees for everything — from checking bags, to
printing out boarding passes, they are helping airlines collect a record
amount in ancillary revenue, but what`s the real cost to you?

(MUSIC)

GHARIB: The proposed merger of U.S. Airways and American Airlines may
be closer to lift off. Both carries and the U.S. Department of Justice
have agreed to use a mediator to help settle the government`s lawsuit to
stop the proposed deal. Justice officials are concerned that the merger
would limit competition and could result in higher airline ticket prices.

Now, if the sites can`t settle their differences with a federal
mediator, a trial to stop the merger is scheduled for November 25th.

MATHISEN: A new study says airlines around the world will collect a
record $42.6 billion in ancillary revenue this year. A good chunk of that
money comes from the fees passengers pay for everything, from checking bags
to printing out boarding passes. So how much more is these fees adding to
the soaring cost of air travel? You`ll be surprised.

Phil LeBeau has the answers.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Let`s be honest, travelers are fed up with airline fees.

UNIDENTIFIED FEMALE: These airline fees that bother me particularly
would be baggage, first and foremost, that should be part of the price.

UNIDENTIFIED MALE: Baggage fees and Internet, just nickel-and-diming.

UNIDENTIFIED MALE: Now, they`re charging you extra money just to put
a bag on the plane, which I think is a little bit over exaggerated.

LEBEAU: Ancillary revenue for airlines worldwide keeps climbing,
almost doubling in the last three years to $42.6 billion.

Now, airlines are looking for new ways to get you to spend more money.

JAY SORENSEN, IDEAWORKS PRESIDENT: I think the hesitancy that
airlines had is quickly passing. And I think that when done fairly, I
think it actually serves the consumer well.

LEBEAU (on camera): So how much can fees add to the cost of a plane
ticket? We went online to United Airlines to book a one-way ticket from
Chicago to Los Angeles.

(voice-over): A one-way ticket in coach, $422, that`s the base fair.
But if I need to check a bag, that`s another $25. Priority check in so I
can board early and get over head bin space, $9. If I want extra leg room
on this flight, the last seat in the middle costs me $72.

Wi-Fi in flight so I can surf the web, 14 bucks. Lunch, which is a
turkey and Swiss baguette is another $8.99. All together, the extras will
cost me just over $137, and drive up the cost of my trip by 32 percent.

Keep in mind, different flights on different airlines could mean much
higher or lower fees. United, as well as other airlines, point out they`re
not forcing you to pay for lunch, board early or other extras when you fly.

And carriers say the average airfare in the U.S. since 1980 adjusted
for inflation is down about $200.

DEREK THOMPSON, THE ATLANTIC SENIOR EDITOR: It is generally about as
cheap as its ever been to fly. I mean, you look back at the last 70 years,
in the 1950s, 1960s, no one was flying. Eighty percent of the country was
not flying in airplanes, and I think that`s because the government
regulated the airlines and it was unaffordable to fly.

LEBEAU: You may not like it, but airline fees are here to stay and
will likely go up in the future.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: For more on the extra fees airlines were charging and how
much consumers like you and me are paying, head to our Web site, NBR.com.

GHARIB: And finally tonight, one year after Superstorm Sandy hit the
eastern shore of the United States, causing an estimated $62 billion in
damages, lawmakers are moving to pushback big increases in flood insurance
premiums that could threaten the finances of hundreds of thousands of
American homeowners.

Mary Thompson reports.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In
the last year, floods ravaged homes from Boulder, Colorado, to Minnesota`s
Twin Cities, to the Jersey Shore. The disaster is forging rare bipartisan
support for a bill to delay rate hikes on flood insurance premiums that
threaten these homes again.

Here`s New Jersey Senator Bob Menendez.

SEN. BOB MENENDEZ (D), NEW JERSEY: We still have too many people out
of their homes and too many people afraid of losing their homes. We
suffered from a natural disaster. We need not create a man-made one.

THOMPSON: The manmade one, the Biggert-Waters (NYSE:WAT) Act, well-
intentioned legislation aimed at restoring the financial health of the
National Flood Insurance Program, which is $26 billion in debt. The act
saying, refund the program by charging market rate premiums for hundreds of
thousands of homes in flood zones.

The problem, a lot of those previously subsidized homeowners can`t
afford the new rates.

SEN. DAVID VITTER (R), LOUISIANA: Nobody is arguing against
reasonable rate increases. What we`re arguing against is rate increases
that could go to $20,000, $25,000 a year and literally push people out of
their homes and out of the program.

THOMPSON: To counter it, Louisiana Senator David Vitter and others
introducing the Homeowners Flood Insurance Affordability Act. The act
delaying by four years rate hikes on insurance that covers homes in flood
zones that were built in accordance with previous building codes and homes
that were sold or policies spot after July 6th, 2012. That`s when Biggert-
Waters (NYSE:WAT) Act was passed. Primary homes and repetitive flood
zones, secondary homes and businesses would still pay higher rates.

The proposed delay giving FEMA time to complete flood maps, along with
an affordability study on the rate hikes and the rules on how to implement
them.

(on camera): Given the bipartisan support, there is optimism this
bill will pass, probably when it`s folded into a budget bill that will be
approved later this year or in 2014.

(voice-over): Keeping many homeowners from going under financially.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: Well, the anniversary brings us really right home to so
many on us in this area, where we were all hit.

GHARIB: Beautiful sunny day today, you wouldn`t think there were, you
know, strong winds and couldn`t get to work and roads were closed and
people homeless.

MATHISEN: All righty.

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

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

END

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