Transcript: Tuesday, November 5, 2013

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


come down. Stocks soaring this year. But will the gains continue over the
next couple months? We`ll tell you what history says as 2013 hits the

one of the most hyped stock offerings of the year, is just days away from
going public. But do the risks of investing in this young company outweigh
the rewards?

MATHISEN: Staying put. Many young adults aren`t moving out of their
parents` homes. That depresses household growths. How stay-at-home kids
are hurting the housing market.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
November 5th.

And good evening, everybody. I`m Tyler Mathisen.

HERERA: And I`m Sue Herera, in tonight for Susie Gharib.

Well, stocks ended mostly lower today but not by much. With momentum
stalling just a bit on concerns about economic weakness in China and Europe
and a handful of less than stellar earnings reports right here at home.
But the major averages are still sitting near all-time highs for the Dow
and the S&P500, and a 13-year for the NASDAQ.

So, here`s how the market fared today: the Dow fell nearly 21 points,
battling back, though, from a triple-digit loss early in the session. The
NASDAQ bucking the trend by gaining three points and the S&P was down five.

MATHISEN: Well, in the markets, just like everywhere else, they say
what goes up, must come down. But if a quick look at Wall Street history
is any indication, stocks may head up, up and away for the remainder of
this year.

Dominic Chu explains.


Sure, the stock market still sits near record highs, but there`s a good
chance that the current rally still has some legs. At least that`s what
history is saying. The S&P 500 is up around 24 percent so far this year.
There are only four other times over the last 50 years that the index has
been up by at least 20 percent in the first 10 months of the year.

In 1975, the S&P was up 30 percent through October. In 1989, it was
up 23 percent. In 1995, it was up 27 percent. And in 1997, it was up 23

In each of those other instances, stocks tacked on gains to end the
year. So, over the last half century, when the market is up this much
going into November and December, stocks finished higher every time.
Granted, it`s only four cases but still worth noting.

Well, what if we went all the way back to 1929? We get 12 of those
instances, 11 out of those 12 times stocks finished flat to higher to end
the year. What was the average gain in the last two months? Around 5

Some investors are comfortable riding the wave higher.

MICHAEL VOGELZING, BOSTON ADVISORS: The market has been consolidating
since almost mid may. We`re only 5 percent higher than mid-May`s point
right now. It`s not as extended as people make it seemed to be. I think
we`re probably going to go higher.

CHU: But there are still skeptics who are looking for at least the
shorter term pull back for stocks.

everything is too good to be true or when everybody is buying, it`s time to
step back and say, do I really want to be the last one in?

CHU: The bulls appear firmly in control and the numbers support their
case, but it may pay to just a little cautious heading towards year end.



HERERA: And it`s not just stocks that may see more growth soon.
Following sluggish growth in the second half of this year, Boston Federal
Reserve Bank President Eric Rosengren is predicting a pickup in economic
growth in the first quarter of 2014.


expectation is that the beginning next year, we`ll start seeing better
economic data. We`ll start seeing growth closer to 3 percent. Part of
that is on the consumer side, the stock market is high, housing prices have
continued to go up. We`re employing more people. So, that should result
in a better situation for consumption.


HERERA: And Rosengren also said that he sees no hurry to raise short-
term lending rates and expects inflation to remain low, even if the
unemployment rate dips as low as 6.5 percent.

MATHISEN: Gasoline prices got a little bit cheaper overnight, falling
a penny a gallon to $3.24 on average nationwide, that according to AAA.
And says that five states have gas stations posting prices
below $3 a gallon. That`s up from four states just yesterday.

HERERA: The proposed Keystone pipeline is supposed to provide massive
amounts of crude from the oil sands of Canada, all the way to the
refineries along the Gulf of Mexico. But the decision on whether to build
Keystone has been debated and delayed because of Washington politics.

So, now, the nation`s railroad has stepped up, posing a viable
alternative to the controversial pipeline. But will it work?

Jackie DeAngelis has more.


The Keystone pipeline surrounded by controversy, a decision pending. It
would transport Canadian oil to Gulf Coast refineries as the U.S. hones in
on North American oil.

But do we need it? Believe it or not, rail is increasingly becoming a
viable means for transport for crude supplies and a couple of key companies
in Canada have been moving quickly to add capacity.

just hit a record of 4.1 million barrels a day and it`s expected to grow to
nearly 5 billion barrels a day over the next five years.

DEANGELIS: In fact, analytics firm IHS (NYSE:IHS) estimates that by
the end of next year, railroading capacity could grow enough to handle
700,000 barrels of crude a day from the oil sands region in western Canada,
and that`s a low estimate.

Right now, trains carry about 150,000 barrels from there.

LIPOW: Without the Keystone pipeline, crude by rail capacity is
expected to increase substantially from about 500,000 barrels a day today
in Canada to over 1 million barrels a day by the end of 2014.

DEANGELIS (on camera): Compare that to Keystone, the project if
approved is designed to carry about 830,000 barrels per day, so similar
amounts of oil can move via pipeline or rail. But how much will it cost
and is rail shipping cheaper than the pipeline?

(voice-over): Industry data shows that shipping oil domestically by
rail is about $4 to $5 more expensive per barrel than by pipeline and
shipping oil by rail from the Canadian oil sands to the Gulf Coast, well,
that would be about $7 or $8 more expensive per barrel. But still, it
offers an alternative to move crude around.

Critics of the rail build out raise safety concerns, like the fatal
accident last summer in Quebec. But proponents say pipeline have their
safety issues, too.

LIPOW: We are shipping over 800,000 barrel as day of ethanol
throughout the country to meet motor fuel requirements, and one rarely
hears about an incident by rail.

DEANGELIS: While it may cost more to transport crude by rail, the
infrastructure is in the works, and it could be viable if Keystone doesn`t
move forward.



MATHISEN: Well, good news for would be home buyers who have put off
purchasing a home because of rising prices. The real estate researcher
CoreLogic (NYSE:CLGX) says home prices rose just 2/10 of one percent in
September from the month prior, a sign that those sharp price increases may
be leveling off just now, that after making huge month to month gains over
the past year.

HERERA: A relatively obscure statistic about the housing market is
giving economist some new insights about the housing recovery. It`s called
Household Formation and it`s been falling dramatically. And that may be
casting a shadow over the entire real estate sector.

Diana Olick joins us now to explain.

Diana, welcome.

And why don`t we start first of all with exactly what household
formation is.

someone is living in a home with somebody else moves out of that home into
another home by themselves, that is you`re taking multiple people and
putting them in different homes. So, you`re creating a new household. It
can be a rental apartment. It can be a home that they buy. It can be a
home that someone else owns.

It`s just creating that second household where there was just one.

MATHISEN: How much, Diana, has it been falling off and what would
normal be?

OLICK: Well, normal historically is about 1.1 million new households
formed every year. That might sound like a lot, but if you think about
immigration, you think about young people getting out into the housing
market, graduating from college, historically, it`s about 1.1 million.
During the housing boom, we were seeing the numbers much higher.

Now, in Q3, we got a report today saying just 380,000 household s were
formed in the third quarter of this year. That`s down from 750,000 just
the previous quarter. So, that is a dramatic drop and it`s not the kind of
thing we want to see in a housing recovery. You want to see more
households formed, that is more demand for new housing.

HERERA: Well, what`s keeping that demand down? What`s keeping
household formation in the basement, so to speak?

OLICK: Well, it`s, you know, kids living in the basement, Sue, right?
It`s a lot of younger Americas, the millennials we call them, who are not
moving out of parents` homes. It`s people who are living with roommates
because they can`t afford their own place, be it a rental or being it a
home purchase.

It`s just simply that some people are either cash strapped, they can`t
get the credit. Whatever the case, they are just not able to move into a
home of their own.

MATHISEN: How much is this going to effect the housing recovery as we
move into 2014 and beyond?

OLICK: Well, it`s certainly not a good sign. Again, you want to see
that household formation growing. The builders certainly want to see it.
We know that there is a lack of housing supply out there, but there is a
lot of investor demand playing into that.

We also know investors have bought up all these homes and they want to
rent them out. Well, household formation has to take place to get more
renters into the market, right? You need to see more households for there
to be more demand to eat up the supply and also for the builders to build
more homes and therefore, get more healthy.

So, we do want to see that number rise. The question is: was this
just one weird quarter or is this a trend that we`re going to see going

HERERA: Well, I know you`ll be watching it closely for us, Diana.
Thank you so much.

And for more on the health of the housing market, head to our Web

MATHISEN: Still ahead, one day after SAC`s guilty plea and J&J`s big
fine, they examine how much responsibility a CEO should take when something
goes wrong at the company she or he runs?


MATHISEN: By now, just about every one has heard about Twitter`s
initial public stock offering later this week. But Twitter is not alone.
Fifteen other companies are currently having their IPOs this week, the most
for any week since 2006.

Among the companies going public this week, Barracuda Networks, which
provides Internet security and storage and the web developer

HERERA: Just two more days until Twitter goes public and in
regulatory filings for its IPO, the micro-blogging company that has yet to
turn a profit laid out more than 30 pages of risks that that business
faces. So, if you`re thinking of investing, just how risky is Twitter for
your money?

Kayla Tausche has that story.


risk, no reward, an old adage being uttered again as microblog Twitter goes
public. Main Streets buzzing about it, Wall Street clamoring for it
despite warnings from the company, risks could lay ahead. From common to
quirky, those warnings, a whopping 32 pages in company filings.

The gravest risk: growing pains. Twitter needs to make more money
from more users, especially outside the U.S. Expansion has been costly,
dwarfing revenue. The company`s warned it may never be profitable.

Twitter is adding users at a slower pace and could have a hard time
getting them to interact with ad content. More than half of Twitter users
don`t do that, a recent poll showed. Newer users could be put off by
advertising, which makes up nearly all of Twitter`s earnings. Not to
mention competition for ad dollars is fierce.

Facebook (NASDAQ:FB), Yelp, LinkedIn (NYSE:LNKD), all fighting for
lucrative deals. Critics say it could be an uphill climb for Twitter,
who`s business model is yet unproven.

to make some very significant changes to their features in order to be
profitable and we don`t really know yet how the community around Twitter is
going to respond to that.

TAUSCHE: Old text bringing a fight over intellectual property. IBM
sued over three patents and lawsuits add up as users tweet out copyrighted

(on camera): Some risks are less straightforward. Bad Internet
service could kick users off. It`s ranking in Apple`s App Store could mean
fewer mobile downloads. And the perception of how Twitter measures its
success could cause concern. In other words, are the company`s timeline
views the eyeballs from high flying the early odds?

(voice-over): Stephan Paternot, former CEO of casualty, says
times have changed.

individual companies that have really stood the test of time, are
generating major revenues, have massive multi-hundred million user bases.
And I think that that changes things.

TAUSCHE: Wall Street meanwhile has high expectations. There are more
orders than shares to go around. Twitter may price above an increased
price range, $2 billion and valued at more than 17 billion. Analysts say
the stock could sore, a high prize for a high risk.



MATHISEN: Michael Kors reports a strong quarter and that`s where we
begin tonight`s “Market Focus.” The fashion retailer boasted better than
expected earnings and revenue, ahead of the crucial holiday shopping
season. The company also upped its guidance for the year and announced
plans to open 100 more stores next year. The stock popped almost 6
percent, to $79.13.

And AOL`s net income dropped a whopping 90 percent from a year ago
because of restructuring and write-downs related to its patch unit. But
revenues were strong, as ad sales grew, and that`s what investors focused
on. The stock up 8 1/2 percent today, to $42.02.

HERERA: But shares of Orbitz took a nosedive after that company posted
an earnings miss ahead of the busy travel season. The online travel site`s
profits didn`t meet estimates and it lowered the full year forecast.
Revenue jumped 11 percent but that didn`t seem to impress investors. The
stock tumbled nearly 20 percent, to finish at $7.69.

Shares of GT Advanced Technology surged on news with a deal with Apple
(NASDAQ:AAPL). That company struck a multi-year agreement to supply Apple
(NASDAQ:AAPL) with sapphire material. Apple (NASDAQ:AAPL) uses sapphire
crystals in its finger reader for the iPhone 5s.

GT rose more than 20 percent to finish at $10.10.

Tesla reporting an earnings beat after the bell, but the shares
initially dropped in the after hours session. The electric carmaker run by
Elon Musk delivered only 5,500 Model S cars and its fourth quarter outlook
came in lower than analysts were looking for. That`s what investors
focused on. After the close, the stock ended the regular session up a
fraction, to $176.81.

MATHISEN: Bailed out insurance giant AIG says it may file a lawsuit
against Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) over $3.7 billion in
mortgage backed securities it bought from the investment bank ahead of the
financial crisis. Now, both companies have been trying to settle the
dispute outside of court, but regulatory filings show a lawsuit from AIG
may be coming soon.

HERERA: Talks between another major bank, JPMorgan (NYSE:JPM) Chase
and the Justice Department over the sale of risky mortgage bonds during the
housing boom appears to be back on again. Disagreements over a $13 billion
settlement between JPMorgan (NYSE:JPM) and the government hit a snag last
week over a separate multibillion-dollar settlement, the bank previously
reached with Fannie May and Freddie Mac.

MATHISEN: Well, it`s been a lucrative week already for the Justice
Department. Yesterday alone, it announced agreements under which Johnson &
Johnson (NYSE:JNJ) and the hedge fund SAC Capital would pay a total of $4
billion to settle long-running criminal investigations. But the government
didn`t charge any individuals in either case and that has some in the world
of business and law questioning whether companies can commit crimes if
their executives don`t.

James Stewart, columnist at “The New York Times (NYSE:NYT)” weighed
into that debate today and he joins us now.

Jim, welcome. Good as always to see you.

JAMES STEWART, THE NEW YORK TIMES: Thanks, Tyler. Good to be here.

MATHISEN: Can you have criminality on a corporate level if you don`t
have criminals?

STEWART: Well, definitely can. I mean, corporations are collections
of people, and sometimes they can act together to commit a crime in a way
that any individual might somehow escape the requirements.

It seems paradoxical but they are collections of people. They are
treated as people. They have freedom of speech. They can enter into
contracts and they can commit crimes.

HERERA: You know, Jim, it seems as though the SAC case seems to be a
little bit different than, say, cases in the past because, as you panned in
your article, you know, Steven Cohen was SAC and is SAC Capital.


HERERA: So, it`s almost as though, as you quoted one professor, the
alleged villain basically also is the same as the company.

STEWART: Right, that`s an important point since 100 percent of SAC
was owned by Steven A. Cohen. And he`s the head of the company. He is —
the fines of $1.1 billion and $600 million, they are coming out of his net
worth. And that`s significant, although he`s still going to be a

You look at Johnson & Johnson (NYSE:JNJ). You look at the
investigation of JPMorgan (NYSE:JPM), these are public companies and these
become more difficult cases because people say, well, wait a minute, the
shareholders are the ones paying these fines and they didn`t know anything
about it, they didn`t do anything wrong. Why should they have to suffer?

And that`s a legitimate question that the Justice Department has to
consider when they decide whether to go after these companies.

MATHISEN: So, let`s take the case of Johnson & Johnson (NYSE:JNJ),
which is going to settle for $2.2 billion and let`s look at JPMorgan
(NYSE:JPM) Chase which may or may not admit criminal wrongdoing and pay up
to $13 billion. The CEOs of neither of those companies have not been
charged, but a separate matter it would seem would be whether those CEOs
have some corporate responsibility and should pay with their jobs.

Where do you come down on that?

STEWART: Well, it depends on the facts on each case. You know, the
CEOs always say, well, the buck stops here. But the buck stopping there
usually means, as has happened to JPMorgan (NYSE:JPM), I`m not as familiar
with Johnson & Johnson (NYSE:JNJ), but they stepped in and they fire some
people lower down the chain, sometimes, they`re way down the chain. And
the upper level people continue to draw their salaries and bonuses.

Now, Jamie Dimon did take a pay cut. He has at least gone
symbolically through mea culpa over these incidents and ultimately it`s up
to the board to decide if they have to go farther.

I think the interesting case was the head of UBS after it wrapped up
similar number of transgressions. Many of them are quite series. The
chief executive was not directly implicated, wasn`t charged with any crime,
but he stepped down. He said, look, the buck stops with me. I take
responsibility. I`m resigning.

Was he pressured by the board? I don`t know. But at least there was
public accountability.

But it has to be decided on a case by case basis. It depends on the
seriousness of the offense. Was it tolerated? Was there knowledge of it?
And what`s the best way to prevent it in the future?

HERERA: At the very least, if the fine is hefty enough, as in the
case of SAC or in any other cases, it certainly does send a message, kind
of chill through corporate America, does it not?

STEWART: Well, part of the whole point of this is to detour others.
And I think the SAC case is a great example, hedge fund people, money
managers, they look at those dollar signs. They don`t want to see it
happen to them. I think it will probably have a very variable deterrent

And even with the shareholders. They say, well, you know, they don`t
deserve to pay this. But if they are having to sacrifice earnings from
gains on the stock, in theory, they may pressure the board to hold people
accountable and if necessary to remove CEOs in the case.

That at least is how shareholder democracy is supposed to work. Does
it very often? Probably not. But that`s the theory.

MATHISEN: Jim Stewart, always great to see you.

STEWART: Good to be with you.

MATHISEN: Jim Stewart, columnist for “The New York Times (NYSE:NYT).”

HERERA: And still ahead, what`s at stake for consumers and big
businesses if Washington becomes the first state to require all genetically
modified foods to be labeled?


MATHISEN: President Obama met with the chef executives of some of the
nation`s biggest companies today, pushing the benefits of immigration
reform. The president told the CEOs of Visa (NYSE:V), Bank of America
(NYSE:BAC), and other firms about the economic benefits of legislation that
has already passed in the Senate, but is facing a tough challenge in the
Republican controlled House.


bipartisan bill that already passed would grow the economy by $1.4 trillion
above and beyond the growth that`s already taken place. We know it will
reduce our deficit by $850 billion.


MATHISEN: The president says the Senate-passed bill would secure the
nation`s borders and provide a road to citizenship for 11 million
immigrants already in the U.S. but who had initially entered illegally.

HERERA: The White House is asking some other CEOs to explain why some
American`s health insurance plans have been canceled. President Obama`s
chief of staff met with the chief executives of some of the nation`s
largest health insurers today, getting their in put on the trouble-plagued market place, and urging them to explain cancellations
notices sent to some customers signing up for new plans on state and
federal Web sites.

MATHISEN: Meantime, at a state Senate committee hearing today on the
botched rollout of the federal health care Web site, Marilyn Tavenner, the
head of the Centers for Medicare and Medicaid Services which controls, says information on the number of enrollees will be
released next week.


SEN. LAMAR ALEXANDER (R), TENNESSEE: If we can know how many
hamburgers and cars and records are being sold every day, how — why can`t
we know how many people are enrolling in Obamacare? If it`s such a
success, wouldn`t that promote the success of the program, build confidence
in it?

We`ll have that information next week.

ALEXANDER: But that`s once. I mean, why don`t we know it every day?


MATHISEN: But next week, as Senator Alexander suggested, may not be
soon enough for some on the Hill. The House Ways and Means Committee
chairman subpoenaed CMS, asking for all data the agency has on enrollment
by the close of business Friday.

HERERA: It is Election Day, and in Washington state, a controversial
ballot initiative has caused a multimillion dollar food fight over the
labeling of genetically modified foods.

Jane Wells is in Seattle with the story.


Americans are crazy about labels, and in Washington state, they are
spending crazy amounts of money to take food labels to the next level.

UNIDENTIFIED FEMALE: I believe people have a right to know what`s in
their food.

WELLS: Air waves are inundated with ads from supporters and opponents
of I-522, which if approved by voters would be the first law in the nation
mandating special labels on many foods containing genetically engineered

claims in those ads pushing I-522 are very misleading.

WELLS: Thirty million dollars has been spent on 522, a state record,
with opponents outspending supporters 3-2, opponents like Monsanto
(NYSE:MON), Pepsi and Kellogg (NYSE:K). They claim there is no proof GMO
foods cause harm and a label will drive up grocery bills.

brought as an attack on our family farmers here in Washington. And it`s a
recycled initiative that came from California, that California voters
rejected a year ago.

really fought labeling every step of the way. They fought nutritional and
ingredient labeling list. They fought whether, you know, to label farm
raised salmon. And this is important information that consumers deserve.

WELLS: Critics also say many foods will be exempt from labeling.

(on camera): The new law would label meat from genetically labeled
animals. Now, there`s currently no such meat on the consumer market right
now. What it would not do is label meat from genetically engineered feed.

the world when this was filed, not one country in the world required
labeling for genetically engineered livestock feed. And when you`ll eat a
corn chip or I eat a corn chip that`s genetically engineered, we are not
genetically engineered.

WELLS (voice-over): 522 is leading in public opinion polls, but not
by much, making it one race considered too close to call. But voters agree
on one thing.

UNIDENTIFIED MALE: And it won`t cost you a dime.

WELLS: They are sick of hearing about it.

UNIDENTIFIED FEMALE: It`s a lot of money going into a big waste bin.

UNIDENTIFIED FEMALE: Man, there`s just too many of them.



MATHISEN: And, finally tonight, an update on a story we told you
about last night, the kick off to the busy fall auction season at
Christie`s in New York City, which included a few Picasso`s. But it turns
out the bidding was a bit of bust.

Of the 62 works of art up for sale from the private collection of a
Swiss dealer, 17 of them were left unsold and the total take for the night
was $92 million, far short of the $147 million on the low-end of estimates.

HERERA: So you can get the Balloon Dog —

MATHISEN: I want the Balloon Dog — but I`m worried about the lawn.
You know, dogs and lawns, you know —

HERERA: That doesn`t mix.

MATHISEN: Balloon dogs. All right.

HERERA: That does it for us tonight on NIGHTLY BUSINESS REPORT. I`m
Sue Herrera. Thanks for joining us.

MATHISEN: And 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
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