Transcript: Wednesday, November 6, 2013

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

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Up, up and away. The Dow hits a record but as stocks trend higher, how should long-term investors be positioned?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Heating up. Solar stocks are surging, logging gains of 100 percent, 400 percent, even 700 percent this year. But could the fast and furious run-up reverse course just as quickly?

HERERA: Game changer. Crude prices are tumbling and whether that continues depends on talks taking place half a world away.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, November 6th.

Good evening, everybody. I’m Sue Herrera, in tonight for Susie Gharib.

MATHISEN: And I’m Tyler Mathisen. Welcome, everyone.

Well, all the talk today may have been about soon-to-debut Twitter but once again the Dow proved it’s not a quitter. Another all-time closing high for the blue chip barometer, its 33rd of the year, more than a month’s worth of closing highs. There was little economic news to drive stocks today, but some positive data out of Europe didn’t hurt. Nice gains in Dow component Microsoft helped too.

It was a different story, though, over at NASDAQ. Selective tech shares feel pressure, and the electric car maker Tesla, a NASDAQ company, fell nearly 15 percent after yesterday’s earnings report and forecast.

Here is a look at today’s closing numbers: the Dow up 128 points, ending the day at 15,746. The NASDAQ lost about eight points. And the S&P 500 was up seven — now, just one point away from its own record closing high.

Well, with the Dow at a record, what’s the one thing that could derail the rally? We will ask top market strategist Joe Duran what concerns him the most, later in the program.

HERERA: It’s almost here, the initial public stock offering for Twitter. The most highly anticipated IPO of the year and a micro-blogging service will price the shares tonight ahead of tomorrow’s debut. Estimates right now call for a share price as high as $7 a piece. That’s above the range of $23 to $25 and that was already raised from earlier estimates just days ago.

Twitter, which has yet to turn a profit, currently makes its money from advertisements. But anxious investors are asking, how will the service raise more revenue in the future and what’s next in Twitter’s pipeline?

Julia Boorstin takes a look.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The fact that Twitter’s core business add is potential to sale stuff not when shoppers shop later but right in the moment on Twitter. On August, Twitter hired former Ticketmaster CEO Nathan Hubbard as its first ever head of commerce.

Twitter could use information about users’ location and interest to offer products ordeals. The big leap will come when Twitter allows users to link a credit card to their account for one click purchases within Twitter. You can say buy a pizza from Papa John’s or donate to, say, the Red Cross.

Twitter could take a cut from transactions which would allow hotels to offer empty rooms, concerts to sell tickets or restaurants to sale tables.

ARVIND BHATIA, STERNE AGEE MANAGING DIR. & SR. ANALYST: Of course, advertisers could make it a little bit easier for people to transact. That could be another one. But that I think again, needs a larger base and I think, you know, that needs to be developed.

BOORSTIN: This would be a streamline version of Twitter and Amex Sync partnership which links credit cards to Twitter profiles, enabling people to tweet to purchase. Twitter could also partner with companies like eBay, Etsy or Amazon to link accounts to enable purchases without inputting new credit card information.

Commerce isn’t the only way we expect Twitter to branch out and grow its business. Many say Twitter will start earning more from licensing its data. But the easiest way that company can ramp up revenue is overseas, three quarters of its traffic was international in the third quarter, but that only generated a third of the company’s revenue.

BHATIA: The biggest opportunity right now for them is to monetize internationally within — you know, for advertising. They only have half a percent of the worldwide market share. So, a big, big opportunity.

BOORSTIN: And Twitter’s purchase of mobile-focused ad exchange MoPub in September will allow Twitter to improve its ads with real-time bidding, and improved targeting. While it grows revenue from MoPub separate business of serving ads across the mobile web.

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

(END VIDEOTAPE)

HERERA: And to read more about the future of Twitter, head to NBR.com.

MATHISEN: Well, it took long enough but shares of Microsoft, which we mentioned earlier, today rose to their highest level since the year 2000. Not saying but I’m just saying that was the go, go period right before the tech bubble burst. Shares shot up more than 4 percent today just as the software giant has reportedly narrowed its search for a new CEO to five candidates. Those names include Ford Chief Alan Mulally and several company insiders, most notably Steven Elop who headed up Nokia’s smartphone unit, which Microsoft agreed to buy earlier this year.

HERERA: One of the sectors benefitting from the recent run-up in the markets has been the makers of solar energy panels. One of the biggest, Solar City, reported its latest quarterly earnings after the bell. Revenues shot up 52 percent as it reversed a year ago loss, netting a profit of $3.4 million.

Shares of the photovoltaic cell maker and installer are up an astounding 400 percent just this year.

So, what’s driving the foreign prices on solar stocks and should you put your money into them?

Jackie DeAngelis has more.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Solar stocks, year to date, they have been great performers but will they continue to be shining stars? Solar City up roughly 400 percent, First Solar up roughly 100 percent, Canadian Solar up a whopping 700 percent.

But some analysts think these stocks look a little frothy. Solar Energy is a commodity business after all, profit margins are cyclical and while they picked up, there will be a time when they come back down. But that doesn’t mean there aren’t bright spots in the space. The Chinese solar names performed particularly well.

UNIDENTIFIED MALE: Partly, it’s because they did get extremely beaten down in 2011, 2012 and it is true that margins have improved and volumes have generally picked up partly because the Chinese government is pushing solar demand in a very big way.
DEANGELIS: U.S.-based companies could see growth domestically as states provide special incentive, but these companies have another advantage.

UNIDENTIFIED MALE: For many of the companies, it is an international market. Certainly, U.S. exposure is important and the U.S. solar market does have room to grow.

DEANGELIS (on camera): Part of the big picture is consolidation. It’s not just larger solar players shopping for smaller ones. It’s also strategic players, looking to get in the space.

UNIDENTIFIED MALE: Who might be next as a target for the large strategics and a good example, I think would be a company like Advanced Energy Industries. The nice thing about solar inverters is unlike the panel manufacturers, this is actually a much less commoditized business.

DEANGELIS (voice-over): The bottom line: the bar is high for these companies and sometimes good results aren’t enough to keep the stocks moving up.

While these are high beta, sexy equities, the fire behind them just might burn out.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: Well, after housing, strong auto sales and manufacturing has been a lynch pin of the U.S. economic recovery. And one company that has benefitted greatly from higher sales, world’s top selling automaker, Toyota. Profits skyrocketed 70 percent last quarter on cost cuts, a weaker Japanese yen and solid sales in the U.S., which offset weaker sales last year.

Phil LeBeau covers the auto industry for us and he joins us now from Detroit with more.

Phil, let’s talk about the numbers last quarter from Toyota. How much was due to sales and how much to the weaker yen?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oh, the yen was the big contributor, Tyler, when you look how much the weaker yen contributed to the global sales profit, it was a 16 percent increase last quarter alone. And for a long time, the CEO Akio Toyoda has said, listen, I need a weaker yen because we’re exporting about 35 percent of our production around the world and that also include Japanese sales. So, the yen was a huge factor.

HERERA: You know, Toyota raised its North American sales target, but it’s still running number two to Ford. Might it ever pass Ford again?

LEBEAU: It’s not going to happen soon, mainly because Ford is benefitting from stronger pickup truck sales, the F-series the best in the world, and you also have the SUV market that’s so strong right now. While Toyota has improved, Sue, Ford is going to be in that number two spot for the foreseeable future.

MATHISEN: How about the race to be the world’s largest automaker. Toyota is it now. But can GM catch it?

LEBEAU: It’s not going to happen this year or next year Tyler. It could happen in a few years, and here’s the reason why — Toyota continues to struggle in China because of the relationship between China and Japan. All the Japanese automakers have struggled in China and that’s the fastest growing market in the world when you look at the large market, number one, and that’s where GM is really picking up ground on Toyota. It’s not going to happen soon but it could happen a few years down the road.

HERERA: All right. Phil, thanks a million, as always. Appreciate it.

LEBEAU: You bet.

HERERA: Phil LeBeau.

Still ahead, after a number of ballot initiatives, Americans are once again talking about the minimum wage and what raising it could mean for businesses, consumers, and the economy.

(MUSIC)

HERERA: Now, an update on a story we told you about yesterday. Voters in Washington state rejected a ballot measure that would require the mandatory labeling of genetically modified foods. Early polling had showed wide support for that initiative but a flood of advertising on TV and radio financed by the food industry and the biotech companies may have helped persuade people to vote that measure down.

MATHISEN: Well, another hot button issue on ballots on several states on Election Day involved raising the minimum wage above the current standard of $7.25 an hour. Now, depending on your point of view, that may be or may not be good for workers.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Voters in a small city in Washington have just approved a $15 minimum wage an hour. Sixty-three hundred workers in and around Seattle Tacoma International Airport are due for a big pay raise, the first step in a push by organized labor to go national.

SERGIO SALINAS, SERVICE EMPLOYEES INTERNATIONAL UNIONS: People will finally be able to make ends meet without having to work two or three jobs, with a decent pay, decent benefits. So, it’s a great victory not just for the workers for the airport but for this community here.

PEARSON: In New Jersey, the only thing more popular with voters in the reelection of Chris Christie was a 61 percent vote approving a constitutional amendment to raise the state’s minimum wage to $8.25 an hour starting in January.

California is the first state to commit to a $10 an hour minimum wage by 2016 under a bill signed into law by Governor Jerry Brown in September. Economists say what all three states have in common is a large number of low-age workers and the high cost of living.

JARED BERNSTEIN, CENTER ON BUDGET AND POLICY PRIORITIES: Folks at the bottom of the pay scale have been left behind. You have to do something to reconnect their labor, their work, they are trying to get ahead to economic growth because it’s not happening the way it used to.

PEARSON: Nineteen states and the District of Colombia have a minimum wage that is higher than the $7.25 an hour federal law.

Business groups are fighting back. From the U.S. Chamber of Commerce, quote, “Any discussion about raising the minimum wage needs to recognize small employers often have to operate under slim profit margins and will have the hardest time absorbing these higher labor costs.”

JAMES SHERK, HERITAGE FOUNDATION: Good intentions can’t repeal the laws of economics. When you raise the cost of anything, be it fuel, and energy or be it inexperienced labor, businesses and consumers buy less of it. Raising the minimum wage is going to mean there is fewer jobs for inexperienced and unskilled workers to take.

PEARSON (voice-over): By the time the 2014 elections roll around, there could be minimum wage proposals on the ballots of at least eight more states.

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

(END VIDEOTAPE)

HERERA: Another heated hearing on Capitol Hill over the botched rollout of the Affordable Care Act’s Healthcare.gov Web site. Kathleen Sebelius told a Senate committee after hundreds of fixes have already been made, the Web site still needs repairs but said it should not be taken offline until the fixes are complete.

(BEGIN VIDEO CLIP)

KATHLEEN SEBELIUS, HEALTH AND HUMAN SERVICES SECRETARY: Delaying the Affordable Care Act wouldn’t delay people’s cancer, or diabetes, or Parkinson. It didn’t delay the need for mental health services, or cholesterol screenings, or prenatal care. For millions of Americans, delay is not an option.

(END VIDEO CLIP)

HERERA: Senate Finance Committee Chairman Max Baucus warned Sebelius that lawmakers don’t want to wake up at the end of November and find out, as he put it, we’re not there yet.

MATHISEN: Meantime, we’ve now gotten the first casualty of the officials behind the troubled plague health insurance marketplace Web site. Today, the Centers for Medicare and Medicaid Services, which operates the federal exchange, announced that Tony Trenkle, chief information officer at the CMS will leave later this month and head to the private sector.

HERERA: Expenses from the new health exchanges caused a sharp drop in Humana’s profits and that’s where we begin tonight’s market focus.

The insurer beat revenue and profit estimates for the quarter, but posted a decline in earnings, and is lowering its 2014 profit outlook because of lower than expected enrollment from the exchanges. But the weak outlook didn’t weigh on the stock. It popped 2 percent to $95.87.

Whole Foods Market says sales growth is slowing, same store sales rose 6 percent in the fourth quarter but that was the slowest pace of the year. The largest U.S. natural and organic grocery chain is also lowering its sales forecast for fiscal 2014. The news caused an initial drop in the stock after the bell. Whole Foods finished the regulation session, though, higher to $64.47.

And Ralph Lauren beating expectations and upped its full year forecast, the sales forecast, on the expectation of a strong holiday season. The luxury retailer said business was strongest at its Ralph Lauren stores and it’s raised its dividend as well. The shares rose more than 5 percent to $180.52.

MATHISEN: And sticking with fashion, shares of Abercrombie and Fitch had plummeted since reporting an earnings missed late yesterday. The struggling retailer posted a 14 percent dropped in same store sales and blamed the shortcomings on weak spending among young shoppers. And as if the news wasn’t bad enough, the chain also posted a weak outlook ahead of the crucial holiday season. The stock off 13.5 percent to $33.13.

Chesapeake Energy announced the cut in oil production for the fourth quarter, causing shares to drop. The country’s number two natural gas producer met profit estimates and topped revenue forecast but the beat was overshadowed by the company’s weak outlook. The stock fell nearly 7 percent to $26.23.

And Halliburton will hike its quarterly dividend by 20 percent to 15 cents a share. The CEO of the world’s second largest oil field services company said Halliburton anticipates buying more stock and is raising its dividend more frequently. The stock popped more than 2 percent, $54.40 the close there.

Barracuda Network soared in its Wall Street debut today. The data storage and security company raised about $75 million, pricing more than 4 million shares. The CEO says Barracuda’s business model is promising.

(BEGIN VIDEO CLIP)

BJ JENKINS, BARRACUDA NETWORK’S CEO: We’ve been cash flow positive since the three months after our three co-founders founded the business. We had a healthy balance sheet. As more customers leverage our Cloud infrastructure, the subscription nature of the business grows. We believe we can expand margins overtime.

(END VIDEO CLIP)

MATHISEN: And the stocks surged to almost 20 percent, to $21.55.

HERERA: So, joining us now to talk more about today’s surging market and what this push higher means for you and your money is Joe Duran. He’s CEO of United Capital Financial Advisors.

Good to see you, Joe. Welcome.

JOE DURAN, UNITED CAPITAL FINANCIAL ADVISORS: Good to see you again.

HERERA: You know, it’s been a very good year, and I think that’s an understatement, for stocks and it doesn’t seem as though things are slowing down any time soon, given what we’re seeing in the markets today especially.

How do you feel about it, and how much further do you think we have to do?

DURAN: I think there is very little reason to not see it go higher, except for one thing. What I’m seeing is a big reduction in the amount of risks the people are concerned about and I always worry about that. You actually make the most money when people are most afraid and have the highest risk when people are least afraid and what we’re seeing right now is very typical of a melt up, which is ignoring fundamentals, like the fact that most of the earnings growth is not coming from revenue growth and what we are seeing is multiples expanding significantly faster than earnings.

And that is a concern that I think what the Fed has said if there is weakness, we’re going to give you more money and as soon as that happened, it’s basically removed a lot of concern for individuals, and so I think that the more we go without a little pull back or settling in, the higher the risk is that the pull back will be meaningful. So, people are being lulled into a complacent state, which is always a little bit dangerous.

MATHISEN: I sense from what you’re saying there, what you just said, and sort of reading between your words, that you are concerned that this market is too highly priced, too rich right now to be shoving chips on the table.

DURAN: Yes, I think the S&P will be higher by year end —

MATHISEN: By how much?

DURAN: And what we typically see after a big, strong year like we’re having now, especially because we have some head winds because people look at their investments, the prior year, and typically then reinvest their 401(k)s more aggressively.

So, I think it’s very hard to see a reason why the market would go down from here to April if the government doesn’t create more shenanigans in January and February.

MATHISEN: I won’t hold you to it, Joe, but how much higher do you think the S&P could run by the end of the year?

DURAN: I don’t think a lot. I think, you know, we could be around 1,800 or so, a couple percent. But I think there will be noise in there and, again, as long as the Fed is supportive and my concern is what happens afterward because we’re not seeing the overall growth and since we take our people’s entire net worth, we tend to lean on the more cautious side of things.

HERERA: Right. You mentioned Washington briefly and for a lot of the people that we talked to, one of the concerns is the fact we’re going to relive some of the issues that we saw just a short while ago in Washington, that there is still this dysfunction in Washington. Could that be the type of external shock that would trigger a market sell off?

DURAN: Yes. It’s — I don’t know that’s necessarily one because I think we can all bet that they’re not going to do anything until again we’re at the deadline. I think that it’s actually something probably that we’re not expecting. We never really predict exactly where these surprises are going to come, but we know the less we expect the more likely to come. It could come from surprise in the international markets to something happening in China, to a currency challenge that could occur that nobody is expecting.

So, right now, what we’re seeing is the individual investors adding money meaningful into stocks. That’s not always a good sign, unfortunately. So, for now, yes, I think we’re going to have turbulence in the beginning of the year, when they do all saber-rattling.

But the Fed has said, we don’t really care what the government does. We’re going to support this market, and that basically m plies they are not going to be doing anything for quite a long time —

MATHISEN: So very quickly, if people are putting money to work, where should they put it to work intelligently — growth and value or value and if so, which? Quickly.

DURAN: For me, growth, because you want companies that are growing their revenues (a), and (b), companies generate revenues internationally, the emerging markets, the international markets, they have a lot more growth to come and they haven’t had the run-up we had. So, emerging markets and international, quite interesting here.

HERERA: Joe, thank you so much.

DURAN: Thank you very much.

HERERA: Joe Duran, CEO of United Capital Financial Advisors.

MATHISEN: And coming up talks with Iran over its nuclear program resume tomorrow. Why this could be a pivotal moment for the global oil markets.

(MUSIC)

HERERA: A set back in the U.S. labor market, planned layoffs spiked by more than 13 percent higher during the month of October. That’s according to outplacement firm, Challenger Gray and Christmas. The industries affected most by the nearly 48,000 announced cuts are pharmaceutical companies most notably Merck and financial firms as banks originated fewer new home mortgages.

MATHISEN: In the meantime, applications for new mortgages fell again last week. The mortgage bankers association says applications for refinancings and new home loans fell 7 percent reversing the gains made the week prior as interest rates inched higher. Crude oil prices posted the biggest gains in five weeks today up 1.5 percent, what a surprise drop in U.S. oil and gasoline inventory this week. Crude rebounded from four-month lows but closed below 94 bucks a barrel.

HERERA: A new round of nuclear talks between Iran and Western nations starts Thursday in Geneva. Iran’s top negotiator says it is possible there could be a preliminary deal as early as this week.

Sharon Epperson takes a look at the potential impact this might have on the price of oil and on U.S. consumers.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): One of several factors contributing to the sharp drop in global oil prices in recent months has been optimism about reaching a deal over Iran’s nuclear capabilities. Fears the country is developing nuclear weapons has kept the international benchmark price for oil above $100 a barrel for almost three years.

ADDISON ARMSTRONG, TRADITION ENERGY DIR. OF MARKET RESEARCH: There is a $10 to $15 risk premium in the price of oil and it’s been there for quite awhile, just related to what’s going on with Iran and its nuclear program and the West reaction to it.

So, anything — any progress they make to take away some of that concern about Iran, helps to lower the price of oil.

EPPERSON: Since late August, crude prices, the oil benchmark tumbled more than $10 from $117 a barrel to just over $105 this week. International sanctions aimed at curbing Iran’s nuclear program have cut in half the country’s oil exports, which topped 2 million barrels at the beginning of 2012. But for moderate leadership from Iran’s new president, Hassan Rouhani, who took office in August, has eased tensions and raised expectations that sanctions may be rolled back.

On Thursday, Iranian negotiators began another round of talks in Geneva, with leaders from six world powers, known as the P5-Plus-One.

(on camera): If negotiations are successful and sanctions are lifted, about 1 million barrels per day of Iranian crude oil may soon be back on the market. If that happens, global oil prices may drop as much as $15 a barrel, but that’s a big if.

KEVIN BOOK, CLEARVIEW ENERGY PARTNERS MANAGING DIRECTOR: We get slightly better than average odds from agreement to principle right now. What we’re seeing is an unprecedented enthusiasm on the part of the U.S. government taking steps that haven’t been taken in more than three decades.

EPPERSON (voice-over): If the outcome fails to result in a concrete deal, some traders say the slide in oil prices is also likely to continue.

ANTHONY GRISANTI, GRZ ENERGY: Fundamentally, the oil market is weak, to begin with, and we’re a wash in this country and around the world. So, I’m looking to short it anyway, and adding Iranian oil to market only makes crude oil weaker from where we are right now.

EPPERSON: And lower oil prices are benefitting American consumers. Gasoline prices on average have plunged 25 cents a gallon since September. At $3.23, the national average is at the lowest price of the year.

For NIGHTLY BUSINESS REPORT, I’m Sharon Epperson.

(END VIDEOTAPE)

MATHISEN: And finally tonight, it’s the end of an era. Ten years ago, Blockbuster stores were practically everywhere. They were the place to go to rent the hottest movies just out on VHS, remember those? Or DVD, or the latest must-have video games for kids. Not anymore, Blockbuster’s owner, the Dish Network, announced today that it will close the last of its remaining 300 stores in the U.S. and shut down its DVD by mail service.

HERERA: I remember those days.

MATHISEN: Oh, sure. You could go there every weekend.

HERERA: Absolutely.

That’s it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herrera. Thanks for joining us.

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

END

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