Transcript: Monday, November 18, 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: Fork in the road? The
Dow and S&P hit levels never seen before. But they couldn`t hold on. Now,
investors wonder if this year`s big run-up might soon hit a roadblock.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tougher rules?
First, the banks, then the insurance company. Now, an arm of the Treasury
is looking into tighter regulation of mutual funds, and it could impact
many of the companies you likely invest with.

GHARIB: And mission critical. America`s cities fund a big chunk of
our economy, but many find themselves in a financial bind. Tonight, we
begin our five-part series in Oakland, California, to see how that city is
trying to fix itself.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for this
Monday, November 18th.

MATHISEN: Good evening, everybody, and welcome.

It wasn`t easy and it wasn`t smooth. But the Dow closed at another
all-time high today, its 39th of the year. But perhaps equally notable —
the Dow crossed the 16,000 mark for the first time ever, and the S&P scored
its own first, piercing 1,800. Neither index held those levels long,
though.

Stocks got a lift following encouraging comments earlier today by
William Dudley. He`s the president of the New York Federal Reserve Bank.
Dudley says economic growth will strengthen next year and build even more
in 2015. The jobs pictures should improve, he says, and so should consumer
spending.

But late in the trading day, a wet blanket got tossed, and it came
from none other than activist investor Carl Icahn. He told a “Reuters”
summit that he`s, quote, “very cautious” on equities right now, calling
some companies` earnings a mirage and says the market could easily have
what he calls a big drop. Well, it wasn`t big, but the number did drop
after that.

Here`s a look at the final numbers for the day: the Dow surged as much
as 67 points higher initially, finally closing up 14, good for that fresh
record. The NASDAQ fell 37 points, dragged down by slumping shares of
Apple (NASDAQ:AAPL). The S&P was off six.

So, why are some market players like Icahn growing very cautious while
others say, “Party on”?

Seema Mody takes a look.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
first trigger? Home sales began around a fresh economic data on Thursday
when we`ll get the October number. If it`s weaker than expected, the
staying power of the housing recovery will be questioned.

Also this week, inflation readings. On Wednesday, it`s a consumer
price index, and on Thursday, producer prices, both expected to remain low.
If not, and inflation is higher than expected, concerns will grow that the
Fed will be more open to scaling back or tapering its monetary support.

Another potential catalyst for a sell-off: earnings. This week, we
hear from the top earners, Home Depot (NYSE:HD), JCPenney, Target
(NYSE:TGT) and Gap (NYSE:GPS). Commentary from management could provide a
window into holiday season expectation, a time when retailers in general do
about 20 percent of their business for the year.

There are also a lot of long-term headwinds, including Europe. It`s
still dealing with deflation and tepid growth, impacting the bottom line of
multinationals in all sectors.

(on camera): And then, there are the valuations. Remember those? As
the market rips through new highs, stocks get more expensive. The momentum
means powering the rally like Netflix (NASDAQ:NFLX), Best Buy (NYSE:BBY),
and Tesla, all up better than 200 percent for the year, can only run so
far. That has some market watchers worried, and some not.

SAVITA SUBRAMANIAN, BANK OF AMERICA MERRILL LYNCH: We still think the
market is attractive valued at these levels. So, new highs are fine, as
long as earnings are continuing to keep up.

MODY (voice-over): However, according to HSBC, valuations in most
markets are slightly above their 10-year averages, prompting some analysts
to disagree with the notion that the market will continue to move higher.

For NIGHTLY BUSINESS REPORT, I`m Seema Mody.

(END VIDEOTAPE)

MATHISEN: It was a good day at Boeing (NYSE:BA), the biggest gainer
in the Dow today with shares climbing one and two thirds percent. The
aerospace giant secured orders for a $100 billion order, that`s a — of
aircraft at the Dubai air show. Most of those orders were for the upcoming
777X jet, and it came from the Mideast carriers. But only after Boeing
(NYSE:BA) inked deals to buy billions in parts and materials from companies
based in Abu Dhabi.

Boeing`s top rival, the European plane maker Airbus locked up $40
billion in new orders.

GHARIB: Meanwhile, Boeing (NYSE:BA) continues to battle with union
workers who built its planes. It`s now negotiating with states outside of
its home base of Seattle to build the company`s new 777X jetliner. The
move comes after union machinist in Washington state voted against the new
contract with Boeing (NYSE:BA), that would have meant reduced benefits and
higher medical costs for union members.

As for Boeing (NYSE:BA), it says it has no plans to reopen talks with
the union.

MATHISEN: JPMorgan (NYSE:JPM) Chase looks to be settling another case
involving bad loans. The nation`s biggest bank has agreed to accept
responsibility for bad mortgage-backed securities sold by Washington
Mutual, which JPMorgan (NYSE:JPM) acquired back in 2008. Terms of this
newest deal cleared the way for a possible $13 billion settlement with the
federal government for civil investigations over WaMu`s failed investments.
But the agreement with the Justice Department is now expected sometime
later this week.

GHARIB: Homebuilder Confidence is holding steady this month,
following two straight months of declines over concerns about the
government shutdown. The National Association of Homebuilders says most of
its members are still optimistic that the housing recovery will continue,
but some are worried that lawmakers will again fail to reach a federal
budget and could shut down the government for a second time early next
year.

MATHISEN: Meantime, new data from the treasury shows that foreign
investors pulled out of short-term U.S. treasuries in September during the
last federal budget battle. Foreigners dumped nearly $107 billion worth of
short term treasury bills in September. And the numbers for August were
revised higher, showing an outflow of nearly $14 billion.

GHARIB: Investors were buying up stocks in China`s markets today.
The Shanghai composite and Hong Kong`s Hang Seng both rose almost 3
percent, following the announcement by Chinese leaders of massive social
and economic reforms, including opening up its markets to more investors,
encouraging competition among private companies and allowing more foreign
investment into the country.

Now, another reform, the easing up on China`s one-child per couple
policy, which officials now say has caused an accelerated aging of China`s
population. And as Eunice Yoon shows us, that`s created an unexpected boom
in investing in the older generation.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): At a
nursing home in Beijing, Zhang Zizhong led the sing-along with his fellow
residents. The 82-year-old is one of a number of senior citizens,
benefiting from a budding industry in China, elderly care.

“Nursing home life is good,” he says, “I feel really safe.”

Due in part to the decades-old one-child policy China is aging faster
than other developing nations. The tradition of children supporting their
parents is breaking down. Pension and health care systems here are ill-
equipped, raising questions about how China will be able to take care of a
rapidly rising number of old people.

FENG WANG, UNIVERSITY OF CALIFORNIA: In the next 20 years, less than
20 years, the number of elderly ages 60 and over will increase over 400
million. That`s larger than the total population of the United States.

YOON: Businesses like Right at Home help to provide some answers.
The company opened offices here two years ago to offer home visits.

ANG LI, RIGHT AT HOME: There is no home care service, so we think the
market is huge.

YOON: Local entrepreneurs are also joining in. Businesswoman Wang
Yun converted a three-star hotel, providing room, board and activities for
roughly $800 a month.

(on camera): People here can visit the doctor 24/7. There`s a
pharmacy and a massage area. And these are just some of the services that
this nursing home hopes will make it more distinctive and an increasingly
competitive industry.

(voice-over): Still, Wang says retirement homes are not as culturally
accepted as in the U.S.

“Sometimes children don`t want their parents to go into nursing
homes,” she says, “sometimes the elderly are reluctant.”

Even so, most businesses expect their investments to fully mature,
along with China`s graying population.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon, in Beijing.

(END VIDEOTAPE)

MATHISEN: Still ahead, bitcoin, you probably heard the term. But how
does this virtual currency really work? And why is Congress holding its
first-ever hearing on the matter.

(MUSIC)

MATHISEN: You may have heard about bitcoin. That`s a virtual
currency that`s been around for about four years but is just now starting
to gain more interests from retailers and from investors. Because of that,
Congress wants to find out more about the digital payment system, whether
it`s secure and if it`s good or bad for consumers.

Mary Thompson was at a house meeting here today in Washington and she
joins us now.

Mary, let`s start with some of the basics. What is bitcoin and how
does it work?

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler,
just as you said, bitcoin is a virtual currency. So, if you`re going to
buy one, you pay cash for bitcoin. You keep it in an online wallet and
then you can use the bitcoins that you have to pay for services and goods
at retailers that accept the bitcoins.

Now, a couple of things are different than let`s say U.S. dollars.
First of all, it`s not backed by a single government or commodity like
gold.

It was also created by an anonymous Japanese programmer who limited
the number of bitcoins that actually can be produced, to about 21 million.
Currently, there are 12 million in circulation and they are produced by
computer solving complex mathematic problems. Once those problems are
solved, they get a couple of more bitcoins that are put into circulation.

And the value of the bitcoin — well, that`s determined on a number of
Internet exchanges around the globe where investors and retailers trade
these digital currencies.

GHARIB: It sounds a little complicated for the individual guy, I
don`t know how Congress, you know, felt about all of this information.

Why are lawmakers looking into the bitcoin?

THOMPSON: Well, there are two reasons. First of all, there is a lot
of hope or promise in these digital currencies, primarily for two reasons,
one, the speed at which you can transact, meaning I can send money from my
online wallet to you in a matter of minutes, possibly without any other
transaction fees that you might find with a credit card or even
transferring money from one bank to another.

Also, there`s expectations that you could bring financial inclusion to
millions of people who don`t have access to a bank or cash but may have
access to a phone where they could store their digital wallet. But, of
course, there are concerns as well in large part because criminals see the
digital currency as their favorite form of money. And as we heard in
testimony today from Edward Lowery of the Department of Homeland Security,
that`s made their — or from Secret Service, actually, that`s made it a lot
tougher trying to track fraud.

Listen in.

(BEGIN VIDEO CLIP)

EDWARD LOWERY, SPECIAL AGENT IN CHARGE, U.S. SECRET SERVICE: One of
the largest changes is the reach, the reach of the criminal, used to be
that we had to worry about back in the days of early access device fraud,
we had had to worry about somebody dumpster diving or trying to get an
actual image of your credit card. Today, anyone in the world can reach
anyone else in the world. And that has changed how we have to enforce our
laws.

(END VIDEO CLIP)

THOMPSON: Point of discussion again in today`s hearing.

MATHISEN: Mary, who is using this? Who`s investing in it? And what
is my risk? In other words, could my bitcoins lose value?

THOMPSON: They certainly could lose value. What we`ve seen is a huge
jump in the value of bitcoin.

It first came to I think the general public`s attention during the
eurozone crisis. A number of investors or consumers in Cyprus were looking
for a place to store their money. Well, basically, they said, they put
their money in bitcoin. The price of bitcoins rocketed.

And since then, we`ve seen investors from China taking a renewed
interest in it. And as retailers from China starting to accept it as a
form of payment, and then investors in the United States, famously, the
Winklevoss twins who were early investors in Facebook (NASDAQ:FB), they
have been proponents of bitcoin.

But more recently, a second market has opened a bitcoin investment
trust. So, we`re seeing global interest in the digital currency. But,
again, if you look at how far it`s climbed, it could easily fall just as
fast, as people start to lose interest in it.

MATHISEN: All right. Mary, thank you very much. Mary Thompson
reporting from the Hill for us tonight.

THOMPSON: Sure.

MATHISEN: And for more on bitcoin and today`s hearings, head to our
Web site, NBR.com.

GHARIB: A boost in chicken and beef sales helped Tyson Foods
(NYSE:TSN) grow profit and that`s where we begin tonight`s “Market Focus”.

Tyson`s net income surged more than 40 percent in the fourth quarter,
earnings in revenue beat investments, and the company raised its dividend
50 percent. That sent shares up more than 2 percent to $29.42.

Salesforce.com (NYSE:CRM) saw quarterly revenue increase, beating
analysts` estimates slightly. The Cloud computing company posted earnings
after the bell that were in line with forecasts and it also issued a mixed
outlook. The stock closed the regular session down 3 percent, closing at
$55.51 and then rose just a bit in after-hours trading.

Also out with earnings after the bell, Urban Outfitters (NASDAQ:URBN).
It reported a record third quarter, beating both earnings and revenue
estimates. Quarterly profit increased 18 percent and it was driven by
strong growth, thanks to its Anthropologie and Free People retail chains.
The stocks rose in after hours. Shares finished the regular session down 1
percent to $39.64.

MATHISEN: Supervalu was hit with a downgrade today from Goldman Sachs
(NYSE:GS). And that sent shares of the grocery chain way down. Goldman
lowered its ratings to a sell because of headwinds such as recent food
stamps and increased competition in the grocery business. The stock off
almost 9 percent to $6.28.

Bank of America (NYSE:BAC) Merrill Lynch thinks the market is a little
too excited about Microsoft`s CEO transition. An analyst downgraded stock
from neutral to underperform, saying that there could be a 10 percent drop
off in Microsoft (NASDAQ:MSFT) shares if Ford`s Alan Mulally isn`t chosen
as Microsoft`s next CEO. An announcement is expected next month. That
sent shares down of Microsoft (NASDAQ:MSFT) one and a half percent to
$37.20.

The Chinese solar equipment maker JinkoSolar posted a second straight
quarterly profit, sending shares to a three-year high, increased
electricity revenue from solar projects helped the company posts strong
results. JinkoSolar also upped its shipment forecasts. The bright outlook
sent the stock up nearly 13 percent to $33.30.

Sony (NYSE:SNE) sold a million PlayStation 4 consoles in its debut on
Friday. That`s the fastest start for a PlayStation system ever. Sales are
being watched closely since Sony (NYSE:SNE) is depending on the PS4 to
revive its consumer electronics business. Some consumers reported glitches
with the device, but that didn`t spook investors. Shares up 1 percent
today to $18.72.

GHARIB: From Washington, word that the Federal Reserve might decide
to push back the date that banks will have to comply with the so-called
Volcker Rule. It`s an important part of the law that has to do with the
way the Wall Street banks are regulated. The Volcker Rule is designed in
part to prevent future taxpayer funded bailout by prohibiting banks from
investing their own money for profit.

MATHISEN: There maybe some new rules coming to the mutual fund
industry. The government is now considering tougher regulations to protect
investors against another financial crisis.

Our next guest says it could be a big mistake. He is Brian Reid,
chief economist at the Investment Company Institute, the mutual fund
industry`s chief trade group.

We have a statement from the treasury council that put out this study
regarding those rules and I want to read it now, Brian.

“That council is in the early stages of analyzing the asset management
industry and its various activities. As that analysis moves forward, the
council will continue to be informed by the work of the OFR and welcomes
continued engagement with asset managers and other stakeholders from across
the spectrum.” That from the Treasury.

But, Brian, your group and many in the asset management business, from
Blackrock, to Fidelity, to PIMCO, say that the study on which these
potential new rules is based is brutally flawed.

Why is it so bad?

BRIAN REID, ICI CHIEF ECONOMIST: Well, I think the biggest problem
here is that it fundamentally sort of ignores, sort of how the capital
markets and mutual funds and ETFs operate in those markets. If there is a
big chasm between the capital markets and mutual funds and banks on the
other side, and this study just completely tries to paper over that chasm
and not really focused in on the unique features of capital markets and
could really — at the end of the day just turn the capital markets and
mutual funds on their heads.

GHARIB: Well, you know, Brian, investors have been happy that in the
aftermath of the financial crisis, that there were new safeguards put in
for banking, new regulations, the same for insurance companies. And here
you`ve got the mutual fund industry, it`s a $53 trillion industry with a
lot of players.

Why not this industry, too?

REID: Well, I think the statistic that you cite there is one that
comes from the report, and I think that`s a key example of how the report
sort of fundamentally misunderstands the asset management industry. And
I`ll give you another example, and that is we went through — as you allude
to, the worst financial crisis in 2007, `08, and `09, probably the worst
since the Great Depression.

And in that report, there`s nary a discussion of how funds and fund
investors operate in those markets and how they behave. You know, we saw
outflows to be very minimal. They accounted for — even in October of
2008, the worst month, the outflows from stock funds about equally 4/10 of
a percent of the overall market capitalization. But there`s no discussion
of that in the report.

And so, they make these very broad, sweeping generalizations, and
don`t use the opportunity to look at the natural experiment that occurred
and say, OK, what can we learn?

I think if they had done that, there wouldn`t be the sort of
consternation that you`re observing.

MATHISEN: Yes. But I guess my counter to that, Brian, and I mean it
with all respect, things are not runs on funds until there are. And so,
the mere fact that the investors didn`t panic in 2008, doesn`t mean that at
some point they might panic. That`s number one.

Number two, you know, back to Susie`s point, insurers, even G.E.
capital, companies like Prudential have been designated as systemically
important. You`re not saying that funds aren`t important or big, are you?
You`re saying there is something in the structure in the way funds operate
that inoculates them from the kind of risks that these other big financial
players have?

REID: What is key is that very point, Tyler. I mean, when I invest
in a mutual fund, be it stock or bond fund, I know that I could potentially
experience losses, just as when I invest in bonds or stocks themselves.
But I also have the upside potential.

And what an asset manager does is manages that portfolio. But that
asset manager doesn`t say I`m going to protect you, nor should the
government say I`m going to protect you. I mean, if the government begins
to go down the slippery slope of trying to intercede and interject itself
in the market, it could fundamentally destroy probably of the world`s
largest and most vibrant capital market.

MATHISEN: Brian, let me ask it this way. So, let`s says I`m an
investor in Fidelity, and a bunch of us investors decide, you know, I want
to sell off, I worry about some market event or something like that — are
you saying that other investors in that fund are protected if there is no
ripple effect, there is no impact?

REID: What I`m saying is that those funds are mark to market every
day. Their prices are set with all the other assets in the market. So
that investor is not harmed because they`re getting a new price every day –
– a full market to market price. Unlike when I invest in a bank, that is
staying at $1.

And so, I think the key here is that when I invest in a fund or I
invest in a stock or bond, I know that I could potentially lose money when
the market goes down. But the harm to me is from the market going down.
And that`s what I expect as investor. The markets are going to go up and
down.

MATHISEN: Brian, thank you very much. And we should point out that
we did invite representatives from the Treasury and the financial stability
oversight council to join us this evening. They sent us a statement and
maybe they will join us at another time.

Brian Reid, chief economist at the Investment Company Institute —
thank you.

GHARIB: And coming up on NIGHTLY BUSINESS REPORT, five cities, five
issues in five days. Tonight, we take you to Oakland, California, to see
what that city is doing to fix its badly broken finances.

(MUSIC)

MATHISEN: An update now on the botched rollout of the Affordable Care
Act`s Healthcare.gov Web site. Henry Chao, the top information officer at
the agency overseeing efforts to fix the online marketplace, wrote to
Congress today that the Web site is improving, and says his department, the
Centers for Medicare and Medicaid Services, even hopes to expand the site`s
income subsidy estimation tool.

Chao is slated to update the House Energy and Commerce Subcommittee on
the health care marketplace tomorrow.

GHARIB: Meanwhile, United Healthcare has dropped thousands of doctors
from its network, leaving many elderly patients in the lurch and wondering
if they can still see their long-time physicians. United Health said that
the cutbacks are a result of government under-funding of Medicare Advantage
Plans for the elderly, along with more on money being spent on covering
premiums on medical claims from last quarter.

MATHISEN: And finally tonight, NBR has the first of a week-long
series taking an in-depth look at the top economic issues facing some of
America`s biggest cities, many of which are in a critical situation.

Scott Cohn starts us off tonight from Oakland, California.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Curtis Robinson isn`t your average pastor. Before he took the pulpit at
Oakland`s Faith Baptist Church, he spent more than 20 years as a
stockbroker, his financial background still figures in his work.

REV. CURTIS ROBINSON, FAITH BAPTIST CHURCH: When you`ve got to have a
peaceful neighborhood in order to have economic development.

COHN: Peace comes at a premium in Oakland, with 127 murders last
year, and the highest armed robbery rate in the country.

JEAN QUAN, OAKLAND MAYOR: First of all, we have to have sufficient
resources in our police department.

COHN: Mayor Jean Quan says the city is hiring officers again but the
force is still down by roughly a quarter in the last six years, thanks to
budget cuts. It doesn`t help that about $4 million a year, around 2
percent of the general fund budget, is going not to Oakland but to Goldman
Sachs (NYSE:GS).

QUAN: We have tried to negotiate with Goldman Sachs (NYSE:GS). And I
haven`t totally given up.

COHN: The payments were a result of a 15-year-old swap contract, sold
at the city, to guard against rising interest rates. Trouble is, rates
went down, not up. And the city wants out.

But under the contract, that would cost around $15 million, money that
Oakland doesn`t have.

Curtis Robinson thinks Wall Street took Oakland for a ride.

ROBINSON: Oakland was just outgunned.

COHN: Goldman Sachs (NYSE:GS) declined to comment, but asked about
the deal at last year`s annual shareholders` meeting. CEO Lloyd Blankfein
said it`s not fair to ask Goldman Sachs (NYSE:GS) to tear up a legitimate
contract. That, he said, is not how the financial system works.

(on camera): Oakland is not alone here, and neither is Goldman Sachs
(NYSE:GS). Wall Street sold hundreds of these swap contracts in the city
in 1990s, making millions of dollars. Organized labor says the deals are
costing the city about a billion a year. That`s particularly frustrating
as unions look at cuts in their benefits, and that`s the issue we`ll take
up tomorrow.

We`ll travel to Chicago where a municipal pension crisis is making
Detroit`s problems look like child`s play.

Scott Cohn, NIGHTLY BUSINESS REPORT, Oakland.

(END VIDEOTAPE)

GHARIB: And 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. And we hope to see you back here tomorrow night.

END

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