Transcript: Wednesday, November 20, 2013

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

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Stocks slip. Investors get the jitters on learning what the Federal Reserve officials had been talking about, scaling back on their massive stimulus program in the coming months. That sent stocks lower and bond yields higher.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Turning a corner? JCPenney says sales trends are improving, heading into the critical shopping season. But as the retailer returns to its promotional roots, will those deep discounts take a bite out of its bottom line?

GHARIB: And Miami Vice. The city may look it`s a comeback trail, but dig a little deeper and you`ll find a city at the heart of a nationwide crackdown on the muni bond market.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, November 20th.

Good evening, everyone. I`m Susie Gharib.

GRIFFETH: And I`m Bill Griffeth. Tyler is off tonight.

If there is one thing the markets are concerned about right now, it was revealed today. The Federal Reserve and when the central bank may begin pulling back on its massive stimulus program. The stocks made a U-turn mid session today after minutes from the Fed`s latest policy meeting were released, showing that policymakers could be closer to deciding on when to start scaling back on its bond buying program.

Now, concern that the Fed`s easy money party could soon be ending, that sent the Dow on a 100-point swing to the downside but the sale off did cool in the final hour, and at the end of the day, the Dow was down 66 points, the NASDAQ off by 10 and S&P lower by six. And hints about tapering sent the 10-year treasury note spiking to as high as 2.8 percent today. That`s the highest level we`ve seen in a month.

GHARIB: So what exactly was in those minutes of the Fed`s October meeting and why are policymakers so divided on when to reduce its stimulus program?

Steve Liesman explains.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Minutes of the Fed`s October meeting showing that committee members generally believe the economy will improve enough in coming months to warrant a reduction in stimulus to the economy. Specifically, they could reduce the amount of assets they purchase in the program known as quantitative easing in the next few meetings if the Fed`s forecast for gradually improving economy comes true.

But the Fed is also deeply divided over its communications strategy as it fears that stocks and bonds could sell off sharply when it reduces QE and is trying to convince markets that if it does taper, that does not mean the central bank will raise interest rates any time sooner.

Fed Chairman Ben Bernanke has struggled with the problem for months and there doesn`t seem to be easy answers right now. We also learned the special emergency October 16th meeting the day before the government was supposed to default to discuss what to do if that default happened.

It`s suggested it could take actions to smooth market`s disruptions in the event of a default. As you already saw the economy or the economic effects of the government shutdown is temporary and limited.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GRIFFETH: Well, joining us now to talk more about the Fed and the economy, Bruce Kasman joins us. He`s chief economist to JPMorgan (NYSE:JPM) Chase.

Bruce, always good to see you.

BRUCE KASMAN, JPMORGAN CHASE CHIEF ECONOMIST: Good to be here.

GRIFFETH: Based on what you know about the economy and the data you see — I mean, the Fed seems really divided about when to start the tapering. When do you think it would be appropriate?

KASMAN: Well, I would say conditional on the economic news continuing to play out in a solid fashion. We think the Fed will be tapering in the first quarter. We think the most likely outcome would be a January move.

GHARIB: You know, Bruce, they have said in the past, Fed officials that they were going to have it dependent on when they were going to taper on the unemployment rate, where it would be standing, 6.5 percent or other numbers. Now, it sounds like they might be talking about a calendar date.

Does it matter to you and how would this play out with markets and investors?

KASMAN: I don`t think it`s a calendar date. I think what the Fed has been telling us is that they want to taper. They don`t want to continue to expand the balance sheet in an unlimited fashion, and they want to do it based on their assessment there is solid growth momentum and substantial improvement in the labor market.

There were some fears about that both with the data and also with the concerns about Washington, and also, something we`ve seen as the Fed concerned that the market was linking tapering to rates guidance.

What we`ve had in the last number of weeks is better economic news, strong peer (ph) report, the fears around Washington fading and the markets re-price Fed rate expectations, all of which puts them back on track for tapering if we get good numbers in terms of the labor market at the next one or two reports.

GRIFFETH: But Ben Bernanke is constantly having to defend the Fed for sending what is perceived to be mixed signals. One in the spring, they seem to be setting a timetable. Then they go back to data dependent argument. Now, they`re talking perhaps about changing the benchmarks that they will use to determine when.

Is this a Fed trying to deal with changing market conditions, or is it a Fed that`s losing credibility? What do you think?

KASMAN: I think it`s a Fed that`s struggling to hit the right notes on a communication strategy, which has had two different pieces to it. One has been about the quantitative easing and that`s been about momentum in the economy. The other has been about rate guidance, which is about inflation. It`s been about getting the unemployment rate down. It`s about healing the economy more broadly.

They hold some responsibility for having tie the two more closely together. And now, I think the delinking they are trying to do is being complicated and they are struggling a little bit. But I actually think they have gotten traction in the last month or two. They have been helped also by the fact that Janet Yellen, someone inside the committee will be the new chair.

I think they are likely to be successful here, although, the difficulty of separating as we move towards tapering is clearly going to continue to be an issue.

GHARIB: You know, earlier this week, Fed Vice Chairman Bill Dudley said that he`s more hopeful that the U.S. economy is recovering.

What do you think? Do — what is your forecast when it comes to economic growth? When it comes to the unemployment rate? You know, what do you see in the economy?

KASMAN: Well, we`re encouraged by the fact that momentum slip that looked like it was taking place in the summer has apparently been reversed and we don`t feel like we`re having a big negative hit from the shutdown. So we`re encouraged that the economy is holding OK here.

We do think it`s going to be a grind here. The economy feels to us an underlying pace, still running 2 percent. We`re absorbing higher interest rates. We think growth is going to pick up, but it`s going to take awhile before we get really good growth. We think 3 percent growth will come, but sometime in spring, summer 2014. Unemployment rate will be down to about 6.5 percent if our forecasts are right.

GRIFFETH: And one metric we haven`t talked about is inflation, which they are also wanting to raise before they start thinking about tapering.

Now, lately, the inflation data have been very tame, gold prices are coming down, oil is hitting multi month lows. Where do you see inflation right now?

KASMAN: I think we got inflation globally and in the U.S. at close to record lows. I think it`s very important to highlight that because low inflation is one thing that helps the Fed separate tapering from rate guidance, low inflation is a key issue for when to raise rates. It`s not the key issue about when to begin the tapering.

So, low inflation is going to be very helpful for the Fed here, and we expect it to stay in the low ones here for the next number of months.

GRIFFETH: Bruce Kasman, chief economist at JPMorgan (NYSE:JPM) Chase — thanks for joining us tonight.

KASMAN: Thank you.

GHARIB: Well, Bruce just talking about Janet Yellen, and we have an update on Janet Yellen`s nomination to be the next chair of the Federal Reserve. Republican Senator Bob Corker of Tennessee, one of Yellen`s biggest critics in the Senate, says he believes she will bring more transparency to the Fed and work to reduce its bond-paying plan. As a member of the Senate Banking Committee, Corker says he will vote to support her nomination tomorrow, sending her bid to the full Senate.

GRIFFETH: Onto the economy, retail sales were higher than expected in October despite that partial government shutdown. Commerce Department says, overall sales rose by 4/10 of 1 percent, with Americans spending more on automobiles, clothing and furniture last month. And officials say the so-called “core sales” takes out the volatile spending on gasoline and food. That rose even more by half a percent.

GHARIB: But things weren`t so great at one major retailer. JCPenney said losses quadrupled last quarter and sales tumbles 5 percent. But, now, take a look at shares of Penney`s today, surging 8 percent on a down day in the market. The reason: there are signs that the retailer`s business is starting to stabilize and sales look to be back on track.

Courtney Reagan has more.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Sometimes, reporting a wider than expected quarterly loss again doesn`t matter so much to Wall Street. It`s all about expectations going forward, especially when forward is a high stakes holiday season. JCPenney stock price jumped because the struggling retailer says sales and traffic trends are getting better.

On its earnings conference call, CEO Mike Ullman said JCPenney is seeing, quote, “unmistakable signs going into the holiday season that our turnaround is on track.”

While that may be true, JCPenney has a lot of work left to do.

MATTHEW BOSS, JPMORGAN RETAIL ANALYST: JCPenney lost 5 billion in sales over the last two years. And, you know, with the competitive fronts and a promotional front, it`s not going to be easy to get that back. The question is the time frame, how much they can get back and are they going to need more liquidity, you know, into 2015?

REAGAN (on camera): Plus, JCPenney hasn`t turned a profit in nearly two years, and Ullman estimates the department store has lost a net 10 million household shoppers.

Since rejoining as JCPenney`s CEO in April, Ullman has been trying to fix 30 major issues, he says, well, over 2/3 have been addressed.

(voice-over): In addition to improving in-store sales traffic, online sales have shown improvement. Cash is no longer a dire concern, and surveys indicate JCPenney achieved the best customer service scores in company history during the third quarter.

The key to retracting shoppers is pricing. JCPenney has returned to its promotional roots and says customers report they love the progress, but investors are concerned about profit margins. The deeper the discounts, the less is left over to add to the bottom line.

Because every retailer is offering bigger sales than last year, JCPenney likely feels it has to offer lower prices than competitors.

Ullman said, in some cases, JCPenney has had to sale items below cost, slashing prices by 80 percent to clear merchandise that hasn`t been well-received by shoppers. Investors are cutting the company a break right now on holiday hope, but Wall Street`s Christmas spirit will fade fast if JCPenney can`t deliver.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: And those positive retail sales numbers for October along with JCPenney`s rosier outlook may be pointing to a healthy holiday sales season. At least that`s what the head of the National Retail Federation said today, adding that U.S. consumers seem to have found a higher level of confidence helped in part by falling gasoline prices.

GHARIB: We got lots of fresh data about housing and it`s not good. Applications for new mortgages fell last week with mortgage rates edging higher and sales of existing homes declined by a deeper than expected 3.2 percent in October.

The National Association of Realtors blames higher prices and fewer homes on the market for the slowdown.

And as Diana Olick explains, one region of the nation, the West is getting the blunt of it.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It may be the warmest region in the nation right now, but home sales in the West are in a deep chill.

LAWRENCE YUN: In the West region, there is a significant shortage of inventory. So, you have buyers who are looking for the right home unable to find — they`re unwilling to commit.

OLICK: While supplies of homes for sale are down across the nation, California is one of the leanest. The number of homes for sale in San Francisco fell 26 percent in October from a year ago. In San Diego, supplies are down 12 percent and Los Angeles, down 6 percent. Those lean supplies are pushing prices skyward.

The median California home price in October was $357,000, up over 25 percent from a year ago, according to Data Quick. That was the 20th consecutive month of annual price gains and the 11th month those gains exceeded 20 percent.

GLENN KELMAN, REDFIN CEO: I think people feel whip sawed. There was —

OLICK: Glenn, CEO of real estate site Redfin, says higher prices hit not only consumer pocketbooks but consumer confidence.

KELMAN: You`ve got home prices dropping 50 percent in 18 months and now they are bouncing back 20 percent in 12 months. People are competing with Wall Street speculators, interest rates are going up and down, and people feel really nervous. They are really jittery in a way that they weren`t a generation ago.

OLICK: Despite short supplies, competition is actually cooling. The number of listings resulting in bidding wars dropped in October for the 7th street month, according to Redfin. That`s good news for buyers, but not for sellers.

(on camera): The expectation or at least the hope is that more homes will come on the market in the new year, just in time for spring, but will they sell? Phoenix, for example, saw a 32 percent jump in the number of homes for sale this fall, but with prices up over 40 percent from the troughs, sales actually fell, affordability clearly the culprit.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

GHARIB: And you can read more about the West Coast real estate market on our Web site, NBR.com.

GRIFFETH: Now, if you`re looking to get a new home loan or to refinance the one you already have, the paperwork looks to get a lot easier to understand. The Consumer Financial Protection Bureau has now issued a new rule requiring banks and other lenders to use new mortgage forms that make it easier for borrowers to understand and locate critical information like interest rates, monthly payments and closing costs. It`s about time.

Still ahead, would you buy Amazon (NASDAQ:AMZN) brand chips or soda? Find out if the online retailer is ready to launch a line of private label food products, coming up.

(MUSIC)

GRIFFETH: Amazon (NASDAQ:AMZN).com, the world`s largest online retailer, is gearing up for a busy holiday shopping season and now, it may be getting ready to offer consumers something new, groceries and other household items, but with a big difference, a private label.

Jon Fortt has the story.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Amazon (NASDAQ:AMZN) already makes its own tablets, publishes its own books, even sales private labeled keyboards and batteries. But as CEO Jeff Bezos and his team experiment with the grocery business, it looks like they`re also readying a much bigger push into private label goods. A search of the company`s job listings shows the company is looking for product managers, a supply chain manager and even a food safety manager to oversee an upcoming line of products.

In one listing, Amazon (NASDAQ:AMZN) mentions a consumables private label team that will handle product development, branding and sourcing. The strategy would make a lot of sense as the company sets its sights on groceries, the most popular items in the private label category include meats, snacks and peanut butter.

In total, food and beverages are roughly $100 billion annual business. Target (NYSE:TGT) has had a lot of success with Archer Farms brand and Wal-Mart (NYSE:WMT) is trying more, too.

The best thing that could happen, Amazon (NASDAQ:AMZN) creates some great products and saves in the process by cutting out the middleman.

The worst?

JAN KNIFFEN, WORLDWIDE ENTERPRISES CEO: The worst that can happen is you make a huge mistake. It could be salmonella in your peanut butter. It could be bad design. It could be a product that doesn`t taste right and you didn`t test it long enough and you launched it full blown and it gets to the consumer kind of like new Coke did, not that that was a private label and the consumers goes, no, I don`t think so.

FORTT: Lately, Amazon (NASDAQ:AMZN) hasn`t run into a lot of those problems. The company is expected to do about $75 billion in of sales in 2013, though it`s expected to just barely make a profit.

(on camera): If Bezos can keep prices low to an expanded private label strategy, that could keep growth going and help the bottom line.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

GHARIB: A slow farm economy didn`t stop Deere from posting an earnings beat today, and that`s where we begin tonight`s “Market Focus”.

Deere said its net income increased 17 percent in the fourth quarter. The farm and construction equipment maker also issued an unexpectedly upbeat outlook for 2014 because of a construction rebound in the U.S. The good news sent shares up 2 percent to $84.52.

Well, it was a different story at Lowe`s. Despite the improving housing market, the retailer`s third quarter profit missed the mark and even though Lowe`s raised its full year outlook, the forecast still below analyst expectations. Lowe`s shares fell 6 percent to $47.33.

J.M. Smucker`s attempt to boost sales by cutting prices fell — helped the company posed an earnings beat. The maker of Folgers coffee and Jif peanut butter missed profit estimates despite lower coffee and peanut commodity prices.

Smucker also trimmed its revenue forecast. The stock plunged 6.5 percent to $101 and change.

Weak demand and a stronger dollar hurt third-quarter sales at Staples (NASDAQ:SPLS). The country`s largest office supply retailer, it returned to a profit in the past three months but earnings came in below analyst estimates. The company stuck by its outlook for the year, though, citing growth online and in new products, like tablets. Shares fell 1 1/2 percent to $15.10.

Weak demand also hurting Caterpillar (NYSE:CAT), the world`s largest maker of mining equipment said today that its machinery sales have fallen 12 percent in the last three months. Because of sluggish business, Caterpillar (NYSE:CAT) has been closing smaller plants and laying off thousands of employees. So, no surprise the stock slumped more than 1 percent to $82.68.

GRIFFETH: Well, at least one investor thinks Aeropostale (NYSE:ARO) is still cool. Hirzel Capital Management has taken a 6 percent stake in the team retailer, saying that shares are undervalued, according to an SEC filing. That news sent shares of the chain up by 5 1/2 percent. It closed at $10.04.

Marlboro cigarette maker Philip Morris announced it is getting in on the e-cigarette business. The world`s largest tobacco company also raised its full year earnings forecast since the impact from unfavorable exchange rates has decreased. But that didn`t seem to impress investors. Shares fell more than 2 percent to close at $89.30.

And Priceline.com soared to another all time high today. That stock got a boost after Goldman Sachs (NYSE:GS) added the travel site to its conviction buy list. Goldman thinks the company will benefit from European recovery and increased mobile traffic. That stock jumped by 2 1/2 percent. It`s now at $1,147.09 per share.

And after the close of trading, Green Mountain reported a steep rise in quarterly profit, thanks to a strong sale of its K-Cup coffee pods and Keurig Brewing Systems division. The company also announced a billion share stock buy and a new quarterly dividend of 25 cents a share. But revenue growth forecast was slightly below estimates and that may have given investors little pause after the report during the regular session, though, the stock rose fractionally to $61.83.

GHARIB: Drinking coffee may make some people jittery but when the Treasury reaches its debt ceiling, everyone gets nervous and it`s happening again. The Congressional Budget Office now says that the federal government will likely hit the borrowing limit sometime between March and June of 2014.

Just last month, Congress agreed to suspend the nation`s limit until February.

GRIFFETH: An update on a company that got bailed out by the government`s TARP program during the financial crisis, remember that? Ally Financial, the one time lending arm of General Motors (NYSE:GM) just repaid the Treasury another $5.9 billion. Ally has now paid back more than 70 percent of the total bailout money that it got from Uncle Sam.

GHARIB: And coming up on the program, South Florida may look like it`s making a come back. But if you dig a little deeper, you see it`s been in a hot bed of shady muni bond deals. Our series “Mission Critical” heads to Miami, next.

(MUSIC)

GRIFFETH: Even though sales of it`s all-electric Leaf car have been below target, Nissan says it still plans to beef up U.S. production. Now, since the start of this year, the automaker has dropped the price of the Leaf by more than $6,000. It now says the Leaf is the top reason that customers are referred to the Nissan brand.

GHARIB: Some of those electric cars might come in handy on the day before Thanksgiving, which AAA says will be the single busiest travel day of the year. AAA is out with its annual Thanksgiving travel forecast, predicting more than 43 million Americans will travel at least 50 miles from home over the long holiday weekend. That`s down 1.5 percent from last year. Now, nine out of 10 travelers will go by car, fewer people flying this year.

GRIFFETH: Atlantic City, New Jersey, probably was not betting on this, the struggling gambling mecca stung by the recession and from competing casinos in nearby states like Pennsylvania, Maryland and Delaware. They had their credit rating cut one notch today by Moody`s (NYSE:MCO) investor services and the outlook on Atlantic City`s rating remains negative.

GHARIB: That`s just one more example of the tough economic issues facing some of America`s biggest cities. As we continue our series “Mission Critical: Saving America`s Cities,” we turn to Miami. It looks like the local economy is rebounding and look closely and you`ll discover some ill-advised budget decisions are saddling residents with massive amount of debt.

Scott Cohn has more from Miami.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It is a baseball palace, retractable roof, gourmet food.

UNIDENTIFIED MALE: Did you think you would eat Ceveche at a ball game?

UNIDENTIFIED FEMALE: Never.

COHN: Even a swimming pool.

UNIDENTIFIED MALE: Let`s get your take on this.

COHN: Sports radio host Adam Kuperstein Stein says the home of the last place Miami Marlins is a sight to be hold.

ADAM KUPERSTEIN, WQAM SPORTS RADIO HOST: It is massive. It`s modern. It doesn`t look like anything else you`ve seen in Miami.

COHN: Mostly paid for by the taxpayers who could be on the hook for more than a billion dollars.

NORMAN BRAMAN, PHILANTHROPIST & ACTIVIST: They use dollars taken away to fight slum and blight.

COHN: Billionaire Norman Braman sued in 2008 to block the deal.

BRAMAN: They just cashed in on the stupidity of our elected officials and thinking that a sports stadium is more important than the quality of life of the citizens that live in the community.

COHN: Braman lost but now, the Securities and Exchange Commission could get involved. The agency won`t confirm it, but the city of Miami and Miami-Dade County acknowledged they`ve gotten subpoenas.

Carlos Gimenez is the county`s top elected official.

CARLOS GIMENEZ, MIAMI-DADE COUNTY MAYOR: I don`t think they will find the bond buyers were misled. I think at the end of the day, I mean, I was pretty much one of the lone voices against it. It was a bad financial deal for us.

COHN: The SEC has been busy in Miami. Earlier this year, it sued the city, alleging that during the depths of the recession, it made material misrepresentations about its financial health. The city says the SEC is trying to turn political and budgetary decisions it disagrees with into securities violations. The SEC wants damages and ultimately real reform.

(on camera): The municipal bond market is huge, about $3.6 trillion, and a lot of people invest because they perceive that it`s safe. But in fact, it`s one of the least regulated markets around and the SEC wants to change that.

Tomorrow, we head to Baltimore, an ageing city with three major water main breaks a day. We`ll look at the infrastructure and lack of resources to fix it.

Scott Cohn, NIGHTLY BUSINESS REPORT, Miami.

(END VIDEOTAPE)

GHARIB: If you want more on Miami`s finances, go to our Web site, NBR.com.

GRIFFETH: Finally, tonight, something that`s never happened on any flight I`ve ever been on, a cleaning crew found more than a million dollars worth of gold bars inside two bags left in an airplane bathroom, after a flight from Bangkok landed in Calcutta, India. Now, no one has come forward to claim the gold just yet, but when they do, they better have a good reason for leaving that stash behind.

Now, I can hear you out there counting on your fingers, but we did it math for you. It works out to about 53 pounds of gold. And how they got that through security, I have no idea.

GHARIB: Can you imagine saying, you know, I`ve left my bag of gold in the bathroom?

GRIFFETH: Left my gold.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody. We`ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.

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