Transcript: Thursday, November 21, 2013

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


Dow closes above 16,000 for the first time ever, and some are saying the
great rotation out of bonds and into stocks is here, finally.

A large number of homeowners still owe more on their loans than their homes
are worth, but now, there is a new type of insurance designed to protect
consumers against negative equity.

MATHISEN: Plugging leaks. Every day in ballot more, three water
mains break on average. Tonight in our series “Mission Critical: Fixing
America`s Cities”, we examine the budget-busting cost of repairing our
municipal infrastructure.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
November 21st.

GHARIB: Good evening, everyone.

The Dow closed above 16,000 for the first time ever. It`s a new
milestone and the 40th record close this year for the blue chip average.

Investors snapped up stocks encouraged by better than expected news in
the economy, the number of people filing for unemployment benefits fell
last week, producer inflation was kept in check in October, and U.S.
manufacturing bounced back in November. And investors also seem to be
getting more comfortable with so-called taper talk from the Federal
Reserve. They recognize that stocks can continue rally even as the central
bank reduces its stimulus program.

Here`s a look at the closing numbers on Wall Street today.

The Dow surged 109 points ending at — here`s the number — 16,010.
The NASDAQ jumped nearly 48. The S&P added 14 points.

Over in the bond market, yields on the 10-year treasury briefly
touched a one-month high before falling back and ending lower.

MATHISEN: And joining us now to talk more about the markets and
whether or not the great rotation out of bonds and into stocks is finally
underway is John Manley. He`s chief equity strategist at Wells Fargo
(NYSE:WFC) Funds Management.

John, welcome back. Good to have you with us.


MATHISEN: So, what are you seeing in your accounts, the accounts at
Wells Fargo (NYSE:WFC)? Are people developing a better appetite for
equities and leaving bonds?

MANLEY: I think they are. It`s a slow process and it`s not a one-
step process, it`s a two-step process.

I think people are beginning to find equities less scary and more
attractive, and they are beginning to wonder about the bond holdings. They
know rates are down an awful lot and we have to realize bonds go both ways.

GHARIB: You know, John, I`m sure you and many strategist say you have
to own some bonds. Are there still some bonds that are still safe to own,
or are you just better off putting your money into equities?

MANLEY: Well, “safe” is a relative term. I think you`re better off
putting your money into equities. But I think the municipal bond market is
recently well priced. I think some corporate spreads are reasonably well-

So we can go for the junkiest of junk and I wouldn`t go for
treasuries. But there are things out there.

But, you know, keep in mind, Susie — I was 27 years old when the bond
market rally started.

MATHISEN: Well, I was a young cat, too, at that time, John —

MANLEY: Right.

MATHISEN: — back in the `80s.

Should I — if I`m inclined to invest in bonds, should I buy bond
funds or should I buy the individual securities, if really what I want is
not to bet on the bond market but to collect income?

MANLEY: You know, I work for a fund company. So, you can`t say I`m
unbiased. But I think fund is still the way to go. That`s the way I go.
I think it`s important.

You can`t do the research. You can`t get the economies to scale in
terms for trading. You can`t get the diversification. I think it`s — and
costs are, I think, quite reasonable, certainly versus historical norms.

So, that`s the way I go, but you`re asking someone who`s a little bit

GHARIB: John, I want to explore a little bit more about the fear
factor, about why individual investors still have been so reluctant to put
their money into stocks, and now, today, we`ve got the Dow hitting 16,000.
To some people, they cheer this. Others might say, uh-oh, you know, this
is even for reason to be scared of the stock market.

Make a case why it is time to rotate from bonds and stocks.

MANLEY: I think the perception of risk many times diminishes the
actual risk itself and I think that`s what happened. There is no question
the stock market got pummeled five years ago, and those who own stocks got
pummeled along with it. But that`s in the past and, unfortunately, these
memories linger. People look back and they have 180-degree deviation where
they should be looking.

Multiples are still very reasonable as far as equities are concerned.
Earnings are still rising the last time I looked. And when you look at the
Federal Reserve, as you mentioned earlier, they may taper, but they`ll only
taper if it doesn`t have a negative impact on the economy. And they`ll
remain accommodative for the foreseeable future. That`s all good.

MATHISEN: You know, John, I was speaking to an executive of a major
brokerage about a week ago and he said it`s very difficult for investors to
find income today.


MATHISEN: And that they are having to take on more risks to find
income given the fact that interest rates are so low, they are higher than
they were but they`re still very low. Where would you tell people to go
find income today?

MANLEY: I think high quality equities are still the way to go. These
companies have the ability to not only increase payouts but grow earnings
and their cash flows underneath those payouts over a long period of time.

You know, when people retire, they are looking at 15, 20, 25 years in
the future. I don`t know if you can find the bond that`s going to give you
the kind of duration you want. And remember, when you own a stock, you own
a part of a living thing. I think it has the ability to grow and I think
for long-term retirement, it`s one of the few things that`s left out there.

MATHISEN: All right. John Manley, thanks. Great as always to see

MANLEY: Thank you.

MATHISEN: Chief equity strategist at Wells Fargo (NYSE:WFC) Funds

GHARIB: Well, how investors feel about buying stocks or bonds depends
what actions Janet Yellen takes as the new chief of the Federal Reserve.
She`s now a step closer to becoming the first woman to chair the Fed. By a
vote of 14-8, the Senate Banking Committee approved the nomination of the
central bank`s current vice chairman to replace Ben Bernanke when his
second term expires in January.

The next step, the full Senate will vote on Yellen`s nomination but
it`s not yet clear when.

MATHISEN: Uncle Sam is closer to getting out of the auto business.
The Treasury just sold off 70 million shares of General Motor stock
obtained in 2009 bailout of the automaker. And it announced plans to sell
its remaining stake of 31 million shares by the end of this year.

At current prices, such a sale would mean taxpayers would recoup
roughly 39 billion of the 49 billion spent to rescue the automaker.

GHARIB: Before the opening bell this morning, disappointing earnings
from discounter Target (NYSE:TGT) and the stock fell sharply on the news.
Profits fell 47 percent with fewer shoppers hitting the stores and higher
costs related to expansion into Canada. The company also lowered its full-
year earnings forecast, expressing some concerns about revenue during the
all-important holiday shopping season.

Target (NYSE:TGT) shares fell 3 1/2 percent, making it one of the
worst performing stocks in the S&P.

MATHISEN: After the closing bell, earnings from the Gap (NYSE:GPS),
with profits rising nearly 10 percent, the stores were upgraded and new
designer collaborations are selling and Gap (NYSE:GPS) is making more money
off of more contemporary fashion.

The chain which also owns Old Navy and Banana Republic reported
profits of 72 cents a share, excluding certain extraordinary items and that
was a penny better than expectations. Gap (NYSE:GPS) also reaffirmed its
full year guidance. It`s going to boost an existing stock buy back plan by
a million dollars.

GHARIB: The Gap (NYSE:GPS) is a big retailer that`s overwhelming
consumers with coupons, special sales and other promotions this holiday
season. That`s making some analysts wonder if that strategy may backfire
on those chains, and whether bargain hunting consumers will ever pay full
price at those stores again.

Courtney Reagan has more on how all those coupons and other deals are
changing the state of retail.


Big sales are as much a tradition during the holiday season as Santa
sliding down the chimney. It`s what shoppers count on, but this year, the
discounts are deeper, further reaching and running longer than in years
past. Promotions are great for shoppers but retailers may be hooking
consumers on a habit that`s hard to break. Discounts are a necessary evil
to win sales and traffic, but it also trains the shopper not to buy at full
price and wait for the sale.

Former J.C. Penney CEO Ron Johnson said coupons are like drugs to
consumers. If that`s the case, Gap (NYSE:GPS), along with its Banana
Republic and Old Navy brands are enabling the addiction, flooding consumers
e-mail inboxes with sale notifications every day.

Analysts are pointing out the deep discounts at Gap (NYSE:GPS) brands,
30 percent to 40 percent off in store, online or both. Macy`s (NYSE:M)
reported some of the strongest sales of the quarter so far, but at a cost.
Increased promotions drove shopper traffic and sales, but merchandise
margin took a hit.

DAVID STRASSER: We`ve been shouting for rooftops this year is going
to be very different from a promotional standpoint. Wal-Mart (NYSE:WMT)
has stepped it up the promotional environment more than they have in
probably 20 years. Just operationally, I think everybody in retail is
being forced in someway, shape or form to react to that.

REAGAN (on camera): Lower sales prices compressed the amount of
profit per item at retailers` pocket. Shareholders aren`t going to be
happy with the hit to the bottom line, but then again, some profit is
better than none.

Retail is as competitive as it`s ever been, as consumers remain very
cautious about discretionary spending. Uncertainly over health care costs
add to the pressures of holding back spending, and while falling gas prices
usually give the lower and mid-tier shoppers more disposable income, it`s
not helping right now.

Some retailers are upping the ante on promotions, to attract attention
and traffic. But there is concern it`s going to change consumer habits and
what they expect.



MATHISEN: Well, good news about U.S. homeowner whose have been
underwater, owing more on their mortgages than their homes are worth. The
real estate website says the just completed third quarter, the
rate of underwater homeowners fell at the fastest pace over, with 1.4
million Americans getting back above the so-called negative equity line —
easy for me to say.

GHARIB: But for the millions of struggling homeowners who remain
underwater, fast-rising home prices may not be rising fast enough. And
with the housing market still in recovery, one company is hedging bets that
things could collapse again and it`s offering what`s called underwater

Diana Olick explains.


Phoenix, Arizona, one of the hardest hit markets of the crash, home prices
are up over 40 percent from the bottom at the end of 2011. That has cut in
half the number of borrowers who owe more on the mortgages than their homes
are worth.

But nationwide, millions are still drowning in negative equity and
some are asking could it all happen again? One company is saying yes and
offering consumers insurance for that possibility.

protection is the first of its kind insurance product that we`ve created
for homeowners who might want or need to move at a time when they are in a
negative equity position.

OLICK: Basically, it`s gap insurance from Kansas based AmTrust
Financial. It covers the underwater amount, should you need to sale your

Consumers we asked were divided.

UNIDENTIFIED MALE: If you have the ability to leverage against risk
in some way, it`s worth considering.

UNIDENTIFIED FEMALE: I think it`s not a good use of money.

OLICK: To qualify, you must have at least 10 percent equity in your
home now and you cannot refinance during the coverage period. The average
monthly premium is between $40 and $50 and this is not for high-end homes.
Most markets will be capped of home values of $400,000.

KLAYTON: We will be there to help consumers if they end up in a
situation where life happens to them and they need to sale and they might
be in a down market.

OLICK: But critics of the product say it`s preying on consumer fear
and the money might be better spent elsewhere.

out with 10 percent equity and are being asked to put up $400 to $500 a
year in premiums, that same $400 to $500 a year could be used to pay down
the mortgage which increases the equity and ends up having the same effect.

OLICK (on camera): Millions of borrowers already pay either private
or government mortgage insurance which safeguards lenders. This product
could protect both lenders and homeowners against foreclosures. AmTrust
Financial says it will begin selling the insurance in five states next
month and hopes to roll it out nationwide within a year.

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


GHARIB: For more on insurance for underwater homeowners, read Diana`s
piece on our Web site,

MATHISEN: And still ahead, the new health law relies heavily on
getting young people to sign up but many first time insurance buyers are
finding if they can log in, that the choices are huge and baffling.


GHARIB: A big victory for Apple (NASDAQ:AAPL) in a patent
infringement lawsuit against Samsung. A California jury ordered the South
Korean electronics giant to pay Apple (NASDAQ:AAPL) $290 million for
copying patents from the iPhone and iPad without Apple`s consent. As you
recall, a previous jury awarded Apple (NASDAQ:AAPL) over a billion dollars
in damages, but a new trial was ordered and the judge threw it out saying
the jury miscalculated the amount that Samsung owed.

MATHISEN: Well, the nation`s second largest bank says it shouldn`t
have to pay anything for selling bad mortgages. Last month, Bank of
America`s Countrywide Financial unit was found liable for selling defective
mortgages to government-controlled Fannie Mae and Freddie Mac, but the bank
told a federal judge that under applicable law, it should have to pay a
million dollars at most in the so-called hustle fraud case, not the $863
million in damages that the Justice Department seeks.

GHARIB: Mobile ads and a boost in listeners helped Pandora grow third
quarter revenue by 50 percent and that`s where we begin tonight`s “Market
Focus”. After the bell, the Internet radio service reported a revenue
beat. But the company swung to a loss as it spent more on content sales
and marketing. That caused shares to fall initially in the after-hour

Pandora closed the regular trading day at $29.68. It was up 4

Fewer shipments and lower sales hurt Perry Ellis in the third quarter.
The retailer posted a $3 million loss, more than what analysts expected.
The company blamed the numbers on weak customer spending but despite the
miss, its full-year forecast stayed intact. Shares rose slightly to

Micron Technology (NASDAQ:MU) shares shot up today after investor
David Einhorn announced that he`s taking a stake in the company. The
Greenlight Capital president said he sees growth potential in the name.


DAVID EINHORN, GREENLIGHT CAPITAL: Earnings are going to be a lot
better than people think. Next year, maybe $3.50 a share, the following
year, maybe $4 a share. So, the stock is, you know, about $19 or something
like that today, and at that point, if you get a reasonable multiple, you
don`t get a market multiple. You just need a non-ugly multiple that shows
some stability and sustainability of that improvement and we can do pretty


GHARIB: The stock popped more than 6 percent on those comments to

MATHISEN: Well, the activist investor Carl Icahn also announced his
position in Hologic (NASDAQ:HOLX). Icahn acquired 12.6 percent of the
company, a woman`s healthcare products maker. In response, the company
adopted a shareholder rights plan to protect itself from hostile takeovers.
The news sent the stock nearly 2 percent higher to $22.70.

Activists are pushing for change at Darden Restaurants (NYSE:DRI
(NASDAQ:TBUS)), the parent of Red Lobster, Olive Garden faces pressure from
investors, read by Barrington Capital to break up its diverse eateries. In
their latest attempt, the shareholders hired an investment bank to review
Darden`s business model. The stock was up more than 1 percent today to

A buyback boost sent shares of Johnson Controls (NYSE:JCI) to an all-
time high. The largest U.S. auto parts maker said it would raise its stock
buyback program by more than $3.5 billion on a stronger outlook. Its
quarterly dividend also got a bump up to 22 cents a share. The stock
surged nearly 4 1/2 percent today to $50.35.

GHARIB: An update now on the Affordable Care Act, in the most
populous state, California. Cover California says that since the October
1st kick off, nearly 80,000 Californians have enrolled in private health
care plans through the state`s online exchange.

Data shows that more than 1/3 of the enrollees in the state-run
marketplace were age 55 to 64 showing that so far, more older adults have
signed up for the new plans than younger ones in the age 18 to 34 group.

MATHISEN: Well, Susie, seven weeks after the launch of the Affordable
Care Act`s online marketplace, people are still having a
hard time gaining access to the Web site. But once they log on and see all
those insurance plan choices, they still have to choose which one suits
them best.

Bertha Coombs joins us now with more on challenges facing some young
people who are buying insurance for the first time and finding it very

it`s daunting for a lot of us. We`re used to buying insurance every year
during open enrollment. Choosing the right plan can be tricky. But for
millions of people buying insurance for the first time on these new health
exchanges, there is a real learning curve and in some cases, because there
are too many options and not enough tools to figure out how to pick a cost
effective plan.


COOMBS (voice-over): Thirty-year-old real estate agent Michael
Chadwick is overdue for an MRI screening after having a benign tumor
removed from his leg back in college.

years, I`ve been in a great bracket of making too much money to qualify for
aid, but not making enough with my other bills to afford health insurance.

COOMBS: Twenty-eight-year-old graphic artist Katy Irwin (ph) has put
off dental surgery and insurance for the same reason.

the money.

COOMBS: The New York City freelancers are exploring the new
Affordable Care Act plans on their state`s exchange. It`s the first time
they are buying insurance and they`re finding sorting through the
differences between deductibles, out-of-pocket cost and co-pays

IRWIN: So, here is one of the dentals.

COOMBS: Katy found more than 70 options to choose among. Those with
lower deductibles in dental were pricey.

IRWIN: This is $374 and the tax subsidy I get is $64.

COOMBS: She`s leaning toward a catastrophic plan for her age group,
with the dental supplement for about $210 a month.

IRWIN: With catastrophic, I`m not spending a catastrophic amount of

COOMBS: Michael is also leaning for a lower premium option, but
worries about high out-of-pocket costs.

CHADWICK: Three physical, if I get the flu and want to see a doctor,
I got to pay 50 percent.

COOMBS: Specialist firms like online brokerage Gravie help people
sort through those variables. Mike Fortner found Katy`s catastrophic
option is a good one, despite up to $6,300 in out-of-pocket cost.

this one, as long as she stays in the network, the first three visits to
the doctor every year are free.

COOMBS: For mike who needs access to MRI screenings, Fortner thinks a
mid-range plan will offer more.

FORTNER: He can have a little bit higher payment each month to the
insurance company but when he goes to use the insurance, the payments will
be a little bit more affordable.

COOMBS: Columbia professor Eric Johnson says most state exchanges
don`t have the right comparison tools to sort out the tradeoffs on plan
costs, leaving most people to guess.

almost as accurate as if they were throwing darts.

COOMBS: That could be costly mistake for people like Mike and Katy
and for the government taxpayers who will foot the bill for billions in
planned subsidies.

JOHNSON: We`ve calculated that if you actually do websites right and
include the kinds of things that help people make better choices — every
year, you can save the government, that is us, $9.5 billion.


COOMBS: That`s a very big chunk of change.

Johnson says that California has one of the best calculators of the
new exchanges. In the meantime, some news this afternoon from the Golden
State, the board of Covered California has decided against President
Obama`s insurance fix and will not let insurers extend cancelled plans.
They are joining Massachusetts, New York and also Washington state.

These areas where the enrollment on the exchanges is going well, so
they don`t want to disrupt that.

MATHISEN: Bertha Coombs, thank you very much. Appreciate it.

GHARIB: And coming up on the program, a look at Baltimore`s leaky
infrastructure and the money being washed away with it as our series
“Mission Critical: Fixing American Cities” continues.


MATHISEN: Google (NASDAQ:GOOG) is coming out with something new. The
Internet search giant will soon offer its own prepaid debit card so you can
pay for things at stores that also accept MasterCard (NYSE:MA), and you can
even withdraw cash from ATMs. It`s called the wallet card, because it`s
tied to a user`s Google (NASDAQ:GOOG) wallet account. That`s a smartphone
app and an online payment system that works like PayPal, kind of.

Google (NASDAQ:GOOG) says the card will be free, with no monthly or
annual fees.

GHARIB: Shares of Tesla, the luxury electric carmaker have taken a
pounding lately after a series of battery fires sparked an investigation by
federal transportation authorities. But owners of Tesla still love their
cars and a new survey from “Consumer Reports” shows Tesla Model S sedan
received the highest customer satisfaction rating of any car the magazine
has surveyed in years, with owners giving the car a score of 99 out of 100.


All this week, NBR has taken a closer look at the troubled finances of
some big American cities. Today, we visit Baltimore which has been plagued
by leaks — not leaks of information but actual water leaks, as it faces a
massive funding gap to maintain decades-old infrastructure projects.

Scott Cohn has more.


this water and this, and this, isn`t from a storm. It`s from broken water
mains. They call Baltimore “Charm City”, but the water system is cursed.

Stephanie Rawlings-Blake is Baltimore`s mayor.

breaks, you know, whole intersections have gone.

COHN: On average, three water main breaks every day.

RAWLINGS-BLAKE: Every day in the city, somebody you know is dealing
with a water main break.

COHN: In this 284-year-old city, the typical water main break like
this clogged section of pipe is more than 70 years old. Replacing them
costs around $2 million a mile and Baltimore has 4,000 miles.

Then, there is the other end of the system.

GEORGE HARDWOOD, ENGINEER: Waste water is 99.9 percent water.

COHN: George Hardwood is an engineer at Baltimore`s Patapsco
wastewater treatment plant. He`s been here 38 years. Environmental
regulations keep piling up he says but the money to pay for them does not.

(on camera): So you`re kind of striking a balance. You want to make
sure that you — the water is as pure as it can be.

HARDWOOWD: And we want to be as economical as we can be, too, as we
operate the plant.

COHN (voice-over): Every improvement the feds and state demand, like
this billion-dollar facility, is covered by rate payers, this in a city
with short issues — blight, crime, the budget.

RAWLINGS-BLAKE: Everybody wants clean water. Everyone wants the
environment to be pristine but we`re not growing money trees down in the
basement of city hall.

COHN (on camera): Baltimore has budgeted about $3 billion for capital
improvements to its water system over the next several years, which seems
like a lot, except that the need is closer to $6 billion and nationwide,
the estimates of water and sewer infrastructure needs are closer to $700
billion. And as cities try to make ends meet, they are also cutting some
basic services like police.

In the final part of the series, we travel to Trenton, New Jersey,
where they laid off 1/3rd of the police force with predictable results.



MATHISEN: And to read more about the cost of repairing Baltimore`s
infrastructure, head to our Web site,

GHARIB: Some good news for airline passenger who just love to talk
and bad news if you`re sitting next to them. The Federal Communication
Commission is proposing to let passengers use their cell phones on board
planes, as long as the planes are above 10,000 feet. This comes a few
weeks after airline regulators loosened up restrictions on the use of
tablets and e-readers during flights.

MATHISEN: And finally tonight, talk about taking a wrong turn. This
Boeing (NYSE:BA) 747 jumbo jet used to haul giant plane parts and other
cargo around the world, landed at the wrong Wichita, Kansas airport last
night, eight miles from where it was supposed to be. The trouble is, the
plane was so big and the airport runway so short that officials were
worried the jet might not be able to leave.

That runway was a half mile shorter than the FAA standard for the
plane. But there you see the aircraft did take off safely this afternoon
and hopped over to the right handing field. You can bet that the pilots of
that Boeing (NYSE:BA)-owned plane have a lot, a lot of explaining to do.

GHARIB: They sure do, Tyler.


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

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


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