Transcript: Tuesday, November 26, 2013

nightly-business-report-september-25-201321-300x225ANNOUNCER: 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: NASDAQ 4000. The
index closes above that milestone for the first time in 13 years. But is
it different now, and is the composite healthier today than was back then?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Turnaround on track
— so says Hewlett-Packard (NYSE:HPQ) CEO. And the stock initially pops on
that earnings news. What`s the one thing investors need to focus on now?

GHARIB: And housing market momentum. Prices are soaring, permits to
build new homes climbing. So, why is one Nobel Prize-winning economist
saying the move higher can`t be trusted?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Tuesday, November 26th.

MATHISEN: Good evening, everyone.

In a year of milestones, another one was hit on Wall Street today.
For the first time since the year 2000, the NASDAQ composite closed above
4,000. In the 13 years since, NASDAQ more than any other market barometer
swooped and swooned and struggled to regain its former heights.

The Dow and S&P 500, for example, hit fresh records back in 2007 and
again multiple times this year. Not so the NASDAQ. After cresting at
5,048 in March of 2000, it all but crashed and spent much of the past
decade plus at half its former high. And it`s that, and even today, after
a 33 percent gain this year, it is still 20 percent below its dotcom era
peak.

Nevertheless, today`s milestone is just that — a marker on a
market`s road to recovery and by many measures, today`s NASDAQ at 4,000 is
far, far healthier than NASDAQ 4,000 13 years ago.

Let`s take a look at today`s historic numbers. The Dow sold off into
the close, eking out a fractional gain, but enough for a fresh record
close. It`s fourth in a row and 43rd this year.

The NASDAQ was up 23 pounds to finish at 4,017 and the S&P 500 was up
a fraction of a point.

Joining us now to talk more NASDAQ 4,000, Jim McCaughan. He`s CEO at
Principal Global Investors.

Jim, welcome to the program.

I understand that you agree with the statement that Tyler made a
moment ago, that the NASDAQ 4,000 is much healthier today than it was 13
years ago. Tell us why and what metrics are you looking at?

JIM MCCAUGHAN, PRINCIPAL GLOBAL INVESTORS CEO: Yes, the difference,
Susie, is that this time the market has been going up because of earnings
and the fundamentals for U.S. private sector remain very strong, and that`s
really what`s driving the NASDAQ — some 24, 25 times the earnings, which
is reasonable actually given the growth potential. Equities generally on
about 17 times earnings online with the long-term average.

At a time when the U.S. private sector is doing well and there`s good
momentum to profits, that`s actually a pretty reasonable place to be.

MATHISEN: So, this time is different in your view, last time was a
bubble. But why hasn`t, Jim, the NASDAQ risen past its former all-time
highs, the way the Dow and S&P have?

MCCAUGHAN: Yes, the difference, Tyler, is that the Dow and S&P
didn`t run on fumes at the end of last decade, of the end of the previous
decade, 1999, 2000. They didn`t run totally into bubble territory like the
NASDAQ did. Remember, it was that extraordinary Internet bubble when
prices did lose touch with reality and stocks were valued well away from
earnings. The difference now is we`re still in touch with fundamentals.

You know, a bubble could happen but it hasn`t happened yet.

GHARIB: So how big an event is NASDAQ 4,000, especially since its
still 1,000 points away from its real record?

MCCAUGHAN: Yes, I think it`s a pretty big event because the real
record, as you pointed out, was in 2000 and actually, the record high was
`99. The last time it was above 4,000 was in year 2000. So, 13 years ago,
more than that.

So, I think it`s a pretty big deal. It`s a good sign of the recovery
of the U.S. economy, which has brought those stocks really reflect.

MATHISEN: As you look ahead, Jim, to 2014, what are you expecting
for equities?

MCCAUGHAN: Yes, I`m expecting another pretty good year for equities,
Tyler. I base that optimism on three factors.

The first is the U.S. has got the cheapest energy in the world,
particularly natural gas.

Secondly, a tremendous record of invasion and technology. The world
wants to buy the stuff that the U.S. does, whether it`s in electronics or
aviation or other technologies.

And then thirdly, we have a housing market that appears to be fairly
secure in a slow recovery.

These factors are really driving company profitability. The
fundamentals suggest the main equity indicators might rise as much as 10
percent to 20 percent next year.

GHARIB: Investors have gotten very used to these — you know, market
milestones, rallies, but is there any wild card they should be bracing for
that could happen in 2014 that could end this record run?

MCCAUGHAN: Yes, there is, Susie and there are a number of things I
would watch for. The first is when the Fed taper happens, which I believe
it will, most likely in the first quarter of next year, you will likely see
some short-term volatility, maybe a 5 percent setback. The answer on that
for equities will be to buy into the setback, not true in bonds. Don`t
touch those because yields are going up. That would be one event that
might cause instability in equities.

Another thing to watch for is the 10-year treasury yield. If the
negative action in bonds turned into panic and you got a 10-year Treasury
yield currently (INAUDIBLE), if it moved up to 4 percent, that would be
enough to choke the housing market, and push the U.S. back towards
recession. I don`t think it will happen, but it`s worth watching.

And then lastly, you have to watch for any other kind of public
policy error. In a way, the strength of the equity markets have been in
spite of Washington –

GHARIB: Jim, I`m sorry, you have such good thinking on this. I`m
afraid I have to interrupt this interesting conversation. But you`ve given
us a lot to think about. Thanks so much for coming on the program.

MCCAUGHAN: Thank you Susie. Thanks, Tyler.

GHARIB: Jim McCaughan, CEO at Principal Global Investor.

MATHISEN: Well, earnings out after the bell from the computer giant
Hewlett-Packard (NYSE:HPQ), its first earnings report, since it was bounced
from the Dow industrials. HP beat on both the top and bottom lines,
expectations that is. Earnings of a buck and a penny per share excluding
items, topping estimates by a penny on better than forecast revenues more
than $29 billion.

Shares initially moved solidly higher in late trading on that news,
along with the company`s forecast for the current quarter, a range of 82
cents to 86 cents in profit, versus Wall Street`s 85 cent estimate.

Jon Fortt follows Hewlett for us.

What is the number one take away on the report today?

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Could have been
worse, but this isn`t a full turn around yet, Tyler. I mean, they didn`t
even hit the mid-point of expectations on their guidance. And yet, because
they seem to be to the trough and ready to turn things around, people are
excited by that. The stock trading up near where it was at the beginning
of August.

But you`ve got to be careful here because it`s not at all clear what
the catalyst is going to be for real growth if that eventually comes. PC
market, as it once was, probably not going to come back. The software
business they had talked about as a growth engine for the future is
actually down. They had some strength in servers and networking, but it`s
not clear how much of that because Dell (NASDAQ:DELL) is doing what it`s
doing going private, some confidence shaking there in one of its
traditional competitors.

MATHISEN: Jury still out.

Jon Fortt, thanks very much.

GHARIB: And we turn from technology now to some good news for
housing. Permits for new home construction shot up by more than 6 percent
in October, more than a million requests, that`s the most in more than five
years. Economists say that`s a good sign that home building could pick up
in the New Year.

MATHISEN: There was also good news about home prices. The Case-
Shiller home price index for September showed more than a 13 percent
increase over the same month a year ago. That`s the biggest gain in nearly
eight years.

GHARIB: So, those encouraging figures would seem to indicate a
strong recovery in housing. But Robert Shiller, the noted economist behind
that Case-Shiller Index says some investors, especially big institutional
ones may be skewing the stats.

Diana Olick reports.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Permits to build new homes in October were up dramatically from a year ago
and existing home prices are soaring, as well. That should be good news
for the housing recovery, or is it?

ROBERT SHILLER, YALE UNIVERSITY PROFESSOR OF ECONOMICS: We can`t
trust momentum in the housing market anymore.

OLICK: Nobel Prize winning economist Robert Shiller points to
investors as a culprit. Large-scale institutional investors have bought
and rehabbed over a 100,000 foreclosed properties like this one in Phoenix.
They pushed home prices dramatically higher but could just as easily sway
the market in the opposite direction.

SHILLER: The word seems to be from them that they are long-term
investors but I suspect they`re not.

OLICK: In fact, some may already be getting out. Institutional
investor purchases represented 6.8 percent of all sales in October, a sharp
drop from over 12 percent in September, and nearly 10 percent a year ago
according to RealtyTrac.

MARK HANSON, HOUSING & MORTGAGE STRATEGIST: We`re seeing a sharp
surge in supply hit the market in the biggest new era investor haven
markets.

OLICK: In Phoenix, Las Vegas and take a look at Sacramento,
California. Listings there are up 93 percent from a year ago, but sales
are down and far fewer of those sales are of distressed homes.

HANSON: I think it`s the investors lighting some load. And it makes
sense, after three years of buying in the last year and a half, buying
relentless, many are sitting on serious gains.

OLICK (on camera): Some investors are also realizing that the cost
of carrying and constantly repairing these rental homes is more than they
bargained for and if they can find better yields somewhere else, they will
not hesitate to go get it.

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

(END VIDEOTAPE)

MATHISEN: Well, as home prices rise, some areas have a large number
of homeowners who are underwater. Later in the program, why some cities
are now considering using imminent domain to fight foreclosures.

GHARIB: A stunning attack on Wall Street today, the global economic
system and so-called, quote, “idolatry of money”. And it came from an
unlikely source, Pope Francis.

Eamon Javers has more on the pope`s controversial comments.

Eamon Javers joins us now from Washington with more on the pope`s
controversial comments.

So, Eamon, I understand all of this was in an 84-page document from
the pope. Tell us more about what exactly he said.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, that`s
right. It`s called an apostolic exhortation. And it`s the first major
written document that we`ve gotten from this new pope, Pope Francis.

The Vatican has said that this document today is really an expansion
on what the pope has been saying so far in his papacy in major public
speeches, but for the first time, we now have it all in one place and all
in writing and he`s vey critical about what he sees as the excesses of
modern market capitalism.

Take a look at this papal pronouncement, an excerpt from what he said
today, he said, “How can it be that it is not a news item when an elderly
homeless person dies of exposure but it is news when the stock market loses
two points?”

Other areas that the pope was very critical of today, he singled out
trickle down economics, the income gap between the rich and the poor, what
he called self-serving tax evasion, the idolatry of money, and what he
called deified market. And by that, he`s saying folks have put way too
much attention on profits and markets, and not enough attention on basic
humanity, guys.

GHARIB: You know, Eamon in years past, over centuries, we`ve seen
other popes talk about communism and capitalism. But this time, what`s
motivating Pope Francis and why now?

JAVERS: Well, this is a clearly a pope who has a reform agenda in
this document. He also talks about reform of the church. He talks about a
number of other wider issues.

But he says here that the pope loves rich and poor alike but he has a
special message for the rich, which is they must do their duty to help the
poor.

MATHISEN: Eamon Javers, thanks very much.

And still ahead, from Vatican concerns about the idolatry of money,
will business be right or wrong in some ways about that, gambling, as more
takes place online we take a look at an industry in transition.

(MUSIC)

GHARIB: New Jersey just made a very big bet. It`s the third state
in the nation to allow online gambling. Proponents say it will bring
billions in revenue for Atlantic City`s struggling casinos and millions in
taxes for the Garden State.

But as Brian Sullivan shows us, this new way to gamble is just a
small part of how the entire gaming industry and we`re betting this is
taking place, is rapidly changing.

(BEGIN VIDEOTAPE)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s an industry in transition. Two years ago, the Obama administration
cleared the way for states to legalize online gambling. Today, New Jersey
joined Nevada and Delaware as the only states that allow it. Though, that
number could jump to 21 within the next five years.

GARY VAYNERCHUK, INTERNET ENTREPRENEUR: I think Internet
gaming/gambling is an inevitable thing at this point. You know, states
need revenue. Gambling does that. You don`t need to build these big
casinos, all over the place. It`s all done through the web.

SULLIVAN: And while analysts don`t expect today`s announcement to
have much of an impact on revenues at the big gaming companies, it could
signal that a change is on the horizon. U.S. casinos generated revenues of
more than $37 billion last year, up nearly 5 percent from 2011 and the
highest figure since 2007.

But the state`s leading that growth might come as a bit of a
surprise. While gambling meccas like Las Vegas and Atlantic City are the
top grossing casino markets, in 2012, consumers spending in casinos grew it
just 1 1/2 percent in Nevada and fell 8 percent in New Jersey.

The big winners? States that opened new casinos like Kansas and
Maryland, and each saw triple-digit jumps in gaming revenue.

ROB HELLER, SPECTRUM GAMING CAPITAL CEO: Gambling brings a lot of
tax revenues and it brings a lot of jobs and good paying jobs, and that is
the lure for states.

SULLIVAN: The gaming industry says it paid $8.6 billion in taxes
last year and a handful of states driven on by the promise of new jobs and
a share of that tax revenue are considering expanding gambling.

(on camera): Earlier this month, New York approved a proposal to
open four new casinos upstate, while Pennsylvania legislators approved a
bill that would allow limited gambling at thousand of bars across the
Keystone State.

(voice-over): And with those changes taking place in Atlantic City`s
own backyard, it`s no wonder that New Jersey, home to the city once touted
as America`s playground, is an early adopter of online gambling.

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan.

(END VIDEO CLIP)

MATHISEN: Well, if you were betting on making big money from a
merger or acquisition this past year, the winnings may be a bit
disappointing. Data from Dialogic (NASDAQ:DLGC) reports that companies
taking over other companies paid just 19 percent more on average than their
acquisition target trading price one week before the deal was announced.
That is the lowest take over premium since at least 1995. That`s as far
back as records go.

GHARIB: The suit wars continue with Men`s Warehouse offering to buy
Jos. A. Bank and that`s where we begin tonight`s “Market Focus”.

Men`s Warehouse turned the tables on Joseph with a 1.5 billion-dollar
proposal to acquire the smaller rival that`s been trying to take it over.
The combo would create the fourth largest men`s apparel retailer in the
U.S. Shares of the chain surged in the news.

Men`s Warehouse up 7 1/2 percent to $50.60. Jos. A. Bank rose 11
percent to $56.29.

Well, Tiffany (NYSE:TIF) shined in today`s trading session after
reporting earnings way above estimates. The jewelry maker`s solid quarter
was driven by strong sales in China. Tiffany (NYSE:TIF) also upped its
full year forecast.

Shares jumped more than 8 percent to $88 and change.

It was a different kind of story at DSW (NYSE:DSW). Shares tumbled
after the footwear retailer reported improved sales for its latest quarter,
but they were still below analysts expectations. Investors were also
disappointed by DSW`s modest outlook. The stock dropped almost 5 percent
to $44.95.

A big jump for fourth quarter profits at Hormel, upped 19 percent —
thanks to its recent purchase of Skippy peanut butter, a boost in turkey
sales and in refrigerated foods. The CEO said, despite rising community
cost, the food producer will continue to deliver strong results.

(BEGIN VIDEO CLIP)

JEFFREY ETTINGER, HORMEL CHAIRMAN & CEO: Well, there have been
significant flood inflation over the past few years, certainly on the
Jennie-O Turkey store side. We ended up having to push prices to keep up
with those cost inputs. I do feel heading into the next year, we`re now in
a little more benign environment that should allow consumers to really
enjoy our products and we intent to support a number of our products with
ad campaigns heading into the New York.

(END VIDEO CLIP)

GHARIB: The stock popped nearly 6 percent to $44.95.

MATHISEN: Well, Susie, Workday, a provider of web-based human
resources software forecasting revenue well above expectations. They
reported a big jump in quarterly sales helped by strong growth in
subscriptions. Workday competes with Salesforce and Oracle (NASDAQ:ORCL)
and the fast-growing Cloud software market. And the report sent shares up
more than 12 1/2 percent to $82.60.

Barnes & Noble (NYSE:NE) (NYSE:BKS) meanwhile reporting an 8 percent
drop in quarterly revenue. Sales fell across all of its businesses,
including its stores, its Nook e-readers and books and cut costs in the
most recent quarter. Today`s closing prices reflected growing fears here –
– the stock dropping about 6 percent to $15.45.

Well, investors have been pressuring the struggling teen retailer
Aeropostale (NYSE:ARO) to sell itself. But the company says no way. The
clothing maker responded by adopting a closing shareholder rights plan in
case a stockholder buys 10 percent or more of the company. This would
protect itself from a buyout. The stock closed nearly 2 percent lower to
$10.03.

And declining sales in its Boston proper catalog business dragged
Chico`s down to a third quarter loss, but the clothing chain announced a
quarterly dividend boost. That took some sting out of the loss. The
shares up 4 percent to $18.65.

GHARIB: Here`s some good news for retailers. Moody`s Investor
Services now expects Americans to spend more money this holiday shopping
season, as much as 5 1/2 percent more than they did a year ago. Moody`s
credits pent-up demand for new video gaming video consoles from Sony
(NYSE:SNE) and Microsoft (NASDAQ:MSFT), as well as what it calls an easing
up of worries about fiscal uncertainty.

MATHISEN: Well, that`s good news.

Just ahead of this week`s Black Friday shopping shop-palooza, which
has become a tradition for many American families, the unofficial kickoff
of the holiday shopping season.

But since Thanksgiving is a uniquely American holiday, big retailers
are now trying to give the sport of Black Friday and Cyber Monday shopping
a more international flavor.

Courtney Reagan has our surprising story.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
From China to Russia to Mexico, they may not celebrate Thanksgiving but
more and more global consumers are coming to know what the day after means
— 50 percent off cashmere sweaters, thanks to the help of company
Borderfree.

MICHAEL DESIMONE, BORDERFREE CEO: So, Black Friday and Cyber Monday
are the two days, the highest days of sales from all the way around the
world. So, I think it`s an interesting way that we sort of export our
American retail culture.

REAGAN (on camera): Borderfree works with many American retailers,
including like J. Crew, Aeropostale (NYSE:ARO), and Neiman Marcus
(NYSE:MCS), to convert e-commerce Web sites to country`s appropriate
language and currency translation.

(voice-over): Once an order is placed, Borderfree steps in to help
facilitate shipping, taxes and tariffs.

Macys.com and its Bloomingdale`s Web businesses ship to more than 100
countries. The retailer acknowledges Black Friday and Cyber Monday are
busy days everywhere. Saks (NYSE:SKS) says last year, it saw a significant
increase in international traffic and sales during its post-Thanksgiving
events like Black Friday and Cyber Monday. The retailer expects the same
occurrence this year.

The high-end department says significant international sales are done
in Canada, Australia, Russia, the Middle East and Asia. So, why the
international demand for American retail?

DESIMONE: So, it`s not just a price thing and it`s not just a
selection thing, but it`s a combination of the two. Interestingly, the
number three reason recently went to the United States.

REAGAN: For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GHARIB: And coming up on NIGHTLY BUSINESS REPORT, some cities are
considering using imminent domain to fight foreclosure. But could the
program actually hurt the homeowners it`s designed to help?

(MUSIC)

GHARIB: The U.S. banking industry continued its turn around over the
just completed third quarter, pulling in $36 billion in profit. But the
FDIC says that`s less than banks took in during the same period a year ago,
and it`s the first time that`s happened since the financial crisis in 2009.

MATHISEN: An auto recall to tell you about. Ford recalling 161,000
brand-new Ford Escape SUVs because an engine cylinder head can crack and
leak oil and could cause a vehicle fire. This is Ford`s seventh recall
this year for the 2013 Escape.

GHARIB: How many Americans are worried about their jobs and the
economy? Apparently, a lot. A new survey by “The Washington Post
(NYSE:WPO)” shows that more than six in 10 American workers they`re worried
about losing their job, that`s the highest level since the survey began in
the 1970s. The newspaper also says that anxiety is highest among low-
incomes workers.

MATHISEN: Well, a lot of Americans are also worried about losing
their homes. And in one California city plagued by foreclosures, officials
have come up with a controversial way to keep struggling homeowners in
their homes — by invoking the right on eminent domain to take over the
properties. But will it work?

Jane Wells takes a look.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Realtor Jeffrey Wright walks through a bank-owned home in Richmond,
California, a city which the mayor said had 1,000 foreclosures last year
and planned to use eminent domain to buy under water mortgages isn`t going
down well.

JEFFREY WRIGHT, REAL ESTATE BROKER: Any time you have an involuntary
and hostile set of circumstances, there`s likely to be adverse
consequences.

WELLS: Wright holds a list of the 624 homes a firm hired by Richmond
is targeting to buy from banks at current market values and then refinance
to be affordable. The mayor says it will keep people in the homes and save
Richmond millions in foreclosure fees.

GAYLE MCLAUGLIN, RICHMOND, CA (NASDAQ:CA) MAYOR: We`re seeking
voluntary purchase and if they won`t sell to us voluntarily, we will
utilize legal authority of eminent domain. And this is, again, a last
resort.

WELLS: No bank has volunteered, but the city counsel doesn`t yet
have the votes to force eminent domain. Critics say many of the targeted
homes are in nice neighborhoods, two are on this street and loans aren`t
even delinquent.

(on camera): Some banks have sued, but a judge ruled its too early
for that. The plan hasn`t `even been approved yet.

But other cities are considering using eminent domain this way,
though some don`t want to risk the expensive lawsuits which will surely
follow.

TIM CAMERON, MANAGING DIRECTOR, SIFMA`S ASSET MGMT. GROUP: Chicago
has rejected, Brockton, Massachusetts has looked at it and rejected it, and
most recently, North Las Vegas has examined it and decided that was not for
them.

WELLS (voice-over): Now, Richmond`s mayor is talking to California
cities and wants to form a joint powers authority to take on banks with
more clout.

MCLAUGHLIN: I mean, we`ve waited for years for the banks, for the
federal government to step in and provide a solution. It hasn`t been
forthcoming. So the city is doing this, this common sense fix.

WELLS: Jeffrey Wright believes the fix is in if the plan passes.
Investors won`t want to make loans in Richmond and he says it`s giving
false hope to homeowners, like one who pulled out of a short sale banking
on the mayor`s proposal.

WRIGHT: So, there is a high likelihood that this person may very
well lose their property when they could have sold it on a short sale
because they are waiting on a program that`s not up and running and may
never be up and running.

WELLS: It may not be up and running here, but with other cities
still trying to solve the crisis five years in, it may get going somewhere.

For NIGHTLY BUSINESS REPORT, I`m Jane Wells.

(END VIDEOTAPE)

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

MATHISEN: And thanks from me, as well. Have a great evening,
everybody, and we will see you back here tomorrow night. Stay dry. Stay
out of the rain.

END

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