Transcript: Wednesday, November 27, 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 —


another key element of the new health insurance law. This one for online
enrollment of small businesses. So, who is affected and what does it mean
for the Web site — with a critical November 30th deadline just days away?

stocks hit new records, do you know what your mutual fund owns? A close
look can sometimes reveal risky, complex and volatile securities.

MATHISEN: Planes, trains and cancellations. When a big storm
collides with one of the busiest travel days of the year, what`s the cost
to the airline business and the flyers?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
November 27th.

HERERA: Good evening, everybody. I`m Sue Herrera, in tonight for
Susie Gharib.

MATHISEN: And I`m Tyler Mathisen. Welcome.

More records on Wall Street today, more delays in Washington. In the
nation`s capital is where we begin tonight with more news of trouble
implementing the president`s signature health care law. On Thanksgiving
Eve, which is one business day left more a key deadline, the Obama
administration has delayed another part of the Affordable Care Act because
of lingering problems with the Web site.

This time, the administration is delaying for one year the ability of
small businesses to use the Web site to buy health insurance for workers.
Now, those companies can however use agents or brokers to buy coverage, or
they can go directly to insurers. Late today, there were reports, as well,
that Hewlett-Packard (NYSE:HPQ) will be a late inning replacement for
Verizon (NYSE:VZ) as the web host for the site.

Bertha Coombs joins us now with more.

Bertha, what does this delay mean for small businesses and their
employees? Who does it affect?

businesses with fewer than 50 employees. They are not mandated to provide
them with insurance, but this program, “The Shop” it`s called for small
businesses, would allow them to look at plans and enroll employees
automatically. Originally, they had delayed it until November 1st and now
it`s being delayed another year. They will be able to get tax credits
retroactively if they enroll through a broker, the way a lot of small
businesses do it.

But it just indicates, Tyler, that they are having still a lot of
technical issues on trying to clear things up on

And this afternoon, Dow Jones is reporting that Hewlett-Packard
(NYSE:HPQ) will serve as the host of, replacing Verizon`s
Terremark unit. You may recall last month, they had an outage that lasted
more than a day because of that hosting company having gone down. Their
fail-safes and backups didn`t work. They had another unexpected outage
this week that appeared to have been related to that. And so, it appears
now that they are calling an audible once again here and changing over to a
new hosting company.

So that kind of tells you that even though they continue to say it
will be working much better by this weekend, for the vast majority —
that`s the key phrase — the vast majority of users, there is still a long
way to go to get this up to snuff.

HERERA: You know, Bertha, maybe the late news from HP is part of the
contingency plan. But what other contingency plans if the site isn`t able
to meet demand for the enrollment?

COOMBS: Well, they are telling people to try on the phone and to try
with brokers and they are even trying to work with brokers to see if you
know which insurer you want to go to directly enroll with some of those
insurers. But it continues to be a situation where it`s not likely to be
smooth for everybody trying to enroll automatically online.

MATHISEN: Bertha Coombs, thanks very much.

HERERA: More milestones reached during a quiet session in the markets
today after first time jobless claims fell by 10,000 last week. Business
activity in the Chicago region picked up this month and the final reading
on sentiment for November edged higher. The Dow, the S&P, and the Dow
Transports and the Russell 2000 all reaching close highs today, despite low
volume in preholiday trading.

Here`s a look at the final numbers: The Dow up 24, ending at a record
closing high for the fifth straight session. The NASDAQ added 27, hitting
a fresh 13-year high, and S&P was up four.

And as the U.S. stocks hit new highs, a growing number of mutual fund
numbers are investing in complex securities typically bought by hedge
funds. We`ll tell you why and the importance of knowing what`s in your
fund a little bit later in the program.

MATHISEN: Well, Sue, snow, sleet, rain, punishing winds all combining
to make this Thanksgiving Eve the busiest travel day of the year, by the
way. A nightmare has grounded or delayed hundreds of flights, snarled
traffic on some of the country`s biggest and busiest highways.

So what does this mean to the airlines and to the economy?

Kayla Tausche has more.


Combine the severe weather and the nation`s busiest travel day and you get
one hectic holiday. Winter Storm Boreas barreling up the Eastern Seaboard,
throwing a wrench in Thanksgiving travels for millions of Americans.

FlightAware CEO Dan Baker said the effects have been felt in cities
across the U.S.

DANIEL BAKER, FLIGHTAWARE CEO: We got off to a rough start to the
week. There was some really bad weather, really that hit the Dallas-Fort
Worth area on Monday, and it really got the airlines off to a bad start.
The weather wasn`t too bad yesterdays but today is looking bad across the
entire East Coast.

TAUSCHE: More than 1,500 flights were cancelled out right between
Monday and Wednesday. With cancellations growing by the hour, Newark
International Airport saw the most disruptions.

United Airlines, for which Newark is the hub was waving change fees
for consumers looking to rebook. JetBlue doing the same for 15 airports.
Passengers on some 3,000 flights Wednesday saw the root delayed many
upwards of an hour.

Ryan Gardner (ph) of Philadelphia found out his Delta flight to
Atlanta was pushed back but just glad it wasn`t worse.

UNIDENTIFIED MALE: I`m hoping an hour, hour and say 15 minutes, two
hours most. But whatever, I`m not working. So I`m relaxed and in for the
long haul.

TAUSCHE (on camera): Beyond shelling out airport food and drinks,
it`s unclear how the cost of the storm for airlines will be passed on to
travelers. It is clear it will be costly for the industry.

(voice-over): Airlines for America said in 2012, delayed flights cost
the industry $7.2 billion in operating income or $78 for each minute
delayed. With Thanksgiving a day away, passengers just want to get to
their destination anyway possible.

UNIDENTIFIED MALE: We hope to get to Shreveport in time for

TAUSCHE: This holiday, that`s something to be thankful for.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Newark, New Jersey.


MATHISEN: Hope all those bags get there.

Looks like the merger between American Airlines and U.S. Airways has
gotten the final clearance for takeoff. A federal bankruptcy judge today
approved American`s parent company AMR (NYSE:AMR) to emerge from Chapter 11
bankruptcy protection, as well as the terms of the company settlement with
the Justice Department. That clears the way for the merger.

HERERA: The Federal Aviation Administration is warning that Boeing
(NYSE:BA) aircraft that used jet engines made by General Electric (NYSE:GE)
could experience some forced landings. This follows a series of icing
incidents in high altitude thunderstorms where some G.E. engines that had
been placed on 787 Dreamliners and the 747-8 jet lost trust midflight. No
injuries or incidents, though, were reported.

MATHISEN: Well, some big U.S. banks are in the Justice Department`s
crosshairs now over their hiring practices in China. This comes after Wall
Street watchdog, the Securities and Exchange Commission, sent a letter to
Goldman Sachs (NYSE:GS) and to Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) and
Citigroup (NYSE:C), investigating allegations of bribery and hiring
relatives of top Chinese government officials. In return, the companies
may have received favorable business treatment.

HERERA: And some of those same banks, along with a few other top
lenders may need to have a lot more money on hand to cover up bad loans or
to cover I should say bad loans. Credit did rating agency S&P says the
biggest U.S. banks may have to spend $104 billion to resolve mortgage-
related legal issues with investors and counter parties, as they try and
put the subprime crisis to rest.

MATHISEN: Well, applications for new mortgages dipped a little lower
last week. Down for the fourth week in a row, the Mortgage Bankers
Association says the rate on the average 30-year fixed rate loan edged a
fraction higher last week to 4.48 percent.

HERERA: But higher mortgage rates don`t seem to impact many buyers
from China, who are flushed with cash and leery of political instability at
home. So, California real estate is fast becoming the place to park their
cash and also their families, and that`s leading to a new boom for builders
who are now catering to these new home buyers.

Diana Olick reports.


brand-new housing development in Irvine, California, thousands of potential
buyers are touring models. The vast majority of them are Chinese and most
steered clear of our camera.

there is room for appreciation.

OLICK: Irvine realtor Kinney Yong`s phone is ringing off the hook.

YONG: What`s driving them over here is they have this cash that they
have and they want to park it somewhere or invest somewhere.

OLICK: But they`re not just investing in real estate. They are
investing in their children`s future, specifically their education.

who are buying here as an investment, but their kids are going to school

OLICK: That`s Brian Yang`s plan, whom we spoke with from China via
Skype. He bought an older home in Irvine and plans to move there in five
years, when his daughter turns 10.

BRIAN YANG, SHENZHEN, CHINA: Education in America is very good and
world class. So, first of all, needs for education. And I think the
second one is for the property appreciation.

OLICK: For now, he`s renting the home and getting a 5 percent return.
But over in the great park neighborhood`s development, big U.S. builders
like Lennar (NYSE:LEN), Pulte, Rayland, and K. Hovnanian are rushing to
cash in, even employing the multigenerational floor plans and Feng Shui
designs the Chinese buyers want.

And cash is king, a seemingly limitless amount.

HELEN ZHANG, TARRELL REALTORS: The price they are looking, it doesn`t
matter, you know, $800,000, $1 million, $1.5 million, whatever. They like
it — they will, they will purchase it.

OLICK (on camera): While education and investment are the primary
drivers, quality of life doesn`t hurt, either. Many of the buyers we spoke
to said they like the climate and the lack of pollution in California and
the political stability doesn`t hurt, either. As for where all that cash
is coming from, nobody wanted to talk about that.

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


HERERA: And to read more about what`s driving this new boom for
homebuilders, head to our Web site,

MATHISEN: And still ahead, ever wonder how the world`s largest
retailer makes sure it shelves stay stocked on Black Friday? We got a rare
look inside Wal-Mart`s very complex operation.


HERERA: Are you seeing more adds on your mobile phone or home
computer these days? Well, that`s no accident. Seeing a big boost in e
commerce sales they will spend more on digital ads this year than they did
in 2012, with the group e-marketer predicting stores will increase their
digital ad spending nearly 16 percent, to almost $10 billion.

MATHISEN: So, will all those advertisements make you want to spend
more this holiday season?

Well, NBR took the streets, asking consumers what their shopping plans
are for this holiday season.


UNIDENTIFIED MALE: I do my shopping probably the first weeks of

UNIDENTIFIED FEMALE: I`ll do some department store shopping. I`ll do
some boutique shopping.

UNIDENTIFIED MALE: Christmas shopping can happen until right before
Christmas which is pretty traditional.

UNIDENTIFIED FEMALE: I do a lot of online shopping.

UNIDENTIFIED FEMALE: I shop at stores, and I have problems because I
like shopping for myself more than other people.


HERERA: Well, with all that spending, stores have to be prepared to
get enough of those Black Friday bargains, from warehouses to stores in
time to reach those eager consumers, and it says that Wal-Mart (NYSE:WMT)
as the most sophisticated logistical system in all of retail, to do just

Courtney Reagan gets a look at how it all works for the world`s
largest retailer.


Wal-Mart`s logistics execution is central to its ability to keep prices low
and stave off competition. This distribution center in Tobyhanna,
Pennsylvania, services 97 stores in four states as well as dotcom orders.
Wal-Mart (NYSE:WMT) projects total e-commerce sales will grow to $9 billion
this year. As a result, the company has to further enhance sufficiency so
distribution centers can help with dotcom fulfillment.

MAC MCCLENATHAN, WAL-MART: As our efficiency have increased and our
ability to control inventory as a company, we require half of the inventory
that we used to require. It made good sense as a company I think to
utilize that space and we do that through the e-commerce centers that we
can have within a regional distribution center.

REAGAN (on camera): This is one of 158 Wal-Mart (NYSE:WMT)
distribution centers in the U.S. This one covers 1.2 million square feet
of floor space. There is 17 miles of conveyer moving 18,000 cases per

(voice-over): While much of the process is automated, there is a
critical human element as well.

UNIDENTIFEID MALE: Have you ever played catch up (ph)? It`s
basically the same thing. It`s basically we do in the human light form of

REAGAN: On this trip, our driver Gene Bartlett (ph) arrives to pick
up a trailer filled with products going to a store in North Bergen, New
Jersey, two hours away.

Gene is one of Wal-Mart`s 7,200 truck drivers each logging more than
100,000 miles a year. At the store, the associates are ready knowing the
moment the truck will arrive and greet it and unload the Black Friday



MATHISEN: Hewlett-Packard (NYSE:HPQ) was the best performing stock
today and that`s where we begin tonight`s “Market Focus”.

The stock rose after the former Dow component posted a profit,
reversing last year`s loss, as we reported on NBR last night.

But today, CEO Meg Whitman made it clear she`s looking for revenues to
stabilize in the New Year but not grow.


MEG WHITMAN, HEWLETT-PACKARD CEO: Well, it is a pivotal year for HP
and what we said at our security analyst meeting six weeks ago is you
should expect revenue to stabilize, probably not grow in 2014 but
stabilize, and you`ll see real progress in terms of our innovation, our
operational excellence and our ability to deliver great products for


MATHISEN: Shares climbed in today`s session, up 9 percent to $27.36.

Well, despite its growing list of competitors, TiVo (NASDAQ:TIVO)
added a lot of subscribers. The maker of digital video recorders beat Wall
Street estimates, saw its customer count increase now for the ninth
straight quarter. More people are turning to TiVo (NASDAQ:TIVO) because it
allows access to online video like Netflix (NASDAQ:NFLX) and Hulu.

Still, investors were bearish on the stock today. They were down more
than 4 percent to $12.66.

CVS (NYSE:CVS) Caremark announced today it will buy the specialty drug
infusion business Coram for about $2.1 billion. Coram is an infusion
therapy provider, treating problems like immune deficiencies and multiple
sclerosis. The acquisition will help CVS (NYSE:CVS) diversify its
treatment offerings. The news sent shares to an all time high, up 1
percent to $66.76.

Shares of Foster Wheeler popped today on reports that the British
engineer Amec is eyeing a takeover of the company. That would create an $8
billion energy provider. Goldman Sachs (NYSE:GS) reported to be the
adviser on the potential deal. Shares higher by 6 percent, $30.49.

HERERA: Yesterday, we told you that Aeropostale (NYSE:ARO)
shareholders are pushing for the teen retailer to sell itself. But one
analyst says Abercrombie & Fitch (NYSE:ANF) is a better buyout candidate.
The analyst at FBR Capital Retail said Abercrombie & Fitch (NYSE:ANF) was
the best value among teen retailers. That sent shares of Abercrombie up 2
percent to $34.37, and shares of Aeropostale (NYSE:ARO) down almost 2
percent, to $9.84.

And yet, another teen retailer issued a weak forecast. Tilly`s saying
poor traffic trends and high promotions will hurt its bottom line. The
company also reported a revenue miss, and that sent shares nose-diving down
a full 24 percent to $12.

And the network equipment maker Infoblox is predicting a weaker than
expected second quarter. The company`s loss widened as margins weakened
and cost rose. Shares of almost tripled in the past year on strong demand
for its products which helped companies manage Internet traffic. But,
today, the stock tumbled, down more than 28 percent to $32.08.

Well, exotic investment products got loads of blame for sparking the
financial crisis five years ago. Bu now, as investors struggle to generate
returns on fixed income assets, some retail mutual funds are turning to new
types of similarly complex package securities to get higher yields and
protect against risks. But how risky are the products and what do you need
to know about what may be in your mutual fund?

Here to discuss is Mark Okada. He`s cofounder and chief investment
officer at Highland Capital Management.

Mark, welcome. Good to have you with us.


MATHISEN: You have funds that have in them, among other products,
products known as collateralized loan obligations. I need you to explain
for the viewers tonight what they are and whether I should be worried about
them because whenever I see the word collateralized, because I remember
collateralized were a lot of the products that ran into trouble in the
financial crisis, CMOs, CDOs, and then credit default swaps, I start to

Should I?

OKADA: Well, you should be concerned when you don`t understand
something. And the idea about our collateralized loan obligation is
something we should discuss.

So, what really a CLO is and we did the first CLO. Our firm Highland
Capital was first CLO back in 1996, it`s just a securitization of bank
loans, and the fund we were talking about earlier invests a small
proportion, about 10 percent of our capital, in the debt of these

What`s really important, though, to the concern that you just
mentioned is that a lot of the babies have been thrown out with the bath
water when we look at the entire collateralized bond market, the CBO
market, et cetera, et cetera and CLOs have been really I think difficult to
understand because they have been clobbered with the whole market.

So, specifically, we`ve seen a lot of resurgence in activity in the
space because CLOs, unlike a lot of those you talk about, have done very,
very well. The default rate and the loss in that space over that entire
history from 1996 to today has been less than 2 percent in its entirety, as
far as realize default losses.

So —

HERERA: Yes, Mark, what makes it attractive is you do get a higher
yield but the rate also floats, so if interest rates do tend to go up, you
get the advantage of that, correct?

OKADA: That`s right, Sue. We`re doing this in a bank loan mutual
fund which a lot of investors are allocating to today because they want to
get away from the interest rate risk that they find in their fixed income.
And CLOs, just like bank loans, are floating rates. So, you`re exchanging
one type of risk for another. You`re not taking interest rate risk, which
right now is really a difficult thing and something you should be concerned
about, and you`re substituting that for floating rate, which is a great
benefit for investors today.

MATHISEN: So low default risk you maintained here and have the facts
to back it up. What are the kinds of loans that are in these
collateralized loan obligations, these packaged securities? What kinds of

OKADA: Right. So, bank loans are just like high yield bonds. They
are low investment grade, and we use them in general called leverage
finance to really finance all of the MNA activity, leverage buyouts,
leverage recaps. So when you think about bank loans, those are the type of
bank loans that the markets are investing in today but they are also the
type of bank loans that collateralizes CLO.

One important part about the CLOs that we deal in is their credit
quality is higher than the bank loan portfolio. So, the CLOs themselves
are investment grade so they have less intrinsic risk than the actual loans
that are in the collateral pool and it makes sense because you`re secured
by the loans and you have equity cushion below you.

MATHISEN: Very quickly, who is doing the rating of those loans? And
can I trust them?

OKADA: Moody`s and S&P, and so you`re right to make that point, and
we have an entire business of making sure that we understand exactly what
is in all of our CLOs. We`re not relying on rating agencies for analysis.
Our team really rips apart all of these transactions and that transparency
makes us not worry about what we`re doing.

MATHISEN: Mark, thank you very much. Have a great Thanksgiving.

OKADA: You, too.

MATHISEN: Mark Okada is co-founder and chief investment officer at
Highland Capital Management.

HERERA: And coming up, why American wine makers are toasting another
year of bumper crops.


HERERA: Seen any good movies, lately? Well, Disney (NYSE:DIS) has
made some pretty good ones. The studio just announced that its movies have
passed the $4 billion mark at the global box office this year, for the
first time ever. And the company cites big hits like “Iron Man 3″” and
“Monsters University” for some of that big money.

MATHISEN: You got movies on your list this weekend?

HERERA: Just “Frozen”, yes.

MATHISEN: Yes, all right, all right.

There is a lot of money being spend on wine, not just in the theaters,
but especially around the holiday time, people like to buy nice wine.
Trouble is, some published reports say there may be a shortage in the world
supply of wine.

But as Jane Wells shows us, California`s Napa Valley, the country`s
leading wine region, appears to have plenty to toast this year.


CROWD: Cheers.

Napa Valley winery, Willie and Corey Robertson of “Duck Dynasty” toss their
latest business venture.

WILLIE ROBERTSON, DUCK DYNASTY: Wine. I`ve tried to make wine one
time and realized I was not good at it.

WELLS: Their new Duck commander wines are selling in Wal-Mart
(NYSE:WMT), expanding the wine audience at a time when one Wall Street
suggests the world is running short on wine.

Are we going to run out of wine?


WELLS: Thank goodness.

The harvest has ended in Napa Valley, and it looks like a bumper crop
for the second year in a row.

GLADYS HORIUCHI, WINE INSTITUTE: It`s exceptional. It`s going to be
a vintage year is what they are saying.

crop in quantity and in quality. It was probably up 4 million tons, which
is above average.

WELLS: Bob Torkelson, CEO of Trinchero Family Estates, the nation`s
fourth largest wine producer behind labels like Sutter Home, and Menage a
Trois, the best selling red in America.

The company is spending $300 million to expand and even though overall
volumes of wine in the U.S. are only up a little, revenues are growing
faster as people trade up to wines priced $15 to $20.

FRANZIA: There is not much wine sold over $10.


FRANZIA: Especially open (INAUDIBLE).

WELLS: That`s Fred Franzia, the man behind Charles Shaw, also known
as Two Buck Chuck, which is now 2.50 bucks due to inflation and sales
reached 800 million bottles.

FRANZIA: We must be doing something right.

WELLS: At the same time, California wine makers shipped one out of
every five bottles overseas, and China is the fastest growing market.
However, it has been the most difficult to uncork.

TORKELSON: China is a big puzzle for us right now in the industry.
We`re really trying to get our hands around it and understand it. The
French have a big head start there.

WELLS: Here at home wine faces competition from craft beer and
spirits, but wine makers are holding their own, finding new markets.

Knowing there is no shortage of wine to choose from is certainly
something to drink to.



HERERA: Sure is.

Finally tonight, another record setting auction in New York City last
night but this time it wasn`t for a work of art. An anonymous bidder paid
more than $14 million for a Book of Songs. What makes the tiny book so
valuable, it`s believed to be the first book printed in the United States.
In the year 1640, with only 11 copies of the Bay Song Book has survived for
the last four centuries. This $14.2 million is the most ever paid for a

And I`d say you`d call that a work of art.

MATHISEN: Yes, absolutely.

And from all of us here at NBR, we wish you all a very happy
Thanksgiving and a happy Hanukkah.

HERERA: That`s NIGHTLY BUSINESS REPORT for tonight. Do have a great
holiday. I`m Sue Herera. Sue is back on Friday.

MATHISEN: And I`m Tyler Mathisen. Sue, have a great holiday and

HERERA: You, too, Ty.

MATHISEN: Tune in tomorrow for a special Thanksgiving edition of
NIGHTLY BUSINESS REPORT, right here on your public television station.


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