Transcript: Tuesday, December 3, 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 —

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Insolvent Detroit. The city becomes the largest ever to enter bankruptcy, leaving pensioners to wonder what happens next.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Trucking along. Auto makers, symbol of Detroit`s economy, sold more cars than expected in November. But can the pace of sales continue into the New Year?

GHARIB: And falling behind. American students are lagging other nations in reading, math and science. What changes need to be made to ensure future generations can compete in a global economy?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for this Tuesday, December 3rd.

MATHISEN: Good evening, everyone, and welcome. I`m Tyler Mathisen.

Well, remember how great the month November was for stock investors, all those records, all those consecutive weeks of gains? Well, hold that thought because so far December has gone the other way. Fast.

In fact, the Dow and S&P 500 today ended lower for a third straight session, logging their biggest three-day decline in two months. Some on Wall Street say stock prices are just too high that traders are taking some profits, that the markets are overdue for a pull back and this is the start of it. Or maybe it`s consumer spending, soggy so far this holiday season. Or maybe it`s the Fed`s seeing the blowout auto sales numbers among other positive data we`ll start pairing back on stimulus soon.

Whatever the reason, the market sold off again today. The Dow ending well off the lows of the session, however, nevertheless down 94 points and closing below 16,000, as you see there, the NASDAQ was down eight and the S&P 500 lost five dipping back below the 1,800 mark. Crude oil moved sharply higher, getting a boost from solid manufacturing data out of China. It shot up to more than $96 a barrel. That`s the highest price since Halloween.

GHARIB: A historic day for the city of Detroit, birthplace of the Motown sound and U.S. auto industry and now poised to become the largest bankruptcy in the nation`s history. A federal judge today declared the city could proceed with its bankruptcy filing, clearing the way for sweeping changes to contracts and pension pay outs to city workers and retirees, as well as potentially losses for the city`s municipal bond holders.

Scott Cohn is in Detroit. He joins us with more on today`s ruling, and what could happen next in Motor City.

So, Scott, boy, this is a landmark ruling. Tell us exactly what happened in court today and what does Chapter 9 mean for Detroit?

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Susie, it is hugely significant for Detroit, but it`s also significant across the country. That`s why this ruling is such a big deal, not just because it`s the biggest in U.S. history but because of implications not just here in Detroit but for cities, unions, pensioners and municipal bond investors nationwide.

Judge Steven Rhodes, the U.S. bankruptcy judge who is presiding over this case, said that Detroit could get through restructuring some of its massive debt, saying that the path of the city is on now, piling up debt cutting services not only unworkable but dangerous. He said the city needs help.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: So what is he telling me? Well, sorry, we`re going to take your pension, we`re going to make you homeless, starve you out and send you to a soup line?

We`re telling Judge Rhodes go to hell.

(END VIDEO CLIP)

COHN: Well, more specifically, the city`s largest employee union almost immediately filed a notice of appeal and there`s talk about appealing this ruling all the way to the Supreme Court because of the potentially massive cuts in those pension benefits for some 20,000 retirees. But meantime, as that plays, comes the long and hard work of restructuring the city`s finances, some $18.5 billion in debt. That task of coming up with a so-called plan of adjustment falls to the state appointed emergency manager, Kevyn Orr, who says it`s time for everyone to work together.

(BEGIN VIDEO CLIP)

KEVYN ORR, DETROIT EMERGENCY MANAGER: Come forward with us. Take this opportunity, even in the process of litigation and appeals to try to get at the sorely needed reform that this city has got to achieve so we can move forward into a new day.

(END VIDEO CLIP)

COHN: The unions say the time for negotiating was before the bankruptcy filing and the judge did say that Rhodes and the city did not negotiate in good faith but nonetheless, they said the filing itself was in good faith because the union refused to negotiate — Susie.

GHARIB: You know, Scott, you said this Detroit situation has implications for other cities across the country and you just did that fabulous series for us on broken cities. Are we likely to see more cities following the path for Detroit?

COHN: Well, they may not necessarily be filing bankruptcy, that`s pretty drastic but what it does is it really changes the dynamic now between cities and their unions. We talked about a couple weeks ago the massive pension obligations so many cities face. They have a path to try and clear out some of those obligations and possibly hold the threat of bankruptcy over the union`s head. The dynamic has completely changed.

MATHISEN: You know, Scott, the unions have been fighting understandably, but there`s not any money to pay some pension benefits and those funds are underfunded. So where do the union members expect the money to come from when the city is broke and what makes the union any different from a host of other creditors?

COHN: Well, the union says that the state is not insolvent and the state could be kicking in some money here. Indeed, Michigan Governor Rick Snyder said he wanted to wait to see how the bankruptcy process played out before he decided whether the state could give any aid to prop up its largest city. Now, we know that and will see if the state steps up.

MATHISEN: Scott Cohn, thanks very much for your reporting all day today.

All right. Despite the dire outlook for Detroit, the industry that spawned — that city spawned continues to be a lynchpin of the economic recovery. Sales of new cars and light trucks last month rose to the highest level since February of 2007, on pace now to move nearly 16.5 million units for the year.

Big gains for Detroit`s Big Three. General Motors (NYSE:GM) saw 14 percent sales increase, thanks to its Tahoe and Sierra lines, along with the Chevy Impala. Ford sales up 7 percent, getting a boost from the Ford Fusion sedan and those F-150 pickups. And Chrysler sales rose 16 percent on strong sales of Dodge Ram pickups and the Jeep Grand Cherokee (NASDAQ:CHKE).

Phil LeBeau joins us from Chicago with more on what drove those number sales so much higher.

Phil, a lot of auto makers ran Black Friday promotions this year. Did they really help?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oh, huge help, Tyler. And it wasn`t just on Black Friday, that`s a big draw. But it was through the whole weekend almost every automaker today said we had huge numbers this weekend, that`s why we saw strong sales.

GHARIB: Tell us a little bit about what to expect from the luxury car market. Of course, this is the time of year when people like to give those keys to the fancy car under the Christmas tree.

LEBEAU: Sure, they all have funny names for their sales or unique names, I should say, and they`re all pushing aggressive marketing plans right now, Susie. We saw strong sales in November, expect that to continue through December.

MATHISEN: All right. Phil LeBeau, we have to leave it there. And there you see those luxury sales, Mercedes number one and BMW and Lexus.

Phil LeBeau, thank you.

Well, President Obama trying to generate support for the revamped rollout of the trouble-plagued Healthcare.gov Web site, saying the site is working well, and warning critics that he will fight any efforts to repeal the Affordable Care Act.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This law is working, and will work into the future. People want the financial stability of health insurance, and we`re going to keep on working to fix whatever problems come up in any startup, any launch of a project this big that has an impact on 1/6 of our economy. Whatever comes up, we`re going to just fix it.

(END VIDEO CLIP)

MATHISEN: Well, the administration released a new report showing that through that Web site, nearly 1.5 million Americans have now been found eligible for Medicaid and that was during the month of October.

GHARIB: Still ahead on NIGHTLY BUSINESS REPORT, we`ll tell you about the company many are calling the big winner of Black Friday and Cyber Monday.

(MUSIC)

GHARIB: More numbers coming in for consumer spending over the long Thanksgiving and Black Friday weekend. ShopperTrak, a provider of retail analytics, reports that sales rose 1 percent at brick and mortar stores during those four days compared to so-called black weekend sale as year ago.

And ShopperTrak says total spending over the four-day weekend topped $22 billion.

MATHISEN: But not a lot on that money was being spent on personal computers. The research firm IDC says that shipments of PCs are expected to fall by 10 percent this year. That`s the biggest annual decline ever as more consumers turn to tablets and smartphones instead.

GHARIB: Speculation over an Apple (NASDAQ:AAPL) deal with China Mobile (NYSE:CHL) flared up again. Fortune.com showed a screen grab of a China Mobile (NYSE:CHL) subsidiary apparently taking preorders for iPhones. Apple (NASDAQ:AAPL) has been looking to increase its market share in China, but the world`s largest carrier of mobile phones denied that there is a deal with Apple (NASDAQ:AAPL) yet, and the Web site page has been taken down.

But investors liked what they heard and coupled that with a UBS upgrade. Apple (NASDAQ:AAPL) shares jumped 3 percent to $566.32, the highest since December 4th last year.

MATHISEN: Well, more good news for Apple (NASDAQ:AAPL), which appears to be shining this holiday shopping season, with iPads and iPhones flying off the shelves, without offering any discounts or other promotions to consumers.

Josh Lipton has more on Apple`s bright holiday prospects.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: In October, CEO Tim Cook said it was going to be an iPad Christmas, it looks like he could be right.

Consumers hit the stores on Black Friday looking for new tablets and many of them decide to buy iPads. It wasn`t just adults. The National Retail Federation says that for the first time, iPads were among the most popular gifts for children this year.

The new iPad Air has received a lot of positive attention. Walter Mossberg of “The Wall Street Journal” called it the best tablet he`s ever reviewed.

Apple (NASDAQ:AAPL) didn`t offer discounts for its devices, but it did give $75 gift cards with the purchase of an iPad Air and $50 gift card with an iPad Mini.

Big retailers took it one step further. Best Buy (NYSE:BBY) cut the price of the iPad Air by $50.

Apple (NASDAQ:AAPL) does face competition in this space. InfoScout, a consumer research company, says Apple`s iPad Mini was the top seller at Walmart on Black Friday. The iPad Air was the top seller at Target (NYSE:TGT). But at Best Buy (NYSE:BBY), Microsoft (NASDAQ:MSFT) Surface came in first.

Still, Scott Kessler of S&P Capital IQ says Apple`s success on Black Friday could mean a stronger holiday season for the company.

SCOTT KESSLER, S&P CAPITAL IQ: A lot of gifts were purchased for Christmas and probably won`t be opened for another few weeks. A lot of these products we think were probably bought for use now. And if that`s the case, you`re going to see people buying related accessories, software, content, apps. All those things are going to help boost Apple (NASDAQ:AAPL) we think throughout the month and throughout the holiday shopping period.

LIPTON: Apple (NASDAQ:AAPL) stock has surged higher. It`s up 46 percent since its low of $388 in June. Apple (NASDAQ:AAPL) had predicted revenue in the final quarter to be as much as $58 billion after the strong showing on Black Friday. Analysts at Jefferies think the quarter could now be tracking towards the high end of the forecast.

A further boost to Apple`s future, if reports are true, about China Mobile (NYSE:CHL) selling Apple (NASDAQ:AAPL) products, then analysts say that could mean an additional $10 billion in annual sales for the company.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

GHARIB: JCPenney had happy holiday news to report to investors after the market closed today, and that`s where we begin tonight`s “Market Focus”.

The struggling retailer says sales rose 10 percent compared to last November. Sales on JCP.com also were stronger. JCPenney stock rose in after hours. Shares were up 1 percent to $10.11 in the regular session.

Groupon (NASDAQ:GRPN) posted record sales this holiday weekend, with more customers logging on to score savings. The daily deal site reported that Black Friday and Cyber Monday were the two biggest sales days ever in North America since the company`s founding. The good news sent the stock up almost 4 percent to $9 and change.

Shares of OncoMed Pharmaceuticals scored on news of a deal with Celgene (NASDAQ:CELG). Celgene (NASDAQ:CELG) will help OncoMed develop and market six experimental anti-cancer stem cell drugs. The deal will leave OncoMed with $155 million to study the treatment. Celgene (NASDAQ:CELG) will also take a 5 percent stake in the drug maker.

Looking at the stock, OncoMed skyrocketed, doubling its price to $27.70. Celgene (NASDAQ:CELG) shares, however, fell 2 percent.

Xencor was a high flier in its first day of trading on the NASDAQ today. The biotech company went public, raising $70 million in its IPO. The stock rose more than 51 percent to $8.34.

MATHISEN: The activist investor Engaged Capital is certainly engaged in shaking things up at Abercrombie & Fitch (NYSE:ANF). The firm sent a letter to the teen retailer`s board, urging it to replace its CEO. His contract is up this February. The letter also says selling the struggling chain may be the best option for shareholders. Abercrombie responded to the suggestion, saying it welcomes input from shareholders. Shares popped nearly 6 percent to $35.99.

Well, the Oreo cookie maker Mondelez boosted its stock buyback program by $1.7 billion. That`s a lot of cookies. The increase is part of the company`s plan to use the proceeds from its legal dispute with Starbucks (NASDAQ:SBUX). Back in November, you may recall, Starbucks (NASDAQ:SBUX) was ordered to repay Mondelez for the early termination of a grocery store deal. The buyback announcement sent shares up more than 1 percent to $33.90.

Potash will cut nearly 20 percent of its workforce or about 1,000 jobs. The world`s largest producer of potash has been struggling to keep up its demand for two key fertilizer ingredients. Potash and phosphate had slumped. The cuts will take place in Canada, the U.S. and in Trinidad. Shares were a fraction higher today to $31.79.

GHARIB: A bad report card on American education. New test scores show American students continue to lag in international rankings. According to results from the Program for International Student Assessment, U.S. teenagers ranked below average in math and near average in reading and science. Trailing behind countries like Japan and China where students of the same age continue to maintain top scores.

Can this be fixed and what does this mean for businesses and America`s competitiveness.

Here to discuss this, Michelle Rhee, former chancellor of the public schools in Washington D.C. and currently the CEO and founder of StudentsFirst.

Michelle, we`re happy to have you. You`re such an education expert.

Let me just start with this first question of can this be fixed? Because just about every CEO that Tyler and I talk to are very worried about U.S. competitiveness and, you know, where will they get top talent in the workplace if our kids in school just aren`t doing well? What do you think?

MICHELLE RHEE, STUDENTSFIRST CEO & FOUNDER: It can absolutely be fixed. I hear the same thing from business folks saying they can`t find people in the applicant pool that have the skills and knowledge to fill mission critical jobs. That means there is a misalignment between what we are teaching our kids in school, and what the workplace requires.

It can absolutely be fixed by doing a few things. First, we need to make sure that we have high standards for all of our children. And we`re putting those things in place right now through what`s called the Common Core Standards, which will ensure we have a set of national standers that are internationally benchmark. So, that`s one important thing to do.

The second thing that we have to do is invest in our teaching force and make sure that we have the most highly effective and the best prepared teachers. That`s what other countries that are topping the list internationally absolutely do.

And the third thing is we have to have accountability, and that accountability has to be at every level from the students being accountable to the teachers, the principals, all way the up to superintendents and school boards.

MATHISEN: You know, Michelle, I was speaking earlier today to Craig Barrett, the former head of Intel (NASDAQ:INTC), who`s devoted much on his life lately to schools and education. He made exactly the same point you just did on accountability.

Is it not just accountability of the teachers and administrators all the way up to the superintendents of schools, but is it accountability also for students? In other words, do we need to be tougher with students? More demanding of them? And hold them back more if they`re not making the grades?

RHEE: Well, we do have to have accountability at every level, including students. And I think part of the challenge that we face today is that in American culture, we really shifted in the last couple of decades where now we spend a whole lot of time trying to make kids feel good about themselves, but we lost sight of taking the time that`s necessary to actually make them good at things.

So, you know, I always use the analogy of my kids — I have two girls who play soccer, they are not so good at soccer. But if you could see their rooms right now, they have trophies and medals and ribbons. So, we become this culture where, you know, just by showing up you get a trophy and I don`t think that does a lot for our American competitive spirit.

I think we need to teach the kids that in order to be the best, you have to work hard. You know, you have to be really diligent and I think if you look at the Asian countries that are topping the list, they definitely have a much more competitive culture where kids are expected to work a whole lot harder.

GHARIB: Well, I was going to ask you about that because we see in countries like China and India, how much of a work ethic students have and their parents. And in a country like Korea, a few years ago illiteracy rates were really high. And now, they kids are super smart.

RHEE: Yes.

GHARIB: So, you know, sort of two questions, if we sent American kid into China or Korea for a few years, would they come out math wizes, science wizes? Is it our culture, or is it our education method here in the U.S. that`s holding things back?

RHEE: I think America is the greatest country in the world, by far, and I think Americans have the ability to do something that no other country really does.

But we are struggling right now in terms of trying to create the kind of public education system that is going to ensure that all kids are doing well. So, if you send an average American kid into China or Korea right now, they wouldn`t perform particularly well.

But I have every sense of confidence in American kids that if we were to set up the right education environment that our kids could absolutely outdo any kids anywhere in the globe.

GHARIB: Well, that`s a very upbeat note to end this conversation. Thank you so much, Michelle.

RHEE: Absolutely.

GHARIB: Michelle Rhee, former chancellor of the public school system in Washington, D.C.

MATHISEN: And coming up, why it may be more important than ever for the book publishing industry to have a bestseller this holiday season.

(MUSIC)

MATHISEN: Remember Dennis Kozlowski? He`s the former CEO of Tyco, convicted in $134 million corporate fraud case about a decade ago? He`s famous for other excesses, buying a $6,000 shower curtain with company money. After serving the minimum 8 1/3 years in New York states prison for grand larceny and conspiracy and other charges, he was granted parole today. He`s scheduled to be released on January 17th.

GHARIB: And finally tonight, the publishing industry is banking on a hit this holiday season. Command authority is the final work in the late author, Tom Clancy. The book hit store shelves and e-tellers today, but will it be enough to give the struggling industry the blockbuster it desperately needs.

Julia Boorstin joins us with the story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The book industry is in trouble. Physical book sales fell more than 7 percent and everyone digital book sales expected to be publishing savior declined 5 percent.

Last holiday season accounted for about 20 percent of annual sales. So this holiday season, the pressure is on.

MICHAEL CADER, FOUNDER, PUBLISHERSMARKETPLACE.COM: Like all retail businesses, it`s critically important for authors, publishers, booksellers. I think it`s especially important for the physical booksellers.

SHERRI GALLENTINE, HEAD BOOK BUYER VROMANS: Oh, it`s very important. I would say the period between Thanksgiving and Christmas is the busiest time of year.

UNIDENTIFIED MALE: We give books the challenge we have is most everyone has Kindles now, so it`s gift cards for whatever books.

BOORSTIN: Last year was one of the biggest ever for book sales, thanks to breakout hits “The Hunger Games” and “Fifty Shades of Grey” trilogies, accounting for one in every 20 books sold.

This year, it`s a different story.

CADER: There are no big breakouts. That`s the problem or that`s the promise, depending on which side of the coin you`re sitting on.

BOORSTIN (on camera): The big question is whether new releases like Tom Clancy`s final book, “Command Authority”, hitting shelves today will help compensate for the lack of any dominating franchises.

GALLENTINE: There is fabulous new fiction this year. It`s an incredible list for fall and our sales are up right now and I think that`s due to just the great books out there despite not having a popular series.

BOORSTIN: In audition to Clancy`s highly anticipated release, John Grisham, Stephen King and Dan Brown`s new titles are expected to top the charts.

Plus, there are some quirky new books like Rush Limbaugh`s kids book “Rush Revere and the Brave Pilgrims”, and JJ Abrams conception novel “S”. Plus, books from the successful “Duck Dynasty” TV franchise.

UNIDENTIFIED FEMALE: We usually do a couple books for the holidays.

UNIDENTIFIED FEMALE: During the holidays, it`s like Christmas, it`s like a kid — I`m like a kid in a candy store.

BOORSTIN: Another wild card, how the explosion of e-books and tablets and the ability to instantly download books will help publishers.

CADER: It certainly makes it easier for people to pick up books that they`ve heard about because you get delivery so quickly.

BOORSTIN: When it comes to holiday book sales, consumers often want to buy something they can wrap up and put underneath the tree, keeping book stores like this one in business.

For NIGHTLY BUSINESS REPORT, Julia Boorstin, Los Angeles.

(END VIDEOTAPE)

GHARIB: You`re going to get “Command Authority”?

MATHISEN: Probably not.

GHARIB: Probably a fast read.

(LAUGHTER)

MATHISEN: Good for the (INAUDIBLE).

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.

And we want to remind, this is the time of year your public television seeks your support to make programs like ours possible.

MATHISEN: And I`m Tyler Mathisen. On behalf of your public TV station, thank you so much for your support. We hope to see you back here tomorrow night.

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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