Transcript: Wednesday, December 4, 2013

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Digesting the data. Conflicting economic reports leave investors scratching their heads. What will the Fed do next and when?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: One direction — higher. That`s where many believe mortgage rates are headed — leading some brokers to declare now is the time to act.

MATHISEN: How safe is your pension? Does the ruling in Detroit and the overhaul in Illinois signal a change to retirement benefits nationwide?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, December 4th.

GHARIB: Good evening, everyone.

It`s now four in a row. The Dow and S&P fell again today backing away from last week`s record setting highs. Blame it on a new batch of positive reports on jobs, housing and the Fed`s upbeat Beige Book survey on the economy. The takeaway for investors: the Fed will soon begin tapering back its stimulus plans and that might not be good for the markets.

Now, all this comes just two days before the release of the monthly jobs report, a key data point for central bank policymakers. So, it`s no wonder stock averages seesawed all day between gains and losses and finally ending mostly in the red for the day. The Dow lost 25 but down as much as 125 earlier in the day. The NASDAQ edged up only a fraction and S&P fell two points.

And those same concerns about the Fed`s next move sent the yield on the benchmark 10-year treasury note above 2.8 percent. That`s the highest since September.

MATHISEN: So, how does the Federal Reserve see the economy right now as it prepares for its next policy meeting later this month?

Steve Liesman takes a look now at the bank`s latest Beige Book survey around the country and what that, along with this Friday`s November jobs report, could mean for the future of its stimulus program.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some strong employment data today raising prospects for better job growth but also raising fears in the market of less Fed stimulus. The private payroll company ADP in a much followed monthly report forecasts that payrolls in November rose by a strong 215,000 in the private sector, far above estimates of Wall Street economist.

What`s more? ADP revised upward the October report by 54,000 to 184,000 jobs.

Now, ADP is only an indication of the more important government report on payrolls that comes out this Friday, but if two months of strong job growth are concerned, it could raise hopes for a green Christmas. More people working usually means more spending on holiday gifts.

The Federal Reserve reported in its Beige Book today, that`s the collection of economic antidotes from the 12 Federal Reserve districts around the country, that retailers were hopeful but cautious ahead of the holiday shopping season.

Now, strong job growth would also indicate that employers look through the 16-day government shutdown and hired anyway. That suggests underlying economic strength despite the fiscal fisticuffs in Washington.

On the downside, the Fed is looking for sustained gains in employment as a condition for reducing the amount of stimulus in the economy. If Friday`s jobs report shows payroll growth and lower unemployment, it will raise market fears that the Fed could cut back on its bond purchases designed to lower interest rates.

The market will then have to judge whether stocks can have more Americans working but less stimulus from the Federal Reserve.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Well, another strength in the economy has been housing. But last week, applications for new mortgages fell nearly 13 percent. That`s the fifth straight weekly decline with mortgage rates ticking a little bit higher, now averaging 4.3 percent for a 30-year conventional loan.

GHARIB: But sales of newly built homes soared in October. That`s the biggest monthly increase in over three decades. Too good to be true? Some think so.

Also, that jump in interest rates has some lenders saying, act now before it`s too late.

Diana Olick reports.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): At Pennsylvania-based Orleans Homes, business has been brisk ever since the government shutdown ended.

ALAN LAING, ORLEANS HOMES CEO: The government shutdown being resolved contributed to people`s peace of mind, and I think they have gotten hesitant prior to that. And when that passed, they came back from the sidelines right away.

OLICK: And according to new government numbers out today, the story was the same nationwide. Contracts signed to buy newly built homes jumped 25 percent after falling 6 percent in august. So eye popping in fact that some analysts don`t buy it.

JED KOLKO, TRULIA CHIEF ECONOMIST: The real increase in new home sales I think looks much closer to about a 5 percent increase year over year. Not a 25 percent increase month over month.

CHRISTOPHER THORNBERG, BEACON ECONOMICS FOUNDING PARTNER: I don`t believe those new housing sales numbers. Overall, the single family construction market is still completely in a slump.

OLICK: Why the distrust? Because sales have been weak for months. August numbers were revised down by 15 percent we learned today and September`s numbers fell from there down 10 percent from a year ago, then this huge October leap?

DIANE SWONK, MESIROW FINANCIAL CHIEF ECONOMIST: This number will likely be revised down as well. But even if you take it at its face value, you`re still only going back to the April levels of new home sales, which is nothing stellar. It was a better market, but it certainly isn`t a market that`s soaring.

OLICK: That`s because mortgage rates are rising right along with home prices, and that will continue into 2014.

LAING: In the summer months, I think it contributed to demand. I think people thought we better get in now and lock up at the lower rates, and I think as that passed, it may pull some demand forward.

OLICK (on camera): Mortgage rates then fell a bit and held steady for the past few months. But last week, they began to rise again and continued this week on positive economic data. A good jobs report on Friday could push them even higher and that`s why some lenders are urging their customers to lock in now.

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

(END VIDEOTAPE)

GHARIB: To read more about new home sales and whether now is the time to lock in your mortgage, head to our Website, NBR.com.

MATHISEN: A new survey of CEOs from some of the nation`s biggest companies shows they are more optimistic about the U.S. economy over the next six months, and even expect to hire more workers. But the business roundtable representing chief executives at 200 large firms, still expects the economy to grow at a rate of just 2.2 percent next year. That is unchanged from previous surveys.

GHARIB: Now, while those CEOs may have a rosier outlook on the economy, lawmakers in Washington appear to be doing their part. Reportedly, they are close to a deal on a federal budget.

John Harwood joins us now from Washington.

So John, tell us how things are going and where do those budget negotiations stand right now?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT: Well, Susie, I`d say the lawmakers are doing their part a little bit. It does not look as if they are on the brink of a huge grand bargain deal, the kind that would put our long-term entitlement programs and revenue stream on sounder footing, but it is a modest deal that they are getting close to announcing perhaps by the end of this week, that would reshuffle $90 billion over two years. It would lift the sequester caps with equal amounts being raised for both domestic and discretionary spending, and that would be offset so that it doesn`t add to the deficit by some revenue increases, though not taxes and some entitlement cuts, though not Medicare and Social Security. The two programs could have long-term funding problems.

It`s a modest deal but lawmakers hope that they can announce it by the end of the week, enact it next week and avoid a government shutdown in January.

MATHISEN: All right. So, John, who are winners and losers in this budget to the extent we know what stays and what goes, and maybe more pointedly, what does this mean for those looming deadlines the government shutdown number which was I think middle of January and then the debt ceiling debate, which resurfaces then again, I think, right around the Super Bowl?

HARWOOD: Tyler, it means both that the debt ceiling increase and the government funding are likely to occur as scheduled, avoid a crisis like we had. Lawmakers don`t have much appetite for that, especially going into an election year. So, in that sense, it`s good news for the entire country.

In terms of losers, the kinds of fees they are talking about and again, we don`t have a final deal, are things like higher airline ticket fees. The president had those in the budget. When you look at the budget cuts, again, not Medicare, Social Security cuts, but federal retirement benefits would be cut somewhat, so federal workers could be losers to a small degree in this deal.

GHARIB: John, I want to ask you about President Obama`s speech today about the nation`s growing income divide. But first, let`s listen to this clip.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The idea that a child may never be able to escape that poverty because she lacks a descent education or health care or a community that views her future as their own, that should offend all of us, and that should compel us to action. We are a better country than this.

(END VIDEO CLIP)

GHARIB: So, John, what does the budget have to do with the speech the president gave today?

HARWOOD: Well, the president has two goals. One — the first is do no harm to the economy and if they can get a budget deal, avoid a shut down, that would meet the goal but longer term he`s got more protective things he wants to do, like raise the minimum wage, spend on education and he may not get those out of this Congress, but what he`s hoping to do with speeches like this one today is plow the ground for future years, maybe even future presidents to make progress on those priorities.

GHARIB: I`m sure it`s going to create a lot of heated debate on the Hill. But thanks a lot for that update. John Harwood from Washington.

MATHISEN: And still ahead, how safe is your pension, whether you work for a city, a state or a private company?

(MUSIC)

MATHISEN: The price of oil moved higher for the fourth session in a row. Just like U.S. inventories of crude fell for the first time in 11 weeks. Crude prices today up more than a dollar, closing at a five-week high of $97.20 a barrel.

GHARIB: Meanwhile, OPEC oil ministers meeting in Vienna today decided to keep production quotas unchanged. The decision comes despite a new burst of oil production in the U.S. and the possible return of Iran`s oil to the market.

Steve Sedgwick has more.

(BEGIN VIDEOTAPE)

STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Here in Vienna, OPEC ministers decided to keep output levels unchanged at 30 million barrels a day. A lot of questions remain, though, for 2014, with the announcement that Iran is back at the top table. Iran, of course, is having rapprochement with the West over nuclear issues and this means that potentially in 2014, we could see more Iranian oil come to the market.

The Iranian oil minister said to me, technically, they hope to put 4 million barrels of oil on the market later in 2014, once sanctions were aid. But, of course, Iran is producing 3.75 million, 4 million barrels a day, and there are hopes that Nigeria and Libya can produce a lot more oil. This could lead to over supply at some stage in 2014. But the next meeting scheduled for OPEC is June 11th.

It promises to be an interesting meeting, with the fact that we`re also seeing an increase in non-OPEC supply, from the likes of U.S. Shell, which the group today said was not a threat to OPEC, in fact was a welcome audition to global oil surprise.
This is Steve Sedgwick for NIGHTLY BUSINESS REPORT, in Vienna.

(END VIDEOTAPE)

MATHISEN: Well, Carl Icahn wants candy from Apple (NASDAQ:AAPL) and that is where we begin tonight`s “Market Focus”.

Specifically, he wants the company to spend some of its cash to buyback $50 billion in company stock. Now, the activist investor revealed he filed a new shareholder proposal with Apple (NASDAQ:AAPL) in late November. The fresh detail, his $50 billion pitch is $100 billion less than he suggested back in October. That may be because the stock has gone up from when he suggested a repurchase at $525 a share.

Shares were off slightly today, but they still traded above $525, at $565.

And Disney (NYSE:DIS) is raising its dividend. The company`s board of directors declared an annual cash payout of 86 cents a share, up 15 percent and payable to shareholders, a record, at the close of business on December 16th.

The announcement was made after the close. Shares finished the regular session slightly higher, $69.97.

The apparel retailer Express (NYSE:EXPR) is forecasting a weaker than expected holiday season, due in part to aggressive discounting. The company also reported a third-quarter earnings miss and the CEO said on the conference call that he does not expect the promotions to end any time soon. Shares down a big 23 percent to $19 even.

Hayman Capital has reportedly taken a stake in General Motors (NYSE:GM). The hedge fund relieves shares of the automaker could rise by more than 40 percent over the next 12 to 18 months. GM is one of Hayman`s largest investments right now. General Motors (NYSE:GM) popped nearly 2 percent, $38.71, the close.

GHARIB: Higher prices and remodeling costs weighed on Bob Evans` second quarter earnings. The food and restaurant company reported that profits plunged 46 percent. It also gave a weak outlook for the upcoming fiscal year. To counter slowing sales, the chain has tried to bump up menu prices and remodel eateries tacking on extra costs. The stock dropped 5 percent to $52.33.

Standard & Poor`s upped its credit rating on Las Vegas Sands (NYSE:LVS). The rating service did not quite lift the stock to investment grade but it predicts a stable outlook for the world`s largest casino. That sent shares up almost 4 percent to $74.51.

Now, the famous shorts seller, Jim Chanos, has reportedly taken a large short position in CGI group, a subsidiary of CGI group is a company behind the plague rollout of Healthcare.gov. Reports of the short against the tech firm sent its shares down more than 3 percent to $34.99.

And the nation`s largest dealership chain, AutoNation (NYSE:AN), reported a 13 percent gain in new vehicle sales for November. Demand for domestic import and luxury cars all rose by double digits. AutoNation (NYSE:AN) CEO says Black Friday powered the sales gain.

(BEGIN VIDEO CLIP)

MIKE JACKSON, AUTONATION CHAIRMAN & CEO: If you look at the selling rate for the industry of annualized 16,400,000 for November and compare that to a selling rate of 15.2 million for September and October, you see we really needed a big Black Friday, and we got it.

(END VIDEO CLIP)

GHARIB: And the stock jumped nearly 3 percent to $50.21.

Tyler?

MATHISEN: Well, a new report from Experian, the credit report company, shows how Americans are paying for all those new cars and pickup trucks we`ve been buying, with loan rates so low, more new car buyers are taking out bigger loans, with longer payback periods.

Right now, the average loan amount is nearly $28,000 and the average length of one of those loans has been stretched to five years and five months.

GHARIB: Well, student loan debt is higher, too. A new report shows that seven out of ten college graduates had to borrow money to wear the gap in gown in 2012, and they came out of school with an average debt of more than $29,000.

MATHISEN: Well, for graduates, too much debt can be a grave financial hindrance for households, businesses, and increasingly, municipalities, it can be a real crusher. As yesterday`s landmark Detroit bankruptcy court decision makes clear.

Today, taxpayers, pensioners, bond holders, municipal finance experts all across the country have been trying to figure out just what the Detroit decision might mean to them.

Here to help us tonight is J.P. Aubry, assistant director of state research at the Center for Retirement Research at Boston College.

J.P., welcome.

Now, if this decision is upheld, by how much might a typical Detroit pensioner receiving, say, $20,000 a year see their benefits cut and how much do municipal workers in municipalities outside of Detroit need to worry about changes to their pensions?

J.P. AUBRY, ASSISTANT DIR., STATE & LOCAL RESEARCH: Well, it`s unclear how much cuts they will get to their pension benefits. That hasn`t been decided yet. What is clear that cases such as Detroit have very little implications for the nation on the whole. Detroit is a special case. Pensions were part of the issue but it has been a shrinking city with an industry that`s been declining, as well as a revenue base declining for sometime.

And so, it`s hard to see how cities around the nation could draw much from the situation in Detroit being that it`s so unique.

GHARIB: But, you know, this whole question of pensions has been brought to the fore because of Detroit. But let`s say I`m someone working in a city that doesn`t have any problems. The question those people are wondering, how safe is my pension? Can we answer that definitively?

AUBRY: Not definitively. But in most cases, pensions are very well-protected. I mean, you can look at the example of Detroit. They had to go through bankruptcy result see proceedings to touch these things.

And so, the burden of proof is on the city to make a case that they can — that they are eligible and that`s a high threshold. And so, for the most part, pension benefits are usually safe around the nation and most states and localities, pension benefits are protected for current employees and their future accruals and for retirees.

MATHISEN: You know, but I`m looking at research that your own group put out, saying that 126 public plans were only 73 percent funded using the most optimistic pension return formula, 50 percent using the more conservative 5 percent return figure. So, what percentage of public pensions are underfunded and there, the numbers that indicate that they are underfunded not by just a little but in some cases by a lot?

AUBRY: Right, this is correct. Those numbers are exactly right. Currently in 2012, based on our sample of 126 state and local pension plans that we maintain at the center, the funding ratio was about 73 percent.

A lot of that unfunded liability isn`t due to current workers. Pension funding really wasn`t involved until about the `70s or `80s. So, a lot of these are legacy costs from a past time and plans have been working steadily to fill that gap.

MATHISEN: The cost, real or not? Are the costs real or not? Are those numbers really speak to anything? Are you telling me that they don`t really matter?

AUBRY: No, those numbers are real. But what you need to understand is that a plan have been working steadily to fill that gap. So that was an unfunded liability from a past time and they have been working steadily to increase the funding over the period in order to fill the gap. So, we`re just not to the point where this funding of that gap has been completed yet.

GHARIB: J.P., let me ask you this, this raises the question that a lot of people used to take a job as a teacher in a public school or join the police force because they know — even though their salary might be low, they would get good benefits and pensions. It seems like that formula is changing.

So, what does this mean for cities and municipalities in terms of attracting top talents? Is this going to become a problem?

AUBRY: You raise a good point. At the center about a year ago, we did a study comparing public and private compensation, total compensation, that is salaries plus their pensions and other fringe benefits like retiree health care. And we found that public and private sector employees basically get the same total compensation when once you control for their age, their education, their time in the work force.

So, if you just cut an employee`s pension benefits without giving them an increase in the salary in any way, they are basically offering them less in total compensation. Now, if I`m a young employee choosing where to go in the work force, public or private and I have a certain set of skills, if I can get more money in the private sector for those skills —

MATHISEN: You`re going to go there.

(CROSSTALK)

MATHISEN: Yes. J.P., thank you very much. Appreciate your help tonight. It`s complicated, thorny question.

AUBRY: No problem.

MATHISEN: J.P. Aubry is assistant director of state and local research at the Center for Retirement Research at Boston College.

GHARIB: And coming up on the program: will cold temperatures deliver hot sales for some retailers this year?

(MUSIC)

GHARIB: The calendar says December but an arctic cold front is sending temperatures far below normal across much of the nation this week. In California`s Central Valley, citrus growers are bracing for below freezing temperatures, which threaten to damage hundreds of millions of dollars worth of orange, lemon and other crop. Farmers are preparing to water down those crops and turn on wind machines to circulate warmer air to try to ward off damage.

MATHISEN: Well, that same snap of cold weather has already made some retailers and apparel makers thankful that they won`t be left out in the cold this holiday shopping season as wicked wintry weather is coming just at the right time.

Courtney Reagan explains.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A little chill in the air is at the top of many retailers wish list during November and December and on the first key shopping weekend, Santa delivered early. Arctic cold air sat on most of the eastern half of the U.S. during the Black Friday week, pushing temperatures three to 15 degrees cooler for average, making this year`s Black Friday the coldest in more than 20 years for a large portion of the country.

The results appeared to have followed through just as retailers would hope. VF Corp owned North Face and Decker`s Ugg boots were the only apparel searches popping up in Google`s top search trends over the Black Friday weekend. Footlocker (NYSE:FL) also says strength in VF Corp`s Timberland (NYSE:TBL) business is making the shoe retailer optimistic about boots this season.

(on camera): JPMorgan (NYSE:JPM) analyst Matt Boss says the weather has been a positive X factor for retail, noting anecdotal evidence suggests it is impacting consumer buying. Boss says Macy`s (NYSE:M) CFO recently told investors the department store sees increased opportunity to sell outer wear into the holiday season.

(voice-over): In fact, the Weather Channel survey shows consumer demand for heavy outerwear increased 125 percent over Black Friday weekend, compared to last year.

Stronger demand means retailers can more easily sell goods at full price, especially important in one of the most promotional holiday seasons in some time.

PAUL WALSH, THE WEATHER CHANNEL: The Goldilocks condition for Macy`s (NYSE:M) or Kohl`s (NYSE:KSS) is cold or colder than normal weather, not too cold, some snow, some ambiance that feels like holiday that gets people really sort of in the mood for Christmas. Weekends, they don`t want anything falling out of the sky.

REAGAN: The Weather Channel forecasts the colder than normal temps will continue for at least the next two weeks. While current winter storm Cleon will hurt foot traffic temporarily, it is Christmastime. Gifts have to be bought somehow, which means retailers with strong online offers could benefit.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GHARIB: And finally tonight, “Newsweek” is making a come back. The struggling magazine ended its print edition last year, producing only an online version. But now, it plans to turn the presses back on. Starting as early as January, “Newsweek” is planning to print a 64-page weekly edition and officials of the company say they`ll rely more heavily on paid subscriptions for revenue instead of advertising.

I just don`t know how that`s going to all work out.

MATHISEN: Nice to see them make a try and come back.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. And we want to remind you, this is the time of year your public television station needs your support to make programs like NIGHTLY BUSINESS REPORT possible.

MATHISEN: We`ll 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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