Transcript: Thursday, December 5, 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: Growing stronger. The
U.S. economy grows at its fastest pace since early 2012. But is the 3.6
percent rate as strong as it appears? And why do American businesses still
seem so hesitant?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Protests over pay.
Fast food workers strike in the biggest push yet for higher wages. They
want $15 an hour. They average around 9 bucks now. What a big raise would
mean for businesses and consumers.

GHARIB: And the sticker shock? Why Washington lawmakers could be the
reason you pay more, lots more, for milk.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Thursday, December 5th.

MATHISEN: Good evening, everyone.

Stocks kept sliding today. The losses, though modest, marked the
fifth day in a row of declines for the Dow and S&P 500. That`s the longest
such streak since late September, just before the government shutdown.

Now, despite the selloff, the indexes are less than 2 percent from
their all-time highs. Today`s declines were driven by rekindled concerns
that the Federal Reserve might start reducing its $85 billion a month in
bond purchases and it might do it as soon as this month. That`s because
economic news out today pointed to a strengthening of U.S. growth. The
U.S.`s gross domestic product, the broadest measure of economic output, was
revised up by more than a half point to 3.6 percent for the summer quarter.
That`s the quickest pace of growth in a year and a half.

Jobless claims fell by 23,000 last week to 298,000, the lowest level
in seven years.

In the meantime, October factory orders did fall 0.9 percent, but that
decline was less than forecast.

Here`s the closing numbers on Wall Street for today. The Dow off 67
points, the NASDAQ down four, the S&P 500 lost seven. Treasury sold off on
those fears the market`s biggest bond buyer, the Fed might buy less. The
yield on the benchmark 10-year treasury edged closer to 3 percent.

GHARIB: Meanwhile, one top Federal Reserve official gave an upbeat
outlook on the economy and said the time is nearing for the central bank to
reduce its stimulus program. In a speech today, Atlanta Fed President
Dennis Lockhart also said, once the Fed does begin tapering, it should plan
to completely wind down those massive bond purchases. Investors he said
should be ready for the program to be done by the end of next year.

MATHISEN: So, how strong is the economy really and why aren`t
businesses more confident?

Joining us now to answer those questions, Brian Wesbury. He`s chief
economist at First Trust Advisors.

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

Let me start with top pick number one of the day, and that is what the
Fed may or may not do. If you have the economy growing at 3.6 percent —

BRIAN WESBURY, FIRST TRUST ADVISORS: Right.

MATHISEN: — if you get a good jobs number tomorrow, as many
anticipate on the heels of both the ADP number and the jobless claims
today, and you have a budget deal that Washington may hit as early as next
week, why wouldn`t the Fed begin to cut back on buying bonds this month at
their next meeting and week after next?

WESBURY: I think they will. There is only really one reason that
they wouldn`t, and remember, what the Fed is going to do is end the
purchases of bonds. They will taper that. It will take awhile to do that,
but they want to convince markets they`re going to keep the short-term
interest rate at zero for a very long time.

And when you try to do both of those things, it`s kind of a
complicated process, but I think they are going to try to do it. And as
long as they believe they can do that, they`ll start very soon with their
tapering.

Everybody knows that quantitative easing was put in during a crisis
and we no longer have a crisis in the United States. So it`s time to end
this extraordinary monetary policy.

GHARIB: You know, Brian, you`re pretty upbeat on the economy, a lot
of economists are. We hear from Fed officials like Dennis Lockhart today.
They are upbeat on the economy.

WESBURY: Right.

GHARIB: But it seems like American business CEOs are more cautious.
It seems like there is a disconnect. Why so?

WESBURY: Yes. Well, I think, gosh, we had this year, we had the
fiscal cliff at the start of the year, then we had the sequester kick in,
then we had the government shutdown and the debt ceiling debate, and then
we`ve had Obamacare and all of the issues — forget the Web site and all of
that — just the cost, what does it mean for my business? And as a result,
there is tons of uncertainty in U.S. businesses.

So, businesses invested strongly in 2010, again in `11, again in `12,
but this year, they slowed up a bit. Nonetheless, if you look at the cash
that businesses have on their books, the profitability of U.S.
corporations, they`ve never been more profitable. They are hiring. We`re
going to see a 200,000 job growth in the month of November, probably, and
that tells me that we`re about to see a surge in investment.

Boy, if corporations put the cash on their books to work, imagine the
kind of surge that we would see.

MATHISEN: What would it take to get then to go put that money to work
number one and number two, become more confident? What`s it going to take?

WESBURY: You know, I think right now we`re sort of — we keep calling
this economy — at First Trust, we call it the plow horse economy. It
ain`t a racehorse. It ain`t going to win the Kentucky Derby, but it`s not
going to keel over and die, either.

Right now, business leaders and executives are stuck in the middle.
They don`t see a boom coming but they`re a little worried about problems
and clearly worried about uncertainty with government policy. So, what
that does is sticks them in the middle. I think another couple quarters of
good economic data, more news of positive job growth and you`re likely to
see that happen.

GHARIB: OK.

WESBURY: One other quick thing and that is, it just costs less to buy
computers today, to make investments. So, their businesses are investing
but sometimes when we look at the just spending itself, if they`re going to
spend less on a computer, it may look like they are not even though they
really are investing.

MATHISEN: All right. Brian, we`ve got to leave it there. We`ll
figure out, we`ll see what 2014 holds.

WESBURY: Absolutely.

MATHISEN: Brian Wesbury, chief economist at First Trust Advisors.

GHARIB: Meanwhile, mortgage rates edged higher this week following
encouraging data about new home sales and job growth. The average rate on
a 30-year fixed rate is 4.46 percent. That`s up from 4.29 percent just
last week, according to Freddie Mac. And a year ago, the rate was 3.34
percent.

MATHISEN: Well, signs of a fall in federal budget negotiations in
Washington, Republican Speaker John Boehner said today he`d entertain a
possible extension of emergency unemployment benefits, which are set to
expire at the end of the year. But he says the White House has to offer a
specific proposal about those benefits and do it in the coming days.

GHARIB: Fast food workers across the country were protesting to get
paid more. The demonstrations came just a day after President Obama
proposed raising the federal minimum wage, part of a push for greater
income equality. Workers in 100 U.S. cities called on their corporate
bosses to increase wages to as much as $15 an hour.

So, what will that mean for businesses and for those workers?

Hampton Pearson has the story.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The biggest push yet for higher pay started early this morning with
protests and calls for a fast food worker exodus in more than 100 cities,
including very vocal disruptors in Pittsburgh —

(PROTESTERS CHANTING)

PEARSON: In Atlanta —

PROTESTERS: Make our wages supersized!

PEARSON: And a large crowd on the move in Detroit. McDonald`s was
the primary target with calls from coast-to-coast for a supersized minimum
wage of $15 an hour, more than double the current $7.25 an hour.

UNIDENTIFIED FEMALE: My checks alone don`t pay my rent a month. My
rent is $1,050, I still get TANF, I still get food stamps and I`m
struggling.

UNIDENTIFIED FEMALE: If they pay us enough money, you know, during
the process of it all for what we`re doing here today and stuff, then we`ll
be able to make, you know, pay our bills, you know, and live a decent life
and stuff.

PEARSON: McDonald`s issued this statement. “McDonald`s and our
owner-operators are committed to providing employees with opportunities to
succeed. We offer employees advancement opportunities, competitive pay and
benefits.”

(on camera): Today`s orchestrated strikes and protests are part of an
effort to build momentum to raise the minimum wage by labor unions,
Democrats and advocacy groups. But there will be a pushback from small
businesses and the restaurant industry.

SCOTT DEFIFE, NATIONAL RESTAURANT ASSOCIATION: Doubling the base wage
and driving wage and labor costs up as dramatically as a $15 an hour
minimum wage, would have a very dramatic impact on the cost of goods and
workforce planning at restaurants across the country.

PEARSON: The protest nationwide has mixed results. Turnouts varied
at any given location and it`s not certain how many workers actually walked
off the job or just how much business was impacted.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: Treasury Secretary Jack Lew says the world`s largest
economies need to tighten up the financial regulations in order to avoid a
repeat of the 2008 financial crisis. Lew wants other countries to meet the
high standard of banking rules that have become law in the U.S.

(BEGIN VIDEO CLIP)

JACK LEW, U.S. SECRETARY OF THE TREASURY: With the completion of the
Volcker Rule, resolution authority, and stronger capital and liquidity
requirements, the tools of financial reform are being used to make our
financial system safer and to hold financial institutions responsible for
baring their own risk without the backstop of public support.

(END VIDEO CLIP)

MATHISEN: Lew heads to Australia in February for a G20 meeting of the
world`s major industrialized nations.

GHARIB: JPMorgan Chase is warning nearly half a million holders of
prepaid cash cards that their personal information may have been accessed
by hackers. The cards were issued by several corporations to pay employees
and by some government agencies issuing tax refunds and unemployment
benefits.

MATHISEN: And still ahead, will Twitter`s big plan to make more money
pay off for shareholders, or will this add strategy potentially backfire?

(MUSIC)

GHARIB: The biggest decliner in the Dow today, Microsoft. Investors
dumped shares on hearing that Alan Mulally, the CEO of Ford, may not take
the wheel at the software giant. There has been intense speculation that
Mulally would step into the CEO job at Microsoft after his contract at Ford
runs out at the end of 2014.

Here is how Mulally answered our Phil LeBeau who asked him about
taking the top job at Microsoft.

(BEGIN VIDEO CLIP)

ALAN MULALLY, FORD CEO: I`m honored to serve Ford and we have no
change in my plan.

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: I understand that
but you didn`t answer my question. Have you been approached?

MULALLY: I did answer your question. I`m honored to serve Ford and I
— there`s no change in our plan, and we don`t comment on speculation.

(END VIDEO CLIP)

GHARIB: And you can see the selloff in the stock when that question
was asked earlier today. Shares of Microsoft fell nearly 2.5 percent.

MATHISEN: Shares of Twitter went the other way today, rising almost
4.5 percent after announcing some new ads targeting tools designed to give
its advertisers a boost and to prove to investors that it can make more
money.

Julia Boorstin has the story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Twitter`s newest advertising tool targets users based not on what they
tweet about but also based on the Web sites they visited. If you visit,
say, Trip Advisor, that site plus any company interested in reaching
consumers planning a trip could show promoted tweets with relevant deals.

This approach is particularly valuable because advertisers can reach
consumers who have already expressed an interest in making a particular
purchase, and it`s reaching them both online and on mobile devices. Key
because mobile is the fastest growing ad category.

ADAM BERKE, ADROLL PRESIDENT: Because the ads are more targeted, and
advertisers are going to be willing to pay more per impression. That means
greater revenue for the ad inventory that Twitter has available and it
means better performance for advertisers.

BOORSTIN: AdRoll, which specializes in targeting ads and is
partnering with Twitter on this new approach, says that when testing
Twitter`s new product, it saw twice the engagement rate as prior Twitter ad
campaigns.

(on camera): But not everyone is bullish. S&P analyst Scott Kessler
says it remains to be seen whether marketers will buy into the ad format
and whether consumers will opt-out of the targeting.

(voice-over): But there is no debating. This shows Twitter is
serious about improving its ads. AdRoll, which also partners with Facebook
on its targeting says this will give Twitter a big boost.

BERKE: Facebook has a similar product available, and it`s been very
effective in driving direct response on Facebook, and from the results that
we`re seeing, they are having analogous on Twitter, as well.

BOORSTIN: Now, we`ll see whether better targeting helps Twitter gain
a much larger rival, Facebook.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

GHARIB: Also more on Twitter, it announced today its first female
board member. She`s 66-year-old Marjorie Scardino, the former CEO of
Pearson. This is the publishing and education company. Twitter was
sharply criticized for not having any female directors on its all white
male board. The news came by tweet and Scardino responded with her first
tweet saying it`s an exciting time in Twitter`s history.

MATHISEN: Today is the 17th anniversary of Alan Greenspan`s
irrational exuberance comment. Remember that? It was about sharply rising
stock prices.

So, how much has changed in the markets since then? And what
companies right now may be seeing a little exuberance in share prices, even
if their bottom line show a different story?

Dominic Chu has more.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Seventeen years ago, two words were forever etched into the history books
of financial markets, “irrational exuberance”.

ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: How do we know when
irrational exuberance has unduly escalated asset values, which then becomes
subject to unexpected and prolonged contractions?

CHU: Former Federal Reserve chairman used the term to characterize
what could be a frothy and overvalued market. Things back then weren`t all
that different than they are now. Sure, the S&P 500 was trading at around
745 points back in December of 1996, and trading at close to 1,800 today
but evaluations today are close to what they were in 1996.

There are still some companies that investors may be irrationally
exuberant over.

Take a company like Pandora. The Internet radio company is up more
than 200 percent this year and only managed to eke out a profit in two of
the last four quarters.

SolarCity, the renewable energy company more than quadrupled but has
yet to turn a profit since going public last year.

But some experts say that just because profits are not slowing now
doesn`t mean they won`t flow in the future.

PETER BOOCKVAR, THE LINDSEY GROUP CHIEF MARKET ANALYST: A lot of
these companies are investing large amounts of money in their business and
that`s why they`re creating losses. But investors have to be able to see a
light at the end of the tunnel in terms of profitability. If that light is
not going to come, then these valuations are not even close to being
substantiated.

CHU: It`s also worth noting that the stock market didn`t reach a tech
bubble peak until over three years after Greenspan expressed his concerns.
That`s why some traders think the market still has room to run.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GHARIB: There was a run-up in shares of Time Warner Cable, right
before the closing bell today. And that`s where we begin tonight`s “Market
Focus”.

Just before 4:00 Eastern Time, it was reported the cable operator
would likely accept a $150 billion to $160 billion buyout off offer. No
word who the buyer might be, but there`s been speculation that Cox
Communications, Charter and Comcast are interested. Comcast is the parent
of CNBC which produces this program.

After the spike, shares of Time Warner Cable erase most of those
gains, closing at $132 and change, up a fraction.

JCPenney stock fell sharply because of a research note from Wells
Fargo today. Analysts from the investment firm said although penny sales
recently jumped by 10 percent, that may be as good as they get. Shares of
the struggling retailer tumbled 8 percent to $8.85.

Apple hitting a 52-week high. Shares rose on yet another report —
this one from “The Wall Street Journal”, that it has signed a deal with
China Mobile to carry the iPhone starting in mid-December. China Mobile is
the world`s largest mobile phone carrier in terms of subscribers. The
stock closed at $567.90. That was up a half percent.

Costco`s November sales missed expectations, it`s weakest month since
September of 2009. The warehouse retailer said sales were soft in its
consumer electronics and lawn and garden businesses. While sales of
office, apparel and small appliances were stronger.

The stock fell more than 1 percent to $120.95.

Tyler?

MATHISEN: Well, Dollar General reported earnings that beat Wall
Street estimates. Despite what it calls a challenging consumer
environment. The discount retailer`s profits have grown steadily as it
opens new stores and attracts cost-conscience shoppers. Dollar General
also added a billion dollars to its stock buyback program. Shares up 6
percent on this otherwise sort of soggy day; $59.81, the close.

Kroger, the biggest U.S. supermarket operator, issuing a cautious
outlook for the rest of the year. The company reported earnings in line
with estimates but it`s still concerned about cuts to the food stamp
program and how it will ultimately impact the current quarter. The stock
dropped 3.5 percent to $40.06 the finish there.

Mattress Firm beat earnings and revenue estimates and said it has
raised its full year sales guidance. The company, which sells national
mattress brands such as Sealy and Simmons, said increase advertising is
helping to drive customer traffic and sales growth. The stock rose almost
14 percent to $38.90.

In the meantime, shares of electronic arts falling sharply today,
after the company said that ongoing problems with its “Battlefield 4” game
forced the delay of future games from its developer. The issues including
the game crashing repeatedly and problems accessing downloadable content.
“Battlefield” is one of Electronic Arts` biggest franchises.

The stock off almost 6 percent, to $21 and a penny.

GHARIB: Here`s a budget buster for a lot of families. Can you
imagine paying $7 or $8 for a gallon of milk? Well, those scary dairy
prices could happen unless Congress passes a farm bill by the end of this
year.

Jackie DeAngelis takes a closer look at the legislation and the impact
on companies, farmers and consumers.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Chances are, you have heard of the fiscal cliff, but have you heard of the
dairy cliff?

The dairy cliff refers to changes in farm policy that could send milk
prices skyrocketing, from an average of $3.46 a gallon now to $7 or $8 a
gallon after the New Year.

So, what`s behind it? And why did it matter?

Well, it started with a farm bill that was passed in 1949.

KEVIN KERR, KINGSVIEW CHICAGO SR. MARKET STRATEGIST: The 1949 farm
bill is permanent law. That`s our permanent farm bill, and we had
extensions on the 1949 law every several years and the most recent one
being in 2008, we had a five-year extension that Congress put through. And
now, here we are again at that deadline that will expire on January 1st and
could drive milk prices much, much higher and dairy prices much, much
higher if it expires.

DEANGELIS: The problem with the antiquated law is that it was
implemented at a time when the dairy industry was smaller and less
sufficient. So it received bigger subsidies from the federal government.

If the U.S. reverts to that policy, taxpayers will foot the bill of
those subsides to the tune of an extra $12 billion according to experts.

And while consumers could see a big sticker shock for milk at the
grocery store, the impact would be much more than just milk. The impasse
would also impact food producers that use dairy in their finished product.
Think butter and margarine producers like Land O`Lakes, yogurt companies
like Dannon, Chobani, Stonyfield. Cream chess and sour cream companies,
and then there are the packaged food makers, General Mills, Pinnacle Foods,
ConAgra, Mondelez, who all use various forms of dairy as ingredients, as
well.

Farmers are worried that high prices could make customers cut back on
all dairy products.

KERR: Initially, people would be probably — would be buying it and
farmers would benefit for a very short period of time. And then the demand
structure (ph) would say, anyway, we`d likely to see prices come back down.

DEANGELIS: And this isn`t the first time that we faced the dairy
cliff. It happened last year, but Congress was able to pass an extension.
Analysts are hoping that we could get a 12-month or 24-month extension this
time around as well, to keep milk prices in check.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

GHARIB: And still ahead, the passing of one of the world`s most
inspiring leaders coming up.

(MUSIC)

MATHISEN: And finally tonight, Nelson Mandela of South Africa has
died. Mandela spent nearly three decades in prison for his crusades
against South Africa`s white supremacist, apartheid government. But the
time he was released in 1990, his country had become an international
outcast. By 1994, with apartheid painstakingly dismantled, Mandela had
been elected president.

President Obama had this to say earlier this evening.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We`ve lost one of the
most influential, courageous and profoundly good human beings that any of
us will share time with on this Earth. Through his fierce dignity and
unbending will to sacrifice his own freedom for the freedom of others,
Madiba transformed South Africa and moved all of us.

(END VIDEO CLIP)

MATHISEN: Nelson Mandela, his country`s George Washington and Abraham
Lincoln, dead tonight at 95. He was up there with Nero and Gandhi and
Churchill, among the —

GHARIB: He was not only a great leader for his country but also, he
was such a role model for the world.

MATHISEN: Absolutely.

GHARIB: And he will sorely be missed.

MATHISEN: An inspiring man.

GHARIB: An inspiring life story. Thank you for watching NIGHTLY
BUSINESS REPORT. I`m Susie Gharib. We`ll see you tomorrow.

MATHISEN: And I`m Tyler Mathisen. Thank you very much. We`ll see
you back here tomorrow night.

END

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