Transcript: Thursday, December 12, 2013

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




TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: When to sell? That`s what many investors did today. And with stock market gains of 25 percent this year, more of you may be wondering, how do I know when and what to dump from my portfolio?



Foreclosures are falling. But just as things are looking up, there may be another housing crisis right around the corner.


MATHISEN: And, phone calls on flights. The FCC will now consider rules to end a ban on in-flight telephone calls. The chairman says the move will keep pace with technology. But will flyers think otherwise?


All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, December 12th.


GHARIB: Good evening, everyone.


No signs of a Santa Claus rally coming to Wall Street. Stocks sold off again today, lead by another triple digit decline in the Dow. This comes despite solid retail sales in November and as the House votes tonight on a bipartisan federal budget deal. Many Wall Streeters fear that signs of a stronger economy, along with stability in Washington could prompt the Federal Reserve to start winding down its stimulus plans this month.


Here`s how the markets close the day. The Dow fell 104 points. The NASDAQ down five, but closed below the 4,000 level and S&P lost six points.

The price of gold also got hammered following $32 an ounce. It`s biggest two-day decline in two months.


MATHISEN: Well, there`s been some anxiety in the market the past few days and it`s often been explained that people are taking profits. So, you`re probably wondering whether you should be making changes to your portfolio soon.


Joining us now to discuss the things you should consider before doing so is Jim Awad. He`s chairman at Plimsoll Mark Capital.


Jim, always good to see you.




MATHISEN: You know, I want you to take us through the thought process of how I look at my portfolio and decide what, if anything, I want to sell because I have a nice gain in it. How do I do it?


AWAD: OK. Well, the first thing you have to look at is your asset allocation.


In theory, hopefully, you sat down with a financial advisor or thought through a process where you want X percent in stocks and X percent in fixed income. And if that`s the case because stocks are up this year and bonds are down, you probably have a higher percentage in stocks than the — than what you started the year with, and what you think your asset allocation is. So, then, you have to ask yourself, do I want to ride with this? Am I willing to have over exposure to stocks and wait to fixed income? Do I want to rebalance and sell some stocks and buy some bonds to get myself back to where my long-term plan is, and where I was in the beginning of the year?


GHARIB: Jim, let`s take it a little bit more specific because a lot of people get very emotional about a lot of their investments, especially if they`ve done well and this has been a year where you have a lot of gains. So, let`s take some examples.


Let`s say someone came to you and say I own Netflix (NASDAQ:NFLX).

Here`s a stock that`s been up 300 percent or Yahoo (NASDAQ:YHOO) is doubled. Let`s take Best Buy (NYSE:BBY), up 240 percent. Let`s just say you have these stocks. What do you do?


AWAD: OK, well, let`s talk generically and then answer specifically with those stocks.


Generically, you have to ask yourself, if I didn`t own this stock today, would I buy it? Put another way is to ask yourself, are the fundamentals what I thought they were when I bought the stock, is the evaluation as attractive as it was when I bought the stock? If your answer to any of those questions is no, then you have to sell some of the stock.

If your answer is yes, then you`re inclined to keep it unless you want from a portfolio point of view to diminish the chances of any one particular stock dominating your portfolio.


In the case of the ones that you mentioned, you know, Netflix

(NASDAQ:NFLX) is — it`s a great conceptual growth story and a growth story, but in terms of valuation, there is no way to get your arms around it. So, you probably should take a little bit of profit. In the case of best buy, what is attractive there is that they are selling some of the most exciting products in the marketplace with the Android and Apple (NASDAQ:AAPL), et cetera but on the other hand, it`s a retailing. And retailing is not such a great business long term and you`re subjected to competitive pressures and to the popularity of the products you`re selling.


So, again, you`d probably want to sell some. So, you go from the portfolio question to the question of how much you want any individual stock to dominate your portfolio, and finally, to the individual stock selection process. But I would be uncomfortable if any stock were more than 10 percent of my portfolio.


MATHISEN: So, look at individual shares to see how much on your portfolio they make up. As you said, let`s say if I`ve gotten to that point where I sit there and go my equity portion of my portfolio is now expanded to 70 percent from a typical 60 percent and I want to scale it back. I look at those stocks or mutual funds and say, would I buy it again today? That`s the fundamental question, at today`s prices at today`s values. And if the answer is no, that`s on your short list to kick out, right?


AWAD: Absolutely. And you want to sell some of those or maybe even all, depending on how strong your negative answer is, as a way to get your portfolio back into balance in terms of stocks —


MATHISEN: Do you sell it all or do you sell a little piece of it? If you still kind of think, hey, maybe there is little more in Netflix (NASDAQ:NFLX)?


AWAD: Well, I wouldn`t try to short — I wouldn`t — I really stick with the discipline, Tyler. Would I buy it again today?


And if the answer is no, I wouldn`t try to squeeze a little more out of it. I would go ahead and be disciplined and sale.


GHARIB: Jim, real quickly, just a few seconds left.


AWAD: Yes.


GHARIB: What do you do with losers in your portfolio? Same thinking?


AWAD: Yes, same thinking. Would I buy it today at this evaluation, if the news has gotten worse in the company over the last year, then it`s down for a reason, you probably want to take the loss. On the other hand, if the news is as good — if fundamentals are as good as when you bought it, and the stock is down, you may actually want to buy a little bit more.


MATHISEN: Jim, very helpful. Thanks very much.


AWAD: Pleasure.


MATHISEN: Jim Awad, chairman of Plimsoll Mark Capital.


GHARIB: Turning now to health care, another setback for the Affordable Care Act because of all the technical issues with the Web site. The Obama administration is extending its December 15th enrollment deadlines to obtain insurance by the beginning of the New Year, to now December 23rd. It`s also asking private insurers to accept payment on new plans until midnight on December 31st, and says it may consider moving the enrollment deadline again.


MATHISEN: A good sign ahead of the holiday shopping season or right not middle of it, frankly. A sizable boost in retail sales last month.


U.S. consumers bought a lot more new cars, furniture, electronics, building materials in the month of November. Overall sales were up 7/10 of

1 percent, and that is the sharpest increase since June.


GHARIB: Along with stronger retail sales in November, there was more good news in the housing recovery. Total foreclosure activity saw its largest monthly drop in three years last month. Rising home prices had been a huge help but rising mortgage rates have not, and that has some concerned that the healing might slow down in 2014.


Diana Olick has more.




DIANA OLICK, NIGHTLY BUSINES REPORT CORRESPONDENT (voice-over): The signs are good — fewer of these signs. That`s because more troubled borrowers are finally finding a way out.


TIM MARTIN, TRANSUNION VP HOUSING: Because things in the economy have gotten better — the house prices, the employment. Even the interest rates, although ticking up, are still very low relative to historical standards.


OLICK: Foreclosure activity overall fell 15 percent in November from October. That`s the steepest drop since 2010 when the robo-signing scandal brought most foreclosures to a halt temporarily.


Newly started foreclosures also fell to the lowest level since 2005.


While the nation-wide averages are positive, some states like Maryland are just now ramping up the cleaning up, due to big legal and judicial delays in the foreclosure process.


JEFFREY FISHER, MARYLAND FORECLOSURE ATTORNEY: The story goes back really to 2010 and the summer of 2010. Maryland adopted a new foreclosure law, which required mediation.


OLICK: Attorney Jeffrey Fisher is in the middle of Maryland`s mess.


FISHER: They have finally sort of figured out through whatever different pay up they went through, they finally figured out how to move forward in Maryland. And so, what you`re seeing now is an effort to sort of chop into that backlog.


OLICK: New foreclosures in Maryland are up 74 percent from a year ago and the picture isn`t much better in the Northeast, where judges had slowed the process but are now plowing through past cases.


(on camera): While the foreclosure problem becomes more local, another mortgage mess is set to strike nationally, second mortgages.

Specifically home equity lines of credit or HELOC, where so many folks were using their homes as ATMs are starting to go bad fast.


MARTIN: A lot of those have what`s called an end of draw period where you can no longer draw money and instead, you actually have to pay the money back.


OLICK: Those periods are nearly 10 years and nearly half of all HELOCs were taken out between 2004 and 2006. For those that have already reached pay back time, delinquencies are up 11 percent year to date.

Another ticking time bomb in the mortgage market just as things were starting to look up.


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




GHARIB: And to read more about borrowers struggle to pay off home equity loans, go to our Web site,


MATHISEN: JPMorgan (NYSE:JPM) Chase is nearing a $2 billion settlement with the Justice Department and regulators to end a criminal probe for allegedly turning a blind eye to Bernie Madoff`s massive Ponzi scheme and failing to warn investors about obvious signs of fraud.


Scott Cohn joins us now with more on the status of the settlement talks.


Scott, what do we know right now?


SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, we know that there is a push to get this done by the end of the year. We`re not sure who is pushing hard, the Justice Department or the bank.


As you said, $2 billion, it would be about a billion or so to the Justice Department and another billion or so to regulators probably including the controller of the currency and Treasury Department. And there is likely to be what`s known as a deferred prosecution agreement, which is a pretty stiff penalty for what we used to call money center bank.


They would basically have to agree to reforms, with the justice department continuing to hold the threat of prosecution over their heads if they don`t comply.


GHARIB: You know, Scott, JPMorgan (NYSE:JPM) has been writing a lot of big checks recently. What exactly did they do wrong this time or allegedly?


SCOTT: Well, we should point — yes, we should point out it`s allegedly and up until now, the bank has said they acted in good faith.


But a lot of it goes back about three years, almost exactly three years to a lawsuit that the bankruptcy trustee filed, the same allegations that JPMorgan (NYSE:JPM) was Bernie Madoff`s primary banker. All of the money in the Ponzi scheme flowed through one account, what`s known as the

703 account and that the bank had to know just based on that.


Not only that, they were actually selling these structured products, funds that were based on Madoff`s returns. So, the thinking is, they had to know where these returns were coming from and whether in fact they were real.


MATHISEN: Now, were — you mentioned a little bit about where the $2 billion, if it is, turns out to be $2 million will go between the controller of the currency and the Justice Department. Will victims get any of this money?


SCOTT: Well, they`ll get at least some of it.


The Justice Department has a fund that was set up just last month that would pay to the victims and it`s not just any victims. It`s victims that invested in Madoff indirectly through feeder funds. We reported on this last night, how people that didn`t invest directly are not entitled to recoveries from the trustee.


MATHISEN: The trustee, from SIPC.


SCOTT: So, they have to wait. This would give them perhaps a little lifeline.


MATHISEN: All right. Scott, thank you very much. Scott Cohn reporting.


GHARIB: Well, this latest JPMorgan (NYSE:JPM) settlement comes at the five-year anniversary of Madoff`s arrest. Mention the name Bernie Madoff and it became synonymous with greed and all that was wrong in the financial crisis.


Now, five years later, is the financial crisis over?


Here to answer that question, Jesse Eisinger, a senior reporter for “ProPublica” and a columnist for “The New York Times (NYSE:NYT)”. He won a prize for his investigative reporting of the financial crisis.


Jesse, nice to have you on the program.




GHARIB: Well, let me just begin by asking you, the prevailing view seems to be that banks are in much better shape, they stabilized that the financial crisis is over from that perspective and the government is out of the bailout business. We just reported this week that it no longer owns any part of General Motors (NYSE:GM). We just reported housing is doing a lot better.


So what is your thought on this? Is the financial crisis really over?


EISINGER: Sure, happy days are here again. You know, I do think the financial crisis is over. The question is whether we`ve done enough to prevent the next financial crisis and since crisis is inevitable, the question is will it be huge and blow up the world economy?


And I think the answer is — no, we haven`t done enough.


MATTHEWS: Have we solved the problem of too big to fail, a bank that is too systematically important to let it go?


EISINGER: Jacob Lew, the treasury secretary, said this last week in a speech that we could say with a straight face that we have solved too big to fail. I think that — I don`t think anybody on Wall Street or anybody observing this could keep a straight face.


MATTHEWS: Why do you say that?


EISINGER: There`s no way that we have solved this problem. The — first of all, the banks are bigger than they were going into the crisis.

The second thing is that no one believes credibly that the government would have the will to resolve a big bank if it was on the brink of failure, and put — import costs, impose costs to shareholders possibly but bondholders know. I don`t think anybody believes creditors would be — would not be protected.


And the second thing is that what — the question is what happens on day two? If some crisis hits that would hit JPMorgan (NYSE:JPM), what would — it would also hit Bank of America (NYSE:BAC) or Citigroup (NYSE:C), and then they would step into save those entities or that market.


GHARIB: You know, there have been so many regulations, Dodd-Frank and all of that, and now, recently, the Volcker Rule, that have been slapped onto the banks to make them safer and stronger in the case of a financial crisis.


You said everything is not done yet. What else do you think needs to be fixed? I mean, what is the most important thing that yet should be done?


EISINGER: Yes, I think they have incrementally done good things with derivatives. They`ve done good things with the Volcker Rule. The Volcker Rule is a lot stronger than when it first came on the scene, when it was first proposed. I think what they haven`t done is solved too big to fail.

They haven`t gotten leverage requirements right. We don`t have adequate capital requirements for the largest banks, and we don`t have any sort of credible resolution authority, and that`s the big central question.


So — and the final issue is that we don`t have adequate enforcement.

We have criminal violations at JPMorgan (NYSE:JPM), allegedly, but they are about to admit it for the Madoff scandal and yet, not a single person seems to have committed a crime. When banks admit LIBOR violations or they admit manipulating other markets, not a single person seems to have commit add crime in any of these cases, not a single person committed a crime in the financial crisis.


I`m puzzled how that could possibly be and without that kind of accountability, I don`t think you get change.


GHARIB: All right. Really interesting conversation. Jessie Eisinger, thank you so much, from “ProPublica” —


EISINGER: Thank you for having me.


GHARIB: — and “The New York Times (NYSE:NYT)”.


MATHISEN: And still ahead, it was a big day for IPOs. It`s been a big year. But what`s in store for 2014, especially on Internet offerings?




MATHISEN: Hovnanian delivered more homes and higher earnings, and that is where we begin tonight`s “Market Focus”.


The homebuilder`s fourth quarter results blew away Wall Street`s estimates, another sign that the housing market is recovering. The company also predicts more profitability in the New Year. And that sent shares higher up, almost 6 percent to $5.28.


Lululemon reported higher than expected earnings today but the company`s outlook put a damper on its results. The yoga apparel maker, which has been struggling since its pre-see-through pants debacle in March, one of the great business stories of the year — lowered its sales forecast and said store traffic has slowed.


The news was disappointing to investors. Shares plunging. They were off more than 11.5 percent to $60.39.


Ciena reported a quarter with higher cost and weak expected profits and that sent the network equipment maker stock into the minus column. The company blamed the miss on its telecom customers like AT&T (NYSE:T) and Verizon (NYSE:VZ), who have been holding back on spending. Shares off about 7 percent to $21.31, the close there.


Aetna (NYSE:AET) said it will not be reinstating plans it cancelled that didn`t meet Affordable Care Standards. The insurer CEO said it doesn`t have number time to go through the regulatory processes to extend or renew those cancelled health insurance plans. Last month, President Obama said insurers could extend plans that didn`t compile with the ACA temporarily, after hundreds of thousands of Americans found out that they could not, could not hold on to their existing plans.


Aetna (NYSE:AET) off almost 2 percent to $65.14 the close.


GHARIB: Cisco (NASDAQ:CSCO) delivered more bad news to investors.

The company cut its earnings and revenue targets because of trouble in emerging markets, tightened consumer spending and its lagging network equipment business. The announcement was a more detailed report of a warning that Cisco (NASDAQ:CSCO) issued in early November. Shares fell more than 1.5 percent to $20.51.


Buffalo Wild Wings (NASDAQ:BWLD) waged a soda war today. The chain said starting next year, it will switch from serving Coke to Pepsi in its restaurant. It also plans to tap into Pepsi`s snack business and use Doritos in its new menu item.


Coca-Cola (NYSE:KO) still dominates the fountain business in the U.S., with an estimated market share of 70 percent. All three stocks were down on the news. Pepsi fell more than 1 1/2 percent to $81.28. Coke dropped 2 percent to $39.21. And shares of Buffalo Wild Wings (NASDAQ:BWLD) off more than 1 percent to $141.77.


Aramark had a successful market debut today. The food services company sells beer at sporting events, including teams like Chicago Bears.

Aramark raised more than $700 million from the IPO. Here`s what the CEO said about plans for that money.




ERIC FOSS, ARAMARK CEO: Originally, we`ll pay down debt, you know, over time. The uses of cash will really be to invest in the business. We think it helps our competitiveness. We`ll continue to return cash to shareholders by paying a dividend and over time, looking to buy back stock.




GHARIB: The stock today rose 13 1/2 percent to $22.70.


And Hilton returned to the market today in the biggest hotel IPO in history. The sale of its shares raised more than $2.3 billion. The CEO of the world`s largest hotel operator says the company`s global outreach is what sets it apart.




CHRISTOPHER NASSETTA, HILTON WORLDWIDE CEO: What differentiates us is that there is a significant value opportunity associated with the growth, particularly internationally, but the growth generally in our management franchise, where we have nearly 190,000 rooms in our pipeline, nearly

100,000 rooms under construction. And of those rooms under construction, almost 80 percent of them are outside the U.S. and all the parts of the world that are growing so fast.




GHARIB: And shares were growing fast today. They jumped 7 1/2 percent to $21.50.


MATHISEN: Well, Hilton and Aramark maybe two of the final IPOs of this year. But 2014 is expected to be a huge year for IPOs in the tech sector, Internet companies in particular.


So, what`s driving the push in tech IPOs and what should investors look for?


Julia Boorstin has the story.





After Twitter`s big public debut, investors should get ready for a slew of internet IPOs from the likes of Airbnb to Gill`s Group, Pinterest to Uber, research firm CB Insights says the number of Internet companies in the tech IPO pipeline is up 39 percent from last year to 320. Twenty-five of those Internet companies are valued at $1 billion or more.


Social tools will be more important than ever, but don`t expect companies competing directly with Facebook (NASDAQ:FB) and Twitter to go public.


ANAND SANWAL, CB INSIGHTS CO-FOUNDER & CEO: Building that type of two-sided network, that a social network requires is a difficult thing to do and most folks that try will not be able to do it. But if we can leverage kind of the social technologies to grow, you know, and sell another product or service, right, that`s sort of the way to go. So, I think social is becoming a layer that everybody is sort of tapping into, and so, we`re seeing that more and more.


BOORSTIN (on camera): Venture capital has been abundant, so companies that want to delay the regulatory oversight that comes with being a public company have been able to find funding elsewhere. For the number of big Internet names, have significant revenue and have been around for so long that investors and employees are eager to cash out.


(voice-over): So who will cash in? Of the BC firms, Kleiner Perkins has backed the most IPO companies, including mobile payment startup Square.

And of the corporate venture funds, Intel (NASDAQ:INTC) tops the list, with investments including Cloud storage and sharing service Boxed.


But which companies make it to the New York Stock Exchange and NASDAQ will depend not just on revenue and growth, but also on the markets.


SANWAL: If the markets are general term, then the window the companies may see they have closes. So, I think that`s probably the biggest thing. You know, I think the other thing is there is lots of money, private money for these companies, right? So the need to go public has also diminished a bit.


So I think companies are choosing to wait, choosing to get the timing right.


BOORSTIN: But for now, with Twitter shares at an all time high up more than 110 percent from its IPO price, the market is looking ripe for the crowded pipeline.


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




GHARIB: Coming up on NIGHTLY BUSINESS REPORT, regulators are considering rules to let travelers talk on cell phones on flights, but is that what the flying public wants?




MATHISEN: Mexico approved a historic energy bill today. The legislation ends a 75-year monopoly by the country`s state-run oil industry and opens the way for private and foreign investments to explore and drill for oil and natural gas. The vote was contentious and emotional, but proponents say the bill will boost Mexico`s oil production and its economy.


Despite the protest, Mexico`s president expects to sign the landmark legislation into law in February.


GHARIB: If you think you`ve been paying too much for plane tickets, you might be right. An airline trade group reports that the global airline industry will make $13 billion in profits this year with more people flying and lower cost of jet fuel. Next year, the industry is predicting profits of around $20 billion.


MATHISEN: Meantime, Susie, the FCC voted to consider lifting its 22- year ban on the use of cell phones during flights. The chairman said new technology is making the reason for the ban obsolete. It was a split vote.

Two Republican commissioners descended but all of the commissioners expressed reservations about allowing phone calls during flights.




TOM WHEELER, FCC CHAIRMAN: Nothing will be different on your flight tomorrow. We`re seeking comments on a proposal. We`ll go to a vote. All of these in favor say aye.






Oppose —




WHEELER: The Ayes have it.




MATHISEN: Well, a new poll from “The Associated Press” finds a majority of Americans who fly regularly are against allowing those in- flight calls. We spoke with some people about how they feel about the possibility of cell phone calls being allowed on flights.




UNIDENTIFIED MALE: Many people are very loud and obnoxious when they talk on the phone. I don`t think it`s fair to everyone else sitting in a very confined area.


UNIDENTIFIED MALE: It interrupts the quiet of a flight.


UNIDENTIFIED FEMALE: It wouldn`t bother me.


UNIDENTIFIED MALE: I don`t want to hear everybody else`s business. I don`t want to hear personal stuff.


UNIDENTIFIED FEMALE: It depends how long they are talking. That`s why it would be annoying. If it`s not loud, it`s not annoying.


UNIDENTIFIED FEMALE: They`re distracting if I`m trying to read.


UNIDENTIFIED FEMALE: It`s for relaxing purposes, not for social networking.


UNIDENTIFIED FEMALE: You can`t hear what the pilot and the flight attendants are trying to tell you.




GHARIB: And you can`t sleep.


MATHISEN: And you can`t — I think it`s an awful idea, but as you were pointing out, I think what will happen is that airlines that allow it will have sections of the plane where they will charge extra where you will then be allowed to sit and use your phone.


GHARIB: Let`s hope they don`t talk —


MATHISEN: I don`t want to be in a middle seat.


GHARIB: Me, either.


Anyway, that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.

Thanks so much for being with us tonight.


MATHISEN: And I`m Tyler Mathisen. Thanks from me, as well. I`ll leave my cell phone on the ground.


Have a great evening, everybody. We`ll see you tomorrow.


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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