Transcript: Thursday, December 19, 2013

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The day after the taper. Yields are higher, the dollar is stronger. Which stocks could get a rush of money, and which ones could lose out?

Bristol-Myers is making a big move. But why is this drugmaker getting out of the diabetes business now to focus instead of cancer therapies?

GHARIB: In the bull`s eye. A massive security breach at Target (NYSE:TGT), one of the biggest retailers, during the heart of the holiday shopping season. How does this happen? And what`s being done to prevent it from happening again?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, December 19th.

MATHISEN: Good evening, everybody. And welcome.

On this day after that historic rally in the markets, sparked by the Federal Reserve`s decision to begin winding down its economic stimulus measures. Stocks struggled to hold on to those hard won gains of yesterday, but some of them did. Trading remained in a pretty narrow range all session long, with investors shrugging off disappointing data about jobless claims and existing home sales.

But the Dow did gain just enough to reach an all-time closing high, now on track for its best week in three months. Here`s how the major averages ended the day. Take a look. Those blue chip Dow stocks up another 11 points. NASDAQ, though, fell about a dozen and no new record for the S&P. It was down by a point today.

The Fed`s decision to taper its bond buying which sent the U.S. dollar higher, sent gold prices lower, with the pressure metal settling at a three-year low, down more than $41 an ounce today.

GHARIB: So, what does the taper mean for stocks, treasuries, gold and oil? The Fed`s pull back in its bond-buying program is affecting investments in just about everything. It`s also impacting stock sectors in different ways.

Jackie DeAngelis takes a closer look.


JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: A day after the Fed`s announcement that it`s tapering its asset purchases, the yields on the 10-year treasury note is on the rise. While many traders don`t expect yields to spike too high in the short term, estimates are for between 3 percent and 3 1/4 percent, there is a potential to see steeper hikes as the Fed continues to wind down its Q.E. program.

That`s why right now, this wait-and-see period might be the time we see investors move out of some sectors and into others in a market rotation.

Certain sectors are especially sensitive to interest rates. Those are the ones that could suffer in the next three to six months. Sectors like telco, utilities, consumer staples and health care, these groups can be rate sensitive for several reasons, mainly because they have to service debt and also because they pay dividends, which means they become less attractive to investors when higher rates can be had with less risk.

But on the flip side, one of the big winners of the taper news, the banks. They will use the rise of interest rates to their advantage.

ROBERT JOHNSON, MORNINGSTAR DIRECTOR OF ECONOMIC ANALYSIS: The Fed isn`t changing the rates on the short-term end of the scale. So, they`ll keep those relatively low and yet mortgage rates are going up. So, that will create a bigger spread for the banks, which is good news for mortgage lending.

DEANGELIS: Rising interest rates also helped sectors with pricing power, like the materials, industrials, technology, energy, and consumer discretionary groups. They tend to be more cyclical and perform well when the economy is growing, which makes them less susceptible to rate fluctuations. They also tend to have lower dividend yield.

But that`s not to say that there is no risk.

GREG IP, THE ECONOMIST U.S. ECONOMICS EDITOR: Twice before, they started to wind down Q.E. Twice before, they had to ramp it back up because the economy stumbled. We`re not out of the woods. This is still very much a job that Janet Yellen has to finish.

DEANGELIS: Of the sectors that can benefit from the rotation, energy has been an underperformer and analysts see opportunity there. They are looking at names like big oil companies, Exxon and Chevron (NYSE:CVX).
Also the service stocks like Halliburton (NYSE:HAL), Schlumberger
(NYSE:SLB) and Baker Hughes (NYSE:BHI).



MATHISEN: More now on the taper and how it drove the dollar higher in the currency markets. Many economists are for a strong dollar but that may actually hurt some multinational companies, while others may see a boost from a muscular green back.

Sara Eisen has more on the potential multinational winners and losers.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): They are heavyweights. Some of America`s biggest and most recognizable companies doing big business overseas get hit by a stronger U.S. dollar.
And now that the Fed made its move —

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The committee decided starting next month, to modestly reduce the pace, at which it is increasing the size of the Federal Reserve`s balance sheet.

EISEN: — the Federal Reserve is scaling back the stimulus and that helped lead to a stronger dollar. Some say the dollar`s value may rise 8 percent to 10 percent against other currencies next year.

It`s a double whammy for the bottom line of big companies, like Caterpillar (NYSE:CAT), which has a large global footprint. Take Coca-Cola
(NYSE:KO) which actually gets a majority of its sales outside the United States. As the dollar strengthens, the Cokes sold in other countries become more expensive for consumers and that profit in foreign currencies is worth less money when Coke brings it back home. The soft drink giant has warned it may hurt profit.

McDonalds` is already feeling the impact. The company says profit in Japan will drop by almost 60 percent for the year, thanks in part to the dollar surge against the Japanese yen.

Some other big names with big overseas exposure: Procter and Gamble, Yum Brands (NYSE:YUM), and Tiffany (NYSE:TIF).

But it`s not harmful to everyone.

PAUL HICKEY, BESPOKE INVESTMENT GROUP, LLC: The immediate aftermath of the statement, we saw the dollar strengthen which is good for domestically based companies, and with domestic revenues.

EISEN (on camera): And a strong dollar has historically created winning opportunities for certain industries. Tobias Levkovich, an analyst at Citigroup (NYSE:C), says retail, health care, software and services are among them. They do their business in dollars here in the United States.



GHARIB: So, what does the taper mean for your portfolio? And is it time to taper-proof your investments?

We turn to Vince Lowry for some guidance here. He`s chairman and CEO of RevenueShares.

And, Vince, thanks for coming on the program.

Let me begin by just asking you —


GHARIB: Thank you.

You know, before we get into strategies what people should do with the portfolio, start us off with is the taper a good thing? How should investors be feeling about this taper, or is trouble ahead?

LOWRY: I think it`s very good that the taper is occurring. It probably went a little further than what they wanted to do because it`s kind of artificially kept interest rates lower, which makes it difficult for banks to commit their capital and make long-term loans for businesses and mortgages. So, it was having a negative effect and I think it`s good to get rid of it, and the faster, the better in my view.

MATHISEN: You know, you`re in Philadelphia, Vince. One of my good friends and fellow Philadelphia Jack Boggle (ph) often says, don`t just do something, stand there. Is this the time you want to do less, rather than more in your portfolio?

LOWRY: Well, I think so, Tyler. That is a very good strategy as to just stay long with the stock market, be overweight the stock market now and overweight corporate bonds.

MATHISEN: Corporate bonds — obviously, you`re saying by implication, stay away from treasuries. I assume you mostly mean longer term treasuries, and stay away from REITs, which might be sensitive to interest rate moves.

LOWRY: That`s right. I think the REIT market, the entire market, especially in the financial sector, the real estate investment trusts, some of them are training anywhere from five to 10 times one year annual revenue which is unsustainable. So, I would stay away from that.

In terms of corporate bond, we may be in an era not dissimilar to the `40s, `50s and `60s, where we`re a generation low for interest rates. They will rise slightly but not by much.

GHARIB: All right. So, let`s talk a little bit about stocks. You said, you know, stay into stocks. Let`s go into that deeper — what kind of stocks, what kind of sectors, and U.S. or international?

LOWRY: Well, you know, when we`re in an economic recovery and we are, what we monitor is the revenue growth of the S&P 500 and it`s moved up from last year from about 1.8 percent to about 2.8 percent. What that means for stocks, especially globally, if we continue expanding the revenues and they grow just a little bit more, we get to four and five percent, and the normal is around six to seven in an expansion, this is going to be very good news for emerging markets.

It`s also going to be good news for large cap stocks because they have really cut costs over the last several years, and that`s going to be bottom line top line numbers going to hit the bottom line, and a much bigger way going forward.

MATHISEN: Big cap, small caps, no caps, what?

LOWRY: Well, the large caps, but I think that the mid cap and small caps, although they will do well, I do think — and they have been doing well for the last 10, 12 years, I think large caps are going to begin out- perform as the economy, if the economy can grow and revenues can grow to 5 percent or 6 percent, you want to be more concentrated on large cap.

GHARIB: OK. Vince, real quickly, we have a few seconds left.

When should investors begin making changes in their portfolio? The taper doesn`t officially begin until January? Do it now or wait?

LOWRY: Well, I think that right now what they should be doing is for the bond portfolios is overweighing the corporate bonds, go into mortgages, mortgages, corporate bonds and maybe some high yield. I think the economy is going to be strong enough, we won`t have problems on high yield, and begin to move there.

And I`d also be looking at dividend-paying stocks. I`d be moving into utilities and energy stocks right now. I`d be overweight those sectors.

GHARIB: OK. All right. We`ll leave it there. A lot of good information, though.

Thanks so much, Vince Lowry, chairman and CEO of RevenueShares.

MATHISEN: As we mentioned earlier, a real set back in the housing market for a change here. The sales of existing homes unexpectedly fell in November, down for the third month in a row to the lowest level for a year.
High prices on those previously occupied homes, along with rising mortgage rates are to blame for the drop in sales last month.

GHARIB: No drop today in shares of AstraZeneca and Bristol-Myers Squibb (NYSE:BMY), with both hitting new 52-week highs for a time. That`s after AstraZeneca agree to buy out Bristol-Meyers stake in a partisanship to develop and sell a diabetes drug, allowing Bristol-Myers to focus on something else, like some new cancer drugs.

Morgan Brennan has more.


This is a deal that seems to be about diabetes drugs, but it`s really not.

Bristol-Myers Squibb (NYSE:BMY) selling its stake in a diabetes joint venture, so we can invest more in cancer drugs. Experts say this is a big move for Bristol-Myers.

HERMAN SAFTLAS, S&P CAPITAL IQ EQUITY ANALYST: It allows them to basically monetize an unprofitable business, the diabetes business, and take that money and invest it in areas that have much more potential for long-term growth.

BRENNAN: Diabetes has certainly gotten a lot of attention, thanks to its ballooning epidemic status. But cancer represents a bigger piece of global drug sales. According to Evaluate Pharma, worldwide spending on oncology treatments totals $84 billion in 2012, second only to central nervous treatments for diseases like Alzheimer`s and that number is expected to grow at about 8 percent a year.

A Bristol-Myers spokeswoman tells me the company is maneuvering to specialize in this area because for the potential for longer term survival in certain cancers. It`s something the drug maker believes will lead to a, quote, “transformational shift in how the disease is treated”, and it may be right.

DR. NANCY SNYDERMAN, NBC NEWS CHIEF MEDICAL EDITOR: As soon as doctors figure out the genetics of a tumor, the genetics of a person, and how to modulate the immune system, that opens up a brave new world for new chemotherapy drugs. The big concern will be, how much do we personalize chemotherapy and how much can we afford it?

BRENNAN (on camera): With cancer treatments costing upwards of
$106,000 a year, as Bristol-Myers price does, it`s also a big business. In fact, analysts expect pharma companies to allocate even more resources to cancer treatment.



GHARIB: And still ahead, complain like a pro as shopper dissatisfaction rises, what should you do to get your problem solved and solved quickly? The answer is coming up.


GHARIB: As we first told you last night, there is troubling news from Target (NYSE:TGT). The names, birth dates, account numbers and even three digit security codes from 40 million credit and debit card accounts may have been stolen by thieves from holiday shoppers at Target (NYSE:TGT) stores.

Mary Thompson has more details on this startling breach of security.


UNIDENTIFIED FEMALE: How are you this morning?

Cyber thieves putting a bull`s eye on target`s back and hitting up to 40 million customers in a massive data breach.

JOHN KINDERVAG, FORRESTER RESEARCH: Forty million credit cards puts it into one of the largest data breaches in history.

THOMPSON: Target (NYSE:TGT) says the breach ran for 19 days, from the day before Thanksgiving to Sunday, December 15th. Those impacted, shoppers using their credit and debit card for purchases at Target`s 1,800 stores.
Online customers weren`t affected, but the breach made shoppers like Linda Catmeyer (ph) think twice before pulling out the plastic.

UNIDENTIFIED FEMALE: I`d rather use cash because you know you`re not going to wonder if somebody else gets your information.

THOMPSON: Target (NYSE:TGT) didn`t say how the information was accessed, but said it included a customer`s name, their card numbers, a card expiration date, and security code. Known as track data, it`s stored on the card`s magnetic stripe.

Cyber security analyst Avivah Litan says this information has a higher price on the black market than information from online purchases.

AVIVAH LITAN, GARTNER RESEARCH: The reason the track data is so much more valuable, that`s what you need to create a counterfeit card. If you steal data from an Internet merchant where they don`t have the physical card, you can`t go use that at a store.

THOMPSON (on camera): Purchases with a physical card at a store are harder to trace than online purchases, so fake cards are more attractive to criminals.

(voice-over): Target (NYSE:TGT) is working with law enforcement officials to identify the thieves, while its associates worked overtime to respond to clients, who crashed its credit card Web sites with a flood of inquiries.

Security analysts John Kindervag suggesting those clients take steps to secure their information.

KINDERVAG: You probably have to cancel your card and get a new one reissued. If there are fraud charges, let your credit card company know, they will refund those. There shouldn`t be an out-of-pocket cost to you.

THOMPSON: For a retailer which made its name telling clients to expect more and pay less, the breach costing Target (NYSE:TGT) its client`s trust and possibly sales ahead of the last-minute Christmas rush.



GHARIB: And to read more about how the data breach could impact holiday sales, head to our Web site,

MATHISEN: Nike (NYSE:NKE) reported a 40 percent rise in quarterly profits after today`s closing bell, and that is where we begin tonight`s market focus. Higher selling prices and an increase in revenue around the world helped the sports apparel maker up its net income.

The company did however slightly miss the forecast on revenue and shares ended the day a little bit lower at $78.26.

Darden is either selling or spinning off its Red Lobster chain after being pressured by activist investors to break up its businesses. The restaurant operator also reported disappointing results. Its quarterly profits fell by 41 percent.

In an effort to affect a turn around, Darden said it won`t be opening new eateries or buy new chains, and that, well, it didn`t impress investors. Shares off 3 1/2 percent to $51.02.

Strong demand for its new line of cheaper RVs helped Winnebago up its profits by more than 50 percent. But the country`s number one motor home maker missed Wall Street sales estimates, a drag down by weaker than expected revenues.

Now, shares plummeted more than 13.5 percent, $27.32 the close.

GHARIB: Shares of Carnival (NYSE:CCL) rose after supporting a small but surprising profit. The world`s largest cruise operator beat analysts forecast, thanks to higher ticket revenue and more on board spending.
Carnival (NYSE:CCL) has been in combat mode the past few years after a series of bad accidents on its cruise ships. The stock rose 2 1/2 percent to $38 and change.

Profits at KB Homes almost quadruple, thanks to higher selling prices.
But despite that, earnings still came in well below estimates. The homebuilder`s bottom line was hurt by a drop in sales on the West Coast.
The stock fell 6 percent to $16.47.

Now, by contrast, ConAgra Foods (NYSE:CAG) delivered better than expected earnings. Solid sales of its Hunts Ketchup was a big reason for the beat. The food giant also gave a strong profit forecast for the year.
That sent shares up more than 5 percent to $33.47.

MATHISEN: The holiday season, of course, the busiest time of year for retailers. It`s also the time of year when customer complaints are highest
— shipments that don`t arrive, leather straps that go snap, products that don`t work as you expected them to.

So, how do you turn customer dissatisfaction into a happy outcome?

We asked Elizabeth Holmes, a reporter at “The Wall Street Journal”, who wrote a piece today called shoppers get what you deserve.

Elizabeth, welcome.

I want to start, before we get to some tips — and they are helpful ones — with your general impression of whether customer service in America is getting better or worse. What do you think?

ELIZABETH HOLMES, THE WALL STREET JOURNAL: Well, I think certain retailers are making it a selling point. If you look at department stores, for example, they are fighting for cheaper online competitors and so they are using customer service as a selling point to draw people in. They are saying hey, come shop in our stores. If you have a problem, we`ll help you solve it.

So, for some retailers, I think they are definitely sort of doubling down on it.

GHARIB: So, some of them are saying the customer still is king, right, Elizabeth?

HOLMES: Yes, absolutely.

GHARIB: So, let`s go down dos and don`ts. We say there is an art to how to complain. So, let`s go over some of these real quickly about what to do and not to do.

Time your complaint carefully. Tell us about that.

HOLMES: Yes. So, if you have to call a call center, you know, they are open 365 days a year 24 hours a day. But maybe not the best to call Saturday — on a Saturday at midnight. You know, you might not be getting the front line.

So, if you have a more complicated problem, it might be best to wait until a weekday business hour time.

MATHISEN: What should my posture or my attitude be as I`m on the phone with them? Does sugar work better than vinegar? That`s what my mom used to say.

HOLMES: Kill them with kindness. Whether on the phone or in person, you have to remember that you`re talking to another human being, and chances are the person you are reaching to solve your problem did not cause your problem.

So, if you go at them and say, hey, listen, you know, this is exactly what happened, be detailed and concise, but don`t get too emotional about it, and say, can you help me? That will sort of let the person give you their full consideration. You know, you have to kill them with kindness, I think.

GHARIB: So hard to do that when you`re angry about something.

You say don`t let it escalate by asking for the manager, at least, not right away. Now, why is that?

HOLMES: Yes. Some people go guns blazing, and they`re like, I want to speak to a supervisor right away. Well, chances are that your problem, unless it`s really complicated, can be solved by the first person who picks up the phone.

So, have a thorough conversation with that person and if after some time, you`re not getting the resolution that you want and you think that`s a realistic resolution to be asking for, then you ask for a manager. But, you know, the person who picks up the phone is trying to help you, so give them a shot.

MATHISEN: Does it help me if I know going in what I want? In other words, what the remedy is that I`m seeking, that I want you to take the goods back, I want you to give me a store credit, I want you to give me $10 extra of bonus bucks for my troubles, or something like that?

HOLMES: Yes. Set expectations really early on. Say what you`re looking for. The chances are the retailers aren`t going to sort of offer up the store. They`re not going to do something for you if you don`t ask for it. So, if you go in and you set sort of a realistic expectation and say, hey, I want free shipping, I want you to replace this item, you know, and overnight it to me – if you make that really clear, then they`re going to try and deliver that for you.

GHARIB: All right. So, any bottom line final advice on, you know, how to handle it so you get what you want?

HOLMES: Well, first of all, speak up. A lot of people leave the store in a huff and they`re just really upset. The store doesn`t like that, but chances are, they are losing your business and you don`t get much out of it.

So, make sure you voice your complaint. And then, again, just try and be nice. It`s a very stressful time. Everybody is time starved.

You know, you`re looking for a resolution quickly, but if you can go in and be calm and kind, chances are you`re going to get more out of it.

MATHISEN: You seem very nice, Elizabeth. Do you ever get angry with service people?

HOLMES: I listen to so many angry calls for this story. I was really sort of — it was an eye-opening experience for me to see how mad that people get so quickly, so it reminded me that, you know, spread a little holiday cheer, if you will.

MATHISEN: All right. Elizabeth, thank you very much. Enjoyed the piece in this morning`s “The Wall Street Journal.”

HOLMES: Thank you.

MATHISEN: Elizabeth Holmes is a reporter there at “The Journal”.

And coming up, when you think of Intel (NASDAQ:INTC), you probably think of chips, but the company is about a whole more, including robots.


GHARIB: How safe would the car you`re driving be in a crash? If it`s a Honda, Acura, Subaru or Volvo, you`re in luck. Those automakers had the most models on this year`s list of safest cars. This is from the Insurance Institute of Highway Safety.

Now, 22 models that have collision avoiding systems were designated as top safety pick plus cars, including six made by Honda. Then, another 17 earned top safety pick status, including one each from Ford, Chevrolet, Dodge and Chrysler. And returning to the list this year, the nation`s best selling sedan, the Toyota (NYSE:TM) Camry.

To read more about all the cars that made the list, go to our Web site,

MATHISEN: Intel (NASDAQ:INTC) is at the top of the computer chip industry, but it`s also become a major force in the cutting edge development of robotics, including something called perception computing.

Josh Lipton got a rare look in inside Intel`s robotics` lab and what the chip maker is working on.


Inside Intel`s headquarters in Santa Clara, California, a robot is hard at work. It`s name is Oculus and it`s testing a tablet, zooming in on the screen, swiping past pages, scrolling through content.

Oculus is doing all this so you can have a better experience when using the tablet yourself. No TV cameras have ever been inside this robot lab before, but this is where a team of Intel (NASDAQ:INTC) engineers use robots to improve our phones, tablets and notebooks.

Intel (NASDAQ:INTC) first sent cognitive psychologists around the country who gather information on how hundreds of people interact with their devices. That data is then fed to Oculus, which can measure the quality of experience in precise ways that engineers can understand and use to make products better.

Is your tablet providing a smooth scrolling experience? Does your smart phone let you zoom on the screen with ease?

Oculus can tell you.

UNIDENTIFIED MALE: Adjust the pressure, so we can test call quality –

LIPTON: Just a few feet from Oculus, inside a sound proof room, there is also Andy, otherwise known in the lab as Atitas (ph). Andy`s job is to measure the clarity of the audio coming out of a phone.

Matt Dunford works in the robotics lab, he wouldn`t tell us who any of Intel`s customers are, but they are among the world`s biggest phone and tablet makers. Oculus will always its hands full because device is have to constantly improve and that means the robots must adjust as people`s expectations change.

MATT DUNFORD, INTEL USER EXPERIENCE MANAGER: They see friends with a new device and say, wait a minute, that`s way better than the one I have.
Now their expectations are up here, even though the device they may own is down here.

LIPTON: Inside the Intel (NASDAQ:INTC) robotics lab, engineers keep working, devising new ways to make your devices smarter and easier to use.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


GHARIB: And finally tonight, a user of the Web site Reddit who signed up for a secret Santa exchange got the gift of a lifetime when she opened her present and realized it was from Bill Gates. In the gift box was a card that read, “To Rachel from Bill, along with a travel book and stuffed cow. But the big present turned out to be a donation in her name of an actual cow to a charity called Heifer International which funds education and small farmers around the world.

And apparently he sent a picture of himself.

MATHISEN: There it is. We just saw it. What a great idea.

GHARIB: Wonder how much it was. But it`s kind of cool.

MATHISEN: Very cool.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for being with us.

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We hope to see you right back here 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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