Transcript: Monday, December 23, 2013

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Flying high. Investors start the week in a buying mood. Dow notching its 48th record close this year. Will the momentum continue? We have some big investing ideas for 2014.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The I-economy. Apple (NASDAQ:AAPL) strikes a deal with the world`s largest wireless carrier, China Mobile (NYSE:CHL), opening up a massive new market for iPhones. What this could mean for Apple (NASDAQ:AAPL) shares, which you may own or you may own in your mutual fund?

GHARIB: And making a difference in 2013. From Apple (NASDAQ:AAPL) to Dell (NASDAQ:DELL), veteran investor Carl Icahn spent much of the year shaking up companies and it paid off. His story is the first in our series of people having a powerful impact in the business world this year.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, December 23rd.

MATHISEN: Good evening, everyone, and welcome.

It`s hard to say who is halving a better year, Peyton Manning, or the Dow Jones Industrials. The Denver quarterback yesterday set an NFL record by throwing his 51st touchdown pass of the season. Today, the Dow set its 48th record closing high of the year, with five trading sessions left. Manning`s only got one game to go.

And the Dow wasn`t the only record-setter today, the S&P 500, the Dow Transports and the Russell 2000 also closed at all-time highs. For its part, NASDAQ finished at its highest level since September of 2000.

Helping pushed stocks higher today, a rise in consumer spending in November, a lift in consumer confidence in December, and a rosier outlook on the U.S. economy next year from the International Monetary Fund.

Today, the blue chip Dow stocks jumped another 73 points. The NASDAQ was up 44, a more than 1 percent spike and the S&P 500 added nine.

GHARIB: Our market guests say there are risks for investors in the New Year in 2014, but he`s still bullish for the New Year.

Russ Koesterich is global chief investment strategist at Blackrock.

Russ, nice to have you back on the program.

I don`t know about you, if someone says, “I have good news and bad news”, I want to hear the bad news first.


GHARIB: So, let`s start — let`s start with the risk, what is the biggest risk and should investors get ready for a correction?

KOESTERICH: Well, I think there are a couple of risks for next year. I mean, first of all, let me say stocks can and will go higher in 2014. But there are a couple of things to watch, the first of which are interest rates.

The last few months, the market has reacted very well to the tapering, to the fact that we`ve finally begun the tapering. And that`s likely to continue as long as the backend of rates is measure. And that`s the first thing to watch.

The second is the strength of the recovery. We expect that the U.S. will grow faster in 2014. But there is one soft spot which I would watch, which are earnings.

Pardon me, actually earnings for individual wages rather than companies. And the key here is that while the jobs market is getting better. We`re seeing improvement in the labor market. The improvement is not so strong. It`s to generate a lot of wage growth. And that is one thing that worries me for 2014, can consumers continue to spend if their pay packets aren`t growing that fast.

MATHISEN: Very quickly, why are we not seeing wage growth in this country, Russ? It`s been a long, long time?

KOESTERICH: This is a great question, and the truth is, it`s difficult to answer. I think the first reason, the obvious one is we`re coming out of this recession very slowly. Job growth is accelerating but it is still not, you know, going gangbusters. So that is suppressing wages for a lot of employed people.

But it`s worth point out, as you suggest, that this phenomenon has been happening for a very long time. And some of the factors, whether they`d be technology or the global wage arbitrage, which are both keeping wages down a bit, these both pre-date the recession. So, even as the economy gets better, it`s reasonable to assume that the wage growth may not accelerate as fast as it has for most of the post-World War II period.

GHARIB: Russ, I`ve been reading your report. And you said, “Stick with stocks,” and then you said, “for now”. So, I`m just wondering, what does that — what does that mean for investors?

KOESTERICH: It means that you should go into 2014 still overweight stocks. We still think that equity is better than cash, look better than bonds. We`re keeping our overweight recommendation. The caveat is this, if we see gains in 2014 being driven by a stronger economy, by stronger earnings, that`s a good thing. We stay low (ph) in equities.

Where we get nervous is if we`re having this conversation a year from now, the Dow is up another 15 percent, 20 percent, but those gains came from multiple expansion — in other words, some investors willing to pay more for a dollar of earnings. That would be dangerous.

So, I think if the gains are driven by earnings growth, then, we`re going to continue to stay low on equities.

MATHISEN: You know, is next year the year that international stocks catch up with some of the gains here in the U.S.?

KOESTERICH: Well, we think they do. You know, to be honest, there are some international markets that did quite well this year. Japan is one of them.

If you own Japanese equity and you hedge out the yen exposure, you`re up about 50 percent. And we think Japan can go further in 2014. Europe is looking a bit better.

So, I do think that investors, many of whom were very overweight, in the United States who have done well with the trade should think about trimming back in the U.S. and increasing the allocation to international funds.

GHARIB: All right. Lots of good information. Thanks so much, Russ. Hope you have a happy holiday.

KOESTERICH: Thank you.

GHARIB: Russ Koesterich, he`s chief — global chief investment strategist at Blackrock.

MATHISEN: A top official at the Federal Reserve is calling for an increase in the central bank`s increase lending rate but not right away. The Federal Reserve Bank president of Richmond, Jeffrey Lacker, says the bank was right in deciding to taper back on its bond-buying stimulus. He also thinks its records low federal funds rate should start to rise in little more than a year.


JEFFREY LACKER, FEDERAL RESERVE BANK OF RICHMOND PRES.: In my submission, I put early 2015 to when I think the funds are ready to lift off. But that`s something that could change a lot one way or the other.


MATHISEN: Lacker also said he was surprised the market rallied last week after the Fed made its taper announcement.

GHARIB: Another delay at the marketplace, expecting a big rush of last-minute filers, the Obama administration has extended today`s deadline to sign up for a new health insurance plan by one more day to tomorrow. This gives shoppers more time to sign up for a plan and make sure they`re covered by January 1st.

MATHISEN: And yet another delay to tell you about. The incoming head of the Federal Housing Finance Agency plans to delay a scheduled increase in fees on government backed mortgage loans from Fannie Mae and Freddie Mac. The original idea behind the higher fees was to reduce the number of loans guaranteed by the taxpayer-owned mortgage giants.

GHARIB: The NASDAQ got a big boost today, and that`s thanks to Apple (NASDAQ:AAPL). The stocks soared in nearly 4 percent after the iPhone maker secured a long sought after deal with the world`s largest wireless carrier, opening the door for millions more sales.

Josh Lipton has more.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Apple (NASDAQ:AAPL) CEO Tim Cook says he couldn`t think of a better way to welcome in the Chinese New Year than getting an iPhone into the hands of every China mobile customer who wants one. Apple (NASDAQ:AAPL) will offer the iPhone on China Mobile`s network starting on January 17th, as the company tries to boost its share in the world`s biggest country.

Right now, Apple (NASDAQ:AAPL) is losing out to rivals like Samsung and other competitors. In the third quarter, Apple (NASDAQ:AAPL) controlled 6 percent of the Chinese smartphone market. That`s according to research firm Canalys.

But now, that could all change, thanks to this new partnership. China Mobile (NYSE:CHL) offers a huge opportunity for Apple (NASDAQ:AAPL). The company serves over 760 million customers. It`s more than double the entire population of the United States.

No specific details yet about what the iPhone will cost with a China Mobile (NYSE:CHL) contract but if Apple (NASDAQ:AAPL) prices phones in the mid-end range, say $300, then it could take customers from competitors. Much of that will depend, of course, one whether Apple (NASDAQ:AAPL) is willing to sacrifice margin for market share.

Colin Gillis of BGC doesn`t think that will be Apple`s strategy.

COLIN GILLIS, BGC SR. TECH ANALYST: Apple (NASDAQ:AAPL) has shown that their position at the high end of the marketplace, that they`re not involved in that race to the bottom, that they want to sell premium product at good prices, maintain their margins.

LIPTON: Still, even without the price point, analysts are already busy estimating what the deal means for Apple (NASDAQ:AAPL) sales. The team at RBC expects this partnership to translate into sales of 17 million iPhones over the next 12 months, which could add $10 billion to Apple`s annual revenue line.

That would be a big boost for Apple (NASDAQ:AAPL) investors who have seen shares surge nearly 50 percent since April.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


MATHISEN: And still ahead, are shoppers turning their backs on Target (NYSE:TGT) following the massive credit and debit card security breach?


GHARIB: Good news for drivers. After four weeks of steadily climbing higher, prices at the pump fell two cents a gallon over the past two weeks. The Lundberg Survey has a gallon of regular averaging now, $3.26 nationwide.

MATHISEN: And something to tweet about, Jack Dorsey, the chairman of Twitter and the CEO of the mobile payment service, Square, has just joined the board of directors at Disney (NYSE:DIS). Dorsey, the person who sent out the first very tweet ever, has sent out another one today, quoting company founder Walt Disney (NYSE:DIS), which says, “I only hope we don`t lose sight of one thing — that it was all started by a mouse.” Of course, that mouse would be Mickey.

Dorsey replaces Judith Estrin, a Disney (NYSE:DIS) board member of the past 15 years. Because of term limits, she can no longer run for a seat.

GHARIB: Shares of Target (NYSE:TGT) fell about 1 percent today. It`s still reeling from the massive security breach to as many as 40 million debit and credit card customers and a decline in sales over the busiest shopping weekend of the year.

Julia Boorstin has more.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The big question this holiday season is just how much Target (NYSE:TGT) will suffer for its security breach of millions of shoppers, starting with the big Thanksgiving weekend. With reports that Target`s shoppers and debit card holders have been flooding underground black markets, going for between at 20 bucks and $100 per card, according to the KrebsOn Security blog.

The shoppers we caught up with are cautious and weary of using credit cards, but many are still spending.

UNIDENTIFIED FEMALE: After everything that happened with the credit card thing, it`s going to be cash in Target (NYSE:TGT) from now on.

UNIDENTIFIED MALE: I use cash, you know, but I heard about what happened so I just kind of stay away from the credit card stuff.

UNIDENTIFIED FEMALE: I`m good with it. It`s not going to stop me from going there.

BOORSTIN (on camera): There are no official sales numbers in yet, but retail consultancy Customer Growth Partners says Target`s transactions this past weekend were down 3 percent to 4 percent from the same weekend last year.

(voice-over): And Target`s brand perception has dropped more dramatically than other companies that have struggled with data breaches, according to YouGov BrandIndex`s Buzz score. Analyst Dana Telsey says rival Walmart will benefit, while Target (NYSE:TGT) works to lure customers back in.

DANA TELSEY, TELSEY ADVISORY GROUP CEO: Typically when we see events like this happen, the retailers need to go out and re-recruit their customer, re-recruit them whether it is with special deals, whether it`s special incentives, whether it`s bringing them back in the store to regain trust.

BOORSTIN: Meanwhile, Chase and other banks have been working to curb fraud from the security breach by setting spending limits for cardholders. Chase just raising its limits on card defected by the breach, customers can now withdraw $250 in cash and spend up to $1,000. We`ll see if they`re too scared to spend any of that money at Target (NYSE:TGT).

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Woodward Hills, California.


MATHISEN: Another activist investor is putting pressure on Darden to break up its restaurants, and that`s where we begin tonight`s market focus. Just last week, we told you that Darden is planning to spin off or sell its red lobster chain amid pressure from investor Barrington Capital. Well, now, Starboard Value is turning up the heat on the restaurant operator, saying that a dramatic breakup is needed. Shares popped on that news, up more than 6 percent today to $54.35.

The suit saga continues, Jos. A. Bank rejected Men`s Wearhouse`s takeover bid. Bank originally tried to take over its larger rival, Men`s Wearhouse (NYSE:MW). But the offer was rejected. Now, Bank is turning down the turnaround offer because it feels the $1.5 billion bid is just too doggone low.

Both of the apparel makers ended the day lower. Jos. A. Bank down more than 1 percent at $56.29, while Men`s Wearhouse (NYSE:MW) were off slightly to $51.63.

Tiffany (NYSE:TIF) and Company has been ordered to pay Swatch almost $450 million in damages. A court ruled that Tiffany (NYSE:TIF) terminated a joint watch venture with Swatch before its expiration. As a result, Tiffany (NYSE:TIF) had to slash its outlook for the year. And that sent shares of the jeweler down slightly, they finished the day at $90.50.

Seagate Technologies is buying a data storage company called Xyratex (NASDAQ:XRTX) for about $374 million. The move is an effort by Seagate to expand its storage business and improve its supply chain.

The deal sent shares of Seagate up a fraction to $56.01; Xyratex (NASDAQ:XRTX) at $13.28, up $2.83.

GHARIB: Federal regulators are now allowing Ariad the pharmaceuticals to resume marketing its leukemia drug, but to a smaller population of patients. The drugmaker suspended sales of the treatment two months ago, after data showed more than 25 percent of patients suffered serious complications. Shares rose sharply today, up almost 9 percent to $7.

A different diagnosis for another drugmaker, Tesaro stock plunged today on news of weak test results from a nausea drug. The treatment is used to help patients suffering from nausea after chemotherapy. But this drug did little to help them recover. The stock fell almost 25 percent to $28.37.

And a completely different story for United Therapeutics (NASDAQ:UTHR). The company received approval from the Food and Drug Administration to market its new hypertension treatment. That sent shares soaring, up over 30 percent to $114.51.

MATHISEN: Here is something that may not be on your Christmas wish list just yet, but it`s showing up on a lot more of them this year, 3D printers for the home or office.

Seema Mody takes a look at just how popular and mainstream these amazing devices have become.


SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Will 3D printers be a hot gift this year?

MakerBot`s president, Jenny Lawton, thinks they could be.

JENNIFER LAWTON, MAKERBOT PRESIDENT: The same people who come in who have never even heard of 3D printing and walking out with a 3D printer.

MODY: Stratasys (NASDAQ:SSYS), the 3D printing company that acquired MakerBot earlier this year, opening two stores in Boston, and Greenwich, ahead of the holidays. The goal: attracting a new type of customers, the retail consumer. The personal 3D printing market is still small, only about 36,000 units sold in 2012, accounting for just 6 percent of total sales for the 3D printing industry.

Analysts say bringing in the consumers is crucial.

ANDREA JAMES, DOUGHERTY & COMPANY: They have to innovative and innovative with products that appeal to consumers. But go to market strategy is important, because this is a new market.

MODY (on camera): So what kind of objects are consumers printing? MakerBot has over 100,000 designs available on its online database, including prosthetic arms, plastic nose, not to mention the countless items you can scan, upload and print.

UNIDENTIFIED FEMALE: We have a 12-year-old son who is very interesting in engineering. So, we thought that this will be perfect introduction for him to come and kind of try to build something that he has dreamed up.

MODY: And it`s not just Stratasys (NASDAQ:SSYS) that is getting in on the action, with more than two dozen consumer models this year. Big retailers like Amazon (NASDAQ:AMZN), Walmart and Staples (NASDAQ:SPLS) are all selling 3D printers geared for the consumers, with prices starting as low as $300.

Stratasys (NASDAQ:SSYS) and 3D Systems (NASDAQ:TDSC), the two biggest names in the space, have been red hot stocks for investors this year.

And if the industry is able to capture a mainstream audience, the growth these companies are seeing could go even higher.

For NIGHTLY BUSINESS REPORT, I`m Seema Mody, Greenwich, Connecticut.


GHARIB: Coming up, looking for stocks that could be solid performers in 2014? Well, our special market monitor guest has a list of stocking stuffers. But first, here`s what Mario Gabelli, chairman of GAMCO Investors, said he will be watching in the New Year.


MARIO GABELLI, GAMCO INVESTORS: To those of you that are watching NBR, I would think the following for 2014: First, earnings are going to be good. Secondly, interest rates are going to go up. The question is not “if” but “when”. And within that framework, how is the market going to react to that more volatility, but more opportunity to make money?



MATHISEN: All right, wondering what stocks to buy in the New Year. So, grab some paper and a pencil, maybe your iPad. Every night this week, we`re going to feature a special market monitor to talk about stock picks for 2014.

We now begin with Charlie Bobrinskoy. He`s vice chairman of Ariel Investments and portfolio manager of the aerial focus funds up 36 percent this year.

Nice work, Charlie. Congratulations.

CHARLES BOBRINSKOY, ARIEL INVESTMENTS VICE CHAIRMAN: Thank you very much. We did have a very good year.

MATHISEN: Good for you.

You just heard, I assume, Mario Gabelli saying he expects earnings to be higher next year, but interest rates, too. There are maybe more volatility, but he thinks that is going to bring more opportunity.

How do you see that comment and what do you see for 2014?

BOBRINSKOY: Yes, I was sort of irritated that you played him first because he said exactly what I was going to say. So, we do have wonderful tail winds behind us here. We think four big tail winds — energy, housing, auto, all three of those industries are going to be stronger and they`re going to put a lot of people to work at good better paying job.

And in the fourth tail wind is that Europe is going from a head wind to a tail wind. It`s coming off the bottom and it`s going to start being better. So, those are the big things we`ve got going for us. The one thing that we`ve got in our faith (ph), the headwind is rising interest rates. We think that it is almost a certainty. And it is hard to predict how stocks are going to react to that.

So, we think things are probably going to be going up, but it`s going to be windy out there.

GHARIB: You didn`t mention, Charlie, anything about technology, and yet you mention the first stock on your list of picks for 2014 is IBM. And this is a stock that didn`t do so well this past year.

BOBRINSKOY: Yes, one of the reasons we didn`t have a good year this year is we try to find things that are out of favor. And right now, large cap value tech is out of favor.

So, IBM is one of the few stocks that didn`t do very well this year. It`s trading at a very low price-earnings ratio of less than 10. It`s going to be benefitting from the recovery in Europe and from a strong economy. And, frankly, people are just too negative right now on IBM.

MATHISEN: Charlie, let`s go to your second choice which is Western Union (NYSE:WU). Charlie, have you heard of this thing, e-mail, Charlie?

BOBRINSKOY: Yes, try to send an e-mail with cash across the Mexican borders. They have tied up those restrictions, the anti-money laundering restrictions. It is a lot tougher than you think, and try sending that email at the person on the other end, doesn`t have a bank account. You can`t do it.

And so, the money transfer business has been growing. It`s been growing steadily for hundreds of years and we think it`s going to keep growing.

GHARIB: You have another tech stock on your list. This is Oracle (NASDAQ:ORCL), a very controversial stock. Everybody debates about this, and the CEO Larry Ellison.

Why do you like it?

BOBRINSKOY: Well, because everybody hates it. You know, I don`t know what this guy did, but boy, everybody hates Larry Ellison. And he`s been awfully successful. His software is imbedded within large companies. There are huge switching costs and yet the stock is trading for about 11 1/2, 12 times earnings. That compares to an average stock of about 15 times earnings.

It`s going to benefit from a recovery in Europe. There`s no doubt that tech spending has been soft as the economy has been a little bit soft around the world. But we think they`re going to grow. And, frankly, they`re getting to the Cloud better. They had a problem with their products not being available in the Cloud and they figured that out.

MATHISEN: Let`s talk about a couple of things you hate. Name a couple for 2014.

BOBRINSKOY: Well, I do think the bond market is still scary, you have had me on in the past couple of times, I think in the past, I`ve said, go home, find all of your bonds and sell them. Already, some of that pain has been taken, but interest rates are going to go up, and bonds are going to come down.

We think municipal bonds are particularly scary. I think Puerto Rico is going to have big trouble, it`s going to come to a head, this year. The state of Illinois, the city of Chicago where I live, has still got big problems.

So if we get a couple of large municipal defaults, the municipal bond market is going to be hit hard. And then we`re also nervous about the high yield market, which seems to go through five-year swings and it`s back to being over-valued.

MATHISEN: Charlie, great advice. Thank you very much. Appreciate it. Have a happy New Year.

BOBRINSKOY: Thanks for having me.

MATHISEN: Charlie Bobrinskoy of Ariel Investments.

GHARIB: Tonight, we kick off a series called the difference-makers, profiling some of the most important people in business and finance over the past year, and the impact that they`ve had.

Now, in the year highlighted by activist investors, no one was more active than Carl Icahn. Wall Street`s richest man took aim at several companies in 2013 and even one of his rivals.

Scott Wapner has more.



CARL ICAHN, ACTIVIST INVESTOR: They actually go out and they scare their own shareholders.

WAPNER: To agitating Apple (NASDAQ:AAPL).

ICAHN: It`s an absurd price relative to the market.

WAPNER: No investor has roared louder this year than Carl Icahn. The almost octogenarian activist arguing for change at business after business.

RANA FOROOHAR, ASSISTANT MANAGING EDITOR, TIME: Well, he is certainly the most vocal, you know, he has a very big microphone and he is taking on the world`s richest and most beloved companies.

WAPNER: But one of Icahn`s biggest battles this year wasn`t with a corporate heavyweight.

ICAHN: You know, I really sort of had had it with this guy, Ackman.

WAPNER: But a rival, Bill Ackman.

ICAHN: Ackman is a liar, OK?

WAPNER: The billionaires brawled live on CNBC over nutrition company Herbalife (NYSE:HLF) and a decade`s worth of animosity poured out.

The world watched, and trading on the floor of the New York Stock Exchange virtually stopped.

ICAHN: I never said I wanted to be friends with you, Bill.


ICAHN: You said to me, you`d like to be friends so that we could invest together.

ACKMAN: Carl, I have no interest — do you think I want to invest with you? OK, let`s move on.

ICAHN: I`m going to invest with you —

ACKMAN: Let`s move on.

ICAHN: — if you were the last man on earth.

WAPNER: But one of Icahn`s most memorable moments wasn`t about a tiff but a trade. The investor placed a big bet on video streaming service Netflix (NASDAQ:NFLX) and hit the jackpot. An $800 million profit in just 14 months.

ICAHN: I wanted to sell about 100 points ago. I really wanted to sell it. My son has threatened to leave.

WAPNER: A big score for an investor who even as he ages shows no signs of slowing down.

FOROOHAR: I think that he is an extremely persistent and aggressive guy. I wouldn`t necessarily want to be on the wrong side of a deal for him. But he is a super smart guy. He`s got a lot to say, and I hope investors and companies are really listening.

WAPNER: And if they`re not yet, they probably should be.



GHARIB: And join us tomorrow night for the next series of difference makers. We`re going to profile Yahoo (NASDAQ:YHOO) CEO Marissa Mayer, her impact on the company and on the business world — Tyler.

MATHISEN: And, Susie, finally tonight — the Federal Reserve hits the century mark. President Woodrow Wilson signed a lot creating the nation`s central bank exactly 100 years ago today in response to the banking crisis of 1907, to provide the nation with a safer and more monetarily financial system. Over time, the Feds` role grew to include supervising and regulating banks, setting monetary policy and providing financial services to the federal government, and keeping us — most of us on edge every time they hold a policy meeting.

So from NBR, happy anniversary to the Fed and may you have many, many more. If this year was not the year of the Fed and the taper, it certainly was the year of the activist investor witness Icahn.

GHARIB: Fascinating story about Carl Icahn, I was going to say about the Fed. In my early years as a financial reporter, you didn`t even know when the Fed was going to have a meeting. So they have come a long way to now having total transparency. We know every move they`re going to make.

MATHISEN: Yes. And the idea of this — of press conferences every so often, is unheard of.

GHARIB: Unheard of.

Well, that`s NIGHTLY BUSINESS REPORT for us tonight. I`m Susie Gharib. Thanks for watching.

MATHISEN: And thanks for me as well. I`m Tyler Mathisen. Have a great evening, everybody. We`ll see you back here tomorrow night, Christmas Eve.


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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