Transcript: Tuesday, December 24, 2013

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

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Holiday cheer. Santa delivers a positive day for stocks and delivers another record for the Dow and S&P. So, is the rally mean for the jolly man in the red suit in full swing?

Starting to spend. Strong sales of big-ticket items show businesses are spending and that`s a good sign for economic growth.

And feeling blue. Our market monitor has three blue chips that he says are must-own in 2014.

All that and more for this Tuesday, December 24th, 2013.

Good evening, everyone, on this Christmas Eve. I`m Susie Gharib.
Tyler is off tonight.

So, it looks like Santa started his rounds a little early today.
Stocks edged higher, thanks to some encouraging data about manufacturing and housing and we`ll have more on both those topics in just a few minutes.

Traders called today`s gains the start of a so-called Santa Claus rally. That`s when stocks rise in the final five trading sessions of the year and on Wall Street, that`s a bullish signal for the New Year.

Today, investors and traders spread a little holiday cheer to each of the major averages. The Dow and the S&P posted new all-time highs and the NASDAQ had its best close in more than 13 years. The Dow rose another 63 points. The NASDAQ was up six. And the S&P added five points.

Over in the bond market, worries about whether the Federal Reserve would taper its stimulus and cause a sharp spike in interest rates has been a big headache for bond investors. Just ahead of the Fed`s taper announcement last week, investors in mutual funds pulled more than $8 million out of bond funds. That`s according to the Investment Company Investment.

That makes 12 weeks in a row and the most in one week since August.

More now on that strong manufacturing data. Orders for long-lasting durable goods rose a better than expected 3.5 percent in November. The Commerce Department said demand increased for a range of goods, including commercial aircraft, machinery, computers and electronics. Business investment and new manufacture goods saw its biggest jump since January.

Well, that rising demand in manufactured goods especially for autos, aircraft and heavy machinery may have led to a comeback of sorts in steel.
Prices are higher and so are shares in some of the nation`s biggest steelmakers.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Feel yourself for a rebound in steel? Strong auto sales, the U.S. housing recovery and a flood of orders for long-lasting manufactured goods all helping push demand higher for the hard-hit commodity. Experts say global appetite for steel could grow in 2014.

TIMNA TANNERS, BANK OF AMERICA, METALS & MINING RESEARCH ANALYST: As we head into 2014, we`re looking very positively at the demand side. We expect that you could see demand as much as 6 percent to 8 percent higher, again, led by nonresidential construction.

BRENNAN (on camera): So, why does that matter? Steel was one of the industries hit hardest in the economic downturn, as construction ground to a halt and as the auto industry faced multibillion dollar bailouts. Nearly five years later, steel has yet to recover.

(voice-over): But stronger economic growth in both the U.S. and in Europe could be leading the way for steel`s long-awaited rebound, adding more proof that a recovery is here to stay.

Ratings firm Moody`s (NYSE:MCO) recently upping its outlook for the industry to stable, saying steel saw its bottom earlier this year. And investors seemed to agree. Several steelmakers posting strong stock gains in the final days of 2013. United States Steel (NYSE:X) Corporation climbing more than 6 percent this week and up 80 percent over the past six months.

Another industry giant AK Steel has jumped more than 10 percent through Tuesday, clocking six-month gains of 150 percent. These companies have been beating the street with recent earning reports, posting surprise but still modest profits and inspiring a number of analysts from Cohen and Company to Goldman Sachs (NYSE:GS) to issue stock upgrades.

Still, headwinds persist for steel.

ED MORSE, CITI GLOBAL HEAD OF COMMODITIES RESEARCH: Steel production in China is forecast to go down. Pollution controls are shutting down steel production at a rate that is considerably higher than anyone had forecast. So we think that it`s going to come in for a rude awakening.

BRENNAN: For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

GHARIB: More now on today`s housing news. Contracts to buy newly built homes declined more than 2 percent in November from the month before.
But there was a big upward revision to October`s already strong sales. New home sales are now running at a five-year high, but not all the housing numbers may be squaring up.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): U.S.
home builders are putting up more homes. And more importantly, they`re selling them. Contracts to buy newly built homes were running at an annualized pace of 464,000 in November, down slightly from October, but October saw a huge surge.

BRIAN COESTER, COESTER VALUATION MANAGEMENT CEO: It`s right. There`s a huge demand.

OLICK: Brian Coester is an appraiser and works with home builders Pulte and Taylor Morrison.

COESTER: I think there`s a sense of urgency with people that they should have, that if you don`t do it now within a couple months or within, you know, six months, rates will keep going up and up, and you`re going to miss the opportunity to, you know, get a 5 percent or 4 percent rate.

OLICK: Stocks of the builders surged on the day`s news. This after Miami-based Lennar (NYSE:LEN), one of the largest public builders, last week reported a 13 percent quarterly jump in new contracts. Stronger than its peers but a sign that the higher-end new home market is recovering nicely.

The lower end, however, for both new and existing homes, is slowing dramatically. Investors have depleted most of the distressed housing stock and first-time homebuyers are still locked out of the market by tight credit. Witness mortgage applications to purchase a home, down 4 percent last week and down over 10 percent from a year ago, this as rates moved only very slightly higher.

The culprit may be higher premiums at the FHA, the government`s mortgage insurer and a favorite among first-time buyers. FHA mortgage applications are down 25 percent from a year ago.

(on camera): So, if first-time buyers are out, what`s pushing the demand for newly built homes? Well, some of it is still tight supply of existing homes for sale.

But there may also be a new wild card in the new home market.
Investors using all cash are turning to new construction. It`s the next step in the rental play.

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

(END VIDEOTAPE)

GHARIB: Now, even with all those new homes getting sold, applications for new mortgages fell to a 13-year low last week. The Mortgage Bankers Association says demand dropped off when rates ticked higher following the Fed`s decision to taper back on its bond-buying stimulus.

There are just four trading days left this year, and James Dunigan expects that Santa Claus rally to continue right through New Year`s Eve.
He`s managing executive of investments at PNC Asset Management Group.

So, Jim, we end this year obviously on a very high note. But when you`re this high up, it makes you wonder how much higher can stocks go in the New Year?

JAMES DUNIGAN, PNC ASSET MANAGEMENT GROUP: Well, that`s the question on investors` mind these days, Susie, as you said, but certainly Santa has delivered, ended up the year with an up day today. We do believe this Santa Claus rally which will go through the first couple of days of January will continue, on the backs of very strong economic data.

GHARIB: So what is your outlook for 2014 in terms of how much the major averages could go up? I mean, you`re coming off a really strong year, up 30 percent or so.

DUNIGAN: Well, as you say, we have benefited from the asset purchases of the Federal Reserve over the last couple of years, but particularly in 2013. We`ll see almost a plus 30 percent year on the S&P. If you include dividends, not likely we`ll see that in 2014. We`re more in the single- digit range, something in the 8 percent to 12 percent range, depending on how earnings go.

But it will be a month year for equities, just not investors should not forecast what we`ve seen in the last 12 months.

GHARIB: Well, there`s been a lot of talk among market strategists about a correction or two coming up in the New Year. Now, investors are always told you can`t time the market, but I`m still going to ask you a question about that.

If there is some kind of correction, are investors better off waiting for that pullback to happen before they put any fresh money into the markets?

DUNIGAN: Well, if you look back at 2013, Susie, investors who tried that were not very successful. So all we got was a 6 percent correction.

Now, on average, over the last 33 years, the entry-year decline is about 14 percent. So in all likelihood, we will see a decline in 2014 larger than the 6 percent we saw, probably something in the range of 10 percent, maybe to 15 percent, hard to predict when that would be.

So, I would suggest investors not try to time that market but understand what their plan is, if they`re under-allocated to equities, underinvested in equities, they put a plan in place early in the year to invest throughout the year. Over that time frame, they`ll be mostly right, not likely they`ll get it all the way right by trying to time the downturn.

GHARIB: All right. So, we`ve got four trading days left for this year. Are there — you know, you talk about an investor plan, portfolio plan. What should investors be doing? Is there anything they should do within this deadline time, or does it make a difference? Should they be buying things? Selling stocks?

DUNIGAN: That`s the question. And certainly with an up 30 percent year, not likely they have as many losses in their portfolio, but certainly the first thing you should do is take any losses, see if you can offset that against any gains you have in your account. I would suggest probably not recognizing gains here in the last four days of the year.

But investors should take this opportunity, if you`ve been fully allocated to stocks, you`re now overweighted, so I`d start to take the opportunity to rebalance your portfolio. Certainly opportunities in developed countries, Europe, emerging markets.

So, to allocate away from U.S. stocks if you have been — if you have benefited from this rally and this market, and then look at the risk in your fixed-income portfolio. This will be a year we`ll see negative returns in bond indexes.

Look where your durations are, where your risk is and try to de-risk some of your fixed-income portfolio against what we would suggest is a rising rate environment in 2014.

GHARIB: A lot of important decisions you have to make. Thank you so much, Jim, for coming on the program and happy holidays.

DUNIGAN: Thank you, Susie, and happy holidays to you.

GHARIB: Thank you so much. Jim Dunegan of PNC Asset Management Group.

American Express (NYSE:EXPR) (NYSE:AXP) agreed to pay at least $75 million in fines and to repay customers for what authorities called misleading marketing tactics and bogus billings. The credit card giant was accused by three regulators, including the FDIC for charging some cardholders for extra services like ID theft protection when they didn`t even enroll in the program. AmEx was also charged for overstating the benefits and coverage time for an account protection product.

Now, this settlement is the latest in a series of actions against other credit card companies for misleading consumers of the benefits of add-on products.

Coming up next, it`s all about the consumer. Retailers are making one final push this year for the customer`s dollar. And our market monitor has the consumer names for you to own for 2014. That`s coming up.

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GHARIB: In case you weren`t keeping track, there are now zero shopping days left before Christmas. So retailers have pulled out all the stops to get more consumers inside their stores.

Sara Eisen has more on the final push to get a piece of your holiday shopping dollar.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s 4:30 a.m.
Christmas Eve, and Shirley Ruiz is leaving Toys “R” Us with a shopping cart full of presents.

SHIRLEY RUIZ, UNION CITY, NJ: It`s very full here. I mean, we have a lot of toys.

EISEN: If you think that`s early, think again. Across the country, thousands hit stores before dawn because — well, they were open.

RUIZ: I think it`s a great idea. Some people, unfortunately, have to wait until the last minute. So it`s a great idea. I think it`s awesome.
I think it`s awesome we`re here.

EISEN (on camera): Kohl`s (NYSE:KSS) locations like this one have been open 24 hours since early Friday morning. Select Macy`s (NYSE:M) stores as well and Toys “R” Us opened its stores early Saturday morning.
Its flagship store in Times Square has literally been open since December 1st.

The question is, is it going to pay off in what appears to so far being a pretty lackluster holiday shopping season?

STACEY WIDLITZ, CNBC RETAIL ANALYST: There will at least be that one person who has free time at 3:00 in the morning. But in general, I don`t think it`s helping retail. It`s just adding labor hours and potentially hurting margins.

EISEN: Macy`s (NYSE:M) says our shoppers love that we give them options, especially with late-night and early-morning hours. The former CEO of Toys “R” Us says it`s a winning strategy.

JERRY STORCH, TOYS “R” US FORMER CEO: The shoulder hours like from midnight to 2:00 a.m. or from 5:00 a.m. on are actually quite busy. If you compare that for stores setting up all night to an average day in the middle of February, these are really busy hours. So they are profitable.

EISEN: Part of that 24/7 convenience is what`s driving more shoppers online this season. Online sales the weekend before Christmas surged 40 percent this year compared to last. Twenty percent of that came from mobile.

Keep in mind online sales only make up 6 percent or so of total retail sales. That means brick and mortar retailers are pulling out all the stops, even if it means staffing a store in the middle of the night.

In Secaucus, New Jersey, for NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

GHARIB: Shares of Tesla revved higher after the electric carmaker received a safety stamped of approval, and that`s where we begin tonight`s “Market Focus”.

Regulators reaffirmed the five-star safety rating of Tesla`s Model S for 2014. Now, that`s despite recent incidents where three of those models caught fire after crashing. And those fires are still under investigation.
Tesla shares popped 5 percent to $151.25.

La Quinta has confidentially filed for IPO. There are reports that the hotel chain that`s owned by investment firm Blackstone is seeking to raise as much as $4.5 billion in the offering. The price and numbers of shares won`t be decided until after regulators review the filing.

Shares of Blackstone ended the day slightly higher to $31 and change.

There are also reports out today that the Carlisle Group is close to pulling off a deal with Johnson & Johnson (NYSE:JNJ) to buy J&J`s blood unit. It`s a transaction that could be worth about $4 billion. The health care giant has been looking to sell the division since it`s a small player in a market led by big rivals like Roche and Siemen`s. Shares of Johnson & Johnson (NYSE:JNJ) were up slightly to $92.06.

W.R. Grace (NYSE:GRA) has finally reached an agreement with bank lenders. That was the only remaining appeal left in the company`s bankruptcy settlement. The chemical maker will now emerge after a 12-year stay in bankruptcy. It filed for Chapter 11 back in 2001 after an asbestos leak led to lawsuits. Shares today rose almost 4 percent to $98.53.

Cal Amp posted solid profit in sales and beat analysts` estimates when it reported quarterly results today. But shares of the satellite technology provider tumbled after the company disappointed investors with the weak profit outlook. The stock plunged 7 percent to $25.63.

Baxter is recalling two of its injectable solutions after it found particles in the products. The health care company has warned of blockages and organ damage but it says it hasn`t received any reports as of yet.
Despite the news, Baxter shares rose a fraction to $69.06.

And Time Warner (NYSE:TWX) reached a distribution deal with Viacom
(NYSE:VIA) just a few days before the old contract was supposed to expire.
The deal with Viacom (NYSE:VIA) which is the parent of Nickelodeon and MTV is in sharp contrast to Time Warner`s battle with CVS (NYSE:CVS) last summer. You`ll remember that difficult negotiations led to a blackout of CBS (NYSE:CBS) programs on Time Warner`s system.

Shares of Viacom (NYSE:VIA) were up a fraction today on the news, to $85.60. Time Warner (NYSE:TWX) Cable also rose 1 percent to $134.04.

As we continue our special week of market monitors, our next guest says if you want to know how the stock market will do in 2014, follow the mood of the American consumer.

Joining us to explain, James Lowell. He`s chief investment officer of Adviser Investments.

Hi, Jim. Nice to have you with us.

JAMES LOWELL, ADVISER INVESTMENTS CHIEF INVESTMENT OFFICER: Great to be here.

GHARIB: So tell us about your investment strategy. What`s the connection between the American consumer and how stocks are going to do in the New Year?

LOWELL: We pay a lot of attention not to what consumers are saying but what, in fact, they are doing with their money. That has been a bellwether recipe to figure out ways to profit not just, I think, in 2014 but also over the last five years when at any given moment, people were writing off the U.S. consumer.

It also has a positive ripple effect around the globe. We think we`re seeing European consumers turn a corner in an early-stage recovery there.
And we think if we get early-stage recovery in Europe and a mid-cycle stage recovery in our own economy here, that`s going to lift the emerging markets with the worst performing markets in 2013.

So, by focusing on what the consumer is doing, by focusing on what they are buying and where they are buying, we think we`ll be able to figure out ways to profit from it.

GHARIB: OK, that`s great. And you have three blue chip stocks that you think are must-owns for 2014. Let`s go down them quickly.

You have American Express (NYSE:EXPR) (NYSE:AXP) at the top of your list. Tell us why you like it, and at $88, can investors still make money on this? Look at that chart. It`s really had a great year.

LOWELL: It`s had a spectacular run this year. It is, though, I think going to still have some success in 2014, probably not as spectacular as it was in 2013. But I wouldn`t be surprised with a 15 percent gain.

It is a direct reflection of not just consumer spending but small business spending and also the overall lending environment in which it finds itself as increasingly favorable. So, we think American Express
(NYSE:EXPR) (NYSE:AXP) is likely to benefit.

GHARIB: OK, great. Now, you have Home Depot (NYSE:HD) also on your list. Tell us why you like this. Also it had a good year and it`s trading at $80 now.

LOWELL: One of the reasons we like Home Depot (NYSE:HD) a lot is that it`s not just where homeowners go to upgrade or take care of their own home, but it`s where local builders go to build the one to five houses that they build. And we think we are going to continue to see a housing recovery. We know there`s low inventory and pent-up demand.

The risk, of course, is rising mortgage rates. But we think in this environment, with moderately faster growth in 2014, that will help offset even the total certainly higher mortgage rates.

GHARIB: All right. And your third blue chip is ford. You`re bullish on this one. What`s your attraction to Ford — and why Ford, not G.M.?

LOWELL: Excellent management at Ford I think offsets what will likely be a net good year for G.M. for all the car sales and manufacturers going forward. But Ford in particular because of that excellent management I think is going to have a better handle on how to drive profits. We also like the fact that Ford is likely to benefit significantly from a slight turnaround in Europe. We saw the first consecutive months of net car sales in Europe in both October and November. We think that trend continues in 2014.

So, we like Ford both as domestic play on a strong U.S. consumer but also as a stealth play on the reemergence of a European consumer.

GHARIB: It`s $15 trading now. If you buy it now, what can you expect by next year at this time?

LOWELL: I would say in the $18 to $20 range, especially if the no risks sort of impose themselves on this moderately economy that we think we`re headed into in 2014.

GHARIB: Terrific.

Any disclosures to make, Jim?

LOWELL: We don`t own any of those individual stocks, either myself, family or firm, but they are certainly inside the mutual funds and ETFs that we do own.

GHARIB: All right. Terrific, thanks so much. Have a happy holiday.

LOWELL: You, too.

GHARIB: Jim Lowell of Adviser Investments.

And coming up on the program, it`s been a banner year for stocks as we`ve been telling you, and shares of Yahoo (NASDAQ:YHOO)! were a standout, more than doubling so far. But that`s not the only reason why company CEO Marissa Mayer was a difference maker this year. That`s next.

(MUSIC)

GHARIB: We continue now our week-long series called “The Difference Makers.” These are profiles of some of the most important people in business and finance over the past year and the impacts that they`ve had.

And over the last 12 months, the influence that Marissa Mayer has had on floundering Yahoo (NASDAQ:YHOO)! has been tremendous.

Jon Fortt has the story.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): If you are riding the first act of a turnaround story, you could hardly do better than Marisa Mayer has in 2013.

(on camera): Yahoo (NASDAQ:YHOO) shares closed above 40 bucks a share earlier this month. Now, to put that in perspective, aside from two months around eight years ago, the stock hasn`t seen those levels since the year 2000.

(voice-over): Why the rally? By Mayer`s own admission, previous management invested in Chinese e-commerce giant Alibaba and in Yahoo (NASDAQ:YHOO)! Japan, which have seen their values skyrocket.

But there`s more to it than that. In 2013, Marissa Mayer established herself as both a hands-on product executive and the most marketing savvy CEO in Silicon Valley, all but forcing investors and employees to believe in Yahoo (NASDAQ:YHOO)! again.

MARISSA MAYER, YAHOO! CEO & PRESIDENT: Vince Lombardi was a phenomenal coach. One of the things, as you know, he was like, look, my priorities are God, family and the Green Bay Packers in that order. And I joked mine are God, family and Yahoo (NASDAQ:YHOO)! Except I`m not that religious, so it`s really family and Yahoo (NASDAQ:YHOO)!

FORTT: Product-wise, she managed to build and buy some interesting properties. In May, she paid just over $1 billion for Tumblr, a sought- after social media darling. Earlier in the year, she bought a company more notable for its 17-year-old founder than for its actual technology.

Yahoo (NASDAQ:YHOO)!`s results where it counts in the company`s revenue, Mayer is not moving the needle yet. Search advertising is holding its own, but the core display ads is stagnant at best.

Mayer is preaching patients. She says she needs time to launch new products which will draw bigger audiences, which will lead to higher sales.

And investors seem to be listening. Mayer is putting a fresh face on what lots of people had begun to see as a stodgy company — her face.

There is that “Vogue” spread and she began hosting earnings calls as live video, something a less telegenic CEO might avoid.

In 2014, though, she`ll probably have to deliver on those top-line results and she`ll have to avoid product stumbles like last year`s fantasy sports outage and this month`s Yahoo (NASDAQ:YHOO)! mail fiasco since Yahoo (NASDAQ:YHOO)! needs every loyal user it can get.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

GHARIB: And finally tonight, a wake-up call about coffee. The price of coffee beans plunged this year, but the cost of that cup of Joe barely budged. Big coffee sellers who have been brewing up higher profits all year long say there`s a good reason for that.

Kate Kelly explains.

(BEGIN VIDEOTAPE)

KATE KELLY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Coffee`s had a rough time this year, at least in commodity markets where contracts pegged to the value of beans grown around the world trade.
Thanks largely to oversupply from Brazil, an important source, commodity prices have dipped almost 20 percent so far in 2013, and some traders think we are either at or near a bottom.

Partly as a result, shares of the big coffee sellers like Starbucks (NASDAQ:SBUX), Dunkin` Donuts and Green Mountain have rallied huge, but they didn`t pass on the savings to consumers, at least not all of them.

Statistics show that in the U.S. alone the price of coffee fell only about 7 percent in the average city. And some coffee drinkers are a little upset by that.

DANIEL GRAY, UNIVERSITY OF TORONTO STUDENT: It`s a little frustrating. You know, obviously when you buy a lot of coffee from places like McDonald`s (NYSE:MCD) and Starbucks (NASDAQ:SBUX), big chains. And, you know, they are getting it cheaper and you don`t see anything, it`s a little upsetting.

REBECCA STASINOWSKY, TEACHER VISITING FROM SINGAPORE: We`re a big coffee culture. Lots of people drink coffee. Lots of people like it. So, if there`s the market there and people are buying it, then they don`t need to compete with prices.

KELLY: Mike Nugent who trades coffee and other agricultural commodities says to consider the process involved with buying large quantities of coffee beans in the first place.

MIKE NUGENT, M.J. NUGENT & CO. CEO: When you go to buy your cup of coffee, you say, well, coffee prices are at multiyear lows, how come the price is not going down, that assumes that those coffee — that coffee in your cup was purchased the day before yesterday. It wasn`t. It may have been contracted two to three years ago at a higher price. It may have been stored, for years, and financed for years.

KELLY (on camera): Perhaps that explains what Dunkin Brands supply chief Scott Murphy meant when he said to me that for next year, Dunkin`s many franchises have locked in coffee prices that will bring stability and favorability to their markets. What that means to the average Joe, however, is not exactly clear.

For NIGHTLY BUSINESS REPORT, I`m Kate Kelly in New York.

(END VIDEOTAPE)

GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. Be sure to tune in tomorrow for our holiday special, “2013: The Year That Was.”

Have a very happy holiday. I`m Susie Gharib.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.

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