Transcript: Wednesday, December 25, 2013

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


everybody. And welcome to a special holiday edition of NIGHTLY BUSINESS
REPORT. I`m Tyler Mathisen.


Well, 2013 is almost in the books, and what a difference a year makes.
From what seemed like daily record highs in the stock market to a bumper
crop of new companies going public, 2013 was a good one for investors.

MATHISEN: A very good one. But away from Wall Street, things seemed
to get mostly better as well. Home prices came roaring back in many parts
of the country, and the consumer dug deep and started to spend again. And
that`s just scratching the surface. So many big stories this year, and
while we can`t possibly touch on all of them tonight, we`re going to look
at the year that was in some of the biggest areas, the markets, the
economy, Washington, health care and real estate.

GHARIB: And in all the topics that Tyler just mentioned and
elsewhere, change both dramatic and subtle is one of the key underlying
themes of 2013. And boy, a lot`s changed in the past 12 months.


GHARIB (voice-over): Few Wall Street pros could have predicted the
stock market would soar 25 percent, hitting one record after another. The
Dow above 16,000, the S&P perched at 1,800, numbers hardly imaginable a
year ago.

Investors snapped up stocks because where else could they get big
returns given super low interest rates?

The Federal Reserve and this man get some of the credit. Fed Chief
Ben Bernanke stood firm on the Central Bank`s policy of stimulus measures
to pump up the economy, which led to a year-long guessing game, when will
the Fed taper that massive stimulus program?

Well, now we know. The taper talk wasn`t the only guessing game.
There was intense speculation about who would replace Bernanke when he
steps down in January.

Janet Yellen won, the first woman ever nominated as fed chair. She`ll
preside over an economy that`s doing a whole lot better. Unemployment is
now at 7 percent, down almost a full percentage point from a year ago.
Consumers are feeling better about spending. Cars and trucks, new homes
and the new new thing in electronics, you name it, and they were buying it.

Tech was also hot on Wall Street. Twitter was one of this year`s
hottest IPOs. Google (NASDAQ:GOOG) crossed the $1,000 mark for the first
time, and Facebook (NASDAQ:FB) became popular again.

Airlines took off, too. American is now the world`s largest carrier
after its merger with U.S. Airways. But more fees are coming. Even carry-
on bags can cost you.

But prices at the pump are costing less, down 12 cents a gallon from a
year ago. And they could go even lower as the U.S. is suddenly on its way
to becoming the world`s top oil producer. No such cheer in Detroit, though
— the largest American city ever to declare bankruptcy, or for the big bad
banks. JPMorgan (NYSE:JPM) reaching a record settlement of $13 billion
with the Justice Department, just one giant slap in a series of lawsuits
for misbehaving during the financial crisis.

2013 also brought a whole new world in health care. It`s the law now.
But consumers found it difficult to sign up, thanks to an ailing government
Web site. And health care wasn`t the only crisis in Washington. But this
month, Congress agreed on a bipartisan budget deal, perhaps the biggest and
most hopeful change in a year that`s had its share of them.


MATHISEN: So it has been quite a year. Where do we start? Easy,
Wall Street.

With the Dow and the S&P hitting all-time highs for the first time
since 2007, investors have been treated to 20-plus percent gains, 30
percent gains on the NASDAQ.

Dominic Chu is here to talk about the biggest themes of the year for

Dom, why don`t you run us through some of the numbers of this
superlative year?

superlative to say the very least. Those are some great numbers.

But talk about a momentum trade. The Dow has hit around 44 all-time
record highs just this year, 39 for the S&P 500, the NASDAQ composite, the
best levels in 13 years. You`ve got to go all the way back to 2000 to see
where the NASDAQ was.

This is all such a huge move for the stock market, and it`s been
driven like you guys said before by the consumer. The consumer
discretionary stocks are among the best performing sectors in the S&P 500.

That means when Americans opened up their wallets and spend their
hard-earned money, it drives our economy. An estimated 70 percent of our
economy guys is driven by that consumer spending.

GHARIB: And then the other trend that we saw in year, all those stock
buybacks. We were reporting at least one a week of a big company
announcing a stock buyback.

You know, how important were they?

CHU: You can`t keep track of how — I mean, you can try. So, at the
end of the third quarter, there were an estimated $346 billion with a “B”
of stock buybacks.

Corporations have emerged as some of the biggest buyers of stock just
in general in the entire market. Now, it`s not just about those dividends
or buybacks. It`s also about dividends as well. We had a record payout
for dividends this year. And we`re not even over yet. The year`s not even
over. About $310 billion has been paid out in dividends. That`s huge.
We`re returning all kinds of cash to shareholders.

MATHISEN: Companies deploying their cash. Then there were cases of
companies seeking cash. I can`t remember a year when more companies were
stumbling all over themselves to come to market for stock offerings.

CHU: It`s been amazing. And maybe this is the biggest sign of
investor confidence returning, this idea that private investors want to go
out and seek public capital to grow their businesses. I mean, again, we`re
not over yet. We`re not anticipating any more big ones, but 222 IPOs, the
most ever.

Even with the dotcom, even with the highs of 2007, we`re seeing so
many companies go public, and they`re going hot. The container store, more
than doubles, sprouts farmers market, more than doubles, (INAUDIBLE).

Of course, Twitter, like you said, the banner one of the year so far.

GHARIB: So, everybody`s wondering what happens next year. Can we top
anything a year like this?

CHU: Well, it`s interesting because you`ve had that kind of a bull
run, you got to say, hey, maybe there`s got a little bit of a pullback.
But a lot of the Wall Street strategists are already putting out their
forecasts for this coming year. And you`ve got to say a lot of them are

Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) came out with theirs, over
2,000, a couple others are the same way. This could be a good year for the
S&P 500 if those strategies are right.

MATHISEN: All right. Dom — Dom Chu, thank you very much, and happy
holidays to you.

CHU: Same to you guys.

MATHISEN: You bet.

GHARIB: And while stocks took off, the economy plodded along but
showed some signs of improvement. Jobs are starting to be created and the
unemployment rate is slowly coming down, although still sitting at 7

The consumer seems to be spending a little bit more and the economy`s
watchdog, the Federal Reserve, feel things are getting better and started
to pull back on its bond-buying program.

Steve Liesman and Hampton Pearson have been our go-to guys on all of

Steve, let me begin with you on all of this. So, we had the Fed last
week announce that taper. And Fed Chairman Bernanke, the time that he
announced the cutbacks, he said the economy is healthier and that the job
market is improving.

What is your take? How healthy is the economy right now?

seems to have happened is this nice revision upwards to the fourth quarter
after a very strong third quarter. Hey, we`re going to probably average 3
percent growth in the second half, and that`s up from around 2 percent in
the first half. And that extra percentage point means a lot more jobs, it
means better earnings for companies and it means better economic growth.

I think what the Fed did is it`s still going to be providing a lot of
stimulus next year. It just said it`s going to be providing less as the
year goes on. It`s kind of like it didn`t announce last call at the bar,
but it said here`s the time when we`re going to have last call, when it
comes to quantitative easing or those bond purchases by the Fed in order to
drive down long-term interest rates.

The Fed said, you know what? Towards the end of the year is when
we`ll stop doing that. But it also promised to keep interest rates low,
well into 2015. So there`s a lot of stimulus yet coming from the Federal
Reserve for this economy for next year.

MATHISEN: I thought that Fed statement last week, Steve, was sort of
the art of monetary needle threading. And I thought Bernanke was
incredibly adroit at doing it. He is going to be moving on from the stage.

How much are we likely to miss him? How much will you miss him?

LIESMAN: Well, I think he was the right guy at the right time for a
financial crisis. He was an expert in the depression. And that was very
instructive for him for keeping really the gas pedal down on the economy
even while many around him said that he should draw back.

I think he`s going to be missed, but I also know that Janet Yellen is
also known as a monetary policy expert. She was there during the financial
crisis. And I think what we`re hearing is that policy`s going to continue
very much the way it has.

GHARIB: Hampton, you cover the job market for us, and every month you
tell us, you know, what happened in that monthly jobs report that investors
and everybody is waiting on. What is your take? Still a lot of people are
out of work, right?

absolutely. But here we are at the end of the year now, essentially
according to the BLS, we`ve added about 2 million jobs, including the last
couple months of 200,000-plus jobs added per month. As you mentioned, the
7 percent unemployment rate. There was so much drama tied to the numbers
of how we got there.

For example, I`ve had the luxury and the privilege, if you will, of
getting a first look at the monthly jobs numbers for the better part of ten
years. I cannot remember a year where every month there was so much at
stake in every month the report for both Wall Street and Main Street, and
oh, yes, the Federal Reserve, by the way.

We even had changes in terms of security measures being increased to
make sure that there were no leaks of the data. There was even a
challenge, if you will, to components, the two major components of the jobs
report. The household survey and the employment survey as to how those
things were calculated.

So much riding on those monthly jobs numbers for Wall Street and Main
Street, and then let me do a 180, if you will.

However, just in the last three months, the most rewarding thing for
me in terms of the stories we did for our NIGHTLY BUSINESS REPORT viewers,
finding so many cases were still small businesses out there willing to take
a chance to expand in a still shaky economy — dealing with people who were
getting their first jobs after being on the sidelines for long periods of
time, the euphoria of what that meant to them going forward.

A couple components of the jobs story going forward: seeing that
veterans hiring is really beginning to take hold in terms of the
coordination between the private sector, the government and the public.
But again, all those vets out there want is one employer willing to take
them a chance on giving them a job going forward and even, again, those
small business stories of a young lady who ran a small business in
Baltimore that had been a family business for generations. Her business
expanding and hiring selling of all things fire alarms, you know.

So, Wall Street to Main Street-type stories really made it all
worthwhile. And the jobs story was just so huge in 2013.

MATHISEN: You know, Steve, Hampton hits on the idea of confidence
coming back among small business owners. I, for one, what do I know, but I
was surprised that unemployment did drop to 7 percent as quickly as it did.
Do you think that there is a growing confidence about the economy`s ability
to sustain itself into 2014?

LIESMAN: I think there is. And when you get three-month average job
growth at 200,000, that creates confidence. When you have a budget deal in
Washington, that creates confidence. The Fed provides a glide path for
reducing quantitative easing, that creates confidence.

And those are among my predictions for next year. I think a couple
things are going to be out there. Small business hiring is one to watch.
That`s still the economy still has in the tank. It really has not taken
off the way it can. Capital spending by businesses is going to be another
interesting sign of confidence out there.

They have held back. They`ve held on to their cash or distributed it
to shareholders. They haven`t really bought stuff. And that kind of
capital spending can create even more job growth.

Finally, Tyler, I`m looking for some serious synchronized global
growth. Japan, the U.S. and Europe combined could have their best year
since 2005.

I went back and looked. We haven`t had a single year without at least
one quarter of negative growth from one of the big three. 2014 could be
that. And that`s going to create interesting investment opportunities and
interesting growth opportunities here in the United States.

GHARIB: OK. You know, Steve, we hear all the time from CEOs, they`re
worried about uncertainty. I`m hoping you`re right, they`re going to start
talking about feeling confident.

Thanks so much, guys, for joining us tonight.

LIESMAN: My pleasure.

GHARIB: Steve Liesman and Hampton Pearson joining us from Washington.

MATHISEN: And coming up, we talked about the Fed, but Ben Bernanke
was not no way the only story in Washington this year, not by a long shot.
We`ll talk shutdowns, health care when we come back.


MATHISEN: Well, as usual, it was a busy year in the nation`s capital
from no budget deal to a government shutdown and finally to a budget deal.
D.C. left its mark on business in 2013.

Our man in the middle of it all, John Harwood.

John, you know, I think back to October and the government shutdown.
And it feels to me as though the markets and the economy stepped past it
almost effortlessly.

You know, Washington has made a practice in the last few years of getting
in the way of economic recovery both in terms of crises over the budget,
the debt limit, that sort of thing, the fiscal drag that was imposed by
some of the short-term spending cuts.

Washington ended the year by pulling back. And one of the things that
has created an amount of confidence is the underlying growth — improvement
in the job market, the underlying growth in the economy and finally
Washington realized if we just get out of the way, that`s going to create
better conditions going forward.

GHARIB: Well, that`s something that you hear from CEOs all the time,
that, you know, they would just like Washington to get out of the way so
they can do their business.

How do you see it going? It seems like we ended off the year on a
hopeful note in Washington. You think that they can continue this mood
into 2014 and stay out of the way of businesses?

HARWOOD: I don`t expect much to happen in Washington in 2014, and
that may be just what the doctor ordered. Even though we`ve had this
budget agreement that`s passed both the House and the Senate and the
president is embracing it because, again, it reduces fiscal drag makes
conditions calmer for economic recovery next year, I don`t expect that to
be followed up by much ambitious legislation going forward, any sort of
grand bargain for the long term.

But simply calm waters in Washington, I think, are a good
prescription. Politicians are going to be running for re-election.
Republicans trying to retake the Senate, Democrats trying to retake the
House. They`ll probably both fall short.

But political games in Washington, the less consequential they are,
the better for the economy.

MATHISEN: Let`s talk about the administration and the year it had,
its first year of the second term. And from where I sit, it feels like it
was a bit of a bumpy year. There was the NSA spying scandal. There was
the kerfuffle over the IRS and investigating groups that had Tea Party in
their name. There was Syria, and then, of course, at the end we`re going
to talk later about the Web site debacle.

How would you rate the president`s year?

HARWOOD: Tyler, this year was all bumps for President Obama. You
know, we`ve seen many times presidents in their second terms encounter
increasing amounts of difficulty. They lose the political juice that they
had when they first came in. They accumulate difficulties from governance
over the first four years in office.

And that`s exactly what happened to the administration. You had the
IRS which was mostly a bureaucratic problem but one that was a huge
impediment for the administration. It hurt their credibility and their
confidence among the American people during the year.

You had the NSA spying scandal which also from some on the left, some
on the right was damaging to the administration. Again, hurt the
president`s credibility.

And then the topper was really the one-two punch of the government
shutdown and the problems, serious problems, with the rollout of Obamacare.
As a result of that, we see the president ending the year with the lowest
ratings of his presidency, both on a professional and a personal basis.

You know, you have fewer than 50 percent of the people rating him
highly for being honest and trustworthy. That`s not something that
characterized the early part of his term.

MATHISEN: John Harwood, thank you very much.

GHARIB: Washington was also at the forefront in health care in 2013.
The landmark Affordable Care Act which is aimed as reforming the health
care industry started its rollout but got off to a rocky start, to say the

Bertha Coombs has been covering it for us since the start.

Well, what a memorable year this has been in health care, Bertha. So
we have this rollout, but it really started off on the wrong foot. What
went wrong?

spectacularly bad. We had gotten warnings that there would be some
glitches, and that became the word du jour for several weeks. But,
clearly, what happened here is, essentially, they were trying to build a
giant building without a foreman, without a project manager.

The Health Department was trying to be the project manager on its own
and really did not understand the scope of this. And was not able to knit
together all the various contractors and the key contractor in the middle,
CGI — clearly it seems it was not up to the task of really bringing all of
these pieces together.

Everyone said it was a complicated process. But clearly they
underestimated just how complicated it was going to be.

MATHISEN: I remember sitting here with you in late September and
saying a lot has to go right. It seems like almost nothing did.

COOMBS: Almost nothing did, pretty much. I mean, essentially,
initially the problem was the front door. People just couldn`t get into
the system. Now we have to talk about the problems on the backdoor, the
back end, the processing of those applications, the processing of the
payments which the insurers, making all of that infrastructure works well.

Last week, they named Kurt DelBene, a former Microsoft (NASDAQ:MSFT)
office executive, so he brings both the engineering chops and the
management chops because there`s still a lot to do to get the whole thing

GHARIB: So, do you think it could recover from this whole mess?

COOMBS: I think it`s really going to impact enrollment. All of the
bad headlines, even if the states where it`s working relatively well,
people have been a bit reticent to go on because they just saw all of the
problems that went on.

So, the administration had initially targeted some 3 million people
being enrolled by New Year`s Eve by the start of January 1st.

GHARIB: We`re not even close.

COOMBS: We`re not going to be anywhere near that.

MATHISEN: This was supposed to cover the 40 some million people who
are uninsured.

COOMBS: Right.

MATHISEN: And as of late December, how many people have signed up for

COOMBS: We have seen, as of late December, looks like we are probably
in the range of 500,000, 600,000 in terms of people who are on paid plans,
and then another maybe million or so in terms of Medicaid enrollment. We
don`t know how much of that is Medicaid expansion, which is part of the
Affordable Care Act. There may also be some folks who as they say have
come out of the woodwork, knowing that it`s time to sign up. They may have
been eligible all along, but now they`re signing up.

So, the Medicaid is going better than the paid enrollments. But the
paid enrollment is really the key to this because that`s where you really
need to expand the risk pool. And if young people stay away and wait for a
long time to sign up, it really makes a much more difficult market for the
insurers and for the program itself.

GHARIB: Obviously, lots of issues, a lot of problem spots. But going
into 2014, what`s the key thing you`re going to be watching for in health

COOMBS: I think the key thing we`re going to watch is to see what
kind of mix we get in terms of the enrollment. Clearly you`re not going to
get the huge numbers, but what`s even more important then, because it`s a
smaller pool, is that you have a wide and diverse group. Again, that you
have the healthier people signing up, not just the people who are going to
use it a lot. And then just seeing how this issue of the narrow networks
and people starting to use insurance, people who have been putting things
off for a long time, pent-up demand for services, how that`s going to
impact costs as well.

The insurers are not really going to have an awful lot of data by the
time they have to start figuring out what they want to do about premiums
for 2015.

GHARIB: You`re going to be busy covering this story, and we`re going
to be counting on you to keep us updated.

Thank you so much — Bertha Coombs on health care with us tonight.

MATHISEN: And up next, the three most important things that happened
in real estate this past year.


MATHISEN: 2013 was the banner year for housing. The industry seemed
to find its footing after half a decade of being in the figurative
basement. Home prices came roaring back in many parts of the country, and
the foreclosure crisis does appear to be in the rearview mirror.

Despite all the positives, though, there was a distinctive shift in
the rent versus own debate.

Diana Olick has been covering housing all year for us and joins us
from Washington.

Welcome, Diana. Good to see you.


MATHISEN: Tell us about how home prices stole the show. They were up
like double digits for most of the year.

OLICK: Yes, gangbusters nationally. Look, we saw home prices up
between 12 percent and 13 percent across the nation and in some markets
they were up over 20 percent. And while that sounds like a good thing and
it certainly delivered a lot more home equity back into homeowners`
pockets, it also was a bit too high, too fast, affordability really began
to plummet. And that priced a lot of buyers out of the market, just as
home buying was starting to come back, especially those first-time
homebuyers who are really crucial to a good healthy housing recovery.

So, we certainly want to see prices go up, but there is already talk
that those price gains will ease in 2014 because affordability was simply
hit so very hard this year.

GHARIB: So, it seems to be that because of those very high prices, a
lot of people decided not to buy and to rent. I mean, renters were a big
story this past year, right?

OLICK: They were a big story this year. They will continue to be a
big story next year. We`ve talked so much about renting. It`s an
incredible phenomenon that`s happened during this very unique housing

The reason there`s still so many renters that there was such high
rental demand despite the fact that rents keep getting jacked up is because
a lot of folks simply cannot qualify for mortgages, but they cannot afford
the higher down payments in today`s tight credit market. There are also a
lot of younger Americans who are saddled with very high student loan debt.
That was a big story in 2013, student loan debt, keeping those first-time
homebuyers out of the housing market.

Now, we also saw a lot of investors get into the rental business.
We`ve seen that over the past couple of years — institutional investors,
buying big swaths of distressed homes and putting them up for rent. So not
only do you have the multifamily apartment trade, but you also have this
new single-family rental trade.

And we saw that develop throughout the year. Not just with large
investors buying homes but also securitizing the rental screens and selling
them off to investors as bonds.

And most recently, we just saw that Blackstone is now starting to lend
to other smaller investors to buy more rental homes.

So, what does it mean? It seems that we will see more rental housing
stock on the market. We also know that builders are putting up more
apartment buildings. So, we`ll see more stock there.

Hopefully, that will ease some of those big rent gains because I
believe at least we are going to continue to see high rental demand through
2014, just as we did this year.

MATHISEN: You just mentioned builders, home builders. What kind of
year was it for the home builders and their stocks?

OLICK: Well, look, the home builders began building more again.
That`s certainly what we wanted to see. We are still way off the normal
rates for what you would see for the kind of demand that`s out there. The
home builders have been struggling to come back.

But look, they are faced with high costs for land, labor and
materials. And that really hampered them this year. They were forced to
raise home prices for newly built homes. And in fact, they raised them a
bit too high. One very noted analyst, Ivy Zelman, just recently downgraded
her forecast for next year saying that home builders raised prices too
high. We can`t expect to see the sales or the housing starts next year
that we originally thought we would see given the demand.

And new home sales, you know, they go back and forth. It`s hard to
tell because it`s a very rough number in that market. Home builder
confidence is up a bit, but home builders are really not barreling back.
Their stocks barreled back, you know, a couple years ago and folks have
already said they`re priced way too high.

That`s why some are really looking more toward building materials that
is for people renovating. We should see healthier home construction in
2014. But the builders are going to have to start with those huge price
gains just as we started with this conversation.

MATHISEN: All right. Diana, thanks very much — Diana Olick from
Washington tonight.

GHARIB: And that`s it for this special holiday edition of NIGHTLY
BUSINESS REPORT. I`m Susie Gharib. Hope you have a very happy holiday.
Thanks for watching.

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


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