Transcript: Friday, December 27, 2013

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


Target (NYSE:TGT) confirms personal identification numbers were stolen in
this month`s thief, but says the data is safe. Others say they`re not so

Shares of Twitter get slammed today and that will likely deepen the divide
on Wall Street. Do you buy this high-flyer or not?

GHARIB: And finding quality. Our market monitor says he has quality
names you should own in a world of record highs on Wall Street.

We have all that and more for this Friday, December 27th, 2013.

MATHISEN: Good evening, everybody, and welcome.

Target (NYSE:TGT) now confirms that debit card PIN data was stolen in
the massive security breach affecting 40 million customers that began last
month. Now, that is a backtrack from Target`s earlier claims this week.

But the retailer says the PIN information is, quote, “safe and secure”
because it`s encrypted. That news only turned up the volume on an industry
debate over just how safe your personal data really are.

Dominic Chu has more.


Today, Target (NYSE:TGT) said debit card PINs remain, quote, “safe and
secure” because the extradition key, a code needed to crack its encryption
process is held by its payment processor and is not stored in any of its
own systems.

LUCAS ZAICHKOWSKY, ACCESSDATA: It would probably take decades for
each one of those to be cracked and it`s not just worth the criminals`
time. They don`t have enough computing power. Even if they did, it would
just — the return of investment is abysmal.

CHU: Some experts believe today`s news sure provide a measure of
relief for Target (NYSE:TGT) customers who`ve been watching their accounts
for signs of suspicious activity. Others are not so sure.

understating what`s going on here because based on history, we have seen
PINs decrypted and cash withdraws as a result.

CHU: Mark Rogers (NYSE:ROG), a mobile security vendor Lookout, takes
it a step further saying, quote, “In my world, there is no such thing as
permanent secured encryption. I do think people should change their PINs
as a precaution.”

Damage control is the order of the day both for consumers wondering
who`s got their information and for Target (NYSE:TGT) as it seeks to win
back the trust of shoppers.



GHARIB: On Wall Street, stocks ended the day in red but they were up
for the week. But investors were focused on the action in the bond market.
The yield on the bench mark 10-year treasury topped 3 percent. It`s the
first time in two years that treasury yields reached that psychological
level. And strategists are mixed on whether higher rates will threaten the
bull market and stock.

But here are the closing numbers for Wall Street today. The Dow lost
one point and NASDAQ was down ten and S&P was off a fraction.

Over in the oil market, crude prices closed over $100 a barrel, due to
a drop in inventories. This is the first time since October that oil
closed above the $100 level.

MATHISEN: Shares of Twitter got the tweet kicked out of them today.
They fell 13 percent after Macquarie Research cuts its rating to sell,
saying the stock is rallied for no apparent reason, and rally it certainly
has, nearly tripling since its IPO back on November 7th. Not bad for a
company that is yet to show a profit.

But today`s move won`t quiet the debate on Wall Street over this


MATHISEN (voice-over): What`s clear is that Twitter is a social media
darling. What`s not clear is why investors seem to love it as much as the
tweeters do, up 7 percent Monday, another 5 percent Thursday, up 76 percent
this month through yesterday — when it closed above $73 a share.

But not everyone is so smitten.

DENNIS GARTMAN, THE GARTMAN LETTER: When I look at Twitter, I think
who in God`s name is willing to buy this thing?

DENNIS BERMAN, WALL ST. JOURNAL: By any ordinary stretch of rational
mathematical thinking, the valuation doesn`t make sense.

SCOTT KESSLER, S&P CAPITAL: We don`t see earnings until 2015.

MATHISEN: One buyer is Neil Doshi of CRT Capital Group.

NEIL DOSHI, CRT CAPITAL GROUP: This is the fastest growing Internet
stock out there.

MATHISEN: The buyers see a future loaded with ad revenue, especially
video commercials targeted to Twitter users based on their web browsing

DOSHI: You`re going to see operating margins grow from low single
digits today to 20 percent, 30 percent, 40 percent, 50 percent.

MATHISEN: When? Possibly the second half of next year, he says.

But others warn this is one stock that`s come way too far too fast
worth more now than Target (NYSE:TGT) or Time Warner (NYSE:TWX) Cable.

KESSLER: It seems like now we`re approaching some type of mania.

UNIDENTIFIED MALE: It`s definitely vulnerable to a crash.

GARTMAN: I`ll let somebody else trade it. I won`t.


MATHISEN: And take a look at Twitter. That`s the action today. It
was down 13 percent to $63.75, after closing above $70 just yesterday.

GHARIB: Also in the spotlight today, the so-called “Volcker Rule”.
Small banks have complained that one of the rule`s requirements mean they
have to get rid of debt investment and that could result in big losses.
The American Banker Association is suing government agencies over that
provision. Federal regulators are reviewing it and will decide whether to
change requirements by January 15th.

MATHISEN: If you`re trying to get a mortgage in 2014, you may find
it`s harder. The reason is that new rules go in effect in January. The
need for almost perfect credit is one reason the housing market is only
slowly recovering from its recessionary bust.

But now, as Diana Olick reports, lenders will be asking for even more


During the last housing boom, lending standards went out the window, and we
all know how that turned out. So, Congress passed a law requiring lenders
to make sure borrowers could pay their loans. They directed the Consumer
Financial Protection Bureau to create rules to help insure that. The rules
are not mandatory, but if a lender follows them, they have made a so-called
qualified mortgage and get legal protections should the loan go bad.

KAREN MAYFIELD, BANK OF WEST V.P.: The biggest change for the average
borrower is going to be just increased documentation.

OLICK: But borrowers will also be limited by the new rules, which ban
riskier products like interest-only loans. The lender must verify income
and assets and not charge excessive fees and the borrower cannot spend more
than 43 percent of their income on debt.

That last one will knock a lot of borrowers out, especially those who
might actually be quite wealthy outside of their income. That`s where some
lenders will choose to operate outside the new rule.

GUY CECALA, INSIDE MORTGAGE FINANCE CEO: Looks like a nice niche from
a lender`s perspective because you`re not going to have as much
competition. Certainly, you`re going to have much more regulatory risk.

OLICK: That`s why those who are choosing to operate outside Q.M. like
Wells Fargo (NYSE:WFC) and Bank of the West say they will only do so for
the very best candidates.

MAYFIELD: We`re going to apply a very strict table of qualifications
to ensure there is additional income, as well as additional assets to be
able to support the case that these borrowers did in fact have the ability
to repay when we made them the loan.

OLICK: In other words, wealthy borrowers who just happen to be
driving the housing market right now because lending is so tight.

The average loan size today is at an all-time high, almost $270,000
because, less affluent, less credit-worthy borrowers can`t get a loan or at
least a loan they can afford.

there are much more affluent. They have much — much larger home savings
and home equity saved up and they`re looking for a larger type of house.
And the first-time buyer unfortunately remains pretty well-locked out of
the market.

OLICK (on camera): The rules won`t make it any easier for first-time
buyers to get a loan, but as rules settle in and lenders get more
comfortable operating outside of them, that may change. Some lenders may
be willing to take on those borrowers and the risks that goes along with
them. Of course, they`ll charge a hefty fee to do it.

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


MATHISEN: And to read more about the new mortgage rules, head to our
Web site t

GHARIB: A midnight deadline coming up tonight for some Americans
receiving unemployment benefits. An estimated 1.3 million people who have
been out of work longer than six months will stop getting federal
unemployment benefits tomorrow. The 2008 program which continued the
benefits for as much as 99 weeks has been extended 11 times. But it was
dropped as part of the two-year bipartisan budget compromise that was just
signed into law by President Obama.

And John Harwood joins us now here on our set.

Thank you so much, John, for coming in.

This has been such a Democratic issue. Why did they let it go?

there is a psychological turn in Washington, and that is from thinking
about the economy as one that is in crisis and then recovery from crisis,
to one that is growing the labor market is strengthening. Democrats are
still for the extension of this program.

The president today called two senators, Republican Dean Heller and
Democrat Jack Reed, and encouraged their effort for a three-month extension
but you don`t get the sense there is going to be a final push across the
finish line by Democrats, and that`s because they are thinking about
stronger economy, stronger labor market and these were after all, intended
to be emergency temporary benefits.

MATHISEN: What would a three-month extension cost or what would an
extension of any length cost? I guess it depends on the length of the

HARWOOD: Full year extension would cost $25 billion and that`s a lot
of money, not in the context of the federal budget but in the context of
what it would take to get this done politically. Remember, we just had the
two parties agree on a budget deal that lifted the budget sequester by $63
billion. It replaced those cuts. It was very difficult to find that money
in ways that they could get Democrats and Republicans to support it —
doing that for $25 billion for this purpose, very difficult.

GHARIB: You know, what happens to these one million or so people?
Are they hirable? Do you think that news of this sort that`s going to be
in all the headlines will make some companies say, you know, let`s bring
them in?

HARWOOD: This is a bad news story, Susie, because a lot of these
people have been out of the labor force for awhile, and the longer you stay
out of the labor force, the longer you`re unemployed, the more difficult to
get back in.

So I think that many people are not going to get back into the labor
market, some will. As we do get stronger growth — you know, we have 4
percent in the last quarter and we see the unemployment rate beginning to
come down. There will be opportunities, but I don`t think everyone is
going to be able to take advantage of them.

MATHISEN: You know, there are arguments on both sides of the
political aisle about extending the benefits. What happens to these people
when those benefits dry up? Do they — will they go on to some other form
of public assistance, number one? And what is the economic effect of the
fact that this money will not be going into these individual`s pockets?

HARWOOD: Well, it will be some level of fiscal drag. You know,
Democrats are making an economic argument for the extension of the
benefits. The recycling of that money throughout the economy and people
who don`t have much money, you put some in their pocket —

MATHISEN: It doesn`t stay there long.

HARWOOD: It circulates very quickly.

MATHISEN: But, you know, I think that what we`re going to see is that
as the economy gets better, people are going to count on some of that
demand getting replaced by private sector growth, and I think that`s what
we`re looking at.

GHARIB: Real quickly, do you think this is going to impact the
unemployment rate? I mean, right now, we`re at, what, 7 percent. Will
this make any ripple effect on those numbers?

HARWOOD: Well, if you have people — first of all, there`s always
been a debate among economists about whether longer benefits keep people
from looking for work aggressively. So, some of that effect could happen.
But you also could have some people if they get discouraged and drop out of
the labor market, that could cause the unemployment rate to go down for the
wrong reasons.

GHARIB: OK. Well, John, thank you so much for coming up from
Washington to talk to us.

HARWOOD: You bet.

MATHISEN: Nice to see you, John.

All right. It looks like a large number of high income households are
spending less, especially the new wealthy, those who moved into the higher
income brackets after the recession.

Hampton Pearson says unlocking that consumer spending power in 2014
could be a key to boosting the economy.


The top 5 percent of American households now earn more than 22 percent of
the total income, according to the latest Census data.

Fueled by a big jump in what economists call the new rich, households
with incomes from $250,000 to $1 million earned since the end of the
recession. There are mixed of older professionals, working married couples
and educated singles living primarily in major urban areas. They are
heavily dependent on wages, not accumulated wealth in investment

DIANE SWONK, MESIROW FINANCIAL: The new rich are the people who
actually were able to survive the situation employed and be able to build
upon the opportunities that most of the rest of the population was sort of
left out on.

PEARSON: But the scars from the recession, including witnessing the
housing market collapse and seeing their portfolio shrink, makes them
reluctant spenders.

SWONK: There is a sense of everything could disappear overnight. And
so, even though we gained a lot of wealth and see new wealth build, those
who are new to it know it can be gone overnight and you can`t get rid of

PEARSON: This new group, which includes a large number of baby
boomers, is focused on saving for retirement and rising health care costs.

It`s a sharp contrast to the “green is good” period in the `80s when
consumption equals status, but their economic power is enormous. The 25
million households with that newfound wealth account for nearly 40 percent
of all consumer spending. Leading market strategists say unlocking more
that spending power could be the key to the next face of the economic

that this segment can contribute if they were only brought back to the
level of spending that they had in 1984.

HAMPTON (on camera): Those same marketing experts say what people
with money to spend really want are more high value products at low cost
and more signs of a stronger economic recovery in 2014.



GHARIB: And coming up on the program, if you think the tech run is
over, our market monitor might beg to differ. He has some tech names he
thinks you should own next year. That`s next.


MATHISEN: General Motors (NYSE:GM) and Toyota (NYSE:TM) both issued
recalls overseas today, and that is where we begin tonight`s “Market

G.M. and its Chinese partner issued a 1.5 million car recall, one of
the biggest recalls ever in China, the world`s largest single auto market.

The automaker said certain Buicks and Chevys may have defective fuel
pump brackets. This is an especially unwelcome hit for G.M., which lost
its support — its spot, excuse me, as the top selling brand in China, to
rival Volkswagen earlier this year.

Meanwhile, Toyota (NYSE:TM) is recalling 400,000 cars in Saudi Arabia
because of concerns about unintended acceleration in some Toyota (NYSE:TM)
and Lexus models.

Let`s take a look at the stocks. G.M. off about 1.5 percent to
$40.94. Shares of Toyota (NYSE:TM) meanwhile rose a fraction to 121.88.

Textron (NYSE:TXT), the maker of Cessna planes, will buy Beechcraft,
in a $1.4 billion deal. Beechcraft exited bankruptcy earlier this year
under the control of several hedge funds. The deal to combine the two
small plane makers is an effort by Textron (NYSE:TXT) to counter its slump
in jet sales. Shares of Textron (NYSE:TXT) up 1 percent on the news, to

GHARIB: Shares of ANI Pharmaceuticals surged today on news the
drugmaker bought the rights to 31 generic drugs from Teva Pharmaceuticals.
Teva will collect $12.5 million on the deal, plus a percentage of future
sales. ANI stock popped on the news of 16 percent to $19.89.

And Baidu (NASDAQ:BIDU) was a top gainer in the NASDAQ 100 index
today. The Chinese Internet giant said it will pay about $32 million for a
reading Web site from online game operator Perfect World (NASDAQ:PWRD).
The news excited investors about the potential for the new unit, which
could help expand Baidu`s consumer business. Shares rose almost 4 percent
to $173.77.

MATHISEN: Our the market monitor tonight is looking for a 7 percent
gain in stocks next year, at best, but he says you can do better if you can
embrace the idea 2014 will be a stock pickers market.

He`s Kevin Caron, portfolio manager at Stifel Private Client Group.
And he joins us tonight by phone.

Kevin, welcome and happy New Year to you.

telephone): Happy New Year to you.

MATHISEN: Our chief economics correspondent Steve Liesman says that
2014 is likely to be a year of synchronized global growth that bodes well
for the markets. In other words, the U.S., Europe, Japan and maybe even
emerging markets will grow. Do you think that`s one of the key follow-
throughs for 2014?

CARON: I do think so. The world is accelerating. We saw growth in
the United States reach 4 percent in the third quarter. We`re seeing
growth starting to lift around the world, Europe in particular.

We`re seeing less budgetary drag coming out of Washington, D.C., less
uncertainty, consumers feel better, profits are strong, and the stock
market has enjoyed its best run this year since 1997.

So, we do have some very good momentum going into 2014, and the stock
market is certainly reflecting that.

GHARIB: And you say, though, even in that positive environment, you
have to be very selective on which stocks you do buy and you have a couple
text stocks to tell us about.

Let`s start with Cisco (NASDAQ:CSCO), which at $22 had a pretty bumpy
year looking at this chart here.

CARON: Yes. So, Cisco (NASDAQ:CSCO) is obviously the networking
giant is a stock that has lagged this year. It`s lagged by the 10 percent,
the overall market this year.

And one of the big nagging concerns with Cisco (NASDAQ:CSCO) has been
emerging markets. They were slow. There was a big drag out of China, but
I think that fades over time.

So, I think, ultimately, what`s going to drive Cisco`s rapid rise in
bandwidth. That`s going to continue — more video, more mobility, more
collaboration. You can buy the stock at a discount 13 times earnings, 3
percent yield, big boost in that dividend last year.

I think you can earn 17 percent in the stock.

MATHISEN: Let`s spend a few seconds on Oracle (NASDAQ:ORCL), another
of your picks, Kevin.

CARON: Yes, this is a big company. Mission critical enterprise
solutions. The company has very aggressively embraced Cloud computing.
They are going out and making some very significant investments in that

I think the stock may have gotten a little bit ahead of itself. I
would like to buy it on a pullback but they are going to be with us for
quite a long time, $13 billion in net cash. They are doing that much every
year in free cash flows.

So, it`s going to be with us and they have a large and full (ph) base
of customers means instability for the company going forward.

GHARIB: Kevin, tell us quickly why you like IBM.

CARON: China has been weak. That has put pressure on the stock.
Revenues have been under pressure.

Stock is trading about $185. I think it goes to $220. We like it
here at Stifle. We think a 21 percent rate of return is about right when
you include the dividend.

Again, the near term issues relating to weakness and business spending
I think go away as 2014 carries on. China —


CARON: — less of a drag.

MATHISEN: All right.

CARON: And Warren Buffet likes the stock, 12 times earnings, I think
it`s a very good company —

MATHISEN: Buffett`s endorsement is second only to yours, Kevin.
Thanks very much.


MATHISEN: Kevin Caron, have a great New Year. We appreciate you
being with us.

CARON: Happy New Year.

MATHISEN: Do you have any disclosures on those stocks? Do you own
any of them or on your portfolios?

CARON: I don`t own any of them personally. Stifle looks to do
investment banking with all companies out there. We make markets in these

MATHISEN: All right. Kevin, thanks very much. Happy New Year. He`s
portfolio manager at Stifle Private Client Group.

GHARIB: Now, despite the current told weather drawdowns, the U.S. is
virtually floating in its energy supplies, so it may not be a total
surprise that the financial community has found a new way to invest in
energy. And Congress has made it even more attractive.

Morgan Brennan explains.


energy boom sweeping America, and that`s good news for investors, because
Congress created a special tax advantage way to invest, Master Limited
Partnerships, better known as MLPs. These publicly traded partnerships pay
no corporate tax and distribute most of their profits to shareholders in
the form of dividends. Kind of like another popular security, the Real
Estate Investment Trust.

Experts say the dramatic rise in domestic energy supplies has lead to
a wave of new MLPs that`s not likely to stop any time soon.

thought that we`d see a small increase in U.S. crude production and
actually what happened was it was a huge increase. And we`re averaging
right now around 8 million barrels a day.

So, the technology is there and it`s only getting better. So I think
this coming year, we`re going to see more production from crude and that`s
going to help MLPs.

BRENNAN: In 2009, there were only 66 MLPs worth a combined $160
billion. Today, there are more than 150 companies worth over $500 billion.
In fact, 2013 has been a busy year with 20 MLPs going public and cash-
hungry investors have welcomed them.

One index shows MLPs have outperformed the S&P 500 over the last five
years by a wide margin. And since MLPs are key sources of financing for
energy companies to keep growing, more will debut in 2014. Still, next
year could prove challenging for these securities.

Much like real estate investment trust, Master Limited Partnerships,
are exposed to rising rates, a scenario already beginning to play out as
the Federal Reserves scales back its bond buying stimulus program, and
there is growing concern that MLPs are increasingly being used to shelter a
more volatile range of assets like coal producers, shipping companies. In
one odd case, even a cemetery operator.

Even so, high dividends and the country`s swelling energy production
outlook continue to drum up interest, including from retail investors,
since shares can be purchased on the stock exchange like other public

A number of analysts suggest sticking to the established large cap
partnerships that own more stable energy-related assets like oil and gas
pipelines and already pay sizable dividends. It`s a lower risk approach to
one of Wall Street`s fastest growing investment offerings.



GHARIB: And still ahead, we profiled a man making a difference by
trying to clean up Wall Street. That`s coming up next.


MATHISEN: We know Americans love their big SUVs. But
says even bigger is apparently better, calling 2014 the year of the full-
sized truck. Nearly half of the top 20 most popular new vehicles on the
site were trucks. In third place was Chrysler Group`s Ram 1500. Number
two was the Jeep Wrangler. And the most popular of all, the great,
venerable Ford F-150.

GHARIB: And, finally tonight, as 2013 comes to a close, we`re looking
at difference makers in business this year. And when it comes to
regulation, no one has made more of a difference than the top federal
prosecutor in New York.

We`re talking about Preet Bharara. Now in his fifth year in the job,
he`s showing no signs of letting up.

Scott Cohn reports.


PREET BHARARA, NY PROSECUTOR: Good afternoon, everyone. My name is
Pete Bharara. And I`m United States attorney —

the U.S. attorney speaks —

BHARARA: Today, we announce three law enforcement actions.

COHN: — the financial world listens.

Preet Bharara is the de facto sheriff of Wall Street. And in 2013,
he`s been busy tackling shady transactions.

BHARARA: The largest international money laundering case.

COHN: Dubious deals.

BHARARA: Misrepresentations about income.

COHN: And insider trading.

BHARARA: The scope of the illegal trading was deep and it was wide.

COHN (on camera): Preet Bharara`s crack down on insider trading has
completely changed the way information flows on Wall Street, in that
critical phone call, there`s no telling anymore whether a federal agent is
listening in.

(voice-over): Seventy-seven people convicted since 2009. And in
2013, the probe peaked with the guilty plea of SAC Capital, the hedge
fund`s billionaire owner Steven Cohen still in the government sights.

BHARARA: There is no immunity or protection for any individuals.

COHN: Bharara is not just fighting insider trading. He charged two
J.P. Morgan traders with hiding losses at the nation`s largest bank. And
he`s part of a nationwide task force investigating the financial crisis.

BHARARA: We`re as aggressive I think as any prosecutor`s office in
the country.

COHN: But some say not aggressive enough. In a stinging opinion
piece for “The New York Review of Books,” U.S. District Judge Jed Rakoff
says the failure to prosecute individuals involved in the crisis could be
one of the most egregious failures of the criminal justice system in many
years. Bharara`s office declined to comment.

But former prosecutor Reed Brodsky who left for private practice this
year says the lack of Wall Street perp-walks is not for lack of trying.

REED BRODSKY, GIBSON DUNN: If there`s fraud out there, federal
prosecutors want to find it.

COHN: Besides, Bharara says he`s not through with Wall Street yet.

BHARARA: I don`t think anyone is too big to indict. No one is too
big to jail.

COHN: Maybe a signal he`s out to make even more of a difference in
the New Year.



MATHISEN: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen, thanks for watching.

GHARIB: And I`m Susie Gharib. Have a great evening, everyone. And
we`ll see you on Monday.


Nightly Business Report transcripts and video are available on-line post
broadcast at The program is transcribed by CQRC
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our guests and commentators are their own and do not necessarily represent
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