Transcript: Monday, December 30, 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: Going global. The Dow sets another record. But it`s not alone in flying high. Many shares around the world are set to say goodbye to 2013 with sizeable gains.

Missing the bull`s eye. What Target (NYSE:TGT) needs to do to repair the trust of its customers and rebuild its brand?

And, riding the bull. Our market monitor has stocks he says are must-haves in the bull market.

All that and more for this Monday, December 30th.

Good evening, everyone. Tyler is off tonight.

Well, there is still one more trading day until you can break open the bubbly. But investors around the world are already celebrating as 2013 comes to an end. Global stock markets are up about 10 percent this year. The Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) All Country Equity Index is at its highest level since the financial crisis began back in 2007.

When you break down the numbers, though, the statistics are amazing. Japan was the best performing market, up a stunning 57 percent. That`s the strongest increase since 1972.

And stocks here in the U.S. performed remarkably well, as well. The Dow is on track to post a gain of 25 percent, and the S&P did even better, up almost 30 percent.

As for today, the blue chip average hit another record and closed at a new milestone — 16,504. The Dow rose only 25 points. Still, it was enough to post its 51st record for the year. The NASDAQ lost two, and the S&P was down a fraction.

In the bond market, the yield on a 10-year touched 3.3 percent, but slid back to close at 2.89 percent.

David Kelly is predicting another strong year for U.S. stocks but says the best opportunities will be in Europe. He is chief global strategist at J.P. Morgan Funds.

Hi, David. Nice to have you with us.

DAVID KELLY, J.P. MORGAN FUNDS: Glad to be here.

GHARIB: So, David, tell us why Europe? You know, we still see headlines regularly coming out of Europe that make investors kind of concerned. Why do you think that this is where you can have your best opportunities?

KELLY: Well, of course, that`s the case. But if you look historically, the best time to invest is usually when everybody was really worried and people are still worried about Europe. They`ve got an unemployment rate in the eurozone of over 12.1 percent. But the reason I see some opportunity in Europe is we are seeing some improvement, that gradually beginning to pull out of this long series of recessions that they have had.

And if they could just get back to normal, even if it took a number of years — I mean, normal for Europe would be a 7 percent unemployment rate, maybe 6 percent unemployment rate, pretty much the same as here. But we`re quite close to that. They`re not.

So, over a number of years if they can get back to full employment, it means a lot of economic growth. It means out of earnings growth, and I think it means a lot of stock market appreciation. So there is just a lot of room for them to improve.

GHARIB: And we`re also hearing from a lot of experts that the emerging markets are also making a comeback. They had a really lousy 2013. What do you think?

KELLY: Well, there are a lot of minefields. I think as an investor you have to have a lot of merging markets in your portfolio. I think you need a source of growth for the long run and emerging markets will give that to you. But I do think it`s an area where you need to have professional management.

There are still a lot of issues. I think there are issues with some areas with commodity markets and there`s a whole issue with — you know, China is slowing down. Can China manage its pace to slow down? Because if it slows down too much, that affects the commodity exports like Brazil and Latin American emerging markets.

So there are plenty of issues, but in the long run, they`ve got growth in their population. They`ve got growth in the labor force. We don`t have that in the developed world.

And also, emerging markets have a pretty rough time the last two or three years. They are relatively cheap compared to developed markets right now.

GHARIB: As you know, American investors, especially individual investors, always feel comfortable investing right here in their own back yard. Tell us how U.S. stocks are going to do this year, and should investors — what kind of balance should they have between U.S. stocks and stocks around the world?

KELLY: Well, of course, I`m not going to give you a straight answer to having them do this year, because — and I`ll tell you why, if you look back over the last three years, two years ago, the stock market gave you zero percent. Last year, it gave you 16 percent. This year, it`s going to give you about 30 percent of the United States.

Now, in each case, we had an upward trend, but in a year to year, it`s very hard to pick. But I`ll tell you, over the next five years, you could expect to make 5 percent to 7 percent per year in U.S. stocks. So, I think that`s pretty good.

But, still, I think there`s better opportunity around the world. And particularly because over half the stock market opportunity in the world is actually outside the United States. The U.S. accounts for about 48 percent of world stock market capitalization, there is more opportunity overseas. And I think this is a time — when the market has gone up this much, people need to look around and think more broadly where the opportunities are in the next five years.

GHARIB: All right, they`ve got to sit down and figure and do the math, and figure that all out.

Thank you so much, David, for coming on the program.

KELLY: Any time.

GHARIB: David Kelly, he is with J.P. Morgan Funds.

Pending home sales, the ones where contracts are signed but not closed edged up 0.2 percent in November. But that was the first uptick in five months. Analysts say low inventory and higher mortgage rates are holding sales back, but even so, the National Association of Realtors Predicts home re-sales will be nearly 10 percent higher this year than last year.

GHARIB: Well, the sales outlook for Target (NYSE:TGT), not as rosy. Several analysts have cut their sales and profit estimates for the retailer, as Target (NYSE:TGT) shoppers are still seething from the Holiday card hacking incidents. On Target`s Facebook (NASDAQ:FB) page today, angry consumers continue to complain, threatening to shop elsewhere. This comes on top of 11 class action lawsuits that have reportedly already been filed.

Our next guest says Target (NYSE:TGT) mishandled this crisis and it could take years for the company to rebuild its brand and trust with customers.

Dean Crutchfield, brand expert with his own firm, Dean Crutchfield Associates.

So, Dean, tell me — what do you think that Target (NYSE:TGT) needs to do now to repair what it has done wrong?

DEAN CRUTCHFIELD, DEAN CRUTCHFIELD ASSOCIATES BRAND EXPERT: Well, there are two areas they need to look at. First of all, Target (NYSE:TGT) is still a hugely strong brand in many ways.

What would the Target (NYSE:TGT) brand do in this situation?

I think if they put that forward as a management tool, they would change a lot of what they`re doing current. So, that`s number one.

Number two, where they`re going to regain trust is with their consumer. And there`s four things they need to do. The first thing they need to do, of course, is to have some information that is trustworthy. And that`s a big problem.

The second thing they need to do is help the consumer simplify their decision-making process, especially given all the outrage.

The third thing they need to do is they need to simplify the customer`s learning of what actually happened. It`s still a kind of mystery of what happens and what happens next. We don`t really understand that.

And then the final is to give consumers options that they can weigh in on. For instance, one of the things they`re desperately missing is the publicly to get customers, to get online, go to Target (NYSE:TGT) and change their passwords.

GHARIB: And you know, Dean, it also seems also like we have not heard much from the CEO of Target (NYSE:TGT). In other crises, you often see the CEO like Johnson and Johnson or Merck (NYSE:MRK) come out front and make some kind of an apology.

How much would that help to make consumers feel better about Target (NYSE:TGT)?

CRUTCHFIELD: I think it`s too late. He should have been on the horn as soon as this broke out. And he hasn`t been. There are many other examples, whether CEO is straight there, they have all lines of communication open and I don`t think Target (NYSE:TGT) has done that.

They say the best defense is to take a offensive position. Here, Target (NYSE:TGT) is just being defensive all the way through.

GHARIB: You know, this breach probably could have happened, I`m guessing, you know, to any retailer or any business — what is the key lesson you would say in management crisis of how to handle this situation much better?

CRUTCHFIELD: Well, I think that, first of all, look by example. I mean, look what happened to T.J. Maxx? Didn`t anyone learn from that?

But I think ultimately, it comes down to a few key things, is the actual brand position on this is obviously really important. But most importantly, the whole effort needs to be put onto the consumer so that they can actually leverage their understanding of what`s gone on and Target (NYSE:TGT) can regain that trust.

This is the critical thing, how do you deal with your consumers? How can you provide upright and forthright information to consumers to enable them to make decisions. At the moment they just don`t know what to do.

GHARIB: So let`s say, Dean, that the CEO of Target (NYSE:TGT) does everything that you just outlined tonight. What are the chances and how long might it take for the company to regain their trust?

CRUTCHFIELD: It could take months, perhaps years. I think, you know, most importantly, you know, it takes a strong strategy. It takes strong leadership. It takes talent around the leadership, including their agency support.

But ultimately, it`s all about culture and customers. And that`s what`s key.

So, for instance, are they communicating with their store owners, do they know how to prepare their staff who are getting barrage by questions? These are all things that Target (NYSE:TGT) is failing to do.

GHARIB: All right. Dean, thank you. A lot of good information. Really appreciate you coming on the program.

CRUTCHFIELD: Thanks, Susie.

GHARIB: Dean Crutchfield, he`s brand expert with his own firm.

Wells Fargo (NYSE:WFC), the nation`s largest mortgage lender is paying a huge settlement to Fannie Mae, more than half a billion in cash, the agreement, the final one settling claims over the defective home loans which helped to cause the financial crisis.

Fannie Mae, this is the government-controlled entity which guaranteed bank-issued mortgages says it`s now reached settlements worth half a billion dollars with eight banks.

Well, something else is settling down, bank`s failure. This year, the number of bank failures fell to levels not seen before the financial crisis. On the surface, it suggests the nation`s banking system is healthy again.

But as Mary Thompson reports, a closer look suggests that troubles remain.


MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Only 24 U.S. banks failed in 2013, the lowest number in six years, according to the FDIC. Well off the peak of 157 during the financial crisis, 2013`s failures represent a miniscule 3/10 of 1 percent of the country`s more than 6,800 FDIC-insured institutions. A strong national economy and aggressive oversight by regulators helping to stem the rate of failures.

Though it`s pretty mature to say the banking systems fully recovered from the trauma of the financial crisis — consider this, the number of banks the FDIC considers troubled remains elevated to 515, or 7 percent of the nation`s total. Among the challenges all banks face, the continued low interest rate environment.

BOB ALBERTSON, SANDLER O`NEILL & PARTNERS CHIEF STRATEGIST: We have normal interest rate, which makes it impossible for banks to do lending, to get sufficient on the loan versus the cost of funds, to produce an attractive return.

THOMPSON: This profitability problem especially acute among smaller banks. Why? Many operate in the regions where the recovery has been slow, hurting their business. With the focus on local customers, their lending portfolios are less diverse and they may find fewer qualified clients as the banking experts push them to approve loan quality, all making it harder to make a buck and the extra dollars small banks need to pay for the higher cost of new regulation.

ALBERTSON: It is a good business if you have got the scale, the first time the size does matter.

THOMPSON (on camera): With bigger being better in banking these days, industry experts are expecting a pickup in mergers and acquisitions amongst small banks, shrinking their numbers by combining to increase their size could prove the cure for banks still ailing from the financial crisis.



GHARIB: The Obama administration is heralding a last-minute rush on the insurance signups on the Web site. The White House says a little more than a million people enrolled on time in order to get coverage on January 1st. But unofficial totals actually topped 2 million. Hard numbers from the 14 states which run their own exchanges aren`t available yet. The administration had hoped for more than 3 million sign-ups by now, and there are also no demographic breakdowns at this point.

Congress is letting 55 popular and valuable tax breaks expire as the year ends. They include everything from billions in credits for companies doing research and development, to tax rebates for Puerto Rico and the Virgin Islands from a tax on imported rum. Lawmakers let these taxes lapse almost every year and usually reinstate retroactively them when Congress returns in January.

And coming up on the program, our market monitor has three stocks that he says will do well for you as the economy gets stronger, according to our expert. That`s coming up next.


GHARIB: Shares of Crocs (NASDAQ:CROX) exploded today on news that Blackstone is taking a large stake in the troubled shoemaker. And that`s where we begin tonight`s market focus.

The maker of the once colorful clogs will get a $200 million investment from Blackstone, giving the private equity firm a 13 percent a stake and two seats on the company`s board. Also, Crocs (NASDAQ:CROX) CEO announced plans to leave the company in April.

The news sends shares on a 21 percent run up to $16.14.

Cracker Barrel is standing up to activist investor Sardar Biglari and rejecting demands to put the company up for sale. The company says it`s going to stick with its current business plan. Biglari is the largest shareholder in Cracker Barrel with a 20 percent stake. He`s been trying to oust the current management because he claims they aren`t maximizing returns for stockholders.

Looking at the stock, they ended the day off slightly to $110.20.

Shares of Apple (NASDAQ:AAPL) were in the red today after news broke Friday night that the company is pushing back against Carl Icahn. Apple`s board recommended shareholders vote against the activist investor`s proposal that they buy back $50 billion worth of its own shares in 2014. Well, the company said it`s already returned $43 billion to shareholders. The stocks fell a fraction to $454.52.

Cooper Tires and Rubber Company terminated its $2.5 billion sales to India`s Apollo Tires. Cooper says Apollo hasn`t been able to find financing for the deal. Apollo plans to take legal action, saying Cooper`s decision is premature. Cooper also taking, quote, “legal steps.”

Shares of Cooper jumped into the session, up more than 5 percent to $24.20.

Hertz announced late today it`s adopting a poison pill or a shareholder right`s plan. The car rental company took this defensive step saying, it`s seen, quote, “unusual and substantial” trading activity in the stock. The move is an effort by Hertz to prevent any person or group to gain control over the company through the open market. Shares initially spiked in the after-hours session, but the stock ended the regular session up slightly to $25.91.

And shares of Myriad Genetics (NASDAQ:MYGN) took a big jump. Medicare says that starting on January 1st, it`s slashing its reimbursement rate for the company`s breast cancer risk test. Myriad is a dominant supplier of tests that can predict cancer risks, Medicare is paying currently $2,800 for this test, but starting next year, it will pay only half of that fee. The stock tumbled nearly 14 percent to $20.82.

Our market monitor guest tonight predicts that the U.S. stock market could be up as much as 10 percent in the New Year. But still, he says, quote, “a lot could go wrong.”

He`s Hugh Johnson, chairman of his own investment firm Hugh Johnson Advisors.

Nice to see you, Hugh.

HUGH JOHNSON, HUGH JOHNSON ADVISORS: Nice to be with you, Susie.

GHARIB: All right. A lot could go wrong. You are making me nervous. What`s on the top of your worry list?

JOHNSON: Well, there are a lot of things there. But I think the number one thing is interest rates. If we start to see what the consensus currently expects which is a rise and a yield on 10-year treasury, well above 3 percent, somewhere around 320, 330, 340, then we might start to see the signs coming from the financial markets, as well as the economy that the current cycle is over. But we`ll have to wait until that occurs. But interest rates are probably at the top of my list.

Second on my list has always got to be that something unexpected, an exogenous event will come along that will surprise us and also create a real decline in the stock prices.

Other than that, I think everything looks OK for now.

GHARIB: All right. In that spirit, you say that there are a couple of stocks that you think that are bull stocks. That are good in a bull market.

So, let`s go down your list. At the top of your list is Johnson Controls (NYSE:JCI). JCI trading on the New York Stock Exchange. It`s gone from $30 to $50 this year.


GHARIB: Still a good idea to put fresh money in this?

JOHNSON: Yes. I think that`s — you know, the way you ask the question is a really well — well, a good way to ask the question. You know, there may be a correction along the way so you might drag your feet, wait a little bit.

In the case of Johnson Controls (NYSE:JCI) or any stock that I`m recommending, they are really all in the right sectors. And that means bull market sectors are economically sensitive sectors, the kinds of sectors that perform well in a bull market, not the ones that perform well in a bear market. And certainly, consumer cyclicals and industrials and Johnson Control has a little of each, is going — it really fits the bill.

The other thing I would say is their business is getting better. In other words, they`re starting to do business to raise profit margins, going away from their traditional lines. And they do business in Europe as your previous guests said. And as I would say, Europe looks great for 2014.

GHARIB: OK, good to hear from you, as well.

Let`s go to your next stock. General Electric (NYSE:GE), everybody knows this name — you have to be pretty patient with this stock but it did have a pretty decent year. Why should investors buy it at $28?

JOHNSON: Well, it`s got the same ingredients. It`s, first of all, positive relative performance. You want to get stocks with positive relative performance. It`s in an economically sensitive sector of the market, industrials.

Jeff Immelt is doing a great job at shedding some of those businesses, or low margin businesses, moving into high margin businesses.

It`s global. It will benefit from a recovery in Europe.

So, I`d also include General Electric (NYSE:GE).

GHARIB: And you have a tech stock that you like. Check Point Software. Tell us the story on this one.

JOHNSON: Positive relative of performance, bull market sector, great company in the security business now.

Target (NYSE:TGT) is focused a lot of attention on the business that they`re in, and sort of creating those firewalls to prevent some of the violations that we saw at Target (NYSE:TGT). But it`s a great balance sheet, good management, great balance sheet. It`s got no debt. It`s got lots of cash. It can buy back lots of stock.

This is a company that`s well-positioned for the future. And again, right sector and positive relative performance. All the things you need in a bull market.

GHARIB: OK, they all sound good. Any disclosures to make, Hugh?

JOHNSON: Yes. Disclosures, all of my clients own them, I own all three of them. And I cross my fingers, hope for the best. Remember what I said, we could have a little bit of a correction. So, buy a little now, wait a little on the balance.

GHARIB: All right. That`s a good idea. Fair enough. Thank you so much.

JOHNSON: You`re welcome.

GHARIB: Hugh Johnson, chairman of Hugh Johnson Advisers.

And coming up on NIGHTLY BUSINESS REPORT: you`ve heard of smart cars. Now, automakers are teaming up with tech titans to give cars a brain boost. Your ride of the future is coming fast. That`s next.


GHARIB: Ford Motor (NYSE:F) says 2013 has been a great year, so much so the automaker says it`s on track to top Toyota (NYSE:TM) for the fourth straight year for the title of best selling brand in North America. The final numbers won`t be released until Friday, but Ford says sales rose 15 percent through November, with the most significant gains coming from the important dominated U.S. coastal market, its best sales performance in six years.

GHARIB: Well, cars are about to get a lot smarter. I mean, really smart. Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) are moving quickly to get their technology into the cars of the future.

Josh Lipton tells us how your driving experience could soon be changing.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Next week in Las Vegas, at the consumer electronics show, Google (NASDAQ:GOOG) and Audi are expected to make a big announcement. The two are working together to create in-car entertainment and information system that are based on Google`s Android software. That`s according to “The Wall Street Journal”, which says that the point is to give drivers access to music, navigation, apps and services available on Google (NASDAQ:GOOG) smartphones.

LANCE ULANOFF, MASHABLE EDITOR-IN-CHIEF: In-car technology, it`s like that next front. And mostly, the car companies have kind of led the way on their own by developing the technologies.

But now, you know, the companies have been delivering the mobile experience to our hands, realize they don`t want the connection to be broken when they get on the car.

LIPTON: Streaming music, traffic apps, and on-road navigation are already part of the high-tech driving experience, but expect more changes in the near future.

New cars from Audi, Mercedes Benz, G.M., Ford and Honda are expected to have more sophisticated screens, and systems controlled by hands-free, voice activated technology.

Google (NASDAQ:GOOG) isn`t alone in seeing big opportunity in the car market. Its rival Apple (NASDAQ:AAPL) has said that it wants to bring iOS, its operating system, into your car, as well. The point will be to integrate your iOS device with your in-dash system. Apple (NASDAQ:AAPL) reportedly already has the support of BMW.

And it`s not just Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) that want a piece of the driving technology future. Chip maker Nvidia says 4.5 million cars on the road are equipped with its processers. And Nvidia says another 25 million cars in the next five years will use its technology.

While sophisticated dash ford control panels and voice activated commands will keep improving, experts say it will sometime before your car is rolling down the highway fully equipped with some of this technology.

ULANOFF: What I think will be the limiting factor here is not technology and not even the car manufacturers and their ability to deliver product quickly. It`s going to be safety concerns.

LIPTON: Still, Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), chip companies and the automakers all know they can`t afford to miss out on the potential of the really smart car as our vehicles become the mobile devices of the future.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


GHARIB: And finally tonight, as 2013 winds down, we`ve been taking a look at some of the people who had the most influence on business and finance. We call them difference makers.

And one of the biggest this year is Netflix (NASDAQ:NFLX) CEO Reed Hastings. He`s transformed the way we watch TV and what we expect from digital content.

Julia Boorstin has more.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): In 2013, Reed Hastings proved a truly iconic class redefining the very nature of television, with original exclusive shows streamed over the Internet.

Starting with “House of Cards” which debuted in February, then horror thriller, “Hemlock Grove”, and new season of cult favorite, “Arrested Development”, and comedy drama, “Orange is the New Black” in July.

UNIDENTIFIED FEMALE: I`m scared that I`m not myself in here and scared that I am.

BOORSTIN: These are the very first shows made exclusively for Internet distribution, to compete for critical acclaim viewers and Emmys, along with HBO and Showtime.

REED HASTINGS, NETFLIX CEO: When you think about it, this is how HBO started, too. I mean, 20 years ago, HBO was just other people`s movies and then they expanded into amazing originals. And we really look at them for inspiration and say, what can we do on the Internet that`s even more than HBO?

BOORSTIN: Growing to more than 40 million subscribers at the end of the third quarter, up from 33 million at the end of 2012, sending the stocks soaring, well over 300 percent this year. Quite the turnaround after Hastings executed one of the worst PR debacles in corporate history, back in 2011, when he split Netflix (NASDAQ:NFLX) streaming and DVD rental businesses, effectively doubling prices, alienating subscribers and investors, a plan he ultimately abandoned after the backlash.

HASTINGS: We`re a swing from the fences company. We want to do great things. And you know, occasionally if you swing from the fences, you`re going to strike out.

BOORSTIN (on camera): Hastings hasn`t just hit a homerun in business. He`s also overhauled corporate communications with shareholders, opting out of a traditional earnings call, to have an analyst and a reporter, yours truly, ask questions sent in by investors.

(voice-over): He`s even pushed for a regulatory change about what qualifies as public disclosure. After revealing Netflix (NASDAQ:NFLX) streaming numbers to his Facebook (NASDAQ:FB) followers, an SEC inquiry ruled communicating via social media counts as public commentary.

HASTINGS: Going wide with Facebook (NASDAQ:FB), where I got hundreds — and Facebook (NASDAQ:FB) has a public mode that I use that is going to hundreds of thousands of subscribers. It is very much in the interest of the little investor.

BOORSTIN: Now with plans to keep investing in original content and overseas expansion, we`ll see if Hastings continues to deliver to investors.



GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Have a great evening, everyone. And we`ll see you right back here tomorrow.


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

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