Transcript: Wednesday, January 1, 2014

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Good evening. And happy New Year, everyone.

Welcome to a special New Year`s edition of NIGHTLY BUSINESS REPORT, I`m Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: And happy New Year from me, as well, and to you, as well. I`m Tyler Mathisen.

We`ll turn the page on calendar 2013. 2014 is here. And with it, we turn the page on a year of major gains for investors. But tonight, we don`t look back, we look ahead.

GHARIB: That`s right, Tyler. It`s our “Predictions 2014.” And we have some bold and provocative ones. Our reporters and guest will try to predict what will happen in some of the biggest areas in business from the economy to health care to real estate. And, of course, the big question for investors — can stocks improve on what was a stellar year on Wall Street?

MATHISEN: And that is where we will begin. Stocks. Following a year where 20 percent or greater gains were quite commonplace, stocks certainly have their work cut out for them this year, 2014. The Federal Reserve will once again likely play a big role in which way stocks go.

Bob Pisani now goes out on a limb, maybe way out, as he tries to predict the markets this year.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The guiding principle of my 2014 predictions are try not to be boring. My convincing level isn`t high in all of my predictions but at least they`re a little more interesting that the Fed begins to taper. So, here it goes — first, the Fed will increase its bond-buying program next year after its initial attempt at tapering falters.

After the Fed begins a modest tapering in early 2014, the stock market drops 10 percent, and the economy begins to sputter. The new Fed chairman, Janet Yellen, has almost no honeymoon. She must confront the prospects that the economy may slip into another recession. The Fed reverses its early decision, moves to increase bond buying, $100 billion a month.

Second, Dallas Fed president, Richard Fisher, who`s become a member of the Federal Open Market Committee in 2014, resigns from his post in the middle of the year, saying that the Fed is acting irresponsibly by refusing to accelerate the tapering of its bond-buying program.

Finally, Microsoft (NASDAQ:MSFT) buys Yahoo (NASDAQ:YHOO)! at a 30 percent premium and names Marissa Mayer as their new SEIU.

This is a different world from 2008 when Microsoft (NASDAQ:MSFT) tried to buy Yahoo (NASDAQ:YHOO) last. They nude a wow candidate to replace Steven Ballmer. It`s not going to be Alan Mulally. This is going to satisfy investors. The company who needs somebody who can change Microsoft (NASDAQ:MSFT)`s culture, and that is focused on the consumer.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.


GHARIB: Well, as Bob just said, Microsoft (NASDAQ:MSFT) will grab some headlines regardless of who`s named CEO. And Microsoft (NASDAQ:MSFT) was one of the standouts in technology last year. In fact, technology as a whole was a standout. The NASDAQ is surging more than 30 percent.

Jon Fortt uses his crystal ball to find the big stories that might keep the tech train rolling in 2014.


JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2014 should be a big year for wearables because we should expect Apple (NASDAQ:AAPL) to finally jump into the game. I mean, yes, we`ve been looking for something like an iWatch from Apple (NASDAQ:AAPL) for what seems like years now. But since iPad revenue is now below $3.5 billion a year, it`s really time for Apple (NASDAQ:AAPL) to jump into the game.

Remember that movie “Reservoir Dogs” where the guys are pointing their guns and it doesn`t work out well? That`s the situation now with Amazon (NASDAQ:AMZN), Samsung, and Google (NASDAQ:GOOG). Between tablets, and the Cloud, with commoditization, somebody`s going to take a fall in 2014, and it won`t be pretty.

An important year of change coming from Microsoft (NASDAQ:MSFT). New CEO, some new priorities, and perhaps the spinning off of some brands. If so, Bing might be one of them, and expect Yahoo (NASDAQ:YHOO) CEO Marissa Mayer to be first in line to check out that particular asset.



MATHISEN: Banking company shares did very well in 2013, but the industry itself had a bit of a bumpy year. Coming out of the shadows of record fines by JPMorgan (NYSE:JPM) Chase, the banking industry has to look forward to new restrictions starting in the first half of the year. Thanks to the so-called Volcker Rule.

But as Kayla Tausche predicts, that`s not all the banks have to worry about in 2014.


KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Frustrated by red tape, customers will start flocking to less traditional bank account. Google (NASDAQ:GOOG) Wallet just launched a debit card. Small businesses have been signing up for the new Square wallet. And e-friendly customers have been switching to online banks simple. Bricks and mortar banks, their model already under assault, will find new business harder to come by.

Reaching for yields, bank for years have been underwriting startling high levels of junk funds and leverage loans for low credit card companies. As the Fed starts to taper, yields will rise. There will be a rush out of risky asset classes. Bond prices will fall, and bankruptcies will increase as refinancing gets harder to come by. Banks won`t take losses on these deals yet, but the alarm bells will start to ring.

JPMorgan (NYSE:JPM) Chase may have paid a strikingly large fine to settle federal mortgage fraud charges, but it won`t be the only bank to do so. Attorney General Eric Holder has pledged more high-profile cases to come, and nearly a dozen other banks are being investigated across the country.

Penance far from the financial crisis far over. Look for a wave of cases to pop up after the New Year and keep a close eye on Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Goldman Sachs (NYSE:GS) — three bellwether firms that have already disclosed ongoing mortgage probes.



GHARIB: Our market guest tonight says 2014 could be another happy New Year for U.S. stocks. He`s Richard Steinberg, president of Steinberg Global Asset Management.

Happy New Year, Rich. Nice to have you with us.


GHARIB: So, you heard Bob Pisani`s prediction. More bond buying by the Fed. Not tapering.

Let`s just say he`s right about that, what would that mean for investors, for the stock market, and for your prediction for stocks?

STEINBERG: I don`t see it happening, but we can play — we can go down that road for a second. It would mean that we would have a major sell-off in the markets which would affect corporate and consumer spending, consumers are 2/3 of the economy.

And the Fed would be forced to add liquidity back to the market. We don`t see that happening. We`re kind of blurring tapering players going into this year, slow and methodical. From $85 billion to $75 billion, then slowly chipping away at that.

What we should realize is this could go into 2015, which will keep interest rates low and people interested in the stock market.

MATHISEN: What is your, Rich, overall prediction for the S&P 500 come year end this year? And how do you get there?

STEINBERG: Well, I think we`re going to have a good year. Not a stellar year like last year. But, you know, if you apply a 16 P/E multiple to our $121 estimate, you get to 1,936 on the S&P, which could be a roughly 8 percent to 10 percent total return including dividends.

You will hear talk from other strategists in the big headline will be 2014 in 2014, and that would imply a 17-plus multiple, probably too aggressive. But if the Fed`s tapering works, we may have to re-evaluate where our target is. For now, we`re sticking in the mid to low 1900s for our target.

GHARIB: And you`re telling investors to put their money in non-U.S. stocks. Is that because you think that European stocks or Chinese stocks are, I guess, emerging markets are going to do better than the U.S. market?

STEINBERG: I think it`s time to start to shift some of your portfolio away from our domestic market. Europe is trading at roughly 13 times earnings. So, in a relative basis, you can get some good yield in Europe and cheaper valuation. So, at the margin, client should start to move a little toward international again.

Emerging markets are a little tricky. They`re very sensitive to higher interest rates. And they look cheap at 10 times earnings, but it may be a value trap.

Mexico does look pretty decent. Russia could be turning. But there`s a lot of hair on those markets, and you have to be careful.

MATHISEN: Your view of the S&P which are big blue chip, large cap stocks, is sort of 7 percent to 9 percent total return, maybe you can goose it up to 8 percent to 10 percent. Are there pockets of opportunity that might take me out of those big cap blue chips where I could make more and maybe risk more?

STEINBERG: Yes. I think when you`re looking at next year, we`re not going to have a staircase market. I think there`s going to be fits and starts, economic weakness, and strength with a choppy news flow.

So I think what you do is you have to keep some powder dry, don`t — don`t worry about some extra cash on the sidelines, and be opportunistic. If you catch those moves, Tyler, you could have north of 8 percent to 10 percent returns.

GHARIB: You have half a minute, Rich. You have two stocks that could go up as much as 20 percent this year. Real quickly, what are they?

STEINBERG: Ensco, which is an offshore driller with its youngest fleet. Stock yields 5.5 percent, trading at eight times earnings. We have an $85 target.

The second is an old name that everybody knows, which is eBay (NASDAQ:EBAY). PayPal and eBay (NASDAQ:EBAY) core businesses are going well. They throw up $3.4 billion in free cash flow. We have a $63 target. We think those are both names that investors can own into next year.

GHARIB: Any disclosure —

STEINBERG: I own Ensco, I don`t own eBay (NASDAQ:EBAY).

GHARIB: You knew what I was going to ask.

All right. Rich, have a happy holiday. Thanks for coming on the program.

STEINBERG: Happy and healthy, everyone.

GHARIB: Rich Steinberg of Steinberg Global Asset Management.

MATHISEN: It was a good year if you were a driver in 2013. The price of gasoline fell for most of the past year, ending 2013 near its lows. That helped out a while a bit (ph).

As for oil, it`s traded between $90 and $100 a barrel for the better part of the past 12 months.

And as Sharon Epperson and Jackie DeAngelis predict, prices will once again be the focus in 2014.


SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Get ready to fill up for less in 2014 as gas prices fall to a four-year low. Refineries are increasing production, causing supplies to slow and demand remains rather muted. We usually have a seasonal price surge in the spring, that`s when the East and West Coast could see pump prices near the $4-a-gallon mark. But prices should be below $3 a gallon in the middle of the country for much of the year.

Prices at the pump depend in part on the price of oil futures traded at the NYMEX. Even if U.S. oil prices reach the triple-digit market, they probably won`t stay there for long. The ongoing boom in domestic oil production will continue. And as we have more output, we`re likely to hear more calls for exporting more crude oil. Right now, you can only export it to Canada.

But while that debate continues, supplies will likely outstrip demand, dampening oil prices.

But truckers, beware. Even if oil price gains are muted, we could see higher diesel fuel prices. The sharp demand for distillate supplies globally may take diesel prices significantly higher in the early part of the year, offsetting the declines in gasoline. Then prices should fall or at least steady a bit.




JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: When it comes to transportation of domestic crude supplies in 2014, all eyes will be on the rails. IHS (NYSE:IHS) estimating that by the end of next year, rail capacity could grow enough to handle 700,000 barrels of crude a day, compared to 150,000 barrels a day, and the Keystone Pipeline will move about 830,000 barrels.

Looking at it that way, rail transportation makes a decision on the Keystone Pipeline irrelevant.

The recent deal struck between Iran and the international community will ease sanctions on the country and bring some of its oil back on to the market. This is only the first step in a lengthier process that will include more negotiations and overcoming technical challenges to restarting production.

Bottom line: Iranian oil will not have an impact on oil production and prices.

And keep an eye on Dow component ExxonMobil (NYSE:XOM). The company continues to buy back stock to the tune of $3 billion a quarter. But hints from management about a peak in capital expenditures are a bit of a red flag. Look for Exxon stock to continue its rise but not necessarily outperform the competition.



GHARIB: Coming up, the biggest, boldest prediction for the economy in 2014. That`s coming up next.


MATHISEN: The consumer, the backbone of the U.S. economy, started to come out of hiding last year. Customers dug in to their pockets at a healthy clip, and that helped the economy gain steam in the latter half of 2014.

But there are some challenges in the retail world for 2014. And Courtney Reagan has her predictions.


COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Retail is ripe for reckoning. This year`s record is like blood in the water for activist investors in 2014. Shareholders have pushed teen retailers like Aeropostale (NYSE:ARO) and Abercrombie & Fitch (NYSE:ANF) to explore alternatives, from buyouts to executive shakeups.

KeyBanc`s Edward Yruma says that the cash flow, solid balance sheets, and this year`s deterioration make the group a key category for activist investors in 2014.

Much of the 2014 growth will come from online sales. Mall traffic will continue to decline. Retailers maybe able to protect some sales by offering an attractive online option. But mall operators, particularly those who have lower quality malls in their portfolios, will take the hit.

Former department store executive Janet Nippon (ph) says it could be a scary year for those invested in low-quality malls.

Traditional malls will continue to suffer in 2014. Outlet malls will see traffic and sales pick up. As a result, retailers will let their leases expire in traditional malls, while pursuing the country`s outlet centers. But with full lines, not discount form at (INAUDIBLE).



GHARIB: Auto sales gave a lift to the U.S. economy last year with more than 15 million cars and trucks sold. So can the momentum carry into 2014? And if so, how do the automakers and dealers plan to make that happen?

And what about in the sky? The world`s largest airline was created with the American and U.S. Air merger, but that didn`t stop any of the airlines from charging more fees.

Phil LeBeau has his thoughts on what lies ahead on the land and in the air.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2014 will be the year the battle over entry-level luxury cars heats up.

The Mercedes Benz CLA Class is so hot it`s putting pressure on Mercedes rivals. Audi will answer with the all new A3 coming out in March. And you can bet that BMW, Lexus, and Cadillac will all make sure that their entry-level models are priced competitively.

In 2014, automakers and auto dealers will throw more cash on the hood in order to make sure sales stay strong. Why? There will be 66 brand new or redesigned models rolling into show room next year. That`s a record number. And in order to make sure the other 234 existing models still sell, the auto dealers will have to throw a little more cash to sweeten the deals.

Finally, a prediction for the airline industry. Nobody likes paying fees when we`re flying, whether it`s for checking bags or rebooking a flight. Well, in 2014, they won`t go away.

But there is a feeling that the airline may be hitting a limit with how much they can charge for certain fees and services.

So, while you will be still paying for certain things like snack boxes and n flight, perhaps the rate at which airlines charge you fees will slow down in 2014.



MATHISEN: We all know by now that home prices came back strongly in many parts of the country last year. But can those prices keep going up, up, and away? What about mortgage rates this year?

Diana Olick weighs in with her thoughts for 2014.


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: As sales return, home prices will continue to rise. The gains will ease. Those 12 percent price jumps we saw in 2014 were driven largely by investors on the low end of the market.

As for closures ebb, which they will, and distressed sales become a smaller part of the mix, the prices will moderate. But still, low inventories will keep those prices in the positive in most markets.

And mortgage rate will also rise. The days of the 3.5 percent 30-year fix read over. Rates are already up over a full percentage point from a year ago. As the Federal Reserve begins its much-anticipated exit from the bond-buying business, rates will have to go higher.

Investors will not leave the rental market. Some have predicted that with higher home prices, the private equity, large institutional investors will sell at a profit and leave. But they say they`re settling in for the long haul now that they`ve got economies of scale and they`ve figured out the management.

Also, rents for single family homes are rising as they are for multifamily apartment buildings. That`s because supply is still tight amid very high demand.

Diana Olick for NIGHTLY BUSINESS REPORT, in Washington.


GHARIB: Now, the U.S. economy has entered 2014 on better footing than it started last year. It boasted growth of better than 4 percent in the third quarter. And as we wait to see how strong we close out the year, there`s no doubt there will be no shortage of headlines in 2014.

Steve Liesman tells us what he thinks will happen in the coming months.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): My big call for 2014 is synchronized global growth. We haven`t had a year without at least one quarter of negative growth from each Japan, the U.S., and Europe since 2005.

2014 could be that year with the crisis ebbing in Europe, U.S. fiscal job fading and Japan central bank opening a throttle, there`s a decent chance for one of the biggest growth years from the big three since the crisis began.

All of that means better domestic growth and global growth will keep the Fed on track to end Q.E. in 2014. It will do all it can to get out of the program without a spike in interest rates and a sharp fall in stock markets. So, it`s going to lean heavily on guidance. Rates will be kept low through 2014 and even into 2015.

Inflation could be a new worry next year. It`s unclear if we`ll have actual inflation, but it`s logical it will be a concern for markets. That will present a challenge for the Fed. If wages and commodities rise, the central bank could have to lean heavily against criticism that it`s risking inflation.

The Fed will argue with slack in the economy, especially in the labor market, it can afford to be patient on rates, but it could be a year that Fed critics pound the inflation hammer.



MATHISEN: Our next guest says the economy going to do a whole lot better in the New Year.

He`s Gus Faucher, senior economist at PNC.

Gus, welcome. Good to have you with us. And happy New Year.

GUS FAUCHER, PNC SENIOR ECONOMIST: Thank you very much. Happy New Year to you, too.

MATHISEN: You heard Steve Liesman just say that maybe, just maybe, 2014 will be the year where we get synchronized global growth among the big three. That would be Japan, Europe, and the United States.

How do you respond to that?

FAUCHER: Well, I think we will see a better global economy and U.S. economy in 2014. Europe has finally come out of recession. Japan looks like it`s doing better. They`re taking very aggressive steps.

In the U.S., I think growth will be stronger than it was in 2013. We have to drag from tax increases and spending cuts fading, consumer balance sheet are in good shape, I think business investment is going to be a little bit stronger this year than it was last year.

GHARIB: So, if business is going to invest a little more, Gus, does that mean we`re going to see more hiring? And if so, where do you see the unemployment rate going by this time next year?

FAUCHER: I think we`ll see job growth averaging about 180,000 to 190,000 per month in 2014. That will be enough that the unemployment rate will decline. So it`s 7 percent. I think it`s going to end the year somewhere around 6.5 percent.

What will prevent it from falling faster is labor force growth. We will see more people looking for work. We have some discouraged workers who have been on the sidelines.

But as the job market continues to improve, they`ll look for work again. That will prevent the unemployment rate from falling a little faster. But it`s good news and it`s a sign that people have confidence in the labor market.

MATHISEN: Let`s talk a little bit about inflation. You heard Steve Liesman say that whether it comes back and is actual or whether it is just a worry for the markets is a central question for the country in 2014. Is that how you see it?

FAUCHER: Yes. I don`t think that we`re going to see actual inflation. Inflationary pressures remain very weak in the U.S. and global economies. You know, growth is still disappointing in many parts of the world. You know, commodity prices have been flat to down.

In the U.S., you know, the labor market, although, it`s slowly tightening, still a long way from a really strong labor market, wage growth is very weak. Businesses are getting productivity gains from their workers, and then also business profits are very good. So, that will allow them to hold the line on prices.

So, I don`t expect to see much inflation in 2014. Maybe a little bit stronger inflation toward the end of the year and into 2015.

GHARIB: And yet, just about everyone is predicting higher interest rates for this New Year. Now even if it`s a small hike in interest rate, what does that mean for businesses big and small, how it changes what they do? What does it mean for consumers and home buyers? You heard Diana Olick talking about, you know, the days of 3.5 percent mortgage rates are over.

Give us a little of the landscape of what to expect of interest rates.

FAUCHER: We will see borrowing costs rise this year, especially for long-term borrowing. So, you`re looking at your fixed 30-year mortgage rate. That`s going to increase. So, it will be more expensive to purchase a home. It will be more expensive for businesses to borrow for capital investment.

But at the same time, I think the fundamentals remain pretty good. Consumer balance sheets are in excellent shape. Households have paid off a lot of debt. They`ve seen gains in wealth because of higher stock prices and higher home prices.

Businesses` balance sheets are in great shape. Business profitability is very good. So, I think businesses even though rates will be higher, will be willing to take on a little bit more debt. In terms of short term rates, those are going to remain close to zero, I think, for another couple of years, so until late 2015. So, that means car loan rates, for example, will stay low. That will encourage car buying.

You know, credit card rates aren`t going to move much. So, what we will see the yield curve stiffen. We`ll see longer rates rise, but we`ll see short term rates remain very low on a historical basis.

GHARIB: That sounds pretty good to me.

Gus Faucher, senior economist at PNC, thanks very much for joining us on this New Year`s evening.

FAUCHER: Thank you.

MATHISEN: Appreciate it.

Still to come, it was a massive undertaking that did roll out so smoothly and became one of the biggest business stories, really stories of all of 2013. What`s in store for health care over the next 12 months? That`s next.


MATHISEN: The rollout of the Affordable Care Act was anything but smooth. And until all the bugs get worked out, the new health care laws will continue to be a cloud hanging over the industry.

But as Bertha Coombs predict, the ACA isn`t the only issue for 2014.


BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The big Affordable Care Act number for 2014 is enrollment. Seven million is the Congressional Budget Office`s estimate of how many people would buy insurance on the health exchanges.

(on camera): I think the Obama administration is going to fall short. Perhaps, it will get 4 million to 5 million exchange enrollees by the end of next March. But problems with`s backend payment systems are going to spill into the New Year.

(voice-over): That uncertainty about the exchanges means insurers will struggle in 2014. The two key issues: will younger, healthy people enroll in large enough numbers? And did insurers priced exchange plans correctly?

Margins could be hurt on low premium plans if newly insured enrollees use more medical services than expected. But if they do, it will continue to fuel hospital gains.

(on camera): Beyond the Affordable Care Act, the economy will be a big factor for hospitals in 2014. As people feel more comfortable with their jobs and their insurance coverage, hospitals could see their patient volumes increase.

(voice-over): Not just from new patients but those who have been putting off elective procedures like knee replacements.



MATHISEN: And that is our special “Predictions 2014” edition of NIGHTLY BUSINESS REPORT. I`m Tyler Mathisen. Thanks so much for watching and happy New Year, everybody.

GHARIB: And I`m Susie Gharib. Have a great evening. Happy New Year from me, as well. We`ll see all of you again tomorrow night.


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) 2014 CNBC, Inc.

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