Transcript: Thursday January 2, 2014

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


begin the New Year with a thud, the Dow logging its worst day in nearly two
months. But many professionals are betting on another big year for the
market. Which sectors are worth your money now?

the season to make resolutions, but are things that aren`t good for your
health good for your portfolio?

MATHISEN: High alert. A warning from the government: Bakken crude
may be more flammable than conventional oil. And as more gets shipped via
rail, will the focus return to building out pipelines?

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
January 2nd.

GHARIB: Good evening and happy New Year, everyone.

Well, a winter storm whipped through the Northeast on this first
business day of 2014 and on Wall Street stocks turned icy cold. All the
major averages posted sharp decline, coming off a banner year for stocks.
Some say investors were booking profits after last year`s historic run-up.
Others are blaming an analyst downgrade of Apple (NASDAQ:AAPL) for weakness
in the tech sector which affected a range of other companies. But whatever
the reasons, all 10 of the S&P sectors ended the day lower and it was the
first time in five years that the first trading session of the New Year
ended to the downside.

Here is how the major averages closed out today: the Dow tumbled 135
points, the S&P was done 33, and the S&P lost 16 points.

But gold rallied today after tumbling 28 percent in 2013, the worst
annual decline in more than three decades. Prices of the precious metal
rose nearly $23 an ounce today.

It was different story for oil. Crude prices fell almost three
dollars a barrel, ending at a five-week low at $95.44.

MATHISEN: Well, today may have been an ice patch for stock investors.
But last year was a smooth ride. The 29 percent gain for example was 12
percentage points greater than the Europe 600 index return. And for stocks
that generated more than 90 percent of the sales here in the United States,
the average gain was a whopping 33 percent.

So will that trend continue in 2014, or should you broaden out
globally? Adding to your mixed foreign shares are U.S. firms that do a lot
of business overseas.

Seema Mody takes a look.


say home is where the heart is, but in 2013, home is where the money was.
A third of all companies that made 90 percent or more for their sales in
the U.S. beat the S&P 500, thanks to an improving economy and a stronger
dollar. But this year, investors may be wise to expand their horizons.

(on camera): B of A Merrill Lynch equity strategist Savita
Subramanian is advising clients to sell U.S.-centric stocks and to buy
multinationals in 2014, because better than expected economic data is more
likely to come outside the U.S. in the coming year.

Oppenheimer`s chief market strategist John Stoltzfus says if you`re
going to take a global approach to investing in 2014, stick with consumer
discretionary stocks.

discretionary because we`re beginning to see around the world a development
of a culture that mimics the U.S. consumer. And just as the consumers led
the U.S. markets back, we would expect that will happen both in Europe, as
well as in Asia.

MODY (voice-over): So, which consumer focus companies with global
exposure look attractive? Oppenheimer says Nike (NYSE:NKE), Mattel
(NASDAQ:MAT), Harley Davidson and Tiffany (NYSE:TIF) are some stocks to
consider. But be forewarned, several experts caution that any type of
distress like political dysfunction or security concerns overseas could
send investors right back home.



GHARIB: Our first market guest for 2014 says there are lots of
reasons for investors to be optimistic for U.S. stocks this year. She is
Liz Ann Sonders, chief investment strategist for Charles Schwab and

Liz, you just heard our report with Seema Mody who was saying that,
you know, move away from U.S.-centric stocks and embrace a global market
strategy. Do you agree with that?

the call is to eliminate U.S. stocks in favor of all international stocks,
I would say no. I think investors ought to be diversified especially in
today`s environment where correlations are coming down and diversification
matters again. I still think the developed markets will out perform the
emerging markets.

But I think there`s going to be bigger divergences. I think they`ll
be a bigger spread between the winners and losers within emerging markets
and I still think the U.S. market will do well. The spread, though, may be
a bit different than it`s been in the past year or so.

MATHISEN: How worried, Liz Ann, should American investors be about
the Fed tapering?

SONDERS: I don`t think terribly worried. In fact, I think if
anything, the market had almost given permission to the Fed to start
tapering, and when you listen to some investors weigh in on Fed tapering or
lack thereof, when you talk to business leaders, the way I think it had
gotten to the point where if anything it was holding back confidence, it
was holding back business.

I think a lot of folks felt it was time to rip the band-aid off. I
think the market`s reaction certainly the day of the Fed`s announcement and
really since then suggest that the market is ready for this, that we have
moved into the expansion phase of the economy, and it`s time to move toward
more normal monetary policy.

GHARIB: So, Liz Ann, tell us a little bit more about the themes and
strategies that you`re advising clients of Schwab to do —

SONDERS: Well, one of the reasons why I`m optimistic about the U.S.
economy is I think there`s a transition happening over the past few years
in favor of manufacturing in the U.S. I think we`re in a reconnaissance of
improved global competitiveness for U.S. manufacturers.

One of our tag lines has been that Middle Americans favor emerging
markets. We`re really seeing business come back from any of the emerging
markets, particularly in China. The wage gap is narrowing and it`s nice to
think of our economy as being productive again, to be export-oriented
again, as opposed to just creating paper wealth, which if you think about
it, the last two expansions were more about paper wealth than anything

I think that feeds into the industrial part of the economy, it feeds
into the consumer part of the economy. I think it probably boosts middle
incomes. All of which I think are very good long-term stories for the U.S.
It`s not something that solves all of our problems immediately. It`s kind
of a slow-turning ship. But I think it`s a very optimistic story for the
next five to 10 years.

MATHISEN: Take me very quickly through three other markets, one,
Europe, two, China, three, Japan.

SONDERS: Yes. We`re actually positive on all three of those. In the
case of China, that`s a bit of a turn in the last few months for us,
because we had had a fairly negative view in China, up until the recent
period where we forms were announced. Not because they will have an
immediate effect on the Chinese economy but it maybe that thing that
inflection point that turns psychology and I think gets investors to
realize that they are very true about their desires to move the economy
away from credit led investment growth, more toward consumption growth.

We are still believers in the turn that`s happen in Japan, their
desire to weaken the currency, the impact — the positive impact that
that`s having on the market. And Europe, we also think hit an infliction
point earlier in 2013 where manufacturing started to turn, and that`s
really all you need for equity markets is to hit that inflection point
because markets look ahead.

GHARIB: Confusing times. It`s great to have you on the program.

SONDERS: My pleasure.

GHARIB: Thanks so much, Liz Ann.

SONDERS: Thank you.

GHARIB: Liz Ann Sonders, chief investment strategist for Charles
Schwab and Company.

MATHISEN: Well, it`s a New Year when many of us make New Year`s
resolutions to lose weight, eat better, or exercise more often. Why am I
reading this?

But how do the companies that help us keep those virtuous resolutions
perform this time of year? Do shares usually rise along with those hopes
in January?

Dominic Chu takes a look.


the season for New Year`s resolutions. So, can the idea of New Year`s
resolutions turn into New Year`s investing ideas?

Over the past three years, a few resolution themes stood out.

First physical fitness: eat better, exercise more. On the diet front,
there`s WeightWatchers International. During the last three Januarys,
shares of the company had posted healthy gains, but those gains seem to
fizzle out by the end of each full year, along with those diets.

It`s a different story for the gym rats. Talent Sports International,
which owns New York, Boston and Washington Sports Clubs, among others, post
healthy gains in January and those gains gather even more steam as the year

Second, getting your finances and investments in order. Take a look
at shares of Morgan Stanley (NASDAQ:NBXH) (NYSE:MS). It posted strange
gains on average over the last three Januarys but that`s about it. Shares
were relatively flat for the rest of the year.

Different story for personal finance software company Intuit
(NASDAQ:INTU) ,which posted more modest gains for the month but got
stronger to finish out each year.

And third, for education stocks like DeVry (NYSE:DV) and language
learning company Rosetta Stone (NYSE:RST), the results have been pretty

Some professional investors understand the thinking behind consumer
habits to make investing decisions, but caution against relying on them

doubt those making the resolution, but what would it do for the earnings
growth potential throughout the remainder of the year and, thus, the
ability for the stock to appreciate. It`s not going to be in our analysis
and our strategy.

CHU (on camera): The bottom line here is, take a moment before buying
the stock just because the company plays a role in your New Year`s



GHARIB: Now to the flip side of the resolution-related companies to
so-called sin stocks. We`re talking here about companies behind things
like cigarettes, booze, even fatty fast foods.

Morgan Brennan takes a look at how these stocks have performed at the
start of the New Year.


They are certainly not good for your health but may be good for your
investment portfolio, sins stocks — these publicly traded companies that
specialize in bad for you vices like tobacco, alcohol, gambling, even fast
food. The negative stigmas attached to these companies have caused more
traditional investors to steer clear.

But those who have been willing to buy in to the bad behavior have
reaped sinful returns over the past decade, and when the economy has been
bad, they`ve done even better.

(on camera): Take Weiss (ph) investor, it`s a mutual fund which
holdings include such big names sin stocks as Diageo, Lorillard (NYSE:LO),
and MGM Resorts (NYSE:MGM). The fund returned more than the S&P 500 in
2013. And over the last five years, it`s beat it by about 10 percent.

(voice-over): Here is where the stocks get more interesting. With
the exception of gambling, these purveyors typically suffer a post-holiday
hangover, perhaps due to all those New Year`s resolutions.

Nearly all of the major multi billion-dollar companies of the tobacco,
alcohol and fast food industries have average under-performed the S&P 500
over the past three years in January.

But it doesn`t seem to last. Investors relapse eventually pushing the
same stocks to outperform the S&P during the rest of the year. The only
vice that seems to be immune to New Year`s resolutions, gambling — as
casino operators have all been out-performing the S&P 500 regardless of the

So, while it may feel better to choose the responsible stocks or at
least stick to the ones that don`t celebrate bad habits, it may just pay to
invest in vices because the January hangover doesn`t always last.



GHARIB: So what are some of the investment themes that hedge fund
managers are favoring in the New Year? Well, Kate Kelly will join us in a
few minutes with their strategy.

MATHISEN: And today was a huge day for Italian automaker Fiat.
Shares soared more than 16 percent on the Milan Exchange after announcing
plans to buy up all the remaining shares of Chrysler that Fiat didn`t
already own. The $4.35 billion deal is due to close later this month,
making Fiat the world`s seventh largest auto maker.

Phil LeBeau joins us now from Chicago with more on what this deal
means for Chrysler, for Fiat and for Investors.

Phil, welcome and happy New Year. Will this change the face of
Chrysler in any measurable way or Fiat here in the U.S.?

measurable way. Look, what we see from Chrysler day in, day out here in
the U.S. is not going to change. This does give Chrysler and Fiat more
synergy, if you will. It should lower cost in certain areas. And this
gives Fiat that bankroll, that cash flow that it needs to restructure its
European operations, and that`s really crucial here.

GHARIB: Yes. You know, Phil, over the years, it looks like Chrysler
is like a cat with nine lives, so many different configurations over the

LEBEAU: Right.

GHARIB: And you sort of answered this, but I just want to get a
little bit more on how critical is this arrangement for Fiat to own all of

LEBEAU: Very critical. But now, it has access to cash on hand at
Chrysler, which by the way is using some of that to pay off Viva (ph) for
that 41.5 percent stake.

Now that it has that money, it can invest in the two areas where it
really — the two lines were it really wants to expand. First of all,
Chrysler and other overseas market, because it`s primarily a regional
automaker here. And two, the luxury lines for Fiat, and we`re talking
about Alfa Romeo predominantly, but also from Maserati. Those brands, they
think that they can have great growth, especially Alfa Romeo. That`s what
they are looking to do over the next year or two.

MATHISEN: Alfa Romeo, Phil, was here a few years ago, hasn`t been a
major player in this country in really, I don`t know, you tell me, decades.
Are they going to come back? We`re going to see more of them here in the

LEBEAU: We have not seen it since 1995 but the first Alfa to go on
sale here in the U.S. will go on sale in the second quarters. That`s 4C.
And then what we`ll see is an expansion over the next couple of years.

And why is this important? Keep in mind, Tyler, the U.S. is still the
number one market in the world when it comes to luxury auto sales. Sergio
Marchionne is looking at this and saying, I want a piece of that. That`s
where the profits are.

And that`s why they need this money to expand, to bring Alfa over here
to the U.S.

GHARIB: Real interesting development. Thanks a lot. Phil LeBeau,
reporting from Chicago.

And still ahead on the program, could a number of rail accidents
involving Bakken crude change the way it`s transported? And could that
impact the price of oil? That answer is coming up.


MATHISEN: Senate Democrats are looking to fast-track legislation to
extend jobless benefits to the more than million Americans who saw their
long-term unemployment benefits expire just five days ago.

Gene Sperling, director of the National Economic Council and the
assistant to the president for economic policy, says that ending those
benefits right now is bad for the economy.


have never cut off emergency unemployment benefits when long-term
unemployment was this high. So, to simply allow 1.3 million workers and
their families to lose their benefits between Christmas and New Year`s
really is not — doesn`t reflect either economic common sense or our
values. And over the course of the year, it will be 4.9 million people who
will be affected.


MATHISEN: Senate Majority Leader Harry Reid is looking to put a bill
up for a vote as soon as this Monday.

GHARIB: Transporting crude via rail and not by pipeline has been
gaining traction recently. But now, several rail accidents involving oil
being moved from the Bakken region of North Dakota have thrown that
practice into question.

Jackie DeAngelis reports.


Rail transport for crude supply, a big theme in 2014 as estimates indicate
that rail capacity could grow enough to handle 700,000 to 750,000 barrels
of crude a day.

But Monday`s train derailment and explosion in Casselton, North
Dakota, the third such accident involving crude oil out of North Dakota`s
Bakken shale region have many on high alert. At issue, why unrefined crude
supplies are exploding, which is typically more of a threat after crude has
been refined.

Today, a government agency issuing an alert the type of crude being
transported from the Bakken region may be more flammable than the
traditional heavy crude oil.

Still, the accidents raise a bigger question. Should the focus be on
building out pipelines, which are cheaper and perhaps safer means of
transport? And if so, how quickly can pipelines be built to handle the
increased production out of the U.S. and Canada?

(on camera): The National Transportation Safety Board leading the
investigation into the accidents in North Dakota, but energy traders
watching very closely to see how the accidents could potentially impact
crude oil prices.

appears that, you know, traders are anticipating their oil prices will
continue to move lower as we go through the next few years. But,
certainly, if there were to be some limitations on crude by rail as a
result of these safety issues, we could see the back end of the crude oil
futures curve start to move higher.

DEANGELIS: As we await a decision on the Keystone Pipeline from
Washington and the rail investigation continues, the energy industry
grappling with some of these important issues. Industry experts saying
that more domestic supply is good and it can reduce our dependence on
foreign oil, but we have to figure out how to safely and efficiently
transport the product.



GHARIB: And Continental Resources (NYSE:CLR), this is one of the
biggest producers of Bakken crude oil took a hit on that government safety
alert that Bakken crude may be more flammable than first thought. Shares
dropped more than 4 percent.

MATHISEN: Some good news by contrast for drivers. AAA says it will
cost even less this year to fill up your gas tank. The Automobile
Association of America predicts prices at the pump will fall by a nickel
this year on average to $3.40 a gallon. That`s thanked to increased
domestic production and a decline in exports.

But as always, refinery issues and big storms remain a threat to those
lower gas prices. Apple (NASDAQ:AAPL) rings in the New Year with a
downgrade, and that`s where we begin tonight`s “Market Focus”.

Wells Fargo (NYSE:WFC) lowered its rating on Apple (NASDAQ:AAPL) to
“market perform” from “outperform” based on valuation concerns and fears
that the company`s profit margin will come under pressure when it
introduces the next iPhone. Shares of the tech giant fell almost 1.5
percent to $553 and change.

It was a different story for Bank of America (NYSE:BAC). Shares
popped on an upgrade from Citi. A Citi analyst lifted the bank`s rating to
a buy from neutral and upped its price target, saying the company is no
longer impacted by legacy issues. Citi also expects the bank will be able
to manage cost and grow revenue. Shares jumped about 3.5 percent to

And Macy`s (NYSE:M) and Martha Stewart Living on the media have
settled their legal battle over a breach of contract. As you recall, the
dispute started when Steward begun to sell products at Macy`s (NYSE:M)
rival, JCPenney, despite a product deal with Macy`s. Stewart shares surged
nearly 9 percent on the news to $4.57 but Macy`s (NYSE:M) ended the day
slightly lower to $53.39.

MATHISEN: Urban outfitters shares were higher today because of an
upgrade from Jefferies. The firm upped the retailer`s rating to buy from
hold, saying the chain has done well in a tough environment. The analyst
predicts Urban will get back on track in the New Year. Shares popped
almost 2 percent on this down day, closing at $37.78.

Another upgrade, this one for U.S. Steel. KeyBanc gave the company a
buy rating from hold, saying the stock still has room to run, based on the
firm`s positive 2014 pricing model for carbon hot-rolled steel. Shares
were more than 2.5 percent higher, to $30.28.

And Warren Buffet`s Berkshire Hathaway (NYSE:BRK.A) is increasing its
stake in building products company, USG (NYSE:USG) Corp. According to an
SEC filing, Berkshire is now the largest shareholder of USG (NYSE:USG),
with the 30 1/2 percent stake. The move adds to Berkshire`s bet on the
housing rebound. It also has positions in mortgage lenders and home

USG (NYSE:USG) stock up a fraction, $21.41 was the close, while shares
of Berkshire fell slightly to $117.50.

GHARIB: And this was not the way Samsung, the world`s biggest smart
phone maker wanted to kick off the New Year. Shares of the South Korean
electronics giant, which don`t trade here in the U.S., tumbled today,
knocking more than $8 billion off the company`s market value. Investors
dumped the stock after Samsung predicted slowing profit growth at its
mobile division.

MATHISEN: Coming up, which sectors of the market will hedge fund
managers be focused on this new year? Find out what`s hot and who`s not
for some of the world`s swankiest investors in 2013.


GHARIB: A couple of online security breaches to fill you in on.
Snapchat, the temporary photo and messaging service that a lot of young
people used has been struck by hackers. They published 4.5 million user
names and phone numbers on a public Web site, which since been taken down.
Meanwhile, hackers from the Assad Syrian electronic Army have claimed
responsibility for hacking into Skype. Both its Twitter account and
Facebook (NASDAQ:FB) page, the company, which is owned by Microsoft
(NASDAQ:MSFT) has since retaken control of all its accounts.

2013 may have been a banner year for stocks but the bond market did
take a bit of a beating, and the world`s biggest bond fund, the total
return fund of PIMCO suffered its biggest annual loss since way back in
1994. The $244 billion fund run by the noted manager Bill Gross lost more
than 1.9 percent last year.

GHARIB: Meanwhile, just two days into the New Year, some big hedge
fund managers are focusing in on investment themes for 2014.

Kate Kelly joins us now with a closer look at where some big investors
will be putting their money this year.

So, I know, Kate, you`ve been going around and talking to your
contacts in the hedge fund world. What are they telling you? What are
their strategies?

a little bit of surprise to me after we saw the S&P stock market indicator
up nearly 30 percent last year. But people are still bullish on stocks, I
have to say, and they`re looking at some specific things, which I can talk
about but dividend stocks for example continue to be popular and also
event-driven. That means, you know, mergers and acquisitions that are
about to occur, that the market thinks may occur, that may create some rise
in value later on.

So, there are some specific focal points. But, really, stocks are a
favorable area.

GHARIB: How did they do as a group in 2013? Would I have been better
off in an index fund?

KELLY: Very good question, Tyler. You would and you always would be,
to be honest with you. If you look at the chart I got of the S&P 500
versus the average hedge fund, the hedge fund always under performs the

Now, a defender of hedge funds would say that`s kind of the point.
You don`t want your whole portfolio into a hedge fund. It is a so-called
hedging mechanism. So, it`s a way to kind of diversify your portfolio.

But really, unless you`re with one of the superstar hedge funds which
charge enormous fees in some cases, you`re probably unlikely to beat the

GHARIB: Well, tell us what some of these superstars are doing. I
mean, you know, we look at hedge funds doing things that the average
investors doesn`t do, even the average institution. Is there anything that
surprised you?

KELLY: That`s a good point. And they`re picking spots that you and I
probably wouldn`t pick if we were playing the markets. For instance, there
was a hedge fund manager that sold gold puts. Basically they were very
bearish on gold and made a fortune last year. That was in “The Wall Street
Journal” today.

But going forward again, they are bullish of the stock market.
They`re going to pick specific names. They`re also going to do their
homework on some niche areas. Let`s say emerging markets like perhaps of
Mexico or in Argentina, where they see government debt that maybe
attractive and give you a nice return on your coupon.

In the U.S., corporate debt and other bonds are not attractive.
They`re saying. They just don`t think the rate of return is really worth
the effort.

So, you`re going to see better returns they believe out of stocks and
I think that`s why that`s the focus. That and these niche areas it`s tough
for the average investors to really get into.

MATHISEN: You answered my question on whether an index fund would
outperform, you say yes — at a lower price, too, by the way.

KELLY: Right.

MATHISEN: But that doesn`t mean, as you say, that you want to put all
your money in there.

2013 was the year of the activist hedge investor — Loeb, Icahn, and
on and on. Do you expect that`s going to be the way it`s going to be in

KELLY: I do, Tyler, with a little bit of a twist. People are trying
to soften the rhetoric a little bit and they`re now talking about something
called constructivism as sort of activism.



MATHISEN: Love that.

KELLY: This is a kinder, gentler shakeup of company management. And
I think they`re doing that because it`s becoming so popular and they don`t
want companies to fear them and fend them off.

MATHISEN: All right. Kate, thanks very much.

KELLY: Thank you.

MATHISEN: Happy New Year to you.

And, finally tonight — about 70 million Americans, including the
three people sitting at this table, are already feeling the brunt of or
getting ready for the first nor`easter of the new year. It is expected to
dump upwards of 18 inches of snow from the Midwest to New England,
overnight. If you`re a business traveler or you know someone who is
traveling today, tonight, tomorrow, be prepared for some big delays and to
have a lot of patience, folks.

According to, more than 5,000 flights within or coming
into or out of the U.S. were delayed today and another 1,900 were
cancelled. Let`s hope things get a lot better.

GHARIB: I`m glad we`re not traveling.

MATHISEN: Not traveling.

GHARIB: For those of you who are, be safe.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks
for joining us.

MATHISEN: Thanks from me as well. Have a great night. We`ll see you


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