Transcript: Thursday, January 9, 2014

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


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Not too hot, not too cold. The market is looking for a goldilocks employment report tomorrow that`s just right. And that means what`s good for job creation on Main Street may not be so good for investors on Wall Street.

(NYSE:AA) settles bribery charges with government regulators and misses earnings estimates. But the nation`s largest aluminum producer has a strategy to turn things around.

MATHISEN: Fiscally fit. Why some credit card companies are sending you your credit score along with your monthly bill.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, January 9th.

GHARIB: Good evening, everyone.

So how is the job market these days? Out of work Americans as well as investors and economists everywhere would like an answer to that question.
They`ll find out tomorrow morning when the Labor Department reports how many new jobs were added to the month of December.

Now, expectations are high that American businesses were busy hiring.
An upbeat jobs report could have huge implications for the markets, consumer and business confidence, and Federal Reserve policy.

Sara Eisen has a preview of what to expect.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hopes are rising for strong number in tomorrow`s monthly jobs report. In the last 48 hours, economists have been upping their forecasts for December from 191,000 to 200,000. The unemployment rate is set to stay steady at 7 percent.

Fuelling the optimism, a surprise positive read on private sector hiring, the highest since November 2012. And today`s report showing the number of Americans filing new claims for unemployment benefits fell last week, pointing to fewer layoffs.

JOHN CHALLENGER, CHALLENGER, GRAY & CHRISTMAS CEO: Even though health care cut jobs, we know that`s a long-term job creator in this country.
Jobs are consistently created there month after month. Professional and business services has been taking off. There are many sectors of the economy right now that are adding jobs.

EISEN: The reports on consumer confidence, spending, industrial production and employment all point to an economy gaining steam. In an interview with “Time” magazine, incoming Federal Reserve Chairman Janet Yellen she`s hopeful that growth will accelerate in 2014, to reach 3 percent or more.

It`s why the Federal Reserve has started scaling back or tapering its massive stimulation program. But the Fed makes trading the jobs report more complicated. Why? If Friday`s number is too strong, the stock market may not like it. Seeing better job growth as a sign the Federal Reserve may pull back more on its Q.E. In other words, more aggressively taper.

BARRY KNAPP, BARCLAYS HEAD OF U.S. EQUITY PORTFOLIO STRATEGY: We do think the market`s vulnerable to a pullback related to tighter financial conditions. So, a strong report tomorrow, long-winded way of saying that good is going to be bad tomorrow.

EISEN: That said, anything better than 200,000 could cause that negative reaction. Of course, everybody has their own idea of what a good number is.

UNIDENTIFIED MALE: I think a good number for jobs is going to be plus anything above 235.

UNIDENTIFIED MALE: 225 or above.




MATHISEN: Well, with anticipation building about that Friday jobs report, volatility was sort of low on Wall Street today and the markets ended the session mixed, little changed. The Dow closed 18 points lower, the NASDAQ touched a fresh 13-year high before retreating and finishing the day nine points lower. The S&P bucked the trend, closing fractionally higher on the day.

GHARIB: Joining us now to talk about all of these issues, we`re happy to have with us Mario Gabelli. He`s chairman of Gabelli Funds.

So, Mario, you heard all of the numbers that are being spouted —
215,000 jobs, 230,000 jobs. What`s your number and how important is it for you about your investing strategy?

MARIO GABELLI, GABELLI FUNDS CHAIRMAN: We don`t think about it, because it`s not an important element to focus on. What`s important is the flow of the economy. The private sector is doing better. The consumer — balance sheet is good. Jobs are getting better. Psychology is better.

The investment sector which is important, non resident (ph) is improving, capital expenditures are coming in. And housing I think even with interest rates going up will continue to do well, particularly single family.

And then finally, Susie, federal government has slowed down but state and local is vibrant. Receipts are good and exports are better.

So, the economy is going to do well in 2014.

GHARIB: Are you going to give us a number on that job?

GABELLI: No, I don`t have one.

GHARIB: You don`t have one.

GABELLI: I don`t to that.

MATHISEN: It`s not what you do.

Some people are worried when they look at the first six or seven trading days of the year and they see some stumbles compared with a month ago. Are you concern about that or is that just noise?

GABELLI: No, it`s the January effect. You sell the winners in early January, you stop buying the ones that you wanted to window dress. The losers of last year become the winners in the first two or three days.
That`s background noise.

I think the market for the year is going to be — have a decent year up 3 percent or 4 percent or 5 percent. And that is very good. I was wrong last year because I said it would be a 5 to 10, and swoosh it was up 30.

MATHISEN: Let you be that wrong again this year.

GABELLI: I have no problem in being that wrong on that side of the equation.

GHARIB: So, Mario, you are a value investor. How hard is it for you to find value in this market?

GABELLI: Well, we look at lots of companies where we have intellectual analysts look at small and large cap, Susie, and there are so many yummies out there. We can find good ideas.

Sectors we liked the last five years, last night I was on your show.
We talk about commercial aviation. Then there`s the Boeing (NYSE:BA) and Airbus. That is going to continue to be bright. Companies in that area including Curtis Wright, Crane (NYSE:CR), Precision Castparts (NYSE:PCP), so on.

Energy — energy is very vibrant. It`s good for jobs in the United States. It`s good for our competitive advantage. It`s good for our balance of payments. It`s good for our political stability.

And companies in that area like national fuel and gas, like weather- ford, are two of those that I have culled through. Weatherford is still bumbling on the bottom.

Management`s not done a good job of convincing the world they got a turnover. They have a wonderful assets.

MATHISEN: Last time we were together, you were talking similarly enthusiastically about the energy sector. You really see it as a transformative industry in this country over the next 30 to 40 years, don`t you?

GABELLI: Tyler, I read things like the inland waterway trend. The number of places that are creating jobs on the rivers, like catalytic converters, like fracking and technology, American technology is at work.
It is a major game changer.

GHARIB: All right. You`re known for doing a lot of media investing.
Tell us anything in the media area that you`re interested in. What are you watching?

GABELLI: Well, there`s a whole bunch. It`s content and distribution.
Content is those companies that produce films, that produce — and there are more windows particularly with regards to the mobile devices.

Susie, there are 7 billion people, 3 billion mobile devices out, somebody will fill in the right number. They want content. So, if you`re Fox or Viacom (NYSE:VIA) or someone else on a global basis, you take it there, sell is here, this is terrific. Absolutely a game — so Viacom (NYSE:VIA), Discovery Channel, two I like among others. I own most of them. And they`ve done extremely well.

But distribution companies are also in favor. Right now, there`s kind of a love making in the works between John Malone, with regards to what he`s done with Sirius, to merge it into liberty media and use that as a currency to help him figure out what to do through charter with Time Warner (NYSE:TWX). And Cablevision`s kind of the perennial, who — you know, attractive company in that regard.

MATHISEN: Do you see those large integrated cable companies, some of which are both content creators, like Comcast (NASDAQ:CMCSA) (NYSE:CCS) or Time Warner (NYSE:TWX) — Time Warner (NYSE:TWX) Cable has not been spun out of Time Warner (NYSE:TWX), but some of which are content creators as well as distributors, as well as telecom companies. Do you see that business model enduring or will eventually some of those companies break up?

GABELLI: You know, 1973 it was called the primetime axis rule. The broadcasters controlled the programming on primetime. And they had to spin them off. That`s how Viacom (NYSE:VIA) got created, OK? Time Warner
(NYSE:TWX) went — Jeff Buchus went the other way. He spun off his cable.
Keep the content, stocks cheap, interesting, and they`re spinning off the publishing business. You have Comcast (NASDAQ:CMCSA) (NYSE:CCS) going the other way, buying from G.E., the balance of NBC.

The answer is in the free market, in the free market that we have in this country, managements could make mistakes, they can structure the balance sheet and they can make opportunities. So far, both Time Warner
(NYSE:TWX) and Comcast (NASDAQ:CMCSA) (NYSE:CCS) have been winners.

GHARIB: You`ve been saying that this could be a very good year for acquisitions. Besides this whole Time Warner (NYSE:TWX) love fest that you`re talking about, what else — what other tips can you give our viewers?

GABELLI: Well, I don`t like to give tips. But within the context of what I like, financial engineering, in which companies spinning off companies. For example, Time Warner (NYSE:TWX) finishing off the publishing business. There would be a lot of spinoff. National Fuel and Gas has a model out there called (INAUDIBLE) where they`re spinning off the utility business.

NFG sells at $70, Susie. If gas stays at $4, MCF natural gas, this stock would make up 50 percent. And it`s a utility with wonderful assets in the Marcellus area and in the Utica area.

So, other companies like that would be mergers of pet boys in the auto parts area, Federal Mogul is an example which split up into two parts eventually. They will split. Carl Icahn owns 81 percent, our clients own a piece, and everything I talk about our clients own.

GHARIB: I hope everybody was taking notes on all this. A lot of good information as usual.

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

GABELLI: Great to be here with Tyler and yourself, Susie.

MATHISEN: Nice to see you, Mario.

GHARIB: That`s Mario Gabelli of Gabelli Funds.

MATHISEN: Well, it`s no longer a member of the Dow. So, aluminum giant Alcoa (NYSE:AA) can only unofficially kick off the new earnings season and it did so after the bill today, but not before making big news about settling civil and criminal bribery charges. More on that in just a moment.

Meantime, for the just completed quarter, Alcoa (NYSE:AA) reported a net loss of more than $2 billion because of depressed aluminum prices and after writing down the value of smelting operations. Alcoa (NYSE:AA) pulled in 4 cents a share. That however is 2 cents shy of estimates even though revenues did beat Wall Street forecasts. Shares initially lower as you see there in late trading.

Morgan Brennan now on Alcoa`s fine and the company`s new strategy in a changing industry.


Alcoa (NYSE:AA) making headlines today and not just because the aluminum giant reported its company earnings. The company settling with the SEC and DOJ after a subsidiary was charged with bribing officials in Bahrain. The resulting $384 million deal becoming the fourth largest settlement under the Foreign Corrupt Practices Act.

KLAUS KLEINFIELD, ALCOA CHAIRMAN & CEO: We have been able to negotiate it in such a way it puts less on financial stress on the company, it`s getting paid over four years. So, that`s good. We can put this behind us.

BRENNAN: Significant certainly, but it may be overshadowing an even bigger story for Alcoa (NYSE:AA) and for the aluminum industry as a whole, business diversification. Experts say Alcoa (NYSE:AA) has been on the forefront of this trend.

ANDREW LANE, MORNING STAR EQUITY RESEARCH: It`s simply no longer appropriate to think of Alcoa (NYSE:AA) as simply an aluminum pure play.

BRENNAN: The price of aluminum has tumbled, down about 37 percent from its 2011 peak. And it`s taken shares of aluminum producers down with it. But companies like Alcoa (NYSE:AA), Rio Tinto and Rusal have been expanding into operations less vulnerable to those lower prices, cutting down smelting operations and focusing on aluminum product manufacturing.

Companies that used to be pure aluminum plays now build things like truck wheels, industrial gas turbines and auto body panels. They`ve even been looking beyond aluminum into nickel and titanium products for use in aircraft. That shift has helped the bottom line with Alcoa (NYSE:AA) beating analysts recent earnings expectations because of those new revenue streams.

In fact, the company`s diversification accounted for 57 percent of total revenues and 79 percent of after-tax operating income through the first three quarters of 2013. And analysts expect other aluminum players will follow Alcoa`s lead.

LANE: Given the success they`ve had diversifying I think they`re providing a blueprint that some of their peers are going to follow. So I wouldn`t expect — I would expect a lot of their peers to follow suit and make efforts to diversify as well.

BRENNAN: That diversification as well as the fact that some producers have been closing down or selling off aluminum-related assets is powering what some experts believe will be a massive industry consolidation. And with an economy that`s continuing to improve, analysts think the new trend could lead to even more competition in the aluminum space.



MATHISEN: Still ahead, want to know your credit score? Why more credit card companies are offering to give it to you for free.


MATHISEN: Energy prices are falling again. Crude oil settled at an eight month low today, down 61 cents a barrel to $91.66. And oil wasn`t alone. Natural gas prices fell more than 4 percent today on forecasts for above normal temperatures across much of the country over the next week.

Meanwhile, an encouraging outlook today about U.S. energy independence from someone who really knows. Exxon Mobil (NYSE:XOM) CEO Rex Tillerson says by the year 2020 the U.S. may not need any imports to meet its energy needs.


REX TILLERSON, EXXON MOBIL CEO: We`re already the world`s largest natural gas producer. We`re producing last year, our crude oil production surpassed levels not seen since the 1980s. And it`s expected that we`ll continue to add to crude oil production capacity over the next two or three years. So, I think — I think it is realistic that the U.S. could be energy self-sufficient, energy secure by the end of this decade.


GHARIB: Tillerson also said that China`s gas shale reserves could actually be bigger than those in the U.S., but the gas is burned much deeper there and it`s located in remote areas where there`s just not enough water available to extract it efficiently.

MATHISEN: A lot of investors here at home are looking to strike it rich, but not in oil. Instead they`re looking for big growth and big returns in technology start-ups. And some of those start-ups are saying their valuations strike it big.

Josh Lipton has more now.


Investors are always looking for the next big thing. Facebook (NASDAQ:FB) and Twitter shot higher after going public. Those stocks are up 50 and 110 percent respectively.

Venture capitalists are now piling into private Silicon Valley companies, sending their valuations well above $1 billion.

“The Wall Street Journal” reports the valuation of Palantir has ballooned to $9 billion. Box, the data storage company, is at $2 billion.
Pinterest is at $4 billion. Facebook (NASDAQ:FB) was willing to pay $3 billion for Snapchat.

But were do these numbers come from?

DYLAN TWENEY, EDITOR-IN-CHIEF VENTURE BEAT: It`s a little bit of a black art and I think —

LIPTON: Dylan Tweney of Venture Beat who covers venture capital says investors are willing to pay more because they`re worried about missing out on potentially huge returns.

TWENEY: It`s not like there`s a formula you can apply or a computation you can do that comes out with the number. I think a lot of what we`re seeing right now is a product of just a lot of investor enthusiasm for technology start-ups. There`s a lot to invest in. There are a lot of companies doing really interesting things, and investors don`t want to miss out, so they`re willing to pay a higher price.

LIPTON: Andreessen Horowitz and other V.C.s say a lot of companies are staying private longer. That means start-ups are bulking up their revenues, which also sends their valuations higher.

Companies in the public markets play a role in the valuation game as well. Professional investors try and model out what a private company could be worth based on the performance of a successful public company with similar financial characteristics.

Tweney mentions another reason for the run-up in valuations, competition among V.C.s, or chasing fewer good ideas.

TWENEY: There are V.C. firms that have raised enormous war chests, like Andreessen Horowitz in particular. And with that much capital in the market, chasing so few opportunities to invest it, that`s going to tend to drive prices up.

LIPTON (on camera): Academics and those working in Silicon Valley say there isn`t another bubble brewing here per se, but there`s no question that some of these pre-IPO valuations are in part based on hype, not fundamentals.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


GHARIB: A lot of hype and shares of drugmaker Intercept Pharmaceuticals today, it almost quadrupled in a matter of seconds. And
that`s where we begin tonight`s “Market Focus”. Now, one of Intercept`s
drugs which treats a type of liver disease was found effective in a mid- stage trial. This paves the way for it to become the first approved treatment for that condition. The stock rose 281 percent to 275.87.

Now, to put that move into perspective, the stock gained 203 points today. The Dow Jones Industrial Average, an entire index, has gained that many points only three times in the past three months.

Meanwhile, shares of Ford were on the move today after the automaker raised its quarterly dividend by 25 percent. This is the second time in two years that Ford has increased its dividend thanks it says to its strong financial condition. Shares rose almost 2 percent to $15.84.

Now, a slew of retailers had bad news for investors. Sears
(NASDAQ:SHLD) reported a major loss after today`s market close. Sales fell a sharp 9 percent during the holiday season, continuing the company`s long period of decline. Sears (NASDAQ:SHLD) warned investors of losses in the fourth quarter as well. Shares plunged in after-hours trading, during the regular session, Sears (NASDAQ:SHLD) fell 3 percent to $42.57.

And shares of L Brands also tumbling today. This is the parent company of Victoria Secret and Bath and Body works. It reported sluggish December sales, blaming it on heavy promotions. The retailer cut its earnings guidance because of that poor performance. The stock fell 4 percent to $57.75.

MATHISEN: It was the same story at Pier 1. Home furnishing retailer cut its full year forecast after what it called extremely disappointing December sales. The company said winter weather was partly behind that weakness. The stock plunged 12 percent today to $20.44.

Costco (NASDAQ:COST), on the other hand, broke the weak holiday mold.
The wholesale club saw same store sales jump 3 percent in December, beating estimates. The units that performed well were garden, apparel and home furnishings among others. Shares up nearly 4 percent today to $118.51.

Struggling teen retailer Abercrombie and Fitch (NYSE:ANF) boosted its full year outlook. The company said holiday sales were actually higher than expected and the company expects ongoing cost reduction efforts to help results. Shares surged after hours as you see on that dramatic chart.
Through the regular session the stock was slightly higher, finishing at $33.21.

And reports of strong December traffic helped lift shares of American Airlines and United Continental. Both airline operators benefitted from a late Thanksgiving which meant more passengers traveling for the holiday were flying in December when the weekend ended on December 1.

United was surprisingly helped by canceled flights in December.
That`s because they squeezed the same number of passengers on fewer aircraft. United also said they expect fourth quarter traffic and capacity to increase.

Shares of American Airlines up 6.5 percent, $29.42 to close there.
Shares of United Continental rose more than 6.5 percent to $43.80.

Now that the holidays are over, some credit card customers are getting their bills and they`re seeing something new on those monthly statements.
Something that could help them better manage their spending and saving.

Sharon Epperson explains.


SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers often resolve at the start of the New Year to do a better job managing their finances. Some credit card companies say they`re aiming to help by including a key piece of information on their customer`s monthly bill.
Their credit score.

ROGER HOCHSCHILD, DISCOVER PRESIDENT & COO: It`s like knowing your cholesterol level. Once you know it, then you can figure out how it stands. And we provide information so people can see is it a good score, is it a not so good score. And then we also provide them with information on what they can do to improve their score.

EPPERSON: Your credit score can determine whether you get a credit card, car loan, mortgage, and at what rate. Utilities, mobile phone carriers, insurance companies, even your landlord can have access to it.
Yet, less half of consumers know their credit score.

Discover is the first major credit card issuer to provide free FICO credit scores on monthly statements, making it available to each of its 10 million card members by the end of February. It hopes to build customer loyalty and attracting new customers.

FICO is the credit scoring formula most widely used by U.S. lenders.
Barclay card and First Bank card are also providing free FICO scores to their customers. And more card issuers could do the same.

ANTHONY SPRAUVE, FICO SENIOR CONSUMER CREDIT SPECIALIST: The program is open to all lenders, whether it`s a mortgage company, a bank, or auto financing company.

So, anybody that`s supplying credit and purchasing a FICO score can now make that score available to their consumers directly.

EPPERSON: FICO charges $19.95 for a single score. There are a few Web sites including and offer free credit scores, and knowing that number can make a difference.

KENNETH LIN: The rationale is if you`re actually taking the time and effort to look up your score, then on the average you`re going to be slightly better consumer all else equal.

EPPERSON: But will putting the credit score directly on the credit card bill significantly improve consumer behavior reducing late payments and defaults? Discover says it`s too early to tell. Other card issuers may wait for the answer before following suit.



GHARIB: And coming up next, seeing green now that recreational marijuana use is legal in Colorado. Will it translate into big bucks for the state?


MATHISEN: Officials in Colorado are hoping to count big tax revenues from pot. One week after legalizing recreational marijuana, business there is hitting a rocky mountain high. So what will that mean for the state`s coffers?

Our Jane Wells reports.


JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A tour of marijuana grow houses in Colorado. This is now a thing.

One tourist is Texas finance major Phillip Fruge who`s contemplating a career here post-graduation.

PHILLIP FRUGE, POT TOURIST: I would become a consultant and sort of consulting and see if you could create a little more efficiency in the whole process from grower to production to the store — brick and mortar store.

WELLS: Colorado is throwing out the welcome mat to tourists in its new joint venture, charging taxes on recreational pot well over 25 percent.
The industry estimates $5 million worth of adult use marijuana was sold in the first five days which means well over 1 million bucks in taxes. But that could hit a roadblock.

NORTON ARBELAEZ, RIVERROCK WELLNESS CENTER: Colorado is running out of pot. That might be the headline to the story. But as you see around us, there`s a lot more behind it.

WELLS: Demand has turned out to be much higher than expected. With legalized recreational growing still getting up to speed, pot sellers have been allowed to use some of their medical marijuana supplies in a one-time transfer but it hasn`t been enough.

(on camera): Is this place going to run out of pot, at least in the short term?

DAVID MARTINEZ, 3D CANNABIS CENTER: In the short term, we will.

WELLS (voice-over): David Martinez at the 3D Cannabis Center saw long lines New Year`s Day, but this place had to shut down two days this week to restock.

MARTINEZ: We hope by the end of summer, we could be caught up. But it could be a year. It could be two years.

WELLS (on camera): How much are prices going up because of scarcity?

ARBELAEZ: About 200 percent.

WELLS (voice-over): Norton Arbelaez of River Rock Wellness Center sells medical marijuana, but he won`t sell recreational pot for another month as he tries to build up inventory. And he needs money to expand.

ARBELAEZ: We don`t have access to traditional banking. And so, actually, finding the financing to capitalize businesses and increase infrastructure has been very, very difficult. We have to go to private equity. We have to go to venture capital.

WELLS: In the end, though, it could mean big bucks for the state, tax revenues which may be more addictive than any drug.

PETERSON JOHNSON, COLORADO GREEN TOURS: I don`t think that anybody has any idea how big this is.



GHARIB: And finally tonight, a new study shows that for the first time in history, more than half the members of Congress are millionaires.
The Center for Responsive Politics says of the 534 members currently in the House and Senate, at least 268 of them had an average net worth of $1 million or more. That`s just over 50 percent.

Now, topping the list, the richest member of Congress, Republican Congressman Darrel Issa of California. He`s chairman of the House Oversight Committee. He made his fortune in the car alarm business and is worth $464 million.

MATHISEN: Wow, that`s amazing. More than half are millionaires now.

GHARIB: And the Senate richer than the House, Republicans richer than Democrats. Just saying.

MATHISEN: All right.

GHARIB: No political commentary.

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

MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody.
We`ll hope to see you back here 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.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply