Transcript: Monday, March 3, 2014

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

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Investors on edge. And they are selling stocks as the conflict with Ukraine and Russia escalates. What happens next? Is there anything the U.S. can do? And what does it mean for your money?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Warren Buffett speaks. What does the world`s famous investor think about the crisis a half a world away? We talk to him about that, the economy and much, much more.

GHARIB: Sales stall. Winter storms kept car shoppers at home for the second straight month. Will dealers offer big incentives to get would-be buyers back in the showroom?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March 3rd.

MATHISEN: Good evening, everyone. Alongside Susie Gharib, I`m Tyler Mathisen.

Stocks sold off all around the globe today as jittery investors reacted sharply to the conflict between Russia and Ukraine. All three major U.S. indexes had the worst one-day slides in a month, taking a queue from those overseas markets. The buildup of Russian troops in Ukraine over the weekend sparked a stern condemnation from the White House.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: What cannot be done is for Russia with impunity to put its soldiers on the ground and violate basic principals that are recognized around the world, and I think the strong condemnation that`s received from countries around the world indicates the degree to which Russia is on the wrong side of history on this.

(END VIDEO CLIP)

MATHISEN: As Russia tightened its grip on Ukraine`s Crimea region, it was risk off in the equity markets with Russia`s own stock market tumbling 12 percent and Russia`s central bank was forced to hike interest rates to keep the value of its falling ruble from plunging even more.

Volatility spiked at exchanges around the globe as investors pulled money out of higher risk stocks and switched cash into theoretically safer physical commodities.

The price of gold hit a four-month high. Crude oil shot up more than $2 a barrel, ending just shy of $105.

The Dow was down as much as 250 points early in the session but it battled back and ended just, just 153 points lower. The NASDAQ lost 30 and S&P 500, which just reached an all-time closing high on Thursday, was down 13.

GHARIB: While the threat of military action heats up, officials in Ukraine`s capital try to find a diplomatic solution to the stand off and to look for immediate relief for the country`s growing financial crisis.

Steve Sedgwick has more from Kiev.

(BEGIN VIDEOTAPE)

STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the ground here in Kiev, the Ukrainian capital on Monday, the pro-Western government reiterated its support for a peaceful and negotiated solution to the current political crisis which is seen Russian military occupation in the Crimea.

I spoke to the prime minister of the Ukraine today who said to me he was willing to rebase the relationship with Russia, but on the proviso that there was no more military action in the Crimea and indeed Ukraine territory.

The second crisis in this country is a financial crisis. And indeed, the economy minister admitted to me today that the coffers were essentially empty, but the country was down to its last $15 billion of international foreign exchange reserves, but he remained hopeful that with the IMF in town and due to begin negotiations on Tuesday that a deal could be reached in four to five days.

For NIGHTLY BUSINESS REPORT, this is Steve Sedgwick in Kiev.

(END VIDEOTAPE)

MATHISEN: With Russia already suffering financially from its move into Ukraine, the threat of economic sanctions from the U.S. and perhaps from other nations, as well, could have a more serious impact on Moscow.

Our Steve Liesman takes a look now at what economic leverage the U.S. and its allies may have against Russia.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The U.S. has little economic pull to force Russia to give up Crimea, but some experts think it may not need it. The early conclusion is that the fall of the pro-Russian government made Russian President Vladimir Putin look weak and invaded to respond to criticism inside the Kremlin and the country that to have a card in the future course of Ukraine.

But ultimately, experts say occupying the Crimea or any part of Ukraine is at odds with Putin`s best interest and the best the West can do is help him figure that out.

Former NSC Russian analyst Tom Grahm, now a Kissinger associate, says Russia for many decades has wanted a Ukraine that is not in western orbit. Annexing Ukraine or any other part of the country forces what`s left of Ukraine toward the west and creates a volatile country on Russia`s doorstep.

DAVID GORDON, EURASIA GROUP CHAIRMAN: The U.S. and Western strategy is two-fold. One, it`s to put some pressures around the edges on Russia commercially and diplomatically kick them out of the G8. Then you come in with an IMF program and with direct support to enable the Ukrainian government to solidify itself.

LIESMAN: In addition to that, a senior administration official added, quote, “the other part of the strategy is to offer him a way out. At every juncture, there is an off-ramp for Russia if they choose to deescalate.” That means the best response could be a united Western political front that agrees ultimately to national elections for president and for parliament. If there is escalation, it could come in the form of trade sanctions, banking restrictions and military and intelligence aid to Ukraine.

But severe banking restrictions such as those impose on Iran and North Korea would take a long time to work and will be much harder to unify the West around them. So options are limited and a potentially limited effect. The hope is that Russia decides on its own, that holding Crimea is not in its interest.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: Well, despite the political turmoil in Ukraine, our guest tonight says the instability there will not weigh on the stock market here.

He`s Andres Garcia Amaya, global marketing strategist at JPMorgan (NYSE:JPM) Funds.

Andres, nice to have you with us.

Let me begin by just asking — why aren`t you worried and are you confident enough to tell and advice investors to buy on the dips?

ANDRES GARCIA AMAYA, J.P. MORGAN FUNDS GLOBAL MARKET STRATEGIST: So, the first thing I would say is short-term, I am worried. This situation is very fluid and it could escalate before it deescalates.

But if you`re a long-term investor, if you`re not trying to invest for the next week but you`re trying to invest for the next three years, next five years, we don`t think that the issues in Ukraine are systemic for either the European economy or the U.S. economy. And that`s our base case, right?

And based on that assumption, we think the U.S. equity market will be fine and European equities will be fine in the long term. The short term, sure, this is a risk off environment and it might actually see more volatility over the next few weeks.

MATHISEN: I assume, Andres, Russia is included in the emerging markets and its stock market was down 12 percent or so today. If you`re in a general emerging markets fund, you`re going to feel it, though, aren`t you?

AMAYA: Absolutely. I think short term you`ll see — you`ll take a hit there and you`ll probably take a hit in the next couple weeks. Having said that, this is also going to create some opportunities for long-term investors because not all these countries that are put in the emerging market index are the same.

For instance, Indiana is in the emerging market index is one of the countries that I favor at this point over the next two or three years, yet, it was down 1 1/2 percent. It doesn`t have a lot to do with Ukraine or Russia, the economy doesn`t. Yet, it was down, right?

So it should create some opportunities. You need to differentiate between the risk and the opportunity.

GHARIB: So, what kind of investment changes should investors make? There`s emerging markets, you just talked about that. A lot of investors have stock in big U.S. multinationals that have a lot of trade with Europe, which would be impacted by this Ukrainian situation.

So what kind of investment move should investors make in their portfolios?

AMAYA: So, I think your strategic portfolio should not change based on the Ukrainian situation, right? If you sell now, then you have to have — then you have two tough decisions, one, do I make the right decision selling, and when do I have to reenter the market, right? So, for long-term investors, we still believe staying invested is the best avenue to go.

Obviously, you need act of management, you need people that understand what is happening on the grounds and make those tactical decisions. But when it comes to the long-term investment horizon, if you try to retire one day, the situation in Ukraine should not change your overall portfolio.

MATHISEN: Talk to me about commodities scenario, gold up today, oil higher, net gas has been on a rollercoaster.

AMAYA: Yes.

MATHISEN: What`s next?

AMAYA: Yes. So, one thing to note because a lot of people are concerned about natural gas specifically. If you think about Ukraine, why it matters so much to Europe is a conduit for them to get Russian natural gas, right? So, the good news here is that Europe, unlike the United States had a mild winter. They actually have a ton of inventory, more than 20 percent they do by this point.

So, natural gas in the short term could see a spike. But when it comes to supply constraints, Europe should be OK and as we know here in the United States, we have a lot of natural gas that we`re producing that we actually might end up exporting to Europe at one point if Russia continues to escalate this situation in Ukraine.

GHARIB: So, Andres, you heard our report from Steve Liesman. So, it seems unlikely that there will be any kind of trade sanctions or banking restrictions. But what if? What if something like that does happen? What advice would you be giving investors?

AMAYA: The advice that I mention earlier, right? This could get worse before better. Very fluid situation, I can`t really predict what the next 24, 48 hours will give you.

But at the end of the day, if you think about the next two or three years, this really shouldn`t change the picture, right? And something that was mentioned earlier that I think is key. The pressure on Russia could come from the markets.

Just to put this into perspective. It was mentioned earlier that Russian equities were down 12 percent. That`s over $50 billion of market capitalization. That is gone, right, overnight. That is more money that Russia spent in the Olympics, right?

So, this will put pressure on Putin, maybe not the U.S. directly through policy, but the markets at times put pressure on these types of situations, as well.

GHARIB: All right. Andres, fascinating discussion. Thank you so much.

Andres Garcia Amaya, he`s global market strategist at JPMorgan (NYSE:JPM) Funds.

MATHISEN: Still ahead, when stocks sale off, like they did today, what does legendary investor Warren Buffet do? The answer and his take on everything from the economy to the stock market, straight ahead.

(MUSIC)

MATHISEN: Americans made more money in January. Despite all that harsh weather, we spent even for of it. The Commerce Department says personal income rose 3/10 of 1 percent in January following no increase at all in December. But spending was up by 4/10 of 1 percent that month, mostly on higher energy prices, while spending in December which included the heart of the holiday shopping period was revised lower.

Separately, factory activity rebounded from an eight-month low last month as new orders bounced back.

GHARIB: Warren Buffett, the nation`s best known investor, famously said investors should be fearful when others are greedy, and greedy when others are fearful.

So, how does the Oracle (NASDAQ:ORCL) of Omaha see the market right now, especially with tensions in Ukraine making many investors fearful?

Becky Quick talks with him about that, but started with the other big issue on investors mind, the U.S. economy.

(BEGIN VIDEOTAPE)

WARREN BUFFETT, BERKSHIRE HATHAWAY CHAIRMAN & CEO: We`ve had this moderate but consistent growth now for four and a half years and every now and then, we get excited about a speeding up, and every now and then we start worry about a double dip.

We haven`t gotten wildly optimistic and wildly pessimistic. But over that period, its small waves of optimism and pessimism. And really, they — there`s just been a pretty darn study improving.

BECKY QUICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: You also revealed something in the annual letter this year, where you said — you laid out the terms of your will, what you set aside for your wife. I didn`t know any of this.

BUFFETT: I laid out what I thought the average person, who`s not an expert on stocks, should do. And my widow will not be an expert on stocks and I want to be sure she gets a decent result.

She doesn`t need to get a sensational result. Since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that`s left? Part of it goes out right, part goes to a trustee.

But I told the trustee to put 90 percent in an S&P 500 index fund and 10 percent in short term government. And the reason for the 10 percent in short term in government is that if there`s a terrible period in the market and she`s withdrawing 3 percent or 4 percent a year, you take it out of that and instead of selling stocks at the wrong time.

She`ll do fine. Anybody will do fine with that. It`s low cost. It`s in a bunch of wonderful businesses, and that takes care of itself.

QUICK: You specifically set a vanguard index, which caught attention.

BUFFETT: Yes, right. Yes, well, it`s a very, very low-cost index fund.

QUICK: In the letter to shareholders, you did layout something that`s been on the horizon that you are concerned about, and that`s what is happening with pension funds, the promises that have been made.

BUFFETT: Well, the government pensions aren`t the problem. The private pensions are. The government has the power to tax, and it has the power to print money. We are not in a dangerous U.S. fiscal situation.

We — at some — we have to quit having our debt grow as a percentage of GDP. It made sense to have it happen during — when things were terrible five years ago, but we can have a deficit, which creates more debt but not at a rate that grows faster than GDP grows.

The trend is wrong. There is a danger if that goes on, although a lot of countries have gone far beyond what we`ve gone. I don`t like to see it go up as a percentage of GDP. But this country is in wonderful shape.

QUICK: And, finally, just looking at the stock market today, there have been a lot of people nervous about what`s happened in the situation with Ukraine. You would tell them?

BUFFETT: I would tell them it doesn`t change anything. If you`ve got a wonderful business of your own in Peoria, Illinois, why would you sell it today because of what`s happening in the Ukraine? If you`ve got a farm that`s producing for you, you got an apartment house that`s fully occupied, why would you sell it today because of what`s happened in Ukraine?

The same applies if you have a wonderful — a piece of a wonderful business, or a piece of many wonderful business. People do — they react too much to short-term things and stock market worries, they behave quite rationally when they get another investments.

QUICK: In fact, when prices are down, Buffett says he simply buys more stock. He says that this morning, he checked out the price of a stock he had been buying in London last Friday, if prices drop like we`ve been seeing, he says he`ll just buy more.

For NIGHTLY BUSINESS REPORT, I`m Becky Quick.

(END VIDEOTAPE)

GHARIB: And when it comes to specific companies, Buffett said Coca-Cola (NYSE:KO), a major Berkshire Hathaway (NYSE:BRK.A) holding, is facing more headwinds than it was 10 years ago. As for Pepsi, he doesn`t think it should split up as activist investor Nelson Peltz has been advocating. And he said he feels, quote, “fine” with IBM`s CEO Ginny Rometty, and likes the company`s stock buybacks.

MATHISEN: Darden Restaurants (NYSE:DRI (NASDAQ:TBUS)) warns severe winter weather took a big bite out of quarterly sales, and that`s where we begin tonight`s “Market Focus”.

The parent of Red Lobster and Olive Garden estimated a third quarter profit that fell well short of expectations. The company also said its plan to spin off Red Lobster is still on tract, rebuffing two activist investment firms that urged Darden to take other actions to bolster results.

Shares plunged more than 5 percent today, finishing at $48.33.

Pfizer (NYSE:PFE) is hoping to sell an over-the-counter version of its blockbuster cholesterol drug Lipitor. The drugmaker started to test to see if it`s safe for patients to take Lipitor without doctor guidance. If approved by the FDA, this would be the first statin available without a prescription. Shares were off slightly nonetheless to $31.98.

Shares of Dendreon (NASDAQ:DNDN) surged on news the drugmaker will launch its prostrate cancer vaccine over in Europe. The drug will first be available in the U.K. and Germany. But an exact release date has not been set, unless that helped investors shrug off weaker than expected fourth quarter results and the stocks surged almost 15 percent to $3.31.

Investors sold shares of Citi today on news of an investigation by a federal grand jury over the bank`s compliance with anti-money laundering and bank secrecy laws. Citi received subpoenas just a few days after it announced its Mexican banking unit had been defrauded of as much as $400 million. Shares fell 2 percent, closing at $47.61.

Microsoft (NASDAQ:MSFT) shares fell on some news of changes in top management. New CEO Satya Nadella has tapped Mark Penn to head up Microsoft`s strategy unit. He`s a former Clinton family aid and a Microsoft (NASDAQ:MSFT) executive vice president overseeing advertising and strategy. Two executive vice presidents will also leave the software company.

Shares were down more than 1 percent to $37.78.

Mens Warehouse and Jos. A. Bank are one step closer to a possible merger. The two retailers agreed to exchange confidential information to work toward evaluating a combination. Now, Mens Warehouse also said it received a draft merger agreement from Jos. A. Bank.

Shares of both companies rose slightly today. Mens Warehouse closed at $54.10. Jos. A. Bank at $62.30.

And FedEx`s freight business will increase shipping rates by almost 4 percent at the end of the March. Just last month, FedEx (NYSE:FDX) increased its domestic express shipping rates. The hikes come as the company faces a shift towards cheaper shipping services. Shares rose a fraction to $133.38.

MATHISEN: And an update now on the story on the frigid weather. We brought you this story recently here on NIGHTLY BUSINESS REPORT.

The Great Lakes are now more than 90 percent covered in ice, that is the most ice cover in 34 years. I`m cold just looking at it. With a massive arctic front forecast to the area over the next few days, climatologists predict the ice cover will set a new record this week, topping 95 percent and the potential economic impact could be enormous as 20,000 tons of cargo including coal, fuel, iron ore, need to get through the lakes during these winter months alone.

GHARIB: Well, speaking of the cold weather — coming up, how much did the bitter cold stall sales of new cars last month and what might happen when the temperature warms up?

(MUSIC)

MATHISEN: Apple (NASDAQ:AAPL) is driving a brand-new product in some high end new cars. The tech giant`s automobile infotainment system called Car Play will make its debut this week in new vehicles from Ferrari, Mercedes Benz, and Volvo. Car Play allows iPhone owners to make calls, access maps, get directions, listen to music and respond to text messages, all at the push of a button located on the steering wheel.

GHARIB: Well, no matter how many of those high-tech gadgets there are aimed at boosting new car sales, there were no match for the bitter cold weather and pounding snowstorms that kept a lot of would-be buyers at home last month. The nation`s two biggest automakers GM and Ford both saw sales declines in February. Sales of Chrysler, though, surged 11 percent on big sales of Jeeps and Dodge Ram pickups.

Phil LeBeau joins us now from Chicago with more on who won, who lost and if automakers expect business to pick up when the weather turns better.

Phil, let me start with the weather. Is it really the weather that caused these sale declines or something else going on?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: No, I think it is the weather, Susie. When you talk with dealers, and I talk to the number of them around the country, they`re just not seeing the traffic especially on the really cold and snowy days. When the weather has improved and it didn`t improve a lot in February.

But on those days when it did improve, they saw traffic come back, and that gives them confidence at the end of the day, the buyer wants to come in and buy once they have the confidence to get out into the weather. And let`s be honest, I haven`t wanted to go out a lot here in Chicago and I`m sure you haven`t in New York, either.

MATHISEN: No, absolutely not, Phil. All right. So, are inventories backing up, and will that maybe there will be big deals when people go out again?

LEBEAU: We`re already starting to see better deals in particular segments, pickup trucks is a good example. Actually, the inventory levels for some of the pickup trucks, the most popular ones, actually came down a little bit in the month of February. But we`re still looking at larger than usual inventories and I suspect, Tyler, that as we go through the month of March, if those inventories remain where they are, we`ll start to see more deals.

GHARIB: And how is March shaping up, Phil, and who`s going to win and who`s going to lose in this whole thing? I heard, you know, somebody in the other day saying I`m going to buy an SUV because after these nasty — all these snowstorms, you really want a car that has traction and works well in the snow.

LEBEAU: Right. Well, Susie, pickups and SUVs have been very popular over the last year and a half and I expect that to continue in March. Look, all of the automakers are banking on warmer weather bringing, people into the showroom and if that happens, they expect a big surge in March, April and May.

Now, keep in mind, we said the same thing at the beginning of February, that if there was better weather, we`d see better sales. So, it hasn`t started well. Let`s see what happens over the next three to four weeks.

MATHISEN: All right. Phil, thank you very much. Phil LeBeau reporting from Chicago for us tonight.

And, finally tonight, “Forbes” magazine is out with its annual list of the world`s billionaires and there are more of them than ever before, more than 1,600, along with the most women ever on the list, 172 female billionaires.

As for the richest of the rich, in third place, the Spanish clothing retailer Amancio Ortega, best known for the Zara fashion chain. He`s worth $64 billion.

Slipping into second place after four straight years on top, the Mexican telecom mogul Carlos Slim Helu and his family, who are worth about $72 billion.

And back in first place, with $76 billion, yes, the American guy, Harvard-dropout-turned-technology-legend, Bill Gates. The Microsoft (NASDAQ:MSFT) founder has topped the list for 15 of the past 25 years.

And we`re talking earlier about Warren Buffett, where did he end up? Fourth place, he`s got more than $58 billion.

GHARIB: I`d be happy with $58 billion.

MATHISEN: I could live with that, yes.

GHARIB: You know, what I found interesting on the list, you mentioned a lot of women, but I also notice, a lot of the billionaires are under 40, many of them are techs because of tech billionaires, and most of the billionaires, about 500 of them, are from the U.S.

MATHISEN: And the other thing that stood out to me, how many of the Walton family are on that list one way or another? The Wal-Mart (NYSE:WMT) fortune really moves.

GHARIB: Thanks to Sam Walton.

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

And we want to you mind you that this is the time of year your public television station seeks your support, and your support makes the programs like NIGHTLY BUSINESS REPORT possible.

MATHISEN: And I`m Tyler Mathisen. On behalf of your public television station, thank you for your support.

Have a great evening, everybody. We`ll see you back here tomorrow night.

END

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