Transcript: Monday, March 10, 2014

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

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Five years later. Has the retail investors` faith in the market been restored? And if they are tiptoeing back in, will the mom and pop investor gives the bull market a second wind?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Spring bounce back. Will the coming thaw heat up the U.S. economy? Find out what the experts say.

HERERA: And shifting gears. More people want to drive luxury cars at affordable prices, and more automakers are shifting their strategy to try and win that business.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March 10th.

Good evening, everybody. I`m Sue Herrera, filling in tonight for Susie Gharib.

MATHISEN: And I`m Tyler Mathisen. Welcome.

We begin with some good news. Stocks closed near their highs for the day.

Now, the not so good news. The major averages all lost money today but not much, just a little. Chalk it up to unsettling economic data from China where exports fell sharply and the worries about rising tensions in Ukraine.

The Dow was down triple digits at one point today but it rallied late. At the end of the day, the industrials closed 34 points lower pressured by Boeing (NYSE:BA). The NASDAQ was down one and the S&P down just a fraction from Friday`s record setting close.

HERERA: With the Dow solidly above 16,000 and the NASDAQ sitting at near a 14-year high, it may be hard to believe the recent bear market bottom was exactly five years ago, but a lot has changed since then. It`s a bull market now, and a lot of retail investors have come back into stocks, a bit more cautious and perhaps a bit more skeptical than they were before.

Jane Wells has more.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: But as Countrywide does what it has to to stay afloat, some people have floated the B-word around —

(voice-over): It was the worst of times —

UNIDENTIFIED FEMALE: I`m concerned about what`s happening with all these banks.

WELLS: — which never seemed to get any better.

UNIDENTIFIED MALE: Banking regulators jumped in Friday to take over the mortgage lender after withdrawals by panicked depositors.

WELLS: Banks folded, homes went under, jobs were lost, investments took a hit and five years after the market bottomed, people still remember their fear.

UNIDENTIFIED MALE: You know, we were pretty close to a collapse until the financial system.

UNIDENTIFIED MALE: The whole thing is nobody knew where the bottom was.

WELLS: Fidelity surveyed investors who said five years ago, 65 percent of them were scared or confused. Nearly half lost significant assets. The average drop in portfolio value was 34 percent and nearly one in five saw a head of household lost a job, cutting that person out of the bull market which followed.

LAMAR JONES, INVESTOR: The fear takes over and got me as good as the next guy.

WELLS: Lamar Jones runs his own business in North Carolina and thought he was investing wisely in dividend paying bank stocks, which ended up where it`s almost nothing.

JONES: I thought I could buy — buy an Aston Martin car, and with the money I lost, I probably could have bought an Aston Martin.

WELLS: Five years later, he`s back in the market, cautiously, and he`s not alone. Fidelity says now, 56 percent of investors feel better confident and better prepared.

TD Ameritrade (NASDAQ:AMTD) says investors are more sophisticated and options now comprise 40 percent of daily trading volumes up from 12 percent five years ago.

(on camera): However, TD Ameritrade (NASDAQ:AMTD) also tells us that people who are along the market are, quote, “constantly nervous with one foot out the door,” while those shorting stocks, quote, “really like their position.” Perhaps both remember the not-too-distant past and hope they are better position to act if history reports itself.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

MATHISEN: Let`s turn to Jeff Kleintop now for his analysis of what`s going on in the markets. He`s chief market strategist at LPL Financial.

Jeff, welcome.

We`re going to have plenty of time to talk about the markets. But I`d like to get your reaction to Jane Wells` report just then, and talk a little bit about the sensibility of individual investors today.

Are they smarter? Are they more judicious? Are they too careful? What do you see and feel?

JEFF KLEINTOP, LPL FINANCIAL: Well, Tyler, they`ve been a bit too careful. What we know over the last five years is most individual investors, whether unable or unwilling sat out most of this bull market. It`s really only in the last four or five months that we`ve started to see individual investors come back to U.S. equity mutual funds. That`s based on data from ICI.

And then maybe only because the five-year rolling return has just started to turn really sharply positive. We know they chase returns and they`re feeling better, but maybe only because those numbers have soared into the double digits.

HERERA: And, Jeff, that has some people worried is that the individual investor set out for much of the market run and maybe getting in just as the bull starts to fatigue a little bit. But you`re still longer term bullish on the market, correct?

KLEINTOP: I think we`ve got some maybe — you know, a good year ahead. We had a great year last year. I do think we`ve got some gains ahead.

While certainly individual investors come back to the market, that can often be thought of as a sign of peak. We`ve got a little bit of M&A activity coming back and maybe some IPOs, too, but it usually takes a few years of that, at least a year and a half of that, for excesses to begin to build up.

But instead, what we`re seeing is good earnings growth coming back this year, better economic growth here and abroad, all of that should support modestly higher stock markets this year.

MATHISEN: Are there particular sectors of the market or kinds of mutual funds that you would suggest at these prices and based on the forecast that you have for the future?

KLEINTOP: You know, Tyler, much of the gains that we`ve seen have been built on the consumer coming back. But it`s really businesses that have held back that now may beginning to be the new drivers of the economy and earnings.

So, look to those business spending oriented sectors like technology and like industrials that didn`t do so well today as being the leaders in the market here and perhaps to the end of the bull market.

GHARIB: We had a lot of volatility in the emerging markets, Jeff, as you well know. Would you allocate cash there? Things have calmed down a little bit, the situation in the Ukraine notwithstanding. Or would you stay away from there? Are the opportunities better domestically?

KLEINTOP: A long-term investor may find some value in the emerging markets. There is strong growth there and evaluations are relatively attractive. But in the near term and probably over the course of this year, U.S. stocks still look like a bit more attractive. Most emerging market countries still need to go to some adjustments here to a world where there`s a bit less money being pumped into them from the world`s central bank. That`s something they`re going to have to get used to, take a bit time and some volatility will come along with it.

MATHISEN: Tell me where you stand on the question of managed, actively managed mutual funds, versus taking basically an index approach, either through mutual funds or through the ETFs.

KLEINTOP: Well, both can make a lot of sense in a portfolio. What we`ve seen is the passive investing has certainly been a big winner in recent years, particularly last year, a very tough year for active managers.

But as the pace of growth begins to moderate in the markets, we`re now at the mature stage of the business cycle where there are bigger differences between sectors and stocks. Take a look at this year, a much broader range of performance among sectors, that`s an environment where active managers can begin to outperform. Volatility tends to be a real plus.

So, I`ll just give you a quick stat. When the VIX is two points above its three-year moving average, meaning volatilies a bit above normal, active managers tend to outperform the benchmarks. We may be entering an environment where volatility is a little bit higher and that could be win to the back of those active fund managers.

HERERA: Very quickly, Jeff, if you need to add yield to your portfolio, if you need some income, how would you do it?

KLEINTOP: You know, high yield bonds are a great place to go for that. Watch out, however, for areas like RETs or utilities in the stock market. They can be very vulnerable to higher interest rates. We expect to see over the remainder of this year.

MATHISEN: Jeff, interesting point there on the VIX and how it can help active managers.

Jeff Kleintop, thank you very much.

KLEINTOP: Thanks.

MATHISEN: Chief market strategist at LPL Financial.

HERERA: Ty, now, the latest on that missing Malaysia Airlines flight. There is still no trace of the Boeing (NYSE:BA) 777 plane which disappeared Saturday about an hour into its flight from Kuala Lumpur to Beijing, with 239 people on board. The search involves at least 34 aircraft and 40 ships from about a dozen countries, including the U.S. And the search area was widened to a 100-mile radius from the point where the plane vanished from radar screens

Investigators are looking into five passengers who checked in for the flight but didn`t board the plane, and the identities of two men who made the flight using stolen passports.

Eunice Yoon has more from Beijing and what some relatives of loved ones are doing while they wait for answers.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A few family members of the passengers aboard Malaysia Airlines Flight 370 have started traveling to the Malaysian capital of Kuala Lumpur, where they will eventually be taken to the location of the aircraft when and if it is found.

Now, the vast majority of the relatives are still in Beijing at a hotel, which is acting as the airline`s makeshift crisis center. Most of them say that they don`t want to leave China. They say they have very little confidence in the airline for not keeping them better informed and are worried that they`ll have an even tougher time in Malaysia because they don`t speak the language there and know their way around.

Now, the relatives have vented their frustrations with the Chinese government, as well. The disaster coincides with the national people`s congress, which is a big yearly gathering of the country`s leaders and the families complained that officials have been playing down their plight. Now, government officials came to the hotel to calm the families down, but were criticized for what the families called a very slow response.

China has since urged Malaysia to step up their search and investigation efforts, sent a working group to Malaysia to assist the families. Chinese police have also dispatched a team there to investigate the identities of the two people who traveled on stolen European passports. China confirmed that no Chinese passports have been stolen.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

MATHISEN: Still ahead, South by Southwest, the popular technology and music conference, is underway down in Austin. It`s where big ideas are shared. Innovative products are sometimes born and where today, a controversial figure was head from. Details next.

(MUSIC)

MATHISEN: Gasoline prices are going up, rising nearly 10 cents a gallon over the past two weeks. Worries about a possible military confrontation in Ukraine contributed to a jump in the cost of ethanol, which is used, of course, as an additive in gasoline. According to the researcher, Lundberg (ph), the average nationwide price of a gallon of regular is now $3.51.

HERERA: An influential member of the nation`s Central Bank says the Fed may have to pick up the pace of its tapering. That`s according to Federal Reserve Bank of Philadelphia President Charles Plosser, who said that wicked winter weather likely impacted job growth last month, but that the weakness is only temporary, and that should not stop the bank from slowing down its plans to taper its bond-buying stimulus measures.

MATHISEN: Well, Daylight Saving Time is here. Spring is 10 days away. Economists hope that with the better weather come better data. In fact, many expect a spring bounce back.

Steve Liesman has more.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Right along with pushing the clocks ahead this weekend, economists pushed ahead their forecast for the growth come the spring. Oxford Economics wrote a piece titled “Winter blues should lead to a jazzy spring.”

The brutal weather, both the cold and show, that hobbled the economy and much of the nation, should be a winter`s tale by the time the spring economic data rolls around, according to Harvard economist Marty Feldstein.

MARTIN FELDSTEIN, HARVARD UNIVERSITY ECONOMICS PROFESSOR: It is weather and inventory adjustment. So, the first quarter is not going to be a good number, but I think we will see much better numbers in the next three quarters after that.

LIESMAN: Feldstein is encouraged by the $10 trillion rise in household wealth in 2013 and what it could mean for consumer spending, along with an end to the fiscal drag in 2014.

Goldman Sachs (NYSE:GS) says the weather affects should turn positive in the spring, we therefore continue to expect growth of 3 percent plus starting in the second quarter. And over at UBS, they are very optimistic, saying they boosted their second quarter growth rate to 3.8 percent, allowing for a weather-related snap back.

The risk to the forecast seen mostly overseas. China reported a sharp drop in exports. That could portend a quicker slowdown in its economy, and the outlook for Europe is uncertain.

Obviously, there`s a potential negative shock that could come from a worsening of the situation in Ukraine. But for now, the consensus is that there is a thaw coming and it should heat up the U.S. economy come April and May.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: The meteoric rise in stocks over the past two years hasn`t done much to alleviate a decade`s worth of problems funding public employee pension funds. A report from “Reuters” says that roughly half of U.S. state pension plans have big gaps between what they have promised retirees and the funds they have on hand to pay those benefits, as contributions from state coffers have failed to keep pace with what`s needed.

MATHISEN: The White House is pulling the plug on proposed changes to the Medicare prescription drug program after an uproar on Capitol Hill. The proposal would have given insurers more leeway to limit the number of drugs they cover for Medicare beneficiaries. Now, this change means that Medicare will continue now to protect six classes of drugs, requiring insurers to cover nearly all medications in those categories.

Now, if the change had gone through, only three classes for cancer, HIV and anti-seizure meds would have been protected. The administration had hoped to save more than $700 millions by 2019 by making the change.

HERERA: McDonald`s (NYSE:MCD) sales slump continues and that`s where we begin tonight`s “Market Focus”. The world`s largest burger chain said same stores sales slipped globally in February, dragged down by continued weakness in the U.S. McDonald`s (NYSE:MCD) blamed some of that weakness on bad weather but also on challenging industry dynamics. The shares fell a fraction to finish the session at $95.20.

And Chiquita Brands will buy its Irish rival Fyffes, creating the world`s biggest banana supplier. The all stock deal valued at $526 million will merge together under the new name Chiquita Fyffes. Regulators still have to approve that combination.

Shares of Chiquita surged nearly 11 percent to finish at $12 even.

And there`s more merger news to tell you about. United Rentals (NYSE:URI) is buying privately held National Pump for $780 million. That move by United is an effort to get into the rental pump sector which is benefitting from the U.S. energy boom.

Shares of United Rental rose 4 percent to finish at $91.82.

MATHISEN: In an annual letter, General Electric (NYSE:GE) CEO Jeffrey Immelt tells shareholders he sees signs that the U.S. economy is improving and that Europe is stabilizing. As for how GE is doing, the chief said the company was putting a lot of effort into simplifying the conglomerate and focusing on its industrial businesses.

Shares of General Electric (NYSE:GE) off a little bit today at $26.04.

EBay rejects activist investor Carl Icahn`s two board nominees, saying both are unqualified. Icahn has been trying to shake up eBay (NASDAQ:EBAY), as you probably heard, by pushing it to spin off its very valuable PayPal business. He also accused the company of having poor corporate governance and called the company CEO incompetent.

Today a big investor Leon Cooperman, chief executive of the hedge fund Omega Advisors came out in support of Icahn`s spin off proposal.

(BEGIN VIDEO CLIP)

LEON COOPERMAN, OMEGA ADVISORS FOUNDER: I think they should spin off a portion of PayPal, monetize that, create a value, should lower the cost of capital and give them some flexibility in managing their capital structure.

(END VIDEO CLIP)

MATHISEN: And shares of eBay (NASDAQ:EBAY) today fell about 1 1/2 percent to $58.22.

And Urban Outfitters (NASDAQ:URBN) earnings beat but revenue did come up a bit short. The company`s namesake store continues to struggle and the CEO warned about its first quarter performance. But sales at other stores like Free People and Anthropology have been strong. Shares close slightly lower to $37.51.

HERERA: Ty, a private equity firm is nearing a deal to purchase the influential investor advisory firm institutional shareholders services. The firm is known for guiding shareholders on how to vote for things like mergers, executive pay and the election of board members. ISS has been on the block since October, and if the deal is done, incite venture partners would be its third owner in the past seven years. No terms were disclosed for this latest possible deal.

MATHISEN: Sue, a lot of deals are made every year at the annual South by Southwest Festival, where what`s trending in technology, entertainment and investing all seem to come together. It`s where ideas are shared. New gadgets are displayed, there`s some chicken fried steak and sometimes big and controversial people get their message out.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Thirty thousand tech fans come to Austin, Texas, technologist, engineers, venture capitalists, start ups and Fortune 500 companies all looking for the next hot product.

(voice-over): There are over 1,000 presentations, panel discussions, competitions, and, of course, lots of networking and partying. Startups often tip to the mainstream at South by Southwest. The festival has been a launch pad for social networking companies such as Twitter and Foursquare, as well as Airbnb, the online marketplace which was dubbed the breakout app here three years ago.

UNIDENTIFIED MALE: If he were here in the United States, he would be in a solitary cell.

LIPTON: The event is so big that it even attracted Edward Snowden, the former NSA contractor, who spoke to the festival video conference about the NSA`s surveillance programs.

EDWARD SNOWDEN, FORMER NSA CONTRACTOR: The NSA, the sort of global mass surveillance that`s occurring in all of these countries, not just the U.S. — and it`s important to remember that this is a global issue. They send fire to the future of the Internet and the people who are in this room now, you guys are all the firefighters, and we need you to help us fix this.

LIPTON: This year online privacy is a hot subject at the festival, which perhaps explains the popularity of self-destructing messaging chats such as Snapshot and anonymous social networks where users post their thoughts and feelings without identifying themselves.

Participants at the festivals say they`re spending more time on these networks, perhaps threatening established players such as Facebook (NASDAQ:FB).

UNIDENTIFIED FEMALE: I think that Snapchat is popular because it`s quick and instant and from friends that you are close with, where as Facebook (NASDAQ:FB), you have a ton of friends, hundreds of friends.

UNIDENTIFIED MALE: I feel like Facebook (NASDAQ:FB) is dying very quickly. My — the only reason I still have Facebook (NASDAQ:FB) is because my family is still on there.

LIPTON: Leading this new wave is Whisper, the anonymous social network, has already raised $21 million from venture capitalists in Silicon Valley.

The other big top pick, wearable technology. The tiny computers that users wear on their wrist are generating a lot of attention. The biggest fan of wearables at the festival talks about his use of Fitbit.

SHAQUILLE O`NEAL, FORMER NBA STAR: You know, this gets me back into great athlete mode. If I do a lot of stuff during the day and I log 4,000 steps, almost 12:00, I got work to do. That forces me to get on the thread mill.

LIPTON: The festival this year was the biggest yet. The ideas and products presented here generated a lot of buzz and could soon find their way into your living rooms.

Josh Lipton, NIGHTLY BUSINESS REPORT, Austin, Texas.

(END VIDEOTAPE)

HERERA: Coming up, affordable luxury. Sounds good, right? Well, it`s the fastest growing segment of the car industry. So, what are the high-end auto makers doing to win over those potential customers? We have that story, coming up next.

(MUSIC)

MATHISEN: Sbarro, the pizza chain, has filed for bankruptcy protection, again, along with more than 30 of its affiliate owners. It is the restaurant`s second bankruptcy filing in the past three years, and it now plans to close 155 of its approximately 400 outlets to cut costs.

HERERA: We have an auto recall to tell you about. Chrysler is recalling 25,000 Jeep Grand Cherokees and Dodge Durango SUVs from the model years 2012 and 2013. There is a problem with brake fluid to flow properly that could make the brake pedal feel a little soft.

Thankfully, no accidents have been report related to that concern.

MATHISEN: While Jeeps and SUVs are still hot. America is shifting gears, buying more luxury cars. In fact, affordable luxury car sales are expected to grow four times faster than overall industry sales this year, and many of those up scale cars will have a noticeably lower sticker price.

The battle over entry level luxury cars is just now heating up and Phil LeBeau has the details.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s the latest example of luxury auto makers trying to win over the masses, not just the well to do. The Audi A3, a small sedan with the smallest starting price yet for an Audi, just under $30,000.

SCOTT KEOCH, AUDI OF AMERICA PRESIDENT: If you look at the luxury market, this is where the growth is going to become. This segment is going to be going up by nearly 400 percent between now and 2020. A lot of competitors are introducing products here. We feel we go the right one.

LEBEAU: Audi and it`s rivals, Mercedes, BMW, Lexus and Cadillac are all targeting buyers with new models for less than 35 grand. Their logic: as brands like Toyota (NYSE:TM), Chevy or Honda gradually raise prices, some of their models are going for more than $30,000, and at that price, buyers would rather drive a luxury car than a mass market model.

ED HELLWIG, EDMUNDS.COM: I may be getting a slightly smaller car, maybe a couple less features but it`s still — that`s a big draw for car shoppers who really may have always aspired to a luxury brand but thought it was out of the range.

LEBEAU: Hoping to bring in new buyers, Audi has packed the A3 with technology like Google (NASDAQ:GOOG) Maps showing street views of destinations, where the ability to search for information by writing out keywords.

But giving the industry`s spotty record when it comes to technology having glitches in cars, is Audi putting too much technology behind the wheel?

KEOCH: We know how to do this stuff, and a lot of it we`ve done. We`ve done it in our A8. We`ve done it on our A6. Now, we`re introducing it here. We feel confident we can do it.

LEBEAU (on camera): When the A3 goes on sale this month, it will be $29,900. But fully loaded, it will run about 36 grand, the going price for entry luxury here in the U.S.

Phil LeBeau, NIGHTLY BUSINESS REPORT, San Francisco.

(END VIDEOTAPE)

MATHISEN: And to read more what luxury auto makers are doing to win you over, head to our Web site, NBR.com.

HERERA: That will do it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herrera, filling in tonight for Susie.

We want to remind you that this is the time of year your public television station needs your support to make programs like this one possible.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well.

On behalf of your public TV station, thank you for your support. Have a good evening, everybody. We`ll hope to see you back here tomorrow night.

 

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