SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: What a difference a day
makes. The Dow rises triple digits, erasing most of yesterday`s losses on
encouraging news about the economy. So, what happens next and what`s the
best place for your money?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The Yellen effect.
When rates rise, and they will at some point, what does that mean for your
investments, the housing market, your mortgage, and for savings?
GHARIB: Just do it. And that`s what Nike (NYSE:NKE) did in its
latest earnings report. What`s behind the strong quarter at the world`s
largest athletic clothing-maker?
We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Thursday, March 20th.
MATHISEN: Good evening, everyone, and welcome.
Winter is over and spring has sprung, sort of. And for their part,
stocks sprang as in sprang back from yesterday`s losses. The chill that
Fed Chief Janet Yellen put into stocks yesterday when she hinted that
interest rates might rise sooner than expected next year was all but gone
today. Equities got a boost from some better-than-expected economic data.
The Philadelphia Fed reported a boost in business activity in its region
this month. And a private reading on leading economic indicators was
higher in February.
And even though jobless claims rose by 5,000 last week, the increase
was less than expected.
So, the Dow was up by about 108 points. The NASDAQ and S&P both added
GHARIB: But even though stocks ended higher today, the threat of
rising interest rates is still worrying many investors. What does it mean
for their stock portfolios and for their fixed income holdings?
Dominic Chu has more on what a hike in rates if it happens could mean
for your investments.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): For
many economists and investors, rising interest rates are a sign that
markets are getting back to normal again. But if interest rates rise,
there are going to be benefits and drawbacks. For one thing higher rates
means that bond prices go lower.
Be sure to keep an eye on that part of your portfolio. That leaves
the other big asset class, stocks.
KRISTINA HOOPER, ALLIANZ GLOBAL INVESTOR: What we`re seeing is a lack
of commitment on the part of many investors to the stock market, even
though we are five years into this bull market. And what we`d advocate is
for investors to recognize the importance of remaining invested despite
CHU: So where are the attractive places to invest in the stock
market? The places that actually benefit when rates are on the rise?
ROBERT LUNA, SUREVEST WEALTH MANAGEMENT: I think the sector that`s
going to benefit most from a rising interest rate environment is definitely
CHU: The thinking is that traditional lenders like commercial banks
can borrow at cheaper rates in short-term markets and then lend that money
out at hire rates to customers. The wider that gap, the more profit for
Then, there`s the technology stocks, some of which have compelling
cases for investments.
LUNA: If you look at Cisco (NASDAQ:CSCO), Intel (NASDAQ:INTC),
Microsoft (NASDAQ:MSFT), these really old stocky technology stocks that
haven`t moved in years are now starting to pick up because people are
saying well, hey, I kind of get the best of both worlds here. They`re
companies with no debt, so they don`t have to borrow if interest rates go
up. I`m actually getting a really high yield if I`m looking at some of
these over 3 percent.
CHU: But not everyone believes that we`re destined to see a steady
march higher for interest rates. Economic concerns still linger.
JONATHAN LEWIS, SAMSON CAPITAL ADVISORS: Inflation is very low in the
U.S. It`s barely 1 percent. It`s even lower in Europe and falling. So,
it`s really hard to make the case that the Fed is going to be raising rates
CHU (on camera): That`s why many financial advisers are telling their
clients to spread their bets and build diversified portfolios with exposure
in all different kinds of asset classes.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
MATHISEN: Joining us now to talk more about rising interest rates and
what it could mean for your investment is Brian Jacobsen. He`s portfolio
chief strategist at Wells Fargo (NYSE:WFC) Fund Management.
Brian, welcome. Good to have you with us.
BRIAN JACOBSEN, WELLS FARGO FUND MANAGEMENT: Thank you.
MATHISEN: Did you think yesterday`s comments by Janet Yellen were
kind of pants on fire moment the way the markets did or was it an
JACOBSEN: I think that it was kind of an overreaction by the markets.
Admittedly, though, this was her first press conference. Some of her
responses seemed a little bit muddled. So, I think she could do a better
job in communicating with investors. That will come with time, though.
The problem was that it appeared as though the Fed is being overly
what we call hawkish, that it`s too concerned about perhaps inflation down
the road and that they might start hiking rates sooner than everybody else
was expecting before going into the meeting.
GHARIB: But in a lot of the analysis today, Brian, I mean, if you
look at what she said — if the economy does improve, if the Fed continues
to taper back on its stimulus in a gradual, you know, basis and interest
rates go up slowly and steadily, is there any reason that this should be
traumatic for stock investors?
JACOBSEN: Absolutely not. And actually in fact, given that Janet
Yellen effectively said that by the time the asset purchase winds up, which
might be in the fourth quarter of this year, that it would take another six
months at least before we would actually see the Fed start raising rates.
Keep in mind, there were a lot of ifs and buts surrounding her
forecast, of saying that they might start hiking rates in about six months.
It all depends upon the inflation outlook. The Fed right now, there`s not
much they can do to help support the labor market, so they`re shifting
their attention more on inflation. That really doesn`t look like there`s a
lot of pressure, building to drive that much above what their target is.
MATHISEN: Can`t slightly higher inflation be good for stocks? And
can`t slightly higher interest rates actually benefit some types of stocks,
JACOBSEN: That`s correct. And actually slightly higher interest
rates across the board could probably be beneficial for a lot of the stock
market and even the fixed income market. All depends upon the parts,
because when interest rates rise, it`s important to note they don`t rise
uniformly. That is, you don`t see treasury bills rising at the same pace
as you do a 30-year treasury or corporate debt.
So, we don`t oftentimes see all the rates rise together. In fact, if
you looked at how the market reacted to Janet Yellen`s comments, the 30-
year treasury, the yield on that actually dropped. So, even though we saw
2-year treasuries go up in yield, 30-year treasuries went down, it could
actually be pretty good for investors who are in some of the longer
GHARIB: So, Brian, if you want to make some changes in your
portfolio, what areas should you go into? You heard Dominic`s package. He
was talking about financials and also technology stocks. I know those are
But do you agree with that and also what else would you add on the
JACOBSEN: It all depends on the context. And actually, I disagree
with the financials. Mainly in this environment banks are effectively
borrowing for very low interest, effectively for free and lending at a
higher rate. When interest rates do begin to rise, I don`t think we`re
going to see those lending rates rise as quickly as the bank`s borrowing
rates. So it could actually result in a crimping of their profits.
So from my perspective I would actually be shying away from some of
the banks because I think their profits are going to be hit a little bit.
Information technology tends to be a very good area. You don`t have very
highly leveraged firms there. And oftentimes when rates rise, it`s because
economic growth is picking up. And that`s good for information technology
MATHISEN: Very quickly on dividend-paying stocks, might they sort of
lose some of their mojo if interest rates go up. Very quickly.
JACOBSEN: They can. Interest rates when those go up, dividend-paying
stocks tend to act a little bit like bonds in that case where interest
rates go up prices drop. So, that would be an area I would be
underweighting, like utilities and telecoms.
MATHISEN: Brian, thank you so much. Brian Jacobsen, chief portfolio
JACOBSEN: Thank you.
MATHISEN: — at Wells Fargo (NYSE:WFC) Funds Management.
GHARIB: And what do rising interest rates mean for buyers and
sellers? They could be another blow to the housing turnaround. Sales are
at their lowest level in 18 months. And today there was more troubling
news. Sales of existing homes edged lower in February, down four-tenths of
Diana Olick has more on the outlook on this first day of spring.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
There were still several inches of snow on the ground as realtors toured a
Bethesda, Maryland home this week.
PATTY SIEBER, STUART MAURY REALTOR: It will be nice when the flowers
are in bloom. I think one of my buyers I`m working with is going to wait
just to list their house because they`ve been working so hard on their
landscaping. They`d like it to look pretty.
OLICK: While spring will bring flowers, it could also bring higher
KEN ROSEN, RSG CONSULTING: A year from now, my guess is they`ll be up
50 to over 100 basis points. They`ll be over five.
OLICK: Rates bumped up slightly yesterday after the Federal Reserve
adjusted its outlook for interest rates overall this year.
LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS: Once consumers
recognize rates will not be falling but going up and the Fed chairwoman has
clearly indicated interest rates would be rising, I think people will be
making their home-buying decision less on rates but about the credit
accessibility, what they are comfortable with financially.
OLICK: Affordability is weakening. Home prices rose 9 percent in
February from a year ago according to the realtors, largely due to a lack
PATRICK BARRETT, COLDWELL BANKER REALTOR: There`s a lot of people
that want houses but there`s not a lot of houses to buy. So a lot of them
are going very quickly. You get the escalation clauses. So, sometimes you
get more than asking price.
OLICK: Even though mortgage rates are historically low, getting that
rate is tough.
ROSEN: Mortgage credit still very tight. So, it`s hard for that
first-time home buyer to get in the market.
OLICK: The lack of younger buyers who rely on getting a mortgage are
a big part of the reason the housing recovery, which was juiced last year
by investors, has been slowing down now. Home prices are rising faster
than jobs and wages, and mortgage rates went from 3.5 percent last year to
4.5 percent now.
(on camera): As the weather gets warmer, more listings will come onto
the market. That`s pretty certain. More listings will take the pressure
off prices and unleash some of that pent-up demand. What is less certain,
though, is whether those who may want to buy a home will be able to afford
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
MATHISEN: Now we`ve taken a look at what a hike in interest rates
could mean to your investments and to the housing market. So after more
than five years of a record low federal funds rate, what would a rise in
rates mean for savers?
Hampton Pearson takes a look.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
For long-suffering savers, the likelihood of rising interest rates a year
from now won`t make up for the returns that have been less than the rate of
inflation since the Fed began its zero interest rate policy back in 2008,
leading economists say the Yellen Fed turn around won`t happen overnight.
DIANE SWONK, MESIROW FINANCIAL`S CHIEF ECONOMIST: Chair Yellen has
made it very clear from the Federal Reserves perspective it`s going to take
a very long time even after they begin raising interest rates to get them
back to what anyone would consider normal, let alone what savers would
consider normal in terms of a saving rate.
PEARSON: For example, according to bankrate.com, about the best you
can earn is a little less than 1 percent on a $25,000 money market or
GREG MCBRIDE, BANKRATE.COM`S CHIE FINANCIAL ANALYSIS: Once they start
to move higher, in all likelihood, it`s going to happen pretty slowly and
over an extended period of time, provided that the economy continues to
PEARSON (on camera): The best advice for savers, anticipating a
higher rate environment in 2015, don`t get locked into long-term fixed rate
products in what could be a rapidly changing environment a year from now.
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.
GHARIB: Some discouraging data about the job market and long-term
unemployed, a new Princeton University study finds that only 11 percent of
Americans who have been jobless for more than six months will ever retain
steady full-time work. Three-point-eight million people, that`s about 37
percent of all out of work Americans, are considered to be among the long-
MATHISEN: Now to the crisis in Ukraine, President Obama announcing
new sanctions against Russia, targeting specific Russian officials and a
Russian bank, over that annexation of Crimea.
But the White House admits now that the impact could actually hurt the
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This is not our
preferred outcome. These sanctions would not only have a significant
impact on the Russian economy but could also be disruptive to the global
economy. However, Russia must know that further escalation will only
isolate it further from the international community.
(END VIDEO CLIP)
MATHISEN: Well, Eamon Javers joins us now from Washington with more.
You know, the president targeted among other Russian officials Russian
cronies, he says, of Mr. Putin. Who are they?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: That`s right,
Tyler. First of all, he targeted 16 Russian officials, but also four
people that the senior administration officials briefing reporters today
called cronies of Vladimir Putin. These are some of the post-Putin
oligarchs who have risen to power underneath Putin`s rise in Russia. Now,
they`re extremely wealthy.
The question is whether all of them have assets in the West that can
be frozen by the sanctions. And in fact, just before air time tonight, we
learned that one of them may have dodged some of the impact here.
That`s Gennady Timchenko. He is the founder of Gunvor Group. That`s
a global commodities trading firm. It does about $93 billion in annual
revenue. It is a huge outfit.
Timchenko apparently sold all of his shares in Gunvor just yesterday
in anticipation of these sanctions. The Gunvor Group posted a statement to
its Web site tonight.
So, it looks like there is a big financial chase going around the
world as some of these oligarchs try to move their assets ahead of what the
U.S. is doing here, Tyler.
GHARIB: You know, another thing that President Obama said is this
could impact the Russian economy. Which sectors of the Russian economy
could be sanctioned if the U.S. goes forward on all that?
JAVERS: Yes, that`s right. Important to point out in the sound bite
what you just played, what the president was talking about there is the
possibility that the United States will take sanctions on specific sectors
of the Russian economy. They haven`t done it yet but they have the
authority as of today to do that. That could include things like minerals
and mining, energy, financial services and the like. That`s another sort
of tool in the U.S. tool kit here that they could use if they want to scale
up the sanctions, guys.
MATHISEN: When we slap Russia they typically slap back. Have they
done that? If so how?
JAVERS: They did. They did that in mere minutes today, announcing
sanctions of their own on U.S. officials, White House officials, members of
the United States Senate. That was largely laughed off here in Washington
because there aren`t that many U.S. senators who have bank accounts in
But still, the symbolism was there. The Russians are trying to say
hey, you`re going to sanction our guys we`re going to sanction your guys.
That`s how it works.
GHARIB: All right. Eamon, thank you so much. Eamon Javers reporting
JAVERS: You bet.
GHARIB: And still ahead on NIGHTLY BUSINESS REPORT, why coal? Once
shunned as dirty and expensive may be on the verge of a comeback.
GHARIB: Solid earnings from Nike (NYSE:NKE) after the market close
today. The sports apparel giant and one of the newest members of the Dow
Jones Industrial Average posted earnings of 76 cents a share. That was 4
cents above analysts` estimates. Revenue also came in higher than
expected, helped by rising sales in China and a big jump in Europe.
The company said global orders for its merchandise are soaring ahead
of the World Cup Soccer Championship in Brazil this summer. Shares rose
initially after the report was released, and then in the regular session,
Nike (NYSE:NKE) closed at $79.27. It was up slightly.
MATHISEN: Thirty of the nation`s largest banks underwent the Federal
Reserve`s latest so-called “stress test” to determine whether they`d
survive another financial crisis and only failed. That was Zions Bank,
which didn`t meet the Fed`s 5 percent tier one capital ratio requirements.
Zions has already said it well come up with a new plan to raise the
GHARIB: Hewlett-Packard (NYSE:HPQ) upped its dividend, and that`s
where we begin tonight`s “Market Focus”.
The tech company`s board approved a 10 percent hike and the increase
is expected to start in May. Separately at the company`s annual
shareholder meeting yesterday, CEO Meg Whitman hinted that HP might enter
the 3D printer market in June. Shares fell a fraction to $31.48.
Shares of ConAgra Foods (NYSE:CAG) rose on better than expected
earnings. Profits at the maker of Hunts Ketchup and Healthy Choice doubled
and sales surged, thanks to the strength of its private labeled brand`s
business. But its packaged foods company continued to struggle and sales
just missed Wall Street estimates. Still, ConAgra shares were up more 1
percent to $29.99.
And Lennar (NYSE:LEN) also reported better than expected quarterly
results, thanks to a jump in home deliveries and selling prices. Earnings
jumped almost 35 percent, revenues surged 38 percent, but the home builder
said it`s still too early to predict the strength of this spring selling
season. Shares fell about 2 1/2 percent to $40.32.
MATHISEN: And Arkansas court tosses out a $1.2 billion ruling against
Johnson & Johnson (NYSE:JNJ). The lawsuit accused the drugmaker of
improperly marketing its anti-psychotic drug Risperdal and concealing its
risks. The judge overturned the ruling saying the law didn`t apply to
pharmaceutical companies. Shares of J&J were up a fraction to $94.12.
Symantec (NASDAQ:SYMC), the maker of the Norton anti-virus software,
fired its CEO Steve Bennett. A company board member was appointed interim
president and CEO. This, by the way, is the second time the company has
fired its top executive in less than two years. Shares initially fell
after hours, the stock ended the regular session up more than 1 1/2 percent
And shares of Walter Energy (NYSE:WLT) fell sharply after the company
announced it would sell a sizeable amount of debt. It was also down along
with other coal stocks on a downgrade from Bank of America (NYSE:BAC)
Merrill Lynch. The firm lowered its price targets and earnings estimates
on many coal sector players, saying falling marginal costs will depress
coal prices. Walter Energy (NYSE:WLT) down 20 percent today to $7.27.
GHARIB: Well, despite that downgrade, demand for coal which still
accounts for 40 percent of our domestic energy needs is on the rise, both
here and around the world. So what`s driving the new boom in coal?
Scott Cohn has the story.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): High
season in coal country. Cloud Peak Energy (NYSE:CLD)`s Spring Creek Mine
near the Wyoming-Montana border is going full tilt. Massive machines
mining tons of coal as fast as they can.
For CEO Colin Marshall, these are the best of times.
COLIN MARSHALL, CLOUD PEAK ENERGY PRESIDENT & CEO: I`d say I`m
optimistic by the way things are looking going forward. I wouldn`t say
we`re there yet. We need process to go up to more sustainable level. But
everything after two very tough years is actually starting to look it`s
going in the right direction.
SCOTT: It`s another effect of a brutal winter. For months, utilities
have needed all the fuel they can get. The price of natural gas is up by
nearly a quarter, which means for the first time in years, coal is
competitive. And with air conditioning season just around the corner,
demand is only going higher.
(on camera): How much demand is there for this coal? This train is a
mile long. Each car holds 243,000 pounds of coal. They`re loading them up
and shipping them out 24 hours a day, seven days a week, 365 days a year.
(voice-over): This coal is bound for Detroit, coated with a glue-like
polymer to keep the dust down. There`s plenty more where this came from.
Outside the mine, companies that rely on coal are feeling the ripple
effect, like L&H Industries in nearby Gillette, Wyoming, which make some of
f the big mining equipment.
JOEL CHRISTOPHERSON, L&H INDUSRIES GENERAL MANAGER: A lot of our
customers are within 100 miles of us. So, we`re definitely seeing a
SCOTT: The coal business hasn`t been like this in a long time,
dealing instead with negative news like a massive coal ash spill in North
Carolina in February, deadly mining accidents in West Virginia, and the
debate over climate change.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The debate is settled.
Climate change is a fact.
SCOTT: At this coal-fired power plant in Gillette, considered state-
of-the-art for environmental measures, they`re worried proposed new carbon
standards could put them out of business.
(on camera): So, this facility would be obsolete.
TOM STALCUP, DRY FORK STATION PLANT MANAGER: Yes.
COHN: It`s three years old.
STALCUP: There`s no technology out there currently available for the
market to remove CO2 on a coal-fired power plant.
COHN (voice-over): But even some locals in coal country are concerned
about the impact on the land and the groundwater.
SHANNON ANDERSON, POWDER RIVER BASIN RESOURCE COUNCIL: Part of being
a good neighbor of the coal mine is making sure the environmental impacts
are addressed and that using federal lands and a public coal resource is
making sure the taxpayer gets a good return on the use of those resources.
COHN: Frustrating to coal state Senator Mike Enzi, who says the
environmental issues are overblown, and the coal underappreciated.
SEN. MIKE ENZI (R), WYOMING: We`re the Saudi Arabia of coal, and
we`re not putting any money into researching it.
COHN: The coal companies are frustrated, too. Their best hope for
real growth, mining this coal and shipping it overseas.
Scott Cohn, NIGHTLY BUSINESS REPORT, Decker, Montana.
GHARIB: If you want to read more about coal`s comeback and the
industry`s changing economics, go to our Web site, NBR.com.
MATHISEN: Still ahead, can retailers successfully turn cabin fever
into spring fever? And what`s at stake if they do?
GHARIB: The messaging app Tango has good reason to dance. China`s
Alibaba Group is making a big bet on Tango. It`s investing more than $200
million into the California-based mobile messaging service. Tango not only
allows its 200 million users to text each other but they can share music,
photos and other content on their mobile devices.
MATHISEN: Airbnb could be worth a bundle. The online home rental
service is in advance talks with private equity firms, including TPG
Capital, to raise funding that could value the company at as much as $10
GHARIB: On this first day of spring, many of the nation`s retailers
are counting on spring fever from shoppers. After a brutal winter that
drastically cut sales and pummeled profits, retailers are hoping that pent-
up consumer demand will keep their cash registers ringing.
Courtney Reagan has more.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It may be snowing in some parts of the country, but spring officially
begins today. After the coldest winter in 13 years, cabin fever is at a
high point for consumers. And retailers are positioning themselves to
capture spring fever sales.
Even early hints of spring appear to be spurring some sales. Deutsche
Bank and SportScan imposed a pocket of spring weather, and Nike
(NYSE:NKE)`s new Nike (NYSE:NKE) Free and Roshe Run Shoes led to nearly 4
percent dollar sales gain in running footwear last week.
FBR`s Susan Anderson says last week, more retailers begin to offer
deeper spring promotions with Gap (NYSE:GPS) leading the charge, offering
40 percent off, compared to 30 percent this time last year. Target
(NYSE:TGT) and JCPenney are marketing spring promotions from home goods to
(on camera): Tomorrow, Wal-Mart (NYSE:WMT) is beginning its spring
sales event, featuring what the world`s largest retailer calls Black
Friday-like prices on 60 outdoor goods.
During the fourth quarter, weather closed 200 stores, but CFO Charles
Holly (NYSE:HOC) says as the weather has improved, so too have sales.
PAUL WALSH, THE WEATHER CHANNEL: Pent-up demand is a huge factor this
year. Because of the fact it`s been so cold and this polar vortex has
basically gripped the entire northeastern part of the country as well as
the Midwest, when the weather finally breaks, it`s going to unleash the
animal spirits, and I expect that consumers are going to be out in force.
REAGAN (voice-over): Home Depot (NYSE:HD)`s annual spring Black
Friday event kicks off April 3rd, while spring is the true holiday season
for home improvement retailers, this year could be especially strong, as
consumers repair roofs, siding and other parts of their homes that were
damaged by the severe winter.
Though, Planalytics` Evan Gold points out that`s a double-edged sword.
The more they`re plowing into repairs, the less they`ll be able to spend on
patio furniture and spring dresses.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
MATHISEN: And, finally tonight, an unusual comment from a well-known
billionaire about where he`d like his money to go if he passes away.
Google (NASDAQ:GOOG) founder and CEO Larry Page told an economic conference
that instead of giving his billions to charity or a philanthropic
organization, he`d rather give it to Elon Musk, the founder of Tesla and
SpaceX and Solar City. Page says he wants to see his money go to someone
with big ideas for changing the world.
No comment from Elon Musk. And many, many wealthy people think this
is actually a very good way to put their money to work after they`re gone.
GHARIB: Like winning the jackpot. I wonder what Elon Musk is going
to do with billions.
That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks
MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a
great evening, everybody. We`ll hope to see you back here tomorrow night.
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