Transcript: Friday, March 21, 2014

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

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tough slog. Stocks
lose ground today but gain for the week. The S&P briefly hits a new all-
time high. But a heavy news week made for ups and downs.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Double danger.
Treasury says a new tax scam is the biggest it`s ever seen. And there`s
also growing concern identity theft is growing through your medical
records.

MATHISEN: And small giants. Our market monitor has small cap names
he says are poised for big-time gains.

All that and more on NIGHTLY BUSINESS REPORT for March 21st, 2014.

GHARIB: Good evening, everyone.

Wall Street wrapped up an exhausting week with sharp declines and
equally intense gains that sent stocks on a wild ride. It began on Monday
with a crucial vote in Moscow to take control of Crimea. But once the
threat of a military confrontation eased up, stocks surged.

That rally continued on Tuesday, but a day later, Federal Reserve
Chair Janet Yellen hinted that interest rates might rise sooner than anyone
expected and stocked plunged.

Investors bounced back on Thursday on encouraging economic reports.
And finally today, a quadruple reaching day for options and futures pulled
down stocks.

But investors had the final say on the week, pushing the Dow and S&P
up more than 1 percent. And the S&P even hit a new record in intraday
trading.

By the closing bell, the Dow lost 28 points, the NASDAQ fell 42 and
S&P slipped five points.

MATHISEN: The head of the Minneapolis Federal Reserve says the
central bank made a big mistake. Narayana Kocherlakota is blasting Fed
policymakers` decision not to cite a specific unemployment target in
considering whether and when to raise its benchmark interest rate. He says
the guidance is wrong and the nation`s central bankers should have outlined
a clear plan to keep record low interest rates right where they are until
the nation`s jobless rate falls below 5.5 percent. The current
unemployment rate is 6.7 percent.

GHARIB: Mike Holland joins us now with his take on the markets and
the economy. He`s chairman of his money management firm, Holland and
Company.

So, Mike, we`ve gone through a crazy week. Worries about Russia,
worries about the economy, worries about interest rates. What`s the next
worry for investors, or have things calmed down a little bit and we have a
break here?

MIKE HOLLAND, HOLLAND & COMPANY CHAIRMAN: Well, the Fed`s behind us.
We`ve had some of the early warning signals from companies that weather
hurt the first quarter and so on. So, when you recap the week it was very
helpful. Now I know why Friday night, I`m kind of tired. This was quite a
week.

And yet at the end of the week, yet once again, the S&P, the market
was up a little over 1 percent. And that`s been the story since for the
last five years, since 2008-2009, we`ve had plenty of things to worry
about. But stocks have become so cheap and people have thrown in the towel
and many people still — the towel is still in the middle of the ring.
They have no interest and stocks are still OK where we are now.

But I think the next thing to worry about probably continues to be
Putin and what`s going on over there. We have President Obama over in
Europe right now trying to — but I think that`s probably where the market
will focus for awhile.

MATHISEN: You know, Mike, I`m with you. Stocks ended higher on the
week but it sure didn`t feel that way. It was tough getting there.

If you were looking for value in equities right now, what kind of
companies would you be lasering in on?

HOLLAND: Ty, actually, sometimes it gets pretty easy. And right now
if you look at the world, you look at where the U.S. is, the U.S. is
probably best situated of all the markets. Within the U.S. market, we have
some crazy things like Tesla and Twitter and things like that.

But we have the big quality companies remaining, even though they`re
up over the last five years, they still remain at valuation levels because
they`ve increased the value of their earnings and cash flow and basic
business with strong balance sheets. So, you have companies like Intel
(NASDAQ:INTC), Microsoft (NASDAQ:MSFT), Johnson & Johnson (NYSE:JNJ),
ExxonMobil (NYSE:XOM), JPMorgan (NYSE:JPM). Still companies still remain
quite attractive on an absolute basis.

And then relative to other things, for example, treasuries in some
part of the fixed income market some areas of real estate like London
houses, U.S. stocks, the big quality companies are easily the most
attractive thing to me. Sometimes when it gets this easy, you wonder what
could be wrong with it. Good news is there`s numbers.

GHARIB: You know, you saw today Fitch ratings lifted its negative
outlook on the U.S. economy. And, you know, we`ve had some good reports on
the U.S. economy this week. Is that one of the reasons that you feel
better about investing here rather than in non-U.S. holdings?

HOLLAND: Absolutely, Susie. You and I spoke earlier today about the
interesting juxtaposition of the U.S. having its improved Fitch outlook and
Russia being downgraded. These are simply facts. Facts are stubborn
things.

The U.S. looks pretty good. We`re probably getting right now this
week a few indicators that the spring could be surprises to the up side
with the economy. And one of the reasons you can have some comfort in that
outlook is that bank lending over the last few weeks has had a noticeable
and significant turn.

That hasn`t been the case for the last five years. The Fed has been
dying for this to happen, and it`s starting to happen. If we get that
continuing and it looks like it may, we could have some really quarters in
front of us in terms of surprises to the upside with the economy, which we
hadn`t had in the long time.

MATHISEN: Very quick thought on some of those sexy names. You
mentioned a couple of them, like Twitter, like Tesla, and there are others
that are up a lot, and always the danger is, that people want to chase that
performance.

HOLLAND: And, Ty, you and I, we`re around, the two of us, in the
dotcom time and we know that those things aren`t over until they`re over.
But they`re craziness, that`s exactly right. Once again, numbers are
persistent things. Facts are persistent things.

These things are priced ridiculously high. Wonderful companies,
ridiculous stock prices. Then, you look at some of the other companies,
Apple (NASDAQ:AAPL), you know, you look at Apple (NASDAQ:AAPL) and you look
at Twitter. You look at Microsoft (NASDAQ:MSFT) and you look at Tesla.
These are crazy prices for these things when you have really high quality
of merchandise over here at really low prices. It doesn`t make any sense.

GHARIB: We could go on and on about all of that.

Thanks so much, Mike, for coming by. Really appreciate it. Have a
great weekend. Mike Holland of Holland & Company.

MATHISEN: Another blow to PIMCO, the world`s largest bond fund
company, already reeling from the sudden departure of chief executive
Mohamed El-Erian when internal spats with cofounder Bill Gross became
public last month. PIMCO has now been replaced by rival TCW Group as a
sub-adviser of a new $1.3 billion bond fund being offered up by Columbia
Management Investment Advisers.

GHARIB: And more trouble for General Motors (NYSE:GM) CEO, Mary
Barra. On the job for just two months, Barra will have to testify before
Congress on April 1st on what the automaker knew about a faulty ignition
switch that`s been linked to a dozen crash-related deaths and why the
company waited more than a decade to recall a million affected vehicles.

MATHISEN: A court ruling about so-called swipe fees is having a big
impact on some stocks. The federal appeals court upheld the Federal
Reserve`s cap on those fees, which limit how much banks can charge
businesses handling debit and credit card transactions. It is a big defeat
from major retailers. They insist the cap was just too high.

Despite today`s favorable ruling, it was a split decision for shares
of Visa (NYSE:V) and MasterCard (NYSE:MA). Those are the nation`s biggest
card issuers.

GHARIB: An important warning to taxpayers from the IRS about a
sophisticated telephone fraud the agency is calling the biggest scam of its
kind ever. Callers claim to be with the IRS are targeting tax filers,
demanding immediate payment for overdue taxes. And a lot of people are
falling for it.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
With the April 15th tax deadline a little more than three weeks away, both
the IRS and the top Treasury Department troubleshooter are warning
taxpayers about what they say is the largest ever telephone fraud scam.

More than 20,000 taxpayers in nearly every state in the country have
collectively paid over $1 million to telephone scammers and con artists in
recent months. Individuals claiming to be IRS agents on the phone
demanding debit card payments or a wire transfer. The scammers threaten
their victims with arrests, deportation, or loss of their driver`s license
if they refuse to pay.

The IRS says its first contact with people about unpaid taxes is
usually by mail, not the telephone. And no one from the IRS asks for
payment using a prepaid debit card, wire transfer and the agency does not
take credit card numbers over the phone. If you owe taxes or think you may
owe federal taxes, hang up and call the IRS at 800-829-1040.

(END VIDEOTAPE)

PEARSON: And this is the second time in the last six months the IRS
has put out an alert about this particular telephone scam, which as we said
has gone nationwide.

GHARIB: Hampton, this is really surprising. It just astounds me that
people are buying into this. What are the tricks that these scammers are
using? They`re obviously very persuasive and convincing that it really is
the IRS that`s calling.

PEARSON: Well, these telephone con artists are intimidating their
potential victims by using fake IRS badge numbers. Sometimes, Susie,
believe it or not, they even have gotten ahold of the last four digits of
some of the victims` Social Security numbers and also using caller ID phone
numbers that look pretty authentic.

MATHISEN: Any red flags on these calls, Hampt?

PEARSON: Well, one other final reminder from the IRS, they say their
employees will never request personal or financial information by e-mail,
text or any kind of social media.

GHARIB: All right. Hampton Pearson, reporting from Washington,
thanks a lot, Hampton.

MATHISEN: Well, now to the latest type of identity breach you need to
know about — medical ID theft, including cyber attacks on all your medical
records and data from health care companies. It is a growing problem with
50 million reported data breaches each year.

Sheila Dharmarajan has more.

(BEGIN VIDEOTAPE)

SHEILA DHARMARAJAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over): It`s a classic case of identity theft with medical twist. This
cyber thieves target billing and insurance records because your Social
Security number, address and credit card info are all in one place.

According to a recent study by the Ponemon Institute, cyber criminal
attacks on health care organizations like hospitals and clinics are up 100
percent in the past three years and are costing the industry more than $5.5
billion a year.

ROBERT GREGG, ID EXPERTS CEO: What we find in the marketplace is a
financial identity can be worth $5 to $10 if you have all the information.
A medical identity can be 5 to 10 times that amount just because how easy
it is to monetize that information once the bad guys get it.

DHARMARAJAN: Last year, 40 percent of health care organizations
reported a criminal data attack, for a total of an estimated 50 million
breaches across the country.

(on camera): And health care professionals that participated in the
survey expect that under the Affordable Care Act, patient security risk
will be increased as even more information is exchanged between the
government and providers.

(voice-over): An alarming 88 percent of organizations report allowing
their employees to use their personal smart phones and tablets to access
confidential information, including your medical records.

Experts say the industry is unprepared for the increase in mobile
access.

GREGG: Health care is substantially behind the financial services
industry in terms of protecting identities, and it`s particularly
concerning because these are the most vulnerable identities we`re looking
at.

DHARMARAJAN: Recognizing flaws in the system is the first step to
preventing breaches say analysts. And as hospitals continue to ramp up
security measures, they are reporting an increased confidence in their
ability to detect future threats. In the meantime, the recently formed
health information trust alliance, in conjunction with the U.S. Department
of Health and Human Services, announced last week it will conduct monthly
cyber threat briefings to help health care organizations prepare for and
respond to security breaches.

IT security firms like publicly-traded Palo Alto Network and Imperva
also provide services tailored for health care companies, all with the hope
of delivering a dose of protection for patients.

For NIGHTLY BUSINESS REPORT, I`m Sheila Dharmarajan.

(END VIDEOTAPE)

GHARIB: And coming up on the program, our market monitor has some
overlooked names he says need to be in your portfolio. That`s next.

(MUSIC)

GHARIB: The losses to the tech industry from the NSA spying program
exposed by Edward Snowden could hit an astounding $180 billion. That`s
according to one estimate. That`s why top executives from Google
(NASDAQ:GOOG), Facebook (NASDAQ:FB) and other Internet giants were at the
White House today meeting with President Obama about the NSA surveillance
program and demanding privacy protections for their users.

John Hardwood joins us now from the White House with more on today`s
meetings.

So, we`re all curious about this, John. First of all, who was there
and what was on the agenda? What were they complaining about mostly?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, you`ve got
Reed Hastings of Netflix (NASDAQ:NFLX), Mark Zuckerberg of Facebook
(NASDAQ:FB), who complained publicly last week. You`ve got Eric Schmidt
from Google (NASDAQ:GOOG), and a series of others.

Look, their complaints are partly about privacy but they`re partly
about public relations, because remember, the tech companies as well as the
administration were embarrassed by the NSA revelations. The administration
because it made them look like big brother looking at everything`s
communications, and the tech companies because it made them look like the
accessories to big brother.

So, in part, they`re trying to figure out ways in which the
administration can do what it thinks necessary for national security
without putting the tech companies in a bad position. In particular, let
them explain to their customers exactly what they`re doing and what the
justification is for it.

MATHISEN: All right. So what do we expect to come out of this
meeting, John?

HARWOOD: Not a whole lot specifically in terms of new announcements.
But we`re just a week away, Tyler, from when the Attorney General Eric
Holder is supposed to present recommendations to the president for how this
program might be changed.

And the big change the president talked about was whether or not this
metadata can be collected, not stored by the government so the government
doesn`t hold it, somebody else holds it but the government could have
access to it on a timely basis when it decides it needs it for national
security reasons. Don`t know how that exactly is going to get worked out,
but those recommendations could come in a few days. This meeting was part
of that process.

GHARIB: Yes. I mean, a lot of serious issues here. So, is this
going to be substantive changes of just surface conversations?

HARWOOD: Well, I don`t think it`s going to be all that substantive,
Susie, for the simple reason that the administration believes this is
necessary for national security. I think a critical mass of the Congress
believes that as well. You`ve got to say that the crisis in Ukraine, which
is raising tensions, questions about a new cold war with Russia, certainly
helps the administration make the case that, hey look, we can`t let down
our guard.

GHARIB: All right, thanks a lot, John. John Harwood reporting from
Washington.

MATHISEN: Darden Restaurants (NYSE:DRI (NASDAQ:TBUS)) reports a 18
percent decline in profits, and that is where we begin tonight`s “Market
Focus”.

The parent of Red Lobster and Olive Garden said those two chains
continue to lag. Still earnings matched analysts` expectations. And
despite weakness, the company reaffirmed its guidance for the year. Darden
also reiterated plans to spin off Red Lobster despite pushback from
activists who want the company to put the move to a shareholder vote.
Shares rose more than 2.5 percent to $50.66.

A sizeable settlement with swatch took a huge chunk out of Tiffany`s
fourth quarter earnings. The luxury goods retailer missed estimates on
both the top and bottom lines and its guidance came in below street
estimates. Shares were off a fraction to $90.73.

Private equity firm Golden Gate Capital revealed a more than 9 percent
stake in Ann Incorporated. That`s the parent company of Ann Taylor and Ann
Taylor Loft. That sent shares of the company way up in today`s session.
The firm is now the single largest shareholder in that women`s apparel
retailer. The stock up 13 percent to $42.05.

GHARIB: BlackBerry reached a deal to sell most of its real estate in
Canada, in an effort to turn around its business. The struggling
smartphone maker gave few details about the sale. We`ll find out more
about how the company`s doing when it reports earnings next week. Today,
shares fell 2.5 percent to $9.18.

Media General (NYSE:MEG) will buy Lin Media for $1.6 billion. The
deal will create the second largest local TV broadcast company in the
country. Shares of Media General (NYSE:MEG) rose a fraction to $17.44.
But Lin skyrocketed more than 22 percent to $26.32.

MATHISEN: Our market monitor tonight says if you`re looking for big
gains in the stock market, think small. He`s Eric Marshall, president and
portfolio manager of Hodges Capital Management. The Dallas state based
fund manages more than $2 billion.

Welcome. Good to have you with us, Eric.

Why do you like little guys?

ERIC MARSHALL, HODGES CAPITAL MANAGEMENT: Well, we think now is a
good time to really focus on individual stock selection and less about
really trying to make broad bets on the market or betting on indexes.
Within the small caps, you can really find secular growth opportunities.
We expect merger and acquisition activity like the one that you just spoke
about here a few minutes ago to continue out there, which should really
help the valuations small companies.

As larger companies look to grow their business, we think you`ll see
more and more acquisition activity such as that, which should also be good
for the small cap stocks.

GHARIB: All right. Eric, let`s go down. You`ve got a couple of
stocks to tell us about, small cap stocks.

Let`s start with the first one on your list, Eagle Materials
(NYSE:EXP). Ticker symbol EXP. Why do you like it? What does it do?

MARSHALL: Yes, Eagle Materials (NYSE:EXP) is a leading producer of
both cement and gypsum wall board. Both of these businesses are in the
early stages of a recovery. They`re seeing pricing power. And as a result
of that they should be able to leverage a lot of their fixed costs and see
substantial earnings improvement over the next couple of years.

We think at the peak of the current cycle, they could get as high as
$10 to $12 per share of earnings power, which if they`re able to achieve,
we think the stock will be substantially higher here over the next couple
years.

MATHISEN: Your second pick is Faro Technology. It`s a business
equipment manufacturer. What do they do and why do you like it?

MARSHALL: Yes. This is almost like an industrial technology company.
They make 3D measurement systems where they`re using lasers and such to
actually measure things using three dimensional software. And this is used
in manufacturing. It`s also used in design and development to speed up
time to market for products as well as reduced manufacturing costs.

And as companies start spending on capital investment again, this is a
company that should benefit from that. They have no debt, a nice cash
position, and we see the company growing double digits here over the next
couple of years.

GHARIB: Let`s talk about another one of your recommendations, Zep
(NYSE:ZEP). Ticker symbol ZEP. It`s trading at $17.85. Why should
investors put new money in this?

MARSHALL: Yes, this is a company you don`t hear about every day.
It`s not very exciting. But they`re a provider of industrial and
commercial cleaning products. They make solutions and solvents and stuff
like that that`s actually consumed in a number of different commercial and
industrial applications.

And as the economy improves, their business should continue to pick
up. We like the valuation, and we like the prospects for the company to
potentially increase dividends in the future. And they`re really a company
that`s well underneath the radar that I think is worth taking a look at.
And Zep (NYSE:ZEP) as well as the other two that I mentioned are both owned
in the Hodges Mutual Fund which I have personal ownership in.

MATHISEN: All right. So there`s your disclosure.

But give me some idea very quickly, Eric, of what kind of returns over
the next year, three to five years you might expect from these companies.
Are we talking about home runs, are we talking about good singles hitters?
What?

MARSHALL: Well, I think that this is a time to really focus on
individual stock selection. And it really depends on what type of risk-
reward you`re willing to take.

In the case of Faro Technologies, obviously that stock trades at a
much higher multiple and we would expect to see much faster growth and
maybe a little bit slower growth in a company like Zep (NYSE:ZEP) where
you`re selling cleaning equipment.

MATHISEN: Well, that sounds logical to me.

Eric Marshall, thanks very much. Eric is with Hodges Capital
Management.

GHARIB: And coming up, how one brewer is dealing with the ongoing
drought in the west and making every drop of water count.

(MUSIC)

GHARIB: Twitter is celebrating its birthday. Eight years ago today,
it sent out its first ever tweet. But there`s no celebrating in Turkey.
That`s where officials try to ban access to Twitter after tweets were sent
out accusing Prime Minister Erdogan of using court orders to suppress
corruption allegations against him. But that censorship attempt failed as
tech savvy Turks have been able to circumvent government`s attempts to
block the service.

MATHISEN: Well, not having Twitter is one thing. But how about not
having beer? It could happen.

The long-lasting West Coat drought is impacting the availability and
quality of a key ingredient in brewing, barley. Now, the beer industry is
making changes to make sure there`s enough barley and suds to go around.

Sara Eisen has more.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Jamie
Hart is a barley farmer in the San Luis Valley of Colorado, a valley which
gets 85 percent of its water from snow melts to the Rio Grande River.

JAMIE HART, HARTS FARM INC.: Water is what we live on. It`s our
lifeblood for our industry.

EISEN: But there`s a problem in the valley. Snowfall in surrounding
mountains has been below average for the last six years.

STEVE VANDIVER, RIO GRANDE WATER CONSERVATION DISTRICT: It`s been
getting worse as we go through time here, and we`re sure hoping to see the
weather change.

EISEN: That`s something barley growers and beer giants like
MillerCoors can`t count on, especially with barley crop on the line, one of
the key ingredients in beer.

KIM MAROTTA, MILLERCOORS DIRECTOR OF SUSTAINABILITY: Coors is really
famous for saying that barley is to beer as grapes is to the wine.

EISEN: Kim Marotta is director of sustainability for MillerCoors.
One of her key jobs: finding ways to reduce the company`s water footprint.

(on camera): MillerCoors estimates that it reduced the water it uses
to 3.9 barrels of water for every one barrel of beer. That`s less than the
industry average. But on the farm, they know they`ve got a lot more work
to do.

MAROTTA: What we`ve learned is that more than 90 percent of the water
is really within our agricultural supply chain. So we can be as efficient
as possible in our breweries, but if we`re not working with our growers and
others within our agricultural supply chain to become efficient, we`re not
going to create scale and we`re not going to create impact.

EISEN (voice-over): MillerCoors has 850 partner growers in four
states including here in Colorado, where nearly 100 growers met this week
at the company`s winter growers meeting to discuss the growing concern over
the water shortage.

So what is MillerCoors doing? In addition to the water they have
saved at breweries around the country, the company has employed eight
agronomists to work directly with farmers. And they`ve two test farms, one
in Colorado and that showcase Barley Farm in Idaho, where they`ve used new
irrigation techniques, even breeding new forms of barley that are drought
resistant.

MAROTTA: And through that, we were able to save over 400 million
gallons of water in three years.

EISEN: Working with guidance from MillerCoors, partner farms have
taken initiative as well.

HART: The old ones are just not as efficient.

EISEN: Jamie Hart replaced all the nozzles on his farm`s pivot
equipment at a cost of about 4,000 per pivot — a cost he believes is worth
it in the long run.

HART: It comes with the cost. But this water is very precious.

EISEN: So far, no costs have been passed along to the consumer. But
it`s certainly something Wall Street may soon be keeping an eye on.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

MATHISEN: For more on the new technology and systems being used to
make sure your beer mug stays full go to our Web site, NBR.com.

GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
Gharib. Thanks so much for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a
great weekend, everybody. We`ll see you back here on Monday.

END

Nightly Business Report transcripts and video are available on-line post
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