Transcript: Monday, April 14, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The bulls are back, for one day at least. Citigroup (NYSE:C) surprises the street with better-than-expected earnings, putting investors in a buying mood. So, will the optimist continue when results from some of the world’s biggest companies hit the street all the rest of this week?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Super salary. Which CEOs are bringing home the biggest paychecks? We have the names and the numbers.

MATHISEN: Managing your nest egg. TIAA-CREF, already a retirement giant, wants to get even bigger. But will its deal to buy Nuveen pay off as a way to woo more savers?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, April 14th.

GHARIB: Good evening, everyone.

A beautiful spring day on Wall Street today and lots of green in the stock market to go with it. The major averages bounced back from sharp sell off last week and all the end of the S&P sectors were up as well.

Here’s a look at the closing numbers — the Dow jumped 146 points. The NASDAQ added almost 23, ending above the key 4,000 level. And the S&P rose about 15 points.

So what triggered all this optimism? Investors were encouraged by new retail sales numbers that were stronger than expected, a sign maybe that the economy is emerging from a slow winter. The gains were led by autos and furniture, as well as sales at general merchandise stores like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT).

Also, solid earnings from Citigroup (NYSE:C) boosted investor confidence. Profits for the first quarter came in higher than analysts estimates, and Citi stock surged 4 percent on the news.

Kayla Tausche joins us now with more on that surprising report from Citi.

You know, Kayla, last week, we were talking to you about this one and everyone was bracing for a lousy report, and then this. I mean, what happened?

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This isn’t much to write home about, Susie. We should make that clear.

The two points where Citi surprised, number one, the biggest jump in revenues came from its bad banks created five years go. That Citi holding. So, that has been a drag on the company. But now, the value of that portfolio is rising. That was actually the biggest source of growth.

Number two, credit is getting better so Citi was able to release more money from what had been stowing away to cover loans that would go bad. They released about $673 million there. The street wasn’t expecting that.

MATHISEN: Let’s talk a little bit about the international sweep of Citi. It is the U.S. bank with the biggest international footprint. Do these results say anything about the overall health of the global economy?

TAUSCHE: Well, as expected, we saw a lot of growth on the Asian consumer side and the Latin America consumer side. That was really the runaway growth on the consumer sector.

What we didn’t see a whole lot of corporate activity across the board. A lot of people expected that with rates staying low in the first quarter, and the stock market going up. But there would be a lot more M&A activity, a lot more refinancing that continued but we don’t really see that happening and there also wasn’t a whole lot of trading neither.

One surprise, though, it actually may not surprise you, but Citi holdings, which I just mentioned, it is — the majority of that is the U.S. housing market. It’s subprime mortgages. It’s old line mortgage portfolios.

The value of that rose very sharply. And a lot of the executives were just talking about how the U.S. housing market recovery is one of the main stories to their business.

GHARIB: So, you’re telling us a lot of stuff that’s going the way of Citi. Can investors expect Citi give a dividend any time soon? It’s been a while since they’ve seen one of those. Do you think the Federal Reserve give the OK on that?

TAUSCHE: So, they have a 1 cent dividend. They wanted to raise it to 5 cents. But, unfortunately, they did not pass the capital return portion of the Fed’s stress test.

Executives today on the conference call said they would not be resubmitting that plan to the Fed. Instead, they’re going to hunker down and try and rebuild those processes, make them more bust, resubmit next year so investors are going to have to wait at least three more quarters for that.

MATHISEN: Kayla, thanks very much. Kayla Tausche, reporting tonight.

Well, Citi is just the start of a big week for corporate earnings. More banks are due to report, along with a handful of blue chips, among them, Coca-Cola (NYSE:KO), General Electric (NYSE:GE), Intel (NASDAQ:INTC), Johnson & Johnson (NYSE:JNJ), and Yahoo (NASDAQ:YHOO).

Dominic Chu now with a look ahead at what to expect and whether the results could further left the market.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): This is a huge week for bank earnings. In addition to Citigroup (NYSE:C) later on this week, all of the other major groups will report. On Wednesday, Bank of America (NYSE:BAC) is out before the opening bell, Goldman Sachs (NYSE:GS) and Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) both report before Thursday’s start of trading.

Bank and other financial stocks are important for the market because the sector is the second biggest in the S&P 500 right after technology. They’ve also underperformed as a group for such a long time. Even today with stocks near record highs, bank stocks are still a long way off from recouping losses from the financial crisis.

But some see opportunity.

DAVID SPIKA, THE WESTWOOD FUNDS SENIOR VICE PRESIDENT: We do like the financials. We own some of the big names. Nice to see Wells Fargo (NYSE:WFC) put up a big number last week. We like the smaller banks as well because they are the ones that don’t have as much capital market activity that will benefit from increasing loan demand. We’re seeing good loan growth in some of the mid and small-sized banks.

CHU: Banks aren’t the only game in town this week, though. During this holiday, shortened trading week nine Dow components will deliver earnings results, as well as over 50 S&P 500 companies, including Coca-Cola (NYSE:KO) and Intel (NASDAQ:INTC) tomorrow, Google (NASDAQ:GOOG) and IBM on Wednesday, and G.E. and Union Pacific (NYSE:UNP) on Thursday.

Traders are struggling to fine conviction to either buy or sell this market. Earnings will be a big part of the decision.

DAVID LUTZ, STIFEL NICOLAUS MANAGING DIRECTOR: But at the end of the day, earnings are what counts. This isn’t a stop market. So, we need to focus on exactly what the companies’ numbers are. But even more importantly, what’s their guidance looking forward and how are they seeing in the economy in the months.

CHU (on camera): Concerns are growing about whether or not where the market peeked. And earnings reports are seen as a major catalyst for either helping to set new record highs for stocks or give traders a reason to sell and lock in profits.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

GHARIB: Even though stocks rallied today, there’s still a pretty lively debate between the bulls and the bears on Wall Street. And tonight, we’re going to hear from both sides.

Michael Farr, president of Farr, Miller & Washington, is bullish, and our bear is Barry James, president of James Advantage Funds.

Gentlemen, welcome to you both.

Let me begin with Barry. Tell us — make a case for why you’re not so bullish. Why are you pessimistic on the markets right now?

BARRY JAMES, JAMES ADVANTAGE FUNDS PRESIDENT: Well, it’s just a matter of risk. Again, no one really knows when the market will go up or down, but our risk measurements are saying that there’s high-risk. And some of the reasons behind that from a macro standpoint, the Federal Reserve is tapering. And in the past, two times when they quit quantitative easing, the market fell at a 20 percent annualized pace.

The other thing we see is that valuation levels are not where you would associate them at the beginning of a new bull market. Back in 2009, we were closer to one times book value. We’re much higher than that. And the average P/E on the S&P 500 is 25.

But probably the most telling thing for the next few months has been sentiment readings. We haven’t seen bullishness like we’ve seen in the past two months until 2007 and bearish levels were not this low going back all the way 2000.

We also find Wall Street is very excited. There are about 50 percent more buy recommendations to sell recommendations on Wall Street today than normal. We see insiders are selling.

And one thing that really gives us the chills is the fact that margin debt, borrowing money to buy stocks is at all time highs.

So, all of those kind of say we’re in a high-risk period right now and we should probably take a little bit off the table to try to preserve some capital should it correct —

MATHISEN: All right. Michael, Barry has laid out a very full case here. How do you react to it?

I know you to be an extremely cautious guy, especially when you’re playing with other people’s money, which is what you do.

MICHAEL FARR, FARR, MILLER & WASHINGTON PRESIDENT: No question about it, Tyler. And Barry makes a good case. I want to pick on a little bit, some of his data points.

But in general, I don’t think you can time the market. I don’t think you can pick market tops. Alan Greenspan talked about irrational exuberance in 1996 when the Dow is 6,000. It was 8,000 eight months later. It was 11,500 four year later.

So, it’s very difficult to weave your way through this. Now, when Barry talked about the market being 25 times earnings he was looking at the Schiller P/E. The market is about 16, 16 1/2 times earnings right now if you go back to average earnings and take a look at Schiller numbers. Yes, it looks higher, and yes, that worries me from a margin point of view.

But I think that there are still companies that you find that have good strong balance sheets growing earnings on the top line and the bottom line. You don’t have to pay too much for them. I think you own them to weather storms like this and I think you stay invested.

The economy is recovering. It’s a slow recovery, but it is coming out of this and we’re maybe picking up some traction. I’m certainly not a seller.

GHARIB: OK. All right. So, I want to pick up on that, Michael, because a lot of people at home watching this, they’ve seen in the last couple of days, these really sharp selloffs and, yes, some of them are bio techs, and some of them are high flyers, but they’re taking down a lot of the regular stock companies as well.

So, are you saying put your money in anyway and don’t worry about, you know, all of the selling?

FARR: My friend Freddy Tower says the time to invest is when you have money. The time to sell is when you need money. Otherwise don’t think about the stock market.

I think, opportunistically, when folks are fearful and you see this huge swath of selling, that’s when you get your list out and see if perhaps there’s some value being created and you want to buy. The stock market could certainly have a 10 percent correction or a 15 percent correction. We haven’t had one in a long time. But, trying to figure out when it’s going to be, to me doesn’t make sense and I want to stay invested through the whole period. If you sold out in, you know, in 2008 or ’09, you’d be in trouble now. If you stayed through you would have a lot more money even after going through that.

MATHISEN: To be clear, Barry, I think you think there’s the likelihood of a correction coming but you think the market may well be higher by the end of the year than it is today and second, you’re not saying sell everything, in fact, if I read you right you’re saying buy selectively particularly in energy. We got 30 seconds if you could sum it up.

JAMES: That’s exactly right. As we look at today, when over 42 years in this business, we know we don’t have the high or low but we slice our way out of the market. We’ve been 55 percent to 60 percent, now, we’re 40 percent to 45 percent in stocks.

There are pockets, exactly as Michael described of very good companies and we can get them at a little bit of a discount. It’s a good time to go ahead and move forward. But we would say there are higher risks and actually bonds today as they have been so far this year still look like a better play for stocks, say, over the next quarter.

GHARIB: All right. Interesting place to leave this conversation. I hope we can continue at some point.

Gentlemen, thank you so much. Michael Farr of Farr, Miller & Washington, and Barry James of James Advantage Fund.

MATHISEN: U.S. budget deficit continues to shrink. It’s expected to fall to around $500 billion this year. That is less than 3 percent of the nation’s gross domestic product. Congressional Budget Office says that the deficit will be the lowest in six years and down more than 60 percent from the record $1.5 trillion during the peak of the financial crisis.

Today’s projections are lower than earlier forecasts. One reason, lower estimates of the subsidy costs of the Affordable Care Act.

GHARIB: Americans are also feeling more optimistic about the job market. According to a March survey by the Federal Reserve Bank of New York, they felt they had a 49 percent chance of finding a new job should they lose their current one. That was up from 46 percent back in February.

Now, workers under 40 were the most optimistic. They put their chance of finding work at more than 60 percent.

MATHISEN: Strong gains in the stock market contributing to a hefty jump in pay for the chief executive officers of the country’s 100 largest companies in 2013.

Mary Thompson now takes a look at which CEOs top the list and salaries and perks that got them in.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Those at the top of the corporate ladder continue to take down more in pay.

PROF. JAY BROWN, UNIVERSITY OF DENVER LAW SCHOOL: The stock market was up 26.5 percent. So, that’s going to be a big factor in all of this.

THOMPSON: With over half of the CEOs compensation tied to their company stock performance, it figures as the market goes up, so too do their paychecks, as they did in 2013. An Equilar Survey shows CEOs at the nation’s 100 largest companies by revenue pulled down almost 14 million in median pay last year, a 9 percent increase from 2012. Average pay remained unchanged at just over $14.5 million.

Topping the list as he did last year, Oracle (NASDAQ:ORCL) CEO Larry Ellison. The founder of the software giant awarded $77 million of his $78 million in pay in an option grant.

Oracle’s board continues to ignore shareholders who voted know on Ellison’s pay for two years in a row.

(on camera): (INAUDIBLE) advisory vote, directors don’t have to act on it they just have to consider it. Still, professor Jay Brown focuses on executive compensation says by ignoring shareholders wishes now, Oracle’s board could be causing problems for other boards in the future.

BROWN: What this does is it says to public not just shareholders but to the public that advisory votes can be ignored and what that can often do as it has done in Europe and the U.K. is it can result in pressure being put on politicians to make votes on pay more meaningful.

THOMPSON (voice-over): And that could mean restrictions on what’s paid to the C-Suite. But for now, it’s the board that decides. And last year, Disney’s board made CEO Bob Iger the second highest paid CEO among big companies. He pulled down just $34 million, a 7 percent decline from 2012, even as the media giant’s total return rose 28 percent.

Rounding out the top three, a perennial on the highest paid list, 21st Century Fox’s Rupert Murdoch. He earned just $26 million, proving even when you’re on top, your pay at least can climb some more.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: Still ahead, details on the multibillion dollar deal that’s lifting retirement giant TIAA-CREF into the top ranks of the U.S. mutual fund business. That story next.

(MUSIC)

GHARIB: A marriage of two money managers today. TIAA-CREF is buying Nuveen Investments. It’s a deal valued at more than $6 billion. And the merger is partly the result of the changing way people are saving for retirement and increasing competition to manage your nest egg.

Bertha Coombs has more.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): TIAA-CREF is already the nation’s leader in retirement funds for academic, research and nonprofit institution with nearly 5 million customers. Analysts say adding Nuveen Investments could help it expand its mutual fund business.

LAURA LUTTON, MORNINGSTAR FUND RESEARCH DIRECTOR: As the retirement industry moves away from pensions and into the defined contribution or 401(k) plans, having a big presence there can be really important to TIAA-CREF.

COOMBS: Nuveen is the nation’s largest manager of closed end funds, which appealed to long-term investors. Fitch analysts say the acquisition valued at nearly $6.3 billion will provide TIAA-CREF craft with a new revenue stream to pay its pension clients.

JULIE BURKE: Instead of having corporate bonds or U.S. treasuries or commercial mortgage loans as an investment, some of the money will be in an investment called Nuveen Investments, which will pay — ultimately pay dividends to the parents. So, it’s another sort of earning asset for TIAA policy holders.

COOMBS: Just as important, TIAA-CREF says the deal will allow it to provide its clients with wider range of investment choice and tax exempt bond funds and real estate options.

LUTTON: I think it’s a comment on how scale can be helpful in the retirement business and having your fingers in a lot of pies. We see a lot of complicated products and investments in retirement plans and this gives the firm a few more options to deal with.

COOMBS (on camera): The acquisition if approved would make TIAA-CREF a much bigger player in the mutual fund market, bringing it to more than $800 billion under management. But it would still lag well behind fund giants like Vanguard Group with nearly $3 trillion under management and Blackrock which reported more than $4 trillion last year.

Bertha Coombs, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Google (NASDAQ:GOOG) says it has agreed to buy Titan Aerospace, the drone maker that Facebook (NASDAQ:FB) was once in buyout talks with and that is where we begin tonight’s “Market Focus”.

The Internet search giant wants to use the high altitude solar-powered drones to collect images and get more of the world’s population online. No word on how much Google (NASDAQ:GOOG) paid for Titan.

Facebook (NASDAQ:FB) did end up purchasing its own drone company — so there. It’s called Ascenta.

Shares of Google (NASDAQ:GOOG) class A shares rose nearly one-and-a-half percent to $545.20.

More on Facebook (NASDAQ:FB) now. It’s apparently no longer content with being just the largest social media site. It’s preparing to provide online financial services starting in Ireland. According to these reports, Facebook (NASDAQ:FB) just needs the approval of the Irish regulatory board to offer users several types of financial transactions online. Shares of Facebook (NASDAQ:FB) up slightly today at $58.89.

WebMD says it expects to report strong first quarter results at the end of the month. It anticipates reaching the upper end of its annual earnings and revenue projections. The health information provider says 32 percent more people used its Web site in the first three months of the year. And that gave a big boost to its ad sales. Shares surged 16-and-a-half percent today to $43.87.

And General Motors (NYSE:GM) gained ground after saying it is replacing the executives in charge of communications and human resources. The company insists the changes are not linked to its ongoing safety crisis over faulty ignition switches. Instead, G.M. attributes the move to CEO Mary Barra who took over in February, making her own hires in key position as she builds her own team.

Let’s take a look at shares of General Motors (NYSE:GM) up 62 cents at $32.55.

GHARIB: Medical device maker Edwards Life Sciences was the best performer in the S&P 500 today. It got a favorable court ruling on a key patent. A federal judge has reaffirmed an earlier ruling that the Medtronic’s core value system infringes on Edwards patent for replacement heart valve. Shares of Edward Life Sciences surged 11 percent to $18. Medtronic (NYSE:MDT) meanwhile fell about 2 percent to $58 and change.

Shares of Goodrich (NYSE:GR) Petroleum surged today on news that it’s drilled its successful well in the Tuscaloosa marine shale. That bolstered confidence in the field and production potential of that area which spans parts of Louisiana and Mississippi. The stock rose more than 30 percent to $23.96.

And Twitter moved higher after its cofounders Jack Dorsey and Evan Williams, along with CEO Richard Costolo have all said that they have no plans to sell any of their company shares. Now, the reason is that Twitter debuted at $26, jumped to more than $74 in less than two months but has pulled back sharply. Shares closed today at $40.87, a gain of 2 percent.

MATHISEN: And a harsh winter weather took a toll on the nation’s farmland and this evening in a new government report, we get a first look at the damage that was done and how much of an impact it may have on the spring planting.

Jackie DeAngelis has the details and what it may mean for the price of food.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: By all accounts, it was a brutal winter even though the weather may be looking up, that doesn’t mean that the damage hasn’t been done for farmers that is. Last week, the USDA revised and tightened its crop estimates for last year and today, it said that the 2014 planting pace for corn was 3 percent, that’s in line with analysts expectations, but below the 6 percent five year average.

What does the crop report mean for your wallet? Well, it could mean higher prices this summer at the market and it wouldn’t just be for fresh corn. It would also be for packaged foods that use corn as an ingredient.

And harsh winter weather didn’t just impact corn’s planting pace, but it also hurt other dormant plants. Broken limbs and torn vines, some are beyond repair. In some cases, the extended winter chill delayed budding all together in other case buds popped then froze.

Recent damage has been reported to peach and cherry trees. Some growers fear that their entire lot may be gone.

And the dry and cold weather has endangered California’s $2 billion citrus industry. Early projection suggesting that 40 percent of California’s orange crop and 20 percent of its lemons could be lost, amounting to more than $400 million in loss revenue.

Add it all up and fruit prices may jump 2.5 percent to 3 percent this year.

To add insult to injury, beef prices are at their highest level since 1987. Just in time for growing season. That’s because less corn meant less feed for cattle which translated to less supply. Couple that with an increase in export demand and beef prices rose 25 cents from January to February.

Industry analysts say there could be more hikes to come.

What does it all mean? Hold on to your wallet this summer.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

GHARIB: And coming up, meet the company that’s trying to develop the next big thing in technology. That may one day make your smartphones and tablets obsolete. That’s next.

(MUSIC)

MATHISEN: The future may be a lot closer than you think. Imagine not needing your smartphone or tablet and instead getting all the information you need from a pair of glasses. One Silicon Valley start up is trying to do that and sees endless possibilities for both consumers and businesses.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Up in the hills above Silicon Valley, 30 engineers live and work together in a modern day commune where the goal is to create a revolutionary product.

UNIDENTIFIED MALE: Here, we’re looking at a model of a house and separating the various layers of it.

LIPTON: Welcome to Meta, a leader in the growing field of augmented reality. Put on Meta’s glasses and your reality is enhanced with holograms that you feel you can touch and move with your hands. When I tried it, I saw a 3D image of a building I could examine and move around the room.

Analysts at Gartner (NYSE:IT) say Meta could appeal to professionals who want to work in 3D environments with their hand. Architects can show holograms of their buildings to clients. Interior designers could show customers what a couch would look like in their living rooms, and Meta says it’s already been in touch with Boeing (NYSE:BA) about potential applications.

There are also big possibilities in the field of visual entertainment.

MERON GRIBETZ, META CEO: Most of all, I think, entertainment and gaming are extended benefits from this. People just want to see 300-inch TV screen that’s in 3D and they want to see the Jurassic Park dinosaurs heads swinging across their living room, and when they press (INAUDIBLE), they could walk around that head because we’re tracking the world.

LIPTON: Meta has already raised close to $10 million in its first year. Its high-profile investors include Dolby Digital, Y Combinator, and Tony Hsieh of Zappos.

Meta’s glasses will be available through its Web site this fall for $3,000. The company’s CEO sees disruptive potential in the technology.

GRIBETZ: Then could you begin imagining a world where you don’t have to carry around these flat devices and remember if they are charged and remember, you know, if you bought them in your suitcase to work today. But you just have a pair of glasses that encompass everything.

LIPTON: It may be a long time before Meta is the must-have product that replaces our smartphones and tablets. The technology is still in its infancy.

Meta is often compared to Google (NASDAQ:GOOG) Glass which goes on sale tomorrow for one day only to the public. Google’s wearable lets users search the web, use apps and respond to voice commands. But with Meta, you can see objects in three dimensions while Google (NASDAQ:GOOG) is 2D.

Gribetz says he’s not interested in selling his company but instead wants to turn it into a transformative powerhouse.

(on camera): We’ll see this fall whether consumers and companies are excited as he is about Meta’s hi-tech and high price glasses.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

GHARIB: And finally, we leave you this — some good news as many Americans are racing to meet tomorrow’s tax line. Your chances are being audited are lower than they’ve been in years. Steep budget cuts means Internal Revenue Service has fewer agents auditing returns than at anytime since at least the 1980s. If you look at last year’s numbers, the IRS audited less than 1 percent of all returns from individuals and according to the IRS commissioner, this year, the numbers will be even lower. You’re feeling better, Tyler.

MATHISEN: That’s a small comfort.

GHARIB: Did you get your taxes in?

MATHISEN: I did, I finished.

GHARIB: That’s good. He did.

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

MATHISEN: And I’m Tyler Mathisen. Thanks for me as well. Have a great evening, everybody, and we hope to see you right back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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