Transcript: Wednesday, June 4, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Sizzle or fizzle. The economy is growing again but not at the pace that experts had been hoping for. And that could have an impact on your money.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Data discrepancies.
Why more than 2 million people who got health insurance under the Affordable Care Act may now be at risk of losing it.

GHARIB: And solar revolution. Panels are popping up deep in the desert, potentially changing the way we fuel the future.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, June 4th.

MATHISEN: Good evening, everyone, and welcome.

It was another record close for the S&P 500, the fourth one in the past five sessions and the 16th of the year so far. And all the major averages ended the day with modest gains.

That happened despite some sort of choppy lackluster data really about the U.S. economy and light trading volume ahead of tomorrow`s European Central Bank meeting, and the big one on Friday, that would be the May job`s report.

Today, a setback in the labor market as the reading on private job creation last month was short of the forecast. And the U.S. trade gap got a lot wider in April.

Worker productivity down in the first quarter of the year with all that snow and cold paralyzing factories, offices and retailers and more.
But just as winter turned to green we saw some shoots in the economy in recent weeks, as it slowly but maybe not so steadily returns to growth.

Steve Liesman has more.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a day of mixed economic data that on balance kept intact the view that the U.S.
economy is snapping back from a winter of severe weather. But the data raised questions about the strength of that snapback. The ADP reported that 179,000 private sector jobs were created in May. That`s below the estimates of 210,000 on Wall Street for the government jobs report this Friday.

MARK ZANDI, MOODY`S ANALYTICS CHIEF ECONOMY: I`d says it`s disappointing. You know, it suggests that monthly job growth is probably still south of 200,000 per month, and that`s about where we have been for the past three years.

LIESMAN: Meanwhile, the trade deficit came in billions above expectations with a surge of imports from China, a higher deficit subtracts from growth. So, economists marked down first growth gross domestic products from a 1.1 percent decline.

And the second quarter rebound also took the hit, falling to plus 3
1/2 percent now.

But the increase imports could mean that retailers found inventory levels too slow and are re-stocking shelves confident in future sales on a robust consumer.

DREW MATUS, UBS CHIEF ECONOMIST: The economy seems like it`s in a good shape, it`s accelerating. Everything seems to be lining up nicely.
If we can just avoid an oil spill in the gulf or bad winter weather or bad spring weather then, you know, we should be fine.

LIESMAN: On the rosy sign as well, the Fed`s Beige Book, which collects economic data from around the country, said activity expanded in all 12 of these districts. All the districts also saw strength in manufacturing especially autos and aerospace.

The outlook for interest rate as measured in the survey of market participants by CNBC is improving as well. The 10-year government bond yield forecast to rise 2.9 percent by year end. That`s down from a prior forecast of 3 1/4 percent in the last survey.

And respondents forecast less Central Bank tightening by the Fed next year. Wall Street will follow closely tomorrow from the European Central Bank, with a survey shows expectations are for a rate cut, even charging a negative to positive rate. That is making banks pay for keeping money on deposit at the ECB. That`s a potentially historic development designed to combat waning inflation and waning growth on the continent.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: We turn now to two market pros for strategy investments on what investors should do with their money given the weak economic forecast.

Joining us here on the set, Peter Boockvar, he`s chief market analyst at the Lindsey Group. And from Washington, Michael Farr, he`s president of Farr Miller & Washington.

Gentlemen, thank you both for joining us.

Peter, let me begin with you.

You know, you are saying that we have a mediocre growth in the economy. Actually, we have had mediocre growth for a couple of years now.
Why the sudden worry about the economy? What`s changed?

PETER BOOCKVAR, THE LINDSEY GROUP CHIEF MARKET ANALYST: Well, I`ll give you the quick fundamental concerns I have with the trigger. Like you say, a mediocre economy, 2 1/2 percent at best, not the 3 percent plus on a sustainable basis, got a lot of people hope for going into the year. We have profit margins that are at historic peaks, that are now beginning to roll over. So, that is going to be a negative impact on earnings.

Valuations, in my opinion, are very excessive, because we have — looking at price, the sales, the market cap to GDP, the Shiller P/E Ratio that takes into account the profit margins are all just shy at historic highs. We have divergences within the market, with small cap stocks are beginning to lag.

We have sentiment that is extraordinarily bullish. Today, Investors intelligence had the highest level of bulls above August 1987 and October 2007.

And the catalyst is the Fed ending Q.E. This is a trillion dollar stimulus program that is going to zero by October. After Q.E. 1 and Q.E. 2 ends, the S&P fell 15 percent to 20 percent, and the economy rolled over.
I don`t think this time is going to be different.

MATHISEN: Michael, if I read your view of the economy, it`s not all that different from what Peter just said. But you conclude this morning`s note by saying, this sort of economy`s failure to break out this May (ph) will likely result in the Federal Reserve that remains fully engaged in supporting asset prices. Therefore, you say the big risk is to not own stocks.

But Peter has just pointed out that the Fed isn`t really fully engaged to supporting asset prices. They`re pulling out. All that stimulus is going to be gone in four months.

MICHAEL FARR, FARR, MILLER & WASHINGTON PRESIDENT: Right. So, here`s the deal. And Peter is not wrong. I wonder if the profit margins are actually starting to deteriorate, but we could talk about that. But I agree with pretty much everything Peter said. I agreed with Alan Greenspan in 1996 when he talked about irrational exuberance. I thought the market was expensive in `97 and `98. If you were out, it cost you a bunch.

Expensive markets can become more expensive. So, I think it`s a time to eschew risk and make sure that you own things that have good fundamental values. I see we`re going to be in a kind of creeping 2 percent, 2 1/2 percent GDP growth math.

MATHISEN: But give me, Michael, what about Peter`s point which is that the stimulus, a trillion dollar stimulus is coming out of the system when the Fed pulls back from the quantitative easing of the bond-buying.

FARR: It`s something that we`ve seen every time. But we`ve seen something a little bit different here, which is weird for the bond market.
They have been selling on rumor and buying on news, that`s kind of the opposite of what Wall Streeters will tell you to do.

When the Fed starts to jawbone about raising rates, markets go down.
When they actually come out and do it, the market seems to rally. And when they actually started to taper, the market started to rally.

So, I don`t think the Feds really is going to be able to leave in September, but we`ll see.

GHARIB: All right. So, Peter, let`s give you concrete advice from you, from what should people do with their money. OK, let`s leave the economic debate aside and all the philosophies of what one central bank did in another. What should people do right now?

BOOCKVAR: The most hated asset class right now is cash, and I think investors need to look at cash as an optionality on taking advantage of what I see could be a pretty dramatic pullback when the Fed is done with the Q.E. So, I would look to raise cash. I would look to sell very expensive companies.

GHARIB: You tell people to take profits where they`ve already had some good returns right now.

BOOCKVAR: Yes, because we have to understand that the extraordinary run this market has had has pulled forward future returns, especially 2013.
So, if you think you`re going to get a 10 percent on the stock market over the next five to 10 years, I think you`ll be sadly mistaken.

So, having some cash more than what you had over the last couple of years gives you some firepower to take advantage in my opinion of better values.

MATHISEN: Michael, I know you to be a cautious guy. You play with other people`s money. You`re no big risk-taker here.

FARR: Right.

MATHISEN: Do you agree with what Peter just said? It`s now the time to pull back? Or, did I hear you wrong, you seem to be saying that, well, there`s nobody else, no other game in the town, so you better be invested?

FARR: You heard me right. And I think Peter is — and you can listen to Peter. Peter is one smart guy.

I don`t think you can do what Peter is suggesting that investors do.
I don`t think you can time the markets. I don`t think you can decide when the right time to go to cash is and think that you`re are going to get it right. And after you build up cash and you see the market go down, you`ll be so busy patting yourself on the back, you won`t get back in and reinvest.

Staying in the market and investing over the long-term is the way long-term investors make money. You might raise a little cash on the margin, Buffett might do that. But he`s not selling his Coca-Cola (NYSE:KO). He`s not selling his insurance.

Stay invested for the long-term. Yes, it may pull back. Markets do that.

But over the long-term, retirees and 401(k) owners don`t try to start selling, stick with this market over the long-term. These valuations are high. They`re not crazy.

GHARIB: All right. We`re going to leave it up to investors to decide between you and Peter.

Thank you very much, Michael Farr with Farr, Miller & Washington, and Peter Boockvar with the Lindsey Group.

MATHISEN: Well, as we told you at the top of the show, it was another record-setting day for the S&P 500, despite that jumble of economic data and despite the debate we just had. Here is a look at the final numbers on the Wall Street for this day.

And Dow added 15 points, the NASDAQ was up 17, and the S&P was higher by three to finish at 19,027.

GHARIB: President Obama arrived in Belgium today, where he`s scheduled to participate in the G-7 Summit, of the world`s biggest economic powers. And the big focus of the two-day meeting is Russia, which wasn`t invited this year because of its handling of Ukraine`s Crimea region.

Julia Chatterley is in Brussels and has more on what`s at the top of the summit`s economic agenda.

(BEGIN VIDEOTAPE)

JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Leaders of the G-7 nations are meeting here in Brussels for the first time in 17 years that Russia hasn`t been part of the discussion. But I have to say that Vladimir Putin is certainly central to the agenda that`s been set.

But Angela Merkel, the chancellor of Germany, reset the tone and laid out the laws as far as the situation is concerned. She says if we don`t see Russia using its influence in the east of Ukraine to reduce the tensions, then they stand ready to step up the current level of sanctions.
It`s a message similar to we`ve had from President Obama and his actions this week already, beefing up the military support for eastern European nations who are concerned about the actions of Russia right now.

So, while there is an overriding message here, I think that dialogues, diplomacy needs to be current at this point in this crisis.

There is also this underlying message that they are very poised and willing to push forward on sanctions should Russia not play ball at this stage. Right now, the only dialogue going on between Ukraine and Russia was about unpaid gas payments. And that`s why on Thursday, crucial again on the agenda was energy security, reducing Europe`s reliance on Russia, the key question is, will it all just be talk or will we get concrete action as a result of these meetings?

For NIGHTLY BUSINESS REPORT, I`m Julia Chatterley.

(END VIDEOTAPE)

MATHISEN: General Motors (NYSE:GM) is expected to release the results of a three-month internal investigation into the delayed recall of millions of cars with those faulty ignition switches, even after they were linked to at least 13 crash-related deaths. “The New York Times (NYSE:NYT)” reports that current CEO Mary Barra is expected to be cleared of any wrongdoing in the recall crisis. Meantime, the automaker has apologized today for sending out recall notices to families of some of the
13 victims of those defected ignition parts.

GHARIB: A new headache for President Obama`s signature legislation, the Affordable Care Act. Data discrepancies from millions of enrollees who signed up for health care plans may mean they risk losing generous government subsidies or possibly losing coverage.

John Harwood joins us now from Washington with more on all this.

OK. So, John, you have to tell us what is going on here, and what does it tell us about the success or maybe failure of President Obama`s health program?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: I don`t think much actually, Susie. What this does is this reflects the work of the federal contractor in taking information that people filled out when they enrolled for Obamacare, and then the government had to match that against other databases they had about your income, about your Social Security status, about your family status, all that sort of thing.

Most of those as they have been examined more closely have been worked out in a favorable way. But that you still have a lot of people, a lot of information kicking around in different databases. And I think what we haven`t seen so far yet is fraud. And that would be the real threat to Obamacare. We haven`t seen that yet.

MATHISEN: What is the nature of these discrepancies?

HARWOOD: Well, for example, about half of what we`ve seen so far has to do with people`s income. And how does that work? Well, if you enroll and seek a subsidy under Obamacare, it`s based on how much money you expect to make. You estimate your income for 2014. The federal government then matches that against the last available record they have, which is what your income was in 2012.

Well, things change. And so, if you estimate your income too low and you deserve more subsidy, or if you estimated it too high and you have gotten more subsidy than you deserve, that gets reconciled on your next tax return if not before.

GHARIB: That just sounds so messy, John, trying to get that money back. So, let`s say you did get money back you weren`t supposed to get, how does the government get it back, or vice versa?

HARWOOD: Well, when you fill out your taxes, the subsidy you get under Obamacare is going to be one part of that form. So, when they see what you filed and what you`ve earned, they can figure out and that`s part of the calculation of how much tax you owe or how much tax you`re going to get back, just like with any tax filed and any tax credit people get.

MATHISEN: Very quickly, no one is going to try to make political hay out of this, are they, John?

(LAUGHTER)

HARWOOD: You saw a ton of that this afternoon. The Republicans in the House Ways and Means Committee are having a hearing next week to explore this. They see this as one more bit of evidence that the program was poorly rolled out and poorly designed. Democrats say the opposite.

Public opinion isn`t likely to shift a lot as a result of this.

MATHISEN: John, thank you very much. John Harwood reporting.

Still ahead: a look at what`s happening deep inside of the Mojave Desert that could transform the energy business.

(MUSIC)

GHARIB: Chinese state-owned media outlets want Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) to be punished for helping the U.S. spy on China. Today`s front page of the English language China daily paper lashed out at those American companies, as well as Yahoo (NASDAQ:YHOO)!, Cisco (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) for threatening the cyber security of China and its Internet users, calling them pawns of the U.S. National Security Agency`s spying program. This is the one that was exposed by NSA contractor Edward Snowden.

Now since the Snowden scandal broke, Chinese government-owned firms have ended computer service deals with IBM, Oracle (NASDAQ:ORCL) and Cisco (NASDAQ:CSCO), opting to use Chinese tech firms instead.

MATHISEN: Meantime, the U.S. government announced stricter duties and trade restrictions on Chinese made solar power imports which often cost far less than comparable U.S. manufactured items. That was like a burst of sunshine to some top U.S. solar companies. Shares of SunPower
(NASDAQ:SPWRA) up 7 percent, and First Solar (NASDAQ:FSLR) shares were 4 percent higher. But things were a bit gloomier for the Chinese manufacturers like JinkoSolar, Trina Solar and JA Solar (NASDAQ:JASO), Canadian Solar (NASDAQ:CSIQ) was also sharply lower.

So, just how big is the solar power business in the U.S.? Which companies are investing in the future of solar? And what`s the role of the federal government in promoting renewable energy?

Jackie DeAngelis has more from one of the country`s biggest solar plants in California`s Mojave Desert.

(BEGIN VIDEOTAPE)

JACK DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Deep in the desert, a solar revolution, transforming the energy industry and attracting billions of dollars in investment.

With the U.S., the world`s third largest market for solar, and the Obama administration trying to curb climate change, solar plants are spreading like wildfire.

There is the Solar Star Projects, a photovoltaic facility designed by SunPower (NASDAQ:SPWRA) and owned by Mid-American Solar, whose parent is owned by Berkshire Hathaway (NYSE:BRK.A). When complete, Solar Star will generate enough power to operate a city the size of Rochester, New York.

Ivanpah is another. This $2.2 billion solar thermal project is a collaboration of NRG and Bright Source. But it couldn`t have been completed without a $1.6 billion government loan and a 20 percent investment from Google (NASDAQ:GOOG).

While the industry has seen hockey stick growth, there is still more to come.

HOWARD WENGER, REGIONS FOR SUNPOWER PRESIDENT: The industry is now
$100 billion industry. It`s not a $1 billion per year industry. It`s not
$10 billion. It`s $100 billion per year, and growing very rapidly, more than 20 percent per year.

DEANGELIS: And it`s an industry that doesn`t just generate energy, it generates jobs.

TOM DOYLE, NRG RENEWABLES PRESIDENT: During construction, we have over 2,600 employees at the Ivanpah facility. During the project going forward, we`re going to have 65 own personnel. Over the life of the project, we`re going to generate almost $650 million in salary and wages for folks.

DEANGELIS (on camera): The government says that solar project could reduce climate change. The EPA estimating that the Solar Star Project could reduce carbon emissions to the tune of removing 2 million cars off the road over the course of 20 years.

(voice-over): Despite the great strides, the industry does have some challenges, including energy storage and infrastructure for transmission.

JASON HUTT, BRACEWELL & GIULIANI: I`m not aware of an estimate of when solar takes over in industry, but I think it`s fair to say we`re a long way away if Congress and the administration want to see the type of build out that they have seen in solar so far. They`re going to have to continue to subsidize that because the technology is just not in a place where they can compete without it.

DEANGELIS: But all great enterprises had to start somewhere. And solar companies are moving quickly to try to fuel the future.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis in the Mojave Desert.

(END VIDEOTAPE)

GHARIB: Well, solar power isn`t the only alternative energy source making news today. A division of NRG Energy (NYSE:NRG), this is one of the nation`s largest coal users, is buying North America`s largest wind farm, California-based Alta Wind Energy Center. The price, $870 million.

The move comes as NRG tries to boost its clean energy portfolio as it faces strict carbon dioxide emission standards that were announced by the EPA just this week.

MATHISEN: Higher cost weighed on Hovnanian second quarter earnings, and that`s where we begin tonight`s “Market Focus”. The home builder`s loss was wider than expected as its expenses more than offset the net increase and contracts and revenues. The company maintained a popular outlook for the housing sector. Overall, shares stumbled, down 2 percent to $4.48.

More merger talk in the health care space. The medical device-maker Medtronic (NYSE:MDT) is now reportedly looking at a takeover of London- based Smith & Nephew. The move overseas could help the company lower its U.S. taxes. Last week, there were reports that Striker made a bid for Smith & Nephew. But Striker denied its interest.

Shares of Medtronic (NYSE:MDT) popped more than 3 1/2 percent to $63.22. Smith & Nephew rose even more, up 12 percent, to $97.27.

United Health Group upped its quarterly dividend by a big 34 percent and renewed its share buyback program. The payout of almost 38 cents a share will be made to shareholders at the end of the month, and shares rose a fraction to $80.51.

GHARIB: Shares of Coach (NYSE:COH) were in the red, after a downgrade. Sterne Agee lowered its rating on the luxury retailer to neutral from buy, citing lackluster sales trends and a lower probability of a turnaround in North America. The stock fell 2 1/2 percent to $38.99.

Shares of Pandora were down today after the Justice Department announced plans to review music licensing rules. The company could be impacted and royalty fees could rise. Separately, the online radio service says its listener hours were up 28 percent in May, and active listeners increased. But the stocks still fell a fraction to $24.52.

And after the market closed, PVH reported disappointing earnings.
This is a parent company of Tommy Hilfiger and Calvin Klein. It missed on the top and bottom line.

The company also cut its full year earnings guidance. That sent shares down after-hours. During the regular session, the stock rose a fraction to $130.68.

And coming up on the program, hog farmers meet at one of the largest trade shows as the industry battles and takes precautions against a mysterious and deadly disease.

MATHISEN: Reports out this evening that Sprint and T-Mobile are nearing terms on a merger, one report says Sprint would buy T-Mobile for about $40 a share. And today, T-Mobile closed at $34.28.

It`s almost summer and if barbecuing is part of your job, get ready to pay a lot more for pork this year, and that`s because pig farmers are dealing with soaring demand and a costly virus that`s wiping out a lot of their stock.

Jane Wells has more from the world`s pork expo in Iowa.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
American pig farmers are in deep doo-doo, literally.

UNIDENTIFIED MALE: We`ve lost over 6 million pigs in the last 12 months.

WELLS: All due to a virus similar to the common cold, but so contagious (AUDIO GAP) one farmer would not let our cameras get close to his pigs, after finding out we got close to these pigs at another farm.

LARRY SAILER, IOWA HOG FARMER: We really haven`t figured out how it spread yet.

WELLS: The porcine epidemic diarrhea virus or PED, has wiped out as much as one tenth of the swine herd, because the youngest pigs get dehydrated and cannot survive. There is no cure.

(on camera): The virus does not affect humans, but it is so contagious among pigs that here at the World Pork Expo in Des Moines, they`re taking unprecedented measures to keep the virus from spreading.

RANDY SPRONK, HOG FARMER: You`re seeing boot washes, you`re seeing people change clothes. Classic would be Danish entry. We talk about boot and overall exchanges, wash your hands.

WELLS: But the virus isn`t going away. And with fewer pigs being processed and demand still strong, pork prices are way up and not likely to come down much.

DAVE STRUTHERS, IOWA HOG FARMER: Right now, you are looking at the price for a 40-pound pig is over double what it normally is.

WELLS: So, while it`s the worst of time for farmers hit with a PED virus, it`s the best of times for those whose herds are clean.

TRENT LOOS, NEBRASKA HOG FARMER: Unquestionably, the people who have not impacted by PED will have the best pork year they`ve had in quite sometime.

WELLS: And even though the other white meat cost so much, it may not matter. Beef still cost more.

For NIGHTLY BUSINESS REPORT, Jane Wells, Des Moines, Iowa.

(END VIDEOTAPE)

GHARIB: OK, say it.

MATHESIN: What?

GHARIB: Your mouth is watering.

MATHISEN: My mouth — no, I never met a piece of bacon I didn`t like. I can tell you that.

GHARIB: And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, we want to remind you that this is the time of the year your public television station seeks your support, and makes programs like this one possible.

MATHISEN: And I`m Tyler Mathisen, on behalf of your public TV station, thank you for your support. We hope you rejoin us tomorrow at this time.

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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