Transcript: Tuesday, June 17, 2014

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

surprise jump in consumer inflation and the Federal Reserve is taking
notice. Will policymakers hint that interest rate hikes might be coming
sooner rather than later at the news conference tomorrow?

startups that are changing everything, revolutionizing business and one day
maybe Wall Street`s high flyers.

GHARIB: And want a tip? A ground breaking new study says one quarter
of all public company deals may involve some kind of insider trading.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Tuesday, June 17th.

MATHISEN: Good evening, everyone, and welcome.

Some people think the great war on inflation begun more than 30 years
ago by Fed Chief Paul Volker has long since been won. But every now and
then, like today, calls that victory into question, at least until the next
number comes out.

The consumer price index rose 0.4 percent in May, twice what
economists expected, and the largest increase in more than a year with
prices for gasoline, food, clothing and just about everything else moving
higher last month. A little inflation is not necessarily a bad thing. The
Yellen Fed after all thinks the Goldilocks number for the CPI (NYSE:CPY) is
2 percent.

Today`s figure annualized is well above that, of course.

So, how will the Fed process that number as it begins a two-day rate
setting today?

Steve Liesman examines.


the United States, remarkable for how low it`s been for so long, surprised
to the upside in May. Immediate concerns turn to the impact of higher
prices of consumers and whether the Federal Reserve could be forced to
raise interest rates sooner than markets expect. Inflation in May rising
0.4 percent, the biggest monthly jump in a year and 2/10 above Wall
Street`s expectations.

It was the four straight rise in the yearly rate and for the first
time since February 2013, both the core inflation rate, which excludes food
and energy, and the headline rate, which includes everything, are at or
above 2 percent. That`s close to what the Fed has been aiming for. But
participants quickly began to worry, what if prices keep rising beyond the
Fed`s target.

DREW MATUS: They`ve talked that they want inflation higher, but how
much higher? And is above 2 percent bad or is above 2 percent OK for some
period of time? It`s been very unclear as to their goals with regard to
inflation, and those goals are, you know, then unclear to people who are
trying to figure out the timing of the rate hike cycle.

LIESMAN: Part of the concern is that price gains were broad-based.
Airline fares grew an outsize 5.8 percent on the month. Home utility costs
up nearly 1 percent and prescription drugs, food, and gasoline prices all

Economist Diane Swonk at Mesirow Financial writing, quote, “With
staggering wages in the U.S., those price increases will act as a direct
tax on consumers and curtail spending if they persist.”

The Fed began a two-day meeting on Tuesday and it`s generally pledged
to keep interest rates low while trying to raise inflation. But Fed Chair
Janet Yellen will be quizzed on inflation at her press conference, and the
questioned is whether she and the Fed thought through what happens to
interest rates and the economy if inflation raises faster and higher than
everyone expects.



GHARIB: American business leaders are also keeping a close watch on
the health of the economy. According to a new survey of tough chief
executives by the business roundtable, more optimistic about hiring in
sales but some say their biggest concern comes from Washington, mostly
because lawmakers haven`t made any progress on changing corporate tax laws
or other business friendly legislation.


JOHN ENGLER, BUSINESS ROUNDTABLE: We need an investment climate that
has companies wanting to locate headquarters here, not elsewhere. We need
a tax structure and trade laws that are competitive. So, it is an
ideology, as much as effectiveness and we aren`t very effective as a
government and with a growth strategy where I think trailing miserably.


GHARIB: The survey also found that more than half of U.S. companies
don`t expect to increase capital spending this year.

MATHISEN: Green hours across the board on Wall Street today, despite
that jump in consumer prices and a sizable drop in new home construction in
May. Bond yields moved higher on the inflation number, giving the
financial sector a little boost, and airline stocks rose after the price of
oil dipped by just a little bit.

The Dow today up 27 points, the NASDAQ up 16 and the S&P popped four,
just 10 points shy of another historic high.

GHARIB: Another big top pick of conversation on Wall Street today,
insider trading, an exhaustive new study concludes a quarter of all public
company deals involves some type of insider trading. That`s one in four.

The report conducted by professors from New York University and McGill
University examined transactions going back to 1996.

Andrew Ross Sorkin wrote about it in today`s “New York Times
(NYSE:NYT)” and he joins us from New York.

So, Andrew, I guess this confirms what many of us always suspected,
that insider trading is a lot more common than most people were led to
believe. So, I guess the question is, if it`s this pervasive, why is it
that regulators and the Securities and Exchange Commission just aren`t more
on top of this?

ANDREW ROSS SORKIN, CNBC: Well, that is the question. And I —
you`re absolutely right, we knew or at least we thought extensively that
there was a lot of insider trading going on. We have seen the Oliver Stone
movies. However, I don`t think it was appreciated that it was to this
degree, 25 percent of all publicly traded the transactions and I covered
mergers and accusations for more than the past decade. I don`t think I`ve
ever seen a study that started in 1996 and got to 2012, and it was
remarkable in part by the way, they say statistically that the chance for
randomness, the chance that the stock moved randomly, three in 3 trillion.
Your odds would have been better at the lottery.

So, the question then becomes, as you said, why hasn`t the SEC been
able to pursue these cases? And I think the answer is funding. It`s
funding. It`s manpower. It`s resources.

And the study does a good job of looking at the math that the
professors did, and then comparing it to what the SEC. The SEC only went
after about 4 percent, maybe 5 percent of the nearly 2,000 deals that they
looked at. So, it does raise that question.

By the way, it`s one thing to see the abnormal trading. It`s another
thing to then actually be able to pursue it and in a resource constrained
environment, you are seeing the SEC go after big deals, big names, big
headlines as a deterrent, but it maybe that you need to go further down the

MATHISEN: Let me understand, they went after 4 or 5 percent of the
total deals or 4 or 5 percent of the 25 percent in which insider trading —

SORKIN: There was — my understanding is there was litigation of some
sort involving, I think, between about 4 percent and 5 percent of the total
deal volume that they looked at. But that is not 25 percent.

MATHISEN: No, that`s 1/5 of 25 percent.

SORKIN: There is still a 20 percent spread and then the question
becomes, from a policy perspective, how do you approach the smaller pry, if
you will? Do you take a sort of Mayor Rudy Giuliani approach? Which was,
you know, he went after the squidgy man on the street and said, if we do
all the small stuff, it will bubble up.

They have taken the top down approach.

MATTHEWS: Where was the trading, the insider trading taking place?
Options or the stocks themselves.

SORKIN: That`s the other fascinating part about this study. We often
look at stock before a transaction. It`s not the stocks where the real
action is taking place. It`s in the options.

It`s people taking out of the money options and puts ahead of the
transaction where they can leverage their bet and frankly, the SEC isn`t as
focused on that as then they are on stocks and also, not focused on
transactions that don`t get completed.

So, oddly enough, there are lots of deals that get announced and don`t
get completed. If they don`t get completed, a 22 chance — a 22 times less
chance that the SEC will go after them.

GHARIB: Andrew, we`re really run out of time. But real quickly, is
there a silver lining here? Can we expect changes?

SORKIN: I think the silver lining is s that the SEC is taking this
more serious than they did during the period of study frankly. They`ve
recently got involved with Palantir Technologies, which has helped the U.S.
government go after terrorists and really crunch big data numbers and might
be able to do it this way.

GHARIB: Really interesting topic. Thanks so much, Andrew Ross

SORKIN: Thank you.

MATHISEN: Grim outlook today about oil growth targets in Iraq, just
as global demand picks up. The international agency said that Iraq`s
targets for growth in the oil industry are at risk, as escalating violence
and political instability threatened crude production and supplies.

Iraq, the second largest oil producer in OPEC.

Well, the path of violence by Islamic rebels reached Iraq`s capital
city of Baghdad today, following the seizure of key northern cities in the
Sunni heartland over the past week. But as Michelle Caruso-Cabrera reports
from Iraq, no region of the country is safe from the unrest or its impact.


over): A car bomb exploded in north Baghdad today in a market frequented
by Iraqi Shiites. It could be a sign of things to come as the rebels who
are from the Sunni sector of Islam push further south into a province just
north of the capitol.

Baghdad is starting to look like a ghost town as residents flee.

A playground along the banks of the Tigris appeared abandoned, shops
usually teeming with people buying food and provisions, especially with the
holy month of Ramadan, set to begin at the end of the month, stood empty.
Throughout the country, Iraqis are trying to escape violence. Hospitals in
Iraq`s Northern Kurdish region are struggling to cope with an influx of
patients injured in attacks by the militants.

In the Kurdistan capital of Erbil, the 35 beds of the city`s only
trauma hospital are not enough for the dozens of patients they need to

(on camera): We`re here on the border of Kurdistan and the rest of
Iraq. Mosul, a city captured by the insurgents just last week, is only 20
miles that way. Hence, why about 2,000 Iraqi have poured over into the
border, into this camp accomplished by the United Nations.

As you can see, the conditions are brutal. They`re living in tents.
There is a couple stops with this communal running water. They have to
line up in the blistering heat, so they can get mattresses, blankets,
pillows, portable grills.

Their biggest issue is they don`t know when they are going home.

(voice-over): Also north of Baghdad, Iraq`s biggest oil refinery in
Baiji was shut down last night. It`s foreign staff evacuated, officials
telling “Reuters”. Baiji is one of three oil refineries in Iraq.

The price of oil hovering near highs for the year, even though Iraqi
exports remained unaffected, and the CEO of BP told reporters today, the
company has actually increased production.

BOB DUDLEY, BP CEO: BP`s assets are down in the south, near Basra,
down near the Kuwait boarder. They are a long way from the trouble of
production being increased in response from the government. It`s a long
way. We`re, of course, vigilant. We have removed nonessential production
staff out of there, and continued to operate. We haven`t missed a beat so

CARUSO-CABRERA (on camera): And the White House announced this
afternoon that President Obama will meet with leaders of Congress to
consult them about the situation in Iraq, as administration weighs what the
U.S. response should be.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Northern Iraq.


MATHISEN: And still ahead, revolutionaries and visionaries. Three up
and coming companies that could alter the way corporate giants do business.


MATHISEN: General Motors (NYSE:GM) CEO Mary Barra is slated to
testify at the House hearing tomorrow about the company`s internal
investigation, into the long delayed recall of 2.6 million cars over a
faulty ignition switch. The defect is linked to at least 13 crash-related

In prepared remarks released today, Barra outlines the safety and
training policy changes G.M. has already made and the establishment of a
victim`s compensation fund that will start processing claims August 1st.
Her appearance comes just after the automaker announced a recall of another
3.4 million cars with a similar defect, that can cause the engine to stall
if the key is jarred out of position.

GHARIB: In other auto news, ride sharing businesses like Uber, Lyft
and Wings are getting bigger every day but could be facing a pileup of
regulation, including being banned from taking riders to and from San
Francisco`s airport. The California state legislature took up two bills
today aimed at making the businesses safer and that includes requiring that
the cars are higher to drive passengers that meet all state safety
standards and that they have to carry commercial insurance coverage for the
entire time the drivers have the app turned on, not only when they have
paying passengers on board.

MATHISEN: Services like Ube r are shaking up the traditional business
model of taxi fleets and limousine companies. And today, CNBC, which that
produces this program, unveiled its Disruptor 50 list of the most
innovative, private companies that are transforming business and taking on
long established industry giants.

Julia Boorstin looks at the biggest disruptors of all.


you to space to eradicating previously incurable diseases, the Disruptor 50
are ambitious innovative private companies taking on the public giant.

Here are the winners — two of the top three are shaking up retail.
In the third spot, Etsy is providing a platform for independent artisans to
become entrepreneurs and reach shoppers around the world. With over 40
million members buying from over 1 million active shops, which lists more
than 25 million items.

Founded in 2005, the company has raised $100 million to build on its
vision reimagining retail, taking on everyone from department stores, to
eBay (NASDAQ:EBAY), to Amazon (NASDAQ:AMZN).

Number two, Warby Parker designs and sells vintage inspired eyeglasses
and sunglasses at a fraction of the cost of traditional frame.

General Catalyst, Hemant Taneja, in fact, Warby Parker, and four other
startups on the Disruptor 50 list.

HEMANT TANEJA: A lot of these companies, if you look at them, they`re
very unique. There is not sort of five of them in their categories. They
are clear market leaders. And that`s really where the premium evaluations
come because they are totally rethinking their own categories and they have
monopolistic characteristics in terms of how big they can be.

BOORSTIN: The four-year-old upstart has raised $116 million to take
on Luxottica, the world`s largest eyewear company, with over 80 percent of
the market and it`s so successful so far, it`s already spawned copy cat.

And topping the list, Elon Musk`s spacecraft and rocket maker, SpaceX.

ELON MUSK: I think what we`ve done thus far is relatively minor,
honestly. I characterized it as evolutionary, whereas, what we hope to
achieve and perhaps can encourage the rest of the industry to do is to
achieve full reasonability with rocketry. That`s never been done.

If we`re able to achieve, then I would say, at that point, that`s
really quite disruptive.

BOORSTIN: The 12-year-old company has raised a quarter billion
dollars in venture capital funding, disrupting aerospace, defense and
transportation giants, including Boeing (NYSE:BA), Lockheed Martin
(NYSE:LMT), and Orbital Science Corp.

As Musk and other disruptors shoot for the stars, they could be Wall
Street`s next high flyers.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in New York.


MATHISEN: For a list of all 50 companies on the list, head to our Web

GHARIB: A Senate hearing on high frequency trading drove three
financial stocks higher, and that`s where we begin tonight`s “Market

Shares of E*TRADE, Charles Schwab and TD Ameritrade (NASDAQ:AMTD) all
surged as lawmakers tried to determine the impact of high speed high
trading on investors. The relationship of those firms have with client and
businesses were called into question, and an executive from TD Ameritrade
(NASDAQ:AMTD) faced some real tough questions from Senator Carl Levin.

Despite that and maybe because no definitive regulation came out of
the hearing, shares of E*TRADE popped almost 8 percent to $22. Schwab rose
5 1/2 percent to $27.30. TD Ameritrade (NASDAQ:AMTD) up almost 5 percent
to $31.58.

United Postal Service is changing the way it charges you to ship
starting this holiday shopping season. UPS will begin charging shippers
according to the size of the box being used, not just how much it weighs.
And that`s for all ground shipments.

The package delivery giant says the new pricing model will lower its
fuel costs. Its rival FedEx (NYSE:FDX) made a similar change last month.
UPS shares edged up a fraction to $101.61.

Amazon (NASDAQ:AMZN) is still mum about its rumored smartphone, but
the device may already have an exclusive carrier. According to “The Wall
Street Journal”, AT&T (NYSE:T) will be the only wireless provider to carry
Amazon`s new phone, which CEO Jeff Bezos is expected to unveil tomorrow.
Shares of Amazon (NASDAQ:AMZN) were off slightly to $325.62. And AT&T
(NYSE:T) rose slightly to $35.02.

MATHISEN: Dividend news lifted shares of U.S. Bancorp (NYSE:USB)
today. The company increased its quarterly dividend by 6.5 percent. The
new payout of 98 cents a share will be paid to shareholders in July. The
stock up slightly to $43.13 was the finish there.

After the close Adobe Systems (NASDAQ:ADBE) reported better than
expected quarterly profit and revenue. The maker of programs like
Photoshop was helped by strong growth in subscription sales. Shares rose
sharply after-hours, as you see on that graphic. During the regular
session, the stock was off just a bit at $67.54.

GHARIB: Some encouraging news about philanthropy. Wealthy Americans
are donating more money than ever to their favorite charities. Robert
Frank has more on the surge in generous giving.


Americans are opening their wallets. Charitable giving in the U.S. hit
record levels, topping $353 billion last year, marking the fourth straight
year of increases. The gains came mainly from individuals, not
corporations — thanks in part to mega-gifts of $80 million or more from
the wealthy. But the giving was targeted and not all causes felt the
money. Education, health care and the arts all saw increases while giving
to soup kitchens, homelessness, international causes and religion declined.

STACY PALMER: The groups that did the best were education and arts
and that`s because the wealthiest are giving generously and they tend to
favor those causes. And so, we saw mega gifts, multimillion dollar
donations being made to those kinds of causes.

FRANK: Many thought the numbers would be bigger. Conventional wisdom
holds the charity generally follows stocks, but the 4 percent gain in
charity last year, was well below the double digit market gains and the
gains in household wealth.

(on camera): Now, the U.S. remains far and away the most charitable
country in the world. The next highest is the United Kingdom with only
about $20 billion a year in charitable giving.



GHARIB: Coming up as country`s compete on the world stage of soccer,
we continue to look at some of the best global rivals in the business
world. Tonight, Apple (NASDAQ:AAPL) versus Samsung.


GHARIB: Soccer fans are still cheering the U.S. team`s opening round
World Cup victory last night, while South Korea plays its first game

But right now, the countries faced each other as NBR stages its own
World Cup of sort, the ultimate stock cup, comparing corporate rivals that
go head-to-head against each other on the global stage.

Now, last week, it was Coke versus Pepsi. Tonight, it`s Apple
(NASDAQ:AAPL) versus Samsung.


GHARIB (voice-over): Say the name Apple (NASDAQ:AAPL) and there is
something magical about it for gadget lovers around the world. No wonder
it was recently ranked as the world`s most valuable brand, jumping ahead of
Coca-Cola (NYSE:KO). Since its founding on April Fool`s Day in 1976, Apple
(NASDAQ:AAPL) has become the world`s largest publicly traded company cap.
Headquartered in Cupertino, California, Apple (NASDAQ:AAPL) has sales of
more than $170 billion last year.

Over the years, Apple`s core has morphed from personal computing to
mobile, but its mission stayed the same. Innovation, it`s iPods, iPhones,
and iPads are not only easy to use but stunning and sleek to look at.

Thousands of miles away from Silicon Valley, Samsung has challenged
Apple (NASDAQ:AAPL) in phone technology and design. Over the past two
years, it`s captured the title as the world leader in mobile phone sales.
Thanks to its popular Galaxy big screen phone.

Samsung is older and bigger than Apple (NASDAQ:AAPL), founded in 1938
and headquartered in Seoul, South Korea. It rang up sales of $327 billion
last year. It`s now building the world`s largest cell phone factory in
Vietnam and expanding into drug making and biotech. And why not? As South
Korea`s biggest conglomerate, it`s already a major player in everything
from shipbuilding and construction to finance and aerospace.


MATHISEN: So, who has the stronger game plan in this big match?
Apple (NASDAQ:AAPL) or Samsung? Let`s find out from David Garrity.

David, welcome. Who`s your choice here? Apple (NASDAQ:AAPL) the
winner or Samsung?

DAVID GARRITY, GVA RESEARCH: Our choice hands down is Apple
(NASDAQ:AAPL). We`re looking in the September 2014 timeframe with the
introduction of the iPhone 6, which is going to be a larger screened phone
— a product category that Samsung up until now has dominated.

The expectation is, if Apple (NASDAQ:AAPL) is coming up with a larger
phone, maybe 4.7 to five inches in terms of dialogue length, that you can
see a fairly substantial upgrade coming out of not just Apple`s current
customers but also bringing in names from other brands such as Samsung.

GHARIB: So, David, I`m guessing that if somebody has some new money
they want to invest in a stock, you say put it in Apple (NASDAQ:AAPL) over
Samsung. Tell us why and how much growth you can expect in your investment
over the next year.

GARRITY: Oh, we think bottom line, we`re looking at probably an 18 to
20 percent upside in Apple (NASDAQ:AAPL) shares from current levels. So,
we would say, a price level of about $107 a share, including your dividend
income, but we would say what`s more important, we`re looking at the
earnings acceleration coming from the new product introductions. We also
note that ahead of that, we`re looking at a situation where for Samsung,
even though we do look for upside of over the next 12 months, for Samsung.
We do note that the company has been missing their expectations in terms of
tablet PC sales, and they`ve also ramped down their smart phone production
to clear out excess inventory and dealer channels.

MATHISEN: So, does this mean that you — the fact that you like Apple
(NASDAQ:AAPL) more, does this mean you dislike Samsung? Do you think
Samsung is a loser or just not as big a gainer?

GARRITY: We think that, you know, both companies are growing because
arguably, their — you know, one or two, depending upon how you look at it
in terms of the smart phone and tablet PC categories. But we would say
that, you know, if we look at the companies, if you`re looking at Samsung,
you`re looking at the company that has exposure to far more commodity-
oriented markets, whether it`s semi-conductors or whether it`s televisions
— obviously, you indicated earlier in the spot what kind of exposure that
they are diversifying into.

In the case of Apple (NASDAQ:AAPL), you`re looking at the company,
which is a premium brand and very much focused upon consumer electronics.
So, from that stand point for the investor, less risk of exposure to
commodity markets.

GHARIB: So, you know, David, in technology — especially with this
particular companies, there is always the question of who is more
innovative one, whose the one that`s going to, you know, come out with the
jazzy next product.

When you look at the leadership of these companies, we know Tim Cook
at Apple (NASDAQ:AAPL), the CEO of Samsung less known. But who`s got the
better vision?

GARRITY: We think that Cook, you know, certainly is talking about the
pipeline of new products that they`ve got coming and arguably, we`re going
to looking forward to seeing what those are. Samsung on its own has been a
very great prodigious creator of intellectual property, but not necessarily
as well-known for bringing in brand-new product categories. Samsung
perhaps known more as a fast follower in terms of technology innovation.

MATHISEN: You sound very confident that there`s going to be a larger
screen phone coming from Apple (NASDAQ:AAPL). They have resisted that for
a long time. They could have done it sooner I supposed. What makes you so
confident, quickly?

GARRITY: One, I think that Apple (NASDAQ:AAPL) certainly is
responsive to understanding what consumer preferences are. So, I think
that, you know, it`s time to see from Apple (NASDAQ:AAPL), a larger format
factor phone. And from that standpoint, you know, checks into the supply
chain in the Far East, where they are actually building these products now
bear this out in terms of looking at the larger size screen.

We think that there are also important some other important
capabilities like near field communications and at sea, which we think will
precision Apple (NASDAQ:AAPL) well in terms of being an innovator for
payment services or as payment solutions being driven by mobile wallets on
this new iPhone.

MATHISEN: David, thank you very much.

Match to Apple (NASDAQ:AAPL) tonight, David Garrity with GVA Research.

You just heard which stock our guest prefers right now. We want to
know what you think? Apple (NASDAQ:AAPL) or Samsung? Which is the better
buy? Vote on our ultimate stock up on our Website,

GHARIB: Meanwhile, now for the results from last week`s NBR`s
ultimate stock cup poll — that`s a tough one to say — when we asked you
to choose between Coke and Pepsi. And the winner by a wide region in the
global soda war is Pepsi, which is really kind of interesting because our
guest that night —

MATHISEN: Picked Pepsi as well, picked Pepsi. It has more
businesses, possible split up there, like it a little bit better globally.

GHARIB: Who — what do you think our viewers are going to say about
Apple (NASDAQ:AAPL) and Samsung?

MATHISEN: Don`t pick (ph) that bad apple.


OK. We`ll see next week. That`s NIGHTLY BUSINESS REPORT for tonight.
I`m Susie Gharib. Thanks so much for joining us.

MATHISEN: Apple (NASDAQ:AAPL) is two to one in extra time.

I`m Tyler Mathisen. Have a great evening, everybody. We`ll see you


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