Transcript: Friday, July 4, 2014

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

happy Fourth of July. Welcome to a special second half outlook of NIGHTLY
BUSINESS REPORT. I`m Bill Griffeth, in for Tyler Mathisen.


Well, the first six months of the year are in the books, and the gains by
the major indexes are nothing to sneeze at. The S&P and NASDAQ gaining
around 6 percent, and while the Dow didn`t do that well, it still climbed
more than 1 percent. So, not quite the fireworks from last year, but still
solid gains.

GRIFFETH: But that`s not so ancient history, because history, nonetheless.
Tonight, we look ahead to the second half of the year and what to expect in
everything from housing to stocks to the economy.

GHARIB: And that`s where we begin tonight, the economy. Harsh winter
weather severely hampered growth in the early part of the year that was in
the evident in that eye-popping number showing the economy contracted
nearly 3 percent in the first quarter. But then slowly, the economy seems
to be finding its footing again.

So, does that mean we`re on track for stronger growth in the second half?

Steve Liesman takes a look.


watch for in the economy in the second half. The best guess is that the
economy and jobs will both strengthen — not so much because of any big
positives, but as the lack of negative ones. Most economists see 2014 as a
year where the headwinds that have held back growth are easing up. The
political high jinks that hobbled the economy last year, like the fight to
the death over the budget resulting in the government shutdown, seems to
have been resolved at least for now.

Business investment and job growth hurt by a severe winter look both to be
picking up. Europe seems to be clawing its way back, not to really strong
growth, but at least no longer negative. The big challenge we`ve been
maintaining 200,000-plus job growth monthly and how the economy will react
as the Federal Reserve gradually draws down its stimulus.

That`s your second half economic outlook. For NIGHTLY BUSINESS REPORT, I`m
Steve Liesman.


GRIFFETH: On to another leg of the economy now, housing. The first half
was not exactly stellar, showing some softness. But recent signs have many
believing that the downturn will not be prolonged. So what can heat up
housing in the second half of the year?

Diana Olick has the key.


for in the housing sector in the second half, affordability. It will
determine home sales and prices for both new and existing homes in the
second half after a weaker than expected start. It will also determine all
this, who chooses to buy a single-family home and who chooses to rent.

After a surge in apartment starts over the past two years, thousands of new
units are set to open in the second half. That could moderate rents a bit.
Mortgage rates are expected to rise a bit, weakening affordability further
and keep an eye on housing starts.

Single family was weak in the first half on flat new orders. But the
builders could make an aggressive move. Of course, they`re going to have
to lower prices.

That`s your second half housing outlook.



GHARIB: The consumer the backbone of the economy is still having a tough
time opening the purse strings and wallet. Americans are spending, but
they`re being very cautious about it. The tepid pace mirrors what`s been
going on in the economy during the first half of the year.

So, what lies ahead for consumers and retailers over the next six months?

Courtney Reagan takes a look.


watch for in retail in the second half. The two biggest retail spending
events are still ahead of us. Back to school and holiday. The good news
is most retailers are expecting a stronger close to the year. The bad news
is they`re up against tougher comparables. It may be another weak back to
school shopping season in the teen sector as more disposable income is
diverted to smartphone bills, entertainment, and sports.

FBR Capital Markets (NASDAQ:FBCM) analyst Susan Anderson thinks the missy
shopper is finally ready to start upgrading her wardrobe, after spending on
home and auto related purchases all last year.

That`s your second half retail outlook.



GRIFFETH: And joining us now with his take on the economy, we`re always
pleased to welcome back Steve Forbes, of course, chairman and editor-in-
chief of Forbes Media. Steve has a new book out now. It`s called “Money:
How the Destruction of the Dollar Threatens the Global Economy and What We
Can Do About It.”

What — what do you think of the economy right now as we go to the second
half? I mean, the stock market if it were perceived as a discounting
mechanism seems to foretell good things down the road.

stock market is looking beyond the second half and into next year after the
November elections, which looks like the Republicans are going to do very
well, which means anti-growth initiatives from Washington are going to be
fewer and fewer, and perhaps some of the current ones will be mitigated a
little bit. Markets like to anticipate the future.

So, on a sense, like a baseball player, we hit about .180 in the first half
of the year, get it up to .250, .260, not great, not to get us World
Series, but better than the first half.

GRIFFETH: It`s your multimillion-dollar contract, though.



GHARIB: To some specifics, I mean, you heard Steve Liesman`s report, I`m
talking about business investment is expected to pick up. Hiring is
expected to pick up.

Is that how you see it? How encouraged are you?

FORBES: I think it will be. Bank lending is picking up little bit. For
five years, the regulators have been pounding on banks about risks, which
means don`t lend to small and new businesses. That`s beginning to ease up.
The energy boom is still going along.

And the tapering is hugely bullish. Contrary to what most people think, QE
actually was contracting the economy. It was great for Washington, deficit
without tears, great for big companies. They can borrow at no costs all.

But for small and new businesses, very tough environment. So, what the Fed
do when they tapers means there is more money for the rest of the economy,
which is good.

GRIFFETH: Janet Yellen says she is not worried about inflation. And, in
fact, she wants a higher inflation rate. I can imagine you don`t agree
with that right now.

FORBES: It`s an absurd theory, and I think future generations are going to
wonder what was going through these people`s minds. I wish somebody in
Congress would ask her why — 2 percent, 3 percent inflation means a
thousand dollars extra cost for a typical American family.

So, somebody should ask her, why is a family having to pay an extra
thousand dollars a year for fuel and food good for the economy? Why do
they have to spend more? Why is that stimulating for economy? Spending
more for same goods and services?

It`s a bizarre theory, but it seems to have a vice-like grip on this —

GRIFFETH: Where do you see inflation right now, though? Do you think —

FORBES: Inflation, inflation, because they don`t know what they`re doing
with the dollar. Inflation is a real threat. Gold has picked up a little
bit. Not a good sign. So, you have to watch out.

The problem is the Fed operates by whim. And when you have that, you`re
like doctors that don`t know what they`re doing. You know, not a good

GHARIB: I take it that you`re in the camp saying it`s time to raise
interest rates. You know, I`m sure you`ve been hearing the sound bites in
the headlines from said policymakers every day. Another one is saying the
economy is back to normal, time to start raising interest rates.

You know, what do you think?

FORBES: It`s like rent control in the housing market and you end up
distorting the market. I think sooner they gradually allow real rates to
come again, it will actually mean more credit for the private sector,
because then banks will know what credit is costing, what they can lend it
at and have a margin, and new players can come into the game if regulars
pound the banks too hard.

So the better, the quicker they allow those interest rate controls to come
off, the better for the economy.

GRIFFETH: Your book is called “How the Destruction of the Dollar Threatens
the Global Economy and What We Can Do About It.” What can we do about it
right now?

FORBES: Ultimately, go back at least short-term to the kind of stability
we had under the Reagan administration and Clinton administration. And
ultimately, we`re going to go to something that sounds very, very bizarre
today, but it`s going to come in the next generation. We`re going to go to
a gold standard again.

GRIFFETH: You think we could go back to the gold standard?

FORBES: Absolutely. We had it for the first 180 years of this country`s
existence. If we maintained growth rates that we had under the gold
standard in the last 40 years, we`d have an economy today that would be 50
percent larger.

GRIFFETH: I know. But a lot of people, you know, would say that, you
know, we won`t have a currency that is vast enough dealing that the
financial markets and central banks have gotten so big. And it also is not
because of gold. It`s because of globalization. It`s because of more
technology, that things have changed. Not because of the gold standard.
What do you say to that?

FORBES: The classical gold standard, we had the biggest push for
globalization in human history. As a matter of fact, the 100th year of the
beginning of the great war, the First World War wasn`t until the 1990s that
we got the capital flows and the trade global international trade to
proportionate levels that we had in 1914, weren`t reached again until the
1990s. So a gold standard by making it easier to have cross border capital
flows and investment and the like because you actually know what you`re
going to get back in terms of a dollar, sort of (ph), 20 cent-dollar, 80
cent-dollar, enhances globalization. It`s like having 60 minutes in an
hour. Imagine if they floated the clock, 60 minutes one day, 48 the next.
Life would be very confusing.

Stability is good. Money is a measure of value. That`s the key thing, a
measure of value. When you start to muck around with it, you get the kind
of sluggish growth we`ve had in recent years.

GHARIB: We can always count on you giving us something to think about.

GRIFFETH: We know exactly —

FORBES: You`re very diplomatic. I like that.

GRIFFETH: His new book is called “Money”, very simply. Steve Forbes
joining us today, always good to see you, Steve. Thanks.

FORBES: Thank you.

GHARIB: As for stocks, the S&P had a decent showing in the first half, up
6 percent. But one important area that lagged the benchmark`s performance,
the financial sector.

Kayla Tausche has more on what`s expected to happen with the banks in the
second half of 2014.


watch for in the financial sector in the second half. Bulls will see bank
earnings improve alongside the economy. Consumer banks will see loan
demand keep picking up. The Feds Beige Book having shown strength across
all U.S. districts. An investment banks will reap big paydays as deal from
its M&A booms (ph) begin to close.

Costs, though, will rise at the same time. Bond trading remaining weak,
and the Fed may stop paying banks` interest. It may start charging them on
$2.6 trillion in excess reserve they hold.

Finally, BNP Paribas, Bank of America (NYSE:BAC), Citigroup (NYSE:C) could
pay tens of millions of dollars to settle legal issues.

That`s your second half financials outlook.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in New York.


GRIFFETH: Autos ended the first half fairly strong. Sales in June did
beat expectations, even General Motors (NYSE:GM) in the eye of that storm
over its ignition switch issues still managed to scratch out a gain.
Needless to say, GM will continue to be in the spotlight for the rest of
the year. And there are some trends to watch in the skies as well.

Phil LeBeau tells us what to keep an eye on in autos and airlines.


what to watch for in the airline sector in the second half of this year.
Higher fuel prices are likely to put a little more pressure on the bottom
line for airlines, and that means airlines stocks could be facing a little
more pressure themselves.

Also, expect more attention to be focused on niche startup airlines like
People Express (NYSE:EXPR), which will be flying limited schedules.

Finally, for the legacy airlines, Southwest will be flying internationally
for the first time in the second half of this year. And other carriers
like JetBlue will be expanding their offerings when it comes to coast-to-
coast flights.

Meanwhile, the outlook for the auto sector in the second half of this year
will be dominated by a few key stories. General Motors (NYSE:GM) is
expected to see the pace of recalls slow down after recalling more than 20
million vehicles in the first half of this year.

Investors will be keying in on Fiat Chrysler, which is expected to have its
IPO before the end of this year with a listing likely on the New York Stock

As for auto sales themselves, well, the pace is expected to stay strong.
Many in the industry believe that auto sales will be above 16 million
vehicles for the entire year.

That`s your outlook for the autos and airlines for the second half of this



GHARIB: Now, biotech was the sizzling sector in the first half. Between
mergers and developing drugs, the group was up about 20 percent.

What can we expect the rest of the way?

Meg Tirrell explains.


for in pharma and biotech in the second half.

The habitat space (ph) will continue to be hot with Gilead expected to
receive approval on a potent drug combination in October, and more data
will be presented on drugs from Merck (NYSE:MRK), Bristol-Myers, AbbVie and
others at the liver meeting in November.

Among biotech, expect clinical data readouts from Biogen, Intercept and
others, on important pipeline products that could have big implications for
the stocks.

And never discount M&A. It`s already been a record year and analysts
expect it the record year to continue. Valeant is pursuing a hostile bid
for Botox maker Allergan (NYSE:AGN). And the second half`s largest deal
may, in fact, be a rerun of the first half. Analysts expect Pfizer
(NYSE:PFE) to make a second run at buying AstraZeneca.

That`s your second half biotech and pharma outlook.



GHARIB: So, what`s next for the stock market and which sectors will be the
winners and the losers?

We turn now to Steven Wieting. He`s global chief investment strategist at
Citi Private Bank.

Steven, thank you so much for joining us.


GHARIB: So, who would have guessed back in January that this is where we
would be in July? What is your outlook for the rest of the year?

WIETING: We had a good first half of the year if you count in dividends as
you should. S&P 500 total return was about 7 percent.

I would doubt that we`re going to fully repeat that return. Third quarter
periods have a history of being a bit more volatile, lower volume periods.
And we do think that earnings are growing something less than what you
would annualize as a 7 percent first half of the year.

But we do expect that this unfinished economic recovery which can continue
for at least two more years of above trend growth and rising profits and
evaluations that are not terribly stretched, at least not compared to a
fixed income valuations, that will continue to see new highs over time.

GRIFFETH: As we know, the Federal Reserve is pulling back gradually month
by month on the buying that is done of treasuries and mortgage-backed
securities. Is the Fed going to help or hurt the economy in the stock
market down the road, do you think?

WIETING: Well, for the financial markets, I think it could be a source of
volatility as we conclude QE in September or October. It will put greater
focus in on what a considerable period of time in which policy rates will
be at zero really means. Fed Chair Yellen mentioned at one point six
months or something like six months to quote her exactly. But we do think
it`s a bit longer period than that and more data-dependent.

But again, the focus will be very much on what is next out of the Fed, when
at the moment, they`re continuing to ease.

GHARIB: Let`s look at some of the stock sectors in which you`re expecting
for interest rest of the year. For this first part, utilities, energy,
health care. They were the big gainers. What sectors do you think will do
well and which won`t do so well over the next six months?

WIETING: Well, we saw a backing off of long-term interest rates in the
first half of the year that we would not expect to be repeated in the
second half. There have been good reasons why we`ve not seen unrelenting
risers in interest rates, including the fact that U.S. yields are double
German yields.

But — so I think interest-sensitive sectors of the market will have a
difficult time repeating their first half performance. The energy sector
is interesting in the sense that global risks to oil supplies have picked
up, with the events both in Iraq and surrounding Ukraine being issues that
are unresolved. And that has shifted some of the benefits of an oil
production boom in the United States back to producers.

It is not something that we want to emphasize. We don`t have a very
bullish long-term view of oil given how much production and investment has
picked up. But it`s a firmer sector than it was.

In general, though, American industrial firms, you know, are an area where
we just think we will see a longer, stronger expansion for newly
competitive American industrials.

GRIFFETH: What about overseas? Do you see better opportunities, maybe
Europe as they continue to try —


GRIFFETH: — and deal with their own economic woes? China, which is
starting to create demand, the economy over there?

WIETING: Yes. I think you have to keep in mind, you know, in a place like
China, there is a terrible lack of confidence compared to what there was
some years ago. It`s a market trading with roughly the same growth rate of
earnings as the United States market, half the valuation.

In the case of Europe, people look at particularly away from the north of
Europe and say, well, these are weak and fragile economies. But that`s
when we start an upturn. And that`s exactly where we were in the U.S.
market about four years ago. As banks deleveraged, we have seen, you know,
a sort of — the U.S. being a leading indicator what`s going on in Europe.
This has been the longest period of underperformance of European shares
relative to the United States that we can record on record.

So, the European market is catching up and we think we can continue to,
particularly in the periphery of Europe.

GHARIB: OK. Thank you so much, Steven. Appreciate your thoughts.

WIETING: Thank you.

GHARIB: Steven Wieting of Citi Private Bank.

GRIFFETH: Coming up, so, we`ve taken a look at expectations for the
economy and the markets. But which hot spots might throw a wrench into the
machinery? We`ll look at that when we come back.


GHARIB: There are a lot of factors in play when it comes to energy in the
second half, as you heard from Steven just a moment ago from geopolitical
tensions in Iraq and Ukraine, to political policies here in the U.S. But
one thing is certain: oil and gas prices will clearly be in focus.

Jackie DeAngelis has more.


watch for in the energy sector for the second half of the year: crude oil
prices could continue to see volatility, hot spots like Russia, Ukraine and
Iraq already boosting prices in the first half. Those areas are not
appearing to cool off. So, traders think prices could stay high in the
second half.

Also, the U.S. is boosting its own crude oil production, and Washington
appears to be considering lifting the ban on exports. So, that, of course,
could bring prices down in the global marketplace.

We`re also watching the Keystone pipeline. While there is no date on a
decision just yet, trader thinks we could hear from Washington after the
midterm elections.

That`s your second half energy outlook.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis in New York.


GRIFFETH: So, as we`ve said, the events in Iraq will play a role for U.S.
markets whether it be stocks or energy. But there are also critical events
in Asia, Europe, and South America.

Michelle Caruso-Cabrera spans the globe for hot spots that could have an
impact in the second half of the year.


MICHELLE CARUSO-CABRERA: Here is what to watch for internationally in the
second half of the year:

First, how the situation unfolds in Iraq, which of course drives the oil

Second, China and the state of the Chinese economy. Can the country
maintain a growth rate of at least 7 percent of GDP?

Third, in Europe, the outcome of the banking stress tests. These are
important because it`s a crucial step for a banking union. And also in
Europe, whether or not the Central Bank there finally undertakes some kind
of quantitative easing to combat its fear of deflation.

Finally, there are crucial elections to watch for as well. Turkey in early
August, Brazil in October.

That`s your second half international outlook.

For NIGHTLY BUSINESS REPORT, I`m Michelle Caruso-Cabrera.


GHARIB: Our next guest says that American investors need to get used to
political and security risks. He is Paul Christopher, chief international
strategist at Wells Fargo (NYSE:WFC).

Paul, welcome back to NIGHTLY BUSINESS REPORT. You heard Michelle`s

What hot spot worries you the most?

Well, Ukraine worries me the most right now, mainly because I think it`s
underappreciated. It`s sort of drifted into the back pages of the paper as
people focus on Iraq. I think Iraq is more of a long-term story.

GRIFFETH: What happens there? I mean, obviously, the new president of
Ukraine has sided now with the European Union, much to the chagrin of
Vladimir Putin and the Russians. Do they come to loggerheads over that, or
what happens do, you think?

CHRISTOPHER: That`s right. And not only in Ukraine, but Moldova also.
You have interest in the EU-27 group.

I think Putin continues to apply pressure in the best way that he knows
how, which is sort of subterfuges that involve having irregulars make
trouble in the eastern regions of Ukraine until he can get Poroshenko, the
president of the Ukraine, to declare the eastern regions in — not just —
not really independent, but autonomous. That`s his main goal.

GHARIB: And how do you think — going to Iraq, how do you think the whole
Iraq situation is going to play out over the rest of this year? And what
does it mean for investors?

CHRISTOPHER: Over the rest of this year, I really think Iraq is going to
turn into a slow grind. The insurgents really don`t have the ability to
take Baghdad or really disrupt the oil production of Iraq. What they can
do, though, is to slip into Baghdad and have terrorist acts, bombings,
suicide missions, those kinds of things. They can also keep pressure on
the military in order to have the military spread out over the whole
country, trying to play a whack-a-mole game as the insurgents move from one
town to next.

What investors really need to keep in mind I think is Iraq is part of a
broader problem in the Middle East where borders are just disintegrating.
And the risk there is at some point, we have a full-blown religious civil
war. And that would affect oil production and oil exports.

I don`t think that`s eminent, so I don`t think investors should be focusing
on risk havens such as gold at this point or even buying excessive amounts
of oil. I think we need to be broadly diversified instead.

GRIFFETH: How do we view China right now? There are questions about the
growth of their economy, the strategy there to create this demand, growth
economy, inflation problems, pollution problems.

How do you view them right now, and how should investors play China right
now, do you think?

CHRISTOPHER: China`s obviously in the process of a transition to a more
sustainable growth rate. But in the process, they have to make sure they
don`t slow too much.

So, this is the third year in a row when China has implemented the second
half of the year stimulus programs that actually go in the opposite
direction of the reforms by stimulating building activity. So, China I
think will remain stable, at least for the time being.

And investors should continue to look to Asia. I just came back from
Southeast Asia. We continue to like that part of the world as well. But
would hold it in a broadly diversified way in order not the take too much
risk on any one country.

We think China will stay stable and will hold emerging markets together.

GHARIB: OK. Given us a lot to think about. Thank you so much, Paul.

Paul Christopher, international strategist at Wells Fargo (NYSE:WFC).

GRIFFETH: Meanwhile, the NASDAQ was up about 40 percent last year, and so
far this year, it is still on the move higher. What might drive tech
higher the rest of the way, you ask? We`ll let you know, coming up.


GRIFFETH: Well, the NASDAQ was up about 6 percent in the first half of the
year, adding to stellar gains we saw in 2013. But many think the trends in
the next six months could propel the tech-heavy NASDAQ even higher.

Josh Lipton now with the tech outlook for the second half.


for in the tech sector in this second half.

There are nearly 2 billion smartphone users in the world, and you might
have a few more options when deciding what your next device should be.
Amazon (NASDAQ:AMZN) will ship its new phone on July 25th, and Apple
(NASDAQ:AAPL) is expected to launch its new smartphone some time in the

Another trend to watch: tech companies could deliver more devices and
services to track your health. Apple (NASDAQ:AAPL) just launched a new app
called Health. The tech titan`s move into this area could motive other
companies to jump into the space as well.

Switching to enterprise, analysts think you`ll see a pickup in deal making
in the second half. Large vendors are going to be looking to acquire more
companies to build out their solutions that they can offer clients from
storage to cloud services.

That`s your second half tech outlook.



GHARIB: Will there be more deals in the media space? Will the government
weigh in on how you can get your entertainment? And what are the big boys
in social media up to?

Those are just a few questions that Julia Boorstin looks at in her second
half outlook for entertainment social media.


watch for in the media and social sectors in the second half. The music
and video streaming wars will intensify as Amazon (NASDAQ:AMZN) and Yahoo
(NASDAQ:YHOO) and Google (NASDAQ:GOOG) and others ramp up their music and
content option. And we can expect the FCC to settle the debate about net

Plus, as megadeals await approval, expect more M&A as media giants look for
digital growth in social players and snap up startups.

And here comes the next generation of social advertising as Instagram ramps
up ads, Facebook (NASDAQ:FB) narrow its targeting, LinkedIn (NYSE:LNKD)
offers more native content, and Twitter expands its mobile ad exchange.

That`s your second half media and social outlook.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


GRIFFETH: Finally tonight, it is, of course, the Fourth of July. So, you
may have been one of the 100 million or so Americans who were spending the
day on cookouts and barbecues and picnics. And if you were, man, did you
spend. The National Retail Federation says consumers were spending an
estimated $6.2 billion this year on burgers and other food items to
celebrate the 4th.

That comes out to a little more than $68 per household. That`s amazing. I
make a mean potato salad, by the way. What about you?

GHARIB: I`m coming over.

GRIFFETH: OK, come on over.

GHARIB: I`ll bring the fireworks.

GRIFFETH: You bring fireworks then.

That`s it for the Fourth of July edition of NIGHTLY BUSINESS REPORT.
Thanks for joining us. I`m Bill Griffeth.

GHARIB: And I`m Susie Gharib. Have a great weekend, everyone. We`ll see
you back here on Monday.


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

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply