TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Markets rattled. The
Dow dips, bond prices rise, as the conflict between Russia and Ukraine
enters a new phase. What`s next for stocks and bonds? And what`s your
best move now?
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Food for thought. The
once hot, fast casual dining sector may be starting to falter. But there`s
one company that`s standing out from the rest.
MATHISEN: All revved up. Why the value of collectible cars is
All that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
GHARIB: Good evening, everyone.
Until today, it looked like the stock market was set to end the week
on a high note, but then things suddenly changed after the first hour of
trading. Reports of Ukrainian troops attacking Russian convoys spooked
investors and the major stock averages fell sharply.
But while worries about a possible Russian invasion pulled down
stocks, treasuries rallied and 10-year note fell to its lowest level in a
By the closing bell, stocks recovered a bit. Here is a run down of
the closing numbers. The Dow lost 50 points, a dramatic rebound from a
triple-digit loss early in the session. The NASDAQ added 12 points, and
the S&P was off a fraction.
For the week, all three averages were higher. The Dow rose a
fraction, the NASDAQ up 2 percent. It`s best weekly gain since May and the
S&P up more than 1 percent.
Over in the bond market, investors turn to safe haven U.S. treasuries
and the yield on the 10-year fell to 2.34 percent.
Michelle Caruso-Cabrera has more on the latest developments in the
Ukraine, Russia conflict.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over): The markets demonstrated again today that of all the geopolitical
concerns out there, the one most worrying to investors is the situation
between Russia and Ukraine. That`s because Russia is such a large economy,
it`s one of the biggest suppliers of energy in the world and it also has
deep trade ties with Western Europe.
Every time there is an escalation between Russia and Ukraine, you see
the West increase sanctions against Russia. And while that has hurt the
Russian economy as intended, it`s also starting to hurt the Western
economy, particularly Germany. Already, the Chamber of Commerce in Germany
has warned that exports to Russia have declined pretty sharply. It`s not a
huge part of the German economy, but when we`ve just seen German GDP come
out negative, suggesting perhaps that country is going into recession, it`s
one of the last things the Western European economy needs at this point.
That`s why whenever we see a situation like that, which erupted today,
we see investors run from stocks and instead buy safe haven place like the
Swiss franc and also U.S. treasuries. It`s also why when we seen Vladimir
Putin, the president of Russia make conciliatory remarks, we seen the U.S.
market rally. It`s unclear, though, whether if investors are going to
continue to believe him if he says those things in the future.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.
MATHISEN: Stocks were not the only investments affected by the
escalating conflict in Ukraine. The price of oil, wheat and other
commodity spiked today. Take a look, oil up nearly $2 a barrel. Wheat
prices advanced, too. Bucking the trend, gold which initially moved up but
settled at a 10-day low.
Jackie DeAngelis has more on how commodities were impacted by today`s
unrest in Ukraine.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Crude prices
on both sides of the Atlantic reacting to the news out of Russia and
Ukraine today of increased tensions. We saw West Texas intermediate and
Brent crude seeing gains of more than 1 percent. Traders telling me the
worry is that if the situation intensifies over the weekend, they won`t be
able to react to the news. Some traders also suggesting that the market
felt too bearish overall and that there was buying of recent dips.
But still on a relative basis, crude prices on the lower side because
of simple oversupply in the marketplace. Remember, that global output is
up, especially as the U.S. is producing more oil and despite geopolitics,
international output hasn`t been affected. In fact, crude lost more than 3
percent closing, today above $97 a barrel, but well under the $100 a barrel
Other commodities impacted by the tensions as well, including gold,
which managed to recoup some early losses to get back over the 1,300 level,
but gold typically used as an inflation hedge didn`t move into positive
territory due to some headlines from the Minneapolis Fed president, saying
that inflation will be subdued until 2018.
Finally, wheat and corn did spike on geopolitics. Gains of 3 percent
and 1 percent respectively, that`s because Ukraine is the world`s fifth
largest exporter of wheat and third biggest exporter of corn.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
GHARIB: So, what does this mean for you and your investments?
Joining us now: Jeff Rosenberg. He`s chief investment strategist for
fixed income at Blackrock. And Jeff Saut, chief investment strategist at
Welcome to the two Jeffs tonight.
Let me get begin with Jeff Saut, to get the conversation going.
You know, Jeff, a week ago last Friday, we got those nice comments
from Vladimir Putin of Russia and the stock market rallied and stock
investors were happy. This Friday, just the opposite — more money going
into bonds. Who has this right — the people putting their money into
stocks or bonds as this Russia Ukraine situation develops?
JEFF SAUT, RAYMOND JAMES CHIEF INVESTMENT STRATEGIST: Well, typically
the bond market is smarter than the stock market. In this case, I think
it`s a flight to safety. The German 10-year bond dropped under 1 percent
yield. So, on a competitive basis, the global funds into our treasury
market make sense to me. But the economy is recovering except for retail
sales that we had this week, and I think stocks are a buy on any dip from
MATHISEN: Let`s go to fixed income, Jeff –Jeff Rosenberg of
Blackrock. I think we kind of know why bonds rose in price down in yield
today and in prior days.
But let`s move the film forward into next week. What do you expect
and specifically, what do you expect out of the Jackson Hole conference
where Ms. Yellen and several central bankers will be?
JEFF ROSENBERG, BLACKROCK CHIEF INVESTMENT FIXED INCOME STRATEGIST:
Well, it`s been, you know, a general conversation so far talking about
bonds and talking about stocks, but what we`re not talking about is really
which bonds have benefits and the key here is, you know, historically when
investors think about flight to quality, that benefits a shorter maturity
This time, it`s very different. What`s happening is the flight to
quality flows are going into the long end of the yield curve, and that`s
because we`re at zero interest rates, and there`s very little upward price
movement that can benefit investors portfolio from a flight to quality in
the front end of the curve. So, the move is on the back end of the curve.
Now, to answer your question, Tyler — you know, what do we expect
next week? Well, certainly, it`s hard to predict what`s going to happen in
Ukraine. Any alleviation of that concern, then you`re going to see some of
this back end, longer maturity move downward in yield come off a little bit
as you relief some of that flight to quality bid that we saw this week.
Obviously, that depends on what happens in the geopolitical situation.
So, your question about Jackson Hole, that`s really about expectations for
Fed policy and that impacts shorter maturity bonds. So, that`s really
about what`s the outlook for two-year, three-year, four-year type
What I expect next week is for Janet Yellen to reiterate what she`s
been saying all along, that the labor market recovery is not fully or
sufficiently in place for them to begin even contemplating tightening
interest rates. So, you`re going to hear a very dovish message from the
head of the central bank next Friday at 10:00 a.m. is her scheduled
GHARIB: Right. So, Jeff Saut, what do you think about that? I mean,
let me ask the question and frame it a little differently. If these
geopolitical events were not a factor, would we see this action with bonds,
or is the there something going on in the treasury market and in the U.S.
economy that gets so many bond market fans?
SAUT: I think it`s purely a flight to quality. I think it`s a
competitive yield basis from around the world. You know what the yields
are in Japan. You know what happened in Germany. We look pretty good.
I`m almost assured of Draghi`s statement that he`s going to continue
in essence a quantitative easing policy. I mean, that takes the euro down
against the dollar, the strengthening dollar is positive for the U.S. bond.
It`s also very positive for U.S. stocks.
MATHISEN: You know, Jeff Rosenberg, I want to get in touch with my
inner bond geek here without getting too technical. When you described the
idea that long-term interest rates are coming down because that`s where the
flight to safety is taking it and you have what`s known as a flattening
curve, that typically signals something endemically wrong in the economy
and when the yield curve inverts, it`s usually a sign of a recession.
Do you see that?
ROSENBERG: No, and, you know, it`s a very good question, Tyler, and
it`s one particularly in the context of, you know, stock investors versus
bond investors. It`s very important for investors to understand about
what`s different this time when you`re seeing that flattening of the year
old curve, when the differential between long-term interest rates narrows
relatively short-term interest rates. As you just, typically, that`s a
recessionary sign often interpreted as a bad news for the stock markets.
Be careful about using that typical interpretation this time. The
reason being, you`re at zero interest rate policy. And so, there is really
no room for the front end of the yield curve to go down. So, I would say
that the flattening of the year old curve you`re seeing today is very
different. It`s not as negative of a signal as you would typically attach
to the bond market signal for equity market investors.
It`s really about much more of flight to quality issues, what the
other Jeff mentioned a minute ago, the relative yield story globally, and
low yield environment, 10-year interest rate yields in the U.S. are gaining
attractiveness and that`s helping to push their yields lower as well.
GHARIB: All right.
Gentlemen, thank you very much for joining us on this Friday. Jeff
Rosenberg at Blackrock and Jeff Saut at Raymond James.
MATHISEN: Well, Monster Beverage had a monstrous day. As we told you
last night, Coca-Cola (NYSE:KO) is taking a $2 billion stake in the
company, to gain a bigger foothold in the hot market for energy drinks.
Shares of Monster, the biggest gainer in the S&P500 today up 30 —
yes, 30 percent. Coke rose nearly 2 percent.
Morgan Brennan has more on the Coke-Monster deal and what it could
mean for the beverage business.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Coca-Cola (NYSE:KO) announced it will acquire a 16 percent stake in energy
drink maker Monster beverage. The multi-pronged deal also includes
exclusive distribution and the swapping of certain brands, with Monster
receiving almost $2.2 billion in cash.
Analysts say this could help Coca-Cola (NYSE:KO) jumpstart its
lackluster growth. Sales of soft drinks, 70 percent of Coke`s business,
have continued to tumble, as more consumers choose healthy drink options
JOHN FAUCHER, JPMORGAN SENIOR ANALYST: Between Green Mountain and
Monster, what you`re seeing is a tacit admission that they need to shift
BRENNAN: Earlier this year, Coca-Cola (NYSE:KO) increased its stake
in single serving coffee maker Keurig Green Mountain.
But the deal with Monster gives the beverage giant exposure to a fast-
growing $27 billion market that attracts a whole new kind of customer.
Monster is the energy drink leader, accounting for more than 40 percent of
market share. For its part, Monster will be able to access countries like
China and Russia where it doesn`t already have a presence.
On an investor call today, CEO Rodney Sacks said the move will enable
Monster to become a pure play energy drink`s company on a global level. It
also turned Sacks and President Hilton Schlosberg into billionaires.
But what about the competition?
WILLIAM CHAPPELL, SUNTRUST ROBINSON HUMPHREY ANALYST: He has a
partnership with Rockstar, which has been a distant, distant number three
player to Red Bull and Monster. So, there wasn`t much they could do to
catch up other than support it or try things like Mellow Yellow or other
kind of quasi-energy drinks. So, I`m not sure Pepsi will react that much
to this one as they would for other type of announcements.
BRENNAN (on camera): This deal expected to close by early 2015 does
its risk, most notably, increased energy drink regulations as Monster faces
lawsuits tied to the advertising practices and injuries allegedly caused by
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
GHARIB: Still ahead on the program, why the once hot restaurant
sector fast casual is not so appetizing for foodies and investors, coming
GHARIB: More trouble for FedEx (NYSE:FDX). The delivery giant is
facing charges, including conspiracy to launder money. This is according
to an updated indictment from the Justice Department.
You may recall that last month FedEx (NYSE:FDX) was indicted for
conspiracy to distribute controlled substances by delivering drugs from
online pharmacies which critics say often accepted dubious prescriptions.
FedEx (NYSE:FDX) says it`s innocent of all charges.
MATHISEN: Shake Shack, the burger and milk shake chain, may be going
public. “Reuters” reports that the upscale fast casual restaurant which
began with one kiosk in a New York City park just a decade ago is currently
preparing its paperwork for an IPO.
Shake Shack won`t confirm it, but if the IPO is anything like a Shake
Shack location, you won`t be able to get in.
GHARIB: Well, some other big name eateries haven`t exactly seen the
same kind of enthusiasm as Shake Shack lately. That`s leaving a lot of
diners and investors wondering what`s eating to so-called fast casual
Jane Wells has our story.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Americans love to eat and they have loved eating up just about every new
restaurant going public, especially those in the so-called fast casual
segment, where sales have been growing double digit.
NICOLE MILLER REGAN, PIPER JAFFRAY: They basically gobbled them.
They want to own all of them in a portfolio, and they weren`t really taking
into account some of the differences both from the human capital and
financial capital aspects of the company.
WELLS: And now, many investors are going on a diet, shedding shares
as some public chains have disappointed. Noodle shares are down over 40
percent this year. Pot Belly about 50, even Panera is down about 15
percent, the pioneer in fast casual. One reason: Americans have a lot of
UNIDENTIFIED MALE: PF Chang`s, Cheesecake Factory.
UNIDENTIFIED MALE: (INAUDIBLE), good quality.
UNIDENTIFIED FEMALE: Chipotle probably.
UNIDENTIFIED FEMALE: Starbucks (NASDAQ:SBUX).
WELLS (on camera): The lines are blurring on exactly what is fast
casual. Now, usually, it means higher quality food fresh prepared on site,
with minimal service at a good price. And everyone from food trucks to
fast food giants were saying, hey, we`re doing that.
(voice-over): Chains like Wendy`s are making over stores to look more
like Panera or Chipotle, and Taco Bell has just launched a fast casual
experiment called U.S. Taco Company.
The only clear winner remains Chipotle, which continues to see traffic
growth even as it raised prices.
Tim Love of the reality show “Restaurant Startup” says ethnic foods
will outperform burger and fries in terms of sales.
TIM LOVE, “RESTAURANT STARTUP” CO-HOST: When you see a restaurant
company go public, a lot of time the passion gets dispersed throughout a
bunch of people, and you have false money that allows you to expand quicker
than maybe you should.
WELLS: Perhaps the best advice comes from a man whose made a fortune
BOBBY FLAY, CELEBRITY CHIEF: Don`t get caught up in the hype. This
is food. Take a look what`s behind the curtain and see who`s actually
making the decision and cooking the food.
WELLS: Food for thought.
For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
MATHISEN: Disappointing earnings from another retailer is where we
begin tonight`s “Market Focus”.
Dillard`s saw its second-quarter profits drop as its margins narrowed.
The department store operator blamed increased discounting for the weak
performance. Shares slumping, down 8 percent to $106.11.
A possible data breach at SuperValu (NYSE:SVU) may have impacted as
many as 200 of its grocery and liquor stores. The retailer is
investigating the matter and says the breach appears to have taken place
from June to July and was possible the results of malicious software
installed by hackers. Shares were down nearly 3 percent to $9.31.
GHARIB: Deere announced it`s laying off more than 600 workers at four
manufacturing plants. This comes as falling grain prices have hurt demand
for Deere tractors and other agricultural machinery. Though, remember, on
Wednesday, the company announced a drop in third-quarter sales and it cut
its profit outlook for the full year. So, shares were off slightly to
Shares of Achillion Pharmaceuticals (NASDAQ:ACHN) soared today because
its hepatitis C drug performed well in a study showing no levels of the
virus in patients after four weeks. The drug was used in combination with
Gilead Sciences (NASDAQ:GILD) Sovaldi drug, which has a 90 percent success
rate, but that drug has been controversial since it costs $1,000 a pill.
The stock popped 9 1/2 percent to $9.25.
MATHISEN: Our market monitor tonight says we are in, quote, “a rip-
roaring bull market”, despite the geopolitical concerns about Ukraine and
Russia. He`s Marty Leclerc. He`s chief investment officer at Barrack Yard
Let`s make our audience some money tonight, shall we?
MARTY LECLERC, BARRACK YARD ADVISORS CHIEF INVESTMENT OFFICER: Always
up for that.
MATHISEN: All right. Let`s start with your first pick, which is
Carlyle Group. Why?
LECLERC: Carlyle is a big global asset management firm. They manage
something like $200 billion for some of the biggest pools of capital on the
planet, wealth funds and big pension plans.
But they`re in alternative asset management firm. And we like Carlyle
because of pure valuations and we think it`s a growth vehicle. They are
the best in class operator. Carlyle earns money three ways. They get an
asset management fee just like a Templeton or some of the other firms that
your viewers might be familiar with, but they also get what`s called an
incentive fee that`s called carry, where they get to share in the
underlying profits of the investments. And then, thirdly, what they do is
own some of the investments underlying the portfolio, as well. So, that`s
another way they can earn money.
Carlyle is trading at around 10 times earnings. The dividend yield is
2 percent. However, every year that carry that I mentioned is paid out to
And last year, it worked out so that as a shareholder at current
prices, your dividend yield was like 5 3/4 percent. Now, if that`s not if
that`s going to fluctuate, and it`s going to be lumpy. But we think that`s
very attractive. Finally, it`s a 30 percent discount to its book value of
MATHISEN: OK. That sounds good.
Let`s talk about your next one, Aqua America (NYSE:WTR). This is a
water firm. WTR is the ticker symbol, which makes a lot of sense. Why
should someone buy this at $24.39?
LECLERC: And it also kind of looks expensive because it`s trading at
20 times earnings. However, its averaged higher P/E than that over the
last 15 years every year. The dividend yields 2 3/4.
But we like Aqua because it`s what we would call a predictable growth
story. They have their organic business, which is supplying water to
consumers in Pennsylvania and other areas. However, the great
opportunities that 85 percent of the water systems in this country are
municipally owned. And the opportunity here and what they have been taken
an advantage of for a couple of decades is buying these water systems from
municipalities who are starved for cash, buying them really cheaply and
then investing in these systems, making them world class, and getting
regulated return that`s quite attractive. So, we think they can grow 8
percent to 10 percent both through a dividend and earnings.
MATHISEN: Let`s move to the third choice, a little company not many
people would have heard of, Marty.
LECLERC: Yes, IBM is much maligned. It`s perceived as a no growth
story, notwithstanding the fact that the earnings have compounded by 13
percent over the past five years and 14 percent over the last 10 years.
They are selling cheap, cheap, cheap 10 times earning, 9 percent free cash
flow yield which gives them a lot of money to be able to reinvest in their
business, but also to pay out a dividend and buy back more stock to
continue to shrink the share count.
What IBM is not given credit for is that it`s one of the most
innovative companies on the planet. Over the past couple of decades, every
year, they are either number one or number two in terms of the number of
patents awarded to them by the U.S. Patent Office.
MATHISEN: Let`s get disclosures. Do you — do you or your family
members own any of these companies personally or in funds?
LECLERC: I own all three personally, as do my clients and family
MATHISEN: Thank you very much, Marty. Appreciate you being with us.
Have a good weekend.
LECLERC: My pleasure.
MATHISEN: Marty Leclerc at Barrack Yard Advisors.
And coming up, beyond stocks, a look inside the revved up market for
GHARIB: If your taste in cars runs high, as in spending millions to
acquire rare or antique autos, then this week`s annual Pebble Beach Classic
Car Auction is just for you. But, are prices too high and could there be a
bubble brewing in the collectible car market?
Robert Frank has the story.
UNIDENTIFIED MALE: Selling the car, you`re finished. Last chance.
You own the car.
ROBERT FRANK, NIGHTY BUSINESS REPORT CORRESPONDENT (voice-over): Fast
and furious, prices for collectible cars hitting all-time highs and raising
questions about whether we`re seeing a new bubble forming in vintage
Ferraris and other classic sports cars.
Last night, this Ferrari became the most expensive car ever sold at
auction, selling for $38 million including auction fees.
(on camera): And when you buy a GTO, you also gain access to the most
exclusive auto club in the world, only 36 owners.
And if you don`t want to spend $50 million to join, you can always get
one of these, a GTO replica that will only cost you $50,000.
(voice-over): Ferrari kicked off four days of sales here at Pebble
Beach, which is Woodstock for rich car collectors. Between $450 million
and $500 million worth of cars expected to be sold, up from $300 million
The auction companies say this boom will keep on going because cars
are scarce and the world is creating more millionaire and billionaire car
DAVID GOODING, GOODING & CO. FOUNDER: The car market is at an all-
time high but I don`t believe it should be a bubble at all. It`s not the
entire car market that prices have risen, just certain sectors of the car
market. I think it`s just the beginning for the very, very upper echelon
FRANK: Jay Leno, the comedian and car collector himself, says the
collecting world now diversified.
JAY LENO, COMEDIAN & CLASSIC CAR COLLECTOR: There is a guy in Saudi
Arabia that buys every DB5, Ashton Martin. He`s got like 212 of them. So,
whatever they come up, he buys them.
FRANK: And that`s just the DB5 collection.
LENO: Yes, exactly. I mean, so, Americans used to have all the money
— the guy from Texas with the big cigar. That`s been replaced by the
Chinese and by Saudi Arabia. So, it`s a little different. You got to
compete on a world market, instead of just the local market.
FRANK (voice-over): But there are some warning signs, flashing on the
dashboard of this market, dealers and speculators are starting to pour in
and flip cars for multi-million dollar profit in just a year or two and
lots of buyers are new — new money is not always the smartest money.
But at least for this weekend, it looks like the collectible car boom
will keep on rolling.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank in Pebble Beach,
GHARIB: Real works of art. Beautiful, beautiful, beautiful.
That`s NIGHTLY BUSINESS REPORT for tonight, I`m Susie Gharib.
And we want to remind you, this is the time of year, your public
television station seeks your support.
MATHISEN: And I`m Tyler Mathisen. On behalf of your public TV
station, thank you for your support. We`ll see you back here Monday. Have
a nice weekend.
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