Transcript: Tuesday, September 2, 2014

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

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: A September to remember? A big week on the data front could determine how soon the Federal Reserve might raise interest rates and which way stocks could hit.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Hollywood cyber attack. Celebrity photos stolen and published by hackers. How safe is your data and how to make it more secure.

GHARIB: And beyond Lipitor. The high stakes race to get the next blockbuster cholesterol drug.

We have all this and more for NIGHTLY BUSINESS REPORT tonight, Tuesday, September 2nd.

And good evening, everyone, and welcome. Just like that, it is the unofficial end of another terrific summer. Vacations are over, including mine. The beach chairs and umbrellas get put away, and the kids head back to school, if they`re not there already, college football kicked off and the NFL follows on Thursday.

Meanwhile, on Wall Street, it is September — historically, one of the roughest months for stocks. But does that mean anything to investors right now? The markets just wrapped up the best August in 14 years and the current bull market is now more than 2,000 days old and counting.

So, as the days get shorter and leaves change this month, where do the markets go from here and what will trigger the next moves, up or down?

Dominic Chu has more.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Traders call it the September swoon. Since 1950, September has yielded the worst stock market returns in any month of the year. On average, the large cap S&P 500 index drops by around half a percent. And with stocks sitting near record high levels, many are left wondering whether we`re due for that long-awaited pull back in the market.

ABIGAIL DOOLITTLE, PEAK THEORIES RESEARCH: When we look at this environment, the higher we go, the higher the stakes become. And I think that this means that investors want to be cautious.

CHU: The pessimists have a good amount of support for their story.
The last time we saw a big market drop was back in 2011. And these days, there are a host of risks associated with the markets — tensions between Russia and Ukraine, Islamic militants in Iraq and Syria and weakening indicators in places like Europe and China. Those are among many reasons why a deeper pull back in stocks is in the works.

DOOLITTLE: I think the sidelines for the retail investors right now is probably the best bet. If you`re involved, stay the course but, again, be prepared to reduce quickly.

CHU: But the September story isn`t all doom and gloom. The bulls point to the recent performance of the market. Over the last five years, the S&P 500 has actually posted an average 2 percent gain during the month of September. Consumer discretionary, tech and industrial stocks had helped lead the way higher during that time.

That`s why others think longer term investors may still want to keep adding to their investments on a regular basis.

DAN GENTER, RNC GENTER: I think any pull backs you have here would certainly be buying opportunities. But you`re — frankly, if you`re a three to five-year investor or even a two-year investor, if you sit and wait for a pull back, that pull back may never come. So, the only way around that, frankly, is to average in.

CHU (on camera): Both sides offer compelling cases but for history fans, it`s just about which scenario they want to believe more.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

GHARIB: So, on this first trading day of September, stocks ended mostly lower but not by much. And that`s in spite of upbeat economic reports on manufacturing and construction spending. The energy sector was the worst performer in the after crude fell more than $3, closing at the lowest since mid-January, below $93 a barrel.

As for stocks, the Dow lost 30 points, the NASDAQ up nearly 18, and the S&P, which hit another all-time intraday high, was down by only one point.

MATHISEN: It is as we mentioned a big week for data, and the biggest number of all comes Friday. That`s when the Labor Department releases the August jobs report. It is arguably the one number Janet Yellen and her fellow Fed policymakers will study closest, as they decide when to raise interest rates and by how much.

Steve Liesman dives into the week`s data highlights.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a big week in the United States for jobs data, and that means a big week for Wall Street to figure out whether the Federal Reserve could be hiking interest rates sooner than it expects. The first piece of data is the ADP private payroll company, which is expected to forecast that 215,000 private sector payroll jobs were created in August. Jobless claims seen in a relatively low 300,000, and then, Friday, the big nonfarm payroll number seen at
220,000 or the seventh month in a row above 200,000.

The unemployment rate is forecast to climb by 1/10th, to 6.1 percent, an average hourly wages up 0.2 percent from unchanged a month earlier. In Fed Chair Janet Yellen`s own words, if the improvement in the job market is more rapid than the Fed anticipates, it could move up the timetable for rate hikes.

MICHAEL FEROLI, JPMORGAN: We`re kind of in the view of the summertime, but the most questions we`re getting is — you know, could it be earlier? Could it be — particularly, people have their eye on the March meeting of next year as a possibility, again, conditional on the jobs numbers looking, you know, good over the remainder of the year.

LIESMAN: Some key areas to watch, in addition to jobs, which were up by 245,000 over the past three months, the labor force has been up by 200,000, as more people have been attracted back into the stronger labor market. People working part time for economic reasons up a small 22,000 over the past three months.

And real wages — well, after adjusting for inflation, they are up
0.02 percent. That`s a number Yellen thinks can be much higher without causing any inflation. So, what would it take for earlier rate hikes?

FEROLI: I think we have to see, you know, perhaps unemployment down more than just a tick, you know, two ticks or so. And I think we also have to see, you know, evidence of wages really starting to pick up.

LIESMAN: Well, a rate hike three months earlier than planned is not particularly a big deal. What would matter is if the Fed gets more aggressive during the year so it ends 2015 at a higher rate than Wall Street now anticipates.

By Friday, the markets should know if the data from August shows the job markets healing more quickly than expected. That would prompt the Feds to take a tougher stand on rates.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: Jonathan Golub is calling for the S&P 500 index to hit 2,075 by the end of this year. He`s chief U.S. market strategist at RBC Capital Markets.

Jonathan, by my quick calculations, if you`re right about that forecast, that means the S&P will be up by more than 12 percent this year.
And yet, you heard our packages — a lot of risks, a lot of worries, a lot of fears. What are you seeing that makes you so upbeat?

JONATHAN GOLUB, RBC CAPITAL MARKETS: Well, I mean, if you look at this year`s performance, the returns in the market, it`s all driven by earnings. This is not speculation. It`s not a market that`s higher because simply someone is willing to pay more than the guy before. This is a market that`s giving you in returns what companies are delivering earnings, and that`s a very healthy thing right now. And interest rates where they are means that you really do have the potential for stocks to go much higher.

MATHISEN: Tell me why bull markets end, and do you see anything out there that would end this one?

GOLUB: Well, bull markets end — it`s a great question. Bull markets end really when you get towards your next recession. They don`t get tired, and frankly, they don`t need really get expensive. Geopolitics doesn`t matter as much as we would like to think. And the key is, is that the risks of recession right now seem quite — seem quite remote.

What you really need to see is a real meaningful pickup in inflationary pressures that forces the Fed, almost scares the Fed, into acting more aggressively than they want and we`re nowhere near that right now.

GHARIB: All right. So, Jonathan, are you saying that you`re just going the way you`ve been going all summer long, all year long, the same investment strategy or here it is — September, back to business. Are you making any changes in your portfolio or your investment approach?

GOLUB: For the most part, the answer is no. You need to have a reason to want to change and what we`re seeing is an economy growing at a nice clip, but not, you know, too fast, corporate profits, which are surprising to the upside, and evaluations which seem quite reasonable. So, no, I — you know, we like the same sectors that we`ve liked before and we think investors are really going to be well-served to stay in the market not just for September but probably for the next couple years or longer.

MATHISEN: What sectors are those that you like best?

GOLUB: There`s three that stand out, the first one is financials. If we get, as we and most expect, a rise in interest rates from here and I`m not talking about something huge but even just incrementally, financials are the big winner on that. If the economy progresses forward, as we and the market expects, then industrials are the big winner on that, and the other standout is health care, which has been doing really well and we think given their growth prospects should do well especially biotech stocks.

I know that Janet Yellen hasn`t been a fan of the group, but I think it`s an area where you can really find growth at a high valuation but a reasonable valuation given the growth prospects.

GHARIB: All right. So, you have a very bullish forecast. You`re not worried about geopolitics. You`re not worried about the Fed. But what is the wild card? What could upset your upbeat scenario?

GOLUB: Right. I mean, probably the single thing that would make me more concerned is if we did see inflationary pressures start to spike up, and, you know, we know that the Fed is printing money. We know that they are trying to slow the process down right now, and eventually raise rates, but if the Fed saw that inflationary pressures were really picking up, they would be forced to leap frog this process, jump further ahead and that would be very upsetting to market. Now, we`re not there now, but it`s a single thing that I`m really keeping an eye on.

GHARIB: All right. Jonathan, thank you so much. Jonathan Golub with RBC Capital Markets.

MATHISEN: Home Depot (NYSE:HD) is the latest big name retailer dealing with a possible breach of customer credit card data. The world`s biggest do-it-yourself chain confirms it is working with law enforcement and banking partners to explore what it calls unusual activity and in a statement says, quote, “If we can confirm a breach has occurred, we will make sure that customers are notified immediately,” end quote.

GHARIB: Meanwhile, a breach of another kind at Apple (NASDAQ:AAPL), after intimate photos of celebrities including Jennifer Lawrence and Kate Upton were hacked and posted to an online chat room.

So, how safe is anything you store in your computer or in the Cloud?

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Apple
(NASDAQ:AAPL) investigated the high-profile hack attack and said it found that the thief of the photos were not due to the breach of any of Apple`s systems, including iCloud or Find My iPhone, saying, quote, “We have discovered that certain celebrity accounts were compromised by a very targeted attack on user names, passwords and security questions, a practice that has become all too common on the Internet.”

ANDREW GILMAN, COMMCORE: Apple (NASDAQ:AAPL) needs to do three or four things, one, show care and concern for celebrities who had phones hacked and data hacked. Second, use any and all social media channels they can to send out information to their fans. And three, actively investigate.

BOORSTIN: Apple (NASDAQ:AAPL) says it`s continuing to work with law enforcement to identify the criminals. The company recommending that all users always use a strong password and enable two-step verification.

This demo of Google (NASDAQ:GOOG) two-step authentication shows how users are sent a code that frequently changes to another device. It must be entered in addition to a password. That extra step can block hacking software that repeatedly gets his passwords.

Now, we can expect storage companies to strongly limit password guesses and strongly encourage two-step verification, as well as more complex security codes.

JASON GLASSBERG, CASABA SECURITY: We now got a balancing act between the user`s desire for security versus the user`s desire for convenience.
Something that`s convenient isn`t necessarily secure, and something that`s very secure isn`t necessarily convenient.

And I think that what`s been happening over the past couple months with all of these breaches of credit cards, of photos, of documents, I think you`re going to find consumers more than willing to go through the extra steps.

BOORSTIN: So, consumers could face more headaches as they try to remember all those new, tougher passwords.

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

(END VIDEOTAPE)

MATHISEN: Tim Ryan joins us now to discuss important ways that consumers and businesses can protect themselves against hackers. He`s the head of cyber security investigations at the risk advisory firm Kroll.

Tim, welcome. Good to see you.

TIMOTHY RYAN, KROLL: Thank you.

MATHISEN: Do you think this attack on these celebrities` data was simply a rogue who went in and got their user name and their passwords? Or does it suggest a deeper problem, which Apple (NASDAQ:AAPL) says it is not, a deeper problem with data that are stored on the Cloud?

RYAN: Well, I think it is a deeper problem with data that`s stored on the cloud in that when somebody can purport to be somebody that they`re not and get access to the victim`s data, that is a deeper Cloud problem. That is not an individual problem.

GHARIB: You know, there was a time, Tim, that people were really very worried to put any private information to make a purchase on the Internet and now we all do this. Do you think that part of the problem is we`ve become too trusting, too lose, whether it`s Apple (NASDAQ:AAPL) or Amazon
(NASDAQ:AMZN) or Google (NASDAQ:GOOG) or Twitter?

RYAN: I think that we have, it`s become so common place to put our data on the Cloud — as you said, people are not looking at the security implications of doing it. That said, I think in the next five years, almost all our data is going to be in the Cloud. So, I don`t think we`ll be able to walk back from this part.

MATHISEN: So, what I`m hearing you say here is that the fact that they got the user name, they were able to crack the password, that gave them access to stuff that was secured on the Cloud.

So, it`s really kind of a distinction without a difference, whether the problem was really with the cloud or with the phone itself. In the piece that Julia just did, she showed one way to protect or sort of do a belt and suspenders approach to your password, and that is a second verification or a second authentication. Do you think people are really go for that, where you have to get another message sent to you to a separate device? Or is that just going too much of a troublesome thing to do?

RYAN: No, I think it can become part of a normal security practice.
I know that when high net worth individuals come to Kroll because they have concerned about stuff like this, we always recommend two-step verification.
So, I think it will become just commonplace, as the long passwords are becoming more and more common.

The thing is that these Cloud providers, though, they can mandate the use of two-step authentication, so that becomes more widespread.

GHARIB: All right. Real quickly — if you run a small business or medium-sized business and you don`t have a huge IT department to help you with all of this stuff, any important piece of advice you can give business owners on how to protect their data?

RYAN: Sure, if you`re storing sensitive data in the iCloud today, you must immediately change all your passwords. If you have the ability to use two-factor authentication for any online account, you should use it.

GHARIB: Does two factor make it harder to crack? Is it different from one factor authentication? In other words, if you can beat me on this password, why couldn`t you beat me on the one that the company sends to me?

RYAN: Actually, most two-factor authentication requires that the second factor go to like a cell phone, so the bad guy would have to both steal your password and steal your cell phone.

MATHISEN: I see.

OK. Tim, thank you very much. Very helpful.

RYAN: Thank you, thank you.

MATHISEN: Appreciate it. Tim Ryan, Kroll Cyber Security.

GHARIB: And coming up, the $10 billion bet by companies hoping to rollout the next Lipitor. That`s next.

(MUSIC)

GHARIB: Eric Cantor is hitting the street, Wall Street. The former House majority leader who lost the election to a Tea Party challenger — that was back in June, has joined investment firm Moelis and Company as vice chairman and managing director, and he`ll also be elected to its board. Cantor resigned from his Virginia seat last month.

MATHISEN: Two energy giants are paying a hefty price for their roles in two separate disasters. Pacific Gas and Electric was fined $1.4 billion by a panel of California judges for a 2010 gas pipeline blast and fire that killed eight people outside San Francisco.

In a separate settlement, oil services company Halliburton (NYSE:HAL) was ordered to pay $1.1 billion for its role in the 2010 Deepwater Horizon oil spill off the Gulf — in the Gulf of Mexico. That money will go into a trust that`s used to compensate victims.

GHARIB: The so-called dollar store bidding war is heating up and that`s where we begin tonight`s “Market Focus”.

Dollar General (NYSE:DG) upped its bid for Family Dollar to $80 a share and offered to divest some of its stores, if needed, so that the deal would be approved by regulators. Just last month, Family Dollar rejected Dollar General`s earlier bid, saying it would stick with its deal to be acquired by Dollar Tree (NASDAQ:DLTR). Shares of all three chains were higher today.

Now, here`s another deal update to tell you about. This one on the possible T-Mobile and Iliad merger. T-Mobile could receive an improved takeover bid from France`s Iliad. That company`s chief financial officer said it`s in talks with potential partners who could team up with the company on the bid. Shares of T-Mobile rose 1 percent to $30.43.

Norwegian Cruise Line is making a push into the luxury travel sector.
It`s spending $3 billion to buy high-end Prestige Cruises from Apollo Global Management. The deal will give Norwegian Access to Prestige`s ships and big-ticket vacation packages to help it compete with rivals like Royal Caribbean. Shares of Norwegian cruised higher, up 11 percent to $36.99.

MATHISEN: The software company Compuware (NASDAQ:CPWR) climbed on news it will be acquired by the private equity firm Thoma Bravo in a deal valued at $2.5 billion. Compuware`s software is used by companies like Cisco (NASDAQ:CSCO) Systems and Domino`s Pizza to manage complex applications, like ordering a pizza. The stock popped 13 percent to close at $10.59.

1-800-Flowers is hoping you`ll want to send some gourmet food with those long stem roses. The company is buying Harry & David, known for its gift baskets of specialty foods, lovely pairs and things like that, more than $140 million. The online flower retailer saw its shares surge 16 percent to $5.98.

And NBA MVP Kevin Durant is resigning a shoe deal now with Nike (NYSE:NKE), turning down advances from Under Armour (NYSE:UA). The 10-year deal could be worth $300 million or more. But Under Armour (NYSE:UA) didn`t lose out in the endorsement battle, it turned around and signed Brazilian model Gisele Bundchen, wife of NFL star Tom Brady (NYSE:BRC), to a long-term contract. Shares of Nike (NYSE:NKE) up slightly to $79.28.
Under Armour (NYSE:UA) jumping 4 percent to $71.13.

GHARIB: Now, we all know about Lipitor, the anti-cholesterol medication that became the world`s best-selling drug ever. But Lipitor might not be enough for some people looking to lower their cholesterol, leading to a whole new class of drugs beyond Lipitor that are being rushed to the market right now.

Meg Tirrell has our story.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As many as 17 million people in the U.S., Europe and Japan have high cholesterol that`s not helped by currently available therapies, including statins like Lipitor, and there`s a race among drug makers to address that market.

The experimental medicines are called PCSK9 inhibitors and aim to lower levels of LDL or bad cholesterol.

PHIL NADEAU: PCSK9 is an enzyme that`s involved in the metabolism of cholesterol, and so by inhibiting it, it changes the way that cholesterol has metabolized and it lowers the level of cholesterol in the blood.

TIRRELL: Leading the pack are biotechs Amgen (NASDAQ:AMGN) and Regeneron, which has partnered with French drug maker Sanofi. They`ll be battling over a potential $10 billion market.

Amgen (NASDAQ:AMGN) said today it applied for regulatory approval of its compound in Europe, and said last week, it applied with the FDA here in the U.S.

Regeneron presented new data on its therapy over the weekend, at a European cardiology conference and is expected to apply for approval by the end of the year. For these drug makers, it`s a high-stakes race.

LEONARD SCHLEIFER: I think that everybody would like to think this is a winner take all race and I don`t think that`s exactly the way it is. You know, if you think of the statin classes, which was the sort of the stand by for — and will be for treating lowering cholesterol, there were four or five different statins. So, there`s plenty of room for multiple entries.
Of course, we`re pretty competitive and we`d like to get their first.

TIRRELL: One difference for statins, these drugs are injected, rather than taken as pills.

NADEAU: We do think that that`s going to be a hindrance to their uptake. It does seem like general practitioners, people who typically treat patients with high cholesterol would rather give a pill than an injection.

TIRRELL (on camera): That may reserve these drugs for sicker patients, at least initially. Still, the market may broaden if the drugs prove not just slower LDL cholesterol, but prevent heart attacks and strokes as well. As for getting to the market, the leaders are neck and neck. Though, Amgen (NASDAQ:AMGN) is already applied for approval, where Regeneron and Sanofi made a surprise move a few weeks. They purchased a priority review voucher from another biotech, BioMarin, which gives them a six-month review of the FDA versus standard 10. So, in this multibillion dollar market, it`s anybody`s game.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: And coming up, some of Atlantic City`s casinos start shutting their doors, taking thousands of jobs with them. What`s next for the struggling city by the boardwalk?

GHARIB: Opening statements began today in Detroit`s bankruptcy trial.
At stake, whether billions of dollars in debt can be restructured and at the heart of the contested plan, pensioners would be paid more than the city`s financial creditors.

We`ve been telling you about the flight of Atlantic City, and today, the Revel Casino shut its doors after just two years in business. It is the third casino to fold in the struggling gambling Mecca this year, with another coming later this month.

Morgan Brennan takes a look at what`s next for the city and its famous boardwalk.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s the end of summer and in Atlantic City, the end of an era, as the boardwalk`s Revel and Showboat casinos close down.

UNIDENTIFIED FEMALE: It`s just very emotional. I think it`s kind of surreal. I don`t know if it`s hit me yet.

UNIDENTIFIED MALE: When you start laying people off, a lot of crimes start coming.

BRENNAN (on camera): Between Revel and Showboat, more than 5,000 jobs were lost Labor Day weekend, and when Trump Plaza closes later this month, another 1,100 will be unemployed. Factoring in third-party vendors, that means 7,400 positions will be lost, nearly a quarter of A.C.`s total casino-related jobs.

RUTHANN JOYCE, LAID OFF SHOWBOAT EMPLOYEE: We`ll be filing for unemployment this week just like almost everyone.

BRENNAN (voice-over): New Jersey`s Labor Department says this will be one of the largest mass filings for unemployment in state history, so large that officials have rented out the convention center to host resource fairs.

JOYCE: The hopes here in the center is to get people through the unemployment process, food bank — anything these people need, we need to help them.

BRENNAN: And it will have ripple effects, tax revenue from the three properties accounted for roughly 15 percent of the city`s budget.
Rebalancing coffers will mean cutting back on hundreds of city jobs.

(on camera): The hope is that once Trump Plaza closes, A.C.`s remaining casino supply will begin to stabilize, even regain profits.
Fitch Rating says this should be the last casino closure for at least two years, as revenue from here, Revel and the Showboat shifts to other local properties like Harrah`s and the Borgata.

MARK GIANNANTONIO: There is no question the gaming in the regional areas have had a negative impact. We feel that the remaining casinos resorts, in particular, those that have invested in the property over the years, will do very well in the future.

BRENNAN: As the city scrambles to reinvent itself, officials are aggressively targeting convention business, an industry Giannantonio expects to grow by 100 percent in coming years. But perhaps the most innovative new concept comes from the developer of the Chelsea, the city`s first high-end, non-gaming hotel in nearly 40 years, with legislation that will be introduced this fall, he hopes to rollout a boutique gaming floor, devoid of slots, to enhance hotel business — a very different model than the big casinos used.

CURTIS BASHAW: We would run the gaming floor like a velvet rope nightclub. Our guests would have admission to the space. Other friends of theirs would have admission to the space, but it could be a completely different paradigm for gaming in Atlantic City.

BRENNAN: Bashaw hopes to attract urban young professionals, the same demographic that Revel had tried to cater to.

As for these now vacant buildings, sources say they are both in active discussions with investors and not necessarily to be used as casinos. The hope is new project will be announced before the year is out.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Atlantic City, New Jersey.

(END VIDEOTAPE)

GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib, thanks for watching.

And welcome back, Tyler.

MATHISEN: Thank you very much, Susie.

And I`m Tyler Mathisen. Thanks for joining us. Have a great evening, everybody, and we hope to see you back here tomorrow night.

END

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

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