Transcript: Tuesday, September 16, 2014

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Touching a record.
The blue chip Dow index rises to an intraday high as investors place their
bets ahead of a crucial two-day meeting of the Federal Reserve.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Calling it quit.
CalPERS, the country`s biggest public pension system, will get rid of its
pension funds. Will others follow?

MATHISEN: Hard switch. The big money practice used by drugmakers
that some call immoral and illegal.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
September 16th.

And good evening, everyone. And welcome. I`m Tyler Mathisen in our
nation`s capital — where the Federal Reserve kicked off its two-day
policy-setting meeting. And tomorrow, we`ll find out what the Fed says
about its next moves.

GHARIB: And I`m Susie Gharib.

And on Wall Street, the focus on investors was also squarely on the
Central Bank. The major stock averages rallied with the Dow even reaching
a record intraday high. The S&P 500 index posted its biggest gain in a
month.

Now, investors brought up stocks on reports that tomorrow, when the
Federal Reserve policymakers wrap up their two-day policy meeting, they`ll
signal that they are not in a hurry to raise interest rates.

With that, the Dow shot higher, closing up more than 100 points,
NASDAQ rose about 34 points, the S&P was up by nearly 15 points.

We have two reports on this Fed-fuelled rally starting with Mary
Thompson on the reaction at the New York Stock Exchange, and Steve Liesman
with what exactly they`re hoping to hear from the Fed.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A near-miss for
the Dow Jones Industrial Average, as the blue chip index within intraday
all time high, but failed to close at a record. After muddling along in
the morning the markets took off right afternoon on the reports that said
the Federal Reserve is unlikely to make any major changes to its outlook
for interest rates when they conclude their two-day policy meeting on
Wednesday. This ignited the market, along with reports that China looked
to juice its economy with the central bank injecting stimulus into the
nation`s largest banks.

Energy stocks were also a factor in Tuesday`s rally, leading the way
higher for the markets. Energy stocks responding to an increase in oil
prices. Oil prices rising on reports that OPEC is likely to cut production
when the cartel meets November.

At the New York Stock Exchange, I`m Mary Thompson for NIGHTLY BUSINESS
REPORT.

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Fed is in
play, with markets ready to slice, dice and otherwise scrutinize tomorrow`s
policy statement for any hints about the central bank`s plans to raise
interest rates.

Two phrases will get particular attention. The first says there is
significant labor market under utilization, and there`s speculation the
word “significant” could be dropped. That could be a hint rate hikes are
nearer since it suggests the Fed thinks the job market is healthier.

The second says there will be a, quote, “considerable time” between
the end of bond-buying under quantitative easing, and when interest rates
rise. Some have suggested the phrase could be dropped as the Fed wants to
be more dependent on the economic data rather than dates. But dropping the
phrase could be a suggestion to markets of a possible earlier rate
increase.

JEREMY SIEGEL, WHARTON SCHOOL: I think they will move considerable
time. I believe there will be a bump on Wednesday when that happens.
Remember, if you take a look at the Fed fund`s futures market, they are
below the rates that the FOMC members believe are going to prevail at the
end of 2015 and `16.

LIESMAN: Markets are to some extent already planning on earlier
appointments with higher rates. The CNBC Fed survey showed the 37
economists, strategists and fund managers polled see the first rate hike
coming in June 2015, the second survey in a row that they brought nearer to
the date for the first hike.

And they see the Fed hitting somewhat higher rates in 2015 and `16
than the prior survey.

Whatever the outcome, it seems the market has new faith in the new Fed
Chair Janet Yellen. Forty-four percent think the Fed can exit its easy
monetary policy in the past several years, smoothly. That`s up 10 points
from the last poll, just 17 percent believe it will end badly with the
recession or stock market crash, half the results from the prior survey.

And the Fed under Yellen is getting high marks for being clear and
credible, even better marks then her predecessor Ben Bernanke.

Will it last? Yellen has a tough road to negotiate in the next
several months. If she is, in fact, going to hike interest rates for the
first time in eight years, and she`ll need every bit of market faith she
can gain to be successful.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: And Jared Bernstein joins us now to talk more about the
Fed. Jared is an economist at the Center on Budget and Policy Priorities
and former chief economist and economic policy adviser to Vice President
Joe Biden.

Jared, good to see you again.

Is the economy in your view strong enough in your view for the Fed to
stop buying bonds and start raising interest rates?

JARED BERNSTEIN, CENTER ON BUDGET AND POLICY PRIORITIES: Well,
perhaps yes on the former, but definitely no on the latter. I think that
the tapering off on the bond-buying program, we should get to the end of
that in late October has been going along steadily and has not shaken the
economy much at all.

However, it is too soon to raise interest rates. So the discussion is
well, when will it be the right time? And Janet Yellen is certainly not
giving up on a labor market, that she still believes its too slack.

MATHISEN: Do you think — let me ask you this, what would it take for
you to say go ahead, raise my rates?

BERNSTEIN: I would like to see that — the unemployment rate come
down, well within the fed`s full employment range which is below 5 1/2
percent, and not because the labor force has declined but because people
left unemployment to get jobs.

And also, by the way, here I am parroting Janet Yellen, whose express
great concern about the long term unemployed, I`d like to see that long-
term unemployment rate come down, that`s been historically elevated now for
years.

MATHISEN: So, you`d much prefer, as Steve Liesman just said, for the
Fed to become more data-dependent rather than time-dependent.

Do you think the data will drive the Fed to raise rates, in say, six
to nine months? Will we be there then?

BERNSTEIN: Well, look, when you`re talking about the Fed, you`re
talking a lot of different people. But I do think the people who I will
say matter the most, certainly Janet Yellen are much more data-dependent
than time-dependent. And I think it is not just a matter of what the labor
market in terms of what economists call the quantities job, unemployment,
long term unemployment, wages, I think Chair Yellen very reasonably wants
to see some wage pressure in the economy, which has been lacking now for
years before she starts talking about tightening.

MATHISEN: Now, you`ve said what you would prefer to see the Fed do.
What do you think they will say and do tomorrow? Are you in the camp that
says they will drop the two magic words, considerable time — significant –

BERNSTEIN: OK. I am in the camp that says they will not. And here
is my reasoning. I don`t think the Fed likes to have its forward guidance
pushed around by outsiders. When you think about this, take the
considerable time, those two words, take that out of the statement. That
really comes from people outside the Fed who pick up something more hawkish
going on.

And they have kind of created this buzz. I think this Fed has shown
before, and under Bernanke, as well, that they don`t like to be moved in
terms of forward guidance by kind of the chattering classes outside. So, I
expect them to kind of put their foot down and say, we`ll let you know when
it`s time for us to change forward guidance.

MATHISEN: Very quickly, what is the stock market saying if anything
today about the Federal Reserve, has it already priced in whatever they
think the Fed can do, because we had another day high.

BERNSTEIN: Yes, I think that is probably part of the solution — part
of the reason. But I do think that in fact if the Fed takes the more kind
of dovish data-dependent tone that I think and hope they will, that the
market actually might get a bit of a bounce tomorrow, it could go either
way. But I think the expectation is for the Fed to be more hawkish, to
tighten. The market doesn`t see that, I suspect you might see a bit of an
up-tick.

MATHISEN: All right, Jared, thank you very much. Jared Bernstein of
the Center for Budget and Policy Priorities.

Susie?

GHARIB: Tyler, today`s latest inflation on inflation is sure to be a
topic of discussion at that Fed meeting. It appears that inflation is in
check at least at the wholesale level, producer prices in August were
unchanged from the previous month, a drop in food energy prices helped to
off set a rise in transportation and shipping charges prices. Inflation
data on consumer prices comes out tomorrow.

Now, prices may be stable but the outlook on the U.S. economy from
some top CEOs is a bit weaker. A survey out today of 135 chief executives
by the Business Roundtable shows less optimism about the economy, with more
of them expecting to see hiring slow down and less capital investment in
the second half of the year.

John Engler, president of the Business Roundtable, explains why the
economy is performing below its potential.

(BEGIN VIDEO CLIP)

JOHN ENGLER, BUSIENSS ROUNDTABLE: The GDP is still limping around,
we`ll come in this year around 2 percent, a little bit above. Maybe. But
compared to past recoveries at this point, we`re way below where we should
be. Work force participation is still way down, and it`s especially down
when we look at younger age cohorts, so younger workers. And we got 4
million jobs that we can`t fill because people don`t have the skill.

(END VIDEO CLIP)

GHARIB: But the findings weren`t all bad. Most of the CEOs expect
their companies sales to increase over the next six months.

MATHISEN: There was good news also about the nation`s poverty rate
today. It declined last year for the first time in almost 10 years. The
Census Bureau also reported that the poverty rate for children fell for the
first time since the year 2000. But median household income last year was
flat from the prior year, at just under $52,000.

GHARIB: A big change in investment plans from CalPERS, the nation`s
largest pension fund. CalPERS which stands for California Public Employees
Retirement System, will stop investing in hedge funds, pulling out $4
billion in investments over the next year, after saying that hedge funds
charge too much in fees and are too complicated.

Joining us now with more on this is Amy Resnick. She`s executive
editor at “Pensions and Investments Magazine”.

Amy, nice to have you here with us.

This was really a shocker for a lot of people to hear that CalPERS,
which is considered sort of like a bellwether for the pension fund system,
is dropping out of hedge funds. Do you think this is going to have a
ripple effect with other pension fund managers?

AMY RESNICK, PENSIONS AND INVESTMENTS MAGAZINE: I think that any time
some institution as large as CalPERS make a change, even though they have
telegraphed this change, the sudden exit that they announced yesterday was
a big surprise. But I think their decision will make everybody think about
what they`re doing and maybe go back and reconsider or review their own
internal allocations to hedge funds.

GHARIB: The big complaint out of CalPERS was that these hedge funds
were too expensive, they`re too complicated, and they didn`t get the kind
of performance they want. Do you think that this is an issue for other
pension funds?

RESNICK: I think that CalPERS specifically said that with the pension
fund their size, which is nearly $300 billion, and the allocations to hedge
funds that they had, which was only $4 billion, that their investment there
for the price they were paying was not significant enough to get their
returns and the results that they wanted. So, they have made other
choices.

I think those numbers, the allocation, the size and the performance
would be something that every pension would have to evaluate for itself.

GHARIB: You know, some of the critics of CalPERS decision and this is
coming from the hedge fund industry, are saying that there are hedge funds
and there are hedge funds, and maybe CalPERS just didn`t get into the right
hedge fund. What`s your take on that?

RESNICK: I think that is certainly something worth reviewing, CalPERS
has a capable investment staff and they made their decisions based on their
objectives and their policies, and I think that`s their prerogative at this
point to say that it wasn`t doing what they hoped it would do, so they`re
going to change direction.

GHARIB: You know, a lot of people are reading these headlines,
individual investors. I mean, what is the message here for individual
investors who are always looking for ways that they can kind of emulate
hedge fund strategies, ways that they can hedge their portfolios against
bumpy times in the stock market.

Is this kind of a red flag to say even for individual investors, maybe
not a good idea, it`s too risky to go into hedge funds?

RESNICK: I think maybe the bigger lesson for individual investors is
to know your objectives and make sure that every part of your portfolio is
doing what you expected to do.

And in CalPERS` case, they said that the hedging properties of a hedge
fund were not substantial enough because they couldn`t get a large enough
investment there to get that quality for them. But in an individual
portfolio, the size and scale are obviously very different.

GHARIB: You know, and the other side of that discussion is that, is
this the right time to get out of hedge funds because there are all of
these predictions that the stock market will go to a corrective phase and
you want to hedging during a time like that. So what are you hearing on
that? Did CalPERS maybe move too soon?

RESNICK: Well, at the start of this year, CalPERS changed their
allocations across the board and started reducing their hedge fund
allocation then, and increase their allocation to both fixed income and
private equity. So, they clearly seem to think that that is going to give
them the stabilization in their portfolio that they want.

GHARIB: All right. Amy, thank you so much for coming by, explaining
it all to us. We appreciate it.

RESNICK: Thanks for having me.

GHARIB: And we have been speaking with Amy Resnick at “Pensions and
Investments Magazine”.

MATHISEN: And one more pension fund item that just came out today,
Virginia`s attorney general filed more than a billion dollar lawsuit today
against 13 large banks and financial firms, saying they defrauded the state
by selling risky mortgage-backed securities to the state`s public employee
retirement fund ahead of the financial crisis.

Well, still ahead, manipulative, unethical and illegal. That`s how
the attorney general describes what a drug maker does with a widely used
treatment for Alzheimer`s. That story is next.

(COMMERCIAL BREAK)

GHARIB: Summer officially ends one week from today, and there is
already some good news for drivers this coming fall, even though oil prices
spiked today, up nearly $2 a barrel, gasoline prices this autumn are
expected to be the lowest in four years, how low could they go?

Jackie DeAngelis has more.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, fall
is about to officially kick off and there is some good news for consumers.
Retail gas prices could potentially fall to their lowest levels since fall
of 2010.

The currently national average for a gallon of regulars is $3.37, but
we could see prices as low as $3.15 to $3.25, and more than 30 states could
see prices fall under $3 a gallon. Now, whenever prices fall, analysts`
predict that consumer spending could rise, Gas Buddy says that consumers
will spend $2.5 billion less this fall on gas than they did last year and
that money can trickle into other areas of the economy.

Now, few reasons the gas prices have fallen so low, the first is the
steep drop in both international and domestic crude prices over the past
few weeks. But also, the switchover from summer blend of gas to the winter
blend, the latter is cheaper.

And demand also decreases in the fall, so when demand drops, the
prices drop, too.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: Cheaper fuel could be a big help for Boeing (NYSE:BA), the
aerospace giant just secured a massive multi-billion dollar contract with
NASA to build so-called space taxis. They will bring astronauts to and
from the International Space Station instead of relying on Russian
spacecraft, as NASA now does.

Well, some flight attendants could be lifting off into retirement with
an extra $100,000. That`s how much United Airlines will offer in buyout
packages to some flight attendants if they agree to retire early.

GHARIB: Two giant drug makers are teaming up to make a new
Alzheimer`s medication. British pharmaceutical giant AstraZeneca signed a
deal with U.S. rival Eli Lilly (NYSE:LLY) to receive up to half a billion
of dollars in funding if an experimental treatment they`re both working on
proved successful. Investor reaction was mixed. Shares of Lilly rose
nearly 1 percent today, but AstraZeneca down a fraction.

MATHISEN: News about an existing Alzheimer drug has prompted a
lawsuit from the New York state attorney general, accusing a major drug
maker of manipulating patients by forcing them to switch medications so the
company makes more money.

Meg Tirrell reports.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the drug
industry, it is known as a hard switch. Drug maker Actavis is
discontinuing its older Alzheimer`s medicine Namenda before its patent
expires next year, and focusing instead on an extended released version.
That drug, Namenda XR has a patent protection through 2029. Namenda brings
in $1.5 billions in annual revenue, so the strategy could save the company
billions, by leading customers to switch to the new drug before cheaper
generic copies of the old one hit the market.

RONNY GAL, SANFORD BERNSTEIN & CO: That would kind of like equivalent
to Apple (NASDAQ:AAPL) introducing iPhone 6 and then making all the iPhone
5 stop working.

TIRRELL: Bernstein analyst Ronny Gal says that it is an increasing
common strategy in the drug industry, known as life cycle management. The
New York attorney general isn`t having it. Eric Schneiderman filed an
antitrust lawsuit today against activists, saying the practice is
manipulative, unethical and illegal.

Bioethicist Art Caplan agrees.

ART CAPLAN, BIOETHICIST: The hard switch, I think, is fundamentally
unethical. It forces people to pay more for their drugs. It forces, if
you will, the payers, including in this case, mainly, the taxpayers who pay
for this drug through Medicare/Medicaid primarily, to pay much higher cost.

TIRRELL: Actavis declined to comment on the suit, but said in a
statement that Namenda XR has significant advantages over twice a day
Namenda. Particularly important in a disease like Alzheimer`s that has a
high burden of care. Caplan argues that it`s precisely the vulnerability
of patients with this disease that makes the strategy even worse.

CAPLAN: One of the particularly morally pernicious aspects of trying
to do a four switch is you`re doing it in a group of moderate to severely
impaired people with Alzheimer`s.

TIRRELL (on camera): Investors were unfazed. Actavis` stocks traded
up today, despite the attorney general`s suit.

Bernstein`s Gal says they might want to take a closer look, not just
for Actavis` future, but for the rest of the drug industry.

GAL: This just goes to the strategy of the hard switch, and to the
extent it becomes illegal, it will be a risk for the pharma group in
particular because they have been using this quite often. So, this is —
this is something that the pharma industry will clearly object to. This is
something that we believe the payers will probably support. This is
something we think the SEC (ph) will support. This will probably become a
pretty big fight within the drug industry.

TIRRELL (voice-over): For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: We begin tonight`s “Market Focus” with a big buyback from
Humana (NYSE:HUM).

The health insurance rallied after it announced a new $2 billion share
buyback program that extends through December 2016. This replaces a
previous $1 billion program. Shares jumped on the news, more than 3 1/2
percent to $132.37.

Shares of SodaStream fizzed on a rumor that it`s in talks with a
buyer. An Israeli newspaper reported that a British investment fund is
discussing a possible purchase of SodaStream for a price that could total
$40 a share. That news pushed up shares almost 1 percent to $31.79.

And Sears (NASDAQ:SHLD) has tried closing stores and spinning off
assets to fix its finances, now the company`s CEO is coming to the rescue.
The department store owner has borrowed $400 million from its chief`s hedge
fund, in an effort to infuse cash into Sears (NASDAQ:SHLD) for the holiday
season. Shares tumbled, though, almost 9.5 percent to $30.37.

MATHISEN: Well, Susie, a better holiday outlook for UPS this time
around. The package delivery company says its plans to hire up to 95,000
seasonal workers for the holidays. This is an increase from last year when
it was caught unprepared for a boom in online ordering. Shares were up
slightly today to $97.96.

Meanwhile, FedEx (NYSE:FDX) is hiking shipping rates for express,
ground and freight services. The increase of about 5 percent will go into
effect in January of 2015. Shares were up slightly to $154.66.

GHARIB: Through the years, after it opened for business, the Trump
Plaza Casino in Atlantic City, New Jersey, shut its doors today. It`s the
fourth casino to close up shop in the struggling gambling city this year.
And one more, the Trump Taj Mahal is slated to shut down in November.

MATHISEN: We`re still three days away from the initial stock offering
of the Chinese ecommerce giant, Alibaba, expected to be the biggest ever on
Wall Street. And today, we learn that after the IPO, the company will open
its first ever lobbying office here in Washington, hoping to work closely
with U.S. trade officials on intellectual property and trade secrets rules.

Alibaba has already hired Jim Wilkinson, a former chief of staff at
the Treasury Department as its head of the Strategic Communications. He
will work out of the San Francisco office.

GHARIB: Also in Washington today, a congressional report is blasting
federal safety regulators in the GM ignition switch fiasco. The House
Energy and Commerce Committee says officials at the National Highway
Traffic Safety Administration played a signal role in General Motors`
failure to recall millions of defective cars in a timely manner. It said
regulators failed to identify the problems with the switches and they
should have acted more quickly.

And coming up on the program, rewriting the rules of the classroom,
and why the school of tomorrow will look anything like it does today. The
second part of our future of education series is coming up next.

(MUSIC)

GHARIB: A federal watch dog group is suing Corinthian Colleges
(NASDAQ:COCO) for alleged predator-lending. The Consumer Financial
Protection Bureau is accusing the for-profit institute of luring students
to take out pricey private loans by touting bogus job prospects and then
using illegal debt collection methods. The consumer group wants the
company to pay half a billion dollars in relief for tens of thousands of
students.

MATHISEN: Well, traditional education uses basically a one-size-fits-
all approach to the classroom, where students sitting at their desks while
the teacher lectures from the front of the room. But 25 years from now, a
new method of teaching will turn the traditional classroom model on its
head.

In the second installment of our three-part series on the future of
education, Sharon Epperson takes a look at the classroom of the future.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The classroom of the future will look a lot different than the classrooms
of today. Gone will be the rows of desks with teachers at the front of the
class, the redesign of the class will look more like a working, living play
space.

ANDY HINES, FUTURIST: If you think about the traditional classroom,
we have this image of the teacher telling the students to be quiet and
waiting for their turn to talk, I think really the redesign of the
classroom of the future is just the opposite. We want them to talk.

EPPERSON (on camera): With the school days filled with student
discussion and interaction, the teacher`s role will also evolve.

MICHELLE MORRISON: The teacher might be sitting and observing
silently. She might be working one-on-one with one child on the floor.
She might be giving a lesson to a small group of students. There`s an ebb
and flow that happens in the classroom.

EPPERSON: As for lessons, they`ll be entirely virtual, to be accessed
online, on demand outside of school.

SALMAN KHAN: The real part of technology is to allow them to work at
their own pace, to personalize education for them and then free up class
time.

EPPERSON: Educators are already experimenting with what is known as
this flipped classroom model. It`s a glimpse of what`s to come and will
radically change the traditional classroom experience.

For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.

(END VIDEOTAPE)

GHARIB: And finally tonight, some surprising results in a new ranking
of the top universities around the globe.

Here is the list from QS World University rankings. In fifth place,
California`s Stanford University. In fourth, University College London,
and the University of Oxford, both in England. In third, Harvard
University. In second, a tie between two more British schools, the
University of Cambridge and London`s Imperial College.

And in first place, the winner? MIT, the Massachusetts Institute for
Technology.

All great institutions, Tyler.

And that is NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.
Thanks for watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen.

Have a great evening and we hope to see you right back here tomorrow
night.

END

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