Transcript: Wednesday, October 8, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib, brought to you in part by —

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Music to the market`s
ears. Stocks rally after the minutes from the last Federal Reserve meeting
suggest policymakers are worried about slowing global growth. Could that
mean easier money longer?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Ebola economics. The
World Bank puts a price tag on the economic cost of the Ebola outbreak and
the number is huge.

MATHISEN: And oil slick. Prices slide again, which is good for
consumers, but bad for producers. So, what happens as their profits get
pinched?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
October 8th.

GHARIB: Good evening, everyone.

Well, call it a comeback rally or maybe a Janet Yellen rally.
Whatever you call it, stocks had their best session of the year. The major
averages surged after minutes from the Federal Reserve`s latest meeting
show the Central Bankers will be, quote, “overly cautious” about raising
interest rates. They cited concerns about weakness in the global economy
and impact of a stronger U.S. dollar, especially on inflation.

Investors bought up stocks, reassured that the Fed is committed to
keeping rates low until its convinced the U.S. economy has completely
healed. The Dow shot up almost 275 points, erasing all of Tuesday`s
losses. The NASDAQ rose 83, the S&P soared 33 points.

Steve Liesman has more analysis on those Fed minutes.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Global economic weakness in places like France and Germany is starting to
felt here, at the Federal Reserve`s Washington headquarters, and that could
have an effect on interest rates.

The Fed in the minutes from its September meeting revealed concerns
with floundering economies overseas saying, quote, “economic growth over
the medium term might be slower than expected if foreign economic growth
came in weaker than anticipated,” end quote.

That was not the extent of the concerns. They also mentioned the
appreciating dollar, which has risen sharply since July.

The worry is that a strong dollar will reduce inflation since foreign
goods become cheaper in dollar terms when the green buck strengthens.

This is troubling to a Fed that struggled to hit a 2 percent inflation
target for the past five years and not succeeding. In fact, Fed staff
economists said the central bank may not hit that target, quote, “over the
next few years.”

TONY CRESCENZI, PIMCO MARKET STRATEGIST: The dollar`s movement which
reflects divergent monetary policies globally shows the Fed and its forward
guidance and its keeping to the timeline on rates is affecting markets,
which will affect the economy, combine with oil and you get a sense the Fed
will be worried about inflation being too low and once pull the punch bowl
away late, not early.

LIESMAN: All of that suggested to the market that Fed officials won`t
be so quick to pull the trigger and raise rates. The market currently
anticipates around a mid-2015 rate hike, which would be the first in eight
years. But there was concern of an earlier hike and the Fed`s worries
about foreign weakness — it takes that off the table for now.

All of this raises the stakes for the European Central Bank and its
president, Mario Draghi, to come up with a plan to address the economic
weakness on the continent. The ECB currently is putting a program in place
to lower rates for private sector borrowers. But it`s still in the works
and eurozone economies have weakened further since the plan was announced.

(on camera): That could mean the Fed keeps interest rates at zero
until it`s clear Europe is out of recessionary danger or Draghi puts a plan
together that gains the confidence of markets.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: More strong data out today here in the United States.
Payroll firm ADP reports that wage growth is finally picking up with hourly
pay for private sector workers up 4.5 percent in the third quarter compared
with a year ago.

Also today, the Kansas City Federal Reserve reports more improvement
in that region`s labor market with its jobs momentum indicator rising to
near historic highs. Small business hiring is among the biggest
contributors to the improvement, as well as decline in the national
unemployment rate.

GHARIB: Some good news out of Washington, sort of. The Congressional
Budget Office says the federal deficit coming in just under half a trillion
dollars is actually the lowest it`s been since President Obama took office
in 2008.

MATHISEN: Oil prices continued to slide today, pushed lower by a
Department of Energy report that U.S. crude inventory rose by 5 million
barrels last week, and that was way above forecast. Domestic West Texas
crude fell another $1.54 a barrel. It finished at $87.31. That`s a fresh
two-year low.

How low can those oil prices go and how long before oil producers
really feel the impact?

Jackie DeAngelis has more.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil prices
have gotten crushed, good news for consumers because retail gas prices are
dropping, but bad news for global producers who are reaching critical break
even points. Now, suppliers around the world forced to decide, are these
price fluctuations temporary or is it time to cut supply?

Some are saying not so fast, at least in the Canadian oil. A
representative for Cenovus says no need to panic.

DREW ZIEGLGANSBERGER, CENOVUS: If you look at the overall world
supply cost and right now, there`s reports that it`s in the $70 range, you
know, we`re in the high $30, low $40 supply cost range for Cenovus in our
two main oil facility areas. So, we have a lot of value to generate. We
have a lot of running room.

DEANGELIS: Still, according to some reports, the price to produce out
of the Canadian oil sands is $89 to $96 a barrel. Here in the U.S., 70 to
$77.

So, with WTI well under $90 now, some producers are already starting
to feel the pinch.

And traders saying that there is more pain to come. West Texas
Intermediate could fall to $85 in the next couple of days. If that level
is breached, the slide could continue.

But suppliers aren`t making any moves just yet. In Canada, the
expectation is that output will continue to ramp, but with the realization
that recent growth will begin to trail off.

MAYOR MELISSA BLAKE, REGIONAL MUNICIPALITY OF WOOD BUFFALO: There is
a point where that`s actually going to level off when we reach whatever
maximum daily input could be taking into consideration all of the factors
of development.

DEANGELIS: What to watch for, well, OPEC is meeting next month. The
cartel might make a move. Also here in the U.S., we`ve been talking about
oil exports, perhaps the conversation heats up.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

GHARIB: A grim estimate today on the economic impact of the Ebola
crisis. The World Bank has calculated the price tag and it`s predicting it
could top $32 billion in West Africa alone by the end of next year. That`s
if the disease continues to spread.

This comes as five U.S. airports say they will screen for Ebola on
passengers arriving from West Africa and the same day that the first Ebola
patient diagnosed here in the U.S., Thomas Eric Duncan died in a Dallas
hospital following a long struggle with the virus.

(BEGIN VIDEOTAPE)

GHARIB (voice-over): Duncan may have exposed up to 50 people to the
Ebola virus in Dallas. So far, none of them have shown signs of illness,
but the nation`s hospitals and airports are on high alert. It`s the fear
factor that the World Bank referred to in its report, calling for immediate
action in the hardest hit countries, Guinea, Liberia and Sierra Leone to
stop the epidemic.

Doing so would discourage other African countries from closing
boarders, grounding airline travel and choking commercial activity there.
The World Bank president Jim Kim said today, “The enormous economic cost of
the current outbreak” could have been avoided “by prudent on going
investment in health systems.”

And that`s the point Secretary of State John Kerry was trying to make
as he confirmed a commitment of resources and dollars by the United States.

JOHN KERRY, SECRETARY OF STATE: Ebola is an urgent global crisis that
demands an urgent global response. The United States has intensified every
aspect of our engagement, and that includes providing Ebola treatment
units, recruiting first responders, and supplying a critical set of medical
equipment.

GHARIB: Earlier this week, an NBC News freelance photographer arrived
in Omaha Nebraska for treatment after he tested positive for Ebola while
working in Liberia. In the United States, one other patient had been
previously treated and released in Omaha and three others, including one
who remains hospitalized have been treated in Atlanta.

In Europe, a total of eight people have been treated, two of the three
in Spain have died. No drugs or vaccines have been approved by the FDA to
treat Ebola and only very limited supplies of the drugs being tested are
available. The stock of Chimerix which makes the drug used by Duncan
dropped today following the announcement of his death. That same drug is
also being given to NBC`s freelance photographer in Nebraska.

But until there is a drug or vaccine to fight Ebola, the cost of
containing it will steady climb.

(END VIDEOTAPE)

MATHISEN: John Panzer joins us now to talk more about the World
Bank`s economic assessment of the Ebola epidemic. He`s the director of
macro economics and fiscal management practice at the World Bank group and
he`s one of the authors of the study we referred to earlier.

Sir, welcome. Good to have you with us.

JOHN PANZER, THE WORLD BANK GROUP: Thank you.

MATHISEN: I gather, correct me if I`m wrong, that much of the cost
that you describe under a worst-case scenario, $33 billion concentrated in
West Africa is traceable to what you describe as aversion behavior that
people would engage in in those economies. In other words, the economy
fundamentally shuts down as people shutter factors, don`t travel there, are
afraid to do business in those nations.

Could that aversion behavior lead to the collapse of those countries?

PANZER: Yes. In some ways, this crisis is not contained in the very
short term, we can anticipate an enormous cost for these countries. Right
now for these countries, we estimate for 2015, the cost, the price cost
would be about $800 million if this crisis is not contained. This is a
very significant amount of money for economies that in total have a GDP of
$12 billion.

MATHISEN: John, you also write in your report that you have two
scenarios, there is a high Ebola and low Ebola, and that has a factor in
this price tag that you`ve put on the cost of the Ebola crisis. Talk us
through the high and low scenarios.

PANZER: Well, I think the most common scenario, if the crisis is not
contained in these three countries, there is a very likely probability that
Ebola will spread to neighboring countries or to other countries in the
world as we see now.

But, of course, the most vulnerable countries for the spread of the
disease are the neighboring countries because they are the most connected
and also because they have health systems that will be very stretched to
cope with the disease. In that context, if aversion behavior moves into
the Western Africa region, you have to consider that just the economy of
Nigeria is 40 times larger than the economy of these three countries
combined. So, if this crisis would evolve into other countries and would
led to aversion behavior across other Western African economies, we could
estimate then a high cost in terms of lower economic growth which transmits
into the $33 billion over 2014 and `15 that you referred to.

MATTHEWS: That`s what I was going to ask you because you earlier
cited a number of something like $800 million, which is staggering in it`s
own right, but I was going to ask how we get to the $32 billion, $33
billion that is sort of the headline number people are throwing around
today and it is reduced economic output. This is mostly West Africa.

What happens if this — if this disease moves more broadly global?
How does that lever up the potential cost?

PANZER: I think that in that case, we have to consider whether this
is going to lead or not to aversion behavior. At the beginning of the
program, you said the cost of this — of treating the disease and of
treating the patients and isolating them is significant, but it`s not
staggering in terms of the broader economy.

However, if aversion behavior moves to any country, then the cost
could escalate enormously. Take a developed country. We think that in
places like the United States or Europe, where you have very strong
security and health systems to contain the crisis, you will have a price
tag, but if you avoid aversion behavior, the economic cost will be very
contained, of course.

MATHISEN: All right. Mr. Panzer, thank you very much. We`ll, of
course, be watching this story as will you over the months ahead.

John Panzer of the World Bank.

GHARIB: Still ahead, Alcoa`s surprise for investors and the one key
takeaway from its earnings report that shareholders need to pay attention
to. That`s next.

(MUSIC)

GHARIB: It`s not the kind of money Bill Gross might be used to but it
a start. After suddenly resigning from running the $200 billion PIMCO
Total Return Fund last month, Bill Gross joined Janus Capital Group
(NYSE:JNS) to run its rather modest $13 million Janus Unconstrained Bond
Fund.

Today, we learned that investors moved more than $66 million into the
fund after Gross came on board. By contrast, investors pulled out more
than $23 billion from Gross` former fund, at PIMCO.

MATHISEN: Turning now to earnings and a strong beat tonight from
Alcoa (NYSE:AA), the Pittsburg-based aluminum giant. Alcoa (NYSE:AA) made
31 cents a share, excluding certain accounting items. That was eight cents
better than estimates. Revenues also topped Wall Street forecasts by
nearly a half billion on strong demand for aluminum and the aluminum
products the company manufactures for automakers, aerospace industry and
other businesses.

And CEO Klaus Kleinfeld is satisfied with the results.

(BEGIN VIDEO CLIP)

KLAUS KLEINFELD, ALCOA CEO: This quarter, I mean, we won record deals
(ph). I mean, they are coming in two large contracts, each one over $1
billion, one coming from Pratt and Whitney, basically for engine materials.
And the other coming from Boeing (NYSE:BA), again, $1 billion plus. It`s
clear aluminum is there to stay and aerospace and it`s growing in places
like automotive and others.

(END VIDEO CLIP)

MATHISEN: Shares of the one-time Dow component rose initially in
after-hours trading as you see on that chart.

Morgan Brennan joins us now with more on Alcoa`s earnings.

What, Morgan, is the big takeaway here from this report?

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I think
what Klaus just mentioned, the fact that we`re seeing this larger
transition for Alcoa (NYSE:AA) into advanced manufacturing, something we`ve
talked about on this program played out in the results, but I think one of
the more surprising takeaways from these earnings is actually it`s upstream
business, it`s mining and smelting operations, the actual production of
aluminum.

We saw a really strong beat in this earnings report and that`s
interesting because we`ve seen aluminum production hit so hard in the
recession, and it`s really flounders since then both for Alcoa (NYSE:AA)
and other aluminum makers. And yet, in these earnings, we saw the
strongest performance for the primary medals segment since before the
downturn.

And I think at a time when investors are worrying about slowing growth
in China, Europe teetering on the edge of recession, to see stronger output
for actual aluminum production is a very promising stat especially in light
of the fact the company reiterated the 7 percent global growth demand
outlook for aluminum.

GHARIB: They have been sticking to that number for the last couple of
quarters.

BRENNAN: They have been. It`s very promising for larger economic
growth.

MATHISEN: Morgan, thanks very much. Morgan Brennan reporting.

GHARIB: The 18-month turn around at J.C. Penney suddenly hitting the
brakes and that`s where we begin tonight`s “Market Focus”.

Shares of the retailer tumbled 6 percent today after warning that
sales last month were weaker than expected, and it cut its outlook for a
key sales measure for the current quarter. JCP lost $1 a share to $8.19.

More trouble for another struggling retailer, this one is Sears
(NASDAQ:SHLD). A report out today said at least one vendor is halting
shipments to the department store chain because it couldn`t obtain
insurance to guarantee it would be paid for its products. The report said
three of the biggest insurance firms are reducing their coverage. Sears
(NASDAQ:SHLD) calls the report misleading. Still shares fell nearly 5
percent, down $1.45 to end the session at $28.85.

And a different story for warehouse club Costco (NASDAQ:COST). It
posted fourth quarter net income of nearly $1.6 billion. That`s a jump of
14 percent. The chain added more paying members and sold more food,
clothing and school supplies during the important back to school season.

Shares hit an all-time high today, adding $3.46 a share to $128.73.

Then, after the closing bell, Gap (NYSE:GPS) shares tumbled on news
that CEO Glen Murphy will step down next year. Murphy had over seen a
reversal in the retailer`s long-running sales slump. They`ll be replaced
by the head of Gap`s digital division.

The stock initially fell about 8 percent in after-hours trading. But
it rose more than 1.5 percent during the regular session to $41.90.

MATHISEN: Monsanto (NYSE:MON) reported a narrow than expected fourth
quarter loss, but it`s full year forecast disappointed investors. The
world`s largest seed company says weak grain prices will likely pressure
farmer to change their planting schedules, and tighten up spending on farm
supplies. Despite that, though, the company outlined plans for growth and
plans to plant seeds in other businesses by making its new investments.
Investors liked hearing that.

Shares up were $1.99 a piece. They closed at $109.73.

Valeant Pharmaceuticals and an activist investor Bill Ackman plan to
increase their offer for Allergan (NYSE:AGN), this according to reports.
The sweetened bid could value the Botox maker more than $46 billion.
That`s a $4.5 million boost. The move is designed to keep Allergan
(NYSE:AGN) from striking a rival deal.

Shares of Allergan (NYSE:AGN) up $4.30 each. The close at $190.50.
Valeant up a half percent. It finished at $125.90.

And AT&T (NYSE:T) has agreed to pay more than $100 million, most of
that going to consumer refunds, to settle allegations that it added bogus
third party charges to cell phone bills. Like daily horoscopes or trivia
that were never requested. Enforcement action for this so-called cramming
is the largest in the history of the Federal Communications Commission.
AT&T (NYSE:T) shares up, though, nearly 1 percent to $33.15.

GHARIB: Citigroup (NYSE:C) is gearing up to spin off the subprime
lending unit, OneMain Financial, which makes personal loans to consumers
with less than pristine credit, is preparing a $50 million initial stock
offering. Citigroup (NYSE:C) has tried but failed to sell the business
before and now says OneMain no longer fits with its strategy of catering to
higher income customers.

MATHISEN: Switching now to politics with under four weeks to go
before the midterm elections, and the focus now is on Kansas and what some
pundits considered to be the most important race in the country, one that
could determine whether Republicans will take control of the U.S. Senate.

John Harwood joins us now from Wichita with more on this important
battleground.

John, first off, tell us who is running and why is this Kansas Senate
race in a state that is usually so reliably Republican at the center of the
campaign?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s
fascinating, Tyler. Who`s running is Pat Roberts — a veteran Republican
in a state that has only elected Republican senators for 80 years. But
he`s 78 years old, he`s been in Washington for a long time. Washington is
unpopular.

And a former Democrat now running as an independent, successful
businessman with a lot of money, is running an independent candidacy
basically saying both parties are bad. The Democrat dropped out, which
means that Greg Orman, the businessman, is getting those Democratic votes
and it`s a very unpredictable situation.

GHARIB: So, you mentioned he`s a businessman. Where do the
candidates stand on business issues, whether we`re talking about taxes and
regulation? How different are they?

HARWOOD: Very hard to tell right now, Susie. They have a debate
today before a business group outside of Kansas City and they sounded
similar. Greg Orman said, I don`t like excessive regulation. So did Pat
Roberts.

Neither one embraced higher taxes for example. Both of them said
Obamacare needed to be changed, although Orman said it`s not practical to
repeal it. Robert said, I`ll keep trying.

The real difference is that Roberts was saying, if you elect this guy,
telling fellow conservatives Kansans, if you elect this guy, you`re turning
the agenda to Barack Obama and Harry Reid. And Greg Orman said instead,
no, I`m going to try to make Washington work because parties are at fault.

MATHISEN: So, John, what is the latest information on who is ahead?

HARWOOD: Pat Roberts is trailing by a few points, but he and the
chamber have come in with big negative ads trying to define Greg Orman as a
Democrat in disguise right now. And therefore, they are hoping they can
overcome this lead in the last three weeks. Not clear that they can do it,
but we`ve — we`ll find out over the next 27 days.

MATHISEN: All right. John Harwood, thanks very much. John reporting
tonight from Wichita.

And coming up, is IBM one step closer to making money off its super
computer Watson? Could this be a revenue generator IBM has been looking
for?

(MUSIC)

MATHISEN: You may remember Watson, the super computer made by IBM,
that made headlines a few years ago. Well, now, Big Blue is betting big on
Watson with a new home and some new applications.

Bob Pisani reports.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Remember IBM`s
Watson? That`s the artificial intelligence program that defeated the
“Jeopardy” champions. Not much has been heard from it.

But, today, IBM opened up headquarters for Watson in downtown New York
surrounded by Google (NASDAQ:GOOG) and other hit companies. Why the move?

IBM is finally rolling out new applications for Watson and it wants to
attract all those young, hip sound developers to write apps for it.
Several deals were announced today.

Terry Jones, the founder of Travelocity, and the founding chairman of
Kayak.com launched Wayblazer. It`s a new travel company built on Watson
that will allow travel agents and consumers to interact with Watson using a
natural language interface so consumers and travel professionals will be
able to talk naturally with Wayblazer about travel plans, and it will make
recommendations on flights and hotels and places and destinations.

It`s all part of a very hot area of technology called cognitive
computing. It`s something like artificial intelligence.

Cognitive computers don`t think by themselves but they`re capable of
learning. They can adapt to new information. They can interact and they
can propose solutions. And the technology is getting better very fast.

Another use Watson is being tested for is as an aid to doctors to more
quickly and accurately make diagnosis. Watson is designed to interact with
the patient`s medical history, as well as information from the doctor`s
medical exam. So, if a patient comes in with a difficult diagnosis, the
doctor could query Watson, which would compare the symptoms against a vast
body of medical knowledge to boost a series of possible diagnoses.

This is very valuable when dealing with rare diseases where the
doctors likely to have little knowledge of the disease or its symptoms.

Now, one thing is for sure, IBM desperately needs a revenue generator.
Revenues have declined every year since 2011. IBM won`t discuss how much
revenue Watson might generate, but they obviously have big hopes.

Consulting firm Deloitte estimates that the total market for cognitive
computing could exceed $50 billion in less than five years. That`s a huge
leap forward for this particular business.

Now, everyone has always asked me the question what does Watson look
like? And the answer is, well, it looks like a pizza box. Actually, it`s
about the size of three large pizza boxes.

Of course, no one is going to deliver Watson. It`s going to be
available as a service in the Cloud.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
Exchange.

(END VIDEOTAPE)

GHARIB: One smart pizza box.

And, finally tonight, Americans are living longer with life expectancy
now the highest ever. A new report from the CDC finds that a baby born in
2012 can expect to live nearly 79 years on average, about a month longer
than a baby born just the previous year — thanks to advance treatment and
prevention of major diseases. Women can expect to live longer than men, to
more than 81 years compared to 76.5 years for men.

Tyler, you and I are going to hit 100.

MATHISEN: We`re going to be here.

(LAUGHTER)

GHARIB: We`re still be here.

MATHISEN: And we`re still be anchoring NIGHTLY BUSINESS REPORT.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie
Gharib. Thanks for being with us.

MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody.
Thanks for being with us. We`ll see you back here tomorrow.

END

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