Transcript: Wednesday, October 29, 2014

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


The Federal Reserve ends its bond-buying program, upgrades its assessment of the economy and pledges to keep interest rates low for a considerable time. So, what will Chair Janet Yellen do next?

The $1.6 million question: did the Central Bank`s historic move to stimulate the economy work?

And the Fed effect. What happens to the housing market now that the stimulus program is over?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, October 29th.

Good evening, everyone. Tyler is off tonight.

They say all good things must come to an end, and today, the Federal Reserve announced the end of its latest bond-buying stimulus program known as QE3. The decision ends a six-year stretch where the Central Bank expanded its holdings of mortgage securities to an unprecedented $4.5 trillion.

In a statement after the Fed`s two-day policy meeting, policymakers also gave an upbeat report on the health of the U.S. economy and the job market.

The U.S. dollar spiked higher on the news, bond prices dipped as yields moved up, gold prices fell a bit and cautious investors kept the markets in negative territory. The Dow lost 31 points, the NASDAQ slipped 15, and the S&P was off about three points. The yield on the benchmark ten-year note hit a three-week high today before easing back and closing at
2.3 percent.

Hampton Pearson has more on the Fed`s decision.


Just a few hours after Janet Yellen arrived at Federal Reserve headquarters, the Fed chair and her fellow monetary policymakers made history, ending the Central Bank`s multitrillion dollar bond-buying program nearly six year after the financial crisis.

But the Fed will continue to keep the interest rates at historic levels for a considerable period of time, even as the asset purchase program comes to an end. Key money managers say the move is long overdue.

BOB DOLL, NUVEEN ASSET MANAGEMENT CHIEF EQUITY STRATEGIST: I`ve been of a view the Fed is a bit behind the curve. Given all the numbers we looked at, I`m glad they are there. I`d like to see the Fed go sooner.
That would mean the economy was stronger, earnings going to be better. I think that`s good for the stock market.

PEARSON (on camera): While the Fed is ending QE this month, comments from policymakers about labor market conditions and the outlook for inflation are heating up the debate over what`s next for key short-term interest rates.

(voice-over): With the job market improving and unemployment now at
5.9 percent, the FOMC statement suggests there may be less slack in the labor market. Policymakers say that the under utilization of labor resources is gradually diminishing. And while lower energy prices may keep a lid on the inflation in the short run, the Fed now says the likelihood of inflation running persistently below 2 percent has diminished somewhat since earlier this year.

Fed watchers say the slightly more hawkish tone could move up to timetable for an interest hike.

RUSS KOESTRERICH, BLACKROCK CHIEF INVESTMENT STRATEGIST: I think a lot of the people that were looking for the Fed to use inflation as an excuse to take their time might be a bit disappointed, because it seems what the Fed is saying, is we`re looking past this period weakness.

DAVID KELLY, J.P. MORGAN FUNDS CHIEF GLOBAL STRATEGIST: Even as the moderate pace of economic growth, this labor market is tightening up fast, I think the real key to whether we get our rates increase even as early as March is what do wages do from here?

PEARSON: The U.S. economy is enjoying increased business and consumer spending, manufacturing growth, and an unemployment rate at a six-year low.

But housing is still struggling and the slowdown in global growth poses the biggest threat to the recovery.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson, in Washington.


GHARIB: Now that QE3 is over, the big questions: why did the Fed launch that third round of asset buying? And did the Central Bank`s historic spending experiment really work?

Steve Liesman takes a look.


The Fed`s decision today to end the third round of quantitative easing leaves one simple $1.6 trillion question: did it work? Did the $1.6 trillion of bond purchases in the program`s two years achieve the Fed`s goals of helping the U.S. economy, pumping up inflation and lowering the unemployment rate?

There`s two ways to look at it. You can start with the U.S. data.
Since QE3 was launched, growth rate has been at an unremarkable 2.5 percent, about a half a point higher than it was before the program. Job growth ratcheted up for an average of 110,000 per month, to 245,000 now.
And the unemployment rate fell by about two points. The stock market surged.

But another way to find out if QE worked in the U.S. is to look at Europe. Over the same time that the U.S. bought hundreds of billions of dollars of bonds, the balance sheet of the European Central Bank declined by a trillion euros. Now, central bankers on the continent are fretting over economies that are near recession and teetering on the verge of deflation.

DIANE SWONK, MESIROW FINANCIAL CHIEF ECONOMIST: History has told us that those central banks who tightened too soon have a lot of consequences that they then cannot deal with after a financial crisis. And the biggest mistake they can make is repeat 1937, repeat the Japanese situation, or repeat many European missteps more recently, and they don`t want to be there.

LIESMAN (on camera): Of course, QE had its failings. While the Fed tries to boost inflation, it actually declined during QE3. Bank lending has failed to rise strongly, despite the Fed pumping billions into the system, and housing has floundered despite low mortgage rate. But supporters of the programs say, just look at Europe. It could have been much worse here in the U.S.



GHARIB: Joining us now for more analysis of today`s Fed decision, we`re happy to have with us, Robert McTeer. He`s former president of the Federal Reserve Bank of Dallas. And Russ Koesterich, the global chief investment strategist at Blackrock.

Gentlemen, thank you so much for joining us on this big day.

Bob, let me begin with you. So, QE is over. How do you think the economy does from here? Does it continue to grow or does it stall out?

ROBERT MCTEER, FORMER DALLAS FEDERAL RESERVE PRESIDENT: I think it continues to grow. We`re no longer adding stimulus, but stopping QE doesn`t take any stimulus away. The Fed`s balance sheet is still intact, and there are a lot fewer bonds on the market because they`re owned by the Fed than they would be otherwise.

So, the effect that the stimulus will still linger.

GHARIB: And how much does it grow?

MCTEER: Well, I think at the very least, the 2 percent to 2.5 percent it has been growing, I would think probably up closer to three by now.

GHARIB: So, Russ, stocks were in the red in reaction to all of this news today. Not by a whole lot. But they were on the down side.

What is the market response?

RUSS KOESTERICH, BLACKROCK GLOBAL CHIEF INVESTMENT STRATEGIST: I think the market response was fairly muted. Stocks were down a bit before the announcement actually recouped some of the losses, yields ended just about where they were this morning. So, not a lot of reaction.

Most investors expected QE to end. If anything I think people are a little bit more interested in the Fed language than the end of QE, which was widely anticipated.

GHARIB: So, what happens with the markets going from here, Russ? Do you see more volatility? Less volatility?

KOESTERICH: I think we see modestly more volatility. I do believe that stocks can move higher, evaluations are not cheap, but they`re reasonable. Fundamentals are relatively sound.

What is likely to be different is we`re probably moving into an environment in which volatility is going to be somewhat higher than the very low levels we have had in the last couple of years, and arguably, we`ve already had a taste of that since the start of September.

GHARIB: You know, a lot of what`s going to happen in the markets, Bob, is going to depend on what the Fed does with interest rates. You served in many, many of those meetings where decisions are made about raising interest rates.

What do you think — so, you know how the Fed decides these things.
So, what do you think the Fed is going to do? When are they going to start raising interest rates and by how much on the first move?

MCTEER: I`m guessing that it will be in the middle of next year, somewhere around July when they start. And I believe the first move would be to go to a quarter percent on the Feds fund rate. It`s now considered between zero and a quarter percent. So, I think they would start with a quarter and they would go slow and they would make it clear that they were going to go slow.

It`s — we`re not going to have high interest rates any time soon.

GHARIB: Russ, is that how you see it? And how do you think the markets will respond to that plan?

KOESTERICH: I think that is it. I do believe it will be a very slow process, given the fact there is not much inflationary pressure. This is pretty much where the markets are discounted. If you look at where expectations are, somewhere next summer, next fall, we`re likely to see the start of that tightening cycle.

I think the key thing for the markets is assuming that tightening cycle is happening in the context of a stronger U.S. economy, better growth, and I think stocks can continue to move higher despite having a somewhat higher rate.

GHARIB: Let me ask you this, too, Russ, how important is all of this news coming out of the Fed today for individual investors. Do they need to make changes in their portfolios whether we`re talking about stocks or bonds?

KOESTERICH: Well, you know, it`s an excellent question. I think the short answer is no.

First of all, as we said before, most of what happened today was largely discounted. And I think for most individuals, the good news is we`re moving into an environment which should be closer to normal, where the market is more driven by economic and company fundamentals than by every utterance from the Feds.

So, I think for most investors, they should keep to their investment plan. Nothing that happened today should really leave you to change that.

GHARIB: Bob, we heard from the Fed today saying that they`re seeing substantial improvement in the job market. We`re getting the next jobs report in about a week or so.

Do you think we`re going to see a continuing trend of robust hiring with the unemployment rate coming down?

MCTEER: I think so. The new claims data in the past few weeks have been fairly encouraging. We now have several months of over 200,000 new payroll jobs. So, it probably won`t be as good as the September report but I think it will be pretty good.

GHARIB: And, Russ, is that what you see? Also can you give us quickly what you think the year-end forecast for the Dow is going to be?

KOESTERICH: Well, we do think we`re going to continue to see improvement in the labor market. Again, we see the environment where the initial jobless claims remain low. It should be associated with 200,000 or better monthly nonfarm payroll.

I could use views on the S&P, if that`s all right. We do think that stocks will make modest gains for the remainder of the year, with the S&P 500, and probably somewhere between 2,000 and maybe better than that — maybe about 2,020.

GHARIB: All right. Thank you so much, Bob and Russ. Really appreciate you coming on the program.

KOESTERICH: Thank you.

MCTEER: Thank you.

GHARIB: We`ve been speaking with Robert McTeer, former president of the Dallas Federal Reserve Bank, and Russ Koesterich with Blackrock.

Well, as the Fed tapered its treasury purchases over the last year, U.S. banks have been picking up the slack. Since December, records from the St. Louis Fed show that commercial banks bought up $115 (ph) billion worth of treasuries and another $60 billion in mortgage backed securities.
Banks are expected to keep stockpiling the safer assets in order to meet stricter federal regulations.

And later in the program, why small business owners haven`t been borrowing and taking advantage of low interest rates? Kate Rogers
(NYSE:ROG) will bring us that story.

Well, now that the Fed stimulus plan will end and super low interest rates will go eventually higher, what will the impact be on housing?

Diana Olick joins me now from Washington.

So, Diana, first, let`s just look at the past. I mean, did these lower rates really boost home-buying over the past six years? What have you seen?

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, not home- buying so much, what they really did was help millions of borrowers refinance into lower rates. We saw the rates go from just above 6 percent back in 2008, to as low as 3.5 percent just a year and a half ago. That again helped people refinance, but it didn`t necessarily push as many homebuyers as expected.

What we did see was other stimulus from the government, being the first-time homebuyer tax credit. That really juiced home buyers briefly in
2009 and 2010.

GHARIB: And were there any negatives to all of this? What was the down side to these super low rates? Were there any adverse effects that impacted housing?

OLICK: Well, for one thing, a lot of investors were seeking yield.
And so — because they couldn`t buy it in the government, they went into real estate. And they started buying up on the very low end of the market.
Now, that was arguably a very good thing, because it bought all those distressed properties and helped to put a floor on home prices.

The problem was that investors had all cash. They bought so many properties, competed for these properties and pushed home prices up much higher, much faster than expected and faster than normal income growth.
So, now, home buyers who are coming into the market mortgage-dependent are looking at far higher prices, that they expected. So, that one really turned out to be a double edged sword.

GHARIB: And now going forward, we know that interest rates will eventually are going to go higher. And what is going to do to home buying and especially now that the Fed is going to be out of the picture and is not going to be buying anymore bonds?

OLICK: Well, we already know rates jumped higher just this afternoon after the FOMC announcement. We know they are the highest rate now in just the last three weeks. But they didn`t jump dramatically higher. They`re still hovering near 4 percent.

We will see rates inch slightly higher but it will not be a big dramatic move. And what is important to note it hasn`t been the rate but the credit availability that`s really affecting home buying today. It`s buyers who need to have good credit. They need to have a down payment.
They need to have full documentation.

So, I don`t think we need to worry quite as much about the rate as we do about that credit availability going forward, Susie.

GHARIB: Absolutely. The process is really longer for any of us who have gone through this.

Thank you so much, Diana Olick, in Washington.

And still ahead on the program: Twitter and Facebook (NASDAQ:FB) are two very different businesses but they`re both struggling from some of the same issues. That story is next.


GHARIB: Any investor will tell you that every second counts when executing a trade. And two new studies have found that hedge funds, high frequency traders and others are paying for access to market moving data from the SEC regulatory filings seconds before other investors. That gives them a potentially unfair edge over the rest of the market.

The findings from researchers at the Universities of Colorado and Chicago show the difference in data — the data releases range from milliseconds to as much as a minute.

The new mobile payment that`s taking on Apple (NASDAQ:AAPL) Pay has already been hacked. CurrentC, this is the fledgling payment system that`s backed by a consortium of retailers, including Walmart, Rite Aid (NYSE:RAD) and CVS (NYSE:CVS), is sending e-mails to pilot customers, warning them that their e-mail addresses may have been stolen.

A more familiar payment system posted solid quarterly earnings after the close today. Visa (NYSE:V), the world`s largest debit and credit card processor, beat Wall Street forecast as more people charged more on their card credit. The better-than-expected report despite a drop in net income and as Visa (NYSE:V) set aside nearly half a billion dollars for litigation costs. Adjusted earnings of $2.18 a share were 8 cents more than analysts excepted. Revenues of the Dow component also topped estimates.

And after maintaining its 2015 earnings guidance and announcing a $5 billion stock buy back plan, shares were up sharply after hours trading.

Mary Thompson has been going through all of the numbers. She joins us now.

And, Mary, I know you`ve been looking at all of this stuff. If there were one key takeaway from this report, what would it be?

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: I would have two, if that`s OK, and I`ll make it quick.

GHARIB: Sure. Why not?

THOMPSON: The first one is that Visa (NYSE:V) continues to be investors` friends. At $5 billion stock buyback comes on the heels of that
20 percent increase in its dividend, which was announced earlier this week.

But the company performs well despite some headwinds — those being low volatility in currencies, the threat of Ebola. They mentioned also concerns about modest economic growth. What you want to see is a couple of things from Visa (NYSE:V) going forward, and increasing the cost board volume, which is challenged because of the economy and currency volatility, and then, second, what it`s doing with its digital platform, because these payments are only 19 percent of its business now, but it`s the most rapidly growing area.

We know they are partnered with Apple (NASDAQ:AAPL) Pay, and they say the early results from this so far have been encouraging. But that`s not all they`re planning. That`s their focus right now.

GHARIB: That`s very interesting because that sort of follows up with what Tim Cook from Apple (NASDAQ:AAPL) said the other day.

All right. Mary, thank you so much. Mary Thompson reporting on Visa`s earnings.

WellPoint says more people signed up for its insurance, helping it post strong earnings. And that`s where we begin tonight`s “Market Focus”.

The company reported higher than expected profit as its medical costs stayed low. WellPoint also hiked its earnings outlook for the year.
Shares rose $2.20 to $122.20.

Shares of Hershey melted after it reported an earnings miss. The candy maker also gave a trifecta of reasons for poor sales guidance for the year — including, higher milk prices, a strong dollar and weak overseas sales prospects. Shares fell 1 1/2 percent to $94.06.

Ralph Lauren also disappointed with a dismal sales forecast. It lowered its guidance for the current quarter and the year, blaming unfavorable foreign currency issues. Its profit topped estimates, but its revenue came in short of estimates. Despite all of that, shares rose a fraction, closing at $161.79.

After the bell, Kraft (NYSE:KFT) announced that its profit fell as price hikes hurt sales. Those increased prices were designed to offset higher commodity costs, but sales of some of Kraft`s meat and cheese products suffered. Shares were down initially in after hours trading.
During the regular session, though, the stock was off just slightly to $56.91.

And old tech and new tech are teaming up. IBM announced a new partnership with Twitter to deliver data analytics, which will be available through Big Blue`s cloud service. The goal is to help shape business decisions using data collected from tweets. Shares of IBM were off slightly at $163.46. Twitter down almost 4 percent at $42.08.

And Twitter had company — shares of Facebook (NASDAQ:FB) also lower despite posting better than expected quarterly results which we reported to you last night. Twitter and Facebook (NASDAQ:FB) may operate two very different businesses, but as Julia Boorstin tells us, both social media companies have something in common, especially through the eyes of Wall Street investors and their vision for the future.


(NASDAQ:FB) has over a billion more active user than Twitter, and Twitter conversations are public, while Facebook (NASDAQ:FB) are more between friends.

But the two company stocks are both suffering from forecasts that disappointed Wall Street. Twitter hit by concerns it`s not growing fast enough. Facebook (NASDAQ:FB), by slowing revenue growth in an upcoming jump in expenses.

GENE MUNSTER, PIPER JAFFRAY MANAGING DIRECTOR: The critical question here is around expenses, the level of spending that they`re going to ramp up next year and we felt like that that`s going to have an impact on the price target.

BOORSTIN: Both companies also laid out a vision for extending their reach beyond their own social networks, providing the tools to developers so they can be the back bone of all varieties of mobile apps and provide avenues for them as well.

MARK ZUCKERBERG, FACEBOOK FOUNDER & CEO: Over the next few years, our goal is to make Facebook (NASDAQ:FB) the cross-platform platform that allows developers to build, grow and monetize their apps across every major mobile platform.

BOORSTIN: Just last week, Twitter jumped into the game, unveiling its developer toolkit called Fabric, to help developers even with apps that have nothing to do with Twitter.

DICK COSTOLO, TWITTER CEO: Fabric is about being part of the foundation of the entire mobile application ecosystem. Helping developers around the world build apps across platforms from the moment they start developing them, to the day they want to start monetizing them at scale.
If we are part of the foundation of every mobile application in the world then enormous opportunities will appear to us.

BOORSTIN: But some analysts see a pull back is an opportunity saying, the company`s stocks should not be moving in the same direction.

MARK MAHANEY, RBC CAPITAL MARKETS MANAGING DIRECTOR: We did downgrade Twitter. The metrics are moving in the wrong direction at Twitter.
They`re moving at right direction at Facebook (NASDAQ:FB). The valuation is much more demanding at Twitter than it is with Facebook (NASDAQ:FB).

BOORSTIN: The question, how both CEOs will deliver on the plans they laid out this week.

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


BOORSTIN: Coming up, Wall Street is keeping a close eye on the Federal Reserve`s next move. But are small business owners doing the same?
That story right after this.


GHARIB: Alliant Techsystems (NYSE:ATK) is reportedly reevaluating its merger with Orbital Sciences (NYSE:ORB) after Orbital`s unmanned rocket exploded into a fireball last night just moments after liftoff in Virginia.
Orbital`s rocket was carrying 5,000 pounds of food and supplies to the six people onboard the International Space Station. No one was injured. But Orbital shares plunged almost 16 percent today, and Alliant Techsystems
(NYSE:ATK) fell 6 1/2 percent.

Well, if you ever dreamed of owning a Ferrari or just a piece of one, this might be your chance. Fiat Chrysler plans to spinoff the iconic Italian sport scar maker, selling a 10 percent stake in Ferrari, listing it in the U.S. and using the money to fund expansion plans. Shares of Fiat Chrysler revved higher today, up nearly 12 percent.

UPS is predicting record deliveries this holiday season, forecasting more than 585 million package deliveries in December. That`s up 11 percent from last year. UPS expects its peak day will be December 22nd when 34 million packages will be delivered worldwide.

Circling back now to our top story: the Fed and the end of its stimulus program, those record-low interest rates were designed to jump- start lending. But did they help small businesses as well as big ones?

Kate Rogers (NYSE:ROG) reports.


KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Low interest rates would seem to be a positive for small businesses, allowing them to access cash for cheap.

But for Patrick Martins owner of Brooklyn-based food wholesaler, Heritage Foods USA, low rates are hardly a consideration when it comes to making business decisions.

PATRICK MARTINS, HERITAGE FOODS USA FOUNDER: I make $8 a pound on chops, and if I could make nine that is a lot more meaningful to me to go up $1 a pound on 60,000 pounds of meat a week, it`s much more powerful than worrying about things outside of my control.

ROGERS: And Martins is not alone. A Pepperdine Capital Index survey finds nearly half of small companies saying the current business environment is holding them back from growing. Main Street is seeing a lack of consumer demand and sluggish spending across many industries.

Experts say that low interest rates actually matter less to small business owners compared to consumer spending and overall economic confidence.

In fact, the latest optimism index from the National Federation of Independent Business finds only 2 percent citing financing as a top business problem. And half flat out saying they don`t want a loan right now as low rates have not triggered the growth in spending that would promise a good cash flow on business investments.

BILL DUNKELBERG, NFIB CHIEF ECONOMIST: The numerators are what counts. That`s new expected sales, profits, cash flow, and that, of course, doesn`t look very good.

ROGERS: Martins relies on a line of credit which is easier to access.
Other small businesses have turned to alternative lenders which has easier application criteria.

MARTINS: It doesn`t force me to dedicate too much of my time, you know, with banks, talking to people, contracts, you know, filling out forms. I can concentrate on finding chefs to spend more for our meats because they`re the right kind of meats.

ROGERS: In the end, it is really all about demand.

So, while Wall Street is eyeing the Fed for any clues when the interest rates will rise, it is likely Main Street won`t care much either way.



GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for watching. We`ll see you tomorrow.


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

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