Transcript: Wednesday, November 5, 2014

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

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(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I’m eager to work with the new Congress to make the next two years as productive as possible.

SEN. MITCH MCCONNELL (R), KENTUCKY: We’re going to go back to work and actually pass legislation.

(END VIDEO CLIP)

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: All parties strike a conciliatory tone as they dig in their heels and set agendas. But what are the odds Washington will get actually stuff done on issues important to business?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: To-do list. From the Federal Reserve to the job market, what does the new face of Congress mean for the economy?

GRIFFETH: And what to watch. Three sectors that may have the most to gain from a Republican-controlled Senate.

All that and more tonight on NIGHTLY BUSINESS REPORT. It’s Wednesday, November the 5th.

And good evening, everybody. I’m Bill Griffeth, tonight in for Tyler Mathisen.

GHARIB: And I’m Susie Gharib. Good evening, everyone.

Stocks soared to new highs today and as investors were emboldened by the Republican sweep. Investors snapped up stocks as Republicans made promises to start working right away on important economic issues, including trade, corporate tax reform, U.S. energy exports overhauling the Affordable Care Act and much more.

On Wall Street, the S&P closed at a new record and Dow Industrials, Dow Transports and Dow Utilities hit new highs. That’s a rare occurrence on Wall Street.

The blue chip Dow stocks surged 100 points closing at 17,484. The NASDAQ slipped about three points and the S&P was up 11 points.

Hampton Pearson has more on the post-election agenda for Congress, the president and what, if anything, will get done.

(BEGIN VIDEOTAPE)

SEN.-ELECT JONI ERNST (R), IOWA: We did it!

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The day after the 2014 midterm elections gave Republicans clear majorities in both the Senate and the House, incoming Senate Majority Leader Mitch McConnell and President Obama each made pledges to work together on behalf of the American people.

MCCONNELL: There will be no government shutdowns and no default on the national debt.

OBAMA: I’m looking forward to them putting forth a specific agenda in terms of what they would like to accomplish. Let’s compare notes in terms of what I’m looking at and what they’re looking at. And let’s get started.

PEARSON: Tax reform and trade seem to be at the top of the legislative short list for Republicans and the president — but immigration reform is a lightning rod for both. President Obama said today he will take executive action before the end of the year.

OBAMA: What I’m not going to do is just wait. I think it’s fair to say that I’ve shown a lot of patience and have tried to work on a bipartisan basis as much as possible. And I’m going to keep on doing so. But in the meantime, let’s figure out what we can do lawfully through executive actions to improve the functioning of the existing system.

MCCONNELL: I think the president choosing to do a lot of things unilaterally on immigration would be a big mistake. It’s an issue that most of my members want to address legislatively. And it’s like waving a red flag in front of a bull to say, if you guys don’t do what I want, I’m going to do it on my own.

PEARSON (on camera): Congressional leaders and the president will get down to business at a White House meeting on Friday. The agenda includes more money to fight Ebola, additional funding for ISIS campaign, and wrapping up the government budget for this year.

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

(END VIDEOTAPE)

GRIFFETH: Last night’s victories by Republican lawmakers also raises a lot of questions for the U.S. economy and for the Federal Reserve.

Steve Liesman has that part of the story.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The new GOP controlled Congress could be trouble not just for the president but Fed Chair Janet Yellen, as well. Several bills, including one to audit how the Fed makes monetary policy, which Yellen has strongly opposed, could pass both houses now and end up on the president’s desk.

REP. STEVE SCALISE (R-LA), HOUSE MAJORITY WHIP: I think we ought to have an audit the Fed bill that moves all the way through. Again, very bipartisan. People realize that makes common sense. Nobody really can tell you what the Fed is. Let’s just have an audit and see what’s there.

The president said he’d be the most transparent president ever. Here’s a great opportunity.

LIESMAN: How much the GOP focuses on the Fed is just one of the outstanding economics questions raised by the Republicans’ huge victory.

The GOP will very quickly have critical decisions to make about things like the budget, banking and the minimum wage. A continuing resolution that funds the government runs out December 11th and the rule to suspend it the debt ceiling, it expires in March. Will the GOP risk political fallout from another shutdown to enforce spending discipline?

DAVID PAYNE, VOX GLOBAL SENIOR VICE PRESIDENT: In months past, we’ve seen everything go right down to a deadline, everything go right down to a government shutdown or the 11th hour. I think Republicans in firm control of both houses of Congress are going to get way out in front these issues. They’re going to address national debt issues, budget issues.

LIESMAN: And voters in five states approved hiking the minimum wage yesterday. To $8.50 in Arkansas, all the way to $10 in Illinois, about the same level President Obama has proposed for the entire nation and which the GOP has opposed. Continued opposition could have a political price.

Finally, many in the GOP have opposed all or part of the new Dodd-Frank Banking Regulatory Reform Act passed in the wake of the financial crisis. Efforts to water it down could make the GOP seem overly friendly with Wall Street. Good for public contributions but not necessarily good politics.

(on camera): Winning the Senate in such an overwhelming fashion was a tremendous feat. But as the saying goes, now comes the hard part for the GOP — actually governing.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

GHARIB: Some encouraging news today about jobs. Payroll firm ADP reported private employers hired a better than forecast 230,000 workers in October, that was the most notice four months. An encouraging sign ahead of Friday’s October employment report from the Labor Department.

GRIFFETH: And, of course, jobs and wages are a big issue at election time this time around, as well. And now with Republicans in control, what does it mean for the labor market?

Let’s turn to Diane Swonk. She’s chief economist at Mesirow Financial.

Good evening, Diane.

DIANE SWONK, MESIROW FINANCIAL CHIEF ECONOMIST: Good to see you.

GRIFFETH: Is there anything that this Congress and this president can do to keep the momentum going where we — I mean, we now have unemployment below 6 percent. What can they do to create more jobs?

SWONK: Well, I do think they’re already on their way to do it before the election was done. We saw ironically Republicans talking about loosening the purse strings in Washington, particularly with regard to defense the budget, but also with regard to infrastructure spending. And now that they have control, of course, we’ll see more of that going forward.

Being less of a headwind for the U.S. economy coming out of Washington, that will help in terms of employment gains in the U.S. economy. And it’s an important help at a time when we’re looking at a stronger dollar and increased competition from abroad. That’s now the weakness we’re seeing in Europe is a risk we face as we move into 2015.

GHARIB: Well, let’s pick up on that, Diane. I mean, with headwinds like a stronger dollar and, you know, weaker economies overseas, does that mean that that’s going to hurt job growth even if you have a Republican-controlled Congress that is supposedly business-friendly?

SWONK: Well, I think what we’re going to see — you know, Congress is not going to make or break the economic environment. They’ve done more to break in recent years. They’ll stand more out of the way it now. I don’t see the kumbaya. The proof is in the pudding that they’ll actually move forward on a lot of legislation. So, I think that’s a bit of a misnomer.

But at the end day, they’re already moving this direction. We have not changed our forecast one iota overnight, because we’ve already expected some of this result but also we expected the shifts that we had already been seeing to occur on the margins, that Congress wouldn’t be as much in the way in doing things like disruptive, like shutting down Congress.

That is less likely now, as was pointed out earlier, because we have Republican control of Congress, that they wouldn’t shut down themselves.

GHARIB: Right.

SWONK: I think that’s important going forward. In general, you’re talking about the Washington can only have a marginal effect at this stage of the game. You’re not talking about a big stimulus package or a big cut in government spending.

GHARIB: Right.

SWONK: We’re not talking about the big policies. I don’t think we’re going to get corporate tax reform. I don’t think we’re going to get the big policies that would really change the equation.

GRIFFETH: I was just going to ask you about tax reform. That was discussed by the president and by Leader McConnell today during their news conferences. Both expressed an interest in rewriting the tax code or at the very least coming up with some form of tax reform.

You don’t think that’s going to happen. But what could they do that again, going back to the jobs question, would create jobs?

SWONK: Well, I think what they’re going to be doing is spending more money, excuse me, without offsets and without paying for it, as we say, with higher taxes or cut elsewhere in the budget. They’re going to be spending more money on infrastructure, on the highway budget, on bridges and things we need to spend more money on.

It’s on the margin. It’s not a lot. We’re not talking about a big stimulus package here, but they’re going to be spending money they haven’t been in recent years, and not holding to the cuts in the sequester that had been in place.

They’re also going to be spending more money on defense that does generate jobs, a lot of good jobs. It doesn’t generate a lot of productivity because, you know, you’re actually building things to destroy things. But ISIS is out there, and that’s going to be a tailwind for spending —

GHARIB: OK.

SWONK: — on the Pentagon. They’ll get just about anything they want.

GHARIB: Diane, I wanted to talking about minimum wage increases, because a lot of people saw the headlines that five states voted in favor of minimum wages. Now, we know a lot of Republicans are not in favor of that. But do you see a sweep of more states having higher minimum — raising the minimum wage and what will that mean for more jobs?

SWONK: Actually, we are seeing a major sweep across states. It’s happening at the state and local level. It doesn’t matter what’s going on at the federal level. The state and local level has taken it over.

And, frankly, that’s more appropriate because, you know, cost of living is very different depending where are you live. So, I don’t have any problem with it, happening at the state and local level.

I think what we’re going to see a major sweep across states we’ve already seen a large sweep across states where they start raising the minimum wage. That said, will it have a major impact on economic growth and on jobs? I don’t think so because at this stage we’ve got momentum. It could on the margins curb some job growth. But I really think we’re at the position now where we’re going to start to see a little bit of wage acceleration and that’s regardless of what happens in Washington.

GRIFFETH: Diane Swonk of Mesirow Financial, as always, thank you.

SWONK: Thank you, Bill.

GHARIB: One issue that was talked up today after the Republican win, the future of the Keystone oil pipeline. One lawmaker is planning speedy legislation to approve completion of the long delayed and controversial pipeline.

Republican Senator John Hoeven from the oil rich state of North Dakota says a bill to finish the $8 billion pipeline which will bring crude from the oil sands of Canada all the way to refineries along the Gulf of Mexico will be one of the first bills his party will put up for a vote in the new Congress.

GRIFFETH: And energy is just one of the industries that the new Senate could have a big impact on.

Dominic Chu right now takes a look at which sectors may benefit from the new makeup in the Senate.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Many analysts and other experts on Wall Street are trying to figure out which groups could benefit most now that Republicans control Congress.

One group that’s poised to reap big rewards from the GOP-led Congress is energy. It’s no secret that energy policy has been a central piece of the Republican story for quite some time. And now, they’re in a position to push forward legislation on a number of energy-related fronts.

JAMES LIU, J.P. MORGAN FUNDS GLOBAL MARKET STRATEGIST: You have energy policy, this increases likelihood something like Keystone Xcel passes which coincidentally would also push down energy prices to some extent.

CHU: The Keystone Pipeline project is just one part of the story. There could also be fewer restrictions on drilling activities and exports of oil and gas products.

Another industry that may see brighter days ahead is banking, because of a possible easing of restrictions on laws like Dodd-Frank.

BURNS MCKINNEY, NFJ INVESTMENT GROUP PORTFOLIO MANAGER: Within financials, probably some of the best places to look would be the relaxation of the Strategically Important Financial Institution, the SIFI guidelines that suggest that firms such as MetLife (NYSE:MET) might not be required to meet the same level of capital cushions or you might see firms like a J.P. Morgan or a Citigroup (NYSE:C) or a Bank of America (NYSE:BAC) not necessarily face quite the same regulatory burdens going forward.

CHU: And yet, another hot spot for possible Republican attention is health care. Lawmakers could look to help boost Medicare payment rates to insurers and change tax policy targeted at other parts of the health care business.

RON SLOAN, CIO OF INVESCO GLOBAL CORE & EQUITY TEAM: One of the targets that the Republicans have talked about is eliminating the medical device taxation, that has been onerous it has impacted those companies and certainly cause them to be more or less in a fetal tuck position in terms of their spending and their outlook. I think there’s probably some effort on that basis.

CHU (on camera): Those are just a handful of the places some investors are placing bets. And many are hoping stocks can continue their record-breaking run no matter which party is in power.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

GHARIB: Still ahead, China was supposed to hold the key to Qualcomm’s future. But are the risks related to do business in that country outweighing the rewards. The answer, coming up.

(MUSIC)

GHARIB: One big oil producer is looking to be the first to break a decades-long ban and export U.S. oil without getting explicit permission from Washington. BHP Billiton (NYSE:BHP), this is Anglo-Australian money and energy giant, says it will sell 650,000 barrels of Texas crude to undisclosed foreign buyers in a deal worth about $50 million. A strict ban on U.S. energy exports has been in place since the Arab oil embargo of the ’70s.

GRIFFETH: We had earnings after the bell tonight from chipmaker Qualcomm (NASDAQ:QCOM) but the news was not good. That tech giant took in $1.26 a share in the fourth quarter after adjustments, but it missed Wall Street estimates by a nickel a share. Revenues also missed estimates, even though shipments of chips rose by 24 percent year over year. That was still shy of forecast. Shares were initially lower in after hours training.

But a missed earnings forecasting is not the only challenge facing Qualcomm (NASDAQ:QCOM) right now. It’s having big troubles doing business in China.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Qualcomm (NASDAQ:QCOM), China offers great potential and also significant risks. The company stands to make a lot of money because of growing depend in China for smartphones that rely on its technology. But Qualcomm (NASDAQ:QCOM) also has said that China presents significant challenges.

So what exactly is going on? For one, Chinese handset makers that rely on Qualcomm (NASDAQ:QCOM) technology sign a license agreement and pay royalties. Analysts at FBR estimate that if a Chinese company else is a $200 smartphone using Qualcomm (NASDAQ:QCOM) technology, then it could be on the hook to pay Qualcomm (NASDAQ:QCOM) about $8 per phone.

Here’s the problem. Qualcomm (NASDAQ:QCOM) says unnamed Chinese companies are either not paying the royalties or underreporting the number of phones they’re selling.

That’s potentially a big problem for Qualcomm (NASDAQ:QCOM). Its licensing business as a whole represents about 30 percent of overall revenue.

CHRISTOPHER ROLLAND, FBR CAPITAL MARKETS: It’s a problem. We’re still trying to quantify it, but it’s a substantial problem for these guys. We think it’s probably affecting revenues as much as call it $500 million. So, it is a sizable amount.

LIPTON (on camera): Separately, Qualcomm (NASDAQ:QCOM) also disclosed that the Chinese government is investigating the company under the country’s ain’t monopoly law. Analysts at RBC say it could be another 12 months before there’s a resolution to that dispute.

(voice-over): Qualcomm (NASDAQ:QCOM) isn’t alone in facing challenges in China. The Chinese state media has said that Beijing should punish what it calls the pawns of the U.S. government, pointing to Cisco (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG).

ROLLAND: It’s very clear that the Chinese government really wants to do things internally and anything with a decent margin coming from abroad is going to be scrutinized.

LIPTON: Despite these headwinds in China, Qualcomm (NASDAQ:QCOM) bulls point to the company’s chip business which they say is enjoying strong momentum. Its chips are used, for example, in Apple’s new iPhone 6. They also say the stock is cheap and the company is committed to capital return.

(on camera): Still, China now represents about 20 percent of Qualcomm’s total revenue and investors want to see more clarity about where its business in China is headed.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in Silicon Valley.

(END VIDEOTAPE)

GHARIB: Record quarterly deliveries helped drive Tesla’s earnings beat. And that’s where we begin tonight’s “Market Focus”.

The electric carmaker posted a profit. Analysts expected Tesla to report a loss. It trimmed its sales forecast for the year but since the company said it was able to deliver more of its Model S cars than before, investors cheered the results. After the bell, shares initially spiked. During the trading day, the stock was off 3 percent, closing at $230.97.

Whole Foods reported quarterly earnings that beat estimates and its revenue met forecast. Its higher-than-expected results came as the grocer gained market share and launched new products. The stock traded much higher initially in after hours before the closing bell, shares were up just slightly at $39.99.

CVS (NYSE:CVS) beat Wall Street’s estimates by a penny. The company said its earnings were higher on a gain from its spinoff of CVS (NYSE:CVS) Outdoor. Sales where is also above estimates helped by higher distribution revenue from licensing its television shows.

Shares were up right after the report. During the regular session, shares were just a little bit higher at $52.50.

Also out after the bell, News Corp (NASDAQ:NWS) posted better-than-expected results. This is a publisher of the “Wall Street Journal” reported a rise in quarterly revenue helped by higher sales at its book publishing and online real estate services business. That sent shares up initially after the bell before the close. Shares rose just a fraction to $15.30.

GRIFFETH: And there was more. Time Warner (NYSE:TWX) lifted its full year profit outlook saying is both its Turner and its HBO units had strong subscription revenue. Company also said that HBO is well-positioned to grow its cable subscriptions and add as many as 5 million subscribers who do not pay for cable TV instead using their new streaming video service. Shares climbed in Time Warner (NYSE:TWX) by 4 percent to $77.99.

Mondelez said that its third quarter earnings fell as it was hit by weaker revenue, with the snack maker’s profit was still stronger than expected and it raised earnings outlook for the rest of the year sending shares to $37.15.

Toyota (NYSE:TM) also increased its outlook. The automaker now expecting record profits in its current fiscal year driven by the declining value of the yen. The company is also citing cost-cutting efforts and strong sales overall. The stock was up $1.97 to close $121.37.

GHARIB: Well, Toyota (NYSE:TM) got a lot of help from a weaker Japanese yen at the same time, the U.S. dollar continues to get stronger. And with the eurozone economy still struggling and the European Central Bank meeting tomorrow, the likelihood of a global currency war may just can be heating up.

Sara Eisen has on what ECB President Mario Draghi decides could mean for the global economy and your investments.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The war is the raging. Countries desperately searching for economic growth announcing new policies aimed at weakening their currencies.

Everybody wants a weaker currency. It makes exports a lot more competitive. Take Japan, announcing its super charging its monetary stimulus on Friday, sending the yen to a seven-year low against the dollar. Now, the pressure is on for other struggling economies to fight back, as their currencies strengthen like Europe, dealing with weak growth and falling inflation.

That’s why investors are raising expectations that the ECB may announce new easing policies and start planting the seed as soon as tomorrow.

ANDY BRENNER, NATIONAL ALLIANCE SECURITIES: There are a lot of people that are going to give Draghi a hard time tomorrow. I think you’re going to get some real fireworks. There’s no question he had this game plan. He’s been implementing it now for a year or maybe actually two years. He’s got the Germans in a corner.

And whether it’s going to QE with sovereigns or QE with corporates, we’re definitely going to get some kind of additional QE well beyond what’s already been announced.

EISEN: What is the tit-for-tat currency spat mean for your portfolio? The dollar is the loser right now. It’s got the strongest currency around.

That’s why investors are pouring into companies that do most of their business here at home and aren’t exposed to the stronger dollar.

For the overall market, in the near term, currency wars are proving to be bullish for stocks because the policies, lower interest rates, quantitative easing that weaken the currencies are propping up stock prices.

Investors love easy money. In the longer term, it’s more dangerous because currency wars could turn out to be nasty, morph into trade wars. They can also prove ineffective, creating doubts about central bank policy.

But pros say those worries are for the long run.

(on camera): For now though, the more central banks act, the more the free money party goes on. Pros say watch China, Korea and Europe to fire the next shot.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen.

(END VIDEOTAPE)

GRIFFETH: Coming up, Sotheby’s has its biggest auction ever. What’s behind the soaring prices as the fall auction season gets under way?

(MUSIC)

GRIFFETH: Well, the fall art auction season kicked off last night in Sotheby’s in New York City and the prices paid were eye-popping.

Robert Frank has more, including a look into who’s doing all this buying.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Last chance, and selling for $90 million.

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was a night of big prices and small sculptures as Sotheby’s kicked off the fall auction mega-sales in New York.

Sotheby’s impressionist and modern sale raked in more than $420 million, the highest total ever for a Sotheby’s auction. The star of the night was a sculpture by Alberto Giacometti titled “Chariot”. It sold for $90 million or $101 million including commission, just shy of the all-time record for a sculpture.

“Chariot” is considered Giacometti’s masterpiece and was one of only six made, with only two remaining in private hands.

Modigliani’s sculpture of a goddess head called “Tete” went for almost $71 million, way above the $45 million estimate.

(on camera): Soaring prices in the art market are being driven largely by newly rich collectors from overseas and they were out in force last night.

(voice-over): One Chinese buyer paid $62 million for this Van Gogh still life, that was well above the $50 million high estimate.

Sotheby’s saying buyers from 44 countries participated in last night’s auction either by phone or in person.

The market gets another test tonight as Christie’s holds its impressionist sale. Among the top lot, this Monet could fetch up to $35 million. And Leger’s construction workers with tree could go for over $20 million.

The big auction houses expect to sell close to $2 billion worth of art over the next week. The focus will be on the blockbuster post-war and contemporary sales next Tuesday and Wednesday. We’ll see if these surreal prices are brief abstractions or the new reality.

For NIGHTLY BUSINESS REPORT, I’m Robert Frank.

(END VIDEOTAPE)

GHARIB: And finally tonight, “Forbes” magazine is out with its ranking of the most powerful people in the world. In third place, the general secretary of the communist — Chinese Communist Party, Xi Jinping. In second place, our very own president and commander-in-chief, Barack Obama. And topping the list for the second year in a row, Russian President Vladimir Putin, who flexed his muscles this past year by annexing Crimea and staging a war with Ukraine.

And, Bill, there were other notables from the business world, Fed Chair Janet Yellen, also Bill and Melinda gates number seven, and the Google (NASDAQ:GOOG) founders Larry Page and Sergey Brin, ninth place.

GRIFFETH: Seventy-two in all, nine of them were women. There needs to be more women on that list. Don’t you think?

GHARIB: Yes, of course. It’s nice to have Janet Yellen, the most powerful woman in the world right now.

GRIFFETH: I agree.

GHARIB: That’s NIGHTLY BUSINESS REPORT for tonight. Thanks so much for watching. I’m Susie Gharib.

GRIFFETH: And I’m Bill Griffeth.

Have a great evening everybody. We’ll see you tomorrow.

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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