Transcript: Tuesday, November 18, 2014

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


That`s how many times the S&P 500 has closed at a new high this year.

And tonight, we`ll hear from the chief investment officer of the
nation`s second largest public pension fund about how he is investing in
this market.

Keystone. The Senate in a test of political power and prerogatives fails
to pass the controversial pipeline. But the debate fitting business and
environmental interests is sure to rage on. We`ll sort it out for you.

GHARIB: Home sweet home. Why some say the future is bright for Home
Depot (NYSE:HD), despite mounting costs from the data breach.

We have all that and more tonight on the NIGHTLY BUSINESS REPORT for
Tuesday, November 18th.

MATHISEN: Good evening, everyone. Thanks for joining us.

Baby, it is cold out there across much of the country. Not on Wall
Street the market is still smoking hot as the Dow and S&P 500 rose to fresh
all time highs again today.

The health care sector got a lot healthier. Home builder confidence
shot up last month and optimism grew after policymakers in Japan and Europe
signaled they`re ready to stimulate as needed.

Here`s how things looked at the closing bell: The Dow up 40 points,
off the highs of the session, but enough to notch the index`s 26th record
close of the year. The NASDAQ was up 31 points. It is now less than 350
points away from its all time high from the year of 2000, March of that
year to be precise. And the S&P 500 after five consecutive days moving
one-tenth of 1 percent, broke out a little bit today, up 10 points for its
43rd record close of the year.

GHARIB: More now on Wall Street`s optimism over Japan. Prime
Minister Abe announced some game-changing decisions aimed at lifting his
nation`s troubled economy after it unexpectedly dipped into a recession
last quarter.

Kaori Enjoji has more from Tokyo.


Minister Shinzo Abe announced today that he was postponing a decision to
raise the consumption tax from 5 percent to 8 percent. That decision was
originally scheduled to take place in October of next year, but the prime
minister saying he has delayed that plan another 18 months. So, April of
2017, given the recent weak economic data. GDP out earlier this week show
that Japan is now technically in recession, and the prime minister says the
economy is not strong enough to weather another consummation tax hike.

At the same time, the prime minister announced that he will be
dissolving parliament later this week on the 21st, which means the election
will be held sometime next month. Most analysts believe that date will be
December 14th.

Now, technically, the prime minister can postpone a decision on the
tax hike and not call for snap elections. That`s why many of the political
analysts have said that this decision was an attempt by the prime minister
to solidify power within his own LDP Party, some of whom may be opposed to
the structural forum he has tried to embark on over the last two years as
he tries to roll out the economics phase.

So, this election widely expected on December 14th. The opposition is
not a viable threat at this point. But some political watchers say it is
possible that the ruling LDP might lose a super majority in the parliament
that holds on to majorities that it holds in Japan`s Diet.

That`s the latest from Japan. Back to you.


GHARIB: Thank you, Kaori Enjoji in Tokyo.


MATHISEN: Well, while Japan battles to get out of recession, a
warning today that the eurozone may be heading into one. It`s third since
2008. That`s from the chief economist at Standard & Poor`s for the
European region who said that the eurozone is in danger of a triple digit
dip unless the European Central Bank begins up — buying up sovereign bonds
like our own Federal Reserve did here in the U.S.

And yesterday, as we reported right here on NBR, Europe`s top banker
Mario Draghi did say he was open to bond purchases, among other
unconventional monetary tactics.

GHARIB: Our market guests today says there are some good investment
opportunities in Japan. He`s Christopher Ailman, chief investment officer
for the California State Teacher`s Retirement System, also known as

Chris, it`s nice to have you with us.

Let`s start talking about Japan. I understand you recently upped your
investments in Japan by quite a lot. Tell us why you see opportunity
there. And should individual investors put some of their money in Japan

CHRISTOPHER AILMAN, CALSTRS: We think Japan is going to be
interesting growth in the region. It has really stagnated and as you just
reported, the economy is in very soft shape.

But we think it has an opportunity to advance going forward, better
than the U.S. does. But I would caution people they really need to hedge
back to the U.S. dollar and hedge the yen exposure.

MATHISEN: What about Europe, are you taking any nibbles there, Chris?

AILMAN: You know, Tyler, we are taking nibbles but in the distressed
debt and in bank loans. So, areas that the average investor can invest in,
they`re more private transactions. I wouldn`t be very aggressive yet in
some of the broad index funds across Europe.

MATHISEN: You know, it`s interesting that you said that you are —
you know, investing in Japan, because we have more opportunities there than
in the U.S. And we just reported that more records in the stock market,
the S&P, the 43rd records of this year. What is your thinking about the
outlook for U.S. stocks?

AILMAN: Well, what you have to understand, Susie, in our portfolio,
is we have a very large exposure already to the United States, over $70
billion. So, we`re going to hold that as our baseline exposure and when
we`re allocating taking the cash that we have from the start of our fiscal
year and investing it, that`s when we are looking for opportunities.

We think the U.S. market still has some legs behind it. The tailwinds
behind the market are slowing down. Obviously, the Fed stimulus is coming
off, corporate earnings are a little tougher, but stock buy backs, we think
the markets still have some advance.

There aren`t any headwinds yet. So, we still think the U.S. is a good
place to invest.

MATHISEN: As a percentage of your total funds assets, what does that
$70 billion represent? Is it 70 percent, 60 percent? What?

AILMAN: Tyler, it is — it could get complicated, but it is 70
percent of our global equity portfolio, which is about 55 percent of our
portfolio, but in big terms, the U.S. really represents about two-thirds of
our portfolio on investment, only about one-third.

MATHISEN: How much of that U.S. equity portion is index funds and
would you recommend a similar approach for individual investors? In other
words, if you are 80 percent index, should the average investor similarly
be 80 percent in there?

AILMAN: Yes, absolutely. Our portfolio in the U.S. is 70 percent
index. We followed the Russell 3000 index. We very strongly encouraged
that for the average investor.

There have been numerous studies recently worked out of MIT and
Harvard that show that active managers will beat the market but net of fees
and net of transaction costs, they actually trail the market. So, the
average active manager has a real tough time in this time period. We think
that investors should take advantage of getting market and safe returns.

GHARIB: You said 70 percent in the Russell 3000. What about the
remaining third?

AILMAN: The remaining third is active. It still mirrors the Russell
3000. But we use active management when it comes to small cap management.
We think that can add value and has shown over time and then we do invest
with a few activists investors that are trying to go in and change the
corporate governance of companies and improve them over the long term.

GHARIB: Anyone in particular?

AILMAN: We have invested with Nelson Peltz. We have invested with
Relational. We do not invest with some of the people who have tended to
grab headlines. We want to do it from a more constructive way to try and
help companies improve rather than go to battle against companies.

GHARIB: All right. Fascinating conversation.

Thank you so much, Christopher Ailman, with CalSTRS.

MATHISEN: A milestone vote in the Senate. A bill that would resume
construction of the long delayed Keystone XL pipeline bringing crude from
the oil sands of Canada, through the U.S. refineries along the Gulf Coast,
has failed. It was a closely watched vote that was not only a test of the
president`s political power, but one that put a spotlight on which branch
of government has the power to green light the project.

But the issue is far, far, far from over.

John Harwood joins us now from Washington.

John, the Senate has just voted down the measure. It fell one vote
shy, apparently, of what it needed. What happened? And what happens next?

was that Mary Landrieu was scouring her colleagues over the last 48 hours
or so, trying to get that 60th vote. All 45 Republicans voted in favor, 14
Democrats, including Mary Landrieu were in favor as well. That got to 59.

And she went over — went after people like Angus King, the
independent from Maine, Chris Coons from Delaware, Tom Harkin from Iowa,
Dick Durbin, the Senate — member of the Senate leadership from Illinois.
All the potential prospects but they gradually have been coming in and
saying, no, I`m not going there. Jay Rockefeller, the outgoing senator
from West Virginia as well.

And what happens next is Republicans are going to bring it back up
early next year. Mitch McConnell said that right after the vote, and I
expect that they will have 60 votes then.

GHARIB: So what happens to this pipeline? Is the government
eventually going to OK it?

HARWOOD: I believe so, Susie. I think first of all they will have
the votes in the new Congress. Then the president, if he has not finished
the administration review, he could veto the bill and then try to look to
Republicans to make some sort of a deal when the review is taking place or
if it`s done by then, make a deal with him at that time.

You know, Republicans have been pushing the keystones for a couple of
years. The president isn`t really against it, but he`s on the fence about
it, not particularly in favor of it, either. So, he may try to make some
sort of bargain with them for infrastructure money or some other
concession. We`ll see if they can strike a deal.

MATHISEN: Was this all a surprise, John?

HARWOOD: It wasn`t a surprise. You know, after the momentum the
Republicans had in the midterm elections, the fact that Harry Reid
scheduled this vote to try to give Mary Landrieu who is fighting to save
her seat from a runoff in just a couple weeks, made you think perhaps the
votes were there to give Mary Landrieu what she is after.

Now, she`s empty handed. She was unable to push this across the line.
Her Republican opponent, Representative Bill Cassidy from Louisiana,
sponsored the House bill which passed, so he is already out with a
statement saying, I delivered, she could not.

MATHISEN: All right. John Harwood, thanks very much — John
reporting from Washington.

GHARIB: We turn to some news about the economy. Inflation picked him
up a little in October, at least at the wholesale level. Producer prices
rose 0.2 percent last month, mostly because of higher prices paid for
autos, pharmaceuticals and food. The government report on consumer prices
is due out on Thursday.

MATHISEN: More now on that rally on the home builder confidence for
November. We mentioned at the top of the broadcast, the National
Association of Home Builders reports that expectations for future sales and
buyer traffic, both improved last month. Those two measures propelled its
sentiment index close to a nine-year high.

GHARIB: One company that benefits from a strong housing market is
Home Depot (NYSE:HD). The home improvement retailer found profits and
sales rise. But investors are still concerned that the chain can`t yet
account for all the possible losses from a recent massive credit card data
breach. Home Depot (NYSE:HD) shares were the deepest decline in the Dow
today, falling 2 percent.

Courtney Reagan has more on Home Depot`s earnings and what`s next for
the retailer.


The world`s largest home improvement retailer turning a mixed third
quarter. But analysts aren`t worried. Home Depot`s earnings missed
expectations by a penny as the retailer tries to determine the total cost
of the recent data breach. Revenues matched estimates. And sales at U.S.
stores opened a year grew by nearly 6 percent.

MICHAEL LASSER, UBS RETAIL ANALYST: I`d say there aren`t many
retailers right now putting up a combination of growth in store traffic,
growth in online, and growth margin expansion, along with leverage, these
are all factors were featured in Home Depot`s report. We think that

REAGAN: While the housing market certainly has some level of
recovery, there is data to suggest that it may be slowing. But Home
Depot`s new CEO Craig Mennier said the company continues to see recovering
home improvement market in the U.S., nothing rising home prices and home
turnovers as drivers of growth.

(on camera): Home Depot (NYSE:HD) has accounted for $28 million in
expenses related to the data breach, where Hackers stole details from 56
million payment cards and 53 million e-mail addresses. However, the
ultimate costs will likely be millions more. The pay for individuals
working around the clock on fixing this problem hasn`t yet been captured
and the company disclosed 44 lawsuits have been filed as a result of the

(voice-over): But, fortunately, for Home Depot (NYSE:HD), the
shoppers appear to be less scarred than shoppers at Target (NYSE:TGT) after
the discounter announced a breach late last year. In fact, Home Depot
(NYSE:HD) is pleased with results so far this month.

LASSER: The company remarked that they saw impressive results in
November to date, and that suggested or at least over the last two weeks,
consumers have been out feeling confidence spending. And I think that
probably bodes well for the holidays.

REAGAN: The largest seller of Christmas trees in the world says it`s
ready for the holiday season, stocked with an assortment of gift seasons
and holiday decor.



MATHISEN: And still ahead: money has been pouring into the consumer
staples sector recently. But not all stocks in the group are created
equal. Find out which ones are more equal than the other.


GHARIB: The sudden burst of wintry weather affecting much of the
nation is creating a lot of problems for drivers and for cities trying to
clear streets. On the heels of last year`s long and snowy winter,
municipalities are already facing a one-two punch of road salt shortage and
much higher prices for the road salt they can find.

MATHISEN: Road salt isn`t the only thing moving up in price, so are
shares of consumer staples, those tried and true household products found
in most kitchens. In fact, the sector hit an all time high today.

So, which companies have moved up the most and what`s next for the
sector and some selected stocks in it?

Morgan Brennan has more.


They may not be the sexiest stocks, but the staples are stable. After
lagging the broader market all year, the sector is 3 percent higher this
month, the top gainer in the S&P 500. The biggest winners, Whole Foods,
Archer Daniels Midlands, Mondelez, and Walmart, all boosted by solid

JONATHAN FEENEY, ATHLOS RESEARCH: I think it will be improving 12
months for your old, steady consumer staples companies, particularly
related to those factors, gas and food prices.

BRENNAN: Experts note these are more expensive stocks, less prone to
volatility, with decent dividends, that have made them more attractive
relative to bond himself. But the sector now looks expensive. And
investors would do well to take stocks individually.

Analysts expect cosmetic companies Avon and Estee Lauder, both down
big in recent highs, to surge over the next 12 months, and chocolate maker
Hershey might sweeten the portfolio.

FEENEY: For the kind of growth they can show next year and the kind
of increase in earnings, I could see it happening. I think it represents a
very good value for what`s a generally high return, great brand business.

BRENNAN: Companies catering to millennials have fared the best, names
like Monster Beverage, Keurig Green Mountain and Whole Foods, all of which
have been outperforming older, more established players like Coca-Cola
(NYSE:KO), J.M. Smucker (NYSE:SJM) and Safeway (NYSE:SWY).

(on camera): But all of these consumer companies do face headwinds,
particularly from a stronger U.S. dollar. From Walmart to Costco
(NASDAQ:COST) to Kellogg`s, many are already negatively impacted by
currency. Still, experts aren`t too worried just yet. After all, as long
as there are kitchen sinks, these companies will have products underneath



GHARIB: SunEdison is adding some wind-fueled power to its business,
and that`s where we begin tonight`s “Market Focus”.

The company and its subsidiary Terraform Power are buying privately-
held First Wind for almost $2.5 billion. First Wind develops and operates
wind farms across the U.S., while SunEdison develops solar power plants.
Shares of both companies surged today, SunEdison up 29 percent, Terraform
rose almost 27 percent.

Medtronic (NYSE:MDT) posted earnings and revenue that matched
estimates. The medical device maker also said its full-year revenue will
come in at the upper-end of forecasts. Separately, the company says it
still plans to buy Ireland-based Covidien in a deal that will likely cut
its U.S. tax bills. Shares climbed almost 5 percent to $72.47.

TJX Companies (NYSE:TJX), this is the parent of TJ Maxx, Marshalls and
Home Goods, reported sales that missed expectations and it lowered its
full-year earnings outlook. It blamed unusually warm weather in Europe for
the weak sales. Still, shares rose 10 cents to $61.64.

MATHISEN: Dick`s Sporting Goods says its profit dipped in its third
quarter because of weak demand for its golf and hunting gear. The retailer
managed to post results that met Wall Street`s estimates, but same-store
sales rose less than expected. That sent shares down a fraction to $47.10.

AstraZeneca updated investors on its promising product line, sending
shares higher there. The drug maker is betting on new cancer drugs to help
drive long-term revenue growth, it expects to bring six cancer drugs to
market by 2020. The stock was up 2 percent today, $73.98, the close.

La-Z-Boy (NYSE:LZB), my favorite chair, posted better than expected
second quarter net after the closing bell. That sent shares initially
higher. The furniture company also hiked its quarterly dividend by 33
percent to 8 cents a share. The stock spiked right after that
announcement. Before the close, though, shares reclined slightly to

GHARIB: A ruling today about which federal agency regulates the use
of drones. This half-more than a million of them have been sold worldwide
in just the past two years. The National Transportation Safety Board ruled
that unmanned remote control drones, as well as model planes are types of
aircraft. So, they fall under the jurisdiction of the Federal Aviation

MATHISEN: Those drones may have a lot of company in the skies. A
standoff in contract talks at the port of Los Angeles and Long Beach has
turned into a boon for the air charter business.

Jane Wells explains.


situation at the nation`s largest sports complex — is going from bad to

JORGE HERNANDEZ: It`s the whole economy. Not only would I, for the
customers, for the deliverers, for everybody.

WELLS: Bargaining between the people who run the shipping companies
and the people who move their goods has been going on for months, leading
to long delays at the most important time of the year for retailers.

billion in annual retail sales, half of those occur within the fourth
quarter. In fact, 45 percent of toy sales happen in the five weeks leading
up to Christmas.

WELLS: Adding to the congestion, truckers have staged a series of
strikes, protesting conditions, which forced them to remain independent

(on camera): But one industry`s pain is another`s gain. And
retailers who can`t wait are shipping some of their goods by air for about
10 times the costs.

(voice-over): Air cargo rates have already been on the rise due to
higher demand. The toy association says shipping a container by sea can
cost $6,000, by air $60,000. Atlas Air, which has the largest fleet of
freight 747s, already had double-digit growth before the port slowdown.

WILLIAM FLYNN: We`ve seen prices probably increase, spot prices in
the market increase 25 percent or 30 percent on very short notice.

WELLS: It seems increasingly unlikely that Santa will arrive in the
form of a mediator to settle the port dispute and unclog the backlog in
time for the holidays, making it a very merry Christmas for those with
airborne sleighs.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.


GHARIB: Coming up, want to know the best places in the world to start
— launch a start-up? The answer may surprise you as global entrepreneurs
week starts into full swing.


MATHISEN: Safety regulators are calling on auto makers to issue a
nationwide recall of those Takata airbags. The decision is based on new
information surrounding an incident that took place in North Carolina and
expands the original recall that had been regional. The acting head of the
National Highway Traffic Administration says if Takata and car makers fail
to work with the agency, quote, “it will make them do so.”

Takata`s global chief of quality is scheduled to appear in front of a
Senate panel Thursday.

GHARIB: Here`s a report that might infuriate a lot of taxpayers.
Seven of the largest corporations in the U.S. paid more money to their
CEOs, over $17 million on average than they paid Uncle Sam in federal taxes
last year.

Now, all of that is according to a new study by two think tanks. They
say the seven companies took in more than $74 billion in combined pre-tax
profits, but actually came out ahead on their taxes by nearly $2 billion.
The companies are Boeing (NYSE:BA), Ford, Chevron (NYSE:CVX), Citigroup
(NYSE:C), Verizon (NYSE:VZ), JPMorgan (NYSE:JPM), General Motors (NYSE:GM),
which has already disputed the report.

MATHISEN: Well, Global Entrepreneurship Week, it is a worldwide
campaign designed to inspire the next generation of entrepreneurs. And it
comes at a time when many countries are looking for innovative ways to
jump-start economic growth and create jobs. The initiative is taking place
in more than 100 countries and coincides with the release of an index that
measures global start-up activity.

Kate Rogers (NYSE:ROG) is here with more on the index, and why it is
grabbing people`s attention.

Kate, the bottom line question here, where is the best place to do a
start-up? Who`s got the lead?

it`s us here in the U.S. No surprise. U.S. took the top spot followed by
Canada, Australia and the United Kingdom.

But, guys, the regions that are seeing the fastest growth are what
caught my eye in the survey. It`s the Middle East and North Africa,
despite all the political turmoil that they face. And the country with the
most start-up growth year over year is Iran.

GHARIB: Well, that`s — so, no China. Not even on the list.

MATHISEN: That`s really surprising.

ROGERS: Yes, not in the top spots at all.

GHARIB: What about who is starting the companies? Are they men,
women, older adults? Are they millennials?

ROGERS: Well, being a young woman, I was happy to hear that it`s
women and millennials that are starting these companies, which is really

And if you look at a place like Iran, youth unemployment there is at
24 percent. So, to hear that millennials are leading the global
entrepreneurial revolution is really — I think is a positive sign.

MATHISEN: So, entrepreneur, I want to go back. The U.S., despite all
the things we hear about how it`s so hard, there are so many regulatory
hurdles, the tax structure isn`t, we`re still in the lead in terms of

ROGERS: We are still number one, and it`s good to hear. We
absolutely are.

MATHISEN: Now, how are attitudes changing globally towards
entrepreneurship, if countries like Iran, which are state-controlled, are
hot beds of entrepreneurship, North Africa, the same, that would suggest a
big change?

ROGERS: The index was certainly more positive than it has been in
recent years, the measured activity in 130 countries. And all of the
countries that they surveyed had some kind of entrepreneurial activity.

So, attitudes are certainly warming. More people are excited and
inspired to be their own bosses, which is fantastic. But, globally, we`re
only at 52 percent of our entrepreneurial capacity. Meaning, we still have
about 50 percent left to go. It`s exciting to see what will happen next

MATHISEN: Kate, thanks very much. Appreciate it.

ROGERS: Thank you guys.

GHARIB: We`ll see a lot more innovation.

And finally tonight, a new ranking of the most generous countries in
the world. A group called the World Giving Index looked at things like
donation amounts, time spent volunteering and whether people were willing
to help strangers.

And here`s what they found, in fifth place, it was New Zealand. In
fourth, Ireland; number three, Canada. And tied for the top spot of the
most generous country in the world — well, the U.S., and — but believe it
or not — Myanmar.

And apparently, Tyler, that country has a history of charitable
giving, a concept known as Daana which is part of their Buddhist tradition.

MATHISEN: And Americans I think are the most giving people in the
world. Really, the way we help whenever there is a crisis around the
world, we jump in big time.

GHARIB: Absolutely.

Well, that`s the NIGHTLY BUSINESS REPORT for tonight. Thanks so much
for watching us. I`m Susie Gharib.

MATHISEN: And I`m Tyler Mathisen. Thanks for me as well. Have a
great evening, everybody. And we will expect to see you right back here
tomorrow night.


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