Transcript: Monday, December 1, 2014

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Home stretch. December, a traditionally strong month for the markets gets off to a not-so strong start with oil and retail in focus.

Crude shock. What could happen to one of the greatest American economic success stories, North Dakota’s Bakken shale, if prices continue to crumble?

And what, me worry? Why retailers say they’re not concerned about Black Friday’s soft-ish sales.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, December 1.

Good evening, everyone. Glad you could join us. Susie Gharib has this evening off.

December is traditionally a strong month for the markets, but there was no Santa Claus rally today, no siree.

Oil prices went on a confounding ride, down and then up, and stocks seemed caught in oil’s spell. But that wasn’t all. Stocks were also tripped up by weak economic data from China and signs retail sales here in the U.S. weren’t so hot this past weekend. More on that in just a moment.

But here’s how the markets looked at the closing bell. The Dow ending 51 points lower than Friday’s record close and the Dow transports were sharply lower today, too, we should point out. The NASDAQ lost 64 points and the S&P was down 14.

But once again, the big story today was the price of crude, which began the day by sinking below $64 a barrel to a fresh five-year low. But then midsession crude began surging higher, finally gaining more than 4 percent, its biggest one-day percentage gain since August of 2012.

Jackie DeAngelis has more on today’s volatility in oil and the outlook for crude.

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JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil prices are plummeting, but this time, traders say it’s different. It could get ugly. A North American production boom fueled by oil from U.S. shale producers has thrown the global supply demand balance out of whack. And OPEC, the cartel that controls international production, digging in its heels, refusing to cut production at last week’s meeting. All this sending oil into freefall, a decline of more than 10 percent in one day on Friday, $66 and change, a five-year low.

The last time we saw significant oil price collapse was 2009, a more than $100 swing to the downside but amidst a different backdrop. There were strong demand from China and the U.S. wasn’t producing like it is now, so supply was not as robust.

PETER AMANDIO, CHICAGO ENERGIES: In 2008, when the dollar saw its weakness to the downside and was at its lowest levels in a long time, crude oil went to $140. In 2009, when the dollar picks its head back up and got really strong again, we fell all the way back to $33, without North American shale production and without the Chinese demand we had back then.

DEANGELIS: Some Wall Street analysts are lowering forecasting. Barclays adjusting its short-term outlook, saying Brent will go under 70 and WTI significantly lower than that.

But Goldman Sachs (NYSE:GS) saying that the market will find a balance, and next year, WTI prices will be between $70 and $75 a barrel.

Citi today is saying that this could potentially be the bottom.

So, there are traders out there saying $50 crude isn’t far away. Where we go from here will be key, $50 oil could hurt producers and cause production shutdowns that could threaten jobs and the economy.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: And, of course, nowhere has the boom in shale oil production been more evident than in the Bakken region of North Dakota. But will the recent freefall in crude prices that Jackie just talked about, mean that some boom towns there could soon go bust?

Brian Sullivan is on the scene today in Williston, North Dakota.

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BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The picture of the oil boom people here in Williston, North Dakota, are hoping they don’t become the center of a Bakken bust. The Bakken shale here in the rugged western edge of North Dakota has been one of North America’s greatest economic success stories of the past decade. As oil prices rose, production rose from 165,000 to more than 1 million barrels per day in just five years.

With that surge came jobs, high paying ones. Oil field workers and truck drivers could earn more than $100,000 per year. “Help wanted” signs are everywhere. There are more jobs than people to fill them, but people have been coming from all over America and even the world.

Some bringing everything they own in their car, some sleeping in their car because housing is so expensive. They have little in common except looking to cash in on the American dream.

DANNY HOGAN, GREAT AMERICAN LODGE: I think I’ve got about 1,400 rooms. I’ve got two or three cabins (INAUDIBLE). I’ve got seven or eight hotels planned.

SULLIVAN: But producing oil here is expensive. The ground is hard. Drilling takes more work. Most analysts put the average cost to bring a barrel of oil out of the ground at around $70 a barrel. And with oil’s recent collapse in price to below that level, people here, while still confident, are looking ahead.

TOM POWERS, POWERS ENERGY CORP, OWNER: The plans are being made for this year, and I don’t see a slowdown. There’s a lot of infrastructure put in place, there’s a lot of more wells that are still going to be drilled.

SULLIVAN: Most agree that oil at these prices won’t stop the boom all at once. Some oil companies operating here more efficient than others and can withstand these lower prices at least for now.

But this is a real threat to the newer higher cost producers. Many need prices above $80 a barrel to keep justifying the rates running.

(on camera): The consensus is this, if oil prices stay in the $60 or $70 for a short time, the Bakken will be OK, but if prices stay at this level for a few months or even longer, the Bakken boom could slow or come to a halt just as quickly as it started.

In Williston, North Dakota, for NIGHTLY BUSINESS REPORT, I’m Brian Sullivan.

(END VIDEOTAPE)

MATHISEN: And with the recent drop in oil prices, nearly every country that produces crude is feeling the impact.

Here’s a look at the break-even price for a barrel of oil pitting production costs against the sale price for that same barrel. North America is the biggest loser onto this equation. The break-even point in the Bakken shale region ranges from $40, all the way up to that $70 figure that Brian just mentioned. Venezuela can sell profitably at less than $30 a barrel. Russia’s cost basically ranges between $40 and $60. Saudi Arabia can make a profit bringing crude out of the earth at less than $10 a barrel.

Sam Stovall joins us now to talk more about the energy sector and his outlook for the markets in December. He is U.S. equity strategist at S&P Capital IQ.

Sam, always great to have you with us.

Let’s start with oil, why don’t we? Are you worried about the fall in the price of oil, but do you think on net, it’s actually a good thing for America and America’s economy?

SAM STOVALL, S&P CAPITAL IQ U.S. EQUITY STRATEGIST: Well, I think for those people employed in the industry, there could be a bit of a concern, but we have a rule of thumb that for every $10 decrease in the price of oil, it adds 20 to 25 basis points in real GDP. So, it provides a bit of a support because now, consumers have more money at their disposal.

MATHISEN: You know, we looked to last week at a couple of the oil stocks in the wake of the failure to cut production by OPEC and you looked at Chevron (NYSE:CVX), you looked at Exxon, big declines there. Are some of these oil stocks that have suffered so much getting to a point where, if you have a long-term perspective, you’d want to nibble at them?

STOVALL: Yes, I think they do. We have buy recommendations on some of the companies you just mentioned. Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), Murphy Oil (NYSE:MUR) and Suncor. A lot of these companies are trading at very attractive dividend yields of 3 percent or more.

Also, they have a track record of consistently raising earnings and dividends. And when you look back over the past 25 years whenever the energy sector has been this low on a relative basis to the S&P 500, looking out over a two-year time period, you have tended to outperform the market about six of these six times.

MATHISEN: But there are good buys in the oil and oil energy groups, then there may be some good-byes, right? Because some of these companies are carrying a lot of debt, and they might not be able to get through this kind of soft spot in prices if it persists, right, Sam?

STOVALL: You’re absolutely correct. A lot of the very small companies in the oil patch took it on the chin on Friday, down more than 30 percent for the week. Also down again today on Monday. So, basically, a lot of companies if they have cash flow problems, I think investors are deciding let me sell out, let me cap my losses now and move on.

MATHISEN: Let’s move on to the broader markets, Sam, with your thoughts over this next month or so. Obviously, stumble out of the gate for December. But December has traditionally been a pretty good month.

What are you looking for?

STOVALL: Yes, it has. Usually you have mid-weakness in December because of tax loss selling. We’ll probably get more of that in the energy patch. But it has been the best month of the year on average going back to World War II gaining close to 2 percent.

Also the batting average up almost 80 percent of the time is very favorable. We just came off of midterm elections, which usually end up being a bit of a boost and we also just suffered through a 7 1/2 percent decline in the S&P 500. So, I think that sets us up for the possibility of a Santa Claus rally.

MATHISEN: All right, Sam, from your lips to Santa’s. Sam Stovall with S&P Capital IQ.

Millions of Americans hit the malls over the long Thanksgiving holiday weekend as the shopping season officially kicked off. Despite the early hours and deep discounts, though, Black Friday spending was a bit of a disappointment. Retail shares suffered as a result. JCPenney and Best Buy (NYSE:BBY), the biggest decliners in that bunch, off nearly 6 percent or so. Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Sears (NASDAQ:SHLD) Holdings also lower today.

Courtney Reagan with more on the Black Friday shopping blues.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The National Retail Federation estimates total retail sales, in-store and online combined, fell 11 percent over the Black Friday weekend compared to last year. Some say sales were lower for the weekend because earlier deals pulled sales forward and consumers know more deals will come the closer the calendar creeps to Christmas.

While the numbers might look troublesome, a number of retailers aren’t concerned.

There have been reports of record online sales on Thanksgiving and there’s still the critical evening hours to go on this Cyber Monday.

Fanatics, the largest online sports merchandise retailer, says the holiday season is responsible for 50 percent of total annual revenue, a higher percentage than many other retailers. Over the Black Friday week, sales grew 25 percent. And today, Cyber Monday, will be even bigger.

DOUG MACK, FANATICS CEO: Today will probably be the biggest single sales day in our history as a company, our single biggest shipping day in the history of the company.

Black Friday was big for us. We expect Cyber Monday to be up more than 50 percent today even over Black Friday, significantly up over last year.

REAGAN: Wal-Mart (NYSE:WMT) says Thanksgiving Day marked its second biggest day ever for online sales behind last year’s Cyber Monday.

I spoke to Neil Ashe, Wal-Mart (NYSE:WMT) CEO of global e-commerce as today’s Cyber Monday shopping was just getting started.

NEIL ASHE, WAL-MART GLOBAL HEAD OF ECOMMERCE: Welcome to Cyber Monday, the most exciting shopping day of the year. We had a good Thursday, Friday, Saturday, and we have some of the best deals that are available for customers today. So, traffic starting to build as the country wakes up and we’re looking forward to hopefully a big day.

REAGAN (on camera): For retail, the holiday season is a marathon and not a sprint, especially for the associates at Fanatics here behind me, working to ship 700,000 packages today, ten times average volume. So, when it comes to sales, the only number that really matters is the tally when shopping lists are complete.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan in Frazeysburg, Ohio.

(END VIDEOTAPE)

MATHISEN: Cyber Monday bargains are expected to bring millions more shoppers online today with cyber sales growing stronger all December long. And that is good news for the companies that ship all those packages, if they do it well.

Morgan Brennan has more on how those companies are gearing up for the Christmas crunch.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As online shopping surges, UPS, FedEx (NYSE:FDX) and the U.S. Postal Service are bracing for another record season. The National Retail Federation expects online sales to grow as much as 11 percent this holiday season, with more than half of consumers shopping digitally. But while Cyber Monday’s still a big day, many people are waiting even longer to make purchases. A trend expected to impact shippers once again this year.

DONALD BROUGHTON, AVONDALE PARTNERS: I think it’s reasonable to expect a last-minute spike in demand. The bottom line is people shop and they delay purchases, they look for price, they look for deals, and to be candid, the online retailers and FedEx (NYSE:FDX) and UPS are to a certain degree the victims of their own success.

BRENNAN: Last year, a late surge in demand combined with bad weather caused UPS and, to a lesser extent, FedEx (NYSE:FDX), to miss Christmas deadlines for some 2 million packages. This year, the companies have planned accordingly, expecting their busiest days later in the month. For UPS, December 22nd, just three days before Christmas, and for FedEx (NYSE:FDX), December 15th, nearly two weeks later than its 2013 forecast.

To meet that demand, UPS and FedEx (NYSE:FDX) have made significant investments to update their network. And the postal service, which didn’t experience delays last year, is already making Sunday deliveries.

But will it be enough? Analysts think so.

BROUGHTON: UPS, to their credit, has spent hundreds of millions both directly and indirectly to guarantee that they do not have a repeat of last year’s service disaster.

FedEx (NYSE:FDX) will just do what FedEx (NYSE:FDX) does and that’s get it delivered.

BRENNAN: But there are risks. And the biggest by far is weather. Still, tracking firm ShipMatrix says FedEx (NYSE:FDX) and UPS seem better prepared for heavier volumes, based on improved on-time delivery rates for Thanksgiving week. But if you really want to ensure your gifts make it under the tree, don’t wait until the last minute to buy them.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Still ahead, Congress is cramming unfinished business into the final days of the lame duck session and the to-do list is an important one for investors and businesses. We’ll explain.

(MUSIC)

MATHISEN: A top Fed official sounding very upbeat about the U.S. economy and about lower oil prices says we should expect an increase in benchmark interest rates around the middle of next year. A New York Federal Reserve Bank President Bill Dudley says that the Central Bank will be more forthcoming with investors about what it needs to see before it raises benchmark rates. Dudley also said the speed of the rate hike will depend in part on how well the financial markets react.

Well, the long Thanksgiving weekend is over, and Congress is now back in session at least for a few more weeks. But lawmakers do have a lot to do and not a lot of time to do it.

John Harwood joins us now from Washington with more on all the important legislation in this lame duck session of Congress that they’ve got to work on before they take yet another break for Christmas.

John, what about that big tax deal that was emerging last week that now or then apparently ran off the rails?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: We’ve learned by now, Tyler, that big things are hard to impossible in today’s Washington, so the big deals become small deal. Instead of trying both the House Ways and Means Chairman Dave Camp who’s retiring, Harry Reid, the Senate leader who’s going to become the minority leader not the majority leader in the next Congress, they tried to broker a large deal, $450 billion over 10 years, to extend tax breaks like the research and development tax breaks that businesses get.

Now, that has shrunk down. They’re simply going to extend the so-called extenders that happen every year, but only for 2014. That is the year that we’re 11 months through already, then we’ll go through this again in the next year.

MATHISEN: Let’s talk about the possibility of a government shutdown before the end of the year. There is a budget deadline, I think, in the second week of the month. Is it possible that we could see another shutdown?

HARWOOD: Extremely unlikely, Tyler. The government is funded through December 11th, that’s next week. But even the most irate Republicans who are screaming about the president’s immigration action, are — seem to be in line with the desire of their leaders to avoid a shutdown.

So, what we’re seeing is an attempt by Republican leaders to orchestrate some way for them to vent about the president’s immigration action but not have a pre-Christmas shutdown. Who knows what happens early next year but very unlikely the end of this year.

MATHISEN: So, what will Republicans do to vent — beyond venting their anger about Obama’s immigration action, what can or what are they likely to do practically?

HARWOOD: Well, what they’re talking about doing, and it may not have a lot of practical effect, is breaking the budget bill, which would extend government funding through the end of the next fiscal year into two. So that almost all the departments of government would be funded through the end of the 2015 fiscal year, but one department would only be funded through March 31st of next year. That’s the Department of Homeland Security which is tasked about implementing the president’s executive action and by putting that budget on a shorter leash, Republicans say they’re going to have their views taken account of by the administration.

MATHISEN: All right. John, thank you very much. A busy few weeks ahead in Washington. John Harwood reporting.

Two chipmakers merging is where we begin tonight’s “Market Focus”.

Cypress Semiconductor (NASDAQ:CY) is buying Spansion (NYSE:CODE) in a deal that values the company at about $1.5 billion. The movie will create a flash memory chip maker worth more than $2 billion in annual revenue. Shares of Cypress surged after-hours when the deal was announced. Spansion (NYSE:CODE) also rose in after-hours trading.

Meanwhile, Apple (NASDAQ:AAPL) shares took a sudden dive this morning. The tech giant’s shares briefly suffered their largest price drop in at least three months on an unusual spike in volume. They did however recover slightly by the end of the day.

There are a few possible reasons to explain the selling. For one, Morgan Stanley (NYSE:MS) is trimming its position in the company by 1 percent because it has been trading around record highs. Others say the move lower was simply some profit taking. Shares closed down about $4, about 3.25 percent to $115.07.

Amazon (NASDAQ:AMZN) also saw its shares fall after new that Moody’s changed the company’s outlook to “negative” from “stable,” this after the retailer said it would issue a substantial level of new senior unsecured notes. The credit rating service did, however, affirm its medium investment grade rating as Amazon’s excellent liquidity provides an ample cushion. Shares were off almost 4 percent to $326.

Berkshire Hathaway (NYSE:BRK.A) is buying another chemical firm and this time it’s Weatherford. Buffett’s specialty chemical subsidiary Lubrizol (NYSE:LZ) will spend at least $750 million to buy Weatherford’s two units that make oilfield chemicals and drilling fluids. Shares of Weatherford tumbled more than 3 percent $12.67.

And the medical device maker Medtronic (NYSE:MDT) launched the biggest corporate bond sale of the year, offering to sell $17 billion to finance the acquisition of Ireland’s Covidien. According to reports, there was big demand for the company’s bonds, with investors placing more than $45 billion in orders. Shares of Medtronic (NYSE:MDT) unchanged, though, at $73.87.

Coming up, the one thing a big movie studio doesn’t want to see happen, especially during the holiday box office season. That story next.

(MUSIC)

MATHISEN: Casino stocks were a bad bet today after November gambling revenue in Macau tumbled nearly 20 percent from a year ago, to a more than two-year low as Chinese officials continue to crack down on corruption in the former Portuguese colony and current gambling Mecca.

Take a look at shares of Wynn resorts, Las Vegas Sands (NYSE:LVS), MGM and Melco Crown Entertainment (NASDAQ:MPEL), all of them with sizable losses today.

Do you see any good movies lately? Well, that’s a big worry now at Sony (NYSE:SNE) Pictures after a hack attack meant that five of its top features, including some not even in theaters yet, were suddenly available on the Internet. Julia Boorstin has more on the breach at Sony (NYSE:SNE) and who officials think may be behind the attack.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sources tell me the FBI’s now involved in investigating who is responsible for uploading five Sony (NYSE:SNE) films, four of which have yet to be released, to piracy sites. This in the wake of a hack attack that crippled Sony (NYSE:SNE) system last week.

There are questions of whether Kim Jong Un was behind the attack because of “The Interview”, a Sony (NYSE:SNE) comedy starring Seth Rogen and James Franco about an assassination attempt on the North Korean leader. The movie is scheduled for release on Christmas Day.

In a letter to the U.N., North Korea called the movie an act of terror and promised, quote, “merciless retaliation” against the U.S. if it was released.

The reboot of “Annie” which is due for release on December 19th is one of the movies posted to piracy sites, but the most pirated Sony (NYSE:SNE) film in the wake of this attack is “Fury” starring Brad Pitt. It’s been in theaters over a month, but in just three days was illegally downloaded nearly 900,000 times according to one report.

A Sony (NYSE:SNE) spokesperson saying, quote, “The theft of Sony (NYSE:SNE) Pictures Entertainment content is a criminal matter and we are working closely with law enforcement to address it.”

That’s not all. The hack also took its toll on productivity at the studio. It’s just getting back up and running after a week of no e-mail or even voice mail.

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

(END VIDEOTAPE)

MATHISEN: And finally tonight, I’m not sure what you do with seven geese a laying, but if you’re in market to buy everything from “The Twelve Days of Christmas,” it will cost you just a little more than last year.

As always, the elves at P&C Wealth Management tally up the price tag for everything listed in the song, starting with a partridge in a pear tree, all the way up to 12 drummers drumming. And this year, it will set you back $27,673. Only 300 bucks or 1 percent more than it cost a year ago. That’s the smallest increase since 2002. Inflation, as the Fed keeps telling us, is clearly not a problem right now.

And that’s NIGHTLY BUSINESS REPORT for tonight. I’m Tyler Mathisen. Have a great evening, everybody. We hope you’ll join us here tomorrow night.

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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