Transcript: Wednesday, January 28, 2015

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Sharp and steep. Stocks take a late day tumble and so do bond yields, as oil prices fall and investors try to make sense of the Federal Reserve’s statements.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Now, the hard part. The Central Bank says the U.S. economy is expanding at a, quote, “solid pace”. But inflation is below its target and the global economy is sputtering. How the Fed will try to thread the policy needle.

HERERA: Bright spot. Boeing’s shares soar, hitting a 52-week high, as the airline industry, flushed with cash, spent it on new planes.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, January 28th.

MATHISEN: Good evening, everyone, and welcome.

Another turbulent day in the markets today. Stock investors tried to calibrate what uncertain earnings, oil prices and interest rates mean for equities.

Stocks did blaze higher earlier in the day. Yesterday’s blowout numbers from Apple (NASDAQ:AAPL) provided the rocket fuel. But then, the falling price of fuel, oil that is, black gold sapped enthusiasm and sapped the rally.

And then, there was the Fed. It did nothing leaving rates unchanged. It said a lot sort of. The economy is, quote, “solid”, it said. Job gains are strong but inflation pressed by plunging oil is very weak.

So, the Feds said it will remain patient about raising interest rates. And with that, money zipped out of stocks and into bonds.

Here’s how the major equities looked at close: the NASDAQ off 195 points, the NASDAQ down 43, and the S&P 500 lower by 27.

U.S. treasury prices by contrast soared as yields moved lower. The rate on the ten-year bond closed at a fresh 20-month low on the 30-year it dipped to 2.3 percent, a record low. Oil prices fell to a nearly 6-year low after the government reported record high stockpiles of fuel. Two times as much as expected, raising fresh worries about the global glut amid demand. Domestic off nearly 4 percent, Brent down a buck a barrel.

Hampton Pearson with more on today’s big Fed decision.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Janet Yellen and fellow monetary policymakers wrapped up the first Fed meeting of the year by making clear no rate hike is imminent. Since the last meeting in December, the overall economy has been expanding at a solid pace, and thanks to falling energy prices, plus a strong dollar, inflation has fallen even further below the Fed’s 2 percent target. Reason enough the FOMC judges it can be patient in beginning to normalize the stance of monetary policy.

Leading economists and Fed watchers are looking towards the mid-June meeting as the first real test of the Fed’s patience.

ALLEN SINAI, ECONOMIST: They are going to look at inflation as transitory low. A couple years from now, inflation will be higher. So, it isn’t going to be zero rates. When do we have a small rate hike and what will the path be, because the economy is going to get very hot. It’s even getting a little hot now.

PEARSON: While the Feds did not mention the slowing global economy, it did say it will take international developments into account in determining when to start raising interest rates. That triggered concern in the bond market. With yields on U.S. treasuries going lower.

BETH ANN BOVINO, STANDARD & POOR’S: Keep in mind that the ECB has made a pretty big move in terms of quantitative easing. And that’s going to put more upward pressure on the dollar, which is going to hurt exports, certainly affect the economy.

D.R. BARTON, MONEY MAP PRESS: Nothing much the point about what the Fed is saying they’re going to do, it’s that they’re saying for the first time, we’re worried about international markets. So, money floods into the U.S.

PEARSON (on camera): The first Fed meeting of the new year finds Janet Yellen and fellow policy makers unified and, yes, patient when it comes to what’s next for monetary policy.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson at the Federal Reserve.

(END VIDEOTAPE)

HERERA: And joining us now to talk more about today’s Fed action and what it means for the U.S. economy is Alan Blinder. He’s former vice chairman of the board of governors at the Federal Reserve, and he’s now a professor of economics and public affairs at Princeton University.

Welcome, Alan. Nice to have you back with us.

ALAN BLINDER, PRINCETON UNIVERSITY: Good to be with you, Sue.

HERERA: How do you read the Fed’s statement today in terms of what it means for any future rate hikes?

BLINDER: I think it’s steady as she goes, I don’t think based on this statement people should really revise whatever view they had previously about when the Feds are going to start hiking rates. For most people that was probably June, for some people it was September. I don’t think it was any news in this. To the extent there was a tiny, tiny morsel of news, probably would push you to a little later or a little earlier. But there wasn’t much.

MATHISEN: You know, Mr. Blinder, job gains are pulling the Feds seemingly one way; low inflation seemingly pulling it another way. Which way is Europe and the European Central Bank pulling it, if at all?:

BLINDER: Well, I think Europe is pulling it up towards later, towards worrying less about an overheating economy, because as you set up, he said, there’s probably going to be a diminution of exports. American exports, both due to the exchange rate and due to incomes abroad. Offset a little, but only a little by the ECB’s quantitative easing program.

HERERA: Alan, one of the things that was troublesome to me a little bit is the way that interest rates dropped today, and the fact that we had a 20 month low on the 10-year, and a record low in the 30-year. And frequently, the bond market knows something before the stock market does.

What is the bond market and these record low yields telling you?

BLINDER: Well, I think you’re seeing in the bond market a substantial amount of pessimism, driven more by events outside the United States than inside the United States. But what, of course, that means when you think about international bond markets is that money flows to the United States. And that boosts the dollar and boosts bond prices which is to say reduces bond yields. So, these portfolio flows, you know, we don’t measure them on a daily basis, but they certainly seem to be still coming towards the United States, not away from the United States.

MATHISEN: I’d like you to take us into the world of central banking, Mr. Blinder, if you might for a moment. It seems as though the U.S. central bank wants ultimately to raise interest rates a little bit. At the very same time, the central banks in Japan and Europe want to keep liquidity flowing into the marketplace.

That would seem to put them sort of in a disconnect posture. How much do the central bankers talk to one another? Specifically, how much do you expect Ms. Yellen is speaking with Mr. Draghi — what do they talk about? How do conversations go?

BLINDER: The conversations, when they’re not casual conversations, they meet in meetings in Vassals and things like that, there are many casual conversations. But when one picks up the phone to call the other, which by the way doesn’t happen that much, it’s usually to give them a heads up about what’s about to happen.

So, while I don’t know this, I imagine Janet Yellen was tipped off in advance, not days, but maybe minutes, I don’t know, in advance of what the ECB was going to announce. Given that the Fed didn’t really announce anything, I’d be surprised if Janet Yellen had picked up the phone and given advance warning to Mario Draghi. There was nothing to warn about.

On very, very rare occasions — and you know, Tyler, these are very, very rare — they’re trying to coordinate. There actions one to the other, in which case there may be a whole bunch of phone calls. But that really is rare, very rare.

HERERA: All right. On that note, good to see you again, Alan. Thank you very much for joining. Alan Blinder with Princeton University.

BLINDER: You’re welcome.

HERERA: Ty?

MATHISEN: Well, one of the bright spots in the markets today, was Boeing (NYSE:BA). Shares up 5 1/2 percent on this down day, that was easily the biggest gainer in the Dow. This all coming after the big aerospace company walloped Wall Street’s earnings forecast with the nearly 20 percent jump in profits last quarter.

So, how did Boeing (NYSE:BA) do it, and are there more blue skies ahead for the company?

Phil LeBeau reports.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A record bank log of orders for new plains, annual deliveries hitting an all time high. Boeing (NYSE:BA) is soaring.

HOWARD RUBEL, JEFFERIES: This is a case where they’ve only just begun to pick up momentum, and there’s more to go. The 787 is getting better and better in terms of reliability. They’ve got a whole host of productivity initiatives, and their organization is learning to do better and they’re finding ways to break barriers.

LEBEAU: While Boeing’s defense and space operations posted strong results. The commercial airplane business is surging. This year, it plans to build and ship at least 750 new planes, more than ever for one year. Airlines, flushed with cash, want the new planes, even though jet fuel costs are making older models more profitable.

JAMES MCNERNEY, BOEING CEO: Based on discussions with our customers, lower oil prices have not substantially changed their views on fleet planning or their commitment to existing delivery schedules.

LEBEAU: The 787 sold in large part because it’s more fuel efficient than comparable planes will be cash-flow positive next year. Even though the backlog stretches beyond 2020, Boeing (NYSE:BA) CEO says orders for the Dreamliner could pick up later this year.

MCNERNEY: I would anticipate toward the end of this year and end of next year, a rekindling of orders on the 87 as we get a little closer to the end of the decade.

LEBEAU: The challenge for Boeing (NYSE:BA) is hitting milestones as it develops the new 737 Max. But analysts admit, this company is in a sweet spot right now.

RUBEL: The weird thing is, at the moment, I can’t find something to really be worried about.

LEBEAU (on camera): After getting knocked in recent months, Boeing (NYSE:BA) shares are once again climbing and edging closer to an all time high.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Also giving the markets a lift on a down trading day was Apple (NASDAQ:AAPL). Shares surged more than 5.5 percent today. Closing in on an all-time high, after record breaking sales of its newest iPhones last quarter.

Josh Lipton takes a look at what’s next for Apple (NASDAQ:AAPL).

(BEGIN VIDEOTAPE)

TIM COOK, APPLE CEO: We’re not kidding, that just happened.

(CHEERS)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Apple (NASDAQ:AAPL) CEO Tim Cook says that Apple (NASDAQ:AAPL) is selling iPhones, his words, “as fast as the company can make them.” He isn’t kidding. Apple (NASDAQ:AAPL) shipped over 74 million iPhones in its December quarter, way more than analysts had predicted.

That’s a hard number to actually comprehend. So, Cook described the results this way. Apple (NASDAQ:AAPL) sold over 34,000 iPhones every hour, every day of the quarter. By country, unit sales were very strong in the U.S., up 44 percent.

But the real standout in the quarter was mainland China. There unit sales surged 100 percent, as demand for the new iPhone 6 and 6 Plus boomed.

Analysts at Piper Jaffray say mainland China accounted for 21 percent of Apple’s revenue in the quarter.

Of course, there are challenges for Apple (NASDAQ:AAPL) in China, including local rivals, who are competing fiercely for customers. But on a conference call with analysts, Cook didn’t sound concerned.

COOK: The local competition was there this quarter and has been there for many, many quarters before, and so, the local competition isn’t new. I think we did really well there. I’m very proud of how we’re doing.

LIPTON: Apple’s stunning iPhone results help soften the blow of another disappointing corner for Apple’s iPads. Apple (NASDAQ:AAPL) says it shipped some 21 million iPads, a drop of nearly 20 percent from a year earlier.

Cook indicated that part of the problem is that consumers don’t upgrade their iPads as quickly as their iPhones. But Cook remains confident in the product. He talked about the company’s new partnership with IBM, which is helping Apple (NASDAQ:AAPL) move the iPad harder into the Enterprise.

COOK: I think the partnership with IBM, and the work we have going on the Enterprise is profound. I think we’re going to change the way people work. I’m really excited about the apps that are coming out and how fast the partnership is getting up and running.

LIPTON: Now the big question for investors is whether Apple (NASDAQ:AAPL) can keep the momentum going. One way the tech giant can keep pleasing shareholders, boost the capital return program.

(on camera): Certainly, Apple (NASDAQ:AAPL) can afford it. It’s current cash pile, $178 billion.

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

(END VIDEOTAPE)

MATHISEN: Well, the next big sector to report latest quarterly earnings this season will be the oil majors, with demands so low and oil prices sliding nearly 60 percent over just the past seven months. What should investors expect from the energy sector?

Jackie DeAngelis has a preview.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Earnings season, kind of like the Super Bowl on Wall Street. We’ve heard from the banks and some big names in tech. But what will energy companies have to say now that oil’s trading around $45 a barrel. It all kicks off tomorrow with ConocoPhillips (NYSE:COP), Occidental Petroleum (NYSE:OXY), Valero, Phillips 66, and Royal Dutch Shell.

To close the week, we’ll hear from Chevron (NYSE:CVX) on Friday, and next week, ExxonMobil (NYSE:XOM) picks it up on Monday with a report from BP on Tuesday.

There’s no doubt that analysts will be looking for energy companies to cut costs and increase efficiency to help the bottom line. But will it be enough?

CHAD MABRY, MLV & CO. SENIOR ANALYST: I think cost-cutting will absolutely be a main theme of this earnings cycle. Right now, we’re seeing estimates on the range of 10 percent to 20 percent reductions and service costs.

DEANGELIS: The street estimates, overall, will see roughly 5 percent earnings growth in the fourth quarter of 2014. But also projecting that energy will be the worst performer with the drop in earnings around 20 percent.

And one of the other concerns? Job cuts in 2015. With oil prices declining, and rigs shutting down, will more companies announce layoffs?

MABRY: I think head count reductions are all but inevitable at this point, just given the severity of the downturn, the severity of capex, budget reductions. We’re talking about hundreds of millions — billions of dollars that won’t be spent this year.

DEANGELIS: And what will management say about oil prices, will they decline further and how long will they stay depressed?

Goldman Sachs (NYSE:GS) is already calling for $40 oil before they expect prices to rebound in the back half of the year.

MABRY: The lower we go, I think the only certainty is the harder we’re going to snap back towards a marginal cost of production, over time.

DEANGELIS: Shares of energy companies have already taken a hit, the sector is the second to worst performer on the S&P 500 year-to-date, down 4 percent. Financials down slightly more, but they’ve already reported.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: And still ahead, Facebook (NASDAQ:FB) blows past Wall Street’s earnings estimates. But there’s something else that investors are focusing on. The key takeaway, next.

(MUSIC)

HERERA: Facebook (NASDAQ:FB) out with solid earnings after the closing bell, thanks to a big increase in mobile advertising revenue, and more daily and monthly active users. The social networking giant took in 54 cents a share, excluding certain items, beating estimates by a full 6 cents. Revenues of nearly $4 billion were also a slight beat. Shares fluctuated between modest gains and losses in light trading.

Julia Boorstin now with her one big takeaway from Facebook’s results.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Face with better than expected results driven by strength in mobile, generating almost 70 percent of Facebook’s total ad revenue, up from just 53 percent in a year ago quarter. That advertising growth is like mobile usage on the rise, outpacing desktop growth, while the number of people accessing Facebook’s mobile app every day grew 34 percent to 745 million.

Chief operating officer Sheryl Sandberg telling me in an exclusive interview that mobile ad dollars are following user’s shift to mobile. But they’re still shifting slowly, and that’s an area Facebook (NASDAQ:FB) plans to accelerate moving forward.

(on camera): Facebook (NASDAQ:FB) is looking to tap into its growth in video. Sandberg announcing the company has an average of 3 billion video views per day. That’s up from just 1 billion in September.

The mobile growth, though, didn’t help Facebook (NASDAQ:FB) stock which is way down, on concerns about an 87 percent increase in gap cost and expenses in the quarter.

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

(END VIDEOTAPE)

MATHISEN: And also reporting tonight is the casino giant Las Vegas Sands (NYSE:LVS). It had a record fourth quarter and full year for 2014 and is raising its dividend by 30 percent. And that sent shares initially higher after the results.

But as Jane Wells tells us, the entire gaming sector is working to make sure its luck didn’t run out.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A betting person might put it all on black in gaming this year. Why?

Vegas, baby. Sin City is in the black, flush with new business, though, not at the tables. Las Vegas Strip has seen a slight dip in gaming revenues. And this week, slot machine maker IGT reported a sharp drop in earnings.

But more visitors are coming to Las Vegas, and revenue per available room, which basically measures how much people are spending overall is up nearly 9 percent.

In other parts of the country, regional gaming companies are not having the same luck, a situation which could get worse as the big boys expand east, especially into Massachusetts.

Wynn plans to build an expensive resort outside Boston, and the design has now been changed from this to this.

STEVE WYNN, WYNN RESORTS CHAIRMAN & CEO: They want an established level of luxury that we’ve proven we can deliver here.

WELLS (on camera): And then, there’s China, where most of the gaming revenues come from. And right now, maybe not such a good bet.

“Reuters” report that some high rollers are fleeing Macau for friendlier tables in the Philippines or Vietnam, as mainland China cracks down on questionable practices, and as smoking may be completely banned.

(voice-over): But long term, this could be a good thing. And Union Gaming thinks more people will want to invest in a market with more scrutiny and accountability.

But few seem to say maybe about Vegas this year. Janney analysts have a buy on MGM, the biggest player on the strip, betting on more visitors and conventions. And with so many visitors driving in from California, low gas prices may help Vegas maintain a full house.

For NIGHTLY BUSINESS REPORT, I’m Jane Wells.

(END VIDEOTAPE)

HERERA: Qualcomm’s results beat, but its outlook disappoints. And that’s where we begin tonight’s “Market Focus”.

The chip maker lowered its guidance over the next two quarters as one of its new chips was dropped by a large customer. The company also blamed concerns over its business in China. Shares initially dropped after the bell. But before the close, the stock was off 1 percent to $70.99.

Tupperware (NYSE:TUP) posted earnings and revenue that easily topped estimates, but the company offered investors a rather downbeat outlook and that fell below expectations. Still, shares popped more than 11.5 percent to $66.67.

MATHISEN: And shares of Alibaba took a tumble after reports of counterfeit sales surfaced today. Chinese regulators accused the e-commerce giant of permitting sales of fake goods, and thereby hurting consumers. But regulators withheld the report until today to avoid disrupting the company’s U.S. stock market debut some months back. Alibaba’s initial public offering last year was the world’s largest. Today, the stock was off 4 percent to $98.45.

Sears (NASDAQ:SHLD) said it has cut 115 corporate jobs, mainly at its headquarters outside Chicago as it tries to cut expenses. This is part of a string of efforts the retailer has made to return to profitability as it works to reverse falling sales and truly dismal earnings. Shares fell 4 1/2 percent to $32.66.

HERERA: Well, things are really cooking over at Shake Shack. The New York-based hamburger chain has raised the projected price range for its initial public offering, which is expected to take place tomorrow. In a regulatory filing today, the company now expects to sell 5 million shares as high as $19 each, up from a high of 16 bucks a few weeks back.

MATHISEN: And coming up, a trip to the Windy City, to see how Chicago’s reinvented downtown is helping to push property values up.

(MUSIC)

HERERA: Some changes at the top at McDonald’s (NYSE:MCD), CEO Don Thompson will retire as president and CEO of the company effective March 1st. Thompson will be replaced by Steve Easterbrook, McDonald’s (NYSE:MCD) chief brand officer and former president of McDonald’s Europe.

MATHISEN: Well, the new far left prime minister of Greece is wasting no time shaking things up, Alexis Tsipras who was just sworn in yesterday has already halted plans to privatize the major port, and has begun rolling back tough austerity measures that have been in place for the past five years, as part of its bailout loans from the European Union. That sent the Greek stock market down hard for a third day straight. Off 9 percent more today, with bank stocks plunging 26 percent.

HERERA: A top ratings agency is reportedly close to settling costly lawsuits stemming from unrealistic ratings that it gave to mortgage backed securities during the financial crisis. According to “The Wall Street Journal”, S&P is poised to pay nearly $1.5 billion to the Justice Department and a handful of states that sued it over rosy grades given to risky investments that later went bad.

MATHISEN: And moving now to real estate in Chicago, which is long been a laggard in the nation’s economic recovery, losing both jobs and population. But now, a new resident, tech is taking hold of the city’s downtown, and pushing property values up.

Diana Olick reports.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The record sale price of a 60-story luxury apartment towering downtown Chicago is turning up the heat on Windy City real estate. 111 West Whacker sold for $328 million. Related, the New York based firm behind Hudson Yarn, acquired the project after it stalled during the recession. It focused on ultrahigh end amenities, rents upwards of $12,000 a month followed and then the sale.

CURT BAILEY, RELATED MIDWEST PRESIDENT: I think it talks most to how Chicago is one of the great American cities. And whereas in the past, it maybe hasn’t been recognized as much, by the very high end purchaser. Today, the people that drive investment across the country are recognizing the viability of the city.

OLICK: Behind the boom, jobs, tech jobs. Chicago based apartment and office developer Fifield Group hasn’t bought an office tower in 7 years, but is now acquiring a 100-year-old building downtown, and rehabbing it with tech tenants in mind. This after Groupon (NASDAQ:GRPN) bought the Wrigley Building, Google (NASDAQ:GOOG) increased its Chicago footprint in the West Loop, and Motorola moved into the merchandise mart.

STEVE FIFIELD, FIFIELD COMPANIES FOUNDER: The large companies, particularly the high-tech companies, the banks, financial institutions and the like are following those millennials. They’re bringing their jobs to where the millennials live. Why? Because the millennials would rather live, work and play in the same area.

OLICK (on camera): And that in turn is fueling the luxury apartment market.

The latest record sale is just the beginning. It’s starting a new project right across the street from the tower I’m standing on now. That one will offer both condos and rentals and bigger units that could accommodate families. Meanwhile, a Chinese developer is putting up an 88-story condo just south of here.

BAILEY: Anyone who’s kind of under 35 probably looks at real estate as a illiquid, depreciating asset. And they are looking for some place to rent and they’re going to bide their time. I think that will change in the future. There will be — we will move to more of a 50 percent renter, 50 percent buyer market, and the condo market will come back. For today, you know, apartments are where people want to be, and we’re filling that need.

OLICK (voice-over): That need for ultrahigh end amenities, an equinox gym, whole business center, movie theater, party rooms, all catering to young downtown renters who may eventually become buyers.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Chicago.

(END VIDEOTAPE)

HERERA: Looks pretty nice.

That does it for us on NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for watching.

MATHISEN: And thanks from me as well. I’m Tyler Mathisen. Have a great evening, everybody. We hope to see you 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) 2015 CNBC, Inc.

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