Transcript: Monday, February 2, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Big oil, big changes. ExxonMobil (NYSE:XOM) reports a sharp drop in profits. But the biggest American oil and gas producer didn`t do something that many of its rivals did.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Four trillion dollars.
That`s the size of the budget President Obama proposes. What he wants to spend, who he wants to tax, and whether his plan has a snowball`s chance on Capitol Hill.

MATHISEN: War of words. Months into the slowdown at the nation`s busiest ports, we have exclusive access inside to see what`s really going on.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, February 2nd.

HERERA: Good evening, everyone.

A dramatic finish on Wall Street today. Stocks rallied into the close to start the month of February exactly where January left off, with big swings and triple-digit moves. And for much of the day, the focus was on energy. Prices bounce its third consecutive day of gains, tacking on a total of 11 percent in that period, its best three-day gain since July of 2012.

By the close, the Dow Jones Industrial Average rose 196 points to 17,361. Some of that late-day gain being attributed to hopes for a deal overseas regarding Greek debt. The NASDAQ gained 41, and the S&P rose 25.

As for crude, prices near $50 a barrel, settling at $49.57. Brent was also higher. Energy companies rallied alongside those increase in oil prices, making ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), two of the best performing stocks in the Dow Jones Industrial Average. But ExxonMobil
(NYSE:XOM) was also the latest big oil company to report its earnings. And the results were surfacing.

Jackie DeAngelis more.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Dow components ExxonMobil (NYSE:XOM) out with its market moving earnings report today, while earnings per share for the oil giant fourth quarter were above street expectations, revenues were light. And amidst the backdrop of declining oil prices, analysts expressed concern.

PAUL SANKEY, WOLFE RESEARCH: These results were flaunted (ph) by, you know, legal win that they had regarding Venezuela and some additional U.S. tax giveback, neither of which are a true operational earning. So, we`re not considering this to be a beat from Exxon. Let`s be clear. We think it`s a slight miss.

DEANGELIS: In fact, fourth-quarter earnings dropped more than 20 percent from the previous year, and many in the industry and on Wall Street are worried over capital expenditures in 2015, not just for Exxon, but for all the other oil majors as well, several of which have curtailed investment because of plummeting oil prices.

SANKEY: None of these companies are showing good reserves for placement, particularly in the context of the new capex numbers that are coming with. We`re going to see much less spending. And it`s going to be difficult, I think, to avoid much higher oil price the in the future.

DEANGELIS: The company`s slashing of its share buy-back program in the first quarter by more than half also raised some red flags, this after Chevron (NYSE:CVX) said last week it was suspending its share buy-back for the year.

But management tried to stay upbeat. CEO Rex Tillerson saying that the company`s balance portfolio uniquely positions it to deliver superior results throughout the commodity price cycle.

Still, while oil prices have bounced a bit, traders anticipate more trouble ahead.

PETER AMANDIO: The markets in some sort of flux right now. It looks like there`s a lot of people think we could test $60 first before we go to $30. And that`s where maybe all this volatility is coming from.

DEANGELIS: And it`s not the first time oil prices experienced severe volatility. In 2009, prices dropped from $144 to $33, and that slide did not happen in a straight line.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: Falling prices may be troubling big oil companies, but consumers aren`t complaining about the plunge in oil prices. A new report says the cheapest gas prices, though, may be in the rear-view mirror for now. AAA says the average gas price has increased over the last seven days and will keep moving higher at least for a while. The national average is now $2.06 a gallon, but there`s hope that whatever increases do occur will be slight and short-lived if crude supply continues to outstrip demand.

HERERA: Union works at nine of the largest refineries and oil plants went on strike for the second day today, as nearly 4,000 employees looked to change the terms of their contracts. Walkouts, the largest since 1980, were targeted at plants with a combined 10 percent of the country`s refining capacity. But the companies affected include Marathon Petroleum, Tesoro, Lyondell Basell and Shell, which is leading negotiations for the industry.

MATHISEN: Let`s turn now to our guest for more on the energy sector and the outlook. He`s Rob Thummel. He`s managing director at Tortoise Capital Advisors, a $17 billion energy investment firm.

Rob, welcome. I hope I pronounced your last name correctly.

Let`s get to the point here. Have we seen the short-term lows for oil prices, and hence for gasoline prices? And if so, why?

ROB THUMMEL, TORTOISE CAPITAL ADVISORS MANAGING DIRECTOR: I think, we look at the oil price from a fundamental perspective. The way that we see the oil market evolving is in the first half of 2015, we see supply continuing to grow, and demand slowing a little bit because of the refining maintenance season. So, we see that being a challenge and continued over- supply in the oil market for the first half of 2015.

Now, that all changes in the second half of 2015, when the summer driving season hits, we all go on our vacation. And everybody, more than likely drives their car more than they did last year. That means demand increases and then all the effects of this lower supply as a result of all of the capital expenditure cuts you`re hearing about in the oil and gas industry take place in the second half of `15, and we become more balanced in the second half, which is a benefit to oil prices.

HERERA: So, less — it sounds like you`re saying there might be less volatility going forward after we get past these winter months?

THUMMEL: Absolutely. That — so far, we`ve started to see a little less volatility, and actually seen a couple updates in the oil markets most recently. And we think that`s a good thing.

MATHISEN: You know, ExxonMobil (NYSE:XOM) did not announce any new capital expenditure cuts today. I think they have said in the past, though, they spend — intend to spend about $37 billion in this year, that`s lower than last year. Explain to me, just to make sure I understand it correctly, why lower capital expenditure translates into higher oil prices.

THUMMEL: Yes. A great thing to follow is the U.S. rig count. If you look at where the U.S. rig count peaks, it was about 1,900 rigs. We`ve seen 300 rigs basically idled.

And so, you see the rig count decline by 300. And that means less capital is spent drilling for new oil and gas every day.

Oil and gas naturally declines if you don`t drill for new sources of oil and gas. And so, as a result of the less spending in the oil and gas industry, you see natural declines in oil. So that has an impact on the overall supply of crude oil. And we`re basically oversupplied right now.

And so, less oil means less oversupplied in the oil markets.

HERERA: So, how are you positioning your investors in the energy sector? Where are you steering them?

THUMMEL: Yes, the energy infrastructure sector is a great place to be. The energy infrastructure, more of the refined product, the crude oil pipeline, you typically have less commodity price exposure, plus, this type of investments provide current income, plus current growth in that income, and those — that combination of growth and current yield are really a nice place to be for all investors.

The other place is in the refining sector. Refiners are likely to benefit from the increased demand for gasoline and diesel that we expect to see as a result of these low oil prices.

MATHISEN: So refiners, is ExxonMobil (NYSE:XOM) a refiner? Is Chevron (NYSE:CVX) a refiner? They certainly refine product.

THUMMEL: They sure do.

Exxon and Chevron (NYSE:CVX) both have components of refiners.

MATHISEN: Right.

THUMMEL: We typically like to focus on the pure play refiners, as well as the pure play oil and gas producers.

MATHISEN: Right, that was I was driving at, because Exxon obviously does that. But they`re a different breed of oil company, quite obviously.

Rob, thank you very much.

THUMMEL: Thank you.

MATHISEN: Rob Thummel with Tortoise Capital Advisors, out in Kansas City.

HERERA: And now to the General Motors (NYSE:GM) compensation fund, which has seen its total number of claims filed climb to more than 4,100 before yesterday`s deadline. Ken Feinberg, the fund`s administrator said the fund has determined 121 claims are eligible, including those for the families of 51 people who died from accidents related to faulty ignition switches. And while it`s still not known how much GM could potentially pay in total compensation, Feinberg says, so far, no eligible claimant has rejected the money offered.

(BEGIN VIDEO CLIP)

KENNETH FEINBERG, GM COMPENSATION FUND ADMINISTRATOR: We`ve had some very irate families. And that goes with the territory. I — the emotion surrounding these accidents, and the lost loved ones, young kids driving their first automobile, so the emotion is very, very high. But we haven`t yet had one eligible claimant when we made what I think is a generous offer, turned down the money.

(END VIDEO CLIP)

HERERA: The program is still reviewing claims submitted by the deadline.

MATHISEN: The Justice Department is reportedly investigating a credit agency Moody`s (NYSE:MCO) for issuing favorable ratings on mortgage deals in the lead up to the financial crisis.

According to “The Wall Street Journal”, former Moody`s executives and Justice Department officials met recently to discuss how the complex securities were rated. Investigation still in its early stages and comes as the DOJ apparently nears a settlement with Standard & Poor`s over similar issues.

HERERA: The housing market now is much different than it was before and during the financial crisis. And today, bankrate.com is out with a surprising survey that reveals just how much homeowners don`t know about their single largest monthly expense.

Diana Olick reports.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Wicked weather may be battering much of the nation today, but there is a more perfect storm going on in the mortgage market — falling interest rates and a big drop in the cost of government-backed loans. That could mean big savings for borrowers.

Unfortunately, one-third of U.S. borrowers don`t even know their mortgage rate.

(on camera): What is your mortgage rate?

UNIDENTIFIED MALE: It`s 2.7 percent, I think. It`s a 15-year.

OLICK: Two-point-seven? You`re sure?

UNIDENTIFIED MALE: It`s in the high 2s.

OLICK: What is your mortgage rate?

UNIDENTIFIED MALE: Four percent.

OLICK: Four percent. Are you sure?

UNIDENTIFIED MALE: Something like that.

OLICK: Are you sure of the exact rate?

UNIDENTIFIED MALE: No, I`m not sure of the exact rate.

OLICK (voice-over): Lenders say the process of buying a home is so stressful that the borrowers tend to focus on the monthly payment and not the rate that gets them to that payment.

HOLDEN LEWIS, BANKRATE MORTGAGE ANALYST: It`s really kind of a traumatic experience to sign all those papers, then you go home, you probably just toss that pile somewhere, it ends up in a file folder somewhere maybe. And then, yes, you don`t know where it is.

OLICK (on camera): But given the dynamic changes going on in today`s mortgage market, changes that benefit borrowers, that kind of financial ignorance could be costly.

LEWIS: The issue is, not so much that they don`t know their mortgage rate. It`s that they don`t know that rates are a whole lot lower right now.

OLICK: Why do you know your mortgage rate?

UNIDENTIFIED FEMALE: Actually, because I refinanced about eight years ago, so I could pay it off sooner.

OLICK: Knowledge is financial power. And as the mortgage market heats up again, borrowers who don`t use that knowledge could be left out in the cold.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: And you can read more about the important facts that mortgage holders need to know on our Web site, NBR.com.

MATHISEN: Still ahead, President Obama presents his vision for the country in the form of a $4 trillion budget, setting up a debate over America`s economic future.

(MUSIC)

MATHISEN: The Federal Communications Commission is ready now to propose new rules governing the Internet. Those new regulations will be unveiled later this week, according to Dow Jones. The agency intends to change the way both mobile and fixed broadband firms are regulated, subjecting them to greater regulation on things like pricing and forbidding providers from slowing down or speeding up specific Web sites in exchange for payments.

HERERA: The president today unveiled a nearly $4 trillion budget.
The 2,000-page plan includes programs to improve the nation`s infrastructure, and help the middle class, primarily financed by higher taxes on corporations and the wealthy. And it sets the stage for a big budget fight with Republicans.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I know there are Republicans who disagree with my approach. And I`ve said this before, if they have other ideas for how we can keep America safe, grow our economy, while helping middle class families feel some sense of economic security, I welcome their ideas. But their numbers have to add up.

(END VIDEO CLIP)

HERERA: Eamon Javers has more on the proposal from Washington.

There`s some fighting words out there, Eamon, about this proposal.
Does it have a chance?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: No, Sue, it doesn`t. This is DOA on Capitol Hill. But all budgets to some extent really are. I mean, what happens at the beginning of the budget cycle is the president puts out his wish list up to Capitol Hill. That`s controlled by Republicans. They`re not going to necessarily take everything Obama wants.

But think of this as sort of the opening salvo in an ongoing, year- long negotiation. The president playing out where he thinks ought to go, where they actually go would be very different.

MATHISEN: What are the new taxes that he`s proposing? Whom would they hit?

JAVERS: Well, a lot of taxes for the wealthy, taxes on banks, taxes on inheritance, also some taxes on corporations, including a proposal to tax companies` earnings that are overseas right now. Initially the teaser rate Obama would have at 14 percent, but then after that it would go up to
19 percent per year, in the outgoing years.

So, a couple of new taxes there for corporations and the wealthy.
And Obama said that he would match those with credit and benefits for people in the middle class and the poor.

HERERA: If you had to be a betting man, Eamon, what proposals do you bet would actually gain some traction on the Hill? Is there anything in the budget that might work with Republicans?

JAVERS: Well, the president is proposing more spending for the Pentagon. That`s obviously something that Republicans like. And I also think that ultimately, they`re going to have to do something about these foreign earnings of U.S. corporations. Somewhere in there is a compromise waiting to happen. We`ll see whether or not these are the numbers, probably not. But they`re sitting at a table and they`re proposing some deals here.

So, we`ll see whether they can get something done this year.

MATHISEN: Very quickly, does the word sequestration appear? Where does that one come from?

(CROSSTALK)

JAVERS: Yes, the president would like to get rid of sequestration.
Remember, that was the deal they had a couple years ago that actually ended up lowering a lot of the deficits. The president here taking credit for a lot of that deficit lowering, but saying that was mindless austerity and he wants to move past that by increasing spending in certain areas that he thinks are important.

HERERA: Eamon, thank you as always.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

Ty?

MATHISEN: All right. Verizon (NYSE:VZ) may be nearing an asset sale. And that is where we begin tonight`s “Market Focus”.

According to reports, the telecom company is close to selling a package of cell towers and wireline assets for more than $10 billion. The deal involves different buyers and could be announced this week. Shares up almost 3 percent to $46.98.

Another report out today about the fate of RadioShack, saying the troubled electronics retailer is preparing now to shut down. Sprint would take over half of the store base, but another bidder could emerge to buy the chain and continue to run it. Shares of RadioShack off 14 percent today. They fell to 24 cents. Sprint fell slightly to $4.27.

And Lands` End announced some changes at the top today. The clothing retailer`s chief, Edgar Huber, will step down in two weeks and be replaced by Federica Marchionni, a president at Dolce & Gabanna. The company didn`t give a reason for the resignation. Shares were up a fraction to $34.93.
Boy, that`s a good Italian name.

HERERA: Yes.

MATHISEN: Apple (NASDAQ:AAPL) is planning to sell as much as $6.5 billion in bonds, this according to reports.

The tech giant intends to sell a combination of bonds and maturities ranging from five to 30 years. This comes at a time when investors are paying near-record premiums for high-quality issues. Shares were 1 percent higher at Apple (NASDAQ:AAPL) to $118.63.

HERERA: Pitney Bowes (NYSE:PBI) reported in-line earnings today and revenue that missed. 2015 guidance was well below what analysts were expecting. The company now sees revenue falling and its earnings forecast was also light. But Pitney did unveil a $100 million share buyback plan.
Still, investors were not impressed and shares tumbled 7 percent to $22.26.

United Technologies (NYSE:UTX) has hiked its dividend by nearly 9 percent. The quarterly payout will now be 64 cents a share and will be paid to shareholders in March. The yield on the dividend is just about 2 percent. Shares rose right after the close. Before the bell, shares were up 1.5 percent to $116.58.

Anadarko Petroleum (NYSE:APC) posted a big miss on both the top and bottom lines after the market close. Still, the company`s loss narrowed when you compare with last year, that`s when it took a big legal charge.
Anadarko also said its oil and gas output increased during the quarter.
Shares were really volatile in after-hours trading. But during the regular session, the stock closed up 1 percent to $82.77.

And Stratasys (NASDAQ:SSYS) issued an earnings warning, sending shares way down initially after the bell. The 3D printer maker`s 2014 preliminary estimates missed, as did its 2015 forecast. It says operating expenses will also increase. The stock, as you can see, dropped sharply after hours. At the close, the stock was up a fraction to $80.08.

MATHISEN: And it is a war of words at some of the nation`s busiest ports. For months, management and the unions have been blaming each other for intentionally slowing down work at the docks. So, what`s really going on?

Jane Wells got exclusive access inside a dispatch hall to try and set the record straight.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a little after 6:00 a.m. at a union dispatch hall down the street from the nation`s largest container port complex. Longshoremen gather, waiting for jobs.

Those who worked the fewest hours this month get chosen first.

UNIDENTIFIED MALE: Morning, brother.

UNIDENTIFIED MALE: Good morning.

UNIDENTIFIED MALE: Eighty-four seventy-nine.

WELLS: Every job is filled. And yet according to one shipping analyst, the Los Angeles Long Beach Port Complex is suffering the worst congestion in history.

(on camera): For months, management and the union have each been blaming the other for intentionally slowing down work here at the docks adding to the congestion. The shipping companies have been saying the union is not offering up enough workers. The union says quite the opposite. The shippers are not asking for enough crews.

We thought we might get the right answer to what was really going on inside the union hall.

What have you seen change since November?

RAY PEARSON, LONGSHOREMEN RECORDS CLERK: I haven`t really seen anything change.

WELLS (voice-over): It turns out records clear Ray Pearson, a union member who works jointly with the shippers running the dispatch hall, blames congestion instead on bigger ships and a lack of well-maintained truck trailers.

(on camera): You`re not seeing any intentional slowdown either on the terminal operator side or on the longshoreman side?

PEARSON: I`m not aware of any slowdown on anybody`s part.

WELLS: Wow.

(voice-over): We looked at dispatch logs from this month compared to those a year ago. And Pearson appears to be right. About the same jobs are being called for and all are being filled.

So, if there`s no intentional slowdown, could congestion just be due to lack of space and equipment?

Management says not quite, that the log numbers do not reflect reality. That longshoremen are holding back workers, but the final numbers are massaged to give the appearance of equilibrium. However, they have not offered any proof of that.

As the war of words continues in public, there may be some good news behind closed doors with negotiations. Management reports the issue of fixing broken truck trailers, a real problem on the docks, may soon be resolved. And if that`s the case, it could be the domino which sets off a final resolution before the ports completely shut down.

For NIGHTLY BUSINESS REPORT, Jane Wells, San Pedro, California.

(END VIDEOTAPE)

HERERA: Coming up, virtual reality. The technology may seem far away from everyday reality, but will the big venture capital money continue to flow into what some are betting will be the next big thing?

(MUSIC)

HERERA: A federal judge has rejected an NFL concussion settlement for a second time. The league`s proposal of more than $750 million involved 5,000 former players who have sued over head injuries. The judge said the NFL should expand payments for some of those claims, especially for families of players who suffered from chronic brain damage diagnosed only after their deaths.

MATHISEN: Strong outlook out today from the rail industry, a sector that is looking to spend more and hire more this year. Freight railroads planned to spend nearly $30 billion to lay track, add engines, upgrade networks, and create around 15,000 new jobs. This comes as the national rail network has been tested by surge in energy and agriculture deliveries.

HERERA: The auto industry`s air bag problems just got worse.
Regulators announced the recall of more than 2 million vehicles to fix faulty crash sensors that could cause air bags to deploy for no reason.
The makers of the cars which include Toyota (NYSE:TM), Fiat and Honda, had already issued recalls, but the repairs haven`t stopped the problems. The recalls are not related to those faulty Takata airbags, but there`s an overlap of about 1 million vehicles that are impacted by both issues.

MATHISEN: And finally tonight, virtual reality, Facebook (NASDAQ:FB) got into it, so did Google (NASDAQ:GOOG). But it`s not just the big companies that are investing in this new technology. Many startups specialize in it, too. The question for them is, will big money from venture capital firms continue to follow?

Josh Lipton has the story now from Silicon Valley.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
There`s nothing that simulated about the excitement surrounding virtual reality. Tech giants are moving hard and fast into this technology, which allows users to experience totally immersive 360-degree computer simulated environment. Facebook (NASDAQ:FB), for example, spent $2 billion last March to buy Oculus VR. Google (NASDAQ:GOOG) says it`s already shipped
500,000 units of its VR product called Google (NASDAQ:GOOG) Cardboard.

But it`s not just tech titans that are dedicating time and money to this technology. A number of startups also are now specializing in virtual reality and some venture capitalists are willing to support them.

MIKE ROTHENBERG, ROTHENBERG VENTURES: What`s inspiring about it is we`re solving hard problems.

LIPTON: Mike Rothenberg of Rothenberg Ventures, for example, is providing 100,000 in seed funding to 10 startups in exchange for equity in the companies. Rothenberg sees a number of applications for VR in industries ranging from health care to education.

ROTHENBERG: Imagine that you would like to go attend virtually a wonderful college class, but you`re in a different country from where you want to go. This can make you feel like you`re there.

LIPTON: One startup Rothenberg now supports is called Emblematic Group, which builds content to the Oculus Rift.

Emblematic Group created, for example, a virtual reality tour of Syria. The company`s founder says the purpose is to bring attention to the civil war in that country.

But while Rothenberg is excited about virtual reality, many of his peers are not. In 2014, only 11 companies focused on virtual reality, received venture funding totaling just $54 million according to the Moneytree Report. To put that number in context, venture capitalists invested nearly $49 billion in total last year.

So, why the lack of enthusiasm from professional investors? VCs say that while these startups might boast innovative technology, many don`t have a significant number of users or viable business plans.

VENKY GANESAN, MENLO VENTURES MANAGING DIRECTOR: Venture capitol is about “show me the money”. Unfortunately, virtual reality is right now being “show me the losses”. Now, until virtual reality startups actually make money and have a business model, they will not get a lot of support from venture capitalists.

LIPTON (on camera): Still, fans of virtual reality are confident that this technology will upend and redefine many industries from gaming to travel. Now, all they need is mass adoption.

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

(END VIDEOTAPE)

MATHISEN: Funky looking gear.

To find out more about this virtual reality technology trend, head to our Web site, NBR.com.

HERERA: And that does it for us on NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching.

MATHISEN: And thanks from me as well. Have a great evening, everybody.

We hope to see you right back 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) 2015 CNBC, Inc.

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