Transcript: Wednesday, February 4, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Day of reversals. Just when it looked like Greece was making progress on its debt, the European Central Bank said, not so fast — and that sent U.S. stocks south.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: A one-two punch. Merck (NYSE:MRK) blames the dollar in part for its weak profit outlook, but there’s something else at play that weighed on shares with the Dow component.

MATHISEN: Driving off the lots. Why Ford dealers are having a hard time keeping one specific truck in their showrooms.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, February 4th.

HERERA: Good evening, everyone.

What a difference just a few hours makes. Earlier in the day, the Dow Jones Industrial Average rose to its highest level in almost two weeks, but just before the closing bell, most of those gains vanished. The reason? Europe.

The European Central Bank decided it was not going to go easy on Greece, at least in public, as that country tries to ease the terms out of its bailout.

By the close, the blue chip Dow index finished just six points higher to 17,673, the NASDAQ fell 11 points and S&P 500 dropped eight points.

And oil snapped a four-day rally, pressuring shares of energy companies as investors focus back on supply issues. Crude fell nearly 9 percent to $48.45 and Brent also dropped.

Bob Pisani is at the New York Stock Exchange with a reminder of how Europe and oil are still in control of this market.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets have been rallying in the last few days because the four major sources of anxiety have shown signs of bottoming — oil, base metals, bond yields and European equities. Several of these trends have been building for a while. Oil has been hovering in the mid-$40s for a month and Europe has been stronger really since mid-January.

But the combination of all four trends together aided by words that a deal with Greece may be possible has created a powerful rally. Going into the start of trading today, the S&P 500 has rallied 70 points from its high to its low in just two days.

But today, we were reminded that the oil and Greek story is not yet settled out. Oil dropped 8 percent on word that oil inventories were still high and when oil broke below the psychologically important $50 level, it fell fast and the market also came off its highs.

Then, at half hour before the close came headlines that the ECB was putting on Greece, refusing to allow Greek banks to use Greek government debt as collateral for loans. The Dow dropped 130 points, but still eked out a small gain.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: So, what is next now for Greece and how will this play out in the markets?

We’re joined by two guests, Michelle Caruso-Cabrera, who has met with and interviewed the last four Greek prime ministers and can explain why the developments out of Europe are so important. And Mike Holland, chairman of Holland and Company, with a look at what this means for your money.

Michelle, let’s start with you. Explain simply for us, what the ECB announced today and whether it is a sign of a breakdown or just a different phase of negotiation.

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s a sign of more pressure, I think. Central banking operations can be pretty tough to explain and to understand, but they’re really crucial to the banking system. They’re the reason we can get cash out of ATMs, for example.

So, what the ECB did today was they made it much harder for Greek banks to get cash from the ECB. Normally, the ECB will only give cash to banks in countries that are investment grade rating. Greece is not investment grade rating. It’s junk rated, but Greece had a special waiver from the European Central Bank because Greece was in the bailout program. They were meeting with their partners, the IMF, et cetera, and they were following the rules.

So, as long as they did that, the ECB said, OK, we’ll keep giving you this cash. Today, they decided this new government doesn’t want to stick with the program. So, we’re not going to do that anymore. The Greek banks can still get cash but they have to go to the national bank of Greece, that means all the risks within Greece and it’s also more expensive for the Greek banks to actually do that and get the cash.

So, there’s going to be an impact on the Greek banking system and this is the ECB putting pressure on the Greek government to decide what they’re going to do, if they’re going to stick with the program or not.

HERERA: What does your gut tell you, Michelle? I mean, you’ve spent so much time covering the story from the very beginning. Will this pressure work on this new government?

CARUSO-CABRERA: It’s really tough to know. They made many, many demands and said they were going to make many demands when they came into office just one week ago. They campaigned that they were going to make these demands. Well, they caved on most of them so far.

The last one was they really wanted to roll back a lot of the reforms. They wanted to rehire public sector workers. They want to raise the minimum wage. They want to do a lot of things that go against the program.

They promise the public this. They face a really tough choice right now. Do they tell the public, we can’t do what we promised you? Or do they go to the central banking and give in?

They promised, also, they’re going to stay in the euro. If they want to stay in the euro, they may have to give.

MATHISEN: All right. Mike Holland, let me bring you in here. Equity investors late in the day sold off now and say, we’ll ask questions later here. Is that the right tack? And I come back to sort of the question I began with Michelle — is this a sign of something really breaking down or is this a sign of public posturing?

MIKE HOLLAND, HOLLAND AND COMPANY: Well, to go to your first question, Ty, I believe that shoot first and ask questions later is what this market is doing now and has been doing for the last few months. And when it finds something negative to talk about, it sells things immediately.

From people I know, including Michelle’s description, great description of what’s going on there, this is not a game-breaker and not a huge surprise. Mario Draghi met with the finance minister earlier on Wednesday before this happened. The market over there has been expecting this, and yet it’s important to note the European market is up 8 1/2 percent year-to-date. The S&P here, as you know better than I, is down a little bit.

So, people are not all that worried about Greece right now, but it’s a great excuse to shoot first and ask questions later. I truly believe at the end of this process, as the Greek prime minister said at the end of the day, that they will find a way to get through this and I think to Michelle’s point, I think they’ll have to give in probably to the last bit of stuff.

HERERA: Is that why you favor Europe at this point? You think that the Greek situation will come to a favorable resolution for Europe and for the markets?

HOLLAND: Sue, that’s exactly right. I think that the calmer heads will prevail before this is over and they will — far more important than just getting through the Greek tragedy here is the fact that European market is so much more attractively priced than a lot of the other world markets including the U.S. four or five multiples below.

MATHISEN: Not that we should care, Mike, all that much because you say over the long or medium term, you think Europe will recover nicely and the market is well-positioned but should we expect tomorrow for it to be a terrifically turbulent day in the European stock markets?

HOLLAND: Well, you would expect so given the U.S. reaction because that’s after the European close. But I would be more interested, Ty, to see how Europe ends today tomorrow. The markets over there are skittish, the world markets are skittish, the China markets are skittish. All markets since 2008 have been skittish, that’s one of the reasons evaluations have been so cheap, and it’s made for the easiest bull market of my lifetime, the last six years, as we’ve talked about.

Having said that, when the market is this nervous, I would expect a selloff in the morning but see the recovery in the afternoon, if there’s not any, then there’s more to come and that’s the other fact of it. I don’t believe that this is something, the market has had this kind of stuff in its face since the beginning of the year and it’s up 8.5 percent over there.

HERERA: Michelle, final question to you. There’s a lot of talk over here that we might see a run on the banks in Greece because depositors are nervous and perhaps understandably so. What’s your take on that? Could that happen?

CARUSO-CABRERA: I spoke with the CEO of one of the four major Greek banks tonight and he didn’t think that would happen at this point. He thinks that the public is going to remain calm. What we have to wait and see is what happens tomorrow when the Greek finance minister meets with the German finance minister who’s likely to tell the Greeks once again, a very stern you’ve got to stick with the program. We’ve got to see if there’s bank runs the next couple of weeks and two weeks from now is when the governing council, the ECB, meets again. And they could make an even tougher decision there. That’s probably the next key point.

MATHISEN: All right. Michelle, thank you very much. Michelle Caruso-Cabrera and Mike Holland, thanks to both of you.

HERERA: And dragging the Dow down today, also, was Merck (NYSE:MRK). Shares of the drug maker fell more than 3 percent, making it the worst performer in that index after it released dismal fourth quarter results. Earnings and revenue met Wall Street’s estimates but its forecast fell short, partly because like other multinationals, a stronger dollar weighed on its results.

But as Meg Tirrell tells us, that’s only part of the story.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was hepatitis C grabbing the headlines today, not just for Merck (NYSE:MRK), but across the drug industry. A growing war over the cost of medicine sent drug maker stocks plunging after Gilead Sciences (NASDAQ:GILD), the leader in hepatitis C said therapies will be discounted much more than investors expected. This after pricing pressure had been mounting for more than a year.

Gilead’s pill Sovaldi was approved in December 2013. It’s price tag: $84,000 for 12 weeks of treatment or a thousand dollars a day.

PHILIP NADEAU: People worried that the environment could be deteriorating and the market is interpreting Gilead to suggest that maybe there’s some price compression coming our way.

TIRRELL: Merck’s hepatitis C regimen could hit the market in 2016 but it follows already successful regimen from Gilead and Abbvie.

DAMIEN CONOVER: Hepatitis C environment is getting more competitive and we saw in today’s announcement today that Merck (NYSE:MRK) lost its breakthrough designation by the FDA, which is going to hurt Merck (NYSE:MRK) in its ability to bring their products to the market quickly.

TIRRELL: Gilead said it expects discounts of about 46 percent to the list prices of its hepatitis C drugs this year. Compared with 22 percent in 2014.

That comes partially from increased access for patients covered by Medicaid and the V.A., receiving rebates of more than 50 percent. With the new arrangements, Gilead said it has the capacity to treat as many as 250,000 patients in the U.S. this year.

(on camera): The new hepatitis C drugs are a major advance, as they cure the disease in about 12 weeks, generally without nasty side effects. But whether there’s room for more drugs to compete and how much they’ll have to compete on price remains the question for Merck (NYSE:MRK).

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Now to the auto industry, where Toyota (NYSE:TM) today raise its full year profit forecast again. The world’s best selling auto maker attributes the upbeat outlook to the weaker yen which increased the value of sales overseas. Get the yen back and offset softening over in Japan. This is the second upward revision in two quarters from Toyota (NYSE:TM). It’s also predicting strong sales in the U.S., the automaker’s biggest market.

HERERA: And General Motors’ quarterly profit topped expectations. That auto maker posted better than expected earnings driven by strong demand for pickup trucks and SUVs, despite all the recall costs.

(BEGIN VIDEO CLIP)

CHUCK STEVENS, GENERAL MOTHERS: That caps a very strong 2014 from a car underlying performance perspective, really led by our two most important markets, North America and China.

(END VIDEO CLIP)

HERERA: GM also said it plans to increase its dividend by 20 percent in the second quarter, and would give its union workers a profit-sharing payout.

MATHISEN: It’s also a bright spot over at Ford, especially with respect to sales of its popular F-150 pickup truck.

Phil LeBeau explains.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Ford is hiring more workers as it continues to ramp up production for its new aluminum F series pickup truck, an indication that demand for this strong is as strong as Ford was hoping it would be when they first started dealing these trucks to dealer late last year.

The new jobs about 1,550 spread at a number of Ford plants around the country, but 900 of them will be at the Kansas City truck plant which is currently retooled and will start building those new F-series later this spring. Once that plan is online, along with the Dearborn truck plant, Ford’s annual F-series production will top 700,000 vehicles. And the reason Ford is adding more workers and increasing work on the F-series is because demand has been much stronger than many were expecting. In fact, Ford says the new F-series is selling in just 12 days once it’s delivered to a dealer showroom.

The industry averages usually 50 to 60 days for a new vehicle, but when we talked to one dealer here in Chicago, he says he’s had more interest than he expected for this new truck.

MIKE FULLMER, FORD DEALER: I think every dealer has anticipated this new aluminum bodied truck, certainly the customers have. They’re coming in, they’re asking for it. We got our first one. I think every dealer in the country got one. We sold it and now we got our second one, called this morning and cleaning it up putting it on the showroom floor.

LEBEAU: The new aluminum F-series has received a lot of attention, not only because it’s made with aluminum body panels, but also because it is far more fuel efficient than the previous versions built with steel panels.

(on camera): And oh, by the way, the old version of the F-series is done quite well. This truck has been the best selling vehicle in the United States for more than 30 years.

Philip LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Still ahead, Microsoft (NASDAQ:MSFT) CEO has been in the corner office for one year now. But what does he still have to do to win over investors and Wall Street?

(MUSIC)

HERERA: A new report today on the labor market. Payroll processer ADP says businesses added 213,000 jobs in January. That was slightly less than the 223,000 new private sector jobs that economists had been looking for. But it also was the fifth consecutive month of gains over the 200,000 mark. The government employment report for January is due out on Friday.

MATHISEN: More details today on the Federal Communications Commission’s plan for the Internet in an op-ed published by Wired.com. The FCC chairman Tom Wheeler said his agency will outline, quote, “the strongest open Internet protections ever proposed,” end quote. The proposal would prohibit Internet service providers from blocking or slowing down Web sites or charging companies for faster content delivery.

The plan will not include things like rate regulations or tariffs. And that sent shares of cable companies like Charter, Cablevision, Time Warner (NYSE:TWX) and Comcast (NASDAQ:CMCSA) (NYSE:CCS), the parent company of CNBC which produces this program, sent those shares higher.

HERERA: Ralph Lauren cut its outlook again, sending shares lower, and that’s where we begin tonight’s “Market Focus”.

The retailer slashed its full-year revenue growth forecast, blaming a stronger dollar and weak consumer spending. Net income fell during the quarter, as the company spent more on opening stores and marketing. The fashion house is raising its quarterly dividend to 50 cents a share. Still, shares tumbled 18 percent to $139.71.

Shares of Kohl’s went the other way after it reported and gave a better-than-expected financial outlook. The department store raised its earnings guidance for the year, citing strong growth in the holiday season. Shares were more than 6 percent higher to $66.87.

And Costco’s January same-store sales were flat, missing analysts’ expectations. A slowing global economy was partly to blame for the warehouse retailer’s results. Still, shares rose more than 1 percent to finish at $155.92.

And despite Sony’s big hack attack, its loss won’t be as bad as expected. That company trimmed its expected yearly loss, after cutting corporate costs and seeing better than expected sales of its PlayStation game consoles. Sony (NYSE:SNE) will spend $15 million to investigate and recover from the breach. Despite that, shares surged 11 percent to $25.94.

MATHISEN: A strong outlook saved Humana (NYSE:HUM) from investor backlash today. The health insurer’s earnings and revenue missed the street’s estimates. The company did see revenue and membership grow, but said new hepatitis C treatments and flu season expenses increased, but it says those problems are behind it now and it is predicting a better 2015. Shares were up more than 1 percent on the day to close at $150.54.

A big beat from Whirlpool (NYSE:WHR) today. Recent acquisitions in Europe and Asia helped drive a sales increase. The appliance maker said the stronger dollar could hurt its revenue, but it has been raising prices in foreign markets to offset that. Shares popped almost 7 percent to $214.88.

Yum out with earnings after the bell. The Pizza Hut and KFC owner says sales fell less than expected in China, the company’s biggest market. Revenue topped estimates, but earnings were shy. Shares initially popped after the bell. Before the close, shares were up slightly to $73.65.

HERERA: It has been one year since Microsoft (NASDAQ:MSFT) officially appointed Satya Nadella as that company’s CEO. Since then, the stock gained nearly 15 percent. Just about as much as the broader market. And his tenure so far filled with hits and some misses.

Josh Lipton reports.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): How do we judge Satya Nadella’s first year on the job as Microsoft’s CEO?

SATYA NADELLA, MICROSOFT CEO: Thank you so much.

LIPTON: One important way is to take a hard look at the company’s financial performance under his watch. Under Nadella’s leadership, Microsoft’s revenue jumped 12 percent to $93.5 billion. That’s a mixed record when it comes to other high profile tech executives. It’s not nearly as strong as Apple (NASDAQ:AAPL) CEO Tim Cook, where revenue jumped nearly 50 percent in his first year on the job, but it’s better than IBM’s Ginny Rometty, with top line slumped 2 percent.

There’s also the broader question of whether Nadella is pursuing a smart business strategy for Microsoft (NASDAQ:MSFT). Analysts say he is.

DANIEL IVES: Finally, you had a CEO that was willing to skate to where the puck was going in terms of cloud, mobile, and made the tough cuts (ph), and much more openness to take Microsoft (NASDAQ:MSFT) into this next paradigm shift that we’re seeing on the cloud.

LIPTON: In its last earnings report, Microsoft (NASDAQ:MSFT) disclosed that its commercial cloud business boasted triple digit revenue growth for the sixth straight quarter.

Some analysts also cheered Nadella for another reason. They say he’s a better fit at this time for Microsoft (NASDAQ:MSFT) than his predecessor, Steve Ballmer.

PATRICK MOORHEAD: Nadella is a developer, where Ballmer was really a sales guy. And while there’s great things to sales guys, I think when people are looking for growth, I think they want to hear from the developer in the company, as opposed to the sales guy.

LIPTON: However, some analysts argue that the first year honeymoon ended for Nadella when Microsoft (NASDAQ:MSFT) last reported earnings results in late January. The stock dropped hard following that report. Part of the worry? Underlying trends for its Windows franchise. For Nadella to keep shareholders on its side, Windows 10, the new version of its operating system due out later this year needs to be a big hit.

Windows still does account for about 25 percent of Microsoft’s revenue, companies consumers, and developers need to embrace Windows 10 if Nadella hopes to win over Wall Street in 2015 and beyond.

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

(END VIDEOTAPE)

MATHISEN: Coming up, the lengths some developers are willing to go to, to get their projects financed.

(MUSIC)

MATHISEN: Those in commercial real estate are getting creative when courting potential investors. Two reports tonight on the lengths some developers go to finance their real estate projects.

We begin with Diana Olick in Miami.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Soaring past the tallest towers on the Miami skyline, sky rise, which exists so far in virtual reality, is the talk of the town, and not just this town. Investors as far away as Dubai are eager to get in on the $400 million project, hoping to buy U.S. citizenship through a federal jobs program known as EB5.

JEFF BERKOWITZ: It becomes a very shortcut approach for potential immigration investor to get the green card. All they have to do is get their source of funds vetted by Homeland Security.

OLICK: EB5 requires each individual to invest at least $500,000 in a project that creates at least 10 full-time jobs. Sky rise has already been given EB5 status.

SHAI ZAMANIAN: This investment is not going to give a huge return for the investor in terms of any sort of huge monetary gains or margins or anything like that. The greatest return for these investors is their ability to get a green card.

OLICK: Shai Zamanian and partner Preeya Malik are venture capitalists specializing in EB5 investments in Dubai.

PREEYA MALIK: I think the biggest risk is that this tower, the structure they’re making is dependent on tourism.

OLICK: Berkowitz says he expects the tower, with its plunging amusement rides, nightclub, restaurant and multiple observation deck to drop 3.2 million paying visitors a year.

CHARLES CORDA, ARCHITECT: I think the numbers he’s using, the projections, are overly optimistic to say the least.

OLICK: Architect and activist Charles Corda has sued the city over the project, which is being built on public land and which Miami-Dade County has given $9 million.

CORDA: The closest you can get to it let’s say might be the Empire State building or the Eiffel Tower. The numbers he’s using for checks, more visitors per capita, let’s say, than either of those two very iconic world famous structures.

OLICK: Berkowitz, though, points to new development and entertainment all around the tower site and constant cruise ship traffic coming in right next door.

BERKOWITZ: The economics appear to be extremely promising.

OLICK: Early groundwork at the site is just beginning but investor demand in Dubai, according to Zamanian is very strong. That’s because regardless of tourist demand, the payoff, U.S. citizenship, is already built in.

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

(END VIDEOTAPE)

HERERA: Another way to raise funds for a real estate project is through equity crowd funding, which allows people or the crowd to fund a project in exchange for an equity stake.

Kate Rogers (NYSE:ROG) reports now on the growing interest in one project, just a stone’s throw away from Wall Street.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A couple of years from now, 17 John Street won’t look much different than a gut renovation and expansion. While real estate development projects are nothing new in New York City, it’s the investors backing this particular deal that are unique. The crowd is behind this project. The developers raised $35 million in equities via prodigy network, a real estate crowdfunding platform.

Prodigy is financing another $78 million for the John Street Project through a more traditional bank loan. This project is just one of three that Prodigy has under way using a total of $80 million in crowd funds. Unlike the more popular type of crowdfunding, often associated with charity projects and reward based returns, equities based crowd funding makes investors part owners.

BRIAN NEWMAN: Our motto is really to provide access to specific real estate assets in big cities like New York. With institutional quality sponsorship so people can invest in deals that the banks are investing in.

For this project in particular, I prefer a return of 6 percent and then it’s 80/20 up to a 15 percent IRR, and we anticipating investors will make a 15 percent to 19 percent return.

ROGERS: Luan Cox Crowdnetic, which tracks equity based crowd funding across the globe, says equity investments have major growth potential. Right now, only accredited investors can participate in equity based crowdfunding. That is people with income of more than $200,000 or a net worth of $1 million excluding your primary residence. But those roles could eventually change.

LUAN COX, LUAN COX CROWDNETIC FOUNDER AND CEO: The small companies are allowed now to go out to the crowd and get their product validated versus waiting for angel investor or a BC. If 1 percent of American invest what they have at their disposal in terms of investible assets, it could be a $300 billion market.

ROGERS (on camera): Crowdnetic finds both real estate and technology projects are the ones drawing the most interest and cash from investors.

In New York City, for NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

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

MATHISEN: I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody.

We hope to see you 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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