Transcript: Monday, February 9, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stocks slip on worries about Greece. Equities drop as the new prime minister calls to roll back austerity, setting his government on a collision course with creditors.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Rough seas. Work resumes at the West Coast ports after the weekend shutdown. But is the damage already done, especially for an important sector of the U.S. economy?

HERERA: Head fakes. Don’t look now, but oil prices are up 9 percent in three sessions. Has crude found a floor or will the commodity make another dramatic move lower?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, February 9th.

MATHISEN: Good evening, everyone. And welcome.

Defiant, that is how many are describing the new Greek prime minister who is taking now a hard line with eurozone leaders. He wants to roll back austerity, do away with budget cuts, and renegotiate the terms of that country’s massive pile of debt. The turmoil now casting a shadow over global markets, increasing concerns that Greece could default or maybe even exit the eurozone. Those fears today were compounded out of weak data out of China and a surprise drop in its exports in January.

By the close, the Dow Jones Industrial Average was off 95 points to finish at 17,729. The NASDAQ lower by 18, and the S&P 500 lost eight points. All this comes just days ahead of a meeting of European finance ministers.

Julia Chatterly in Athens has more now on the debt drama, and what might happen next.

(BEGIN VIDEOTAPE)

JULIA CHATTERLY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Political posturing is what European leaders seemed to do best and, oh boy, did Greece kick off the week with some heavy stuff? We had Prime Minister Tsipras talking about pulling back some of the austerity that country has been forced to swallow over the last years, raising the minimum wage. He’s also promised to increase pensions at some point in the future, too.

We also have the finance minister saying, look, the eurozone is a whole pack of cards. If you pull the Greek card out, the whole thing is going to be tumbling down.

So, this is a hard line stance it seemed the government was taking. But we are starting to get some details of just what that program for the future would be. The question is, are European leaders going to accept it?

They want to do something about the humanitarian crisis. They want to do something as far as debt is concerned, to reduce the overall level of debt. They also want to lower prime (INAUDIBLE) for this country.

There’s a whole host of things they want to do. The question is, are European leaders going to say, absolutely not, and there’s rules here that need to be followed?

I think my guess here is actually that we don’t reach an agreement at the Euro group when all the leaders get together on Wednesday and actually retake this right down to the line in the second meeting is held. And that’s going to be a week on Monday.

The question is, will the European Central Bank continue to fund Greek banks in the interim and keep this country afloat? It’s going to be a tough few days for Greece whether or not this happens, and some tough negotiations to come.

For NIGHTLY BUSINESS REPORT, I’m Julia Chatterly in Athens.

(END VIDEOTAPE)

HERERA: Meantime, British Prime Minister David Cameron reportedly met today with senior economic officials, including the Bank of England, to discuss a possible Greek exit from the eurozone and the potential impact it might have on the U.K. economy.

Britain’s finance minister was reported as saying that Britain was stepping up contingency planning and that the standoff between Greece and the Eurozone raised risks to the British economy.

MATHISEN: Well, Greece was one of the topics today at another high-powered meeting, this one in Washington. President Obama met with the German Chancellor Angela Merkel and the leaders of two of the world’s most powerful and tightly linked economies, tried to find common ground on some divisive issues.

Michelle Caruso-Cabrera reports now from the White House.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the very top of the agenda for today’s meeting, Ukraine and what to do about the war in the eastern part of the country. Angela Merkel’s visit to the White House comes as President Obama is under increasing pressure to provide lethal aid to Ukraine and their battle against what NATO says are Russian-backed separatists. Angela Merkel is opposed to the U.S. doing this.

And today, President Obama didn’t make a decision, or at least didn’t announce one. Regardless if they have differences, today they tried to give a show of unity.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We continue to encourage a diplomatic resolution to this issue, and as diplomatic efforts continue this week, we are in absolute agreement that the 21st century cannot stand idle, have us stand idle, and simply allow the borders of Europe be redrawn at the barrel of a gun.

CARUSO-CABRERA: Also on the agenda, but lower on the list, Greece, and it’s battle with the rest of Europe, to try to soften the terms of its bailout.

At the very top of Angela Merkel’s remarks during her news conference, she highlighted three other countries that she said were actually growing.

ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): We have made significant progress in a number of areas. We have countries who are now back on the growth path, Ireland comes to mind here in particular, but also Spain and Portugal. After a strong phase of structural forms, they have now made significant progress.

CARUSO-CABRERA: All three of the countries she mentioned, Ireland, Spain and Portugal have all followed the bailout and the rules of the bailout. She may perhaps been implicitly suggesting that Greece needs to do the same.

At the White House, for NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

(END VIDEOTAPE)

HERERA: Bill Adams joins us now to talk more about Greece and how he sees things unfolding in the Eurozone. He is senior international economist with PNC Financial Services Group.

Welcome, Bill. Nice to have you with us.

BILL ADAMS, PNC SENIOR INTERNATIONAL ECONOMIST: Thanks for having me.

HERERA: What do you think actually will happen with Greece? I mean, certainly, the deadlines are looming, and the negotiations are getting tougher.

ADAMS: Well, I think the most likely outcome is that Greece does walk away with a slightly better deal than they had coming into these negotiations. So, probably some of Greece’s debts will be turned into longer term loans, probably at lower interest rates than they are now. That will decrease the amount of money that the Greek government has to spend on interest expense and will have more left over to fund social spending of the kind that this new government has promised.

MATHISEN: So, it’s kind of the pretend and stepped approach.

ADAMS: Well, I think it looks like a game of chicken, and that’s scary to watch, but no one goes into a game of chicken planning to hit the other car.

HERERA: So, it sounds like you do not think that they will exit — eventually exit the Eurozone.

ADAMS: It’s not — I think a Eurozone exit is probably not in the cards. I think a technical default by Greece is not possible. But I think its effects will probably be contained mostly to within Greece. Greece is a very smart part of the Eurozone. So, I think the larger economic impact of that very unlike event would still be fairly limited.

MATHISEN: What’s wrong with making concessions to the Greek government? Or is there anything wrong with it?

ADAMS: Well, I think the reason why Germany and the other creditor states, the states that are lending to Greece, are reluctant to make concessions to Greece, because once they open the door to concessions to Greece, then Portugal and Spain and Italy will say — well, why weren’t they complying with these programs to begin with? And countries like France, that Germany would like to make reforms, will feel reluctant to do so.

HERERA: How do you feel about the ripple effects if indeed a technical default takes place with Greece? The ripple effects to the U.S. economy and the U.S. markets in particular, are you worried about that?

ADAMS: I think that’s a tail risk. It’s something that we’re certainly watching, but I’d emphasize, it’s not something that we think is likely. And I think if there were to be a Greek default, it’s — I think its effect on the U.S. expansion this year would be pretty limited. The U.S. economy actually looks like we might have our best euro growth in 2015 since 2004.

MATHISEN: What if Greece left the Eurozone?

ADAMS: I think if Greece left the Eurozone, it would be very painful for the Greek economy in the short run. And I think it would cause a lot of soul-searching in Europe why their system hasn’t worked the way it was promised. I think its effects on — it might cause more prolonged period of high unemployment and weak economic growth in Europe, maybe a double-dip recession. But I don’t think it would be the trigger of a global recession.

HERERA: Very quickly, what do you want to see from the G-20 meeting that’s looming ahead? I mean, you have lower energy prices, even though we’ve had a bit of a bounce recently. But that can be a big problem for Russia, Venezuela and a number of other countries.

ADAMS: Well, I think that will be a concern for the oil-producing countries. I think for oil-consuming countries, which are the majority of the global economy, it’s good news. I think the G-20, even if we don’t walk away with a ton of terribly concrete progress, it’s still one that will mark the opening of a year of better growth in 2015.

HERERA: All right. Bill, we’ll leave it there. Thank you very much for joining us.

ADAMS: Thanks for having me.

HERERA: Bill Adams with PNC Financial Services Group.

Ty?

MATHISEN: The U.S. treasury secretary optimistic, Sue, on the U.S. economy. Jack Lew says we’re seeing a comeback in manufacturing, housing, construction, and he’s feeling confident.

(BEGIN VIDEO CLIP)

JACK LEW, U.S. SECRETARY OF THE TREASURY: It is time to say that we’ve really turned the corner, and we’re now in an economy that’s growing. It has sustainable growth. And it’s growth that’s showing up in not just businesses, but in jobs and we’re now seeing wages go up a bit. I think there’s a trend that needs to continue.

We need to make sure that we do what we can to continue the growth. And I think that, you know, we’re getting some benefit now from lower oil prices in terms of the economy getting a bit of a boost on top of that. So, I’m feeling pretty confident that we’re looking at a good period ahead.

(END VIDEO CLIP)

MATHISEN: As for the strong dollar which has weighed on many multi-national companies, Lew says it’s a reflection of the U.S. economy strength when compared with the rest of the world.

HERERA: And now to oil prices which have risen for three straight days, gaining 9 percent during that time frame. Part of the reason, a drop in rig count that suggest that the supply glut may ease. Another reason: OPEC said demand for its crude will rise this year, as the U.S. produces less and consumes more.

Texas Intermediate Crude rose more than $1, settling at $52.86. And Brent also rose.

Jackie DeAngelis takes a look at the recent action in the oil patch and whether prices are finally finding a floor.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil prices are on the rise and so are prices at the pump. The Lundberg Survey saying the national average for a gallon of regular gas now $2.20, 13 cents hike in the last two weeks alone.

What’s behind the rise in oil prices and what’s moving gasoline and are they the same? Well, oil prices up about 10 percent in the last month, seem to be stabilizing over $50. Adding support, OPEC raising its 2015 outlook for demand.

The rise in oil prices are certainly a contributing factor to the rising gas prices, but other factors, like seasonal maintenance, and a switchover to a more expensive blend of gasoline for the summer driving season is what’s making it more expensive for consumers to hit the road.

ALAN HARRY, HARRY RE TRUST, CEO: We’re seeing a bounce from crude oil for two things. One is rig counts. They shut down some. They had to.

And then from there, we have OPEC coming out with greater demand for 2015. These two put support in the marketplace. Crude oil rallying, it’s going to have an impact on unleaded gas and brings the prices up. But we’re going also to be moving into the driving season, switching over the refineries. And that’s all putting upward pressure on unleaded gas, too. So, unfortunately, I think we’re going to see some higher prices at the pumps.

DEANGELIS: Analysts are now forecasting another 10 cents hike in the coming weeks, saying that we could see prices back to $2.75 by the summer.

HARRY: I think we could see another 20 to maybe 25-cent increase in unleaded glass, and that would correlate to roughly a $5 to $7.50 move in crude oil.

DEANGELIS: Still, there are those saying the bounce in oil could be a head fake and we could make another dramatic move lower. Citi saying today oil could find a bottom at $20. If that happens, fuel prices might find some footing around $2. But those in that camp, few and far between.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: Well, despite that recent rise in energy prices, the swift and steep fall over the past few months is still being felt. The latest, Diamond Offshore, the drilling company says it expects to idle a number of ultra-deep water rigs because of weak petroleum demand. Its revenue failed to meet expectations and it scrapped its special dividend in an effort to preserve cash.

HERERA: Still ahead tonight, why the West Coast port slowdown is creating a $7 billion headache for one important sector of the economy.

(MUSIC)

MATHISEN: Operations resume today after a weekend shutdown at the West Coast port. The temporary suspension was part of an ongoing month-long contract dispute between shippers and dock workers.

And as Jane Wells reports, tensions are running high.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Work resumed at West Coast ports on Monday, but the damage may have already been done. Truckers have invoked what’s called force majeure, saying congestion is so bad, they cannot be held responsible or fined for the late return of equipment.

And citrus farmers say already they’ve lost nearly a half billion dollars in sales to Asia.

The Pacific Maritime Association, which represents management, decided to shut down all work offloading ships up and down the West Coast this weekend, claiming it need to find more space in the yard to put cargo containers.

STEVE GETZUG, PACIFIC MARITIME ASSN. SPOKESMAN: We need the yard crane operators. You can’t send a football team out without a quarterback. And that’s what these workers are. They’re the quarterbacks of a crew.

WELLS: The PMA showed NIGHTLY BUSINESS REPORT number suggesting that while it asks for a full complement of yard crane operators in L.A. and Long Beach daily, the union will only dispatch a handful.

GETZUG: Typically, what happens is we call the dispatch and say, look, we’re going to need 15 yard crane operators at Terminal F, or Terminal Y. What we’re hearing back from them is, no, no, no, not so much. You’re going to get one.

WELLS: The Longshoreman Union disputes that and released photos claiming there was still room for more cargo to be unloaded this weekend, negating a need for a shutdown. And in a new twist, the union is hinting the problem may be due to management being mostly based outside the U.S.

CRAIG MERRILEES, INTL. LONGSHORE WAREHOUSE UNION SPOKESMAN: When they decide to close the ports, that’s a pretty serious issue. And I think people should take it seriously for what it is. It’s a form of economic terrorism.

WELLS: Contract negotiations resumed Monday, and while it would appear outwardly both sides are far apart, the union says that’s not the case.

MERRILEES: They’re very close. They’re this far away.

WELLS: And if that’s true, perhaps a contract could be negotiated before there’s a full-time shutdown, though some are already paying a very high price.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

HERERA: And a continued slowdown at the ports or as Jane just mentioned, a shutdown, could turn into a big headache for a key pillar of the economy.

Courtney Reagan has more.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The West Coast port congestion could be a $7 billion problem for retail. This weekend’s temporary port shutdown has the retail industry riled up about the prolonged and likely continuing economic impact. Consultancy Firm Kurt Salmon estimates congestion at West Coast ports could cost retailers as much as $7 billion this year, ballooning to $37 billion next year, thanks to the increase costs to reroute the transportation of goods, and missed sales due to products being out of stock.

FRANK LAYO, KURT SALMON SUPPLY CHAIN STRATEGIST: We’re expecting it to hit retailers in calendar year 2016 in a major way. And I would expect that that would result in higher costs for consumers by the end of next year.

REAGAN (on camera): A shutdown would be much worse, and wider reaching. More than half of the nation’s imports enter through the West Coast ports. The National Retail Federation and National Association of Manufacturers estimate a ten-day shutdown could cost the economy more than $2 billion per day.

(voice-over): On its earnings call, Michael Kors CEO John Idol said the additional transport costs haven’t had a material impact on the business yet, but warned revenues could take a hit and costs could rise going forward.

Ralph Lauren has shifted goods to the East Coast ports which has extended transit time by three to ten days.

LAYO: The best retailers are pulling things through air freight, or shipping through alternate ports. They’re shifting that volume through and taking the cost hit in order to keep the potential for lost sales down.

REAGAN: And while no retailer is likely to go unscathed by the disruptions, Layo says the retailers that will see minimal impact are those that have planned ahead, like fast fashion retailers, Forever 21, H&M, and Zara, which are likely to have already built in the higher cost of air freight to their margin structure.

FBR retail analyst Susan Anderson says L Brands, Children’s Place and Hanes brand are best positioned to weather the congestion because they, too, rely on air freight and have other logistical capability.

Even if there’s a resolution relatively soon, Anderson thinks it could still take the bulk of this year to sort through the backlog of containers clogging West Coast ports.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: McDonald’s (NYSE:MCD) sales slump continues and that is where we begin tonight’s “Market Focus”.

The burger chain reported a nearly 2 percent drop in comparable restaurant sales. It blamed the after-effects of food safety scandals in Japan and China for that weakness, and a drop in global sales in Asia outweighed a slight improvement here in the U.S. Shares of Mickey D’s off more than 1 percent to $92.72.

Also a tough day for shares of American Airlines. That company reported lower traffic in January and lowered its forecast for first-quarter profit margins because of the recent rise in oil prices. Shares slumped more than 3 percent to $46.53.

Meantime, Hasbro (NYSE:HAS) posted better-than-expected profits, thanks to demand for toys geared towards boys like Transformers and Marvel action figures. The toy maker also hiked its quarterly dividend by 7 percent to 46 cents a share. The yield on the payout is around 3 percent. Shares popped 7 percent. They now sit at an all-time high of $59.65.

HERERA: Motorola Solutions (NYSE:MSI) saw its shares rise today on reports it’s exploring a sale. The walkie-talkie and radio systems maker’s potential buyers could include private equity firms and defense contractors. Shares rose almost 5 percent to $67.78.

Qualcomm (NASDAQ:QCOM) said it has agreed to pay China $975 million, ending a months-long investigation into the company’s anti-competitive practices. Following the news, the chipmaker raised the lower end of its full-year earnings and revenue outlook. Investors applauded the resolution, sending shares initially higher after the bell. Before the close, shares were up 1 percent to $67.11.

And Blackrock reported a stake of more than 5 percent in Ford. This comes after the automaker reported a sharp drop in fourth-quarter profits. Ford also told investors recently it will have a major rebound this year from its struggles in 2014. Blackrock fell a fraction to $360.87. And shares of Ford were slightly higher, closing at $15.92.

MATHISEN: And a warning today from Senator Edward Markey of Massachusetts. Cars are too easy to hack. According to report released by the Massachusetts lawmakers, vehicles that are more connected are also more vulnerable to cyber attacks through wireless networks, smartphones and infotainment systems. The senator is calling on the automotive industry to work with cyber security experts to ensure driver safety and privacy.

HERERA: And as automakers look at their security systems, one company in particular is also eyeing the strong dollar, but not for the reasons you might think. The surging dollar and weaker euro have cut into the profits of many U.S. companies doing business overseas. But for Jeep, the shift in currencies will give the new models an unexpected bump in profits.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The new renegade small SUV looks as all-American as any other Jeep model. But when it rolls into Jeep showrooms next month, few buyers will realize the renegade is actually built in Italy.

ERIC LYMAN, TRUECAR: Most consumers aren’t really aware of where the vehicle is actually produced. They’re more concerned about the styling of the vehicle, the name of the badge on the hood, and Jeep obviously carries a lot of cache.

LEBEAU: Fiat Chrysler CEO Sergio Marchionne is building the Renegade in Italy because that’s where the company has underused assembly lines. He made the decision in 2012.

And it will lead to heftier profit margins for the Renegade. Here’s why: Fiat Chrysler will pay workers and local suppliers building the SUV in euros, which are trading near record lows. But the renegade will be sold primarily here in the U.S. in dollars, which are surging right now. And with a price that starts at just under $18,000, the renegade is expected to have strong sales.

LYMAN: This smaller vehicle with a lower price point, it’s going to open up the Jeep portfolio to a whole new batch of buyers that perhaps live in urban and environments, or are younger, don’t have as much disposable income.

LEBEAU (on camera): Given the three to four years it takes to develop and bring a new model to market, few believe Sergio Marchionne and his team could have planned for the shift in dollars and euros. But that change will be paying off as Jeeps roll out of Italy.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Coming up, how one national nonprofit suddenly flush with cash is spending its deluge of donations.

(MUSIC)

MATHISEN: Microsoft (NASDAQ:MSFT) is increasing the size of its $7 billion bond offering to more than $10 billion, because of strong demand. But Moody’s (NYSE:MCO) says the company’s coveted AAA rating could come under pressure if it uses the bulk of the new bond issue to finance a share buyback.

Separately, Apple (NASDAQ:AAPL) is reportedly ready to issue bonds denominated in Swiss francs. Strong demand for debt in Swiss francs has pushed government bond yields there in negative territory, so the funding cost for Apple (NASDAQ:AAPL) would be very low. The report says Apple (NASDAQ:AAPL) will likely consider a 10-year or 15-year offering.

MATHISEN: “House of Cards” is coming to Cuba. Netflix (NASDAQ:NFLX) will launch its streaming service in that country for $7.99 a month to residents with access to high-speed Internet and international payment methods like credit cards. Netflix (NASDAQ:NFLX) has been focused on expanding its international operations and it’s betting that infrastructure upgrades in Cuba will eventually bring the Internet to more people there.

HERERA: Six months ago, about 3 million people dumped buckets of ice water over their heads. And for one organization, it changed everything. For every bucket dumped, people donated millions and millions of dollars to the ALS association. Now, six months later, how did that nonprofit handle that sudden windfall.

Meg Tirrell has our story.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was the viral sensation that soaked the country this summer. The ice bucket challenge was accepted by everyone from CEOs to celebrities, to presidents. It raised $115 million for ALS research, as well as the profile of a disease with no good treatments.

DR. JOHN LANDERS, UMASS NEUROLOGY PROFESSOR: The amount of the funds that the ALS Association has available to them has increased dramatically, which hopefully will allow them to fund more grants, able to fund larger amounts of money for larger projects, and maybe even be more creative in the type of projects that they’re able to fund.

TIRRELL: Researcher John Landers is part of a worldwide project to sequence the genomes of thousands of people with ALS, also known as Lou Gehrig’s disease. The hope is that will lead to understanding of what causes ALS, and improve drug development.

Before the ice bucket challenge, there wasn’t funding for his work. But as a result, the ALS Association was able to donate $1 million to the project. The $115 million brought in compares with an annual budget of about $60 million for the ALS Association and its regional chapters.

The association says it plans to invest between $21 million and $25 million a year in research. And already announced grants of $22 million in October, including for Dr. Landers’ work, called Project MinE.

The association says the challenge energized the research community. It’s received three times the number of applications for grants for young scientists, just starting their careers.

(on camera): The funds have also gone to a project to speed drug development called ALS Accelerated Therapeutics, as well to the New York Genome Center, and a project called Neuro Collaborative. They’ll also support patient care services and efforts to work with the FDA.

And while we may not see a repeat every summer, ALS researchers hope the millions of new donors will remember the cause.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Bill Gates not only took the ice bucket challenge, as you saw there, but was the most generous donor last year of all. According to the Chronicle of Philanthropy, Gates and his wife Melinda made a gift of $1.5 billion worth of Microsoft (NASDAQ:MSFT) stock. And he did it to the Bill and Melinda Gates Foundation.

HERERA: Good note to end the show on, right?

All right. That does it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for watching.

MATHISEN: And I’m Tyler Mathisen. Thanks from as well. Have a great evening, everybody, and we’ll 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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