Transcript: Monday, February 16, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Good evening and welcome to a special edition of NIGHTLY BUSINESS REPORT. I’m Tyler Mathisen.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: And I’m Sue Herera.

Well, it is mid-February and for much of the country mired in deep freeze, thoughts are turning to spring just about a month away now and while spring is usually a time for warmer weather, it is also an important time for finances.

MATHISEN: That is very true, Sue.

Tonight, we’re going to take a look at some things that come into play in the spring and could have an impact on your money from your taxes to selling a home to pruning your portfolio.

HERERA: And that’s where we’ll begin tonight: your portfolio.

The first month and a half of 2015 has been a volatile one. We’ve seen moves like the Dow losing nearly 4 percent in January only to recapture most of it in the first week or so of February — and as Dom Chu tells us, these kind of moves can make investors nauseous.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): After what seemed like a relatively calm upward trend for stocks throughout much of last year, the roller coaster ride came roaring back in just the first month and a half of the New Year. Larger cap stocks as represented by the Dow and the S&P 500 are for the most part flat year-to-date.

But dig a little deeper and you can see where the angst is coming from. The Dow at a triple digit point move up or down for two-thirds of all trading days so far this year. And the daily trading range for the Dow has been a triple digit move between daily highs and daily lows almost every trading day this year.

Now, the caveat here is as the Dow grows in size, the relative percentage move relating to triple digit swings diminishes. Still, it’s been a rough ride for some investors who try to follow every tick. A number of factors have contributed to the volatility and could continue doing so throughout the coming months.

First, uncertainty about the economy both here in the U.S. and abroad in places like Europe. Can growth continue and job gains be sustained?

And speaking of Europe, what happens if Greece can’t manage to work out its debt situation? Will a fear of a Greek exit from the eurozone roil the markets?

And then, there’s oil. The plunge in world oil prices has taken their toll on energy companies and many of them had already announced job cuts and plans for less investments. And there is, of course, the Federal Reserve, another wild card. Will it or won’t it raise interest rates later on this year and will that add to the volatility?

(on camera): Those are just a handful of the many variables that are affecting the markets. And now, investors are facing a choice: either stay the course or become a lot more active in managing their portfolios.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: And all that volatility, it’s bad for investors, right? Well, our first two guests tonight here to bust the myth. They say volatility is a good thing for long-term investors.

Barry Glassman is president of Glassman Wealth Services, and Lazetta Rainey Braxton is founder and CEO of Financial Fountains.

Welcome to both of you.

Barry, let me begin with you. I think you maintained that a little volatility or maybe a little more volatility is a good thing because it reminds us that investments come with risks. But to me, that feels a little bit like putting your hand in a fireplace is a good thing because it reminds you that fire is hot.

BARRY GLASSMAN, GLASSMAN WEALTH SERVICES PRESIDENT: Well, I wouldn’t go to that extreme. The big question is, why do we have volatility today? Now, Dominic brought up some great points as far as the plunging oil and uncertainty as far as Greece, but we’ve had those kind of moves before.

What I’ve been telling clients is this — when my kids have been playing — when they’ve been bowling, they’ve had these bumpers controlling from the ball going into gutters, and what we as investors have had are these bumpers that are controlling the wild swings within certain markets. We’ve had OPEC keeping oil prices somewhat stable. We’ve had the Federal Reserve buying bonds more and more keeping interest rates low, and we’ve had countries keeping currencies stable like Switzerland, for example.

What we now have, Tyler, is free rein. We’ve removed the bumpers and once you remove those — well, we’re now watching the markets react to what people are willing to pay.

MATHISEN: From gutter balls.

HERERA: Yes.

GLASSMAN: Well, I’d rather gutter balls than burning your hand in a fire as an analogy. But the key is this — this is here to stay and this is why we have volatility.

HERERA: So, Lazetta, if it is here to stay, one, do you agree with that? And two, for your clients, how do you help manage that volatility or harness it for their benefit?

LAZETTA RAINEY BRAXTON, FINANCIAL FOUNTAINS FOUNDER & CEO: You know, whether it’s here to stay, I can’t exactly say, but certainly I encourage my clients to stay the course. We look at their allocations, you know, early on in the relationship and we just encourage them to keep to what works for them. And if we’re thinking about the last six weeks or so, that’s short-term thinking. We’re looking for the long haul.

MATHISEN: Which I guess you want to know, Barry, is whether an investment is too volatile for you or not. And as you say, if you take the bumpers away, you’re going to learn pretty quickly whether you’re comfortable with what you’ve got or whether you’re comfortable with the overall variability of your portfolio and that is a good thing.

GLASSMAN: It is. We saw a 9 percent decline in U.S. stocks back in October. We saw 4 percent to 5 percent decline earlier this year, and, by the way, we’ve recovered quite nicely from the two drops. That’s a great test. It’s a great example of what can happen and then some to some portfolios.

So, I encourage investors to do two things.

Number one: assess risk now. You don’t want to build a sturdy ship in the middle of a storm in the middle of the sea. You want to do it before you enter the water. Take a look at risk now. Now is the time with the market a few percentage points off the top to reassess risk.

Number two: ask your financial advisor for a risk measurement of the portfolio. A lot of advisors have these and keep these measurements internally. You have to ask for that in order to get those kind of figures.

HERERA: So, Lazetta, how would you — how would you achieve the diversification that’s necessary? What are the tools you use to either mitigate volatility or use volatility and assess the appropriate risk for your clients?

BRAXTON: You know, the strategy I take is really looking at different asset classes. You know, from equities, looking from domestic to international. So, there’s a discussion about what’s going on here at home and abroad and also looking at fixed income as well. There are conversations about commodities, oil, haven’t talked about Greece and their performance.

So, what I’d like to do with clients is making sure we understand what their time horizon, how they feel about the market swing. We can look at the analytics all we want, but a lot of sometimes it’s how a person feels with the swings. And so, sometimes you have to make their adjustments to the asset classes that maybe show more volatility during a certain period of time. So really, really encourage clients.

MATHISEN: Lazetta, do you ever hear from some clients that they actually want to trade the volatility? We hear that phrase from time to time that when there are volatile situations, that’s a point at which people with strong stomachs can actually make some money.

BRAXTON: It really depends on the business model. So for, you know, the clients I serve, Middle America, you know, there are a security out there, BIX, that some people follow, but for my clients, they’re more traditional. They’re looking at the indices and thinking out what works to meet their long-term goals.

HERERA: Barry, how do your clients in general feel about the market? We hear that the retail investors have been somewhat underinvested in this market because of either a lack of trust or worries about what’s going to happen next with earnings or what’s happening in Europe. Do your clients feel comfortable with the market or not?

GLASSMAN: So, you bring up a great point and that as Lazetta pointed out, what a traditional portfolio looks like with a whole lot of stocks, or REITs, commodities, things that have extreme volatility and then fixed income that’s paying very little and a lot of it has interest rate risk.

We’re addressing it by adding a lot of the stuff in between. The risk and return in between stocks and bonds. Things like hedged equity or long short, high yield bonds, both corporate and municipal bonds and such.

So, we’re adding things in the portfolio, not necessarily taking from stocks and running all the way to cash and bonds and vice versa, that’s a challenging exercise. We like things that might have risk and return in between, and add that as a complement to both fixed income and the equities in the portfolio.

MATHISEN: Interesting tactic there, Barry.

Thank you very much, Barry Glassman, Glassman Wealth Services, and Lazetta Rainey Braxton with Financial Fountains.

HERERA: Up next: in less than two months, the tax man cometh. And this year, he cometh with a whole new challenge for taxpayers. We’ll explain.

(MUSIC)

MATHISEN: With 59 days to go before April 15th, the IRS tells us this year’s tax-filing season is off to a strong start. That’s a sharp contrast from last year when the government shutdown led to a two-week delay in processing returns at the IRS.

Hampton Pearson looks at what’s emerging as the biggest challenge this year for both taxpayers and the IRS. It’s the Affordable Care Act.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Millions of Americans filing online in anticipation of getting refunds have helped jump start the tax filing season. More than 14 million returns already filed, 13 million electronically as of January 31st; 7.6 million taxpayers getting refunds worth about $27 billion. The average check: about $3,500.

However, the biggest headache this year for taxpayers and the IRS, compliance and enforcement of the Affordable Care Act. As many as 6 million people may pay a first time penalty for not having health insurance, $95 per person or 1 percent of household income, whichever is greater.

It’s a lot more complicated for the estimated 8 million Americans who purchased health care coverage through those government exchanges. It turns out they may owe taxes on the government subsidies that went to the health insurance companies. There’s already a stampede to professional tax preparers but the same professionals say this year at least, they don’t have all the answers.

WILLIAM COBB, H&R BLOCK CEO: We have to see how this plays out. Some people come in, we had a day early in January where we just answered questions, where people are trying to figure out what to bring in. I told the analysts and a lot of our investors, this is going to play out over a couple years.

PEARSON: Questions about the Affordable Care Act provisions are trending heavily on the IRS Web site, which is then accessed more than 65 million times so far this year. Fifty percent more hits than the same period last year. But taxpayers have a much better chance of getting answers online than on the IRS toll-free hotline.

UNIDENTIFIED MALE: How may I help you today?

PEARSON: At a recent hearing, IRS Commissioner John Koskinen told lawmakers about half of the anticipated 100 million calls for help won’t get through.

Congress has cut the IRS budget by more than a billion dollars over the last three years, while adding new enforcement mandates, including the Affordable Care Act.

JOHN KOSKINEN, IRS COMMISSIONER: It clearly is going to be a difficult filing season and the service is going to be, if not miserable, abysmal. Whatever it is, it will be the level of service none of us believe taxpayers deserve.

PEARSON (on camera): The IRS commissioner also says those budget cuts mean longer delays, processing paper returns this taxpayer season, and a setback in efforts by the IRS to curb tax fraud triggered by identity theft.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.

(END VIDEOTAPE)

HERERA: And joining us now to talk more about the 2015 tax season is David Prokupek.

Nice to have you here, David. Welcome back.

DAVID PROKUPEK, JACKSON HEWITT TAX SERVICES CEO: Yes. Glad to be here.

HERERA: How is it going? We’ve heard that it’s a strong season so far.

PROKUPEK: Yes, the IRS opened early this year, so it’s up about 20 percent year over year. I’d say the other thing that’s been good is refunds are up. So, hard working Americans are looking to get that refund, and they’re up about 10 percent or so. So, off to a really good start.

MATHISEN: What is the biggest difference this year and how big a problem is the Affordable Care Act going to be?

PROKUPEK: So, Affordable Care has been talked about a lot and one of the biggest changes to the tax law this year, but what we’re seeing is a little bit different than what’s been reported. About 25 percent of the people are actually being impacted. So, what we’re seeing right now is about 15 percent of the people that are surprised they actually owe a penalty.

MATHISEN: And how big are the penalties?

PROKUPEK: You know what? About half of the people are pretty modest, $95. But the other half are 95 to 2,500 bucks.

MATHISEN: These are people who did not sign up for a health care plan and therefore, have to pay a penalty, a tax penalty.

PROKUPEK: It’s the law of the land and folks are supposed to sign up. The other surprise is, though, is we’re finding people about the half the people who didn’t sign up, we are finding them in exemption. So, it’s paying for people to come in a tax office right now in case they didn’t sign up. There are some loopholes to get around having to sign up this year.

HERERA: Also, the 401(k) limits have changed. That’s another big change, isn’t it?

PROKUPEK: Yes, for people, it’s never too late to start saving for retirement. So, two things, both for IRAs, which you can still take advantage of. You can put in $6,500, especially if you’re 50 or older. So, there’s an extra $1,000. And for next year, for your 401k limits, you can put another $6,500 as well.

MATHISEN: Let me ask you again on the ACA compliance thing, if you don’t have — is it an honor system? In other words, do you check, I haven’t seen the 1040s. Did you check a box saying, oh, yes, I’ve got insurance or what, do you have to put down the policy number? What do you have to do?

PROKUPEK: It’s self-compliance this year. So, 100 percent of American haves to tell the government whether they have health care or not. For 75 percent of us, we’re just going to check a box and we say we have it. But the 30 million or 40 million who don’t have insurance —

MATHISEN: Are they going to check back? I mean, in other words, if I — when they match income, they get a statement from your employer or from your bank, but are they going to —

PROKUPEK: They are checking. And so, one of the big concerns is that people having to pay back credits and all of that, but it looks like that’s not the big problem right now. The bigger problem is the people who actually just didn’t sign up for the health care at all.

So, it is an honor system this year but they’re going to be checking closer.

HERERA: It might not be next year, right?

PROKUPEK: It might not be next year. And so, we’re helping people sort it out, get sign up for health care.

HERERA: Talk to me about tax brackets and how they’re changing for this tax year, because that will affect an enormous number of people.

PROKUPEK: Yes, the tax brackets this year, there wasn’t that many changes around tax brackets. So, that part of the code stayed steady. What has changed, though, as you mention, the IRS and the 401(k)s, and some other deductions, those have been moving around.

But tax brackets this year are pretty stable.

MATHISEN: What about the earned income tax credit, or your ability to claim tax credits for elder care expenses and things like that? If I have — if I paid elder care expenses, does that person have to be a dependent of mine for me to claim it?

PROKUPEK: They have to be, but it’s one of the biggest overlooked deductions in credits that are out there. A lot of us care for aging parents. There’s $2,100 credit for that if we pay for that for day care or elder care. And we can also deduct all the expenses, riding the taxi to the doctor, the pharmacy expenses, all of that can be deducted, and many of us —

MATHISEN: But they have to be, I have to claim them as a dependent.

PROKUPEK: You’re allowed to as long as you’re — as long as you’re taking care of them and that’s a loose definition. That you can claim them as a dependent, almost like a child and you can get dependent credits of $2,100, as well as the deduction for the expenses.

HERERA: What other deductions are normally overlooked?

PROKUPEK: Yes, there’s a lot and I think that’s one of the reasons.

HERERA: I’m taking notes. I’m taking notes.

PROKUPEK: One of the biggest ones I would say is a lot of working moms miss — they file the wrong head of household deduction. So, it’s often overlooked. A lot of single women in particular don’t file head of household and leave about a thousand bucks on the table. That’s an easy one to check.

One of the other things get overlooked is earned income credit themselves. There’s $6,200 available out there for folks making less than 50 grand, and one in four people don’t even know they’re eligible. And so, one of the reasons we want people to check with the tax pro —

MATHISEN: Are there any changes this year with respect to investment taxes? I know there was obviously some of your investment moneys that were subject to tax or income, and so forth —

PROKUPEK: No, dividends and interest, all of that are treated basically the same this year. And then really, it comes back to the IRAs and the 401(k)s, but the brackets and all of that has been stable.

MATHISEN: No changes?

PROKUPEK: No changes.

MATHISEN: All right.

HERERA: Wow, great. Thank you so much, David. Nice to have you back.

MATHISEN: I feel better now.

PROKUPEK: Glad to be here.

HERERA: You feel better about tax season, right?

All right. David Prokupek, sorry, I almost mispronounced your name, Jackson Hewitt Tax Services (NYSE:JTX).

Ty?

MATHISEN: All righty. Tax season brings with another challenge with it, fraud. The IRS is warning the public to be aware and is out with its dirty dozen tax scams for 2015. Topping the list, aggressive and threatening phone scams. Agency says to be wary of callers posing as IRS agent, threatening to have the taxpayers — to have their license revokes, have them deported or even arrested. IRS never gave out money or personal information. For the complete list of tax scams, you can go to NBR.com.

HERERA: Still ahead, the busiest time of the year for the real estate market is under way. And the biggest question out there, will there be enough supply to meet all the buying demand? That’s coming up next.

(MUSIC)

HERERA: Much of the nation may still be in the icebox but President’s Day weekend marks the official start of the spring housing season, at least according to realtors. Historically, the biggest season for sales.

Diana Olick takes a look at whether that will be the case this year.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): All real estate is local, but the national housing market is facing a common dilemma.

PAMELA LIEBMAN, CORCORAN GROUP CEO: Our biggest problem, is we don’t have enough apartments to sell.

OLICK: From Manhattan co-op to California cottages, coast to coast, there are just not enough home sellers to meet potential buyer demand.

RICK SHARGA, AUCTION.COM: A lot of homeowners don’t believe that they’re going to be able to qualify for a loan for their next house right now. And so, they more or less voted themselves off the island.

OLICK: While mortgage rates are low and there are more lowdown payment loan options for buyers, credit conditions have not changed.

SHARGA: Credit is still about twice as difficult to get as it has been historically.

OLICK (on camera): On top of that, there are about 7 million to 10 million borrowers who still owe more on their mortgages than their homes are worth, and millions more who don’t have enough equity to manage a move up. So, a lot of folks may want to sell but they can’t.

(voice-over): There is one glaring exception to all of this, Miami, which has the opposite problem. Thousands of new condominiums are hitting the market.

DORA PUIG, PALAZZO DEL SOL SALES DIRECTOR: There are pockets of the Miami side that cause some worry in my head.

OLICK: Largely because foreign buyers who make up half of Puig’s clients are facing all kinds of currency troubles and losing purchasing power.

Peter Zalewski, an expert on the Miami market, says these buyers are now looking to spend a lot less.

PETER ZALEWSKI, CONDO VULTURES FOUNDER: So, suddenly, the foreign buyer who saved us last go around, they’re still present, but they’re not as prevalent as they had been.

OLICK: Back in the rest of the nation, realtors do expect to see supply increase in the next few weeks as the selling season begins.

PUIG: So, it would be great to see lower end inventory in the market and if the 6,000 or so units that are coming on, over 60 percent of them or what we call the non-luxury segment.

OLICK: But most admit it won’t be enough. Not to send sales back to seasonal strength.

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

(END VIDEOTAPE)

MATHISEN: Jed Kolko says this spring selling season will be a good one, but it won’t be without challenges. He’s the chief economist at Trulia.

Jed, welcome. Good to have you with us.

I’m going to ask you a question but you can’t answer it, it depends on the market. Broadly speaking, who’s going to have the advantage this spring season, buyers or sellers?

JED KOLKO, TRULIA CHIEF ECONOMIST: In most places, it is still going to be more of a seller’s market, but not as much of a seller’s market as it was last year. That’s because I expect we’ll see more inventory coming on the market. And from the perspective of buyers, they’re going to be fewer investors and all-cash buyers to be competing with. So, still a seller’s market, but not as extreme as it was last year.

HERERA: Yes. And we’ve also seen interest rates creep up a little bit, Jed. Does that goose those reluctant buyers off the couch because they want to get in before interest rates go anymore to the upside or does it cool the market off?

KOLKO: It’s very hard to predict where interest rates will go week to week or month to month. It’s hard for consumers to do. It’s hard for economists to do.

The bigger point about mortgage rates is that they’re so very low by historical standards. They’re incredibly low, and it means that for many people, buying actually looks quite affordable compared to renting because rent has gone up throughout this period of the housing bust in the recovery.

MATHISEN: But some of the first-time buyers, Jed, as I understand it and Diana Olick reports rather frequently, they seem to be reluctant to get off the couch and go and buy. The millennials are the classic case of this.

Are you seeing that? In other words, are would-be buyers, people we would used to think would be the natural first time buyers, are they hanging back and staying back longer than in the past?

KOLKO: Yes, I don’t think 2015 is the year of the first-time home buyer. They are still getting back on their feet in the job market. The picture is better now than it was from a year ago, but the likelihood that a young person has a job today is still only halfway back to normal than where it was during the recession. A lot of folks are still living with their parents and when they move out, they’re going to rent first before they buy.

So, homeownership is still a few years away for many of those young adults, many of those millennials.

HERERA: You’re in one of the hottest markets in the country, San Francisco. And one of the issues has been in many parts of the country, the availability of credit qualifying for credit. How does that landscape look to you?

KOLKO: Well, here in San Francisco, the biggest challenge is actually affordability. Even among people who can get credit. Prices are so high, relative to incomes and we build relatively little housing that it keeps prices very expensive.

Now, credit of course is a big challenge not only for would-be first timers, but also for people who lost homes to foreclosure during the housing bust and wanting it back into the market.

There have been some moves from Washington to make it easier to get a mortgage. Easier access to lower down payment loans but for many people, getting that mortgage even more, so saving for a down payment are big obstacles to buying.

MATHISEN: I’m going to put you on the spot a little bit. Just off the top of your head, name some markets you think this spring are going to be markedly hotter than they were a year ago and by contrast ones that may cool, be relatively cooler.

KOLKO: I think that big changes we’re seeing right now is that some of those markets that were a little bit slower in the housing recovery now have hit full stride. Many of those markets are in the south, some in Florida, even some in the Midwest. The markets that are going to be a little bit slower than last year, at least in terms of the big price increases are some of the boom and bust markets that saw big price declines, then a strong price recovery over the past few years and now have come a little bit more back down to earth, places like southern California, Phoenix, Las Vegas. Those are the places that won’t have as crazy a market as we saw in the past couple of years.

HERERA: And yet the high end luxury market seems to be doing pretty well.

KOLKO: In many cities, there’s still strong demand, especially in the luxury side. We’re seeing new home construction, involved larger and larger homes. So, there’s still demand on the luxury side.

It’s really at the lower end of the market where we see the greatest tightness in inventory. Folks who are looking to buy affordable homes in some of these markets are the people who own some of the biggest challenges in the housing market.

MATHISEN: All right, Jed. Thank you very much. Very thorough explanation of what to expect this spring in housing. Jed Kolko with Trulia.

KOLKO: Thanks very much.

HERERA: And for many of those new home buyers and old homeowners, as spring nears, people tackle projects like renovations and landscaping. And that’s good news for companies like Home Depot (NYSE:HD) and Lowe’s. Home Depot (NYSE:HD) says it will add 80,000 workers for its spring selling season, which is its busiest time of year and that matches the number of people hired last year. For its part, Lowe’s will add more than 30,000 seasonal workers.

That’s a good sign.

MATHISEN: That’s a good sing, yes. People fixing up.

HERERA: Uh-huh.

All right. That does it for this special edition of NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for watching.

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