Transcript: Nightly Business Report — March 10, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street walloped. Stocks turn negative for the year as the dollar soars and investors grow concerned about when the Federal Reserve will make its next move.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Dollar drama. The fast and furious rise in the greenback is jarring markets across the globe, hitting energy and potentially pressuring profits of U.S. companies. We examine the consequences.

HERERA: Game changer? Could HBO`s new service potentially shake up the television industry as we know it?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, March 10th.

MATHISEN: Good evening, everyone, and welcome.

Send your children to another room. Cover the ears of the impressionable.
It was an X-rated day on Wall Street. In fact, call it “50 shades of ugly”. And not just here in the U.S. but around the globe.

The Dow Jones Industrial Average suffered a 332-point loss to close at 17,662. Its second worst day of the year, the gains of the year so far, gone. The NASDAQ off 82. The S&P 500 dropping 35. Those declines amounted to 1.7 percent or more.

Big part of the problem today, the strengthening dollar. The greenback rising 1.1 percent to a 12-year high against the euro.

And there`s a powerful force driving the dollar`s dramatic move — diverging central bank policy. As the U.S. economy strengthens, the Federal Reserve is expected to hike rates as soon as June. That pulls investment slows into the U.S. other way.

The European Central Bank going the other way. Buying bonds, flooding the market with euros, thereby devaluing the currency to reduce borrowing cost and stimulate Europe`s economy. That`s the mechanism.

And the dollar isn`t just rallying against the euro. It`s seeing strong gains against a handful of other major currencies including the yen, the pound, the Swiss franc and the Russian ruble.

Bob Pisani now with a look at what this all means for investors like you, for stocks and for companies (ph).

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets were a
obsessed with the strong dollar today. The source of that concern is
fairly obvious. The Fed unwinding their stimulus program is the main
catalyst for rally in the dollar. Now, the fear is that stocks could be
next.

The obsession isn`t surprising with the dollar. Roughly 46 percent of the
sales of U.S. corporations come from outside the United States. A strong
dollar stifles overseas earnings growth.

Now, we don`t have really good numbers on the impact of a strong dollar on
earnings because companies aren`t required to report that. But enough had
to indicate that the strong dollars definitely an issue. For example,
Abercrombie and Fitch (NYSE:ANF) said foreign currency impacted earnings
negatively by 3 percent in the last quarter. Fastenal (NASDAQ:FAST) said a
strong dollar lowered daily sales growth by 1 percent. And Gap (NYSE:GPS)
said currency effects took 6 percent off of earnings.

All told, about 20 percent of the companies in the S&P 500 said the
stronger dollar negatively impacted profits in Q4.

And this isn`t over. Most believe the dollar`s rally will continue.

But let`s not kid ourselves. The story that the dollar`s rise is a
disaster for U.S. companies is wildly exaggerated. Lower rates which we`re
seeing in Europe are great for U.S. corporations and there are other ways
U.S. corporations could offset the higher dollar. For example, many
companies are now issuing debt in euros instead of dollars which
dramatically lowers their borrowing costs.

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

(END VIDEOTAPE)

HERERA: And it wasn`t just stocks that got knocked around today. So did
oil. The price of West Texas Intermediate fell $1.71 to $48.29 and Brent
Crude also dropped.

Jackie DeAngelis takes a look at the connection between the dollar and oil
and what it could mean for prices.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil prices have
fallen more than 50 percent in the last 12 months, down 20 percent in the
last three.

While analysts, investors, and traders have all been talking about the
supply/demand imbalance as the main culprit, there`s another less obvious
factor that could have a big impact on crude prices and that`s the dollar.

Simply put, when the dollar strengthens, it pressures oil prices. That`s
because crude is priced in dollars. So, when the dollar goes up, traders
using other currencies to buy crude find it more expensive.

Many traders are buying in, you guessed it, euros. Euro falling to a fresh
12-year low against the dollar. Traders expecting the euro to weaken to
parity fairly soon.

ANTHONY GRIZANTI, GRZ ENERGY: Certainly, when you look at the price action
today of crude oil and what the dollar did, as the dollar did great
stronger, crude oil, the loss in prices was accelerated towards the
afternoon.

DEANGELIS: And this isn`t the first time the almighty dollar impacted
crude prices. In 2009, when crude dropped from more than $140 a barrel to
the low $30s, the dollar strengthened significantly at the same time.

GRIZANTI: Back in 2009, we saw the U.S. dollar move considerably against
the euro and we`re seeing that today again as the dollar strengthens, crude
oil comes off. But if there is a pause in that strength and you see
actually the euro start to strengthen, crude oil will rise again.

DEANGELIS: And the expectation is that the dollar won`t quit. Many have
been calling for the dollar index to cross $100 earlier this year. At $98
and change, we`re not far away. And that means more pressure likely for
oil.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: And Joe Duran joins us to talk more about the dollar`s impact on
the equity markets and what it means for your portfolio. He`s the CEO of
United Capital Financial Advisers, a management firm with $13 billion in
assets under management.

Joe, welcome back. Good to have you with us.

You know, it feels to me as though the strong dollar, the rising dollar is
the excuse de jour like bad weather was last year.

But here`s the question for you — you say that the progress of U.S.
equities basically depends on two things. One is monetary policy. The
other is corporate profit. How big an effect is the rising dollar really
going to be on corporate profits? And will it be so great that it could
truly kneecap this bull market?

JOE DURAN, UNITED CAPITAL FINANCIAL ADVISERS CEO: No, I don`t think that
it will. It can have an impact and as Bob Pisani said earlier, it really
depends on how the company operates, because if they manufacture dollars or
sell dollars, it has a very different impact. Most of these global
companies are very accustomed to significant swings in currency.

The biggest issue is the rate of change and how quickly it`s happening,
because it`s very hard for a company to adapt if you have a very volatile
environment. And so, that earnings picture becomes very difficult to
predict. And as we`ve seen a decline in earnings expectations already this
quarter for most, large S&P 500 companies.

So, it has an impact. It`s noise. It typically washes out fairly quickly
and I`m not sure how long this last anyway. I think we`re overboard on the
dollar. I think it goes a little further. But I think what you`ll see is
just a general increase in volatility.

We`ve been incredibly spoiled, obviously, for now almost 3 years without a
10 percent decline and the market is looking for excuses to price out some
of the risk that we`ve seen.

HERERA: Generally speaking, if you take the dollar and put it aside from
the equation because we don`t know how long this cycle is going to last
with the strong dollar — are you positive on equities at this point?
There are some who say we`ve been having a pretty decent run for the stock
market and have yet to have a significant correction.

DURAN: Yes. Look, it really depends on time perspective for most people.
There`s really no good alternative and when you look at equities, Europe is
just starting their cycle of easing and what you`re going to see, I think,
is reduced volatility in Europe and higher equity prices in Europe. And
that will increase the economy.

I just happen to come back from London and Madrid just now. Last week, I
got back Saturday night.

Here are the two things I saw: London, very affected by the complete
disappearance of the Russian tourists who used to be a very big spender in
that economy. And Spain, very much suffering with dependency on euros,
where local Spaniards can barely afford to eat in their own restaurants
because they have a currency that`s just unsupportable.

Now, what see typically in most of these places, Europe is so far behind,
they look like the U.S. did three or four years ago and it`s going to be, I
think, a long ride of economic stimulus in the European zone. And that`s
going to create a lot more money flowing around which will make equities an
attractive alternative.

I still think because the U.S. is far ahead, we`re going to have higher
volatility.

HERERA: OK.

DURAN: But you should expect a lot of —

MATHISEN: Very —

DURAN: — very strange noise in the currency markets.

MATHISEN: We`re tight on time. Joe, very quickly — of the major risks
you think U.S. equities face, the rising dollar, rising interest rates or
pick a third, which is the one that worries you the most? Very quickly.

DURAN: I think I`m most worried about what happens with the emerging
markets because they are so dependent on the dollar and with a lot of the
basic materials falling as well, we`re going to see some ugly surprises in
South America or Asia that could bubble up in many strange places. That`s
an area very few people have been talking about.

MATHISEN: Very interesting. We`ll delve deeper on that a future time.

Joe, thank you very much. Joe Duran is with United Capital Financial
Advisers.

DURAN: Thank you.

HERERA: And now to the job market where the number of openings rose to a
14-year high. Employers across the country advertised 5 million jobs at
the end of January and according to the Labor Department, the number of
people who quit also increased and that`s generally a sign of confidence in
the economy.

MATHISEN: You`ve no doubt heard it before — drug prices are rising.
Today, a new report from Express (NYSE:EXPR) Scripts confirming that.
Overall spending on prescriptions in the United States up 13 percent last
year, that is most since 2003.

Meg Tirrell now with what`s behind the rise in drug prices and what`s being
done about it.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): How fast
are drug prices rising? Pharmacy benefits manager Express (NYSE:EXPR)
Scripts said the increases are setting records. Express (NYSE:EXPR)
Scripts negotiates drug prices on behalf of insurers. It says the gains
driven by 81 percent increase in so-called specialty drugs like those for
rheumatoid arthritis, cancer, multiple sclerosis and especially hepatitis
C.

DR. STEVE MILLER, EXPRESS SCRIPTS CHIEF MEDICAL OFFICER: It`s just not
sustainable pricing, and so we have to do something to both bring the
products to the marketplace, but also make it affordable for patients.

TIRRELL: The drug price wars came to a head last year over Gilead
Science`s revolutionary new pills for hepatitis C. Its Sovaldi and Harvoni
cost upwards of $80,000 for 12 weeks of treatment, drawing resistance from
insurers and patient advocacy groups.

When a new regimen from Abbvie was approved in December, Express
(NYSE:EXPR) Scripts struck an exclusive deal. Gilead then reached a
similar agreement with competitor CVS (NYSE:CVS), leading Gilead to
forecast a 46 percent discount on its hepatitis C medicines this year. Its
stocks sank on the news.

Express (NYSE:EXPR) Scripts says it isn`t finished. Next up, maybe a new
class of drugs for cholesterol expected to be approved later this year from
Amgen (NASDAQ:AMGN), Sanofi and Regeneron. CVS (NYSE:CVS) has estimated
they could cost the health care system as much as $150 billion a year, a
number the drug industry says is unrealistic.

DR. LEONARD SCHLEIFER, REGENERON PRES. AND CEO: It`s wrong. I can tell
you that it`s not going to be $150 billion a year and that`s a little bit
of I would say gamesmanship because they`re trying to obviously come in to
get the discussion going, with a little bit of fear to the system. It`s
going to overwhelm the system.

It`s just not true. We`re going to come out with a fair price.

TIRRELL: Both Regeneron and Express (NYSE:EXPR) Scripts say they`re in
discussions about price, before the drugs known as PSK9 inhibitors reach
the market, which could lead to lower prices at the outset.

MILLER: We`ve got to get the best price for our clients. We are having
great conversations with Regeneron, Sanofi, Amgen (NASDAQ:AMGN). And so,
we would really like for the right price to be the price they bring it to
the market in.

TIRRELL: Express (NYSE:EXPR) Scripts has also highlighted cancer as an
area of focus where multiple drugs working in similar ways on or near the
market. Some of them have called the tighter pricing environment a
paradigm shift for the drug industry and it`s likely only to continue.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

HERERA: Still ahead, the Snowden effect and why the fallout from the leaks
classified document is still being felt from Washington, D.C. to Silicon
Valley.

(MUSIC)

HERERA: The non-profit behind Wikipedia plans to file a lawsuit against
the National Security Agency and the Department of Justice. The suit
challenges the government`s mass surveillance program that first came to
light when Edward Snowden leaked documents revealing the reach of U.S.
surveillance back in 2013.

Eamon Javers has been very busy. He`s been following this story and some
others. And he joins us now from Washington.

Good evening, Eamon.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening, Sue.

Well, this suit was announced this morning by an op-ed by Jimmy Wales.
He`s the founder of Wikipedia and he`s alleging here in the op-ed piece and
in the lawsuit that NSA mass surveillance violates Wikipedia readers Fourth
and First Amendment rights and he wants the NSA to knock it off in effect,
saying that people have a right to be able to talk and discuss and research
controversial topics in countries around the world where those
controversial political and ideological beliefs might not be as well-
protected as they are here in the United States.

I talked to a senior administration official about this issue today, Sue.
And I can tell you what they told us, which is they say we will not comment
on any specific matter before the court but we`ve been very clear about
what constitutes a very target of electronic surveillance. The act of
innocuously updating or reading an online article would not cause someone
to be subjected to electronic surveillance. So, there, the senior
administration official suggesting that just by participating in Wikipedia
and also by reading articles on Wikipedia, you`re not necessarily going to
become subject to NSA surveillance. Jimmy Wales, the founder of Wikipedia,
though, obviously disagrees.

HERERA: Disagrees with that. Yes.

There was also another big Edward Snowden story related to it in the news
today, but this one involves Apple (NASDAQ:AAPL). What happened?

JAVERS: Yes, that`s right. “The Intercept”, which is a news organization
founded by Glenn Greenwald who first broke the Edward Snowden story today
reported that the CIA for years and the U.S. intelligence community as well
has been trying to hack into Apple (NASDAQ:AAPL) devices, including iPhones
and iPads, including an annual gathering here in Northern Virginia called
The Jamboree where they allegedly traded notes among U.S. intelligence
officials about how to get into the source code behind the apps in other
ways to crack into Apple (NASDAQ:AAPL) devices.

All of this allegedly about trying to figure out what targets are carrying
around in their mobile devices. And I can tell you on this one, I asked a
U.S. intelligence official for a reaction to this piece and the U.S.
intelligence official told me — look, this is what we do. It is what it
is. The CIA exists to get information on adversaries overseas.

HERERA: All right. Eamon Javers in Washington — Eamon, thank you.

JAVERS: You bet.

MATHISEN: Sales in slumps in Barnes and Noble`s most recent quarter, and
that is where we begin tonight`s “Market Focus”.

The retailer saw earnings rise, thanks to some cost cuts, but revenue fell
as company dealt with weakness in its Nook and retail segments. This comes
ahead of the company`s spinoff of its college books business and its Nook
and e-books business. Shares slipped 10 percent to $22.36.

Target (NYSE:TGT) out with more details about its recently announced
layoffs. The retailer says it`s going to cut 1,700 jobs, close out about
1,400 open positions, according to a filing. This is part of a
restructuring aimed at saving $2 billion in costs over the next couple of
years, shares off 1 percent. They close at $77.67.

HERERA: Investors cheered news today that Credit Suisse chief executive is
stepping down at the end of June. The company`s CEO has led the Swiss bank
since before the financial crisis. He will be succeeded by the chief of a
British insurance company. Shares popped almost 7 percent to $25.11.

The Food and Drug Administration has approved United Therapeutics
(NASDAQ:UTHR) drug for treating cancer in children, specifically, the
treatment is used for neuroblastoma, a rare form of cancer that often
occurs in young children. The stock was 2 percent higher to $163.84.

MATHISEN: And coming up, shaking up an industry. Could HBO`s new service
with Apple (NASDAQ:AAPL) change the way we watch television and transform
an industry.

(MUSIC)

MATHISEN: Apple`s Tim Cook took the stage again today for the company`s
annual shareholder meeting just one day after the big Apple (NASDAQ:AAPL)
Watch announcement. One of the questions shareholders asked today, if the
company would buy the electric car maker Tesla. Tim Cook didn`t quite
answer that. Reverend Jesse Jackson also urged Cook to improve diversity
in Apple`s leadership.

HERERA: HBO is introducing a new service and it doesn`t involve a
traditional cable television subscription. HBO now will offer all of HBO`s
original programming, as well as movies, and be available exclusively on
Apple (NASDAQ:AAPL) devices when it debuts next month.

But as Julia Boorstin, the move away from a classic cable bundle could be
the start of big changes for the industry.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: HBO NOW, a new $15
monthly service, making HBO available for the very first time without a
cable subscription. It will be available exclusively through Apple
(NASDAQ:AAPL) TV for three months starting in April.

RICHARD PLEPLER, HBO CEO: This is a transformative moment for HBO, and we
are so excited to introduce HBO NOW to all of you today.

BOORSTIN: With this exclusive deal, HBO gets access to the massive Apple
(NASDAQ:AAPL) ecosystem, says Jeff Bewkes, CEO of Time Warner (NYSE:TWX),
HBO`s parent.

JEFF BEWKES, TIME WARNER CEO: We`re excited and happy to work with Apple
(NASDAQ:AAPL). They`re so good. They`re so energetic at marketing. They
have such a strong position, as you all know, in global users.

BOORSTIN: This partnership is also a win for Apple (NASDAQ:AAPL), which
will get a cut from monthly subscription fees and should benefit from HBO`s
big promotional push.

TIM COOK, APPLE CEO: We love HBO. Over the years, they have created
ground breaking shows that really become a part of our culture and help
shape our culture.

BOORSTIN: This deal could help sell more Apple (NASDAQ:AAPL) TVs, the
streaming content box as Apple (NASDAQ:AAPL) just slashed the price on by
30 bucks, to $69.

HBO`s first direct to consumer offering is momentous not just for Time
Warner (NYSE:TWX), but it`s also a key test for the entire cable industry.
Whether it will create new revenue from Internet-only customers or prove an
alternative to the traditional TV bundle and drive cord cutting.

BEWKES: We don`t worry about change and distribution and we salivate over
change and distribution.

BOORSTIN: When Apple`s exclusive expires in three months, we can expect
other streaming services like Amazon (NASDAQ:AMZN) and Roku to start
selling HBO NOW. The exclusive does not cover traditional TV providers, so
HBO is in talks with all of them to sell the service.

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

(END VIDEOTAPE)

MATHISEN: So, what will all of this ultimately mean for the cable industry
and how we watch television?

Let`s ask Jason Bazinet. He`s media and entertainment analyst at Citi.

Jason, welcome. Good to have you with us.

JASON BAZINET, CITI MEDIA & ENTERTAINMENT ANALYST: Thanks so much.

MATHISEN: If more and more content providers like HBO, like ESPN, decide
to go over the top of the cable companies, and go direct to viewers in this
kind of way, through a broadband hook-up, what does that do to the business
model that the cable companies have thrived on for decades, which is
basically the triple play?

BAZINET: Well, I would really say that the bigger risk is actually for the
cable network companies themselves. The pay TV operators that you`re
alluding can certainly raise broadband prices over time to recoup the loss
to video profits. But what`s clearly going in the ecosystem for video
deliveries, it`s changing rapidly.

Let me just give you a few statistics to illustrate it — 33 percent of all
Internet traffic, all Internet traffic, is now Netflix (NASDAQ:NFLX), live
TV ratings are down 10 percent year over year and paid TV penetration rates
peaked in 2011 at 84 percent and fallen 2 percentage points over the last
three years.

So, consumer wants to go over the top and they`re changing their behaviors.

MATHISEN: So, how big do you think HBO NOW announcement is? And is it as
transformative as certainly HBO thinks it is?

BAZINET: Well, I think it is. I mean, Netflix (NASDAQ:NFLX) has around 30
million to 35 million customers. They`re charging at a retail level about
$9. HBO exists, as your piece alluded to, inside the cable bundle. But as
a consumer, the retail price for HBO today is around $15 and they also have
around 30 million to 35 million subs.

So, what it tells is that at the consumer level, they ascribe twice as much
utility to HBO content as they do to Netflix`s content. And as we said
earlier, Netflix (NASDAQ:NFLX) is quite big. So, I think HBO, it`s
reasonable to assume is going to be big.

MATHISEN: So, as you look at the business model of the large cable
companies from whom we buy television service, you would say that the
revenue stream is going to change over, let`s say, the next decade.
They`re going to charge more for broadband —

BAZINET: Right.

MATHISEN: — instead of $49 a month, it`s going to be $89 a month and
they`re going to rely a lot less on that package of television channels
that you get.

BAZINET: Yes. That`s exactly right. The gross profit margins in the
video product have been declining for some time. The content that they`re
paying for is rising about 10 percent a year. So, if you just run the math
out in terms of how much your video cable bill goes up each year, which is
about 3 percent to 4 percent, there`s not going to be any profits in the
video business by the end of the next decade.

So, it`s already sort of happening gradually beneath the surface. That`s
not really transparent but this will just accelerate that transition, where
more profits come from broadband.

MATHISEN: It`s going to be fascinating to watch, Jason. Thank you very
much, Jason Bazinet —

BAZINET: Yes.

MATHISEN: — from Citi.

And we should point out, of course, that the cable company Comcast
(NASDAQ:CMCSA) (NYSE:CCS) owns CNBC, which produces NIGHTLY BUSINESS
REPORT.

HERERA: And finally tonight, a look at what to watch tomorrow. Results
from the Fed`s stress test, the nation`s biggest banks will be told whether
they can go ahead with their planned dividends. Greece begins discussions
with the IMF, the ECB, and European Commission about the country`s bailout
program.

And the burger chain, Shake Shack, is set to serve up first earnings report
since going public in January.

And that is it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
And we want to remind you once again, that this is the time of year your
public television station seeks your support.

MATHISEN: And I`m Tyler Mathisen. On behalf of your public TV station and
all of us here at NBR, thank you for your support. 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
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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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