Transcript: Nightly Business Report — March 13, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street scare.
Stocks get routed on Friday the 13th, adding to a most volatile week. And there are two major reasons behind the market`s big swing.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Weather the storm. Our market monitor tonight has a list of stocks to buy that may provide some stability for your portfolio.

MATHISEN: And getting short. When does betting against a stock go from a legitimate investment strategy to a downright vendetta?

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, the 13th of March.

HERERA: Good evening, everyone, and welcome.

Friday the 13th lived up to its name on Wall Street, turning into an unlucky day for stocks, and closing out a week that saw turbulence return to the market.

The Dow Jones industrial average tumbled 175 points to 17,749, its fourth triple digit move in five sections. Midday, the index off as much as 265 points. NASDAQ sank 21 and the S&P 500 was off 12.

All the major indices were lower for the week and it was the third straight weekly decline for the Dow and the S&P 500.

As for crude, prices sank. WTI nearing its 2015 closing lows after the International Energy Agency said U.S. production continues to climb despite low prices.

Bob Pisani at the New York Stock Exchange now with two big reasons behind this week`s big swing.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was a choppy week that ended on a weak note. The key driver was the dollar`s strength and the euro`s weakness, but late in the week, oil also return as an issue.

The dollar strength and the Europe weakness is playing havoc in the stock market. First, it`s forcing money out of U.S. stocks and into Europe in general. European markets like Germany, Italy and France were all up this week, where Germany at historic highs. Germany is a big exporter, weak euro helps them. It`s also playing havoc with companies that have significant operations overseas, including tech companies like IBM and Intel (NASDAQ:INTC), all of which underperformed the markets this week.

Oil reared its ugly head again toward the end of the week as it approached the lows we saw in January. Now, oil has been quiet recently but the combination of increasing supply and the dollar strength is again pressuring prices. The energy sector was far and away the worst performer this week down about 3.6 percent.

Finally, interest rate sensitive sectors like utilities and homebuilders were also weaker, ahead of the Fed meeting next week, which is the next source of anxiety.

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

(END VIDEOTAPE)

MATHISEN: As for the economy, producer prices, wholesale prices basically, fell in February for a fourth straight month, another sign of strong U.S. dollar, maybe pushing down inflation. The government report showed wholesale prices declined 0.5 percent last month. The core index that excludes the food and energy components fell the same amount.
Inflation is something, obviously, the Federal Reserve is watching very closely, and sentiment among consumers in March also dropped from the prior month.

HERERA: Our market monitor tonight says that — we`re going to more about the market and rates and stocks he thinks you should own as the volatility picks up.

He`s Kevin Caron, market strategist with Stifel Private Client Group.

Welcome. Nice to have you here.

KEVIN CARON, STIFEL PRIVATE CLIENT GROUP MARKET STRATEGIST: Good to be here.

HERERA: So, you think volatility is here to stay for this particular market.

CARON: Well, let me frame it, we had five years of very fortunate markets. We had very little volatility. The Fed has been very interest — low in terms of interest rates and markets at record highs. We`ve been low this week by a very low volatility and low interest rate environment. That can`t go on forever. And I think maybe we`re starting to see the beginning of a shift there.

MATHISEN: You know, we`ve been listening for most of this week, people saying, well, the market is down because the dollar is down. The dollar is up. The dollar is moving. I thought we wanted a strong dollar.

CARON: Well, that was exactly what worked for us in the late `90s and there are two things. I think the dollar is strong for two reasons, because our economy is the one place in the world where things are working.

MATHISEN: Isn`t that a good thing?

CARON: It`s a great thing.

MATHISEN: Yes.

CARON: And also, our Federal Reserve is looking to be a little bit tighter in terms of monetary policy compared to other central banks around the world. So, if you have a growing economy and you have a bank that`s treating the currency relatively well, that`s going to attract a lot of capital, and that keep growth going. And that`s what happened in the late `90s. I`m not sure if it`s going to happen here. But maybe that`s a positive for the next couple of years.

HERERA: The big debate is when the Fed will move up on interest rates. Is this market strong enough to take a move to the upside in interest rates?

CARON: I think it is, I think that if you look — I would much prefer to see a Fed that`s raising interest rates because you have a decent economy than a Fed that has to stay at zero because we`ve got a major problem and the economy is unhappy to see that, and the Fed has been very good in terms of projecting what they`re going to do.

So, next week, they were talking about removing the “patience” phrase from their dialogue. All of these moves have been very well conveyed to the market, and that`s in part where the dollar is already strong.

MATHISEN: Let`s move to a couple stock picks beginning with Abbott Labs. I want you to profile that one. But also are these picks defensive, offensive — where would you place them?

CARON: Yes. If you think about —

(LAUGHTER)

MATHISEN: Yes, all of the above.

CARON: Yes. If you — so, what I wanted to think about was, if we go through the last five years have been very good. Next five years, maybe not so much. I`m not saying that we`re necessarily entering a bear market right away, but if you don`t have smooth sailing the next year. So, what kind of companies will get through?

Now, these companies have all been around since the 1800s. I have to start there. Abbott Labs is leading the list. We think it`s a company that can persist, that has a very good dividend, great management. The balance sheet is good. If you find companies with good balance sheets, consistent cash flows, you can probably take money over time.

HERERA: Emerson Electric (NYSE:EMR) is also on your list. Why?

CARON: Yes. Another one from — that goes way, way back. They`ve raised dividend consistently for many, many decades now. It is a very consistent company. They`ve faced some challenges, the stocks pulled back,
10 or 15 points or so. But we think it offers long-term value.

Now, they are tied to some sensitivity in the oil patch. You got to be careful maybe short terms in volatility there, but for a long-term, it makes a lot of sense.

MATHISEN: I remember having an Emerson transistor radio.

CARON: That`s right.

MATHISEN: So, they go back a long way, let`s just say that.

CARON: A long way.

MATHISEN: And the last was Becton Dickinson (NYSE:BDX)?

CARON: Yes. New Jersey-based company. This is a company that maybe not the sexiest business, but they do make all kind of things that go into health care. So, think about surgical supplies, diagnostic tools, et cetera, and so forth — maybe not real glamorous but very, very consistent.
They just made an acquisition that I think is going to be in the future.

HERERA: I do not remember having an Emerson radio.

MATHISEN: Oh, of course not.

HERERA: Kevin, thank you so much.

CARON: Thank you.

HERERA: Have a good weekend.

CARON: You, too.

HERERA: Kevin Caron joining us tonight.

Ty?

MATHISEN: All right. Let`s talk about the debt limit, shall we, just to keep everybody on an upbeat frame of mind.

The Treasury Department today began taking preliminary steps to avoid breaching that debt limit. Here we go again. It`s going to be hit on Monday. Treasury Secretary Jack Lew said the agency will suspend the issuance of certain securities to keep the nation`s bills. Lew also urged Congress to raise the debt limit as quickly as possible.

HERERA: And now to Europe where an international economic conference that`s been held in Italy for the past 40 years is taking place. Heads of state, business leaders and finance ministers are all meeting to discuss the outlook for the area`s economy.

Julia Chatterley has more from Lake Como, Italy.

(BEGIN VIDEOTAPE)

JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The backdrop may be tranquil here on the shores of Lake Como in Italy, but I can tell you, that the talk was tough, discussing just how Europe can compete with the U.S. going forward and get its growth back on track. It`s a meeting that takes place twice a year bringing together global leaders, CEOs, also, investors, to discuss the event taking place in the financial markets today and Greece takes center stage.

Yanis Varoufakis, the Greek finance minister, arrived here early and a whole barrage of questions from journalists. He talked about the possibility of a Greek exit from the Eurozone and the market is concerned.
He said, look, they`ve got it wrong in the past and they`ll get it wrong again.

Again, he talked about possibility of debt restructuring. We know what the Germans feel about this. They don`t want to know. So, again rising hackles across the Euro.

He also talked the European Central Bank, the life blood of money for the economy right now. We know they`re struggling. And he said, look, they`re treating us harshly. He reiterated it again.

There are so many open questions about just how Greece continues to finance itself in the short-term. He said they`ll come up with a reform plan early, but still, a lot of questions to ask about just how they fund themselves in the short-term.

He`s the highlight speaker tomorrow and he`s not shy about sharing his views. So, expect new events over the weekend.

For NIGHTLY BUSINESS REPORT, I`m Julia Chatterley in Lake Como, Italy.

(END VIDEOTAPE)

MATHISEN: Back to New Jersey now.

Now two companies find themselves in the middle of battles with short sellers. First, there`s Herbalife (NYSE:HLF). Investor Bill Ackman, who`s been leading a campaign against that company, acknowledged that a firm he hired to attack Herbalife (NYSE:HLF) has been contacted about — by the FBI about possible manipulation of the stock. But today, Ackman made it clear that he himself has not been directly contacted by authorities.

(BEGIN AUDIO CLIP)

BILL ACKMAN, FOUNDER & CEO: Certainly not by the FBI or DOJ. We have, you know, very — I would say proactively and offensively been to see the FTC and the DOJ, you know, to make our case about Herbalife (NYSE:HLF).
But no, we`ve not — I haven`t gotten any subpoenas asking me to testify about market manipulation or anything else that`s concerning our conduct with respect to Herbalife (NYSE:HLF).

(END VIDEOTAPE)

MATHISEN: And then there is Lumber Liquidators, also the target of investors who are betting the stock price will go lower and subject of intense scrutiny since the story questioning the safety of its products aired on “60 Minutes” last month.

Today, the founder and chairman, Tom Sullivan, defended his company`s products.

(BEGIN VIDEO CLIP)

TOM SULLIVAN, FOUNDER & CHAIRMAN: From day one, we`ve always taken care of our customers, given a good product at a good price. We don`t skimp on the product. Our laminate is safe. We definitely not going to save 2 or 3 cents on laminate and ruin the reputation of the company.

(END VDIEO CLIP)

MATHISEN: Both stocks have seen big swings as a result of being in the target of short sellers. Today is no different. Herbalife (NYSE:HLF) up 8 percent, Lumber Liquidators down 15 percent.

HERERA: But what exactly does it mean when an investor shorts a stock?

Here`s a look at how it works and the risks involved.

(BEGIN VIDEOTAPE)

HERERA: If you`re convinced the price of a stock is going down, you can still make money by shorting that stock.

Here`s how: say that stock is currently worth $50 a share. You can borrow ten shares and then sell them even though they`re not yours for $500. If you`re right, and the stock price drops to say, $30 a share, you can buy those ten shares for $300. Once you fulfill your obligation to return the stock that you borrowed, you`re left with a profit of $200. Not bad.

But your potential profit is capped since the most that stock price can fall is $50. Your potential loss though is not capped. The stock price could go up and up with no ceiling. Say the price hits $800 before you buy it back, your loss in that case, $7,500. Ouch.

That`s why shorting a stock is one of the riskier positions you can take. It also means you`re swimming upstream against all the people who are working to make that company a success, not to mention those who bought the stock expecting its price to rise and the stock market`s historical trend, which is up.

(END VIDEOTAPE)

MATHISEN: So, should you ever short sell a stock?

Let`s find out from Michael Santoli, senior columnist with Yahoo
(NASDAQ:YHOO) Finance.

Michael, good to have you with us tonight.

Why do people say things about short sellers?

MICHAEL SANTOLI, YAHOO FINANCE SENIOR COLUMNIST: Well, it seems to be going against the tide of what most people involved in the market wish would happen, which is that stock prices over time go up, and also, I do think because short sellers do face that opposing current when they try to make money on stocks going down, they often pick companies that they feel like they have the goods on, where they basically can tell a story that says not only we think their business is going to decline a little bit, but maybe they have accounting problems or they have other issues that the company is concealing.

So, they seem as if — the short sellers seem as if they`re kind of going on about an expose or something and trying to tarnish a company.

HERERA: So, are short sellers doing a service to possible investors or a disservice because they may be saying things that are negative about a company?

SANTOLI: Well, they`re certainly doing a service to the overall market. As a group, short sellers, first of all, research has shown that heavily shorted stocks overtime tend to underperform. So, seemingly, where there`s smoke, there`s fire.

And also, markets do best when all information from all sides of an argument are out in the open and you have all investors that can kind of act on it as they see fit. That`s usually better for market efficiency.
So, I do think that in aggregate, it`s a good thing. You can say in every situation, short sellers, of course, are justified.

MATHISEN: Company executives, Michael, will criticize short sellers, and they`ll say, as did the founder of Lumber Liquidator that, oh, now, you listen, and look at that Mr. Whitney Tilson, he short the stocks, so he has a vested interest in hammering on it. They never complain when investors talk up the stock, do they?

SANTOLI: Absolutely not. No. I mean, clearly, they`re kind of preaching to the hometown fans when they tell investors that short sellers are to blame for declines in their stock and they`re unjustified in saying

MATHISEN: So, at what point does a short seller`s hammering on a stock cross that line and become an effort to manipulate the price of the stock if he or she really believes sincerely that what he or she knows about the stock is true?

SANTOLI: Well, manipulation requires an intent to deceive the market about something, and not only intent, but really kind of a coordinated effort to do so. It can`t just be stating an opinion. It can`t even be just stating a false bit of information.

You have to actually be proven to have somehow rigged the market for that stock through deceitful information or some other means of coordinating trading in that stock.

HERERA: For the individual investor, Michael, is shorting a prudent idea? Because it does take knowledge of the markets, you don`t have a lot of protection in there either.

SANTOLI: It`s a very tough game. I mean, a lot of people, really, you`d have to have a real edge in terms of information. I think for most people, some people keep short sales in their books. Just really as a hedge and say, look, if things go badly in this part of the economy, maybe I`ll protect it with other investments. But I do think it`s a tough game.

HERERA: But you can do that with options. Couldn`t you do that with

(CROSSTALK)

SANTOLI: You do with options. You can do with exchange traded fund that basically go the other way opposite of the market. Yes.

MATHISEN: You know, Michael, so, let`s say I walk into a store and it`s a big chain store and I just don`t like that store anymore. I think it`s going down. You can pick your store there. I`m not going to name any.

Would that be a reason to go and short the stocks?

SANTOLI: Well, no more reason than if you go into a store and you absolutely love the experience, you want to buy the stock. So, honestly, anecdotal information in either direction seems like insufficient kind of reason to go with an investment.

MATHISEN: Interesting conversation. Michael, thanks. Good to see you.

SANTOLI: All right. Thanks.

MATHISEN: Michael Santoli of Yahoo (NASDAQ:YHOO) Finance.

HERERA: Still ahead, why it may seem like the force is with Disney
(NYSE:DIS) shares. There still are some big hurdles remaining for one of the world`s most recognizable company.

(MUSIC)

HERERA: Disney`s CEO has been at the job for 10 years and the stock is up about 300 percent during that time. Shares of the Dow component are trading at about $106 a share, just shy of the all-time high. And while it may seem like the company is firing on all cylinders, some challenges do remain.

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Big powerful brands and digital innovation are helping the Magic Kingdom soar to new heights. Disney`s “Frozen” sequel and three new “Star Wars”
films due out over the next three years are more than just movies. They`re valuable intellectual property and part of Bob Iger`s strategy to build or buy brands to exploit across its movie studio, TV, consumer products, digital properties and parks — the strategy that`s helped Disney
(NYSE:DIS) shares triple since Bob Iger was appointed CEO ten years ago today.

UNIDENTIFIED FEMALE: The magic will only last so long.

BOORSTIN: We`ll see that strategy at this weekend`s box office as “Cinderella” plus a “Frozen” short running ahead of it are expected to grow
$60 million in the U.S. and to go on to match “Maleficent” with $760 million growth last year. But “Cinderella” would be far more profitable, cost about half as much as “Maleficent” to produce.

BOB IGER, DISNEY CHAIRMAN & CEO: The outlook for the weekend and the outlook for the film is great. The outlook for Disney (NYSE:DIS) also I think very strong. We follow “Cinderella” with “Avengers 2” in May, and, of course, at the end of the year, we have “Star Wars”, and a whole lot of great stuff in between.

BOORSTIN: And Disney`s plate is packed with two Pixar films this year alone, and 11 Marvel Films in the next few years.

(on camera): But Iger also faces big challenges before he leaves his post in 2018, as the way people watch and pay for content changes.
Disney`s biggest chunk of revenue comes from TV networks, which are tied into that TV bundle.

DAVID BANK, RBC CAPITAL MARKETS: I think the biggest challenge over time is that is the maintenance of that basic bundle and pay TV, which is really crucial to ESPN.

BOORSTIN (voice-over): To stay ahead of the thread of cord-cutting, he`s experimenting, offering ESPN as part of over the top streaming service playing TV. And his acquisition of Makers Studios is a move to better serve the short form content that`s in high demand.

Content still rules the Magic Kingdom. Iger is just looking for new ways to distribute it.

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

(END VIDEOTAPE)

MATHISEN: General Motors (NYSE:GM) settles a high-profile case related to its ignition switch recall, and that is where we begin tonight`s “Market Focus”.

The automaker settled with the parents of a woman who died in one of its cars with a faulty ignition switch. Their case helped disclose the deadly defect in some of the company`s cars. The family had previously settled with GM before the automaker admitted it knew of the flaw prior to issuing a recall. The settlement amount was not disclosed. But what was disclosed today, the share price down 38 cents at $38.05.

General Electric (NYSE:GE) delivering a shipment of gas turbines to Egypt as part of a nearly $2 billion deal to increase power capacity in the country. The company will also invest $200 million in an economic zone near the Suez Canal. Egypt is hoping to secure billions in investments after years of political turmoil. General Electric (NYSE:GE) stock off more than 1 percent at $25.04.

HERERA: Ann Inc. posting a surprise profit in its holiday quarter.
The parent of Ann Taylor has struggled in a weak retail environment because of discounting and competition. Today, it laid out a plan to cut $35 million in costs by 2016. The stock popped 8 percent to $40.45.

Investment Technology Group (NYSE:ITG) is in talks to buy the brokerage services provider Convergex. That`s according to a Bloomberg report. Convergex could be valued at $200 million in a sale, but the deal could fall through. And this comes more than a year after Convergex admitted to defrauding customers of millions by concealing markups on stock trades. Shares of Investment Tech soared almost 15 percent to $27.91.

MATHISEN: And coming up, curing congestion. More goods are moving by rail and that is causing a big headache on the tracks.

(MUSIC)

MATHISEN: Federal Reserve will dominate market action next week.
Here`s what to watch with the new week gets under way.

Central Bank holds a two-day policy meeting. It starts Tuesday.
Chair Janet Yellen will release the statement Wednesday and she will hold a press conference.

After the close of trading on Wednesday, some reshuffling in the Dow Jones Industrial Average. Apple (NASDAQ:AAPL) replaces AT&T (NYSE:T).

And the Dow component, Nike (NYSE:NKE), reports earnings Thursday.

MATHISEN: Backlogs, delays, there`s a gridlock problem plaguing our nation`s rail system. As the economy improves, more goods are traveling across the country by rail, leading to traffic jams on the tracks.

And as Morgan Brennan reports from Bellevue, Ohio, companies are making big investments to fix that problem.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: They call it the Bellevue symphony, and it`s only getting louder.

GARY SHEPARD, NORFOLK SOUTHERN DIVISION SUPERINTENDENT: We are currently processing 1,800 cars a day and that number will grow to around
2,800 or 3,000 cars a day.

BRENNAN: Gary Shepard is division superintendent for Norfolk Southern`s Bellevue terminal.

(on camera): So, it alleviates congestion.

SHEPARD: Absolutely. It alleviates congestion for our network.

BRENNAN (voice-over): The freight railroad invested $165 million into doubling capacity here at the Bellevue yard, where the train cars filled with coal, grain, crude oil, even corn syrup, comes through each day, to be sorted and sent out to other parts of North America.

But as more goods move by rail, companies including Norfolk Southern
(NYSE:SO) have struggled with unprecedented congestion.

EDWARD HAMBERGER, ASSOCIATION OF RAILROADS CEO: It was a major concern last year. We did not provide the level of service that our customers have come to expect. That was for a couple of reasons.

BRENNAN: Reasons like the fact that freight volumes are returning to prerecession levels, though the mix of goods has changed, with more crude oil, autos and intermodal containers on the tracks.

Last year, congestion weighed on service times and operating costs as railroads struggled to keep up with the demand, especially a traffic choke point like Chicago. To combat the problem, investments like the one here are underway across the country`s 140,000 miles of freight railroad tracks.

HAMBERGER: They`re going all across the country. They`re going in to new yards, for example, to handle intermodal containers. They`re going into at ports to handle imports and exports. Again, hiring people, steeling the ground.

BRENNAN: This year, the association of American railroads forecast the industry will invest a record $29 billion.

(on camera): Analysts say the investments are already beginning to pay off with rail service times starting to improve. But just how much depends on two factors: federal regulations about crude by rail, which could have ripple effects across the entire network, and also the backlogs at the West Coast ports, which have already weighed on freight volumes this year.

Still, here at Bellevue, more capacity will mean less dwell time, cutting down on train`s journeys by as much as two days, a big step in getting rail service on the right track.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Bellevue, Ohio.

(END VIDEOTAPE)

MATHISEN: And finally tonight, superstitious fears on Wall Street about Friday the 13th aren`t so overhyped, as it turns out, especially when they fall in March. Since the 1980s, there have been five Friday the 13ths in March and most have been seeing the Dow and S&P end lower as they do today, Sue.

HERERA: Hmm, who knew.

All right. That does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.

And we want to remind you, this is the time of year your public television station seeks your support.

MATHISEN: I`m Tyler Mathisen. On behalf of your public television station, thank you so much for your support. Have a great weekend, everybody. And we`ll see you back here Monday 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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