Transcript: Nightly Business Report — March 31, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Anything but dull. Stocks close out the first three months of the year just about where they started. But the wild swings kept investors on edge and created some big losers and some big winners.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Priced out. Frost is building in some houses. But is it discouraging prospective buyers from making offers?

MATHISEN: And too optimistic. Is the market setting itself up for a big disappointment when the employment report comes out on Friday?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, March 31st.

HERERA: Good evening, everyone.

Volatile — that describes the first quarter, and the final day of trading was no different. Stocks, which had been lower most of the day, took a late-day dive ahead of the closing bell. Some say it was end of quarter rebalancing, and others say it was uncertainty surrounding the Iranian nuclear talks that kept investors on edge.

At the close, the Dow Jones Industrial Average dropped 200 points to 17,776, the NASDAQ finished 34 points lower to 4,900, and the S&P 500 fell 18.

MATHISEN: For the quarter, Sue, the blue chip index posted its first quarterly decline in a year, that would be the Dow. While the NASDAQ and S&P 500 rose now for the ninth consecutive time.

As for the best and worst performing stocks in the S&P 500, Hospira (NYSE:HSP) topped the list with a quarterly gain of 43 percent. The big loser on the S&P 500, SanDisk (NASDAQ:SNDK). It was off 35 percent. One of the biggest stories of the quarter, of course, the dollar, and it had its strongest three months since way back in 2008, while the euro posted its worst quarter on record.

HERERA: Now to those Iran nuclear talks, which is a big geopolitical undercurrent for the markets. The State Department said today that the talks between Iran and six world powers will go past today’s self-imposed deadline and extend into tomorrow.

White House Press Secretary Josh Earnest echoed that, saying the talks would continue, quote, “as long as the conversations are productive,” end quote.

And as for oil, which could see additional supply of sanctions on Iran are lifted, it dropped for a third straight session. West Texas Intermediate settled down $1.08 to $47.60. Brent also fell and is off 12 percent for the month.

MATHISEN: Consumers are feeling more confident about the economy. The conference board’s consumer confidence index beat estimates, edging back to a 7 1/2-year high. One of the big reasons for the better mood is increasing optimism about the labor market and the outlook for wage growth. Economists also say lower gas prices did play a role in that increased optimism.

HERERA: Home values are growing. That’s the good news. The bad news for homeowners is that prices are rising at a far slower rate than a year ago. Home prices increased 4.5 percent in the year ended in January. That’s according to the S&P Case-Shiller home price index.

But as home prices rise, that’s leading to overheating in some markets, but not all of that overheating is alike.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Jennifer Castillo and Justin Thornton are looking to buy their first home together in Washington, D.C. So far, they haven’t found it. What they have found is —

JUSTIN THORNTON, HOME BUYER: I would say sticker shocks.

JENNIFER CASTILLO, HOME BUYER: I would say sticker shocks.

OLICK: Tight supply in the D.C. market is leading to bidding wars.

THORNTON: Eight, nine, 10 offers, $100,000 over asking, all cash offers from, you know, wealthy families. So, it’s just been pretty difficult.

CASTILLO: Yes, to the point that it becomes unreasonable.

OLICK: D.C. is now overvalued by about 10 percent to 15 percent, according to a new report from Fitch Ratings.

But the values are based on strong local fundamentals, unlike some other markets.

STEFAN HILTS, FITCH RATINGS: We don’t really see as much risk in the market as we do in a place like Las Vegas, like Phoenix.

OLICK: Add Riverside, California, and Miami to these former boom-to-bust markets. They’re overvalued due to stiff competition from investors after the housing crash. Their economies are not as strong and the high prices will likely be unsustainable. As opposed to Seattle, San Francisco, Houston, and Austin, which are also overvalued but supported by both growing populations and economy.

HILTS: It’s the discrepancy between those places that have restricted supply, investor demands pushing up prices versus those places that are really going through a general economic expansion.

OLICK: Home prices in the nation’s largest markets are accelerating again, seeing stronger annual gains in January than December. That’s partially due to tight supply, but also to an improving economy and low interest rates.

(on camera): Plus, spring. The steep price gains hurt sales. But this year, demand appears to be stronger, even though prices are rising at twice the pace of income. It’s really a double-edged sword. Higher prices bring homeowners up from underwater and back into the market, but they also price potential buyers, especially first-time buyers, out.

(voice-over): Justin and Jennifer are not giving up.

CASTILLO: We just have to have a lot of imagination when we look at properties, and see beyond what it currently looks like.

OLICK: But perhaps adjusting their wish list.

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

(END VIDEOTAPE)

MATHISEN: The housing market is one sector of the economy the Federal Reserve is watching closely, and today, an official said the Central Bank’s key interest rate should be raised in June.

Federal Reserve Bank of Richmond President Jeffrey Lacker points to stronger job market, consumer spending growth, and inflation heading back towards the Fed’s target. He said that unless incoming economic reports are very weak, the case to hike rates in June are strong.

HERERA: And the Federal Reserve will be paying close attention to the March employment report due out this Friday, despite the fact that the markets are closed for Good Friday.

But as Steve Liesman reports, are economists too upbeat about the labor market and could that set the market up for a big disappointment?

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Hopes are high on Wall Street for another good jobs report from Main Street. But is Main Street talking and Wall Street not listening?

Growth in the first quarter looks to have slowed to a crawl with lackluster consumer spending, corporate profits have flat-lined and home building is anemic. That’s not to mention the snow that piled up in February, and hobbled a lot of businesses on Main Street in the Northeast.

Amid all the disappointing data from February, forecasters look for March to register another solid month of job growth, with a gain of 248,000 jobs — leading even some of the bulls on the street to wonder if they are out over their forecasting skis.

ETHAN HARRIS: I just don’t think job gains at this level are sustainable unless we really have a very rapid growing economy. So, yes, there probably will be mild disappoint in jobs in the next six months or so.

LIESMAN: The bulls believe business looks through what they call a temporary weather-induced economic slowdown and kept hiring. The proof? Jobless claims, a measure of firing in the economy, has fallen back to a level that suggests another good jobs report, and making it difficult to be pessimistic now. Over the past several months, economists have underestimated job growth by 200,000 in just one report.

DAN GREENHAUS, BTIG: The jobs report in particular has been quite strong. Job growth in particular has been quite strong. And whether the number on Friday is a little above or below estimates, it really doesn’t change the larger trend.

LIESMAN (on camera): Economists will get an early signal from tomorrow’s ADP report where the estimate is for the private sector job growth of 225,000. Anything below 200,000 could cue Wall Street and attempt to pay a little more attention to the message from Main Street.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: In Indiana today, Governor Mike Pence said he’s open to changes to a recently signed religious freedom bill. This after the law spawned a public outcry in the local and national business communities which we reported on yesterday.

Mary Thompson now with more in Indianapolis.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Facing growing criticism of his state and a bill he signed, Indiana’s governor, Mike Pence, submitting Tuesday it’s taking its toll.

GOV. MIKE PENCE (R), INDIANA: It’s been a tough week.

THOMPSON: Pence promising change to a religious freedom law critics say provides legal cover for businesses to discriminate against gays and transgenders.

PENCE: I do believe that moving legislation this week that would make it clear this law does give businesses the right to deny services to anyone would be appropriate.

THOMPSON: Pence hoping an additional to the bill will clear up what he called mischaracterizations about the law, fueled by the national media and organizations that didn’t understand the law’s intent, that it protects personal freedoms.

But in a speech in New York Monday, Marriott CEO Arne Sorenson became the latest corporate chief to fault the bill, calling it pure idiocy and urging the state to change it soon.

ARNE SORENSON, MARRIOTT CEO: The opportunity that this presents is that it is so manifestly wrong, that if we can get Indiana not just to change its view but to run for the hills quickly, hopefully, we can put this kind of nonsense behind us once and for all.

THOMPSON (on camera): It’s a sentiment shared by the state’s Chamber of Commerce, representing almost 2,500 companies that opposed the original bill, fearing it would hurt efforts to recruit new talent, new investment and new businesses to Indiana.

(voice-over): So, even as lawmakers’ staff pass out cookies coffees, and flyers, ensuring constituents the law would be fixed, the Chamber CEO Bill Huber taking a cautious stance, saying the Chamber wants to see the language before endorsing the change.

MICHAEL HUBER, INDIANAPOLIS CHAMBER OF COMMERCE CEO: The proof is in the pudding. That will be our attitude as well as a business organization. Any solution has got to remove all doubt that individuals can be discriminated against.

THOMPSON: The state government promising fast action as lawmakers face a tight deadline. Any addition needs to be written, approved and passed before they adjourn at the end of April. If not, the law will likely go into effect as planned and as is in June.

In Indianapolis, I’m Mary Thompson for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Despite the criticism from business leaders, Arkansas passed its own religious freedom bill. It’s very similar to Indiana. The bill cleared the legislature now heads to the governor’s desk where it is expected to be signed.

Like the Indiana law, it guarantees religious freedoms that critics say could be used by individuals or businesses to veil discriminatory behavior. Defenders say the bill’s intent is to prevent governmental overreach and nothing more.

HERERA: So, should companies take a stand on social issues like the Indiana religious freedom law, or are they playing roulette with their corporate reputation?

Jim Stengel joins us tonight, he says getting behind the cause is generally good business. He’s the CEO of his own branding firm, Jim Stengel Company.

Jim, nice to see you. Welcome to NIGHTLY BUSINESS REPORT.

If generally —

JIM STENGEL, JIM STENGEL COMPANY: Hi, Sue, hi, Tyler. Good to be with you again.

HERERA: If generally speaking, it’s good business, I guess that begs the question: does it matter what the cause is? We saw Starbucks (NASDAQ:SBUX) take on race relations and now, we’re seeing the likes of Eli Lilly (NYSE:LLY) and Marriott and other very large publicly traded companies coming out and saying that they oppose this particular move by Indiana.

So, give me the risks versus the benefits.

STENGEL: I think first on the benefits, though, Sue, because I think I’m finding most high growth companies now and those that are attracting talent are really magnetic are the ones that do lean forward or most proactive on taking a point of view in social issues, because frankly, their employees want to see that and also, their customers want to see that.

So, we’re seeing that as I think a real megatrend and the millennials expect that more. On the downside, you know, the more polarizing the cause, or the issue, obviously, the more risky it is. But at the same time, any stance you take on these issues, whether it’s in anti-discrimination, whether it’s gun control, whether it’s the environment, you better act on it. Your behavior better be supportive of it. You need to be coherent in your actions. And so, that’s the big one.

And you have to be ready for fringe groups, activists, controversy, and ready to be engaged in social media and be very conversational about the issue if you’re going to take it on.

MATHISEN: Jim, you had a long career in big business at Procter and Gamble.

There are 20-some states that have laws similar to the one that has been signed now in Indiana. Why do you think business not rally to the cause in those cases the way it seems to have this time? Is it principally an accident of timing that this law was passed at a time of heightened interest in equality for gays?

STENGEL: I think it’s timing, Tyler. I think it’s how the messaging came out of Indiana. I think if they had to do it all over again, they would have done it differently. I don’t think they want to be near discrimination, but that’s not what came out clearly. I think also, we live in a time of amplification and social media. That’s a reality. I think what happened is it took on a life of its own, and my guess is that it will be reviewed and scrutinized in the other states now.

HERERA: You know, the other aspect of this, Jim, and I’d be interested in your thoughts on this — if you’re a privately held company, perhaps you don’t have to engage in this type of discussion. But if you’re a publicly held company with published culture and, you know, rules about how business is done within your company, it behooves you to engage, does it not?

STENGEL: Absolutely, Sue. But actually, I think whether you’re private or you’re public, you know, you have a reputation with your employees first. You know, every CEO I talk to, private/public, their number one concern is attracting talent and the right kind of talent. And people today want to work for companies who have a point of view, who have a voice, who are trying to make the world better in some way.

So, you know, you take my old alma mater, P&G, which takes on a lot of causes related to child health, and issues with mothers and children. You know, Facebook (NASDAQ:FB) is taking on anti-bullying, as is Twitter. So, they’re all taking on issues, some more polarizing than others, but employees and customers want to see you step up, and those that are stepping up are rewarded with higher growth — and data supports that, both the consumer data and the market share data.

MATHISEN: Very quickly though, Jim, why do you think Starbucks (NASDAQ:SBUX) stepped back from the race together campaign to the extent they have stepped back that they announced just a couple of weeks ago? Quick answer, please?

STENGEL: Yes, Tyler. I think the strategy is right for Starbucks (NASDAQ:SBUX). They’ve taken on social issues over decades and I think the strategy on race was right. The tactic was troublesome, right? Everyone in line to get coffee, you want to move fast.

My guess, you’ll see them take on this issue further but they’ll do it in forums and discussion groups, you know, coffee hours. You won’t see it happen in the coffee line. Good strategy, wrong tactic.

MATHISEN: It won’t be written on the cup.

STENGEL: Yes, that’s right. That’s right.

HERERA: Thank you, Jim Stengel, CEO of Jim Stengel Company.

MATHISEN: Still ahead, what Berkshire Hathaway’s Warren Buffett is eyeing now as a possible investment.

(MUSIC)

MATHISEN: Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) acquired two small Virginia papers, my home state. The company’s purchase of the “Martinsville Bulletin” and “The Franklin News Post” adds to its collection of 31 daily newspapers and dozens of weeklies in 10 states. The terms of the deal not disclosed.

HERERA: And Warren Buffett doesn’t just have his eye on newspapers. In an interview today with Becky Quick, the Oracle (NASDAQ:ORCL) of Omaha said he wants to purchase additional auto dealerships in the U.S., following his big acquisition of the largest privately held car dealership last year.

(BEGIN VIDEO CLIP)

BECKY QUICK, CNBC: This was a huge move for you to go in with the Van Tuyl Auto Group, 78 dealerships. Are you looking to expand that pool? Are you going to be expanding in terms of the number of auto dealerships you own?

WARREN BUFFETT, BERKSHIRE HATHAWAY CEO: Very much so. In fact, I think 78 is, what, 81 now? Yes, and we’ve heard from a lot of dealers, we’ll hear from more, I’m sure and I’d be very surprised if five years from now, we aren’t a whole lot bigger.

(END VIDEO CLIP)

HERERA: And as part owner of Heinz, Becky also asked Buffett, about the recent merger with Kraft (NYSE:KFT) and whether he’s also looking to buy other food companies.

(BEGIN VIDEO CLIP)

BUFFETT: We would hope it would not be the last major transaction, but we’ll only do transactions that are friendly. So, it really depends on whether there are willing sellers of a price we’d like to buy at a price we like to buy it, but there is no finish line.

(END VIDEO CLIP)

HERERA: And when it comes to the economy, Buffett characterizes it as being extremely steady.

MATHISEN: Well, IBM, a Buffett holding, outlines a major internet of things strategy and that’s where we begin tonight’s “Market Focus”.

Big Blue announced $3 billion investment to establish a unit that aims to connect everything from a smartphone to a jet engine. Its first partnership is with the Weather Channel. The company will move its weather data services into the IBM, yes, the IBM Cloud. Appropriate for the Weather Channel, right? Shares of IBM off more than 1 percent at $160.50.

Pretty soon, you might be able to order an Egg McMuffin as late night snack. McDonald’s (NYSE:MCD) testing now all day breakfast at a few locations in the San Diego area. That starts in April. Shares of Mickey D’s off a fraction today. They finished at $97.44.

Cable combo to tell you about, and that is this. Charter Communications (NASDAQ:CHTR) buying the fellow cable operator Bright House Networks in a deal valued at more than $10 billion. Charter, which is now the fourth largest cable operator in the company, says it would become the second largest after the deal. Shares of Charter rose more than 5 percent to $193.11. Bright House is not publicly traded.

HERERA: Movado posted surprisingly strong fourth quarter results today. The luxury watch maker said it would raise prices and streamline operations to offset slow growth and the strong dollar. The company says those currency headwinds will continue into next year. Shares popped more than 11 percent to $28.52.

Johnson Controls (NYSE:JCI), the auto parts maker, is selling its global workplace solutions to CBRE Group for $1.5 billion. Johnson wants to focus on its core automotive operations. Shares of CBRE rose more than 6 percent. Johnson Controls (NYSE:JCI) was up more than 1 percent.

Shares of Dyax (NASDAQ:DYAX) surged in after-hours trading after that biotech company reported promising results. Its drug, which treats a rare inflammatory condition was successful in an early stage study. Shares were up as much as 40 percent after the bell. Before the close, the stock was off almost 2 percent to $16.75.

MATHISEN: Etsy is launching its road show for its IPO on April 1st. Choose April Fool’s Day for that, but whatever. The online crafts marketplace will offer more 60 million shares to be priced between $14 and $15. List on NASDAQ under the symbol ETSY. That’s smart. Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) jointly running the deal.

HERERA: And coming up, who pays the biggest share of taxes in America? We’ll tell you and the answer may surprise you.

(MUSIC)

MATHISEN: And here’s what to watch tomorrow — monthly auto sales for March will come out, expected to be pretty good. World’s largest retailer Walmart hosting investor day. And as Steve Liesman told us earlier in the product, ADP’s report on private sector job growth is out before the opening bell — and that folks is what to watch tomorrow.

HERERA: April 15th. We all know that date. It’s time to pay Uncle Sam.

But a new report shines light on who is paying the bigger share of taxes, individuals or corporations?

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the 2015 tax filing season enters the home stretch, a new congressional report shows taxes paid by individuals last year reached their biggest share of the economy since before the financial crisis and the great recession. But taxes paid by corporations are declining.

Here’s what the Joint Taxation Committee found. 2014 individual tax receipts total $1.4 trillion or 8.1 percent of GDP. Meanwhile, corporate taxes collected topped $320 billion just 1.9 percent of GDP.

DOUGLAS HOLTZ-EAKIN, ECONOMIST: The real news is payroll taxes are back, and that’s built off bread and butter payrolls paid by average Americans, and that’s really where you’re showing the economic trend (ph) to show up in the tax data.

PEARSON: The new data complicates the debate over tax reform. Pro-business groups say lower corporate taxes will make American companies more competitive worldwide. Those declining tax receipts, however, give ammunition to those who say wealthy corporations should pay higher taxes.

HOLTZ-EAKIN: The question is, could they and meet other objectives like hire those average Americans and sell the products that those average Americans make in competitive markets overseas and grow and invest the way we like? That’s the real economic debate.

But the numbers taking the face value feed the notion that corporations are not paying their fair share.

PEARSON (on camera): While the tax reform debate is on hold, with 16 days to go, the IRS says the tax filing season is going well. Tax receipts expected this year to top $3 trillion.

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

(END VIDEOTAPE)

HERERA: It’s Tax Tuesday here on NIGHTLY BUSINESS REPORT. And tonight, we’re looking at some of the more unusual tax deductions that you may be eligible for.

Sharon Epperson joins us from New York.

Good to see you, Sharon.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to be here.

HERERA: So, tell us the craziest tax deductions out there we’re not aware of.

EPPERSON: Well, you know, if you have a dog, you can’t claim a tax deduction for the family pet, but if this dog is guarding your business, if you have a small business, then you may be able to deduct the cost of the food and the vet bills as a business expense if it’s an ordinary and necessary business expense. So, that’s something people don’t think about.

The other one is swimming pool. Swimming lessons generally are not tax deductible but in the past, the IRS has approved swimming pools being built for those whose doctor has prescribed having the swimming pool as a medical necessity due to some health concern.

Dry cleaning, another expense that comes up if you’re traveling for work. You may have to have your clothes dry cleaned. That again could be a business expense, an ordinary necessary business expense.

And then cat food, you wouldn’t think that’s a deductible. Again, for the family pet. It’s probably not. But there has been an instance where a cat was actually a junk yard cat, responsible for doing some guarding around that area, and that cat was in fact able to be claimed as a tax deduction to cat food as well.

And the one that really got me — I thought, how could this be possible — body oil? But, yes, but if you’re a body builder, it’s part of what you use for your business and for your performance and for you — what you’re doing, then that in the past, has also been able to be a deductible item on one’s tax return.

MATHISEN: Sharon, let’s say for argument’s sake I have forgotten to deduct my body oil, in the recent year.

(LAUGHTER)

MATHISEN: How do I go about addressing this problem?

EPPERSON: Well, if there are tax deductions and credits that you really want to get, you can go back as far as three years and claim them. Yes, you can file an amended return, a 1040X form, all the way back to 2011, if you do so by April 15th. So, there are ways to get these tax deductions and others that you may be more likely to qualify for.

HERERA: All right. Let’s move to the states, because some of the states have some quirky rule and laws. But some of them can really save you some money.

EPPERSON: Well, I don’t know this one, because I eat bagels all of the time. But in New York, if you have your bagel cut and have cream cheese on it and toasted, all of that, that is actually going to a taxable item. But if you just buy the bagel, it’s not because once they cut it, it’s seen as a processed food, and so then you’ll have to pay sales tax on it.

Another one I found interesting was in Arizona in terms of ice cubes versus ice blocks. Ice cubes in mixed drinks, not packed, ice blocks are taxed, and then who knew you could get fresh fruit from a vending machine, I’ve never really tried this, but if you do in California, it’s taxable if you just get fresh fruit, which they have plenty. Of course, it’s going to be taxable. But coming out of a vending machine, they’re going to pay tax on that.

MATHISEN: How are refunds going this year, Sharon? Roughly the same as last year, a little higher?

EPPERSON: Roughly the same as last year, right around $2,900 and oddly enough, same as it’s been in past year. If you do direct deposit, you’re close to $3,000, a little higher. So, it seems like those who ask for direct deposit are getting a little more back but about 80 percent of those who filed so far have gotten a refund.

HERERA: Sharon Epperson, things I never thought I’d be able to deduct on my tax form. Appreciate it very much.

EPPERSON: My pleasure.

HERERA: Who knew?

MATHISEN: The cat food.

HERERA: The cat.

MATHISEN: My cat is —

HERERA: And the body oil. There you go.

That will do it for NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: And thanks from me as well. I’m Tyler Mathisen. Have a great evening and we hope to see you back here tomorrow. Bring your cat food.

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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