Transcript: Nightly Business Report — May 7, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Nailing the number. Why tomorrow`s big employment report is proving to be the hardest to predict.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Last resort.
Johnson & Johnson (NYSE:JNJ) enters a first of its kind partnership to change how some of the sickest patients receive experimental treatments.

HERERA: The document that changed everything for the man who blew the whistle on the secret world of Swiss banking. The second part of our “Whistleblower” series tonight on NIGHTLY BUSINESS REPORT for Thursday, May 7th.

Good evening, everyone. I`m Sue Herera.

MATHISEN: And in Washington, I`m Tyler Mathisen.

Today, I spent time talking to executives, Sue, from some of the biggest mutual fund companies in the world. More on that in just a moment.

But we begin tonight with the April jobs report, which will be released by the Labor Department here in Washington before the opening bell tomorrow. And it comes after another strong jobless claims report. Those claims for the first time unemployment benefits have remained below 300,000 now for nine consecutive weeks. That should indicate a strengthening job market.

But the broader economic picture has gotten very hazy recently.
Yesterday`s private payrolls report was disappointing, so with the latest read on worker productivity, and growth pretty much stagnated for the first quarter of the year. That makes tomorrow`s big jobs report even harder to predict.

Hampton Pearson now with more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Wall Street clearly expects a rebound from only 126,000 jobs added to payroll in March. But April job predictions varied widely. The most bullish forecast, Societe Generale at 315,000, a sharp contrast to predictions of just 186,000 new jobs from Russell Investments.

The consensus forecast for April calls for 128,000 new jobs and a 5.4 percent unemployment rate. But news this week of a bigger trade deficit and weaker than expected private sector hiring has many experts bracing for a downside surprise.

MARK HAMRICK, BANKRATE.COM WASHINGTON BUREAU CHIEF: My own sense lately is if you have sort of a meter that`s going into the green in terms of positive and a meter that`s in the red going negative, that we should be on the lookout for another reading that goes into the read in the sense of a disappointing report.

PEARSON: Some optimism today with news that first time unemployment claims are near a 15 year low — 265,000 on a seasonably adjusted basis and a separate report showing small businesses increase hiring last month.
For a self-described data dependent Federal Reserve, the April employment report could offer new clues for monetary policymakers as they move closer to a decision on when to raise interest rates.

CHARLES EVANS, FEDERAL RESERVE CHICAGO BANK PRESIDENT: We`re going into each meeting and from now on talking about what the policy rate should be and at the end of every meeting, it`s possible that we`ll decide to, you know, begin the renormalization process. Now, I`m looking for, you know, 200-plus payroll employment over the next many months, growth above trend.

PEARSON (on camera): Tomorrow`s job reports is the first of two Federal Reserve policymakers will have by the time they meet again at the end of June.

And make no mistake about it, a return to strong hiring is absolutely essential before the Fed moves on interest rates.

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

(END VIDEOTAPE)

HERERA: Our guest tonight falls into the bullish camp for jobs tomorrow and is predicting 265,000 jobs will be added in April. He is Bricklin Dwyer, senior economist at BNP Paribas.

Nice to have you here, Bricklin. Welcome.

I assume that one of the reasons —

BRICKLIN DWYER, BNP PARIBAS SENIOR ECONOMIST: Thank you. Nice to be here.

HERERA: — you came up with this number of 265 because there is a huge range on the street for this particular report. If you look at the six month and 12-month performance, correct?

DWYER: Yes, exactly. Yes, we`ve seen basically payrolls running, you know, through February at the 260 mark, 260, 270. So, for us, you know, we get one month of distortion, whether it`d be weather or something else affecting the data if we think it`s temporary, but we should get a lot of those jobs back in the following month. So, we`re expecting some of that to show up in the April report.

MATHISEN: So how do you explain March? What happened?

DWYER: Well, you know, March is tricky, you know? You can look at things like leisure and hospitality and the construction sector and blame it on the weather. That looks like that could certainly be a culprit. But March wasn`t really that bad. But really, we didn`t see any distortion before March.

So, maybe it all showed up in March. It`s not exactly clear. But it does look like a number of weather-sensitive sectors were significantly impacted in that March report. Which suggests that there is a lot of momentum or possibility that we could see that, that uptick or making up for lost time, if will, in the April report.

HERERA: If it doesn`t come in on the strong side, Bricklin, does it mean you were going to reassess how you think the first quarter of the economy did, and whether or not as we go further into the year, the economy is perhaps lagging a little bit more than some people thought?

DWYER: Well, that will certainly be our initial thought. You know, the details matter, which sector is under performing, which type of story we can pull out. You know, if it is oil related or something like that, in the manufacturing sector, that will mean one thing. If we see weakness in retail hiring or leisure and hospitality again, for example, that will mean something very different.

So, the details matter, but certainly we`ll be having a second look at what the outlook looks like. You know, that being said, we do have, you know — we don`t normally take a signal from one or two reports, we try to look at a trend. So, we want to see how this data ultimately gets revised and how it looks at the end of, in fact, next month.

HERERA: All right, Bricklin. We`ll leave it there. We`ll see at this time tomorrow. Bricklin Dwyer at BNP Paribas.

Ahead of that jobs report, stocks rose as yields took a breather from their upward climb, and oil prices eased. By the closing bell, the Dow Jones Industrial Average rose 82 points to close at 17,924, the NASDAQ was up 25, and the S&P 500 notched a seven-point gain.

MATHISEN: Well, Sue, here in Washington, the Senate overwhelmingly today passed a bill that gives Congress the authority to review any emerging nuclear agreement with Iran. The passage comes despite opposition from some Republicans who argued the bill was not strong enough. The measure now heads to the House which plans to take it up next week.

HERERA: And the chair of the Senate Energy and Natural resources committee said she plans to unveil a bill next week that would reverse the 40-year-old ban on oil exports. Congress passed that ban back in 1975 and Senator Murkowski has been one of the biggest advocates of reversing it.

MATHISEN: Well, here in Washington, the nation`s biggest gathering of mutual fund executives is taking place. The event is hosted by the Investment Company Institute. And earlier today, I spoke with the CEO of Charles Schwab. Actually, you heard from him yesterday. Today, I spoke with Bill McNabb, the head of Vanguard, manages $3 trillion.

I asked Mr. McNabb about the rising interest rate environment and what it could mean for bonds and stocks.

(BEGIN VIDEO CLIP)

WILLIAM MCNABB, VANGUARD CEO: I think rising rates are inevitable at some point but it has been longer than anybody would have anticipated. I think a lot if is going to depend, Tyler, on how quickly they rise. Our best sense is that the rate increases will be relatively metered out, if you will, and be fairly steady and gradual, and probably in smaller increments than a lot of people anticipate.

I think investors will be able to handle that and again, we`ve put a lot of education material out there to encourage people to understand how rising rates do affect their bonds.

MATHISEN: Do you have a view on the level of stock prices today.

MCNABB: On stock prices, we think stocks are valued at really kind of the highest decile if you look at historical returns. And what that suggests to us and again, we`re very plain spoken about this, over the next decade, stock returns are likely to be a couple of hundred basis points below long term averages.

(END VIDEO CLIP)

MATHISEN: So, there you have it. The head of Vanguard says stock returns will be lower than average over the next decade by one or two percentage points. Bond returns will be lower too as rates rise. To see more of my interview with the Vanguard chief and the Charles Schwab CEO, you can head to our Web site NBR.com.

HERERA: Ty, one of the most extra sensitive sectors of the market is utilities and that group had been on a tear when rates were low, but as yields start to climb, the sector started to falter.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
After strong gains in 2014, utility stocks have tumbled, down more than 7 percent for the year so far. As the labor market strengthens and the Federal Reserve prepares to begin raising rates, investors have been selling out of this more defensive income-producing sector.

Utilities are sensitive to interest rates and tend to fall when U.S.
treasury yields rise. But investors say future Fed policy is already priced in, that this pullback has created some buying opportunities.

HUGH WYNNE BERNSTEIN RESEARCH MANAGING DIRECTOR: We`re entering a period of utility outperformance. I think this particular year, given the headwinds starting to grow for S&P 500 due to the strong dollar and the low energy prices, this may be a good time to begin to up — increase portfolio waitings towards (INAUDIBLE) utilities.

BRENNAN: According to data from Kensho, utilities tend to outperform in summer, particularly hot ones when demand for power spikes. The sector`s returned nearly 3 percent on average during past decades record seasons.

Names like PPL (NYSE:PLV) Corp and Dominion Resources (NYSE:D) tend to do the best. The Farmers Almanac expects another hot stretch this year.

But longer term, these companies are grappling with another issue.
Solar panels and new products like Tesla`s home batteries that could change the way people power their homes. Still, analysts say those worries are premature, that the shift to renewables may actually create opportunities for the sector.

WYNNE: I think you`ll find most of the regulated utilities are adapting to the environment regulation through increased investment in cleaner power in ways that will in the long run accelerate their growth of rate base and there for regulated utilities.

BRENNAN (voice-over): Wynne`s top pick is Edison International (NYSE:EIX), a regulated utility investing in its grid and based in California, a growth market. Analysts also like Next Era Energy, the largest renewable player in the power energy. Also, Dominion Resources (NYSE:D), a company that in addition to expanding its solar offerings is well-positioned in natural gas, with a growing portfolio of pipeline assets.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Still ahead, why the man who cracked open the secretive world of Swiss banking ended up getting indicted by the Department of Justice. The second part of our “Whistleblower” series is next.

(MUSIC)

HERERA: It is considered a last resort. When the sickest of patients run out of options, they turn to drug companies for permission to use experimental treatments, process known as compassionate use. It is controversial for many reasons, which we reported on late last summer. But today, Johnson & Johnson (NYSE:JNJ) entered into a partnership to change the process.

Meg Tirrell has more.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s designed to be a safety net for the sickest of patients.
Compassionate use is a system to give access to experimental medicines to those who have run out of other options.

But it can be complicated for drug companies — deciding who gets to try none experimental therapy that could be in short supply, and whose safety and efficacy aren`t yet fully understood.

ART CAPLAN, NYU SCHOOL OF MEDICINE, PROFESSOR OF BIOETHICS: The current system encourages people to be desperate, trying them out to campaign on the social media, try to call their congressman — I understand that. But it`s not a fair system.

TIRRELL: So, one drugmaker has turned to an outside panel to help it make decision. Johnson & Johnson (NYSE:JNJ) is teaming up with a decision of medical ethics at New York University to review compassionate use request.

DR. AMRIT RAY, JANSSEN PHARMACEUTICAL CHIEF MEDICAL OFFICER: The patient`s content of trials expanded access options that are out there.
This new innovation and this new approach today is trying to provide a method for patients to be able to look at what`s called compassionate use.

TIRRELL: The hope is to create a system that`s fair. Drug companies have come under fire in recent years as desperate patients have been denied medicines on a compassionate use basis, turned to social media with their pleas.

Last year, drugmaker Chimerix was in the crosshairs, after it initially denied an antiviral drug to 7-year-old Josh Hardy. A Save Josh
social media campaign went viral, even resulting in death threats to the company`s CEO.

(on camera): Chimerix ultimately found a way to get Josh the drug and he recovered. But the ordeal is one no company wants to face. NYU`s Art Caplan says the collaboration with J&J is a step in the right direction.

CAPLAN: Not everybody can get something that is very important to them, but at least we`ll do it thoughtfully, we`ll do it transparently, we`ll do it with goodwill. And hopefully, we`ll do it in a way that others might want to emulate.

TIRRELL (voice-over): The collaboration will initially focus on one J&J drug, which the company didn`t disclose, may broaden to others if it`s successful.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: We begin “Market Focus” tonight with Alibaba announcing strong earnings and a new boss.

The Chinese online retailer beat earnings and revenue estimates, with sales jumping 45 percent. The firm also says its chief operating officer will replace the current CEO. Shares popped 7.5 percent. They ended the day at $86.00 even.

A weak outlook overshadowed Priceline`s report. The travel Web site`s results topped consensus, as it cited strong growth in bookings for hotel rooms and rental cars. But the company gave a soft outlook for its current quarter as the strong dollar continues to weigh on growth.

Still the CEO says Priceline is in good shape.

(BEGIN VIDEO CLIP)

DARREN HUSTON, THE PRICELINE GROUP CEO: We`re pretty heavily impacted by currencies. Most of our money is made overseas. This isn`t a real effect. It`s a translation effect of when you translate euros and rubles and rial into dollars. But the fundamental health of the business is very strong.

(END VIDEO CLIP)

MATHISEN: Shares were 4 percent lower. They finished at $1,213.49.

Time Incorporated saw its revenue fall in the first quarter. This as the publisher of magazines such as “Sports Illustrated” saw circulation revenue fall and lower demand for advertising. Its loss for the quarter was narrower than Wall Street expected. Nevertheless, shares were lower today by a fraction at $21.34 — Sue.

HERERA: Ty, there are reports that Yelp is exploring a sale, and that sent shares higher today. The Web site that collects consumer reviews is working with investment bankers and has been in touch with potential buyers. Its market cap is about $3 billion, but it could fetch $3.5 billion in a sale, according to those reports. So, shares surged 23 percent to finish at $47.01.

And Yelp wasn`t the only one. Ann Inc, the parent of Ann Taylor, is reportedly in sale talks as well. Its talks are in a more advanced stage than Yelp`s. Private equity firm Golden Gate Capital is negotiating to buy the retailer. The company could go for about $2 billion. Shares rose 8 percent to finish at $40.35.

CBS (NYSE:CBS) announcing results that were better than expected on both the bottom and top lines. But the TV network saw a higher programming costs which weighed on its profits. After the close, the stock initially spiked. In regular trading, shares were up just a bit to $61.22.

Lumber Liquidators reverses course. Under fire for widespread concerns over the safety of its products, the flooring retailer says it will stop selling a controversial laminated product from China. Shares barely budged though, falling just a fraction to $27.07.

Scott Cohen has more from San Jose.

(BEGIN VIDEOTAPE)

SCOTT COHEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lumber Liquidators has been under fire since early March when the CBS (NYSE:CBS) News program “60 Minutes” aired a story that said that that company`s Chinese made laminate flooring was high in formaldehyde, a carcinogen.

The company initially insisted its products are safe, and it says that indoor air testing it offered its costumers free of charge had showed largely that there`s not a problem. Nonetheless, the company now says it will suspend sales of the flooring while it conducts a further review.

The action comes amid heavy pressure, more than 100 civil lawsuits and regulators at the state and federal levels bearing down. The company says it`s hired a former FBI director, Lewis Freeh, to investigate its sourcing practices and its compliance.

Nonetheless, one of the prominent short sellers of the stock, Whitney Tilson of Kase Capital, says he`s increasing his bet that the company`s stock is going down, saying this action marks the beginning of the end for Lumber Liquidators.

Scott Cohen, NIGHTLY BUSINESS REPORT, San Jose, California.

(END VIDEOTAPE)

MATHISEN: Yesterday, we introduced you to Bradley Birkenfeld, the UBS whistleblower. And tonight, he`ll describe how while a private banker at UBS, he was trained to rub elbows with the rich and famous among Americans, and to get them to open Swiss bank accounts where they could hide their wealth from the IRS. But an internal document he discovered soon changed the playing field dramatically.

Eamon Javers has the second part of our “Whistleblower” series.

(BEGIN VIDEOTAPE)

BRADLEY BIRKENFELD, UBS WHISTLEBLOWER: This is the three-page document that caused me to come forward and whistle blow.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s a memo detailing strict guidelines for UBS Swiss bankers with American clients. And one that Bradley Birkenfeld says the bank quietly posted on the internal server without alerting employees.

(on camera): And you were doing all of this stuff that this document tells you, you can`t do.

BIRKENFELD: They were promoting. They told you to do it and they were paying for it.

JAVERS (voice-over): Birkenfeld says he felt as if he and his colleagues and their clients were all being set up.

BIRKENFELD: I went to my boss and I actually confronted him and I almost got physical because I grab — —

JAVERS (on camera): Physical?

BIRKENFELD: Yes, I grabbed him by the shirt. I said I want an answer to this. This is (EXPLETIVE DELETED).

JAVERS: What did he say?

BIRKENFELD: He said, well, don`t rock the boat. I said, I`ll take you outside right now.

JAVERS (voice-over): Angry and frustrated, Birkenfeld says he started copying and hiding documents. Then, he resigned and hired a lawyer who started reaching out to the Department of Justice and other U.S.
authorities.

Birkenfeld describes the DOJ`s response as lukewarm at best.

BIRKENFELD: They pooh-poohed it. They, well, we don`t know if he`s a whistleblower. He`s probably just a tipster.

JAVERS: Still, he says he practically gave them the keys to the UBS vaults.

BIRKENFELD: I gave them PowerPoint presentations, internal memorandum, list of all the bankers, their phone numbers, the hotels they stayed at, the phone numbers they used on the mobile phones.

SCOTT MICHEL, CAPLIN & DRYSDALE ATTORNEY: He was instrumental in the unraveling of Swiss bank secrecy. There`s no question about that.

JAVERS: Scott Michel is an attorney specializing in tax litigation.

MICHEL: It started with Brad Birkenfeld where the unraveling of bank secrecy when from a small group of cases to UBS generally, to other banks in Switzerland, to the Swiss banking community as a whole.

JAVERS: Birkenfeld`s inside information has so far resulted in some of Switzerland`s biggest and best known banks paying about $3 billion in penalties and cause more than 50,000 Americans to confess to secretly stashing money offshore. The price for their actions: a whopping $7 billion in penalties to date. Yet little more than 100 bankers and clients have been indicted, and of those, only a handful have received any prison time at all.

The names of the vast majority of those tax cheats are still a well- kept secret under IRS offshore voluntary disclosure program rules.

MICHEL: Nearly all of them had to admit that they were breaking the law — that in exchange for that, they received protection from the Internal Revenue Service against criminal prosecution.

JAVERS: It`s an open wound for Birkenfeld, who is indicted by the Justice Department.

BIRKENFELD: I gave you the largest and longest running tax scandal in history and you indict me? Why didn`t you get anybody else? Non- prosecution agreement secret for all of these other people, all these other people who just weren`t indicted? Why? What happened?

What? You guys lost the files? What? They fell down the drain?
The dog ate it.

JAVERS: UBS blames people like Birkenfeld who it points out was sentenced to 40 months in prison after being convicted of aiding and abetting tax fraud and for lying to U.S. authorities.

The bank said the problems are now behind it, but what about Birkenfeld himself?

(END VIDEOTAPE)

JAVERS: And, guys, Brad Birkenfeld himself ended up making a lot of money after he did the prison time. Tomorrow night, I`ll tell you how he is spending the money and what he plans to do next, Tyler?

MATHISEN: What`s he doing now? But that`s probably tomorrow, but give me a hint.

JAVERS: I`ll give you a little hint. He lives in New Hampshire. He got $104 million payout from the IRS. Because of his whistleblowing, he`s entitled to a piece of what the government got as a result of his actions.
So, that added up to $104 million. He`s arguing however that — he and his lawyers are arguing that he`s entitled to a little bit more than that, maybe a lot more money. Maybe as much as a billion dollars as a result of all of the money that came back to U.S. coffers because of his whistleblowing.

MATHISEN: He got rewarded and sent to jail.

JAVERS: Paid and sent to jail.

MATHISEN: Eamon Javers, we`ll be watching tomorrow night. Thanks very much.

JAVERS: Thanks, Tyler.

MATHISEN: Sue?

HERERA: I can`t wait. Terrific.

All right. Coming up, a new breed of entrepreneurs. We`re going to meet some older Americans who are taking a leap of faith in finding sweet financial success.

(MUSIC)

MATHISEN: Well, this week is National Small Business Week and the entrepreneurial spirit isn`t just for the young. More Americans are taking the plunge into entrepreneurship later in life and as Kate Rogers
(NYSE:ROG) tells us, they are finding success.

(BEGIN VIDEOTAPE)

JAY LICHTY, LICHTY GUITARS: My name is Jay Lichty. I`m 59 years old. I build guitars and ukuleles for a living.

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Just a few years ago, Lichty was building houses not ukuleles. But his business took a hit during the recession.

LICHTY: I started building ukuleles and guitars strictly as a hobby, to satisfy an urge that I had to play custom instruments and just going to do that until the home industry picked back up, which it never did.

ROGERS: Now, he`s building instruments full time out of his North Carolina home, shipping them all over the world through his online store Lichty Guitars. He`s making six figures, enough not to return to residential construction again.

LICHTY: I was so happy than I ever was building houses and the stress level was so much less than I was willing to take a gamble if somebody called and wanted to build a house, you know what? I`m not available right now.

ROGERS (on camera): While younger entrepreneurs like Facebook`s Mark Zuckerberg may dominate news headlines, it`s actually older entrepreneurs that represented more business activity during the decades from 2003 through 2013, a period when overall entrepreneurship had fallen off.

(voice-over): Sandra Carter, also 59, left a career in health care to launch her medicinal mushroom business in 2010. Now, now her California-based company called Mushroom Matrix sells her products all over the country even at Whole Foods. The company is on track to do $8 million in sales this year. She says her age has given her perspective in running a business.

SANDRA CARTER, MUSHROOM MATRIX CEO: Probably the wonderful things of age, you learn a lot as you go through life. You learn from others. You learn from your mistakes as well.

I can`t say that I was scared. In fact, I think I like the independence of making decisions on my own, and, of course, taking the risk, but I felt tremendous confidence.

ROGERS: Experts say entrepreneurs who launch business later in life find more success as they`re more established financially, experienced in the workplace and have a wider net of connections. Both Lichty and Carter also say that despite the risks, they are happier than they`ve ever been.
There`s no retirement in the cards for them any time soon.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: Finally tonight, it`s graduation season, and here are the highest paying college majors according to Georgetown University. Number three, metallurgical engineering, which pays about $98,000 a year. Next is pharmacy. And the highest paying major is petroleum engineering, where workers are earn $136,000 annually.

That does it for us tonight. I`m Sue Herera. Thanks for joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great evening, everybody. And we will see you right back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2015 CNBC, Inc.

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