Transcript: Nightly Business Report — June 29, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Global selloff. If investors weren’t paying attention to the Greek debt, they are now. Stocks sold off around the globe, with the Dow Jones Industrial Average plunging more than 350 points.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Island of debt. Puerto Rico faces an historic default on billions of dollars of debt. And muni bond mutual fund owners are paying very close attention.

HERERA: Up in smoke? Why a Supreme Court ruling leaves the president’s landmark environmental regulations in doubt.

All that and more tonight on NIGHTLY BUSINESS REPORT NIGHTLY BUSINESS REPORT for Monday, June 29th.

MATHISEN: Good evening, everyone, and welcome.

A day of high drama in Greece, in Puerto Rico, and in stock markets around the globe. On Wall Street, U.S. stocks had their worst day of the year. The Dow plunged 350 points, nearly 2 percent, as positions hardened in that long-simmering Greek debt crisis. Greece says the payments due to the IMF won’t be paid. And late today, Prime Minister Alexis Tsipras turned up the rhetoric against Greece’s creditors, urging Greeks to reject the terms of an international aid deal in a referendum he has called for this Sunday. He said the stronger the rejection of the creditor deal, the stronger the Greek hand in any future talks.

His comments followed another credit downgrade from Standard & Poor’s, which said at a commercial default in Greece was inevitable within six months, and that the probability of Greece exiting the Eurozone now stands at 50 percent, that’s well above any prior prevailing views.

By the close, the Dow Jones Industrial Average fell 35 to close at 17,596. The NASDAQ was off 122, and the S&P 500 fell a sizable 43 points. European financial markets were jolted. The so-called PIGS stumbled. Portugal and Italy’s stock markets fell 5 percent, Spain off 4 1/2 percent. With Greece, the Greek stock market closed until at least July 6th, the Greek ETF fell 20 percent today.

Michelle Caruso-Cabrera has our story from Athens.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: As night falls in Athens, it is the end of a pivotal three days for Greece. It started late Friday night when Alexis Tsipras, the prime minister, announced after midnight on national television that he would hold a referendum this coming Sunday for the Greeks to vote on whether or not they want to accept a new bailout package from Greece’s international lenders.

He described the package as too harsh, as blackmail. He said the Greek people should vote against it and that would give them a better hand in negotiations.

Within hours of that announcement late Friday night, that’s when Greeks started lining up at ATMs across the country, a bank run in the middle of the night that extended throughout the weekend and eventually led to the ECB saying they had had enough, they could no longer extend more liquidity to the Greek banks. As a result, they didn’t open this morning.

As we face this referendum less than a week from now, it’s growing increasingly possible that Greece could leave the euro, hence why so many people were taking money out of the ATMs over the weekend. In fact, Standard & Poor’s came out today and said they think that now there’s a 50 percent chance of Greece leaving the euro.

Alexis Tsipras once again on television tonight telling the Greek people he doesn’t think Greece has to leave the euro, even if the Greek people vote against the bailout program. He does not think the Eurozone will kick Greece out.

ALEXIS TSIPRAS, GREEK PRIME MINISTER (through translator): They will not get out the Eurozone. Let me explain why, because the cost is immense — the economic cost, the financial burden.

CARUSO-CABRERA: As the prime minister was speaking on television, in the square you see behind me in front of parliament, thousands of Greeks were out to support him. What they call a vote no rally chanting “ohi, ohi”, that’s Greek for no.

But tomorrow night, same time, same place, a yes vote rally, and you can be sure everyone will be watching the size of the crowds to get some kind of inkling as to how Sunday’s vote might turn out.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Athens, Greece.

(END VIDEOTAPE)

HERERA: And the Treasury Department is urging all parties to get back to the negotiating table ahead of that Greek referendum. And it’s urging Greece and its creditors to find a compromise that balances reforms with debt measures. A treasury official also reiterated that U.S. exposure to Greece is minimal.

MATHISEN: Western Union (NYSE:WU), the world’s largest money transfer company, reportedly closing for business in Greece for at least the rest of the week. This according to “Reuters”, the company has not seen an increase in money moving out of the country, but that it did see a rise in funds going in to the country over the past two months.

HERERA: And now to Puerto Rico, which has major debt problems of its own. The island’s governor says its bills are not payable, and has concluded that the commonwealth cannot pay it’s $72 billion in debt. And investors who own municipal bond funds are paying close attention.

(BEGIN VIDEOTAPE)

HERERA (voice-over): Late this afternoon, Puerto Rico’s governor delivered the news. The U.S. island cannot afford to pay its debt, and some painful belt tightening lies ahead. Puerto Rico’s legislators are hashing out a new budget which aims to cut costs. It also sets aside $1.5 billion to help pay its debt. But that will hardly put a dent in its bills.

Now, more than $70 billion. The painful changes begin Wednesday when Puerto Rico’s sales tax climbs from 7 percent to 11 1/2 percent, and later this year, citizens will begin paying a new 4 percent tax on professional services.

Despite the new revenues, the situation is worse than we thought, according to a report from a former chief economist at the World Bank. It says Puerto Rico’s economy is redlining and needs immediate attention. It says, quote, “The government’s cash balances can evaporate in the face of delays, reducing the room for maneuver and intensifying the crisis,” end quote.

Puerto Rico’s tax-free bonds have been popular here at home.

ALEXANDRA LEBENTHAL, LEBENTHAL & COMPANY: Half of municipal bond funds own Puerto Rico bonds. So, there already have been declines as this crisis has continued.

HERERA: Some investors cashed out when Puerto Rico’s troubles made headlines last year. Also feeling the effects are hedge funds, and distressed debt buyers who have bought more of that debt as the island’s economy has gotten worse.

Puerto Rico’s economic slump now almost a decade long has made things worse. So, just as it has in Greece, the situation has been festering for years.

LEBENTHAL: I don’t see a contagion spreading. You know, I think what you have here, and this is similar to Greece, is that you can’t keep kicking down — the can down the road. There is a point at which the road ends or there’s a brick wall, and we’re at that point right now with Puerto Rico.

HERERA: Also like Greece, Puerto Rico may consider bankruptcy, especially since the White House said today it is not considering a bailout. But bankruptcy would have to be approved by the U.S. Congress, which is already discussing a reorganization of some public agencies, like the electric utility which owes $9 billion.

Puerto Rico’s constitution requires debt payments be made before any other financial obligation are met. So, ignoring the debt would mean a vote on a constitutional amendment. Sound familiar?

For now, Greece may be the word, but it’s hardly the only word when it comes to debt, and the global economy.

(END VIDEOTAPE)

MATHISEN: The Puerto Rican debt crisis is pressuring shares of some of the largest bond insurers lower. Assured Guaranty (NYSE:AGO), MBIA (NYSE:MBI) and Ambac Financial ensure roughly a fifth of the island’s $73 billion in municipal debt and as you may recall, these are the same types of insurers that were so hard-hit during the housing crisis a few years back. Puerto Rican banks like Popular (NASDAQ:BPOP) and First BanCorp PR also took a hit today.

HERERA: And certainly not helping the markets today, as well, China. The Shanghai Composite fell more than 3 percent, extending losses over the past month. China’s main stock index is now in bear market territory, falling 22 percent since its high on June 12th. The smaller Shenzhen Composite, which is a tech heavy index, fell 6 percent overnight. The declines came despite the central bank cutting interest rates to record lows.

MATHISEN: Then there’s the Iran nuclear talks. The White House confirming today that negotiators will likely miss their self-imposed deadline, that’s tomorrow. But negotiators will remain in Vienna past the deadline to hammer out a possible agreement. Among the sticking points, the rate at which sanctions would be removed on Iran, and inspections of Iranian nuclear facilities.

HERERA: For more on all of those global flashpoints, and today’s market selloff, we’re joined by David Kelly, who is chief global strategist at JPMorgan (NYSE:JPM) Fund, and Jim Paulsen, who is chief investment strategist at Wells Capital Management.

Gentlemen, welcome, first of all.

David, I’m going to start with you. There are many different stories that impacted the market today. But let’s start with Greece if we could. How do you think this is all going to play out? What resolution are you anticipating?

DAVID KELLY, J.P. MORGAN FUNDS CHIEF GLOBAL STRATEGIST: Well, it’s very uncertain, of course, that’s why the markets sold off so much around the world.

What we think is the first important thing to recognize is that unless something strange happens here, Europe is relative insulated from a disaster in Greece. The European banking system is solid. It’s very well-capitalized. European Central Bank stands ready to help problems on the periphery. The other peripheral countries are doing better. So, this is really a Greek problem.

But as to how it turns out, you know, I think, there are really two issues. One is do the Greek people vote yes or no next Sunday? And, if they vote no, then how does this all unravel? But it will unravel, if they vote against this agreement.

I think Alex Tsipras is selling his people a bunch of malarkey, that they will be in desperate, desperate trouble if they all vote no next Sunday.

MATHISEN: Jim, I want to turn to you. But let me continue with David for a minute.

Is it possible, David, that Greece would default on its obligation but stay in the euro currency? What would that look like? And then what would it look like for Greece and Europe if they default and leave the European currency?

KELLY: Well, yes, because there is no mechanism, really, for easily getting out of the euro or abandoning it. But what would happen is they could be left in a limbo where, yes, technically they’re part of the euro so that’s the legal tender within Greece. But the problem is the government will have no way of borrowing money and the banks will have no way of lending money.

The banks, the really crucial player here is the ECB. If the European Central Bank does not protect and provide funds for the Greek banks, then they will essentially go bankrupt. And if that happens, they will not be in a position to lend money to Greek businesses, which will collapse. Moreover, with tax revenues falling, the Greek government will not be able to pay its day-to-day bills, never mind servicing the debt. So, they’ll be issuing IOUs.

So, you have an enormous economic crunch, even if technically the euro remains their currency. So, to me, that’s sort of a side issue. The problem is, not whether they join euro, they won’t have any euros.

HERERA: Right, exactly.

Jim, you know, the U.S. market reacted not only to Greece, but also to China, and also to Puerto Rico. So, there are a lot of cross-currents in here. From an investor standpoint focusing on domestic U.S. equities, what can you do in a situation like this? What’s your best strategy for people?

JIM PAULSEN, WELLS CAPITAL MANAGEMENT CHIEF INVESTMENT STRATEGIST: Well, I’m little cautious, Sue. You know, you just list that litany there at the front end of how many different issues.

This is not just about Greece. This is about so many different things up in their right now. And we’re talking about a market that’s been vulnerable for awhile. It hasn’t done much, for much of the last nine months or so, has been unable to sustain really a rally.

We’ve got earnings concerns in the States. We certainly face imminent rate increase at some point this year. We’re going to find out more about that in a couple days.

So, I just think there’s a lot of risk in the air. So, I would be a bit cautious. I wouldn’t be surprise if this is the front end of a correction. It doesn’t have to be. But, I certainly could see where that would be the case. We have relatively extended valuations, as well.

But I would — I would personally certainly take advantage of the European situation, if you don’t have any exposure there. I would take advantage of what’s happening, because ultimately, I think Greece is either going to go, or it’s not going to go. But I think the Eurozone outside of Greece is showing better and better economic improvement, and I think this is an opportunity to buy those stocks for a temporary phenomenon over there.

The U.S. has other issues, but I think that that Eurozone is a good opportunity. So, that’s how I approach this a little bit.

HERERA: All right. Thank you, gentlemen, so very much. We appreciate it. David Kelly and Jim Paulsen, thank you both.

MATHISEN: Well, countries and territories aren’t the only ones that have to deal with credit issues, cities do, too, as evidenced by Atlantic City in New Jersey, which is still reeling from economic woes, financial missteps and Superstorm Sandy.

Morgan Brennan is down the shore with more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This time last summer, both of these casinos, the Showboat and Revel, were still open. The boardwalk bustling with visitors.

But a lot has changed in the year. The East Coast’s one time gaming Mecca has lost four casinos, a third of its supply since 2014. Gaming revenue has plummeted by 50 percent since 2006. And two operators Trump Entertainment and Caesar’s Entertainment are currently in bankruptcy.

The city is crumbling to close a $100 million budget shortfall, and its bonds are rated at junk, a scenario that spooked investor as Wall Street analysts have warned of the growing risk of bankruptcy.

But officials insist that won’t happen, that the worst may be over for the struggling seaside resort.

DON GUARDIAN, ATLANTIC CITY MAYOR: By the time we reach August, leave here we’re going to have our balanced budget. We’re going to have a lot of support from the state.

BRENNAN: Less local competition has meant more revenue for surviving casinos as well, which in May posted a 5 percent increase over last year.

That reversal of fortune has been driven by increases at the Golden Nugget Resort, Tropicana, and here, the Borgata, which with $264 million winnings so far this year continues to be the most profitable.

TOM BALLANCE, BORGATA PRESIDENT & COO: Eight casinos seem to be servicing the customers well and you can really see strength in the surviving casinos. The employees get more hours, people are taken care of better, there’s capital reinvestment going back into those properties in a way that just didn’t happen when the market was oversaturated.

BRENNAN: But even more competition is coming, with projects planned in New York, Massachusetts, Virginia, and if some politicians have their way, Northern New Jersey, from which some gaming taxes would be funneled to AC.

In light of all of this, Fitch ratings remains negative.

MICHAEL PALADINO, FITCH RATINGS ANALYST: It’s certainly negative from an overall market gaming revenue market standpoint, but from a market stability standpoint and giving Atlantic City the potential to invest in other projects like theme parks or entertainment, where it can attract people to the location, could ultimately be a good thing.

BRENNAN: And reinvent itself as an entertainment destination is exactly what Atlantic City is attempting to do, starting with a playground — a brand-new $50 million with retails, restaurants and music, located in the $200 million pier shops at Caesar’s. Philadelphia-based Tower Investment got the property for pennies on the dollar.

BART BLATSTEIN, TOWER INVESTMENTS CEO: Fire sale, distress sale, the lender just wants to get out and be done with it. They wrote down the debt, and it’s time to move on. I’m the developer and we have a development company. So, this was a great opportunity.

BRENNAN: Both Revel and Showboat have new owners as well, though plans for them remain to be seen. But as we head into the busiest week of the year, Atlantic City’s future, though not quite as bleak, is still a roll of the dice.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Atlantic City, New Jersey.

(END VIDEOTAPE)

HERERA: Still ahead, the Supreme Court deals a major blow to the Obama administration. Details next.

(MUSIC)

HERERA: A new report shows the housing market. Pending sales of existing homes hit a nine-year high. The National Association of Realtors says its index based on contracts signed last month increased 0.9 percent. Contracts have now risen for five straight months.

MATHISEN: In Washington, the Supreme Court overturned a landmark EPA air pollution rule. In a blow to the White House, the justices ruled against the Obama administration’s attempt to limit power plant emissions of mercury and other pollutants. Coal stocks, many of which have gotten hit very hard over the past few years, rose today on that ruling.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Officials from 23 states, along with utility industry groups, challenge the Obama administration’s plans to limit power plant emissions of mercury and other pollutants. They argued the regulations were too costly for coal miners, business and consumers. In a 5-4 decision, the Supreme Court ruled those costs estimated by the EPA at $9.6 billion per year should have been considered by the agency.

Justice Antonin Scalia wrote, “EPA refused to consider whether the cost of this decision outweighed the benefits.”

Business groups and regulatory experts are praising the court’s decision.

TODD GAZIANO, PACIFIC DEAL FOUNDATION: Today, the Supreme Court affirmed a very commonsense principle that EPA and other agencies too often ignore. And that is that they must consider cost and they can’t issue a regulation where the costs greatly swamp the benefits to the people that they’re intended to help.

PEARSON: Sometime this summer, the EPA is set to release new rules aimed at curbing pollution from plants linked to carbon dioxide and global warming. States are already challenging the proposals even before they are final.

But at the White House today the president’ press spokesman says today’s court ruling will not impact those plans.

JOSH EARNEST, WHITE HOUSE PRESS SECRETARY: There’s no reason that this court ruling should have any impact on the ability of the administration to develop and implement the clean power plan.

PEARSON: The rules at the heart of this court challenge have bee in effect since April. But the case now goes back to a lower court. Where the EPA will have to decide how to account for those costs.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson at the Supreme Court.

(END VIDEOTAPE)

HERERA: In a separate ruling, Oracle (NASDAQ:ORCL) was handed a legal victory when it declined to hear Google’s appeal in a copyright case. The decision upholds a ruling that allows Oracle (NASDAQ:ORCL) to seek licensing fees for the use of some of the java language. Google (NASDAQ:GOOG) argued it should be able to use java without paying a fee.

MATHISEN: The Supreme Court also rejected a bid by BP and Anadarko over fines related to the 2010 oil spill in the Gulf of Mexico. The companies had argued that the oil leak didn’t spring from a well they co-owned but rather from a broken underwater pipe that belonged to Transocean (NYSE:RIG).

The justices, however, let stand a lower court ruling that said the companies could not avoid federal fines for the spill by blaming another company. BP could face a maximum fine of nearly $14 billion, and Anadarko could face $1 billion under the Clean Water Act.

HERERA: Sysco (NYSE:SYY) walks away from its U.S. Foods merger, and that is where we begin tonight’s “Market Focus”.

The food company abandoning its planned $8 billion purchase of its rival after a federal judge ruled against that merger. Sysco (NYSE:SYY) says it has different strategist for its future, including a share buyback of $3 billion. Shares fell 2 percent, $37.54.

General Electric (NYSE:GE) continues to slim down. Today, the company revealing plans to sell its fleet business for nearly $7 billion. The unit is part of GE Capital which the company recently announced it would sell most of over the next the two years. Shares were off more than 1.5 percent to $26.64.

MATHISEN: Gannett (NYSE:GCI) has completed a split of its print and broadcasting divisions. The new unit which is called Tegna went public today. The firm will run TV stations and websites like Careerbuilder.com. Tegna rose 6 1/2 percent to $31.63. Gannett (NYSE:GCI) meantime fell 5 percent to $14.13.

News that Celgene (NASDAQ:CELG) and Juno will enter a 10-year collaborations sent shares of Juno way higher after the close. Celgene (NASDAQ:CELG) will make an initial payment of about $1 billion, including a stock purchase. The two firms worked together on cancer and autoimmune disease treatment. Juno popped as much as 50 percent after the close. Boy, look at that chart. Celgene (NASDAQ:CELG) didn’t move much initially after hours.

HERERA: NBC is severing its business relationship with Donald Trump. The network cited comments Trump made about immigrants during the announcement of his presidential campaign. NBC said it will no longer air the annual Miss USA and Miss Universe pageants, which had been a joint venture between the company and Trump. And “Celebrity Apprentice” will continue without Trump. Trump said he stands by his comments.

MATHISEN: Coming up: why small business are anxiously awaiting the fate of a not often talked about federal agency.

(MUSIC)

HERERA: Here’s a look at what to watch for tomorrow. A look at the housing sector as the Case-Shiller home price index comes out. The index tracks home values in 20 metropolitan regions. The Institute for Supply Management Chicago survey gets a look at business conditions in the Chicago area, but is also looked at as a barometer for the U.S. economy. And the attitude of the consumer is in the spotlight when the conference board’s consumer confidence survey is released. And that’s what to watch for Tuesday.

MATHISEN: In Washington, another deadline is fast approaching. The Export-Import Bank charter expires at midnight tomorrow. The 81-year-old agency helps big companies like Boeing (NYSE:BA) sell their products abroad, but it’s also a financial lifeline for a number of small businesses.

Kate Rogers (NYSE:ROG) reports.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susan Axelrod’s business may be small in size, but her reach is global.

SUSAN AXELROD, LOVE & QUICHES GOURMET: All over the Middle East, which is Qatar, the United Arab Emirates, we have customers in Japan, Mexico, Canada.

ROGERS: This, thanks in large part, to the Export-Import Bank of the United States, which makes and guarantees loans and provides insurance to small and big businesses exporting overseas. The bank is a lifeline for business like Axelrod’s Love and Quiches Gourmet on Long Island, which exports about 30 percent of its quiches and cakes. Ex-Im provides insurance for Axelrod’s exports, something U.S. companies wouldn’t consider due to high risk.

AXELROD: Emerging countries, which are very many of our targets, they’re just not interested in doing business.

ROGERS: On Tuesday, the 81-year-old bank’s charter expires, and a reauthorization vote has yet to be scheduled. Last year, the Ex-Im Bank did about $20 billion in financing, about a quarter of that going to small businesses which make up 90 percent of its deals. The funding supported $27 billion in exports and 164,000 American jobs.

But critics, including Representative Jeb Hensarling say the bank needs to go because three quarters of the money spent goes to a small number of very large companies like Boeing (NYSE:BA) and GE.

REP. JEB HENSARLING (R), TEXAS: At the end of the day, Ex-Im is about taking credit off of Fortune 50 balance sheets and putting it on the balance sheets of the poor, beleaguered American taxpayer.

ROGERS: Right now, no vote is set on the bank’s fate although there is buzz that the Senate may take up the issue in July. Until Congress acts, the bank won’t be able to make any loans.

Love and Quiches is an established business, so Axelrod is confident that they can sustain, even if the bank is not reauthorized. But the bigger concern here is for other small businesses that might lose out on the opportunity to become exporters.

AXELROD: Thousands and thousands of companies that don’t have the wherewithal that we do, and you know, won’t have access or won’t be able to afford the more costly insurance.

ROGERS: And without the banks, the risk on Main Street could grow.

For NIGHTLY BUSINESS REPORT in Freeport New York, I’m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: Good luck. I hope it works.

MATHISEN: Quiches and cakes look awfully good.

HERERA: It looks really good.

MATHISEN: I’m hungry.

HERERA: That does it for NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks for watching.

MATHISEN: I’m Tyler Mathisen. Thanks for me, as well. Have a great evening, everybody. And we hope you will see us and we you tomorrow.

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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