Transcript: Nightly Business Report — June 30, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: In the books. The first half of 2015 is history. A number of new highs settled along the way. But were those records deceptive?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: On the brink. Hopes for a last-minute Greek debt deal were dashed — leaving a lot of unanswered questions about what happened next.

MATHISEN: Shedding pounds. General Electric (NYSE:GE) is remaking itself and it’s not wasting any time.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June 30th.

HERERA: Good evening, everyone. And welcome.

The first half of 2015 is in the books and it’s been the tale of two quarters. The first half of the year was designed by low growth, low gas pr lower interest rates. That all started to change in the second. The snow melted and temperatures rose and so did economic growth, consumer spending and rates.

And that cycle took stocks full circle, ending the first half just about where the started the year. For the first six months of 2015, the Dow Jones Industrial Average fell about 1 percent. The NASDAQ, the biggest gainer up 5 percent and the S&P 500 flat.

And today, the final trading session of the month, the second quarter and the half, the Dow rose 23 points to close at 17,619. NASDAQ climbed 28 and S&P 500 gained 5.

Bob Pisani has more on what worked and what stalled out in the first half of the year.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The end of the first half of the year has proved to be a very mixed bag for investors. The S&P 500 is only 3 percent from its may historic high but that’s a deceptive picture. There have been some winners but there’s also been a lot of losers.

First, let’s look at the winners. The banks and health care groups, banks have benefited from a rising interest rate environment and hopes for improving economy. While health care, particularly bio tech, but also pharmaceuticals has also been strong.

But there are many factors that started the year strong and have become stalled in the second quarter. For example, housing stock, started strong as sales and earnings have improved, but there’s a affordability issue hanging over the home builder industry. Prices are high and they’re getting higher, wages are still stagnant when inflation adjusted, and the specters of higher mortgage rates have investors cautious.

Retail stocks have been all over the place. And while there’s a few like Macy’s (NYSE:M) and Target (NYSE:TGT) that have shown an improvement, apparel makers and department stores continue to struggle as sales move online and consumers show a preference for buying electronics over clothing.

Then, there are groups that are clearly in a downtrend. These include transportation stocks as well as interest rate sensitive groups like utility and REITs. There were enthusiastic attempts to buy those energy stocks as the sector bottomed in January but the rallies failed repeatedly as investors began to realize it’s unlikely the U.S. shale sector will see a rapid recovery in the second half of 2015 or even 2016.

The bottom line here, if there was ever an argument for owning a broad portfolio stocks, the first half of 2015 should be exhibit one.

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

(END VIDEOTAPE)

MATHISEN: One of the biggest issues for the market heading into the second half of 2015 is Greece. And today, on the day Greece’s payments to the IMF was due, there was no agreement, no payment, little progress and a lot of back and forth from both sides.

Michelle Caruso-Cabrera has more from Athens.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Greek Prime Minister Alexis Tsipras silent as he arrived at work this morning. But behind the scenes, another round of negotiations in the hopes of a last-minute deal, hopes that were dashed late in the day when the Dutch finance minister said they would try it all again tomorrow.

In the meantime, today, Greece’s bailout program officially expired, leaving the country without a financial lifeline for the first time since 2010. Finance minister Yanis Varoufakis besieged by reporter as he arrived at the office confirmed the country will not pay the 1.7 billion euros due to the IMF by 6:00 p.m. this evening.

With Greece’s banks closed for a second day, the country’s citizens lining up, once again at ATMs to withdraw only 60 euros per day, that is, if they can find an ATM that actually has cash.

Business owners say the economy is coming to a screeching halt. Nikos Kafkalas and his father run a Greek clothing business, distributing to hundreds of shops across Greece. They sourced from 27 overseas factories in eight countries. But yesterday, Chinese banks canceled the company’s letters of credit.

NIKOS KAFKALAS: They don’t trust the Greek banks, and they would not exactly cancel. They say in order to continue, we need a confirmation from your bank but the banks are closed. So I don’t really have anything to do.

CARUSO-CABRERA: So, what do you do?

KAFKALAS: Right now, we’re in a state of waiting. We are spectators in a bad play.

CARUSO-CABRERA: Tonight, a rally held by those who want Greece to stay in the euro and vote yes in a controversial referendum being held on Sunday, asking Greek voters to decide whether or not they should accept a bailout package filled with more tough austerity measures.

President Obama also weighing in on the Greek crisis.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This is not something that we believe will have a major shock to the system but obviously it’s very painful for the Greek people.

CARUSO-CABRERA: Late in the day, Greek government officials went on the national television and said they would consider canceling Sunday’s controversial referendum if Greece could get a good deal. Right now, there are no signs of that.

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

(END VIDEOTAPE)

HERERA: Mike Holland joins us now to discuss what lies ahead for the markets in the second half of the year. He’s chairman of his own money management firm, Holland and Company.

It’s always great to have you with us, Mike. Welcome.

MIKE HOLLAND, HOLLAND & COMPANY CHAIRMAN: Sue, thanks for having me.

HERERA: First of all, let me start with where Michelle left off, Greece. As we go into the second half of this year, how much of an overhang will that situation be for the market, if any at all?

HOLLAND: Do you know that a week from now, Sue, we may actually have something like Greece no longer be in the headlines? It’s hard to believe, given what we’ve had the last several weeks. But if we get, for example, a “yes” vote by the people and then the government, the current government gets thrown out, which they probably should be, we could end up a couple of months from now with a reasonable — the can kicked down the road in a successful fashion and people no longer worrying about Greece today.

And it’s a great segue into the first half. Greece is only the latest of all of the problems that people thought would be extenuating right through the end of the year, extending to the year, and a lot of them are going away. One of which is the Federal Reserve.

So, you have lots of things are going on that may — the fog may be lifted going into the second half, starting with Greece.

MATHISEN: But still, Mike, the market seems some weeks oblivious to the headlines but in the past two weeks, very much captive to those headlines, whether it’s Greece, Puerto Rico, China, even the terror attacks last week around various countries around the world.

Do you expect that kind of sort of captivity in the headlines to be the hallmark of the second half?

HOLLAND: I don’t, Ty. And one of the things that I think that’s been going on in this incredibly illiquid market — a lot of people are out this week for example, so the markets have been volatile. When you have a scarcity of information, a paucity of information to trade on in terms of earnings and things that are going on — let’s remember, we started the year with earnings at one level, and we ended up in the first half with earnings at a much lower expectations level.

I think going into the second half, people actually have a few positive things to ponder going in rather than obsessing about Greek headlines or Puerto Rico or China volatility. I think going into the second half, you could end up with lower earnings expectations being met or exceeded. You could end up with the Federal Reserve actually doing what it said. They’ve been telling us what they are going to do. What if they actually do it? Wouldn’t that be a nice surprise for the market?

And Greece, that people might actually do — we keep hearing — and Michelle Caruso-Cabrera is right on site there, the Greek people want to stay in the euro. And so, they’ll figure out a way to do it. Let’s say that all those things happen, and we could end up with a much more pleasant way with the surprise is not being negatively, but positively.

HERERA: So, where do you deploy cash right now, Mike? What areas of the globe or domestically do you like?

HOLLAND: You know, Sue, because of all of the negative headlines and the volatility, and particularly in the downside in the first half, you’ve ended up with opportunity in each of the three markets we discussed in the past. In the U.S., the large cap that you mentioned, the Dow is actually down a little bit for the first half. Some of the great companies there are yielding big, fat dividends, cash dividends, and they’re trading at very reasonable models. So, we’re going through a litany of those.

And when you have Europe, which I think is going to come out of this thing probably in OK fashion but the valuations are quite reasonable by historic standards. So, I would like at the European companies. And, finally, a little surprise here, the Asian companies led by China. We’ve had a massacre of sorts with very high price companies and the rest of the market is very reasonable. In the past, we talk about buying index funds in China and wouldn’t eastbound think about it now because there’s danger in very expensive companies.

So, if you can find a really good manager to pick the good Chinese companies, I think you have a chance to make some money.

HERERA: Thanks, Mike. Appreciate it. Mike Holland of Holland & Company.

HOLLAND: Thank you, Sue.

HERERA: Ty?

MATHISEN: Well, another big issue for the market, which Mike just referred to in the second half, interest rates, and today, Federal Reserve vice chair, Stanley Fisher, said policy makers are on track to raise interest rates, when there has been further improvement in the labor market and inflation numbers. He added that the job markets still has a way to go before reaching full employment.

HERERA: The Federal Reserve is also watching the housing market, and today we learned that home growth slowed slightly in April. The Case Shiller home price index which covers the entire nation rose just under 5 percent from a year ago. Despite the year-over-year rise, the phase was a bit slower than forecast. Denver and San Francisco posted the strongest gains with prices in both cities rising 10 percent or more.

MATHISEN: Consumer confidence is soaring. The conference board said its index rose this month, as job growth climbed and the incomes increased. Index is closely watched because it can foreshadow gains in consumer spending. But it is a different story for manufacturing, which is still feeling the impact of a stronger dollar.

A separate report today showed that manufacturing activity in the middle west remains in contraction for a second straight month.

Well, business will not be getting done at one federal government agency. Congress left for the Fourth of July recess without reauthorizing the Export/Import Bank charter. Supporters of the bank say they will seek to renew the charter retroactively next month, and as we told you last night, it is not just companies just like Boeing (NYSE:BA), 3M (NYSE:MMM) and GE that rely on financing from the bank, but also very small businesses.

HERERA: Also in Washington, the deadline to secure a nuclear deal with Iran has been pushed back to July 7th from today, and President Obama made it clear there’s still a lot of negotiating that needs to get done.

(BEGIN VIDEO CLIP)

OBAMA: There has been a lot of talk on the other side from the Iranian negotiators about whether, in fact, they can abide by some of the terms that came up in Lausanne. If they cannot, that’s going to be a problem, because I’ve said from the start, I will walk away from the negotiations if, in fact, it’s a bad deal.

(END VIDEO CLIP)

HERERA: John Harwood has been following the talks from Washington.

And, John, we’ve seen these extensions several times before this latest one. So what are the prospects for a deal?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: I think it’s iffy but still likely that they will reach one. I don’t think the Obama administration would have extended the deadline once again if they didn’t think that there was a reasonable chance of success and he clearly has made this a very high priority in his foreign policy before leaving office in less than two years’ time and he believes he’s got a shot at it.

And public opinion, interestingly, has moved somewhat in his favor. If you look at our most recent NBC/”Wall Street Journal” poll when you ask, whether people are supportive of this potential Iran deal, you see 36 percent saying, yes, I’m supportive of it, and the number opposed has fallen.

Now, you still have a plurality of people, more than 45 percent, who say they don’t know enough about the deal, not surprising given the complexity of it, but at least this suggests there’s a window in public opinion for him to move and he’s going to try to go through that window.

MATHISEN: John, why did the president go out of his way to say he would walk away from the table if the deal wasn’t a good one?

HARWOOD: I think, Tyler, because he’s been getting some pressure and criticism from Republicans, and also from some of his own party who worry that he may be too eager to make this deal because of his desire to establish a foreign policy legacy and conclude the effort to halt the Iranian nuclear program. So, he has said repeatedly but in the wake of this criticism he said, I’m not going to trust the Iranians. This is going to depend on verification, and if we can’t get agreement and consensus with the Iranians that they are going to let us verify what we commit to in this deal, I won’t make the deal.

HERERA: John, thank you, as always. John Harwood in Washington.

MATHISEN: Still ahead, some of the funds with the biggest exposure to Puerto Rico. We’ll name names as the island’s financial future remains in limbo.

(MUSIC)

HERERA: Think investors here have seen a pickup in volatility recently? Well, you should see what’s been happening in China. Chinese shares are up 25 percent this year, but it’s been anything but a smooth ride.

Eunice Yoon has more from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chinese stocks were on a roller coaster ride on Tuesday. The Shanghai Index plummeted in the morning by 5 percent before reversing course and ending the day higher by more than 5 percent in a massive swing. Chinese authorities were talking up the market a little bit by encouraging fund managers to make rational investment decisions and to look for buying opportunities.

The securities regulator also in a rare statement urged investors not to panic and to stay calm. Now, these efforts come after similar measures by the government to try to shore up investor confidence over the weekend. The authority has cut interest rates, and also on Monday, they unveiled a blueprint allowing pension funds to invest in the stock market.

Now, a lot of people here see all of these measures as a way for the government to continue to push and encourage the stock market rally, keep those stock market prices sustained. But despite the efforts to stabilize sentiment, a lot of investors here are still very nervous, jittery about losing their money and so, most analysts say we should expect to see a lot of volatility in the Chinese stock markets for the weeks to come.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.

(END VIDEOTAPE)

MATHISEN: From China to Puerto Rico we go. Last night, we told you, the island is standing on the financial precipice unable to pay most of its debt.

Tonight, Kate Kelly reporting from San Juan tells us what options Puerto Rico might have.

(BEGIN VIDEOTAPE)

KATE KELLY, NIGHTLY BUSINESS REPORT CORRESPONDENT: In an emotional speech last night, Puerto Rico’s governor argued that excessive debt was dragging down the islands, and urged investors to consider a restructure plan for collecting interest on their loans. Arguing his island’s finances were in a death spiral, Governor Alejandro Garcia Padilla has asked for leniency from Puerto Rico’s creditors, who are owed some $2 billion on July 1st.

And the night before the due date, the government has only committed to only paying $645 million in general obligation bond interest so far.

The rhetoric has sparked some backlash, both in the investor community where some say that attempts to make a debt deal had been ignored, and in political circles where Puerto delegate Pedro Pierluisi has argued that the government hasn’t done enough to grow jobs and that talking default is just one way to slide off the hook.

REP. PEDRO PIERLUISI, PUERTO RICO: We cannot continue imposing new taxes on our people and our businesses. We need to grow this economy. But that’s what we should be going through and we should be avoiding talk about any default or any moratorium. That doesn’t help anybody.

KELLY: Pierluisi is pushing for chapter 9 bankruptcy illegibility for Puerto Rico, which could give it access to an orderly debt relief process. But in the meantime, he’s asking for inclusion on a new government task force to discuss the matter. Meanwhile, we’ll see if rest of that debt money comes through on Wednesday.

For NIGHTLY BUSINESS REPORT, I’m Kate Kelly in San Juan, Puerto Rico.

(END VIDEOTAPE)

MATHISEN: U.S. mutual funds, the kind you and I might own, have more than $11 billion of total exposure to Puerto Rican debt.

According to Morningstar (NASDAQ:MORN), here are some of the funds with the greatest exposure: Franklin Double Tax-Free Income, Oppenheimer Rochester Maryland Municipal, and the Oppenheimer Rochester Virginia Municipal.

To see what other funds have high exposure, head to our web site, NBR.com.

HERERA: An $18 billion merger is where we begin tonight’s “Market Focus”.

The insurance broker Willis Group will combine with the human resources consultancy company Towers Watson (NYSE:TW). The new company will be called Willis Towers Watson (NYSE:TW), and will be domiciled in Ireland, benefitting from that country’s low corporate tax rate. Willis popped more than 3 percent to $46.90. Towers Watson (NYSE:TW) tumbled almost 9 percent to $125.80.

ConAgra is looking to sell its struggling private level food business less than three years after it spent $5 billion to buy it. Also, the firm announced its earnings top estimates, although revenue was below forecast. Nonetheless, shares were a fraction higher to $43.72.

The activist firm Trian Fund Management led by Nelson Peltz has taken a 7 percent stake in Pentair (NYSE:PNR). According to reports, that firm, once a maker of pumps and valves, to consider buying up it is rivals in an effort to consulate the fragmented market for special parts. Shares rose almost 7 percent to $68.75.

MATHISEN: Pep Boys may put itself up for sale. The auto part seller is reviewing strategic options to increase shareholder values, like a sale or merger. I think they should get rid of Manny and Mo but keep Jack. This comes just two weeks after the company appointed a new chief executive. Shares were a fraction of Manny, Moe and Jack, placed at $12.27.

The executive chairman of Qualcomm (NASDAQ:QCOM) says the company has no plan to spin off its chip business. The comments come even as investors have been pressuring the company to split up because of intense industry competition. The stock up a penny today to $62.63.

General Electric (NYSE:GE) continues to make progress in trimming its finance arm, as it works towards the goal of generating 90 percent of its income from its industrial base. So far this year, shares of GE have risen almost 6 percent.

Mary Thompson reports.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Electric’s goal is clear — sell close to 100 billion in financial assets by year end.

JEFF IMMELT, GENERAL ELECTRIC CEO: Now is the time to do it.

THOMPSON: In April, CEO Jeff Immelt and his lieutenants embarking on an ambitious plan to shed $200 billion in financial assets by the end of 2016, half of which it wants off the books by the end of this year.

The sale is happening for two reasons: shrinking the finance arm will transform GE into an almost pure play industrial firm. By 2018, 90 percent of its profits slated to come from business like power and water, jet engines and health care. Second, in trimming the finance unit, a huge source of profits in good times, that almost brought the firm down during the financial crisis, the conglomerate can apply to remove its designation as a systematically important nonbank company. Removing the designation means GE is no longer subject to federal oversight.

IMMELT: There’s buyers for all of these things.

THOMPSON: The latest buyer, Sumitomo Bank, paying $2.2 billion for the GE unit providing financing to European private equity firms. The sale bringing total amount of assets sold this year to $68 billion, putting GE within striking distance of its goal.

So far, analysts say GE has received good prices for the assets it sold, which include a Hungarian bank. Its real estate lending unit, its fleet services business, as well as the financial unit that deals with domestic private equity firms.

The next assets on the block, likely to be a unit providing funding for health care facilities and the well-respected commercial lending and leasing operations, supporting franchises and other businesses.

GE quickly cutting ties to its past to ensure a more stable future.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: Coming up, will the new proposed rules for overtime pay turn into a headache for small businesses.

(MUSIC)

HERERA: Here’s a look at what to watch for tomorrow. The precursor for Thursday’s June jobs report number is ADP report. And we’ll get another big read on the economy with the ISM manufacturing index. And June auto sales are out. And that’s what is to watch for Wednesday.

MATHISEN: Apple (NASDAQ:AAPL) Music making its debut today. The new streaming service comes with the company’s phone software update. There’s a three-month free trial period, and then users have to pay about 10 bucks a month with the on demand app, which has a library of more than 30 million tracks.

HERERA: Cheaper gas put a good chunk of money back into consumers’ pockets. That’s according to the AAA. Americans saved a total of 65 billion in the first half of this year, and hat equates to about $530 per household.

MATHISEN: Proposed new rules could help millions more Americans become eligible for overtime pay. Recently, we told you about a congressional hearing that was examining the issue. Today, we got more details and the proposal could have a big impact on small business.

Kate Rogers (NYSE:ROG) has more.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The fight to raise the minimum wage may be stalled at a federal level, but President Obama is moving forward with a push to offer greater overtime protections to nearly 5 million workers. Obama announced on Monday night in a blog, his proposal to extend overtime pay in 2016 to white collar workers making up to $50,400 a year from today’s $23,660. The president will elaborate on the rules in Wisconsin on Thursday, and there will be a period of public comment to follow.

The president’s overtime proposal prompted a swift reaction from Main Street advocates, claiming the rules would hold small companies back from hiring and expanding.

The move would, in particular, hit small retailers, restaurants and franchise operators.

BETH MILITO: For Main Street businesses, this is going to be really problematic, particularly small business in rural areas that are going to bear a disproportionate cost with the new rule, and for workers, too. It’s really problematic. It’s going to mean less promotional, probably lower benefits, and less flexibility.

Small business owners just are not going to have those positions, like assistant management positions. And that helps somebody, you know, get to work their way up the ladder.

ROGERS: But advocates say the policy will be easier to understand for small businesses and cause them to take a better look at the way hours are allotted between workers.

JUDY CONTI: These overtime regulations are not only good for workers, they’re good for businesses as well. This will cause them to look at their hour practices and the way that they assign work, and either decide that the people who are doing overtime are worth the extra money and pay them that or, in a lot of cases, they will probably look to spread hours among more workers.

And, in doing so, they’ll turn more part-time jobs into full-time jobs. They’ll create more jobs for people who are unemployed.

ROGERS: Another defense tactic among advocates, higher wages means more cash on hand for consumers and more spending on Main Street.

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

(END VIDEOTAPE)

HERERA: And finally tonight, one British man has made it possible for you to help save the land of ouzo and pita. Thom Feeney has launched a Greek bailout crowdfunding campaign, seeking to raise the $1.6 euros that Greece was supposed to pay the IMF few day. Feeney is far from his goal, but he made a small dent, raising more than 250,000 euros by late Tuesday before the site crashed.

If everyone in the European Union could just pony up 6 euros, he would meet his goal.

MATHISEN: He’s, what, 1/10,000th of his goal. But good luck for him.

HERERA: And, you know, that’s a lot of ouzo and pita, right?

MATHISEN: That’s right.

HERERA: All right. That does 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, everybody. And we’ll hope to 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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