Transcript: Nightly Business Report – September 14, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Too close to call? The factors the Federal Reserve weighs as it prepares to make what could be a historic decision on interest rates.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: Your money. How higher interest rates may impact your long-term investments from your bond holdings to CDs.

MATHISEN: College calculus. Is a degree really worth the price of admission? New data helps students answer that question.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, September 14th.

EPPERSON: Good evening, everyone, and welcome. I`m Sharon Epperson, in tonight for Sue Herera.

MATHISEN: And welcome from me as well. I`m Tyler Mathisen.

Is it really halfway through September?

Well, finally, it`s here, the week that investors across the globe have been waiting for, pointing to, worrying about for months. On Thursday, the Federal Reserve will announce its decision on interest rates and just possibly the Central Bank will hike rates for the first time in nearly a decade, taking what could be the first step away from an era the ultra-low interest rates put in place, of course, during the financial crisis.

But whether policymakers move is anything but certain. A month ago, many if not most economists felt the Fed was positioned to hike the rates, but that all changed as extreme volatility and uncertainty overseas bled into markets here. Now, just days before the meeting, many are calling it a tossup.

Hampton Pearson takes a look at the factors the Federal Reserve must weigh.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the countdown to what could be an historic Federal Reserve meeting continues, the debate over whether monetary policymakers will raise rates by the first time in more than a decade has become too close to call.

Economic turbulence in China in recent weeks and market volatility has jump-started the debate over the timing of liftoff.

JOHN TAYLOR, STANFORD UNIVERSITY: By all the macro fundamental indicators, it`s about time. And I think the debate really is more whether the turbulence in the last few weeks coming out of China and other parts of the world affecting our own markets is a reason to slow down on this.

PEARSON: Since the last Fed meeting, Janet Yellen and her fellow monetary policymakers will have data showing a rebound in economic growth, a solid job market averaging more than 200,000 new hires per month with August headline unemployment down to 5.1 percent. In the next two days, policymakers will get new data on retail sales and the other half of the Fed`s mandate — inflation.

ED KEON, QMA MANAGING EDITOR: I think they made it clear they think of a lot of different things, but the most important things are what are the labor market conditions, which are getting much better and what is inflation? Inflation has stayed low. If anything, it looks like it`s dropping.

PEARSON: Perhaps the biggest wild card is how the markets react to the first reduction in monetary stimulus in nearly a decade, part of the balancing act for policy makers, because the markets and the Fed have become codependent.

Two Washington wildcards for the fed — a possible government shutdown at the end of September if Congress can`t resolve budget disputes and Treasury Secretary Jack Lew predicts a face off with Congress in late October, early November, over increasing the debt limit.

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

(END VIDEOTAPE)

EPPERSON: Whether a rate hike comes later this week, later this year or even into next, it is coming. And there will be more after that, but the pace of the interest rate hikes is expected to be gradual. And the size of each rate hike expected to be small.

So, while the impact may be limited in the short it were, the same can`t be said for the long-term effect. According to the most recent CNBC Fed survey, economists see the cycle ending in about three years in the third quarter of 2018, with the Fed funds rate reaching 2.79 percent. The current Fed funds rate target rate is near zero.

And there are steps you may want to consider taking right now to prepare for higher borrowing costs down the road.

(BEGIN VIDEOTAPE)

EPPERSON: If the full thrust of the rate hike debate has you wondering what to do with your investments, you`re probably not alone. Yes, the changing interest rate environment can cause violent swings in the stock market, those ups and downs, though, as dramatic as they may be, are a good reason to keep an eye on your asset mix.

Rather than worrying about where the stock market will be next week or next month, stay focused on your longer-term investment goals. With rates near zero, a quarter point rise won`t likely have a major impact on your day-to-day life. The interest your bank is facing on a savings account still won`t make you smile, but if rates continue to rise, say, seven or eight times in three or four years, you will begin to notice.

When it comes to the cash portion of your investment portfolio, as rates begin to climb, consider laddering or overlapping the expiration dates on CDs. Laddering allows you to step up to a higher rate each time a CD expires. As for bonds, short-term bonds and bond funds maybe safer if the Fed is raising its lending rates. Expect bond yields to climb, which means prices will drop. If you`re in a longer-term bond or bond fund with mostly 10-year or 30-year bonds, you`ll have to stand by as the value drops. If you`re in shorter-term bonds, you`ll limit the time of your investment is exposed to a falling bond price, while also gaining the benefit of a rising yield.

Retirement savers, look under the hood. Bond funds are a big part of target date funds, as you get older, your plan tends to put more into fixed income so, check on what time of bond funds are in your planned.

Mortgages will also be impacted by rising rates, so, if you`re determined to get the lowest possible rate, think about taking action before the Fed, but don`t worry, a 30-years mortgage ratings have been hovering at or below 4 percent. Rates were double that 15 years ago. And that`s a level we`re not likely to see anytime soon.

(END VIDEOTAPE)

MATHISEN: Here with some more perspectives on what to do with your money when rates do begin to rise is Mark Cortazzo. He`s the senior partner at Macro Consulting Group.

I don`t know whether you agree with what Sharon just said or you disagree. I`m not inviting you to contradict her. But when rates do rise, is it — whether it`s this week or this year or next, is it necessarily a time to do anything?

MARK CORTAZZO, MACRO CONSULTING GROUP: Well, you know, rates rising people use as a general statement, and we think there`s two different aspects of rates that`s rising. We have short-term rates that we do believe will rise in the short to intermediate term, but the impact on longer-term rates, sometimes when you see interest rates rise on the short term, they take some future growth out of the economy and you can see longer term rates come down a bit and you see a flattening of the yield curve.

So, depending on why you own bonds. If you`re an accumulator and you have bonds to stabilize your portfolio in times of volatility, I think that you stick with short to intermediate term paper, high quality, things that do hold up well in an environment like that when equities are doing poorly. But if you`re a long term, if you`re a retiree looking to invest for income, I think that if you have individual bonds, you hold them to maturity. If you have a short-term fluctuations of the value, it`s not as big of a concern if you know at maturity you`re going to get your principal back.

EPPERSON: If you`re a longer term investor, there are some firms out there that are saying we`re going to reduce it just a bit, some saying that maybe instead of 75 percent — or 65 bonds of fixed in — I should say 35 percent fixed income, 65 percent stocks, we`re going to reduce that to under 30 percent for bonds. Would you say that reducing fixed income by 4 or 5 percent makes sense, adding that to the equity portion of the portfolio?

CORTAZZO: Well, cash is earning close to zero or at zero. And so, by reducing that exposure, you are giving up volatility to a principal, you`re also giving up all of your yield.

So, you better be right that the interest rates are going to rise on short term cash instruments, in order for that to weigh in your favorite. If you have a laddered bond portfolio, or if you have a portfolio that has shorter term fix income instruments in there, every year, as those bonds come due, if rates are rising, you`re reinvesting into those new higher rates. So, if you don`t need the money, if you need the money in a year or 24 months from now, I would stick with cash and shorter-term instruments.

If this is part of a portfolio that is there to generate income to be a buffer in the equity piece of your portfolio. If you`re in accumulation, I think I would act differently and invest a little bit differently than if you`re drawing income.

MATHISEN: If rates rise at a modest, moderate pace, what will the effect be on my equity portfolio?

CORTAZZO: Well, we run a different portfolio that the yield on it`s about 1 percent higher than what you`re getting on a ten-year treasury. And we`ve positioned some of the components in there with companies that do benefit from rising interest rates, company that have a lot of short-term interests.

MATHISEN: Like what?

CORTAZZO: Like paychecks, they take the money from the employer, they hold it for days before they cut checks and pay. When rates were 3 percent, 4 percent 5 percent, they were making a lot of money on that float. So, those are companies that if short term rise, that increased income that they`re getting on that cash is riskless. It comes — drops right to the bottom line, that can improve their profitability and improve their dividend yield.

EPPERSON: So, generally, are you looking at smaller cap, mid cap, as opposed to larger cap as you look into this —

(CROSSTALK)

CORTAZZO: We like — we like larger and mid cap stocks and things that have good consistent cash flow, companies that are subscription based, or that have reusable consumers, because as they`re getting new cash in, if rates are rising, when they get that new cash, they can deploy that into those higher interest rates.

MATHISEN: Mark, thank you very much. Very helpful advice. Appreciate it.

CORTAZZO: Thanks.

MATHISEN: Mark Cortazzo with Macro Consulting Group.

EPPERSON: Stock declined to start the week as investors remained in a wait and see mode ahead of the Federal Reserve two-day meeting and were hesitant to take any big positions ahead of this decision. The Dow Jones Industrial Average fell 62 points to 16,370, the blue chip indecent traded in the narrowest ranges. The NASDAQ dropped 16 points and the S&P 500 declined eight.

MATHISEN: The Organization of Petroleum Exporting Countries cut its forecast for oil production and predicted higher demand for its crude next year. In its monthly report, the oil cartel said that U.S. oil producers were beginning to feel the squeeze of lower oil prices and would in turn cut production and the global surplus.

We can expect economic data out of China, also pressured crude today. It settled down almost 1 1/2 percent to $44 even per barrel.

EPPERSON: There is one industry that is highly dependent on the oil market. And that`s the crude tanker industry. But all that crude has to be shipped and hauled across the board. And this coming quarter could be especially strong for the sector.

Morgan Brennan explains.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the world awash in oil and prices again under $50 a barrel, there`s one market that`s benefited — crude tanker ships. In the first half of 2015, rates were very large crude carriers that carry up to 2 million barrels per trip peaked at 90,000 a day for some ships hauling oil to Asia. But by August, rates had plunged 27 percent, as demand slowed down ahead of refinery maintenance season. Still, analysts say this sector is poised for its best fourth quarter in years.

CHRISTIAN WETHERBEE, CITI: We do think that the tanker market is going to see more up side as we move into the fourth quarter of this year. Seasonally you see stronger demand from both the heating perspective and overall energy consumption perspective in the fourth quarter. And we would expect to see from a supply perspective, not a lot of incremental deliveries to the existing fleets.

BRENNAN: The shipping rates were already rebounding, up nearly 50 percent from their August low. The demand is coming from Asia, where China is expected to build up crude reserves despite a slowing economy, to take advantage of higher refining margins, with low fuel cost and tail wind for earnings, and only limited number of new ships coming online through next year, all of this could bode well for stocks, like Euronav, Nordic America Tankers and DHT Holdings (NYSE:DHT), small-cap names, but ones that represent pure plays in this market.

Teekay Tankers (NYSE:TNK), Frontline (NYSE:FRO), and Tsakos Energy navigation could also benefit, is all have crude tankers in their fleets as well.

WETHERBEE: You know, within the sector, we have buy ratings on two key players that are very well exposed to this. The first is Euronav, which is our top pick in the space. The second is Generate Maritime. We also have a buy there. Both of these companies have significant spot exposure to the very largest of the crude carriers that move crude around the world globally.

BRENNAN: Another potential positive is sanctions on Iran are lifted, that could add an estimated 500,000 to 700,000 barrels of oil daily to the global supply, pressuring prices and further boosting demand for the massive ships that haul crude across the high seas.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: And if you`ve noticed, a substantial drop in gasoline prices, you are not seeing things. According to the Lundberg Survey, the average price of a gallon of regular gasoline fell 27 cents in the past three week, now sits at $2.44 a gallon, are more than a dollar below where prices were a year ago.

And AAA reports that gas prices have fallen below $2 a gallon in three states — South Carolina, Mississippi and Alabama.

EPPERSON: Still ahead, go to college, get a good-paying job, pay off your loans. That`s easier said than done, until now. New data that can help you determine the potential return on your college investments.

(MUSIC)

MATHISEN: New York`s top banking regulator reach an agreement with four major banks over their chat systems. The focus is on a new messaging platform called Symphony Communications, that regulators worry could be an obstacle when they try to conduct an investigation. As part of the settlement, Symphony will retain copies of all their chats. The agreement was reached with Goldman Sachs (NYSE:GS), Deutsche Bank, Credit Suisse, and Bank of New York Mellon (NYSE:BK).

EPPERSON: The Labor Department`s contract for more than 140,000 autoworkers expires at midnight. Negotiators for the United Autoworkers have chosen Fiat Chrysler as their so-called target company. That means the union will craft the first of three agreements with Fiat Chrysler. Similar deals are expected to follow with Ford and General Motors (NYSE:GM).

The negotiations are focused on health care and wages, and the talks come as auto sales sit at near record levels.

MATHISEN: Europe`s largest plane maker, Airbus has officially started building commercial jets in Alabama. It`s a big move that will help Airbus strengthen its position in the U.S. market, while adding even more manufacturing jobs down the Southeast.

Phil LeBeau reports tonight from Mobile, Alabama.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: They may be European, but airbus executives understand the appeal of “Sweet Home Alabama”.

UNIDENTIFIED MALE: You and your colleagues are now a part of Airbus.

LEBEAU: This plant in Mobile will eventually build 48 A320s a year, almost all be flown by airlines in North America, where Airbus trails Boeing (NYSE:BA).

FABRICE BREIGER, AIRBUS CEO: We want to be a global player. We cannot be a global player without a strong industry footprint in the biggest market, America. We did it in China a few years ago. It was a great success.

So, this is exactly what you see behind me, becoming global.

LEBEAU: As Airbus expands outside of Europe, lowering costs is a central goal. Just as Boeing (NYSE:BA) added a plant in South Carolina that employs nonunion workers, Airbus is following a similar strategy in Alabama, where the plant will eventually hire at least 1,000 people who won`t be in a union.

UNIDENTIFIED MALE: It gives you such an advantage to work without a union, to feel like the union is not even need, because it`s the way Airbus treats you. Airbus treats you right. There`s no need for it.

RYANE DEGEAUX: We`re getting put on the spot. I mean, little old Alabama, we have a big old facility come here, so — I mean, to me, it`s just awesome.

LEBEAU: The first A320 will fly out of this plant next spring with full productions scheduled by the end of 2017. And if there`s enough demand for newer, more fuel efficient aircraft, Airbus says there`s room to expand this planned.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Mobile, Alabama.

(END VIDEOTAPE)

EPPERSON: Investors cheer good phone news from Apple (NASDAQ:AAPL), and that`s where we begin tonight`s “Market Focus”.

The tech giant announced that sales of its new iPhone 6S and 6S Plus are on track to beat last year`s first weekend record sales. The company took pre-orders for the phones starting Saturday. The phones will go on sale September 25th. Shares of the Dow component rose almost 1 percent to $115.31.

A report from Barron`s weighed on shares of Alibaba today. The publication said the company`s stock could plunge 50 percent from current levels and it questioned the accuracy of some of the claims Alibaba has made about its user count and shopper spending. Alibaba responded in statement saying: “We take strong issue with the reporting about the state of our company and feel compelled to set the record straight.” The company went on to defend itself against the allegations. Shares tumbled 3 percent to $62.60.

And Shares of Yandex, which is Russia`s version of Google (NASDAQ:GOOG), rose today. This as Russian authorities ruled that Google (NASDAQ:GOOG) was abusing its market position in the country and would face penalties. Yandex saw its stock pop almost 7 percent to $12.05.

MATHISEN: Shares of Raptor Pharmaceuticals went the other way after the firm announced it will stop developing its liver drug. This as the treatment failed to meet the main goal in a mid-stage study. Shares their down a whopping 37 percent. They settled at $7.52.

Solera Holdings (NYSE:SLH), which is a provider of tech services to insurance firms, will be acquired by an affiliate of Vista Equity Partners. The deal is valued at $6.5 billion. Shares rose 8.5 percent there to $53.66.

Twitter has partnered up with the payment processing company stripe. The move will let retailers sell on Twitter. Customers will merely have to click on a buy button on the site. Twitter shares slipped, though, nearly 2 percent to $26.90.

EPPERSON: The federal government released new data over the weekend that revealed the earnings of people who attended nearly every college and university in the country. The database is designed to help students compare tuition costs with potential earnings.

Beth Akers is a fellow in the Center on Children and Families at the Brookings Institution and she joins us.

And, Beth, I have to tell you that right now, I have bookmarked this Web site, because there`s so much information that I think that every parent who has children and anyone who`s interested in what college may cost and what potentially students can earn should have this Web site and be looking at this information.

What do you make of it?

BETH AKERS, BROOKINGS INSTITUTION: You know, absolutely. This is a tremendous innovation when it comes to higher ed policy and from the consumer`s perspective their ability to shop for college. Historically, we`ve had students making this decision about college with very little information. And for the first time, they can see what it is they`re buying, by looking at how students who have go through an institution before them have fared when it comes to earnings and their success in repaying their loans. They can have a reasonable expectation about how they could themselves expect to do after they finish their degree and it`s incredibly important.

MATHISEN: What the government did is look at people who had outstanding student loans and then look from 2000, 2001, or 2001 and 2002, and look at what the median pay of those mean and was 10 years down the pike. It`s a big range of numbers, but I`ll tell you one thing, Beth, that stood out to me, was how disparate the numbers were no matter what the educational institution was between what males earned and what women earned.

In many cases, it was way more than the usual women sort of women earn 75 percent of what men do. It was a broader gap than that.

AKERS: Yes, absolutely. So, the data in this data set are consistent with what we generally knew before, which was that there was the existence of this wage gender gap. Unfortunately, we don`t know exactly why, and, you know, we`ve had this data set available for about 48 hours, so us researchers are sort of grinding away trying to get some answers, but I think there will be a lot to come.

EPPERSON: When you looked ten years out what folks are earning, what was also very interesting when you go to this collegescorecard.ed.gov , you can find out what they`re doing in terms of for-profit institutions versus public and private institutions, where the annual costs comes in and then what the earnings are. And what was earning is the interests ten years out aren`t necessarily that high when you`re looking at some of these for-profit colleges. You actually see those numbers right there comparing the costs to other types of schools.

Do you think this is how families, students and parents will be using this information going forward?

AKERS: Yes, I absolutely hope so. I think, you know, what you identity with the for-profit, is one of those things that came out in the early analysis of this data, but what I would recommend to households who are making decisions about college is you look at the options that you are thinking of going to, and you really want to do some sort of cost/benefit analysis for yourself. I mean, the reality for most households are they are sending themselves or their children to college to improve their financial circumstances. And now, they have the ability to do that.

EPPERSON: Tell me a little bit about surprises, as you saw them. I thought that there was no surprise at the colleges that seemed to produce the highest earnings, they were the Harvards, the Stanfords, the MITs across the board. But what were the surprises in there high and low?

AKERS: Right. As you said, we expected a lot of variation across institutions. And the most elite schools are likely to have the best outcome, and that`s not a surprise.

So, I think what we just talked about, the for-profit institutions is where we have seen the biggest surprise in the trends and data. And what we`re seeing is that individual —

MATHISEN: They weren`t worth it or they were worth it?

AKERS: In fact, they weren`t worth it. Lower income students, more likely to be financially independent and older, they`re really just facing bad outcomes. And those are the ones who are most likely to be at the for-profits and community colleges. So, the question is still open why is that the case? But it clearly points to something that policy makers need to be thinking very carefully about.

EPPERSON: Yes, Beth, a lot of great information on that Web site for parents and for families, for students. Thank you so much for breaking it down with us.

Beth Akers with the Brookings Institution.

MATHISEN: And coming up, eye in the sky. Northrop Grumman`s plans to keep growing, even though as defense budgets shrink.

(MUSIC)

MATHISEN: Here`s what to watch tomorrow. Important reads on the economy, including retail sales, also a measure of industrial production. The Fed watches that one big time, and a report on business inventory. That, folks, is what to watch Tuesday.

EPPERSON: And, Tyler, two of the biggest names in the defense industry want to dominate the sky, but they have very different visions about how to go about doing it.

And as Jane Wells explains, it`s intensifying an already powerful rivalry.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s a political dog fight for dollars in shrinking defense budget between manned and unmanned markets, pitting the Lockheed Martin (NYSE:LMT) U2, a manned spy plane which has been flying for 60 years, against the Northrop Grumman (NYSE:NOC) Global Hawk, unmanned and a huge part of 21st century surveillance.

Northrop hopes to win.

MICK JAGGERS, NORTHROP GRUMMAN: So, the average sortie is in excess of 28 hours and we`ve had flights upwards of 32 hours.

WELLS: Two years ago, the Pentagon wanted to kill the Global Hawk to save money, even though it had 90 percent of the lifespan remaining.

Northrop lobbied hard and won the opportunity to now test new sensors, which could allow it to replace Lockheed`s U2, pitching the idea that the unmanned aircraft could fly longer and safer without a pilot on board. Northrop`s Mick Jaggers says the U2 sensors and cameras can just be bolted right on the Global Hawk.

JAGGERS: It gives you now the ability to plug and talk to new sensors.

WELLS: At the same time, the real growth in UAVs is on the commercial side, but the Global Hawk is too expensive and complex to makes deliveries for Amazon (NASDAQ:AMZN), so Northrop is trying to find new markets. Jaggers suggests maybe using some of the unclassified technology to perhaps replace one pilot on board long-range cargo commercial flights.

If Northrop pulls this off and succeeds, it will be a dramatic turnaround for a program which two years ago was supposed to be shut down.

JAGGERS: Since that point in time, we resurrected the system and we`re now flying more hours in FY-15 than we flew in all of FY-13.

WELLS: Testing of the new sensors, including some used on the U2 will begin on the Global Hawk shortly, but Lockheed isn`t giving up on its U2 and it would be tough to win over work from a workhorse which has been doing the job for half a century, and is already paid for.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

MATHISEN: And finally tonight, “Forbes” is out with its list of the most valuable teams in the National Football Leagues, and the numbers are eye popping. Third most valuable, my hometown favorite, the Washington Redskins, team valued at $2.8 billion. Number two, the New England patriots, valued at $3.2 billion and inflating.

And topping the list, the Dallas Cowboys for the ninth year in a row. That team is worth $4 billion, most available sports franchise, folks, in the world, stripping Real Madrid of that title, Sharon.

EPPERSON: Wow.

MATHISEN: And the Cowboys won last night.

EPPERSON: Yes. Go figure.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sharon Epperson. Thanks so much for watching.

MATHISEN: Thanks from me as well. I`m Tyler Mathisen. Have a great evening, everybody, and we will see you 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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