Transcript: Nightly Business Report – September 18, 2015

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

you get. The Federal Reserve says the economy won`t grow much over the
next few years. So what should you do with your money?

EPA accuses Volkswagen of evading some regulations, and it could cost the
automaker billions.

MATHISEN: Corporate checkup. The next big challenge for stocks is
fast approaching.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday,
September 18th.

HEREA: And good evening, everyone.

A Fed-fueled fall. Stocks started the day low and ended even lower as
investors from Asia to Europe and here in the U.S. focused on the health of
the global economy. The concern was sparked by comments from the Federal
Reserve yesterday, when it decided not to raise interest rates, in part
because of a slowdown in China and heightened volatility around the world.

The Dow Jones Industrial Average fell 290 points to 16,384. The
NASDAQ dropped 66. The S&P 500 sank 32.

For the week, the Dow and the S&P closed lower. The NASDAQ was
higher, posting its first back-to-back weekly gains since May. But there
was something else that the Federal Reserve said yesterday that could be
cause for concern over the longer term.

Steve Liesman explains.


to the economy over the next several years, what you see is what you get,
as far as the Federal Reserve is concerned. The unemployment rate, it`s
5.1 percent now in the Fed`s latest forecast is that it will only fall ever
so slightly to 4.8 percent and stay there through 2018.

Inflation, the Fed has been aiming for and missing a 2 percent target
for several years. It`s going to miss it for several more. The latest
forecast doesn`t see 2 percent inflation until 2018. The big news
yesterday — the Fed isn`t even sure of that. It held off on raising rates
because of concerns that weak overseas growth could drag down the U.S.
economy and inflation.

JANET YELLEN, FEDERAL RESERVE: We`ve long expected, as most analysts
have, to see some slowing in Chinese growth over time as they rebalance
their economy. And they`ve planned it, and I think there are no surprises
there. The question is whether or not there might be a risk of a more
abrupt slowdown than most analysts expect.

LIESMAN: How about the Fed`s growth forecast? Gross domestic
product, which has been a disappointing 2 percent since the end of the
Great Recession, will remain the Fed says an unremarkable 2 percent through

Gone are the days when the Fed forecast acceleration in growth had
approached 4 percent. Still, Yellen said if it were just focused on the
U.S. economic data, it`s good enough for the Fed to have raised rates

JOE LAVORGNA, DEUTSCHE BANK: The U.S. economy is reasonably healthy.
The job market is good. Overall consumption should be good. The problem
is the remaining part of the economy, capital spending and net exports,
that remaining 20 percent, 30 percent — 20 percent, 25 percent rather is
going to look horrible.

LIESMAN: It`s worth remembering as lackluster as the U.S. numbers may
be, they`re still better than Japan and Europe.



MATHISEN: So, with such lackluster predictions for growth from the
Fed, how can you make money on your investments?

Charlie Bobrinskoy is vice chairman and head of the investment group
at Ariel Investments and he joins us with his thoughts.

Charlie, welcome back. Good to have you with us.

Happy to be here.

MATHISEN: Terrific.

Slow growth, 2 percent. Inflation, 2 percent or less. Interest rates
relatively modestly low between now and 2018.

That feels like a pretty good recipe long term for stock investing.

BOBRINSKOY: Well, first of all, these are all predictions. And I
guess I`m slightly annoyed that the Fed is falling into the trap of
thinking that they can be precise about these expectations for the future.

We`re seeing in our companies reasonably good growth, not great but
reasonably good. Unemployment is low. Interest rates are ridiculously
low. And so, we were hoping frankly that they would start the process that
is inevitable of getting interest rates back to where they should be.

But the Fed signaled to the whole world that they`re more worried
about the economy and so everybody`s worried they see something we don`t
see and so they took the market down pretty dramatically.

HERERA: And at that point when the market starts to behave in such a
volatile fashion, Charlie, what are you doing? Are you adding to stocks
that you see as longer-term values in an environment where we are going to
see slow growth?

BOBRINSKOY: Yes. We actually are. And the other part of this
problem is what it made people get nervous again, and it made people move
into safer stocks with higher yields, stocks that behave like bonds, REITs
and MLPs and utilities that have a dividend yield. So, everybody moved
into those stocks, which frankly we think are overpriced.

And what got hurt were the more cyclical names that are dependent on
the economy. They`d already been down but then they got cheaper today. So
what we did was what we`re recommending that others do. And that`s buying
the stuff that`s beaten down and selling the very expensive yield stocks.

MATHISEN: Let me come back to my earlier question if you don`t mind,
Charlie. Over the next three years — I don`t care what they did yesterday
or didn`t do. Over the next three years is the environment going to be
good for equities in not so good for equities? And will it be better for
equities than for bonds?

BOBRINSKOY: That last question is the one I`m the most confident in
answering, and that stocks will do better than bonds. Bonds are
historically overpriced.

Interest rates have really never been this low in 200 years. You are
getting nothing on your bonds. In fact, we think you`re going to get a
negative return after inflation. Stock dividends are going to grow.
Stocks are a better place to be than bonds.

Now, it`s hard to make short-term predictions but I think three or
four years from now, we will get decent returns, high single digits, to low
double digits in stocks.

MATHISEN: All right. Charlie, thank you very much. Appreciate it.
Have a great weekend, Charlie Bobrinskoy with Ariel investments.

HERERA: An index leading economic indicator inched up in August
helped by a stronger housing market. The conference board`s index which
measures the outlook for the next three to six months rose 0.1 percent,
matching expectations. Some economists say the report suggests economic
growth will remain moderate into the New Year.

MATHISEN: Americans are wealthier than ever. This according to new
data from the Federal Reserve. Household net worth rose — this is in the
second quarter — to more than $85 trillion. That`s a record level.

The reason for the rise includes higher home values and in the spring
record stock prices. Rising household wealth can make consumers feel
better and in turn spend more, and if that consumer spending that accounts
for nearly 2/3 of American economic activity.

HERERA: Barclays became the latest bank to cut its outlook for
earnings. But this bank didn`t just trim its forecast. In a note
published after the Fed decision yesterday, it said it expects zero
earnings growth for 2015 for the S&P 500. The bank cited weakness in
emerging markets and a strong U.S. dollar. It also cut its outlook for the
tech sector.

MATHISEN: And earnings are the next big hurdle for the stock market.
The quarter ends in just a couple weeks.

And as Bob Pisani reports for the New York Stock Exchange, there`s
growing concern over what companies will report, especially on revenue


has made its decision for better or worse, it`s time to turn to what really
matters, corporate earnings. And those earnings need some help, real help.
The second half of the year was supposed to see an improvement over the
first half`s flat earnings growth. But it`s not happening.

Earnings are expected to be down over 4 percent compared to the same
period last year. And revenues will be down almost 3 percent as well.

Now, a lot of this disappointment is due to energy stocks, where
earnings are expected to be down a stunning 65 percent. I`m not kidding,
65 percent.

Now, besides energy, there`s a broader problem. What we need, I`ve
been saying this for over a year, it`s not more cost cutting to hit the
bottom line. What we need is more revenue growth. Top line growth. And
we`re just not getting it. For the third quarter, the street is pinning a
lot of its hopes for earnings and revenue growth on just a few sectors —
consumer discretionary expected to be up about 11 percent. Financials,
earnings expected to be up about 8 percent. Health care, up about 7

Now, consumer discretionary is in pretty good shape. That`s housing
and autos. They`re doing well, the retailers a little more problematic.

However, financials, banks, this is a problem. Now that the Fed is
not acting to raise rates, there will be less upward pressure on U.S.
interest rates, and that would have been a benefit to banks. That`s not
going to be there now. This is especially true of regional banks. And
that`s why a lot of the big names like Synovus and KeyCorp (NYSE:KEY) were
all down 3 percent or 4 percent today and down yesterday as well.

Now, we`ll get some more insight next week when several big consumer
names report earnings. Home builder Lennar (NYSE:LEN), for example, as
well as AutoZone (NYSE:AZO) and Nike (NYSE:NKE).

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock


HERERA: And still ahead, how new more secure credit cards may cut one
type of fraud but potentially increase another.


HERERA: The Environmental Protection Agency is accusing Volkswagen of
trying to dodge emission standards by making it look like nearly half a
million of its diesel cars met federal standards when in fact they did not.

MATHISEN: And now, the automaker the Environmental Protection Agency
is accusing Volkswagen of trying to dodge emission standards by making it
look like nearly half a million of its diesel cars met federal standards
when in fact they did not. And now, the automaker is facing a potentially
hefty fine.

Phil LeBeau has been following the story and joins us now.

Phil, the EPA is alleging that Volkswagen rigged those cars so they
could pass the clean air test. How did they allege that they did that?

had what`s called a defeat device as part of the software in the vehicle
which unless you`re looking for it you`re not going to see it. It allows a
vehicle to pass emission tests, but otherwise it will not have to meet
those standards as it`s going about driving around on the roads. And as a
result, what you`re looking at is a situation where the EPA says Volkswagen
has 482,000 vehicles basically that were rigged to pass clean air tests and
in fact they did not meet those emission standards.

By the way, the EPA says that Volkswagen has essentially admitted to
this happening. We will probably see some type of a recall remedy
announced in the relatively short term because they`re going to have to fix
these vehicles.

MATHISEN: So, fundamentally, what I hear you saying here is that they
tricked the system so that they could beat the test but in real world use
they were not going to meet the standard that they said.

How big a penalty could the auto maker be facing? And what if
anything has Volkswagen said on the record about this?

LEBEAU: Volkswagen is saying that it`s cooperating with the EPA in
this investigation. And, ultimately, if there is a recall it has to be
issued by the automaker. So, Volkswagen would announce that recall.

The EPA fine is $37,500 per vehicle. That`s the potential maximum
fine. You add that up or multiply that by 482,000, you get a potential
fine of $18 billion.

But let`s be clear here, Tyler, most likely, you`re looking at a fine
that is going to be far, far lower than that. Nobody is suggesting that
Volkswagen`s going to pay a fine of that much.

We`re looking at vehicles, by the way, between 2009 and 2015, your
most popular models manufactured by Volkswagen that are sold here in the
U.S., the Golf, the Passat, all diesel models, the Beetle, Audi A-3 is
another one of the models involved.

HERERA: So, as we look at those models that are affected, you
mentioned there`s no recall yet. Can people keep driving those cars?

LEBEAU: They can. They can continue driving them and eventually
there will be some type of a remedy where they`ll have to bring it into the
dealership and those vehicles will then be made compliant with all the
clean air standards that they were supposed to be compliant with when they
were manufactured.

HERERA: Thanks a million, Phil, as always. Phil LeBeau in Chicago.

LEBEAU: You bet.

MATHISEN: We all know credit card fraud is a big problem in this
country. So, in two weeks the U.S. will become the last of the G20 nations
to adopt chip-enabled debit and credit cards as the national standard. And
while the cards may reduce one type of fraud, they could actually increase

And though card issuers and retailers are on board with the change,
Mary Thompson tells us that non-bank ATMs may remain a prime target for


yours, a chip-embedded credit or debit card. The chip`s technology seen
eliminating the chance a counterfeit card can be used in a transaction
provided both the retailer and card issuer are chip-enabled. So while
experts see these cards making a big dent in the 37 percent of fraud
committed with fake cards, they expect criminals to turn their attention to
other schemes.

rings behind all of these attacks, and they are not going to sit back and
take a hit to their P&L. They`re going to shift their tactics.

THOMPSON: Their focus will become online fraud or web or digital
transactions where a chip`s technology is worthless. As a result the
financial research firm the AITE Group sees card not present fraud more
than doubling in the five years ending in 2018. Though network operator
visa believes improved technology at online retailers will limit this

Driving the move to chip-enabled cards — an October 1st deadline,
shifting the liability for in-store fraudulent purchases to the retailer
from the card issuer, provided the retailer has systems in place to read
that chip-enabled card.

And a year from October, the liability for any bad transactions made
with a chip-enabled card at an ATM will shift from the issuer to the ATM

Ahead of this criminals seen upping their efforts to skim at these
machines, or accessing accounts through data stolen from mag stripes on the
back or cameras that reach their PIN numbers. A chip-enabled card can cut
this fraud, but upgrading ATMs to read them is pricey. Estimates range
from $600 to $2,000 per ATM. It`s an expense banks can bear but one AITE
Group`s Julie Conroy says could pressure the independent operators running
two out of every three ATMs.

CONROY: I think we will see some higher ATM fees. I think we will
see some of these ATMs just go away. They`re going to do a cost-benefit
analysis on those ATMs stuck in the corner of a basement of a hotel and
decide it`s just not worth the cost to upgrade those.

THOMPSON: So, the move to keep criminals from getting your cash could
end up limiting the number of places where you can get your money.



HERERA: Shares of JPMorgan (NYSE:JPM) slip on a revenue warning, and
that`s where we begin tonight`s “Market Focus.”

At an investor conference today, JPMorgan`s CEO Jamie Dimon said
trading revenue is down like its competitors`. This quarter, Dimon didn`t
give a percentage, but over the past two days at the conference both bank
of America and Citigroup (NYSE:C) have said their revenue is down about 5
percent this quarter. Shares fell almost 3 percent to $60.94.

Johnson Controls (NYSE:JCI) says it will cut as many as 3,000 jobs
over the next two years. That move comes as the company hopes to save $250
million a year in costs. Shares fell more than 2 percent to $40.50.

Freeport McMoRan has filed to sell another $1 billion worth of its
shares. It comes after the company just finished a similar stock sale.
The news pressured shares since stock sales make existing shareholder`s
stakes less valuable. The stock slid almost 10 percent to $10.88.

MATHISEN: Investors getting a chance to react to news that La Quinta
lowered its 2015 guidance for revenue per available room. The hotel
operator also announced that its president and chief executive has stepped
down. Shares of La Quinta off 15 percent today to $16.05.

Rockwell Collins (NYSE:COL) also disappointed with its outlook. The
firm says its revenue won`t meet estimates since its avionic electronics
and communications business is experiencing weak market conditions. The
stock was off nearly 2 percent to $83.68.

Coca-Cola (NYSE:KO) says it was notified by the IRS that it owes more
than $3 billion in back taxes for the years 2007 to 2009. But the beverage
company disagrees with the claims and plans to work to resolve the dispute.
The Dow component was 1 percent lower on this heavy down day. It finished
at $38.98.

HERERA: And now to our market monitor, who likes stocks with yields
higher than U.S. treasuries right now. He is Eric Ristuben, chief
investment strategist at Russell Investments. Last time he was on in
February, he recommended the following stocks: Target (NYSE:TGT), which is
down a fraction, Southwest Airlines (NYSE:LUV), which is down 10 percent,
and Proofpoint is up 8 percent.

Eric, welcome. Nice to have you back with us.

to be here.

HERERA: Do you still like most of those stocks or all of them for
that matter?

RISTUBEN: Yes. We still own all of them. We still really like
Target (NYSE:TGT). It`s one of the stocks we think is going to benefit
thematically from an improving economy. We`re just not buying that China
is going to send us into the economic abyss. We think the U.S. is going to
continue to grow and companies exposed to the growth are going to do well.

MATHISEN: So, let`s talk about your first pick, and that is Target
(NYSE:TGT). You like its dividend yield, almost 3 percent, and you like
big blue chips generally. So tell us about Target (NYSE:TGT).

RISTUBEN: Well, Target (NYSE:TGT), the dividend yield is important to
think about this. It`s above the market. The average — you know, the
average dividend yield`s closer to 2 than 3. So, it`s above market, but
it`s not so high as to get the interest of yield specifically oriented

You get into really the highest yield stocks. They`re a little bit
pricey. So, we think the yield offers a good basis for return. Plus, the
consumer is employed and they`re spending money. We think Target
(NYSE:TGT) will benefit from that and their earnings will move forward.

HERERA: You also like Wells Fargo (NYSE:WFC) in the face of a
stronger economy. They may lend more. But a lot of these banks are out
with statements today saying that they may have to cut costs because they
were expecting interest rates to be higher and interest rates aren`t going
higher right now.

So, why do you still like Wells?

RISTUBEN: Well, we`re an investment. Our time horizon`s longer than
a couple of months and we think what the Fed has simply done is they`ve
delayed by three months a move they`re going to make inevitably and we
think the forward pressure on interest rates is up. The economy is
improving. Car loans are up. Consumer loans are up.

Even at modestly lower rates, we still think banks are a good buy and
they got a whole lot cheaper today.

MATHISEN: And you like Raytheon (NYSE:RTN). I guess you`re betting
there that defense spending will continue to be pretty strong.

RISTUBEN: Yes, government spending in general. But defense spending
in particular. You`re actually seeing for the first time in a long time
government spending is now a tail wind for the U.S. economy. We see no
reason that that is going to abate. And we think Raytheon (NYSE:RTN) is
well positioned and nice valuation, about 15 times P/E.

I think we`re going to see them actually benefit a great deal from an
improving economy and government spending.

HERERA: And very quickly, you said you think the fed`s going to delay
by a couple of months. That would put you on the record for a rate hike in

RISTUBEN: In December. Absolutely.

HERERA: All right, Erik. Thanks so much. Have a great weekend.

Erik Ristuben with Russell Investments.

MATHISEN: Well, Greece, believe it or not, bank on the minds of
investors. We missed Greece, didn`t we? The debt-saddled country is
holding elections this weekend to decide who will become the next prime
minister. The results could have big implications not just politically but
also economically as Greece struggles to get back on its feet.

Julia Chatterley reports from Athens.


influential people I`ve spoken to said to me they actually hope that Alexis
Tsipras and the Syriza Party win this election. Why? Because if he`s in
power, if he forms a coalition government, he will have to stick to the
bailout plan. There`s no choice that this economy, that the controls are a
noose around the government`s neck.

If, in fact, he`s beaten and is in opposition, then he could become
anti-euro, anti-bailout, and actually cause far greater problems at that
point. It`s an interesting take. A point I would finally make is that
what we`ve seen from these polls is that they consistently underestimate
the support for Alexis Tsipras and just on that basis alone it seems likely
that Alexis Tsipras could win through once again when the Greeks vote on

For now, we wait to see what his final rally here tonight looks like.
And this is going to give you a real sense of just whether or not the Greek
people are willing to give Alexis Tsipras and the Syriza Party a second

For NIGHTLY BUSINESS REPORT, I`m Julia Chatterly in Athens.


MATHISEN: Coming up, why there`s growing demand for one very unusual
part of the sharing economy.


HERERA: All right. Here`s a look at what to watch for next week.
Dow component Nike (NYSE:NKE) will report its quarterly results. The
Commerce Department will release its final reading of the gross domestic
product for the second quarter on Friday. That is the broadest measure of
the economic activity of the U.S. and Janet Yellen speaks along with a
handful of other Fed officials.

So, buckle your safety belts. That`s what to watch next week.

MATHISEN: An update now on a story we followed over the past year,
and a victory for warm workers. A California judge ruling today that
Gerawan Farming, one of the nation`s largest fruit growers, committed
unfair labor practices, this as the farm tried to block the United Farm
Workers Union from representing workers there.

HERERA: If you`ve ever used ride-hailing services like Uber or Lyft,
you may be familiar with surge pricing during peak hours. Well, Uber`s new
study aims to justify that practice. While customers may think it`s greedy
to hike prices when there`s high demand for rides, the company says it`s
necessary. According to Uber, this is because it offers an incentive for
drivers, ensuring there are enough of them to go around so customers can
get a ride within minutes.

MATHISEN: Uber is part of the so-called sharing economy that allows
people to rent out or share just about anything from a home to a dress.
And now you can also rent chickens. Yes, chickens. Believe it or not,
there`s growing demand for this unusual business.

Morgan Brennan in Nanuet, New York, has our story on the real value of
a cluck.


eggs in your backyard from chickens that are rented. Several start-ups
have been hatched that lease out hens and all of the necessary supplies in
what`s perhaps the quirkiest addition to the share economy.

KAY WITMER, RENT THE CHICKEN AFFILIATE: We are an affiliate farm. We
raise chickens for our customers to rent for a four to six-month rental
over the spring and summer, and then we`ll come pick them up so you don`t
have to keep them over the fall and winter.

BRENNAN: Kaye Witmer owns a farm in Liverpool, Pennsylvania, an
affiliate of two-year-old startup

WITMER: Usually, we make more than one delivery in a day. The
majority of our customers are very interested in knowing where their food
comes from.

BRENNAN: Rental fills that yard to table design but without the
hassle of an upfront investment or long time commitment since it can take
six months for a young bird to begin laying.

For $400, a customer gets two hens already laying eggs daily, a coop
and 100 pounds of feed, enough to last for the four-month period.

And so, if I wanted to hang on to these chickens for four months it`s
$400 and that includes the price of the feed and the coop and obviously the
chickens and their eggs.

Rent a Chicken works with farmers like Witmer to pair renters with
birds. In return, those farmers pay affiliate fees to the home office.
Company co-founder Jen Tompkins says by the 2016 rental season she`ll have
signed contracts with 20 local affiliate locations, up from just 12 this

And Rent a Chicken isn`t the only company cracking open this concept.
Maryland-based rent a coop operates in eight states, charging $180 for a
one-month coop. Michigan-based has clients in nine states
who rent two hens for up to $450 for six months.

Bird flu has been a boon for business as well as egg prices have
climbed to record levels after a devastating outbreak wiped out more than
10 percent of U.S. production. These companies say demand for backyard
flocks has jumped. No small feat given the price renters ultimately pay.
At $400 for four months, that breaks down to $1.79 per egg, a total of $21
per dozen. A some at least three times higher than the priciest organic
eggs in the store.

But a premium a growing number are willing to pay, just to know where
breakfast came from.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Nanuet, New York.


MATHISEN: I balk at that. The puns just keep coming here.

HERERA: But we will not digress because that is NIGHTLY BUSINESS
REPORT for tonight. Thanks for joining us. I`m Sue Herera.

MATHISEN: Have a great weekend, everybody. I`m Tyler Mathisen.
We`ll see you back here Monday.


Nightly Business Report transcripts and video are available on-line post
broadcast at 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
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