Transcript: Nightly Business Report- December 2, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Skittish markets. Stocks fall and took another leg lower midday after a mass shooting in southern California.

Breaking $40. Oil prices settle below that key level for the first time since August.

On track. Federal Reserve Chair Janet Yellen making her clearest signal yet that a rise in rates may be just two weeks away.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, December 2nd.

Good evening, everyone. I’m Tyler Mathisen. Sue Herera is on assignment tonight.

Well, the day began routinely enough, some economic news, a speech by Federal Reserve Chair Janet Yellen and the release of the so-called Beige Book. That’s the Fed’s periodic report on regional economic conditions. Markets rocked and rolled mostly lower with oil tipping below $40 for the first time since summer.

But then at midday came news of yet another mass shooting in America. This one occurred at a center for people with disabilities in San Bernardino, California. As of this evening, authorities say at least 14 are dead. An equal number are wounded. Police are searching for up to three suspects who apparently fled the scene and whose motives are unknown.

Investors already on edge after the Paris attacks sold stocks into the close. On the day, the Dow Jones Industrial Average fell 158 points to 17,729. The NASDAQ slipped 33 points and the S&P 500 was 23 points lower.

But before this afternoon’s events, the market’s eyes, as we mentioned a moment ago, were trained largely on Federal Reserve Chair Janet Yellen. She spoke to the economic club of Washington and made it clear she thinks the economy is improving. But is it strong enough to raise interest rates two weeks from today for the first time in nine years?

Steve Liesman reports.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Chair Janet Yellen making generally positive economic comments in a major speech in Washington, pointing the way to a potential rate hike at the Fed’s meeting later this month. Yellen signaled a rate hike more through expressing confidence in the economy than saying outright that rates would go up.

She cautioned that the data between now and the next Fed meeting, which is December 15th, could change the outcome. The data includes, most importantly, Friday’s big jobs report. But Yellen was clear, the Fed’s goal has been met on jobs, and she’s confident it will be met on inflation.

JANET YELLEN, FEDERAL RESERVE CHAIR: I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack and a rise in inflation to our 2 percent objective.

LIESMAN: The Fed chair acknowledged the dangers of hiking rates too early, but she was much more specific and pointed about the dangers of hiking too late. She warned that the Fed risked bankrupt rate hikes if they waited too long, and that could cause recession.

New economic data added to the reason for rate hikes. The Fed’s Beige Book suggested a bit more wage pressure in the economy. The payroll company ADP reported growth of 287,000 in the private sector in November, more than Wall Street expected. It pointed the way to a robust Friday jobs report from the government of at least 200,000.

And Atlanta Fed President Dennis Lockhart said in a speech, quote, “The case for lift-off is compelling.” San Francisco Fed President John Williams chimed in. He prefers to hike rates sooner rather than later. The big issues for Yellen and the Fed are the recent downturn in manufacturing and the surge in the dollar. That could further reduce inflation.

But we may already be in a world where incoming data, if it’s weak or strong, is processed by the market in terms of when the second rate hike will come, not the first.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Let’s turn now to Michael Farr for more analysis on the Fed and the stock market’s interpretation of what Chair Yellen said today. Mr. Farr is the president of the money management firm Farr, Miller and Washington.

Michael, always great to see you.

You were in the room today where the speech was given. Did you hear anything — I sure didn’t — that would dispel the notion that the Fed is ready for lift-off in two weeks?

MICHAEL FARR, FARR, MILLER & WASHINGTON PRESIDENT: Well, Chairman Yellen gave herself an out. She also said that they would be data-dependent and they would review the data right up until the moment that they meet. So, she left that door open, I guess as any good fed chairman would.

At our table and at other tables, people were checking the stock market before she began speaking to see where we’d end up after the speech. A lot of her notes were released just before, actually, she started speaking. Her text became public.

The stock market actually rallied as the text was released and as she started speaking, but by the time the Beige Book came out later, it ended up lower. She was clear that what she didn’t want to do was see any sort of bankrupt hike if they wait too long, and I think that was the important part that Steve — the important point that Steve Liesman just made.

Markets never like to be surprised. It looks really clear, I think, that the Fed’s intent lift off here at this December meeting.

MATHISEN: She also said, don’t pay too much attention to the timing of lift-off. Basically pay more attention to the trajectory and growth of rate hikes. At that point, she was very careful in the Q&A session with Mr. Rubenstein to say, don’t expect that we’re going to be locked into the idea of raising rates at every subsequent meeting through 2016.

FARR: I thought she was even clearer than that, Tyler. I think that she was clear that this didn’t really mean that they were going to have a change in policy. She talked a lot about the neutral rate of borrowing and interest rates for the fed, and they’re really close to this zero point where we are now.

Historically that level is around 3.5 percent. It seems a long way off. So, she said it doesn’t look like we’re going to move off of this, even after we raise first time, and there is no calendar event and there is no schedule, and she was pointedly clear that this is not the beginning of a ratchet step up by a measure.

MATHISEN: Very quick answer here. Is this all priced in to stocks and bonds already?

FARR: I think the hike is priced in to stocks and bonds already. If they don’t hike, I think the markets will react.

MATHISEN: All right, Michael. Thanks very much. Michael Farr of Farr, Miller and Washington.

FARR: Thank you.

MATHISEN: Well, the Federal Reserve’s regional survey of anecdotal information on activity, that’s the Beige Book, confirmed what Chairman Yellen said today, that the economy is gaining strength.

Hampton Pearson has more on what was inside that tone.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve’s latest snapshot of the economy shows growth at a modest pace this fall. Nine of 12 regional banks report modest or moderate growth from early October through mid-November. The New York region saw growth level off, due in part to less tourism spending by foreign travelers.

But overall, the economy is driven by higher consumer spending, especially on new automobiles and more home sales and construction. Home sales, in fact, rose in 7 of 12 districts, while new home construction increased in most Fed districts as well.

The labor market continues to tighten, but the pressure for higher wages only involves skilled workers. That Beige Book report suggests healthy consumer spending is offsetting the manufacturing slowdown, due in part to the strong dollar and falling energy prices.

DAVID MALPASS, ENCIMA GLOBAL PRESIDENT: I think today’s Beige Book basically gave a green light to the Fed, if it wants to hike in December, the data’s coming together well enough. The key word in the Beige Book was “moderate”. So, they noted moderate gains in consumption and wages and so on, and it was across the whole country in the beige book.

PEARSON: But Fed watchers caution there’s still two weeks to go and more data on the way, including Friday’s all-important jobs report. But momentum seems to be building for monetary policymakers to raise key interest rates for the first time in nearly a decade.

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

(END VIDEOTAPE)

MATHISEN: American business productivity was higher in the third quarter than initially reported. The Labor Department says productivity, which measures hourly output per worker, rose at a 2.2 percent annual rate, not the 1.6 percent reported last month. Labor costs, which measure the price of labor per single unit of output, also rose at a slightly higher rate than previously stated.

Well, oil prices, quite a day there. They broke below $40 a barrel, as new government data showed a rise in supply when many had expected inventories to shrink. According to the Energy Information Administration, it is the tenth straight week of stockpile build-ups.

Domestic crude settled at $39.94. That’s its first close below 40 bucks a barrel since August. That drop pressured shares of Dow components ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX). They were the Dow’s laggards today.

All of that extra oil does have to go somewhere, and an increasing number of companies are making big bets on the growing need for more storage space, and no place is that more evident than in Houston, and that is where we find Morgan Brennan tonight.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just a few miles away from the Astrodome in Houston will soon sit subterranean salt cavern, able to store enough oil to fill the famed stadium. Fairway Energy Partners (NYSE:EPL) is developing these caverns that starting next year will hold up to 10 million barrels of crude. According to the company’s CEO, Chris Hilgert, demand for the storage space has been brisk.

CHRIS HILGERT, FAIRWAY ENERGY PARTNERS CEO: We’re leasing the capacity right now on the marketplace. It’s being received very favorably. We have a competitive cost advantage that we’re trying to exploit as much as we can and offer a much-need service here.

BRENNAN: It’s one of several high-profile projects under development in the region at a time when, because the world is awash in oil, storage has been filling up. U.S. commercial crude inventories are above 489 million barrels, the highest for this time of year in eight decades, meaning two-thirds of all U.S. oil storage is in use. Over half of that, 250 million barrels, is sitting on the Gulf Coast, which hit a record high a few weeks ago.

Tanks in Cushing, Oklahoma, are again filling up as well. Energy companies and oil traders are storing oil rather than selling it because the futures market is valuing crude at higher prices than the spot market. Experts say all this inventory is a bearish indicator for prices heading into 2016.

BRIAN BUSCH, GENSCAPE DIR. OF OIL MARKETS & BUSINESS DEVELOPMENT: The problem is, as you build all of this storage, even when you finally reach a point where supply-demand is balanced, you have this storage hangover, and we have to see these excess storage levels run down before you can ever see the real rebound in crude prices that people are looking for.

BRENNAN: Still, a number of companies see storage as a long-term investment opportunity. For example, Philips 66 is doubling capacity at its Beaumont, Texas, terminal, and Enbridge (NYSE:ENB) recently announced a $5 billion plant to build three oil terminals of its own. That would enable the import and export of more crude and petroleum products.

Energy data firm Genscape estimates 19 million barrels of above-ground storage is currently under development in the region in addition to Fairway’s caverns.

HILGERT: Bought the new pipeline infrastructure that’s built into the Houston market, and the market has responded as best it can to build surface tankage, although more storage is needed in the Houston market to be able to handle a lot of this new inbound crude.

BRENNAN: When Fairway’s development comes online next year, it will represent 25 percent of total crude storage capacity in the Houston area. And since salt caverns are typically the least expensive way to store crude, Fairway expects this project to be profitable even when the energy market eventually recovers and demand for storage once again falls.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Houston, Texas.

(END VIDEOTAPE)

MATHISEN: Still ahead, the trail blazing tech company that is reportedly considering a sale of its pioneering Internet business.

(MUSIC)

MATHISEN: Expectations are growing for some big changes at Yahoo (NASDAQ:YHOO). Yahoo’s shares rose more than 5 percent on reports that Yahoo’s board is right now considering selling off the company’s core Internet business, as well as a spinoff of its stake in Alibaba.

Victor Anthony, senior internet analyst with Axiom Capital Management, joins us now to discuss whether or not this could be the right fix for Yahoo (NASDAQ:YHOO).

Victor, let’s start right there. Is it? Should this company basically break itself apart, monetize Alibaba, sell its Internet operations, and what’s left after that, take it private, or what?

VICTOR ANTHONY, AXIOM CAPITAL MANAGEMENT SR. INTERNET ANALYST: The short answer is yes. I think the first thing they need to do is go through with the spinoff of the Alibaba stake. They should go right ahead and do that. I think they’re planning to do it in January. There’s a lot of pushback from investors because there’s a potential huge tax liability that could occur if the IRS were to choose to challenge it, so there’s some pushback on that.

But I think — I’ve spoken to multiple different tax experts, and they think ultimately Yahoo (NASDAQ:YHOO) will be fine along those lines. So, first thing, spin off the Alibaba shares.

I think the next thing is to monetize Yahoo (NASDAQ:YHOO) Japan. They own about a 35 percent stake. Yahoo (NASDAQ:YHOO) Japan, that’s about a roughly $4 billion asset after tax. If they could save another $4 billion, you’re looking at $8 billion of value there.

Then, I think what they could do is really offload the search business to Google (NASDAQ:GOOG), and I think they could get a roughly 10 percent, 15 percent lift to EBITDA if they did that. After that’s said and done —

MATHISEN: What’s left?

ANTHONY: Well, the core business of display and search I think is valued around $5 billion or so, $5 billion, $6 billion. They could potentially sell that, and I think that’s the ultimate exit strategy, I think, for Marissa Mayer, ultimately, after she’s done all the things I’ve talked about, is sell the business.

MATHISEN: Is Marissa Mayer the problem? That company’s had lots of reasonably capable CEOs in a relatively short period of time, and I guess it sort of begs the question could anybody have fixed Yahoo (NASDAQ:YHOO)?

ANTHONY: That’s a great question. It’s one I’ve pondered over several years, because they’ve had multiple different CEOs. I think roughly five or so since I’ve been covering the company over the past several years. And no one has been successful. These are highly capable, highly intelligent CEOs with a long track record of success. They come to Yahoo (NASDAQ:YHOO) and they fall flat.

So, I don’t think it’s the CEOs. I think, yes, I think she may have probably been not aggressive enough in making some big bets, so has her predecessors as well. But I think the core business is really just challenged from a secular perspective. They’re facing a lot of competition from Facebook (NASDAQ:FB), a lot of competition from Google (NASDAQ:GOOG). It’s really difficult for them I think to monetize that platform in a way that shareholders will demand.

MATHISEN: Very hard to understand exactly what Yahoo (NASDAQ:YHOO) stands for in an environment where a lot of those companies have really strong platforms in individual areas. Anyhow, maybe it’s boo hoo for Yahoo (NASDAQ:YHOO).

Victor Anthony, thanks very much.

ANTHONY: Thank you.

MATHISEN: Victor is with Axiom Capital Management.

Well, CSX (NYSE:CSX) cuts its earnings outlook. And that’s where we begin tonight’s “Market Focus.”

The railroad company expects profits to grow, but not as much as originally estimated. This comes as coal volumes have fallen more than expected and cheap natural gas prices exasperate that. Shares tumbled nearly 4 percent to $27.53.

The hunting and fishing store chain Cabela’s (NYSE:CAB) says it’s weighing strategic alternatives. This could mean a sale or breakup of the company because of declining sales. The announcement comes more than a month after the hedge fund Elliott Management disclosed it has a stake in Cabela’s (NYSE:CAB). Shares rose 2 percent to $47.89.

Brown Forman (NYSE:BF.A) reported results that missed estimates. The maker of Jack Daniel’s, among other spirits, said the strong dollar invigorated competition weighed on its results, shares off nearly 2 percent to $102.06.

And Zafgen saw shares tumble after a patient died in a late stage trial of its experimental trial of its obesity treatment. The firm says the patient suffered a blockage in an artery. Shares of the small cap company fell 60 percent to $6.28.

And On Deck Capital was higher on news it has partnered up with JPMorgan (NYSE:JPM) Chase. The big bank said it would use the online small business lender’s platform for small business customers. On Deck, also a small cap was 27 percent higher today to $11.50.

Well, the material sector has been out-performing the broader market so far this quarter, and that falls right in line with what history would suggest, but is the group rising this year for different reasons than in the past, and how does that set up the sector for 2016?

Dominic Chu here with a look.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Over the past ten years, material stocks have been the big focus for investors during the final quarter of the year. So, you think everything from industrial gases, like oxygen and nitrogen to chemicals to aluminum to gold.

And according to data analytics firms from Kensho, the fourth quarter has averaged sector returns of nearly 3 percent, and it’s been a positive trade for the sector seven of the last ten times. Now, that story is also playing out again this year to a much larger degree. Since September 30th, the group has already gained around 14 percent. However, much of that gain comes on the heels of a sharp decline in those stocks in the months leading up to this final quarter of 2015. Some experts think the sector is due for a little bit of a breather at this point.

ROBERT PAVLIK, BOSTON PRIVATE WEALTH CHIEF MARKET STRATEGIST: I think the difficulty for the material sector comes in to play when you start really assessing where we are on an economic basis. We have a rising dollar, so that’s going to constrain part of the overall economy. Now, as the overall economy is constrained, it’s going to have an impact on these material companies.

CHU: Now, economic growth is key for these types of companies, because they make more money when their products get used more during business expansion. So, a big part of the futures story with materials companies lies in how strong the global economy can really be.

Now, the more bullish camp feels as though these stocks will continue to participate in the context of a stock market that’s headed higher, broadly speaking.

NEIL HENNESSY, HENNESSY FUNDS CHIEF INVESTMENT OFFICER: I think stock market’s going to continue to grow on the up side, and I think my three main reasons of why is that you have a reasonable P/E ratios, you have reasonable price-to-sales ratios, and you have no euphoria in the marketplace on either the greed side or the fear side. So, the market will continue, and probably most likely surpass 20,000 on the Dow Jones in the next 18 to 24 months.

CHU: So, it all comes down to how the economy performs, not just here in America, but globally as well. Material stocks have already been underperformers this year-to-date, but they are finding some year-end cheer at this point. The question is, will it stay that way into 2016?

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Coming up, apartment building mail rooms are bulging with all those packages being ordered online, causing a big headache for landlords and more.

(MUSIC)

MATHISEN: Here’s what to watch tomorrow: Weekly jobless claims are out. The last read of employment ahead of Friday’s big Labor Department jobs report. Fed Chair Janet Yellen will testify in front of the joint economic committee down in Washington, and some more economic data, including factory orders and the ISM non-manufacturing index. Those come out, and that is what to watch on Thursday.

Well, Cyber Monday sales topped $3 billion for the first time, that according to Adobe’s digital index. That was 16 percent more than last year and well above expectations. Of those online purchases, a record number were made using mobile devices like smartphones or tablets.

But with online shopping growing exponentially, so is the number of packages arriving at apartment houses across the country this holiday season, landlords struggling to handle it all. And some are using high-tech and some are just plain refusing to handle any of it.

One thing we know for sure is that the problem will only get more acute.

Diana Olick looks at the latest solutions.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Barely two days after Cyber Monday, retail’s little helpers are rolling in. Santa’s sleigh’s got nothing on UPS and FedEx (NYSE:FDX) this year, and apartment landlords like Monogram Residential Trust are struggling under the weight of it all.

MARK ALFIERI, MONOGRAM RESIDENTIAL TRUST CEO: Our portfolio, which is 11,000 units in operation right now and 4,000 under development, we have this year estimated 300,000 packages coming in. It’s become a real challenge for the industry over the last several years.

OLICK: So, Monogram turned to tech, installing iPad-controlled lockers in some of its buildings. Package carriers access them directly. No more mail room.

JENNIFER MARSH, BAILEY’S CROSSING DIRECTOR: It’s a very easy search system. They find the name, you take a picture of the label, so we have a record of that. We save the label and we choose the package locker size, and you put it in, and then the resident gets an e-mail or a text message.

OLICK: Tenants retrieve their packages as a security camera watches. The system can cost over $30,000 to install, but in high-end buildings —

ALFIERI: For our particular demographic, it’s absolutely a requirement.

OLICK: But other landlords claim this won’t be able to handle the surging supply, especially in larger buildings. That’s why one major REIT, Camden Property Trust (NYSE:CPT), simply said no to packages in the mail room. Managing this glut, they said, was costing them more than $3 million a year.

KRISTY SIMONETTE, CAMDEN PROPERTY TRUST CO: Productivity was absolutely part of the equation, but it really came down to more about allowing our employees to service our residents and take care of our real estate, which is the business that we’re in.

OLICK: Camden Property Trust (NYSE:CPT) has 59,000 apartment units spanning ten states and the District of Columbia. Last March, they rolled out the no-package policy, which was not popular with tenants.

SIMONETTE: We had a few residents tell us they plan not to renew their lease, but again, any time you make a change to any kind of policy, you run the risk that you do upset some residents.

OLICK: Camden does allow couriers to deliver to tenants’ doors and leave packages there. They claim 75 percent of tenants have opted to do that, and more than 100,000 packages have already arrived that way.

MICHELLE YOUNG, CAMDEN TENANT: It doesn’t bother me, because one thing about it is we have a lot of security here. They’ve left things. I’ve seen things by people’s doors for weeks.

OLICK: Safer by elevator, perhaps, than by sleigh. For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Alexandria, Virginia.

(END VIDEOTAPE)

MATHISEN: And to read more about how apartments are handling the crush of packages, head to our Web site. That’s NBR.com.

And that, folks, is NIGHTLY BUSINESS REPORT for tonight. Thanks for joining us. I’m Tyler Mathisen, and we want to remind you that this is the time of year your public television seeks your support. We hope you’ll give generously.

And we thank you for your support and we’ll see you 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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