nightly business report - wednesday may 1 2013

7/30/2019 Nightly Business Report - Wednesday May 1 2013

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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and

Susie Gharib, brought to you by --

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Sell in May. That`s

how investors kicked off the month, erasing about half of April`s gains.


2/27

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Pedal to the metal.

The Fed sticks with its easy money policy and calls out Congress for

weakening the economy. We`ll talk with former Federal Reserve Governor

Randy Kroszner.

GHARIB: Testing, testing. With just five months to go, will the

state`s new health exchanges be up and running in time for open enrollment?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for this

Wednesday, May 1st.

Good evening, everyone.

So, Tyler, the calendar changed and so did investor sentiment.

MATHISEN: In a big way, wiping out almost all of those April gains.

The old saying, "Sell in May, and go away" did ring true on Wall Street

today. Stocks fell sharply on more evidence of a slowdown in economic

recovery.

The Dow tumbled to 138 points, the NASDAQ fell 29, and S&P was 500

down 14. Big driver for today`s sell-off: disappointing data on jobs,

specifically the payroll firm ADP reported that 119,000 private sector jobs

were added to the economy in April. And that was far fewer than the

160,000 or sot that economists had expected.


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And March`s numbers were revised downward as well. And that is

causing some concern about Friday`s big government report on payrolls and

jobs.

The Institute for Supply Management`s read on U.S. manufacturing in

April showed some modest growth, but it dropped to the slowest rate of

growth so far this year. And construction spending during March fell

nearly 2 percent, largely because of a pullback in government spending on

new projects.

GHARIB: Meanwhile, the Federal Reserve knows that the U.S. economy

still needs help. And so, policymakers announced today they are leaving

interest rates unchanged near zero percent. Wrapping up a two-day meeting,

the Fed also said it will continue its massive bond buying program to

encourage more lending and spending. The Central Bank also said it s ready

to, quote, "increase or reduce" the pace of those purchases.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

At the Federal Reserve, monetary policymakers wrapped up a two-day meeting,

renewing their pledge to keep interest rates at record lows and buying


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billions in treasuries to encourage borrowing and investment. The Fed even

opened the door to increase bond purchases if the economy does not improve.

DAVID KELLY, JPMORGAN FUNDS: I think, right now, they are over easy.

I would like to see a little bit of sunny side up here.

PEARSON: The statement from Chairman Ben Bernanke and his fellow

monetary policy makers sees an economy expanding at a slow pace, with an

unemployment rate that remains elevated and the Fed says fiscal policy is

restraining growth. Leading economists say the Fed benchmark of 6.5

percent unemployment rate for raising interest rates is becoming more

elusive because of government austerity.

DIANE SWONK, MESIROW FINANCIAL: It`s weak and it`s weak because of

the sequester. We`re now starting to see fiscal drag from both taxes and

the sequester intermingle. And that`s one of the reasons why you see the

Feds still out there.

PEARSON (on camera): Today`s disappointing data on private sector

jobs and a possible manufacturing slowdown, adding to concerns ahead of

Friday`s government employment report that April could see a second

straight month with a significant slowdown in job growth.

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


5/27

(END VIDEOTAPE)

MATHISEN: And joining us now, Randy Kroszner, former Fed governor and

now professor the economics at the University of Chicago`s Booth School of

Business.

Professor, welcome. Good to have you with us.

I guess everybody is saying that the key sentence in the Fed statement

today is where they say they could increase or decrease the pace and size

of their asset purchases.

Do you see it that way? And what does that very careful language

suggest to you?

RANDY KROSZNER, FORMER FED GOVERNOR: Well, it is really the only

change in statement, or, well, it s also a change about fiscal policy. But

in terms of monetary policy, that was the key change.

There have been a lot of this discussion of maybe tapering off some of

those purchases. That discussion I think is now gone. The last -- two of

the last three years, we`ve had these sort of spring swoons or spring

slumps just when the Fed started to talk about exit strategy, taking about

taking away the punch bowl, we`re not going to hear that anymore.


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I think the Fed has decided it`s going to try to use an open mouth

operation, trying to change people`s expectations to try to boost the

economy a little bit, even before making any further purchases.

GHARIB: Randy, as a former Fed governor, you sat in all of these

meetings. You know what the conversation is like.

So, what Wall Street wants to know, what investors want to know is how

much longer this bond-buying program is going to go on? So, what are you

saying? How long is this going to go on?

KROSZNER: Well, the Fed changes communications strategy to get away

from having a particular date like 2015 to saying until the unemployment

rate goes down to 6.5 percent for moving interest rates. For the bond

purchases, I think it`s likely that it`s going to go on for a while. By

changing the language, they made it very clear that the balanced view that

they could either increase or decrease, depending on how the economy is

going.

And I think, unfortunately, the economy remains in a sort of sideways

slide, not really getting the traction that we need, and so I`d say it`s at

least as likely, if not more likely they`re going to increase rather than

decrease their purchases over the next year.

MATHISEN: You wrote not long ago that these asset purchases have


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helped forestall deflation, which is really why, I suppose, the Fed has

embarked on this course. Is Q.E., the bond and other asset purchases, is

it still helping? And do we risk not necessarily kindling inflation at the

consumer level, but an asset inflation that some people say could end

badly?

KROSZNER: Sure. So, you`ve got the challenge of the regular price

inflation or deflation, and we`re starting to see some of the numbers go

down lower and lower. Inflation, by one of the Fed`s favorite measures

that just came out, is probably around 1 percent. That`s half of the goal

of around 2 percent.

Now, there are some potential concerns that by keeping interest rates

so low for so long and making such promises, that you could get some more

risk-taking occurring in different parts of the market.

I don`t think there is strong evidence of any dislocations, but we

have to be really careful to monitor for that.

GHARIB: All right. Everybody is waiting for this important jobs

report that`s coming out on Friday, and I know you watch it very carefully

as well. The consensus estimate is that the unemployment rate will stay

around 7.6 percent and there`d be something like 153,000 jobs created, if

it actually works out that way.


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I mean, how would you describe the job market these days in view of

what you said, the sideways slide in the economy?

KROSZNER: Unfortunately, I think that continues to be where we are.

It doesn`t mean that we`re going to have a double dip. It doesn`t mean

we`re going to stop job growth. But having job growth and sort of 100,000,

150,000 area is not going to make a big dent in unemployment rate. That

unemployment rate has really been stubbornly high and we just kind of

continue to slide along with growth around 2 percent, generating 100,000,

150,000 jobs per month, gradually bringing that unemployment down.

The Fed is frustrated. It wants more to happen. It`s trying -- it

believes it`s trying its best and now, of course, is pointing some fingers

at the fiscal authorities.

MATHISEN: Very quickly and finally, Professor, would you like to see

Chairman Bernanke re-nominated? Would you like to see him take another

term? And do you think he would if it was offered?

KROSZNER: I have enormous respect for the chairman. I think, much

like Paul Volcker, who is revered today, but when he was finishing up his

eight years as chairman, there are a lot of questions about whether he did

the right things or not. I think, over time, people are going to realize

that Chairman Bernanke really slayed the dragon of deflation and was very

important in providing the basic support for us going forward.


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So, I would certainly be delighted to see him there for much longer.

MATHISEN: Very glad to have you with us tonight. Randy Kroszner,

former Fed governor and professor of economics at the University of

Chicago`s Booth School of Business.

GHARIB: And more on the economy today, more evidence of a turn around

in housing. Mortgage applications rose 2 percent last week, following

another slight dip in interest rates, 3/4 of the applications were current

homeowners refinancing their loans at a lower rate.

MATHISEN: April was another blowout month for auto sales, especially

for Detroit`s Big Three. Sales at Ford surged 18 percent, while Chrysler

and General Motors (NYSE:GM) both saw sales rise 11 percent last month.

Smaller, more fuel efficient cars like the Ford Fusion were in high

demand. But so were pickup trucks like the Dodge Ram. Some economists see

that as a by-product of the recovery in housing with big demand from

contractors and construction crews to replace aging vehicles they`ve held

on to since the Great Recession.

GHARIB: Turning now to our "Market Focus".

Merck (NYSE:MRK) dragged down the Dow today, reporting lower profits


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on reduced drug sales. Merck (NYSE:MRK) also revised its outlook lower for

the rest of the year. Merck (NYSE:MRK) shares lost more than 2 1/2

percent, closing at $45.69.

MATHISEN: Well, today, Susie, one company`s pain was another firm`s

gain. Despite beating on earnings, Allergan (NYSE:AGN) shares were hit

hard today after the company said it will delay final tests for its drug to

treat macular degeneration. As a result, shares of Regeneron led the

NASDAQ. Its investors and analysts viewed that news as a positive for

Regeneron Eylea drug.

Shares of Allergan (NYSE:AGN) off 13 percent to $98.67 while Regeneron

gained 10 percent to finish at $237.29.

GHARIB: CVS (NYSE:CVS) Caremark touching a new all-time high, thanks

to solid profits up 23 percent in the quarter. Higher demand for generic

drugs, the flu season and increasing prescription volume drove profits and

Wall Street now expects current quarter profits will be higher than earlier

forecast.

Year-to-date, CVS (NYSE:CVS) is up 21 1/2 percent, closing at $58.75.

MATHISEN: Visa (NYSE:V) reported higher profits in Wall Street had

expected and increased net operating revenues as well. The company also

confirmed its full year outlook for low double digit revenue growth.


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Shares of Visa (NYSE:V), though, sold off by more than 2.5 percent before

the close, but they jumped in after-hours trading.

GHARIB: And Humana (NYSE:HUM) doubled its first quarter profit and

raised its outlook for the full year but expressed uncertainty about 2014.

About 2/3 of the Humana`s revenue comes from Medicare Advantage. This is a

private Medicare plan. Rates are set by the government, and Humana

(NYSE:HUM) said that`s making 2014 earnings growth uncertain.

Still, shares gained more than 4 1/2 percent on the earnings

performance, and are up 13 percent so far this year.

MATHISEN: And sticking with health care, the Affordable Care Act was

signed into law more than three years ago. Now, dozens of states are

gearing up to implement their own health care exchanges by October when

Americans can shop for their own state-run plans.

Bertha Coombs shows us the challenges one state is having in setting

up its own exchange.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Sort by the premium cost, by the deductible.

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):


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Washington state has been test-driving its health benefits exchange since

late March.

UNIDENTIFIED MALE: There`s other things in here.

COOMBS: The testing is still in the early stages. Washington is one

of 16 states and the District of Columbia that are building their own

insurance exchanges, the health care portals consumers will use to buy

insurance and find out if they are eligible for subsidies.

Most states seem to be on target says Kaiser Family Foundation`s

Jennifer Tolbert. But it`s less clear how things going with federal

exchanges.

JENNIFER TOLBERT, KAISER COMMISSION ON MEDICAID & UNINSURED:

We know

a little bit less about how progress is proceeding at the federal level,

but we are hearing that progress is being made.

COOMBS: The federal government is building exchanges for 33 states

whose governors opted against a build out. Critics worry Health and Human

Services won`t get systems up in time for the October 1st start of open

enrollment.

But President Obama downplayed those concerns.


13/27

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Any time you are

implementing something big, there`s going to be people who are nervous and

anxious about, is it going to get done?

COOMBS: The Deloitte Team (NASDAQ:TISI) helping to build Washington s

system says the biggest challenge is bringing the existing Medicaid and

other federal reporting systems up to speed, so they don`t trip up the new

portals.

BENUSH VENUGOPAL, DELOITTE: Legacy systems, it takes a little while

longer to do that. And these changes are essentially to support the

additional data capture that we needed to do, to support the Affordable

Care Act.

COOMBS (on camera): For the federal exchanges resolving conflicts

with 33 different state systems will be a big, complicated piece of

business in President Obama`s words. HHS has already said it`s going to

have to delay some small business options until 2015 because it can`t get

them up and running in time for October 1st.

(voice-over): In Washington, they feel like they are right on

schedule to get both individual and small business plans online and ready

on time.

RICHARD ONIZUKA, WASHINGTON HEALTH EXCHANGE CEO: Everybody isvery


14/27


15/27

GHARIB: Facebook (NASDAQ:FB) losing more face with investors today

after the market closed. The social networking site reported earnings that

came in below analyst estimates and then the stock bounced up and down in

reaction.

Seema Mody is at the NASDAQ with all the details of Facebook`s latest

results.

Over to you, Seema.

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie,Facebook`s

first quarter came in at $1.46 billion, which is slightly higher than the

street estimate, but as you point out, earnings didn`t meet -- earnings did

miss street expectations, excuse me, by a penny. Now, mobile was the key

buzzword on analyst`s minds. Mobile ad revenue now makes up 30 percent of

Facebook`s total ad revenue, compared to the 23 percent it reported last

quarter.

And Facebook (NASDAQ:FB) also reported a jump in mobile monthly active

users. CEO Mark Zuckerberg said, "We have seen strong growth and

engagement across our community and launched several exciting products.

Facebook (NASDAQ:FB) in general has been taking more steps to make its

social networking site more mobile-friendly. It recently made updates to

its timeline, as well as other features. It also unveiled its Facebook


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(NASDAQ:FB) Home software for Android users, all in all in an effort to

lure in the mobile user.

Back over to you.

MATHISEN: All right. Seema, thank you very much.

Facebook (NASDAQ:FB) may represent the new media, but some of the old

media companies also reported their earnings today. And the results were

pretty good.

After the bell, we heard from CBS (NYSE:CBS), remember that company?

They got "60 Minutes" and other shows. It saw profits rise 22 percent last

quarter on higher ad rates for the Super Bowl and a jump in revenue from

cable carrier fees.

Comcast (NASDAQ:CMCSA) (NYSE:CCS), the owner of NBC Universal

(NYSE:UVV), which is the parent of CNBC, which produces this broadcast,

made more than expected, with growth in its theme parks and cable news

units, even though it lost more cable TV subscribers.

And Time Warner (NYSE:TWX) made more than forecast last quarter on the

strength of CNN, HBO and other cable networks it owns, despite weakness in

its movie studio and, notably, its publishing business.


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And if that wasn`t enough, to show that some of the old guard is doing

pretty well -- shares of too more media giants, Disney (NYSE:DIS) and

Viacom (NYSE:VIA), each touched all-time highs today on a down day in the

markets.

GHARIB: Joining to us talk about the investing opportunities in all

kinds of media companies, Larry Haverty. He`s portfolio manager at

Gabelli Funds.

Larry, let`s begin with Facebook (NASDAQ:FB). I know you have been

recommending it. And now that you`ve seen the numbers, do you still feel

that way after seeing those earnings?

LARRY HAVERTY, GABELLIO FUNDS PORTFOLIO MANAGER: Absolutely. Thekey

statistics are not the earnings -- the revenues in the engagement. And the

ad revenues grew 43 percent.

Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) in the next five years

are going to capture all of the incremental growth in global advertising

dollars. And you can see Google`s revenues, you can see it in Facebook`s.

Now the question is, how fast is Facebook (NASDAQ:FB) going to convert

this revenue to operating cash flow? They didn`t get a particularly good

grade in this quarter. They only converted around 25 percent, which is

pretty low since you have a company that doesn`t really sell anything, it


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(INAUDIBLE).

So, they are spending a lot of money in initiatives. It`s kind of

like Amazon (NASDAQ:AMZN). I think the market is going to give Mark a hall

pass when showing enmity (ph) for a while and we`ve seen act one of the

movie, which is collecting the dollars. Act two is converting them to a

profit and we`ll just have to see.

I think the stock is fairly priced here if it does down, it becomes

more attractive, and we`ll just have to wait. It`s not a definitive

proposition. I think the market figured that out after hours.

MATHISEN: You know, Larry, we`ve used the construct of new media

versus old media. And, obviously, new media companies and old media cross

pollinate, and they connect in various ways.

Let me cut to the chase here. If you had $10,000 to invest over the

next five years, how would you apportion it between or among new media

companies as we traditionally think of them and old media companies, and

which specific names would get the most of the money?

HAVERTY: I`d go at least 50 percent in new media, and I think the

biggest position would be Google (NASDAQ:GOOG). Google (NASDAQ:GOOG) is

very reasonably priced. They win in search. They win in video. And

heaven only knows, Tyler, what`s going to happen with Google (NASDAQ:GOOG)


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Glass. Google (NASDAQ:GOOG) Glass could be really enormous, and it`s a

free call.

I`d maybe put 10 percent in Facebook (NASDAQ:FB) and I`d put 15

percent in Yahoo (NASDAQ:YHOO)! largely because I think the proposition

with Alibaba in China is going to be a spectacular success. And we`ll have

to see when Alibaba goes public, which I think will happen at the end of

the year.

The rest of it, old media not so bad. The collection of ad dollars

problematic, but what they`ve done is they figured out a way using

technology to get their content viewed on more platforms. And CBS

(NYSE:CBS) has done this with its cable network. Time Warner (NYSE:TWX)

has done it with HBO Go and TV everywhere.

And you are getting new streams of people paying for content like

Netflix (NASDAQ:NFLX), and Amazon (NASDAQ:AMZN) and TV stations are

collecting re-transmission consent.

And the beauty of this, Tyler, is it`s about 90 percent incremental

profit because they`re not really spending a whole lot more money to

produce the content.

So, the incremental margins are terrific. The companies are

generating in the neighborhood of 8 percent to 10 percent cash flow growth


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and management has all gotten religion how to distribute that cash flow

growth to the shareholders, I think Time Warner (NYSE:TWX) has gotten the

most religion. They now are pretty distributing 100 percent. But CBS

(NYSE:CBS) is right up there with them.

GHARIB: We have --

(CROSSTALK)

HAVERTY: Great story.

GHARIB: We`re going to leave it there.

Any disclosures to make? Do you own any of the stocks you just talked

about?

HAVERTY: We own them all.

GHARIB: You own them all. OK, fair enough.

Thanks so much. Larry Haverty, portfolio manager at Gabelli

Multimedia Trust.

MATHISEN: What you call a blanket disclosure there, right?


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All right. JCPenney is sorry, posting a public apology on YouTube and

Facebook (NASDAQ:FB) pages, admitting it made mistakes, saying that it

listened to unhappy customers and wants those shoppers to come back.

(BEGIN VIDEO CLIP, JC PENNEY COMMERCIAL)

AD NARRATOR: It`s no secret. Recently, JC Penney changed --

(END VIDEO CLIP)

MATHISEN: Penney knows it messed up by ending sales days and

eliminating coupons, which resulted in the loss of a quarter of its core

customers over just the past year alone.

Wall Street wasn`t particularly impressed it would seem by the mea

culpa. Shares of Penney`s today closed down more than 1 percent again on a

down day for stocks.

Coming up, what one cola giant is doing back-to-win back consumers who

have sworn off soda?

First, though, here is how commodities, treasuries and currencies

fared today.

(MUSIC)


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MATHISEN: Finally, tonight, with U.S. sales on the decline for eight

years straight, things have been pretty tough for soda makers who are

working harder than ever to sell those drinks. It`s especially tough for

the number three soda maker, Dr. Pepper Snapple. You know their brand,

7UP, A&W, Sunkist, Canada Dry and, of course, Dr. Pepper.

And Jane Wells shows us what that company is doing to get more

Americans to come back to buying the bubbly sweet stuff.

(BEGIN VIDEOTAPE)

DAVID THOMAS: How about Sunkist? You like orange?

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Inside a labyrinth of laboratories on the ground floor of an office

building in Plano, Texas --

THOMAS: Here`s another version of Zevia.

WELLS: -- David Thomas, a PhD in food and flavor, is leading a team

trying to break through the clutter on the soda shelf and lure Americans

back to drinking cola.

THOMAS: We`re all about flavor.


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WELLS: This is the headquarters for Dr. Pepper Snapple Group, the

perennial number three to Coke and Pepsi, trying to thrive in a country

where people have been switching from sodas to energy drinks or water.

LARRY YOUNG, DR PEPPER SNAPPLE GROUP PRES. & CEO: Oh, every day is

like the Super Bowl.

WELLS: CEO Larry Young has been in this business over 40 years.

YOUNG: There is a lot of cola fatigue out there. Flavors are

continuing to grow. We play in the flavors. That`s what we do.

UNIDENTIFIED MALE: Manliest low calorie soda in the history of

mankind.

WELLS: Young says the company is starting to win back people who have

sworn off cola with a new 10-calorie product line which he says has the

same mouth feel as full calorie cola, the new line is helping Dr. Pepper

gain market share.

But Young doesn`t buy the argument that sodas are the cause of

obesity.

YOUNG: Everybody is trying to say that, you know, obesity is being


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caused by soft drinks. How can soft drinks be declining and obesity

climbing? I mean, it`s just exact opposite.

WELLS: As sales volume thread water, the company is doubling on

marketing, like a new initiative adding videos to the famous Snapple facts

called Snapple "Reinfactments".

JIM TREBILCOCK, DR. PEPPER SNAPPLE GROUP MARKETING EVP: We haveto

think differently, as kind of that Trojan horse in the beverage industry.

We really have to be creative in how we approach things and take a little

bit more risks.

WELLS: The company is proud to show off all the risks it`s taking --

well, almost all.

(on camera): But they won`t let us go everywhere. Behind this door

is the vault, which contains the secret recipe for Dr. Pepper, all 23

ingredients. They won`t let us see the vault. They do let us see the

door.

(voice-over): Will the innovations pay off? The CEO says it will be

a long, tough fight.

YOUNG: I like to tell everybody that talks about us being small

compared to Coke and Pepsi, as a farm boy (ph), I`ve seen a lot of fleas


25/27

make a bulldog bite his butt.

WELLS (on camera): Are any bulldogs biting their butts yet?

YOUNG: Well, we`re still gaining share.

WELLS (voice-over): For NIGHTLY BUSINESS REPORT, Jane Wells, Plano,

Texas.

(END VIDEOTAPE)

MATHISEN: One of those things, a little can become big. You drink a

Coke, or a sugar drink a day, it adds up to a lot of calories. That`s why

I sort of replace them with --

GHARIB: The diet.

MATHISEN: -- with waters. I do like the diet, though. I do like

diet Dr. Pepper. It`s actually my favorite among them.

All right. A programming note for you: tomorrow, I`ll be hosting

NIGHTLY BUSINESS REPORT from the Investment Company Institute`s annual

meeting down in Washington, talking to some of the biggest names in the

mutual fund business.


26/27

GHARIB: And on Friday, I`ll be in Omaha, covering the Berkshire

Hathaway (NYSE:BRK.A) annual meeting, the big event of the year for value

investors. And I`ll also interview Warren Buffett and I`ll have a complete

wrap up on Monday.

MATHISEN: Fantastic.

And that will do it for tonight`s edition of NIGHTLY BUSINESS REPORT.

I`m Tyler Mathisen, thanks for watching.

GHARIB: And I m Susie Gharib. Have a great evening, everyone. And

we`ll see you tomorrow.

END

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

broadcast at http://nbr.com. The program is transcribed by CQRC

Transcriptions, LLC. Updates may be posted at a later date. The views of

our guests and commentators are their own and do not necessarily represent

the views of Nightly Business Report, or CNBC, Inc. Information presented

on Nightly Business Report is not and should not be considered as

investment advice. (c) 2013 CNBC, Inc.


27/27

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nightly business report - wednesday may 1 2013

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