Nightly Business Report - Friday June 14 2013

7/28/2019 Nightly Business Report - Friday June 14 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: Rising rates. From

mortgages to credit cards to auto and student loans, why next week`s Fed

meetings could hit your wallet and hit it hard.


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BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Crude move. If energy

production is at record levels, why are oil prices near at five-month highs

and why aren`t we feeling more relief at the pump?

GHARIB: Superhero showdown. As "Man of Steel" hits the theaters, can

he strengthen the Warner Brother`s franchise and pull in as much as

Disney`s "Avengers"?

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

Friday, June 14th.

GRIFFETH: Good evening, everybody. I`m Bill Griffeth, in for Tyler

Mathisen this evening.

Stocks ended a volatile week with a triple digit loss, but the key

gauge everybody is fixated on right now is interest rates. Even with the

pullback the last few days, rates have spiked over the last two months as

Wall Street tries to figure out if and when the Federal Reserve will begin

winding down its bond buying program. More clues could come over the next

week when the Fed meeting occurs, and when it does come to rates, the big

one for most people is died to their homes, with a 30-year mortgage around

6 percent and trending higher.

Just who do rising rates hurt and will they slow the recovery?


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Diana Olick takes a look tonight.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Anyone who bought a home ten years ago knows today`s mortgage rates are a

huge bargain, but rising rates are still spooking the market.

DAWN SMITH GURGANUS, NORTHERN VIRGINIA REALTOR: I`m starting tosee,

actually, some of the first-time homebuyers realize this is the time to get

into the market.

OLICK: The 30-year fixed conforming loan hit 4.15 percent last week,

up from 3.59 percent at the beginning of May. That`s a 14-month high.

While that has pushed refinance applications down 36 percent in a month,

purchase applications fell just under 2 percent. Some home builders are

actually seeing sales gain.

DOUGLAS YEARLEY, TOLL BROTHERS CEO: It`s the equivalent of a price

increase. It creates urgency. We`re actually seeing more sales now

because rates are beginning to creep up very slowly. If that continues and

if we stay in a manageable range, we`ll be fine.

OLICK: And rates mean nothing to a large segment of today`s buyers.


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Thirty-two percent of buyers in April were all cash, up from 29 percent

ago, no mortgage at all. And that`s April, before rates really started to

spike in May. These buyers are keeping the distressed end of the market

going, 1/5th of April buyers were investors, who again, largely use cash.

Take California, for example, a big investor market where sales are now

surging.

The typical mortgage payment that home mortgage committed to last

month was $1,227. That was up from $1,006 a year ago. Adjustment for

inflation, last month`s typical payment was still 47 percent below the 1989

peak and 57 percent below the latest 2006 peak.

So, who do rising rates hurt? First-time buyers who accounted for 29

percent of home purchases in April compared to their usual 40 plus percent.

GURGANUS: We might see buyers have to lower their expectations.

OLICK (on camera): The trouble is, mortgage rates are rising right

along with prices, not a great mix. Buyers are losing spending power, but

on the flip side, potential sellers are gaining home equity, allowing them

to move up. It begs the question, does it all even out in the end?

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)


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GHARIB: Well, not only our mortgage rates inching up, any increase in

the benchmark lending rates could lead to higher interest rates on car

loans, credit cards, student debt and more.

Hampton Pearson explains.

(BEGIN VIDEOTAPE)

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

Americans will run up nearly $47 billion in new credit card debt this year,

according to a new study from cardhub.com.

JOLENE, CONSUMER: I pay my bills all time -- for that one card on

time, all the time, and always more than the minimum payment and I cannot

seem to pay it off.

PEARSON: Economists say if higher interest rates are coming,

consumers will feel it first on those unpaid credit card balances.

DIANE SWONK, MESIROW FINANCIAL: The biggest worry for consumers is

likely on their credit cards. That`s where you`re going to see rates move

up probably fairly rapidly if rates continue to rise, which is a big if.

PEARSON: Low interest rates have made new cars more affordable, auto


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sales were the biggest factor in better than expected retail sales in May,

up 1.8 percent according to the Commerce Department, with concerns about

higher borrowing cost fueling some of that demand. But leading economists

say the auto industry will continue to offer creative financing incentives.

SWONK: What`s most important to them is not the size of the loan but

what their monthly payment is, and how they can manage their monthly

payment. And anything the auto industry can do to minimize that monthly

payment has been able to sell a lot of cars.

PEARSON: On Main Street, interest rate concerns are not sparking

anything like the market anxiety we saw on Wall Street this week.

The one exception, college students and their parents worried about

repaying all those loans.

JULIAN FAUST, COLLEGE STUDENT: You do want to get out of debt

quicker. Nobody wants to have the feeling of actually having to owe

somebody anything. So with student loans being as expensive as they are, I

want to get them out of the way as quick as possible.

PEARSON (on camera): The one silver lining for consumers, gasoline

prices are lower than they were at this time last year. As one person we

talked to said today, we`ll take anything we can get.


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

(END VIDEOTAPE)

GRIFFETH: And as we mentioned earlier, stocks ended the volatile week

to the downside again today, following a decline in consumer confidence for

June, industrial production that was flat in May and a surprising half a

percent increase in producer prices last month, mostly on rising food and

energy costs.

After four days, the sizable losses this week, all three of the major

averages ended lower for the third week out of the past four. Today, the

Dow lost 106 but still somehow managed to close above that 15,000 level.

The NASDAQ was down by 21. The S&P 500 was off by nine points.

As for treasuries, the yield on the 10-year fell slightly today, 2.13

percent after hitting a 14-month high on Tuesday.

GHARIB: Meanwhile, foreigners have been bailing on U.S. treasuries

since before the market drop. The Treasury Department says that private

overseas investors sold out of a record $30 billion in treasury bonds and

notes in April, and foreign governments dump an additional $55 billion.

GRIFFETH: And that kind of pessimism is now resonating at the

International Monetary Fund. The IMF said today that higher payroll taxes


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and cuts in U.S. government spending have posted downside risks to the

country`s economic outlook and will likely shave about 1.5 percent off U.S.

growth this year. Those cuts part of the sequester legislation that kicked

on March 1st, led to more federal worker furloughs today, including another

unpaid one-day shut down of the IRS, housing and urban development, and

EPA, and the Office of Management and Budget.

GHARIB: Motor City edged a step closer to the largest municipal

bankruptcy in history today, by failing to make payments on $2.5 billion in

debt. The state appointed financial manager for the city of Detroit also

asked creditors, including unions, pension trustees and bond insurers to

take about 10 cents on the dollars of what the city owes them. Today`s

default was designed to save cash to pay for police, fire and other city

services.

GRIFFETH: Meantime, crude oil prices in the future`s market settled

at a five-month high up more than a dollar a barrel today, at $96.85.

Prices have surged nearly 2 percent just this week. Traders say the reason

for the price spike is the political turmoil in Syria. Although it`s not

an oil exporter, the landlocked nation is surrounded by Mideast hot spots

like Iraq, Turkey, Lebanon and Israel.

GHARIB: John Kilduff says get ready for higher oil prices and to pay

more at the pump. He`s founding partner and an oil analyst of Again

Capital.


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John, great to have you here with us.

JOHN KILDUFF, AGAIN CAPITAL FOUNDING PARTNER: Good evening.

GHARIB: You know, I just don`t get this. We`ve been hearing for

awhile now all these reports about the U.S. is getting close to energy

independence. We have record oil supplies. You kind of expect a price

break.

Why are prices going up?

KILDUFFF: Well, it`s a reminder that the best we can probably hope

for is energy self reliance and not independence. It`s a global market.

And what we`re finding out today is that he string together all the

problems that you just related to us all, production problems, that is,

within OPEC, especially, about 2 million barrels per day are offline,

whether it`s Libya, some of the African countries and the embargo on Iran,

it all adds up to tipping the balance globally to a tighter market rather

than over supply situation, even glut situation, even though we have record

inventories here in the United States.

GRIFFETH: There are those who say that some of the price increase

we`ve seen is attributable to speculators in the world market. They`re


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pushing the price up beyond what it should be based on supply and demand

out there. Is that the case?

KILDUFF: Well, I guess if there weren`t riots in Turkey, where half

of Iraq`s exports go through, or if there wasn`t a potential conflagration

problem in Syria between the U.S. and Russia as a proxy war, then

speculators would have no reason to buy up all the oil they can now to

avoid the rush.

So, you know, there is a rational behind why traders do what they do.

The diminution and output, the 2 million barrels I just went through, it`s

real, and demand is sufficient enough out there that that`s what -- we need

those 2 million barrels to push the prices down to the 80s and 70s, where

they could go, where -- we were this close I think to sort of having a real

price break, but because of what`s gone on, yet again, it didn`t happen.

GHARIB: Tell us what can we expect to pay at the gas pump, noticing

in the Northeast area here, around New York, it`s getting close to $4 a

gallon. What do you see in the different parts of the country?

KILDUFF: Well, that`s another irritating factor I think for U.S.

consumers, is that we`ve all this oil and we may be in the process of

trading our crude oil addiction to an imported gasoline addiction. We`ve

closed a slew of refineries on the East Coast, a number of others have been

through extended maintenance. The people in Midwest have been paying


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unbelievable amounts for their gasoline, $4, $4.50, sometimes $5 a gallon -

-

GHARIB: Really, already a $5?

KILDUFF: Already pushing $5, and that`s a result of one major

refinery in Indiana that`s been going through extended maintenance period.

European refineries right now are in extended shut down, getting ready for

a ramp up in August, thankfully. But in the short term here, into July

4th, look for that national average to get back up towards $4 a gallon.

GRIFFETH: Do you ever expect more refineries to be built? When was

the last time we had a refinery built in the United States?

KILDUFF: You have to go bar 1970s, early `70s. Now, there are

smaller tea pot refineries to process some of the shale oil in North

Carolina and some of the other places, more locally, so you`ll be less

reliant on pipeline getting it for this reason. So, we may see some of

that.

But other than that -- no, they are closing. They are closing in

Europe. They are closing here --

GRIFFETH: Because it`s not profitable.


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KILDUFF: It`s not profitable. The industry is going through a

rationalization like we`ve seen with the airline industry. Too much over

capacity, believe it or not.

GHARIB: John, thanks for coming by.

GRIFFETH: Thanks, John.

GHARIB: Great seeing you. Have a great weekend.

And John Kilduff from Again Capital.

And still ahead on the program, if you build it, they will come. So

China built homes, lots of them. But so far, no one is coming. We`ll tell

you why.

But, first, let`s get a check how the international markets closed

today.

(MUSIC)

GRIFFETH: Well, the rivalry between Boeing (NYSE:BA) and Europe`s

Airbus to build the biggest passenger jet ever ramped up a bit more today.

At next week`s Paris air show, Boeing (NYSE:BA) will reportedly outline

plans to build an even bigger version of its massive 787 Dreamliner jet,


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the new one that can hold 323 passengers.

In the meantime, after years of delays and billions in development

costs, rival Airbus launched its newest wide body aircraft in France today.

Airbus claims its 350, with its upturn wings, is 25 percent more fuel

efficient than comparable planes, taking direct aim at that Dreamliner.

GHARIB: Also flying higher these days, confidence in banks.

According to a new Gallup poll, Americans are more confident in U.S. banks

than they have been in five years. Now the poll gives no clear reason for

the boost in confidence but suggests the uptick stems from the high score

banks got on stress tests conducted by the Federal Reserve right after the

financial crisis.

GRIFFETH: There is talk of a cable company deal, that is just talk so

far in market focus tonight. CNBC reported that Charter Communications

(NASDAQ:CHTR) looking for acquisitions made an overcharge of Time Warner

(NYSE:TWX) Cable, but the Time Warner (NYSE:TWX) said it had no interest in

the deal. Shares of both companies surged on heavier than normal volume.

Time Warner (NYSE:TWX) was up more than 8 percent. Charter touching a new

all-time high, it gained more than 5 percent.

And Dow Component American Express (NYSE:EXPR) (NYSE:AXP) led the

financials lower as a Barclays analyst lowered its rating from equal weight

to over weight, saying future growth potential is held back by slower


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revenue growth. Barclays raised its price target to $82, and shares

dropped almost 3 percent. It closed at $72.97.

GHARIB: Elan puts itself up for sale. This Irish drug company is

trying to fend off a hostile take over by Royalty Pharma for $13 a share.

Investors are hoping this turns into a bidding war at a higher price.

Shares of Elan gained more than 8 percent on heavy volume closing at

$13.66.

And some worries about the future of Monster Beverage. The American

Medical Association is expected to recommend this weekend a ban on high

energy drinks to anyone under the age of 18. Investors decided not to wait

for the news and sold the stock. Monster Beverage down almost 4.5 percent

to $59.26.

GRIFFETH: Well, our market monitor says the market will go through

sideways sloppy correction this summer. He`s Michael Jones, chairman and

chief investment officer at Riverfront Investment Group.

And, Michael, when you sit here with the Dow Jones 3 percent below its

all-time high. We`ve had something of a correction of sorts. But you

think there will be more coming, don`t you?

MICHAEL JONES, RIVERFRONT INVESTMENT GROUP: I do. You know, a 3

percent correction, given the strength of the uptrend in this market, that


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would be absolutely the minimum of the kind of pullback we should expect.

However, given that the Fed is pushing a lot of quantitative easing into

the market, we might have a shallower than normal pull back and we might

work out some of the over bought sentiment by simply being sloppy and

sideways throughout the summer.

GHARIB: And how much of a correction, Michael? How big?

JONES: You know, I wouldn`t be surprised, if, you know, we limit the

downsize, say for example on the S&P 500 to say 1,600, which would be a

very shallow modest pull back by his historical standards.

And the motivation for that, you got the Goldilocks economic

environment. You got recovery in autos and housing being offset by fiscal

drag out of Washington. And thanks to that, you keep the Feds printing the

money.

GRIFFETH: Well, let`s talk about what you would do to protect

yourself or those investments you feel are attractive right now. You got

the SPHB, the PowerShare`s ETF right now, yes?

JONES: Absolutely. When we look for value in the marketplace, we go

shopping where other people don`t want to go, and if you think about where

investors have been very comfortable in this bull market, it`s been in the

stable business model, dividend-oriented names and on our model, those are


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30 percent to 35 percent over value.

Go to the opposite end of the spectrum, you look at the very volatile

industrial technology, the oil exploration and production, those names are

35 percent to 40 percent undervalued and as the economy stabilizes, we

think investors are going to return to those names.

GHARIB: OK.

JONES: Now, you can do stock selection there but given the risk, we

think bundling them into a single ETF is the best way to play them.

GHARIB: Now, you have a couple of individual stocks you want to talk

to us about. Let`s start with Discover Financial, DFF, on the big bored.

Why do you like this one?

JONES: Well, we like this one and largely because it s got a hidden

gem. In addition to the well-known credit card component of their

business, they are also one of the three players in the payment processing

business. So, you`ve got the bank networks, you`ve got American Express

(NYSE:EXPR) (NYSE:AXP) and you`ve got Discover.

And Discover is taking market share from the banks and American

Express (NYSE:EXPR) (NYSE:AXP) faster than anybody else. They signed an

agreement with PayPal that gives them a tremendous opportunity for growth


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over the next several years. And in addition to that, they are a balance

sheet lender. And as the economy stabilizers, those credit card balances

grow, and so do their earnings.

GRIFFETH: Quickly on Agilent Technology, Michael?

JONES: This is the old Hewlett-Packard (NYSE:HPQ), the one that

Hewlett founded in the `30s. They had great exposure overseas. They

messed up a bit, maybe overpaid on their Dako acquisition. With their most

recent earnings, it sounds like they turned the corner there and we think

there`s a lot of upside and some catch up potential.

GRIFFETH: Any disclosures to tell us about in those?

JONES: I invest in all our portfolios and that means I own every one

of these names in my personal account.

GRIFFETH: Very good. Michael Jones, chairman and chief investment

officer at Riverfront Investment Group -- thanks for joining us tonight.

JONES: Thank you.

GHARIB: China has been going through a construction boom, of building

rows and rows of luxury apartments and office buildings for its huge

population. But sometimes, the building was in the wrong place.


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As Eunice Yoon reports, those urban hot spots are now looking more

like ghost towns.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):If

you wanted a build a housing project 10 times larger than New York Central

Park, this is what it would look like. In the Chinese city of Chongqing,

authorities are spending billions to erect hundreds of thousands of new

apartments. The idea, if they build it, the masses will come.

"We`re not worried about a house bubble," this government official

says. "We need more homes."

China is constructing new homes as part of the aggressive push to

build out the cities. By 2025, China is projected to have 200 cities with

over a million people each, compared to the U.S. which only has nine. The

move is meant to raise incomes here and create a bigger consumer class, but

the concern is there is a mismatch in investment, potentially littering

China with uninhabited ghost towns.

XUE LAN, TSINGHUA UNIVERSITY DEAN: In many cases, there`s no -- there

isn`t such a huge demand there, and so you build this huge infrastructure

there not used. So that`s going to be a huge waste of public money.


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YOON (on camera): Only ten years ago, this area used to be all

farmland, but today, it`s part of the largest public housing project in

China.

(voice-over): This country is constructing 36 million new subsidized

homes, even so, new city slickers like this one in Beijing still can`t

afford to buy one. "No matter where you go here," she says, "housing is

expensive."

With so many empty apartments, concerns are rising all the buildings

could lead to a local debt crisis, yet many argue the fears are overblown.

TOM MILLER, AUTHOR, "CHINA`S URBAN BILLION": Local officials have a

lot of power in their hands. They can look at how the economy is growing

and try to build, build, build ahead to satisfy demand ahead.

YOON: A reminder that in this authoritarian state, if you build it,

you can force them to come.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon, in Chongqing.

(END VIDEOTAPE)

GRIFFETH: Coming up, if you were watching yesterday and I know I was,


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you saw George Lucas and Steven Spielberg say that one day, you`ll be

paying a whole lot more to see a movie. Now, guess what? That day has

come.

But, first, how commodities, treasuries and currencies fared today.

(MUSIC)

GHARIB: Lululemon, the upscale sport ware chain that has won over

millions of women with its high price yoga gear now plans to open up stores

just for men. The chain may be best known for the costly recall recently

of some see-through women`s yoga pants.

So, the big question will men dare to buy Lulu`s athletic wear.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: My wife does buy some of the stuff, it just

doesn`t seem very manly to me.

UNIDENTIFIED MALE: In the unisex store, I feel I`d have a better

chance of meeting women. So, that would probably work out better for me.

(END VIDEO CLIP)


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GHARIB: Earlier this week, a Lululemon CEO resigned because of that

embarrassing recall. And today, the company posted a rather quirky add for

a new chief executive on its corporate Web site. Candidates for the quote

head boss person will often need to communicate through Sanskrit, be able

to hold a head stand for at least 10 minutes, and have a plan to bring yoga

to Mars within five years.

Later, the company issued a statement saying the post was just for

fun.

GRIFFETH: Yes, they were just kidding, sort of.

Paramount Pictures is hoping that a lot of those men and women will be

heading to the theaters this weekend to see the latest big screen, big

budget version of a "Superman" movie called "Man of Steel". But will an

advertising blitz draw more moviegoers in or drive them away?

Julia Boorstin has the story.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

"Man of Steel" swoops into 4,200 U.S. theaters this weekend. Warner

Brothers` Superman reboot grossed $21 million at the box office Thursday,

putting it on track for an opening weekend gross of between $75 million and


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$100 million.

UNIDENTIFIED MALE: Always kind of a fan of comic, and Superman has

been around for like, since I was a child.

UNIDENTIFIED FEMALE: This is going to be one of the biggest Superman

movies that`s been made.

BOORSTIN: Warner Brothers would like to turn its latest take on the

superhero, which cost $200 million to produce, into a franchise like the

"Dark Knight" trilogy, which grows $2.5 billion worldwide.

To get the word out, Warner Brothers worked with 100 promotional

partners globally, such as Walmart. They are product tie-ins like

eyeglasses maker Warby Parker`s Clark Kent-style frames, campaigns with the

National Guard and Chrysler and Nokia`s "Man of Steel" app.

Sources say they add up to $170 million in value.

TOM MEYER, TMA ENTERTAINMENT PRESIDENT: They can`t buy their way into

the -- they can buy media to get into the isles of the grocery store or

other specific places that these partners can bring them into, and just

generally speaking, if they are able to create that surround sound that

this is an event movie, that`s what helps them open the picture.


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BOORSTIN (on camera): Now the super hero showdown is on. "Man of

Steel" not only has the potential to create a franchise for Warner

Brothers, but also the to breath new life into its DC Comics "Justice

League" charters, to compete with the "Avengers" from Disney`s Marvel.

(voice-over): Warner Brothers struggled to turn its DC Comics assets

into franchises. Its Green Lantern two years ago fell flat. In contrast,

from rival Disney (NYSE:DIS), Marvel`s "Iron Man 3" which opened six weeks

has grossed $1.2 billion around the world. It`s just the latest in the

string of hits from Marvel`s "Avengers", now a gold mine for Disney

(NYSE:DIS), despite the fact that characters like Iron Man and Thor were

considered second tier.

Now, we`ll see whether Warner Brothers can do the same with the man of

steel and DC`s other classic charters.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin, in Los Angeles.

(END VIDEOTAPE)

GHARIB: And finally tonight, when director George Lucas told NBR

viewers last night that the price of going to the movies may soon hit $50 a

ticket, many people found it hard to believe, including us.

(BEGIN VIDEO CLIP)


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GEORGE LUCAS, LUCAS FILM FOUNDER: What you`re going to end up with is

fewer theaters, bigger theaters with a lot of nice things. Going to the

movies is going to cost you 50 bucks, maybe $100, maybe $150.

STEVE SPIELBERG, FIMMAKER: Like Broadway costs today.

LUCAS: Like Broadway, or going to, you know, a football game.

(END VIDEO CLIP)

GHARIB: But, you know what happens sooner than he thought, Paramount

Picture is already offering $50 tickets at five select screenings for the

new movie, "World War Z," starring Brad Pitt. You get to see the movie two

days before the premiere, a movie size poster, custom 3D glasses and an HD

stream of the movie, and guess what? A small popcorn.

Bill, does it make sense, 50 bucks or wait for the DVD?

GRIFFETH: I would wait for the DVD, unless Brad Pitt was there to

shake my hand for that $50. I remember going in college taking a young

lady to see "Apocalypse Now" and I flinched when I saw that the price of

the ticket had gone up to $5 per ticket.

GHARIB: You`re dating yourself, Bill.


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GRIFFET: Yes, I was. But it was worth.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight, I`m Susie Gharib.

Thanks for watching.

And to all the fathers out there, have a happy Father`s Day.

You, too, Bill.

GRIFFETH: Thank you.

And from me as well, I`m Bill Griffeth. Be sure to log on to our Web

site, NBR.com.

Have a great weekend.

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


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investment advice. (c) 2013 CNBC, Inc.

Documents

Nightly Business Report - Friday June 14 2013