Nightly Business Report - Thursday June 27 2013

7/28/2019 Nightly Business Report - Thursday June 27 2013

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From: Alexei Egoryshev <[email protected]>

Date: June 27, 2013, 8:25:39 PM PDT

To: <[email protected]>, <[email protected]>

Cc: FDCH Editors <[email protected]>

Subject: NBR 6-27

<Show: NIGHTLY BUSINESS REPORT>

<Date: June 27, 2013>

<Time: 18:30:00>

<Tran: 062701cb.118>

<Type: SHOW>

<Head: Nightly Business Report>

<Sect: Business>

<Byline: Susie Gharib, Tyler Mathisen>

<Guest: Richard Madigan, Ed Yardeni>

<Spec: Business; Stock Markets; Economy; SIC: 7375>

<Time: 18:30:00>

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and

Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Win streak, the Dow

sees its best three-day gain in almost a year. Is the wobbly market behind



us? We`ll ask the chief investment officer of JPMorgan Private Bank.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Pain in the apps. Why

the banking on your mobile device, the wave of the future, is going to cost

you.

MATHISEN: And failing grade, a trillion dollars in new student loans

will likely be issued over the next decade, and now Congress is just days

away from letting the interest rate double.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,

June 27th.

GHARIB: Good evening, everyone.

If investors think the Fed will be hiking short-term interest rates

any time soon, they`ve got it wrong. So says Bill Dudley, president of the

New York Federal Reserve Bank, and one of the most powerful policy-makers

at the central bank after Chairman Ben Bernanke.

In a speech today, Dudley said investors are misreading Fed policy,

adding that a rise in short-term rates is "very likely to be a long way

off."

WILLIAM DUDLEY, PRESIDENT, FEDERAL RESERVE BANK OF NEW YORK: The



FOMC`s policy depends on the progress we make towards our objectives, and

this means that policy, including the pace of asset purchases, depends on

the economic outlook, not on the calendar.

GHARIB: Well, investors were reassured by those comments from Dudley,

and in reaction to some upbeat economic reports today. The government said

consumers earned more and spent more in May, and first time jobless claims

fell by 9,000 over the past week.

The Dow jumped 114 points, closing above the psychologically important

15,000 level. The NASDAQ added 20, the S&P rose by almost 10 points.

MATHISEN: Well, Susie, for more than a month, the market has

vacillated. And that`s putting it mildly, shifting sometimes day by day

from big gain to big drop and back again. More confounding some days, like

yesterday, the market`s rise is traced to weak economic data that might

stay the Fed`s tightening hand. Other days like today market gains are

chalked up to good economic numbers, so go figure.

So tonight that`s what we`re going to do. We`ve invited two of Wall

Street`s best to help us and help you go figure. We`ll call it the "go

figure summit." Richard Madigan is chief investment officer of JPMorgan`s

Private Bank; and Ed Yardeni, president of Yardeni Research, has probably

made more smart calls on the economy and the market over the years than

just about anybody.



Welcome to you both. Richard, let`s start with you. You say the Fed

is not going to go cold turkey, which is certainly what Mr. Dudley seems to

be saying. If I infer from that that you think this is not a bad time to

invest and be in the stock markets, it ain`t over.

RICHARD MADIGAN, CHIEF INVESTMENT OFFICER, JPMORGAN PRIVATE BANK:We

have been in stock markets and took advantage of this week for private

clients to actually add a little bit in to equity. I think the big debate

for me in the market is continuing to make this an event. And it`s going

to be a process and the process is going to be protracted with slow growth,

low inflation, and a corporate sector that we`ve never seen stronger.

The one thing I think that does have to change is people`s

expectations on returns need to come down a little bit.

GHARIB: Do you think, Richard, that we have over done it on Fed talk?

Do you think that investors have gotten off-track from some of the basics

like earnings, revenues, and just, you know, corporate strategy?

MADIGAN: Some of it is just emotion. At the end of the day we forget

that markets are people. And we`ve had a market that for the most part has

gone up in one direction for 12 months. When you go up that far and this

year that fast, you tend to lose perspective on how high you are.



And I think we were kind of grappling with what was going to be a

provocation for more professional investors to take profits. And to me,

that`s a large part of what we`ve seen over the last three to four weeks.

MATHISEN: Let`s talk a little bit about bonds, which I know is an

area you`ve spent a fair amount of time thinking about.

MADIGAN: Yes.

MATHISEN: And I think that dovetails very nicely with your caution

here to adjust your return expectations.

MADIGAN: Yes.

MATHISEN: A lot of people own a lot of bonds in their private

accounts. What should they be thinking now?

MADIGAN: We`ve been ahead of this, so when I think about how we

position private banking clients at JPMorgan globally, I think my theme has

been don`t over-think bonds. And for us it has been sticking to very short

duration. You`re not going to make a lot of money. Manage your

expectations.

The income theme, be very careful about because if you`re focused too

much on income, you may end up with bonds that have longer maturities.



Those are going to re-price more aggressively. But keeping it very short

in terms of maturities, laddering them and rolling them, I think, and

waiting until you extend to higher interest rates, which we see out several

years, is really the way we`ve been playing it.

What we`ve been doing against that has been barbelling in things like

equities. And we`ve been adding to equities in portfolios since last year,

predominantly funded from credit markets.

GHARIB: Tell us more about going into equities, because we`re at the

halfway point of the year, it seems like we`re at an inflection point for

investors as they`re getting out of bonds, they have got cash. Do they go

all into stocks right now?

(LAUGHTER)

GHARIB: I mean, what happens over the next six months?

MADIGAN: Sorry. It`s funny, everybody who started this year saying,

we hate bonds, what always frustrated me the most in that conversation was

they would never tell you what to do in fixed income. And they would lead

the answer to be all stocks.

Most of our clients don`t need it to be the extremes. So we`ve said

two things to clients this year. First and foremost, it`s not a year to be



out of markets. If you`ve been waiting for a world to normalize, this is

the normalization. It is going to be protracted.

Two, to be balanced investing. So we`re at about -- we`re now

overweight equity allocations, but we`ve been much more balanced in that.

We funded a lot of it from credit markets that have had phenomenal returns

over the last four years.

But I would caution not overreaching for risk, either, because markets

aren`t cheap. They are fairly valued right now. We feel good about that.

MATHISEN: All right. Richard Madigan, thank you very much. Always

good to see you, thank you for coming out and joining us on the set

tonight.

MADIGAN: Thanks.

GHARIB: Well, let`s turn now to Ed Yardeni for his thoughts on all of

this.

Ed, great to have you on the program.

ED YARDENI, PRESIDENT, YARDENI RESEARCH: Thank you.

GHARIB: It has been a while since we`ve seen you. We want to get



your views on both the economy and the market. But let me start with the

economy. You see all of the data.

YARDENI: Yes.

GHARIB: You see what consumers are doing with their money, all of

this Fed talk. Tell us what kind of shape is this economy in? Is it

healed?

YARDENI: It`s healing. It`s growing at a subpar pace. However, by

the way, if you take out government spending from real GDP, private sector

economic activity has actually been growing 3 percent on a year-over-year

basis since mid 2010.

So I think a lot of what we`re seeing is that the government`s role in

directly spending on economic goods and services has actually come down and

the private sector is not doing too badly.

However, clearly the employment situation has been slow and it has got

the Fed spooked. And it`s right now a major issue whether they will taper

QE or not, depending on what the labor market does.

All and all the economy is growing, but it`s slow.

MATHISEN: You know, Ed, I heard you earlier today talking about



something we mentioned in the introduction here. On one day the market

seems to goes up because the economic data are bad, the next -- the very

next day the market seems to go up because the economic data are good. How

is an investor to make sense out of that? How do you make sense out of it?

YARDENI: Well, you can`t. I mean, you know, if it wasn`t -- if

investing and trying to make some money wasn`t so serious, it`s almost

comical, really, what we`ve seen. Tuesday we had really strong economic

indicators, the market went up, and Wednesday real GDP was revised down and

the market went up.

I think you have to kind of tune out the noise, and we`re getting a

lot of noise not just from the economy but also from the Federal Reserve.

I think we do have to focus on the fundamentals that don`t necessary make

the headlines.

The fact of the matter, earnings per share continued to be pretty

strong. The growth rate is slowing down, but they are at a record high.

And compared to the opportunities right now in the bond market, stocks

still look to be a pretty decent place to invest.

GHARIB: Ed, you say there is noise coming from the Fed. Do you think

these Fed officials are talking too much and confusing investors?

YARDENI: Well, if I had my druthers, we would pass a gag order and



stop them from all of this chitchat. I can`t prove for sure but I would

think I was one of the early ones to call it the "Federal Open Mouth

Committee." They just talk too much.

And, you know, the notion that talking more is going to make things

clearer for us just is -- is just not working out. But it is what it is.

I mean, they are going to continue to do that. And I think, look, the

bottom line really message that we`re getting the past week or so is that

QE will be phased out if the economy does better, if the economy doesn`t do

better, then QE won`t be phased out.

You know, think about all the troubles we had over the past four

years. If this is our big problem, we`re doing pretty well.

MATHISEN: Enough transparency already, says Yardeni. A little more

obfuscation. Isn`t an environment with low inflation and moderate growth

pretty good on balance for stocks?

YARDENI: That`s a very, very good point. I have been increasingly

coming to that view that, you know, usually if you have a business cycle,

it tends to last about four or five years, and what happens at the tail

end, you get too much inflation and the Federal Reserve has to tighten, and

then you get a recession.

If we continue to have low inflation and slow growth, this may last



another four years.

GHARIB: All right. Ed, that s̀ a good note to leave this on. Thank

you so much. Great having you on the program.

YARDENI: A pleasure.

GHARIB: Ed Yardeni, president of Yardeni Research.

MATHISEN: Well, one of the biggest drivers of the recovering economy

has been the rebound in housing. And today some more good news there.

Pending home sales, deals that are signed but not yet closed, rose to the

highest level in more than six years in May, and are up 12 percent from May

of last year.

That rush to lock in a deal may have a lot to do with rising mortgage

rates, which jumped to a two-year high this past week. A 30-year fixed

rate loan now averages 4.46 percent, that`s a half percent more than just a

week ago. That increase is the biggest in one week since 1987.

And shares of KB Homes ended lower today after reporting a net loss of

nearly $3 million last quarter, mostly on a big write-down over some water

damage repairs, but the news wasn`t all bad. Revenue was 73 percent higher

and KB delivered 39 percent more units while prices on those homes were 25

percent higher than in the same period a year ago.



GHARIB: KB Home and other big home-builders are feeling some of the

heat from those rising mortgage rates that Tyler just told you about. They

took their biggest leap in 26 years and are already inching closer to 5

percent. That rise is expected to impact future home sales, as well as

sales that have already been made.

Diana Olick has that story.

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sales of newly

built homes rose to their highest level in five years, according to a

Commerce Department reporter earlier this week. But the numbers may be

misleading. They are based on signed contracts, not closings in May. Many

of the homes sold haven`t been built yet so buyers would not have locked in

loans, and mortgage rates are up over a full percentage point since then.

STEPHEN PAUL, EXECUTIVE V.P., MID-ATLANTIC BUILDERS: The challenge,

of course, for a loan lock for a home that`s under construction is they

never know when they`re going to actually have their closing dates.

OLICK: Maryland-based builder Stephen Paul is getting calls from

concerned customers asking about longer term rate locks, but they can be

expensive.

PAUL: The cost of doing a loan lock up to nine months, runs 2.5



points, and a lock for three months is 0.5, and so people are trying to

judge on whether they want to invest in that loan lock.

OLICK: California analyst Mark Hanson (ph) says roughly 70 percent of

May sales for the builders are suspect. He points to these numbers, of the

sales contracts signed in May 31 percent were for completed homes, so

buyers would have locked in mortgage rates near record lows, no problem.

Twenty-four percent were for homes under construction, so some locked in a

rate if the home was almost done, but some did not.

And 36 percent of the sales contracts signed in May were for homes

that were not yet started. Those buyers in most cases did not lock in

rates and are already facing sticker shock at today`s level. That could

mean cancellations.

GLENN SCHULTZ, PERFORMANCE TRUST: It`s going to be dependent on the

type of home-builder that you`re looking at. For example, if you`re

looking at the Toll Brothers, which is more of a luxury builder, those

customers can afford a bit of a rate rise and still be able to close their

home or buy a home.

So it`s going to be very dependent on the segment of the housing

market in which that particular builder is operating.

OLICK: Analysts for the big public builders say they are watching



this very closely and some do expect cancellations to climb. The jump in

rates since the beginning of May has pushed the average borrower`s monthly

payment up around 15 percent. That, says one analyst, is make or break for

some buyers.

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

GHARIB: And for more on this story, read Diana Olick`s piece on our

Web site, nbr.com.

MATHISEN: The Senate passed historic legislation today overhauling

the nation`s policies on immigration, one that offers citizenship to

millions of immigrants who are currently here in the U.S. illegally, while

at the same time attempting to shore up our borders with Mexico.

The vote was 68 in favor, 32 opposed, but the measure now heads to

Republican-controlled House where it faces some tough opposition.

And still ahead, the trillion dollar issue, is Congress any closer to

preventing student loan rates from doubling on Monday?

But first, here is how the international markets closed today.

Wall Street regulators have filed a civil lawsuit against former New

Jersey Governor Jon Corzine for his role in the failure of MF Global, the



trading firm that he ran before it collapsed back in 2011. The Commodity

Futures Trading Commission says Corzine "failed to supervise diligently the

activities of MF Global`s officers, employees, and agents."

Corzine`s lawyer says his client did nothing wrong and looks forward

to vindicating him in court.

GHARIB: That American CEO held hostage by his own workers in China is

now free. The nearly week-long standoff in his factory in Beijing ended

with Chip Starnes walking out the door, but only after settling with 95

workers over back pay and other benefits.

MATHISEN: More troubles for celebrity chef Paula Deen after she

admitted using some racially charged words in the past. QVC now says it is

taking a pause, pulling her off the air, removing the cookware, food, and

home goods bearing her name that it sells on its Web site.

Earlier today two other major retailers, Target and Home Depot,

announced plans to phase out Paula Deen-branded items one day after Walmart

did the same. But book buyers apparently are standing by Ms. Deen. Sales

are so strong she`s on the bestseller lists on Amazon.

GHARIB: Now another former Paula Deen sponsor, Smithfield Foods, is

the subject of a Senate hearing on its proposed takeover by a Chinese firm.

The July 10th hearing will get plenty of attention since the $4.5 billion



deal would be the largest Chinese buyout of an American company ever.

MATHISEN: Well, when some of those same lawmakers passed a

comprehensive overhaul of the laws governing Wall Street, banks had to stop

implementing certain fees and penalties they often charge their customers.

But some banks have found a new revenue stream, capitalizing on the sharp

rise in mobile banking on smartphones and tablets.

Kayla Tausche has more.

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In order to

point, snap, deposit, you may have to pay. Long offered free to customers,

mobile banking apps have various fees that are slowly but surely adding up.

Minneapolis-based U.S. Bancorp has charged $0.50 to make a remote check

deposit for three years.

Alabama-based Regions Financial now charging $0.50 too, but a whooping

$5 if you want the funds right away. And Wells Fargo, the first universal

bank to move into mobile fees for what it calls "premium products" like

bank-to-bank transfers or emergency bill pay that posts immediately.

Banks say the sooner they have to post your funds, the more risk for

them since they don`t have time to verify that the money is there. Sources

say banks are currently lobbying Washington regulators to try and get

cheaper insurance on these funds so they can start to waive some of those



fees.

Richard Hunt, president of the Consumer Bankers Association, says the

move is natural. Banks have long offered products like checking accounts

for free, too, but can`t afford to because of the increased legislative and

regulatory pressure, not to mention the high tech investment.

Some customers could embrace small fees.

UNIDENTIFIED FEMALE: If Bank of America, for example, charges me $1

to deposit a $49 check, yes, I will continue to use the services. But if

not, if they charge $5, I`m sorry, I definitely will not use it.

TAUSCHE: Others would change the way they bank entirely.

UNIDENTIFIED MALE: I would probably change banks, if -- you know, if

Bank of America wasn`t doing that and Chase was, I would move my money.

TAUSCHE: Each month, millions of checks are digitally deposited at

big U.S. financial institutions, and the number of non-traditional bankers

that say they only used an app to bank surged 55 percent in the last year.

No doubt banks have a captive audience, always on the go and on their

phones. Now time is money and saving time could cost you money, too.



UNIDENTIFIED MALE: I do it solely for the convenience and actually,

it`s not very often. If they started to charge me for it, you know, enough

is enough.

TAUSCHE: For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche.

MATHISEN: For more on the new banking fees, log on to our Web site,

nbr.com.

GHARIB: And from fees to rates, starting this Monday, students

looking to secure a new subsidized student loan will likely be paying a

much higher rate.

Hampton Pearson has more.

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: More than 7

million college students will take out an estimated $30 billion this year

in government subsidized Stafford student loans, according to the

Department of Education. Unless Congress acts, interest rates on those

loans will double from 3.4 to 6.8 percent on July 1st, just four days away.

Brandon Anderson, a senior at Georgetown University, already looking

at more than $25,000 in loan debt by the time he graduates, is among the

millions of college students nationwide anxiously watching and waiting to

see what happens to those interest rates.



BRANDON ANDERSON, STUDENT, GEORGETOWN UNIVERSITY: Letting the rates

double is not good. It`s not good because it takes more money out of not

just my pocket but the pockets of millions of other students, and that

shuts out a lot of students, especially lower income students.

PEARSON: On Capitol Hill a bipartisan Senate compromise to reform the

entire student loan program was introduced. It`s a 10-year blueprint for

an anticipated $1 trillion in loans over the next decade. The key points,

all new loans will be set to U.S. Treasury`s 10-year borrowing rates plus

1.85 percent for subsidized and unsubsidized undergraduate loans.

It will be a fixed rate over the life of the loan, with a cap on those

rates for consolidated loans remaining at 8.25 percent.

SEN. JOE MANCHIN (D), WEST VIRGINIA: We`re notorious for not fixing

anything. We`re notorious for kicking the can down the road. We said

enough is enough.

PEARSON: But Rhode Island Senator Jack Reed is among leading

Democrats who want to stop the clock, calling for a one-year freeze on loan

rates while lawmakers craft a long-term solution.

SEN. JACK REED (D), RHODE ISLAND: This legislation would simply

extend the current rate of 3.4 percent, the rate we have today for need-



based loans. These are the subsidized loans.

PEARSON: Despite their differences, many senators say it`s still

possible for lawmakers to make a deal after the July 4th recess, and have

those terms apply retroactively.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson on Capitol Hill.

GHARIB: And coming up on the program, as gold prices drop, are

consumers dumping their coins in bars or are they buying more?

But first let`s take a look at how commodities, Treasuries, and

currencies fared today.

MATHISEN: Earnings report, a large part of our "Market Focus"

tonight.

Nike (NKE) reported profit gains of 22 percent on improved revenues

and gross margins. Nike says it has $12 billion in future orders for

delivery through November, that`s up 8 percent. Nike shares were up during

the regular session, they closed at $63.32, and then they jumped during

after-hours trading.

ConAgra Foods (CAG) led the S&P gainers for most of the day after

reporting profits ahead of estimates and raising its long-term outlook as



savings from an acquisition begin to kick in. Net sales there up 34

percent. Investors bought the long-term view, pushing shares up more than

5 percent on double the normal volume, they closed at $35.04.

And after the market closed, the Dow component Pfizer (PFE) announced

a $10 billion share buyback, that`s in addition to 3.9 billion in buyback

authorization remaining under the current program. Pfizer shares traded in

a narrow range during the day, closing at $28.18, up a fraction but then

they popped a bit on that buyback news.

GHARIB: A good day for Liberty Media (LMCA) and cable stocks in

general. They jumped on a report that Liberty Chairman John Malone is

working on a plan for Charter Communications (CHTR) to buy Time Warner

Cable (TWX). Liberty owns a piece of Charter. Time Warner and Charter up

more than 4 percent. Liberty gained more than 2 percent. And Cablevision

(CVC) came along for the ride, up more than 5 percent.

And RVs are back on the road and that`s why Winnebago`s (WGO) profits

zoomed up 94 percent in the spring selling season. The company reported

its motor home backlog more than doubled as Baby Boomers take to the road.

And Winnebago stock has also doubled over the past year, but today it was

flat, closing at about $21 a share.

And gold prices fell below $1,200 announced today for the first time

since August of 2010. And just as there were a lot of buyers for gold



coins and bars on the way up, Jane Wells takes a look at what consumers are

doing now that gold prices are falling.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: When gold prices

fall, gold trading rises.

KEN EDWARDS, CO-OWNER, CALIFORNIA NUMISMATIC INVESTMENTS: When wesee

a spike to the downside, it gets busy real fast.

WELLS: It started getting busy real fast this week at California

Numismatic Investments in Los Angeles where they buy and sell gold and

silver, coins and bars. Gold has fallen to prices not seen in three years.

And while that has led to some panic selling, for longtime believers,

prices heading toward $1,200 an ounce are a bargain.

Not everyone is a believer. A survey of gold investors by JPMorgan

shows that fewer than half, 44 percent, believe gold prices will rise over

the next 12 months, a year ago 71 percent believed they would.

Then there is silver. At the beginning of the year this 100-ounce bar

was worth about $3,000, now it s̀ worth about $2,000. But supplies are

somewhat tight. There is sometimes more buyers than there is material to

sell But that has not made it more expensive.

So have prices peaked in precious metals? Is the gold rush officially



over? When we were at California Numismatic in mid-April after gold fell

below $1,400, one major holder came in and sold a few million dollar`s

worth, he has not returned yet to buy the gold back at a lower price.

After all, those buying gold as a hedge against inflation haven`t really

seen much inflation.

EDWARDS: I still think that`s the problem. I think you can`t print

the kind of money they are printing, add $3 trillion to the balance sheet

of the Fed, without having some kind of effects.

WELLS: However, figuring out where prices go from here has become as

difficult as betting on what the Fed does next.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

MATHISEN: Finally tonight, we told you earlier about bank fees for

mobile banking, so imagine how high those fees might be if you do your

banking from space. PayPal, the online payment system owned by eBay, is

launching what it calls PayPal Galactic to figure out how to pay for things

in space. The idea is to get jump on the big money that is expected to be

spent on private space travel and tourism.

It seems like something that they ought to partner with Virgin

Galactic and Richard Branson.



GHARIB: You won`t have to take your wallet when you go there.

MATHISEN: No.

GHARIB: Well, that`s NIGHTLY BUSINESS REPORT for us. Thanks so much

for watching. I`m Susie Gharib.

MATHISEN: And I`m Tyler Mathisen, thanks from me as well. Have a

great evening, everybody. We hope to see you back here tomorrow night.

END

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Nightly Business Report - Thursday June 27 2013