Nightly Business Report - Wednesday May 15 2013

7/30/2019 Nightly Business Report - Wednesday May 15 2013

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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and

Susie Gharib, brought to you by --

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Go go Google

(NASDAQ:GOOG). It`s one of the hottest blue chips of the year. Should you

own it? Will it be the first tech company to hit $1,000 a share?


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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Flying high. Why

airline stocks are taking off along with customer complaints.

MATHISEN: And hitting the jackpot. Powerball fever spreading across

the country, and there are 360 million reasons to buy a ticket for

tonight`s drawing.

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

May 15th.

Good evening, everybody.

A lot of tech news, sort of topping our program tonight.

GHARIB: Yes. And some of it very encouraging news from a tech titan

tonight.

Cisco (NASDAQ:CSCO) Systems reported solid quarterly earnings and

revenues after the market closed. The numbers topped analyst estimates and

they bought up the stock in after hours. Cisco (NASDAQ:CSCO) rose as much

as 4 percent.

Seema Mody is standing by at the NASDAQ with all the details -- Seema.


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SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, it wasbig

(ph) for Cisco (NASDAQ:CSCO) Systems on -- Cisco (NASDAQ:CSCO) Systems on

its top and the bottom line, earning 51 cents a share on revenue, up $12.2

billion for the third quarter.

Now, CEO John Chambers says, "Cisco (NASDAQ:CSCO) is executing at a

very high level and a slow but steady economic environment. We are

especially pleased with our ninth consecutive record revenue quarter."

Now, Chambers seemed upbeat about the economy, saying, "We`re starting

to see some good signs in the U.S. and other parts of the world which are

encouraging."

Now, shares of Cisco (NASDAQ:CSCO) are up after-hours but climbed even

higher after the company reported an upbeat outlook for the current

quarter.

Susie and Tyler, back to you.

GHARIB: Thanks a lot, Seema. Seema Mody reporting from the NASDAQ.

Tyler?

MATHISEN: And before those Cisco (NASDAQ:CSCO) numbers, Google

(NASDAQ:GOOG) was all the talk on Wall Street today. The stock breaking


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through $900 a share and the company tried to add to the optimism by

rolling out a line of new products at its annual conference for developers.

Jon Fortt is covering the event for us from San Francisco -- Jon.

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, Tyler. Big,

big day for Google (NASDAQ:GOOG). Stock up better than 3 percent. On the

other hand, some rivals, Apple (NASDAQ:AAPL), down more than 3 percent.

Part of the reason why perhaps, one of the big announcements from

Google (NASDAQ:GOOG) out of its I/O conference here was a new music

service, Google (NASDAQ:GOOG) Play Music All Access. The pitch here

similar to services like Spotify is all the music in Google`s catalog. App

users` disposal for $9.99 per month. Rolling out in the U.S. first

starting June 30th.

What`s -- well, if you sign up by June 30th, you get the service for a

little bit cheaper. What`s interesting about this, too, is there s a radio

component to it which competes with folks like Spotify, taking -- and

Pandora.

Taking a step back, there was more than just music announced here.

Google (NASDAQ:GOOG) also talked about the service that they want to

expand, Google (NASDAQ:GOOG) Plus, lots of new photo and video sharing

features in that.


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And overall, this was not about hardware as much as it was last year.

Last year, Google (NASDAQ:GOOG) talked a lot more about streaming music

through a little device that they actually pull from the market soon after

announcing it. They talked more about tablets.

This was squarely about services, which is very much Google`s strong

suit. They also rolled out a new version of maps that will have later in

the summer.

Back to you.

MATHISEN: All right. Jon Fortt, thank you very much.

GHARIB: Well, Google (NASDAQ:GOOG) stock is up almost 30 percent this

year and is on the verge of becoming the first tech company to hit $1,000 a

share.

So, the question for many investors time to buy or sell the stock?

Joining us now to answer that: Paul La Monica. He`s assistant

managing editor for CNN Money.

And Ben Schachter, technology analyst at Macquarie Research.


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So, gentlemen, I mean, the question here is, should investors buy,

sell or hold?

Ben, you have a target of $925 on shares of Google (NASDAQ:GOOG).

It`s almost there. What would you tell your clients now -- buy, sell or

hold?

BEN SCHACHTER, MACQUARIE TECHNOLOGY: We actually still like the stock

and there`s a lot of momentum behind it. They continue to sort of push the

envelope in the different things that they`re able to do. The core

business of advertising is working well. And they all have the other

services and the software and the hardware on top of that.

So, we think the shares can go higher from there.

MATHISEN: Paul, answer what Ben just said. I know you don`t dislike

the stock, but you don`t see it as a bargain at, what, $915 a share. And,

of course, the history of companies that grow so far, so fast, particularly

in the tech business, is that they sometimes slip and fall later.

PAUL LA MONICA, CNN MONEY: That`s definitely true. I do agree with

Ben 100 percent that Google (NASDAQ:GOOG) dominates online advertising

right now.

But in some respect, think investors need to be a little worried that


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Google (NASDAQ:GOOG) right now is eerily like Apple (NASDAQ:AAPL) back in

September of last year. Just before the iPhone 5 came out, everyone

thought Apple (NASDAQ:AAPL) could do no wrong. It has been a very bloody

sell-off.

I think part of that could be attributed to the fact that just so many

big money hedge funds and institutions owned Apple (NASDAQ:AAPL) and once

they soured on it, so to speak, it was just long and winding. And now,

Google (NASDAQ:GOOG) is a popular hedge fund stock, too.

I just think it`s something investors need to be aware of. Although

it`s not predicting any sort of massive sell-off from Google (NASDAQ:GOOG)

any time soon.

GHARIB: Well, Ben, what do you say to that? Is Google (NASDAQ:GOOG)

over-owned? Too much of a love affair with the stock? Same thing that

happened with Apple (NASDAQ:AAPL) a year ago?

What do you say to that?

SCHACHTER: Well, you know, listen, I always get concerned when a

stock runs this far, this fast. No real change to the fundamentals.

However, in this situation I think what is happening is that people

are realizing that beyond the advertising, beyond search, beyond display


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ads, there`s a whole another part of this business that`s just developing

now, around services, around hardware, around Google (NASDAQ:GOOG) X. And

we think a marketplace that`s going to compete directly with eBay

(NASDAQ:EBAY) and Amazon (NASDAQ:AMZN) is also coming.

So, a lot of very big things are still to come for Google

(NASDAQ:GOOG).

MATHISEN: This is a very big business, Paul. And it obviously --

they`re dominant in search, they`re dominant in online advertising, they

have the number one cell phone operating system in the Android platform.

Now, they`re getting into the music business. They have got a tablet.

It feels like the business is clicking on all cylinders. You point

out the growth rate is something like 15 percent in profit. The P/E on

2013 is something like 19.

So, therein lies a little bit of the rub. But this is a successful,

succeeding company, isn`t it, Paul?

LA MONICA: Without question. What I really love and admire about

Google (NASDAQ:GOOG) is that it is not a company that`s resting on its

laurels. It recognizes that there is tough competition from Apple

(NASDAQ:AAPL), from Amazon (NASDAQ:AMZN). As Ben mentioned that`s coming.

Facebook (NASDAQ:FB) obviously as well.


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It would be very easy for Google (NASDAQ:GOOG) to just sit back and

relax and say, yay, we`re at, you know, $900 a share, $300 billion market

value. Obviously, Wall Street loves what we`re doing, so we don`t really

need to change that.

But Google (NASDAQ:GOOG) has been a company that recently they have

shifted management taking the long time head of Android, putting him in

another position at the company and promoting someone who had been in

charge of Chrome and having him now also in charge of Android. And I think

that shows that this is a company that isn`t going to just say, yes, we`re

doing everything exactly as we should be. It`s a company that recognizes

there`s room for improvement, even though they are doing extremely well

already.

And I think that`s very good to see.

GHARIB: You know, Ben, there s no question here that Google

(NASDAQ:GOOG) is behaving like an innovation machine. Listening to a

report from Jon Fortt from the conference, and you`re there, two, of course

-- do you think the new product rollouts that he was talking about, are

they game changers? Are these the kinds of things that are going to power

Google (NASDAQ:GOOG) stock higher or is Google (NASDAQ:GOOG) getting too

much away from its core business of search?


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SCHACHTER: Well, I think on first question of today and the

conference, there was not a lot really that`s going to move the needle for

Google (NASDAQ:GOOG). Music service is a good thing to have. It will

certainly help with Android and help with Play. But it`s not really going

to change the numbers fundamentally.

Going forward, I think you touch on an interesting point. And that

is, they are doing a lot of things that are quite different from

advertising and quite different from search. The question remains are the

things going to succeed?

So far, we think they have momentum. We think they are on the right

track. But it`s going to take some time.

GHARIB: All right. Ben and Paul, thank you so much. Ben Schachter

of Macquarie Research, Paul La Monica from CNN Money.

MATHISEN: Well, the rally that just won`t quit. The Dow and the S&P

closing at record highs once again. Better-than-expected earnings helping

to drive the gains, despite some mixed economic reports. New York`s

manufacturing sector unexpectedly contracted to its lowest level in four

months, falling to the reading of minus 1.43 in May.

Industrial production fell 0.5 percent in April, more than the

expected 0.2 percent decline. But in the end, the Dow finished up 60 to


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15,275.69. That`s its 20th record close of the year. The S&P rose eight

points to 1,658 and change, and the NASDAQ was up nine points to 3471.62.

GHARIB: Some mixed readings on the housing front today. Let`s start

with the good news first.

Confidence among home builders is up. And sales trends are improving.

The National Association of Home Builders sentiment index rose to 44 from

41 in the month of April. The increase in May was the first month to month

gain since December.

Now, to the not so good news. Applications for mortgages fell 7.3

percent last week. The reason there: rising interest rates. The Mortgage

Bankers Association says it`s the first decline in more than a month.

MATHISEN: Airline stocks have been elevating lately, up more than a

percent today as a group. But as the shares rise, so do customer

complaints.

Phil LeBeau joining us now from Chicago.

Hi, Phil.

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, this is

some data that people are going to look at and they`re going to say, hmm,


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kind of makes sense and seems to pack planes lately.

Let`s first start with the Department of Transportation reporting

complaints about airlines for the first quarter. And, overall, they were

up 17.1 percent. This is on top of the DOT seeing higher passenger

complaint rates last year.

And then, there`s a question of involuntary denied boardings or

bumpings. Well, it was 1.06 per 10,000 passengers in first quarter. But

look over the last two years. It`s been steadily increasing.

And then when it comes to baggage, the airlines mishandled 3.01 bags

per 1,000 passengers and this is on top of them announcing just a few days

ago, they made $3.6 billion on bag fees last year.

And, oh, by the way when it comes to on time arrivals, overall for the

industry, it`s slipped slightly in the month of March. But there you see,

Hawaiian (NASDAQ:HA), Virgin America, and Alaska all among the top three.

This has not stopped the airline stocks.

Overall, the airline index has been off to the races, up 53 percent.

And when you look at individual airlines over the last year, Alaska

airlines up 96 percent and then you have Southwest, Delta, U.S. Airways,

United, they`re all posting fantastic returns.


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The bottom line is this, Tyler and Susie, they`re expecting a solid

second quarter and that has investors excited.

MATHISEN: All right. Phil LeBeau, thank you very much. Phil

reporting from Chicago.

GHARIB: Still ahead on the program, is AIG, which many know as the

bailed out insurance giant, on its way to regaining its past glory? We`ll

take a look as we continue our series, "Comeback Companies".

But, first, how the international markets closed today.

(MUSIC)

MATHISEN: We begin tonight`s "Market Focus" with pair of companies

reaching new milestones.

First up, Macy`s (NYSE:M). Shares of the department store hitting an

all-time high, after the company posted a 20 percent increase at its first

quarter net. Macy`s (NYSE:M) earned $217 million, 55 cents a share.

That`s 2 cents better than estimates. Sales up 4 percent, to nearly $6.4

billion.

The company also raised its dividend a nickel to 25 cents and said

it`s going to buy back $1.5 billion worth of its shares. Shares up 2.5


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percent, to close at $48.57.

Meanwhile, shares of Bristol-Myers-Squibb are running up to the 52-

week high today, ahead of the release of clinical results for an

experimental cancer drug. The stock was the performer in the S&P 500

today, up 5 percent to $44.34, and shares on a tear over the past year, up

more than 30 percent.

GHARIB: SunPower (NASDAQ:SPWRA) shares were another bright spot today

on Wall Street. The nation`s second largest solar panel maker said its

profits and sales for the rest of the year would be above Wall Street

estimates. SunPower (NASDAQ:SPWRA) rose 8 1/2 percent to close at $20.65,

and is up more than 300 percent in the past year.

And that helped lift many of the companies in the solar space, all up

strongly with the exception of the biggest one, First Solar (NASDAQ:FSLR).

But a weak outlook overshadowed better than expected numbers from

Deere and Company. The world`s largest farm equipment maker earned $1

billion in the second quarter on a 9 percent rise in sales, total revenue

came in at nearly $11 billion. But Deere, which also makes construction

equipments, cut the full-year sales forecast, blaming cooler, wetter spring

weather and weaker global economy. Shares were off about 4 1/2 percent

today, to $89.64.


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The biggest loser among the S&P 500 companies was Computer Sciences

(NYSE:CSC). The information tech company posted a profit in its fiscal

fourth quarter, but sales fell 7 percent and were shy of expectations.

Shares down about 10 percent today to $44.71, but are up nearly 70 percent

over the past year.

GHARIB: And AIG, this was the poster boy for bailed out companies.

It received nearly $200 billion from the government during the financial

crisis. Today, the company is a slimmer version of what it used to be.

And as Mary Thompson tells us in our "Comeback Company" series, AIG is

still working on regaining its past glory.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

Having put AIG`s turbulent past behind it, CEO Bob Benmosche now aiming for

a steadier future for the insurance giant.

ROBERT BENMOSCHE, AIG CEO: I think it s a simpler company, more

focused company. So, therefore, in my mind, easier to manage, and one that

I think is much more secure.

THOMPSON: Benmosche engineering a turn around, ridding AIG of

government ownership, creating a firm with two core business: a global


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property and casualty unit and a domestic life insurer called Sun America.

The stocks doubled since 2009.

And while analyst Brian Meredith (NYSE:MDP) admires the turn around,

he notes it came at a cost.

BRIAN MEREDITH, UBS: Before the crisis, at least in the property

casualty insurance industry and the life industry, AIG was viewed as the

global leader on P&C insurance business. And I would say today, it s

viewed as one of the leaders, but not the kind of dominant global leader.

THOMPSON: Better underwriting and higher rates are helping AIG s P&C

business and underpinning a strong first quarter. Still, there`s work to

be done on that business`s profitability which lags its peers. Analysts

say returning those numbers key to AIG`s future success.

Investors also want dividends and buy backs.

(on camera): Before AIG pays a dividend, it has to satisfy the

concerns of some credit rating agencies and then it has to wait and see if

the Federal Reserve becomes the regulator, because the Fed will have

ultimate approval over any dividend AIG does pay. So the government still

has some sway over AIG.

(voice-over): In 2008, the government took a 92 percent stake in the


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firm. After AIG`s securities lending and financial products businesses

nearly took it down. AIG repaying the $182 billion bailout, selling 27

businesses including an international life insurer and consumer finance

units in Russia and Mexico. Stock sales and interest netting the

government a profit of more than $22 billion.

Now, it`s AIG`s improving P&C profits key to bigger returns for its

citizen investors.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

GHARIB: Tomorrow, we`ll take a look at a familiar food company that

saw rapid growth, then a rapid decline and is now rolling in dough.

MATHISEN: Coming up, the art of the deal. As prices rise for high-

end paintings, is a bubble forming that`s about to burst?

But, first, a look at how commodities, treasuries and currencies fared

today.

(MUSIC)

GHARIB: Not only is the stock market red hot these days, so is the


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Now, these uneven results have some wondering whether the art market

has become a latest asset bubble that`s ready to pop.

Mike Novogratz of Fortress Investment Group likened art to gold and

said speculation in the art market cannot go on for much longer.

MIKE NOVOGRATZ, FORTRESS PRINCIPAL & DIRECTOR: Art is 100 percent a

bubble. I mean, it has all the new markings of a bubble. The Newman

painting doubled in price. Prices have gone parabolic.

FRANK (on camera): So where is the money for all the art coming from?

Well, much of it is coming from the wealthy who have seen their portfolios

soar with the stock market. It`s also coming from the newly rich overseas.

Wealthy collectors from Russia and China pouring money into art as a safe

and portable store of wealth.

NOVOGRATZ: You also have the illegal money or the dirty money, the

money laundering that`s coming out of, you know, vast parts of the world

where people don`t want -- they don`t have any place to store the money.

And that`s what`s really giving this kind of turbo charge to the art

market.

FRANK (voice-over): Sotheby`s said in a statement this morning that

the sale is proof of strong global demand. It said collectors bid from 25


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countries and one in five of those bidders were new to Sotheby`s or the

category.

For NIGHTLY BUSINESS REPORT, I`m Robert Franks.

(END VIDEOTAPE)

MATHISEN: Well, tonight brings another high profile art sale, two

famous paintings by Jackson Pollock and Jean-Michel Basquiat are up for

auction at Christie`s and each is expected to sell for as much as $35

million.

And joining us now to discuss that and more is Christie`s CEO Steven

Murphy.

Mr. Murphy, welcome. A very exciting night ahead for you this

evening.

STEVEN MURPHY, CHRISTIE`S CEO: Thank you. We`re quite excited.

MATHISEN: I bet you are.

Before we get to the works that are on offer tonight, let -- I want to

get your reaction to what we just heard in the piece by Robert Frank.


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Turbo charged. All the markings of a bubble. That`s one of the

sources said.

MURPHY: Right.

MATHISEN: Do you agree with that? And if not, why not?

MURPHY: Well, with all respect to the gentleman speaking, he s way

off the mark. There`s a proclivity to certain people to draw a trend out

of one evening`s sale or one lot being not sold. You know, the art market,

if you will, has been on the same curve of growth since before the

recession. And during the recession, there was a pause.

After 2008, it paused. It picked up again in 2010. And it`s been

growing ever since. And the main reason it`s growing is that that s a

worldwide demand for art.

A bubble is when the demand and the supply is out of whack with each

other. It`s been inflated.

It`s quite the other case with us. There`s a scarcity of masterpieces

and there`s a huge demand for masterpieces and lesser art as well. We did

over $6 billion of art sales last year. And while we had a $400 million

sale in November for post-war contemporary art, which gets a lot of the

attention, there`s a lot of other art being sold.


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GHARIB: Let me ask you this, Mr. Murphy. We know that the stock

market has been hitting new highs.

MURPHY: Right.

GHARIB: Does the art market work in tandem with that? What`s the

connection between stocks and art?

MURPHY: It`s not very close at all. In fact, that`s part of what I

would say to the gentleman on your tape, that, in fact, when the stock

market is a bit down and the art market rises, that you people might say

that investors are running to the asset of art instead of equities. Well,

now that the stock market is up, people are still buying more.

So what`s really happening is the interest in art and the demand for

art has gone global. It`s buyers from Russia, China, the Emirates, other

parts of the Far East and U.S. and Europe growing. Over 25 percent of our

buyers last year were brand new to Christie`s. And we have been selling

art since 1766.

So I think the idea also comes through in this. At the Metropolitan

Museum of Art in November, there was an Andy Warhol exhibit, 500,000 people

went through a short period of time visiting that art.


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So there`s such a huge surge of interest in art around the world.

MATHISEN: Right.

MURPHY: That`s what`s driving this demand.

MATHISEN: There`s so much I want to ask you, I know Susie feels the

same way, but I don`t want you to leave us without the viewers see the

pieces on offer this evening.

MURPHY: Yes. There`s still time to bid.

MATHISEN: Let`s start with the Pollock. Why is it a signal piece and

what you expect to get for it?

MURPHY: You know, his is a perfect example. The estimate between $25

million and $35 million. Jackson Pollock is an established and certified

master that`s very rare to have a piece like this available. It is a

masterpiece among his masterpieces.

And as you know in the art world, it takes an auctioneer and two

people to have the bidding go up. And it`s all transparent. It`s right

out there in the open.

MATHISEN: All right.


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MURPHY: So I believe since we have a great deal of interest, this

should do quite well.

MATHISEN: We have to leave it there. Good luck with the sales this

evening. Steven Murphy of Christie`s.

MURPHY: Thank you.

GHARIB: And finally, tonight, what would you do with $360 million?

Maybe buy some art? A masterpiece. Go to Hawaii? Buy a baseball team?

Give it to charity?

The only thing standing between you and your dreams are six numbers

that will be drawn at random in tonight`s Powerball game.

And with people lining up for tickets, Hampton Pearson takes a look at

lottery fever that`s gripping the nation.

(BEGIN VIDEOTAPE)

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

It`s Powerball fever once again, an estimated $360 million jackpot, third

largest in history, has lots of dreamers looking for the magic six numbers

that can change their lives.


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KIM CORDIA, WOODBRIDGE, VA: I would pay off my house, pay off my

father`s house. Send my son to the best school in the country and retire.

PEARSON: Back on March 23rd, a New Jersey resident Pedro Quesada won

$300 million -- part of a trend, lottery officials say, of jackpots getting

bigger in shorter amounts of time. More than half of the all time jackpot

records have been set in the last three years. Among those chasing

tonight`s triple digit jackpot, Lisa Walters, mayor of Battle Ground,

Washington.

LISA WALTERS, MAYOR, BATTLE GROUND, WA: The deal with the jackpot

being so high is more and more people are buying into it so it raises the

pot up just a little bit. Odds go down a little bit. But, you know, I

could be that one.

PEARSON: Jurisdictions with lotteries continue to cash in. Total

U.S. sales last year topped $78 billion. Another $9 billion in Canada.

Marketing the lottery in search of those revenues is a full-time job.

This afternoon, inside Union Station, the D.C. lottery staged a promotion

tied to this weekend`s running of the Preakness horse race in Maryland.

But the real action was just around the corner at this boutique style

lottery location. Powerball sales were brisk, but D.C.`s lottery director


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says the industry is concerned about jackpot fatigue.

BUDDY RODGOW, D.C. LOTTERY DIRECTOR: Players get used to the large

jackpots and it takes higher and higher levels of jackpot to get the same

level of excitement.

PEARSON (on camera): So if there s no winner tonight, Saturday`s

Powerball jackpot can swell to half a billion dollars. Talk about Saturday

night fever.

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

(END VIDEOTAPE)

GHARIB: All right. What would you do with it?

MATHISEN: I would pay off my mortgage and endow NIGHTLY BUSINESS

REPORT in perpetuity.

GHARIB: Oh, I love that. I wish I was as generous. I was thinking

of moving to Paris.

MATHISEN: Paris, OK.

GHARIB: Anyway, that`s NIGHTLY BUSINESS REPORT for tonight. I`m


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Susie Gharib. Thanks for watching.

Go get your Powerball tickets.

MATHISEN: Go get your -- I`m going to get one right now.

I`m Tyler Mathisen. Thanks for watching. Have a great evening. We

hope you see you back here a lot richer 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) 2013 CNBC, Inc.


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Nightly Business Report - Wednesday May 15 2013