nightly business report - april 26 2013

7/30/2019 Nightly Business Report - April 26 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: Finding growth.The

economy expands, but some say it s not fast enough. What it all means for

you.


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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Big Mac s view. How

McDonald`s (NYSE:MCD) sees the broader economy. We`ll hear from the

company`s CEO.

MATHISEN: And call it social investing. Why using social media to

get a competitive edge in the market could be dangerous to your wealth.

All this and more on NIGHTLY BUSINESS REPORT for Friday.

Good evening, everyone.

Susie, any growth in the economy is better no growth and therefore,

it`s good news.

GHARIB: That`s for sure. It was good, but not great. The U.S.

economy grew by 2 1/2 percent in the first three months of this year. But

that was less than the robust 3 percent most experts were predicting.

Much of the gains in the gross domestic product came from strong

consumer spending. But businesses and the government spend less, raising

concerns that growth may grind to a halt in the months ahead, unless some

big changes are made.

(BEGIN VIDEOTAPE)


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GHARIB (voice-over): American consumers get most of the credit for

revving up the economy. They were buying cars, lots of them, and houses,

and paying utilities to heat those homes. Consumer spending rose at 3.2

percent pace, the fastest in two years.

So, why was the GDP number such a bummer? Consumers funded many of

their purchases by saving less. That tradeoff pulled the nation s savings

rate down to 2.6 percent, the lowest since 2007. Higher payroll taxes in

March also didn t help. Paychecks got skimpier because of that 2 percent

tax hike. Government spending cuts, the so-called sequester that went into

effect on March 1st, were another biggie.

Deep cuts in defense purchases were a big drag on economic growth.

And so, were the furloughs and layoffs. With new job worries back into the

mix for hundreds of thousands of government employees, people turned

cautious about spending.

American businesses also pulled back, spending less on equipment and

software and holding off from hiring.

On the trade front, U.S. exports rose, but we imported more and that

sliced off growth.

And American companies can`t look to Europe for customers, as the


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recession there continues with little hope of improving any time soon.

There are now new concerns about the U.S. economy creeping along the

rest of this year and more sequester cuts are on their way. Many

government agencies are just beginning to furlough employees, and cut back

on spending.

(END VIDEOTAPE)

MATHISEN: Here now to discuss his economic outlook is Brian Westbury.

He`s chief economist of First Trust (NYSE:FFA) Advisors.

Brian, welcome. Good to have you with us.

OK. So, 2 1/2 --

BRIAN WESTBURY, FIRST TRUST ADVISORS CHIEF ECONOMIST: Tyler, goodto

be with you.

MATHISEN: Great to have you.

Two and a half percent in the first quarter, what do you see for the

rest of the year? Will we kind of muddle along at this rate? Or maybe a

little better, maybe a little worse?


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WESTBURY: Yes. Well, Tyler, for the last couple of years, we`ve been

describing the economy as the plow horse. Plow horse economy. Not a race

horse, not a thoroughbred. It ain`t going to win the Kentucky Derby, but

it isn`t going to fall over and die either.

And what we`ve been seeing is about 2 percent growth in this recovery.

We actually expect this year, 2013 to accelerate a little bit from last

year, we`re only looking for growth in the 2 1/2 percent to 3 percent

range. So, today`s growth was on the low every side of that, or the growth

in the first quarter.

Housing is now coming back. Autos have fully recovered from the

crisis. Banks are lending again. Consumer spending is at a record high.

Business investment is up.

And so, in fact, the private economy is growing, even though the

government is shrinking. And, by the way, that`s a good mix.

MATHISEN: Brian, I notice today bond yields on the 10-year, about 1.6

percent, 1.65 percent. That would -- all other things being equal, suggest

a slowing economy.

WESTBURY: Well, sure, if you listen to bonds, we should never have

had a recovery. If you look at stocks, you know we`ve been growing and

corporate profits, all-time record high. You know, I think you can spin


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this data and make yourself feel really bad and talk about how government

is a drag on growth.

But, in fact, if you take our GDP report today and take away the

government, the government spending declined, if you back away and look at

private sector growth, it was up 4 percent in the first quarter at an

annualized right. That`s a boom. That`s the kind of growth we had in the

`80s and `90s.

Housing was up a double-digit pace. Consumer spending, as Susie said

in her report, did very well. Business investment was up.

When you look at those kinds of things, those are the real drivers of

private-sector growth. I think we`ve scared ourselves into looking at

every number from the glass half empty point of view, and I -- I would

rather see us think about it as the glass half full. And, in fact, in the

past four years, when the economy has grown just 2 percent, plow horse-type

growth, the stock market is up 150 percent.

So, investors who would have believed in America would have more than

doubled their money, and I think being fearful of the economy, and what`s

going to happen in the future is costing people a lot these days.

MATHISEN: Two and a half percent growth with very little inflation is

not necessarily a bad formula at all.


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WESTBURY: Right.

MATHISEN: You make the point, don`t you, that the sequester actually

may turn out to be: number one, less damaging to the economy than the hand-

wringers would suggest.

WESTBURY: Right.

MATHISEN: But also in a funny way, a good thing. Explain that.

WESTBURY: Yes, sure. One of the key things to remember about

government spending is that every dime the government spends, every dime,

has to come from the private sector. They either tax it from the private

sector or borrow it from the private sector. So when the government grows

as a share of our economy, that means the private sector is a smaller

share, and, therefore, there are fewer jobs created.

Fewer new inventions come along and when government shrinks as a share

of GDP, which is the key point. We`re not actually cutting spending, it`s

just growing slower than GDP today, what that means is the private sector

grows faster, and we saw that today. Overall GDP was 2 1/2 percent.

Government was down, but the private sector grew 4 percent.

So, that`s what we want to see. We want to see faster growth in the


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private sector and I -- as a result, I think the sequester in reality will

help the economy grow as at a more sustainable and a faster growth than

just the plow horse growth, if we continue to keep it in place.

MATHISEN: Right. Brian Westbury, chief economist for First Trust

(NYSE:FFA) Advisors, thanks for being with us. Have a great weekend.

WESTBURY: Thank you, Tyler.

GHARIB: On Wall Street, stocks were little changed. The modest rise

in economic growth that we`ve been talking about, combined with a dip in

consumer sentiment for April and a jumble of earnings led to mixed results

in the major averages. The Dow traded in the narrowest range in months,

rising just 11 points. The NASDAQ was down 10. The S&P lost about three

points. And all three indices ended higher for the week.

MATHISEN: One company that keen on economic growth is McDonald`s

(NYSE:MCD), the world`s biggest hamburger chain keeps a close eye on

hundreds of different economies, changing commodity prices and energy costs

and testing new menu items in its research kitchens.

Carl Quintanilla takes us inside for the company`s view of the

outside.

(BEGIN VIDEOTAPE)


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CARL QUINTANILLA, NIGHTLY BUSINESS REPORT CORRESPONDENT:There`s

probably no better company to talk to about the broad economy than

McDonald`s (NYSE:MCD), 34,000 restaurants, 119 countries. They serve 69

million customers every day, all around the world -- a set of eyes and ears

that practically are unseen anywhere else in corporate America.

We`re here at the innovations center at McDonald`s (NYSE:MCD). Their

basic giant test facility in suburban Chicago.

And we talked to CEO Don Thompson about that GDP number this morning

and what he sees for the broad economy.

DONALD THOMPSON, MCDONALD`S PRESIDENT & CEO: We have seen startsand

stops of a recovery. And I think earlier, retail sales earlier this year

show that things were slowing just a bit. Now, you have to look at it,

take it with a bit of a grain of salt.

We do see the impact possibly of payroll tax, a little early to tell.

But also you have got -- we have a little bit of hesitance relative to

certain investments back into the broader economy, and relative to jobs.

QUINTANILLA: United States is an incredible important market for

McDonald`s (NYSE:MCD), 40 percent of their system-wide sales. And although


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Thompson sees a soft retail environment, they are trying to roll out some

new products and drive traffic in kitchens like this one, things like egg

whites for breakfast and a new pomegranate blueberry smoothie.

For NIGHTLY BUSINESS REPORT, I`m Carl Quintanilla, Romeoville,

Illinois.

(END VIDEOTAPE)

GHARIB: Well, McDonald`s (NYSE:MCD) will be one of many companies

holding its annual shareholders meeting over the next few weeks, as proxy

season goes into full swing.

So, what are some of key issue shareholders are backing?

Mary Thompson takes a look.

(BEGIN VIDEOTAPE)

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

shareholders descend on their annual meetings, they are focusing on boards

and pay. Add to the mix, big shareholders lobbying for big changes.

Chris Cernich, a proxy advisor at ISS Governance, says the rise of

activist investors makes for interesting meetings in the weeks ahead.


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CHRIS CERNICH, ISS GOVERNANCE: It`s pretty likely. I personally

cover contentious meetings, so contested mergers and proxy contests and

we`re seeing that on a pretty steep upswing.

THOMPSON: Among the meetings with big investors agitating for change,

Hess` on May 16th. The management wants directors replaced in what it says

is the energy firm`s 17 years of underperformance.

Timken`s on May 7th, features a proposal from the California pension

fund CalSTRS, aimed at improving value by splitting its steel and bearing

businesses.

While Stillwater Mining`s meeting on May 2nd, a slate of directors

backed by the Clinton group is up for election. Clinton wanting change

given the palladium and platinum producer`s lost of market value over the

last five years.

Other meetings to watch include Occidental Petroleum (NYSE:OXY), under

fire in the past for executive bay, shareholders now focus on directors,

with the board launching a search to replace CEO Steve Chazen. Supporters

of Mr. Chazen may seek to unseat directors who don`t back him.

And in the wake of the "London whale" trading loss, JPMorgan`s CEO and

chairman Jamie Dimon faces a challenge to his chairmanship at the annual


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meeting on May 21st. The bank`s board lobbying big shareholders to defeat

that proposal.

Meanwhile, unions remain focus on getting firms to change how and how

much they pay executives. Here`s the AFL-CIO`s Vineeta Anand.

VINEETA ANAND, AFL-CIO: Executive pay is an issue where companies

should be most accountable to shareholders but frequently are not.

THOMPSON: So far this proxy season, shareholders at five firms,

including Navistar, have voted against a company`s compensation plan. This

advisory both a sign to boards they need to change the way they pay top

brass.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

GHARIB: And, Tyler, as you know, one of the most popular and well

attended meetings is Berkshire Hathaway (NYSE:BRK.A). This is Warren

Buffett`s company. And that`s next Saturday.

MATHISEN: And you will be there.

GHARIB: Forty thousand people as well are going to be attending it.


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It`s huge. And all coming to hear what the Oracle (NASDAQ:ORCL) of Omaha

has to say about a lot --

MATHISEN: And, generally, they have very happy shareholders, most of

the time.

GHARIB: Yes. The stock has been going up, up, up.

MATHISEN: Have a great trip.

Coming up, four stocks at this week`s market monitor says you should

own right now.

But, first, a look at how international markets fared today.

(MUSIC)

MATHISEN: We talked about it a lot on yesterday`s program. Congress

working toward a deal to end airport travel delays because of the

sequester, those budget spending cuts. Late last night, the Senate

approved the deal. And today, the House followed suit, giving a green

light to a plan which would ease the delays by allowing the Department of

Transportation to use unused funds to pay for air traffic controllers who

have been furloughed. It is unclear, though, how quickly the furloughs

workers will be back on the job full time.


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Shares of the major airlines were mostly higher on the day.

GHARIB: Also higher today, D.R. Horton (NYSE:DHI), that`s where we

begin today`s "Market Focus".

Shares surged after the company reported second-quarter earnings and

revenue well above expectations. And the nation`s largest home builder

earned 32 cents a share, easily beating 19-cent estimates. Revenues came

in just shy of $1.4 billion. The stock was up more than 8.5 percent to

$26.66.

Lower oil prices hit Chevron (NYSE:CVX) in its bottom line. The

second largest U.S. oil company posted 4.5 percent drop in quarterly

earnings and 16 percent in revenue. The company did earn nearly $6.2

billion in its first quarter. That works out to $3.18 a share, 10 cents

higher than estimates, on revenue of almost $57 billion. Shares however

were higher on the day, closing at $120.4.

MATHISEN: Well, the rubber met the road in the first quarter for

Goodyear, as the company recorded record profits in North America and Asia.

Excluding special items, Goodyear earned 45 cents per share, rolling pass

Wall Street`s target of 30 cents. But Europe put the brakes on things, and

shares fell 12 percent, to $4.8 billion. Weakness in European auto and

currency devaluation in Venezuela were key factors and shares fell on the


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news, down more than 3 percent, $12.51.

Kellogg (NYSE:K) is hiking its quarterly dividend to 46 cents per

share in the third quarter. Shares were essentially flat today, but up a

Krispy, 30 percent in the past year.

GHARIB: Our market monitor tonight expects the stock averages to

continue their march higher this year.

Diane Jaffe is senior portfolio manager at TCW. And the dividend

focus fund that she manages rose 21 percent last year.

Welcome, Diane.

I want to talk to you a little bit about your stock forecast, because,

you know, the economic growth numbers we got today, not so great and

earnings have been so-so. So, why are stocks just keep going higher and

getting close to new records?

DIANE JAFFE, TCW PORTFOLIO MANAGER: The records are being broken, but

the valuations are still unbelievably attractive. And, you know, so that`s

a lot of important points for your viewers to focus in on, is the

valuations are still really exceptional and good opportunities.

GHARIB: So as you manage your funds, what`s the key theme of the


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stocks you are selecting?

JAFFE: They must meet one of our five valuation characteristics.

Generally speaking, three or more. And they must have a company specific

catalyst for cash flows, operating margins and eventually higher earnings

growth.

GHARIB: Well, you have four stocks that you want to talk about.

Let`s begin with Pfizer (NYSE:PFE), which is the largest holding in your

funds. It`s up 20 percent this year.

Why do you like PFE, that trades on the New York Stock Exchange?

JAFFE: For two reasons. First of all, they have gone through

significant cost cutting and focusing on core business of pharmaceuticals

with the sales of the nutritional business, the sales of their -- well, the

spin out of 20 percent of their animal health business. And number two is

they have a fabulous pipeline, which will propel future earnings.

GHARIB: All right. Moving along. Tell us why you`re recommending

General Electric (NYSE:GE).

You did report better than expected earnings last Friday, but its

stock has been kind of stuck in the 20-range. What`s the attraction?


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JAFFE: Well, you`re right. Valuations are the same as they were 10

years ago, but there`s a brand new company underneath. G.E. Capital is

much less important to the day-to-day life of the company and, really, they

are focusing on energy and infrastructure and health care, two areas that

were very positive on.

GHARIB: And you think it`s going to break out of the $20 range

sometime this year or next year?

JAFFE: I think if they don`t, Jeffrey Immelt is going to have to have

some talking to.

GHARIB: OK. Home Depot (NYSE:HD) is the next one on your list. This

is HD trading on the NYSE, stock up more than 18 percent. What`s the story

here?

JAFFE: Well, you know, they floated on the housing bubble, and then

came down with a crash. And new CEO Frank Blake said we have to do things

differently. And he continues to invest in the company. Right now,

they`re really focusing on technology, and distribution centers and they`re

making easier for do-it-yourselfers, and the professionals to come in and

buy products -- the right products at the right price.

GHARIB: And the fourth stock that you are recommending, Citigroup

(NYSE:C), which is somewhat controversial as are a lot of the financial


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stocks, what`s -- you know, why do you like this one?

JAFFE: Well, new management -- I think there`s a breath of fresh air

there. Remember, last year and they got their pay packages for Vikram,

KO`d by the shareholder base. This year, they passed with flying colors

and, though, the turn around of this company has gotten approval stamp from

regulators and we think that there is more to go. Very attractive

valuation.

GHARIB: And Michael Corbett is the new CEO. Is he getting your

approval rating?

JAFFE: Thumbs up.

GHARIB: Thumbs up. OK.

Diane, any disclosures to make? Do you own any of these stocks?

JAFFE: I do personally own Citi and all of the other stocks are -- in

our fund, including Citi.

GHARIB: OK. Fair enough. Thank you so much, Diane Jaffe, senior

portfolio manager at TCW.

MATHISEN: And coming up, using social media to invest -- why it could


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be a risky business.

But, first, a look at today`s commodities bonds and currencies.

(MUSIC)

MATHISEN: Shares of Universal (NYSE:UVV) Health Services jump more

than 3.5 percent today. The hospital management company got a shot in the

arm after two analysts raised their price target for the stocks. UHS also

posted better than expected results late yesterday and the shares are up a

very healthy 30 percent year-to-date.

Joining us now is Alan Miller, chairman and CEO of Universal

(NYSE:UVV) Health Services.

Mr. Miller, welcome. Good to have you with us.

ALAN MILLER, UNIVERSAL HEALTH SERVICES CEO: Thank you.

MATHISEN: You know, there are a lot of unknowns in the Affordable

Care Act. But one of the factors that apparently is not an unknown, is

there will be a lot more patients, customers for you, who have insurance.

How much is that going to help your business and affect your bottom line?

MILLER: It`s going to help our business tremendously. I think when


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you talked about the analysts raising our expectations and our price

targets, we`re going to see 31 million people that have not had coverage

before, and it`s going to have a good effect on our bad debt. So that`s

going to go down. So that`s going to be excellent.

And one of the things that most people don`t know is that there is

going to be a lot of coverage going into the mental health area because

there is a parity law. If you have coverage of acute care mental health

must match it, and so, a lot of the small plans haven`t had that, and now

they will be obligated to have a mental health capacity. And that`s going

to be tremendous for us. Maybe another 31 million people will be covered

as well. So, we`re very bullish about that.

GHARIB: Alan, talk to us about what patients, the consumers, can

expect in this new world of health care with the landscape changing? You

know, one of the big questions is always about quality of care. Is it

going to get better? Is it going to go down?

And what can you expect in terms of what we have to pay for medical

care services?

MILLER: Well, I think one of the -- one of the misleading things when

the plan was sold, was that premiums will go down. I think premiums are

going up, from everything we read, because of extended coverage, premiums

are going up. We are working very diligently to make sure that our quality


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is as high as it`s ever been, and the government is helping that with

payments related to quality.

So, it`s going to be more costly, but its` going to be no diminishment

in quality at all. And we`re going to have extensive coverage of the

population, as I mentioned, about 60 million people which is really very

good thing for them, and certainly a very good thing for us.

MATHISEN: What would be the one thing, Mr. Miller, that would do the

most to retard the growth in health care spending in the United States?

MILLER: Well, there is a complicated answer. Really comes around to

the transition from just a number of volume procedures to some sort of a

bundle payment, where you`d have an organized coordination between doctors

and providers, and that`s what an ACL is intended to do. It would take a

number of years to bring it about, but that`s the only way I can see that

would you get away from this continual escalation and costs.

GHARIB: You know, the thing that always surprises me about health

care, is in almost any other industry, you see prices coming down, whether

it`s a cell phone that`s very expensive years ago and now so cheap, but in

health care, no matter how much technology, no matter how much innovation,

prices keep going up.

MILLER: Yes, but life is better. I mean, I think that`s what the


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tradeoff is. There was an article today in "The New York Times (NYSE:NYT)"

about pharmacology, helping to solve some of the problems of certain

cancers and we`re getting a lot for the dollar, but it is going up. But

people are living better lives and longer lives.

MATHISEN: All right, Mr. Miller, thank you for being with us. We

appreciate it.

MILLER: You`re welcome.

MATHISEN: Alan Miller, CEO of Universal (NYSE:UVV) Health Services.

GHARIB: And, finally, tonight, investors are always trying to find an

edge and in the 21st century, using social media is growing exponentially

on Main Street and now Wall Street. But when it comes to finance, Kayla

Tausche tells us it`s a risky business.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESONDENT (voice-over):

Social media has gone viral on Wall Street. Investors, traders, computers,

mining billions of pieces of information from Twitter, Facebook

(NASDAQ:FB), StockTwits, and now, Google (NASDAQ:GOOG), where new research

suggests search history could hold clues to predict the market. But using

that information is a viral game of risk to be sure.


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UNIDENTIFIED MALE: We saw a big jump in sentiment last week.

TAUSCHE: In 2011, Paul Hawtin, an English entrepreneur and Johan

Bollan (ph), an Indiana university professor, claimed to have found a

formula that would mine Twitter to predict the Dow. It was hailed as

revolutionary.

PAUL HAWTIN, FORMER HEDGE FUND MANAGER: The social media has enabled

to be able to take a large set of data from a large audience that we

couldn`t really do before. And it needs a lot of refinement and used in

the right way. But certainly -- it s certainly really interesting from our

point of view. I mean, the results are astounding and we don`t really

quite understand why.

TAUSCHE: But not understanding why it works was just too risky for

investors. Their Twitter hedge fund closed just a month after it opened.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: The president was fine, I

was just with him.

TAUSCHE: And this week`s "A.P." Twitter hack illustrates exactly why

investors have a right to be cautious. For four minutes, markets went into

freefall after false reports of explosions at the White House --71

characters, 150 point selloff.


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JIM IUORIO, BARCLAYS: It`s about as much about trying to predict how

the market is going to move off a certain story. And many times,

independent where it came from, people jump on board too quickly, whether

it`d be to sell or to buy something in response. And many times, it`s the

wrong move.

TAUSCHE: It`s a delicate and dangerous balance for all investors,

between speed and greed.

For NIGHTLY BUSINESS REPORT, Kayla Tausche.

(END VIDEOTAPE)

MATHISEN: I think earlier this week, that false tweet that went out,

it`s going to send a chill through all the companies that may have been

trying to think about ways they could use Twitter and Facebook (NASDAQ:FB)

to release information to the public, because one false move can really

disrupt --

GHARIB: No short cuts, Tyler. You have to do real research, and

there`s no magic.

MATHISEN: Absolutely.


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All right, everybody. That will do it for this edition of NIGHTLY

BUSINESS REPORT. I`m Tyler Mathisen. Thanks for watching.

GHARIB: And I`m Susie Gharib, have a great weekend, everyone.

You too, Tyler.

And we`ll both be back on Monday.

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 - april 26 2013

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