nightly business report - friday may 31 2013

7/28/2019 Nightly Business Report - Friday May 31 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: A Friday dive. Stocks

fell off sharply in the last hour of trading, but the S&P and NASDAQ still

scored their seventh straight month of gains. For the Dow, the winning

streak is six.


2/26

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The great divide. Is

a sell-off in the bond market for real? We`ll ask an expert if the glory

days are over for U.S. treasuries.

GHARIB: And conquering cancer. The promising treatments being

developed by some of the world`s biggest drug companies to fight the

deadliest forms of the disease.

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

Friday, May 31st.

MATHISEN: And good evening, everyone. Welcome.

The month of May felt more like the month of March today, going out

like a lion on Wall Street. The selling was modest most of the session,

but then, in the last hour, it hit hard. Wave after wave as portfolio

managers made month-end moves and certain indexes were rebalanced. That

lead to wild swings and individual stocks. And that`s just what we got.

Today`s range from high to low on the Dow, 277 points, was the biggest

since January 2nd.

When all was said and done, the Dow finished 209 points lower, it`s

worst performance since the day of the Boston bombings, NASDAQ was down 35,

and the S&P 500 was lower by 23. All three finished with losses for the


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week.

Nevertheless, each of those major barometers ended the month of May

with gains, the first time that`s happened since 2009. The monthly win

streak now, as we mentioned, stands at seven for the S&P and the NASDAQ,

six for the Dow.

GHARIB: Here to put the market moves in perspective, we have Jeremy

Siegel, finance professor at the Wharton School at the University of

Pennsylvania.

Jeremy, you are predicting that the Dow gets to as much as 17,000 by

the end of the year. Right now, 15,000. What is going to drive that kind

of growth? And why are you so bullish on a day like this?

JEREMY SIEGEL, WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA:Well, as

you guys mentioned, you know, the end of the month, a lot of repositioning

takes place. We did have a brutal week on yields. And what I really think

is happening is the market is really pricing in the tapering of

quantitative easing. And since so many people think that s the source of

the big gains, clearly, there is going to be nervousness on that.

But I think it s gotten priced in pretty reasonably. I don`t think

it`s quite as damaging as I thought it might be. Now, we`ll wait until

next week to see whether there is some carry through here, but you`re


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right. I don`t -- I certainly don`t think the highs have been reached. I

still believe we`re going to end up the year between 16,000 and 17,000 on

the Dow.

And it`s going to be mainly two factors. It`s going to be good

earnings, but multiple expansion, and even with rising yields, they are

still so dramatically low, week and a half multiples of 18, 19, even 20,

not at all unusual in a low interest rate environment.

MATHISEN: So, earlier this week, Professor, we had Mohamed El-Erian

on, and he was concerned about the fundamentals. He was concerned about

whether there is sufficient growth in the economy and corporate profits to

justify stock prices at this level. That`s why he says he`s walking away

from risk.

How would you answer him?

SIEGEL: Well, first of all, I don`t believe we need a big increase in

corporate profits and earnings to justify even higher levels of stock

prices. Don`t forget, firms are buying back shares so earnings-per-share

is going up. There is a dividend yield over 2 percent, which is attracting

more and more people, as a tax preference. You know, if we get capital

gains of 3.5 percent, it`s going to be bonds hands down.

So I don`t know where Mohamed is going to go with his money. You


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know, I think PIMCO has already said that the bull market is over on

treasuries, so the move isn`t there.

Commodities look wobbly to me. You know, we`ve seen what will happen

to gold. It`s not always the safest commodity. I still think stocks are

going to be the asset of choice for most Americans.

GHARIB: Jeremy, real quickly. Next Friday, we`ve go that important

jobs report.

SIEGEL: Yes.

GHARIB: And all week long next week, people are going to be

anticipating that. So, how is that going to set the tone for the week and

for the month of June?

SIEGEL: Well, it`s the single most important report. I guess morning

line is what, 170, 180? And it will move one way or the other. But most

of what I see is that we are in a period of moderate growth and given the

fiscal drag with the taxes and sequestration, people are pretty amazed at

how strong the private economy is. And that`s what`s going to drive us in

the second half.

GHARIB: All right. We have to leave it there. Have a great weekend.

Thank you so much.


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SIEGEL: Thank you.

GHARIB: Jeremy Siegel from the Wharton School.

MATHISEN: For one of the reasons stocks have been jittery this week

is that sharp rise in bond yields that Professor Siegel was just talking

about. In fact, at one point today, the 10-year Treasury note rose 2.2

percent. It`s risen nearly a half percentage point in just the past five

weeks.

All of this is causing a great divide on Wall Street on whether the

greatest bull run ever for bonds may be coming to an end.

Hampton Pearson takes a look now.

(BEGIN VIDEOTAPE)

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

The last trading day in May saw both sides of the debate over the long

anticipated bond market sell-off play out in the markets. Treasury prices

dropped after the Institute for Supply Management, a closely watched

barometer of business activity, increased sharply last month. A sign the

economy is getting stronger.


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And improving economy adding to Wall Street jitters after comments

from Ben Bernanke and other Fed officials about plans to taper its bond

purchases.

Goldman Sachs (NYSE:GS) fixed analysts point to yield consistently

above 2 percent in a closely watched 10-year Treasury bonds in a note today

telling investors, "The bond sell-off, it`s for real."

On the flipside, UBS analysts countering, "The market seems to be

overreacting to the slim possibility that the Fed could begin tapering

fairly soon."

The net result this week? Volatility. Not good, Wall Street watchers

say for stocks or bonds.

BOB DOLL, NUVEEN ASSET MANAGEMENT: Equity markets don`t like when

bond rates move this fast. If we creep higher in interest rates -- which

is my view -- I think stocks will be fine. It`s the gallop higher that has

equity investors concerned. And I don`t think we can make positive

progress if 10-year treasuries keep moving up.

PEARSON: The housing market is already feeling the heat. Mortgage

interest rates reached their highest point in more than a year, now close

to 4 percent.


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(on camera): Next Friday`s jobs report could be the next market

mover. That payroll number could determine if there is more room for bond

rates to move higher or if the recent sell-off is overdone.

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

(END VIDEOTAPE)

MATHISEN: So are the bond market`s big glory days behind it?

Bill Irving is a fixed income portfolio manager at Fidelity.

Mr. Irving, welcome.

Where do you stand on the sort of fracture there between UBS, on the

one hand, saying the worry is overdone and Goldman on the other saying this

time it`s for real, the bond bull may be on its last legs?

BILL IRVING, FIDELITY: Well, certainly the backup in yields this past

month has been sharper and more sudden than I think many market

participants expected. But in my opinion, the backup so far has been both

healthy and reasonable.

And what I mean by that, if you go back to the beginning of May, on

the one hand, the yield on the 10-year Treasury was only 20 basis points


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above it`s all-time low, around 1.6 percent. Meantime, at the same time,

the recovery continues to take hold. We had a very strong unemployment

report this past month, household balance sheets are improving. The fiscal

outlook in the United States is improving. All good.

So, those two things were inconsistent. And then more recently, have

you had the Fed rhetoric, which has made clear to the market that the

quantitative easing program is not going to last forever, and they`re going

to begin tapering their purchases, either in September or I would say by

December of this year. So those two reasons I think contributed to the

sell-off we`ve seen in the bond market.

Having said that --

GHARIB: But, Bill, should you -- this is Susie. Should you -- if you

are an investor and you`ve been holding bonds -- should you keep holding on

to them or should you sell? I mean, a lot of people really believe that

it`s safer to keep your money in those bond funds. But can you make money

with treasury yields at 2 percent and inflation around 2 percent?

IRVING: I think that yields will continue to rise throughout this

year as the recovery continues to normalize. But I don`t think it`s going

to be a straight path to higher yields and I don`t think it`s going to

happen as sharply as what we`ve seen this past month. I think that we`re

in a more volatile environment, where interest rate are going to be more


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sensitive to the economic data.

So, for instance, just next Friday, we get a payroll report where

we`ve added 250,000 jobs, I think it is possible, you know, the 10-year

yield could rise say 20 basis points. But on the other hand, we get a

disappointing number, we could go right back to 1.8 percent on the 10-year

yield.

MATHISEN: There`s really been almost a 30-year market in bonds, Bill.

I don`t have to tell you that. But certainly over the past 10 years, an

awful lot of people have made a tremendous amount of capital gains in their

bonds and bond fund holdings.

Do you think that era is over? And that people ought to reset their

expectations in terms of the returns they might derive from their bond

funds?

IRVING: Absolutely. That is I think is the most important point,

starting point to estimate what returns might be going forward. The yield

on the aggregate, the Barclay`s aggregate, which is a broad investment

grade bond index, is around 2 percent. So, if yields stay just where they,

then over the next year, you can expect about a 2 percent return. And if

yields rise, then that`s going to eat into that return, and so they could

be lower, they could even be negative.


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So, I think the most important point is the strong returns that bond

investors have enjoyed over the past several years, 5 percent, 6 percent, 7

percent, 8 percent returns, they need to reset their expectations

significantly lower.

MATHISEN: All right, Bill, we have to leave it there. Thank you very

much. Bill Irving of Fidelity tonight.

GHARIB: Some good news that`s out of Washington today. The

government says that Medicare`s hospital trust fund won`t run out until the

year 2026. That`s two years later than previously forecast. The date when

the Social Security will exhaust its trust fund remains unchanged at the

year 2033.

But as more and more baby boomers retire, Treasury Secretary Jack Lew

sounded cautious about the long term prospect to keep those trusts funded

in the future.

(BEGIN VIDEO CLIP)

JACK LEW, TREASURY SECRETARY: Social Security and Medicare are

meeting their commitments today and they will continue to meet their

commitments in the years ahead. Yet as trustee reports have been

indicating for a while now, these programs face long-term challenges.


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(END VIDEO CLIP)

MATHISEN: President Obama urged Congress today to stop federal

student loan rates from doubling as of July 1st. Interest rates of new

subsidized Stafford loans are set to go from 3.4 percent, to 6.8 percent in

one month, which may put college out of reach for some Americans.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Because folks made

their voices heard, Congress acted to keep interest rates low. But they

only did it for a year, and that year is almost up.

So, the test here is simple: we`ve got to make sure that federal

student loan rates don`t double on July 1st.

(END VIDEO CLIP)

MATHISEN: Both Republican and Democrat lawmakers say they want to

avoid the increase, but they can`t reach an agreement just yet on how to do

it.

GHARIB: The Organization of Petroleum Exporting Countries, or OPEC as

we know it as, met to decide on what to do on oil prices. The group

decided not to raise output beyond the current 30 million barrels a day.


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OPEC pumps about a third of the world`s oil, but the boom in U.S.

production has blunted the group`s clout.

Brent oil sits right at $100 a barrel, the favored price floor that

OPEC is known to desire.

MATHISEN: And coming up, battling cancer. What three of the world`s

biggest drug companies are doing to fight some of the deadliest forms of

the disease.

But, first, a look at the top performing sectors this month, and it

was a good month for most of us.

(MUSIC)

GHARIB: Shares of cancer drug developer Epizyme soared in their first

day of trading after the biotech company raised more than $77 million in

its initial public stock offering. Shares opened at $15 a piece, at the

high end of its expected range, and closed 53 percent higher at $22.99.

MATHISEN: Well, Susie, new medications and treatments to fight cancer

are the focus at the annual ASCO oncologist meeting that kicks off in

Chicago today. It is one of the world`s largest gatherings of biotech

companies, pharmaceutical giants, cancer care specialists and Wall Street

investors all look at what new drugs are getting the attention of top


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cancer care doctors and researchers.

Bertha Coombs now with more.

(BEGIN VIDEOTAPE)

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

The American Society of Clinical Oncology annual meeting is one of the most

important events in cancer research, where drug companies present the

latest data on promising treatments for the deadliest cancers. That has

made it a key meeting for investors.

MARK SCHOENEBAUM, ISI GROUP: A dozen companies or so are having

analyst meetings over the weekend, at which point they`ll also showcase

their data. And that`s a great time for investors and analysts to interact

with management teams.

COOMBS: This year, the most highly anticipated data is on treatments

from three major drugmakers, Bristol-Myers Squibb (NYSE:BMY), Roche, and

Merck (NYSE:MRK), that harnessed the immune system to combat cancer.

BARBARA RYAN, FTI CONSULTING MANAGING DIRECTOR: We have newclasses

of drugs, such as the immuno therapies, which is advancing the treatment of

potentially a variety of cancers, specifically melanoma, but being


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evaluated in kidney, breast and lung cancers.

COOMBS: The drugs target a protein in cancer cells that binds with a

receptor on T-cells called PD-1, which stands for programmed death. That

protein masks cancers from the immune system. The drugs block the protein,

allowing the immune system to attack the cancer cells.

SCHOENEBAUM: In some patients, you could end up with a cure for their

lung cancer or for melanoma. From using these anti PD-1 drugs, especially

when you combine them Bristol`s currently marketed drug Yervoy.

COOMBS: Preliminary data shows combining Yervoy with Bristol s new

PD-1 drug shrank melanoma tumors more effectively than either drug alone.

Merck`s PD-1 drugs results show it shrank melanoma tumors by 38 percent,

while early results show Roche`s PD-1 drug significantly shrank tumors in

skin, lung and kidney cancer patients.

RYAN: The hope is that these drugs allow people to on be more

productive. I mean, it used to be that AIDS was a death sentence. Now,

you know, it`s a life-long disease.

COOMBS (on camera): All three drugmakers will report full trial

results on Sunday.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.


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(END VIDEOTAPE)

GHARIB: On Monday, following the cancer conference, we`ll speak with

the CEO of Infinity Pharmaceuticals (NASDAQ:INFI), which seen its shares

more than doubled over the past year.

MATHISEN: We start "Market Focus" tonight with a blue chip chipmaker,

Intel (NASDAQ:INTC), a Dow gainer today on reports that Samsung has

selected a new Intel (NASDAQ:INTC) processor for its latest Galaxy tablet

that debuts June 20th. Shares of Intel (NASDAQ:INTC) were up about 2

percent before the sell-off and it closed up a fraction at $24.28.

The fight for Dell s future continues. The board has set a July 18th

vote on founder Michael Dell`s plan to take the company private.

Meanwhile, Southeastern Asset Management, Dell`s largest stakeholder, urged

fellow shareholders to take no action when Dell`s proxy materials show up

in their mailboxes. Southeastern says it believes there is more per share

value than Michael Dell`s $13.65 offer.

Shares of Dell (NASDAQ:DELL) closed near that offer price at $13.35,

on double the normal volume today.

GHARIB: Retail stocks were in the spotlight today, thanks to that

upbeat report on consumer sentiment. It was the highest in almost six


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years. Investors are counting on more spending by more confident shoppers.

But as the market sold off, investors backed away from companies like

Macy`s (NYSE:M) and JCPenney, American Eagle was slack, and only Gap

(NYSE:GPS) held up a gain, up almost 1 1/2 percent to $40.55.

And Lionsgate Films held on to gains today, after reporting a

quarterly profit and strong revenue from hit movies like "Hunger Games" and

"Twilight" saga, both in theaters and home entertainment sales. Lionsgate

closed at $28.80, up more than 2 1/2 percent.

Our market monitor is positive about more rallies in the stock market,

but he`s also telling his clients to reduce risk in their portfolio. He`s

Jason Pride, director of investment strategy at Glenmede.

Jason, nice to have you back us with.

I want to get your take --

JASON PRIDE, GLENMEDE DIR. OF INVESTMENT STRATEGY: Thanks forhaving

me, Susie.

GHARIB: Great to have you here.

I want to get your take on these markets and what are you going to be


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doing on Monday morning? Are you going to be buying more stocks?

PRIDE: Well, you know, I think it`s a cautious investment stance that

we have. Really, we`re looking at an environment where the Fed is really

forcing investors to take risk, markets are rallying, probably more than

the fundamentals actually reflect that they should. And we`re still in a

good, but not great growth environment.

So, we`re wanting to take risks but we`re doing so in a cautious way.

That means seeking stability but still being an equity buyer through this

period.

MATHISEN: So, some of the stocks you have meet that criteria. Let`s

begin by leaping in here.

PRIDE: Sure.

MATHISEN: One of your choices is Philip Morris, I guess that`s Philip

Morris International (NYSE:PM) as compared with Altria.

PRIDE: Right.

MATHISEN: Why do you like it?

PRIDE: So, the main -- the main thinking here is we`re going for


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dividends and stability. We`re going for dividend growth. This is a 3

percent plus dividend yielder, with 10 percent growth potential in that

underlying dividend. It`s great when you can get that sort of an income,

plus the growth on top of it.

It`s a stable business. You know, people smoking habits,

unfortunately, don`t change through the times, and they also have a very

substantial growth exposure. They have a large market going into emerging

markets and we think that`s a huge growth opportunity for a lot of

companies out there. The other two we`re talking about meet that as well.

Emerging market consumers are seeing 10 percent to 20 percent

increases in their wages and we know what consumers do when they make more

money. They spend more money on everything from toothpaste to cigarettes.

GHARIB: Well, talking about toothpaste, you have Colgate on your

list. That`s ticker symbol CL on the big board. The stock down today, but

it`s been up sharply this year.

It`s same investment theme, right?

PRIDE: Very similar investment theme. We`re going for stability.

You know, toothpaste and dish washers, these are -- this is a -- this is --

your staples. You don`t really change your spending on this, except you

may upgrade as your income increases.


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And this is a company that actually has a dramatic amount of emerging

market exposure, primarily in Latin America, but also in East Asia. That

growth is fairly strong, dividend is solid, and the stability is there.

MATHISEN: Maybe we should have saved Colgate for the last, because

you eat before your brush your teeth. The last choice is Yum Brands

(NYSE:YUM), that people eating a lot of chicken over in China. Yum has had

problems there with some food safety issues, but you see that as a short-

term blip on its particular screen, I take it.

PRIDE: Correct. Now, this isn`t a perfect stability one. You are

still talking about a retail franchise, more volatility to it. The bigger

growth opportunities because their presence in Asia is a lot stronger.

They`re tie to their consumers is a lot stronger.

The interesting thing about Yum Brands (NYSE:YUM) in Asia is really

the KFC brand. Unlike it`s -- it`s less cleanly image in the U.S., it`s

image overseas and the stores themselves are considerably better. They`re

actually considered a little bit up scale by comparison to what they look

like in the U.S. and we think that`s a great growth opportunity.

Anything attached to the emerging market consumer is a good story

right now, as long as you`re not really messing it up.


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GHARIB: Jason, we have less than half a minute. Just want to get

your take on that debate we had at the top of the program.

Do you buy bonds, don`t buy bonds? You said reduce risk in your

portfolio. Where do you stand on that?

PRIDE: Right. We`re not a big bond fan right now, at least not the

traditional bonds. We think that hiding in the bunker and putting your

money in cash and treasuries is probably the worst thing you can do when

the Federal Reserve is basically punishing those that want to be the most

defensive. You can`t be doing that.

At the same time, investors can`t just be blindly buying equities.

You got to take risk, but take risk selectively.

GHARIB: OK. Jason, any disclosures to make on the three stocks you

were recommending?

PRIDE: The three stocks, those we recommended, they`re held by our

mutual funds, they`re held by Glenmede. I do not own them personally.

GHARIB: OK. Terrific.

Jason Pride, director of investment strategy at Glenmede.


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And still ahead on the program, what`s it like on an oil rig when a

major storm is about to strike. We`ll take you to the middle of the Gulf

of Mexico on the eve of hurricane season.

But, first, let`s get a check on the top performing Dow stocks this

month.

(MUSIC)

MATHISEN: The Atlantic hurricane season officially begins tomorrow

and forecasters are calling for an active season with as many as six major

storms. As residents and businesses prepare, the U.S. energy industry in

the Gulf of Mexico is already on high alert.

Scott Cohn is in Norco, Louisiana, with a look at some of the

preparations already under way.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):We

are 30 miles out in the Gulf of Mexico, and this is one of Chevron`s

closest offshore facilities.

UNIDENTIFIED MALE: We have to be very diligent.


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COHN: The South Timbalier 52 platform produces around 2,900 barrels

of oil per day. Sixty people live and work here, two weeks on the rig, two

weeks off.

Including operations supervisor David Bond, a 33-year offshore

veteran, who showed us around.

(on camera): You like it out here?

DAVID BOND, OPERATIONS SUPERVISOR: Oh, I love it out here.

COHN (voice-over): Out here, hurricane preparations begin well before

hurricane season, even a tropical depression 200 miles away can trigger

phase one: moving nonessential workers and equipment.

BOND: In the event of a hurricane, we would have to get all of this

stuff rigged down. It should take us about a day and a half or so.

COHN: Then the nonessential workers air lifted out, leaving a core

group of production workers and supervisors to hold down the fort just a

little bit longer.

BOND: As we finish out if through the phase two process, well, then

it starts to kind of hit home a little bit.


24/26

COHN (on camera): On a normal day, Chevron (NYSE:CVX) has about 2,500

people working in the Gulf. If the hurricane or even a tropical storm is

approaching, pretty much all of them have to come ashore. That would be a

huge challenge, even on a good day. Now, they are racing against the

weather and they`re racing against time.

(voice-over): They coordinate everything from this command center,

opened in 2008, 100 miles inland in Covington, Louisiana.

Mike Casey is in charge of operations.

MIKE CASEY, CHEVRON GENERAL MANAGER, OPERATIONS: We can now talkto

every platform we`ve got, every asset we`ve got, whether it be a helicopter

or boat.

COHN: Back on the rig, final preparations are intense.

BOND: You just keep working through it.

COHN: In the control room, they make sure every well, every valve, is

shut and secure before they, too, leave their second home behind.

BOND: You`re always thinking, will it be here when I come back.

COHN: In Covington, Louisiana, Scott Cohn, for the NIGHTLY BUSINESS


25/26

REPORT.

(END VIDEOTAPE)

MATHISEN: And coming back can be much more complicated than the

evacuation, because if a storm hits, they won`t know right away exactly

what they`re coming back to. If the forecasts hold, they could be doing a

lot of that this year.

GHARIB: And finally tonight, some good news. The earth was not

destroyed by a giant asteroid today. But it was close. Scientists at NASA

say that around 5:00 Eastern Time today, the asteroid known as 1998 QE2,

which is nearly two miles long and even has its own moon, flew past the

Earth in its closest approach in at least two centuries. Luckily, the

distance from our planet was 3.5 million miles away.

So, Tyler, I don`t know if that`s too close for your comfort or not?

MATHISEN: I look at my watch -- I was looking at my watch to see when

it came by.

GHARIB: We`re still here.

MATHISEN: We`re still here. It`s all good.


26/26

GHARIB: Have a great weekend, everyone. I`m Susie Gharib. Thanks

for watching.

MATHISEN: And I m Tyler Mathisen. Thanks from me as well. Have a

great weekend. We`ll see you here on Monday evening.

END

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

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nightly business report - friday may 31 2013

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