transcripts: tuesday, august 12, 2013

7/27/2019 Transcripts: Tuesday, August 12, 2013

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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought toyou by --

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Reversal of fortune.BlackBerry put the smart in the smartphone. But today, its shareholders feel dumb as the companyponders the dreaded strategic alternatives. So, how can you tell if a company you own is about to loseit?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Fed watch. A big week for big data, and thenumbers that are released could impact what the central bank does next and the market`s next move.

MATHISEN: Planes, trains and hyperloops. No, it`s not a cereal.It`s the future of travel, according to one entrepreneur. And it could mean getting from Los Angeles toSan Francisco in under 30 minutes.

We`ve got that story and more tonight on NIGHTLY BUSINESS REPORT for Monday, August 12th.

GHARIB: Good evening, everyone.

Remember when the BlackBerry was the must have device for executives?Everyone wanted one, and if you had one, you couldn`t put it down.

Well, not any more. BlackBerry has been passed by other phones, from Apple (NASDAQ:AAPL),Samsung and others. And, today, the BlackBerry waved the white flag.

The board of directors at the struggling smartphone giant announced that it`s exploring so-called"strategic alternatives", that includes partnering with another firm or taking the company private, oreven selling it off to the highest bidder.

Jon Fortt has the latest on the possible future of BlackBerry.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A humbling moment for a once proudbrand. BlackBerry, the company that first popularized the idea of a phone that could do more thanmake calls, the company that added Alicia Keys as a marketing executive in January says it`s pursuingstrategic alternatives, a corporate euphemism for looking to get bought or taking private.


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It`s not hard to see why. The momentum in the mobile market belongs to Samsung and Apple(NASDAQ:AAPL), Android and iOS. The latest data from IBC shows that worldwide, BlackBerry had 3percent market share, down from5 percent a year earlier. For every one BlackBerry shipped in Q2, more than 27 Android phones moved.

And things aren`t about to get easier. Apple`s lineup will take a bow in about a month. Just beforethen, Google (NASDAQ:GOOG) will start selling the Moto-X smartphone. That means will be even morecrowded at the end of the year for new BlackBerry phones that don`t seem to be catching on as manyhoped.

PATRICK CHUNG: BlackBerry`s got a tough situation on its hands.It`s a lesson that all developers ought to pay close attention to, which is that markets change really fast.And only the paranoid survive.

FORTT: The question is whether paranoia will help BlackBerry at this point. Going public could be agood option. The company has a market capital of about $5 billion and about $3 billion in cash andequivalent.

But trying to go private comes with risks, just ask Michael Dell (NASDAQ:DELL). The uncertainty aroundthat kind of transaction could send BlackBerry`s fortunes spiraling.

Whatever BlackBerry chooses to do, the clock is ticking. The biggest buying season for smartphonesstarts in about six weeks.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

GHARIB: Coming up a little later in the program, what are the warning signs that a company you

even is in trouble and falls out of favor on Wall Street? We`ll get some answers from a successfulbusiness strategist.

MATHISEN: The technology blog, All Things Digital, is reporting what Jon Fortt just referenced,namely that Apple (NASDAQ:AAPL) is expected to unveil a brand new redesigned iPhone on September10th. There`s speculation that the newest iPhone will have a larger screen or will see a lower costmodel made of plastic for consumers in emerging markets.There`s even talk about fingerprint recognition software in those new handsets. Apple (NASDAQ:AAPL)as usual declined to comment.

Meanwhile, a few acquisitions to tell you about, beginning with Dole Food (NYSE:DOLE). The fruitand vegetable giant agreed to be taken private by its chairman and CEO, David Murdoch, who alreadyowns 40 percent of the company. Back in June, Murdoch offered $12 a share for Dole, but finally strucka deal after sweetening his bid to $13.50 a share. That values the company at $1.2 billion. That`s a lotof bananas.

Then, there s Pinnacle Foods. It owns popular brands like Duncan Hines and Vlassic pickles. And it isnow acquiring Wish-Bone dressing from Unilever (NYSE:UN). The price tag, $580 million.


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And, finally, there may be a bidding war to acquire the legendary piano maker, Steinway MusicalInstruments (NYSE:LVB). After an unknown bidder came up with an offer of $477 million topping anearlier buyout bid that was already accepted from the private equity firm Kohlberg and Company.

Shares of Dole, Pinnacle Foods and Steinway all higher on the day.

GHARIB: Well, those deals did little to inspire investors to buy stocks. On Wall Street, stocks werelittle change. The Dow lost five points. The NASDAQ rose almost 10, getting a lift of shares from Apple(NASDAQ:AAPL) which rose 3 percent. And the S&P 500 was down about 2 points.

Mining companies were some of the biggest gainers today, and that gave a boost to the price of gold,up more than $22 an ounce, a gain of nearly 2 percent.

MATHISEN: Good news out of Washington, sort of. The government reported a nearly $98 billionbudget deficit for the month of July. But that means Uncle Sam is now on track to post the lowestannual budget shortfall in five years. More than a third lower than last year s gap.The reasons for the shrinking deficit, slow but steady economic growth, higher taxes, less government

spending and the turnaround in the bailed out Washington run mortgage giants, Fannie Mae andFreddie Mac.

GHARIB: Besides that budget deficit report, this will be a big week for fresh data about the U.S.economy. Those reports will be closely watched not only by investors but by the policy makers at theFederal Reserve, as they decide if and when to begin tapering their economic stimulus program.

Steve Liesman tells us what`s on this week`s economic calendar, and which reports are mostimportant to Fed Chairman Ben Bernanke and company.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening.

A big week for economic data, that will go a long way toward figuring out whether the economy isstrong enough for the Federal Reserve to ease back on the support that it is giving. We`ll get a read onthe consumer with July retail sales tomorrow morning, and economists are looking for a modest but stillhealthy 0.3 percent gain.

Later in the week, Wall Street looks for relatively tame inflation numbers, both from producers andconsumers. And for the number of Americans, jobless claims remain low, 335,000. That`s just a bitabove the level from before the recession.

And then, on Friday, we`ll learn how much new home building has been hurt by recent highermortgage rates. Economists look for July housing starts to come in with a big gain at 910,000 at anannual rate.

Fed Chairman Ben Bernanke will be watching all of this closely. He`s indicated the Fed can reduce hismonthly purchases of bonds. They`re designed to help drive down long-term interest rates. The couldhappen as early as September if the economy is in good enough shape.


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Already, the second quarter looks healthier than originally reported after revisions to the data fromthe government. So better economic data this week through September when the Fed meets, could putthe Fed on course to ease back on the support its giving the economy.

For NIGHTLY BUSINESS REPORT, Steve Liesman.

(END VIDEOTAPE)

MATHISEN: An update on a story NBR brought you a few weeks ago.Federal commodities regulators have sent subpoenas to a number of companies as they investigateallegations that aluminum owners and warehousing firms inflated metal prices by moving supplies fromwarehouse to warehouse, thereby keeping it out of the open markets.

Wall Street`s Goldman Sachs (NYSE:GS) Group, along with its wholly owned Metro InternationalTrade Services unit, which stores metals like aluminum, copper and tin, were among the companiesreceiving subpoenas related to the inquiry by the Commodities Futures Trading Commission.

GHARIB: General Motors (NYSE:GM) is rethinking its business operations in South Korea.Reportedly, GM may have already begun shifting manufacturing out of that country because of sharpincreases in wage costs and militant unionism. South Korea accounts for about a fifth of GM`s globalauto production. Meanwhile, the company is expanding manufacturing operations in China to meetgrowing demand there.

It`s day ten, and there`s no sign of a deal in that dispute between CBS (NYSE:CBS) and Time Warner(NYSE:TWX) Cable. The bitter battle of retransmission fees has resulted in a blackout of CBS (NYSE:CBS)and its sister stations on the cable system. And now, with 3 million customers unable to watch CBS(NYSE:CBS) programs in some of the nation`s largest television markets, the network is apparentlyfeeling the pinch.

Julia Boorstin has the latest.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: CBS(NYSE:CBS) and Time Warner (NYSE:TWX) may be at the negotiating table, but there`s still no sign of adeal, raising questions about the impact of the blackout on CBS (NYSE:CBS). Hit the hardest are CBS(NYSE:CBS) owned TV stations in New York, Los Angeles and Dallas, where local news broadcasts havesuffered significant ratings declines. In Los Angeles, ratings of the5:00 p.m. newscast are off by one third. And for the 11:00 p.m. newscast, they`re down by one quarter.

CBS (NYSE:CBS) says the network`s strength the rest of the summer is balancing out local weakness,issuing a statement that says, quote, "The net effects of the blackout hasn`t created in an overall ratingshardship.August is traditionally one of the lowest months of the year for ratings and advertising revenue, makingthe financial impact negligible."


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But CBS (NYSE:CBS) says when it comes to those key national ratings, the blackout isn`t having asignificant impact. In fact, in the first week of the blackout, CBS`s national ratings declined by 0.2percent.

This is thanks to more original programming than previous summers, including hits "Under theDome" and "Big Brother.:

BRAD ADGATE, HORIZON MEDIA: CBS (NYSE:CBS) is cutting down the number of repeats. They`reputting more original shows on. That costs money, but it also will produce higher ratings.

BOORSTIN: And the broadcaster says ratings of the PGA championship has actually improved despitethe blackout. Saturday`s ratings were up 30 percent over last year.

One show which hasn`t been impacted by the blackout is "The Late Show with David Letterman."Letterman had a well-timed vacation last week and this week.

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

(END VIDEOTAPE)

MATHISEN: Coming up, a small group of companies was hit hard by the housing crash, but therecovery is bringing them back from the brink. And now, investors are taking notice.

But, first, let`s take a look at how the international markets fared today.

(MUSIC)

GHARIB: One industry hard hit by the housing crash, private mortgage insurers, two big ones went

under, and the rest were left bleeding cash.But now, investors are taking note. The housing recovery is breathing new life into this industry, andsome new players are worth watching.

Diana Olick has that story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: When housing came crumbling down,the private mortgage insurance industry was left holding the bag, four companies lost a combined $20billion, and they were the survivors.

Now, these companies just posted their first quarterly profit in six years.

BOSE GEORGE, KEEFE, BRUYETTE & WOODS MANAGING DIRECTOR:Delinquencies are down, which has helped, the companies recapitalized, the main public companies,Radian and MGIC. At the same time, FHA is reducing its role in the market. So, this has given themsignificant growth opportunities. So, the companies are basically reversing their position and all startingto show modest profitability.


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OLICK: Two more have entered the market. And together, the six wrote nearly $49 billion in newbusiness in Q2, up 27 percent from the previous quarter according to inside mortgage finance. Of thepublicly traded firms, MGIC, Genworth, United Guarantee, a unit of AIG, reported positive income, withRadian still trying to break out of the negative.

Privately held Essent, a newbie to the market, is coming on strong with $10 billion in new businessthrough the first half of the year, up from $3.6 billion a year ago. The latest to the group, NationalMortgage Insurance, plans to go public and just made a $5 billion deal with Fannie Mae to ensure poolsof loans.

GEORGE: The re-default rates on some of those programs have increased. But, you know, what wewould argue is that without those programs, it would have been a lot worse, because most of theseborrowers would have been delinquent and would have been -- you know, would have foreclosed andbeen a payment for M.I.s.

OLICK: While the mortgage insurers didn`t get a government bailout during the crash, they didbenefit from the housing bailout, specifically the government refinance program from under water

borrowers and the loan re-modification program.

(on camera): Private mortgage insurers have climbed back to one third of the market. They shouldsee more gains, though, should Congress decide what to do with Fannie Mae and Freddie Mac, andbring more private capital back to the table.

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

(END VIDEOTAPE)

MATHISEN: A small biotech stock makes a move lower, and that begins tonight`s market focus.

Vical (NASDAQ:VICL) says it will stop development of its cancer drug for advanced melanoma, thedeadliest form of skin cancer. A late stage trial failed to demonstrate that the treatment wassignificantly better than conventional chemotherapy. The CEO says the company will focus on itsinfectious disease vaccine. That sent shares plummeting down more than 57 percent to $1.53.

And Yum Brands (NYSE:YUM) reported a 13 percent drop in July sales in China. The parent companyof KFC and Pizza Hut posted a steeper than expected sales decline in those stores after a food safetyscare and a bird flu outbreak. China is the company`s most important market generating more than half its operating profit. Shares were up fractionally at the close to $74.47. But then as you see on thatchart, they fell after hours.

GHARIB: Farm equipment stocks getting a boost from the crop report today. The Department of Agriculture cut its forecast for the size of the corn harvest this year. So, prices shot up for commoditieslike corn and wheat. Investors seem to be buying into the idea that farmers are more likely to buy newtractors and combines when commodities prices rise.

Shares of Deere rose 2 percent to $83.38. And Agco was up more than1 percent to $57.45.


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And Sysco (NYSE:SYY), this was the food distributor, was the worst performing stock in the S&P 500today. Shares came under pressure after reporting quarterly earnings that tumbled eight and a half percent. Now, the company gets most of its revenue from supplying food to restaurants, and Sysco(NYSE:SYY) CEO said today its customers are struggling as consumers are not dining out as much.

The stock dropped more than 5 percent to $32.99.

MATHISEN: Well, the boardroom brawl at the retailer J.C. Penney prompted company directors thisweekend to hold a rare Sunday meeting by telephone. At issue, what to do now, after activist, investorand Penney`s largest shareholder, the board member Bill Ackman, went public last week with his calls tooust the chairman and accelerate a search for a new CEO.Ackman, as you may recall, was at first credited with bringing in as CEO the former Apple(NASDAQ:AAPL) retail whiz Ron Johnson. Now, Ackman gets the blame for that choice since Johnson`stenure was regarded as a disaster. He was replaced this spring.

Now, some board members think it should be Ackman`s turn to leave or at least shut up. Now, lateword this afternoon, that J.C. Penney and Ackman are in talks to resolve the dispute.

GHARIB: It`s a story we`ve been hearing a lot lately, whether it`s J.C. Penney, BlackBerry or Dell(NASDAQ:DELL). A company that was once the darling of Wall Street falls from grace.

Why does that happen and what are the warning signs for investors?

We turn now to Bill George. He`s the former CEO of Metronix and currently professor of management at Harvard Business School.

Bill, I`m sure this is a situation you`ve seen a lot, where investors just don`t spot the signs, that acompany was a superstar, a company of stock gets into trouble. What are the warning signs, what

should investors look out for, and how can they guard against their investments.

BILL GEORGE, HARVARD BUSINESS SCHOOL PROFESSOR: I think the first thing you have to look for isleadership. Is the leadership on the cutting edge of technology and market changes?

BlackBerry`s a tragedy in the making. I`ve seen it coming for a couple years, the management wasvery parochial, as was the board. I love Canada, but they`re all Canadians, they were not diverse, theydid not spread out to Silicon Valley, and they didn`t partner up. It`s a small company. How are theygoing to compete with Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Samsung, these really big folksout there?

They had a generic product. Everyone called their smartphone a BlackBerry. But they really lost it.They`re in a fast race and it`s almost impossible for them to catch up now.

Very similar situation to Nokia (NYSE:NOK). It was Finnish company.Also great engineers but very turned inward. Not in touch with the market changes and technologychanges.


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And these companies, they don`t have leaders that are reaching out and engaging the changes andbeing very much on the forefront of change are going to lose out. And they`re going to cost investors alot.

So, I think you have to look first to the leadership of the company and its board, is it going to be onthe cutting edge. It`s going to make the moves in advance. Don`t look at quarterly earnings, they`llreally mislead you. But now, the companies are in trouble and the time life support.

MATHISEN: This is something that is not, Bill, just endemic in technology. It seems like technology iswhere an awful lot of these swoons take place. You mentioned Nokia (NYSE:NOK). Motorola had thecommanding market share in cell phone business. Yahoo (NASDAQ:YHOO) was a commanding player insearch and on the Internet. Now, it`s playing catch up.

Is there something about technology that makes them -- those kind of companies so much moreprone than, say, drug or medical devices where you made your career or media?

GEORGE: It`s like trying to get on the bullet train in Japan, and it`s moving so fast, you can`t get on.

If you get off, it`s hard to get off this track. That`s what`s happened here. It moves fast.

Google (NASDAQ:GOOG) just went right by Yahoo (NASDAQ:YHOO). I hope Marissa can get bring itback. Investors seem to think. But it`s a long shot. Nokia (NYSE:NOK) had it made, they were numberone, and they lost their position. And I don`t see them coming back at this stage.

Tyler, you mentioned J.C. Penney. Here`s a company that`s asleep at the switch, they try to do it toofast and they didn`t put things in place, like Target (NYSE:TGT) did to always be fashion forward, beahead of the game, figure out where they`re consumers are going. So, it`s not just technology, yes, thatmoves fast, so does retail. And unless you`re ahead of the game in fashion, ahead of the game intechnology, you`re going to lose out.

And that`s the leadership question. I served on the board the Target(NYSE:TGT) for 12 years. They were always way ahead of J.C. Penney, and thinking about design,thinking about creativity. Then an activist comes in, wants you to change it overnight, like Bill Ackmandid, it can`t be done. You really have to have the leadership that`s planning out your technology moves.

GHARIB: We just have half a minute left, I want to ask you this, since you have such an eye to spotthis kind of situations. What companies out there, technology or any other field, do you see thatinvestors still are in love with them, but they`re headed for trouble?

GEORGE: Well, I worry a lot about a great company in Microsoft(NASDAQ:MSFT) because they`re so dependent on office and windows. I see a lot of the sametendencies that IBM had. One of these days, the big balloon is not going to be there producing thoseprofits and they`re going to have to stay on top of the game that Google (NASDAQ:GOOG) has and startinvesting.

Now, to their credit, they`ve been investing heavily in things, but they haven`t really -- they`vemissed so many of the new things coming along. And I think you have to create an environment that`sopen to new ideas and a new identity. We had to do that at Medtronic (NYSE:MDT) and that`s the key.


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GHARIB: You were very successful there, very much. Thank you so much, Bill, for coming on theprogram.

GEORGE: Thank you.

GHARIB: Bill George, professor at Harvard Business School.

And still ahead, it`s faster than an airplane and cheaper than building a freeway. It`s the hyperloop.We`ll tell you what it is, and whether this travel system right out of the Jetsons is something we`ll beusing one day.

But, first, we`ll get a check of how commodities, treasuries and currencies performed today.

(MUSIC)

MATHISEN: Mexico is doing something it`s never done before, proposing that private investors beallowed to put their money into the nation`s oil industry. Mexican President Enrique Pena Nieto is

looking to lift a decade`s old ban on private investment in the state-run oil industry. The new proposalaimed at boosting sluggish production, would include profit sharing with investors which is currentlyprohibited by Mexico`s constitution.

GHARIB: Here at home, some good news about gasoline prices. They are down about 8 cents agallon over the past two weeks. That`s even though the high demand, summer driving season is justabout hitting its peak. The weekly Lundberg Survey of pump prices around the country says the drop inprices is due to refineries that are overproducing gas right now, so they`re cutting wholesale prices.

MATHISEN: Construction of California`s bullet train has been delayed. It was one of the nation`slargest shovel-ready public work projects announced under President Obama`s stimulus plan three years

ago.Construction was supposed to begin in 2012, now officials say it could be delayed until 2014. Expertssay the challenges posed by the $68 billion project were underestimated.

GHARIB: Well, here`s another super fast transport system in the works. Tesla founder, Elon Musk,the man behind those all electric sports cars, unveiled today plans for a high speed mass transportationsystem that he says will be able to move people from Los Angeles to San Francisco in less than 30minutes. It`s called hyperloop.

And Phil LeBeau is covering this story. He joins us now from Chicago with more.

Phil, it sounds like just the kind of thing I would like to ride on.

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: You know, it`s a pretty interestingproposal, Susie. And, actually, it s a 57-page proposal that we just had a chance to review. There aren`ta lot of details in terms of what the system would look like, but enough that we could get a sense of what Elan Musk is proposing.

He is not going to say he`s building, but this is an idea he`s advanced out there, particularly relevantgiven the high speed railway discussions going on in California. Here`s a vision that Elon Musk has of the


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future. These capsules would contain up to 28 seats, and theoretically possibly be big enough forpeople to drive a car on to them.

So, how would the hyperloop work? Well, essentially, it would be ideal for cities within, say, 900miles. He used San Francisco to L.A. as an example. It would be a double barrel tube built alonghighways.Highway five would be an example for this.

And the capsules again would carry up to 28 people. He says, the total cost here, if you were to buildthe hyperloop between L.A. and San Francisco, about $6 billion. Amortize that over 20 years, he saysthat it would easily pay for itself very quickly if everybody getting on were to be charged, say, $20 for atrip between those two cities.

A lot of interesting things in this proposal, Susie and Tyler. It`s possible that Elon Musk might build aprototype, but he says he does not have the energy to build this into a company. It`s just an idea at thispoint.

MATHISEN: We just did a story on the bullet train or the high speed train in California, something$68 billion. So, his price tag of $6 billion. This does not ride on rails. How does the capsule go from LosAngeles to San Francisco.

LEBEAU: You`re essentially riding on an air cushion, if you will.You`re going to have an electric conduction motor with each capsule that gets you up to speed. Youcould up to 800 miles per hour, you slow down if you have to take a rather sharp turn or as you`recoming in. You recapture that energy when you get to the end. He says that you can build this systemwith these tubes essentially to withstand earthquakes and other possible problems such as a tubegetting -- a capsule getting stuck in the tube.

But the idea here is that you`re riding on that air. He says the G- force, Tyler, would be no greaterthan what you would experience in terms of riding on a rollercoaster. So, he says it would not be one of those where you`re like, whoo, I`m going 800 miles per hour.

MATHISEN: All right. Phil LeBeau, we`ll wait and see on that one.Thank you very much.

So , we asked you, would you ride in something that could go as fast as 2,000 to 4,000 miles an hour?Here`s what some of you said.

(BEGIN VIDEO CLIPS)

UNIDENTIFIED FEMALE: A little scared, but they wouldn`t build it if it wasn`t going to be safe.

UNIDENTIFIED MALE: I love Elon Musk, you k now. I think he`s a genius. So, I would go with whathe`s doing.

UNIDENTIFIED MALE: My take is, with every new technology, there`s a little bit of fear andapprehension. But for travelers, if it can get you there -- if this train can get you there faster, orcomfortably, it`s something that`s good for everybody.


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(END VIDEO CLIP)

MATHISEN: You would go on it?

GHARIB: I`m ready to go.

MATHISEN: I`d go, I guess, but it`s going to be way down the road.

GHARIB: I`m a little claustrophobic, so I`m worried about the tube part of it, I like getting some placefast.

MATHISEN: Yes, that`s a good idea.

GHARIB: That`s it for us, NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks so muchfor watching.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great evening, everyone. We`llsee you back here tomorrow evening.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com . Theprogram 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 NightlyBusiness Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not

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transcripts: tuesday, august 12, 2013

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