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Nightly Business Report - Monday March 4 2013

Nightly Business Report - Monday March 4 2013

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On this edition of "Nightly Business Report" billionaire investor Warren Buffett answers questions from NBR viewers. Also, it's the first business day with the sequester budget cuts in full effect. The impact on various sectors and on Americans with California Congressman Ed Royce and Delaware Governor Jack Markell.
And, we kickoff our week-long series In Focus: The American Recovery.
On this edition of "Nightly Business Report" billionaire investor Warren Buffett answers questions from NBR viewers. Also, it's the first business day with the sequester budget cuts in full effect. The impact on various sectors and on Americans with California Congressman Ed Royce and Delaware Governor Jack Markell.
And, we kickoff our week-long series In Focus: The American Recovery.

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Published by: Nightly Business Report by CNBC on Mar 07, 2013
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<Show: NIGHTLY BUSINESS REPORT> <Date: March 4, 2013> <Time: 18:30:00> <Tran: 030401cb.

118> <Type: SHOW> <Head: Nightly Business Report> <Sect: Business> <Byline: Tom Hudson, Susie Gharib> <Guest: > <Spec: Business; Economy> <Time: 18:30:00> TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Getting close. The Dow has its second highest close ever as investors (INAUDIBLE) those Federal spending cuts. SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Buffett speaks, the billionaire investor answers questions from NBR viewers and tells why he thinks stocks are still relatively cheap. MATHISEN: And the American recovery. A special in focus report on what`s working in the U.S. economy, what`s not and why. Good evening and welcome to our public television viewers. I`m Tyler Mathisen. GHARIB: And I`m Susie Gharib. Good evening, everyone. Stocks reversed course and the Dow is closing in on a new milestone. This comes on the first business day of the sequester, the start of billions in automatic Federal spending cuts. Investors bought up stocks, though, with the Dow posting its second highest close ever, up 38 points to 14,127. It`s just 37 points from its record high. The NASDAQ added 12 and the S&P added 7 points. Bob Pisani has more on what helped drive today`s action. BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Dow rallied nearly 100 points midday off its lows on not much news but it wasn`t enough to hit historic highs which fell about 37 points short. We were led by financials. Now we`re going to find out which ones pass key stress tests later in the week. Oil and energy stocks also bounced off of their lows today but it wasn`t really enough to overcome the growth scare around

China. Chinese authorities put the brakes on the secondary property market over the weekend and any time that happens, commodity stocks get hurt, because less real estate development over there hurts copper, cement, iron ore and steel stocks. Indeed commodity and big industrial names weighed on the markets all day. Finally, I would note Apple (NASDAQ:AAPL) was down another 2.5 percent today closing near the lows of the day at a 52-week low. The hot stock right now, it`s Google (NASDAQ:GOOG). It`s up nearly 2 percent to an historic high. For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange. MATHISEN: Today`s market gains likely made Warren Buffett happy. Then again he usually seems pretty cheerful. Today he told CNBC that even at today`s near record prices, he still sees values in stocks. WARREN BUFFETT, BERKSHIRE HATHAWAY CHAIRMAN: I think they are under valued relative to other assets. In other words, if I had a lot of money today I would rather own equities than own fixed dollars, long-term government bonds, junk bonds, farm land, you know, REITs. They`re not as cheap as they were four years ago, but you get more for your money and that`s why we like buying businesses and we like buying stocks. MATHISEN: And later on the program, Warren Buffett answers questions from you, our NIGHTLY BUSINESS REPORT viewers. With the Dow closing in on an all-time high, how should you play the rally? Scott Wren is senior equity strategist at Wells Fargo (NYSE:WFC) Advisors and he joins us now. Mr. Wren, welcome, good to have you with us. SCOTT WREN, WELLS FARGO ADVISORS SENIOR EQUITY STRATEGIST: How are you Tyler? MATHISEN: I am terrific. Thank you. You know, Warren Buffett says he still sees value in equities today. Do you and if so, where? WREN: Well, you know, stocks are below if you look at a P/E basis, they`re below the historical average. They certainly aren`t as cheap as they were a couple years ago, but for our clients, what we want them investing in are things that are still sensitive to the recovery here in the states, the recovery globally. Sector wise the consumer discretionary sector. Even something like home improvement retail inside of that sector. It`s ran a lot. It`s ran pretty hard but it still looks good. I think it has more upside. Things like materials, diversified chemicals in there, also technology, IT consulting and services, that particular industry group. So I think there`s a lot of choices out there, Tyler, that are sensitive to the economy, not only here in the states, but internationally.

They`re not over valued and, you know, certainly the Fed having the markets back or at least that`s what I would term it, doesn`t hurt either. GHARIB: But you know, Scott, here we`ve got the sequester today. We have a lot of worries about what`s going to happen in the job market and the market is rallying and what`s driving this rally? WREN: Well Susie, really, if you look at the sequester amount, $1.2 trillion over 10 years, the CBO says, you know, already legislated we`re going to spend about $45 trillion over the next 10 years. So really $1.2 in my opinion is a really small amount. I think the market knows that. I think while it is going to create some head winds, maybe you see a couple tenths percent GDP or something like that, that is a head wind but it`s not going to stop the economy. I think we`ll see about 2.5 percent growth this year so, really, the market`s been able to shrug that off. I think the market`s pretty convinced that really we`re not probably going to see many cuts to entitlements, many cuts to spending. You can easily make the argument that down the road that`s going to be trouble but for the next 12 to 24 months, I think the market is likely to do OK. MATHISEN: Quick, final question, Scott. Are you worried at all about the pace of consumer spending with the expiration of the payroll tax cut? That`s number one. And number two, are you seeing any areas that you think are highly overvalued today? WREN: Well, you know, I think what I want to do is stay away from the defenses. Really we`ve had a good rally so far this year but health care and staples have led the way. I don`t think that`s going to hold. So those two sectors are defensive. I don`t think they`re going to hold up through the course of the whole year. But consumer spending, you know, confidence is way up. Housing prices are rising. Consumer spending has surprised me. I think it is going to continue to surprise the market as we move through the year. I think it`s going to be up. It`s not going to surge, but it`s going to be enough to put the economy into that modest growth kind of territory. MATHISEN: Scott Wren, thank you very much. WREN: Thanks guys. GHARIB: Speaking of sequester, today is the first business day where the government`s automatic budget cuts, known as sequestration, took effect. The $85 billion in cuts officially began Friday night. Now although no talks are scheduled to try to end the spending cuts, at today`s first cabinet meeting of his second term, President Obama spoke about the potential impact on Federal agencies and the American people.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We are going to manage it as best we can to try to minimize the impacts on American families, but it`s not the right way for us to go about deficit reduction. It makes sense for us to take a balanced approach that takes a long view and doesn`t reduce our commitment to things like education and basic research that will help us grow over the long term. GHARIB: Meanwhile a new survey from the National Association for Business Economics shows a majority of economists are opposed to the automatic sequester cuts but say Washington does need a sound plan to reduce the nation`s budget deficit. Well, joining us now to discuss the impact of the sequester spending cuts we`re happy to have with us Representative Ed Royce. He`s a Republican from California. Congressman Royce is also a senior member of the Financial Services Committee. Welcome, Congressman. Let me begin by asking you that Raytheon (NYSE:RTN) is a big employer in your district. So were you getting calls from employees of Raytheon (NYSE:RTN) today and what were you saying to them? REP. ED ROYCE (R) CALIFORNIA: Susie, I didn`t get any calls from employees of Raytheon (NYSE:RTN) but I think that most people understand at this point that we just saw a massive increase in taxes at the end of the year. The president got what he wanted, huge tax increases. If you think about it, when we`re running deficits of over a trillion dollars a year and the question under the sequester, a proposal that came from the White House, that he put forward to have a 2 percent reduction, which is really just a reduction in the growth of government, but a 2 percent reduction. That`s not a tremendous amount of money. But it would get us back on the glide path towards a balanced budget. This is why from our standpoint, we would like to see that 2 percent done more rationally. We twice passed legislation into the Senate to rationally allocate those cuts. But the Senate hasn`t taken up a budget for four years, so we don`t have a partner there. So now we`re looking at legislation that would give the president the authorization to make the cuts in the bureaucracy, in the government agencies, or reduce that rate of growth, a more rational approach than this one. So we all agree this approach is not the best approach, but it originated in the White House and now we have the White House saying, no. Rather than this we want to have further tax increases. He doesn`t want to cut -- he does not want to cut spending on anything and that`s a big problem given the trajectory. MATHISEN: Congressman Royce, when you put together these spending cuts plus the ones that were taken back in 2011 and the tax increases from earlier this year, you get pretty close to that $4 trillion in deficit reduction that was part of the so-called grand bargain idea of a couple of

years ago. How worried are you that that level of fiscal tightening is going to affect the economy dramatically and cost jobs? ROYCE: Here`s what I think the market was worried about and that is the uncertainty created by deficits that just seemed to compound, a $16 trillion debt now that over the last four years has ramped up at an incredible rate of speed. What this is actually doing is sending the message if we can manage just a 2 percent reduction that at least we can turn the corner and we can bring that glide path back down towards balance and I think that reassures the market. I think that brings money in off the sidelines where they say it might, you know, it might be the case that they`re going to change that appetite for ever more reckless spending. And you noticed the concern economists have raised with this being unsustainable. They say 10 years out, you`re going to have an implosion if we don`t change this course. This now begins to do that. I just wish we could reach an agreement where they`re targeted like the legislation we passed over in the Senate. MATHISEN: Right. ROYCE: We`re still working to try to target the cuts. MATHISEN: All right, Congressman Royce, thank you very much for being with us this evening. ROYCE: Thanks for the opportunity. MATHISEN: Appreciate it. Coming up, we take a look at things that are working and not working in the U.S. economy. In focus, the American recovery. Now let`s take a look at how the markets fared overseas this day. GHARIB: As you probably noticed, tonight is the beginning of a new chapter for NIGHTLY BUSINESS REPORT and I have a new partner, Tyler Mathisen and we have a new owner, CNBC and we have a new set right here at CNBC headquarters in Englewood Cliffs, New Jersey. But we will still bring you the same thing that NIGHTLY BUSINESS REPORT has been giving you for the last 34 years, in-depth analysis of the top business stories of the day delivered in an objective way. And Tyler, I`ve got to say it`s great to be sitting next to you again. We haven`t done this together since 15 years ago. MATHISEN: It is great to have you back home here on our location. It`s great to be back with you, Susie, as well. As you know, that new chapter does begin this evening. But one thing will not change and that is NBR`s commitment to public television and as the saying goes, to viewers

like you. We understand and I understand that you watch because you trust and you`ve trusted NBR for 34 years now. We aim to honor that legacy and give you the best, most complete business news show on television every night. Great to be here with you, Susie. In our "Market Focus" tonight, we begin with oil flirting with $90 a barrel the first time it`s been that low since Christmas time. Major energy stocks followed the price down with one exception. That would be Hess (NYSE:HES) Oil up a big penny (ph) up more than 3 percent though in percentage terms, 38 percent over the past six months. Now the Hess (NYSE:HES) board boosted the dividend to a dollar a share from $.40, started a $4 billion stock buyback and said it is getting out of the gas station business to focus on exploration. Also in our "Market Focus" tonight, the private equity firm KKR (NYSE:KKR) nearing a deal to buy the industrial machinery maker Gardener Denver according to reports. Gardener Denver stock closed up more than the 3.5 percent valuing the company at $3.6 billion. Gardener Denver makes air handling systems and pumps among other products. GHARIB: In other companies making news today, MBIA (NYSE:MBI), that`s the bond insurer, rocketed up 24 percent on news that a court has dismissed a lawsuit against the company`s business strategy. Shares ended the day up about $2.50. HSBC losing ground after its 2012 profit fell 6 percent. The low forecast, Europe`s largest bank will increase its dividends by 11 percent. And pharma company Elan trying to hold off a takeover, offering shareholders 20 percent of the royalties on its multiple sclerosis drug. Shares rose better than 3 percent. MATHISEN: Tonight NBR kicks off a week-long series called "In Focus, the American Recovery." The key question to paraphrase the late New York Mayor Ed Koch, how are we doing? Here`s Carl Quintanilla (ph) with a look at what`s going right in the economy and what`s not. CARL QUINTANILLA, NIGHTLY BUSINESS REPORT CORRESPONDENT: That sound you hear is the American economic recovery at its sweetest, the hammers and drills of the housing market. Across the country, the median price of a home is up 7 percent in just the past year. Sales of existing homes are at multi-year highs. Since housing is about a fifth of GDP, it may be the best thing we have going. ANDREW SLIMMON, MORGAN STANLEY WEALTH MANAGEMENT: As the housing starts to bottom and recover, that fiber (ph) of the economy because at the end of the day, Americans have more of their net worth in their house than

any other asset. And this is a huge part of the confidence, the rebuilding of confidence. QUINTANILLA: Housing is one of three pillars that are responsible for the recovery as we know it. Autos is another. The revitalization of the big three car makers hasn`t brought many new plants, but it has brought new production, an estimated 15.5 million units this year, up from just 10.5 million at the lowest. Some call it the new center of gravity of a manufacturing renaissance. Also working, high end retail. Sales at names like Macy`s (NYSE:M), Saks (NYSE:SKS) and Michael Kors suggest the wealthy in this country are holding up their end of the consumer spending bargain. MICHAEL P. MURPHY, ROSECLIFF CAPITAL: That 1 percent of the population that is going to those high-end retailers really has recovered the fastest from the financial crisis and they`re out there and they`re spending money. QUINTANILLA: But there`s plenty that`s not working. Despite the strength of the stock market, Wall Street banks are retrenching, laying off workers, adjusting to an environment where return on equity isn`t what it once was. Big ticket exports to countries like China have been a challenge for companies like Caterpillar (NYSE:CAT), facing a new wave of lower cost competition. And for all the enthusiasm about natural gas in this country, some say regulatory uncertainty has kept a lid on production, handicapping what may be one of the biggest long-term goals, energy independence. In the end the main uncertainty to this recovery involves this man, Ben Bernanke and the Federal Reserve. BEN BERNANKE, FEDERAL RESERVE BANK: We are getting some traction in the housing market. QUINTANILLA: If the economy truly gains traction, when and how does the Fed pull back on its monetary stimulus? What happens to mortgage rates, to government debt payments? In short, can the economy survive the Fed`s Band-Aid coming off? Four years after a bruising economic crisis, no one, it seems, has a good answer for that. Carl Quintanilla for NIGHTLY BUSINESS REPORT, New York. GHARIB: Here with his take on several of those issues is Ken Rogoff. He`s professor of economics at Harvard University. Hi, Ken. You heard Carl`s report. How would you describe the health of the economy and also how we`re doing in this American recovery? KEN ROGOFF, HARVARD ECONOMICS PROFESSOR: Well, we have a modest recovery that`s stable and I think that`s encouraging people because it doesn`t feel like the floor is about to fall out. On the other hand, it`s

not booming, either. And I`m not sure there is really any reason to believe it`s going to be booming any time in the next few years. So the markets are up because at least some of the uncertainty has been pulled back, even the mediocre sequestration in Washington is some decision and we have the very low interest rates, but it doesn`t mean that things are going to be fantastic for everyone. MATHISEN: How worried are you Mr. Rogoff about the sequestration cuts to spending, the tax hikes that kicked in earlier this year and the other budget cuts that were taken back in 2011? How worried are you that they are going to slow what you describe already as a tepid recovery? ROGOFF: I think they have been slowing the recovery a bit. There`s been fiscal restraint. On the other hand, the deficit was so big and it`s not a free lunch. You can`t just have the debt grow forever. There was going to be some scaling back. Obviously, we`d like to see it done in a more rational way. The grand bargain they`re talking about, fixing the tax system. There are things the government does we need and in some sense the sequestration is sticking needles everywhere in the economy to see who hurts. So certainly things could be a lot better, but I don`t think they`re such that they`re going to up end the modest recovery. GHARIB: Ken, a lot of people are very worried about what the sequestration is going to mean for jobs. As you know, we have the February employment report coming out on this Friday. A lot of people expect the unemployment rate will stay at that 7.9 percent. So looking ahead over the next couple months, how is the job market going to do with the sequestration -- better, worse, the same? ROGOFF: I think the sequestration will hurt jobs a little bit for a year for a long time to come. I think it`s already hurt jobs with some of the uncertainty. We`re likely to continue to see this sort of modest improvement that shows us many, many years away from even getting to 6.5 percent unemployment, which might be the new normal here. So the sequestration isn`t just the fiscal tightening. It`s just the fact they can`t come to coherent policy. What do we need to invest in infrastructure, education, how can we improve our tax system? That`s kind of depressing. The market seems to be saying, look, I`d rather have a mediocre plan than no plan. GHARIB: All right. We`re going to have to leave it there. Ken, thank you so much. ROGOFF: Thank you and congratulations. GHARIB: Thank you for saying that.

GHARIB: He is Harvard professor of economics, author and economist. MATHISEN: All righty. Tomorrow on NIGHTLY BUSINESS REPORT we continue our special report, the American recovery, with an in-depth look at the housing sector. But coming up long before that, the oracle of Omaha answers your questions. Warren Buffett unplugged, next. First let`s look at today`s winners and losers on the S&P 500. GHARIB: You asked and Warren Buffett answered. We asked you, our viewers, to send in questions for the oracle of Omaha. The questions poured in on everything from what can be done about the national debt to how to save for retirement. Becky Quick sat down with the CEO of Berkshire Hathaway (NYSE:BRK.A) and here`s what he had to say to you. BECKY QUICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, thank you very much. We are with Warren Buffett just outside Omaha, Nebraska at the fulfillment center for Oriental Trading. This is one of Berkshire Hathaway`s most recent acquisitions. It`s not the most recent. That would be Heinz. But Oriental Trading was purchased in the fourth quarter back in November for about $500 million by Berkshire Hathaway (NYSE:BRK.A). And again, we are fortunate enough to be sitting down with Mr. Buffett. Warren, we`ve had several viewers from NBR who wrote in and have questions for you. If you don`t mind answering a few of them -BUFFETT: Let`s do it. QUICK: OK, let`s jump right in. The first question comes from Tim Reed who asks, what is your view on the national debt? Is it something that can ever be paid down? How important is it to do so? BUFFETT: Yeah. It`s not important to pay it down. It`s important to keep it from rising consistently as a percentage of GDP. But obviously a growing country can always handle a growing amount of debt as long as it doesn`t grow faster than the country does. Until fairly recently we`ve been doing well in that respect, but in the last few years, it started to gallop upwards and it is important that we get it to level off here in the fairly near future. But Berkshire can take a lot of debt. It couldn`t take a lot of debt 40 or 50 years ago. Now it has a lot of earning power and this country has a lot of earning power. QUICK: Here`s another question that comes in. This one`s from Kersi Billimoria, who writes, what, specifically, would you recommend to do to fix our entitlement programs like Medicare?

BUFFETT: Well, the bigger problem than Medicare is the whole health care system. As long as the health care system is eating up 17.5 percent of our GDP, which is far more than anyplace else in the world, we are going to have a problem with paying for it whether it`s paid by the government or by corporations or by individuals and that is the ultimate problem. Unless we get that under control, we are going to be facing problems, whether to the individual level, corporate level or the government level with our health care costs. QUICK: OK. There`s another question that comes in from David Waite who asks I`ve been a very successful investor who averages 18 percent over the last 17 years - wow -- but right now everything looks too rich for my blood. Isn`t that a bad sign? BUFFETT: Well, it may be a bad sign for him. Everything doesn`t look too rich for my blood. Plenty of things do. But there are lots of investments out there that I like for the long term and very good businesses selling at reasonable multiples of earnings. QUICK: Eighteen percent though. Is that a really high -- that`s a high bar to jump over. BUFFETT: If he`s been making 18 percent, there will be a line in front of his door. QUICK: Finally, there is a question that comes in from Kyle Stanahan who says, I`m graduating college this May. Are you hiring? BUFFETT: We`re hiring at some of our companies. Probably at Geico we`ll add a thousand people net this year. And of course if we lose -there is some turnover too. We`re going to have a lot of people there. We`re going to have - we have 288,000 employees. I don`t know what our turnover is. But I`ll bet it`s 30,000 or 40,000. So we hire that many just to replenish what we need and then some of the companies are growing. So, sure. We`re hiring at a lot of companies. QUICK: Warren, I want to thank you very much for joining us on NIGHTLY BUSINESS REPORT. BUFFETT: Thanks. It`s been a pleasure. QUICK: Susie, I`ll send it back to you and Tyler. MATHISEN: Becky, thank you very much. One last item about Warren Buffett, he is richer than he was a year

ago by $9.5 billion. But he fell by one spot in the "Forbes" ranking out today of the world`s richest people. His $53.5 billion net worth was good for fourth place. It is the first time since 2000 that Buffett hasn`t been in the top three. The Spanish retailer Amancio Ortega worth $57 billion edged out Buffett for third. The top two remain the same as in 2012, Mexico`s Carlos Slim at $73 billion, Bill Gates at $67 in second and Oracle`s Larry Ellison was fifth at $43 billion. In case you are wondering there are 1426 billionaires worldwide by "Forbes`" count, 200 more than just a year ago. And before we go, we want to point out that nbr.com has a new feel. When you log in to nbr.com, you`ll see our Facebook (NASDAQ:FB) page where you will still be able to view full programs and post your comments. Again, it is still nbr.com. GHARIB: And that`s NIGHTLY BUSINESS REPORT for Monday, March 4th. We remind you this is the time of year your public television station seeks your support. MATHISEN: Good night, everyone. END Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQ 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 NBR Worldwide Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 NBR Worldwide Inc. TO PURCHASE A VIDEOTAPE OF THIS PIECE, PLEASE CALL 843-815-4041. <Copy: Content and programming copyright 2013 NBR Worldwide Inc. Copyright 2013 CQ- Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.>

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