<Show: NIGHTLY BUSINESS REPORT> <Date: June 24, 2013> <Time: 18:30:00> <Tran: 062401cb.

118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for June 24, 2013, PBS> <Sect: News; Domestic> <Byline: Susie Gharib, Tyler Mathisen, Jon Fortt, Paul LeBeau, Julia Boorstin, Courtney Reagan> <Guest: Scott MacDonald, James Robinson> <Spec: Dow Jones Industrial Average; China; Economy; Stock Markets; Trade; Health and Medicine; Insurance; Policies; Paula Deen; Business; Products; Television and Radio> <Time: 18:30:00>

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


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Swoon in June. Another triple-digit Dow dive sends stock prices back to April levels. Today, China gets the blame. So, why does that country matter so much to our markets and your money?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Controlling costs. How much will your insurer pay for an MRI or a hip replacement? More and more carriers are capping their costs. How this big change in health care will affect you.

MATHISEN: And, Paula Deen, head of a multimillion dollar culinary empire. But what happens to the products that bear her name now that sponsors have fired her for racially insensitive remarks?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, June 24th.

GHARIB: Good evening, everyone.

It was a nasty day in the stock market as investors wind down this final week of the second quarter. Stocks dropped to a two-month low today, but it could have been a lot worse. The Dow was in the red all session long, swinging from an early decline of 248 points to just 25 points lower before settling somewhere in the middle.

At the close, the blue chip average was nearly 140 points lower, the NASDAQ was down 36, the S&P 500 off by 19 points.

Now, the reason for the selloff: worries about China`s credit problem, something that could shock its economy. And lingering worries here over the Federal Reserves looming plans to trim back on stimulus in the U.S. economy.

The market turmoil today also sent the yield on the benchmark 10-year Treasury bond to 2.65 percent, up a full percentage point in just a few weeks before moving lower.

MATHISEN: And joining us now to talk more about why China matters so much to U.S. investors is Scott MacDonald, head of economic research at MC Asset Management Holdings.

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

We`re just a half hour program, so my first question, you could spend an hour on it. But I`ll just ask you, what`s going on in China. And why do U.S. markets and investors need to pay attention to it?

SCOTT MACDONALD, HEAD OF ECONOMIC RESEARCH: Right. We`ll make a quick answer here. Bottom line is that in China, you have a system which has been investment led in terms of an economic growth strategy.

The new team Li and Xi have decided to change that. They`re going to pump more structural reforms into the economy. They`re going to reduce some of the liquidity that`s been pumped into the system. They want more accountability from the banks.

You also have a question of how credible is this economic team going forward.

So, you have a combination of factors which is really coalesced right about now to make investors very nervous because China after all is the second largest economy on the planet. They own $1.2 trillion or $1.3 trillion of U.S. treasuries and most major U.S. corporations do trade with China.

So what happens in China is something that is of keen concern here in the U.S. to everybody.

GHARIB: Well, are things unraveling in China, Scott? I mean, most people when you say China, the name China, they think of this growth engine, lots of construction going on there, lots of money, and lots of benefits to our economy, and to consumers and businesses. Is it unraveling?

MACDONALD: I don`t think it`s unraveling. I think there`s still a lot of positives in the Chinese economy. You`re sitting on $3.3 trillion of foreign exchange reserves. You still are one

of the most powerful export machines on the planet. It is still the industrial workshop of the world.

But what is problematic is, you`ve had this long spurt of economic growth from 1999 to 2012, Chinese economy grew around 9.9 percent. What you`re doing is you`re putting the brakes on that growth here. And growth probably over the next five years will slow to 6 percent to 7.5 percent growth.

And what that means is, a lot of parts of this economy that have done well are suddenly finding themselves with a very bumpy ride. And there are going to be real challenges ahead in the next couple years as they sort the economy out in China.

MATHISEN: I don`t mean to overplay the analogy here, but it sounds like what`s going on in the United States in terms of a transition in monetary policy --


MATHISEN: -- is precisely what seems to be going on over in China. And just as we have had an awful lot of debt fuelled growth in this country, so have they in China. And that now, they want to substitute debt-fuelled growth -- substitute really demand fuelled growth for debt fuelled growth.

MACDONALD: Absolutely. In essence, what the new government in China`s doing is taking the punch bowl of liquidity away from the party. As we all know without a punch bowl, a lot of parties die. And this is the issue all of a sudden the Chinese are facing is OK, fine, we have to have more organic growth. We have to move away from just large state corporations that hog credit markets. We need to have more entrepreneurs in the economy.

There`s a lot of things that need to be corrected there, and I don`t see China totally unraveling. But like I said, it`s -- you know, growth is going to be slower.

The other aspect is, this government does not have a lot of room to maneuver. And by that, I mean, it`s real simple. That they have to maintain credibility on one side, but they have to make the structural changes on the other as they reduce liquidity.

MATHISEN: We have to leave it there. Mr. MacDonald, thank you very much.

MACDONALD: Thank you.

MATHISEN: Scott MacDonald is head of economic research at MC Asset Management Holdings.

GHARIB: Well, like the U.S. and Chinese markets moving in tandem as they face similar challenges, two giant software rivals are finding that its better to work together to battle a common problem. Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL) are now teaming up to take on the Cloud computing revolution. All this is coming at the same time that Microsoft (NASDAQ:MSFT) prepares to reorganize itself.

Jon Fortt is live with us now in Silicon Valley with more -- Jon.


We knew this was going to be a Cloud partner ship between Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL), it`s maybe a bit deeper and more immediate than a lot of us expected when they announced it today. Basically, the two companies agreed to make it much easier to run Oracle`s software in Microsoft`s cloud.

Here`s what each side gets out of it. In theory, this should accelerate Microsoft`s Cloud and virtualization businesses, because enterprise customers who run Oracle (NASDAQ:ORCL) now

have a much easier path to the Cloud. Oracle`s going to support fully its software including Java on Microsoft (NASDAQ:MSFT), Cloud platforms, let people move their licenses over.

For Oracle (NASDAQ:ORCL), it should keep some people from spending less on Oracle`s database, maybe testing out other options like Microsoft (NASDAQ:MSFT) sequel server as they move to the Cloud. It makes it a bit easier for Oracle (NASDAQ:ORCL) to sell the Cloud to a bigger group of customers. Oracle (NASDAQ:ORCL) already has a similar arrangement with Amazon (NASDAQ:AMZN). So, this certainly helps.

What`s at stake here, for Microsoft (NASDAQ:MSFT), Azure is about $1 billion run rate, making it just about 5 percent of the server and tools business, which is now about $20 billion a year. Azure is actually growing pretty fast. All of this comes ahead of what we expect to be a reorganization of Microsoft (NASDAQ:MSFT), where the Cloud takes a more prominent role. Microsoft (NASDAQ:MSFT) Cloud technologies are growing nicely, while PC sales suffer.

Microsoft`s current structure was largely put in place about 11 years ago, when Microsoft`s Windows and Office products were pretty strong.

What`s not at all clear here is whether this is going to be a major reorg that blows up the entire division structure, or just a minor one that shuffles products within the same basic structure. But either way, a big deal as Microsoft (NASDAQ:MSFT) tries to adjust in this mobile and Cloud era.

Guys, back to you.

MATHISEN: A lot to look forward to then. Jon Fortt, thank you very much.

A big victory for generic drug makers from the highest court in the land. In a 5-4 ruling, the Supreme Court decided that makers of generic drugs cannot be sued in state courts for a drug`s design defects if federal officials approve the original brand name version that the generic medication is based on.

GHARIB: Well, bankers made less money last year, that`s what the "Financial Times" analysis found after banks were forced to react to investor and regulatory pressures. The paper`s research shows a total average pay awarded to the chief executives of 15 major banks fell to $11.5 million in 2012. That`s 10 percent less than the previous year.

Now, someone like JPMorgan`s Jamie Dimon, his pay was cut by a fifth following a massive trading loss in the bank`s London office. But the study also noted that the CEO from Wells Fargo (NYSE:WFC) and HSBC and Credit Suisse actually got increases in their paychecks.

MATHISEN: Well, bank CEO`s may not be earning as much. And American favors aren`t saving as much either. A new survey from Bankrate.com says that fewer than one in four Americans has enough in emergency savings to cover six months of living expenses. The survey also says, half of all Americans have less than three months expenses saved up. And 27 percent have no emergency funds whatsoever.

GHARIB: Are crude oil prices fixed? The Federal Trade Commission wants to know, opening a formal investigation into how prices of crude and other petroleum-based products are set. Regulators are looking to scrutinize the way companies that report oil prices, help determine how much raw materials cost on the open market.

MATHISEN: Meantime, good news about gasoline costs, prices at the pump are down 4 cents a gallon over the past two weeks, this according to the Lundberg Survey. They now average $3.60 a gallon nationwide for regular grade fuel. That`s largely because some Midwest refineries that were offline are now back and fully operational.

GHARIB: A string of problems with Boeing (NYSE:BA) 787 Dreamliner have become more of a nightmare for company officials. After being grounded for four months earlier this year, there have been three troubling incidents in just the past week, involving Boeing`s newest and largest passenger jet. Now the company is monitoring every single flight of its 150 Dreamliners from a special operations center, examining data to make the aircraft safer.

Phil LeBeau has more.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: As more Boeing (NYSE:BA) 787 Dreamliners enter service around the world, there are more questions about what kind of data and performance metrics Boeing (NYSE:BA) and the airlines are hearing back from those planes as they`re making those flights. Well, that`s why we`re here in the 787 operations control center, where a half dozen analysts are monitoring Dreamliner flights around the world 24/7. You see a number of the Dreamliners who are flying over in Europe right now, some more flights up here.

But this is the most interesting chart in the room. Up here is every single Dreamliner that`s flying, and it`s color coded in terms of whether there`s a problem with the flight. Green means there`s no problem. And most of the time, there are green marks up here. If it`s a red mark, it means that it could be a problem with the plane that might need maintenance.

The whole idea behind this room is to have constant data and feedback from the planes coming in here for analysis.

Now, there were two flights that were diverted last week, due to an oil leak issue. A number of people were wondering, did Boeing (NYSE:BA) know immediately what the problem was? Turns out they did know. And they were in constant contact with the airlines when that issue came up.

MIKE FLEMING, BOEING 787 SERVICES & SUPPORT VP: Any time you have a diversion or an air turn back, those are events that we look at closely and seriously. However, when you put it in context of a flying fleet, those kinds of things happen every day. They`re all part of the system that makes aviation so safe.

LEBEAU: Boeing (NYSE:BA) says this center is the benchmark for future planes. The 737 Max will have an operations center similar to this. This is how it`s going to be in the future when it comes to commercial airplanes, constant data from the plane to the staff down here to the airlines.

From the 787 operations control center, Phil LeBeau, NIGHTLY BUSINESS REPORT, Everett, Washington.


MATHISEN: And still ahead, some employers and insurance carriers are trying out a new way to pay for health care.

And it could impact your next trip to the doctor or hospital. But, first, the day`s worst performing stocks on the Dow.


MATHISEN: Luxury retailer Neiman Marcus (NYSE:MCS) is going public. The Dallas-based department store chain filed paperwork to begin selling shares in the company once again, looking to raise $100 million with its initial public stock offering. The private equity firm`s TPG Capital and Warburg Pincus paid $5 billion for Neiman Marcus (NYSE:MCS), about eight years ago, and the retailer`s value is now estimated around $8 billion according to some reports.

GHARIB: A sour day for Apple (NASDAQ:AAPL) investors. That`s where we begin our market focus tonight. The stock traded below $400 a share for the first time since April. One reason, Jefferies analyst Peter Misek believes Apple (NASDAQ:AAPL) will slash its iPhone orders for the third or fourth quarters. The analyst also cited various iPhone inventory checks.

Shares closed at $402. That`s a drop of more than 2 1/2 percent.

Kohl`s (NYSE:KSS) stocks slumped after the Supreme Court said it was consider a push by the Environmental Protection Agency to save a clean air regulation. This regulation limits power plant emissions that blow across state lines. The sector was also hit by those continued worries out of China that we just told you about.

At the close, the Cliffs Natural and Peabody lost 7 percent. Alpha Natural down 8, and Consol Energy off by 6 percent.

MATHISEN: Allergan (NYSE:AGN) also having a rough day. The drug company`s treatment for chronic dry eye syndrome could face generic competition sooner than expected. The FDA said that a generic version of Allergan`s drug, it`s second biggest revenue producer, could be approved without a requirement for testing in humans.

Shares of the Botox maker finished the day down more than $10 a share to $81.99, worst performing stock of all 500 in the S&P 500.

Different story for the biotech company Isis Pharmaceuticals (NASDAQ:ISIS). That stock jumping on promising results from its experimental cardiovascular drug. New data show the drug could help lower diabetic`s risk for heart disease.

Shares of Isis up 29 percent, to $28.42.

And there`s a deal in the health care sector. Hospital operator Tenet is buying its smaller rival Vanguard Health Systems for about $1.7 billion. The acquisition will expand Tenet`s reach into new markets as more people gain insurance coverage as part of the health care overhaul.

Both stocks closed hire. Tenet up 4 percent to $43.73. Vanguard soared 67 percent to $20.70.

GHARIB: How much you pay for a hospital stay or a doctor`s visit could be changing. Some employers are telling workers that from now on, their company health plan will pay only a fixed amount for medical tests and surgical procedures.

One giant California firm is experimenting with this strategy is CalPERS, the California Public Employees Retirement System.

So, will other companies do the same?

Joining us now to talk about this, James Robinson. He`s professor of health economics at University of California`s Berkeley School of Public Health.

Professor Robinson, most people would probably happy to know that health care costs are going to be coming down in one way or another. But tell us what you think are the pros and cons of this California pilot program. Is this something that works as a benefit of consumers as well as businesses?

JAMES ROBINSON, PROFESSOR OF HEALTH ECONOMICS: What employers have been noticing is that for the same sorts of procedures, different doctors and hospitals are charging radically different prices. And so, the cost to the employer in this case can be dramatic without any improvement in quality or outcome for the patient.

So, CalPERS, Safeway (NYSE:SWY) and a variety of large employers have developed what we call reference-pricing by which they mean they will pay up to a certain amount for a particular procedure. And that amount covers the costs at a wide variety of providers, but not at the most expensive. And if the patient wants to go to a more expensive hospital or ambulatory surgery center, the patient has to pay the full difference by him or herself.

MATHISEN: So, it may rate lower the overall costs to the carrier, to the employer. It might, if you elect, raise your cost if you chose to go to one of the hospitals that doesn`t buy into this pricing program. Isn`t this, Professor Robinson, fundamentally what Medicare already does? In other words, they say we have a certain set fee that we pay for this procedure or this kind of doctor time, and that`s one of the reasons why with their pricing power, their prices or costs are lower than what most insurers or certainly people in the private market pay?

ROBINSON: Medicare is able to pay less than private insurers because it`s so big that the hospitals have to accept what Medicare`s willing to pay as to what Medicare will pay in full. But private insurers do not have that kind of leverage. They negotiate with hospitals and try to get the best prices they can.

But, frankly, the hospitals have merged, the hospital systems have a lot of bargaining power, and what CalPERS in California found -- CalPERS represents public employees, state of California, cities and municipalities, is that they were paying prices that ranged from $20,000 up to $120,000 for the same procedure, which was knee or hip replacement surgery.

And so what they said, they netted a benefit design put in, which said, we CalPERS will pay up to $30,000. And if you, the member want to go to a hospital that charges above 30,000, we will tell you which ones are which. Then that`s fine. But you have to pay the difference yourself.

That way, CalPERS pays less and then CalPERS takes less out of the paychecks of employees. That was the goal, was to take less out of the paychecks.

GHARIB: We`ve been talking a lot about cost. What about quality? Because that`s the question I`m sure a lot of employees will have, that, you know -- so we get the price down, what is going to be the clinical outcome for me with that procedure or that surgery? And is there anyway you can really measure clinical outcome and quality?

ROBINSON: There are a variety of ways of measuring quality, all of which are limited, and that`s a standard problem in health care. What CalPERS and its insurers and others did in this case was to use the available quality measures that were available for orthopedic surgery, to ensure that the average quality of the hospitals that were fully covered, the cheaper hospitals, was no worse than the more expensive hospitals. That`s a standard finding in health care.

The higher price does not equal higher quality. And they also made sure a lot of what we would call brand name hospitals were on the cheaper half, such as Stanford University Hospital, Cedars-Sinai Hospital, and other very famous hospitals in the California market.

GHARIB: It seems like a lot of issues to be worked out, but very interesting concept. Thank you so much, James Robinson, professor of health and economics at Berkeley.

And coming up on the program, from cookware to furniture, to Macy`s (NYSE:M) and Target (NYSE:TGT), Paula Deen had a multimillion dollar empire. But what will be the fallout for the products and companies that bear her name?

But, first, let`s take a look at how commodities treasuries and securities fared today.


MATHISEN: Well, like some of your favorite TV shows, the best performing stock of the year wasn`t always the success story it is right now.

In NBR`s latest look at companies, Julia Boorstin takes a look at Netflix (NASDAQ:NFLX) which a lot more people are watching and a lot of investors are buying.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Netflix (NASDAQ:NFLX) is the best performing stock this year, up 131 percent. It`s come a long way. Up over 300 percent from the summer of 2011, after the company split its streaming video business from the less popular DVD rentals, which it remained Qwikster. It quickly abandoned the name change, but the price hike sent the stock plummeting 83 percent in less than a month.

RICH GREENFIELD, BTIG MEDIA ANALYST: Lots of companies make mistakes. I think what`s unique about Netflix (NASDAQ:NFLX) is that Reed Hastings, their founder and CEO, was willing to admit the mistake and reverse course and correct course very quickly.

BOORSTIN (on camera): Netflix (NASDAQ:NFLX) lost subscribers a quarter of the announcement. But begin adding them the following quarter.

Still, Netflix`s big push into originals that really convinced consumers and investors that the $8 a month subscription was worth the investment.

(voice-over): This year, the company has rolled out three original series, to huge critical and fan response. "House of Cards", "Hemlock Grove" and "Arrested Development", with more in the works.

REED HASTINGS, NETFLIX FOUNDER & CEO: We`re really looking for shows that are unique in some way, and that`s really helping us with the international expansion and with the domestic growth.

BOORSTIN: Netflix (NASDAQ:NFLX) was been striking a range of content deals, from Disney (NYSE:DIS) Channel shows to its biggest ever deal with DreamWorks Animation, for 300 new hours of exclusive programming.

GREENFIELD: We need to see iconic content out of Netflix (NASDAQ:NFLX), that`s what`s going to give them leverage as they deal with content creators. So, this is a very important next phase of Netflix`s development.

BOORSTIN: Competition is rising. Amazon (NASDAQ:AMZN) is pouring money into content for its streaming alternative. But so far, there`s been no sign of impact on Netflix`s business.

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


GHARIB: Well, there`s another big comeback on the way, Twinkies will be back on store shelves on July 15th, along with Hostess favorites like Ho Ho`s, Ding Dong`s and Cupcakes. The Twinkies return comes months after bankrupt Hostess brands shut down its bakeries, selling off units like Wonder Bread and Drake`s cakes.

The new owners, private equity firm, Apollo Global Management, and bakery giant Metropolis promise the new Twinkies will taste exactly like the old ones.

MATHISEN: More trouble today for celebrity chef Paula Deen. She`s scrambling to save her career and some lucrative endorsement deals after testifying in a discrimination lawsuit that she used racial slurs. So, are apologies enough, and can she and her brand survive?

Courtney Reagan gets some answers.


COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: There might not be enough butter or sugar in the world to re-sweeten Paula Deen`s image after court documents revealed the cook famous for his high calorie Southern (NYSE:SO) cousin has used racial slurs and tolerated discriminatory jokes in her business.

MARTY BROCHSTEIN, INTERNATIONAL LICENSING INDUSTRY MERCHANSIDERS ASSOCIATION: Nobody is saying that Paula Deen is racist, but the racism element is part of the story, and the injection of race as an element to this controversy, makes it that much more problematic.

REAGAN: Deen has posted three video apologies online, but it was not enough for the Food Network, which has chosen not to renew her contract for her two cooking shows when it expires this month.

Beyond her Food Network contract, Paula Deen has product deals with many companies, from big pharma to big box retail. Deen`s name is associated with products sold by NovoNordisk, Macy`s, Sears (NASDAQ:SHLD), Walmart, JCPenney and QVC among others. Now, many of those companies are evaluating their relationship with the Southern (NYSE:SO) chef.

(on camera): Branding expert Eric Martin (ph) points out that Paula Deen`s celebrity isn`t just about her food, it`s also about her marketable persona, as a kind, giving person. Racial slurs strike at the very heart of that golden image.

(voice-over): In a statement, QVC says, quote, "we are closely monitoring these events and the ongoing litigation. We are reviewing our business relationship with Ms. Deen, and in the meantime, we have no immediate plans to have her appear on QVC."

Sears (NASDAQ:SHLD) Holding says it is currently exploring next steps as they pertain to Ms. Deen`s products.

And Smithfield Foods (NYSE:SFD) is terminating its partnership with Paula Deen. The company says it "is determined to be an ethical food industry leader and it is important that our values and those of our spokespeople are properly aligned."

Marshall Cohen (ph), chief industry analyst at the MPD Group, estimates Paula Deen`s empire is worth $6.5 million annually for combined retail value and contract revenues. Forbes puts Deen`s net worth at $17 million. Though that`s before the latest controversy started boiling.



GHARIB: And finally, we want to hear from you, tell us which small and mid-cap stocks would you like our market monitor guests to talk about this Friday. Just go to our Web site, NBR.com.

And that`s NIGHTLY BUSINESS REORT for tonight. I`m Susie Gharib. Thanks so much for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We`ll see you back here on Tuesday.


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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