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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for March 15, 2013, PBS> <Sect: News; Domestic> <Byline: Susie Gharib, Tyler Mathisen, Jackie DeAngelis, Jon Fortt> <Guest: Jim Paulsen, Alan Greenspan, Mark Luschini> <Spec: Business; Dow Jones Industrial Average; Stock Markets; Alan Greenspan; Economy; Policies; Apple (NASDAQ:AAPL); Samsung; Electronics; Products> <Time: 18:30:00>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib. SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Streak over. After 10 straight days of gains, the Dow ends lower for the first time this month. What`s next for stocks? TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The maestro speaks. The man who coined the phrase "irrational exuberance" tells why he thinks the market is far from overheated. GHARIB: And Apple (NASDAQ:AAPL) versus Samsung. Who`s got the cool factor now? All that and more coming up tonight. Good evening, everyone. And welcome to our public television viewers. So, Tyler, I guess all good things must come to an end? MATHISEN: It must seem that way, because it was a great run. But it`s over, with the best run in nearly 17 years in fact. But the Dow`s 10-day winning streak did come to an end today. Investors sent stocks lower after a disappointing report on consumer sentiment raised worries about whether the market has gone too far too
fast. After all, the Dow is up 11 percent so far this year. The index hadn`t had a down day this month -- nor a losing Friday all year until today. The Dow fell 25 points, ending the session at 14, 514. Still, it`s second highest close ever. The NASDAQ was lower by nearly 10 and the S&P 500 was off just two, and sits just four points from its own all-time closing high. Well, despite today`s reversal, the Dow finished the week in the green, its fourth week in a row of gains. So, what`s next? More gains, says Jim Paulsen, chief investment strategist at Wells Capital Management. Mr. Paulsen, welcome. Good to have you with us. JIM PAULSEN, WELLS CAPITAL MANAGEMENT: Thanks, Tyler. MATHISEN: You have a pretty aggressive target this year for the S&P 500. What is it and why are you so confident? PAULSEN: Yes, I`ve been since year ends thinking we could go up and touch 1,700 some time this year for the S&P 500. So, tonight, maybe we`re about halfway to that target price. It certainly won`t be a straight line. I fully anticipate we`ll have some correction along the way here at some point. But I still think we`re maybe only halfway to where we`re going to go this year. I think the biggest driving catalyst, Tyler, this year has been the fact that growth, economic growth keeps coming in far faster than most people anticipated at the end of the year. Most people participate about 2 percent growth this year. I think we`re coming in closer to 3 percent. And as that becomes more obvious, confidence goes up, and that goes right into higher valuations for stock prices. GHARIB: Jim, you were telling me earlier today that investors shouldn`t worry about this correction. Why not? And how much of a correction are you expecting? PAULSEN: Well, I just think that corrections, Susie, are so hard to call, and they`re very short in duration. I think this will be mild in magnitude as well. I think if we do get one it will be a 5 percent to 7 percent pullback.
And you got to make two right calls. You got to call it right when it starts and call it right when it ends. And often over time, you probably won`t do that. And if you miss out the rally and it goes 10 percent higher from where we are today, I think that you do yourself a disservice. I would prefer to take advantage of market action by either lightening up on those positions that have been strong and filtering assets back to positions that have been trailing, as opposed to trying to time the market gyrations. MATHISEN: You know, overall you think the stronger than expected economy is what`s going to power the market to higher levels, to that 1,700 that you see in the S&P 500. But which specific sectors of the market do you think will lead the way? PAULSEN: Well, I like most of the cyclicals better than the defensive stocks, Tyler. I think as the market keeps going higher, more and more people are under-allocated to economic sensitivity. So I really like the manufacturing stocks, the industrials, and the basic materials. I think the financial stocks have done well and will continue to do well. And I would look at trying to put a little bit into technology stocks that have been really bad for the last year. But I think I`m seeing confidence in most CEOs rise and capital spending going up, and I think that sector could come to life yet in the second half of this year. GHARIB: Jim, as you know, Fed policymakers -- Federal Reserve policymakers -- are meeting on Tuesday. Do you -- nobody is really expecting any significant change in policy. But do you expect any change in tone and conversation? And how might that impact investor confidence? PAULSEN: I think so today -- again, I don`t think they`re going to make any real substantive change at this meeting. But you`re already hearing a different tone among Fed members coming out. You know, clearly the economy has gone from crisis in 2008 to now recovery. It might still be weaker than people want, but it`s out of crisis. But Federal Reserve policy is still very crisis-like and aggressive and unconventional. And I think there`s a big disconnect there. If the economy continues to improve, you`re going to have more pressure coming on the Fed to try to normalize its policy. And I think you`re already hearing conversations and you might hear more of that rhetoric next week.
MATHISEN: All right, Jim Paulsen of Wells Capital Management, thanks very much. And coming up, we`re going to look at some individual stock picks in our market monitor segment. GHARIB: Well, if you`ve been investing more money in your gas tank lately, you`ve been paying a lot more. A spike in gasoline prices last month caused the largest jump in consumer prices in nearly four years, raising fears about inflation. Jackie DeAngelis has more on those higher prices at the pump, and where prices might go from here. (BEGIN VIDEOTAPE) JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When it comes to the overall health of the economy, it`s not just about the numbers and Fortune 500 companies. A large part lies with the consumer. When consumers are feeling optimistic, they spend. When they`re fearful, they pull back. Consumer prices rose the most in nearly four years in February. This comes as gas prices surged, increasing inflation pressures. The gasoline index alone shot up 9.1 percent last month, accounting for nearly 3/4 of the overall gain. Gas prices hit a four-month high of $3.78 a gallon toward the end of February. That price is up roughly 15 percent since the beginning of the year. ANTHONY GRISANTI, GRZ ENERGY PRESIDENT: There was never that fourth quarter dump in the price of gasoline that we usually see every year. And that was really attributed to Sandy and the problems it caused with the refineries on the East Coast. DEANGELIS: Despite that jump, prices in gas have come down over the last week by an estimated 7 cent drop. While that`s encouraging, some experts are saying this is just the tail end of winter supply being sold at a discount. As the summer blend comes online in time for summer travel, gas prices will hike up again. GRISANTI: The reason why we saw this sell-off over the last few weeks is refiners discounted the winter blend. They want to get the blend off the books. They want to get rid of it as they gear up for summer gasoline. Now, I don`t think for any means that the lower prices are going to last.
DEANGELIS: As consumers see smaller paychecks after the payroll tax hike, higher gas prices are a reason for concern. UNIDENTIFIED MALE: Not only are we paying everything extra, we`re paying the tolls, we`re paying -- everything is going up but people`s salaries. UNIDENTIFIED MALE: I spent a lot of money on gas because of the amount I commute. It`s just -- you know, you just got the pay it. DEANGELIS: In fact, 72 percent of Americans say the fluctuations in gas prices have impacted their spending, and roughly 23 percent said they delayed a mayor purchase because of higher gas prices. BILL THORNE, NATIONAL RETAIL FEDERATION, SVP: Seventy percent of the economy is based on consumer spending. So you have a trifecta. Consumers are concerned about the national economy. They just took a hit in their paychecks as a result of the payroll tax hike, and then on top of that, the higher gas prices are going to force them to make some decisions that they wouldn`t otherwise have to make. So it`s very concerning. DEANGELIS (on camera): Pain at the pump is something that all Americans can identify with. But many consumers say that they work their budgets around higher gas prices because commuting expenses are nonnegotiable. But how do the higher prices impact the rest of their spending remains to be seen. (voice-over): For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis. (END VIDEOTAPE) GHARIB: While energy prices creep higher, so does optimism about the recovery in the U.S. housing market. Stuart Miller, CEO of Lennar (NYSE:LEN) Corp, one of the nation`s largest homebuilders, says the fundamentals in the real estate turn around are strong, and that an increase in home prices is not a bad thing. (BEGIN VIDEO CLIP) STUART MILLER, LENNAR CORP. PRESIDENT & CEO: What we`re seeing is that prices are moving up, not because costs are moving up so much, but because demand is getting so strong, we`re seeing some freeing up in the mortgage market. So, there is some liquidity out there.
(END VIDEO CLIP) GHARIB: Two subsidiaries of billionaire investor Steve Cohen, SEC Capital Hedge Fund, are paying a record amount to settle insider trading charges. The units have agreed to pay more than $600 million to settle claims from the Securities and Exchange Commission over improper trading in two stocks. The SEC said it might still investigate individuals at the firm. On Capitol Hill today, JPMorgan (NYSE:JPM) came under fire at a Senate hearing. Bank executives were grilled about more than $6 billion in trading losses due to a series of botched trades orchestrated by a trader now infamously known as the "London whale". Vice-chairman Douglas Braunstein admitted to the lawmakers that he withheld reports on those losses from regulators for two weeks because he was concerned about bank confidentiality. (BEGIN VIDEO CLIP) DOUGLAS BRAUNSTEIN, FORMER JPMORGAN CFO: We misunderstood the risks. We misunderstood the complication in it. We ultimately misunderstood what the estimated performance of it would be. So in hindsight, we got that wrong. (END VIDEO CLIP) GHARIB: The senators expressed concern that taxpayers shouldn`t be on the hook for reckless trading of complex securities, and that tougher oversight is needed for similar high-risk transactions, especially in a bank that some consider too big to fail. MATHISEN: Former Federal Reserve Chairman Alan Greenspan told CNBC today that he thinks the problem of getting too big to fail is getting worse, not better. One reason as he explained to me in an interview for NBR this morning is the structural flaws he sees in the Dodd/Frank reform laws and its accompanying regulations. But I begin my conversation with the man who coined the phrase "irrational exuberance" in 1996, shortly after a stock market win streak, like the one that ended today, by asking whether we`re anywhere close to that giddy spirit right now. (BEGIN VIDEOTAPE) ALAN GREENSPAN, FORMER CHAIRMAN OF THE FEDERAL RESERVE: Nowhere
close. The characteristics of what has been going on recently are actually more related to the removal of various types of what we call major areas of uncertainty, and the so-called tail risk, meaning the risks that are very unlikely to happen. But if they do, they have a very large impact. Europe has been hanging over the American markets now for quite a while. And the removal of that risk, at least temporarily, I think it is only temporary, has enabled the underlying forces of the market to begin to come into vision. And what those forces are, are the deep-seated exceptional discounting that`s going on of stocks to a point where socalled equity premiums are virtually the highest level in history. That means that it is very difficult to get the stock market to go down significantly from here. MATHISEN: So you think, then, that earnings aren`t as big a significant contributor to where stock prices are, the Fed isn`t as big as the tail risk disappearing. What are the other tail risks that you would worry about that could unseat this stock market rally? GREENSPAN: Well, I think the major problem is the longer term outlook, because this rally is going to run into problems as it becomes apparent that there is a temporary, at least, limit to upside economic growth. And at the moment, as you know, profit margins are not going anywhere. And indeed, earnings are not going anywhere. And unless you get economic growth coming back in play, earnings are not going to be able to substantiate the market going up very much more. MATHISEN: So let`s pursue the idea of what`s next for the economy. Can it continue to grow? At what speed, and with what affect on unemployment? GREENSPAN: I don`t look for the economy to get very much more than 2 percent, 2 1/2 percent, maybe short-term 3 percent. But getting it back to where we used to be in the growth rate at the moment is not on the horizon. MATHISEN: How concerned are you, or are you concerned at all about the affect of so-called the sequester spending cuts on federal outlays or additional spending cuts that may be in the pipeline? Do you think that will have a significant effect on economic growth this year or not? GREENSPAN: I think it will have an effect, but not that much. I think we`re overestimating the impact of what cuts in spending do, provided market values basically of homes and of stocks continue to rise. And I
would expect both to be the case. MATHISEN: Do you believe that housing is on a sustainable, solid footing today? GREENSPAN: I think it is. You can see things which are very important in this respect. And the demand for owner occupancy is coming back. And that is likely to give big, big push to housing -- single family housing structures, which is where most of the issues lie. So I would basically think that it`s looking well. I think that the major problem that we have, for example, in 2008 when there was mediation of mortgages, half of them failed after six months. Now, that figure of six-month mediation is down to 10 percent. That tells you the mortgage market is significantly improving. MATHISEN: One last question, then, on the banks, if I might. One of our viewers asked whether you feel that the new regulations governing derivatives, for example, have been effective. And I`ll turn that to ask do you think that some banks are still too-big-to-fail and has Dodd/Frank worked or not? GREENSPAN: I think Dodd/Frank has not worked. It is unlikely to work. It`s too complex, and there are too many regulations. The Fed, in conjunction with the other regulators, this is a load which I don`t think is readily handled. But far more importantly, I think the structure of the economy presupposed by the nature of the regulations in Dodd/Frank is not the real world. I think a lot of these regulations will fail to do what they`re supposed to do because the diagnosis of what the problems were are wrong. MATHISEN: Chairman Greenspan, the first commentator in the history of NIGHTLY BUSINESS REPORT, thank you so much for joining us. GREENSPAN: My pleasure. (END VIDEOTAPE) GHARIB: And coming up a little later in the program, our market monitor named four stocks to buy now and hold. So get your pencil and paper ready. But, first, here is a check on the closing numbers in overseas markets today.
(MUSIC) MATHISEN: The major banks were among the most active stocks today as investors assessed dividend and buyback plans announced late yesterday and that is where we begin our "Market Focus" tonight. Bank of America (NYSE:BAC) led the group, followed by Morgan Stanley (NASDAQ:NBXH) (NYSE:MS), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C). JPMorgan (NYSE:JPM) down as the Fed cited weakness in its stress test results yesterday, and Congress trained its Klieg lights on that so-called "London whale" trade today. GHARIB: Boeing (NYSE:BA) shares took flight today after announcing improved safety features for the lithium-ion battery on its Dreamliner. The certification tests are well under way, and Boeing (NYSE:BA) expects that will be weeks, rather than months, before the plane is back in service. That boosted investor confidence in Boeing (NYSE:BA) and the Dreamliner. Shares surged more than 2 percent today, touching a new 52week high before closing at $86.43. Well, a different story for Carnival (NYSE:CCL) cruise lines. Shares fell, even though it reported better than expected quarterly earnings. Investors focused instead on reports of more operational problems on another Carnival (NYSE:CCL) cruise ship. The Carnival (NYSE:CCL) Dream`s Caribbean cruise was canceled because of a generator malfunction in St. Maarten, and all passengers are being flown home. Carnival (NYSE:CCL) also cut its earnings forecast on lower bookings in Asia and Europe. The stock fell 2 percent to $34. MATHISEN: And, finally, a number of major companies trading more heavily than usual at the close today. It is the quarterly rebalancing of the S&P 500. AT&T (NYSE:T), Pfizer (NYSE:PFE), and ExxonMobil (NYSE:XOM) had sizable buybacks during the quarter, and all of them are down today, as you see. GHARIB: Our "Market Monitor" guest tonight has upped the stock allocation in client portfolios to 65 percent. The rest is in bonds and cash. He is Mark Luschini, chief investment strategist with Janney Montgomery Scott, rather. Make a case, Mark, about why this is a time to buy stocks. A lot of our viewers are still very fearful of this stock market rally.
MARK LUSCHINI, JANNEY MONTGOMERY SCOTT: Well, I understand that, Susie, and it`s unfortunate, because the fact of the matter is the fundamental underpinnings for companies today is still very attractive, even as share prices have moved up as high as they have of recent. And I think that`s because economic activity is continuing to show signs of improvement. And I think that lays a fertile environment for corporate profits to continue to grow -- not at a terrific pace, but to grow nonetheless. That should lead to stock prices to continue to advance, particularly amongst investigators who are looking for capital growth and even though seeking income, because many dividend-paying stocks offer a much more attractive alternative to low-yielding bonds and certainly cash. GHARIB: Let`s look at some of the stocks you`re recommending. And you`re taking some of your own advice. Yesterday, you were in buying Apple (NASDAQ:AAPL) stock. Tell us why. I mean, here`s a stock that has been very controversial. It`s been down 40 percent since its market high, getting new competition from Samsung. We`ll have more on that in just a little bit. But, why buy Apple (NASDAQ:AAPL)? LUSCHINI: We still think it`s a terrific business. Obviously, Steve Jobs was iconic, but nonetheless they have a terrific product development exercise under way under the new CEO Tim Cook. And they`re still growing, still generating profits, are sitting on $137 billion in cash. Have about a 2.4 percent dividend yield today, no debt. And so, I think accompanying growth which should help the multiple expand from a very low 10 times earnings today, to even 12 times, along with what is likely to be some redistribution of cash to shareholders in the form of a higher dividend or perhaps a share buyback, that should lead to a better share stock price for Apple (NASDAQ:AAPL). GHARIB: All right. You like PNC. This is a super regional bank. We know a lot of banks are getting popular with investors. Why did you pick this one? LUSCHINI: Namely because its footprint in the Mid-Atlantic and the Southeast is I think going to be profitable as we continue to believe we`re in the very early innings of a housing recovery, and we`re also starting to see increased loan activity which helped to improve their net interest margins.
GHARIB: All right. And let`s move along. From the energy sector Halliburton (NYSE:HAL), this is HAL on the big board, the big oil services company. Tell us the story here, why you like it. LUSCHINI: Well, we like energy. It`s a high conviction sector for us on a global basis. Halliburton (NYSE:HAL) is just over 50 percent North America, a little less 50 international. But obviously the energy story domestically is one that has very long legs. We`re very excited about Halliburton (NYSE:HAL) in terms of providing services and manufacturing energy-related equipment is going to stand as a benefactor to the spend in that industry over many, many years to come we think, and it`s very cheap at about 13 times earnings. GHARIB: OK. Thanks for the long list of stocks. Mark, any disclosures to make? LUSCHINI: None, Susie. GHARIB: All right. Thank you so much. LUSCHINI: Thank you. GHARIB: Mark Luschini, chief investment strategist at Janney Montgomery Scott. MATHISEN: And now let`s take a look at treasuries, currencies and commodities fared today. (MUSIC) GHARIB: The smartphone wars just got a lot hotter. Samsung took the wraps off its latest challenge to Apple`s iPhone. But will its bigger screen and updated software make the new Galaxy S4 cool enough to win over Apple (NASDAQ:AAPL) fans? Jon Fortt has our report. (BEGIN VIDEOTAPE) UNIDENTIFIED MALE: It`s your turn to try the phone. JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: This time, no one is going to accuse Samsung of copying Apple (NASDAQ:AAPL). Thursday night at Radio City Music Hall in New York, Samsung unveiled its latest
smartphone, the Galaxy S4. The screen five inches, high resolution, and with its full array of sensors and cameras, this phone can do a little bit of everything except take your temperature. It will be available some time between April and June. Now, Samsung smartphone sales have been on a tear lately, more than doubling in 2012. Compared with apple, which managed a 47 percent increase in sales, Samsung looks like a juggernaut. CHETAN SHARMA, CHETAN SHARMA CONSULTING PRESIDENT: Maybe expectations have been lowered down for Apple (NASDAQ:AAPL). And if it comes out with either a new type of device, new type of iPhone or something groundbreaking, then Apple (NASDAQ:AAPL) could gain momentum. But I would place my bet on Samsung at this point. FORTT: Which brings us to the question, is Samsung cooler than Apple (NASDAQ:AAPL) now? Well, not so fast. UNIDENTIFIED MALE: Samsung Galaxy S3 is better performance. But I`m not using it because I like the way the iPhone feels in my hand. Right now, this is the best looking phone I can see. UNIDENTIFIED FEMALE: I`m very familiar with the iPhone. I`m comfortable with it. But I`m not looking for the cool things that the teenagers are into. UNIDENTIFIED MALE: I`m older, so I get comfortable with something, and I don`t like a lot of change. My kids, though, they want the newest bells and whistles. So they want the Samsung. FORTT: Remember how I said no one will accuse Samsung of copying Apple (NASDAQ:AAPL)? Well, that goes for the launch event too. Apple (NASDAQ:AAPL) launches featured the CEO, the engineers and designers who created the products and maybe a celebrity cameo. Samsung, its electronics chief made an appearance, but this event was full of actors and dancing kids. The consensus from viewers, not cool. Apple (NASDAQ:AAPL) co-founder Steve Jobs was fond of saying Apple (NASDAQ:AAPL) thrives at the intersection of technology and the liberal arts. That`s why it`s made apps like Garage Band for musicians, iMovie, iPhoto, iTunes.
Samsung clearly has a different approach to its presentations and its software. We`ll see how much that matters at the register. For NIGHTLY BUSINESS REPORT, I`m Jon Fortt in Silicon Valley. (END VIDEOTAPE) MATHISEN: And finally tonight, lots of Irish eyes will be smiling this weekend. Let`s take a look at St. Patrick`s Day by the numbers. They may surprise you. Each year, Americans spend about $4.5 billion on St. Paddy`s Day. We spent about $245 million in beer sales alone. GHARIB: And this is another interesting one. On average, the almost 50 percent of us who say we celebrate spent $35 per person. Men about 10 buck more than women. And another fact is about a million Americans go to Ireland this time of year to celebrate St. Paddy`s Day. And I understand you`re going to be going, too. MATHISEN: I`m going to be one of them. I`m going to go back to my ancestral home. My grandmother Agnes McBride (ph) from Kilkenny, Ireland. So, I`m going to go there, take my family on spring break. It will be fun. GHARIB: Have a great time. Well, that`s it for us tonight. That`s NIGHTLY BUSINESS REPORT. Thanks for watching. And remember, please support your public television station. Have a great weekend, everyone. You, too, Tyler. MATHISEN: Likewise. You too have a happy St. Patrick`s Day. On behalf of your public television station, thank you so much for your support. Good night, everybody. We hope to see you back here on Monday evening. END Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc. <Copy: Content and programming copyright 2013 CNBC, Inc. Copyright 2013 CQRoll 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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