NIGHTLY BUSINESS REPORT for December 07, 2015, PBS - Part 1

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Santoli, Jane Wells, Morgan Brennan, Meg Tirrell, Mary Thompson>

Mergers and Acquisitions>

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Seven-year low. That`s where oil prices settled after tumbling 6 percent, sending stocks sliding and investors questioning those energy sector dividends.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Warning sign. A part of the bond market could be sending a message about the economy and stock market, too.

HERERA: Global coffee empire. Does the $14 billion buyout of Keurig Green Mountain make sense?

All of that and more tonight on NIGHTLY BUSINESS REPORT for Monday, December 7th.

MATHISEN: Good evening, everyone. And welcome.

We begin tonight with the intensifying rout in the energy sector, a historic decline that is taking the broader stock market along for the slide. Domestic crude fell nearly 6 percent today to $37.65 a barrel. That`s its lowest close in nearly seven years and way off its peak of $108 a barrel back in June, just a year ago, 2014.

As for stocks, the main averages were way down by the energy sector collapse. The Dow Jones Industrial Average fell 117 points to 17,730, weighed down by both Exxon and ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX). The NASDAQ was off 40 points and the S&P 500 sank 14.

HERERA: And natural gas prices are falling, as well. That commodity was off more than 5 percent settling at its lowest level since October and down about 28 percent this year.

Jackie DeAngelis takes a closer look at the falling energy prices and what they mean for you, the consumer.

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JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the gift that keeps on giving and just in time, low energy prices. Crude oil trading under $40 a barrel and natural gas just around $2.10, both down more than 10 percent over the course of the last month. The crude crash comes after OPEC said it won`t cut outputs. OPEC isn`t cutting, then none of the other major producers will either. That means more oil in a world already awash in it.

JEFF GROSSMAN, BRG BROKERAGE PRESIDENT: I would say about 36.5 is about where we can probably bottom out here. I have no idea, you know, if it will go lower. But right at this point, I`m looking at moving averages. That seems about as much as you can get near term, that is.

DEANGELIS: And as expected, the focus is on retail gas prices. AAA says that the national average per gallon of regular is $2.03, just ticks away from that $2 level.

GROSSMAN: Retail gas looks like it will be under $2 come the beginning of the year. Again, that`s subject to change. Remember, once the gas prices go down, everyone seems to drive a little further buying bigger cars. So, that could change very quickly.

DEANGELIS: Nat gas is suffering because Mother Nature has been kind. Milder temperatures across the East Coast are easing the need to turn up the thermostat.

The Energy Information Administration estimates that homeowners using nat gas, well, they`ll see 10 percent lower heating bills based on its temperature models. The less people use heating oil and propane, they`ll see reductions as well.

The causes are different, but the effects are the same. More money in consumer`s pocket. The question, of course, is, if they`ll spread that cheer and spend that money this holiday season.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

MATHISEN: Low oil prices are prompting energy companies to cut back on spending. But investors are also starting to wonder and worry what, if anything, may happen with their dividends.

As Bob Pisani reports in the New York Stock Exchange, there is growing concern that they could be at risk.

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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was another bad day in the energy space. There`s two worries. First, weaker oil is now well below $40 and second, the Friday announcement by pipeline operator Kinder Morgan that it was reviewing its dividend policy, meaning they may cut it.

Now, that dividend review is creating a whole second wave of panic above and beyond low oil. That`s because a large percentage of oil and gas investors own these stocks for one reason only -- the dividend. You cut it and the stocks are likely to drop a lot more and fast.

Now, none of the big oil companies like Exxon or Chevron (NYSE:CVX) have cut their dividend nor have they said that they plan to. However, a lot of people are finally starting to believe that oil could stay lower for a lot longer. It is a substantial group who think oil could still be in the $40 range a year from now, going into 2017.

Well, if that`s the case, then all bets may be off. It`s not clear then if the dividend may be safe even for an ExxonMobil (NYSE:XOM).

And these dividends are expensive. Exxon pays about $1 billion a month in dividends. So does Shell, a billion a month. And if you are waiting for some rocket to bring oil back to $80 or $100, that`s unlikely. Talks among OPEC members collapsed on Friday because Saudi Arabia, the biggest producer, refused to unilaterally cut production. They said in effect, we are going to keep pumping oil even if it means alienating every OPEC partner we have and every non-OPEC partner.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: Amid the slump in energy prices, oil and gas companies are taking a closer look at their holdings. Today, oil and gas producer Devon Energy (NYSE:DVN) said that it would buy some assets from Felix Energy for about $2.5 billion. The company is also looking to sell its stake in Canada`s access pipeline system which carries heavy oil across Alberta. Devon shares fell 10 percent in today`s trading session.

MATHISEN: And now to the bond market where high yield or junk bonds are headed for the first annual loss since credit crisis. And that may be flashing a warning sign for stocks and the economy.

Mike Santoli explains.

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MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: As 2015 winds down, junk or high yield bonds have become a leading worry for investors. Credit conditions have historically led equity markets, especially around economic turning points. So, with the junk bond market conspicuously weak in recent weeks, stock investors are wondering if a significant economic slow down is eminent.

Take a look at the interest rate spread over treasuries. It`s near its high for the year and not far from its post financial crisis high.

There are three main takeaways here. First, the significant risk aversion by credit investors as they demand higher yields to compensate for the hazard of holding them. Second, the default rate in these riskier bonds has been climbing, with the number of distress bonds now at a six- year high. And third, the likelihood of a Fed rate hike seems to have scared some money out of junk bond funds, that`s because no one is quite sure how the sensitive sector of the bond market might respond to a slight change in short term rates.

As you can see, the S&P 500 has managed to climb back towards its highs of the year, despite the continued pressure on how yield bond.

So, what has bond investors so anxious? Much of the pain is centered in energy bonds, now under stress due to low oil and gas prices. But the weakness has begun to extend outside the commodity related sectors just a bit.

Looking past December, investors worry about the maturity cliff of bonds set to come due beginning in 2017. And the market is starting to sort out how much debt won`t be paid back.

The stress issuers have about $145 billion in bonds scheduled to mature between 2017 and 2021.

Plenty of issuers have bonds already trading at levels that imply high risk of default. In addition to petroleum and coal producers such as Chesapeake Energy (NYSE:CHK), ArchCoal and Peabody, some struggling consumer and industrial companies like Avon and Titan International (NYSE:TWI) have bonds priced at distressed levels as well.

Note that some market handicappers think the junk market is overstating the threat to the stock market. Goldman Sachs (NYSE:GS) last week said high yields was sending, quote, "a false recession signal" and the stock market might not be as oblivious as it seems when it comes to hitting the message of the bond market.

Energy and industrial stocks, after all, have lagged badly, and the small number of stocks leaving the S&P higher have been fast growing tech and consumer stocks that aren`t reliant on easy credit.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: So let`s turn to Rick Rieder for more perspective on this and what it may mean for the economy, the financial markets and your money.

It`s great to see you.

RICK RIEDER, BLACKROCK CIO FUNDAMENTAL FIXED INCOME: Great to see you. Thanks for having me.

HERERA: Thanks for coming by.

RIEDER: Yes, ma`am.

HERERA: You are not one who thinks that this is a doom and gloom kind of scenario for the markets.

RIEDER: No way. Sue, I think you have to put in perspective why this is happening, why is oil falling.

It`s not because of demand. Normally when this orders for a tougher economic condition, it`s because demand is falling off. This as we`ve changed the supply paradigm in the world, there are more producers and there`s new technology, horizontal fracking at all, that allows you to produce more. So, what happens is -- and we`re talking about the high yield market -- you are seeing an amazing bifurcation of energy is not doing well, commodities are not doing well.

But when you look at things like transportation, airlines, when you look at retail, restaurants, the beneficiaries of lower field pressure (ph) are doing quite well. What`s happening as you`re getting like in the equity market, in high yield, a very bifurcated market. The winners? Who is on the right side of technology versus the other side.

MATHISEN: Defaults are up a little bit this year and may go up a little bit. But I hear you saying that it is a largely containable or contained to energy and commodity sectors, right?

RIEDER: Yes. So, I`d say there are couple of things. One, I do think that the economy -- U.S. economy is cresting and I don`t think we are heading to recession. But we`ve had, when you look at auto sales, home sales, hiring and the comps, it`s been pretty good.

I think actually you are coming off the boil a bit now the Fed is starting to normalize very slowly, starting to normalize. But if you look at what`s happening in terms -- you are talking about complete bifurcation of the market place, winners and losers, who`s on the right side of technology versus who`s not, and the names -- we are talking about where you are seeing distress, energy commodities, where you change the cash flow for these companies so rapidly, so quickly. And they -- when you think about the last three or four years, with low cost of death, they levered up significantly.

HERERA: Does it matter to those companies that are in those distressed areas whether or not the Fed moves on rates and how quickly they move on rates?

RIEDER: No. You know, we have expected the fed to move for a year and the Feds are going to move 25 basis points probably in December and be very, very gradual. The transmission of that into the economy is going to be largely de minimis, the real issue about these companies is when do you stop -- when does the price of fuel and when do the prices on these commodities stop falling? And it`s literally supply/demand driven, weather is having an impact on it as well this time.

MATHISEN: I guess that, I`m guessing that most people who are exposed to high yield or junk bonds are in a fund, Blackrock or an ATF like what you guys and others run. If that is the case, can I trust that my portfolio manager is going through and plucking out the bad guys and snazzing up my portfolio so I`m not as exposed when the bad news comes?

RIEDER: So, listen. Yes, I mean, I think we`re entering an environment -- whenever economies -- you`re talking about global growth is slowing or/is moderate and U.S. growth is slowing, but it`s very important to think about how cash flow is changing and you think about the portfolio and using incredible amount of research and analysis to determine where you`re supposed to be, where you`re not.

And by the way, some of the companies that have come under pressure are going to -- are actually good value in providing some pretty decent opportunities today. So, we start to wade into some of `em. I think energy has a bit more to go. I would agree the price pressure probably sends it down before up (ph).

HERERA: OK. Rick, nice to have you with us. Thanks so much for joining us.

RIEDER: Thanks, Sue. Thanks, Tyler.

HERERA: Rick Rieder of Blackrock.

MATHISEN: And new developments today out of San Bernardino where the FBI said the assailants in the deadly San Bernardino attack have been radicalized for a long time.

Jane Wells is there with more on the investigation.

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JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nineteen pipes, five guns, 380 pieces of evidence over 400 people interviewed so far, the FBI is trying to build a picture and a timeline of Syed Farook and Tashfeen Malik seen here entering the U.S. in July 2014. It`s going to take a while.

DAVID BOWDICH, FBI ASSISTANT DIRECTOR, LA BUREAU: The question for us is, how and by whom and where were they radicalized. Maybe there`s not a by whom. Remember, often times, it`s on the Internet. We just don`t know. I don`t want to speculate it.

WELLS: The FBI would not comment on the status of Enrique Marquez, the man who legally bought the two assault rifles and whose home they raided. NBC News says Marquez has been detained but he`s not a suspect, and they don`t know how the guns were transferred to Farook and Malik.

BOWDICH: We do have evidence that both of these subjects did some target -- participated in target practice in some ranges within the metro area or within the Los Angeles area. That target practice in one occasion was done within days of this event.

WELLS: Also today, Farook`s sister came to a custody hearing for his 6-month-old daughter. No word on whether the family will be given custody of the little girl.

Farook`s father told an Italian newspaper that his son liked ISIS and was, quote, "obsessed with Israel" and those that knew Malik at school in Pakistan can`t believe the studious conservative but, quote, "normal" woman they knew could be behind this.

And here in San Bernardino, we heard from the first doctor on scene last Wednesday, an immigrant from Iran.

DR. MICHAEL NEEKI: I`m here because I came for democracy. And it`s sad to see that you come miles from across the world and see something like that happen here.

WELLS: Government offices reopened here today but with armed security. However, the Inland Regional Center where the massacre happened remains closed, as the FBI recreates what happened last Wednesday.

For NIGHTLY BUSINESS REPORT, I`m Jane Wells, San Bernardino.

(END VIDEOTAPE)

HERERA: And still ahead, a caffeine-fuelled $14 billion deal that sent one stock up more than 70 percent. Details coming up.

(MUSIC)

MATHISEN: General Electric (NYSE:GE) has terminated its agreement to sell its appliance business to Sweden`s Electrolux. The deal had been valued at more than $13 billion. The Department of Justice filed a lawsuit to block it this past summer, saying the combination would cut competition and raise prices for kitchen appliances. Shares of GE were off a fraction today.

HERERA: And another deal is being challenged as well. The Federal Trade Commission filing a lawsuit to block Staples (NASDAQ:SPLS) $6 billion deal to acquire its rival chain Office Depot (NYSE:ODP). Regulators say a combination of these two companies could result in increased prices for consumers. Shares of the two biggest office supply stores fell by more than 13 percent.

MATHISEN: Keurig Green Mountain is going private. The company known for its K Cup single serve coffee pods is being built for $14 billion by Germany`s JAB Holding. That sent shares of Keurig Green Mountain soaring 72 percent. The deal comes as Keurig faces a number of challenges.

But as Morgan Brennan tells us, the acquirer has plans to dominate the global coffee industry.

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MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it a caffeine jolt for Keurig Green Mountain, a stock that before today was down over 60 percent this year after a 75 percent run up in 2014. The company known for its single pod coffees has suffered from slumping sales and a disappointing rollout of its cold brewer.

But analysts say the surprise deal makes sense.

CAROLINE LEVY, CLSA ANALYST: The price tag looks absolutely shocking if you are looking at Green Mountain Coffee Roasters (NASDAQ:GMCR) as an ongoing concern, operating just as it was before going private. However, my sense is that there will be a massive cost reduction in the investment in cold, which is their, you know, carbonated soft drink venture into cold beverages so that that could really eliminate $125 million of losses in fiscal `16 overnight.

BRENNAN: An investor group led by closely held JAB Holding Company is behind the takeover. JAB manages the multibillion dollar fortune of Austria`s Reimann family, and counts Mondelez International, an affiliate to BDT Capital Partners among its minority investors. JAB already controls roughly 10 percent of the global coffee business with brands like Caribou Coffee (NASDAQ:CBOU), Peets Coffee & Tea, and a global joint venture involving Mondelez`s coffee portfolio.

Analysts say this is about distribution and potentially accelerating an international rollout of Keurig`s products. And it comes at a time when consumers are becoming increasingly discerning about their java.

LEVY: The coffee category has been a lot like other consumer categories, where there is premiumization taking place. People are willing to pay a very large amount for a great Starbucks (NASDAQ:SBUX) beverage and even a pretty big amount for an espresso. For Middle America and less wealthy people, the Keurig coffee machine really was an upgrade off the kind of coffee that they were drinking at home.

BRENNAN: The deal is also good news for Keurig`s top shareholder, Coca-Cola (NYSE:KO). Coke invested nearly $2.5 billion on 17 percent stake in the company between 2014 and February of this year, only to watch the stock sink. The deal values Coke`s stake at roughly the same price, allowing that company to break even.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Outerwall slashes its forecast, and that`s where we begin tonight`s "Market Focus".

The company that owns the Redbox movie rental kiosks says its profitability would be hurt by increased spending on marketing and additional content. Shares plunged in initial after-hours trading. During regular session, the stock fell about 2 percent to $58.06.

A Boston Chipotle restaurant has been shut down because of what could be another E. coli outbreak. This comes after the restaurant said that their quarterly results would be impacted by the outbreak, which has affected restaurants in multiple states. Shares were volatile after the close. During the regular session, the stock was off more than 1 1/2 percent to $551.75.

Vail Resorts (NYSE:MTN) posted better than expected earnings. The ski resort operator saw revenue rise on strong season pass sales for the coming season. The stock was nearly 3 percent higher to $125.59.

Newell Rubbermaid (NYSE:NWL) and Jarden (NYSE:JAH) are in talks to combine, and that`s according to reports. Rubbermaid has a market cap of about $12 billion. Jarden (NYSE:JAH) has about $10.5 billion. Newell surged about 7 1/2 percent to $48.16. Jarden (NYSE:JAH) was nearly 4 percent higher to $50.09.

MATHISEN: Nike (NYSE:NKE) has signed LeBron James to a lifetime deal in the largest single athlete deal in Nike`s 44-year history. Terms of the deal not disclosed just yet. Shares of the Dow component surged in initial after-hours trading on that news. During the regular session, the stock was off a fraction to $131.60.

The Supreme Court refused to hear a challenge to an assault weapons ban in a Chicago suburb, that along with President Obama`s call on Congress to pass new gun control last night lifted shares of gun-makers today. Both Smith and Wesson and Stern Ruger rallied because of the possibility that guns might be harder to buy in the future. The stock was more than 7.5 percent higher today. It finished at 20.44.

H&R Block (NYSE:HRB) reported weak quarterly results late today. The company said lower revenue and added expenses weighed on its results. Shares tumbled initially after the close, before surging. During the regular session, the stock was off a fraction to $36.89.

Breakthroughs in blood diseases. Many of the latest treatments were presented at the American Society of Hematology. But a number of biotech stocks that develop drugs in that space like Bluebird, Global Blood Therapeutics and Agios Pharma fell sharply today.

Meg Tirrell reports on the advancements being made and the setbacks.

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MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: More than 20,000 doctors, researchers, investors and analysts came to Orlando this weekend for the American Society of Hematology meeting. We have been hearing updates on new approaches to blood cancers as well as blood diseases like sickle cell and beta thalassemia.

DR. DAVID SCHENKEIN, AGIOS CEO: The mechanism by which this drug works is a whole new biology. So, instead of chemotherapy which kills everything, our drugs are actually repairing the leukemia cells.

TIRRELL: Despite optimism from CEO sharing data here at the conference, many bio tech stocks took a beating.

Analyst Brian Skorney of Robert W. Baird says that`s because many bio tech investors are exhausted after a volatile year.

BRIAN SKORNEY, BAIRD SENIOR RESEARCH ANALYST: Since, you know, the summer when it peaked, you have pretty significant downswings and pretty significant upswings. And I think there is a lot of questions as to where the sector overall is going.

TIRRELL: Stocks were hit particularly hard among companies developing drugs for sickle cell disease. Bluebird Bio is a company developing a potential cure through gene therapy for sickle cell, while Global Blood Therapeutics developing a once daily pill for the disease. Both companies presented data here at the conference that appeared to disappoint investors. But the CEOs took a different view.

NICK LESCHLY, BLUEBIRD BIO CEO: If you think about from a patient perspective, which is the angle that we come from, and you look at the data and the ability to take the patients from a situation where they have a dramatically shortened life span to potentially having a normal life span, I`m not sure I call those results mixed.

TIRRELL: There`s also a lot of competition brewing in an area known as CAR T immunotherapy. This is a new of fighting cancer, where a patient cells are actually taken out of their bodies, medically modified to better find and fight cancer, and then re-infuse.

Juno Therapeutics is one company pursuing that route.

There`s another competitor on the scene, Cellectis, which is pursuing a similar strategy, but genetically modifying cells so that a donor cells could be used instead of the patient`s own cells. That`s known as off the shelf CAR T.

ANDRE CHOULIKA, CELLECTIS GROUP CHAIRMAN & CEO: I think this is a huge advancement for medicine in general. There is a long time to invest in this product but it`s definitely very promising advance in cancer.

TIRRELL: Despite a hard showing for stocks coming out of the conference, analysts say a resetting of expectations may be a good thing for 2016.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in Orlando.

(END VIDEOTAPE)

MATHISEN: Coming up, double the pay. How technology is redefining the retail work place and hiking the wages that are being paid.

(MUSIC)

MATHISEN: Here`s what to watch tomorrow. On the data front, the job openings and labor turnover or JOLT survey is out. We also have small business optimism index and Anheuser Busch-InBev and Molson Coors testifying on Capitol Hill about their proposed merger. And that`s what to watch Tuesday.

HERERA: Call them upwardly mobile jobs. As more consumers shop on their phones, there is growing demand for workers in the digital retail space. In fact, Forrester Research (NASDAQ:FORR) forecasts 100,000 digital retailing jobs will be added to the economy between 2013 and 2017.

MATHISEN: And as with so many new jobs being created, technology is at the core of what these workers. And for now, that means greater opportunity and higher pay for those with the right skills.

Following Friday`s strong employment report, Mary Thompson looks at where the jobs are from the online retailer Wayfair`s offices in Westborough, Massachusetts.

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MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wayfair promises clients to find a zillion things for their home. Meanwhile, the online retailer is looking for a couple of hundred new employees.

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