NIGHTLY BUSINESS REPORT for December 21, 2015, PBS - Part 1

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Julia Chatterley, Eunice Yoon, Mary Thompson, Dominic Chu>

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Big savings. The price of gasoline hits a six-year low. And it is saving Americans big bucks in the process.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: The money trail. Is the low price of oil damaging a main revenue source for ISIS?

MATHISEN: To-do list. If you save for retirement, there are a few things to keep in mind before year-end. We`ll tell you what they are.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, December 21st.

EPPERSON: Good evening, everyone. I`m Sharon Epperson, in tonight for Sue Herera.

MATHISEN: And I`m Tyler Mathisen. Welcome one and all.

Well, oil and gas in focus today to start this holiday shortened trading week. Brent crude prices hit their lowest level in more than 11 years. American crude domestic flirted with seven-year lows.

Those low oil prices are pressuring gas prices, which today according to AAA fell below $2 a gallon nationwide on average for the first time since 2009. That`s the depths of the great recession. To put that into perspective, that price is cheaper than a gallon of milk and a dozen eggs.

And as Jackie DeAngelis reports, that`s saving Americans a lot of money.

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JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world is awash with oil, and prices continue to decline. The theme of lower for longer expected to last well into the New Year.

It`s a problem for big oil, energy companies and the stock market. But it`s been a boon for consumers. As predicted by AAA, the national average for a gallon of regular gas has fallen under $2. More than 2/3 of U.S. gas stations are selling gas below that price.

Translation -- Americans have saved more than $115 billion on gas this year, roughly $550 per licensed driver.

ANTHONY GRISANTI, GRZ ENERGY: It is the holiday gift that`s going to keep on giving. We could actually go about 10 to 20 cents lower from where we are right now. And I don`t expect prices to rise.

DEANGELIS: As we head into Christmas, warm weather and cheap gas will encourage people to hit the road. AAA says that more than 91 million Americans are likely to drive more than 50 miles this holiday season. How low can we go? Unless something changes, we potentially could see that two handle that Goldman Sachs (NYSE:GS) called for earlier this year.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

EPPERSON: It`s been widely documented that ISIS funds its activities in part through the sale of oil. ISIS has made millions from selling the commodities from its fields it controls in Syria and Iraq. But how are oil crude prices impacting the finances of is?

Dina Gusovsky takes a look.

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DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sliding oil prices hit some countries` economies more than others. But when it comes to terrorist organizations like ISIS, that raises some of its revenue from selling oil at half the price on the black market, the answer as to whether or not that dip will hurt its funding may surprise some.

DAN KARSON, CHAIRMAN OF KROLL: Oil prices are not going to have a significant impact on is. ISIS relies upon a variety of income sources. They rob banks. They extort businesses. They shake down people for protection money. They break into businesses and homes and steal property.

Any of these outlawed terrorist-type activities are their sources of revenue.

GUSOVSKY: Though oil is just one part of ISIS`s revenue, it`s not insignificant. Let`s look at the numbers here. Officials say ISIS has been bringing in about $40 million per month from selling oil with about 30,000 barrels per day coming from Syria and about 10,000 to 20,000 from Iraq.

Let`s not forget, though, the price of oil now is about half of what it was last summer, meaning ISIS is probably also making less because of that drop. Plus, we have to consider military activity against their oil fields, which also diminishes supply.

And though oil did make up a large part of its revenue, ISIS reportedly makes even more money from extortion and taxation. So while a drop in oil prices may not be enough to seriously weaken the terror network, it certainly does not help the Islamic State`s economic situation either.

Some reports indicate that monthly salaries of the terror network`s fighters which generally run from about $400 to $600 per month for unmarried men has been reduced by about 25 percent. Still, experts remain skeptical.

KARSON: Oil is, if anything, a bonus to their operations. Tomorrow they could lose their oil fields and be deprived of that income. But what they need most are soldiers, weapons, and explosives. And those are not expensive commodities to buy or maintain.

GUSOVSKY: For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky.

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MATHISEN: Spain`s investors reacted negatively today to the results of a fractious national election. None of the four competing parties won enough seats in parliament to form a government. Insurgent parties made major inroads, winning more than 100 seats. In response to the stalemate, Spain`s main stock index fell more than 3 1/2 percent on the day.

Julia Chatterley reports tonight from Madrid.

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JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Uncertainty reigns supreme here in Spain this morning following last night`s election. After four years of austerity, incumbent Prime Minister Rajoy`s party losing their majority. We also saw a strong showing from the far left Podemos Party, which I think is also fueling some of the uncertainty and concern in the market. What we saw is a blowing open of the two-party political system. Four parties now in play.

The problem is that no two individual parties can tie together here to form a majority. So, a lot of head scratching over where this will take the country in the future and who ultimately can lead this country forward.

I see two options. I see the possibility of a minority government being formed by the incumbent Prime Minister Mariano Rajoy, and the party itself hinted at that this morning. We could also see a broader coalition, but I think will be very unstable and will likely see Spain go to fresh elections, perhaps even as early as 2016. Two political analysts this morning telling me that they`re 50-50 on that prospect. So, it remains a bit of a risk.

I think the important thing ultimately for investors here is what happens on the left of the political spectrum. Do the center-left socialists form some kind of alliance with the far-left Podemos? That I think is the big risk.

Now, when I spoke to the socialists earlier today, they said to me they`re going to do nothing to put Spain`s financial credibility at risk, that the people of spain, the markets come before political ambition. So that might be the silver lining here.

But for now, all options are open. The coalition talks will begin today. And we`ll just have to wait and see.

For NIGHTLY BUSINESS REPORT, I`m Julia Chatterley in Spain.

(END VIDEOTAPE)

EPPERSON: In China leaders there today approved an economic blueprint for next year. According to "The Wall Street Journal," the plan was laid out in a closed-door meeting of senior party officials. The plan attempts to reduce industrial overcapacity and cut the stockpile of unsold homes, all an attempt to restart growth. Specific details aren`t expected to be released until March when that country`s legislature convenes.

But as Eunice Yoon reports from Tangshan, China, the steel sector of the world`s second largest economy is also struggling.

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EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Outside a government office in the biggest steel town in China, a face-off between police and workers like Chen Xinghua who demand payment after a steel plant here shut down.

"We want our back pay and our medical insurance," he says. "We`re not asking for much."

Thousands of workers lost their jobs at the Tangshan Songting plant, one of numerous mills that have gone under across the country. Already this year, China`s steel association estimates the industry has lost nearly $9 billion.

These people say that the factory has turned its back on them, so now, they`re pinning all of their hopes on the government.

But the authorities seem more concerned about silencing them and us rather than listening to the workers` concerns.

Tangshan is home to more than 300 steel mills. In recent times it`s turned out beans and coils for China`s roads, bridges, and new properties, producing more steel than the entire United States.

But with the economy slowing down, the city`s once mighty industry is stalling. Too many factories competing for too little demand. Some state- owned factories we`re told are running at a loss, shipping excess products overseas at extremely low prices.

While many private companies like Tangshan Songting go idle.

Chen worked in his plant for nearly three decades, earning as much as $500 a month.

"Entire families worked in the same plant. Multiple generations," he says. "Together they could make a monthly salary of $1,500. Now they have zero."

His health ailing, Chen believes the government should step in to bail out his employer, a former state-owned company which the authorities have encouraged to go private a decade ago.

"It was a mistake to make it a private company," he says. "We used to be guaranteed jobs."

No longer the case in China`s slowing economy.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Tangshan.

(END VIDEOTAPE)

MATHISEN: And on Wall Street today, stocks did finish higher helped by a rise in shares of Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) late in the day. And a rally in hospital shares after the White House said more Americans signed up for subsidized health insurance. We reported on that for you on Friday.

The Dow Jones Industrials up 123 points to 17,251. The NASDAQ gained 45. And the S&P 500 added 15.

And still ahead, taking to the skies -- meet the entrepreneur who is hoping these little drones turn his small business into an even bigger one.

(MUSIC)

EPPERSON: BMW North America has been hit with a $40 million fine from regulators. The National Highway Safety Administration says the automaker failed to promptly tell owners of recalls involving its Mini Cooper side impact crash test. As part of the deal, the company admitted to violating U.S. regulations.

MATHISEN: The ride-hailing company Lyft is expected to raise up to a billion dollars in a new round of financing according to Bloomberg, which cited a Delaware state filing. The latest round of funding could value Lyft at more than $4 billion.

EPPERSON: Now, these are very cool. They`re one of the hottest gifts this holiday season. Hundreds of thousands of drones are expected to be sold this month. And they now face some government regulation. We`ve been reporting this, that starting today, those who own drones will have to register them with the Federal Aviation Administration.

But with the new rules for this in-demand gadget, one entrepreneur is finding big opportunity.

Mary Thompson reports from the New Jersey Drone Academy in Ringoes, New Jersey.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Drones getting plenty of buzz this holiday. The FAA forecasting Americans will buy 800,000 recreational drones in the fourth quarter. An estimate that has New Jersey Drone Academy owner Jim Barnes bracing for a post-Christmas rush.

JIM BARNES, NJ DRONE ACADEMY FOUNDER: I`m expecting probably next year before June probably up to 500 students.

THOMPSON: That`s a big increase from the 71 students Barnes taught after opening the academy this spring. He`s moving to a bigger space, turning a former driving range into a netted facility where come April, anyone over 14 can take a series of classes on drones.

BARNES: They will learn safely how to build, program, and fly a drone.

THOMPSON: Fifteen-year-old Owen Ford is a former student and a long- time fan of these unmanned aerial systems.

OWEN FORD, DRONE ENTHUSIAST: I really like the strangeness about it. I like how outlandish and -- I kind of went in the hobby from there.

THOMPSON: With interest in drones soaring, the FAA is taking action to make sure our skies remain safe. Federal workers visited big box retailers selling drones to educate workers on how to operate them properly. And starting today, owners need to register their drones or face civil penalties of over $27,000 and criminal penalties of up to a quarter of a million dollars.

The FAA sees the registration process as a way to educate users on how to fly safely and within the laws of the land. Like keeping drones below 400 feet and five miles from an airport.

Hobbyists will learn those lessons at the academy, but that`s not the only audience it`s targeting. Barnes partnering with Professor Mike Chumer of the New Jersey Institute of Technology to conduct research with drones and to drain first responders on how to operate them.

DR. MICHAEL CHUMER, NEW JERSEY INSTITUTE OF TECHNOLOGY PROF.: They can permit first responders to communicate much faster. They make decisions faster. If they can make decisions faster, the likelihood of saving lives is there.

THOMPSON: Barnes also working with the Jersey City school system on a program to get kids out of the classroom, into the field, so they can put drones in the air, expecting the sky`s the limit when it comes to the future of drones.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson in Ringoes, New Jersey.

(END VIDEOTAPE)

MATHISEN: Now for the drone.

All right. Regulators reject Staples` bid for Office Depot (NYSE:ODP) and that`s where we begin tonight`s "Market Focus".

The Federal Trade Commission turned down the revised acquisition offer. Staples (NASDAQ:SPLS) says the FTC hasn`t made a counteroffer and it is still willing to continue negotiations to address the concerns of the regulator agency. Staples (NASDAQ:SPLS) rose a fraction to $9.39. Office Depot (NYSE:ODP) off 1 1/2 percent to $5.33.

Oracle (NASDAQ:ORCL) has settled allegations by the Federal Trade Commission. The FTC accusing the company of leaving up to 850 million PCs susceptible to hacker attacks when it released security updates for its java software. No comment from Oracle (NASDAQ:ORCL). Despite the news, shares were slightly higher to $36.42.

Investors getting a chance to react to Juniper`s security issues. The company says it has discovered two security problems that could affect one of its operating system products. "Reuters" reports the Department of Homeland Security is working with the firm on its investigation. Shares tumbled about 5 percent to $27.25.

And the Centers for Disease Control says it is investigating a more recent batch of E. coli cases linked to Chipotle. The CDC doesn`t know yet if this is part of a larger outbreak that started back in October. But the agency says five people have been reported sick. Shares fell 3 1/2 percent to $522.01.

EPPERSON: Tyler, activist investor Carl Icahn`s firm has hiked its bid for Pep Boys to nearly $1 billion continuing a tug of war with Bridgestone. Pep Boys says its board has deemed Icahn`s offer a superior proposal and gave Bridgestone until mid-week to respond. Shares rose almost 7 percent to $16.85.

A positive note from an analyst lifted shares of Fitbit in today`s session. Pacific Security says the fitness band maker`s holiday sales have been exploding, since a weak Black Friday performance. Shares were almost 5 percent higher to $29.10.

And McDonald`s (NYSE:MCD) is considering a sale of part of its stake in its Japanese arm. That`s according to a "Nikkei Business Daily" report. The unit could go for more than $800 million. Shares rose a bit to $117.69.

MATHISEN: And as the year winds to a close, many stock market watchers are looking back at 2015 to see which stocks had really lousy years, underperforming their peers.

Dominic Chu takes a look at these misfit stocks and whether their luck may change in the New Year.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many stock market investors are already taking a look at whether the current environment has created potential bargains. In other words, which stocks that have fallen out of favor could be the big winners next year?

Think of them as the misfit stocks, the ones cast off by investors. Now, the most notable place in the market for those misfit stocks is the energy sector, by far, the worst performer in the large cap S&P 500 index, losing a quarter of its value for its energy stocks in 2015.

But are there parts of the beaten-up sector that could now be value plays?

DREW KANALY, KANALY TRUST CHAIRMAN: We see value in the part of the energy sector that we`re finding in marketing. All those are going to do fine. And don`t forget, there is a potential for an upside surprise if we get any type of demand growth in 2016.

CHU: It`s not just about the negative sectors, though. The year`s best-performing large cap sector is consumer discretionary, which encompasses everything from retailers to movie companies and TV companies. That group, that sector is up 7 percent as a whole. But companies like Gap (NYSE:GPS) Stores, also Michael Kors and Macy`s (NYSE:M) and other retail stocks have been lagging behind. And that`s leading some experts to look at it and other parts of the market for potential bargains.

JOHN BUCKINGHAM, "THE PRUDENT SPECULATOR" EDITOR: I do think companies that are inexpensively priced, low P/E ratios, low price to sales, and that pay generous dividends are where you want to be heading into 2016.

CHU: Generally speaking, there`s more cautious optimism about potential market returns next year. While the bears will point to considerable headwinds like the possibility of slowing economic growth globally or the strength of corporate earnings and geopolitical risks, that`s just to name a few, some of the bulls think that 2016 is shaping up fairly well.

KANALY: This time last year, valuations for stocks in general were very high, and so was optimism as we enter 2016, we actually see pessimism very, very high and valuations coming something closer to something reasonable. And so, with a 3 percent global growth rate, we`re expecting, we think it`s a good year for stocks in 2016.

CHU: All of those points and more are going into how investors prepare for investing in the coming year.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

EPPERSON: Warmer than usual weather isn`t bringing good tidings to some of the nation`s retailers. According to weather companies, the mild temperatures are expected to last right through Christmas for much of the nation.

Joe Feldman, senior managing director at Telsey Advisory Group, joins us now to tell us which retailers will benefit from this warm weather trend.

And, Joe, we saw a little bit of a decrease in temperature over this past weekend. Did that help the retailers going into the last couple of weeks here for the Christmas holiday season?

JOE FELDMAN, TELSEY ADVISORY GROUP SR. MANAGING EDITOR: Yes, I think the cooler weather this weekend did help a lot. Their retailers really have needed it. We have not seen sales of cold weather goods do very well at all. I mean, really people feel cold and then they`ll buy some of that stuff. But all season we haven`t seen that.

That`s where you`ve seen the heaviest discounts, has really been on coats, sweaters, outerwear like gloves and hats, things like that.

MATHISEN: You know, there`s to me, Joe, every year a kind of goldilocks quality to how we look at the retailers. Last year, it was too much snow, it was nasty weather, it was too cold. Nobody was going to the store. This year, it`s too warm. Nobody`s going to the store.

So, how can you ever apply -- can you really ever make investment decisions based on those kind of things? Or you just kind of have to wait and watch what the numbers say?

FELDMAN: I think, you know, a lot of people do make investments based on this. But at the end of the day you do have to kind of just let it play out and watch for the numbers.

We try to take a calm and even-keeled approach to the season and say look, at the start of it we were modeling up 3 1/2 percent in terms of total sales growth for the retailers for the holiday period. We`re still modeling 3 1/2 percent. We think it will be OK.

Last year, you know, the numbers were -- people were looking for around a 4 percent gain and came in around 7 percent. The year before that it was a touch more pessimistic, and it still came out a little bit better.

I`m not suggesting it will be better than our 3 1/2, but I don`t think it will be as dire as everybody thinks. There is spending going on.

EPPERSON: So, when you pick the winners, do you pick them based on the weather or are there other factors at work? You have several picks that are very different types of categories for retailers.

FELDMAN: Yes. I mean, what we`re seeing strength in is really everything non-apparel, quite honestly. Whether it`s electronics like Best Buy (NYSE:BBY) or cosmetics and beauty products like Ulta, limited brands, you know, with Victoria`s Secret, Bath&Body Works, those kind of companies are seeing decent sales trends. And you`re seeing the traffic in the stores as well as online. But it`s really the apparel side where we`ve seen a lot of the pressure.

MATHISEN: I see a lot of people including you picking up on Target (NYSE:TGT). What are they doing right and have they gotten back in the game after that disaster two years ago?

FELDMAN: Yes, look, they hired -- Mr. Cornell as the CEO. Brian Cornell, that is. And he`s done a terrific job as CEO in the year and a half that he`s been there. And we`re now at a point where they`ve executed on a lot of his initiatives. Now, you`re starting to see some of the play out and better traffic in the stores. The stores are starting to look better and there`s still a lot more opportunity.

Target (NYSE:TGT) is one that we actually really like getting into 2016. We think it still has some upside potential and the stores, like I said, are really reflecting that.

EPPERSON: I have to admit I spent some time in there this weekend, Joe.

FELDMAN: There you go.

EPPERSON: Joe Feldman with Telsey Advisory Group -- thanks so much.

FELDMAN: Thanks.

EPPERSON: Coming up, your retirement to-do list. Smart money moves to make with your savings before the year is out.

(MUSIC)

MATHISEN: Here is what to watch tomorrow. Dow component Nike (NYSE:NKE) reports earnings after the closing bell. The final read on third quarter GDP, basically the summer quarter`s due out along with existing home sales for November. And UPS expects to deliver about 36 million packages on its peak shipping day. And that is what to watch tomorrow.

EPPERSON: So, there`s probably not one financial adviser out there who would tell you that it`s a good idea to tap your retirement savings to pay for holiday gifts. But that`s just what 7 percent of parents have actually done according to a new study by T. Rowe Price. The survey also finds that 9 percent of these parents have used their emergency funds for holiday purchases. The survey sampled 1,000 parents nationally.

MATHISEN: So, that`s what you shouldn`t do with your retirement savings this time of the year. But there are some smart things you can do with your 401(k) or IRA before the year is out.

Ivory Johnson joins us now. He`s founder of his own wealth management firm, Delancey Wealth Management, and a member of the CNBC Digital Financial Advisers Council as well.

Ivory, good to have you with us.

I know that the standard advice is to make sure that you have maxed out on your 401(k). But if you`re over age 50 you can put even more in. Can you do it all at one lump sum at the end of the year?

IVORY JOHNSON, DELANCEY WEALTH MANAGEMENT FOUNDER: Well, that`s going to be a function of your summary plan description. I would contact the employer. But I would imagine you can put the catch-up provision --

MATHISEN: And how much is it?

JOHNSON: It`s $6,000 for the 401(k). It`s $1,000 for the IRA account. Obviously, the IRA account you have more control of that. That`s something you can do on your own.

EPPERSON: And, Ivory, when you`re looking at the IRAs, you say that now might be the time for some people to think about converting to a Roth IRA from a traditional IRA. That`s going to have tax implications. What are they and who is best to do that conversion right now?

JOHNSON: Well, it`s a unique situation where you can convert an IRA into a Roth IRA, pay the taxes up front and allow that money to go tax deferred. When you take it out, it becomes taxed -- it`s a tax-free event, provided you meet certain criterias.

My sense is it`s best for people who have a low tax bracket now. I just did it for a client who had a large medical bill. That`s what I mean by a unique situation. He had large medical expenses that he was going to deduct. That enabled him to move some of the IRA to a Roth. Now that grows tax deferred. That money is earmarked for the next generation. They can now take it out tax-free.

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