Caruso-Cabrera, Eamon Javers, Bob Pisani>
Justice Department; Computer; Crime; Justice; Government>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Battle in the board room. An activist investor is going to extremes, moving to overthrow Yahoo`s entire board.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Gross domestic problems. Persistent errors plague one of the most important measures of economic growth.
MATHISEN: And behind the hack. The Justice Department charges several Iranians for a series of cyber attacks on our financial system and infrastructure.
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, March 24th.
HERERA: Good evening, everyone, and welcome.
Not holding back. Activist investors usually don`t, of course. But today, we learn that the hedge fund that`s been agitating for change at Yahoo (NASDAQ:YHOO) wants to do something extreme. Starboard is seeking to remove the entire board of the troubled Internet company after saying it has trade and failed to work with the company for the past 18 months.
Josh Lipton has more on this intensifying board battle.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Starboard`s letter distance mince words, saying Yahoo`s board and management have failed to deliver results for shareholders. Starboard saying significant board change is desperately need to hold management accountable and properly oversee any operational turnaround plan, separation, or sale of assets.
CEO Marissa Mayer has tried to turn around the company by cutting costs and concentrating on growth areas like mobile advertising, but it has been a losing battle. The company will generate less than $3 billion in digital ad revenue this year, a drop of 14 percent from last year, according to researcher eMarker. That would be the single biggest annual drop in sales for Yahoo (NASDAQ:YHOO) in the seven years sense eMarker began tracking it.
ERIC JACKSON, SPRINGOWL ASSET MANAGEMENT: We think this core business is worth more than zero which is where it`s valued today. We think it`s worth more than what AOL (NYSE:AOL) got from Verizon (NYSE:VZ), which was $4.4 billion last year. So, we don`t want to see this thing sold for a fire sale type of price. And there`s obviously value that still could conceivably be created out of these Asian assets if there`s some smart individuals that are brought in with that kind of expertise too.
LIPTON: Analysts believe that a sale of Yahoo (NASDAQ:YHOO) could be worth as much as $8 billion with potential suitors including Verizon (NYSE:VZ) and AT&T (NYSE:T), as well as private equity firms like KKR (NYSE:KKR) and TPG. Yahoo (NASDAQ:YHOO) shareholder meeting is expected to happen in late June and though no one knows how this will play out, the odds of completely throwing out the board are remote. But some say they do expect to see big changes.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
MATHISEN: On Wall Street, stocks snapped their five-week win streak. Financials came under renewed pressure in part because of a sell rating that was put on Wells Fargo (NYSE:WFC) by UBS. Take that, you other bank. By the finish, the Dow Jones industrial average rose 13 points to 17,515. The NASDAQ added 4. The S&P 500 fell fractionally.
On this holiday-shortened week, all the major indexes were lower and gold had its worst week of the year down more than 2.5 percent.
Well, with the decline on the week, there is some concern that stocks are falling back into their old patterns and that this range-bound market could soon swing more dramatically. So, what should you do?
Our friend Michael Farr is the president of Farr, Miller and Washington.
Michael, good as always to see you.
I don`t think you`re in Washington, I think you`re in Florida if I had to guess. Am I right?
MICHAEL FARR, PRESIDENT OF FARR, MILLER AND WASHINGTON: I`m in Florida -- Naples, Florida, yes.
MATHISEN: A nice place.
FARR: Nice and warm here, yes, sir.
So we`ve had a nice run. Five weeks in a row of up markets, after a disastrous start to the year. Is this a kind of bipolar market? Should we just be ready for this?
FARR: Tyler, I think it is kind of a bipolar market but I think it`s being drive bin a bipolar Fed. Monetary policy doesn`t really seem to be able to make up its mind what they want to do. At the March 16th meeting, all of a sudden, we heard from the Fed pretty much that we`re only going to have two hikes in 2016 instead of four. The language was more dovish. And then markets really seemed to appreciate the easing tones of some of the Fed governors. That`s been reversed.
So, markets don`t seem to know what to do. But where we seem to have been following oil, I`m afraid that a lot of those asset prices have been driven more by the Fed and what they`re doing or not doing.
HERERA: So, if you`re a long-term investor, Michael, do you just count that as noise and put it aside? How much should you pay attention to a disruptive Fed, if you will?
FARR: Well, Sue, I think you have to see that they really can`t decide what to do. And they`re trying basically to change directions. So, the most important thing for investors is that the Fed has changed directions. We`re only arguing about the rate. Reminds me of another old joke where we just argue about the price.
But we`ve seen something remarkable since February. In 40 days, we saw the price of oil go from $26 to $41, a 58 percent increase in the price of a global commodity in 40 days. So, the pricing is irrational and there`s a lot of volatility.
So, individual investors really have to take a look at balance sheets, income statements, and know what you own, because this volatility I don`t think is over.
MATHISEN: In 30 seconds, what is the best way to make money between now and year end?
FARR: Now and year end I think you own a good quality portfolio of stocks with balance sheets and dividends. I continue to like some of the health care stocks. Take a look too at some of the industrials. A lot of them were down 25 percent, 30 percent last year.
MATHISEN: Yes, yes.
FARR: So, Americans hate stocks when they`re cheap, love them when they`re expensive. Look at some of the stuff that`s less expensive with a good dividend, I think you`ll make money this year.
MATHISEN: Sound advice. Michael Farr with Farr, Miller and Washington, enjoy the long weekend, Michael.
FARR: Thank you, you all too.
HERERA: New orders for long-lasting manufactured goods fell last month. This as the sector continues to feel the effects of strong dollar and low oil prices. The Commerce Department orders for durable goods declined 2.8 percent in February. Now, separately, the number of Americans filing for unemployment benefits rose by 6,000 last week. But still remains at a level consistent with the strengthening labor market.
MATHISEN: Picking up on that theme of dissonance on the Fed that Michael was talking about, a federal reserve official says the next interest rate hike may not be that far off after all. St. Louis Fed President James Bullard said the labor market had improved since December and could support another interest rate hike if the economy, he could, if the economy evolves as expected. Federal Reserve policymakers next meet in April.
HERERA: And just like the fed, investors pay a lot of attention to economic data. But one of the most important gauges of economic growth has come into question.
Steve Liesman was first to report on the persistent errors in the calculation of gross domestic product.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Instead of calling it Gross Domestic Product, call it "gross domestic problems". In-depth analysis by CNBC of the government`s reports on Gross Domestic Products suggests large and persistent errors that should give investors, business executives and policymakers pause in relying on the data for key decisions.
CNBC went back to 1990 and found an average error rate of 1.3 percentage point in the initial GDP reports compared to where it will eventually be revised to in later years when there`s more complete data. So, an initial report of 2 percent growth on average will be later revised to be 3.3 percent or 0.7 percent.
MICHELLE MEYER, BANK OF AMERICA MERILL LYNCH: It`s a big number, 1.3 percentage points is large, especially more recently when the economy`s going about 2 percent or so. So, you`re talking about a big chunk of that overall GDP number.
LIESMAN: The research does not show systematic overstatement or understatement of growth. But CNBC also found about 30 percent of the time the government gets the direction of growth wrong. That is, GDP initially shown to be higher than the previous quarter could in fact be revised to be lower, and vice versa.
MEYER: That could fundamentally change the picture. What we thought we were looking at in the economy with GDP, a year or two later, it becomes very different.
LIESMAN: Brett Molten, associate director for national economic accounts, at Bureau of Economic Analysis, the agency that puts the GDP report together, told CNBC, quote, "We`re working to try to get more accurate data in time to improve the advanced GDP estimates. Revisions are not errors. They represent improvements to the GDP estimate as more information becomes available." And they have gotten some information more quickly in past years.
But the error rates have been improved over the decades despite vast improvements in commuting power and communication speeds. The size of the revisions 2008 to 2013 is the same as those from 1990 to 1995. And the error rates in the second and third estimates of GDP are the same as the first. So, despite more time and data, revisions will be just as large three months after the end quarter as they are one month afterwards.
Most economists contacted by CNBC did not know the GDP error rates, but they added it`s a big and more complex and more esoteric economy that is hard to measure.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
HERERA: And to read more about the issues surrounding those GDP numbers, head to our website NBR.com.
MATHISEN: Still ahead, corporate America is taking a stand on social issues in North Carolina and Georgia. It`s very controversial. Why investors should care.
MATHISEN: Two days after the attacks in Brussels, officials finding connections now between that bombing and the attacks in Paris late last year.
Michelle Caruso-Cabrera reports from Brussels on the investigation.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: The key development today, investigators believe there`s a clear link between the attacks here in Brussels on Tuesday and the attacks in Paris in November. The two suicide bombers here in Brussels, one who died at the train station, one who died at the airport, they were accomplices in Paris, say investigators. They provided transport, arms and ammunition, safe houses.
In addition, the man who built the bombs for the Paris attacks is believed to have died in the airport on Tuesday here in Brussels. As more and more details are revealed, there`s increasing criticism of Belgian intelligence and security forces. In fact, the interior minister and the justice minister today offered to resign, acknowledging that there have been grave mistakes.
The prime minister wouldn`t let them. But in that process we learned that they had not taken seriously enough a warning from turkey that deported one of the suicide bombers last year, saying that he had trained in Syria and that he was a jihadist fighter.
The situation on the ground is still very tense. Security is very visible. And in fact, lines to get in the subway are quite long. They are searching every individual before they allow them to enter the station.
UNIDENTIFIED FEMALE: I want everyone arrested so I can live a more life, like before.
UNIDENTIFIED MALE: No one knows what can happen. So, it`s difficult for Brussels.
CARUSO-CABRERA: There`s even security at supermarkets, hotels and shopping centers. Interior ministers and defense ministers from around Europe descended on Brussels today because this is where they always meet. This is the headquarters of the European Union. This was an emergency meeting to discuss what can be done to prevent future terrorist threats.
There were a lot of calls to action but it`s unclear if anything will actually get done. U.S. Secretary of State John Kerry arrives tomorrow to get the latest information and also to offer U.S. support.
For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera, Brussels, Belgium.
HERERA: Seven Iranians with ties to their government were indicted on hacking charges. The Justice Department alleges they played a role in disrupting banking operations and hacking a dam outside New York.
(BEGIN VIDEO CLIP)
LORETTA LYNCH, ATTORNEY GENERAL: These attacks were relentless, they were systematic, and they were widespread. They threatened our economic well- being and our ability to compete fairly in the global marketplace. Both of which are directly linked to our national security.
(END VIDEO CLIP)
HERERA: Eamon Javers has been following the story from Washington.
Good to see you, Eamon, as always.
The U.S. is indicating that Iranian citizens who live in Iran are involved in this, but does the government have any hope at all of actually extraditing them or bringing them to trial?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, that`s the question here, sue. When you indict people who live in a foreign country as the U.S. did against five Chinese military hackers back in 2014, the question is, why are you doing it? They`re outside the reach of U.S. law enforcement.
What FBI Director Comey said today is, we`re doing this to ascend message, that we know who they are, we know what they did, he said over the long haul, he said our memories are long at FBI. These seven individual Iranians will not be able to travel overseas for education, for tourism, other things, because they could get picked up on an Interpol arrest warrant if they travel outside of Iran.
So, it`s going to make life more difficult for them, but more importantly, he said it sends a message to the Iranian regime, we know exactly how you`re doing this and what you`re doing and we want you to knock it off.
MATHISEN: The Iranians were able to breach the systems of a dam up in Rye, New York. What happened and was there danger to residents?
JAVERS: You know, what they did was they got into the SCADA System, the infrastructure control systems the FBI said today allow the sluice gates for example at the dam to be raised or lower order tell you the temperature and water level behind that dam. Those are very important control systems.
And in theory, the Iranians could have controlled those systems and raised the gates, flooded a whole area, and caused a lot of damage and danger for lives in that region. But what the FBI said today was that dam was actually not operational at the time in the way the Iranians thought it was. So, in the end, there was no real danger. The implication though is that the Iranians now have the ability to get into in U.S. infrastructure, sitting at computers, hacking into dams, bridges, all kinds of infrastructure across the country, and that officials said today is very scary.
HERERA: Yes, it`s chilling, absolutely chilling.
Thank you, Eamon, very much.
JAVERS: You bet.
HERERA: Eamon Javers in Washington.
MATHISEN: Pandora is reportedly exploring a potential sale and that is where we begin tonight`s "Market Focus".
Shares of the music streaming service surged after deal reporter announced that news saying prospective buyers may include Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), maybe Yahoo (NASDAQ:YHOO). Shares rose more than 10.5 percent on the day to $10.93.
The educational publisher scholastic had a narrower than expected loss in its fiscal third quarter, thanks to strong sales of children`s books. The company pointed to an illustrated edition of "Harry Potter" as well as Potter-themed coloring books, higher sales of classroom books helped as well. Shares of Scholastic (NASDAQ:SCHL) up a half percent to $35.99.
And TiVo (NASDAQ:TIVO) which makes DVR devices is reportedly in merger talks with Rovi (NASDAQ:ROVI). Rovi (NASDAQ:ROVI) is one of the biggest owners of digital entertainment device patents -- TiVo (NASDAQ:TIVO) and Rovi (NASDAQ:ROVI), interesting. "The New York Times (NYSE:NYT)" says it would be a cash and stock deal, with the price still under negotiations. Shares of TiVo (NASDAQ:TIVO) up 23 percent to $9.45.
HERERA: Winnebago beat earnings targets in its latest quarter, but revenue was shy of forecasts. The recreational vehicle maker said, did say that it expects revenue to improve thanks to the success of new products and what it calls a robust backlog. Shares were up more than 3.5 percent to $21.31.
Athletic apparel retailer Finish Line saw profit fall about 90 percent in the fourth quarter, thanks to a big write-off of should have its assets and closed some doors. But the results still manage to topple Wall Street targets. However, the company issued full year guidance well am expectations. Nonetheless, the shares scratched out a gain to close at $19.07.
MATHISEN: Corporate America is taking a stand against a North Carolina bill that outlaws any new gay and lesbian anti-discrimination protections. That bill was signed into law yesterday, just hours after it was introduced and companies are responding.
Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Wells Fargo (NYSE:WFC) have signed a statement opposing that legislation. Red Hat (NYSE:RHT) attacked it as a step backwards. American Airlines said it was bad for the state`s economy. Charlotte-based Bank of America (NYSE:BAC) says it backs public policies that support nondiscrimination.
Biogen, a large employer in the state, opposes the measure, as was the large employer, Dow chemical. And the NAACP, which is scheduled to hold a men`s basketball tournament in that state next year, said it is monitoring diversity issues in cities where it hosts future events.
A similar fight meantime is taking place in Georgia where at least 20 Fortune 500 companies, including Disney (NYSE:DIS), Delta, and Home Depot (NYSE:HD), have taken issue with a religious liberty bill.
HERERA: So, should investors care when companies that they may own take a stake on social issues?
Joining us is Professor John Wilson at Columbia University`s business school. He`s also head of research at Cornerstone Capital Group, a financial services firm.
Welcome, nice to have you here, professor.
JOHN WILSON, COLUMBIA UNIVERSITY: It`s a pleasure. Thanks for having me.
HERERA: I guess that`s the question. I mean, if you need to recruit people for your business and you want talent, you want those people to want to work for you, correct?
WILSON: Absolutely. The companies that you mentioned, Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Dow, these are all companies that create value from the knowledge and motivation and hard work and creativity of their employees.
They need to get the best people to work for them, right? And they need people who have choices, who can live any way they want, they can work for the companies that they want to work for. And so, these companies are really in a war for those people.
And so, obviously, this is a big concern for those companies if the places where they`re doing business are not places where people will feel welcome coming to live, and if they don`t feel line the companies are aligned with their values or at least in places that are not aligned with their values.
MATHISEN: Many of these companies have their own anti- or nondiscrimination rules in place, don`t they? When they collide with a state`s sort of codes, what is the company to do? Move (NASDAQ:MOVE) out?
WILSON: Well, that`s a good question, right? I don`t think that`s going to be necessary. These companies -- by the way, it`s important to know that shareholders were among the first groups to push companies to adopt these policies several years ago, to not discriminate on the basis of sexual orientation or gender identity, because they recognized that this was something that was important for business, for the long-term health of these companies.
So when the companies are in places -- obviously, it does create something of a conflict if they are -- I don`t think these laws are going to force anyone to discriminate, but obviously, it will create a lot of issues, challenges for these companies to implement their own policies if they`re in conflict with what state law is saying.
HERERA: It comes down to optics, does it not? If you`re a company that has policies that are nondiscriminatory but you choose to either relocate or do business in a state that has policies that go against your tenets, the optics of that are not good.
WILSON: Yes, and particularly for your employees. Today`s employees, again, the knowledge workers, the people you want to attract and retain and motivate, they want to work for companies that share their values. They`re not simply there for a paycheck. They want to work for a company that believes what they believe and has values of inclusion and diversity. Those are very important, particularly for younger workers today.
And so, it`s really important for companies to be out there in public saying the sorts of things they`re saying to show their own employees they are actually aligned with the values of the people who work there.
HERERA: Very interesting, thank you so much for joining us. Come back soon.
WILSON: My pleasure. Thank you.
HERERA: Professor John Wilson with Columbia University`s School of Business.
And coming up, Ty?
MATHISEN: Finding opportunities, Sue.
MATHISEN: Beaten-down sectors if you have the stomach for it, our market monitor has some picks. Sue?
HERERA: Ty? We`re back in a minute.
MATHISEN: The Fed played a big role in the market this week. As Bob Pisani tells us it will likely play a part next week as well.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Several Fed officials made surprisingly hawkish comments this week indicating that not only was a June rate hike possible, but even one in April was not off the table. That sent the dollar higher, it hurt commodities, and it hurt commodity stocks as well as industrials.
Now, many Fed officials are speaking next week, most importantly, Fed Chair Janet Yellen will be speaking at the Economic Club of New York. Now, no topic has been announced but they usually did take a couple of questions from a designated questioner. So, she may move the markets.
Now, William Dudley, head of the New York Fed, speaks Thursday night on the role of the federal. He`s also a voting member of the FOMC and has been dovish recently.
There`s another voting member of the FOMC speaking next week, Loretta Mester, head of the Cleveland Fed, she`s a bit of a hawk.
Three nonvoting members -- John Williams of San Francisco Fed, Charlie Evans of the Chicago Fed, and the Dallas Fed`s Robert Kaplan, are also speaking.
All that and we`ll also have the March jobs report on Friday. We`ve had over 200,000 jobs created four of the last five months. Nearly 300,000 in October of last year.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: A co-manager of the Sequoia Fund is stepping down. Robert Goldfarb is retiring following the fund`s big investment in troubled drugmaker Valeant. Yesterday, we told you Valeant at one point accounted for more than 30 percent of Sequoia`s portfolio, an unusually high percentage. Valeant shareholders have lost more than 80 percent of their value over the past year. Sequoia is a popular holding in some corporate retirement accounts.
MATHISEN: Investors are always looking for promising opportunities and tonight, our market monitor guest found some, including two in a sector that has been under an enormous amount of pressure. He`s David Smith, chief investment officer at Rockland Trust Investment Management Group.
David, good to have you with us. We appreciate your being with us.
DAVID SMITH, ROCKLAND TRUST INVESTMENT MANAGEMENT GROUP: Thanks for having me.
MATHISEN: So, you like a couple that are in the oil business. Though not too far out on a limb, I guess I would put it. Why don`t you explain why you like Exxon?
SMITH: Yes. So, at Rockland Trust, when we make investments, we`re looking out three years. We look at the time horizon that far out in the distance and suggest that today`s stock prices look incredibly cheap because we`re discounting discounted oil.
And so, Exxon is a great example of a company that will ultimately survive. Its balance sheet is rock solid. And so, it has an opportunity, we think, to take advantage of the market correction and be in acquirer of assets of companies that either go bankrupt because they`re overleveraged or they have to sell assets to pay down debt.
And so, with Exxon`s significant balance sheet strength, they will be out there purchasing these assets either out of bankruptcy or ultimately from the balance sheets of other competitors.
HERERA: Next on the list is Schlumberger (NYSE:SLB), which is also in the energy field, but in a different way. And one of the reasons you like it is you think there`s consolidation, a trend going on in that particular area of energy that might benefit Schlumberger (NYSE:SLB)?
SMITH: That`s correct, Sue. So, what we`re seeing and hearing from the energy companies we invest in, they are trying to pool their purchasing power and leverage their dollars spent on whatever drilling activity they have. And consolidating those in the players like Schlumberger (NYSE:SLB) that have a very diversified portfolio of products and services they can offer.
And what`s happening is the specialists who are typically smaller and in a finite area are really being challenged today. We think ultimately what will happen is these companies as we progress through time and if oil stays depressed eventually they`ll have to sell as well. That will be a great opportunity for Schlumberger (NYSE:SLB) to consolidate the space.
MATHISEN: Another pick of yours comes from another sector that has really been walloped over the past year, biotech. Name your name and tell us why.
SMITH: Yes, so at the end of the day, again, sort a similar theme with depressed share prices. We believe Gilead Sciences (NASDAQ:GILD), which is a company that has been in the news quite a bit of late, is building a significant cash pile on its balance sheet, is in a fantastic position to do it, has done it successfully in the past, and that is go out and acquire great capacity and capability in some of the biotechnology stocks that have really been hit.