<Show: NIGHTLY BUSINESS REPORT> <Date: April 2, 2013> <Time: 18:30:00> <Tran: 040201cb.

118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for April 2, 2013, PBS> <Sect: News; International> <Byline: Susie Gharib, Tyler Mathisen, Phil LeBeau, Eamon Javers, Jane Wells> <Guest: Rebecca Lindland, David Garrity, Josh Rauh> <Spec: Business; Health and Medicine; Insurance; Stock Markets; Automotive Industry; Economy; Cities; Stockton, California; Policies> <Time: 18:30:00>

ANNOUNCER: This NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib. Brought to you by --

(COMMERCIAL AD)

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Still going. The Dow and the S&P 500 close at all-time highs again. Health insurers lead the way.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: All revved up.

Consumers put any worries about the economy in the rearview mirror as auto sales have their strongest showing in more than five years. Can the sales pace continue?

GHARIB: And pension pinch. Stockton, California`s bankruptcy has put the nation`s pension troubles in the spotlight once again. What you need to know.

All that and more coming up.

Good evening, everyone. Well, Tyler, another day of new milestones on Wall Street.

MATHISEN: You would think we were back in the first quarter of 2013, wouldn`t you? It was another day of records for U.S. blue chip stocks. The Dow and the S&P 500 finished at all-time closing highs, driven by gains in health care companies, by strong U.S. factory orders, and by word that European officials had given Cyprus an extra year until 2017 to get its budget in shape. That sent European shares roughly 2 percent higher in the major markets and gains there spilled over here into the U.S.

U.S. stocks were little affected by a mid-day speech by an Atlanta Fed President Dennis Lockhart. He said the Central Bank may be able to trim its bond-buying stimulus plan by year end if the economy picks up.

At the close, the Dow was up about 89 points, as you see there at 14,662. The NASDAQ composite higher by almost 16 at 3,254 and change. And the S&P 500 was eight points high at 1570.25.

GHARIB: Well, automakers saw strong sales for the month of March. At this rate, 15 million cars would be sold this year. Still, that`s about 2 million from the industry peak. A strengthening economy is seen as just one of the many reasons.

Phil LeBeau has all the numbers.

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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Solid auto sales numbers for the month of March as the automakers posted a third straight month, which made the first quarter one of the strongest for the auto industry since the beginning of 2007. Across the board, all the automakers posted solid gains in the range between 1 percent and 5 percent depending on the automaker. For the most part, they were in line with expectations. What drove sales in month of March?

A couple of things. First of all, there is the improving economy and pent-up demand. Remember, the average vehicle on the road right now is close to 11 years old. Crossover utility vehicles also surged last month. GM and Ford both posting double-digit gains.

And pickup trucks were also solid. Sales improving due to the improving housing market. A couple of things stand out about March sales.

First of all, look at what happened with the luxury auto brands. All up substantially, in fact, outpacing the industry as a whole.

Cadillac leading the way with a gain of 49.5 percent in large part due to the demand for the new entry level Cadillac ATS.

And also take a look at electric vehicles. The Tesla Model S, which sells for well above what the Chevy Volt and Nissan Leaf sell for, it outsold the Volt and the Leaf in the first quarter.

Again, electric vehicles still a very small percentage of the overall market. But so far this year, Tesla`s Model S has been outselling the Leaf and the Volt. And shares of Tesla surging to a new all-time high today.

Bottom line, with March auto sales, the auto industry is posting its strongest sales since the beginning of 2007.

In Chicago, Phil LeBeau, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: And here to tell us whether or not the allure of the flashy new cars and low interest rates will keep consumers coming back to the showrooms is Rebecca Lindland. She`s automotive consultant at her own firm, Rebel Three Consultants.

Rebecca, you saw the numbers that Phil just put up there. It looks like luxury is hot.

So, from where you sit, who`s hot and who`s not?

REBECCA LINDLAND, REBEL THREE CONSULTANTS CONSULTANT: Well, as Phil said, the results were pretty much in the single digits for just about everybody. But one thing that`s fun to watch is the rivalry between BMW and Mercedes Benz as they duke it out for the number one sales lead. Last two years, BMW has surpassed Mercedes when it comes to sales. But Mercedes is quick to point out that registrations of Mercedes have exceeded BMV.

So that`s a rate that`s really entertaining to watch.

GHARIB: You know, Rebecca, what struck me is these numbers are incredibly strong. I mean, and you look at consumers, they`re shrugging off high gas prices. They`re shrugging off uncertainty in Washington. They`re shrugging off higher payroll taxes.

I mean, what do you think account for this incredible resiliency of the American consumer?

LINDLAND: I think it`s a couple of things, Susie. You know, one of the things to keep in mind is that fuel economy has improved in really every vehicle segment across the board, particularly in the last couple of years. So when you a vehicle segment across the board particularly in the last couple of years.

So, when you still (ph) reference, when you have a vehicle that`s 11 years old, you`re probably getting 12 or 13, maybe 14 miles per gallon. When you go and look at some of these new products that are out there and you can get 20, 25, and 30 miles per gallon in your pickup truck or crossover, you got to factor that in when you`re look at the total cost of this new car and say, I can save a lot of money on gas.

So I think that the consumer is doing the right thing, which is to look at the total cost of ownership and say it`s time to buy a new car. I can`t keep repairing my existing car. And by the way, I can cut my gas prices in half, even though gas prices are high.

MATHISEN: Are bigger cars and trucks doing better than smaller cars?

LINDLAND: You know, Tyler, it`s really across the board also. We`re seeing some terrific improvements in small cars sales, but we are also seeing a resurgence in pickup truck sales as the housing market recovers.

We also have new product. GM has just redesigned its new -- what we call the Lambda products. They`re vehicles like the Buick Enclave, which has three rows of seats, has done incredibly well in the past. And that`s a large crossover.

So vehicles such as that which carry good utility and family and stuff can carry people around and people are really trading those and upgrading those.

GHARIB: Rebecca, one quick question before we let you go. What about U.S. cars versus the Japanese automakers? It looks like U.S. carmakers had much better numbers in March.

LINDLAND: They did. It was interesting. I was looking at Hyundai and Kia from out of Korea. And they were fairly soft. I think that a lot of that just had to do with product cadence.

And also year-over-year comparisons. You know, last year the Japanese were still recovering from the tsunami. So they had -- they had very high numbers because the year before, they didn`t have any numbers because of volume. So -- or inventory.

So we`re still seeing some different ripple effects, but it`s nothing to panic about. The industry overall is doing incredibly well.

MATHISEN: Rebecca, thank you very much.

LINDLAND: Thank you.

GHARIB: Well, tech stocks were also in the spotlight today with two Wall Street firms making fresh calls on the sector.

First, a top Goldman Sachs (NYSE:GS) analyst downgraded Hewlett- Packard (NYSE:HPQ) to a sell. And the stock fell 5 percent on the news. Goldman also removed Apple (NASDAQ:AAPL) from the firm`s coveted conviction list, lowering the target price to $575.

Meanwhile, UBS is recommending 13 Internet companies with Google (NASDAQ:GOOG) as the top pick.

So what should you do about tech in your portfolio?

We turn to David Garrity for some answers on that. He runs his own tech research firm, GVA Research.

Let me start asking you, David, about Apple (NASDAQ:AAPL). I know you have been very bullish on this stock. You have a target price of $650 on it. But how should investors factor in this new information from Goldman?

DAVID GARRITY, GVA RESEARCH PRINCIPAL: I think Goldman`s view is essentially one where there is greater competition coming from Apple (NASDAQ:AAPL) from the likes of Samsung and other handset providers that are powered by Google`s Android operating system. And there are obviously certain questions and perhaps some disappointment as to what it is that Apple`s management is going to be doing with $137 billion in cash that they have. They haven`t raised the dividend as of yet.

So these are some questions here in terms of just where does Apple (NASDAQ:AAPL) stand competitively and where do they stand in terms of creating shareholder value.

MATHISEN: So do you like the stock? You`d buy it at this price?

GARRITY: I would say Apple (NASDAQ:AAPL) is still the dominant player in terms of the smartphone market. They arguably have the best overall offering for the consumer and for businesses over time. People may be critical and say that in terms of the smartphone market, perhaps the premium end of the market has now seen some saturation. And the real growth is going to be coming at lower price points.

But I would still argue that Apple (NASDAQ:AAPL) is the name to beat in this area.

MATHISEN: And what about the other one mentioned earlier, and that was HewlettPackard (NYSE:HPQ). Are you high, low, down, out, what on it?

GARRITY: Relative to Hewlett, the real questions in terms of the just the overall compatibility of the company to innovate as they have historically. And while people may be critical of Apple (NASDAQ:AAPL), Apple (NASDAQ:AAPL) certainly in new form factors such as tablet, P.C.s and smartphones, has substantially been out-innovating Hewlett-Packard (NYSE:HPQ). Arguably, you know, Meg Whitman, the CEO, came off the board. The board may not have done as well as they should have.

But the question really for investors to look at when they consider Meg Whitman is, can she get Hewlett-Packard (NYSE:HPQ) back on the road to innovation. We don`t see that as of yet.

GHARIB: So let`s get back to the main question here. Should investors start putting technology into their portfolio? It`s been, you know, a neglected sector. And if you do think so, what are the must-have tech stocks to put in your portfolio?

GARRITY: I think overall, investors can look to technology companies because they`re financially strong as being total return vehicles, i.e., price appreciation, as well as dividend growth. One of the names you would consider here would be Cisco (NASDAQ:CSCO) -obviously a well-known name, but the company that has the capability to grow dividend at 15 percent to 20 percent a year over the next three years. We think also Apple (NASDAQ:AAPL) from the standpoint of $137 billion has defined its way back to shareholders somehow.

And we would say out of some of the other news mentioned earlier, Google (NASDAQ:GOOG) certainly has a very, very strong franchise. And while they don`t pay a dividend yet, obviously, the possibility still exists. Google (NASDAQ:GOOG) might do so in the future.

MATHISEN: Talk to me a little bit about the chip makers, the Intels, the AMDs.

GARRITY: Well, certainly, when one looks at some of the questions around HewlettPackard (NYSE:HPQ), one has to argue that the historical model around the personal computer and the Microsoft (NASDAQ:MSFT) Intel (NASDAQ:INTC) model that had been discussed as such a growth driver, arguably, has slowed down.

Intel (NASDAQ:INTC) nonetheless is still the dominant manufacturer of semiconductors. Still has great opportunity to provide greater cash flow. It does have an attractive dividend yield.

But there have been questions raised around Intel (NASDAQ:INTC) as to what kind of marginal returns on invested capital will the company realize in what might be a more competitive environment going forward.

GHARIB: All right, David, any disclosures to make on the stocks you`ve been talking about?

GARRITY: Certainly. With respect to Apple (NASDAQ:AAPL), we own it.

GHARIB: And the others?

GARRITY: No.

GHARIB: OK. David, thank you so much for coming on the program. David Garrity of GVA Research.

And another sign that the housing market may be coming around, the American Bankers Association says delinquencies on home-related loans fell in the fourth quarter. Loans for property improvements, home equity and home equity lines of credit all fell. It`s the first time since the fourth quarter of 2011 that all three categories were lower.

The ABA, however, does not track mortgage building delinquencies.

MATHISEN: The housing giant Fannie Mae, which has drawn $116 billion from taxpayers since being bailed out in 2008 is back in the black big- time. The governmentcontrolled company today reported a $17 billion profit for 2012. That`s its first since 2006 and its biggest ever.

But the profits raise a tricky question. What is next for Fannie?

Eamon Javers has more.

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EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Fannie Mae was at the center of the financial crisis, a total meltdown of the nation`s housing finance system, leaving taxpayers on the hook for billions of dollars in losses. Be with home prices rising, a decline in foreclosures, and fewer borrowers behind on their loans, Fannie Mae today reported net income of $17.2 billion in 2012, including $7.6 billion just in the fourth quarter.

The company said it now expects to be profitable for the foreseeable future.

ALEX POLLOCK, AMERICAN ENTERPRISE INSTITUTE: If you are the government competing in a private business, you can make money. Fannie Mae is no longer a GSE, a government-sponsored enterprise, we used to say. They`re just part of the government.

JAVERS: But it wasn`t supposed to be that way. After the crisis, both parties said they would do something to fix Fannie Mae and its sister company Freddie Mac. And now, Fannie`s

profits could blunt momentum for reform of the mortgage-backed securities industry and the entire housing market.

BRIAN COESTER, COESTER VALUATION MANAGEMENT SERVICES: Congress has no real incentive to get rid of them. And what they`re really waiting for is for the mortgagebacked securities market globally to come back so they can start eventually winding down. They`re looking for private money to come. And right now, Fannie Mae posting as profits shows U.S. real estate is coming back.

JAVERS: Lawmakers could see the profits as a signal that the crisis is over, removing the urgency of the debate. Or they could see incoming profits from Fannie Mae as a rare bright spot in the nation`s capital otherwise drowning in debt.

(on camera): Lawmakers from both parties have struggled to figure out a way how to ease the government`s role in the nation`s housing finance system without causing a decline in home values, just as the housing market is starting to recover. And now, it`s not at all clear that they`ll feel the same sense of urgency to do something about one of the nation`s most complicated financial problems.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers, in Washington.

(END VIDEOTAPE)

GHARIB: Turning now to our "Market Focus", it was a turbulent day for airlines. Delta warned that it expects revenues will come lower than forecast for the first quarter. It said March performance was weaker than expect. Delta still expects a profitable quarter, but shares were down 8 percent.

The other airlines also lost altitude on the delta warning. JetBlue, Southwest, United, and USAir are all off between 4 percent to 5 percent.

On the other side of the airport, Hertz raised its three-year guidance saying total revenues would increase by as much as 14 percent by the year 2015. Hertz shares jumped almost 7 percent to $23 and change. The stock is up almost 44 percent this year.

MATHISEN: JCPenney`s board cut executive -- chief executive Ron Johnson`s 2012 total compensation to $1.9 million. In 2011, Johnson`s compensation was $59.3 million. That is a big pay cut over the past year, and here is why: JCPenney shares have lost 59 percent of their value. Today closing down more than 1 1/2 percent at $14.55.

As we told you yesterday, Medicare Advantage plans will not be as costly to health insurers as expected, and that group faced the market today, as we mentioned. United Health Group led the Dow and dialysis Davita led the S&P 500. Others also clustered near the top include Humana (NYSE:HUM), Aetna (NYSE:AET), Cigna, all up from 2 1/2 percent to more than 6 percent today.

GHARIB: Oil refiners are among the biggest losers on the S&P 500 today as they grapple with costs of new pollution standards for gasoline. Valero saying the EPA plan will cost it hundreds of millions of dollars. Valero down the most in this group of stocks, more than 5.5 percent. Marathon, Phillips, and Tesoro also down 3 percent to 4 percent.

And as the Arkansas attorney general launches an investigation into an ExxonMobil (NYSE:XOM) pipeline rupture, Oppenheimer analysts downgrade the world`s largest company on cash flow concerns. Thousands of barrels of crude oil spilled on Friday near a subdivision in the town of Mayflower, Arkansas, forcing the evacuation of 22 homes. Exxon says it will cooperate with the investigation, and is working on a plan to fix the rupture.

Meanwhile, Exxon shares off just a fraction today, closing at more than $90 a share.

And coming up, Stockton, California, gets the OK to declare bankruptcy, pushed to the red in part because of its pension obligations. We`ll talk to one guest about why he thinks that`s happening in Stockton, and why he thinks it could soon become a national crisis.

But, first, here`s a look at how international markets fared today.

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GHARIB: Investors will soon be able to get important company and stock information from Twitter and Facebook (NASDAQ:FB). U.S. companies got the OK today from the Securities and Exchange Commission to use those types of social media outlets to announce key information, as long as they tell investors which social media will be used.

The decision follows the agency`s investigation into Netflix (NASDAQ:NFLX) last year when the company`s CEO used his personal Facebook (NASDAQ:FB) page to tout the news about the company.

MATHISEN: Today marks the first full day in bankruptcy for Stockton, California, the largest U.S. city ever to file under the federal code. Among its obligations: massive pension commitments for city employees.

And Stockton is not alone. Across the U.S., unfunded pension debts may total as much as $4.4 trillion. That`s according to report last year from Congress`s joint economic committee.

Our next guest warns of a coming national pension crisis that could bankrupt many state and local governments.

Josh Rauh is a professor of finance at Stanford`s Graduate School of Business.

Professor Rauh, welcome. Good to have you with us.

So many questions, so little time. I want to ask first, though, about what is likely to happen to Stockton`s pensioners. Are they likely in this reorganization to be treated as the judge said yesterday as just another, quote, "garden variety creditor," right there along with bondholders? And will they likely have to take a haircut?

JOSH RAUH, STANFORD BUSINESS SCHOOL FINANCE PROF.: Well, there are two questions. One is whether legally that will be the case. And I think that based on what the judge is saying in the case, there is some reason to believe that in fact, yes, CalPERS, the California Public Retirement Employee System will be viewed as another creditor in the capital structure of creditors to Stockton, California.

But we also have to look at the political reality of this. In Vallejo, another city in California that recently did a bankruptcy, they`re also entitled legally to change pensions, but they didn`t.

Why didn`t they? Well, at the end of the day, you know, the public employee organizations had to agree to the reorg. And CalPERS had to agree to the reorganization. And those are powerful political groups.

And at the end, it wasn`t politically feasible to cut the pensions.

GHARIB: So are you saying, Josh, this isn`t a case of one size fits all. I mean, there are other states and cities that, you know, will be in this pension bomb (ph) to use your word. So, you know, how is this all going to play out?

RAUH: Well, look. Not all states -- not all cities have access to Chapter 9 bankruptcies because not all states allow it. And state level governments, they have no Chapter 9 bankruptcy. They have no legal way of restructuring either their general obligation funds or their pension obligations. So, it is going to play out differently in every state.

What is common state by state is that in every state in the U.S., we are miscosting, undercosting pension promises. And that`s really at the root of the problem.

You know, there are some states that are in better shapes than others, because they made fewer promises, they made smaller promises, that they haven`t paid public employees excess amounts. But, the fact is that all states are undercosting this deferred compensation. And it`s been the way that state and local governments have gotten around balanced budgets.

If you pay in to deferred comp, you can say, look, I`m not going to pay you as much today and that future becomes someone else`s problem. Unfortunately, that problem is now coming due sooner than we would like.

MATHISEN: And have the municipalities and states counted on higher returns in those pension funds than are likely to take place?

RAUH: Well, that`s a big part of the undercosting, which is that when a state or a government promises they`re going to pay a policeman or a fireman or a teacher a pension in retirement, they assume the balance of the budget is balanced as long as the money that they`re setting aside is going to grow at roughly 7 3/4 percent or 8 percent expected returns every year.

And if you look at financial models, that`s actually not a very likely scenario. You know, kind of standard set of assumptions that might come true in 30 percent of the future states, 30 percent of the time -- so really budgeting towards an outcome that is not likely to come true.

And if it doesn`t come through true, then that means that taxpayers are going to be on the hook and also we`re going to see more situation likes we have in Stockton. The city is trying to use all the tools at their disposal to try to restructure these obligations. And in end, it`s going to be a battle for scarce resources among recipients of public services, taxpayers, and pensioners.

MATHISEN: We know of Stockton`s troubles. We know of the troubles in other California municipalities.

Very briefly, what other states or municipalities are on the short list of ones that are likely to face these kinds of problems?

RAUH: Illinois is facing them now. So, in Illinois, you have the state funds which are 39 percent funded, even assuming that every dollar that goes into the funds is going to earn 7 3/4 percent. So that`s really a very, very stark contrast.

If you look in Europe, where they do these funds, I mean, they`re measuring them at much more conservative rates. And they`re 95 percent funded.

So, I mean, this is a really serious situation. And then, within Illinois, you have the city of Chicago which has --

MATHISEN: Right.

RAUH: -- been under-contributing to pensions and underfunding the pensions. Basically Chicago and Illinois have been sort of writing their own rules about pension funding in order not to have to run balanced budgets, in order to spend money now that they don`t really have and to put the problem up to taxpayers.

MATHISEN: I`m afraid we have to leave there it. Mr. Rauh --

RAUH: They`re not going to be able to do that much long.

MATHISEN: Thank you very much. I`m sorry to interrupt you. We have a time pinch here. We`ll have you back again with us soon. Thank you very much.

GHARIB: And coming up next on the program, thousands of visa applications for skilled foreign workers expected to be snapped up in less than a week. It might be a good sign for the economy, but we`ll take a look at who these visas are going to.

But first, a look at how commodities, treasuries, and currencies fared today.

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GHARIB: A huge response to a visa lottery for skilled workers from overseas is raising hopes that the U.S. economy is picking up steam. But it`s also raising questions about the nation`s immigration policies.

Jane Wells reports.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT: Is it a sign of growth or that companies want to cut costs? For the first time in years, U.S. firms will more than max out command for the number of visas allowed for highly skilled foreign workers. All 85,000 of the H1B visas could be spoken for by Friday, four days after they became available. It`s like the old days.

UNIDENTIFIED MALE: When we open the visas up on April 1st, we fill them up within just a few days.

WELLS: That was 2009 when Silicon Valley was pushing for more foreign visas. They got pushback from people like Senator Chuck Grassley.

SEN. CHUCK GRASSLEUY (R), IOWA: Our feeling is that H1-B workers should be laid off before American workers are laid off. In other words, it`s hire Americans first.

WELLS (on camera): But then the economy declined, and the need for visas dried up. Now demand is back, and so is the criticism.

LAWRENCE MISHEL, ECON. POLICY INSTITUTE PRES.: Firms like to have workers who can`t leave in the middle of a project. These visas create such a workforce, and they tend to pay people not very good wages.

WELLS (voice-over): A report by the Government Accountability Office says many foreign skilled workers with visas earn less than their American counterparts. Immigration attorney David Kussin says the bulk may end up not with the big tech firms, but to companies they outsource to.

DAVID KUSSIN, IMMIGRATION ATTORNEY: The estimates right now that are being thrown around are somewhere between 60 percent to 65 percent are controlled by 10 major outsourcing companies.

WELLS: Tech titans like Mark Zuckerberg have formed a group pushing for immigration reform. And as the Senate takes up a proposal to increase the number of H1Bs, Intel (NASDAQ:INTC) vows this is not a ploy to hire cheap labor. Quote, "We only hire individuals on a visa when there is an identified skill shortage."

And it`s not just Silicon Valley wanting more foreign skilled labor. Manufacturers like Caterpillar (NYSE:CAT) are feeling competitive pressure from China. Its CEO said in a speech this week of the quest for the best, quote, "I really don`t care if that person was born in Chicago or India or England. I want that talent working for Caterpillar (NYSE:CAT), not one of those competitors around the world."

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

GHARIB: And that`s it for us tonight. Have a great evening. See you tomorrow.

MATHISEN: Have a good 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.

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