Transcripts For KQED Nightly Business Report 20140326

The damage from the record drought. All that and more tonight on nightly Business Report for tuesday, march 25th. Good evening, everyone. Is ipo season on wall street, the number of Companies Going public is soaring. Investors are salivating to get a taste of candy crush. King digital entertainment, the Company Behind that popular smartphone game, is issuing its initial public Stock Offering tomorrow when it begins trading on the new york stock exchange. Its expected to price tonight. When a company decides to go public, its a sign of confidence in the markets and conviction that investor interest to own a piece of their business is high. So with the rush of companies staging ipos, is this the right make sense for investors to add these newbies to their portfolios . Seema mody reports. Reporter an upbeat economy, rally on wall street and a string of successful listings have provided the ideal backdrop for private companies to go public. So far this year, 53 ipos have come to market. The recent ipo craze and Strong Performance of newly listed companies has some traders wondering are we in an ipo bubble . The bubble is about ready to pop at in point. Were in a balloon at this point. When an underwriter makes a misstep and get too aggressive with the valuations and the investors say no not with me not this time again, theres going to be an immediate change. Youll get revaluations that will come down dramatically. Reporter 7 of those from the biotech and pharmacies. Another red flag is a Strong Performance of some recent ipos despite the companies being unprofitable at the time of their ipo announcement. Like interwest resorts, akabia therapeutics and lastly the huge opening returns of tech ipos have made some investors nervous. R Renaissance Capital says the pop is more than twice that of the average ipo this year. But experts say be cautious. Names that have moved up so fast have farther room to fall. For nightly Business Report, im seema mody. And our guest tonight says ipol stages of a correction. Shes kathleen smith, cofounder and chair of Renaissance Capital which seema mody just mentioned in they are report. Kathleen, welcome. Good to have you with us. You heard david mendel a moment ago describe the ipo climate right now as a balloon not a nzn bubble. Im not sure thats not a distinction without a difference. That is how you see it . Yes. We think there is some ipo madness in the market currently. And particularly with the biotech stocks and the cloud, the fastgrowing Cloud Technology stocks. So people look at the ipo price, how an ipo does on the first day of its trading and how it does a little bit of time later. Based on that gauge, how are the companies that have been going public this year doing so far . Well, so far this year the average ipo first day of trading is up 22 . That is much higher than the norm about 13 to 15 . Although its not as high as it was in 992000 when many of those first day pops were over 50 . But the 22 number that were seeing currently is just not a sustainable number. So we dont expect to see that continue. And therell be some adjustments to pricing to put a little bit more reason into the market. I guess those first day pops are the things that are so eyecatching, kathy. But when you look out six months or a year, how do ipos as a group typically do . Its hard to know what typical is. The important thing is the market works well when investors make money beyond the first day pop. And if you look at a basket of newly Public Companies and for example the renaissance ipo etf, a year in 2013 that index that attracts was up 54 . Thats dramatic. And those returns we hadnt seen in a long time. So far this year, that etf is up almost 3 . Its ahead of the s p 500, but its fading a bit. We can see that those very big returns that we had in 2013 are theyre there but not as dramatic as we had seen before. Those returns have to stay positive relative to the market to have the whole ipo cycle work. So were looking at that to say that stage there needs to be some adjustment in pricing to get the market would word for investors. Id like to get your take on a couple of ipos theres a lot of excitement about. One candy crush, the other one a lot of people are talking about is ali baba, Chinese Internet Company that may go public in the summertime. Whats your take on these . Are these stocks that investors should take a serious look at and put it in their portfolios . Well, both of them have some Amazing Things associated with them. Candy crush, a company that has running at about 2. 8 billion in revenue just coming from nowhere on this one very popular candy crush game. And a profitable occompany. A worry could this be a onehit wonder and what kind of revenue would you project Going Forward . Amazing story that needs to be priced correctly. Tonights pricing will tell a lot about the investor reception of that. In the case of ali baba, this one could be the largest ipo ever. In fact, a major company, u. S. Listed Company Maybe one of the top 25. That means that that company, it will be a very big offering. That company will probably end up in major institutional portfolios and possibly in the s p 500 over time. So that is going to be one worth watching. Kathleen, thank you very much. Kathleen smith, Renaissance Capital. A solid rally on wall street today. Investors were in the buying mood after a new report showed Consumer Confidence in march reaching a sixyear high. The dow shot up 91 points, the nasdaq was up almost 8. Still weighed down by trouble for biotech stocks. And the s p also added eight months. Home prices are rising a lot. The shiller price index found in january home prices rose 18 from the same month a year earlier. But sales of new homes dipped more than 3 in february, sinking to a fivemonth low. Wicked Winter Weather in many parts of the country. There you go again. That gets the blame. An influential member of the Federal Reserve says hes surprised at houcht markets fell after fed chief janet yellen hinted about raising a key Interest Rate next spring. But philadelphia Federal Reserve Bank President Charles Plosser says that timetable for ragz rates may not be a mistake. If the market gets ahead of us, ive often said Financial Markets arent always patient. If they get ahead of us then well probably have to be faced with a situation well have to raise rates faster than we otherwise would have chosen to do. And thats one of the great unknowns about this whole exit strategy. Hes also forecasting solid growth in the u. S. Economy over the next two years, a pace of 3 in 2015, 4 in 2016. With General Motors under scrutiny for what it knew about faulty ignition switches that resulted in a dozen crashrelated deaths and when it knew it, some lawmakers have introduced new legislation to make sure theres better gn reporting of auto safety records. Senators ed marquee of massachusetts and Richard Blumenthal of connecticut introduced a bill that would require automakers to provide more information about fatal accidents involving their vehicles and give the public better access to those reports. The Supreme Court says that severance pay can be taxed. In a big win for the Obama Administration and the irs, the High Court Ruled that Social Security and medicare taxes must be paid on severance packages, paid to workers who are laid off involuntarily. Its another caset being heard by the Supreme Court today that could have wideranging impact on businesses and employees. What looks like a fight over forcing companies to pay for contraception has turned into a major battle over faith, business and the law. Hampton pearson has more. Reporter outside the Supreme Court, early spring snow didnt dampen the enthusiasm of those on both sides of the constitutional challenge to the socalled contraceptive mandate in the Affordable Care act. Womens rights activists begging justices to uphold the obamacare requirement that employers provide Birth Control coverage at no extra charge. Faith groups supporting the challenge from two familyrun businesses that offering contraception violates their religious beliefs. The owners of oklahoma retail giant hobby lobby with 600 scores and 13,000 employees are facing 100 a day fines that could cost the business 475 million a year for not providing contraception coverage. The firm is among at least 50 forprofit corporations nationwide claiming a religious fais exemption from the health care law. Anytime the government is telling you, your option is to pay a fine instead of practice your religion, thats a substantial burden. And what Congress Said and what the First Amendment says is that religious freedom, not being fined by the government, not being crippled with penalties, is the most important interest that we serve in this country. Reporter the high court has never ruled that profitmaking businesses have religious rights. The government and the courts, women justices warned, it could open the door to requiring medical treatments like blood transs afusions and vaccination. Neither the chamber of commerce nor the National Independent of business have fooip filed friends briefs in this case. Chief Justice John Roberts may seek a compromise. In hobby lobby were to successfully blur the line between the5a views and belieff the individuals behind the company and the company itself, i think that could be very bad for business. Thats probably why we havent seen a lot of the Major Players in the Business Community come up and support hobby lobby. Reporter a ruling in this case most likely in late june could clarify businesss religious rights Going Forward, but Court Watchers say the Birth Control mandate challenges are just the beginning of the legal fights over obamacare that could last for another five years. For nightly Business Report, im Hampton Pearson in washington. Still ahead, hot stocks turn cold. But is the pullback in some highflying names a sign to avoid those stocks or an opportunity to buy in . The Obama Administration proposed sweeping changes to the nsas surveillance records of americans phone records. Puts the burden on phone Companies Instead of on the government. The president says the changes would help ease concerns about privacy while still keeping americans safe. Overall im confident that it allows to us do what is necessary in order to deal with the dangers of the terrorists attacks but does so in a way that addresses some of the concerns that[er people had ra. Federal regulations already require phone companies to hold onto socalled metadata on all phone calls for 18 months. But that does not include records on the callers names or the content of those calls. The government and Telecom Giants monitor phone calls, Computer Systems across Corporate America are being breached at an astounding rate. Federal agents notified more than 3,000 u. S. Companies. These are from small mom and pop firms to major defense contractors that their Computer Networks were hacked last year. Eamon javers joins us now from washington with more on those hack attacks. Its really a surprising revelation, eamon. Tell us how this whole thing works. How often do the feds Alert Companies . How do they go about doing that . The fed Alert Companies on an almost daily basis. When youre talking about 3,000 different notifications during the course of 2013, thats an almost daily occurrence. And they say what they want to do here is notify the Companies Either on the phone or in person. Clearly these are companies that have had cyber intrusions and they want to have the federal agents show up in person to brief the company on what happened so that that communication itself is not monitored by the cyber attackers. I had a chance to talk to special agent tim marsh earlier today from the fbi. And i asked him all about this program. He said its all about fundamentally increasing communication between the private sector and the government. Take a listen. Theres a lot of things that hit the news that just recently that are pretty devastating that have vesevere Financial Impact companies. There are a lot of companies that lose what theyve been spending a lifetime developing and producing. And so that is what we want to protect against. We want to stop the data bleed. Reporter special agent marsh says the whole purpose of this new program is to allow u. S. Intelligence agencies to share some of the classified information they have with the companies that have now been the victim of the cyber attacks, guys. Eamon, do the Companies Even know that they have been hacked . And how does the government know whats been stolen . Reporter many cases, tyler, they dont have any idea theyve been hacked. This is the first theyve heard of it. In many cases information comes from u. S. Intelligencegathering techniques and the fbi and intelligence agencies are being deliberately vague on how they get that information. Theyre trying to give the companies a heads up when they have it. When they do give that heads up, eamon, what are the companies suppose to do with that information . How specific is it . Reporter well, the fbi is saying theyre not the agency to tell you how to fix the problem. What they want to do is tell you exactly what they can about what happened to your company, as best they can about whos doing it, and then the responses are really left up to the companies in most of these cases. They say heres what the the problem is. You guys have to go fix it. From snowy washington tonight, thanks very much, eamon javers. The u. S. Steel industry says it is being slammed by cheap imports and it needs help. Uniyors and executives from Companies Like newcore and biosteel group are asking u. S. Tra trade officials to slap duties on cheap steel imports from south korea, mexico, turkey, saying the u. S. Steel industry could be on the verge of elimination unless something is done. Em battled Hedge Fund King steven a. Cohen may be looking to strike a deal with wall street regulators. Even though hes never faced criminal charges, the billionaire founder of sac capital faces sanctions for failing to supervise two Fund Managers at hers firm who were convicted of insider trading. A settlement could include a ban on managing public money. We begin tonightss market focus at the largest drugstore chain slipped slightly because of a slow down in generic introductions. Walgreen expects the pressure to slow down by the end of the year. Mccormick also out with earnings today. Helped by the recent acquisition of a chinese÷k condiment maker shares of Carnival Cruise lines tumbled after the cruise operator said it may lose money this quarter. The company cut its first full year forecast after it was forced to cut prices to attract passengers. Overall earnings did Beat Estimates and the ceo says carnival is recovering in some parts of the world. Weve seen good strength in europe, in fact our booking currents have been moved out for occupancy rates are ahead of where they were last year. Looking for the quarter and then for the well, investors couldnt get past that morning the stock fell about 5 to 38 and change. nr jamie diamonds top aid Michael Cavanaugh is leaving his position as the cochief executive at jp Morgans Corporate and investment bank. Cavanaugh will become the copresident and cochief operating officer of carlisle group. This came as a surprise since cavanaugh was widely seen as a frontrunner to succeed diamond as ceo or it could mean merely that diamonds not going anywhere anytime soon. Shares of jp morgan fell slightly nonetheless to 60. 93. The maker of rayban and oaklee sunglasses is teaming up with google. They signed a deal to design and manufacture glasses with the google glass technology. Say that five times fast. That sent shares of the Eyewear Company up more than 4 to 56. 20. The canadian government reportedly blocked blackberrys attempt to sell itself to the chinese computer giant lenovo last year this according to reports. The smartphonemaker was told that a chinese or russian investment would be met with stiff domestic opposition. So blackberry abandoned the sale. Shares of blackberry were off a fraction today to 9. 36. The activist defendanter dan loeb of third point sues sothebys to remove its shareholder plan. He claims their poison pill which put a cap on how much his firm can own limits his efforts to shake up the companys board. Sotheby says the poison pill protects existing shareholders. Shares of sothebys up slightly to 43. 07. Tesla, pandora, yelp have seen their share prices stall. Does this meantime to sell or dive in . Dominic chu takes a look. Reporter theres an old saying in the trading world. The trend is your friend. Momentum stocks take that concept and magnify it to a whole new level. So what are momentum stocks . Btig chief global strategy dan greenhouse says momentum stocks are the ones that have high growth expectations built into their price. Value investors tend to stay away from them because they dont like buying stocks at high prices no matter what the growth expectations are. Graywolf execution chief Technical Analyst says its even simpler. Its how far a stock moves up or down in a certain period of time. The greater the price change, the higher the momentum. Many traders have to treat these kinds of stocks differently. A momentum stock is a stock you cant value, thats not trading just on its valuation. Its a company thats gotten ahead of itself and is running just on the fact that people want to be in the name. Reporter some of these momentum stocks had great runs in 2013 that have continued into this year. But theyve also seen sizeable pull backs from their recent highs. Take coffee giant keurig green mountain. The stock almost doubled last year and the trend continued this year. But the shares are 15 below their recent high. Then theres Internet Radio company pandora, up almost three fold over the past two years. Its lost nearly a fifth of its value since hitting its high. Then theres electric carmaker tesla, soaring 344 last year followed by another big gain this year. Its 17 below its recent peak. These stocks have big moves up or down. If youre going to invest in a momentum stock like a netflix or like a lot of the biotext out there or like a tesla, you want to know what your exit strategy is and vet defined. As stocks are moving up and the momentum is in your favor, you want to make sure youre taking some off the table. Reporter s have a strategy is one of the most important parts of trading in momentum stocks. For nightly Business Report, im dominic chu. Coming up, a fish out of water. The lengths california is going to to save its salmon industry, damaged by a record drought. Facebook making a move into Virtual Reality. The Company Buying occulus, a maker of that Virtual Reality technology for 2 billion in cash and stock. We have an update for you on the houston shipping channel. Its been closed since saturday when two ships collided causing a huge oil spill. As the cleanup of 170,000 gallons of heavy oil continues, the u. S. Coast guard is gradually reopening the busy waterway to dozens of passenger ferries, fishing vessels, oil barges and other ships that have been waiting three days to reenter the sea port. The west coast drought has had a devastating impact on dairy and agricultural industry. Now even its seafood industry is being left high and dry. With water levels on the Sacramento River so low, millions of salmon cant migrate to the pacific to spawn. But those fish are now getting some help. Morgan brennan has the story from rea vista, california. Reporter this seen, californias young salmon population wont be making its traditional fall run downstream. Instead, thanks to the worst drought in recorded history, the u. S. Fish and Wildlife Services and partners are driving the states chinook salmon smolt by vand leah tanker truck. Its a multimillion and may be even a billion dollar industry. So by trucking these fish to the delta this year, its likely that industry will be sustained in 2016. Better known as baby king salmon, an estimated 32 million smolts will travel in 240 tanker trucks over the next 2 1 2 months at a cost of 150,000 per week. Thats because the drought has hindered water levels in the in delta system along californias coast. Making it insafe for these fish to swim the hundreds of miles from hatcheries out to the ocean. Now california has trucked salmon before, but never to this extent. The state normally trucks between 13 to 16 million fish. This operation beginning today is essentially doubling the number of fish that wed normally truck. Reporter experts say this initiative is imperative to the survival of the species, and a longterm tactic to ensure these smolts find their way back up the river in two or three years to reproduce. Still theres a lot riding on this plans success. The salmon industry contributes an estimated 300 million annually to californias economy, and employs nearly 3,000 people. And with Global Demand for salmon on the rise, if this years population is hindered by the drought, we could see tightened supply and higher prices for years to come. For nightly Business Report, im Morgan Brennan in rio, vista, california. Fat head is a company best known for selling larger than life cut outs of sports stars and pop singers. And now for a limited time, the company is selling you see it there giant cut out of Warren Buffett for just 30 a pop. Its all to promote the quicken loans billion2w dollar bracket challenge for the Ncaa College Basketball tournament which the buffett owned geico is insuring. But nobodys going to win it. So hes going to make money on it. Thats a little more buffett than i need. All the profits go to Detroit Charities so thats a good thing. Thats nightly Business Report for tonight. Im susie gharib. Thanks for watching. Im tyler mathisen. Have a great evening, everybody. Well see you tomorrow. Nightly Business Report has been brought to you in part by thestreet. Com. Founded by jim cramer, thestreet. Com is an independent source for stock market analysis. Cramers action alerts plus service is home to his multimillion dollar portfolio. You can learn more at thestreet. Com nbr.  narrator tonight on spark, culture creates community. Go backstage at a marin theatre thats a mecca for standup legends. [ as mcconaughey ] Matthew Mcconaughey hey, hey, hey narrator . And rising stars alike. A bay area soldier revives the art of 19thcentury photography, making the first combatzone tintypes since the civil war. A Silicon Valley entrepreneur pours heart and soul and every penny shes got into a worldclass Performing Arts Center and chinese dance company, and. Lewis come and sit beside me above. Narrator . See how grammywinning bluegrass queen laurie lewis is inspiring the next generation of folk musicians. Its all ahead on spark. Funding for kqed arts is provided by. [ rock music plays ]