Return to Transcripts main page

CNN MONEY

Tech Stocks Up; Apple Announces Possible New Products; New Technology Helps Paralyzed Individual Regain Movement; Corporate Inversion Practice Draws Criticism from White House

Aired August 30, 2014 - 14:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CHRISTINE ROMANS, CNN HOST: Your bank may have just been hacked. But the FBI is on the case. Can anything protect your money from hackers? I'm Christine Romans. This is CNN MONEY.

Burger King, home of the whopper, finds a new home in Canada. Why legendary investor Warren Buffett has taken some heat over BK's merger with Tim Hortons.

Apple's new toys may be getting bigger, but will a larger iPhone and iPad mean larger profits?

And later, a first in technology, how a microchip in this man's brain may be changing the future of medicine.

But we start with a big hack at a big bank, the FBI investigating a massive data breech. A source close to the investigation says it hit seven of the 15 biggest banks that operate in the U.S., that includes JP Morgan Chase, according to a source. The bank says it hasn't detected any unusual activities and encounters cyber-attacks frequently. It also invests heavily in cyber-security. Look at this. Earlier this year, the bank revealed plans to spend more than $250 million a year and focus 1,000 employees on cyber-security by the end of 2014.

Our CNN MONEY panel joins us now, Paul Lamonica, Zain Asher, and Jose Pagliery. Jose, is this going to be enough to protect consumers? This is a big hack, and it's scary. This is the backbone, really, of the world economy.

JOSE PAGLIERY, CNN MONEY CORRESPONDENT: That's true. We've got to realize that banks are doing it right. They're investigating in cyber-security, but the entire U.S. and European banking system is under cyber-attack. We don't know where it's coming from. Some people have said it's from Eastern Europe, possibly Russia. But we've got to realize there's a lot at stake here. Apparently these hackers got into these computer systems deep enough to edit, manipulate, delete bank logs and records. And so the danger here is that they could have done some damage that we haven't realized yet.

ROMANS: Do we know if this is for monetary gains, for political reasons? We don't know yet what this is about.

PAGLIERY: We don't because we don't know who did it, we don't know their motivations. But we do know this has huge destabilizing potential.

ROMANS: We know the bank just made an awful lot of money and the government is really closely watching too.

ZAIN ASHER, CNN CORRESPONDENT: My question is, how concerned should the average consumer be? We hear about these hackings all the time, and you know if you detect any forged activity you're going to be reimbursed.

PAGLIERY: This actually -- the FDIC won't cover this. Most people don't know this, but they won't cover it. They only cover it if a bank goes belly-up. In this case, banks typically have insurance that covers consumers, but not business bank accounts.

ROMANS: Really? Unbelievable. That's interesting. And we know every day they're under attack and spending a lot of money to make sure nobody gets in.

All right, guys, S&P 2,000, a new milestone on Wall Street, multiple record highs this week. The S&P 500 has now tripled in value since the beginning of the bull market in 2009. Look at that chart, beautiful. Here's why. The economy is growing again after contracting at the start of the year, corporate profits, solid, the Federal Reserve, still pumping money into the economy. And the European Central Bank is thinking about doing more to boost its economy as well. OK, so, Paul, kill my buzz. What could make that beautiful chart look ugly?

PAUL R. LA MONICA, CNNMONEY ASSISTING MANAGING EDITOR: What could go wrong? Let's see, Ukraine, ISIS, you know, many other geopolitical risks, the mid-term elections. There are a lot of things that could go wrong. But I think the good news is, as you point out, the U.S. economy is pretty stable. I mean, it's not growing gangbusters. I've been calling it this barbecue, low and slow recovery for years, but a recovery is better than a recession. And no one is predicting a recession.

ROMANS: Some of these tech stocks have been unbelievable. You look at Apple, some of these tech stocks have done so well, from S&P 1000 to S&P 2000. But the bull market is old. This is a long in the tooth bull market. A lot of people are saying at some point this has to turn.

ASHER: Right, but a 10 percent correction happened three years ago. It's a long way away. Investors I talk to say for that 10 percent correction to happen you'll have to see the United States directly involved in some geopolitical instability. But what I think is interesting is that the S&P reached 2000 on a week when no one was home, one of the slowest weeks of the year, still got up to 2000.

ROMANS: All right, the invites are out, making Apple's upcoming event official. In typical Apple fashion, the invite is cryptic, saying only the date, September 9th, and this, "Wish we could say more." The company usually rolls out new iPhones in Septembers. It's Apple- picking time in September. This time, two new iPhones are expected with supersized screens, 4.7 and 5.5 inches. The current version has a four-inch screen. Also expected, an iWatch. Jose, Apple kind of late to the game. Samsung already has these bigger screens. The Chinese consumers have wanted bigger screens. Are Apple customers going to switch?

PAGLIERY: If Apple does this right, yes. And they tend to do that right. But on both fronts, they're late, right? For the larger screen phones and devices, they're a little late on that. The other is, if we see an iWatch, and it might be a fitness device, it might be jewelry -- who knows? They're a little late to that game too. Samsung and other companies have come out with a lot of wearables, and that's all the rage right now in the tech industry.

LA MONICA: Keep in mind, Apple is often late intentionally. I think that we are waiting to see if wearables, which, to be brutally honest, are more kind of things that people wear and lack like dorks doing so, Apple might make them cool, especially now that they've bought Beats as well. I think the other thing with Apple, you point about are people going to switch, I don't think the case is, are Android lovers going to switch to iPhones? It's everyone with an iPhone 5 with the awful battery, the iPhone 5S, do they upgrade to the 6? You're probably going to get a lot of that.

PAGLIERY: And it's worth nothing that they might look like dorks now, but when we have connected devices all over our homes and everywhere else, and we've got wearables that connect and sync and talk to these things, then we won't seem so strange when we're wearing devices --

LA MONICA: And the watches at least look better than Google Glass.

ROMANS: I wonder if these watches are going to yell at me to run a little faster. "Go Romans, go Romans."

Big money pouring into tech this week. Snapchat, the app that sends disappearing photos, worth reportedly $10 billion after a massive round of funding. Rumors it turned down a $3 billion buyout offer from Facebook. Remember that? Amazon made a deal, though, it bought Twitch, a service that lets gamers watch and broadcast game play. That deal is worth $970 million. Zain, which of these is a bigger deal for consumers?

ASHER: I think it's Amazon buying Twitch. Users hoping that Amazon doesn't meddle with the Twitch platform too much. The big question is who are they going to manage to integrate this into the already sort of random, discombobulated portfolio. They're already made some headwinds in gaming in terms of Fire TV. They want to expand it. Are they going to have to make changes to Twitch to do that?

ROMANS: So what is this Twitch? It's a platform so if you're playing Minecraft with your friends and you're recording it and sharing it?

ASHER: Yes. And so you can actually watch someone playing a video game. People get really excited about it, they comment. They've got about 55 million users per month. So it's a huge potential ad revenue. And in terms of Snapchat, you know, $10 billion, huge valuation, probably over-valuated, but I think everyone at Snapchat is literally patting themselves on the back right now for not accepting Facebook's --

LA MONICA: What start-up isn't overvalued now? Uber, $18 billion. Facebook bought WhatsApp for $19 billion.

ROMANS: Is it worth $10 billion? Is it worth it, Jose?

PAGLIERY: I'm not convinced, and here's why. The hackers that I've talk to that look at these secret messaging systems and deleting messages, they told me that it's not totally secure. There are more secure message platforms out there.

ROMANS: We'll continue to monitor that and see if the value is higher than $10 million eventually.

Finally, this is a flyer's worst nightmare, because the plane is packed, the baby in front of you is crying, you're trying to recline your seat back to relax, but it won't move. Why? Because the person behind you put one of these on the seat. It's called the knee defender. Several airlines have banned these things, and this week it caused a fight at 35,000 feet. A plane had to be diverted because two people were fighting over the knee defender, which wouldn't let somebody recline their seat. You call this pocket-sized vigilante justice.

PAGLIERY: It is, because what we're not realizing if we use this sort of device is that when you pay for a plane ticket, you pay for the right to lean back. You pay for the space behind you, not in front of you. That belongs to the person ahead of you, right?

ROMANS: You have thought about this. You have sat on an airplane and stewed about this!

PAGLIERY: I'm taking a moral stand.

(LAUGHTER)

ROMANS: Well, my knee defender, I want to bring one of my own kids with me and no one wants to recline in my space anywhere because my kids are so terrible.

LA MONICA: I have a one-year-old.

(LAUGHTER)

ROMANS: At some point, we'll all be in straight chairs in the plane.

ASHER: Some don't even offering reclining seats. .

ROMANS: There you go, there you go. So nice to see all of you. Have a great weekend.

Coming up, fast food is as American as blue jeans and Apple pie, but an iconic U.S. company is moving north to Canada. We'll explain why Warren Buffett is getting behind this controversial move.

(COMMERCIAL BREAK) ROMANS: It's a whopper of a deal. Burger King is buying Canadian donut chain Tim Hortons for $11 billion. If approved, Burger King will move its home north of the border where taxes are lower. So it could be a big break for the burger giant, or, as some people are saying, it's just a big tax dodge.

(BEGIN VIDEOTAPE)

CRISTINA ALESCI, CNN MONEY CORRESPONDENT: When you think of Burger King, or Warren Buffett, you think American. Now the iconic American brand and iconic investor are teaming up to move the fast food chain's headquarters out of the U.S. Burger King says it's buying Canadian donut house Tim Hortons. The combined companies' headquarters will be north of the border. That makes it easier for the company to write off some of its U.S. corporate taxes and avoid paying some taxes on earnings abroad. Warren Buffett's company, Berkshire Hathaway, is chipping in $3 billion to help fund the deal. Critics wonder why Buffett, the patriotic investor, would back the deal.

WARREN BUFFETT: I think we should raise taxes on the very rich.

ALESCI: But now he's helping the company potentially avoid U.S. corporate taxes. It's a tactic called inversion. Like most businesspeople, he says the U.S. corporate tax system needs to change so that companies don't have a reason to leave, which is what companies have been doing. Burger King is just the most recent and biggest brand name to do so.

BUFFETT: It's a crazy situation, but, it's developed over the years, and that part of the tax code is really going to have to get looked at hard at some point.

ALESCI: The question for Buffett, is leaving the most patriotic solution? And do they need to leave? The United States is often criticized for having one of the highest corporate tax rates in the world. But companies find ways to offset their tax bills. Just to put this into context, corporate taxes were 1.6 percent of GDP last year, less than half of what they were 50 years ago. Burger King's own executives say the deal classifies as an inversion, but the new structure won't save the company any money on taxes. With many Americans still feeling the sting of the recession, it's no surprise U.S. companies avoiding taxes has become a political issue.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: It's not fair. It's not right. The lost revenue to treasury means it's got to be made up somewhere, and that typically is going to be a bunch of hardworking Americans.

ALESCI: But before we get too patriotic, it's important to remember, while Burger King is an American brand, it has locations in 98 countries, international growth is key, and a Brazilian investment firm owns most of the company.

(END VIDEOTAPE)

ROMANS: It is legal and it is a common tax strategy. I want to bring in Cristina Alesci for more details. Burger King not the first company to move north of the border, move to another country to get a lower tax bill.

ALESCI: So here's the thing. Warren Buffett finds himself in a little bit of a tough spot, because, on the one hand, he's saying the personal tax code is unfair to the little guy. And on the other hand, he's backing a tactic that President Obama says is unfair to the little guy. So it's really tough for him to reconcile those two points.

ROMANS: It is another reason, though, why you do need to have tax reform in this country, and he could easily, easily use that as ammunition. Thank you so much, Cristina Alesci.

I want to talk more about this deal and what it means in this political environment. Greg Valliere, chief political strategist for Potomac Research Group, joins me now. Greg, this is really an interesting deal, interesting that Warren Buffett's involved too. Burger King says this -- this deal is not about tax rates, it's about growth. But people are pretty fired up and there are these plans to boycott the restaurant even though the U.S. tax code allows for this. Is the public's anger misguided here?

GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMAC RESEARCH GROUP: Well, we'll see what people say to members of Congress during the August break when they come back. Will it be a real furor, or will things like ISIS and Ukraine be a lot bigger? The defection by Buffett on this, Christine, is an interesting part of the story. When I was a kid, my dad used to say, do as I say, not as I do. And I think this is sort of what Buffett is doing. Buffett is doing something that theoretically goes against his belief in tax reform.

ROMANS: But he has said, give us tax reform. I mean, in a way, it could put an exclamation point on what he's been saying for all these years about you guys got to fix this.

VALLIERE: And you talk to people in both parties, and there's close to unanimity that our tax code is a total mess, it's opaque, it retards economic growth. So I would argue this gives some momentum to Paul Ryan and others that are going to move quickly next year on some kind of reform.

ROMANS: Let's talk about the pace of these inversion deals, because we've seen them in medical devices, we've seen them in health care. There's been at least 15 proposed this year. This is a really highly visible name. Could, you know, the legal eagles at treasury maybe do something about it without lawmakers getting moving?

VALLIERE: Well, you've hit on the key point. I think that Congress won't do anything. The Senate's going to make some noise in September, but there won't be a bill this year. So you're right, it's up to treasury. This administration has not been shy about using executive authority, and treasury is working on some rules and regulations. Whether they have statutory authority is very unclear. I think the process would take many months if they tried to do this. So at least for a while longer, ironically, the door is open for more of these deals.

ROMANS: Companies and industries would have to give up some of their tax breaks in order to get their lower, you know, stated tax rate. That's what's going to be so hard. I mean, is business ready to give something up, give up the goodies for a lower overall tax rate and a simpler tax code?

VALLIERE: You've hit on the key point, and that is everyone agrees in principle that tax reform is a good idea. But the details are really difficult. You want to lose accelerated appreciation? Do you want to lose the research and development tax credit, on and on and on? When you get to the details, it gets a lot tougher.

ROMANS: The mortgage interest deduction, et cetera, et cetera. Everybody's got a little bit of a tax goody. Greg Valliere, always nice to see you, thank you.

VALLIERE: Yes.

ROMANS: Coming up, a tragic diving accident leaves a man partially paralyzed.

(BEGIN VIDEO CLIP)

IAN BURKHART: They told me that I'd severed my spinal cord at a c-5, c-6 level. I would most likely never walk again. The chance of using my hand and fingers again were very slim.

(END VIDEO CLIP)

ROMANS: We're going to you the amazing moment when technology beats those odds. That's next.

(COMMERCIAL BREAK)

ROMANS: Wearables may be the hottest trend in consumer tech, but in research facilities and hospitals, wearable technology is changing lives. Technology correspondent Laurie Segall introduces us to Ian and show us the amazing moment when a chip in his brain helped him beat the odds.

(BEGIN VIDEOTAPE)

LAURIE SEGALL, CNN TECHNOLOGY CORRESPONDENT: A paralyzed patient moves his fingers for the first time in years, using his mind.

DR. ALI REZAI, OSU WEXNER MEDICAL CENTER: OK, Ian, so you're going to think about opening your hand, and I'll hand you the spoon, and then the software will help you go through the rest of the sequence of rotating and letting go of the spoon, OK?

BURKHART: Awesome.

SEGALL: An ocean dive in 2010 left Ian Burkhart paralyzed.

BURKHART: When I dove in and it, I didn't think anything of it. But I had this instant numbness feeling. And I knew something was wrong, because when I tried to move, I couldn't.

SEGALL: And later you went to the doctor and what did they tell you?

BURKHART: They told me that I had severed my spinal cord at a c-5, c- 6 level. I would most likely never walk again. The chance of using my hand and fingers again were very slim.

SEGALL: In the three years since the accident, Ian had to re-learn how to drive, text, even watch his friends on the Lacrosse field, all with limited wrist movement. But the rest of his body remained paralyzed until neurobridge. Ian became the first patient in a groundbreaking study. Doctors from Ohio State University teamed up with engineers from tech company Battelle for a three-hour surgery that could change his life. If it all went well, Ian would be able to move his fingers using his mind. And then for the first time since he dove into the ocean that day --

BURKHART: That's cool.

REZAI: That's good. What do you think?

(APPLAUSE)

SEGALL: An impossible thought, hinged on tech that took a decade to play out.

REZAI: The study involves placing a small microchip, micro-sensor, on the part of the brain called the motor cortex. It's essentially the part of the brain that controls the movements. And this microchip is connected with wires and then we can plug that into a computer, an external computer, that allows us to link the brain signals from Ian's mind by thinking about movements.

SEGALL: Called neurobridge technology, it decodes brain activity, bypassing Ian's severed spinal cord.

REZAI: We've developed a special piece of technology that we call the sleeve that actually allows us to pinpoint individual muscle segments that actually control finger movement, and we can actually isolate each finger and help each finger move.

BURKHART: I really had always thought that, you know, with being so young when I was injured, that science and medicine would progress at some point in my lifetime and have some sort of advance for me. But I never thought that it would be this soon or that I would really be a part of it.

Laurie Segall, CNN MONEY, Columbus, Ohio.

(END VIDEOTAPE)

ROMANS: Amazing. Doctors are hopeful that with research the results will get even better. They're also looking at this type of technology for stroke victims with nerve damage.

All right, coming up, seniors in high school starting to choose where they'll be freshman next year. Oh, yes, the college search is on. Up next, a checklist you can't afford to miss.

(COMMERCIAL BREAK)

ROMANS: It's happening in every high school in America, students preparing for college, taking the SATs, visiting schools, filling out applications, and figuring out how to pay for it all. College is not an expense, it's an investment. A four-year education with in-state tuition, this is how you break it down. It costs an average of $613 a week. Want to go to that private university down the road? That will run you an average of $1,363 a week while you're attending.

College is still worth it, higher wages, better job prospects, more life experience. That's if you can figure out how to pay for it. Here's a checklist from the leading expert on paying for college, Mark Kantrowitz. He's the senior vice president of Advisers.com. He says apply to a school that's a reach school. Then add to your list a few that are a good match. Put on your list a safety school, and then one more.

(BEGIN VIDEO CLIP)

MARK KANTROWITZ, PUBLISHER, EDVISORS.COM: You also apply to a financial aid safety school, which is a college that not only will admit you, but where you could afford to attend even if you got no financial aid.

(END VIDEO CLIP)

ROMANS: A financial aid safety school. At the very least, you get an affordable college degree. College is a sound investment unless you borrow too much money to go there or you don't finish.

Thanks for watching CNN MONEY. We're here every Saturday at 2:30 p.m. Eastern, so set your DVR. And check out CNNMONEY.com every day for the money matters that most to you. You can also find us on Twitter, Facebook, and Instagram. Have a great weekend, everybody.