Transcript: Nightly Business Report – February 1, 2016

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue

Google`s parent Alphabet rise above profit report to a new title, world`s most valuable company,                                                                                     supplanting Apple (NASDAQ:AAPL). Henry IV said,
uneasy lies ahead that wears the crown.

one to really change the path of oil prices?

MATHISEN: Big week. Why next few days could answer a key a question for
the market, just how healthy is the American economy?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, February

HERERA: Good evening, everyone, and welcome.

A major milestone for Google`s parent, Alphabet. It`s taken over Apple
(NASDAQ:AAPL) as the world`s most valuable public economy. It crossed that
mark briefly today and solidified that position after recording solid
fourth quarter earnings. It`s first report as Alphabet lifted by a strong
sales of online ads and tighter cost controls.

The company whipped expectations earning $8.67 a share. Wall Street was
looking for $8.10. Revenue was also better than expected at more than $21
billion, an increase of 17 percent from last year. The result sent shares
of Alphabet higher in initial afterhours trading. This was also the first
report to separate Google`s main search business from its riskier
investments like self-driving cars, fiber and glass.

Josh Lipton has more on Alphabet`s quarterly results.


billion dollars, that is one big number from the recent Alphabet report.
It refers to operating income at Google (NASDAQ:GOOG) core — and remember,
that refers to search, maps and YouTube, the real business drivers of

What`s different now is that the company is breaking out this number,
stripped away from its other bets such as Nest and Fiber and all those moon
shots. So, investors have a much cleaner look.

Sameet Sinha of B. Riley, an Alphabet bull, calls that $6.8 billion a
massive number that beat his forecast. The number he says suggests that
despite the competition from rivals such as Facebook (NASDAQ:FB), the
company continues to perform well in its core businesses, a display
advertising, mobile advertising and YouTube.

From NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.


MATHISEN: That profit report for Alphabet, and last week`s equally
impressive one from Facebook (NASDAQ:FB) tees up a great debate. Which
company deserves the poll position in your portfolio?

Scott Kessler likes Facebook (NASDAQ:FB) and has a buy on the stock. He`s
deputy global director of equity research at S&P Capital IQ. And Max Wolff
favors Google (NASDAQ:GOOG). He`s chief economist at Manhattan Venture
Partners, an investment firm based in New York City.

Gentlemen, this reminds of those high school essay tests where they say
Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), discuss. And that`s really the
whole mission here.

You know, Scott, why don`t you take it first? It`s not necessarily that
you don`t like Google (NASDAQ:GOOG). You just think Facebook (NASDAQ:FB)
has maybe a little more going for it and maybe a better price, I guess.

So, Tyler, I don`t think you can go wrong with either of these names. But
I`ll give you a few reasons for why we like Facebook (NASDAQ:FB) more.

First, we have a lot more growth. If you look at Facebook (NASDAQ:FB) and
what they deliver in the fourth quarter, I think it was a top line gain of
52 percent, if you adjust for currency, 60 percent, and that`s really
without any help from acquisitions or anything like that.

Second is they have a number of levers for future growth. So, think about
video, Instagram, WhatsApp, even Oculus. So, we think the growth story has
a number of years to go.

And, third, is that they haven`t really started the process of, say,
allocating that capital to shareholders. Google (NASDAQ:GOOG) started.
Alphabet started last year with a $5 billion buy back. Facebook
(NASDAQ:FB) isn`t even close to that process. So, that`s going to be
another lever to generate shareholder value in the years to come.

HERERA: All right. Max, take the other side in Google (NASDAQ:GOOG). You
say Google (NASDAQ:GOOG) is basically the next new thing.

agree both of these are great names. Both of these should be portfolio
elements to people who want growth with really consistent earnings.

I think the next little while is Facebook (NASDAQ:FB). Facebook
(NASDAQ:FB) is the now company. I think Google (NASDAQ:GOOG) is the next
thing. Facebook (NASDAQ:FB) is now the thing, and I think usually,
depending on what your investment style is, you want the next thing.

So, I think what Google (NASDAQ:GOOG) has show us is, Google (NASDAQ:GOOG)
is a portfolio of the most likely to be successfully executed on start ups
with the lowest multiple, while still throwing off enormous cash, ala the
most recent report.

I do think that Google (NASDAQ:GOOG) is closing in on one of the hardest
things to do and one of the things that only companies are built to last
have ever done, which is keep that engineering culture, keep plowing
profits and earnings not just into the next corner or the next year, which
Wall Street tends to favor, but really the deep money ideas, those are
self-driving cars or balloons providing Internet.

So, I think Facebook (NASDAQ:FB) is a great name. I think it still has
more margin than Google (NASDAQ:GOOG) for a while. But I think that
Alphabet owns the bigger piece of the future because they take those
chances, because they`re more diversified, because they`re more mature,
they can sort of take chances that Facebook (NASDAQ:FB) couldn`t get away
with, and that means they`re better long term bet.

MATHISEN: Max, let me just push back just a little bit. I was speaking
earlier today to someone who took the view that some of the things within
the Google (NASDAQ:GOOG) or Alphabet portfolio that as you call them, out
of money ventures right now, are sapping capital from the company and that
the capital allocation — not to use a fancy word — t might be a little
inefficient as a result.

Do you see that as weakness or a strength?

WOLFF: So, it`s definitely true. I don`t think it`s a weakness or a
strength. I think it`s called innovation, right?

So, if you`re not willing to spend a lot of money on a whole bunch of
dreams many of which won`t come true, come true, you`re not really in the
innovation business. One of the hardest things to do is be a big behemoth
company with huge revenue and stay creative and nimble, without just buying


WOLFF: And I think it`s hard to do. But I think there`s a good chance
Google (NASDAQ:GOOG) will be one of the few companies that does it. And
that means built to last, and I love that for a portfolio.

HERERA: Scott, what about Instagram and its role at Facebook (NASDAQ:FB)?
I mean, it seems to me that that is probably one of its most valuable
assets right now, because it goes across all different age groups, whereas
Facebook (NASDAQ:FB) does not necessarily do that.

KESSLER: Yes. So, I think that`s fair, Sue. I remember, what was it,
maybe a year or so ago when Facebook (NASDAQ:FB) was talking about concerns
from a demographic perspective, because younger users weren`t flocking to
Facebook (NASDAQ:FB) and weren`t staying on Facebook (NASDAQ:FB). Now,
they have an answer, and Instagram has become really arguably the biggest
and most important social network for that younger demographic, say for

And so, they`re just really starting the process of monetizing Instagram.
They are using new features and functionality to draw people in and to
engage them and then they`re pricing advertising accordingly. We think
that`s an exciting new opportunity that`s going to last years to come.

MATHISEN: All right. Gentleman —

WOLFF: WhatsApp, too. WhatsApp is big with the younger crowd.

HERERA: Oh, yes.

WOLFF: And they have a major opportunity to monetize.

MATHISEN: Are they making money off of WhatsApp? Quick yes or no, guys?

WOLFF: Not yet.

KESSLER: No, they haven`t really even started that process.

MATHISEN: That`s the question there. They paid $19 billion for it. I
like it, are you making money or not?

Scott, thanks very much. Max, great discussion. We appreciate it.

WOLFF: Thank you.

KESSLER: Thanks a lot.

HERERA: A new month, February started out fairly calm, especially compared
to January.

The major averages were down more than 1 percent early in the day. But
then they climbed back. And when the closing bell rang, stocks were
basically flat. The Dow Jones Industrial Average fell 17 points to 16,449.
The NASDAQ rose six, rather. The S&P 500 was fractionally lower.

But what lies ahead for February especially after the worst January
performance since 2009?

Deirdre Bosa looks at the past for a few clues about the future.


January. Hello, February.

Falling oil prices and worries over China`s economy gave stocks their worst
start to the year since 2009.

But as investors look to a fresh month, history may be on their side. Over
the last decade, February has been a better month for markets. The S&P 500
and the blue chip Dow Jones Industrial Average have been positive seven of
the last ten. And the best time to get in may be at the start of the
month, according to Kensho, a data analytic platform for financial markets.

Stocks reliably moved higher and see better returns during the first two
weeks of February.

ART HOGAN, WUNDERLICH SECURITIES: I think investors will start finding
that we`ve created some bargains in the first month of the year.

BOSA: The best performing sector has been technology, followed by
materials and consumer discretionary. After typical weak Januarys, they
tend to make up lost rounds during the first 10 trading days of the new

DAVID SPIKA, GUIDESTONE CAPITAL MGMT: Overtime, consumers, if they believe
oil price are going to stay where they are, they`re going to be encouraged
and they`re going to be wanting to spend that money on discretionary items,
whether that`s restaurants, or leisure or clothes — whatever the case may

BOSA: There may also be opportunity in commodities. It`s been a rough
start to the year for oil. But if you think the floor is in, crude has
been a good bet this month. Oil has moved higher eight of the last ten
Februarys and returned nearly 4 percent on average.

Past performance is no guarantee of future results, but knowing the history
may help wash out some of that noise from January as investors look to a
fresh month.

For NIGHTLY BUSINESS REPORT, Deirdre Bosa, Vancouver, Canada.


MATHISEN: Well, the month started with a number of multibillion dollar
mergers. Abbot Labs to buy diagnostics company Alere (NYSE:ALR) for nearly
$6 billion. The acquisition makes Abbot a bigger player in the rapid
testing space, which helps physicians speed up treatments.

Stryker (NYSE:SYK) is acquiring the privately held medical products firm
Sage for more than $2.5 billion. Stryker (NYSE:SYK) also raised its
earnings guidance for 2016.

And the power producer Dominion Resource to acquire the natural gas utility
company Questar (NYSE:STR) for more than $4 billion.

HERERA: It is a big week for the economy. It started today with new
reports on how much Americans are spending and saving, and it will end
Friday with a look at how many are working.

And as Steve Liesman reports, the new information will tell us a lot about
where things stand.


data that bulls hope will show gathering strength in the economy. But they
got off on the wrong foot. Personal income reported for December today was
OK, but spending came in below expectations and construction spending in
December also missed the mark with only a slight gain.

The first data for January was also disappointing. A key survey showed
manufacturing contracting for the fourth straight month.

STEPHEN WOOD, RUSSELL INVESTMENTS: We don`t see a recession is being our
best case for 2016, but we don`t see really strong growth either. So, it`s
really chugging alone that square root shaped long term sub-trend growth
that we`re in right now.

LIESMAN: There`s still hope for the data this week. Auto sales on Tuesday
and important report on the sector on Wednesday could yet show the U.S.
economy is withstanding its considerable challenges. They include weak
overseas growth, low prices that have devastated the nation`s resurging oil
industry, and a strong dollar that`s translated into pain for U.S.

A top Fed official today offered a hint that the Fed could ease back on its
hiking plans because of recent developments in oil prices and the dollar.

prices and increases in the value of the dollar for an exchange value of
the dollar, suggested that inflation would remain low for somewhat longer
than had previously been expected before moving back to 2 percent.

LIESMAN: Less inflation and forecast means the Fed that doesn`t have to
move as quickly as previously thought to hike rates. But Fisher remains
optimistic about job growth. Markets will see if that optimism is well-
placed beginning with the ADP employment report on Wednesday and with the
Friday jobs number from the government.

The forecast fact calls for gains of 185,000 jobs in January. That`s a
mark cool down from the near 300,000 in December, but it`s still enough to
keep the unemployment rate unchanged or even edge it down below 5 percent.

The key test for the week is whether the data show the weak fourth quarter
growth continuing into the first and if where mostly foreign troubles are
increasingly U.S. domestic concerns.



MATHISEN: Oil prices suffered their first decline in five sessions. Here
we go again. Soft factory data out of China raised concerns about the
outlook for energy demand. And that pressured crowd which settled down
nearly 6 percent at $31.62 a barrel.

HERERA: That low prices of oil is hurting the finances of Nigeria, a major
oil producer. Africa`s largest economy has reportedly asked the World Bank
and the African Development Bank for emergency loans, totaling $3.5
billion. According to “The Financial Times”, the request will help fund a
$15 billion deficit.

MATHISEN: The Russian economy also getting hit hard by the low price of
oil. And lately, there`s been a lot of talk out of that country about
meetings to potentially support prices. But is that all it is, just talk?
Or is Russia a real wild card in the energy market?

Dina Gusovsky reports.


continue to go south, Russia has been at the forefront of trying to figure
out whether or not some action, like a production cut, could be implemented
in order to support and stabilize oil prices. An OPEC official recently
even stated that it`s all in the hands of the Russians now.

So, could Russia be holding a powerful card here?

wildcard because if you look at 2015, they really surprised many analysts
by being up several hundred thousand barrels. And the question for this
year is, are they going to be up or are they going to be down.

If they are up again this year, everyone is going to have to take their oil
forecast down. What I think is interesting now is you are for the first
time getting some Russian producers, principally oil, coming out and
saying, you know what, maybe we should consider cutting production.

GUSOVSKY: But some say it`s much easier said than done.

REVA BHALLA, STRATFOR GLOBAL ANALYSIS VP: I don`t really see Russia being
the one that`s more willing to cut production on its side. And you have a
lot of disagreements amongst Russian energy firms as well.

GUSOVSKY: Several analysts we spoke with say Russia`s role in a potential
oil production cut is really just a sideshow, and that Russia is simply
just trying to talk up the oil markets. Even if it does want to cut
production without Saudi Arabia`s cooperation, it will be all talk and
little action, with geopolitics complicating things quite a bit.

BHALLA: When it comes to Russia trying to compel a Saudi cut, there`s a
lot of distress there. And I think the Saudis are going to be much more
focused on U.S. production than they are in coordination talks with Russia.

GUSOVSKY: But some argue Russia has reason to do whatever it can to get
other country`s cooperation, perhaps now more than ever, like New York-
based attorney Edward Mermelstein who advises high net worth individuals
investing in Russia and the former Soviet Union.

the 20s is going to impact Russia`s economy even more significantly than
where it is today, which is in dire straits.

GUSOVSKY: Russian President Vladimir Putin himself has admitted that low
energy prices have led to dangerous revenue losses, since Russia relies in
oil and gas exports as the main drivers of its economy. That and rising
(INAUDIBLE) economic sanctions has caused Russia`s GDP to contract



HERERA: Still ahead, the big money behind the race for the White House.


HERERA: Iowa voters will caucus tonight. It`s the first presidential
nominating contest in a race like few we`ve seen before. There won`t be
any lines for voting booths but rather public meetings.

John Harwood tells us why it could be an historic night in the Hawkeye


reached the point in the American presidential campaign where it`s not up
to pollsters, it`s not up to pundits, it`s not even up to campaign
speeches. Tonight, the voters begin to have their say in Iowa with the

And sometimes, we forget that despite all the complex policy papers, and
issues stances that the candidates take, it sometimes for voters comes down
to simple gut reactions to the candidates that they see in front of them.

Let`s take a look at a few that we`ve picked over the weekend in Iowa.

UNIDENTIFIED FEMALE: Voting for Clinton, pragmatic progressive.

UNIDENTIFIED MALE: Marco Rubio because he can unite people.

UNIDENTIFIED FEMALE: Ted Cruz, constitutionalist.

UNIDENTIFIED MALE: Bush and honesty.

UNIDENTIFIED MALE: Carly, confident, strong and she has a blue print for


UNIDENTIFIED MALE: We love you, Donald.



UNIDENTIFIED MALE: Hillary. Seniors.

UNIDENTIFIED FEMALE: Bernie, approachable.


UNIDENTIFIED MALE: My status right now is still undecided.

HARWOOD: Now, those voters did get stark rhetoric especially on the
Republican side at the tail end of this fight. Listen to this back and
forth between Ted Cruz and Donald Trump, the two leading Republican

attacking me. They are attacking me with all their might. And we`re
drawing contrast.

And the contrasts are clear. The contrasts, by the way, are substantive
and policy-based. A vote for Marco Rubio is a vote for amnesty. And a
vote for Donald Trump is a vote for Obamacare.

TRUMP: Ted Cruz is a total liar. I am so against Obamacare. I`ve been
saying it for two years in my speeches. I`m going to repeal and replace

I don`t know where he gets this, but he`s a liar.

HARWOOD: Trump comes into caucus night with a five-point lead in the last
Iowa poll. But Ted Cruz is believed to have a stronger organization.

On the Democratic side, Hillary Clinton has a three-point lead in that last
Iowa poll over Bernie Sanders. But she`s believed to have the stronger
organization. So, she`s considered the favorite going into tonight.

The results here, however they come out, are going to shape the contest as
we move forward to New Hampshire which has the primary in eight days, then
Nevada and South Carolina after that. And then the race goes national.

For NIGHTLY BUSINESS REPORT, I`m John Harwood in Des Moines, Iowa.


MATHISEN: Well, the money is rolling in to the presidential campaigns.
Total contributions for the fourth quarter have been filed. We`ve got the
numbers, giving voters a look at the financial health of each candidate`s
war chest.

Eamon Javers has been going over the data.

What do the numbers show, Eamon?


This is much different than what we have seen in past years or past
quarters here. It`s such a different race this time around. Let me walk
you through numbers starting on the Democrat side of this campaign.

We see Hillary Clinton topping the list with $38 million raised in the
fourth quarter, also Bernie Sanders with $33.6 million.

On the Republican side, Ted Cruz, $20.5 million. Marco Rubio, $14.2
million. There`s Donald Trump at the bottom of this list, $13.6 million
for Donald Trump.

What`s astonishing is this is not the kind of race we have seen before. We
got a guy in this race who is leading this campaign and self-funding his
own campaign. So, contributions matter less to Donald Trump than the other
candidates who will depend on them like oxygen to keep going after the Iowa
caucuses today.

HERERA: He`s made that point that he doesn`t need money, but people are
still giving money despite the fact he`s a billionaire.

JAVERS: Yes, that`s what`s astonishing here, Sue. You see a lot of small
donations here going to Donald Trump, $50, $100, lots of those donors, even
though the guy is a billionaire and says he`s` going to write his own
checks anyway.

What don`t you see in the Donald Trump`s case is a lot of people maxing
out, giving the total maximum amount of money to the Donald Trump
campaigns. That means a lot of the big money people in traditional
politics are not writing checks to Donald Trump. A lot of smaller people
are. That`s a measure of enthusiasm for the Trump campaign.

MATHISEN: Quick thought here. I saw — I was stunned how close Bernie
Sanders was to Hillary Clinton. Can he keep it up and raise establishment
size money?

JAVERS: Yes, he`s definitely hitting his marks. So far, he`s raising
enough money to stay competitive. Hillary Clinton`s got all these big
outside groups working for her, so she`s got a big advantage. But Sanders
is definitely in there in this money race right now.

MATHISEN: All right. Eamon, thanks very much. Eamon Javers in D.C.

JAVERS: You bet.

HERERA: Twitter gets a lift on takeover speculation. And that`s where we
begin in tonight`s “Market Focus”.

A report by tech website The Information said investor Marc Andreessen and
private equity firm Silver Lake Partners have, quote, “considered some sort
of deal with Twitter.” But then a follow up by “Fortune” reported that
Silver Lake has no interest in buying, quote, “even a slice of Twitter”.
Nonetheless, shares were up more than 6 percent today to $17.91.

Lumber Liquidators will pay more than $13 million in fines and penalties
for importing illegally sourced wood. In October, the hardwood flooring
retailer pleaded guilty to felony and misdemeanor charges. Under its plea
agreement, the company will also face five years probation. Shares of
Lumber Liquidators were up 3.5 percent today to $13.36.

The Centers for Disease Control and Prevention is closing its investigation
into the Chipotle E. coli outbreak, saying the concern appears to be over.
But the CDC was unable to determine the cause of that contamination, saying
that it was likely because of a, quote, “common meal item or ingredient”,
end quote. Chipotle expected to report its four quarter earnings tomorrow.
Shares rose more than 4 percent to $472.64.

MATHISEN: Fourth quarter property at the health insurer Aetna (NYSE:AET)
up nearly 40 percent. Thanks in part to membership growth in its
government based business that sells Medicare and Medicaid plans. It did
however issue a downbeat outlook for 2016, citing an expected drop in
enrolment and a rise in medical costs. Aetna (NYSE:AET) shares up 1 1/2
percent today to $103.37.

The activist hedge fund Hudson Executive Capital has taken a small stake in
CIT Group (NYSE:CIT) and wants the firm to break up. That according to
“Wall Street Journal”. CIT Group (NYSE:CIT) provide commercial lending and
insurance services and also owns planes and rail cars it leases out. The
lenders exploring a spin off of its commercial air business. Shares of CIT
up nearly 2 percent today to $29.86.

And Mattel (NASDAQ:MAT) beat fourth quarter earnings target, pulled in $2
billion in sales. That revenue number also better than expectations.
Strong sales for its Barbie dolls and Hot Wheels toys lifted those results.
It was Mattel`s first rise in revenue in more than two years. And just
like the new Barbie, Mattel (NASDAQ:MAT) shares plumped up on the news in
extended hours after falling 3 percent during the day to $26.76.

And coming up, we go a different direction. The marijuana industry is
growing quickly, and so are the headaches when it comes to paying taxes.


HERERA: Legal marijuana sales both recreational and medicinal are hitting
a new high of nearly $5.5 billion last year. A new report predicts sales
this year will grow 25 percent. And by 2020, sales are expected to hit
about $22 billion.

MATHISEN: But for those who sale marijuana legally, filing business taxes
is anything but simple.

Jane Wells takes a look at this growing issue for a new crop of


cannabis industry. And for many new in the business, their IRS bill could
leave them dazed and confused.

DEREK PETERSON, TERRA FITCH CEO: Companies are paying anywhere from 40
percent, 50 percent, 70 percent depending on what demographic they happen
to be on.

WELLS: Even though marijuana is illegal at the federal level, the IRS
still insist these companies pay income taxes. At the same time, the
agency bars them from making most normal business deductions.

JEREMY CARR, BLAZENOW CEO: You could end up with tax bill far more than
any potential profit you could ever make.

WELLS: Jeremy Carr of a dispensary in West Hollywood said that could start
to happen as legalization is bringing down prices and margins.

CARR: I`ve seen the profit margins drop about 40 percent in the last five

WELLS: Here`s the irony, the IRS does low deductions for the cost of
growing marijuana, but it does not allow deductions for the retail cost of
selling it, things like rent, advertising, payroll.

PETERSON: You know, fortunately, the margins are there, at least in
northern California where we operate.

WELLS: Derek Peterson left Wall Street to start Terra Tech, a publicly
traded holding company which owns a variety of cannabis companies,
including the bloom dispensary in Oakland.

But Terra Tech also owns other companies which don`t directly involve pot,
like one which provides growing equipment or a firm which sells regular
produce to retailers. He makes sure businesses are segregated in their tax
reporting and puts as many costs as legally possible into areas where
deductions are allowed.

PETERSON: A lot of business still is one leg in the black market. We`re
not able to do that because we`re a publicly traded company and everything
is audited on an annual basis. But there`s a will the of providers that
because of this headwind are still operating with one foot in the black
market, one foot in a more overt and regulated market.

WELLS: Those trying to be legit accused the IRS of hypocrisy. Tim Cullen
owns the Colorado Harvest Company in Denver, which did about $10 million in
sales in 2015. He says the lack of normal deductions will cost him a
million and half dollars more in taxes.

TIM CULLEN, COLORADO HARVEST CO. CEO: If we`re licensed and legal in
Colorado, that should be good enough for the IRS. But they certainly cash
our checks every month.



HERERA: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for watching.

MATHISEN: And thanks for me as well. I`m Tyler Mathisen. Have a great
evening, everybody. And we will see you back here tomorrow on Groundhog`s

HERERA: Oh, that`s right.


Nightly Business Report transcripts and video are available on-line post
broadcast at 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) 2016 CNBC, Inc.


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