Transcript: Nightly Business Report – March 1, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Divide deepens.  The fight between Apple (NASDAQ:AAPL) and FBI moves to Capitol Hill.  Now lawmakers are starting to take sides.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Super Tuesday for stocks.  The Dow soars, the NASDAQ has its best day this year, as March comes in like a bull on Wall Street.

HERERA:  Crown jewels.  Why today’s Texas vote is the biggest prize for presidential hopefuls.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, March 1st.

MATHISEN:  Good evening, everyone, and welcome.

Well, the bulls charged Wall Street to start the month of March.  And one of the biggest contributors to the 300-plus point gain on the Dow was Apple (NASDAQ:AAPL).  Today, that company’s lead attorney made his way to Capitol Hill to make his case against the company and the government and FBI to get Apple (NASDAQ:AAPL) to unlock an iPhone used by one of the San Bernardino shooters.

But it wasn’t just Apple (NASDAQ:AAPL) that had the microphone at the crowded House Judiciary Committee hearing.  So, did the FBI director, James Comey, and the war of words intensified.

(BEGIN VIDEO CLIP)

JAMES COMEY, FBI DIRECTOR:  The FBI is not some alien force imposed upon American for Mars.  We are owned by the American people.  We only use the tools that are given to us under the law.

So, our job is simply to tell people there is a problem.  Everybody should care about it.  Everybody should want to understand, if there are warrant-proof spaces in American life, what does that mean and what are the costs of that and how do we think about that?

BRUCE SEWELL, APPLE SENIOR VICE PRESIDENT & GENERAL COUNSEL:  Some of you may have an iPhone in your pocket right now.  And if you think about it, there’s probably more information stored on that device than a thief could steal by breaking into your house.  The only way we know to protect that data is through strong encryptions.

(END VIDEO CLIP)

MATHISEN:  Eamon Javers covering the story for us tonight.

Eamon, how was the FBI director received on the Hill today?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  You know, Tyler, it was fascinating to watch.  He was received very well.  A number of the members went out of their way to praise him even though as others were criticizing him and his actions here in this Apple (NASDAQ:AAPL) case.

This is not one of those issues that slices and dices based on those traditional Republican and Democrat party lines that we’re so used to up here on Capitol Hill.  Ironically, it’s an election year, so it’s likely that nothing will happen.  But you get the sense that some of the lawmakers would like to make law here that would overtake the 1789 All Writs Act that the government is using here.  Have some more modern law that would be in place that would imagine the consequences of these kinds of decision.

HERERA:  We heard a little bit a moment ago, what Apple’s general counsel said.  But what else did you hear from him today?

JAVERS:  Well, you know, he started off in a very defensive position.  He said that, of course, Apple (NASDAQ:AAPL) doesn’t have any sympathy for terrorists and, of course, it has great respect for law enforcement.

But Apple (NASDAQ:AAPL) came into this hearing with the wind at its back because of the court ruling in New York state yesterday, in which case a magistrate judge said that Apple (NASDAQ:AAPL) was right to resist the government and that the government overstepping its boundary under that 1789 All Writs Act.

So, Apple (NASDAQ:AAPL) very much had home court advantage giving that the court ruling so far had been going in their direction.

MATHISEN:  I spoke earlier today to Senator Mark Warner of Virginia who is with a Republican member I believe it was Mike McCaul pushing for a commission to look into this matter of privacy.  And he said, Eamon, that he really wishes Congress had got its head around this problem years ago.  That we’re now sort of late to the party on it.

JAVERS:  Yes.  And Congress is always late to the party, particularly when it comes to advanced technology, right?  A lot of members of Congress are not the most technological adept themselves.  These are not people who are at the bleeding edge and are fully aware of exactly what’s going on in cyberspace.

So, it takes them a while to process this and understand it.  And that’s what’s so frustrating to law enforcement here.  They want to move quickly at the FBI and get access to this phone, because they are in hot pursuit of potential additional terrorists.

They want to know who else is San Bernardino shooters were talking to, where else they were and what they were doing in some of the missing hours here.  This process is going very slowly and it could take a long time before they get access to any information, if any at all.

MATHISEN:  All right.  Eamon, thanks very much.  Eamon Javers reporting from our bureau in Washington.

HERERA:  The Dow soars on this first trading day of March, which historically starts one of the best times of the year for stocks.  Higher oil prices and solid economic reports which we’ll have more on momentarily put investors in an optimistic mood.  By the closing bell, the Dow Jones Industrial Average rocketed 348 points to 16,865.  The NASDAQ rose 131 points, the best day this year.  And the S&P 500 added 46.  The second best gain of 2016.

As for crude, prices settled above $34 a barrel helped by word that Russian firms will not increase output this year.

Mary Thompson has more on this March 1st rally.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, the month of March coming in like a lion on Wall Street.  Stocks surging as higher bond yields gave a lift to beaten financial stocks and gains in oil provided added fuel, helping to send the Dow up over 300 points.

While Tuesday’s readings on construction spending and manufacturing activity here in the U.S. were not blockbuster numbers, they were stronger than expected, giving the bulls another reason to buy.

The markets gained also coming as the European markets rallied on expectation that the European Central Bank will be unveiling more stimulus to the sluggish economy some time next week.

Tuesday’s strong rebound certainly welcomed, though traders would like to see further confirmation the U.S. economy is gaining strength.

From the New York Stock Exchange, I’m Mary Thompson for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN:  It may have been chilly outside, but February was a hot month for auto sales.  Consumers returned to showrooms thanks to a healthy economy and low gas prices.  In fact, February sales soared to a 15-year high for that month.  Of the big three, Ford sales up 20 percent beating estimates, Chrysler an increase of nearly 12 percent.  GM’s results disappointed, however, with a decline of 1.5 percent.

Phil LeBeau takes a look at what drove demand.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  America’s love affair with SUVs, trucks and crossover utility vehicles shows no sign of slowing down.  Ford, Fiat Chrysler and Nissan all posted much better than expected sales thanks to strong SUV demands.

Then, there’s General Motors (NYSE:GM) that surprised analysts with sales falling 1.5 percent.  Well below the gain in monthly sales many forecasted.  What happened?  GM says it decided to cut less profitable fleet sales.  Those are sales to rental car companies, corporations and government agencies.

As GM cut that business, Ford stepped in with more than a third of its business last month coming from fleet sales.

Regardless of the buyer, February showed SUVs and pick ups remain red hot.  Jeep sales shot up 23 percent.  While Toyota (NYSE:TM) had a second straight month of record truck sales.

Keep in mind, January and February are the two slowest months of the year for auto sales.  So, while business has been good, few are excited.  That could change as we roll into spring where strong sales could set the stage for another record year in the auto industry.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA:  Construction spending reached its highest level in eight years.  Weakness in home building was offset by a solid rebound in non-residential activity and government projects.  The Commerce Department reported a 1.5 percent increase in January, an indication to some that the economy regained momentum at the start of the year after a sluggish fourth quarter.

MATHISEN:  So, do today’s better than economic data set the stage for a strong job’s report Friday?  That’s the question.

Steve Liesman has the answer.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  While the nation focuses on the presidential race, markets are keeping a close eye on the economy with a major weak for economic data ahead that culminates with a critical jobs report.

The first data was mildly positive today.  Car sales and construction spending were strong in the downturn and manufacturing, well, it didn’t get worse.  The ISM manufacturing, it’s actually beat Wall Street expectations, rose to its highest level in five months.  It’s just barely below the expansion line.  It’s now only contracting a little bit.

But the big data is yet to come.  Despite fears of U.S. economy softening and that weak overseas growth will drag down the U.S. economy, Wall Street is still banking on a strong February jobs report.

The consensus is for 200,000 jobs.  That’s up from 151,000 in January.  The unemployment rate expected to remain steady at 4.9 percent.  The optimism was buoyed by the paychecks small business index today.

MARTIN MUCCI, PAYCHEX CEO:  The good news here is that we are seeing it two months in a row an increase in the job growth rate in small businesses under 50 employees.  And it’s across the country.  We were seeing a little under 2 percent wage growth for many months.  Now, we’re seeing it closer to 3.  So, we definitely have seen the wage, the wage per hour go up pretty strongly here this the last couple of months.

LIESMAN:  The concern is that job cuts announced during the recent earning season from the big companies lie in front of the economies and could dampen job growth in the months ahead.  Recent market volatility and growth concerns led New York Fed President Bill Dudley to suggest he’s not in a rate hiking mood.

Dudley said in China, quote, “the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside.”

Yet, today’s market rally, which began with Dudley’s downbeat comments, accelerated with the better economic news.  That could suggest the market is more interested in better growth rather than more Fed stimulus.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA:  Still ahead, the simple but somewhat shocking reason why the U.S. throws away billions of dollars worth of cancer drugs a year.

(MUSIC)

HERERA:  The stakes are high this Super Tuesday, and no place is that more true than in Texas, which is one of a handful of states hosting contests in the biggest day for the 2016 primary season.

And as Hampton Pearson reports from Houston, the focus is on Texas for good reason.

(BEGIN VIDEOTAPE)

SEN. TED CRUZ (R-TX), PRESIDENTIAL CANDIDATE:  After a lot of careful deliberation, I’ve decided to vote for myself.

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Senator Ted Cruz had the luxury of casting his Super Tuesday ballot in his hometown Houston precinct.  Afterwards, Cruz told a media horde he expects to win and is ready the take Donald Trump, one-on-one.

CRUZ:  It is all about delegates.  Tomorrow morning, what is likely to happen is Donald Trump is likely to have a whole bunch of delegates.  We’re likely to have a whole bunch of delegates, and I think there will be a big, big drop off for the rest of the field.

PEARSON:  Texas is the biggest Super Tuesday prize, 155 delegates up for grabs on the Republican side.  To get all the delegates, Cruz needs to get at least 50 percent of the vote.  But voters we talk to are both fascinated and furious with Donald Trump.

UNIDENTIFIED MALE:  He’s the one that’s going to turn this country around.  He has no endearment to anybody.  And the more the people talk bad about him, the more people love him.

UNIDENTIFIED FEMALE:  We do not know what he stands for because he doesn’t tell us what he stands for.  He just says he’s going to make us rich again.  Make us great again.  He just, you know, puts platitudes out there without detail.

PEARSON:  A Texas size record turn out is expected in the GOP primary with more than a million votes already cast in early voting.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Houston, Texas.

(END VIDEOTAPE)

MATHISEN:  We’re happy to say that John Harwood is here on the set to talk more about this evening’s decisive voting.

The focus tonight, I think, rightly is on Texas, and Ted Cruz.  This feels like a must-win home game for him.

But let’s talk about Mr. Rubio.  Does he have to win something tonight to remain relevant or does it matter?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  He doesn’t have to.  He’s not claimed he’s going to win any state tonight.  He’d to breakthrough and make some progress and win delegates this places like Virginia and Tennessee, have somewhat more moderate electorates.

But the real last stand for Marco Rubio will be on March 15th.  And when Florida has a winner-take-all primary, just like John Kasich’s Ohio as a winner-take-all primary, each of them to stay in the race has got to win their home state.  Tonight, Ted Cruz has to take care of business in Texas.

HERERA:  And what about on the Democrat side?  Where does this leave Bernie Sanders?  If as expected, Secretary Clinton wins the majority of states or the majority of delegates.

HARWOOD:  Well, it is quite likely that she will do both, because if you look at the pre-election polls, she’s way ahead in most places.  Bernie Sanders has vowed to continue his campaign.  He’s running not that far behind her nationally.  And so, he’s got an audience.

He can take it to Midwestern states that follow like Ohio and Michigan which comes on the 8th and Florida as well.  So, he’s going to sustain his campaign.  His chances for the nomination don’t look great at this moment.

MATHISEN:  Can Cruz win in other states beyond Texas?

HARWOOD:  He hopes so.  Well, look, this is the SEC primary that he’s talked about all along, the Southern (NYSE:SO) states, where the most conservative voters are.  So, he needs to show strength.

And he’s been trying to in places like Oklahoma, places like Alabama, although he took a blow when Jeff Sessions was endorsing Donald Trump the other day.  That’s an ally of Ted Cruz in the Senate.  So, that hurt him.  We’ll see what he can come up with tonight.

If his vaunted of voter identification and targeting program can succeed, maybe he will surprise and win more delegates than we think.

HERERA:  There’s been talk out there about the fractured Republican Party because of Mr. Trump and the influence he’s had on this campaign.  How do they repair that if it is fractured?

HARWOOD:  Well, it’s very difficult to repair damage of the nature he’s suffering right now, because when you look at the people condemning him in harsh, moral terms.  Meg Whitman, the executive, former political candidate herself, Christie Whitman, former governor of New Jersey, Mitt Romney came out and said it was disgusting that Donald Trump had not condemned the KKK the other day.

Those present a moral divide in the party that makes it difficult for Trump to build his coalition and keep Republicans from defecting.

MATHISEN:  There was supposed to be 3,000 e-mails released last night of Mrs. Clinton’s.  So little has been heard about that.  Did they get released?

HARWOOD:  Yes, they were released.

MATHISEN:  But there’s nothing on it today.

HARWOOD:  No.

MATHISEN:  Haven’t seen anybody pick up.

HARWOOD:  Well, they did not have any of the highest secrecy classification kinds of material that people have been looking at.  You know, the argument against her jeopardizing national security is that she was too cavalier in what she was using on this private server.  Whatever the strength of that case, it was not heightened by the release today.

MATHISEN:  Of these particular e-mails?

HARWOOD:  Of these particular e-mails.

MATHISEN:  John Harwood, thanks.

HARWOOD:  You bet.

MATHISEN:  Have a good long night, I’m sure.

HERERA:  Honeywell drops its bid for United Technologies (NYSE:UTX), and that is where we begin tonight’s “Market Focus”.

The more than $90 billion bid was removed after Honeywell said UTX refused to participate in talks.  The news comes after United Technologies (NYSE:UTX) said last week the merger would be, quote, “irresponsible” for its shareholders and would never be approved by anti-trust regulators.  Shares of Honeywell shares gained more than 4 percent to $105.87.  United Technologies (NYSE:UTX) dropped more than 1 1/2 percent to $95.05.

Barclays says that it will sell its African subsidiary and cut its dividends in half for the next two years.  The company CEO stands by the, quote, “very difficult decision” to close the UK bank’s non-core business and wants the company to move forward.

(BEGIN VIDEO CLIP)

JES STALEY, BARCLAYS CEO:  We need to get restructuring behind us, to focus on the core franchise of Barclays.  We have a great transatlantic bank that has a consumer business, a corporate business and investment banking business.

(END VIDEO CLIP)

HERERA:  Shares of Barclays fell nearly 6 percent to $8.89.

Dollar Tree (NASDAQ:DLTR) said sales rose in its fourth quarter.  That wasn’t good enough to meet analysts’ targets.  They missed on earnings citing impacts from the strong dollar.  The forecast for the year doesn’t look promising either.  The company sees earnings missing estimates and says it expects same store sales to stay in the low single digits.  Dollar Tree (NASDAQ:DLTR) shares were up 2 percent to $82.03.

MATHISEN:  The luxury retailer Kate Spade saw revenue rise in its latest quarter, but despite beating some of its competitors, the company missed analyst’s estimates and lowered guidance for the year.  Shares of Kate Spade were up 11 percent to $21.99.

Yahoo’s annual 10k filing shows that the tech giant might need to write down the remaining value of Tumblr.  That’s the microblogging company it purchased for more than a billion just two years ago.  Last month, Yahoo (NASDAQ:YHOO) said it was writing off $230 million of Tumblr’s value.

Despite that news or maybe because of it, getting it bad news out of the way, Yahoo (NASDAQ:YHOO) shares rose 3 percent to $32.80.

Shares of Tesla went the other way.  They fell after the online investment web site Citron Research said it was shorting the auto maker stock, citing supply and demand problems.  Last month, Tesla said it expected to deliver between 80,000 and 90,000 new vehicles in 2016.  Tesla shares ended the day down about 3 percent at $186.35.

HERERA:  Three billion dollars worth of cancer drugs wasted every year.  And according to a new study, it happens for one simple reason.  Drug manufacturers packaged single dose vials that contain more medicine than some patients need.  “The New York Times (NYSE:NYT)” reported on the study conducted by researchers at Memorial Sloane Kettering Cancer Center and published BMJ, formerly known as “The British Medical Journal”.

“The Times” reporter Gardiner Harris (NYSE:HRS) joins us now.

Gardiner, welcome.  It’s a pleasure to have you here.

GARDINER HARRIS, THE NEW YORK TIMES:  Thanks for having me.

HERERA:  As I understand it, this vials for cancer medicines are larger so they can accommodate the larger patients, you know, the 6’2″ guy that weighs 250 pounds.  But that’s the only way they are packaged.  So, if you’re a smaller patient, you end up not — you’re paying for medicine that you never get a chance to use.  Is that correct?

HARRIS:  Right.  So, particularly if you’re a woman and particularly if you’re a small woman, if you’re getting cancer treatment right now, the likelihood is — and you don’t know this because nobody tells you, is that you’re buying this extra, extra large quantity of cancer medicine.  They take just a little bit out of the vial and then they chuck the rest of the vial out.

HERERA:  Because they can’t reuse it for safety reasons, right?

HARRIS:  Right, they can’t reuse it.  You’re not, not only is your insurance paying for it but many people have drug co-pays.  These drugs are thousands of times worth their weight in gold.  So, they are extremely valuable.  And often times, the co-pay just for the patients can be a few thousands dollars.

You know, the new price for cancer drugs is about $190,000 a year.  So, 20 percent of that, which is the standard co-pay, can be $40,000 just for the co-pay.  And if you’re a small woman, there’s a huge share of the $40,000 that you’re paying out of your pocket is actually going straight into the trash.  So, it’s real concern.

MATHISEN:  You use the phrase, you know, incredibly valuable medicine that costs millions to invent and produce, and yet, they’re throwing away these incredibly valuable medicines.  Why don’t they bottle these things or provide them in smaller vials so that 6’5″ guy, the JJ Watt of the world, can take one, two, three vials instead of having just one?

HARRIS:  So, the companies themselves sort of say they are offering a value by just having one sort of size.  And some companies suggest that if they offer their drugs in more than one vial size, that it’s possible that nurses could confuse things and there could be a safety issue.

The problem with that argument is that there’s lots of medicines out there that these companies provide in multiple vial sizes.

And, you know, remember guys this past year when there was this great controversy about Daraprim.  You know, Martin Shkreli and Turing Pharmaceuticals and they jacked up the price of a certain drug by 50 fold.  That whole controversy involved about $200 million.

Well, Merck (NYSE:MRK) with its cancer drug just by changing the vial size is going to make ten times that amount.

HERERA:  Right.

HARRIS:  They’re going to make about $2.5 billion over the next 10 years.  So, it’s a huge issue.

HERERA:  I think what’s also interesting about your story is the medicines are delivered in smaller vials in Europe.  Europe does not have this issue.

HARRIS:  That’s exactly right.

HERERA:  Because the government is more involved in the negotiation of drug pricing.  Is the U.S. going to start paying attention to that particular method?

HARRIS:  Well, so, the problem is that the FDA has they ever been given any sort of authority from Congress to even consider cost.  So, when I talk to the FDA and it sort of took a while to get to this answer, the FDA says, look, we don’t really care about waste unless we believe that it’s going to lead to safety issue.

So, basically, the vial sizes have to be huge and it has to sort of lead nurses that maybe they could treat several patients out of a single vial.  The FDA doesn’t want to do that for safety reasons.  But if you want to sell a vial that is good enough for actually in the story, it’s a 6’6″, 250 pound person, the FDA is not going to argue with you again because they don’t think about cost.

So, either somebody needs to give the power to the FDA to consider costs or the Medicare program, which pays for much of these medicines for taxpayers has to tell drug makers we’re not going to do this anymore.

HERERA:  All right.  It’s a great article to read.  Very insightful.

Gardiner Harris (NYSE:HRS) with “The New York Times (NYSE:NYT)” — thank you for joining us.

HARRIS:  Thank you for having me.

MATHISEN:  Coming up, location, location, location.  Why luxury real estate listings in some areas are stalling.

(MUSIC)

HERERA:  2016 started with a swift kick in the gut in the U.S. stock market, and that was after a few freefalls in the fall.  And it’s those relatively lower equity prices that may be playing into lower sales of luxury homes, depending that is, of course, on where you live.

Diana Olick reports.

(BEGIN VIDEOTAPE)

NANCY TAYLOR BUBES, WASHINGTON FINE PROPERTIES:  The best is his and hers bathroom and his and hers closet.

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  No, the best is this $5.7 million D.C. listing had an offer in barely ten days.

BUBES:  Demand is higher even though the stock market has, you know, gotten in the way and snowstorms have gotten in the way.  But I think demand is there.  People are feeling very good about the economy.

OLICK:  That may be the case in high end D.C. homes today.

And this is hers.

BUBE:  This is hers.

OLICK:  This is literally the “Sex in the City” closet, right?

BUBES:  Oh, totally.

OLICK:  But it is not the case nationally.  The recent correction in stocks has only put an exclamation point on the strong correlation between the stock market and sales of million dollar plus homes.  The two did diverge during the housing boom in the mid-2000, but that had all to do with loose credit.

SAM KHATER, CORELOGIC:  Coming out of recession the S&P index doubled over the next six years and so did high end home sales defined as million plus sales.

OLICK:  More recently since its peak in May of last year, the S&P index fell 10 percent as of mid-February.  That was matched by a 15 percent decline in the share of million dollar plus home sales.

In New York City, especially, but also in San Francisco where the local economies are reliant on financial markets, luxury home sales are slowing and supply is rising.

Also in southwest Florida, where the real estate market is fueled by wealthy retirees from the northeast and Midwest, luxury sales have stalled.

KHATER:  The high end is impacted by equity markets but also by the economic base.

OLICK:  Here in D.C., though, the market has a much more steady denominator of government than the high-priced lawyers and lobbyists who surround it.  They are still buying luxury homes in force.

BUBES:  I actually think the stock market is good for my business.

OLICK:  Really?

BUBES:  I think people are going to really think about divesting a little bit and putting into something they can enjoy.

OLICK:  In other words, bricks and mortar over bulls and bears.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN:  And before we go, let’s take another look at the rally on Wall Street.  The Dow rocketed 348 points, NASDAQ up a big 131, best day so far this year.  The S&P 500 added 46.

HERERA:  On that night, that’s it for NIGHTLY BUSINESS REPORT tonight.  I’m Sue Herera.  Thanks for joining us.

MATHISEN:  And thanks from me as well.  I’m Tyler Mathisen.  Have a great evening, everybody.  And we’ll see you right back here tomorrow night.

END

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