SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Offshore bombshell. Leaked documents from Panama show how some of the world’s power players use offshore accounts and the fallout goes global.
Product or profit? Should investors buy companies based on a hot product or can hype get in the way?
And baseball bonanza. How one man took his passion for America’s pastime to a whole new level.
All that and more on NIGHTLY BUSINESS REPORT for Monday, April 4th.
Good evening, everyone. Welcome. Tyler Mathisen is on assignment this evening.
Tonight, we begin with a story that continues to unfold, and is having ripple effects in the uppermost echelons around the world. I’m talking about what some are calling an unprecedented leak of more than 11 million documents from one of the biggest offshore law firms which shows how some of the most richest and powerful people in the world use tax havens to their advantage. No Americans have been named, so far. But one trail indirectly seems to lead to Russian President Vladimir Putin. Some others mentioned include the prime ministers of Iceland and Pakistan, the president of Ukraine.
One of the biggest revelations show how some created shell companies and made secretive investments. Well, that’s some of what we know, but there’s still a lot more we don’t. And for that, we turn to Eamon Javers in Washington.
Good evening, Eamon. Good to see you.
First off, these structures are not necessarily illegal, is that correct?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, that’s right — under U.S. law, anyway. And remember, we’re dealing with people all around the world. But under U.S. law, it’s not necessarily illegal to have an offshore shell company. It’s just that you have to disclose the assets in that offshore shell company when it’s time to pay your taxes, and presumably a lot of people who set up these shell accounts did it exactly to avoid paying taxes. But you have to go on a case by case basis to determine that.
HERERA: Yes. Well, why no Americans on the list, at least so far?
JAVERS: Yes, that’s one of the great mysteries here. One of the things we don’t know is why haven’t we seen many American names coming forward just yet? It looks like there’s a big global trove of documents. Just one American name I’ve seen so far in all of this, and that person is not a household figure — household name at all.
So, we don’t know why not, but it is a big question.
HERERA: And why this particular firm?
JAVERS: Another great unanswered question. It looks like the leaker, in this case, had access to these documents. It’s more than 11 million documents.
It’s billing records, it’s e-mails, it’s spread sheets. It’s all the kind of daily work product that you would have in an office where you’re putting together shell companies. And a lot of that is very revealing because the only way to know who owns a lot of structures is to look inside the law firm where they are actually documenting who they know or the real owners, even as they are putting together a document trail that suggests that somebody else actually owns the shell company.
HERERA: Do we have any idea who had that kind of access and therefore could have leaked the documents?
JAVERS: And that is the third big mystery in this tonight. This story just broke international yesterday. It’s so much speculation now swirling around just who is the person who leaked all this information. Who was that person and why did they do it?
We don’t have any indication right now, but it seems clear that there is a financial Edward Snowden out there, to coin the term. We don’t know who that person is. Was it a hacker who hacked in to this law firm? Was it a disgruntled insider who had access to it? Was it part of some other soap operatic political shenanigans on the geopolitical front? We have no idea.
But you can imagine a whole lot of people want know the answer to that question.
HERERA: Where did they release the documentation to or to whom?
JAVERS: Yes, initially, they gave the information about a year ago to a German newspaper. That newspaper shared it with a consortium of investigative journalists around the world. Those folks have been working on this story for months and months digging into these documents. The rest of the world just found out yesterday.
HERERA: Wow. Eamon, thank you so much.
JAVERS: You bet.
HERERA: Eamon Javers in Washington.
And we mentioned the creation of those shell companies. So, what are they and how do they work?
Dina Gusovsky explains.
DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Offshore accounts and shell companies have long been used by wealthy individual, government entities and large corporations. But the recent leak of a trove of documents from Panamanian law firm Mossack Fonseca known as the “Panama papers” shows how it works in much more detail and who is benefitting from having so much money overseas.
HEATHER LOWE, GLOBAL FINANCIAL INTEGRITY: Creating an anonymous company is very, very easy. If I, as an American, really wanted to create an anonymous company in Panama, I would call up what we call a corporate service provider. And Mossack Fonseca is a version of a corporate service provider.
In many cases, you’ll see companies like Mossack Fonseca doing what they can to make it as difficult as possible to figure is out who was behind an anonymous company. And — so, that makes a bank’s job that much harder.
GUSOVSKY: Oftentimes, one can even register an anonymous company online. There can also be what’s referred to as a “registered agent” involved. That’s the person who would receive all the mail for the company. For example, if there’s some kind of legal action taken against it, that person would notify the appropriate party.
LOWE: I can then use that company for any number of things. I can use it to stash my kickbacks for — in a bribery scheme, whether that’s commercial or official sort of government corruption. I can use it — for tax evasion or tax avoidance.
GUSOVSKY: Moving drug money can be done this way as well by sending cash through tax havens to make it harder to trace the source of the funds. For some government officials, there’s no shortage of reasons to try to hide money.
Sources we spoke with say a lot of people here in America take our banking system for granted. And places where money is not safe like in politically unstable countries, the incentive to park money overseas becomes that much more real and urgent. Some world leaders simply don’t want the public to know how much they are really worth. And, of course, if they can get away with not filing a tax return, that makes Panama all the more enticing.
And some think, based on the close relationship between the United States and Panama, American names and companies might come under the spotlight next.
LOWE: Those ties have been very strong for a long time, and I do expect to see U.S. names and, in fact, U.S. anonymous companies part of the network and fabric.
GUSOVSKY: In Panama, the customer is oftentimes shrouded in mystery, just like he or she prefers.
For NIGHTLY BUSINESS REPORT, I’m Dina Gusovsky.
HERERA: Billions of dollars from offshore accounts make it back here to the U.S., and as Robert Frank explains, much of that money goes into what’s called hard assets.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world’s rich and powerful have stashed trillions of dollars offshore and some of that money has washed up in the Miami real estate market and the global art market. The leak of the so-called “Panama Papers” reveal the offshore structure linked to the Mossack Fonseca law firm detailing the shell companies used by dozens of world leaders and billionaires. Press reports say 29 billionaires on the Forbes list use offshore structures involving Mossack Fonseca. Now, very few of these billionaires are named, but Forbes says many appear to be from Russia and Eastern Europe.
Arkady Rotenberg, the childhood friend of Vladimir Putin, is named, as well as Ukrainian President Petro Poroshenko. No American billionaires or clients have been named in the document leak, at least not yet. But U.S. assets have become a favorite destination for some of that money. “The Miami Herald” reporting 19 foreign nationals created offshore entities that purchased Miami real estate, and eight of them have been linked to corruption, tax evasion or embezzlement in their home state.
Half of all real estate purchases in Miami are cash deals and overseas buyers bought $6 million worth of homes in southern Florida last year. That’s about a third of local spending. U.S. treasury has imposed new rules in Miami and Manhattan requiring buyers using LLCs and offshore entities to disclose the real owners.
Now, offshoring is perfectly legal in many cases, but it has helped support the art market. Reports say Russian billionaire Dmitry Rybolovlev created trusts in the BBI to purchase more than $2 billion worth of art, including a famous Modigliani he bought for $118 million. That was sold by billionaire Steve Cohen.
These trusts were already disclosed last year and they were created for estate planning purposes, but it shows that growing scrutiny could lead for cause for more regulation and add further pressure on the art and real estate market.
For NIGHTLY BUSINESS REPORT, I’m Robert Frank.
HERERA: Stocks started the week on a down note as a 3 percent slide in oil prices offset gains in the health care stocks. The Dow dropping 55 points to 17,737. The NASDAQ falling 22 points and the S&P 500 was off six.
New orders for factory goods fell in February with business spends much weaker than originally thought. The Commerce Department said orders fell 1.7 percent. Orders have fallen 14 out of last 19 months. Manufacturing accounts for about 12 percent of the U.S. committee.
Boston Federal Reserve President Eric Rosengren says that the markets have it all wrong. He said the markets are too slow and pricing in interest rate hikes and a rise might be better suited earlier saying, quote, “I believe it will likely be appropriate to resume the path of gradual tightening sooner than implied by financial market futures.”
As of last Friday, the first month priced in with a better than 50 percent chance of a rate hike is September.
So, how do Americans feel about the prospects for the economy and for investing? And how do they feel the presidential front runners might have on both?
Steve Liesman gets some answers about their sentiment with the results of an exclusive poll.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Americans head into the heart of the election season with mixed views on the economy. The CNBC All America Economic Survey finds above average attitudes on the current state of the economy, but below average views on where things are headed.
Opinions on whether wages and home values will increase in the next 12 months are also in line with past, at about a third of the public. But only 31 percent think this is a good time to invest in stocks.
Meanwhile, most national polls show Democratic front-runner Hillary Clinton beating Republican leader Donald Trump in a head to head contest. The CNBC survey tells a different story. When asked who is best for the economy for your wages or personal financial situation, Clinton and Trump are tied. In a poll of 802 Americans across the country, with 3.5 percent margin of error, 24 percent say Clinton and 24 percent say Trump have the best policies for the overall economy, 21 percent say none of the above.
JAY CAMPBELL, HART RESEARCH VP: There’s no clear advantage for either one of these two leading contenders going into the general election. So, a lot of it is going to be fought at the margins where they do have their advantages.
LIESMAN: Clinton shows stronger support on health care, the middle class and trade, while the two are tried on immigration. Trump has an edge on having best policies for large corporations and the wealthy, and regulating business, banks and Wall Street.
One Trump advantage, the electorate is angry and the angry vote breaks for the Republican frontrunner. Nearly three fourths of the public is angry and dissatisfied with the political system in Washington, compared with 56 percent who are angry and dissatisfied about the economy.
MICAH ROBERTS, PUBLIC OPINION STRATEGIES VP: The economic anger that’s out there is very, very wise spread. It’s across both parties. And I think more than any other survey we’ve done, we’re seeing those economic anger and that economic feeling being influenced and pushed and driven by partisanship and also in another way by the economic haves and have-nots.
LIESMAN: The angry and dissatisfied favor Trump over Clinton, 28 to 21 percent. Trump appears to have a profound impact on American attitudes on trade. Just 27 percent said trade helps the U.S., now 10 points from when the question was asked a year ago. Forty-three percent say it’s hurt the country, up 12 points.
But more than half the country say immigrants strengthen the nation, little change from August of 2013, and only 31 percent say immigrants are a burden, because they take American jobs and housing, down seven points, a sign perhaps that a nation of immigrants hasn’t forgotten where it came from.
For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.
HERERA: And Donald Trump is weighing in on where he thinks the economy is heading. And it’s not good. In an interview with “The Washington Post (NYSE:WPO)”, Trump said we’re on the verge of a, quote, “very massive recession,” end quote. Thanks to high unemployment, a frothy stock market, and what he calls an economic bubble. His comments were met with skepticism from economists questioning his math.
For example, Trump put real unemployment at around 20 percent. The broadest government measure of unemployment currently sits at about 10 percent.
Still ahead, how the government is trying to make shopping for your broadband connection as easy as reading a cereal box. We’ll explain, coming up next.
A federal judge granted final approval for an estimated $20 billion settlement over the 2010 BP Horizon oil spill in the Gulf of Mexico. That settlement was originally announced last summer. It will be paid to five Gulf States over 16 years for environmental damages. The rig explosion killed 11 people and spilled more than 130 million gallons of oil.
The Federal Communications Commission wants to make it easier for customers to comparison shop for broadband service.
Julia Boorstin takes a look at the new rules the commissioned launched today.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Communications Commission is breaking down the fine print of broadband service, turning confusing jargon into what looks awfully familiar, taking a page from a nutrition label you’d find on a cereal box, to help consumers compare broadband speed, data caps, promotional rates, fees and surcharges.
Until now, users had to call Internet service providers to get much of that information.
TOM WHEELER, FCC CHAIRMAN: Hidden fees have no place to hide. They’re all laid out there. The surprise of when you open your first bill and you say, “Oh, that wasn’t what I was expecting,” it won’t happen anymore because everything is laid out.
BOORSTIN: These changes are part of the FCC’s open Internet order signed last year requiring transparency, and the stakes are high, with the average monthly cost of broadband ranging between $60 and $70. And the actual price is paid for broadband services as much as 40 percent greater than what’s advertised after taxes and fees. This according to consumer complaints to commission.
That means today’s changes are a win to consumers, as well as the Internet providers who offer the best deal.
Analyst Michael Harrigan points to the nation’s biggest Internet provider, Comcast (NASDAQ:CMCSA) (NYSE:CCS).
MATTHEW HARRIGAN, WUNDERLICH SECURITIES: I think that anything that gets standardization and clarity is a win for Comcast (NASDAQ:CMCSA) (NYSE:CCS) and probably for a number of other cable companies. It has such a similar products to what Comcast (NASDAQ:CMCSA) (NYSE:CCS) offers.
BOORSTIN: And with streaming video on the rise, thanks to the explosion from services from Netflix (NASDAQ:NFLX) to YouTube. The focus on efficient broad band will continue to grow. So, though this precise format isn’t mandatory, we can expect it to be quickly adopted throughout the industry.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
HERERA: And a quick note: Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC, which produces NIGHTLY BUSINESS REPORT.
Alaska Air Group (NYSE:ALK) buys Virgin America for more than $2.5 billion. That’s where we begin tonight’s market focus. The proposed merger between the parent company of Alaska Airlines and Virgin America will still need to be approved by regulators.
But earlier today, Virgin America CEO David Cush what made Alaska the clear choice over airline bidder JetBlue.
(BEGIN VIDEO CLIP)
DAVID CUSH, VIRGIN AMERICA CEO: I will say price was a primary thing here, you know? We understand what our fiduciary duty is. That we’re both qualified buyers. So, ultimately, it came down to price.
We thought the Alaska plan was a very good plan. It was about establishing a power house on the West Coast that would have strong presences in Seattle, San Francisco and L.A.
So, we like that and very simply, they came in with a very strong offer.
(END VIDEO CLIP)
HERERA: Shares of Virgin America soared more than 41 percent to $55.11. Alaska Air fell nearly 4 percent to $78.92. JetBlue shares also down 4 percent to $20.41.
Investment research firm Sanford Bernstein downgraded General Electric (NYSE:GE) on concerns over valuation and risk of rising competition for several of the company’s business. But Bernstein increased its price target on the stock to $34 a share, up from $33. Shares fell 2 percent to $31.23.
Network service provider Brocade Communications will buy Ruckus Wireless in a stock and cash deal valued at about $1.2 billion. Ruckus Wireless creates wireless Internet system. Shares of Brocade fell more than 13 1/2 percent to $9.19. While shares of Ruckus spiked more than 32 percent to finish at $13.24.
Yahoo (NASDAQ:YHOO) attracts more bidders. Media coming Time Inc. is reportedly exploring the possibility of partnering with a private equity firm to bid on the tech giant’s core Internet business. Yahoo (NASDAQ:YHOO) is also reported to be in talks with the Japanese company Soft Bank about a potential sale. Soft Bank currently owns a part of Yahoo (NASDAQ:YHOO) Japan and Alibaba. Shares of Yahoo (NASDAQ:YHOO) up more than a percent to $37.02.
And Tesla orders for its new model are still rolling in. CEO Elon Musk tweeted over the weekend that the company has received 276,000 preorders for its new model three. The car isn’t expected to hit showrooms until the end of 2017. But after the bell, the company said in the first quarter, it delivered fewer cars than expected because of a parts shortage. That initially sent shares lower and extended trading after closing up 4 percent to $246.99.
Well, whether it’s the newly unveiled Tesla Model 3 or the latest must-have tech gadget, investors are buying these hot new products instead of stock. But is this the best way to invest their money?
Mike Holland, chairman of his own money management firm Holland and Company, joins us now to talk about that.
Good to see you again, Mike.
MIKE HOLLAND, CHAIRMAN, HOLLAND AND COMPANY: Good to see you, Sue.
HERERA: What do you think about that? I mean, you know, you get a hot new product. That doesn’t necessarily translate into good stock market performance, does it?
HOLLAND: No. Actually, often ends in tears because with companies who have a single really hot product, it’s usually not a secret. It’s usually part of it is marketing.
Elon Musk is a great marketer. The stock over the last several years has done spectacularly. It’s up 65 percent from its bottom earlier in the last 12 months.
In buying stocks in companies like this, you have a huge amount of enthusiasm which means the valuation probably reflects that. In the case — the Tesla stock, as you pointed out, hasn’t done all that well over the last several months. But its valuation, Sue, is something — they lose money. They don’t make money. So, how do you value companies that don’t make money?
So often with new companies, that comes with the hot product, it’s tough to value them. When they actually start earning money, people realize what they’ve been paying for the stock. It’s actually quite difficult to make money in those. Now, every once in a while an Apple (NASDAQ:AAPL) comes along. We all remember —
HERERA: I was going to say, what about Apple (NASDAQ:AAPL)?
HOLLAND: We all remember Forrest Gump. There’s no question that it happens. But it is a lottery. So, it’s not the way Warren Buffet, investor John Templeton and the classic investors who made lots of money over the years. It’s fun to do. Smart friends who own Tesla stock and Tesla cars, I think they’re probably going to get more enjoyment out of cars than the stock.
HERERA: Is Apple (NASDAQ:AAPL) an exception to that rule because of Steve Job’s vision for the future? I mean, does it have — you know Elon Musk has some of that as well. How much of it has to do with a visionary at the head of a company like a Tesla or like an Apple (NASDAQ:AAPL)?
HOLLAND: At least 100 percent.
HOLLAND: There’s no question that the person at the top in those situations is the do or die for the company, as well as for the investor.
There’s — you look back at the history of Apple (NASDAQ:AAPL) versus all of the other companies from the dot-com busts through, and so few of them had anyone like — because these people come along once in a generation. Musk is a wonderful marketer. He looks to be a pretty good CEO. He looks to be a pretty good visionary, as you said, and maybe a good engineer. He’s done a lot of interesting things.
So, it’s possible that several years from now that will be one of the extraordinary, unusual events, the anomaly in this situation.
HOLLAND: Quite often, single hot product companies are not a great place to be.
HERERA: On that note, Mike, thank you so much as always.
HOLLAND: Thanks, Sue.
HERERA: We appreciate it.
Mike Holland with Holland and Company.
Late this afternoon, the machinist union representing 30,000 workers at United said it has reached seven tentative deals with the airline. The five year deal calls for a 30 percent pay increase over the term of the contract and a 25 percent hike in pension benefits.
Coming up, how one man turned his love for baseball into a veritable fortune.
HERERA: Here’s a look at what to watch for tomorrow. Trade numbers are expected to show the trade deficit widened last month. We get a read on the biggest part of the economy, the services sector. It’s expected that segment expanded slightly last month. And we get a snapshot of the labor market as the so-called JOLTS monthly report comes out. This one will show how many job openings there were in February, how many were filled and how many people quit. That’s what to watch for on Tuesday.
While basketball fans will be zoned in on tonight’s NCAA men’s championship, baseball fans have a lot to be happy about too. Three games kicked off the major league season yesterday, but the rest of the teams kicked things offer today in earnest.
Baseball and memorabilia go hand in hand, of course. And as Robert Frank tells us, one man turned his hobby into treasure.
FRANK: This briefcase isn’t particularly fancy. But don’t be fooled by appearances because it’s holding a rare investment worth millions.
We’ll take a peak inside soon, but, first, a little background on the white glove multimillionaire construction mogul who is carrying it. Jim Ancel is also a huge baseball fan, with a big league addiction.
JIM ANCEL, SPORTS MEMORABILIA COLLECTOR: I buy expensive items, but I just buy and just to collect them.
FRANK: And sometimes just to wear them. With his fiancee watching, Jim is casually sporting rare hundred-year-old baseball uniform. The hat alone is worth $200,000 because it was once owned by legendary slugger Babe Ruth.
It’s taken Jim decades to collect thousands of very valuable pieces of sports history.
ANCEL: I really have no idea how much money I’ve spent.
FRANK: But this is just some of what he spent it on. He paid around $50,000 for a nearly 100-year-old baseball signed by Hall of Famer Christy Mathewson. It’s now valued at a quarter n bucks.
Fifteen years ago, he spent 65 grand on this Babe Ruth baseball bat. The rare wood was notched by the bambino himself, one for each of the eight home runs he hit with it. Price tag today, around $1.5 million.
But of all purchases Jim’s ever made, the one he’s most proud of is hidden in this handcrafted wooden it briefcase.
Memorabilia expert Dave Hunt is here to tell him what it’s worth.
Inside the case, a collection of 19 balls dating back to the early 1900s. All signed by presidents.
DAVE HUNT, MEMORABILIA EXPERT: Theodore Roosevelt. That’s impossible.
FRANK: From Teddy Roosevelt to Barack Obama, not one chief executive is missing.
It took Jim 20 years to hunt down each autographed ball. Harding cost him 50K. JFK cost about $18,000. Obama’s he got for free as a gift. All in, Jim spent around 200 grand on the balls.
HUNT: This is literally breathtaking.
FRANK: Dave estimates the ultimate commander in chief collection could be worth between $1 million and $2 million. He puts the value of all the memorabilia Jim’s amassed at around 20 million bucks. Jim has no plans to part with any of his collection. In fact, he’s only expecting his children to cash in once he’s gone.
ANCEL: My goal is when I pass away to have an auction for my seven children.
FRANK: An auction that will keep Jim Ancel living in style for generations to come.
For NIGHTLY BUSINESS REPORT, I’m Robert Frank.
HERERA: And that does it for us tonight. I’m Sue Herera. Thanks for joining us. Have a great evening. We’ll see you tomorrow.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.