Transcript: Nightly Business Report- July 1, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Flat Fourth. Stocks start the
second half of the year not exactly with a bang. Still, they do head into
the Fourth of July weekend higher, barely, after the best weekly gains of
the year.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Second-half scoreboard. A
look at the tug of war taking place in the market right now and where
stocks might go from here.

HERERA: And all American picks. Our market monitor says if you believe in
the good old US of A, then he`s got three stocks for you.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, July 1st.

MATHISEN: Good evening, everyone, and welcome to the second half of the
year.

The fireworks on Wall Street fizzled a bit today after all the pyrotechnics
in the last week stemming from Britain`s vote to leave the European Union.
But after a tumultuous start, it turned out to be the best weekly gain for
stocks so far this year. Today was the fourth straight up day gained,
small one, for stocks.

The Dow Jones Industrial Average up 19 points to close at 17,949. NASDAQ
added just about 20 and the S&P 500 tacked on four, but closed above the
psychologically important 2,100 level. I know I feel psychologically
better for that.

For the week, all the indexes rose more than 3 percent, with the S&P having
its biggest percentage gain in about eight months.

HERERA: So, we now know how the first half ended and the second half
started. The question for investors now is, what`s next?

Bob Pisani takes a look at the issues stocks face that could be market
movers in the second half of the year.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the start of
second half of the year and after an already tumultuous first half, the big
question is, where do we go from here in? The main issue is the tension
between the bulls, who insist on TINA, you know, “there is no alternative”
to stocks, and the bears who believe valuations and earnings estimates
remain way too high and as the markets will move lower in the second half
of the year.

TINA is not quite right. You know, there are alternatives. There`s always
have been. Money continues to pour into high yield, the municipal bond
ETFs, and of course, there`s always gold. Gold hit a two-year high today
and that`s giving a major boost to gold ETFs like GLD.

As for earnings, while they will not collapse, estimates for an increase in
the second half are dependent on a lot of things going right. There`s two
big issues. First, lower interest rates and a strong dollar. Lower rates
for longer will likely be a big problem for banks particularly if the yield
curve remains relatively flat, because the banks make money on higher
rates, and a greater difference between long and short term rates.

A dollar spike is another big issue. A spike in the dollar at the end of
last year turned into a huge problems for materials, industrials, energy
and many technology stocks, all of whom cited dollar strength as impacting
profits at that time.

Besides earnings, there`s plenty of other events that could move the
markets. Like a U.S. presidential election. All of which could throw an
additional monkey wrench into the markets.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: June auto sales are showing the American consumer is still
buying cars and trucks at a near record pace, although that pace is
gradually sowing down. It`s further proof that auto sales appear to have
hit a plateau.

And as Phil LeBeau tells us, that could mean good news for Americans
looking to buy a new vehicle in the second half of the year.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Fourth of July
weekend should be a busy one at auto dealerships around the country. A
relatively healthy economy, low interest rates and high consumer confidence
will convince many consumers this is the time to buy new wheels.

June sales for the largest automakers were roughly in line with estimates.
With Fiat Chrysler continuing to grow sales year over year, thanks to
strong demand for Jeeps. The brand remains red hot despite negative
headlines about the death of an actor linked to a recalled Grand Cherokee
(NASDAQ:CHKE).

Overall, pick up truck sales are seeing double digit growth thanks in part
to a strong housing market and low gas prices. But after seven years of
surging sales, many Americans have replaced their old car or truck with a
new one, so dealers are having to work a little harder to close sales.
That means if you`re looking to buy in the second half of this year, you`ll
likely find hefty incentives to sweeten the deal.

Whether or not the industry can top last year record sales is up for
debate. Despite the inventory of new vehicles growing, auto makers have
yet to make major production cuts for the second half of this year. Many
are hoping that July and August, which are typically two of the busiest
months of the year, will once again deliver hot summer sales in the auto
industry.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Well, not only is today the start of the second half, it`s also
the first day of the fiscal year for state. And new laws take effect all
across the country.

Jane Wells takes a look at some of the new ones and rather unusual one that
go on the books from coast to coast.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many so-called normal
new laws are taking effect today across country like here in Los Angeles.
The first of many new minimum wage hikes begin. The minimum wage now going
up to $10.50. There`s a law going into effect that you can no longer wear
ear buds in both ears while driving a car or bicycling.

But there are the unusual laws and the ones that raise eyebrows, including
one here in California, where for the first time, professional cheerleaders
like the Raiderettes must be paid minimum wage, have sick leave and have
same worker protections as the team staff.

In Virginia, don`t feed Bambi. Feeding deer now carries a $50 fine.

In Maryland, powdered alcohol, which is apparently a thing, will remain
illegal for two more years.

Vermont has enacted the first GMO labeling law. So, Coca-Cola (NYSE:KO)
will be pulling some lower volume products off shelves rather than spend
the money on labeling in the home of Bernie Sanders.

And Indiana has made sawed off shotguns legal. Sawed off as any barrel, 18
inches or shorter. By the way starting today, Indiana will be charging
fantasy sports sites $50,000 to operate in the state.

But none of these laws are as weird as some of the laws that have been on
the books for a long time, including one in Connecticut, where a cucumber
isn`t a cucumber unless it can bounce and in Arizona, asses are banned from
sleeping in bathtubs. And by that, I mean, donkeys.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

MATHISEN: No donkeys in the tub. That`s really something.

All right, manufacturing data from June showed a better — only on NBR.
Showed a better than expected gain, that manufacturing data did, signaling
that things might in that important sector. Construction spending fell for
the second straight month in May. This follows April`s decline, which was
the biggest monthly drop in more than five years. The back-to-back
declines could cause some economists to lower their second quarter growth
forecasts.

HERERA: There`s no doubt that Federal Reserve will have a lot of its plate
in the second half of the year.

Fed Vice Chair Stanley Fischer sat down with Sara Eisen to talk all things
economy.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Everybody`s trying to
figure out what the Brexit effect will be on the U.S. economy and Fed
policy.

Federal Reserve Vice Chairman Stanley Fischer told me it`s too soon to
tell.

STANLEY FISCHER, FEDERAL RESERVE VICE CHAIR: We`re going to have to wait
and see. It clearly is a huge event for the U.K. and it`s an important
event for Europe. Our direct trade with Britain is not going to make a
huge difference to us, but it could set off, there are a lot of things that
will follow from Brexit for Europe, for the United Kingdom.

EISEN: As for the U.S. economy overall, he`s fairly optimistic that the
data have looked better since that weak report on jobs back in May.

FISCHER: The U.S. economy since the very bad day we got in May on
employment has done pretty well. Most of the incoming data look good.
Now, you can`t make a whole story out of, into a month and a half of data,
but this is looking better than it had before.

EISEN: With Brexit raising the political risk around the globe, Fischer
did warn that the election in the U.S. in November could raise uncertainty
for business and impact hiring and investment, but he did say it won`t
influence the Feds.

FISCHER: It`s a source of uncertainty. It`s not a source of additional
uncertainty, if any, about monetary policy. We will do what we have to do
in accordance with the law. We are not going get into, oh, it`s elections,
we can`t do anything.

EISEN: And while Fischer sounded relatively positive about the prospects
for the U.S. economy, investors aren`t so sure. In fact, if you look at
the futures market, they`re pricing in a Fed interest increase until 2018.
That means no action this year and none the following year. We`ll see if
the markets or the Federal Reserve has it right.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

MATHISEN: It was a big month for Hillary Clinton as her campaign raised
nearly $70 million in June. And while it was a good month for her, it
hasn`t been the best of weeks for the presumptive Democratic nominee,
headlined by a meeting between Bill Clinton and Attorney General Loretta
Lynch, which led to damage control.

John Harwood joins us from Washington now with more.

John, a strange political year just got odder. What went on and how?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Look, this was a big
mistake by President Clinton and by Loretta Lynch to have this meeting.
According to Clinton and Lynch, there was a chance meeting on the airport
tarmac. They were in separate airplanes. Bill Clinton went to Loretta
Lynch`s plane. They`ve known each other. He appointed her U.S. attorney
in 1999.

But given the fact that Loretta Lynch is overseeing the Justice
Department`s investigation to Hillary Clinton`s e-mails, it was completely
inappropriate for the meeting to take place and generated a political
backlash.

HERERA: Yes. And I know she addressed it at the Aspen Ideas Conference
and basically said she will hold by the findings, but, John, the optics as
you mentioned don`t look good. Is what she said today enough to take that
particular story out of the headlines?

HARWOOD: I don`t think so. Republicans are going to keep hammering this
with good reason. Loretta Lynch said herself that this had cast a shadow
over the investigation. She said it wasn`t going to affect it, but she
said that that`s how people view it on the outside.

Well, that is great fodder if you are a Republican politician trying to
hurt Hillary Clinton. Of course, some of this will depend on what the
recommendation of those career prosecutors is, and what happens. You know,
she has not said she will recuse herself from the case, Sue. She said she
would simply accept the recommendation.

But as long as she`s the attorney general and has not recused herself, we
don`t know how she`s going to handle it and what that recommendation is
going to be.

MATHISEN: Do we know anything about how this meeting came about? Just
happenstance or was it — I mean, did somebody call somebody? Is that
going to be on the tarmac, you want to get together?

HARWOOD: According to what we`ve heard from both camps, the Bill Clinton
had an airplane on the tarmac. He had been playing golf. Loretta Lynch
had been on business in Arizona. Bill Clinton saw that her airplane was
there, evidently understood whose airplane it was and approached the
airplane.

And again, not something he should have done. Loretta Lynch said she would
not do it again. But this was a mistake that was self-inflicted and it`s
not good for Hillary Clinton.

MATHISEN: All right. John, thanks very much. Have a good Fourth of July.
John Harwood in Washington.

HERERA: Coming up, our market monitor says, if you want to bet on the U.S.
economy, there are three stocks you need to have in your portfolio. He`ll
tell us what they are in just a couple of moments.

(MUSIC)

HERERA: A new working paper by the National Bureau of Economy Research
suggests that some executives downplay corporate earnings guidance, leading
to serious questions of the motivation behind that.

Joining us is one of the authors, Ronnie Sadka. He`s the chairperson of
the finance department at Boston College`s Carroll School of Management.

Welcome, sir. Nice to have you here.

RONNIE SADKA, BOSTON COLLEGE CARROLL SCHOOL OF MGMT: Thank you. Good to
be here.

HERERA: As you did your research. What did you find?

SADKA: Well, this, we have a lot of information and, you know, let`s say
you want to go in and buy a shirt at the Gap (NYSE:GPS) or you want to go
buy groceries, let`s say, at the Whole Foods, all of that information is
stored. You`re going to look at your phone. You`re going to say, where is
driving direction, what are the store hours, so we can gauge all of that
information and figure out our proxy for what corporate earnings are going
to be.

MATHISEN: So, you have a proxy there and what you found is that the
executives who were talking about give forward guidance on a conference
call, where they would talk about their past quarters earnings, that they
would down play the bullish forecast. Why?

SADKA: It`s a good question. So, I think there could be several
explanations. But the way we try to construct the research is we tried to
get information that`s not really available until today. And using the
digital information, we can try to understand what managers new. So, the
idea is we`re looking at what`s going on in the fiscal quarter and if we
see that say consumer activity is high, then we think it`s going to be good
news.

But what we find is when it seems that the activity in the fiscal quarter
is going well, in fact, what managers do is they downplay this information.
So, you`re exactly right. We find that they issue pessimistic guidance and
in the conference call, the tone of the conversation typically is more
negative. So, why is this happening?

Well, it could be they`re trying to smooth earnings. It could be they`re
trying to manage earnings a bit and make it more smooth, under play it and
therefore, achieve a less volatility for earnings, which is a good thing.

But it could also be that they`re worried about litigation risk, so they
don`t want to over promise anything. The last explanation could be that
they`re doing it for personal gain. And I think that`s what the other
(INAUDIBLE)

HERERA: All right. Yes, the abstract alleges that they maybe motivated in
part and I`m reading from the abstract, by subsequent personal stock
trading opportunities.

So, it sounds as though what you`re saying is they downplay what`s going
well and then they buy for their own account or they buy back shares. Is
that the allegation? Or is that what the data showed you?

SADKA: Right. So, some of the evidence — I mean, we have a very limited
number of firm, but indeed, it seems that things are going well during the
quarter and when managers under play that, it seems that in the period
right after the earning announcement, it seems there`s an increased buying
activity. So, the idea — exactly right. Perhaps this activity is
happening to get a lower price where —

(CROSSTALK)

HERERA: That`s a very allegation.

SADKA: That`s right. I think it`s still — you know, it`s preliminary
evidence. This is not a smoking gun. We need to make an assumption that
the managers indeed see what we see on our indicators. That`s a big
assumption. We don`t really know what they know when, you know, they make
these purchases. But I think it`s definitely some evidence that you kind
of scratch your head. What`s going on here?

HERERA: OK. On that note, Mr. Sadka, thank you very much for joining us.

SADKA: Thank you very much.

HERERA: Ronnie Sadka with Boston College`s Carroll School of Management.

MATHISEN: Disney (NYSE:DIS) inks a deal with Major League Baseball and
that`s where we begin tonight`s “Market Focus”.

According to Bloomberg, the theme park and the media operator will buy a
one-third stake in the video division of the MLB advanced media. The
price, $3.5 billion. As part of the deal, Disney (NYSE:DIS) will be given
the option to buy an additional 33 percent stake within four years. Disney
(NYSE:DIS) up 18 cents on a day at $98 even.

Software giant Oracle (NASDAQ:ORCL) has been ordered to pay $3 billion this
damages to the computer maker Hewlett-Packard (NYSE:HPQ). A California
jury found that Oracle (NASDAQ:ORCL) violated a contract by refusing to
develop new software updates to support HP`s Itanium computer servers.
Oracle (NASDAQ:ORCL) said it would appeal the verdict.

Shares of Oracle (NASDAQ:ORCL) up eight cents on the session at $40.86.
Hewlett-Packard (NYSE:HPQ) Enterprises up 8 percent at $18.49.

Thor Industries (NYSE:THO), which makes recreational vehicles, is going to
buy the privately held Jayco for nearly $580 million in an all cash deal.
Jayco will become a subsidiary of Thor. Its current management will remain
in tact. Shares of Thor Industries (NYSE:THO) up nearly 7 percent on the
session at $69.18.

HERERA: Nike (NYSE:NKE) cofounder Phil Knight has stepped down from his
position as chairman of the athletic company`s board of directors. The
company CEO will now take on the new chairman position and Knight will
become chairman emeritus, which means he can still oversee board meetings.
Shares of Nike (NYSE:NKE) up marginally to $55.61.

Nearly half of the board members of energy company Williams are calling it
quit. Six members resigned after failing to remove the company`s CEO
following a failed merger attempt with rival Energy Transfer Equity
(NYSE:ETE). Despite the resignation, Williams says it stands by the
current CEO. Shares, though, fell nearly 5 percent to $20.56.

Warren Buffett`s Berkshire Hathaway (NYSE:BRK.A) has applied to keep and
possibly expand its stake in Wells Fargo (NYSE:WFC). An application to the
Federal Reserve showed Buffett`s personal stake in the bank, combined with
Berkshire`s top 10 percent because of buybacks by Wells Fargo (NYSE:WFC),
which reduced the amount of outstanding shares. The Federal Reserve must
authorize any transactions that put an investor over the 10 percent
threshold of any bank. Shares of Wells Fargo (NYSE:WFC) were relatively
unchanged when the news came out, in extended after closing the day down a
fraction to $47.03.

MATHISEN: Our market monitor is betting on the future of USA. He has some
names that he says are going to benefit from economic growth over the next
10 years. This is his first time joining us on the program. He`s Cole
Smead of Smead Capital.

Don`t get nervous, Cole. It`s OK. You`re no rookie, I know you`re not.

Let`s start with your second pick, which is the ones Sue just mentioned,
and that is Wells Fargo (NYSE:WFC).

Are you following Buffett here? If it`s good enough for Buffett, it`s good
enough for Smead, right?

COLE SMEAD, SMEAD CAPITAL PORTFOLIO MANAGER: Well, you know, think of the
circumstances these last two weeks here with Brexit, and all the
conversation and the consternation around the banking industry. And here
is geriatrical old man who`s very wealthy and greedy, and he`s asking the
regulator to buy more of what`s the residential real estate bank in
America.

He obviously has a very bright view of the feature. We unequivocally agree
with him. We own the stock as well. We think much of what`s gone on the
last two weeks in terms of sentiment, people are getting — the opportunity
in the next ten years is being masked by the political and other
frustrations of today.

HERERA: Let`s go to NRV Incorporated, the nation`s fourth largest
homebuilder. Why do you like it?

SMEAD: NVR (NYSE:NVR) has a great business because most homebuilders
develop land. NVR (NYSE:NVR) does not. They actually use an option
pricing model to get after land. They most profitably build homes than any
company in the United States.

So, once again, go back to Wells Fargo (NYSE:WFC). You`ve got Buffett
buying Wells Fargo (NYSE:WFC). We have a ton of young people in this
country that have yet to buy houses and housing after the `08 depression
that we dealt in housing, there are few builders in relation to the past 10
years.

MATHISEN: Let`s talk about your third choice which is not related to
housing. It is — well, I guess you sell things for the house on eBay
(NASDAQ:EBAY) — eBay (NASDAQ:EBAY) is your pick. A lot of people would
notice right off the top that they get a lot of their revenue out of the
U.K.

Are you worried about that?

SMEAD: No, because they provide transactions. Effectively, the primary e-
commerce platform for the small business in America or the world for that
matter and what they provide is unique items.

So, let me give you an example, Tyler. I`m a left-handed golfer. If I
want to go buy a pair of used clubs, there`s one market in the world that
can provide me a unique item like that. Is it a commodity item? You can
go to Amazon (NASDAQ:AMZN) and Walmart and a bunch of other places for
commodity items. But eBay (NASDAQ:EBAY) is the unique item marketplace for
the world.

MATHISEN: Cole, I`m going to put together with our executive producer,
who`s also a left-handed golfer. You guys are —

(CROSSTALK)

MATHISEN: Cole Smead with Smead Capital.

SMEAD: Thank you so much.

MATHISEN: Have a great Fourth.

HERERA: Coming up next, there will be a record number of drivers on the
road this holiday weekend. One guess what`s fuelling the traffic.

(MUSIC)

MATHISEN: Lower gas prices led to drivers racking up a record number of
miles last year. More than 3 trillion of them, but it was also a deadly
year. The National Highway Traffic Safety Administration says fatalities
in 2015 rose nearly 8 percent to 35,000, the most in seven years. And
naturally, those numbers come out as AAA says this weekend will be the
busiest ever for drivers hitting the road, 36 million.

Kate Rogers (NYSE:ROG) was among them today on the New Jersey turnpike in
Ridgefield. And she`s got who`s driving where and why.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hitting the road this
long holiday weekend, odds are, you`re going to sit in traffic. AAA
reports a record breaking 36 million drivers will be right there with you,
making it the third consecutive Fourth of July weekend with an all time
high number of auto travelers.

The reason why, gas prices are at their lowest level since 2005. AAA
reports the national average is at $2.28 per gallon, which has drivers
eager to fill up and go.

UNIDENTIFIED MALE: July Fourth weekend, I plan on taking a long ride up.
Really have no destination. Just looking for a really long ride somewhere.
Gas prices definitely help out. Definitely, it`s a big incentive for
taking long rides.

UNIDENTIIFED MALE: Unless they get over the $4 range, that`s the only way
I would reconsider driving.

UNIDENTIFIED MALE: Thank God it`s not like it was two years ago or three
years ago. Thank God prices are lower.

ROGERS: The highest gas prices nationwide are on the West Coast in
California, then Hawaii, Alaska, Washington and Nevada.

The least expensive markets are South Carolina, Mississippi, Arkansas and
Alabama. But not everyone is traveling by car. A total of 43 million
Americans will be traveling this Fourth of July, 3.3 million will travel by
air — the highest area of growth in AAA survey. Another 3.2 will travel
by cruise, rail and bus.

Still, some are avoiding travel altogether.

UNIDENTIFIED FEMALE: I`m staying home. Where should I go? I have a
beautiful pool and the roads are crowded.

ROGERS: For NIGHTLY BUSINESS REPORT in Ridgefield, New Jersey. I`m Kate
Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: I`m with her.

But if you are planning to drive, you may use one of three popular traffic
apps, Waze, Google (NASDAQ:GOOG) Maps, or Apple (NASDAQ:AAPL) Maps.

So, which one gets you where you want to go faster?

Eric Chemi takes an unscientific look.

(BEGIN VIDEOTAPE)

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s road trip season.
So, which map app will get you out of traffic and on to summer fun the
fastest?

We put the apps to an unscientific test with three drivers, me on Google
(NASDAQ:GOOG) Maps, Nick on Waze, and Betsy on Apple (NASDAQ:AAPL) Maps.
Starting at the same time for three lags. No racing. To see which app
gave the faster route and the most accurate time estimate.

The day had highs.

UNIDENTIFIED MALE: What a beautiful day for a short road trip.

CHEMI: And lows.

So, take me home.

So, how did the apps do? Google (NASDAQ:GOOG) Maps and Waze also owned by
Google (NASDAQ:GOOG) were neck and neck for most of the drive, with my
Google (NASDAQ:GOOG) Maps edging out the slight lead.

Apple (NASDAQ:AAPL) Maps gave Betsy three straight last place finishes.

So, this Fourth of July, we`re giving Google (NASDAQ:GOOG) Maps three
fireworks for fastest and most accurate routes. Waze gets two fireworks.
And Apple (NASDAQ:AAPL) Maps into third with just a sparkler.

For NIGHTLY BUSINESS REPORT, I`m Eric Chemi.

(END VIDEOTAPE)

MATHISEN: And finally tonight, the Fourth of July is when we celebrate our
country`s independence, of course. And boy, do we celebrate. According to
Wallet Hub, Americans will spend more than $6.5 million on July Fourth
food, including 150 million on hot dogs, 900 million pounds of beef and
chicken.

Also, the nation`s top beer drinking holiday, you might not be surprised to
learn. In fact, Nielsen says we spend more than $1.7 billion over the
Fourth on beer, and a half a billion more on wine. That`s just my house.

HERERA: That`s a party, right?

MATHISEN: You got it.

HERERA: Hope you guys have a great Fourth.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera, thanks for
watching.

MATHISEN: And I`m Tyler Mathisen. Y`all come on over. Have a great
holiday weekend. We`ll see you back here on Monday.

END

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