Transcript: Nightly Business Report – July 13, 2016

NBR-ThumTYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Stay on track with that stocks at record levels now maybe be perfect time to rebalance your portfolio, but what should you do and how should you do it?

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR:  Outside the beltway, why                                                                                 Cleveland small business owners have a lot more to                                                                         think about as the Republican convention comes to                                                                         town.

MATHISEN:  Next frontier, businesses are trying to drum up sales using the wildly popular mobile game, Pokemon Go.  But, at what risk?

All that and more tonight on Nightly Business Report for Wednesday, July 13th.

EPPERSON:  Good evening everyone, I’m Sharon Epperson, in tonight for Sue Herera.

MATHISEN:  And welcome for me as well, I’m Tyler Mathisen.

Well it may not look like much and meet really wasn’t, but stocks today did move further into record territory if only by a little.  The S&P 500 and the Dow eked out small gains just enough to extend the sharp rally that we’ve seen over the past two weeks and this comes despite concerns about the pace of global economic growth today.

Dow Jones Industrial average up 24 points, that’s 0.13 percent to 18, 372.  Nasdaq, the one major index that has not hit the new highs, lost 17 today.  The S&P 500 however did squeeze out a slight gain.  So, why are stocks up so much, so fast?

Bob Pisani, takes a look.

(BEGIN VIDEO CLIP)

BOB PISANI, NYSE:  What’s driving this rally?  Traders are grasping for new ways to describe what’s happened when the U.S. has shrugged off this post Brexit worries and blasted to historic highs.

This has happened so fast that many traders can’t figure out what happened.  But there’s three major explanations coming from the trading community.  The first one is that this is all about central banks continuing to keep rates lower for longer and who can blame traders for thinking that?  There’s talk of helicopter money in Japan, there’s talk of bailouts of Italian banks.  There’s talk of more bond buying by the European Central Bank and this thought of rate cuts in the U.K.

The second is that, the U.S. stock market is the best buy of any asset class.  This is a TINA argument, There Is No Alternative to stocks.  The marginal buyer looks at the low rates on treasuries and then comparably high dividends yields on stock and rationally concludes stocks are a better buy.  Foreign buyer see the better economy here and are now pouring money into our markets.

Then there’s the third argument.  The lagging performance argument.  As we hit new highs, traders who were short had to cover and cover fast.  And of course most traders did not anticipate hitting new highs, so they’re now underperforming and they have to buy into the rally at the top.  Call it FOMO, Fear Of Missing Out.  But my favorite, to just to buy several buffer traders with this one, the Pokemon rally.  It’s all fluff and no fundamentals, the rally in stocks is not really being fueled by fundamentals, so nobody knows how long it will last.

Who’s right?  I always use the simple rule, you know, it’s hard to figure out when your best sources call you and tell you they’re not sure what’s going on.

For Nightly Business Report, I’m Bob Pisani here at the New York
Stock Exchange.

(END VIDEO CLIP)

EPPERSON:  Well their head scratching rally has someone ring if it is overheating and whether the rise may stall.  Mike Santoli, has that part of the story.

(BEGIN VIDEO CLIP)

MIKE SANTOLI, NYSE:  It’s been the strongest stock market rally in years.  After a nasty two-day tumble upon Britain’s vote to leave the European Union, the S&P 500 index surged more than 7.5 percent in 10 trading days to a new record high.  Its best two week gains since 2011.

By other measures such as the percentage of all shared volume in rising stocks the climb is the most impressive since down of the bull market in 2009, but after such a rare and scorching run, how to tell up the rallies beginning to overheat already ready to stall.

Aside from this pitch of climate itself, which often leads to a pause or a pullback.  Market analysts are looking at a few indicators that the move is run its course for now.  Signs of excessive speculative activity, overconfident investor sentiment and bond in oil action.

In each area, the reasons for short-term caution are building, but no clear warning signs of a serious market reversal are yet evident.  Investor surveys show a rise in optimism toward stocks, if not quite to the point of showing the bullish camp is too crowded.

As for the bond and oil markets, treasury yields are up a bit from recent record laws and corporate debt markets look healthy.  Oil prices however have full back from recent highs, which could pressure some stock sectors.  For sure, investor should expect at least a short term pause or retreat before long.  Corporate earnings will need to show signs of recovery as they report it in coming weeks and seasonal patterns will start to turn a bit more challenging for stocks in late July.

Stating together, the evidence points to an impressive broad market upturn to a new high after a long period in the red.  Similar instances in history have led to still higher stock prices over several months.  Even if it’s pipe and hot rally, we need a cooling rest pretty soon.

For Nightly Business Report, I’m Mike Santoli, at the New York Stock Exchange.

(END VIDEO CLIP)

MATHISEN:  When stock makes significant moves up or down, it’s always a good strategy to look at your accounts and see whether they still have the asset mix you want.  And if like most people you’ve just received your quarterly statement, that makes the task relatively simple.  So seat down and get to it.

Here to help is John Petrides, he is a portfolio manager at Point View Wealth Management.  John welcome.  Good to have you back.

You know, we understand that every case is different.  People have different risk tolerances.  They have, some have kids, some don’t.  And so forth, we want to put up some pie charts with model portfolios for people in their 40s, 50s and 60s.  And I like us to leave those charts up there for just a little bit so we can all look at them.  And you can respond to them.  The basic thesis here is that when you’re younger, you can afford to have more exposed to the stock market, when you get closer to retirement, you want to tilt a little bit, but not totally away from stocks.

JOHN PETRIDES, PORTFOLIO MANAGER POINT VIEW WEALTH MANAGEMENT:  Well, I think you’re exactly right, that every individual investor is different, right, they all have their unique circumstances, but I think the key as you mentioned earlier is rebalancing once you understand what your risk tolerance is, your income need and your time horizons.

So, if you are electing to be in that 80 to 100 percent stock in your 40s, when  you have you’re — you’re in the sweet spot of your earnings, you have longer term time horizon, rebalancing to that 80 percent level in the market where we are today, where stocks have been rising strongly, taking some of the table, maybe going into some bonds and staying disciplined to that approach is the key I think to long terms returns.

EPPERSON:  Where do you start?  How do you start rebalancing and if you are fortunate enough to now be an 82 or 83 percent, how do you get to that mark?  Where do you rebalance?

PETRIDES:  Sure, where we rebalance for a client on a monthly basis and we review every portfolio to see where we can in context to the market within that client individual equity target.  There’s really three ways, one, you start with a rebalance on a micro basis, where is each client equity to effecting communication.

The second is within the equity component to rebalance there as well.  For example utility stock in telecom stocks, low data, U.S. base, high dividend yield stocks have done really, really well this year.  In fact utilities are up over 20 percent year to date.  You know, don’t only utility stocks in your portfolio to be at 20 percent.  Now, it’s the time may be your — you don’t want to be too far over your skis in one sector.  May be capping some off the utilities and adding to financials or health care which could be under valued.

MATHISEN:  That was going to kind of be my next question, if I have if because stocks were at a record high, bonds up pretty high, too.

PETRIDES:  Right.

MATHISEN:  But if stocks are at a record high and now, I’ve gotten up against or even beyond my target allocation there, what do I sell and do I sell it all at once or do I tiptoe out of it?

PETRIDES:  Right.

MATHISEN:  You just answered the first part, which is maybe you want to sell the things that have gone up the most.  The utilities, the telecom, but do I sell all at once or do I sort of dollar quest average out?

PETRIDES:  Oh remember, it’s not just where the price is gone, it’s price relative of the fundamentals, right.  So if the stock has become extended from a price standpoint relative to its cash flow and earnings power, yes, you take off of there and each stock is individual to their its own extent, right.

Where as on a financials, the market thinks that investors are going to be lower for — the interfere is going to be lower for longer and if for those stocks have sold off and it come at a big discounts today both value, there could be long term value there.

EPPERSON:  What about the different pots of money that people have, some people have a lot of retirement money prior to bank of it in their 401(k) or rollover IRA.  Some may also have some money in a taxable account.  Where do you rebalance first?

PETRIDES:  Sure, well we encourage our clients to be, to have as much of the equity portfolio in a taxable portion of their account and as much fixed income in their IRAs.  So quite simply, with a bond, you get taxed that your ordinary income that they at rate on your interest income.

MATHISEN:  On the interest.

PETRIDES:  So they kind tax show of the account, there’s no issue.  If you hold all of your stocks in your taxable portfolio, you could manage your gain and losses for tax efficient, you have to sell to realize the gains.  You can give shares to charitable organizations and so it’s a bit more flexible.

MATHISEN:  Would you do your first rebalancing within those sheltered accounts, where the sale does not get tax, is not a taxable event, versus n the taxable accounts?

PETRIDES:  It’s a good question, you have to look at — they I think all of your accounts on the aggregated bases and to make that decision of where you are …

(CROSSTALK)

MATHISEN:  Go for the whole pot together.

PETRIDES:  And then you could take and choose which accounts are appropriate to (inaudible).

MATHISEN:  It’s a science as much as aren’t John …

EPPERSON:  Thank you.

MATHISEN:  … thank you very much, we appreciate it.

PETRIDES:  Thanks.

MATHISEN:  For helping us tonight.  John Petrides, of Point View Wealth Management.

EPPERSON:  Economic activity across most of the country meanwhile increased at a modest pace in May and June, that’s according to the Federal Reserve beige book, which is a collection of economic anecdotes.  The Labor Department is tightening and housing continues to improve.

The Central Bank reported there is slight inflation pressures providing little evidence that prices are rising toward the Fed’s 2 percent target.

MATHISEN:  Oil prices fell today after a government report added to concerns of a supply glut, the Energy Information Administration said, inventories spell less than expected last week, even gasoline post of the surprise bill during the summer driving season.  Separately, the Paris based International Energy Agency warned of excess supply globally, thanks to rising stockpiles.  Both those reports pressured prices domestic crude, down about 4 percent as you see there.

EPPERSON:  Now, to politics, where Donald Trump and his family met with the vice presidential hopeful, Indiana Governor Mike Pence.  This add the search enters its final phase.

John Harwood reports tonight from Washington and John it looked like it was a really decisive moment when Donald Trump and his family had breakfast with Mike Pence this morning.  What happened there?

JOHN HARWOOD, NBR CORRESPONDENT:  Everybody Sharon was expecting them to walk out of that house and announce the Republican ticket.  The all the press, cameras were on high alert, but in fact what’s going on is Donald Trump as we discussed last night, is carrying this on like an extended version of “The Apprentice” and trying to maximize attention, maximize success — suspense rather and try to get everybody though, put their eyeballs on when he finally comes out and does it, which is not going to be for a couple of days.

MATHISEN:  Not going to be for a couple days.  Did he meet with anyone else and does it strike you as in anyway unusual that the closest advisers he took with him were his children, whom I think he really wants to name vice president.

HARWOOD:  Well, you know, that the people have joked about that, but those are very close advisers to him.  He cares about what Ivanka thinks and what about his sons think.  So, no that was a very serious move.  Donald Trump’s also meeting with Newt Gingrich, another finalist for the job, talking to Chris Christie.

We expect that he’s going make a decision on Friday or announce that decision he made it in his own head already, but he’s going to drag this out as long as he thinks it will get increase attention.  This is good for him.  It’s a better week for him that he’s had in some previous weeks.

EPPERSON:  As we head toward the conventions, I know you’re watching very closely all of the different polls there out.  The most recent ones in the battleground states, what are they showing?

HARWOOD:  Close races.  We had new NBC News/Wall Street Journal/Marist polls come out today.  They showed in Iowa, a swing state the Democrats have done well in lately.  Hillary Clinton’s got just a three-point lead.  In the state of Ohio, she’s tied with Donald Trump, in the state of Pennsylvania, a little better showing, she’s up by 9 points in that Marist poll, but in a different poll from Quinnipiac showed a much closer race.

So we’ve got competitive battleground situation, even though Hillary Clinton has a narrow lead nationally, this race is going to keep going and be close all the way to the end.

EPPERSON:  And we’ll be talking to about in all week, I’m sure.  John Harwood, thanks so much in Washington.

MATHISEN:  And the city of Cleveland preparing for the Republican national convention next week, civic leader, small businesses owners, so they’re hoping the massive event will help the city’s economy.  But now the possibility of demonstrations, even violence, is changing that equation.  Eamon Javers reports tonight from Cleveland.

(BEGIN VIDEO CLIP)

EAMON JAVERS, NBR CORRESPONDENT:  Cleveland is ready for its close up.  The quicken loans arena known as the “Q” is all dressed up.  A few blocks away, the convention center is scrubbed and ready and throughout town, they’ve been planting flowers, sweeping up and rolling out the red carpet.  But in an extremely tense political year, security is also a significant concern.

Passions are running high over immigration, policing and a battle between Donald trump and Hillary Clinton.  All of that gives local businesses a lot more to think about than they expected.

JOE CALABRESE, GREATER CLEVELAND REGIONAL TRANSIT AUTHORITY CEO:  We had actual security.  We have a 150 person in our transit police department.  We have work secret service, home land security and our marshals’.

JAVARS:  Still there is optimism that the event will be good for the city.

JOHNNY YOUSEF, WINE AND SPIRITS MANAGER:  They’re expecting 50 to 75,000 people in the city, so we’re hoping, we’ll do well for the city of Cleveland, I mean it’s great, you know, to see the city, you know, it’s on our prize and it’s great.  Lately the last two years with the Cavs and now the convention and everything is great.

JAVARS:  And for one local firm, even bad news for the city could be good news for business.

BRAND WIND, ABC BAIL BONDS MANAGER:  What I’m hoping not to happen was a, you know, rioting, protesting, people not get along, causing any type of harm to, you know, families, people, businesses, Cleveland, stuff like that.

JAVARS:  But that could be good for your business.

WIND:  It could be good for business, and on a business end, I hope it does.  That, you know, it kind of give, you know, us a lot of customers.

JAVARS:  For Nightly Business Report, I’m Eamon Javars in Cleveland.

EPPERSON:  Meanwhile, across the Atlantic, the United Kingdom got a new prime minister.  Speaking outside #10 Downing Street after being appointed by the queen, Theresa May said it was her mission to build a better Britain.  May also paid tribute to her predecessor David Cameron calling him a great leader.

Like Cameron, May campaigned to remain in the EU, but said she will respect the will of the people.

MATHISEN:  Still ahead, the risks businesses may be taking as they try to get a piece of the hottest mobile gaming craze maybe ever.

EPPERSON:  A legal blow to general motors.  A judge today ruled that the auto maker is not protective from ignition switch claims, reversing a bankruptcy court decision.  The judge said that barring such law suits would violate the plain thief (ph) constitutional rights to due process.

Since they were not notified of the defect prior to GMs 2009 bankruptcy.  GM had tried to shield itself from law suits over faulty admission switches on the ground, they were automatically barred when the company filed for bankruptcy.

MATHISEN:  CSX (NYSE:CSX) topped earnings expectations, the third largest U.S. railroad operator has been hit recently by week commodity prices leading to a sharp decline in shipments and while this quarter was no different, profits did come in better than expected.
The company earned $0.47 a share, estimates were for just $0.44 cents.  Revenue about in line, the way it was down 11 percent from a year ago.  The stock took off on the earnings beat, which was released earlier than expected this afternoon.  Seema Mody have more on CSX’s quarter.

SEEMA MODY, NBR REPORTER:  Earnings from CSX (NYSE:CSX) surprised to the upside in the second quarter indicating that the railroad’s operators restructuring plan is substantially starting to pay off as it continues to grapple with the ongoing decline and coal shipments and lower commodity prices, which has resulted in increased demand from railroad operators.

Now in the second quarter, rail volumes did decline 9 percent year over year while coal volumes dropped more than 30percent, longer term, CSX (NYSE:CSX) says that stronger U.S. dollar, low commodity prices and the energy market transition continue to challenge its financial performance and are expected to impact full year earnings.

For Nightly Business Report, I’m Seema Mody.

EPPERSON:  Young brand raises its profit guidance and that’s where we begin tonight’s market focus.  Strong first half results in China prompted the fast food chain to lift its yearly outlook.  The owner of KFC and Pizza Hut saw quarterly profit rise, beating expectations.  But revenue came in a little light.  Shares of Yum brands initially rose an after hours, but finish the regular session down $0.3 to 8574.

Amazon (NASDAQ:AMZN) says its prime day was the online retailer’s largest sales day ever.  The company which hosted its second annual one day sales for prime subscription members saw orders rise more than 60 percent compared with a year ago.  Estimates peg sales between $500 to $600 million.  Despite the numbers, Amazon (NASDAQ:AMZN) shares fell nearly a percent to a 742.63.

And Tampa pharmaceuticals said regulatory approval for its plan for takeover off Allergan (NYSE:AGN) generic drug division could come at any time.  The companies have push their closing date from July to October as the Federal Trade Commission continues to review the deal.

Separately, Teva raised its quarterly profit and revenue guidance.  Teva shares were up almost 4 percent to 54.46, while Allergan (NYSE:AGN) rose a fraction to 241.17.

MATHISEN:  Akifa (ph) Nation Metric fail less than expected of American Airlines passenger revenue down between 6 and 7 percent, but the company originally estimated that 6 to 8 percent declined.  The world’s largest airline by traffic also lowered it’s capacity growth forecast for the rest of the year.  Shares of American lost $0.21 to 34.45.

And United will take a more than $400 million charge in the second quarter tied to a regulatory decision, giving competing airlines more take off and landing slots at Newark’s Liberty International Airport in New Jersey.  United off a fraction on the day to 45.86.

And Walgreens will hike its quarterly dividend by more than 4 percent to 37.50 cents a share.  As of from $0.36 they yield on the stock, now 1.8 percent.  Shares up slightly $81.77.

EPPERSON:  Senator Al Franken is concerned about your privacy.  If you’re playing that hottest game out the, Pokemon Go.  He’s asked the game’s software developer about privacy protections amid reports that it was collecting vast amounts of user data.  Franken wants to know what being collected, how the data is being used and who it may be shared with?

MATHISEN:  Privacy concerns did not stop Pokemon Go from being the most downloaded mobile app since its launch last week.  There are even some local businesses capitalizing on the games popularity and hopes of increasing sales that one of the risks in this Pokemon craze.

Let’s turn to our friend Dean Crutchfield, branding expert his own The Dean Crutchfield Company to discuss.  By any standard Dean, this is a blockbuster runaway hit for Nintendo right?

DEAN CRUTCHFIELD, BRANDING EXPERT:  Absolute frenzy, it’s fantastic.  The Pokemania, is a real amazing taste that it will be resounding in many classrooms and in many agency boardrooms for weeks, months, maybe even years to come.

EPPERSON:  And this Pokemon craze, how is that impacting big businesses and small businesses as well?

CRUTCHFIELD:  Well, whether you’re a small business or big, global brand, there’s really several things you — that you want.  You want to have engagement with your customer so that actually with you, you want to connect with the customer, with the trust, respect or love, and then ultimately you want them to interact with your brand and your product.

Now most brands don’t get even get out of engagement, so Pokemon is challenge all three simultaneously.

MATHISEN:  Well, I’ve heard of some businesses, whether it is a restaurant inviting people to come in and play Pokemon, you know, in the restaurant like imagine they’ll crashing into the waiters, or an auto mobile Dean, or even a real estate seller, saying come to our house has Pokemon and people will come and know those through the house on a virtual tour.

Are there any risks of affiliating with that game?

CRUTCHFIELD:  I going to seem there’s any risk apart from being bumped into …

MATHISEN:  Yeah.

CRUTCHFIELD:  … by somebody actually playing it.  I think everybody can benefit.  Why not?  It’s a platform.  It’s not just a game.  It’s not just technology, it’s even acting like a social platform connecting players and getting them to certain locations.  So it really is a really, you know, a truly multifaceted brand that has lots of implication with your marketeer or an agency or a customer.

EPPERSON:  But there have been reports of folks being lured to certain areas and then robbed as while they’re playing this game, what about where to happen at a restaurant or at another type of business.  I mean could there be a risk here to some businesses?  And how can they protect themselves?

CRUTCHFIELD:  I think there’s always risks and it some criminal act happen is on someone’s property as we know, that means they could be up into a legal suit, so there are implications for that.  There’s always a dark side to a lot of businesses, you know, however clean they are, I think it should the question of, you know, what are we talking about here, we’re talking about this happening a large scale or is this just happening in a micro level.

MATHISEN:  You know, Pokemon’s been around since my oldest son was a little boy and now, as kids and as adults playing this, have you ever seen something get this much traction this fast?

CRUTCHFIELD:  Well, I — but no, actually I don’t.  I think you look at phenomenal successes like the iPhone when it launched.  I think the key here is we’ve got, you know, gen Ys, you play the game in the ’90s, you got the millenials and now we’ve got the gen Zs, so the teenagers playing the game too.  So as I read broad range appeal, which makes it even more phenomena.

MATHISEN:  All right, Dean, thanks as always.  Great to see you.

CRUTCHFIELD:  Great to see you.

MATHISEN:  Dean Crutchfield with The Dean Crutchfield Company, and coming up, going for a spin.  The actor who is taking on the very different role now of business man.

Health care spending in the United States will likely grow nearly 6 percent a year over the next decade, that is a bit faster than the past two years.  The centers for Medicare and Medicaid services cite an ageing population, rising medical prices and faster economic growth.  For that increase.

EPPERSON:  He is a well-known actor who’s taking on a very different type of role.  Keanu Reeves known for his parts in the “Matrix” and “Speed” is adding business man to resume.  And he told Robert Frank all about his newest adventure, making motorcycles.

(BEGIN VIDEO CLIP)

ROBERT FRANK, NBR CORRESPONDENT:  On screen, Keanu Reeves is famous for immersing himself in every detail of his characters, now, he’s doing the same with his business.  The Arch Motorcycle Company.

KEANU REEVES, ARCH MOTORCYCLE COMPANY CO-FOUNDER:  For me, riding is a kind of freedom.

FRANK:  Reeves his partner Gard Hollinger produce hand crafted, highly customized motorcycles from their L.A. factory.  They sell for over $80,000 each and almost every piece is handmade at their shop.  Looking more like jewelry than engine parts.  The company was founded after Reeves asked Holinger to make him a custom bike in 2006.

REEVES:  We look at that bike and it was like, that’s an amazing machine.  It rides amazing.  Do you want to start a motorcycle company?  I asked Gard, do you want to start a motorcycle company, no, that he said no.  And then I said, but listen, man, we’re going to die.  You know, we’re going to die, we’re going, we want to — let’s build something, like this machine is incredible.  What you’ve done is amazing.  Let’s …

GARD HOLLINGER, ARCH MOTORCYCLE COMPANY CO-FOUNDER:  It was unique.

REEVES:  It was unique.

FRANK:  Arch’s Motorcycles have become cult favorites in the cycling world.  Reeves has been riding motorcycles since he was 22 and almost always takes two wheels to his movie set.  The action star said acting and riding are similar.

REEVES:  When you come to that moment, when you’re on the bike and your riding or when you come to a moment and the director says, action.  It’s almost say like everything that you are, everything that you feel or think is alive after that, like you have to, you’re there.

FRANK:  For Nightly Business Report, I’m Robert Frank.

(END VIDEO CLIP)

MATHISEN:  Very cool.

And finally tonight, the world’s most valuable sports teams.  Forbes out with its annual list, and this year, believe it or not, an American football team unseated a team that plays the other type of football.  But the others will call the real football.

Number one, there they are, the Dallas cowboys, America’s team, worth about $4 billion, 25 percent more than just last year.  Marks the first time since 2011 that a soccer club didn’t take the top spot.  Spain’s soccer team Real Madrid fell to second place despite seeing a 12 percent rise in its value to $3.7 billion.  And another soccer club, FC Barcelona rounded out the top at $3.6 billion.  New York Yankees were fourth, which is basically what they are in the eastern conference right now.

EPPERSON:  Well that is Nightly Business Report for tonight.  I’m Sharon Epperson, thanks so much watching.

MATHISEN:  And I’m Tyler Mathisen, have a great evening everybody, we’ll see you back here tomorrow.

(COMMERCIAL BREAK)

END

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.

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