Transcript: Nightly Business Report – August 11, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Party like it`s 1999. All three major stock indexes close at all-time highs on the same day for the first time in 17 years.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: New reality. Macy`s
(NYSE:M) shuts 100 stores as fewer people head to the malls, and more people shop online. But what took it so long to make the move?

HERERA: Hot market. Tech startups are not just about young millennials.
A growing number see a big opportunity by targeting boomers.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, August 11th.

MATHISEN: Good evening, everyone. And welcome.

It is hot outside, and even hotter on Wall Street. Not one, not two but all three of the major indexes we follow for you here on NBR closed at records today, something that hadn`t happened simultaneously since 1999.

Back then, technology played a big role in driving the markets. Today, it was a combination of factors that boosted investor sentiment — higher oil prices, strong earnings from department stores, and positive news on the jobs market.

Let`s get right to those record-breaking numbers. The Dow Jones Industrial Average added 117 points to a record 18,613. NASDAQ up 23 to a record
5,228 and the S&P 500, I`ll say it again, gaining 10, a record 2,185.

As for domestic crude, it settled up more than 4 percent on comments from the Saudi oil minister about possible action to stabilize prices.

Bob Pisani at the New York Stock Exchange has more now on what drove stocks to historic highs today.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: How did we get to new record highs? We did it the old-fashioned way. We rotated into it. For most of the year, investors chased anything that paid a dividend, telecom and utilities and consumer staples and REITs, but since the start of the third quarter, there`s been a rotation. These names are now out of favor.

Tech has been the new leadership due to stellar earnings from the likes of Microsoft (NASDAQ:MSFT) and others. But the rally has been even broader than just technology. For example, big global industrial names like Illinois Toolworks, United Technologies (NYSE:UTX), Dover (NYSE:DOV) and Eaton (NYSE:ETN) have powered to new highs in the last six weeks.

And in the last couple of weeks, energy stocks have become a new leadership group as oil stopped its slide and has stabilized around $42.

Now, for everybody wondering why we keep holding up, there`s several reasons. First, the U.S. economy while choppy is still among the best in the world. We also see second half earnings that are relatively stable.
Next, crude oil which gave everyone a scare a week ago is stable around $42. Third, there`s a lot more talk of fiscal stimulus, not just monetary stimulus, in Japan, the U.K., Europe, even the U.S..

Finally, it`s a cliche patina, there is no alternative to stocks, is a very real phenomenon. There is no yield in bonds. There`s no gains in cash.
All this means stay in stocks.

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

(END VIDEOTAPE)

HERERA: And speaking of stocks, retail stocks were bolstered by a surprise announcement from Macy`s (NYSE:M). The world`s largest department store is shuddering a handful of its stores to keep pace with the dramatic changes happening in that sector.

Today, Macy`s (NYSE:M) also reported earnings and revenue that topped expectations, and it reiterated its full-year profit and sales guidance.
Its comparable sales drop wasn`t as bad as feared and sales improved each month of the quarter.

Investors like that report and Macy`s (NYSE:M) long-term plan as well. As a result, shares soared 17 percent, making it the best performing stock on the S&P 500.

Courtney Reagan has more on Macy`s (NYSE:M) new direction.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is the magic of Macy`s (NYSE:M) back, or is it just adjusting to a new reality? Macy`s
(NYSE:M) second quarter profits and sales turned out better than expected, though still below last year.

But CEO Terry Lundgren says the company is not one to sit still as shoppers increasingly go online. The retailer is closing about 100 of its more than
700 stores by early next year, most of which are cash flow positive but showing signs of declining profitability.

This will allow Macy`s (NYSE:M) to focus on its strongest performing locations. Wall Street applauds the aggressive move, saying there were simply too many stores.

MATTHEW BOSS, J.P. MORGAN: This is absolutely the right decision. E- commerce continues to grow. Brick and mortar continues to be constrained, and I think the brands, you know, over the last couple of weeks have really played a part in this.

They are pulling back on their promotional activity, and I think Macy`s
(NYSE:M) is making this decision today. It`s the right decision. They are getting back to a stronger, leaner store base that has best in class brands, and I think it`s their way of competing with Amazon (NASDAQ:AMZN) and the off-price sector.

REAGAN: Macy`s (NYSE:M) is also considering alternatives to extract a shareholder value from its real estate, for four of its large city flagship stores as well as the San Francisco men`s store. For the remaining stores, Macy`s (NYSE:M) says it`s investing to make them better for shoppers by increasing vendor shops, adding technology upgrades and beefing up staff for services like personal styling. The retailer continues to invest in its online operations as well.

While Lundgren thinks more seasonable temperatures and less drastic drops in tourist spending are helping retail right now, he also thinks it`s time for consumer spending to swing back to more discretionary goods like clothing.

TERRY LUNDGREN, MACY`S CHMN. & CEO: The consumer has been spending. They have just been buying automobiles and they have been buying home improvement, paying for medical expenses and paying all these things that are not sold by me.

And so, you know, I think this is good news because they don`t need another car now. We`ve had record sales of cars. They don`t need another car.
They don`t need to fix their home anymore. They did that, right?

Home Depot (NYSE:HD) has been awesome. So it`s my turn. It`s our turn.

REAGAN: If Lundgren is right, it could mark the end of a year long downturn for department stores.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Macy`s (NYSE:M) did well, but shares of mall operators did not do so well on news that Macy`s (NYSE:M) planned to cut 100 stores. The nation`s largest mall operator, Simon Property Group (NYSE:SPG), fell along with General Growth, Macerich (NYSE:MAC) and Kimco Realty (NYSE:KIM).

HERERA: Kohl`s (NYSE:KSS) also reported a strong quarter and contributed to today`s broader stock market optimism. The big box retailer beat both earnings and revenue estimates for the second quarter. Gross margins expanded as the retailer cleared out excess inventory.

But Kohl`s cut its earnings forecast for the year, and reported a slightly steeper drop than expected in same-store sales. Investors remain focused on the better than expected earnings and sent shares 16 percent higher.

MATHISEN: So, has retail finally started to figure out what has been ailing it for so long? A quick fix.

Sucharita Mulpuru covers the retail sector for Forrester Research (NASDAQ:FORR).

Sucharita, welcome.

Is it as simple as, “Hey, close stores” and everything will get better for the big chain companies like a Macy`s (NYSE:M), like a Gap (NYSE:GPS), like a Best Buy (NYSE:BBY)?

SUCHARITA MULPURU, FORRESTER RESEARCH RETAIL ANALYST: Sure. Well the issue is that many of these stores, especially the large chains are very overstored. In the U.S., we have about 25 square feet of retail per capita, and that`s about ten times higher than it is in Europe. So, we just have way too many stores and I think that the street knows that a lot of these big retailers have too many stores.

Now, is that the only thing they need to do? Of course not. They need to invest in their dotcom channel. They need to invest in alternative distribution. They need to look at other ways to diversify and grow their businesses in addition to closing the stores that — that just aren`t working that well.

HERERA: It sounds simple to say they are going to close stores but it sometimes isn`t that simple, especially if they don`t own the underling real estate. Correct?

MULPURU: Exactly. And I think that`s really part of the reason that some of the mall operators are being challenged today because these are leases that have helped them historically because particularly the department stores will have leases that are decades long, and that`s sort of the trade-off for getting good terms on the lease in the first place.

And that`s part of the issue with — with a lot of the department stores is that you can`t simply just flip the switch and close stores when sales are down. You have to wait out the end of your lease. And that`s — that`s not just an issue with department stores. That also applies to big box as well.

MATHISEN: So we look to just the item right before we introduced you was about some of the mall operator stocks, and they didn`t do well today.
What you`re describing to me in this overstored environment looks like a coming debacle for mall operators, the people who own the strip malls and so forth. What`s going to happen to them?

MULPURU: Well, there is no question that there is a coming shakeout in retail, and there`s been no shortage of people who have been predicting this shakeout for a long time.

Like I said, there are ten times as many stores in the U.S. per cap as in markets like Europe, and what that means is that we just have too many stores, and that is — so your options are to close those stores, redevelop a lot of that real estate into other types of things. Like we see that already happening where real estate is becoming redeveloped, you know, into dental offices or schools.

MATHISEN: Look out below.

Sucharita, thanks so much. Sucharita Mulpuru with Forrester Research (NASDAQ:FORR), thanks.

HERERA: More positive news on the job market. The number of Americans filing for unemployment benefits fell last week. Initial jobless claims declined by 1,000 to a seasonally adjusted 266,000. Claims have been below the key 300,000 level for 75 consecutive weeks, the longest streak since 1973.

MATHISEN: The price of goods shipped to the U.S. from abroad rose slightly in July. Import prices which measure what U.S. companies pay for things like South Korean cars, Middle Eastern oil gained 0.1 percent last month and import prices are looked at closely for any sign that inflation might be in the pipe like.

HERERA: When it comes to the economy Hillary Clinton and Donald Trump are taking off their gloves. Both are laying out their agendas, and both are on the attack.

John Harwood has more on the war of words from Washington for us.

Hi, John.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, sue, they are taking off the gloves, but it`s interesting. When you look at the two speeches they made this week, there is some overlap in their positions.
Hillary Clinton went to Michigan today and said she, too, like Donald Trump, is against the Trans Pacific Partnership, except that she said her view is that well-structured trade deals can work and America can compete and Trump is much more pessimistic.

(BEGIN VIDEO CLIP)

DONALD TRUMP (R), PRESIDENTIAL NOMINEE: Normally you would say you want to reduce your debt, and I`d like to reduce debt, too, as much as anybody.
The problem is you have a military problem. You have an infrastructure problem, a tremendous infrastructure problem, and you have other problems.

What`s going to happen when the rates eventually will go up and you can`t borrow? You absolutely can`t borrow because it`s so expensive. You`d be paying so little interest right now. This is the time to borrow.

(END VIDEO CLIP)

HARWOOD: Apologies. That was the different kind of overlap. That was Donald Trump talking about borrow and spend which is usually associated with Democrats.

Here`s Hillary Clinton on the trade policy.

(BEGIN VIDEO CLIP)

HILLARY CLINTON (D), PRESIDENTIAL NOMINEE: His approach is based on fear, not strength. Fear that we can`t compete with the rest of the world, even when the rules are fair. Fear that our country has no choice but to hide behind walls. If Team (NASDAQ:TISI) USA was as fearful as Trump, Michael Phelps and Simone Biles would be cowering in the locker room.

(END VIDEO CLIP)

HARWOOD: So counting on the Olympic metaphor to carry her argument there, Sue.

HERERA: John, you know, they do agree, as you mentioned, on few things, but Donald Trump`s critique of Hillary Clinton today, what was that about?

HARWOOD: Well, it was a couple of things. First of all, he says that she would raise taxes, that he would cut them. She`s for Obamacare, which he says is a disaster hurting jobs and her Senate record was bad, and he also repeated what he said over the last 24 hours, which is that she and President Obama would co-founders of ISIS, trying to discredit her more broadly.

HERERA: All right, John. Thank you so much. John Harwood in Washington tonight.

HARWOOD: Both candidates say one way to fix the economy is increase spending on our infrastructure and fix the nation`s failing bridges, rails and roads.

As Morgan Brennan reports, their plans differ in the details.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: No matter who wins the American presidency, expect a big push for infrastructure spending.
Both candidates have been criticizing the poor state of America`s roads, bridges, railroads and airports. Just today, Republican nominee Donald Trump proclaiming the nation`s infrastructure is in, quote, “the worst condition it`s ever been in,” likening certain airports to, quote, “third world countries”.

Democratic candidate Hillary Clinton opining that, quote, “we`re living off the investments that were made by our parents and grandparents` generations.”

So, how would the opponents address this massive issue? Trump asserts he will spend, quote, “a lot more than the $500 billion drummed up by Clinton saying he`ll potentially take advantage of low interest rates to borrow and make it happen.

TRUMP: Basically, you`re going out and you`re borrowing money in the United States to rebuild your infrastructure. It would be infrastructure money, and maybe there`s ways of giving additional, you know, credits to people that buy these bonds. But, you know, frankly the interest rate would be so low.

BRENNAN: Such a strategy would represent a potential break with the official GOP platform which prioritizes reducing the national budget deficit and curtailing spending.

As for Clinton, she`s offering a five-year $275 billion proposal, including a $25 billion to be dedicated to a bank that would extend loans, loan guarantees and bonds to raise an additional $225 billion in investments.

CLINTON: A big part of our plan will be unleashing the power of the private sector to create more jobs at higher pay and that means for us creating an infrastructure bank to get private funds off the sidelines and complement our private investments. $25 billion in government seed funding could unlock more than $250 billion and really get our country moving on our infrastructure plan.

BRENNAN: Clinton is also looking to build out a renewable energy grid and provide more broadband access for her infrastructure plan. For his part, Trump hasn`t put forth a detailed policy on his website, at least not yet.
Both candidates also promised to use domestic suppliers and manufacturers for the work.

But proposals from the campaign trail are just that. Since any plan would still need to clear Congress.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Still ahead, cashing out. Why mutual fund investors are nervous about this market, even with stocks at record levels.

(MUSIC)

MATHISEN: A lot of talk out there these days about the so-called millennials. Sure, now the largest demographic group and only by a little and not the richest. The baby boomers are. That`s why more and more entrepreneurs are targeting the boomers.

Aditi Roy reports.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Have your clients hands on the shoulders. Grab underneath the belt and you`re going to count and say ready, Gary, we`re going to stand up together, okay.

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: These individuals work for Honor, a company that connects seniors with caregivers who help elders live independently.

UNIDENTIFIED MALE: One thing we didn`t talk about earlier is that you want to make sure that the belt buckle is in front. You don`t want to have that in the back or the side. You want to make sure that the belt buckle is in the front.

ROY: Caregivers go through extensive training to become part of honor`s demand service which users tap into through its app. It`s just one example of a tech startup courting baby boomers and seniors. A market that`s grabbed the attention of investors and V.C.s.

LYNNE O`KEEFE, KLEINER PERKINS CALFIELD BYERS SERVICE PARTNER: This is a huge market, and as we think about health care, it is one of the biggest markets that actually spend health care dollars.

ROY: Lynne O`Keefe, a senior partner at Kleiner Perkins, says one-third of the digital`s health portfolio targets older adults because their numbers and spending power make them such a formidable economic force. Nearly 75.5 million boomers live in the U.S., according to U.S. Census data. The care- giving market alone is expected to reach $72 billion by 2020, according to the AARP, and the AARP says the annual economic activity of the 50-plus demographic is more than $7.5 trillion.

MARCIE ROGO, STITCH CO-FOUNDER: A baby boomer is the most economically attractive to most companies and also really brand loyal. This is what I love about them.

ROY: Marcie Rogo co-founded Stitch, a subscription-based service that helps boomers connect and find companions.

The 2-year-old company has 50,000 paying members in 50 cities worldwide.
While Rogo says older adults may not be as tech-savvy as millennials, she thinks they are more willing to pay for online services.

ROGO: They also have far more disposable income than any other generation.
They purchased their house and the big things. So, if they are still working, they still have income coming in and very few expenses. So, it`s a great combination for a good group to serve.

ROY: The AARP tells us it`s seeing increased interest from entrepreneurs, with more than 200 applicants to its startup demo day last year. That`s more than double the number in 2012, and there`s also a boost in venture capital money. Just this week, Honor raising 42 million in funding.

For NIGHTLY BUSINESS REPORT, Aditi Roy, San Francisco.

(END VIDEOTAPE)

MATHISEN: To read more about startups targeting baby boomers head to our website, nbr.com.

HERERA: Profits top expectations at Nordstrom (NYSE:JWN) and that`s where we begin tonight`s “Market Focus”.

The apparel retailer said its annual anniversary sale helped list results.
Revenue in same-store sales fell on the quarter, but they were better than expected. The company also raised its earnings guidance for the year.
Shares were sharply higher in initial after-hours trading after finishing the regular session up 7 percent to $47.55.

U.S. officials are investigating Valeant again. According to “The Wall Street Journal”, the Justice Department is looking into whether the pharmaceutical company defrauded insurers by hiding its relationship with a pharmacy company Philidor. The investigation could result in criminal charges against Valeant and the former management at Philidor. Shares fell
10 percent to $24.49.

MATHISEN: Alibaba reported higher than expect profit and revenue in the latest quarter. Results helped by growth in the ecommerce company`s cloud computing business and a recent acquisition.

Alibaba`s executive vice chairman said sales were strong. .

(BEGIN VIDEO CLIP)

JOSEPH TSAI, ALIBABA VICE CHAIRMAN: For the quarter that we just, we generated $4.8 billion of revenue, that`s 59 percent growth. It`s the highest growth rate we`ve ever had since our time of the IPO.

(END VIDEO CLIP)

MATHISEN: Shares up 5 percent today to $91.77.

Brinker International (NYSE:EAT) saw its profit and revenue rise as the restaurant company benefitted from an addition of more than 100 new store locations. The results topped street expectation. The owner of the restaurant chain Chili`s also gave upbeat guidance for the year. Shares bopped 12 percent to $52.72.

HERERA: Well, with stocks at record highs, a new report shows that investors have actually been funneling more of their cash into bond mutual funds, less into stock funds.

With us now to talk more about this trend is ICI`s chief economist Brian Reid.

Good to have you here, Brian. Welcome.

BRIAN REID, ICI CHIEF ECONOMIST: Thanks for having me on tonight, Sue.
Thank you.

HERERA: I was surprised by those results. Why the continued attraction of bond funds given the fact that we`re at record highs in stocks?

REID: I think part of the reason is that there are a lot of asset allocation models out there such as target date funds or other types of strategies, and so, we`ve had a pretty substantial run-up in the stock market as you`ve pointed out, probably the first one in several years.

And so, what a lot of these programs will do will rebalance then away from stocks and into bonds to keep the ratios that they are targeting about the same.

MATHISEN: So, you`re saying that this is more on autopilot than individuals making decisions. Which category are bond funds in terms of total return outperforming stock funds this year?

REID: No, they are actually still underperforming somewhat, at least looking at February. That`s where the low was in both the stock market and where interest rates had peaked out and since then stocks have certainly outperformed, what`s been attractive are areas such as investment grade bond funds and muni bond funds for that matter.

And part of this, too, is some investors riding that wave as interest rates have fallen, bond prices have risen and coming into the bond funds to take advantage of those rising bond prices.

HERERA: So, as we — as we look at these markets at new record highs does that sort of phenomenon tend to turn the tide with investors, you know, when they watch NBR at night as they do every single night, I know, and we sit as these record highs, do they then take a look at their portfolio and say, you know what, maybe I shouldn`t be sitting in a bond fund?

REID: There`s always repositioning. Most investors though use a financial advisor or they`re investing in something like a target date fund through their work or 401(k) plan, and these financial advisers are working with the portfolios and they do try to keep them in balance.

But there are investors who are looking towards these falling interest rates, particularly with central banks in Europe lowering interest rates, pushing rates, lower globally and bond prices higher, and I think investors are moving in to take advantage of those potential capital gains.

MATHISEN: The outflow from equity funds into bond funds or the flows into bond funds it hasn`t just happened suddenly. It`s been going on for years.
Has a whole generation of investors here from 2009 forward missed this bull market?

REID: No. What`s really going on here is that we`ve actually seen investors holding as much equity as they did in 2009, but part of this is a demographic phenomenon. We have the baby boomers who are holding the bulk of the assets in those 401(k) plans and the assets generally moving into retirement.

And as they do they begin to reposition their portfolio to decrease their equity exposure and increase their bond exposure slightly. These aren`t large moves, but when you have billions of dollars moving this is what happens.

HERERA: All right. Brian, thanks for clarifying everything for us.

Brian Reid with ICI.

MATHISEN: Coming up, why Rio de Janeiro is an attractive vacation destination, if you want to call it that, for people who want to come home with a brand new look.

(MUSIC)

MATHISEN: Brazil isn`t just a hot spot for world class athletes right now.
There`s another huge population of tourist in Rio de Janiero who are looking for a little nip and tuck.

Carl Quintanilla tells us why Rio is the hemisphere`s happening place if you want to get some work done, at a bargain price.

(BEGIN VIDEOTAPE)

CARL QUINTANILLA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Brazil is known for its beautiful beaches and beautiful people with good reason. Brazil is second only to the United States in the number of cosmetic surgeries, and despite the country`s recession, the Brazilian society for plastic surgery says the number of surgeries have increased 10 percent each year since 2010.

The industry gets a big boost from medical tourists who go to Brazil specifically to get cosmetic procedures at discount rates.

BIANCA BITNER, COMESTIC VACATIONS: And in Brazil, you are going to find prices around 30 percent, 50 percent less than in the U.S. with the same quality of services.

QUINTANILLA: Cosmetic vacations caters to medical tourists in Rio and work with 100 patients a year, mostly from the U.S. company reps make doctor appointments, arrange travel and recommend restaurant. It`s part medical consultant, part concierge service.

BITNER: Before the surgery, they come and they take some days to do some tourism, of course. They want to see Brazil.

QUINTANILLA: Dr. Luiz Haroldo, a surgeon at Copacabana with 40 years experience, gets 10 percent of his referrals from Cosmetic Vacations. His specialty, performing multiple surgeries at once.

DR. LUIZ HAROLDO, PLASTIC SURGEON: Body contouring, together, liposuction, fatty graph (INAUDIBLE).

QUINTANILLA: One-stop shopping.

HAROLDO: Yes.

QUINTANILLA: And that`s part of the appeal for pats who travel across the globe.

GENNIFER WILLIAMS, COSMETIC VACATIONS CLIENT: One thing the doctors in the United States, they are kind of skeptical about doing all of those surgeries at one time.

QUINTANILLA: Medical tourism to Brazil is expected to grow 45 percent over the next five years, an attractive figure to the industry and its patrons.

WILLIAMS: I do plan on going to have some other things done.

QUINTANILLA: For NIGHTLY BUSINESS REPORT, I`m Carl Quintanilla, in Rio.

(END VIDEOTAPE)

HERERA: Before we go, here`s another look at the record close for the three major indexes. The Dow added 117 points, the NASDAQ rose 23 and the S&P 500 gained 10.

And that does it for us on NIGHTLY BUSINESS REPORT — thanks for watching.

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

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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