Transcript: Nightly Business Report – August 17, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Fractured Fed. Some voting members of the Central Bank`s policy committee saying a rate hike is needed soon. But others disagree. The result: markets that don`t quite know what to make of                                                                               Janet Yellen`s Fed.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Cautionary tale. The SEC suspends trading in a $35 billion company that swims with the penny stock sharks. It`s got no revenue, a really funky name, and an advisory board chairman who served time. So, why didn`t the SEC act sooner and how can you protect yourself?

HERERA: Hot wheels. The unlikely automaker that`s growing sales twice as fast as the industry overall.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 17th.

MATHISEN: Good evening, everyone, and welcome.

A house divided. That is the unmistakable conclusion to be drawn from today`s release of the minutes of the latest meeting of Federal Reserve policy makers last month. Several members of the interest rate setting Open Market Committee felt an urgent need to raise rates soon. Others said, not so fast. Let`s wait for more data, especially on inflation, which remains below the fed`s target. But investors, of course, don`t have the luxury of waiting.

Hampton Pearson reports tonight from Washington on the Fed and the mixed


HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: When monetary policy makers met in late June, job growth had rebounded and market turbulence following the June 23rd vote by Great Britain to leave the European Union, had subsided. So, Janet Yellen and her fellow monetary policy makers concluded, quote, “another interest in the Fed funds rate was or would soon be warranted.”

But there was no consensus on timing. And a split on what combination of economic conditions would be needed for the Fed to pull the rate hike trigger.

RICH CLARIDA, PIMCO GLOBAL STRATEGIC ADVISOR: This is a Fed with 17 participants and I would say 17 different opinions, and right now, the chair has not really imposed her will.

PEARSON: According to the minutes, the key policy speed bump holding back a rate hike appears to be inflation. Still running well below the Fed`s 2 percent target.

Other concerns, sluggish overall economic growth, especially lagging business investment, global concerns include economic weakness in Europe, and China`s slow growth and currency policies.

JOHN CANALLY, LPL FINANCIAL: I think it`s still data dependent. I don`t think that`s changed. I think there`s still a lot of disconnect between the Fed and the market. A lot less than there was at the start of the year.

PEARSON: While the Fed minutes say a rate hike is warranted, there`s still no consensus among monetary policymakers on the timing. So, once again, all eyes will turn to Fed Chair Janet Yellen and the annual Federal Reserve gathering at Jackson Hole, Wyoming, next week.

In Washington, I`m Hampton Pearson for NIGHTLY BUSINESS REPORT.


HERERA: That word “soon” in the Fed minutes did not move the market, as you might expect. Any expectation that the Central Bank is close to hiking rates would usually result in a fall in stocks, but not today. In fact, the three major indexes closed higher. The Dow Jones Industrial Average added nearly 22 points to 18,573. The NASDAQ gained 1.5, and the S&P 500 was up 4.

Bob Pisani has more on today`s peculiar market reaction.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks were a little changed on the release of the Fed minutes, and with good reason. The markets already believe that a rate hike in September was unlikely, and the minutes only confirmed that feeling. The markets don`t believe the Fed will move in September, because the Fed has clearly telegraphed its concern that inflation is below their targets.

Now, bond yields and the dollar both moved down on this news, although a couple members indicated they wanted to raise rates, the market chose to focus on the line that the members voted prudent to accumulate more data before they acted.

Now, most importantly, traders believe that Janet Yellen is in that cautious camp, and will again strike a dovish tone at her speech in Jackson Hole on August 26th.

So, here`s the bottom line: the wait-and-see theme is still very dominant at the Fed, and that keeps traders believing that a rate hike is still well down the road.

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


MATHISEN: While stocks hit high of all time highs, there`s one story in one company in particular that`s getting a lot of marketplace buzz this week. The SEC recently suspended trading in an obscure outfit called Neuromama.

Here`s what we know about it. Neuromama trades over the counter, but its value has more than quadrupled this year to $35 billion on hardly any volume. It has no revenue. It last filed financial information with the SEC in early 2014. It`s got about $1,000 in cash on hand and it`s based in a beach community near Tijuana, Mexico.

Regulators halted trading on Monday because of potentially manipulative stock transactions and questions about the identity of the people in charge.

So, what does Neuromama do? A lot of things. It says it`s a search engine. It`s also on Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY), it has an entertainment venture in Las Vegas, and it`s investing in atomic fusion.

HERERA: So, what exactly happened here?

Eamon Javers has been looking into this story for us.

Good to see you, Eamon, as always.

Apparently, there were some red flags for this for some time. Why did the SEC move now to suspend the shares of Neuromama?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, look, the SEC`s enforcement division is going to take action whenever they feel like investors are potentially getting hurt and I think you can look at that stock chart and see that quadrupling in value and you can sense something was going on with this tiny little stock.

That`s probably why the enforcement division stepped in and stopped this thing. They might have been worried that other people were going to get hurt, and they might have had evidence that false information was being spread about that stock.

MATHISEN: So, you`ve done some digging and found another company with huge market cap, very low volume, and kind of an odd background. What is it?

JAVERS: Yes, this is story that sort of illustrates the danger for investors of poking around in the pink sheets. Those are those over-the-counter stocks that are lightly regulated by the SEC. The one we found today is called Bigfoot Project Investments. And the company exists to go out and find Bigfoot, the big, hairy monster, and to make DVDs about that, sell t-shirts, and conduct explorations all around North America, looking for Bigfoot.

I spoke to the CEO, Tom Biscardi. The company, as of this morning, had a market capitalization on the data sheets of $10 billion. And that`s largely due to an accounting fiction that has nothing to do with Bigfoot, itself. Bigfoot, all of its S-1s are out there for everyone to look at.

The company says it`s going to find Bigfoot. It says it`s got a skeleton of Bigfoot. It says it`s got plaster casts of Bigfoot`s footprints. Those are the assets listed in the SEC`s filings of this company.

As of this afternoon, though, OTC markets had removed the price from the stock, indicating that it`s not, in fact, worth $50 a share, and therefore it is no longer, officially, a $10 billion company.

MATHISEN: I think Neuromama and Bigfoot should mate and create a company worth $100 million.

JAVERS: Bigfoot mama.

MATHISEN: Bigfoot mama.

JAVERS: There you go.

HERERA: Eamon, thank you so much. Eamon Javers in Washington.

MATHISEN: All right. Let`s turn now to a former Security and Exchange Commission official. Andrew Vollmer is the former SEC deputy general counsel. He`s currently a professor at the University of Virginia`s School of Law.

Professor, always good to have a fellow Wahoo on our air.

How could something like this, like Neuromama, with such a sketchy pedigree trade for so long, seemingly on the American markets, under the noses of American regulators?

ANDREW VOLLMER, UNIVERSITY OF VIRGINIA LAW PROFESSOR: We want investors to be able to trade, and we want them to trade as easily as we can make it. That helps capital formation. But the key is adequate and accurate information. So, the system builds in a variety of methods to provide adequate and accurate information.

And the systems don`t always work, and that`s some of the problem that we see here with Neuromama, and that`s one of the reasons that even a small amount of activity in a lightly-traded stock can make those prices — stock prices go up very quickly in a very short time.

HERERA: Now, obviously, it`s a very gray market — the pink sheets, the over-the-counter market. Eamon found yet another company that has a very large reported market capitalization.

How many companies do you think are out there with that type of profile, and how long does it take the SEC to find them? And what can they do if they do find them?

VOLLMER: We, of course, don`t have an accurate count. We know that for many years, including as long ago as when I was at the SEC, there`s an active program to look for companies that are not providing the minimum and accurate amounts of information the markets need.

Since that time, I was at the SEC until early 2009, and many companies were — had their trading rights suspended or revoked. There have been something like 800 recently, taken off the markets. So, we don`t know. It`s in the hundreds, I`m sure. Maybe —

MATHISEN: So, a quick thought, if you wouldn`t mind. What advice would you give to an individual investor, who may be stumbling upon one of these companies, with huge performance numbers. Real quick?

VOLLMER: Investors need to do their homework. They need to look into the companies, be skeptical, keep your with wits about you. And don`t be driven by speculative frenzies.

MATHISEN: Andrew, thank you very much. Andrew Vollmer with the University of Virginia`s Law School.

VOLLMER: My pleasure.

HERERA: And as Mr. Vollmer has just outlined, penny stocks seems like a bargain to investors, but there are, indeed, very real risks.

Tim Maurer, director of personal finance at BAM Alliance joins us now to talk more of that.

You say there`s a big difference here between investing and gambling.

TIM MAURER, BAM ALLIANCE DIR., PERSONAL FINANCE: There absolutely is, Sue. Investing in penny stocks is actually gambling. You`re taking a big chance.

And I get it. We understand that we all would love to have that story that you`re telling in a cocktail party about your new yacht that is named “Bigfoot Mama,” because you bought this stock for pennies on the dollar and it went up over thousands of dollars. I understand the draw to that.

And, believe it or not, the draw makes sense, in one way. And that is that small company stocks have historically outperformed large company stocks. The problem is, that it`s a very, very small number of those small company stocks that make up that outperformance, considered to be less than 1 percent. Therefore, your chances of stumbling upon that one individual stock are extremely low.

The best way to gain exposure and benefit from the small-cap premium is to do so with broadly based index funds.

MATHISEN: Let`s talk a little bit about the overall words of advice here. Can you generalize and say the smaller the stock, the higher the risk?

MAURER: Well, that`s what the evidence would suggest. Yes, that the smaller the stock, the higher the volatility, the higher the risk. That`s what we`ve seen in the past. And it absolutely does make sense.

There are many more questions to be answered about the smaller company than the large one that`s been around for quite some time.

HERERA: So, at this point, if you`re an individual investor, you basically need to come to terms with the fact that if you`re going to put this money into a Neuromama or a Bigfoot, whatever it is, that it`s gone? Just, you know, if you get a return, fine, but just count on the fact that you have to be willing to lose that money and not be emotional about it?

MAURER: Yes, I wouldn`t recommend investing any more in a penny stock that you would be willing to take to your buddy`s house over poker night where you anticipate walking away with nothing. I think that there is no greater chance that you will apt to benefit from a penny stock in a really, really significant way, the way that one would hope.

Let`s not develop an emotional attachment to the story of some new company that you hope will be the next Google (NASDAQ:GOOG) or Apple (NASDAQ:AAPL).

MATHISEN: I know —

MAURER: Let`s look at it more rationally.

MATHISEN: Tim, I know, Tim, we`re going to hear from viewers who said, I bought a 4-cent stock and it quadrupled or went up 100 percent. What do you say to them, quick?

MAURER: If it weren`t for stories, Tyler, we wouldn`t be talking about this at all. Yes, every once in a while, it happens. Every once in while, someone gets bit by a shark and struck by lightning at the same time. But the chances are not high.

HERERA: On that note, thank you, Tim, as always.

Tim Maurer with BAM Alliance.

MAURER: Thank you.

MATHISEN: And still ahead, Donald Trump beefs up his campaign with a former Goldman Sachs (NYSE:GS) banker turned media mogul and a polling pro. What it means for the race for the White House?


HERERA: Aetna (NYSE:AET) says it did not threaten the Department of Justice that it would cut its participation in the health exchanges should regulators block its proposed merger with Humana (NYSE:HUM), though numerous reports quoted a letter the company sent to regulators about a potential pullback.

As we reported last night, Aetna (NYSE:AET) announced plans to withdraw from 11 of the 15 exchanges where it sells plans. Aetna (NYSE:AET) told CNBC, that letter was in response to specific DOJ questions about the potential impact on its Affordable Care Act participation, if the deal were blocked. Aetna (NYSE:AET) says its decision was based on financial pressures.

MATHISEN: Cisco (NASDAQ:CSCO) plans layoffs. The Dow component will cut 5,500 employees. That`s nearly 7 percent of its workforce. The world`s largest networking gear maker said the reduction is part of its shift away from switches and routers and toward areas such as security and the cloud.

The company made the announcement when it reported its earnings today. Cisco (NASDAQ:CSCO) did earn 63 cents a share in the most recent quarter. That was 3 cents better than estimates. Revenue down in Cisco`s traditional router business, but overall, revenue was up roughly 2 percent from a year ago, at $12.6 billion.

As for shares, they fell in initial after-hours trading in response to that profit report.

HERERA: Viacom (NYSE:VIA) and Sumner Redstone are reportedly back in settlement talks. According to the “Wall Street Journal”, a potential agreement would end their litigation, change the board, and lead to the exit of current Viacom (NYSE:VIA) CEO, Philippe Dauman. As part of the compromise, Viacom`s operating officer, Tom Dooley, would be promoted to CEO. One roadblock is the potential sale of Paramount, which Redstone and his daughter, Shari, believe is core to Viacom`s future. A deal would end one of the most bitter boardroom legal battles in history.

MATHISEN: Target (NYSE:TGT) slashes its full-year outlook and that`s where we begin tonight`s “Market Focus”.

Citing a difficult retail environment, the retailer said both profit and revenue declined in the latest quarter. Earnings did, however, manage to top expectations, while sales were roughly in line. The company lowered its earnings guidance and said same-store sales are expected to continue to decline for the rest of 2016. Shares finished the day down 6 percent at $70.63.

Lowe`s also cut its guidance for the year, after hosting disappointing quarterlies. The home improvement company saw both profit and sales rise, but those results were shy of street targets. Lowe`s cited lower demand for lawn and garden products, for its disappointing quarter, and that outlook. Shares off more than 5.5 percent, to $76.88.

JCPenney, meanwhile, has a plan to improve profit and growth in the next few years. CEO Marvin Ellison says the retailer plans to focus on home goods, jewelry, and expand its beauty business.


MARVIN ELLISON, JCPENNEY CEO: We have a couple of huge initiatives that we believe will net positive, not only in the fall season, but for the next three years. We`re going to expand our cosmetics business more aggressively. It`s been a wonderful business, attracting a new millennial customer. We`re rolling out appliances in 500 stores this year. And we see continued growth over the next couple of years.


MATHISEN: The company said it also has plans for a larger push into ecommerce. Shares, though, off more than 3.5 percent on the day, at $10.75.

Staples (NASDAQ:SPLS) swung to a loss and forecast its 15th straight quarterly sales decline. In the most recent quarter, the biggest U.S. office supplies retailer reported a steeper than expected drop in revenues and took roughly a billion dollars in charges. Those tied to the company`s failed merger with Office Depot (NYSE:ODP). Shares were down 63 cents at $8.70.

HERERA: Sales at American Eagle continue to grow. The teen retailer said comparable store sales, profit, and revenue all increased in the latest quarter. Earnings topped expectations, which helped extend its turnaround, after a two-year slump. But despite the strong results, shares fell 3 percent to $18.33.

Shares of Urban Outfitters (NASDAQ:URBN) had its best day in years, thanks to strong earnings from the teen retailer. The company topped expectations in the latest quarter, as sales in retailer`s home and music categories helped results. The company also reported an unexpected rise in same-store sales. Shares surged more than 15 percent, $36.05.

Performance Food Groups saw a net profit fall in the latest quarter, as falling food prices and a charge related to a failed acquisition hit the results. The food distributor is the latest to report headwinds from deflation across commodities like meat, cheese, and eggs. Shares fell more than 4.5 percent to $25.21.

MATHISEN: Hedge funds continue to underperform the broader market, by a long shot. According to the researcher, HFR, the average hedge fund is up 3 percent this year, through the end of July. The S&P double that return over the same time frame. The hedge fund sector has now experienced three consecutive quarters of net withdrawals, and that`s the first time that`s happened since the financial crisis in 2009.

HERERA: Casino mogul Steve Wynn is getting set to open a new $4 billion resort in Macau. This will be the Chinese territory`s most expensive casino yet, and it comes as gambling revenues hit a five-year low. Macau has been hit by a corruption crackdown, which is forcing Chinese high rollers to play in rival destinations.

But in an interview with CNBC Asia, Wynn did not seem all that concerned.


STEVE WYNN, WYNN RESORTS CEO: In our business, it is not a zero sum game. Even in a market that`s not as robust as it was, for example, a few years ago, the stronger Macau is, the better it is for everybody.


HERERA: During that interview, Wynn also denied that he`s serving as an adviser to Donald Trump, who he`s known for about 30 years. When asked who he supports in the presidential race, Wynn said he hadn`t yet committed to a candidate.

MATHISEN: Donald Trump has beefed up his presidential campaign with less than three month s to go until Election Day. He`s adding two officials to top posts, nominally under campaign chairman Paul Manafort.

John Harwood is following the developments from Washington.

John, Trump`s people says Manafort, who was supposed to oversee the transition of Trump into a general election candidate, is still in charge. Is he really?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: No, I don`t think so. Steve Bannon, the Breitbart News executive who`s come on has the title, chief executive of the campaign. I think chief executive is a term that means something in Donald Trump`s world. And I would expect the pugnacious style that he showed at Breitbart to take precedence now over the more mainstream style that Paul Manafort was trying to impose on Trump.

The problem, of course, was that, A, it wasn`t working in the polls. Donald Trump is behind significantly in the battleground states. And Donald Trump didn`t like it. He said just yesterday, I don`t want to pivot, I don`t want to change.

HERERA: Tell us a little bit more about Kellyanne Conway. Apparently, she has a gentler way of dealing with Mr. Trump.

HARWOOD: Kellyanne Conway is a longtime fixture in Republican politics. She`s worked as a pollster and a message strategist. She has the title of campaign manager, but it appears from her description and that of others, that her role is going to be less actually campaign manager, but more the — a person who travels with the candidate, who consults with the candidate on the road.

Corey Lewandowski, who was the first campaign manager for Donald Trump, said she has a calming influence on Donald Trump and may also be able to help him with a gender gap in terms of his messaging on a day-to-day basis. The gender gap is proving to be a very big problem for Trump. Women have turned away from him in very large numbers.

MATHISEN: What are Democrats and Trump`s fellow Republicans saying about the changes?

HARWOOD: Well, what the Clinton campaign is saying is this means we`re going to get a campaign driven by more of the conspiracy theory kind of talk that has flourished on the Breitbart site, and that Donald Trump himself has indulged in. Remember, he came to national prominence most recently in the political realm, questioning President Obama`s birth, whether it occurred in the United States, or not.

Robby Mook, the campaign manager for Hillary Clinton, said that the Southern (NYSE:SO) Poverty Law Center, as noted that the Breitbart site trafficked in racist and anti-Semitic material. So, they`re trying to put a marker down on that.

And as for other Republicans, I think this is likely to accelerate the move of Republican resources from the presidential race to House and Senate races, because more and more Republicans running for the House and Senate are worried they`re going to be dragged down. They don`t see these moves today as an answer that`s going to help them.

MATHISEN: All right, John, thank you very much. John Harwood in this fascinating political year, from Washington.

HERERA: Coming up, hitting the gas. Only one automaker has grown sales every year in the U.S. since 2008. Can you name that company?


MATHISEN: AT&T (NYSE:T) is phasing out coverage over its charges for wireless customers as part of its new mobile plan. Customers who use all of their high-speed data will have their data speed reduced or can pay for extra data. AT&T (NYSE:T) and its rivals are locked in an aggressive battle for subscribers.

HERERA: Demand nor mortgages hit a six-month low, despite historically low interest rates on fixed rate home loans. The mortgage bankers` association says total application volume fell 4 percent from a week earlier. Mortgage applications are considered a leading gauge of home sales. Applications to refinance existing mortgages also fell.

MATHISEN: Pop quiz for you. Name the only automaker to grow sales in the U.S. every single year since 2008. Tick, tick, tick. The answer is Subaru.

The Japanese automaker`s sales have been quietly growing for years and now the company plans to expand production and its presence in the U.S.

Phil LeBeau reports from Lafayette, Indiana.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Subaru is on a roll. It`s doubled the number of cars and crossovers it builds at its plant in Indiana, as it moves to keep up with demand. In fact, Subaru sales in the U.S. are growing twice as fast as the industry overall. Just ask Rocky DiChristofano, whose Subaru dealership in Tucson has been red hot.

ROCKY DICHRISTOFANO, SUBARU DEALER: Starting in about 2010, the Subaru brand just really started taking off. That was actually the year that my brother and I purchased our store here in Tucson, Arizona, and you know, we`ve been at a record pace ever since.

LEBEAU: Subaru may be heating up in the southwest, but its strongest sales per capita are in the northeast, and Montana, where it appeals to a small, loyal base.

But that`s changing, thanks to Subaru models getting high marks for reliability, from independent firms like the Insurance Institute for Highway Safety, a reputation for quality Subaru is now using to win over buyers.



UNIDENTIFIED MALE: It`s what makes a Subaru a Subaru.

PETER NAGLE, IHS (NYSE:IHS) MARKIT: They`re really focused on their messaging, really focused on their products, and they really tailor them to what the consumer is looking for.

DICHRISTOFANO: They`ve got a really competitive brand now. The product is the right size. It`s been at price for a long time. And it offers a great value. And our consumers certainly recognize that.

LEBEAU: As Subaru hits the gas here in the U.S., it`s trying to do something many automakers have failed to do in the past. Grow sales while keeping quality and reliability from slipping.

For NIGHTLY BUSINESS REPORT, I`m Phil LeBeau in Lafayette, Indiana.


HERERA: And finally tonight, Paul McCartney has signed a worldwide recording agreement from Capital Records, the same label that made him and the Beatles a household name in the 1960s. The deal will encompass McCartney`s entire catalog of post-Beatles work. It does not include Beatles music. The 74-year-musician is currently working on a new studio album and he is now back to where he once belonged.

Can`t wait!

MATHISEN: Cool. Still making music at 74, I believe.

HERERA: Good for him.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herrera. Thanks for joining us.

MATHISEN: And thanks from me, as well. I`m Tyler Mathisen. We`ll see you tomorrow.


Nightly Business Report transcripts and video are available on-line post broadcast at 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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