Transcript: Nightly Business Report – August 19, 2016

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

week near their all-time highs, and the NASDAQ does something it has not done in six years.

prices are near $50 a barrel. But is this rally different from others
we`ve seen?

HERERA: Watchdog or lapdog? Some patient deaths are being classified as
less serious events and that`s raising questions about how the FDA is
interpreting those incidents. The second part in our investigative series
tonight on NIGHTLY BUSINESS REPORT for Friday, August 19th.

MATHISEN: Good evening, everyone. Happy Friday and welcome.

Well, the NASDAQ notches it`s eighth straight winning week in a row. OK,
so it was just barely and I do mean barely. Nevertheless, it marks the
longest string of weekly gains for NASDAQ since 2010. That streak hit
eight despite a slight decline today stocks came under pressure as investor
expectations for an interest rate hike later this year rose.

Despite those daily decline, stocks remain near their all-time highs.
Today, the Dow Jones Industrial Average off 45 to finish at 18,552, NASDAQ
fell one, and the S&P 500 declined three. For the week, fractional moves
with the NASDAQ — remember I said barely — well it was barely higher for
the week. The Dow and the S&P slightly lower.

HERERA: Despite today`s winning streak on Wall Street, many were focused
on income-paying stocks. According to “The Wall Street Journal”, big
companies are giving more of their profits to shareholders than any other
time since the financial crisis even as record low bond yields put a
premium on dividends.

But are these payouts putting companies at risk?

Let`s turn now to Maryann Montagne, senior investment analyst with Gradient
Investments to talk more about that.

Welcome. It`s nice to have you here, Maryann.

I guess —

for having me, Sue.

HERERA: I guess that is the question. Does the dividend payout pose a
risk for companies in this market?

MONTAGNE: Well, but I can see that a lot of companies are increasing their
dividends and they`re getting pretty high in that payout ratio. Sometimes,
they`re borrowing even to pay dividend. But it`s generally because they
don`t have other good uses for their cash and interest rates are extremely
low. So, on a dollar-for-dollar basis, it`s better to give it to the

MATHISEN: So, they`re not jeopardizing their balance sheets. Are there
any particular sectors of the market where it is worrisome to you?

MONTAGNE: You know, it could be in some of the cyclicals, but that`s not
an area we really focus on, and just to look at it from our standpoint,
were concentrated on the cash that`s generated from operations after their
normal capital spending, and in our G50 portfolio dividend-paying stocks,
we have a wealth of companies that are still in that 25 to 45 percent
payout ratio, the way we calculate it.

One of them is cold, even with all the difficulties that they had last
year, their payout ratio is only forty-five percent.

HERERA: You know, Maryann, you said that one of the reasons that they are
be either borrowing or using their profits to pay dividends that they don`t
need the cash for other things. Is that unusual in a market? Is it — is
it specific to the environment that were in now or is that traditionally

MONTAGNE: Well, I don`t think it`s traditionally true. I just think that
a lot of companies have not gone out to make a lot of mergers and
acquisitions over the course of the last year, so they`ve been building
their cash positions.

And again, you know, for them to just invest it at like what a one-and-a-
half percent type of interest rate, you know, for 10-year treasuries, it
makes more sense to pay it out to shareholders.

MATHISEN: You`ve used the phrase payout ratio a couple of times, Maryann.
Would you mind explaining what that is precisely? And you said what one
was just 45 percent, so that was fine. What`s too high?

MONTAGNE: What`s too high? OK, so the way most people calculated, it`s
the dividends divided by the earnings on a per-share basis. We don`t think
that`s the best way to look at it. We think it`s better to look at the
cash generated from operations and then deduct whatever they spent and
reinvestment in the business and what`s left is free cash flow.

So, we look at the dividend payments as a portion of the free cash flow,
and what`s too high. I would say, you know, 90, 95 percent is too high,
especially when you`re like us looking for companies that not only pay a
nice dividend, pay a nice yield, but also have the ability to grow
dividends every year at a rate in excessive inflation.

HERERA: All right. Maryann, we`ll leave it there. Thank you so much once
again for joining us.

Maryann Montagne with Gradient Investments.

MONTAGNE: Thank you.

MATHISEN: Comments from the head of the San Francisco Fed weighed on
stocks today. John Williams is calling for an interest rate hike sooner
rather than later and is the latest central bank official to put a
September rate increase back on the table now. William says that waiting
too long could be costly for the economy.

While he is not a voting member of the policy-setting committee this year,
he does have a long-standing relationship with Fed Chair Janet Yellen, who
speaks at the annual central bank symposium in Jackson Hole next week.

HERERA: The rally in oil prices pushed crude to its best weekly gain in
about four months. In just a few weeks, domestic crude has risen more than
20 percent. And though we`ve seen crude rally before, this move higher
isn`t the same as the others.

Jackie DeAngelis has our story.


back in the market, moving oil prices from $39 to almost $50 in just two
weeks time. The primary reason, speculation that OPEC talks in a few weeks
might finally lead to a production freeze.

But many are asking, why is this time different? We saw a similar move
higher ahead of the Doha meeting and the last OPEC meeting in Vienna, yet
talks did not produce an agreement.

Some say this time around, it`s the Saudi Arabia factor and its willingness
to agree that could make fifty dollar or oil more permanent. And Saudi
Arabia wants to see higher prices as it gets ready to issue shares in
Aramco, its state oil company. Higher prices would also support an
upcoming 15 billion dollar debt issuance. The kingdom needs to raise funds
to maintain its reserves because cheap oil has depleted the coffers.

Additionally, in the past, the sticking point has been the market share war
the Saudis have been fighting with Iran. But just this week, the Iranian
oil minister said the country`s production is already at more than 3
million barrels a day, almost at pre-sanction levels. That in and of
itself makes Iran less of a threat.

Meantime, freezing when OPEC is pumping at record levels won`t have a
material impact on production. A freeze after all is not a cut.

At this point, analysts feel the Saudis could have every reason to give the
market what it wants and in turn support oil prices for their own benefit.

JEFF GROSSMAN, BRG BROKERAGE PRESIDENT: I definitely think that $50 oil is
possible and very probable. The Saudis, you don`t even have to do anything
to really just have the perception that are going to get everything under
control. And with that, the market will work its way higher.

Still, there are skeptics out there that think this is a classic case of
“buy the rumor, sell the fact”, and the fact would be no agreement as we`ve
seen so many times before.



MATHISEN: Still ahead, if you`re concerned about the market at these lofty
levels, our market monitor guest has some stock recommendations for you.


HERERA: The very public and very bitter battle over Sumner Redstone`s
media empire is reportedly over, and the settlement keeps the Redstones in
control. We`ve been reporting that a deal was near between Redstone who
controls Viacom (NYSE:VIA) and CBS (NYSE:CBS), and his longtime former
confident at Viacom (NYSE:VIA).

And tonight, Julia Boorstin brings us all the details.


National Amusements and Viacom (NYSE:VIA) CEO Philippe Dauman have
reportedly agreed to settle lawsuits that have been hanging over the

Sumner and his daughter Shari Redstone coming out on top putting to bed
three lawsuits without testing Redstone`s mental competency, which has been
called into question.

Sources tell us Dauman will step down as CEO immediately and COO Tom Dooley
will become interim CEO through the end of September.

shareholders that Philippe is gone. It`s a better day that there`s there
are bright and competent directors coming in to join this board. So,
obviously, Shari Redstone`s played a bigger role over these last few months
and hopefully that continues.

BOORSTIN: The question now is who will become Viacom`s permanent CEO as
Dooley has been Dauman`s right hand for the past decade and sources say
that Viacom`s board could look outside the company for a new leader.

There`s renewed speculation that CBS (NYSE:CBS) CEO Les Moonves would be a
good fit and CBS (NYSE:CBS) and Viacom (NYSE:VIA) could be recombined after
splitting a decade ago. And meanwhile, Dauman is not exactly losing,
expected to walk away with a $72 million severance package, on top of the
$491 million Dauman has brought home over the past 10 years, running Viacom
(NYSE:VIA), according to Equilar.

JAMES STEWART, NEW YORK TIMES: You kind of also have to wonder, these are
some big numbers coming out of this, the cost to the company. Was just a
big shakedown, you know, to get payments for these people who are leaving
after a disastrous performance of the last few years?

BOORSTIN: Former Viacom (NYSE:VIA) CEO Tom Freston saying today`s news of
Dauman`s austere is long overdue and will now make it much easier to draw
top employees to the company.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


MATHISEN: A market monitor tonight likes dividend-paying stocks of the
store we were just discussing. You got names of companies that he says
always put shareholders first. Last time he was on about two years ago, he
recommended Intel (NASDAQ:INTC), up a percent, Verizon (NYSE:VZ), up five
percent, and Royal Dutch Shell, which with oil prices down is thirty-seven
percent lower.

He`s Ed Perks, portfolio manager for Franklin Templeton $79 billion
Franklin Income Fund.

Why don`t we begin, Ed, with that stock, Royal Dutch Shell, which is down
so much, but he`s still on your buy list now — why are you doubling down
on it?

actually been given a nice opportunity to add to our position at lower
prices and certainly a lot of that was driven by the decline in oil prices
from that date you mentioned September 2014.

Now, what we like about Shell is that they really have a lot of
opportunities internally to reduce costs, to reduce capital investment,
ultimately, to focus on improving the balance sheet and improving returns
from their existing project.

So, we think really over a longer term with a more normalized oil price
environment that the returns are quite attractive there.

HERERA: Let`s go to your other picks. Microsoft (NASDAQ:MSFT) is at the
top of the list.

PERKS: Yes, you know, I think it`s interesting that dividends are an
opportunity across a broad segment of the market today, and it`s not just
about utilities and telecom and did the more traditional yield oriented
sectors. And, you know, with Microsoft (NASDAQ:MSFT), recently, I think
investors have had a nice opportunity to buy it below its highs. Now, this
is a market environment where we`ve been very close to all-time highs.

Yet, when you look at individual stocks like Microsoft (NASDAQ:MSFT),
you`ve had moments of opportunity to do that. It`s a company that has a
fabulous balance sheet, and I think has an opportunity particularly in the
commercial cloud area to really drive growth and free cash flow.

MATHISEN: A stock that yields two-and-a-half percent compared with the
about one-and-a-half percent for the 10-year, you could argue that
Microsoft (NASDAQ:MSFT) has got a better balance sheet than the US

Your third pick is Pfizer (NYSE:PFE) — not that I`m making that case.
Yes, your third pick is Pfizer (NYSE:PFE), also a plump dividend yield of
about 3.5 percent, 3.4.

PERKS: Yes, you know, there I think once again, it`s a company-specific
catalyst that the management team is very focused on, trying to drive
shareholder value over time. They`re doing that by thinking about
strategic options with their business, but also ultimately, it`s a business
that we think over the next several years can generate just a substantial
amount of free cash flow with once again a very strong balance sheet and an
opportunity to kind of deploy that free cash in a balanced manner.

It will be through dividends for shareholders. It will be through modest
share buybacks and ultimately even some M&A opportunities.

MATHISEN: Ed, thank you very much for your time tonight. Ed Perks is with
Franklin Income Fund.

MATHISEN: Deere has its best day in almost eight years, and that`s where
we begin tonight`s “Market Focus”.

The world`s largest agricultural equipment maker said cost cuts helped post
better-than-expected earnings. As a result Deere raised its full-year
profit guidance. But the global farm recession and headwinds in the
construction equipment wait on sales. Shares rather sword 13 percent to

Shares of Geo Group (NYSE:GEO) and Corrections Corp of America bounced back
today. Executives above both for-profit prison operators told analysts
that the policy shift by the Justice Department would not materially affect
profits this year or future dividends. As we reported last night, the US
government pledged to discontinue its use of private prisons.

Geo Group (NYSE:GEO) shares soared 21 percent to $23.68. Corrections Corp
rose eight-and-a-half percent.

MATHISEN: Higher sales of celebrity endorsed shoes fueled by my son helped
the Footlocker (NYSE:FL) top revenue and earnings estimate. The athletic
shoe retailer said demand was strong for Under Armour (NYSE:UA) Stephen
Curry basketball sneaker. I think that`s the one he doesn`t own, and
Nike`s Kevin Durant kicks. Chairs now in positive territory for the year,
up eleven percent today to $68.47.

Lower foot traffic speaking — speaking of feet — at department stores and
weak demand for skincare products cause Estee Lauder reporter smaller than
expected rise in quarterly sales. The company also gave week profit
guidance for the year. Shares finish the day down three and a half percent
at 91.73.

And Madison Square Garden (NASDAQ:MSG) saw its quarterly lost widen and
revenue slid more than expected. Sales fell more than anticipated as the
Rangers hockey team, which got knocked out of the playoffs early this year
played fewer games in their home stadium. Shares down to 2 percent

A joint investigation by CNBC and NBC New York found more than 4,000
patient deaths have been classified as less serious events in FDA safety
report. It turns out health companies are allowed to label some fatalities
as injuries but now critics are questioning, is the FDA more lap dog than

Chris Glorioso joins us with part two of our investigation “Death By
Another Name”.


CATRICE JONES, ESSURE PATIENT: I think the FDA needs to be investigated by
the FBI.

CHRIS GLORIOSO, NBC NEWS CORRESPONDENT: Catrice Jones feels the Food and
Drug Administration let her down. When this Bronx-born mom was finished
having children, she chose a birth control device called Essure.

JONES: I get choked up just talking about it. This is the arm band.

GLORIOSO: But Catrice still got pregnant twice, and twice she miscarried.

JONES: It`s a shocking experience to find out that you were pregnant when
you were planning on not being pregnant anymore and then to lose the baby,
it was — it was devastating.

GLORIOSO: What bothers Catrice most is the way the FDA counts fetal and
embryonic deaths reported by Bayer, the maker of Essure.

According to the agency`s reporting rules, fetal deaths and miscarriages
are not considered deaths.

JONES: I don`t think they counted all the fetal deaths all the

GLORIOSO: She`s not the only one complaining about the FDA`s reporting

CONNIE WALTON, SHELLY WILHITE`S MOTHER: I`ll never forget this as long as
I live he called me said, nana, my mama has died.

GLORIOSO: Yesterday, we told you about family of Shelly Wilhite, an
epilepsy patient who died after complaining this nerve stimulator implanted
below the neck caused painful shocks. Since Wilhite`s death, her loved
ones have learned Cyberonics (NASDAQ:CYBX), the maker of the device, has
reported dozens of patient deaths but classified them as less serious
injuries and malfunctions.

WALTON: I would like to say to the company to start being honest.

GLORIOSO: Both Cyberonics (NASDAQ:CYBX) and Bayer say their products have
helped tens of thousands of epilepsy and birth control patients. They
insist they have reported safety issues in compliance with FDA rules. But
the way the rules are interpreted and enforced maybe the problem, according
to Pennsylvania Congressman Michael Fitzpatrick.

He says the FDA seems to be allowed medical device companies to decide for
themselves when a death is related to one of their products.

REP. MIKE FITZPARTRICK (R), PENNSYLVANIA: Are, you know, physicians
misreporting or companies misclassifying I think the FDA is in the best
position to answer those questions, and they should. And I don`t think
they have today.

An FDA spokeswoman told us patient deaths could be correctly classified as
lesser events if safety reports lack sufficient information to establish
the device likely caused or contributed to the death. She also said, “The
FDA considers patients to be our first and primary customer.” But some
patients don`t see it that way.

like they are supposed to be the people`s watchdog.

GLORIOSO: Shelly Wilhite`s family says the FDA has gotten too cozy with
the device-makers.

That nerve stimulator was also approved to treat clinical depression, but
an investigation by the Senate Finance Committee found the FDA`s then head
of devices, Dr. Daniel Schultz overruled more than 20 FDA scientists,
medical and safety officers, many of whom felt the device did not
demonstrate a reasonable assurance of safety and effectiveness.

For years, after overriding his own expert staff, Dr. Daniel Schultz
resigned from the FDA. He`s now joined a K Street consulting firm that
lobbies the FDA to get medical devices approved.

Schultz declined comment. His consulting firm Greenleaf Health did take
issue with the notion that lobbies the FDA, saying it does not lobby as
defined by the Lobby Disclosure Act of 1995. That act refers to lobbying
certain executive and elected leaders.

The Greenleaf website says it prepares device companies for meetings and
calls with the FDA and prepares applications for FDA product approval.
Since 2009, Greenleaf has hired at least seven FDA officials.

We asked Scott Gottlieb, a former deputy commissioner at the FDA, if close
ties to the industry are compromising the agency`s mission.

You were the number two guy at the FDA. In your estimation, is the FDA
more watchdog or more lap dog?

pretty, pretty rigorous.

GLORIOSO: Gottlieb said the FDA benefits by collaborating with private
industry and he said ethics and a commitment to protecting patients are
guiding principles.

GOTTLIEB: I think that they do by and large a very good job. I think that
they`re probably the best regulatory agency around the world.



HERERA: The FDA is currently spending millions to upgrade its system for
recording and analyzing problems with medical devices.

We should point out, Bayer, the maker of Essure, says the birth control
device does not have an abnormally high rate of miscarriages.

Cyberonics (NASDAQ:CYBX), whose parent company Liva Nova is publicly
traded, says its nerve stimulator does not have an abnormally high number
of patient deaths.

Coming up, they`re classic they`re rare and they`re very, very, very
expensive and they`re up for auction at Pebble Beach.


HERERA: The main event two fighters will make their long-awaited return to
the Octagon this weekend. Not only is their big money on the line but
there`s also a big push to unionize mixed martial arts fighters.

Jane Wells in Las Vegas getting ready to rumble.


Saturday, but no one told the fighters. Conor McGregor and Nate Diaz will
face off in the Octagon in a UFC rematch which could be the biggest fight
of the year and there`s not even a title on the line.

It`s also a test of the league`s new owners, talent agency WME IMG, which
bought the UFC for a whopping $4 billion this summer, a record for a sports
franchise which McGregor takes credit for you.

understand that I had a big role in that price tag. And so, my contract is
very, very sweet.

WELLS: Conor McGregor`s demeanor this week was at times far quieter than
last March.

MCGREGOR: Take a coffee break, mate, and by coffee break, I mean bring me
my coffee.

WELLS: Back then he was brash, until Nate Diaz beat the odds and McGregor.

That`s stunning defeat by one of the UFC`s biggest names touched off a
tempestuous summer for Conor McGregor quit the UFC, then he came back, then
he was pulled from a rematch in July and now, the bottle throwing incident.
But the UFC`s new owners may have another thing to worry about — a veteran
sports agent wants to unionize the fighters.

JEFF BORRIS, SPORTS AGENT/ATTORNEY: You`re talking about one employer, the
UFC, that has six hundred or so employees. And they tell them when to
fight, who to fight, what to wear when they fight. So, absolutely, there
should be a union relationship here with the employer.

CODY GARBRANDT, UFC BANTAMWEIGHT: Like have like insurance, 401k, all that

(INAUDIBLE) like them.

WELLS: They may end up with a very big name in their corner.

MCGREGOR: If it is presented correctly to me, maybe I will help spearhead
something like that. But right now, I`m focused on the McGregor business
and that is UFC 202 this Saturday.

WELLS: Saturday, three matches being called “Bad Blood”. The new owners
who paid billions for the UFC also hope it`s a good bet.



MATHISEN: New report reports tonight on Lyft. According to “The New York
Times (NYSE:NYT)”, the ride-hailing company has tried to sell itself. The
company`s it approached as potential buyers include General Motors
Uber and China`s DD. So far, no deal in the increasingly cutthroat ride-
hailing business.

HERERA: This is the time of year when car enthusiasts can see some of the
world`s most classic and most expensive vehicles they`re on display and up
for auction at Pebble Beach in Monterey, California. And Robert Frank is


for millionaire motorheads. Thousands of the world`s wealthiest collectors
rolled into Monterey and Pebble Beach this week for the Concord d`Elegance.
There are award shows, races, parties and the most expensive car auctions
in the world. More than 1,200 cars are expected across the auction block,
over 120 expected to sell for over a million dollars.

But this year`s grand total of $370 million is below last year`s, and
offers the latest sign that the classic car market like art and other
collectibles may be slowing after five years of rapid growth.

DAVID GOODING, GOODING & COMPANY PRES.: Certainly in a lot of segments,
yes, I would agree with that, and I think that`s healthy. I mean, you
can`t continue to go up and up and up and up. As it did that dramatically,
there`s going to be pushback. I think I think there`s this stabilization
which is good, but I do think that still there are going to be some record

FRANK: The most expensive car likely to sell this week is this 1939 Alfa
Romeo 8C being auctioned by RM Sotheby`s. It could sell for between $20
million and $25 million.

Yet, it could be topped by this 1955 Jaguar D-type Roadster that won the 24
hour at LeMons. It`s likely to be the most expensive British car ever sold
for between $20 million and $25 million.

Now, one of the highest-profile cars the weekend is Paul Newman`s Porsche.
Newman drove the car to second place at the LeMons in 1979, marking the
biggest win of his racing career. It could sell for more than $5 million
even though it`s not street-legal.

Actor and car collector Adam Carolla who owns eight of Newman`s racecars
said the price may actually be worth it.

you and they go $5 million for a car, and it`s like, all right, let`s not
call the car. Let`s just say $5 million for bowling ball, what if that
bowling ball is going to be worth $11 million in eight years, would you —
would you do it? Like, well, that`s your answer.

Steve Jobs also love this car. It`s the first car that Apple (NASDAQ:AAPL)
Computer sponsored in 1980 and Jobs helped design the paint job and the
logo for the car. While it`s known as the Paul Newman Porsche, others are
calling it the first true Apple (NASDAQ:AAPL) car.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank in Monterey, California,


MATHISEN: And finally tonight, it has been 12 years to the day since
Google (NASDAQ:GOOG) went public, and a lot has changed at the company
since then — its name for example now Alphabet. It`s also expanded into
different product lines like self-driving cars and renewable energy. But
the biggest change of all is its stock price, which is up about seventeen
hundred percent since it started trading at $85 on this day in 2004.

HERERA: Wow. What a run, right?


HERERA: Alright, that — speaking of run — this is NIGHTLY BUSINESS
REPORT for tonight. I`m Sue Herera. Thanks for joining us.

MATHISEN: And thanks for me as well. I`m Tyler Mathisen. Have a great
weekend, everybody. And we`ll see you back here on Monday.


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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