Transcript: Nightly Business Report – September 9, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Friday fumble. Stocks take a dive. The Dow plunges almost 400 points. Crude crumbles, gold sinks. What triggers the first selloff in months and what could come next?

need to know about those illegal sales practices at Wells Fargo (NYSE:WFC).

HERERA: Risk management. Our market monitor has three unheralded stock
picks that he says are great choices for a volatile market.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday,
September 9th.

MATHISEN: Good evening, everyone, and welcome.

True, it is still summer. It was after all 90 degrees in New York today.
But a chill wind blew on Wall Street. Stocks plunged, the market all snug
and warm for months turned icy, at least for a day. The Dow and S&P 500
had their worst day since the Brexit vote aftermath at the end of June.

The reason today, a Fed official hinted an interest rate hike is not far
off. Now, that`s not necessarily a bad thing. It suggests the Federal
Reserve thinks the economy is getting strong enough to shrug off a rate
increase, but it did spook investors who have become accustomed to easy
money policies and it spooked them doubly because the Fed official that
spoke is normally in the easy money camp.

Here are closing numbers for a bruising Friday. Dow Jones Industrial
Average tumbled 394 points to 18,085, NASDAQ dropped 133, the S&P 500 slid
53. All of the major indexes fell more than 2 percent for the week — the
biggest weekly drop for the Dow since first week of the year.

Bob Pisani has more.


Even by summer doldrums standards, this has been a long period of below
average volatility. The last time the Dow moved 1 percent or more was July
8th. It was two months ago.

So, the Fed`s Eric Rosengren, he`s a dove, has reminded everyone that the
markets aren`t not positioned for a rate hike in September and he has made
a case that it could well happen. So, now, you are seeing a scramble.

First, the traders sell interest rate sensitive stocks, which is why
utilities and telecom and home-building stocks were down today. Second,
with the stepping yield curve, you buy financials like insurance companies
and banks which benefit from higher rates and which have already been
rising going into events today. Third, you bid up the dollar which hurts
commodities and commodities stocks like steel and iron ore, and copper
names which were all down about 3 percent today, like Freeport McMoRan.

So, who wins? Well, Main Street is not a fan of down days like today,
obviously, but this is great news for the professional trading community.
Wall Street has been miserable all summer because the trading volumes have
been awful. This kind of activity, this kind of volume is a godsend to

The problem is this. If the Fed does nothing in September, all of this
gets unwound again. We`ll go back to where we were just a few days ago.

So, what`s going to happen? Will the Federal Reserve actually do anything?
Are they going to raise interest rates?

Well, if the Fed really is data dependent. Data hasn`t been that good
recently so you don`t hike. And yet, Rosengren and friends seem to really,
really want to hike rates.

What`s going on? It may be that the Fed is not worried about data, that
they`re more worried about losing credibility if they do nothing. So,
we`re in a hole. All we can do is maintain a heightened state of alert
until September 21st Fed meeting.

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


HERERA: While the Fed`s Eric Rosengren thinks a rate hike could be near,
not everybody agrees. Fed Governor Daniel Tarullo says he needs to see
more evidence that the economy is ready.

Steve Liesman spoke to him.


Tarullo in an exclusive CNBC interview saying he has substantial questions
about the momentum of the economy that would appear some pause about
raising rates as soon as this month.

characterized of being in the “show me” camp, which is to say I`d like to
see some more tangible evidence of inflation given background context of
unemployment continuing to increase without unemployment rate going down.
The fact we are not running a hot economy. The fact that we don`t have as
many tools to respond to a potential recession as we would if growth were
to pick up.

LIESMAN: Tarullo would not say specifically if it would hike at the Fed`s
meeting in less than two weeks time. He did say a rate hike this year is
possible, but recent weak data, they raised questions about the economy`s
momentum. Several Fed officials, they suggest that a hike remains on the
table but that recent weak economic reports, they have the market believing
it is unlikely this month.

Tarullo`s comments, they appear to support the skeptical view.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.


MATHISEN: In that same interview, Fed Governor Tarullo said that bank
behavior has not changed enough since the 2008 crisis. He`s referring to
the fine Wells Fargo (NYSE:WFC) paid for opening up unauthorized accounts,
something we reported on last night.

And at least one analyst says Wells Fargo (NYSE:WFC) has a lot of work to
do to win back its reputation.

Hampton Pearson has our story.


Wells Fargo (NYSE:WFC) was hit with a $185 million fine for opening as many
as 2 million deposit and credit accounts without customers` knowledge, job
one for Wells Fargo (NYSE:WFC) is winning back the trust of its estimated
40 million customers. That`s according to a leading Wall Street analyst
who today downgraded the bank stock.

DICK BOVE, RAFFERTY CAPITAL: I think Wells Fargo (NYSE:WFC) to right this
thing has to do something dramatic for consumers. It has to show in some
fashion that it believes in its customers, it wants its customers, and it`s
going to help its customers by giving them something to offset what they`ve
done here.

PEARSON: The bank says it has already refunded 2.6 million to customers,
averaging about $25 per account. And 5,300 employees have been fired over
a five-year period. Its total workforce is closer to 270,000.

The settlement with government regulators involved only fines and no
admission of wrongdoing. A top Federal Reserve official says individuals
should be also held accountable.

TARULLO: There is a need I think for a focus on individuals as well as the
fines put on institutions. In inappropriate cases, I that think fines for
individuals, prohibition orders, obviously, this is a much higher standard,
but for Justice Department prosecutions are things that do need to be

PEARSON: On Wall Street, some analysts are questioning if revenues from
those fake accounts may have helped them Wells Fargo (NYSE:WFC) post better
returns than some of its rivals.

BOVE: When Wells Fargo (NYSE:WFC) made these presentations to analysts
about the number of accounts it was opening, about the cross selling ratio
it was giving. If all of those numbers were incorrect, if revenue was
seeping into these numbers, then there`s real questions about numbers of
Wells Fargo (NYSE:WFC) itself.

PEARSON: Here in Washington, there`s bipartisan criticism of the Wells
Fargo (NYSE:WFC) settlement. A leading Republican says it`s another
example of big government propping up a mega bank at the expense of
community banks, while a leading Democrat sees echoes of the foreclosure

For NIGHTLY BUSINESS REPORT, Hampton Pearson in Washington.


HERERA: So, in the face of Wells Fargo (NYSE:WFC) secretly opening
millions of unauthorized deposit or credit card accounts, what do you need
to know to protect yourself?

Joe Ridout is a spokesperson for consumer advocacy group Consumer Action
and he joins us now.

Joe, nice to have you here.

JOE RIDOUT, CONSUMER ACTION: Thanks for having me on.

HERERA: You know, up selling, cross selling, however you want to call,
it`s a common practice in banking. Wells Fargo (NYSE:WFC) obviously took
that too far. But what are red flags consumers should look for to alert
them to the fact that perhaps they`re falling victim to this?

RIDOUT: Well, for one, you can check your credit report as everybody
should do. This is a reminder checking that credit report can determine
whether or not there may be a new credit card or other loan in your name
you may not have solicited. People who have credit cards opened by
employees would likely find out on their credit reports.

The problem is for those consumers with credit reports opened in their
names, that may be pushing down their credit score due to extra inquiry in
their report. This may be the difference between those consumers obtaining
the best available rate or a less advantageous car loan or mortgage. For
those consumers, they`re facing damages way beyond the 25 bucks on average
Wells Fargo (NYSE:WFC) expecting to pay.

MATHISEN: They were apparently opening different kinds of accounts,
including checking and savings accounts for customers. Wouldn`t you know
from different or altered statements that they had done something like
that? That`s question one. Question two is, do you suspect other banks
are doing similar things that might be not necessarily illegal but pushing
the bounds of propriety?

RIDOUT: Well, that`s a good question. There`s a lot that`s going to come
out of it hopefully. You know, if the bank was not sending statements for
extra accounts, which is probably the case more often than not, the
consumer might not know about this. If you checked the specialty report, a
check systems report, you might find evidence of extra accounts being
opened, but very few people do that.

But as far as other banks doing it, I`m not sure. Wells Fargo (NYSE:WFC)
has been more aggressive than any bank trying to upsell its customers.
They would upsell people ironically with a product, identity theft
protection service, expensive and almost worthless.

It bears mentioning it wouldn`t have prevented any of these accounts being
opened even if they had that. But, I mean, you can barely take 40 bucks
out of the Wells Fargo (NYSE:WFC) ATM without being up-sold a couple of
extra products and services you may not want.

HERERA: Yes, they`re known for being aggressive for that.

What about the arbitration clause that is in Wells Fargo`s agreement, but
are also common not only in the banking industry but in other industries as
well, where you can`t take them to court, you have to arbitrate.

RIDOUT: Yes, this is an interesting wrinkle to the problem. I think
basically binding mandatory arbitration takes away your right to take them
to court, bind together as class action. It forces you into courts that
they`re paid effectively by people that have wronged the consumers in most
cases and they rule for over 95 percent of the time in favor of the

So, if you lose your legal and constitutional rights, the right, your
Seventh Amendment rights, and, you know, it is worth checking if you were a
consumer concerned about this to find out whether your bank has a binding
mandatory arbitration clause or not, because if it does, this Wells Fargo
(NYSE:WFC) case shows that many times banks or other institutions have very
good reasons for taking away your legal rights, because they may be
violating them and want to shield themselves from liability.

HERERA: Joe, we have to leave it there. Thank you very much.

RIDOUT: My pleasure.

HERERA: Joe Ridout with Consumer Action.

MATHISEN: A North Dakota tribe to stop construction of an oil pipeline was
denied. The pipeline was opposed by Native Americans who say it would
pollute nearby rivers and desecrate their sacred land. The nearly $4
billion pipeline would be the first to allow movement of crude from the
Bakken shale. Meantime, oil prices fell 4 percent today, big drop there on
continued supply concerns and a rising dollar.

HERERA: While the Bakken is well known in the energy markets, there`s
another region not as well known and where drilling costs are low.

Brian Sullivan reports from Oklahoma City, Oklahoma.


of the attention in the oil world, but it is its northern rival which may
be America`s most promising oil producer right now. The Oklahoma region`s
known as the SCOOP and the STACK. Scoop short for South Central Oklahoma
Oil Province. Stack stands for the even more unwieldy Sooner Trend
Anadarko Basin Canadian and Kingfisher Counties. Wow.

Unusual names aside, those areas some of the best and lowest cost oil and
gas regions right now.

The area is hot for a few reasons. One, it is a relatively new oil and gas
place. So, two, land prices never spiraled out of control. Three, oil
people got what they call good rock. A lot of oil and gas that`s
relatively easy and inexpensive to get to.

The big companies operating here, Devon Energy (NYSE:DVN), Continental
Resources (NYSE:CLR), Newfield Exploration (NYSE:NFX), Marathon Oil
(NYSE:MRO), and Cimarex Energy (NYSE:XEC). The CEO of Devon Energy
(NYSE:DVN) told us how they can still make money in Oklahoma even with $40
to $50 oil.

DAVID HAGER, DEVON ENERGY CEO: We are blessed as a company to be involved
in some of the best places for the unconventional play on shore North
America. STACK is one of those places. We certainly can there. We`re
doing the same out of the Permian Basin. Not all you can make money at $40
a barrel.

So, we`re, we think, in pretty good shape, but there are still a lot of
challenges for the industry.

SULLIVAN: The economics look good, but there may be one risk to the region
that has little to do with money, earthquakes. Oklahoma was recently hit
by the biggest ever quake and the state has gone from an average of a few a
year to more than 900 earthquakes last year.

Scientists are pointing the finger at oil and gas fracking. Changes to the
industry will likely come, but as a geologist tells us, the state is
unlikely to simply shut the industry down.

wants to shut it down and the industry doesn`t want to be shut down, and
people that stayed worked for the industry. So, they don`t necessarily
want it to be shut down.

SULLIVAN: But you can`t have earthquakes all the time.

HALIHAN: They can`t have earthquakes all the time. And so, that comes to
knowing enough to manage it.

SULLIVAN: For now, the drilling continues. And Oklahoma optimism is high.

And as long as oil prices don`t fall $40 a barrel, the Sooner State oil
boom may roll on.

For NIGHTLY BUSINESS REPORT in Oklahoma City, Oklahoma, I`m Brian Sullivan.


MATHISEN: An update now on a story we have been following. A judge today
said he will grant Hanjin shipping provisional protection from creditors in
the U.S. That will enable some of Hanjin`s vessels which have been
stranded at sea to dock and unload at U.S. ports. Hanjin is the world`s
seventh largest container shipping line and unexpectedly filed for
bankruptcy last week.

HERERA: Still ahead, why safety regulators want consumers to stop using
some popular devices immediately.


HERERA: The House of Representatives passed by voice vote a bill that
would let families of victims of the September 11 attacks sue Saudi Arabia.
The Senate passed that measure last May. The White House says — it has
threatened to veto that measure saying it could harm diplomatic relations
with a key ally. The vote comes just days before the 15th anniversary of
the attacks.

And today, New York stock exchange and NASDAQ observed moments of silence
to remember those who lost their lives.

MATHISEN: Ahead of the anniversary of the attacks, former Homeland
Security secretary earlier this week wrote an alarming op-ed in “USA
Today”. Tom Ridge said there are gaping hole emergency preparedness which
are being ignored. And the threat comes from the Postal Service but
there`s more to it than that.

Eamon Javers has the details from Washington.

Fascinating story here, Eamon.


Here`s a small story that will tell you a lot how Washington works these
days. On Wednesday, an alarming headline appeared on the website of, a top — an opinion column written by former Homeland
Security Secretary Tom Ridge. Fifteen years after 9/11, a gaping security
gap, it said. Ridge wrote that there remains a gaping hole in our national
security preparedness coming from a largely ignored source, the global
postal system.

In the column, Ridge said he was joining up with a new nonprofit group
called Americans for Securing All Packages because the Postal Service is
not doing enough to screen mail coming into the country.

So, what this group, Americans for Securing All Packages? It`s hard to
say. The firm is nonprofit, that does not have to reveal donors. The
website for the group doesn`t include an e-mail address or a physical
address. A spokeswoman said she couldn`t say who was financing it.

But we did some digging. And it turns out that UPS, private mail carrier,
financed a trade association which in turn has financed Americans for
Securing All Packages. There may be other large corporate donors, too.

And the point Ridge made in his op-ed column is exactly the point that UPS
lobbyists have been making on Capitol Hill, the security imbalance is a
competitive advantage to private mail companies which are eating a lot of
these costs.

And one more thing, Tom Ridge did not write this as a volunteer. He was
paid by Americans for Securing All Packages for his time and talking about
the issue. People involved would not tell us how much he was paid.

A spokesman for Ridge said he is proud to serve as an adviser to the new
group. “He is a risk management consultant, that`s h job and is paid for
his expertise but doesn`t take work he doesn`t believe in. He is sincerely
concerned about this issue and believes it is important to speak up, the
spokesman said.

So, guys, the lesson here is, when you see an op-ed in Washington written
by a big name, it`s often useful to ask yourself just how much money is
changing hands behind the scenes.

Back over to you.

MATHISEN: So, Eamon, let me understand this. UPS, I assume, has to or
does elect to search all packages in its system, something that the USPS
does not do —

JAVERS: That`s right.

MATHISEN: — and UPS thinks is a disadvantage.

JAVERS: That`s right. The private carriers employ these enhanced security
measures to their own packages. And they say the U.S. postal service isn`t
do that because of delays following the law that was written back in 2002
on this. That transposes costs for the private carriers that the
government-run agency doesn`t pay.

MATHISEN: It sounds like they`ve got a point there.

Do we know whether Mr. Ridge even wrote the op-ed?

JAVERS: We don`t know the answer to that. We asked the spokesman. He
would not say that Ridge wrote the op-ed, but he said that these are
Ridge`s views.

MATHISEN: All right. Eamon, thanks very much. Eamon Javers reporting
from Washington.

JAVERS: You bet.

MATHISEN: You can read more about this story on our website at

HERERA: The Consumer Product Safety Commission says owners of Samsung
Galaxy Note 7 should power them down and do not use them or charge them.
That statement follows a warning from the Federal Aviation Administration
which said the device is a safety hazard, especially on planes. The agency
says the phones should not be operated or charged while flying or even
checked in luggage.

Dina Gusovsky has more.


the devices comes after 35 reported incidents of phones around the world
exploding or catching fire. The main concern: the lithium ion battery.

lithium ion batteries, looking at it from a safety perspective. Any time a
lithium ion battery, especially because it is in a particular phone now,
they`re advising caution. If it is the battery, that becomes the ignition
source, and if that is the problem, they need to correct that.

GUSOVSKY: Instead of an outright ban, the FAA has issued warnings to

if you go to the hack safe website, which is the place where they tell you
not to bring legers on the plane and tell you not to bring, you know, long
knives on the plane, there`s a note telling people not to bring this phone
on the plane.

GUSOVSKY: Consumer Reports believes the FAA should have gone further.

BEILINSON: We think there should be an official recall which could allow
the FAA to ban the phones which they haven`t done now from flights. It
would also make it illegal to sell one of the phones.

GUSOVSKY: Samsung is replacing all of the Galaxy Note 7s across the world.
The company told NIGHTLY BUSINESS REPORT that it plans to expedite
shipments this week in order to alleviate any safety concerns. As far as
whether or not they will replace that battery, Samsung did not respond to
that specific question.



MATHISEN: The ongoing slump in food prices prompts Kroger (NYSE:KR) to
slash its outlook, and that is where we begin tonight`s “Market Focus”.

After disappointing quarterly sales, the nation`s largest supermarket chain
said it would cut its earnings and revenue guidance for the year, saying it
doesn`t expecting deflation to improve any time soon. The company also
reported the decline in profit and attributed those results to
restructuring charges. Investors apparently expect worse news on this
downer of the day. Shares were actually up 20 cents, one of the few, at

The homebuilder Hovnanian also lowered its guidance for the year, despite
an uptick in deliveries. The move was prompted by a surprised quarterly
loss by the company which saw results impacted by write-offs. The company
did report a rise in revenue, but also missed analyst estimates. Shares
down more than 1.5 percent.

HERERA: Investors had a chance to react today to Finisar`s earnings after
the bell. Yesterday, the fiber optic company said profit and revenue rose.
Both of those metrics surpassed expectations. The company also gave better
than expected sales guidance after which MKM Partners upgraded the stock
today to buy from hold. Shares rose 12 percent to $26.20.

Shares of Zumiez (NASDAQ:ZUMZ) continued to surge today after reporting
results late yesterday. The specialty clothing chain posted a loss but the
result still managed to beat street targets. Zumiez (NASDAQ:ZUMZ) said it
continues to underperform its long term expectations but is working on
managing expense structure. Shares popped 4 percent to $17.39.

MATHISEN: Coming up, looking for some stock picks for a volatile market?
Our market monitor has some recommendations.


MATHISEN: Our market monitor tonight has some small cap names he says will
help you ride out stock market volatility that may be about. Last time he
was on back in November, he recommended Steve Madden, which is up 4
percent, the Buckle (NYSE:BKE), which gained 18 percent, and GIII apparel,
it is unfortunately 30 percent lower.

Jay Kaplan, portfolio manager of Royce Small Cap Value Fund. A fund, by
the way, I used to be a shareholder in.


MATHISEN: Used to be. Not anymore. Just —

KAPLAN: We`ll get you back.

MATHISEN: All right. Do you like the GIII Apparel? What happened there?

KAPLAN: I`m not an owner of GIII today. They announced a big acquisition
a month or so ago. They paid a lot of money. It doesn`t earn any money
right now. It`s a really good business, well run, but there`s going to be
some digestions. So, we are on the sidelines right now.

HERERA: All right. Let`s get to your stock picks, Moelis and Company.
Ken Moelis is the head of the firm. He`s the consummate banker,
relationship builder. Is that one of the reasons why you like it?

KAPLAN: Well, it is. They`re in two businesses, independent investment
bank, and those are working out well, taking market share, a few of them.
M and A business has been a driver It was , very good in 2015. Weaker in
`16 but still OK.

Their genesis is in restructuring. They have a vibrant restructuring
practice. As we have gone through volatility and some agita in the junk
bond market and in the energy patch, that business is starting to pick up
steam. It`s closely held by partners of the firm.

So, they`re owner, operators, they pay a big dividend the past couple years
since they`ve been public. They paid a special divided at the end of every
year. So, good growth business, giving the money back, very well run.

MATHISEN: Another sort of value play is PC Connection (NASDAQ:PCCC).

KAPLAN: It is. They just changed their name this morning to Connection.
They dropped the PC. But they`re in the technology distribution business.

They help small and medium size businesses, the federal government, school
districts, acquire technology, learn to do cyber security, learn how to do
cloud computing. If a small company doesn`t have the staff to do that,
they consult and they`ll provide all the equipment. It is a very good cash
flow-generating business in the last couple of years. Again, at the end of
the year, they paid a special dividend to owners.

HERERA: All right. Camden national corporation, it`s a bank.

KAPLAN: It`s a bank.

HERERA: But it`s in the far northeast, Maine, right?

KAPLAN: It`s in Maine. It`s a beautiful part of the country. I was just
there, in fact.

HERERA: I think everybody went to Maine this summer.

KAPLAN: The global world headquarters in Camden, Maine, it`s lovely on the

But they bought one of their biggest competitors, the Bank of Maine, which
was really dominant, in the southern part of Maine. They have a good
statewide presence, 2.5 percent yield. It`s only about 12 times earnings,
well-managed. And someday, if a bigger regional bank wants to have a big
presence in Maine, Camden, would be a place to look.

MATHISEN: Very big thought on today`s volatility, do you think it presages
more volatility in the weeks ahead?

KAPLAN: It probably does. I`ll frame it for you real quickly. The small
cap market since its bottom in February is up 30 percent, straight up until
today. We had a bear market from `15 to `16, 25 down, 30 up. Corrections
are normal. They`re going to happen when you have that kind of action.

MATHISEN: All right. Jay, thanks very much. Have a great weekend.

KAPLAN: You too. Thank you.

MATHISEN: We appreciate you coming by.

KAPLAN: My pleasure.

MATHISEN: Jay Kaplan with the Royce Small Cap Value Fund.

HERERA: And on this down day on Wall Street, here`s a look at the selloff
today. The Dow tumbled nearly 400 points. The NASDAQ dropped 133. The
S&P 500 slid 53.

All of the major indexes fell more than 2 percent on the week, it was the
biggest weekly drop for the Dow since the first week of the year.

That`s 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 will see you 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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