Transcript: Nightly Business Report – October 10, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The Putin rally. Oil
gushes to multi-month highs as Russia`s president supports supply limits, and energy shares take stocks                                                                     along for the ride.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Phone flameout. Samsung
struggles as retailers in the U.S. stop selling even the replacement Note 7
phones. Those were the ones that were not supposed to catch fire but are.
What`s next for Korea`s biggest brand?

MATHISEN: Your money, your vote. How the investment markets interpret the
presidential race right now.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,
October 10th.

HERERA: Good evening, everyone. Welcome.

With politics top of mind for just about every investor, stocks began the
week with gains, powered by a rally in the price of oil. And that can be
attributed to a statement from a man whose name has come up a lot lately,
Russian President Vladimir Putin. He said he supported international
efforts to limit the supply of crude. Oversupply has dogged the energy
market for quite a while.

Putin`s remarks followed similar comments from the Saudi official, and with
that, settling above $51 a barrel and that lifted the broader market. The
Dow Jones International Average was up 88 points to 18,329. The NASDAQ
gained 36 and the S&P 500 added 9.

Steve Sedgwick reports from a meeting of major oil producers in Istanbul.

(BEGIN VIDEOTAPE)

STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil prices got a
double boost on Monday, as two of the world`s largest producers of oil
actually pledged to support prices. First of all, here at the World Energy
Congress in Istanbul, one of the largest gatherings of oil producers in the
world, we heard from the Saudi oil minister al-Falih who said actually he
thought it was very likely that OPEC would put meat on the bones of a deal
agreed now in September and actually carry through its first output cut
since 2008. Al-Falih added that he would be speaking to his counterpart
Alexander Novak of Russia in the next couple days to see if this could be
expanded to non-OPEC members.

And then this afternoon, we saw President Putin of Russia as a guest of
President Erdogan of Turkey, building bridges between the two countries,
following conflict at the tail end of 2015. But Mr. Putin made a very
interesting contribution to the old debate, saying that Russia was ready to
join any output freeze, potentially put a cap on extra production at the
moment. That boosted oil prices even further.

Mr. Putin saying that failure to do so would hurt investment and
potentially create more volatility in the world oil market. And it
remained to be seen whether Russia and Saudi can carry through these plans
but both were very supportive for the price of oil on Monday.

This is Steve Sedgwick for NIGHTLY BUSINESS REPORT, in Istanbul, Turkey.

(END VIDEOTAPE)

MATHISEN: Well, the market also likes certainty, so investors are watching
politics very closely as we enter the home stretch of the presidential
race. According to Nielsen, more than 66 million Americans watched the
debate last night.

Mike Santoli tells us how Wall Street views the race for the White House
right now.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The market has not
quite called the election for Hillary Clinton, but Wall Street has grown
more confident in recent days that the odds have moved in her favor.

The relationship between financial markets and election outcomes is
indirect and hard to prove. But on balance, stocks are generally stronger
when Clinton`s odds of victory are rising. This pattern held following a
tumultuous weekend on which Donald Trump lost the support of Republican
officials after a taped of his lewd comments about women in 2005 was
released.

Stock futures climbed modestly as soon as they opened Sunday evening and
continued higher on Monday. As electronic bidding markets take wagers on
the elections, had Clinton`s odds of winning rising toward 80 percent.

Mexico`s currency meantime climbed by 2 percent against the U.S. dollar on
Monday. The peso has become a key barometer of Trump`s position on the
assumption that his trade and immigration policies would hurt the Mexican
economy if you were elected. Wall Street policy analysts say investor
don`t necessarily have an outright political tilt toward Clinton but that
markets prefer the more predictable status quo candidate.

The markets also tend to do better under divided government, with the
control of the White House and Congress split between the parties.
Clinton`s latest surge in the polls has replaced Republican control in the
Senate in jeopardy and even sparked some talk that the House could shift to
Democrats.

While Republicans sway over the House seems reasonably secure, a Democratic
sweep could make investors anxious about what that could mean for
regulation of several industries. Shares of drug companies, banks and oil
companies could come under pressure in such a scenario. And investors
might also brace for an upper income tax increase that could lead them to
sell socks to realize gains in the current tax year.

Still, many experts are reluctant to declare Clinton a sure winner. For
one thing, this race has been volatile. With significant swings in the
national polls from week to week. For another, vetting markets were dead
wrong on the Brexit vote in the U.K. back in June. Markets were blindsided
by the votes to leave the E.U., and investors are wary of another populist
shock, which means Wall Street has four more weeks of uncertainty before it
can fully price in the next four years of U.S. leadership.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock
Exchange.

(END VIDEOTAPE)

HERERA: And an important topic in all elections, but especially this one,
is taxes, and whether we will pay more or less under a new administration.
In last night`s debate, the issue came up, but it wasn`t clear-cut.

Steve Liesman takes a look at what we know and what we don`t about the
candidates` plans.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A debate over taxes
finding a sliver of air time amid the personal attacks that dominated last
night`s meeting of the two presidential candidates.

Here`s some of the controversial exchange.

DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: We`re cutting taxes for the
middle class, and I will tell you, we are cutting them big league for the
middle class.

And I will tell you, Hillary Clinton is raising your taxes, folks. You can
look at me. She is raising your taxes really high. And what that`s going
to do is a disaster for the country.

LIESMAN: So, it`s true. Trump is proposing tax cuts for the middle class,
but it appears to be false that all the low and middle class will benefit.
New York University law professor and former Obama aide, Lily Batchelder,
says 7.8 million mostly middle class single parent families with children
will actually see tax increases, some because Trump would repeal personal
exemptions, others because he would repeal ahead of household filing status
and still others would move up from a lower to higher tax bracket under
Trump`s three-bracket plan.

The Trump campaign has not disputed this but said those families will be
allowed to file under the old system. Tax experts think that`s a recipe
for further confusion.

For Trump`s claim that Clinton proposes, quote, “raising your taxes really
high,” this appears mostly untrue, if you consider the vast majority of
Americans, anyway. She will raise taxes on the wealthy, in some cases,
quite substantially. But she said no one under $250,000 will see a tax
increase.

The Tax Policy Center in Washington did find that some people in the 90th
percentile and below would see very small tax increase, but that`s due to
Clinton`s change in corporate taxes, not income taxes.

Experts say both sides need to provide more detail to allow for better
analysis. But it`s more likely both candidates are taxing themselves with
details of personal attacks than details of personal income tax.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Warren Buffett fired back at Donald Trump on taxes today. The
billionaire investor responded to Trump`s claim in last night`s debate that
he, Buffett, took a massive tax deduction. Trump acknowledged for the
first time that he used a business loss of nearly a billion dollars in 1995
to avoid federal income taxes — though he did not say how long he used the
so-called loss carry forward.

In a statement, Buffett said, “I have paid federal income tax every year
since 1944 when I was 13. I have copies of all 72 of my returns, and none
U.S. a carry-forward.” Buffett said he had an adjusted gross income of
$11.6 million in 2015, took $5.5 million in deductions, including $3.5
million for charity. He says he paid $1.8 million in federal income taxes.

Buffett, who is a supporter of Hillary Clinton, also challenged Trump to
release his returns.

HERERA: In corporate news, Bristol-Myers Squib is facing a major set back
with its lung cancer drug. Data presented at a medical meeting over the
weekend showed patients fared worse on Bristol`s drug than those taking
chemotherapy. Meantime, a rival lung cancer drug from Merck (NYSE:MRK)
showed strong benefits in a similar late-stage study. That sent shares of
Bristol-Myers sharply lower. Merck (NYSE:MRK) rose nearly 2 percent.

MATHISEN: The crisis at Samsung deepens. The company has halted
production of its replacement Galaxy 7 Note phones, following a global
recall of 2.5 million of those smartphones on reports the phones caught
fire. And now, Sprint has joined AT&T (NYSE:T), Verizon (NYSE:VZ) and T-
Mobile in suspending sales of the replacement device.

(BEGIN VIDEOTAPE)

MATHISEN: This phone forced the emergency evacuation of a Southwest
Airlines (NYSE:LUV) flight in Louisville, Kentucky, last week.

AIRPORT FIRE & RESCUE: Some kin the cabin on the ramp at the gate.

MATHISEN: Ryan Green says the phone began to burn inside his pocket. He
says it was a replacement issued for the Galaxy 7 Note. He turned in as
part of a Samsung recall last month. The serial number indicated it should
have been OK. Samsung has yet to confirm the incident involved a new Note
7.

Those Note 7s, though, have been blamed for dozens of fires, damaging a
garage in South Carolina, a jeep in Florida. Without specifying what the
problems are, Samsung said it is halting production of the Note 7, quote,
“in order to take further steps to ensure quality and safety matters.”

That`s in stark contrast to its initial response last month to questions
about battery charging levels in its replacement Note 7s. “The issue does
not pose a safety concern,” said the company.

Today, Verizon (NYSE:VZ), T-Mobile, Sprint and AT&T (NYSE:T) stopped
issuing replacement Note 7s.

RALPH DE LA VEGA, AT&T (NYSE:T) VICE CHAIRMAN: We`ve taken the
extraordinary step to stop exchanging them out of an abundance of caution
until Samsung really does the retail work to understand if these
replacement phones have an issue or not.

MATHISEN: Last month, Samsung blamed one of its battery suppliers for the
initial problems, saying it stopped using that company, and that it had not
used that company for any of its replacement phones in the U.S. But
problem persists.

Another replacement Note 7 started smoking in the hand of a 13-year-old
Minnesota girl on Friday. And a Samsung customer in Richmond, Virginia,
said he woke up Sunday morning to a loud noise, smoke and flames coming
from his replacement Note 7.

Halting ales of the Note 7 in the fourth quarter could cost Samsung $630
million in sales. But that may not be Samsung`s only problem. The world`s
top seller of TV sets and South Korea`s most profitable company is also
dealing with reports that some of its washing machines have exploded.

The Samsung brand could be in for an extended spin cycle.

UNIDENTIFIED FEMALE: I just actually ordered the new Pixel, just having
too many issues with Samsung. I can`t like risk it.

UNIDENTIFIED MALE: I think this could be a serious marketing problem for
them. I mean, especially the more publicity it gets.

(END VIDEOTAPE)

HERERA: Dean Crutchfield joins us now to discuss how much damage he thinks
the ongoing problems at Samsung could have on the Samsung brand.

Good to see you, again, Dean. Welcome back.

DEAN CRUTCHFIELD, THE DEAN CRUTCHFIELD COMPANY BRANDING EXPERT: Great to
be back.

HERERA: I assume that you agree with the people we just heard from on that
tape that, that this is a very serious issue for them.

CRUTCHFIELD: I mean, usually, you say a brand is on fire and it`s good
thing. But here we have a phone literally on self destruct. It`s
corporate greed, it`s brand arrogance and there is a painful solution
ahead.

MATHISEN: Why were they so slow to react? Is it because they`re not
domicile here in the United States? Why?

CRUTCHFIELD: I think it`s — they basically blew the four cardinal rules
of crisis management. You know, in the first place, when crisis hits and
news and social media burst, you want the CEO to stand up and look at the
problem straight in the eye, and you don`t want them to hide behind formal
statements. They did that.

The second issue is, you can`t have lengthy procedures or be bureaucratic.
They`ve done that.

Thirdly, they need to respond boldly. Clearly, they didn`t respond within
the first 24 hours of the actual thing happening. It took them a week.
That was bad in itself.

And then finally, the big boy is hide nothing, tell all. And we know that
a smoking gun here regarding the fact the company was aware, senior
management was aware, that these problems existed with their battery.

So, that`s a really big problem facing them as a brand.

HERERA: You say that there is a painful solution ahead. What would that
be?

CRUTCHFIELD: They`ve got to dump the 7. The Note 7. They`ve got to dump
the Galaxy Note 7 series.

There`s no two ways about it. Who wants it now? It`s tarnished goods. It
basically has to go away. You know, they`re going to take a sales hit of
$650 million in the next quarter. What about, you know, your brand value
by $15 billion or $20 billion if you don`t sort this problem out now?

MATHISEN: If — this points to the idea, they make lots of things beyond –
– washing machines, lots of televisions. I have them in my own home.

CRUTCHFIELD: Yes.

MATHISEN: Does this problem with the — with t cell phone bleed over into
the brand perception and the willingness of customers around the world to
buy Samsung?

CRUTCHFIELD: Well, that`s it. You know, the court of public opinion is
out there right now, and I don`t they`re going to come back with a positive
verdict, whether it`s a washing machine or a phone. This does bleed across
their brand. It impacts it in a major way. And it`s about integrity and
it`s about trustworthiness. And both of those are under the spotlight
right now.

HERERA: All right, Dean. Always good to have you with us. Thank you.

CRUTCHFIED: It`s great to be with you.

HERERA: Dean Crutchfield with the Dean Crutchfield Company.

MATHISEN: And still ahead, assessing the damage from Hurricane Matthew as
the cleanup continues.

(MUSIC)

MATHISEN: The billionaire Carl Icahn will close the Trump Taj Mahal in
Atlantic City, New Jersey, this after he was unable to reach a labor
agreement with thousands of unionized workers and said he could no longer
operate the casino without losing money. Icahn bought the Taj Mahal out of
bankruptcy in 2014. Five Atlantic City casinos have closed in just the
past two years.

HERERA: As North Carolina continues to struggle with flooding, early
assessments of damage from deadly Hurricane Matthew are starting to
materialize. Morgan Brennan reports.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was the worst
hurricane to hit the region in more than a decade, but not quite as
disastrous as feared. As the storm headed toward Florida as a category
four hurricane, estimates of insurance losses spiked upwards of $25
billion, with experts warning Matthew could be a top five storm in terms of
damage.

But after the hurricane lost some strength and resisted landfall up much of
the coast, estimates have come down. Core Logic says 1.5 million homes and
businesses likely sustained wind or storm surge damage, putting insured
property losses between $4 billion and $6 billion. Not including flooding,
which the federal government ensures against, and lost business.

It`s a meaningful sum, but still relatively small, compared to $40 billion
for Hurricane Katrina and $20 billion for Super Storm Sandy.

Still, analysts do expect this to dent some insurers` fourth quarter
results.

BRETT HORN, MORNINGSTAR SR. EQUITY ANALYST: The hits will be meaningful,
but manageable. I would expect I think of — you know, a couple of bigger
names, most likely somebody saying like an Allstate (NYSE:ALL), because
they have such a large presence and homeowners will probably take some
material losses. Interestingly enough, I think you could potentially see
Progressive (NYSE:PGR) takes losses. That will be something of a new
development for them.

BRENNAN: Many national carriers limited their exposure in Florida due to
strict regulation, but small cap names including Universal (NYSE:UVV)
Insurance Holdings, Heritage Financial (NASDAQ:HFWA) and Federated National
Holding Company have large Florida operations. The reason those stocks
tumbled as the storm approached.

But none of that takes into account the broader economic impact. Risk
assessment firm, Kinetic Analysis thinks that could still make this storm a
top ten disaster event. $10 billion to $15 billion, including insured
losses, flood damage and the impact of loss business. The evacuation of
millions of people could alone cost $3 billion. But as people return to
their homes and cleanup begins, it will take some time to sort out the true
cost of weathering Matthew.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Twitter continues to tumble as takeover interests reportedly
dwindles further and that is where we begin tonight`s “Market Focus”.

Over the weekend, Bloomberg reported the potential suitors including
salesforce.com were unlikely to make up a bid for Twitter and this follows
a report from industry website Recode last week that said Apple
(NASDAQ:AAPL), Disney (NYSE:DIS) and Google (NASDAQ:GOOG) were likely out.
Salesforce CEO Marc Benioff had expressed interest in the social media
company, but stopped short of saying he would make a bid.

Result? Shares tumble, 11.5 percent today to $17.56.

Manufacturing equipment maker Dover (NYSE:DOV) slashed its profit and
revenue forecast for the year, the company citing production problems in
its refrigeration unit and lower capital spending in some markets. Shares
of Dover (NYSE:DOV) were off more than 7 percent to $66.69.

And the pharmaceutical company, Novartis said its experimental drug for
treating breast cancer slowed the progression of the disease when used in
combination with another therapy. The company said previously it would
seek approval for treatment from U.S. and European regulators this year.
Shares were down marginally to $77.75.

HERERA: And another cancer drug shows promise. Biotech company Tesaro
said its developmental ovarian cancer treatment performed well during a
trial. The news also prompted Bank of America (NYSE:BAC) and Merrill Lynch
to upgrade Tesaro stock to buy from neutral. Shares surged nearly 19
percent to $117.91.

Biotech company Illumina (NASDAQ:ILMN) warned of a sales shortfall for the
third quarter. The company which focuses on genetics-driven research said
the weaker than expected results are due to less demand for its sequencing
instrument. Illumina (NASDAQ:ILMN) also said fourth quarter results will
flat to just slightly higher. Shares plunged 24 percent in after hours.
But they finished the regular session up 36 cents to $184.85.

MATHISEN: If you don`t work a traditional 9:00 to 5:00 job, you` not
alone. According to a new study, the number of people making a living as
independent workers is growing faster than even originally thought.

And as Deirdre Bosa reports from San Francisco, it`s not just changing the
way Americans work, but also the way we live.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Grab a car share,
post your home for a weekend get-away, or hire a freelancer to help you
move.

Rarely a day goes by we don`t hear about the shared economy and how it`s
transforming the way we work and function. But up until now, it`s been
difficult to quantify. McKinsey is out with a report that aims to do just
that. It found that the independent workforce made up of anyone who gets
paid by task or sale from Lyft drivers to freelance plumbers is bigger than
official data suggests and growing fast.

JAMES MANYIKA, MCKINSEY GLOBAL DIRECTOR: There is more people doing
independent work than we had anticipated. So, in the United States, we
found that between 22 and 28 percent of the working age population is
involved in independent work and driving independent incomes doing this
kind of work.

BOSA: That`s nearly 70 million people that put together their own income
streams and shaped their own work lives. And the majority do it because
they want to, and not because they need to.

Like Barron Lambert, a personal trainer that has built his business in the
gig economy using Thumbtack`s online marketplace.

BARON LAMBERT, PERSONAL TRAINER: I can set my own schedule. I get to work
with the people I choose t work approximate with. Whether it`d be client
or new trainers that we bring on, and I get to do what I want.

BOSA: But it`s not just millennials that Baron who make up the independent
work force. In fact, McKinsey found that they represent less than a
quarter of the space. While seniors, defined as those over 65 years old,
make up nearly 10 percent of the group.

The survey also revealed a work force that is diverse in terms of gender,
income and education levels, and cuts across all occupation and industries.

You could say the heart of the gig economy is here in San Francisco. Down
market street, you`ve got Uber`s headquarters and south of market is
Airbnb. But while gig gets all the headlines, it represents just 15
percent of the independent work force. A vast majority of independent
workers still don`t use digital platform, that could represent a big growth
opportunity for this dynamic work force.

For NIGHTLY BUSINESS REPORT, I`m Dierdre Bosa, San Francisco.

(END VIDEOTAPE)

HERERA: Coming up, why your supermarket may be loaded with fake food, and
it`s costing consumer billions.

But first, a look at how commodities and currencies fared today. The bond
market was closed for the Columbus Day holiday.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow. Alcoa (NYSE:AA)
reports earnings and it will be the last report before the company splits
into two. The Supreme Court will hear a patent dispute case between Apple
(NASDAQ:AAPL) and Samsung. Yum shareholders will be looking for details on
its China business spinoff at its investor day. And that is what to watch
for tomorrow.

MATHISEN: Some criminals have turned their attention to food in the quest
for a profit. They replace pricey food with cheaper alternatives, or water
liquids down with less expensive additives.

And as Andrea Day reports, food fraud is costing consumers millions.

(BEGIN VIDEOTAPE)

LARRY OLMSTED, AUTHOR: Extra virgin olive oil has sort of a long, rich
history of fraud.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: From olive oil that`s
not entirely extra virgin to honey.

OLMSTED: You can`t tell that it`s been cut with just corn syrup.

DAY: According to best-selling author Larry Olmsted, our supermarkets are
loaded with fake foods, like coffee cut with corn and even soda and
seafood.

OLMSTED: Nationwide, about a third of our seafood is mislabeled. At
retail, you can`t tell red snapper, which is really expensive from tilapia,
which is really cheap.

Most of the time, you buy a red snapper, you get something like tilapia.

DAY: And consumers wind up paying the price. According to the Michigan
State University Food Fraud Initiative, food fraud costs $30 billion to $40
billion every year worldwide.

And dining out?

OLMSTED: Very few people realize that restaurant are sort of the Wild
West. They don`t have to adhere to the same kind of labeling rules
retailers have.

KAREN EVERSTINE, USP SCIENTIFIC LIAISON: Food fraud has and does cause
illnesses and has actually caused deaths in consumers.

DAY: Karen Everstine is a scientist at USP. The group sets standards for
medicines in foods. On her watch list? Processed foods.

EVERSTINE: We`re sourcing ingredients from all over the world and putting
them together into a finished food product. This increases the
opportunities for fraud.

DAY: Like frozen pizza that can have dozens of ingredients. USP created a
database for companies looking to prevent fraud.

EVERSTINE: You can quickly identify which ingredients are prone to fraud,
what are the adulterines that been used and which of those might be
hazardous. So, if you look at something like paprika that`s been
adulterated with 19 different substances. So, if you`re a manufacturer and
you`re being duped by one of your suppliers and that comes to light,
certainly there`s brand damage.

DAY: The FDA and USDA are just two agencies that regulate food. According
to the FDA, combating food fraud is the responsibility of both industry and
regulatory authorities. The FDA inspects manufacturers to make sure
they`re meeting requirements for good manufacturing practices and also
conducts label reviews during these inspections.

And the USDA tells us it, quote, “works every day at establishments
ensuring that meat, poultry and processed egg products entering commerce
are safe, wholesome and correctly labeled.”

So, what can you do? Well, Olmsted tries to avoid heavily process food,
because they can hide a lot of fake ingredients, and when you can, buy food
in their most whole form. Like coffee beans, whole fish and cheese. So,
you always know exactly what you`re getting.

I`m Andrea Day for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: Finally tonight, two professors, one from Harvard, the other from
MIT, have been awarded the Nobel Prize in economics for their work on
contract theory. According to the Royal Academy of Sciences, their work
has helped shape business, finance and public policy.

And that will do it for NIGHTLY BUSINESS REPORT for tonight. Thanks for
joining us. I`m Sue Herera.

MATHISEN: And I`m Tyler Mathisen. Thanks from me, as well. Have a great
evening, everybody. We`ll see you back here tomorrow night.

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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