Transcript: Nightly Business Report – November 4, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Payday. Wages are picking
up. The unemployment rate is ticking down. Does today`s jobs report seal the deal for a rate hike in                                                                           December?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Nine days of losses. The S&P
500 has its longest losing streak in 36 years. So, how should you invest?
Our market monitor has some ideas.

MATHISEN: And hero`s vodka. Meet the former marine-turned-entrepreneur
who is raising a glass and building a company to help other vets.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
November 4th.

HERERA: Good evening, everyone. Welcome.

It is the worst losing streak for stocks since 1980. More on that in just
a moment.

But we begin with jobs and wages. And if you have been thinking about
asking for a raise, now may be the time. Today`s employment report showed
a pickup in average hourly earnings, as businesses raise pay in order to
attract a smaller pool of available workers.

According to the Labor Department, the economy added 161,000 jobs last
month. The unemployment rate ticked lower to 4.9 percent. Average hourly
earnings rose 0.4 percent to the fastest annual pace since the end of the
Great Recession.

Hampton Pearson has more on the last jobs report before the election, and
what it may mean for Wall Street, Main Street and the Fed.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: There was an
October surprise in the final jobs report before the presidential election
— a pay raise for American workers. In the last 12 months, average hourly
earnings are up 2.8 percent to just under $26 an hour, the biggest pay
raise in seven years, according to the Labor Department.

THOMAS PEREZ, LABOR SECRETARY: The workers have been looking for a
meaningful raise for quite some time. They deserve that raise. And we`re
seeing this sustained evidence they`re getting it.

PEARSON: October hiring was led by 43,000 new hires in professional and
business services, which includes mostly higher-paying jobs in engineering,
accounting and information technology. Health care also continues to be an
engine of job growth, adding more than 39,000 new workers. The
unemployment rate dipped to 4.9 percent, the biggest disappointment,
manufacturing, which cut 9,000 jobs last month, and more than 50,000 in the
past year.

VINCENT REINHART, STANDISH MELLON ASSET MANAGEMENT: We`re getting service
employment, but not manufacturing employment. We`re getting the lower-paid
wages rather than the higher-paying wage industries hiring.

PEARSON: The combination of job growth with higher wages and signs of
increased consumer suspending could trigger the boost in inflation the Fed
has been looking for.

KATE MOORE, BLACKROCK: I think if all of the inflation pressure we get
comes from wages, it`s a great thing, solid thing for the U.S. economy, and
that companies have plenty of margin, you know, room in their margins to
absorb slightly higher wages and especially if it leads to greater
consumption.

PEARSON: Most Fed watchers say today`s job report increases the odds for a
rate hike in December. The biggest remaining x factor: market reaction to
the outcome of the presidential election.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: And speaking of the Fed reaction today, two Federal Reserve
officials commented on the labor market. Vice Chair Stanley Fischer said
the economy is close to full employment and raised the possibility that the
Fed could overshoot its 2 percent inflation target.

Separately, the president of the Atlanta Fed said the bar is now high for
the Central Bank not to increase interest rates in December.

HERERA: So, let`s turn now to Dean Maki for more analysis on today`s jobs
report and what he thinks it may mean for the Fed. He is chief economist
at Point 72 Asset Management.

Dean, nice to have you here. Welcome.

DEAN MAKI, POINT 72 ASSET MANAGEMENT: Thank you.

HERERA: Let`s start, first of all, with your analysis of the report. I
noticed there were upward revisions in two previous reports, which
strengthens those certainly. All in all, it seems to look pretty good.

MAKI: That`s right. The job gains are relatively steady. They`re at
175,000 on average over the past three months. That`s more than enough to
keep pushing the unemployment rate down. And that will please the Fed.
And what we`re finally seeing is that fall in the unemployment rate is
leading to substantial wage gains.

And so, this is exactly what the fed has been looking to happen. And I do
think this keeps the Fed on track for a hike in December.

HERERA: How material is the drop in the labor force participation rate?
In other words, you can have a falling unemployment rate if jobs go up, or
if labor force participation goes down.

MAKI: Well, the labor force participation rates been trending down for
quite some time now. And that`s mainly being driven by demographics. The
population is getting older, more people retiring. That`s going to
continue for another decade or so.

So, I think that — you know, the up or down month-to-month is less
important than that trend. The trend is actually slightly up over the past
year, as some people have come back into the labor market. But I think the
unemployment rate means what it usually does. And that`s why we`re seeing
wage gains pick up.

HERERA: There are those who say, though, there are a lot of
disenfranchised workers who have left the labor force, and therefore they
are not counted. And then that could skew the number.

MAKI: There certainly are those people out there. But what the numbers
tell us is that the vast majority of people that are not working are those
who say they do not want a job at this point.

Most of those people are retired, or doing other things. So, there`s — I
don`t think there is this large pull of people ready to jump back into the
labor market the minute wage gains pick up.

MATHISEN: It`s interesting. I have thought about this a lot. Being a
baby boomer on the cusp of the age where some people retire, I`m not
retiring a long time, Dean. But I`ve thought that labor force
participation was being pushed by people leaving voluntarily, because they
were retiring.

One of the Fed governors said that the bar is — kind of curious locution
here, the bar is high for not raising interest rates, basically means we`re
going to raise interest rates. Do you see it that way for December?

MAKI: That is very likely. I think the only thing that could knock the
Fed off course were if the results of the election, for example, led to a
lot of market uncertainty, a lot — you know, markets in chaos. That kind
of environment, the Fed doesn`t particularly want to raise rates into. If
the data stay where they are, the markets are doing okay, then the Fed
almost certainly will raise rates in December.

HERERA: All right, Dean. Thank you so much. Have a great weekend.

Dean Maki with Point 72 Asset Management.

MAKI: You, too.

MATHISEN: The trucking industry is one part of the economy that is not
creating jobs. And experts are paying close attention to what`s happening
in this enormous and vital sector.

Morgan Brennan has more.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While UPS and FedEx
(NYSE:FDX) can`t hire enough workers for the holiday season, it`s another
story for the companies hauling freight. Today, the Labor Department
reporting the manufacturing sector shed 9,000 jobs in October, including
several thousand in transportation equipment. It`s the latest sign the
freight slump isn`t letting up and it comes as demand continues to plunge
for new trucks.

Market forecaster Act Research says October orders for tractor-trailer
trucks tumbled nearly 50 percent from a year earlier, extending a month-
long route of the weakest activity since the recession.

KENNY VIETH, ACT RESEARCH CO. PRESIDENT: The orders we saw in October, the
just below 14,000 unit orders was particularly weak when we seasonally
adjusted as October is typically the first month of the peak order season.

BRENNAN: After strong 2014, trucking fleets ordered more vehicles,
anticipating an upsurge in freight demands that never quite materialized as
commodity prices and manufacturing nose-dived. That led to too many
vehicles on the road and just as broader economic growth slowed.

But this is typically the busy time. When trucking executives assess their
fleets and place orders for the upcoming year. Instead, the biggest firms,
including Warner Enterprises and Swiss Transportation has been pulling
trucks, hundreds of them, off the road.

While Act Research expects to see some modest improvement in 2016`s final
two months, it still doesn`t bode well for next year.

VIETH: We certainly haven`t seen any indications that freights is coming
back around, and I think, you know, for improved freight, we really need to
see better commodity pricing, which is going to drive the machinery sector,
because you know, the number of widgets that have to be moved when building
big machines really generates a lot of freight that the truckers are
hauling.

BRENNAN: The slump is also affecting earnings. This week, transmission
maker forecasts and Cummins (NYSE:CMI) CEO told analyst the engine maker is
hearing from, quote, lots and lots of fleets that they`re delaying
purchases.

With nearly 70 percent of goods in the U.S. moved in its way, trucking
activity is considered a leading indicator of U.S. economic growth. Making
reports like these all the more pressing.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: On Wall Street, stocks slumped into the close, dragging the S&P
500 to its ninth consecutive decline. That`s the index`s longest losing
streak in 36 years and it was a down day all around on continued
uncertainty surrounding the upcoming presidential election.

So, when all was said and done, the Dow Jones industrial average lost 42
points to 17,888. The NASDAQ was off 12, and the S&P 500 fell three. For
the week, all of the major indexes fell.

MATHISEN: Wells Fargo (NYSE:WFC) sales scandal could extend to its
brokerage unit known as Wells Fargo (NYSE:WFC) adviser advisers. In a
letter to the bank CEO, three senators questioned the company`s disclosures
about the dismissal of workers from that unit. So far, Wells has
characterized that fake accounts scheme as a problem isolated in its retail
banking business.

HERERA: Drug makers are feeling the heat. Two senior lawmakers sent a
letter to the Justice Department requesting an investigation into possible
collusion. Now, this follows a report we told you about yesterday of a
probe into price fixing at a number of generic drug-makers.

Meg Tirrell has more now on these new accusations.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Senator Bernie Sanders
and Congressman Elijah Cummings are asking U.S. regulators to investigate
whether makers of insulin colluded on pricing.

DAVID MARIS, WELLS FARGO EQUITY RESEARCH ANALYST: We`re early in the
pricing debates. There have been more than 500 drugs that have raised the
price more than 15 percent so far this year. So, there are a lot of them.
And clearly, anyone who is raising price too much, that should be something
that people look into and have some sort of say in that.

Secondly, if you have collusion, everyone agrees. If there is known
collusion, go after it.

TIRRELL: Sanders and Cummings highlight four companies in their letter to
U.S. Attorney General Loretta lynch. Eli Lilly (NYSE:LLY), Sanofi, Merck
(NYSE:MRK), and Novo Nordisk (NYSE:NVO), all makers of drugs for diabetics.

The congressman cited tripling in the price of insulin between 2002 and
2013, from $231 to $736 per year for each patient. They also note
identical increases for drugs like Sanofi`s Lantus and Novo Nordisk`
Levemir, rising in tandem 13 times since 2009. They write, quote, “We are
concerned that the potential coordination by these drug makers may not
simply be a case of shadow pricing, but may indicate possible collusion.
And we believe this egregious behavior warrants a thorough investigation.”

The drug makers disagree, all saying in statements, they set prices
independently, in compliance with the law. Merck (NYSE:MRK) pointed out,
it doesn`t even make insulin. And all four point to discounts on their
drugs keeping actual prices lower. A familiar theme as drug companies try
to shine the light on the rest of the system, specifically on pharmacy
benefits managers, or PBMs, which negotiate those discounts.

MARIS: Everyone is asking for more transparency. And if there is going to
be more transparency, one of the places it has to come up is with the PBMs.

TIRRELL: With the election just four days away, industry watchers say
regardless who wins, the political focus on drug prices will likely
continue.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Still ahead, finding opportunity. A five-star fund manager who
is outperforming the market will tell you which stocks he likes right now.

(MUSIC)

HERERA: Samsung is recalling nearly 3 million top-loading washing machines
following reports of injuries. The Consumer Product Safety Commission said
the top part of the machine can detach from the chassis during use. There
have been reports of more than 700 excessive vibrations, and nine reports
of injuries, including a broken jaw. The company recently sued by
customers who allege their machines explode during normal use. This
follows the recall of 2.5 million Samsung Galaxy Note 7 smartphones because
of a potential fire risk.

MATHISEN: China`s Wanda production company plans to buy Dick Clark
Productions for $1 billion. This marks the company`s first move into TV
production, and as we have reported, it follows a big push by the Chinese
conglomerate into Hollywood. The Dalian Wanda Group is run by China`s
richest man, and owns the AMC theatres, Legendary Entertainment Production
Company, and it recently announced a partnership with Sony (NYSE:SNE).

HERERA: The market for competitive gaming is growing rapidly, and
Activision`s Blizzard is making an even bigger investment in it, with a
creation of a professional e-sports league.

And as Julia Boorstin reports, it`s getting the attention of some NFL
owners.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Activision
Blizzard`s “Overwatch” game has been a run-away success since it launched
in May, with more than 20 million players around the world. And now, the
game-maker is making a move to tap into growing demand for e-sports.
Creating a gaming league for “Overwatch”, selling franchise teams to
compete in that league, starting next year.

MICHAEL OLSEN, PIPER JAFFRAY: Activision has several titles that are very
well-suited for e-sports. And now, they`re going to be able to take
advantage of that by creating an e-sports league offering broadcast rights
and advertising, as well as creating more revenue from in-game purchases.

Believe it or not, people are going to be buying jerseys and other virtual
goods.

BOORSTIN: Activision`s “Overwatch” teams are drawing a range of interests,
including from traditional sports team owners. Patriots owner Robert Kraft
(NYSE:KFT) and Rams owner Stan Kroenke were among those who attended
Activision`s presentation to prospective team owners today.

UNIDENTIFIED MALE: Welcome to Blizzcon 2016.

BOORSTIN: The presentation about the new league held at Blizzcon,
Activision`s annual convention that drew a sold-out crowd of 25,000 gamers,
plus another 10-million plus people streaming the event online and watching
the eSports competition under way.

Research firm New Zoo says eSports has nearly 150 million fans, with nearly
as many occasional viewers. As this multibillion dollar business in the
making is starting to steal viewership, away from traditional sports
viewing, and Activision is particularly well-positioned.

OLSEN: E-sports is critical for Activision in the sense that it`s a way
for them to generate significant incremental revenue. So, our estimate is
that they`re going to generate potentially as much as $300 million or more
in revenue over the next few years.

BOORSTIN: It`s an area where Activision has been investing, buying major
league gaming in January to live stream tournaments, like a September “Call
of Duty” championship, as if it were a traditional sport, to try to build a
business at the same scale.

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

(END VIDEOTAPE)

MATHISEN: Medicare helps Humana (NYSE:HUM) top estimates, and that is
where we begin tonight`s “Market Focus”. A health insurer said an uptick
in membership in its Medicare advantage business lifted profit and revenue
above expectations. That`s a unit that sells plans to the elderly and
people with disabilities. Shares finished today up better than 1 percent
to $167.42.

Regeneron pharmaceuticals posted a higher than expected profit, thanks to
sales of its cholesterol medication and lower tax bill. The biotech
company also saw a revenue increase, but those results were shy of
estimates. Shares rose more than 1.5 percent to $341.39.

And the diagnostic testing company Alere (NYSE:ALR) said its medical
equipment unit has its Medicare enrollment revoked following findings from
a government agency that the unit submitted claims for deceased patients.
Medicare doesn`t like that. The company is appealing the decision.
Separately, the company posted weaker than expected earnings for the latest
quarter. Alere (NYSE:ALR) fell 14.5 percent to $36.10.

HERERA: The analytics company, Nielson, said its previously released data
regarding cable viewer estimates for the month of November was accurate.
Included in those estimates was sports cable channel ESPN, which saw a
viewership decline of more than 600,000, the worst performance in that
network`s history. Disney (NYSE:DIS) disagrees, telling CNBC, the data is,
quote, “an anomaly,” and inconsistent with other respected third party
analysts. Disney (NYSE:DIS) shares fell just about 1 percent to $92.35.

And Berkshire Hathaway (NYSE:BRK.A) said its operating profit and revenue
rose in the latest quarter with results being helped by strength in the
conglomerates manufacturing and energy divisions. Despite those upbeat
results, net income saw a decline. The shares fell slightly in after-hours
trading. They finished the regular day down fractionally to $214,545.

MATHISEN: And now to our market monitor, who has some names he says you
might want to own if you`re worried about stock market volatility. This is
his first time joining us on the program. He`s Allen Bond, the top-
performing co-portfolio manager of the Jensen Quality Growth Fund. It is
up nearly 8 percent this year.

Allen, welcome. Good to have you with us.

Let`s begin with this pesky losing streak we`re in the midst of, with the
S&P and the other market averages. Is this the start of something bigger,
worser?

ALLEN BOND, JENSEN QUALITY GROWTH FUND CO-PORTFOLIO MGR: Well, it
certainly is unprecedented for a long time. This is the first time in 30
years that we have seen the market sell off for eight straight days and
probably some election uncertainty in there. The election is obviously
tightening.

You know, the question for us, is stock pickers, what kind of stocks do we
want? For us, it comes back to quality growth stocks in this kind of
environment. Stocks with free cash, higher returns on capital and
consistent business models that can thrive regardless of the geopolitical
environment.

HERERA: All right. Have you been adding to some of the positions?

Let`s talk about the stocks that you`re recommending tonight. Waters
(NYSE:WAT) Corporation, you say it`s an all-weather company that can hold
up if you`re concerned about volatility. And we certainly are seeing that
right now.

BOND: Yes. Waters (NYSE:WAT) is a bit of a sleepy company, but it`s one
of the world leaders in the scientific tools used by pharmaceutical
businesses to conduct research and quality control testing on both branded
and generic drugs. And it`s a business model defined by high customer
switching costs. About half the company`s revenues are somewhat recurrent
in nature, generate a lot of free cash, have been around a long time, a
consistent company. We think it`s a great company for any environment.

The stock sold off last week after earnings. So, we think the entry point
right now is very attractive.

MATHISEN: Your second pick is also — has revenues that are sort of
recurring in nature. Sounds like a theme of yours. Echo Lab. Why do you
like it?

BOND: Sure. So, Ecolab (NYSE:ECL) is the world`s leading supplier of
sanitation chemicals sold to large institutions such as hotels and
restaurants for their cleaning needs. They dominate the world`s markets.
They`re about twice as big as their nearest competitor, and it`s a scale
business, so that`s important.

What`s interesting about Ecolab (NYSE:ECL) right now, they do get some
sales from energy in markets, and that we see that business with a oil
market stabilizing. We see that business troughing and we think the
company is doing well for revenue and earnings as we enter 2017.

HERERA: Let`s move to Pepsi. I was kind of surprised to see it on the
list, but on the other hand, you say that, you know, it`s a global brand,
not just a domestic brand. And so, it has revenue from a lot of different
areas.

BOND: Yes. Pepsi is a great one for that volatility thing you were
talking about at the opening here, very well-known company. Deep
competitive advantages from brand strength, channel strength throughout the
world, very diversified business model. You know, we like it for free cash
flow attributes. Its consistency, it`s raised its dividend for 43
consecutive years, so a very steady story.

But in volatile times, if we`re concerned about volatility, it`s a stock
that has shown it can hold up very well in volatile markets. So, we think
that`s a great short term angle, and the long-term play for us comes back
to its quality.

MATHISEN: All right. Allen, thank you so much. Have a good weekend.
Allen Bond with Jensen Quality Growth Fund.

HERERA: Coming up, it`s made in the USA and made a former marine, and this
entrepreneur had the bright idea to use his business to help other vets.

(MUSIC)

MATHISEN: Veterans Day is a week from today, and U.S. military vets own
some 2.5 million businesses, generating more than $1 trillion in sales each
year. Vets have started companies like Walmart, Nike (NYSE:NKE) and FedEx
(NYSE:FDX).

But one ex-marine in Nashville, Tennessee, got the bright idea to make it
his business to give back to vets and their families, full-time.

(BEGIN VIDEOTAPE)

MATHISEN: Travis McVey considers himself pretty lucky. As a marine, he
was chosen for the presidential honor guard, serving in the late 1980s and
early `90s. His two best friends weren`t as lucky. Richard Gaston went on
to become an Indiana state trooper but was killed in the line of duty. And
Thomas Rafjohn (ph), a policeman and army reservist, was called to active
duty and died in Afghanistan.

TRAVIS MCVEY, U.S. MARINE CORPS VETERAN: It was just devastating. I go
through those emotions when you lose someone through grief, through anger,
feeling guilty for not being there, but finally, I was inspired to do
something.

MATHISEN: McVey spent a total of eight years in the marines and 15 working
at a Tennessee tire factory.

On the side, he dabbled at home making his own vodka. He dreamed of
selling it, and donating money to causes that helped military veterans.
But why vodka?

MCVEY: Vodka, you can make today and sell tomorrow. You don`t have to age
it. It`s gender-neutral. It`s seasonless, and it outsells all the other
spirits combined.

MATHISEN: McVey spent more than a year and about $80,000 tweaking bottle
designs, a sales pitch, and his corn-based recipe. He says corn makes a
smoother vodka, but getting his Heroes Vodka into stores was no simple
feat.

So, he called a local expert, Robert Lipman (ph), whose family founded the
first distributor of Jack Daniels back in the 1930s.

MCVEY: Robert actually answered his phone that afternoon and said I`ve got
100 different vodkas in my White House, but I`ll give you 20 minutes since
you`re a veteran.

MATHISEN: Twenty minutes is all it took.

MCVEY: What always drove me, my friend, if they could give their lives for
this country and all the other men and women that serve every day, I can
try and start a business and do this.

MATHISEN: Lipman was hooked. So he invested in Heroes, betting McVey`s
story would sell.

Heroes Vodka went into production on Veterans Day in 2011, 11/11/11.

In early 2012, about 300 Nashville retailers and restaurants began selling
it. Now, available in 15 states, Heroes sells for about $15 a bottle.

LEONARD PHILLIPS, AMBASSADORR WINS AND SPIRITS PRES.: When I first sat
down and spoke to Travis, I said, man, you know, you`re climbing a pretty
steep hill.

MATHISEN: In 2013, Leonard Phillips became the first New York City
retailer to carry Heroes.

PHILLIPS: He was not going to be deterred. He said, I`m going to do this.
And I said, well, you`ve got my support.

MATHISEN: Fifteen cases, and close to $1 million in sales later, Heroes
expects to be profitable next year. But even without profit, Heroes is
already donating. Nearly $60,000 so far, mostly to AMVETS, a nonprofit
chartered by Congress to help American veterans and their families.

And while McVey`s story sells, he`s heard from a few detractors, too. Some
say he`s exploiting his military background. Others make him painfully
aware of the alcohol issues faced by so many vets.

MCVEY: We`re just like anyone else. Some people have a problem with
alcohol, some people don`t. I believe in freedom of choice and also, I
tell people, if you have a problem with alcohol, I don`t want you to buy my
product, period.

MATHISEN: Just this week, McVey was named veterans` business advocate of
the year by the National Veteran-Owned Business Association. An honor, as
he answers his new call of duty.

MCVEY: What I tell people, never start a business just to make money.
Start a business to make a difference.

Cheers.

(END VIDEOTAPE)

MATHISEN: Good advice there.

In the future, Heroes plans to donate 10 percent of its profits. McVey,
who also wrote a book about country singers who serve in the U.S. military,
hopes to have Heroes Vodka for sale in 30 states by the end of next year.
He is entering a crowded marketplace. There are a lot of vodkas, but his
price point, $15 a bottle, pretty moderate.

HERERA: Well, I hope that some people in most other 30 states that don`t
have it, they see your report and they`ll do it.

That does it for us for NIGHTLY BUSINESS REPORT, I`m Sue Herera. Thanks
for joining us.

MATHISEN: And I`m Tyler Mathisen. Have a great weekend, everybody. And
we`ll see you on Monday, the day before Election Day.

END

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