Transcript: Nightly Business Report – December 12, 2016

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

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BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Crude climbs. The Dow closes at a record high for the sixth straight session, as OPEC’s landmark deal to cut production widens.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Art of the oil deal? Why the CEO of ExxonMobil with deep ties across the globe is being considered for secretary of state.

GRIFFETH: Cost and controversy. Donald Trump takes aim at another defense company. This time, it’s Lockheed Martin.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT. It’s Monday, December 12th.

Good evening, everybody. I’m Bill Griffeth in for Tyler Mathisen tonight.

HERERA: And welcome.

GRIFFETH: Thank you. Good to be here.

HERERA: I’m Sue Herera.

Another record close for the Dow Jones Industrial Average today. But we are going to begin tonight with the widening of OPEC’s production deal. Another 11 countries pledge to cut supply. It is the first global pact in 15 years to jointly scale back on output.

And Saudi Arabia, the largest exporter of that commodity, says it could reduce supply even further. The decision in effect ends the infighting that prevented a production cut and exacerbated the global oversupply of crude.

Today, domestic crude hit levels not seen in about a year-and-a-half, rising more than 2.5 percent, extending a rally that has pushed prices up by more than 45 percent over the past year.

GRIFFETH: And the rise in oil prices helped lift energy stocks, including Dow components ExxonMobil and Chevron today. But higher oil prices also increased costs for transportation companies, so sectors like airlines fell today and that pressured the broader market.

Here are the final numbers today. The Dow, the lone gainer among the major averages gained 39 points. A new record at 19,796, its 15th record close since the election. But write it down in pencil. The NASDAQ dropped by 31 points, the S&P was down 2.

As for Exxon and Chevron, they both rose more than 1 percent today.

HERERA: ExxonMobil CEO is reportedly being considered by Donald Trump for the position of secretary of state. Rex Tillerson is known as an aggressive deal-maker, with ties that reach across the globe and into Russia.

Jackie DeAngelis has more.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Rex Tillerson is used to being in the spotlight in the energy world. But now, he’s center stage in a whole new way. Recognized as President-elect Trump’s top contender for secretary of state, people want to know more about this oil man.

Tillerson has been at the helm of Exxon since 2006, after starting at the company in 1975. He is 64 years old, and must retire from the energy giant before March of 2017 when he turns 65.

Under Tillerson’s leadership, Exxon stock has seen fluctuations in tandem with the global market and oil prices. But overall, it’s higher. The question now, how a Tillerson-run State Department will impact foreign relations and the energy industry?

This weekend, Donald Trump said this about the candidate.

DONALD TRUMP (R), PRESIDENT-ELECT: Well, in his case, he’s much more than a business executive. I mean, he’s a world-class player. He’s in charge of I guess the largest company in the world.

DEANGELIS: As the CEO of ExxonMobil, Tillerson has overseen operations in over 50 countries. While he has no formal diplomatic experience, he has long-lasting relationships with many global leaders. But he’s also being scrutinized for his ties to Russia and relationships with Vladimir Putin. Are they too friendly?

Some worry that Tillerson mindset, that’s to say having an oil CEO in the Trump cabinet, may have a broader impact, even though it presumably could be positive for energy companies. For example, how would he advise the president-elect on Iran, a country with plentiful oil resources but a regime with policies that present conflicts?

REX TILLERSON, EXXONMOBIL CHAIRMAN & CEO: There is a lot of uncertainty in the world today, certainly in the big producing regions of the Middle East, the relationship with Russia. And those are enormously important parts of the world for everyone’s economies. This is — energy is the lifeblood to economic growth.

DEANGELIS: As the country awaits the formal announcement, there is also the expectation that many of these questions will be raised at Tillerson’s confirmation hearings.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

GRIFFETH: And as Jackie just mentioned, navigating our relationship with Iran can be tricky. But that did not stop Boeing from entering into what is the biggest U.S. deal with that country in 40 years. It was made possible by last year’s landmark nuclear agreement which President-elect Trump has threatened to undo.

Phil LeBeau takes a look at it for us tonight.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: One week after shares of Boeing went tumbling following a tweet from President-elect Donald Trump about the cost of Air Force One, Boeing’s airplanes are once again in the news. This time because of a deal the company announced over the weekend with Iran. This deal is for 80-year plans to be sold to Iran, market value $16.6 billion with the first plane to be delivered in 2018.

But there are a lot of ifs behind this deal and a lot of people wondering if it’s even happening. First of all, Iran is not financing this deal to the Export/Import Bank and leaves open the question, who will finance the deal of these airplanes? Also, you’ve got GE supplying the engines to Iran, worth $3 billion. But will this deal even get approved?

Congressional leaders have talked about blocking it, and President-elect Trump is not seen favorable towards any deal with Iran. Back in January of this year, he tweeted out, “Iran is going to buy 114 jetliners with a small part of the $150 billion we are giving them. But they won’t buy from the U.S., rather Airbus.”

It would seem to indicate that President-elect Trump would not want Airbus to get the deal. But that’s a possibility if this deal is blocked and does not go through. Take a look at shares of Boeing, they have rebounded over the last week following the tweet from President-elect Trump.

But, again, at this point, what we have is an order with Iran for 80 Boeing airplanes. The question now: will congressional leaders or will President-elect Trump block that deal from going through?

Phil LeBeau, NIGHTLY BUSINESS REPORT, New York.

(END VIDEOTAPE)

GRIFFETH: By the way, the Boeing 777 is one of the models that Iran is buying, and late today, Boeing said that it’s cutting production of that plane, starting next year. It also said that it plans to increase its dividend by 30 percent, and authorized a new $14 billion stock buyback program.

HERERA: Donald Trump is widening his attack on defense contractors. Today, the president-elect took aim at Lockheed Martin’s F-35 fighter jet program, calling the cost, quote, “out of control.” That sent shares of the company lower by about 2.5 percent.

Morgan Brennan takes a look at the controversial fighter jets.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Defense stocks got beaten down today as the future leader of the free world again took to Twitter. This time, President-elect Donald Trump targeted Lockheed Martin, lambasting the F-35 program for, quote, “out of control costs” and warning that, quote, “billions of dollars can and will be saved on military purchases” once he takes office.

Lockheed Martin responded with a lengthy reply, saying the company understands concerns about affordability and welcomes the opportunity to address any questions the president-elect has about the program. The defense contractor says it has invested millions of dollars to reduce the price of the next generation stealth fighter jet by 60 percent, projecting it will cost $85 million within the next three years.

All of this unfolding as Israel welcomes two F-35 planes today, making Israel the first of a handful of U.S. allies that will have the American-made fighter jets in operation. The F-35 is the most expensive weapon system in history, with an estimated $400 billion price tag. Nearly double the original budget as engine production issues and software glitches contributed to huge cost overruns. That sum includes more than 2,000 jets for the U.S. government.

The 16-year-old program has been the subject of criticism, but finding a realistic replacement may not be possible.

CARTER COPELAND, BARCLAYS AEROSPACE & DEFENSE ANALYST: From a fifth-generation stealth fighter capability standpoint, no, there isn’t a — a ready alternative we could develop an alternative as a nation, but that would take, again, probable decades to fill the large numbers. The question would be, if you want slightly less capable aircraft that can be had at a lower price point, could you go that direction?

BRENNAN: Today’s tweet is the second to take aim at a defense company in less than one week. Trump previously questioned the cost of Boeing’s Air Force One replacement program. It draws into question plans for defense spending, which many have anticipated will increase under the incoming administration, which has three and potentially more generals tapped for key cabinet and adviser positions.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

GRIFFETH: And here to talk more about the so-called Trump effect on the defense sector, Michael Farr is with us tonight, the president of Farr, Miller and Washington.

Michael, good evening.

MICHAEL FARR, PRESIDENT, FARR, MILLER AND WASHINGTON: Good evening. Great to be with you, guys.

GRIFFETH: Nice to see you.

Clearly, Donald Trump is looking at military spending the way he looks at spending on his own real estate projects. Do you think that will affect the bottom line of the prime contractors out there? What do you think?

FARR: I think it’s going to depend whether or not he is successful, Bill. I mean, we know that Washington has been anything but functional for a number of years now.

So, the intention is kind of music to any number of American ears to say, yes, this stuff is so expensive, we’ve got to start cutting these costs. He’s been tweeting about a lot of very expensive things, whether it was the Air Force One plane, or the F-35 Fighter or whatever. Or even drug prices. And all of those industries get to be very volatile.

But can he really do it, will he really do it, once Congress gets in session? And how long will it take? Are some significant questions and at stake is his credibility.

HERERA: But as an investor, Michael, when you see — say you have Lockheed Martin in your portfolio or some of the drug stocks and health care stocks that went down the other day. What are you to do? Do you just ride it out and — until he takes office and we get a clearer picture of, as you say, what he can accomplish?

Because the percentage moves in some of these stocks have been significant.

FARR: So they have been significant, and the volatility continues. You know, we all know that Wall Street hates to be surprised, and this new form of governing by President-elect Trump is full of surprises. We don’t know which industry or hot topic we’re going to hear about next. If it’s pro, will the stock go up? If it’s con, will the stock fall out?

If you’re holding some of the defense contractors, for instance, I think you have to go to your fundamental investment thesis about the earnings and the balance sheets and make sure you’re comfortable holding them through a more volatile period, to find out what’s really going to happen. But he’s covering enough turf here and Washington is enough of a slow place, he’s a proven business magnet.

He’s not a proven president or politician. I think he ought to be really a little more careful about spreading himself too thin as his political agenda hasn’t begun yet.

GRIFFETH: But it would appear that some of the CEOs that have been in his crosshairs are learning how to play this game very quickly. The CEO of Boeing was just saying that this deal with Iran to sell those Boeing jets over there that Mr. Trump doesn’t want to happen, he’s pointing out, the CEO of Boeing is, that it will create thousands of jobs here in the United States, which should be music to Mr. Trump’s ears.

FARR: Should be. And we’re going to find out which of Mr. Trump’s political agendas actually takes precedent. Will it be the creation of jobs, will it be the cessation of the deal with Iran?

It’s — I mean, the jury is out on all of these things. But I think clearly, you know, we saw that the Carrier company is going to keep some jobs in the U.S., and not in Mexico. And they’re receiving kudos.

But, you know, the CEOs are doing what the stock market does. We adjust and adapt to these surprises. We’ve oddly and sadly been able to adjust and adapt to terrorism around the world. It’s now kind of computed in and market returns don’t go up or down much on acts of terror.

GRIFFETH: Right.

FARR: It’s sad, but it’s true. So, markets will figure this out. And markets will know how to react to these various tweets as they come out. It’s an interesting way to run one’s agenda. I wonder if he’s ever going to have a press conference, Bill, or is he just going to tweet from the White House?

(CROSSTALK)

GRIFFETH: Well, he has one scheduled for Thursday. We’ll find out how that goes. That may affect it in the future.

Michael Farr of Farr, Miller and Washington, thank you.

FARR: Stick to your balance sheets. Thank you.

GRIFFETH: There you go.

HERERA: China today issued its strongest condemnation yet of the president-elect. This after Donald Trump said that the U.S. was not necessarily bound by the One China Policy, which recognized Taiwan as part of one China. Many Chinese investors are calling on Mr. Trump to tread carefully, including the head of Dalian Wanda, who has invested more than $10 billion in the U.S. and employs about 20,000 people.

Still ahead, out of step. Can today’s CEOs handle the unique approach of the president-elect?

(MUSIC)

GRIFFETH: Well, Mr. Trump has made it official. The president-elect has named Goldman Sachs president and chief operating officer Gary Cohn as the director of National Economic Council. In that role, he will be one of Mr. Trump’s top economic advisers and he will play an influential role on economic policy and decisions.

HERERA: Boardrooms across the country are on alert. For the most part, CEOs have always done things a certain way. But now they have to figure out how to conduct business with the president-elect who has a very different approach.

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: No CEO would ever likely enjoy an incoming president trying to dictate how a business should be run. But the current generation of corporate leaders is perhaps uniquely out of step with President-elect Trump’s approach to production, trade and capital investment.

For the most part, today’s CEOs are globalists, climbing to the top job by creating global supply chains and pushing to maximize open trade relationships. They have also come of age in an era of constant productivity enhancement aimed at minimizing labor costs. In the current economic expansion, in fact, labor shared economy has remained depressed compared to the long historical trend. On the financial side, most CEOs have a bias toward sending excess cash to shareholders in the form of share buybacks and dividends, rather than making heavy investments in their business.

All of these CEO priorities run counter to Trump’s push to have companies make more products in the United States for the American workers. His threat to punitive tariffs and promised incentives to plow cash into new domestic projects.

Some corporate consultants liken the challenge to the one proposed in recent years by activist investors, only based on a different set of demands.

As with those professional investors who agitate for shareholder-friendly changes, experts say CEOs need to be ready for a call or a tweet from the next president, and should prepare an explanation for corporate strategies in case they find themselves in the hot seat. This at least raises the possibility of more standoffs between companies and the president-elect.

On the positive side for CEOs, Trump is a businessman, always looking to negotiate a deal, which is a familiar mind set to corporate executives. The promise of a big corporate tax cut would also ease the blow of any uncomfortable scrutiny from the White House.

And some argue the CEOs need to be reminded that new investment in their business is one way to grow and create value after so many years of slow growth and focus on cost-cutting. In any case, it appears that corporate bosses face an just to the new administration led by a man with unusually strong views on how they should do their jobs.

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

(END VIDEOTAPE)

GRIFFETH: Well, many Silicon Valley’s CEOs were vocal critics of Donald Trump during the presidential campaign, of course. This week a number of them are going to make their way to Trump Tower to meet with the president-elect’s team as they search for any silver linings.

Josh Lipton reports for us tonight from San Francisco.

(BEGIN VIDEOTAPE)

MEG WHITMAN, HEWLETT PACKARD CEO: I am not supporting Trump, Donald Trump. Under no circumstances will I support Donald Trump.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: He wasn’t Silicon Valley’s choice for president. The high-profile battles between Donald Trump and the tech elite, like Mark Zuckerberg, Jeff Bezos, Meg Whitman and Tim Cook, grabbed the headlines. Most of the folks who raised the big money also opposed him.

But now, venture capitalists are trying to find the positives in a Trump presidency. They say the first benefit of a Trump win, tax reform. For example, Trump wants to lower the tax rate on cash stashed overseas. And Silicon Valley has a lot of it. That could mean companies like Apple, Microsoft and Cisco bring money back to the U.S. and put it to work here.

DAVID GOLDEN, REVOLUTION VENTURES MANAGING PARTNER: For venture capitalists, that’s extremely important because the public capital markets have been such a disappointment for so long. It’s very difficult to exit exempt through M&A.

LIPTON: Not all of Trump’s tax reform is good news for VCs, though. He wants to end preferential tax treatment for carried interests, or the profit on the sale of alternative assets, which can include companies. And that could hit venture investors hard.

Already, some well-respected VCs are threatening to quit if Trump has his way. Still another area where VCs see opportunity, Trump’s focus on rolling back regulation. David Golden says he expects to see changes at the Consumer Financial Protection Bureau, specifically loosening redistributions on consumer lending. That could benefit financial tech startups, a big recipient of venture dollars.

GOLDEN: The CFPB had focused on a number of areas that were posing great difficulties for venture capitalists that were investing in alternative lending platforms in particular. They had proposed regulations around payday lending, around prepaid debit cards, around installment lending. That at least in the case of payday lending would essentially eliminate that industry.

LIPTON: Trump’s team will meet with tech leaders on Wednesday and the guest list is a who’s who from Apple’s Tim Cook to Alphabet’s Larry Page and Amazon’s Jeff Bezos, all are expected to attend. It should be noted that the meeting was organized by one of the few Silicon Valley Trump supporters, Peter Thiel.

Topics to come up include the stance on immigration, which is a critical issue for the venture industry.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton, San Francisco.

(END VIDEOTAPE)

HERERA: Sumner Redstone and daughter Shari pulled the rug out between a possible merger between Viacom and CBS. That’s where we begin tonight’s “Market Focus”.

National Amusements, the Redstone family holding company, which owns the majority voting stake in Viacom and CBS, said it was not the right time to merge the two media properties. It added, it is optimistic about Viacom’s future, given the recent management changes there. Shares of Viacom tumbled more than 9 percent to $34.99. CBS shares were down a fraction to $62.18.

Chipotle says it will only have one CEO from now on. The burrito chain said co-CEO Monty Moran will step down immediately, leaving founder Steve Ells as the sole CEO. Chipotle says the board of directors wanted Ells to resume leadership, given the ongoing challenges facing the company. And following the news, shares rose 3 percent to $382.48.

Pfizer is raising its quarterly dividend almost 7 percent to 32 cents a share, up from 30 cents. The annual yield is nearly 4 percent. Shares of the drug maker were up 70 cents to $32.40.

GRIFFETH: Rare disease drug maker, Alexion Pharmaceuticals said its CEO and CFO have resigned. The company says both men had left for personal reasons, and to pursue other opportunities. But a source told CNBC the resignations were tied to the board’s loss of confidence in those executives. Shares plunged by 12 percent to $115.08.

And then there is Ophthotech. It saw its shares absolutely get crashed today following the release of disappointing drug trial data. The biotech company said its drug for treating wet age-related macular degeneration failed to meet its goals during two studies. That stock nearly wiped out today, plunging by 86 percent to down to $5.29.

HERERA: Bill Gates is starting a new billion-dollar fund. Its purpose is to invest in technologies that counteract climate change. The fund called Breakthrough Energy Ventures will finance emerging energy companies that can deliver affordable and reliable energy, but with zero carbon emissions. Investors in the fund include Amazon CEO Jeff Bezos, Alibaba’s executive chairman, Jack Ma, Virgin Group founder Richard Branson, and LinkedIn founder, Reed Hoffman, among others.

GRIFFETH: Coming up, the big challenges that small business owners are facing in locations around Trump Tower.

(MUSIC)

HERERA: The Supreme Court today upheld the reach of a federal law that prohibits bank fraud. The ruling gives the government more flexibility to prosecute financial crimes. The unanimous opinion means that a person may be guilty of bank fraud, even though he intended to cheat a bank depositor rather than the bank itself.

GRIFFETH: Well, the Wells Fargo fake account scandal may now have spread to Prudential. The insurance company today said that it was suspending distribution of insurance policies through the bank. California regulators are also looking into new allegations made by former Prudential employees who said that Wells Fargo customers were sold low-cost Prudential life insurance policies without their knowledge.

HERERA: President-elect Donald Trump has spent more of his time since the election at his home in Trump Tower in Manhattan. As we have been reporting, the increased security is creating a headache for businesses in that area, including some of the most recognizable retailers in the world.

But as Kate Rogers reports, it’s also hurting some small mom and pop shops.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The holiday season is typically busy for Judge Roy Bean accounts in midtown. But this holiday season has been unlike any other.

PETER PERNICONE, JUDGE ROY BEAN OWNER: November, we’re down 30 percent.

ROGERS: The bar and restaurant is located on West 56th Street, a block away from Trump tower. And as President-elect Donald Trump makes his transition from billionaire businessman to commander in chief, the street is swarmed with police officers and Secret Service agents.

PERNICONE: My experience is that they’re keeping the streets open, they’re closing them off, there is no rhyme or reason. We don’t know what to expect. And the police presence on the corner has just been, you know, it’s intimidating.

ROGER: Nearby at Italian restaurant, Il Tinello, sales down at least 30 percent since Election Day, with its owners considering a potential move elsewhere in midtown if things don’t improve. They say patrons traveling by car have a harder time getting in with the street barricaded off Fifth Avenue and a security tower in place.

GENTIAN SHOTAJ, IL TINELLO D’: We like to be dropped off and picked up. And they can do that. Or if they can, it takes half an hour. And a lot of the people for lunch, especially have one hour, max, lunch, an hour and a half. So they lose a half hour and then they cannot come here and to a lot of other businesses around here. But I’m just talking for around here.

ROGERS: But security measures haven’t been all bad news for local businesses. In fact, on Printon at 56th, it’s been busy.

OSCAR RODRIGUEZ, PRINTON CSC CHIEF: No effect at all. We have a lot of new traffic in the area, which includes police people, our new customers now. And we also have walk-in crowds.

ROGERS: Back at Judge Roy Bean, Pernicone is hoping for a pickup in business post inauguration day. But knows there is no guarantee.

PERNICONE: We’re worried about it. It’s a bit of an unknown. We don’t know what kind of police presence there is going to be, how much security there is going to be. And we just don’t want this for the next four years.

ROGERS: Pernicone and his co-owner, Derek Walsh (ph), say they’re in touch with their local councilman and they’re currently drafting a petition to the city to ask them to open this street back up to traffic. They say almost two dozen small businesses are set to sign.

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers in New York City.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.

GRIFFETH: I’m Bill Griffeth. Have a great evening, everybody. We’ll see you tomorrow.

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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