Transcript: Nightly Business Report – December 16, 2016

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

Funded in part by HSS.

(COMMERCIAL AD)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Getting hammered.  A key
housing statistic gets nailed as housing starts drop double digits in
November.  And now builders and buyers alike must confront rising interest
rates.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Shifting into reverse.  Could
renegotiating the trade deal called NAFTA cause the auto industry to lose
jobs, not save them?

MATHISEN:  Five-star fund.  Our top ranked market monitor has a list of
stocks he says could rise 20 percent over the next year-and-a-half.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
December 16th.

HERERA:  Good evening, everyone.  And welcome.

Home building slowed down last month.  Housing starts, which measure the
number of homes that broke ground, tumbled from a nine-year high.
According to the latest report from the Commerce Department, starts dropped
by more than 18 percent in November.  That was the largest decline in
almost two years.

As we have been reporting, the housing market is in need of new homes.
Inventory has been persistently low, which has helped prop up prices.  And
some leading economists say that although the housing market remains on
solid footing, the data may be the latest sign of slower economic growth in
the fourth quarter.

MATHISEN:  And while many do expect the housing market to remain on that
solid footing, it is getting more expensive to finance a home.  Mortgage
rates are now at their highest levels in more than two years.

And as Diana Olick explains, payments are also going up for people with
home equity lines of credit.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Interest rates are
rising, and while most homeowners today have fixed rate mortgages, millions
of them also have home equity lines of credit, or HELOCs, suddenly getting
more expensive.  These second loans are generally adjustable rate tied to
shorter term interest rates and that means the payment changes once a year.
Higher interest rates mean higher payments.

HELOCs were all the rage during the loose lending days of the housing boom
when homeowners used their property ATMs, originations for HELOCs picked at
just over $367 billion worth in 2005.  Their popularity then dropped
dramatically, along with home values to just short of $65 billion by 2010,
according to Core Logic.

Then, as home prices mounted and borrowers regained sizeable equity, HELOCs
originations jumped back in 2014 and `15 and should reach a collective $173
billion worth this year.

Not all HELOC borrowers actually used all of the line of credit, but for
those who used some or all of it, they will see higher monthly payments as
interest rates rise.  The increases could average about $100 or more per
month, but depend on the size of the line.  Unfortunately, recent surveys
show a large share of HELOC borrowers have no financial plan for these
changes, and some are unaware their monthly bills are going up.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA:  On Wall Street, stocks closed slightly lower.  The major indexes
gave up their opening gains after “Reuters” reported that a Chinese Navy
warship seized an underwater drone deployed by an American vessel in the
South China Sea.  By the close, the Dow Jones Industrial Average dropped
eight points to 19,843, the NASDAQ was off 19, and the S&P 500 fell nearly
4.  All of the major averages barely budged for the week.

MATHISEN:  Two Federal Reserve officials speaking about interest rates just
days after the Central Bank raised them for the first time in a year.  The
St. Louis Fed president, James Bullard, changed his outlook because of the
recent rise in bond yields and now says there is a need for an additional
hike next year.

Separately, Jeffrey Lacker, the head of the Richmond Fed, said the Central
Bank will likely need to increase rates at a faster pace than its current
outlook would suggest.

HERERA:  It was a promise Donald Trump made on the campaign trail.  The
U.S. should rip up the North American Free Trade Agreement known as NAFTA.
He also talked about slapping a 35 percent tax on Mexican-made vehicles
imported into the U.S.

And now, as Phil LeBeau reports, we`re getting some fresh analysis on how
much that would drive up auto costs and possibly hurt the auto economy.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Mexican auto plants
are running at a record pace and they`re only getting hotter.  Since 2009,
the number of cars and trucks built south of the border has soared, and
will soon top 4 million, with almost half of those being shipped up to the
U.S.

That bothers Donald Trump.  And he wants automakers to build more in the
U.S., even threatening to slap a 35 percent tax on Mexican-made vehicles.

What would happen if the president-elect did that?  The Center for
Automotive Research, which is funded by auto manufacturers, estimates the
cost of the average vehicle built in Mexico would jump almost $6,500, which
would lead to almost a half million fewer vehicles being sold in the U.S.,
and potentially the loss of 6,700 auto industry jobs.

BOB LUTZ, FORMER GM VICE CHAIRMAN:  Once Donald Trump takes a look at the
numbers, he will find a way out of — to wiggle out of this unfortunate
campaign promise.

LEBEAU:  With U.S. assembly lines already running close to capacity,
automakers are unlikely to put up new plants in the U.S.  Instead, they
would likely build some models, like small cars, in other low-cost
countries, like China.  That`s where the Buick Envision is built.

India is another option.  Ford will import its new small Crossover, the
Echo Sport, from a plant in that country.

KRISTIN DZICEK, CENTER FOR AUTOMOTIVE RESEARCH:  If we close off Mexico, it
becomes a game of whack-a-mole, like where else do you close off next?
Because they`re going to move from other places.

LEBEAU:  For now, automakers are still manufacturing and expanding in
Mexico, including Ford, which is moving small car production south of the
border.

That will free up assembly lines in Michigan to build more trucks and SUVs.

But all of that could change if Donald Trump plays hard ball once he
becomes president and follows through on threats to put a tax on all
vehicles made in Mexico.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA:  And to read more about the potential impact of renegotiating
NAFTA, you could head to our website, NBR.com.

MATHISEN:  American voters were clearly comfortable electing an active
billionaire businessman as president.  And in turn, the president-elect has
nominated numerous business people for cabinet positions.  Now comes the
uncomfortable part, making sure that the new administration`s personal
business interests don`t interfere or compromise with the people`s
business.

Here to discuss how the Trump administration might intelligently avoid
possible conflicts of interest is Meredith (NYSE:MDP) McGhehee.  He`s a
strategic adviser with the Campaign Legal Center.

Meredith (NYSE:MDP), I`m glad you`re with us.  We have never been in a
situation quite like this before.  Let`s separate now the question of the
president and the cabinet.

Is there a way for us to come up with some way that both deals with the
president-elect and his business and his family interests fairly at the
same time as it quarantines those business interests, so that he is free to
do the people`s business in an uncompromised way?

MEREDITH MCGHEHEE, THE CAMPAIGN LEGAL CENTER STRATEGIC ADVISOR:  Yes,
actually.  I think in some ways, even though he does have a very complex
enterprise, the steps are fairly clear.  What he should do and what has
been done in the past for the last 40 years has been for the White House
Council designee to sit down with the Office of Government Ethics to look
at the portfolio and at that point they say, OK, here are some interests
that you need to divest.  Here are some interests that should go into a
qualified blind trust, which is run by a totally independent trustee.

And that trustee will then be able to make decisions unbeknownst to the
president of other assets that over time need to be sold off?  Are there
some where he needs to recuse himself?  Are there some he could hold on to?

But this step, this initial step, is very important both in terms of
protecting the president, if your owner and you`re not managing it, you`re
still legally responsible.

HERERA:  Absolutely.  You know, there was some talk that perhaps he would
turn over his businesses and his business interests to his children.  But
now, we have seen his children attend some of the cabinet level meetings,
which compromises that particular solution.  What`s your read on that?

MCGHEHEE:  Well, they have to — you know, they`re kind of having their
cake and eat it too, at the moment, saying, oh, we`re going to have the
business independent and yet at the same time participating in the
transition team.  Obviously, that`s not the clear line that is needed here.

But I want to make clear that this is also the kind of stuff he is talking
about, also raises all kinds of serious questions for the president-elect
himself.  He does not want to be in the position of being legally
responsible for any violations that the company he owns may incur, even if
he`s not managing them.  And, of course, the last thing I think he wants is
to be in violation of the Constitution and the emoluments clause, which
really talks about benefits for the foreign state.

This isn`t good for him.  It`s not good for the country.

MATHISEN:  Is there, quickly, any level of conflict of interest that we
could acceptably live with?

MCGHEHEE:  Well, I think really you have to address this right straight on.
You know, it`s really hard when you`re the president, the most powerful
position in the world, to kind of say, oh, well, we can live with a little
bit of conflict of interest, because there is no need to.  The answers and
steps are quite easily taken when you decide that this is the job that you
want to take.  He made that decision, and so, now, I think it`s just a
matter — I`m glad to see he said this is visually important.  He has
recognized that.

MATHISEN:  Meredith (NYSE:MDP), thank you very much.  Meredith (NYSE:MDP)
McGhehee with the Campaign Legal Center.

And still ahead, taking stock, looking for some names that could see big
returns over the next year.  Our top-rated market monitor has some of those
names.

(MUSIC)

HERERA:  Customers are not opening new accounts at Wells Fargo (NYSE:WFC)
like they used to.  Following the fake account scandal, checking account
openings plunged about 40 percent in November compared with last year.
That decline can also be attributed to the scrapping of unrealistic sales
goals that former workers say led to the creation of those fake accounts.
The head of Wells Fargo`s community bank said the company`s top priority is
rebuilding trust.

MATHISEN:  `Tis the season for giving, and returning those gifts.  But
dealing with unwanted used, damaged goods, very costly for retailers.

Courtney Reagan is in Mount Juliet, Tennessee, where one company is looking
to corner the market on returned goods.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Americans returned
$260 billion in merchandise to retailers last year, or 8 percent of total
purchases, even higher around the holiday season.  According to Gartner
(NYSE:IT) Research, less than half is resold, leaving retailers booking big
losses, in some cases as much as 10 percent of total sales.

Unwanted and damaged goods either get tossed out or sent through a lengthy
chain of liquidators and wholesalers paying phenomenon pennies on the
dollar to the retailer before eventually selling them to bargain hunting
consumers.  Add in the surge of online shopping and the problem gets even
bigger.  Return rates from online sales can be 30 percent or more, and that
has research from Gartner (NYSE:IT) warning retailers the old way of
dealing with returns is a ticking time bomb.

TOM ENRIGHT, GARTNER SUPPLY CHAIN RESEARCH DIR.:  Retailers are not very
good at managing returns right now.  And so, unless they invest in their
ability to manage returns, the volume of returns coming back will cause
problems in their overall supply chain.

REAGAN:  Best Buy (NYSE:BBY) is one retailer that`s working on ways to
recoup losses associated with returned goods, adding open box merchandise
to its store and web inventory, increasing the chances of selling those
items at a discount, while decreasing losses.  But now, there is a new
option for retailers.  Optoro is one company working to disrupt the
traditional model for dealing with returns.  The company claims its
technology finds the best resale price across market places for retailers
the moment the return is scanned at the store.

TOBIN MOORE, OPTORO CEO:  Currently many retailers are getting 15 cents to
30 cents on the dollar for these returns, because they`re having such
trouble economically processing them, and getting them to the next best
markets.  We`re able to get them to double and triple the recovery.

REAGAN:  After merchandise is returned to a retailer, it ends up here at
the warehouse in Tennessee.  The bulk of the items are electronics, but
there is also health and wellness, home and garden, baby items, and, of
course, clothing.

The goods are tested and inspected and once they`re given a clean bill of
health, they`re ready for resale on the site, blink.com, Amazon
(NASDAQ:AMZN) and eBay (NASDAQ:EBAY).  Home Depot (NYSE:HD), BJ`s
Wholesale, jet.com and seventeen other U.S. retailers and U.S.
manufacturers use Optoro`s technology.  It can be a win-win-win.

Retailers recoup more on returned goods, waste is reduced, and consumers
get another discount shopping option.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Mount Juliet,
Tennessee.

(END VIDEOTAPE)

HERERA:  Jan Kniffen joins us now to tell us who will the winners and
losers will be this holiday season.  He is CEO of J. Rogers (NYSE:ROG)
Kniffen Worldwide Enterprises.

Nice to have you here.  Happy holidays.

JAN KNIFFEN, J. ROGERS KNIFFEN WORLDWIDE ENTERPRISES CEO:  Great to be
here.  I`m wearing my holiday tie.  We`re into it already.

HERERA:  Excellent.  Perfect.  Who do you think is going to come out on top
this holiday season?

KNIFFEN:  Well, the bad news is, if you`re a brick and mortar retailer, the
person coming out on top is Amazon (NASDAQ:AMZN).  That`s not going to
change.  It was true last year, it`s been true since 2006.  They`re the
number one place for gifts right now, for anybody getting a gift and the
number two place is Walmart.

MATHISEN:  How is Walmart`s online business doing, Jan?

KNIFFEN:  Well, since they bought Jet, I`m sure it`s doing a lot better.
Jet was running at a rate of about $1.4 billion after 14 months of
operation.  Now they`re 16 months old.  They were adding 500,000 customers
a month.

So, Walmart`s online was really trailing the growth that Amazon
(NASDAQ:AMZN) by a lot, even though their online business is smaller than
Amazon (NASDAQ:AMZN).  Now, that they`ve got Jet, at least the growth rate
will look the same.  I think they can grow this business online at 20 to
even 30 percent a year for a while.  It`s off a fairly small base, and jet
is a really good operator.

HERERA:  You know, I notice on your list of winners, you have Penny`s, and
they tend to be mall-bas mall-based.  Why did they make the winners
category?

KNIFFEN:  OK, it contradicts everything I said.

HERERA:  Right.

KNIFFEN:  That the malls aren`t doing well, interiors even worse.  The
anchors are struggling, because business isn`t going to the mall, it`s
going off price or online.  However, some retailers are kind of in control
of their own fate.  If you`re doing things better than you used to, and
penny`s is doing better than they used to, you start getting business back.

They`re also taking share from Sears (NASDAQ:SHLD), and actually the — the
offering they`re doing now in appliances is working.  And you know, that`s
brand-new for them.  And their home business is getting better.  That
doesn`t mean that the mall is not struggling.

It just means that they had been pretty low down on the totem pole, as you
know.  And they had given up a lot of sales.  And now, they`re building
that business back.

MATHISEN:  You also like some of those stores that you say are not in the
malls but across the street from the malls.  Name them.

KNIFFEN:  I love things across the street from the malls.  If you`re T.J.
Maxx, if you`re Ross, if you`re Ulta, even Nordstrom (NYSE:JWN) Rack, that
part of Nordstrom`s, you know, those businesses are doing well.

It`s really odd that you can go 100 feet from the ball across the road, and
it`s pretty busy over there.  You return to the mall, and it`s kind of like
being gosh, I don`t want to say at a funeral, but very, very slow.

HERERA:  You know, Jan, just very quickly before we let you go, Nordstrom
(NYSE:JWN), you mentioned were downgraded today.  The stock lost about 8
percent.  What`s your opinion of Nordstrom (NYSE:JWN) this holiday season?

KNIFFEN:  I think if you`re an anchor at the mall, which Nordstrom`s is,
you`re struggling a little more than other people — other companies.  So
if you`re Nordstrom`s, if you`re Macy`s, other than Penny`s, if you`re
Sears (NASDAQ:SHLD), you`re struggling at the mall.  And that`s going
across the board.

So do I like what Nordstrom`s did with Rack?  Yes.  Do I like the fact that
Nordstrom`s is one of the best omnichannel retailers in the country?

HERERA:  OK.

KNIFFEN:  Yes.

And I like the fact they`re good at customer service.  But they`re trapped
at the mall, just like everybody else.  Those businesses are not doing
well.

HERERA:  All right.  On that note, Jan, thank you.  Jan Kniffen with J.
Rogers (NYSE:ROG) Kniffen Worldwide Enterprises.

MATHISEN:  Sumner Redstone to step down at Viacom (NYSE:VIA) and that`s
where we begin tonight`s “Market Focus”.  Red stone will resign from the
company`s board in February, still remain on the board at CBS (NYSE:CBS).
But Redstone will still control the majority of Viacom`s voting shares
through his national amusements holding companies.  Shares of Viacom
(NYSE:VIA) up better than 1 percent on the day at $39.50.

Mylan (NASDAQ:MYL) said its generic version of its EpiPen will be available
starting next week.  The allergy treatment offered at $300 for a pack of
two, which is less than half of the full cost of the brand name variety.
Mylan (NASDAQ:MYL) up a fraction at $37.82.

Honeywell said earnings for the current quarter would come in at the low
end of its forecast.  The industrial conglomerate also says 2017 earnings
which were largely below expectations.  Honeywell shares up 4 cents at
$116.38.

HERERA:  Omnicom has been subpoenaed by the Justice Department as part of
an investigation of possible price fixing in video ad production.  Justice
is looking into whether ad agencies rigged contracts to favor in-house
production units, a practice which could violate federal antitrust.
Omnicom shares were off 2 percent to $86.18.

And the hotel search company Trivago made its debut on Wall Street.
Trivago, which is majority owned by Expedia (NASDAQ:EXPE), priced $26
million at $11 each.  That was below the expected range of $13 to $15.
Shares ended up nearly 8 percent to $11.85.

MATHISEN:  And now to our market monitor as names of stocks he says could
grow 20 percent over the next 12 to 18 months.  Got to love that.

The first time on the program, Brian Smoluch.  He`s top performing
portfolio manager of the Hood River Small Cap Growth Fund.  It is up 15
percent.

You got to like that, Brian.  Welcome.  Good to have you with us.

Banks have been doing very, very well as interest rates have been going up.
Your first pick is Bank of the Ozarks (NASDAQ:OZRK).  Why that particular
one?

BRIAN SMOLUCH, HOOD RIVER CAPITAL MANAGEMENT PORTFOLIO MGR:  There is a lot
of reasons why I like Bank of the Ozarks (NASDAQ:OZRK).  I think they can
grow loans faster than the rest of the industry.  I think in 2017, they
could probably grow their net loans by about 20 percent or so.  They`re
really good at handling complex commercial real estate transactions, so
they can get better margins there.

Also, as tax rates go down, they`re a big beneficiary, that pay around 35
percent tax rate currently, so could get a nice benefit, rates go down.
Also with deregulation, they could potentially be more aggressive on the
M&A front.  They recently closed some big acquisitions.  Now, they`re
through that.  So, that could be upside the numbers as well.  And you
mentioned rates.  They can benefit a lot from the stiffing of the yield
curve that`s happened, also with LIBOR rates and PenFed rates moving up,
numbers move up on margins, as well.

HERERA:  Western Alliance Bank Corporation, symbol WAL, is next on the
list.  They have been inquisitive recently.  And you think they might do
more of that.

SMOLUCH:  I think that`s reasonable.  I think over the next six to nine
months, they could do that.  If there are cuts in corporate tax rates like
we talked about, that gives them more capital to put to work.  Like you
said, they have done deals lately that have been fairly accretive.

Over the last eight years, they diversified away from being solely focused
in Nevada, California, Arizona.  They become more of a national bank.  I
think they can grow their loans in a 10 to 12 percent range in 2017, which
is better than the rest of the industry.  And both Ozarks and WL are
trading at discount on earnings for 20 — to the group on 2016 and 2017,
which —

MATHISEN:  Moving to a opposite direction from banking and finance to
MasTec (NYSE:MTZ).  MTZ is the ticker.  It`s kind of an oil and gas
infrastructure play.

SMOLUCH:  Yes, they do lots of infrastructure all over the United States.
They do oil and gas, and they also do wireless, wire line, transmission,
and energy.  Electrical work, as well.  I do think that since deregulation
is happening, in those industries, they can benefit from higher spending
there.  The street is anticipating around 6 percent revenue growth and over
15 percent cash flow growth in 2017.  I think those numbers can be exceeded
and more importantly in 2018, the street only has flat revenue growth.  I
think they could significantly —

(CROSSTALK)

MATHISEN:  Very quick reaction to the fact this stock is already up 100
percent — 115 percent this year.  Has it gotten too far ahead of itself?

SMOLUCH:  I don`t think so, because as I mentioned, I think earnings
estimates have to move up.  The reason why it`s been good so far this year
is because the company has gone from missing earnings to beating them, and
that happened over the Q1, Q2 time frame.  So, this stock had catching up
to do.

And the stocks at the high end of its normal cash flow valuation range, but
it`s not extreme, and, again, I think you`re on a four-year cycle here for
that name.

MATHISEN:  Got to leave there.  Brian Smoluch with Hood River Capital
Management, thanks again.

HERERA:  Coming up, will the force be with Disney (NYSE:DIS) in its next
installment of “Star Wars”?

(MUSIC)

MATHISEN:  “Star Wars: The Force Awakens” set records when it opened last
year and it reinvigorated a massive franchise for Disney (NYSE:DIS).  Now,
investors want to know just how big the next installment of “Star Wars”
will be.

Julia Boorstin takes us to the movies.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  “Rogue One: A Star
Wars Story” is off to a huge start, grossing $29 million in North American
theaters, the biggest Thursday night preview of the year, and the seventh
largest of all-time.  Plus, it`s grossed an additional $33 million
overseas.

MOVIE CHARACTER:  Congratulations.  You are being rescued.  Please do not
resist.

BOORSTIN:  The film is expected to gross at least $300 million worldwide
this weekend.  And it could generate more than $1 billion in total revenue
for Disney (NYSE:DIS).

So, it`s not expected to rake in as much as last year`s “The Force
Awakens,” it`s a key test of the potential to expand Lucas Film outside
“Star War`s” core narrative with a totally new cast of characters.

BARTON CROCKETT, FBR CAPITAL MARKETS:  I think that this is crucial for
Disney (NYSE:DIS).  It`s not just, you know, does this movie do well, but
it`s the argument that “Star Wars” can be an annuity business rather than a
flash in the pan couple of successful movies.

BOORSTIN:  It`s all part of a push to turn “Star Wars” into an annual
event, to fuel not just the studio, but also demand for consumer products.
The two “Star Wars” lands in the works in Orlando and Anaheim.

With Disney (NYSE:DIS) shares under pressure on concerns about the health
of ESPN, analysts have been looking more closely at the success of the
studio, which dominated one quarter of the U.S. box office this year with
five of the top ten films, including “Finding Dory ” and “Captain America”,
and “Rogue One” could top them all.

JAMES WOOD, EL CAPITAN THEATER:  It`s a great thing for our movie theater
and for all movie theaters, because not only does it bring people in, but
it also encourages them when they come, they want to have concessions and
that also drives sales here at the theatre.  And also drives sales for
other movies, as well, because when people come see the movies, it tends to
breed more movie-going.

BOORSTIN:  And more movie-going is a good thing as Disney (NYSE:DIS) heads
into some tough comparisons to last year.

Piper Jaffray`s analysts project Disney (NYSE:DIS) will top $7 billion at
the box office this year, a record.  It will hit $6.5 billion next year.

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

(END VIDEOTAPE)

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

MATHISEN:  And I`m Tyler Mathisen.  Have a great weekend, everybody.  Get
your shopping done.  We`ll see you Monday.

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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