Transcript: Nightly Business Report – December 22, 2016

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

Funded in part by HSS.

(COMMERCIAL AD)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: We’ve come a long way, baby. But there’s one main reason why the Dow has nearly doubled from 10,000 to almost 20,000.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Welcome home. Why selling a house in December and especially this December could be easier than you think.

HERERA: In the heartland. Food prices are falling, farmers are not making money, and now one rancher says Donald Trump owes them.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, December 21st.

MATHISEN: Good evening, everyone. And welcome. Thanks for joining us.

Dow 20,000, uh-uh. It remains elusive. The blue chip index started the session just about 25 points away from that landmark level. But today is not meant to be. Real estate stocks dragged the market lower as the post-election rally took a bit of a time-out.

The Dow Jones Industrial Average fell 32 points to 19,941. NASDAQ off a dozen and the S&P 500 dropped 5. But despite today’s drop, the Dow has come a long way, and you might be surprised at what’s driven the market from Dow 10,000 to almost 20,000.

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Dow is on the verge of passing 20,000. The Dow crossed 10,000 but moved above that for the final time in mid-2010.

What got us to 10,000 to 20,000? The number one reason the Dow doubled in price in the last six years is a Federal Reserve. By keeping rates low for so long, the Fed forced investors into riskier assets like stocks and high-yield bonds and helped create a new acronym, TINA, or “there is no alternative” to owning stocks.

The big drop in rates did help earnings growth. It allowed corporations to sell record amounts of debt, which they used largely to buy back stocks and pay for increased dividends.

Now, another factor in the move to Dow 20,000 was financial engineering, you could call it. Despite poor revenue growth from 2010 on, corporations became very adept at improving their bottom line by cost-cutting and investing in new technology.

Finally, there is the Trump victory. The Dow has added roughly 1,600 points since the election on hopes for lower taxes, repatriation of cash from foreign countries, less regulations and fiscal stimulus.

Now, there are few other factors that also contributed to the rally. There was the slow improvement in the U.S. economy. That’s for sure. There was stabilization in China after a very difficult 2015. There was stabilization in Europe after the whole European crisis in 2011 and oil finding a bottom earlier this year.

But you could be sure that the Fed was the main driver of the rally.

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

(END VIDEOTAPE)

HERERA: Home buying activity is not slowing down. The sale of existing homes rose in November to a new post-crisis high. Purchases have previously observed homes, which accounts for the vast majority of U.S. sales, were up 0.7 percent from the prior month. And according to the National Association of Realtors, that’s the third straight monthly increase.

And this is the time of year when home sales tend to slow. But selling a house in December may be a lot easier than during other times of the year. And this December, the market could get an even bigger boost.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This five-bedroom colonial in Bethesda, Maryland, sat on the market for three months but finally went under contract this month.

Real estate agent Jane Fairweather says the housing market isn’t as cold as you might think at Christmas time.

JANE FAIRWEATHER, REAL ESTATE AGENT: If you’re in the market in December, you’re one of maybe in your price range and location seven or eight homes, which guarantees every time a buyer is out looking, they’re forced to see your house. There’s no other choices for them.

OLICK: Sellers who sat for a while tend to take their homes off the market during the holidays, hoping to relaunch them into the spring market. That isn’t always the best tactic.

FAIRWEATHER: The winter buyer is a serious buyer, because it is not fun to look at houses when it’s snowing, raining and freezing cold. So, the buyer that comes across your threshold in December, while there may not be many of them, those people will buy a house within 30 days.

OLICK: And this December, there is an added bonus: the soaring stock market. Not only are there more high-end homes on the market than entry-level, but high-end buyers now have more cash in their pockets. It’s the perfect match.

LAURENCE YUN, NATIONAL ASSOCIATION OF REALTORS CHIEF ECONOMIST: As the stock market goes, they feel more confident about making other purchases, including real estate. So, as a result, we are seeing a greater movement on the upper end market, half million dollars and over, million dollars and over.

OLICK: One note for holiday sellers. Buyers may be serious, but they’re not stupid. A well-priced home will sell quickly, but if you’re looking to test the waters on a higher price, you probably want to wait until spring when there are more buyers and more potentials for bidding wars.

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

(END VIDEOTAPE)

MATHISEN: New census data show that the percentage of young Americans living with their parents is at a 75-year high. Despite a strength in the economy and an improving job market, the number of people between the ages of 18 and 34 living with other family members has risen steadily over the past decade. It now stands at roughly 40 percent or two in five. Back a decade or so ago, about one in three were still living at home.

HERERA: And that means there’s far less demand for housing from millennials. Now, the largest generation in U.S. history. According to the Harvard Joint Center for Housing Studies, the number of adults under the age of 30 has increased by 5 million over the past ten years. But over the same time frame, that group has only created 200,000 households.

Susan Wachter joins us, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business.

Welcome, Susan. Nice to have you back with us.

SUSAN WACHTER, THE WHARTON SCHOOL PROF. REAL ESTATE & FINANCE: Hi, Susan.

HERERA: How problematic is this longer-term for the housing market?

WACHTER: Well, this will persist if current conditions, and the current conditions look like they will, for some time going forward. This means demand across the board for durables that are associated with home-buying are not part of the expansion. And, in fact, our economic expansion has been slower than otherwise, because of the lack of demand for household formation and for housing on the part of millennials.

So, I have see this persisting in the next years to come.

MATHISEN: There are a lot of factors in here. It’s delayed marrying, later, delayed household formation. It’s clearly income-related. Incomes aren’t what they were. Credit quality or standards have been very much tougher since the Great Recession.

On what do you lay most of the responsibility for this delayed embracing of housing?

WACHTER: Well, it’s certainly the economics. And the economics most important is rents and housing prices have increased substantially since the Great Recession in 2009. But at the same time, constraints to lending have strengthened, as well. They’re far higher than they have been historically.

So, getting that loan for the first time home is for pristine credit which most young households don’t have. And in addition, their wages have not kept up with rents or with housing prices. Hard to say for the first time home when rents take such a high share of your income.

HERERA: Do you see all of those factors changing any time soon?

WACHTER: No, I do not. Although interest rates are higher, that, of course, cuts the other way. That makes it even more difficult to afford that first time home. And housing prices and rents are likely to continue to increase, albeit at a slower pace this coming year. And still, wages, while they’re increasing, they’re not increasing enough. And most markets to afford that initial home.

MATHISEN: Who is going to buy my house, Susan, when I’m ready to downsize? You’re painting this picture. I’m worried. I’m worried here. Tell me —

WACHTER: Yes, well —

MATHISEN: Go ahead, finish.

WACHTER: It’s not the millennials. I mean, you heard — there certainly is housing demand out there at the top end.

HERERA: So, Susan, under a new administration that is promising deregulation taking aim at the banks and the higher credit standards that they have demanded, do you see that perhaps moving the needle, either psychologically with the millennial or otherwise?

WACHTER: The key question is not just a psychology. Most millennials do aspire to become homeowners at some point. But it’s actually the reality of lending standards, and lending constraints.

I don’t see that easing. Regulation is part of it, but not just regulation. It’s the experience of having gone through this lending cycle and losing so much that it’s caused a pullback among major lenders.

HERERA: Susan, thank you so much.

WACHTER: Thank you.

HERERA: Susan Wachter with the University of Pennsylvania’s Wharton School of Business.

MATHISEN: Goldman Sachs will pay $120 million to resolve charges of market manipulation. Regulators allege that the bank deliberately moved a global benchmark for interest rate products to its advantage. The case is the latest in a series of broad investigations into manipulation by some of the world’s biggest banks.

HERERA: North Carolina legislators have been meeting today, trying to reach a deal to repeal the state’s so-called bathroom bill. The controversial law requires transgender people to use the bathroom that corresponds to the sex on their birth certificate. The law is deeply divisive and critics say costly.

Scott Cohn reports from Raleigh.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The law not only drove a wedge into the state, it likely drove Republican Governor Pat McCrory from office, defeated by Democrat, Roy Cooper.

UNIDENTIFIED MALE: The house will come to order.

COHN: But the state is still so divided that the mere idea of repealing House Bill 2 would be tricky at best.

UNIDENTIFIED FEMALE: Thank you for gathering this morning for our emergency meeting.

COHN: First, the city council in Charlotte, North Carolina’s largest city, had to repeal its local anti discrimination ordinance, which Republican state legislators say triggered HB-2 in the first place.

UNIDENTIFIED MALE: It is necessary for the North Carolina assembly to convene in an extra session.

COHN: Then and only then would the legislature consider repealing its law with no guarantees.

STATE REP. JEFF COLLINS (R), NORTH CAROLINA: I would like to protest this is an unconstitutional session of this assembly.

COHN: Since the law passed in march, sporting events pulled out. Concerts cancelled. Businesses like PayPal halted expansion plans. All of which made its way to Pam Blondin’s craft market in Raleigh.

PAM BLONDIN, DECO RALEIGH OWNER: A loss of sales in my store reach to a trickle down. Fifteen hourly employees who I would either have to lay off some or I would have to cut back on their hours.

COHN: But proponents of the law, many of whom came to the capitol to make their case, say some things are more important than business.

JOE PRICE, AVALON BAPTIST CHURCH PASTOR: The economic issues are important, but not the only issues. I think when the legislators make decisions, it should be taking everything into consideration, safety for people, what’s best for our state.

COHN: Opponents claim the law has already cost the state $650 million, and without a repeal, they say, that’s just the start.

STATE REP. CHRIS SGRO (D), NORTH CAROLINA: If you can’t recruit, attract and retain the best talent, if young people don’t want to move to your state moving forward, if performers and NBA all-star games are losing your state, you can’t win new business relocation, you can’t move forward as a state until those problems are fixed.

COHN: But even without the law, North Carolina still has some of the weakest anti discrimination protections in the country. And while it will have a Democratic governor, the incoming legislature is more Republican and less apt to change than the current one, making this state a battleground long after the election.

For NIGHTLY BUSINESS REPORT, I’m Scott Cohn in Raleigh, North Carolina.

(END VIDEOTAPE)

MATHISEN: Still ahead, tech talk. You probably own a lot of technology stocks in your portfolio. Should you buy even more as we head into the New Year?

(MUSIC)

HERERA: The president-elect met today with the heads of Boeing and Lockheed Martin, the two defense contractors he questioned over project costs. Just a few weeks ago, Donald Trump threatened to cancel the order with Boeing for the new Air Force One, and Boeing’s CEO said today’s meeting went well.

(BEGIN VIDEO CLIP)

DENNIS MUILENBURG, BOEING CEO: I was able to give the president-elect my personal commitment on behalf of the Boeing Company. This is a business that’s important to us. We work on Air Force One, because it’s important to our country. And we’re going to make sure that he gets the best capability and that it’s done affordably.

(END VIDEO CLIP)

HERERA: Trump also recently tweeted that the costs of Lockheed’s F-35 program are, quote, “out of control”.

MATHISEN: A bipartisan Senate report calls on Congress to take action to prevent big price increases in decades-old prescription medicines that have no competition. The report wraps up a year-long investigation. Republican senator Susan Collins said the solution is not having the government set drug prices, but instead the report laid out several steps that can be taken, which include incentivizing generic competition, allowing for the importation of drugs in some cases, and preventing co-pay coupons from being misused and increasing transparency on drug prices overall.

HERERA: The White House said today nearly of 6.5 million people signed up for health insurance on the exchanges so far this year. Enrollment is now running ahead of last year’s pace, even as premiums rise and fewer insurers offer plans through the Affordable Care Act. This total number is for 39 states, served by the federal online health exchanges.

MATHISEN: From activist investor to presidential adviser. There are reports tonight that Carl Icahn, a billionaire investor, will be named an adviser on regulatory overhaul to the incoming administration.

Eamon Javers is following the story for us tonight from Washington.

Do we know anything more about Mr. Icahn’s potential role in the White House? I do know that he has been a staunch critic of the EPA, among other things.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, that’s right, Tyler. And we know that the Trump administration or the Trump transition, I should say, is confirming that report from earlier today. Tonight, they are saying that Carl Icahn will have a role in advising the president-elect once he becomes president. On a whole host of regulatory issues, including the EPA, they’re also saying that he’s been advising the president on his pick for the SEC position.

So, Carl Icahn, a billionaire activist investor. But in many ways, this is sort of putting the official trappings on a role that we already knew he was playing with Donald Trump. He was one of the earliest supporters of Donald Trump. He’s been very public and very vocal about his support for the president-elect. Clearly, somebody that the president-elect leans on for advice and counsel. And now, he’ll have an official capacity in which to do that.

HERERA: We also learned today that a harsh critic of China will lead the newly create the National Trade Council. China being a key trade partner.

What do we know about this nominee, Peter Navarro?

JAVERS: Well, Peter Navarro, as you say, is a China hawk. He’s somebody who also was an early supporter of Donald Trump. And this is creating an entirely new perch from which he can exert some influence around the White House with this trade council. Navarro, somebody’s who’s argued against trade deficits and somebody who has been a staunch critic of Beijing. You can imagine this will not be taken well in Beijing.

And clearly, Trump is signaling here that trade is going to be so important to his administration as it was one of the key issues if not the key issue in his presidential campaign. Now, he is setting up a team of advisers who can help him figure out how to deal with the U.S. trade position around the world.

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

JAVERS: You bet.

HERERA: Finish Line cuts its outlook for the year. And that’s where we begin tonight’s “Market Focus”.

The athletic shoe retailer lowered its full-year earnings guidance after saying weak demand for apparel and accessories in the latest quarter caused the company to post a bigger than expected loss. The company also saw revenue come in below estimates. Shares fell more than 8 percent to $21 even.

Winnebago saw its profit rise above expectations, thanks to strong demand for products in the company’s towables division. Revenues also rose at the recreational vehicle maker and that too beat street estimates. But despite the upbeat results, Winnebago shares fell 4 percent to $35.55.

MATHISEN: The Japan-based electronics device maker TDK Corp. said it plans to establish a strong presence in the sensor business by inking a deal to take over the U.S. smartphone chipmaker InvenSense. TDK Corp. will buy the Apple parts supplier for about $1 billion. InvenSense shares surged 17 percent on the news to $12.75.

And Stanley, Black & Decker said it has entered into an agreement with Dormakaba Group to sell the majority of its lock and door businesses to the Swiss security firm for $75 million. The company said it still plans to keep its commercial electronic security business. Shares fell a fraction to $116.78.

And the home goods retailer Bed, Bath and Beyond — there is one I can pronounce — posted lower than expected profit and also forecast earnings for the year. To come in at the low end of its previously issued guidance. For the quarter, the company did report higher sales, but those too missed expectations. Shares initially fell in after hours, but ended the day in the regular trading session to $45.56.

HERERA: The White House is warning of a future where robots and artificial intelligence play a bigger role in the workplace. The administration says the wave of automation will have to be met with aggressive policy action.

The report recommends some things focusing on three key areas. Invest in and increase STEM education for youth and job retraining for adults in technology-related fields. Modernize and strengthen the social safety net, including public health care, unemployment insurance and food stamps. The report also recommends investing in artificial intelligence, because that field has many benefits.

MATHISEN: Well, since the election, investors have been pouring money into everything, except technology stocks. Not in a big way, at least. The sector is up, but only by about 3 percent since the November 8th election. It is up 14 percent for the year. But what will the New Year hold for the industry?

Max Wolff is equity strategist at 55 Capital and joins us now to discuss which names you might want to consider.

Max, always good to see you.

You know, bank stocks, financials have gone up a lot since the election. Infrastructure stocks up a lot. Why hasn’t technology played?

MAX WOLFF, 55 CAPITAL EQUITY STRATEGIST: Great to be here. Always a pleasure to join you, and happy holidays.

MATHISEN: Thank you. Same to you.

WOLFF: I think we have seen a rotation here. So, a lot of what people thought was the Trump rally, and there really is a rally. People are certainly in the investing world excited about some of the prospects and promise of the Trump administration.

A lot of it is moving money. A lot of money is moving out of the emerging markets, moving out of the international — kind of major international investments, moving out of bonds, moving out of U.S. treasuries and moving into stocks. But there it’s moving into kind of places that have been unloved.

So, the finance market is certainly financial shares are a huge beneficiary of late. We see that with some of the constructions of the industrials, as well. The one place that did really well through these many years of low interest rates and grow-growth tech has been a huge laggard.

Part of the reason, when you buy tech stocks, you buy the future.

HERERA: Right.

WOLFF: When you’re excited about Donald Trump and giving companies out of the limelight and out of favor for a while, giving the old guys another run is very much the opposite of giving new guys a chance to build a different future. And we see that rotation in the market. And we see that rotation in the underperformance of the FANG names and some of the traditional winners in tech.

HERERA: So, as you look into 2017, are there certain areas that are less loved in technology, or perhaps, you know, are kind of sleepers out there that our viewers might want to put some money into?

WOLFF: Yes. So, one is I think people are generally going to be kind of nervous. The world looks like a kind of dangerous place and that’s maybe part of the reason some of the election decisions are made. So, I think we sort of feel like e-commerce does well in those times.

It’s really convenient. It’s really easy. You stay at home, you avoid big gatherings of public places in which people feel nervous and sometimes like to do. Plus, it’s so convenient. It’s so easy. And more and more of what you want is online, it’s easy, it’s social, it’s fun.

So, we think e-commerce continues to sort of eat the universe the way it has. Obviously, Amazon is one beneficiary. I think an awful lot of folks around the United States will be part of the 200 million holiday packages being delivered.

MATHISEN: A hundred ninety-nine million are coming to my house or Sue’s, Max.

HERERA: Or mine, yes.

MATHISEN: Quick thought on cyber security. Practically every day, we hear about some breach, somewhere. It could be Yahoo. It could be the Democratic National Committee.

WOLFF: Yes. But I think unfortunately as our lives move online, so do some of the least nice things about our lives, which is the fact that people want our information to steal from us, do things we don’t like. It’s moving online.

Things like, you know, I think FireEye, Palo Alto networks. Cyber security is a huge story in the headlines in those portfolios and outperforming in 2017.

MATHISEN: Max, thanks so much. Have a great holiday season.

WOLFF: You too.

MATHISEN: Max Wolff, 55 Capital.

HERERA: Coming up, the message one farmer has for the president-elect.

(BEGIN VIDEO CLIP)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I’m Jane Wells in Cowley, Wyoming. They’re having a cow because of falling commodity prices and concerns the incoming president may trigger some sort of trade war. As one told me, quote, “Trump owes us.” That’s coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: Auto safety regulators will delay hiking fuel economy fines until 2018. Two major automaker industry groups have been urging lawmakers to reconsider plans to more than double penalties for failing to meet those requirements. The National Highway Traffic Safety Administration said automakers are on their way towards producing vehicles that will comply with the miles per gallon mandate.

MATHISEN: Farmers came out in droves to support Donald Trump on Election Day, but the industry is going through a rough patch. And some of those same people now have a message for the president-elect: You owe us.

Jane Wells is in Cowley, Wyoming.

(BEGIN VIDEOTAPE)

WELLS: There’s no doubt 20,000 hysteria down on the farm. Prices here have fallen off a cliff.

BRETT CROSBY, WYOMING RANCHER: Anybody that is watching this would do me a great favor if they go out and buy a steak.

WELLS: Brett Crosby runs a Wyoming cattle operation of about 1,000 heads. This year, he will lose money. In fact, just about everyone in farming will not make a profit, because of a global glut of grains, beef and pork. But exports helped staunch the Bleeding.

CROSBY: There is a lot of stuff that comes from a cow or a steer that’s butchered that we don’t eat in America.

WELLS: Crosby says exports add on average $200 to every animal. Much of agriculture fears the incoming president, though, may trigger a trade war, ag is one industry that usually has a trade surplus, and much of rural America does not want that trade messed with. Not even with NAFTA.

CROSBY: If we can focus on deregulation and not protectionism, then we are in a good position.

WELLS: But there’s another issue for agriculture and many other industries about a Trump economy — the impact of a strong dollar.

CROSBY: The strong dollar actually has hurt our exports. And that is a concern.

WELLS: They’re all watching to see who will be Donald Trump’s agriculture secretary. A decision the incoming president has not yet made. Will that new secretary want to cut price supports? Will the new administration cut mandatory levels of ethanol use?

One large corn producer said, quote, “the farm states put Trump over the top. You could say Trump owes us.”

For NIGHTLY BUSINESS REPORT, Jane Wells, Cowley, Wyoming.

(END VIDEOTAPE)

MATHISEN: Beautiful country out there. To read more about what farmers would like the incoming administration to do, head to our website, NBR.com.

HERERA: And before we go, here’s a look at where the markets stand. The Dow Jones Industrial Average fell 32 points today to 19,941. The NASDAQ was off 12, and the S&P 500 dropped 5.

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

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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