Transcript: Nightly Business Report – December 22, 2016

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

Funded in part by HSS.


is picking up. But most Wall Street forecasters don`t see the economic
boom that the president-elect and his team expect.

U.S. forge a new economic relationship with China, one of its most
important trade partners?

MATHISEN: Modern medicine. Predicting the next epidemic is no easy task.
But the medical community is working together and making advances like
never before.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
December 22nd.

HERERA: Good evening, everyone, and welcome.

The economy is feeling the holiday cheer. Economic growth defied forecasts
for the third quarter, coming in stronger than previously thought. The
gross domestic product, the broadest measure of goods and services produced
in the country, grew 3.5 percent from July to September. That is the best
quarter of growth in two years.

But despite the strong report, the overall reading for 2016 is not expected
to impress. In fact, the Federal Reserve sees the economy growing about 2
percent for years to come. And many Wall Street economists tend to agree.

But the president-elect has a different view. Steve Liesman takes a look
at the diverging outlooks.


Donald Trump introduced his economic plan, he boasted this:

DONALD TRUMP (R), PRESIDENT-ELECT: We`re bringing GDP from really 1
percent, which it is now, but we`re bringing it up from 1 percent to 4
percent and I actually think you can go higher than 4 percent. I think you
can go to 5 percent or 6 percent.

LIESMAN: Wall Street economists, having plugged those plans into their
models, aren`t nearly so optimistic. They don`t see 6 percent, 5 percent,
or 4 percent growth. They don`t even see 3 percent.

The average of 13 economists polled by CNBC sees gross domestic product
coming in at 1.7 percent this year, rising to 2.3 percent in 2017, and then
just 2.5 percent in 2018. So, there are some gains but not nearly as much
as the president-elect estimates, at least not in the first couple of

Some economists say they don`t have enough info to make a detailed forecast
or that the programs won`t have the size or the bang that Trump expects.

DREW MATUS, UBS: Tax and spending only. We had added to growth about 20
basis points per year. So, if you — if you take some fraction of that in
any given year, even if you take the whole thing, in our opinion, it
doesn`t — it doesn`t add up to a whole lot. We can revisit the number if
the plans turn out differently than what were projected.

LIESMAN: Virtually, all economists point out that there are positives and
negatives or red light/green light aspects to Trump`s policies. The
positives include infrastructure spending, deregulation, and business tax
cuts. But economists worry about higher inflation, higher deficits, and
even a stronger dollar.

The big negative, Trump`s trade policies are forecast to subtract from

Trump adviser Kellyanne Conway said, don`t sell Trump short on his economic

against Donald Trump, they`re quickly and sorely disappointed. And I
think, economically, that`s true as well.

LIESMAN: But this is more than a contest between the president-elect and
economists. It`s more between the optimistic stock market and the less
upbeat view of the economists. If economists have it right, then the
market could be baking in more growth than Trump`s policies can deliver.



MATHISEN: Since the election, the Dow has climbed more than 9 percent on
expectations of reduced regulations, tax cuts, fiscal stimulus. But is
Wall Street not fully understanding the Trump team?

Eamon Javers is in Washington.

And, Eamon, is it possible Wall Street is not understanding the incoming
administration? And if so, how?


Well, I talked to somebody this week who is very familiar with the Trump
administration who said that it doesn`t necessarily think that Wall Street
understands what Trump is doing. They`re sort of operating under the
assumption that this will be a lot like Republican administrations that
we`ve seen in the past.

That`s not necessarily the case. This person is saying, bowing at the
altar of free markets is out. That is Republicans in the past have
defended companies and executives in the C-suite, have done things like
offshoring jobs, tax inversions and the like. That will not necessarily
fly in a Trump administration, this person said.

He said very much, this is not going to be a traditional Republican
government. And citing Trump`s ability to go after and tweet after
specific individual — CEO`s of specific individual companies.

And, Tyler, I should tell you, we got another example of that just this
evening from Donald Trump who tweeted out, “Based on the tremendous cost
and overruns of the Lockheed Martin (NYSE:LMT) F-35, I have asked Boeing
(NYSE:BA) to price out a comparable F-18 Super Hornet.”

So, there you see Donald Trump pitting Boeing (NYSE:BA) and Lockheed Martin
(NYSE:LMT) against each other in these years-long defense projects. That`s
not something we`ve seen before in a president-elect or president of the
United States.

HERERA: Right, it certainly isn`t. Can we, from the statements that we`ve
heard not only from the president-elect but from the person you talked to
earlier, is it possible to start figuring out who the corporate winners and
losers might be in this new administration?

JAVERS: Sure. This person said that the people who are going to big
losers are crony capitalists. He said, if you go to sleep at night and
think you might be a crony capitalist, then you probably are, and you
better not sleep very well under the Trump administration.

So, figure out what crony capitalist means in Donald Trump`s view, and then
you might have a sense of who the winners and losers are.

MATHISEN: All right. Eamon, thank you very much. Eamon Javers in

JAVERS: You bet.

HERERA: The strong report on economic growth didn`t help the stock market
much. The Dow retreated further from the 20,000 level, and suffered its
first back-to-back loss in six weeks. The blue chip index dropped 23
points to 19,918. NASDAQ was off 24 and S&P 500 fell four.

MATHISEN: China`s foreign ministry says Beijing will monitor the policy
positions of the incoming Trump administration, saying, as two major powers
with broad mutual interest, cooperation is the only correct choice.

The statement comes as Donald Trump appoints Peter Navarro, a long time
China critic, to run a new trade policy office in the next White House.

And in a recent interview on CNBC, Navarro talked about trade with China.


has said is that we are going to use tariffs as a negotiating tool, not an
end game, as a negotiating tool, to force countries like China, half of our
trade deficit, he`s called them the biggest cheater, he`s right, to force
these trading partners to stop their currency manipulation and illegal
subsidies, to stop the intellectual property theft that takes $300 billion
out of our economy.


HERERA: As we reported yesterday, Donald Trump also named billionaire
investor Carl Icahn a special adviser. In an interview today, Icahn
highlighted a trade war with China as a potential risk to the market.


CARL ICAHN, ICAHN ENTERPRISES CHAIRMAN: Obviously, if you get into a trade
war with China, sooner or later, I think we`re going to have to come to
grips with that. Maybe it`s better to do it sooner. But that`s not my
decision at all.


HERERA: Donald Trump has threatened to impose a tax on Chinese goods and
label Beijing a currency manipulator.

MATHISEN: Our next guest says a trade war with China and perhaps more is
coming in a phrase, he says, buckle up. Scott Kennedy is director of the
project on Chinese business and political economy at the Center for
Strategic and International Studies in Washington.

Mr. Kennedy, welcome. Good to have you here.

When you say a trade war with China and perhaps more is coming, what does
the “perhaps more” you refer to?

certainly seeing, since the election, Donald Trump being willing to push
China`s buttons on a whole variety of issues, not just on trade issues,
that were the topic of the campaign. We`ve seen him push on Taiwan, on the
South China Sea. He`s talked about North Korea. There are certainly other
areas which he could push. And he certainly is allowing economic and
security issues to mingle in a way that we haven`t before.

So, it doesn`t look like we`re just gearing up for a traditional tete-a-
tete on specific economic issues, but of broader conflict.

HERERA: It also goes to the team that he put together, does it not? It`s
a hard line team. I mean, Mr. Navarro has had some very strong words about
China. So, it`s not just the president-elect but it`s those who are within
his cabinet and advising him.

KENNEDY: Sure. Sure. I think if you, you know, have a chance, any
professor would love folks to go out and buy their books, and now there`s a
good reason to buy what he`s written. But if you, for Navarro, China is
not a problem. It`s the problem that the United States and the global
economy faces and needs to be tackled front and center.

I think everybody has been frustrated with China the last several years,
and thinks that more action is required. It just looks like, you know,
Donald Trump is amassing not only the team, which includes Navarro, but the
weapons to push China on many fronts all at the same time.

MATHISEN: Is Mr. Trump right? Do the Chinese cheat? If they do cheat,
why shouldn`t we push back?

KENNEDY: Sure. I think it`s definitely true that if you look at, you
know, subsidies, other types of Chinese industrial policies, lack of market
access — yes, there`s ways that the Chinese are not meeting their
commitments they made to the U.S. and the WTO. The question is, what`s the
best response?

Certainly, strategic patience, which the Obama administration has applied,
hasn`t worked quickly enough. But do you go to the other extreme which
Trump seems to be suggesting, sort of an all-out trade war, all or nothing?
Or do you try and be more careful, prioritize what you want to achieve, and
aim for some middle ground?

MATHISEN: All right. Scott, we have to leave it there. I`m sure it`s
going to be an ongoing conversation. We hope you`ll join us again, Scott
Kennedy with the Center for Strategic and International Studies.

HERERA: In a tweet this morning, Donald Trump called for more nuclear
weapons. He said, quote, “The United States must greatly strengthen and
expand its nuclear capability until such time as the world comes to its
senses regarding nukes,” end quote.

Upgrading the country`s nuclear arsenal would be a costly proposal,
involving more spending on defense. And that`s a sector that, as you
probably know, he has paid particular attention to recently.

And as Morgan Brennan reports, for investors, nukes carry a lot of not so
obvious risks.


defense against Twitter? That`s what investors are trying to sort out,
when it comes to defense.

Take Lockheed Martin (NYSE:LMT), which has fallen 2 percent since
President-elect Trump tweeted about the F-35 Joint Strike Fighter
Program`s, quote, “out of control costs.” On the heels of meeting with
Trump yesterday, CEO Marillyn Hewson said the two discussed Lockheed`s
progress to already bring the price tag down with, quote, “continued
commitment to delivering an affordable aircraft for U.S. military and

It`s a similar story for Boeing (NYSE:BA), which also met with Trump about
the costs of replacing Air Force One after it, too, was the subject of a
tweet. Boeing`s stock has recently fared better than Lockheed`s. But
experts say these events could signal a shift in how the new administration
plans to do business.

and Boeing (NYSE:BA) have many, many, many defense contracts. Some of them
are coming in the future. And that gives a president or someone of his
ability the ability to negotiate things. You want some changes here.
Then, you`re going to have to give us, you know, something going forward.
So, there`s always negotiating room.

BRENNAN: And future defense business will be key. Defense spending is
expected to increase both here and abroad. Trump has vowed to rebuild the
U.S. military, but analysts say it`s also cyclical, since it trends in 20-
year cycles.

That`s helped propel defense stocks, with the S&P air and space industry
defense index soaring 22 percent this year and 10 percent just since the
election. Even factoring in the 140-character risk, many analysts insist
the sector is still a buy.

RW Baird`s Peter Armen (ph) has out-performed on many of the stocks he
covers, including on Lockheed and Boeing (NYSE:BA).

And Buckingham Research`s Richard Safran likes Lockheed, the General
Dynamics (NYSE:GD), L3, and Raytheon (NYSE:RTN), which could also benefit
from international spending.

Another area in focus: America`s nuclear arsenal. As Trump tweets about
the need to, quote, “strengthen and expand” the country`s capability, which
the Pentagon is already moving to modernize.

That could benefit General Dynamics (NYSE:GD), Northrop Grumman (NYSE:NOC),
Raytheon (NYSE:RTN) and many more.



MATHISEN: Still ahead, not all dividend stocks are created equal. Why you
have to be even more selective when looking for stocks that pay you back.


HERERA: Yam Brands is declaring a quarterly dividend of 30 cents a share,
its first dividend since Yum split off its China business last month. That
represents a 1.9 percent yield. Shares of Yum are up 20 percent so far
this year.

And dividend stocks have rallied this year, thanks to low interest rates.
They were more attractive than bonds, certainly. But with the Fed expected
to raise rates next year, and Donald Trump`s massive infrastructure
spending plan, does it mean you need to be more selective with dividend

Hugh Johnson, chairman of his own asset management firm, Hugh Johnson
Advisors, joins us now to talk about that.

Good to see you, Hugh. Happy holidays.

you. Happy holidays, Sue, Tyler.

HERERA: So, you say there are dividend stocks and then there are dividend
stocks, and you have to be selective and aware of the components of those
particular stocks. Tell us a little bit more about that.

JOHNSON: Yes. Well, what I`m saying is, you know, there`s stocks in
certain sectors of the market that pay very high, and attractive dividends.
That would include companies in the telecommunications, utilities, consumer
staples, sectors of the market. They`re very high and very attractive.

And they will work. Those dividends will work and those sectors will work
if we`re headed towards an economic recession accompanied by a bear market.
But that`s not what we`re in. And that`s not where we`re headed.

So, we`re headed towards let`s call it a positive economic environment,
which means you might want, instead of choosing companies that offer high
dividends, to get companies that offer lower dividends but will grow those
dividends. And that comes from different sectors.

Right now, with Trump coming on board, that might include the financials,
the industrials, and the technologies companies, which will benefit from
the plans that Trump has. So, high dividends don`t work in this
environment. Lower dividends, where dividends will be increased, work.
And that`s where you should focus your attention.

MATHISEN: You mentioned J.P. Morgan, General Electric (NYSE:GE), United
Technologies (NYSE:UTX), even Microsoft (NASDAQ:MSFT) in these categories.
These can be growth plays as well as dividend plays.

JOHNSON: That`s exactly what I`m saying, Tyler. I`m saying companies —
those are all companies that are going to benefit from let`s call it the
Trump bump or the Trump plan, which means if you take financials, for
example, and start to dismantle Dodd/Frank, or you have rising inflation
rates, a steepening yield curve, that`s going to help banks make a lot more
money from their commercial lending portfolios. So, they`re going to
benefit from Trump.

You know, General Electric (NYSE:GE), United Technologies (NYSE:UTX),
that`s aerospace, that`s infrastructure. When you look at Microsoft
(NASDAQ:MSFT), Cisco (NASDAQ:CSCO), even Apple (NASDAQ:AAPL), they`re going
to benefit in different ways from an unexpanding economic environment.

So, not only are they going to pay attractive dividends, they`re going to
increase those dividends over time. That`s what you want in this kind of
an environment.

HERERA: All right. To turn you now to the overall market, we`ve had quite
a rally, post-election rally, Hugh. How does the market look to you at
this juncture?

JOHNSON: Yes, we`ve had a big move, sue, on the upside. And you know
that, and your common sense alone, as well as my number crunching, says we
moved to a level that`s pricier or overvalued. We`re about 3.5 percent
overvalued, as I do the numbers. That means it`s not particular
attractive, the upside potential is not particular attractive. It`s not
that enticing, when I look at where we`re going through 2017.


JOHNSON: So, under those conditions, dividends will count. But again, the
kind of dividends you pick, the kind of companies that pay the right kind
of dividends, lower dividends, growing those dividends, is where you want
to be.

HERERA: Thanks, Hugh. Appreciate it.

JOHNSON: You bet. You bet.

HERERA: Hugh Johnson with Hugh Johnson Advisers.

MATHISEN: Fewer customer discounts translated to fewer sales at Conagra
Brands. And that`s where we begin tonight`s “Market Focus”.

The maker of Slim Jim snacks and Peter Pan Peanut Butter missed revenue
estimates but did manage to post better than expected profit. The company
plans now to invest in new ingredients for its products. Don`t change
those Slim Jims! And advertising for some older brands. Shares rose more
than 3 percent to $39.29.

Rite Aid (NYSE:RAD) saw both profits rise and fall in its latest quarter.
The drug store chain attributed the downbeat results to headwinds facing
its pharmacy unit, as well as a difficult operating environment created by
its pending merger with Walgreen`s. Rite Aid (NYSE:RAD) shares off
fractionally $8.44, the close.

HERERA: Weightwatchers plans to launch a new ad campaign highlighting
Oprah Winfrey`s 40-pound weight loss while on the company`s diet plan.
Winfrey has a stake in the company and she also sits on the board. Shares
were up 5 percent to $11.08.

The U.S. government put Alibaba on its blacklist of marketplaces for
counterfeit goods. The company rejects those allegations. Alibaba is
China`s largest e-commerce company. Alibaba shares fell more than 2.5
percent to $86.80.

MATHISEN: From Zika to Ebola, predicting the next epidemic can be a lot
like finding a needle in a haystack. But the medical community is making
advances at a faster pace than ever before.

Meg Tirrell has tonight`s “Modern Medicine” report.


infectious diseases have dominated the headlines in recent years, for good

DR. ANTHONY FAUCI, NIAID DIRECTOR: If you just look at, let`s say, from
2013, which is only three years from `13 to `16, we`ve had chikungunya in
the Caribbean, we`ve had Ebola in West Africa, and now, we have Zika in the
Americas. We`ve seen emerging infectious diseases forever. We have them
now, we always will have them. But to have a cluster like that is a bit

TIRRELL: In the last decade in half, the world has coped with SARS, H1N1
influenza or swine flu, Middle East respiratory syndrome, chikungunya,
Ebola, now Zika. Public health researchers say it`s a certainty there will
be another.

TREVOR MUNDEL, CEPI BOARD MEMBER: As much as we were unprepared that Ebola
was going to explode as it did, that Zika was going to come along so
suddenly, presumably, the next pathogen could be something we haven`t

TIRRELL: So, how can we be better prepared? It`s a question global health
authorities have been asking since Ebola erupted in West Africa, ultimately
killing more than 11,000 people.

MUNDEL: We coordinated a lot during the Ebola epidemic. And we had a
joint experience of really the tragedy that occurred in West Africa, and
our frustration that we couldn`t do more to intervene.

TIRRELL: At the same time, pharmaceutical companies, governments, and
nonprofits were working together to produce experimental vaccines and
therapeutics at a faster pace than ever before.

MONCEF SLAOUI, GSK CHAIRMAN OF VACCINES: We were able to do in seven
months go from primate studies to phase III trials in thousands of
individuals in Liberia. Normally, that takes between five and ten years.

TIRRELL: Trials for Zika vaccines are moving at an equally fast clip. But
in both cases, the work begun after the threat emerged.

SLAOUI: The only way to be prepared and ready is to make vaccine against
agents that we now exist, that we know have the potential to be outbreak
agents like Ebola. And they`re waiting and that will happen at some
moment. Let`s make vaccines against them during a peacetime, if you wish.

TIRRELL: It`s a problem no single company, foundation, or government
agency can solve alone. There are simply too many potential threats and
too few resources in one place. So, CEPI was formed, the Coalition for
Epidemic Preparedness Innovation.

Well, CEPI is a novel partnership between public and private sector
entities that`s really focused on preparing for potential future epidemic
threats, and doing it in a way that really is fundamentally different from
previous opportunities where the mode has been far more reactive rather
than proactive.

TIRRELL: It has two main goals: start work now on identified future
potential threats and develop new vaccine technologies to be able to
respond quickly to unknown threats.

MUNDEL: What we would like to see in about five years is that we would
have two or three of the key pathogens from the World Health Organization
list of serious threats, where we have now a vaccine which can be
stockpiled. And we`d like to have let`s say two new platforms that they
are produced on.

TIRRELL: The National Institute of Allergy and Infectious Diseases` Dr.
Anthony Fauci says these kinds of efforts are vital to protect the world
from whatever comes next.

FAUCI: We will continue to see outbreaks as the years go by. They`re
unpredictable in their frequency. We don`t know if it`s going to happen
next month, next year, or a few years from now. But, inevitably, it will
happen. And that`s the reason why we need to be better prepared.



HERERA: Coming up, it`s getting late. A procrastinator`s guide to last-
minute shopping.


MATHISEN: This will sound familiar. It`s December 22nd. You`re still
short a few holiday gifts. Panic starts to set in.

Did you write this for me, Sue?


MATHISEN: It`s a familiar feeling.

But as retailers tried to increase shipping speeds, for some, it may not be
too late to have those presents delivered after all.

Courtney Reagan with the happy news.


retailers are working on getting you online orders faster, same day service
isn`t much of a reality yet, even though many are using modern day couriers
for that last mile delivery for online orders and shipping from their

So, we decided to see how it works.

So, we got some last-minute shopping to do to fulfill the items on our
office charity wish list. So, we`re going to use some same day delivery
options in New York City. But we`re looking for pretty generic items, like
cookware, women`s socks, diapers, tools. Shouldn`t be that hard, right?

We started with traditional retailers, including Target (NYSE:TGT) and
Macy`s, looking for same day deliberation options. And while same day
pickup was available, neither could deliver us the specific item we wanted
the same day.

So, we turned to Amazon (NASDAQ:AMZN). Amazon`s Prime Now program offers
two-hour delivery for about 25,000 items. That is if you`re willing to pay
the $99 annual prime membership fee and live in one of the 30 cities where
it`s available like here in New York City.

The selection is more limited than the full site. But I was able to get
almost everything, from cookware to tools. I needed two bottles of men`s
cologne but was only able to get one. I placed the order just before 2:00
p.m. and waited with a camera at the Prime Now facility to catch the order
being fulfilled at the facility, which happened in eight minutes.

The earliest delivery window was between 4:00 to 6:00 p.m. So, while I
wrapped other gifts, the delivery person left the facility at 2:45 p.m. and
jumped on the subway with our items in a big orange backpack. He got to me
around 3:10 p.m., 50 minutes earlier than the window and just about 90
minutes after I ordered. He scanned the items and off he went.

Cowan and Company Analyst John Blackledge estimates there are 5 million
Prime members using Prime Now three times a month on average, with 30 Prime
now cities covering 50 percent of U.S. GDP. Blackledge estimates each
delivery costs Amazon (NASDAQ:AMZN) about $9. It`s worth it, he says,
because Amazon (NASDAQ:AMZN) is the only major retailer to have figured it
out so far. And it may just be saving Christmas for many too.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New York City.


HERERA: There`s hope.

MATHISEN: There`s hope, that`s pretty good.

HERERA: It is pretty good.


HERERA: That will do it for us tonight. I`m Sue Herera. Thanks for
joining us.

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


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