Transcript: Nightly Business Report – December 26, 2016

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

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welcome to this special holiday edition of NIGHTLY BUSINESS REPORT.

I`m Sue Herera. Tyler Mathisen is off tonight.

2016 is almost in the books, and what a year it was. Conventional wisdom
was turned on its head, both politically and economically. Even the stock
market was turned upside down and inside out. It was the worst start to a
year ever, only to end up with a string of record highs, and that wasn`t

Here`s your “2016 Year in Review.”


HERERA: Naughty or nice, it was mid-December by the time we got the year`s
first and only interest rate hike.

continue to perform well.

HERERA: But will it? 2016 quickly became the year to expect the

DONALD TRUMP (R), PRESIDENT-ELECT: We`re going to win Florida.

HERERA: Oil prices hitting 13-year lows in February, below $27 a barrel.
Recession fears flying, the stock market tanking. But almost as quickly as
they dropped, stocks turned sharply upwards in February. Go figure.

A Brexit vote, terror attacks — nothing kept stocks down for long.
Perhaps the biggest shadow cast on election night in the United States.

UNIDENTIFIED FEMALE: Here are the raw numbers for you. Implied open lower
of 776 points on the Dow.

HERERA: Not a day later, surprise! A rally. New highs almost daily for
weeks. And there were more surprises. Apple (NASDAQ:AAPL) fighting a
court order to help the FBI unearth data inside a locked iPhone belonging
to one of the San Bernardino terror suspects.

The move set off a global debate — privacy advocates versus law
enforcement. Samsung discontinuing sales of its Galaxy Note 7 when
batteries overheated, some catching fire, others exploding. Samsung`s
estimated losses? $17 billion.

Among the headline-making mergers announced but not yet completed, AT&T`s
deal to buy Time Warner (NYSE:TWX) for more than $85 billion, Bayer buying
Monsanto (NYSE:MON) for about $66 billion, and British American Tobacco
buying RJ Reynolds for about $47 billion.

And it`s not only politicians failing when it comes to gaining the public`s
trust. Volkswagen paying out more than $15 billion, the largest auto
settlement ever made to U.S. consumers to settle actions died to its
emissions deception case.

Politicians, though, turned the heat on drug companies like Mylan
(NASDAQ:MYL), asking how the cost of its EpiPen could jump more than 500
percent. And banks just keep on misbehaving. Wells Fargo (NYSE:WFC), for
instance, opening more than 2 million bank and credit card accounts without
customer approval.

SEN. ELIZABETH WARREN (D), MASSACHUSETTS: You went on television to blame
thousands of $12-an-hour employees who were just trying meet cross-sell
quotas that made you rich. You should resign. You should give back the
money that you took while this scam was going on, and you should be
criminally investigated.

HERERA: CEO John Stumpf is gone, Wells Fargo (NYSE:WFC) fined more than a
dozen times in recent years. Total cost, more than $10 billion.

Other CEOs are moving on next year under better circumstances — Mukhtar
Kent at Coca-Cola (NYSE:KO), Howard Schultz at Starbucks (NASDAQ:SBUX), and
Rex Tillerson at ExxonMobil (NYSE:XOM), who will soon be telling Congress
why he should be the next U.S. secretary of state.

YELLEN: We are operating under a cloud of uncertainty at the moment.

HERERA: Cloudy because the road ahead is marked by divergent paths. The
U.S. is raising interest rates while the rest of the world is not. U.S.
unemployment stands at a multiyear low, but participation rates are still
down, too. High-tech, artificial intelligence, robots and driverless cars
increase efficiency but stand ready to claim more jobs.

Wage growth is a little better. U.S. consumers appear to be buying. But
if 2016 tells us nothing else, it`s not to take anything for granted.


HERERA: And indeed, this year was anything but conventional for investors.

Mike Santoli was tracking the ups and downs for us. We`re going to walk
through some of the market`s biggest trends and events.

Good to see you, Mike, as always.


HERERA: All right. First, the worst start to the year ever. I still
remember that, thinking, whoa, this is going to be a rough one. What
triggered the decline?

SANTOLI: You know, it was really several hostile trends coming together at
the beginning of the year. Oil prices were collapsing, as you mentioned
there, going below $30 a barrel, really to levels nobody saw, and it
happened in a hurry. That destabilized lots of other markets, for example
the market for corporate bonds was also carried down by that.

At the same time, there was a fear of a steep Chinese economic slowdown and
global industrial production was coming down at a fast pace. So,
essentially, all these things were suggesting to investors that the risks
of a recession here and across the world were really rising at a time when
we actually thought the economy was going to be on decent footing.

So, all of that did feed on itself for a couple months until we got
stability and interest rates got to an extremely low level as well, to
where it seemed as if you could find some sort of a bottom, and oil prices
led the way out.

HERERA: Then came the Brexit vote, which was unexpected. Donald Trump`s
White House win as well. Unconventional year, certainly.

Did anybody expect all of the new highs that we`ve been seeing recently as
a result?

SANTOLI: No. In fact, I don`t think you could find many people who either
predicted those outcomes of those votes and the market reaction.
Certainly, they went right against conventional wisdom in terms of how the
markets would absorb the votes of the British voting to leave the E.U.
There was a lot of buildup, though, of anxiety ahead of that vote and
similarly ahead of the U.S. election. You actually saw the markets kind of
take a step back and a lot of people essentially trying to stay on the
sidelines to see how it worked out.

And it seems as if they almost took too much caution heading into those
votes. And then, of course, you had this sense that rates were going to
stay low and it seemed as if the U.S. economy was still plugging along,
even at a slower pace, under 2 percent. It still was in growth mode.

HERERA: Yes, you mentioned interest rates. The bond market, especially in
the latter part of this year, had some huge moves. The yields dipped
first, and then they turned right around and rose. So, you know, the
whipsaw that we saw in yields, how unusual or how much of a surprise was

SANTOLI: Quite a surprise to get down on the ten-year treasury note, for
example, below 1.4 percent in July, and then really turned around right
from there is interesting because that dynamic of rates going down so much
were supportive to stocks on the way in the first half of the year because
people said, wow, it looks like I can buy stocks from decent dividends if
the interest rates would be that low. But then the comeback. Now, People
are perhaps talking about the 35-year bull market in bonds perhaps ended
over the summer and you do have some momentum to interest rates right now.
Unclear exactly how much higher you go.

In fact from a 12-month basis, if you really look back to December of last
year, the ten-year note is not up that much in yields. So, rates haven`t
gone up that much, but it was a dramatic, V-shaped move along the way.

HERERA: Yes, it sure was. Part of the merger boom that we saw — there
were a lot of big ones announced — was part of that the interest rate
scenario or were there others?

SANTOLI: Definitely a part of it. Basically, the market for corporate
debt — again, I mentioned it had a bit of a panic at the beginning of the
year — it came back very strongly. So companies were continually able to
borrow at very advantageous rates, stock prices recovered and I think CEO
confidence did come back as well as the markets were resilient.

Also, you have a bunch of industries, media, technology, energy, where they
were undergoing a lot of very fundamental changes, and you had companies
that were looking to kind of either, you know, acquire in order to grow or
to find a new home, and I think a lot of those dynamics were playing out
over the course of the entire year.

HERERA: All right, we`ll see what 2017 looks like. I know you`ll be there
with us, Mike. Thanks for joining us.

SANTOLI: Sure, Sue, thanks.

HERERA: Mike Santoli.

Well, 2016 may also be remembered for a surge in populism. For various
economic reasons, voters decided it was time to give antiestablishment
outsiders a chance to govern. We saw it with Donald Trump`s election

But as Michelle Caruso-Cabrera reports, it started across the Atlantic in
Great Britain.


the year of revolt. Woke a sleepy world elite to the fact that they, the
ruling class, are in trouble.

Brexit and Donald Trump.

Citizens (NYSE:CIA) of the U.K. angry that bureaucrats in a faraway
capital, Brussels, have so much sway over U.K. laws.

UNIDENTIFIED MALE: I don`t want to see England become under Brussels` rule
and regulations, because that is what will happen.

CARUSO-CABRERA: It`s happening now, isn`t it?

UNIDENTIFIED MALE: Well, yes, that`s why we want out, so we can become
Great Britain again.

CARUSO-CABRERA: Angry, too, that cheaper labor from other countries
allowed by the E.U.`s open border policy makes it harder for local, low-
skilled workers to get jobs. Those same open borders, they worry, make
them less safe after terrorist attacks in Paris and Brussels.

So, in June, the United Kingdom`s referendum on membership in the European
Union led to the unexpected decision that the U.K. will leave the E.U. Not
even those who wanted it to happen thought they were going to win, but they
did, leading to the downfall of a government and the realization that the
euro may not survive.

NIGEL FARAGE, UKIP LEADER: There are 17 million people that voted for
Brexit. It`s a victory for ordinary people, decent people. It`s a victory
against the big merchant banks, against the big businesses and against big

CARUSO-CABRERA: There are now three major elections in Europe in 2017 —
in France, Germany and Italy — and two of them pose direct threats to the
survival of the currency.

In France, Marine Le Pen, one of the top contenders to win the election,
and she wants France to abandon the euro and bring back the franc.

In Italy, where support for the euro is barely above 50 percent, a
political movement led by a comedian could come to power, leading to the
rebirth of the Italian lira. Political pundits thought they never had a
chance to win, but then along came —


TRUMP: We will make America strong again. We will make America rich
again. We will make America safe again, and we will make America great

CARUSO-CABRERA: Looking toward 2017, there is so little that is certain,
except, perhaps, for this — there are no sacred cows left in the world,
and all we assume to be true may not be.

For NIGHTLY BUSINESS REPORT, I`m Michelle Caruso-Cabrera.


HERERA: So, here in the U.S., voters had their own economic concerns,
though the statistics show the labor market is improving, there are large
parts of the country that are not feeling the benefits.

Joining us now to discuss this is Noah Bierman, who covers politics for the
“Los Angeles Times.”

Welcome back, Noah. Nice to see you again.


HERERA: You know, as you look back at 2016, an amazing year, certainly,
but politically one that we really have not seen in our lifetime.

BIERMAN: No, no. I think, you know, even most of Trump`s voters were
really surprised by what happened. Certainly people who were working for
Trump`s candidacy were very surprised what`s happened. Although in
retrospect, a lot of the clues were right there in front of us.

HERERA: Yes, you mentioned that there was at one point in the campaign,
and you covered it so closely for the entire cycle, where you realized that
Donald Trump was “the real thing.” When was that?

BIERMAN: It was actually back in 2015, not that I was — had any
premonition that he would win, but I was actually covering the initial
campaign swing that Governor Scott Walker of Wisconsin was making in South
Carolina to show that he had national standing. And he was really one of
the establishment heavyweights of the race. And I was at one of his events
at a Harley-Davidson (NYSE:HOG) dealership early in the morning. People
were lined up to see him.

And I wanted to ask them what they thought of this huge Republican field.
And I was just surprised how many people without any prompting mentioned
Donald Trump. He was speaking to them. They knew he wasn`t being taken
seriously by some of the other candidates and the media, but to them, he
was saying something important.

And I came back just thinking, you know, Trump is a real thing. At that
point, most people weren`t regarding him as such, including most of the
other campaigns.

HERERA: What do you think that the primary motivator was for his momentum?
I mean, it seems to me, and we`ve talked about this before when we had you
on the program, it`s a sense of the lack of fairness in the system and the
lack of willingness to fix that by the establishment.

BIERMAN: I think that`s right. I think it`s also an overall lack of
security, and you can put so many things into that category because it`s
economic security, for sure, but it`s also an insecurity with immigration,
changes in demographics, seeing terrorism happened here and abroad, and
people just said, you know, those who voted for him, it`s just time to take
a shot, take a chance here that maybe there`s a better way, maybe the
system is not working for us.

And a lot of those people felt that traditional politicians had just been
in too long — not to say that a lot of these factors weren`t there before
Trump, but Trump was this unique figure who could really capitalize on all

HERERA: Yes, he was a catalyst, if you will. So, as you look into 2017,
the new administration will shortly, you know, be in place. What are your
expectations having covered the campaign and Mr. Trump so closely?

BIERMAN: Well, I`ll say the first one having covered it, that my
expectations are I`ll be completely surprised, as will all of us, right?
We can`t — those in the prediction business might have had one of the
worst years ever in 2016. But I do think that it`s going to be very
interesting, because a lot of the people who voted for Trump aren`t
necessarily on board with all of the policies he talked about, and we`re
not sure if Trump is on board with all of those policies.

HERERA: Right.

BIERMAN: Yet, he had appointed a cabinet, especially on the domestic
front, that is a very strongly right cabinet that believes in a lot of
things that actually Trump didn`t talk about or he expressed a different
opinion than they have. So, the push and pull between the agencies that
control the actual government and Donald Trump, who will have the final
say, I think is going to be a huge story in the coming year.

And we`re really going to see early, you know, how much of an imprint will
be Trump`s and how much of an imprint will be some of these individual

HERERA: OK. Well, we will have you back to talk about that in the New
Year. Noah, thank you very much.

BIERMAN: Thanks very much.

HERERA: Noah Bierman with “The Los Angeles Times.”

And still ahead, a landmark year for housing, a sector that touches
millions of Americans.


HERERA: This year the Federal Reserve hiked interest rates for the first
time in a year, the economy grew at the best pace in two years and the
unemployment rate dropped to a nine-year low.

And as Steve Liesman reports, those are just some of the economic
milestones of 2016.


much optimism that Fed Vice Chair Stan Fischer felt confident enough to
predict as many as four rate hikes.

ballpark. You know, the reason we meet eight times a year is because
things happen.

LIESMAN: And stuff sure did happen. How the fed went from forecasting
those four rate hikes to doing just one is a story of a year that produced
several bouts of global fear and ended with a dollop of cheer.

Within days of Fischer`s comments, China would begin a meltdown that would
send shock waves around the globe and lead to concern about recession in
the United States. Growth would go flat, averaging just over 1 percent in
the first half. Unemployment got stuck at 4.9 percent, and job growth
downshifted from a brisk pace of 2015.

Another blow from abroad came from the unexpected Brexit vote, where the
British decided to leave the European Union, putting the Fed on hold yet

JACK LEW, U.S. TREASURY SECRETARY: There`s no question that this is an
additional headwind, but I think that, you know, it is something that we
can manage through, and Europe and the U.K. can manage through.

LIESMAN: And manage through it did. Markets ultimately recovered. Job
growth rebounded in the third quarter. And overall growth topped 3 percent
for the first time in two years.

But 2016 had one more surprise in store, the election of a president that
most predicted would mean economic doom but actually sparked a stock market
boom. With a year of near misses and would-be accidents in the rearview
mirror and markets buoyant with the chance of fiscal stimulus and tax cuts
to come, the Fed finally felt confident enough to hike.

Fed Chair Janet Yellen called it —

YELLEN: A reflection of the countenance we have in the progress the
economy has made and our judgment that that progress will continue and the
economy has proven to be remarkably resilient.

LIESMAN: Resilient enough, of course, for just one hike, not four. And
maybe the Fed is now taking the market`s advice. As 2017 begins, they
forecast on average only three hikes.



HERERA: And 2016 was a banner year for the housing market. Demand was
strong and mortgage rates sat near record lows. Two types of buyers were
behind the strength, but one barrier kept cropping up.

Diana Olick looks back on the year that was.


first big move from first-time millennial home buyers.

MELISSA CRUZ, FIRST TIME HOME BUYER: To me, once we got married, I just
wanted our own place, something to call our own.

OLICK: As well as downsizing baby boomers.

SHARON KAY BROWN, DOWN-SIZING BABY BOOMER: This is it, you know, this is
the last house you`re going to have. You`ve got to get what you want.

OLICK: The two largest generations and the two biggest drivers of 2016
home sales. The pace was the highest in a decade, although 1 million more
homes sold in 2006 than 2016.

definitely a factor, and I also think that rising prices. You know, real
estate became again a good deal, a good investment. You saw real returns.
You saw prices appreciate.

OLICK: The popular 30-year fixed mortgage rate sat below 4 percent for
much of the year, hovering near a record low, and only surged higher
following the presidential election. Home price gains, which had been
easing at the start of the year, revved up again over the summer, thanks to
very tight supply of homes for sale.

Older buyers, most of them already homeowners, saw much of their home
equity return, thanks to those rising prices. That allowed many to sell
and downsize into popular, new, active adult communities, like this one by
Tool Brothers outside of Denver.

JEFF BROWN, DOWN-SIZING BABY BOOMER: We`ve been able to save and invest
and all that stuff, so we have funds accumulated to get here.

RICHARDSON: This is a year where everything came together — buyer demand,
enough inventory, superstar cities, wage growth and technology, technology
that Fed listings to people`s watches and their cell phones and made it
really easy to make decisions on homes.

OLICK: The only ones not keeping up with all this housing heat were the
homebuilders. They`re still operating well below historical norms.
Without more new homes for sale and with rising mortgage rates, those
young, first-time buyers who came to the market this year may be sidelined
once again.

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


HERERA: Up next, what do you get when you mix one of the nation`s biggest
banks and fake accounts? Arguably the biggest corporate scandal of 2016.


HERERA: One of the biggest corporate scandals of the year had to be Wells
Fargo (NYSE:WFC). The company paying $185 million in fines to settle
allegations it opened millions of fake accounts for customers. That led to
some cities to suspend business with the bank for a year. That also led to
contentious congressional hearings, and ultimately, the CEO, John Stumpf
stepping down.

And just two weeks ago, Wells was accused of selling customers prudential
insurance products that they were unaware they were buying.

Dick Bove, financial analyst and vice president of equity research at
Rafferty Capital joins us now for a look back at Wells Fargo (NYSE:WFC).

Pleasure to have you with us, Dick. Welcome.


HERERA: You know, you were early on identifying Wells` problems, and you
know, it`s interesting because those problems are still with them. It`s
been basically a full year of damage control at that bank.

RAFFERTY: Well, what`s really fascinating about this story is that — and
I agree, by the way, with what Elizabeth Warren said. I think that what
the bank did was horrendous and they deserve to be punished for it.

But what is really fascinating is all of the negative things that I thought
would happen to Wells Fargo (NYSE:WFC) after, you know, this stuff was
revealed have happened. You know, the company can`t change its executives
without the government`s permission. It can`t make acquisitions. People
are not showing up at the branches. Their riskiness was downgraded by the
FSB. They need to raise more capital.

So, you know, all these bad things have happened, but the stock continues
to reach new highs. So, the market simply doesn`t believe that any of
these negatives will have any meaningful impact on the earnings of the
company or the secular growth rate going forward, which quite frankly I
don`t understand.

HERERA: Well, is it that, or is it that the financials overall, especially
at the end of 2016, have been the sector to be in, above almost any other?
Is it just going along for the ride with the rest of the financial stocks
that have rallied so dramatically?

BOVE: Yes, no, I think you`re very correct in that. I think that,
basically, people said, “You know, now is the time to buy bank stocks.
I`ve got to buy bank stocks. I`m going to buy bank stocks. What bank
stock should I buy?”

And then, of course, because Wells Fargo (NYSE:WFC) historically has been
the favorite of institutional investors, they say, “I`m going to buy Wells
Fargo (NYSE:WFC).” And I don`t think they`ve looked beneath what they`re
buying to find out what the real problems are with generating secular
growth in this company. I mean, I think when they figure that out, they
might not be that happy with what they`ve purchased.

HERERA: So, it sounds like you`re predicting a rather rocky, at least
beginning of 2017 for the bank.

BOVE: Well, not for the banks overall, but for Wells Fargo (NYSE:WFC),

HERERA: But for Wells, yes.

BOVE: Yes, yes, I think that the outlook for the banks is probably the
best that it`s been in a decade and that there are a number of ways that
they`re going to benefit as a result of the supposed Trump policies.

I mean, if he`s going to repatriate $2 trillion worth of money, that`s bank
deposits. If he`s going to stimulate economic growth through, you know,
building bridges and tunnels, that`s bank lending. If he`s going to
increase manufacturing activity using tariffs, again, that`s bank lending.
If we`re looking at interest rates moving up ever so slightly, that`s bank

So you know, you can look element by element in this program and it
benefits programs across the board.

HERERA: Well, we`ll see what happens. Dick, thank you for spending time
with us.

BOVE: Thank you.

HERERA: Dick Bove with Rafferty Capital.

And we thank you for watching this special holiday edition of NIGHTLY
BUSINESS REPORT. I`m Sue Herera. Have a great evening. We will see you
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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