Transcript: Nightly Business Report – December 29, 2016

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

Funded in part by HSS.


you`re nervous over mortgage rates hitting levels not seen since 2014,
there is a way to lower yours.

elect Trump hints at the idea of privatizing the V.A. The challenges
facing that idea.

BREWER: And on second thought. The growing concern on using e-mail.

All that and more on NIGHTLY BUSINESS REPORT for Thursday, December 29th.

And good evening, everyone. I`m Contessa Brewer, in for Sue Herera.

GRIFFETH: And I`m Bill Griffeth, in for Tyler Mathisen.

History is made, we`re finally anchoring together.

BREWER: It`s about time. They`ve kept us apart all these years.

GRIFFETH: I agree.

You know, since the election, mortgage rates have been on the rise, and
after the Federal Reserve raised interest rates a few weeks ago, there was
no reason to believe that anything would change in that regard. Well, now,
according to mortgage buyer Freddie Mac, a 30-year fixed rate mortgage has
ticked up to 4.32 percent, the highest level since April of 2014.

And considering that the average for all of 2016 for the 30-year was 3.66
percent, that was the lowest since Freddie Mac began keeping records 45
years ago. That`s quite a spike in just two short months.

So, if you`re thinking of buying and you`re nervous about high rates, Diana
Olick tells us tonight that there is a way to get a lower number.


bit jump after the presidential election and just kept on going. So, if
you were in the market to buy a home last summer but just couldn`t pull the
trigger — well, it`s going to cost you more on the monthly payment for the
same priced home. Already, we`ve seen the hit from rising rates. Pending
home sales dropped in November to the lowest level in almost a year and
were lower than November of 2015. Pending sales measure contracts signed,
not closings. So, people out shopping in November, factoring in those
higher rates.

The average rate on the 30-year fixed is now well over 4 percent. And
while it`s been moving in a narrow range in the last few weeks, the
expectation is that it will move higher next year as the economy
strengthens. Add even faster rising home prices to the mix, and you have
something of a toxic cocktail for housing in 2017.

But there is an antidote. You can buy down your mortgage rate. Yes, you
have to have more cash up front, but lenders will lower the rate if you pay
a percentage of the loan in fees up front. It`s called points.

One point is 1 percent of your loan amount. If you were getting a 30-year
fixed loan of $300,000, you might get a rate of 4.25 percent. But if you
pay one point or $3,000, you might get a rate of 4 percent. Lowering your
rate by a quarter point lowers your payment by $44 a month and lowers your
interest costs by about $62 a month.

Important, though — this is only a savings if you stay in your house for
at least seven years. That way you`re saving more than you paid up front.

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


BREWER: That`s a real commitment to your home.

Let`s turn to Daren Blomquist now to talk more about the U.S. housing
market and what he`s expecting in the New Year. He`s the vice president of

It`s great to see you, Darren.

So, set the scene for us a little bit. What do these rising mortgage rates
tell you about the housing market?

time for the housing market to stand on its own two feet and not have kind
of some of the artificial supports we`ve seen over the last few years that
have helped the housing market recover, and recover more quickly, I think,
than a lot of people anticipated. But the housing market is ready really
to not necessarily have those artificial supports. One of those is low
interest rates. I think the housing market is ready, the fundamentals are
strong, to recover on its own without those record low interest rates.

GRIFFETH: You know, one of the headwinds, I mean, low rates helped, but
you had lending standards that were so stringent for the last several years
that many people didn`t qualify for a mortgage otherwise. Has that relaxed
enough to let people back into this market again?

BLOMQUIST: You know, I think it`s slowly but surely relaxing. But, of
course, we don`t want it to relax too much because we`ll repeat the
mistakes we saw last time around. What we don`t want to say is we need to
give access to credit so much so that we loosen lending standards to the
extent we saw ten years ago.

I do think that the rising interest rates is actually going to be a good
thing, because we`re seeing some markets — a growing number of markets
hitting these affordability ceilings, and it`s a concern that these markets
are becoming overheated. And so, rising interest rates will have a cooling
effect and, you know, we referenced it the last time we saw this high of an
interest rate, even though it`s still only 4.32 percent, was back in April
of 2014. We did see a chilling effect on the housing market back then when
interest rates went up. I think we`ll see that again. But I consider that
actually a good thing to keep these markets from becoming too overheated.

BREWER: You mentioned markets that are hitting an affordability ceiling.
Can you be more specific? What cities are you looking at?

BLOMQUIST: Yes, it`s the ones that I think a lot of people maybe know.
But top of the list is Kings County, New York, which is Brooklyn. It`s the
least affordable in the country. Many counties in the San Francisco area,
along with Portland.

Some of the surprising areas that are becoming less affordable than their
historical norms are places like Denver as well as Dallas and you Austin,
Texas, more in the middle of the country. They didn`t get hit by the
housing boom last time around but they really are seeing that this time

BREWER: Darren Blomquist, it`s great to have you with us today, from
RealtyTrac — thanks.

BLOMQUIST: Thank you.

GRIFFETH: A quite day on Wall Street. Light trading as stocks ended the
day relatively flat. The Dow fell just 13 points, we`re at 19,819 now.
The NASDAQ fell by six. And the S&P was off just a fraction today.

BREWER: All right. Let`s talk oil now, where “Reuters” reports shale
drillers are ready to spend on exploration and production as banks extend
credit line for the first time in two years. Refiners in Louisiana and
Texas last week processed the most crude in nearly a quarter century, as
strong demand from Mexico and the Caribbean grew. Today, domestic crude
closed just under $54 a barrel.

Starting as early as next week, even more crude could hit the market when
sales of the Strategic Petroleum Reserve could begin.

Jackie DeAngelis has more.


crude oil, it`s all about supply and demand. And with the recent U.S.
shale boom, that balance has been off, causing big swings in the price of
oil. Crude saw a low this year, near $26 a barrel. But it`s found some
footing now, over $50.

And with increased production at home, the federal government doesn`t need
to hold on to as much oil in its Strategic Petroleum Reserve. Congress
approved selling some of the reserves in its most recent budget resolution.
The sales could start as early as January.

The SPR has been in place since the late `70s in the wake of the Arab oil
embargo. The goal, to keep enough crude on hand to supply the U.S. in the
case of a major emergency like Hurricane Katrina or the Arab spring. But
the world has changed.

U.S. as it was, say, even 15 years ago. And the reason being — number one
being the shale play. With shale production of crude oil, you`re able to
get the crude oil a lot more easily than you were before. Number two is
that we`re actually moving away from crude oil as far as using it to power
our world. There`s a lot more alternatives out in the world.

DEANGELIS: The SPR is roughly 700 million barrels. That`s estimated to be
enough oil for about a month of U.S. demand. Only about 30 percent of that
would be sold potentially over the next decade. So, it wouldn`t be a total
abandonment but a slow drawdown. Still, it could impact crude prices.

GRISANTI: The U.S. plans on selling I believe 200 million barrels of crude
oil from the SPR. While that sounds like a lot, when you look at the
global supply and what trades in crude oil per day, it`s not really that
much. In fact if they do it over a period of time, the crude oil market
won`t even realize it, it won`t even be a blip on the radar.

DEANGELIS: The other big variable in the new year, OPEC. Will it follow
through with the 1.8 million barrel production cut that it promised in
January? And then there`s president-elect Donald Trump. Will his Energy
Department go through with the sale?



GRIFFETH: Elsewhere, following yesterday`s news that Sprint will hire
5,000 U.S. workers, President-elect Trump posted this on Instagram today.
He said, “My administration will follow two simple rules. Buy American and
hire American.”

And another company in yesterday`s announcement also said it will create
3,000 jobs. That company is called OneWeb. And that left many people
saying, who?

Josh Lipton tells us.


billions of people all around the world that do not have access to the
Internet. A startup aims to change that. OneWeb is a company based in
Arlington, Virginia, that wants to build a massive network of 900
satellites. From 750 miles above the earth, they will deliver high speed
internet service in rural and emerging markets.

Greg Wyler, the founder of OneWeb, talked this morning about his company`s

GREG WYLER, ONEWEB FOUNDER: We`re building an incredibly new and ambitious
system to provide internet access initially to almost 10 million
residential households. We`ll be doing enterprise. We`ll be providing
Internet access to aircraft and to ships all around the would.

So, this is a fairly complex system. But we`ve found a great knowledge
base here in the U.S., and we do a lot of work also in other countries.
But the U.S. has been fantastic.

LIPTON: Wyler will now be hiring 3,000 more people over the next four
years, tripling the size of his current workforce. He says the first
prototypes should launch next year and the service will formally launch in

OneWeb`s dream of connecting the world is actually an old one. Some 20
years ago, for example, Bill Gates was among those backing a $9 billion
plan to connect the world with satellites. That company was called
Teledesic. It boasted a grand goal, 840 satellites circling the earth.
But, ultimately, just one satellite actually launched and the venture

Wyler says this time is different, that the technology is now both powerful
and affordable enough to make this dream into a reality. He`s certainly
attracted a lot of support. OneWeb has raised $1.7 billion from investors.

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


BREWER: Well, Donald Trump is also reportedly thinking about privatizing
the Department of Veterans Affairs.

Dina Gusovsky has reported extensively on the V.A. She joins us now.

OK. So, why, Dina, the push to privatize it in the first place? What`s
the point?

of the Department of Veterans Affairs, and this is something officials have
said and our reporting has indicated, are overwhelmed. And there are a
number of reasons for that.

The department is now tasked with taking care of America`s Vietnam veterans
who are now, of course, getting much older and much sicker, as well as the
servicemen and women who are coming back from Iraq and Afghanistan. So,
that`s one.

The other major issue, the sort of rampant bureaucracy that is a part of
the Department of Veterans Affairs where it is very difficult to fire an
employee no matter how much investigations they`ve been under or how much
wrongdoing they`ve done. It is just very difficult to fire them.

So, you did hear the president-elect on the campaign trail and even now
speaking about giving more power to the secretary of the V.A. to be able to
fire these employees. But it is much easier said than done. There are
processes already in place, like appeals and other things, that make it
extremely difficult. Most of the time, they`re shuffled to different
hospitals in different states but in the same position.

GRIFFETH: What about the issue of private care? What are the challenges
there providing that from V.A.?

GUSOVSKY: Well, I just want to put the V.A. in context, right? This is
the second largest federal agency in terms of funding. The president has
asked for $182 billion in 2017. There are thousands of outpatient
facilities across the country, hundreds of hospitals.

So, again, this whole issue, it`s a lot easier said than done.


GUSOVSKY: In 2014, there was a major scandal where employees were charged
with changing patient wait times, so making it seem like patients weren`t
waiting as long as they actually were. And that point, Congress passed the
Veterans Access Choice and Accountability Act which said that if you`re a
veteran who can`t get an appointment within 30 days or if you`re a veteran
who lives 40 miles away or more than 40 miles away from the closest
facility, you can get private care.

Now, the difference with President-elect Trump`s plan, there are no
stipulations there. It just says we want veterans to be able to get the
private care, but it doesn`t have those riders attached to it.

BREWER: No doubt that if this proposal were to become a solid and concrete
avenue, you would have a lot of pushback from people who look at the
privatization of prisons, the privatization of the war effort, and say,
look, it hasn`t been without major problems in the past. That being said,
whoever is in charge of the V.A. would have a big hand in it. Who might
that be?

GUSOVSKY: And you`re absolutely right. I just want to bounce back on that
point. A lot of veteran service organizations are against privatization
and they`re actually encouraging the president-elect to stay with the
current Secretary of Veterans Affairs Bob McDonald.

On the short list is the chairman of the House Committee on Veterans
Affairs, who`s actually retiring, Jeff Miller. He helped craft Trump`s
ten-point plan, as well as the Cleveland Clinic`s CEO. So, it will be
interesting to see who gets the job.

GRIFFETH: Very good. Dina Gusovsky, thanks. See you later.

Coming up, our market monitor has three companies that he thinks could
thrive under a Trump administration. We`ll tell you what they are, coming


BREWER: Honda is recalling nearly 650,000 Honda Odyssey minivans because
the second row of seats might not lock and could shift during a crash. The
recall covers 2011 through 2016 models. So far, no related injuries have
been reported.

GRIFFETH: The FDA turns down Cempra`s pneumonia drug. And that`s where we
begin tonight`s “Market Focus”.

The regulatory agency directed the biotech`s antibiotic for community-
acquired bacterial pneumonia, citing manufacturing issues and a lack of
sufficient data supporting the treatment`s safety. Cempra said that it
plans to request a meeting with the FDA to address those concerns. Cempra
shares plunged by 57 percent plus today to $2.60.

And as we told you earlier this week, medical device maker Endologix
(NASDAQ:ELGX) said that it was placing a hold on the shipments of one of
its devices due to a manufacturing problem. And today, the company said it
was resuming those shipments of some of the systems. Following the news,
Endologix (NASDAQ:ELGX) shares surged by 11 percent, up to $5.92.

BREWER: Sears (NASDAQ:SHLD) is reportedly borrowing another $200 million
from its chief executive, Edward Lampert. The retailer will receive the
funds through a loan provided by affiliates of the CEO`s hedge fund. And
with consent from the lenders, Sears (NASDAQ:SHLD) could extend that
amount, up to $500 million. Shares of Sears (NASDAQ:SHLD) rose 10 percent
to $9 even.

Mobileye, which develops driving technology, said it`s entered a
partnership with intelligent map making company Here. Under the agreement,
the two companies will combine their real-time road and location software.
Mobileye shares rose nearly 10 percent to $38.44.

GRIFFETH: As we continue, our special week of market monitors, our next
guest has stock picks that he says could do well under the Trump
administration. He is Ross Gerber, president and CEO of Gerber Kawasaki.

Nice to see you again, Ross.


GRIFFETH: Now, since the election, the financials, the banks have rallied
on the expectation that we`re going to see a pullback, to some degree on
Dodd-Frank and rise in interest rates. You like the banks in part because
of that, but you`re not picking a lot of the money centers.

You like First Republic, for example. Why that one?

GERBER: Well, that one in particular is a particularly well-run bank.
It`s in a great part of the nation. It`s in the Silicon Valley area. They
have almost zero loan losses. Really well run and actually a decent wealth
management division as well.

But it`s all about personalized service and providing multiple services to
your customers. And that`s what First Republic does very well. But the
bottom line is we think the big banks are — have all kinds of business
practice issues like Wells Fargo (NYSE:WFC), and we don`t want to get
involved with that, because we don`t know what those risks are at Bank of
America (NYSE:BAC) and Citigroup (NYSE:C). But we know they`re doing the
same practices as Wells Fargo (NYSE:WFC). It`s just a matter of time.

So, by sticking with the regional banks, you take out what I call business

BREWER: All right. So, you don`t like big banks. How do you feel about
big media companies like, I don`t know, Disney (NYSE:DIS)?

GERBER: Well, I love Disney (NYSE:DIS). I think media in a massive
disruption change right now. And in the end, content players are going to
come out on top. And Disney (NYSE:DIS) has the best content in sports and
they have the best content for kids and they have the best content in

So, when you look at that and you say what`s the true value and you look at
the overall multiple of the company versus the market, I think Disney
(NYSE:DIS) is a very unique opportunity.

BREWER: What about ESPN, is that a drag?

GERBER: No, not at all. In fact, as we go into the bowl games this
weekend, ESPN is an asset like no other. I think people`s fears about ESPN
are way overblown. In fact, sports content is more sought after, more
desirable by advertisers than ever before.

GRIFFETH: You like MGM and the casino plays there. Why does that
necessarily do well under a Trump administration necessarily?

GERBER: Well, first of all, Trump has a lot of incentive to see Vegas do
well because he has a large asset there. We see Trump being very good for
things like regulation. So, we think that we`ll see an end to a ban on
sports betting, for example, which would be a boon for the casinos.

We also see more dollars in people`s pockets because of tax cuts and other
economic things he`s doing to spur the economy which will then ultimately
go to Las Vegas. And we also see corporate tax cuts really helping
domestic-based companies like MGM which basically just puts money in their
bottom line. So, we really see them winning in many ways right now.

GRIFFETH: Three picks for 2017 from Ross Gerber of Gerber Kawasaki.
Thanks, Ross.

GERBER: Thank you. Great to be on.

BREWER: Coming up, why more and more business leaders are thinking twice
before hitting the “send” button.


BREWER: The Obama administration issued new sanctions against Russia in
part over allegations the country hacked Democratic officials and tried to
interfere with the presidential election in the United States. And now,
the U.S. has expelled 35 Russian diplomats and shut down two Russian
compounds used for what the administration called intelligence-related
purposes. Russia says it will consider retaliatory measures.

GRIFFETH: And with all the talk of hacking these days and our reliance on
e-mail, many Americans, including business leaders, are becoming more and
more wary about using the online communication.

Andrea Day takes a look for us tonight.


TOM PATTERSON, TOMMY JOHN CEO & FOUNDER: I was getting 200 to 400 e-mails
a day. It just became a huge distraction.

John, the underwear company on pace to exceed $100 million in annual sales
by 2018. But if you need to reach Tom Patterson, don`t send him an e-mail.

PATTERSON: I no longer check e-mails between 9:00 a.m. and 5:00 p.m. If
you need to get ahold of me during that time, send me a text message or
stand up and walk over to me.

DAY: His strategy started long before WikiLeaks begun dripping out secret
information. It was a scare at his first job out of college that made him
rethink e-mail forever.

PATTERSON: A girl I worked with starting scream, “oh, my God, oh, my God,”
and she sent an e-mail with something she regretted. I just sat next to
her and I`m like gosh, I never want to have that feeling.

DAY: And according to experts, Patterson had it right from the get-go.
Bestselling author Jocelyn Glei`s book “Unsubscribe” is about the benefits
of cutting back on e-mail.

JOCELYN GLEI, “UNSUBSCRIBE” AUTHOR: I think we`ve had this feeling of
safety and security with e-mail for a really long time and now that bubble
is really being burst.

DAY: Burst, she says, after WikiLeaks released batches of hacked e-mails
from inside Hillary Clinton`s campaign, infecting some Americans with e-
mail anxiety.

UNIDENTIFIED FEMALE: It made me feel as a citizen that perhaps we`re more

UNIDENTIFIED MALE: I`m thinking about looking at that software that
encrypts your e-mail.

UNIDENTIFIED FEMALE: I`ve always been very concerned about where my e-
mails might end up.

DAY: Like Patterson, many well-known business leaders use e-mail sparingly
if at all.

JPMorgan (NYSE:JPM) Chase`s CEO Jamie Dimon reportedly keeps his e-mail
replies short, sometimes down to one word. Investor Carl Icahn rarely uses
the service. Warren Buffett relies on an assistant for his messages.

GLEI: Everything can be exposed publicly, eventually, and we need to take
that attitude towards them.

DAY: And beyond security, Patterson says he`s already seen an impact.

PATTERSON: It really empowered the people reporting to me to be more
direct. I was able to delegate responsibilities.

DAY: And Glei says if you have any doubt at all, don`t send out the e-
mail. Come back to it later and then decide. Or better yet, have a face-
to-face conversation, especially if it`s something confidential.



BREWER: Well, it`s a good bet that cyber security companies will try to
line up money to go public as the drumbeat for secure cyber space grows
louder. But what other tech companies are heading the list for offerings
in 2017?

Deirdre Bosa takes a look.


year for tech companies to go public. Many startups tap the private
markets for funding, but there were just 14 initial public offerings,
continuing a recent trend. The 14 IPOs were half the number in 2015 and
just a fraction from 2014. Some of the reasons, uncertainty around the
presidential election and an emphasis on profitability over growth likely
put a lid on companies wanting to go public.

But venture capitalist Kate Mitchell says that next year`s market
conditions will bode well for the tech IPO pipeline.

KATE MITCHELL, VENTURE CAPITALIST: Public companies, private companies
ready to go. There will be a question of whether or not that`s at or above
their last private valuation. But I think in terms of public market
demand, it should be strong.

BOSA: CV Insight is also anticipating a busier 2017 for tech IPOs. Using
a mosaic rating system that analyzes the strength and rank of privately
held companies, it came up with the five strongest IPO candidates next
year. They include mail delivery startup Blue Apron, enterprise software
company Zuora, and education technology platform Pluralsight.

Some of the hottest names in the startup world like Airbnb and Pinterest
may not be top candidates, but analysts they could be looking to tap the
public market soon. Travis Kalanick, CEO and co-founder of Uber, the
world`s most highly valued startup, has previously said he wanted to wait
as long as possible to go public.

But Mitchell says, don`t be surprised if that happens sooner than some

MITCHELL: Mark Zuckerberg said he didn`t know why he waited so long, it
actually allowed him to do a lot more with his currency post-IPO than he
was even able to do pre-IPO. So, I hear that and I don`t quite get that.

BOSA: But the hottest startup to watch is Snap, parent of mobile messaging
app Snapchat. It`s reportedly filed paperwork to go public and raised $4
billion in a deal that would value the company at around $20 billion to $25
billion. It could be the big debut that snaps the IPO market out of its
doldrums. Or it could disappoint hopes for a revival.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, Vancouver, Canada.


BREWER: If only us oldsters could figure it out.

GRIFFETH: I don`t get Snapchat.

BREWER: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Contessa Brewer.
Thank you for watching.

GRIFFETH: What do you say we do this again tomorrow?

BREWER: OK, let`s do it.

GRIFFETH: You got it. I`m Bill Griffeth. Have a great evening. We will
see you again here tomorrow night.


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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