Transcript: Nightly Business Report – January 4, 2017

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

Funded in part by HSS.



MIKE PENCE (R), VICE PRESIDENT-ELECT: The first order of business is to repeal and replace Obamacare.

SEN. CHUCK SCHUMER (D-NY), SENATE MINORITY LEADER: The first big fight of this new Congress will be over health care.


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Battle on the Hill. Mike Pence reaches out to Republicans, President Obama huddles with Democrats as the health overall fight gets underway.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Racing ahead. Auto sales reach a record as more Americans drive off with new cars. But is this as good as it gets for the industry?

MATHISEN: And making the most of your mutual funds this year. Passive or active? Bonds or stocks? The trends that could shape your year ahead.

Those stories and more on NIGHTLY BUSINESS REPORT for Wednesday, January 4th.

HERERA: Good evening, everybody, and welcome.

It’s underway. The battle over health care has begun and it is happening in pretty dramatic fashion. President Obama was on Capitol Hill this morning to rally his party in an effort to protect the signature law of his administration. At the same time, in the same place, Vice President-elect Mike Pence met with Republicans to work on a strategy to repeal and replace it.

Though few details were given, the lines were clearly drawn. And whatever decisions were made, the impact will be far and beyond the 20 million people who get their health insurance through exchanges.

Eamon Javers has more on the showdown over Obamacare.


EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Obama made one of his last visits to Capitol Hill to rally Democrats to make a last ditch attempt to save his signature health care legislation from congressional Republicans and the incoming Trump administration. Emerging from their meeting with the president, Democrats displayed a sign proclaiming “make America sick again” and argued that repealing Obamacare could have disastrous consequences.

REP. NANCY PELOSI (D-CA), HOUSE MINORITY LEADER: You know, Medicaid, almost half of Medicaid is about long term health care. You want grandma living in the guest room? You’d repeal the Affordable Care Act.

JAVERS: But Vice President-elect Mike Pence was on the Hill today to do a little rallying of his own.

PENCE: The first order of business is to repeal and replace Obamacare. That was our message today and it will be our message on Capitol Hill. And it needs to be done.

JAVERS: The man whose election sparked this political upheaval was back in Trump Tower today, tweeting out a take on Obamacare that didn’t exactly square with the GOP rhetoric on the Hill. “Republicans must be careful in that the Dems own the failed Obamacare disaster with its poor coverage and massive premium increases. Like the 116 percent like in arizona. Also deductibles are so high that it is practically useless. Don’t let the Schumer clowns out of this web. Dems are to blame for this mess. It will fall of its own weight, be careful.”

Those tweets seem to suggest that Republicans should not move quickly to repeal Obamacare despite the eagerness here on Capitol Hill.

I showed the tweets to one Republican member of Congress who said he’s a little bit frustrated that Trump seems to toggle back ask forth and they have a hard time getting a read on his thinking. It’s clear this fight is just gearing up.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers on Capitol Hill.


MATHISEN: The road map to repealing and replacing the Affordable Care Act is obviously not entirely clear. Health insurance of more than 20 million Americans is, of course, at stake, and now, the GOP and not the Democrats stand to get the credit or the blame, as this huge transition unfolds.

Bertha Coombs has more.


BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Trump administration and Republicans face a tough balancing act. They have to make sure they don’t up-end the Affordable Care Act too fast, so they don’t cause the market to collapse. But they also can’t delay a replacement plan for too long.

Insurers have only a matter of weeks before they have to file rates and plans for participation in 2018. Analysts say next month, a repeal vote needs to lay out just how long ACA subsidies will remain in place, so insurers have a road map for next year, ahead of the May deadline to submit 2018 plan rates.

Then, the administration and Congress need to make progress on a replacement plan by the time the Trump administration approves final 2018 race in August, because insurers could still pull back from exchanges in September, just weeks ahead of 2018 open enrollment.

UNIDENTIFIED FEMALE: They have to sign on the dotted line, a contract that says we’re going to stay in for 2018. Some of them might be reluctant to do that if they don’t know what the rules of the road are long term. A lot of them have been losing money but have been willing to stick it out with the hopes that profitability will come down the line.

COOMBS: Analysts say it’s key for Washington to enact a replacement plan by year end to keep insurers in the individual market.

DEEP BANERJEE, S&P DIRECTOR AND LEAD ANALYST: By the end of 2017, there is some kind of a consensus plan that can be passed through Congress and will be signed by the new president. So, 2018 we now have a new law of the land for health care. From that point of time, we would think that at the least, it would be two years to implementation which will take you closer to 2020 almost.

COOMBS: And it may take even longer for markets to stabilize after their experience with the ACA. Insure letters likely take a wait and see approach to the new plan.



HERERA: So, with the expected changes coming to the health care system, who will be the winners and the losers in healthcare?

Ipsita Smolinski, health care policy expert at Capital Street, joins us now to discuss that.

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

Let’s start first of all with the fact that you were on the record last time we spoke with you as saying that it might be several years before this all gets sorted out and replaced. Does the rhetoric that you heard on Capitol Hill today lengthen that timetable or change it in any way?

IPSITA SMOLINSKI, CAPITOL STREET HEALTH CARE POLICY EXPERT: Well, the meetings today, Obama was there to do a pep rally of sorts. It would have been nice if maybe he include all of Congress, Democrats and Republicans, to talk about the ACA. And then, Pence was there, as you well know.

I still think it’s a couple years. You want to get through mid-term elections as far as the replace plan. The repeal, look, that will happen quickly. That will happen through the budget process in the first 100 days. But then details will probably come out later this year. And then, sure, after the midterms, 2019, and then with regulations and so forth, it really could be 2020.

MATHISEN: You know, no one, Ipsita, this time around I think would dare utter the phrase, “if you like your insurance, you’ll be able to keep it”, because I don’t think anybody is ready to make that kind of promise this time.

I did hear Vice President-elect Pence say that whatever replaces the current plan will unleash the power of the free market and that competition will cause prices to come down. I thought that was what the original plan was supposed to do as well. Unleash competition. It didn’t seem to work. Will this?

SMOLINSKI: Well, you’re right. There was a lot of competition at the beginning. But as you may recall, co-ops failed, insurers were in the red that they had to pull out. So, now, we’re seeing these massive premium rate increases.

This time around, with what we will see next, it will be a combination of health savings accounts, tax credits for the purchase of insurance, purchase and sale across state lines. There are a number of commonalities between the leading GOP replace plans, but what I think it will be at the end of the day is a thinner benefit, more of a catastrophic benefit. So, you might have close to 15 million or 20 million covered. But it will be a much more flimsy, if you will, health care plan.

HERERA: Right. Who stands to be the winners? I mean, I know it’s hard to predict that, given the fact that we don’t know the details of the replacement plan. But in general, who would you put on the winning list?

SMOLINSKI: I would put most Medicare providers on the winning list. Medicare advantage, those are plans offered by Humana, by Aetna, by United Health. There are certainly others. I would put, honestly, biopharmaceuticals, probably as a partial winner. Yes, there is pricing overhang over high drug prices, but I would put those two as winners.

MATHISEN: And losers would be hospital companies?

SMOLINSKI: I think eventually they are potential losers. There is going to be this extended transition of one, two, maybe three or four years. I would maybe couch that by saying they’re not losers yet, but I think hospitals could be on the losing end.

HERERA: All right. Ipsita, thank you so much once again for your thoughts. Ipsita Smolinski with Capitol Street.

MATHISEN: And the president-elect’s pick to run the Treasury Department is facing new criticism tonight. As first reported by the website, “The Intercept”, Steve Mnuchin’s bank One West, which he ran from 2009 to 2015, is being investigated by California regulators for, quote, “widespread misconduct”. The allegations are reportedly over the bank’s foreclosure practices.

John Harwood following the story for us from the Trump Tower in New York City.

John, what do we know about these claims and how damaging this might be ahead of his confirmation hearings?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, it stems from Steve Mnuchin’s accusation of One West and the decision that they made to push foreclosures in a forward-leaning way. There were allegations that they adjusted the — they back dated certain documents to get around time requirements for delinquent homeowners. And this was something investigated by California regulators. They ultimately decided not to bring a case.

And so, while I think this is going to provide fodder for the Democrats to go after Steve Mnuchin, I would not expect this to peel off the significant number of moderate Republicans and threaten his confirmation.

HERERA: Mr. Trump nominating a Wall Street lawyer to head the SEC. Tell us about Jay Clayton. What do we know about him?

HARWOOD: Jay Clayton is a classic Wall Street lawyer, mergers and acquisitions, represented Goldman Sachs some. That will come up in confirmation hearings because Donald Trump in the campaign talked about going after the corrupt establishment, specifically singled out Goldman Sachs. And he’s had several people, including Mnuchin, including Steve Bannon, his White House strategist, several people with ties to Goldman Sachs. Gary Cohn, who’s heading his National Economic Council.

But Jay Clayton is clearly prepared for the job. He is somebody who doesn’t have the same prosecutorial background that Mary Jo White, the incumbent, has now. So maybe less of an emphasis on enforcement, which is an understanding, given the deregulatory philosophy of the Donald Trump campaign.

Donald Trump also got has two seats on the SEC to fill. And between the three of them, there’s a potential if they choose to, to go in a sharply different direction from the Mary Jo White SEC.

MATHISEN: Very quick update on the tweet from Mr. Trump, regarding the intelligence community.

HARWOOD: Tyler, this is a potentially dangerous rift between president-elect and the U.S. intelligence community which is coming up here on Friday to brief him on the Russian election hack. He — in a tweet last night — mocked the intelligence that they had collected, suggested that they push the briefing until Friday to get their stories straight.

And this morning, he tweeted out statements from Julian Assange, a fugitive from American justice, somebody that Mitch McConnell, Vice President Biden called a high-tech terrorist. This is something that is going to unsettle the CIA director, the FBI director, the NSA director, all of whom are coming up to brief him.

MATHISEN: All right. John Harwood, at Trump Tower in New York. Thanks, John.

HERERA: Donald Trump’s pick for Secretary of State was also on Capitol Hill today. Rex Tillerson met with lawyers ahead of his confirmation hearing. According to reports, Republicans are positive on the selection while Democrats want more information on his record and his relationship with Moscow. Separately, Tillerson has cut his ties with ExxonMobil. The former chairman and CEO is in line to receive $180 million retirement package.

MATHISEN: Well, the president-elect has also taken auto industry to task as we told you yesterday. But today, the sector reported another banner record year for sales here in the U.S. December’s results were even stronger than expected, and helped push 2016 sales to an all time high of just over 17.5 million vehicles. That in turn lifted shares of the automakers, as you see there.

But is this as good as it gets? Or could sales rise again this year?

Phil LeBeau reports tonight from Sunnyvale, California.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the first time since the early 1920s, auto sales in the U.S. were up for a seventh straight year. 2016 sales came in just above the total we saw in 2015, basically at 17.5 million vehicles. And that’s due to stronger than expected sales last month. Holiday and year-end promotions, special with the luxury brand, typically make December one of the busiest months at dealerships.

And last month was no exception. Almost every major automaker did better than expected in December. Leading the pack, General Motors up 10 percent. GM like other automakers has focused on keeping inventory lean which is helping sell vehicles at higher prices, including the latest models by Cadillac.

JOHAN DE NYSSCHEN, CADILLAC PRESIDENT: We’ve seen about a 14 percent rise in average transaction prices over the last two years. This is unprecedented and unequal in the industry.

LEBEAU: With prices up, so are monthly loan payments and that has some wondering if auto sales will finally pull back in 2017.

But keep in mind, one of the more factors driving auto sales, strong consumer confidence. And right now, it’s as close to a record high. Good news for automakers and auto dealers as they start the New Year.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Sunnyvale, California.


HERERA: Stocks logged their second straight day of gains. The major indexes were pushed higher by strengthened consumer stocks and remained elevated after the release of the minutes of the last Fed meeting, which we’ll have more on momentarily.

Here are the closing numbers for you. The Dow Jones Industrial Average rose 60 points to 19,942. The NASDAQ was up 47. The S&P 500 gained 12. The gains today might have been slight but they add to a big rally that we’ve seen over the past couple of months.

And as Bob Pisani explains, some investors might be getting a little nervous.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was another modest up day in the markets. But with the S&P 500 up 6 percent since the election, there’s plenty of traders who believe the markets are getting ahead of themselves. They point out and correctly, that stocks are trading at very high multiples under the expectations that earnings are going to expand dramatically later into 2017 and into 2018, despite having no hard data to go on.

So, for the moment, the markets voted. There’s not a seller insight. The market believes that on balance, the rewards from tax cuts and fiscal stimulus and less regulations outweigh the possibility that Donald Trump and the Republican controlled Congress may not be able to deliver the full package or that the Fed may have to be more aggressive in raising rates. It’s a possibility the Fed itself has acknowledged.

You can see this bullishness in the markets just in the first two days of the year. Stuff that did poorly last year like retailers and biotech, for example, are doing well in the first few days of the year. But stuff that did great last year, like banks and oil and semiconductors, they’re also doing well. The whole market is floating upward.

When is it going to end? Well, of course, something will happen that will jolt the trading company out of its complacency.

Most active traders want the rally to end right now, but not so they can get out. They want the market to drop down 5 percent or more so they can buy at a lower price. That’s why there are so few sellers. They, too, believe the markets won’t drop much and that selling won’t be worth it in the long term. But right now, it’s all systems go.

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


MATHISEN: Still ahead, policy makers at the Federal Reserve will be watching one thing very closely in the year ahead. We’ll tell you what it is.


MATHISEN: When the Federal Reserve raised interest rate at its last meeting, policy makers at the world’s most powerful central bank were also grappling with the growing uncertainty that they say now looms over the economy.

Steve Liesman has more on the minutes of the Fed’s December meeting.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve in its last meeting of the year in which it raised rates by a quarter point for the only rate hike that year was actually talking quite a bit about the possibilities of major fiscal policies coming as a result of the election. Minutes from that December meeting were released today show that the Fed is warning of the possibility of higher rates if there is indeed expansionary fiscal policy.

Some members of the Fed saw upside to growth, employment and inflation from those fiscal policies but was very uncertain over the timing, the amount and the makeup of those policies and the economic effects they could possibly have. Indeed, the Federal Reserve was also quite cautious over how the market reacted to the new policies, including a surge in stocks and a surge in interest rates.

There were also other policy concerns from the Fed, including the possibility of trade barriers, the idea that the dollar could appreciate quite substantially, and a give-and-take between higher inflation on the one hand, and a stronger dollars which would offset that inflation. There’s also concern that fiscal policies could fall short of market expectations.

The Fed was also concerned the unemployment rate could fall too far, and warn of faster rate hikes if the employment rate did indeed fall below the natural rates. So, two sources of the Federal Reserve warning of possible rate hikes as a result of coming of fiscal policies expected from the new Trump administration.



HERERA: Macy’s posts disappointing sales during the holiday season and that’s where we begin tonight’s “Market Focus”.

The retailers said same store sales growth came in at the low end of its guidance, saying changing customer behavior and ongoing weakness in hand bags and accessories hurt their results. Macy’s also cut its earnings outlook and said that it will eliminate about 10,000 jobs as part of the previously announced store closings and other cost-cutting measure. Shares fell nearly 10 percent in after-hours trading following the news. But they ended the regular session up almost 2 percent to $35.84.

Also after the bell, Kohl’s reported a drop in same store sales during the holiday season, saying purchases during that time period were volatile. The retailer also lowered its full year earnings forecast. Shares were initially hit hard after the release, wiping out a 4 percent gain during the regular session where they closed at $51.88.

Sears chief executive, Eddie Lampert, is shelling out cash for the struggling retailer for the second time in a week. Affiliates of Lampert’s hedge fund have provided Sears with $500 million secured loan, which is backed by mortgages on the company’s properties. A regulatory filing also showed that Sears had exercised its right to terminate leases on 19 of its stores. Shares of Sears popped 6.5 percent to $10.36.

MATHISEN: Oprah Winfrey said she has shed more than 42 pounds while on Weightwatchers’ diet program. The billionaire who has a nearly 10 percent stake in the company is part of Weightwatchers’ new advertising campaign. Shares surging nearly 21 percent today to $13.40.

The subscription video service Hulu will soon begin offering CBS programming on its livestreaming platform. The two companies entered into an agreement that will let some Hulu subscribers access CBS, CBS Sports and the networks entertainment channel Pop. Hulu’s livestreaming platform expected to launch sometime this year. CBS shares were up 2 percent at $65.74.

And Apple said it will invest a billion into a technology fund operated by Japan’s Softbank. Apple added that the fund, which is expected to launch this year, will speed the development of technology that’s may be edge strategically important to the tech giant. Apple shares off a fraction, $116.02.

HERERA: Coming up, how much of your money is tied up in mutual funds? The trends that could shape your returns in the New Year.


MATHISEN: Americans are putting money into domestic stock mutual funds again and it all began basically with the election.

Here to discuss how investor behavior has changed and what might portend for 2017 is Brian Reid, chief economist at the Investment Company Institute.

Brian, happy New Year. Welcome. Good to have you with us.


MATHISEN: Why have investors found their taste once for domestic equity funds and where is the money flowing from?

REID: So, I think part of the reason for the demand for domestic equity funds is basically because of expectations about improving economy, either from greater government spending, tax cuts, higher corporate profit. And this has really came about after the election. We saw the surge for equity funds invested in the U.S.

It doesn’t look like it is coming from bond funds in particular, although tax-exempt bond funds have seen some outflows in the last couple of months. So, some of that seems to be coming in from there. Probably most of this is coming from cash or other investments.

HERERA: So, Brian, we are entering into a New Year when many expect changes from Washington. One of which may be tax reform. So, how do you factor that into your investment decisions?

REID: I think there are a couple things that you should be looking at as an investor. Number one thing to keep in mind is to look how they’re going to treat muni bonds income. That may have — be affected by, if they remove or reduce the exemption for tax exempt income. It could also be, if you cut taxes, it’s going to make taxable bonds look much more attractive.

On the other hand, another factor that could be in play here is how do they treat your retirement assets into types of tax incentives that are provided to you in your IRAs or your 401(k)s?

MATHISEN: So, pay attention to that.

One of the interesting points you made with one of our producers here is that a lot of people have put money into passive or index funds. But that does not necessarily mean their money is not being actively managed. In other words, what may be happening is that their investment adviser may be assembling a portfolio of passive index funds but managing those various funds in a rather more active way.

Tell me about that. What do you need to know from your investment adviser about that?

REID: So, that’s right. That moved from an active mutual fund, let’s say, into an ETF or an index fund, is really just the first part of the conversation. What that adviser is going to do is put together a portfolio, an investment portfolio for you and they’re going to be targeting some time of bench mark. And so, the conversation that you should be having with your adviser then is, what is that benchmark? What is the expected rate of return you’re trying to achieve and have something that you can compare your rate of return on your overall portfolio?

Each fund is going to pretty much track benchmark, the index. But you ought to look at that overall portfolio. You also want to know what your adviser is going to charge you in terms of fees for doing that active management that’s no longer being done by the fund.

HERERA: And what about the market itself, Brian? I mean, give your thoughts on how much more you think this market may have to run and how as a long term investor you should approach it?

REID: Well, the market really pretty much is being driven by, at least the stock market that is, by expectations of corporate profits. So, as long as corporate profits continue to increase and expectations are that they will in the near term, that’s going to help the market forward.

MATHISEN: All right.

REID: The other part of this is, as far as interest rates going to, because Americans have billions of dollars invested, trillions of dollars in bond funds.

MATHISEN: All right. Brian, we got to leave there. Happy New Year. Brian Reid with the ICI.

HERERA: That’s it for us tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: And thanks for me as well. Have a great evening. 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) 2017 CNBC, Inc.


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