Transcript: Nightly Business Report – January 5, 2016

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

Funded in part by HSS.

(COMMERCIAL AD)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Retail rout. Investors run
from the sector as the bad news piles up. Could this year see more store
closings than in any time in modern history?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Excessive optimism. Money
is pouring into stocks. Bears are turning into bulls. Is that a warning
side for the market?

HERERA: Big dividends. Why investors are given one sector a second chance
to pay them back.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
January 5th.

MATHISEN: Good evening, everyone, and welcome.

NASDAQ closed at an all time high today, but otherwise, it was a down day
for stocks. One reason: retail wreckage. Holiday gloom has set in over
that sector and shares of the some of the recognizable brands in retailing
got slammed hard today in trading.

Macy`s (NYSE:M), the world`s largest operator, fell nearly 14 percent,
Kohl`s (NYSE:KSS) tumbled 19 percent, making these two stocks the worst
performers of all the 500 in the S&P 500 today.

The selling in the sector follows a number of dismal reports from those
retailers which we told you about beginning yesterday. Sales slumped at
the end of last year, physical stores struggled to keep pace with online
retailers, resulting in a wave of closure. And it`s all emblematic of
seismic shift happening in an industry that touches us all.

Courtney Reagan has our lead story from a Macy`s (NYSE:M) in Elmhurst, New
York.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Early strength for
closing sales gave holiday hope to retailers like Macy`s (NYSE:M) and
Kohl`s (NYSE:KSS). But a strong black Friday weekend and days before
Christmas weren`t enough. Holiday sales fell 2 percent at Macy`s and
Kohl`s, and plunged double digits to a struggling Sears (NASDAQ:SHLD).

Macy`s (NYSE:M) is closing 68 stores this year, a total of 100 by the end
of next year. Sears (NASDAQ:SHLD) says it`s closing 150 more stores and
selling its craftsman tool brand as its business shrink. The seemingly
endless stream of bad news for department stores has many wondering if this
is the beginning of the end for the group.

MATTHEW BOSS, J.P. MORGAN EQUITY RESEARCH ANALYST: The bigger dynamic is
the share shift happening at a more micro level. Those dollars are still
being spent. People are still buying apparel. They`re just buying it
online. They`re buying it on Amazon (NASDAQ:AMZN). And when these dollars
are being shifted from brick and mortar to online, these legacy retailers
are losing.

REAGAN: Though consumers are doing just fine, spending 4 percent more this
holiday season, according to MasterCard (NYSE:MA), they`re just not
spending as much at department stores.

More and more consumers are spending online. Though around 85 percent of
all purchases are still made in stores. Online retail sales during the
holiday season grew more than initially forecast. A scan of more than 4
million e-mail receipts shows Amazon (NASDAQ:AMZN) captured nearly 40
percent of all online purchases during the holidays.

The group says Apple (NASDAQ:AAPL).com sales grew 66 percent over last
year. Consumers did buy on Macy`s (NYSE:M).com with online sales growing
double digits. Still, not enough to tip the total sales balance into
positive territory. MasterCard (NYSE:MA) spending continues to show sales
growth for spending on experiences, things like vacations and
entertainment, and that eats away at the spending available for things like
hand bags.

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

(END VIDEOTAPE)

MATHISEN: But it wasn`t all bad news on the retail front. The Gap
(NYSE:GPS) reported a rise in its holiday sales. The owner of Gap
(NYSE:GPS), Old Navy and Banana Republic stores cited improved momentum and
increased its full year per share earnings expectations. And that prompted
the shares to take off in after-hours trading today.

HERERA: To put retail struggles into context, we`re joined tonight by Jan
Kniffen. Jan is CEO of J. Rogers (NYSE:ROG) Kniffen Worldwide Enterprises.

Nice to have you back, Jan. Thanks for join us.

JAN KNIFFEN, J. ROGERS KNIFFEN WORLDWIDE ENTERPRISES CEO: Hey, it`s great
to be here.

HERERA: We got a number of your predictions for this New Year 2017. Some
of them are pretty dramatic. Let`s start with number one. There are going
to be more store closures in 2017 than we`ve ever seen before.

KNIFFEN: Well, when I made that one, it seemed like I was stepping out
there. Now that we`ve seen these releases, it may feel a lot more
reasonable. We`re certainly going to see the closings from Macy`s
(NYSE:M). We already knew that. We didn`t know how many Sears
(NASDAQ:SHLD) was going to close. Now, we know there`s a big store closing
program there.

But we`re also seeing inline stores close and we will continue to see
closures I think for the next several years. You know, I`ve been saying
for more than a year now, we`re going to see 400 malls that we don`t need
of the 1,100 we have out there go away. And I`ve been saying for a long
time that I thought Macy`s would be in the vicinity of 550 stores when they
were done. That means they`ll have even more closures than they`ve
announced so far.

But it`s not just Macy`s. It`s all across the industry. We`ve seen store
closures from specialty stores and from department stores for a long time,
and it`s just going to continue.

MATHISEN: You know, I don`t know whether you think we`re seeing beginning
to see the death of the mall, but what we did see and you reported on is a
fall off dramatic in foot traffic in malls which you think is going to
continue and the number of stores people visit once they`re in the mall is
half what it was just five or six years ago.

KNIFFEN: I predicted that we would see the largest drop in mall traffic in
the history of the mall in the fourth quarter of this year. It looks like
that I was right. I think it will be worse in the fourth quarter of next
year. I think this is accelerating not slowing down.

That means that we don`t need 1,100 closed malls in America and I`ve been
saying for more than two years that we were going to see at least 400 do
something else. They might not go away but they`re not going to be the
mall as we know them today.

HERERA: Right.

KNIFFEN: Now, that doesn`t mean it`s the death of the mall. We have 250
fabulous malls in America that are going to get more business. They`re
going to have higher rents. They`re going to do great. But that`s 250 out
of 1,100.

HERERA: That`s right.

You also predicted Sears (NASDAQ:SHLD) will file for bankruptcy in August
and, you know, basically we`ve seen them put out the fact that they are
going to close a number of stores. I mean, maybe it`s the drip, drip, drip
before the actual event.

KNIFFEN: Well, they got a new lease on life after I wrote that. They got
a loan of what almost $500 million and they just sold craftsman for what
they described as a $900 million transaction. So, once you do some asset
sales you can go longer.

I have described that though as basically they`re selling the assets,
they`re taking the cash, they`re putting it in the fireplace and they`re
sending it up the chimney —

MATHISEN: Right.

KNIFFEN: — because they keep losing so much money every quarter.

MATHISEN: You`ve got some interesting thoughts about some of the tweener
stores like Saks (NYSE:SKS) and Lord & Taylor, but maybe your most
interesting prediction there could be a bitter for Macy`s (NYSE:M), which
is by your accounts sort of going through some trouble. Who would it be?

KNIFFEN: Well, I think Macy`s (NYSE:M) will be the survivor in the space.
It`s not going to be the other regional department stores. Macy`s (NYSE:M)
will be there. They`ll be there with 500 stores or more.

But I still believe that we need the merger of the off-price space and the
full price space. I said for ten years that Macy`s (NYSE:M) should buy an
off-price player instead they started their own because they were too late
in the game. Now, it looks like, given the size of the off-price players,
they could buy Macy`s (NYSE:M). Why would they want to do that? Because
in order to have a viable off-price space, you need a full price space to
compare yourself to.

So, if the off-price guys own the full price guys own the full price guys,
they would have the whole market sewed up for the best brands in the
country. I think that`s a transaction that should happen.

HERERA: Fascinating stuff. Thank you, Jan. Good to see you as always.

KNIFFEN: You too.

HERERA: Jan Kniffen with J. Rogers (NYSE:ROG) Kniffen Worldwide
Enterprises.

MATHISEN: The world`s largest retailer is pushing further into ecommerce.
Walmart will buy Shoebuy for $70 million to better compete with Amazon`s
giant Zappos. Walmart made online expansion its priority last year when it
purchased Jet.com for more than $3 billion, and at that time, it also said
it plans to invest billions more in its online operation while cutting back
on new store openings.

HERERA: Meantime, online retailer Amazon (NASDAQ:AMZN) is reportedly in
talks to buy bankrupt clothing maker American Apparel. That move would
expand Amazon`s private label business. American Apparel is known for its
“Made in the USA” slogan and says it`s the largest clothing manufacturer in
North America.

So, with that acquisition, Amazon (NASDAQ:AMZN) could in theory save
thousands of U.S. manufacturing jobs.

MATHISEN: As we mentioned earlier, retail stocks weighed on the broad
market today, so did financials which have been among the markets best
gainers since the election. Solid economic data today not enough to lift
shares.

The Dow Jones Industrial Average fell 42 points to 19,899. That`s it first
loss of the New Year. OK, so it`s just day three but either way. NASDAQ
up 10 to a record close, as we mentioned earlier, and the S&P 500 very
slightly lower.

HERERA: One day ahead of the monthly employment release, a new report
shows a slowing in private sector job creation. Private payroll processor
ADP says 153,000 jobs were created last month. That was below market
expectations and down from November. All of the gains came from the
service sector.

Separately, the number of Americans filing for unemployment benefits fell
by 28,000 last week to one of the lowest levels in four decades.

MATHISEN: The services sector, the biggest part of the U.S. economy,
expanded at a solid pace at the end of last year. According to the
Institute for Supply Management, new orders rose sharply and even the
troubled mining sector saw growth. The service industry accounts for more
than two-thirds of economic output.

HERERA: Fiscal stimulus may not kick start growth as aggressively as many
think. That`s according to the president of the San Francisco Fed who
today said he`s expecting economic activity to be subdued.

(BEGIN VIDEO CLIP)

JOHN WILLIAMS, FEDERAL RESERVE BANK OF SAN FRANCISCO PRESIDENT: My view in
terms of the demographic that we`ve been seeing for last decade or so is
that growth is likely to be one in half to one and three quarters percent.
Now, some policies could change that. If we can find ways to do a lot more
investment in our people, in technology, more broadly in infrastructure, I
think we can shift that upwards. But right now, my view is of the fiscal
stimulus that people have been talking about would have a relatively modest
effect.

(END VIDEO CLIP)

HERERA: President-elect Trump has proposed a big increase in
infrastructure spending that he says will stimulate the economy.

MATHISEN: And Donald Trump set his sights on Toyota (NYSE:TM) today and
its manufacturing operation south of the border. In a tweet, he said,
“Toyota (NYSE:TM) Motor will build a new plant in Baja, Mexico, to build
Corolla cars for U.S. No way! Build plant in U.S. or pay big border tax.”

Toyota (NYSE:TM) responded by saying the Mexican plant will not cut U.S.
jobs, but shares fell hard midday when that tweet went out.

HERERA: Time Warner (NYSE:TWX) shares also came under pressure midday when
it was reported that the president-elect still opposes its merger with AT&T
(NYSE:T). The report cited unnamed people close to Donald Trump. But the
stock reacted as you can see by that sharp drop right before 2:00 p.m.
Eastern Time. The move in AT&T (NYSE:T), not as dramatic.

MATHISEN: The nation`s top U.S. intelligence official said he is resolute
in his belief that Russia staged a cyber attack during the presidential
election. The comments which conflict with the president-elect`s views
came during a Senate hearing and Eamon Javers was there.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some of the nation`s
top spy chiefs went to Capitol Hill today for a showdown over Russian
hacking in the 2016 election and it was a chance for the intelligence bests
to very publicly disagree with the incoming commander-in-chief.

Earlier this week, Trump questioned the validity of the Russian hacking
accusations. But Thursday, the Director of National Intelligence James
Clapper and NSA chief, Admiral Mike Rogers (NYSE:ROG), disagreed with
President-elect Trump.

SEN. JOE DONNELLY (D), INDIANA: Director Clapper, how would you describe
your confidence in attributing these attacks to the Russian government as
opposed to someone in their basement?

JAMES CLAPPER, DIRECTOR OF NATIONAL INTELLIGENCE: It`s very high.

JAVERS: They dismissed WikiLeaks founder Julian Assange who Trump quoted
favorably this week.

CLAPPER: I don`t think those of us in the intelligence community have a
whole lot of respect for him.

JAVERS: And they clearly didn`t appreciate the mocking tone of some of
Trump`s recent tweets about the intelligence community.

CLAPPER: I think there`s a difference between skepticism and
disparagement.

JAVERS: By Thursday morning, even before the hearing, Trump`s tone about
the clandestine services seemed to pivot. He tweeted, “The media lies to
make it look like I am against intelligence when, in fact, I am a big fan.”

Trump is scheduled to get take classified briefing at Trump Tower tomorrow
from Rogers (NYSE:ROG), Clapper and other U.S. intelligence officials who
will explain their assessment and also how it is that they know what they
know.

I asked Admiral Mike Rogers (NYSE:ROG) as he was leaving the hearing what
his message for Donald Trump is and he said, “No comment. I`ll talk to him
tomorrow.”

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.

(END VIDEOTAPE)

MATHISEN: Still ahead, after rocketing higher, are apartment rents finally
starting to fall back to earth?

(MUSIC)

MATHISEN: Investment analysts as a group project a 12 percent rise in
earnings for the S&P 500. And while that may seem like a big game,
forecasts are down from October 1 when growth was expected to hit nearly 14
percent. Financials, materials and technology could see their earnings
grow at a double digit pace. Utilities sector expected to lag.

HERERA: Expectations for strong earnings growth, looser regulations and
lower taxes are some of the things that have driven the market higher since
the election. In fact, the rush of optimism has been so strong that even
some bears have turned into bulls.

As Mike Santoli reports, that group think may not necessarily be a good
thing.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The so-called Trump
rally has investors looking on the bright side again. A recent pick-up in
economic growth and hope for business-friendly Trump policies have lifted
the Dow Jones more than 8 percent since Election Day and boosted several
measures of investor confidence to levels not even in years. That`s the
good news.

In the short-term, though, signs of over-optimism are flashing a caution
signal for stocks. A hint that immediate further upside could be limited
with the bullish bandwagon looking pretty full. Surveys of both
professional and individual investors have shown an extreme surplus of
bulls expecting higher share prices over a shrinking group of skeptical
bears. Cash is rushed into exchange-traded funds that track big U.S. stock
indexes at a pace not seen for two years.

And a conference board measures of consumer confidence hit at 15-year high
at last report, while positive for household spending such high confidence
readings are associated more with rallies nearing a high than one that sets
the speed even higher. By Wall Street`s often contrary logic, extreme
optimism typically means stocks are set to stall or perhaps tip in the
coming weeks. Right now, this setup is complicated by the sectors such as
bank stocks and industrials have surged since the election on those hopes
of quick tax cuts, deregulation and new infrastructure spending under a
President Trump.

As the inauguration nears, investors are struggling to handicap the chances
for quick progress along these fronts. None of this says that the good
times are over for the market, the rally has been impressively broad, and
corporate earnings are paused to recover from their 2016 tail spin in the
coming quarters.

Still, the best thing for stock prices in the longer term might be for a
brief market set back that dims investors` enthusiasm for stocks. A less
crowded bandwagon has a better chance of moving ahead quickly.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock
Exchange.

(END VIDEOTAPE)

MATHISEN: As investors look for places to put their money, some are eyeing
a sector that had fallen out of favor, telecoms.

But as Dominic Chu reports, there are reasons why there`s a new found
interest in that group.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market rally
since the Trump election victory has produced a huge amount of gains
specifically for the S&P 500 financial sector, the best performing sector
in the large cap S&P 500 since that time. But these days, the second best
performing sector overall is a dividend paying sector and that is the
telecom sector. You can see, they`re up by about 15 percent since the
election, coming close to the 16 percent gain for the S&P 500 financials or
the bank stocks.

Now, not all interest rates sensitive sectors like utilities or consumer
staple stocks have participated in the upside. They`ve been lagging the
overall market but telecom stocks are important for a lot of investors
because they pay outsize dividends compared to other parts of the stock
market.

Now, check out one of these ETFS. This is the Vanguard Telecom exchange-
trade fund, ticker VOX. It hit a record high in trading this past week and
a lot of people are wondering whether or not this can continue as investors
look for more dividend-paying stocks.

Now, two of the biggest components of the index overall have contributed
some of the biggest gains. Check this out, because over the last one
month, AT&T (NYSE:T) is up 11 percent, yet still pays investors a 4.6
percent dividend yield and Verizon (NYSE:VZ) shares up by about 9 percent,
and they still pay a dividend yield over 4 percent.

So, as people start to look in places to invest, this has a lot of positive
momentum and dividend-paying stocks like telecoms could be someplace that
investors will look going forward if they`re still looking for those
dividend payments.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: L Brands suffers the same ills as Macy`s (NYSE:M), and that`s
where we begin tonight`s “Market Focus”.

The owner of Bath and Body Works lowered its profit outlook for the holiday
season after reporting a decline in same store sales during that period.
The company cited weak demand for lingerie products at the company`s
Victoria Secret brand. Shares were off almost 8 percent to $62.04.

Constellation Brands (NYSE:STZ) reported higher profit and revenue in the
latest quarter and raised it`s full year earnings forecast. The owner of
Corona and Modelo brands said results were driven by strong demand for
beers. But shares fell as investors remain unsure about how the president-
elect`s future proposals will impact that company, because it has three
manufacturing plants in Mexico. Shares fell 7 percent to $146.75.

MATHISEN: The watch maker Fossil (NASDAQ:FOSL) said it plans to introduce
new brands and launch more than 300 new products this year. The owner of
Michele watches said the new products will include smart watches and
fitness trackers. Shares of Fossil (NASDAQ:FOSL) fell more than 7 percent
today to $25.01.

The research company Gartner (NYSE:IT) has agreed to take over the
consulting firm CEB for more than $2.5 billion. The deal expected to offer
consumers a greater array of services. Gartner (NYSE:IT) shares, though,
down 11 percent on news of this deal to $90.56. Shares of CEB soared
almost 21 percent to $74.85.

HERERA: Mortgage rates fell for the first time since the election
according to Freddie Mac, the 30-year fixed rate average declined to 4.2
percent. It`s the first time since 2014 mortgage rates opened the year
above 4 percent.

MATHISEN: Apartment rents are starting to fall. After rising swiftly over
the past few years, there`s new evidence that the trend may be starting to
reverse.

Diana Olick has the details.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you`re looking to
upgrade to a nicer rental apartment, now is the time. Higher end rents are
finally coming down, as new supply gets ready to hit the market this year.
Rents had been rising far faster than incomes for the past few years, as
high demand outpaced supply.

But there is a limit, even on the luxury end. Apartment vacancies are
still very tight and getting tighter but rents are evening. Rent growth at
the 2016 was actually the lowest in seven years and some major metropolitan
markets are seeing rent fall — Boston, New York City, D.C., Austin,
Seattle and San Francisco all saw small rent drops, according to a new
report from REIS, Inc.

Landlords are making bigger concessions now, trying to get tenants locked
in before much more supply hits the market this year and pushes rents even
lower.

The drops aren`t everywhere, though. They`re mostly in expensive markets
in expensive buildings. Cities like Nashville, Salt Lake and Sacramento
are still seeing rents push higher.

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

(END VIDEOTAPE)

HERERA: Coming up, doubling down. What some companies are doing to take
entertainment into the next dimension.

(MUSIC)

MATHISEN: Here`s a look at what to watch tomorrow. The employment report
for December is due out. Expectations are for the creation of about
185,000 new jobs.

Boeing (NYSE:BA) releases its final delivery and order numbers for 2016 and
a number of Federal Reserve officials is scheduled to speak on the economy.
And that`s what to watch Friday.

HERERA: Verizon (NYSE:VZ) says it`s unsure now whether it will proceed
with its acquisition of Yahoo`s core assets. An executive said the Carrier
is still studying the impact of Yahoo`s massive data breech that affected
more than 1 billion accounts. The company`s executive vice president said
she cannot say with confidence one way or the other whether the deal will
proceed.

MATHISEN: Those Verizon (NYSE:VZ) comments were made at the consumer
electronic show. That`s the world`s largest technology exhibit. That
wasn`t the only thing that happened at the big conferences.

As Julia Boorstin reports from Las Vegas, the focus was on a few dominant
high tech trends.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While new super
thin TVs are on display here at CES, some of the biggest news is about the
content consumers can access on these giant screens or anywhere else as
technology revolutionized the entertainment experience.

Today, Hulu announcing its new streaming TV bundle live an on demand
content plus DVR capability for under $40.

MIKE HOPKINS, HULU CEO: When people opt to take the Hulu package, they`re
actually in the paid TV ecosystems. So, we actually think that with
services like ours, you`re going to see paid TV stabilize in this country
and potentially even grow in the future.

BOORSTIN: Hulu joining DirecTV and Sling with alternatives to the
traditional live TV bundle and media companies are increasingly on board.

ROGER LYNCH, SLINGTV CEO: When we first approached the media company for
the idea of a skinny bundle, there was a lot of concern, and what we really
I think were able to convince them of, look, cord cutting is happening.
It`s happening without Sling being in the market.

So, you can either ignore it or you can try to embrace it and figure out
packages that will appeal to people who cut the cord.

So, I think there`s now a growing acceptance really they need to segment
the market.

BOORSTIN: But it`s not just video content, a range of companies here are
focused on using technology to bring entertainment into a new dimension,
with new virtual reality hardware and software.

Twenty-First Century Fox is here with a sneak peek of its “Planet of the
Apes” experience due out this fall. The FOX doubling down on creating VR
experiences to sell and it expects other studios to follow.

MIKE DUNN, 20TH CENTURY FOX: I think you have enough players out there
that there`s a market developing. So, it`s not a risky investment to
develop commercial AR or VR. So, you`re going to have more players
develop, you know, long form commercial content.

BOORSTIN: HTC`s Vibe just announced a big push for content, debuting new
app store with a Netflix (NASDAQ:NFLX)-like subscription service for VR,
making it easier for consumers to find and engage with VR content and
making it more appealing to invest in these headsets.

If the trend showcased here at CES play out, 2017 could be the year that
content breaks out from the bundle and becomes more immersive and engaging
than ever.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Las Vegas.

(END VIDEOTAPE)

MATHISEN: That`s a good look on her, right? Don`t you think?

HERERA: With the goggles on and it messes up your hair.

MATHISEN: Oh, yes. It messes up the hair.

HERERA: That`s it for us tonight on NBR. I`m Sue Herera. Thanks for
joining us.

MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody, and we
will see you back here tomorrow with your virtual reality goggles on.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by CQRC
Transcriptions, LLC. Updates may be posted at a later date. The views of
our guests and commentators are their own and do not necessarily represent
the views of Nightly Business Report, or CNBC, Inc. Information presented
on Nightly Business Report is not and should not be considered as
investment advice. (c) 2017 CNBC, Inc.

 

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