Transcript: Nightly Business Report – January 13, 2017

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: Banking on it. Profits of the
nation`s biggest banks surged as securities trading revenue boomed since
the election. But is the bank stock rally out of gap?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Critical tax plan. Why
the economic agenda of the Trump administration may hinge on one specific
proposal.

HERERA: Income property. Becoming a land lord is now just a click away.
But it comes with some risks.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
January 13th.

MATHISEN: Good evening, everyone, and welcome.

The banking sector was put to the test today. Three of the nation`s
biggest financial institutions reporting their — reported their earnings
on this Friday the 13th. J.P. Morgan and Bank of America (NYSE:BAC) both
beat Wall Street expectations. Wells Fargo (NYSE:WFC) still reeling from
its fake accounts scandal just missed those estimates.

Now, the sector had been responsible for helping the broader stock market
make new highs since the November election. The prospect of higher
interest rates and less regulation propelled the group. And last quarter`s
profit gains though we`re driven in part by securities trading. Today,
investors wanted to see that the bank stock run was justified.

Now, the commentary for the most part was upbeat and all three of those
stocks rose in trading today.

Bob Pisani has more on this key part of the market.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The first wave of
earnings reports that come in and they`re good enough with Bank of America
(NYSE:BAC), PNC, J.P. Morgan all beating on the bottom line, while Wells
Fargo (NYSE:WFC) was a bit shy of consensus. Now, well, not surprisingly,
not much was offered in terms of 2017 guidance. The bank normally don`t do
that.

J.P. Morgan`s CEO, Jamie Dimon, did say that the U.S. economy may be
building momentum. Looking ahead, there is opportunity for good rationale
and thoughtful policy decisions to be implemented. On the conference call,
Dimon characteristically downplayed forecasting saying, “Oh, we don`t react
that much to the weather.” But he said he was basing his observations on a
broad range of things and it looks like growth may have done a little bit
better in the fourth quarter.

So, what`s going on now? Dimon said that regulatory relief may help banks
open new branches and seek out clients they don`t have a lower tax rate
would be good for growth in the country in general.

So, here`s the bottom line on Trumponomics. This is what Dimon said, you
have to see the whole package before you can see what the net impact is,
but ultimately, it`s good for our franchise broadly. So, CFO Marianne Lake
did say they would provide details on real numbers 2017 guidance at their
investor day and that schedule for February 28.

Now, Bank of America (NYSE:BAC) CFO Paul Donofrio said, “While the recent
rise in interest rates came too late to impact fourth-quarter results, we
do expect to see a significant increase in net interest income in the first
quarter of 2017. In other words, they`re going to make more money,
generally positive earnings report.

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

(END VIDEOTAPE)

HERERA: So, let`s turn now to Fred Cannon for more analysis of those bank
earnings and his take on the rally in the banking sector. He is director
of research and chief equity strategist at KBW (NYSE:KBW).

Fred, welcome. Nice to have you here.

FRED CANNON, KBW (NYSE:KBW) DIR OF RESEARCH, CHIEF EQUITY STRATEGIST:
Great to be on. Thanks for having me.

HERERA: Overall, you know, we`ve seen the financials have quite a run
since the election. Do the earnings that we saw today from the likes of,
you know, Chase and Wells Fargo (NYSE:WFC) support the move that we`ve seen
in stocks?

CANNON: Generally, yes. That`s what we`re looking for some confirmation,
and I think in general, we got it. Headline beads positive guidance which
means their earnings estimates are going to go up.

Now, since the election, earnings estimates have only gone up five to eight
percent. Stocks are up 30. So, we have to have some pull through and I
think we got enough to make investors feel comfortable that this is a go-to
sector for 2017.

MATHISEN: Let`s talk about what one of those, that trio of stocks, and
that would be Wells Fargo (NYSE:WFC). Take us through the investment case
pros and cons for this one. I can well imagine that maybe their mortgage
business which is I think the biggest in the country, if I`m recalling
correctly might face some pressure with rising interest rates.

CANNON: Right. I mean, Wells has a couple challenges.

Number one, of course, is the scandal on the cross sell issues, and one of
the disappointing pieces of news today on Wells was they had promised
investors at $2 billion savings from expense in their shares, but none of
that`s going to investors. It`s all going to the new initiatives, probably
dealing with them their consumer issues.

Secondly, mortgage. They`re the biggest mortgage lender in the country,
and as you suggested, higher rates aren`t good for the mortgage business.
More competition, more pressure.

The reason the stock was up to date though was the net interest margin and
really that`s the positive things folks are looking for in the bank. We
saw a turnaround. It had been under pressure turned around this corner,
and I think that that got folks interested in Wells Fargo (NYSE:WFC).

HERERA: You know, one of the bellwether is considered J.P. Morgan partly
because of the business, but partly because of the CEO. And Jamie Dimon
was on the earnings call this morning and said some pretty positive things
about the economy, as well as his own business.

Do you concur with what he said?

CANNON: Well, they`re pretty well-said, and again, the financials are kind
of the go-to sector-wide, because higher interest rates is helping drive
trading activity and at there and also a higher net interest margin. And,
secondly, if we get some of these reforms investors are hoping for, tax
reform, less regulation, these banks are geared toward that. And I think
if you look at J.P. Morgan, they are the bellwether in the — in the sector
now, especially since Wells Fargo`s fallen on somewhat harder time.

MATHISEN: How much are you counting on those two things you mentioned tax
reform and particularly regulatory relief for the banks to help these
companies or can you even quantify it?

CANNON: Well, we can try and quantify. But really, it`s just some
guesswork at this point in time. Tax reform is very complicated. You can
plug in a nice ten percent or fifteen or twenty percent reduction of the
corporate tax and see what happens. But, you know, wait, a second, are
they really going to get — let banks benefit that much? Maybe that bank
tax could come back in.

Some of these are pretty speculative at this point. I wouldn`t encourage
investors to get too excited yet.

HERERA: All right. Fred, thank you so much. Have a great weekend.

CANNON: Thanks for having me on, Sue.

HERERA: Fred Cannon with KBW (NYSE:KBW).

MATHISEN: Those bank earnings were not enough to lift the Dow, which still
seems stalled below 20,000. However, NASDAQ managed to close that a new
record. Investors appear to be waiting for more details now on those
policies to come out of Washington.

The Dow Jones Industrial Average fell five points to 19,885. NASDAQ rose
26, all time high there. The S&P 500 ended the day higher by four. For
the week, the NASDAQ was the only index to advance by about 1 percent,
fractional losses for the others.

HERERA: To the economy now, sales at retailers rose in December, helped by
a strong demand for cars and an increase in online holiday shopping.
Retail sales increased 0.6 percent last month. Economists say a rise in
wages and an increase in consumer confidence help boost spending.

MATHISEN: That increase in confidence was echoed today by a new report
that showed sentiment is near a 13-year high. According to the University
of Michigan`s sentiment index, Americans are still optimistic that economic
policies under the new administration will help advance growth.

HERERA: A gauge of inflation also increased. The Producer Price Index,
which measures price changes before they reach the consumer, gain 0.3
percent in December, mostly because of higher fuel costs. That`s the third
rise in four months.

MATHISEN: For most of the past eight years, given the political gridlock
that prevailed, the only Washington policies that really affected the
economy in the markets came from the Federal Reserve. That may change now.

Republicans control both houses of Congress and the new GOP president has
promised lots of tax and spending moves. Bottom line, fiscal policy comes
front and center in Trump`s Washington.

Eamon Javers reports on the busy agenda that awaits the new chief a week
from today.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President-elect
Donald Trump ran an unconventional presidential campaign and he`s certainly
going to have an unconventional first day in office. Under previous
president, the inaugural parade has taken hours, but Donald Trump`s team
has said they`re going to cut down on the length of the inaugural parade so
the new president can get to work quickly in the Oval Office.

What will he do there?

Trump has promised more than a dozen executive actions on its first day,
including proposing a constitutional amendment for term limits on all
members of Congress, a hiring freeze on federal employees, requiring that
every new regulation proposed must come with two regulations eliminated a
five-year ban on White House officials lobbying for a foreign government,
announcing an effort to renegotiate or withdraw from NAFTA, labeling China
a currency manipulator, allowing the Keystone pipeline, canceling payments
to the United Nations climate change fund, begin removing more than 2
million criminal illegal immigrants, and suspending immigration from what
Trump calls terror prone regions.

It`s a long list for a busy day and that maybe one of the reasons why
Donald Trump is only going to have three inaugural balls instead of the 10
that Barack Obama had back in 2009.

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

(END VIDEOTAPE)

HERERA: And corporate tax reform is one item on the incoming
administration`s to-do list. Part of the plan is something called the
border tax adjustment, which we told you about earlier this week.

So, tonight, Steve Liesman explains why it is a critical part of team
Trump`s broader economic strategy.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The border
adjustment taxes pretty complicated stuff but the main thing investors need
to know is this — it raises a lot of money and that may be why it exists
at all.

The plan proposed by Republicans would slap a 20 percent tax on imports and
take off taxes on exports. It raises nearly $1 trillion over ten years.
That`s critical because it seems a key revenue source to help pay for a lot
of other ideas, like individual and corporate tax cuts that infrastructure
spending. Without the money, those other ideas could be watered down.

DAN MITCHELL, CATO INSTITUTE: If you give up the trillion dollars of
revenue from this border adjustment provision, maybe the corporate rate
can`t come down to 20 or 25 or 15, whatever the final number will be.
Maybe you have to phase in expensing. You have to give up something.
That`s going to be a horse trading in Capitol Hill.

LIESMAN: And it`s why the market may be ahead of itself when it comes to
counting on Trump policies to boost profits. Concerns about the deficit is
one reason from major investors are a little more skeptical than the
overall market.

KEN GRIFFIN, CITADEL CEO: I think the hard reality of just how significant
our budget deficit is and our accumulated deficit is will weigh heavily on
a Republican Congress in terms of the contours of the tax plan. So,
unfortunately, we`re going to have to get to growth by deregulation, by
encouraging incentives for capital formation. We`re not going to get there
through a trillion-dollar infrastructure spend and through a massive tax
cut.

LIESMAN: This may be sinking more broadly. The Russell 2000 is up more
than twice as much as the S&P since the election, but that`s changed since
January 1st.

One reason could be that small cap stocks pay higher tax rates. The big
companies in the S&P have an average tax rate of 26 percent. The Russell
2000 small-caps, 32 percent.

It`s likely Trump will get at least some of what he campaigned on, maybe a
lot. But the campaign is fading and the political realities of budgets,
deficits and taxes in Washington are now taking over.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: The top goal of the Trump administration, of course, is to
repeal and replace the Affordable Care Act. Today, the House passed a
resolution that paves the way for a quick repeal of the law. Committees
will now be allowed to write formal legislation. No Democrats voted in
favor of the resolution and some Republicans have expressed concerns about
repealing the law with no consensus about what will take Obamacare`s place.

HERERA: The CEO of Lockheed Martin (NYSE:LMT) met with Donald Trump today
at Trump Tower. Marillyn Hewson said that her company plans to create
1,800 jobs in the U.S. and has a new strategy for its military program the
president-elect has called too expensive.

(BEGIN VIDEO CLIP)

MARILLYN HEWSON, LOCKHEED MARTIN CEO: I had a great meeting with
president-elect. It was outstanding and an opportunity to talk about the
F-35 program and I certainly share his views that that we need to get the
best capability to our men and women in uniform and we have need to get the
lowest possible price. So, I`m glad I had an opportunity to tell him that
we are close to a deal that will bring the cost down significantly from the
previous lot of aircraft for the next lot of their aircraft. And moreover,
it`s going to bring a lot of jobs to the United States.

(END VIDEO CLIP)

HERERA: This as the Lockheed Martin (NYSE:LMT) CEOs second meeting with
Mr. Trump since winning the White House.

MATHISEN: Still to come, our market monitor has some new stock selections
for you. His last ones, all of double-digits, have tripled the S&P 500`s
performance since his last time on NBR.

(MUSIC)

MATHISEN: Japanese automotive supplier Takata has agreed to pay a billion
dollars to settle an airbag criminal probe. Yesterday, we reported the
deal was likely. Today, it became official. Three senior executives were
also indicted for their role in covering up the defect that led to 11
deaths in the U.S. and a number of injuries.

HERERA: If you`re uncertain about what to expect in the Trump
administration, try planning a state budget. That process is going on
right now in capitols across the country.

Scott Cohn reports from the state with the biggest budget of them all,
California.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This year`s state
budget process was already going to be tough with the recovery slowing, so
our tax revenues nationwide.

GOV. JERRY BROWN (D), CALIFORNIA: California is growing but less than we
expected.

COHN: And now, along comes Donald Trump.

DONALD TRUMP (R), PRESIDENT-ELECT: We will repeal and replace Obamacare.

COHN: The biggest question mark: healthcare. California is one of 31
states that expanded Medicaid under the Affordable Care Act. Six million
people gain coverage in this state alone.

If that funding goes away, California will have to decide what to do with
people like Charis Hill, who has a chronic inflammatory disorder.

CHARIS HAILL, MEDICAID RECIPIENT: I`m terrified these infusions and any
kind of insurance keeps me alive, and if I lose my coverage, I feel that
I`m threatened to get all of my coverage through hospital emergency room
and that is not how to manage a chronic disease.

COHN: Expansion or not, all 50 states have a Medicaid program to budget
for and healthcare is just the start, according to the National Association
of State Budget Officers.

JOHN HICKS, NAT. ASSOCIATION OF STATE BUDGET OFFICERS: Uncertainty is kind
of part and parcel of every transition but I would say this one is a bit
different because the scope and the scale of some of the changes being
discussed are larger than we`ve seen in recent years.

COHN: Like federal tax reform, which could week even more havoc on state
revenue forecasts. And infrastructure badly needed but who will pay? In
California, they`re bracing themselves.

BROWN: If you look at that the wide array of very drastic initiatives that
are being talked about, either by the transition or commentators or by
President Trump himself, that`s — that`s quite a challenge.

COHN: For now, in every state capitol, about all they can do is plan based
on current federal policies with the knowledge that they`ll have to make
adjustments very soon.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in Sacramento, California.

(END VIDEOTAPE)

HERERA: And to read more about the uncertainty that state budgets are
facing, you can head to our website, NBR.com.

MATHISEN: Blackrock tops earnings expectations and hikes its dividend, and
that is where we begin tonight`s “Market Focus”.

The world`s largest asset manager raised its quarterly dividend 9 percent
to $2.50 a share after blowing past profit estimates. The firm did see
revenue come in a little light but overall, Blackrock said results were
driven by solid demand among investors for low-cost funds. Shares up
fractionally $379.35.

And GameStop said heavy promotions and poor store traffic caused same-store
sales during the holiday period to fall almost 19 percent. The video game
retailer also cited weak demand for the “Call of Duty: Infinite Warfare”
and “Titanfall 2” game titles. Shares were off 8 percent at $22.73.

HERERA: Dexcom, which makes glucose monitoring devices for people with
diabetes, said one of its products will be eligible for Medicare and
Medicaid coverage. The company said that the Centers for Medicare and
Medicaid determine the technology could be used in doctors treatment of
that disease. Dexcom shares soared almost 26 percent to $85.13.

And Pandora said late yesterday that it expects to top its earnings
guidance for the most recent quarter. The company cited strong advertising
performance and subscription growth. Pandora also said it will cut about
seven percent of its workforce in an effort to lower-cost. Shares rose 6
percent to $12.76.

MATHISEN: Our market monitor tonight has a list of stocks he says should
benefit from rising interest rate, and a strong and maybe rising dollars.
His previous stock picks all up double-digits: Microsoft (NASDAQ:MSFT), 17
percent, Google (NASDAQ:GOOG), 12 percent, Alibaba, 19 percent higher. In
that time, the S&P 500 up about four and a half since July.

He`s Ron Weiner, managing director and partner at RDM Financial at High
Tower.

Ron, welcome. Good to have you with us, and congratulations on those stock
picks.

With that in mind, I`m not going to wait, no more further ado, let`s get to
your picks this time.

Blackstone, which is a big private equity company, run by Steve Schwarzman.
Why do you like it?

RON WEINER, RDM FINANCIAL MANAGING DIRECTOR & PARTNER: First off, Steve
Schwarzman, one of the smartest guys on the planet. So, you don`t want to
bet against him.

Now, I went looking for something to talk about tonight and everybody`s
talking about J.P. Morgan and Bank of America (NYSE:BAC). So, I`m looking
for a financial which we like the sector, you know, that hasn`t been talked
about .

Blackstone makes deals. They have hedge funds. They have private equity.
They do credit lending. They do a lot of, you know, very esoteric things.
We actually use one of — one of their hedge fund`s funds, and they`re not
cheap.

So, they make money. They make a lot of money. And we think with interest
rates going up, people are going to be looking at these people we think the
deals will be made and that Blackstone be right in the middle of it. So,
we like Blackstone. Plus, it`s got a five-and-a-half percent dividend.

HERERA: Right.

WEINER: If the market is high now, the market is high, then we got to get
paid while we wait if there`s any kind of correction.

HERERA: All right. Let`s move on to Global X Master Limited Partnership
ETS. That`s energy infrastructure.

WEINER: Yes, you bet. So, these are — these are the pipeline, storage
and processing people. This is not the oil companies. This is not the
integrated or the drillers or anything like that.

If we have a secretary of state who was the head of Exxon, if we have a
secretary of energy which is from Texas, and an EPA guy, secretary who`s
from Oklahoma, they want to reduce regulations, jeez, pipelines. You got
to get all this new oil of which the Energy Commission says we`re going to
be self-sufficient by 2024. Well, they got to get this oil from the
wellhead to Oklahoma or the Gulf, and you know their prospects are really
bright. And that dividend is about 7 percent, pretty good.

MATHISEN: And you`re third — and you`re third choice is a return member
to your list, Microsoft (NASDAQ:MSFT), once again. Why do you think it can
continue to power higher? It`s 21 percent higher over the past year. It`s
17 percent higher than when you picked it last summer.

WEINER: You bet. Well, the truth is I could have picked all three of the
things that we talked about last year, but what I think Microsoft
(NASDAQ:MSFT), the way that they`re balling into the cloud, rather — I
mean, they`re doing a great job of adjusting themselves from just plain
software to the cloud.

They have — they`re not that expensive. There about that 17 times
earnings next year, a little less the year after, pays about a 4.4 percent
dividend. So, they`ll be corrections. But the cloud is the way to go. It
is the future.

So, Microsoft (NASDAQ:MSFT) remains on my list.

MATHISEN: All right, fantastic. Ron, have a happy new year.

WEINER: All right. Same to you, Tyler.

MATHISEN: Ron Weiner, RDM Financial at Hightower.

HERERA: Coming up, looking to collect rent instead of paying it. Well, a
number of new companies want to make investing in real estate is easy as
buying a stock.

(MUSIC)

MATHISEN: Ever thought about becoming a landlord. It`s easier today than
ever. New companies are doing all the dirty work for you, but investors
still need to be aware that it can be a risky business.

Diana Olick has our story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler Laprade is a
software analyst in New York City and the landlord for three homes in
Alabama and Ohio.

TYLER LAPRADE, REAL ESTATE INVESTOR: Someone like me, I`m not ready to
manage an entire apartment building, but I know a single house.

OLICK: Laprade is already in the stock market but wanted to diversify. He
couldn`t invest in his own backyard, too expensive. So, he turned to a
company called HomeUnion for help.

LAPRADE: I don`t really have the time to or the expertise to fly to
Cleveland, to Alabama, and investigate these different markets on my own,
to find tenants, to do all the paperwork, comply with the local regulation.

So, they provide a one-stop shop for me to invest anywhere in the country
that I want.

OLICK: HomeUnion is one of a cottage industry of online companies that
help individual investors find, buy, lease and manage single-family rentals
all over the country.

DON GANGULY, HOMEUNION CEO: What we`re changing is allowing these retail
investors to invest in a more institutional way.

OLICK: Ganguly co-founded the company in 2009, at the height of the
foreclosure crisis. Back then, big institutional names like Blackstone and
Colony Capital were buying thousands of distressed properties and turning
them into rentals. Smaller investors often couldn`t compete.

GANGULY: The argument he says, you know, do I need to live in Atlanta to
buy Coke stock? And so, the purpose of, you know, companies like HomeUnion
is how can we make this institutional and transparent and easy so somebody
sitting anywhere in the U.S. can go out and look at the data and have us
match that data to their financial preferences and acquire properties for
them.

OLICK: InvestAbility is another rental platform that offers investors deep
data on markets across the nation.

WALLY CHARNOFF, INVESTABILITY REAL ESTATE, INC CEO: Once Wall Street said,
hey, this is an asset class we`re going to pay attention to, then company
started developing data analytics, technologies, acquisition tools.

OLICK: And started marketing them to individual investors.

CHARNOFF: I see servicing single-family rental space as a growing
industry. I think we`re going to see more and more market entrants enter
the space.

OLICK: The models differ. HomeUnion charges a fee for the sale like any
real estate agent, but also charges for property rehab and management, and
it has a lending arm.

InvestAbility charges a sales commission, but the data is free.

CHARNOFF: All of the products and services that we`ve developed, we try to
keep the pricing model and the offering themselves geared towards helping
the investor put their money to work as efficiently as possible.

OLICK: The process is definitely easier but not without risk. Tenant
sometimes don`t pay the rent, then roof sometimes leak. And as we all
learned recently, home values go up, but they also go down.

LAPRADE: Do your research. Do as much reading as you can about real
estate, about investing in general.

OLICK: And better to rely only on the rental income, not the home value.
Price appreciation is just the icing on the cake.

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

(END VIDEOTAPE)

MATHISEN: To read more about the new ways of becoming a landlord, head to
our website, NBR.com.

The old ways were very difficult because I did it once, and it`s hard.

HERERA: It`s hard?

MATHISEN: Yes.

HERERA: All right. Well, go to the website. Read more.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for
watching.

MATHISEN: I`m Tyler Mathisen. Thanks for me as well. Have a great
weekend, everybody. And we will see you on Monday, Martin Luther King Day.

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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