Transcript: Nightly Business Report – February 7, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera. Funded in part by —

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Investor exuberance, the major indexes are at or near all time highs. But are stock valuations flashing a warning sign?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Disney drops an unexpected decline in revenue has investors taking a close look now at what’s working and what’s not at the House of the Mouse.

HERERA: Deep divide. Why Nevada’s love-hate relationship with its biggest land owner could get a lot more interesting under the Trump administration. Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, February 7th.

MATHISEN: Good evening, everyone. And welcome. The NASDAQ cranked out a record close. The other two major indexes, they’re within reach and many investors say they are optimistic, that stocks could head even higher if earnings growth is sustained and if the White House pushes through tax cuts and other stimulus.

Today, the Dow Jones Industrial Average rose 37 points to 20, 090. The NASDAQ was up 10 to a record finish. And the S&P 500 eked out a gain as well.

HERERA: The rise in stocks has one influential hedge fund manager concerned. The New York Times reports that Baupost, Seth Klarman, has described the market as “having perilously high valuations”. In a letter to investors, Mr. Klarman wrote that exuberant investors have focused on the potential benefits of stimulative tax cuts white mostly ignoring the risks from America first protectionism and the erection of new trade barriers.

So, is the market overvalued and what should you do? Matt Maley joins us. He’s equity strategist at Miller Tabak. Matt, welcome back. Nice to have you here.

MATT MALEY, MILLER TABAK EQUITY STRATEGIST: Thanks for having me, Sue.

HERERA: I guess that is the question. Do you feel that equity prices and valuations basically are too elevated?

MALEY: Well, they are certainly getting high. I mean, you look at the P/E ratio on a trillion basis is 21 times the earnings. That’s a concern. And of course, the CAPE ratio, which is like tenure average of price earnings is, you know, up at 27, up near all-time highs.

On a trailing basis, it’s lower down near 17. But the big problem is we don’t know what exactly those, you know, forward earnings are going to look like because we’re not really sure exactly how much of Trump’s proposals will get passed, when they’ll get passed, and of course most importantly, when they’ll get implemented.

MATHISEN: Have investors, excuse me, underestimated the risk from some of the policies like protectionism, like a border adjustable tax, et cetera?

MALEY: I think they have. I mean, they just — they’re just pricing in for, you know, perfection. The problem is that, you know, when you see things like the bank stocks, they had, you know, a 30 percent rally just over two months. But actually, they had already been rallying since the middle of the summer up over 50 percent. And they’re pricing in all of this big deregulation. I understand that. I think that frank will be pulled back to a certain degree.

But, you know, it’s not — let’s face it. Deregulating the bank system is not the most populous thing in the world. And there’s this woman, the senator, Elizabeth Warren, who’s got a good bully pulpit to argue from. She’s been pretty quiet lately. I think we’ll hear more out of her and we’ll — she might be successful pushing back on some of that bank regulation. So, I think people are pricing this a little too much of what Trump is going to be able to succeed in getting passed.

HERERA: And if that is the case, and if there are some roadblocks either from Congress or regulations or what have you, I would assume that we might get a little bit more market volatility. As a long-term average investor, not the Wall Street guy, but the long-term average investor, how do you handle that?

MALEY: Well, I think the best thing to do is like any, you know, pullbacks in the market, even corrections, are not only are they normal but they’re healthy. So just, you know, let them — ride them out. But you might want to sit back and hold back from putting in new money into the market just now. And put it in if the market comes in. Everybody talks about — everybody wants to talk — you know, wait for the markets to pull back and they’re going to buy on weakness. So therefore, it won’t happen.

I think it’s still going to happen because of the valuations that Mr. Klarman talked about. And that it will bring some opportunities, especially in the tech area and the energy area if we get some pullbacks on those names.

HERERA: All right. On that note, Matt, thank you so much. Matt Maley with —

MALEY: Thank you.

HERERA: — Miller Tabak.

MATHISEN: A component Disney could set the tone for trading tomorrow, late today, the company said its quarterly revenue was weighed down by ESPN and its studio business. Disney did however report better than expected earnings of $1.55 a share, $0.6 better than estimates.

Revenue, though, down 3 percent from a year ago to roughly $14 billion. And that’s what investors focused on as shares fell initially in after-hours trading.

Julia Boorstin breaks down the pluses and minuses in Disney’s report.

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The real drag on both Disney’s earnings and revenue is consumer products division, showing declines on tough comparisons to the year go quarter when the flew (ph) of new Star Wars products boosted resulted.

With all eyes on ESPN, considered a bellwether for the health of the TV bundle, it dragged on Disney’s cable network’s division. Thanks to lower advertising revenue and the decline in subscribers. But firing on all cylinders, the parks and resorts division, showing growth both in the U.S. and abroad. Thanks to its new Shanghai Park.

From Disney headquarters in Burbank, California, I’m Julia Boorstin.

MATHISEN: President Trump’s temporary travel ban is in a federal appeals court tonight. The judges will decide whether it can be reinstated or if the ban should remain on hold. Each side will have 30 minutes to make its case. And as we’ve been reporting, the technology industry has been paying particularly close attention.

(BEGIN VIDEOTAPE)

MATHISEN (voice over): In a nutshell, President Trump’s executive order suspends travel from seven mostly Muslim countries the administration deems terror incubators and the decree has spawned widespread protests. But the president continues to hold his ground.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I mean, we have to have security in our country.

MATHISEN: Opponents are essentially making three types of arguments to the appeals court. First, that the temporary ban is unlawful. Second, it represents bad policy. And third, that it threatens the nation’s economy.

Just south of the hearing in San Francisco lies Silicon Valley, capital of the U.S. tech industry, where the president’s executive order is raising tensions.

In a court brief filed Sunday, about 100 major tech companies, including Google, Apple, Microsoft, Facebook, Intel, Netflix, Uber and Tesla, came out against the travel restrictions. They say the order harms the competitiveness of U.S. companies and that the rules will make it far more difficult and expensive for U.S. companies to hire some of the world’s best talent.

The Silicon Valley leadership group, an industry trade organization, says 58 percent of the engineers and other high-skilled employees there were born outside of the United States. But the number directly affected by the executive order on travel is admittedly a small fraction of that percentage.

For instance, Microsoft based to the north in Washington State has about 120,000 employees, 71,000 in the United States. The company says it knows of 76 employees who were citizens of the countries targeted by President Trump’s order.

At Alphabet, Google’s parent company, thousands walked out in protest. The company has said more than 100 of its 72,000 global workers are directly affected by the order. It’s not just tech that’s been impacted. The health care industry wasn’t part of Sunday’s court brief, but 16 percent of its more than 14 million workers were foreign born in 2015, including more than half the medical scientists. Think biotech. It’s unknown precisely how many health care workers would be hit by the travel restrictions.

One thing is certain, though, Silicon Valley and lots of tech companies are up in arms over the presidential rule.

(END VIDEOTAPE)

MATHISEN: And today, more than 160 biotech executives signed a letter to a science journal criticizing the travel restrictions.

HERERA: So let’s turn now to our two guests who have opposing views on the topic. Joining us is Alex Nowrasteh, who’s the immigration policy analyst at the Cato Institute who is against the travel restrictions, and John Miano, fellow at the Center for Immigration Studies. And he supports President Trump’s move.

Gentlemen, thank you very much for joining us.

Alex, let me start with you. Why do you oppose this particular move by the Trump administration?

ALEX NOWRASTEH, CATO INSTITUTE IMMIGRATION POLICY ANALYST: Well, for one thing, the move will not increase national security in the United States one iota. These seven countries that are on the ban list haven’t sent a single terrorist who have killed an American on U.S. soil and a terrorist attack ever. So it’s unclear what the purpose of this is if it’s not to increase national security.

And secondly, the economic impacts of this order and future orders that will likely come if this one is upheld will be pretty bad for American businesses, especially a lot of competitive businesses that hire a lot of Americans expand and grow in the United States. It creates uncertainty for them and their employee than investors who want to build and expand from the United States. If their employees go overseas and then all of a sudden, the president in the future puts a travel ban or a restriction that prevents them from coming back, just like we saw a couple weekends ago, that’s going to cause a lot of problem for business —

HERERA: OK.

NOWRASTEH: — and that’s going to restrict the ability of firms who grow in the United States and hire Americans.

MATHISEN: I can see, John, where this is an inconvenience for a lot of companies and for maybe hundreds of workers employed in the United States from these seven countries. But where is the concern about national security in this? Why — I understand that the companies are aggrieved.

JOHN MIANO, CENTER FOR IMMIGRATION STUDIES: Right.

MATHISEN: But, shouldn’t they also be concerned about threats?

MIANO: Well, that’s what — you know, that’s the big thing that President Trump is putting forward, is that, you know, America is a nation. It’s not just an office park where to put a business up. And there’s great concern over terrorism.

And, you know, we’re sitting here and saying, “Well, no terrorists have come from these countries yet”, when the objective is to stop it from coming. And the intelligence people are looking at, you know, where are the most likely places for a terrorist to come to the United States now. And these seven countries are pretty likely candidates. Six of them have completely dysfunctional governments. And Iran, the seventh, is a finder and the sponsor of terrorism.

HERERA: You know, so, Alex, what about that? There are those in the country who feel as John does and have made that point. There are others who were saying though that this — if you keep this travel ban in place, then perhaps you expand it to other countries. It’s a slippery slope in other words.

NOWRASTEH: Well, in the executive order, Trump explicitly wrote that he allows for more countries to be added on this list in the future for virtually any reason and he could expand the ban on these countries going forward.

And again, it’s important to ask they have made the argument, the administration, several times, that there is a national security threat from these places, that this is sort of an imminent terror threat that’s why they rolled it out without conferring with many of the agencies or without members of Congress or the Senate without them checking the order, but they can’t point to any of those threats. They can’t point to a terrorist who has killed successfully an American on U.S. soil for many of these countries.

And, so if they are actually concerned about national security and wanting to restrict immigration for those reasons, then there’s lots of other countries they could have looked at that are a much better arguments than these seven.

MATHISEN: John, let me — this is a 90-day suspension of visas for people from these seven countries to look at the procedures under which people come in. Do you feel that, as Alex sort of alluded to, that what really is the company’s concern here is that this is the leading edge, a stalking horse for more draconian, more restrictive travel policies that could go well beyond this inconvenience for this 90-day, admittedly, it could be extended, for this 90-day span and it could go to such things as the H-1B visa program under which many thousands of workers come into this country every year?

MIANO: I think you’ve actually hit the nail on the head right there with it that right now when you see the business lobbying and organizing over this particular issue, that really doesn’t affect them much.

They’re posturing because they know that President Trump is going to put in place regulatory actions and probably executive actions that will directly affect the business and they’re trying to organize here to try to minimize or head them off.

HERERA: So, Alex, what about that? The H-1B visa program is what most of Silicon Valley and other areas of tech are concerned with. How much do you think — how much clout do you think they will have with the administration given the amount of money they contribute to the economy, the number of people that they employ?

NOWRASTEH: Well, Trump doesn’t seem to care very much about economic reality. He ran in the rest of his platform on a wiser policy of wanting to deregulate energy, finance and other types of — portions of the economy. But when it comes to immigration, when it comes to trade, he wants to put in place more barriers that make it more difficult for American businesses to grow and then make basically Washington, D.C. the boss to determine which firms get to hire their employees, where they get to come from, what skills they need to have —

HERERA: OK.

NOWRASTEH: — and what wages they need to come from. There’s this one thing that we should have learned over the last couple hundred years of economic history is that when governments made these types of decisions for companies, for firms, for economies and for Americans, it’s just not going to turn out very well. And it’s just — it couldn’t be clearer that this is diametrically opposed to the rest of the conservative agenda.

HERERA: All right, on that note, Alex, thank you very much. Alex Nowrasteh with the Cato Institute. John, thank you as well. John Miano with the Center for Immigration Studies.

MATHISEN: And still ahead, the long and winding road, why G.M.’s record earnings are not enough for investors.

Sears’ struggles are intensifying. The cost of insuring the retailers’ bonds hit new highs and its stock continues to tumble. Today, shares off another 13 percent to yet another all-time low. Last month, Sears’ debt was downgraded by Fitch and Moody’s following the retailer’s lackluster holiday sales and mounting losses.

HERERA: General Motors reported record earnings and better-than-expected revenue for the fourth quarter. But that wasn’t enough to impress investors. Shares of the automaker were lower today in part because of Wall Street’s concerns about the potential impact of a border tax and how it could hurt the auto industry.

Phil LeBeau reports.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: These are strange days for G.M. CEO Mary Barra. For the second straight year, her company delivered record profits yield in part by strong sales in China and in the U.S., where the automaker is cashing in on heavy demand for highly profitable pickups and SUVs.

So why is G.M. stock continuing to struggle even as the automaker forecast even greater profits for 2017? One reason is President Trump, who Barra has met with at the White House. He’s threatening to slap a border tax on vehicles made in Mexico and sold in the U.S.

Not only does G.M. import more vehicles from plants in Mexico than any other automaker, a good chunk of them are those highly profitable trucks. So investors are worried G.M., they have to raise prices on pickups or pay a tax that cuts into profits, or perhaps pay hundreds of millions of dollars to move production to the U.S.

Barra says G.M. is talking with the President and waiting to see what he ultimately does with the possible border tax.

MARY BARRA, GENERAL MOTORS CEO (via telephone): There’s a lot of moving pieces right now. We want to — and that’s why we’re at the table and also working at all levels of the administration to make sure we’re providing the input.

(END VIDEOTAPE)

LEBEAU: While G.M. lobbies the Trump administration on tax and trade issues, the company does not see profit slowing down, especially here in the United States, where the average vehicle G.M. sold last year topped $35,000, more than $4,000 above the industry average.

Phil LeBeau, Nightly Business Report, Chicago.

MATHISEN: Heavy discounting hurts results at Michael Kors and that’s where we begin tonight’s market focus. The handbag and accessories maker said a drop in retail foot traffic also contributed to the company’s lower than expected revenue in same store sales miss. The company’s profit fell but it was still enough to beat expectations by a big penny.

Michael Kors also gave down the guidance for the current quarter citing ongoing weakness in its North American market and shares fell nearly 11 percent to 36.82.

Cardinal Health missed revenue expectations as the drug distributor said results were negatively impacted by lower generic drug prices. The company beat profit forecasts but cut its 2017 outlook for the second time. Shares finished up 2 percent at 77.76.

HERERA: The health insurer Centene said an increase in membership in its Medicaid business helped profits top estimates. The company also posted forecast beating revenue and reaffirmed its guidance for the year. Centene’s shares were up 5 percent to $67 even.

Emerson Electric beat profit estimates in its latest quarter as that company benefited from higher sales in China of its refrigeration and HVAC products. The company posted lower overall revenue but said it was raising its earnings and sales guidance for the full year. Shares of Emerson Electric rose almost 4.5 percent to 62.54.

MATHISEN: The trade deficit narrowed in December from the prior month for 2016, though, it exceeded a half trillion dollars, the highest level in four years. Exports last year fell faster than imports, in part because of the strong dollar. That gap is what President Trump wants to narrow as a way — one of the ways to promote economic growth.

HERERA: What is allowed in at our sea ports? With cargo shipments, one of the biggest challenges is identifying what’s not allowed in, like counterfeit goods, which can total hundreds of billions of dollars a year.

Andrea Day talked to federal investigators on the front lines.

(BEGIN VIDEOTAPE)

AL D’ONOFRIO, CUSTOMS AND BORDER PROTECTION CHIEF: It’s volumes of containers that we have to weed down and identify what gives us the most risk and prevent that from coming into the country.

ANDREA DAY, NIGHTLY BUSINESS CORRESPONDENT: At least 3,000 shipping containers arrive here every day. And that’s just the port of New York Newark.

D’ONOFRIO: One container could have average of 2,000 boxes.

DAY: Cargo, he says, that could be loaded with counterfeit goods, drugs or weapons.

Is it even possible to check everything that comes in here on a daily basis?

D’ONOFRIO: It’s impossible. If we did that, it would stop our economy.

DAY: So agents work to identify threats long before the vessels even get close to the United States.

Chief Al D’Onofrio, U.S. Customs and Border Protection.

D’ONOFRIO: That manifesting process gets looked at and reviewed. We have intelligence that comes in.

DAY: Containers that are flagged are brought to the secure examination site.

Where are most of these products coming from? What country?

D’ONOFRIO: Most of them are coming out of China.

DAY: That growing problem, according to federal investigators, counterfeiting.

JASON MOLINA, HOMELAND SECURITY INVESTIGATIONS ASSISTANT SPECIAL AGENT: It’s a huge business. It’s a multibillion dollar business. $600 to $700 billion estimated every year.

DAY: Assistant Special Agent, Jason Molina, Homeland Security, New York.

MOLINA: The proceeds, the billions of dollars that are made from these items can go to fund terrorist organizations, can go to fund other criminal elements throughout the world.

DAY: And take a look at this. The shipment just stopped in its tracks.

D’ONOFRIO: This is all suspect of being counterfeit merchandise, specifically, counterfeit perfume.

DAY: And sure enough, what looks like Chanel, Versace and other high-end fragrances.

D’ONOFRIO: The labeling is telling me it’s made in France, but yet, it’s coming from China, a clear indication that this is going to be counterfeit merchandise. Put it in your hand, you’re feeling it, you know you’re dealing with something more of a toy than a high-end product.

DAY: All the boxes set to go out to small stores are sold online and potentially dangerous.

MOLINA: The counterfeiters have no standards. We’ve seen Mercury, we’ve seen lead, we’ve seen arsenic.

(END VIDEOTAPE)

DAY: It can be very tough to pick out the real from the fake, especially if you can’t open the packaging.

Now, his advice, buy directly from major retailers. And if the price seems too good to be true, that’s a big red flag. For Nightly Business Report, I’m Andrea Day.

HERERA: Coming up, a 21st century land grab?

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I’m Scott Cohn in Red Rock Canyon, Nevada. Who is the biggest land owner in the United States? It’s someone you know well. We’ll tell you who it is and how that might change under President Trump, coming up on Nightly Business Report.

MATHISEN: The Trump administration has given a final approval for the Dakota access pipeline. The army corps of engineers granted the final easement needed to finish the nearly $4 billion controversial project.

Construction had been delayed after protests from Native Americans and environmental activists. President Trump signed an executive order that revived the pipeline’s completion.

HERERA: Missouri is now the 28th right-to-work state. The governor signed a bill yesterday that allows workers to avoid paying dues at union workplaces. Businesses have lobbied for such laws saying that they make states more competitive and help attract employers. Last month, Kentucky enacted a similar law.

MATHISEN: Who’s the largest land owner in the United States? Answer, the United States, you, the taxpayer. Federal government owns hundreds of millions of acres, most of them in the west. And the debate over those lands goes back decades. And now, there’s a new sheriff in town named of Trump and he’s shaking things up.

Scott Cohn reports from the most — state with the most state, Nevada.

(BEGIN VIDEOTAPE)

COHN: This is the Red Rock Canyon National Conservation Area, 200,000 breathtaking acres and you own it all. In fact, the American taxpayer, the federal government owns nearly 85 percent of the land area in Nevada more than any other state.

UNIDENTIFIED MALE: The house would be in order.

COHN: Congress has already begun dismantling Obama area restrictions on the use of federal lands with the blessing of the White House. That hits home for people like Mike Reese worried about a delicate balance.

MIKE REESE, P.A. STATE REPRESENTATIVE: Our best state of affairs right now, as bad as it is, is leaving the status quo.

COHN: Nevada has long had a love-hate relationship with its primary landlord in 2014. Tensions over grazing rights boiled over on the federal ranch land leased by Cliven Bundy, not far from here. The armed standoff lasted for weeks. The criminal trial against Bundy and his followers begins this month.

Out here in the west, opinions about what to do with all of this public land are about as varied as the terrain and the interests involved, environmentalists, ranchers, companies. But with the Trump administration, some see an opening, a way to shake things up once and for all.

Nevada Congressman, Mark Amodei, wants to transfer millions of acres from the feds to the state.

MARK AMODEI, NEVADA CONGRESSMAN: We think locals are in a better position to make those decisions regarding land use, resource, grow, not grow, than with all due respect, the federal government 2,500 miles away.

COHN: Opponents worry the state can’t afford the upkeep.

UNIDENTIFIED MALE: Can one single state that’s got less than $3 million people in it really foot the bill for that? That’s a high price to pay to have our own independence.

COHN: For their part, the president and his nominee for interior secretary say they’re against the idea.

REP. RYAN ZINKE, INTERIOR DEPARTMENT SECRETARY: I am absolutely against transfer or sale of public land.

COHN: But in Nevada and throughout the west, they’re bracing for change.

For Nightly Business Report, I’m Scott Cohn in Red Rock Canyon, Nevada.

(END VIDEOTAPE)

HERERA: And that is Nightly Business Report for tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: Thanks for me as well. I’m Tyler Mathisen. Have a great evening, everybody. And we’ll see you tomorrow.

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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