Transcript: Nightly Business Report – February 8, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

Funded in part by —

(COMMERCIAL AD)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Presidential pressure. Intel
(NASDAQ:INTC) invests $7 billion in an Arizona plant even as other
companies continue to move some of their operations to Mexico.

Washington whiplash. But is it possible that the way Washington works is
actually putting a floor under the market?

Made in the USA. Why that is a complicated issue for some major pipeline
projects.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
February 8th.

Good evening, everyone. I`m Sue Herera. My partner Tyler Mathisen is off
tonight.

The White House has been exerting a lot of pressure over U.S. companies to
keep jobs here in the U.S. The automakers are prime examples. But today,
it was Intel`s turn. The CEO of the world`s largest chip maker says he
plans to invest $7 billion in an Arizona semiconductor plant.

And CEO Brian Krzanich announced the project it an unusual way, from the
Oval Office.

(BEGIN VIDEO CLIP)

BRIAN KRZANICH, INTEL CEO: Fab 42 is an investment in Intel (NASDAQ:INTC)
but also the U.S.`s future in innovation and leadership in the
semiconductor industry. And Fab 42 will employ approximately 3,000 direct
high paying, high wage, high-tech jobs at its peak. And over 10,000 people
in the Arizona area in support of the factory.

(END VIDEO CLIP)

HERERA: But plans for the facility were actually put in place a while ago.
In 2011, Intel (NASDAQ:INTC) said it planned to invest had $5 billion in
the Chandler, Arizona, plant. But then Intel (NASDAQ:INTC) pulled the plug
on that and said it sat empty since 2014. Mr. Krzanich says he is going
ahead with the project now because of potential regulatory changes.

Despite pressure from the White House, many companies still have plans some
operations to Mexico. The list includes big companies, as well as smaller
ones. According to “The Wall Street Journal”, Caterpillar (NYSE:CAT) and
steel maker Nucor (NYSE:NUE) are opening plants south of the border, as are
General Motors (NYSE:GM) and electronic component maker CTS (NYSE:CTS).
Rexnord is also going ahead with plans despite President Trump calling out
that company for, quote, “viciously firing workers”.

The tech industry and the business world were waiting for a ruling on the
president`s immigration order. But the court said the decision would not
come today. So, on Wall Street, activity was muted as the recent stock
surge took a pause and financial shares declined. The Dow Jones Industrial
Average fell 35 points to 20,054. The NASDAQ rose 8 to a new high, and the
S&P 500 added 1.

Well, despite today`s small moves, exchange-traded funds are having a big
year and it could be a sign that retail and institutional investors are
getting back into this market.

Dominic Chu tells us why ETFs are suddenly hot. Right, Dom?

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Right, Sue.

ETFs are just one of the vehicles by which investors, retail and
institutional included are reporting money back in the market. And
according to the folks over at Blackrock, which manages a lot of money in
funds and ETFs, we`ve seen a huge year in 2016, specifically in the last
two months. About $47 billion went into U.S. ETFs just in November, on the
heels perhaps of the election, and around $59 billion again in just the
month of December, two of the biggest backed months on records going back
to 2008.

So, a lot of money pouring into these U.S.-based ETFs. Some of the
highlights, it`s carrying over into 2017 as well, because in January, we`re
seeing some interesting stats here, Sue. ETFs, globally, took in about $61
billion in assets. That`s the best month for inflows into U.S. and global
ETFs overall since September of 2008. It is also the best January on
record going back to 2008.

And this is interesting part, guys — U.S. small cap stocks took in about
$4.3 billion worth in those ETFs. So, it means, Sue, that over a fifth of
all the money that went to U.S. exchange traded funds just in January was
in small cap stocks.

So, the question is, can that run continue in the markets of course near
record highs, Sue.

Back over to you.

HERERA: Absolutely, Dom. Thanks so much, Dominic Chu.

Well, while investors have been pouring a lot of money into ETFs since the
election, Brian Reid is here and he says he`s seeing a return to normalcy
in mutual funds. He is chief economist at the Investment Company Institute
and he joins us to talk more about this.

Good to see you, Brian. Welcome back.

BRIAN REID, INVESTMENT COMPANY INSTITUTE CHIEF ECONOMIST: Thank you.

HERERA: What do you mean by a return to normalcy?

REID: Well, after the election, I think there was an expectation that we
would have some very quick changes in Washington. And people were
exuberant, putting money into domestic funds, both ETFs and mutual funds.
And we`ve seen that return where we`ve gone back to a period where
investors have kind of slowed down these purchases of domestic stock funds
had and gone back to where they were before, putting money into bond funds
and into global stock funds.

HERERA: And how much of that do you think will continue if indeed things
move a little more slowly in Washington than everybody, as you pointed out,
anticipated at first?

REID: I think we`re going to return back to some of the many strong
demographics that have been driving investor demand. And they`re kicking
our focus off from Washington, which is probably a good thing and focusing
on their own futures, the retirement and what they`re needing to do to
build out for their own future retirement plans.

HERERA: There may be some changes under this new administration. One is
this fiduciary rule governing how brokers give retirement advice to their
customers, which is we`ve been covering here on NBR. The Labor Department
late today sought to stay legal change to that rule.

What does that mean? And what would this rule mean for investors?

REID: What the rule is trying to do is make sure that when you went to
your financial adviser, you were in their — they were making decisions for
you that are in your best interests. And one of the challenges that I
think has been is how to implement this. It`s been very complicated. And
so, putting a stay on this I think would give as you little more time to
make sure that no investors are hurt in the process of getting to that new
standard.

HERERA: Could it cause market volatility do you think or not?

REID: I don`t think any market —

HERERA: It`s been in the market for a while.

REID: Yes, it`s been in the market. I think it`s more about, are you
going to continue to be able to go to your adviser and get the help that
you need? And in its rule, it`s such a significant change that we want to
make sure that there is enough time for everybody to implement it. So,
they can continue to work in your interest, but doing so without being
disruptive.

HERERA: You mentioned that bond fund flows have increased. What does that
tell you about the mindset of the individual investor?

REID: I think what it really tells me about the mindset is they`re looking
for income in retirement. So, we have a lot of the baby boomers who have
all those 401(k) balances, and they`re shifting a little bit away from
stocks, putting into bonds, making sure there`s a little bit more stability
in their portfolios and this is what you would expect when people are
entering their retirement phase.

HERERA: One of the things that you`re keeping a very close eye on and you
recommend our viewers to keep a close eye on is the tax reform
possibilities. Tell me more about that.

REID: So, we don`t really quite know where this is going to go. But let`s
say if we had a reduction in tax rate, that actually would make taxable
bonds more attractive. Municipal bonds, which have a tax reference, would
look a little bit less attractive because the yield on them wouldn`t be as
attractive relative to those tax bonds of a lower rate.

We could also see potentially, some of the carving back of some of those
special treatments for the municipal bond income, and that would make
municipal bonds less attractive. So, we saw right after the election,
investors pulling back from municipal bond funds. We`re seeing money
coming back in. I think, again, because they think Washington works in its
own way.

HERERA: Well, it`s interesting. It`s is going to be interesting to see
whether we have that stability throughout the year as Washington continues
to work.

Brian, nice to see you again.

REID: Good to see you.

HERERA: Brian Reid with the Investment Company Institute.

Mexico is our third largest trading partner. It exports goods to the U.S.,
worth nearly $63 billion more than it imports. That statistic is what
President Trump keeps targeting, but it doesn`t tell the whole story.

Steve Liesman puts the pieces together.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: To hear President
Trump tell it, the U.S. is losing ground relative to Mexico and China on
the wealth front. Here`s President Trump from a meeting with Harley-
Davidson (NYSE:HOG) last week.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We`re redoing NAFTA. We`re
doing a lot of our trade deals. And we`re negotiating properly with
countries, even countries that our allies, a lot of people taking advantage
of us, a lot of countries taking advantage of us.

LIESMAN: But the data tell a different story. The U.S. is actually
pulling away from Mexico and it will take decades for China to even get
close. The U.S. per capita and GDP is around $52,000. That compared to
$10,000 for Mexico and $6,200 for China. So, it`s five times greater in
the U.S. than Mexico and more than seven times greater than in China.

ROBERT SHAPIRO, SONECON CHAIRMAN: We have been the world`s number one
economy for over 100 years. And in that time we`ve accumulated just
enormous wealth.

China is becoming a very prosperous and advanced country. But she`s had
about 20 years in which she`s been able to really accumulate wealth.

LIESMAN: The gap with Mexico, that`s the blue bars, narrowed from 2006 to
2012. But it`s widened the past three years. That is, whatever the
unfairness of trade deals may be, the U.S. is getting wealthier relative to
Mexico.

Same story with China, it narrowed and it`s begun to widen yet again.

For Mexico, it`s a story of a bad education system and poor productivity of
the average worker. Their northern manufacturing areas that do the exports
do much better, but it`s not enough to create convergence between U.S. and
Mexico wealth.

China`s growth has slowed, but it`s still higher than the U.S. It means
that they`re on track to catch up. But it will be 20 years for per capita
GDP to just be on par where Mexico is right now relative to the U.S. That
is 20 years from now, U.S. per capita GDP will still be five times greater
than in China.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: Still ahead, the complexities of the president`s America first
energy plan.

(BEGIN VIDEO CLIP)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump
said that he wants the pipe for large scale pipeline projects to be made in
the USA. Sounds simple, but it`s not. That story coming up on NIGHTLY
BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: The city of Seattle has cut ties with Wells Fargo (NYSE:WFC). The
city council passed the measure last night because of the bank`s role as a
lender of the Dakota Access Pipeline Project. The bill directs official s
not to renew its contract with Wells Fargo (NYSE:WFC), which continues
through 2018. The bank manages more than on $3 billion of Seattle`s
operating account.

Wells Fargo (NYSE:WFC) says it is disappointed by the decision and is ready
to support Seattle with its financial services needs in the future.

Oil prices finished higher for the first time in three sessions. But it`s
the pipeline industry that`s getting attention. Just days after President
Trump issued an executive order to proceed with Keystone`s XL Pipeline, the
company building the project, TransCanada, reapplied for approval.

But as Jackie DeAngelis reports from Little Rock, Arkansas, there are big
questions surrounding just how quickly the project might proceed.

(BEGIN VIDEOTAPE)

DEANGELIS: In a storage field just miles from downtown Little Rock,
Arkansas, more than 50 percent of the pipe, over 300 miles, needed to
complete the Keystone XL, sits idle at Welspun Tubular, where it was
manufactured, since before the Obama administration vetoed the project in
2015.

President Trump said he wants pipeline pipes to be made in the USA, which
some of them are. But he also said the steel used must be sourced here as
well.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I want the pipe to be
manufactured with United States steel.

DEANGELIS: No one knows exactly what the president means. Will all this
pipeline be sold for scrap? Or did the executive order apply to future
projects only?

Currently, the steel for the large pipe used for these types of projects is
sourced internationally. It comes from places like Japan, Korea, China,
India, Italy, and Turkey. Still, U.S. steel manufacturers say they can
make this kind of pipe but they`re not doing it right now.

With more pipeline approvals expected, can U.S. steel companies meet the
demand?

DAVID LIPSCHITZ, CLSA STEEL ANALYST: Right now, the U.S. Steels and the
Nucors have some, but they haven`t had all of it. So, we`ve had to source
from Italy and India. Most of the pipe has already been delivered, for
most of the pipelines, for the Dakota and things like that. The steel pipe
is already there. So, they would be — it would have to be new projects
that they would have to ramp up for.

DEANGELIS: It`s an important issue right now that needs clarification.
The president has vowed to move forward with an America first energy plan,
getting this kind of pipe stamped made in the USA, could be more
challenging than he thought.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis, Little Rock, Arkansas.

(END VIDEOTAPE)

HERERA: So, let`s turn now to John Kilduff, to talk more about what`s
happening in the oil markets and where he sees prices headed. He is
founding partner of Again Capital.

Nice to see you, John.

JOHN KILDUFF, AGAIN CAPITAL FOUNDING PARTNER: Good evening, Sue.

HERERA: Let`s start — Jackie laid it out kind of the pipeline industry
per se.

KILDUFF: Right.

HERERA: But when we look at the oil industry, you`re really looking at the
supply/demand ratio, especially in light of the OPEC cut a while ago.

KILDUFF: That`s right, because obviously, this is a global market. Maybe
more so than ever considering the increase and daily higher amounts of U.S.
food that`s being exported. Our guys are in the game globally. So, now,
prices matter really for everyone.

So, they`re not necessarily as stranded as they have been previously to
just our market. But you really had to look at this on a global basis.
And, unfortunately, we are not still the low cost provider. As long as
prices are up here, $50 and higher, and these shale players have rushed to
hedge their production that is locked in to future price to guarantee a
profit for every barrel, they`ll keep going on the rise.

But if we tip over again like we did last year, or over the past 18th
months, they`ll be in trouble again.

HERERA: You`re also pointing to China, because China`s demand for oil has
been going down. A lot of people thought it was going to continue to go up
and it`s been going the opposite way.

KILDUFF: That`s right. We can even see them had hitting an air pocket of
demand cratering. What the Chinese did that they took a stand or an idea
to build up their own refining industry. They started what are called “tea
pot refineries”. And they ended up making so much that they couldn`t even
use it internally. They started exporting record amounts of diesel fuel,
gasoline, and the international market, particularly in Asia got swamped.

Well, they`ve woken up to the fact there`s a lot of pollution, a lot of
problems in the industry. It looks like they`re going to cut back so much
that their oil demand, crude oil demand may go down as much as 900,000
barrels a day over the course of this year.

HERERA: Wow.

And you point out the fact that even with gasoline prices really at pretty
reasonable level, drivers had not driving as much as they were. Maybe
that`s seasonable. I mean, it`s the weather. Who knows? But you`re
pointing to that as a factor for gasoline and for oil.

KILDUFF: In a weekly report from the government today, the demand did pick
up to more normalized levels. But it had reached such a low level over the
past several weeks that it was kind of numbers, a break in demand that you
would see during a severe recession. It was very worrying —

HERERA: Why do you think that happened?

KILDUFF: We believe that a couple of things happened. There is some
consumer response to the higher price, slightly higher price. But part of
demand number that government publishes reflects exports and there was a
big price increase in Mexico that looks to have impacted exports to that
country. So, that`s part of it. But it was really worrying there and a
head scratcher to a degree for a while.

HERERA: Well, if it`s a head scratcher to you, it would be for me. That`s
certainly the case.

You see oil prices moving back down to the $42 barrel level. You`ve kind
of laid some of that out. But is there one specific factor, do you think,
that would drive it down that much?

KILDUFF: Well, I think you have to applaud Saudi Arabia for their extreme
efforts to support the price and rein in production and try to ease this
glut. Unfortunately, they`ve done all they can. And some of the other
countries involved who did not sign up for the deal like Iran and Libya are
ramping up production in a big way.

And the other killer for these guys now going forward here is that we`re
entering the spring, thankfully. Even after a big snowstorm in the
Northeast today, tomorrow. And that`s going to hurt demand and that`s
going to hurt the price, at least for a time. They`re going to have to do
more. They`re gong to have to roll over the deal at least on. But they`ve
got a lot of road to hoe here.

HERERA: All right. We`ll be watching. Thanks so much, John.

KILDUFF: Thank you.

HERERA: John Kilduff with Again Capital.

Intuit (NASDAQ:INTU) cuts its earnings outlook and that`s where we begin
tonight`s “Market Focus”. The maker of the TurboTax software said a slow
start to tax season would cost profit and revenue for the current quarter
to come in lower that initially expected. Shares fell fractionally to
$116.55.

Time Warner (NYSE:TWX) posted revenue above estimates, saying results were
helped by higher subscriptions for its HBO channel and strong box office
sales for the movie “Fantastic Beast and Where to Find Them”. Profit also
beat estimates and Time Warner (NYSE:TWX) said it still expects its pending
$85 billion merger with AT&T (NYSE:T) to close this year. Shares rose 38
cents to $96.60.

Allergan (NYSE:AGN) said strong sales for its new drugs and anti-wrinkle
treatment Botox contributed to the company`s higher revenue, which beat
street estimates. The biotech company also posted earnings that were ahead
of forecast. Allergan (NYSE:AGN) shares were up more than 3 1/2 percent to
$241.17.

Humana (NYSE:HUM) swung to a loss in its latest quarter, but the results
were still good enough to top estimates. As the health insurer said, it
benefited from higher membership in its Medicare business. But revenue
fell more than expected. Humana (NYSE:HUM) also said that it would provide
an update next week on its proposed merger with Aetna (NYSE:AET), a deal
that was blocked by a federal judge last week. Humana (NYSE:HUM) shares
rose 2 percent to $199.64.

And same store sales at Whole Foods fell for the sixth straight quarter.
The grocery chain also posted lower than expected revenue, prompting it to
cut its full year earnings outlook. Following the downbeat news, the
company said it was planning to refine its growth strategy. Shares
initially fell in after-hours trading, but they finished the regular
session up 1 percent to $29.30.

And mortgage applications rose last week and interest fell. According to
the mortgage bankers association, total application volume increased 2.3
percent. But they`re still running more than 20 percent below year ago
levels.

On the cusps of the all important spring housing season, an increasing
number of local markets are mismatched and that`s because a the listing
that we`ve been telling you about is preventing would-be buyers from
finding what`s on that wish list.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: What is a mismatched
market? It`s a where a type of supply and the type of demand are
completely out of kilter.

We know supply is short everywhere. But in certain local markets,
potential buyers are worse off than in others due to the type of supply
available and not available.

Trulia, a real estate listing company measured searches versus available
listings and found that, of course, it comes down to price point —
starter, trade-up and luxury. There`s a significant shortfall in starter
and trade-up homes nationally, and a large surplus of luxury listings.
Twenty-seven percent of all searches nationally were for starter homes, but
only 21 percent of listings were in that category. On the luxury side, 44
percent of searches were in luxury and 55 percent of listings were.

Now, let`s get local. The top ten most mismatched markets on average, four
are in Texas. Dallas leads the pack followed by Houston, then Charlotte
and the Raleigh. Florida also grabs two spots and Greenville, South
Carolina, and Grand Rapids, Michigan, round out the ten.

The markets with the biggest shortfall of luxury homes, Philadelphia,
Detroit, Memphis, New Orleans and L.A.

Interesting that all of those markets have a surplus of start-up supply and
they`re pretty well matched on the trade-ups. So, if you are a young buyer
looking to get into homeownership, these your best bets.

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

(END VIDEOTAPE)

HERERA: Coming up: will Cuervo investors be left with a President Trump
hangover?

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow.

Dow component Coca-Cola (NYSE:KO) is scheduled to report earnings. If
profits and sales decline, it would be the seventh straight quarter of year
over year drops.

President Trump will meet with airline CEOs at the White House. The focus?
Jobs. Weekly jobless claims and a few Fed speeches will provide some
insight into the economy.

And that is what to watch for on Thursday.

And President Trump lashed out at the retailer Nordstrom (NYSE:JWN) over
its decision to stop carrying his daughter`s brand. He tweeted, “My
daughter Ivanka has been treated so unfairly by Nordstrom (NYSE:JWN). She
is a great person, always pushing me to do right thing. Terrible.”

Last month, Ivanka Trump said that she`d be stepping away from her
management role at the clothing and shoe line that bears her name.
Nordstrom (NYSE:JWN) has said that its decision was based on sales results
and not politics. Shares of Nordstrom (NYSE:JWN) dipped momentarily after
the president`s tweet but closed up more than 4 percent.

2017 could be a year of solid retail sales growth. The National Retail
Federation says rising wages, lower under employment and a solid housing
market are driving consumer confidence higher. The industry sales are
expected to grow between 3.7 percent and 4.2 percent last year.

Online and non-store sales could increase between 8 percent and 12 percent.
But there is a major headwind. This industry group forecast does not
include potential legislation, including the controversial border
adjustment tax.

And it is that border adjustment tax, which is also an issue for potential
Cuervo investigators. The world`s largest tequila maker is set to go
public on the Mexican stock exchange. But before investors take a shot of
that IPO, there are a few things to consider.

Landon Dowdy has our story.

(BEGIN VIDEOTAPE)

LANDON DOWDY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A Trump hangover
delayed Jose Cuervo`s IPO twice last year after his election to the Oval
sent the peso to record lows and sparked fears of an economic slowdown in
the Latin American country.

TIMOTHY RAMEY, PIVOTAL: The peso has gotten weaker the recently. But it
is, you know, it`s probably a good time to go public given the strength in
their business and the strength in the categories. So, I wouldn`t quarrel
with the idea of taking Jose Cuervo public at this time.

DOWDY: The IPO comes at a time when the tequila sales are on the rise.
Since 2002, tequila volumes have grown more than 100 percent with last
month`s sales outperforming the category of nearly 10 percent in January.
Jose Cuervo is a big piece of that, commanding a third of the global market
share.

RAMEY: The whole millennial consumption of alcoholic beverages, including
spirits, has been a wonderful, wonderful thing. They`re very into premium.
They`re very into crafted product. And I think that certainly benefited
the rise in tequila.

The problem: the Mexican-based firm could be hurt by President Trump`s
U.S.-Mexican trade deals. The U.S. makes up more than 70 percent of its
revenue and Americans would likely rather not see a tariff on the product.
Higher prices could drive consumers to other high end tequila brands in
what is already a highly competitive industry.

For NIGHTLY BUSINESS REPORT, I`m Landon Dowdy.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for watching. Have a great evening and we will see you right here
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) 2016 CNBC, Inc.

 

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