Transcript: Nightly Business Report – February 20, 2017

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

Funded in part by —

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Good evening, everyone,
and welcome to this special edition of NIGHTLY BUSINESS REPORT. I`m Tyler
Mathisen. Sue Herera is off tonight.

Well, it is Presidents` Day, a day we honor the leaders of the United
States and today we are one month into the first term of our 45th
president, Donald Trump. A lot has happened in the past 30 days. You can
say that again — not only in the stock market which has hit repeatedly
highs but also all across America.

Over the past month, Scott Cohn traveled to California, Michigan and Nevada
to report on the issues effecting business and budgets. And tonight, he`ll
tell us what he found.

But we begin with the stock market which is hit high after high since
inauguration day. Dominic Chu tells us what`s behind the rally and what
might happen next.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Now that President
Donald Trump and his administration have officially been at the helm of
America for one month, investors are taking stock of what we`ve seen and
what we can expect. After a slew of executive orders, Senate confirmation
and policy guidance, stocks still remain near record high levels,
continuing that staggering run we`ve seen in the market since Election Day
last year.

LISA KOPP, U.S. BANK SVP: Overall, we`ve been really policed to the
market`s reaction to Trump`s first 100 days in office. In fact, if you
even go pre-taking office, back to the election, it really has been a very
positive reception for Trump. And we believe that`s because the market is
coalescing around several themes, one of lower taxes, second around
regulatory reform, certainly reflation, and then, fourth, infrastructure
spending.

CHU: Those are all powerful drivers for both the markets and U.S. economy.
Lower taxes for corporation and individuals could mean more money left over
to spend. And government money spent on things like roads and bridges
could be the fuel for more economic growth ahead.

But there are a still a lot of unknowns out there.

LUCIANO SIRACUSANO, WISDOMTREE CHIEF STRATEGIST: I would say big picture,
the market needs to get not just earnings growth but lower corporate rates
that start to feel like they`re going to happen either later this year or
next year. If you get focus on trade and immigration, those are the type
of things that can spook the markets, particularly the multi-nationals that
depend much more on multi-national agreements all around the world and the
framework frankly that the U.S. has built over the last 70 years.

CHU: Some experts continue to look for opportunities in parts of the
market that could benefit from future government policy, as well as parts
of the market viewed as possibly more immune to that policy as well.

RENE NOURSE, URBAN WEALTH MANAGEMENT: Interest rates are going up. I`d
stick like the small and mid-cap stocks and mainly because they`re not in
the cross hairs of all this conversation about border taxes or any of these
issues related to being overseas. So, I think that there`s still some nice
sectors to be in and some sectors to be looking for an opportunity to get
in too.

CHU: Now that President Trump`s cabinet is filling in, the bigger focus
will turn to how the executive team can execute plans to move America
forward and how other political developments around the world shape the
market`s story going forward.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Let`s turn now to Brad McMillan for more on the markets. He`s
chief investment officer at Commonwealth Financial Network and he joins us
now.

Brad, welcome. Good to have you with us.

You know, in recent days, maybe particularly, it seems like a lot of people
in the media, a lot of the pundits are ringing their hands over perceived
turmoil in the Trump administration, the Trump White House. But the market
couldn`t seem to care less. Why not?

BRAD MCMILLAN, COMMONWEALTH FINANCIAL NETWORK CIO: I think what you`re
looking at with the market it`s not about Donald Trump. It`s not even
about the new administration. It`s about the fundamentals.

We`re seeing earnings growth pick up. It`s accelerating, in fact.
Something we haven`t seen in quite a while.

We`re seeing consumers feel better. We`re seeing business feel better.
It`s not about the politics. It`s about the fundamentals and that means
the markets likely to keep going up.

MATHISEN: Why are consumers and businesses feeling better?

MCMILLAN: I think there`s one big thing that`s happened at the election.
I think there was a lot of uncertainty coming in and coming out of the
election, we actually have clarity. And that let people, when they stop
worrying about politics so much, then they looked at the fundamentals of
the economy. They saw employment at very high levels. They saw wage
growth accelerating. They saw the prospect of deregulation.

In other words, the lack of uncertainty after the election let them look at
reality and actually what — they liked what they saw a lot.

MATHISEN: Let`s talk about a couple of the fundamentals that you mention
and one would be interest rates. That`s obviously key in many instances to
the asset values of lots of things. We started to see inflation move up.
The Fed has made it pretty clear that they intend to raise rates three
times this year, at least.

Is that potentially an impediment to stock market values?

MCMILLAN: It will be eventually but not right away. Because what`s
happened historically is when the Fed has started to raise rates, which is
what is happening, it means the economy is growing faster, things are
getting better.

Markets tend to look at the initial series of rate rises as ratification of
things are getting better. You actually get better performance early in
the rate rising cycle. It`ll be a while before it starts to slow things
down.

MATHISEN: One of the other fundamentals obviously is earnings growth.
That`s the underlying engine of stock price elevation. But right now, it
seems that stock prices may have even gone farther than earnings would
indicate they should go. Do you agree with that? In other words, are
stocks overvalued?

MCMILLAN: Stocks are very highly valued. Make no mistake about it.
Stocks are very expensive. But that doesn`t mean they have to go down,
particularly in the short-term.

Typically what happens is whatever a valuation level is when confidence
improves, it goes up. When earnings start to grow faster, it goes up. So,
you can say that earnings are — that valuations are very high but that
doesn`t mean we`re necessarily going to see a pullback.

In fact, where we are right now, we can expect to see both factors continue
to push stocks higher.

MATHISEN: Based on values, based on fundamentals, give me two sectors that
you favor right now and two sectors you would shun right now?

MCMILLAN: I think financials is a story that`s been told over and over.
Deregulation, but it`s still got further to run. Financial institutions
can make actually more money with higher rates than they can do more
businesses as the economy improves.

One sector that I like that isn`t being priced in is consumer
discretionary. No one ever really lost money betting against the American
consumer. And consumers are now making more money and they`re willing and
able to spend it. I think that`s an undertold story.

Going forward to sectors I don`t like, I think health care is an area where
the regulatory risk —

MATHISEN: Right.

MCMILLAN: — the political uncertainty is nailing things down and I think
we have to be very, very concerned about some of the technology sectors
because there we do have some very high valuations, a lot of good news is
priced in.

MATHISEN: Brad, thanks very much for your good and clear answers. Brad
McMillan with Commonwealth Financial Network.

Well, policy will be continued to be one of the drivers for the market for
the foreseeable future. John Harwood joins us with a look at where the
White House stands one month in.

John, let`s start with tax reform. It`s obviously something the market is
counting on. We don`t seem to know very much about what it`s going to be.

What do investors expect? What should we expect?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s a big
question mark right now. First of all, President Trump has not offered a
plan. He ran on one in the campaign, but he hasn`t indicated that he`s
going to push forward that plan now.

House Republicans have a plan with a new top rate of 33 percent, a top
corporate rate of 20 percent. However, they have not come to an agreement
between the White House and the House of Representatives on whether they`re
going to have that border adjustment tax that allows them to get the rate
down.

On the Senate side, they have not said that reducing individual rates is a
goal and nobody has made plain whether or not they`re going to have a plan
that is revenue neutral or one that increases the deficit. Many more
questions than answers right now.

MATHISEN: Let`s talk about trade. This is another key area the president
wants to do better trade deals. How easy or difficult will that be to
achieve? And I`m not talking just about NAFTA but as you reach out across
the globe, Japan, Asia, Europe and more?

HARWOOD: I think this will be something easy for — relatively for
President Trump if he chooses to pursue them. On NAFTA, he softened his
tone a little bit when he had this press conference with Prime Minister
Trudeau the other day. He said, “I will be tweaking NAFTA.” Don`t know
whether he intends to rip it up, particularly with respect to Mexico. So,
I think that will be received positively if he moderates his tone.

He could go try to strike bilateral deals with some of the — countries
that were part of the Trans Pacific Partnership that`s been withdrawn, but
he hasn`t indicated which ones he`s going do that with.

MATHISEN: Let`s talk about health care. This is probably the toughest one
of all. Where do we stand on that?

HARWOOD: Well, Republicans are running into trouble with the idea of a
quick replacement — repeal of Obamacare and a replacement. They know now
that if they repeal Obamacare with Republican president, full Republican
control of the Congress, it`s real and all of those 20 million people who
could lose coverage are going to be in their face protesting. The same
time, replacing a comprehensive national health system with a new one is
incredibly complicated and politically difficult. It may be that
Republicans decide to punt on that question and focus on things like tax
cuts which are still hard but are easier to reach consensus on than health
care.

MATHISEN: All right. John, thanks very much. John Harwood in Washington.

So, if you`re not sure what to expect during the Trump administration, you
should try planning a state budget and that`s exactly what`s going on in
state capitals around the country.

Scott Cohn is in state with the biggest budget of 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 are 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, PRESIDENT OF THE UNITED STATES: We will repeal and replace
Obamacare.

COHN: The biggest question mark: health care. California is one of 31
states that expanded Medicaid under the Affordable Care Act. Six million
people gained 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 HILL, 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)

MATHISEN: Coming up, President Trump has met with a lot of CEOs over the
past month. But what`s the White House`s relationship with unions like?

(MUSIC)

MATHISEN: Whether it`s immigration or trade, not many states seemingly
have more on the line when it comes to the president`s executive order than
the state of Michigan. It`s a state that narrowly voted for Mr. Trump last
fall. And Scott Cohn is back this time from Detroit where he tells us that
decision is coming in sharp focus now.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Good afternoon. Welcome.

COHN: Donald Trump won Michigan by just 11,000 votes. His first ten days
in office are putting that slim support to the test.

UNIDENTIFIED MALE: Could this have been rolled out better without
entrapping people with green cards? Those with H1B visas who work with GM
and other companies?

UNIDENTIFIED MALE: Obviously, obviously, it could have been done better.
But it is what it is.

UNIDENTIFIED MALE: There are too many people coming to this country that
we know nothing about.

COHN: More than just a blue collar state, Michigan is a state of
immigrants. Only California took in more Syrian refugees last year. So,
in Detroit, the new immigration restrictions hit home.

WALA ZEIN, SYRIAN AMERICAN: I came here seven years ago. I got married
and I moved here, and is my mother, she moved here one year after the war,
I applied for her. She has a green card and my father also has green card.
He is actually outside of the U.S. right now.

COHN: Protests and vigils sprang up statewide over the weekend while
business leaders in Michigan`s increasingly high-tech economy weighed the
impact.

Michigan was already in the crosshairs of the Trump agenda on the issue of
trade. No state has more on the line when it comes to the North American
Free Trade agreement than this one.

Detroit is the busiest truck crossing between the U.S. and Canada, but
Mexico is also a key link in the auto industry supply chain. By the
numbers, Michigan`s economy depends on NAFTA in a way no other state does
and economists here worry about upsetting a delicate balance.

DONALD GRIMES, UNIVERSITY OF MICHIGAN ECONOMIST: Be a bit of chaos at the
beginning as they`re renegotiating because they might be confused over
where the parts are going to come from for cars, or cars themselves.

COHN: The president claims he is already bringing jobs back.

TRUMP: They`re coming back by big numbers. Bigger number than people have
seen. We saw Ford is announcing and has announced big plans coming back
into Michigan and Ohio and different places.

COHN: Michigan bet on Trump to do just that. Now, it will learn if that
bet pays off.

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

(END VIDEOTAPE)

MATHISEN: Over the past month, President Trump has met with top CEOs
across many industries to discuss everything from taxes to jobs to the
economy. But what is Washington`s relationship now with big labor unions?

Joseph McCartin is professor at U.S. labor history of Georgetown
University, joins us now to discuss.

Professor McCartin, welcome. Good to have you with us.

JOSEPH MCCARTIN, GEORGETOWN UNIVERSITY PROFESSOR: Thank you.

MATHISEN: How do you see the Trump relationship not just with unions but
with labor more broadly?

MCCARTIN: Well, it`s a complicated relationship, I would say. His
relationship with unions, I would say, is a troubled one, very little
support from union leadership for Mr. Trump`s election. His relationship
with a broader American working class is a little bit more complicated.

Clearly, Trump got some support, especially from states like Michigan which
as your report shows he won narrowly in Wisconsin and Pennsylvania — those
key states which helped him win the election. Working class votes in those
states helped swing that election for him, so he has some support from some
workers especially white workers, but his relationship with the union
movement is a troubled relationship.

MATHISEN: He sat down with I believe some building trades union leaders
not that long ago, and one might surmise based on some of the things that
he wants to do like build the pipeline, the Keystone and the Dakota
pipeline, do large infrastructure projects and — let alone his history in
the real estate business — that he might have a good relationship with
unions in the building trades at the very least.

MCCARTIN: That`s possible. And clearly he`s reached out to those unions
and they did meet with him and there is a community of interest that the
president could have with those unions around things like the Keystone XL
pipeline, for example, and other infrastructure projects. So, he has
gotten some support from some of those building trades unions. The labor
movement itself is not completely united on Mr. Trump and his presidency.
Larger unions like AFSCME, the public employee union or SCIU, they look at
Trump very differently from those building trades organizations.

MATHISEN: Those you would call I suppose white collar unions or pink
collar unions as opposed to manufacturing unions. His thrust to bring jobs
and mostly manufacturing jobs, back to the United States, you would think
that labor, working people, would like that and unions that could
potentially represent those working people would like it too?

MCCARTIN: Well, there`s one thing that unions, workers and the president I
think broadly agree on and that is that the trade policies which had been
in place for a number of years really need to be reexamined. The labor
movement opposed NAFTA, it was opposed to TPP, which Mr. Trump has now
scrapped.

So, they agreed on those things and I think there is some area for
agreement, even while, you know, some very serious disagreements still
persist.

MATHISEN: Professor, thank you for your time tonight.

MCCARTIN: Sure.

MATHISEN: Professor Joseph McCartin is at Georgetown University.

All right. Quick quiz folks, who`s the largest land owner in the United
States? The answer? The United States. Good old Uncle Sam itsef.

In fact, the federal government owns hundreds of millions of acres, mostly
in the West and the debate over those lands goes back decades. Now that
Trump administration is shaking things up when it comes to those public
lands.

Scott Cohn back for the last time tonight. This time from the state with
the most at stake, 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, SOUTHERN NEVADA COALITION FOR WILDLIFE 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)

MATHISEN: Still ahead: through the roof. Will the spring selling season
push home prices even higher?

(MUSIC)

MATHISEN: Here is what to watch this week. Retail earnings grab the
spotlight with Home Depot (NYSE:HD) and Walmart expected to get things
started tomorrow. January housing data will be in focus with existing home
sales due Wednesday, new home sales numbers come out Friday. Also on
Wednesday, the minutes from this month`s Federal Reserve meeting will be
released. Investors will watch for hints about the future interest rate
moves and that is what to watch this week.

Finally, tonight, winter is still in full swing. But for the real estate
market, the spring selling season has already begun and with the inspector
of a looming rise in interest rates, this could be the time about people
who have been on the fence about buying a home jump in.

Diana Olick takes a look at how the season is shaping up.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home builders are
doing more of this, but not enough of it, and builder confidence dropped
this month, even as the usually strong spring housing market approaches.

Their biggest concern: costly overregulation which they hope President
Trump`s recent executive order will help.

TRUMP: For every one regulation, two are out.

OLICK: But change will take time and in the meantime, potential buyers are
facing a very competitive market.

ANTHONY HSIEH, LOAN DEPOT CEO: Population doesn`t stop growing. Families
do not stop being created. So, there`s lots of need for housing and we`re
starting to see inventory really be at a challenge.

OLICK: Buyers are also facing much higher prices this spring compared to a
year ago, along with higher mortgage rates and very little let up in the
tight lending conditions.

DAVE STEVENS, MORTGAGE BANKERS ASSOCIATION CEO: I think credit is too
tight in certain areas. We have a — we have a brand new type of home
buyer today. We have a highly minority — the minority home buyers are
going to be the majority of home ownership over the next decade.

OLICK: In fact, Steven says Hispanic, African-American and Indian and
Asian buyers will drive at least two-thirds of all new home ownership over
the next decade. These buyers have different types of savings approaches
and are more likely to finance their homes with family members.

STEVENS: Well, we need to be careful. I think we need to respect the fact
that the structure and function of housing and home ownership is changing
and we need to look at those variances.

OLICK: Lenders are also looking to the Trump administration for big
changes and deregulation but they know it won`t come quickly.

HSIEH: It is not a light switch. So, it`s going to take some time,
particularly with regulations softening. That is a movement that the
entire industry, banks and nonbanks, are trying to figure out.

OLICK: So while they figure it out, potential buyers will just have to
look harder and dig deeper to get home.

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

(END VIDEOTAPE)

MATHISEN: And thanks for watching this special edition of NIGHTLY BUSINESS
REPORT. For Sue Herera, I`m Tyler Mathisen. Have a great evening
everybody. We`ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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the views of Nightly Business Report, or CNBC, Inc. Information presented
on Nightly Business Report is not and should not be considered as
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