Transcripts: Nightly Business Report – March 3, 2017

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

Funded in part by —

(COMMERCIAL AD)

(BEGIN VIDEO CLIP)

JANET YELLEN, FEDERAL RESERVE CHAIR: Gradual increases in the federal
funds rate will likely be appropriate in the months and years ahead.

(END VIDEO CLIP)

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Ready or not? An interest
rate increase might be coming soon and it could mark a turning point for
your money and your investments.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Risky business. Are
homeowners opening their favorite piggy bank again? Their homes.

GRIFFETH: A better deal. The commerce secretary plans to be aggressive to
fix bad trade deals. But some business owners along the U.S.-Mexico border
are concerned.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, March
the 3rd.

Good evening, again, everybody, and welcome. I`m Bill Griffeth, in tonight
for Tyler Mathisen.

HERERA: And I`m Sue Herera.

Well, we start with Federal Reserve Chair Janet Yellen may have sent the
clearest signal yet that at an interest rate increase is near. Her speech
today capped a week of talk from Central Bank officials, many who said that
tighter monetary policy seems to make sense, barring, of course, any big
economic surprises.

The Fed last raised interest rates in December, only it`s second interest
rate hike in a decade. Rising rates impact everybody from home buyers to
savers, and they ripple through the global economy, which is why investors
are paying close attention.

Steve Liesman takes a look at where Ms. Yellen stands just days before the
Fed`s next meeting.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed`s Chair Janet
Yellen putting an exclamation point on the market expectations for a rate
hike in March, saying in a speech in Chicago, it was on the way if the
economy is on course when the Fed meets in 10 days.

YELLEN: At our meeting later this month, the committee will evaluate
whether employment and inflation are continuing to evolve in line with our
expectations, in which case, a further adjustment of the federal funds rate
would likely be appropriate.

LIESMAN: Yellen also affirmed her belief that the Fed would hike three
times this year and gave the economy a pretty good deal of help. The Fed
chair said the U.S. has shown remarkable resilience amid a series of
shocks. And now, it was close to hitting the Fed`s employment and
inflation goals. Yellen even suggested the U.S. is getting some help from
abroad, which has been a main source of weakness for the U.S. economy.

YELLEN: At this point, I`m pleased to be able to say that looking at the
global economy, that we still for the next few years, I see the risks is
more balanced than I have in sometime.

LIESMAN: Yellen stuck to her guns, saying there`s too much uncertainty
right now to forecast the effects of new policies coming from the Trump
administration. But it does seem that the prospect of these policies
keeping the Fed confidence that it can exit this long period of low rates
with minimal fallout.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in New York.

(END VIDEOTAPE)

GRIFFETH: Well, a confidence that the Fed could raise interest rates later
this month is just one reason behind the big run-up in bank stocks this
week, with some names reaching levels not seen since the financial crisis.
But is there more room to run in this sector?

John Petrides is portfolio manager of Point View Wealth Management. He`s
here to talk about that tonight.

It sounds like all they have to do now is just conduct the vote. I mean,
it sounds like fait accompli, right?

JOHN PETRIDES, POINT VIEW WEALTH MANAGEMENT PORTFOLIO MANAGER: Yes, that`s
right. But I think it`s shortsighted just to look at one vote. We have to
look at, where is the trend going and where is the pace?

Clearly, the economy is running at a stronger level, the jobs data has been
really strong. The big message here though is that the Fed is able to
convey their message of raising rates without seeing any volatility in
stock market —

GRIFFETH: Right.

PETRIDES: — which has not happened in the past.

So, you have VIX set, the volatility index, at all-time low levels.

HERERA: You say though that the market is not fully appreciating the fact
that the Fed may be more aggressive this year than they are the underlying
assumptions.

PETRIDES: Right. So, if the Fed raises rates three times this year, we`re
at 50 basis points, half of one percent. So, if we raised three times,
that gets us to 1.25 percent on the fed funds rate by the end of the year,
right?

So, that means if in June, we keep adding 200,000 jobs per month, by June,
investors are you going to say, OK, we know where the Fed is. Where we
going to be in 2018?

And if you have the Trump and Republican administration pouring kerosene on
the economy by having some sort of tax reform, infrastructure spending and
deregulation, that could propel the stock market higher. We could be
talking about the Fed funds rate at 2.75, maybe 3 percent by the end of
`18.

GRIFFETH: And with rates going up at that rate, banks can get back to the
old fashion business of borrowing and lending and making money on the
spread between those two. Is it that simple? Do you just buy all the
banks as a result or are they all created equal here?

PETRIDES: Right. No, I`d like the larger banks, Citigroup (NYSE:C) and
Bank of America (NYSE:BAC), in particular, because although the bank sector
has run up 24 percent post the election the valuation is still actually
quite compelling. As Warren Buffett always says, as a stock is — the
price of a stock is where it is, the value is what you actually get, right?
The price of what you pay values what you buy.

Citigroup (NYSE:C) in particular is still trading at a discount to its book
value. I`m not suggesting that Citigroup (NYSE:C) goes back to where we
were before the crisis, but where the bank is — the bank`s balance sheet
is today and with interest rate rising, it should be trading at a discount.

HERERA: How much of your affinity for the bank stocks is also based on the
fact that we may get a roll back in regulation?

PETRIDES: Well, I think there are three pillars to what was going to drive
bank stocks higher. One is obviously the interest rates. Two, earnings
quality. And three, then deregulation.

And with it — we are uncertain as to what the form of deregulation is
going to be. Let`s say, right now, a bank has to hold 12 percent of
reserves on its balance sheet. Let`s get lower that to require being 10
percent.

Well, now, the deregulation just freed up 2 percent of reserves for banks
that they can reinvest in their business but the shareholders go back to
hang out of dividend. And you go back to the glory days of the banking
industry.

GRIFFETH: We will see.

John Petrides of Point View Wealth Management — good to see. Thanks for
joining us.

PETRIDES: Thanks for having me on.

GRIFFETH: You bet.

HERERA: Well, stocks inched higher, taking the notion of a possible
interest rate hike pretty much in stride. Historically, the mention of an
increase would cause stocks to fall, but that didn`t happen today. And
market watchers say it may be because the central bank has been prepping
investors for some time.

The Dow Jones Industrial Average rose 2 points to finish at 21,005. The
NASDAQ was up nine, and the S&P 500 added one. For the week, all of the
major indexes were higher.

GRIFFETH: Economically speaking, the services sector saw its strongest
monthly growth in nearly a year, according to the Institute of Supply
Management. Activity in the largest part of the overall economy was
stronger than expected in February. The recent increase in both the
services and manufacturing sectors could signal that business investment
will start to pick up after a recent downturn.

HERERA: Reworking some trade deals has become a big issue for the economy
and for American workers. Today, the commerce secretary promised to take a
proactive role to make sure the U.S. is getting good deals globally. In
his first interview since being confirmed, Wilbur Ross told CNBC that his
primary focus will be promoting exports.

(BEGIN VIDEO CLIP)

WILBUR ROSS, SECRETARY OF COMMERCE: We`ll be aggressive on trade because
we know that the deals that have been made historically have resulted in
the great loss of manufacturing jobs, great amount of closures of
manufacturing businesses. We don`t want that to continue. So, first
emphasis will be on facilitating U.S. exports to other countries, getting
rid of both tariff and non-tariff barriers to trade.

(END VIDEO CLIP)

GRIFFETH: And topping Mr. Ross`s priority list is the renegotiation of the
North American Free Trade Agreement with Mexico and Canada, NAFTA. He
wants the terms of the deal to be more favorable to the U.S. But on the
U.S.-Mexico border, some business owners are concerned about too much
change.

Contessa Brewer tonight in Nogales, Arizona.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nohe Garcia stands
atop a hill in Nogales, a sweeping vista of rugged terrain, and imagines
what could be. He bought 215 acres, the last parcels of land here to be
zoned for light industrial development.

NOHE GARCIA, INDUSTRIAL PARK DEVELOPER: So, here, what we envision is to
build 30 1,000 square warehouses. So, the numbers are in the thousands of
jobs.

BREWER: He`s already graded down a 40-acre lot, doing much of the work
himself to save money. A dual citizen with family on both sides of the
border, he says President Trump`s talk of border taxes, doing away with
NAFTA, a massive wall and immigration crackdown is scaring Mexican
investors.

GARCIA: We had a couple of vegetable growers and food growers, they wanted
to establish here. There`s Mexican investors that own warehouses here for
distribution, they have backed out and they`re waiting to see what happens.

BREWER: Within view of Garcia`s would-be industrial park stands Ciruli
Brothers warehouse, a third-generation family business of produce
distributors.

CHRIS CIRULI, CIRULI BROTHERS: It`s incredibly important to us that this
border space open and flowing with product from Mexico to U.S.

BREWER: More than half of all imported produce comes from Mexico and
Nogales is the largest port of entry for those fresh fruits and vegetables.
The last few years have seen record growth in volume and value. Business
is booming but the prospect of the border tax is looming.

CIRULI: Increasing the cost of fresh fruits and vegetables and making
people buy processed food, that doesn`t help the American economy, nor does
it help the actual American people.

BREWER: U.S. Customs says $17 billion a year passes through the Nogales
crossing. Raw materials, finished products, employees, even financing
moves both ways.

Luis Fernando Parra is an attorney, specializing in cross-border commerce.
His clients are looking with a wary eye to Washington.

LUIS FERNANDO PARRA, ATTORNEY: These companies are having second thoughts
about building these warehouses. They`re having second thoughts as to
employing folks here in the U.S. so that these warehouses can run
efficiently.

BREWER: When it comes to free trade, those who rely on it don`t think
NAFTA should just be scrapped, but they say after more than two decades,
perhaps you could use a tune-up, with more attention paid to employment,
the environment, intellectual property and digital technology.

GARCIA: When that happens, you lose trust and inserted in trust is an
enemy of trade and trust.

BREWER: Do you have any concern in your mind that your property might be
in jeopardy because of what`s happening in Washington?

GARCIA: This is my dream. I came here. I came to Nogales. I think it`s
a great place to live. I went to school and I said, I`m going to start my
business here in America. I`m living my American dream, and they`re
killing it.

BREWER: For NIGHTLY BUSINESS REPORT, Contessa Brewer, Nogales, Arizona.

(END VIDEOTAPE)

HERERA: Canada`s prime minister today defended the North American Free
Trade Agreement, but said he looks forward to working with President Trump
to make improvements to that deal.

(BEGIN VIDEO CLIP)

JUSTIN TRUDEAU, CANADIAN PRIME MINISTER: The benefits of NAFTA over the
past decade in terms of increased jobs for both Canadians and Americans
have been clear. There`s always opportunities to improve trade deals.
NAFTA has been improved a dozen times over the past 20 years, and we look
forward to sitting down with President Trump to talk about how we can make
sure that we are helping the middle class in both of our countries.

(END VIDEO CLIP)

HERERA: The prime minister also reiterated the importance of the close
trading relationship between the U.S. and Canada.

Still ahead, healthy prognosis. Why our market monitor says now is the
time to invest in health care stocks.

(MUSIC)

HERERA: Shares of airlines got a lift after the White House said it is
suspending an Obama administration`s decision to examine industry pricing.
The transparency review was basically a probe into a long time practice by
some airlines of preventing travel websites from showing their fares.
United Continental, American and Alaska Air were some of today`s biggest
gainers in the aviation sector.

GRIFFETH: It`s a great story. Snapchat`s founders are not the only ones
who made a lot of money on the company`s IPO this week. So did a Silicon
Valley high school. It`s a private Catholic high school that invested
$15,000 in seed money in Snap back in 2012, based on a recommendation from
a venture capitalist who happened to be a parent of a student at that
school. While the school sold most but not all of their shares when the
company came public yesterday, and they earned a cool $24 million.

Meanwhile they`re still making money. Snap shares were up again today by
more than 10 percent.

HERERA: NBC/Universal (NYSE:UVV) invested half a billion dollars in Snap`s
IPO. The move is part of NBC`s bigger push into digital media, as growth
increasingly comes from online content. In the past 18 months, NBC has
also made investments in Box and BuzzFeed.

NBC/Universal (NYSE:UVV) is the parent company of CNBC, which produces this
program.

GRIFFETH: Homeowners are getting wealthier, of course, thanks to fast-
rising real estate prices around the country and now, they`re tapping into
that wealth in greater numbers again. So, are we back to the risky days of
the housing boom?

Diana Olick has some answers for us tonight.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ever since the epic
housing crash, homeowners have been very conservative with their home
equity. But that`s starting to change, now that home prices are rising
faster than expected, homeowners are tapping that newfound equity at a
faster clip, and they`re also risking more upfront.

Two signs are worth watching. First, home equity lines of credit —
usually second loans that allow you to pull cash out of your house when you
need it. They dropped dramatically after the crash, but are now up 21
percent in the past two years, to the highest level since 2008, that
according to Moody`s (NYSE:MCO) Analytics.

We`re also seeing more loan refinances where borrowers increase the loan
size and take cash out. Also, homebuyers are putting less down today on
their purchases. Before the last housing boom, the median down payment was
over 7 percent, then it dropped to 3 percent, and then shot back up to
seven during the recovery, as lending tighten up.

Now, down payments are shrinking again to a 6 percent average, all
according to Adam Data Solution, this is more lenders offer low down
payment products.

Added up and homeowners are leaning toward more leverage again. One caveat
though, home equity is still rising due to rising prices. But if prices
are overheated as some suggest and right for our correction, then
homeowners could be a pinch again. I`m not saying prices will go down
nationally, but the increases could shrink and some markets could go
negative.

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

(END VIDEOTAPE)

HERERA: WPP (NASDAQ:WPPGY) Group forecast a tough year ahead and that is
where we begin tonight`s “Market Focus”.

The world`s largest advertising firm reported net sales growth for 2016
that was in line with estimates, but the company said a sluggish start to
2017 in a very competitive ad market prompted WPP (NASDAQ:WPPGY) to slash
its sales outlook for the full-year. Shares fell almost eight percent to
$107.91.

Big lots said a difficult retail environment at a lower store count caused
the company to post disappointing revenue and same-store sales. Profit did
come in ahead of expectations, and the discount retailer said it would
raise its quarterly dividend by nineteen percent to $25 cents a share.
Shares rose nearly 4 percent to $54.23.

Revlon (NYSE:REV), which sells many of its makeup products in drug stores,
said consumers shifting to specialty cosmetic chains caused sales to fall
flat last year. The company also reported a loss citing currency headwinds
and restructuring charges. Revlon (NYSE:REV) shares were off 4 percent to
$32.65.

GRIFFETH: Canadian-based retailer Hudson Bay, which owns Lord & Taylor and
Saks (NYSE:SKS) Fifth Avenue here in the U.S., may not have the funds to
finalize it take over for Macy`s (NYSE:M). Hudson has reportedly failed to
secure equity financing for that deal which in turn has caused talks
between the two companies to be put on hold for now. Macy`s shares down 4
percent of as a result to $31.77 today.

Drug makers AstraZeneca and Sanofi said that they would be working together
now to develop a medication for preventing a respiratory condition in
newborns called RSV, that is the most common cause for respiratory tract
infections in infants worldwide. AstraZeneca shares rose nearly 1 percent
to $29.92. While shares of Sanofi were up more than one-and-a-half percent
to $44.24.

And Verizon (NYSE:VZ) is buying back up to 100 million of its own shares.
The telecom giant also declared a quarterly dividend of more than 57 cents
a share. The annualized yield now is at 4.6 percent. Shares up 11 cents
to $50.09.

HERERA: And now to our market monitor, who is finding opportunity in the
healthcare sector. This is not her first time on the program but it is as
a market monitor. Joining us is Nancy Tengler, chief investment officer at
Heartland Financial.

Good to see you again, Nancy. Welcome back.

NANCY TENGLER, HEARTLAND FINANCIAL: Thank you, Sue. Good to see you.

HERERA: Let`s start with your first pick. It is Amgen (NASDAQ:AMGN). The
stock is up 20 percent year-to-date. It still has room to run in your
mind?

TENGLER: It does indeed. The whole healthcare group began to
underperform, particularly biotech when Hillary Clinton tweeted last spring
about drug prices. We began to buy pretty aggressively and though the
stock is up, it yields about 2.6 percent, the dividend growth over the last
five years been about 35 percent per year, and it`s trading at below market
price to earnings ratio, so that means it`s cheaper than the market but
it`s growing faster than the market.

So, we like this stock a lot and we like the group in general, because the
dividend growth is about two-thirds of total return for stock investors
over time. So, it`s very important to collect that that dividend. Yes, we
like it.

GRIFFETH: Speaking of which, there`s Johnson & Johnson (NYSE:JNJ), an old
chestnut from the entire sector. It hasn`t performed stock wise as well as
some others, but it does have that rather juicy dividend, doesn`t it?

TENGLER: It does, Bill. It`s good to see you again.

GRIFFETH: Nice to see you, Nancy.

TENGLER: So, up about, you know, yield about 2.6 percent growth, the
dividend about seven percent, you know, a year over the last five years.
But this stock is up 10 1/2 percent over the last 20 years annually. So
that`s compared to an S&P that`s up 7.7.

So, because of its diversification, it never really goes to the races but
it does generate just stable, steady returns, and they really put an
emphasis on the pharmaceutical side of the business, and that grew 12
percent last quarter.

So, we think this is a great way. You know, despite risks of the talcum
powder and lawsuits, this is a company has a history of doing the right
thing starting with the Tylenol cyanide problem back in 1982 that killed
seven people.

HERERA: Right.

TENGLER: Company, yes.

HERERA: Abbott Labs is the last, ABT. You say it`s a way to play the
group defensively.

TENGLER: It is. So, Miles Davis is a great CEO. He just made a big
acquisition of St. Jude. This is a company that also has a lower dividend
yield, about 2.3 percent. But they`ve been growing at about 18 percent per
year over the last three years.

And what you`re going to get from them is stable growth and again at below
market valuation. So, we like that. If we can get faster than market
earnings growth at a cheaper price, that`s a win-win for our clients.

GRIFFETH: Quickly, Nancy, the president has talked a lot lately about
capping drug price increases. That`s been the buzz for Washington for
quite some time. What does that do to these companies?

TENGLER: Well, I don`t think it through actually. He`s really been
talking privately with the CEOs about bring jobs back and I`ll back off on
pricing. He`s also, you know, said that he wants to fast-track drug
approval. That`s really the big piece of news because this is the same
thing we saw in the Clinton administration and those stocks outperform the
S&P during that period by over a hundred full percentage point.

HERERA: Wow.

TENGLER: So, this is the solution to lower health care problems, you know,
advancement and R&D in pharmaceutical. These companies will benefit.

HERERA: All right. On that note, Nancy, thanks so much for joining us
again. Have a great weekend.

TENGLER: You too, Sue. Thank you, Bill.

HERERA: Nancy Tengler with Heartland Financial.

GRIFFETH: Coming up, financial touchdown. What one football team is doing
to prepare players for life after the game.

(MUSIC)

HERERA: Here`s a look at what to watch for next week:

On Monday, global markets will have their first chance to react to China`s
new economic growth targets expected to be released this weekend. On
Thursday, the European Central Bank meets to discuss interest rates and the
region`s economy. And on Friday, we`ll get the biggest economic release of
the week, the monthly employment report. And that is what to watch for
next week.

GRIFFETH: Mercedes Benz is recalling more than 350,000 of its vehicles.
The issue is a part for the starter that could overheat and cause a fire.
The recall involves certain C-class, E-class, CLA, GLA, and GLC cars and
SUVs that were manufactured between 2015 and 2017.

HERERA: College football athletes are being put to the test and showcasing
their talents during the NFL combine. But long-term, it`s not just about
winning on the field.

As Morgan Brennan reports, it`s also about being successful off the field.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Life after
football. Miami Dolphins are getting schooled than winning off-the-field.

UNIDENTIFIED MALE: Boom, they hit into one another.

BRENNAN: This week, 16 players travel to New York for business combines
Dolphins owner and real estate billionaire Stephen Ross arranged for his
NFL team.

STEPHEN ROSS, MIAMI DOLPHINS OWNER: I think as an owner, I have a
responsibility to make sure they developed as great football players to
prolong their career, but also the fact is, I think it`s a responsibility
to make sure they`re developed when their careers is over. And I think —
that`s how I saw it.

And it`s great for the team, it brings them closer together, it`s great for
our organization, and we`re trying to be the best in class.

BRENNAN: This tour of Hudson Yards in midtown Manhattan is one of more
than a dozen events players will partake over the course of a week.

BRUCE BEAL, RELATED COMPANIES CEO: They probably want to be playing
football as long as they can, but when they`re done, they want to think
about their future. And for them to come in here and speak with our
executives and learn what — you know, what we`re doing.

You know, one of them was just asking me you know about you know what`s the
difference between a steel building and concrete building, and why we would
build steel versus concrete.

BRENNAN: From Manhattan $25 billion Hudson Yard`s project, which Ross`s
Related Companies is developing, to a lunchtime Q&A with the CEO of
Equinox, the football pros have been meeting entrepreneurs in more than a
dozen scheduled events to learn more about business and investing.

JELANI JENKINS, MIAMI DOLPHINS LINEBACKER: So, it`s kind of shadow, you
know, this business, you know, millionaires, billionaires and made an
opportunity.

RYAN TANNEHILL, MIAMI DOLPHINS QUARTERBACK: Football is a short career, so
that being said, you have to always planned for the next step.

BRENNAN: Players chose to participate, paying thousands of dollars out of
pocket for the trip. The goal: make connections that will last long beyond
their playing years.

HARVEY SPEVAK, EQUINOX CEO: I do think it`s a great way giving back, but I
also think that as a brand, you know, fitness at its core, we speak a
common language, and I think a lot of these athletes will be great
employees for Equinox.

BRENNAN: With so many pro-athletes going broke after their NFL careers,
Ross is determined to make sure his players don`t become just another
statistic.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: And for more on how the Miami Dolphins are preparing for life
after football, head to our website, NBR.com.

And that will do it for us on NIGHTLY BUSINESS REPORT, I`m Sue Herera,
thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great weekend, everybody. We`ll see
you Monday.

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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