Transcript: Nightly Business Report – March 14, 2017

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

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Ready, set, hike? The Fed starts its meeting where it is widely expected to raise interest rates tomorrow. The question is, is this the first of many? We will ask the experts.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: And foreign affairs. Tomorrow’s Dutch elections are the first of many overseas events that could rattle the markets here in the U.S. We’ll tell you what to keep an eye on.

HERERA: Health decisions. Which companies win and lose in the GOP’s new health care plan?

All that and more on NIGHTLY BUSINESS REPORT for Tuesday, March 14th.

MATHISEN: Good evening, everyone, and welcome.

Well, today’s snowflakes on Wall Street could give way to tomorrow and a flurry of interest rate likes. Federal Reserve policymakers began their two-day meeting today. Tomorrow, they will issue their decision on rates and given recent upbeat economic data, many expect the Central Bank to hike rates for only the third time in the past decade.

Steve Liesman surveyed economists, money managers and strategists to get their outlook for the economy, rates and the stock market.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the beginning of 2016, the Fed forecast four rate increases. It ended up hiking just once. Now, it’s projecting three rate likes. And the question is, is the forecast any better this time? And the answer may be, maybe.

One difference between now and then: the market this time actually believes the Fed. The CNBC Fed Survey says 60 percent of respondents think the Fed will hike three times in 2017. Another 25 percent think there could be as many as four rate hikes.

And rather than fighting the market, this time, the Fed will just be going along with what the market already believes.

JIM MCDONALD, NORTHERN TRUST ASSET MANAGEMENT: If you look back to the last two rate cycles, the key is that they have to move in line with market expectations. If that happens, the market can continue to do well. So, I think they’ll be tempered in their language. They will indicate continued slow but steady interest rate increases. But that’s alongside better economic growth. So, I don’t expect this to be a headwind for the stock market.

LIESMAN: All of the survey’s 50 respondents include economists, money managers and strategists think the Fed will hike in its March meeting, and most see another rate hike coming again in June.

STEVE MASSOCCA, WEDBUSH SECURITIES MANAGING DIRECTOR: Clearly, we’re going to see a quarter point increase tomorrow. I think that’s been well-telegraphed by both the hawks and the doves on the Fed. But I think the real issue is going to be the commentary afterwards. How hawkish is that?

LIESMAN: The survey respondents are generally upbeat about the president’s economic agenda, giving high marks to deregulation and tax cuts for businesses and individuals. But they seriously dislike what they hear over the president’s trade agenda. Most think the controversial border adjustment tax is negative for economic growth.

Meanwhile, 64 percent think the stock market is too optimistic about the president’s agenda. They marked up their growth forecast but just 0.2 percent for 2017, and 0.4 percent for 2018. That’s a far cry from the one or two full percentage points that the administration thinks its reforms can deliver.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman in Washington.

(END VIDEOTAPE)

HERERA: While the Fed is the big domestic highlight this week, there is the first of several international events over the coming months that could move markets. That’s tomorrow’s Dutch parliamentary elections which many are declaring as a bellwether for European politics.

Steve Sedgwick tells us all about it from The Hague, in the Netherlands.

(BEGIN VIDEOTAPE)

STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tensions in the build-up to the Dutch elections move up a notch on Tuesday as the row between Netherlands and the Turkish state built up with President Erdogan accusing the Dutch of standing by during the Srebrenica massacre in 1995.

I spoke to Mark Rutte, who is the prime minister of the Netherlands, and he called these comments from the Turkish president unacceptable.

MARK RUTTE, DUTCH PRIME MINISTER: We have to take a stand. We have to draw a line and say, this is unacceptable. We’ll never negotiate on the threat of sanctions.

SEDGWICK: Turkey, of course, has a key vote on presidential powers on April 16, and that’s why the Turkish president is sending his ministers across Europe to try and speak to the Turkish Diasporas there to try to get them to vote for the changes. The Dutch have not allowed those ministers to speak in Rotterdam over the weekend and that is why the tensions have built up so aggressively.

In the meantime, though, we’re looking at an increasingly fragmented election here in the Netherlands with one or two parties pretty much unlikely to be able to form a coalition on their own. Twenty-eight parties will contest a vote, and it seems that the prime minister’s party, VVD, could well be in pole position to try and form a government. But government forming here in the Netherlands can take up to three months, historically.

This is Steve Sedgwick for NIGHTLY BUSINESS REPORT, in The Hague, Holland.

(END VIDEOTAPE)

MATHISEN: Let’s turn now to Mark Yusko to talk more about how the European elections could impact the U.S. markets. He’s CEO and chief investment officer at Morgan Creek Capital Management.

Mark, welcome. Good to have you with us.

MARK YUSKO, MORGAN CREEK CAPITAL MANAGEMENT CEO & CIO: Thanks for having me.

MATHISEN: You know, a couple years ago all the talk and worry was about what was going on in little tiny Greece. This year, there are many more consequential elections. Or, I shouldn’t say they’re more consequential, but they involved bigger countries like the Netherlands, like France, like Germany.

How vulnerable is the U.S. stock and bond market to what goes on there?

YUSKO: You know, I think they’re not really interrelated very much. I think the populism, nationalism is alive and well on the continent. We saw a little whiff of it here in the U.S. around our election. Brexit happened.

But I think the elections in Europe are probably not going to go as far right as people think. I think the U.S. stock market is more vulnerable because of valuations. Now, whether it could be that “bullet that you don’t see that kills you” event where something happens in Europe, liquidity starts to dry up.

But I think it’s more about what is happening in the Fed and really with bank lending rolling over. That’s the big thing we should be worried about.

HERERA: One of the worries, though, on the international front is that the move to the right, to nationalism might involve not only isolationism but protectionism, which might affect trade. It might affect the economic situation here at home. Is that overblown? Or do you see that perhaps having a ripple effect through markets?

YUSKO: Look. I think it is a big risk for Europe. You know, Europe is just on the precipice of easing back into recession. They’ve barely got single digit GDP growth, although ours wasn’t many better in the fourth quarter here in the U.S.

So, I think global growth is really subject to what’s going to happen with global trade. And global trade, if there is more nationalism and protectionism, is going to shrink. So that’s negative.

MATHISEN: Explain what it meant a moment ago when you mentioned bank lending rolling over. Quickly. I get interest rates. That one, what’s happening there?

YUSKO: Yes. It’s actually a very interesting phenomenon. So, as the shadow banking system grew after the global financial crisis, the banks were rebuilding their balance sheets. Now, we’ve tried to give banks more authority to make loans but they’re not making them. Or maybe nobody wants them.

But C&I loans, commercial and industrial loans, have rolled over and they’re about to go negative year over year. When that happens, we actually usually have a recession. So, that’s something to watch.

MATHISEN: That is something to watch.

Mark Yusko, we appreciate it, with Morgan Creek Bank Capital Management, thank you.

YUSKO: Thanks.

HERERA: And speaking of Wall Street, on Wall Street today, a drop in oil prices dragged energy shares lower and it weighed on the broader market. Domestic crude fell for its seventh straight session, down more than 1 percent below $48 a barrel.

And as went oil, so went stocks. The Dow dropped 24 points to 20,837. The NASDAQ lost just about 19, and the S&P 500 gave back 8.

MATHISEN: Oil’s drop today was partly fueled by a surprise output increase from Saudi Arabia and that makes the growing list of worries for big oil even longer.

Bob Pisani explains.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil was down again today on concerns Saudi Arabia may be throwing in the towel and cutting its oil output. If so, it’s the latest in a long string of headaches for big oil.

Saudi Arabia indicated to OPEC that its production had increased to just over 10 million barrels per day in February. Now, that was a little more than in January but the Saudis said, it was in its agreement with OPEC. But the market brushed those comments aside, and oil barely budged. So, the market clearly believes that there are cracks in the Saudi commitment to cut oil production.

Now, that adds to the long list of crude’s troubles. It’s got a growing number of U.S. rigs drilling for oil right now. We have higher crude oil inventory levels. And now, the prospect of a Fed rate hike, that might take it higher. That would almost certainly hurt oil prices.

So, oil stocks are getting hit hard again, of course. ExxonMobil hit a 52-week low. That was last week. It’s down again today. Earnings for Exxon are expected to increase 60 percent this year, much of it is predicted on oil trading closer to $60, not $47 where it is now.

There’s another headache for the Saudis and that’s Aramco, their national oil production company, they want to take it public next year. That may be the biggest IPO ever. They were expecting it to be worth more than $2 trillion. But with oil dropping, it could be worth a lot less.

Now, seen in this light, it might make sense if the Saudis started to question the point of continuing with production costs.

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

(END VIDEOTAPE)

HERERA: Up next, as old man winter’s storm whacks the airlines one more time, the cruise industry is sailing right along. Why the ship operators are enjoying the strong start to the year and where they see more opportunities on the high seas.

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HERERA: A late season snowstorm smacked the East Coast, causing havoc from Washington to Boston with several governors declaring states of emergency, as blizzard warnings exist in some of those areas. And while major cities were spared the heavy tows, many inland areas were expected to get more than two feet of snow.

And the winter storm is easily the biggest of the season to hit the airlines. And it is packing quite a punch with more than 7,000 flights cancelled. But how much it will really hurt the airlines and how quickly can they rebound?

Phil LeBeau reports from Chicago’s O’Hare airport.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: (VIDEO GAP) the airlines have had no choice but to cancel scores of flights and tell more than 400,000 travelers they’re not flying in the storm.

DANIEL BAKER, FLIGHT AWARE CEO: It’s a big impact. It is crippling into travelers in the Northeast, and everywhere from D.C. up to Boston, it’s having a huge impact.

LEBEAU: Among the hardest hit airports, JFK and LaGuardia in New York, along with Newark, Philadelphia, and Boston, all scratching more than 70 percent of their flights.

The airlines which have waived fees for rebooking flights will see their revenues take a hit. But this storm is unlikely to hit the bottom line, in part because carriers plan on at least a couple of big storms every winter.

GORDON BETHUNE, FORMER CONTINENTAL AIRLINES CEO: The revenue loss is gone. But optimization of getting on your feet and getting the airline working again, they’ve got that — the big boys certainly have it down really well. We’re less than two days, they should be in 100 percent.

LEBEAU: In fact, while the airlines have already canceled more than 800 flights for Wednesday, as the day goes on, the schedule should return to normal. And by Thursday morning, if not by the middle of the day, most airlines will be back at 100 percent of their flight schedules.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: But if you have been caught in this storm, you may well be dreaming of a cruise getaway and you’re not alone. The cruise industry is riding a growth wave and it is going high-tech to keep the vacationers coming.

Susan Li drew the short straw today and has more from Ft. Lauderdale.

(BEGIN VIDEOTAPE)

SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The best wave season in years for the cruising industry. 2017 has started up strongly for the cruise operators, with share prices up double digits.

RICHARD FAIN, ROYAL CARRIBEAN CRUISES CHMN & CEO: We’re definitely on a roll. Life is good. People are cruising and our brands excelling in every one of their markets.

LI: The big three, Carnival, Royal Caribbean and Norwegian own more than 80 percent of the global market. But there’s still a lot of room to grow, with fewer than 4 percent of North Americans hitting the water. Cruise bookings are now outpacing land based vacations.

One concern, though, is government policy.

ARNOLD DONALD, CARNIVAL CEO AND PRES.: As long as things stay reasonably normal with changes, then we’re fine. If it becomes a cascade where a large portion of the world, people are not allowed to travel, that would be a problem of.

LI: While demand is strong this year, companies are trying hard to differentiate themselves. From ocean front verandas to wellness cruises with Oprah, or rap concert series across the Caribbean, there’s a lot to offer.

JARED SHOJAIAN, WOLFE RESEARCH: I think we’ll continue to see demand growth, but there is a limit when they’re already filling their shipments. At that point, you start to get pricing, which is one thing that honestly for the longest time, the industry has struggled with consistent pricing growth. And I think over the next couple years, that’s part of reason why we remain bullish on the space.

LI: On average, a third of people going on cruises are first timers and as cruise lines are trying to innovate and provide the experience, they’ll keep the customer coming back.

For NIGHTLY BUSINESS REPORT, I’m Susan Li in Ft. Lauderdale, Florida.

(END VIDEOTAPE)

HERERA: Disney gets upgraded and that’s where we begin tonight’s “Market Focus”.

Guggenheim Securities raised its ratings on the entertainment giant to buy from neutral and it also upped its price target to $128 from $118. The financial services firm cited optimism surrounding the company’s theme parks, pipeline products and upcoming films. Disney shares rose 79 cents to $112.31.

And as we told you last night, activist investor and hedge fund manager Bill Ackman sold his Pershing Fund’s entire position in the drugmaker Valeant. That move resulted in a roughly $4 billion loss and sent Valeant shares to a seven-year low, down 10 percent to $10.89.

MATHISEN: The discount shoe retailer DSW reported profit that beat estimates, thanks to a fewer markdowns and a better handling of expenses. But the company’s same store sales fell more than forecast and overall revenue, well, it didn’t meet expectations. Still, shares did manage to rise about a percent to $20.01.

And Canada-based Hudson Bay may be shifting its takeover sights from Macy’s to Niemann Marcus. Last month, we told that multiple reports said the department store operator was in talks with Macy’s regarding a potential merger. But there’s been speculation now that Hudson Bay couldn’t fund the deal under terms it wanted. Now, several reports say Hudson is in discussions to acquire Niemann Marcus. Shares of Macy’s little change on the news, rising 5 cents to $30.95.

HERERA: To health care, now that we know more details about what’s in the House health care bill, our next guest, Chris Meekins, is back to talk winners and losers. He is the health policy research analyst at FBR Capital Markets.

Nice to have you back, Chris. Thanks for joining us again.

CHRIS MEEKINS, FBR CAPITAL MARKETS: Thanks for the invite.

HERERA: So, we know much more detail, although they’re still going to be negotiating things in and out of this particular bill. But in general, did you see anything in it so far that has surprised you? Or changed who and what companies you think might benefit?

MEEKINS: Sure.

So, what we know is during next three years, companies exposed in the Medicaid space will see an uptick in funding, but after that, there are going to be significant cuts. The Congressional Budget Office report they released last night said that between now and 2026, there will be $880 billion cut from the Medicaid system.

So, names that are exposed in the Medicaid space, like Molina, like a Centene, could be negatively impacted by the restriction on the growth in Medicaid spending.

MATHISEN: Are there — what about other — are these hospital companies basically?

MEEKINS: No question. Hospitals will be a big loser in all this. In addition to the cuts for Medicaid, where more people, they’ll be forced to provide more uncompensated care. Additionally, the movement towards high deductible health plans that the Republican tax credit proposal encourages, means people will go to the emergency room an $8,000, $10,000, $12,000 deductible and what we’ve seen under the ACA, people aren’t paying that. And as a result, hospitals will really be on the hook for a lot of this bad debt.

HERERA: You know, Chris, as you look at the bill, if you had to handicap it, what do you think is going to change here? There are a number of contentious provisions for lack of a better word. If you had to handicap what the final bill will look like, could you outline it for us?

MEEKINS: Sure. I think that tax credits would largely stay the same, though you may see an increase in — for low income individuals, trying to help them afford insurance, because it really negatively impacts people age 50 to 65. Those under age 40 will have their tax credit completely cover their premium, so it’s basically like free insurance for younger, healthier Americans.

On the Medicaid side, I think you’re really going to probably see the Medicaid date extend out a little further, so that the 14 million Americans out of 24 million that the CBO estimates would lose coverage, 14 of those are in Medicaid. I think they’ll try to get that number down a little bit if they can.

MATHISEN: I am guessing that the insurers would generally view this favorably because their risk pool is going to skew younger as opposed to older. And the older people, as we know, as I know, are the bigger consumers of health care.

MEEKINS: No question. Definitely, insurers that are exposed in this space, line in the Anthem, shifts the upside because the risk poll is going to get much out there.

HERERA: OK.

MEEKINS: In addition, they’re providing an additional $10 billion for high risk pools at states, trying to help subsidize those people that are the highest cost drivers in the health care system.

HERERA: Chris Meekins with FBR Capital Markets — thanks, Chris.

MEEKINS: Thanks.

MATHISEN: Coming up, fixing the work force.

(BEGIN VIDEO CLIP)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: An automated workplace, robots everywhere and millions of jobs going unfilled because workers don’t have the skills they need to fill them. I’m Contessa Brewer in Sussex, Wisconsin, where one company thinks it’s found the solution to the skills gap — get them while they’re young — ahead on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

MATHISEN: Here’s what to watch tomorrow. As we reported earlier, the Federal Reserve will issue its decision on interest rates. Retail sales and the consumer price index are due out and the aforementioned Dutch vote to elect their next prime minister takes place. And that’s what to watch Wednesday.

HERERA: Nearly seven in ten manufacturers say they have trouble filling jobs, a problem of the skills gap. The positions require technical training that workers don’t have. The nation’s CEOs recently told President Trump that the problem needs a national solution.

Contessa Brewer in Sussex, Wisconsin, looks at one company’s solution.

(BEGIN VIDEOTAPE)

ZACH SCHLEY, WAUKESHA NORTH HIGH SCHOOL JUNIOR: I have AP physics, AP calculus, AP chemistry, AP English, graphic arts, and U.S. history.

BREWER: Zach Schley may sound like he’s college bound but —

SCHLEY: It makes a lot more sense to just start working right away.

BREWER: So, this high school junior in Waukesha, Wisconsin, is jumping right in, joining Quad Graphics as a paid youth apprentice.

SCHLEY: They’re putting me under their wings, teaching me everything they can. For the most part, I’m observing like I said, but I have jugged a few times or wrapped up a skid or two, and, yes, just helping where I can.

BREWER: Quad Graphics is a massive printing company. It employs more than 22,000 people globally. Like many American companies, it’s struggling to find enough skilled labor. In Wisconsin alone, it has 150 open positions.

CEO Joe Quadracci says even manual labor jobs now come with an expectation of training for more technical positions.

JOEL QUADRACCI, QUAD GRAPHICS CEO: If you tour through our plant, you’ll see that we use a lot of high-tech equipment. And there’s been a big migration for its automation. But over the years, you know, we’ve seen a big decline in the number of people coming into the trades.

BREWER: Quad Graphics revived its apprenticeship program more than ten years ago, first recruiting from within the company and then going to vocational and trade schools.

NATE BUTT, QUAD GRAPHICS APPRENTICESHIP MANAGER: There wasn’t enough skilled people to go around. By the end, we were fighting internally over enough people to run equipment, to develop into apprentices for electrical and mechanical.

BREWER: So, this year, Quad Graphics went to 16 area high schools, offering apprenticeships for school credit and $12 an hour, far more than most teenagers make at part-time jobs. The company accepted all the students who applied, nine of them.

BUTT: They have a really good enthusiasm from the administrators, all the counselors in most high schools.

BREWER: And the students may not understand what an apprenticeship is.

JEFF BOLLMANN, WAUKESHA NORTH HIGH SCHOOL: I think they hear so much about four-year university from parents, counselors, and other friends, that they forget that the usefulness of the tech schools and these skilled labor jobs.

BREWER: Jeff Bollmann teaches graphics and printing at Waukesha North High School. He battles the common dogma that a college degree is necessary for career success. And he struggles to keep his programs afloat financially.

BOLLMAN: Look at this shop right here. This is probably easily $200,000 in equipment. School districts don’t have the funding to really have that type of equipment in all those schools.

BREWER: So, companies like Quad Graphics partner up to support tech ed in school.

SCHLEY: My only support was from my teacher, Mr. Bollmann. He was the one who — he knows that I’m really into tech ed. He got me into printing.

BREWER: After his apprenticeship, Zach could make $25 an hour. He could still attend university as his parents expect, but he says even they are coming around.

For NIGHTLY BUSINESS REPORT, Contessa Brewer, Sussex, Wisconsin.

(END VIDEOTAPE)

HERERA: And that’s NIGHTLY BUSINESS REPORT for tonight. We want to remind you, this is the time of year your public television station seeks your support.

MATHISEN: And we thank you for your support and we’ll see you right back here tomorrow night.

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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