Transcript: Nightly Business Report – March 22, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Cross Current.  Stocks  steadied after yesterday`s sell-off but are there cracks forming in some  key areas of the market?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Sears (NASDAQ:SHLD) once
dominated retail.  Now, it`s unsure whether it can stay in business.

HERERA:  Locked out.  Why perspective buyers are having a hard time
becoming homeowners.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
March 22nd.

MATHISEN:  Good evening, everyone, and welcome.

The focus today was back on fundamentals.  Things like bond yields, the oil
market and the transportation business, which is the back bone of American
commerce.  But not all investors liked what they saw and that lack of
enthusiasm translated into a bit of a tug-of-war on Wall Street.

The Dow Jones Industrial Average off six points to 26,661, NASDAQ however
rose 27, and the S&P 500 gained 4.  The focus domestic markets was so
strong that investors shrugged off the deadly attack outside British
parliament, an attack police are treating as terrorism.

Dominic Chu takes a look now at the market`s fundamentals and where some
cracks may be forming.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The stock market
weakness highlights a few of the points and concerns that traders and
investors have about what`s happening in the overall marketplace.  And
there`s a ton of amount there to talk about.  But let`s narrow them down to
five big themes that we have going for why at least some investors are
concerned about what`s happening with the recent Trump rally and the
weakness that we`ve seen as of late.

First of all, you`ve got Treasury yields.  That is to say the interest
rates on U.S. government bonds.  They are moving lower, which means that
people are buying up the safety there.  If interest rates keep on falling
in this way, could it be a sign that people want safety as opposed to
perhaps the risk and return of stocks in the marketplace?

That leaves us to bank stocks.  Bank stocks are heading lower and took a
big hit in the recent downturn.  One of the big reasons why is because as
these interest rates start to move lower, profitability of banks could
suffer.  So, when banks make less profits, maybe those stocks go down
pretty hard.  That`s the bank stock side of things.

Small capitalization stocks, the Russell 2000 index is now flirting with
negative to just around flat territory right now, small cap stocks seen as
a leading indicator for what happens in the overall market.  If there`s
weakness there, may be it spreads.

Another place to watch, transportation stocks, trucking, rails, airlines,
that sort of thing.  If these stocks aren`t moving around as much to the
upside, it may mean that people are not shipping as much and maybe economic
activity is slowing down a bit.  That`s the reason why people care about
this one here.

And then finally, let`s talk about oil prices.  We`ve seen pay at the pump
go away a little bit recently.  Oil prices have fallen.  With energy
stocks, though, it`s all about whether or not we see that oil trajectory
continue lower, oil stocks had been a bright spot over the course of the
past year as those stocks started to stabilize.

But again, five of the bigger themes, of course, there aren`t many out
there.  But this encompass some of the reasons why traders are worried in
this recent stabilization/downturn in the market.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA:  And according to the latest Bank of America (NYSE:BAC) Merrill
Lynch Global Fund Manager Survey, a record number of professional investors
have their concerns about the market as well.

Michael Hartnett is the chief investment strategist with Bank of America
(NYSE:BAC) Merrill Lynch and he joins us to talk more about the study.

Welcome, Michael.  Nice to have you here, as always.

MICHAEL HARTNETT, BANK OF AMERICA MERRILL LYNCH:  Hi.  How are you doing?

HERERA:  Good.

Let`s start first of all with some of the findings of this survey, and I
was struck that, you say a record number of investors — 34 percent, the
most in 17 years — find the market overvalued.  That`s a pretty stunning
statistic.

HARTNETT:  Yes, it is.  I mean, the market is after all at an all time
high, or was very close to an all time high.  So, it shouldn`t perhaps be
too surprising.  But, nonetheless, I think it does reflect the fact that
while people are very bullishly positioned, they want to be in the market.
You know, they see the price action forcing them in.

You know, they`ve got this one big nagging sort of worry that things, you
know, are not cheap.  But they also have this problem of where do they go?

HERERA:  Right.

HARTNETT:  You know, because bonds aren`t cheap either.  So, it`s a real
reluctant bullishness that you have coming through.

MATHISEN:  But speaking of bonds and interest rates, I note the one thing
above all the factors that they think could bring the end to the equity
bull market is rising interest rates.

Tell me about how pronounce that feeling is and what is the level at which
they think interest rates could slay the bull?

HARTNETT:  Well, they fear the central banks, but in a very small way at
this moment.  That may be wrong.  I mean, after all, last week may have
been a very important week that we started to see the first sort of
synchronized tightening of monetary policy we have around the world.
Americans went (ph) — the Chinese went (ph), the Europeans and the Brits
sort of hinted at tightening.

So, you know, I think these fears are going to grow.  Right now, however,
they`re saying, look, unless you get a 10-year treasury yield that exceeds
3.5 percent, we`re going to be OK.  And any increase in interest rates that
you see is probably going to be a good increase in interest rates, rather
than a bad one.

HERERA:  You mentioned the fact that, you know, they do have — these are
professional investors.  They`re managing money for people in many cases,
and they have to deploy that cash.

Are they looking globally?  As the graphic just indicated, the U.S. market
seems to be the most overbought.

HARTNETT:  Yes.

HERERA:  Where are they finding opportunity?

HARTNETT:  Very much so.  I mean, that has been the story over the next
couple weeks, maybe a month or two.  What you`re not seeing is professional
investors basically say goodbye to the equity market or goodbye to the U.S.
equity market.

They`re basically saying, look, U.S. stocks look very, very rich.  Let`s go
overseas.  Let`s look at Europe.  Let`s look at Japan.

This month, we actually saw some rotations towards emerging market.  So,
you`re certainly seeing an equity story that really, from a positioning
perspective is one of rotation rather than a major reversal.

MATHISEN:  When did you take had survey?  I`m just curious.  And that`s
question one.  The question two is, what are they doing with cash?  Are
they deploying it?  Hoarding it?  Raising it?

HARTNETT:  Well, cash is one of the most watched indicators from the
survey.  It is a survey of about 200, 250 investors all around the world.
It`s got a great history, a very good track record and basically the survey
ended I think late Thursday last week.  So, it`s very, very —

MATHISEN:  Very recently.

HARTNETT:  — instant snap shot basically of what positioning is.

Cash is really one of the things that people watch a lot simply because
it`s got a great track record in terms of market timing.  When you see cash
below 4 percent, that equals greed.  You want to lighten up.  When you see
cash above 5 percent, that equals fear.  You want to buy.

The figure last week was 4.8.  It`s coming down but it`s not yet at the
levels that say you`ve got to get out of the stock market.

HERERA:  On that note, Michael, thank you so much.  Great information.

HARTNETT:  Pleasure.

HERERA:  Michael Hartnett with Bank of America (NYSE:BAC) Merrill Lynch.

MATHISEN:  Investors watching the drama unfold today on Capitol Hill where
a House vote on health care vote is expected to take place tomorrow.  The
Republican bill faces stiff resistance from members of the Republican
Party.  The chair of the House Freedom Caucus said conservatives`
opposition to the legislation is strong.  That raises doubts about the
legislation`s future.

As we`ve been reporting, Wall Street growing concerned that a delay in
health care reform could slow the administration`s ability to push through
pro-growth policies like tax reform.

HERERA:  The proposed border wall is another controversial issue in
Washington and it appears as if the backlash among some lawmakers is
growing.

Ylan Mui is in Washington tonight.

Good to see you, Ylan.

And how are state and local officials trying to stop companies from
participating in building the wall?

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Good evening, Sue.

Well, there are really two ways that state and local officials are looking
at this.  One is to ban companies that sit on the wall from receiving local
government contracts.  So, that`s number one.  Number two is they`re trying
to pass legislation that would prevent public pension funds from investing
in companies that had been on the wall.

Some of the states that had been looking at this are California and New
York and some of the cities that are involved are New York City, San
Francisco, Oakland, Berkeley.  These are some of the places where we really
start to see this backlash over the border wall starting to grow.

MATHISEN:  Have we seen laws affecting the pension funds, investment
strategy pass like the before?  And what has been the effect of that?

MUI:  Where we`ve really seen it in the past is around tobacco, for
example.  So, CalPERS, which is the public pension fund in California, one
of the largest in the country, they recently decided to remain divested
from tobacco companies.  They`re not going to invest in it because they do
not feel sort of socially, ethically, morally, it`s a type of investment
they want to have.

However, what the funds say is that it`s important to remain engaged in the
companies rather than invest fully because if you pull your money out of a
company, you no longer have influence over the company`s decision.

HERERA:  Very good point.  What is the status overall of the border wall?
Bring us up to date.

MUI:  Yes.  So, we saw the first federal dollars being requested for the
border wall.  About $4 billion over the next two years and the government
has put out the official request for proposal in building the border wall.
They`re looking for a 30-foot wall made of concrete and perhaps some other
times of fences or non-concrete structures as well.  So, we`re starting to
see real money and real details about how this would get built.

HERERA:  Ylan, thank you as always.  Ylan Mui in Washington.

MATHISN:  Also, on Capitol Hill, President Trump`s nominee to lead the
Labor Department testified at his confirmation hearing.  Alexander Acosta
said jobs should not be a partisan issue and pledged to work with Congress
to help workers gain access to training.

(BEGIN VIDEO CLIP)

ALEXANDER ACOSTA, LABOR SECRETARY NOMINEE:  It was crystal clear that every
member of this committee wants Americans to find jobs, good jobs, safe
jobs, even if we don`t all agree on the how.  I share this goal with you.
We may not always agree on the how but at least let us begin by agreeing on
the need.

(END VIDEO CLIP)

MATHISEN:  If confirmed, Mr. Acosta said he would enforce labor laws fully
and fairly.

HERERA:  And investors are also watching the Federal Reserve and the
direction of interest rates.  Today, the president of the Dallas Fed said
he expects three interest rate hikes this year.  Robert Kaplan cited a near
fully employed workforce and inflation closed to the Fed`s target at 2
percent for his outlook.  He added that he`s also watching the heath care
debate unfold in Washington because it could impact consumers` willingness
to spend.

MATHISEN:  Sales of existing homes fell harder than expected in February,
after hitting a decade high the month before.  It`s not because of lack of
demand.  Buyers are out but there are obstacles in their way.

Diana Olick has our story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Home shoppers out this
spring are finding fewer listings and higher prices.  And both are standing
in the way of sales.  February was the warmest in half a century, but sales
chilled, falling hardest in the Northeast and only managing a small gain in
the South.

Realtors say they`re seeing far more potential buyers but not even close to
enough listings to meet the demand.  Supply is down over 6 percent from a
year ago and has been falling now for nearly two years.  Why?  Well, for
one, builders are only operating at about 70 percent of their normal
production level.  They blame a lack of land and labor, as well as the
rising cost of regulation for their slow and wobbly recovery.

RALPH MCLAUGHLIN, TRULIA CHIEF ECONOMIST:  What we`re seeing is the share
of new homes that compromised of all home sales is, you know, only about 11
or 12 percent, when it should be about double that.  It should be about 24
percent.  And normally, you know, that might not raise much of an eyebrow,
but it should raise eyebrows now because existing inventory and existing
home sales is also still pretty low.

OLICK:  But it`s not just the builders.  Following housing crash, investors
scooped up bargain basement depressed properties, adding 4 million single
family homes to the rental stock.  With rental demand still very high,
they`re not selling them back into the market as some had expected.

LAWRENCE YUN, NATIONAL ASSN. OF REAL ESTATE CHIEF ECONOMIST:  Investors
came in to get cash flow and the cash flow remained very positive.  And the
price appreciation is just extra gravy, that they`re witnessing and they`re
saying they`re going on ride out these price increases.

OLICK:  Not only are investors not selling, they`re buying more and they`re
using cash to do it.  That leaves regular mortgage dependent buyers,
especially first time buyers, looking for a good deal, locked out.

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

(END VIDEOTAPE)

HERERA:  Still ahead, hard times.  Sears (NASDAQ:SHLD) used to be a retail
star.  Now, it`s losing billions and even the company is raising questions
about its future.

(MUSIC)

MATHISEN:  Sears (NASDAQ:SHLD) and Kmart, they`re famous American brands
that are staples in malls across the country.  But after years of mounting
losses, the retail company issued a dire warning about whether it will be
able to keep its doors open, saying that it has, quote, “substantial doubts
about its future.”  You don`t hear that every day.  Shares plunged, down
more than 12 percent.

Courtney Reagan takes a look at what might be next for Sears (NASDAQ:SHLD).

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s no secret
Sears` payday has long passed.  The 184-year-old department store hasn`t
acknowledged the extent of its trouble, though, until now.  In its annual
report, Sears (NASDAQ:SHLD) admits, quote, “Our historical operation
results indicate substantial doubt exists related to the company`s ability
to continue the growing concern.”  Results that include losing nearly $10
billion in six years and sales that continue to plunge quarter after
quarter.  Now just 40 percent of the sales it had at its peak a decade ago.

Ted Stenger is a retail consultant specializing in restructuring, but he
was the treasurer at Kmart, shortly before Sears (NASDAQ:SHLD) and CEO and
hedge fund manager Eddie Lampert bought it 15 years ago.

TED STENGER, ALIXPARTNERS MANAGING DIRECTOR:  At this point, they haven`t
put anything on the table that would make outside stakeholders like the
vendor community comfortable, that the next year is going to be one where
their exposure to Kmart and Sears (NASDAQ:SHLD) is not a significant,
negative exposure.

REAGAN:  Sears (NASDAQ:SHLD) has undertaken complicated financial
engineering to fund the business, thanks largely to financial support from
Lampert and hedge fund ESL.  Lampert owns both the majority of Sears
(NASDAQ:SHLD) shares and its debt.

Sears (NASDAQ:SHLD) has borrowed cash from and sold bonds to Lampert`s
hedge fund, closed hundreds of stores, sold real estate and brands like
Lands` End and Craftsman.

Still, some estimate that Sears (NASDAQ:SHLD) will burn through almost $2
billion in cash this year and need the same amount to continue operating.
While the retailer says it`s taking took mitigate doubt about its survival,
doubt seems to be exactly the market sentiment when it comes to Sears`
future.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

HERERA:  Discount footwear chain Payless is reportedly eyeing bankruptcy
protection.  The filing could come as soon as next week.  The retailer
could close as many as 500 stores as it and the industry as a whole try to
adapt to the growth of online shopping.

MATHISEN:  Winnebago ride strong second quarter sales and that is where we
begin tonight`s “Market Focus”.

The company saw revenue spike 64 percent, thanks to record shipments of RVs
in the U.S.  The company`s CEO credited the results to growth in their
towable segment.  Shareholders were happy campers.

Oh, yes!

HERERA:  There you go.

MATHISEN:  Winnebago up 6 percent to $29.55.

A New York judge ordered ExxonMobil (NYSE:XOM) to recover lost e-mails from
an account used by Secretary of State Rex Tillerson while he was CEO.
Tillerson and other executives of the company are under investigation for
allegedly misleading shareholders about the risks of climate change.
ExxonMobil (NYSE:XOM) shares down 7 cents at $81.76.

AT&T (NYSE:T) said it`s pulling its business from Google (NASDAQ:GOOG)
owned YouTube over concerns of some of its ads may have appeared alongside
videos promoting terrorism and hate.  And Verizon (NYSE:VZ) piled on,
saying it would also pull its ads.  Google (NASDAQ:GOOG) has been dealing
with backlash from global companies over ads appearing next to
objectionable content on YouTube.  Shares of Google (NASDAQ:GOOG) were down
a fraction today to $849.80.

HERERA:  Starbucks (NASDAQ:SBUX) says it plans to create more than 240,000
jobs globally by 2021.  Sixty-eight thousand of those jobs will be in the
U.S.

CEO Howard Schultz reiterated the company`s social impact commitment.

(BEGIN VIDEO CLIP)

HOWARD SCHULTZ, STARBUCKS CEO:  I recognize more than any other time, I`m
here to serve our shareholders.  And at the same time, work with like-
minded CEOs and elected officials to try and move the country forward and
address the needs of millions of Americans who are either not in work, not
in school, and really facing challenges that require a more compassionate
understanding of the people who don`t have a voice.

(END VIDEO CLIP)

HERERA:  Shares of Starbucks (NASDAQ:SBUX) rose 35 cents to $55.89.

After the bell, the discount retailer Five Below posted better than
expected fourth quarter earnings.  The company also said it plans to open
about 100 stores this year.  Shares of Five Below initially rose in
extended hours trading following that news, but ended the regular session
down nearly 2 percent to $38.13.

MATHISEN:  The technical glitch at the New York Stock Exchange wreaked
havoc on electronically traded funds, ETFs, earlier this week, affecting
those with market values of more than $150 billion.  But with the EFT
industry clocking in at a whopping $2.6 trillion in assets in the U.S., and
more than $3 trillion globally, will the risks also grow?

Ben Johnson is Morningstar`s director of global ETF research and he joins
us now to discuss.

Ben, welcome.  Good to have you with us.

Is there anything that we really need to be worried about, about ETFs and
their ability to be traded effectively, efficiently in the marketplace?

BEN JOHNSON, MORNINGSTAR GLOBAL ETF RESEARCH DIRECTOR:  Thanks for having
me, Tyler.

What I would stress at the onset is that this issue is an issue, not with
exchange traded funds but an issue that is unique to the exchange, and the
software glitch that resulted from an updating of the closing price
mechanism that was specific to the New York Stock Exchange.  It did not
affect ETFs traded on the other tow major exchanges, NASDAQ and Bats.  And
it`s unique to ETFs because the “ET” in ETFs stands for exchange traded.

So, coming with that exchange trading feature is a unique set of risks and
responsibilities that ultimately present a burden and a learning curve for
investors who have to know how to navigate and trade safely.

HERERA:  Right.  And you make the point there are a couple things that
people need keep in mind in terms of when to trade the ETF — the beginning
of the day, and towards the end of the day.  Tell me about that.

JOHNSON:  Absolutely.  So, following a few simple best practices, investors
can all but immunize themselves from some of these risks.

So, avoid trading ETFs near the open.  ETFs are a basket of stocks.  They
take a while to wake up in the morning.  They`re a bit groggy when they
roll out of bed because an ETF could account for a thousand different
individual stocks and each of those thousand different individual stocks
are going to open during — at different times during the first few minutes
of trading.

Also avoid closing near the close.  What we see is that volumes tend to
thin out near the close.  Bid and offer spreads tend to widen.  Pricing can
be a bit more volatile.

So, if you avoid trading near the open or near the close, you can avoid
many of these risks.

MATHISEN:  And, of course, the other way you can avoid these trading risks
is not to trade them, to buy and hold them.

JOHNSON:  Absolutely, Tyler.  So, the other bit I would add if you are
going to trade is to use limit orders.  Limit orders allow to you name your
price and you will get your price or better.

Do not use market orders which will subject you to the whims of the market.
Do not use stop loss orders which become market orders at the worst
possible time.  And if you don`t need trade, if you don`t want to trade,
index mutual funds are a perfectly viable option for a huge number of
investors.  They will price at net asset value at the end of the day.

MATHISEN:  Ben Johnson, thank you very much.  We appreciate it.

Ben Johnson with Morningstar (NASDAQ:MORN).

JOHNSON:  Thank you.

MATHISEN:  Coming up, the art of the pitch — the most important moments of
a start-up`s life.

(MUSIC)

MATHISEN:  Global arts sales fell to their lowest point since the Great
Depression.  According to a new report, sales of antiques dropped 11
percent to about $56.5 billion last year.  That drop follows a 7 percent
decline in 2015 and wipes out all the gains from the previous two years.
The report cites economic and political volatility for the decrease in
sales.

HERERA:  Aspiring start-ups are looking for funding.  Venture capitalists,
they`re looking for the next big thing.  The two groups cross paths in
Mountain View, California.

And as Aditi Roy reports, the pressure was on.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE:  You just have your ideas in English and it turns into
automated trading codes on those thoughts.

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  In a standing room only
auditorium at the Computer History Museum in Mountain View, 120 start-up
founders have two minutes to make the pitch of their lives.

UNIDENTIFIED MALE:  We`re going to make the internet so cheap, so
affordable and so accessible that everyone of those 800 million will be
able to pay for it.

ROY:  In the audience, 500 of Silicone Valley`s top investors clamoring to
find the next big thing.

JOSH ELMAN, GREYLOCK PARTNERS:  I`m here to see the latest and greatest
coming out of Y Combinator batch.

ROY:  Welcome to Y Combinators demo day, the culmination of the valley`s
preeminent accelerator program.  Since its founding in 2005, Y Combinator
has incubated more than 1,400 companies that together are worth $80
billion.

Some of the program`s most successful graduates include Airbnb, Dropbox,
Stripe and Instacart.

JEFF JORDAN, ANDRESSEN HOROWITZ GENERAL PARTNER:  What you get from a
couple of days here, you get immersion in a hundred ideas, and how people
are approaching it, how people are thinking, what new concepts are coming.

ROY:  The batch in this round includes start-ups like Hivy, which builds
software for office management.  Bright Electric, which is building an
electric plane, and Fiix which calls itself the Uber of car repair.

KHALLIL MANGALJI, FIIX CO-FOUNDER:  The partners have essentially seen like
thousands and thousands of the smartest minds in the world build
outstanding startups.

ROY:  Just to get here is an accomplishment in itself.  Seven thousand
start-ups send applications for just 100-plus spots.  The ones who make the
cut spend three months in Silicon Valley developing their companies.

Y Combinator CEO Michael Siebel says the immersive name of the program is
the key to its success.

MICHAEL SIEBEL, Y COMBINATOR:  What`s different about Y Combinator is we
put everyone together in a batch.  And what that does is it makes everyone
work together and help each other.  And strangely enough, when you have a
bunch of people working really hard next to you, you work even harder.

ROY:  Seibel`s two companies, Twitch and Social Cam, sold for a total of
more than $1 billion, an end game that these founders hope will somebody be
theirs as well.  Y Combinator officials say some companies get funded right
away.  While for others, it could take months.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Mountain View, California.

(END VIDEOTAPE)

MATHISEN:  Hivy and Twitch.

HERERA:  Hivy and Twitch, I wouldn`t think —

MATHISEN:  Maybe it`s a new sitcom.

HERERA:  It could be.

That does it for NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  Thanks
for joining us.

MATHISEN:  I`m Tyler Mathisen.  Feeling Hivy.  Have a great evening,
everybody.  We`ll see you tomorrow.

HERERA:  Does that mean I`m twitchy?  Maybe it does.

END

Nightly Business Report transcripts and video are available on-line post
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our guests and commentators are their own and do not necessarily represent
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on Nightly Business Report is not and should not be considered as
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