Transcript: Nightly Business Report – April 12, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Foreign affairs. Domestic matters dominated the first weeks of the Trump presidency. But in recent days, the markets have turned attention to hotspots and conflict overseas. And today was another day on edge for stocks.

CONTESSA BREWER, NIGHTLY BUSINESS REPORT ANCHOR: An “inexplicable valuation”. That’s how one CEO describes Tesla’s $51 billion market cap. The bull and the bear case for the electric automaker.

MATHISEN: And business behind bars. The story of a man who’s doing time and turning a profit.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, April 12th.

BREWER: And good evening, everyone. I’m Contessa Brewer, in tonight for Sue Herera.

MATHISEN: And welcome, everybody. I’m Tyler Mathisen.

We begin tonight with news out Washington and there is a lot of it. For ten weeks, President Trump’s domestic agenda from taxes to health care to regulation dominated the headlines and the market moves. But during the past ten days, international affairs have taken center stage and investors have had to recalibrate in the face of new challenges — such as today’s high stakes face-to-face meeting between Secretary of State Rex Tillerson and Russian President Vladimir Putin in Moscow.

Kayla Tausche joins us now from the North Lawn of the White House with the details.

Why don’t we start there, Kayla, with the meeting in Moscow and the aftermath, what I saw as a fairly disputatious press conference?

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, disputatious perhaps, Tyler, despite the fact that both leaders appeared even-keeled. But the stakes have been rising through the past few days based on the U.S. firing a few shots across the bow at Russia, first moving to approve the expansion of NATO further into Russia’s backyard. And second, U.S. officials in the last day accusing Russia of attempting to help Syria cover up that chemical attack that occurred last week.

Secretary of State Tillerson and his counterpart, Russian Foreign Minister Sergey Lavrov, agreed to investigate the source of the chemical attack but they disagreed on what should happen going forward in Syria and the future of the Assad regime, leading Secretary Tillerson to characterize relations with Russia currently this way.

(BEGIN VIDEO CLIP)

REX TILLERSON, SECRETARY OF STATE: I expressed the view that the current state of U.S./Russia relations is at a low point. There is a low level of trust between our two countries. The world’s two foremost nuclear powers cannot have this kind of relationship.

(END VIDEO CLIP)

TAUSCHE: There was high drama as well as Secretary Tillerson met with Vladimir Putin. We don’t know exactly what was discussed in that meeting, but this afternoon, President Trump said it went maybe better than expected. But we’ll have to see.

BREWER: And the U.N. Security Council also refused to pass or they failed to pass a resolution condemning those chemical attacks in Syria. In the meantime, President Trump this afternoon, Kayla, met with the NATO secretary general. On the campaign trail, Trump said NATO was obsolete.

What happened today?

TAUSCHE: Well, it was a more jocular press conference for the most part today, the first meeting between President Trump and the secretary general of NATO. They had discussed Syria, Russia, and how to move forward with policy coordinated in Afghanistan.

But interestingly, it was the talk about the financial commitments, where they provided the most detail. That was where President Trump had lobbed the sharpest criticism about NATO on the campaign trail. He called it obsolete. He said the U.S. would pull out if other member states didn’t pay their fair share.

And the secretary general said, you know what, we turned a corner financially and actually the contributions rose 3.8 percent last year and with a laugh he thanked President Trump for lighting a fire under a few of those allies.

MATHISEN: In the time we have left, the president gave an interview to “The Wall Street Journal” today, comments on interest rates, Fed Chair Yellen, the dollar and Chinese currency manipulation. Give it to us in a nutshell. What did he say?

TAUSCHE: Well, he said he believes the dollar is too strong. He said in theory, that sounds good. But in reality, it’s bad for exporters, it’s bad businesses, especially when other countries are devaluing their currency.

To that end, he said he’s not going to be labeling China a currency manipulator, Tyler. That goes directly against something he promised his voters on the campaign trail and even put in his 100-day plan. And on interest rates, he says, “I like low interest policy.” Well, if that’s the case, he must like what the bond market is doing right now because we saw the 10-year hit 2.24 percent. Bonds are staying low.

BREWER: There’s a lot of news to get through today from the White House and beyond — Kayla Tausche in Washington, thank you for helping us do that.

MATHISEN: And on Wall Street today, stocks closed lower as investors assessed the geopolitical landscape. Today, the Dow fell 59 points, NASDAQ down by 30 points, and S&P 500 fell nearly nine. And as Kayla mentioned, bonds yields lower too.

BREWER: Americans are conflicted over the president’s policies and how he’s doing in the Oval Office. According to a new survey out today, Steve Liesman explains there’s strong support for many of the president’s initiative, but with that support comes a lot of uncertainty.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: There will be no Niagara Falls or sunny Caribbean beaches for the Trump presidency. The CNBC All America Survey shows he’s not getting any honeymoon at all. Just 39 percent of the 804 Americans polled from around the country approve of the job President Trump is doing. The average president in his first three months, going back to Ronald Reagan, enjoyed a balmy 58 percent approval rating, with at least some support from the other side. Not Donald Trump.

JAY CAMPBELL, HART RESEARCH ASSOCIATES PARTNER: People who called themselves independents have a very negative viewpoint of the president right now, as do, not incidentally, Democrats. The entire approval that he has is being held aloft solely by members of his own party. He has historically bad ratings with members of the opposite party and those are dragging his overall numbers way down.

LIESMAN: Ironically, the survey shows historic economic optimism that’s tied to the president. Thirty-eight percent of the public say the economy is good or excellent, a record for the decade-old survey. Forty percent expect the economy to improve in the next year, close to the record. Of those who think the economy will approve, 67 percent say it’s because of Trump’s policies.

MICAH ROBERTS, PUBLIC OPINION STRATEGIES PARTNER: Not only has the economy risen directly after the election, but now, it’s maintained after the election. And into the first quarter of President Trump’s term.

LIESMAN: One problem for the president, the survey suggests his economic agenda polls well until he acts on it. For example, Americans love the president’s plan to rebuild the nation’s infrastructure and cut individual taxes and renegotiate trade deals, of which he’s done little so far.

But majorities disapprove his agenda in places where he’s acted, climate change, the immigration ban, and repealing and replacing Obamacare.

The question now is whether the president can find greater public support as he moves to implement big parts of his economic agenda like tax reform and that infrastructure spending. None of that promises to be a honeymoon either.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: To get some thoughts on what can get done in Washington and how, we turn to John Harwood. He sat down with the president’s budget director, Mick Mulvaney, to find out where the president stands on issues all Americans care about, such as health care and tax reform.

(BEGIN VIDEOTAPE)

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Washington is still wondering what comes next after the Republican failure on health care. President Trump’s budget director, Mick Mulvaney, has a simple answer. The White House is taking charge on tax reform and other top issues.

MICK MULVANEY, OFFICE OF MANAGEMENT AND BUDGET DIRECTOR: It’s a message across the board from the health care, the fact we’ve not been able to pass health care yet, which is I think you’re going to see the White House take more leadership on issues, on tax reform, on infrastructure, on funding. You’re going to see a much more policy-assertive White House going forward.

HARWOOD: That’s going to be — that’s going to slow down tax reform, right? Because the House had been preparing to move their bill. Now, they’re waiting to hear from you. That’s going to slow them down.

MULVANEY: Well, the House can go on and do what they want to do. We’re going to formulate our own policies.

HARWOOD: We should not assume that the plan you put forward is going to resemble the House tax bill?

MULVANEY: I think it’s too early to say.

HARWOOD: Because in the beginning of the year, they assumed you were going to sign onto their bill. Now, it seems like that’s not happening.

MULVANEY: Again, I think you’re going to see the White House have its own tax — haven’t gotten there yet. We’re working still on those goals and principles, looking at different modules. You can plug in, you know, this rate or that rate, or this deduction or that deduction. This concept.

But at the end of the process, you’ll have a White House, Donald Trump tax plan that we’re going to take down to the Hill and try and sell.

HARWOOD: Will it be corporate tax reform only or will be individual as well?

MULVANEY: No, you can’t. We’re going to fix the tax system in this country. And that means corporate, that means pass through S corporations, that means dealing with deductions, that means individuals, that means everything. We are shooting, it’s a go big or go home type of attitude.

HARWOOD: Of course, the bigger a tax reform bill gets, the harder it is to pass. The Republican goal of completing tax reform by August is already out of the question.

But Budget Director Mulvaney offers one concession to make the process easier. He says he doesn’t care if tax reform adds to the deficit.

For NIGHTLY BUSINESS REPORT, I’m John Harwood in Washington.

(END VIDEOTAPE)

BREWER: Still ahead, modern medicine. How big pharma is using research from Iceland to uncover cures.

(MUSIC)

MATHISEN: Now, an update on that ongoing story involving United Airlines. CEO Oscar Munoz speaking out about this clip seen around the world, showing a United flier, Dr. David Dao, being dragged off a plane. In an interview with ABC News, Munoz said he was ashamed at the way United handled the incident, and promised United would never again use police force to remove paid passengers on overfilled flights. Munoz came under fire for his initial reaction to the incident and he took the opportunity to clarify.

(BEGIN VIDEO CLIP)

OSCAR MUNOZ, UNITED AIRLINES CEO: My first reaction to most issues is to get the facts and circumstances. And the initial — my initial words fell short of truly expressing what we were feeling. And that’s something that I’ve learned from, the expression of apology and specific to the folks I mentioned before is an important part of a conversation like this, because again, that shame and embarrassment was pretty palpable for me and for a lot of our family.

(END VIDEO CLIP)

MATHISEN: Munoz also said he would not resign despite the explosive backlash that has ensued following the video’s release. On top of that, United announcing that all passengers on that flight with Dr. Dao will be compensated for the cost of their ticket.

Separately, President Trump weighed in on the incident. In an interview with “The Wall Street Journal”, the president called the removal horrible and said there shouldn’t be a government cap on the amount of incentives airlines can offer passengers to get off a plane. United shares down on the day by a percent.

BREWER: Delta tops profit expectations. And that’s where we begin tonight’s “Market Focus”. The airline did miss analysts’ estimates for sales but said passenger unit revenue turned positive last month for the first time since 2015. The company also said it expects that metric to remain positive through this year. Delta’s shares fell a fraction to $45.05.

MATHISEN: As part of an arbitration settlement, Blackberry will receive more than $800 million from chip maker Qualcomm in a dispute over royalty payments. Last year, the two tech companies said they would enter arbitration talks after BlackBerry said it was overpaying royalties. BlackBerry shares soared nearly 16 percent to $8.93. Shares of Qualcomm off 3 percent at $53.39.

BREWER: Walmart will begin slashing prices on thousands of its products ordered online. But there’s a catch. The retail giant said in order for a customer to receive the discount, they must have the item shipped to a Walmart store for pickup. Shares were little changed on the news, ending the day at 73.44.

MATHISEN: The world’s biggest automakers gathered today in New York to show off their latest models. And it was clear from the offerings that car companies have a common demographic in mind.

Phil LeBeau reports.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here at the New York Auto Show, luxury and performance are taking center stage. Not a surprise that luxury is getting so much attention here, given the fact that New York City is one of the top luxury markets in the United States.

We’re talking about Porsche showing a new design for a Panamera wagon, although they’re not calling it a wagon, or you see the new Lincoln Navigator.

Almost all the automakers are putting out a new derivative of a luxury model so people can look at it here at the Javits Center. But this show also comes at a time when a lot of people are wondering, are we seeing a slowdown in auto sales in the United States? And while there’s a lot of hand-wringing on Wall Street about the strength of the auto market, almost every executive believes it’s still strong.

MARK FIELDS, FORD MOTOR COMPANY CEO: We said about a year ago that the industry was plateauing. But it is plateauing at a historically high level. And when you look at consumer spending, it’s supported by job and income growth, you look at the consumer surveys, even the business confidence surveys, they’re pretty good.

KLAUS ZELLMER, PORSCHE NORTH AMERICA CEO: If I look at the overall economy in this country, we have low interest rates, we have reasonable fuel prices, we have low unemployment, all factors actually point towards a stable economy for 2017, especially for the luxury segment.

LEBEAU: In March, the pace of auto sales fell under 17 million vehicles, but most believe this is a market where the end of the year sales totals will be about 17.3 million or 17.4 million, perhaps a little bit down compared to last year, but still very strong.

STEPHANIE BRINLEY, IHS MARKET ANALYST: I think the buying public and the auto manufacturers need to kind of relax a little bit and we’re just still a little nervous, I think. And we’re kind of looking for the signs. But generally we do have a healthy market.

LEBEAU: The biggest indicator of strength in the auto market, consumer confidence. As consumer confidence goes, so goes the interest people have in terms of going to a dealership. And right now, consumer confidence in the U.S. remains very strong.

Phil LeBeau, NIGHTLY BUSINESS REPORT, at the New York International Auto Show, in New York.

(END VIDEOTAPE)

BREWER: And automaker Tesla is making news this week. The electric carmaker, briefly, passed General Motors to become the most valuable U.S. car company, with a market cap above $50 billion. But shares of Tesla slipped in today’s session after the CEO of the largest automotive dealership chain in the country questioned Tesla’s market value. The stock is up nearly 40 percent year to date, but Automation CEO Mike Jackson said Tesla is, quote, “either one of the greatest Ponzi schemes of all time, or it’s all going to work.”

So, which one is it?

Joining us with the bull case is analyst Tasha Keeney with Ark Invest, and making the bear argument is senior research analyst, Colin Rusch, Oppenheimer.

Nice to see you both today.

All right. So, Tasha, lay it on me, why are you so bullish on Tesla?

TASHA KEENEY, ARK INVEST ANALYST: Yes. So, Tesla is a really high conviction stock for us at Ark Invest. It’s a top position in three of our four funds, top in the ARKQ ETF.

So, our case with Tesla is that the auto industry is really undergoing two major transformations. It’s moving towards electric and autonomous cars. Tesla is a leader in both those areas. We think that because of battery cost declines, there will be 70 million EVs sold in the early 2020s. And Tesla will have a good share of that market.

And then on the autonomous side, we think — you know, everyone considers Tesla just an electric vehicle maker. But we think it could be a future autonomous taxi service provider. So, that taxi service market we see growing to roughly $10 trillion by the early 2030s. If Tesla were to just maintain its share in EVs and get, say, a 5 percent share of the autonomous taxi space, we think that could add hundreds of billions of dollars to its market cap in the next five years.

MATHISEN: All right.

KEENEY: So, when people look at this stock and say it’s overvalued, we think it’s just started.

MATHISEN: Colin, give us the counterargument here. I gather you’re concerned about profitability. This company is not really lighting it up there. But Amazon didn’t make profits for a long time either.

COLIN RUSCH, OPPENHEIMER & CO SR. RESEARCH ANALYST: Yes, and just to put this in context, historically, we’ve been bullish on Tesla’s products.

Where we have trouble continuing to be bullish at these sorts of evaluation levels are — it’s a twofold argument. One, at the preparedness of the technology to actually fulfill the vision that we’re talking about with the advanced driver assistance. And then secondly, in terms of operating profits. As we look out to a million vehicles, and giving them credit for something on the order of 15 percent operating margins, which would be robust and I think a real accomplishment for this company, we’re still coming out with a valuation in and around $270 a share.

On the technology standpoint, if you look at the ability of these cars to actually navigate in inclement weather, even just rain — you know, the technology still is not prepared to do things like reading lane lines and actually assisting drivers in a real autonomous manner.

BREWER: And, Colin, you have a concern about the energy investments, how they’ve been investing in SolarCity and the like.

RUSCH: Yes, we have an issue with that investment. We don’t think there’s an ROI with equity investors. We’ve enjoyed seeing them deemphasize that business here in recent months. And we think that’s the right choice. But we think it was a poor allocation of capital after the company had been historically relatively good capital allocators.

BREWER: All right. Tasha Keeney with Ark Invest, Colin Rusch at Oppenheimer and Company — thank you both for joining us. We appreciate the insight.

MATHISEN: The bull and the bear case there on a biggie.

All right. Last night, we told you how Iceland’s unique family tree have turned that country into a hub for genetics research.

Tonight, Meg Tirrell explains how the technology behind that research is being used around the world.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tourism is up in Iceland. But the Nordic island nation is also becoming known for genetic research, a model now emulated worldwide.

Icelander Kari Stefansson founded Decode Genetics, a company taking advantage of the country’s ideal conditions for genetic research, a population largely descended from common ancestors, comprehensive and ancient genealogy records, and a strong health system.

DR. KARI STEFANSSON, DECODE GENETICS FOUNDER & CEO: Genetics is the discipline that studies the information that goes into making a man and how that flows from one generation to the next. And the genealogy gives you the avenue by which the information is passed on. And it’s obvious that it gives you an advantage as a geneticist to have the genealogy. And we have taken enormous advantage of that over the years.

TIRRELL: Twenty years after Decode was founded here, it’s exported the underlying technology to the rest of the world.

Decode spinout WuXi NextCODE provides the technology to power large genomics projects.

HANNES SMARASON, WUXI NEXTCODE CEO: The big project in Iceland, of course, was one of the first and still is the leading population project on the planet. So, many of the tools and methods that were discovered here are directly applicable to other projects of similar scale and other parts of the world.

TIRRELL: Projects including one in the United States. Former President Barack Obama’s precision medicine initiative.

DR. FRANCIS COLLINS, NATIONAL INSTITUTES OF HEALTH DIRECTOR: We’re anxious to move as quickly as possible away from a one-size-fits-all approach to how to keep people healthy or how to manage chronic illness, into something that’s much more individualized.

TIRRELL: Clues in genetics can provide leads for better treatment. Two medicines recently approved to treat high cholesterol, for instance, are based on a discovery of a naturally occurring genetic mutation. The U.S. program, called All of Us, aims to combine genetic data from at least a million Americans with electronic medical records and information from surveys and wearable sensors, according to Dr. Frances Collins, director of the National Institutes of Health.

The U.S. project is one of many going on worldwide, from the U.K. to Singapore to Qatar.

COLLINS: And there are at least 50 programs enrolling at least 100,000 people in various countries around the world. And one of the goals we now have is to be sure that we all learn from each other and make the most of that kind of a global network.

TIRRELL: Drug companies like Amgen, which owns Iceland’s Decode, AbbVie and Regeneron are all leveraging genetic insights to improve drug development.

From data on huge numbers of people, researchers aim to develop medicines that are more personalized than ever before.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell in Reykjavik.

(END VIDEOTAPE)

BREWER: Coming up, business behind bars. We’ll introduce you to the Warren Buffett of San Quentin.

(MUSIC)

MATHISEN: Here is what to watch tomorrow on the data front. The one to look out for is the Producer Price Index measuring wholesale inflation. We’ll also get the weekly jobless claims report. And earnings season will really get under way. Lots of big banks report tomorrow. J.P. Morgan Chase, Citigroup, Wells Fargo, they all come out before the opening bell. More later.

And that’s what to watch tomorrow.

Warren Buffett is one of the most influential investors ever, of course. When he speaks, Wall Street listens. But in this case, Wall Street is inside San Quentin.

In the final part of our series “Business Behind Bars,” Jane Wells went inside to meet him.

(BEGIN VIDEOTAPE)

CURTIS CARROLL, INMATE: I’m in prison for first degree robbery, murder, and attempted murder. And I was sentenced to 54 years of life in prison.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: What’s your nickname?

CARROLL: My nickname is “Wall Street.”

WELLS: Thirty-eight-year-old Curtis Carroll went to prison at age 17 and didn’t know how to read. One day, he meant to pick up the sports section of the paper, but he picked up the business section instead.

CARROLL: And when I turned to where the lead, an older prisoner saw and actually he said, hey, youngster, you play stocks? Actually, I said, what’s the stock market? And he said, that’s the place where white folks keep all their money.

WELLS: That sparked Carroll’s interest. He learned to read by studying the business section.

CARROLL: I saw an article in the paper. No, it was a magazine. And it had Bill Gates and Warren Buffett’s net worth next to countries. And it was showing how these guys — and I had never even knew that a billion dollars existed, let alone these guys had $20 billion, $30 billion, $40 billion, $50 billion.

WELLS: He became a student of Warren Buffett’s investing philosophy and asked friends on the outside to open an E*TRADE account where he could invest his earnings from prison jobs.

CARROLL: My best investment was TASER International. Dumbest move I’ve made, Valeant. I just got a little bit of Snapchat. I have Bank of America. I’m up. I’m up. I’m up.

I mean, if you’re talking about money I made myself, just money I’ve made for people in general, just giving advice and things like that, six figures easily, easily.

So, even though a dilution of those shares happens, those shares are still there.

WELLS: Yes, Wall Street does give advice for free and has even started a financial literacy group inside San Quentin.

CARROLL: You now have seven shares. You never lose your money.

UNIDENTIFIED MALE: OK.

WELLS: His hope is to some day leave prison. He could go before the parole board in three years, then start a hedge fund and teach inner city kids a better way.

CARROLL: So, all criminals are entrepreneurs. You know — I was a great entrepreneur. I just got caught doing it.

If someone had said, this kid out here in Oakland, California, that’s running around burglarizing homes, has managed to customize a way where he can take a screwdriver, a pair of pliers, and a break adjuster and break inside an arcade game in 30 seconds and get $800 in quarters and turn it into a business, if we got this kid to MIT, what could he do?

WELLS: But more than anything, Wall Street would love to meet his idol, Warren Buffett.

CARROLL: And you have inspired me to become something that my family, my friends and my community can be proud of. And I just think stocks is the greatest platform that man has ever created, that the average citizen and average person can play in and own some of the greatest brands that society has ever seen.

WELLS: An education which has perhaps allowed a convicted murder to take stock.

For NIGHTLY BUSINESS REPORT, Jane Wells, San Quentin.

(END VIDEOTAPE)

BREWER: An amazing turnaround. Yes.

MATHISEN: Great story.

BREWER: That’s NIGHTLY BUSINESS REPORT for tonight. I’m Contessa Brewer. Thank you for watching.

MATHISEN: And thanks from me as well. I’m Tyler Mathisen. We’ll see you 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 ASC Services II Media, 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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