Transcript: Nightly Business Report – April 18, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Black and blue.  IBM`s revenue
has declined for 20 straight quarters, pressuring the stock after hours and
potentially impacting trading tomorrow.

Deal breaker.  Why the insurance industry could find itself at the center
of the next budget battle in Washington.

Odds of an audit.  What are the chances Uncle Sam will come after you?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
April 18th.

Good evening, everyone.  I`m Sue Herera.  Tyler Mathisen is off tonight.

Lousy earnings reports drove stocks lower today.  We`ll have more on that
in just a moment.

But we begin with quarterly results from Dow component IBM, which could
weigh on stocks tomorrow.  Big Blue reported yet another decline in
revenue, hurt by weak demand in its technology services business.  So,
let`s get to the numbers for you.

IBM earned $2.38 a share, three cents better than estimates.  Thanks to
gains in its cloud services business.  Revenue missed estimates and was
down nearly 3 percent from a year ago.  Investors were not happy, sending
shares down initially in afterhours trading.

Deirdre Bosa takes a closer look at IBM`s quarterly results.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT:  This was IBM`s 20th
straight quarter of declining revenue.  The company has been growing at so-
called strategic imperative unit, which includes cloud computing, as well
as Watson, its big bet on artificial intelligence unit.

This unit now makes up 42 percent of its overall revenue.  However, it has
not been enough to make up for IBM`s declining legacy software and services
business.

Bottom line: this past quarter`s results indicate that the company`s
transformation is going to take more time.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, San Francisco.

(END VIDEOTAPE)

HERERA:  IBM wasn`t the only Dow component to report.  Goldman Sachs
(NYSE:GS) surprised investors with a rare earnings miss.  Johnson & Johnson
(NYSE:JNJ) also disappointed, while UnitedHealthcare reported an upbeat
quarter.  But the results pressured the broader market.  The Dow Jones
Industrial Average fell 113 points to 20,523, the NASDAQ lost seven, and
the S&P 500 was off six.

And of those three Dow earnings, the rise in UnitedHealthcare was not
enough to offset the losses in Johnson & Johnson (NYSE:JNJ) and Goldman
Sachs (NYSE:GS).

(BEGIN VIDEOTAPE)

HERERA:  Goldman`s big stumbling block, trading revenues, down almost two
and a half percent from a year earlier.  The main culprits: equities down,
6 percent, and fixed income flat.  Trading was a bright spot, however, for
other big banks.  J.P. Morgan Chase and Citibank both posted double digit
increases last week.  And Bank of America (NYSE:BAC) reporting today did
even better.

Still, at least one analyst believes it`s time to pick individual stocks
rather than investing in the entire financial sector, which did get a boost
following November`s election.

ERIC WASSERSTORM, GUGGENHEIM SECURITIES:  We`re pretty neutral across this
space.  We thought that expectations about policy, whether it was rate
policy or fiscal stimulus or regulatory policy, had just gotten too
constructive.  And we`ve been much more focused on single names, where we
think there`s some earnings opportunity for positive revision, rather than
the space as a whole, which we think may be sideways until there`s evidence
of stronger macro conditions.

HERERA:  Johnson & Johnson (NYSE:JNJ) also disappointed, despite
improvements from its year-earlier numbers.  U.S. sales of its blood
thinner Xarelto and a diabetes drug Invokana were lower than expected.
Globally, sales of its consumer health products slowed.  Still, J&J is
raising its guidance, hoping to restock its drug pipeline with its biggest
acquisition ever, a $30 billion deal for European biotech Actelion,
expected to close in Q2.

UnitedHealth Group (NYSE:UNH) put up better than expected revenue and
profit numbers, citing its pullback from the Affordable Care Act exchanges
and its growing Medicare business.  Revenues rose almost 10 percent or
nearly $49 billion.  The nation`s largest health care insurer continues to
call for a repeal of the ACA health insurer tax, already on hold for 2017,
and greater freedom for insurers to tie premiums to the likely health costs
of its customers, a touchy subject because older, less healthy customers
don`t feel they should be charged higher rates.

The health insurers were at the White House today meeting with Trump
administration officials to discuss a key concern for the industry.  The
issue is whether the president will pull funding from companies that sell
plans on the Affordable Care Act exchanges.

And as Kayla Tausche reports from Washington, the problem could end up at
the center of a potential government standoff.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As the government
barrels toward an April 28th funding deadline, one hot button issue is
emerging as a potential deal breaker, so-called cost-sharing reductions.
$7 billion paid by the federal government to help shoulder the cost of
insuring lower income Americans enrolled on the health care exchanges.

Without a new deal on health care reform, the Trump administration may
choose to stop making those payments after a May 22nd deadline set by a
judge.  Democrats want those subsidies included in next week`s spending
bill, otherwise risking a government shutdown.

Here is Senator Chuck Schumer today.

SEN. CHUCK SCHUMER (D-NY), SENATE MINORITY LEADER:  We`re working hard to
get it in the bill.  And we`re very hopeful.  Negotiations seem to be going
quite well.  And I`m very hopeful we can come to an agreement that everyone
can be proud of.

TAUSCHE:  That would take leverage away from the White House on wholesale
health care reform.  Last week, President Trump told “The Wall Street
Journal”, quote, “Obamacare is dead next month if it doesn`t get that
money.  What I think should happen and will happen is the Democrats will
start calling me and negotiating.”

Today, insurers met with White House officials, in search of some
certainty, with days in some states and weeks in others before having to
decide whether to participate in exchanges or how much to charge enrollees.
Withholding payments to insurers could make participation expansive or
force more insurers to withdraw completely.  Some answers could come next
week when lawmakers return from recess.

For NIGHTLY BUSINESS REPORT, Kayla Tausche, Washington.

(END VIDEOTAPE)

HERERA:  The Trump administration`s economic agenda is also being tested in
Georgia, a closely watched special election is taking place just north of
Atlanta.  The seat in question was vacated by Tom Price when he was
appointed health and human services secretary.  And the polls late today
show a pretty close race.

John Harwood comes to us tonight from Atlanta.

Good to see you, John, as always.  So, how close is this race?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, when you
combine, Sue, the closeness of the race with Jon Ossoff being at 45 percent
in pre-election polls, he needs 50 to win today, and the unpredictability
of special elections, which are such irregular events, you never know what
turnout is going to be, or how the turnout is going to skew, everyone is
watching and nervous.  And that`s why President Trump has been tweeting
multiple times today, trying to get Republicans out to prevent this blow to
his political momentum.

HERERA:  Well, if the Democratic candidate does win, what does that mean
for his agenda, like tax reform and the other pillars, really, of what he`s
set forward?

HARWOOD:  What it means, Sue, is that Republicans in Congress are going to
be very nervous.  They`re increasingly, if Jon Ossoff is able to win,
especially to get 50 percent in this crowded field, they`re going to be
worried that they could lose control of the House next November, in 2018.
They hadn`t really been worried about that before.

If that is the case, that means for President Trump, getting cooperation on
legislative issues like tax reform, on health care, on the budget, is going
to be increasingly difficult, and that fractured Republican Party is going
to get a little bit more fractured.

HERERA:  Yes, the polls, you know, have been a little bit unreliable as of
late, as you well know.

HARWOOD:  That`s right.

HERERA:  Yes.  Mr. Ossoff`s message was to get out and cast your vote,
basically almost an anti-Trump vote.  Is that — do we have any sense as to
whether that is resonating or not resonating with the population there?

HARWOOD:  Well, it`s certainly gotten him up within striking distance of
that 50 percent.  At this high school, where people have been voting today,
turnout in person is already as high as it was in last November`s general
election.  So, that indicates there`s a significant amount of interest.

And, you know, what Jon Ossoff is saying is, even though this district has
been in Republican hands for 40 years, even though Tom Price won it by more
than 20 points in 2016, that because there are so many college-educated
voters, which is the most skeptical white constituency of Trump, he`s
trying to rally them.  He`s got a shot to do it.

HERERA:  All right, John.  We will see.  Thank you so much for joining us.
John Harwood in Atlanta tonight.

HARWOOD:  You bet.

HERERA:  And now to the economy and the latest report on housing.  Builders
broke ground on fewer homes in March.  According to the Commerce
Department, housing starts fell nearly 7 percent last month.  That decline
came after strong gains during a warm February.  Despite the pullback, the
pace of construction so far this year is stronger than in 2016.

The list of Fed officials calling for the central bank to trim its bond
holdings is getting longer.  Today, Esther George, the head of the Kansas
City Fed, warned against waiting too long to do so.  She has also urged the
Fed to hike interest rates in the past.

The minutes from the last meeting show that most policymakers do expect to
begin shedding treasury and mortgage-backed bonds this year, and that`s a
process that many say will raise yields.  The Fed purchased the bonds to
shore up the economy during the financial crisis.

In Europe, in London specifically, U.K. Prime Minister Theresa May is
calling for early national elections, nearly three years before required.
She is seeking a stronger mandate for Brexit, the process by which the
United Kingdom will exit the European Union.

(BEGIN VIDEO CLIP)

THERESA MAY, BRITISH PRIME MINISTER:  Despite predictions of immediate
financial and economic danger, since the referendum, we have seen consumer
service remain high.  Record numbers of jobs and economic growth that has
exceed all expectations.  We have also delivered on the mandate that we
were handed by the referendum result.  Britain is leaving the European
Union, and there can be no turning back.

(END VIDEO CLIP)

HERERA:  The upcoming Brexit negotiations will center on two issues —
continued access to European markets, and immigration.

The International Monetary Fund raised its growth forecast for Britain`s
economy and for global growth overall.  The organization cited better
prospects for the emerging markets and a post-election rise in confidence
here in the U.S.  But it also warned about the rise of protectionism.

(BEGIN VIDEO CLIP)

MAURICE OBSTFELD, IMF CHIEF ECONOMIST:  The report we did on trade in our
October world economic outlook did estimate that this was negatively
affecting the growth of world trade.  So, a further escalation of trade
measures with retaliation by some countries could take a chunk out of world
trade, and therefore out of world growth.

(END VIDEO CLIP)

HERERA:  The IMF left its forecast for U.S. growth unchanged and said much
depends on the policies coming out of Washington.

Still ahead, Facebook`s CEO takes the stage at a company conference, and
talks about the Cleveland murder.

(MUSIC)

HERERA:  Dow component Verizon (NYSE:VZ) is spending at least $1 billion to
improve its wireless infrastructure.  The largest U.S. carrier, wireless
carrier, will buy more than 12 million miles of optical fiber from Corning
(NYSE:GLW).  Verizon (NYSE:VZ) sees fiber as critical for a faster next
generation broadband network.

(BEGIN VIDEO CLIP)

LOWELL MCADAM, VERIZON CHAIRMAN & CEO:  We view fiber as the cornerstone
building block for the network, the next generation network.  And that
network is going to look very different than what we`ve built in the past.
If you look at 2G and third generation and fourth generation of wireless,
it was about capacity and throughput.  Fifth generation is about those
things.

We`re going to see 100 times faster throughput.  But we`re going to see
things like latency of a network that the network will go out and come back
and respond in less than the time it takes to blink your eye.

(END VIDEO CLIP)

HERERA:  Both Verizon (NYSE:VZ) and rival AT&T (NYSE:T) have been buying
assets in preparation for a next generation network as competition in the
industry increases.

Cardinal Health (NYSE:CAH) adds to its portfolio.  That`s where we begin
tonight`s “Market Focus”.

The drug distributor is buying device maker Medtronic`s patient care, deep
vein thrombosis and nutritional insufficiency units for more than $6
billion.  In addition, Cardinal said falling generic drug prices would
cause adjusted earnings for the year to come in at the low end of its
guidance.  Shares of Cardinal Health (NYSE:CAH) plunged 11 percent to
$72.39, while Medtronic (NYSE:MDT) shares were off just a fraction to
$80.33.

Vitamin and supplements company GNC beat both earnings and sales
expectations in its latest quarter, saying it`s seeing stronger transaction
growth.  The company also added its optimistic new customer loyalty
programs will increase customer spending.  GNC shares soared nearly 25
percent to $9.03.

Profits and sales fell at Harley-Davidson (NYSE:HOG), as the motorcycle
maker saw a weaker demand for its bikes.  That softness is expected to
continue through 2017.  The company said shipments for the year will be
flat to down slightly.  Shares fell 4 percent to $56.91.

And Charles Schwab said a rise in new account openings largely helped its
results.  The bank reported increases in both profit and revenue, noting it
also saw strength in its retail business and adviser services division.
But shares fell nonetheless.  They ended the day down marginally to $37.91.

Facebook (NASDAQ:FB) hosted one of its biggest annual events.  The
company`s developer conference gives CEO Mark Zuckerberg the chance to
share his vision for the social media firm and to talk about the
development of new technologies.  But today, he also used the opportunity
to address the Cleveland murder and Facebook`s ability to handle offensive
and violent videos.

Julia Boorstin reports from San Jose.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  More than 4,000
developers flocked to San Jose to hear about Facebook`s latest inventions
and new tools they`ll be able to access.  But CEO Mark Zuckerberg kicked
off his keynote by addressing uproar surrounding a video shared on Facebook
(NASDAQ:FB) Sunday of a murder and demand for stricter controls.

MARK ZUCKERBERG, FACEBOOK CEO:  We have a lot more to do here.  And we`re
reminded of this, this week, by the tragedy in Cleveland.  And our hearts
go out to the family and friends of Robert Godwin Sr.  And we have a lot of
work, and we`ll keep doing all we can to prevent tragedies like this from
happening.

BOORSTIN:  But Zuckerberg tried to focus the conversation on Facebook`s
technological innovations, particularly when it comes to augmented reality
and the growing power of artificial intelligence.

ZUCKERBERG:  We`re making the camera the first augmented reality platform.

BOORSTIN:  While Zuckerberg talked about the company`s focus on bringing
people together through augmented reality, extending the physical world
online, many of these features won`t go mainstream for years.

But now, Facebook (NASDAQ:FB) Messenger is already implementing the latest
artificial intelligence, to give consumers so many different tools and
experiences within that messenger app that they never swipe away.

Announcing that bots on Facebook (NASDAQ:FB) will be open to group
conversations, to enable gaming and sharing of music.  AI-driven virtual
assistant M will start making recommendations of everything from restaurant
reservations to payment reminders.

DAVID MARCUS, FACEBOOK VP OF MESSAGING PRODUCTS:  There`s going to be a lot
more things you can do in a social way, like booking a restaurant table,
order food, buy movie tickets, and find out, you know, when the movie is
going to play in the show times, and many, many more.  They`re launching
starting today.

BOORSTIN:  It all fits into his Zuckerberg`s ten-year plan to connect the
world, bringing people together, whether it`s a virtual space with oculus
headsets or in a group chat on messenger.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in San Jose, California.

(END VIDEOTAPE)

HERERA:  Coming up, why sometimes you`re better off not being wealthy.
We`ll explain.

(MUSIC)

HERERA:  Here is a look at what to watch tomorrow.  Dow component American
Express (NYSE:EXPR) (NYSE:AXP) reports earnings after the closing bell.
The Federal Reserve releases the Beige Book, that`s an anecdotal look at
the economy across the country.  And the Shanghai Auto Show is under way as
China remains the growth engine of the auto industry.  And that`s what to
watch for on Wednesday.

It is Tax Day and there`s a well-known phenomenon that takes place in the
markets right around this time of year.  As we`ve reported, stocks tend to
dip right before taxes come due.  But is the end of tax season typically a
boost for the bulls?

Dominic Chu takes a look.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The two certainties in
life — death and taxes.  And for investors, tax season doesn`t necessarily
have to feel like death, at least if history ends up repeating itself.  The
month of April has long been regarded one of the strongest months in the
year for stock returns.

According to data from LPL Research, over the past 20 years, the S&P 500
has averaged a gain of 2 percent during the month.  But the gains are
typically stacked during the second half of the month, which just happens
to be in the time typically following each year`s tax filing deadline.
Market bulls have a lot going for them.

PETER ANDERSEN, FIDUCIARY TRUST CO:  If you isolate all the international
geopolitical risks and look at the United States, I would say absent those
risks, it is a positive situation, and it would be some positive
seasonality, just given the fact that it`s spring, that the U.S. consumer
has recovered, and earnings do seem to be on a growth trajectory.

CHU:  During tax season, there is historical data that suggests certain
stocks tend to outperform.  Since 1980, biggest winners have been Hasbro
(NYSE:HAS), Florida electric utility NextEra Energy (NYSE:NEE), and
industrial tools company Snap-On (NYSE:SNA) in the 20 trading days
following the tax deadline.  But just because something has trended one way
historically, doesn`t necessarily mean it will repeat itself.

There are lots of reasons to be cautious in the weeks ahead.

BRIAN BELSKI, BMO CAPITAL MARKETS:  The largest risks to the stock market
rally are the investor need to know everything and have everything right
now.  Investors become so shortsighted in our view.  They want the new
policies from Washington.  They want earnings.  They want this.  They want
that.  It`s going to take time.

CHU:  Investors will spend the coming weeks processing loads of information
and trying to come to an investment conclusion.  While seasonal trends in
the stock market may be part of the discussion, they shouldn`t be the only
consideration.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA:  So, now that you`ve hopefully paid your tax bill, do you ever
wonder where that money goes?

Well, the former CEO of Microsoft (NASDAQ:MSFT) had that same question.
So, a few years ago, Steve Ballmer decided to do something about it.  He`s
been working on a database that makes government financial information
accessible in the same way that companies do.

(BEGIN VIDEO CLIP)

STEVE BALLMER, FORMER MICROSOFT CEO:  Where the heck is the 10-k?  No such
document really exists, at least not the way I would want to see it, which
is, where does the money go — where does the money come from, where does
the money go, and what kind of outcomes does government get?  So, about
almost three years ago, we started on this endeavor.

(END VIDEO CLIP)

HERERA:  And his database is called USA Facts.  His goal is to create a
foundation for a more fact-based discussion on government priorities.

And since World War II, tax revenue has come from four main sources.
According to the Office of Management and Budget, those sources are
corporate taxes, excise taxes, individual taxes, and Social Security and
Medicare taxes.  As you can see here, in 1945, personal income tax provided
about 40 percent of government revenue.

In 2015, that number has increased to just under half of total revenue, as
the share from companies shrinks.  But how are they spending all that
money?

According to Pew Research, the federal government spent more than $3
trillion last year, with the bulk of that going to social programs like
Social Security and Medicare, as well as national defense.

Tim Speiss, co-chairman of the tax practice at EisnerAmper, joins us to
talk about that.

Good to see you.  Welcome back, Tim.

TIM SPEISS, EISNERAMPER, CO-CHAIR OF TAX DPT.:  Thank you very much.  Good
to be here.

HERERA:  I was kind of surprised that such a large amount of the
distribution went to what are essentially social programs.

SPEISS:  Yeah, you`re absolutely correct.  What`s driving that is the U.S.
population and longevity.  Social Security, for example, is forecasted to
go from 8 percent of GDP this year to just over 10 percent upcoming.  And
then you look at the U.S. demographics, where we have 17 percent of the
U.S. population 65 or older, and that`s going to just over 22 percent
forecasted by 2025, 2026.

HERERA:  You know, I think most people think that the government has more
discretion in the way that it spends the tax dollars.  But from the way
that chart broke it down and from what you`re saying, because of the change
in population and growth, they really have very little leeway in
discretionary spending.

SPEISS:  That`s very insightful that you say that.  When you look at the
entire U.S. government spend, only about 15 percent can actually be
directed toward discretionary projects, things like bridges and roads and
so forth.  The rest of it is dedicated to Social Security, social spending,
health care, Medicaid, Medicare, military spending, of course.

So, you only have about 15 cents of every dollar remaining for spending
outside those areas and corridors.

HERERA:  Was that always the case?  Or does it change depending on events
or things that are happening in the U.S. economy, in the U.S. government?
For instance, now we have a new administration with a fairly aggressive
program for infrastructure and things like that.

SPEISS:  Right.  That`s, again, a very good comment.  It`s not always been
that way.  Your introductory comments about, for example, the percentage of
individual tax, 40 percent back in the `40s, as you say, predominantly U.S.
persons pay far more in income tax, for example now, than larger
corporations.

A lot of the research we`ve looked at and in talking to our clients, the
way to reverse this trend is increasing investment in education, so we can
create higher skilled jobs, to create tax revenue, actually grow the
economy, create more discretionary spending.

HERERA:  Tim, thank you so much.  Appreciate it.

SPEISS:  Thank you.

HERERA:  Tim Speiss with EisnerAmper.

And the question that we all want answered.  What are the chances that you
will be audited?

Well, Robert Frank did some digging.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, the richer you
are, the more likely you are to be audited.  The million dollar earners are
more than ten times as likely to be audited as the rest of the country.
So, where do you fall?

Well, if you make the median income, between $50,000 and $75,000 a year in
adjusted gross income, your chances of being audited are 1 in 244 taxpayers
or about 4/10ths of 1 percent.  If you make 100,000 to a million bucks, you
have only a 2 percent chance.

But if you make $1 million or more, you have at least a 5 percent chance of
being audited.  If you`re a super earner or those lucky enough to make $10
million or more a year, you have a one in five chance of being audited.

So, what are the red flags for the IRS?  Well, large deductions relative to
your income are a big flag, so don`t write off more than you earn.  The IRS
is really focused on companies that are filed through the individual tax
code, so an LLC or S Corp or C Corp will attract their attention.

Now, owning a foreign bank account is likely to get you flagged.  If you`re
a business that always loses money, you`ve got bigger problems, but those
too can attract the IRS.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA:  Well, hopefully you`ll never be audited.  But to read more about
your chances of an audit, head to our website, NBR.com.

That will do it for NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.
Thanks for joining us.  Have a great evening and we`ll see you here
tomorrow.

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
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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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