Transcript: Nightly Business Report – April 20, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The bulls are back. Investors
went shopping for stocks, thanks to upbeat earnings on Wall Street and
policy movement in Washington.

In denial. Verizon (NYSE:VZ) didn`t want to bring back unlimited data.
But when customers fled, it did an about-face to stem the bleeding.

And a hot selling American brand in China.

(BEGIN VIDEO CLIP)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Phil LeBeau in
Shanghai, China, were Cadillacs are rolling off the line and sales are
soaring. Could China eventually become the largest market in the world for
Cadillacs? That story coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

HERERA: Those stories and more, tonight, Thursday, April 20th.

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

Wall Street and Washington came together, and the result was a stock market
rally. Profit reports were mostly upbeat. European markets rose. And
there seems to be movement on some of the Trump administration`s pro-growth
agenda.

Here are the closing numbers: the Dow Jones Industrial Average rose 174
points to 20,578. The NASDAQ added 53. And the S&P 500 gained 17.

Bob Pisani has more on what drove stocks higher.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Why the rally today?

You know, it`s a tricky call, but several factors are fueling the move
higher. First, earnings have been mostly positive today, whether it was
CSX (NYSE:CSX) helping the railroads or Qualcomm (NASDAQ:QCOM) helping
semiconductors, or Dover (NYSE:DOV) helping the big industrial names, the
earnings story has generally been better than expected, at least it has
today.

Secondly, Europe had a very strong close. It`s been very choppy this week.
French elections have been a major concern for the markets. That`s going
to be happening on the weekend. But those worries seemed to have eased
today on some hopes that more moderate candidates might prevail in the
first round of elections over there.

Third, after a lot of hand-wringing in Washington, there`s been talk about
a House compromise on health care. That would be a major move forward, and
there`s been more tax cut talk, stock picked up steam as Treasury Secretary
Steve Mnuchin said, “We`re pretty close to bringing forward major tax
reform.”

And lastly, we had a bit of a bounceback. Sectors that sold off this month
reversed today, very nicely, particularly, for example, retail stocks and
steel stocks. The president talked up steel all throughout the morning.

So, here`s the bottom line, there`s not been a lot of movement in the
markets because there`s not been a lot of reasons to sell. And we`re only
1.5 percent from the historic highs. It`s hard to make the case for a big
drop in the markets unless you believe one of several things. First,
France might be pulling out of the European Union, or secondly, the tax cut
program President Trump has been pushing will be dead, or third, the U.S.
economic data will keep getting worse in the second and third quarters and
the bond yields are going to keep moving down.

For the moment, the market seems to be saying none of these prospects are
very likely.

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

(END VIDEOTAPE)

HERERA: And as Bob just mentioned, House Republicans may indeed be getting
closer to a new deal on health care.

Kayla Tausche has the details.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nearly a month after
the house pulled an 11-hour vote on the American Healthcare Act after not
being able to shore up support, leaders of the two sparring Republican
groups have agreed in principle to broad amendments to the bill. To
appease moderates, there`s protections for patients with preexisting
conditions. To appease the conservative Freedom Caucus, there are waivers
that let states abandon once-mandatory benefits like maternity and mental
health.

A Freedom Caucus source said those changes would turn 18 to 20 votes to
yeses. The moderate Tuesday group could not be reached but its leader
expressed support for the changes on Facebook (NASDAQ:FB).

The changes, plus comments overseas by Speaker Ryan that they were putting
the, quote, “finishing touches on health care,” sent expectations into
overdrive. The White House reportedly wants a vote on Wednesday. But
senior GOP aides caution that`s unrealistic. The memo isn`t legislative
language, and members of Congress don`t even return until Tuesday night.

Republicans have a call on Saturday, but that was scheduled two weeks ago
to discuss a forthcoming spending bill and only now will need to discuss
health care.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Washington.

(END VIDEOTAPE)

HERERA: So, if a revised health care bill does come together, what
challenges does it face? And with today`s comments on tax reform from the
treasury secretary, what can investors check?

John Harwood joins us tonight from Washington.

Good to see you as always, John.

So, let`s start with health care. What are the obstacles to the new
blueprint?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, the obstacles
are the same ones that faced it before. It has some elements of Obamacare,
but it also would result in a lot of people losing their insurance, and the
preexisting condition protections might be preserved in name only, not in
fact, because insurers would have the ability to charge a lot more for
people with preexisting conditions.

So, Kayla mentioned the expectations have gone into overdrive as a result
of the talk about this compromise. I think they`ve been revved up way into
overdrive and everyone ought to temper those expectations.

HERERA: We also have a coming budget deadline and a possible government
shutdown looming.

HARWOOD: That`s right. Now, I think the shutdown is less likely. Even
though there`s negotiations and disagreement going on, three sides,
Democrats, Republicans in the Congress, as well as the White House think
the likelihood is that if we get to the end of next week and that deadline
arrives, that Congress is likely to punt at least for a short period of
time, a week or so while the talks continue to go on.

I do think, in the end, we`re going to avoid a shutdown and likely have a
bipartisan compromise that will not have some of the controversial elements
that the White House initially asked for. It`s more important to
Republicans not to shut the government down than to hang out for things
that are difficult to achieve.

HERERA: Right, there`s been talk — quite a bit of talk actually, in the
last two days and this afternoon, about the timeline for tax reform which
does keep changing. But given the rhetoric that we heard today, as it
changed again?

HARWOOD: I don`t think so. I think it`s going to be a long process. If
they get something done through one chamber of Congress by the end of the
year, that will be a spectacular success. It`s going to be difficult to
do. You still have the questions to be answered about whether it`s
individual and corporate, whether it`s going to be revenue neutral or not.
Secretary Mnuchin said today that it would be revenue neutral, it would pay
for itself, but only with a massive amount of dynamic scoring, up to $2
trillion, he said.

That`s going to be difficult to get through the Senate as well as the
House. There are still very large challenges. And we haven`t even
mentioned infrastructure. The administration still has not laid out their
infrastructure plan yet.

HERERA: All right. A lot to pore over, John. Thank you so much.

John Harwood in Washington.

The director of the International Monetary Fund said that she believes her
organization can work with the Trump administration to improve trade. But
Christine Lagarde also cautioned against protectionist measures.

(BEGIN VIDEO CLIP)

CHRISTINE LAGARDE, IMF DIRECTOR: The concern of all our members is to make
sure that we protect free, fair, and global trade, and that we all work at
eliminating the distortion, at eliminating what could constitute an un — a
playing field that is not level and accessible to all. So, we`re on the
same page.

(END VIDEO CLIP)

HERERA: Lagarde also said that by working together, all parties can
improve the system that we currently have.

Well, while Ms. Lagarde was speaking at the opening of the IMF and World
Bank spring meeting, President Trump was getting ready to sign an executive
order, surrounded by steel CEOs, to study whether steel imports into the
U.S. should be restricted. His commerce secretary said the investigation
will determine whether Chinese and other foreign-made steel are threats to
national security.

(BEGIN VIDEO CLIP)

WILBUR ROSS, SECRETARY OF COMMERCE: We don`t contemplate absolutely
prohibiting the import of steel. I can`t imagine that that would be a
conclusion. What we`re trying to do is to change the arithmetic, so that
the dumping practices are not as effective as they have been. So, this is
not meant to say there will never be another ton of steel imported into the
United States.

(END VIDEO CLIP)

HERERA: The move helped lift a number of the steel stocks in today`s
trading session.

As the Trump administration targets steel imports, China remains a
lucrative market for U.S. automakers and in particular for General Motors
(NYSE:GM). GM has become the second largest automaker in that country, and
it`s now having success selling Cadillacs to Chinese buyers.

Phil LeBeau is in Shanghai.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Zhu Jinger is about to
buy his first luxury SUX. But instead of looking at the most popular high
end models in China, he wants to drive a Cadillac XT5.

ZHU JINGER, CADILLAC BUYER: My first car is actually a Buick. I`m getting
better pay and I want an improvement, and I`ve always liked U.S. car brands
like Cadillac.

LEBEAU: Despite a slow start in China 12 years ago, Cadillac has risen to
become the fourth bestselling brand in the country. As it expands
production here, it may not be long until GM sells more Cadillacs in China
than in the U.S.

ANDREAS SCHAAF, CADILLAC CHINA VICE PRESIDENT: We are among the fastest
growing luxury brands in China. And I`m very confident that we will be
able to continue. So, you will most likely see a double digit growth this
year in China.

LEBEAU: A big reason why Cadillac is building more models here in China is
not only because it`s more cost effective, but also vehicles assembled in
this country are not hit with a 25 percent tariff. That`s the tax that
China puts on all imported autos.

And it`s a hefty tax. But it hasn`t stopped automakers like BMW from
shipping thousands of SUVs from its plant in South Carolina to dealerships
in China. U.S. exporting ten times as many vehicles to China as it
imports? Few expect President Trump to start a trade war with China.

JAMES CHAO, IHS (NYSE:IHS) AUTOMOTIVE: The reality is that for most global
automakers, American ones included, they produce most of their vehicles
here in China. So, the tariff issue is only for a very, very limited
segment of vehicles, high performance luxury vehicles that are really
almost immune to pricing.

LEBEAU: That`s good news for Chinese customers like Zhu Jinger, who are
increasingly buying classic American brands like Cadillac.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Shanghai, China.

(END VIDEOTAPE)

HERERA: Separately, General Motors (NYSE:GM) has stopped doing business in
Venezuela, this after authorities took control of the company`s only plant
in that country. The automaker has called the government`s seizure illegal
and has vowed to take legal action against that move.

Still ahead, while a price war may be good for consumers, is the opposite
true for shareholders?

(MUSIC)

HERERA: Earnings today from three Dow components. We`ll start out with
Visa (NYSE:V). Late today, the world`s largest payments network operator
gave an upbeat outlook and reported better than expected quarterly earnings
and revenue, thanks to growth in his European operations. That was enough
to send shares initially higher in after-hours trading. The company also
announced a $5 billion buyback program.

A different story for fellow Dow component Travelers which reported a
double digit drop in quarterly profit. The property and casualty insurer
was hurt by higher catastrophe losses, thanks to wind and hail storms in
several regions of the country. The company also authorized a $5 billion
share buyback. Shares fell 1 percent in trading today.

Dow component Verizon (NYSE:VZ) is struggling to hold on to customers and
get them to pay a premium for its service. The nation`s largest wireless
provider reported a decline of 300,000 cellphone subscribers over just the
past few months. Things could have been worse, though. The company
reintroduced its unlimited data plans to stop the bleeding. And those new
plans helped bring some customers back. The telecom price war hurt
Verizon`s bottom line and its stock price, which fell 1 percent.

Well, Verizon (NYSE:VZ) is the nation`s leading cellphone carrier, but it
may not be as nimble and scrappy as it once was when it comes to competing
against smaller rivals. But whether you`re the largest wireless provider
or a mammoth retailer, what are the risks to investors if the company is
losing market share?

Erik Gordon, professor at the University of Michigan`s Ross School of
Business, joins us now to talk about that.

Welcome back. Nice to have you here, Eric.

ERIK GORDON, UNIV. OF MICHIGAN`S ROSS SCHOOL OF BUSINESS: Hello, sue.

HERERA: You know, does it — does it really come down to size? Are the
bigger companies less able to compete and actually have to cut prices than
the smaller companies?

GORDON: Yes, it seems as if a lot of them lose their agility, their
ability to kind of appeal to customers with the newest, best, coolest
thing. You know, they make a lot of investments in what made them big
yesterday. And customers are fickle. So it can be very difficult for them
to keep market share. And, you know, once they start losing market share,
it`s really tough to get it back. You have to do something like you said
Verizon (NYSE:VZ) is doing, you have to cut prices. And that`s another big
danger.

HERERA: Or maybe you buy a competitor, right?

GORDON: Or you do some consolidation. You know, we`ve seen a lot of that
in the last two years, where the only way you can keep market share or grow
is to buy somebody else. And that`s pretty risky. That ends up being kind
of, you know — history will show that those often don`t work.

So, if you`re a shareholder, you don`t like to see market share go. You`re
not usually too happy to see your company do a big acquisition.

HERERA: Yes. We`ve talked about big versus small. But what about the
biggest of the big like an Amazon (NASDAQ:AMZN), like a Walmart? Are they
immune to that because of their huge footprint?

GORDON: You know, the huge footprint helps them. But they`re also very
agile. Amazon (NASDAQ:AMZN) is always introducing something new. It used
to be just books. Now it`s about everything.

Recently, Amazon (NASDAQ:AMZN) got a patent on making clothing on demand.
That`s pretty far from where it started. But it shows that it`s one of
those rare big companies that has kept its agility.

HERERA: Is that why the stock continues to outperform versus a Verizon
(NYSE:VZ) which lost strength recently because of this competitive
environment?

GORDON: Yes, Amazon (NASDAQ:AMZN) keeps showing that it can come up with
innovative new things that people like. Verizon (NYSE:VZ), you know, not
so much. I mean, a price cut? That`s not new. You know, they`re going to
buy Yahoo (NASDAQ:YHOO)! I`m not sure that`s going to help them very much.

HERERA: So, put on your investor hat for me. If you`re seeing a company
like a Verizon (NYSE:VZ) or there are a number of others out there in the
wireless space and other spaces that have had to compete, is that a warning
sign to an investor, that they should perhaps take a look at their holdings
in that company?

GORDON: Yes. If I see a company losing market share. You know, I give
them a little bit of time to come up with a new ad campaign. But if they
lose market share over, you know, three or four quarters, and the best they
can come up with is to turn that around as a price cut, as an investor, I`m
going to start looking for alternatives.

HERERA: All right. On that note, Erik, thank you. Always good to see
you.

Erik Gordon with the University of Michigan`s Ross School of Business.

The mortgage servicing company Ocwen is hit by a government lawsuit.
That`s where we begin tonight`s “Market Focus”.

The Consumer Financial Protection Bureau is suing the company for, quote,
“failing borrowers at every stage of the mortgage servicing process,” end
quote. The CFPB accused Ocwen of sending inaccurate statements, ignoring
customers` complaints, and illegally foreclosing on struggling borrowers.
In addition, more than 20 state regulators have blocked the company from
engaging in new business. Shares of Ocwen were cut in half, down 53
percent to $2.49.

The drug maker Tesaro said its new ovarian cancer treatment will cost
patients nearly $10,000 a month for a 200 milligram daily dose. But the
company said the starting dose would likely be at 300 milligrams, bringing
the cost to nearly 15,000. Shares fell 6 percent to $139.01.

The homebuilder D.R. Horton (NYSE:DHI) said an increase in orders helped
that company post quarterly profit and revenue that impressed investors.
The company also raised its full year revenue forecast and said it expects
to sell more homes than initially expected. But shares finished lower by
2.5 percent to $33.10.

Sherwin-Williams (NYSE:SHW) said higher paint sales and an increase in
selling prices helped that company post better than expected earnings. The
paintmaker also says it sees net sales rising in the mid to high single
digits this quarter. Shares of Sherwin-Williams (NYSE:SHW) rose 4 percent
to $324.02.

Foot Locker issued a profit warning, saying a delay in income tax refunds
caused customer spending to slow in February. The athletic footwear
company also lowered its earning guidance for 2017 to account for the slow
start to the year. But despite the downbeat outlook, the company said it`s
encouraged by the sales momentum it`s seeing this month. Shares rose 5
percent to $76.55.

Activist investor Marcato Capital Management is calling for a management
shake-up at the restaurant chain Buffalo Wild Wings (NASDAQ:BWLD). The
firm said the company CEO should be replaced due to poor management.

Marcato Capital Management founder Mick McGuire spoke about the issues that
he says have been plaguing that company.

(BEGIN VIDEO CLIP)

MICK MCGUIRE, MARCATO CAPITAL MANAGEMENT FOUNDER: The fundamental
operating metrics of this business have been in fairly significant
deterioration for multiple years on end, whether it`s traffic, comp store
sales, restaurant level operating margins, returns on capital, guest
experience, technology implementations. The list is extraordinarily long
and broad. And there is absolutely no comprehensive plan by this
management team or board to address any of these — any of these issues.

(END VIDEO CLIP)

HERERA: Shares of the company surged almost 6 percent to $163.75.

Do you own Bose headphones? Well, a new lawsuit alleges the audio
equipment maker spies on its users and sells information about their
listening habits without their permission. According to the complaint,
Bose was collecting information not covered by its privacy policy. The
lawsuit claims that a person`s music or podcast listening history can
reveal personal and identifying details. Bose has not commented.

And there are reports that the CIA and the FBI are looking for an insider
who gave top secret information to WikiLeaks. That top secret information,
you may recall, described the tools the CIA used to penetrate smartphones,
smart televisions, and computer systems. Experts say that cyber criminals
are taking note and could use the same techniques to spy on you.

Andrea Day has some tips on what you can do to protect yourself.

(BEGIN VIDEOTAPE)

KEVIN MITNICK, “THE ART OF INVISIBILITY” AUTHOR: Every device is
exploitable.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: From your iPhone to
smart TV.

MITNICK: There`s always a risk of using smart technology, that a threat
actor could leverage it to spy on you.

DAY: Kevin Mitnick is a computer hacker who was once on the run from the
FBI. After spending time behind bars, he now teaches people how to stay
safe in a world filled with connected devices.

MITNICK: With IUT devices, it`s kind of like the Wild Wild West today.

DAY: And he says recent leaks show just how wild it can be. Like
WikiLeaks, that exposed government hacking techniques, including
eavesdropping through smart TVs. The CIA has not confirmed the documents
are real. But experts warn these types of leaks could open the door for
cyber criminals.

MICHAEL BURATOWSKI, FIDELIS CYBERSECURITY SENIOR VICE PRESIDENT: Even
though the actual source code for the exploit wasn`t included, it does give
you data around how information was transferred that would allow a hacker
or somebody malicious to develop their own exploits based off of that
information.

DAY: And according to Mitnick, only extreme measures will fully protect
you from spies.

MITNICK: To maintain anonymity actually requires to obtain a device very
covertly and use that away from all of your other devices.

DAY: And he says businesses need to be ready for any government-funded
attacks.

MITNICK: Unfortunately, if you`re doing with a threat action of a nation
state, they`re going to have knowledge of vulnerabilities that the
manufacturer can`t fix. If you have about $1.5 million, you could buy a
zero day exploit for this type of device.

DAY: So, what can you do now to keep calls and texts private? He uses an
app called Signal.

MITNICK: What that does is allows me to use end to end encryption when
communicating with another person. That is the most secure type of
communications that we have available today.

DAY: And when it comes to smart home devices, change the default password
as soon as you plug it in. That`s something many people never do.

MITNICK: You can never underestimate what someone can do to get even with
you if they get access to your home automation equipment remotely.

DAY: And he says believe it or not, the most commonly used passwords are
still “12345” and “password.” The best way to stay safe is to come up with
a unique one and keep it updated. Also never click on a message you don`t
recognize. If you aren`t using Bluetooth, keep it shut off.

I`m Andrea Day for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: Coming up, traveling at hyper-speed. Imagine getting from
Washington, D.C. to New York City in one hour. Why one company thinks that
can be a reality.

(MUSIC)

HERERA: As you know, there has been a lot of talk about investing in our
nation`s infrastructure. Some see improved roads or bridges. But others
envision hyper-speed travel.

Morgan Brennan has our story.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A high speed train
so fast, blink, and you`ll miss it.

TOMOAKI SEKI, CENTRAL JAPAN RAILWAY CO.: How we do that is we levitate the
train 10 centimeters above ground using a magnetic force.

BRENNAN: The super conducting Maglev can travel at 370 miles per hour,
making it the world`s fastest train. Development has taken two decades on
a track just outside Tokyo. And the Japanese want to bring it here.

WAYNE ROGERS, THE NORTHEAST MAGLEV CHMN. AND CEO: We know in the northeast
corridor, our infrastructure is way behind where it should be. And so,
what we`re looking at a totally new concept, taking mature technology
that`s from Japan, the world`s fastest train, and bringing it here.

BRENNAN: Wayne Rogers (NYSE:ROG) is the CEO of Northeast Maglev, the
company looking to bring the system to the busy Northeast corridor. The
new 220-mile line would carry passengers between New York and Washington,
D.C., mostly underground and away from road crossings and other tracks.
Amtrak`s Acela trains currently do it in three hours. Maglev would slash
that down to one.

If this moves forward, work could start as soon as 2019. The cost: $100
billion.

ROGERS: First, it`s a privately led venture instead of all being a
government project. The second thing is, we`ve mustered not only private
investment, having spent nearly $100 million on the project so far, but
also Japan has said they would help financing significantly the first leg.

BRENNAN: That may sound enticing, but the project also has its skeptics,
including Amtrak`s Wick Moorman, CEO of the government-backed railroad,
this would compete directly against.

WICK MOORMAN, AMTRAK CEO: Rail has the flexibility and all of the
advantages of being able to use current infrastructure in highly congested
areas. So I think it makes a lot of sense. And anybody, Maglev,
Hyperloop, high speed rail, they`re all going to require enormous amounts
of investment. And the business model doesn`t support it.

BRENNAN: U.S. high speed rail has been nothing but a pipe dream for
decades. It`s expensive to build and maintain. Regulatory hurdles are
high and take years to clear. And most debilitatingly, local opposition
almost always emerges.

So, while the Maglev vision is purely Japanese, making it reality will be a
purely American feat.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: And on that note, that is NIGHTLY BUSINESS REPORT for tonight.
I`m Sue Herera. Thanks for joining us. Have a great evening and we will
see you right 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
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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