Transcript: Nightly Business Report – May 25, 2017

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Quiet rally. It hasn`t
been flashy, hasn`t been loud. But the market melt-up has been fairly
steady and stocks are breaking out into record territory.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Oil slick. Countries that
rely on crude extend production cuts as fears of a global glut persist.

GRIFFETH: Arrive early. And get ready to wait this summer as the TSA
tests new security measures at some airports.

We have those stories and more tonight on NIGHTLY BUSINESS REPORT for this
Thursday, May the 25th.

Good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen,
coming to this evening from the New York Stock Exchange.

HERERA: And I`m Sue Herera. Welcome, everybody.

Solid gains on Wall Street pushed the NASDAQ and S&P 500 into record
territory. The Dow remains just shy of its all-time high. Technology
stocks led the way as Amazon (NASDAQ:AMZN) flirted with $1,000 a share.
And the advance got a surprise list from a sector that`s been faltering,
retail. More on that in just a moment.

But, first here are the closing numbers. The Dow Jones Industrial Average
was 70 points to 21,082. The NASDAQ added 42. The S&P 500 was up 10.

Bob Pisani has more now on the market`s climb to new highs.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We have a breakout.

The S&P 500 and the NASDAQ have been hitting new highs recently, but they
broke out again today. Now, critics of this rally have complained a small
group of big names led by Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), Apple
(NASDAQ:AAPL), Amazon (NASDAQ:AMZN), that`s what`s powering the rally, and
while that`s true today, we did see over 200 new highs on the New York
Stock Exchange.

That means the rally is broadening out. The rally is all the more
surprising because it`s being done without the help from oil. It was down
4 percent today. Despite the fact that OPEC announced an extension of its
oil production cuts for another nine months. The markets seem to want even
deeper cuts.

Another surprise, the sharp rally from last week`s declines. Traders were
deeply worried about the Trump agenda last Wednesday, remember the Dow
plunged 373 points then on concerns over President Trump`s firing of FBI
Director James Comey. But once the president left for Europe, those
concerns seemed to go away.

Whether those concerns will resurface when the president returns from
Europe is not clear. But for the moment, with the Dow, the S&P and NASDAQ
up six straight days, nothing is slowing down this rally.

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

(END VIDEOTAPE)

GRIFFETH: As Bob mentioned, stocks rallied without the help of energy
shares, they were dragged lower by the decline in the price of oil itself
after OPEC agreed to extend its production cuts for nine months.

Now, you would think that the production cuts would support prices, but
that was not the case when one oil minister ruled out even deeper cuts.
Domestic crude fell below $50 a barrel, with that decline of about 5
percent today.

Steve Sedgwick reports now from the OPEC meeting in Vienna.

(BEGIN VIDEOTAPE)

STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been an
extraordinary day in Vienna where ministers from both OPEC and indeed non-
OPEC oil-producing nations managed to put together an agreement to extend a
deal they first talked about in November last year, which was supposed to
last six months to the end of June. Now will be rolled forward a further
nine months where the parties involved, 24 oil-producing nations,
accounting for around about half the global output, will actually cut 1.8
million barrels a day for the next nine months in order to try and find
some rebalancing in the market.

Outside of OPEC, though, the financial markets took it badly and the oil
price fell in trading on Thursday. I spoke to the very influential Saudi
oil minister about this, and he said regardless of short-term price moves
on the market, this was the strategy that OPEC was sticking with.

KHALID AL-FALIH, SAUDI ARABIA`S ENERGY MINISTER: Price is not the key
indicator that I`m looking at. We`re looking at inventory. And
inventories ultimately will drive other indicators including investment,
including price, including stocks of companies and operators as well as
service companies.

So, if we focus on the fundamentals that we can control, the market will
move in the right direction.

SEDGWICK: Now, in terms of what happens next, there are all kinds of
concerns about compliance, whether all the members regardless of price will
actually comply with the decision, whether there are producers out there
they can`t control, including non-OPEC producers such as shale producers in
the U.S., will actually dent the price and create the need for more
affirmative, more aggressive action from OPEC and their non-OPEC allies.
But for now in Vienna, it`s been quite an extraordinary day where the oil-
producing nations have come up with what they call a historic deal.

This is Steve Sedgwick for NIGHTLY BUSINESS REPORT in Vienna.

(END VIDEOTAPE)

HERERA: Rob Thummel joins us to discuss what OPEC`s decision will mean for
the oil market and where he sees oil prices heading. He`s portfolio
manager at Tortoise Capital Advisers.

Rob, good to have you here with us.

Now, you heard Steve Sedgwick`s report right now. I think it gels with
what you`re expecting, which is oil prices that steady out between about
$50 and $60 a barrel?

ROB THUMMEL, TORTOISE CAPITAL ADVISORS PORTFOLIO MGR: Yes, exactly right.
You know, we agreed exactly with what Steve said and the OPEC minister here
at Tortoise.

You know, we think this was a very constructive thing that OPEC did.
Basically, they have now set us up for an environment where we`re going to
have global oil inventories back at the five-year average level. We
haven`t been there at the five-year average level for a couple of years.
So, that sets up oil prices to rise from here and we think that`s a good
time for investors to be looking at energy stocks because of oil prices`
recent weakness.

GRIFFETH: What role, Rob, do U.S. producers play in all of this? I can —
they play a greater and greater role in supply, the world supply picture,
these days. I imagine they`re licking their chops every time the price
goes up because OPEC`s cutting production.

THUMMEL: Yes, very good point. So, the U.S. producers and their role is
really critical in the short-term and the long-term. Longer-term is even
more important. So, if you look at what`s happening in the global oil
markets today, half the global oil supply is really flat to declining
because not enough capital`s being invested to grow production for half the
global oil supply.

Who`s going to fill that longer-term supply when demand goes up? And half
the other global oil supply declines? It`s going to be the U.S. and it`s
going to be OPEC.

So, the U.S. shale producers are really, really critical for oil in the
long-term. Here in the short-term, obviously we`re going to grow
production a little bit. If prices rise too much, there will be a bit of a
regulator because oil field service costs will rise as well. And that will
result in U.S. production probably flattening out a little bit more and not
going up as much as people think.

HERERA: So, let`s talk names. You say there are different ways that you
can play the oil field right now. First, the Permian basin oil producers.
You like Pioneer Natural and Diamondback Energy specifically?

THUMMEL: Yes, so what we like to play, and really any oil price
environment are the lowest-cost producers of crude oil and the Permian
basin in particular has established itself as one of the lowest-cost
producing basins really in the U.S., and maybe even in the world. So,
companies like Pioneer Natural Resources (NYSE:PXD), Diamondback Energy,
they`re going to grow production between 20 percent and 40 percent next
year. They`re going to spend within their cash flow, which is key, not
outspending their cash flow so they don`t have to rely on the capital
markets. So, they`re going to grow their production, which grows their
cash flow, and generally, if you grow your cash flow, the markets respond
to that in the form of higher stock prices.

HERERA: All right, on that note, Rob, thank you.

THUMMEL: Thank you.

HERERA: Rob Thummel of Tortoise Capital Advisers.

Bill?

GRIFFETH: Well, a positive surprise in retail today and it came from a
surprising place: Sears (NASDAQ:SHLD).

The troubled retailer saw its shares rise after reporting its first
quarterly profit in nearly two years. The store cut cost by nearly one-
third and it was also helped by the sale of its Craftsman`s brand. Sears
(NASDAQ:SHLD) of course once the largest retailer in the U.S., has been
struggling in recent years to turn things around. Today`s shares rose by
13 percent.

HERERA: And Best Buy`s turnaround looks to be taking hold. That
retailer`s revamped stores helped push sales and profit higher in the most
recent quarter, blowing past the expectations of Wall Street. And that
helped push the stock higher by 21 percent.

Courtney Reagan has more on what Best Buy (NYSE:BBY) is doing right.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: What a quarter for
Best Buy (NYSE:BBY). The best-selling category at the consumer electronics
retailer were high-priced computers, connected home items, and gaming,
thanks largely to the march launch of Nintendo`s Switch game console.

The retailer has spent years cutting costs, closing stores, making the
company more efficient. That part of its transformation is over. And now,
it`s growing sales and grabbing share.

Best Buy`s online comparable sales soaring more than 20 percent. Online
strength surprising many as Amazon`s influence on consumers grows.

BRIAN NAGEL: Best Buy (NYSE:BBY) figured out under a new manager team a
few years ago, where the store actually makes sense with consumer
electronics online. So, they got closer with vendors. They really focused
on the bigger TVs, the service in the stores is better. And now, they`re
doing more in-home service too.

So, they kind of figured out that part of the consumer electronics cycle
where Amazon (NASDAQ:AMZN) couldn`t really play.

REAGAN: CEO Hubert Joly says tax refund delays did hurt temporarily. But
when consumers eventually got the refunds, they spent them at Best Buy
(NYSE:BBY). Appliances also sold well and helped profit margins, even
though HHGregg (NYSE:HGG) and Sears (NASDAQ:SHLD) have liquidation sales
with significantly lower prices ahead of their store closures.

Some analysts are concerned about Best Buy`s ability to continue turning in
strong sales, particularly on big-ticket items. How many laptops and
washing machines do consumers need?

NAGEL: As great as Best Buy`s doing, as great as this quarter was, I do
worry a bit on some sustainability of these sales games.

REAGAN: But then again, the rest of the year is expected to see the launch
of new gaming consoles, virtual reality, and connected home merchandise
that could keep consumers turning to Best Buy (NYSE:BBY) for its expertise
and in-person service options. There appears to be value of a leaner Best
Buy (NYSE:BBY) as one of the last consumer electronics retailers standing,
it`s in fighting shape to coexist with Amazon (NASDAQ:AMZN).

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: And there was yet another bright spot in the retail sector amid
all the recent carnage. Struggling teen retailer Abercrombie and Fitch
(NYSE:ANF) reported a smaller than expected decline in same-store sales.
That company was helped by strong demand for surf ware brand Hollister.
Abercrombie and Fitch (NYSE:ANF) recently put itself up for sale. And
today, the stock gained 9 percent.

HERERA: Well, still ahead, attention travelers. If you think going
through security at the airport is a hassle now, it could get worse this
summer.

(MUSIC)

HERERA: President Trump is accusing NATO allies of not paying their bills.
Speaking in front of members of the alliance, the president called out 23
of the 28 countries for not contributing what the administration says they
should to the military organization.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Over the last eight years,
the United States spent more in defense than all other NATO countries
combined. If all NATO members had spent just 2 percent of their GDP on
defense last year, we would have had another $119 billion for our
collective defense.

(END VIDEO CLIP)

HERERA: NATO members target spending of 2 percent of economic output on
defense, but that is just a guideline.

Bill?

GRIFFETH: Elsewhere, an appeals court has refused to reinstate President
Trump`s temporary travel ban for six Muslim nations. The majority of the
judges on that court said that the president`s broad immigration power to
deny entry into the U.S. is not absolute, and they sided with the
challengers in this case. The attorney general said late today the Justice
Department will ask the Supreme Court now to review the appeals court
ruling.

HERERA: Just in time for the start of the summer travel season. The TSA
is looking at tighter security at airport checkpoints. That could mean
that you and I will have to take more out of our carry-on bags before they
go through the screening machines.

Phil LeBeau takes a look at whether you should expect longer waits and
longer lines.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After years of
watching travelers stuff more and more into their carry-on bags, the TSA is
saying, enough. This summer, the Transportation Security Administration is
testing a new program that will have travelers at certain airports de-
clutter their carry-ons before they go through screening machines.

JOHN HALINSKI, FORMER TSA DEPUTY ADMINISTRATOR: They have to weed through
multiple things in there. The more stuff you put in there, the more
organics in there, the slower the process is going to become.

LEBEAU: To speed up screening, the TSA will ask some passengers to put
electronics bigger than a cell phone in a separate bin. That includes
tablets and e-readers like a Kindle. The goal, make it easier for TSA
agents to spot potential problems in bags.

And the new unpacking procedure may go beyond electronics. The TSA says:
Officers may also advise travelers to place other carry-on items separately
in a bin. Although passengers may experience more bag checks, we are
testing quicker and more targeted procedures at these locations.

But given how long some already have to wait in security lines, travelers
are skeptical unpacking even more bags will speed up security.

UNIDENTIFIED MALE: It`s definitely a chore to go through, probably the
worst part of the experience. A lot of us have tried to do pre-check and
other things so we don`t have to do that.

UNIDENTIFIED FEMALE: I don`t know if it will make lines longer
necessarily. I think once people get accustomed to understanding that
that`s part of the process, just as it did with your shoes having to be
removed and that kind of thing, I think that people will get accustomed to
it and it will change.

LEBEAU: The new procedures will not be tested in TSA pre-check lines. And
with tighter screenings raising the possibility of longer lines, don`t be
surprised if more travelers pay to use expedited security services like
Clear, which is now operating in 17 airports around the country.

Whatever security line they use, a record number of travelers are expected
to fly this summer. The airlines are adding more flights to meet demand.
And many airports will be ready with shops and restaurants hiring more
employees. But because there`s a physical limit to adding more security
lines at most airports, the TSA is trying to make existing checkpoints move
faster and more efficiently.

For now, these changes are limited to ten airports. But if they`re
successful, TSA is considering expanding the program to other airports
around the country.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: And you can read more about airport security this summer on our
website, NBR.com.

GRIFFETH: General Motors (NYSE:GM) is being accused of cheating emissions
tests. A class action lawsuit brought against the automaker by owners of
Duramax branded trucks alleges the company outfitted two of its models with
devices that ensure the vehicles passed federal and state emissions
standards. GM has responded by saying that the claims are baseless.

HERERA: Higher membership fees help results at Costco (NASDAQ:COST).
That`s where we begin tonight`s “Market Focus.”

The warehouse retailer also said strong demand in the U.S. helped same-
store sales grow at a faster pace than analysts were expecting. Profit and
revenue also rose and they were ahead of street forecasts. Costco
(NASDAQ:COST) shares initially rose on the after the bell news, adding to a
1 percent gain during the regular session where they closed at $174.73.

The cosmetics chain Ulta Beauty said strong sales in e-commerce helped
same-store sales come in above street expectations. The company also
sought profit and revenue rise with both beating street forecasts. Shares
initially rose in after-hours trading and also ended the regular session up
more than 4 percent to $293.04.

Signet Jewelers said sales got off to a slow start this year. The company
posted revenue that missed estimates saying continued headwinds in the
retail environment pressured its results. The owner of Kay Jewelers and
Jared also missed profit expectations, but it did reaffirm its guidance for
the year. That wasn`t enough to help the stock, though. Shares fell
nearly 8 percent to $50.30.

GRIFFETH: Medtronic (NYSE:MDT) chopped profit expectations as the medical
device maker said the results were helped by new product launches and
higher sales of heart devices. Revenue also grew and topped analyst
expectations. Company says it expects adjusted earnings for 2018 to rise
now between 9 percent and 10 percent. Medtronic (NYSE:MDT) shares were up
1 percent today to $85.58.

Sales fell more than expected at Hormel as the heat producer said an
oversupply the Turkey created pricing pressures. Those results missed
estimates. As a result, the maker of Spam and Skippy Peanut Butter saw
profit fall short of street expectations. Hormel fell by 6 percent today
to $33.13.

And Dollar Tree (NASDAQ:DLTR) is the latest retailer now saying that a
delay in tax refunds this year caused customer spending to stall. The
discount chain reported a surprise decline in same-store sales but still
managed to post earnings in overall revenue that matched analyst
expectations. Shares of Dollar Tree (NASDAQ:DLTR) rose nearly 1 percent to
$78.80.

HERERA: It was a wild day for bitcoin. The digital currency hit an all-
time high of over $2,700 today before it dropped sharply. At its peak
midday, the currency gained more than 180 percent so far this year. The
price reversal in today`s session came as interest in bitcoin was rising
and apparently overwhelmed some exchanges where the currency can be bought
and sold.

But many of you are probably wondering why there`s been a lot of talk about
bitcoin lately and what exactly it is.

(BEGIN VIDEOTAPE)

REPORTER: What is bitcoin? It`s a payment system that uses completely
virtual money for online transactions. The digital currency is called a
bitcoin. It`s like cash for the Internet, transferred between people via
mobile app or computer program. Users request and send bitcoins to pay for
goods and services.

But the identities of users and the transactions are kept anonymous through
complicated encryptions. And unlike real money, bitcoin has no centralized
bank or authority that runs the system. Instead it operates on an open-
source platform that can be accessed by anyone. And it`s controlled by the
people who use it and ultimately the power of supply and demand.

Which brings us to the value of a bit coin. Since its creation in 2009,
it`s fluctuated dramatically. From pennies to now over $2,000.

(END VIDEOTPE)

GRIFFETH: And while bitcoin`s use is certainly not mainstream, it recently
got the attention of Fidelity, one of the world`s largest asset management
firms. So, what are the pros and cons of bitcoin?

Joining us tonight, Ian Sherr, executive editor at CNET.

Ian, thanks for joining us. Given how wildly speculative a bitcoin is, I`m
even hesitant to talk about what the pros might be. But what are they?

IAN SHERR, CNET EXECUTIVE EDITOR: A lot of them actually revolve around
what that segment pointed out, privacy is a really big benefit. People are
often worried about whether or not, especially a political dissident or
something, you know, being able to have your cash be something that`s
completely private, it`s a really good benefit.

The other thing about it is the technology behind bit coin has the
potential to really change the way that data is transferred and moved
around the world. You know, one of the big things that people really like
about it is that because the data is not stored in one place, it`s not as
easily hacked. That`s a really big benefit.

HERERA: Let`s talk about the cons. You know, first of all, it doesn`t
function like a traditional currency does. You don`t get these wild kind
of moves or even slightly large incremental moves in traditional currencies
that are backed by a central bank. But also, the hackers seem to really
like the privacy aspect of bit coin. And that would be a distinct
negative.

SHERR: Yes. Well, I mean, the hackers like to use it because when they
get their ransoms, for example, like the ransom that happened last week,
they ask for bit coins because it`s hard to trace. And they`re able to
take their money and go and use it.

But the other thing about it that is pretty tough that is it`s not insured,
right? The FDIC has no insurance for this. Someone gets into your bit
coin wallet is what they call, instead of a bank account, they could take
all your money, and that`s it, it`s over. It`s like a wad of cash was
taken from you. So, that`s a really tough part about it, and part of why,
one of many reasons why it hasn`t proliferated further yet.

Right now, it`s still a fascination of Silicon Valley. Some Wall Street
banks are looking at it, health care industry. But it hasn`t gotten that
far because people are still worried about the potential pitfalls of it.

GRIFFETH: All right. And let`s do that now for the average person out
there watching who might be intrigued. This is not for them to get
involved with yet, if at all, right?

SHERR: I would not recommend it myself, unless you`re really wanting to
live on the wild side. You know, there are people who have played with it.
There was an alpaca farmer who was found a couple of years ago who was
selling stocks and accepting bitcoins.

Some people like to do that and kind of play with it as a fascination
because you don`t have to sell individual bit coins. It doesn`t have to be
$2,000. You can sell fractions just like there are pennies and dimes you
can give people. So, that`s something you could do if you want to.

But I wouldn`t expect this to be a place where I`d put real money, right?
If you want to play with it, sure, go right ahead. But don`t expect this
to be something serious for quite a while.

GRIFFETH: Yes. Ian Sherr, the executive editor of CNET, thanks for
joining us tonight, Ian.

SHERR: My pleasure.

GRIFFETH: All right. Coming up, a painting is worth a lot, especially in
China. And the reason why may surprise you.

(MUSIC)

HERERA: The Chinese government recently rolled out policies to help
stabilize its currencies and promote investment in that country. It means
that more money is staying put in China, less is flowing out. And one
particular market is feeling the effects of that policy shift.

Eunice Yoon is in Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: To get a picture of
how government policy impacts China`s art market, meet artist Tai
Xiangzhou. At his Beijing studio, this veteran of Song dynasty painting is
preparing for an exhibit in the U.S. where his art is usually sold.

But these days, he says his work is attracting more buyers in China.

Antique collectors in China have started to collect my work, he says. I`m
happy.

China`s art market is becoming a popular way for wealthy people here to
invest. Many have purchased at auctions overseas. But in late 2015,
authorities started worrying about money fleeing the country and imposed
tighter controls on capital.

That`s forced more Chinese to look for new ways to invest their money at
home. Beijing gallery owner and art investor Chris Reynolds is seeing a
surge in sales.

CHRIS REYNOLDS, INK STUDIO OWNER: Following the global financial crisis,
then the stimulus package in China, which really super-charged liquidity
and demand for Chinese art, there was a lull after that period. And so
what we`re actually seeing in the past year or so is a return to a rapid-
growth trend.

For example, last fall, if you look at the auctions in China, in mainland
China, you saw kind of heat and sizzle we haven`t seen for five years.

YOON: What`s sparking that heat and sizzle?

REYNOLDS: We`ve seen liquidity increases. Then at the same time, we have
capital controls which are getting tighter and tighter. That`s actually
having the impact of trapping more capital within China which will lead to
different sorts of rapid price appreciation and assets here.

YOON: Auction houses like China Garden are feeling fervor. At its marked
auction, turnover jumped 50 percent from a year ago.

The warm up in the market has been quite obvious, she says. We estimate a
30 percent rise this year in the Chinese art market overall.

That includes traditional art, antiques, and contemporary pieces. Good
news for Tai who hopes his modern take on an ancient technique will be
enjoyed well into the future.

I want people to feel my work is connected to the world around us, he says.
Long past Beijing`s policy decisions today.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: And you can find out more about the Chinese art market on our
website at NBR.com.

And that will do it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Thanks for joining us.

GRIFFETH: Good night, Sue. I`m Bill Griffeth. Have a great evening,
everybody. We`ll see you tomorrow.

HERERA: Night, Bill.

END

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Business Report is not and should not be considered as investment advice.
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