Nightly Business Report – May 30, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Exclusive club. Amazon
(NASDAQ:AMZN) does something few have done before. It hit $1,000 a share.
But is it worth buying even at this pricey level?

Increased pressure. Can the recent issues with the airlines be traced back
to Wall Street demand?

Hard lessons. Sky high home prices in America`s tech hub are making it
tough on teachers.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, May
30th.

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

Amazon (NASDAQ:AMZN), the company that revolutionized the way people shop,
can add another milestone to its resume. Its shares crossed the $1,000
mark for the first time today. It`s an impressive feat that only four
other U.S. listed companies share. That puts Amazon`s market value as
roughly $470 billion, about double that of Walmart. It`s more than 15
times the size of Target (NYSE:TGT).

After hitting $1,000 a share, the stock pulled back just a bit, closing
just shy of that mark at $996 a share. But it was enough to put Amazon`s
CEO Jeff Bezos within striking distance of topping bill gates` wealth to
become the world`s richest man.

Tonight, we start with a look at how Amazon (NASDAQ:AMZN) got to where it
is today.

(BEGIN VIDEOTAPE)

HERERA: May 15th, 1997, Amazon (NASDAQ:AMZN) debuts on Wall Street.
Shares were priced at $18 and closed at $23.50, up 31 percent. Four years
later, during the dot-com bust, stocks hovered near all-time lows. Many
Internet companies fold, but Amazon (NASDAQ:AMZN) weathers the storm.

Then, came the growth. Amazon (NASDAQ:AMZN) rolls out its Amazon
(NASDAQ:AMZN) Prime membership service and guaranteed shipping. Tens of
thousands of people sign up in the first month. The following year, the
launch of Amazon (NASDAQ:AMZN) web services, a secure cloud services
platform for businesses.

Today, Amazon (NASDAQ:AMZN) Prime is one of the world`s most popular
subscription services, with tens of millions of members. Amazon
(NASDAQ:AMZN) web services is now used by more than 1 million customers and
has a third of the market share for cloud spending.

May 15th, 2007, Amazon (NASDAQ:AMZN) turns 10. Closing price that day:
$60.58 per share. Now, a decade later, shares break the $1,000 milestone.

In the 20 years since its IPO, Amazon (NASDAQ:AMZN) is the third biggest
company in the S&P 500.

(END VIDEOTAPE)

HERERA: Shares of Google (NASDAQ:GOOG) parent Alphabet are also closing in
on a thousand dollars a share. And this comes as a new report shows that
most active fund managers are heavily invested in the so-called FANG
stocks. That stands for Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN),
Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOG), which have returned nearly
30 percent this year.

A.B. Mendez is portfolio manager at Frost Investment Advisors, and he joins
us to talk about that.

A.B., welcome. It`s nice to have you here.

A.B. MENDEZ, FROST INVESTMENT ADVISORS: Great to be back. Thank you, Sue.

HERERA: Let`s start, first of all, with how you feel about the FANG group
in general. I mean, they`ve been on quite a run.

MENDEZ: Look, the FANG stocks and I`ll qualify that and I say Netflix
(NASDAQ:NFLX) is a bit of a different animal for the rest of that FANG
basket, but all those companies are creating tremendous value for
consumers. I think, pretty clearly, they`re creating transformations in
the economy, in technology, in media, and in many other corners of the
economy. So, to the extent that they are driving a great deal of value
creation, I think, you know, a lot of the move in the stocks is justified,
although it has been a little bit of a breakneck pace over the last six
months.

HERERA: If you are a long term investor, should you trim some of those
positions and maybe wait for a pullback before you get back in or do you
let it ride?

MENDEZ: It`s a great question, and we kind of grapple with these issues on
a day-to-day basis. But we are long term investors as Frost. And we`ve
been involved with all these companies except for Netflix (NASDAQ:NFLX)
over a multi-year period as investors. Netflix (NASDAQ:NFLX) we added in
fall of last year and it`s worked well thus far.

But, yes, I think it`s just common sense. When a stock or a group of
stocks have had a big run, I think it`s common sense and good risk
management to take a little bit off the table and to trim those positions
and bring them closer to where your target allocation might be. And so,
that`s how we think about it, at least.

HERERA: What about Amazon (NASDAQ:AMZN) crossing that $1,000 mark and
closing just below it? Is that significant in your work, or not?

MENDEZ: I don`t think so. I think $1,000, investors look at that and try
to attach significance to it because it`s a round number. But, you know,
looking back at the stock over the last five years, it`s — today, it`s
right at a five-year average on a price to cash flow valuation, multiple
basis.

So, there`s nothing really out of whack there, it`s actually below average
on the price of free cash flow as they`re converting a little bit more of
the earnings into free cash flows.

HERERA: And very quickly, how do you feel about the market overall?

MENDEZ: You know, overall, it`s always — things can sometimes get a
little bit dicey heading into summertime when there`s less volume and some
of the traders and investors are away from their desks. So, you worry
about a geopolitical event with what`s going on in North Korea, other parts
of the world. But other than that, you know, I think that — I`m not going
to say it`s a goldilocks economy. We have a good strong economy here, at
least in the U.S. and it seems to be improving in other parts of the world.
So, you know, relatively benign I`d say.

HERERA: All right. We`ll leave it there. A.B. Mendez with Frost
Investment Advisors — thanks so much.

MENDEZ: Thanks.

HERERA: On Wall Street, the S&P 500 and the NASDAQ snapped their seven-day
win streak. But a rise in some technology stocks helped cap those losses.
Declines in banks and oil stocks contributed to the loss. The Dow Jones
Industrial Average lost 50 points to 21,029. NASDAQ was off seven. S&P
500 fell two.

But in this holiday shortened week, there is a lot on the calendar.
Dominic Chu takes a look.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a holiday
shortened trading week on Wall Street. But that doesn`t mean we won`t get
some fireworks on the heels of Memorial Day Monday.

The week ahead is a number of notable things to keep an eye on that could
move the market. On the macro bigger picture economic front, among the
important data points to consider that are coming out, we`re going to get
pending home sales tomorrow, which measures how many previously owned homes
are under contract for sale but haven`t yet closed.

Now, it`s seen as a leading indicator for existing home sales. On
Thursday, we`re going to get manufacturing data as well as auto sales
numbers for the month of May. And that leads up to Friday, when we get the
May jobs report considered by many to be the most important economic
release each month.

We`re also pretty much done with earnings season this quarter, but there
are some notable reports have yet to be released. You`ve got luxury goods
maker Michael Kors and cyber security company Palo Alto Networks
(NASDAQ:PANW) among those that report result this week. And outerwear
company Canada Goose gives its first ever earnings report as a public
company.

And it`s also worth keeping in mind that many expect lower trading volumes
during the week, given that many are on vacation. Now, as a result,
markets could be more volatile since it might not take as much positive or
negative news to sway the fewer number of traders involved.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu from the New York Stock
Exchange.

(END VIDEOTAPE)

HERERA: A Federal Reserve official today said he expects the central bank
to raise interest rates two more times this year, while at the same time
reduce the size of its balance sheet.

(BEGIN VIDEO CLIP)

ROBERT KAPLAN, FED RESERVE BANK OF DALLAS PRESIDENT: We can do two rate
hikes and begin the process of reducing balance sheet. And the individual
tactics meeting by meeting I think are less important than the overall pan.

(END VIDEO CLIP)

HERERA: The Dallas Fed president also said he was concerned about the
recent weakness in inflation data, a concern echoed today by his colleague
Fed Governor Lael Brainard.

(BEGIN VIDEO CLIP)

LAEL BRAINARD, FED RESERVE BOARD OF GOVERNORS MEMBER: Today, there`s
little indication of a breakout of inflation. Rather, the latest data on
inflation had been lower than expected. If anything, the puzzle today is
why inflation appears to be slowing at a time when most forecasters put the
economy at or near full employment.

(END VIDEO CLIP)

HERERA: The Fed has raised interest rates twice since December, and many
investors expect the central bank to hike again at next month`s meeting.

Consumers spent at their fastest pace in four months, perhaps bolstering
the case for an interest rate increase. The Commerce Department reported a
4 percent rise in April in personal consumption expenditures. That may be
because Americans had more money to spend. Personal incomes rose the same
amount last month, also up 0.4 percent.

Home prices are also higher. They rose in March at their fastest pace in
nearly three years. According to S&P Case-Shiller National Index, supply
shortages helped drive prices up nearly 6 percent, significantly outpacing
income growth.

Credit scores for U.S. consumers hit record levels in April. According to
“The Wall Street Journal”, Americans are enjoying improving credit scores
as the job market fell and the economy grew and people`s recession wounds
continued to heal. The average credit score around the country hit 700,
the highest it`s been since 2005.

But what does that mean for the overall economy?

Gus Faucher, the chief economist at PNC Financial, joins us to talk about
that.

Now, good to see you, Gus, as always.

It sounds like pretty good news for the economy.

GUS FAUCHER, PNC FINANCIAL CHIEF ECONOMIST: Thank you, Sue.

That`s right. What we`re seeing is people are in better financial shape.
They paid down a lot of debt after the Great Recession. And then also what
we have is people, the bad events from the great recession, foreclosures,
bankruptcies, those are gradually disappearing from people`s credit
histories.

HERERA: So, when do we start to see that impact the economy, or are we
already starting to see it?

FAUCHER: I think we are starting to see it. So, auto sales have been very
strong over the past couple of years. So, we do have more auto loans as
people`s credit scores improve. We`re seeing a gradual pickup in the
housing market. So, we have more people moving into home ownership.

Some of them have been delayed because they have a bad history. But as
their credit scores get better, we`ll have more people purchasing homes.
And so, that`s very good news for economic growth.

HERERA: At what point, though, we`ve done this story numerous times on
NIGHTLY BUSINESS REPORT, debt levels are also going higher. Are you at all
worried about that? Even though credit scores are up, debt is increasing
as well.

FAUCHER: You know, I`m not that concerned about that. If we look at debt
as a share of income, that`s actually near a record low. The total debt
level is about back to where it was before the great recession. But the
economy is much larger.

So, I think if we — we need to look at it as a share of income. I think
it`s a sustainable pace right now. I think that consumers are being much
more cautious with credit than they did during the housing boom.

HERERA: Is this investable, do you think? I mean, when you say that it`s
going to trickle down or is trickling down to the economy, does that argue
for maybe investing in the banks, investing in the auto companies, as their
sales of either loans, and mortgages, and/or cars continues to grow with
better credit scores?

FAUCHER: You know, in terms of autos, I think it`s tough to see sales
moving a whole lot higher. They`re near record high right now. And people
have been buying a lot of cars over the past few years.

I think we may see an improvement in the housing market so people are
better able to get mortgages. And there are a lot of people who have been
wanting to purchase homes but haven`t been able to do that. So, I think
that housing related industries in particular are going to benefit from
these higher credit scores.

HERERA: All right. Gus, thank you so much. Pleasure to have you with us
as always.

FAUCHER: Thank you.

HERERA: Gus Faucher with PNC Financial.

Still ahead, high flying profits. The airlines are doing better
financially. But is that performance coming at a cost?

(MUSIC)

HERERA: Goldman Sachs (NYSE:GS) is coming under fire for buying Venezuelan
bonds. The president of the country`s opposition-led congress accused the
bank of financing a dictatorship. The accusation follows a “Wall Street
Journal” report that Goldman Sachs (NYSE:GS) bought nearly $3 billion in
bonds issued by the Venezuelan state oil company. Critics say that
purchase gives a lifeline to a government that is starving its people.

In a statement, Goldman said, quote: We recognize that the situation is
complex and evolving and that Venezuela is in crisis. We agree that life
there has to get better and we made the investment in part because we
believe it will, end quote.

There has been some talk about expanding the laptop ban on airplanes.
Well, today, the Department of Homeland Security, in a call with European
officials, made it clear that a large electronics device ban is still on
the table. And this comes just as people get ready to go on summer
vacation and could mean tighter security at airports.

Phil LeBeau as more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just as a record
number of Americans are preparing to get away this summer, the federal
government is looking at tighter security in airports and in the air. As
the secretary of homeland security says, the threat to commercial aviation
appears to be growing.

JOHN KELLY, SECRETARY OF HOMELAND SECURITY: There is a real threat.
There`s numerous threats against aviation. That`s really the thing that
they`re obsessed with, the terrorists, the idea of knocking down an
airplane in flight, particularly if it`s a U.S. carrier. Particularly if
it`s full of mostly U.S. folks, people. It`s real.

LEBEAU: Because of those threats, the Department of Homeland Security is
looking to extend the ban on passengers carrying laptop computers on
international flights. Restrictions already in place for flights to the
U.S. from some airports in the Middle East.

Extending the laptop ban for all international flights in or out of the
country would impact more than a half million travelers every day.
Carriers like United Airlines, which have large international networks, are
already making contingency plans.

Just last week, United`s CEO Oscar Munoz said the airline is in regular
contact with the Trump administration, so it can be ready if security
procedures change.

Would a laptop ban on all international flights prompt some travelers to
cancel their trips? Perhaps a few. But most experts believe travelers
will likely just grin and bear it and adjust to new rules designed to keep
them safe in the sky.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: British Airways said a power surge at one of its data centers is
likely at the center of a computer failure and that failure forced the
airline to cancel all flights from Gatwick and Heathrow Airports on
Saturday, disrupting the travel plans of tens of thousands of people. The
airline was in full service today. But in overseas trading, shares of
British Airways` parent company fell as investors grew concerned that the
company`s quality of service may have been undermined by the recent cost
cuts there.

From overseas to here at home, the airline carriers are feeling the
pressure. And according to “The New York Times (NYSE:NYT),” Wall Street
may be partly to blame for some of the recent problems, as some carries are
focusing on maximizing profits.

Nelson Schwartz, economics reporter, wrote about it for the paper and he
joins us now to talk about that.

Nelson, welcome. Nice to have you here.

NELSON SCHWARTZ, NEW YORK TIMES ECONOMICS REPORTER: Great to be here.

HERERA: How is it different now for airlines focusing on profit than it
was, say, five or ten years ago?

SCHWARTZ: Well, you know, everyone remembers all the bankruptcies and the
consolidations and, you know, equity holders literally being wiped out.
The airlines are new companies now, essentially. And they`ve remarketed
themselves to Wall Street as a very different kind of investment.

So, you know, it`s a very cyclical industry where you don`t cover your
biggest cost necessarily, you don`t know what it`s going to be, fuel. But
the airline have kind of said to the street, look, we`re going to deliver
year-in, year-out steady profits, you know, steady growth, and you can rely
on us the way you would on an industrial company or a utility. And that
puts tremendous pressure on the airlines to deliver to what the street
expects.

HERERA: Uh-huh, uh-huh. What about the pay structure for executives? In
the past, it was very different for the airline industry than it was for
some other large scale perhaps more mainstream type companies. Has that
changed?

SCHWARTZ: Yes. In the past, airlines say maybe a third or more of CEO
bonus and other top executives` bonuses were tied to operational factors
like lost luggage, on-time arrivals, customer satisfaction. Some airlines
like American have dropped that entirely in figuring out the bonus
structure.

So, for American, it`s strictly financial metrics like, you know, return on
investment, profit margin, that kind of thing. So, the customer doesn`t
really get factored in.

HERERA: Right.

SCHWARTZ: United scaled that back, they scaled back the operational
factors. Then they had that incident in Chicago. It was a public
relations nightmare, in April. They put in their proxy that they`ll sort
of build back up operational factors, i.e. customer service into CEO pay.
But, you know, it`s a little late in the game.

HERERA: Yes, it certainly seems that way. So, in essence, if I`m hearing
you correctly, the customer satisfaction metric when used to be very
important for the airlines is now almost last on the list because they`re
beholden to the profit and loss statement that Wall Street is looking for?

SCHWARTZ: Yes, exactly. And I think, you know, look, every publicly
traded company has to grow earnings, has to deliver to shareholders. We
know that. The question is, as the airlines kind of overpromised what they
can deliver in terms of earnings growth, the economy is only growing 2
percent, that`s how fast airline travel is.

So, if you promised 5, 10, 15 percent annual earnings growth and you`re
only growing at 2 percent, something`s got to give, and that`s customer
service.

HERERA: It certainly has been lately.

Nelson, thank you very much. We appreciate it.

SCHWARTZ: Thank you.

HERERA: Nelson Schwartz with “The New York Times (NYSE:NYT).”

TiVo`s shares jump after a favorable patent ruling. That`s where we begin
tonight`s “Market Focus”.

An initial ruling by the International Trade Commission on Friday regarding
the TiVo (NASDAQ:TIVO) set-top boxes determined the cable giant Comcast
(NASDAQ:CMCSA) (NYSE:CCS) violated two TiVo (NASDAQ:TIVO) patents. A final
ruling is expected in September. Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the
parent company of CNBC which produces NIGHTLY BUSINESS REPORT. TiVo`s
shares popped 14 percent to $18.70. Shares of Comcast (NASDAQ:CMCSA)
(NYSE:CCS) rose fractionally to $41.10.

Wedbush Securities downgraded Buffalo Wild Wings (NASDAQ:BWLD) to
underperform from neutral, saying the restaurant chain`s current strategy
will pressure margins and earnings. Activist hedge fund Marcato has been
calling for change at that company. But the Wedbush analyst says Marcato`s
plan isn`t expected to help. Shares of Buffalo Wild Wings (NASDAQ:BWLD)
fell nearly 4 percent to $145 even.

Offshore drilling contractor Ensco will buy rival Atwood Oceanics
(NYSE:ATW) in an all-stock deal worth nearly $850 million. Ensco said that
the deal will allow the combined company to serve an even larger group of
clients. Ensco`s shares fell 5 percent to $6.36. But shares of Atwood
Oceanics (NYSE:ATW) took off following the news, rising 24 percent to
$10.04.

The biotech company Gilead says its experimental HIV drug, when combined
with other medications, did well during four study trials. Gilead says it
plans to apply for approval in the U.S. as soon as this year. The shares
were up a penny to $64.49.

It is no secret that high tech salaries are driving up housing costs in and
around Silicon Valley. Those higher costs were also driving out lower paid
workers.

And as Aditi Roy reports, it now appears that teachers are getting
squeezed.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Etoria Cheeks has a
master`s degree, a stable job, and an annual salary of about $75,000. Yet,
for the past year and a half, she`s spent too many days not knowing where
she would sleep at night.

ETORIA CHEEKS, TEACHER: I just have to kind of be able to stay on the
move. I kept everything in the bag, because to unpack didn`t make sense.

ROY: Cheeks is a math teacher at a San Francisco Public High School. And
she says she can`t afford to rent a one-bedroom apartment. So, she`s lived
with roommates, then moved into a hostel, and at one point even spent a
night in a homeless shelter.

CHEEKS: I wasn`t prepared for what happened.

ROY: Cheeks is not alone. Housing experts say high tech salaries and low
inventory are squeezing teachers out of the city. The problem is so acute,
San Francisco Mayor Ed Lee recently committed spending $44 million towards
a teacher housing project in the city, which would offer educators
subsidized rents.

NELA RICHARDSON, ECOFIN CHIEF ECONOMIST: Well, it`s a great start.
Anything that you can do to increase the affordable supply will make a
meaningful difference. But it`s not enough. This is a national problem.

ROY: Many teachers in the region make on average between roughly $70,000
and $80,000. But a recent study found there are no homes in either San
Francisco or Silicon Valley that are affordable for teachers to buy.

CHEEKS: The service, people like, especially teachers, should be able to
find decent housing.

ROY: This housing development in Santa Clara, California was built more
than a decade ago in the wake of rising rents. Teachers who live here pay
below market rents. Cheeks says she`ll be moving again soon, this time to
a rent controlled apartment in San Francisco, a place she hopes she can
finally call home.

A spokeswoman for the San Francisco Unified School District tells me while
they`re overall retention rate has remained pretty consistent over the last
decade, it has become tougher to recruit new teachers. Meantime, it could
take up to a couple of years for San Francisco to build its teacher housing
development like the one here in Silicon Valley.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Santa Clara, California.

(END VIDEOTAPE)

HERERA: Coming up, slow start. Hollywood just did something it hasn`t
done in nearly two decades.

(MUSIC)

HERERA: Here`s a look at what to watch tomorrow. The Federal Reserve
releases its Beige Book, an anecdotal look at economic conditions across
the country. A report on pending home sales will tell us how many
homebuyers signed contracts in April to buy existing homes. We`ll also get
the latest read on mortgage application volume. And that`s what to watch
for on Wednesday.

It was the unofficial start of summer. But for Hollywood, the usually hot
movie weekend was unseasonably cold and shares of publicly traded cinemas
felt the pressure.

Julia Boorstin has more on Tinseltown`s box office blues.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Everyone on the beach is talking about you guys.

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This past weekend
at the U.S. box office was the worst Memorial Day weekend in 18 years. It
was Paramount`s “Baywatch” that dragged the holiday weekend down. Despite
starring The Rock, it disappointed with just $27 million in the U.S. since
it opened Wednesday.

DANIEL LORIA, BOX OFFICE MEDIA: It`s a disappointing start, of course.
You know, when we see a weekend like this, a prime movie going weekend, not
live up to the expectations, we all get a bit nervous.

BOORSTIN: Disney`s “Pirates of the Caribbean: Dead Men Tell No Tales” won
the weekend, but had the lowest U.S. opening for all but the first of the
“Pirates” film, $77 million. That was balanced by a massive $208 million
opening overseas, bolstered by China. And Disney (NYSE:DIS) still tops the
U.S. box office this year with nearly a quarter of the market so far.

But Memorial Day weekend results give Hollywood studios more reason to
worry about audiences being fed up with movies that recycle the same old
ideas. And there are a couple of factors at play. There could be
franchise fatigue as some of these characters stick around for a while,
with paramount debuting the fifth “Transformers” movie and Sony`s sixth
“Spider-man” this summer. And there are more options for fresh content on
TV and streaming than ever.

Plus, when a movie disappoints, words spread fast.

ERIK DAVIS, FANDANGO: I think film critics are more important and more
influential maybe now than they`ve ever been before. With so many options
for your entertainment, options over a weekend, people are looking for
quick decisions. And so, you know, they`ll look for reviews, and like help
me make my decision, do I go barbecue or do I go see “Pirates of the
Caribbean”?

BOORSTIN: But hopes are high for Warner Brother`s “Wonder Woman” to
jumpstart the summer season when it opens on Friday.

It`s not all bad news. While the U.S. box office is down 9 percent since
the beginning of May, it`s actually up 2 percent total this year. And the
overseas box office has been soaring, giving international audiences a
bigger role in Hollywood studios` success.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

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

END

Nightly Business Report transcripts and video are available on-line post
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