Transcript: Nightly Business Report – June 21, 2017

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Raise the roof. Homes in
America now cost more than ever before and it`s widening the divide between
housing`s haves and have-nots.

CONTESSA BREWER, NIGHTLY BUSINESS REPORT ANCHOR: Saudi shake-up. The
world`s top oil exporter has new leadership and with oil prices tumbling,
the timing is not a coincidence.

GRIFFETH: Top complaints. The car features designed to keep us safe
behind the wheel may actually be frustrating drivers.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, June the 21st.

Good evening, everybody. Happy first day of summer. I`m Bill Griffeth, in
tonight for Tyler Mathisen.

BREWER: It`s a hot one, too. I`m Contessa Brewer, in for Sue Herera.

And we begin tonight with the housing market where prices rose a lot last
month. Even as sales rose just a little. In fact, the median price of a
home is now the highest it`s ever been, putting home ownership even further
out of reach for some. As we`ve been reporting, low inventory has helped
propel prices and homes are going quick. The number of days a house is on
the market hit a new low.

As Diana Olick reports, the divide between homeowners and renters is
widening.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home sales have been
seesawing a few months now, up slightly from a year ago, but not by much.
The headline here is really in home prices. The median price of a home
sold in May hit $252,800. And that`s a new record high. But it`s a
median, which means half the home sold are cheaper, half more expensive.
It tells us that more higher priced homes are selling and thus skewing that
median higher.

Take a look. Sale of homes priced under $100,000 dropped 7 percent from a
year ago. Even those priced between $100,000 and $250,000 gained just 2
percent. On the other hand, sales of homes priced above half a million
were up over 20 percent, and million dollar home sales were up nearly 30
percent.

LAWRENCE YUN, NATIONAL ASSOCIATION OF REALTORS CHIEF ECONOMIST: Because of
the run up in home prices, it`s making it more difficult for renters to
convert into ownership. We are essentially stuck at a 50-year low in home
ownership rate, and this is occurring of a time when overall housing equity
has essentially doubled.

OLICK: All those folks who can`t afford to buy are missing out on that
additional wealth. The problem is largely the weak supply, especially of
affordable homes for sale. Supply of homes dropped over 8 percent from a
year ago to the lowest level on record. These dynamics in today`s markets
are making the divide between the housing haves and the housing have-nots
even wider, and keeping younger Americans out of one of the best long-term
investments.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

GRIFFETH: Here to talk about the supply crunch that`s making it more
difficult to afford a home right, Ralph McLaughlin is chief economist at
real estate site, Trulia.

Ralph, thanks for joining us tonight.

RALPH MCLAUGHLIN, TRULIA CHIEF ECONOMIST: Sure thing, Bill.

GRIFFETH: I mean, this has been going on for a while. Essentially, we`re
still feeling the effects of the financial crisis of almost a decade ago.
How much longer do you think we continue to see this crunch?

MCLAUGHLIN: You know, I think it`s going to be several years in making and
the reason is this — we think a lot of existing owners of homes are
actually boomers. They`re the ones that have been in their homes for a
while. They`re a large part of the home ownership population and that we
eventually think we`re going to age out of this, you know? Another, you
know, three, four, five, even 10 years, those boomers will likely want to
move, to downsize, then we think inventory will free up.

But unfortunately in the short run, we don`t see a lot of relief. New
construction is certainly helping. And also, as prices rise, that should
entice existing owners to sell their home. But we`re not seeing much
relief yet and it`s probably still several years to come.

BREWER: But, Ralph, let me get this straight. So, you`re expecting
boomers to start wanting to downsize — meaning more affordable, smaller
homes. We already know that there`s a shortage of smaller, more affordable
homes as it stands right now.

How is that going to free up the market in any way, shape or form?

MCLAUGHLIN: Yes. Well, it`s a bit of a catch-22. And, essentially, what
we — what we need to see is millennials who actually represent the largest
bit of home buying population, swap with their parents. With the boomers
because you know, those homes are starting to become suitable. But because
inventory is so low, it`s creating gridlock. You know, no one really wants
to move, and so, there is, you know, space to be freed up.

Again, I think we`ll age out of this. You know, another two, three, four,
five years down the road. Certainly, new construction can help, the more
new construction we have, especially at the starter and middle segment, the
better, but again, there aren`t any signs that this inventory crunch is
going to be easing up anytime soon.

GRIFFETH: Why haven`t we seen more new construction? What`s keeping the
homebuilders from coming to market with more homes at a time when we know
the demand is as strong as it is right now?

MCLAUGHLIN: Well, you know, it`s difficult to build in some markets.
There are a lot of structural challenges associated with building homes.
One, builders finding skilled labor is difficult. I don`t think it`s hard
to argue against that.

But also, two, you know, if it`s difficult to build in some of the places
where we need the most housing. So, for example, here in San Francisco, we
do need inventory, we do new homes, it is difficult to build. There`s lots
of fault lines. There are environment protections that make the
development process slower. And, you know, we see that in many other parts
of the country where we need housing most.

But on the other hand, there are actually many areas in the country that
are still very affordable, that have quite a bit of supply — Texas, Ohio,
Illinois. So, really, there is this spatial mismatch problem where, you
know, where jobs are, we don`t have a lot of housing, and where cheap
housing is we don`t have a lot of jobs.

GRIFFETH: All right. Ralph McLaughlin with Trulia, thanks for joining us
tonight. Appreciate it.

MCLAUGHLIN: Thank you, both.

GRIFFETH: And to read more about the haves and have-nots in the housing
market, you can head to our website right now at NBR.com.

BREWER: Oil prices resumed their slide, pulling energy shares lower, along
with the blue chip Dow index and S&P 500. Energy stocks are among the
worst performing group this year and the concern for the broader market is
that there could be a more severe pullback in commodity prices.

The Dow Jones Industrial Average dropped 57 points to 21,410. The NASDAQ
bucked the trend, rising about 46 points, and the S&P 500 fell
fractionally.

As for oil prices, they fell further bear market territory. Domestic crude
was off another 2 percent today, falling to a 10-month low after U.S.
government data pointed to a rise in production.

GRIFFETH: And that oil inventory report exacerbated concerns that more oil
on the market is out there than it is needed right now and it comes as the
world`s biggest oil producer itself, Saudi Arabia, names a new crown
prince. That could mean some changes for the energy market.

Jackie DeAngelis has more for us tonight.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Change seems to
be coming to Saudi Arabia, one o the world`s largest oil producers. The
deputy crown prince, Mohammed bin Salman, being named crown prince or
successor to the current king. NBS as he`s affectionately called is seen
as a visionary in the kingdom. Just 31 years old, he`s replacing his 57-
year-old cousin on the job, representing a generational change.

As the driving force behind the Saudi vision for 2030, an economic reform
program that would help the Saudis diversify revenues away from oil, he`s
seen as more modern, more in touch than his predecessor.

HELIMA CROFT, RBC CAPITAL MARKETS: This is a really big generational
shift in Saudi Arabia. I mean, you used to talk about 70 being young for a
crown prince in Saudi Arabia. To have a 31-year-old crown prince is a
decisive break with past practice. To move aside, you know, Mohammed bin
Nayef, the counterterrorism czar, the figure of the establishment, this is
really ground breaking for Saudi Arabia. So, the question really will be,
can Mohammed bin Salman deliver on his big reform plans?

DEANGELIS: The timing for the changing of the guard is not a coincidence.
Tensions with Iran and Qatar are high. Plans for an Aramco IPO need to be
executed flawlessly and oil prices have sunk under 50. It`s very important
for the kingdom to get the world and the markets to believe in its
leadership.

CROFT: Saudi Arabia, I think, is actually committed to piloting this OPEC
cut through. Now, the question is what Saudi`s time horizon. The IPO
Saudi Aramco is a 2018 event. So, I think they have some time to deal with
this down trend in prices as long as they can get prices on a better path
in 2018.

So, I think they can sit tight, let the cuts fly out. Let the inventories
draw down. I don`t think they`re worried about the next couple of weeks.
I think they`re playing for 2018.

DEANGELIS: Playing for 2018 means planning now, making changes like these
could set the stage for a different landscape in Saudi Arabia, and
potentially for OPEC, since the Saudis have so much influence there.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

BREWER: It`s not often that the founder of a fast-growing company
completely steps away. Well, that`s what happened today at Uber, the ride-
hailing company that`s transformed the transportation industry. The
founder and CEO suddenly resigned.

Aditi Roy has those details.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Uber employees walked
into work this morning to a bombshell — company founder and CEO Travis
Kalanick is stepping down.

In a statement to “The New York Times (NYSE:NYT),” Kalanick said: I love
Uber more than anything in the world, and at this difficult moment in my
personal life, I have accepted the investor`s request to step aside.

Board member Bill Gurley who`s from Benchmark was the first Uber investor
and reportedly wanted Kalanick to step down, tweeting: Very few
entrepreneurs have had such a lasting impact on the world.

Some Uber riders were also quick to react.

UNIDENTIFIED FEMALE: I`m glad to see that they`re taking action amid
allegations of sexual harassment. It`s very concerning to me.

ROY: It has been a rough year for the ride-sharing company valued at
nearly $70 billion with a reported 40 million riders a month in 80
countries. One study says Uber`s U.S. market share has dropped from 84
percent at the beginning of the year to 77 percent at the end of May. In
February, it was hit with a scorching blog post by former engineer Susan
Fowler, who alleged sexual harassment and a culture of gender
discrimination at the company, sparking a flood of other complaints and an
independent internal investigation by former U.S. Attorney General Eric
Holder.

Then, a nasty legal fight over whether Anthony Levandowski, a head of
Google`s self-driving car unit Waymo, stole trade secrets when he left for
Uber. Then, two weeks ago, the company fired 20 employees amid the Holder
investigation. And last week, Kalanick took a leave of absence.

Since the company`s problems started, there has been a mass exodus of top
executives. The company currently has no CEO, CFO or CMO.

We talked to some Uber employees who were split on whether Kalanick`s
departure is the right move for the company. Some riders say the change is
much needed.

UNIDENTIFIED MALE: I think he should be held accountable. The guy just
leads a culture of just really making it a real difficult workplace for
women to work in.

ROY: Uber`s board is also chiming in, saying in a statement, quote, Travis
has always put uber first and that the move will allow the company to,
quote, fully embrace this new chapter.

Now, the boards attention turns to filling that vacant position at the top.
There are reports that influential board member Ariana Huffington is
leading that search. In the meantime, the company is being run by its top
ten executives.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

GRIFFETH: Still ahead, China needs more products that are made here in
America and the CEO of a Chinese e-commerce powerhouse is trying to make
that happen.

(MUSIC)

BREWER: The U.S. and China are calling on North Korea to stop its nuclear
weapons program and ballistic missile test. Secretary of State Rex
Tillerson says the U.S. reiterated to China they have a diplomatic
responsibility to exert economic and diplomatic pressure on the regime if
they want to prevent further escalation there.

GRIFFETH: Anthem plans to reduce the number of individual plan offerings
in Wisconsin and Indiana next year. The largest U.S. health insurer has
been saying that the uncertainty over the subsidy payments could cause it
to exit some of those markets. Now, those subsidies are used to make
insurance more affordable and whether the government will continue to fund
those payments is still unclear. Earlier this month, Anthem said it would
exit most of the Ohio market next year.

BREWER: Well, health care was a driving issue in the special election in
Georgia yesterday. In the end, the Republican candidate won the most
expensive House congressional election ever.

John Harwood is in Atlanta with the look at what the victory means for the
White House economic agenda.

(BEGIN VIDEOTAPE)

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Four major takeaways
from the Republican victory in the Georgia 6th special election yesterday.

First of all, the Republican political machinery is operating at a high
level. They faced the big challenge in Georgia 6th, they rose to that
challenge.

Second of all, Democrats can look forward to a good environment in the 2018
midterms, not a bad one. Even though they`ve lost all the specials in
2017, they all took place in Republican-leaning districts and Democrats
closed the gap in those districts.

Third, though Democrats will gain seats in 2018, they have not shown they
can break there is in the kind of Republican-leaning districts they need to
flip control of the House. This was one of those districts. That`s why it
was a disappointment.

Finally, this outcome is positive for the Republican agenda in Washington
right now. Republicans are getting ready to move on health care as well as
tax reform. And Republican leaders know this will calm their members, make
it easier for them to keep it together. So, President Trump and Republican
leaders have reason to celebrate this outcome.

For NIGHTLY BUSINESS REPORT, I`m John Harwood in Atlanta.

(END VIDEOTAPE)

GRIFFETH: Oracle`s cloud business helps results, and that`s where we begin
tonight`s “Market Focus”.

The software giant saw profit and revenue climb higher with both metrics,
results topping analyst`s targets. Shares initially rose in afterhours
trading after that report, and also ended the regular session up 1 percent
to $46.33.

Meantime, Nike (NYSE:NKE) and Amazon (NASDAQ:AMZN) have reportedly entered
into a partnership to sell the athletic maker shoes on Amazon`s platform
through a brand registry program. Bloomberg says that the move is to help
prevent third parties from selling counterfeit Nike (NYSE:NKE) products on
the site. Shares of Nike (NYSE:NKE) rose more than 2 percent to $52.59,
the news of the deal sent shares of rival companies like Foot Locker and
finish line tumbling in today`s session.

During the company`s investor day, Cigna`s CEO told shareholders that that
health insurer has up to $14 billion in capital that it could use this year
for mergers and acquisitions.

(BEGIN VIDEO CLIP)

DAVID CORDANI, CIGNA (NYSE:CI) CEO: I walk through five key areas where
we`re interested from an M&A standpoint. Furthering our global portfolio,
furthering our U.S. senior`s capabilities, furthering our pharmacy and
physician engagement capabilities and then broadening our retail and
government risk program capabilities.

If you look back over the last seven years, we spent our capital in essence
50-50 — 50 on share buyback and 50 on M&A. And that may be a good
indication of the future. We tend to be disciplined and balanced.

(END VIDEO CLIP)

GRIFFETH: The company also said it plans to purchase at least $2 billion
worth of its own stock here in 2017. Cigna shares were up a fraction today
at $170.18.

BREWER: Recreational vehicle maker Winnebago said strong growth in its
towable models caused earnings and revenue to grow with both results
topping estimates. Winnebago also said a recent acquisition is helping it
diversify its product lineup. Shares rose 14 percent to $33.45.

Office furniture maker Steelcase (NYSE:SCS) reported sales that missed
estimates, as the company said it saw reduced demand from its large
customers in the Americas. Profit was also a missed and the company gave
weak earnings and revenue guidance for the current quarter. Shares
initially plunged in afterhours trading, adding to a 1 percent loss during
the regular session where they finished at $16.30.

And shares of La-Z-Boy (NYSE:LZB) rallied following the furniture
retailer`s stronger than expected earnings and revenue after the bell
yesterday. The company also posted a rise in same store sales. La-Z-Boy
(NYSE:LZB) shares surged 22 percent to $32 even.

GRIFFETH: Alibaba`s CEO has now promised to create 1 million jobs here in
the U.S. and to do that, the ecommerce company which is often compared to
Amazon (NASDAQ:AMZN) and e-Bay is in Detroit to show business owners how to
market and ship their made in America products to Chinese consumers.

Deirdre Bosa has our story for us tonight.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: From pickles to baby
clothes, to handcrafted treats, these products are made in America. But
their owners want them shipped to China. About 3,000 attendees from across
the country are in Detroit to learn how to sell their products to China`s
growing middle class. And who better to learn from than Alibaba, the
country`s biggest e-commerce company.

Founder Jack Ma telling them that China needs more American products.

JACK MA, ALIBABA FOUNDER: Next 20 years, China markets need a lot of
Americans — lot of products and made in America, the products, the
quality, the service. You guys have the booth, beautiful products. We
Chinese consumers are crazy about that. We need that.

BOSA: Last year, Ma told now President Trump that he`d help create a
million jobs in America. Alibaba`s Gateway is part of him making good on
that pledge.

This small business stadium goods wants to be the Foot Locker of China.
They`ve been selling their products on Alibaba`s platform for about nine
months and say they`ve seen incredible growth. They`ve also hired about
five or six people right here in the United States to keep up with demand.
Other businesses here at Gateway have similar stories.

Like a family owned ginseng manufacturer, a vitamin startup, and even big
brands like Gerber baby food.

PAUL HSU, HSU`S GINSENG ENTERPRISES: I believe that we can create at least
four to five jobs a year and if the business stumble, we need 20, 30, even
40 a year.

SEAN WOLF, LUCKY VITAMIN HEAD MERCHANDISER: We see as the wave of the
future for the business. And because of the growth, we`ve been able to
create tons of new jobs up to about 20 this year.

BILL PARTYKA, GERBER PRESIDENT & CEO: Gerber continues to see significant
expansion in international markets. This is really required us to build
new capabilities within our organization.

BOSA: The entrepreneurs here are excited about the prospect of selling
their products in China, but to help create a million jobs in the United
States, Alibaba still has a long way to go and it will have to prove to
American businesses that it can crack down on counterfeit goods.

Last December, it landed back on the U.S. government`s notorious markets
list for fakes — a designation that hurt its image among American
businesses. That is especially important for startups that sell original
creation like many of the ones here in Detroit.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, Detroit.

(END VIDEOTAPE)

BREWER: Coming up, the biggest complaint drivers have when they get behind
the wheel.

(MUSIC)

GRIFFETH: As you may know, Senate Republicans are expected to release the
draft of their health care bill tomorrow. But tonight, “The Washington
Post (NYSE:WPO)” is getting some details of that bill. The draft we are
learning would end Medicaid expansion more gradually than the House passed
bill. It would link insurance subsidies to income, not age, and it would
repeal all Obamacare taxes except those on high cost health plans.

BREWER: Tesla has replaced its chief of self-driving software after just
six months on the job. That program is a critical part of the electric
carmaker`s future. CEO Elon musk has said he wants to demonstrate that a
Tesla vehicle can drive itself by year`s end.

GRIFFETH: There are also reports tonight that demand for Tesla vehicles in
China is growing and that the electric vehicle maker is close to making a
big push into that country. But as our Eunice Yoon reports now, as demand
grows, so does the competition.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is EP9 supercar.
It`s the brainchild of Chinese EV start up NIO.

But before you dismiss it as just another Chinese company hoping to rival
Tesla, consider this — its supporters are some of the biggest names in
Chinese tech. The founder of Tencent, JD and Xiaomi, and it just got a
round of investment from Baidu (NASDAQ:BIDU).

I spoke with the chairman of the company who told me why he believes his
cars would pose a serious threat to Tesla in China.

WILLIAM LI, NIO FOUNDER & CHAIRMAN (through translator): For Tesla, I
always say that cars are designed in California for California. But in
China, they might not fit users` demands. For example, the very cool
falcon wing doors might not be suitable in rainy Chinese cities like
Guangzhou, Shenzhen or Shanghai.

We, on the other hand, understand what our users need and we have designed
this car from the very beginning for Chinese families with children. You
can see a lot of features that reflect that in the exterior, the interior,
the space inside. So, I believe we have a better chance to offer the
market a better product.

YOON: To compete with Tesla`s X Model, NIO plans to have its ES8 SUV out
on the market at the end of the year. The EP9 super car though is a
limited edition. NIO said it`s the fastest EV ever and would only set back
$1.5 million.

LI: It takes only 7.1 seconds for the car to accelerate from zero to 200
kilometers an hour. The top speed is 313 kilometers per hour. And in the
autonomous driving mode, the car can go as fast as 257 kilometers per hour.
Most importantly, it has four electric motors that combine can produce
1,360 horsepower.

When it comes to performance, it`s definitely an unprecedented supercar.

YOON: For now, Tesla has allured with Chinese drivers. It tripled its
revenue for China to $1 billion last year and is reportedly thinking of
producing its cars here in China to meet all the demands in world`s largest
auto market.

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

(END VIDEOTAPE)

BREWER: Well, there`s good news and bad news for people buying a new car
or truck. A new study shows the quality of new models is at a record, but
the latest features to keep us safe behind the wheel may actually be
frustrating drivers.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: New car buyers have
plenty of reason. The quality of what`s in the showroom has never been
better. J.D. Powers surveyed more than 80,000 people three months after
they bought a new model and found a drop in complaints for the majority of
the brand with the top three being Kia, Hyundai`s new luxury brand Genesis
and Porsche. By comparison, J.D. Powers says the worst initial reviews
came from those who bought a Volvo, a Jaguar or a Fiat.

But there`s one complaint that sticks out among new car buyers — driver
assist features like adaptive cruise control and collision avoidance
systems are not working the way many people expected.

DAVE SARGENT, J.D. POWER VICE PRESIDENT: In some case, there`s questions
of educating the consumers to how some of these systems work, or frankly,
some of them are actually fairly complicated and not something you`d
necessarily want to be using when driving at 70 miles down the freeway.

LEBEAU: With automakers like Tesla and tech firms like Waymo developing
self-driving cars, there`s an all out race to have vehicles make more
decisions for drivers. Sometimes, the technology is intuitive. Sometimes,
it`s not. And sometimes, it`s just plain annoying.

SARGENT: We are saying with some of these systems like lane departure
warnings, or collision avoidance system, some consumers are complaining
they`re a little bit too nannying and trying to stop them from driving the
way they want to.

LEBEAU: It will take many years perhaps even more than a decade before we
see autonomous drive vehicles where we make virtually no decisions behind
the wheel. Until then, the gradual addition of technology designed to keep
drivers safe may have the unintended effect of frustrating those very same
drivers.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

BREWER: Yes, more machines bossing us around.

Phil wrote a piece about new vehicle reliability. You can find it on our
website, NBR.com.

And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Contessa Brewer.

GRIFFETH: Good night, Contessa.

I`m Bill Griffeth. Have a great evening, everybody. We`ll see you
tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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