Transcript: Nightly Business Report – July 6, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Power and protest. World
leaders head to Germany are greeted by demonstrators, but not before
President Trump promoted U.S. natural gas exports in Russia`s backyard.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Triple-digit decline. It
wasn`t just one thing that dragged down the stock market. Instead, it was
many.

MATHISEN: And behind the wheel. Are you driving one of the safest cars on
road today?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
July 6th.

HERERA: Good evening, everyone, and welcome.

Stocks retreated today and you can have your pick of the reasons why. Some
say it`s because interest rates are ticking up, not just here but globally.
Others say it`s because technology stocks slid again and so did energy.

Then, there are those who cite today`s lackluster economic reports then of
course, there are rising geo political tensions overseas.

But whatever the reason, the Dow Jones Industrial Average drop 158 points
to 21320, the Nasdaq was off 61, and S&P fell 22.

MATHISEN: And whatever the reason or reasons for the market slide today,
lots of investors did have at least one ear cocked toward Europe, Germany
in particular, where world leaders of the Group of 20 are meeting. They
were greeted by protesters, not uncommon at global meetings like this and
certainly not unexpected in a town like Hamburg. It has long been a hotbed
of anti-capitalist demonstrators.

Before decamping for Germany, President Trump was in Poland, where he
explicitly endorsed NATO`s mutual defense clause after failing to do so
during his previous European trip. He also made a veiled jab at Russia.

Eamon Javers reports tonight from Hamburg.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Trump
took to the podium in Warsaw, Poland, to cheers from a packed crowd
earlier, recounting the bonds between the two countries, and a desire to
forge stronger economic ties.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We welcome stronger ties of
trade and commerce as you grow your economies. And we are committed to
securing your access to alternate sources of energy, so Poland and its
neighbors are never again held hostage to a single supplier of energy.

JAVERS: A message Trump emphasized this morning at a meeting of Central
European countries, pitching U.S. energy exports to Europe as an
alternative to suppliers from Russia, though never directly naming the
country.

TRUMP: We`re here at this historic gathering to launch a new future for
open, fair and affordable energy markets that bring greater security and
prosperity to all of our citizens. We are sitting on massive energy and we
are now exporters of energy. So, whenever you need energy, just give us a
call.

JAVERS: Trump congratulated Poland on its first shipment of U.S. liquefied
natural gas last month, and also pushed the idea of a long term contract.

TRUMP: We can enter a contract for LNG within the next 15 minutes. Do you
have anybody available to negotiate? It will take about 15 minutes.

JAVERS: The Trump administration hopes to ship LNG to the region, thereby
reducing the U.S. trade deficit and boosting U.S. influence.

AMB. JAMES JEFFREY, THE WASHINGTON INSTITUTE: He and the leaders of the
Eastern European countries because he met with all of them in Warsaw, not
just Polish Prime Minister Duda, are very interested in becoming energy —
that means natural gas — independent of Russia and all of Europe becoming
energy independent of Russia, to avoid this destabilization that the
president talked about.

JAVERS: Late today, Trump arrived in Hamburg as protesters led by anti-
capitalist groups gathered to demonstrate against the G20 Summit. Police
expecting as many as 100,000 protesters from across Europe.

Well out of reach of the demonstrations, President Trump met with German
Chancellor Angela Merkel this afternoon, speaking about a range of issues
from the Middle East to North Korea, a topic that will be central to
Trump`s meetings with China`s President Xi and Russian President Vladimir
Putin, both slated for Friday.

(on camera): The official G20 agenda includes meetings tomorrow on trade,
climate and energy, although all eyes will be on those meetings with
Vladimir Putin and President Xi Jinping of China.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Hamburg, Germany.

(END VIDEOTAPE)

HERERA: While the global markets keep watch on these high level meetings
in Europe, there`s another trend that investors need to watch as well.
More money continues to be put into passive index funds or ETFs as opposed
to actively managed ones that pick stocks. And according to a new report,
it`s having an impact on the market.

Dominic Chu explains.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s no surprise that
exchange traded funds or ETFs, have exploded in popularity over the course
of the last decade.

(voice-over): ETFs combined three of the most important factors for the
every day investor, index investing, low fees and intraday trading ability.
But is the ETF business getting a little too big?

According to a report from strategists at Bank of America (NYSE:BAC)
Merrill Lynch, index investing strategies now account for 37 percent of all
stock fund assets held in America. That`s nearly double what they had back
in 2009.

Looking for another sign of just how big passive investing strategies have
become? Index fund pioneer and giant Vanguard now owns at least 5 percent
stakes in 491 of the S&P 500 companies. What`s more? Vanguard now owns
about 7 percent of the entire value of the S&P 500. Back in 2010, it was
only half that amount.

ETFs now account for a quarter of all trading volume in the United States.
So, with so much money tied up in ETFs and other index related investments,
there are now concerns that markets could experience more volatility in
times of stress. As many could look to sell the same investments at the
same time.

(on camera): Index related investing has slew of benefits for the
investing public and had been advocated by investment managers and even
Warren Buffett himself for years. But could there be unintended
consequences down the line because of it? Time will tell.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: To the economy now where American businesses did not create as
many jobs last month as expected. The ADP private payroll report for June
showed an increase of 158,000 new positions. Expectations were for
185,000. Maybe they transposed those last two numbers. Just kidding.

Economists consider the report to be another sign that the economy is
getting closer to full employment. The government releases its monthly
employment report tomorrow.

HERERA: The services sector expanded at a healthy pace last month, a sign
the broadest segment of the economy is gaining momentum after a lackluster
start to the year. The Institute for Supply Management cited a pick up in
business activity and new orders last month. Service providers include
everything from accounting to health care.

MATHISEN: A Federal Reserve official is calling for an overhaul of the
housing finance system in this country. Governor Jerome Powell said the
current system is putting taxpayers at risk because the mortgage market is
dominated by government-backed agencies with a high concentration of
mortgages in Fannie Mae and Freddie Mac. He added that the window for
political action may not stay open for long.

Treasury Secretary Mnuchin has called housing finance reform a top
priority.

HERERA: Meantime, the commercial real estate landscape could also be
reshaped by Amazon`s plan to acquire Whole Foods. Just today, the ETF that
invests real estate investment trust fell about 1-1/2 percent, its largest
drop since early March.

Diana Olick has more.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
Amazon (NASDAQ:AMZN)/Whole Foods deal may sound like a food story, but
really, it`s a real estate story. The value of strip mall centers with a
Whole Foods just shot up.

PHILLIP OWENS, GREEN STREET ADVISORS MANAGING DIRECTOR: If you have a
Whole Foods center in place, more likely to see increased foot traffic,
which leads to higher demand for space, and we would expect that retailers
would want to be around those Whole Foods for that activity.

OLICK: Increased foot traffic will come from those who may have stayed
away before because of higher prices. Now, they have a reason to go. If
prices are lower and maybe they`re picking up some bedding they ordered on
Amazon (NASDAQ:AMZN). Other centers with competing grocers are likely to
see less foot traffic, which will hit the grocers, connected stores, and
the real estate underneath even harder.

OWENS: You might see a degradation. You might see situations where rent
growth stagnates and at the end of the day, that`s all happening because
the best retailers are likely to desire being near the Whole Foods oriented
center.

OLICK: These centers are owned by publicly traded real estate investment
trusts, or REITs, which could take a big hit. Regency, ROIC, and
Weingarten are the most exposed to whole foods competitors. On the plus
side, REITS that own strip centers with Whole Foods, like American Assets,
could do very well.

(on camera): Two competitors at an Amazon (NASDAQ:AMZN)/ Whole Food deal
are unlikely to hurt are ethnic and value-oriented shopping centers. They
don`t compete and underlying real estate for both should continue to see
strong demand.

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

(END VIDEOTAPE)

MATHISEN: Amazon (NASDAQ:AMZN) may also be eyeing another deal. There are
reports today that the CEOs of Amazon (NASDAQ:AMZN) and Dish Network
discussed a partnership to enter the wireless business. According to “The
Wall Street Journal”, Amazon (NASDAQ:AMZN) could help finance a network
Dish building focused on the Internet of things, which is we`ve reported is
the idea that everything, everything can be connected one way or another to
the Internet.

It is also being reported that Amazon (NASDAQ:AMZN) could potentially offer
an option for prime members to pay a little bit more each month for a phone
plan. No deal is imminent and it is not clear that the two companies will
move forward.

Today, the stocks went in opposite directions — Amazon (NASDAQ:AMZN)
lower, Dish a little higher.

HERERA: Still ahead, changes in the corner office. Why some of the most
powerful and influential CEOs maybe feeling a bit anxious?

(MUSIC)

HERERA: Eighteen states have filed a lawsuit against the secretary of
education and her department. At issue is the delay of an overhaul of
rules that would help ease the federal student loan debt of borrowers
defrauded by colleges. The rules have been scheduled to take effect July
1st. Secretary DeVos was critical of them and said she would establish a
new committee to reconsider the matter. But the attorneys general are
seeking to have those rules restored.

The U.S. lifted the laptop ban for Qatar Airways and the airport in Doha.
It is the latest carrier to meet all requirements of the U.S. Department of
Homeland Security`s new guidelines. Passengers can now bring laptops and
tablets into the cabin on flights into the U.S. Etihad of Abu Dhabi,
Emirates of Dubai, and Turkish Airlines have also had ban lifted in recent
days. The U.S. introduced the prohibition in March and it`s still applies
to U.S.-bound flights from six other airports in the Middle East and
Africa. It continues to affect five airlines.

HERERA: And there`s another type of travel ban, one that has nothing to do
with laptops. California`s attorney general recently announced the
expansion of a ban on state funded travel to four states he says
discriminate against the LGBT community. It is setting up a different type
of battle between states which usually fight over things like tax breaks
and incentives. But in this battle, California is claiming the moral high
ground.

Scott Cohn reports tonight from Silicon Valley.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This comes after a
number of states passed laws regarding religious freedom and LGBT rights,
and companies demanded inclusiveness. Now, California says it is banning
state funded travel to four states it says discriminate against LGBT
people. They are Alabama, Kentucky, South Dakota and Texas, on top of
already banned states, North Carolina, Mississippi, Kansas and Tennessee.

XAVIER BECERRA, CALIFORNIA ATTORNEY GENERAL: To travel to these states at
state expense would mean we would be using taxpayer dollars to support
these states, and we think it would be an offense to all the individuals in
America who feel the scourge of discrimination.

COHN: California Attorney General Xavier Becerra says he`s following a
state law passed last year that he says requires the ban. So, has it had
any effect? Not much.

The governor of Texas says through a spokesman that California may be able
to stop its state employees from traveling, but it can`t stop all the
businesses that are fleeing to state to go to Texas.

The governor of Kentucky blasts what he called West Coast liberals trying
to dictate his state`s laws.

But the mayors of Louisville and Lexington, Kentucky`s largest cities, both
asked California for exemptions from the ban, citing their own cities
protections, but California said no.

The mayor of Louisville says his city has lost $2 million in convention
business already because of fears about the ban spreading.

Protest against state laws in the past have had limited impact after
Indiana passed its so-called Religious Freedom Restoration Act a couple of
years ago, and businesses complained. The state amended the law, but the
law itself remains on the books.

And North Carolina repealed its so-called bathroom bill, but the state
still bars local municipalities from enacting their own anti-discrimination
ordinances. Many companies have been calling for inclusive state laws to
help them attract workers. Now, the states are battling it out in a
nationwide culture clash.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in Mountain View, California.

(END VIDEOTAPE)

MATHISEN: As the number of cities increased their minimum wage, Missouri
is preparing to lower it for St. Louis. The governor says the hike to $10
an hour was a job killing mistake and next month, the minimum wage in that
city will return to $7.70 an hour. That`s the standard across the state.
A bill was recently passed by the state legislature to bar cities and
counties from setting their own minimum wage above the state`s minimum.

HERERA: QVC`s parent goes on a shopping spree of its own and that`s where
we begin tonight`s “Market Focus”.

Liberty Interactive will buy the 62 percent of rival HSN (NASDAQ:HSNI) that
it didn`t already own in a deal valued at more than $2 billion. The deal
combines two television home shopping networks, which will also have a
strong e-commerce presence. The merger will allow the companies to combine
and cut costs. Shares of HSN (NASDAQ:HSNI) jumped about 27 percent to
$39.70, while Liberty Interactive fell nearly 3 percent to $24.14.

Celgene (NASDAQ:CELG) will buy a stake in the Chinese biotech company
Beigene to help develop its treatment for solid tumor cancers. That deal
helps Celgene (NASDAQ:CELG) expand its reach into the immuno oncology
space. Beigene rose about 27 percent to $66.28, and Celgene (NASDAQ:CELG)
was off 1 percent to $131.95.

Shares of L Brand dropped after the specialty retailer reported a bigger
than expected sales miss in June. The operator of Victoria`s Secret and
Bath and Body Works said dropping swimwear and apparel categories had a
negative impact on sales. L Brands fell 14 percent to $46.49.

And Costco (NASDAQ:COST) posted a rise in monthly sales numbers, the
retailer reported net sales in June of more than $12 billion. That`s up 7
percent from the year ago period, but it still wasn`t enough for Wall
Street. Shares were off half a percent to $157.09.

MATHISEN: Berkshire Hathaway`s energy business could be nearing a deal to
buy Encore, one of the country`s largest electricity transmission`s
businesses, according to “The Wall Street Journal.” Last year, NextEra
Energy`s $18.5 billion bid for Encore was rejected by regulators in Texas.
And just because we love to show it, Berkshire`s shares were off a
fraction, that`s a fraction, $1,950 a share to $255,550. Those are the A
shares, folks.

And as we told you week, this was coming, but today, Microsoft
(NASDAQ:MSFT) announced a major shakeup that will include thousands of
layoffs. The tech giant said the cuts will mostly be in sales as the
company aims to change the way it sells cloud services. Shares of
Microsoft (NASDAQ:MSFT) were off 51 cents to $68.57.

And Endo International took its opioid painkiller Opana ER off the market,
amid rising concern about addiction and overdoses. Last month, we told you
the Food and Drug Administration asked for the drug to be removed, saying
the benefits no longer outweigh the risk for abuse. Endo shares down 2
percent today to $11.17.

HERERA: Despite the departure of some of the nation`s top executives from
big name companies like GE and Uber this year, pay is still great.
According to the research firm, Equilar, CEO pay rose 6 percent last year,
the highest it`s been in three years.

So, why then things seem to be shaky for CEOs at some of the biggest and
best companies?

J.P. Eggers, professor of management at New York University`s Stern School
of Business, joins us to talk about that.

Welcome back, Professor. Nice to have you here.

J.P. EGGERS, PROFESSOR OF MANAGEMENT, NYU`S STERN SCHOOOL OF BUSINESS:
Thank you, Sue. Glad to be back.

HERERA: Tell me what — how you see this picture. Maybe it is the size of
the companies where we`ve seen the turnover in the corner office? I`m not
sure. Why do you — why do you think we`re seeing so many CEOs recently
any way get booted out of the corner office?

EGGERS: So, we`ve certainly seen some very big high profile turnover
events recently. The numbers look like they`re up, but it maybe not up
dramatically. But I think the high profile nature of this is really what`s
catching everyone`s attention. These are big name companies who have been
around for many, many years and many who have been struggling very
mightily with technological changes that have been going on in the
environment and they`ve been looking around for solutions, the performance
has just not been there.

MATHISEN: How much of the change, J.P., is traceable to the fact that some
of these company`s stocks have been targeted by activists?

EGGERS: So, certainly, one of the big things that can break the typical
inertia that exists on boards of directors would be an outsider coming in,
buying up enough shares to get a real voice or a seat on board and kind of
pushing for some significant change. The data seemed to suggest that we`re
seeing more activists` targets this year than we`ve seen in recent years.
And that`s going to have a significant impact on CEO turnover at these
companies that are struggling, as the activist investors themselves don`t
have a great solution for how to solve the company`s problems, but see a
turnover event as at least a chance to try a different path for the
economy.

HERERA: Right. I talked to an analyst today who also suggested with
volatility in some cases at record lows in the market, one of the only way
that activists investors can make a significant amount of money is not in
the market itself, but by moving the stocks of those companies that they
move into.

EGGERS: This has absolutely been the most successful strategy for most
activist investors. It`s not simply playing in the market and kind of
making suggestions. It`s actually having enough ownership and enough of a
voice to actually affect change in the company. It may take them a while
to unwind the stock they own. They hopefully can get a return on for them.

But this has absolutely been a tactic that`s become more and more common as
enough of these activists investors have got big war chests and can target
some of these big name companies.

MATHISEN: So, are boards giving CEOs less time to do what they to do to
fix companies? I`m thinking in the case of Ford where Mr. Fields was
booted out after three years.

EGGERS: Certainly, given the amount of change that a lot of these
companies need to go through, the idea that within two and a half, to three
years, you would expect to see clear evidence of progress, seems like too
short a period of time. So, if that`s really what boards are bringing in
new CEOs expecting, before it wasn`t really struggling, but still, a
company that is looking to figure out its place in this kind of emerging
technological landscape, if they think they`re going to find that within
two or three years or they`re going to kick the CEO out, then that`s a
really tough job for a CEO to walk into and certainly one that many people
would not prefer to walk into at all.

HERERA: Certainly. Professor Eggers, thanks so much for joining us. He`s
with New York University`s Stern School of Business.

EGGERS: Thank you.

MATHISEN: Coming up, speaking of cars, the safest cars on the road and the
fastest one on the planet.

(MUSIC)

MATHISEN: And the story we`ve been following for you. Illinois finally
has a budget. Its first full year budget since 2015 became law, after the
state`s House of Representatives overrode the governor`s vetoes of the $36
billion spending plan, and $5 billion increase in income taxes. The Senate
did the same, overriding the veto on Tuesday.

HERERA: A new round of crash tests are shining a light on the safety of
larger cars. While sales of these larger sedans have slowed in recent
years, automakers have been working on improving their safety performance.

Phil LeBeau has the result of the latest crash test.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
bigger the car, the louder the crash. The latest test from the Insurance
Institute for Highway Safety found half of the large cars tested passed
with flying colors. In fact, the Lincoln Continental, Mercedes Benz E-
class and Toyota (NYSE:TM) Avalon earned the designation of top safety
pick.

DAVID ZUBY, INSURANCE INSTITUTE FOR HIGHWAY SAFETY: Large cars are a safer
group, certainly by comparison to smaller cars, and these test results
affirm there are some good choices in terms of safety in this car category.

LEBEAU: One car that failed to earn top marks from the IIHS is Tesla Model
S. The company calls it the safest car ever, in part because it earned a
five-star rating following crash tests by the federal government. But the
Insurance Institute does a slightest different test. In its collision of
the front corner of the Model S, the crash test`s dummy`s head hits the
steering wheel.

ZUBY: When we see that they failed to do that, that raises concerns about
the risk of a head injury. In this particular case, we didn`t measure
forces so high that we would say we know for sure a head surgery is going
to occur, but it does raise concern that in similar crashes, some people`s
heads will be inadequately protected.

LEBEAU: Tesla defends its luxury electric car, saying the most objective
and accurate independent testing of vehicle safety is currently done by the
U.S. government, which found the Model S and Model X to be the two cars
with the lowest probability of injury of any cars it has ever tested,
making them the safest cars in history.

(on camera): Whether it`s the Tesla Model S or any other large sedan,
these crash tests reinforce a position long held in the auto industry,
there is safety in size. Larger cars are often considered among the safest
on the road.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: The new Bugatti Chiron is the fastest and most expensive
production road car in the world. Buckle (NYSE:BKE) up because Robert
Frank got to take it for a spin.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a world of
expensive cars, there are sports cars, super cars and this — Bugatti
Chiron, the car that defies the laws of both physics and economics. It`s
the fastest production road car on t planet, with the top speed that
remains a secret but goes well over 260 miles an hour.

It`s also the most expensive car in the world, starting at $3 million and
that`s before customization options like exposed carbon fiber and your name
engraved in LED lights along the running boards. Zero to 60 miles an hour
in 2.5 seconds, driving by an engine that`s 16 cylinders, with a quad turbo
that`s all internal combustion. In fact, if you drive this car flat out,
you would drain the gas tank in just nine minutes.

Now, Bugatti plans to make 500 of these cars. They`ve already sold half.
Each of them takes six months to make. The U.S. is the largest market and
none of them have been delivered to the U.S. yet. The car I`m driving
today is one of the first and we are some of the first to drive it.

The average Bugatti buyer owns 42 vehicles, three private jets, three
helicopters, one yacht and five homes.

BUTCH LEITZINGER, BUGATTI OFFICIAL DRIVER: Our customers come from all
different areas, of the business world, sports world, entertainment world,
but you can see that all of them are extremely successful and very focused,
and I think you can tell that they demand the best out of about everything
they have.

FRANK: This is the follow up car to the Bugatti Veyron, which had been the
fastest car in the world and finished production in 2015. Before this car
was launched, Bugatti almost killed the program during its emissions
scandal, but the Chiron was saved by Bugatti`s president, given the already
strong demand for the car.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank in Connecticut.

(END VIDEOTAPE)

MATHISEN: I think if you can afford one of those cars, you can also afford
the racetrack where you can run it full out, because you`re not able to do
that for very long on the Merritt Parkway.

HERERA: You`re not.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for
joining us.

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great
evening, everybody. And we`ll see you back here tomorrow night.

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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