Transcript: Nightly Business Report – July 11, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Washington rattles Wall
Street. Investors were jolted, at least briefly, as investors fretted
about new e-mails that could deepen the election meddling probe and crimp
the Trump agenda.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Amazon (NASDAQ:AMZN)
effect. As people shop for deals increasingly, do brand names matter less
than they used to?

HERERA: Best for business. Does your state rank near the top? And if it
does, it could mean more jobs, higher wages and a better quality of life.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, July
11th.

MATHISEN: Good evening, everyone, and welcome.

Now, the conventional wisdom is that stocks have risen this year in part
because of the new administration`s decidedly business-friendly agenda.
But is that working plan still intact? That was the running question today
for investors who were focused on the potential for tax cuts, health care
reform, infrastructure stimulus among other things.

Now, this morning, the Dow Jones Industrial Average lost more than 100
points in a very short amount of time and you see right there, after Donald
Trump Jr. released e-mails about setting up a meeting a Russian lawyer
dangling potentially damaging information about Hillary Clinton last year.

The swoon was sharp, but quick. Stocks recovered and later recovered even
more after the Senate majority leader said he expects a vote on health care
next week and is pushing back the start of the August recess, signaling to
Wall Street that the agenda is still very much alive.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R), KENTUCKY: We`ve got defense authorization.
We`ve got debt ceiling. We`ve got the FDA user fee and other important
legislation that we need to address and we simply as a result of all this
obstructionism, don`t have enough time to address all of these issues.

(END VIDEO CLIP)

MATHISEN: By the end of the day, it was pretty much a wash on Wall Street.
The Dow Jones Industrial Average rising a fraction to 21,409, Nasdaq added
16, and the S&P 500 was off nearly two.

HERERA: Washington will be the focus for investors tomorrow. That`s when
the Fed chair delivers her mid-year economic outlook and she gives it to
Congress. Janet Yellen`s testimony comes amid a strengthening job market
and low inflation. Investors will be looking for signals on future
interest rate hikes as wells when the central bank plans to shrink its
massive bond portfolio which it accumulated during the financial crisis.

And today, Fed Governor Lael Brainard said that she would like to press
ahead with plans to shrink the Fed`s balance sheet, but sounded a note of
caution when it comes to further interest rate increases. Federal Reserve
policymakers meet later this month.

MATHISEN: Michael Farr joins us to talk about more about Washington`s
impact on Wall Street. He is the president of Farr, Miller and Washington
and he joins us now from the nation`s capital.

Michael, good as always to see you.

MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you.

MATHISEN: A lot of attention today on these e-mail, but I sense that the
more important Washington story to watch for investors will be tomorrow,
Chairman Yellen`s testimony on Capitol Hill and a couple of the Fed
speakers today.

FARR: Tyler, I think you`re right. I think in spite of all of the market
noise that we`ve seen recently, and there has been a lot of it, we have
still seen markets driven largely by monitory policy and comments from
central bankers not only in the U.S. but central bankers around the world.
So, while we had news from Donald Trump Jr. today and while we had news
from Capitol Hill about trying to get some agenda done, I think it all will
still come down to the Fed. So, what Janet Yellen says tomorrow and the
next day, pretty vital I think to the future of markets for rest of the
year.

HERERA: How does the market look to you overall at this juncture, Michael,
given the fact that we had the volatility midday that we saw today?
Overall, how does the market feel?

FARR: Well, it continues to feel high, Sue, and talking to investors
around the country over the past couple of weeks, almost every conversation
has been, Michael, why is the market still up? It hasn`t gone down. I had
a man last night say, I`ve been buying options to protect my portfolio.
I`ve been wasting a lot of money. When do I stop? When will it go down?

These though, Sue, are conversations that you don`t hear at a market top.
At a market top, people tell you, you can just buy everything you ever
wanted to buy, and it`s never going to go down. So, with this level of
fear, even though prices feel pretty full, it looks like it could continue
on for a while longer.

MATHISEN: You know, we had on the chief economist of the Investment
Company Institute last evening, Michael, and he pointed out money is
flowing into bond funds in a big way. He gave some very understandable
reasons for that, but interest rates are rising.

What do you think the outlook is for bonds for the rest of the year?

FARR: Well, you know, I think a couple of things are happening.
Certainly, foreign investors are buying U.S. bonds, particularly as rates
rise. And as those rates rise and they need dollars to buy those bonds,
that drives the dollar higher, too, which creates some GDP problems.

I think there`s also something going on, that, you know, in many way,
people really, a lot of investors don`t believe the real growth story, the
real robust economic growth story. We`re not seeing wage gains. We`re not
seeing a lot of the things we normally would. It`s a wait and really show-
me kind of a bond market. But there`s certainly sources of cash.

I think you also have to pay attention to what Fed Governor Powell said
last — at the end of last week, which was they`re focusing on Fannie and
Freddie.

HERERA: Right.

FARR: This is one of the most respected Fed governors out there. When
they focus on Fannie and Freddie, that drivers long range up. So, the Fed
is focused on getting the whole curve up. Be careful and listen to
Chairman Yellen tomorrow.

MATHISEN: The Farr view from Michael Farr with Farr, Miller and
Washington.

FARR: Thank you.

MATHISEN: The Federal Reserve doesn`t just set monetary policy. It also
regulates the nation`s biggest banks. And President Trump named a former
treasury official who has been critical of the Fed in the past as his pick
to be the central bank`s top Wall Street watchdog.

His name is Randal Quarles and Hampton Pearson tells us who he is.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Trump
administration`s first nominee for the Federal Reserve Board of Governors
is a financial industry veteran who`s experienced in both Bush
administrations. Randall Quarles is due to become the first official bank
and regulatory supervisor at the Fed, with also a vote on monetary policy.
Quarles, who currently runs a private equity firm in Salt Lake City, was a
partner at the Carlyle Group. He served in first Bush administration
focusing on capital markets and he was under secretary for domestic finance
while George W. Bush was president.

Leading financial analysts view the nomination as favorable for bank
stocks. A note from a leading firm says Quarles would be expected to take
the lead in rolling back banking regulation.

We think the nomination is generally positive for bank stocks and in line
with the Trump administration`s agenda to review the Dodd-Frank regulatory
framework. On monetary policy, we expect Quarles will lean slightly to the
hawkish side, but not significantly so. We do not think his appointment to
the Fed will change the ideological balance of the FOMC.

Since Quarles name first surfaced back in April as the leading candidate
for the Fed, reaction from the banking industry has been generally
positive. He will face Senate confirmation.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: One of the Fed`s mandates is full employment and today, we
learned that there are more than 5.5 million job openings in the U.S.
Though that`s down from the prior month, it`s close still to a record.

According to the Labor Department, the number of people who quit their jobs
also rose. That`s positive sign for the economy, a signal that workers
feel confident they can find a new position. But the glut of advertised
jobs is being blamed in part on a shortage of skilled workers.

HERERA: And that shortage of skilled workers is being felt across the
country by companies both big and small. And right now, it appears as if
small business owners are also concerned about what`s happening in
Washington or more precisely, what is not happening.

Kate Rogers (NYSE:ROG) takes a look.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The Main
Street`s mood has taken a turn for the worst as political uncertainty in
Washington continues. The National Federation of Independent Businesses`
monthly read on sentiment fell in June to its lowest levels since November,
reversing a trend of rising economic optimism. Fewer business owners
expect the economy and sales to improve and they`re blaming it on gridlock
in Washington.

The conservative lobbying group using pointed language in its report,
saying that while progress is being made, it`s being poorly communicated
and that Main Street`s two biggest issues of tax and health care reform
are, quote, stuck in the bowls of Washington politics.

JUANITA DUGGAN, PRESIDENT & CEO, NFIB: Washington in general has a bad
reputation with small business owners, and the fact that the Senate right
now is deeply mired in some endless discussions about the fate of Obamacare
repeal does not help. I think if we go into the August recess without some
kind of significant advance on Obamacare repeal and small business owners
seeing some kind of progress on tax reform, you`ll see some very
interesting numbers in August.

ROGERS: Some Main Street advocates are holding out hope that small
companies are still optimistic enough to higher index span.

TODD MCCRACKEN, PRESIDENT, NSBA: I think small businesses are still in a
reasonably good place compared to where they have been. There`s optimism
and there`s growth. The economy is doing OK.

And one of the real indicators is that, you know, they tell us they`re
having trouble hiring people, which tells us that they`re trying to hire
people and that the economy is pretty good.

ROGERS: Another issue small business owners are grappling with, finding
the right workers with the necessary skills to hire. That`s a problem big
business owners are dealing with as well.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

MATHISEN: Still ahead: should you be able to join a class action lawsuit
against your credit card company or bank? It`s the latest debate in
Washington and on Main Street, and it`s a big one.

(MUSIC)

MATHISEN: Pepsi decided to raise prices, focus on new products and cut
expenses to fuel growth and it worked in the most recent quarter. The
snack and beverage company reported a rise in both earnings and sales, and
increased its annual earnings forecast. But while pricing was up, the
amount of products it sold overall was flat and that`s OK, according to the
company`s chief financial officer.

(BEGIN VIDEO CLIP)

HUGH JOHNSON, PEPSICO CFO & VICE CHAIRMAN: About 8.5 percent of our
revenues are coming from products over the last — introduce within the
last three years, and that –those products typically are not big on the
volume side. They`re typically are more premium-oriented, and as a result,
we`re getting higher dollars per ounce, or higher dollars per pound, and
that`s why you see a bit of the muted volume growth relative to the revenue
growth.

(END VIDEO CLIP)

MATHISEN: Investor reaction, tepid today, and there are concerns on Wall
Street that Pepsi`s price increases could backfire as consumer tastes
change.

HERERA: And for companies like Pepsi, much of its power is in its brand.
But that could be changing in part because of Amazon (NASDAQ:AMZN).
“MarketWatch” cites one industry analyst who says consumers are being
influenced by the e-commerce company, shopping based on price rather than
on brand name, and “The Wall Street Journal” points to a start up that
sells generic products for just about everything for $3, cutting out
traditional supermarkets and marketing.

So, are big brands and the prices that they command being tested?

Here to talk about that is Thom Blischok. He`s chairman and CEO of retail
consulting firm, Dialogic (NASDAQ:DLGC) Group.

Welcome. Thom, it`s nice to have you here.

TOM BLISCHOK, CHAIRMAN & CEO, DIALOGIC GROUP: Great, Sue, to be here.
And, Tyler, nice to talk to you, also.

HERERA: You know, it does seem as though these brands are certainly being
tested. What should their response be to an Amazon (NASDAQ:AMZN) that is
now expanding into almost everything?

BLISCHOK: Well, Amazon (NASDAQ:AMZN) is without question going to be a
giant. And if we fast forward to 2025, about $100 billion of traditional
grocery store sales will move online. So, brands will be tested. But
brands are going to be tested in ways that are different. They`re going to
have to balance their thinking as to how they serve the traditional grocery
store market, as well as how they serve Amazon (NASDAQ:AMZN) as partners.

So, what we`re going to see is many of the brands are going to focus on
premium and super premium as ways to differentia as well as balance their
portfolio of what goes online, what goes offline.

MATHISEN: You say that they have to decide how to play retail and
retailers like Amazon (NASDAQ:AMZN). What does that mean? I think you
just hinted at it in part. In other words, if they have to go super
premium, which means up the price scale?

BLISCHOK: Well, how about up the value scale?

So, 72 percent of Americans are struggling to live on a day-to-day basis.
So, let me talk about super premium. We`re going to have a series of
premium brands, regular brands, as well as super premium brands. What will
be interesting is that as the manufacturers go to market, they`ll decide
which pack sizes, which products go into various channels.

So, the idea is to balance their thinking, balance their strategies around
to why invest in a traditional grocer. By the way, traditional grocers are
not going away, to why invest in online, pure play, or hybrid retailing,
which is a combination to both online and offline.

HERERA: Are many of these companies capable of doing that. I mean, that`s
a huge challenge. Maybe the big guys like we mentioned, you know, Pepsi
and things like that, but what about the medium tier companies who have a
decent footprint, but that seems to me to be quite a challenge for some of
them.

BLISCHOK: Capabilities driven strategy is the ability to understand where
to invest and where not to invest is going to be a big challenge. Skill
sets are going to be a big challenge. Deciding exactly how to balance the
innovation portfolio, deciding on which channels to invest in. Do all of
them have the capabilities? No. I probably say that the top 10 percent
have the capabilities. The rest have to grow the capabilities.

HERERA: On that note, Thom, thank you very much. We appreciate it.

BLISCHOK: Thank you. See you, guys.

HERERA: Thom Blischok with Dialogic (NASDAQ:DLGC) Group.

Amicus Therapeutics (NASDAQ:FOLD) gets the all clear to file a new drug
application for a deadly disease. And that is where we begin tonight`s
“Market Focus”.

Last year, the Food and Drug Administration told Amicus the biotech had to
provide more data on its medication for treating the rare inherited
disorder called Fabry disease before the agency could consider approving
it. But now, the FDA says it will evaluate the drug`s existing data.
Amicus said it`s on track to file for approval by the end of this year.
Shares rose 26 percent on the news to $12.92.

Another drugmaker, Arena Pharmaceuticals (NASDAQ:ARNA), said last night
that its experimental drug for a rare but deadly lung disease did well
during a study. Arena said the encouraging results give it confidence to
move ahead with the next stage of testing. Today`s shares spiked 41
percent to $2 $26 even.

Rent-a-Center has rejected an $800 million buyout offer from the private
equity firm Vantage Capital. The furniture and electronics leasing company
disclosed in a filing that it received the unsolicited bid last month and
determined it significantly undervalued the company. Rent-a-Center shares
were up 9 percent to $12.09.

MATHISEN: Console Energy moving ahead with its plans to spin-off its coal
business in a securities filing. The company said its board has approved
the move that would result in two publicly traded companies. One focused
on coal, the other on natural gas exploration and production. Console
Energy share were up nearly 6 percent to $15.81.

Microsoft (NASDAQ:MSFT) wants to make sure rural communities in the U.S.
have access to high speed Internet over the next five years. Microsoft
(NASDAQ:MSFT) plans to fund and launch broadband service in 12 states that
will connect 2 million Americans to faster Internet. Shares were up a
penny to $69.99.

HERERA: The Consumer Financial Protection Bureau finds itself in the
middle of a controversy. Today, Republican Senator Tom Cotton said that
the CFPB had gone rogue and he plans to eliminate the agency`s new rule
that could help consumers sue financial firms. As we reported yesterday,
the CFPB wants to get rid of mandatory arbitration clauses that ban class
action lawsuits.

MATHISEN: We have both side of this argument tonight. Richard Hunt is
president of Consumer Bankers Association. He supports keeping an
arbitration clause. While Rohit Chopra believes that banning that clause
will hold banks and other financial institutions accountable. He`s senior
fellow at the Consumer Federation of America.

This one is just sort of going to be a easy one for me to get going, I
think. Mr. Hunt, you believe arbitration is actually better for consumers,
though it`s worse for class action lawyers. That the consumer comes out
with more money, typically than in arbitration than in a lawsuit. Explain.

RICHARD HUNT, PRESIDENT, CONSUMER BANKERS ASSOCIATION: Well, it`s not my
saying this. It`s the CFPB who said that on page 198 of their own study.
Their own study concluded that if you`re in arbitration, you receive an
average of $5,400, yet if you`re in a class action lawsuit, it`s $32. So,
maybe only in Washington, D.C., it`s $32 greater than $5,400.

Let me tell you the big winner yesterday from the CFPB — trial lawyers.
Trial lawyers take about one-half up to a million dollars per lawsuit out
of hands of consumers. If the CFPB really cared about consumer, they would
have capped how much trial lawyers may be able to receive.

HERERA: So —

HUNT: Arbitration has around since 1925. Our banks have been around over
200 years. We have great relationship with our consumers.

HERERA: OK.

HUNT: It is less costly and much more quickly to go through arbitration
than it is through a class action lawsuit.

HERERA: Mr. Chopra, why don`t you respond to that? And as I understand,
you think it`s a matter of choice as well. The consumer should have
choice.

ROHIT CHOPRA, SENIOR FELLOW, CONSUMER FEDERATION OF AMERICA: That`s right.
If arbitration is so fine and dandy, then why do banks and financial
companies need to force consumers into them?

The study that Richard cites actually proves the point. People don`t go
and navigate arbitration red tape to claim $10 or $20 when millions of
consumers are all harmed by the same illegal practice. The only way to
solve it is through letting consumers group together.

And you know what? Banks do this all the time. Banks join class actions.
Recently, they joined class actions against Target (NYSE:TGT), against Home
Depot (NYSE:HD), and other companies.

And banks sue consumers all the time. J.P. Morgan Chase in a small period
of time sued hundreds of thousands of consumers.

So, if consumers can`t sue banks, then why should banks be able to sue
consumers? If banks can join class actions, why can`t consumers? And you
know what this is all about —

MATHISEN: So, what about — Mr. Chopra, what about — what about Mr.
Hunt`s point that when you go into a class action lawsuit, the consumer
typically gets back very little because the classes tend to be very large
and the cut that the attorneys take tends to be very sizable.

Quickly, because I want to get back to Mr. Hunt.

ROHIT: Well, the reason why is because people file claims for — people
join class actions for very small dollar amounts. That study Richard cited
proves the point. The average rate, average dollar amount that consumers
file in arbitration is over $1,000. It`s much higher.

You`re not going to go through the time and energy unless it`s worth it to
you. But when everybody is cheated by a small dollar amount, class actions
really help. And the study shows that billions — and legal fees do take
part of the action. But overall, consumers get billions as opposed to
arbitration.

HERERA: All right. Mr. Hunt, do you want to respond? And also —

HUNT: Yes, I just don`t understand —

HERERA: — to Mr. Chopra`s point that if banks can sue consumers, why can
consumers not sue the banks?

HUNT: Yes, I just don`t — well, you can`t. First off, every bank should
have the right to choose what products they want to offer. This is a
Washington, D.C. bureau who is telling an American company what they can
and cannot do. I just think that is just simply wrong.

ROHIT: But why can a consumer not sue a bank if a bank is suing a
consumer?

MATHISEN: Mr. Rohit, let`s let him answer.

HUNT: It`s a small part — you see trial lawyers take a small part. I
don`t think in Washington, D.C. half, half of the monetary damages can go
to trial lawyers. I don`t think that is just a small part.

And this is another reason why Congress will overturn this I think by the
August recess. I think the majority of the House and Senate will say one
person at the CFPB should not dictate all the rules, examinations and
enforcement actions. That`s what we`re pushing for bipartisan commission
at the CFPB. Just too much power in the hands of one individual out of
Washington, D.C.

MATHISEN: A hot debate. Gentlemen, thank you very much for making your
cases so forthrightly. We appreciate it.

Richard Hunt with the Consumer Bankers Association. Rohit Chopra with
Consumer Federation of America.

HUNT: Thank you.

HERERA: And coming up, the best state for business.

(BEGIN VIDEO CLIP)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Scott Cohn. Just
unveiled, America`s top state for business for 2017. It`s a story of
robust growth and we`re not talking about the fish. The story coming up on
NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

HERERA: Seattle has approved an income tax on the rich. The measure which
was unanimously approved by the city council applies to a two and a quarter
percent tax on total income above $250,000 for individuals and $500,000 for
married couples. The city estimates the tax would raise about $140 million
a year. Critics, though, say the tax violates state laws and the tax is
expected to draw legal challenges.

MATHISEN: America`s top states for business now in its 11th year. CNBC,
which produces this program, ranks all 50 states on things like
competitiveness, the job market and taxes.

Here are the top five: in fifth place, North Carolina, which is attracted
technology and talent, but has among the weakest anti-discrimination
protections.

Number four, Texas, a past winner. Its economy once the envy of the nation
slowed down along with the oil industry.

Minnesota, also a past winner, number three, offsetting high taxes with
strong education.

Number two is Georgia, on the strength of its infrastructure and a very
strong economy right now.

America`s top state for business, an economic powerhouse. Scott Cohn
reports from the state of Washington.

(BEGIN VIDEOTAPE)

COHN: You can shop at Costco (NASDAQ:COST) or order from Amazon
(NASDAQ:AMZN) using software from Microsoft (NASDAQ:MSFT), which you can
also use to book a trip on Expedia (NASDAQ:EXPE) on a jet build by Boeing
(NYSE:BA). On the strength of these household names and more, Washington
state`s $470 billion economy was the fastest growing in the nation last
year, a fast growing job market and a red hot housing market.

In the annual top state study, Washington not just top ten finishes in five
out of ten categories — workforce, economy, quality of life, tech and
innovation and access to capital.

GOV. JAY INSLEE (D), WASHINGTON STATE: A robust, growing economy, smart
workers, innovative entrepreneurs, safe communities, and a beautiful
natural bounty.

COHN: But as is often the case here, clouds are building. Home
construction is slowing down.

Boeing (NYSE:BA), the state`s largest employer, is cutting jobs nearly
10,000 in the last year, prompting a big I-told-you-so from critics of the
huge incentives the state has given the company.

GREG LEROY, EXECUTIVE DIRECTOR, GOOD JOBS FIRST: This experience of
Washington state and Boeing (NYSE:BA) is such a tragedy. Boeing (NYSE:BA)
is gaining the fine print of these two huge incentive packages that it`s
gotten from the state that total more than $11 billion.

COHN: Meantime, education here is under funded, and the state only
recently began reinvesting in its troubled infrastructure.

INSLEE: We know if we grow intellectual talent that fundamentally,
intellectual talent is the energy source that`s going to drive the
economies of the future.

COHN: But the challenges leave Washington in a precarious spot and facing
a nagging question. Has the state reached its peak or is there room to
grow higher?

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in Mount Rainier National Park,
Washington.

(END VIDEOTAPE)

MATHISEN: A nice place to be.

To read more about the top states for business and to see where your state
ranks, head to our Web site, NBR.com.

HERERA: And finally tonight, Warren Buffett has donated more than $3
billion in Berkshire Hathaway (NYSE:BRK.A) stock, his largest contribution
yet, as part of his plan to give away his fortune. The money will go to
the Bill and Melinda Gates Foundation, as well as four family charities.

This is the billionaire investor`s 12th annual donation to those five
charities. They usually sell the shares to finance their activities, a
move that is in line Mr. Buffett`s wish that his money be spent.

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

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

END

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