Transcript: Nightly Business Report – August 7, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Nine in a row. That`s how
many records the Dow`s streak has hit. And while a rally seems
unstoppable, there are a few things that could become roadblocks.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Pushing back. How some
brands are standing up to Amazon (NASDAQ:AMZN) and fighting for the little
guy.

HERERA: And looking abroad. How the nation`s biggest hotel chain is
planning to get a foothold in a $100 billion market.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, August
7th.

MATHISEN: Good evening, everyone. And welcome.

The Dow juggernaut rolls on, and on and on. Several weeks ago, of course,
it was the other two big indexes, but now, that`s changed. After watching
the Nasdaq and the S&P notch record after record, the Dow has decided to
join the fun run. And, boy, has it.

Today, the Dow scored a small gain, but it was enough for the industrial
average`s ninth straight record close and tenth consecutive overall gain.
Not much left to add to that, so let`s get to the numbers. The Dow rose 25
points to 22,118. Nasdaq added 32. And the S&P tacked on four. It also
closed at a record.

HERERA: And while we sit at record levels, there`s always concerns that
the market is too pricey, but noted investor Leon Cooperman says he doesn`t
think so, and that Wall Street pros haven`t gotten too far ahead of
themselves.

(BEGIN VIDEO CLIP)

LEON COOPERMAN, OMEGA ADVISORS CHAIRMAN & CEO: I think the market is fully
value on fundamental basis. I don`t see euphoria. You know, there`s
optimism for sure. You know, you look at all the strategists that make a
forecast a year out. Nobody has got a down market which makes you scratch
your head and worry.

(END VIDEO CLIP)

MATHISEN: Cooperman also said his firm`s biggest position is in Google`s
parent, Alphabet. Now, Alphabet falls into that category of big name high-
momentum stocks. That group has been a major driver of the overall market,
but they slowed just a bit in recent weeks.

And they`re not alone. Other so-called momentum names have been dragging a
bit as well. And that has some market watchers concerned.

Bob Pisani has more.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: August is typically a
down month, you know, the S&P 500 has dropped an average of 2 percent this
month since 2010 and right on schedule, the August slowdown is sort of
emerging right now.

So, the issue is whether this will morph into something a little bit
bigger. Right now, after an exceptionally strong June, the S&P 500 has
gotten stuck and is treading water really for the past three weeks. High
momentum technology shares, though, have slowed down and fallen off the new
high list. So, FANG stocks, Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX),
Alphabet, they`ve all lost steam.

Semiconductors, another big momentum play, also weakened. The
semiconductor ETF topped out in June. It`s abou8t 7 percent off its highs.

Energy stocks which were expected to supply a big chunk of the earnings
gains in the second and third quarter have been disappointing. So, this
week, we`ve seen Apache (NYSE:APA), Oasis, Concho, Noble (NYSE:NE) Energy
all down on earnings.

OK. So, is the loss of momentum names necessarily mean that this rally is
over? No, it doesn`t. Other sectors may rotate into leadership positions.
So, we`ve seen financials and industrials make modest moves on the upside
recently. That`s good news.

But so much money is in these momentum names that investors got to be very
careful. When you`re dealing with momentum stocks, a gradual shift in
momentum can suddenly lead to a bout of very heavy selling. Bulls were
looking for a further breakout after second quarter earnings post 12
percent, that`s great, but the overall reaction of the market has been, eh.

So, the bulls are arguing that the S&P saw its run-up going into the
earnings season and now, just because we`re moving sideways, that` typical,
that`s healthy. We`ll see if that sustains itself.

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

(END VIDEOTAPE)

HERERA: And another one of those momentum names is Amazon (NASDAQ:AMZN).
And now, some retail brands are striking back at Amazon`s tight grip on
retail sales. According to “The Wall Street Journal”, a growing number of
companies like Luxottica and others are pushing back against Amazon
(NASDAQ:AMZN) and standing up for the small retailer.

Ruth Simon wrote about it for the “Wall Street Journal” and she joins us
now.

Ruth, welcome. Nice to have you here.

RUTH SIMON, SENIOR SPECIAL WRITER, WALL STREET JOURNAL: Nice to be here
with you.

HERERA: Why are they doing this? Is it to protect the brand, itself, or
other reasons?

SIMON: There are a couple different reasons. One is you don`t want to be
too dependent on just one can customer, and that`s always the case. And
then some brands worry that everything on Amazon (NASDAQ:AMZN) is about
price and that the price cutting will diminish the value of their brands.

And finally, a lot of these brands, they really depend on the local store
to introduce customers to new products or for service. You`re going on a
hiking trip, what jacket do you want? What running shoe is best for the
kind of mileage you do? Or what if your bicycle breaks?

HERERA: Yes.

MATHISEN: Ruth, it`s good to see you. We`re all friends from magazine
days. Hope you`re well.

SIMON: We sure are.

MATHISEN: Yes. So, what are companies doing? What are the big brands
like Ray Ban or shoe makers doing to help the little guy and fight back?

SIMON: We identified a number of strategies. One of them is to set
minimum advertised prices. Now, the brands can`t set the sales price, but
they can say, you can`t advertise below a certain level. Now, in the case
of Luxottica which is the folks behind Ray Ban, what they did is set a
minimum advertised price and their average discount on Amazon (NASDAQ:AMZN)
went from about 37 percent to just 3 percent. And that`s in important for
local retailers who can`t match the discounting on Amazon (NASDAQ:AMZN).

HERERA: You know, does it indicate that Amazon`s influence is changing? I
hesitate to use the word lessening because it seems like they`re going into
everything. But this is the first time I`ve really seen or heard of major
brands pushing back against a retail giant the size of Amazon
(NASDAQ:AMZN).

SIMON: Well, it`s a dilemma for the local — for the big brands. Some of
them do continue to sell on Amazon (NASDAQ:AMZN) or they sell through third
parties on Amazon (NASDAQ:AMZN). And many of them can`t ignore Amazon
(NASDAQ:AMZN). I did talk to one brand, Simms Fishing, which doesn`t want
to have any business with Amazon (NASDAQ:AMZN) at all.

MATHISEN: But can`t they then sell to third parties who might sell on
Amazon (NASDAQ:AMZN) or?

SIMON: Well, Simms, for example, really tries to restrict who sells their
products and they`ll cut off folks who sell on Amazon (NASDAQ:AMZN). You
still find — in their case, I saw some of their older products on the
site, but they do control who they`re selling to and then they set terms
for those resales.

HERERA: This must be somewhat of a boon for the local retailer. It gives
them a lot more power, does it not?

SIMON: Well, I think it`s very helpful for the local retailers because
they`re looking for an edge, some way to compete. The other thing for the
brands, too, is that the local retailers will give them feedback. This
isn`t selling well, change your packaging, make it a little different. But
the brands they`re trying to give consumers reasons to go into those local
stores.

HERERA: Thank you, Ruth. It`s a pleasure to have you with us tonight.

SIMON: Pleasure to be with you.

HERERA: We`ll leave it there. Ruth Simon with “The Wall Street Journal.”

MATHISEN: Well, consumer borrowing rose by nearly $12.5 billion in June,
albeit at a somewhat slower pace. The slowing was due to a drop in non-
revolving credit, which involves auto and student loans. That category`s
$8 billion gain was its smallest in a year. Separately, Americans put $4
billion on their credit cards.

HERERA: Friday`s jobs report was better than Wall Street expected, but
with the strength, the labor market has been showing, should these results
be considered the norm?

Steve Liesman wonders whether it`s time for economists to start rethinking
how they make their jobs estimates.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Job
growth keeps coming in better than expected, raising the question about
whether it`s time to change what is expected. Last week`s report of
209,000 jobs created in July which surprised markets should have been
anything but a surprise. Five of the last seven reports have been over
200,000, and 13 of the past 24.

And Wall Street keeps missing these strong reports, underestimating them
every time they spike north of 200,000. Here`s the reason: these numbers
are double what most economists think is the steady state for job growth in
the U.S.

Goldman Sachs (NYSE:GS) has seen the light. Its economists wrote over the
weekend, quote: We have made a sizable downward revision to our forecast
for the unemployment rate by the end of 2018 to 3.8 percent from 4.1
percent previously.

Well, the good news is, it appears that many Americans who were sidelined
in the wake of the recession have come back do work the past several years.
The bad news: if unemployment rate goes too low, it could spark wage
inflation and thereby price inflation.

But one Fed official Monday said he was not concerned.

JAMES BULLARD, ST. LOUIS FED PRESIDENT: I think we`re in a low inflation
era and it`s actually why we`re in the slow inflation era is eluding a lot
of economists and leading us to rethink our theories. A simple theory that
just says when unemployment goes down, inflation goes up, isn`t working
very well, and the empirical evidence is drying up for that theory. So, I
think we need to think more carefully about what`s going on. Not just in
the U.S., but globally.

LIESMAN (on camera): So far, wage growth has confounded economists and not
risen as the job market has tightened. That`s a big reason why Bullard and
others are not worried about inflation, at least not now. But higher wages
seem inevitable if job growth keeps surprising to the upside.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Oil prices fell today as concerns grew that OPEC nations might
not all be living up to their agreements to limit production. Domestic
crude continued to stay below $50 a barrel, as you see there.

And as Jackie DeAngelis tells us, OPEC`s fractiousness is just one of
several reasons oil prices could head lower from here.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Several factors
keeping oil prices under $50 a barrel at the moment. The first is yet
another meeting of OPEC and non-OPEC producers in Abu Dhabi this week. The
expectation is that more conversations will be had regarding compliance
with the group`s production cut, and there`s some speculation that
revisions could be presented, though there`s been nothing other than
chatter just yet.

Also, one of OPEC`s most hurt producers, that`s Libya, seems to be making
some strides in coming back online. One of its largest oil fields seeing a
rebound in production, triggering a little bit of a selloff in oil.

Meantime, the traditional summer driving boost came a little bit late this
season and in just a few weeks, support for oil prices from this factor
will dissipate. Every September, crude prices drop when people drive less
and demand resumes in normal pace. All of this happening as the U.S. is
producing more oil as well. Currently, a little more than 9.4 million
barrels a day, that`s up sharply from 8.4 million barrels last summer.

The expectation, crude prices can maintain the status quo for now. But
come the fall, it will be time for a dip.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: Coming up, New York City wants to tax the wealthy to help fix its
subway system. Do these plans work for cities or do they backfire?

(MUSIC)

MATHISEN: Over the weekend, the United Nations Security Council imposed
new sanctions on North Korea over that country`s continued missile tests.
The sanctions target North Korea`s banks and primary exports, among other
things. And today, the rogue nation threatened retaliation, threatening to
make the U.S., quote, pay the price.

John Harwood joins us now.

John, last week, you told us about the growing economic implications of
this crisis. Does this make those implications even a little more close to
home?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, certainly, the
threats from North Korea this afternoon at least raise the prospect of some
sort of military confrontation, although I don`t think North Korea would
hit the United States unilaterally, and I think the United States would
like to deter the idea of any military confrontation at all cost if they
can avoid it.

Now, on the other hand, one risk was probably diminished by the sanctions
issued by the United Nations and that is the risk that the United States
was going to try to pressure China in ways with respect to trade that would
cause China to retaliate. China went along with this resolution. So, that
was a step forward for the U.S. and China working in cooperatively on this
problem.

The challenge is nobody knows what will actually make North Korea stop its
nuclear program. Nothing`s worked for a lot of years.

HERERA: But I was impressed, though, John, that China did go along with
the vote. It seems to me that that`s a significant advance in U.S./China
relations, as it pertains to North Korea, specifically. Obviously, there
are still other issues but we`ve been trying to get China to help us on
that front and usually they don`t vote along with us and they did.

HARWOOD: Sue, you`re exactly right. And Russia also went along with us.
So, there`s no question, this was a victory for the Trump administration.
This is something that is a set of sanctions that`s drawing widespread
approval across the political spectrum.

Whether they will work or not is another matter. The North Koreans seem to
believe that a nuclear missile program is something that will make it a big
player on the world stage. They`re not so much looking for an economic
payoff and they`ve shown the willingness to absorb a lot of pain or
transfer that pain to their citizens and certainly these sanctions by
diminishing their export income by a third is going to inflict that pain.

MATHISEN: All right. John, thank you very much. John Harwood in
Washington tonight.

HERERA: Aerospace and defense contractor United Technologies (NYSE:UTX) is
reportedly interested in buying its rival, Rockwell Collins (NYSE:COL).
The price tag is estimated to be north of $20 billion. That sent shares of
Rockwell Collins (NYSE:COL) rocketing higher by about 7 percent.

But as Phil LeBeau tells us, getting a deal done may be tough in this
environment.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): After a
five-year run with impressive growth and profits, Rockwell Collins
(NYSE:COL) has become one of the most lucrative and attractive aerospace
and defense suppliers, with products spanning from aircraft interiors, to
avionics in the cockpit, to high-tech helmets used by F-35 pilots. All of
which has drawn the interests of United Technologies (NYSE:UTX) which
already has its own impressive list of aerospace and defense products,
including Pratt & Whitney engines.

While neither company will comment on reports of a possible deal, both
firms have hired bankers to advise them. Analysts say the combination is a
distinct possibility. The limited overlap in products is one reason why a
deal between UTX and Rockwell makes sense. Combined, the companies would
be powerful in avionics and aircraft interiors. And they would be in a
stronger position to negotiate with airplane manufacturers like Boeing
(NYSE:BA), which has recently formed its own avionics division and is
increasingly looking to grow business in areas where suppliers have long
made hefty profits.

The airplane makers and other competitors like Honeywell could argue UTX
and Rockwell would control too much of the aerospace supplier industry.
So, getting regulatory approval is a hurdle the two companies would have to
overcome. And right now, Rockwell Collins (NYSE:COL) has a high valuation,
so it will command a rich price.

With more people flying worldwide, Rockwell Collins` CEO likes where his
company is positioned.

KELLY ORTBERG, ROCKWELL COLLINS CEO: We feel really confident that the
long-term air traffic route is there and the markets are very, very strong.

LEBEAU (on camera): Just a couple months ago, Rockwell Collins (NYSE:COL)
bought B.E. Aerospace, a leading supplier of airplane cabins. At the time,
it was considered a sign the aerospace industry is prime for more deals.
But this time, Rockwell could be the company that`s being acquired.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: CBS (NYSE:CBS) tops expectations and that is where we begin
tonight`s “Market Focus”.

The media and entertainment company reported profits and sales that grew as
results were helped by an increase in revenue from affiliate subscription
fees. CBS (NYSE:CBS) also said ad sales were higher in the latest quarter.
Shares initially rose after the bell and they also finished the regular day
up 1 percent at $64.52.

Horizon Pharma raised its full year revenue outlook after posting quarterly
sales, it grew and topped estimates. The drug maker cited higher demand
for the company`s rare disease treatments. Profit also stronger than
expected. Shares up 4 percent to $13.30.

And the hedge fund, Scopia Capital Management, disclosed a nearly 17
percent stake in Acorda Therapeutics (NASDAQ:ACOR) and called on the drug
developer to consider selling itself. Acorda responded, saying a sale
would throw a wrench in the company`s business plan and might even
significantly devalue the company. Acorda Therapeutics (NASDAQ:ACOR)
shares were higher nonetheless by 3 percent to $22.20.

HERERA: Morgan Stanley (NYSE:MS) downgraded its rating on Teva
Pharmaceuticals from equal weight to underweight, saying the drug maker`s
disappointing generics business will make — take more time to improve.
The firm also said it underestimated how much of an impact competition was
in that industry will have on the company`s long-term earnings.

Last week, you may recall, we told you shares of Teva were lower after the
company cut its guidance and its dividend. Shares continue to fall today,
plunging nearly 10 percent to $18.59.

Tyson Foods (NYSE:TSN) reported higher sales, as the company said there was
heightened demand in the U.S. for beef and pork products. The result
surpassed analyst expectations. Earnings also beat street targets and
prompted the meat producer to lift its forecast for 2017. Shares up were
more than 5 percent to $66.90.

The life insurer Brighthouse Financial, which is a spinoff of MetLife`s
retail operations, began trading on the Nasdaq today as an independent
company. MetLife (NYSE:MET) spun off Brighthouse so that it could work to
increase cash flow and lower its dependence on the capital intensive
business. But the company`s debut was rather dull, with some analysts
saying MetLife (NYSE:MET) investors sold off shares because it didn`t pay a
dividend. Brighthouse shares fell 4 percent to $61.72.

And lower pricing and weaker sales in the U.S. caused overall revenue to
flat line at the car rental company, Avis. Those results along with
earnings missed analyst expectations. The company`s profit outlook for the
rest of the year also disappointed. Shares initially got crushed after the
bell, but they ended the regular day up more than 3 percent to $33.39.

MATHISEN: New York City`s mayor, Bill de Blasio, wants to impose a
millionaire`s tax on the city`s wealthiest. He says the funds will be used
to fix the city`s aging subway system. But is it a smart move for cities
like New York and others to raise taxes on the rich?

Tim Speiss is co-chairman of the tax practice at Eisner Amper and joins us
now to discuss.

Tim, welcome.

How do you view this? There are lots of ways, obviously, to pay for
upgrades to infrastructure. Tax is one. Bonds are another. User fees are
a third.

What do you think?

TIM SPEISS, CO-CHAIRMAN TAX PRACTICE, EISNER AMPER: Well, there`s more.

First, let me just go to the highlights on the mayor`s plan which, by the
way, would have to go through a legislative process. So, it`s roughly one-
half of a percent. So, a single person at $500,000 would pay an additional
$2,500 per annum. A person or household at $1 million would pay $5,000.
Item one.

HERERA: Right.

SPEISS: Item two, it`s going to be used to fund about 800,000 residents
that are below a certain income level and help subsidize their
transportation. And the other fact —

HERERA: If I can just broaden it out a little bit, because New York City,
I think, is such an unusual market. And we`ve seen in other areas, like
Seattle, comes to mind.

MATHISEN: Right.

HERERA: People simply moved out of the city in some cases to avoid the
tax. And in other cases, the wealthy people live outside of Seattle,
anyway. So, is it a city-specific sort of tax, in other words, it might
work in some cities, might not work in others?

SPEISS: That`s an excellent comment. I would think based upon our clients
and tax legislation as we know it in revenue, take the California example
for an instance. When California increased its rate retroactively, by the
way, to over 13 percent, individual income tax rate, the state lost,
according to the Internal Revenue Service, between 250,000 and 300,000
residents.

HERERA: Wow.

SPEISS: So, it does impact — and now you`re getting into the area of
economic stability in a particular state, in our instance case, New York
City. Yes, you could see people vacating the city, moving to the suburbs,
outside the boroughs. That`s also true.

The other element to think about is there`s probably when you look at
historic funding costs, there`s probably at least 10 popular ways to raise
revenue for these large projects. You mentioned a couple of them. There`s
private partnerships. There`s state infrastructure banks, sales and use
tax, fuel taxes, vehicle registration fees, bonds was mentioned, tolls, and
environmental — environmental fees as well.

So, it doesn`t have to be done just with an income tax increase, especially
on a targeted population. The most successful fundings are those that are
broad, many revenue streams. So that`s there no real impact to a detriment
situation on any single constituent.

MATHISEN: What about sponsoring the D Train? In other words, the Eisner
Amper D Train, how about that, Tim?

(LAUGHTER)

SPEISS: You know, we`re thinking about it, actually. Maybe the E Train,
Eisner Amper.

MATHISEN: Maybe the Eisner Amper E Train, that`s a good — the EA.

SPEISS: That`s right.

MATHISEN: You get the E and A. We`ll do a packaged deal. Tim Speiss,
thank you, with Eisner Amper. Appreciate it.

SPEISS: Thank you very much.

HERERA: And coming up, Marriott looks to tap into the growing market for
Chinese travelers. We`ll tell you how, coming up.

(MUSIC)

MATHISEN: Here`s a look at what to watch tomorrow.

The Dow component, Disney (NYSE:DIS), reports its quarterlies. Wall Street
focused mainly on how the company`s ESPN division is performing.

And it`s a big week for retail earnings. Things get under way tomorrow
with results from Michael Kors and Ralph Lauren.

And we get one of Fed Chair Janet Yellen`s favorite economic indicators,
the Jolts Report, which shows the number of monthly job openings.

And that is what to watch for Tuesday.

HERERA: And finally tonight, after the bell, Marriott`s earnings and
revenue topped Wall Street targets. The company also made news before the
bell. Marriott is looking to grab a piece of the Chinese travel market.
The world`s biggest hotel chain is teaming up with Alibaba. The deal will
allow Chinese travelers to book rooms at Marriott Hotels using Alibaba`s
travel platform.

Deirdre Bosa has more.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As the
Chinese travel market booms, companies are looking to cash in. Marriott`s
International and Alibaba are teaming up to make it easier for Chinese
consumers to book, pay and manage travel at home and abroad. At stake is a
market that`s expected to be worth more than $100 billion this year in
digital sales, alone.

Marriott will get the chance to build brand loyalty and exposure as more
Chinese travel abroad and as it localizes more services like Mandarin-
speaking concierges and Chinese-language TV channels. Marriott already
have partnerships with Alibaba`s travel rivals such as Sea Trip.

But Stephanie Linnartz, the company`s chief commercial chief officer, says
Alibaba represents a huge —

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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