Transcript: Nightly Business Report – August 10, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Doubling down. President
Trump says that his fire and fury threats against North Korea may not have
been enough, and stocks take a tumble.

Macy`s (NYSE:M) mauled. Sales at the department store fell for the tenth
straight quarter, and investors headed for the exit.

Stepping down. Wells Fargo (NYSE:WFC) chairman may step down as the bank`s
scandals mount. So, why is the stock higher over the past year?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
August 10th.

Good evening, everyone. I`m Sue Herera. Tyler Mathisen is off this
evening.

It was Wall Street`s biggest sell off since May. The Dow dropped more than
200 points. The Nasdaq and the S&P 500 all fell more than 1 percent. The
reason: escalating rhetoric on North Korea.

Today, the president said North Korea should be very, very nervous and that
his recent threat of fire and fury may not have gone far enough.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The people that were
questioning that statement, was it too tough? Maybe it wasn`t tough
enough. They`ve been doing this to our country for a long time, for many
years, and it`s about time that somebody stuck up to the people of this
country and for the people of other countries. So, if anything, maybe that
statement wasn`t tough enough, and we`re backed by 100 percent by our
military. We`re backed by everybody. And we`re backed by my other
leaders.

(END VIDEO CLIP)

HERERA: And that pushed investors out of stocks. The Dow Jones Industrial
Average tumbled 204 points, landing at 21,844, falling for the third
straight station. The Nasdaq was off 135, and the S&P 500 dropped 35.

Bob Pisani has more on the market`s reaction to those rising tensions.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks closed lower for
the third straight day, this recent move down is supposed to be due to
jitters about North Korea and it`s following a fairly classic pattern with
stocks that are the market leaders, those that have gained the most, the
weakest. So, the so-called FANG stocks, Netflix (NASDAQ:NFLX) and Amazon
(NASDAQ:AMZN), Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Google
(NASDAQ:GOOG) parent Alphabet were down 2 percent to 4 percent.

Other groups that had been strong like bio techs and semiconductors, they
dropped again today with most of them down 2 percent to 6 percent for the
week.

As the market has been a tad weaker, there`s also been a flight to safety.
So, gold, for example, has been rallying. It`s up about 2 percent for the
week. Bonds have been up in price and lower yields, that`s usually
negative for bank stocks, and right on cue, the banks are down about 4
percent for the week.

For the moment, though, this is a pretty modest downturn. The S&P 500 is
only a little more than 1 percent off of its historic high. It hit that on
Wednesday. Panic, no, not really.

Today is the first day volumes are slightly higher than normal, but that`s
not surprising given that the volatile, the intraday move in prices for
these major indices were greater than they`ve been recently. So, for
example, the Dow has been moving at a roughly 100-point range from its high
to its low every day for a long time. Today, it moved in a greater than
200 point range from the closed yesterday to its low this afternoon.
That`s enough to attract some attention.

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

(END VIDEOTAPE)

HERERA: The president didn`t just take on North Korea. He is also taking
on his own party. And he had this to say when asked whether Mitch
McConnell, the Senate majority leader, should step down.

(BEGIN VIDEO CLIP)

TRUMP: I`ll tell you what, if he doesn`t get repeal and replace done, and
if he doesn`t get taxes done, meaning cuts and reform, and if he doesn`t
get a very easy one to get done, infrastructure, if he doesn`t get them
done, then you can ask me that question.

(END VIDEO CLIP)

HERERA: John Harwood is following the story for us from Washington.

And, John, you`ve been on record before on this program, that a division
could emerge between the president and his party, and it looks like it is
starting to do that. So, what could happen next and what does that mean
for tax reform and infrastructure spending and the like?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it certainly
has emerged that we`ve seen a president who has gotten to the August break
without major accomplishments, who is casting blame on leaders of his own
party who have been trying to help him.

Now, that is not going to help him, say, on infrastructure. That`s not an
easy situation. Democrats have no incentive to help him. Republicans
aren`t that interested.

I do think tax cuts are somewhat of a different story. Republicans have a
strong survival instinct. They`ve got midterm elections coming up in the
2018. Republican lawmakers on the Hill want to cut taxes, so does
President Trump. I think despite the bickering, they`re going to find a
way to work together.

HERERA: All right. He also talked a lot today about North Korea. He had
an extensive cabinet meeting today. North Korea was one of the major
topics, and some strong language coming from the president on that.
Perhaps he said not strong enough.

What more do we know?

HARWOOD: Well, we know that the president has engaged in the back and
forth with the North Korea leader that involved the president warning,
don`t threaten us. If so, you`re going to meet with fire and fury. Then,
the North Korean leader not only issued a threat, but was very specific
about it.

Now, President Trump is responding and saying, well, if you do anything,
we`re going to hit you and U.S. officials were describing the nature of the
response. If this ends up being just rhetoric between leaders who have
kind of loose ways of talking, that might not be dangerous. But there`s
always the possibility of miscalculation and the same things that have
caused markets to go down has also rattled the national security
establishment in Washington.

HERERA: All right. John, thank you so much. John Harwood in Washington.

A very tough day for Macy`s (NYSE:M) and Kohl`s (NYSE:KSS) shareholders.
Despite exceeding earnings expectations, investors focused on their
declining sales and the inability to attract new customer as more people
shop online. Both stocks fell sharply. Macy`s was off 10 percent, Kohl`s
down more than 5.

Courtney Reagan has more on the sales slide at two of the country`s most
recognizable stores.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s another
dismal day for department stores despite both Macy`s (NYSE:M) and Kohl`s
(NYSE:KSS) posting better than expected quarterly results and making no
changing to full year forecasts, investors are still pessimistic about
longer term growth prospects. Sales for Macy`s (NYSE:M) and Kohl`s
(NYSE:KSS) are below last year, even with online sales growing for the
department stores. It`s not enough to offset lower in-store traffic and
sales. Plus, shoppers today have more choices than ever before.

RANDAL KONIK, JEFFERIES RETAIL ANALYST: What we see out there today in the
marketplace today is A, we have traffic going to a virtual place,
obviously, Amazon (NASDAQ:AMZN) is one of those key aggregators. But also,
B, from fiscal traffic perspective, we`re seeing more and more consumers go
to the off mall type of formats like we would find a Ross Stores
(NASDAQ:ROST), a TJX and Ulta Cosmetics, if you will.

REAGAN: T.J.Maxx, Marshalls and outlets continue to be popular shopping
destinations for consumers.

To try to capture that treasure hunt at low prices, Macy`s (NYSE:M) is
adding its own version of an outlet called Backstage in some of its stores.
But Macy`s (NYSE:M) hasn`t yet solved one of its biggest problems: bringing
in new shoppers. In fact, the department store`s foot traffic continues
its down trend, getting worse in tourist heavy locations.

Kohl`s is more insulated from the mall woes, since only a handful of its
1,150 stores are actually in a mall. But it, too, is dealing with fewer
people walking through its doors, and reversing that trend remains a top
priority.

MATT FASSLER, GOLDMAN SACHS: The mall-based ecosystem as you`re seeing
today from the department stores, the number is better than expected but
still down, is starting a gradual spiral and I think the urgency to address
whatever opportunities that are left is definitely growing.

REAGAN: With the most important time of the year still ahead for retail,
finding opportunities soon is paramount.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

HERERA: And it wasn`t just Macy`s (NYSE:M) and Kohl`s (NYSE:KSS).
Dillard`s had a disappointing quarter. The retailer swung to a quarterly
loss after the company had to markdown quite a bit of leftover inventory
and that ate into margins. And the stock got on the down escalator,
falling 15 percent.

It was a different story, though, for Nordstrom (NYSE:JWN). That retailer
reported a rise in key sales metrics during the second quarter, its first
advance since last year. Nordstrom`s results were stronger than expected
and the company is crediting the strength of its annual anniversary sale
for helping its results. It also raised the lower end of its guidance for
the year, and that sent shares higher in initial afterhours trading.

There are reports tonight that the chairman of Wells Fargo (NYSE:WFC) could
step down. Non-executive chairman Steven Sanger is part of a broader shake
up at the bank that`s been mired in scandals. This latest misconduct has
to do with charging auto loan customers for insurance that they didn`t need
and didn`t ask for. And this follows the fake account scandal which first
emerged last fall.

But take a look at the stock price over the past year, you might think it
would be lower. But it`s not. It`s actually higher.

So, when it comes to a scandal ridden company like a Wells Fargo
(NYSE:WFC), does Wall Street view them differently than the public? And
should you care if you own that stock?

Joining us is Chris Cordaro. He`s here to discuss that tonight. He is
chief investment officer at Regent Atlantic.

Nice to see you, Chris. Welcome.

CHRIS CORDARO, CHIEF INVESTMENT OFFICER, REGENT ATLANTIC: Thank you.

HERERA: You know, it is interesting that Wells Fargo (NYSE:WFC) stock is
up over the past year, given that some of the hurdles that that company has
encountered. Do you think Wall Street views companies that are mired in
the scandal differently than the public?

CORDARO: Wall Street views profits. They`re looking at profits. Are we
making — are you making money by owning Wells Fargo (NYSE:WFC) stock? And
the answer is yes. And the scandals that have broke have not really
impacted profits and that`s why you see the stock prices higher.

HERERA: Does it also play into the fact that it`s in an area of the
market, the financials, and the larger financials, that have been doing
quite well? Has that insulated the stock?

CORDARO: Well, yes, to the extent the financial sector I think continue to
do well, as interest rates rise, you`ve got lots of financial stocks should
continue to do much better. And Wells Fargo (NYSE:WFC) is a strong
financial company.

Now, they`ve got — they have some problems there. They`re tarnishing
their reputation and their brand, but not enough that they`re really losing
a lot of customers.

HERERA: Is the third strike, if there is a third strike, if something else
happens at the company or is discovered at that company, would that make
heads turn on Wall Street or not?

CORDARO: It could — it could potentially. What would make heads turn is
if larger investors in the stock, larger owners of the stock, decide that
their ethical behavior is not for them and they start pulling out and
selling the stocks.

HERERA: For instance, the pension funds, the institutional investors.

CORDARO: Exactly. If you`ve got pensions and endowments that all that
decide that this ethical behavior is too much, that they can — that they
don`t want to own this stock, they don`t want to be associated with it,
then you`ll really start to see some pressure downwards. Until that
happens, Wall Street just cares about the earnings numbers.

HERERA: Now, for the individual investor, how do you really handicap that?
Do you have to do a gut check? Just — do you look at your own standards
and say I don`t want to own a company like this or I — you know, they`re
turning the ship around and I do want to own a company?

CORDARO: Well, that`s why there`s some really interesting changes.
There`s a process in investment called environmental social and governance,
ESG. And that`s really catching on with investors right now. They`re
really caring about it, especially millennials, especially women. They
care a lot about the ethics of companies that they invest in and they`re
expressing that, and they`re expressing their values and their portfolios.
The more we see that catch on, the more we see that popular in the
investment place, the more we`ll see stocks that have ethical lapses
decline.

HERERA: Now, if a company we`re talking about Wells Fargo (NYSE:WFC), but
there are other companies that have had scandals, if indeed it does start
to affect do you see the institutional investors dump their shares? And
that`s a danger for the individual investor, is it not? Because if you`re
holding the stock and the big guys get out, then you`re left holding the
stock.

CORDARO: Right. And that`s — if it does impact profits, and now, what
could end up profit is not by you and I deciding we`re going to pull our
retail accounts from Wells Fargo (NYSE:WFC). That doesn`t impact it. What
impacts it when you have something like the state of California saying,
we`re not going to do business with Wells Fargo (NYSE:WFC), when you have
large institutions decide they`re not going to do business, that`s where
you see an impact.

HERERA: All right. Chris, thank you very much.

CORDARO: Thank you.

HERERA: Nice to have you here. Chris Cordaro with Regent Atlantic.

Still ahead, going green. The new push to plug in America`s long haul
trucks.

(MUSIC)

HERERA: The U.S. Postal Service lost more than $2 billion in the most
recent quarter. The reasons are familiar ones. There`s more competition
from the private sector and the rise of technology has enabled consumers to
send less via snail mail. The postmaster general wants to be able to hike
prices, but right now, the Postal Service cannot raise stamp prices of
traditional mail beyond the rate of inflation. Today, the postmaster
called that cap fundamentally unsuited.

The television industry gets a lot of money from advertisers and Facebook
(NASDAQ:FB) wants some of that. So, today, it unveiled a new home for
original videos.

Julia Boorstin has more on Facebook`s aggressive push for ad dollars.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Facebook (NASDAQ:FB) wants to make sure its users never need to click away,
even when they want to watch a video. Facebook (NASDAQ:FB) is launching a
watch tab featuring original video, offering recommendations based on
user`s interests and what their friends are talking about.

Facebook (NASDAQ:FB) is looking for a piece of the $72 billion that will be
spent on U.S. TV ads this year.

WILL POWER, ANALYST, R.W. BAIRD: You look at what Facebook (NASDAQ:FB) is
doing with watch, all the eyeballs YouTube`s already getting, and, you
know, that`s advertising dollars are going, because that`s what the
viewership is.

BOORSTIN: Facebook`s looking to feature content that will drive social
chatter, launching with content partners including A&E, Major League
Baseball and Hearst among others, with shows ranging from a video mash up
daily show, from video blogger Nash, to a cooking show from Taste Made, and
a National Geographic science show.

(on camera): Facebook`s latest push into content puts in more direction
competition with Snap Inc. here behind me. Snapchat has been adding a
range of exclusive shows to its Discover platform, with partners across the
traditional media space, from Time Warner (NYSE:TWX) to NBC News to Vice.

(voice-over): Facebook (NASDAQ:FB) and Snap are going up against the
largest of the video giants, YouTube, which has been ramping up its
investment in original content. Not just for its ad supported videos, but
also its YouTube Red and YouTube TV subscription services. It`s a crowded
space. But Netflix (NASDAQ:NFLX) doubling down on original content to draw
subscribers and even Apple (NASDAQ:AAPL) just this week launching its
second video show, “Carpool Karaoke”.

POWER: And ultimately, you want to have the best content, right? And
that`s why Netflix (NASDAQ:NFLX) has to continue to double down and why it
continues to spend more and more. If you`re not deriving those incremental
eyeballs, you`re not going to get, you know, the advertising dollars.

This has always been one of the questions for Apple (NASDAQ:AAPL), of
course, right? It has those credit cards on file, but it hasn`t figured
out a way to tap in to that original content standpoint.

BOORSTIN: Original content is seen by all of these players, both ad and
subscription driven, as the key way to differentiate their services, to
draw new users and keep them hooked. Facebook`s watch tab will start
rolling out to U.S. users starting today.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Venice, California.

(END VIDEOTAPE)

HERERA: And Snap`s user growth fails to impress. That`s where we begin
tonight`s “Market Focus”.

The social media company best known for its disappearing message app didn`t
add as many users in the latest quarter as analysts were hoping for.
Earnings and revenue also came up short. Shares were volatile in after
hours trading, but they ended the regular day up more than 1-1/2 percent to
$13.77.

NBCUniversal has an investment in Snap. NBCUniversal is parent company of
CNBC, which produces this program.

In its first earnings report as a public company, Blue Apron, reported
stronger than expected revenue, but a wider loss. While the loss was
disappointing, what drove the stock lower was Blue Apron`s weak outlook.
The meal kit delivery company said unexpected cost related to a new
facility would cause losses to grow and the shares plunged more than 17
percent to $5.14.

The entertainment promoter Live Nation said an increase in concert ticket
sales helped revenue rise above expectations and profit was also ahead of
street target. Those results sent shares higher by more than 5 percent to
$39.61.

The generic drug maker Perrigo (NASDAQ:PRGO) lifted its full year earnings
outlook after reporting quarterly results that topped estimates. Perrigo
(NASDAQ:PRGO) said strong demand for new products helped it offset losses
from falling prices that have negatively impacted other pharma companies.
Perrigo (NASDAQ:PRGO) shares took off, rising almost 16 percent to $76.84.

And after reporting a surprise loss and disappointing sales, the
infrastructure services provider Chicago Bridge and Iron, said it would
suspend its dividend. The company said it`s taking action to improve its
financial position. The shares were crushed. They fell 26 percent to
$11.97.

The race to build electric vehicles will soon involve large trucks,
including semis, hauling goods around the country. Tesla is working on an
electric semi, and by the end of this year, a Chinese-backed firm will roll
out a short haul commercial work van that you might see driving around
cities.

Phil LeBeau has more now on the push to plug in America`s trucks.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It looks
like any other commercial work van. But this truck by a company called
change is all electric and coming to America later this year.

BRYAN HANSEL, CHANJE CEO: You stand on a city street in any urban market,
any product or people that are moving are being moved in medium duty trucks
and the existing products is the diesel, it creates the noise and pollution
that just really is having an impact and we saw the opportunity in change
to do a ground up design that would really transform that space.

LEBEAU: The market for medium duty trucks like those used by delivery
companies is substantial. More than 7 million are on the road in the U.S.
most get relatively poor mileage, but Chanje says it truck will give the
equivalent of 50 miles per gallon. The company is backed by millions of
dollars from investors, including some from China.

Over the last four years, the amount of money pouring into electric vehicle
companies has exploded. And it`s expected to top $2.7 billion this year.
Some of that money is funding companies like ChargePoint, which is building
recharging stations or to startups developing electric vehicles. Many are
based in California, but looking to change how the world gets around.

HANSEL: And you start to disrupt a marketplace, I think investors see that
and it`s happening now in California for sure.

LEBEAU (on camera): The surge of investments in electric cars and trucks
is also happening in China and for good reason. China is already the
world`s largest market when it comes to all vehicles, but it`s also number
one when it comes to those that are electric models.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Coming up, a new kind of experiment is flying high.

(BEGIN VIDEO CLIP)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Morgan Brennan
in New Mexico. Holloman Air Force Base is home to the 49th Wing and it`s
where the vast majority of pilots that fly remotely piloted aircrafts like
the recently retired predator are trained. But something else is afoot
here right now as well, and that`s something that could help transform the
way military equipment is acquired.

That story is coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: “Consumer Report” is pulling its recommendation on four Microsoft
(NASDAQ:MSFT) laptops. This after one of its surveys found that users were
complaining about problems with those devices.

Based on the results, the magazine predicted that one quarter of
Microsoft`s laptops and tablets would have reliability problems in the
first two years of ownership.

The Air Force needs new fighter jets, but they`re expensive. So, it`s
doing something unusual that could give smaller contractors a chance to
build a cheaper plane.

Morgan Brennan reports from Holloman Air Force base in New Mexico.

(BEGIN VIDEOTAPE)

BRENNAN (voice-over): In the middle of the New Mexican desert, fighter
pilots have been conducting test in a new kind of experiment.

LT. GEN. ARNIE BUNCH, MILITARY DEPUTY FOR ACQUISITION FOR AIRFORCE: We
took a problem we saw or an area that we thought we wanted to experiment
and we engaged the industry and we took the step forward with the support
of our leadership to see if we can do things in a different way. So, it is
unusual and in fact charting new grounds.

BRENNAN: The Air Force is testing light attack aircraft built by three
contractor teams. Sierra Nevada, and Embraer, Air Tractor which partnered
with L3 and Textron (NYSE:TXT), which has two different planes on site.

(on camera): Just as the Pentagon is undergoing a massive acquisition
restructuring, Air Force officials here say this exercise allows them to
test aircraft already available and do so without having to decide whether
to dedicate huge sums to a new program.

(voice-over): It marks a big potential shift in how the service could buy
future equipment.

Air Force Secretary Heather Wilson, who`s been at the job less than three
months, says the goal is to make it easier for more companies to do
business with the government.

HEATHER WILSON, AIRFORCE SECRETARY: We`re not going to spend a whole lot
of time and a bunch of years to come up with specific requirements. We`re
going to say, all right, see what people have and let`s test it. And then
let`s learn from that and then see where we go.

BRENNAN: The so-called OA-X experiment could result in an inexpensive
aircraft designed to carry out certain missions against ISIS and other
insurgents that don`t have access to high performance jets.

If this goes well, it could cut the cost and time it takes to get a new
aircraft into operation and do so as geopolitical tensions with North Korea
and others continue to flare.

WILSON: We are stretched very thin. We have asked to increase the
strength in the United States Air Force, but we are also putting money into
immediate readiness and then medium and long-term modernization, so that
we`re ready.

BRENNAN: But new ways of doing business may also mean more spending by
companies up front, including for OA-X.

SCOTT DONNELLY, TEXTRON CHAIRMAN & CEO: We think there`s a number of
opportunities out there, both U.S. and international, and it`s a great
opportunity to showcase the aircraft and see what the Air Force is looking
for.

BRENNAN: All three teams say the opportunities outweigh the costs,
especially since foreign allies have been tracking the tests.

But since the Air Force hasn`t released a formal request for proposal,
there`s no guarantee any of this will result in an official U.S.
acquisition program. Or that today`s participants won`t face more
competition, if so.

Some critics even argue the Air Force is wasting resources on an outdated
idea. But for Secretary Wilson, there`s nothing but upside.

WILSON: If you can innovate faster than the adversary at lower cost, then
no matter what happens, we have a better chance of prevailing against an
adversary.

BRENNAN: For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at Holloman Air
Force Base in New Mexico.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.

We want to remind you that this is the time of year your public television
station seeks your support and we thank you for that support. We`ll see
you tomorrow.

END

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
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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