Transcript: Nightly Business Report – August 29, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Not wavering. North Korea
fires a missile over Japan. The fourth largest city in the U.S. is under
water and, yes, stocks continue to move higher. Why?

Debt fight. One month to go until the debt ceiling needs to be raised, but
the fight to avoid a national default is likely to be a bitter one.

And, safe havens. With all the political uncertainties swirling here and
abroad, is now the time to flock to the security blanket investments.

All that and more on NIGHTLY BUSINESS REPORT for Tuesday, August 29th.

Good evening, everyone, and welcome. Tyler Mathisen is off this week.

It was quite a reversal on Wall Street today. Stocks sold off early on
following the report we told you about last night, that North Korea fired a
missile that traveled over Japan ratcheting up the already high tensions
surrounding the Korean peninsula. Couple that with the historic flooding
in Houston and the surrounding areas, and you would bet that would be a
recipe for a selloff in stocks.

But that`s a bet you would have lost because by the end of the day, stocks
did a nearly 200 point about face. The Dow rose just about 57 points to
21,865. The NASDAQ rose 18 and the S&P 500 added two. But gold did react
to the missile launch, settling at nearly a one-year high. We`ll look more
at whether this is the right time to get into the so-called safe haven
investments a little later in our program.

But, first, back to that North Korean launch that has the region on pins
and needles. As we said, the missile traveled over Japanese air space,
causing a frightening situation for residents and strong rhetoric from the
government.

Akiko Fujita has more from Nagoya, Japan.

(BEGIN VIDEOTAPE)

AKIKO FUJITA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, like so many
Japanese here, we were woken up around 6:00 a.m. local time with that
latest launch coming from North Korea triggering a nationwide alert.
Broadcasters breaking into programming warning of a missile passing
through. Some residents in the areas in northern Japan reported getting
text messages on their phone urging them to take cover while others said
sirens went off in their community calling on residents to look for a safe
place here.

This is a missile that traveled well over 1,500 miles, passed over the
northern island of Hokkaido before separating into three pieces and landing
in the Pacific Ocean.

Prime Minister Shinzo Abe condemning this in the strongest terms, saying
that he would make every possible effort to protect the lives of the
Japanese. He did speak with President Trump over in the U.S. This is a
conversation that reportedly lasted roughly 40 minutes. The prime minister
saying that President Trump reiterated the U.S.`s 100 percent with Japan
and committed to Japan`s defense.

The timing certainly no coincidence, coming amid those joint U.S./South
Korean military exercises. The Japanese and American forces have also been
conducting their own exercises over the past few weeks.

The prime minister did say, this is a missile that was tracked shortly
after launch roughly 15 minutes until it landed in the Pacific, which has
raised questions about why in fact Japan didn`t give the green light with
those PAC-3 missile defense systems to shoot down this latest missile.
There are three of those in U.S. air bases here in Japan.

The commander of Japan`s air self-defense force simply saying they didn`t
give the green light because they didn`t think the Japanese territory was
threatened. We should mention the Japanese are certainly used to these
provocations from North Korea with well over a dozen missile launches so
far this year. More than half of those have landed in Japan`s exclusive
economic zone.

But there is a sense that this test may have crossed the line in part
because this was the first time a ballistic missile that was designed to
carry a nuclear pay load passed over Japanese territory. The implications
of a failed launch certainly could have been significant considering that
the debris could have fallen on Japanese territory.

For NIGHTLY BUSINESS REPORT, Akiko Fujita, Nagoya, Japan.

(END VIDEOTAPE)

HERERA: With every missile launch or verbal jab from North Korea, more
attention gets put on the rogue nation`s close ties with its biggest
trading partner and biggest ally, China.

Seema Mody takes a look at that relationship.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This bridge linking the
city of Dandong in China to North Korea is a life line carrying more than
2/3 of the trade between the two countries. Despite sanctions, Chinese
government data shows trades between the two nations increased 37 percent
during the first three months of the year. China provides North Korea with
most of its food and energy.

Supplies accounts for upwards of 90 percent of North Korea`s total trade
volume. That, according to the Council on Foreign Relations. Global
leaders have urged China to stop all trade with North Korea which continues
to conduct missile tests.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I think China can do a lot
more, yes. China can — and I think China will do a lot more.

MODY: The hope is that by cutting off North Korea`s economy, Leader Kim
Jong-un will have less resources to develop nuclear missiles, yet China
refuses to give up relations with North Korea. Why? Analysts say Beijing
is worried that discontinuing all trade with North Korea could lead to the
fall of the North Korean regime, the unification of the Korean peninsula,
and therefore, a stronger, more dominant Asian competitor to China.

ART CASHIN, UBS: It would be not unlike the reuniting of East Germany and
West Germany, and that would present an enormous economic behemoth right on
the border of China. So, China does not want to wind up with a very
democratic capitalistic society sitting right on their border.

MODY: But no material change is expected in the near term especially ahead
of China`s fall party congress, where leadership changes are expected.

CFR president Richard Haass writing that while Chinese leaders have no love
for Kim Jong-un`s regime or his nuclear weapons, it dislikes even more the
prospects of North Korea`s collapse. While North Korea has conducted
several missile tests, the one that occurred early this morning crossed
over Japan`s northern tip, the first time since 2009 seen as the fiercest
launch yet.

For NIGHTLY BUSINESS REPORT, I`m Seema Mody in New York.

(END VIDEOTAPE)

HERERA: So, why is the market not reacting to the North Korean missile
launch or even the devastation of the historic flooding in and around
Houston Texas?

Jack Ablin joins us now to share his thoughts. He is chief investment
officer at BMO Private Bank.

Always good to have you, Jack. Welcome back to the program.

JACK ABLIN, BMO PRIVATE BANK CHIEF INVESTMENT OFFICER: Nice speaking with
you, sue.

HERERA: You know, it is curious to see the resilience that this market
seems to be exhibiting in the face of the North Korean provocations and
also the flooding. What do you attribute that to?

ABLIN: Well, I think the main concern among investors this morning going
into the market is, as you mentioned, that the market set the market at the
open was down over 100 points in the Dow and I think it was that investors
worried what the — Trump`s reaction would be. The fact is because he
didn`t take the bait, he more or less said, we`ll see, and focused instead
on Houston and the devastation there I think relieved a lot of investors
that this wasn`t going to ratchet up to something that, you know, would run
out of control.

So, I think from that perspective, things started to cool down. Investors
tended to look beyond North Korea. I think that probably, you know, got
Kim Jong-un particularly frustrated that he`s not seeing the market react
to his latest move.

HERERA: So, I talked to one trader today, and he said this has become the
market that you can`t afford to sell because it does seem to be so
resilient. What in your mind might it take for this market to retrench a
bit?

ABLIN: I think it`s going to be something economic. The fact is we are in
a global synchronized recovery where now most of the growth is coming from
overseas because a lot of the early stimulus and a lot of the early growth
came here at home. And so, now, we`re seeing a little catch up, but the
fact remains, it is a global, synchronized recovery, and one that as long
as inflation stays low, has some legs.

So, I think that`s where investors are focused. They are certainly
enjoying some decent earnings at the same time, and I think that`s
everyone`s priority right now.

HERERA: All right. We`ll be watching for inflation. Jack, thank you so
much.

ABLIN: Thank you, Sue.

HERERA: Jack Ablin with BMO Private Bank.

And now to Texas where Harvey has become a record storm. One location
south of Houston has now gotten more than 49 inches of rain, making it the
heaviest rainfall total ever in the U.S. from a storm.

A levee also south of Houston was breached by flood waters with authorities
tweeting get out now. That levee has since been fortified. But thousands
have been rescued and dozens of offshore rigs have also been evacuated.
Sadly, the death toll has also risen, including a police officer who has
confirmed to have drowned in his car as he was heading on duty on Sunday.

President Trump visited Corpus Christi where he met with Texas Governor
Greg Abbott.

And Harvey, while still not done with Texas, is now headed towards
Louisiana, 12 years after hurricane Katrina.

And a similar situation developed in Galveston, Texas, where rain pounded
that area and rescue efforts ramped up.

And Brian Sullivan is there.

(BEGIN VIDEOTAPE)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Rain continued to
fall on Tuesday in southeastern Texas. Some cases like here in Galveston,
much more rain in an area that did not need anymore rain. In fact,
hurricane, now tropical storm Harvey, has not only broken every single
record for the region or for the state, but it is official. Hurricane
Harvey, now tropical storm, has laid down more rain than any single storm
in United States history. It will ultimately deliver more than 50 inches
of rain in a single storm.

And with this rain has come flooding and the need for rescues. In fact,
citizens, Good Samaritans called the Houston Navy or the Cajun Navy if they
came over from Louisiana have gone out of their way with their boats, even
their jet skis and surf boards and rafts to try rescue people.

Listen to one Good Samaritan in his tale about getting a woman out who had
cancer.

ANDREW CROW, CAJUN NAVY: I hopped out of the boat, I banged on the door.
No one answered. Someone said to come in. I pushed in and that door there
was water up to my knees basically.

So, I walked in there. She was sitting down on the couch and she can`t
move. I picked her up on my back and I got her out to the boat.

SULLIVAN: And that gentleman certainly not the only one. In fact, people
came from all over including about 10 mile south, here in Galveston, the
chief of lifeguards and his team of swimmers took their jet skis up there.
They went house to house. We spoke to him about the rescue effort.

PETER DAVIS, GALVESTON ISLAND BEACH PATROL CHIEF: At the end of the day we
were up to 160 jet ski rescues. I think they said over 20 pets on top of
that. So, yes, there was a bunch of them. All in Dickinson, four jet ski
teams up there the last few days. They were going house to house.

SULLIVAN: With all the rain on Tuesday, those flood waters may rise before
they fall. What also has been rising is the estimated ultimate economic
cost of all of this. With some estimates peg it as high as $50 billion
when all is said and done. In fact, it may knock a few tenths off the
entire American gross domestic product in the fourth quarter.

That will be down the road. Right now, the focus is still local, and on
saving lives and making sure that the death toll does not go up.

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan in Galveston, Texas.

(END VIDEOTAPE)

HERERA: As you may already now, Houston had a housing inventory problem
prior to Hurricane Harvey. And now, with flood victims seeking temporary
shelter, that problem has gotten a whole lot bigger.

Diana Olick has more.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The focus
in Houston is getting residents out of their flood stricken homes and
transferring them somewhere to safety. But soon that somewhere will become
a much bigger problem as thousands of homes may be uninhabitable for weeks
or even months.

FEMA Director Brock Long put it simplest.

BROCK LONG, FEMA DIRECTOR: Housing is going to be very frustrating in
Texas.

OLICK: Home builder Lennar (NYSE:LEN) has a big footprint in the Houston
area. The bulk of their communities though are not in the hardest hit
parts, but CEO Stewart Miller said the bigger problem will be in the coming
weeks with lack of labor to build and rebuild. Housing stocks in Houston,
like the rest of the country, is tight, especially for affordable homes.

There are however 47,000 vacant apartments in Houston according to
Axiometrics, as construction there has been aggressive lately. But the
majority of those are very pricey.

Camden Property Trust (NYSE:CPT), one of the nation`s largest apartment
landlords, is based in Houston and they say all their properties are
operational. So, they may be able to assist.

Airbnb is waiving fees and eliciting support from renters.

LONG: If we can`t put you back in your home because it`s destroyed or
because the flood waters are there and they`re going to be there for a
while. We want to get you out of the long term sheltering. We want to try
to find, you rent `em if you`ve got `em is kind of what we want to say.

OLICK: Major rehab companies are already moving into the region, readying
to dry out and restore flooded homes, but that can only happen once the
water recedes.

MARY KAY WEGNER, SERVICEMASTER FRANCHISE SERVICES GROUP: The rain hasn`t
stopped. The flooding hasn`t receded. And there`s a big difference in the
cost of recovery, whether there`s two feet in the water or eight feet of
water in the home, whether it sat for two days or two weeks. So, cost is
really unknown at this point.

OLICK: FEMA may end up bringing in manufactured homes and trailers, but
Director Long said that would only be a last resort and he added no one
should expect to see those on or around their properties any time soon.

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

(END VIDEOTAPE)

HERERA: Another image that we have seen over and over in the Houston area,
cars and trucks that are completely flooded. For thousands of people,
including some auto dealers, Harvey is taking a very costly toll.

Phil LeBeau has more on how quickly the people in Texas will be able to get
back on the road.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): They`re a
testament to how quickly Harvey swamps Houston. Flooded cars, SUVs and
pickups are spread throughout the city. The water is so high in so many
areas, it`s estimated up to a half million vehicles could be totaled. That
includes some that were under water at dealerships.

Right now, most auto dealers in the Houston area are likely to be closed
for much of this week. When they reopen, business is likely to be slow as
people struggle to put their lives back together, file insurance claims and
get around to buying a car or truck. Once that happens, sales will snap
back.

MIKE JACKSON, CHAIRMAN AND CEO, AUTONATION: Scrap the vehicles and they`re
all going to have to be replaced. So, I expect a significant snap back in
Houston, which is both a tribute to the spirit and resiliency of the
American people there, and that`s the American way.

LEBEAU: With used car prices at a record high, it`s likely they`ll move
even higher. That`s because the supply in the Houston area will be tighter
than normal, at least initially.

(on camera): And what happens to all the flooded cars and trucks? They
will be scrapped. As with hurricanes Katrina and Sandy, there are some
that will be fixed, retitled and then sold often in states around the
country where the buyers have no idea that the vehicle they were buying was
once under water in Houston.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Coming up, bonds, gold. With all the global turmoil, is now the
time to get into safe havens?

(MUSIC)

HERERA: S&P says the U.S. would keep its double A plus credit rating if
the government does not default on the national debt, even if it doesn`t
raise the debt ceiling, right away at least. Last week, Barclays said not
raising the debt ceiling could push the economy into a recession if the
situation dragged on.

The deadline is one month from today, but as Ylan Mui tells us you, that
likely won`t happen without a fight.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Conservative Republicans
in Congress are starting to lay out their demands in cooperation in raising
the U.S. borrowing limits. Representative Mark Walker is head of the
powerful Republican Study Committee and he told CNBC that an increase in
America`s debt limit should be paired with reforms of Medicaid. He
believes tightening the work requirements to enroll in Medicaid could save
$200 billion over the next decade.

REP. MARK WALKER (R), NORTH CAROLINA: We`re just wanting something
concrete as we go back to the people that we serve and say, yes, we raised
the debt ceiling, but here`s the good part of it, if you will. Here`s the
things that you asked us to do as far as putting together some long-term
reforms.

MUI: Republicans don`t want to approve more borrowing without
corresponding spending cuts. That`s very different from what the White
House has been saying. Treasury Secretary Steve Mnuchin has called instead
for a clean bill with no strings attached. Now, any bill will need support
from both Republicans and Democrats on Capitol Hill.

Senate Minority Leader Chuck Schumer has warned that GOP efforts to push
through a big tax cut that increases the deficit, that would make it tough
for Democrats to help them out on the debt ceiling. Lawmakers have just
one month to resolve this fight. The Treasury Department says the United
States will hit the debt ceiling on September 29th. After that, the
federal government won`t be able to pay its bills.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

HERERA: Strong demand for smart phones helps results at Best Buy
(NYSE:BBY). That`s where we begin tonight`s “Market Focus”. The
electronic retailer listed its full retail guide after topping street
expectations. Same store sales blew past analyst estimates with a more
than 5 percent gain but the CEO warned that the mid single digit rise would
not be expected to continue. Shares fell nearly 12 percent to $55.02.

Finish Line slashed its profit outlook for the full year after reporting
preliminary results that included sales declines. The company citing a
competitive and promotional environment said it expects those sales to
erode even further. And as a result of that, Finish Line has opted a
shareholder rights plan also known as a poison pill to prevent a takeover
attempt. Finish Line shares tumbled 18 percent to $8.50.

The watch maker Movado said a challenging environment caused sales to fall.
Even so, results beat street expectations and profits were sharply ahead of
analysts` targets. Shares of Movado soared more than 19 percent to $28.50.

Earlier this month, we told you that defense contractor United Technologies
(NYSE:UTX) was said to be interested in buying Rockwell Collins (NYSE:COL).
Well, today, “The Wall Street Journal” reported that UTX is closing in on a
deal to buy its rival for $20 billion. Now, such a merger would create one
of the largest aircraft equipment makers.

Shares of United Technologies (NYSE:UTX) topped nearly 3 percent on the
news to $118.70. That rise contributed to the Dow`s positive finish today.
Shares of Rockwell Collins (NYSE:COL) rose 2 percent to $130.74.

And after the bell, Bank of America (NYSE:BAC) said Warren Buffet`s
Berkshire Hathaway (NYSE:BRK.A) exercised warrants to acquire 700 million
common shares of that bank. Berkshire Hathaway (NYSE:BRK.A) is Bank of
America`s largest common shareholder. Shares of Bank of America (NYSE:BAC)
initially rose in after-hours trading, but they ended the regular day down
just fractionally to $23.58.

With all the geopolitical uncertainty both here and around the globe,
investors took a bit of a flight to quality today, seeking safe havens in
investments like bonds and gold. As we told you earlier, gold prizes rose
to the highest level in nearly a year, closing above the $1,300 an ounce
mark, while the yield on the benchmark ten-year treasury fell to 2.1
percent.

But is now the time to flock into bonds and into gold? John Petrides,
portfolio manager, at Point View Wealth Management, joins us.

Nice to see you again, John. Welcome back.

JOHN PETRIDES, PORTFOLIO MANAGER, POINT VIEW WEALTH MANAGEMENT: Thanks for
having me on.

HERERA: The movement to gold was certainly impressive into today`s trading
session. But do you think it has staying power? Should the average
investor move into the gold market at this point in time?

PETRIDES: Well, I think it was such an interesting reaction of stocks in
general. I mean, prior to the market opening, stocks were down half of 1
percent. We actually finished positive of the day, which shows I think
there`s a lot of pent up demand for stocks. We`re now entering the 102nd
month of a bull market without a bear market.

So I think that there`s still a pent-up demand for stock. In terms of
gold, we had been owning gold for our clients portfolios that diversify
because we are humble enough to know that we don`t know what the future
holds. We think that gold provides a good hedge for the black swan event,
for that unexpected foreseen event for climate`s portfolios.

HERERA: We also saw investors moving into U.S. treasuries. You have
argued that now is time to unload some of your bond positions. Is that
treasuries or are you talking corporates? What part of the market are you
talking about?

PETRIDES: Definitely treasuries. The higher end quality of the bond
market. We would rotate out of or row dues the position and use that,
proceeds to buy stocks here today which are on the cheap.

And I think that the bond market, the high quality — six months ago, the
market was very fearful of rising interest rates. How far and how fast
would the fed go to raise rates. That was throw bonds off. At that point
the ten year was at 2.6 percent. Well, bonds have rallied with the ten
year at 2.1 percent on yield.

So, the perception has pushed from fear of interest rate risk to wanting
safety and capital preservation. What happens if the hawks come back and
the Fed comes with a more hawkish tone to raising rates? Bonds will sell
off very aggressively.

HERERA: If you do not have a position in the gold market, I want to go
back to that. How would the average investor best invest in the gold
market? What`s the average investor`s strategy?

PETRIDES: So we like the gold miners, and we own a basket of gold miners.
One stock is the ASA gold fund. It`s a closed end fund that owns a basket
of gold miners. So, that`s how we play —

HERERA: All right. John, thank you very much. John Petrides with Point
View Wealth Management.

PETRIDES: Thanks.

HERERA: Coming up, why retailers are hoping to get a bump from the back to
school season.

(MUSIC)

HERERA: And finally tonight, we told you earlier about the strong sales at
Best Buy (NYSE:BBY), but the retail sector as a whole has been having a
very tough go of it. The National Retail Federation says we`re expected to
spend nearly $84 billion on the back to school season, the second highest
amount ever.

And as Dom Chu tells us, that just might be what the doctor ordered for the
ailing group.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s that time of year
again. Back to school season is upon us, and that means a renewed interest
in buying things and a renewed focus on retail-related companies. This
time around, the recent press has been tilted towards the negative side of
things for many of America`s best known retailers. Stocks in the industry
are on pace for their worst monthly performance as a group since January of
2014.

If you look at the Spider Retailer Exchange Trader Fund, the ticker XRT,
it`s lost nearly 6 percent in August. The fund tracks small, mid, large
cap retail related stocks. It`s got about 100 stocks in it.

Of those, nearly 30 have fallen by 10 percent or more just month to date.
Among the worst performing stocks, shares of sporting goods, athletic
apparel. You`ve got Foot Locker, Dick`s Sporting Goods (NYSE:DKS) and the
Finish Line. Now, a big part of the story developed this week as the
finish line cut its profit outlook for the year.

Bigger discounts and a heavier promotional environment have been pressuring
a lot of retailers in this and other parts of the industry, but it`s not
all bad news. Some app retailers like American Eagle Outfitters
(NYSE:AEO), Urban Outfitters (NASDAQ:URBN) and Guess have posted positive
returns this month. Many retailers are highly dependent, of course, on the
second half of the year in sales and now it`s about whether or not those
laggers can help turn things around as we head out of the back to school
season and into the holiday shopping season.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu at the New York Stock
Exchange.

(END VIDEOTAPE)

HERERA: And on that note, that is NIGHTLY BUSINESS REPORT for tonight.
I`m Sue Herera. Thanks so much for joining us. Have a great evening,
everybody, and we will 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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