Transcript: Nightly Business Report – September 20, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The great unwind. The Federal
Reserve plans to remove the economy`s extraordinary support which has been
in place since the Great Recession. But what happens when the training wheels come off?

Ringing up sales. Why some say consumers will spend more than $1 trillion
this holiday season.

Dealing with disaster. How Houston`s newest landlords are helping renters
displaced by Harvey.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
September 20th.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is
off tonight.

It may be an October to remember. The Federal Reserve said next month, it
will begin to reverse its historic stimulus which was put in place to help
prop up the economy during the great recession. Its plan is to begin
rolling off its $4.5 trillion damage sheet, which consists mostly of
treasuries and mortgage-backed securities.

Central bank officials also hint one more interest rate rise this year is
likely.

As a result, bond yields rose and stocks where volatile. The Dow Jones
Industrial Average advanced 41 points 22412, that is an all-time high. The
NASDAQ was off five. And S&P 500 rose one, also a record.

Hampton Pearson has more now on the new era that the Fed will begin
ushering in.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): As
expected, Janet Yellen and her fellow monetary policymakers left interest
rates unchanged and announced the beginning of a plan to start trimming the
more than $4 trillion worth of bonds and mortgage-backed securities
purchased by the Feds to combat the financial crisis and the recession.

JANET YELLEN, FEDERAL RESERVE CHAIR: Our balance sheet will decline
gradually and predictably for October through December, the decline in our
securities holdings will be capped at $6 billion per month for treasuries
and $4 billion per month for agencies.

PEARSON: The Fed chair said there is a strong consensus among monetary
policymakers for another interest rate hike this year, even though
inflation is below the Fed`s 2 percent target and hurricane damage in Texas
and Florida will have short term negative impacts on the economy.

YELLEN: So, if there are small changes in the outlook that require a re-
calibration of monetary policy, we will change our anticipated path in
setting of the federal funds rate.

PEARSON: Leading economists and market watchers are concerned about the
impact of trimming the balance sheet and the likelihood of more rate hikes.

BILL GROSS, JANUS HENDERSON: I think they have to be very careful because
it`s a highly levered U.S. economy, it`s a highly levered globe economy,
and currencies and the dollar and other, you know, related assets like gold
will move substantially if the Fed overstates its case.

PEARSON (on camera): The Fed chair sidestepped questions about how fiscal
policy, especially tax cuts and a possible increase in the deficit, might
impact future monetary policy.

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

(END VIDEOTAPE)

HERERA: Let`s turn now to Jack Ablin for more on the Fed and the economy.
He is the chief investment officer at BMO Private Bank.

Good to see you again, Jack.

JACK ABLIN, CHIEF INVESTMENT OFFICER, BMO PPRIVATE BANK: Thanks, Sue.
Nice to see you.

HERERA: What did you think of what the Fed did today? Was it what you
expected and appropriate?

ABLIN: It was exactly as expected and it was by design. The Fed is trying
to reduce the size of its balance sheet. And given the last time it
thought aloud about doing that, back in 2013, under Chairman Bernanke, we
had, remember, the taper tantrum where everyone got very concerned.

HERERA: Oh, yes.

ABLIN: And so, this time around, the Fed wants to fully articulate its
plan, map out its intention of reducing that balance sheet, and they said
they were going to probably start reducing in October, and sure enough,
this afternoon, they announced that indeed they`re going to start reducing
their reinvestment program in October.

HERERA: So, what does this mean to the average investor? It sounds like
you`re saying we won`t see the type of volatility in the market that we saw
the last time around when the market was a little bit unsure of what the
Fed`s intentions were.

ABLIN: Yes, I think part of it is, sue, while the Federal Reserve is
trying to at least reduce its reinvestment program — so it isn`t even
talking about selling holdings that it has, all it`s doing is just reducing
the amount of reinvestment it has from the coupon payments and maturities
that are coming due. And so, we also, though, have still active buying
going on in many central banks throughout the world. So, I think that
while the Fed is trying to pull back a little bit, we still have other
central banks worldwide ratcheting up their buying.

HERERA: And I guess the good news is that the Fed deems the economy
healthy enough to be able to really kind of re-jigger their balance sheet.

ABLIN: Yes, I think that`s it. And I think that, you know, they believe
that reducing the size of the balance sheet or reducing these reinvestments
may be the same type of program as raising interest rates. So, we`ll have
to see if they actually go with a double barrel approach or if they may
take a wait and see on raising rates while they see the effect of the
balance sheet reduction.

HERERA: All right. Jack, we will leave it there. Thank you so much.

ABLIN: Thank you.

HERERA: Jack Ablin with BMO Private Bank.

As we reported, the Dow and the S&P 500 are at record levels. But if
you`re worried about valuations, the world`s most recognizable investor
says, don`t be. According to “Reuters”, Warren Buffett, the chairman of
Berkshire Hathaway (NYSE:BRK.A), late yesterday said the Dow will be over 1
million in 100 years. He also said that being short America has been a
loser`s game.

And investors may be taking Mr. Buffett`s advice to heart, after being one
of the most dislikable markets, a handful of surveys show a shift.
According to the latest Gallup poll, optimism is at its highest level in 17
years. Investors also took a sharp bullish turn last week. According to
the American Association of Individual Investors and the most upbeat group
of all retirees.

John Manley is here to talk about more about the investor optimism that
we`re seeing. He`s the chief equity strategist at Wells Fargo (NYSE:WFC)
Funds Management.

Good to see you, John. Welcome back.

JOHN MANLEY, CHIEF EQUITY STRATEGIST, WELLS FARGO FUNDS MANAGEMENT: Thank
you. Great to be back.

HERERA: Do these numbers and the sentiment surprise you, or not?

MANLEY: A little bit. I mean, I think people still have a tremendous
fear, slightly below the surface, there`s a lot of nervousness that
permeates this market. I still think the U.S. economy is getting better
and people don`t really believe it.

HERERA: What`s it going to take, do you think, for them to believe it?

MANLEY: More of the same. I think we just need time to go by. I mean,
time passes. Time heals all wounds. I think that — I didn`t say that
originally, but it`s a good quote.

I think what happens is after a period of time, people — the terrible past
fades into the past. And people do what they do in America, which is spend
money.

HERERA: Yes, exactly. The sentiment, it was somewhat surprising to me,
primarily because we have valuations that some say are pretty much fully
valued, the stocks are pretty much fully valued. Would you agree with that
or not?

MANLEY: I think they`re actually highly valued. They`re sort of the low
end of high. They`re 18 times forward earnings expectations, by my
numbers. The average is 16 times. It`s not so much that it will cause the
market to come down by itself. But if anything bad happens — well, it`s a
little bit sharper decline than we would have had otherwise. It`s not a
killer by any means.

HERERA: The other thing is the lack of exuberance. I mean, maybe it
really is different this time.

MANLEY: Yes.

HERERA: Every time I say that, I think, oh, no. But maybe it is. I mean,
there aren`t too many other places to put your money to work other than the
stock market at this point. So, perhaps, it is a little bit different and
we haven`t seen that sign of, you know, exuberance or investors being
overly bullish.

MANLEY: I think it`s the same as it`s been. But you have to decide, it`s
the same as it`s been, where? Where? When during the marketplace?

I don`t think we`re near the top, like 1987, or the top like 1929. We`re
lifting off. This will probably end badly. But it could take years before
we get there.

I mean, bull markets by definition end badly or they wouldn`t be the end of
bull markets. But they go on for a lot longer than people think, because
there are still people who hold out, who are waiting for that final
decline. And it takes a lot longer and it takes a lot more evidence than
we have for it to happen.

HERERA: On that note, John, always good to talk with you. Thanks for
joining us.

MANLEY: Thanks, Sue.

HERERA: John Manley with Wells Fargo (NYSE:WFC) Funds Management.

In Washington, Senate Republicans reached a tentative budget deal that
would set up a broad outline for an overhaul of the tax system. It came
down to two senators with different views. Senator Toomey had been looking
for tax cuts that might reduce revenues by as much as $2 trillion over a
decade. Senator Corker had been arguing for a smaller number. According
to reports, that number could be about $1.5 trillion in revenue-reducing
tax cuts.

And today, Goldman Sachs (NYSE:GS) said the tentative budget deal raises
the odds of tax reform.

And the Senate is pressing ahead with a vote on its health care bill. An
aide for Senate Majority Leader Mitch McConnell said he intends to bring it
to the Senate floor next week. As we told you yesterday, the legislation
would repeal central elements of the Affordable Care Act. Republicans must
vote on the bill by the end of next week or lose access to special budget
rules that prevent Democrats from filibustering.

Well, consumer spending is a key part of the economy, especially during the
holiday season. And with all of the store closings, you might think
holiday spending won`t be all that good. But a new report today says sales
could top $1 trillion.

Burt Flickinger is here. He`s managing director at Strategic Resource
Insight Group.

Good to see you, Burt.

BURT FLICKINGER, MANAGING DIRECTOR, STRATEGIC RESOURCE INSIGHT GROUP: Good
to team up again, Sue.

HERERA: Yes, it`s great to see you.

One trillion dollars — I mean, I know they say that round numbers don`t
matter, but this is a very big round number.

FLICKINGER: This is a big, important record breaking number, Sue.

HERERA: Do you agree with that, that we could see that kind of sales?

FLICKINGER: Definitely agree. And we`re going from the worst of times, as
Charles Dickens might have described it in “Tales of Two Cities”, to the
best of times for retailers. You and John Manley said stocks are fully
valued, retail stocks are undervalued. This retail pushes back the $1
trillion number. A lot of good buys because there are great bargains for
shoppers during the holiday and going into the New Year.

HERERA: Talk to me about how the sales composition will look, perhaps,
because we report almost every day on either — yesterday, it was Toys “R”
Us going into bankruptcy, store closings, reshufflings and things like
that. Is it the online component that is going to drive retail sales?

FLICKINGER: Online is going to drive it because of price discovery. But
the omnichannel retailers with the best combination of bricks and clicks,
Walmart is getting to be quite good, Macy`s with macys.com,
bloomingdales.com is getting quite good. We`re seeing that worldwide.

So, you`re going to have a meeting where Amazon`s tremendous compounded
annual sales increases of 25 percent, those will start to decline to 15
percent. And the omnichannel retailers will go from negative 4 to plus 3,
they`ll start to pick up 500 basis points per retailers over the next few
years.

HERERA: Also, the mix seems to be different in terms of merchandise this
year. In the past, the consumer wasn`t, or didn`t seem to be, anyway, all
that enthused with some of the — especially the clothing options. But you
say that`s changed, the athleisure area is still hot, and improving.

FLICKINGER: Athleisure is still hot. And Cornell University, where I`m on
the board of fashion and fiber innovation, tremendous innovation, talked to
Kevin Plank last week, and Under Armour (NYSE:UA) has tremendous
innovation.

And for sourcing, we`re seeing a lot of retailers come back that you
wouldn`t normally think of. JCPenney, Walmart, others in basic fashion,
they`re beating target. And in London, we`re seeing Harvey Nichols and St.
Regis (NYSE:RGS) (ph) really set innovation trends worldwide in terms of
fashion, low end to high end, getting quite good.

HERERA: It`s going to be an interesting holiday season. Thank you, Burt.

FLICKINGER: Thank you, Sue.

HERERA: Burt Flickinger with Strategic Resource Insight Group.

Still ahead, Houston renters in housing limbo.

(BEGIN VIDEO CLIP)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hurricane Harvey hit
home owners hard, but it also put some of the nation`s largest landlords to
the test. We`ll show you how they dealt with the hurricane disaster,
coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: A House panel is reportedly looking into some questionable Equifax
(NYSE:EFX) trades. According to CNBC, the House Financial Services
Committee is trying to gather more information on some options activity in
the stock nearly three weeks before the company disclosed a massive data
breach. The trading is considered unusual given the spike in volume. And
it appears as if the size of that trade could have generated millions in
profits.

Toshiba has decided to sell its memory chip business, the Japanese
conglomerate`s most valuable asset. The company is selling the unit to a
group led by private equity firm Bain. And that includes Apple
(NASDAQ:AAPL) and Dell (NASDAQ:DELL) Technologies. Price tag: about $18
billion.

Now, for Apple (NASDAQ:AAPL), the deal could ensure a competitive supply
chain and lessen its dependence on the chip division of Samsung, its
biggest rival in the smartphone business. Toshiba chose Bain-led
consortium over two rival groups, including Western Digital (NYSE:WDC) and
Taiwan`s Foxconn.

Boeing (NYSE:BA) is firing on all cylinders. It`s the best perfect Dow
stock this year, up more than 60 percent. The company is increasing
production at its commercial unit. But its next leg of growth may be
driven by its defense business.

Morgan Brennan explains from National Harbor, Maryland.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Leanne
Caret has been CEO of Boeing`s defense space and security business for 18
months.

LEANNE CARET, CEO, BOEING DEFENSE SPACE AND SECURITY: It`s a
transformative time, and it`s one where it`s exciting and it`s fast-paced.
And as we continue to identify opportunities that will make us better,
that`s what`s — that`s what`s most important.

BRENNAN: While most people have flown in a Boeing (NYSE:BA) plane, the
company actually makes a third of its money selling military equipment to
governments around the globe. And Carat has been restructuring that
business, streamlining operations, relocating headquarters to Washington,
D.C. and investing for growth, both organically but also on the heels of
the Northrop Grumman (NYSE:NOC) Orbital ATK deal through acquisitions.

CARET: We have a very focused strategy on our growth. That includes
looking organically on where we`re going to invest. But we also are
continuing to look at other ways to increase our top line through mergers
and acquisitions and we have a continued pipeline we`re assisting.

BRENNAN (on camera): So, you would be a buyer if the right opportunity
came along?

CARET: Yes.

BRENNAN: Are you talking to anyone?

CARET: We`ll stay away from that.

BRENNAN (voice-over): As Boeing`s commercial business soars, defense is
poised to reap the rewards of increased government spending, both
domestically and abroad. A business experiencing a dramatic reversal is
fighter jets. As Boeing`s legacy Super Hornet and Strike Eagle lines find
new life under President Trump.

CARET: We`re honored and thrilled that not only the Navy but others have
seen, you know, the benefits of the F/A-18 and continue to see a strong
demand for it. We have a continued international pull on our F-15s.

BRENNAN (on camera): Boeing (NYSE:BA) is also competing for several high
stakes contracts, including the $85 billion replacement system for the
ground based leg of the nuclear triad and the $16 billion TX trainer
program for which Boeing (NYSE:BA) built a brand-new plane.

(voice-over): But Caret says future opportunities lie in the great beyond,
for new multimillion dollar satellites and exploration which includes a
mission to send American astronauts to space starting next year.

Missile defense is also a priority, especially since Boeing (NYSE:BA) is a
prime contractor for the antimissile system that`s in place to protect the
continental U.S. from an ICBM attack.

(on camera): Heaven forbid North Korea were to test the system, would it
keep us safe?

CARET: Yes.

BRENNAN: How do you know?

CARET: Well, I had — you know, I have the honor and privilege of leading
an amazing team of men and women who — and I like to say it this way, 400
protecting 400 million. But I also had the opportunity to actually be
there for the test at the end of May, when, as you saw through public
disclosures, we hit a bullet with a bullet.

BRENNAN (voice-over): For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in
National Harbor, Maryland.

(ENDS VIDEOTAPE)

HERERA: Changing consumer tastes hurt results at General Mills (NYSE:GIS).
That`s where we begin tonight`s “Market Focus”.

The food giant reported a drop in sales for the ninth straight quarter as
consumers continued to shy away from purchasing cereals and yogurt.
Profits also suffered. But the company says it`s optimistic performance
will begin to improve later this year, thanks to marketing and product
ingredient changes. General Mills` shares were off almost 6 percent to
$52.17.

Microsoft (NASDAQ:MSFT) says it`s hiking its quarterly dividend by nearly 8
percent to 42 cents a share. The yield on that stock now sits above 2
percent. Shares of the software giant fell fractionally to $74.94.

Best Inc., a Chinese startup specializing in supply chain technology, went
public on the New York Stock Exchange today. The company priced 45 million
shares at $10 apiece. That was at the low end of the expected range. The
CEO said this is just the start and there`s plenty of opportunity to grow.

(BEGIN VIDEO CLIP)

JOHNNY CHOU, FOUNDER & CEO, BEST INC.: We just started. I mean, we`re
still in the marketplace that probably has a smaller market share. And
then market for only 20 to 30 percent every year annually. And by
providing benefits to our customers with technology services, what we can
do is continue to grab market share and also create more need and demand
for our customers.

(END VIDEO CLIP)

HERERA: Best Inc.`s shares jumped 5 percent, ending the day at $10.52.

Alnylam Pharmaceuticals (NASDAQ:ALNY) reported positive results from a
study of its drug intended to treat a rare nerve disorder. The company
said it will present full trial results later this year and also seek U.S.
marketing approval. Shares of Alnylam skyrocketed 51 percent to $113.84.
Meanwhile, Ionis Pharmaceuticals which makes a competing drug saw its
shares fall nearly 9 percent to $53.88.

And BlackBerry says it is partnering with car supplier Delphi Automotive on
an operating system for Delphi`s autonomous driving technology. The two
companies said the goal of the partnership was to create a system that
improves the safety and a software performance in self-driving vehicles.
Shares of BlackBerry finished higher by 7 percent to $9.85.

Sales of previously owned homes fell in August to the lowest level in a
year. Economists say, despite strong demand, the drop reflects a shortage
of properties on the market. And Hurricane Harvey also resulted in a 25
percent decline in Houston home purchases.

According to the National Association of Realtors, existing home sales fell
1.7 percent from the previous month. The median price of homes sold last
month reached more than $253,000. That`s up more than 5.5 percent from the
year before, more than double the growth in an Americans` income.

Hurricane Harvey displaced both homeowners and renters and put America`s
biggest and newest landlords to their first real test of how to deal with
disaster.

Diana Olick is in Houston tonight.

(BEGIN VIDEOTAPE)

OLICK (voice-over): They are testing for water and at the same time
testing the strength of a brand-new asset class of single family rental
homes.

(on camera): When you started this company, did you think about a disaster
like this hitting thousands of your homes?

CHARLES YOUNG, COO, STARWOOD WAYPOINT: Well, you have to prepare for
everything. And you can`t imagine what a storm like this, this is unique.

OLICK: And it`s your first test.

YOUNG: And it`s our first test.

OLICK (voice-over): Starwood Waypoint owns about 2,800 homes in the
Houston area. It is one of the new breed of rental companies that bought
tens of thousands of foreclosed homes during the housing crash and turned
them into lucrative rentals. In preparing and responding to the hurricane,
apparently bigger was better.

YOUNG: We were able to use the scale of our platform, professionally
managed across the country, and utilize our resources internally and
externally to put together vendors, put together a task force, we
communicated, we used our technology, and then we prepared.

OLICK (on camera): For renters displaced by Hurricane Harvey, Starwood
Waypoint says they will let people out of their leases and refund any
security deposits. The hope, though, is that once those renovations are
done, those renters will move back in.

(voice-over): American Homes 4 Rent, which was about 3,200 Houston homes,
is doing the same. Like Starwood, it had to assess damage, find and
relocate renters, and begin extensive repairs.

DAVID SINGELYN, CEO, AMERICAN HOMES 4 RENT: Our response time was
significantly faster than the individual landlords or the mom and pops,
because we have the communications centers. So, we were in communication
with these tenants before. Immediately the day after, they knew exactly
what our plans were.

OLICK: Shonda Marie Lewis (ph) is one of those tenants. She lives here
just nine months before the floods and was immediately moved to another
company property.

UNIDENTIFIED FEMALE: They were very organized, very professional. I
received one call after the next. I couldn`t hardly keep up with the
names. They called me, they checked on us, they e-mailed us, made sure we
was OK, if we need anything, even when I went through the process, even
after hours.

OLICK: Starwood`s Young says the aggregate cost of Harvey to the company
was about $10 million. Much of that, though, covered by insurance. As for
what they could do better next time, just do it all faster.

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

(END VIDEOTAPE)

HERERA: Coming up, America`s billionaires give back. But who is giving
the largest share of their wealth to charity.

(MUSIC)

HERERA: Albertsons is buying the meal kit service Plated, a rival to Blue
Apron that offers meal kits through the mail. With Albertsons` purchase,
Plated will now be available in Albertsons grocery stores nationwide. The
price paid not disclosed. But the deal helped shares of Blue Apron in late
day trading. Albertsons and Plated are privately held.

There are reports tonight that Amazon (NASDAQ:AMZN) is ramping up
conversations with a group of drug middlemen known as pharmacy benefit
managers or PBMs. PBMs are a critical part of the drug supply chain.
According to “Axios”, those talks could indicate that Amazon (NASDAQ:AMZN)
is making an effort to get it into various contract arrangements,
potentially disrupting the industry. That sent shares of CVS (NYSE:CVS)
and Walgreens Boots Alliance lower on the day.

America the charitable. There are a number of billionaires in this
country. But of these, who was the most philanthropic?

Robert Frank has the list of names.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Among the top ten
billionaires in America, Warren Buffett is the most charitable. “The
Chronicle of Philanthropy” did an analysis showing giving as a ratio of
total wealth for the 10 richest people in America since 2000.

Warren Buffett topping the list, giving away more than $46 billion since
2000. That works out to more than 70 percent of his $66 billion fortune.

Now, Bill Gates is still the richest man in the world with a fortune of
more than $80 billion. But he ranks second for giving, with 22 percent of
his wealth going to charity since 2000. He and Melinda Gates, of course,
have given way more than twice that since they created their foundation in
1994.

Michael Bloomberg ranking third with 10 percent of his fortune. But that
does not include all of his giving before the year 2000.

Now, the Google (NASDAQ:GOOG) guys, Larry Page and Sergey Brin, have given
away more than 4 percent of their total wealth.

And David Koch has given 3 percent or more than $1.2 billion.

Now, Jeff Bezos, currently the second richest American and on his way to
becoming the richest, is last among the top ten when it comes to
philanthropy. He`s given away around $68 million since 2000, less than 0.1
percent of his fortune. This summer, Bezos took to Twitter to ask the
public for advice on his strategy for giving.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for joining us. Have a great evening. And we`ll see you right back
here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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