Transcript: Nightly Business Report – October 19, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Record finish. The Dow
closes at an all-time high. But today`s market action was nothing like
what happened 30 years ago today.

New rules? The Internet has been called the unregulated Wild West. And
today, a handful of senators made the first major move to rein in companies
like Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), and Twitter.

Behind the wheel. Are you driving one of the most or least reliable
automobile brands?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
October 19th.

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

Well, the Dow did it again today, closing at yet another record high. But
it wasn`t easy. It had to erase an early 100-point slide to extend its
record setting run. Just yesterday, the index finished above 23,000 for
the first time ever. Apple (NASDAQ:AAPL) was the day`s early sandbag on
reports of weak demand for its new iPhone 8. Goldman Sachs (NYSE:GS) and
Boeing (NYSE:BA) didn`t help much either.

But a late day rally fueled in part by Verizon (NYSE:VZ) — we`ll have more
on that in a moment — helped the blue chip index eke out a gain. The Dow
rose five points to an all-time high 23163, the Nasdaq dropped 19, and the
S&P 500 rose a fraction.

Today`s market move was nothing like the one that occurred 30 years ago.
October 19th, 1987, Black Monday, one of the worst — the worst one-day
stock plunge in history. That day ended with the Dow down 508 points,
about 23 percent, to a closing price of 1738. The selling was monumental,
the decline nerve-wracking.

And NIGHTLY BUSINESS REPORT Paul Kangas was there to give viewers a rundown
of the market damage that was done that day.

(BEGIN VIDEOTAPE)

PAUL KANGAS, NIGHTLY BUSINESS REPORT: Prices on the New York Exchange
continued to plunge early today in an extension of last Friday`s record
one-day loss of 108 and the third points on the Dow Industrial Average,
down to the 2246 level.

The opening selloff was massive as the Dow plummeted 201 points by 11:00
a.m. with 1,600 stocks down in a mere 70, mostly precious metal 70 moving
higher, while the tape was running over an hour late.

What was the cause of this wholesale liquidation?

Our frequent market monitor Jim Stack, editor of the InvesTech Letter, who
was worried about the bull market on his last visit with us on June 5th,
told me one of the major factors if not the major factor was forced mutual
fund redemptions. After that, the downside pressure exerted by snowballing
portfolio insurance, and futures related selling, and the industrial
average tumbled to 271 1/2 point by 2:00 p.m. with only 50s up, 1850 down.

With not even a hint of any meaningful technical rebound, stocks continued
to plunge on record volume throughout the afternoon, with the Dow off 296
points at the 1950 level at 3:00 p.m. The final hour saw the bottom drop
out as more margin call and mutual fund liquidations, combined with all
those wonderfully innovative computer-driven strategies, well, they pummel
the Dow Industrial Average down to a record loss of 508.32, putting it at
1738.74, which is also by far a record percentage loss of 22.5 percent.

(END VIDEOTAPE)

MATHISEN: And that was Paul Kangas.

A similar 23 percent drop today would sink the Dow by 5,000 points. That`s
as much as it`s gained in the last 18 months, which has been one of the
great market rallies of all time.

But why did stocks drop so hard on this day 30 years ago?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

TOM BROKAW, NBC NEWS ANCHOR: It is a day that will be in bold print in
history books.

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, is the fallout 30
years ago, could it happen again?

President Reagan appointed a commission, the Brady (NYSE:BRC) Commission,
to investigate the causes of crash. Well, there were several fundamental
causes, including a stock market run of going into it, currency issues and
the use of portfolio insurance, the commission focused on the inability of
trading systems to handle the order flow, so many sell orders came through,
the system couldn`t handle it. Orders were delayed, traders didn`t answer
the phone. Lack of information created more selling.

Two things came out of the crash. First, system-wide circuit breakers were
instituted in 1989 and later expanded to single stock circuit breakers.
And more importantly, the crisis accelerated the move toward electronic
trading, which led to a very deep review of the markets. The exchanges
expanded their capacity to handle more volume and electronic trading,
nearly cut down the time to trade.

Could it happen again? Well, sure, the markets could have a big drop. But
it`s unlikely to happen for the same reason, like an inability of the
market to handle the order volume.

The bottom line: no one has repealed the laws of gravity. When a lot of
people are looking to sell really fast, the market will drop.

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

(END VIDEOTAPE)

MATHISEN: Let`s turn to our friend Michael Farr for more on Black Monday.
The similarities to today`s stock market and the lessons we have learned
from that day.

Michael, great to see you as always.

Where were you on that day? What do you remember about it?

MICHAEL FARR, PRESIDENT, FARR, MILLER AND WASHINGTON: Thank you, Tyler. I
was sitting at my desk. My hair was a lot darker then. I was sitting at
my desk at Week First (ph) Securities. I was a new stockbroker. And it
was overwhelming.

And what I remember was the calls coming in and the clients and the
customers asking what was going on. And we didn`t have any answer.

The other thing that happened, those were the days when you wrote
handwritten tickets and you would send them down by wire to the floor of
the stock exchange. We weren`t getting confirmations back. So, we didn`t
have information to give the clients. It was a tough day.

And that was a great clip of Paul Kangas. He was a good friend. So, that
was really special.

MATHISEN: Yes, he sure was. You know, he cited in that piece the
contribution of computerized trading as one of the reasons that the market
got a little sideways on that day, to put it mildly. But since then all we
have is more computerized trading.

Is that a good thing or does it potentiate another day like October 19th,
1987?

FARR: That`s a great question. I`m not sure we know the answer. We saw,
Tyler, a couple of years ago the flash crash, we were down over a thousand
points in a few minutes.

And, you know, there were all of these excuses, was it somebody`s fat
finger on a computer keyboard or not? We don`t know.

But with the high frequency trading, I know if you talk to our friends on
the floor and Kenny Polcari and others, they`ll tell you that continues to
be a concern. But circuit breakers are in place to keep control and
orderly trading.

MATHISEN: You know, a lot of people have been asking the question today,
could it happen again? And when I`m asked that question, Michael, I say,
yes, it probably could happen again, but it won`t happen the same way, it
won`t happen for the same reasons.

FARR: And I think that`s exactly the right point. You — we`re going to
get — you know, if you`re going to get bit in the neck for one of these
crash days, and the programs really pile on, it`s going to be something
unforeseen.

We`ve corrected a lot of the problems of the past. We`ve put in
safeguards. It`s going to be what we haven`t seen yet. So, yes, it could
happen.

What we have to also remember, though, Tyler, is that markets are making
all time highs. When they`re making all time highs, I think you have to
remember, it`s a buy low, sell high rule, and you have to be cautious.

MATHISEN: And the market at that time at one point during 1987, if my
history is correct, had been up something like 40 percent over the
preceding year, and then the slide began in late August and crescendoed on
that day.

So, we could see even with those circuit breakers, a cascading slide in the
market, couldn`t we?

FARR: Certainly we could. It would be one of those things perhaps we
haven`t seen before. There are a lot of differences, though. One of the
differences I think is that the bond market really started to crack in
August.

And it was — when the bond market really started to climb, stocks
continued to hold up. People were scratching their heads. The bond market
has always been seen as smarter than the stock market. And it was a
capitulation of the stock market.

But bond market`s been holding great. Interest rates are still very low.

MATHISEN: Right.

FARR: There`s a lot of money. So, you know, the Fed is tightening. We
just have to watch them closely.

MATHISEN: All right. Soon again, Michael. Good to see you.

FARR: Thanks, Tyler.

MATHISEN: Michael Farr with Farr, Miller, and Washington.

We have more now, as promised, on Verizon (NYSE:VZ). It unexpectedly
brought back unlimited wireless plans earlier this year. And the move may
finally be paying off. The company turned in a strong quarter, reporting
better than expected revenue and earnings that were in line with estimates.
And that sent shares of the Dow component higher in trading today, as we
noted earlier.

Julia Boorstin has more on Verizon`s strategy.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Verizon (NYSE:VZ)
is doing something not all of its competitors can. It`s gaining
subscribers, nearly 600,000 of them in the quarter. And almost half of
them are mobile phone subscribers. This after bringing back its unlimited
wireless plans for the first time since 2011.

JENNIFER FRITZSCHE, WELLS FARGO SECURITIES: Rumors of Verizon`s death are
exaggerated. Very good quarter. Don`t count these guys out, despite T-
Mobile`s ads and what Sprint might be telling you. Very solid numbers
across the board, especially on wireless, which is really their bread and
butter.

BOORSTIN: But Verizon`s FiOS TV lost 18,000 subscribers. That`s more than
the last two quarters. The company blaming an industry-wide shift from
traditional linear video to over the top video offerings. It`s an
increasingly crowded space with options from YouTube TV to Hulu`s streaming
bundle to rival AT&T`s DirecTV Now.

With rival AT&T (NYSE:T) focusing on content to differentiate its mobile
and TV services, its acquisition of Time Warner (NYSE:TWX) pending, there`s
growing focus on what Verizon (NYSE:VZ) might do next in the content space.
After CEO Lowell McAdam said that the company would announce a content
partnership by the end of last month.

MATTHEW ELLIS, CFO, VERIZON COMMUNICATIONS: This is a space where we think
there`s an opportunity for to us play. We think it makes sense for us to
play in that space. But we don`t want to launch a me-too type product.

So, we`re continuing to look at what makes sense for us to launch something
that`s differentiated in that space, probably around live programming.

BOORSTIN: Verizon (NYSE:VZ) has been focused on its Oath unit, a
combination of Yahoo (NASDAQ:YHOO) and AOL (NYSE:AOL), which the company
just announced would realize more than $1 billion in operating expense
synergies through 2020. We`ll see if there other any acquisitions in the
works.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

MATHISEN: Well, for fellow Dow component Travelers, the quarter could have
been a lot worse. The surprisingly brutal hurricane season made for an
unusual period for the company to put it mildly.

But as Morgan Brennan reports, it wasn`t all bad.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a quarter
dominated by catastrophes, Travelers still has some good news to share, a
big earnings beat. The insurance giant reported adjusted earnings that
were more than double what Wall Street analysts were expecting. Even as a
historic hurricane season racked up $700 million in pretax catastrophe
losses.

Those company losses due largely to Hurricanes Harvey, Irma, and Maria,
were seven times higher than a year ago. And Travelers is bracing for more
in this quarter, thanks to deadly wildfires in California.

But on a call with analysts, Travelers` CEO Alan Schnitzer said it will now
seek renewal price increases for some policies the company offers.

ALAN SCHNITZER, CEO, THE TRAVELERS COMPANIES: Big events impact pricing
when a material amount of industry surplus is eroded and/or when the events
change, the market`s view of risk. It`s not hard to make the argument that
we`ve experienced both.

BRENNAN: That commentary helped lift shares of the Dow component today,
stoking hopes that stronger pricing could fuel stronger future results for
the industry overall.

Still, some analysts remain skeptical.

RANDY BINNER, FBR CAPITAL MARKETS & COMPANY: When there`s storms like we
had in the third quarter, there`s expectation from some investors that
they`re going to be see better or firmer pricing. Travelers was initially
optimistic that they`ll see that in some of their select markets. We`ll
see what happens. I think that these storms were significant losses but
probably not enough to turn industry pricing. And that`s one of the
reasons why broadly we`re neutral on the property casualty insurers.

BRENNAN: Travelers also said the quarter marked its largest appointment of
drones yet as the entire industry ramps up adoption of the new technology.
More than a thousand inspections were done with drones. And Travelers
expects to have 650 them in use by next year.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Morgan just reported, of course, that Travelers is now bracing
for more losses this quarter because of those deadly California wildfires.
And late today, the state`s insurance commissioner said its preliminary
estimate for losses now exceeds a billion dollars. And that number is
expected to rise.

Still ahead, why some senators want new regulations for some of the
country`s biggest Internet companies.

(MUSIC)

MATHISEN: The number of Americans collecting unemployment benefits fell
last week to a 44-year low. That would be when Richard Nixon was
president. Jobless claims dropped 22,000 to 222,000, suggesting employers
are confident enough in the economy to hold on to workers. The overall
unemployment rate right now: 4.2 percent. And that is a 16-year low.

President Trump today met with Fed Chair Janet Yellen as he considers who
will take over her role at the Central Bank. Yellen was the fifth person
to get a former sit-down with the president to talk about the position.
Yellen`s current term expires in February. Others up for the job are White
House chief economic adviser Gary Cohn, former Fed Governor Kevin Warsh,
Fed Governor Jerome Powell, and Stanford University economist John Taylor.

Also in Washington, online media companies are facing the threat of new
regulation over political ads. It is the first major attempt to regulate
companies like Facebook (NASDAQ:FB), Twitter, Google (NASDAQ:GOOG), to make
them comply with the same laws that govern political ads on TV, radio, and
in print.

Kayla Tausche has the details.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
U.S. intelligence community found evidence Russia-backed agents used social
media platforms, Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), Twitter, in an
attempt to influence the 2016 presidential race.

Virginia Senator Mark Warner says the $100,000 worth of Facebook
(NASDAQ:FB) ads traced to Russia is just the beginning.

SEN. MARK WARNER (D-VA), INTELLIGENCE COMMITTEE: I still believe that
still maybe just a tip of the iceberg. These are the ads that were paid
for in rubles. And we`ve not been able to sort through whether, you know,
some of these same accounts may have been smart enough to actually use
dollars, euros or pounds to pay for ads. So, there may be, there may be
more.

TAUSCHE: With some 220 million users in the U.S., Facebook (NASDAQ:FB)
reaches nearly 10 times the subscribers of the largest cable company at 22
million. The proposed law would apply to sites with 50 million or more
users, requiring them to keep a public file of all political ads purchased
by campaigns spending more than $500. Lawmakers want the same disclosure
for online firms as exist for traditional media.

SEN. AMY KLOBUCHAR (D-MN), RULES COMMITTEE: It`s really putting us on par
with where broadcast and radio are today.

TAUSCHE: The industry says it will continue to work toward a legislative
solution. Social media executives have met with lawmakers in recent weeks
as Congress investigates Russian election interference. Facebook
(NASDAQ:FB) is hiring thousands to combat the issue. But new rules could
eat into these companies` profits.

ANDREW SELEPAK, UNIVERSITY OF FLORIDA: They`ve made their money based on
the fact they`ve been in this unregulated Wild West.

TAUSCHE (on camera): The legislation has the support of Republican Senator
John McCain who chairs the Senate`s Armed Services Committee. He views
Russia`s interference as a national security issue. Still, some GOP
lawmaker chafe at any regulation that they say could impinge on free
speech.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Washington.

(END VIDEOTAPE0)

MATHISEN: Gilead wins approval for its cancer treatment, and that is where
we begin tonight`s “Market Focus”.

The FDA approved Gilead Science`s potentially revolutionary therapy for a
type of lymphoma. The treatment uses a patient`s own immune cells to
attack the disease and has only been approved once before to fight cancer.
The list price: just under $400,000 for a one-time dose. Gilead`s shares
rose nearly 2 percent to $81.59.

Philip Morris posted disappointing earnings and revenue. And the tobacco
giant reported a tenth straight quarter of cigarette volume declines. The
trend is expected to continue. The company slashed its earnings forecast
for the full year. Philip Morris expanding its focus to potentially safer
alternatives to tobacco cigarettes. Shares tumbled nearly 4 percent to
$108.15.

And the database platform MongoDB debuted on the NASDAQ today, pricing 8
million shares of $34 a piece. That gives the company a valuation of more
than a billion. But the company says it is still well-positioned for more
growth.

(BEGIN VIDEO CLIP)

DEV ITTYCHERIA, MONGODB CEO: We`re obviously very pleased by how investors
reacted to the story. But it`s not even about today. It`s about the
future. We`re really going after one of the largest markets in enterprise
software. The second thing is we have a very disruptive technology, as I
mentioned. And third, the momentum of the business is really strong.

We`ve got customers across every industry using us for almost every
conceivable use case. So, this is just a start. The best is yet to come.

(END VIDEO CLIP)

MATHISEN: MongoDB took off, rising 33 percent to $32.07.

And after the bell, PayPal reported profit and sales that rose more than
expected as more users made payments on the company`s Venmo platform.
PayPal also raised its full year guidance. Shares initially higher in
extended hours. They ended the regular session a penny lower, at $67.27.

And shares of Celgene (NASDAQ:CELG) were pressured in the extended session
after the pharmaceutical firm said it won`t continue a study trial for its
Crohn`s disease treatment. The company said it made the decision after an
independent data monitoring committee determined that the treatment benefit
did not sufficiently outweigh the risk. Shares initially fell after the
announcement and also ended the regular day down nearly 1 percent at
$135.96.

General Motors (NYSE:GM) has agreed to pay $120 million to resolve claims
from 49 states and the District of Columbia over faulty ignition switches.
The defect has been linked to 124 deaths and 275 injuries, and prompted a
massive recall, as you may remember, in early 2014. The largest U.S.-based
automakers paid $2.5 billion in penalties and settlements over defective
switches that could cause engines to stall and prevent airbags from
deploying.

Well, here`s something that may not come as a surprise for those of you who
have bought a new car or truck recently. The latest technology being
rolled into these models is prone to glitches and bugs. That`s the
conclusion of a new survey by Consumer Reports detailing the most and least
reliable auto brands.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): New cars
and trucks with the latest bells and whistles may look good in the
showroom, but out on the road, they`re hitting the wrong note with many
owners.

Consumer Reports surveyed more than 600,000 people. It found many are
frustrated by glitches in their vehicle infotainment systems as well as the
new transmissions being built into the latest models.

JAKE FISHER, CONSUMER REPORTS: What really stands out is what`s going
wrong with today`s vehicles. It`s really the new technology, that`s been
added to the new vehicles that`s really been the problem.

LEBEAU: This year, Consumer Reports calls Toyota (NYSE:TM) the most
reliable brand, just ahead of Lexus and Kia, which cracks the top three for
the first time.

By comparison, Ram, GMC, and Cadillac are ranked as the worst in
reliability.

Also near the bottom of Consumer Report`s list, Tesla, which has just
rolled out a new lower priced electric car, the Model 3. Consumer Reports
has yet to drive the Model 3, but predicts it will have average
reliability.

FISHER: Let`s be very clear. We`re not giving it super high marks. We`re
basically it`s par for the course, not below the average, not going to be
above average. But it`s going to be average.

LEBEAU: Tesla blasted that prediction as absurd, saying Consumer Reports`
automotive reporting is consistently inaccurate and misleading to
consumers.

(on camera): Tesla says Consumer Reports has not driven the Model 3, so it
shouldn`t be predicting its reliability.

For its part, Consumer Reports says it knows enough about Tesla to predict
how the Model 3 will hold up over time. As Model 3 deliveries increase,
Tesla buyers will eventually determine if Consumer Reports` prediction is
accurate.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Automakers are making strides in passenger safety. New crash
tests from the Insurance Institute for Highway Safety show that 10 of the
13 mid-size cars tested were graded as doing a good job in protecting
passengers, good is the highest mark an automaker can receive.

Those not receiving a grade of good, well, the Volkswagen Jetta, it was
rated acceptable. The Passat from Volkswagen and the Chevy Malibu were
rated as providing marginal protection. That`s the second lowest grade
awarded by the Institute.

Coming up, imagine having not only your money stolen, but your dream home
as well.

(MUSIC)

MATHISEN: Next year, you can contribute $500 more to your 401(k). The
government reassesses the limit annually and is raising the level to
$18,500 to keep up with the rising cost of living. A limit on how much you
can contribute to your IRA or Roth IRA will remain unchanged at $5,500 next
year.

And if you`re in the process of buying a home, listen to this — there is a
scam that is getting more and more common and can cost you hundreds of
thousands of dollars, maybe even millions. And it cannot only steal your
money but your dream home as well.

Diana Olick reports.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Brett
Fallavollita thought everything was going according to plan. He was about
to close on his half million dollar southern California dream home.

BRETT FALLAVOLLITA, HOMEBUYER: This is a great house, a nice layout. Had
all the upgrades I was looking for. I was like, this is the house.

OLICK: But it almost wasn`t. Two days before the closing, there was a
change. Or at least he thought there was.

FALLAVOLLITA: It was a Monday prior to the Wednesday that the funds were
going to be sent that I got an e-mail from my real estate agent, or so I
thought at the time, that new updated wiring instructions would be coming,
forthcoming. I didn`t think anything about it.

OLICK: The e-mail was a scam and it nearly cost him his $100,000 deposit.
Thankfully, he called his escrow officer just to say that the change might
cause a delay. And the officer said, what change? That`s how they caught
the hack just in time.

FALLAVOLLITA: I did not know that the e-mail was a scam. I was more
frustrated with having to send the money to a new bank, and that my credit
union likely wouldn`t have been able to make our deadline. So, I didn`t
lose it. It was a very frightening experience to think it came very close
to losing it.

OLICK (on camera): Now that so much of the mortgage and closing process is
online, hackers are tapping in in force, they call it phishing, posing as a
title or real estate agent to divert down payments. One buyer here in D.C.
lost over $1 million in a similar scam.

ASAF CIDON, BARRACUDA NETWORKS CONTENT SECURITY SVS. VP: Real estate is a
market where there`s large amounts of funds moving hands. So, you know,
it`s one of the best places, if you want to get ahold of a, you know,
$100,000, $200,000 wire transfer. The second reason is that unfortunately,
the targets of these scams are typically consumers. And consumers today
have a very low awareness of these types of attacks.

OLICK (voice-over): The FBI, FTC, and National Association of Realtors
have issued warnings, saying verify everything with your agents, either on
the phone or in person. Be suspicious of any changes. Secure your e-
mails. And use a secure payment method.

And if anything, anything seems even slightly off, check it out.

FALLAVOLLITA: My real estate agent ended this e-mail with a smiley face.
And we had a couple of e-mail exchanges prior to this point and I had never
seen that smiley face.

OLICK: It could mean the difference between a smile and a disaster.

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

(END VIDEOTAPE)

MATHISEN: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen. Thanks for watching. We`ll see you tomorrow.

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
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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