Transcript: Nightly Business Report – October 31, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Rally on? Stocks close
out October higher. Now, the traditionally diciest months of the year are
behind investors. So what`s next for stocks and bonds?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Widening probe. The
investigation into generic drug price fixing just expanded. And now a high
ranking executive is in the sights of most of the nation`s attorneys
general. What it all means for you.

MATHISEN: And play ball. Will the billions poured into the L.A. Dodgers
produce a World Series champion this year?

All that and more on NIGHTLY BUSINESS REPORT this Halloween evening 2017.

HERERA: Good evening, everyone, and welcome.

October proved not to be as scary as some thought, at least for stocks.
More on that in a moment.

But, first, typically, April 15th is Tax Day, but in Washington, tomorrow
is expected to be that day, as Republicans are expected to unveil their
long-awaited tax plan.

The guessing game is almost over. Which deductions are in? Which are out?
Well, we won`t know for sure until the bill is released. But we do know
the last-minute push is on.

And as Ylan Mui tells us, there are still details to be hammered out, and
some of them are big.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Republicans expected to
roll out their tax plan tomorrow. And they`re calling it a once in a
generation opportunity to rewrite the nation`s tax code. And that will
likely include reducing the number of individual tax rates from seven down
to just three with likely a fourth added for wealthy households. The
corporate tax rate would also fall from 35 percent to 20 percent, and
businesses would no longer have to pay taxes on their foreign earnings.

Now, earlier today, during a meeting at the White House with business
leaders, President Trump said reforming the nation`s tax code is critical
to creating American jobs.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It`s a tax bill for middle
class. It`s a tax bill for jobs. It`s going to bring a lot of companies
in. And it`s a tax bill for business, which is going to create the jobs.

MUI: Few if any Democrats are expected to support this plan. They`ve
criticized the bill for potentially helping the rich by getting rid of the
estate tax and also getting rid of the alternative minimum tax while
limiting the amount that Americans can contribute to their 401(k)s before
taxes.

SEN. CHUCK SCHUMER (D), NEW YORK: Well, what Donald Trump says about the
tax plan and what`s in the tax plan are lights years apart. What Donald
Trump campaigned on, helping the middle class, and what he`s supporting are
light-years apart, because this is a tax plan that goes primarily to the
wealthiest of Americans.

MUI: But Republicans are still trying to find consensus amongst their own
party. House Speaker Paul Ryan talked to President Trump about the
legislative timeline earlier today, then he came back to Capitol Hill to
sell the plan to conservative leaders.

TIM PHILLIPS, AMERICANS FOR PROSPERITY: We believe their majorities in
Congress are jeopardized if they don`t get tax reform through. The health
care, it was an epic fail. There`s no way around that. And this gives
them a chance at redemption on tax reform.

MUI: Leadership in both the House and the Senate say they want to pass
bills by Thanksgiving, and by Christmas, President Trump says he wants to
see everyone around his desk as he signs the bill into law.

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

(END VIDEOTAPE)

MATHISEN: As part of an expanding investigation into possible price fixing
in the generic drug industry, 46 state attorneys general are looking to add
Mylan`s president, Rajiv Malik, to the lawsuit. The attorneys general
alleged price fixing by 18 companies, up originally from 28 A.G.s suing six
companies. Malik would be the first major drug executive sued in the case.
But Connecticut`s A.G. says there`s more to come.

(BEGIN VIDEO CLIP)

GEORGE JEPSEN, CONNECTICUT ATTORNEY GENERAL: We`ve been uncovering new
information almost every day. I can`t stress enough, this is just the tip
of the iceberg. The — it`s an industry where collusion takes place on a
consistent and pervasive basis.

(END VIDEO CLIP)

MATHISEN: Mylan (NASDAQ:MYL) says it`s found no evidence of price fixing
by any of its employees and stands behind Malik. Still, shares were hit
hard today, down nearly 7 percent.

HERERA: Joining us now to talk more about this expanded investigation is
Ronny Gal, senior analyst at Bernstein.

Ronny, welcome. Nice to have you here.

RONNY GAL, BERNSTEIN SENIOR ANALYST: Pleasure.

HERERA: What is your take on this and its effect on the overall industry?

GAL: Well, it`s clearly not a good thing. I mean, this is a fairly small
industry, where a lot of people transfer between companies. Most people
know each other. And the relationships there are generally good between
companies.

Although they`re being fierce competitors, if you kind of look at the
overall generic industry, prices of generic drugs go down every year.

So, the arguments that are being made here are that in some cases, around
15 drugs or so, essentially a collusion form orchestrating around a
particular executive from a company called Heritage who orchestrated where
companies talk perhaps more than they should and coordinated pricing and
market shares more than they should around 15 different drugs.

MATHISEN: If you say –if, as you say, generic prices typically come down,
that would run against the sort of theory behind most antitrust, which is
that the scheme is to keep the prices higher than they should be. So I
guess this would — this would suggest that on specific drugs, the prices
did not come down as much as they should have.

GAL: That`s correct. That`s correct. And to some extent, the Connecticut
A.G. commented that one of the things that clued them up that something is
going wrong is prices began to go up among these 15 drugs and they begin to
investigate and they found this pattern of behavior and they were able to
find the wrongdoing that they were alleging.

HERERA: Is it common? You said that people move from one company to
another within this particular part of the drug industry, and therefore
information is easily shared, is that germane to the generic drug industry
or do we find that in other parts of the drug industry as well?

GAL: I think it happens in every industry essentially, almost, you know,
who`s the best candidate to be representative to particular sort of
clients, well, the guy who defeated you will work for another client. What
happens is it`s a relatively small industry, so there may be 20, 25
dominant companies in the generic industry. And therefore, among the
larger companies, they tend to, you know, know most of the acting players
between the buyers and the sellers and so forth.

MATHISEN: We saw what happened to Mylan (NASDAQ:MYL) today. What is the
risk to the specific stocks in the industry to the extent that you can
generalize and which would seem to be most exposed?

GAL: So, it`s kind of interesting, Mylan (NASDAQ:MYL) has not been a major
target of these lawsuits, as I read it. One of their executives got named,
but if you look at the allegations across the various companies, it`s not
one of the largest ones. Actually, Teva has seven drugs involved and
basically another — and half a dozen have half a dozen drugs each.

What`s interesting about this set of companies is that the companies we`re
talking about are generally not as big. What`s interesting is the risk of
potentially having criminal investigations. So far, the lawsuits are all
civil. But there`s — in the document that were released, there was
discussion of a DOJ investigation. And there, you can get into much hotter
water.

HERERA: Right.

GAL: Most of the stocks here did not respond much, because it is not being
viewed as severe. But obviously, there will be an allegation of criminal
wrongdoing.

HERERA: Much more to watch for. Ronny, thank you. Ronny Gal with
Bernstein.

MATHISEN: Historically a tricky month, October proved not to be so this go
round, at least on the surface. And as you see, the Dow was the big winner
for the month, up more than 4 percent. And for the Dow and the S&P, it was
their seventh straight monthly gain. You don`t see that all that often.

The key for these numbers, more than half of the S&P 500`s gain this month
came from five stocks. Want to guess them? Amazon (NASDAQ:AMZN), Apple
(NASDAQ:AAPL), Alphabet, Facebook (NASDAQ:FB), and Microsoft (NASDAQ:MSFT),
and that might be a little worrisome to some investors.

As for today, stocks held up despite a late day incident in New York where
a truck plowed into a crowded bike path, killing at least eight people. It
is being described as a terror attack. The Dow rose 28 points to 23377,
Nasdaq also added 28, and the S&P 500 tacked on two.

HERERA: Investors have closed the books on what`s historically the
trickiest stretch of months for the stock market. But this year, the past
six months have been pretty kind to shareholders. So, what do the history
books say about the months that lie ahead?

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market has
made it through the toughest part of the calendar in fine shape. And if
history is a worthy guide, this bodes pretty well for stocks until the end
of the year. The six months from May through October represents the weaker
half of the year, on average. This is the basis for the popular but not
entirely reliable Wall Street saying, sell in May and go away.

Since the start of May this year, the bench mark S&P 500 index is up more
than 7 percent. From August through October, typically, a treacherous
period for stocks, the index advanced more than 4 percent, with very little
of the volatility that traders had braced for.

This upbeat performance has much to do with the broad pickup in the global
and brisk corporate profit growth. But coming in a particularly
challenging time of year, the gains are leading some analysts to wonder if
the market has pulled forward some of the potential upside for the often
strong final months of the year.

However, past results say not necessarily the case.

In the years since 1950 when the May through October period saw stocks
climb at least 5 percent, the market continued higher over the next two and
six months more than three quarters of the time. And the gains over each
period were above the long term average.

Needless to say, this pattern guarantees nothing about the future. The
last time we saw a similarly strong rally in stocks from May to October in
2014, the subsequent gains were unimpressive and the market was actually
lower 16 months later. Note too that the current market is now in a record
long streak of nearly a year without even a 3 percent dip in the broad
indexes, an extraordinarily calm rally that can`t last forever.

Still on balance, markets that are strong enough to defy hostile seasonal
training have good odds for remaining strong at least for several months
longer.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock
Exchange.

(END VIDEOTAPE)

MATHISEN: Lawyers from Facebook (NASDAQ:FB), Twitter and Google
(NASDAQ:GOOG) testified on Capitol Hill in the first of three hearings this
week, about how social media was used to help Russia try to influence the
presidential election.

Kayla Tausche has our report.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In nearly 2 1/2
hours of questioning in front of the Senate Judiciary`s Subcommittee on
Crime and Terrorism, top attorneys from Google (NASDAQ:GOOG), Facebook
(NASDAQ:FB), and Twitter told lawmakers that their platforms had
limitations, that they had an imperfect ability to track ads, spending, and
the customers at the end of those purchases.

Here`s Twitter`s acting general counsel Sean Edgett.

SEAN EDGETT, TWITTER: We`ll have to figure out a good process to
understand who those customers actually are that are signing the contract
with Twitter to run ads.

TAUSCHE: Edgett said the company believes that some 5 percent of the
accounts on the platform are fake, but that because they allow users to
sign up anonymously, they can`t be sure. In prepared testimony, Twitter
said that there were some 37,000 accounts that they found to be linked to
Russia.

Facebook (NASDAQ:FB) said that Russian sponsored content ended up in the
news feeds of roughly 126 million people or more than half the U.S.`s
voting population.

And Google (NASDAQ:GOOG) said that videos uploaded by accounts linked to
Russia were viewed more than 309,000 times.

Those were metrics that lawmakers honed in on, asking how these could go
untraced. It comes amid two days of questioning on Capitol Hill for these
Silicon Valley executives whose companies have become the poster children
for foreign influence in the 2016 election. On Wednesday, the companies
will appear before the House and Senate Intelligence Committees where they
will face further about exactly what took place during the campaign in 2016
and beyond, and what they are doing now to fix it.

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

(END VIDEOTAPE)

HERERA: The Federal Reserve began its two-day policy meeting. And while
not much is expected tomorrow as far as interest rates go, the focus will
be on the December meeting.

So what is Wall Street expecting?

Steve Liesman asked the experts.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Expecting a
statement tomorrow from the Federal Reserve, the CNBC Fed survey shows 98
percent of our respondents expected to keep rates unchanged. Ninety-six
percent say there will be a third rate hike coming in December, a bit
higher than the mark prices. And three rate hikes are expected in 2018.

Let`s see what that does for the outlook for rates in the long run.
There`s the one hike for 2017, the one addition hike, we get to 1.4.
There`s three more hikes there built in for 2018.

And then just two more, leading to a very low long run rate of 2.9 percent.
That`s the bottom of the cycle for many other times we`ve had the Fed
hiking and raising rates.

Let`s look at the outlook for stocks. Just very much think the gains for
the year already priced to just 1.7 percent geared to an S&P level of 2617,
going up next year to 2700, 2708 for a three and a half percent gain from
2017 to 2018.

We asked about this corporate tax cut that the president proposed. Is 20
percent the right number? Well, 58 percent of our respondents say yes, it
is, 12 percent want it lower.

But there is one big disagreement they have with how this is being
proposed. We asked, should tax cuts or tax reform be did he have s
neutral? Fifty-six percent say yes, it ought to be deficit neutral.
Forty-four percent say, no, you can do it while raising the deficit.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Coming up, tackling the housing problem through training.

(BEGIN VIDEO CLIP)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The labor shortage in
the housing market is only getting worse. So, one Denver area homebuilder
is attacking the problem head on. We`ll tell you about it, coming up on
NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

MATHISEN: Home prices rose sharply in August. The widely watched S&P Core
Logic Case-Shiller price index, how many words do you need, man? It rose
more than 6 percent. That`s more than 1 percent per word, from a year ago.

And while rising home prices are generally viewed as a positive, the rate
of increase is starting to keep out some potential buyers, and possibly
hurting sales.

HERERA: And another reason those prices keep climbing higher, the country
needs more homes. But a severe shortage of labor is standing in the way.
But now, one homebuilder in Colorado is putting its own money into
education, actively recruiting and training a new generation of
construction workers. But it hasn`t been easy.

Diana Olick goes back to school in Denver.

(BEGIN VIDEOTAPE)

OLICK (voice-over): Inside an unassuming warehouse on the outskirts of
Denver, 18 students are learning how to saw, drill, plaster, and paint.
They`re learning how to build a house. 18 might not sound like a lot. But
today`s homebuilders are desperate for every last one of them.

PATRICK HAMILL, OAKWOOD HOMES CEO : Every single year, the labor situation
has basically gotten worse. People retire, nobody replaces them. As an
industry, ultimately, we have done a lousy job marketing our opportunities
to young people.

OLICK: So, Oakwood Homes, which is owned by Berkshire Hathaway
(NYSE:BRK.A), started the Colorado Homebuilding Academy, a nonprofit boot
camp teaching basic constructions skills. The classes are free.

(on camera): How can you afford it, though?

HAMILL: We cannot afford not to do it.

OLICK (voice-over): The academy hopes to graduate about 200 students from
11 boot camps this year and double that next year. The students range
widely in age, race, and gender, from a millennial software salesman to a
48-year-old hairdresser.

ANGIE MCKEVITT, STUDENT: This is something I`ve always wanted to do, I`ve
always wanted to learn how, and this is a great opportunity that came up.

OLICK: But it has been hard to fill these classes.

MIKE SMITH, COLORADO HOME BUILDING ACADEMY DIRECTOR: I wish we had them
banging down the door. We don`t. When we`re working with the young
generation, that`s tougher, because as you said, there`s not a lot of
people are looking towards a job in the trades as their first career.

We actively recruit every day. That could be having some of our recruiters
out at job fairs. We go to schools and talk about career opportunities.
We talk to local workforce offices all the time. They have a lot of
community organizations.

OLICK (on camera): Oakwood has already put over $1 million into this and
is working with other companies and organizations to grow the program.
This is actually an Oakwood-owned house framing factory which donated part
of its space for the academy, literally putting potentially employees right
around the corner.

(voice-over): And graduates like 25-year-old Alexis Monserrate are finding
work fast.

ALEXIS MONSERRATE, GRADUATE: I felt confident after eight weeks. A lot of
it is problem solving and creativity.

OLICK: Her boss said the program is one answer to a huge problem.

LESLIE SOELL, BASEMENT FINISHING COLORADO CO-OWNER: She has the basic
training, that we can provide additional training, depending on what
direction she wants to go with this.

OLICK: The academy my start offering specialty classes so graduates can
command higher salaries sooner. But the message is clear. It is never too
late to start.

(on camera): You`re 48 years old. So —

MCKEVITT: It`s now or never.

OLICK (voice-over): For NIGHTLY BUSINESS REPORT, I`m Diana Olick in
Denver.

(END VIDEOTAPE)

MATHISEN: Under Armour (NYSE:UA) slashes its full year guidance, and
that`s where we begin tonight`s “Market Focus”.

The athletic apparel maker could be losing its appeal in North America, its
largest market. The company cut its outlook for profits and revenue after
seeing weaker demand in the U.S. and Canada, caused sales to fall more than
expected. Under Armour (NYSE:UA) down nearly 22 percent on the session to
$11.53.

Consumers around the globe are swiping their MasterCards more often. The
credit card company said an increase in dividend commercial prepaid card
use helped the company top Wall Street expectations. MasterCard (NYSE:MA)
also said it expects to report higher expenses for 2017. That pushed
shares down 18 cents to $148.77.

Sales unexpectedly rose at cereal giant Kellogg (NYSE:K) as the company
said results were helped by cost cuts and higher demand for the company`s
frozen foods and more natural products. It was the first sales increase in
more than two years at Kellogg`s. The maker of Rice Krispies saw its
shares snap, crackle, and pop, 6 percent, to $62.53.

And stronger than expected demand for Pfizer`s pneumonia vaccine helped the
nation`s largest drug maker top profit expectations. The company also
lifted its earnings forecast for the year, said it would make a decision
next year on whether or not to sell its consumer health business. Pfizer
(NYSE:PFE) shares off a fraction at $35.06.

HERERA: Aetna (NYSE:AET) reported earnings that topped analysts`
estimates. But fewer Affordable Care Act members caused revenue to fall at
the health insurer. The company also said earnings growth will slow next
year because of a 3 percent industry-wide health insurance tax. Aetna`s
shares fell fractionally to $170.03.

After the bell, the video game publisher Electronic Arts (NASDAQ:ERTS)
reported a narrower loss and revenue in line with estimates. The company`s
guidance for revenue during the holiday season came in just shy of
estimates. Shares were volatile in the extended session. They finished
the regular day up nearly 2 percent to $119.60.

Hilton will pay $700,000 to the government following a data breach at the
hotel operator that exposed hundreds of thousands of credit card numbers.
And the settlement resolves claims that the company had inadequate
cybersecurity and failed to tell customers of that hack right away. Shares
were off half a percent to $72.28.

ExxonMobil (NYSE:XOM) and PDC Energy will pay a combined $5 million to
settle allegations by federal officials that both companies violated
environmental laws. Exxon and PDC denied any wrongdoing and pledged to
spend millions on system upgrades. Exxon shares were off 19 cents to
$83.35. PDC rose 2 percent to $50.93.

MATHISEN: Americans are moving closer to being able to ride in self-
driving cars, that`s right, cars without anyone behind the wheel, giving
people rides. And Waymo, which is a company spun off from Google`s parent
Alphabet, is betting the future is a lot closer than you think.

Phil LeBeau takes a hands-off approach to this story.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): After
stepping into Waymo`s self-driving minivan and telling the van to start
driving, I admit it was a little odd to seeing the steering wheel turn with
nobody in the driver`s seat. But after that, the self-driving minivan
provided an uneventful ride, which is exactly what Waymo is counting on.

A screen in the backseat lets passenger what the minivan sees, including
other vehicles, pedestrians, or people on bikes, reassuring passengers why
it may be slowing down or waiting to proceed on its route.

Waymo says it`s getting close to putting self-driving vehicles on public
roads for large numbers of people to use, not just in test programs.

Meanwhile, the race to develop driverless cars is heating up. GM`s cruise
automation is expanding. Its test cars will soon be on the streets of
Lower Manhattan. And CEO Mary Barra says her company is close to taking
drivers out of some test vehicles.

But there are hurdles to clear before we see widespread use of self-driving
cars. For example, what are the government regulations? Will safety
drivers be needed behind the steering wheel in case of an emergency? And
is the public ready to accept robocars zipping around town?

Even after 3-1/2 million miles on public roads and countless hours testing
scores of traffic situations, Waymo says it`s still learning how to make
self-driving vehicles as safe as possible.

(on camera): But after going behind the walls of Waymo`s test facility
here in California, it`s clear the technology focused on making passengers
comfortable has hit a point where self-driving cars and the technology
behind those cars is close to hitting the street.

Phil LeBeau, NIGHTLY BUSINESS REPORT, San Francisco.

(END VIDEOTAPE)

HERERA: Coming up, Dodger Green? The big money spent to get L.A.`s team a
championship.

(MUSIC)

HERERA: Yesterday, Netflix (NASDAQ:NFLX) said its his series “House of
Cards” was ending after its upcoming sixth season, which is in production.
But today, the company said production was being suspended until further
notice, following allegations of sexual misconduct against star Kevin
Spacey. Netflix (NASDAQ:NFLX) and the show`s producer issued a joint
statement saying the suspension will, quote, give us time to review the
current situation and address any concerns of our cast and crew, end quote.

Netflix (NASDAQ:NFLX) shares were off 1 percent today.

MATHISEN: Well, one thing that is happening tonight is game six of the
World Series. Both teams have undergone stunning transformations over the
past few years to get to this point. The Astros, once one of the worst
teams in the game, and not very long ago, built from within and used the
draft. The Dodgers went a different route, using money to go from near
bankruptcy to the brink now of a championship. They`re down three games to
two.

They spent a lot of money. Jane Wells has more from L.A.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When the
Houston Astros won game five of the World Series in an extra inning nail-
biter, they did it on the cheap compared to their opponents, the Los
Angeles Dodgers. That put even more pressure on the richest team in
baseball to stage a comeback.

UNIDENTIFIED MALE: We`re going to make sure we win and have a great team
on that field every day.

WELLS: It`s been five years since a team of investors bought the Dodgers
out of the bankruptcy for a whopping $2.1 billion. Every year since, the
team has had the highest payroll in baseball, reportedly investing in the
biggest analytics team and coming close to the World Series but never close
enough, until now.

STAN KASTEN, LOS ANGELES DODGERS PRESIDENT: Your work can buy you
championships, you know? And all the people that we have doing analytics
and involved in finding better solutions, all of that, you call it money,
but we invest in our people, we invest in our R&D.

And I think all of that pays off. We won our division five years in a row.
Here we are in the World Series.

WELLS: Even after spending all that money to bring home a championship,
Dodgers owners still have billions left over from an epic cable deal they
signed which still prevents most of Los Angeles from watching regular
season games.

(on camera): But those who can`t watch on TV have sometimes come here to
watch the games live at the largest stadium in the league. Every year
under new management, Dodger home games have had the highest attendance in
baseball.

(voice-over): But it`s all on the line Tuesday night. And win or lose,
the owners win. And fans this Halloween have more to celebrate than
they`ve had in nearly 30 years.

For NIGHTLY BUSINESS REPORT, Jane Wells at Dodgers Stadium.

(END VIDEOTAPE)

HERERA: And that does it for us tonight on NBR. I`m Sue Herera. Thanks
for joining us.

MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody. We`ll
see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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