Transcript: Nightly Business Report – November 2, 2017

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

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It will be the biggest cut
in the history of our country. It will also be tax reform. And it will
create jobs.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Republicans unveil their
sweeping tax overhaul plan. What`s in it, and what it could mean for the
economy, housing, and your money?

(BEGIN VIDEO CLIP)

JEROME POWELL, NOMINEE, FEDERAL RESERVE CHAIRMAN: Inside the Federal
Reserve, we understand that monetary policy decisions matter for American
families and communities.

(END VIDEO CLIP)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Ladies and gentlemen, meet
the man who was nominated to be the next chair of the Federal Reserve,
Jerome Powell.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, the
2nd of November.

HERERA: Good evening, everyone, and welcome.

Republican lawmakers proposed the most significant changes to the tax code
in 30 years. Businesses big and small could see changes. And so could
individuals.

House Speaker Paul Ryan pledged fast action on the legislation. But the
proposal ran into opposition almost immediately.

Ylan Mui tells us what`s in the blueprint and where it might go from here.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Republicans call it the
biggest overhaul of the tax code in a generation. The plan that`s unveiled
today creates four new individual tax brackets. The top bracket would
remain at 39.6 percent and it applies to households making over $1 million
in income.

The limit for 401(k) that are put in pre-tax, that remains at $18,000. And
homeowners will continue to be able to deduct their mortgage interest.
However, the deduction for newly purchased homes will go down from $1
million to $500,000.

As for the estate tax, it would double immediately, from $5.5 million for
individuals to $11 million. However, after six years, the estate tax would
go away completely.

House Speaker Paul Ryan said these were the types of reforms that
Republicans were sent to Washington to do.

REP. PAUL RYAN (R-WI), SPEAKER OF THE HOUSE: This it. This is an
important and special moment for our country, for all Americans. Are we
going to let the defenders of the status quo win and see our country
continue down this downward spiral, or are we going to realize the promise
of our country, are we going to revitalize the American idea? This is our
chance to make sure that generations to come don`t just get by, they get
ahead in this country.

MUI: For small businesses and so-called pass throughs, their rate will be
25 percent. Republicans say they`ll write special rules to ensure it`s not
just a big loophole for the wealthy.

For corporations, their tax rate will fall from 35 percent to 20 percent.
That will happen right away and it will be permanent.

There will also be a special rate for foreign earnings that are brought
back from overseas. The rate for repatriated cash is 12 percent, and
there`s a 5 percent rate for all other assets.

But Democrats are slamming this proposal. House Minority Leader Nancy
Pelosi said it only helps the rich and hurts the middle class.

REP. NANCY PELOSI (D-CA (NASDAQ:CA)), HOUSE MINORITY LEADER: The
Ryan/McConnell framework is not reform. It is, again, deficit exploding,
multitrillion dollar giveaway to the wealthiest and corporations delivered
on the back of our children, our seniors, and hardworking Americans.

MUI: House Republicans delivered their plan to President Trump at the
White House today. They say he is all in on tax reform. But the hard work
of getting this bill passed is only just beginning.

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

(END VIDEOTAPE)

MATHISEN: The proposed cap on some popular housing deductions not going
over well with the housing industry. Shares of the luxury homebuilder Toll
Brothers (NYSE:TOL) got hit quite hard, as it did other builders today.
Home Depot (NYSE:HD) and Lowe`s shares fell as well.

Diana Olick explains the plan`s impact on a market important to many
Americans: housing.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Whether you own a home
or are thinking of buying one, the Republican tax plan will cost you more.
One of the most popular deductions in the tax code, the mortgage interest
deduction, got a haircut.

Currently, it`s capped at $1 million in mortgage debt. That was cut in
half, but only for new purchases. If you already own a home, you`re still
capped at $1 million. Still, there may be far fewer people itemizing and
taking the deduction, given the doubling of the standard deduction,
currently about 21 percent of households claim the mortgage deduction.
That could fall to just 4 percent according to the estimates from the Tax
Policy Center.

Then to property taxes. The House plan capped them at $10,000. This will
hit the Northeast hard. New Jersey, New York, Connecticut, which have some
of the highest tax rates and highest priced homes.

It will hurt less for states in the South where property tax and home
prices are low. Hawaii does have the lowest property tax rate and D.C.`s
rate is low as well. But home prices in both places are high, so it`s a
mixed bag.

California has a comparatively low tax rate, but home prices are some of
the highest in the nation. Realtors say the plan puts home values at risk
and the homebuilders say it will cut younger buyers out of the housing
market.

JERRY HOWARD, NAHB CEO: Our constituents are afraid that this is going to
be a revisit of 1986, when after that tax bill passed, there was a
significant housing recession.

OLICK: Still, others argue that doubling the standard deduction might put
more money in lower income taxpayers` pockets, helping them save for a down
payment. The only trouble with that theory is there are currently precious
few entry level homes for sale.

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

(END VIDEOTAPE)

HERERA: So, what could the proposed tax plan mean for the economy and the
housing market?

Ralph McLaughlin is the chief economist at Trulia. And Josh Feinman is the
global chief economist with Deutsche Asset Management.

Welcome to both of you.

I`m going to start with Ralph, if I could, because we left off there with
housing. The gentleman that Diana interviewed said they`re worried about a
significant housing recession as a result, if it passes as it`s written.
Do you see that? What do you see in this bill specific to housing?

RALPH MCLAUGHLIN, TRULIA CHIEF ECONOMIST: At Trulia, we`re not immediately
concerned there`s going to be a large impact on housing. And that`s for
two reasons. One is that 70 percent to 80 percent of homeowners actually
don`t itemize. Their house isn`t worth enough, and their mortgage isn`t
high enough. Property taxes aren`t high enough to itemize.

And two, even if you do have a house that`s expensive, you have a high
mortgage, high property taxes, your going to be grandparented in. So,
existing owners aren`t going to be affected that much.

But there is some bad news, which is that those that do have high mortgages
tend to live in these expensive markets.

HERERA: Right.

MCLAUGHLIN: And on top of that, they`re incentivized because of the
grandparent clause to stay put. And that we think might actually make the
inventory problem worse, especially in these very expensive coastal
markets.

MATHISEN: What does it do, Ralph, to house values, particularly in high
priced markets where affluent buyers are prone to — some of them are going
to have to take out loans above $500,000 to pay for it?

MCLAUGHLIN: Yes. We might see a little bit of softening in those uber
expensive markets. San Francisco, New York, you know, there e are going to
be disincentives to buy those types of housing —

MATHISEN: Yes.

MCLAUGHLIN: — and because of the property tax, there may be existing
owners that might want to get out because their tax liabilities are going
to go up.

HERERA: Let`s turn to Josh Feinman and talk about the overall economy.

Josh, feel free to react to what Ralph just said, but also, give us your
take on if it passes as it`s written now, what the effect might be on the
overall economy.

JOSHUA FEINMAN, GLOBAL CHIEF ECONOMIST, DEUTSCHE ASSET MANAGEMENT: Sure.
I don`t think it`s a game changer, I don`t think it`s going to push growth
up to 3 percent or 4 percent and keep it there. But I do think it has some
positive elements. In particular, in a lower rate, broaden-the-base type
approach, a lot of people think that`s more efficient. You lower the rate
that both individuals and corporations pay on the next dollar that they
earn so you increase the incentives to earn.

At the same time, if you reduce deductions, exemptions, exclusions, you
broaden the base against which of those tax rates apply and therefore
mitigate the loss of revenue to the government.

Now, giving people lower taxes, that`s the easy part, right? That`s like
giving them ice cream. But taking away deductions, exemptions, exclusions,
that`s the hard part. That`s like making them eat broccoli. And, you
know, people are not going to like that.

And that`s where the opposition to this tax thing is going to fall.
Housing is an example. You talked about earlier on the show.

So, how it`s all going to work out and whether, you know — every
constituency has — you know, will go to the mat to defend the specific
line item in the tax code. So, it`s going to be tough.

In the end, whether there`s enough sugar here to make the medicine go down,
I don`t know. But we`ll see. Today is just the first opening salvo in
what I think is going to be a long-drawn-out —

MATHISEN: So, Josh, a quick response please on the corporate tax rate
coming down, presumably to 20 percent.

FEINMAN: Right.

MATHISEN: How important is that in helping American corporate
competitiveness and in inducing companies that may have domiciled overseas
to move here or move back here?

FEINMAN: I think it`s helpful. I think it does improve competitiveness.
I think it does improve the incentives to invest. Some of the more
grandiose, you know, numbers that we`ve been talking about, $9,000 to
American workers, I think that`s over the top. But you do think some of
the incidents of the corporate tax does fall on American workers.

So, if you do reduce that tax rate, they will get some benefit, at least
over time. But, you know, not as much as maybe has been advertised.

HERERA: So, Ralph, you get the final word here. If indeed we start to see
some reaction in the housing market, how does that work? Would you start
to see a softening or a tightening immediately, very quickly? How — is
there a lag time?

MCLAUGHLIN: Yes, I mean, the housing market moves slow. So, there`s
unlikely to be any major movements, you know, in the first four or five,
six, seven months, even 12 months, right? But over time, especially at
that high end which is where most homeowners would be impacted, we might
start to see softening, maybe over the next one to two years.

HERERA: OK. So nice to see you in studio. Please come back, Ralph. I
appreciate it.

MCLAUGHLIN: Great to see you, guys, too.

HERERA: And also, Josh, nice to see you as well.

FEINMAN: Good to be here. Thank you.

HERERA: Thanks for joining us, both of you.

MATHISEN: All right. How could the proposed tax plan impact your money?

Tim Maurer is director of personal finance at BAM Alliance and he joins us
here to discuss that.

Have you had a chance to go over the numbers? And just sort of come down
on — do most people, and particularly most middle income people, stand to
see lower tax bills under this law than they would have under existing law?

TIM MAURER, BAM ALLIANCE DIRECTOR OF PERSONAL FINANCE: Well, Tyler, to
answer your first question, I have taken a glance. But I will say this.
At this point in time, it`s all commentary still. I don`t want to
encourage anyone to alter their financial plan based on a rumor. Let`s
wait and see what the reality shakes out to be and then we`ll plan from
there.

But, certainly, especially for the middle income folks, we could see a
meaningful change. If you were in, say, the $50,000 per year income level,
seeing the standard deduction double can`t help but help you. Similarly,
they may find that their tax compliance with doing their taxes is
simplified. It`s easier because of that increased standard deduction.

Now, if you`re in the next income bracket up, folks who do have a home, who
do have a mortgage, who might have been itemizing their taxes in the past,
especially because of the mortgage interest deduction, well, now, with the
standard deduction, now raising quite so substantially, we may see that
they no longer have the ability to itemize, and that may begin to change
some people`s decisions regarding debt.

In the past, it`s been seen, owning a home and having a mortgage is a good
thing because you get a tax break. Well, there`s a little conflation there
to begin with. We may find people are making decisions with more when
clarity regarding housing and debt as a result of that increased standard
deduction.

HERERA: Right. There`s going to be negotiating on this, on the Hill,
probably some pretty significant negotiating. But one thing that we were
wondering about was whether or not they would change the status of 401(k)
contributions. They did not in this version of the bill. But the word is
that that may be one of those bargaining chips in order to perhaps raise
the mortgage interest deduction.

So, are you worried about that?

MAURER: I am concerned about that. As you can imagine, those of us who
are financial advisers, if we start to see them mess with the 401(k)
deductions, we`re going to be very concerned, because what we see right now
is generations of Americans who are underprepared for retirement. If we
decrease the incentive for them to be saving for the future, I can`t see
what good could potentially come from that.

So, I`m hoping they keep their hands off all 401(k), Roth IRA, and
traditional IRA limits, as well as the 529 for education savings as well.

MATHISEN: All right. Tim Maurer with the BAM Alliance, we thank you
again.

MAURER: Thank you.

HERERA: On Wall Street, a late day rise in stocks sent the Dow to a record
close in what otherwise was an up and then down day for the major indexes.
On this very busy news, investors were also looking ahead to tomorrow`s
jobs report. The blue chip Dow index rose 81 to 21516, the Nasdaq fell 1-
1/2 points and the S&P 500 rose fractionally.

MATHISEN: Still ahead, Apple`s flagship product continues to charge up
profits.

(MUSIC)

MATHISEN: President Trump has nominated current Fed Governor Jerome Powell
to be the next chair of the Central Bank. If approve by the Senate, he
would help steer the world`s biggest economy. And his words could move
trillions of dollars in global markets.

Steve Liesman tells us who he is and where he stands.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Donald
Trump in a Rose Garden ceremony nominated Jerome Powell to be the 16th
chairman of the Federal Reserve Bank. It was by far the most important
economic nomination of the president`s term to date.

TRUMP: He`s strong. He`s committed. He`s smart. And if he is confirmed
by the Senate, Jay will put his considerable talents and experience to
work, leading our nation`s independent Central Bank, which has the critical
responsibility to set monetary policy and monitor our banking system as
whole.

LIESMAN: Powell, a Fed governor since 2012, who previously amassed a
fortune working as an investment banker, is the first chairman not to hold
a PhD in economics since Paul Volcker left in 1987. Powell praised
outgoing Fed Chair Janet Yellen but maybe stopped short of explicitly
pledging to continue her policies.

POWELL: I`ve had the distinct privilege of serving under Chairman Bernanke
and Chair Yellen who guided the economy with insight and courage through
difficult times. Inside the Federal Reserve, we understand that monetary
policy decisions matter for American families and communities. I strongly
share that sense of mission.

LIESMAN: But based on his previous statements, markets aren`t expecting
much change at all. Powell supported a gradual rise in interest rates and
a slow runoff of the Fed`s balance sheet, voting with Fed Chair Janet
Yellen at every turn. He`s generally supported the banking regulations
adopted after the financial crisis but has said some adjustments are
appropriate. He believes the current economy to be strong and the labor
market to be very strong.

Powell, a 64-year-old Washington native, had originally nominated by
President Obama. White House hopes for hearings before Christmas and quick
approval to the four-year term after the holiday break. And they believe
Powell will receive Democratic support as he did under President Obama.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.

(END VIDEOTAPE)

HERERA: Apple`s earnings would be our lead story on almost any other
night. So, let`s get right to the results of the world`s most valuable
publicly traded company. Strong demand for iPhones helped the company
earned $2.07 a share. That handily beat estimates. Revenue rose for the
fourth quarter to more than $52 billion, helped by a rise in sales in
China. Investors liked the results and the forecast of record revenue in
the current quarter, sending shares initially higher. The company`s market
cap hitting $900 billion in late-day trading.

Josh Lipton has more on Apple`s quarter.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Forty-six-point-seven
million. That was one big number in Apple`s latest earnings report. It
refers to the number of iPhone units shipped in the quarter, and it was
just better than what analysts had called for, which was 46.4 million.

Another big number in this report was this December revenue guidance that
apple gave, calling for between $84 billion and $87 billion. The midpoint
of that guidance is better than what the street had model, alleviating at
least some concerns about supply constraints for the all new iPhone X which
goes on sale tomorrow.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, Cupertino, California.

(END VIDEOTAPE)

MATHISEN: The government may reportedly sue to block Time Warner
(NYSE:TWX) and AT&T`s proposed merger. And that is where we begin
tonight`s “Market Focus”.

“The Wall Street Journal” says the DOJ may try to block the $85 billion
tie-up. The article also went on to say that AT&T (NYSE:T), Time Warner
(NYSE:TWX), and the DOJ are in talks to lay out terms that would let the
deal win government approval. But speculation that a deal won`t happen
pressured shares of both companies today, as you see there. AT&T (NYSE:T)
fell 1 percent to $37.13. Time Warner (NYSE:TWX) off nearly 4 percent to
$94.70.

Dow DuPont posted better than expected earnings and said it would cut jobs
as part of a $3 billion cost savings plan. The industrial conglomerate
which was formed in September by the Dow Chemical (NYSE:DOW)/DuPont merger
said results were helped by strength in nearly every division.

The company said its plan to split into three separate companies will take
up to two years. Dow DuPont is also hiking its quarterly dividend to 38
cents a share, launching a $4 billion share buyback. Shares were off
almost 2 percent to $72.04.

The world`s largest generic drug maker Teva Pharmaceuticals will cut its
forecast for the third time as rising competition eats into profits. The
company reported a plunge in generic drug profits as sales slipped. Shares
hammered down 20 percent to $11.23.

HERERA: Wayfair reported a wider than expected loss as new employee hires
and a rise in technology investments weighed on its results. But the home
furnishings company also saw a rise in active customers and said they spent
more as well. So, shares still fell, more than 15 percent to $62.84.

Despite serving more customers in the latest quarter, Starbucks
(NASDAQ:SBUX) reported same store sales and total revenue that missed
expectations. Earnings were in line with estimates and the coffee chain
said it plans to sell its Tazo Tea Brand to Unilever (NYSE:UN) for about
$400 million. Following the after the bell news shares initially fell in
the extended session, and also ended the regular day down a fraction to
$54.87.

MATHISEN: The president is preparing for his first official trip to Asia.
The 11-day journey includes stops in Japan, South Korea, China, Vietnam,
and the Philippines. The president will be on the global stage discussing
some very thorny economic and security issues, including, of course, North
Korea`s nuclear threat, trade imbalances, and market access for U.S.
companies. Twenty-nine business leaders and officials will join the
president in China, including executives from Goldman Sachs (NYSE:GS),
Boeing (NYSE:BA), General Electric (NYSE:GE), Honeywell, and Qualcomm
(NASDAQ:QCOM).

HERERA: And there`s one more item that many American business owners hope
will be on the president`s agenda when he is in China, and it is
intellectual property theft. That type of copycat theft costs an estimated
$300 billion annually.

Kayla Tausche reports.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Outside
Baltimore, Marlin Steel molds wire from Indiana and Illinois into storage
racks, baskets and deep fryers.

DREW GREENBLATT, CEO, MARLIN STEEL: The wire used to be a car or
dishwasher melted down. It`s all recycled. It`s all made in America.

TAUSCHE: These seemingly simple products require complex engineering.
Marlin`s CEO Drew Greenblatt began seeing his items in Google (NASDAQ:GOOG)
searches for Chinese competitors.

GREENBLATT: We`ve come up with such creative, novel ideas, we spent so
much money on that, and then they just cut and paste it and steal from us.

It`s hard to measure exactly how much — how many jobs we`ve lost here. I
mean, whether we lost 20 employee jobs or 100 employee jobs, it`s hard to
measure, because people don`t send you an e-mail or phone call to say, hey,
by the way, I bought from your competitor.

TAUSCHE: It`s a cross country complaint, from small and medium sized
businesses, lacking legal options and funding.

Paulson Manufacturing in California makes protective wear for industrial
workers and firefighters.

ROY PAULSON, CEO, PAULSON MANUFACTURING: Within a year of anything new
that I put out, I`m being copied somewhere in the world.

TAUSCHE: At a trade show in China, Roy Paulson learned they weren`t just
copying his products.

PAULSON: They even used our company name, duplicated all the products that
we have that you can see on our website, and have them for sale as a
Paulson product in China. That`s not just lost money to me. That`s really
lost money to my employees and to the community.

TAUSCHE: Senior White House officials say President Trump will highlight
intellectual property in Asia. Trump launched an investigation in August.
The original focus on U.S. companies whose data gets stolen through joint
ventures.

STEVE LANG, CEO, MON CHERI: Really, really good. I think you`ve got a lot
of variety here.

TAUSCHE: But business owners like Steven Lang who runs a New Jersey bridal
company want trade officials to consider penalties against all counterfeits
from China.

LANG: These issues are on the back burner but to me they`re on the front
burner. Without protection from my government, I`m not on a level playing
field.

TAUSCHE: China`s ambassador to the U.S. says the world`s two largest
economies inevitably will have trade issues, but they were small part of
the relationship and should be handled constructively.

GREENBLATT: My name is Drew Greenblatt.

TAUSCHE: Marlin`s CEO brought the counterfeit issue to President Trump
ahead of his April meeting with China`s President Xi Jinping and hopes it`s
still on the agenda.

GREENBLATT: We`re too small to fight this. We need the government to
protect us and not allow Chinese and foreign companies to import into
America our products things that we have creative license to make.

TAUSCHE (on camera): China is also a customer for many of these companies,
making the decision to speak out a delicate one. It`s a delicate issue for
the White House as well. Experts say China could retaliate for any action
the U.S. decides to take.

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

(END VIDEOTAPE)

HERERA: Coming up, Ferrari made a ton of money. But can it find the same
success with SUVs and theme parks?

(MUSIC)

MATHISEN: The Italian automaker Ferrari reported record earnings and
raised its full year profit targets but that wasn`t enough for investors.
And the next big challenge is whether Ferrari can be more than just a high
end car maker.

Robert Frank revs the engine.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Ferrari
is racing ahead of its financial targets and its stock price is hitting new
highs. The question now for the famed prancing horse is whether it can
keep its brand cache even as it moves into SUVs, theme parks and more
merchandise.

Ferrari reported a double digit rise in earnings and said it will hit its
annual earnings target two years early. Most of that is because it`s
selling more cars at much higher prices. They`re expected to sell 8,400
cars this year, up from 8,000 last year. And they range from 200,000 to
over a million bucks.

But Ferrari is also transforming into a luxury lifestyle brand. They got
46 stores selling hats, mugs, and watches. There are now two theme parks,
one in Dubai and another in Spain. They`re doing sunglasses, office
chairs, and they`re doing well in Formula One racing, which also generates
revenue.

(on camera): Now, to Ferrari purists that rising production and all that
merchandise means they`re cheapening that once-exclusive Ferrari brand.
That`s going to be even more of a challenge in the coming years when they
make an SUV and are then subject to the emissions standards which will
force Ferrari to go electric.

Electric hybrid and SUV, two words we`re not used to hearing with Ferrari.

(voice-over): The question is whether they can ramp up all that production
in their factory in Maranello and make electric vehicles.

Meantime, the brand`s history is still proving lucrative for collectors and
owners. This 2001 Formula One race car driven by Michael Schumacher will
be sold by Sotheby`s this month at an art auction for over $4 million. And
because of safety and emissions standards, you can`t even drive it on the
road.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

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

MATHISEN: And thanks from me as well. I`m Tyler Mathisen. Have a great
evening, everybody and we`ll see you 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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