Transcript: Nightly Business Report – November 9, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Taxed out. Stocks stress
out over the twists and turns in the Republican tax plan, sending the Dow
down triple digits. We`ll tell you why and we`ll hear from the president`s
top economic adviser on what drove the White House plan.

Mouse of pain. Disney (NYSE:DIS) misses estimates and investors initially
react harshly, but then forgive.

Drilling for answers. What are these two Americans doing in the
presidential palace in Venezuela? Our investigation, coming up.

All that and more on NIGHTLY BUSINESS REPORT for Thursday, November 9th.

Good evening, everyone, and welcome. Sue Herera has the evening off.

Well, stocks went on a wild ride today, all triggered by headlines about
the GOP tax plan. The big fear for the market, the steep cuts in the
corporate tax rate may be pushed back until 2019. And with that, stocks
sold off, though eventually they cut some of those losses. The Dow
finished the day down 101 points to 23461, the Nasdaq dropped 39, and the
S&P 500 was off nine.

So, the tax wrangling included, today, the passage of the legislation by a
House panel. That paves the way for a full house vote next week, according
to Majority Leader Kevin McCarthy. But what moved stocks today was not
news but details from the newly released Senate version of a proposed law.

Ylan Mui has more.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Senate releasing its
long-awaited tax plan today. And that proposal would delay the reduction
in the corporate tax rate by one year. It wouldn`t get down to 20 percent
until 2019, but it would stay there permanently.

Now, this bill would also limit the companies` ability to deduct interest,
but it would allow them to fully and immediately deduct their expenses for
five years.

There are big changes coming on the individual side as well. The Senate
bill would keep seven individual tax brackets but it would lower the top
tax rate to just 38.5 percent. It would also completely get rid of the
deduction for state and local taxes.

But it would preserve some other very popular deductions such as the one
for medical expenses. It would also keep a $1 million limit on the
deduction for mortgage interest. And as for the estate tax, it keeps that
in place but it doubles the exemption from $5 million to $11 million for
individuals before that tax kicks in.

So, there are still many long negotiations to come over this proposal. But
for today, Republicans making some real progress on tax reform.

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

(END VIDEOTAPE)

MATHISEN: Before the craziness of today, John Harwood sat down with Gary
Cohn, director of the National Economic Council, to get some insight into
the White House strategy for the tax plan. In other words, what were the
driving factors for the plan.

(BEGIN VIDEO CLIP)

GARY COHN, NATIONAL ECONOMIC COUNCIL DIRECTOR: So, the president had two
really important principles. Number one is, we had to deliver middle class
tax cuts to the hard working families in this country. Number two is, our
corporate tax system just is not competitive with the rest of the world.
We have to create a corporate tax rate, and along with that, a pass through
tax rate that makes us competitive with the rest of the world, so we can
attract businesses back to the United States.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Let me suggest an
alternative principle. Look at the components of the plan, big corporate
reductions, big pass-through reductions for business, much more tax cuts
for businesses than for individuals. You`ve got the elimination of the
estate tax, you`ve got the preservation of step up basis, you`ve got the
elimination of the alternative minimum tax.

What you have is a bunch of people, including you, including the president,
who think, what I do is good for the economy, therefore, taxing the things
that I do less will be good for the economy and good for other people.
Instead of giving direct benefits to those people, because middle class
people in this tax cut do not get very much in direct benefit.

COHN: I disagree with you. I just completely disagree with you.

HARWOOD: If you look at joint tax, a trillion dollars in net cuts for
business, $200 billion —

COHN: OK, I agree with that.

HARWOOD: — with the estate tax. And $300 billion for individuals. So,
four times as much in business tax cuts and estate tax as for individuals.

COHN: Yes. But, John, if you look at what we`re doing for middle class
taxpayers, the reality is kind of simple. The median income family in the
United States, the family that earns about $60,000 in the United States,
the speaker talked about them getting $1,182 tax cut.

That family is now paying a marginal tax rate of less than 1 percent.
They`re paying less than $500 of total taxes in the system. So, $60,000
earner, family of four, is paying less than $500. We have cut their taxes
significantly. You can`t go much further in the tax system.

HARWOOD: You`re saying you can`t give middle class taxpayers more of a tax
break than you`ve done?

COHN: Unless you want to start going negative tax rates and go into the
negative world. So, when people score this, you`re scoring against the
bound of zero.

HARWOOD: Companies that benefit from pass-through rates are high income,
because if they were middle income, they`d be paying at 25 percent rate
already. The vast majority of benefits going to wealthy businesses.

COHN: I think you`ve got to wait until the whole plan is done and see
where you end up and see what the plan comes out. Everything in our tax
plan is meant to encourage investment.

HARWOOD: You`re not saying, as you did a few weeks ago, that the wealthy
do not get a tax cut under your plan?

COHN: I`m saying there`s a unique situations to everyone out there.
Everyone has their own story. It`s not our intention to give the wealthy a
tax cut.

HARWOOD: But they`re getting one.

COHN: I don`t believe that we set out to create a tax cut for the wealthy.
If someone`s getting a tax cut, I`m not upset that they`re getting a tax
cut.

HARWOOD: You`re old colleague Steve Bannon in the White House, asked him
why they didn`t design a tax plan focused on average Trump voters. And
when I talked to Larry Summers, who`s your predecessor at the NEC, also
treasury secretary, he said, look, they`re doing what their money wants.

COHN: They`re entitled to their opinion. I —

HARWOOD: Why are they wrong?

COHN: We have achieved our objective. We are delivering a middle income
cut tax and we are lowering corporate taxes to make ourselves competitive
with the world.

HARWOOD: Yes.

Another thing Larry Summers told me, the country wants to spend more on
defense. We`ve got a whole lot of baby boomers retiring. We are going to
need more money for government and not less. So, the Penn Morton (ph)
model run by a former Bush administration economist, not a Democrat, says
that this plan by 2040 will lose $4 trillion. During that time, the number
of people on Social Security is going to go from 45 million to 72 million.

How in the world does that make sense?

COHN: We firmly believe that we are creating a model that creates economic
growth in this country.

HARWOOD: But you know no tax cut has ever paid for itself.

COHN: The years that we increase deficit are years when our economy is
slowing down and we continue to borrow more and more money. So, the number
one thing we can do for the United States citizen is to grow the economy.
This tax plan is meant to grow the economy.

HARWOOD: Are you thinking that you`ll deal with that Social Security,
Medicare, baby boomer retirement issue later by entitlement reform that
reduces benefits?

COHN: Look, the president on the economic front laid out three core
principles or three core initiatives that he wanted to get done in his
first couple of years. Number one was reg reform. Number two was taxes.
And number three was infrastructure. We`re working our way methodically
through reg reform, taxes, and infrastructure.

I think when he gets done with those, I think welfare is going to come up.
That`s our near term economic agenda right now.

(END VIDEOTAPE)

HARWOOD: And, Tyler, interestingly, though Gary Cohn wouldn`t say so, Paul
Ryan, the House speaker, said today that is precisely our objective, in the
long run we`re going to go for entitlement reform. So, the thinking of
Republicans is they will accept those higher deficits and go after Medicare
and Social Security to try to reduce those liabilities later.

MATHISEN: I — did you ever agree on anything with Mr. Cohn, John? It
didn`t seem so.

Let me turn to a question that was sort of implicit in what you were
talking about with him, and that is the idea that by cutting taxes on
corporations and businesses, that a lot of the benefit then flows through,
the old phrase is trickle down, to the middle class. Did you probe that
with him at all? Or do people believe that that is what`s going to happen?

HARWOOD: I did probe that with him. And he said, first of all,
explicitly, trickle down is good for the economy. He also said that
foreign cash coming back for — to American companies will help workers
even if it goes to dividends and stock buybacks through that trickle down
process.

MATHISEN: All right. John, thank you very much, great interview.

HARWOOD: Thank you.

MATHISEN: And if you would like to see more — it really was — if you`d
like to see more of it, go to our Website, NBR.com, the complete package is
there.

Well, here to put today`s market action into context and tell us whether
investors should expect more days like this, i.e. up and down days, is
David Seaburg. He`s managing director and head of sales and trading at
Cowen.

David, always great to see you. Thank you for joining us.

DAVID SEABURG, MANAGING DIRECTOR, COWEN & CO.: Good to see you. Thanks
for having me, Tyler.

MATHISEN: I don`t know whether you`re a new guest to NBR, I can`t
remember, but welcome anyway.

So, today was a seesaw kind of day, down about 200 points on the Dow, at
one point, ended up cutting those losses in half. Should investors be
ready for more up and down days as this tax bill wends its way through the
sausage making process?

SEABURG: Yes, no question it`s going to bring some sort of level of
volatility to the markets. I mean, we saw it today. You know, I would say
this to you, Tyler, to keep it simple. Tax is not priced in right now to
this market. I mean, to some extent it`s going to move around in the
headlines because you have tape-reading algos that are actually seeing the
headline hit and reacting, so algorithmic type trading that is reacting to
the news headline.

But, ultimately, when you think about it for the long term investor, the
setup right now, the market is not pricing in tax cuts. So, the S&P
earnings, if you looked at it for 2018, I think the expectations are now
about $146 in S&P earnings. The tax cut at the corporate level could
provide an additional $10 of earnings power to the $146 for 2018, which is
a tremendous number.

MATHISEN: So, that`s a very interesting point. Two interesting points
there. One is that, that be aware, dear investor, that when the market is
reacting, it may be algorithms that are doing the reacting.

SEABURG: Right.

MATHISEN: But number two, that the market hasn`t really priced in the
possibility of tax cuts. Follow that through for me — $10 more earnings
on the S&P translates into what level on the S&P?

SEABURG: Right. I mean, it puts it up. You`re looking at probably 150
more S&P points or something to that extent. But ultimately, you have to
look at this and say, this is a global growth narrative that`s been pushing
this market higher.

The backdrop has really been earnings. Earnings have been incredibly
strong. We`ve seen earnings, you know, revisions to the upside. We`ve got
a backdrop of — or a pipeline, if you will, of approved corporate buybacks
that haven`t even been struck yet. So, the buybacks will continue. We`re
seeing top line, which is revenue growth, estimates being increased as
well.

So, we`re in an environment right now where it`s really an earnings-driven
market. You`re not seeing money come out of equities on the news that tax,
you know, may not be pushed through. But if it goes through, it`s a big
deal, and the market will react positively to that.

MATHISEN: David, thanks for sticking around with us — for us tonight.

SEABURG: Thanks for having me.

MATHISEN: David Seaburg with Cowen and Company.

Well, President Trump`s second day in China turned to trade and a quarter
trillion dollars worth of deals.

Kayla Tausche is in Beijing.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
President Trump`s maiden visit to Beijing, a year after anti-China rhetoric
fueled his election victory, brought a change of heart.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Who can blame a country for
being able to take advantage of another country for the benefit of its
citizens?

TAUSCHE: Secretary of State Rex Tillerson chalked up the ballooning trade
deficit to benign neglect. He said the two countries were far from fixing
the underlying issues but were making progress for companies. More than
two dozen companies joined an executive delegation. CEOs like Dow`s Andrew
Liveris wanted to be at the front of the line for market access.

ANDREW LIVERIS, DOW CHAIRMAN AND CEO: I`ll tell you, the one thing that`s
very key is turning up, which is why I`m here. I mean, you`ve got to be
part of the tonal shift and understand it from their perspective.

TAUSCHE: GE, Boeing (NYSE:BA), and Qualcomm (NASDAQ:QCOM) among those
signing deals in Beijing`s Great Hall of the People, after winning approval
from Presidents Trump and Xi. The administration estimates in total they
inked deals worth $250 billion. Though some are far from completion or had
been previously announced.

Goldman Sachs (NYSE:GS) launching a new investment with China`s Sovereign
Wealth Fund to back American manufacturers exporting to China.

LLOYD BLANKFEIN, GOLDMAN SACHS CHAIRMAN AND CEO: Investment is going to be
a win/win. We want it. We want Chinese investment in the U.S. because it
means jobs, it means opportunity.

TAUSCHE: President Xi put on a two-day tour de force, rolling out the red
carpet, a luxury not afforded to Trump`s predecessors. In a closing toast,
Xi said the world`s two largest economies would move forward as partners,
not rivals.

(on camera): The chemistry between the two leaders belies some difficult
discussions to come, especially on North Korea. China refused new
financial sanctions from the U.S. Secretary Tillerson says they agree on
the need to denuclearize North Korea. They just disagree on how.

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

(END VIDEOTAPE)

MATHISEN: Coming up, Disney (NYSE:DIS) falls short of investor
expectation. We`ll tell you how and why.

(MUSIC)

MATHISEN: Disney (NYSE:DIS) posted year over year declines in most of its
businesses with media, its biggest division, falling double digits. As a
result, the entertainment company missed Wall Street profit and revenues
estimate. Disney (NYSE:DIS) earned $1.07 per share. That is a nickel`s
miss. Revenue came in at nearly $12.8 billion, that one a little light,
too.

As you might expect, shares initially dropped about 4 percent then started
to reverse course.

Julia Boorstin goes inside those Disney (NYSE:DIS) numbers.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Disney`s earnings
results fell short of expectations. And much of that shortfall came from
its media networks division including ESPN, with higher programming costs
and lower advertising revenue, and higher fees for subscribers offset by a
decline in the number of subscribers. This disappointment for Disney`s TV
division comes as the company prepares to launch its first ESPN app.

CEO Bob Iger saying, quote, we look forward to launching our direct to
consumer streaming service in the New Year and will continue to invest for
the future and take smart risks required to deliver shareholder value.

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

(END VIDEOTAPE)

MATHISEN: In the back and forth between the government and AT&T`s bid to
buy Time Warner (NYSE:TWX), AT&T`s CEO Randall Stephenson said he was never
told he had to sell CNN in order to get approval for the $85 billion
merger, nor he says that he ever offered to do so. Speaking at “The New
York Times (NYSE:NYT)” DealBook Conference, Stephenson doubled down on why
he thinks the big merger makes sense.

(BEGIN VIDEO CLIP)

RANDALL STEPHENSON, AT&T (NYSE:T) CHAIRMAN & CEO: One of the key benefits
of putting these two companies together is to stand up a new advertising
capability. So, we have built an amazing distribution platform, 150
million mobile subscribers, largest pay TV base in the United States, a
huge broadband base. There`s a lot of information and data that we think
can be used to stand up a new advertising business.

Pairing that with the Turner advertising inventory is a really powerful
thing, we believe. That is what we aspire to do. Selling CNN makes no
sense in that context.

(END VIDEO CLIP)

MATHISEN: AT&T (NYSE:T) was higher by nearly 2 percent today, and
Stephenson also added if the issue goes to court, he`s ready to litigate.

Well, Macy`s (NYSE:M) forecasts a cheery holiday season is where we begin
tonight`s “Market Focus”.

Despite missing revenue estimates in its latest quarter, the retailer said
it does expect to see strong e-commerce sales during the all-important
holiday period. Macy`s (NYSE:M) reported earnings that top expectations
and said tighter inventory controls helped grow profit margins. Shares
jumped nearly 11 percent on the session to $19.50 in this otherwise down
day.

Kohl`s (NYSE:KSS), the latest retailer to cite hurricane disruptions as the
reason behind its disappointing profits. Same store sales edged higher,
that was a welcome surprise on Wall Street, which expected the retailer to
report yet another quarter of no growth. Kohl`s (NYSE:KSS) shares up
almost 1 percent to $41.17.

After the bell, Nordstrom (NYSE:JWN) said higher costs ate into its
results. The retailer did top earnings estimates, but revenue came up
short. Same store sales fell more than expected. Shares initially traded
lower in after hours but ended the regular session up 4.5 percent to
$40.03.

The chip maker Nvidia reported results after the bell that easily topped
analysts` expectations. The company also hiked its quarterly dividend 7
percent to 15 cents a share, said it plans to return more than a billion
dollars to shareholders during its next fiscal year. Nvidia initially rose
after hours. Shares there ended the regular day down about 2 percent to
$205.32.

And, finally, Sage Therapeutics said its experimental drug to treat
moderate and severe post-partum depression improved patients` symptoms
within a few days. The drug maker said it will file for approval with the
FDA in 2018. Shares skyrocketed 54 percent to $96.65.

Equifax (NYSE:EFX) reported its financial results hard on the heels of the
company`s massive data breach that impacted more than 145 million people.
After the bell, the credit reporting agency said costs associated with that
breach did hurt profits. But nonetheless, results beat estimates. Shares
were initially lower in the extended session but they did finish the
regular day up more than a percent at $108.95.

Coming up, what does a small oil company in Oklahoma have to do with the
world`s largest oil reserves? We went looking for answers.

(MUSIC)

MATHISEN: Oil prices climbed today as concern grew over recent political
developments in Saudi Arabia. Those include the growing power of the
kingdom`s young crown prince and steepening tensions between Saudi Arabia
and Iran.

While most of the world`s major oil companies are trying to reduce their
presence in Venezuela, but we found one small American firm that is eager
to work there. Horizontal Well Drillers in Purcell, Oklahoma. It recently
won a contract to drill nearly 200 wells in Venezuela. This seemed like an
unusual deal.

So, we started asking questions. When it was clear that the company wasn`t
interested in answering them, Michelle Caruso-Cabrera went to Oklahoma.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-
over): Horizontal Well Drillers first got our attention when two of its
executives showed up in a lavish signing ceremony at the Venezuelan
Presidential Palace in July.

On the right, General Counsel Brent Mills. On the left, CEO Todd Swanson.
Swanson even made a speech.

TODD SWANSON, HORIZONTAL WELL DRILLERS CEO: Senor Presidente, it`s been an
honor to meet you today and discuss with you and your team the
strengthening and expansion of the relationship between our company and
your country.

CARUSO-CABRERA: Todd Swanson is addressing Nicolas Maduro, the
controversial leader of Venezuela, who was sitting right in the room and
seems pleased to have the Americans there.

(PRES. NICOLAS MADURO SPEAKER FOREIGN LANGUAGE)

CARUSO-CABRERA: Another thing that made this signing ceremony interesting,
it occurred just 17 days before the U.S. administration announced that
Maduro was being added to the sanctions list, not even Putin is on that
list.

STEVEN MNUCHIN, TREASURY SECRETARY: Maduro may no longer take advantage of
the American financial system to facilitate the wholesale looting of the
Venezuelan economy at the expense of the Venezuelan people.

CARUSO-CABRERA: It`s not illegal for a U.S. company to drill in Venezuela.
But why would a small firm from Oklahoma want to go into a country rocked
by violent protests and saddled with a collapsing economy?

Listen to the company`s spokesman Russ Florence (ph).

RUSS FLORENCE (ph), SPOKESMAN: You probably gathered from some of the
stories that Horizontal Well Drillers is not doing a lot of media
interviews, I haven`t done any about this project. They just wanted to
kind of keep a low profile.

CARUSO-CABRERA: So after weeks with no answers, we traveled to Purcell,
Oklahoma, population 6400, to try to get some. We knocked on door after
door of executives and former executives of Horizontal Well Drillers,
finally showing up at the gated community where Brent Mills lives.

That visit prompted this message.

UNIDENTIFIED MALE: I understand you have a crew outside of this house. I
just talked to Brent. He`s not going to be available to talk to you in
person. We were going to call and schedule a time to visit.

CARUSO-CABRERA: That supposed visit, it never happened. We drove to
Horizontal Wells headquarters, where security took pictures of us while we
took pictures of them, and their three visible rigs.

(on camera): I was wondering if there was anybody here from the company we
could talk to.

UNIDENTIFIED MALE: Here you go.

CARUSO-CABRERA: You were told to give this to me? Or —

UNIDENTIFIED MALE: Yes.

CARUSO-CABRERA: Media inquiries about Horizontal Well Drillers are the
responsibility of Russ Florence (ph). Yes, we talked to him but he hasn`t
really been that responsive. There`s nobody here we could talk to?

UNIDENTIFIED MALE: No comment.

CARUSO-CABRERA (voice-over): After that, we tried to see Russ Florence at
his office in Oklahoma City. We eventually got answers via e-mail.

The company wrote that a key reason Horizontal Well Drillers got the
contract, their rigs are, quote, uniquely qualified for the shallow
horizontal wells and geologic formations similar to those found in the
Oronoco Belt and that their rigs have a large capacity but a small
footprint, so they can fit in difficult to reach areas.

Their contract is to drill nearly 200 wells in the Oronoco Belt, which is
home to the largest oil reserves in the world.

Pedro Burelli, a corporate finance consultant who opposes the current
Venezuelan government, used to sit on the board of Venezuela`s oil company.
He has serious doubts about this deal.

PEDRO BURELLI, FORMER OIL COMPANY BOARD MEMBER: Under no circumstances
that I know of, a contract of this amount, would go to a company of their
characteristics. I`m not questioning their ability to do small jobs. I`m
just questioning their credentials to do large jobs.

CARUSO-CABRERA: Paperwork filed with the Oklahoma County clerk shows the
company has been financed at least in part by a Callidus Capital, a
Canadian firm that provides, quote, funding solutions to companies that
cannot access traditional lending sources.

As for their finances, neither Callidus nor Horizontal Well Drillers would
comment.

As to why they would participate in a signing ceremony with Nicolas Maduro
in the midst of violent protests against his rule, Horizontal Well Drillers
told us the signing ceremony was required.

(on camera): Why would Nicolas Maduro insist or require these two
Americans to come down and do a signing ceremony in front of him?

BURELLI: They`re trying to say we`re not isolated. There are some
Americans here who actually disagree with the president, who are willing to
come and be here and invest in Venezuela.

CARUSO-CABRERA: But having them there is about using them as props for
Maduro?

BURELLI: Completely, absolutely.

(END VIDEOTAPE)

CARUSO-CABRERA: This isn`t the only time the Venezuelan president has used
American executives in a photo op. Back in September, the country`s oil
company tweeted out photos of him meeting with executives from Chevron
(NYSE:CVX), not just with Nicolas Maduro, but also the country`s vice
president, who`s on the sanctions list in the U.S. because the Department
of Justice says he`s running a drug empire.

The man on the left with his eyes closed, that`s the Chevron (NYSE:CVX)
executive. Pedro Burelli thinks he was ambushed as it would be unlikely he
would agree to meet with two sanctioned individuals.

MATHISEN: Back to this small company from Oklahoma, they say their
technology is perfectly equipped do this job. Can they pull it off? Is
it?

CARUSO-CABRERA: I spoke with two well drilling experts, including one who
did freelance work for Horizontal Well Drillers. They said any drills that
had worked in the Permian Basin would have worked in Venezuela. So, these
drills may be perfectly adequate but not necessarily better than any others
that could have been down there.

MATHISEN: Michelle, thank you very much. Great story. Good tale to tell.

All right. That is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen. Thanks so much for watching. Have a great evening, everybody.
And we will see you right back here tomorrow.

END

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

 

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