Transcript: Nightly Business Report – November 14, 2017

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Different directions. Two
stocks, two Dow components. Two very different stories. Home Depot
(NYSE:HD) and General Electric (NYSE:GE).

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Return of uncertainty. Is
there a shift under way in the stock market that could cause the rally to
fizzle?

GRIFFETH: Who`s next? Why there`s an appetite for acquisitions in the
casual dining and fast food industries.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Tuesday,
November the 14th.

Good evening, everybody. I`m Bill Griffeth here at the New York Stock
Exchange, in tonight for Tyler Mathisen.

Hi, Sue.

HERERA: Hi, Bill. Great to have you.

I`m Sue Herera. Good evening, everybody.

It is turning into a tale of two blue chip stocks. Home Depot (NYSE:HD)
has a lot working in its favor. General Electric (NYSE:GE), right now
anyway, does not.

So, let`s begin tonight with Home Depot (NYSE:HD). The home improvement
retailer not only beat earnings and revenue estimates. It also saw same
store sales blow past expectations and raised its outlook. The stock rose
on the report, adding to its 25 percent gain so far this year.

Courtney Reagan starts us off.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): While
many areas of retail are at best inconsistent right now, home improvement
retail remains robust, especially for Home Depot (NYSE:HD). The retailer
posting another strong quarter, blowing past expectations and upping its
forecast for the remainder of the year. Home Depot (NYSE:HD) has been
riding on the strength of the U.S. housing market for years now, and this
most recent quarter got an additional nearly $300 million lift from
hurricane-related spending, both prep and rebuilding.

SETH BESHAM, WEDBUSH EQUITY RESEARCH: The storms are only one piece of the
story. The company is also riding the waves of a very good housing cycle,
a very good macroeconomic environment. And to the extent, we see housing
continued to maintain its steady growth, we think that Home Depot (NYSE:HD)
should be able to outperform, especially considering the fact that they
execute much better than Lowe`s right now.

REAGAN: But the average purchase amount and number of transactions grew in
the quarter. More than 20 percent of Home Depot`s sales are to
professional, like contractors. That group buys more expensive items, that
big ticket merchandise, like flooring, priced at $900 and up, rose 12
percent in the quarter. And the retailer says sales of less expensive
products to do it yourselfers increased too.

While Home Depot (NYSE:HD) is the world`s largest seller of Christmas
trees, the holiday season isn`t its biggest time of the year for sales.
That`s the spring planting season.

Still, the retailer expects a strong fourth quarter partially driven by
continued hurricane recovery sales and continued strong housing trends.

(on camera): On earnings call, the executives said it`s first two weeks of
November are any indication, their forecasts may be conservative.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: And as Sue said, it`s a different story for General Electric
(NYSE:GE). Now, we told you yesterday about the company`s restructuring
plan, and today, we heard directly from the new CEO. But here on Wall
Street, analysts remain skeptical. And the stock fell even further today.

Morgan Brennan has our details for us tonight.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Shares of General
Electric (NYSE:GE) plunged again today as the blue chip stock logs its
worst weekly performance since 2009, at the depths of the financial
recession. GE CEO and chairman John Flannery says he`s very clear on the
direction of the struggling industrial and that he`s, quote, confident he
can turn it around.

JOHN FLANNERY, CEO AND CHAIRMAN, GENERAL ELECTRIC: If you go back and
look, this is very, very similar to my experience in health care. I walked
in, I had a look, and said this is fundamentally a very good business, and
there are some basic things around operating rigor and capital allocation,
how we work as a team, that makes a difference. So, I`m feeling very much
the same way again. But I recognize that, as I said yesterday, it`s show-
me time.

BRENNAN: Flannery detailed why the new financial forecast is so much
weaker than previously disclosed, arguing that the drop in profits and cash
flow couldn`t have been known before.

He also addressed a decision to cut the dividend in half, a big move for a
company with a shareholder base that`s 40 percent retail.

FLANNERY: I don`t underestimate in any sense, and I feel this deeply, the
gravity of what we have had to do, and the people that rely on that
dividend, especially the people relying on this for current income. This
is a very — this is a very, very tough measure. And so, it`s not anything
we took lightly. I looked at this in great detail. And I just felt, in
the end, it was something we had to do.

BRENNAN: Flannery also says he`s not surprised by the stock`s double-digit
plunge over the past few days, because G.E. had, quote, disappointing news.

On why investors should buy right now, he had this to say.

FLANNERY: Right now, why buy the shares right now, I would say the outlook
for the company over three to five years, what we laid at Ford over three
or five years, growing cash and earnings over three to five years, that`s
what someone should buy. So, is it going to be immediate? Is it going to
happen in two months, four months, six months? No, there`s operational
things we need to change to the company.

BRENNAN: Flannery is calling 2018 a reset year. But Wall Street has heard
turnaround talk from GE before. Former CEO Jeff Immelt laid out the
original 2018 profit target years ago, part of his turnaround plan.
Flannery just cut it in half.

So, there`s a lot of skepticism, frustration, even anger around the Dow`s
oldest component right now.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: And GE, along with concerns about the global economy, and a
decline in energy shares, weighed on the broader market today. The Dow
Jones Industrial Average lost 30 points to 23409. It had been down triple
digits earlier in the day. The Nasdaq was off 19. And the S&P 500 fell
nearly six.

Today`s pullback follows a steady rally in stocks pretty much all year but
is uncertainty starting to creep back into this market?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s been a little
bit of de-risking going on in the markets with cyclicals like materials and
industrials and energy down today and defensive names like consumer staples
and utilities on the upside. There`s a different tone to the market in the
last week or so. We`ve opened down for the last five trading sessions.
You know, that has not happened in a very long time.

Now, traders have cited several potential issues. First, we are making
progress on tax cuts but everyone now realizes it may not be as great as
everyone hoped. Traders are also questioning what this flatter yield curve
means. We don`t have an agreement on that.

And also, recent data out of China, including retail sales and industrial
production, have been disappointing. And the uncertainty in the Middle
East is also a new factor, the Saudis arresting high-ranking princes all
happened in the last week and a half. That corresponded for the recent
market weakness.

It`s not clear whether Middle East Sovereign Wealth Funds were sellers on
this turmoil. Now, the S&P is only fractionally off its historic high from
early last week. But there`s been a notable divergence in two areas.

First, the small cap Russell 2000 is down about 1.4 percent. The S&P is up
2.5 percent in the last few weeks. That`s a big divergence, attributed
partly to concerns over the tax bill. Another issue is this decline in
these high yield funds. They`re down again today. They`re down nearly 2
percent for the month.

There are tax issues here as well, but high yield is also a proxy for
people`s willingness to take risk. So, the bottom line is for the moment,
the weakness in small caps is contained. But many investors are sitting on
gains for the year. They`re reluctant to sell now because it`s easier to
sit on the gains and sell in January when they`ll have 16 months to pay
taxes and they`ll get a tax break to boot.

But if the market starts to slip notably in the next few weeks, the need to
preserve gains will trump any tax consideration. And that could lead to an
end of year selloff.

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

(END VIDEOTAPE)

GRIFFETH: Well, let`s turn to a bull and a bear for their thoughts on
where this market may go from here.

We have Jim Paulsen, chief investment officer at the Leuthold Group, who is
cautious on the market. You get to be our bear.

And Kevin Caron is the portfolio manager with Washington Crossing Advisers,
who is our bull.

Good to see you both, as always. Thanks for joining us tonight.

KEVIN CARON, PORTFOLIO MANAGER, WASHINGTON CROSSING ADVISORS: Good to be
here.

JIM PAULSEN, CHIEF INVESTMENT OFFICER, LEUTHOLD GROUP: Thanks for having
us, Bill.

GRIFFETH: Kevin, I think, even as a bull, you admit that historically
speaking, this is a rather expensive market. And what do you make of this
change in tone that Bob Pisani was referring to? There are signs of wear
and tear here lately.

CARON: Yes, we have a barometer we`ve constructed, and that barometer is
still pointing towards growth. And most of the data is very strong. You
look at capital spending, investment spending, look at employment data,
earnings.

The wide swath of data is still supportive of the growth story. And until
that breaks materially or until the market begins to really question that
story, we`re going to stay with it. So, we`re still bullish, although we
do acknowledge the market is a little bit pricey here.

HERERA: You know, Jim, let me turn to you, if I could, Jim, on that note,
because I think you would agree that the market does look a little bit
pricey. But you`re also of the opinion, I believe, that some of the
positive economic news that we`ve gotten recently may start to soften up a
little bit.

PAULSEN: Yes, to some extent, Sue. I think one of the things that`s
driven this market has been positive economic surprises. The economy of
the United States has gotten better than we thought. No one thought we
would have two back to back 3 percent GDP quarters, for example. And not
only that, but a year ago no one thought we would have a global
synchronized recovery where everyone around the globe is growing. That —
those surprises have really helped lift the market.

The problem going into next year is that now everyone knows that, and even
if the economy remains fairly healthy, it will no longer surprise. And
thereby, it will no longer impress and continue to drive equity markets
higher.

And to your point, if it fades a little bit, which I think could happen,
then we could be disappointed and be a struggle for the market.

It`s also — there`s reasons to suspect a slowdown. We`ve backed up long
term bond yields. The Fed has raised rates several times. The dollar has
backed up. Financial liquidity for one of the rare times in this recovery
has contracted in the last six months. GDP has actually grown faster than
the money supply, so there`s less liquidity left for the financial markets.

Then I just kind of thing sentiment has gotten a little ahead of itself for
the rare. What`s really driven this market has been a wall of worry.
Maybe for the first time, that`s dissipating and that lends itself to maybe
having it pull back.

GRIFFETH: Kevin, let me ask you about monetary policy. There`s a theory
going around right now that, you know, let`s face it, we`ve had a very good
run since March of 2009 for the U.S. stock market, and it`s fueled in large
part by the low interest rates that the Fed has put into place. Now as
they begin to raise those rates, as Jim was referring to, can you still see
the stock market continuing higher? There are those who feel it has to go
in the other direction.

CARON: Well, not necessarily. The market has been fueled by an
expectation for pedal to the metal, both monetary policy and now fiscal
policy. We`re not talking about tax hikes and interest rates are still
well below the inflation rate. So, both of those engines are on full
throttle right now.

And if we got to a point where the Fed has gone too far, then that could
cause a problem. But if you look at what the market expectations are,
they`re really not seeing much by way of interest rate increases from here.
So, yes, if you got a big spike in interest rates and it was a surprise and
shock to the market, that could end the bull market.

But that`s not what the market seems to be expecting at the moment. The
new appointments to the Fed don`t suggest a reversal of course there
either.

HERERA: All right. So, Jim, you would position yourself a little more
defensively. And I see from my notes here, you would move equity exposure
away, overweight, away from the United States. Where would you be putting
money to work either here or abroad?

PAULSEN: Yes, I would overweighted in international markets, both emerging
and developed, Sue. I think they`re going to have less pressure than the
United States stock market is in the next year.

And then I guess I would have a barbell approach a little bit. I would
stay with more of the inflationary sort of plays. I like the energy
stocks, which have been out of favor but do well if interest rates rise and
do well if inflation pressures continue to pick up. I`d also look at
industrials right now, with GE and the like, they`ve really beaten down
that sector and it could be a bit of a value play in here. A late would
also benefit from re-inflation pressures.

I`d still hold on to technology but I might back up a little bit overall.
I`d be careful about going to traditional sectors like utilities and
telecoms and consumer staples because I think they have extreme downside
risks to rising yields.

GRIFFETH: And oh, by the way, the utilities hit an all-time high today too
as well.

Jim Paulsen with Leuthold Group, Kevin Caron with Washington Crossings
Advisers, thank you both. Appreciate it.

PAULSEN: Thanks a lot.

CARON: Thank you.

HERERA: There are reports that the White House is considering nominating
Mohamed El-Erian to be the vice chair of the Central Bank. He is the
former PIMCO CEO and the current chief economic advisor at Allianz. He`s
also been a guest here on NIGHTLY BUSINESS REPORT.

The president recently nominated Jerome Powell to be the chair of the
Federal Reserve.

GRIFFETH: Speaking of which, the Fed is keeping an close watch on
inflation which has come in consistently below its 2 percent target. But
it may be starting to pick up. Just today, we learned that prices at the
wholesale level climbed more than expected over the past year. In fact,
producer prices rose 0.4 percent, their biggest annual gain in more than
five years.

HERERA: Still ahead, food fight. Will more private equity firms want to
take a bite out of casual dining brand?

(MUSIC)

HERERA: The U.S. Postal Service reported a loss last year of more than
$2.5 billion. It`s the 11th straight year in the red. The reasons are
pretty familiar. People are sending less mail and pension and health care
costs are rising. The postmaster general is asking for more freedom to
raise stamp prices as a way to help generate revenue. The good news, it`s
forecasting another strong holiday season of package deliveries.

GRIFFETH: Speaking of which, small businesses were more optimistic last
month. According to a monthly survey of the National Federation of
Independent Business, business owners expect sales to be higher and they
think that now is a good time to expand. However, some also say that they
want to hire, but they`re having a hard time finding qualified applicants.

HERERA: Shares of Buffalo Wild Wings (NASDAQ:BWLD) soared today on a
takeover report we told you about last night. The company has reportedly
received an offer from private equity Roark Capital. And that sent the
stock up nearly 24 percent. If a deal does get done, it wouldn`t be the
first fast casual company to go private and it`s likely won`t be the last.

Kate Rogers (NYSE:ROG) has more.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The private equity
firm seemed to have an appetite for acquiring names in the restaurant
space. The latest, Roark Capital is making a bid to take over Buffalo Wild
Wings (NASDAQ:BWLD). The company also owns Arby`s, Jimmy John`s and more.
So, who might be the next takeover target?

Well, fast food names like McDonald`s (NYSE:MCD) and Restaurant Brands
International have continued to thrive this year, fast casual names have
been hit hard, making them attractive for potential buyouts. Analysts say
names like Noodles and Company and Zoes Kitchen with smaller market caps
and consumer struggles may be on the radar next. Another beaten-down name,
Cheesecake Factory which fallen some 25 percent for the year could make
sense as a future acquisition, although it is a riskier move given its
exposure to malls which have also been struggling for foot traffic as
consumer behavior changed.

There`s also been chatter of two other restaurant bids in recent weeks.
First, JAB Holding Company which owns Panera, and Caribou Coffee
(NASDAQ:CBOU) and Keurig, eyeing Dunkin Donuts. And Apollo Global
Management potentially making a bid for Qboda Mexican Eats.

One name that has analysts split as a possible acquisition target is
Chipotle. The stock can`t seem to escape its food safety woes, which
resurfaced this week after actor Jeremy Jordan posted on social media he
had been hospitalized after eating at the fast casual chain. Chipotle
reached out to the actor and said they investigated and that they could not
confirm his illness was due to eating their food.

The stock is down over 25 percent year to date. And while some say it
could make for a worthwhile takeover, others say we may instead see more
activist intervention to turn that brand around.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

GRIFFETH: TJX reports its worth sales growth in nearly a decade and that`s
where we begin tonight`s “Market Focus”.

The off-price retailer said that its apparel offerings failed to appeal to
customers and as a result, revenue and same store sales suffered. The
company added that those hurricanes during the quarter also affected its
results. The parent of Home Goods and Marshall`s also gave earnings
guidance for the year that fell short of expectations. Shares of TJX fell
nearly 4 percent as a result to $67.94.

And despite a drop in same store sales, Dick`s Sporting Goods (NYSE:DKS)
topped both profit and revenue expectations. The athletic apparel retailer
said that planned investments will cause earnings next year to fall,
though, by as much as 20 percent. That news sent the shares lower nearly 3
percent to $25.59.

Advanced Auto Parts reported a decline in same store sales and revenue that
missed analyses` expectations, but the car parts retailer did beat on
earnings and reported a smaller than expected decline in profit margins.
The company also reaffirmed its outlook for the year. Shares took off,
rising 16 percent today to $95.72.

Sue?

HERERA: Bill, semiconductor equipment maker Kulicke and Soffa said
stronger demand for its products help profits and sales topped estimates.
The company`s forecast for the current quarter also outpaced street
targets. So, shares jumped 20 percent to $28.52.

Warren Buffett`s Berkshire Hathaway (NYSE:BRK.A) is cutting its position in
IBM, a regulatory filing shows the conglomerate cut its stake in the PC
maker by nearly 32 percent to 37 million shares. Shares reacted to that
news, initially falling in after hours trading. They ended the regular
session up just a fraction to $148.89.

And the online auto marketplace Car Gurus reported its financial results
for the first time since going public last month. After the bell, the
company reported profits and sales that topped expectations, saying a rise
in subscription revenue from dealers helped its results. Shares initially
spiked in extended trading after closing the regular session up about a
percent at $29.82.

GRIFFETH: And certainly, investors have been closely watching tax reform
discussions in Washington. And today, it appeared as if Senate Republicans
were injecting health care into that debate as well. There are reports
that a repeal of the Affordable Care Act`s individual mandate will now be
included in the Senate`s tax reform proposal. The House version that`s
expected to be voted on on Thursday does not currently include that repeal.

HERERA: Well, there`s also been a lot of talk in the tax plan about
potential cuts to the popular mortgage deduction. But there`s an even
bigger cut in the House tax plan that could hit affordable housing pretty
hard.

Diana Olick is in Washington tonight.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): America
desperately needs more affordable rental housing. But buildings like these
are less lucrative for developers than fancy buildings like these which
command much higher rents. That`s why the government entices developers to
build low income housing with a tax credit and something called private
activity bonds which are tax-free.

RICHARD GOLDSTEIN, NIXON PEABODY PARTNER: Multifamily affordable housing
that then gets a loan at a below market interest rate because there`s a tax
exemption.

OLICK: But the House tax bill wipes out the bonds, which also hurts
developers` ability to get the low income housing tax credit because the
two are linked. Without the bonds, developers will have little incentive
to build thousands of affordable apartments.

GOLDSTEIN: The bonds access with credit, but together, it`s 50,000 units.
It`s 50,000 households that will go without this really critically needed
affordable housing. Families, seniors, veterans, homeless people, people
with special needs, are all going to be denied this housing. It`s a
devastating reduction.

OLICK: Republicans back the cut, saying the federal government should not
subsidize the borrowing costs of private businesses. This as the Trump
administration touts public/private partnerships in both housing and
infrastructure which the ban supports. Housing advocates in Texas and
Florida are condemning the cut, saying these bonds are needed to repair and
rebuild housing after Hurricanes Harvey and Irma.

(on camera): Losing these bonds could reduce the supply of affordable
housing by 1 million units over the next decade according to one accounting
firm. This as the supply of low priced homes for sale is at a record low.

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

(END VIDEOTAPE)

GRIFFETH: Coming up, going, going, gone. A foreclosure auction comes to
Manhattan`s trophy tower.

(MUSIC)

GRIFFETH: Here`s what to watch tomorrow. We have a slew of economic
reports due out, including business inventories and the consumer price
index, which is a measure of inflation. Retail sales for the month of
October will be released. And we will hear from Dow component Cisco
(NASDAQ:CSCO) Systems which is expected to report its financial results.
That`s what we`re watching for Wednesday.

HERERA: So, we need your help for an upcoming program on retirement. On
Thanksgiving, we will examine the crisis that we hear about all the time.
So, tell us about your biggest challenge when it comes to saving for
retirement.

Have no savings at all? We want to hear from you. Go to our Website
NBR.com, click on “contact us,” and tell us your story. You can also post
a comment on our Facebook (NASDAQ:FB) page or you can tweet us.

And if you have a question about saving for retirement, our experts may be
able to help. E-mail a short video to nbrmail@cnbc.com.

Bill?

GRIFFETH: Household debts reached a new record according to the Federal
Reserve Bank of New York. It was the 13th straight quarterly increase.
Mortgages account for more than two-thirds of total household debt here in
the U.S., even as auto and student loans also continue to grow. But
delinquencies are also rising, especially auto loans made to subprime
borrowers by auto finance companies.

HERERA: Well, the richest 1 percent of the world`s population owns more
than half of the world`s household wealth. A new report from Credit Suisse
also says income inequality is going to get worse over the coming years
with millennials having a particularly tough time. The researchers say
inequality is largely the result of the financial crisis because financial
assets have been growing faster than nonfinancial ones.

GRIFFETH: Finally tonight, it`s called 157 because that`s its address here
in the heart of New York City. But it is more than just another Manhattan
high-rise. When it opened three years ago, 157 was considered a symbol of
extravagance, drawing the world`s billionaires to its apartments with
breathtaking views among many other amenities.

But three years later, those record setting sales have gone from boom to a
sort of a bust. Robert Frank has more.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Last
week, unit 79 of the skyscraper named 157 became the biggest foreclosure
sale in New York City, auctioned off for $36 million. The owner was Kola
Aluko, a Nigerian billionaire charged with money laundering and fraud.

Now, real estate brokers said it was an outlier and that the market is
strong. But an analysis of sales at 157 shows that every apartment since
the building opened in 2014 has declined in value, all by double digits.

Jonathan Miller of Miller Samuel Appraisers ran the numbers. A unit on the
62nd floor was purchased for over $31 million. Two years later, it sold
for $23.5 million, a 26 percent decline. A unit on the 65th floor was
bought for $29 million and sold for just $22 million this past April.

Prices for new condo developments across Manhattan have fallen 27 percent
this year. The average sale price is still more than $4.3 million or
$2,500 a square foot.

There are currently 16 apartments listed for sale at 157 today. The most
expensive, for $70 million.

One apartment that is not on the market is the famed penthouse on the 75th
and 76th floor that hedge fund billionaire Bill Ackman purchased for $91
million. He has said he expects to be able to sell it for more than twice
that. Of course, that`s not likely anytime soon.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for joining us.

GRIFFETH: And I`m Bill Griffeth. Have a great evening. We`ll see you
tomorrow.

END

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