Transcript: Nightly Business Report – November 27, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Retail history. Cyber Monday
could be the biggest U.S. shopping day ever and Amazon (NASDAQ:AMZN) is at
the center of it all.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Busy builders. Sales of
new-built homes surged unexpectedly, hitting a ten-year high as supply
remains scarce.

HERERA: High court case. Big pharma and big tech are on opposite sides of
a high stakes patent battle with billions at stake.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,
November 27th.

MATHISEN: Good evening, everyone and welcome.

The Dow closed at a record high to start the week, but we begin with
retail, which got a lift today on expectations that this could be the
biggest ever Internet shopping day in U.S. history. Consumers bargain
hunting on their computers, their phones, whatever. That brightened the
outlook for the long suffering retail sector that`s been beaten, bruised,
battered all year long.

The biggest player in online retail, of course, is Amazon (NASDAQ:AMZN).
And today, its shares briefly rose above $1,200 apiece. They close
slightly below as you see right there.

Human workers at its fulfillment centers toiled like caffeine crazed elves.
Courtney Reagan was among them in Robbinsville, New Jersey.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a record
breaking weekend for online sales and shoppers aren`t done yet. Cyber
Monday is forecast to be the biggest online sales day in the U.S., hitting
more than $6.5 billion by some estimates. Above last year, though still
just a fraction of Alibaba`s singles day in China which tops $25 billion.

And when asking consumers where they were shopping online today, one site
is king.

UNIDENTIFIED FEMALE: Yes, Amazon (NASDAQ:AMZN).

UNIDENTIFIED MALE: Amazon (NASDAQ:AMZN). I`ve already bought something.

REAGAN: Amazon`s online dominance is likely to swell on key shopping days.
Some say Amazon (NASDAQ:AMZN) may have gotten up to half of all online
sales on Black Friday. That`s a little more than what`s seen on a typical
day.

This is one of about 75 of Amazon`s U.S. fulfillment centers. This covers
a million square feet. There are 14 miles of conveyors, 5,000 full time
workers, thousands more seasonal workers and thousands of robots work
together to fill your Cyber Monday orders.

MUGE DOGAN, AMAZON: Cyber Monday is one of our biggest shopping days.
Last year, customers ordered more than 64 million items worldwide. That`s
a staggering 740 items per second. And we are off to a great start for our
holidays.

REAGAN: And when Amazon (NASDAQ:AMZN) grows sales —

GENE MUNSTER, LOUPVENTURES: There`s going to be upside to the overall
numbers for the industry, the e-commerce industry.

REAGAN: Amazon`s already outsized influence can still make it feel like
the entire industry is growing right along with it.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Robbinsville, New
Jersey.

(END VIDEOTAPE)

HERERA: Well, the rise in Amazon (NASDAQ:AMZN) stock means the net worth
of its founder and CEO Jeff Bezos is being pushed even higher.

Robert Frank has more on his 12-digit fortune.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: With Amazon
(NASDAQ:AMZN) shares hitting new highs, Jeff Bezos is now worth more than
$100 billion. That`s the first time anyone has reached the 12-figure mark
since Bill Gates back in 1999. Now, Bezos` wealth is increased by more
than $33 billion this year and he`s up over $50 billion over the past two
years.

Now, to put that wealth into perspective, Bezos could spend over $6 million
a day or $250,000 per hour for the rest of his life and still have billions
left over. So, what`s he going to do with it all?

Well, so far, Bezos has not announced any concrete plans for philanthropy
and he has pledged to give away only $68 million or less than one tenth of
1 percent of his wealth. He has not signed the giving pledge, and unlike
virtually all the other billionaire tech founders, he doesn`t have a
foundation or a charitable LLC devoted to social change.

Now, in June, he did tweet out a request for ideas for philanthropy, saying
he wanted to, quote, focus on the here and now of needs. So far, he hasn`t
said which of those ideas he will choose.

Bezos may be about to redefine philanthropy just as he`s revolutionized
retailing. He`s sold a billion dollars worth of Amazon (NASDAQ:AMZN) stock
each year to fund Blue Origin, that`s his space company that aims to
colonize Mars. And he purchased “The Washington Post (NYSE:WPO)” which he
sees as important for democracy.

Bezos has said that, quote, for-profit models can improve the year more
than philanthropy models.

So, what would it take for Bezos to become the first trillion dollar man?
Well, Amazon (NASDAQ:AMZN) stock would have to hit $12,500, about ten times
where it is today.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

MATHISEN: The nation`s home builders are getting busier. Sales of newly
built homes surged for the third straight month, hitting a ten-year high,
well above expectations.

Diana Olick has our story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The supply of existing
homes for sale in October hit another new low. And that is fueling demand
for new construction, even though new homes come at a price premium. New
home sales surged to the highest pace in a decade in September and then
again in October.

While some of that may have been demands pulled forward from two major
hurricanes, sales have been rising steadily all year. This as existing
home sales have been falling due to tight supply.

MICHAEL REHAULT, JPMORGAN: We believe that you have a number of positive
factors influencing the housing market year to date including job growth,
consumer confidence, as well as modestly easing lending standards.

OLICK: The builders may be benefiting from the severe shortage of existing
homes for sale but they`re still not able to build nearly as many starter
homes as buyers would like. They cite the high cost of land, labor and
materials, as well as a labor shortage. Slowly, however, they are meeting
the demand especially since the biggest buyer group, millennials, have
waited longer and may now have more buying power.

REHAULT: You certainly have a shift of the home builders catering more
towards the entry level. At the same time, I think the millennials are
starting to come into their own.

OLICK: The October report shows that a number of homes sold but not yet
started also hit a decade high which means the builders have a lot of work
ahead. The only trouble is they still aren`t finding enough workers to do
it all.

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

(END VIDEOTAPE)

HERERA: Svenja Gudell joins us now to talk more about the health of the
housing market. She is the chief economist at Zillow.

Welcome. Nice to have you here.

SVENJA GUDELL, ZILLOW CHIEF ECONOMIST: Thank so much for having me.

HERERA: So, give me your read this report, especially given the fact that
this is the second row, that was a bit of a surprise to the street and
stronger than expected.

GUDELL: Right. You know, good up surprise on this one. And we certainly
didn`t think it was going to be quite as positive as it was. We`re close
to 700,000 units being built annually and that was great news. Also, good
take on the fact that prices are being kept in check.

So, we`re seeing a bit of a turn by builders to try to cater to the entry-
level segments, not super low entry, but at least targeting millennials
which are coming into the market more and more. And baby boomers as they
try to scale down what their current living situation is as well.

So, healthy demand is being at least met by a little bit more supply. Not
enough yet. But we`re on the right track.

MATHISEN: You and many others in your field say that we are in and have
been in a sort of an inventory crisis for some years.

GUDELL: Right.

MATHISEN: Why is that? The population isn`t growing that fast.

GUDELL: Well, you know, it`s sad to kind of think about this, but
inventory levels are kind of back where they were in the early `90s even
though the population has grown quite a bit since then. And we`re just
seeing that builders are having a hard time keeping — keeping up to
demands, and, you know, to the three L`s we talk a lot about — lumber,
labor and land really, trying to find cheaper land to build on. And that
makes it really hard to actually build in urban centers which are in high
demand.

On top of that, we`re seeing a bunch of homes that used to be existing
housing stock that aren`t available anymore because they`ve been converted
into rentals. So, we`re seeing a lack of actual homes trading hands at
this point. And, you know, all these things in some areas like Vegas,
Chicago, we still have a fairly high amount of negative equity where you
owe more in your mortgage than what your home is worth. So, these homes
are also not being sold.

HERERA: Right.

GUDELL: So, some of these characteristics are keeping inventory back. At
the end of the day, it`s a bit of a musical chairs phenomenon, too, where
you actually have people not wanting to sell their home even though it`s a
great seller`s market because they don`t want to become buyers at the end
of it all.

HERERA: At the end — yes.

GUDELL: Exactly right. They just stay and renovate their home basically.

HERERA: Svenja, there`s also a worry, at least in our neck of the woods,
you know, the East Coast and the West Coast, where the cost of housing is
very expensive.

GUDELL: Right.

HERERA: In general.

The tax plan, which may eliminate or vastly reduce the mortgage deduction,
how do you anticipate — if it goes through as it is put in place now, how
do you anticipate that affecting the inventory cycle?

GUDELL: You know, the good news is that if possibly mortgage interest
deduction gets capped or reduced, that should have no effect on the vast
majority of buyers in the U.S. It will, however, negatively impact very
expensive markets such as Manhattan, San Francisco, San Diego, a lot where,
you know, where you`re basically spending so much on a home that you want
to spend more than half a million on a loan.

Capital gains taxes could really keep inventory in check.

HERERA: OK.

GUDELL: People will be impacted to not want to move, you know, quite as
soon as they perhaps would have originally. So, it still remains to be
seen what will actually happen. So, it will be an issue, state and local
taxes, it kind of depends on what happens with those who can deduct their
property taxes.

HERERA: That means we`ll have you back when we know exactly what`s in the
plan. Thanks so much.

GUDELL: That`s right.

HERERA: Svenja Gudell with Zillow.

GUDELL: Thank you.

MATHISEN: The Federal Reserve is widely expected to raise interest rates
at its meeting next month. And today, the president of the Dallas Fed
backed that stance. Robert Kaplan said that waiting too long to tighten
policy could put the central bank behind the curve and increase the risk of
recession.

Previously, he said he wasn`t certain whether a rate hike was needed in
December. Kaplan is a voting member of the Fed this year.

HERERA: As we mentioned, the Dow Jones Industrial Average closed at a
record today, helped in part by shares of retailers. Investors also looked
ahead to a possible Senate vote on tax reform. So, here are the final
numbers. The Dow Jones Industrial Average added 22 points to 23580. The
NASDAQ lost 10, and the S&P 500 was off 1.

With the Dow at records and other indexes close to one, could the market
power even higher heading to the end of the year?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Once again we`re back
at another new high and the market leader technology back at new highs.

So, is this it? Is this the top?

Well, some insist that it is, but for the moment the market shows no signs
of leveling off or even pulling back. There`s two factors that typically
indicate a market top. First, the advance/decline line, the number of
stocks advancing versus those declining, it starts dropping fast. And
second, the driving force in the market switches from buyers of stocks to
sellers.

But none of this has happened. The advance/decline line is at a new high
and there`s been no significant increase in selling pressure. Technical
analysis from Lowery has noted that declines in the advance/decline line
have begun on average four to six months prior to the market high. You
base it on this metric, you were at least months from a market top, at
least.

So, what would kill the rally? The market believes the rally has risen on
the back of three factors: first, rising earnings which could drop if a
recession happens in 2018, second, a tidal wave of buybacks which could
drop if it becomes too expensive to borrow money from the buybacks. And
finally, and this is the most important issue, if the Fed starts raising
rates much quicker than the market expects. Most traders agree, that would
be the final blow to this amazing nine-year rally.

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

(END VIDEOTAPE)

MATHISEN: And still ahead, lawmakers are back at work, although maybe not
like caffeine-crazed elves. They do have a list of things to get done
before Christmastime.

(MUSIC)

MATHISEN: Republican senators are going full speed ahead with their tax
overhaul plans, returning to Washington and meeting with the president
about their proposal.

(BEGIN VIDEO CLIP)

SEN. PAT TOOMEY (R), PENNSYLVANIA: It`s going to be tax relief for hard
working middle income and lower income families. That`s definite. And the
other definite part of this tax reform is making American business
competitive.

(END VIDEO CLIP)

MATHISEN: John Harwood is following the story from Washington.

Hi, John.

You know, there are going to be a lot of talk, a lot of arm twisting over
the next few days to get the votes needed. Where do things stand? When is
the vote planned? And how does it look like it`s breaking?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: The hope for
Republican leaders, Tyler, is to have a vote as early as Thursday or by the
end of this week.

Now, of course, as we`ve seen in previous fights over health care, if they
don`t have the 50 votes they need to pass and there are only 52 Republicans
in the Senate, you need 50 of them. If they don`t have the votes, they
will delay the vote, because they don`t want this to be killed.

As of right now, there are some shaky votes, but we do not have firm
declared noes to oppose this bill. So, Republican leaders are confident
they will be able to pass it. We will see because there`s significant
criticisms of the amount of growth that would be caused by this bill.

Some of the analyses say not very much, of the amount of deficit increase.
Those would be significant. And the fact that these tax bills are tilted
toward the top of the income scale.

HERERA: There`s also, John, the looming threat of a possible government
shutdown. The deadline is Friday, next Friday, December 8th. So, what are
you hearing about that particular issue?

HARWOOD: I think that it is unlikely that there will be a shutdown, but
that depends on, probably on the Trump administration as it`s done in the
past, giving into Democrats on some key issues like the DACA issue, for
example, those dreamers who have legal status in the country. They need
Democratic votes unlike on taxes or healthcare, they need Democratic votes
to keep the government open. Democrats are going to play hardball.

MATHISEN: And it was, if nothing else, an unusual day at the CFPB, the
Consumer Finance Protection Board. There were two acting directors, one of
whom arrived with donuts, John. That`s got to ingratiate him.

What`s going on here? How is this going to play out?

HARWOOD: Eventually, Donald Trump and the Republicans are going to win
because the president has the authority to appoint a permanent director and
the Republican Senate will confirm one. But as of now, Democrats who
participated in the creation of Dodd/Frank and people sympathetic to them
at the CFPB are staging a rear guard action to at least slow that down.
So, the deputy director under Richard Cordray who quit was installed as
acting director but the president has designated Mick Mulvaney as acting
director.

This is going to be resolved by courts. There`s a lawsuit involved. But
in the end of the day, President Trump`s going to win this fight.

MATHISEN: All right. John, thanks very much. John Harwood in Washington
tonight.

HERERA: The Supreme Court today heard oral arguments in a fracking patent
case, a case that got the attention of both the world`s largest technology
companies and some of the biggest drug makers. That`s because the suit
focuses on how patents can be challenged, a key part of both business.
Billions of dollars are at stake, and in a unusual twist, a Native American
tribe has a lot at stake as well.

Meg Tirrell explains.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: The case has to do
with the America Invents Act heralded when it was passed in 2011 as the
most sweeping change to our patent system in half a century. And it was
supported at the time by both the technology and pharma industries. Former
Eli Lilly (NYSE:LLY) CEO John __ was at the ceremony there President Obama
signed the bill into law.

But one facet of that law has now divided those two industries. It`s being
challenged as a constitutional, in a case called Oil States Energy Services
v. Greene`s Energy Group. On one side, tech giants Apple (NASDAQ:AAPL),
Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) and others. And on the other,
big pharma companies.

At issue is a system known as a Inter Partes Review, or IPR, which gives
patent challengers a route through the U.S. Patent and Trademark Office to
try to invalidate patents. The argument for it championed by tech
companies. That system is more efficient than going through the federal
courts.

JOSHUA LANDAU, CCIA PATENT COUNSEL: It`s been a really useful tool for
companies to defend against patents that shouldn`t have been issued in the
first place.

TIRRELL: Joshua Landau, patent counsel for the Computer and Communications
Industry Association, estimates it`s already saved $2 billion in legal fees
alone. But the pharma industry says the IPR system requires it to defend
patents in multiple venues with different standards, with rules that are
less fair to patent owners than in federal court. Critics say it`s lowered
the value of patents in the U.S. by as much a trillion dollars, though that
figure has been disputed.

MICHAEL SHORE, SHORE CHAN DEPUMPO FOUNDING PARTNER: The America Invents
Act was an effort to destroy the U.S. patent system. And they`ve done a
pretty darn good job of doing it.

TIRRELL: One drugmaker Allergan (NYSE:AGN) even transferred the patents
for a billion dollar drug to a Native American tribe in order to avoid
these IPR challenges. Allergan (NYSE:AGN) paid the tribe almost $14
million to use its sovereign immunity to shield the patents for the eye
drug Restasis from IPR challenges from generic drug makers.

In return, the Saint Regis (NYSE:RGS) Mohawk Tribe received much needed new
funds.

ERIC THOMPSON, SAINT REGIS MOHAWK TRIBAL CHIEF: It`s always been our
intent and intent to pass councils to look at creating revenue streams that
are not completely dependent on the gaming industry.

TIRRELL: If the court upholds the IPR system, the tribe sees an
opportunity to diversify its economy. In recent years, the tribes leader
say gaming revenue from its casino has leveled off. What`s more? The
nearby St. Lawrence River has been polluted over decades by three nearby
factories now designated by the Environmental Protection Agency as
superfund sites.

TSIORASA BARREIRO, SAINT REGIS MOHAWK TRIBE EXECUTIVE DIRECTOR: We are
experiencing high rates of cancer, autoimmune diseases, thyroid issues
other chronic health conditions due to the toxic legacy of industry along
the St. Lawrence River and we`ve had to deal with that. And that`s quite
expensive.

TIRRELL: The Allergan (NYSE:AGN) deal has been heavily criticized with one
senator, Claire McCaskill of Missouri, seeking to strip tribes of their
sovereign immunity to these patent challenges. The tribe called the move a
double standard as state universities have the same protections.

THOMPSON: It`s almost like an economic apartheid where we`re not allowed
to do certain things unless otherwise given permission.

TIRRELL: The court is expected to decide the case by June of next year.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: The magazine publisher Meredith (NYSE:MDP), think “Better Homes
and Gardens”, will buy Time Incorporated, and that`s where we begin
tonight`s “Market Focus”.

Meredith (NYSE:MDP), with financial backing from the conservative
billionaire Koch brothers, will buy the publisher for “Time”, “Sports
Illustrated” and “People” among others, for nearly $3 billion. Meredith
(NYSE:MDP) said the Kochs will not have board seats or influence editorial
operations. Time Inc. shares rose nearly 9-1/2 percent to $18.50. Share
of Meredith (NYSE:MDP) popped more than 10 percent to $67.55.

Barracuda Networks will go private. The data security company said it
agreed to be bought by the private equity firm Thoma Bravo for about 1.5
billion. Shares of Barracuda took off, rising 16 percent to $27.59.

HERERA: Teva outlined a reorganization plan it hopes will improve
profitability. The world`s largest generic drugmaker will combine its
generic and specialty drugs businesses into one unit. Last week, we told
you about reports that Teva was cutting up to 25 percent of its work force.
Shares of Teva gained 7 percent to close today at $14.65.

Strong demand is driving growth at the RV-maker Thor Industries (NYSE:THO).
The company reported stronger than expected profits and sales, saying price
hikes and an increase in production helped results. Shares initially rose
in the extended session, but finish the regular day down a fraction to
$136.25.

Coming up, steals and deals. Why this holiday shopping season could put
you at a higher risk of being hacked.

(MUSIC)

MATHISEN: Bargain hunters are out in force this time of year, but so are
hackers, raising the risk that your data will be stolen.

Aditi Roy reports.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Kevin Hardy loves to
shop online.

KEVIN HARDY, ONLINE SHOPPER: I buy all sorts of things from Amazon
(NASDAQ:AMZN), from my clothes, to, you know, photography equipment, you
know, shoes, electronics, cell phones — pretty much everything.

ROY: Despite high profile breaches involving companies like Equifax
(NYSE:EFX) and Uber, Hardy doesn`t worry about getting hacked. On this
Cyber Monday, he says he`ll be looking online for deals.

HARDY: You never know what you`re going to come across.

ROY: But what he may come across is the wrong type of steal. A recent
study by cybersecurity firm Carbon Black finds that hacking attempt goes up
during the holidays. The threat assessment analysis revealed a 20 percent
spike in attempted cyber attacks in December of 2016 over the previous
month.

PATRICK MORLEY, CARBON BLACK CEO: Behind every attack, there`s a person.
That person understands how we behave. And so, they`re trying to drive
their attacks that they can get us to click on a link.

ROY: The company`s CEO says the hackers don`t even have to work that hard,
because they can often distract holiday shoppers online through fake
seasonal promotions. Those links can end up being click bait that leads
unsuspecting consumers into the hands of hackers. E-commerce companies are
fighting back, pouring significant resources into securing their networks.

One example is PayPal. The online payments firm has a command center to
preempt threats. It has also shelled out more than $2 million to
individuals who have found vulnerabilities in their system. New York`s
attorney general also came out with an alert on how consumers can protect
themselves online.

One recommendation, shop only on secure Internet connections, when entering
payment information, make sure your URL begins with “HTTPS” and not just
“HTTP”. And beware of fake Websites. If you see a link to a deal on e-
mail or social media, don`t click on it.

Instead, type the address directly into your web browser.

Despite warnings, some shoppers like Hardy say they`re not worried about
getting hacked.

HARDY: I think these people have too much time on their hands to sit
around hacking other people`s accounts.

ROY: But security experts warn, it often doesn`t take hackers much time,
effort or even money to pull off a successful breach.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

HERERA: And that`s NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.

We want to remind you that this is the time of year your public television
station seeks your support.

MATHISEN: I`m Tyler Mathisen. We thank you for your support. Have a
great evening, everybody and we`ll see you right back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply