Transcript: Nightly Business Report – December 5, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Economic optimism.
Corporate chieftains haven`t felt this good in years. But are they ready
to hire?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Tech tumbles. It`s been a
rough run for the hottest sector of the year, as investors try to figure
out where the market goes next.

MATHISEN: A growing movement. They`re young. They`re highly educated.
Some were city-raised. Now, more and more millennials are becoming
farmers.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
December 5th.

HERERA: Good evening, everyone, and welcome.

The U.S. economy recently posted its best growth rate in three years. And
today, a powerful group of chief executives say they`re the most optimistic
they`ve been in almost six years. Together these CEO`s lead more than 16
million employees, generate more than $7 trillion in annual revenues, and
can impact investment, wages, and hiring decisions.

The business roundtable quarterly survey shows that their outlook for sales
and capital spending has improved. But despite the optimism, hiring plans
eased and rising wages were cited as a top cost pressure.

MATHISEN: Bricklin Dwyer joins us now to talk more about U.S. CEOs`
optimistic view on the economy and whether or not he feels the same way.
He is North American economist at BNP Paribas.

Bricklin, welcome. Good to have you with us. Are you as optimistic as
these CEOs seem to be?

BRICKLIN DWYER, BNP PARIBAS NORTH AMERICAN ECONOMIST: I`m optimistic right
now. We all got the holiday spirit. So, we`re feeling pretty good.

MATHISEN: What is it that makes you feel good as we head into 2018? Is it
tax cuts? Is it the pro-growth agenda of the administration and Congress?
Is it just corporate profits rising? What?

DWYER: Well, I think right now, you know, we have equity markets, which
obviously are at near all time highs and feeling pretty good. We got tax
cuts on the horizon. We`re seeing quite a bit of spending as well.

So, things are looking good right now. I`d say that everything is lined up
for things to be quite positive right now.

HERERA: I don`t want to throw cold water on that, but is there anything
that does have you concerned or that you`re going to be watching out for?

DWYER: Well, that`s a hesitation at the end of what I`m saying. It feels
good right now, but all good things must come to an end. So, it`s a
question of how long will this party keep going. And usually when we get a
tax break, usually when we get an increase in pay, it`s not followed by
another tax break or more increases in pay. And that means that we`re
probably going to face the music sometime toward the end of next year.

MATHISEN: So, and what will cause that to happen? You say we will go from
boom to struggle in 2019. Why?

DWYER: Well, I think a couple of things. Number one is that we`ll have
this tax cut behind us. So, you know, we`re always looking for what`s the
next best thing. So, what`s on the horizon? If we don`t have another set
of tax cuts ahead of us, then that`s not going to make us too happy.

And once we start to realize that consumers have really dipped deep into
their pockets and started saving quite a bit less on the back of those
increases in equity prices, we`ll start to see people pulling back their
spending. When they pull back their spending, then growth starts to slow
and equity starts to slow and it becomes a pretty big circular activity and
pullback.

HERERA: What about wages? That was one of the things cited in the report
that was a concern to business owners, big and small.

DWYER: Well, it`s a concern for business owners, they`re not finding the
labor that they need. They`re not finding the right matches for the jobs
they have open. But for consumers, it`s pretty good news. It means that
they`re going to be paid more for the jobs they have.

So, it`s good news right now that we`re seeing this kind of pressure on
CEOs. They`re margins are getting compressed, which isn`t great for
equities but is good for the consumer right now. Of course, that, again,
can`t go on forever. We can`t squeeze margins forever without seeing some
sort of implications of that.

MATHISEN: All right. Bricklin, thank you very much. Bricklin Dwyer with
BNP Paribas.

HERERA: On Wall Street, all of the major indexes finished lower with the
S&P 500 posting its first three-day losing streak since August. Financial
stocks fell after JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC) said
trading revenue will be lower this quarter. The Dow Jones Industrial
Average dropped 109 points to 24,180. The Nasdaq was off 13. S&P 500
declined nine.

In the past week or so, stocks have undergone a bit of a shift. Money
moving has been moving out of some of this year`s most popular sectors.

So, Bob Pisani takes a look at what`s happening beneath market surface.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets may have
cheered the passage of the Senate tax bill. But this raises the question
of just how far can we push this tax cut train?

Since early last week, the sectors that would see the biggest boost from
tax cuts are the ones that have outperformed considerably. So, four
sectors have done very well, and they would get the biggest boost from a 20
percent corporate tax cut.

Financials stocks, banks, energy, industrials, and telecom. They would see
double digit gains in earnings.

But one sector would see almost no boost. So, no surprise, banks, telecom
have been big winners in the past week, and tech has been a loser. But
there may be limit to this trade. Already, today, we saw bank stocks which
soared in the past week, they began selling off aggressively. This may be
a sign of profit-taking and a sign we may be approaching this rally`s
limits.

And we`re not out of the woods yet. The Senate bill would put off
corporate tax cuts until 2019. And President Trump hinted the final
corporate tax rate may be 22 percent, not 20 percent.

Beyond taxes, traders are split between those who want to sell on the news
and those who say that we could have a rally in the beginning of next year
because we have stronger global growth, we have a weaker dollar, and we
have a slow going Federal Reserve.

But for the moment, that`s a debate for a little bit later on.

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

(END VIDEOTAPE)

MATHISEN: Jerome Powell is one step closer to becoming the next chair of
the Federal Reserve. The Senate Banking Committee voted today to advance
his nomination by a vote of 22-1. The one no came from Senator Elizabeth
Warren.

(BEGIN VIDEO CLIP)

SEN. ELIZABETH WARREN (D), MASSACHUSETTS: I`m very concerned that the Fed
will systematically roll back post-crisis rules under Governor Powell`s
leadership. And that is a risk that our financial system cannot afford.

(END VIDEO CLIP)

MATHISEN: And as we reported, Powell has signaled he is open to easing
some financial regulation. He`s also widely expected to continue Janet
Yellen`s policy of gradual interest rate increases.

HERERA: When it comes to the tax bill, the top House tax writer said the
repeal of the corporate and individual alternative minimum taxes is one of
the priorities of the tax bill conference. Kevin Brady (NYSE:BRC) is
overseeing the negotiations between the House and the Senate as those two
chambers try and reach an agreement on what the final bill should look
like.

(BEGIN VIDEO CLIP)

REP. KEVIN BRADY (R), TEXAS: I think that both the individual and the
corporate AMT is costly, is complex, really on the business side undermines
pro-growth and pro-American provisions in the tax code.

(END VIDEO CLIP)

HERERA: Opponents of the bill made it clear that the fight isn`t over.
Protesters arrived on Capitol Hill chanting “kill the bill” and “tax the
rich, not the sick”, as they assembled outside the offices of Republican
lawmakers.

MATHISEN: Meantime, back on Wall Street, Disney (NYSE:DIS) was the worst
performing Dow stock today. As we`ve been reporting, Disney (NYSE:DIS) and
21st Century Fox have been talking again. And according to CNBC, a deal
could be announced as early as next week. And the price value of the Fox
assets which include its movie and television production assets is roughly
$60 billion.

Shares of both Disney (NYSE:DIS) and 21st Century Fox both moving lower in
trading today.

HERERA: The media and entertainment industries have been swept up in
allegations of sexual harassment. The list is long. The names of those
fired are familiar ones. And they`ve brought in a lot of money for a lot
of companies. So, now, investors are taking note of what could be a new
risk.

Julia Boorstin reports.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The wave of firings
in the wake of sexual harassment claims have massive costs, and not just in
payouts to women. Take the TV news business. NBC`s “Today Show” and “CBS
(NYSE:CBS) This Morning” firing anchors Matt Lauer and Charlie Rose,
putting at risk the $508 million in advertising the “Today Show” brought in
last year, and $177 million in ad dollars for CBS` morning show, according
to Kantar.

To the movie business, with Harvey Weinstein`s fall, the Weinstein Company
now cash-starved and unable to find investors or a buyer. In the streaming
biz, Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) are suffering major
costs from sexual harassment issues. Amazon (NASDAQ:AMZN) studios fired a
top entertainment exec Roy price, forcing a total overhaul of the division.
And Netflix (NASDAQ:NFLX) canceling Louis C.K.`s standup special, pulling a
Gore Vidal biopic with Kevin Spacey, and overhauling “House of Cards” after
a costly hiatus.

SUSAN LYNE, BBG VENTURE PRESIDENT AND FOUNDING PARTNER: I thought ten
years ago that we were making progress. I look at the industries I thought
were moving in the right direction and they`ve taken steps backwards. So,
this is — this is a more systemic issue that`s going to have to be
addressed.

BOORSTIN: Now, investors are increasingly looking at the financial risks
of sexual harassment and corporate cultures that allow it and the value of
investing in more diverse management teams.

Take Fox. Analysts point to the risks posed by its $90 million in sexual
harassment settlements and related management overhaul. And pension fund
adviser CPW has been pressuring the company to review its practices.

Now in focus, how more diverse companies can yield higher returns.

LYNE: I am a big believer that the best thing in the world is to create
diverse teams of people. And if there — this will not be fixed in the
long run until there is a lot more workplace diversity.

BOORSTIN: A Morgan Stanley (NYSE:MS) study finding gender diverse
companies returned nearly 5.5 percent more annually than their less diverse
peers.

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

(END VIDEOTAPE)

MATHISEN: And still ahead, why more millennials are living the office for
the farm.

(MUSIC)

HERERA: A wildfire is spreading fast north of Los Angeles. The blaze
forced the evacuation of thousands of residents and business owners. Fire
officials say they are facing high winds and low humidity and that those
conditions are expected to remain throughout the week. The fire comes just
months after deadly fires devastated the state`s northern wine country.

MATHISEN: Meantime, in northern California, a shift is under way in
farming. An increasing number of millennials are moving into the
profession. They`re interested in organic foods, sustainable practices,
and the change is making a big impact on big food companies.

Aditi Roy has the story from Yolo County.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chris Hay looks like a
natural on his 150-acre farm. But the 34-year-old wasn`t born on a farm.
He studied philosophy in college. And up until seven years ago, Hay was
living a city life, working a desk job.

CHRIS HAY, SAY HAY FARMS OWNER: It just didn`t gibe with a lot of the
goals that I had for myself professionally. And I enjoyed working with
food and all of those things just kind of meshed into, why not try farming?

ROY: That led him to a job on a farm and now, he`s the owner of Say Hay
Farms in rural Yolo County, California.

He`s not alone. According to the USDA`s most recent census of farmers from
2012, the number of principal farmers ages 25 to 34 increased 2.2 percent
from five years before. While some of the older age brackets saw double
digit declines.

A new survey by the National Young Farmer Coalition also finds that the
upcoming generation of farmers is demographically different from previous
generations. They`re likely to be college educated, not grow up in farm
families, use sustainable practices, and produce organic food. Among those
recruiting millennial foodies into farming, Kimbal Musk, brother of tech
billionaire Elon Musk.

KIMBAL MUSK, SQUARE ROOTS FOUNDER: If you looked at it five years ago,
farming was considered — you know, this is what your grandparents did.
And over the past few years, there`s been this extraordinary demand and
desire to be a farmer among our youngest generation.

ROY: He`s disrupting the food chain with a collection of locally-sourced
restaurants and an urban farm accelerator called Square Roots. They
received 1,100 applications from millennials to launch their own farm
startups.

MUSK: It comes from the desire to be part of the real food revolution, to
grow real food for their community. It`s a wonderful thing that`s going
on. And it`s super exciting.

ROY: Millennial focus on organic foods is having a real impact on business
too. Organic food sales in the U.S. totaled a record $43 billion in 2016,
more than doubling since 2007.

The biggest group driving those sales, millennial parents, according to the
organic trade association. And in a note this year about the packaged food
industry, Goldman Sachs (NYSE:GS) wrote: millennial consumers should drive
the entirety of the industry`s growth in the next decade.

For Chris Hay, using sustainable practices and producing organic food isn`t
a business decision. It`s a just the right thing to do.

HAY: We`re out here to help move the ball forward. And it`s whole system
of changes that needs to take place.

ROY: Silicon Valley has taken notice of the millennial appetite for
farming. Venture capital investment into vertical or urban farms has
increased from zero dollars invested in 2012 to more than $280 million so
far this year.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Yolo County, California.

(END VIDEOTAPE)

HERERA: Also in California, business owners in the growing marijuana
industry are facing major challenges. Some might even call them potholes.
The problems are coming into focus as new industry rules go into effect on
January 1st.

Jane Wells has our story.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: To understand how crazy
big the legal recreational marijuana market in California might be, head
ten miles off a desert highway to an old gold rush town where the official
population is listed at six.

STEPHEN SHEARIN, AMERICAN GREEN: So, that was the old jail right there.
And I reckon we`ll make it back into a jail with no door on it, right?

WELLS: Stephen Shearin works for American Green, a company which bought
the tiny tumbleweed town of Nipton near the Nevada border for $5 million,
with hopes of turning it into a pot paradise.

TEENA THOMAS, NIPTON GENERAL STORE: They brought money into the town which
we really need.

WELLS: But there are a lot of ifs here. While medical marijuana has been
legal in California for decades, licenses to grow or sell recreational pot
will be handed out January 1st. But one month out, the state hasn`t even
started accepting license applications. And would-be entrepreneurs are
combing through hundreds of pages of new regulations.

Is California ready for January 1st?

SHEARIN: You know, who am I to say?

MATTHEW MORGAN, REEF DISPENSARIES CEO: I ask ten people and I get ten
different answers.

WELLS: California authorities believe they could collect as much as a
billion dollars in pot taxes and everyone wants in, even Silicon Valley.

Baker is a Bay Area company which sells marketing and customer management
software to dozens of cannabis stores and expects business to explode after
January.

JOEL MILTON, BAKER TECHNOLOGIES CEO: Everyone thinks the sky is going to
fall down. It doesn`t. There will be challenges. There will be some
supply chain issues. But we think it will catch up very quickly.

WELLS: But with all the confusion and some licenses costing over $100,000,
the state may find it tough to convince some in this long-time illegal
industry to play ball.

MORGAN: How do you take an industry that`s not educated and matured and
put it into a regulated environment? That`s our challenge.

WELLS: Expect more than a few potholes come January.

SHEARIN: I think my biggest thing would be, and this is more like a
Christmas wish, that during this time of uncertainty, we err on the side of
understanding and forgiveness and don`t make an example of certain people –
– well, they were 50 yards on the side. I mean, it just doesn`t move
commerce forward. It doesn`t move humanity forward.

WELLS: No matter what happens, California dreaming continues, in what you
might call gold rush 2.0.

For NIGHTLY BUSINESS REPORT, Jane Wells, Nipton, California.

(END VIDEOTAPE)

MATHISEN: Higher costs cut into profits at Toll Brothers (NYSE:TOL) and
that is where we begin tonight`s “Market Focus”.

The luxury homebuilder missed profit and revenue forecasts as it faced an
increase in labor and raw material expenses. The company also said new
orders in the latest quarter rose at the slowest pace in six quarters.
Shares of Toll came under pressure, down 7 percent at $46.93.

The clothing company GIII said strong demand for brands Calvin Klein and
Tommy Hilfiger helped overall profits grow and edge past expectations.
Revenue also improved when the company lifted its earning outlook for the
full year. Sales jumped 13 percent to close at $34.30.

Meantime, Lands` End swung to its first profit in two years as more
customers made purchases online and through the company`s catalogue. That
demand helped offset weaker in-store sales. Lands` End shares finished the
day up nearly 12 percent to $13.20.

HERERA: Revance Therapeutics said its medications to fix frown lines
proved to be effective during study trial. The drugmaker also said if the
treatment winds approval, it would likely be the longest lasting medication
on the market. Revance investors smiled at the result, sending shares up
more than 33 percent to $34.75. Meanwhile, Allergan (NYSE:AGN), which
makes Botox, saw its shares fall about 1.5 percent to $164.28.

A trade dispute reportedly caused Boeing (NYSE:BA) to lose a deal with
Canada to sell that country 18 fighter jets. “Reuters” says Canada walked
away from an agreement to buy the planes after the aerospace company took
up a trade challenge against Canadian plane maker Bombardier. Canada is
now said to be interested in inking a deal with Australia. Boeing`s shares
closed down almost 1 percent to $275.54.

The movie theater operators Regal Entertainment and Cineworld are tying the
night. We told you last week the two were reportedly in talks. Well,
today, Regal agreed to sell itself to its British rival for more than $3.5
billion, creating one of the world`s largest cinema operators. Regal
Entertainment`s shares climbed 9 percent to $22.68.

MATHISEN: And Starbucks (NASDAQ:SBUX) ordered up a (INAUDIBLE) in China.
The coffee retailer opened a 30,000 square foot store in Shanghai, that is
its biggest location everywhere. It is also the first Starbucks
(NASDAQ:SBUX) Reserve Roastery outside the U.S. Starbucks (NASDAQ:SBUX)
has been expanding aggressively in China, opening up a new store there
every, get this, 15 hours. China is the company`s fastest growing market.

HERERA: Coming up, imagine going from San Francisco to Tokyo in a little
more than five hours. A Denver company is working to revive supersonic air
travel.

(MUSIC)

MATHISEN: Airlines are expected to post record profits next year,
according to an industry trade group, improving economies globally or
lifting demand for air travel. However, the report also shows that fares
could start to increase as well.

HERERA: Remember the concord? Well, it hasn`t flown since 2003. But
Japan Airlines is interested in bringing back supersonic planes. In fact,
it`s now investing in a Colorado company developing these ultrafast jets.

How soon could they be flying?

Phil LeBeau tells us when they may ready for liftoff.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is the future,
according to the Boom Supersonic, a plane flying almost 1,500 miles per
hour, cutting hours off of international flights. The plane is years from
being built, but Japan Airlines likes its potential. It`s sinking $10
million into the plane`s development, with the option to buy 20 of them.

Why would Japan Airlines want a supersonic jet? Because flights from San
Francisco to Tokyo currently take 11 hours. But on a supersonic plane, the
time would be cut to 5 1/2 hours. In addition, Boom Supersonic`s jets
would only have business class seats. So, 45 to 50 people would pay a
premium to travel long distances in half the time.

BLAKE SCHOLOO, BOOM SUPERSONIC CEO: Every airline today is flying around
about the same airplanes, between the same airports, with a similar on
board product, and there`s no differentiation. And real differentiation
will be flights that are half the length.

LEBEAU: The idea also appeals to Sir Richard Branson who has options to
buy the first 10 Boom Supersonic planes. It`s been 14 years since the
Concord stopped flying due to a high cost and a high profile crash that
tarnished the plane`s reputation.

But Boom believes the next generation of supersonic planes will have better
performance and lower cost due to more advanced engines and the use of
lighter materials like carbon fiber.

While Boom Supersonic has plane lovers dreaming, the company is a long ways
from building a jet that will fly at Mach 2.2. A small prototype is
expected to be tested by the end of next year. But a full scale supersonic
plane is not expected to be built until well into the next decade.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Ford is pushing further into China. The automaker plans to
launch 50 new vehicles in that country by 2025, including 15 electric ones.
Ford sales have been weak recently in the world`s largest car market. The
company hopes the move will reverse that trend.

HERERA: Do you ever have a craving for coffee or other food while driving?
If you do, General Motors (NYSE:GM) is hoping it has the cure. Drivers in
more than 2 million connected GM cars can now press a few buttons and place
an order that they can then pick up minutes later in a drive-through lane.

MATHISEN: Looking for a rare type of gift to give for the holidays? Sue
is looking for one for me, I know.

HERERA: Oh, definitely.

MATHISEN: Well, instead of heading to the mall, you can go straight to
some of the world`s biggest auction houses.

Robert Frank is in New York tonight with his new way to shop.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I`m here at
Christie`s in New York, where just last month, they sold that Leonardo Da
Vinci for a record $450 million. But Christie`s also sells more affordable
items, though still pricey, like $10,000 handbags.

And this month, Christie`s and Sotheby`s are both making a big push to get
into the holiday gift giving business.

The two auction houses are expected to sell more than $150 million worth of
gift oriented luxury goods just this month. From watches and wine to
handbags and jewelry. Many of the sales will be online as the companies
expand their digital platforms and become a sort of billionaire`s Amazon
(NASDAQ:AMZN) for the holiday season, where the rich can shop in one place
for their pricey baubles.

FRANK EVERETT, SOTHEBY`S LUXURY DIVISION: We really are trying to appeal
to the broad spectrum of luxury buyers and show them everything at the same
time for their convenience.

FRANK: Some example, Sotheby`s is selling the largest round diamond ever
offered, 111 karats. Price tag: $4 million to $6 million.

And for the guys, they have something more affordable. Some special
edition Hublot watches that start at just $4,000.

At Christie`s, it`s a Birkin bonanza with almost $1 million worth of the
famed Hermes Birkin bags which are almost impossible to get from a store.
This is a Himalayan crocodile Birkin, sold for over $100,000 just today.

The Rolex Daytona will go for $500,000 to $1 million. And a 1962 Macallan,
that`s $4,000 to $6,000 will make for great drinking around the fireplace.

The sales highlight another top trend for the wealthy, where top luxury
goods, even handbags and diamond rings, are now considered collectibles
like art that will appreciate in value over time.

CAITLIN DONOVAN, CHRISTIE`S: My tag line is that a lot of the bags we sell
are wearable works of art. So, the craftsmanship that goes into them, the
skill, the colors, the exotic leathers, you know, I do think they`re works
of art. I think women are starting to buy and collect them, and men, as
works of art, having them be something they live with and really enjoy.

FRANK: We`ll see if the Da Vinci of handbags keeps soaring in price.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

MATHISEN: Your puppies would like those handbags.

HERERA: They would like that hand bag. Oh, my gosh, can you imagine?
Honey!

That does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera. Thanks
for joining us.

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great
evening, everybody. And we`ll see you back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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