Transcript: Nightly Business Report – December 6, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New risks. Earnings are
strong. The economy appears solid. But are new risks developing that
investors need to watch?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Working overtime. The job
market remains red-hot. Is it on the verge of overheating?

HERERA: Death of a car salesman? Why independent auto details face an
uncertain future?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
December 6th.

MATHISEN: Good evening, everyone.

Investors spent the day assessing the risks to the market — some new, some
not. Well, first, there`s the recent slide in technology shares, the same
group that led the market higher this entire year. Some say the pullback
is because potential tax changes. And others say it could just be typical
year end selling.

Add to that, geopolitical risk. The president today made the controversial
move of declaring Jerusalem to be the eternal capital of Israel, a dramatic
shift from American foreign policy for the past few decades, sparking
reaction from the world.

And that is where we begin tonight`s broadcast.

Eamon Javers is at the White House.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump cast
the decision to recognize Jerusalem as Israel`s capital as simply
acknowledging the reality politically on the ground in Jerusalem. He also
said he was fulfilling a campaign promise.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Today, I am delivering.
I`ve judged this course of action to be in the best interests of the United
States of America and the pursuit of peace between Israel and the
Palestinians.

This is a long overdue step to advance the peace process and to work
towards a lasting agreement.

JAVERS: We`re getting reaction from the region now, including this from
Israeli Prime Minister Benjamin Netanyahu, who said there will be no change
whatsoever to the status with the holy sites. Israel will always ensure
the freedom of worship for Jews, Muslims and Christians alike. President
Trump, thank you for today`s historic decision to recognize Jerusalem as
Israel`s capital.

Meanwhile, the Palestinian President Abbas with this statement, saying:
These reprehensible actions constitute a deliberate undermining of all
peace efforts and represent a declaration that the United States has
withdrawn from playing the role it has played in past decades in sponsoring
the peace process.

White House officials also said it could take some time to move the U.S.
embassy from Tel Aviv where it is now to Jerusalem. Simply finding the
location, building the facility, arranging for security, all of that could
take years, they say. Nonetheless, the president is directing that that
process begin as soon as possible.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.

(END VIDEOTAPE)

HERERA: And then there`s tax reform. The details still have to be worked
out, but major focus points for both individuals and companies is the
alternative minimum tax.

Ylan Mui tells us where things stand:

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Republicans taking
another step forward today on tax reform with the Senate officially voting
to go to conference with the House to hammer out a final version of their
tax bill. One point of contention: the alternative minimum tax.

Experts say that keeping it in the tax bill could undermine the benefits of
lower rates both for individuals and for businesses. And for households,
those most affected are married couples making between $300,000 and
$750,000 a year. The Tax Policy Center estimates that if the alternative
minimum tax is kept, their benefits could be dialed back by $8,000.

Well, companies are also fighting hard to make sure that the tax doesn`t
remain in the final version of any legislation. They`re saying that the
problem is that the corporate rate is now 20 percent in the Senate version
of the bill, as well as the rate imposed by the alternative minimum tax.
So that means if companies try to take advantage of benefits like
repatriating foreign earnings or using the popular credit for research and
development, their effective tax rate would fall below 20 percent, force
that go alternative tax to kick in and putting them back at a 20 percent
rate. So that means companies are essentially being penalized for doing
what lawmakers are trying to incentivize them to do.

Republicans acknowledge that this is a problem. They say they want to work
this out in conference committee. Senate Finance Committee Chairman Orrin
Hatch was asked by reporters today if it might be included in the final
version of any bill. He said it doesn`t look like it for now but you never
know.

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

(END VIDEOTAPE)

HERERA: And there are late day reports that a 22 percent corporate tax
rate is still under consideration because it would help pay for other
provisions.

MATHISEN: Citigroup (NYSE:C) giving some guidance on how the proposed tax
bill could impact its bottom line. Citi`s CFO said the bank would likely
take a hit of $20 billion, most of that a one-time hit, would be a write-
down of its deferred tax asset.

But over the longer term, the plan is expected to significantly lower the
tax rates that banks pay. And that could lift profits.

HERERA: There is also a slim risk of a government shutdown. The House
Republicans today advanced legislation that extends government funding
through December 22nd. But the president said a shutdown could happen this
weekend. He added that if it does, it would be because Democrats held up
spending negotiations.

The top House Democrat, Nancy Pelosi, said the only person talking about a
shutdown is the president.

MATHISEN: Let`s turn now to Art Hogan for more on the risks to the market.
He`s chief market strategist at B. Riley FBR.

Art, good as always to see you. How do you look at the risks including why
don`t we start with the new one that came in today? And that is the
declaration by the president that the United States will recognize
Jerusalem as the capital of Israel. How do you put these all into the stew
and decide which ones to worry about, worry about less, or not worry about
at all?

ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY FBR: Yes, that`s a great
question. And the problem with that is in all geopolitical hotspots, it`s
impossible to model and it`s impossible to really react as a market until
something turns economic versus something that turns from a geopolitical
hotspot into an escalation that becomes a military event.

So, we`ve been working with this with North Korea for the past six months.
You know, they launch a missile, they test another missile, the market
tries to adjust to that. But it`s just impossible to model that in. It`s
certainly worked its way to the front burner in terms of clear and present
danger, one of our concerns for the marketplace. But you won`t see the
market trying to adjust to that until it escalates to a level of military
action. I think that`s true with North Korea as well.

HERERA: What about the debate on Capitol Hill with the possible government
shutdown and tax reform? Now, obviously they`re still trying to work it
all out. But how big a risk might some of those details be for the market?

HOGAN: Well, I think the government shutdown is a movie that we`ve seen
before. There`s a lot of jawboning that goes on in negotiating. At the
end of the day, we come to a resolve that`s usually at the 11th hour. So,
I think that`s probably less of a concern.

I think the tax plan right now prevents a pretty symmetric risk to the
market right now. By that, I mean, we`ve priced in some modicum of
success. A failure in the tax plan or at least pushing it off into 2018
probably means we have a 5 percent to 8 percent pullback. If it succeeds,
we probably have a 5 percent to 8 percent run-up in the market.

So, we`re symmetrical in our risks around taxes right now.

MATHISEN: Is technology really rolling over?

HOGAN: No, it`s not. It`s three things, right? So, you want to lock in
your winners. Technology has clearly been the winner. When you look at
just the FANG names themselves, you know, somewhere between 35 to 40
percent on a year to date basis. It makes sense.

There are some provisions in the tax bill, especially if the corporate AMT
stays in there, that would be negative for them. But it would also — it
would have a negative impact on what we would like those corporations to
do, research and development, repatriation and capital. So, I think we`re
going to work around that.

But it`s — you know, that end of the year, if you take profits, you take
them where they are. If you`re going to rotate into some of the value
names, which you`ve seen a lot of both in financials and energy and
industrials and some of the retail names, the technology is being used as a
source of funds, right? So it`s almost like it`s a source of funds to make
that rotation. I think that rotation is coming to its end. We probably
won`t be talking about this next week.

MATHISEN: Art Hogan, always good to see you. The man with more logos
behind him than anybody I`ve ever seen. B. Riley, FBR, Wunderlich, take
your pick.

Art Hogan, always good to see you.

HOGAN: Thanks so much.

MATHISEN: You bet.

HERERA: Well, on Wall Street, investors appear to be in watch and wait
mode. The Dow Jones Industrial Average slid 39 points to 24,140. The
Nasdaq was up 14. And the S&P was off a fraction, falling for four
straight sessions.

MATHISEN: The job market has been a hot part of the economy. A new report
today shows that hiring was solid last month, reflecting a job market
that`s firing on all cylinders. But could it get too hot?

Steve Liesman takes a look.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Job growth looks to
have stayed strong in November as markets are ready for the employment
report coming this Friday. Economists estimate 195,000 jobs were created
in November. And the unemployment rate remains at a 17-year low, 4.1
percent, backing up the call from private payroll company ADP, which uses
its own data to forecast national job growth, came in solid at 195,000 for
November.

Some economists, though, are worried that the economy could be on the verge
of overheating because it can`t sustain this much employment without
creating inflation.

MARK ZANDI, MOODY`S ANALYTICS: At the current rate of job growth, close to
200,000 per month, that`s more than double the rate of growth in the labor
force. So, unemployment, underemployment continues. The unemployment rate
is 4.1. We`re going sub-4 percent by this time next year. And that`s an
economy that could overheat.

LIESMAN: ADP found job strength in education and health services, along
with manufacturing.

Trade and transport jobs surged by 36,000. That`s a big seasonal factor as
retailers staff up their warehouses for the holidays and struggle to find
truck drivers to deliver all those packages.

If these strong job numbers continue, it could prompt the Fed to move a bit
faster in raising rates, especially if there are signs of inflation along
with it.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

HERERA: Out in California, officials say insurance claims for the October
wildfires that ravaged the northern part of the state have reached $9
billion. And today, state officials are dealing with another dangerous
fire further south in the Bel Air area of Los Angeles.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m on top of
Mulholland here to give you an idea how much smoke is blanketing the
nation`s second largest city. Behind me here is the newest fire which
broke out this morning. You could see from aerial pictures of it, this
fire in Bel Air has forced the evacuation of one of the most exclusive
neighborhood in Los Angeles, at least four homes destroyed. That number is
expected to go up.

And it really ruined the commute on one of the busiest freeways in the
country. We have cellphone videos of 405 Freeway and the Sepulveda Pass, a
major, major thoroughfare, was shut down by the fire. Hundreds of people
were trapped before they could get out of it. It really just destroyed the
morning commute.

But there are five active fires across southern California right now,
burning at least 77,000 acres, at least 185 homes have been destroyed.
That number is expected to go way up. And tens of thousands of people have
been evacuated.

Four of the five fires at last check had zero percent containment. You
come back, you can see me that it`s not too windy right now, you can tell
by my hair. The wind is expected to kick way back up tonight, last through
the weekend in one of the longest Santa Ana events we`ve had here.

I just want to do a 180 and show you exactly what we`re talking about. I
have L.A. behind me, the city. This is the San Fernando Valley. This is
another fire that starts to the right, the Creek Fire, 11,000 acres at
least burned, 30 homes at least destroyed.

If you pan to the left, you can just see the smoke from that fire fanning
out across the San Fernando Valley, meeting up with smoke from another fire
in Santa Clarita over the hills, and going far to the left into the West to
meet the largest fire out in Ventura County, the Thomas Fire, 65,000 acres,
well over 150 homes destroyed. Thousands displaced. No power. Schools
closed. Air quality terrible.

We`re going to have to see how this plays out for the rest of the week.

For NIGHTLY BUSINESS REPORT, I`m Jane Wells in Bel Air.

(END VIDEOTAPE)

MATHISEN: And still ahead, why UPS is already suffering from some holiday
headaches.

(MUSIC)

MATHISEN: As Republicans hash out the final version of the tax bill,
housing advocates say it could hurt both home prices and home ownership
rates. But a top housing expert doesn`t necessarily agree. And Diana
Olick spoke to him.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: If any knows home
prices, it`s Professor Robert Shiller, co-creator of the much-watched S&P
Case-Shiller Home Price Index. The index which dates back to 1988
revolutionized how the housing market measures moves in prices.

Shiller says a cut to the mortgage interest deduction would not hurt
prices.

ROBERT SHILLER, YALE UNIVERSITY PROFESSOR: But the general idea is that it
would push prices down if people are rational.

OLICK: But you`re saying, if people are rational.

SHILLER: Yes.

OLICK: Now, the question: do we use the mortgage interest deduction as our
major incentive to buy a home.

SHILLER: No.

OLICK: No?

SHILLER: Most people don`t itemize. And so, it`s not big.

OLICK: Shiller did, however, think that a cut to the property tax
deduction would have some impact, if only to rich people.

SHILLER: That is going to be substantial, a substantial hit to people who
are paying a lot of property taxes. And it might be a consideration that
you make before you buy this big mansion in some high property tax state.

OLICK: Shiller also had a surprising view of rising mortgage rates.

SHILLER: I tend to think it`s not as great as you imagine because people
are people. And I don`t find that historically home prices have reacted at
all predictably to changes in things like interest rates.

OLICK: In other words, people aren`t always rational, especially when it
comes to their biggest and most emotional investment, their home.

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

(END VIDEOTAPE)

HERERA: Susan Wachter joins us to talk about how the tax bill might impact
the housing market and you, of course. She`s a professor of real estate
and finance at the University of Pennsylvania`s Wharton School of Business.

Welcome back, Susan. Nice to see you again.

SUSAN WACHTER, PROFESSOR OF REAL STATE AND FINANCE, WHARTON SCHOOL OF
BUSINESS: My pleasure.

HERERA: Let me get you to react a little bit to what Professor Shiller
said in Diana Olick`s piece, because we`re located in New Jersey, and
property taxes are high. And that`s regardless of whether you buy a big
home or not. They simply are higher than other parts of the country.

What did you make of his take on how much the property tax deduction or the
loss of that deduction would hurt home values?

WACHTER: Well, let me just generally say, not to differ with my friend Bob
too much, but I think there are enough rational people out there that all
three of these potential changes will affect the housing market and not in
a good way. There`s no question that at the high end, high property tax
states and high priced states will take a hit.

MATHISEN: That would be my impression, living in a high property tax
state, such as I do, because it makes the relative ability, the cash flow
equation changes. And similarly, when one looks at a mortgage write-off,
you look at the after-tax cost of home ownership. Both of these things —

WACHTER: Absolutely.

MATHISEN: — will raise that, right?

WACHTER: But it`s not just a home ownership choice. Absolutely. But it`s
not just the home ownership choice. It`s the choice of how expensive a
home.

MATHISEN: Correct.

WACHTER: And how expensive a home is going to be more costly and
significantly more costly for those who are in high tax brackets and cannot
deduct any more a million dollar home, which in many high priced markets is
not out of the ordinary, it`s quite ordinary in New Jersey and California.
These markets are going to be hit by the $500,000 limit in the house. No
limits, stay with $1 million in the Senate.

So, lots of moving pieces here. At the same time, though, the $500,000
limit in the house, and we have the property tax $10,000 limit. That`s a
double hit for high price and high tax states.

HERERA: Now, all real estate is local, of course. And it will differ
depending on what state a person lives in and decides to buy a home in.

But as they work out these details, can you quantify how much of a hit it
might be on the overall housing market? Or is it too soon to tell?

WACHTER: Well, it`s too soon, but more than that, it`s very local. So it
always is local with housing prices, but even more so. It`s not just
local, but it`s hyper-local, in a sense, because it`s going to be the
concentration of high price homes in some neighborhoods, together with the
high taxes, those neighborhoods will be taking the hit.

And others may not. So, it may not be noticeable in the Case-Shiller
index, for example. But it sure will be noticeable to some.

HERERA: All right. Susan, thank you very much. We may be moving to
Pennsylvania. Thanks, Susan. We appreciate it.

WACHTER: You`re welcome. Love to have you.

HERERA: Susan Wachter with the University of Pennsylvania`s Wharton School
of Business.

MATHISEN: UnitedHealth expands its reach, and that is where we begin
tonight`s “Market Focus”.

UnitedHealth will buy the kidney care company DaVita (NYSE:DVA) for just
under $5 billion, adding more than 300 clinics and urgent care centers in
several stays. UnitedHealth`s shares off a fraction $219.94. DaVita
(NYSE:DVA) took off. They were up more than 13 percent, shares there at
$69.20.

Madrigal Pharmaceuticals said its experimental drug for treating a chronic
liver disease that could lead to liver failure or cancer performed well
during a study. The drug maker said the treatment caused a significant
reduction in liver fats when compared to the placebo. Shares of the
biotech company skyrocketed 88 percent to $87.18.

Speaking of taxes, H&R Block (NYSE:HRB) reported stronger than examined
revenue gains in what is usually a slow quarter for the tax preparer. The
company`s loss was also smaller than analysts expected. Shares of H&R
popped 10 percent to $28.99.

HERERA: Brown-Forman says strong sales of Jack Daniels whiskey and tequila
helped overall revenue rise. The company said demand was solid in the U.S.
and abroad and is raising its full year earnings forecast. Shares climbed
6 percent to close the day at $65.85.

Walmart is changing its official name in an effort to shift away from its
brick and mortar image. The nation`s largest retailer is dropping the
hyphen and the word “stores” in its corporate name to bring attention to
the importance of its e-commerce business. Walmart shares fell
fractionally to $97.28.

Morgan Stanley (NYSE:MS) says Amazon (NASDAQ:AMZN) is a threat to dental
suppliers Henry Schein (NASDAQ:HSIC) and Patterson. Analysts at the bank
downgraded shares of both companies, sighting Amazon`s entry into the
dental supply market.

The note says the e-commerce giant has been buying supplies directly from
another manufacturer and could develop similar business relationships in
the future. Shares of Henry Schein (NASDAQ:HSIC) fell nearly 5 percent to
$67.58, Patterson shares were down 4 percent to $34.81.

And Home Depot (NYSE:HD) is launching a $15 billion share buyback program.
The nation`s largest home improvement chain laid out its financial goals,
saying it expects total sales in fiscal 2020 to reach $15 billion. The
company also said it plans to ramp up investments in technology and
services. Home Depot`s shares finished the day down 1 percent to $180.80.

MATHISEN: Package delivery delays already? That`s what UPS says is
happening. And it is working to fix the problem and get back on schedule.

Morgan Brennan reports.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The good news:
online holiday shopping is shaping up to be strong. The bad news? That`s
already causing some delivery headaches.

UPS experiencing some service snags as a surge of packages floods its
network. Those, quote, unprecedented shipping volumes causing the company
to add up to two days of time in transit on some deliveries.

To counter, it has shifted more employees and resources to the biggest
markets and expects the issue to be resolved by tomorrow. It speaks to the
high stakes of the month-long peak season, when shipping giants UPS and
FedEx (NYSE:FDX) handles staggering volumes under tight deadlines.

DAVID ROSS, STIFEL, NICOLAUS & CO.: The issue with peak volumes is you
don`t know where the volumes are going to pop up. They might be correct in
predicting that they`re going to have a 10 percent or 20 percent increase
on a certain day. But they`re just not sure if that`s going to come in
Pittsburgh, Chicago, Phoenix, Seattle, or Miami.

BRENNAN: UPS expects to deliver 750 million packages this holiday season.
FedEx (NYSE:FDX) anticipates up to 400 million.

The challenge: predicting where the spikes in volume will occur.

For the week of Cyber Monday, third party service tracker Ship Matrix says
FedEx (NYSE:FDX) had a better record of delivering packages on time than
UPS. Neither is commenting on the data, but FedEx (NYSE:FDX) does say
it`s, quote, proud of its service so far, and that the company is well-
positioned to meet anticipated record demand.

And with 18 days until Christmas, it is still early. Especially since both
companies have spent billions to bring on extra workers, more sorting
space, and new planes, preparation that`s taken all year just to be able to
handle the holiday rush.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Coming up, why your neighborhood car dealer may be thinking about
closing up shop.

(MUSIC)

MATHISEN: Bitcoin today broke above $13,000, less than 24 hours after
topping $12,000. The digital currency now has a market value in total of
more than $200 billion, more than twice that of Goldman Sachs (NYSE:GS).

But it`s that value that has the former chair of the Federal Reserve
scratching his head.

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIR: Bitcoin is really a
fascinating example of how human beings create value or estimate or judge
value. And it`s not always rational. You cannot tell me that you can
create out of nothing something which has medium of exchange value. It is
not a rational currency in that sense. But that does not mean it will not
trade, because as long as people believe they can sell it to somebody else
or unload it on somebody else, that`s all you need to create a market.

(END VIDEO CLIP)

MATHISEN: Greenspan also compared bitcoin to colonial American currency
that eventually became worthless.

HERERA: After decades of selling millions of cars and trucks, local
independent auto dealers are wondering about the future of their industry.
Car sharing, autonomous drive vehicles and other new technologies have some
dealers saying it`s time to get out of the business.

Here`s Phil LeBeau.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After 62 years of
selling cars in Southern (NYSE:SO) California, Darryl Holter`s family is
shifting gears. They recently sold some of their dealerships despite near
record high auto sales. Why? Holter thinks auto dealers may not sell or
service as many vehicles as ride share companies and autonomous drive
vehicles become more popular.

DARRYL HOLTER, AUTO DEALER: I think the customers, you know, will want to
go in this direction. And I think it will move us away from being full
service automotive providers from start to finish.

LEBEAU: There are more than 18,000 auto dealerships in the United States.
With more than half of them owned by families or small private companies.
For years, they`ve made healthy profits, primarily by servicing cars and
trucks.

But a firm that tracks the industry is seeing more independent auto dealers
wondering if the future will be as profitable as cars and transportation
services evolve.

ERIN KERRIGAN, KERRIGAN ADVISORS FOUNDER: More and more dealers are
saying, well, at those levels, it probably is time to exit rather than roll
the dice for the next generation and have them have to handle potentially a
lot of changes in the future.

LEBEAU: While large publicly traded dealership chains have added more
stores in recent years, independent dealers like Mark Scarpelli in Antioch,
Illinois, believe mom and pop dealerships will not go away and are ready to
change with the times.

MARK SCARPELLI, NATIONAL AUTO DEALERS ASSOCIATION: We talk about
autonomous cars, electrification, fossil fuels, all of those things,
interest rates. So, we`re kind of into our market we know and, you know,
we`re looking forward.

LEBEAU: Another factor that could be leading some long time owners to sell
their dealerships is the fact that the price of an auto dealership right
now is at an all-time high. On average, they`re selling for just under $17
million.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: I had no idea.

MATHISEN: Seventeen million dollars, wow.

HERERA: Wow.

That does it for us tonight. I`m Sue Herera. Thanks for watching.

MATHISEN: And thanks from me as well. Have a great evening, everybody.
We`ll see you back here for NBR tomorrow.

END

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