Transcript: Nightly Business Report – December 7, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Down to the wire. The
House moves to keep the government up and running. But the battle isn`t
over just yet.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wild swings. The rush into
bitcoin accelerates. But how exactly does it work? What are the risks?
And why is everybody talking about it?

MATHISEN: Retail fraud. A dark world of crime and drugs is being fueled
by an unlikely source. Gift cards.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
December 7th.

HERERA: Good evening, everyone, and welcome.

We begin tonight in Washington, where the House voted to avert a partial
government shutdown for now. Up against a deadline of midnight tomorrow,
the measure pushes the next threat of a shutdown to the Friday before
Christmas just two weeks away. It also buys time for talks on a number of
thorny issues.

John Harwood is following the story for us tonight from Washington.

And, John, it`s not over yet, but at least there`s a step towards
resolution.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. They`re not
going to have a shutdown this week. There are still issues they`ve got to
resolve by December the 22nd. Most importantly on the Republican side,
they want a big increase in defense spending, which requires Democratic
votes to get passed the caps that existed from the Obama administration
already.

In return, Democrats are demanding an increase in domestic spending to
match that defense spending increase. They`ve got other demands as well.
Since the Republicans control the government, the Democrats think they`ve
got the leverage here.

MATHISEN: How much are non-budgetary issues at play in this debate?
Namely the dispute, the debate, the discussion over the DREAMers under the
DACA rules?

HARWOOD: Well, they`re part of it. Democrats are insisting that the
president follow through on the commitment that he made some weeks ago to
Nancy Pelosi and Chuck Schumer, the Democratic leaders, that he would
support legal status for the DREAMers.

Now, he`s since try to kick that into next year. Republicans are saying we
can decide this later. But because Democrats are likely to succeed in
blaming Republicans for a shutdown if they don`t get what they want,
they`re holding out and saying in addition to the spending concessions on
defense, you need to give us this legal status, and that`s divisive
internally for the Republican Party.

HERERA: We mentioned the fact that the House has made progress. There`s
still the Senate to go. What are you hearing about that?

HARWOOD: I think that`s not going to be a problem in this particular case.
The drama was whether or not they could round up the votes in the House to
pass this on a short term basis. But then both chambers are going to
factor in in a very big way when we get to December 22nd, with the added
pressure of Christmas right around the corner adding to the drama there.

HERERA: There`s always drama in Washington, it seems, these days, John.
Thank you so much.

HARWOOD: You bet.

HERERA: John Harwood in Washington.

MATHISEN: Well, just when you thought the frenzy over bitcoin couldn`t get
any crazier, it did. And today it was a whirlwind. Early this morning,
Coinbase, a crypto currency exchange, put bitcoin`s value above $15,000.
It didn`t take long to break $16,000, then $17,000. Soon after that,
$18,000. Until it pierced $19,000.

But as quickly as it went up, it dropped, losing 20 percent of its value
just like that. And it all happened by noon Eastern.

Keep in mind that Coinbase isn`t the only bitcoin exchange. But it is a
popular one. And it tends to trade at a premium price.

HERERA: So, there is clearly a lot of volatility in bitcoin. There is
also a lot of interest. According to data cited in “The New York Times,”
the number of people with Coinbase accounts has gone from 5.5 million in
January, to more than 13 million at the end of November.

In late November, Coinbase collected 1,000 new customers a day. That`s
more users than Charles Schwab and E-Trade, although Schwab and E-Trade do
have more assets under management.

Now, bitcoin is not an easy thing to wrap your head around, because it`s
not really a currency. It`s not really a commodity. And it is not a
stock. And it`s all based on a new technology.

So, we asked Dominic Chu to answer the question. What is bitcoin?

(BEGIN VIDEOTAPE)

DOMINI CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The extreme volatility
in bitcoin and other digital currencies is raising more than just a few
eyebrows. It`s also leading a host of experts to recommend caution before
getting involved.

So, what is bitcoin? It`s a digital currency that is part of a payment
system and recordkeeping system known as Blockchain.

That Blockchain is a public record of transactions that occur on its
system. Transactions are verified by multiple independent parties, and
bitcoins are awarded as payment for engaging in the complex, computer-
driven calculations needed to maintain and verify all those records.
That`s a process known as mining.

Which leads to the next question: how do you get and transfer them?

The original way is just to mine them, as we mentioned. But trading
platforms have emerged in recent years that allow people to buy and sell
them much like other assets, like stocks or bonds. Digital wallets
compatible with digital currencies also allow near seamless transfers
between one party and another.

And what are the risks? There are a lot of them to consider, not the least
of which is the extreme price volatility. There are also genuine concerns
about how the value of each bitcoin or other currency is derived.

Many argue the only value bitcoin has is what somebody else is willing to
pay for it, not like a There is also concern, of course, about how much
more regulators will get involved in the future. And that`s just the tip
of the iceberg.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

MATHISEN: Let`s turn to Matthew Green to learn more about bitcoin and the
craze and what you need to know. He`s a computer science and crypto
currency expert, professor at Johns Hopkins Information Security Institute.

Welcome, Matthew. Good to have you with us.

MATTHEW GREEN, JOHNS HOPKINS INFORMATION SECURITY INSTITUTE: Thanks for
having me.

MATHISEN: Where do I buy bitcoin, who am I buying it from, and how do you
know that the place I`m buying from is legit?

GREEN: Well, there are a few websites where you can buy bitcoin. Some of
them are a little sketchy and some of them are regulated. One of the ones
you mentioned earlier is Coinbase, they`re a regulated exchange. There`s
another one called Gemini. And there are a lot of places that are a little
bit less genuine that you might not want to trust with your money.

HERERA: Do you own any bitcoin?

GREEN: I have owned bitcoin in the past. Unfortunately I owned it when it
was worth a lot less and I didn`t hold on to it, I feel bad about that.

MATHISEN: Is it a fraud?

GREEN: No. Bitcoin is not a fraud. Bitcoin is a real technology. It`s a
real currency. And, you know, the question now is, are we in the middle of
a bubble or are we seeing an actual explosion of value in this currency?
And that`s a question I just don`t know the answer to. But these numbers
are very high.

HERERA: You know, the other issue that we`ve heard is that, what do you
use it for, you know? If you`re just trying to gain on the movement of the
cryptocurrency, we saw today that many people did make money. But if you
want to use it for anything else, is it a practical solution?

GREEN: So bitcoin has two problems. The first is that not very many
businesses accept it. A few restaurants have. And a couple of online
businesses have. But most people don`t use it that way.

And the second problem is that the value changes so quickly that if you own
bitcoin in the morning and you try to spend it, you might be losing
thousands of dollars by holding it just for those hours and spending it.
So, it makes it difficult to use as a real currency.

MATHISEN: Or you may spend it in the morning when it`s worth $10,000 and
turn it over to somebody else that morning and it goes up to $17,000. So,
you feel pretty stupid, you just paid $17,000 for something that you really
wanted to pay $10,000 for, right?

GREEN: Exactly. This is a big problem for people.

HERERA: So, what do you think is going to happen, because coming up over
the weekend, the futures exchanges, one of them in Chicago, is going to
launch a futures contract on it, which may change the whole dynamic of this
cryptocurrency. How do you see this playing out?

GREEN: So, I think that`s the big question everybody is hoping to answer.
One of the things that is happening now is there are a lot more people
coming into this cryptocurrency area, bringing a lot of money with them.
So, these price explosions are kind of explainable when you see this money
coming into this small world.

The other thing that happens, though, with futures is they allow people to
bet against bitcoin. That`s kind of hard to do right now. You can short
bitcoin. And so, it`s possible what we`ll actually see is bitcoin prices
start to go down and become under control. We just don`t know what`s going
to happen.

MATHISEN: Matthew, I have a feeling we`re going to be seeing a lot of you.
Matthew Green with Johns Hopkins Information Security Institute.

GREEN: Thank you.

HERERA: Meantime on Wall Street, stocks closed higher. Tech stocks gained
some ground after a recent pullback. And investors looked ahead to
tomorrow`s employment report.

The Dow Jones Industrial Average added 70 points to 24,211, the Nasdaq was
up 36, and the S&P 500 gained seven.

MATHISEN: Feeling wealthy? Well, according to figures from the Federal
Reserve, household wealth in the country hit a record $96 trillion in the
third quarter, driven by a rising stock market and increasing home values.
That in theory increases the purchasing power of Americans who own both
stock and real estate and could increase spending. That is the biggest
part of the U.S. economy.

HERERA: In Washington, as the tax bill makes its way through Congress,
investors are trying to figure t what a change to the deductibility of
state and local taxes might mean for them and the economy.

Steve Liesman did some digging.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s in high
anxiety and high tax states over the possible economic fallout from losing
the ability to deduct state and local taxes or SALT deductions, in short.
Ending the deduction is the biggest revenue raiser in the tax bill,
expected to bring in from $800 billion to $1 trillion over a decade to
offset tax cuts elsewhere in the economy.

And there`s a debate about how severely states will react to the change.

JASON FURMAN, FORMER CEA CHAIRMAN: I think this will come at the expense
of K-12 education, at the expense of college, at the expense of training
programs, preschool, all the types of things that the tax base in these
states is currently serving. And I think it`s, you know, penny wise and
pound foolish, and would hurt the economy over the long run.

LIESMAN: But supporters of the tax bill say such concerns are overblown.

DOUG HOLTZ-EAKIN, AMERICAN ACTION FORUM: Eliminating deductibility would
actually change the mix of how they raise the revenue, but it doesn`t
affect the overall level of services. So, concerns over schooling going
away, training programs going away, seem overblown in light of that
research.

LIESMAN: One reason no one really knows is the bill was put together so
fast, with no hearings or testimony, that the issue wasn`t studied.

HOWARD GLECKMAN, TAX POLICY CENTER: They`re just moving around pieces,
moving around chairs on the deck of the Titanic just to make sure that
everything fits the way it`s supposed to. If you ask any of them, you
know, what are the economic consequences of any individual provision, I`m
sure they have no clue.

LIESMAN: What`s known is that it will hit those states with high taxes the
hardest, including California, New York, New Jersey, and Illinois. The Tax
Policy Center says by itself it will hike individual taxes in those states
by $2,500 or upwards for each taxpayer.

But some caveats, it doesn`t include other offsets like the effects of
lower tax brackets or a higher standard deduction in the bill. Versions in
both the House and Senate allow for a $10,000 property deduction. And
there`s talk now of allowing income taxes to be included.

Motivating the change — not economics, but politics. Republican lawmakers
from high tax states are behind raising the limit because they`re worried
about the political fallout. They`re better, it seems, at counting votes
than they are at GDP.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Coming up, out of control. The Southern California wildfires
intensify. People fleeing. Insurers tallying the cost of a yearful of
natural disasters.

(MUSIC)

MATHISEN: The southern California fires are burning and spreading fast and
no one, of course, knows when they will stop. Businesses and residents are
fleeing as firefighters move in.

Aditi Roy is in Ventura, 60 miles northwest of L.A.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The red-hot flames raced
through the wild land in southern California, and fueled by fierce winds of
up to 80 miles per hour, made their way to the crowded suburbs of Los
Angeles and Ventura Counties, forcing tens of thousands to flee their
homes.

Places like this Ventura neighborhood, where Mother Nature spared some
homes and destroyed others.

PATRICIA HAMPTON, VENTURA RESIDENT: It`s devastating.

ROY: Patricia Hampton had 20 minutes to leave her home. She and her
boyfriend had only the clothes on their bikes and fled.

HAMPTON: It`s absolutely surreal. There are fire trucks everywhere, the
ash was so thick and the fires were huge. People were running everywhere.
It was scary.

ROY: She says they lost their home, one of 150 structures officials say
were destroyed. In Los Angeles, big stretches of major freeways were shut
down.

Watch this video taken from inside a car on the 101 Freeway, capturing
devastating images of the biggest wildfire. Los Angeles public schools
were closed and classes at UCLA were cancelled.

This Red Cross shelter in Ventura took in 150 horses and 200 dogs and cats,
as more than 2,500 firefighters from nine states wrestled with the flames,
the wind, and their fatigue, amid the longest and busiest fire season in
the state.

GRANT NOBLE, GARDEN GROVE FIREFIGHTER: We`ve gone from fire to fire to
fire it seems like for the last six months. We`ve been really busy. It`s
unprecedented for us as firemen, you know, how busy we are.

ROY: And with the National Weather Service issuing more warnings about the
winds through Saturday, more could be coming.

For Hampton, it`s just too much.

HAMPTON: I can`t imagine this happening, and it`s still going. I just
don`t know.

ROY: Firefighters are watching those high wind gusts carefully as well.
Many of them are telling us it`s virtually impossible to fight the flames
when the winds are that high.

Meantime, California Governor Jerry Brown has issued a state of emergency
for Ventura and Los Angeles County.

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

(END VIDEOTAPE)

HERERA: And in addition to those wildfires, we`ve seen an unprecedented
number of hurricanes this year, wreaking havoc on a number of states. So,
which insurers are expected to feel the impact the most from these
devastating disasters?

Here to talk about that is Cathy Seifert, senior equity analyst with CFRA
Research.

Cathy, welcome.

CATHY SEIFERT, CFRA RESEARCH EQUITY ANALYST: Thanks. Glad to be with you.

HERERA: Obviously, a terrible situation for those affected. Many of them
are insured, however. The companies also will bare the brunt of many of
these disasters as well.

What companies are you watching the closest that perhaps have the most
exposure to both the hurricane damage and the wildfire damage?

SEIFERT: When you look at both events — I mean, the companies are the top
insurers. We`re going to see Berkshire Hathaway. We`re going to see AIG,
Travelers, Chubb. But I think from an investor standpoint, it`s important
to sort of compare and contrast the Florida market to the California
market, a hurricane versus a fire.

As much as these fires are awful and they`re devastating, at least
homeowners can rest assured if they have insurance, they will be covered.
We all see the fallout from hurricanes when there`s a question of, do you
have flood insurance, what`s covered, what`s not covered?

So, while the hurricane created a lot more damage, the question of what was
covered is more of an issue there than in California with the fires. I
mean, having said all that, this is still going to be a really tough year
for the insurance industry. I mean, the industry as a whole will produce
an underwriting loss. A number of these companies are still going to make
a profit because they have other resources, namely investment income that
they can use to offset these losses.

But I mean, this is what the industry does. I mean, they have $700 billion
in capital. And, you know —

MATHISEN: Forgive me, if I`m remembering correctly, Cathy, often what
happens in these cases is in the subsequent year, the insurers raise
premiums and then profits kick in and they do very well.

SEIFERT: Right. I mean, that`s, you know, sort of a part of the
underwriting cycle. And during a third quarter earnings season, a number
of companies were very low key in terms of their expectations for pricing.
I think there`s some concern that investors become a little too
enthusiastic and we don`t have the results to justify it.

And we saw that late last year in a lot of the financial sectors that
traded up in anticipation of regulatory reform and things like that that
haven`t come to fruition. I think the insurance industry is sort of down –
– you know, downplaying the impact of that. But, theoretically, that is
definitely what happens.

HERERA: Cathy, thank you so much. Cathy Seifert with CFRA Research.

MATHISEN: Well, Sage Therapeutics is promising results for its depression
drug and that is where we begin tonight`s “Market Focus`.

The biotech said its medication to treat people with major depressive
disorders quickly helped improve symptoms of the psychiatric disease during
a study. Sage said it plans to immediate with the FDA to discuss next
steps for developing the treatment. Shares of Sage, look at this,
rocketing higher by 70 percent — it`s like a bitcoin — to $156.27.

And General Electric is cutting 12,000 jobs in its power division as the
struggling conglomerate contends with falling demand for coal and gas
turbines. GE expects the headwinds in the power market to continue but
said this move will save the company $1 billion and put it in a stronger
financial position. Shares up a nickel at $17.71.

Meantime, one of Sears` investors is urging the struggling retailer to
consider going private. The Swiss-based investment manager Memento called
for an investigation into the spike in short selling of Sears` stock. The
company owns about 2 million shares of Sears, says it believes in the long
term value of the brand. Investors encouraged by the news, sent shares of
Sears up nearly 7 percent to $4.42.

HERERA: After the bell, American Outdoor Brands said challenging market
conditions caused sales to slip. But the result still ahead of estimates.
Earnings also topped analysts` expectations/ Shares of the gun maker fell
sharply following the report, wiping out a 5 percent gain in the regular
session where they closed at $14.93.

There were some stock buyback announcements after the bell. Health insurer
Anthem said it was raising its program by $5 billion. And United
Continental is launching a new $3 billion program with that airline saying
the move represents its confidence in business.

Anthem`s shares were flat in extended trading session after closing up
nearly a dollar to $223.64. United initially rose, adding a 2 percent gain
during the regular session, where they closed at $63.53.

And the Justice Department`s lawsuit to block the proposed $85 billion
merger between AT&T and Time Warner will go to trial on March 19th. The
judge presiding over that lawsuit said he will try and reach a decision by
late April or May. The company`s merger agreement expires April 22nd.
AT&T was up six cents to $36.17. Time Warner off a penny to $90.37.

Coming up, gift cards. They`re simple, they`re easy, but they`re also
being used to fund drug addictions.

(MUSIC)

MATHISEN: It is that time of year when many of us decide the best gift to
give is a gift card, simply because they`re readily available for virtually
every major retailer across the country. But these cards are also the
target of some very serious fraudulent schemes.

Contessa Brewer investigates.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Inside some of the
country`s biggest retailers, there`s a shadowy world of commerce, crime,
and drugs. And at the center, gift cards.

Are gift cards currency you can use to pay for drugs?

UNIDENTIFIED FEMALE: Yes.

UNIDENTIFIED FEMALE: Yes.

UNIDENTIFIED FEMALE: Most stuff anyway (ph).

BREWER: By all appearances, these four women could be tidying up what
looks like a college dorm room. But this is no university. It`s rehab.

ASHLEE SMITH, REHAB PATIENT: That worthlessness, that — I mean, that
guilt and shame that I feel every day that I chose drugs over my son, every
day.

BREWER: And these women aren`t students. They`re patients, struggling
with crippling addiction.

KRISTEN BOOTH, REHAB PATIENT: I`ve definitely stolen.

BREWER: They sat down with us at a drug treatment facility in
Jacksonville, Florida.

Twenty-three-year-old Kristen Booth`s drug of choice, oxycodone and heroin.
She`s been arrested twice for gift card fraud.

BOOTH: I would go and take things off the shelf. I would make sure I left
the store. So, on camera, I looked like I purchase the item, and then come
back and go to customer service.

BREWER: And some of the biggest national retailers are some of the biggest
targets, because of relaxed return policies.

AMBER ROSS, REHAB PATIENT: I would go to Home Depot, Lowe`s, Walmart,
stuff like that and take stuff, leave, go to another Home Depot, take it
back, and get a gift card.

BREWER: Sometimes, drug dealers directly accept the cards as payment.

BOOTH: Say there`s a gift card, you`re dealer will do like 25, and they`re
not going to give you cash, they`ll just give you product.

BREWER: But more often, the cards get sold to third parties. Corner
stores, pawn shops and specialty retailers make it easy to get cash. The
National Retail Federation found 57 percent of companies reported
fraudulent gift cards or store credit in at least one location. That`s
down from two-thirds in previous years.

LT. DAVID BALLARD, SHELBY COUNTY SHERIFF`S OFFICE: It`s our experience
that they`re going to commit these crimes when they`re desperate and
needing their next fix.

BREWER: We ride along with Lieutenant David Ballard, who`s on a Shelby
County sheriff`s tax force devoted to retail thief in the Memphis area.
The CDC ranks Tennessee the third highest in per capita opioid
prescriptions. Shoplifting, return fraud and gift card abuse have
skyrocketed in the state. And nationally every law enforcement agency we
reached out to and every drug addict we talked to confirms the connection
between opioids and gift cards.

Deputies arrive at JCPenney to arrest an employee for embezzlement
involving gift cards. Suddenly —

(SIREN WAILING)

BREWER: They spot a theft in progress at the store and give chase through
the mall parking lot. The suspects cornered and arrested for shoplifting.
Investigators find a slew of gift cards on her front seat.

Would you mind just explaining to me about the gift cards?

Neither suspect wanted to talk. And investigators have not linked their
alleged crimes to drugs.

In one Tennessee county alone, in one month, police linked 16 of 19
overdoses to the sale of gift cards. In the city of Knoxville, over three
months it was 83 of 98 overdoses with ties to gift cards.

There`s no national database tracking the sale and purchase of gift cards.
But a few states are aggressively trying to change that, because of the
opioid crisis.

Online exchanges Raise and Cardpool say they vet sellers thoroughly and use
antifraud technology. National retail chains are also grappling with the
problem of return fraud and gift card abuse. And Home Depot is recently
cracked down with a change in return policy. The company tells us it only
accepts store credits for its in-store purchases, and we require proof of
ID when store credits are redeemed at checkout because of the increase in
return fraud.

In the end, making it more difficult for addicts to turn cards into cash
may be only a temporary obstacle to the next fix.

BOOTH: When you`re suffering from addiction, any length means any length,
and you don`t care how many charges you have, you don`t know what you`ve
been through, you just care about the next one. And, you know, one is
never enough and a thousand is too many.

BREWER: No matter the cost.

For NIGHTLY BUSINESS REPORT, I`m Contessa Brewer.

(END VIDEOTAPE)

MATHISEN: The National Retail Federation says return fraud continues to be
a serious threat with estimated annual losses at $9 billion to $15 billion.
To read more about gift card crime, head to our website, NBR.com.

HERERA: An update to our top story. The Senate has enough votes now to
pass the stopgap spending bill to avert a government shutdown.

And that is 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 will see you tomorrow.

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