Transcript: Nightly Business Report – December 27, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Hard numbers. Corporate
America faces a new reality from the tax man. How bottom lines may be hit
for some major companies.

To prepay or not to prepay? Homeowners across the country scramble to
figure out whether they should prepay next year`s property tax or even if
they can. We`ll break down the dos and don`ts for you.

And bowling for dollars. A look at the half billion dollar windfall from
the business of college football bowl games.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
December 27th.

Good evening, everyone, and welcome. Sue Herera has the evening off.

Well, the holiday present of tax reform promised by the White House was
delivered on time. And now, as the wrapping continues to get ripped off,
we`re finding out more and more about the impact of the new law. And now,
more companies are coming out with figures on how their bottom lines might
be affected. Positively, negatively.

Morgan Brennan has a look.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Corporate America
is finally beginning to release hard numbers regarding tax reform or at
least the immediate impact to the balance sheet. Among the immediate
winners, insurer Chubb (NYSE:CB) which expects a bottom line boost in 2017.
And German automakers Daimler and BMW, although BMW added it couldn`t
quantify the tax effect for 2018 just yet.

These announcements coming after FedEx (NYSE:FDX) kicked off the trend last
week, saying reform could add $1.5 billion in profit to fiscal 2018, before
the bill had even become law.

FREDERICK SMITH, FEDEX CEO: We`re encouraged by the Tax Cuts and Jobs Act,
the legislation advancing in Congress at this very moment. This
legislation offers pro-growth, pro-business tax reform solutions that will
power the economy, increase business investment, expand job opportunities,
and enhance incomes and improve U.S. competitiveness.

BRENNAN: But there are near-term losers as well. Big banks warned they
will incur charges. Barclays, Credit Suisse, Bank of America (NYSE:BAC),
and Citi, which earlier this month warned it could take a hefty $20 billion
write-down. Earlier today, Royal Dutch Shell said it, too, would log a
noncash charge. It`s all one-time hits tied to the valuation of either
deferred tax liabilities or deferred tax assets.

With deferred assets, companies can use losses from one year to offset
future taxes. But those aren`t worth as much on paper with the corporate
rate falling to 21 percent.

For deferred liabilities, which most big corporations have, the opposite is
true.

ERIN GIBBS, S&P CAPITAL IQ: Once companies starting incorporating tax
benefits and getting those one-time pops, it might be the one year where
earnings expectations actually are lower than what we end up seeing for the
rest of the year.

BRENNAN: Overall, companies including some of those big banks are mostly
upbeat longer term, saying reform will positively impact future U.S.
earnings. And if the economy grows, that could benefit them as well.

But it is an adjustment — an adjustment that could mean some big and
unusual numbers when earnings season gets under way next month.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: And the realities are setting in for those select groups that
were left out of the bill.

Last night, Ylan Mui told us about the stocking stuffers that were included
in the law. And tonight, she looks at who got a lump of coal.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The new tax law that
Congress passed before leaving for winter break is also leaving some groups
out in the cold.

Republicans say the new tax code is all about closing loopholes. That`s
creating unexpected losers as a result. Take bicycle commuters. The law
gets rid of tax incentives for employers that encourage biking to work.

Right now, it saves workers an estimated $89 a year that they can use for
the cost of maintaining their bikes. Starting January 1, it goes away.

Also in the crosshairs: a tiny Berea College in Kentucky. All of the kids
at the school come from low income families and none of them pay tuition.
It`s a free college degree. Berea was supposed to be exempted from a new
tax on colleges and universities that have big endowments. But at the last
minute, lawmakers had to scrap the carve-out because it didn`t comply with
Senate rules.

On the Senate floor, Majority Leader Mitch McConnell vowed to keep trying
to protect the college and blamed Democrats for blocking the measure.

SEN. MITCH MCCONNELL (R-KY), MAJORITY LEADER: They decided to pick
partisan politics and attacked the measure simply because they could. In
the process, they insured that Berea would bear the brunt of this blatant
political calculation.

REP. PAUL RYAN (R-WI), SPEAKER OF THE HOUSE: Without objection, the motion
to reconsider is laid upon the table.

MUI: But the biggest shocker of all, Congress got rid of some of its own
tax breaks. The deduction for lawmakers` living expenses is going away.

They also won`t be able to write off settlements they pay in sexual
harassment claims. And that`s a move that some say is long overdue.

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

(END VIDEOTAPE)

MATHISEN: The new tax law limits to $10,000 the amount that taxpayers can
deduct for state and local income and property taxes they pay. The new
provision takes effect January 1.

So, taxpayers in several high tax states like New Jersey, Illinois,
California, have rushed to their town halls this week to prepay 2018 real
estate taxes that have already been assessed. Doing so, according to an
IRS ruling late today, will let them deduct the full amount on their 2017
return in most cases.

Here to explain who can and who should and how is Johanna Seenath, senior
tax manager at PagnatoKarp.

Johanna, welcome back. Good to have you with us.

JOHANNA SEENATH, PAGNATOKARP SENIOR TAX MANAGER: Great to be here.

MATHISEN: Let`s go carefully here because it gets technical very quickly.
Who should try to do this and who shouldn`t?

SEENATH: So, first of all, the IRS released guidance today surrounding who
can deduct property taxes. The most important thing to know is that if
your 2018 property taxes have already been assessed prior to year end,
you`re allowed to prepay and deduct those taxes. So, if you unfortunately
do not yet know what your 2018 property taxes are, you will not get a
deduction on your 2017 return.

MATHISEN: So, how do you do it? Do your town hall and ask whether there
is a bill ready for me? And should I do it no matter what? Or should I do
it only if my property taxes would be so great that I wouldn`t be claiming
this new expanded standard deduction?

SEENATH: Absolutely. So the first thing I would look at is if you are
going to be in the alternative minimum tax or AMT in 2017, and if you are
going to be an AMT, unfortunately, you`re not going to get a benefit for
paying any property taxes. So I wouldn`t pay them in that scenario. If
you will get a benefit, the best thing to do is contact your county and see
how you can make that early payment prior to the end of the year.

MATHISEN: And then obviously get a receipt for the amount you did pay and
that can be your proof that you did prepay.

SEENATH: Absolutely.

MATHISEN: I would think another wrinkle here, many people have their
property taxes escrowed in advance by their mortgage processor or mortgage
lender.

SEENATH: Correct.

MATHISEN: I would think you then have to go to that entity and say, hey, I
already paid, stop escrowing.

SEENATH: Exactly. You`re going to have to contact your bank if your
mortgage does escrow your property taxes and figure with your specific bank
how to get that escrow refunded for your prepayment.

MATHISEN: It sounds like several gnarly steps here, Johanna.

SEENATH: Yes.

MATHISEN: But ultimately, you could end up saving a lot of money this way,
couldn`t you?

SEENATH: Absolutely. So in 2018, the state, local, and property tax
deduction is going to be added together and capped at $10,000. So, if you
do have the ability to prepay, it`s going to save a lot of money on your
2017 return.

MATHISEN: Yes.

SEENATH: So, I think it would be worth giving your bank a call and seeing
how you can work that out.

MATHISEN: I`ve often seen it said that if you can, you should prepay
January`s mortgage payment because then you will be able to claim the
interest if you itemize, true?

SEENATH: Yes. So if you have a mortgage payment where you`re paying
principal and interest for your mortgage, and usually your payment is due
on the 1st of the month, if you want to pay that a couple of days earlier,
I would just make sure with your bank that that mortgage interest that you
pay will be deductible on your 2017 return as well.

MATHISEN: All right. The tax world is a-changing and you`re going to be a
busy person.

SEENATH: Oh, yes.

MATHISEN: Johanna Seenath with PagnatoKarp, lots of late nights I`m sure.

SEENATH: Thank you so much.

MATHISEN: Thank you.

All right. On Wall Street, stocks closed with modest gains on one of the
lightest volume days of the year. Everybody is away, it seems. The Dow
rose 28 points to 24,774. Nasdaq climbed three. The S&P 500 was up a
whopping 2.12.

But as you surely know, 2017 has been a remarkable year for stocks and in
many ways, an unusual one as well. So, what might 2018 look like? A
revision to the norm, or a year that makes 2017 look like the new norm?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2017 was a year of
surprises. And they say 2017`s gains can`t happen again. But why not? By
almost all measures, 2017 was one of the most extraordinary years in the
history of the stock market. We saw outside gains, record highs, and
record low volatility.

Many traders say we can`t have 20 percent returns in the S&P because, well,
it`s not normal, the average was 8 percent since World War II. They say we
can`t keep hitting new highs, 62 all-time highs this year. And even in
years when we hit new highs, the average is less than half that.

And they say we can`t keep up this low volatility, only 8 days when the S&P
moved 8 percent or more, the average is 50 days. And they say we can`t
have this huge divergence in sector performance, with technology the best
performing sector outperforming telecom, the worst performing sectors by
over 40 percentage points.

But why can`t we stay at the highs? Earnings are not peaking out and if
anything, are going up thanks to tax cuts.

And the complaint that the market is expensive is true. When the global
economy is expanding and earnings are at record highs, this is exactly the
time you can justify a higher multiple. As for the low volatile, it seems
pretty clear that absent a big outside shock, we have been in a longer term
low volatility period that is likely secular, long term, caused by perhaps
low rates, ETFs, maybe less trading.

Finally, about everyone who wants to dump technology and buy cheaper
sectors like energy, maybe. If you believe in the global economic
expansion and earnings continue to expand, however, that would argue for
growth stocks, which would include technology names.

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

(END VIDEOTAPE)

MATHISEN: Well, as we`ve reported this holiday shopping season, it`s been
a strong one, with Americans shelling out nearly $700 billion during the
period. Some of those gifts of course were gift cards. Now retailers want
gift card recipients to spend the cash so they can bank it.

Kate Rogers (NYSE:ROG) is in Union City, New Jersey.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Americans were
projected to spend more than $27 billion on gift cards this year per the
National Retail Federation. That`s up slightly from last year, as
consumers are feeling upbeat about the economy and allocating their
spending on other items. The NRF says consumers plan to buy an average of
four gift cards. Restaurants were most popular, followed by cards for
retailers, Visa (NYSE:V), American Express (NYSE:EXPR) (NYSE:AXP),
MasterCard (NYSE:MA), and Discover gift cards, and coffee shops.

Retailers also want consumers to come in and spend. They can`t count gift
cards as dollars earned until they`re actually redeemed in stores for goods
or services.

This holiday season was strong one. Figures from MasterCard (NYSE:MA)
showed overall sales rose 5 percent from November 1st through Christmas
Eve. E-commerce grew even faster, at a rate of 18 percent, as consumer
sentiment rose and shoppers continued to spend late into the season.

Consumers said they were feeling confident about the economy this holiday
season and took advantage of sales.

UNIDENTIFIED MALE: Since President Trump has been elected, I think he`s
done a lot for the economy.

UNIDENTIFIED MALE: Just knowing that there was a lot of unknowns, so I
just worked really hard and we had a good year.

UNIDENTIFIED MALE: I spent less money on Christmas this year, better
sales, I took advantage of that.

ROGERS: And whether it`s spending on gift cards or sale items, don`t
expect shoppers to slow down anytime soon. And, in fact, they`re set to
spend some $69 billion this week through New Year`s, that`s 10 percent of
the overall $682 billion the National Retail Federation had projected for
this holiday season.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Union City, New
Jersey.

(END VIDEOTAPE)

MATHISEN: Up next, how the debate over deficits has shifted the focus on
entitlements. We`ll explain.

(MUSIC)

MATHISEN: Well, the new tax law has done a lot of things. But one of the
most amazing is how it has changed the conversation about budget deficits
and which party takes which side in the debate over how important they
truly are. Now, with all the tax cuts coming through in 2018, it is
possible that the federal deficit could pierce a trillion dollars next
year. And that`s in an expanding economy, not a recession.

So, Speaker Paul Ryan now has his focus on cutting spending, specifically,
entitlements.

John Harwood joins us from Washington on what is sure to be a tricky bank
shot for the GOP.

You know, John, after fighting the White House over deficits so much during
the Obama years, Republicans have brushed off talk of higher deficits
derived from tax cuts. Do they not matter if they occur because of tax
cuts, only if they occur because of spending?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, that`s a lot,
considerably, what Republicans believe. You know, part of the turnabout is
partisan. President Obama was a Democrat. President Trump a Republican.
But it`s also the case that Republicans believe in smaller government.
They view tax cuts as a separate matter, as economic policy to produce
growth, and then want to right size spending to fit the tax rates that they
have cut to.

And so, that`s why Republicans brushed off those Democratic complaints
about deficits from the tax cuts during the tax debate. But they`re coming
at `em pretty quickly now that the tax cut is real and we`re going to have
some budget consequences.

MATHISEN: So, I seem to hear you saying that the deficits give the GOP an
opportunity, then, to shrink the size of government and that that is really
philosophically part of what they want. But is the solution cutting
entitlements? Is that in the cards this year?

HARWOOD: Well, if you ask Paul Ryan, the House speaker, who is very
ideologically driven to reduce government, yes, that is the answer. He has
said that the way you tackle debt and deficits is by restricting those big
entitlement programs, especially the health care entitlements of Medicare
and Medicaid, not to mention Social Security.

The challenge is that`s very politically unpopular to do. And Mitch
McConnell, the Senate Republican leader, last week said, I don`t expect
that on the agenda because Democrats are going to be opposed and if they`re
opposed, we don`t want to do it.

There`s a 2018 election coming up and Republicans need to be careful.

MATHISEN: All right. If Washington becomes paralyzed over the budget,
should the markets be worried about the consequences of near-term deficits?

HARWOOD: I think not in the near term, Tyler. You know, this has mostly
been a theoretical problem. There were predictions that we were going to
become the next Greece during the Obama years, that didn`t happen. Foreign
lenders are still willing to buy treasury bills and fund our deficit.

So, I think in the long term, when the baby boomers retire and those
numbers get overwhelming, yes, markets should worry. Not so much right
now.

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

Well, Apple (NASDAQ:AAPL) faces a growing list of lawsuits. And that is
where we begin tonight`s “Market Focus”.

Last week, as you may recall, we told you the tech giant was slapped with
two lawsuits over its practice of slowing down older model iPhones to help
extend their battery life. That number of suits has now crept up to at
least nine, which have been filed across the country. They allege that the
company defrauded users by slowing the devices without warning. Apple`s
shares nonetheless are three cents higher today at $170.60.

The financial firm KeyBanc expects Tesla`s Model 3 deliveries to disappoint
in the fourth quarter. The firm slashed its forecast nearly 70 percent to
5,000 vehicles. KeyBanc says its projection are based on conversations it
has had with 18 Tesla stores in the U.S. Tesla shares fell nearly 2
percent to $311.64.

Well, the drug maker Horizon Pharma said the FDA has expanded the list of
who can be treated with the company`s drug for a rare life-threatening
metabolic disorder called nephropathic cystinosis. Glad I put that in the
company. Horizon said the approval means children as young as a year old
now have access to the treatment. Shares initially rose as much as 3
percent on the news but ended the day fractionally higher at $15.01.

And Bernstein is downgrading shares of Celgene (NASDAQ:CELG) to market
perform from outperform. It says pipeline setbacks don`t bode well for the
stock`s potential upside. The firm says part of the excitement surrounding
the company has been Celgene`s bet on innovation. As of late, it just
hasn`t panned out. The drug maker recently reported disappointing results
for its cancer treatment and said it will end its Crohn`s disease trials.
Shares off 2 percent at $104.46.

Well, tonight`s market monitor says he is finding opportunity in emerging
markets in 2018, thanks to global economic growth, demographics, and
reasonable valuation compared with the U.S. He`s got three picks. They
include a mutual fund and two ETFs.

This is his first time on the program. He`s Greg Luken, president and CEO
of Luken Investment Analytics.

Greg, welcome. Good to have you with us.

Why three separate ETFs and funds here? Can`t you get it all done with
one?

GREG LUKEN, LUKEN INVESTMENT ANALYTICS PRESIDENT & CEO: Thanks, Tyler.
And many people do. One of the advantages of using several different
positions is the differences in company and country weightings. So you see
pretty sizable differences between the way they weight the different
countries inside that, which makes a sizable difference in the results that
they get.

MATHISEN: So, these funds and ETFs we`re about to talk to do different
things different ways, have different exposures. Let`s start with, I
believe the ticker is DEMIX, Delaware Emerging Markets Fund Institutional.
Why do you like it?

LUKEN: I like it because the costs are reasonable. The country
allocations have worked. And we think they will continue to work. They
have a lot of exposure in the Pacific Rim. And it continues to deliver.

MATHISEN: Up 40 percent on the year, I would say that`s delivering. I
think the next one is FEM, First Trust (NYSE:FFA) AlphaDEX ETF. Why do you
like that one?

LUKEN: Well, again, First Trust (NYSE:FFA) uses a little different way of
weighting countries. They have an overlay, kind of a paint by numbers, if
you will, a mathematical way to select the companies and countries that go
in there. And it ends up with a very different mix than the typical
emerging markets index.

MATHISEN: And then there`s an iShares emerging markets fund, you say it`s
not the cheapest but tracks the most closely to an index, up 35 percent in
one year.

LUKEN: That`s right. So, this is probably one of the purest forms of
matching the underlying emerging markets index. And despite the expenses,
it tracks right with it.

MATHISEN: What are you looking for in the markets domestically next year?
Quick thought.

LUKEN: Quick thought is, 2017 was a great year. We think 2018 will be a
solid and a good year. We think it will end substantially higher. We
think the tax cuts are going to make a difference. Any infrastructure
spending could be a real positive. And we`ve got a number of sectors that
have underperformed.

MATHISEN: Well, I think you should spend more time on those beautiful
mountains right behind you there, Greg. Get some ski —

LUKEN: Greatest snow on earth.

MATHISEN: You bet. Greg Luken with Luken Investment Analytics, Salt Lake
City.

Coming up, ever wonder why there are so many college football games? Two
words: big money.

(MUSIC)

MATHISEN: Former President Obama warns about the challenges with social
media and the potential for using it irresponsibly. In a BBC Radio
interview with Prince Harry, Mr. Obama said that people on social media
often hear only what they want to hear.

(BEGIN VIDEO CLIP)

BARACK OBAMA, FORMER PRESIDENT: The question I think really has to do with
how do we harness this technology in a way that allows a multiplicity of
voices, allows a diversity of views, but doesn`t lead to a balkanization of
our society, but rather continues to promote ways of finding common ground.

(END VIDEO CLIP)

MATHISEN: Still, the social media space is closely watched by investors.
So, what might 2018 hold for this important group?

Julia Boorstin takes a look.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: In 2018, we can
expect an acceleration of change in the media industry as the giants adapt
to more competition. First with Disney`s Fox deal creating a behemoth that
will grab an even bigger piece of the box office. All the other media
players are likely to scramble for scale, targeting the smaller media
companies such as Discovery, Lionsgate, and AMC Network. We could see
Netflix (NASDAQ:NFLX) buy a studio to lock in a library with subscriber
appeal.

All this as the industry awaits a court decision on AT&T`s battle with the
DOJ to buy Time Warner (NYSE:TWX).

Second, amid growing concerns about cord-cutting, there will be a surge of
new skinny bundle subscribers. YouTube, Hulu and AT&T`s DirecTV Now will
make greater gains as Discovery and Viacom`s sports-free bundle “Philo”
appeals to people who don`t want ESPN. New live video offerings from
Amazon (NASDAQ:AMZN) and even Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB)
could put a deeper dent in pay TV numbers.

Lastly, with sexual harassment and misconduct revelations prompting an
overhaul of Hollywood`s top ranks, all signs point to the entertainment
industry taking the lead in redefining workplace conduct. After years of
criticism for being too white and too male, studios are going to prioritize
diversity, not only because it`s the right thing to do but because it helps
draw the broadest audience for their content.

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

(END VIDEOTAPE)

MATHISEN: And finally today, on New Year`s Day college football will be
played. Winners face off for the football championship January 8th. But
did you know that before that there will be nearly 40 other bowls, many of
which you probably haven`t heard of? But it doesn`t matter, because bowls
are big business.

Eric Chemi explains from Yankee Stadium.

(BEGIN VIDEOTAPE)

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tonight at Yankee
Stadium, it`s a New Era Pinstripe Bowl featuring Iowa and Boston College.

If you look at the business of bowl games, it`s very different than a
generation ago. Back then you d nonprofits like the Rose Bowl, the Fiesta
Bowl. Those were community organizations.

Now, you have for-profit entities. This bowl game did not exist 10 years
ago, but the Yankees decided they wanted to create it. They`re still the
owners of the bowl game today.

And think about these players, Iowa and Boston College have been up and
down New York City doing a lot of media appearances, even doing the opening
bell at the stock exchange the other day. That`s good for those schools as
recruiting trips to get future players. And it`s good for the conferences.
The Big 10 and the ACC, they want to be national conferences, they want to
be in the New York City media markets. So, this is a perfect opportunity
for them to do that.

For the sponsors, there`s real value as well. According to Apex Media, a
sponsor like New Era for tonight`s game, that`s worth $4 million. For some
of the bigger games, you`re talking about $11 million in sponsorship value.
And remember, New Era already had a relationship with the Yankees because
New Era sells baseball hats and the Yankees are the most popular team in
the country selling baseball hats.

So, they want to keep that relationship happy as well. Consider the larger
picture, all the schools and conferences, because of this full month of
bowl games, they`re going to generate $600 million in revenue. There`s
only $100 million in expenses. So, that`s a half billion dollar profit for
the teams playing in these 40 bowl games this month.

And if you`re wondering who`s watching these lower tier ball games, it
turns out more people than you think. Last year, all but one bowl game had
at least 1 million viewers. So, that`s good for holiday retailers trying
to get their Christmas specials advertised. Even for movie studios that
want to announce their blockbusters coming up during the season.

So, a lot of different parties want these bowl games to exist. There`s a
lot of money to found from multiple sides. That`s why these games exist
like the Pinstripe Bowl behind me.

For NIGHTLY BUSINESS REPORT, I`m Eric Chemi in the Bronx.

(END VIDEOTAPE)

MATHISEN: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen. Thanks for watching. See you tomorrow.

END

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