Transcript: Nightly Business Report – January 17, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Rush into stocks. The Dow
closes above 26,000 for the first time ever, clinching the fastest 1,000-
point run in history.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Big promise. Apple
(NASDAQ:AAPL) is making a massive investment in America with a plan to
create thousands of jobs, put billions of dollars to work and bring a lot
of money back home.

HERERA: Bitcoin breakdown. What goes up can come down, hard. And the
controversial cryptocurrency is no exception.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
January 17th.

MATHISEN: Good evening, everyone, and welcome.

Apple (NASDAQ:AAPL) surprises investors and promises a big investment in
the U.S. More on that in just a moment.

But we begin with the incredible day on Wall Street. Stocks rose, and
rose, and rose some more. The blue chip Dow index closed above 26,000 for
the first time ever, marking the fastest 1,000-point move in history.
Recall, it was just on January 4th that the Dow first closed before 25,000.
The rally today was broad, with all 11 sectors posting games and all of the
major indexes finishing at records.

As one strategist said, there is just no reason to sell, which come the
think of it, may be a reason to sell. But not today.

The Dow Jones Industrial Average climbed 322 points to 26,115. NASDAQ
added 74. The S&P 500 was up a sporty 26.

If you need even more evidence of the enthusiasm for equities, a new survey
puts stock market optimism among professional investors at a 32-year high.

What happens or tends to happen when we see an acceleration like this?

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Has the stock market
rally begun to overshoot? There is no formal definition of a bull market
overshoot. It`s not the same as a market bubble. Not a mere short-term
sugar rush. It`s a phase when stocks accelerate higher from already high
levels, the public gets excited from the market and investors extrapolate
good economic news far into the future.

Evidence that we might be getting there? The rally has picked up plenty
more energy in 2018. The S&P 500 is up nearly 5 percent since the tax law
was passed less than a month. That`s twice as much as 2018 earnings
estimates have be raised. Riskier, more cyclical stocks are pulling away
from defensive sectors. Some measures of investor sentiment and market
momentum are pushing record highs. Flows into stock funds in the latest
week were the sixth heaviest in history.

These are all signs that stocks could be overheating in the very short-term
as the public embraces a richly valued market newly energized by a big
corporate tax cut.

The market`s volatility index is actually up this year, even as the Dow has
gone higher, an unusual combination that suggests the market might be in
for wider two-way swings this year even as the uptrend looks intact.

If this is an overshoot, it could last a while and be pretty lucrative in
the best case. The `90s bull market probably started overshooting in 1997
and doubled in three years before the peak for example.

The gains posted in this phase often don`t fully survive an eventual bear
market, whenever one might hit. The good news is the market seems out of
reach of the bears for now.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: Apple`s stock contributed to today`s rally. Shares of the largest
publicly traded company turned higher midday and the stock kept climbing
after the company announced a very big investment in this country, which
also happens to be Apple` largest market.

Josh Lipton has the details.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Apple`s CEO Tim Cook
is making a $350 billion pledge to America. Over five years, the iPhone
maker will create 20,000 new jobs. It will also build a new campus here in
the U.S. which will be its third corporate campus, in addition to Cupertino
and Austin.

The company plans capital expenditures of $30 billion. It will increase
the size of its advanced manufacturing fund from $1 billion to $5 billion,
and there are reports that the company will give employees a $2,500
restricted stock bonus.

Cook saying in a statement, Apple (NASDAQ:AAPL) is a success story that
could only have happened in America and we are proud to build on our long
history of support for the U.S. economy.

Apple`s announcement aligns with some of President Trump`s top priorities,
which include getting companies to hire more workers here in the U.S. The
president`s deputy press secretary responded to Cook`s announcement,
saying: Just as the president promised, making our businesses more
competitive internationally is translating directly to benefit the American
worker, through increased wages, better benefits, and new jobs.

For investors, a key headline was this: Apple (NASDAQ:AAPL) anticipates
making a tax payment of $38 billion to bring overseas cash back to the U.S.
It`s doing that in response to recent changes in the U.S. tax law in which
companies pay a one-time tax of 15.5 percent on overseas cash. The
previous rate was 35 percent. There are some details in this report that
investors don`t have, Apple (NASDAQ:AAPL) is not saying how much of its
$252 billion held overseas it`s going to be sending home, and we don`t know
exactly how much more hiring and investing the company is doing in addition
to what their plans already were for the U.S.

But analysts are already speculating about how any freed up money could be
put to work. They think it could go right back to shareholders through
buybacks or dividends.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

MATHISEN: Well, a number of other tech companies were on Capitol Hill
today. Executives from Facebook (NASDAQ:FB), YouTube and Twitter were
questioned by lawmakers about terrorist content an their sites. It is the
latest move by government officials to increase scrutiny of big tech, a
sector that`s growing fast and having a greater influence on our lives.

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Facebook
(NASDAQ:FB), YouTube, and Twitter policy chiefs defending their company`s
efforts to defeat terrorism, saying they are working together and combining
artificial intelligence and their growing employee ranks to prevent their
platforms from being used to recruit and train terrorists.

Facebook`s head of global policy management saying the company will double
its employees focused on safety and security to 20,000 by the end of the
year. YouTube saying it has removed 160,000 terrorism-related videos since
June, identifying 98 percent with machine learning. While Twitter says it
suspends 75 percent of terrorist-related accounts before they tweet.

Republican John Thune pushed the executives about why terrorist videos are
still online, flagging a YouTube bomb-making video instructing the
Manhattan suicide bomber which resurfaced as recently as this month.

SEN. JOHN THUNE (R), SOUTH DAKOTA: How is it possible for that to happen?
Why aren`t your efforts working to keep this video off your platform
permanently?

JUNIPER DOWNS, YOUTUBE HEAD OF PUBLIC POLICY: This particular video was
caught by our systems. We have used it in our sharing database and we are
catching re-uploads of the video quickly and removing it as soon as those
uploads are detected.

BOORSTIN: The questioning expanded beyond just terrorism, as senators also
pressed the companies about their role enabling Russian`s manipulation of
the election and whether they have a political agenda. The companies
saying they have no agenda and they are doing everything they can to crack
down on all varieties of abuse on the platforms.

This as all these companies face growing scrutiny for their size and
influence, and as they take steps to assuage concerns. Google
(NASDAQ:GOOG) yesterday announcing that every video submitted for Google
(NASDAQ:GOOG) prepared advertising must be reviewed by a person and Mark
Zuckerberg saying that fixing Facebook (NASDAQ:FB) is his goal for the
year, changing the newsfeed last week to prioritize personal interactions.

FARHAD MANJOO, THE NEW YORK TIMES: When they put out this product, they
seem to be stuck in the bubble of imagining the best stuff that will happen
with their technologies and usually not pausing to think about the worst
stuff. And so, that`s why they are behind the curve.

BOORSTIN: Now, Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) and Twitter are
trying to make sure they are ahead of the curve, especially when it comes
to potential manipulation of the elections coming up this fall.

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

(END VIDEOTAPE)

HERERA: In a “Wall Street Journal” op-ed published today, chief economics
commentator Greg Ip called into question whether today`s tech giants are
becoming too big and should be broken up. He said a handful of
heavyweights dominate their respective categories. Alphabet`s Google
(NASDAQ:GOOG) was one example, driving nearly 90 percent of all Internet
searches. But what would more regulation or a scaling down among tech
giants mean for consumers?

Joining us now is the author of the article, Greg Ip.

Greg, it`s always great to see you. Thanks for joining us.

GREG IP, CHIEF ECONOMICS COMMENTATOR, WALL STREET JOURNAL: Yes, great to
talk to you. Thanks for having me.

HERERA: In reading the article, you liken the situation that we find
ourselves in today with these tech giants, very similar to historical
precedent, which was Standard Oil and AT&T (NYSE:T), which both dominated
their respective fields.

IP: That`s right. There is important similarities and differences. The
similarity of course is that they are both gigantic. They`re both sort of
technological leaders. And they both in some sense are gateways to
critical parts of the economy, whether it`s oil and telephones in the old
days or whether it`s the Internet today.

And that gateway position gives them extreme leverage and some would argue
monopoly profits. But there`s also important differences. Google
(NASDAQ:GOOG) and Facebook (NASDAQ:FB) give their stuff away for free.
It`s really hard to argue that they`re gouging customers. And even the
stuff they do sell like Google`s advertising rates have been falling year
in and year out.

They are also creating new product. So you couldn`t argue their innovation
is falling apart. It creates sort of a difficult situation. If you are in
the antitrust field today, it`s not so much large market share or is a
monopoly that bothers you. It`s whether they are using that position to
make consumers worse off by suppressing competition. And that`s where the
big question is.

MATHISEN: So, you also talk about Amazon (NASDAQ:AMZN), which has a large
part of online sales, but a very fall part really when you look at it
overall retail sales. They have a lot of e-book sales but there are
obviously printed book as well. So, how — how would one make an antitrust
case against any of these companies if, as you point out, a lot of their
stuff is being given away for free, and a lot of cases the prices are
coming down, not going up. And they`re not acting like monopolists.

IP: I think that it would be very hard right now given what we know today
to make that case, Tyler, precisely for the reasons you cite, that it`s
hard to prove that the fact they are growing bigger has actually come at
the expense of consumers. Amazon (NASDAQ:AMZN), as you say, offers an
amazing array of stuff. That stuff they`ve had such a powerful effect on
low prices, they seem to be actually affecting the inflation rate.

But I think if you peer into the future, this is the question. Their
dominance of certain segments, we mentioned electronic books. But look at
third party merchants. If you are a small business and you want to
actually sell on the Internet, the fact that roughly half of shopping and
Internet searches start with Amazon (NASDAQ:AMZN) it means there is almost
no point this starting your own Website. You almost feel like you have to
go through Amazon (NASDAQ:AMZN) and pay their 15 percent commission.

That I think is where questions will be asked in the future. Is this good
or is this bad for consumers?

HERERA: Is there political appetite to take on this sort of fight, if you
will, or discussion time?

IP: There is no question at the political world has gotten more
treacherous for these companies. I mean, every day, we are hearing about
problems of how they facilitated interference with our elections, how they
are fostering social media addiction and so on and so forth. But in the
antitrust field, they really look at one narrow thing of it`s basically,
are consumers better off or worse off because of this behavior?

They are not going to make a judgment whether these companies are
facilitating, you know, fake news. That`s not their area. And that is why
thus far they have not restrained them. But it`s not always going to be
the case.

And we`ve seen in Europe for example that their bar is lower. In Europe,
they`re much more likely to say the mere fact that the behavior of this
company drove others out of business is ultimately going to be bad for
consumers.

HERERA: Well, keep track of it for us, Greg. We`ll have you back very
soon. Appreciate it.

IP: All right. Thank you.

HERERA: Greg Ip with the “Wall Street Journal”.

MATHISEN: To the economy now. Manufacturing output rose for fourth
straight month back in December. And that capped the strongest quarter
since 2010. The sector being helped by stronger consumer spending,
increased business investment, and that improving global economy.

Manufacturing accounts for more than 75 percent of total industrial
production, and accounts for about 12 percent of the U.S. economy.

HERERA: Economic activity expanded into the New Year. According to the
Federal Reserve`s latest read on the economy, inflation rose at a modest to
moderate pace at the end of 2017, while wages continued to push higher.
The Fed`s Beige Book, which is an anecdotal look at the economy across the
country, indicated that businesses in some districts now have the ability
to raise prices which could lead to higher inflation.

Separately, the Senate Banking Committee voted a send time to approve
Jerome Powell to be the next chair of the Central Bank. The revote was
necessary because the full Senate did not take up Powell`s nomination last
year.

MATHISEN: With the deadline to reach a budget deal and keep the government
open past Friday, the White House today threw its support behind a short-
term funding bill. Senate Majority Leader Mitch McConnell said the Senate
would take up such a measure as soon as it is approved by the House.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R), KENTUCKY: By now, it is clear we are not ready
to move ahead with a major agreement on long-term funding for our armed
forces, nor on our immigration policy. Compromise solutions are not out of
reach. But for now, Congress needs to keep the government running.

(END VIDEO CLIP)

MATHISEN: The Republican Senator Lindsey Graham said he would not vote for
another stopgap bill. Graham helped craft a bipartisan immigration deal
that was rejected last week.

HERERA: Still ahead, a bitcoin blood bath. Why the once hot
cryptocurrency is suddenly ice cold?

(MUSIC)

MATHISEN: It wasn`t a pretty day for some of the country`s biggest bank.
Goldman Sachs (NYSE:GS) reported a 50 percent drop this bond trading
revenue. That`s what investors focused on even as the bank reported better
than expected earnings and profits for fourth quarter. Shares of the Dow
component fell nearly 2 percent on this very positive day for stocks.

Bank of America (NYSE:BAC), meantime, saw its revenue fall short of
expectations in part because of a drop in fixed income trading. Loan
growth was up, profits topped analyst`s expectations despite a one $3
billion one-time charge related to the newly signed tax law. Shares of
bank of America were also lower fractionally in trading today.

HERERA: Bitcoin prices are breaking down. After touching a peak of nearly
$20,000 in December, most major exchanges “Today” show the crypto currency
trading below $10,000, cutting its value in half from late last year.

So, what`s behind this crypto crash?

Seema Mody takes a look.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bitcoin continues to
fall on growing concerns that China and South Korea, two of the largest
bitcoin markets, will ban residents from trading the cryptocurrency.
Latest warning came from South Korea`s finance minister, who said banning
cryptocurrencies is an option on the table due to concerns over tax
evasion.

Further regulation is not being welcomed by all. Citizens (NYSE:CIA) in
South Korea, over 200,000 of them, have signed an online petition asking
the Korean government to not limit trading as they see value in crypto
currencies. South Korea was one of the first countries to embrace digital
currencies and it currently accounts for a significant portion of trading
volume in bitcoin. Citizens (NYSE:CIA) writing: You may think you are
protecting the public, but we citizens think that the government is
stealing our dream.

It`s not just Asia that is trying to crack down on cryptocurrencies.
France`s finance minister says he is launching a special task force that
will look into weather individuals are using cryptocurrencies for tax
evasion, a topic that got attention here in the United States when the IRS
ordered Coinbase, a widely used cryptocurrency trading platform, to turn in
records for over 14,000 users who trade bitcoin.

Concerns over tighter regulation have sent bitcoin sharply lower. Just
today, it wiped out $30 billion in market value. And other crypto
currencies, Ripple, Ether and Litecoin are also under pressure.

DENNIS BERMAN, WALL STREET JOURNAL FINANCIAL EDITOR: There is a
fundamental tension between bitcoin as an unregulated, governmentless,
seamless means of transaction and store value, however you want to
characterize it, and the idea that it should be regulated to be me
effective. So, I don`t know how in the end those two are bridged.

MODY: But given bitcoin`s massive 1,200 percent rise in 2017, some bitcoin
investors see the recent drop as a healthy correction.

For NIGHTLY BUSINESS REPORT, I`m Seema Mody.

(END VIDEOTAPE)

MATHISEN: Let`s take a closer look now at what might have contributed to
bitcoin`s collapse today. Joining us to talk about that is Matthew Green.
He rejoins us. He is a cryptocurrency expert, and assistant professor at
Johns Hopkins Information Security Institute.

Matthew, welcome. Good to have you back again.

In simple terms, what do you think happened today?

MATTHEW GREEN, JOHNS HOPKINS INFORMATION SECURITY INSTITUTE: It`s hard to
say. Cryptocurrencies go up and cryptocurrencies go down. Sometimes,
people to ascribe reasons to that, but it`s not always clear there are
reasons. There was definitely some fear about regulatory actions overseas.
There are some indication that futures contracts may have played a role,
and maybe people just panicked. Hard to know.

HERERA: You know, you liken it to gambling, correct?

GREEN: Yes.

HERERA: Because of the volatility that we are seeing in this particular
cryptocurrency. It is a cautionary tale for investors, if you just look at
the chart action in today`s trading session.

GREEN: So, some people like that aspect of bitcoin and cryptocurrency.
They like the fact that it moves up and down very quickly. But, yes, I
think for people who have invested money that they can`t afford to lose,
cryptocurrencies are very dangerous and it`s a little worrying to me that
we see so many of that kind of investor now getting involved in this field.

MATHISEN: Another person I was speaking to earlier today likened the
cryptocurrencies to some of the Internet stocks circa 1998, 1999. You
didn`t know how they were going to perform. Even Amazon (NASDAQ:AMZN),
this person pointed out, lost 95 percent of its value at one point in its
history.

How do you react to that analogy, number one? And will there come a time
when bitcoin or these other cryptocurrencies aren`t as prone to these as
spasms of moves up or down?

GREEN: So, I think something has happened over the last year, aside from
this incredible price increase, is that we`ve seen a lot more money come
into this field. That`s kind of — that`s what is responsible for some of
the price increase.

But I think over time as the markets become more liquid and more developed,
you are probably going to see prices start to come to a point where they
are actually stable and maybe not so crazy. And also, you are going to see
technological advancements in the currencies themselves that hopefully will
make them more useful for real applications like payments, kind of the way
the dotcom bubble popped and then ultimately resulted in real tech
companies we know are relying on.

HERERA: As you mentioned, more people have begun to mine bitcoin and the
other cryptocurrencies. But as you look further out, do you envision a
time when there is widespread adoption of bitcoin as either legitimate
currency? I mean, it`s not backed by any particular government, in a more
legitimate trading vehicle?

GREEN: So, it may not be bitcoin. It may be one of the other currencies
like ethereum or another currency. But, yes, I do. I used to be very
skeptical about this, but I think that they`re — it`s very unlikely that
cryptocurrencies will go away. Maybe they`ll go down by 90 percent for a
while, but I think they are here to stay.

MATHISEN: Matthew, thank you very much. We`ll have you back. I know
we`re going to be talking about this more.

Matthew Green is with Johns Hopkins Information Security Institute.

HERERA: Tiffany (NYSE:TIF) has a shiny new outlook, and that`s where we
begin tonight`s “Market Focus”.

Following a solid holiday shopping season the luxury jeweler raised its
fiscal 2017 earnings forecast and said it would invest in technology,
marketing, and store presentation. In the latest quarter, the company said
fine jewelry and items from its new home and accessories collection appeal
to customers. The company`s stores in Europe and the Asia Pacific Region
did particularly well. So, did the shares. They were up 1 percent to
$108.99.

Viacom`s chairwoman Shari Redstone is reportedly pushing for a board
shakeup at CBS (NYSE:CBS). The “Wall Street Journal” says Redstone wants
to bring on new director as she renews discussions about a potential merger
between the two companies. The report added that CBS (NYSE:CBS) has
reservations about a tie up. Viacom`s shares were up nearly 2 percent to
$31.96, shares of CBS (NYSE:CBS) were off almost 1 percent to $55.90.

U.S. Bancorp (NYSE:USB) reported earnings that rose and beat expectations.
The nation`s largest regional bank said the majority of the savings from
the new tax law will be returned to shareholders in the form of dividends
and stock buy backs. The rest will be put towards investments in
technology and higher entry level wages. Shares closed down more than 1
percent to $57.34.

MATHISEN: Charles Schwab posted profits that were in line with
expectations, despite saying earnings took an immediate hit from the new
tax changes. Revenue topped forecasts. Schwab shares, up 1 percent,
$56.09, the close there.

The drugmaker Celgene (NASDAQ:CELG) reportedly in talks to buy the biotech
Juno Therapeutics. “The Wall Street Journal” says the deal between the two
companies could help strengthen Celgene`s portfolio of blood cancer drugs.
Shares of Celgene (NASDAQ:CELG) fell more than 2 percent to end the day at
$102.02. Meanwhile, Juno Therapeutics up 51 percent — it sounds like
bitcoin — to $69.25. Not today.

And after the bell, Alcoa (NYSE:AA) posted a larger than expected quarterly
loss. Revenue did improve but also came up short. Shares were initially
pressured in the after-hour session but they closed the regular day up 1
percent at $56.99.

Coming up, is the long run of record low mortgage rates about to come to an
end?

(MUSIC)

HERERA: Walmart is wading into the opioid crisis. The world`s largest
retailer is distributing the first of its kind opioid disposal product.
The product is called Dispose RX and includes a packet that when mix with
water in the prescription bottle turns the pills into a biodegradable gel
that can be thrown in the garbage. The product is meant to be used by
customers who no longer need their prescription painkillers or they`re
concerned that someone else might take their pills.

MATHISEN: Well, homebuilders` sentiment is cooling off a bit but still
remains near historic highs. This as the industry deals with higher
construction costs and the shortage of workers. That said, many builders
are optimistic that a solid job market, rising consumer confidence, and
relatively low mortgage rates will help propel housing demand in the coming
months.

HERERA: And even as mortgage rates stay near historically low levels, they
are moving a bit higher and prospective homebuyers are keenly aware.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mortgage applications
rose last week, which doesn`t make a whole lot of sense, because interest
rates also rose. Usually, applications fall on higher rates, especially
refinances. It makes more sense though when you factor in fear. Borrowers
may have jumped in, worried that the long run of record low rates is over.

So, applications to refinance led the charge, rising 4 percent for the
week. Refinances are highly sensitive to even small moves in interest
rates. And interest rates rose to their highest level since March of last
year.

The average contract rate for a 30-year fixed jumped from 4.23 percent to
4.33 percent. That`s pretty big. We haven`t seen a move like that in a
while and rates edge higher this week as well. While borrowers may be
worried, expert economy watchers are not.

JERRY CASTELLINI, CASTLEARK MANAGEMENT PRESIDENT: It doesn`t appear rates
are going to have a significant runaway on the upside, which I think should
be supported for housing purchases.

OLICK: Mortgage applications to purchase a home which are less rate-
sensitive rose 3 percent for the week and were 7 percent higher than the
same week one year ago. Home buyers may be trying to get a jump on the
spring market, given how competitive the market has been. The supply of
homes for sale is still very low, but there are generally fewer shoppers
out this time of year.

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

(END VIDEOTAPE)

MATHISEN: And before we go, here`s another look at the very happy on Wall
Street today. And the Dow`s first close above 26,000. The blue chip index
climbed 322 points.

There was no giveback today. The NASDAQ added 74. And the S&P 500 was up
26. All of the indexes closed at records.

HERERA: Once again.

MATHISEN: Once again.

HERERA: It seems like we are saying that all the time.

MATHISEN: Saying that all the time.

HERERA: That does it for us tonight. I`m Sue Herera. Thank you joining
us.

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

END

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