Transcript: Nightly Business Report – January 18, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The clock is ticking. The
threat of a government shutdown is rising. And that could throw the market
for a loop.

Making the cut. Amazon (NASDAQ:AMZN) picks 20 finalists for its second
headquarters. But as cities court the e-commerce giant, what`s really in
it for them.

Economics of the flu. The virus is widespread across the country. And the
costs are rising.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
January 18th.

Good evening, everyone. I`m Sue Herera. Tyler Mathisen is off tonight.

Wall Street`s focus is once again on Washington. The deadline to fund the
government is tomorrow at midnight. And lawmakers appear to be far from a
deal.

If an agreement isn`t reached and a spending bill isn`t passed, the
government should shut down. The president today said that is a real
possibility.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: If the country shuts down,
which could very we be, the budget should be handled a lot differently than
it has been handled over the last long period of time, many years.

(END VIDEO CLIP)

HERERA: That kept a lid on stock prices. The Dow Jones Industrial Average
dropped 97 points to 26,017. The Nasdaq was off two, and the S&P 500 fell
4-1/2.

So, what could happen to the market if a shutdown is not averted?

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks have been off to
the races so far in 2018 but the looming threat of a possible government
shutdown could throw the rally for a loop. We`ve already seen the markets
losing steam today. But, remember, the Dow just closed fractionally lower.

What exactly does a shutdown really entail? The government would stop
spending and it mostly applies though to discretionary spending. So,
entitlements, for example, Medicaid and debt payments would not be affected
at all. And neither would military spending. It`s really very limited.

The U.S. government has shut down a total of 12 times since 1981. The S&P
has traded down an average of 0.6 percent during a shutdown. That`s not
much and it is a coin toss whether they go positive or negative the week
after.

So, any impact on the economy would likely be modest. For example, Goldman
Sachs (NYSE:GS) estimates that each week of a shutdown would reduce first
quarter GDP growth by 0.2 percent. But that would reverse in the next
quarter. So, most the notable shutdowns over the last few decades have
coincided with debt limit deadlines. Now, that`s more serious. The next
debt limit deadline won`t be here until March.

So, stocks likely won`t react much to a shutdown. But if the debt ceiling
drama heats up, that could become a problem for the market. The main
concern is the bond market. Yield on the 10-year treasury note hit a 10-
month high today and the shorter term, the two year yield rose to levels
not seen in a decade.

So, if rates continue to rise, that could give the stock market a bit of a
pause.

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

(END VIDEOTAPE)

HERERA: As an investor, what should you do to prepare for a potential
shutdown? Here to talk about that is Ed Mills, Washington policy analyst
at Raymond James.

Welcome back, Ed. It`s always nice to have you here.

ED MILLS, WASHINGTON POLICY ANALYST, RAYMOND JAMES: Good to be here.

HERERA: First of all, handicap it for me. What odds would you put on a
government shutdown?

MILLS: We might shut down but we probably don`t. I think at this point it
looks like we`re not going to get the long term deal that we were hoping to
do. We are probably not going to get the month long deal that was on the
table that started the day.

It looks like we are probably headed towards a very short-term extension of
five days or less, forcing folks back to the negotiating table, and seeing
if we can work through the weekend and get that long term deal hammered
out.

HERERA: One of the worries from other analysts and economists that I have
talked with about it is the fact that the immigration debate is integral to
this deal. And that`s a very emotional debate and a very passionate —
depending on whatever side you`re on and that that may be a bigger sticking
point than times past.

MILLS: Yes. And I think for the DACA debate, the immigration debate, the
person who needs to be convinced here is probably the president. If the
DACA fix that kind of was negotiated on a bipartisan basis in the Senate
was on the Senate floor, it would pass. If it was on the House floor, it
would pass.

What we are doing right now is more through a partisan approach in the
House where Speaker Ryan is trying to do it on Republican votes alone to
get a DACA deal, you need to abandon some of the more right wing
conservative part of the party to get Democrats on board. It is ultimately
the milled that is going to deliver a DACA deal and a long term fiscal
solution in getting the government kept open.

HERERA: You know, the last couple of days for the markets has seen some
increased volatility. And the worry from some that I`ve talked to is the
fact that we have a market that has moved so far so fast. I mean, we went
1,000 points in a record amount of time, that any glitch will increase
market volatility. Do you agree or not?

MILLS: It`s possible but I think this is more of a buy the dip scenario if
the kind of government shutdown causes any market volatility. What is
really much more important continues to be the tax bill that just got
passed. We`re about a week into earnings seasons. These companies are
still providing guidance on what the impact is going to be. I think that`s
where the market has more legs from here.

And ultimately, the government shutdown is absolutely going to get
resolved. So we look back a month from now, two months from now, this is
going to be a very temporary problem on very specific issues, not really
endemic of a larger economic situation. And ultimately when we do get a
government funding bill, the spending caps that we`re going to get back
into place in 2018 are going to be lifted.

So, this is actually more fiscal stimulus to the economy in addition to
what we got in the tax bill. Net positive.

HERERA: Thank you so much for your perspective, Ed. We always appreciate
it.

MILLS: Thank you.

HERERA: Ed Mills with Raymond James.

Well, on the corporate side of things, IBM investors have waited an awfully
long time to see revenue growth. And tonight, they got it. Big Blue`s
quarterly revenue rose for the first time in nearly six years, largely due
to the company`s focus on the cloud and also security services. IBM`s
earnings beat analysts by a penny, coming in at $5.18 a share. Revenue
rose 4 percent from a year ago to $22.5 billion.

But investors were wary, sending shares initially lower in after-hours
trading.

Deirdre Bosa has more on IBM`s quarter.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: IBM finally breaking
its years-long streak of declining sales and fuelling more optimism for a
turnaround. It`s expecting revenue growth for all of next year, perhaps
alleviating some concerns that this was a one-time lift and not the big
turnaround that CEO Ginni Rometty has been working on for nearly seven
years now.

Still, IBM is a long ways from where it was even six years ago when its
stock was above $200 and it was the most influential stock in the Dow Jones
Industrial Index. Today, shares are nearly 20 percent off that price and
it`s only the eighth most influential Dow stock.

Meanwhile, Big Blue is making a big bet on next generation`s technologies
like artificial intelligence, cloud computing and big data, which makes up
its strategic imperatives unit. And while this unit`s share of total sales
is growing, that growth has been choppy and it`s still uncertain whether it
can make up IBM`s slowing legacy business.

So, the big takeaway, IBM is growing again but the jury is still out on
whether it will last.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, San Francisco.

(END VIDEOTAPE)

HERERA: OPEC is concerned about a flood of new oil from the U.S. The
cartel increased its forecast for supply growth for the second straight
month. Over the past two years, OPEC has cut production and that has
helped ease the glut. It also caused prices to move higher which in turn
made it more attractive for some producers to bring more supply to the
market, especially U.S. producers. So, the price of domestic crude today
settled just slightly lower.

Home building activity fell sharply in December. Housing starts recorded
their biggest drop in just over a year with a steep decline in construction
of single-family homes. Some economists say extremely cold weather at the
end of the month could have disrupted building activity. A separate
economic report on the labor market shows that the number of Americans
filing unemployment benefits fell 41,000, more than expected last week, to
the lowest level in 45 years.

China`s economy appears to be strong. A new government report shows the
pace of growth accelerated last month.

Eunice Yoon takes a look at the world`s second largest economy.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s economy ended
the year on a positive note, 6.8 percent for the fourth quarter, 6.9
percent for the full year. And the December data also told the story,
retail sales were a little bit softer but industrial output picked up, as
did fixed asset investment. Now, what was behind all the growth was a
global economic recovery. Shipments to the U.S. as well as to Europe held
up well, as did household consumption.

Now, in 2018, there is near universal agreement that the economy is going
to slow down. And that`s because Beijing authorities have not only been
tightening credit but also curbing pollution, as well as the property
sector.

There is also one other risk for 2018. And that is the potential for a
trade war. I`m currently at a car parts company in Beijing that sells to
the United States. And I was speaking to the chairman who said that he is
concerned about some of the rhetoric out of the White House.

TAO FAXIUN, BEIJING TAICHENGXIN MEAS. & CONTROL TECH. CHAIRMAN (through
translator): We are very concerned about how Trump`s policy will influence
our future development in America. From an entrepreneur`s perspective, we
hope for more open policy that would benefit all enterprises, including
American ones. Through a more open environment American companies would be
able to choose better suppliers and gain greater benefits.

YOON: China`s trade surplus last year with the U.S. only got bigger and
there are some here who are concern that the strength that we`re seeing in
the Chinese export sector could just feed into criticism by the Trump
administration.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: And then there were 20. Amazon (NASDAQ:AMZN) has narrowed the
list of potential sites for its second headquarters to 20 locations. The
company says that the finalists will work with Amazon (NASDAQ:AMZN) over
the coming months to, quote, evaluate the feasibility of a future
partnership, end quote.

Scott Cohn is covering the story for us from Mountain View, California.

Great to see you, Scott, as always.

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Sue.

HERERA: What happens next for these 20 cities?

COHN: Well, as you said, they are going to start talking to Amazon
(NASDAQ:AMZN) about a lot of specifics. The conventional wisdom in
economic development circles, although nothing about this has been
conventional thus far is that the talks will get quieter, there will be a
lot more sort of confidential back and forth. But these cities are now
going to be bidding against the best of the best for Amazon`s HQ2 project.

And they`re going to have to decide whether to continue with this, whether
to up that ante, or whether to cut and run. Meantime, for all of these
cities, they`ve got some bragging rights now. If you didn`t think of, for
example, Columbus, Ohio, as one of the most competitive cities in America,
well, now, you probably should. They are in that conversation.

These cities all have some bragging rights no matter what happens in the
end.

HERERA: Yes, it`s going to be fascinating to watch this whole thing.

Is there an element, though, perhaps of be careful what you wish for?
Because in this very competitive race, some of these cities are ponying up
huge incentives.

COHN: Right. And that`s where the bidding war comes in. They are going
to have to decide whether it`s worth it to them and to their taxpayers to
bring in this $5 billion project and at what point they need to say, it`s
fine just to be in the consideration. So, there`s that.

And also, the ultimate winner is going to look at some of the things that
Seattle has had to look at with Amazon`s original headquarters there. That
includes rising housing prices, all kind of things that come with major
growth and growing pains. And so, there is an element of be careful what
you wish for.

HERERA: You know, I was struck by how diverse this list is. You know, you
have some cities that are much smaller, a little bit more rural, perhaps.
And then you have Los Angeles and New York and cities like that.

What does it tell us about what Amazon (NASDAQ:AMZN) is thinking? What
they are ultimately going to be looking for?

COHN: Well, I think it tells us that they meant what they said when they
were talking about wanting a big metropolitan area. Yes, some are smaller
than others. But everyone is more than a million people. There were some
cities that tried to get in on this, Anchorage, Alaska, Hickory, North
Carolina, they are out.

Amazon (NASDAQ:AMZN) wants a critical mass of workforce that it can draw
from. It also tells us that the appeals to sentimentally didn`t work. So,
Detroit wanting to get Amazon (NASDAQ:AMZN) in on the rebuilding of a once
great American city. Amazon (NASDAQ:AMZN) doesn`t seem to want much to be
part of a rebuilding effort.

Tucson, Arizona, sent them a giant cactus. So, they`re just out a giant
cactus. They`re out of the competition.

HERERA: On that note, Scott, thanks so much. We`ll be talking to you
again soon.

COHN: OK.

HERERA: Scot Cohn in Mountain View.

Still ahead, this flu season is bad. And it is getting very costly.

(MUSIC)

HERERA: Four not-for-profit hospital systems are teaming up to create a
new generic drug company. The hospital groups include Intermountain
Healthcare, Ascension, SSM Health, and Trinity Health. Together, they own
10 percent of hospitals across the country. According to “The New York
Times (NYSE:NYT)”, the move appears to be the first on this scale and is
being driven by drug shortages and high prices. Executives are not
disclosing which drugs they will make, and the new company could rely on
third party manufacturers. Regulatory approvals are still needed but that
story was enough to pressure shares of some of the major generic drug
makers in today`s trading session.

Every year, the flu is responsible f thousands of deaths and billions of
dollars in lost worker productivity. This season is shaping up to be one
of the worst we have seen in years. And new estimates say it could cost
employers $9 billion, $2 billion more than the average.

Here to discuss the flu`s potential economic impact is assistant profess of
public administration at California State University Dominguez Hills,
Fynnwin Prager.

Nice to have you here, Professor. Welcome.

FYNNWIN PRAGER, CALIFORNIA SATE UNIVERSITY ASSISTANT PROFESSOR: Great to
be here. Thank you.

HERERA: You know, it`s fascinating, because you have done a lot of
research on this particular economic impact of the flu. First of all, tell
me what you are se so far, because it seems to be a worse than expected flu
season.

PRAGER: The current data suggests that it`s a worse than normal season,
although it`s still very early days and we don`t have the best data from
CDC yet to fully understand this phenomenon.

HERERA: So, what do you use when you are putting together your model?
What are the key factors that you use to kind of indicate what the economic
impact is going to be?

PRAGER: Well, the first two factors that we look at are work productivity
in terms of reduced work force participation. And the second is medical
expenditures and both of those are important in regular flu seasons. One
thing that our study looked at in addition is behavioral responses. And by
that, we mean the ways in which people change their regular routine,
whether that`s pulling their kids out of school because of fear of
infection, not attending work because of fear of infection, caring for
their families who have been infected and —

HERERA: Are those costs offset by other things that people do?

PRAGER: They can very much be. So, we have a concept of economic
resilience, which is the ability to bounce back. And there is also
obviously vaccination programs which can have a significant impact in
reducing the costs of an infection outbreak.

HERERA: All right. We`ll leave there. Professor, thank you so much.

PRAGER: Thank you.

HERERA: Professor Prager is with the California State University Dominquez
Hills System.

Some Wells Fargo (NYSE:WFC) customers were double charged. And that glitch
affected those who were doing online bill transactions. The technical
glitch reportedly left some with no money in their account and resulted in
overdraft protection fees for others. In a tweet this morning, Wells Fargo
(NYSE:WFC) said the issue had been fixed.

American Express (NYSE:EXPR) (NYSE:AXP) suspends its buyback program for
the next six months, and it posted its first quarterly loss in 26 years
after taking a charge related to the new tax law, excluding that charge,
the company turned a profit and beat expectations. Revenue was also
better. Investors showed their disappointment in initial after-hours
trading.

Kate Rogers (NYSE:ROG) take the closer look at this Dow component`s
results.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: American Express
(NYSE:EXPR) (NYSE:AXP) reporting a strong quarter with beef on the top and
bottom lines, but also announcing plans to suspend its share buyback
problem. The credit card company cited additional charges incurred from
the tax act for the move, saying it would suspend that program for the
first half of 2018 in order to rebuild its capital. The tax act triggered
an upfront charge of $2.6 billion that reduced AmEx`s capital ratios.

American Express (NYSE:EXPR) (NYSE:AXP) estimated its tax rate would come
to 22 percent before discrete tax items under the new law, adding it is,
quote, a positive development for both the U.S. economy and American
Express (NYSE:EXPR) (NYSE:AXP). The company also says it would invest $200
billion more towards customer growth initiative in 2018 than it had
originally anticipated and it made an incremental contribution towards
employee profit-sharing plans, but did not disclose the amount.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: Hotel operator Windham adds La Quinta to its portfolio, and that`s
where we begin tonight`s “Market Focus”.

Windham signed a deal to buy La Quinta`s hotel management business for
about $2 billion, adding nearly 1,000 new locations. Windham operates
brands Day`s Inn, Ramada and Super 8. Shares of Windham jumped nearly 5
percent to $122.73. Shares of La Quinta rose as well, more than 3 percent
to $20.18.

Morgan Stanley (NYSE:MS) reported better than expected profit and revenue
as strong sales in its wealth management business helped its results. The
company said that strength — that strength helped offset a drop in
commodities and also fixed income trading. Shares were up nearly 1 percent
to $55.84.

The new tax law helped Bank of New York Mellon (NYSE:BK) post earnings that
were in line with estimates. The bank disappointed on revenue but said it
would raise the wages for about 1,000 employees. The company also said the
majority of its gains from the corporate tax cut would be reinvested back
into its business. Shares were off 4 percent to $55.35.

And higher revenue at M&T Bank (NYSE:MTB) helped overall profit exceed
expectations. The bank also said it would hike the starting pay for its
workers as a result of tax reform. Shares of M&T Bank (NYSE:MTB) rose more
than 3 percent to $186.15.

Cities across the country are spending a lot of money to deal with the
growing homeless population. The city of San Diego last year approved a
bond measure to provide $1.2 billion to build permanent housing during the
next decade. A sales tax increase was approved to generate $3.5 billion
for rent subsidies and services.

Now, that amount surpasses the roughly $2.5 billion investment that New
York City has pledged to help the homeless. And today, the mayor of New
York put part of a controversial plan to work.

Contessa Brewer is in Manhattan tonight.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Big news on
billionaire` row where New York City`s mayor plans to open a homeless
shelter just steps from a building where the penthouse apartment sold for
$100 million. The budget conscious Park Savoy Hotel will soon house 150
homeless men as a shelter. Next door and across the street from, well,
shall we call them budget unconscious hotels, luxury hotels. The 157
building is one of the most expensive condo properties in the city, but its
back entrance will open up just a couple doors down from the shelters.
Carnegie Hall and Central Park are right there.

A resident who lives across the street says it is an ill-conceived notion
to place a homeless shelter in proximity to some of the most expensive real
estate in the city and just steps away from Carnegie Hall. This will
certainly diminish property values and impact tourism in this vibrant area.
A local realtor points out some property here sales for $10,000 per square
foot and questions whether it is the most efficient use of taxpayer dollars
to address homelessness.

But New York Mayor Bill de Blasio plans to open 90 new shelters citywide.
Every neighborhood, he says, has a homeless problem and every neighborhood
should host a shelter, no matter the impact on property values or tax
revenue. In fact, the mayor`s office told me, those aren`t even
considerations.

In New York City, for NIGHTLY BUSINESS REPORT, I`m Contessa Brewer.

(END VIDEOTAPE)

HERERA: Coming up, bitcoin and blackmail. And a warning about a brand new
scam.

(MUSIC)

HERERA: Apparently, not as many people went to the movies last year.
Attendance in the U.S. and in Canada fell more than expected. According to
the National Association of Theater Owners, the number of tickets sold was
6 percent lower than the prior year, to about 1.25 billion. The
association blames the downturn on a weak summer movie season. The average
ticket price also hit a record high in part because of the large number of
films in 3D, and also those large format screens, like the IMAX theaters.

Well, imagine you get a letter sent to your home threatening to reveal a
secret unless you pay up. These blackmail letters are a growing scheme
with more letters being received just this month.

Andrea Day reports on the new way that con artists are trying to get your
money.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: I know that you have been cheating on your wife.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chilling words in a
letter sent to Dave Irgle`s (ph) home and there was more. It is just your
bad luck that I stumbled across your misadventures while working a job. If
you want me to destroy the evidence and leave you alone forever, then send
$2,000 in bitcoin.

A blackmail letter claiming to have secret information about Irgle`s
infidelity and demanding payment in bitcoin.

UNIDENTIFIED MALE: And I had to think for a second because I was in a bit
fluster, am I actually keeping a secret wife from my wife?

DAY: The father of three happily married and faithful. But still.

UNIDENTIFIED MALE: It was fear, even though I had nothing to hide.

DAY: So, we reached out to local cops and posted a letter on his blog.

UNIDENTIFIED MALE: Suddenly, it jumped up to 200 a day, 300 a day.

DAY: The relatively unknown blog lighting up with traffic. And months
later when another wave of letters went out —

UNIDENTIFIED MALE: And then 500 per day.

DAY: He says he was flooded with e-mails, men from all over the U.S. who
seemed to have one thing in common.

UNIDENTIFIED MALE: He has been targeting affluent neighborhoods and he`s
targeted a lot of lawyers. They are concerned about losing their social
status if this attacker sends out information to their friends.

DAY: And for some, trouble already started.

UNIDENTIFIED MALE: Their wives got the letter first, opened it and
confronted them when they got home from work.

DAY: And another.

UNIDENTIFIED MALE: He said, I live in a golf course neighborhood. If the
attacker sent out something to everyone in my neighbor, even though I have
been faithful, my reputation would be wrecked.

DAY: Should you send money?

PATRICK WYMAN, FBI SUPERVISORY SPECIAL AGENT: No, absolutely not.

DAY: FBI supervisory special agent Patrick Wyman.

WYMAN: They are hoping they might get lucky with someone who actually has,
maybe been — you know, unfaithful, there`s some infidelity there, and if
they hit that target, that`s the person who`s probably willing to pay.

DAY: The letter he says just one criminal extortion plot using
cryptocurrencies the FBI is watching closely.

WYMAN: The idea behind virtual currency is that it hides behind a veil of
secrecy, that just because these letters and numbers in terms of an account
number and there`s no personal information associated with it, that law
enforcement won`t be able to track it. They go through the process of
explaining how you did about of purchasing bitcoin.

DAY: And he says cryptocurrencies do make it more difficult for law
enforcement to track, but it`s not impossible. Local police departments
across the country have been issuing warnings about this bitcoin scam
letter. If you do get a letter in the mail, the best advice is don`t pay.
Just alert the authorities.

For NIGHTLY BUSINES REPORT, I`m Andrea Day.

(END VIDEOTAPE)

HERERA: And before we go, here`s another look at the day on Wall Street.
The threat of a shutdown kept a lid on stock prices today. When all is
said and done, the Dow dropped 97 points, the Nasdaq was off two, and the
S&P 500 fell 4-1/2. Two Dow stocks could pressure the Dow index tomorrow.
Shares of IBM fell in afterhours trading, despite reporting growth in
revenue for the first time in nearly six years.

And American Express (NYSE:EXPR) (NYSE:AXP) also traded lower in late
trading after reporting its quarterly results. So, we`ll keep our eye on
those for you.

That does it for us tonight. I`m Sue Herera. Thanks for joining us.
We`ll see you again tomorrow.

END

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