TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Time to break up? United
Technologies (NYSE:UTX) considers dividing the big conglomerate into
smaller parts, and the stock price rises.
Major challenges. Silicon Valley`s biggest Internet companies scrambled to
prevent the spread of misinformation and keep their platforms from being
And hitting the road. The newest top-rated auto brand is one you may never
have heard of.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
Good evening, everyone, and welcome. Sue Herera has this evening off.
Well, who said breaking up is hard to do? First, General Electric
(NYSE:GE) raised the idea of splitting it self into smaller parts. And
now, United Technologies (NYSE:UTX) is apparently considering it. The
manufacturer said a three-way split is possible, a move that was once
thought to be very unlikely. Investors cheered the idea, initially sending
shares of UT up more than 3 percent, making it the best performing stock on
blue chip Dow index today.
Morgan Brennan takes a look at what could be next for United Tech.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it the urge to
demerge. Just a month after General Electric (NYSE:GE) said it`s
considering a potential breakup of its core businesses, another industrial
heavyweight, United Technologies (NYSE:UTX), saying it, too, is reviewing
GREGORY J. HAYES, UNITED TECHNOLOGIES: The real question is, do you get a
significant multiple expansion by having separate companies versus the
conglomerate or the four businesses of UTC? Tough, tough questions. I
would tell you that we are looking at all of those possibilities, as well
as even within the portfolio that we have today, does everything fit?
BRENNAN: United Tech operates in three main industries, aerospace,
including Pratt and Whitney jet engines, elevators with Otis, and HVAC
systems via Carrier. The company, which is in the midst of a $30 billion
purchase of airplane parts maker Rockwell Collins (NYSE:COL), plans to
finish its review by year`s end. United Tech joins a growing list, one
that doesn`t just include GE.
DEANE DRAY, RBC CAPITAL MARKETS: This is a trend we saw starting about
three years ago. Whether you want to call it the urge to demerge,
portfolio rationalization, addition by subtraction, all of these multi-
industry companies are doing this focus on streamlining. And this is a
natural we think of United Technologies (NYSE:UTX) jumping on this band
BRENNAN: In many cases, investors are applying greater value to stand
alone pure play businesses, rather than industrial conglomerates.
Companies are responding. Pentair (NYSE:PNR) is in the process of
splitting. Honeywell announced two spin-offs last fall. And Dover
(NYSE:DOV) and Siemens are also divesting key segments.
Analysts called for others like Johnson Controls (NYSE:JCI), Eaton
(NYSE:ETN), and Ingersoll-Rand (NYSE:IR) to also consider their options.
It`s a trend likely to continue.
DRAY: Tax reform has we think lit a fire toward this trend towards
rationalization portfolio separations. One of the key changes that`s
happened is because the tax rate has been lowered, there is a drive for
companies who might consider to be selling assets — it`s now easier to do
because the tax burden of the — on the capital gain is much lower. We
think that shakes out a lot of assets.
BRENNAN: RBC says so far in 2018, there is already 20 percent more merger
and acquisition activity than the first two months of last year.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.
MATHISEN: Well, United Technologies (NYSE:UTX) did help lift the Dow today
as we suggested earlier. It snapped a two-day losing streak, by the way.
The blue chip, Dow, closed well off of its highs, though, causing lingering
concerns, or there were lingering concerns about rising interest rates.
The Dow up 164 to 24,962, NASDAQ fell eight, closing now for four straight
days, the longest losing streak since late 2016. The S&P 500 added a
modest two. Well, investors and central bankers are watching the bond
market and the rise in treasury yields.
Today, a Federal Reserve official said policymakers need to be careful not
to increase rates too quickly this year because that could slow the
economy. The president of the St. Louis Fed says the fed needs to follow
the economy, which is still showing little inflation.
(BEGIN VIDOE CLIP)
JAMES BULLARD, FEDERAL RESERVE BANK OF ST. LOUIS PRESIDENT: We`ve got core
PC inflation at 1.5 percent. Market base core is at 1.2 percent year over
year. So, you know, we`ve got a ways to go on this inflation story.
Inflation has been below target for a long time here. I don`t think we
have to be in any hurry.
(END VIDEO CLIP)
MATHISEN: Meantime, Wall Street expects the fed to raise interest rates at
next month`s meeting.
Well, the job market is heating up. A number of Americans filing for
unemployment benefits fell to a near 45-year low last week. Jobless claims
dropped 7,000 to 222,000, pointing to continued momentum in the labor
Many consider the job market to be near full employment right now. That
could push up wage growth which would help lift inflation toward the Fed`s
2 percent target.
Meantime, the head of the world`s largest hedge fund doesn`t think the
American economy will continue to roar. Bridgewater`s Ray Dalio says there
is a 70 percent chance of a recession by 2020, prior to the next
presidential election. He says the Trump administration`s massive tax cuts
and spending at a time when the economy is strengthening could backfire.
So, are there signs that a recession is in sight?
Joining us to talk about is Jason Ware, chief investment officer and chief
economist at Albion Financial Group.
Jason, welcome. Good to have you with us.
JASON WARE, ALBION FINANCIAL GROUP CIO & CHIEF ECONOMIST: Thanks for
having me, Tyler.
MATHISEN: Do you see any signs right now, any tell tales that a recession
is on the horizon somewhere, or way over the horizon?
WARE: You know, with all due respect to Mr. Dalio, who is a much followed
voice in the market, you know, 70 percent odds of a recession are a bit
high given the preponderance of economic evidence we are seeing.
You know, we have had a long and protracted below trend economic expansion
and with little excess that`s building in the economy. And typically, it`s
that exuberance, those excesses in spending and overconsumption and
borrowing and overconfidence that results in the Fed of having to
overtighten, and then we get an economic downturn from there.
We are not seeing that in the evidence. What we are seeing is a pretty
well-balanced economy. We are seeing a little over 2 percent economic
growth in GDP terms. As you mentioned, the labor market is doing quite
well, probably getting close to full employment, but not quite there. So,
again, a balanced and protracted economic expansion with little excess.
MATHISEN: But I guess implicit in what Mr. Dalio was saying was the fear
that big tax cuts plus a big juice of spending —
MATHISEN: — coupled with the fact that consumer dent is quite high, wages
may be raising, may turn the economy a little hotter. That could turn the
Fed a little more aggressive about raising interest rates. And it`s quite
often a monetary misstep like that that can tip the economy into trouble.
Do you see where he`s coming from at least, even if you don`t happen to
agree with him?
WARE: Certainly. And I think the way you characterized his view is spot
on. I think there is a lot to unpack there. Looking at consumer credit,
for example, we have seen growth in this cycle in consumer credit. But
when you adjust that for inflation and population growth, you know, we had
higher consumer credit levels and debt levels in 2009 than we do today.
American balance sheets, household net worth is at record highs. You know,
again, we are in a tight labor market, wages are rising. So, the ability
to is that debt is not something we are terribly concerned about.
But, you know, looking at other areas of the economy that perhaps are high
quality economic indicators when looking forward, like leading economic
indicators, the treasury yield curve, in order for Ray Dalio to be correct,
looking out over two years and seeing a recession coming in 2020, we`re
going to need to see LEIs (ph) turn down, peak turn down, we`re going to
need the treasury yield curve invert. We need to see things like you
mentioned the jobless claims. We are going to need to see those starting
to turn up in the next six to 12 months, because typically they lead
economic recessions by at least a year. So, we don`t see that happening in
MATHISEN: Well, we will be watching along with you. Jason, thank you very
much for you analysis tonight.
WARE: Thank you.
MATHISEN: Jason Ware with Albion Financial Group.
And still ahead, a new twist on rental income that can help you refinance
MATHISEN: The First National Bank of Omaha will not renew a contract with
the National Rifle Association to issue its NRA branded Visa (NYSE:V)
credit card. The bank was one of many companies used by the NRA to promote
its membership through discounts and bonus deals. The First National Bank
of Omaha cited customer feedback as the reason for its decision.
Meantime, Blackrock plans to speak with weapons manufacturers and
distributors to get their response to last week`s mass school shooting in
Florida. The world`s largest asset manager with about $6 trillion in
investments says it cannot sell shares of a company in an index even if it
disagrees with management or the products the company produces. Instead,
it is focused, says black rock, on engaging with companies and
understanding their responses to society`s expectations of them. Blackrock
now working with clients who want to exclude weapons manufacturers from
Pension funds managed for public school teachers in at least a dozen
states, including Florida, New York, and California, own stock in gun
manufacturers. The holdings include a stake in American outdoor brands,
the company previously known as Smith and Wesson. It makes the
semiautomatic AR-15. According to Bloomberg, the financial stakes held by
teacher funds in gun companies make just a sliver of state retirement
The Florida education association has urged its fund managers to sell those
Russian bots, conspiracy theories, hate speech — Silicon Valley companies
like YouTube, Twitter, and Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) as
well, have been facing content challenges. And the issue is front and
center again in the wake of last week`s shooting in Parkland, Florida.
Here`s Julia Boorstin.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Conspiracy theories
about the Parkland shooting surfacing across YouTube, Twitter, and Facebook
(NASDAQ:FB), drawing widespread criticism.
HENRY BLODGET, BUSINESS INSIDER CEO & CO-FOUNDER: When you build this
media distribution platforms that are this powerful, you have a
responsibility to use them responsibly. Otherwise you are helping forces
in the world that they don`t want to be associated with.
BOORSTIN: YouTube`s trending tab which promotes popular videos featured a
conspiracy video that attacked a survivor of the Parkland shooting, drawing
over 200,000 views before it was pulled down. YouTube saying, quote, this
video should never have appeared in trending, because the video contained
footage from an authoritative news source, our system misclassified it.
The video included a clip from CBS (NYSE:CBS), which enabled to slip
through safeguards. YouTube says humans don`t curate the trending tab but
do help train the algorithms, which identify trending videos.
It`s not just YouTube. Twitter drawing criticism after a conspiracy theory
started to circulate on twitter about the student survivors who have become
activists. Twitter started to verify the accounts of newly high profiled
Parkland students. The company saying it`s taking steps to stop the spread
of hoaxes and harassment, saying, quote: We are also using our anti-spam
and anti-abuse tools to weed out malicious animation around these
individuals and the topics they are raising.
Twitter doesn`t explicitly ban conspiracy theories or hoaxes, but will
remove them or block accounts spreading them if they violate Twitter`s
other policies such as anti-harassment rules.
Facebook (NASDAQ:FB) has also drawn criticism after conspiracy videos about
Parkland survivor David Hogg were featured as trending. Facebook
(NASDAQ:FB) saying, quote, images that attack the victims of last week`s
tragedy in Florida are abhorrent. We are removing this content from
JON BROD, CONFIDE CO-FOUNDER & PRESIDENT: The response from yesterday is
important to note. And so I believe over the next 12 to 18 months, we will
start to see some of this. And if not, you know, the government is going
to step in, advertisers are going to pull out. And potentially competitors
could come in and disrupt. So, I think the spotlight is shining up
BOORSTIN: Timing wouldn`t be worse for these companies as they deal with
the fallout from their role in the Russia attempts to manipulate the 2016
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
MATHISEN: The school shooting in Florida last week has refocused many
controversial discussions and conversations in America. One of them is the
power that industries and their lobbyists have over the nation`s political
Joining us to talk about that and more is Bill George, former Medtronic
(NYSE:MDT) CEO and now a senior fellow at Harvard`s Business School.
Bill, always good to see you.
I don`t know whether you happened to see the CNN town hall last night. But
at one point during the discussion, one of the questioners asked one of the
senators, I believe it was Mr. Rubio, this basic question. If the NRA has
such power over the political process in the United States, they being an
arm of an industry, the gun manufacturing industry, is democracy broken?
And I suppose you could ask a similar question about the pharmaceutical
business, which has tremendous power over drug policy in this country and
drug pricing in this country. Or you could ask a similar question about
the banking business and its power over regulators and Congress.
Talk me through this one. Do companies and their lobbying arms control our
democracy to too great a degree today?
BILL GEORGE, FORMER MEDTRONIC CEO: Well, I certainly think they do in the
case of the school shootings. The NRA has enormous power, Tyler. And it`s
very discouraging to me when over 80 percent of the American public is
urging restrictions on assault weapons and yet you see that Congress seems
hamstrung to act. I`m not optimistic they will.
And frankly, I`m urging CEOs to get out there and organize in their local
communities, with their mayors, their city councils, get the state
legislatures and governors involved, and take action locally. I`m much
more optimistic of that.
After all, these are our children. These are our employees and their
families. And these are our communities. And the obligation we all have
as CEOs to protect our local communities and to make sure that our students
I do feel like this time it`s different. We are at a tipping point perhaps
in the thinking of the American public. But I think we are going to get
more action locally to make schools safe and to take action locally and to
restrict what can be done in terms of the kinds of guns coming in school.
I think it`s horrible.
MATHISEN: Let me come back to my earlier thesis if I might just a little
MATHISEN: And that is the idea that I think a lot of voters, individuals,
feel as though the system works for large corporate interests, but doesn`t
work for the general population, and that because there is so much
corporate money or PAC money flowing in to the pockets, the coffers, the
campaign committees of men and women who run for the House or Congress or
Senate or state legislation, that people have lost control of their
government at the expense of corporate interests.
GEORGE: Well, there is truth in that. Ever since Citizen United, it isn`t
just corporate interests, Tyler. It`s individual wealthy donors are giving
huge, hundreds of millions of dollars or more to political campaigns
because we took all those restrictions off. Yes, I think it`s having too
And I do think that our congressmen and women and senators need to be
listening to the people. I`m delighted to see the students stepping up and
lobbying. I think the parents have to go with them to do that to do that.
But that`s still going to be a long pull. We have come a long way to give
too much power to moneyed interests.
I think we have got to change that as a country and get it back to a
democracy and stop listening to all the lobbyists. There is no much power
in our lobbyists throughout the country. But nowhere is that lobby greater
than the NRA.
MATHISEN: All right. Bill George, always interesting to talk with you. I
enjoyed your conversation. We appreciate it.
GEORGE: Thank you, Tyler.
MATHISEN: Bill George with Harvard Business School.
All righty. Chesapeake Energy (NYSE:CHK) reports an energized quarter and
that is where we begin tonight`s “Market Focus”. The natural gas producer
benefitted from higher commodity prices and cost cuts. The company expects
production to keep rising this year. And that`s what investors wanted to
hear. The stock climbed 21 percent to $3.20.
All righty. Home goods retailer Wayfair reported a wider than expected
quarterly loss and lower gross margins. The company posted a decline in
free cash flow as it burns through cash to try and increase its user
growth. Shares of Wayfair off more than 22 percent on the day to $73.95.
Brookdale Senior Living (NYSE:BKD) rejected a buyout offer. The company
said it received a $9 a share offer from an undisclosed party, but it said
it`s confident it can create more value on its own as the population ages.
Brookdale also appointed a new CEO. The trouble was, the stock fell, 19
percent, to $7.18. Not a very nice welcome for the new CEO.
After the bell, Hewlett Packard Enterprise reported earnings that easily
topped analysts expectations and issued an upbeat outlook. The company
said its bottom line helped by higher sales of storage products also
launching a $5 billion share repurchase program. Shares initially rose in
the after hour trades and ended the regular day up 1 percent at $16.41.
Now, Airbnb wants to expand beyond shared accommodations. The company is
launching a new service that will more directly compete with big chain
hotels and online travel companies. Airbnb will make it easier for hotels
to list on its site. It is introducing four new rental categories. It
will vet higher enlistings and plans to launch a loyalty program later this
Airbnb may also affect the mortgage market in a strange kind of twist. It
could be the start of something very lucrative for homeowners.
Diana Olick has our story.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Do you rent your
primary home on Airbnb? Well, now, you can use that income to help
refinance into a cheaper mortgage.
JONATHAN LAWLESS, FANNIE MAE VP OF PRODUCT DEVELOPMENT & AFFORDABLE
HOUSING: Home sharing or renting a room in your own home through a service
like Airbnb is a growing end. And so, our lenders are seeing more and more
consumers come to the table and try to qualify for a mortgage using that
form of income. And so, we want to enable those borrowers to be able to
refinance and lower their mortgage costs. It`s happened to their housing
OLICK: So, in a pilot program, Fannie Mae is partnering with three
lenders, Quicken Loans, Better Mortgage, and Citizen`s Bank, allowing
borrowers to use income verified by Airbnb to qualify for a mortgage
VISHAL GARG FOUNDER, BETTER MORTGAGE CEO: The way people use their homes
has changed. It`s not just to live in, but if they`ve got a spare bedroom,
they now sometimes want to use to rent it out, to entertain a host, to
generate some additional income. And now, finally, the mortgage industry
has caught up.
OLICK: He says the program cannot only help borrowers lower their monthly
payments or take cash out of their homes but could actually help increase
FOUNDER: By creating a digital on-boarding ramp for these people to be
able to access home finance backed by Fannie Mae and the government`s
enterprises programs for affordable home ownership, what we think we can do
is empower more consumers to be able to access home ownership and to be
able to do so at lower price point.
OLICK: Home sharing is sharing exponentially, but this new economy is not
without risk. Some communities are still fighting Airbnb. And with so
many people now doing it, the competition for renters is rising. Rental
income today may not be the same as a year from today. And borrowers might
not have the same funds to make their monthly mortgage payments.
LAWLESS: Airbnb earnings, just like any other forms of earnings, have
potential risks in the future. We don`t see it as different from any type
of job or commission or a bonus-type of earning that you recognize.
OLICK: Lawless said sys they`ll watch the program closely and modify it if
they had to. But he is already seeing strong demand from borrowers and
expects to add more lenders as well.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
MATHISEN: You can read more about Diana`s story and the housing market in
general on our Website, NBR.com.
Coming up, a luxury car is the new top auto pick. But it is probably not
the brand you might think.
MATHISEN: Walmart plans to launch home goods website. It`s a move some
analysts say could help the retailer`s e-commerce operations. The news
comes just days after Walmart reported a slowdown in online sales. Now,
the site would go up directly against rival Target (NYSE:TGT). Separately,
Target`s CEO said today that the future of retail isn`t only about online
sales. It`s also about great stores.
(BEGIN VIDEO CLIP)
BRIAN CORNELL, TARGET CHAIRMAN & CEO: We are really combining a number of
different services to really make target the easiest place in America to
shop. So Shipt is the latest investment we`ve made. And we are seeing a
great response as we roll that into new markets. And we`ll combine that
with order online, pick up in store. Obviously, two-day delivery. The
ability to come in and pick up that order.
So, any way you want to shop our stores, including shopping in one of our
1,800 stores, we want to make that a great experience for the Target
(END VIDEO CLIP)
MATHISEN: And shares of Target (NYSE:TGT) and Walmart both higher in
Ford motor has replaced its North American president with a 29 year veteran
of the company. The former executive was forced out over allegations of
inappropriate behavior. The new president of Ford North America was most
recently the head of the Lincoln Brand and served as Ford`s chief marketing
Meantime, Takata has agreed to settle an investigation by 44 state
attorneys general. It claims it concealed a defect in its air bag
inflaters. The agreement includes a payment of $650 million linked to at
least 22 deaths. Because the company is in bankruptcy, the states have
agreed not to collect the civil penalty in order to maximize the recovery
money available to the victims.
A relatively new auto brand is ranked as this year`s tops by “Consumer
Reports”. It`s not Tesla. The brand is Genesis. Hyundai`s luxury line
just started two and a half years ago.
And Phil LeBeau tells us why Genesis gets higher marks while many auto
brands, other ones are continuing to struggle.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is not a well-known
luxury brand, especially among those looking for a new high end car.
But Genesis, which was started by Hyundai in late 2015, is the top auto
brand right now according to “Consumer Reports”, coming in right ahead of
established luxury brands Audi and BMW.
JAKE FISHER, CONSUMER REPORTS: While there are other luxury vehicles on
the market, these are luxury vehicles that are reliable. They have
features and electronics, and those electronics, they work. And it`s
actually not that complicated or distracting like other models wind up
doing with their complicated electronics and features.
LEBEAU: “Consumer Report`s” annual report card on the auto industry is
based on the organization`s own testing of vehicles it buys and the
evaluations of more than a half million “Consumer Reports” subscribers who
say what doesn`t work on their cars and trucks.
After analyzing the data, “Consumer Reports” designated 10 vehicles as top
picks, including the Toyota (NYSE:TM) Highlander, Ford F-150 and the all
electric Chevy Volt, “Consumer Reports” top pick as a exact green car.
FISHER: This is the first vehicle that`s really much more affordable, have
a much larger appeal and gets in our testing 250-mile range. That makes it
really usable and it really appeals to a lot of people.
LEBEAU: While “Consumer Reports” says the overall quality of cars and
trucks is improving, some brands continue to struggle with reliability.
Jeep may be the most prominent example. It`s rated as the second lowest
brand, right behind Land Rover and ahead of Fiat, which is dead last for
the second straight year.
FISHER: They don`t perform very well. They don`t satisfy their owners and
the reliability is not impressive.
LEBEAU: Fiat Chrysler, the parent of Jeep and Fiat, says “Consumer
Reports`” ratings don`t always align with customer preferences. At the
same time, it says it encourages customers to come in and drive these
vehicles for themselves.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
MATHISEN: And head to our Website NBR.com to read more about the top
ranked auto brands.
Before we go let`s look at how the stocks finished the day. The Dow up 164
to 24,962, snapping a two-day losing streak. NASDAQ, though, on the
downside by eight. The S&P 500 added two.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler Mathisen.
Thanks very much for watching.
Glad you could be here. Have a great evening. We`ll see you tomorrow.
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) 2018 CNBC, Inc.