Transcript: Nightly Business Report – February 23, 2018

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

bumpy week for stocks ends on a high note. And our market monitor has
investing ideas for this market.

Cutting ties. Business is separating itself from the gun lobby. But for
funds, selling shares in gun makers is not that simple.

Taking off. Would you get in a flying taxi? The future may be closer than
you think.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Friday, February the 23rd.

And we bid you good evening, everybody. I`m Bill Griffeth. Tyler and Sue
are off tonight. And once again, I`m coming from you the New York Stock
Exchange where stocks rallied to end a choppy and sometimes confusing week.

Equities have been getting pushed around by interest rates amid concerns
that the solid economic growth we have seen could force the Federal Reserve
to raise interest rates more times than anticipated this year. But a
report released today by the Central Bank appeared to alleviate some of
those concerns. And that`s when stocks took off.

The Dow closed at its high of the day, up 347 points to 25,309. The Nasdaq
added a very strong 127 points. The S&P was up by 43.

And today`s gains helped the major indexes close higher for the week and
what a week it was.

Here`s Bob Pisani.


higher into the close with the Dow up more than 300 points. Every day this
week, we`ve seen some big intraday swing. Stocks would rise at the open,
peak in the middle of the day, and then drip lower into the close. In some
cases, there were concerns about higher rates and the Fed getting more
aggressive. But often, there was not a lot of news out there.

Today, the rally finally held up. Lower bond yields were certainly a help
all throughout the day. The Dow, which dropped 2,500 points, by the way,
about 10 percent in a little more than a week earlier in the month has now
recouped more than 2/3 of its losses.

There`s been a big rebound in cyclical names like Boeing (NYSE:BA) and
Caterpillar (NYSE:CAT). That means investors still believe that the global
growth story is intact.

Now, the Federal Reserve bolstered that sentiment today with a report
saying the jobs market continues to strengthen, hourly wages are growing
moderately and inflation should hit their 2 percent target by next year.

By the way, Fed Chairman Jerome Powell will be testifying in front of
Congress next week.

Despite all the drama, the S&P 500 ended the week just up fractionally.

For NIGIHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock


GRIFFETH: And in Washington, the White House unveiled what it called the
largest ever set of sanctions on North Korea. Now, the move is an attempt
to further isolate the regime so that it feels pressure to give up its
nuclear missile program.


STEVEN MNUCHIN, TREASURY SECRETARY: Today`s actions will significantly
hinder North Korea`s ability to conduct evasive maritime activities that
facilitate illicit coal and fuel transports and limit the regime`s ability
to ship goods through international waters.


GRIFFETH: And President Trump today warned of what he called phase two if
these sanctions don`t work.

Well, two major insurers are joining the list of companies cutting business
ties with the National Rifle Association. MetLife (NYSE:MET) is ending its
discount program for car and home insurance for NRA members. And Chubs
says it will stop underwriting NRA-branded insurance for gun owners.

Meanwhile, car rental company Enterprise, which also includes the Alamo and
National Car Rental brands, that has ended a discount for NRA members.
That change effective late next month.

And cyber security software company Symantec (NASDAQ:SYMC) has also stopped
its discount program with the gun rights organization.

It had been offering a price reduction on Norton antivirus and malware
protection for members of that group.

Now, as some investors reevaluate their gun stock positions, investment
firms and pension funds have to prepare for a potential shakeup in their
portfolios. But just how easy is it to do that? And what`s the cost?

Joining us to talk about this is Chris Ailman. He`s chief executive
officer of CalSTRS, the world`s largest educator pension fund.

Chris, it`s always good to see you. Thanks for joining us tonight.

CHRIS AILMAN, CALSTRS CIO: Thank you, Bill. It`s good to be here.

GRIFFETH: Now, we all know about socially responsible investing. You
invest in what you support. Often, it`s environmentally friendly
companies. You avoid what you oppose. Often it`s tobacco or alcohol or
even firearms. At CalSTRS, your mandate is simply to make money, to
sustain an enormous pension fund.

But do you already consider yourself a socially responsible investor?

AILMAN: Bill, I`d actually say, we are not. No. As hard as that sounds.
We are long-term sustainable investor.

So, if we think an industry does not have long term legs, isn`t going to
survive like tobacco or particularly some of these firearms products, then
we are to the going to own them. But not for a social reason, for an
investment, business reason.

GRIFFETH: And you don`t just then sell. I know you are the type that you
wanted to engage with some of those companies to learn more about their
business practices before you make that final decision to sell, right?

AILMAN: Exactly, Bill.

I have often said that divestment is not going to solve a social problem.
You literally are just turning your back and walking away from it by
selling the stock. We have found the best way is to talk to a company, to
engage and talk back and forth to explain what we are concerned about and
try to raise it to management to explain why we think it is a business

In some industries like the tobacco industry, it is a single product. Or
in the firearm industry, they wouldn`t even talk to us.

GRIFFETH: You know, the CEO of Blackrock said this week that they were
mindful of what some of their investors felt about firearms manufacturers
in the wake of the tragedy at Parkland H
high School. But at the same time, they are beholden to the indexes that
they invest in for those investors who invest in index funds, those — some
of those firearms manufacturers are in there.

So, it`s not so easy to be socially responsible when you are trying to make
money. When you are investing on the scale that you do or Blackrock or
some of the other big investors, right?

AILMAN: Exactly, Bill. I agree with Larry Fink and the statements that
Blackrock said. My heart breaks for these kinds of situations. We care
about so many — and I personally care about a lot of these social issues.

But this isn`t our money. This is a trust fund, and we are fiduciaries.
So, what we are trying to do is make a long term investment decision. And
I feel for many of my peers that are at the teacher retirement fund, and I
know their members are angry they may own these.

But as you said, they own them because it`s the entire market. They just
simply own the U.S. stock market. And these companies sell legal products
so they are in those indexes. And to pull one company out of an index
means that now you have a little hole in that entire market that you own.
And you can`t trade it as well.

And for midsize pension plans, they are in big comingled products, like a
mutual fund, so they don`t have the ability to say don`t own that one
little slice. If you want to own the U.S. stock market and track the U.S.
stock market, that means all 3,000 and all 5,000 companies, not just some
subset of that.


Before I let you go, you said something that intrigued me about the future
of firearms makers. Do you think a lot of what`s going on right now
necessarily has their future in doubt? Is that what you were saying?

AILMAN: Yes. Our board decided back in 2015 not to own firearm companies
that made products that were illegal in the state of California. And that
was an investment decision. It wasn`t a social or an emotional decision.
And the key for us was the recognition that we think and although we were
wrong initially, but we felt that regulations would come into effect that
would potentially harm these companies, that these products weren`t
sustainable, they are not a useful product. And therefore, we didn`t think
these companies had a long enough life.

And that`s why we made the investment decision several years ago to get out
of these weapons manufactures, these firearm manufacturers.

GRIFFETH: Chris Ailman, who heads CalSTRS, the biggest educator pension
fund in the land, always good to see you. Thank you, my friend. Have good

AILMAN: Thank you, Bill.

GRIFFETH: Time to take a look at some of today`s upgrades and downgrades.

FedEx`s rating was lifted to outperform today from market perform at
Bernstein. The firm calls concerns over Amazon (NASDAQ:AMZN) moving into
the parcel market overblown. The price target was increased to $290 and
FedEx (NYSE:FDX) shares rose nearly 3 percent today to $252.22.

Meanwhile, FedEx (NYSE:FDX) rival UPS saw its rating cut to hold from a buy
at Deutsche Bank. The analyst there says that management needs to
articulate a sound strategy on price and volume when it comes to competing
with Amazon (NASDAQ:AMZN). The firm`s price target on UPS is $115. Shares
of UPS were up a fraction to $105.61 today.

Meanwhile, shares of Amazon (NASDAQ:AMZN) itself were upgraded to
outperform from peer perform at Wolfe Research. The firm says that
Amazon`s grocery operations could turn physical retailing into a new growth
driver for the company, interestingly enough. The analyst predicts that
the company could hit — are you ready — $2,000 before the end of the

Amazon (NASDAQ:AMZN) was up 1 percent. It closed right at 1,500 a share
today. Interestingly.

Still ahead, if cereal and yogurt are not getting the attention of American
shoppers, General Mills (NYSE:GIS) is betting that pet food will.


GRIFFETH: Kraft (NYSE:KFT) Heinz says that Warren Buffet is going to
retire from that company`s board following the end of his term. Heinz
backed by Buffett`s Berkshire Hathaway (NYSE:BRK.A) and a Brazilian private
equity firm acquired Kraft (NYSE:KFT) Foods back in 2015 in order to create
one of the biggest food and beverage companies. Berkshire Hathaway
(NYSE:BRK.A) will release its shareholder letter this weekend, by the way.

And General Mills (NYSE:GIS), of course, feeds your family. Well, now, it
wants to feed your pet as well. The food company is moving into the very
fast-growing pet food business with this $8 billion purchase of Blue
Buffalo. Shares of Blue Buffalo soared by 17 percent on the news today.

General Mills (NYSE:GIS) fell into today`s trade.

Dominic Chu takes a look at what drove this deal for us.


why a big food company like General Mills (NYSE:GIS) wants a dog food
company like Blue Buffalo. When you are going to marry these brands, you
got Betty Crocker, Lucky Charms, Pillsbury, Progressive (NYSE:PGR) Soup on
the General Mills (NYSE:GIS) side, and you marry them are the organic
natural dog food, premium dog food side of things, this side is showing
signs of more stagnant growth. This side over here is where there is
double digit sales and profit growth. And that`s the reason why they are
paying $8 billion to buy Blue Buffalo.

Now, the reason why they want to do this in the grow environment is because
the overall market for pet products is also growing.

According to the American Pet Products Association, back in 2013, Americans
spent overall around $55.5 billion. That was the size of the pet industry.
Steadily, it`s grown until now, in 2017, where you can see an estimated
near $70 billion. That`s the size the pet industry in America these days.
So, the bigger picture for pets are growing as well.

Now, with General Mills` entrance into this particular pet food side of
things, their late entrance there are big established players in this
industry right now. Mars. Yes, that same candy company, Mars, has
Pedigree, Iams, Eukanuba, Whistle, among its big pet brands.

You`ve also got Nestle. Anything Purina is owned by Nestle.

And even J.M. Smucker`s has big names like Meow Mix, Kibbles `n Bits, and
Milk-Bone dog biscuits. It is a massive industry, General Mills (NYSE:GIS)
wants in. And that`s arguably the reason why they are paying big bucks to
get a piece of that Blue Buffalo business.



GRIFFETH: Cinemark earnings blew past analyst expectations. That`s where
we begin tonight`s “Market Focus”.

Ticket price increases and higher concession spending helped the movie
theater operator record record quarterly revenue. Cinemark also raised its
dividend by 10 percent to $1.28 a share. And shares themselves rose by 6
percent today to $42.27.

Meanwhile, investors had their first chance to react to Wingstop`s
disappointing earnings outlook but the CEO of the Chicken Wing restaurant
chain said that he is still forging ahead with plans to expand.


restaurants at a very rapid pace both in the use and overseas. Last year,
we opened 135 net new locations, which represented more than 13 percent
growth year on year. And our long term guidance is for 10 percent plus
continued unit growth for the chain.


GRIFFETH: Shares of Wingstop fell by 5 percent today to $44.38.

And investors also reacted today to down beat guidance from Intuit
(NASDAQ:INTU). Late yesterday, the maker of Turbo Tax cited the late start
to tax filing season but the CEO did say future business is looking up.


BRAD SMITH, INTUIT CHAIRMAN AND CEO: We are out of the gate strong. Right
now, the IRS has received about 1 percent fewer returns than last year at
this point in time. We are actually up 2 percent. So, we are gaining a
little bit of share and we are feeling good about the year.


GRIFFETH: The stock closed fractionally lower to $171.78.

Nordstrom`s founding family is reportedly working on a deal to take the
upscale retailer private. According to “Reuters”, the family recently met
with investment banks. They are hoping a deal could happen as early as
next week. Of course, the Nordstrom (NYSE:JWN) family initially suspended
earlier efforts to go private after they could not secure the necessary
financing. Now, this late news today sent the stock soaring by 6.5 percent
to $53.56.

Time now for our weekly market monitor, who has three picks he says are
helping to drive the U.S. economy. This is his first time on our program.

Jordan Waxman is managing partner at HSW advisers at HighTower.

Jordan, good to see you. Thanks for joining us tonight.

again, Bill. How are you?

GRIFFETH: Now, you are looking at three categories you feel drive the
economy. Let`s go through them here. First of all, the area of credit.
And you`ve chosen a company Carlyle`s Business Development Corp.

Why credit?

WAXMAN: You know, most of the economy in the United States is small and
medium-sized businesses. They need access to capital. It is an under-
banked part of the market. If you want to play the larger credit picture,
the banks are the place to go.

But if you are a small or a medium size business, you have to borrow from
some source and fund like Carlyle`s Fund or Goldman Sachs (NYSE:GS) has a
fund. These business development corps are essentially pools of loans to
small and medium-sized businesses.

GRIFFETH: And like a lot of banks and financially oriented companies,
presumably, as rates go higher, they benefit. Is that the idea?

WAXMAN: Well, all of the — all of the loans that Carlyle issues are
floating rate loans. So, as short-term rates go up, they pay more


WAXMAN: However, since tax rates have gone down for corporations, now is
the great time to be lending because the credit metrics have been stronger,
the ability to pay back loans has been stronger. So, companies that have
$5 million to $25 million of EBITDA that need to tap the markets, they need
to go somewhere.

GRIFFETH: OK. So, that`s Carlyle`s Business Development Corp.

WAXMAN: That`s right.

GRIFFETH: Another area you see growth, energy, infrastructure. We keep
hearing about the infrastructure plans of the government. You chose
Enterprise Products. Tell us about it.

WAXMAN: Well, think about what`s really been going on in the United
States, which is that it`s gone from being a net importer of energy to a
net exporter of energy. Energy partners has assets in some of the most
attractive basins for oil, natural gas and natural gas liquids in the
United States, and they are getting demand for all of those products, from
chemical companies, from utilities that are changing to natural gas, and
from the export market where finally the United States is exporting all
three of those products and all the ethane and butane and all the sub-
products as well.

Enterprise Products is very well-managed. The group, Master Limited
Partnerships, of which this is a part, is haded (ph), and you are getting a
6.5 percent yield with 2 or 3 percent growth. Great management team.
Clean balance sheet. Very, very good way to enter that market.

GRIFFETH: Finally, your third area of growth for the economy, innovations,
broad carry. And you picked a big one, Alphabet.

WAXMAN: Well, think about it, right? Most clients who can invest in
venture capital funds have to be very, very wealthy to gain in. Most of
them have — very closed to new money. It`s tough to get access to
robotics, and medical devices and financial services technologies, a
portfolio venture of investments.

This is a way to get in whether you are paying basically 25 times earnings
for a company with $30 billion of free cash flow that`s making investments
in every aspect of technology. They have made over 200 acquisitions in the
past 15 years. They are repatriating over $100 billion of cash. This is
going to be a way to tap the innovation in the market for the next decade
or more.

GRIFFETH: All right. Very interesting.

Jordan Waxman of HSW Advisors at HighTower — thanks for joining us
tonight, Jordan. I appreciate it.

WAXMAN: Thank you, Bill.

GRIFFETH: By the way, those rising interest rates we mentioned at the
start of the broadcast are causing mortgage rates to rise of course, just
as the spring housing market gets underway.

What exactly will that mean for the wallets of the potential buyers?

Diana Olick does the math for us tonight.


hunting this weekend, you probably already know you will be paying more on
your mortgage than you would have been at the start of this year. Rates
were still near historic lows in December, but began to rise in January,
and then took off this month.

So, what exactly does that mean to a buyer`s pocketbook? Well, first,
let`s make the loan amount $300,000. That`s between the median price of an
existing home and a newly built home. Using a 30-year fixed mortgage with
20 percent down payment, the borrower`s monthly mortgage payment on January
1st of this year would have been $1,472. Today, it`s $1,545. So, an
increase of $74 per month or $878 per year.

But interest rates don`t just dictate your monthly payment. They also
dictate how much of a mortgage you can qualify for. Lenders today are very
strict with the amount of debt you can carry as compared to your income.

So, let`s say that on January 1st, the maximum loan you could qualify for
with your income level and debt was $300,000. Today, with the higher
interest rate, you would only qualify for $285,000, or about 5 percent less
house. So, again, with the 20 percent down payment, you`ve gone from being
able to afford a $375,000 house to a $357,000 house.

That may not seem like a huge difference, but for those on the margins, or
with more debt, higher rates mean you can buy less house or potentially no
house at all.

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


GRIFFETH: And coming up, traveling in a flying car certainly sounds
futuristic. But air taxis may be closer to reality than you think.


GRIFFETH: The beer industry is toasting a provision in the new tax law
that provides temporary financial relief, and a number of businesses may
pour the savings back into their operations.

Landon Dowdy is in Stamford, Connecticut, with that story tonight.


brewery is raising a glass, thanks to a provision in the new tax code that
provides two years of tax relief.

UNIDENTIFIED MALE: We will end up saving about $15,000 this year, right?
So, we were going through the budgeting process.

DOWDY: Under the new law, the excise tax paid by brewers on each barrel of
beer they sell is produced to $3.50 from $7 for the first 60,000 barrels.
That`s a big savings for brewers like Half Full who produce less than 2
million barrels a year. For larger breweries, the tax drops from $18 down
$16 on the first 6 million barrels, and $18 on every barrel after that.
Experts say that could lead to growth across the industry.

JIM MCGREEVY, THE BEER INSTITUTE CEO: I think we are going to see the
creation of jobs. I think we are going to see a spur in innovation in
beers of all kinds, 2.2 million Americans owe their livelihoods in one way
or another to the production, distribution, and sale of beer. And we think
that this tax relief is going to spur that even further.

DOWDY: Analysts expect larger breweries to use the extra money to hire
more employees. Or smaller ones may try out some new products.

Here at Half Full Brewery, the extra cash will allow the company to be more
innovative and focus on trends like limited release beers and tasting

going to work out and translate. At the end of the day, it might be weird
and not my taste but it allows us to experiment with that and potentially
have it fail but not really have it impact us.

DOWDY: Spirit makers and wineries will also see a reduction in taxes,
totaling billions of dollars in savings, savings that the industry hopes
will translate into new growth.

For NIGHTLY BUSINESS REPORT, I`m Landon Dowdy in Stamford, Connecticut.


GRIFFETH: Cloud storage company Dropbox has filed to go public. That has
given investors their first look at the financials of the start-up that was
previously valued at $10 billion. It turns out the company pulled in more
than $1 billion in revenue last year and it has 500 million registered
users. Dropbox plans to trade under the Nasdaq symbol of DBX.

Chinese government has seized control of a firm that owns the Waldorf
Astoria Hotel in New York. The regulator has taken control of Anbang
Insurance, saying that its decision was because of illegal operations that
could endanger the company`s ability to stay in business. The chairman of
Anbang is also being prosecuted for what are being called economic crimes.

Volkswagen saw its profits double despite the fallout from the diesel
emissions scandal. The automaker benefitted from strong sales and cost-
cutting at its flagship VW brand. And it expects revenue to increase this
year. But the company`s CEO did warn of challenges, including more
competition and big bets on electric vehicles and self driving cars.

Sort of speaking of which, ever since the Jetsons were on television back
in the 1960s, people thought it would be cool to some day zip around in a
flying car. Now some companies and tech firms are racing to make that a
reality. How close are they to talking off?

Phil LeBeau takes a look for us tonight.


taxi, a prototype built by Airbus which made a brief but successful first
flight last month in Oregon.

After years of building traditional planes, Airbus is exploring the idea of
small aircraft carrying one or two people short distances. Boeing
(NYSE:BA) is doing the same thing, though its prototypes are not ready for
humans to climb on board.

That`s not the case for Kitty Hawk. Last year, the startup founded by
Google`s Sergey Brin showed a man piloting the Kitty Hawk flyer as it
zipped over a lake in northern California.

This video alone with animation from Uber showing a fleet of air taxis it
would like to develop highlights the appeal of developing flying cars.
With highways more congested than ever, it would make sense to have a small
aircraft moving people short distances in trips that would be four times
faster than riding in car. That`s why many believe this could be how we
get around in the future. With one notable exception, Elon Musk.

While Musk has been a visionary developing electric cars through Tesla,
pushing space exploration, and giving us the idea the Hyperloop, he is
skeptical we will want air taxis.

He recently tweeted sarcastically: If you love drones over your house,
you`ll really love vast numbers of cars flying over your head that are
1,000 times bigger and noisier and blow away anything that isn`t nailed
down when they land.

What do regulators like those at the FAA think about air taxis? Well, it`s
an area they are exploring. You can bet, if we ever get to the point where
some of these air taxis are ready to fly, the federal government will be
ready with laws to make sure it`s safe for us to take to the skies.



GRIFFETH: Before we go, one more look on the day on Wall Street and the
week for that matter. The Dow gained 347 points during a big rally at the
close. The Nasdaq added 127. The S&P up 43. All the indexes were higher
for the week as a result of this rally.

That`s NIGHTLY BUSINESS REPORT. I`m Bill Griffith. Thanks for watching.
Have a great weekend. Hope to see you on Monday.


Nightly Business Report transcripts and video are available on-line post
broadcast at 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
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.


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