Transcript: Nightly Business Report – March 2, 2018

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Trade wars: good. And
easy to win, too. So says the president. The stock market is not so sure,
as new worries flash around the globe.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Ripple effect. Could higher
costs for builders also lead to higher rent for consumers?

MATHISEN: And contrarian play. Our market monitor says the conventional
wisdom is all wrong on one stock sector. He`ll name names that he says
could earn you 20 percent over the next year.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, March
2nd.

HERERA: Good evening, everyone, and welcome.

The market is full of surprises. And this week was no different. The
promise of tough tariffs and the possibility of a trade war had investors
on edge again today. Some say the market is undergoing a fundamental
change.

It wasn`t that long ago, you might recall, that stocks went up no matter
what happened. Now, stocks are pulling back, volatility is rising. And
investors appear more aware of new risks.

Today, the Dow Jones industrial average closed down 70 points to 24,538.
It had been off nearly 400 points during the trading session. The Nasdaq
rose 77. The S&P 500 was up 13.

For the week, all of the major indexes were lower. Bob Pisani has more on
these new risks to the market.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Never a dull moment in
the markets these days. The market has already signaled that the Fed and
worries about higher interest rates is its main concern. But with the S&P
500 down more than 2 percent for the week, the market`s sending a message
that there are new risks on the radar.

First is growing concern of the broader implications of how the White House
approaches trade. The notion of tariffs has already aggravated key allies
like Canada and Brazil and Mexico.

Elsewhere, the U.S. has already announced it`s going to be pulling out of
the Trans Pacific Trade Agreement, and NAFTA is looking iffy as well. So,
this is causing worries of a global trade war, far broader than the steel
and aluminum tariffs. Second is political risks in Washington and talk of
a number of top advisers possibly exiting their roles in the White House.

Finally, Japanese interest rates may start to rise after the head of the
Bank of Japan said he would consider raising rates next year if inflation
hits its key target level.

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

(END VIDEOTAPE)

MATHISEN: And here now to talk more about the new risk to the market are
Andres Garcia-Amaya. He`s the founder and CEO of Zoe Financial. And Brad
McMillan is the chief investment officer at Commonwealth Financial Network.

Andres, it`s good to see you again. Let me — let me just begin with this
idea, you have a very global perspective on investing. Is there anything
in this threatened trade tariff that should change my fundamental posture
as an investor?

ANDRES GARCIA-AMAYA, ZOE FINANCIAL FOUNDER & CEO: I think that`s the right
way of framing it, and the answer for me is no. The fundamental picture is
that we`ve had a globalized synchronized recovery, that this is a wrinkle,
right? This potential trade is a wrinkle but it doesn`t change what was my
view earlier is stocks were already expensive, even going into this here in
the United States, which means people should expect lower returns than they
have seen the last seven years.

This is new uncertainty and the market does not like uncertainty so I`m not
surprised we`ve seen more volatility than we`re already used to in prior
months.

HERERA: Would you agree with that, Brad, overall? I mean, the
fundamentals certainly haven`t changed. But some of the outlying chatter,
if you will, certainly has.

BRAD MCMILLAN, COMMONWEALTH FINANCIAL NETWORK CIO: I do agree with that.
And I think you can look at the response of the market, as a very rational
one.

Look at it this way, the last time we saw tariffs like this was in 2002.
And they were actually passed and the market dropped by about 25 percent.
So, if we say, OK, maybe we`ve got a 10 percent chance this actually
happens, 10 percent times 20 percent means we go down about 1 percent or 2
percent and that`s where we are.

So this is a rational response. But the fundamentals are still solid.

MATHISEN: So, Andres, the president today in a tweet said trade wars are
good, and easy to win. What was he driving at there?

GARCIA-AMAYA: Well, that`s a tough one to answer. I mean, what I`ll say
is that, you know, when you look at basic economics, you know tariffs
usually do not work out well for pretty much anyone involved. You know, I
used to cover internationally countries like Brazil. You know, ask them
how tariffs have helped their economy over the last 10 years.

So, I — hard to know what the president`s thinking, so I`ll stay out of
answering that.

HERERA: I think you have a lot of company in that, Andres.

Let`s go to Brad.

And basically, Brad, so if I am watching all of this volatility, I`m a
longer-term investor. How do I deploy new cash? Where would you put
things to work in a market where volatility is back in a significant way?

MCMILLAN: I wouldn`t worry about it. I would stick with your plan. There
is no reason to change the plan. When we talk about volatility, the thing
to remember, it`s not right now that`s abnormal. It`s the past couple of
years.

HERERA: Yes.

MCMILLAN: What we`re seeing right now is what we should see, so it doesn`t
bother me at all.

MATHISEN: So, Andres, we talked a little bit about the effect on equities.
But if these tariffs come to pass, and who knows whether this is a
negotiating posture, or what, what will the effect on bonds potentially be?

GARCIA-AMAYA: Yes, so, from a textbook perspective, it would be
inflationary, which bonds do not like, right? Bond yields tend to rise in
inflationary pressures. Having said that, if it does create a trade war,
that escalates, then they could be a risk-off scenario where actually money
would go back into bonds. So, it`s not as clear-cut as bond yields would
go up and bonds would sell off. It depends how extreme the case would be.

If it`s just inflationary pressures go up, I would expect bond yields to
continue to rise which they have in the prior weeks.

HERERA: So, Brad, I ask you, what you would do, and you said you`d stick
with the plan. But, what are you doing for clients? Are you still
investing here in the United States? Are you finding value? Are you
looking overseas? What are you telling your clients?

MCMILLAN: Over the past six to twelve months, we`ve been moving more
abroad. When we look internationally, we simply see lower valuations. We
see faster growth. It just makes sense.

That hasn`t changed. And that`s not likely to change by what`s happening
now.

As far as fixed income goes one of the things about an interest rate is
over time, the effect of higher rates is relatively small. It has an
immediate effect but it also, you can reinvest at higher rates. So, we`re
not changing that at all, either.

MATHISEN: All right, gentlemen, thank you very much. Andreas Garcia-Amaya
with Zoe Financial. Brad McMillan with the Commonwealth Financial Network.

Stay out of the storm, Brad.

MCMILLAN: Yes, sir. Thank you, Tyler.

GARCIA-AMAYA: Thank you.

HERERA: The International Monetary Fund warned that the proposed tariffs
on steel and aluminum would likely hurt the American economy, and our
economies of our trading partners. The organization urged all parties to
resolve trade disputes without using retaliatory measures.

MATHISEN: U.S. Commerce Secretary Wilbur Ross said the market has
overreacted to the promised tariffs and that the impact on consumers would
be minimal. When asked in an interview on CNBC if the tariffs would be
broad, and apply to every country, including our allies, Ross said, that`s
what the president seemed to announce yesterday.

(BEGIN VIDEO CLIP)

WILBUR ROSS, SECRETARY OF COMMERCE: Let`s assume that to be the case.
This is not the first time that we`ve put tariffs on steel. We have
tariffs on many forms of steel. The reason that we`ve had to go this route
is that the conventional trade methods don`t solve the problem of systemic
global overcapacity and global dumping.

(END VIDEO CLIP)

HERERA: If China, a country that`s been accused of dumping steel, is the
target of those proposed tariffs, the world`s second largest economy
doesn`t seem all that concerned.

Eunice Yoon is in Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China criticized
President Trump`s tariffs, saying that global trade would suffer if all
countries followed the U.S.`s example. The foreign ministry statement was
softer in tone compared to past remarks out of the government, and that
could be because there`s a widespread belief here that the tariffs won`t
have very much impact on China, if any at all.

We spoke to steelmakers and aluminum companies and they told us that they
just don`t sell a lot to the United States directly. Less than 3 percent
of U.S. steel imports are from China and Chinese aluminum makes up about 6
percent of U.S. aluminum imports.

The China iron and steel association went one step further, saying the
tariffs would be detrimental to the U.S. and that they were a quote, stupid
trade protection measure that would raise costs for industries that consume
steel and make them less globally competitive.

And it`s for that reason that many people here believe that China won`t
retaliate for this issue, and that Beijing will keep its powder dry for an
issue that it feels more strongly about, such as intellectual property
night protection.

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

(END VIDEOTAPE)

MATHISEN: Well, while a number of industries have warned against acting
tough on trade, steel and aluminum makers are praising the president`s
plan.

Jackie DeAngelis is at a manufacturing plant in Western Pennsylvania.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Wheatland,
Pennsylvania, employees at Zekelman Industries are applauding President
Trump`s decision to impose tariffs on steel and aluminum imports into the
United States. They say it`s a game changer for an industry that has long
struggled to compete with international rivals and anti-competitive trade
practices.

Zekelman is the largest steel type manufacturer in North America, making
products used in industry and commercial construction. They employ 2,300
people, and primarily use North American steel. That includes some steel
from Canada.

They say they could be hit the hardest by the tariffs. But they`re still
in favor of the policy.

MICKEY MCNAMARA, ZEKELMAN INDUSTRIES EVP: The current thinking is that
NAFTA will find a solution for that. We view the Canadian market — we
view the market really as a North American market. You know, Canada has
the same challenges that we have.

It`s really a like market so we`d like to see something done there. Having
said that, at the end of the day, we`re in favor of these tariffs. We`ve
been challenged by the whack-a-mole trade challenges of the past.

DEANGELIS: While it`s possible Canadian steel could be an exception
because of NAFTA, it`s unknown at this point and it highlights the fact
that all the particulars still have to be worked out. That`s if this
policy is even seen through.

Still, management at Zekelman feels that by cutting taxes, and imposing
tariffs, President Trump is living up to his promise to revive the
industry.

MCMANARA: This is going to create a lot of opportunity for us, quite
honestly. You know, we`ve been competing, so far, with one hand tied
behind our back. And we`ve been doing well, you know? But we have been
progressing but it`s been a repressed growth.

This is really going to level the field, allow us to take the gloves off
and fight fairly. We know in that environment that we`re going to win.

DEANGELIS: Opponents worry this will spark a trade war. The steel
industry says it will still need to import steel in order to meet demand.
Price hikes will be inevitable but they`ll be nominal for the consumer when
compared to the cost of the end products.

And what about jobs? Ramping idle facilities will create hundreds more at
Zekelman, in addition to the 2,300 people it already employs.

Angie Reash has been here 32 years.

ANGIE REASH, ZEKELMAN INDUSTRIES WORKER: Hopefully bring more people back.
There`s a lot of people still, you know, laid off. Maybe that will up our
business enough to where, you know, we can give more people a chance to get
back to work, and the community will be doing a lot better, also.

DEANGELIS: Employees at Zekelman were also told yesterday they`ll receive
a $1,000 bonus when the tariffs are actually imposed.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis in Wheatland,
Pennsylvania.

(END VIDEOTAPE)

HERERA: It is time to take a look at some of today`s upgrades and
downgrades.

U.S. Steel was downgraded at Bank of America (NYSE:BAC) Merrill Lynch to
neutral from buy. The firm thinks President Trump`s tariffs will have a
limited benefit to the company this year, because of previously signed
contracts that locked in lower prices. B of A also sees steel prices
sliding next year because of challenges from the World Trade Organization,
and possible trade retaliations.

But B of A raised the price target on U.S. Steel to $50 a share from $47.
U.S. Steel closed at $45.39, down more than 1 percent.

Oppenheimer cut its rating on Walmart to perform from outperform, citing
that retailer`s slowing online sales growth. The analysts there also cut
Walmart`s price target to $39 from $110. Shares fell a fraction today to
$88.77.

MATHISEN: RBC capital slashed McDonald`s (NYSE:MCD) same-store sales
expectations after disappointing sales of its new value menu along with a
softer industry outlook. The firm also cut the price target on the fast
food chain to $170 from $190 a share. But RBC remains bullish and
maintains its outperform rating on the company. McDonald`s (NYSE:MCD),
though, down nearly 5 percent on the session at $148.27.

And eBay (NASDAQ:EBAY) was upgraded at Raymond James, strong buy from
market perform. The analysts expect growth in gross merchandise volume to
accelerate this year. Raymond James setting a $52 a share price target on
eBay (NASDAQ:EBAY), and today, eBay (NASDAQ:EBAY) shares closed higher at
$42.95, up about 1.5 percent.

HERERA: Coming up, why a veteran tech investor is turning his sights to
real estate. And he`s got three picks he thinks you can benefit from.

(MUSIC)

HERERA: The world`s largest asset manager is ramping up pressure on the
firearm industry. In an unusual step, Blackrock made public a letter with
the questions that it is asking of gunmakers and gun sellers. Questions
range from litigation risk to gun safety to background checks. It`s also
working with customers to help them explore options for changing their
investments to exclude gun stocks. Blackrock oversees more than $6
trillion in assets including funds that track market indices, making it one
of the biggest owners of the three publicly traded gun makers.

MATHISEN: The outdoor retailer REI will cut ties with the gun manufacturer
Vista Outdoor, halting sales of all of its products. Now, REI does not
sell guns but it does sell other products made by Vista, which include
Camelback water bottles and Camp Chef stoves. REI was not happy with
Vista`s failure to issue a statement following the mass shooting in
Florida, saying, quote, “We believe that it is the job of companies that
manufacture and sell guns and ammunition to work towards commonsense
solutions that prevent the type of violence that happened in Florida last
month.”

The decision by REI sent shares of Vista Outdoor down 7 percent.

HERERA: And LL Bean will no longer sale guns or ammunition to anyone below
the age of 21. The privately held company sells firearms only at its
flagship store in Maine, and those guns are focused on hunting. They do
not include assault-style firearms.

MATHISEN: And back to the trade issue now. Another area where steel
tariffs could hurt is home building, especially apartment buildings.
Higher costs for builders could mean higher rents for apartment dwellers.

Diana Olick filed this report.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The cost of
construction has already been rising for single and multifamily homes.
Lumber prices shot up after the Trump administration imposed tariffs on
imports from Canada. The costs of drywall, concrete, and other products
have also been rising sharply.

And now, steel, which was already up close to 8 percent last year, and
aluminum up over 9 percent before the announcement on potential tariffs.

This building was developed by the Bozzuto Group, a major player in
multifamily in the Northeast and Mid-Atlantic. CEO Toby Bozzuto said this
will likely further exacerbate the cost of housing production which may
have unintended consequences with respect to the affordability of housing
for the middle and lower class.

Luxury, not as much, because they`re paying historically low rent, compared
to their income. But he added that the market had been anticipating this,
and already raising prices. So, not a total shock to the system.

Steel is in every project, from rebar, metal framing for drywall, fair
railing, brick support, canopies, even concrete. Aluminum is part of the
electrical feeders, metal siding and windows.

Steel is used less in single family homes, but there will be a ripple
effect. The chairman of the National Association of Homebuilders said,
given that home builders are already grappling with 20 percent tariffs on
Canadian stock wood lumber and that the price of lumber and other key
building materials are near record highs, this announcement by the
president could not have come at a worse time.

He also added that tariffs could hurt housing affordability, which had
already been weakening due to higher mortgage rates, and higher home
prices.

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

(END VIDEOTAPE)

HERERA: JCPenney sales missed the mark, and that`s where we begin
tonight`s “Market Focus”.

The struggling retailer reported a disappointing holiday quarter, and says
earnings and revenue for the year will be worse than what Wall Street was
expecting. The store is cutting an additional 360 jobs in an effort to get
a handle on its costs. Shares fell 5 percent to 371.

The sales at Foot Locker were weaker than expected, and the sports apparel
retailer says they will continue to be a drag. But executives see sales
gradually strengthening by the middle of the year. Foot Locker dropped 12
percent to $40.04.

Microchip technologies is buying Microsemi (NASDAQ:MSCC). It`s a deal that
we told you about that was being discussed. Yet, today, it was made
official. The deal is valued at more than $8 billion, and comes amid a new
wave of consolidation in the semiconductor industry. Shares of microchip
rose 2.1 percent to $91.29. Microsemi (NASDAQ:MSCC) was up more than 4
percent to $67.30.

HERERA: MetLife (NYSE:MET) revised its 2017 earnings upward after a view
showed a miscalculation had been made. The adjustment increases the
insurer`s annual net income by about $260 million. Back in December,
MetLife (NYSE:MET) said it failed to locate some customers who were owed
pension payments. That prompted an SEC investigation. Shares of the
insurer were off a fraction nonetheless, at $45.50.

And an activist investor in Xerox (NYSE:XRX) has filed a new lawsuit
against the company. Darwin Deason says that Xerox (NYSE:XRX) refuses to
let him make nominations to its board, despite missing a deadline. He said
because the current board made a number of decisions and disclosures to
stockholders after that same deadline that he should still be able to make
nominations. Deason is the fifth largest stakeholder in the company. The
stock fell more than 1.5 percent to $30.06.

Equifax (NYSE:EFX) reported better than expected quarterlies despite the
effects of its mass data breach. The company expects costs related to the
breach to rise to more than $430 million this year. And that means the
incident could turn out to be the most costly hack in corporate history.
Equifax (NYSE:EFX) rose 5 percent to $117.23.

HERERA: It is time now for our weekly market monitor, who sees some good
opportunities in real estate investment trust right now, otherwise known as
REITs. This is his first appearance as a market monitor for us.

He is Paul Meeks, chief investment officer and portfolio manager with Sloy,
Dahl and Holst.

Nice to have you here, Paul. Welcome.

PAUL MEEKS, SLOY, DAHL & HOLST PORTFOLIO MANAGER: Always a pleasure.

HERERA: You know, it`s kind of — it seems counterintuitive in an
environment where we`re seeing interest rates rise, that you`d be looking
at REITs. So, why do you like them?

MEEKS: Well, just as Buffett said, I`m greedy when others are fearful and
the other way around. I own all the tech stocks that we`ve been talking
about in the popular financial press, but one of the things that I find
very intriguing, and compelling, and backed up by the evidence, that`s very
solid, is right now the average REIT in the United States yields about 4.3
percent, which is about the same yield, as the typical corporate bond.

And typically, the typical corporate bond has a yield that is much in
excess of the average REIT, maybe 1 percent or 2 percent. And when you
have a spread, which is essentially no spread at all, this type, which is a
historical tightening, over the next year, REITs do very well. They`re up
on average about 21 percent, beating the market by about six percentage
points. So, I think this is very interesting.

MATHISEN: All right. So, a 20 percent possibility here.

Your first choice is iShares Core U.S. REIT. This is a way to get
exposure, and diversification within the sector, I suppose, all at once?

MEEKS: Yes. It essentially benchmarks my favorite index, and the nice
thing is, of course, with the exchange traded fund, you have your
diversification, of properties and companies, and also you`re paying a
paltry management fee of eight basis points or eight bucks on every $10,000
invested.

HERERA: Next on the list, Public Storage (NYSE:PSA), you see them
everywhere.

MEEKS: Yes. Go down the highway, north, south, east or west you see all
these. So, Public Storage (NYSE:PSA), PSA, has a yield of about 4.1
percent. A little bit below the average. But it`s a much better quality
REIT than the average. And it has a return on investment, which is
astronomical. I think it`s a great company.

MATHISEN: And the last one is Welltower. It sounded to me like a cell
tower company but it`s anything but that.

MEEKS: Yes, yeah it`s interesting. Welltower is a REIT that specializes
in health care facilities, particularly senior housing. And it`s not the
quality of PSA but it also pays a 7 percent yield and I think that the
price risk has been squeezed out of it.

HERERA: All right. On that note, Paul, thank you so much for joining us.
Have a great weekend.

MEEKS: Thank you. You too.

HERERA: Paul Meeks with Sloy, Dahl & Holst.

MATHISEN: And coming up, why Americans are borrowing record amounts to buy
new cars and trucks, even as interest rates rise.

(MUSIC)

MATHISEN: Consumer sentiment hit its second highest level since 2004.
According to the latest University of Michigan survey, Americans are
generally optimistic about tax cuts and their job prospects. Economists
say that should underpin consumer spending, which is the biggest part of
the U.S. economy.

HERERA: Americans are spending more on their vehicles, and they`re
borrowing more money than ever to finance them. A new report shows
outstanding auto loans now total more than $1 trillion.

Phil LeBeau takes a look at what that means for car buyers.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here`s the reality.
We`re paying more than ever for the cars and trucks we buy. On average,
more than $35,000. That means we`re borrowing record amounts. In the
fourth quarter of last year the average new car loan topped $31,000. And
the average monthly payment was just over $500. Spread out over five years
and nine months.

MELINDA ZABRITSKI, EXPERIAN: There`s certainly something to watch in the
fact that the payments continue to rise. You know, that the loan amounts
continue to grow. Especially this year, we`re going to be facing several
rate increases. So we should expect to see those payments even climb
probably higher this year.

LEBEAU: The rise in interest rates will be hitting more buyers taking out
loans. So, for someone with average credit, the current rate is 5.2
percent. That`s up from last year. And if the Federal Reserve keeps
raising rates, that will ultimately filter down to auto loans. And push up
the cost of buying a new car or truck.

ZABRITSKI: I think we were nearing a ceiling and I think consumers are
responding to that. And that`s why we`re seeing consumers, especially
prime consumers, increasingly move into leasing.

LEBEAU: Leasing a car or truck is appealing right now, because on average,
the monthly payments tend to be about $100 less than if you took out an
auto loan, which is why the number of people who are leasing right now is
close to an all-time high.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Some say car prices could rise if the threatened tariffs are
enacted. Ford today said that even though it gets the vast majority of its
steel and aluminum from the U.S., the proposed action by the White House
could result in an increase in domestic commodity prices, harming the
competitiveness of American manufacturers.

MATHISEN: And before we go, let`s take another look at the day on Wall
Street. The Dow closed down 70 points at 24,538. It had been off nearly
400 points early in the session. Nasdaq up 77. S&P 500 up 13 for the
week. All of the major indexes were lower.

HERERA: What a week.

MATHISEN: What a week.

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

MATHISEN: And thanks for me as well. I`m Tyler Mathisen. Have a great
weekend everybody and we will hope to see you right back here on Monday.

END

Nightly Business Report transcripts and video are available on-line post
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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.

 

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