Transcript: Nightly Business Report – March 14, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tough tariff talk. Stocks
come under pressure on renewed concerns of a trade war and a lot of
companies could be in the crosshairs.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Turbulence at United. The
airline is in the news again. But is the real problem the carrier`s
corporate culture?

GRIFFETH: Savings gap. Oregon is trying to help close that, becoming the
first state to help workers save for retirement.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, March the 14th.

HERERA: Good evening, everyone, and welcome.

One of the biggest issues looming over the stock market is the risk of a
trade war. Today, that issue buckled to the surface. The Commerce
Department signaled that few product exclusions to the tariffs would be
granted to U.S. companies. And that prompted some of our allies to say
they could impose their own trade measures if necessary.

The Dow Jones Industrial Average fell 248 to 24,758. The Nasdaq was off
14, and the S&P 500 dropped 15. Boeing (NYSE:BA) was the hardest hit Dow
stocks following a report that the plane maker was a prime target for China
to retaliate against.

GRIFFETH: As we reported last week, there is talk that the White House is
considering tariffs on up to $60 billion of Chinese good. Not
surprisingly, that`s not going over well in China.

Eunice Yoon reports for us from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese reaction
today was a reiteration of comments and themes that the authorities have
been touching upon in recent weeks as a trade war looms. At a regular
press briefing, the foreign ministry said that U.S./China trade relations
should not be a zero sum game. The ministry has made similar statements in
the past.

There was also a commentary in the official state news agency, Xinhua,
blaming the U.S. for the apparently large trade deficit, saying the U.S.
statistics are faulty, and said if Washington wants to narrow the trade
deficit it should ease restrictions on high-tech exports. That`s another
long standing position that the Chinese argue.

Yet another theme, the Chinese Statistics Bureau said today that the
tariffs wouldn`t hurt China much because the China could sell to
themselves. The bureau was trying to calm some public concerns.

And there are concerns that President Trump`s tariffs could be expanded to
include some basic Chinese goods such as footwear, apparel, as well as
toys. These exports are big employers here in China. And that`s a reason
why, despite the public pronouncement, what we are hearing on the ground is
that the authorities here are concerned about a trade war, that they are
frustrated with what they saw as lack of results after President Xi Jinping
had sent his top man on the economy to Washington and that they are drawing
up their own list of American products to retaliate if necessary.

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

(END VIDEOTAPE)

HERERA: American companies are trying to figure out how the tariffs on
steel and aluminum will impact their business.

Kayla Tausche travelled to Middlebury, Indiana, for that part of the story.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For each cargo
trailer rolling off the assembly line at Look Trailers, 75 percent of it is
comprised of U.S. steel and aluminum. The company`s president, Matt
Arnold, prefers domestic materials because they are higher quality and his
business is highly regulated.

With the new tariffs in effect more competitors are shifting away from
foreign steel, driving up demand and his costs immediately.

MATT ARNOLD, LOOK TRAILERS PRESIDENT: The abruptness and the nature of the
way this is happening seems heavy-handed. We don`t have the flexibility
and the ability to raise capital. So, it`s very important for us that this
not be so shocking, so strong.

TAUSCHE: The problem, Arnold says, tariffs go into effect next week. But
shuttered mills could take up to 18 months to reopen and supply the market
with the steel and aluminum it needs.

Arnold says it`s unsustainable.

ARNOLD: There is a lot of uncertainty and a lot of apprehension. What
we`ve seen is some competitors hold back. But we have had to move forward
and we have had to raise prices.

So, we`ve got to do it immediately. And we are doing it as fast as we can.

TAUSCHE: The average trailer here retails for $3,500. That`s up 9 percent
from last year. Arnold`s father raised prices 10 percent to 15 percent
after the last steel tariffs, and the business suffered. Full-time
employees were cut to just three days a week.

Arnold says at some point his industry will recover. But former Governor
Mitch Daniels expects a negative effect on Indiana to be lasting.

MITCH DANIELS, FORMER INDIANA GOVERNOR: We`re the number two auto state,
the number one RV state. Major in — number one state in terms of
manufacturing intensity, percentage of our whole economy that`s involved in
manufacturing. So, even in Indiana, number one steel state, there is some
real risk that the net of this could be negative both in terms of simple
job count and, of course, cost to consumers.

TAUSCHE: At Look Trailers, expansion plans are on hold as it waits to see
how the latest trade fight plays out.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Middlebury, Indiana.

(END VIDEOTAPE)

GRIFFETH: Now, if this trade fight becomes a trade war with China, there
could be some winners and losers, and a lot of them.

Keith Parker joins us to share some of the names he feels could be affected
the most. He is U.S. equity strategist at UBS.

Keith, thanks for joining us tonight.

KEITH PARKER, U.S. EQUITY STRATEGIST, UBS: Thank you.

GRIFFETH: Given our extensive trade relations with China, there are a lot
of companies — I saw your research report. There are like 50 companies on
this list here. And it`s a good cross section of all industries in the
United States, right?

PARKER: Yes. I think we see the risk of rising tensions and sticker shock
with $500 billion of imports from China. There`s quite a lot that could
play out. But we think that the broad effect of a more broad tariff is
unlikely.

And what we are seeing now is potential talk of select tariffs on imports
of consumer goods. Other things that we import quite a lot from China,
cell phones, tech hardware, semis, apparel, et cetera, and then I think
there`s the risk of retaliation. So, those companies selling in China or
to China from U.S. on the export side. So I think both of those types of
companies may be at risk.

HERERA: Yes. We put together some of the names that are on this list.
And as Bill mentioned, there are a lot of them. But there`s — really kind
of an inordinate bias towards technology which I think a lot of people
would not expect.

PAKER: Yes, a lot of those tech companies have production in China selling
to Chinese companies.

HERERA: Yes.

PARKER: And so, there could be some risk there. But, again, you know, if
this does escalate, there are chances potentially of Chinese, say,
discouraging the buying of U.S. brands in favor of domestic production
within China.

GRIFFETH: I mean, some of the chip stocks for example, have been on fire
here in the United States for a year or so. They could be affected by
that, Micron and others, right?

PARKER: There is a potential, I think, you know, the technology supply
complain is very much intertwined and intertwined with China. And so, the
ties of trade definitely bind. But the semis story from demand and a bit
cycle, and potential super cycle demand from automation, virtual reality,
et cetera is there. But you do have that looming risk on the horizon where
some of this China risk could be potentially discounted into these types of
stocks.

HERERA: As we take a quick look at some of these companies that are on
your list, you cited Gary Cohn`s departure as a worrisome factor. Now we
know that Larry Kudlow was going to be going into that position. And he is
a globalist, more of a globalist.

Does that reassure you at all?

PARKER: I think, you know, the market doesn`t like change, and we`ll hear
what Larry has to say once in the post. You know, I think that the market
is worried about the rhetoric coming out of the White House currently. But
there is some reassurance. We`ve heard Larry for years, that the message
that he is likely to deliver will be delivered clear and eloquently. So, I
think that should be a positive for markets.

GRIFFETH: Keith Parker at UBS, thanks for joining us tonight, Keith.

PARKER: Thank you.

HERERA: Well, speaking of Larry Kudlow, as we just mentioned, he will
replace Gary Cohn as the National Economic Council director.

Eamon Javers takes a look at how he might impact economic policy.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump made
the offer by telephone to Kudlow on Tuesday evening. Kudlow accepted,
telling the president he would be honored to take the position.

Kudlow comes to the job at a time had he the president has been trending in
a protectionist direction, talking about tariffs on China, tariffs on steel
and aluminum imports into the United States. But Kudlow himself is an
opponent of broad-based tariffs. And that sets up a fascinating tension
between Kudlow and the president of the United States.

I spoke to Larry Kudlow earlier today. And he told me that he believes he
will be able to speak his mind freely about tariffs in this White House.
But ultimately, he said, as the director of the National Economic Council,
his job is to offer his advice, but once the president`s decision is made
it`s made and Kudlow says his job will be to simply execute on it.

Larry Kudlow comes on the job after a career at CNBC where he was a
television anchor and commentator. He`s also served as an economist at
Paine Webber and Bear Stearns on Wall Street. He served at the New York
Federal Reserve and also at the Office of Management and Budget as part of
the White House in the Reagan years.

So, Kudlow has got a lot of experience in Washington. One of the
challenges will be, this is a very different Washington than it was in the
1980s.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.

(END VIDEOTAPE)

GRIFFETH: Meanwhile, a key economic indicator fell for the third straight
month. Retail sales dropped 0.1 percent in February dragged lower by
reduced spending on cars and gasoline. It is just the latest report to
suggest that the economy may not be overheating after all. In fact,
following the release of that report, J.P. Morgan lowered its first quarter
economic growth estimate to 2 percent even from 2.5 percent.

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

Ford`s rating was raised two notches to overweight a Morgan Stanley
(NYSE:MS). It`s Ford`s first upgrade by the firm in almost four years.
The analyst cites Ford`s turnaround plan and the value of its F-150
franchise. The price target was hiked to $15. The stock rose 2 percent to
$11.02.

Nvidia`s price target was raised by 15 percent to $285 at RBC Capital. The
firm says there are enough positives to drive the stock to new highs like
data center spending and gaming. The analyst maintains his outperform
rating and the stock rose a fraction to $248.74.

GRIFFETH: Sunoco`s rating was cut to sell from neutral at Goldman Sachs
(NYSE:GS). The analyst there cited headwinds for the company, including
negative earnings revisions. Price target is at $28. The stock closed
around the level, at $27.68.

And Century Aluminum`s rating was raised to overweight from neutral at J.P.
Morgan. The analyst cited the Trump administration`s tariff on imported
steel which has prompted Century to increase its capacity. Price target
was lifted to $29. But with today`s selloff, shares were down 5 percent at
$20.45.

HERERA: Still ahead, United Airlines makes headlines again. But is it the
result of mismanagement or perhaps a poor corporate culture?

(MUSIC)

HERERA: Insider trading charges were brought against a former employee of
Equifax (NYSE:EFX). The ex-chief information officer allegedly sold almost
$1 million worth of shares after learning of the data breach at the company
but before the company made that hack public. The breach affected 147
million individuals, and the company now faces more than 240 class action
lawsuits.

GRIFFETH: The SEC today brought charges against the founder of Theranos,
accusing Elizabeth Holmes of massive fraud. This is the same person you
will recall who was once compared to Steve Jobs and who became the first
self made female billionaire, at least on paper.

Meg Tirrell takes a look at Theranos` rise and fall.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Secretive startup
Theranos was a Silicon Valley darling, garnering a private valuation of $9
billion in 2014. The company promised to revolutionize the blood testing
industry, claiming it could perform a multitude of tests on just a single
drop of blood.

It was helmed by enigmatic founder Elizabeth Holmes, a young Stanford
dropout often compared to Steve Jobs. The company boasted famous board
directors including two former secretaries of state, George Shultz and
Henry Kissinger, as well as future defense secretary James Mattis.

But Theranos` success started to unravel at the end of 2015 when the “Wall
Street Journal” published the first of a series of stories illuminating
problems with its blood testing technology.

CEO Holmes doubled down.

ELIZABETH HOLMES, CEO, THERANOS: This is what happens when you work to
change I think so this. First they think you are crazy. Then, they fight
you. And then, all of a sudden, you change the world.

TIRRELL: But the trouble continued, with multiple government
investigations opened into the company. In May of 2016, Theranos said it
voided two years of blood test results. In July of that year, the Centers
for Medicare and Medicaid Services banned Holmes from owning or operating
clinical labs for two years. The company was said to be near bankruptcy by
the end of 2017 before it secured a $100 million loan.

And today, a settlement with the Securities and Exchange Commission where
Theranos and Holmes neither admit nor deny fraud charges. The SEC wouldn`t
comment on whether other agencies may be pursuing a criminal case.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

HERERA: Signet beats estimate but the stock false. And that`s where we
begin tonight`s “Market Focus”.

A rise in profit and revenue at the owner of Kay`s and Zales Jewelers was
overshadowed by a weak full year outlook and the announcement of a new
restructuring plan. The company said over the next three years, it will
cut costs and improve e-commerce to drive its growth. The shares lost
their luster, so to speak, falling 20 percent to $38.22.

The clothing retailer Express (NYSE:EXPR) reported overall revenue and
profits that topped expectations helped by strength in online sales and
outlet sales. Same-store sales however fell more than analyst were
expecting. Shares of Express (NYSE:EXPR) fell a penny to $7.39.

GRIFFETH: Walmart is expanding its online grocery delivery service to
about 100 metro areas. It now expects the reach more than 40 percent of
the United States. Right now, the service is offered in just six markets.
Walmart said it will continue to partner with Uber, by the way, to help
deliver those customers` orders. Walmart shares fell nearly 1 percent
today to $87.67.

And UnitedHealth Group (NYSE:UNH) is reportedly no longer interested in
acquiring all or part of Envision health care. Bloomberg says that
UnitedHealth was at one point potentially interested in working with
private equity firms on a deal for the health care company. UnitedHealth
Group (NYSE:UNH) shares fell a fraction today to $225.38. Shares of
Envision were down more than 7 percent at $39.41.

HERERA: United Airlines is under fire again for a dog which died after a
flight attendant made the owner put that dog in the overhead bin. The
company has since apologized. But is poor corporate culture at the company
perhaps to blame?

Erik Gordon joins us. He is a professor at the University of Michigan`s
Ross School of Business.

Welcome back, Erik. Nice to see you again.

ERIK GORDON, PROFESSOR, UNIVERSITY OF MICHIGAN`S ROSS SCHOOL OF BUSINESS:
Hello, Sue.

HERERA: These two airlines, United and Continental, merged a number of
years ago. But the problems of those two and now one airline, they really
haven`t disappeared. You think culture might be the key. Why?

GORDON: Yes, I think culture is the problem. Here`s why: you can`t manage
everything. You can have a manager on every plane telling the flight
attendants what to do. You can`t have a manager at every gate telling the
gate agent what to do.

What you need is a culture which sets norms so that all of the people that
you can manage every minute know what to do. And when crazy things come up
that aren`t in your rule book, that people just naturally know, it`s the
culture. They know how to handle it in ways that are right. You have to
guess that the united culture is a culture where they`ve learned to handle
just about everything wrong.

GRIFFETH: But you have to admit, though, Erik, that there is a strange
coincidence that it always seems to happen to United Airlines, whether they
are dragging a passenger off or, you know, the luggage gets lost or the kid
gets sent to the wrong place. And now the dog has died.

Is it bad karma that this airline has? Or what`s going on here do you
think?

GORDON: So, I think they started off with bad karma. And the karma effect
was multiplied by this merger.

The merger is complicated. It`s two different cultures. They have never
gelled. They are spending a lot of time and effort trying to get thing
like the reservation systems combined.

What they haven`t spent time on is improving the culture. And, you know,
it`s reason by a CEO who came to United from a freight railroad, moving
lumps of coal in a freight car is different than moving people in
airplanes. Bad culture exasperated by this merger that has made everything
complicated.

HERERA: Yes, it certainly has. Eric, thank you. Always nice to see you.

Erik Gordon is with the University of Michigan`s Ross School of Business.

GORDON: My pleasure.

GRIFFETH: Coming up, what one state is doing to help fill the gap in
retirement savings.

(MUSIC)

HERERA: We told you earlier in our program about Ford`s stock getting
upgraded. Well, separately, the automaker is recalling nearly 1.5 million
cars because their steering wheels can come off. Ford says the problem may
have caused two accidents and one injury. The affected models are the Ford
Fusion and the Lincoln MKZ years 2014 to 2018.

GRIFFETH: The CEO of Toys “R” Us told his employees that the retailer will
likely close all of its U.S. stores. The company plans to file liquidation
papers this evening in advance of a bankruptcy hearing scheduled for
tomorrow. This move threatens up to 33,000 jobs in the coming months.

HERERA: It is no secret of course that Americans need to save more for
retirement. But now one state is stepping in to fill the savings gap.

Sharon Epperson has the details.

(BEGIN VIDEOTAPE)

JOSH ALLISON, REACH BREAK BREWING OWNER: The beers that we have on tap are
on the top.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: When small
business owner Josh Allison decided to go from a career in biology to beer,
his focus was crafting the perfect pint. Giving employees a way to save
for retirement may have been a goal, but not when Allison was able to brew
up on his own.

ALLISON: You spend a lot of time, lot of energy work these people,
developing relationships. And they become family. And you really want the
best for them. You want them to be able to provide for themselves later in
life.

EPPERSON: Now, thanks to a program that is the first of its kind in the
country, employees at Reach Break Brewing are given the chance to save for
their future, through a state-run retirement plan called Oregon Saves.

TOBIAS READ, OREGON STATE TREASURER: We are giving small businesses the
same kind of opportunities that some of the larger businesses have, low
cost savings for employees at no cost to the employers.

EPPERSON: About 55 million American workers in the private sector are not
offered a 401(k) plan through their employer. Most of them, 32 million,
work at small businesses, which have fewer than 100 employees.

PEG CREONTE, ASCENSUS SENIOR VICE PRESIDENT: Some may say, why is that a
problem? Study after study shows that people are 15 times more likely to
be saving for retirement if they are offered access through their employer.

EPPERSON: Oregon Saves requires employers who do not offer a 401(k) to
automatically deduct 5 percent of an employee`s wages after taxes and send
it to their individual retirement account or IRA. Workers can contribute a
maximum of $5,500 a year. The plan is managed by the state, and workers
must opt out if they don`t want to participate.

But so far, many, being given the chance, are doing it.

READ: We have about 5,500 people who are actively contributing to their
accounts at this point. There are about 20,000 who are somewhere in the
process when their pay periods take place. And in the end, we expect that
there will be about a million people who could potentially participate.

EPPERSON: Reach Break`s tap room manager Chris Smyrl who`s contributing 5
percent of his wages to his plan, he says it is the first time he saved for
retirement.

CHRIS SMYRL, REACH BREAK BREWING EMPLOYEE: It`s always in the back of your
mind but you always use your youth as an excuse and say oh, I can just
always do that later. And you know, now it`s later.

EPPERSON: Critics say there is too much paperwork for companies that
already offer 401(k) plans. Yet more states are following Oregon. Seven
had enacted legislation for their own retirement plans, with Illinois and
California expected to roll out theirs this year. Another 24 states have
introduced legislation to start their own retirement plans.

CREONTE: We are hopeful that other states will see the success that Oregon
is having in designing and rolling this program out and make similar
programs available in their states.

EPPERSON: Josh Allison hopes offering a retirement plan will attract the
best employees who will help ensure customers keep coming back.

ALLISON: One thing that the savings plan will allow us is people will be
able to view this as a long term career rather than just a steppingstone.

EPPERSON: For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.

ALLISON: Cheers.

(END VIDEOTAPE)

GRIFFETH: It was ten years ago today that Bear Stearns notified the
Federal Reserve it would have to file for bankruptcy protection. The Fed
instead trying to limit the damage with an emergency loan, but a few days
later the central bank then told Bear Stearns it was going to be to find a
buyer. One emerged, J.P. Morgan, who offered a paltry $2 a share for the
once venerable Wall Street.

The purchase price was eventually revised slightly higher, but then soon
after, the country witnessed the worst financial crisis in generations. It
has been a decade.

By the way, if the same thing happened today, under the new banking rules,
the Fed would not be able to make that same emergency loan.

HERERA: And speaking of that, the Senate is voting tonight on banking
legislation. If it passes, it would be a step towards rolling back some of
the rules that went into effect following the financial crisis. It`s hard
to believe it`s been 10 years.

GRIFETH: It has.

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

We want to remind you this is the time of year your public television
station seeks your support.

GRIFFETH: And I`m Bill Griffeth. Thank you very much for that support.
Have a great evening. We`ll see you tomorrow.

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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