Transcript: Nightly Business Report – March 21, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Ready, set, hike. The Federal
Reserve raises interest rates at chair Jerome Powell`s first policy
meeting, and the stock market rally fizzled.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Getting closer. Lawmakers
make progress on their trillion dollar spending bill. What`s in it and
what it could mean for you?

HERERA: Spring storm. Will the fourth, yes, the fourth nor`easter in
three weeks send a chill through parts of the economy.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
March 21st.

And we bid you good evening, everybody, and welcome. It was the first
meeting of the Federal Reserve policymakers led by new chair Jerome Powell.
And as expected, officials raised interest rates. As a matter of fact, it
was the sixth increase we`ve seen since the end of the 2015.

The central bank also said the pace of economic growth would likely pick up
and that all sent the yield on treasuries higher and it sent the stocks on
a very choppy afternoon ride. The Dow was up 200 points after the
announcement came out, but it finished down 45 or thereabouts to 24682.
The Nasdaq lost about 19, the S&P was down about five points.

Steve Liesman is covering the story for us tonight from the Federal Reserve
in Washington, D.C. — Steve.

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bill, good evening.

And Fed Chairman Jay Powell`s first press conference the Federal Reserve
hiked rates as expected. They went up by one quarter point, and now,
they`re going to try to maintain a new range of one-and-a-half percent to
1.75 percent. And they also signaled more gradual rate hikes ahead.

The Fed increased its outlook for economic growth and lowered its forecast
for unemployment down 3.6 percent for next year, from the current 4.1
percent, and it raised the outlook for interest rates, not this year, it
was one forecast short of going to those four hikes that the market was
concerned about. It upped the outlook for next year and for 2020, in fact
to a strong 3.4 percent then.

Now, it doesn`t see a whole lot of inflation and I asked Chairman Powell in
the press conference, how do you forecast better growth, lower unemployment
but you don`t have any places to go along with it? Here`s what he said.

(BEGIN VIDEO CLIP)

JEROME POWELL, FEDERAL RESERVE CHAIRMAN: After the crisis, unemployment
was 10 percent. It`s now 4.1 percent. You`ve only seen very gradual
upward pressures on inflation and wages despite that very large increase.
And that suggests that the relationship between changes in slack and
inflation is not so tight. But it has diminished, but it — but it`s still
there.

So, I think when you see those small changes in unemployment that simply
reflects the — you know, the flatness of the Phillips curve.

(END VIDEO CLIP)

LIESMAN: A couple other points, he was surprised the lack of stronger wage
growth given how low unemployment is already and when asked about the high
level of the stock market, he said he only sees a moderate stability risk
to the banking in the financial system. He does see more economic growth
coming from fiscal stimulus or the tax and the tax cuts, but wouldn`t say,
by the way, whether or not that comes from the supply side or from the
demand side.

So, in the words of John Lennon, did Powell pass the audition while they
seemed to get out of his press conference without making too much news, not
making a major gap, and with little change in yields, little change in
stocks, I`d say he would probably call that a win in his book — guys.

GRIFFETH: The John Lennon quote aside, you are a veteran and wise Federal
Reserve follower, what do you think, three rate increases beyond this, this
year or not?

LIESMAN: I mean, I think three is probably a good bet and the risk is for
four. But again, I don`t think we`re going to get to that area of risk of
more rate hikes unless we get the economic growth to go along with it.
What I would worry about, I`m not worried about that this now, but if we
had high inflation without the economic growth.

Inflation is a puzzle. Inflation is the thing that central banks and
economists should understand, Bill, but they don`t, and it could be because
of massive global forces it could be the Amazon (NASDAQ:AMZN) effect, with
cheap prices throughout on the Internet, they don`t really quite understand
why inflation is so low. But that`s a big, big wild card for Fed policy
right now.

GRIFFETH: Steve Liesman at the Federal Reserve, thanks as always, Steve.

LIESMAN: Pleasure.

HERERA: Let`s turn now to Jeff Saut for more analysis on the Fed, the
economy and the market. He is the chief investment strategist over at
Raymond James.

Jeff, always good to have you here. Thanks for joining us.

JEFF SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: It`s pleasure, Sue.
Thank you.

HERERA: So, a slightly more hawkish Fed chief it seems in his first
address and his first news conference. What did you make of it?

SAUT: I think you hit it right on the head. I think it was slightly more
hawkish. He did say that the economic strength had moderated somewhat from
the previous Fed meeting, but then they increased their expectations for
growth and talked about the tight labor market going forward.

So, I think it`s a bit more hawkish and I think come the June meeting,
there is better than a 50/50 chance they`re going to put back in four rate
hikes for this year.

GRIFFETH: What do you do with this for investment purposes then, Jeff? I
mean, initially after the Fed made their announcement, the financial stocks
went up. They need higher interest rates. Is that a safe bet right now,
or are you looking elsewhere for growth?

SAUT: No, I think the Fed is going to increase rates I but I think they`re
going to do it very gradually, it`s deepening of the yield curve, certainly
helps the financial stocks. I mean a 1 percent increase for Raymond James
I think drops a hundred and eighty million dollars to the bottom line for
Raymond James.

I would note that I told your producer when the Dow was up 200 points, that
usually the first move by the equity markets on an announcement like that
is usually a wrong way move, and that`s what it looked like happened today.

HERERA: What about the inflation component? Are you worried that we are
going to see inflation pick up past that 2 percent target that the Fed has
put in place or not?

SAUT: I think it will pick up, I don`t know if we pick up this year above
2 percent, but in inflation is coming back. You cannot find an economic
system in the history of the world that has had this much cash thrown into
it and not had inflation come out of the back side.

So, I think it`s going to be a gradual pickup but I do think it`s going to
pick up above 2 percent.

GRIFFETH: What do you think, Jeff? Do you do you stay here in the U.S.
and invest, or do you look overseas right now? What do you do?

SAUT: I think you do both. I think that Europe is statistically cheaper
than the U.S. valuations but the growth here is probably better, certainly
the earnings growth here is better. But Europe is no longer in a recovery.
Europe is in an expansion, very similar to what the U.S. is in.

HERERA: All right, Jeff. We`ll leave it at that. Thanks so much for
joining us. Jeff Saut is out Raymond James.

GRIFFETH: And as you know, the Fed also keeps a watch over the housing
sector and today, we learned that existing home sales rose last month even
as prices also climbed and there were fewer properties listed on the
market, the National Association of Realtors reported an increase in sales
of 3 percent. That follows a decline during the prior two months, and it
could be an indication that competition is going to be very intense during
the spring selling season this year.

Sue?

HERERA: Bill, the current account deficit widened percent in the fourth
quarter amid an increase in goods imported and that was more than expected.
The current account measures the flow of goods services and investments in
and out of the country, and it has become a focus of Washington and Wall
Street.

GRIFFETH: Meanwhile, the White House could impose tariffs on China for
intellectual property violations as soon as tomorrow. As first reported by
CNBC, visa and investment restrictions will not be part of that first
package though. Both the timing and the announcement of that scope remain
in flux.

HERERA: In Washington, a preliminary agreement has been reached on a
spending bill which will keep the government up and running past Friday`s
deadline.

Ylan Mui is back with us this evening to tell us where things stand.

Good to see you as always, Ylan.

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to see you, Sue.

HERERA: So, what do — what is the final agreement here between the
Republicans and Democrats?

MUI: Well, Republican and Democratic leadership met this morning in order
to hammer out some of those final details. Both Senator Chuck Schumer and
Representative Nancy Pelosi came out of that meeting sounding very
optimistic, saying that they felt like they were making good progress
toward a bill, and that they do expect to see a movement toward a vote in
the House on this bill tomorrow.

Now what is in it includes $1.6 billion dollars for border security that
includes 33 miles of border fencing, not necessarily a big beautiful border
wall but fencing, as well as money for border technology. There`s also
provision in there that would make requirements for gun background checks
more strict, as well as allow the CDC to study gun violence as a public
health issue.

So, those had been some of the final sticking points that were holding up
this deal. It appears they`ve been resolved so far.

GRIFFETH: Where does the White House stand on this, Ylan? Has the
administration weighed in on any of this yet?

MUI: House Speaker Paul Ryan brought this package to the president this
afternoon to brief him on it and get his response. Ryan`s office said the
president does support it. The White House says that Republican leadership
and the White House have shared priorities, including rebuilding the
military, including funding for the opioid crisis. So, it looks like
President Trump is willing to sign off on this as soon as Congress passes
it.

HERERA: All right. Ylan, we`ll leave it there. Thank you so much. Ylan
Mui on Capitol Hill for us tonight — a snowy Capitol Hill.

Bill?

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

FedEx (NYSE:FDX) saw its rating raised to a buy at Stifel Nicolaus today,
following FedEx`s earnings report that came out yesterday. The firm says
that the stock will benefit from its continued growth. Price target was
raised to $295 and shares finished the day to the downside during that late
sell-off.

Match Group saw its rating cut to neutral at Guggenheim. That firm is
predicting an incoming — an upcoming lull in matches business until it
introduces the next big paid online dating feature. The analyst is also
concerned about Match`s valuation following a recent run-up in that stock,
and shares fell in today`s trading session, down 2 percent.

HERERA: The health insurer Wellcare Health was upgraded to outperform from
market perform over at Wells Fargo (NYSE:WFC). The firm cites the
company`s progress in executing its multi-year plan to improve its
performance. The price target is now $220. The stock closed about 3
percent higher.

Jefferies is reaffirming its positive view on Activision Blizzard
(NASDAQ:ATVI). That firm says concerns about competition from the popular
“Fortnite” game are overblown. The stock is down about 10 percent from its
recent highs. The analyst recommends buying it on the recent pullback and
the shares rose a fraction.

Speaking of which, still ahead, the new and very lucrative frontier in
gaming.

(MUSIC))

GRIFFETH: The European Union is proposing a new and aggressive tax on tech
companies. One rule would impose a percent tax on revenue generated from
digital activities including online advertising and the sale of user data.
That measure alone could raise about $6 billion annually for member
countries. A second measure would tax digital profits where they are
generated.

HERERA: CEO Mark Zuckerberg of Facebook (NASDAQ:FB) is addressing the data
scandal that is engulfing his company. In his first comments since the
controversy erupted, he said that Facebook (NASDAQ:FB) made mistakes and
that it will further restrict developers used to user data. He also said,
quote: We have a responsibility to protect your data and if we can`t, then
we don`t deserve to serve you, end quote.

Facebook (NASDAQ:FB) COO Sheryl Sandberg said she deeply regrets that the
company did not do more.

But investors are not happy about that data leak. Bill?

GRIFFETH: That`s right. A lawsuit was filed on behalf of an undisclosed
number of investors who alleged the company made misleading and false
statements about its policies. The suit also claims that Facebook
(NASDAQ:FB) did not disclose that it allowed third parties to access data
on millions of people.

HERERA: The one-hundred billion dollar video game industry is experiencing
a new leg of growth, thanks to the rise of competitive gaming.

Josh Lipton has the details.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It might sound crazy
but people really do love watching other people play video games. It`s
known as electronic sports or e-sports. Teams of video game players
competing before packed stadiums of fans, from San Jose to Seoul, where top
players can earn millions of dollars a year. It`s a big topic of
conversation at this year`s annual game developers conference in San
Francisco and for good reason. More than 140 million people all around the
world now regularly watch these competitions online. That`s expected to
jump to 250 million by 2021.

Here`s another way to think about it. In the U.S., e-sports viewers
already outnumber those of the National Hockey League and they`re expected
to surpass Major League Baseball in just two years, becoming the second
most watched sport.

E-sports generated an estimated $655 million in revenue last year. Now,
that is just a fraction of the $100 billion gaming industry to really break
into the mainstream and prove successful game analysts say e-sports has a
lot to learn from traditional professional sports leagues like the NFL.

LEWIS WARD, IDC RESEARCH DIRECTOR: E-sports need something like a
commissional role, and there could be multiple commissioners for different
popular games. But I do think it`s important to be able to have an
objective person who`s viewed as the — you know, the main person who`s the
arbiter of looking out for what the sport is going to do and look out for
its best interests overall.

LIPTON: There are publicly traded companies with exposure to e-sports.
For example, Amazon (NASDAQ:AMZN), with its streaming platform Twitch and
Activision which owns an e-sports league called the Overwatch League.
Earlier this year, those two actually partnered up with the Overwatch
League now streaming competitions on Twitch.

Piper Jaffray`s Mike Olson estimates that the premiere of that competition
back in January attracted 500,000 viewers at its peak.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

GRIFFETH: Sales rise at Winnebago and that`s where we begin tonight`s
“Market Focus”.

The RV maker said that strength in its towables business helped drive
revenue past expectations. Profits also rose but it was not enough to top
street expectations. So, shares were down 5 percent today to $41.80.

General Mills (NYSE:GIS) delivered a profit and sales beat despite noting
that it faced higher food and shipping costs last quarter. The food giant
said it expects those costs pressures to continue and as a result, it did
cut its full-year profit forecast and as you might imagine, as a result,
shares were down. In fact, for a time, the company was the worst performer
in the S&P today, down 9 percent or thereabouts to $45.51.

HERERA: Southwest Airlines (NYSE:LUV) said a competitive fair environment
and fewer bookings would cause unit revenue this quarter to be flat. The
airline initially expected the measure to rise as much as 2 percent.
Shares of Southwest Airlines (NYSE:LUV) were off nearly 5 percent to
$57.78.

Sears (NASDAQ:SHLD) says it has taken steps to slash its quarterly interest
costs by $15 million. The struggling retailer said through private deals,
it modified the terms on some of its borrowings and also exchanged some of
its older bonds for new debt. Investors were pleased. They sent the
shares up more than 1 percent to $2.32.

Starbucks (NASDAQ:SBUX) says it has achieved pay equality for all of its
employees in the U.S. The coffee chain said it`s been working towards that
goal for years.

(BEGIN VIDEO CLIP)

KEVIN JOHNSON, STARBUCKS CEO: This next step around pay equity for all
genders and races that do similar work in the United States is another one
of those things that we do to make sure we are taking care of our partners
because by taking care of our partners, they in turn take care of our
customers. And if we can attract the right talent and retain that talent
here at Starbucks (NASDAQ:SBUX), that`s what creates the magical Starbucks
(NASDAQ:SBUX) experience in our stores.

(END VIDEO CLIP)

HERERA: The company said it is working to make the same changes in its
global workforce. Shares of Starbucks (NASDAQ:SBUX) fell a fraction to
$58.47.

GRIFFETH: Well, the calendar says it may be the first day of a spring, but
winter weather is slamming the East Coast. Businesses are closed, commerce
is at a virtual standstill, and as you can imagine, thousands of flights
have been delayed if not canceled.

Morgan Brennan braved the elements to explain how this fourth nor`easter
we`ve seen in just the past couple of weeks could impact the economy —
Morgan.

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, it has been a
quite the weather situation here for the books as we come into this spring
season, at least from an astronomical standpoint. This is, as you
mentioned, the fourth major snowstorm in the past three weeks to bear down
here on the eastern United States, and that is beginning to have an
economic and financial impact.

Case in point here, this is LaGuardia Airport have you ever seen it so
empty all of the flights here from all of the carriers have been canceled
from here since at least midday today. FlightAware says we`ve seen more
than 4,000 flights canceled today. It brings the total for the month of
March well above 10,000. That`s a big deal for the millions of passengers
that have been stranded this month, but it`s also a big deal for the
airlines because analysts say that the month of March is typically the
busiest month of the first quarter, thanks to spring break and the upcoming
Easter and Passover holidays.

So, to see these types of disruptions, that is something likely to cut into
revenue while also raising costs. And that is just one example in one
sector.

GRIFFETH: Well, it`s not just about flights, but trucking — you know, the
I-95 corridor along the East Coast as well has been shut down basically and
there`s a lot of lack of movement for shipping and things too, right?

BRENNAN: Absolutely. So, it`s not just passengers that are stranded by
these weather events, but freight as well and packages as well. The New
York/New Jersey port complex which is actually the third largest shipping
port for containers in the U.S., so very big, very notable, has been closed
today. It is the second time in recent weeks that we`ve seen that.

And we`ve also seen transportation carriers like FedEx (NYSE:FDX), like
UPS, put contingency plans in place and warned that there will be service
disruptions in many parts of this region. The other thing I would note is
that you are beginning to see what some experts call whether fatigue.
Planalytics, for example, estimates that over the past 30 days with all of
these storms, including the one today, that you`re going to see a negative
impact of $3 billion to $3.5 billion dollars in retail sales.

That is money that consumers would have likely spent this month, won`t
spend, won`t likely be recouped by businesses and you`re talking everything
from restaurants to apparel retailers to actually even home improvement
companies, because as you mentioned it is the beginning of spring, store
shelves are stocked with spring merchandise and not some of those winter
items that folks are looking for given the weather we`re seeing.

GRIFFETH: I think we can all identify with that kind of fatigue.

Morgan Brennan, thanks very much.

BRENNAN: Yes.

HERERA: Coming up, most people only dream about being able to buy a
private island. This one came with a big surprise.

(MUSIC)

HERERA: A major state pension fund will oppose the re-election of all
directors at companies with all-male boards. It`s an unusual move being
made by the New York State Common Retirement Fund.

Leslie Picker joins us tonight from New York.

Leslie, the decision is certainly sending a message, of course. But will
it actually make a difference in the diversity and composition in
boardrooms in corporate America?

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT: That`s the big
question. It`s certainly sending a message to companies that don`t have
any women representatives on their board. But the question is, does their
$200 billion in assets really have the kind of firepower needed to change
the composition of boardrooms nationwide.

Now, that`s the key question. When you look at the $30 trillion in assets
that U.S. equity markets have in market cap these days, it represents a
very small proportion of those, and they mentioned that companies they`re
invested in have no women representatives on the board. But even if they
invested a large portion of their assets into one of those companies, it
still likely won`t represent a majority, which is what is actually needed
to actually get someone off of the board. So, that`s one of the key
questions with these types of proposals, is what will the actual impact be,
but if anything, it`s certainly sending a message which can`t be
discounted.

GRIFFETH: Quickly, the bigger question I guess is why have boardrooms been
so slow in bringing in women directors, huh?

PICKER: That`s the key question. A lot of boards blame it on the pipeline
problem. Oftentimes, board members are representative of people who have
the words “chief executive officer” on their resume. And as we know, there
haven`t been that many women chief executive officers.

So, there has been a movement now where people have been trying to get
women on boards that may not have that CEO title, but may still be good
board members for those companies.

HERERA: Leslie, thank you so much. Leslie Picker in New York for us
tonight.

GRIFFETH: Meanwhile, cloud storage company Dropbox now plans to price its
initial public offering in a range of between $18 and $20 a share. That`s
two more than initially had been stated. The company will now be valued at
more than $7.5 billion and will list on the Nasdaq under the ticker symbol
DBX. Trading expected to start on Dropbox on Friday.

HERERA: Well, it`s not every day you meet someone who`s bought their own
private island but Robert Frank did and that island was full of surprises.

(BEGIN VIDEOTAPE)

JOE MESSARO, PETRA ISLAND OWNER: I bought the island on the spot and
after, I said, what I do? I just bought a friggin island, what are we
going to do to an island?

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: When sheet metal
magnate Joe Massaro bought this private island in Upstate New York on a
whim —

MESSARO: I approached the fella who owned the island and I said then maybe
you`d be interested in trading a house of some cash for the island, and
that`s what we did.

FRANK: He had no idea the deal valued at around 700 grand included this
architectural treasure.

MESSARO: Moved into the cottage for weekends and just noticed how unique
this building was.

FRANK: Eventually Joe researched the cottages history and he made a
startling discovery. The quirky cottage was designed by the one and only
Frank Lloyd Wright in 1949. And on top of that Wright also designed a much
larger residence for the island`s owner at the time, but it was never
built.

MESSARO: We bought pictures of the original choice when the Frank Lloyd
Wright Foundation.

FRANK: And Joe spent eight years and millions of dollars to bring Wright`s
drawings to life, all six thousand square feet of it.

MESSARO: This house is so unique than any other Frank Lloyd Wright house.
There`s 26 skylights in here. Ceilings are 18, 12, and 14-foot high.
Frank Lloyd Wright budgeted his house for $50,000. So, I`m just going to
tell you straight out, I went over his budget.

FRANK: Joe followed Wright`s drawings to a T, from the stone detail in the
kitchen, showers and bedrooms, all the way down to the decor.

MESSARO: The furniture is shown on the drawings exactly what he wanted,
the benches and a little table. Everything that he put on the drawings, I
put in this house.

I had Walter Cronkite come out to take a look at the house and he was
friends with Frank Lloyd Wright. And when he walked through that door with
me, he says, I feel Frank in his house.

I love the idea that I was part of bringing the master`s masterpiece to
life.

FRANK: In fact, Joe only strayed from Wright`s plan in one major way.

MESSARO: When we were building the house, I said to my contact, I want one
more inch of concrete here. He said, why? So I`m going to put a
helicopter landing here.

Everybody thinks it`s crazy.

FRANK: Ironically, it was on a chopper ride that Joe learned another one
of the island`s secrets.

MESSARO: I didn`t even realize it, but it`s a perfect heart shape.

FRANK: But now, Joe says he`s ready to give his heart away to someone
else. He`s selling the island, Wright masterpieces and all, for about $50
million.

MESSARO: I`m in no rush, but I want to make sure that the person who buys
it takes care of the master`s masterpiece.

UNIDENTIFIED FEMALE: Who would that be?

MESSARO: Somebody`s crazy as me.

FRANK: For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

GRIFFETH: A modest little cabin on an island somewhere.

Before we go, here`s another look at the volatile day on Wall Street, after
the Fed raised interest rates, the Dow was up 200 points, but fell by the
closed, down 45 points, 24,682, the Nasdaq was down about 19, and the S&P
lost about five points.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody. We`ll see
you tomorrow.

END

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