Transcript: Nightly Business Report – March 22, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tariffs and technology.
Those two big concerns for the market sense the Dow plunging more than 700
points.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We have a tremendous
intellectual property theft situation going on.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The president turns up the
heat on China, announcing a new round of tariffs, sparking concerns of a
trade war.

(BEGIN VIDEO CLIP)

SHERYL SANDBERG, FACEBOOK COO: If we find misuse, we`re going to tell
people.

(END VIDEO CLIP)

GRIFFETH: Facebook executive Sheryl Sandberg vows to better protect users.
But is the next step regulation?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this
Thursday, March the 22nd.

HERERA: Good evening, everyone, and welcome.

A sell off on Wall Street. All 30 Dow components closed lower, about two-
thirds of the stocks in that index fell more than 1 percent today. Half of
the S&P 500 is now in correction territory.

Investors became unnerved after the White House unveiled a new round of
tariffs that some fear could threaten the trade war with China, the world`s
second largest economy. So, by the close, the Dow Jones Industrial Average
had plunged 724 points to 23,957, a nearly 3 percent decline. The Nasdaq
fell 178. And the S&P 500 lost 68.

The biggest losers on the Dow were the major industrials like Caterpillar,
Boeing, and 3M.

Bob Pisani reports tonight on that selloff from the New York Stock
Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks closed right
around their worst levels of the session with the Dow down more than 700
points. That`s right, 700 points.

The markets are clearly concerned about two things. Number one,
technology. And number two, trade. Two big issues.

President Donald Trump announced he would be imposing tariffs of up to $60
billion on Chinese goods over the next few weeks. No details on which
products will be taxed by how much yet. But he did say there would be a
30-day grace period to negotiate those terms.

Shares of U.S. and other metals and mining stocks got slammed on news that
Trump will be exempting a handful of allies from steel and aluminum
tariffs, including the European Unions, South Korea and Brazil. In fact,
U.S. steel is down 20 percent since those tariffs were first announced a
few weeks ago. It looks like they are not as tough as some people thought
they might be.

Facebook is facing an existential crisis right now. In fact, the whole
social media group is. And that`s weighing heavily on all the other social
media stocks. The stock market has lost its team leadership group,
technology, and social media is part of that. And there`s really nothing
taking its place. The subsectors that powered tech high, which were
semiconductors and the FANG names, your Facebook, your Apples, and your
Amazons, they stopped advancing and in most cases, they reversed.

So, once those FANG and semiconductor stocks stopped going up in the second
week of March, the market stalled out because no other sector has stepped
forward to lead the market higher. Industrials and materials are suffering
from these trade war concerns. FANGs can`t move higher without the help of
higher volume. That`s not happening.

On top of that, drama in Washington is still on the front burner. Stocks
did fall earlier on word in a John Dowd, President Trump`s lead lawyer in
the Russia probe had resigned.

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

(END VIDEOTAPE)

GRIFFETH: Mike Santoli is also at the New York Stock Exchange. He joins
us tonight with some more insights on this decline.

I think you were the one who coined the term tariff tantrum. Is that — is
that all we saw today, or was there more going on, do you think?

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: I don`t take the
blame or the credit for that one.

Yes, I don`t think it was all we were seeing today but I think that was the
added element this morning, right at the outset, that came upon a market
that also was already concerned about this general notion that interest
rates are going up, this Fed is looking for opportunities to bring rates
higher if they can, if the economic data allow for that. And then, you
know, as Bob was saying, the loss of leadership from the big tech group,
which a lot of investors I think were hiding in because it seems seemed
like they could grow in almost any environment.

But the tariff issue is a reminder that policy across a bunch of fronts,
whether it is trade or monetary policy have turned a little bit less
friendly than we got used to last year.

HERERA: The volume, though, Mike. I mean, it didn`t seem like they were
just throwing stocks out the window today. Was that mostly the
professionals who were selling?

SANTOLI: Interesting. No, you are absolutely right, Sue. It was not a
feeling of panic. It was not this mass liquidation of stocks. As a matter
of fact, a couple of folks are pointing out that small cap stocks had
outperformed the large cap indexes.

So, the more domestically focused businesses seemed like they were not
caught up in this selloff quite much. The volumes weren`t that high. The
volatility index definitely got up there, but not at levels we saw in early
February. So, it was a somewhat lower intensity selloff than what we did
see in early February.

Whether that something that means that folks are more likely to buy it at
this level or not is not clear, but it definitely was not indiscriminate.

GRIFFETH: Mike Santoli at the New York Stock Exchange for us tonight —
thanks, Mike.

SANTOLI: Thank you.

HERERA: So, as we mentioned, the president did announce his toughest trade
action to date. And as Kayla Tausche reports from Washington, there are
fears of more to come.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump
signed an order that paved the way for steep tariffs on a wide range of
Chinese imports. The move marks the end of its seven-month investigation
into Chinese tactics to challenge U.S. technology dominance.

TRUMP: We have a tremendous intellectual property situation going on. So,
we`re going to get it taken care of. And frankly, it`s going to make us a
much stronger, much richer nation.

TAUSCHE: The action comes as the U.S. is imposing tariffs on all imports
of steel and aluminum with certain allies and products exempted, and on top
of tariffs on Chinese made solar panels. U.S. exporters including soybean
farmers, pork producers, and aircraft maker Boeing are bracing for a
counter-punch from China, which says it will take all necessary measures to
safeguard its interests.

U.S. Trade Representative Robert Lighthizer told lawmakers that kind of
retaliation is unfair but doesn`t change things.

ROBERT LIGHTHIZER, U.S. TRADE REPRESENTATIVE: It`s not possible to take
the position that because we are soybean farmers, we`re not going to stick
up for our rights in a whole variety of ways and have hundreds of billions
of dollars worth of exporters and domestic producers be punished because of
unfair trade.

TAUSCHE: There CEO of engine maker Cummins, Tom Linebarger, fears the
administration`s approach is leading to a trade war.

TOM LINEBARGER, CEO CUMMINS: We agree there are challenges in China. We
just want to address it in a different way, a way that`s proven effective
over many, many decades, as opposed to unilateral tariffs which have always
proven ineffective.

TAUSCHE: But Commerce Secretary Wilbur Ross says those fears are
overblown.

WILBUR ROSS, COMMERCE SECRETARY: I think there will be some ultimate
retaliation, but I don`t think it`s going to be the end of the earth.
There may be some firing shots over the bow. But I believe at the end of
the day, this will end up in a negotiated settlement.

TAUSCHE: A senior administration official tells me this is just the
kickoff to a set of multiple penalties against China and that further
actions, namely restrictions on Chinese investments in the United States,
could be unveiled in the coming days.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.

(END VIDEOTAPE)

GRIFFETH: And joining us right now to talk more about the new tariffs and
the impact they could have on the markets and the economy, joining us
tonight, Art Hogan. He`s chief market strategist with B. Riley FBR. And
Josh Feinman is global chief economist at Deutsche Asset Management.

Good to see you both.

JOSHUA FEINMAN, DEUTSCHE ASSET MANAGEMENT GLOBAL CHIEF ECONOMIST: Good to
be here.

GRIFFETH: Art, how do you — do you step aside and let things clear out or
do you see opportunities already presenting themselves as a result of these
tariffs being imposed?

ART HOGAN, B. RILEY FBR CHIEF MARKET STRATEGIST: That`s such a good
question. And I think you have to think about that three ways. Yes, I
think we overdo the selloffs, and today was certainly overdone. Can it get
worse before it gets better? I certainly think so.

I think fundamentally this market is underpriced and certainly more
underpriced today than it was yesterday. I think the problem with this is
we don`t know how far our government will go with tariffs down the road to
trade wars versus using this as a negotiating tactic.

And it really feels like — I think — you know, I think Secretary Ross
just said that. We hope to get a negotiated settlement. That`s the best
case scenario. Unfortunately, unintended consequences can creep up on us.

So, until something like that turns economic and actually slows the economy
down. I`ll give you a great example. NAFTA, if we walk away from those
negotiations, we`ll lose a half a percentage GDP growth this year. That`s
something we need to make sure we accomplish. And the same thing would be
true we got an extended trade war. That would be very bad for the economy.

HERERA: Josh, weigh in on that if you would, because you say that although
a benign outcome is certainly is not guaranteed, the realistic economic
impact may be smaller than perhaps what Wall Street is fearing.

FEINMAN: Yes, you look at the move today, while I think ill-advised, it
affects a very small part of the U.S. economy. You are talking about less
than less than three-tenths of 1 percent of GDP, even if you get some
retaliatory measures from China and not likely to have big macro
repercussions. And if this is just a negotiating gambit, OK, it will be
fine.

The worry, though, is that it could escalate into something more and it
also that reflects a protectionist mindset, this view that somehow trade is
a zero sum game, trade deficits are a sign of weakness and foreign
malfeasance. And I think that`s deeply misguided view and one that ignores
the tremendous benefits that it accrued from the post-World War II free
trade order, and the damage that could be done undermining that, and the
damage that has been done in the past from protectionist forays. So,
that`s the worry that I have.

GRIFFETH: Josh, at this point, we have not had the kind of inflation that
the Fed might be hoping for oddly enough as they start to raise interest
rates. If we impose these tariffs down the road, that could bring the
inflation back, don`t you think?

FEINMAN: It could. It depends on the scope of the tariffs and so forth.
It would likely be a short-term bump up, though. What — not likely to
have the kind of lasting effects on inflation to get inflation back up to 2
percent by itself.

HERERA: So, Art, if you have a long term time horizon as an investor, you
have a confluence of events that are going on, where you have the tariffs
going into effect. You have Facebook and social media under fire possibly
facing some regulation. What do you do? Do you put new money to work in
those sectors because they come down so much or not?

HOGAN: I think you asked the question the best way we should ask that
question. If your time horizon is as a long term investor, a lot of this
is noise and we won`t be talking about it next year. Unfortunately, you
know, in the news cycle that we`re in, we`re going to be talking about
these things on a minute by minute basis.

So, for example, I think we will see an administration that says these
trade wars or these tariffs have adversely affected the economy and the
market. Remember, they like use the market as a score card and you will
see a pull back from that. I think regulation is probably good for social
media. I think it`s the Wild Wild West. I think it needs some. I think
we`ll see those valuations get replaced by perhaps the more normal towards
what they`re doing and I think we`ll be fine with that.

Right now, there is going to be volatility. There is more volatility this
year than we have seen in any given year for the last ten years, right?
So, if that makes you stay up at night, then your exposure of the market is
probably a little too high and you should think about ratcheting it down.

GRIFFETH: And quickly, Josh, if this is a headwind for the economy, does
the Fed have to rethink its plan for raising interest rates later this
year?

FEINMAN: If it were a serious headwind, yes. I think based on what we`ve
seen so far, it`s likely not to turn into that. But that`s the risk. And
we`ll just have to be watching it very carefully. When you rattle trade
savers, you know, you run the risk of unleashing the adverse economic
consequences.

GRIFFETH: Josh Feinman with Deutsche Asset Management, Art Hogan with B.
Riley FBR — thank you both for joining us tonight.

FEINMAN: Thank you.

HOGAN: Thank you.

HERERA: In Washington, the House passed a $1.3 trillion spending bill, the
2,200-page legislation will fund the government until October. It will
increase military spending and a number of domestic programs. The measure
now heads to the Senate where it is expected to pass with bipartisan
support. And the president said that he will sign that bill once it
reaches his desk.

GRIFFETH: Meanwhile, a key congressional committee has asked Facebook CEO
Mark Zuckerberg to testify about that data scandal that improperly accessed
personal information of about 50 million Facebook users. That pressured
the stock again today. It`s now down more than 10 percent over just the
past week.

Julia Boorstin talked to Facebook executive Sheryl Sandberg today about the
controversy and what she plans to do next.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: With Facebook
shares down 10 percent this week, chief operating officer Sheryl Sandberg
weighing in on the data privacy scandal that`s raised concerns of users,
investors, regulators, and advertisers.

SANDBERG: This was a huge breach of trust. People come to Facebook every
day and they depend upon us to protect their data. And I`m so sorry that
we let so many people down.

We spent the last few days trying to get to the bottom of what happened.
Cambridge Analytica never should have had this data. They told us they
deleted it. But it is our mistake that we did not verify that.

Years ago, we changed platforms so apps get much less data. But that
really wasn`t enough.

BOORSTIN: With advertiser Nestle today raising questions about consumer
privacy, Sandberg stressed their business model does not put consumer data
at risk.

SANDBERG: We provide a free service. That`s an ad-based business model.
And in order to do that, we do not sell your data. We are able to show
targeted advertising that`s relevant to people. We`re able to give
advertisers aggregate anonymous reports, never telling them who you are.

We believe that we can operate our service with our current business model,
continue to provide a free service all around the world, and protect
people`s data. But we are going to have to earn that trust.

BOORSTIN: Sandberg saying she wished that she and CEO Mark Zuckerberg had
weighed in on this controversial issue sooner. She also said that they are
laying out strong steps to prevent this from ever happening again and they
are working to earn back consumers` trust.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Menlo Park, California.

(END VIDEOTAPE)

HERERA: J.P. Eggers joins us now to discuss what a regulated Facebook
would look like. He is a professor of management at New York University`s
Stern School of Business.

Professor, welcome back. It`s always good to have you here.

J.P. EGGERS, PROFESSOR OF MANAGEMENT, NEW YORK UNIVERSITY`S STERN SCHOOL OF
BUSINESS: Thank you very much.

HERERA: You know, one of the clips that was not in Julia`s piece was the
question of regulation. And Ms. Sandberg basically was open to the concept
of regulation, as was Mark Zuckerberg yesterday, which surprised a lot of
people. It seems to me they think it is a foregone conclusion that that is
coming their way.

What do you think?

EGGERS: Well, I think the recognition in a there is obviously been this —
as Ms. Sandberg said, kind of a breach of trust and the implications that
the government and policymakers may want to try and weigh in on that and
the implications of that, I think this becomes real question, can Facebook
kind of help to co-create the regulations that would be put in place that
would govern some degree of control over both advertising and the
management of social media on line? To me, the real question is, you know,
how deep those regulations would actually go if they were to be put in
place, and how enforceable they would be.

There`s been discussions around things like transparency in advertising.
But it`s unclear how that would work, who would verify that, how that would
be done in any way that would be reliable. Certainly, the government
doesn`t have the resources to go do that, and it`s not on Facebook`s
interest to take on that responsibility.

GRIFFETH: You anticipated my question, J.P., because I was going to ask
what exactly you need to regulate. And Mark Zuckerberg acknowledged that
it was transparency in advertising that he felt would be the target there.
But it`s not going to be just about Facebook. We`re talking about perhaps
all social media that would be subject to these regulations, right?

EGGERS: Social media and just kind of online media in general. Look, I
mean, Google is one — Google is the biggest seller of advertising online.
And if we are talking about ways to try and regulate transparency in
advertising, it would certainly affect Google at least as much if not more
than it would affect Facebook in this way. Obviously, those two big
players are going to feel kind of a disproportionate volume of any sort of
regulations that gets put in place because they are the main ones who are
selling ads online.

But, yes, I think this is the way in which Mark Zuckerberg is trying to
push for this co-creation. You never want the regulators to come just
after your business. You want them to be coming after the entire sector so
that there`s a level playing field as close as possible for all the firms.

HERERA: Now, a number of these companies, obviously, do business globally
and different countries have different rules about how they can function in
their countries. The European models are much more conservative than the
U.S. regulations. Might the companies try and avoid regulation by adopting
some of those European regulations or European rules?

EGGERS: I think certainly the risk would become that if — if the
companies resisted this sort of regulation, that the most stringent form
available might be the one that`s put in place, which would definitely be
bad for their business. The ability to engage in micro-targeting, even if
they`re not selling data externally, but to help and facilitate micro-
targeting for advertisers is a huge portion of what makes Facebook
successful. And to the extent that there are data privacy limits that go
beyond simply disclosure of how your data is used, but actual regulation of
exactly how the data could and couldn`t be used, that would be much more
significant for Facebook`s bottom line.

HERERA: All right. J.P. Eggers, thanks so much for joining us again.

EGGERS: Thank you.

HERERA: J.P. is with the New York University`s Stern School of Business.

GRIFFETH: By the way, Commerce Bank and Mozilla are temporarily pulling
their advertising from Facebook because of this user data controversy.
Commerce Bank cited brand safety and data security. And in a blog post,
browser maker Mozilla said despite promises from Facebook executives, it
takes issue with the social media company`s default privacy setting.
Mozilla said that when Facebook takes stronger action in how it shares
customer data, it will consider returning.

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

The auto parts maker Visteon was downgraded two notches to underweight from
overweight at Morgan Stanley. That`s Wall Street`s only sell rating on the
stock. The firm says Visteon could be an acquisition target but the level
of insider selling suggests the deal is unlikely in the near term. Price
target was cut to $110 a share. The shares dropped 6 percent to $113.45.

Trivago shares were cut to underweight from neutral at J.P. Morgan. The
analyst there says its hotel search business remains challenged. The price
target is now $8. Trivago shares fell 5 percent to $7.40 — Bill.

GRIFFETH: J.P. Morgan also downgraded online car shopping service provider
TrueCar to under weight from neutral. The firm is concerned about weak
automotive industry trends overall and the price target, they cut down to
$10 a share. The stock fell 1 percent to $9.80, just below that.

Ralph Lauren`s rating was raised to outperform from market perform at Cowen
and Company. The analyst says that the luxury brand growth could
accelerate as a result of its marketing and digital strategy. The price
target was raised to $122 a share. Shares, though, were down along with
the rest of the market, closing 1 percent lower to $107.66.

HERERA: Still ahead, Nike just does it, reporting better than expected
earnings. And that could set the tone for trading tomorrow.

(MUSIC)

GRIFFETH: Late today, cloud storage company Dropbox priced its IPO above
expectations. According to CNBC, the highly anticipated offering priced at
$21 a share. The range was anywhere between $18 and $20. Dropbox is
expected to start trading tomorrow. It will be the largest tech IPO since
Snap started trading more than a year ago — Sue.

HERERA: Bill, the Dow component Nike reported better than expected
earnings and revenue fueled by growth in its international sales and its
momentum in China. The CEO said he sees a sales slump though in the U.S.
reversing. And that sent the stock initially higher in afterhours trading.

Courtney Reagan has more on Nike`s results.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nike`s strong
third quarter results driven by strong international sales. Sales coming
in stronger than expected in Europe, greater China, and Asia Pacific,
though Nike`s North America`s sales disappoint.

CEO Mark Parker says sales direct to consumers rather than through retail
partner like a department store grew double digits internationally, with
China leading the way. It is been a difficult week for Nike after Parker
sent a memo to employees revealing allegations of inappropriate workplace
behavior had been reported and two executives left in the wake of that
announcement, though Nike didn`t directly tie them to those allegations.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: Chip maker Micron beats expectations. And that`s where we begin
tonight`s “Market Focus”.

After the bell, the company said that broad-based demand for its memory and
storage products led to a strong quarter. The company expects that to
continue. That`s why it gave guidance for the current quarter above
estimates. Shares were volatile in the after-hours. They finished the
regular session, though, down more than 3 percent at $58.92.

Higher selling prices helped earnings topped estimates at home builder KB
Home. Orders rose and they were also stronger than expected. But
investors focused on revenue which came in late. Shares were volatile in
after-hours and finished the regular session down 3 percent at $28.84.

Darden said that an increase in the number of restaurants in operation
helped profits topped expectations. The owner of Olive Garden and LongHorn
Steakhouse said that it raised its earnings guidance for the rest of the
year. Overall sales, though, were a sore spot for this quarter. They rose
less than anticipated. Darden shares off nearly 8 percent today to $85.94.

HERERA: New product launches helped G-III apparel grow sales and profit
above street expectations. But the owner of brands like Tommy Hilfiger and
Calvin Klein gave guidance for 2019 that was below street estimates.
Shares of G-III plunged 12 percent today to $33.01.

Carnival said a rise onboard spending helped that cruise line topped both
sales and profit expectations. The company said demand remains strong.
Carnival shares fell 1 percent to $66.20.

GRIFFETH: Coming up, AT&T spars with the U.S. government. At stake, $85
billion, and Time Warner. We head to court, next.

(MUSIC)

GRIFFEH: The biggest antitrust case in a generation is finally gotten
underway. The Justice Department, as you know, is suing to block AT&T`s
$85 billion merger with Time Warner.

Hampton Pearson is at the courthouse for us tonight — Hampton.

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Bill, this
was like really opening day of that long awaited legal battle between the
Department of Justice antitrust and AT&T Time Warner. Opening arguments
attended by, among others, AT&T`s CEO Randall Stephenson, as well as his
Time Warner colleague Jeff Bewkes. What they heard once they were in court
is the government in essence saying that this merger would see consumers
paying higher prices and less innovation going forward for all of the video
however they choose to receive it, whether it`s on a TV, smart phone, or
tablet going forward.

The lead government lawyer even said in court that AT&T would use Time
Warner as a weapon against its competitors and to some degree against
consumers in future negotiations going forward because Time Warner is
considered to be must-have content.

On the flip side, AT&T says the government has it backwards. They have to
get in the game because of the likes of Facebook, Netflix, Amazon and
Google that are getting more and more subscribers in their online formats
and frankly twinning to win the war with advertisers. This trial is
expected to last six to eight weeks. We`re just getting started.

GRIFFETH: All right. Hampton Pearson for us in Washington tonight —
thank you, Hampton.

And there`s more sad news from the Toys “R” Us world tonight. The founder
of the toy retailer has passed away at the age of 84. The great Charles
Lazarus, he founded the company 70 years ago. He rightly anticipated that
the post-war baby boom would create demand for baby supplies and toys.
Boy, was he right.

He remained CEO of the company until 1994, and the man who succeeded him
called Charles Lazarus the father of the toy business.

HERERA: Before we go, here`s another look at today`s selloff on Wall
Street. And it accelerated as we went into the close. The Dow Jones
Industrial Average finished down 724 points to 23,957. The Nasdaq lost
178, almost 179 points to 7,166. And the S&P lost 68 points.

So, quite a day on the street.

GRIFFETH: Indeed.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.

END

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