Transcript: Nightly Business Report – April 3, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Snapback. Stocks find
their footing and rally higher, recouping much of yesterday`s sharp losses.

Whipsawed. Amazon (NASDAQ:AMZN) shares go on a ride as the president
criticizes the company yet again. So, if you`re an investor, what should
you do.

And, spot on. Meet the two freshly minted billionaire founders of Spotify.

All that and more tonight on NIGHTLY BUSINESS REPORT for this Tuesday,
April the 3rd.

And we bid you good evening, everybody. I`m Bill Griffeth. Sue has the
evening off.

Stocks bounced back on Wall Street today, shaking off at least for now
those concerns about a trade war. Technology shares also stabilized.
Amazon (NASDAQ:AMZN) was a bit of a catalyst with the broader market
seemingly mirroring the online retailer`s every move. We`ll have more on
Amazon`s interesting day a little bit later in the program.

Another focus today, the debut of online music service Spotify. Now, this
is a bit of complicated story. This was a direct to market offering,
meaning that insiders sold their own shares.

This was not a traditional IPO where new shares are created for public
consumption. So, the 13 percent gain that you see was from what is known
as a reference price set by the stork stock exchange, and that was at $132
a share. Today`s opening price actually turned out to be the high of the
day at $165.90.

Another thing to keep an eye on late in the day, police responded to an
active shooter situation at Google`s YouTube headquarters in San Bruno,
California. Several injuries were reported. And a female suspect was
reportedly killed.

As for the markets, here are the final numbers for this Tuesday: the Dow
rose 389 points, putting us back above 24,000, the Nasdaq climbed by 71,
and the S&P added 32.

And while stocks did take a break from tariff and technology concerns,
there is another issue on the horizon for investors to keep on their radar.

As Bob Pisani tells us now, we are entering a period known as the midterm
slump.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Traders already
concerned about trade wars and high-tech valuations are also eyeing a
seasonally unsettling phenomenon called the midterm presidential cycle
slump. Yikes.

The two quarters we are now entering leading to the November midterm
elections are the worst two quarters of the entire 16 quarter presidential
cycle, four years. Since World War II, they are the only quarters that
average successive declines for the S&P 500, falling 2.2 percent and 0.9
percent respectively.

Now, why is this happening? Is this a factor in the current weakness we
are seeing? Well, it happens because of uncertainty. The first year of a
president`s term, the president is setting an agenda, passing legislation.
But once you get into the second year, the administration gets more
cautious because there is anxiety and uncertainty around the midterm
elections. So, there is not a lot of good news to be built into share
prices.

Here`s the good news. The trading activity around the actual midterm
elections, that`s in November are typically bullish. The stock trader`s
almanac knows that the Dow has gone an average of 2.7 percent during the
eight trading days around the November elections, going back to 1934. But
there is a long way between now and November, lots of volatility.

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

(END VIDEOTAPE)

PISANI: Now, the fear over a possible trade war that has ruffled feathers
in the market recently stems from the uncertain fallout for companies that
could be affected. But there`s also an economic impact. And Steve Liesman
takes a look at that for us tonight.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ask an economist
what kind of economic impact to expect from President Trump`s protectionist
trade policies and there`s almost no chance here he will muse about the
upside benefits. Said Joel Prakken, chief U.S. economist of macro advisers
by IHS (NYSE:IHS) Markit, quote: The concern, of course, is that it
escalates into something worse and that concern is being reflected in
equity valuations, which constitutes a new set of initial financial
conditions that could weigh on the forecast if they persist.

So far, the best forecast is that at current levels , the new trade tariffs
will have only a modest impact on growth. But J.P. Morgan`s chief U.S.
economist Mike Feroli says, quote: We`ve got a hard time pinning down a
specific GDP number for the impact of tariffs on the economy. We don`t
really have a sense of how bad the policy developments can get.

Peter Navarro, the architect of the president`s trade policies, says the
market has it wrong, that it should focus on the positives in the economy
from the president`s tax cuts and other administration policies and not
worry about trade.

PETER NAVARRO, WHITE HOUSE NATIONAL TRADE COUNCIL DIRECTOR: The market is
reacting in a way which does not comport with the strength, the
unbelievable strength in President Trump`s economy. I mean, everything in
this economy is hitting on all cylinders because of President Trump`s
economic policies.

LIESMAN: The trouble is that this is a chess game where the moves are
unclear. If the administration imposes another $60 billion in Chinese
tariffs as it has threatened, and China reciprocates, is that the end or is
there another round to come?

Economists say they can`t gauge the economic impacts until they know the
answer to that and other questions. So, their best bet is think hardest
about the chance that it gets worse from here, not better.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GRIFFETH: By the way, the White House is expected this week to come out
with that list of Chinese products that it will be hitting with tariffs.
And tech is certain to be high on that list.

Josh Lipton tells us why tech has so much on the line and the fallout that
might occur.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. trade chief
Robert Lighthizer says the Chinese aren`t playing fair when it comes to
American tech, that they pressure U.S. tech companies into transferring
their technology to Chinese partners and flat out steal American I.T. That
theft costs the U.S. economy between $225 billion and $600 billion
annually.

There are real world implications of this Chinese theft. For example, in
December, U.S. chip maker Micron filed a lawsuit in San Francisco accusing
United Micro Electronic of Taiwan and a Chinese start-up of conspiring to
steal its technology. Micron alleges that the defendants recruited key
personnel from Micron`s Taiwan unit, getting them to deliver trade secrets,
a bold scheme for the Chinese company to avoid hundreds of millions of
dollars in costs, and months of R&D effort.

ROBERT LIGHTHIZER, U.S. TRADE REPRESENTATIVE: One of the most important
parts of our entire economy is the I.P. protection. It is the extreme
competitive advantage to the United States. And it`s the core of an
enormous number of sectors that you tonight think of quite as high-tech.

LIPTON: And tech will be the next front in the administration`s attempt to
reboot the U.S.`s trading relationship with China. Coming this week,
tariffs on Chinese imports.

Now, we still don`t know which Chinese imports the Trump administration
could target with these tariffs exactly, but Lighthizer suggests the
products could include robotics, machinery, and information technology.

Economist Mary Lovely says U.S.-based tech companies should be concerned.

MARY LOVELY, SYRACUSE UNIVERSITY PROFESSOR OF ECONOMICS: They should be
worried because they depend heavily on global supply chains, particularly
in communications and computers parts. Those are some of the most heavily
fragmented production processes. Their — a lot of their basic production
is located in China and mediated by foreign investment enterprises owned by
the Taiwanese, the Japanese, South Koreans. So, they are very vulnerable.

LIPTON: The tech industry doesn`t want to see tariffs on their goods
because that could only mean increase costs, costs that they will pass
right along to consumers and companies potentially impacting demand.

There`s another possibility, though, that these very tough tariffs on tech
are proposed but never actually go into effect, that they`re just one more
hard-nosed bargaining tactic by the Trump administration as it continues
negotiating with Beijing.

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

(END VIDEOTAPE)

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

Citi Group upgraded shares of U.S. Steel today from buy to neutral. The
Citi analyst saying that following a recent 25 percent pullback in the
stock, he now sees good value and it creates an opportunity for investors.
The price target was raised to $46 from $43 a share. U.S. Steel closed at
$35 event, up more than 2 percent.

Meanwhile, Schlumberger (NYSE:SLB) was raised at SunTrust Robinson Humphrey
to a buy from a hold. The analyst there says that the stock`s roughly 20
percent pullback recently over the past year represents a buying
opportunity. That price target stays though at $80. And today`s shares
finished at $64.79, also up 2 percent.

Loop Capitol cut its rating on GameStop to hold from buy. The firm citing
a lack of positive catalysts ahead for the videogame game retailer. Loop
reaffirmed its buy rating on the company two weeks ago, but last week`s
poor earnings report led to several other Wall Street firms turning more
bearish. Loop also cut its price target to $14, all the way from $26.
GameStop rose 1.5 percent today to $13.01.

And Stifel Nicolaus has cuts its price target on General Electric (NYSE:GE)
to $13 from $15. The firm also slashed GE`s first quarter earnings
expectations, citing continued challenges in its power division. But
Stifel did keep its hold rating on that stock. GE was up a penny today to
$13.13.

Well, the spring sales season has started with a bang for automakers.
March numbers were far better than expected. And once again, it was driven
by America`s growing appetite for pick-ups and crossover utility vehicles.

Phil LeBeau has our story for us tonight.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Forget those stories
about American losing their desire to buy a new car or truck. In March,
sales were well above expectations. General Motors (NYSE:GM) posted double
digit growth as did Fiat Chrysler. And Ford exceeded estimates, thanks to
a big month for its F-series pickups, with the average price paid for each
truck hitting almost $47,000, nearly a record high.

Fact is, demand for SUVs and crossovers is not slowing down. Jeep had its
best month ever, while sales of GM`s crossover utility vehicles soared 41
percent. The strong numbers are due in part to an economy humming along
with low unemployment and high consumer confidence, though slightly richer
incentives also helped convince Americans this is the time to buy.

All of this gave auto stocks a much-needed boost. But the one auto stock
getting the most attention was Tesla. Its first quarter production numbers
were mixed compared to expectations. With the company building fewer Model
3s at the end of March than originally planned.

Still, Tesla expects Model 3 production and deliveries to ramp up over the
next three months and hit a level where the company is bringing in enough
cash that it does not need to raise capital. That was welcome news for
investors, and pushed shares of Tesla higher.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

GRIFFETH: We told you last week of reports that current San Francisco Fed
President John Williams was the top candidate to lead the New York Fed.
Well, today that turned out to be the case. The New York Fed has named
Williams as its next president, replacing the retiring William Dudley.
Williams will start mid-June.

The New York Fed president serves as vice chair of the policymaking
committee and supervises the big money center banks. It is considered one
of the post powerful positions in the whole financial sector.

Up next, President Trump takes more swipes at Amazon (NASDAQ:AMZN), but
it`s not just him. Both sides of the aisle are now swinging at the online
retail giant. So, with such a high-profile tussle going on, what should
you do with the stock? Some thoughts when we come back.

(MUSIC)

GRIFFETH: The president continued his criticism of Amazon (NASDAQ:AMZN)
this morning on Twitter. This time saying, and I quote: I am right about
Amazon (NASDAQ:AMZN) costing the United States Post Office massive amounts
of money for their delivery boy. Amazon (NASDAQ:AMZN) should pay these
costs plus and not have them borne by the American taxpayer. Many billions
of dollars. Post office leaders don`t have a clue, or do they?

And then he followed up later with this.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The Post Office is losing
billions of dollars, and the taxpayers are paying for that money because it
delivers packages for Amazon (NASDAQ:AMZN) at a very below cost. And
that`s not fair to the United States. It`s not share to our taxpayers.

And a report just came out. They said $1.47, I believe, or about that, for
every time they deliver a package, the United States government, meaning
the Post Office, losses $1.47.

So, Amazon (NASDAQ:AMZN) is going to have to pay much more money to the
Post Office. There`s no doubt about that.

(END VIDEO CLIP)

GRIFFETH: All right. Here`s a chart of today`s trading. You can see
shares moved both times the president commented on the stock but then the
stock did spike late today on reports that said that there are no ongoing
talks in the White House about action against Amazon (NASDAQ:AMZN). So, in
the end, shares ended up about 1.5 percent today.

But is Amazon (NASDAQ:AMZN) actually getting a great deal when it comes to
shipping costs?

Our Morgan Brennan did some digging to learn more about the actual deal
between the e-commerce giant and the U.S. Post Office.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Postal Service
and Amazon (NASDAQ:AMZN) have a symbiotic relationship. The USPS has lost
money for over a decade, a big portion from pension and health care related
costs, but also because first class mail, its biggest, most profitable
business, has been nose-diving. Package delivery has been the answer,
growing at double digit rates now account for more than a quarter of
revenue.

And it makes sense since the Postal Service is obligated by law to deliver
mail to every address already. Any deal the quasi-governmental agency
strikes on its competitive products, including parcel select, the last mile
delivery service that Amazon (NASDAQ:AMZN) uses, is reviewed by a group of
independent regulators called the Postal Regulatory Commission to ensure it
makes economic sense. Over the years, the commission has signed off on the
rates being charged.

Here`s where it gets complicated. How do you determine what makes economic
sense, especially when package volumes have surged and when profit from the
mail business, which is a monopoly, has gone toward building out the
broader transportation network. Now factor in retirement costs and that is
how Citi analyst Chris Wetherbee got to the conclusion last year that if
costs were allocated a way a company would, average packages, not just
Amazon (NASDAQ:AMZN), would cost almost $1.50 more to deliver.

That`s the crux of President Trump`s argument — an argument that based on
many variables, including timing, since Amazon`s deal with the Postal
Service is said to be up for renegotiation later this year. It`s
complicated.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the New York Stock
Exchange.

(END VIDEOTAPE)

GRIFFETH: And it`s not just the president who is attacking Amazon
(NASDAQ:AMZN). Lawmakers on both sides of the political spectrum have also
raised concerns about whether the e-commerce giant has gained too much
pricing power over its merchants.

Ylan Mui has that part of the story for us tonight from Washington.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The gloves came off in
president Trump`s battle with Amazon (NASDAQ:AMZN) today. The president
was meeting with Baltic leaders at the White House when he was asked about
the online retail giant. And as usual, Trump did not hold back.

TRUMP: The Post Office is losing billions of dollars, and the taxpayers
are paying for that money because it delivers packages for Amazon
(NASDAQ:AMZN) at a very below cost. And that`s not fair to the United
States. It`s not fair to our taxpayers.

You look at some of these small towns who have a beautiful main street, the
stores are all gone. So, that`s a different problem that we`re going to
have to talk about.

MUI: Fundamentally, the president is arguing that Amazon (NASDAQ:AMZN) is
just too big and too powerful and there are lawmakers from both parties who
agree with him. Republican Senator Marco Rubio recently tweeted that new
economy monopolies will require close monitoring. That sounds a lot like
the rumblings from Democrats and independents as well.

Elizabeth Warren and Bernie Sanders have warned that Amazon`s broad
influence could be anticompetitive. And Senator Cory Booker has asked the
DOJ and the FTC to weigh in on what he called the rising tide of corporate
concentration. Corporate monopolies are generally considered bad because
they allow companies to overcharge for their products, but Amazon
(NASDAQ:AMZN) is getting slammed for lowering prices too much, something
that consumers actually like.

JAMES PETHOKOUKIS, AMERICAN ENTERPRISE INSTITUTE: To violate antitrust
laws just because you`re big. You have to be anticompetitive. You have to
be hurting consumers and nobody is really making that case.

MUI: Amazon`s critics say the company is using its pricing power to
squeeze its suppliers, vendors, and even its workers. But it`s to prove
that`s anticompetitive and not just smart business.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

GRIFFETH: Well, our guest tonight says that the criticism and attacks on
Amazon (NASDAQ:AMZN) could continue to put pressure on the stock near term.
Joining us tonight, Timothy Lesko, he`s principal and portfolio manager at
Granite Investment Advisors.

Tim, good to see you. Welcome.

TIMOTHY LESKO, GRANITE INVESTMENT ADVISORS: Thanks for having me.

GRIFFETH: We should point out, you`re not exactly a bull long term on this
stock. You think it`s expensive, yes?

LESKO: I think it`s expensive from a valuation standpoint. Certainly,
it`s hard to argue with the fact that Amazon (NASDAQ:AMZN) provides a
really good service, most people use them and you see online shopping
continue to grow. So, I wouldn`t say I`m bearish on what Amazon
(NASDAQ:AMZN) does as a business. Just the valuation of the stock doesn`t
make a whole lot of sense to us as value investors.

GRIFFETH: Now, how do you evaluate the attacks, the criticism of the
company and its business model and its business model and its relationship
with the post office? Are those fundamental head winds that investors
should be concerned about, do you think?

LESKO: I think with any company that`s facing pressure from the
government, or perceived pressure from the government, it`s going to create
weak shareholders, you know, possibly running for the hills.

Most people that own Amazon (NASDAQ:AMZN) don`t own it for this quarter`s
earnings or next quarter`s earnings. They own it for what they think
Amazon (NASDAQ:AMZN) is going to do over the next two, five, seven kind of
years. And that`s probably the timeframe where any sort of government
action would take to actually play itself out.

There have been a number of different instances where companies have been
under that kind of pressure. Microsoft (NASDAQ:MSFT) is probably the best
example of which. It almost seems funny now that the government once sued
Microsoft (NASDAQ:MSFT) for giving away web browsers.

So, our guess usually is that a government will be behind what the real
problem is, but it certainly will create shareholder weakness and probably
some stock weakness.

GRIFFETH: All right. But I guess it goes back to fundamentals then. If
this has an impact on company, it will show up in their earnings. Do you
think that`s going to happen?

LESKO: I think it`s hard to see. I think the $1.50 number that people
have been throwing out, if all of a sudden, it costs them another $1.50 to
send out packages, certainly, you could see medium term pressure on
expected earnings. But when a stock is trading at 300 times earnings, it`s
really hard to see what earnings degradations going to do to the stock.
You`d really had to see whether this government pressure put any pressure
on revenue, which is really where the valuation problem also comes into
play.

GRIFFETH: And we should not forget how important the cloud business is to
Amazon (NASDAQ:AMZN). That`s one of their fastest, if not their fastest
growing business right now, right?

LESKO: Right. And that`s really the profitable side of the House, as is
the business where they are actually hosting goods and services online for
other companies. So, it`s hard to say that they`re hurting small
businesses when they actually provide the infrastructure for a lot small
businesses that compete on the Internet. So, it`s a very, very complex
matter. But certainly, anytime the government is making big statements
about a company, it`s going to cause some weakness.

GRIFFETH: Timothy Lesko with Granite Investment Advisors — again, thanks
for joining us tonight, Tim.

LESKO: Thanks for having me.

GRIFFETH: General Dynamics (NYSE:GD) buys CSRA, and that is where we begin
tonight`s “Market Focus”.

The defense contractor said it had reached a nearly $10 billion deal for
the information technology provider. And it comes only one week after
government contractor CACI International (NYSE:CACI) withdrew its own
competing offer for CSRA. General Dynamic rose shares a fraction to
$220.32. Shares of CSRA finished up a tick at $41.23.

CVS (NYSE:CVS) has reportedly submitted its formal bid now to acquire
Viacom (NYSE:VIA). CNBC reports that an independent committee of the CBS
(NYSE:CBS) board offered a bid that is below market value. That committee
also wants its CEO and COO to run the combined company.

As you may know, media mogul Sumner Redstone owns a controlling interest in
both companies. He separated them in 2005. And his daughter Shari has
recently said she would like to see them come back together again.

Shares of CBS (NYSE:CBS) were up more than 4 percent to $52.86. Meanwhile,
shares of Viacom (NYSE:VIA) fell nearly 4 percent to $29.42.

And IMAX is growing its international footprint. The large screen cinema
company said it has signed a deal with one of China`s largest media firms
for 30 new IMAX screens in that country. And with the new deal, IMAX will
operate nearly 900 theaters in China. IMAX shares popped nearly 8 percent
on that news to $21.30 today.

And after the bell tonight, cloud software company Cloudera reported
quarterly earnings and sales that topped street expectations. Those
results were overshadowed though by the company`s disappointing revenue
growth forecast. Shares were punished in the after-hours trading but
finished the regular session up nearly 5 percent at $22.24.

Also after the bell tonight, Dave and Buster`s reported stronger than
expected earnings but delivered same store sales that missed the mark. And
the gaming and restaurant chain also gave weak revenue guidance for the
full year. So, as you might imagine, shares initially fell in the extended
session tonight. They ended the regular session up 1-1/2 percent at
$40.69.

Coming up, the unlikely rise to riches story of Spotify`s founders.

(MUSIC)

GRIFFETH: Here`s a look at what to watch for tomorrow, ahead of the big
jobs report on Friday.

ADP releases its own report on the employment situation, always highly
watched. We`ll get a fresh read on the housing market with the release of
weekly mortgage applications, and a look at whether factory orders are
growing or slowing. And that`s what we`ll be watching for on Wednesday.

Now, as we told you earlier, music streaming service Spotify made its debut
on the New York Stock Exchange today. Shares opened just below $144,
putting the company`s value at nearly $30 billion. And it still means that
Spotify`s two cofounders are now officially billionaires.

Robert Frank takes a look at the founders` rise to fame and how they might
spend their riches.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Spotify cofounder
Daniel Ek always says he didn`t do it for the money. But today`s public
debut of the music streaming service made him a multibillionaire and one of
the richest people in the world under age 40. The 35-year-old Swede owns 9
percent of the company directly and more that twice that through his
investment holding companies. His stake is now worth over $2.5 billion.

His cofounder Martin Lorentzon is now worth more than $3 billion.

Don`t expect any wild celebrations of wealth from either of them. Ek
started his first tech company when he was 14 and made his first fortune
when he was just 23 years old after selling his online ad company
Advertigo. He bought a Ferrari, partied hardy and went to nightclubs, but
the wealth of all those gold diggers left him feeling depressed. As he
told “The New Yorker”, quote, I always wanted to belong and I had been
thinking that this was going to get solved when I had money. And instead,
I had no idea how I wanted to live my life. So, Ek moved to a small cabin
outside Stockholm and eventually came up with the idea for Spotify to
revolutionize music.

Now, he will join the roughly 60 billionaires in the world under the age of
40. He continues his low key life-style, often spotted with his two kids
at the playground or taking them to school.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

GRIFFETH: And before we go, another quick look at the day on Wall Street.
Comeback day, the Dow rose by 389 points, back above 24,000. The Nasdaq
climbed by 71. And the S&P added 32.

That is the NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth.
Thanks for joining us, everybody. 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
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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