Transcript: Nightly Business Report – May 15, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stocks drop as bond yields
rise to their highest level in years. Is this just a test for the market
and investors?

Sluggish sales. Home Depot (NYSE:HD) reports a rare sales miss and the
retailer blames unusual spring snow.

Rolling the dice. Why Las Vegas is going to extremes to attract a younger
crowd.

Those stories and more tonight on NIGHTLY BUSINESS REPORT, he said, for
this Tuesday, May the 15th.

Good evening, everybody. I`m Bill Griffeth. Sue is off tonight.

The Dow`s win streak was snapped today after eight consecutive up days.
One factor may have been the ten-year Treasury yield hitting the highest
level since 2011. Add to that, new hints of inflation, a rise in oil
prices, and fresh political geo tensions.

You had declines across the board today. The Dow fell by 193 points to
24,706. The Nasdaq was off by 59. The S&P 500 was down 18.

Bob Pisani takes a closer look now at the declines on Wall Street today.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two key factors drove
the market selloff. First, after an eight-day win streak, the market is
simply tired. More importantly, inflation concerns have come to the fore
once again. Stocks sold off after the release of two economic reports this
morning before the market opened: retail sales and the Empire State
manufacturing survey.

Now, retail sales rose just about as much as economists expected in April,
but gasoline prices spiked. Meantime, the gauge of manufacturing activity
in New York state showed raw material prices rising to their highest levels
in several years in April. You put the two together, and it rekindles the
same kind of inflation fears the market addressed in February when higher
wage costs caused the Dow to drop 500 points on February 2nd during that
jobs report.

Now, the reaction today, though, was a lot more muted. The yield on the 10
year rose to its highest level in seven years, but the price decline in
stocks was much more modest back in February and volume was not
particularly heavy down here, indicating investors were not rushing to
sell.

So, here`s the key question. Is the shock of higher prices starting to
wear off? How comfortable are investors getting with higher rates? The
economy looks strong in the second quarter if rates are going up because
the economy is good, that`s not as bad if rates are going up solely because
inflation is going up.

The action in the next couple days will be a big test for the markets. Is
this healthy profit taking or are we just rolling over again?

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

(END VIDEOTAPE)

GRIFFETH: Investors were also caught off-guard by North Korea today.
There were reports that that country has indefinitely postponed high level
talks with South Korea which were scheduled for tomorrow. The North
Koreans were reportedly upset about a previously scheduled joint South
Korean/U.S. military drill. It is unclear what impact this may have on
President Trump`s scheduled summit with Kim Jong-un on June 12th.

So, what does all of this mean for the markets?

Joining us tonight, Ken Mahoney, he is here to talk about all of this. He
is CEO and president of Mahoney Asset Management.

Ken, always good to see you. Thanks for joining us.

KEN MAHONEY, MAHONEY ASSET MANAGEMENT CEO & PRESIDENT: Good to see you,
too, Bill.

GRIFFETH: You`re inclined to buy dips like today, right?

MAHONEY: Absolutely.

GRIFFETH: Why?

MAHONEY: I mean, the fundamentals haven`t changed. The real story is
about earnings, earnings, earnings. You know, real estate — location,
location, location. The market has to be about earnings, and the earnings
are very strong.

And companies guided higher for the most part. Companies also have a lot
of earnings because of the tax windfall they have that they can buy back
stocks and pay dividends, all pretty positive for the markets.

GRIFFETH: But the environment`s changing. Rates are going up. I
mentioned the ten year now above 3.07 percent. Does that worry you at all?

MAHONEY: A little bit. Look how we got there. It`s not because of
inflation, it`s because of growth.

Two months ago, people were saying, hey, we get to 3 percent, this market
is going to roll over. Today, 1 percent down, isn`t rolling over so to
speak.

So, you know, again, if it stays up here and goes higher, we`ll have to
watch that, because bonds are competition into stocks. But the same token
if you think about it, just a couple of months ago, we hit 3 percent. The
algorithms are going to start making the market cascade. That didn`t
happen.

GRIFFETH: Geopolitical concerns, the trade issues, none of this we were
talking about last year. It was all about earnings for the most part last
year. Now we have all of these different concerns for the market. What
about those as well?

MAHONEY: Yes, there`s definitely a lot of head winds. You compare, you
know, this year to last year. Last year was an anomaly. Most people
saying, well, this is crazy this year. All of this volatility, we`ve had
two 10 percent corrections in 2018.

Guess what? 2018 is more normal in the market than what happened in 2017.
The biggest draw down we had in 2017 was only 3 percent. You do expect the
head winds. We have this push and pull going on.

GRIFFETH: So, when you get this kind of a dip, what do you buy? What do
you like right now?

MAHONEY: I like technology. I like large cap. Technology because that`s
— we`re still getting top line growth. Companies are still growing their
sales numbers. Most of the other industries are making the numbers because
of EPS, meaning they`re buying back stock, they`re hitting their numbers.

But, really, if you look at technology, they`re still growing in sales and
that`s where the action is.

GRIFFETH: But you`re not betting on the consumer right now?

MAHONEY: No, not at this point. I mean, the consumer staples has been a
laggard. I think there`s some branding thing that`s going on, some
undercurrents.

I like to go with the elitists are. That`s where the action is right now,
it`s technology. Yes, they`re more volatile than most of the other
sectors, but that`s where the growth is and that`s where investors will be
attracted to, is where they`re gong to be some growth.

GRIFFETH: I know you`re investing for growth. A lot of our viewers invest
for income. But with rates rising, it`s tough to find a safe investment
there, relatively safe. Where do you go?

MAHONEY: Well, again, there are those tips. You know, that trade along
with that. There are those different type of investments, ETFs, rising
rates, floating rates type of thing. Those ETFs do give, you know, some
type of immune off those higher rates and lower bond prices.

GRIFFETH: All right. Ken, always good to see you. Thanks for your
thoughts tonight.

Ken Mahoney with Mahoney Asset Management joining us this evening.

Elsewhere, the Treasury Department said today it is ratcheting up sanctions
against Iran by targeting the governor of Iran`s central bank. The U.S.
has designated him a terrorist for allegedly helping move millions of
dollars to Lebanon`s Hezbollah. Sanctions like this are intended, of
course, to further isolate Iran from the global financial system.

High level trade talks between the Americans and Chinese officials get
underway this week. And many expect those discussions to be tough and
difficult.

Eunice Yoon reports tonight for us from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. ambassador to
China, Terry Branstad, says that Beijing and Washington are still very far
apart when it comes to resolving trade tensions. Speaking at a conference
in Tokyo, the ambassador said the Trump administration wants the Chinese to
give them a timetable on how China will open up its markets to U.S.
products.

Ambassador Branstad said boosting the sale of natural gas will be on the
table and he also said the U.S. would consider easing tariffs if China
opened up its markets for cars and especially food. Expectations are high
that negotiators in Washington this week will work out a preliminary deal
that would include greater imports to China of American agricultural
products. China would ditch tariffs on some U.S. farm goods like soy beans
and scale back some non-tariff barriers like quality control inspections.
In exchange, the U.S. would ease restrictions Chinese telecom`s companies
ZTE, which has effectively stopped operations because of a U.S. sales ban.

The deal also could encourage the commerce ministry here to restart its
review of Qualcomm`s acquisition of NXP of the Netherlands. That review
had been stalled because of the Chinese.

I spoke to the chair of the American Chamber of Commerce here, and he said
that the U.S. business community is concerned about a potential missed
opportunity. He says there`s a fear that the focus on cutting the trade
deficit and the reprieve for ZTE could become a distraction from the larger
structural issues, like market access and fair reciprocal treatment.

And with President Trump watching China on his side for his upcoming summit
with North Korea`s Kim Jong-un, there`s a worry here that the Trump
administration could rush a deal without addressing those concerns.

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

(END VIDEOTAPE)

GRIFFETH: Home Depot (NYSE:HD) was one of the worst performing stocks in
the Dow today. Shares fell more than 1 percent after the home improvement
retailer reported a rare quarterly sales miss.

Courtney Reagan has more on Home Depot`s results.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Unseasonable
weather kept consumers from spending on garden supplies and outdoor
merchandise during a time when spending on those items is typically high.
Gardening supplies and outdoor make up about 20 percent of Home Depot`s
first quarter sales.

The weather hit hardest in April, which the company said was one of the
coldest and snowiest Aprils in 20 years.

BRIAN NAGEL, OPPENHEIMER & CO.: I don`t think it`s nearly as bad as it
looks because we had a slow start to spring and this is coming off of two
years where there really wasn`t much in the way of a winter. Once the
weather turned, sales picked up.

REAGAN: In fact, Home Depot (NYSE:HD) said many comparable sales are up
double digits just a little bit more than 2 percent in April. Good news,
the company says May is the most important month for gardening.

Home Depot (NYSE:HD) executives express confidence that sales lost in the
first quarter will get picked up in May, June and July and as a result
reiterated its full year forecast.

While outdoor categories missed the mark, the rest of the store did well.
Sales of items $900 and above grew 10 percent. Sales of appliances
increased double digits including now higher priced washing machines
because of tariffs and the company tells me consumers aren`t changing their
buying behavior as a result of those higher prices. Lumber is still
selling even with prices at historic highs.

But perhaps most important to Home Depot`s continued outlook is the
continued strength of the U.S. housing market. Even as mortgage rates move
higher, the national average is still below the historic average and the
affordability index accounting for local housing market differences remains
well above the level Home Depot (NYSE:HD) considers a red flag.

NAGEL: Home Depot`s one of the best run companies out there. I think it`s
very well positioned in a growing sector.

REAGAN: While investors may have been disappointed with today`s results,
many analysts are looking past it and see longer term growth.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

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

Ford`s rating was cut to neutral from overweight at Piper Jaffrey. The
analyst there says the automaker is not doing enough to become a leader in
the autonomous driving industry. Price target, $12. Shares rose
fractionally today to $11.22.

Shares of CBS (NYSE:CBS) were upgraded to outperform from market perform at
Bernstein. The analysts cite the low merger with Viacom (NYSE:VIA). Price
target, $65. Shares rose more than 1 percent today to $54.42.

And the Gap (NYSE:GPS) was upgraded to outperform from market perform by
the Telsey Advisory Group. The analyst cites recent traffic gains in the
retailer stores and the stock`s valuation. Price target there is now $39.
Shares finished up 2.5 percent to $31.16.

And Tesla`s price target was cut today by an analyst at Morgan Stanley
(NYSE:MS) who had been a long-time Tesla bull. The firm cited the
continued trouble in the electric car maker`s production process for is
Model 3 sedan. Price target now, $291. And, by the way, there are reports
tonight that Tesla will be temporarily shutting down its Model 3 production
line to make some fixes. The stock today off more than 2 percent to
$284.18.

Still ahead, the land of the driverless cars.

(BEGIN VIDEO CLIP)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Phil LeBeau in
Chandler, Arizona. This is Olli, autonomy electric shuttles, one example
of self-driving vehicles being developed in the Phoenix area. Why is it
the hot bed for those types of vehicles? That story when NIGHTLY BUSINESS
REPORT returns.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: Seattle`s city council has passed a new tax that will be levied
on big companies located there. The tax is estimated to raise about $48
million annually. The revenue will help fund homeless services and
affordable housing.

Seattle-based Starbucks (NASDAQ:SBUX) was critical of that law. Amazon
(NASDAQ:AMZN) said it was disappointed adding that the city doesn`t have a
revenue problem. It simply has a spending efficiency problem.

Well, as auto and tech industries race to develop self-driving cars,
testing the technology is no longer happening solely in Silicon Valley. In
fact, an emerging hot spot is in Chandler, Arizona, just outside of
Phoenix.

Phil LeBeau takes a look at why the Valley of the Sun is heating up for
self-driving cars.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Drive around Chandler,
Arizona, and you`ll see them with regularity. Self-driving Chrysler mini
vans being tested by Waymo, formerly known as the Google (NASDAQ:GOOG)
self-driving car project. These Waymo vans along with self-driving cars
being built at Intel (NASDAQ:INTC), chips and processors from NXP for the
brains behind the wheel and Olli autonomous electric shuttles have all made
suburban Phoenix their home.

Olli`s manufacturing plant here in Arizona is part of a larger push by
state and local leaders to make the Valley of the Sun a center for
developing autonomous drive vehicles.

MAYOR JAY TIBSHRAENY (R), CHANDLER, ARIZONA: The reaction in my community
has been really, really good. They like that we`re involved with this, the
autonomous vehicle companies.

LEBEAU: While Arizona has embraced driverless cars by adopting less
stringent rules and actively recruiting the development of these cars, a
fatal accident involving an Uber test car driving in autonomous mode raises
the question, is the Valley of the Sun too exposed to this future
technology?

For now, residents in Chandler are not overly concerned with the surge of
driverless cars on their streets.

UNIDENTIFIED FEMALE: You know, I`m intrigued by it. I won`t say I`m
freaked out by it. I don`t trust them entirely.

LEBEAU: Doesn`t scare you at all?

UNIDENTIFIED MALE: Not at all, not one bit. I`m actually up for it. If I
could, I`d say push harder, you know, let`s bring it out a little more, you
know?

UNIDENTIFIED MALE: Because they seem to go with the flow and I`m
comfortable with that. I figure probably the safer car of all of the ones
out there.

LEBEAU: A future without drivers now driving the future of the Phoenix
area.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chandler, Arizona.

(END VIDOETAPE)

GRIFFETH: Pfizer`s anemia treatment gets the green light, and that`s where
we begin tonight`s “Market Focus”.

The FDA approved that drug which is almost identical, by the way, to
treatments made by Amgen (NASDAQ:AMGN) and Johnson and Johnson. The drug
is intended to treat anemia caused by chronic kidney disease or
chemotherapy. Pfizer (NYSE:PFE) hopes to make the medication available
this year sometime.

Shares of Pfizer (NYSE:PFE) were off a fraction today to $35.69.
Meanwhile, shares of J&J and Amgen (NASDAQ:AMGN) also fell on that news.

Tyson Foods (NYSE:TSN) is buying assets from the company American Proteins
that will help it recycle more animal products to use in feed and pet food.
The meat producer said that the $850 million deal will increase its
presence in the animal feed business and also help reduce greenhouse gas
emissions. Shares were off a fraction today to $67.28.

Vodafone says its chief executive is going to step down after ten years of
the telecom company. He will be replaced by the current CFO. Vodafone
shares fell more than 4 percent of that news to $27.04.

And Chinese regulators have okayed the $8 billion merger now of
semiconductor makers Microchip and Microsemi (NASDAQ:MSCC). That clears an
antitrust hurdle for those two companies. The approval means it is more
likely now that the deal will in fact close.

Microchip shares were off a fraction to $93.36. Shares of Microsemi
(NASDAQ:MSCC) rose a percent to $68.55.

You know, recycling your used paper and plastic could end be up costing you
more money. According to “The Wall Street Journal”, U.S.-based recycling
companies made money for years by shipping goods to China. But Chinese
officials recently halted those shipments because of contamination concerns
and that, in turn, has forced some cities in the U.S. to charge residents
more to recycle goods that may now just end up in a landfill somewhere.

Bob Tita did the reporting for “The Journal” and he joins us tonight to
talk about this.

A fascinating story, Bob. I had no idea the Chinese soaked up that much of
our recycled over, what, the last 20, 25 years, right?

ROBERT TITA, WALL STREET JOURNAL REPORTER: Yes, that`s right. This has
been going on for a number of years, since the `90s. China has taken
enormous amounts of scrap paper, cardboard, old plastic containers and
turned them into new materials that have sort of fueled their economic boom
in the last 20 years.

GRIFFETH: But what we sent them wasn`t always perfectly recyclable. For
example, there were still pizza slices in pizza boxes and food and other
things in here. So, they are calling foul and saying they want a pure
recyclable shipment, is that the idea?

TITA: That`s correct. For years, the sort of goal was to push as much
through the system as possible and the more we pushed through, the lower
the quality got and waste materials, household garbage, food items got
mixed in and that all got sent overseas and was discovered when the Chinese
started to take it apart over there. And as the years went by, they just
got tired of it and said, enough, we`re not going to take all of this trash
because then we have a disposal problem over here.

GRIFFETH: Right.

So, OK, as I mentioned, cities are now starting to charge more to recycle.
Sometimes it goes to a landfill now. Does it make sense economically now
to recycle? What`s going to happen here, do you think?

TITA: Well, I think what`s really happened is you`re still going to see
recycling. Recycling is here. It`s been around for over 20 years. These
curbside programs, that`s going to continue.

The real challenge is to sort of find new markets and to clean up the
material that we`re collecting right now.

GRIFFETH: And is this — it occurred to me, probably occurred to you as
well, is this only a negotiating tactic for the Chinese as part of our
trade disputes going on right now?

TITA: Well, I — I don`t think it`s completely trade related. Perhaps
some of it is. I think even people in the recycling industry, in the waste
hauling industry, will concede that this trash in the recyclables is a
problem. It`s a problem that has been getting worse and the industry has
kind of known about this for years.

But as long as the Chinese kept buying it and taking it, there wasn`t
really a whole lot of concern or immediacy to deal with it.

GRIFFETH: So the lesson is leave the pizza out of the pizza box, Bob?

TITA: That`s correct.

GRIFFETH: Thanks for joining us tonight. Appreciate it very much.

TITA: Thank you.

GRIFFETH: Bob Tita with “The Wall Street Journal” tonight.

Coming up, the big bet Las Vegas is making on millennials.

(MUSIC)

GRIFFETH: Officials in Nevada say they are not worried about yesterday`s
Supreme Court ruling that overturned that ban on sports betting in most
states. In fact, they say Las Vegas where sports betting is already legal
could benefit. That`s because Sin City is going attract a younger crowd.

Contessa Brewer reports for us tonight.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Las Vegas is
seeing a record number of visitors and they`re getting younger and younger,
but they`re not necessarily coming to gamble.

UNIDENTIFIED MALE: I didn`t smoke inside because I can`t do that at home.

BREWER: The concerts and the clubs, the restaurants and the pool parties
are a big draw. Wynn Resorts (NASDAQ:WYNN) host celebrity DJs and
residents. Marshmallow really draws the 20-somethings in. Chainsmokers
draws in the older millennial crowd, those who are hitting their career
stride and may have more money to spend.

The MGM Grand caters to a crowd craving a cool social experience, part
arcade, part sports bar, part casino.

Would you ever play the slots?

UNIDENTIFIED MALE: No. I like card games.

UNIDENTIFIED FEMALE: I don`t like slots (ph).

BREWER: That presents a challenge, but casinos are betting technology can
change that.

MARK FRISSORA, CAESAR`S CEO: In our new casino of the future that we`re
rolling out is called CX3. We actually have worked with a lot of the game
manufacturers and we`re introducing slot product that allows you to plug
your phone in, automatically it recalibrates to the game you were last at,
and then shows you a leaderboard and where you rank on that leader board.
So, much more interaction.

BREWER: Just this month, Nevada approved Gamblit Games` TriStation game
machine. It offers different game choices. I tried out “Into the Dead”, a
zombie game that has more than 40 million mobile downloads.

ERIC MEYERHOFFER, GAMBLIT GAMES CEO: In our case a lot of the players that
played the game weren`t even expecting to play. They were walking by and
they saw something that was interesting to them that they thought they
would try playing, and that`s new revenue in our — for the casino floor
itself.

BREWER: Gamblit`s multi-player machines will soon offer games a lot of
people will recognize, Pacman, Deal or No Deal, you know, this game Cut the
Rope, it`s been downloaded more than a billion times.

So, imagine you`re walking through the casino and you see a game you`ve
spent way too much time playing on your phone. You think, yes, I can
master this. Viola, you`ve turned someone with no interest in the slots
into a gambler.

MEYERHOFFER: We`re super please to report. The average age of our players
is 35, 36, which is a 20-year shift for what you see of average electronic
game players.

BREWER: And don`t forget sports. Vegas is rapidly becoming a sports town.
Visitors of all ages stream in to see the Golden Knights, and esports,
that`s competition in video gaming, draws massive young crowds to a first
of its kind dedicated arena at the Luxor. And with the way cleared now for
legal sports gambling, what happens in Vegas won`t stay here.

In Las Vegas, Contessa Brewer, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: Now additionally, some have said that the Supreme Court ruling on
sports betting could increase the value of some sports teams. In fact,
today there were reports that a hedge fund manager is close to paying a
record amount for an NFL franchise.

Robert Frank has that story.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hedge fund
billionaire David Tepper`s purchase of the Carolina Panthers for $2.2
billion sets a new record for the NFL and ties him for the highest price
ever paid for a sports team. Based on the economics of sports, team values
showed no signs of slowing.

Tepper paid the same price for the Panthers that Tilman Fertitta paid for
the Houston Rockets last year, which is more than 25 times the purchase
price in 1993. That blows away the previous record price for an NFL team,
easily passing the $1.4 billion paid for the Buffalo Bills in 2014. There
are now 87 sports teams in American worth at least $1 billion and the list
is growing.

The premium for live sports in an increasingly fragmented media world is
part of the reason, but the growing number of billionaires who want trophy
assets that generate cash, status and membership in an exclusive club is
the main driver of prices.

When Steve Ballmer paid $2 billion for the L.A. Clippers in 2014, it was
nearly four times the previous record for an NBA team. And many say he
overpaid. Forbes now puts the team`s value at $2.2 billion.

Now, the Dallas Cowboys are still the most valuable team in sports, with an
estimated $4.2 billion, according to Forbes, followed by baseball`s Yankees
and soccer`s Manchester United, both at $3.7 billion.

Now, Tepper owns 5 percent of the NFL`s Pittsburgh Steelers worth an
estimated $2.25 billion. And he needs to put up 35 percent of his cash to
buy the Panthers. He`ll be selling his stake in the Steelers for $120
million. So, he`s only around $540 million to buy the Panthers.

And Tepper is worth $11 billion, so the deal will still give him plenty of
cash to change all of his Steelers jerseys to blue.

Robert Frank, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GRIFFETH: Finally tonight, the man who first called Wall Street bond
traders “masters of the universe” has died. Author Tom Wolfe famously
chronicled American power and greed in his classic novel “The Bonfire of
the Vanities”. He also immortalized the original Mercury astronauts in
“The Right Stuff.” Wolfe also pioneered new styles of writing and his way
with words helped popularized catch phrases like the “radical sheik” and
the “me generation”. Tom Wolfe was 88 years old.

One more look at Wall Street. The minus signs today. The Dow was down 193
points. Nasdaq down 59. The S&P lost 18.

That is NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thanks
for joining us. See you tomorrow.

END

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