Transcript: Nightly Business Report May 24, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: No summit. President Trump
calls off the meeting with North Korea, sending geopolitical shockwaves
through the market.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Going up. That`s where gas
prices are headed. Some say that could hurt already weakening home sales.

GRIFFETH: Disrupting the economy. Technology is fast changing the way we
work and live. And that`s making Federal Reserve officials a bit nervous.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Thursday, May 24th.

HERERA: And good evening, everybody, and welcome.

Investors were caught off-guard when the White House said the highly
anticipated summit with North Korea was canceled. The news pulled down the
major indexes and injected new uncertainty into the market, something Wall
Street doesn`t like.

As stocks moved lower, gold prices, considered a safe haven for investors,
moved higher, as did the defense stocks. By the close, the Dow Jones
Industrial Average dropped 75 points to 24,811, the Nasdaq fell one point
and S&P was down five.

Eamon Javers has more for us tonight from the White House.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: A dramatic set back
in negotiations between the United States and North Korea over that
country`s nuclear program. The president today announcing that the United
States will not participate in the scheduled summit with North Korea on
June 12th in Singapore. The president citing recent comments from North
Korea insulting the vice president and also some saber-rattling between the
North Korean side. The president said the United States military is
prepared to act now if necessary.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I`ve spoken to General
Mattis and the Joint Chiefs of Staff, and our military, by far, the most
powerful anywhere in the world and has been greatly enhanced recently, as
you all know, is ready if necessary.

JAVERS: The president also suggested that he`s talked to the South Koreans
and the Japanese, and they stand really in terms of their military as well.
He also suggested he had an agreement from both countries to pay for the
financial cost or much of the financial costs for any military action that
happens on the Korean peninsula in the weeks and months to come.

The president ended his remarks at the White House today, though, on a more
optimistic note, suggesting that the summit could still happen, could be
re-added to the schedule and also urging Americans not to be anxious about
all of this.

TRUMP: And hopefully, everything is going to work out well with North
Korea, and a lot of things can happen, including the fact that perhaps and
would wait, it`s the possible existing summit could take place, or a summit
at some later date.

Nobody should be anxious. We have to get it right.

JAVERS: The South Korean side meanwhile, expressing some ambivalence about
all of this. They had suggested earlier in the week that there was a 99.9
percent likelihood that the summit would take place. Now that it`s
canceled, there`s some anxiety on the Korean peninsula about what happens
next.

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

(END VIDEOTAPE)

GRIFFETH: Now, as Sue mentioned, after the president called off the
summit, safe haven plays began to rally — most notably, bonds and gold.
Are they good buffers to all the geopolitical uncertainty we`re seeing
right now. And do they belong in your portfolio therefore?

Joining us tonight, Bill Stone, chief investment officer at Stone
Investment Partners. Bill, good to see you. Thanks for joining us
tonight.

BILL STONE, CHIEF INVESTMENT OFFICER, STONE INVESTMENT PARTNERS: Thanks
for having me.

GRIFFETH: It seems the last few years, we haven`t seen much of a safe
haven play amidst all the political uncertainty, but we did today. Why do
you think that is?

STONE: You know, I think today was one of those mixes of a geopolitical
with North Korea involved also drags China in there, too. As you know, we
have the China trade spat, which gets hot at different times. I think it
was all mixed up together. That`s why gold is definitely one more
associated with geopolitical. But I think you`ve got — that`s why you got
that mix of maybe more moving safe haven that we have seen in a while.

HERERA: All right. If this continues to play out the way it did today, if
you`re not comfortable being in gold, are there other safe haven plays that
investors might want to take a look at?

STONE: You know, certainly, if you think this is going to lead to a
downturn in the economy, so say you think it`s going to spark more of a
trade war, bonds aren`t a bad place. I think that`s probably the wrong
play, because I don`t think this is going to drag down the global economy.
If you don`t believe that, then yields probably move higher. So, it
probably doesn`t make sense.

A weird — I don`t know that I would consider it a safe haven, but a place
that I think is interesting, if you think part of this is, you know,
transitory, we may still have some geopolitical, but usually the market
adjusts to that, but you think yields are going to — interest rates are
going to move up over time, I do still like the financial stocks. They`ve
been one of the sectors that have been able to really shrug off higher
interest rates, and really benefits from as long as the economy keeps doing
OK.

GRIFFETH: What about defense stocks? They rallied as well. Is that a
place you would look?

STONE: You know, it`s usually an interesting part. The hard part is
they`ve had a very good move, so they`re certainly not necessarily cheap,
but it`s worst a look in terms of, you know, long term they`ve been, you
know, good performers as well.

HERERA: You know, Bill, you brought up a good point, you don`t think this
will escalate. But even if it doesn`t shouldn`t you hedge to certain
extent and have some safe haven or safe haven-like place in your portfolio,
as part of a balanced approached to the market?

STONE: You`re absolutely right, because I think the worst decision anyone
can make is to have to force — or, you know, be forced to sell out of
stocks at the exact wrong time. I mean, just think back to the financial
crisis. You know, you could have, you know, it`s painful, but if you have
led through it, had enough cash or, you know, some gold, or bonds for that
matter, that actually did pretty well, or bonds did very well during that
point, you know, you can`t ride it out. If you can ride it out, we all
know stocks, you know, hit new highs again.

So, really, the worst thing you can do is get forced out at the worst
possible times. So, I think you`re right. Always have some safe haven to
tide you over.

GRIFFETH: Bill Stone with Stone Investment Partners — good to see you
again. Thanks for joining us tonight.

STONE: Thanks.

GRIFFETH: You bet.

HERERA: Well, Commerce Secretary Wilbur Ross today said that a probe of
car and truck imports is still in its early stages. As we reported
yesterday, that investigation could lead to new tariffs on imported
automobiles, and it is being conducted on national security grounds.

(BEGIN VIDEO CLIP)

WILBUR ROSS, COMMERCE SECRETARY: National security is broadly defined to
include the economy, to include the impact on unemployment, to include a
very big variety of things that one would not normally associate directly
with military security. But it is also the case that economic security is
military security, and without economic security, you can`t have military
security.

(END VIDEO CLIP)

HERERA: Shares of the Japanese car makers Honda and Toyota (NYSE:TM) fell
today. Toyota (NYSE:TM) says that imposing tariffs could hurt American
jobs and increase consumer costs.

GRIFFETH: President Trump today signed into law that rollback of some
banking rules, as we`ve been reporting. The bipartisan bill was designed
to have the biggest impact on regional banks and mid-sized institution. It
is the most significant change yet to the 2010 Dodd/Frank law and it will,
for example, make it easier for smaller banks to begin issuing mortgages.

HERERA: But the housing market got another disappointing report today.
Existing home sales fell in April, as buyers contend with a still shrinking
supply of homes for sale. And now, they`re also facing another financial
headache.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tammy Washington is
tired of the high cost of housing and now the rising cost of gas.

TAMMY WASHINGTON, MARYLAND RESIDENT: The housing prices, and then the gas
goes up every week. I mean, it was almost a dollar difference a month ago.

OLICK: Higher gas prices are just another negative for homeowners and more
so for potential buyers. Home prices were up over 5 percent in April,
according to the National Association of Realtors while inventories fell
over 6 percent. Mortgage rates are also up to the highest level in over
seven years. When you add higher rates and prices, the average monthly
price went from $1,072 a year ago, to $1,190 today. An 11 percent jump,
according to the realtors.

LAWRENCE YUN, NAR CHIEF ECONOMIST: With gasoline prices rising, mortgages
rates rising, it is burdening the housing costs for people who are living
far away from job centers and downtown areas.

OLICK: While the most recent trend has been a return to the urban core,
living in the city has become enormously expensive. Compared to making the
trek out to the suburbs or even the exurbs, where homebuilders are more
active, so housing is more affordable. As gas prices rise, they eat away
at that savings.

WASHINGTON: I`m planning to relocate and go South where it`s more
affordable. I can`t live and work just to pay for gas prices.

OLICK: There`s no specific data on how higher gas prices affect home sales
and home prices, and the impact is likely shrinking, giving the popularity
of hybrid cars and rideshares. But there`s mo question that higher prices
for anything take a toll on consumer confidence, and buying a home the
biggest investment that most people will ever make, is all about
confidence.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: Homebuilders are having a tough year. The ETF made up of major
home building companies is down more than 12 percent year-to-date, while
the S&P 500 has risen 2 percent.

So, what`s weighing on the sector? And might that weakness continue.

Joining us to talk about is Will Randow. He`s the senior homebuilding
analyst at Citi.

Thanks so much for joining us tonight.

GRIFFETH: Welcome.

WILL RANDOW, CITI SENIOR HOMEBUILDING ANALYST: Thanks for having me.

HERERA: So, Diana, kind of outline the gas situation certainly. But home
builders have also been facing inflation in terms of labor costs and
materials, right?

RANDOW: Yes, most homebuilders experience about 5 percent increases in
input cost. Thankfully, so far, year-to-date, they`ve been able to a lot
of that pressure through the pricing power that was just previously
mentioned in the market. You know, the ultimate question is going to be,
you have a tight lake labor market, you have rising commodities,
particularly lumber prices, because of tariffs, for example.

You know, how long does that pricing power stay in place? And do we start
seeing a shift in mix to lower SD homes, which is already occurring.

HERERA: Right.

RANDOW: — in order to help homebuilders kind of offset the speed bumps.

HERERA: Yes, I was going to say, I know I`m paying the same for a smaller
carton of ice cream these days, so they`re going to start downsizing the
size of homes as well. Is that the idea?

RANDOW: Exactly. Americans buy as much as they can afford. The adage is
true, and it`s been consistent. If you go back to 2,000, the average
square foot of a new built single family was about 2,000 square feet.
Today, it`s 2,600, 2,700 square feet.

So, if you kind of take a step back and think about it, it`s — mortgage
rates are low enough to fund people to have a higher-mix, higher ESP homes,
and as is rates come up, you know, they`re going to have to change from a
four-bed to three-bedroom or whatever the case may be.

HERERA: Is there a specific number on mortgage rates that is a trigger
point? I mean, when Bill and I bought our first homes, we were at 16
percent on mortgage rates, but it seems as though consumers are much more
sensitive at these lower levels than they have been in the past.

RANDOW: I think there`s a number of things to think about. It`s really a
question of how quickly the consumer gets shocked. If we go back to — all
the way to 1980, if you have a 51-base point move in a 30-year or more
within a period of a month, typically, that shocks the consumer and it
slows the sales by at least a few quarters.

We saw that in, I believe in May of 2013, but I could be off by one year.
We didn`t see it this time post the elections when we saw the bump up in 30
year. So, I was very curious, because past precedent would say that we
should have a hiccup, and it hasn`t occurred. Demand has remained
relatively strong.

GRIFFETH: Do you like the home building stocks? Who would you like here?

RANDOW: We`re relatively selective here. I mean, we think Lennar
(NYSE:LEN) is interesting. It`s pulled back a bit on a relative basis
versus the peers. What`s been interesting with the builders is most of
earnings expectations helping across the board. What`s the different about
Lennar (NYSE:LEN) is it`s actually trading in line with the group, meaning
the group with small caps, typically trades at a premium. It`s one of the
better operators.

It also is absorbing its CalAtlantic acquisition. That seems to be
progressing relatively well. So, we think there`s value there, but we are
selective in the type of value we`re looking at. There are some
interesting stocks like a land/master plan community company called the
Howard Hughes (NYSE:HHC) Corp.

GRIFFETH: Right.

RANDOW: There`s a fair amount of upside there. So, basically we`re
digging for a deeper value in the space.

HERERA: Thank you so much, Will, for joining us tonight.

RANDOW: Thank you for having me.

HERERA: We appreciate it.

Will Randow with Citi.

GRIFFETH: Time to look at some upgrades and downgrades now.

Deere`s rating was upgraded to buy from neutral at UBS. The analyst says
that higher grain prices could increase tractor sales. Price target now
$185. That stock was up 1 percent to $158.18.

Apple`s price was increased at Morgan Stanley (NYSE:MS) to $214 a share.
The analyst cites optimism over the company`s services businesses. The
firm maintains its overweight rating as a matter of fact. Stock was off a
fraction today to $188.15.

HERERA: Palo Alto also saw its price target increased to $240 a share at
Deutsche Bank. Many expect the company to report a deceleration in product
revenue next year. The analyst at Deutsch Bank doesn`t think it would be
as bad as many expect however. So, the rating remains a buy. The stock is
up 1 percent today to $209.15.

Darden Restaurants (NYSE:DRI (NASDAQ:TBUS)) was added to the top picks list
at Oppenheimer. The analyst calls the stock`s valuation attractive and
sees the potential for better than expected earnings. The price target is
$105. The stock rose nearly 1.5 per to $86.95.

GRIFFETH: Still ahead, the big debate inside the Fed that has nothing to
do with interest rates and everything to do with technology.

(MUSIC)

HERERA: Europe`s tough new rules on data privacy go into effect tomorrow.
The rules give people more control over their personal data and force
companies like Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) to make sure
their data collection operations are safe. The cost of compliance is big,
but the cost of not complying is even bigger.

And today, a number of tech companies were in Paris, attending a major
technology conference. And the new rules were a hot topic.

Karen Tso reports.

(BEGIN VIDEOTAPE)

KAREN TSO, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is France`s answer
to CES in Las Vegas, a technology conference with 80,000 attendees from
startups to industry leaders.

MARK ZUCKERBERG, FACEBOOK CHAIRMAN & CEO: We need to take a broader view
of our responsibility to make sure we`re not reacting to issues as they
come up, but we`re out there trying to prevent any issues from happening
going forward.

SATYA NADELLA, MICROSOFT CEO: When we think about the responsibility,
let`s think about privacy. We will have to operate, recognizing that
privacy is a human right.

GINNY ROMETTY, IBM CHAIRMAN & CEO: It`s our belief that data and AI would
absolutely, absolutely reorder technology and business.

TSO: Such a high-level turned out from Silicon Valley with CEOs of
Facebook (NASDAQ:FB), Uber, Microsoft (NASDAQ:MSFT), IBM, and Cisco
(NASDAQ:CSCO), all came to tap into the French revolution on technology, in
particular to create an A.I. hub here in Paris. The U.S. tech leaders were
also here as we`re about to introduce new European protection laws on data
privacy, which carry hefty fines.

The French President Emmanuel Macron defended the changes and said Europe
has advised on regulation.

EMMANUEL MACRON, FRENCH PRESIDENT: Europe is the right place to build this
new framework. U.S. is not regulated. Regulation is made by private
players. It`s not sustainable for our citizens. You will have huge
scandals.

TSO: The French president has previously warned that some U.S. tech
companies are too big to govern, and should be broken up. He`s also
lobbied for them to pay more tax in Europe. Many of the tech leaders here
have pledged to spend more on jobs and training centers.

For NIGHTLY BUSINESS REPORT, I`m Karen Tso in Paris.

(END VIDEOTAPE)

GRIFFETH: Clearly, advances in technology have had a big impact on our
economy, changing both the way we work and the skills that we need. But
the size and scope of that impact is hard to quantify, even for Federal
Reserve officials.

Steve Liesman reports for us tonight from Dallas, Texas.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Growing disruptions
of technology on the economy have reached a level where it`s now a major
area of concerned for the Federal Reserve. Central bankers are confused,
intrigued, and may even a bit nervous about the potential for new
technologies to affect everything from prices to economic growth, to the
labor market. And they just don`t have a handle yet on the pace of change
or the scope of change.

ROBERT KAPLAN, DALLAS FED PRESIDENT: Because of distributed computing in
the cloud, we think that it`s accelerating. Consumers have much more
technology at their disposal than companies did 30 years ago. And so, the
impact is the following: companies have far less pricing power than
historically.

So, we think it will have a muting effect. We think that needs to be taken
into account. We think it`s having an effect on productivity.

LIESMAN: The Atlanta Fed teamed up with the Dallas Fed here in Texas for a
conference titled Technology-Enabled Disruption, where they heard stories
about new systems where ten workers are replaced with just two, and where
car design that used to take a generation can now be done in hours. And be
done just as easily in China, as in the U.S., scary if you`re one of the
workers in the wave of one of these technology waves.

KAPLAN: If you`re one of the 46 million workers in this country that have
a high school education or less, you`re seeing your job disrupted or
eliminated, and if you don`t get retrained, which is easier to say than do,
you may see your product activity level decline.

LIESMAN: But one of the other stories told is that even high school jobs
like engineering can be at risk, where computers can spread knowledge
globally that once was held locally by a small well-paid few.

So, Fed banks that once focused exclusively on abstractions like money
velocity and inflation are now deep into the thinking about job training.

PATRICK HARKER, PHILADELHIA FED PRESIDENT: The only way they have a
lifetime of employment going forward is if they have a lifetime of
education. They have to commit themselves now to a lifetime of education,
constantly refreshing their skills. We will have segments of our society,
that that`s the situation, whether it`s geography or skill set. I`m not
worried about it abroad, because we always create new jobs up.

LIESMAN: What`s being discussed here won`t bear on next Fed decision to
raise interest rates at the next meeting, but ultimately, maybe more
important, it will help the Fed determine how much it should raise rates,
how low unemployment can go, how inflation might react and ultimately maybe
most significant, how much of economy can grow.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Dallas.

(END VIDEOTAPE)

HERERA: Best Buy (NYSE:BBY) reports a slowdown in online sales growth.
That`s where begin tonight`s “Market Focus”.

The consumer electronics retailer also said its profit margins were
squeezed by supply chain investments. That overshadowed better than
expected earnings and revenue in the most recent quarter. The company
didn`t update its full-year outlook, and that sparked some concerns. So,
the shares finished down more than 6 percent to $70.90.

General Electric`s dividend will reportedly stay intact. CNBC said the
conglomerate does not plan to cut the payout next year shares severed their
worst drop in nine years. Today, they were up almost 3 percent to $14.60.

Higher costs caused earnings and sales to come in a little light over at
Hormel. The maker of Spam noted higher freight and commodity cost as a
factor during the quarter. The stock fell 1 percent to $35.42.

GRIFFETH: And poultry producers Sanderson Farms (NASDAQ:SAFM) said today
that weaker pricing caused profit and revenue to miss estimates in the most
recent quarter. The company said it expects grain prices to increase in
the second half of this year. Shares were off nearly 1 percent to $106.02.

Medical device maker Medtronics said higher sales for its heart valves and
insulin pumps helped earnings grow and topped expectations. The company
also gave earnings guidance for fiscal 2019 that was in line with
estimates. And shares rose 2 percent today to $86.99.

Then, after the bell, clothing retailer Gap (NYSE:GPS) reported stronger
than expected earnings, but that was overshadowed by disappointing results
from its Old Navy brand. Old Navy has been a bright spot in past quarters,
but not this time. Its sales slowed down and led to an overall miss at Gap
(NYSE:GPS). Gap (NYSE:GPS) shares were initially lower in after hours
tonight, erasing a 3 percent gain during the regular session when shares
closed $32.95.

GRIFFETH: And software company Splunk saw earnings surpass expectations.
The company said results were helped by an increased in new customers and
stronger demand for its products. Splunk also sees revenues this current
quarter beating street targets. But still, shares initially traded lower
in the extended session and they also ended the regular day down a fraction
at $116.31.

HERERA: Coming up, meet the woman when she couldn`t get ahead work fog
someone else, started her own company. Company, it is worth billions.

(MUSIC)

HERERA: There are reports tonight that the Justice Department has opened a
criminal probe into bitcoin price manipulation. According to Bloomberg,
the investigation is focused on the practice of what`s called spoofing,
when happens when an investor floods the markets with fake orders
intentionally manipulating the price. Federal prosecutors are also working
with the Commodity Futures Trading Commission.

GRIFFETH: The company that makes those little candy valentine hearts
that`s been sold at auction now for more than $18 million. The 107-year-
old company was purchased by Spangler Candy company, itself a 100 years old
company. Spangler is best known for its dumdum lollipops. Necco filed for
bankruptcy last month after being unable to keep up with multinational
competitors in part because of its debt load. So, Spangler`s purchase of
Necco with so some of America`s favorite vintage candies under one roof
now.

HERERA: As you probably know, there is a national conversation about women
in the workplace taking place, and especially in the tech industry.

Jane Wells met one woman who broke the gender barrier, and is encouraging
others to do the same.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Finally.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Seventeen years ago,
Therese Tucker was a single mother who was chief technology officer at a
Fortune 500 company, when she had a surreal moment.

THERESE TUCKER, BLACKLINE FOUNDER & CEO: We had this circle of excellence,
the Sales Winners Award trip to Hawaii one year. And all the people
walking across the stage were middle-aged white men. And that was the
first time I was thinking, you know, my career is probably limited here.

WELLS: Tucker created Blackline an accounting software company in Los
Angeles.

TUCKER: I cashed out my nest egg from my options. I maxed out my credit
cards. I took out a second mortgage on my house. I had a couple of
friends that believed in me?

WELLS: Men?

TUCKER: Yes, actually. And they were the ones that when I needed a
payroll loan, I would beg them for $30,000 or $40,000.

WELLS: Blackline now has nearly 800 employees, 2,400 customers, the best
performing tech stock to debut out of Los Angeles in the last two years.

Now that she`s the boss, Therese Tucker says she`s seen firsthand how often
men and women are paid differently. And she thinks part of the problem may
be the different ways people negotiate.

TUCKER: I`ve had women, who when they have been promoted have said, oh,
no, no, that`s OK, I make enough. And that I think is much of how the pay
gap comes about. I think younger women are getting better.

WELLS: Along the way, Tucker dyed her hair pink on a dare, calling it the
greatest social experiment ever, like the time after successful round of
funding at a big Wall Street bank, her banker introduced her and her CFO to
one of his bosses.

TUCKER: And this guy looks over to Mark, my CFO, and says, that`s
wonderful, congratulations. And the banker — it was so funny, because the
banker very quickly goes, and Therese is the CEO. It`s like, oh, nice,
congratulations. Yes.

I think it`s important for young women today to see what I`ve done and to
know that it`s possible, to know that you can go out and build a business
from absolutely nothing through a successful IPO, through life as a public
company. Women can do that.

WELLS: She is probably the most under the radar pink-haired female founder
you`ve never heard of, but Therese Tucker reluctantly realizes that now,
she`s a role model.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

HERERA: Good for her.

GRIFFETH: Yes.

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

GRIFFETH: I`m Bill Griffeth. Tomorrow is Friday. Enjoy tonight. See you
tomorrow.

END

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