Transcript: Nightly Business Report – May 31, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Trade tensions. The Trump
administration imposes steel and aluminum tariffs on imports from some of
our biggest trading partners and our closest allies, and they are hitting
back hard.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stocks tumble. Trade
retaliation does send chills through the market, and investors look for
answers as uncertainty grows.

HERERA: On the waterfront. How increasingly severe weather is creating a
new risk to real estate. The launch of our series takes us to Boston.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, May
31st.

GRIFFETH: And we do bid you good evening, everybody.

Investors did not exactly like what they heard when the White House said
today that it is making good on its threat to impose tariffs on some of our
largest trading partners and closest allies.

Starting at midnight tonight, Canada, Mexico, and the European Union will
no longer be exempt from levies on steel and aluminum. The tariff on steel
will be 25 percent and 10 percent on aluminum. The specter of a trade war
made Wall Street very nervous today. Stocks fell to close out the month of
May. The Dow fell by 251 points, 24,415. The Nasdaq was down 20 and the
S&P 500 lost 18.

And the response from the country`s affected was quick and it was stern.
Eamon Javers is covering this story for us tonight from Washington.

(BEGIN VIDEOTAPE)

JUSTIN TRUDEAU, CANADIAN PRIME MINISTER: These tariffs are totally
unacceptable.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The response from
allies was swift. Canadian Prime Minister Justin Trudeau condemned the
move.

TRUDEA: These tariffs will harm industry and workers on both sides of the
Canada/U.S. border, disrupting linked supply chains that have made North
American steel and aluminum more competitive all around the world.

JAVERS: Canada will retaliate with tariffs on up to more than $16 billion
in imports of steel, aluminum and more. The European commission says it`s
ready with tariffs on $7.5 billion on imports on products from makeup, to
motorcycles and motor boats. Mexico will also retaliate with $4 billion in
tariffs on steel, pipe, cheese and pork.

The Trump administration says the president has the flexibility to change
or remove the tariffs on steel and aluminum imports at any time and
Commerce Secretary Ross dismissed concerns about damage to the relationship
with allies.

WILBUR ROSS, COMMERCE SECRETARY: These are blips on the radar screen. I
don`t think they change the fundamentals of the relationship. Everybody
has spats every now and again.

JAVERS: Trudeau made clear that to him, these are real issues, not blips.

TRUDEAU: This is perhaps more significant than the administration
realizes.

JAVERS: Ross also dismissed the cost of tariffs on the massive U.S.
economy.

ROSS: It`s a tiny, tiny fraction of 1 percent.

JAVERS: Former Secretary Larry Summers says that`s a miscalculation.

LARRY SUMMERS, FORMER TREASURY SECRETARY: His calculation takes no account
of the uncertainty that will deter investment for anyone who`s using
inputs.

JAVERS: It`s not just global allies who are critical of the move. Some of
the president`s political allies are critical as well. Some business
leaders are calling the tariff a costly mistake.

Kevin Brady (NYSE:BRC), the chairman of the House Ways and Means Committee
says the tariffs are hitting the wrong target. He called on the
administration to continue to exempt our national security partners.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.

(END VIDEOTAPE)

HERERA: And Moody`s (NYSE:MCO) says those tariffs will likely hurt the
U.S. economy by causing input cost to rise from manufacturers. And it
added that certain U.S. exporters could be hurt by the retaliatory measures
though the tariffs may help some domestic metal companies.

GRIFFETH: All right. Let`s talk more about this brewing trade war and
what it could mean for investors.

Joining us tonight, Jeff Bush, who`s a partner at the Washington Update.

Good to see you again, Jeff. Welcome back.

JEFF BUSH, PARTNER, THE WASHINGTON UPDATE: Thank you, Bill.

GRIFFETH: You`re not exactly enamored of this strategy, are you?

BUSH: Well, I think it`s an interesting strategy. It`s certainly a heavy-
handed strategy. I think the president is showing a firm hand to our
allies as a way of showing his focus on the international issues with Iran,
Iraq, so forth. I think this is a much broader issue than simply a trade
scenario.

HERERA: In what way?

BUSH: Well, I think both trade and foreign relations are actively being
negotiated right now. I think the president sees them really two feathers
of the same bird and his negotiating style is to, again, show our allies a
firm hand to show our resolve to our enemies. All of this — both of these
issues, foreign relations and trade, are standing on the same balancing
point and that is where does the faith in our negotiating partners that
President Trump will deal with them consistently and fairly.

And I think that`s what we need to see from the Trump administration
heading into all of these negotiations is do we see a consistent, fair
approach? And how is that received by those people on the other side of
that table?

GRIFFETH: For investors at a minimum, Jeff, this could be inflationary as
it raises prices on these things that are being imported or exported, but
at the worst it could mean a loss of jobs for those companies that are
being squeezed out, can`t afford the tariffs and they laypeople off. What
are investors to make people of this do you think?

BUSH: Well, I think from an investor perspective, there are two things to
focus on. Yes, inflation is certainly an aspect of that, but also
volatility. And from an investor perspective, volatility is not
necessarily bad but it does change your approach to your investing profile.

Generally speaking, in a more volatile environment, an active strategy is
going to do better than a passive strategy. But the risk is gain is
significantly higher but harder to find. And the risk of a downside loss
is generally a little bit larger.

On the inflationary side, yes, prices are going up, would go up in a trade
war scenario. But as long as corporations can pass that along to
consumers, then we won`t really see any impact to the corporate earnings
scenario. What my concern is, you can only pass those costs on if there`s
wage growth and we haven`t seen a lot of wage growth in this recovery
period.

HERERA: Jeff, you know, there were a lot of people who were talking about
what the long-term ramifications are from the move from the administration
today. Yes, it may be a negotiating tactic. Yes, it may get rocked back
or changed, but it`s the uncertainty of that. And they worry that with key
trading partners like Canada and Mexico, that there are long-term
ramifications in terms of lack of trust.

Do you agree with that or not?

BUSH: I absolutely agree with that, Sue. I think this is a very high
risk, high gain type of negotiating strategy, but in fairness a low risk,
low gain strategy over the past several administrations hasn`t really moved
the needle either. So I think it is a different approach and I do believe
in the long term, we`ll move back towards a free trade environment with our
closest allies, but your point is exactly correct. What damage has been
done in that interim process?

GRIFFETH: Jeff Bush with the Washington Update — once again, thanks for
joining us, Jeff.

BUSH: Thank you very much.

HERERA: And with geopolitics in focus, investors paid attention to the
meeting between Secretary of State Pompeo and a North Korean official. The
secretary said there`s still a lot of work to do before summit between the
two countries can take place, but he is optimistic.

(BEGIN VIDEO CLIP)

MIKE POMPEO, SECRETARY OF STATE: We`ve made real progress in the last 72
hours towards setting the conditions. The conditions are putting President
Trump and Chairman Kim Jong-un in a place where we think there can be real
progress made by the two of them meeting. It does not good if we`re in a
place where we don`t think there`s real opportunity to place together.
We`ve made real progress towards that in the last 72 hours.

(END VIDEO CLIP)

HERERA: North Korean officials will deliver a letter from their leader,
Kim Jong-un, to President Trump tomorrow. He will be in Washington.

GRIFFETH: More positive reports on the economy today. Spending
strengthened further in April as incomes rose. Personal consumption
expenditures, that`s a measure of just about everything that households
spend their money on. That rose 0.6 percent last month. That was the
biggest increase in five months. Economists say the report is a sign that
consumers could drive even stronger economic growth in the current quarter.

HERERA: And citing the economy`s strength, a Federal Reserve official says
a gradual interest rate increase remains appropriate. Governor Lael
Brainard says that the recent tax cuts in higher federal spending will
reinforce above trend economic growth.

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

We begin with Micron Technology (NASDAQ:MU). Their rating was lowered to
equal weight from overweight at Morgan Stanley (NYSE:MS). The analyst
cites storm clouds on the horizon and says he`s concerned about the
strength of the memory chip market overall. Price target now, $65. That
stock has been the best performing chip name in the S&P 500 this year but
today it fell nearly 8 percent to $57.59.

Meanwhile, UBS is reaffirming its sell rating on Tesla. The analyst is
predicting that the company is going to need to raise capital by the end of
the year. Price target now $195, and that stock fell more than 2 percent
to $284.73.

HERERA: Still ahead, the milk market runs dry for some American dairy
farmers.

(BEGIN VIDEO CLIP)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Contessa
Brewer in Smithfield, Kentucky, at more than 100 dairy farms facing a
looming deadline tonight. The end of their contract to sell milk. Are
there any new buyers for these American dairy farms? Coming up on NIGHTLY
BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: The Federal Reserve has reportedly labeled Deutsch Bank`s U.S.
operations as troubled. In fact, according to “The Wall Street Journal,”
this rare designation by the Fed actually took place about a year ago.
That means that Germany`s biggest bank has been subject to operational
constraints, like having to seek approval before hiring and firing senior
managers. The central bank has also influenced moves by Deutsch Bank to
reduce risk. Stock hit an all time low today. It fell 4 percent.

HERERA: Uber`s CEO says his ride sharing company is on track to start
trading its shares next year. Speaking at the Recode Conference, the head
of the company says the company is in a good position but a couple of
things need to happen before it can go public.

(BEGIN VIDEO CLIP)

DARA KHOSROWSHAHI, UBER CEO: The management team has to be filled out. I
am looking for a CFO and that`s a pretty important person as part of an
IPO. We are very much now rebuilding the brand and what Uber represents,
and I think we`re making terrific progress.

(END VIDEO CLIP)

HERERA: Separately, the company`s CEO confirmed that he had been in talks
with Berkshire Hathaway`s Warren Buffett, and he said the talks perhaps
will resume one day.

GRIFFETH: General Motors (NYSE:GM) driverless car unit is getting a $2
billion investment from Softbank, and once that deal closes, the automaker
itself will also make a billion dollar investment in the unit.

(BEGIN VIDEO CLIP)

DAN AMMANN, GENERAL MOTORS PRESIDENT: I think it`s a big recognition and
validation on the progress we made over the last couple of years to get to
this point, but I think it also is a big recognition of the opportunity
that lays ahead as we look to commercialize this technology on really big
scale. It`s going to require capital to do that. This obviously is a new
source of capital for us as we look to grow this business and realize what
we think is a very, very large opportunity around autonomous technology.

(END VIDEO CLIP)

GRIFFETH: And, in fact, that investment sent shares up nearly 13 percent,
its biggest one day gain since the company relisted back in 2010 after its
bankruptcy in 2009.

HERERA: Fiat Chrysler is also pushing further into the self-driving car
business. That automaker is expanding its partnership with Alphabet`s
autonomous driving unit Waymo. Fiat Chrysler is adding tens of thousands
of minivans to Waymo`s fleet of self-driving cars and that sent the shares
up more than 4 percent in trading today.

GRIFFETH: And from cars to planes, there`s a big and expensive battle
brewing at Los Angeles International Airport. Airlines there are pouring
billions into that airport into a costly but critical fight to win other
those traveling through the country`s second biggest airport.

Phil LeBeau is at LAX for us tonight.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is ground zero in
the airline war to win over customers. LAX, considered a hub by three
major airlines, is being remade by those carriers. The latest investment:
$1.9 billion by Delta to renovate two terminals.

ED BASTIAN, DELTA AIR LINES CEO: We`re the fastest growing airline here in
L.A. Over the last ten years, over the last five years, we`ve grown 60
percent. We`re out of capacity. We can`t bring anymore customers in and
through until we redevelop the terminals and the experience for the local
Angelinos.

LEBEAU: When it comes to winning at LAX, Delta is in a dog fight with
American, United and Southwest, all using the airport to grow their bottom
lines.

LAX is lucrative for airlines for a couple of reasons. First, it has a
huge number of international flights and, second, it`s a hub for high end
travelers coming to and from southern California.

HENRY HARTEVELDT, ATMOSPHERE RESEARRCH GROUP: They`re fighting it out for
the long haul customers and the people who pay the big bucks to sit at the
pointy end. That`s where the profits are made.

LEBEAU: American has invested more than a billion dollars upgrading its
operations in L.A., including a redesigned Admiral`s Club. And United is
now offering high end travelers at LAX, a personal suite when they check
in, and rides to their suite in a BMW.

So, Delta is focusing on giving its LAX customers a better experience.

BASTIAN: We need to make certain that at airports whether it`d be
security, whether it`d be check in, whether it`d be the boarding process is
the same hassle-free experience as what we`re trying to create in the air.

LEBEAU: A battle on the tarmac and the gates of America`s second busiest
airport.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Los Angeles.

(END VIDEOTAPE)

HERERA: Sears (NASDAQ:SHLD) is closing more stores, and that`s where we
begin tonight`s “Market Focus”.

After reporting a wider than expected loss and a decline in same-store
sales, the struggling retailer said it was planning to shut down 72
unprofitable locations and it added that it is still open to considering
third party partnerships with its brands in a move to drive profits.
Shares fell more than 12 percent. They finished the day at $2.81.

Dollar General (NYSE:DG) blamed its disappointing quarterly sales on an
unseasonably cold spring. The discount retailer said fewer customers
shopped at its stores and added that higher costs in that period pressured
margins and overall earnings. Shares finished down 9 percent to $87.48.

And its rival Dollar Tree (NASDAQ:DLTR) also said the weather had a
negative impact on results. The retailer`s same store sales came in below
expectations and it`s lowered its annual profit forecast. The company also
took a hit from higher freight costs. Shares were off 14 percent to
$82.59.

GRIFFETH: And investors had their first chance today to Guess`s
disappointing outlook. Last night, the company reported a quarterly loss
that was pretty much in line with expectations. But the focus was on its
forecast and investors punished the stock today, sending it down 19 percent
to $19.60.

Then after the bell tonight, GameStop reported earnings that topped
expectations even as the company suffered declines in the core business.
Revenue came in a little light at the video game retailer. Shares of
GameStop were initially under pressure in the extended session. They
finished the regular day down more than 1.5 percent at $13.20.

Also out after the bell tonight, Lululemon delivered a solid quarter
reporting same store sales that blew past estimates and a higher than
expected rise in profitability. The athletic apparel company also gave
upbeat earnings and revenue guidance for the current quarter. Shares were
initially higher after hours but finished the regular session down half a
percent at $105.05.

HERERA: And the big retailers like Walmart and Kroger (NYSE:KR) are
getting into the milk business, and that is spelling trouble for dairy
farmers across the country. Their business is becoming increasingly
squeezed by the changing dairy landscape.

Contessa Brewer reports tonight from a family-run dairy farm in Smithfield,
Kentucky.

(BEGIN VIDEOTAPE)

BREWER: When dawn breaks in the countryside outside Louisville, Kentucky,
the work starts. Three generations have milked cows at Jericho Acres
Dairy, and a fourth generation is getting an early introduction. It`s a
small farm but the foundation for some big dreams.

CARILYNN COOMBS, DAIRY FARMER: It was all about continuing the family
business, doing continuous improvements to our facilities and growing our
herd to include better genetics and better cows.

BREWER: Those dreams were unexpectedly disrupted by a letter from Dean
Foods (NYSE:DF) which buys all of their milk.

COOMBS: I regret to notify you, we must cease purchasing milk from your
dairy farm.

BREWER: More than 100 farmers in eight states got the same letter
canceling their milk supply contracts in 90 days. Dean Foods (NYSE:DF)
blames in part competition, a new milk processing plant opening in the
region.

Walmart is entering the processing business with a new plant in Fort Wayne,
Indiana. It will bottle milk for its own Great Value store brand, sourcing
milk mainly from three nearby coops and a handful of independent farmers.

Dean Foods (NYSE:DF) facing falling sales and profits says it is right
sizing its network to better match volume. It will continue to process
milk for Walmart in other regions, but is likely to face increasing
competition as other big grocers like Kroger`s are already in the
processing game.

Walmart tells us in a statement, while many of the farms that received
letters from Dean Foods (NYSE:DF) were far outside the service area of our
plant, a number of them closer to Fort Wayne have signed contracts with the
cooperatives to work with Walmart. At a national average of $3.23 a
gallon, milk prices are lower now than 10 years ago.

Plus, Americans are moving on from milk. Consumption is taking a steady
dive with overall sales dropping almost 15 percent since 2012.

COOMBS: We knew that we would have to do something a little bit different,
whether that be value added or agri-tourism, bottling our own product.

BREWER: But those plans all included building their herd significantly.
Instead, with no new buyer on the horizon, the Coombs are culling their
cows.

Since the arrival of the Dean Foods (NYSE:DF) letter in March, they`ve sold
more than half the herd to other dairies, or to meet processors.

CURTIS COOMBS, DAIRY FARMER: My son telling me the other day after the
cows left, he said, all the cows are going. He said, I go find them for
you.

BREWER: Of the 20 Kentucky farms that had their contracts canceled by Dean
Foods (NYSE:DF), 14 still have found no new buyer for their milk. The
other six have already sold out.

COOMBS: We didn`t do anything wrong, like it wasn`t bad management, it
wasn`t not managing our finances correctly or our cattle correctly. We
produced good quality milk here.

BREWER: For now, Jericho Acres Dairy has been given a reprieve, a contract
extension of 30 days to try and find a home for their milk.

In Smithfield, Kentucky, Contessa Brewer, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GRIFFETH: Still ahead, the water`s edge. This is a new series that takes
us to Boston tonight where that city`s real estate is at risk from severe
weather.

(MUSIC)

HERERA: Mortgage rates have pulled back from their seven-year peak.
According to the latest report from Freddie Mac, the average 30 year fixed
rate declined to $ 4.56 percent. As you know, mortgage rates tend to move
along with the benchmark ten-year treasury, and that has rallied on global
concerns.

GRIFFETH: Well, don`t look now, but hurricane season starts tomorrow. And
if last year`s any guide, storms in general are getting more dangerous and
destructive. And today, we start a new series looking at the rising risk
to real estate, especially development that could sit directly in harm`s
way.

Diana Olick reports tonight from Boston with a look at what`s being done
there to safeguard buildings and billions of investment dollars.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Winter slammed hard
into Boston this year. Back-to-back nor`easters sent water flooding into
its historic streets and sea ports. It was what city planners predicted,
just not yet.

DEANNA MORAN, CONSERVATION LAW FOUNDATION: In Boston, we`ve spent a lot of
time thinking that these impacts are 20, 30 years down the road. These
storms are here now. They`re happening more frequently. They`re more
severe.

OLICK: Deanna Moran studies the impact of climate change on Boston real
estate, especially its new development.

MORAN: And the planning has been great, but we just aren`t there yet.

OLICK: The planning started at the top, in the mayor`s office and its
Climate Ready Boston initiative headed by Austin Blackmon.

AUSTIN BLACKMON, CLIMATE READY BOSTON: If you want to build a large
building in the city of Boston, not only do you have to take into account
what the climate projections are and the flood plain projections are right
now, but you have to look at what those projections are into the future.

OLICK: But so far, it`s just conversations and recommendations, not rules
and regulations. And data show the water is rising and the storms are
intensifying, just as development is booming in the city`s most vulnerable
district according to experts, the seaport.

When we picture rising tides and stronger storms, we tend to think of
places like Miami and the Gulf Coast, but with the exception of Alaska, New
England is expected to see greater warming than any other place in the U.S.
because of its higher latitude.

And its proximity to the gulf of Maine, the fastest warming body of water
on earth, according to the National Oceanic and Atmospheric Administration.

In the past decade, nearly $8 billion worth of residential and commercial
real estate has been built or approved for construction in the seaport, its
inventory of properties doubling according to CDRE. In fact, just the
seaport has seen three times the amount of new buildings going up than in
all the rest of Boston`s much larger downtown and financial district.

And the seaport is ground zero for water. This is what the city predicts
will happen in ten years, 20 years, 30 years — the booming district
underwater.

MORAN: I think what scares me the most is the disconnect. We`re relying
on the historical past when we`re building buildings for the future.

OLICK: Why are we not changing the code?

MORAN: The process of changing the code is long and tedious.

OLICK: And changing the code could drive away the precious influx of big
business to Boston, names like Amazon (NASDAQ:AMZN) and GE, investing
millions in Boston real estate development and attracting thousands of new
workers, especially to the seaport.

CHARLES LEATHERBEE, SKANSKA USA DEVELOPMENT: So, this is 121 seaport, a
building that on behalf of Skanska I`m incredibly proud of.

OLICK: Skanska is one of the largest seaport developers recently selling
two of its new buildings for record prices. Its latest is the centerpiece
of Seaport Square.

LEATHERBEE: It`s shaped like an ellipse. And that shape alone is very
sustainable in that the wind on this building is far less than it would
have been had it been a square or rectangle.

OLICK: So, I`m looking over water, water, water, water everywhere. No
concerns?

LEATHERBEE: No concerns at all. This building is very well-prepared to
withstand any major storm event.

OLICK: The building`s electrical infrastructure is 40 feet above the 100-
year flood plain. The ground floor is elevated, all of this at increased
cost. While some developers are proactive, others are less so, because
they know the end game is to sell the building.

BLACKMON: What we are starting to see is that developers will not
necessarily qualify for financing because the insurance companies are
saying, hey, we`re not going to insure this unless you take into account
some of those climate challenges.

OLICK: Why build? Why develop the seaport?

BLACKMON: Right now, we`ve already got a significant number of buildings
and assets that are already in harm`s way. As we look at continuing to
develop it, there`s actually an opportunity for those developments to be
part of those protection processes.

OLICK: Like GE, building its proposed $200 million headquarters in the
seaport district and elevating the ground underneath to protect against
rising tides. But the planning has to go beyond individual buildings or
so-called islands of resilience.

What are the barriers that frustrate you most?

BLACKMON: Not having control over the building code as a city.

MORAN: There are guidelines that everything is ultimately voluntary.

OLICK: This is value right here, what you`re looking at, the old and with
the new.

LEATHERBEE: Absolutely. I think one thing is tried and true, they want to
be by the water, but they want to be in a building that is very well-
prepared to withstand storm events in the future.

OLICK: For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Boston.

(END VIDEOTAPE)

GRIFFETH: And to read more about the storm risk to real estate, you can
head to our Website at NBR.com.

HERERA: And before we go, here`s another look at the day on Wall Street.
The Dow fell 251 points, the Nasdaq was down 20 and the S&P 500 lost 18.

Onto June.

GRIFFETH: Tomorrow`s the day.

HERERA: Tomorrow is the day and we`ll be there for that. That`s it for us
tonight. I`m Sue Herera. Thanks for joining us.

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