Transcript: Nightly Business Report – June 5, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Economic milestones. There
are more job openings than there are available workers. And that`s never
happened before.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: What`s brewing? Starbucks
(NASDAQ:SBUX) will start its next chapter without the man who turned it
into a household name and at a time when the company faces a number of
challenges.

HERERA: Death of an icon. Kate Spade turned a small handbag company into
a global brand. Today, she was found dead in her Manhattan apartment.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June
5th.

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

During an otherwise quiet day on Wall Street, the Nasdaq composite closed
at a record and we`ll have more on that coming up.

But we begin tonight with a significant moment in our economic history. We
learned today that right now, there are more available jobs than there are
people out of work. That is something the American economy has never
experienced before.

The Labor Department`s latest report shows that there are a record 6.7
million job openings in April, while the number of available workers was
6.4 million. That is the first time that has happened since the government
began tracking job openings back in 2000.

Now, to put this in perspective, when the Great Recession ended nine years
ago this month, there were about six unemployed people for every job
opening at that time. And it`s just the latest sign that the U.S. is
facing an historically tight labor market.

HERERA: And, Bill, those positive numbers on the jobs market come
alongside some sobering news on the state of social security. Costs for
that program will exceed its income this year for the first time since
1982, forcing the program to dip into its trust fund to cover benefits. It
is estimated that those reserves will be depleted by the year 2034 and
Social Security will no longer be able to send full benefits.

The report also said that Medicare`s hospital insurance fund will be
depleted in 2026. That is three years earlier than anticipated.

GRIFFETH: Meanwhile, a new report says leading CEOs are a little less
optimistic than they have been. According to the latest survey from the
Business Roundtable, many are concerned about the direction of trade policy
right now.

Kayla Tausche has detailed for us from Washington.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the first time
since Donald Trump was elected president, a quarterly reading of confidence
among CEO has fallen. The survey conducted by the Business Roundtable
showed that expectations for the next six months for hiring, capital
investment, sales, and U.S. GDP all declined. One major reason: trade.
Ninety-five percent of executives citing White House trade policy as a
moderate or serious risk.

Business Roundtable CEO Josh Bolton and chair, JPMorgan`s Jamie Dimon told
reporters they`d advise the White House against tariffs and protectionist
policies to no avail. One hundred and thirty-two CEOs responded to the
survey during the middle two weeks of May, when the White House was
negotiating trade deals on NAFTA and with China, two fronts where friction
has only increased in the weeks since.

NEC director Larry Kudlow said the U.S. may pursue separate deals with
Canada and Mexico to replace the current trilateral deal, and a White House
team in Beijing reportedly rebuffed an offer from China to buy $70 billion
in U.S. energy and crops.

Here`s White House Press Secretary Sarah Sanders.

SARAH HUCKABEE SANDERS, WHITE HOUSE PRESS SECRETARY: Our focus is on
making sure we get good deals. I`m not here to make an announcement on
what those look like, but he`s going to continue pushing forward to make
sure that he gets the best deal for American workers.

TAUSCHE: A campaign promise turning into a C-suite headache.

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

(END VIDEOTAPE)

HERERA: On Wall Street, as we mentioned, the Nasdaq closed at a fresh
record, helped by shares of Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN).
And while tech stocks powered ahead, the rest of the market struggled for
gains. The Dow Jones Industrial Average fell 13 points. The Nasdaq was up
31 and the S&P $ 500 gained two points, nearly two.

Now, some say the market is facing some pretty tough hurdles and investors
want to know if those hurdles can be cleared. So, Mike Santoli takes a
look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stock market bulls
have plenty to be proud of after two months of hard-won progress, but they
still have a bit more to prove. The S&P 500 index is up more than 6
percent since early April, grinding higher through a thicket of concerns,
including trade tensions, rising interest rates, increasing inflation
pressures and fears of new regulation on tech giants.

The slow climb has taken the index right up to a key threshold. The 27.50
level has capped earlier rallies and where a nasty drop occurred in mid-
March. This is a pretty natural area for the index to stall for a while as
investors assess the underlying strength of the economy and the potential
danger of trade policy moves and the Federal Reserve`s rate-boosting
campaign.

The leadership of the market remains sturdy, but selective. The Nasdaq is
fully recovered from the correction that started in January, and it`s back
at a fresh all-time high. Small company stocks are also at a new record.
These are positives for the bull case, but also a reminder that the drivers
of the market`s comeback have been narrow.

Only three major sectors, tech, consumer discretionary, and energy have
outperformed the S&P 500 as a whole since the index was last at its current
level nearly three months ago. The momentum in corporate profits has been
powerful. The only question being how much growth will slow into 2019.

The latest little push higher for stocks coincided with a pullback in oil
prices and an easing back of bond yields, on more soothing talk from the
Fed and a flutter of global market turbulence that sent investors to the
shelter of treasuries.

And so, as the market heads for the higher end of its choppy 2018 range,
and new economic reports continue to show impressive strength, the next
test for the bulls might come as those ten-year treasury yields make
another run above 3 percent and the Fed has its say next week.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

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

We begin with video game maker Take Two Interactive, which was downgraded
from outperform at BMO Capital Markets. The analyst there cites high
expectations for an upcoming video game release which it says could
disappoint. Price target: $116. The stock fell a fraction to $113.26.

Meanwhile, First Solar (NASDAQ:FSLR) shares were downgraded to neutral from
buy at Bank of America (NYSE:BAC). The analyst cites China`s decision to
suspend construction of new solar farms and to cut subsidies. Price target
now $63 and that stock fell more than 5.5 percent today to $58.24.

HERERA: And Bank of America (NYSE:BAC) is also making a call on
Weightwatchers, rating the company a buy in new coverage. The analyst says
the stock could rise another 20 percent from current levels. The price
target is $95. The stock was up 8 percent today to $85.93.

Shares of Occidental Petroleum (NYSE:OXY) were upgraded to buy from neutral
at Citi. The analyst cites rising oil prices and a potential increase in
production growth this year and next. The price target is $97. The stock
closed up a fraction to $85.51.

GRIFFETH: The woman who created an iconic accessories empire that made her
name synonymous with trendy handbags was found dead today in her Manhattan
apartment. Designer Kate Spade was 55 years old. The cause of death is
being reported as a suicide.

Our Courtney Reagan now has more on her influence in the fashion world and
the legacy she leaves behind.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The retail and
fashion industries are mourning the loss of the designer known as Kate
Spade. They`ve launched her original eponymous handbag brand Kate Spade in
1993.

Twenty-five years ago, Kate Spade, the brand, begun with six utilitarian
hand bags and a variety of colors. The brand was the first premium
American handbag maker to use nylon for its base material.

Kate Spade, her husband, and partners sold their majority stake to Neiman
Marcus (NYSE:MCS) in 1999 for around $34 million, and the remaining stake
in 2006 for $59 million.

The Kate Spade brand has only grown. After changing ownership several
times, Tapestry, which also owns Coach (NYSE:COH) and Stuart Weitzman,
bought the Kate Spade brand for nearly $2.5 billion last year, eleven years
after spade sold her are remaining stake in the company she founded.

The Kate Spade brand is still known today for its bright colors, feminine,
whimsical aesthetic, and kitschy marketing. Kate Spade handbags, shoes,
accessories and clothing are sold around the world, bringing in more than
$1 billion in annual sales.

Two years ago, she, along with her husband, Andy Spade, and the duo`s
original two other business partners, launched a new handbag and shoe
brand, Frances Valentine, around the same time she changed her name to Kate
Valentine. Frances Valentine also shares colorful shoes and handbags in
department stores, boutiques and online, globally, with that still familiar
aesthetic that Kate Spade is known for, but with higher prices because of
production in Italy and Spain.

No official word from Frances Valentine on its future after the death of
its founder.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

HERERA: Still ahead tonight on NIGHTLY BUSINESS REPORT, America`s most
famous coffee chain embarks on a whole new chapter.

(MUSIC)

HERERA: As we reported last night, Starbucks (NASDAQ:SBUX) executive
chairman Howard Schultz is stepping down from the company he helped to
build. Andrew Ross Sorkin broke the story and spoke to Mr. Schultz today
about his next act.

(BEGIN VIDEOTAPE)

ANDREW ROSS SORKIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`re here in
Seattle where we sat down exclusively with Howard Schultz, the outgoing
executive chair of Starbucks (NASDAQ:SBUX) who announced plans to step down
from the company he said among other things that he may pursue in the
future, public service, which, of course, has fueled speculation he could
run for president in 2020. I asked him directly about that prospect.

HOWARD SCHULTZ, EXECUTIVE CHAIRMAN, STARBUCKS: There`s a lot of things I
can do as a private citizen other than run for the presidency of the United
States, and let`s just see what happens. I`ve got lots of things I`m
thinking about. I`m writing a book. It`s only been 24 hours.

But we`ve talked many times about how concerned I am about the country, our
standing in the world, and I think there`s many things I can do as a
private citizen to advance the cause of the promise of the country.

SORKIN: While he said he has not made a decision yet about what he`s going
to do in the future, he did have a number of views on public policy.

SCHULTZ: Ronald Reagan in 1986 passed an immigration bill as a Republican
president, so why can`t we come together, move the ideology out, and do
what`s in the interest of American people? Seventy percent of the American
people want a good immigration policy. Seventy percent of the American
people want the kind of policy and legislation that takes the guns of war
out of the American people`s neighborhoods. I mean, it just doesn`t make
sense to me.

SORKIN: Intriguingly, he had a fascinating take on how to think about
today`s economy and the stock market.

SCHULTZ: I think it`s very wrong to use the stock market as a proxy for
the U.S. economy. Interest rates are going up, and if I had to make a bet,
and I`m not an economist, I don`t believe that the stock market is going to
continue to grow at the level it has between now and 2020. You`re going to
see a sea change.

So, listen, the economy is strong. I give President Obama credit for that.
I give President Trump some credit for that. But you also have systemic
problems in the country, the likes of which we have not had in a long time.

SORKIN: Howard Schultz stepping off the Starbucks (NASDAQ:SBUX) stage but
probably not stepping out of the headlines.

I`m Andrew Ross Sorkin for NIGHTLY BUSINESS REPORT in Seattle.

(END VIDEOTAPE)

GRIFFETH: Well, Starbucks (NASDAQ:SBUX) investors aren`t too happy about
the departure of Howard Schultz. The news sent shares of the stock lower
in trading today. No doubt those same investors want to know what is next
for Starbucks (NASDAQ:SBUX) and how the company plans to overcome a number
of challenges.

Kate Rogers (NYSE:ROG) has that part of the story for us tonight.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a new era for
Starbucks (NASDAQ:SBUX), as founder and executive chairman Howard Schultz
steps away from the brand he made into a household name over the past 30-
plus years.

SCHULTZ: Please come in.

ROGERS: Now, the focus is on Kevin Johnson, the company`s CEO who has been
at the helm since last year. The two men worked closely together and
analysts say the move presents an opening for Johnson to step out of
Schultz` shadow.

RJ HOTTOVY, MORNINGSTAR SENIOR RESTAURANT ANALYST: I think this will be an
opportunity for Kevin to really show himself and that he doesn`t
necessarily need to rely strictly on Howard and, you know, frankly, can
leverage the experience and talents of the rest of the team.

ROGERS: Schultz` departure comes at a time when the competition for
consumer dollars is fierce as companies from Dunkin Donuts to McDonald`s
(NYSE:MCD) are offering steeper values on coffee. Starbucks (NASDAQ:SBUX)
is focused on mobile as well as the consumer experience with its reserve
bars and roasteries in Seattle and Shanghai, with openings in Milan and New
York later this year.

Starbucks (NASDAQ:SBUX) is also in the midst of an ever growing push into
China, where it opens a new store once every 15 hours. A big challenge on
Johnson`s plate, increasing same store sales in the U.S. which has been
stagnant. Experts say Johnson needs to focus on innovation and technology.

HOTTOVY: I think that they need to iron out the mobile order platform and,
you know, make that — and improve the experience in the stores. I think
once they start to do that, I think that the Starbucks (NASDAQ:SBUX) brand,
you know, will kind of right the ship there.

ROGERS: Another bright spot in the leadership change, the appointment of
Myron Ullman to executive chairperson who turned around struggling retailer
JCPenney not once, but twice in the past.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: Well, it has been reported by “The New York Times (NYSE:NYT)” that
Howard Schultz may consider a run for the presidency in 2020, and Andrew
Ross Sorkin addressed that earlier in our program. Well, today, Home
Depot`s co-founder and philanthropist Ken Langone said that if more people
with business experience get involved in politics, it`s a good thing.

(BEGIN VIDEO CLIP)

KEN LANGONE, HOME DEPOT CO-FOUNDER: Howard Schultz, Jamie Dimon, Mike
Bloomberg, if we get those kind of people to say, hey, he won and I can
win, we`re going to dramatically open the pool of talent for people to
become president. And by the way, that`s great.

(END VIDEO CLIP)

HERERA: And that got us thinking about how business backgrounds could play
a role in public office.

Joining us to talk about that is Jeffery Sonnenfeld, management professor
and senior associate dean for leadership studies at Yale School of
Management.

Welcome back, Jeffrey. Nice to see you again.

JEFFREY SONNENFELD, YALE SCHOOL OF MANAGEMENT: Thanks, Sue. Good to see
you. And hi, Bill.

HERERA: Does it matter whether or not the business executive and we`ve had
many business executives transfer into government roles, does it matter
whether they come from a private company or a public company? Does one
give an advantage over the other?

SONNENFELD: That`s a great question. You know, that was the fine point in
Andrew Ross Sorkin`s interview with Howard Schultz today, that he wanted to
make that point without coming across like he is starting up a slug fest
with the president. But he was suggesting that a, you know, a midsize
family business as the Trump Organization is, that has some global reach,
doesn`t, you know, maybe a dozen countries, doesn`t compare to the
magnitude of what Starbucks (NASDAQ:SBUX) has in 75 countries with some, I
don`t know, 38,000 stores and things.

They`re almost as big in terms of the number of stores as McDonald`s
(NYSE:MCD).

GRIFFETH: Right.

SONNENFELD: Yes, it makes a big difference, being accountable to bosses,
to a board, to disparate constituencies, difficult bottom line criteria to
meet and things. As a public CEO, it`s a very different experience than
being a private CEO. I don`t want to diminish what Donald Trump has
accomplished. I think as a CEO of a private business, it`s pretty
impressive, but what the scrutiny and everything that a public company has
to go under, there`s nothing like it, and none of the predecessors of our
current CEOs have had as difficult a job as the current generation has.

GRIFFETH: There have been other successful businessmen in the White House,
though, Jeff. You had Herbert Hoover, who was a mining magnate. He made
his fortune in mining. H.W. Bush made his fortune in oil. That just names
two of them.

How are they different from other people who have been in the White House?
How is their thinking different as business people?

SONNENFELD: It`s funny you mention those two, Bill. It`s because Douglas
Brinkley, the presidential historian, used those two in an article today to
say, look, CEOs don`t transfer into public office that well. Look how
troubled those careers were that Herbert Hoover, who by all accounts was a
wonderful human being, was not a wonderful president. And “W” who was also
a wonderful human being won`t be ranked as one of our finest presidents,
George W. Bush.

But, you know, for a historian, that was a strange thing to pick. You
could also say being a governor was bad because George W. Bush was a
governor. Andrew Johnson was governor of Tennessee. You had a lot of —
Jimmy Carter was governor of Georgia.

(CROSSTALK)

GRIFFETH: By the same token, George Washington was a very successful
farmer, you know, which was a big business back in those days. So there`s
a —

SONNENFELD: Good for you. He was a farmer, and for that point, you know,
Harry Truman, you know, he was a haberdasher. That`s what my dad did. I
think that was a pretty important position.

But there were some who were very successful that were never senators and
never were governors, never really had an elected position like that
exactly. Abraham Lincoln wasn`t a governor, was never a senator. There
are some very impressive models that way.

But business leaders have done well. Michael Bloomberg, of course, is
mayor, which is the next toughest job after president is mayor of New York
City. He certainly did very well.

And there are many business leaders who went into public service who were
successful business leaders but even more renowned for their legacies in
public service, like Averell Harriman who ran his dad`s railroad, the Union
Pacific (NYSE:UNP) and Brown Brothers Harriman; and Chester Bowles, a great
advertising exec. These people are people are fantastic diplomats.

HERERA: Lots of examples, indeed. Jeff, thank you very much. Jeffrey
Sonnenfeld with Yale School of Management.

Bill?

GRIFFETH: Elsewhere, we`ve got G-III apparel posting a surprise profit and
that`s where we begin tonight`s “Market Focus”.

The owner of Guess and DKNY said that there was demand for many of its
brands and that helps sales and profits topped estimates. The clothing
company also raised its earnings guidance for the full year. Shares rose
more than 10 percent today to $47.53.

Navistar warned that its profit margins would be pressured this year by a
higher freight costs and an expected rise in sales for its less profitable
trucks. The company says its auto parts business, its more profitable
division, will likely see flat growth and that news overshadowed an
otherwise upbeat full year outlook and the stock fell a fraction to $38.35.

Allergan (NYSE:AGN) is being urged by two of its biggest shareholders to
split the roles of chairman and chief executive into two separate roles.
Hedge funds Appaloosa Management and Senator Investment Group are also
calling on the drug maker to reconsider its acquisition strategy and shake
up management, all in an effort to give new life to Allergan`s stock which
today was up to $152.21.

HERERA: The pharmaceutical company Mylan (NASDAQ:MYL) said the FDA has
approved its drug that`s intended to prevent infections in patients
undergoing chemotherapy. Mylan (NASDAQ:MYL) said it plans to market the
medication the coming weeks. The shares finished up nearly 4 percent to
$39.98.

And shares of Twitter get a three-year high on news that it will join the
S&P 500 index. The social media company is replacing seed maker Monsanto
(NYSE:MON), which is merging with Bayer. The change will take effect
before the market opens on Thursday. Twitter`s shares jumped 5 percent to
finish the day at $39.80.

GRIFFETH: Coming up, why big tech is pouring big money into the race for
San Francisco mayor.

(MUSIC)

HERERA: Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) are being sued by
Washington state`s attorney general. He says the companies failed to
maintain information about political advertising. That information is
required by law and it includes data about buyers of political ads. The
cost, how much they paid, and the candidate or ballot measure at issue.

Washington candidates and political committees have reportedly spent about
$5 million to advertise on those platforms in the past decade.

GRIFFETH: Some big tech companies are taking sides in the San Francisco
mayoral race and they have been pouring a lot of money into campaigns.
That`s because the stakes are high for a critical American industry.

Aditi Roy has more.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: San Francisco is about
to elect a new mayor in a wide open race and many voters have strong
opinions about the issues important to them.

UNIDENTIFIED FEMALE: I understand the tech companies coming in, but the
problem is that they have pushed out a lot of the old-time residents.

UNIDENTIFIED MALE: Two problems. One is mentally ill homeless people, and
two is drug addicts.

ROY: There are eight candidates running for mayor, but the top three
contenders appear to be London Breed, Jane Kim, and Mark Leno.

And the city`s housing crisis seems to be front and center in the race.
That`s where tech leaders come in. Companies like Twitter, Airbnb, and
Uber have all moved into San Francisco the last few years, and the infusion
of highly paid engineers has been blamed for the city`s housing crisis and
rise of homelessness.

Many tech leaders are looking for solutions to these problems. While all
the candidates addressed those topics, Breed, the front runner, appears to
have the most aggressive plan for building more homes. She`s pledged to
create at least 5,000 units of housing per year and has backed removing
homeless people from the streets. Medium CEO Evan Williams has donated
$100,500 to a committee supporting here. And venture capitalist Ron Conway
and his wife Gayle have also contributed.

Jane Kim is proposing a $1 billion bond to stabilize the housing market and
wants to make shelters more accessible and deploy mobile showers for
homeless people. Her tech backers include the CEOs of start-up Automatic
and Zendesk. They donated $100,000 and also $50,000 respectively to a
committee supporting Kim.

The tech footprint has expanded in recent years in part because of the
policies of late Mayor Ed Lee, whose sudden death in December sparked
today`s election. Voters we talked to seemed divided on tech`s influence
in San Francisco.

UNIDENTIFIED MALE: Without the tech companies, you don`t have all this
fabulous infrastructure.

ROY: Even though many high-profile tech leaders are supporting Breed, it`s
unclear whether she`ll follow in lee`s footsteps in embracing tech
companies. In 2016, she even introduced legislation that would have
regulated Airbnb.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

HERERA: The first state in the Union, today, became the first state
outside of Nevada to take wagers on sports betting and this comes just a
few weeks after the Supreme Court lifted the federal ban. Betting is
taking place at three Delaware casinos and will offer wagering on baseball,
football, basketball, soccer, golf, and auto racing. Other states are
expected to follow.

GRIFFETH: Finally tonight, the latest list of the world`s highest paid
athletes is out. According to Forbes, Floyd Mayweather is at the top spot
again. This the fourth time in the last seven years, total earnings last
year, $285 million.

Number two, soccer player Lionel Messi. Payday of $111 million. Rounding
out the top three , fellow soccer player Cristiano Ronaldo at $108 million.

By the way, the 100 highest paid athletes earned a collective $3.8 billion
during the past 12 months. That is up more than 20 percent from a year
ago.

HERERA: That`s it for us tonight. Have a great night.

GRIFFETH: See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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