Transcript: Nightly Business Report – July 11, 2018

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

House threatens new tariffs on $200 billion worth of Chinese goods, and
economists are sounding the alarm.

prices rise, which stocks will get hit and which can weather the storm?

HERERA: Ten years later. Indymac collapsed a decade ago, shocking the
system and giving way to the worst financial crisis in a generation.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
July 11th.

GRIFFETH: And we bid you good evening, everybody.

The rumblings of a trade war are growing louder. The U.S. is now
threatening new tariffs on $200 billion worth of Chinese goods. China
pushed back immediately and stocks fell sharply today.

The Dow Industrial Average dropped 219 points to 27,400, snapping a four-
day win streak, the Nasdaq was down by 42, the S&P lost 19.

And oil was down 5 percent on the potential of weaker demand tied to the
U.S. trade dispute with China.

Kayla Tausche has more on the intensifying tensions between the world`s two
economic superpowers.


equipment and building materials among the new items in the crosshairs of
the U.S./China trade war. At the end of August, the Trump administration
could slap tariffs on $200 billion on Chinese goods on top of $50 billion
already targeted. China last week began retaliating against U.S. crops.
The White House has prepared these new tariffs in response.

President Trump tweeting from the NATO summit that he`s always thinking
about our farmers, saying, for years, other countries` trade barriers and
tariffs have been destroying their businesses. China`s commerce ministry
said Tuesday it would again hit back with firm and forceful measures.
Experts say that tool box is wide ranging.

more diverse set of tools and is more willing to color outside of the
lines. The U.S. may have similar measure, but we don`t employ them given
our commitment to market values, the liberal economy.

TAUSCHE: U.S. companies are worried about rising prices and roadblocks to

question that China is a violator on intellectual property issues and that
technology transfer. Those are all serious concerns. We share those
concerns. I don`t want to diminish that in any way, but do something about
it, but don`t do it through tariffs.

TAUSCHE: Republican lawmakers fear the White House`s strategy won`t work.

SEN. BOB CORKER (R), TENNESSEE: No one at the White House can articulate
what it is they`re hoping to accomplish. That`s what worries me.

SEN. CHUCK GRASSLEY (R), IOWA: I think the president`s approach in
negotiating, that the longer you negotiate, the better deal you get. But
that`s what`s so concerning because of the uncertainty of it.

TAUSCHE: The top House Republican on trade, Kevin Brady (NYSE:BRC), called
for face-to-face talks between President Trump and Xi. An administration
official says the U.S. is open to engaging but there are no in-person talks

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


HERERA: And as has been the case in the past, China was quick to respond
to the threat of new tariffs.

Eunice Yoon picks up the story from Beijing.


shocked and that the U.S. move is totally unacceptable. The foreign
ministry today called the new tariff threat American trade bullying. The
commerce ministry said China would immediately file a complaint to the WTO
and would have no choice, but to respond with countermeasures, though it
wouldn`t specify what those measures actually would be.

People are wondering now how China will react because China only imports
$130 billion worth of American goods, so even if it wanted to match the
U.S.`s $200 billion threat it can`t. China unveiled a plant to safeguard
its companies, the commerce ministry says it has a four-point defense plan.
First to assess the impact of tariffs on Chinese companies to Chinese
firms, to use income raised by countertariffs as relief for Chinese firms.
Third, to encourage Chinese firms to diversify imports away from American
products especially for soybean, autos and seafood, and to step up the use
of foreign investments, use foreign money to help support Chinese

The state media said yesterday that the plan shows that China expects
protracted action from the United States.

I spoke to one American businessman who said more and more companies here
are now also expecting that this trade war could be protracted because he
said that it looks as though neither side is willing to back down. He said
that the only silver lining he sees with this $200 billion tariff threat is
that it`s a 10 percent tariff as opposed to a 25 percent one.

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


GRIFFETH: Now, the bigger tariff price tag is starting to add up to real
money for some economists and that means the risks to the economy are
rising, as well.

Steve Liesman has that part of the story for us now.


$200 billion of new tariffs against China by the Trump administration has
economists sounding much louder alarm bells compared to previous wars in
the trade war. The new worry is that together with retaliation from the
Chinese, this round is so large that it could have meaningful and
measurable negative impacts on both U.S. prices and U.S. economic growth.

DAVID LEBOVITZ, JP MORGAN: This is a bit of a dangerous ball game that
we`re playing here and if you look at the first case scenario and model out
what the numbers look like, you could see a full percentage point hit to
GDP. You could see inflation higher.

LIESMAN: Morgan Stanley (NYSE:MS) writes, quote, we`re testing the idea
that trade disputes are contained economic event. Tariffs are creating
earnings noise and eroding gains for fiscal stimulus.

Joseph Brusuelas, chief economist at RSM, says the new tariffs could shave
0.3 to 0.4 percent off of GDP, all of the way through 2020 and raise

Products covered by the tariffs include parts for motor vehicles, heavy
machinery and tractors, along with clothing, handbags and seafood. The
administration said these tariffs were a response to China`s retaliation
against the previous U.S. tariffs. Quote, China has shown that it will not
respond to action at a $50 billion level by addressing U.S. concerns with
China`s acts, policies and practices involving technology transfer,
intellectual property and innovation.

Previous tariffs are already showing up in prices in the United States.
The government reported today that wholesale lumber prices are up 23
percent compared to a year ago following tariffs imposed last year.
Government also reports washing machines and metal prices are higher and
with the National Retail Federation, a strong opponent of these tariffs,
labeled, quote, the Trump tax.

SHAY: This is like a trillion dollars worth of economic activity
potentially subject to tariffs. Tariffs don`t work. They never worked and
they`re not going to work this time either.

LIESMAN: One trouble for forecasting the impact of tariffs is that
economists don`t know exactly what Trump is after. If these are
negotiating tactics, then they could go away soon and have little impact.

But Trump and his advisers have also said the tariffs are designed to
protect U.S. industries and spur production domestically. If so, they
could be around for a long time.



HERERA: And Steve just mentioned today`s government report on prices. He
was referring to the producer price index. The index which measures the
prices businesses receive for goods and services rose 0.3 percent in June
from a month earlier, but it was the annual rate that got all of the
attention. It climbed 3.4 percent, a level not seen in six years. The
reason was partly due to a rise in transportation cost.

GRIFFETH: And rising fuel costs are becoming an issue for airlines.
Today, American Airlines, which is the world`s largest carrier, trimmed its
outlook for second quarter revenue growth. The CEO in the past has warned
of the need for higher fares because of rising costs, and that stock
tumbled 8 percent today and other airlines followed suit. In fact, the
transports were one of the biggest decliners in today`s trade.

HERERA: So, obviously, a number of factors are driving up costs for U.S.
companies. Higher energy prices, the threat of tariffs and rising
inflation could be seen as headwinds. So, how will companies contend with
these pressures?

Joining us to talk about that is Jason Ware, chief economist at Albion
Financial Group.

Jason, welcome, as always.


HERERA: You know, the tariff conversation is kind of ongoing, so we don`t
really know yet what the full impact of that is going to be, but you make
the point that even if companies aren`t reacting right now, it certainly is
affecting their confidence.

WARE: Yes. I mean, that`s what we`re seeing early on and trade wars are
bad and they`re difficult to win, and depending on how long this goes —
gets drawn out if it`s protracted, we might actually start to see that
filter into the decisions, the collective hives mind of the private sector
on how they, you know, how much they produce, the hiring and firing
decisions and investment decisions, et cetera.
We`re not seeing that yet, but what we are seeing to your point over the
shorter term is that business confidence is waning a bit given that we just
don`t know where this is going to go.

GRIFFETH: Tight labor market means wage inflation, energy costs means
higher costs of production and shipping. Cost of monies going up because
interest rates are going up, tariffs are going up. I mean, it`s a perfect
storm now of inflationary pressures for corporate America.

Does this mean that we`ll see less production down the road? I mean, we
had a dearth of capital spending for a few years because companies were
loathed to build future factories because they were uncertain about the
future. Are we going to go back to that, again, do you think?

WARE: So, the good news is most of these things that your — at the core
of your question is, are companies going to produce more? Are companies
going to invest more? Are they going to expand their businesses? And that
is a function more of aggregate demand than any of the things that you

While those things are certainly something management teams take into
account when they`re making decisions at the business level, at the macro
level, if there`s demand for goods and services, then that typically
warrants the expansion that is the hiring of human capital and the
investment in productive fixed assets. So, I don`t think those things
together are likely to put us back to where we were. I still think we`re
probably on a trajectory of more growth than less, but these things are
certainly causing businesses to pause and to perhaps reassess what`s going
on given the uncertainties around trade.

HERERA: Lots of things to think about. Jason, thank you.

Jason Ware with Albion Financial Group.


GRIFFETH: OK. So, if you are concerned about how to protect your
investment portfolio from these rising inflationary pressures, joining us
tonight is Quint Tatro. He`s president and portfolio manager at Joule
Financial, with names of stocks that he says you might consider and those
that you might avoid.

You know, it`s been a long time, Quint, since people have had to think
about inflation-proofing their portfolio. Is that time near now, do you
think? .

pretty close. There`s no question all of the variables that you mentioned
to begin the show are investors need to be thinking about, and this is the
time period where you have to ask yourself, can this company pass the
inflationary pressures on to the customer and get away with it?

And that`s where you have to segment out your discretionary staples from
your — I`m sorry, your consumer staples from your consumer discretionary
name. Those companies that you have to keep buying from and those
companies that you buy from when you have a little extra money.

HERERA: So given that, what companies would you be looking at with maybe
renewed interest if you feel that part of your portfolio may be vulnerable
to those pricing pressures or inflationary pressures?

TATRO: Sure. This is your grocery store type stock, so you just go
through the aisles and you look at your Johnson & Johnson (NYSE:JNJ), your
Kraft (NYSE:KFT) Heinz, companies, again, that you are not going to shy
away from when they raise their prices. Coca-Cola (NYSE:KO), I mean, a
Warren Buffett favorite, you are always going to continue to buy your Coke
whether they raise it a dime or 20 cents.

And then you want to look on the other side and you want to try to avoid,
start weaning your portfolio away from companies that are going to not have
as easy a time to pass that through. That`s your Starbucks (NASDAQ:SBUX),
for example. Somebody, if they`re paying over $3 a gallon at the gas pumps
may not buy that for $1.50 latte. Look to that. They might skimp and not
take the family to a Disney (NYSE:DIS) or something along those lines.

So I think you have to be really looking through your portfolio and asking
yourself, you know, is this cheesecake factory a necessity?


TATRO: If it`s not, I think you got to consider selling those here.

GRIFFETH: Quickly, traditionally in the past when you hear inflation, you
think things like gold. Are you thinking gold here, as well?

TATRO: Absolutely. I`ve been talking to clients about that, but it has
not yet responded.


TATRO: I think gold is really waiting to see those wage numbers increase
which we have not seen yet, but in due time I think gold and the gold
mining space will be also something to consider for your portfolio.

GRIFFETH: Very good. Quint, always good to see you. Quint Tatro with
Joule Financial joining us tonight.

HERERA: It is time to take a look at some of today`s upgrades and

Dow component McDonald`s (NYSE:MCD) was downgrade to neutral from buy at
Cleveland Research. The analyst expects second-half comparable store sales
to trend in line with consensus expectations. The firm lowered its sales
estimates for this year and next. The shares fell 1 percent to $158.62.

Texas Instruments (NYSE:TXN) was upgraded to buy from neutral at Long Bell
Research. The analyst there calls the stock a semi-safe haven. The price
target is $134, but the stock fell more than 1 percent to $111.76.

GRIFFETH: Nordstrom (NYSE:JWN) was upgraded to outperform from market
perform at Telsey Advisory Group. The analyst cited the upscale retailer`s
long-term growth prospects, put the news price target at $57 and that stock
rose 2.5 percent today to $53.42.

Twitter was initiated with a reduced rating in new coverage at Nomura. The
analyst expects the social media company to report earnings below
expectations next year. The price target $31 and that stock rose a
fraction to $43.87.

HERERA: Still ahead, we will take you to the place where the blockbuster
deals are born.


GRIFFETH: It was a NATO summit like no other. President Trump today had
some tough words for some of our closest allies and it all comes down to

Eamon Javers is in Brussels for us tonight.


a series of meet and greets, with everyone in the military alliance
signaling to the world that the countries are friendly, united and ready to
fight to defend each other if necessary. But that message of harmony was
shattered this morning in Brussels as President Trump had breakfast with
NATO`s Secretary General Jens Stoltenberg, and dished out some harsh
criticism of Germany.

is a captive of Russia because they got rid of their coal plants, they got
rid of their nuclear, and they`re getting so much of the oil and gas from
Russia. I think it`s something that NATO has to look at. I think it`s
very inappropriate.

JAVERS: That prompted an immediate response from the German defense

what he means by that. Hard to say, but in general, yes, if there`s a
country in the region who has seen the change in Russian behavior, that is
Europe and within Europe, it is Germany, of course.

JAVERS: And it threatened to make for an awkward meeting when Trump sat
down with German Chancellor Angela Merkel hours later, but both sides stuck
to pleasantries.

TRUMP: I believe that our trade will increase and lots of other things
will increase, but we`ll see what happens over the next period of a few

JAVERS: Trump`s criticism was directed at an $11 billion pipeline for
Russian natural gas. Other European nations have criticized it for making
NATO too dependent on Russian resources.

The president is also frustrated by what he sees as low defense spending by
European members of NATO. In Brussels, he pressed them to spend even more
than their agreed upon level of 2 percent of GDP, up to 4 percent. That
met with a less than enthusiastic response from the secretary-general of

have agreed. And we have agreed to be committed to the pledge, increasing
defense spending to 2 percent. And let`s start with that. So, we have a
way to go, but the good news is that they really started to deliver.

JAVERS: Tomorrow, President Trump takes part in a multilateral session
with the leaders of Georgia and Ukraine and then he`ll fly directly to
England where he meets with the politically embattled British Prime
Minister Theresa May.

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


HERERA: Broadcom (NASDAQ:BRCM) may be closing in on CA (NASDAQ:CA)
Technologies. That`s where we begin tonight`s “Market Focus”.

After the bell, “The Wall Street Journal” reported the chipmaker was close
to acquiring the software firm for about $18 billion. The deal would come
just months after the White House blocked Broadcom`s more than $100 billion
bid for Qualcomm (NASDAQ:QCOM). Shares of Broadcom (NASDAQ:BRCM) initially
fell in after hours and they finished the regular day on the downside by
nearly 3 percent to $243.44.

Meanwhile, shares of CA (NASDAQ:CA) Tech initially rose in extended hours
and finished the regular day up a tick to $37.21.

Activision Blizzard (NASDAQ:ATVI) is bringing its e-sports video game
league mainstream, inking a multi-year deal with Disney (NYSE:DIS) to
broadcast matches on ESPN and ABC starting today. The deal highlights the
growing popularity for e-sports gaming and some market watchers expect to
reach into the billions of dollars in just a few years. Activision`s
shares climbed 3 percent to $78.61. Disney (NYSE:DIS) rose almost 2
percent to $108.04.

Pfizer (NYSE:PFE) says it plans to reorganize into three parts in
innovative medicines division and established medicines unit and its
consumer health care business. The drugmaker is still mulling over options
for its consumer health care business which makes Advil. Separately, the
company said it would delay price hikes on a number of its treatments after
it received criticism from President Trump. Pfizer (NYSE:PFE) shares fell
a fraction to $37.21.

GRIFFETH: Industrial parts distributor MSC Industrials said that growth in
e-commerce orders led to a rise in earnings and revenue and even though
profits were in line with estimates, sales missed the mark. The company
also warned that it`s beginning to see some price increases from suppliers
due to increased tariffs. Shares fell nearly 4.5 percent today to $80.86.

Fastenal (NASDAQ:FAST), that makes industrial and construction products as
well, it delivered earnings that were well ahead of estimates. The company
also raised its quarterly dividend to 40 cents a share. The company was
the best-performing stock on the S&P 500 today. It was up 10 percent to

And Papa John`s CEO has found himself in hot water once again. Chief
executive John Schnatter admitted to using a racial slur on a conference
call with analysts in May. He has apologized and said that racism has no
place in society. Last year, Schnatter created a stir after saying that
sales were hurt by the NFL`s handling of players kneeling during the
national anthem. Shares finished down nearly 5 percent today to $48.33.

HERERA: It`s that time of year again when some of the most powerful and
influential media and tech executives go to Sun Valley, Idaho, to attend
the Allen and Company Conference, and this year the drama centers on deals.

Julia Boorstin is there.


Valley, Idaho, deals are in the spotlight — specifically, the battles over
Fox and Sky, with Fox chairman Rupert Murdoch and Comcast (NASDAQ:CMCSA)
(NYSE:CCS) CEO Brian Roberts both here. Fox just upped its offer for sky
to top Comcast`s bid and Comcast (NASDAQ:CMCSA) (NYSE:CCS) is expected to
counter quickly.

We asked Murdoch if this could spark a bidding war.

How high are you willing to go for Sky?


BOORSTIN: That`s it? Not higher?

MURDOCH: We`ll see.

BOORSTIN: We`ll see?

The battle for Fox and Sky and the completion of AT&T`s acquisition of Time
Warner (NYSE:TWX) are expected to kick off the next wave of deals. And the
growing valuations of Fox and Sky speak to the growing value of premium
content companies and the scarcity of acquisition target.

TIM ARMSTRONG, OATH CEO: There is an expectation that there`s going to be
more M&A across the board just in terms of the media landscape. You know,
there`s been a lot of deals that have already happened and there`s a lot of
deals in process right now. But there`s only a limited amount of beach
front property out there, and I think that when you think about what you`re
seeing in terms of some of the bidding cycles and the things happening
today, the companies are trying to stay with the consumers and trying to
stay with scale.

BOORSTIN: So, who are potential buyers? Barry Diller, chairman of IAC, is
reportedly looking at buying Groupon (NASDAQ:GRPN). And Liberty Media`s
Greg Maffei is here. Though Chairman John Malone isn`t, we hear Maffei is
meeting about potential deals and partnerships for Liberty`s companies.

No comment from Jeff Bezos when asked if he`s interested in buying a media
company for Amazon (NASDAQ:AMZN), but there`s plenty of speculation that a
giant such as Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL) will make a move
into media.

Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX) can bring so much capital to
bear to invest in content. Netflix (NASDAQ:NFLX) investing billions of
dollars a year in content, it necessitates some consolidation in certain
areas of the industry and I expect you`ll see — I expect you will see a
lot more of it.

BOORSTIN: And it`s not just the public media and tech giants here. Uber
CEO Dara Khosrowshahi is here, along with Uber`s largest shareholder,
Softbank`s Masayoshi Son. He told us yesterday that he`s interested in
cybersecurity and AI companies, and there are several of those companies
speaking behind closed doors here at the conference.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Sun Valley, Idaho.


HERERA: And late tonight, Comcast (NASDAQ:CMCSA) (NYSE:CCS) increased its
over for Sky to $34 billion, that trumps Fox`s earlier offer of $32.5
billion for those assets.

GRIFFETH: Still ahead — so where were you ten years ago today?


HERERA: A decade ago, a key event happened in Pasadena, California. On
this day in 2008, the Fed seized mortgage lender Indymac and that
eventually led to the greatest financial crisis in a generation.

Jane Wells takes a look back to see how far we`ve come.


Ten years ago in July 2008, people waited for hours to get inside Indymac
Bank branches to withdraw all their money.

UNIDENTIFIED FEMALE: I wish I had known my bank better.

UNIDENTIFIED MALE: I just hope to be able to get my money back. That`s
all. This is my life savings.

UNIDENTIFIED MALE: Yes, we`re going to put it in another bank and, you
know, that one might go belly up any day now too. So, what are you going
to do?

WELLS: It goes around the block behind me to get into the headquarters.

The lines were long and the entire country watched.

That was Monday, July 14th, the FDIC had shut down the bank the previous
Friday afternoon July 11th because Indymac had made too many risky
mortgages, could no longer find investors willing to buy them on
securities, and because earlier reports that it was on shaky financial
ground had already led to a flood of withdrawals.

SHEILA BAIR, FORMER FDIC CHAIR: Well, it was pretty agonizing.

WELLS: Sheila Bair headed the FDIC back then, which spent over $12 billion
covering deposits, not just to the ensured limit at the time of a 100
grand, but up to the new limit of $250,000. She then sold what remained of
the bank to a group headed by Steve Mnuchin who renamed it OneWest.

market will stabilize and being a bank in that market will be an attractive
opportunity for us.

WELLS: But the market wasn`t attractive in 2008, 25 banks disappeared that
year, some of them predicted by analyst Dick Bove who doesn`t think such a
collapse will happen again any time soon.

DICK BOVE, HILTON CAPITAL MANAGEMENT: You know, at some point in time you
know, we will run a period where debt is growing faster than income and
that will result in some sort of a setback for the financial industry. But
it`s not happening right now, and it looks like it`s going to be tougher to
make it happen in the future.

BAIR: We have the CFPB which I hope is still going to be continuing to
operate and especially in the mortgage lending space. We needed the
mortgage lending standards and we have them now.

WELLS: Looking back on that stressful weekend, Sheila Bair wishes she had
not allowed Indymac`s immediate overseer, the Office of Thrift Supervision
or OTS, to close the bank on a Friday in the middle of the afternoon,
freaking out customers.

BAIR: If there was one mistake, I still kick myself for that, is we should
have waited until the regular closing hours were over before we closed the

WELLS: By the way, one other change since 2008? The OTS no longer exists.

For NIGHTLY BUSINESS REPORT, Jane Wells, Pasadena, California.


HERERA: Seems like yesterday.


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

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you


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Business Report is not and should not be considered as investment advice.
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