Transcript: Nightly Business Report – July 20, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: King dollar. The president
accuses China and the European union of manipulating their currencies and
the market responds.

Power outage. General Electric`s turnaround strategy hits a familiar snag
and profits dropped by 30 percent.

Canceled contracts. Why North Dakota`s big soybean business may be
struggling to survive.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Friday, July the 20th.

And we bid you good evening, everybody. Sue is off one more time tonight.

The market as you know has been focused on trade for some time now but
today that focus shifted to currencies, specifically the dollar which fell
during today`s trade and the reason for that decline was partly due to
comments from President Trump during a CNBC interview, some of which we
aired last night.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: In China, their currency is
dropping like a rock and our currency is going up. And I can`t — I have
to tell you, it puts us at a disadvantage.

(END VIDEO CLIP)

GRIFFETH: Then came a tweet in which the president wrote: China, the
European Union and others have been manipulating their currencies and
interest rates lower while the U.S. is raising rates while the dollar gets
stronger and stronger with each passing day taking away our big competitive
edge, as usual not a level playing field.

Now, those comments have been rattling the global markets with some concern
that a trade fight could turn into an all-out currency war.

Even though it`s too soon to tell what others might do if anything as far
as nations go, we asked Sara Eisen to explain how a currency war could
potentially impact investors.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A currency war has
competing nations purposely devaluing their currency to gain an
international trade advantage. They do it by using monetary policy. How
does a weaker currency create a trade advantage? As a country`s exchange
rate falls, the relative price of goods at exports also fall, increasing
their demand abroad. And that increase in exports can boost the country`s
economy.

There are many ways a country`s central bank can devalue its currency,
including lowering interest rates and printing money. That`s how you win a
currency war.

But there are potential risks with devaluation. Instability in the value
of a currency can discourage investment. Policies like printing money can
cause future inflation and currency wars create economic tension, which can
lead competing nations to punish each other with trade tariffs.

They can also increase market swings and uncertainty because ultimately, it
all rests on the whims of central bankers and policymakers.

These moves can be dramatic unpredictable and dangerous.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

GRIFFETH: Now, some prominent investors see currency swings as a big risk
to the markets. It`s a concern that was echoed this week at CNBC`s
Delivering Alpha Conference.

(BEGIN VIDEO CLIP)

MARY ERDOES, J.P. MORGAN ASSET MANAGEMENT CEO: The risk we haven`t talked
about on the asset management side and where you deploy assets as
currencies. And I would say that`s probably one of the things that weighs
heaviest on our mind are these — are these currency moves and they`re
becoming more pronounced and violent.

(END VIDEO CLIP)

GRIFFETH: We`re joined now by Erik Gordon. He`ll talk about why it`s so
important for investors to keep an eye on the dollar. Of course, he`s
professor the University of Michigan`s Ross School of Business.

Welcome back. Always — and a nice happy in the studio with us tonight as
well.

ERIK GORDON, UNIVERSITY OF MICHIGAN`S ROSS SCHOOL OF BUSINESS: Thank you,
Bill.

GRIFFETH: For investors — and I want to focus for investors on the
currency issue that`s going on right now. How much should they take into
consideration currency swings when they make their investments?

GORDON: Yes, it`s become important and it`s become more important because
it isn`t just about the trade balance. That trade balance flows through to
the companies. If the dollar is lower, people buy more of our goods our
companies do better. If you`re an investor, you would like to be in those
companies.

GRIFFETH: Typically, it — you know, people will say, stick — stay away
from multinationals, those that do a lot of business overseas when the
dollar is strong for example because our goods are more expensive that way.
Is it that simple?

GORDON: Well, you know, it`s never quite that simple because when the
dollar is strong, although our multinational companies do worse and you
probably don`t want to be in their stock, a strong dollar attracts money
from overseas. That goes into our stocks and that causes more demand.

So, you know, it`s a ticklish thing with a force going one direction and a
force going the other direction.

GRIFFETH: And interest rates are going up and, you know, it`s a very
complicated situation. But you bring up an interesting point that most
people don`t talk about as far as currency wars go — currency fluctuations
I should say, and investing. You`re looking at exchange-traded funds.
What role do they play?

GORDON: Yes, so a lot of us have our pension money or other money in ETFs
and index funds. So, we think we`re not participants in the war. It turns
out we are participants in the war, because these index funds contain —
well, lots and lots of companies. And over the last 10 or 20 years, lots
more of those companies do lots more of their business abroad. So, you
know, we tend to think — well, I`m not involved in this multinational
stuff, it turns out that my retirement is involved.

GRIFFETH: And if that`s the case, how do you — do you try and hedge? I
mean, you know, the big investors, they will hedge their currency risk.
What kind of little guy do?

GORDON: You know, it`s hard for somebody like me and the typical
individual investor to hedge. But if the currency is if the currency war
is disfavors multinationals, then you invest in companies that do most of
the business domestically. Hospital chains don`t have hospitals in other
countries.

GRIFFETH: Right.

GORDON: But when, if there is a competitive devaluation and our currency
goes down, then being in those multinationals is a very good idea.

GRIFFETH: Very good. Eric, always good to see you. Thank you.

GORDON: My pleasure.

GRIFFETH: Enjoy your time in New York City.

GORDON: Thank you.

GRIFFETH: Eric Gordon with the University of Michigan`s Ross School of
Business joining us tonight.

On Wall Street, the Dow was able to post its first three-week wind streaks
since January, even though it did close slightly lower today. The
industrial average lost six points, closed to 25,058. The Nasdaq was down
five, the S&P fell by two. And for the week, the Dow and the S&P were
higher, while the Nasdaq was slightly lower.

A familiar problem continued to hang over General Electric (NYSE:GE) during
the most recent quarter. That would be its power unit. Weakness their
force the former Dow component to cut a financial target and shares fell 4
percent in trading today as a result, despite reporting better than
expected earnings and revenue overall.

Morgan Brennan has more now on GE`s results.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Powering through
the pain. That was the message from General Electric (NYSE:GE) today when
it reported a 30 percent drop in profit. Weakness in the hard-hit power
division continued to offset growth in GE`s other major units, especially
health care and aviation. On a call of analyst, CEO John Flannery said the
struggling company has made significant progress in what he describes as a
reset year.

JOHN FLANNERY, GENERAL ELECTRIC CEO: We expect the second half to be
better than the first half. GE is on a multi-year transformational journey
and the path forward is clear. Overall, we feel good about our execution.
We see strength across the majority of the portfolio. We remain focused on
implementing the broad macro strategic changes we outlined in June, while
making sure our micro execution in each business continues to improve
across the company.

BRENNAN: While GE stuck with its 2018 profit goal, it did say free cash
flow from its industrial businesses would be about $6 billion, or the low
end of previous guidance.

Even so, the stock fell as some analysts feared it`s a financial bar that
may still be too high to hurdle. But GE is in flux. It recently unveiled
a roadmap to restructure, spinning off healthcare into a standalone company
and exiting its majority stake in Baker Hughes (NYSE:BHI), moves that have
been so far welcomed by Wall Street.

JACK DE GAN, HARBOR ADVISORY CIO: Flannery was handed a very difficult to
hand and I think he`s doing a good job. He knows he can create value by
spinning medical and oil and gas, and that will work. His difficulty is
going to be digging out of the hole thereafter with still a big pension
underfunding and again about 50 percent of the industrial revenues in power
which is a division that`s going to struggle to generate organic growth.

BRENNAN: GE`s pension shortfall is nearly $30 billion, the largest in the
S&P 500.

The other big topics day though tariffs, given GE`s global footprint. To
that, Flannery said GE is a company built for fair and open trade, but if
over time, it`s necessary it could always shift its supply chain to counter
trade winds.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the New York Stock
Exchange.

(END VIDEOTAPE)

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

We begin with Microsoft (NASDAQ:MSFT). Their price target was lifted to
one hundred and eighteen dollars a share from Stifel Nicolaus, following
the company`s earnings that we told you about yesterday. The analysts
cited momentum across Microsoft`s cloud and gaming units and their rating
remains buy as a result. The stock rose more than 1-1/2 percent today to
$106.27.

Six Flags was downgraded to neutral from outperform at Wedbush. The
analyst there cited headwinds facing the firm, including weather and a high
stock valuation. Price target: $70. The stock fell more than 4 percent
today to $67.64.

Skechers was also downgraded to neutral from positive at Susquehanna. The
firm cites a negative outlook following the company`s very disappointing
earnings report of yesterday. Price target: $26. Shares dropped by 21
percent today to $26.27.

Still ahead, soybeans get squeezed.

(BEGIN VIDEO CLIP)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Contessa
Brewer in Portland, North Dakota, where farmers are feeling the pinch from
this U.S.-China trade war. Twenty-five percent tariff slapped on their
soybeans just when they`re coming into a bountiful harvest.

I have more ahead on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: Now to trade where the president said that he is ready to go
with tariffs on all $500 billion worth of Chinese goods that come into this
country. He made those comments in an interview with CNBC`s Joe Kernen.

(BEGIN VIDEO CLIP)

TRUMP: We`re down a tremendous amount. I raised 50, and they matched us.
I say, you don`t match us. You can`t match us because otherwise we`re
always going to be behind the 8-ball.

JOE KERNEN, CNBC: Would you ever get to 500, though? We`ve got the –

TRUMP: I`m ready to go to 500.

(END VIDEO CLIP)

GRIFFETH: And it was that phrase “ready to go” that grabbed investor
attention. As you know, the Trump administration has so far imposed
tariffs on $34 billion worth of Chinese products, which was then matched by
Beijing, and the White House then threatened to impose another round of
tariffs on $200 billion worth of Chinese imports.

One industry caught in the middle of this trade war between the United
States and China is the soybean business. It has American farmers
scrambling to find new markets.

Contessa Brewer is in Portland, North Dakota, for us tonight.

(BEGIN VIDEOTAPE)

BREWER: In North Dakota, where county roads aren`t paved and where
neighbors live far apart, soybeans are big business.

PETE HAUGEN, SOYBEAN FARMER: It`s a better opportunity with these food
grade soybeans. There`s a little better market for it and it`s expanding
worldwide.

BREWER: In fact, soybean production in this state has grown exponentially
since 2000, exporting more than 70 percent to other countries. And the
number one consumer, China, which buys as much as $35 million worth of
North Dakota soybeans every year.

But this year, China slapped a 25 percent tariff on American soybean.

HAUGEN: A lot of producers might not survive this.
BREWER: As processors head to August when contracts are typically locked
down with foreign buyers, across North Dakota, all the firm China`s soybean
contracts have been cancelled. Chinese trade groups that were scheduled to
visit have either pulled out or stopped communicating.

RICK BRANDENBERGER, RICHLAND IFC PRESIDENT: It`s just not China. It`s —
it seemed like we simultaneously picked a fight with everyone.

BREWER: At grain processor Richland IFC, 23 percent of the food grade
soybean exports are sent to China. President Rick Brandenberger has been
investing millions to expand his facilities and his Chinese customer base.
But the new trade war is threatening those plans, with contracts cancelled
immediately when the retaliatory tariffs went into effect.

BRANDENBERGER: We actually redirected shipments to — from — that there
were in route to China to other countries, to alternative markets at that
time.

BREWER: But lost $40,000 in the process.

North Dakota`s trade office is scrambling for other buyers, for what looks
like a bountiful harvest.

SIMON WILSON, NORTH DAKOTA TRADE OFFICE: It`s pretty difficult to really
move overnight and try to find a brand new customer. You know, these are
relationships that are built up over years and years and multiple visits
and meetings, and just to pick up and move and find somebody else, it`s
going to be pretty difficult.

BREWER: Most farmers here can`t afford a lengthy trade war. Soybean
prices have been low, but in the three months or so since China started
talking tough about tariffs, they plummeted almost 20 percent. Now they
stand at $8.50 per bushel. And to break even, farmers need at least $9.

HAUGEN: We don`t want to be in business to break even but this year alone,
I think if the prices stay where they are, a lot of people could really
suffer.

BREWER: While Washington takes a long view of global trade issues, here,
farmers worry how long they can sustain their amber waves of grain.

In Portland, North Dakota, Contessa Brewer, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GRIFFETH: Now, China is also a huge growth market for Starbucks
(NASDAQ:SBUX). The company recently said that it plans to open a new store
every 15 hours over the next four years, but it also faces new competition
in this case from a Chinese startup.

Eunice Yoon is in Beijing for us tonight.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m at Starbuck`s
newest competitor in China. The chain is called Luckin. The name comes
from the Chinese race in or luck and happiness. The logo is of a deer
that`s native to China.

And that`s really what makes this company and this Starbucks (NASDAQ:SBUX)
rival different from the others because it`s totally homegrown. I spoke to
one of the co-founders Eric Guo who told me Luckin is different from
Starbucks (NASDAQ:SBUX) because it`s betting that Chinese will be doing
everything with their mobile phones, so you can only pay for the app, no
cash.

And many of their stores double as delivery stations, since more Chinese
like to order food and drinks online. You get your coffee within 30
minutes or it`s free.

ERIC GUO, LUCKIN CO-FOUNDER (through translator): The old way is people
looking for coffee. With us, coffee finds them.

YOON: Like other Chinese rivals two foreign companies, Luckin compete on
price. Its drinks are about 20 or 30 percent cheaper than Starbucks
(NASDAQ:SBUX).

It`s also openly criticizing Starbucks (NASDAQ:SBUX). Luckin recently
wrote an open letter about what it described as Starbucks`s monopolistic
practices and Guo said Luckin is suing.

GUO: We believe Starbucks (NASDAQ:SBUX) behavior undermines fair
competition and prevents Chinese customers for having convenient access to
high-quality coffee at a reasonable price.

YOON: As for the trade war, Guo said that he doesn`t believe that Luckin
will benefit because of the Chinese brand. But just this week, the state
media interviewed customers here who said that they prefer Luckin to
Starbucks (NASDAQ:SBUX) because of the trade war.

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

(END VIDEOTAPE)

GRIFFETH: Honeywell raises its full-year profit outlook for the third
time. That`s where we begin tonight`s “Market Focus”.

The aerospace and defense company revised its 2018 guidance after it said
stronger demand for aircraft parts led to an overall earnings beat in the
quarter. As for that tariff impact, Honeywell said that it has started
outsourcing components from other countries other than China, and it has
raised prices on some of its products as well. Honeywell up nearly 4
percent today to $153.13.

A rise in sales led to stronger than expected earnings at Stanley Black &
Decker (NYSE:SWK). That company did cut its profit outlook for the year,
but said that that`s largely due to the costs tied to a settlement to clean
up toxic contamination at a superfund site. Shares rose 3 percent today to
$144.23.

VF Corp said that it expects profits and revenue to accelerate this year,
thanks to rising demand for its Vans sneakers. The parent company of
brands like North Face and Wrangler jeans reported higher quarterly revenue
as e-commerce and international sales also grew. VF up 4 percent on the
day at $92.94.

And financial services companies State Street (NYSE:STT) said that it is
buying privately held analytics software firm Charles Rivers Systems for
nearly $3 billion. State Street (NYSE:STT) will now have access to a
service platform that gives clients greater flexibility. State Street
(NYSE:STT) said that more value and efficiencies will also arise from this
transaction.

(BEGIN VIDEO CLIP)

RONALD O`HANLEY, STATE STREET PRESIDENT & COO: We`re simplifying their own
operation, lowering their costs and in most importantly, giving them access
to data in a way that they can inject it back into their own investment
process. So, it`s a — it`s a highly flexible system that utilizes either
our capabilities or the capabilities of others but in a seamless way.

(END VIDEO CLIP)

GRIFFETH: The company did say though that it would have to suspend its
$950 million share buyback to fund this deal. Shares fell by 7 percent
today to $85.87.

“The Financial Times” is reporting that drugmaker GlaxoSmithKline`s
chairman is considering splitting up that company. Phillip Hampton is said
to have spoken with the company`s largest shareholders talking about
creating a pharma and vaccine division which would be separate from its
consumer health business. Glaxo rose nearly 3 percent today to $41.87.

This week`s market monitor is digging for value, not an easy task in a
growth market. The last time he was with us was in August of last year.
He picked Shire (NASDAQ:SHPGY) which since then is up 16 percent, Americo,
that`s added 4 percent since then, and NCR (NYSE:NCR) which has declined by
13 percent.

Back with us, Richard Steinberg. He`s president, chief investment officer
of Steinberg Louisville Asset Management.

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

RICHARD STEINBERG, STEINBERG GLOBAL ASSET MANAGEMENT CIO: Always good to
see you, Bill.

GRIFFETH: Two out of three, I guess it`s not bad. Do you still like NCR
(NYSE:NCR)?

STEINBERG: We own all three. Yes, NCR (NYSE:NCR) I think will start to
come along as the financials start to pick up and, you know, when you buy
these value stocks, you have to look out three years on them.

GRIFFETH: You are a classic value investor and I always ask you when we`re
in the midst of a market like this where we sit near all-time highs, is it
tougher to find value right now?

STEINBERG: Yes, we`ve been digging deep. Our analysts are scrubbing not
only numbers but also conference calls to see what names are just kind of
out of favor but not broken, and that`s why we have three new names today
that fall into that special situations category.

GRIFFETH: First up, Novocure in cancer treatment.

STEINBERG: So, really — yes, it`s a really interesting oncology play.
They have a technology called tumor treating fields. The device is called
Optune. It looks almost like a sci-fi cap that goes on the patient`s head
and with chemo, the science has been excellent. We think the stock is
worth 54 bucks or 40 percent higher here. And if the FDA gives them
approval down the road for other tumors either below the neck or brain
tumors, that could be even more upside to that name.

GRIFFETH: And yes, I was going to say that has had a good ride this year,
in the last couple of years as a matter of fact.

Here`s now, Yelp. Now here`s one that has suffered and you have to again
you`re trying to find one that has value that`s not broken.

STEINBERG: Yes, this is not a FANG name. It`s busted but certainly not
broken. The stock, you know, connects consumers with companies. It`s an
ad play. You`ve — many people have seen the Yelp reviews either on their
iPhones or online.

It`s really also millennial play because millennials won`t make any
decisions without looking at an app. The stock has no debt, trades at 24
times cash flow, and we think it`s worth 64 bucks. A lot of upside to
this.

Also they`ve been growing their earnings at 43 percent per year over the
last five years, and we think it`s cheap. It could also be an acquisition
candidate down the road if somebody wants ad in the space.

GRIFFETH: Finally, American Tower (NYSE:AMT). So many people pick this
one in the values space. It`s a real estate investment trust. I`m
surprised it doesn`t yield more than it does. It`s only 2.19 percent. I
guess that`s a function of its stock performance as well, huh?

STEINBERG: It`s also a growth rate. Yes, and they`re constantly
reinvesting. They have 160,000 sites throughout the world. Forty-four
percent of their business is outside.

But we like this because it`s an oligopoly. You have American Tower
(NYSE:AMT), you have SBA Communications (NASDAQ:SBAC) and you have Crown
Castle, and they`re the 800-pound gorilla. The stock trades at under 18
times, free cash flow. The stocks been beaten up because of some issues in
consolidation in India, but we think the stocks really interesting at these
levels. We have $180 price target, which is 30 percent from here, and I
think it`s a name you can put away for three years.

GRIFFETH: All right. Rich, always good to see you. Enjoy the rest of
your summer.

STEINBERG: Take care. Bye, Bill.

GRIFFETH: Richard Steinberg with Steinberg Global Asset Management joining
us. And to read more about his picks, you can head to our website at
NBR.com.

Coming up, FanDuel`s big wager on the future of sports betting.

(MUSIC)

GRIFFETH: Right now, consumers are paying more than $100 billion in credit
card interest and fees. That`s according to new research that says the 10
percent more than a year ago and about 40 percent more than we were paying
in 2013. Part of the reason is because interest rates are taking higher
and total credit card debt stands at more than $1 trillion right now.

Sports betting is changing. A recent Supreme Court ruling has ushered in a
new era for gamblers placing wagers on their favorite teams.

And as Eric Chemi reports for us now, FanDuel wants to make sure it`s
leading the charge.

(BEGIN VIDEOTAPE)

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been just a few
weeks since the Supreme Court opened the door for legalized sports betting,
with New Jersey among the state`s leading the way. The newest legal sports
book is now open at Meadowlands Park located just a couple miles from
Manhattan and home to the NFL`s Giants and Jets. It will be run by FanDuel
who`s hoping to cash in with their first brick-and-mortar location.

MATT KING, FANDUEL GROUP CEO: It`s a great way to build our brand and
continue our ongoing effort to become an inextricable kind of part of
people`s sporting experience. And so, particularly given the Meadowlands
location right next to Jets and Giants stadium, you can`t get closer to
sports than that.

CHEMI: Through FanDuel`s recent merger with European operator Paddy Power
Betfair, they plan on being involved in every part of the action, with
plans to launch an online sports betting an Internet casino just ahead of
NFL season.

KING: We really create a business that has several lines of business. One
is the FanDuel Fantasy Business. Two is the FanDuel Sports Book. Three is
the online casino business, which is the second-largest in New Jersey, and
then the fourth is TVG, which is the largest online horse wagering
business.

And so, across those four businesses we are the largest online gaming
operator in the U.S. today.

CHEMI: Morgan Stanley (NYSE:MS) expects by 2025, there could be $5 billion
in sports gambling revenue nationwide. But it also sees a wide range,
anywhere from a billion dollars in the bear case to $11 billion in the bull
case. It all depends on how many states legalize sports gambling and what
kind of rules they put in place.

KING: We`ve largely tackled the challenges of operating different game
types in different states and dealing with different eligibility
requirements. And so, we don`t look at it to be that much of a challenge
to operate in various states. It just means that you need to make sure you
have great relationships with all the various regulators and have a
flexible technology solution in which we have both of.

CHEMI: Industry analysts expect to see more mergers like the one between
FanDuel and Paddy Power Betfair, combining a domestic company with a large
list of customers, along with a proven gambling operator.

KING: We think that we have a great advantage. We exist in the leadership
position today as being the largest online gaming operator in the U.S. We
have the largest database of (INAUDIBLE) seed users, so users that have
actually been verified that they can bet. We have a brand that people
trust and associate with real money gaming, and we think that we have great
product.

And so, across those things, we think that that`s a huge advantage that
we`ll be able to parlay into a continued leadership position as the market
goes through. And what we think will be a hyper growth period.

CHEMI: By the time this NFL season kicks off in September, expect to see a
lot more action on the sidelines and in the audience.

For NIGHTLY BUSINESS REPORT, I`m Eric Chemi.

(END VIDEOTAPE)

GRIFFETH: And that is NBR for tonight. Again, as always, we thank you for
watching. Have a wonderful weekend. We`ll see you on Monday.

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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