BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Roadmap. The U.S. and
China are plotting out their trade talks and investors breathe a sigh of
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Critical shortage. A life-
saving medicine that`s becoming harder to get at a time when demand usually
GRIFFETH: Sticker shock. Why full-sized pickup trucks now come with a
super-sized price tag.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Friday, August the 17th.
HERERA: Good evening, everyone, and welcome.
So just how important is trade with China to the markets? Today, we
learned that it is key. Stocks were flat for most of the morning but all
that changed when a report surfaced that President Trump and President Xi
hoped to discuss trade in November. And there`s currently a plan being
worked on ahead of mid-level talks next week.
That lifted the Dow by 110 points to 25,669. The Nasdaq and the S&P 500
both rose by 9. Th, major indexes were mixed for the week.
GRIFFETH: Now, going into those trade talks the White House has been
playing up what it calls China`s economic decline. But some say a closer
look at the numbers show things may not be all that bad.
Bob Pisani has more.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s stock market is
in terrible shape but it may not reflect the state of the Chinese economy.
President Trump`s national economic council chief Larry Kudlow raised
eyebrows when he said in a meeting with president Trump that China`s
economy, quote, looks terrible. Does it really?
Most estimates show China`s GDP growth near 6.5 percent. That doesn`t mean
there aren`t concerns. New U.S. tariffs are making it more costly for
companies there to operate, and China`s central bank has been pumping money
into the economy.
But many experts say the 25 percent drop in the Shanghai Exchange from its
January high does not really reflect a dramatic deterioration in the
Chinese economy. In fact, it tells us very little and doesn`t necessarily
play anywhere near as dominant a role in the lives of its citizens as the
U.S. equity market does. The Shanghai market rallied from 14 and 2015,
more than doubled in value. But again it collapsed and is trading 45
percent lower than 2015.
According to one analyst, this is have very little impact on consumer
spending or business sentiment. There`s a bit of a disconnect here. The
fact that China`s stock market does not necessarily reflect the state of
the Chinese economy has very important policy implications. So for
example, further declines in Chinese equities may not push the country`s
leaders into an unfavorable trade deal with the United States.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: There is also progress being made on trade with Mexico. A top
White House economic adviser said that Washington is, quote, very, very
close to coming to an agreement. Mexico`s economy minister made similar
comments today, saying he hopes to resolve issues surrounding the
renegotiation of NATFA by the middle of next week.
GRIFFETH: Now, despite the positive news on trade today, there are other
issues the market has to contend with and that`s one of the reasons why
PIMCO is talking about the potential risk of recession.
Mihir Worah is chief investment officer at asset allocation at PIMCO, and
he joins us with more on that.
Mihir, welcome. Thanks for joining us tonight.
MIHIR WORAH, PIMCO CIO OF ASSET ALLOCATION: It`s my pleasure.
GRIFFETH: You`re waving a kind of a yellow flag in this regard. Let`s go
through some of the indicators that you`re watching very carefully. The
first is inflation. Things are picking up, aren`t they?
WORAH: Yes, we`re starting to see inflation pick up. Nothing dramatic.
Inflation`s going to end this year around 2.5 percent, up from 1.5 percent
last year. But inflation is a lagging indicator, and the key thing is
where we are today, if you`re wrong about the 2.5 percent, all the risks
are to the upside. Whether it`s from a trade war, whether it`s from the
trillion-dollar deficit that we`re running at a 4 percent unemployment
rate, or whether it`s from oil prices spiking. So, it is one of the things
HERERA: Which leads you to being concerned about the correlation between
stocks and bonds and the inability for the average investor to perhaps
WORAH: Right. So, bonds are a great diversifier in a plain, vanilla
recession. If you have a plain vanilla recession, then treasuries would be
your best asset to own. However, along the way, as inflation starts to
rise, you may find the stock — you know, bonds may not be such a great
diversifier versus stocks. So, we look at other things like gold, for
example, to help you in your portfolio.
GRIFFETH: It`s a very technical term, dispersion, that you`re watching.
But basically it`s where investors basically get their best returns. And
it`s been concentrated for so long on equities. But you`re starting to see
it disperse into other areas too, right?
WORAH: That`s right. You`re going to see — you`re going to see more
volatility. You`re going to see more winners and losers. You know, for
example, for the last several years when the economy was growing strongly
and the Fed was not hiking rates, was suppressing volatility, you could buy
almost anything and it would go up in price.
We think this is a time to start being more careful. One of the things we
particularly like are short-dated corporate bonds at 3 percent, 3.5 percent
yields, these are giving you decent returns without taking a lot of risk.
GRIFFETH: All right, Mihir, thank you. Mihir Worah waving the yellow flag
on recession from PIMCO tonight. Thanks for joining us.
HERERA: Well, along those lines, consumer sentiment hit its lowest level
since September. That`s according to the University of Michigan`s index.
Consumers are concerned about rising prices. The decline in sentiment was
primarily seen among less-affluent households.
GRIFFETH: President Trump has asked the SEC to study the possibility of
requiring publicly traded companies to release their earnings results only
twice a year instead of the current norm of four times a year. The
president said the idea came up during a meeting he recently had with
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNTIED STATES: This took place when I had
a, you know, a — the world`s top executives, among the world`s top
executives, and the head of Pepsi-Cola, a great woman who is now retiring.
She said, because I asked, what could we do to make it even better? And
she said, two-time-a-year reporting, not quarterly.
And I thought of it and it made sense to me, because, you know, we are not
thinking far enough out. We`ve been accused of that for a long time, this
country. But we`re looking at that very, very seriously. We`re looking at
twice-a-year instead of four times a year.
(END VIDEO CLIP)
GRIFFETH: And, in fact, Pepsi`s outgoing CEO Indra Nooyi confirmed that
report. She says the idea of allowing companies to focus on their longer-
term strategy is also being discussed among Business Roundtable members.
And late today, the SEC said, in fact, it does continue to study public
company reporting requirements, including the frequency of those reports.
HERERA: Tesla`s CEO, Elon Musk, gave an interview to “The New York Times
(NYSE:NYT)” which is being described as emotional and off-kilter. He
called the past year, quote, excruciating and the most difficult and
painful of his career. Details of his struggles sent the stock down nearly
9 percent today. As you know, things intensified for Mr. Musk last week
when he tweeted that he had the funding to take the company private. As we
reported last night, the SEC is reportedly investigating whether the tweet
was intended to hurt short-sellers.
GRIFFETH: You know, short-sellers are sometimes portrayed as the bad guys
on Wall Street. They`re rooting for company stocks to go down. But
shorting is a legitimate investment strategy.
Dominic Chu explains how it works.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Buy low, sell high.
That`s simple market cliche capturing the essence of investing. Purchase
an asset like a stock today at a certain price. And if it goes up in
value, sell it for a higher price at a profit.
For most investors, if that formula works, you make money. If it goes down
in value, you lose. But what if you could make money by simply reversing
the steps? Sell high, then buy low.
That`s the basic framework for a short sale. Here`s how it works. Let`s
say ZYX corporation shares are trading at 100 bucks each. But a trader
believes that the shares are only worth about $90, given its business
That trader then goes out on the hunt for anyone who owns shares of the
company who`s willing to let her borrow them with a promise to return them
at some point in the future. Once the shares have been borrowed, the
trader sells them at the current $100 price and pockets the money.
If she`s right and shares fall to $90 in the future, she then takes her
money, buys the stock at $90, and returns those shares to the original
owner. Sell high, get $100, buy low, spend $90, keep the $10 profit.
But the flip side is if the shares go up in value, the trader loses.
Theoretically, the potential loss is unlimited in a short sale transaction,
which is why only seasoned traders use the strategy. The actual
transaction and logistics of a short sale are more complicated, but you get
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
GRIFFETH: And right now, the five most shorted stocks in the S&P 500 are
Under Armour (NYSE:UA), Discovery Communications (NASDAQ:DISCA), Mattel
(NASDAQ:MAT), Advanced Micro Devices (NYSE:AMD), and Kohl`s (NYSE:KSS).
HERERA: So, let`s turn now to Aswath Damodaran for more on short-selling
and the role that it plays in the stock market. He`s a professor of
finance at NYU`s Stern School of Business.
Welcome. It`s nice to have you here.
ASWATH DAMODARAN, NYU STERN SCHOOL OF BUSINESS: Glad to be here.
HERERA: So, talk to me about the fact that you think that the short-seller
in the market is part of an overall healthy environment for the market,
DAMODARAN: Yes, I`ve never understood why people think being long is
moral, being short is immoral. There`s something wrong with the picture to
If you believe that something`s going to go up and you want to buy the
stock and hold it, all the more power to you. By the same rationale, if
you think something is overpriced, I think you should be able to bet
against that investment. I think it`s healthy for the market to have both
optimists and pessimists in the room.
GRIFFETH: We show the five companies that have the highest what`s called
short interest, the highest number of shares that have been shorted by
short-sellers. Are those necessarily companies that investors should avoid
if they want the stock to go up?
DAMODARAN: No, I think there`s just companies where there`s a lot of
disagreement about the future. I mean, some of the most successful
companies in the world have been short targets at some point in time,
including the FANG stocks. When you look at Facebook (NASDAQ:FB), and
Amazon (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX), Google (NASDAQ:GOOG) — at
some point in time each of these companies has been targeted.
They`ve managed to succeed and become incredible companies in spite of the
shorting. So, I`ve never believed just because people are down on a stock
that you shouldn`t invest in it.
HERERA: You make the point it`s not the short-selling in itself that`s
damaging to the company, but rather, it`s the reaction of management to
DAMODARAN: I think managers overreact to both short-sellers and people who
are long on the stock. They manage the price instead of managing the value
of the company. I think any management that focuses on what investors are
doing in the marketplace is doing the wrong thing.
I think management needs to focus on what they need to do within the
company. And let the market take care of itself.
GRIFFETH: I`m tempted to ask, you know, there are going to be people
watching saying, maybe I should try this. Should the average investor
think about short-selling? What do you say?
DAMODARAN: There are two constraints you`ve got to keep in mind. The
first when is you sell short, your time horizon is not often under your
I mean, I`ll give an example. You buy something, you can hold and hold as
long as you can hold on. But research shows your time horizon might not be
under your control.
The second is when you go out there and try to get those shares to return
them, they might not be around. That`s the short squeeze. If you walk in
with open eyes, there`s nothing wrong with short-selling. But if you think
it`s an easy game to play, you`re in the wrong game.
HERERA: On that note, Aswath Damodaran, thank you so much for joining us.
DAMODARAN: Thank you.
HERERA: He`s with NYU`s Stern School of Business.
GRIFFETH: All right. Time to take a look at some of today`s upgrades and
We have a downgrade for Walmart but it`s not as bad as it sounds. Raymond
James is cutting its rating on the stock to outperform, from strong buy.
The analyst says Walmart`s purchase of Flipkart will weigh on operating
earnings. Flipkart is India`s largest e-commerce company.
Price target now on Walmart, $107. That stock fell a fraction today to
Dean Foods (NYSE:DF) was downgraded to underweight from neutral at JPMorgan
(NYSE:JPM). The analyst cites reduced confidence in that company`s ability
to meet expectations. Price target reduced to $6, the stock fell about 5
percent to $8.20.
HERERA: Yum China`s rating was downgraded to perform from outperform at
Oppenheimer. The analyst cites headwinds at its KFC brand. He also says
same-store sales improvement could take several quarters. The stock fell 1
percent to $34.86.
DSW`s rating was cut to negative from neutral at Susquehanna. The analyst
cites margin pressure from its loyalty program and higher costs. The price
target is $22, the stock fell almost 5 percent to $26.49.
GRIFFETH: Still ahead: farmers are spending money on machinery despite
trade concerns. And that`s good news for Deere.
GRIFFETH: With many farmers growing concerned about rising tariffs, many
Wall Street analysts expected that that would negatively affect Deere`s
latest results. But as it turns out, the equipment-maker said today that
demand is still strong and that helped lift the stock.
Morgan Brennan digs deeper into Deere`s report.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite trade
tensions, John Deere saying replacement demand for big agricultural
equipment is boosting sales and expects that at least for now to continue.
On a conference call with analysts, chief financial officer Raj Kalathur
gave an upbeat outlook.
RAJ KALATHUR, CFO, DEERE: Global demand for grain continues to grow
consistently even as trade flow factors and to readjust to accommodate
various policy changes. Overall, we are encouraged by the outlook for the
rest of 2018 and the early interest for our latest technology to come in
BRENNAN: It was enough to turn the stock around after shares of the farm
and construction equipment maker started the day lower on an earnings miss.
So, equipment sales roles by more than 30 percent but fell short of
expectations due to higher costs for material, think steel, and freight.
Deere also stuck with its prior full-year guidance which had analysts
wondering whether and after years of slumping demand, the company`s recent
recovery could yield higher equipment prices.
ANN DUIGNAN, JPMORGAN ANALYST: If you`re at the peak of the cycle or in
the sweet spot of demand and you can`t get pricing power at this point in
the cycle, you`re never going to get that. That`s the concern that
investors have in these technical stocks.
BRENNAN: Deere shares down about 17 percent over the past six months, seen
as at-risk due to trade tensions between the U.S. and China. The concern,
the Chinese tariffs on U.S. stocks like soybeans could mean less demand,
the tractors and combines that Deere makes. But the company`s also been
dinged by higher steel prices, but tariffs on that metal have helped push
Still, the optimistic guidance helped buoy shares, sending them higher as
demand runs like, well, a deer.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the New York Stock
HERERA: Campbell Soup (NYSE:CPB (NYSE:CPF)) is getting serious about
selling off some of its assets. That`s where we begin tonight`s “Market
The company has reportedly hired Goldman Sachs (NYSE:GS) to look at its
options. The sale of some units would help pay down debt left in the wake
of its $6 billion acquisition of the pretzel maker Snyder`s-Lance
(NASDAQ:LNCE), the story first reported by CNBC. The stock hugged the flat
line most of the day rising 1 cent to $42.04.
Google`s CEO told employees the company is not rushing to launch a search
product for China. That was good news for Baidu (NASDAQ:BIDU), which is a
prominent Internet search firm in that country and it gave the stock a
lift, rising 2 percent to $222.67. Google (NASDAQ:GOOG) shares fell to
GRIFFETH: Morgan Stanley (NYSE:MS) is cutting its profit estimates for
General Motors (NYSE:GM). The analyst there says GM relative to its peers
has the biggest exposure to China in terms of profitability and cash flow.
The firm says GM is also facing increased competition there. The stock
rose along with the broader market to close at 36.38.
Meanwhile, Amazon (NASDAQ:AMZN) is reportedly planning to take on TiVo
(NASDAQ:TIVO). According to Bloomberg, the company is creating a new type
of digital video recorder for the streaming era. That sent TiVo
(NASDAQ:TIVO) shares down 4 percent to $12.20. Shares of Amazon
(NASDAQ:AMZN) were off a fraction today to $1,882.22.
HERERA: It is time now for our weekly market monitor. The last time he
was on in November of 2017, he picked Cisco (NASDAQ:CSCO), which is up 26
percent. Vanguard Dividend Appreciation ETF up 10 percent. And Fidelity
MSCI (NYSE:MSCI) Healthcare ETF, which is 14 percent higher.
Jim Lowell rejoins us. He`s the chief investment offer at Adviser
Welcome back, Jim. And congratulations on those picks.
JIM LOWELL, CHIEF INVESTMENT OFFICER, ADVISERS INVESTMENTS: Thank you very
much. Good to be back.
HERERA: You have a little bit of a defensive strategy, not outward, but
you`re saying that basically we`re a little long in the tooth and you never
know what`s going to happen, so you`ve picked a few stocks that might
shield our investors, right?
LOWELL: That`s right. I characterize it as defensive growth. Look, the
fundamentals are strong. Earnings, interest rates, economic data suggests
slow growth, not no growth, is the road we`re on.
But we know that this midterm election coming up is going to be vitriolic
LOWELL: And we think the chance for negative momentum, a mood shift in the
market is there. So, defensive growth makes sense.
Vanguard Dividend Appreciation —
HERERA: That`s your first pick.
LOWELL: First pick, that`s an ETF that basically had battleship balance
sheet, blue chip names, companies that have consecutively raised dividends
over the past 10 years or more, so they have cash in the coffers, solid
management, good low-risk profile.
I also continue to like Fidelity`s MSCI (NYSE:MSCI) Healthcare ETF, a broad
swath of everything from major pharmas to HMOs to medical equipment systems
as well as cloud technology. Healthcare`s low-risk, high-return relative
to the overall growth stock group makes it a good defensive growth play.
And then on the bond side of the fence, I think hopefully everybody is
relatively short in the investment grade duration space. Something to
complement that could be VanEck Fallen Angels high-yield ETF. It looks at
high-yield bonds that were formerly investment grade bonds that fell off
that wagon but have a chance of climbing back up.
The risk/return profile there, again, especially in a slow-growth, as
opposed to a no-growth economy, looks like it`s worth a reward. That is
currently yielding north of 5.5 percent.
GRIFFETH: Always a great bow tie there too, by the way.
LOWELL: Thanks, Bill.
GRIFFETH: Do you have a timeline for this? I mean, you`re clearly
becoming defensive. You`re looking at slow growth. But how much time are
you giving yourself to see this slow growth play out?
LOWELL: So, we`re definitely going to look at what happens not just up to
but through the midterm elections in terms of how could impact policies
that have clearly been creating uncertainty for not just the domestic but
global markets as a whole. For example, Bill, we just pulled out of the
emerging markets lock, stock and barrel, assuming that that is going to be
an area that really will continue to be under the gun of tariff and trade
LOWELL: So unless we get clarity there, we`ll continue to be shy of the
emerging markets. And definitely ramp up our defense here in the U.S.
HERERA: A quick question. Literally the name of one of your picks was a
VanEck Vectors Fallen Angel High-Yield Bond ETF. What is a fallen angel?
LOWELL: A fallen angel is formerly investment-grade bond fund that it`s
fallen down to junk bond status. And those bonds have a profile that is
delivered, a slightly better risk/return ratio relative to just a broad
junk bond or high-yield space. So, we like it as a good complement to a
well-diversified junk bond ETF like the HYG, but we think for investors
looking for some way to add a slight increase in yield with a different
kind of play, that would be the ETF to pick.
HERERA: OK. Jim, thank you.
GRIFFETH: Thanks, Jim.
HERERA: Jim Lowell with Advisers Investments.
GRIFFETH: Back to school means back to the pharmacist for those parents of
children who suffer from life-threatening allergies. But this year,
there`s a shortage of a key medication, EpiPens.
Meg Tirrell has more.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Alyssa Wachtler`s 6-
year-old son Hudson has a severe nut allergy. And as he heads back to
school, she needs to stock up on EpiPens.
ALYSSA WACHTLER, MOTHER OF SON WITH ALLERGIES: I went to the same local
CVS (NYSE:CVS) pharmacy that I always do to fill my son`s prescription, and
this year I was told that the EpiPen generic, which is what my insurance
covers, was out of stock.
TIRRELL: Wachtler is not alone. Manufacturing disruptions for the life-
saving allergy drug have resulted in pharmacies around the country running
low on supplies.
DR. STACY DORRIS, VANDERBILT MEDICAL CENTER: In my busy pediatric clinic,
we have noticed there are a number of patients, for example, calling in,
wondering where they can procure their EpiPens.
TIRRELL: Calls to 2,000 pharmacies from Boston to San Francisco revealed
that almost every single one had no EpiPens or just a few in stock.
Wachtler says she called more than eight local pharmacies before she found
one, with one set that her insurance will cover.
WACHTLER: I said, put it on hold, I will be there in the morning, and I
rushed over and I got there, last box.
TIRRELL: Mylan (NASDAQ:MYL), which sells the EpiPens, says it`s exploring
options with its manufacturing partner, Pfizer (NYSE:PFE), to stabilize
supply. Pfizer (NYSE:PFE) says it`s experiencing delayed shipments due to
process changes and cited supply of third-party components in the
manufacturing process. EpiPen isn`t the only option on the market.
There`s also the Adrenaclick and the Auvi-Q, but it`s by far the most
WACHTLER: The school prefers the EpiPen because that`s what they have
trained their staff in how to administer.
TIRRELL: Just this week, the FDA approved the first generic competitor to
the EpiPen. While Mylan (NASDAQ:MYL) introduced its own authorized generic
in response to an outcry over the EpiPen`s price at the end of 2016, this
is the first directly substitutable product sold by another company. That
company, Teva Pharmaceuticals, said it`s applying full resources to the
launch in the coming months. But that may not be soon enough to help
parents like Alyssa Wachtler get ready for back to school.
And as Hudson prepares to start first grade, his EpiPen is one of his most
important school supplies.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
GRIFFETH: And to read more about the EpiPen shortage, you can head to our
website at NBR.com.
HERERA: Coming up, the new status symbol on American highways.
HERERA: Are you ready for the $50,000 pickup truck? That`s right. A new
report says the average price for a pickup will soon cross that level. A
sticker price typically associated with luxury models.
Phil LeBeau has the details.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: If this is your image
of a pickup truck, beaten up, looking like an old dog, think again.
Today`s pickups are often shiny testaments to driving in luxury, with
refined interiors and the latest tech features.
That`s why the average price for the three most popular pickups is now well
over $40,000. And according to the auto website Edmunds, those buying the
new Chevy Silverado will likely pay more than $50,000.
JEREMY ACEVEDO, EDMUNDS ANALYST: For pickup trucks to hit that mark, it
really shows how far they`ve come. The transaction prices have grown by
almost 48 percent in just one decade.
LEBEAU: Why are full-sized pickups coming with super-sized prices? First,
the big three keep raising the bar. So, as soon as Ford`s latest F-series
rolls off the line with new capabilities and features, designers and
engineers are working to make the next Ram 1500 just as capable, and where
possible adding on even more features. That`s pushing up prices.
At the same time, new full-sized trucks have become status symbols,
especially in suburban America where pickups are often replacing high-end
ACEVEDO: So, these are really well-appointed vehicles that come with not
only status, but also all the creature comforts that would come with an
SUV. The only thing they`re generally missing is that third row which a
lot of folks aren`t really looking for.
LEBEAU: While Americans are paying more than ever for a full-sized pickup,
it has not cut into their desire to buy a truck. In fact this year, full-
sized pickup sales are up almost 2 percent, outpacing the auto market as a
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
GRIFFETH: And before we go, one final look at the day on Wall Street.
Late-day rally with hopes for the U.S./China trade talks push the Dow up
110 points. The Nasdaq and S&P both rose by 9 points today. And for the
week, the major averages were mixed.
HERERA: That will do it for us tonight. I`m Sue Herera. Thanks for
joining us. Have a great vacation.
GRIFFETH: I`m going to try my best. Yes.
HERERA: I know you will.
GRIFFETH: I`m Bill Griffeth. Have a wonderful weekend, though. She`ll
see you on Monday.
HERERA: Yes, right here.
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