Transcript: Nightly Business Report – August 23, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New strategy. Now that the
bull market is the longest ever, it may be time for you to reassess your
investments.

Rolling the dice. Why MGM is opening a casino in a city not known for its
glitz and glam.

Crack in the armor? New numbers show the wildly popular video game
“Fortnite” may have peaked.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
August 23rd.

Good evening, everyone, and welcome. Bill Griffeth is off tonight.

Investors entered the longest bull market in history with trepidation.
Stocks drifted lower after a new round of tariffs went into effect and many
market watchers tried to figure out what might come next. Today, the Dow
Jones Industrial Average fell 76 points to 25,656, the Nasdaq dropped ten
and the S&P 500 gave back four.

So, with the bull market now being the longest in U.S. history, are there
some changes that you should be making to your investment portfolio.

Here for a strategy session tonight is Chad Morganlander. He is the
portfolio manager at Washington Crossing Advisers.

Good to see you again, Chad.

CHAD MORGANLANDER, PORTFOLIO MANAGER, WASHINGTON CROSSINGS ADVISERS:
Thanks for having me, Sue.

HERERA: Do you — first of all, let`s set the stage. Longest bull market
in history. Do you think there is more upside?

MORGANLANDER: I do think that there is much more upside, but one has to be
somewhat more circumspect about their investments at this point in time.
So, overall, we think that on an annual basis for the next several years,
you can see roughly 6 percent total return, but nonetheless, it`s far below
what the historical average has been for the S&P 500?

HERERA: Now, there are some kind of crosscurrents in the market right now
especially surrounding trade. So far we`ve seen volatility, but the market
has not paid as much attention to what`s going on in Washington as one
might think, but do you think that there is a new type of risk in this
market? Do investors need to reassess what the risk tolerance is?

MORGANLANDER: Well, they do have to observe it and be somewhat concern
because large multinational corporations here in the United States have an
embedded expectation of growth because they will be selling to
international partners, and i.e., China. And if you start to reduce those
expectations, valuations could be somewhat hurt here in the United States.

HERERA: So, if you were advising a long-term investor, I would assume
diversification would be high on the list. How else would you rebalance or
reposition in this market?

MORGANLANDER: Well, because you`ve had this great bull run over the last
10 years, we would advise investors potentially to move up the quality
spectrum, get a little bit more balanced within one`s portfolio and do more
or less a 60-40, and 60 equity, 40 percent in fixed income in cash. One
also has to keep in mind that cash now is starting to return roughly about
2 percent to 2.25 percent if you buy a CD or money market fund.

So, cash is now becoming much more of a competitive asset class, unlike it
was, 18 to 24 months ago, and that may as well sap from total returns in
the S&P.

HERERA: Chad, thank you so much.

MORGANLANDER: Thank you for having me.

HERERA: Chad Morganlander with Washington Crossing Advisers.

And as we mentioned trade issues put investors in kind of a cautious mood
today. The White House, as expected, imposed a fresh round of tariffs on
$16 billion worth of Chinese imports. China retaliated immediately with an
equal amount of tariffs on U.S. imports. That sent shares of Caterpillar
(NYSE:CAT) and Boeing (NYSE:BA) lower, both of which are viewed as
bellwethers on global trade.

Separately, a Chinese delegation met with treasury officials for a second
day of talks which could lead to additional talks a bit later this year.

Top business leaders are concerned about changes to the country`s
immigration policies. Members of the business roundtable sent a letter to
the Department of Homeland Security saying some changes are, quote, causing
considerable anxiety, end quote, for thousands of their employees. The
letter also suggested that the nation`s economic growth and competitiveness
could be threatened. Members of the business roundtable include Apple`s
Tim Cook, IBM`s Ginni Rometty and Pepsi`s Indra Nooyi.

There are some more signs of softening in the housing market. Sales of
newly built homes fell unexpectedly to a nine-month low and were hit
especially hard in the Northeast. While sales fell, the Commerce
Department reports that the median price of a new house rose to more than
$328,000 in July. Meantime, the average rate on a 30-year fixed rate
mortgage fell to 4.15 percent last week, its third week of declines.

Central Bankers are watching that housing market very closely as they meet
for their annual gathering in Jackson Hole, Wyoming, and that`s not the
only thing under discussion.

Steve Liesman takes a look at what`s on the mind of some of the world`s
influential policymakers.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: As U.S. central
bankers meet beneath the Grand Teton Mountains at their annual retreat in
Jackson Hole, Wyoming, critical comments by President Trump about Fed plans
to raise rates loom over the proceedings — comments that officials are a
little uncomfortable addressing.

ROBERT KAPLAN, DALLAS FED PRESIDENT: I`m not going to comment on what he
said and I`m not going to get into that. I would say this, though. Our
job at the Fed is to make decisions on monetary policy and supervision
without regard to political considerations or political influence and I`m
confident we`ll continue to do that.

LIESMAN: What they`re not uncomfortable talking about are the president`s
tariff policies.

ESTHER GEORGE, KANSAS CITY FED PRESIDENT: Farmers that grow soybeans are
concerned about the implications. Businesses that have some part of the
supply chain that they think could get disrupted are raising questions
about uncertainty in terms of their own investment. The way I think of it
is to watch this carefully and to try to judge how much uncertainty is
flowing through to the economy that can cause people to pull back on
investment and ultimately slow the trajectory of growth.

LIESMAN: Asked for interest rate policy, officials seem committed to a
rate hike in September and likely another one in December each though the
president said it should help trade administrations by keeping rates lower,
that would keep a lid on the dollar`s appreciation. But that doesn`t at
the moment seem to factor into Fed thinking.

KAPLAN: I think we ought to raise rates to get to a neutral level. I
think that means we ought to be raising rates three or four times over the
next nine to 12 months.

LIESMAN: As for growth, both George and Kaplan see a stronger this year,
but telling off in the years ahead as fiscal stimulus winds down, they see
the economy edging towards its potential growth rate of 2 percent and
they`ll keep an eye on tariffs and taxes and overseas developments just as
surely as while they`re in Jackson, they`ll keep an eye on the ever-looming
Tetons.

For the NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

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

Target (NYSE:TGT) was upgraded to outperform from market perform at Telsey
Advisory Group. The analyst cites the retailer`s strong second-quarter
results. The price target is $100. The shares rose to $86.71.

Deckers was upgraded to neutral from negative at Susquehanna. The analyst
cites improving trends for the retailer`s UGG Brand. The price target is
104 bucks. The stock gained 2 percent to $121.48.

Mattress company Tempur Sealy (NYSE:ZZ) was upgraded to overweight from
sector weight at KeyBanc. The analyst cites the potential for market share
gains. The price target is $75. The stock rose a fraction to $57.05.

Still ahead, a new casino in a place you might not expect.

(BEGIN VIDEO CLIP)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: MGM Resorts
(NYSE:MGM) bets big on history in Springfield, Massachusetts. I`m Contessa
Brewer. Still ahead on NIGHTLY BUSINESS REPORT, will this big bet pay off
for the casino company?

(END VIDEO CLIP)

(MUSIC)

HERERA: The Treasury Department today issued new regulations to enforce
the cap on state and local tax deductions, a cap that was part of the tax
bill signed into law last year. Some states have tried to circumvent that
law by allowing taxpayers to make donations to public education and other
services. Charitable donations are not subject to the same cap. Today`s
move by the treasury blocks that strategy.

A new casino is about to open its doors, not in Las Vegas or Atlantic City,
but rather in Massachusetts. MGM`s new project will be the first resort to
open in that state and as Contessa brewer reports from Springfield, a big
effort was made to make sure it blends in.

(BEGIN VIDEOTAPE)

BREWER: The casino glistens with glitz and glamour. MGM Springfield is
constructed of multiple historic buildings covering three city blocks. The
$960 million project is the first of its kind for this company to take such
full advantage of existing architecture.

JIM MURREN, MGM RESORTS INT`L. CEO: We had an opportunity here to dig deep
into the archives. This doesn`t happen often and we didn`t want to
squander that opportunity.

BREWER: Inside, bits of Springfield`s history are on display — an antique
bank vault, sports memorabilia and an Indian motorcycle which were
manufactured here.

Outside, the casino fits seamlessly into the old architecture.

MAYOR DOMENIC SARNO (D), SPRINGFIELD, MA: I`m getting notes and cards that
go, geez, Mayor, we have been in downtown in years. It looks great.

BREWER: In 2011, tornadoes tore through town, damaging a third of
Springfield.

MURREN: People have been displaced, and I really felt that we had to at
least try. We`re best as a company when we`re faced with big challenges.

BREWER: The mayor says MGM will be the biggest taxpayer with $25 million
annually in taxes and he says the casino is a catalyst, drawing other new
development, boosting attendance to attractions like the Dr. Seuss Museum
and the Basketball Hall of Fame, and offering a change of fortune for hard
scrabble entrepreneurs.

REBECA MERIGIAN, PARK CLEANERS OWNER: We were working very hard and just
trying to make the ends meet.

BREWER: It`s been a tough go for Rebeca Merigian ever since her dad died
more than a decade ago. She runs the same dry cleaning business her great-
grandfather started, Park Cleaners. Now, she`s landed an MGM contract to
clean the employees` uniforms.

MERIGIAN: Now, our goals have shifted into possibly growing.

BREWER: And hired 12 new workers, adding to the four she already employed.

Even as Springfield opened its doors, MGM is facing stiff competition from
casinos in Connecticut, New York, New Jersey and soon from Massachusetts
itself. No problem, MGM predicts it will draw in the casino crowds by
blending the old and the new.

MURREN: I feel like we`ve gotten to a point where people will feel
inspired by being here.

BREWER: As the city of fewer than 200,000 residents gets ready for a surge
of 15,000 visitors on opening weekend, the Uber drivers and restaurateurs,
the car dealers and the dry-cleaners look with optimism on a new city even
previous generations would recognize.

MERIGIAN: My dad would be so proud. He would be so excited.

BREWER: Across this historic New England city, a sense that lady luck may
have returned to town.

In Springfield, Massachusetts, Contessa Brewer, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: McDonald`s (NYSE:MCD) faces another food scare and that`s where we
begin tonight`s “Market Focus”.

The New York Department of Health is investigating weather breakfast
sandwiches caused more than 22 customers to fall ill. The franchisee has
since closed the store and sent the food items in question out for testing.
The news comes, though, after customers in 15 states became infected with
the parasite after eating McDonald`s (NYSE:MCD) salads. Shares were up
nearly 1 percent to $159.05.

Honeywell raised its annual profit forecast, citing strong sales momentum.
The aerospace parts maker said it would receive $3 billion in one-time
dividends from its planned spin-off of three business units. It will use
that money to buy back stock and reduce debt. The shares rose 1 percent to
$157.91.

The Chinese e-commerce company Alibaba reported a 60 percent increase in
sales from a year earlier, but it also warned that a $3 billion investment
in a newly formed division would hurt profits in the near-term. The shares
finished down 3 percent to $172.23.

And the meat producer Hormel topped the quarterly sales expectations, but
cut its outlook for the year on tariff concerns. The company said levies
on pork, steel and aluminum would cut its annual profit by as much as 6
cents per share and that warning sent Hormel shares down 3 percent to
$37.33.

Sears (NASDAQ:SHLD) is closing another 46 stores. The move is an attempt
to stem losses. The troubled retailer already closed more than 100 stores
this year alone. Shares of Sears (NASDAQ:SHLD) which is now a small-cap
stock were off nearly 6 percent to $1.11.

Well, midterm elections are approaching and they could spell uncertainty
for the markets.

Joining us to talk about what could lie ahead for stocks is Jeff Bush,
partner at The Washington Update.

Good to see you, Jeff. Welcome back.

JEFF BUSH, PARTNER, THE WASHINGTON UPDATE: Thank you, Sue. Thank you for
having me.

HERERA: Let`s kind of set the stage here if we could. The fourth quarter
traditionally, how does it fare for the market and is it different this
year given some of the disruptions from Washington?

BUSH: Well, the fourth quarter generally is a good time for the market,
there`s no doubt about that. I think what`s a little bit unique in this
midterm cycle versus previous midterm cycles is you have such a bifurcation
between the perceived, very pro-business friendly Republican Donald Trump
platform and the platform that the Democrats are moving to which is
perceived to be a little less business-friendly — things like Medicare for
all and so forth.

So I do believe there`s going to be a bit of a challenge or a softening
effect through the fourth quarter of this year, especially if the Democrats
take the majority in the House in November of this year.

HERERA: Yes, that`s what I was going to say. Is that really the key to
how this market might perform if we do see changes in the House and/or the
Senate?

BUSH: Well, I do believe. I think what would surprise the markets more is
if Democrats did take control of the Senate, but I think it`s fairly well
baked in that the Democrats have a good chance at taking back the House.
The reality is, though, the Democrats can`t enact that agenda with a
Republican Senate, so it really is much more of a softening effect rather
than a true, big impact for the market in our opinion.

HERERA: Yes, because gridlock, usually the market likes that.

BUSH: Yes, yes.

HERERA: But, you know, others say it`s not going to be true gridlock. You
know, it`s hard to know.

BUSH: Yes, true. This type of gridlock is a little bit different because
of the political energy in the United States right now is that the extremes
of both parties and any time you`re dealing with extreme elements on other
side of the political spectrum, it still lends itself to fireworks and
headline volatility.

HERERA: Well, you just took the words right out of my mouth. Do we
expect, if not a dramatic softening, at least more volatility, especially
around the trade issue?

BUSH: Well, I there definitely will be more volatility in the marketplace
if the Democrats take control of the House, if the Democrats do take
control of the Senate, as well, on a simple majority basis, that will even
amplify the volatility, as well.

Trade is a wild card in the sense that it is the purview of the president
more than Congress, so the president will really have a lot of say in that
trade space. I do anticipate if the president and the Republicans lose the
House that we`ll see the president double down on his trade efforts because
it is one area that he has a lot of control in.

HERERA: All right. We will see. Jeff, thank you so much. Jeff Bush with
The Washington Update.

We`ve been reporting extensively on the impact tariffs are having on
businesses across the country. Some are benefiting from them, others are
not.

Tonight, Kate Rogers (NYSE:ROG) takes us to Pottstown, Pennsylvania, where
one manufacturer is realizing that the tariffs he hopes would help his
company are actually hurting.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: When President Trump
first announced plans to levy import tariffs on aluminum and steel, the
American Keg Company was hopeful.

KELLBY OCHS, AMERICAN KEG PRODUCTION MANAGER: We had high hopes that it
was going to impact our business in a good way.

ROGERS: The Pottstown, Pennsylvania-based manufacturer produces kegs made
entirely of domestic stainless steel.

The small business found out it was on the bad end of the ripple effect of
the Trump administration`s ongoing trade war. With steel tariffs in place,
demand for domestic steel increased, also increasing the price of the steel
this company uses by about 20 percent.

OCHS: The price of steel shot up the roof. The availability and the lead
times to get it from the mill had increased. I mean, it was looking pretty
grim. It affected our whole process and the amount of people — it`s had a
pretty dramatic effect on our company.

ROGERS: What`s more? Imported finished kegs from China are about $20 less
than the ones the company makes here.

BRIAN LUZZI, AMERICAN KEG SALES DIRECTOR: We just slowly watched the price
of domestic go up and up. So we had to, in turn, raise our pricing to keep
our margins up a little bit and while this is happening, there`s still zero
dollar import tariffs on finished import kegs coming into the country. So,
it was just widening the gap between our price and theirs.

ROGERS: As a result, the company says it lost some 20 percent of its
business and had to cut production in half, leading to significant layoffs.

OCHS: It hit home pretty hard. I hired every single one of our employees
and I had to lay over a third of them off. We used to run three shifts.
This place used to be packed all of the time, people had decent jobs,
people had an income that they can count on. You know, one day, you`re
giving someone a chance at employment and the next day you`re telling them
they don`t have a job anymore.

ROGERS: American Keg CEO Paul Czachor was in Washington, D.C., this week,
testifying in support of the additional tariffs on $200 billion worth of
Chinese goods, particularly on imported kegs from China that are pouring
into the country, tariff-free. It`s those imported kegs that have been
taking business away from domestic companies like American Keg.

For now, it`s a waiting game to see how these tariffs shake out and whether
they`ll level the playing field for companies here at home.

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

(END VIDEOTAPE)

HERERA: And to read more about this business owner`s story, you can head
to our Website, NBR.com.

Coming up, new game plan. Is the hottest video game of the summer starting
to cool off?

(MUSIC)

HERERA: The Democratic National Committee says a suspected hack attempt
was a false alarm. Yesterday, we told you that the DNC stopped an
attempted breach of a voter database. Today, officials say they now
believe it to be nothing more than a simulated phishing test.

The number of lawsuits against the weed killer Roundup are mounting. There
the owner of Monsanto (NYSE:MON) which makes that product says 8,000 legal
complaints were filed as of the end of July. This follows a legal decision
that ordered Monsanto (NYSE:MON) to pay nearly $290 million in damages to a
school groundskeeper for not warning him about the potential cancer risk of
using that spray.

America`s largest grocery chain is ditching plastic. Kroger (NYSE:KR)
plans to phase out single-use plastic bags. Kroger (NYSE:KR) orders 6
billion bags a year. Its goal is to become a fully sustainable business
with zero waste by the year 2025. The company says the decision is in
response to feedback from its customers.

Well, if you have a teen or a tween like I do, chances are they are playing
“Fortnite”. As we reported, the game seemingly became an overnight hit,
but Fortnite`s fast rise may be starting to slow.

Julia Boorstin has the details.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fortnite has been a
gaming phenomenon since launching last fall, topping $1 billion in in-game
revenue as of May and with Fortnite`s explosive revenue growth slowing
dramatically, super data research says the data suggests that the game`s
peak may be behind us.

Fortnite`s revenue grew just 2 percent from June to July, and that`s down
from over a 32 percent revenue growth between March and April, and 71
percent growth between February and March.

The Polygon co-founder said the trend might reverse when kids are back in
school and the social appeal of the game kicks back in.

RUSS FRUSHTICK, POLYGON CO-FOUNDER: I think kids are, you know, away
traveling, vacation, what-have-you. Fortnite is a social game. It doesn`t
really get a lot of that press, but kids play it together. They`re like
bring all of their phones together and play together. So, you`re not
really having that environment, but once the school year starts, I think
you will see more of an uptick.

BOORSTIN: Other bad news for Fortnite, according to Twitch metrics, after
dominating viewing for the first half of the year, Fortnite just today lost
the top spot on games on Twitch. Based on data in August, Fortnite falling
behind the game called DOTA 2.

We`ll see if the slowing growth continues. For now, the question is
whether there`s Fortnite fatigue and players are moving to other games of
battle royale modes, whereas if the market for this kind of game is
saturated.

Another big question is what the trend means for the big game publisher`s
decision to embrace the multi-player battle royale mode that Fortnite
popularized. On the heels of Fortnite`s success, Electric Art`s
Battlefield 5 and Activision`s new Call of Duty are both launching in
October with multi-player modes similar to Fortnite.

Polygon`s Russ Frushtick says although EA and Activision`s games are
different, it`s still a smart move.

FRUSHTICK: The difference is Fortnite is free and that is a big
difference. It makes the big difference for people getting those
downloads, getting people playing. I think those games will do really
well. They needed to have those modes to be competitive in this space.

BOORSTIN: Fortnite may have a lasting impact on gaming. Games rated for
teens or everyone grew 22 percent year to date according to MPD Research.
That`s attributed in part to Fortnite bringing more kids into gaming.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: And finally tonight, as college students head off to school, the
job search website CareerCast has ranked the majors with the best career
prospects. Here are some of the top-ranked subjects. Accounting, more
than 90 percent of these majors are employed and the industry is expected
to expand. Business management, the study says that degree can help secure
a job in many fields, including human resources and consulting. And
chemistry, CareerCast points to that industry`s high-paying job.

And that does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
We`d like to remind you that this is the time of year your public
television station seeks your support. We thank you.

Have a great evening. We`ll see you tomorrow.

END

END

Nightly Business Report transcripts and video are available on-line post
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and commentators are their own and do not necessarily represent the views
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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