Transcript: Nightly Business Report – August 24, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Record rally. The S&P and the
Nasdaq closed at new highs, as the Federal Reserve chair reassures
investors and says the economy looks strong.

Losing ground. Stock pickers are not doing as well as their passive peers,
but some say that could change.

The holy grail of classic cars. We`ll show you what could be the most
expensive vehicle ever to sell at auction.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Friday, August 24th.

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

We begin with the market. Today, the S&P 500 and the Nasdaq closed at
their highest levels ever. This comes just a few days after the bull
market marked a milestone, becoming the longest in history.

So, let`s get right to those numbers. The Dow Jones industrial average
advanced 133 points to 25,790, the Nasdaq added 67, and the S&P 500 was up
17. And all of the major averages were higher for the week.

Investors` optimism got a lift after the head of the Federal Reserve
defended the central bank`s plan to gradually raise interest rates. Jerome
Powell made the comments at an event attended by some of the world`s most
influential central bankers meeting in Jackson Hole.

And Steve Liesman was there.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Federal Reserve
Chairman Jerome Powell in his first meeting as chairman at the renowned
Kansas City Federal Reserve Bank conference in Jackson Hole, saying that
gradual rate hikes remain appropriate, but cheering markets by saying there
does not seem to be a risk of overheating in the market and this despite
huge amounts of fiscal stimulus.

Powell also said the U.S. economy has strengthened substantially, but maybe
more important for markets. He said that the strong economic performance
he expects to continue. He also said the Federal Reserve would do whatever
it takes if inflation becomes unanchored. The Fed looking for a 2 percent
inflation target and inflation is right about there now.

Now, there was a concern that Powell expressed about whether or not the Fed
ought to be looking at inflation or perhaps in financial markets and Powell
saying in the speech in the run-up to the past two recessions,
destabilizing excesses appeared mainly in financial markets rather than
inflation, thus risk management suggests looking beyond inflation for signs
of excesses. Thus, suggests Powell is going to be looking carefully at
stocks and market valuations for signs of whether or not the Fed is raising
rates too slowly.

Well, there are a lot of issues for the Federal Reserve to worry about,
including global contagion and trade wars. St. Louis Fed President Jim
Bullard said this August is a lot different from past Augusts when the Fed
met under crisis conditions.

JAMES BULLARD, ST. LOUIS FED PRESIDENT: We`d not been in as good the
situation as we are today for a long time. I think coming out here, a lot
of times, we were in crisis mode.

LIESMAN: Every August it seems, right. Yes.

BULLARD: Yes. So, I do think we`re in good shape for today, but monetary
policies are about trying to play it out two years ahead.

LIESMAN: Of course, the Federal Reserve officials and from all over the
globe gather here, but there`s also some wildlife not by Central Bankers
but actually wildlife, the monetary moose this year usually makes an
appearance and he showed up and who knows what that means for central bank
policy in the future.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Jackson Hole, Wyoming.

(END VIDEOTAPE)

HERERA: The Trump administration is doubling down on its economic agenda
touting growth, deregulation and trade.

But on that last point, as Kayla Tausche reports, there`s a lot of
unfinished business.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. and Mexican
officials are hoping to reach a deal by today, staying in the NAFTA
trenches through the weekend. Negotiators racing the clock to reach a deal
by the end of next week so it can be signed by Mexico`s outgoing president.
Once the U.S. and Mexico reach an agreement, Canada will rejoin talks for
the first time since June.

ILDEFONSO GUAJARDO, MEXICAN ECONOMY MINISTER: We keep on working. You
know, there`s too many items that have to be finally solved. So, we keep
on working.

TAUSCHE: Negotiators racing the clock to reach a deal by the end of next
week so it can be signed by Mexico`s outgoing president. Once the U.S. and
Mexico reach an agreement, Canada would rejoin talks for the first time
since June. One possible olive branch, dropping their Washington demand,
the deal must be renewed every five years called a sunset clause. It`s
been a sticking point for Prime Minister Justin Trudeau in particular.

JUSTIN TRUDEAU, CANADIAN PRIME MINISTER: Most of the investments people
look at today have, you know, 15, 20, 25-year timelines to them. So, we
don`t really feel that a deal with the sunset clause is much of a deal at
all.

TAUSCHE: NAFTA is one of the unresolved trade disputes for the Trump
administration. Still and aluminum tariffs are still in place for European
allies and doubled on Turkey and talks with China coming up empty despite
hours face to face at the Treasury Department. Officials from Beijing
arriving in Washington with no new offer to resolve a month-long tit for
tat, leaving President Trump to call off a visit by Secretary of State Mike
Pompeo to North Korea until China becomes a better trading partner.

That could take months. The U.S. is studying a new set of tariffs that
would target half of all Chinese imports and the possibility of labeling
China a currency manipulator in a mid-October report, all before President
Trump is set to attend the G-20 summit in late November, coming face to
face with the heads of many states where the U.S. trade agenda is playing
out.

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

(END VIDEOTAPE)

HERERA: And officials in China are want pleased with the trade dispute and
are working to protect their economy from the fallout.

Eunice Yoon has details from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The finance minister
said that China will strike back every time to defend itself, but that its
counter strikes will be targeted. Speaking to “Reuters”, Minister Liu Kun
said, we are responding in a precise way. The minister said China didn`t
want bystanders to become collateral damage, including American companies,
saying, when we take measures, we try our hardest not to harm the interest
of foreign businesses in China.

But the minister said that he`s most concerned about the welfare of workers
here. The trade conflict, he says, hasn`t hurt the economy much so far,
but he is anticipating job losses in the export sector.

So, to counter that, he said that the government is spending more to help
unemployed find new jobs and ensure their basic Social Security. He said
Beijing also wants local governments to issue more special bonds to fund
infrastructure and expects the bond to blow past $145 billion by the end of
the current quarter.

But the minister insists that the more proactive fiscal policy won`t blow
out the budget, saying: We are talking about massive stimulus, nor do we
want to incur financial risks, let alone getting the government to take
care of everything. But many economists worry that the greater spending
would only create more financial problems for China down the road.

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

(END VIDEOTAPE)

HERERA: On this day when the S&P and Nasdaq closed at new highs,
Morningstar (NASDAQ:MORN) is weighing in on a classic market debate over
active versus passive investing. In a new report, Morningstar
(NASDAQ:MORN) concludes that passive investing is outperforming active
stock picking even at a time when volatility is picking up.

Bob Pisani has more.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stock pickers are
having another dismal year. Twice a year, Morningstar (NASDAQ:MORN)
publishes a report that measures the performance of U.S. active stock funds
against their passive peers. The latest conclusion, same as years past,
stock pickers are still losing out against their passive brethren. Just 36
percent of active U.S. stock fund managers outperform their passive peers
over the last 12 months.

It wasn`t much better a year ago, just 43 percent outperformed in 2017.
Why can`t active managers outperform? Well, they have cash on the side
lines, that`s the first problem.

Second, they often have the wrong mix of investments. Underweight winners
is a big issue. So, if you`re underweight Apple (NASDAQ:AAPL) in the last
year, for example, you`re going to underperform.

Third, this is the most important thing, they charge fees, higher fees.
The highest hurdle active managers face is their own fees. Active funds
that charge below its fees were able to outperform their passive peers more
often than those that charge higher fees.

Think about this. It makes sense, if you charge 1.5 percent and your
competition only charges a half a percent, you`re going to have a problem
performing long term. You`re going to underperform.

Ben Johnson who authored that reports that investors would greatly improve
their odds of success by favoring low-cost funds which succeeded far more
often than high-cost funds over the long term. It makes sense.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: But other investors say toxic stock picking can be a better and
more lucrative strategy. We are joined by Nancy Tengler by Hartford
Financial. Her actively managed fund has outperformed the S&P 500 every
year for the last five years.

Welcome, Nancy. Nice to see you again.

NANCY TENGLER, HARTFORD FINANCIAL: Hi, Sue. Thanks for having me.

HERERA: Bob laid out some of the things he`s hearing from people about why
active managers are not performing as well, but as you see it and as a
successful active manager, why do you think some are underperforming?

TENGLER: I think many active managers, Sue, are afraid to take risks and
that is actually one of the biggest risks in investing is to not take
enough risk. So they over-diversify their portfolios and then they end up
generating market-like returns. We run very concentrated portfolios. When
we like a stock, we like it up to 5 percent of our portfolio, so our top
ten holdings represent 5 percent of the portfolio. That`s how you beat the
market over time.

HERERA: What do you look for in a stock? Does it have to do basically the
yield relative to the history and the dividend? How do you pick a stock
and put that type of concentration in?

TENGLER: Yes, so we do — we do look at relative yield because the
management set the dividend policy out of free cash flow and earnings. So,
it gives us insight into what management thinks and then we compare that to
the stock`s history and to the S&P 500.

It`s a simple calculation. Actually anyone at home can do it with data
from CNBC.com. They can pull up those numbers. But what you find over
time is you get these long periods of under and overvaluation.

So, three years ago, Apple (NASDAQ:AAPL) came into our screens. We bought
it. No one liked it at the time. I got into a number of friendly debates
on the air, but we were buying the stock in the `80s while other managers
were saying it was an iPhone company.

You have to be committed to your discipline and you really have to have an
opinion about whether or not management is up to the task because when
you`re changing a company like Apple (NASDAQ:AAPL), you`ve got to have the
right leadership in place.

HERERA: You mentioned concentration because I assume that does not mean
that you don`t have diversification.

TENGLER: That`s correct. So, we won`t let our portfolios get to a huge
overweight to the S&P sectors, and we only go up to a 50 percent overweight
and we won`t let a stock get above 5 percent. But if you don`t have the
conviction to buy more than 1 percent in an individual stock, you have no
business owning it.

So, our view is we — you know, we overweight the highest quality, cheapest
stock and then we add some risk around the edges. We accessorize with
risk, with some of the stocks, we have less confidence and we hold less in
those particular holdings.

HERERA: All right. Nancy, thanks so much. Appreciate it.

TENGLER: It`s good to see you. Thank you.

HERERA: Good to see you as well.

Nancy Tengler with Heartland Financial.

And for those who do want to stick with stocks, our market monitor is
coming up and he has a list of names that he says could rise as much as 20
percent over the next year. He`s with us later in the program.

First, though, it`s time to take a look at some of today`s upgrades and
downgrades.

Netflix (NASDAQ:NFLX) was upgraded to buy from neutral at SunTrust Robinson
Humphrey. The analyst is upbeat about the company`s opportunities India.
The price target is $410. The stock rose more than 5 percent today to
$358.82.

Children`s Place was upgraded to buy from neutral at Monness Crespi. The
analyst expects double-digit growth over the next two years. The price
target is $165. The stock rose 1-1/2 percent to $137.85.

Philip Morris was downgraded to hold from buy at Jefferies. It sees
significant share loss during the second half of this year. The price
target is $80. The stock dropped 3 percent to $79.69.

Still ahead: how trade uncertainty is impacting a small South Carolina
manufacturer.

(MUSIC)

HERERA: Fairfield County, South Carolina, suffered a series of economic
setbacks in recent years. A Walmart shut down, so did a textile factory.
A hospital is preparing to close and a nuclear power plant was halted. And
now, a local manufacturer could close its doors and the company is citing
trade uncertainty.

Kate Rogers (NYSE:ROG) is in Winnsboro for us tonight.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: This South Carolina
plant assembles TVs with parts imported from China. But tariffs on those
parts may raise costs, putting the plant and more than 120 employees in
peril.

Element Electronics declined to participate in this story, but in a letter
to state officials earlier this month, the company said it would close down
it fall and lay off 126 employees, adding it`s hopeful the closure will be
temporary.

Democratic State Senator Mike Fanning says he`s been working closely with
state lawmakers, putting politics aside to keep the plant open. The
tariffs the company is hoping to avoid are not yet in effect, according to
the Office of the United States Trade Representative.

STATE SEN. MIKE FANNING (D), SOUTH CAROLINA: This is not the way to do
tariffs. If you want to have a tariff policy, make sure you`re taxing
people that are competing against Americans. This could be a blow, not to
just manufacturing and jobs in our county, but even to retail and just
basic quality of life issues for all of the folks in the county.

ROGERS: The company has ties to both Ambassador Nikki Haley who is
governor and helped lure the plant to Winnsboro, as well as OMB Director
Mick Mulvaney, who once represented Fairfield before both joined the Trump
administration. But an OMB official said, ultimately, President Trump will
make the final decision on tariffs, adding that Director Mulvaney has never
spoken with the president specifically about Element.

Another headache for Element Electronic is getting pushback for the
Alliance for American Manufacturing. The group says Element shouldn`t be
exempt from tariffs because they`re not a true American manufacturer
because of the import of their products.

Meanwhile, Winnsboro is in wait and see mode, residents like Crystal Paulk,
owner of a local donut shop, are concerned about more job losses.

CRYSTAL PAULK, THE DONUT GUY CO-OWNER: I look at it, you know, doors
closing, those are jobs, those are parents and those are families that are
impacted. You know, those are their dollars first before it trickles down
to us.

ROGERS: And local officials can only hope tariffs are avoided.

TERRY VICKERS, WINNSBORO CHAMBER OF COMMERCE: We are the fighters and
survivors and we will survive, and there will be something good that comes
out of this.

ROGERS: For the moment, it`s a matter of buckling down and waiting to see
what a trade war means for the future.

Kate Rogers (NYSE:ROG), NIGHTLY BUSINESS REPORT, Winnsboro, South Carolina.

(END VIDEOTAPE)

HERERA: Foot Locker faces some high hurdles, and that`s where we begin
tonight`s “Market Focus”.

The athletic shoe retailer saw sales growth slow in the most recent quarter
and they`re not expected to improve much. The company issued a downbeat
revenue outlook despite reporting better-than-expected earnings. Shares
were off more than 9 percent to $48.32.

Clothing retailer buckle, on the other hand, saw same-store sales climbed
at a quicker than expected pace. Earnings and revenue both topped
expectations, but the stock fell 4.5 percent to $26.55.

Hibbett Sports (NASDAQ:HIBB) said strong performance in its e-commerce
business was not enough to offset weakness in other areas of its business.
The sporting goods retailer reported a surprise loss in sales that fell
short of estimates. The company slashed its full-year outlook. The shares
plunged 30 percent to finish at $20.53.

And Arconic is reportedly in talks to sell itself. “Reuters” says the
aluminum products maker is talking to a number of interested private equity
firms about a potential deal, but added that some of the firm believes
Arconic`s acquisition price is too high. Shares of Arconic rose nearly 5
percent on the news to finish at $22.23.

And now to our weekly market monitor who has names of stocks who he says
could grow as much as 20 percent over the next year. This is his first
time on the program.

So, we welcome John Jalinski. He`s the president of Jalinski Advisory
Group.

Welcome, Josh. Nice to have you here.

JOSH JALINSKI, JALINSKI ADVISORY GROUP PRESIDENT: Great to have you here.

HERERA: Let`s start with your first pick, Tencent. It`s a familiar name
to me because my kids play Fortnite and that`s one of the reasons why you
like it.

JALINSKI: Yes, Fortnite is exploding all over the U.S., but we like it
particularly because it hasn`t even been approved for play in China. So
when a Chinese-based company is massive in the U.S., there could be
potentially 800 million users in their market in China. Once they get
approved, I mean, that could be great for the stock.

We also like the WeChat app that they have, their investments in Spotify,
Snap, they`re ubiquitous with online gaming, as well as social media.
They`re really driving revenue, as well.

One interesting point to note is that social media advertising revenue has
gone up 55 percent.

HERERA: Right.

JALINSKI: So that`s huge.

HERERA: Next is Facebook (NASDAQ:FB). Obviously, an enormous number of
people around the world use Facebook (NASDAQ:FB).

JALINSKI: Yes, billions of users use Facebook (NASDAQ:FB) and although it
missed its earnings beat just slightly, we see it as the new potential for
Google (NASDAQ:GOOG) AdWords and we see a lot of companies driving away
from spending money on Google (NASDAQ:GOOG) and they are — they`re
reaching consumers at an all-time high in Facebook (NASDAQ:FB). From
anything from if you want a better body to, you know, you see all these —
I see all these adds for getting a six pack —

HERERA: Right.

JALINSKI: — and they`re monetizing everything because they watch us, they
know what we want and they can target far better than Google (NASDAQ:GOOG)
AdWords. We think there is a great potential there.

HERERA: And next is CVS (NYSE:CVS). You know, it did take a bit of a fall
because there`s been so much jockeying going on on this particular part of
the health care division.

Why do you like CVS (NYSE:CVS)?

JALINSKI: Yes, it took a real fall back in April and May. We see that
they`re launching sort of a one-stop shop. They had over a thousand of
these kind of one-stop shops where you can get a flu shot, you can get
pharmaceuticals, you can get organic food. They`re cropping up everywhere,
they`re picking good stores at good locations, they could certainly become
a better stock long term. We believe that some of their competitors like
Walgreen`s, and some people look at the Aetna (NYSE:AET) deal as the
potential problem for the stock.

I could see that as an opportunity as — especially with the Trump
administration looking for cheaper health insurance plans. This could be
how they do it. Merging this sort of one-stop shop, maybe putting some
doctors in the pharmacies so you could go there for a flu shot and they can
write you a prescription. It`s going to be so convenient and get the
prescription filled at CVS (NYSE:CVS).

HERERA: All right. Josh, thanks for joining us. We appreciate it.

JALINSKI: Great to be with you.

HERERA: Josh Jalinski with Jalinski Advisory Group.

Coming up, rev up your engines.

(BEGIN VIDEO CLIP)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Robert Frank in
Pebble Beach, where trucks and Jeep are the new Ferrari, and many buyers
and sellers worried about how tariffs could put the brakes on the classic
car market, coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

HERERA: Procter & Gamble (NYSE:PG) may be trying out a new approach to
connect with younger consumers. The owner of Dawn soap and Tide detergent
has reportedly applied to trademark three-letter acronyms often used by
millennials in text messages for use in its product marketing. The most
common you may have heard of is LOL which stands for laughing out loud.
Activist investor Nelson Peltz has repeatedly criticized the company for
its lack of innovation.

Thousands of classic cars were on the auction block this weekend at Pebble
Beach`s annual auto event. And while many of the vehicles could fetch more
than $1 million a piece, there`s one in particular that is stealing the
show.

Robert Frank is in beautiful Monterey, California, with our story.

(BEGIN VIDEOTAPE)

FRANK: It is the Coachella for cars, the burning man for burning rubber,
nearly 100,000 people descending here on Pebble Beach for car week, 1,200
cars are coming up for auction for a total of $350 million.

But all eyes will be on this car, the 1962 Ferrari 250 GTO being sold by RM
Sotheby`s that will become the most expensive car ever sold at auction.
Estimate: $45 million to $60 million.

So, what makes the GTO so valuable? Well, Ferrari only made 36 of these
cars, so they are among the most scarce Ferraris ever built. They also
dominated the racing scene in their day, winning over 300 races and look at
it, this is one of the most beautiful, if not the most beautiful, Ferrari
ever designed and built.

It is being sold by Greg Whitten, one of the first Microsoft (NASDAQ:MSFT)
executives who bought the car 18 years ago for one-tenth the current value.

GREG WHITTEN, FERRARI 250 GTO OWNER: It`s very hard to fathom, but you`re
in a space where you have collectors and car collectors and Ferraris are
the most collectible car, and this is — the GTO is a pinnacle Ferrari and
it`s just an amazing car to have.

FRANK: The hottest part of the car market right now is older trucks and
SUVs. Blue collar collectors and young buyers love the utilitarian look of
the older trucks that are also easier to repair.

MCKEEL HAGERTY, HAGERTY INSURANCE: Those are accessible vehicles. They
made them in very large numbers. They`re easy to work on. They`re easy to
find parts for, and they just have a very, very broad appeal and they match
what people are driving every day on a daily basis, trucks, SUVs, that sort
of thing. So, people want a vintage version of it and that`s where they`re
going.

FRANK: One threat to this market is tariffs. A lot of the classic
Porsches and Ferraris and Mercedes sold in the U.S. are from European
sellers and tariffs apply to all new ask used cars so it could add 25
percent to the price and choke off supply.

DAVE MAGERS, MECUM AUCTIONS CEO: The issue that we`re going to have is
nobody`s going to be willing to pay an additional 25 percent to get their
car so there might be a 20 percent advantage to bring it to the U.S. and if
I have to pay 25 percent to get it here, it`s going to kill that market.

FRANK: But for now, the classic car boom shows no signs of slowing.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank in Monterey, California.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight, I`m Sue Herera.

We want to remind you. This is the time of year your public television
station seeks your support and we thank you for it.

Thanks for watching. Have a great weekend. See you on Monday.

END

Nightly Business Report transcripts and video are available on-line post
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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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