Transcript: Nightly Business Report – November 8, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Oil slick. Prices fall
more than 20 percent from the most recent high as the quick and steep slide
in crude intensifies.

Record profit. Disney`s strong results were driven by studio and theme
park businesses. And now the company has its eye on a digital future.

Location, location, location. But in this changing housing market, is
buying a home still considered a good investment?

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Thursday, November the 8th.

And we do bid you good evening, everybody. And welcome. Sue is off
tonight.

In case you hadn`t noticed, the price of oil has been falling lately, and
it`s been falling a lot. Domestic crude is now down more than 20 percent
from its early October peak, putting it squarely in bear market territory.
Investors apparently growing concerned about rising inventories and
weakening demand, all of which could lead to a supply surplus worldwide.
Priced settled just above $60 a barrel following a ninth straight decline.
That`s a long way from $76 a barrel. A price achieved a month ago when
domestic crude hit a four-year high.

And today, the industry may have been thrown another curve ball. Reports
saying a think tank inside Saudi Arabia, the world`s largest oil exporter,
is studying the possibility of a potential breakup with OPEC.

Joining us tonight, the very busy John Kilduff founding partner of Again
Capital.

Where do I begin? Let`s start, though, I get to OPEC in a moment.

JOHN KILDUFF, FOUNDING PARTNER, AGAIN CAPITAL: Sure thing.

GRIFFETH: But let`s start with the slide here. Put this in context for us
here. What`s going on?

KILDUFF: A market that got all bulled up as we like we say, Bill, that
everybody was onboard or most people onboard with crude oil going to $100 a
barrel primarily because of two things, strong demand that was foreseen.

GRIFFETH: Right.

KILDUFF: But also sanctions put on Iran. It was seen that the loss of the
Iranian supply couldn`t be made up, wouldn`t be made up and we were facing
a supply crunch of a large magnitude going into the end of the year.

GRIFFETH: And now we have these waivers for some countries that don`t —
can`t just turn the spigot off completely.

KILDUFF: Well, you want to talk about curveballs to the market. The
administration — Trump administration went from talking maximum pressure
and getting those Iran exports to zero to really giving Iran`s eight
biggest importers of its oil waivers across the board.

GRIFFETH: So, where are we going?

KILDUFF: And ahead of that, Bill, I have to get this in here. Saudi
Arabia, Russia, other key countries boosted exports themselves and
production to fill the gap that was supposed to be there.

GRIFFETH: Exactly.

KILDUFF: Now, there`s no gap, now, there`s an overflow.

GRIFFETH: So, we got an overflow. How much lower do we go then do you
think?

KILDUFF: Well, this kind of a drop — the steepness of it, the swiftness
of it, the magnitude of it this gets the Saudi`s attention and it gets
Russia`s attention and others. They are having a technical committee
meeting this weekend in Abu Dhabi.

Look for over the weekend, a lot of rhetoric to come about stabilizing the
oil markets which translates from them to cutting back on output. Look for
the Saudis to be dialing back production. The Russians too to get prices
back up. So, we`re probably in the process of getting close to a near term
button here, I think we have risk on the downside price-wise to about $58.

But that should be it, because they`re not going to tolerate it.

GRIFFETH: Two quick things. First, what do U.S. producer do about this?
We`re a big player in this now, too.

KILDUFF: Well, that`s the problem increasingly. That`s why maybe OPEC may
be on the last legs, because U.S. producers for the most part, they don`t
stop producing. You have to drive them out of business.

GRIFFETH: OK. Now, what about this report that Saudi Arabia is thinking
about breaking up with OPEC.

KILDUFF: Increasingly, that is a fractured family. They are — the Saudis
are at the throats of Qataris and Iranians in particular right now. The
Saudis put up and carried everyone over the years whenever there are
cutbacks required. The Saudis did it.

Whenever there was a need for more output, the Saudis did it. I think
they`ve had it. And there`s also seems to be a reordering of alliances in
the Middle East, though. Saudi with Syria, believe it or not. Saudi with
Egypt.

GRIFFETH: And what role does Russia play in this then at some point?

KILDUFF: And I think Saudi Arabia is looking to divorce OPEC and marry
Russia and let those king pin producer countries really control the world
oil market to the extent they can.

GRIFFETH: Very interesting.

John Kilduff of Again Capital, thanks again for joining us tonight.

KILDUFF: Yes.

GRIFFETH: On Wall Street, by the way, stocks were dragged down by those
lower oil prices. Energy stocks, as you can imagine, tumbled. But
overall, it was a relatively quiet day after yesterday`s huge rally.

The Dow today rose just 10 points, closed at 26,191. The Nasdaq fell by
39. The S&P was down 7. By the way, snapping a three-day win streak.

Now to earnings, Disney (NYSE:DIS) reported record profit and revenue for
the year and easily topped quarterly estimates thanks to its studio and
theme park businesses. The entertainment conglomerate earned $1.48 a
share. That was $14 cents better than estimates. Revenue is up 12 percent
from a year ago to more than $14 billion. And that sent the stock higher
in initial after-hours trading this evening.

Aditi Roy has more now on Disney`s quarter and the CEO`s strategy.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Disney (NYSE:DIS)
announcing fourth quarter earnings, and the company had strong numbers in
the studio category. The studio revenues coming in at $2.15 billion versus
estimates of $1.78 billion. That`s a 50 percent increase year over year.
Disney (NYSE:DIS) says that growth was fueled by, quote, exceptional
performance of “Black Panther”, “Star Wars: The Last Jedi”, “Avengers:
Infinity War” and “Incredibles II”.

Disney (NYSE:DIS) CEO Bob Iger said the company is investing substantially
in original content.

BOB IGER, DISNEY CHAIRMAN & CEO: We are winning ourselves third party
licensing, which has already started, so that the product appears on our
service and not third party services. We are investing substantially in
original content, really against what will be all of the brands, but we`re
making “Star Wars” series and Marvel series, and certainly Disney
(NYSE:DIS) series and Pixar and original movies as well. And then they`ll
be thousands of hours of library product.

ROY: Disney (NYSE:DIS) is also making a big investment on direct to
consumer offerings to better compete with the likes of Netflix
(NASDAQ:NFLX) and Amazon (NASDAQ:AMZN). But Iger said it was premature to
say whether the company would pursue acquiring the 40 percent of Hulu it
does not own.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

GRIFFETH: And now to China with where the trade war with the U.S. has had
investors and businesses on edge. But for snack food giant Mondelez, which
has offices in that country, it appears to be business as usual.

Eunice Yoon is in Suzhou for us tonight.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A trade war dominates
a debate between the U.S. and China. But perhaps to better understand
what`s at stake, you should try a spicy chicken Oreo cookie. I`m currently
at the research labs of Mondelez, the food giant that`s behind the Oreo
cookie.

And the company has been experimenting with all sorts of flavors to cater
to Chinese tastes. That would include spicy chicken, wasabi or even
seaweed. Like so many American companies, Mondelez is not moving stuff in
and out of the country but has localized its operations. The China chief
told me, that has helped Mondelez do a tremendous amount of business here
despite the trade war.

JOOST VLAANDEREN, MONDELEZ CHINA MANAGING DIRECTOR: We are seen as a
multinational effort but also a company that is rooted into — in China.
Obviously, we like openness, as a multinational. And we like free trade as
much as anyone.

But I would not say it has influenced us a lot. We`ve got our sales people
here. We`ve got our factories here. We have our R&D center here. So, we
make and bake for China.

YOON: He said China generates a billion dollars in sales for the company
here and is one of its fastest growing markets. So, China is becoming
increasingly important.

Part of that is thanks to Oreo cookie. Outside of the U.S., the Chinese
eat more Oreos than anyone else.

The China chief told me to come up with this particular cookie, researchers
were thinking about flavors are popular in China these days. Apparently,
that is savory as well as spicy.

Because of all the localization, he said that the company was able to move
this product into the market within four months which he described as China
speed.

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

(END VIDEOTAPE)

GRIFFETH: Spicy chicken Oreos. Hmm.

Time to take a look at some of today`s “Upgrades and Downgrades”.

We begin tonight with Dean Foods (NYSE:DF), which was downgraded from hold
to buy at Jefferies. The analyst says the company`s turnaround will take
longer than anticipated. Price target: $6. That stock fell half a percent
today to $5.97.

Square was downgraded to neutral from positive at Susquehanna. The analyst
cited concerns over the vacant CFO position. Price target now is $77.
That stock dropped 9 percent. It closed at $75.23.

Archer Daniels Midland was upgraded to buy from hold at Argus. The analyst
cited strong performance in the company`s oil seeds and nutrition
divisions. Price target is now $53. That stock rose half a percent to
$48.57.

Still ahead, the lucrative rise of DNA testing and some of the
controversial issues involved.

(MUSIC)

GRIFFETH: Today`s jobless claims report was another reminder of how hot
our job market is. New applications for unemployment benefits fell by
1,000 last week, remaining near a 45-year low. As you know, strong job
growth has led to a 3.7 percent unemployment rate, the lowest since the
1960s and below the Fed`s definition of full employment. In fact, the
Fed`s Open Market Committee today approved keeping the Central Bank`s
benchmark rate unchanged. The decision was unanimous, but there were a few
things of note in the Central Bank statement.

Steve Liesman has details from Washington.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve
kept interest rates unchanged in the November meeting, in the range of 2
percent to 2.25 percent but signaled that rates will continue to rise. The
market has taken that to mean another quarter point hike in the Fed funds
rate comes in does. Market priced that probability in excess of 80
percent.

The Fed had positive words about the U.S. economy, noting that the labor
market continue to strengthen, that economic activity is rising at a strong
rate and that the unemployment rate declined. They said household spending
is also growing strongly. But they took note that business investment had
moderated from its prior rapid pace.

The Fed continues to see inflation near its 2 percent target, all of this
heads up a potentially fraught December meeting for the Fed where markets
expect the Central Bank to hike. But President Trump complained the Fed is
moving too fast to slowdown the economy and undoing the effects of the tax
cuts to speed the economy up. Fed officials though argue that the current
rate is low enough to keep stimulating economic growth.

Given the high rate of growth and the low level of unemployment. Officials
say the policy rate should be neutral if not a bit above. But those are
questions for December and into 2019. For November, the Fed took a pause.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.

(END VIDEOTAPE)

GRIFFETH: Well, there are now only six weeks left until the end of the
year. So, we have the midterm elections, the majority of earnings reports
and today`s Fed meeting out of the way.

So, what will be the catalyst for the markets next move?

Joining us tonight, Liz Young, who`s senior investment strategist at BNY
Mellon.

Thanks for joining us tonight.

LIZ YOUNG, BNY MELLON SENIOR INVESTMENT STRATEGIST: Glad to be here.

GRIFFETH: You`re looking at trade to begin with. I mean, we all wonder
after the midterm elections what happens to the tariff tiff with China,
among other things, right?

YOUNG: Right. Trade is probably the biggest catalyst that the market is
going to seize, to the end of the year. It can either be a de-escalation
or an escalation. And what we`re looking at particularly is what goes on
with China through the end of the year.

So, there is a chance towards the end of November that some deal is struck.
We don`t expect that to be the case. So we`re actually expecting that
trade continues to produce volatility in the markets as we go through the
next few months here.

GRIFFETH: And we see inflation as the number point here that you want to
make. And that is tied to trade to a great deal because the tariffs.

YOUNG: Right.

GRIFFETH: Mean increased prices, mean inflation among other things, right?

YOUNG: Right. So, there are a couple of different things about inflation
that are important to look at. When we went through Q3 earnings season,
inflation started to tick through some of the company`s earnings in that
they signaled that trade had started to increase input costs and they
wouldn`t absorb all of those costs themselves, so they`d have to push it on
consumers. And that drives up inflation.

And then we obviously have wage growth that came in at 3.1 this month. And
that`s been broken out of its range. It was kind of in the high 2 percent
range for a long time. So, a 3.1 number was pretty high. And wage growth
is really the missing piece of inflation that we`ve been looking for all
year.

GRIFFETH: Right.

YOUNG: So, upward pressure is going to continue to set expectations higher
for inflation next year.

GRIFFETH: And then, of course, what the Fed does about that.

YOUNG: Exactly.

GRIFFETH: Everybody is expecting a rate increase in December. What about
after that, do you think?

YOUNG: Right, right. So, in December, it`s pretty much baked in that
we`re going to have a rate increase. If they don`t do it in December, I
actually think that the market would react negatively because they would
see that there might be some cracks forming. Next year, it becomes a lot
less certain. So, the Fed signals that it`s going to be about three times.
The market is maybe expecting three times.

We actually wouldn`t see them doing it more than two, especially if we have
more market volatility.

GRIFFETH: All right.

YOUNG: What everybody I think wants them to do is react if there is market
volatility and take a pause.

GRIFFETH: And very quickly, finally, a wild card in there, the Brexit
talks, which is continuing to drag on here. We all remember what the
markets did when they voted for Brexit a few years ago. What about now?

YOUNG: Yes, it`s long in the tooth.

GRIFFETH: Yes.

YOUNG: The whole conversation is.

Well, there is a chance they are having an emergency summit in November.
There is a chance that they will strike a deal there. We`re hopeful that
the Brexit piece becomes less of a volatile environment. And,
unfortunately, that`s kind of the last piece that we think is going to
affect the markets. It would be nice if they struck a deal in Brexit. But
there`s a lot of other overhanging risks and a lot of question marks out
there that are affecting markets more.

GRIFFETH: Indeed. Liz Young with BNY Mellon, thanks for joining us
tonight. Appreciate it.

YOUNG: Thank you.

GRIFFETH: Elsewhere, Cardinal Health (NYSE:CAH) posts a five-fold increase
in profits. And that`s where we begin tonight`s “Market Focus”.

The health care services company said the growth was led by its
pharmaceutical business, even as the generic drug market becomes more
competitive. Cardinal Health (NYSE:CAH) topped both earnings and revenue
expectations. And that stock rose more than 4.5 percent to $56.13.

Sales of newer drugs helped AstraZeneca topped expects. The CEO said today
that he expects robust growth over the next few years. He said the
company`s drug pipeline is expanding and he expects operating margin to
rise as well. The stock gained more than 3.5 percent to $40.65.

L Brands is forecasting a higher third quarter profit. The company says
the upbeat outlook is being driven by a strong performance at its Bath and
Body Works stores. It also expects same store sales to rise above
expectations. Stock advanced 6 percent today to $36.96.

And after the bell, Activision Blizzard (NASDAQ:ATVI) issued a weak holiday
forecast for both revenue and profit. Sales of the company`s recently
released “Call of Duty: Black Ops 4”, they were not as strong as analysts
had hoped for. The video game publisher reported results for the most
recent quarter that missed estimates. And that sent the stock lower in
initial after-hours trading tonight.

Now to an issue near and dear to my heart. That would be genetics. A
growing number of people want to learn more about genetic history and the
rise of direct to consumer DNA testing kits is making it easier for them to
do so.

23andMe, one of the leading companies in that business, recently held an
event in New York City and Meg Tirrell went to check it out for us.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: New Yorker Deborah
Dadlani wants to learn more about where she came from.

DEBORAH DADLANI, PROSPECTIVE 23ANDME CONSUMER: My background is pretty
splendid and I`m just curious as to what my full background, my ancestry
is.

TIRRELL: So, an Instagram post about an event for 23andMe caught her
attention. The company just one of many now offering direct to consumer
genetic tests in a market that`s exploded in recent years.

23andMe opened a pop up in New York City to explain the information they
give about everything, from how you sleep, to how your body processes
caffeine, to gluten, to lactose, to even how your muscles work.

It`s an example of the category`s massive increase in advertising, up 63
percent in the first half of this year, driven by the largest companies,
23andMe and Ancestry. The market for consumer genetic tests could top $6
billion according to Evercore ISI. But some experts are concerned about
the growth and promising supplied or explicit about what some tests can
accomplish.

DR. ERIC TOPOL, SCRIPPS RESEARCH INSTITUTE: The benefit for cancer carrier
testing, these are solid. Unfortunately, we got all these other — you
know 90 percent of the field is essentially very questionable.

TIRRELL: One independent company promises to improve kids` soccer kills.
Others offer guidance for weight loss and fitness.

TOPOL: It`s difficult for the average consumer who is uninitiated to
ferret out which ones are of value and which ones are really worthless.

TIRRELL: Helix, whose platform includes wellness tests from partners
focused on diet and nutrition says it vets their offerings thoroughly and
doesn`t make unrealistic claims.

And despite these concerns, there is still a lot of optimism for the future
of genetic testing.

TOPOL: All these sorts of things that we`ve been hoping for for many
years, it`s evenly getting actualized. It`s just been a delay in getting
there.

TIRRELL: For Deborah Dadlani, it`s about curiosity.

DADLANI: Now I have seen a medical side, I`m very curious about that too.
So, I probably will look into getting a kit.

TIRRELL: She will be one of millions who does.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

GRIFFETH: Coming up, a house divided. Is buying a home still considered
one of the best investments you can make?

(MUSIC)

GRIFFETH: Here is what to watch for tomorrow.

The producer price index will be giving investors a key read on inflation.
The head of the New York Fed is expected to speak on America`s workforce
and a strong economy. And sticking with the economy, investors will get an
early look at consumer sentiment for the month of November.

That`s what we`re watching for on Friday.

Well, Ford has made an investment in an electric scooter start-up. The
automaker is spending $40 million as part of its strategy to provide
options for customers who need to travel only a mile or two to a
destination.

The start-up is called Spin. And its scooters are currently in 13 U.S.
cities and campus, including in Detroit, Denver and Coral Gables, Florida.

Mortgage rates rose this week to the highest level in nearly eight years.
Freddie Mac said that the average rate on a 30-year fixed rate edged hyper
to 4.94 percent. Last year at this time, the average rate was 3.9 percent.
Mortgage rates have been rising along with the yield on the 10-year
treasury note which has steadily been climbing this year.

Certainly, the rise in mortgage rates is something that potential home
buyers need to consider. And as Diana Olick reports now, it`s just up one
of the headwinds keeping some on the sidelines.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Higher home prices and
rising interest rates impacted affordability and moderated demand for
homes. That from the chairman of one of the nation`s largest home
builders, DR Horton, in its latest earnings release. And that`s clearly
behind the drop in consumer sentiment in housing. It hit the lowest level
in a year in October, according to a monthly survey from Fannie Mae.

Attitudes towards both buying and selling weakened despite strong
confidence in the economy. Potential buyers said they are worried about
rising rates and worried that home prices are so hot, they have no where to
go but down. So buying today may not be the best investment at least in
the short-term.

It`s ironic because for the past few years, rising home values have made
owning a home incredibly lucrative. And current home owners are more cash
rich today than ever before. Currently, more than a quarter of all
properties with a mortgage are equity rich, that is the home is worth at
least twice the amount of the mortgage. That`s the most since Adam Data
Solutions started tracking this in 2013.

And for investors in builder stocks, November to February is considered the
hope trade historically. That is buy early and take advantage of a
potentially strong spring housing market. We`ll see if that holds up given
housing`s weakness right now.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

GRIFFETH: Let`s turn to Susan Wachter to talk about whether or not buying
a house is still a good investment. She is a professor of real estate and
finance at the University of Pennsylvania Wharton School of Business.

Susan, always good to see you. Thanks for joining us again tonight.

SUSAN WACHTER, THE WHARTON SCHOOL PROFESSOR OF REAL ESTATE & FINANCE:
Pleasure to be here.

GRIFFETH: Your short answer is yes. It`s still a good investment, right?

WACHTER: It`s still a good investment if it`s not an investment. If
you`re planning to move to stay, it`s a protection against rent hikes and
price hikes. And despite the fact that the market is slowing, we are still
seeing rent and price hikes.

GRIFFETH: But where is where I`m coming from. It`s not so much a business
idea as it is a philosophical one. You know, we boomers and Gen-Xers, we
were always thinking about buying a home. It`s part of the American dream.

But millennials are a little different. You know, they`re more inclined to
be mobile. They like to rent rather than buy. I know I`m generalizing but
that`s really kind of been the scouting report on that generation. How
does that affect this housing market do you think?

WACHTER: Well, millennials have been slow to buy, absolutely. But their
aspirations are to buy. They want to be home owners. They have been
mobile. They`re not as mobile as they would like to be.

But they want to be ready to take the job and get to the market where it`s
too pricey to own a home but maybe renting in the short run. But their
aspirations are absolutely to own. In fact, we should see the ownership
rate edge up a bit as millennials get to that age where they are settling
down.

And when you settle down, buying a home is still the way to go.

GRIFFETH: They`re saddled with a lot of student debt, which is a hamper
for them. Rates are rising right now. I mean, I`m — the first mortgage I
took out in 1982 was 16 5/8 percent. So, 5 percent still looks very, very
low. But not for those who are used to 2 and 3 percent in the last decade.

What role will interest rates play, do you think, in the housing market?

WACHTER: Well, right now, interest rates they`ve risen over 100 points.
But they`re still historically low. But mortgage rates could go higher.
And that — if they go, you know, another 100 basis points or so, this
could really be a problem for housing prices.

As I said, housing prices are not declining. The rate of increase is
decelerating. So, it`s still a time if you want to protect yourself, that
that`s a way to go if you are going to be a community for the long run.

Mortgage rates in fact — because they`re increasing, are going to keep
people in their homes longer as they — they have their locked in with low
mortgage rates. And this is actually going to contribute to inventory
scarcity, which will actually contribute to upward pressure on prices.

Susan Wachter with the Wharton School of Business at Penn — always good to
see you. Again, thanks for joining us.

WACHTER: Thank you. Pleasure.

GRIFFETH: Before we go, a final look at the day on Wall Street. Nothing
like we saw yesterday with that monsters rally. The indexes were little
changed on Wall Street. But it was oil prices that got most of the
attention, settling just above $60 a barrel, down 20 percent now since the
most recent peak of just about a month ago.

Finally, tonight, I wasn`t here last night, but it was for a very good
reason. This program which you may know is America`s longest running
evening business broadcast was awarded the Top Public Television Program
Award for 2018 by American Public Television. The award was given to only
three programs this year. So, it is a great honor for the NIGHTLY BUSINESS
REPORT team members both in front of and behind the camera.

We were in Baltimore yesterday along with our executive producer, Rich
Carolan, accepting the award from American Public Television CEO and
President Cynthia Fenneman.

And we want to thank you, of course, for joining us each and every night
because without you, there is no award.

That is NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Sue is on
vacation in case you are wondering. She`ll be back on Monday.

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

END

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