Transcript: Nightly Business Report – November 27, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Renewed optimism. Stocks
rise on hopes for a U.S. China trade truce days before a key meeting
between the world`s two largest economies.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: End of an era. United
Technologies (NYSE:UTX) is splitting businesses into three, marking the end
of one of the country`s last industrial conglomerates.

GRIFFETH: Giving Tuesday. It`s a day to give back. But could the new tax
law put a dent in donations?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
November 27th.

HERERA: And good evening, everyone, and welcome.

From the White House to Wall Street, the focus today was on trade. The
U.S. and China have reengaged in talks ahead of a high stakes meeting
between President Trump and Chinese President Xi Jinping at the G20 Summit
later this week. This afternoon, the White House national economic council
director said the talks were happening at all levels, that optimism helped
lift trade sensitive stocks like Boeing (NYSE:BA), along with the broader
market.

After being down most of the day, the Dow Jones Industrial Average rose 108
points to 24,748. The Nasdaq was up a fraction. And the S&P added eight.

But talks are just that. And many say there`s a lot of work to do before
any sort of deal gets done.

Ylan Mui starts us off tonight from Washington.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: New hope from a trade
deal with China? We are days away from that big meeting between President
Trump and President Xi at the G20 in Argentina.

And White House economic adviser Larry Kudlow said that a deal is possible
but only on America`s terms.

LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR: If China will come to
the table or in this case the dinner table with some new ideas and new
attitudes and some new cooperation, as the president said, there is a good
possibility they could make a deal. He is open to it. So, nothing is
written in cement or stone.

MUI: On the agenda for that meeting are forced technology transfers,
intellectual property theft, ownership of American companies in China and
cybersecurity.

Kudlow said that the next step on tariffs will be a presidential decision
but he said the U.S. economy is strong enough to withstand any fallout.

KUDLOW: It`s really just a fraction of our economy, OK? It`s just a
fraction of our economy. I`m not suggesting that there aren`t winners and
losers in that game. It`s a complicated game. But on the other hand, I
think we are in far better shape to weather this than the Chinese are.

MUI: Meanwhile, China`s ambassador to the U.S. is warning of dire
consequences if this trade war turns into economic separation between the
two countries. He said he wants to see a negotiated settlement to this
dispute.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

GRIFFETH: Elsewhere, it was a momentous day for shareholders of United
Technology. The 84-year-old company announced it is breaking itself apart.
United Tech will split into three separate publicly traded companies,
marking the end of the last great industrial conglomerates in America.

But Wall Street seemed unimpressed for a time tonight. That stock was down
more than 7 percent. It closed down about 4 percent.

Morgan Brennan has more for us tonight.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: United Technologies
(NYSE:UTX) announcing it will split up its aerospace, Otis elevator and
Carrier HVAC businesses into three standalone companies, a process expected
to take up to two years and finalizing in 2020.

Chairman and CEO Greg Hayes will continue to run United Tech, the aerospace
business, discussed the decision today.

GREG HAYES, UNITED TECHNOLOGIES CEO: We can go back and look at any point
in history and say the commercial businesses outperformed the aero
business. And over time, we always had balance works at UTC. I will tell
you as I`ve gone out and spoken to all of our investors over the last year,
there is almost unanimity that the businesses perform better as separate
focused businesses.

BRENNAN: The move was not unexpected, coming after an in-depth portfolio
review and as the company finally closed on a $23 billion Rockwell Collins
(NYSE:COL) purchase. But it does continue a big trend of industrial
conglomerates breaking up, what some analysts call the urge to demerge.
From General Electric (NYSE:GE) to Honeywell, Danaher (NYSE:DHR) to Pentair
(NYSE:PNR), and Johnson Controls (NYSE:JCI), as investors favor pure play
companies over bigger, more diversified manufacturers.

The move comes, though, as larger uncertainties though loom, namely the
future for U.S.-China trade relations. A topic affecting multinational
manufacturers including United Technologies (NYSE:UTX).

HAYES: Tariffs benefit no one, right? We`re going to spend $150 million
in the coming year to pay for these additional tariffs. Ultimately,
tariffs become a tax on consumers, right? We raised prices three times in
Carrier this year to cover the tariff costs that were coming in.

Tariffs don`t bring jobs back.

BRENNAN: But despite the long awaited news, those trade concerns did help
send shares of Dow Component tumbling as investors digested the details of
the latest industrial giant`s break-up plans.

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

(END VIDEOTAPE)

HERERA: President Trump today is still fuming at the country`s biggest
automaker. In a tweet, he threatened to cut all subsidies to General
Motors (NYSE:GM). The warning came after GM said that it plans to slash
thousands of jobs and close plants, the move we told you about yesterday.

That pushed shares of GM lower, though it`s not immediately clear how much
power the president has to revoke the company`s tax breaks. In a
statement, GM defended its restructuring, saying, quote: GM is committed to
maintaining a strong manufacturing presence in the U.S. as evidenced by our
more than $22 billion investments in U.S. operations since 2009, end quote.

GRIFFETH: Well, it`s no secret that investors pay very close attention to
all statements made by Federal Reserve officials listening for hints about
future rate increases. And today, it was the Central Bank`s vice chair
Richard Clarida who spoke out. He said he supports a gradual approach but
he did not give an exact number of how many hikes he felt will be necessary
down the road. Mr. Clarida, though, did say that he believes interest
rates are getting close to so-called neutral level, meaning that they
neither stimulate nor slow economic growth.

By the way, heads up, Fed Chair Jerome Powell himself is scheduled to speak
tomorrow.

HERERA: The White House is proposing a way to lower Medicare prescription
drug costs, in an effort to start modernizing the government`s flagship
health insurance program.

Our Bertha Coombs has more.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Trump
administration already proposing pricing changes for drugs administered by
doctors under Medicare Part B. Now, it`s taking aim at high cost drugs
covered under Medicare Part D pharmacy drug plans.

ALEX AZAR, HEALTH & HUMAN SERVICES SECRETARY: What we proposed today is
really historic changes to the Medicare drug program to allow these drug
plans to actually negotiate against drug companies in what are called the
six protected classes.

COOMBS: Right now, Medicare is legally prohibited from negotiating with
drug manufacturers for six major categories of drugs, which included cancer
and HIV treatments. So, if a doctor prescribes a drug regardless of cost,
Medicare pays what the drug company charges.

AZAR: And in the commercial sector, we would be getting about 30 percent
discounts just using the normal negotiating tools that your plan and my
plan have.

COOMBS: Health Secretary Azar argues allowing insurers and pharmacy
benefit managers to actively negotiate prices could mean savings for
seniors, by pressuring drug makers to keep price hikes in check. The head
of the UnitedHealth Group`s Optum pharmacy benefits unit praised the
proposal at the company`s investors meeting.

JOHN PRINCE, OPTUMRX CEO: I think overall, we share with a common
objective with the concern about drug affordability. We share an objective
around trying to drive to lowest cost and improve total cost to health
care. I think there`s more openness to figure out how to leverage those
tools that we have done successfully in the commercial market into the
government space.

COOMBS: But analysts say benefit firms could also feel pressure from new
proposals which would require them to reduce patients` out of pocket costs
and pass on negotiated drug discounts or rebates to their members at the
pharmacy. Drug makers have complained they set high prices because of
those rebates.

AZAR: I think there is a role for government in changing the rules of the
road to reorient the incentives. The incentives right now are towards high
list prices with high rebates. I think we need to change the rules of the
road. We or Congress, in order to break that open so that you allow lower
list prices and allow patients to pay less out of pocket when they walk in
the pharmacy as a result of that.

COOMBS: The comment period on the new proposals will run into next year.
Analysts say the administration is pushing about as far as it can with
regulation. As one investor put it, to make a bigger dent will require
legs and rallying bipartisan support in the next Congress.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

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

We begin tonight with Disney (NYSE:DIS) which was upgraded to outperform
from in line at Imperial Capital. The analyst cited a number of catalysts
into 2020 for the company including a strong film slate, pricing power and
its upcoming video streaming service. Price target $129. The stock rose 1
percent today to $113.90.

Marriott was upgraded to conviction buy from buy at Goldman Sachs
(NYSE:GS). The analyst says that the slow integration issues have been
hampering its 2-year-old acquisition of Starwood Hotels will be temporary.
The price target now $153. The stock rose a fraction to $119.97.

And U.S. Bancorp (NYSE:USB) was downgraded to hold from buy at Deutsche
Bank with the analyst citing the stock`s valuation. The price target now
$63. Shares there fell slightly to $53.72.

HERERA: Still ahead, a tech powerhouse that is thousands of miles from
Silicon Valley.

(MUSIC)

HERERA: It`s not often that lawmakers from nine countries get together to
question one company. But that`s what happened in the U.K. today when
officials gathered to ask Facebook (NASDAQ:FB) about how it handles user
data and privacy. CEO Mark Zuckerberg was not there. Instead, a Facebook
(NASDAQ:FB) executive in charge of policy was grilled about potential
regulation. And he was grilled intensely by a Canadian official.

(BEGIN VIDEO CLIP)

CHARLIE ANGUS, CANADIAN LAWMAKER: When we are talking about regulation,
would you be interested in asking your friend Mr. Zuckerberg if we should
have a discussion about antitrust?

RICHARD ALLAN, FACEBOOK V.P. OF POLICY SOLUTIONS: I would respond that it
depends on the problem we`re trying to solve.

ANGUS: Oh.

ALLAN: If the challenge is around —

ANGUS: The problem is Facebook (NASDAQ:FB). That`s the problem. We are
talking about symptoms. But the problem is that unprecedented economic
control.

(END VIDEO CLIP)

HERERA: Also at that hearing, a British member of parliament cited
document that says an engineer at Facebook (NASDAQ:FB) warned of Russian
intrusion back in 2014. Facebook (NASDAQ:FB) says the document was cited
out of context.

GRIFFETH: Well, it`s not only Facebook (NASDAQ:FB) undergoing scrutiny but
Google (NASDAQ:GOOG) as well. With digital ads expected to rise, those two
companies may find themselves under the microscope to an even greater
degree.

Julia Boorstin explains.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Facebook
(NASDAQ:FB) and Google (NASDAQ:GOOG) are big and getting bigger. With talk
of regulatory scrutiny brewing on Capitol Hill, new forecasts could fuel
concerns about their growing market dominance. EMarketer forecasts total
global digital ad spending will rise 17 percent next year. And together,
Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) will account for nearly 52
percent of digital ad revenues worldwide, with Google (NASDAQ:GOOG)
grabbing 31 percent of the total.

GENE MUNSTER, LOUP VENTURES: This data is really representative of the
power that Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) have had and the
significance and the success that they`ve had in taking the smartphone and
applying the right algorithms and artificial intelligence to serve up
content that really sucks people in.

BOORSTIN: And digital ads are growing in power, with digital ad formats on
track to draw over half of ad dollars in 2020. If the growth continues as
expected, we`ll see how that impacts regulatory oversight. President Trump
saying earlier this month he is looking into possible antitrust violations
committed by the tech giants such as Facebook (NASDAQ:FB), Google
(NASDAQ:GOOG) and Amazon (NASDAQ:AMZN). Now, the question is whether
recent negative headlines by Facebook`s mismanagement of Russian
manipulation and other issues start to impact those growth numbers.

MUNSTER: It`s not going to be a dramatic impact. But I think the way it
plays out is that the growth rates that Facebook (NASDAQ:FB) is going to
have over the next few years won`t be at the same level or near the same
level that it was over the past two years.

BOORTIN: Loup Ventures` Gene Munster warns that because of the its larger
size, Google (NASDAQ:GOOG) is more at risk for antitrust regulation than
Facebook (NASDAQ:FB), but that both companies from an antitrust perspective
can argue they`re fighting for ad dollars not just with other digital
players but with all ad formats. But the more negative headlines about
these giants, the greater the regulatory scrutiny.

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

(END VIDEOTAPE)

HERERA: Shares of Spirit Airlines take off. And that`s where we begin
tonight`s “Market Focus”.

The budget carrier is forecasting stronger revenue in the fourth quarter,
thanks to full planes and the collection of fees. They are benefitting
from lower fuel costs. The stock rose 15 percent to $58.76.

Tesla`s sales in China reportedly fell 70 percent in October compared to a
year ago. “Reuters” citing an official from a Chinese trade group said the
automaker sold about 200 vehicles. Tesla calls that report, quote, wildly
inaccurate, end quote. The stock was off a fracture to $343.92.

Cracker Barrel reported an increase in earnings and revenue in the most
recent quarter. The company cites higher menu prices which on average were
up about 2 percent. The restaurant chain also issued an upbeat outlook for
same-store sales growth. The shares rose more than 4-1/2 percent to
$183.29.

And Trian Fund Management decided not to pursue an acquisition of Papa
John`s. According to “The Wall Street Journal”, other potential buyers are
only interested in a stake in the company. That report sent the stock
lower by 10 percent to $51.77.

GRIFFETH: Loxo Oncology received FDA approval for its new cancer drug last
night. This drug targets a wide range of cancers based on shared genetic
mutation rather than focusing on the type or location of the tumor, which,
of course, has been more common in the past. The drug won`t come cheap.
Its list price could reach more than $32,000 a month. But Loxo believes
that most insurance companies will cover that cost. The stock fell,
though, 9 percent today to $139.10.

Bristol Myers-Squibb said that its leading cancer drug did not improve the
survival rate of lung cancer patients in a clinical trial. The late stage
study was conducted on an aggressive form of the disease and it showed no
survival benefit over a placebo. And that sent that stock 3 percent lower
to $51.15.

And Salesforce reported better than expected third quarter results. The
revenue was up more than 25 percent, thanks to demand for its cloud
business. The company also issued an upbeat revenue forecast for the
current quarter. And that lifted shares in initial after-hours trading
tonight. It finished the regular session today up a fraction to $127.54.

HERERA: It is being billed as a place where tech meets business. But it`s
not Silicon Valley. Instead it`s a region in China, which aims to be a hot
bed of innovation. It`s also host to CNBC`s first tech retreat in that
country.

And our Deirdre Bosa is there.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just a 90-minute
ferry ride from Asia`s economic hub Hong Kong is China`s Guangdong
province, an area which, if Chinese President Xi Jinping has his way, will
be known as the “Bay Area of the East”.

The Chinese government is trying to create an economic and innovation
powerhouse to rival San Francisco, New York and Tokyo. It`s very own
greater bay area that will link nine cities in the Guangdong province, with
Hong Kong and Macau.

Guangzhou deputy mayor Wang Dong speaking from the east tech west
conference in Guangzhou, calling it historical times for the region.

Some of China`s biggest tech companies already call the area home,
including Tencent, Huawei, and drone maker DJI. One of the cities,
Shenzhen, is already known as China`s Silicon Valley. New infrastructure
is expected to hasten its growth. The longest sea crossing bridge in the
world opened just earlier this year as did a high-speed rail.

EDITH YEUNG, 500 STARTUPS CHINA: This morning, I took the high-speed rail,
only 15 minutes from West Kowloon to Shenzhen and then drove up here. It`s
just so much infrastructure growth to start with.

BOSA: The project covers an area containing nearly 70 million people with
a $1.5 trillion economy. HSBC expects the region`s economy to nearly
double to $2.8 trillion by 2025.

YEUNG: The population is actually ten times the population of the Bay Area
in the U.S. So, certainly, the whole landscape is a consumer that can
consume a lot of these technologies. It`s so much bigger.

BOSA: Which could explain why nine of the top 20 largest Internet
companies in the world come from China.

But future growth could rest on the outcome of this week`s meeting between
President Trump and President Xi Jinping on the sidelines of the G20 in
Argentina.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa in Guangdong, China.

(END VIDEOTAPE)

GRIFFETH: And coming up, giving back. How you can make the most of
charitable giving under the new tax law.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow.

As we mentioned earlier, Fed Chair Jerome Powell is scheduled to speak
tomorrow. Investors will be looking for any clues on the pace of future
interest rate hikes.

The L.A. Auto Show gets under way with a focus on global sales growth.
We`ll find out if the weak stretch in the housing sector extended into
October with the release of the new home sales report.

And that is what to watch for on Wednesday.

GRIFFETH: Meantime, consumer confidence edged lower in November for the
first time in about five months. As Americans apparently felt less
optimistic about much of the economy and how it`s going to grow in 2019 and
about their own income prospects. But even with the decline, sentiment is
still sitting near historically high levels.

HERERA: Consumers opened their wallets for deals on Cyber Monday.
According to Adobe, the total online retail sales reached just under $8
billion, which was slightly more than what was expected. That number
though is nearly 20 percent higher from a year ago.

GRIFFETH: So, now that Cyber Monday spending is over, today is Giving
Tuesday. A day devoted to donating to different charities around the
globe. Last year, a record $300 million was raised. But could the new tax
law affect the level of donations this year?

Joining us tonight is Reed Fraasa. He`s a financial planner at Highland
Financial Advisers.

Welcome back.

REED FRAASA, HIGHLAND FINANCIAL ADVISORS FINANCIAL PLANNER: Hello, Bill.
Hello, Sue.

GRIFFETH: So, under the new tax law, the standard deduction is doubled and
there are far fewer people expected to itemize deductions maybe only 5
percent of all taxpayers.

FRAASA: Right.

GRIFFETH: Do you think that will mean fewer donations to charities?

FRAASA: Well, that`s the concern, is that people lose the incentive.
Thirty percent used to — used itemized deductions, that`s 25 percent of
the population who files may not be. The concern is they may lose the
incentive to make the charitable donations.

HERERA: So, what`s the best way if indeed you do intend to donate —
what`s the best way to go about it? Obviously, check the regulations of
the new tax law. That would be one step. But what else are you
recommending to clients?

FRAASA: Yes, it`s basically three strategies that we think of at this
time. We have done this this year with a lot of clients. For the average
person who has been taking advantage of itemized deductions, a very large
number of them are going to take the $24,000 standard deduction. So, they
may not be incentivized to make those contributions.

So, we recommend people to start bunching their charitable contributions
within one year. A basic example is somebody has the $10,000 property and
state sales tax deduction. And $8,000 deduction for mortgage interest and
they`ve been doing 5,000 charitable contributions. That`s 23,000. So,
they are going to take the 24,000.

If they take those 5,000 deductions, put them all together in one year,
that`s a $15,000 deduction. Add that with the mortgage and the state tax –
– local taxes, that`s $33,000 deduction. That`s another 9,000 in one year.

GRIFFETH: So, that`s a year you`re going to itemize then.

FRAASA: Yes, that year you itemize. The other two years, you take the
standard deduction.

GRIFFETH: What about the funds that bring together your charitable
contributions and then distribute them for you. How does that work?

FRAASA: Well, they are wonderful tools for two reasons. One, you make
that $15,000 contribution. You may not know where to put it right away,
right? So, you can take that money and put it into a donor advised fund.
Think of it as a very small inexpensive private foundation. They don`t
cost any money to set up, but there`s a small administration fee per year,
usually about a half a percent a year.

GRIFFETH: A minimum to get in.

FRAASA: Some of them do, yes, some as little as $5,000. Many of them
around $10,000 to $25,000.

GRIFFETH: OK.

FRAASA: So you make that contribution. You get the immediate deduction
but can you donate — or they call it grants over many years.

HERERA: What about stock? I mean, if you have a good year in the market,
a lot of people think maybe I shouldn`t donate stock, maybe I should. But
if you have a good year, it might be a way to go?

FRAASA: Absolutely. Even the person who wants to do the $15,000, they may
not have $15,000 cash on hand.

HERERA: Right.

FRAASA: But they may have that stock or mutual fund that has appreciated
considerably over the last, say, eight years and they can use that. And
you get a triple win that which. Tax deduction and you shelter capital
gains taxes.

GRIFFETH: Very good. Reed Fraasa from Highland Financial Advisers, good
advice. Thanks for joining us tonight.

FRAASA: Thank you.

GRIFFETH: Appreciate it.

HERERA: And finally tonight, Broadway had the best ever Thanksgiving. For
the seven-day period around the holiday, the Great White Way saw record
attendance and ticket sales, bringing in more than $40 million. Individual
records were also broken. “Harry Potter and the Cursed Child” set a new
high for its weekly sales. The Broadway industry trade group attributes
the popularity to the variety of shows now available.

GRIFFETH: And before we go, a final look at the day on Wall Street.
Again, the Dow rose about 108 points. The Nasdaq was up a fraction. The
S&P added eight.

And tomorrow, ahead of the Fed chair`s speech, the president is telling
“The Washington Post (NYSE:WPO)” that he`s not even a little bit happy with
Jerome Powell, adding that the Fed`s policies are damaging the economy.
So, a little drama and that speech by the chairman is tomorrow at noon
Eastern.

HERERA: Indeed. That will do it for us tonight. I`m Sue Herera. Thanks
for joining us.

We want to remind you this is the time of year your public television
station seeks your support.

GRIFFETH: I`m Bill Griffeth. Thank you so much for that support.

We`ll see you tomorrow.

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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