Transcript: Nightly Business Report – November 30, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Trade hopes. Optimism that
the U.S. and China will find common ground spread from the G20 meeting in
Buenos Aires, all the way to Wall Street.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Hotel hack. As many as 500
million people had personal information exposed, ranking this among the
biggest breaches ever.

HERERA: Spending spree. Why our market monitor is betting on a jolly
holiday season for the digital payment stocks.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday,
November 30th.

GRIFFETH: And we do bid you good evening, everybody. And welcome.

The startling headline that we all woke up to this morning involved that
massive breech at a hotel chain that exposed data of 500 million people and
we will have more on that story in just a few minutes.

But we begin with the stock market on the cautious optimism that lifted
share prices late in the day. There are reports that the U.S. and China
are inching towards some sort of de-escalation of trade tensions. There is
still a lot of skepticism.

The key meeting occurs tomorrow when President Trump has dinner with
Chinese President Xi at the G20 Summit there in Buenos Aires. And it was
hope about that meeting that sent the Dow to its highest for the day at the
close, up 199 points, at 25,538. The Nasdaq added 57. The S&P was up 22.

And believe it or not, the major indexes all finished this volatile month
with gains, thanks to this week`s huge rallies. But the same cannot be
said for U.S. crude oil which declined more than 20 percent, its worst
month in a decade. While natural gas prices climbed more than 40 percent,
its best month since 2009.

HERERA: While trade wasn`t focus at the G20, it wasn`t all about relations
with China. An important new deal was signed with Canada and Mexico.

And as Eamon Javers reports, there were other notable moments as well.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The whirlwind day of
economic diplomacy in Buenos Aires as leaders gathered at the G20 for high
stakes negotiations and some telling personal moments. The day featured a
bro hug of sorts between Vladimir Putin of Russia and Mohammed bin Salman
of Saudi Arabia who is recently accused of ordering the murder of a Saudi
columnist.

At the signing of the new Canada U.S. Mexico trade deal, Canadian Prime
Minister Justin Trudeau refused to hold up his copy of the agreement
despite prompting from the other leaders. In the wake of the layoff
announcement by General Motors (NYSE:GM) this week, President Trump touted
the benefits of the new North American trade deal for auto workers.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: This will help stop auto
jobs from going overseas and it will bring back auto jobs that have already
left.

JAVERS: But the Canadian leader used the event to press Trump on tariffs
he`s put in place.

JUSTIN TRUDEAU, CANADIAN PRIME MINISTER: The recent plant closures by
General Motors (NYSE:GM) which affects thousands of Canadian and American
workers and their families are a heavy blow. And, Donald, it`s all the
more reason why we need to keep working to remove the tariffs on steel and
aluminum between our countries.

JAVERS: But Friday was just a preamble for the main event, a dinner
Saturday between Trump and Chinese leader Xi Jinping possibly to decide the
course of the trade war between the two superpowers.

TRUMP: We are working very hard. If we can make a deal, that would be
good. I think they want to and I think we`d like to. And we`ll see. But
we`ll be meeting with President Xi in a little while. But for the most
part tomorrow I would say would be our big meeting.

JAVERS: Behind the scenes, officials cautioned that the president feels no
urgency to cut a deal this weekend. He doesn`t feel pressured to make a
deal for the sake of a deal. He has more time, a senior administration
official told me Friday. He`s been getting information from advisers that
the economy continues to show resilience and strength despite the equity
markets.

But one scenario that seemed possible heading into the weekend was a kind
of squishy positive outcome in which there`s no formal deal announcement
but perhaps an agreement to continue talking, maybe even the United States
holding off on the planned tariff increases on January the 1st. Of course,
everything is going to come down to the two men at the dinner table on
Saturday night.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Buenos Aires, Argentina.

(END VIDEOTAPE)

GRIFFETH: Meantime, Beijing has its own trade strategy heading into that
upcoming meeting between the U.S. and China.

And our Eunice Yoon has that part of the story from China.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China doesn`t want a
trade war and is putting on its game face. At its regular press briefing,
the foreign ministry said that China hopes the U.S. will show sincerity at
the G20 and meet Beijing halfway in their negotiations. The Chinese state
media went one step further, recommending that the Trump administration
give its winner-take-all approach the weekend off.

The hope here has been that Washington could hold off on tariffs, and maybe
to the spring, and that the two sides could come up with a trade framework
or architecture which would include issues the U.S. wants China to address
like forced technology transfers and subsidies to state own enterprises.
However, the inclusion of White House trade adviser Peter Navarro at that
dinner between President Trump and President Xi isn`t received well here in
Beijing. Chinese officials have had strong reservations about Navarro in
the past and are suspicious that as a China hawk, he is not so interested
in a trade deal as he is about containing China`s rise.

In the run-up to the G20, China`s business people who I`ve been speaking to
say that they are pessimistic about the prospects for a trade deal. Many
of them say that they don`t believe that China is going to be willing to
make the concessions to its industrial policies that the U.S. wants. One
executive told me that winter is coming and that he is preparing for
relationships to turn even frostier.

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

(END VIDEOTAPE)

HERERA: And you might be wondering which companies have the most revenue
exposure to China. According to Strategas, the top three S&P 500 companies
are manufacturing firm AO Smith, fiber optic cable manufacturer Amphenol
(NYSE:APH) and semiconductor firm Broadcom (NASDAQ:BRCM).

GRIFFETH: Now to the Fed, which, of course, has been a big focus for
investors this week. Today, another Federal Reserve official said that the
Central Bank should not be raising interest rates right now when job
creation is strong and inflation is under control. During an interview
this morning, the president of the Minneapolis Fed made his case for
pausing rate hikes.

(BEGIN VIDEO CLIP)

NEEL KASHKARI, FEDERAL RESERVE BANK OF MINNEAPOLIS PRESIDENT: If the U.S.
economy is creating 200 jobs a month, month after month, we`re not at
maximum employment. And so, that`s the continue surprise and that`s been
leading me to take my policy.

(END VIDEO CLIP)

GRIFFETH: Mr. Kashkari added that hiking rates too forcefully could
trigger a recession.

HERERA: With investors focused on the Fed and on trade, many are trying to
figure out what those two issues could mean for 2019, and earnings in
particular.

Bob Pisani is at the New York Stock Exchange tonight.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The New Year will be
here before we know it. And a good part of 2019 earnings expectations
could depend on a tariff deal between President Donald Trump and the
Chinese President Xi Jinping.

So, now that the highly anticipated Federal Reserve speeches out of the way
this week, the G20 Summit is now under way, the market can try to look
ahead and decipher earning estimates for next year.

Now, Fed Chair Jay Powell speech on Wednesday removed some uncertainty
about rate hikes but there is a lot of murkiness around several issues, on
tariffs, higher business costs and global growth.

So, protecting earnings in the next year is never easy but it`s almost
impossible for 2019. That`s why the markets have been so volatile. So,
according to one estimate, S&P earnings are expected to increase 8 percent
next year compared with this year`s 23 percent gain. But remember, that 23
percent, about half of that was due to the effect of tax cuts.

Morgan Stanley (NYSE:MS), they`re even less optimistic. They say actual
corporate profits will only be up about 4 percent next year. Still, the
markets rallied this week because there`s one less thing to worry about, an
aggressive Fed. But worries about tariffs, the input costs, slowing global
growth, they`re not going away yet.

Now, it`s going to be hairy going into the end of the year. But hopes for
a Santa Claus rally could depend very much on tariffs.

Nick Raich from Earnings Scout says everyone is betting the economic upside
will be over in 2019. The way to keep it going is for the Fed to pause and
then the president to make some kind of deal on China.

So, right now, let`s say, it`s one down and one more to go.

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

(END VIDEOTAPE)

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

We begin tonight with Goldman Sachs (NYSE:GS) which were downgraded to
neutral from buy at Bank of America (NYSE:BAC) Merrill Lynch. The analyst
there cited concerns around that scandal involving the Malaysian government
investment fund which is seeking a refund of fees that it paid to Goldman
Sachs (NYSE:GS) for deals that raised billions of dollars that were later
stolen. The price target is $225. The stock fell 2 percent to $190.69.

Under Armour (NYSE:UA) was upgraded to market perform from underperform at
Wells Fargo (NYSE:WFC) with the analyst saying after two years of choppy
performance, the worst may now be over for that stock. And the price
target is now $23. Shares closed right around that level at $23.88 today.

HERERA: WWE was upgraded to overweight from neutral at JPMorgan
(NYSE:JPM). The firm cites the stock`s valuation after a 26 percent move
lower from its peak. The price target is $87. Shares rose more than 2.5
percent to $73.96.

Starbucks (NASDAQ:SBUX) price target was raised to $76 from $66 at
Jefferies. The analyst cites its business in China. The firm maintains
its buy rating on the stock. Shares however fell a fraction to finish at
$66.72.

GRIFFETH: Still ahead, after that massive data breach at Marriott, which
industries are protected from the hack and which remain most vulnerable?

(MUSIC)

HERERA: Microsoft (NASDAQ:MSFT) is the largest publicly traded company.
After battling with Apple (NASDAQ:AAPL) for the top spot all week, today,
it closed ahead of the smartphone giant as it now stands Microsoft
(NASDAQ:MSFT) has a market cap of $851 billion. Apple`s is $847 billion.

GRIFFETH: Marriott disclosed what could potentially be one of the largest
data hacks in history. The world`s largest hotel chain said about 500
million guests may have had their information accessed as part of a breach
into its various Starwood properties. And that sent the stock down about
5.5 percent in today`s trade.

Aditi Roy has details for us tonight.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The breach is one of the
largest in U.S. history, behind the Yahoo (NASDAQ:YHOO) attack which
affected 3 billion users and bigger than the target hack which involved
more than 100 million. It dates back four years and involves personal
information, including passport numbers, names, addresses, and itinerary
details. Some also had credit card information stolen.

Marriott says the hackers targeted the guest reservation database at
Starwood hotels, which includes brands like Westin, Sheraton, W Hotels and
the St. Regis (NYSE:RGS). And that`s not setting well with a lot of
travelers.

UNIDENTIFIED MALE: I typically book online or with an app. So, yes, the
data breach does concern me a little bit just because they have all my
data.

UNIDENTIFIED MALE: Passport is a little bit more worrisome because if you
get a passport number, who knows where that`s going to go. So, not sure
what to do about that.

ROY: In a statement, Marriott`s president and CEO Arne Sorenson says: We
fell short of what our guests deserve and what we expect of ourselves.

But some call the timing curious. The unauthorized access began in 2014.
Marriott acquires Starwood two years later. Cyber experts say the timeline
could indicate the perpetrators had access to a lot more information than
the company realizes.

DAVE WEINSTEIN, CLAROTY THREAT RESEARCH V.P.: It tells you that you have a
sophisticated actor here.

ROY: While many analysts say the long-term consequences of the breach are
still unclear, a Moody`s analyst warns longer term risks include any
concerns guests may have about staying at a Marriott property.

The attorneys general for New York, Maryland and Illinois are launching
investigations and Senator Mark Warner also chiming in, calling for laws
that ensure companies don`t keep sensitive data they no longer need.

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

(END VIDEOTAPE)

HERERA: So, given the massive data breach at Marriott, are there
industries that are more vulnerable to being attacked than others?

We are joined tonight Sumit Agarwal, the cofounder of the cybersecurity
firm Shape Security.

Sumit, welcome. Nice to have you here.

SUMIT ARGAWAL, SHAPE SECURITY CO-FOUNDER: Likewise, Bill and Sue, nice to
be here.

HERERA: You say that there`s been a huge technological shift over the last
ten years. And basically security at many firms just hasn`t kept up with
the move in technology.

ARGAWAL: That`s very true. If you think about as consumers our lives have
become more and more digital. The promise of the Internet is something
that we`re now enjoying in full. But the reality is that as an overall
society, the combination of government, law enforcement, technology
providers and the big Internet providers, we haven`t done enough to keep
companies safe and secure. So, these hyper sophisticated attacks like this
are going to happen more not less in the coming years.

GRIFFETH: Now, when we talk about data breaches, I think we were most
concerned about banks, the financial institutions where our money is. But
you are concerned about other industries. Why? Who are we talking about
here?

ARGAWAL: Well, that`s a great question. The reason that the banks are the
most secure is that they`ve been attacked for the last three decades. They
were being attacked well before the Internet enables the modern mechanism
of attack. And so, the industries I`m concerned about are the ones that
are newer to the reality of facing global cyber criminals, global criminals
in general or the ones that are beginning to amass large amounts of
consumer data for the first time.

So, think about a restaurant chain that had a wonderful off line business,
mostly cash for 20, 30, 40 years suddenly having tens of millions of credit
card numbers. That`s a trove that is very, very valuable to the criminals
that that restaurant chain may not be very well equip to defend.

HERERA: So, at this point, does it also have to do with size? In other
words, there are a lot of smaller businesses out there that maybe can`t
invest in the technology and you point out restaurants as part of it. But
some of the bigger guys, I mean, we saw today with Marriott, they`re
vulnerable as well.

ARGAWAL: I think it`s — the big problem is that the value of what every
business, whether it`s large or small, is amassing in the form of credit
cards consumer information, first names, last names and so forth is
beginning to exceed the value of the investment. It`s hard for any
business to be able to invest at the level that`s necessary to keep out
these very, very specialized criminals.

GRIFFETH: Before we let you go, I mean, we don`t have a lot of time. But,
you know, people watching tonight saying it`s happened again. Is security
realistically just an illusion?

ARGAWAL: I wouldn`t say that it`s an illusion, Bill. I think we are
making lots of strides forward. There is more work to do. And sure we are
hearing about the piece of these kinds of breeches more and more. It`s
unfortunately increasing. But the solution is there. And I think we are
going to see an improvement as everybody becomes more aware of and able to
deal with these kinds of breeches.

HERERA: Sumit, thank you very much. Always a pleasure to have you with
us.

ARGAWAL: Thank you.

HERERA: Sumit Argawal with Shape Security.

GRIFFETH: A golf company takes a big swing, and that`s where we begin
tonight`s “Market Focus”.

Callaway Golf (NYSE:ELY) is buying apparel company Jack Wool Skin for more
than $470 million. That deal aimed at helping the company expand further
into the active lifestyle market. But investors were less than impressed
today. Shares of Callaway fell 9 percent to $17.13.

Federal investigators are reportedly questioning former General Electric
(NYSE:GE) employees about its legacy insurance business. That`s the same
unit that led to accounting problems at the company that they disclosed
last year. And according to the “Wall Street Journal”, those staffers say
some risks were ignored. Shares fell another 5.5 percent today to $7.50.

HERERA: Laboratory Corporation cut its full-year earnings guidance. The
lab services provider cites a decline in hospital referrals and a fall in
volume from certain managed care plans. The shares fell nearly 10 percent
to $145.64.

Honeywell plans to move its headquarters to Charlotte from New Jersey. The
decision comes less than five years after getting a $40 million tax
incentive credit to stay in the Garden State for 15 years. Although
Honeywell does say that some employees will remain in New Jersey. The
shares were up a fraction to $146.75.

GRIFFETH: This week`s market monitor likes financial technology stocks
that she says benefit from increased consumer spending. Now, last time she
was on in February, she recommended stocks whose performance has been
mixed.

Joining us once again tonight, Mariann Montagne, portfolio manager at
Gradient Investments.

Mariann, welcome back. Good to see.

MARIANN MONTAGNE, GRADIENT INVESTMENT PORTFOLIO MANAGER: Thank you. Thank
you.

GRIFFETH: We are heading into the holiday shopping season. Everybody is
making payments, electronic payments are very big these days. And you like
these companies that do the processing. For example, Visa (NYSE:V).

Why do you like them in particular?

MONTAGNE: Well, Visa (NYSE:V) is actually a stock we have held for a long
time. They are a global payment processer. They`ve been growing at the
top line revenue at about 12 percent in the last quarter earnings by about
34 percent.

And they`re getting more and more leverage, more cost controls in their
systems. And they actually guided higher. So, this is one that sells at a
price to earnings ratio versus growth of about 1.7 times. But we still
like it. We still see the 15 to 20 percent upside in this name.

GRIFFETH: You also like MasterCard (NYSE:MA) which you say has a history –
– a good history of beating earnings estimates. But you think it has 20
percent upside to your target price. Tell me more about why you think it
can achieve that.

MONTAGNE: Right. So, last quarter, they reported revenues up about 15
percent and earnings also up 34 percent. This has a better P/E to growth
ratio of just 1.0. And they`re low on debt. And — I`m sorry, no debt for
that company.

And we just see more and more payments processed, more and more overseas
payments processed. And you know, just everyone just gearing more toward
paying by card, just around the world.

GRIFFETH: And then PayPal, which really symbolizes the future of
electronic payments and so forth, especially since they own Venmo now as
well, right?

MONTAGNE: Right. So, PayPal is really benefitting from all these online
payments. And if you look at the numbers for Thanksgiving weekend, online,
whether mobile or at home on a PC or laptop, the transactions were up 28
percent over Thanksgiving weekend. So the online portion is taking more
and more share. And this is where they benefit the most. This is another
one that trades at just one times the growth rate on earnings for the next
two years.

So, we see about 20 percent upside in PayPal. We just like the whole fin
tech space.

GRIFFETH: I see that. Yes.

Mariann Montagne with Gradient Investments, good to see you again. Thank
you for joining us tonight.

MONTAGNE: Thank you.

GRIFFETH: And to read more about Mariann`s picks, you can head to our
website at NBR.com.

HERERA: Coming up, dialing up the heat. A hot start-up that wants to keep
your coffee steaming.

(MUSIC)

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

On Monday, we`ll find out if auto sales got a lift from early holiday
promotions. On Thursday, members of OPEC may face their biggest test yet
when they meet to discuss oil production policy. And on Friday, the
government releases its monthly employment report, a release that the Fed
will be paying a lot of attention to.

And that`s what to watch for next week.

GRIFFETH: The price of iceberg lettuce is soaring. According to the
Department of Agriculture, a cartoon of the popular salad ingredient rose
as much as 165 percent in just a week after romaine lettuce was pulled from
shelves because of an E. coli outbreak. Now, the report said the sudden
demand for iceberg coupled with light supply led to the surge, and the
price of other lettuces followed a similar pattern.

GRIFFETH: It seems everything is going high tech these days — cars,
homes, even toys. Well, now, you can add coffee mugs to that list. And
the company behind this clever cup is growing very quickly.

Jane Wells has our story tonight.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is an Ember smart
mug, an $80 coffee cup with a battery attached to an app, where you set the
temperature for your coffee and it holds the temperature for over an hour.
No more cold coffee.

Investors include Joe Jonas.

JOE JONAS, MUSICIAN/INVESTOR: Hot coffee is a big deal.

CLAY ALEXANDER, FOUNDER AND CEO, EMBER TECHNOLOGIES: I`m Clay Alexander.
I`m the founder and CEO of Ember.

WELLS: Clay Alexander is a lifelong inventor whose office has an old
Alexander Graham Bell telephone and original Thomas Edison phonograph.

Here is how he created Ember.

ALEXANDER: It was 2009, I was sitting in my kitchen having scrambled eggs
with my wife, and I jus had sold my light bulb to G.E. The reason it`s
relevant is that I came off of about two to three years of thermal science
engineering. And so, when my eggs got cold, I thought, OK, I got to fix
this, like this is the 21st century, like at a bare minimum, my plate
should be able to keep my food at a decent eating temperature.

WELLS: Alexander worked on the technology for years before turning his
focus to coffee mugs, launching in Starbucks (NASDAQ:SBUX) at the end of
2016.

JONAS: I like the long game. I feel that`s really important, is to be
patient.

WELLS: If I were to say annual revenues top $10 million, would I be wrong?

ALXANDER: No, you are not wrong.

WELLS: Am I way off?

ALEXANDER: We`re doing really well.

WELLS: The company is valued at $140 million and projects profitability by
the end of the next year, with plans for an IPO or to be acquired. Its cup
and travel mugs are sold not just in Starbucks (NASDAQ:SBUX) but now in
Apple (NASDAQ:AAPL) Stores. And what`s next?

ALEXANDER: We plan to go to is self-heated dinner plates and a baby bottle
we are launching that will heat the milk or formula to body temperature
within five minutes.

JONAS: Ember is going to do some groundbreaking stuff. I can`t speak
about everything. But what they`ve been working on in their technology,
it`s — it`s unbelievable.

WELLS: And investment the Jonas Brothers hope is their latest hot hit.

For NIGHTLY BUSINESS REPORT, Jane Wells, West Lake Village, California.

(END VIDEOTAPE)

GRIFFETH: I`m a fanatic for keeping my coffee hot.

HERERA: I know you are.

GRIFFETH: This is right up my alley here.

HERERA: And it`s almost Christmas.

GRIFFETH: Oh, gee, I`m glad you said that.

HERERA: Oh, gee, what an idea.

GRIFFETH: Yes.

Before we go let`s take a quick look at what happened on Wall Street today
as we close out the month of November. The Dow rose 199 points on that
optimism over the trade talks between U.S. and China this weekend. The
Nasdaq added 57. The S&P 500 was up 22.

Believe it or not, the major averages finished this volatile month with
gains because of those big rallies we saw especially on Monday and Tuesday.

HERERA: Yes, that`s unbelievable.

That will do it for us tonight. I`m Sue Herera. Thanks for watching.

We`d like to remind you that this is the time of year your public
television station seeks your support.

GRIFFETH: I`m Bill Griffeth. And we do thank you very much for that
support.

Have a great weekend, everybody. We`ll see you on Monday, in December.

HERERA: Wow, December.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
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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