Transcript: Nightly Business Report – December 10, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: What a reversal. After
falling more than 500 points, the Dow finished higher. Is there a way do
protect your portfolio from what feels like never ending volatility.

Jumping ship. There have been a lot of sellers in this market but it`s who
is doing the selling that may signal how long this volatility could last.

And, lessons learned. Ten years since Bernie Madoff confessed to
orchestrating the largest Ponzi scheme ever, what has changed?

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Monday, December 10th.

And we do bid you a good evening, everybody. I`m Bill Griffeth. Sue is
off tonight.

What a reversal indeed. It looked like today was going to be another ugly
one for investors, for a lot of reasons. There were still trade concerns
after a White House official said that March was a hard deadline for talks
with China. Apple (NASDAQ:AAPL) got caught up in a legal battle with
Qualcomm (NASDAQ:QCOM) when the Chinese government banned the sale of most
iPhone models. And a critical vote on Brexit in the U.K. parliament was
delayed.

It all served to push the Dow down about 500 points at the low of the day.
But then Apple (NASDAQ:AAPL) suddenly reversed course midday, and that
seemed to help lift the tech sector and then the broader market.

By the close of another wild day of trading, the Dow finished 34 points
higher to 24,423. The Nasdaq added 51. And the S&P 500 was up by 4
points.

Mike Santoli takes a look at the volatile market and what to expect in the
days and weeks ahead.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: More than two months
into a nasty downturn, stocks are behaving like some hybrid of a bull and a
bear market. The S&P 500 is lower than it was a year ago in its second 10
percent correction in ten months and half of its stocks are down at least
20 percent from their high. Several potential positive catalysts, the
midterm elections, a dovish turn by the Federal Reserve chairman, a trade
truce with China have not led to any sustained rallies. Safe defensive
sectors are the only ones holding up OK.

To many traders and investors, this all represents a sign that a bear
market might have taken hold. And even with all of that, the S&P is down
only a couple percent for the year and remains up more than 40 percent
since early 2016 and the economic fundamentals continue to suggest no
imminent risk of a U.S. recession. Unemployment at 50-year lows, consumer
spending solid in both manufacturing and services sector expanding nicely.

A recession is usually what prompts a true bear market often defined as a
20 percent or greater drop in the broad market indexes. These conflicting
signals have investors grasping at prior periods when the market occupied
this gray area between bull and bear. Some reach back just a few years to
2015 and early 2016 where we saw two ugly corrections, a global slowdown,
an oil crash, and credit market stress similar to now.

Back then, the Fed raised rates in December 2015, it`s controversial first
hike of the cycle. Then the Fed stood back for a full year as stocks
recovered through the Brexit vote and then the U.S. presidential election.
It would be a comforting outcome eventually if the market followed that
path but that doesn`t make the day-to-day gyrations any less jarring and of
course no two market cycles match up in every detail.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

GRIFFETH: And those day-to-day gyrations may not let up any time soon.
Hedge fund manager Paul Tudor Jones, who was widely credited with having
predicted the market crash of 1987 today said that investors should expect
more big moves in the New Year.

(BEGIN VIDEO CLIP)

PAUL TUDOR JONES, JUST CAPITAL FOUNDER AND CIO: I think we`re going to is
he a lot more of what we just saw, which is a lot more volatility. You
know, it`s really easy to say I`m really bullish, I`m really bearish. I
kind of see a two-sided market. I think in the next year, we`ll be where
we are today ten down and ten up.

(END VIDEO CLIP)

GRIFFETH: He did add that a potential decline in the market could lead the
Federal Reserve to hold off raising interest rates in 2019 and that in turn
could boost equity prices.

And speaking of which, the Fed funds futures markets which reflect traders
sentiment about the future rate moves by the Federal Reserve, it`s
gradually reducing the probability of a December rate increase. It now
stands at 68 percent. That`s a four-month low.

The market is also interestingly currently pricing in no rate increases for
all of next year. That could change though.

As we mentioned at the top of the program, there was disarray in London
today when British Prime Minister Theresa May was forced to delay a
parliamentary vote on her proposed Brexit deal because of concerns it did
not have enough votes. Not only did that create uncertainty for Europe and
for Britain`s future as part of the European Union, but it further clouds
investor`s outlook on the global economy.

Wilfred Frost reports for us tonight from London.

(BEGIN VIDEOTAPE)

WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.K. Prime Minister
Theresa May called off what have been billed as a make or break final vote
on the Brexit plan which was due tomorrow because she feared defeat.

THERESA MAY, U.K. PRIME MINISTER: If we went ahead and held the vote
tomorrow, the deal would be rejected by a significant margin. We will,
therefore, defer the vote scheduled for tomorrow and not proceed to divide
the house at this time.

FROST: And she was mocked in parliament as she explained her reasons why.

MAY: I listened very carefully to what is being said in this chamber and
out of it, to what has been said in this chamber and out of it by members
from all sides. From listening to those views, it is clear that while
there is broad support for many of the key aspects of the deal, on one
issue, on one issue, the Northern Islands backstop, there remains
widespread and deep concern.

FROST: She now heads to Europe hoping for major concessions from European
leaders, particularly on that issue of the Irish backstop, something that
seems difficult based on this tweet from the president of the European
Council, Donald Tusk, who said, quote, we will not renegotiate the deal but
we are ready to discuss how to facilitate the U.K. ratification. The
British pound had a torrid session off the back of all of this, hitting a
20-month low due to fears of a no deal disorderly Brexit that could
destabilize financial markets and question marks about the prime minister`s
own future.

That said, she has salvaged a couple of weeks in order to try to save her
deal and with it her political future.

For NIGHTLY BUSINESS REPORT, I`m Wilfred Frost in London.

(END VIDEOTAPE)

GRIFFETH: Now more on Apple (NASDAQ:AAPL), which as we mentioned
contributed to the volatility we saw in the market today. That stock
initially opened sharply lower on word that the sale of some older iPhone
models had been banned in China after a court ruled that they violated
patents held by Qualcomm (NASDAQ:QCOM) which, as you know, has been locked
in patent battles with Apple (NASDAQ:AAPL) for several years. Well, Apple
(NASDAQ:AAPL) responded by saying it did not violate any Qualcomm
(NASDAQ:QCOM) patents and this afternoon filed an appeal to overturn that
sales ban. That appeared to be when the stock turned higher midday and it
took the rest of the market with it.

Meanwhile, in Canada, the chief financial officer of Huawei was back in a
Vancouver court today and lawyers for that executive asked for bail in the
U.S. extradition case. They`re arguing that surveillance devices could
ensure that she does not flee. And even though it is unrelated to the
trade dispute between the U.S. and China, this Huawei case is now
contributing to heightened tensions between our two countries, especially
in Beijing where the response has been unusually strong.

Eunice Yoon has more for us tonight.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese government
summoned both the U.S. and Canadian ambassadors to lodge Beijing`s
complaint calling Huawei CFO Meng Wanzhou`s detention vile in nature,
extremely nasty and warned of grave consequences if the CFO is not
released. The CFO and her company are under scrutiny by U.S. authorities
who claim the Chinese telecom`s gear maker violated sanctions on Iran
through what they described as a Hong Kong shell company called Skycom.

The U.S. believes that Meng misrepresented Huawei`s influence over Skycom
to international banks, putting them at risk of breaching Iranian
sanctions. The language out of the Chinese government is unusually strong
for an official reaction, highlighting how angry Beijing is about Meng`s
arrest and why American companies, especially the tech sector, are worried
about a potential blowback on U.S./China trade talks and on them.

The Chinese state media has been subscribing the CFO`s treatment wearing
handcuffs and ankle bracelets as degrading. Huawei`s response, though, has
been much more muted, saying: We have every confidence that the Canadian
and U.S. legal systems will reach the right conclusion.

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

(END VIDEOTAPE)

GRIFFETH: So what a day, from trade to the fed to concerns overseas, there
are a lot of issues contributing to this volatility.

Is there a way to protect your portfolio from all of these wild swings?

Joining us for an old-fashioned strategy session tonight, Quint Tatro is
back with us. He`s founder and president of the money management first
Joule Financial.

Quint, good to see you again. Welcome back.

QUINT TATRO, JOULE FINANCIAL FOUNDER & PRESIDENT: Good to be here, Bill.
Thank you.

GRIFFETH: And we`re speaking broadly here. We`re not trying to provide
specific advice, because it varies from individual to individual. But
broadly speaking, first thing you say is don`t panic sell in this
volatility, right?

TATRO: I think that`s exactly right, Bill. For example, today when we
came in, it was a very negative day. Think about it, investors had all
weekend to think about all the terrible things that are going on in the
world. We came out. We were down 500 points, and right when you thought
oh, the worst, you know, we`re kind of coming over this cliff, the market
breathed the sigh of relief and we saw a pretty decent rebound into the
bell.

GRIFFETH: Right.

TATRO: Our view isn`t that we`re out of the woods. That`s not our view at
all, but what we talked to investors about is if they want to take an
approach, an active approach to the volatility and reduce exposure, they
should have a plan in doing so. Not panic sell but have a plan as the
market recovers, look to reduce the allocation or the exposure when the
recovery sets in.

GRIFFETH: And you say reduce to a target amount, what do you mean? What
is that?

TATRO: So we talked to our clients about a specific allocation when the
markets are good, when we`re feeling positive about the valuations and
let`s say somebody, for example, is a 70/30 allocation, 70 percent exposed
to stock, 30 percent to bonds, we adjust that depending on our fundamental
or technical view of the market and so, we are currently at about 1/2
allocation level. So if somebody is typically 100 percent invested,
they`re actually about 50 percent invested right now.

And so, we are encouraging people to revisit their allocation and find a
level that is comfortable for them because I agree with Paul Tudor Jones.
I do not think that we are out of the woods with volatility. I think that
will continue.

GRIFFETH: I`m going to run out of time here, but this is important. Where
do you go then to try and smooth things out or at least find some security?
Like gold, for example, what about bonds?

TATRO: I do like bonds if you can buy the individual paper. Bond funds
are going to be difficult because they`re going to erode as interest rates
go up.

GRIFFETH: Right.

TATRO: One, two, three-year treasury bonds, if you can buy them outright
are, in my opinion, offering good yield and a good place. Utilities and
staples are another area that we like here.

GRIFFETH: All right. Hang on. Buckle (NYSE:BKE) up. Do whatever you
have to do.

Quint Tatro from Joule Financial — again, thanks for joining us tonight.

TATRO: Thank you, Bill.

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

Now, FedEx (NYSE:FDX) was downgraded to neutral from buy at Bank of America
(NYSE:BAC) Merrill Lynch, with the analysts citing the management shakeup
at the express unit in the middle of its busiest season. Price target now
$220 and the shares fell 4 percent today to $192.93. Visteon was
downgraded to sell from neutral at Goldman Sachs (NYSE:GS). The analyst
there expects the auto part`s makers upcoming business update to be a
negative catalyst for that stock. Price target now $63. Visteon shares
were down 5 percent to $64.14.

And retailer Five Below was upgraded from buy to hold in Loop Capital. The
analysts says the five below is more resistant to an economic downturn than
most retailers. Price target $120 and shares rose more than 6 percent
today $101.71.

Still ahead, you know, passive investing has become very popular, but what
happens when the market turns downward?

(MUSIC)

GRIFFETH: More international news. There was a dramatic development in
Paris today when French President Emmanuel Macron pledged to eliminate that
recent controversial tax increase proposed on pensioners. And he proposed
to raise the national minimum wage in France come January.

Macron`s televised address was in response to the wave of protests that
challenged his authority. They were Macron`s first public statements after
weeks of demonstrations that turned violent this weekend in Paris. Macron
called this an historic time for his country and he vowed to speed up the
tax relief and to restore calm.

Meanwhile, the White House has imposed sanctions on three North Korean
officials, including a top aide to leader Kim Jong-un. The action is aimed
at punishing Pyongyang for conducting cyber attacks and abusing human
rights. The sanctions freeze assets under U.S. jurisdiction and prohibit
transactions with anyone in the United States.

And in Japan, prosecutors there have indicted Carlos Ghosn, the former
chairman of Nissan. Officials alleged that Ghosn violated financial laws
by underreporting his compensation. The indictment comes three weeks after
authorities arrested him. Ghosn, as you know, is once one of the world`s
most respective automotive executives.

Well, the latest market volatility is causing retail investors to grow more
cautious and pull their money out of mutual funds. And according to some
estimates last week, the 24th consecutive week of fund outflows. And that
could have implications, of course, for the broader market.

Leslie Picker joins us tonight from New York.

How much money are we talking about when you talk about the mutual outflows
in recent weeks and months?

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mutual outflows in
equities specific mutual is over $12 billion last week over the course of
24 months. We`re looking at over $100 billion, Bill. So this is pretty
significant. Twenty-four weeks for those who don`t want to do the math,
that`s about six months worth of outflows, which is pretty significant when
you think about what that means for the mutual fund industry as well as
what it means for the equity market.

GRIFFETH: Now, so-called passive investing, index funds, exchange traded
funds, they become very popular at the expense of actively managed funds
where you have human beings buying and selling stocks. So, when you see —
and they`ve been very popular during a bull market for the last decade.

But what happens when the market heads lower. What is the expectation in
the industry for active versus passive investing?

PICKER: That`s a big question that a lot of people are considering,
including the Federal Reserve, is what does all of this move towards
passive investing mean for the broader market? What we start to see, this
is according to market participants, is that index funds, when people
redeem from index funds, meaning when they take money out of the index
funds, the index funds are therefore forced to sell assets in an equivalent
to the index. So, it`s all of the different stocks in an index are
weighted in a certain amount and people start taking their money out of
index funds.

Those index funds have to sell stocks that kind of mirror an index, so to
speak. So there`s no real discrepancy in the stocks that they`re selling,
which makes it really hard for other participants in the market to pick
stocks that they believe are poised to prosper because of fundamental
reasons when they look at the balance sheet, when they look at the income
statement and other catalysts that could drive the stock higher. It turns
out they get punished because people are selling the index fund.

GRIFFETH: Pretty much tight at that point.

Leslie Picker in New York, thank you. See you later.

Elsewhere, Nutrisystem shares are bulking up. And that`s where we begin
tonight`s “Market Focus”.

The weight management company is being purchased by Tivity Health for just
under $1.5 billion. Tivity develops fitness programs for customers age 50
and older. And Nutrisystem would presumably add nutrition to those
programs. Nutrisystem, as you may know, is the parent company of the
namesake brand and of the South Beach diet. Shares of Nutrisystem, one of
the big gainers, up 27 percent, while Tivity Health dropped by 31 percent.

And more than 10,000 Verizon (NYSE:VZ) employees have chosen to leave that
company by the middle of next year through voluntary buyouts. Verizon
(NYSE:VZ) has been looking to cut costs as it invests in the 5G network.
The company had about 152,000 total employees at the end of the third
quarter. Shares of Verizon (NYSE:VZ) rose 1 percent to $58.27.

Meanwhile, Gilead Sciences (NASDAQ:GILD) will soon have a new CEO. A Roach
executive with experience in Oncology will take over the top spot of the
biotech company in March. One analyst says that that move will now make
the stock more ownable, as he put it. The stock fell, though, 1 percent
today to $67.49.

A major Yelp shareholder is calling for changes at that company`s board.
SQN investor says it believes the board has failed to hold itself and
management accountable for the company`s strategic missteps. Yelp, though,
defended its board, calling its directors active and open minded. Shares
rose 3 percent today to $35.64.

And GoPro plans to move production for most cameras that are bound from the
U.S. out of China. The company says that decision was made to avoid any
new potential tariffs. And the cost of the move will be minimal. In a
regulatory filing, the company said production of international bound
cameras will remain in China. Stock fell 1 percent today to $4.92.

Now to housing and because of recent price declines, homeowners are no
longer seeing big gains in equity. Some are even losing the ability to
pull cash out of their homes.

Diana Olick has more.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Homeowners in most
places are still making money, but they are now seeing the smallest gains
in two years. The average homeowner with a mortgage gained $12,400 in home
equity between the third quarter of last year and this year according to
Core Logic. That includes price depreciation and paying down the mortgage.
But that`s down from $16,000 in annual gains in the second quarter.

States in the West saw bigger gains, California and Nevada, more than
$30,000 on average. Homeowners in North Dakota, Louisiana and Connecticut
lost value.

This is all because the gains in home prices are shrinking. Why? Rising
mortgage rates which did drop back in the last month but are still
considerably higher than a year ago. We`re also seeing more homes come on
the market which has taken the heat out of that strong competition we were
seeing. The drop in equity gains has been sharpest in the third quarter of
this year. In fact, the amount of tappable equity, which is how much cash
homeowners can pull out of their homes fell quarter to quarter for the
first time since the housing recovery began. About a quarter of a million
fewer homeowners actually have any equity to tap now.

While most homeowners aren`t losing any money, they are feeling less
confident about their investment. And that means they`re less likely to
put more money into their homes and even into the greater economy.

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

(END VIDEOTAPE)

GRIFFETH: Coming up, it`s been ten years since the biggest investment
fraud in history was uncovered and the victims are still picking up the
pieces.

(MUSIC)

GRIFFETH: Here`s a look at what too watch for tomorrow.

The producer price index will give investors a fresh read on inflation,
something the Fed will be watching closely. Google (NASDAQ:GOOG) CEO
Sundar Pichai is scheduled to testify on Capitol Hill over potential bias
in its search results. CBS (NYSE:CBS) holds its shareholder meeting after
two delays in the wake of former CEO Les Moonves stepping down. That
should be interesting. That`s what we`ll be watching for on Tuesday.

Meanwhile, the number of job openings has climbed back toward a record.
According to the Labor Department, there were more than 7 million positions
available in October. That`s the second highest level ever. And it means
there are now 1 million more job openings than unemployed workers, more
evidence of our tight labor market even as questions continue to arise
about the health of the broader economy.

And gasoline prices have hit a low for the year. According to AAA, the
average national price of a gallon of regular was $2.42. That`s 4 cents
lower than a week ago, 28 cents lower than a month ago. Fueling that
decline is a drop in oil which fell another 3 percent today to settle
around $51 a barrel.

A number of pharmaceutical companies are facing an investigation into
alleged price fixing. What began as a lawsuit brought by states into two
medications in 2016 has now expanded into a government probe involving 16
companies. Investigators claim that those drug makers colluded to keep the
prices artificially high for at least 300 different medications.

The generic manufacturers have rejected those accusations, though. Shares
of several generic makers finished mixed in today`s trading.

The victims of Bernie Madoff are still picking up the pieces. Ten years
after the biggest investment fraud in history was exposed, Madoff, as you
remember, confessed to the $65 billion Ponzi scheme a decade ago, in the
thick of the financial crisis. It fundamentally changed the way we invest,
the way investment advisors are regulated and who we trust.

Now, in a new era of volatility, many are wondering, could it happen again?

Scott Cohn has our report.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Joyce Greenberg who
invested millions with Madoff remembers the shock.

JOYCE GREENBERG, MADOFF VICTIM: I think what he did is despicable.

COHN: Ilene Kent says her parents now in their 90s lost 3/4 of their net
worth.

ILENE KENT, MADOFF VICTIMS` DAUGHTER: It was shock. It was disbelief. It
was distrust.

COHN: The world had seen investment scandals before but nothing like this.
Bernard Madoff was respected, former chairman of Nasdaq, a sought after
expert on market structure, like at this roundtable a year earlier.

BERNARD MADOFF: We saw, meaning my brother and myself, that there was an
opportunity to bring automation into the over-the-counter marketplace.

COHN: But his investment advisory business with a reported $65 billion
under management was a sham.

HARRY MARKOPOLOS, MADOFF WHISTLEBLOWER: I gift-wrapped and delivered the
largest Ponzi scheme in history to them and somehow they couldn`t be
bothered to conduct a thorough and proper investigation.

COHN: The SEC has missed all the signals, including from whistleblower
Harry Markopolos. Since then, the agency has had a total overhaul.

MARKOPOLOS: There are 46,000 people at the SEC, if they don`t have it in
the front of their mind, they certainly have Madoff in the back of their
mind.

COHN: The lead prosecutor in the Madoff case, now in private practice,
says the whole industry is more careful.

MARC LITT, LEAD MADOFF PROSECUTOR: It was an abject lesson both for
institutions and for regulators. And hopefully, the passage of ten years
has not led them to lose track of that lesson.

COHN: Madoff claimed to have acted alone, but 15 people, including his
younger brother Peter, either pleaded guilty or were convicted in the
cover-up. Four people, including Madoff`s SON Mark committed suicide.
Madoff himself is in the tenth year of a 150-year sentence at a medium
security prison in North Carolina.

His former defense attorney stays in touch.

IRA LEE SORKIN, MADOFF DEFENSE ATTORNEY: He`s doing okay, I mean, for 80
years old.

COHN: When we visited in 2013, Madoff told us prison is like being in the
army. Only you`re not worried about killed. Much less stressful than his
life to crime.

GREENBERG: He`s leading a lot better life than many of the victims are.

SCOTT: As for those victims, it`s complicated. On average, they`re
getting back about 75 percent of their principal, unheard of in a typical
Ponzi scheme. But investors who took out more than they invested, like
Ilene Kent`s parents, are lucky to get anything at all. That`s because
courts have ruled the returns the investors thought they had earned, some
$50 billion in all, were nothing about Bernie Madoff`s cruel fiction.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn.

(END VIDEOTAPE)

GRIFFETH: All right. Before we go, a final look at the day on Wall
Street. And these numbers don`t tell the whole story as you`ve heard by
now. The Dow closing up 34 points, but it had been down as many as 500
points at the lows of the day. The Nasdaq added 51. The S&P was up four.
What a day.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thanks so
much for Washington, everybody. Have a great evening. We`ll see you
tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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