Transcript: Nightly Business Report – December 28, 2019

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

for the first three-day win streak this month but couldn`t hang on. Is the
bounce over?

Markets or economy. Stocks seem to be seeing something different about the
economy what many of the fundamentals say. So which is right?

And saved by the bell. Sears (NASDAQ:SHLD) gets a life line at the
deadline today. So, what`s next for the iconic retailer?

All that and more tonight on NIGHTLY BUSINESS REPORT for this Friday,
December the 28th.

And we do bid you a good evening, everybody, and welcome for this Friday.
Sue has the night off.

Well, it looked for a time today like stocks were going to make it three
straight days of gains for the first time this month but it didn`t happen.
Remember yesterday, a final hour push sent stocks higher. Today, it was
exactly the opposite that happened.

But the reality was that stocks were all over the place. The Dow up more
than 240 points at the high water mark and ended lower while hitting break
even several times throughout the session.

Here is what looked like at the end. The Dow is down just 76 points still
above 23,000. The Nasdaq held on for a five-point gain and the S&P down
just three.

And after all the volatility this week, this turned out to be the first up
week for the indexes this month. With the Dow and S&P gaining nearly 3
percent, the Nasdaq climbed by 4.

But Bob Pisani tells us now the market has key issues coming up.


that was December, most investors are eager to put the month behind them
and move to January and the New Year.

So, what are the key issues the markets are grappling with the first few
weeks of 2019? Well, here`s what I think are the five biggest ones.

First, it`s money flows. Investors traditionally put money to work in the
first weeks ever January. But will they do that after the worst December
since 1931?

Second, what will corporate earnings look like? Investors still expect
earnings growth of about 8 percent in 2019, but after cautious comments
from FedEx (NYSE:FDX) and Micron, the markets are acting like there will be
zero earnings growth in 2019. So, will the analysts take down their
numbers or will the stock market just keep going up?

Third, is there any progress on China trade and tariff talks? Will we see
real face-to-face meetings with even low level negotiators in January?
China has indicated that we will.

Fourth, we`ll get the minutes from the Fed meeting on January 9th. Do the
Federal Reserve officials send even more passive signals, particularly when
it comes to unwinding their balance sheet?

Finally, there is Trump and political risk. Will the calmer White House
emerge? Will the relative chaos continue? The resignation of the Defense
Secretary James Mattis in particular has removed what many viewed as a
stabilizing force over there, and all the markets want is stability from
everybody, from the Fed, from China, and from the White House.

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


GRIFFETH: Now, this week`s gains pulled the averages further away from
bear market territory. And while that term, bear market, is a technical
term, many investors do put a lot of weight on it, especially in terms of
it being a recession forecaster.

So, we asked Steve Liesman to look at the essential ingredients of a bear


a bear market or 20 percent decline in stocks do in predicting recession?
The answer, it`s terrible at predicting but not bad at telling us if the
economy is in recession right now.

First, a technical note. By the barest of margin, it`s not bear market.
The S&P 500 only closed down 19.78 percent, from the September 20th high.
Not the full 20 percent that unofficially officially denotes a bear market,
but it`s close enough to ask the question. Just how smart is the ample

Here is data CNBC analyzed from Bespoke Investments. In the post-war era,
there have been 13 declines of 20 percent from the prior high. The good
news is, five times, it did not result in recession in the next 24 months.
The bad news, eight times the economy was already in or on the verge of

A couple of examples, in 1987, a big stock decline but no recession. In
2001, a recession was three weeks away from that 20 percent decline. No
recession in `02, and in `08 and `09 when the stock market fell 20 percent,
the economy was already in a recession.

A bit more bad news here from the 20 percent decline stocks fall,
additional 8 percent on average during bearing bear market. That`s the
good news. The average increase one year later, 14 percent. The meanest
of all the bears we could find, from 2007 to 2008, there was a 52 percent
decline. The nicest of all bears, back `56 to 1957, when stocks fell just
21 percent.

Right now, we are about 15 percent below the September 20th high. So
moving away from bear market territory. That`s good news. If we go back
there, markets will have to worry not if a recession is being predicted,
but if it`s telling us we`re already in one.



GRIFFETH: And we did have some mixed economic data out today as a matter
of fact with numbers showing that business conditions in the Chicago area
remain strong but pending home sales around the country fell in November.
And one of the head scratching themes recently, of course, has been
divergent, or seeming divergence between how the how stock market sees the
economy and what these economic reports are saying right now.

But the former head of the Nasdaq thinks the answer is simple.


today where I see a disconnect, I see that next year, corporate profits are
estimated to grow 5, 7, 8 percent. We think General GDP will grows two to
three percent. So, that`s not recessionary environment. And I think the
market has been somewhat disconnected from those fundamentals.

And if I was an investor I would always focus on what the fundamental are
telling me and not pay so much attention to volatility in a market in a
given day.


GRIFFETH: Well, let`s talk about it right now. We have with us an
imminent money manager with us tonight and eminent economist. Chris Ailman
is the chief investment officer with the California State Teachers
Retirement System or CalSTRS, and Joe Brusuelas is the chief economist at

Good to see you both. Thanks for joining us tonight.

Chris, let`s start with you. It`s going to turn out to be the worst
December for the U.S. stock market since 1931.

For you, what is this stock market telling us about the economy, if

said, it`s not good at predicting recessions. But I think it`s portending
that the first half of `19 will be a slower, a slower growth economy than
we had in the latter half of 2018. And I think the market`s actually a
little bit overdone in terms of being very nervous about what the Federal
Reserve said a couple weeks ago.

GRIFFETH: All right. Joe, do you see slower growth in 2019 relative to
what we have seen so far this year?

JOE BRUSUELAS, RSM CHIEF ECONOMIST: I do. I`m expecting 2.2 percent
growth next year as we move to the long-term trend of 1.8 percent. The
financial volatility you have seen the past three months should be
considered a proxy for slower cash flows linked to trade tensions around
the world out of the White House.

That`s not going away. In fact, we think it`s likely to be intensified by
midyear. So the market I think is a little bit ahead of the economy. And
you should expect that economy to meet that market by the middle of 2019.

GRIFFETH: So you think the economy will slow down to confirm what the
stock market seems to be saying? I don`t want to put words in your mouth
but is that what you`re saying right now?

BRUSUELAS: Yes, that`s about right. The long-term trend growth of the
United States is 1.8 percent. Some of what you see is clearly a concern
that the market president can`t sustain the 3 percent pace of growth which
most economists completely disagree with. That`s more of a political
sentiment than rational economic analysis.

So, I see a fundamentally strong economy slowing back to trend and then we
can worry about recession risks in 2020 should there be a policy out of the
White House or the Federal Reserve, or just a general macroeconomic
slowdown linked to trade tensions.

GRIFFETH: Chris, I know you manage a huge portfolio, you try and keep high
altitude and not worry too much about short-term headwinds but we have had
a lot of them in the last few months here with the trade tiff between U.S.
and China, a slowdown in technology demand, oil prices have been going

Are those things that concern you and get you to think about how you manage
the money in the CalSTRS portfolio?

AILMAN: Absolutely, Bill. It gets me to grab the roll aids every day.
You know, it`s the risks that abound in the marketplace but we have seen
markets rally and climb with the ricks. I think volatility is here to
stay. Not that we saw in the last part of December but the volatility of
November and October.

And you`re right, you`ve got to keep your eye on the long-term and manage
your asset allocation so that you`re not overweight stocks. We`re using
these drops to actually come back in and add to our portfolio, because we
think we want to stay within that range and stay exposed to the U.S.

GRIFFETH: At this —

AILMAN: A key word was growth.

GRIFFETH: Yes, indeed. At this point, the Federal Reserve is expected to
raise rates twice in 2019. For you, Chris, is that a good thing or a bad
thing when if comes to equities?

AILMAN: You know, if the Federal Reserve is raising rates it`s because the
economy is strong. But I think right now what I`d rather see out of the
Fed is for them to be more data dependent. Wait and see, not just predict
what they`re going to do well out into the future.

GRIFFETH: Joe, how many rate increases do you see next year?

BRUSUELAS: Well, we see the Fed on pause until at least June of 2019. And
if the economic growth, hiring continues to be roughly above where it`s —
above trend, we expect two rate hikes one in June — and possibly one in
September — one December for 50 basis points totals. And that`s it.

GRIFFETH: All right. Gentlemen, thank you, both. A always enjoy talking
with you.

Chris Ailman with CalSTRS, Joe Brusuelas with RSM. Happy New Year.

Now, yesterday, we told about the tax loss selling strategies that might
have contributed to some of the year-end selling. Tax loss selling occurs
when you sell losing positions in order to offset any capital gains that
you might have earned from other investments during the year. And Monday
is the last day to do that.

Leslie Picker has a few tips.


rule to tax loss selling. And that is if you are disposing of one security
for tax purposes, you cannot buy a substantially identical security within
30 days before or after the transaction. This is called the wash sale

But what happens if an investor still likes their losing positions for the
long-term? Well, Bob Willen, a tax adviser to institutional investors,
shared some legal tricks to maintain exposure to certain securities.

One way to do this, he says, is through investment holding companies. For
example, if an investor wants to sell Alibaba, which has plummeted about 20
percent year to date, he or she can buy something called Altaba, which is a
result of a spinoff that essentially is just a holding company for Alibaba

Another one of Willen`s ideas, stock-based mergers. Investors have been
locking in losses in Disney (NYSE:DIS) shares and buying up the 21st
Century Fox, he says. The two signed a deal to merge so the shares will be
combined anyway.

Lastly, any ETFs. An investor will violate the wash sale rule if he or she
buys a different ETF that tracks the same index. But what he or she can do
is buy some of the underlying holdings within the index to get market

But Willen says one should not buy all of them going above say 450 stocks
in the S&P 500 could cause an investor to lose the deduction.



GRIFFETH: This was billed as a do or die day for Sears (NASDAQ:SHLD)
today. Anyone interested in buying the struggling retailer out of
bankruptcy had to have submit add by 4:00 p.m. Eastern Time. If no bids
came in, Sears (NASDAQ:SHLD) faced the possibility of liquidation.

Lauren Hirsch is with us. She`s consumer and retail reporter for

They got a bid, didn`t they?

can tell you the sources told me at the very last minute somebody submitted
bid. So, it`s possible that Sears (NASDAQ:SHLD) can avoid liquidation.
But there`s still uncertainty to come.

GRIFFETH: Do we know the bidder was?

HIRSCH: ESL. We know that ESL submitted a bid.

GRIFFETH: And that`s the hedge fund run by Edward Lampert, who has been
the chairman of this company and was CEO for a time as well of Sears

HIRSCH: Exactly, and a very big investor in Sears (NASDAQ:SHLD) as through
ESL, he invested in Sears (NASDAQ:SHLD) throughout the struggles as a
public company and it seems he will continue to invest in Sears
(NASDAQ:SHLD) even in bankruptcy.

GRIFFETH: Now, this is a life line. But they`re not out of the woods yet,
are they?

HIRSCH: Absolutely not. It`s a great question. One of the really big
issues that Lampert faces is the unsecured creditors have said they don`t
want a credit bid. What a credit bid is basically Lampert says he has some
debt owed to him by Sears (NASDAQ:SHLD) and he is willing to forgive that
debt and exchange for that he is counting that towards his bid.


HIRSCH: I haven`t seen the terms of the current bid yet. But if he tries
to do that, the unsecured creditors have said they will not allow it. They
don`t like how Eddy Lampert ran Sears (NASDAQ:SHLD). They have questions
about some of the transactions that he did while CEO and they have said
there could be potential cause for litigation.

GRIFFETH: And does the bid have to be approved by the bankruptcy court?

HIRSCH: Yes, it has to be approved by the bankruptcy court and Sears
(NASDAQ:SHLD) advisers need to decide, hey, Lampert`s bid to keep Sears
(NASDAQ:SHLD) alive is worth more than liquidators efforts to liquidate it.
And that`s not black and white.

GRIFFETH: And we don`t know yet when they are coming out of the
bankruptcy, do we?

HIRSCH: No, we don`t know if they are coming out of bankruptcy.

GRIFFETH: Exactly. I mean, it`s still — they got the life line.


GRIFFETH: But they still have to keep treading water at some point.

HIRSCH: Exactly.

GRIFFETH: Lauren Hirsch from, thanks for joining us tonight.

HIRSCH: Thank you.

GRIFFETH: Coming up, this week`s market monitor thinks that the economy is
it not as bad as some fear. He has three names he thinks you should have
in 2019.


GRIFFETH: Electric carmaker Tesla named two new board members today. One
of them is Oracle (NASDAQ:ORCL) cofounder Larry Ellison, the other is
Walgreen`s global head of human resources Kathleen Wilson Thompson. The
appointment satisfy a September deal with regulators stemming from CEO Elon
Musk controversial tweet about taking Tesla private. The shares rose more
than 5-1/2 percent today to $33.87.

And from Tesla to President Trump`s tariffs and trade war, to rising
interest rates, all of them factors that affected the automobile industry
this year, and this year that is projected to be a good one for the U.S.
automakers overall. But what about next year?

Joining us right now, Michelle Krebs is executive analyst with Autotrader.

Good to see you, Michelle. Thanks for joining us again tonight.


GRIFFETH: How could you characterize 2018, first of all? Good year, bad
year, mid-level?

KREBS: It was a surprisingly good year. It surpassed forecasts, including
ours. It looks like it may come in just a little bit ahead of last year in

GRIFFETH: But Ford is changing its strategy. It`s going to eliminate a
lot of vehicles and focus on trucks. General Motors (NYSE:GM) is closing

What about for 2019?

KREBS: Well, for 2019 we think the market will be down a bit. Still
healthy. We`re anticipating 16.8 million sales versus 17.2 this year. So
still a really good year. But it`s getting tougher. Interest rates
rising, the threat of tariffs. There are a lot of headwinds that are

GRIFFETH: And the loss of high profile personalities, the death of Sergio
Marchionne at Chrysler, Carlos Ghosn at Nissan, Ferrari, how has that
impacted that if any at all?

KREBS: Well, surprising, there were surprising news in 2018. The death of
Sergio Marchionne, the imprisonment of Carlos Ghosn in Japan. But I don`t
think they affected the companies per se. There was a smooth transition at
Fiat Chrysler. Nissan will see they are still working through all of that.
But those will be things we watch in 2019 for sure.

GRIFFETH: Do we see the rise of electric cars more this next year do you
think? ?

KREBS: Well, certainly — we will be watching Tesla. They are the ones
driving electric vehicle sales. They had a good year. They actually had a
profitable quarter. That was one of the things we underestimated about
last year.

But can they continue when there are more EVs coming to compete? And can
they continue to earn a profit? Those will be things we are watching.

GRIFFETH: Who is the winner next year do you think, auto-wise.

KREBS: I think trucks and sport utilities will continue to be the cat`s

GRIFFETH: They are calling the shots, aren`t they? That`s for sure.

KREBS: They are.

GRIFFETH: Michelle Krebs with Autotrader, again, thanks for joining us.
Happy New Year.

KREBS: Thank you.

GRIFFETH: Wells Fargo (NYSE:WFC) settles with state A.G.s, and that`s
where we begin tonight`s “Market Focus”.

The bank is going to pay $575 million to settle claims made by states that
the bank created phony accounts and other consumer abuses. Remember, two
years ago, Wells Fargo (NYSE:WFC) agreed to pay $190 million to settle
federal claims over those same accounts. Shares of Wells Fargo (NYSE:WFC)
rose a quarter today to $45.78.

Dell (NASDAQ:DELL) returned to the public markets today after nearly six
years as a private company. The move follows the buyout of Dell`s tracking
shares in software firm VMWare. JPMorgan (NYSE:JPM) said a $60 price
target on the stock. Shares closed up nearly 2 percent today on its first
day of trade to $45.43.

First Republic is going to join the S&P 500 index prior to the open of
trade on January 2nd. The bank will replace SCANA Corp, which is in the
process of being acquired by Dominion Energy. First Republic rose 5
percent, a lot of institutional interest closed at $87.94.

Procter and Gamble and IBM have said that former American Express
(NYSE:EXPR) (NYSE:AXP) CEO Ken Chenault is going to retire from their
boards. Both exits are effective February 13th. Shares of P&G and IBM
closed down less than 1 percent in today`s trade.

And new government data show that Spirit Airlines was on time more often
than any other U.S. air carrier in October. Spirits flights were on time
about 81 percent of the time. That is in contrast to its general
reputation of drawing more complaints from consumers than any other
airline. Spirit rose 3/4 of a process percent to $57.52.

The FCC is launching an investigation now into that nationwide outage at
telecom company CenturyLink (NYSE:CTL) that knocked out 911 voice calls in
parts of the country. It started yesterday and affected many other
services as well, including some Verizon (NYSE:VZ) mobile data, even ATM
withdrawals. FCC Chairman Ajit Pai at CenturyLink (NYSE:CTL) completely
unacceptable. Shares of the company, though, were up 2 percent — or,
excuse me, up 2 cents to $15.27.

Time now for our weekly market monitor who has stock picks that he says you
will want to own if you believe the economy will continue to grow in 2019.

Steve Chiavarone is the portfolio manager at Federated joining us tonight.

Steve, good to see you again. Welcome back.


GRIFFETH: And you start with AbbVie, and this is a dividend play for you.
Is that the reason you like this one?

CHIAVARONE: Yes, the general theme is we want to buy things beaten up
between September 20th and Christmas Eve. Dividend stocks are kind of the
opposite of that. They had gotten beaten up up until September 20th. As
the market was rallying and interest rates were rising, there was an
expectation that the Fed was going to raise rates, you know, four times a
year between then and forever.

Well, the Fed is already dropped next year`s kind of rate hike expectation
down from three to two. We doubt they`ll be able to hike at all in 2019
and the dividend players are getting a bid particularly because they are a
little bit more defensive.

So, AbbVie is a great example of this. They got a yield that`s almost 5
percent. And they just signed a settlement agreement with Pfizer
(NYSE:PFE) which ensures their key drug Humira will continue to generate
cash flow to support the dividend and allow them to invest in new drugs.

GRIFFETH: Your second pick is Amazon (NASDAQ:AMZN), and this is a good
example of market versus the economy. Amazon (NASDAQ:AMZN) had the record
Christmas this year but the stock down 34 percent since its high in
September. You like it because of the decline or what`s going on here?

CHIAVARONE: Yes, we think there are many a number of names priced for
recession without a recession coming. So, what you have here is the
consumer is quite strong. We see that not just did Amazon (NASDAQ:AMZN)
have their best orders, but we`re having the best holiday shopping season
in six years.

AWS continues to do well, which is a cloud business. Some of their other
initiatives around prime are doing well, as well as private label and
Alexa. And so, you have a name that we think is overly beat up. It`s a
cyclical name, but we think it can rebound from these levels and you`ve
already seen that over the last couple of days.

GRIFFETH: And, finally, you got a small semiconductor company Diodes
(NASDAQ:DIOD). Now, we have heard from other had money managers who like
the semiconductors again because they feel like they`ve been beaten down
too much just like you feel about Amazon (NASDAQ:AMZN). Why don`t you pick
one of the bigger guys? Why choose the small cap in the semiconductor

CHIAVARONE: Yes, Diodes (NASDAQ:DIOD) checks a lot of boxes. Number one,
small caps have gotten beaten up when rates are rising, because 50 percent
of the fund is variable, is variable interest rate, versus large caps is
only around 10. So, as rates fall, and we with went from 3.25 on the 10-
year to below 2.75, that should provide some relief. So, that`s one.

Number two, small caps are under performed by about 7 percent relative to
the S&P, with interest in catch up. This is name with high foreign sales
exposure, so the dollar weakening a little bit helps, and it`s also related
to trade with China which is where it sells a lot of these goods.

So, any progress there helps as well. So, it`s kind of all of these themes
put together in one stock.

GRIFFETH: Steve Chiavarone with Federated, again, thanks for joining us.
Appreciate it. Have a good New Year.


GRIFFETH: Coming up, the unused gift that can be a burden to retailers.


GRIFFETH: Here a look at what to watch next weak. Busy week. It`s a
holiday shortened week.

Markets are closed on Tuesday. But on Thursday, we get a look at sales
numbers from the big automakers. Then, it`s all about the labor market.
Thursday, we get the weekly unemployment claims and Friday, it`s the big
December jobs report.

And that`s what we are watching for next week. Could be some more
volatility as a matter of fact.

The holiday shopping rush has passed, but many consumers are now armed with
those gift cards that allow them to cash in on a post-Christmas deals. But
not everyone uses their cards right away or at all.

And as Frank Holland tells us, that has a bottom line impact on retailers.


plastic and e-versions, were the most popular gifts of the 2018 holiday

UNIDENTIFIED MALE: I actually enjoy them more because then you can pick
out exactly what you want. I find it`s easier to give them. And they`re
just really fun to receive as well.

HOLLAND: Millions of Americans see the gift card as a convenient
alternative to picking presents. According to Wallet Hub, gift cards from
Amazon (NASDAQ:AMZN), Visa (NYSE:V), Walmart, American Express (NYSE:EXPR)
(NYSE:AXP) and iTunes were the predicted top picks this season.

UNIDENTIFIED MALE: We like the Amazon (NASDAQ:AMZN) because we do a lot of
our shopping online.

UNIDENTIFIED MALE: I received a gift card for iTunes. I don`t use iPhone
anymore, but it`s good to still have music anyway.

UNIDENTIFIED FEMALE: I received a Visa (NYSE:V) gift card, and also a
Starbucks (NASDAQ:SBUX) gift card.

HOLLAND: But even when people get one from their favorite store brand,
they don`t always use them right away. It`s estimated at least a billion
dollars of gift cards go unused every holiday season.

According to the National Retail Federation, 42 percent of people say they
wait until a good sale to use the cards. Twenty percent say they use them
quickly. Another 20 percent say they save them for a rainy day.

UNIDENTIFIED MALE: I usually wait a long time. Sometimes I forget about

UNIDENTIFIED MALE: I try to do them within a month or two because I find
that when I — when I don`t I lose them and misplacing them, that`s how to
use them as soon as possible.

UNIDENTIFIED MALE: I do have a collection of gift cards. So, that
sometimes is the problem. So, now if I get a gift card, I try to use it as
soon as possible. So I don`t forget it or lose it.

HOLLAND: And people not using their gift cards is actually a bigger issue
for your favorite stores than you might think. Retailers can`t count the
money you spend as revenue until you actually buy something.



GRIFFETH: So, where does that unused money go you might wonder? We
wondered. There isn`t a universal answer it turns out.

Different companies handle it different ways. Many use a specified time.
Usually between two and five years before they convert the unused gift card
funds to revenue. And then if that`s not enough, some states have
unclaimed property laws that send some of the money to state`s coffers.

Aren`t you glad you asked?

Before we go, a final look at the day on Wall Street, capping off a very
volatile week, down 76 points on the industrial average. Still above
23,000, though. The Nasdaq held on for a 5-point gain and the S&P 500 was
off just 3 points.

But after all the volatility we saw this week, it turned out to be the
first up week for the indexes this month. The S&P and the Dow gained
nearly 3 percent. The Nasdaq climbed by 4. What a week.

That is NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thank you
for watching, everybody. Have a great weekend. See you on Monday.


Nightly Business Report transcripts and video are available on-line post
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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
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Business Report is not and should not be considered as investment advice.
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