Transcript: Nightly Business Report – January 4, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stocks rocket higher. The
market rallies as hiring surges, suggesting that the economy may be
healthier than some had thought.

(BEGIN VIDEO CLIP)

JEROME POWELL, FEDERAL RESERVE CHAIRMAN: There is no preset path for
policy.

(END VIDEO CLIP)

GRIFFETH: The Fed chair pledges patience when it comes to interest rate
increases, marking a shift in tone, which eased concerns among investors.

Meet and greet. Overhauling customer service is no easy task. But one
entrepreneur found a way and turned his bright idea into a growing
business.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Friday, January the 4th.

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

But the center of the action today and all week was again right here at the
New York Stock Exchange. Stocks rallied big time after a string of good
news on the job market, interest rates and possibly trade as well. The
combination created intense buying, offsetting the intense selling we saw
yesterday.

And by the close of trade today, the Dow was up 746 points back above
23,000. The Nasdaq was the big winner adding 275 points or more than 4
percent, while the S&P was up 84. And in fact, the broad rally sent the
small cap Russell 2000 Index up by more than 3.5 percent.

But let`s begin tonight with jobs. Employers added a lot more than
expected last month. As it turns out, 2018 was the best for job growth
since 2015, and wages posted one of the biggest annual increases in decade.

As Ylan Mui reports now, the labor market is showing its strength in
different ways.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Zach Moller is
unemployed. But he is not stressed about it.

ZACH MOLLER, MOMENTARILY UNEMPLOYED: The economy has been nice and strong.
And I feel like for someone here in D.C., someone with a graduate degree
like there are a lot of options available.

MUI: Moller quit his job three weeks ago. He has ha new job lined up but
didn`t want to start right away. That makes him what the Labor Department
calls a job leaver, someone who voluntary ends their employment to try
something new.

Roughly 840,000 workers fell into that category in December. That`s a big
jump from the previous month. And it helped drive the unemployment rate up
from 3.7 to 3.9 percent even though companies were hiring like crazy. The
economy added a whopping 312,000 jobs in December, almost twice what
analysts had expected.

Business owners like Barbara Martin who runs a marketing firm say they`re
desperate to fill positions.

BARBARA MARTIN, THE BRAND GUILD CO-FOUNDER: We are doing a lot of job
postings across different website than we have in the past. We are engaged
with a couple of recruiters for key positions. We are posting these jobs
on social media. And we are just doing a lot of glad handing out in the
market and meeting lots of people.

MUI: Job gains were strong almost every sector of the economy.
Manufacturing added 32,000 workers. Restaurants and bars were up 41,000
jobs. And it was a record month for the health care industry. It gained
50,000 jobs, the most since the government began tracking that data.

Wages were also up, average hourly earnings rose 11 cents or 3.2 percent
over last year.

Call it a job seekers dream. Moller is making the most of his time off.

MOLLER: It was a nice time to just kind of reset, refresh and kind of
start a new job, like ready to, you know, go in there and crush it from day
one.

MUI: On Monday, he starts his brand-new job.

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

(END VIDEOTAPE)

GRIFFETH: And Fed Chair Jerome Powell also boosted investor enthusiasm for
stocks today when he said the central bank is not necessarily on a fixed
path to push interest rates higher.

Steve Liesman has more on that tonight from Atlanta.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A super strong jobs
report would normally raise fears of more interest rate hikes from the
Federal Reserve but not with today`s report of 312,000 jobs created in
December. The reason, a dovish sounding Fed Chairman Jerome Powell telling
markets what they wanted to hear. He is flexible and not hell-bent on
raising interest rates.

POWELL: We will be prepared to adjust policy quickly and flexibly and to
use all of our tools to support the economy should that be appropriate to
keep the expansion on track, to keep the labor market strong and to keep
inflation near 2 percent.

LIESMAN: Speaking at the American Economic Association annual meeting in
Atlanta, flanked by two former Fed leaders, Powell tried to counter critics
who said that the Fed is not attentive to the gyrations in markets and to
their fears of slower growth this year.

POWELL: Markets were expressing concerns again about global growth in
particular. I think that`s becoming the main focus, and trade negotiations
which are related to that. And I`ll just say that we`re listening
carefully to that. We`re listening sensitively to the message that markets
are sending, and we`re going to be taking those downside risks into account
as we make policy going forward.

LIESMAN: In the biggest change, Powell said the plans to wind down the
balance sheet boosted during the financial crisis to keep interest rates
low can also be changed.

The questions markets have to ponder is Powell just telling them what they
want to hear? Or has he truly become more dovish? If the data don`t
confirm the sharp slowdown that markets now fear, the Fed could be right
back to talking about more rate hikes later this year.

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

(END VIDEOTAPE)

GRIFFETH: Well, let`s talk more about the economy, jobs and the markets.
Joining us tonight, Brian Levitt. He`s a senior investment strategist at
Oppenheimer Funds.

Welcome to the New York Stock Exchange.

BRIAN LEVITT, SENIOR INVESTMENT STRATEGIST, OPPENHEIMER FUNDS: Thank you.
Good to be here.

GRIFFETH: Two big plusses for the markets today. You had a big jobs
report and a dovish Fed chairman.

LEVITT: Yes, that`s right. And the first thing is the jobs report is
proof that this is not an economy that`s heading into a recession. These
concerns about U.S. slowdown were way overstated. Yes, the economy is
slowing. We pumped a lot of stimulus in, rates go up, the economy slows.
But this was not a collapsing environment.

GRIFFETH: So, what does the stock market been telling us then with the big
declines we see in October, November and December?

LEVITT: So, what the stock market is telling us is that it was concerned
about how financial conditions tightened significantly. That was on higher
rates and higher prospects for further rate hikes from the Fed, a stronger
dollar, credit spreads blowing out a bit. That was tightening financial
conditions and weighing on sentiment. That`s why it was so important for
the Fed to back off.

GRIFFETH: But if we continue with this kind of job growth, I mean, even
November and October were revised higher.

LEVITT: Right, right.

GRIFFETH: In terms of job growth. So, the average job growth was about
254,000 per month which as we said is the strongest in three years. That
sounds like the Fed would need to continue to raise rates.

LEVITT: Well, look, it`s the first time in a while we`ve been above 3
percent on wage growth for a bit of a sustainable period. And so, to try
and kill that now with interest rate hikes seems ill-timed. So, the market
right now is saying well the fed given Powell`s at a talk about flexibility
is more likely to back off. If this economy continues to remain strong,
long rates will go up and the fed will be able to slowly raise interest
rates but it`s going to be data dependent. The Fed is going to be
flexible.

In my opinion, this economy will likely slow through 2019 primarily because
the stimulus starts to fade. And so, as we slow, I think it`s appropriate
for the Fed to not raise rates.

GRIFFETH: And the trade dispute as well.

LEVITT: Yes.

GRIFFETH: I mean, we know the Chinese economy is slowing down and doesn`t
help we have the tariff tiff going on right now, right?

LEVITT: It doesn`t help. I mean, look, what ultimately ends a cycle is a
policy mistake. And from our perspective, given that inflation is
generally benign, this cycle could go on far longer than most investors
currently expect unless we have a policy mistake.

So, step one, Powell, seemingly backing off today. Step two, we need to
have some clarity on in trade spat. Hopefully, that would moderate the
dollar, ease financial conditions, stabilize Chinese growth and that
creates a nice back drop for equities.

GRIFFETH: Yes, before you go then, what are your expectations for stocks
this year?

LEVITT: I actually think 2019 is going to be a very good year for stocks
globally. Not only in the United States. Last year was the year in which
we had good growth but bad policy. This is going to be a year in our view
that`s more modest but better policy and paradoxically that`s actually
better for equities. Stocks are now as cheap to bonds as they`ve been
since 2016 and before that 2013.

GRIFFETH: But we certainly got off to a good start for this week, didn`t
we?

LEVITT: We did, we did.

GRIFFETH: Brian Levitt with Oppenheimer Funds, thanks for joining us
tonight. Appreciate it.

LEVITT: Thanks a lot.

GRIFFETH: Investors were also encouraged by a small piece of news on
trade, which as we`ve discussed is an issue that`s been dogging the markets
for months. China today did confirm a two-day meeting with U.S.
representatives to resolve that dispute and that meeting will take place
this Monday and Tuesday.

And that news probably helped Caterpillar (NYSE:CAT) and Boeing (NYSE:BA),
two stocks that have become proxies for U.S.-China trade relations. They
were both up more than 5 percent in today`s session.

Meantime in Washington, Republicans, Democrats and federal workers are
bracing for what could be a lengthy shutdown after President Trump
confirmed today that he told House leaders that the partial government
closing could last for months, maybe years. He was asked about that by a
reporter during an afternoon news conference.

(BEGIN VIDEO CLIP)

REPORTER: You said in the meeting — this is him quoting you — I just
want to check, that the shutdown could go on for months or even a year or
longer. Did you say that?

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Yes. I did. I did.

REPORTER: Is that your assessment of where we are?

TRUMP: Absolutely I said that. I don`t think it will. But I am prepared
and I think I could speak for Republicans in the House and Republicans in
the Senate. They feel very strongly about a safe country, having a border
that makes sense.

(END VIDEO CLIP)

GRIFFETH: A number of economists estimate that each week of the shutdown
will reduce economic growth by about 0.1 percent but that drag should
mostly reverse when the government does fully reopen.

Time to look at some of today`s upgrades and downgrades.

We begin with Dow component Intel (NASDAQ:INTC) which was upgraded to buy
from neutral at Bank of America (NYSE:BAC) Merrill Lynch. The analyst
there cites its exposure to fast-growing industries including cloud
computing, artificial intelligence and 5G wireless networks. Price target
now is $60, shares rose by 6 percent to $47.22.

Fellow Dow component United Technologies (NYSE:UTX) was downgraded to
sector perform from outperform at RBC Capital Markets. The analyst says
that the stock may be stuck in limbo until the company`s previously
announced breakup which occurs in 2020. Price target, $119 and shares
gained more than 3 percent to $107.02.

Netflix (NASDAQ:NFLX) was added to the conviction buy list at Goldman Sachs
(NYSE:GS). The analyst says that Netflix`s investment in content,
technology and distribution will drive subscriber growth above
expectations. Those are high expectations too. Price target: $400.
Shares added 9.5 percent to $297.57.

Still ahead with the labor hot and wages rising, is it time to invest in
the American consumer? Our market monitor says yes.

But, first, a look at the weekly gains for the major averages.

(MUSIC)

GRIFFETH: And it is time for our weekly market monitor who is betting on
continued growth in e commerce in the New Year. He has names that he says
you want to own the next three to five years. This is the first time on
NIGHTLY BUSINESS REPORT.

We welcome Dryden Pence. He`s the chief investment officer at the Pence
Wealth Management.

Good to see you, Dryden. Thanks for joining us.

DRYDEN PENCE, PENCE WEALTH MANAGEMENT CIO: Good to see you, Bill. Thanks
for having me on.

GRIFFETH: You bet. And let`s start with the first pick, which is Apple
(NASDAQ:AAPL), very much in the news. Caused the sell off yesterday. They
see a slowdown in iPhone sales, especially in China, and then the stock has
just been tanking since October.

You like it. Why?

PENCE: We like it — particularly at these levels, we like it because I
think people underestimate a couple of things. Obviously, it`s the China
story, but that`s China only. And trade wars end. Trade actives end. And
I think we will see a rapid recovery from that.

But what we really like about Apple (NASDAQ:AAPL) is how it has changed and
is changing. It increased the services style business $37 billion. That`s
bigger than Netflix (NASDAQ:NFLX) and Adobe combined, and Salesforce
combined.

But then you also have to recognize the value of their cash. If you just
took the interest earned on the cash that Apple (NASDAQ:AAPL) has, that`s
equivalent to the sales — they`d be the 153rd largest company in the S&P
just on the cash they`re holding alone.

GRIFFETH: Right.

PENCE: So, they have two big things making them very strong.

GRIFFETH: All right. Now let`s go to Amazon (NASDAQ:AMZN). Of course,
when you think of e-commerce, Amazon (NASDAQ:AMZN) is the clear leader
there. But it has also suffered recently. I gather you like it more now
because it has come down a bit?

PENCE: Absolutely. And roughly 50 percent of all of the e-commerce trade
or search start on Amazon (NASDAQ:AMZN) one way or the other. We had a
huge Christmas season. Online trade — online shopping is the most —
fastest growing part of retail commerce. And Amazon (NASDAQ:AMZN) clearly
dominates that.

And we think for the longest of time, as consumers — more people making
more money than before, consumers are going to spend more money on e-
commerce and Amazon (NASDAQ:AMZN) is going to get the lion`s share of that
activity.

GRIFFETH: And, finally, Visa (NYSE:V). And I`m curious about in because
this is a competitive business if you are talking about electronic
payments. There are a lot of companies out there, including Apple
(NASDAQ:AAPL) Pay, and PayPal and others that are competing with the likes
of Visa (NYSE:V) to be a part of in industry.

Why do you like this one in particular?

PENCE: They`re absolutely dominant. They have 60 percent of the U.S.
market and market in Europe. You really can`t do an online trade without
using Visa (NYSE:V) or MasterCard (NYSE:MA) or PayPal, one of those, and
they`re absolutely dominant in that space.

So, we think that as more people buy online, they`re going to continue to
use Apple (NASDAQ:AAPL), use Amazon (NASDAQ:AMZN), use Visa (NYSE:V) or
companies similar to that. You just can`t do a transaction without it.

GRIFFETH: Well, you`re definitely going with the brand names in those
categories. That`s for sure.

Dryden Pence with the Pence Wealth Management, good to see you. Thanks for
joining us tonight.

PENCE: Thank you very much, Bill. Appreciate being here.

GRIFFETH: You bet.

And to read more about his picks, you can head to our website at NBR.com.

In the meantime, Qualcomm (NASDAQ:QCOM) was in court today. The
semiconductor company whose products power cellular connections of
smartphones and tablets worldwide is in a the crucial battle with the
Federal Trade Commission right now. Qualcomm (NASDAQ:QCOM) is accused of
having a monopoly on its mobile chip technology.

And as Josh Lipton reports, the stakes are very high.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s a case that
strikes at the heart of Qualcomm`s business model. Lawyers for the U.S.
Federal Trade Commission said in court today that the company maintains a
monopoly over a key type of chip used in cell phones by using anti-
competitive tactics. They say that Qualcomm (NASDAQ:QCOM) only supplies
these chips to cell phone manufacturers if those manufacturers also agree
to license patents from Qualcomm (NASDAQ:QCOM) on its preferred terms.
Regulators argue that forces companies to pay too much for those patents.

Analysts say that the FTC is taking direct aim here at Qualcomm`s bread and
butter, its patent licensing business.

PATRICK MOORHEAD, MOOR INSIGHTS & STRATEGY: The risk to Qualcomm`s
business is that, essentially, 50 percent of their revenue is based on
intellectual property or patents. And if the government steps in and
mandates a lower price, Qualcomm`s revenue and profitability would be
offset by the difference between the market price and the government-set
price.

LIPTON: For its part, Qualcomm (NASDAQ:QCOM) denies any and all
wrongdoing, countering that the government hasn`t proven that consumers or
the broader competitive market have been harmed by its business practices,
saying the complaint is based on a flawed legal theory, a lack of economic
support and significant misconceptions about the mobile technology
industry.

But it`s not just the FTC. Qualcomm (NASDAQ:QCOM) has had to defend its
business model in a number of high-profile regulatory and legal challenges
around the world, including the fight right now with one of its big
customers, Apple (NASDAQ:AAPL), which is also upset with Qualcomm`s
licensing fees. That trial is scheduled to start in April.

One former FTC chair says the agency though has set an ambitious goal for
itself with this case that U.S. anti-trust law is generally sympathetic to
dominant companies setting prices for the products they create.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Jose, California.

(END VIDEOTAPE)

GRIFFETH: GameStop may be closing in on a buyout deal, and that`s where we
begin tonight`s “Market Focus”.

Two private equity firms are reportedly bidding for the video game and
electronics retailer. And according to “Wall Street Journal”, a deal could
be announced sometime around mid-February. And shares advanced 17.5
percent on that news, closing the day at $15.24.

Marriott now says fewer customer records were stolen in a massive cyber-
attack than initially estimated. The attack was disclosed last month and
at the time it was believed that 500 million people were affected. But
that estimate has been lowered to 383 million guests. Shares gained nearly
6 percent today to $107.81.

Cal-Maine`s profit beat expectations but revenue missed estimates because
of decline in eggs sold. The egg producer did however say that specialty
eggs are becoming a big are part of its business as consumers pay up for
cage-free or organic products. And the stock rose more than 3 percent
today to $43.58.

Private equity firm Apollo Global Management is reportedly considering a
bid for General Electric`s aircraft leasing unit. That unit is said to be
worth about $40 billion. GE stock rose in the initial after-hours trading
tonight. It closed the regular session at $8.23.

Well, it was a strong holiday season marked by the strongest consumer
spending in years. But all that shopping also translates into a lot of
returns. And that means big demand for warehouse space, especially with
the growth of e-commerce.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: As plentiful as the
gifts were delivered to our doorsteps, close to $100 billion worth of them
will be returned. And most will end up in warehouses like this one in
Nashville.

SPENCER LEVY, CBRE: What`s going on behind me is the hangover from the
buying season during the holidays when reverse logistics kicks in.

OLICK: Reverse logistics is a fancy term for dealing with all those
returns. While store shoppers return about 8 percent what have they buy,
online shoppers send back close to 30 percent. And most items have to be
brought to warehouses, checked for damage, repackaged and either sent back
to retailers, liquidators or often just thrown away.

Reverse logistics is now the number one new user of warehouse space in the
U.S. according to CBRE, taking up 700 million square feet nationally.

LEVY: Demand for space is only going to increase in warehouses unless and
until we find a better solution to either return to the store or better
incentives for consumers not to return the goods.

OLICK: That demand boosts the bottom line of warehouse reaped like
Prologis, East Group Properties and Stag Industrial, as well as logistics
companies like XPO Logistics, which both owns or leases warehouse space.

Warehouse REITs have been a hot sector since 2012, with the surge in e-
commerce and demand has generally outpaced supply, despite a lot of new
construction. There was concern that the trade war might hurt demand, but
so far, economic growth has offset those fears. And one of the strongest
holiday retail seasons in years only confirm that.

LEVY: I don`t think we are past the peak yet, though we had suggested
earlier that we might have seen that. We didn`t.

OLICK: Because the more goods we have sent to us, the more we will
inevitably send back.

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

(END VIDEOTAPE)

GRIFFETH: The business community tonight is mourning the passing of a
titan in the airline industry. And he was a real character, too.

Herb Kelleher, the founder of Southwest Air, will be remembered as the
original disrupter of the airline industry. He revolutionized low cost air
travel, got rid of assigned seating, and in the process democratized the
skies. He was also known for his whimsical sense of humor which became
part of Southwest reputation.

Mr. Kelleher grew Southwest from a small regional airline to a much larger
domestic air carrier. Cause of death was not disclosed. Herb Kelleher was
87 years old.

(MUSIC)

GRIFFETH: More and more, your first interaction with a business is often
through its website. And when you have a specific question, the answer
usually occurs during a live electronic chat. But live chats can sometimes
be stilted and awkward. And that`s why one entrepreneur in Lee Summit,
Missouri, came up with the bright idea to make chat a more personal, more
intelligent exchange of information.

(BEGIN VIDEOTAPE)

GRIFFETH: That is the sound of chat. Eighty-five chat specialists based
outside Kansas City, Missouri, working for 1,400 companies. Scott Hansen
got the idea while managing his mother`s orthodontic practice.

SCOTT HANSEN, PROFESSIONALCHATS CEO AND FOUNDER: We were looking for ways
that we could get to patients sooner in the buying process. The reality is
before you have a customer in the office, online is what all of the new
customers experience about you.

GRIFFETH: But how? Hire someone? Too pensive. Outsource it? Less than
optimal.

HANSEN: Felt very robotic. The businesses providing those services are
largely outsourced overseas and just provide a different level of service.
They are not categorically bad and for us the conversations were very high
stakes.

GRIFFETH: Each patient can mean thousands of dollars for an orthodontic
practice.

HANSEN: It should be as if you were walking into an office or calling
someone over the phone.

GRIFFETH: When Hansen offered to share costs with other orthodontists
several bit. And suddenly, in January of 2016, Hansen had a new and
growing business — professional chats.

TREVOR FLANNIGAN, PROFESSIONALCHATS COO: How is everybody doing today?

GRIFFETH: A business school friend Trevor Flannigan joined Hansen to help
manage the company`s rapid growth. Dentists, chiropractors and home
service providers like plumbers were signing up. Some pay hundreds of
dollars a month, others thousands, depending on the number of chats.

Two years in, Flannigan says they are adding 100 clients a month. Their
chat specialists working for three clients per shift deal with medical
issues, home repairs and sometimes job applicants.

UNIDENTIFIED FEMALE: And they are looking for a job as an administrative
assistant.

GRIFFETH: Rather than take on all comers. Pro Chats operates in eight
industries for now, sectors Flannigan and Hansen want to own when it comes
to chat.

FLANNIGAN: I think owning a silo is the way to go. We service one out of
ten orthodontists.

GRIFFETH: Specialists get training updates and there`s always help nearby.

FLANNIGAN: She is having about three conversations at once.

GRIFFETH: On the right side of the screen, a conversation guide. Each
group also has a coach who can whisper into a conversation.

FLANNIGAN: The customer doesn`t see it, but our chat specialist does.

GRIFFETH: It`s a delicate dance — building relationships with prospective
customers while hooking sales leads for their clients.

FLANNIGAN: If we get first name, last number, email, physical address,
they`re very much more likely to only use that customer and that`s what we
want.

GRIFFETH: Does it work?

FLANNIGAN: Scott Horstman, who owns a Kansas City roofing business is a
Pro Chats customer and a believer.

SCOTT HORSTMANN, CHRISTIAN BROTHERS ROOFING OWNER: Every touch with a
customer is telling that customer who you are and what you`re about. And
if they come with the same values, beliefs, principles and integrity that
we do, when they hand that off to us, it`s a natural flow for the customer.

FLANNIGAN: In the end, it`s just chat. But for Flannigan and Hansen, it`s
a conversation worth having.

HANSEN: It`s really cool to look around and see what we have built and how
it`s impacting the hundred-plus people here, but thousands of customers and
that`s really satisfying.

(END VIDEOTAPE)

GRIFFETH: Hansen does like to quote studies that show when chat is used in
the right way by the right types of companies, it can drive up to a 40
percent jump in sales leads generated by the company`s website.

That is NIGHTLY BUSINESS REPORT for tonight. I`ll bill Griffeth. Thanks
so much for joining us. Sue is back with me on Monday.

In the meantime, have a great weekend. See you then.

END

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