Transcript: Nightly Business Report – January 11, 2019

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

weeks-long partial government shutdown is starting to create anxiety on
Wall Street and nervousness among investors.  

just Wall Street.  Main Street business owners that rely on the government
are now getting creative to stay afloat.  

GRIFFETH:  Not so happy returns.  The high cost of bringing all of that
unwanted holiday merchandise back to stores.  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Friday, January the 11th.

HERERA:  Good evening, everyone, and welcome.  

The partial government shutdown is on track to be the longest in history.  
President Trump and Congress appear no closer to a deal to reopen the parts
of the government that are closed.  The reality is hitting federal workers
who today missed their first paychecks, and there are new estimates as to
the broader economic cost.  

So far, the economy has lost about $3.5 billion.  According to S&P global
ratings, it will only take another two weeks for the shutdown to exceed the
amount of money the president wants to fund a border wall.  

And on Wall Street, analysts are starting to take note as well of the
potential impact to a number of sectors.  

Bob Pisani starts us off tonight.  


been closed for 21 days.  That ties the record for a standoff set in 1995-
96 between Bill Clinton and House Speaker Newt Gingrich.  

NEWT GINGRICH (R), FORMER HOUSE SPEAKER:  Giving up on balancing the budget
I think would be a tragedy that would haunt us for the rest of our lives.  

BILL CLINTON, FORMER PRESIDENT:  It is wrong for the Congress to shut the
government down.  

PISANI:  While investors might have shrugged off shutdown concerns later
on, Wall Street is starting to get a little worried here.  We`re seeing a
rash of analysts` notes warning that this would soon start to affect
different businesses.  Some warned about the effect of the shutdown on
airlines and the business of travel.  American Airlines, for instance, has
significant exposure with its hub in Washington, D.C.  

Others worry about tax refund delays and what the shutdown will mean for
stores that cater to lower income consumers.  They say prolonged government
shutdowns jeopardize food stamps and other benefits low-income customers
rely on.  That could prove to be a big headwind for retailers that cater to
those lower income customers.  

Defense contractors who work with agencies like NASA and the State
Department could also be disrupted and they could lose revenue or whole
projects altogether.  Still others are worried about the longer term impact
on infrastructure projects and federal cyber security workers, for example.  

This is not just theoretical.  Some damage has already been done.  JPMorgan
(NYSE:JPM) has already lowered its first quarter GDP growth estimates to 2
percent primarily because of the government shutdown.  

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


GRIFFETH:  There was some movement in Washington regarding the shutdown
today.  The House voted to restore funding for some federal agencies that
have been furloughed, including the Interior Department and the
Environmental Protection Agency.  But Senate Republican leader Mitch
McConnell said he would not bring that bill up for a vote since the
president would not be expected to sign it.  

Separately, though, the House voted to ensure that all federal employees
will be paid retroactively after the shutdown ends.  The Senate approved
that bill unanimously and the president is expected to sign it.  

HERERA:  Meantime, the Federal Reserve and several banking agencies have
asked financial firms to work with those affected by the partial shutdown.  
Banks are being urged to consider things like loan modifications or
extending credit.  This is the type of guidance that is normally issued
following things like hurricanes and wildfires or other natural disasters.  

GRIFFETH:  The shutdown is forcing Miami International Airport to close one
of its terminals over this weekend because security screeners have been
calling in at twice the normal rate.  Calling in sick, that is.  

Miami is the second busiest international airport in the country after New
York`s JFK.  And officials say they are just concerned there will not be
enough workers to handle all 11 checkpoints during normal operating hours
on Saturday and Sunday.  As you know, today marked the first day that TSA
screeners missed a paycheck.  

HERERA:  The 800,000 federal workers who aren`t getting paid are the first
to feel the impact, but the effects are quickly rippling through the
economy.  And now some small business owners are worried that they`re
getting pinched.  

Kate Rogers (NYSE:ROG) has our story.  


stepping stone consulting in Northern Virginia, a three-person company
doing contract work for the government and small business consulting.  
Federal contracts make up about one-third of her business.  And due to the
shutdown, her company has been notified to stop work on a project with the
Department of Transportation, a first for Stewart who says she`s worked
through previous shutdowns.  

800,000 federal employees that are being impacted, it`s the small
businesses.  Small businesses that are really, truly at risk of going out
of business.  

ROGERS:  Stewart planned ahead for a potential government closure with cash
reserve and is shifting her focus to consulting work, to make up some of
the revenue she`s missing out on during the shutdown.  But she says her
business is jeopardized the longer this drags on.  

STEWART:  Having a shutdown go on for such a long time, it really does put
my business at risk.  It is a third of my revenue right now.  And I did
build up a reserve.  But I`m eating that reserve at this point.  

ROGERS:  Meanwhile, in Houston, Texas, Helen Callier says she`s without a
resource, the Small Business Administration.  Her company Brandlink is also
a government contractor.  While she`s able to continue her contract work,
she`s unable to work with the SBA on business development during the
shutdown to attempt to gain work on future contracts.  

is key folks that we need to leverage to go after contracts in that
program, they are not working.  That`s an impact that we`re being real
creative to see how we can make something happen.  

ROGERS:  Both business owners urge leaders in Washington to come to an
agreement to end the pain for federal workers, contractors and small
business across the country.



BRIGGS:  Farmers around the country have now been hit with a 1-2 punch.  
They are being indirectly affected by the partial government shutdown while
they continue to deal with the fallout from the trade war with China.  

Aditi Roy has our story from Denair, California, tonight.  


Monte Vista farm in Stanislaus County, California.  Workers are sorting
more almonds than usual because the farm grew bumper crop this year.  

JONATHAN HOFF, MONTE VISA FARMING CEO:  We`ve got this massive volume, and
our processing plant and our marketing has been conditioned for so many
years on having China as sort of a pressure relief valve on our inventory.  

ROY:  But CEO Jonathan Hoff says this year the farm`s shipments to China,
which usually account for 9 percent of total exports, have sunk because of
the country`s 50 percent tariffs on the nuts.  

HOFF:  Well, in a normal year we wouldn`t have this many finished goods
stacked up here.  

ROY:  The almonds are piling up and Hoff is looking for other markets to
ship them.  

To make matters worse, government aid payments to farmers affected by the
tariffs are delayed because of the shutdown.  Farm service agency offices
around the country are also closed, which means farmers can`t process their
aid applications or government checks.  Hoff says the price he`s getting
for almonds has dropped 20 percent, even though consumer prices are about
the same.  

HOFF:  You know, we`ve been resilient.  We`ve been able to get through it.  
Market prices have come back to a certain extent, but we definitely want to
see this trade situation resolved in the near future.  

ROY:  Across the country, dairy and grain farmers are also struggling with
what Hoff calls the 1-2 punch of the tariffs and the shutdown.  One effect,
three critical USDA crop reports have been delayed because of the shutdown.  
Those reports show the demand for corn, wheat and soybeans, and how much
crop was produced last year.  That data helps traders set prices and
farmers make planting decisions.  

HOFF:  All of this crop still has to be processed, packed and shipped to
some market before 2019 crop.  

ROY:  As Hoff worries about running out of warehouse space for his excess
almonds, he remains hopeful about the future.  

HOFF:  You know, there`s this notion that we`re going to endure some short-
term pain for long-term gain.  As long as that`s the direction that we go
in, then we`re OK.  

ROY:  President Trump is scheduled to address farmers at the American Farm
Bureau Convention in New Orleans on Monday.  

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Denair, California.  


HERERA:  On Wall Street, stocks snapped their five-day win streak.  The
indexes were pushed marginally lower on concerns about the shutdown and
that slowing growth in China.  The Dow Jones Industrial Average fell about
26 points to 23,995.  The Nasdaq was down 14 and the S&P 500 fell a

For the week, though, the major averages all showed solid gains.  Meantime,
oil prices broke a nine-day win streak which was the longest stripping of
gains in nine years.  Domestic crude settled down nearly 2 percent.  

GRIFFETH:  And after a run of disappointing earnings reports, General
Motors (NYSE:GM) has finally bucked that trend.  The automaker said today
it expects to beat its earnings projections for 2018.  It also gave an
upbeat outlook for this year.  And that`s easing some concern about demand
slowing here in the U.S. and in China.  It was enough to send the stock up
about 7 percent today.  It closed at $37.18.  

Phil LeBeau has more details for us.  


wringing about auto sales slowing down around the world, General Motors
(NYSE:GM) says business remains solid.  In fact, it`s raising its earnings
expectations due to strong demand for high profit vehicles like the Chevy

MARY BARRA, GM CHAIRMAN & CEO:  From a team perspective, it was not only a
focus on really capitalizing on the new trucks that we have out there,
light duty trucks, but also the focus on cost reduction.  So, it was across
the board, every element of the company.  

LEBEAU:  The cost reduction behind GM`s bullish outlook comes from the
money saved by shutting six plants in North America and eliminating roughly
15,000 jobs.  

EMMANUEL ROSNER, DEUTSCHE BANK:  That`s a huge contribution to 2019.  I
think this is what investors have been underestimating.  It`s also the
contribution from their new trucks, their full-size pickups, which are
rolling out in dealerships as we speak.  

LEBEAU:  GM is also planning to roll out an all-electric Cadillac to make
the luxury brand its flagship for electric vehicles.  It plans to launch an
autonomous ride-share service through its subsidiary Cruise, but when that
will happen remains unclear, as does the question of what it will take to
get investors excited about GM.  It`s been five years since Mary Barra
became CEO.  And while she has raised profits for the automaker, the stock
has done very little during her tenure.  

BARRA:  We have much more work to do.  Clearly, you know, we`ve come in and
focus every day on creating shareholder value and making sure that we`re
providing a sustainable General Motors (NYSE:GM) for the long term.  We
have much more work to do.  So, we`ve made progress, but my focus is on the
work we still have in front of us.  

LEBEAU:  But, are you satisfied with your performance?  

BARRA:  I`m never satisfied.  

LEBEAU:  GM is not the only auto stock that is stuck in neutral.  Most of
the sector has struggled this last year.  But General Motors (NYSE:GM) is
hoping its optimistic view of 2019 will reverse the fortunes of its stock.  



HERERA:  It is time to take a look at some of today`s “Upgrades and

Starbucks (NASDAQ:SBUX) was downgraded to neutral from buy at Goldman Sachs
(NYSE:GS).  The analyst cites concerns in China and says Starbucks
(NASDAQ:SBUX) will be the next U.S. brand to warn of weakness in that
country.  The price target is $68.  Starbucks (NASDAQ:SBUX) fell a fraction
to $63.73.  

Goldman Sachs (NYSE:GS) also cut its rating on Yum Brands (NYSE:YUM) to
sell from neutral.  The analyst cites concerns about U.S. sales momentum at
Pizza Hut and Taco Bell.  The price target is $76.  The stock fell nearly 1
percent to $90.94.  

GRIFFETH:  The Gap (NYSE:GPS) was downgraded to underweight from overweight
at Barclays.  The analyst there cited challenging traffic trends and
difficult comparisons.  Price target $25.  That stock lost a penny today to

And Netflix (NASDAQ:NFLX) was upgraded to strong buy from outperform at
Raymond James with the analyst citing a solid content slate of programs
which could help drive revenue and earnings per share even higher.  Price
target $450 and shares rose about 4 percent today to $337.59.  The stock
has gained 37 percent just since Christmas Eve.  

HERERA:  Still ahead, the world`s biggest banks report their earnings next
week, and they carry a lot of weight in the market.  But what are the odds
that they`ll have a blowout quarter?  


GRIFFETH:  Here they come, bank earnings will be in focus next week.  Citi
will be the first to report its results on Monday.  Then, you have JPMorgan
(NYSE:JPM) and Wells Fargo (NYSE:WFC) on Tuesday.  Wednesday and Thursday,
we will hear from Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and
Morgan Stanley (NYSE:MS).

David Dietze is with us tonight.  He`s president and chief investment
strategist at Point View Wealth Management.  

First of all, big picture.  I mean, interest rates have remained low, the
housing market is not setting anybody on fire.  Trading revenue might be a
problem, investment banking.  

What are your expectations overall?  

actually — we have mediocre fundamentals for the banks.  The problem is
the economy outlook has deteriorated just a little bit as people are
focused on concerns like trade, like government shutdown.  And at the same
time, of course, interest rates are so important to the banks.  The net
interest margin, the difference between what they pay to get a deposit and
what they lend it out at has shrunk as the yield curve has flattened.  

So, the fundamental is a little weaker.  The positive, though, is that the
bank stocks down roughly 20 percent from their January highs, we think
there`s over pessimism in the group and therefore money can be made this
year if things stabilize.  

HERERA:  You know, it`s also — we can divide it up into those banks that
are domestically centered and those that have an international presence.  I
would think the international banks will also give us an idea of how the
global economy is doing.  

DIETZE:  You are so right, Sue.  Citigroup (NYSE:C) is the one I`m watching
for.  We`ll hear from them on Monday.  And more than half their business is
overseas, so we`re going to get great insight not only as to what`s going
on here but what`s going on overseas.  

GRIFFETH:  And among the domestic banks, Bank of America (NYSE:BAC) is the
one you`re watching most closely, right?  

DIETZE:  I think Bank of America (NYSE:BAC) is your ultimate bellwether.  
Why?  It`s primarily domestic.  Second, they`re not affected by any
scandals.  Of course, the Federal Reserve is captive on the growth that
Wells Fargo (NYSE:WFC) can experience.  

You get some of the investment banks like Goldman Sachs (NYSE:GS) under
pressure from their lawsuit in Malaysia.  Bank of America (NYSE:BAC) is
pretty clean there.  They`re on every corner, so they`re going to give you
a great read as to the health of the domestic economy.  

HERERA:  You know, the Fed this week, there was a lot of — I wouldn`t say
controversy, but there was a lot of talk from various Fed members about the
course of interest rates, the course of the economy, should they keep
raising rates, and you brought up the interest rate differential earlier.  
If the Fed does not continue to move on its projected rate increase, what
impact is that going to have on the banks?  

DIETZE:  I think it`s going to be a positive impact because I think you`re
going to see some deepening of the yield curve.  I think people are going
to pile in to the short end of the yield curve and push short-term rates
down.  That`s going to reduce the amount banks have to pay for deposits.  

At the same time, as people get more confidence with what`s going on, I
think there will be greater loan demand and that will push interest rates
up, the spread will be better and you`ll see that in bank earnings.  

GRIFFETH:  Well, definitely, next week will be very instructive, that`s for

David Dietze with Point View Wealth Management, always good to see you.  

DIETZE:  Thank you, Bill.  

GRIFFETH:  See you later.

HERERA:  A well-known investor is rolling the dice on Caesar`s
Entertainment.  That`s where we begin tonight`s “Market Focus”.

Billionaire investor Carl Icahn has purportedly built a position in that
casino operator.  As first reported by CNBC, the size of the stake was not
immediately known.  Caesar`s, as you may recall, rejected a merger approach
last year by the owner of the Golden Nugget Casinos.  Shares of Caesar`s
popped 9 percent to $8.71.  

Activision Blizzard (NASDAQ:ATVI) is cutting ties with the videogame studio
behind one of its biggest hits.  The surprise move came last night and
raises questions about the strength of the company`s games for 2019.  It is
unclear why the two parties terminated their ten-year contract.  Activision
shares fell more than 9 percent to $46.54.  

And Vail Resorts (NYSE:MTN) lowered its profit forecast.  The company says
guest visits to its mountain resorts were much lower than anticipated in
the pre-holiday period.  Vail says its properties in Whistler and Lake
Tahoe in particular suffered from weather-related issues.  Shares plunged
nearly 13 percent to $187.33.  

GRIFFETH:  Meantime, Chico`s plans to close 250 stores over the next three
years as part of a planned digital expansion.  The retailer says it has
invested in technology to improve its online offerings and customer
service.  They also raised its fourth quarter sales forecast.  Shares rose
by 4 percent to $6.18 today.  

And a private equity firm says it has no plans to sell its stake in
Canadian medical cannabis company Tilray.  Privateer Holdings will instead
hold on to those shares until at least the second half of this year.  So
far, Privateer has limited its investments in the cannabis industry to
Tilray, which it believes has a good long term global growth strategy.  
Tilray`s shares, which have been volatile if you follow them, they soared
by 19 percent today to $96 even.  

And after the bell, cooler maker Yeti reported stronger quarterly sales
thanks to solid demand for its drinkware and outdoor products.  The company
also raised its guidance for the full year.  That initially sent the stock
higher in the extended hour session.  Shares finished the regular day up
more than 2 percent to $16.72.  

HERERA:  It is time for our weekly market monitor, who likes the small cap
stocks.  He says the extreme market volatility has created the most
mispriced stocks he`s seen in a decade.  

Joining us is Craig Hodges, CEO of Hodges Capital Management.

Welcome back, Craig.  Great to see you.  


HERERA:  When I was reading through the notes, you really do mean there`s a
lot of mispricing in your opinion in these stocks.  So let`s start with
Commercial Metals (NYSE:CMC).  

HODGES:  Yes.  

HERERA:  This is what you say is the most mispriced stock in the market
today.  Why?  

HODGES:  Yes, it`s really — the company is hitting on all cylinders,
probably having at much success as the company has ever had.  At Hodges
Capital, we followed the stock for at least 25 years.  The stock is trading
around $15.  In 2007, they earned about 2.90 a share and traded as high as
almost $40.  So, almost the same earnings and the stock is, you know, 70
percent lower.  

This is a company, it`s a rebar manufacturer.  They have got over a 50
percent — they just made an acquisition that`s going to make them a 50
percent player in the U.S. rebar market.  Earnings are going up.  This
acquisition they have made is very, very creative.  

I think even the company is baffled why the stock is trading like it is.  
So I think this is one of the most mispriced stocks I`ve seen in a long,
long time.  

GRIFFETH:  You also like At Home, the home decor company.  

HODGES:  Yes.  

GRIFFETH:  As we`ve mentioned, I mean this company has suffered along with
the home builders and others involved in the housing market.  So is this a
bet that the housing market recovers or not?  

HODGES:  Not really.  This is a — kind of a home decor superstore concept.  
There`s only 115 or 120 stores.  They`re going to grow that to over 600.  

So, it should easily grow 20 percent, 25 percent over the next five years
or so, but only trading about a 20 multiple.  So that`s a good risk/reward
ratio.  They`re going to go into the hotter markets.  They`re very, very
popular with the millennials.  

A good growth concept that I think has been also a stock down about — it`s
been cut in half, you know, here in the last four or five months.  So, it`s
a good entry point on a good growth company where you`re not paying crazy

HERERA:  And, finally, Helmerich & Payne (NYSE:HP).  I was really impressed
with the dividend, 5.3 percent.  


HERERA:  And you said they have consistently paid and raised the dividend
for more than 45 years.  

HODGES:  Yes, one of the highest quality companies we know of at Hodges
Capital, have owned this stock for years.  You know, the energy markets —
and they do land drilling services.  They have flex rigs, the most
efficient rigs out there, land rigs.  

But, you know, here`s a company that has consistently performed in a very
volatile business.  It is still volatile, but they have been able to ride
out the storm.  

So, like you mentioned, Sue, the 5.3 percent dividend I think is very, very
safe.  And the stock is also down about 30 percent just in the last three


HODGES:  So, another I think a real opportunity out there.  

HERERA:  Craig, thank you.  Have a great weekend.  Craig Hodges —

HODGES:  My pleasure.  

HERERA:  — with Hodges Capital Management.  

To read more about his top picks, head to our website,  

GRIFFETH:  And coming up, retailers look for a better fit to cut costs.  


Reagan in Indianapolis, Indiana, in a warehouse full of returned and
liquidated merchandise.  I`ll tell you why returns are becoming a bigger
problem in retail.  That`s coming up on NIGHTLY BUSINESS REPORT.



HERERA:  Here`s a look at what to watch for on Monday.  The National Retail
Federation hosts its annual conference.  The health of the retail sector
will be quite in focus after this week`s dim forecast from Macy`s (NYSE:M).  

The bankruptcy auction for Sears` assets will take place.  As you know,
chairman Eddie Lampert submitted a revised $5 billion bid.  

At the Detroit Auto Show, the major automakers will show off their vehicles
of the future.  

And that`s what to watch for on Monday.  

GRIFFETH:  Consumer prices dropped for the first time in nine months.  The
decline was due in part to a drop in gasoline prices.  Overall, the
consumer price index dipped by 0.1 percent, which was in line with
economists` expectations.  The report also showed that health care and
rental costs rose steadily.  

HERERA:  Well, the holidays may be over, but gift returns are in full
swing, creating headaches for the companies who have to sort through them.  
The process is so arduous and costly, that many of those items don`t even
make it back to the store shelves, and that`s why some companies are
getting creative when it comes to managing returns.  

Courtney Reagan is in Indianapolis.  


REAGAN:  It`s that time of year again, return season.  During and after the
holidays, returns spike from all those unwanted gifts.  But it`s a growing
issue for retail beyond the holiday season.  

TOBIN MOORE, OPTORO CO-FOUNDER & CEO:  The general in-store return rate you
see in the 7 percent to 8 percent range, while e-commerce is in the 20
percent to 30 percent range.  So the growth of e-commerce with its extra
high return rates are causing overall returns to continue to grow.  

REAGAN:  An estimated $380 billion of merchandise was returned last year,
an amount that could grow to a trillion dollars in several years.  Gardner
Research estimates less than half of returned goods end up resold at full
price.  The rest gets refurbished, liquidated for pennies on the dollar,
donated or thrown away.  

MOORE:  Many retailers throw away over 25 percent of their returns.  And
holistically, that ends up being 5 billion pounds of goods ending up in

REAGAN:  Some of the nation`s largest retailers are losing hundreds of
millions of dollars a year on returns, but there are companies that can
help retailers to lower the cost.  

auctions B2B marketplaces for each client.  We drive buyer demand and the
buyers are businesses in these marketplaces, and it creates competition.  
So the businesses are competing against each other for the inventory and it
ultimately sells for the highest price the market is willing to bear.  

REAGAN:  This is just some of the merchandise that`s currently up for
auction on the online market places that B-Stock builds for retailers, like
Walmart, Amazon (NASDAQ:AMZN), Best Buy (NYSE:BBY), Macy`s (NYSE:M) and
others.  The volume of returned or liquidated merchandise moving through B-
Stock auctions is up nearly 100 percent over the last year.  

Target (NYSE:TGT), Under Armour (NYSE:UA), Jet and others use Optoro
software to determine which method, restocking, refurbishing, liquidating
or donating will generate the highest sales price.  Optoro says its
platform increases a retailer`s recovery by an average of 25 percent.  Over
the last several years, Best Buy (NYSE:BBY) has focused on selling open box
returned goods online and during promotions to help manage return costs.  
Amazon (NASDAQ:AMZN) says it works hard to reduce the amount that goes to
liquidation and inspects returns, reselling only what it ensures is a
quality product.  

While there are new ways to manage returns, it may not be enough to keep up
with the volume coming back.  

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Indianapolis.  


GRIFFETH:  And before we go, a flat day on Wall Street if you just joined
us.  For the week, the major averages were higher, up more than 2 percent.  

HERERA:  That`s NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  
Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a wonderful weekend.  See you on


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