Transcript: Nightly Business Report — January 16, 2019

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



founder Jack Bogle who revolutionized investing has died at the age of 89.  


banks power higher, pulling in record profits in 2018, adding steam to the 

recent market rally.  

HERERA:  At a crossroads.  The markets have moved sharply higher in a short 

amount of time, but how fast is too fast?  And what happens next?  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for 

Wednesday, January 16th.  

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

We begin tonight with some sad news.  Jack Bogle, the founder of Vanguard, 

has passed away.  He, of course, was a giant in the investing world.  He 

revolutionized how Americans save for retirement with low cost, low fee 

mutual funds tied to the market indexes.  He helped the small investor 

build wealth and railed against Wall Street`s excesses.  

Tyler Mathisen takes a look at the life of a legend.  


JACK BOGLE, VANGUARD FOUNDER:  Indexing always works best.  Up, down or 



started the Vanguard Group, and with it, a new way of investing.  


effectively of the index fund.  

MATHISEN:  Index funds, mutual funds whose portfolios match a market 

barometer, like the S&P 500, are commonplace today, but they were unheard 

of in the 1970s, much less the early 1950s when Bogle wrote his senior 

thesis about the concept at Princeton.  

BOGLE:  I said mutual funds should be operated in the most efficient and 

economical way possible.  I had a sentence in my thesis that said mutual 

funds can make no claim, superiority over the market averages.  

MATHISEN:  Bogle`s thesis research laid the ground work for what would 

become one of the most powerful investing movements of the late 20th 

century.  He concluded that active trading mutual fund managers failed as a 

group to outperform the relevant indexes, especially when you subtract fees 

and expenses.  

BOGLE:  Anybody can do it for a year, and if you can do it for five years 

and a few can do it for ten years.  But over a lifetime, there`s about a 3 

percent chance a money manager can beat the market.  

MATHISEN:  After Princeton, Bogle went to work for Wellington Management 

for over two decades, eventually becoming CEO.  He was later terminated for 

what he called an unwise merger.  

So, he started over, putting the indexing concepts from his thesis into 

practice at Vanguard.  

INSANA:  Investors suddenly found the playing field more level.  So to a 

certain extent, in fact to a great extent, I would say, he democratized 

investing for individuals, which was a huge contribution in the mutual fund 


MATHISEN:  That initial fund called the Index Investment Trust and later 

renamed the Vanguard 500 index tracked the S&P 500.  Skeptics ridiculed it 

as Bogle`s folly.  

By 1990, index investing had taken root.  The reason, Bogle turned out to 

be right.  

In the 15 years ending in January 2017, nine out of ten actively managed 

large cap mutual funds underperformed Vanguard`s 500 Index.  Today, 

Vanguard has more than $5 trillion under management.  


a T-Rex in terms of what Vanguard is versus a little tiny lizard over here.  

You don`t see too many folks anywhere in the world that manage that much 


MATHISEN:  After retiring from Vanguard in 1999, Bogle started a research 

center on the Vanguard campus.  There he continued advocating for indexing 

and buy and hold long-term investing.  He called trading stocks a loser`s 


BOGLE:  It comes right out of Shakespeare.  These moves in the market are 

like a tale told by an idiot, full of sound and fury signifying nothing.  I 

think it`s speculators speculating on what other speculators are 

speculating on.  

MATHISEN:  And speaking of speculation, few would have bet on Vanguard back 

in 1975, even fewer still would have thought Bogle would still be jousting 

with critics deep into the second decade of the 21st century.  He had his 

first heart attack at age 31.  Doctors said he wouldn`t make it to 40, much 

less live to 89.  He had five more heart attacks before undergoing a heart 

transplant at the age of 65.  

BOGLE:  I may be, I don`t want to get carried away here, the luckiest guy 

in the world.  


HERERA:  And he will be missed.  

We turn now to the day on Wall Street, and it was all about the banks.  The 

sector was one of the worst performers last year, but today, it saw some 

new strength.  And for that, you can thank Dow component Goldman Sachs 

(NYSE:GS), which reported solid earnings results and its stock posted its 

biggest gain in a decade.  

Goldman`s quarter was driven by its investment banking and lending 

divisions, offsetting weakness in trading revenue.  It was the company`s 

first quarter with CEO David Solomon at the helm, and he said the future 

looks bright as well.  


DAVID SOLOMON, GOLDMAN SACHS CEO:  For now the absolute level of activity 

in the real economy remains fairly robust.  This is reflected in broad CEO 

sentiment and our investment banking transaction backlog.  


HERERA:  Goldman wasn`t the only earnings report that lifted the mood on 

Wall Street.  Bank of America (NYSE:BAC) also had a solid quarter, the 

result of lower taxes and rising interest rates, which allowed banks to 

charge more for loans.  Goldman Sachs (NYSE:GS) soared 9.5 percent.  Bank 

of America (NYSE:BAC) gained 7 percent.  

And those moves lifted the sector, which is one of the biggest, and in turn 

the broader market.  The Dow rose 141 points to 24,207, the Nasdaq added 

10, and the S&P 500 was up five.  

GRIFFETH:  And now that most of the banks have reported, they have done 

something never done before.  They turned in more than $100 billion in 

profits last year.  That number could grow even more after Morgan Stanley 

(NYSE:MS) reports its earnings tomorrow.  A look at the financial ETF 

exchange traded fund shows the sector is up 11 percent since December 24th, 

outperforming the broader markets.  

HERERA:  So let`s turn now to David Dietze to talk more about the banks.  

We had him on the program last Friday to share his fourth quarter earnings 

predictions and he`s back tonight to see how things have fared.  He is the 

chief investment strategist at Point View Wealth Management.  

David, welcome back.  It`s great to see you.  


Good to see you.  

HERERA:  A quick thought, if you will, on Jack Bogle before we go into the 


DIETZE:  So, Jack Bogle — I never forget his lessons.  I think it`s really 

threefold.  One is keep expenses down.  It`s not what you make but what you 

make under expenses.  

Second is you`re unlikely to be able to out-trade the market.  The market 

is very efficient.  Think twice before you think you have a better idea 

than the rest of the crowd.  

And finally, of course, is your broker is not always your friend.  Always 

realize that when dealing with Wall Street.  

GRIFFETH:  He was one of a kind.  

HERERA:  He was.  

GRIFFETH:  We`re going to miss him terribly.  

The banks, they have done very well with these reports for the most part, 

which you were expecting.  Let`s review a couple of them here.  Bank of 

America (NYSE:BAC), a big number there.  That was about what you were 

looking for.  

DIETZE:  Absolutely.  Bank of America (NYSE:BAC) is my favorite pick for 

2019.  And what I like is Brian Moynihan is coming into his own.  Remember, 

he came into a situation where they were going in all the wrong directions 

with ill-fated merger with Countrywide, ill-fated with Merrill Lynch at the 

wrong time.

And now, what is he doing?  He`s getting costs down.  He`s introducing 

technology.  He`s closing branches where that`s necessary and avoiding 

exotic products.  That was shown with a double-digit return on equity.  

How many money managers in the country got double-digit return on their 

portfolios last year?  

HERERA:  You know, we`re also looking internationally and at a more diverse 

business.  Goldman Sachs (NYSE:GS) also outperformed.  

DIETZE:  Yes.  I mean, Goldman Sachs (NYSE:GS), I love the start that David 

Solomon has gotten here.  And he`s been dealt a tough deck of cards here 

because he`s walking into that Malaysian litigation.  But nevertheless, 

they were able to outperform in merger advisory work, even though they had 

tough results in trading.  They bought back shares which helped, of course.  

At the end of the day made some strategic cost cutting, including cutting 

the bonus pool for traders, that really helped them.  

GRIFFETH:  A stumble — a surprising stumble for JPMorgan (NYSE:JPM).  Now, 

you were seeing that last week as a proxy for the global market given their 


What did you make of their report?  

DIETZE:  Well, I don`t think it was bad, but I think traders were a little 

nervous about, quite frankly, Jamie Dimon`s outlook.  He was a little more 

cautious on what he saw going forward, given the shutdown with the 

government and other issues, trade issues and so forth.  I think that took 

people back a little bit.  

And, of course, they have been the leader.  They were the top performer 

among banks last year.  Expectations were higher.  They didn`t beat those 

higher expectations.  

HERERA:  Now, if the Fed does stand pat on interest rates, what does that 

do to the profitability of some of these banks, like the B of A, because 

those higher interest rates helped their bottom line.  

DIETZE:  Yes.  So, that`s the key question, because on the one hand, higher 

interest rates allow them to charge more for their loans.  On the other 

hand, the high interest rates reduced the demands for loans.  And, of 

course, the key weakness in all these banks was the housing market.  

There`s less turnover in housing and people can`t afford the higher 


So, I think if interest rates stay pat, they`re going to see a little 

pickup in real estate.  That`s going to help them.  

HERERA:  David Dietze, thanks so much for coming back and joining us.  

DIETZE:  My pleasure.

HERERA:  David Dietze.


GRIFFETH:  Well, the rally in the banking sector comes at a critical time 

for the market.  A rough December has turned into a much smoother January, 

of course, but has the rally moved too far too fast?  

Mike Santoli digs into that for us.  



turned a sharp corner with its furious three-week rally which has quickly 

brought the major indexes to a crucial crossroads.  The S&P 500 has 

regained close to half of its 20 percent drop from September into late 

December, an impressive comeback by any standard.  It`s been fueled by a 

rush of bargain hunting and depressed stock in the new year combined with 

expectations of a pause in federal reserve rate hikes.  

Yet, the rebound has simply taken the S&P to a level that defined the lower 

end of its trading range that held for most of 2018.  And market 

strategists view this as a fairly likely area where the rally might stall 

or pull back.  An index level that used to serve as the floor often becomes 

a ceiling for a time when it`s approached from below.  

The decline from September to December was steep and damaging enough for 

the market to require time and perhaps some choppy sideways action at least 

before a proper base is built for stocks, according to standard Wall Street 

wisdom.  Which direction the market takes at this crossroads will have 

something to do with how the rest of corporate earnings season proceeds 

relative to reduce growth expectations.  Bank results have been good enough 

to boost depressed financial stocks so far, but they will remain lower than 

they were in early December.  

The markets overall valuation has come down quite a bit in the last year 

with struggling indexes combining with a 20 percent surge in profits to 

compress the price earnings ratio on expected profits to 15 from 18.  But 

the recent rally hasn`t freed investors from the familiar questions that 

restrained the market late last year.  How much life is left in this 

economic expansion?  Will the fed tighten policy too much?  And is there a 

path out of the trade war before global growth weakens further?  



GRIFFETH:  So what is next for stocks?  

Joining us tonight, back with us, Art Hogan.  He`s with — the chief market 

strategist at National Securities.  

We have to start — of course, everybody will be telling stories about Jack 

Bogle over the next several days as we remember this giant not only of Wall 

Street but of just life in general.  What — any memories you have?  


that one time I got to talk to Jack Bogle.  And one of the things I 

remember in the conversation when he said that the stock market is a great 

distraction to the business of investing, and I`ve always taken that to 

heart.  He was the first person that really got around to people to say you 

need to get rid of some of that noise and think about the long term and the 

buy and the hold.  

He did more for individual investors than I think any man this ever lived.  

Very sad day to see him go.  But it`s amazing how much he changed our 

industry over the 50 years that he was in it.  

HERERA:  Yes, absolutely.  

You know, Art, you`ve changed your focus a little bit — not your focus, 

but your targets a little bit for this market because of three main events 

or headlines that have been out there, and one of them is the government 

shutdown, correct?  

HOGAN:  Correct.  I think that — you know, it`s interesting, Sue.  I think 

the government shutdown is very much a political event, but the longer it 

lasts it becomes an economic event.  So, I don`t think we`re at a point 

where we can tell you how much it`s going to take out of first quarter GDP, 

but we certainly know it`s something.  And I think the longer it drags on, 

the more that becomes.  

And I think at the same time, you`ve got a global economic slowdown.  A lot 

of that is caused by concerns over a trade war with China.  So, the longer 

that takes to resolve, the more economic damage that does.  So, you know, I 

think we see the slowing global economy and we know some of those causes 

and we have to ratchet back some of our expectations for earnings for the 

S&P 500 because of that.  

So, we`ve come in and still have an upside to where we are now, but 

certainly not as much as we expected in the first half of last year.  

GRIFFETH:  You know, we`ve had a pretty good snap-back rally since 

Christmas eve after a pretty dismal December, but there seems to be still a 

lot of skepticism about this rally, that it may not last.  Do you think 

because of these headwinds you just itemized, that`s why people are looking 

at this a bit skeptically?  

HOGAN:  I think that`s it.  You know, I think when you think about where we 

are, we`re about back to neutral, right?  So an S&P 500 that`s trading 

about 15 times forward earnings and that`s about average.  We`re 10 percent 

off the highs and 10 percent off the lows and kind of back in the middle 

ground.  I think that`s exactly where the battle goes on.  I think 2,600 on 

the S&P 500 is exactly where we`ll draw that battle line.  

And we`ll see.  If earnings can come in better than expected and we`ve 

priced enough bad news in, I think that`s one thing.  The problem is, with 

all those uncertainties guidance for 2019 would have to be lackluster at 


If I`m a CEO, I don`t know if I`m going to stick my neck out and say things 

are great in 2019 unless we have resolution on things like the government 

shutdown, Brexit and the trade war with China.  

HERERA:  On that note, Art, thank you, as always.  Art Hogan with National 


HOGAN:  Thank you.

GRIFFETH:  Also helping sentiment today on Wall Street was China.  That 

country`s central bank injected a record $83 billion into the country`s 

financial system, a move designed to shore up liquidity in the world`s 

second largest economy.  And it`s all part of a wider stimulus plan which 

strategists say may also include tax cuts and an increase in government 


Separately, “The Wall Street Journal” is reporting that the Justice 

Department is pursuing a criminal case against Huawei for alleged theft of 

trade secrets.  

HERERA:  In the United Kingdom, Prime Minister Theresa May survived a no-

confidence vote, but not by much, and it comes just a day after U.K. 

lawmakers rejected her Brexit proposal in a historic parliamentary defeat.  

Willem Marx reports tonight from London.  



spent 918 days resident at number 10 Downing Street.  That will soon become 

919 after this evening`s narrow political escape.  

UNIDENTIFIED MALE:  The ayes to the right, 306.  The noes to the left, 325.  


MARX:  This attempt to topple May`s government was an almost inevitable 

consequence of yesterday`s crushing defeat, when scores of her own 

conservative MPs voted alongside their political opponents to repudiate the 

withdrawal agreement the prime minister`s team had negotiated with Europe.  

This evening`s marginal victory was only possible thanks to what`s known as 

a confidence and supply deal with a small Northern Irish party, the 

Democratic Unionists.  

Without their ten votes, May would have lost.  May promptly promised to 

meet with her political enemies to discuss what could constitute a Brexit 


THERESA MAY, BRITISH PRIME MINISTER:  I would like to invite the leaders of 

parliamentary parties to meet with me individually and I would like to 

start these meetings tonight.  

Mr. Speaker, the government approaches these meetings in a constructive 

spirit and I urge others to do the same.  

MARX:  Her opponents immediately insisted they would only attend such 

meetings with strings attached.  The prime minister has always insisted the 

threat of no deal is necessary leverage for any negotiations with Brussels.  

But Labour leader Jeremy Corbyn said talks could not continue if that 

option remained on the table.  


must remove clearly, once and for all, the prospect of the catastrophe of a 

no-deal Brexit from the E.U. and all the chaos that would come as a result 

of that.  

MARX:  May`s chief critic in Westminster laid out several obligatory 


IAN BLACKFORD, SCOTTISH NATIONAL PARTY:  The only way forward is to extend 

Article 50 and ask the people of Scotland and of the United Kingdom whether 

they want the prime minister`s deals or whether they want to remain in the 

European Union.  

MARX:  The British prime minister has if nothing else has won at least a 

few days of breathing space, at least until Monday when she should return 

to the House of Commons with a workable plan B that could command a 

majority amongst lawmakers.  

For NIGHTLY BUSINESS REPORT, I`m Willem Marx in London.  


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


We begin with shares of Nordstrom (NYSE:JWN).  They were downgraded to 

neutral from buy at Goldman Sachs (NYSE:GS), with the analyst saying that 

the retailer is not selling as much merchandise at full price.  And in 

fact, last night, Nordstrom (NYSE:JWN) did warn of soft holiday sales.  The 

price target now $50.  That stock fell more than 4-1/2 percent to $45.01.  

AB InBev was downgraded to underperform from hold at Jefferies.  The 

analyst says that market pressure — sales pressure will likely persist 

which could lead to disappointing earnings.  And that price target is now 

$62.  The maker of Bud and Bud Light fell more than 2.5 percent to $7.50.  

Meanwhile, MetLife (NYSE:MET) was upgraded to buy from neutral at Bank of 

America (NYSE:BAC) Merrill Lynch.  The analyst cited management strategy to 

address past issues.  Price target $53.  That stock rose in trading today 

to $44.87.  

HERERA:  Still ahead, the parts of the country where economic concerns are 



HERERA:  Home builders started the New Year in a better mood.  According to 

the National Association of Home Builders, sentiment rose in January 

rebounding from a three-year low.  The report cites a decline in mortgage 

rates in recent weeks and solid job growth.  Monthly housing starts and 

builder permits will not be released tomorrow due to the partial government 


GRIFFETH:  But a new survey from the Federal Reserve shows a decline in 

economic optimism in some districts and growing concerns.  

Steve Liesman has the details from Washington for us.



Reserve`s Beige Book, the collection of economic anecdotes from around the 

Federal Reserve`s 12 districts saw eight of 12 districts reporting 

increased growth at a modest to moderate pace, but four districts — Kansas 

City, New York, St. Louis and Cleveland — saw less robust growth.  In 

fact, growth was flat in Kansas City and leveled off in New York.  

The outlook remained generally positive, but many districts said their 

contacts grew less optimistic for four particular reasons, because of the 

financial market volatility, rising interest rates, falling energy prices 

also hurting optimism, as well as elevated trade and political uncertainty.  

The shutdown was only mentioned by the Chicago district related to farmers 

not receiving government payments, but only a small part of the shutdown 

was covered by this Beige Book so far.  There were several mentions of 

tariffs linked to rising uncertainty and higher input prices.  

Some companies were able to pass along those hire tariff prices to 

consumers.  Several districts said Christmas sales were pretty good, but 

auto sales were flat.  Manufacturing expanded in most of the districts, but 

slower growth was reported.  Serves growth slowed in a few districts and 

the agricultural sector struggled with lower prices.  

The Beige Book reported a pretty rosy picture for employment with jobs 

growing in several districts.  Labor market is said to be tight and 

business contacts said they had trouble finding staffer.  There was even 

some labor hoarding going on in Atlanta where extra workers were hired than 


Modest wage gains reported throughout the country, though, though entry 

level wages were rising.  Despite those higher wages, prices throughout the 

economy increased only modestly.  There were some higher input costs by 

businesses, but they had trouble passing along those higher prices to 


Overall, this was a mixed report, showing that growth was still continuing 

in the country, but at a slower pace.  

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


HERERA:  A mega deal in the fast-growing financial tech industry.  That`s 

where we begin tonight`s “Market Focus”.  

Fiserv (NASDAQ:FISV) is buying First Data in a takeover valued at $22 

billion, making it one of the largest in the sector.  Fiserv (NASDAQ:FISV) 

sells systems to financial firms, including those related to electronic 

payment transactions.  First Data offers point of sale products for 

retailers.  First Data soared 21 percent to $21.24.  Fiserv (NASDAQ:FISV) 

fell 3 percent to $72.57.  

Blackrock reported quarterly earnings that missed analysts` expectations.  

The world`s largest asset manager saw its assets under decline but that was 

primarily due to the drop of the market late last year.  Blackrock did 

report record EFT inflows in the quarter of more than $80 billion and the 

shares rose 3 percent to $413.04.  

And Ford says fourth quarter profit won`t be as strong as Wall Street had 

hope.  The automaker cited lingering uncertainty, including trade and 

Britain`s exit from the E.U., but Ford added that it has the potential to 

grow earnings this year.  Nonetheless, shares fell 6 percent to $8.29.  

Snap`s chief financial officer unexpectedly resigned less than one year 

into the job.  In an SEC filing, he said his decision has nothing to do 

with matters related to accounting or management operations, but his exit 

is the latest in a string of other executive departures.  Shares dropped 13 

percent to $5.64.  

GRIFFETH:  U.S. Bancorp`s fourth quarter profit rose by 10 percent.  Its 

results were helped by higher interest rates, lower expenses, and an 

increase in loan activity.  Revenue also rose compared to last year.  The 

stock was up more than 2 percent today to $49.11.  

Charles Schwab reported better than expected earnings and profit as well 

with the brokerage`s results helped by gains in trading activity as well as 

record asset inflows across both its retail and advisory service 

businesses.  Shares gained about 5.5 percent today to $46.70.  

And railroad operator CSX (NYSE:CSX) reported quarterly profits that topped 

Wall Street expectations.  The company cited an increase in shipment and 

higher prices for transporting freight.  That helped offset higher 

expenses.  Shares initially fell in extended session today, but CSX 

(NYSE:CSX) finished the regular day up a fraction at $65.38.  

Coming up, an American icon gets a second life.  


GRIFFETH:  Here`s a look at what we`re watching for tomorrow.  

Financial sector earnings continue with American Express (NYSE:EXPR) 

(NYSE:AXP) and with Morgan Stanley (NYSE:MS).  Netflix (NASDAQ:NFLX) 

reports its quarterly results just days after increasing prices on its 

streaming services.  Economic data will focus on the labor market with the 

release of jobless claims.  

That should be interesting.  That`s what`s coming up tomorrow.  

HERERA:  Incredibly, it looks like Sears (NASDAQ:SHLD) will stay open.  

According to multiple reports, the retailer`s chairman, Eddie Lampert, won 

a bankruptcy auction after sweetening his offer twice to more than $5 

billion.  Lampert`s last-ditch plan must first be approved by a bankruptcy 

judge.  And if approved, it would keep about 400 stores open.  

But the company is not out of the woods yet.  There are reports that some 

creditors still object to Lampert`s plan and would prefer a total 

liquidation of the retailer.  

GRIFFETH:  The Department of Agriculture is recalling workers to 

temporarily reopen an agency that provides services to farmers and 

ranchers.  About 2,500 farm service agency workers have been called back to 

work without pay, by the way, to process existing farm loans and to provide 

tax documents.  The office will not process new applications for trade aid 

payments, by the way.  

HERERA:  And before we go, here`s a look at the final numbers from Wall 

Street.  The Dow advanced 141 points, the Nasdaq added 10 and the S&P 500 

was up 5.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks 

for joining us.  

GRIFFETH:  I`m Bill Griffeth.  RIP, Mr. B.  

We`ll see you tomorrow.  


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