ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Great rate debate. The
former Fed chair adds her two cents saying the next move by the Central
Bank could be an interest rate cut.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Higher costs. They`re
starting to eat into profit margins and earnings estimates are dropping
GRIFFETH: Clicking yes. We all do it when we log onto websites. But
what`s in those privacy policies, and what exactly are we agreeing to?
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
February the 6th.
HERERA: Good evening, everyone, and welcome.
Not that long ago, investors were factoring in a series of gradual interest
rate increases. The economy was strong and the risks were low. But as you
know things changed and so did the debate around rates. Strategists now
say the number of hikes this year will be far fewer than once thought.
And today, in an exclusive interview with Steve Liesman, the former chair
of the Federal Reserve said something else that got our attention.
(BEGIN VIDEO CLIP)
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Would you say that
it`s possible the next move is a cut at the Fed?
JANET YELLEN, FORMER FEDERAL RESERVE CHAIR: Of course it`s possible. If
global growth really weakens and that spills over to the United States
while financial conditions tighten more and we do see a weakening in the
U.S. economy, it`s certainly possible that the next move is a cut. But
both outcomes are possible.
(END VIDEO CLIP)
HERERA: Now, Ms. Yellen is no longer a policy maker and says the U.S.
economy is currently strong, but she does understand, of course, how the
economy works and how weakness overseas could potentially make its way to
GRIFFETH: And while many economists do say the U.S. economy is solid,
cracks may be starting to form. In other words, a number of companies are
reporting higher costs right now. And while that may seem innocent enough,
it could mean big problems for corporate America`s bottom line.
Bob Pisani takes a look.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Rising costs are
beginning to eat into profit margins, and now, an unusual development is
puzzling analysts. The 2019 earnings estimates — they`ve been dropping
fast. They`re down to a dismal 0.3 percent for the first quarter. It`s
terrible. Revenues have barely changed, 5.6 percent.
Why is this happening? It`s likely there`s a combination of higher costs
and in some cases pricing pressure that`s eroding profit margins. We`ve
already seen a lot of companies cite higher costs recently, including
Harley Davidson, and Caterpillar (NYSE:CAT) and Ford. They also mentioned
higher commodity costs. Some of them mentioned tariffs. Some also
mentioned unfavorable currency effects.
The profit margins have been high for years, thanks for cost cutting and
higher revenues have led to higher margins as the economy got better.
Never mind the tax cuts, earnings growth is flat, even if you examine
So competition has led to lower prices and that`s been a problem for
semiconductor companies out there and materials and energy names like
Freeport-McMoRan, and ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX). They
have seen prices for their products down.
So, it`s no surprise that analysts have notably cut earnings estimates in
all of these sectors in the last few weeks. That`s leading to a steep drop
in overall growth estimates for the first quarter.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: Art Hogan joins us now to talk more about the market, the Fed and
the economy. He is chief market strategist with National Securities.
Good to see you, Art, as always.
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES: Great to see you.
HERERA: Let`s start with Ms. Yellen`s comments. If indeed the next move
by the Fed was a cut, what might the market reaction be to that?
HOGAN: Well, I`m not going to say that Steve is leading the witness, but
if you ever ask if the next move is going to be a cut or a raise, she`s
always going to say yes. I think the point that she`s making is we are
seeing a global economic slowdown. That`s different than what we
experienced last year. So in the second half of last year, we started to
see a rollover in global activity.
And her point is if that slows down enough, then it has to seep into the
U.S. economy and certainly a move by the Fed to be even more accommodative
than they are right now. So I think the Fed thinks they`re at neutral
right now. I would guess the next move the Fed does is top the run off of
the balance sheet before they lower rates again.
But I certainly don`t think that was a prediction by Janet, it`s much more
of an — is there a possibility and we`re seeing slower global activity.
GRIFFETH: But, I mean, you do acknowledge the Chinese economy clearly is
slowing down. If that`s happening, it`s going to affect us and many other
trading partners with that economy around the globe. And if that`s what`s
going on and the Fed is on hold, then logic would suggest that if they are
going to make another move down the road, it won`t be because the economy
is getting too strong, right?
HOGAN: Right, that makes sense, Bill. But I would say that, you know,
let`s look at what`s causing some of the slowdown in China and what they`re
doing about it. They have had a lot of stimulus over the last couple of
months, you know, acknowledging the fact that the economy is slowing.
They`ve got a lot more control over the economy than most developed
And certainly, I would tell you that being in an elongated trade war with
the United States is affecting how their economy is moving. So that`s more
of a self-inflicted wound that we can both sort of walk away from if we get
to the end of this truce that we have.
On that note, Art Hogan with National Securities — thanks, Art.
HOGAN: You bet.
GRIFFETH: And on Wall Street, the S&P 500 snapped its five-day win streak
today after a string of mixed quarterly results and a disappointing
economic report out of Germany, just the latest sign that Europe`s biggest
economy is struggling right now. The Dow, it lost 21 points, not much, to
25,390. The Nasdaq fell by 26, the S&P was down 6.
HERERA: General Motors (NYSE:GM) was one of the companies today that
reported better-than-expected earnings. The automaker was helped by higher
truck sales and tighter cost controls. It follows the company`s
controversial decision to layoff workers and close plants. But GM also
noted weakness in China, the world`s largest auto market.
(BEGIN VIDEO CLIP)
DHIVYA SURYADEVARA, GENERAL MOTORS CFO: I think if you look at China,
obviously Q4 was a volatile quarter. We saw pressures from a volume and
pricing perspective. Our outlook in the China auto industry is for a flat
industry year over year.
(END VIDEO CLIP)
HERERA: Investors brushed off that flat outlook and sent the stock higher
in today`s session.
GRIFFETH: Meanwhile, the U.S. trade deficit with China narrowed in
November. The first decline that we have seen after five straight months
of increases. And it was largely due to a slide in imports.
By the way, we are just now learning about the November trade deficit
because this was another report delayed by the partial government shutdown.
But it did show progress in our trade relations with China. In fact just
today, the treasury secretary described the current trade talks with China
as being very productive.
HERERA: Trade was just one of the economic issues that the president
addressed during last night`s State of the Union. And he called for unity
from Congress asking lawmakers to legislate on nearly a dozen issues.
Kayla Tausche is in Washington tonight.
KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For a divided
Congress, a wish list from the president. From urgent priorities —
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Congress has 10 days left to
pass a bill that will fund our government, protect our homeland and secure
our very dangerous southern border.
TAUSCHE: To pipe dreams.
TRUMP: Both parties should be able to unite for a great rebuilding of
America`s crumbling infrastructure.
TAUSCHE: To requests to lift a logjam.
TRUMP: This new era of cooperation can start with finally confirming the
more than 300 highly qualified nominees who are still stuck in the Senate.
TAUSCHE: According to the Partnership for Public Service, fewer than half
the political appointments at the Departments of Labor, Justice and
Interior are filled. And the president`s cabinet has six acting officials,
The top Senate Democrat blames the commander in chief.
SEN. CHARLES SCHUMER (D-NY), MINORITY LEADER: He`s failed to nominate
anyone to a fifth of our government`s top positions. This has nothing to
do with the Senate.
TAUSCHE: With lawmakers still reeling from the shutdown, movement on other
issues may have to come from the White House. The near term to-dos,
cutting energy regulation through executive order, cutting drug prices, and
inking a trade deal with China.
SEN. CHARLES GRASSLEY (R-IA), SENATE FINANCE CHAIR: It will be done by
executive agreement, so it will not be one of those things that comes to
TAUSCHE: Any potential desire to reach across the aisle will likely be
dampened by the forthcoming 2020 election. The Democratic field has
widened, as has its criticism of the president, who holds his own re-
election rally in Texas on Monday.
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, in Washington.
GRIFFETH: Time to take a look at some of today`s “Upgrades and
We begin with shares of PayPal. They were downgraded to neutral from buy
at Guggenheim Securities. The analyst cited increasing competition and its
reduced role with its former parent, eBay (NASDAQ:EBAY). The firm actually
removed its price target of $95 on stock and it fell slightly to $92.25.
DowDuPont`s rating was cut to marked perform from outperform at Cowen. The
analyst cited slowing economic growth in regions important to the American
chemical industry. The price target is now $59. That stock fell about 2
percent today to $53.21.
HERERA: Still ahead, why the once hot video game sector seems to be
HERERA: The video game industry is getting more and more competitive.
Take-Two Interactive which had one of the season`s hottest games reported a
rise in revenue from a year ago that said that may not continue. The
company issued a weak outlook with revenue one-fifth below what analysts
were expecting. Part of the reason is the free online rival game,
(BEGIN VIDEO CLIP)
STRAUSS ZELNICK, TAKE-TWO INTERACTIVE CEO: “Fortnite” was a huge hit last
year. That`s great. We admire the work done by others. We`d like to have
all the hits, we don`t always get all the hits.
At the same time that “Fortnite” was doing well, “Grand Theft Auto” online
had another record year and Redemption 2 had sold in 23 million units at
the same time other titles are in the marketplace doing well. As long as
we deliver quality, people show up. That`s what we`ve seen in this quarter
and that`s what we`re projecting in the year.
(END VIDEO CLIP)
HERERA: Take-Two shares touched a 52-week low today and fell nearly 14
percent. And as we reported yesterday, Electronic Arts (NASDAQ:ERTS)
posted disappointing results and guidance. Its stock fell better than 13
GRIFFETH: And video game stocks didn`t just lag the market today, this
group has been lagging for a while now. Take a look at this. The biggest
names have been down for about the last six months. And Activision, which
reports next week, has been leading the way, down 39 percent.
So what is troubling the industry right now?
Randolph Ramsay is editor in chief of GameSpot and he joins us tonight.
You know, this is an industry in transition right now. I know “Fortnite”
has been at the front of that. It`s a free game played on multiple
platforms and it updates itself all the time.
I think the legacy video game makers are scrambling to try to play that
game right now, aren`t they?
RANDOLPH RAMSAY, GAMESPOT EDITOR-IN-CHIEF: Yes, that`s true. It`s no
secret that “Fortnite” has been the biggest thing to come out of games in a
few years now. That game is pulling in a couple of hundred million players
every single month, making millions of dollars every day. So, there`s a
lot of conversation within the industry right now as to what exactly the
impact of “Fortnite” has on everything else.
And I think certainly, EA pointed to “Fortnite” as one of the things that,
you know, that actually contributed towards its lower forecast. But with
EA in specific, I think, some of those problems were also to do with some
of the quality of games that they had. I mean, their big marquee title, I
think, actually had less of a good audience reception than it actually
HERERA: You know, with a “Fortnite”, the bar is raised for all the other
players. And full disclosure, my kids love that game, “Fortnite”, but it
makes it harder for the competition, does it not? Because these kids and
adults who play “Fortnite”, they want a higher quality of game every time.
How does the industry up its game and compete?
RAMSAY: Well, I think one of the things that “Fortnite” really solidified
out there is the free-to-play model that it has. In a lot of ways, free-
to-play has been part of the game industry for a while but “Fortnite” is
the one that put this business model front and center. So, you know, for a
lot of the industry, they`re trying to figure out how to come up with a
model that can actually compete against something like “Fortnite”, which is
giving it away for free and charging players with micro transactions.
You`re seeing a lot of big industry players trying to embrace that similar
model as well.
GRIFFETH: Well, streaming is coming. I mean, you got some video game
companies that want to adopt the Netflix (NASDAQ:NFLX) model where you play
a game by streaming it.
How — is that where we`re going here?
RAMSAY: I think so. I think that`s one of the exciting things to look
forward to this year. You`ve had players like Google (NASDAQ:GOOG), you
had players like Microsoft (NASDAQ:MSFT) and even EA state that 2019 is the
year that they`re either going to be testing or putting out full products,
which is going to be a Netflix (NASDAQ:NFLX) for games.
So, that completely upends the industry, because now, in the past, the
industry has been based on a $60 price point, here`s your game, go away and
play it. If we`re going away to a $30 a month all you can eat, what does
it mean for the industry? So there`s a lot of question marks around what`s
going to happen the in next few months.
GRIFFETH: Very, very interesting. Randolph Ramsey with GameSpot, thanks
again for joining us tonight.
HERERA: Luxury fashion is back in style. And that`s where we begin
tonight`s “Market Focus”.
Capri Holdings, which is the parent company of Michael Kors and Versace,
said sales are heading higher and it raised its revenue forecast. Earnings
in most recent quarter topped expectations. The company hopes its recent
purchase of Versace will give it a bigger presence in the fast-growing
Asian markets. The shares spiked more than 11 percent today to $48.47.
Drug maker Eli Lilly (NYSE:LLY) missed quarterly profit estimates but
revenue beat forecasts, as its newer drugs posted higher sales. Lilly also
cut its full-year forecast relating to its pending acquisition of Loxo
Oncology. Shares fell 1 percent to $119.27.
Humana`s fourth quarter results topped expectations, thanks in part to
growth in Medicare Advantage enrolment and lower costs for in-patient
treatments. But the health insurer`s full year profit outlook came in shy
of estimates as its prescription drug plans remained under pressure.
Humana (NYSE:HUM) tipped about a half a percent to $301.77.
“The New York Times (NYSE:NYT)” beat earnings expectations, thanks to its
digital business. Online subscription revenue soared nearly 18 percent
while digital sales rose more than 8 percent. The company`s CEO put the
digital growth in perspective.
(BEGIN VIDEO CLIP)
MARK THOMPSON, NEW YORK TIMES CEO: At the very peak of print, early `90s,
“The New York Times (NYSE:NYT)” had about 1.7, 1.8 million subscribers.
Total subscribers today, we announced the end of last year, 4.3 million.
So, we have a much bigger paying base than “The New York Times (NYSE:NYT)”
has had in its history.
(END VIDEO CLIP)
HERERA: Shares of “The Times” spiked 10 percent to $29.69 and also touched
a 52-week high during the session.
GRIFFETH: Spotify turned a profit for the first time in it`s ten-year
history and it`s now betting big on podcasting. The music streaming
company is acquiring privately held podcasting companies Gimlet Media and
Anchor. It`s all part of Spotify`s plan to spend up to half a billion
dollars on podcast acquisitions this year.
And the CEO today explained that strategy.
(BEGIN VIDEO CLIP)
DANIEL EK, SPOTIFY CEO: It`s really about expanding our mission from just
being about music to being about all audio and being the world`s leading
audio platform. And what we`re seeing really is we`ve done podcasts now
for about two years and it`s — our users are looking for podcasts and are
listening to the platform almost twice as much.
(END VIDEO CLIP)
GRIFFETH: The one blemish today was Spotify`s average revenue per user.
That fell and that sent shares down about 3 percent to $135.45.
Toyota (NYSE:TM) reported slightly higher quarterly profits. Growing
Chinese demand helped sales in Asia, which offset a decline here in North
America, which is Toyota`s largest market. But the Japanese automaker
sharply reduced its full-year profit forecast due to investment losses.
Toyota (NYSE:TM) shares fell 2 percent today to $121.05.
And Chipotle`s latest results easily beat estimates, thanks to increased
foot traffic and an increase in menu prices. The Mexican food chain is
also buying back additional $100 million worth of its own shares on top of
the current $57 million share buyback. The news sent Chipotle shares
initially higher in after-hours trading tonight. They closed up a fraction
in the regular session today to $525.06.
HERERA: Data privacy has become a hot topic, especially when it comes to
social media companies like Facebook (NASDAQ:FB), which have been accused
of misusing people`s information. And just this week, Alphabet added a new
line to its disclosure about how data privacy issues could harm its
advertising business, which brings us to all of those privacy policies that
we see when we log onto websites. Usually we just click “yes.”
But what exactly are we agreeing to?
Andrea Day takes a look.
ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Imagine your toothbrush
spying on you, your coffee shop blabbing about what you search online, even
your mattress listening in while you`re in bed.
MICHAEL KASDAN, WIGGIN AND DANA PARTNER: I think it falls into the
category of creepy.
DAY: Your personal info could be scooped up by a company, even handed out
to others, and you might not have a clue.
BRIAN VECCI, VARONIS FIELD CHIEF TECHNLOGY OFFICER: Consumers need to
behave in a really paranoid way, where you assume that any company that can
is probably going to collect information about you.
even read them and just click “accept” when you download or sign up.
KASDAN: These aren`t negotiated agreements.
DAY: We sat down with three pros to find out what`s really going on behind
the policies. Privacy attorney Michael Kasdan, cyber security pro Brian
Vecci, and cyber specialist, Attorney Alex Urbelis.
How long does it take for you to digest an average policy?
ALEX URBELIS, BLACKSTONE LAW GROUP PARTNER: Hours, at least. Hours.
DAY: Hours and hours to read, and he`s an attorney.
VECCI: I don`t know if it`s actually possible for somebody without a law
degree. They`re by lawyers for lawyers to protect the company.
DAY: A company that`s hungry for your private information.
When you look at some of the data that these corporations are collecting,
what do you think?
URBELIS: Why? We don`t know what`s happening there. What we do know is
that they find this very, very valuable.
DAY: We asked all three pros what policies they think raise some flags.
For Urbelis, it`s Philip Sonicare`s Bluetooth toothbrush. It connects to
an app to reveal brushing habits.
In the policy, the personal data we collect may include your first name,
username, profile picture, email address, gender, birthday, age, country,
language and password. And Philips may also work with third parties who
process your personal data for their own purposes.
URBELIS: But it`s up to you to find those other privacy policies that
relate to these third parties and figure out what they`re doing with your
DAY: Philips tells us they take data protection very seriously. The
privacy notice is aimed at transparency on this point, as it describes in
detail which data will be received by Philips, and Philips will only share
their data with these independent third parties at the user`s request.
According to Kasdan, Starbucks (NASDAQ:SBUX) collects loads of info that
has nothing to do with serving coffee. The policy, the web pages you view,
including the date and time, and the subject of the ads you click or scroll
over. Kasdan says Starbucks (NASDAQ:SBUX) then allows third parties to
access that info. The policy: We have added certain features to our
websites and mobile applications that allow social networks such as
Facebook (NASDAQ:FB), Twitter, to track the activities of their members.
Can you be 100 percent sure about everything that`s been collected in most
of these policies?
KASDAN: Not necessarily. I think that`s — that that`s not an accident.
DAY: Starbucks (NASDAQ:SBUX) tells us the privacy of our customers is
incredibly important to us, and we regularly evaluate all policies to make
sure we`re protecting their best interests. We strive to be transparent.
We do not sell information to advertising companies. You`ll also note that
the terms of our policy provide customers options for choosing to share
information with us.
Vecci flags the policy for Sleep Number`s mattress. Last November, it was
found to have permission to record audio while you sleep. The policy once
said: We also may collect personal information, which may include audio in
your room, to detect snoring and similar sleep conditions.
told right up front.
DAY: According to Sleep Number, Sleep Number`s products do not record
So what can you do? The pros say read the policy before you click.
URBELIS: It is important to read because it does tell you what could be
done with your data.
DAY: And while it may seem crazy to read something the pros say even they
struggle with and that can change on a whim, the hope is if enough people
look, anything dubious will come to light.
For NIGHTLY BUSINESS REPORT, I`m Andrea Day.
GRIFFETH: Coming up, why real estate in the Sunshine State is starting to
really heat up.
HERERA: Natural disasters cost $91 billion last year. According to a
government report, those losses stemmed from hurricanes, wildfires and
winter storms. Eighty percent of that figure was due to just three events.
Hurricane Michael in Florida, Hurricane Florence in the Carolinas and
wildfires in the West, including California.
GRIFFETH: Well, the number of people applying for mortgages fell 2.5
percent last week. The Mortgage Bankers Association says volume was nearly
10 percent lower than it was a year ago at this time. But as we`ve been
telling you, there are signs that the housing market is picking up. Real
estate agents in some parts of the country have been reporting lately an
increase in buyer activity as mortgage rates pull back.
HERERA: On this program, we often talk about long-term investing, but
every once in a while we like to take a look at how some of those bets have
paid off and how the ultra rich spend their money. That`s what we`re going
to do tonight with a look at a record real estate deal in South Florida.
Here`s Robert Frank.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: A waterfront home in
Miami just set a new price record, the latest sign that Miami is edging out
Manhattan in the real estate wars. A two-acre estate on Indian Creek, an
exclusive island in Miami-Dade County, just sold for $50 million. That
makes it the most expensive single family home ever sold in Miami.
The names of the buyer and seller weren`t released since both were done
through LLCs and it was an all-cash deal. The same home sold in 2012 for
$47 million. Now, it`s 22,000 square feet overlooking Biscayne Bay with 10
bedrooms, 14 bathrooms, a 3-D theater, chromotherapy spa and a 100-foot
OREN ALEXANDER, DOUGLAS ELLIMAN: The high net worth individuals and their
taste has gotten much more sophisticated. They`re few and far in between
product that caters to them.
FRANK: Now, the new tax law which makes it less attractive to live in
high-tax states like New York and New Jersey is driving more residents from
the northeast to Florida. The Manhattan market just had its worst year
since the financial crisis, while sales and prices both rose in Miami.
New York Governor Andrew Cuomo recently blamed the tax law for the state`s
$2.3 billion revenue shortfall as taxpayers pack up and leave.
TAL ALEXANDER, DOUGLAS ELLIMAN: I would say since Trump`s tax reform,
we`ve received a few phone calls where our client is calling us telling us
to list their properties in New York and they`re coming down to Miami
sometime in the near future and they want to buy something down there and
looking to move their families down there.
FRANK: As more taxpayers start to write those checks for the 2018 tax
year, the sunshine of Miami is starting to look even more inviting.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank at the New York Stock
HERERA: And to read more about the record Miami real estate deal, you can
head to our website, NBR.com.
GRIFFETH: Before we go, a final look at the day on Wall Street. Kind of a
quiet day after two pretty good rallies on Monday and Tuesday. Today, the
Dow lost just 21 points. The Nasdaq fell by 26. The S&P 500 was down 6
HERERA: We`ll see what tomorrow brings. That will do it for NIGHTLY
BUSINESS REPORT tonight. I`m Sue Herera. Thanks for joining us.
GRIFFETH: I`m going home to look for microphones in my mattress.
HERERA: In your mattress? It`s creepy.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you