ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: New normal. An influential
central banker says investors should get used to slower economic growth.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Power outage. The GE unit is
a source of pain for the company, and it could take years, not months, to
GRIFFETH: Blazing new trails. Could fire-resistant homes be the answer to
California`s growing wildfire risk?
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, March the 6th.
HERERA: And good evening, everyone, and welcome.
Today, we got new information on the health of the economy. And we begin
tonight with comments from a voting member of the Federal Reserve board,
who said tailwinds have turned into headwinds, and described the economy as
having entered a new normal. That new normal means slower growth.
John Williams, the president of the New York Fed, cited three factors, a
global slowdown, geopolitical uncertainty and also tighter financial
conditions. But he also added that slower growth is not necessarily cause
(BEGIN VIDEO CLIP)
JOHN WILLIAMS, FEDERAL RESERVE BANK OF NY PRESIDENT: How much should our
economy be expected on a normal average year to grow? Our current estimate
is around 2 percent. So when we see the slowdown, you shouldn`t be —
people shouldn`t be saying what`s happened to the economy that would cause
you to think this would be down to 2 percent. In fact this would be
actually something considerably more normal, 2 percent growth in this — in
the new economy, new normal economy.
(END VIDEO CLIP)
HERERA: Mr. Williams said that allows the central bank to be flexible and
patient when it comes to raising interest rates.
GRIFFETH: And the Federal Reserve also altered its description of the
economy in its latest Beige Book. That is the anecdotal look of the
economy across the country which was released today. Ten of the Fed`s 12
districts saw slight-to-moderate growth in late January and February.
Now, that`s being viewed as more downbeat compared to its more typical
modest to moderate phrase. Some of that was due, in fact, to the partial
government shutdown which the Fed says hit a number of sectors, including
retail, real estate and manufacturing. And the manufacturing sector also
cited higher costs due to tariffs.
HERERA: And on the trade front, the deficit rose to a record, hitting $891
billion last year. The U.S. imported more goods than ever, including from
China. Economists say the rise was due to things like a global economic
slowdown and a strengthening dollar, which weakened overseas demand for
GRIFFETH: Yesterday, Dallas Fed President Robert Kaplan gave his
assessment of the economy and he focused on the continued rise of debt
levels. In his statement he said an elevated level of corporate debt,
along with a high level of U.S. government debt is likely to mean that the
U.S. economy is much more interest rate sensitive than it has been
So, with future Fed rate increases on hold, does that mean that rates are
about as high as they`re going go for the foreseeable future? And if
that`s the case, what does that mean for savers and investors?
Joining us tonight is Phil Blancato. He`s the CEO of Ladenburg Thalmann
Phil, always good to see you. Thanks for joining us.
PHIL BLANCATO, LADENBURG THALMANN ASSET MANAGEMENT CEO: Thank you for
GRIFFETH: So, John Williams says tailwinds are now headwinds, expect
slower growth. And Robert Kaplan is looking at a sensitive economy. If
rates are as high as going to be for a foreseeable future, what does that
mean for savers and investors do you think?
BLANCATO: This is the new normal. And in some ways, it`s a goldilocks
environment because we don`t have a lot of inflation. We`re seeing wages
above 3 percent, which is great. But without real inflation, you just
don`t get higher rates.
So, to me, this is the new normal. And that if you really look at the
history of interest rates, 3 percent is about the norm in a 10-year
treasury going back to the 1900. So, unfortunately, this is the norm.
HERERA: You know, but in that case, to Bill`s point about what does it
mean to savers, that`s when people start to look for yield in other parts
of the market. And sometimes they take on more risk than they probably
Do you anticipate that happening or no?
BLANCATO: I do, because we have a double edge sword going on right now.
On one hand, the search for yield or reach for yield, that makes people who
need the income, they are not accustomed to taking on risk. But the
slowing U.S. economy, which was forecast you heard a little bit about, now
a situation where some of the debt may go bad.
So, now, it`s really about having a plan, being strategic, not reaching to
where you can afford — this week (ph), afford the risk without taking the
loss. So, it`s problematic that lower for longer, it`s better than it was
a few years ago, but still a risky environment searching for yield.
GRIFFETH: Those passbook saving accounts still don`t bring a whole lot in.
So where do you go for income right now, bearing in mind you have to
balance the risks with the rates, huh?
BLANCATO: Well, for one, we`ve all been shorter in our maturities for a
while. If rates level off, you can extend duration for a little bit. So,
for example, you can go maybe buy a five-year bond or seven-year bond if
you can just hold it for maturity, you can real bond. That`s one way to do
The other way is to look for equities that are yielding decent income. The
MLP market, BDC, but even Verizon (NYSE:VZ), for example, you have over a 4
BLANCATO: So, it does come with volatility, equity market risk, but at
least you can get some income to supplement what you`re not getting on the
HERERA: Good advice.
BLANCATO: Phil Blancato with Ladenburg Thalmann Asset Management — good
to see you again. Thanks.
BLANCATO: Thank you. Good to see you.
HERERA: On Wall Street, the major indexes posted three straight days of
declines. Investors also tried to make sense of ADP`s private payroll
report which saw slightly fewer jobs created than expected. As a result,
the Dow Jones Industrial Average fell 133 points to 25,673. The Nasdaq was
down 70 and the S&P 500 declined 18.
GRIFFETH: Elsewhere, the Organization for Economic Cooperation and
Development has issued a gloomy outlook for the global economy. The
group`s new forecast is for 3.3 percent growth, which is down from its last
forecast of 3.5 percent, which was issued in November. One of its chief
concerns is growth in China and in Europe and a slowdown in trade and
HERERA: To shore up its economy, China is outlining a strategy to attract
investment and its leaders are also speaking out on the crackdown on
Huawei, one of China`s most important tech companies.
Eunice Yoon is in Beijing with the details.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The message out of
China`s Congress today is that foreign investors are welcome here. At a
press conference, the top state planner talked up the new foreign
investment law, reiterating that one of the sore points with the U.S. trade
negotiators, forced technology transfers in exchange for market access
would no longer be allowed. However, Chinese officials still don`t
acknowledge that this is a widespread problem.
Meanwhile, Huawei`s CFO is expected to appear in court today in Vancouver
as part of proceedings to set her extradition date. Beijing has demanded
that Meng Wanzhou be released immediately.
To understand why the Chinese government seems to be so extreme, one
business consultant told me that it might be good to think of Meng Wanzhou
as China`s equivalent to Ivanka Trump. Huawei isn`t a state company but
it`s a national champion so the line between private and government is
blurred in that sense.
So, imagine what the Trump administration would do to get her back.
Lawyers tell me to influence the proceedings, China`s options are to, one,
pressure Canada to dismiss the extradition request or to convince President
Trump to get the extradition request withdrawn.
This week, we saw the Communist Party Commission accusing two detained
Canadians of gathering secrets. Customs authorities also revoked an export
permit for a Canadian canola firm. Chinese authorities though have not
related these two events with the Huawei case. Expectations are also high
that President Xi is going to ask President Trump to include her release as
part of a trade deal.
A third option is for Beijing to allow the legal proceedings to continue
without comment. That`s been Huawei`s take, that she hasn`t done anything
wrong and the courts would come to the same conclusion.
And in fact, some in the public here believe that Beijing`s strong reaction
undermines Huawei`s position that it is completely separate from the
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
GRIFFETH: Time to take a look at some of today`s “Upgrades and
We begin with shares of VMware which were downgraded to sell from neutral
at Goldman Sachs (NYSE:GS). The analyst there cites the potential for
lower demand for their software as some companies adopt the new type of
cloud technology. The price target now $177. The stock fell more than 1
percent today to $170.12.
Trip Advisor was downgraded to underperform from market perform at Cowen.
The analyst there cited a weak start to 2019 for the company and the
prospect of fewer visitors to its site. Price target $40. The stock fell
3 percent to $50.65.
And CSX (NYSE:CSX) was downgraded to hold from buy at Stifel Nicolaus. The
analyst says that he no longer sees a solid reason why that stock should
outperform the market over the next 12 months. The price target $47. The
stock was down a fraction today to $72.05.
HERERA: The slide in General Electric (NYSE:GE) stock extends into day
two. We told you yesterday about the CEO`s downbeat outlook for cash flow,
and today, an analyst called his $6 price target on the stock generous.
And that sent the shares down nearly 8 percent in today`s session.
Morgan Brennan takes a closer look at what`s happening inside GE.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Years, not months.
That was the takeaway from Larry Culp (NYSE:CFI) this week after the
General Electric (NYSE:GE) CEO said industrial cash flow would be negative
LAWRENCE CULP, GENERAL ELECTRIC CHAIRMAN AND CEO: With respect to cash,
you see we were at $4.5 billion last year. I think as we come into `19,
for the year, we`re going to be in negative territory. This will be a year
where we`ll have both operating and non-operating pressures on our free
BRENNAN: The power business continues to be a key source of pain. But
this year, it will bring higher restructuring costs, and Culp (NYSE:CFI)
warns that a turn-around could still take years. The comment sent shares
tumbling, threatening a rally that seen a stock rise more than 40 percent
from its December low. Analysts are mixed on what it all means, with some
warning the road ahead may still get tougher, while others believe the
stock is a buy for the long term.
NICK HEYMANN, WILLIAM BLAIR & COMPANY ANALYST: We`ve got organic growth,
smaller company, right, because we`ve been divesting assets. We`ve got
margins improving, OK? There`s operating cash flow from continuing and
then you`ve got all these legacy issues. And then those legacy issues will
still some be there in 2020, but they`ll come down. And you know, this rig
will start rolling.
BRENNAN: Uncertainty also swirled around GE`s financial arm Capital which
Culp (NYSE:CFI) said would require $4 billion this year, notable for a unit
that`s as recently as 2017 was profitable and contributing to the company`s
bottom line. Under Culp (NYSE:CFI), who took the helm in October, GE has
been moving fast to sell assets and pay down debt, including a $21 billion
sale of a bio pharma business to Danaher (NYSE:DHR) which was announced
But the devil will be in the details and we`ll get more of those in the
coming days. Tomorrow, GE will disclose details about its troubled long-
term care insurance business and next Thursday, it will share its outlook.
Guidance investors seek after GE pulled its previous targets last fall.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the New York Stock
GRIFFETH: And still ahead, why Las Vegas may become boring.
HERERA: Elon Musk is known for Tesla and SpaceX, but don`t forget that he
also founded The Boring Company, which aims to change the way we travel
through tunnels. And now the company is on the verge of launching a new
project in the heart of Las Vegas.
Contessa Brewer has a first look at the proposal.
CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Elon Musk`s
energized over his high-speed transportation tunnels.
ELON MUSK, THE BORING COMPANY: At 150 miles an hour. It`s phenomenal.
BREWER: Now his company, The Boring Company, is proposing one for Nevada.
The Las Vegas Convention and Visitors Authority, LVCVA, is spending $1.4
billion to renovate and expand a massive campus.
STEVE HILL, LVCVA PRESIDENT & CEO: You know, we`ve been the top city for
trade shows 24 years in a row. We certainly aim to keep that title.
BREWER: Moving customers over 200 acres is a challenge, and seen as
crucial to competing successfully against other cities for mega
conferences. The Boring Company is proposing an underground people mover
in a tunnel called The Loop.
HILL: This kind of innovation is an attraction in and of itself. It helps
our customers to experience everything on our campus.
BREWER: And at an attractive price tag of $35 million to $55 million, a
fraction of a competing above-ground proposal. It`s likely to be The
Boring Company`s first commercial project and could boost future projects.
Boring unveiled a test tunnel in December but proposals in Chicago, L.A.
and D.C. have been stymied by complex bureaucracy and not in my backyard
The company president told us we won`t use eminent domain. If a project
tunnels under 100 land owners, we need strict permission from each one. In
Las Vegas, there`s just one over owner and the LVCVA only needs the green
light from Clark County. City leaders are already anticipating ways the
Loop might connect all of the Strip, the airport, the new Raiders Stadium,
maybe even Los Angeles.
HILL: We will work to look for a way to responsibly say yes to it if it is
what makes sense for Las Vegas.
BREWER: The LVCVA board votes next week. If the proposal passes as
expected, a final contract could be approved by June and the people mover,
moving people by the end of 2020. That would be a big win for the City of
Contessa Brewer, NIGHTLY BUSINESS REPORT.
GRIFFETH: Abercrombie and Fitch`s turn-around efforts appear to be paying
off. And that`s where we begin tonight`s “Market Focus” with the teen
retailer expecting sales to increase this fiscal year. The company has
been revamping its stores and adding a broader selection of merchandise to
appeal to more shoppers. And with its latest earnings report, Abercrombie
and Fitch (NYSE:ANF) did top analysts` expectations for the most recent
quarter. The stock rose 20 percent today to $25.70.
But it was a different story after the bell for fellow teen retailer
American Eagle. That company forecast current quarter profits below
analysts` estimates as it continues to spend heavily on marketing. Shares
fell in the initial after-hours trading this evening, but they did finish
the regular session up 4 percent to $21.32.
Dollar Tree (NASDAQ:DLTR) beat fourth quarter earnings and revenue
estimates, but they did reveal that its family dollar brand is struggling.
So, the retailer announced plans to shut nearly 400 family Dollar Stores
and to renovate 1,000 more. The renovated locations will begin selling
alcohol and include a $1 section with Dollar Tree (NASDAQ:DLTR)
merchandise. Shares were up more than 5 percent today to $135.
And BJ`s wholesale club beat profit and sales expectations. Revenue for
membership fees rose 11 percent. Shares were solidly higher before the
market opened, but then enthusiasm sort of faded and closed down more than
3.5 percent to $25.62.
HERERA: Brown Forman (NYSE:BF.A) beat earnings expectations but missed on
revenue. The maker of Jack Daniels says it was hurt after Europe, Canada
and China imposed tariffs on whiskey to retaliate against U.S. tariffs.
The company also lowered its full-year guidance. Shares were down more
than 5 percent to $48.85.
ExxonMobil (NYSE:XOM) is telling investors to brace for higher spending.
The company expects capital expenditures to grow by $4 billion this year as
it focuses on deep water offshore drilling projects. Exxon added that its
profit potential looks better than last year but the shares lost 1 percent
The FDA has approved a new drug to treat depression. The medicine made by
a unit of Johnson & Johnson (NYSE:JNJ) is made with ketamine, a powerful
anesthetic that has been used illegally as the club drug Special K. The
drug can only be administered by an approved health care provider and
cannot be taken home. J&J was up a fraction today to $139.09.
GRIFFETH: A number of high-tax states have been blaming the new tax law
for a shortfall in revenue. But it turns out that`s not the only reason.
Robert Frank explains.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many of the richest
states from New York to California saw unexpected multi-billion dollar
drop-offs in tax revenues in December and January. New York Governor
Andrew Cuomo saying last month that the state collected $2.3 billion less
than he expected and he blamed the new federal tax law, which limited state
and local tax deductions. He claimed it was driving the wealthy out of New
GOV. ANDREW CUOMO (D), NEW YORK: SALT encourages high income New Yorkers
to move to other states. And what you have to remember is even if a small
number of high income taxpayers leave, it has a dramatic effect on this tax
Tax the rich, tax the rich, tax the rich. We did. Now, God forbid, the
FRANK: Almost every other high tax state, California to Connecticut, New
Jersey and Massachusetts reported major shortfalls in December and January
compared with the forecast. California`s tax receipts came in $3.4 billion
But tax experts and accountants tell me the fall wasn`t probably due to the
wealth flight but probably more to the stock market, specifically that big
drop in December. The biggest source of the shortfalls was estimated
payments. Now, those are payments made for nonwage income, usually from
investments or businesses.
Now, tax advisers say wealthy investors sold stock in December during those
market declines to get the tax losses. That lowered their tax bills for
the year, but it also created a shortfall for the states.
Now, Moody`s (NYSE:MCO) is saying in a report that the revenue decline was
owed in part to a volatile stock market`s impact on capital gains income.
The markets are back, of course, this year, but those losses can be carried
forward, so we will see if there is more of a price to pay for those
Now, states that don`t have much exposure to the stock market have been
faring a lot better. Arkansas, Wisconsin and South Carolina, whose
populations aren`t as tied to Wall Street hedge funds or stock-based
compensation all reported recent surpluses. And get this — they`re
planning to return money to the taxpayers.
Now, for the states, there`s a price to pay for having their fortunes so
closely tied to the 1 percent and the stock markets that drive their
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
HERERA: Coming up, burning down the house. A new effort to prevent that
GRIFFETH: The U.S. division of denim and clothing maker and retailer
Diesel is filing for bankruptcy. The company has struggled for a decade
now with mounting financial losses amid bad investments. Diesel plans to
exit Chapter 11 with fewer stores and a new strategy that it hopes will
help it return to profitability.
HERERA: Fuel efficiency hit a record in the 2017 model year with cars and
trucks getting on average nearly 25 miles per gallon. The agency
administrator says there are legitimate concerns, though, about the
industry`s ability to meet the new requirements. Last summer, the
government unveiled a proposal to freeze fuel economy requirements at 2020
levels through the year 2026.
GRIFFETH: General Motors (NYSE:GM) plant in Lordstown, Ohio, is closing
two days earlier than planned. That factory made its last Chevy Cruze
today, as a matter of fact. The move by General Motors (NYSE:GM) is part
of a strategy to shift away from sedans and more toward higher margin
trucks and SUVs. The Lordstown plant had been producing cars for 50 years.
Its closing will eliminate about 1,700 hourly positions.
HERERA: California just saw its most destructive fire year ever,
destroying homes and causing billions of dollars in damage. But what if
you could build homes that were fire resistant?
Diana Olick is in Richburg, South Carolina, with her next installment of
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wildfires destroyed
more U.S. homes and buildings last year than any other time in recorded
history. And the eight more destructive years for wildfires ever have been
in just the last 13 years.
ROY WRIGHT, IBHS CEO: There is no reason to think that they`re going to
get better. So as you look at this kind of impact on variations in the
climate have had, we are far more susceptible to the size and intensity of
OLICK: The Insurance Institute for Business and Home Safety is on the
front lines of fire research. Wright is a former FEMA official and native
Californian. His parents lost their home in the Camp Fire last year, the
worst in the state`s history. Roughly 14,000 homes there burned to the
Wildfire damage to property just in California last year totaled nearly $19
billion, according to Core Logic.
WRIGHT: There are steps that we can take so that the impact of that fire
is narrowed, it doesn`t spread as far, and it impacts far fewer structures
in terms of that kind of generative over and over, fire beginning fire
beginning fire beginning fire.
OLICK: So, the institute built this test home. One side incorporating
fireproof design and materials, and the other, not.
DANIEL GORHAM, IBHS RESEARCH ENGINEER: So we have a six-inch gap here from
the top of the rock mulch, to the start of the siding. This six-inch gap
just like five-foot zone gives us a noncombustible area.
OLICK: A wildfire`s wall of flames may look most dramatic but it`s
actually the flying embers that can be even more destructive. Satellites
have captured embers flying up to seven miles from a wildfire. These start
secondary fires. The siding, roof and landscaping on this home protect it
from those embers.
GORHAM: There`s no such thing as a fireproof home, but there is a
OLICK: While the cost to real estate from wildfires is rising, the cost to
build a fire-resistant home like this one is actually the same or even less
than a typical home.
The savings is in the cement siding, cheaper than wood materials. That
offsets cost increases in gutters and vents, all of it far less than the
cost of total loss.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Richburg, South Carolina.
GRIFFETH: And before we go, a look at the final day on Wall Street. The
Dow fell 133 points, third straight day of declines. The Nasdaq was down
70, the S&P was down 18.
HERERA: That is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for watching.
We`d like to remind you this is the time of year your public television
station seeks your support.
GRIFFETH: I`m Bill Griffeth. We do thank you very much for that support.
Have a great evening. We`ll see you tomorrow.