Transcript: Nightly Business Report – April 22, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  2019 high.  Oil prices  climbed after the U.S. clamps down on Iranian oil exports.  
Hot and cold.  March home sales slide as the spring housing market becomes  hard to predict.  

Unintended consequences.  The IPO market is hot right now.  But are the big  changes in store once the company goes from private to publicly-traded?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Monday,  April 22nd.  

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

The action today was in the oil pits.  The price of domestic crew today  after the White House pledged to reduce Iranian oil exports to zero.  The  trip administration will no longer grant waivers to countries that buy oil  from Iran.  And that puts the supply of the commodity in full focus, which  is already dealing with sanctions on Venezuela, violence in Libya, and a  decrease in output by Saudi Arabia.  
Crude prices today in the U.S. settled above $65 a barrel, their highest  price we`ve seen since Halloween.  
We begin tonight with Ylan Mui in Washington.  

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The White House wants to  curve around nuclear ambitions by shutting down its profitable oil  industry.  Back in November, the Trump administration gave eight countries  a six-month time frame to wind down their purposes of Iranian crude.  The  deadline to comply is May 2nd, and today, Secretary of State Mike Pompeo  warned there will be no more extensions.  

MIKE POMPEO, SECRETARY OF STATE:   We`re going to zero.  We`re going to  zero across the board.  We will continue to enforce sanctions and monitor  compliance.  Any nation or entity interacting with Iran should do its due  diligence and err on the side of the caution.  The risks are simply not  going to be worth the benefits.  

MUI:  The White House has been under pressure to take a tougher stance  against Iran.  On Capitol Hill, Republican hawks welcome the move.  Ted  Cruz said the decision will deprive Iran of billions of dollars that would  have been spent undermining the security of the United States and our  allies.  

But the announcement fueled fear in the oil markets that global supply  could be disrupted.  President Trump tried to tamp down those concerns over  Twitter saying Saudi Arabia and others will make up the difference.  
HELIMA CROFT, RBC CAPITAL MARKETS GLOBAL HEAD OF COMMODITY STRATEGY:  The  Trump administration is really walking a fine line between sanctioning  countries they don`t like, while trying to keep oil prices in check.  It  all rests on Saudi Arabia.  This strategy hinges on, will the Saudis open  the taps?

MUI:  In a statement, Saudi officials said the nation will coordinate with  other producers to ensure adequate supply.  But there were no specifics on  timing or production levels.  Pompeo said those discussions are underway.  
POMPEO:  We`ve been working with major oil producing countries to ensure  the market has sufficient volume to minimize the impact on pricing.  I can  confirm that each of those suppliers are working directly with Iran`s  former customers to make the transition away from Iranian crude less  destructive.  

MUI:  Three countries have already halted imports, five others are  still getting oil from Iran, including India, Japan and China.  
Now, Beijing is blasting the decision and defending its imports as  reasonable and legitimate, raising the question of whether China or the  others will meet the May 2nd deadline.  
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

GRIFFETH:  John Kilduff joins us tonight to talk more about what`s  happening in the oil markets right now.  John, of course, is the founding  partner at Again Capital.  

Is the supply there to make up the difference for the loss of oil from  Iran, if their exports go to zero?  Especially when you consider what  happened with the oil markets today, that suggests the supply is going to  be depleted.  
JOHN KILDUFF, AGAIN CAPITAL FOUNDING PARTNER:  There is a risk that the  Saudis won`t come through, Bill, and fulfill the gap fully.  

KILDUFF:  As you know, they`ve been working for months now to lower their  own production, their own exports, to tighten up global supplies.  That has  happened.  
The fact of the matter is, though, there is plenty of oil to fill the gap  if Iran oil exports would go to zero.  Russia has their capacity.


KILDUFF:  The Saudis and UAE and others have spare capacity.
GRIFFETH:  Do you think their exports will go to zero?  I mean, there are – – the knock on sanctions, not just these sanctions, but any sanctions is  that there are always going to be other markets that a country can tap to  get around those sanctions.  
What do you think happens this time?  

KILDUFF:  Well, this is a new breed of sanctions.  These are the ones used  by the Obama administration.  It`s a “choose us or choose them” set up.   So, if you continue to buy oil on an official basis from Iran, you`re going  to be sanctioned and you`re going to get put out of business in terms with  the U.S. financial system and getting payments and other things.  
So, it`s a pretty easy choice to make.  So, they will come close to zero.   I would say down around over a million right now, to around 300,000, to  maybe 500,000 at most.  

GRIFFETH:  Do you think we would really impose those kind of sanctions on  China though?

KILDUFF:  Well, we`re imposing those sanctions if we were on China`s major  oil refining companies if they were to continue to buy the oil.  And yes I  do.  

This is not to be — this is a point not to be missed.  This was a week  about maximum pressure on Iran.  Last week, they put the terrorism  designation on the Iran Revolutionary Guard.  This has been John Bolton`s  want to be able to put Iran in a box, and hit them where it hurts the most,  the oil exports.  

GRIFFETH:  So, what happens to oil prices, do you think?  Bottom line.  
KILDUFF:  We priced in a good bit of risk today.  To the extent that the  Saudis make motions and noise, that they will fill the gap.  They should  stabilize.  But right now in the near term, the risk is skewed to the  upside.  WTI going up in above $70 a barrel is a likelihood I think for a  time.

GRIFFETH:  All right.  John Kilduff with Again Capital — again, thanks for  joining us tonight.

KILDUFF:  Thank you, Bill.  

GRIFFETH:  Elsewhere on Wall Street, the day began with a moment of silence  at the New York Stock Exchange in remembrance of the lives lost and the  families impacted by the bombings yesterday in Sri Lanka.  
And then after the opening bell rang, trading was muted, as stocks searched  for direction, and investors prepared for a week that is going to be filled  with earnings reports.  The Dow, though, at the close was down just 48  points, to 26,511; Nasdaq added 17; the S&P 500 was up nearly three points  today.  

Meantime, the spring home selling season is in full swing, but a new report  today showed that sales were weaker than expected last month.  With both  high and low ends homes taking a hit.  
Diana Olick runs through the latest numbers for us.

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  More home shoppers  always come out in spring.  But fewer are buying in this year, at least so  far.  Sales of existing homes dropped over 5 percent in March, compared  with a year ago, and February sales pace was revised lower.  Sales have now  been falling annually for 13 straight months.

JESSICA LAUTZ, NAR VP OF RESEARCH:  As affordability plays here, especially  for first time home buyers, they are going to be looking at interest rates.   They`re going to be looking at where you can get a steal and if there is  some price reduction with interest rates, that could be an encouraging sign  they may want to jump into the market. 

OLICK:  Mortgage rates begun falling last November, but then flat lined in  January and February, when most of these March deals were signed.  They  took a brief tumble in March, but are now rising again.  Weaker sales are  causing the home price gains to shrink.  But they`re still gaining.  And,  in fact, March is median price of $259,800 was the highest ever recorded  for the month.  

So, what`s going on behind the numbers?  Sales are weakest at the very low  end and the very high end, but for very different reasons.  At the low end,  it`s no supply, and that`s causing big prices for not a lot of house.  At  the high end, it`s changes to tax laws or SALT.  

LAUTZ:  We just filed our taxes and I think everyone is nervous about  what`s happening right now with SALT.  So, if we see that impact and we  will see it in the coming months, we`re just going to have to wait and see  how much of an impact that is going to have at the high end market.  

OLICK:  High end markets like the New York City area and much of California  where taxes are a bigger factor are already seeing the biggest slowdown in  sales.  With rates now rising again, the spring market which really just  began, may already be a washout.

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

GRIFFETH:  Time to take a look at today`s “Upgrades and Downgrades” now.  

Tesla was downgraded to underperform from inline at Evercore ISI.  The  analyst cited demand concerns for Tesla`s electric vehicles.  Price target  now $240.  And that stock fell nearly 4 percent.  
By the way, it was also pressured by a video out of China that apparently  showed a parked Tesla exploding.  The company said that an investigation is  underway.

D.R. Horton (NYSE:DHI) was downgraded to market perform from outperform at  Keefe, Bruyette & Woods.  The analyst cited the stock`s valuation after a  30 percent run-up so far this year.  Price target now, $47.  That stock  fell more than 1-1/2 percent to $45.66.  
Still ahead, a plan out of Washington to cancel student debt by taxing the  superrich.  

GRIFFETH:  Herman Cain has withdrawn himself for consideration for a seat  on the Federal Reserve board.  Cain, as you know, is the former CEO of  Godfather`s Pizza.  He had a former board seat on the Kansas City Fed.   He`s been critical of the Central Bank, saying it unduly manipulates the  value of the U.S. dollar.  And in recent weeks, at least four Republican  senators had come out against his nomination.

Social Security`s payments are expected to exceed its income next year.   The first time that has happened since 1982.  This is all according to the  latest annual report by the trustees of the Social Security Administration  and Medicare, which was released today.  The deficit in 2020 will force the  program to use its trust fund to start covering benefits.  But the report  then estimates that by 2035, those reserves will be depleted, meaning that  full scheduled payments will not be able to be paid.  

The disability fund which is separate from the retiree fund will run out in  2052.  That is 20 years later than projections in last year`s report.  And  when it comes to Medicare, the report said its hospital insurance funds  will be able to pay full benefits until 2026.  

GRIFFETH:  Much of the talk in Washington these days is about taxes, and  many Democratic candidates for president have been talking about  specifically about higher tax rates for the wealthiest Americans, and  making comparisons to the system that was in place decades ago.  What do  the numbers really show?  
Robert Frank takes a look for us.

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  On the campaign  trail, Democratic candidates are citing the 1950s and `60s as the golden  age of taxing the rich, rates were as high as 70 to 90 percent. 
Candidate Julian Castro saying, quote: There was a time in this country  when the top marginal tax rate was over 90 percent.  And even during  Reagan`s era in 1980s, it was around 50 percent.  

What those candidates are not saying, is that the taxes actually paid by  the wealthy were much lower, and they haven`t changed much in over 50  years.  Analysis by top economists, led by Thomas Piketty, look at the  amount of federal, state and local and state taxes paid by the top 1  percent relative to their income.  Now, in 1960, when the top rate was 91  percent, the 1 percenters paid 42 percent of their income in taxes.  That  rate fell during the 1970s and early `80s, but started rising again.  
And today, the top 1 percent pay a rate of around 37 percent.  So, it`s  only 5 or 6 percentage points less than the 1950s.  

Why did the rich pay so much less than the official tax rate?  Well, those  top rates only apply to a small group, less than 10,000 households made  enough to pay that 91 percent in the 1960s.  

Much of the income also came from capital gains and investments, which, of  course, were always taxed at lower rates.  As they always do, the wealthy  found ways to avoid those high rates.  
So, even though the top rates were more than twice as high as they are  today, the taxes paid by the rich have actually been fairly consistent over  time.  Now, that`s not to say rates couldn`t go higher for the wealthy to  raise revenue, but when we hear about those magical rates of 70 percent  helping to reduce inequality, it`s worth noting that the rich rarely pay  retail.  

GRIFFETH:  Now, we`ve been telling you about Senator Elizabeth Warren`s  proposed wealth tax.  Now she has identified something else to do with the  additional revenue, she wants to wipe out Americans college debt and pay  for tuition at public universities.
John Harwood is covering that story for us tonight.
What exactly is she proposing to do on student debt?  How does that work?  

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  What she`s going to  do is use a chunk of that wealth tax, Bill, to finance a program that would  wipe out up to $50,000 in student debt for anyone who makes under $100,000  a year.  If you make more than $100,000 a year, you could have some of your  debt wiped out, phasing out at $250,000.  If you make over that, you  wouldn`t get any.  

But she says that 95 percent of the people who now have student debt would  see a reduction in that debt.  And 75 percent of those people, it`s about  42 million people, would have their debt wiped out.  

GRIFFETH:  And then she wants to pay tuition at public universities, right?

HARWOOD:  That`s right.  She also in this program has a program to give  money to states so they can provide tuition free college at both two- and  four-year institutions, she would also put $100 billion into Pell grants  which pay for non-tuition expenses and have another $50 billion fund to  help historically black colleges.  It is a massive program to try to change  the equation on higher education.  

GRIFFETH:  And how much money are we talking about here? 

HARWOOD:  Well, he says it would cost $1.25 trillion over 10 years.  That  is less than half of what her wealth tax has raised.  She`s proposed a  staggering amount of taxes, $4.1 trillion over 10 years.  Real corporate  tax, 7 percent on corporate profit over $100 million, higher estate taxes.   All of that if you add up what she`s proposed, $4.1 trillion.  She hasn`t  even accounted for all that money yet.  So, more proposals to come.  

GRIFFETH:  John Harwood in Washington for us tonight, counting up the  numbers.  Thanks, John.

There`s a new CEO at Kraft (NYSE:KFT) Heinz.  And that`s where we begin  tonight`s “Market Focus”.  

The company announced that the current CEO Bernardo Hees will be stepping  down June 30th.  He`ll be replaced by Miguel Patricio who worked for beer  giant Anheuser Busch InBev for 20 years.  Kraft (NYSE:KFT) Heinz, as you  may know, has had a difficult year, highlighted by an SEC subpoena back in  February, as part of an investigation into its procurement and accounting  policies.  Stock was down a fraction today to $32.90.  

Halliburton (NYSE:HAL) posed stronger than expected revenue in the first  quarter, and the recent surge in oil prices globally helped lift the oil  field company`s profits as well.   Halliburton (NYSE:HAL) CEO says he believes the worst in pricing  deterioration is now behind us.  That`s a quote.  
Stock today was down a fraction.  It closed at $31.09 a share.  

Kimberly-Clark (NYSE:KMB) also posted stronger than expected profits.  The  maker of Kleenex tissues and Huggies diaper saw solid results in its  personal care segment, raising prices on key products also helped.  And  today`s shares surged the most we`ve seen since the financial crisis up  nearly 5 1/2 percent to $130.25.  

And then after the bell, Whirlpool (NYSE:WHR) beat earnings estimates for  the quarter, but they did miss on revenue.  The company says the two  factors drove their earnings raising prices and keeping costs in line.   That sent the stock higher in initial after hours trading tonight.

We are in the beginning stages of a wave of IPOs on Wall Street, from Levi  Strauss to Lyft to Pinterest and there are many more.  But in their rush to  go public, some companies could be facing some unintended consequences.   For example, a “Wall Street Journal” report says that the Uber and Lyft  IPOs might lead to higher fares as companies deal with added pressures to  turn a profit.  

Then there are, of course, the quarterly earnings reports, the analyst  calls, the forward guidance, all of which some critics say can lead to  short term thinking by management, which are going to affect long term  growth.  So, some question whether going public is always the best path to  success for some companies.  

Joining us tonight is J.P. Eggers.  He`s professor of management at New  York University Stern School of Business.  

J.P., good to see you again.  Welcome back.  

J.P. EGGERS, NYU`S STERN SCHOOL OF BUSINESS PROFESSOR OF MANAGEMENT:  Good  to see you.  Thanks for having me.  

GRIFFETH:  What do you think?  You know, there are plenty of I think there  are so many of young entrepreneurs, who their goal is to take their company  public, that for them is success.  But then they chafe at all of the new  scrutiny?  Is that always the best path to success for them?  

EGGERS:  Well, I mean, obviously, the decision of whether or not to go  public is made long before the company would go public when they`re taking  on venture capital money and other investments that are going to see a way  to get their investment back.  

EGGERS:  So, as a result, these companies are not always thinking through  fully, because they don`t have to deal with it if they aren`t successful,  even if they are, it might be three, five, seven years before they`re going  to have to do that.  But the reality is once they`ve taken on that money  and that big investment, other than stretching out to kind of — like Uber  has been doing to avoid going public, you`re really kind of faced with a  decision, you`ve got to find a way to actually generate that liquidity to  go public and then take on those costs.  

GRIFFETH:  But it`s not just young entrepreneurs.  I mean, you had veterans  last year, Warren Buffett and Jaime Dimon both said that they think that  corporate America should do away with forward guidance.  I mean, there`s  this balance that needs to achieve between what the shareholders and public  need to know, about corporations and this short term thinking that goes  with having to guide forward guidance. 

EGGERS:  Absolutely.  No question.  I mean, being accountable to analysts  calls on a quarterly basis, giving updates on guidance and things like  that, really puts a huge amount of pressure on these CEOs to manage towards  those numbers.  At the cost of all else, whether getting rid of all forward  guidance is the right path or getting rid of quarterlies to go with twice a  year, even once a year, some sort of information from the companies, these  are all reasonable options to figure out — to make it out to stretch out  their time horizon, be willing to make more long term investments, and  think about innovation, and responsibility and long term sustainability of  business model.  

GRIFFETH:  Have you — I`m sure you`ve done case studies at NYU.  But is  the pendulum about to swing the other direction, have we gone too far  expecting too much from public corporations on a short term basis?  Is it  going to start going the other direction do you think?  

EGGERS:  Well, I think — two things.  One, we are certainly seeing a lot  more discussion about new proposals and different ideas that would cut back  on some of these things.  But I think there`s a lot of talk about and  research looking at these issues.  At the same time, there`s a lot of  concern that innovation is not happening in the U.S. and in corporate  America in the way it has in the past, especially compared to countries  like China.  
And when you put those two pieces together, recognizing that innovation is  one of the key challenges that people look at as having being cut back by  going public —  


EGGERS:  I think this is a time we`re going to talk about this very  seriously and look at this in a lot more detail.  

GRIFFETH:  No doubt we`ll have you back then at that point.  

J.P. Eggers with NYU`s Stern School of Business — thanks again for joining  us tonight.  

EGGERS:  Thank you.  

GRIFFETH:  And coming up, from semis to social media, two sectors to watch  as the earning flood gates are about to open.  

GRIFFETH:  The Chinese coffee chain Luckin Coffee has filed for U.S. IPO.   The filing shows that the company is looking to raise up to $100 million.   But that number could change.  Luckin is a major challenger to Starbucks  (NASDAQ:SBUX) in China.  They plan to open 200 to 300 outlets a month, and  at that rate it would overtake Starbucks (NASDAQ:SBUX) by the end of this  year.  

Samsung said today it`s going to delay the rollout of its Galaxy fold smart  phone.  The company says the device needs further improvements before it  can be sold to customers.  It plans to announce a new release date in the  coming weeks.  There were reports last week of defects and preview models  of that phone, including flickering screens that then stop working after  just a couple of days.  The phone was originally slated to be available in  the U.S. this week, with a rather hefty price tag of almost $2,000.  
More than 140 S&P 500 companies are scheduled to release their quarterly  earnings results just over the few days, making this as we mentioned, the  busiest week for the earnings season.  The semiconductor sector in  particular is going to get a lot of attention in part because of sharp  gains in that group`s stocks recently.  And investors will be paying close  attention to what was said about the issues expected to drive the sector  even higher.  
Here`s Josh Lipton.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Investors are now more  optimistic that a trade deal gets done, between President Donald Trump and  Chinese President Xi Jinping.  That`s one important reason why investors  have moved back into the chips.

CRAIG ELLIS, B. RILEY SENIOR MANAGING DIRECTOR:  Semiconductor companies  have had significant revenue exposure to China because China is an  important manufacturing base for the global electronics industry.  The  second reason that it`s important is trade issues between the U.S. and  China have a significant impact on global economic activity and chip  companies are highly sensitive to that.  

LIPTON:  Another reason chip investors are feeling more confident, a  friendlier Federal Reserve, which has indicated no more rate hikes will be  coming this year.  That eases concerns that policy makers could slow the  U.S. economy, impacting economically sensitive sectors like the semis.  
It also lends confidence that M&A can pick back up in the sector, with more  deals like Nvidia`s $7 billion deal to acquire Mellanox.  
5G is also emerging as an important theme, with investors placing bets on  potential winners, like Xilinx (NASDAQ:XLNX), Marvell and Qualcomm  (NASDAQ:QCOM).

And there`s confidence that the back half of this year could be stronger  for chip companies than the first.  

ELLIS:  TSMC, a foundry bellwether, reported last week that a very strong  second half outlook, and then on the capital equipment side, ASML  (NASDAQ:ASML) reported, and they too had a very strong second half outlook.   We think those bode rather well for the broader sector.

LIPTON:  There are risks for chip investors, too, though.  Analysts  wandered whether the recovery in the chip market will be as fast as stock  prices now anticipate, and whether that trade deal between the U.S. and  China really does get signed and delivered.  

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

GRIFFETH:  Another group in focus this earnings week will be social media  companies, that`s because investors will want more information about their  plans on growth.  
Julia Boorstin has more.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Facebook  (NASDAQ:FB), Twitter, Snap, they all have their own focus and appeal.  But  one thing they all have common, they`re working to make their services more  appealing as they struggle to rev up their daily user numbers.  Facebook`s  Mark Zuckerberg has talked about how they`re shifting focus to secure  messaging across Facebook`s platforms, Instagram, WhatsApp and Messenger,  responding to user demand for these types of interactions that are more  intimate than the news feed, as Facebook (NASDAQ:FB) struggles with the  looming risk of regulation.  

BRENT THILL, JEFFERIES MANAGING EDITOR:  There`s been regulatory concerns  in the past that we`ve covered in tech, and we`re paying attention, but we  think a lot of that is in the stock, given some of these negative  headlines.  We think fundamentally advertisers are getting the best ROI in  the Facebook (NASDAQ:FB) platform.  

BOORSTIN:  One way to keep investors engaged on Facebook (NASDAQ:FB) and  Instagram, making it easy to buy products from ads right on the platforms.

THILL:  Mark Zuckerberg called out, shopping remains one of the biggest  opportunities.  We think advertisers continue to come to the platform given  the strength of their reach.  

BOORSTIN:  While Facebook (NASDAQ:FB) works to hold on to users and get  them more engaged in the wake of scandals around data privacy and fake  news, Twitter is also facing the challenge of cleaning up the platform for  bots and fake users to make its service more appealing to users.  But that  does come at a cost.  

MARK MAHANEY, RBC CAPITAL MARKETS:  You remember that Facebook (NASDAQ:FB)  amped up on last year in order for platform security?  I think Twitter  needs to do some of the same things, and they`re sort of warning people,  that`s our interpretation, that margins need to come down a little bit.  I  just think it`s harder for stocks to outperform.

BOORSTIN:  Snap on the other hand is trying to return to growth after its  daily active user number shrink last quarter.  Now, CEO Evan Spiegel is  hoping to restart growth by integrating Snapchat with other apps, ranging  from Netflix (NASDAQ:NFLX) to Tinder and introducing games.  
With so much competition for consumers` time, we`ll see whether these new  strategies draw users back every day.  

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.  

GRIFFETH:  And before we go, one final look at the day on Wall Street,  maybe the calm before the earnings storm this week.  The Dow was down 48  points.  Nasdaq 17, the S&P was up three.  

That`s NIGHTLY BUSINESS REPORT for tonight.  I`m Bill Griffeth.  Thanks for  watching.  Have a great evening.  See you tomorrow.

Nightly Business Report transcripts and video are available on-line post  broadcast at The program is transcribed by ASC Services II  Media, LLC. Updates may be posted at a later date. The views of our guests  and commentators are their own and do not necessarily represent the views  of Nightly Business Report, or CNBC, Inc. Information presented on Nightly  Business Report is not and should not be considered as investment advice.  (c) 2019 CNBC, Inc.

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