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.
For NIGHTLY BUSINESS REPORT, I`m Robert Frank.
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.
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