Transcript: Nightly Business Report – May 20, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Trade hits tech.  Tensions are  simmering and today, the heat was on one of the most influential sectors in  the market.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Drowning in debt.   Millennials are hitting midlife and new analysis shows they`re in worse  financial shape than other generations and may never recover.  

HERERA:  Pomp and circumstance.  A billionaire`s graduation gift.  
Those stories and much more on NIGHTLY BUSINESS REPORT for Monday, May  20th.  

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.
This was a pretty tough day for tech.  Semiconductor stocks were squeezed  on two fronts.  There are the trade concerns, of course, which we`ll get to  in a moment, but then late today, there was a report that the Federal Trade  Commission is investigating Broadcom (NASDAQ:BRCM), a dominant player in  this sector.  The agency is reportedly widening its antitrust probe,  looking at the tactics used by Broadcom (NASDAQ:BRCM) to sell its  processors.  That sent that stock down about 6 percent today.  

Broadcom (NASDAQ:BRCM) was already among the semiconductor company`s  trading lower on concern that they will no longer be able to sell products  to China`s telecom giant Huawei.  The Trump administration recently added  Huawei to a U.S. trade black list, effectively barring firms from doing  business with it without special approval.  

And American companies have moved swiftly to comply.  Google (NASDAQ:GOOG),  for example, has cut access to some of its Android services on Huawei smart  phones.  Huawei`s reach into the tech industry is broad, which is why some  say the latest move has pushed the trade war into a new phase.  
Kayla Tausche takes a look at where things stand for us tonight.  

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  In the weeks after  the U.S. and China talked trade face to face, the rift has widened between  the two countries.  President Trump doubling down blaming China for  reneging.  

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  We had a very strong deal,  we had a good deal, and at the end, they changed it.  And I said, that`s  OK, we`re going to tariff their products and we put a 25 percent tariff on  their products.  

TAUSCHE:  China`s foreign ministry says that deal never existed.  The U.S.,  a foreign ministry spokesman said, has extravagant expectations.  A frail  relationship on trade now threatens geopolitical issues.  A U.S. warship  sailing near territory Beijing claims in the South China Sea.  Chinese  state television airing anti-American movies in primetime slots.  CCTV  saying on social app Weibo, the Korean War era films echoed the current  era.  

And Iran`s foreign minister suggesting to China the countries could team up  against Washington to uphold the 2015 nuclear deal.  Secretary of State  Mike Pompeo and China`s Foreign Minister Wang Yi spoke by phone over the  weekend.  The State Department said the two discussed Iran and elements of  the bilateral relationship.  China said Wong warned the U.S. not to go too  far in harming its interests.  

Its main business interest right now is telecom giant Huawei.  Google  (NASDAQ:GOOG) suspending Android services from new Huawei devices after the  U.S. put Huawei on a black list last week.  Congress can ban any  involvement of Huawei in telecom projects but may allow some equipment to  purchase to avoid disrupting some rural networks.  
U.S. companies impacted by the trade war are cutting costs first and then  head count, according to Morgan Stanley (NYSE:MS).  If the re-escalation  doesn`t get resolved soon, its analyst says a recession becomes  increasingly likely.  
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.  

HERERA:  Kayla just mentioned the airing of anti-American movies in China.   And as Eunice Yoon reports, that switch was sudden.  

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  If you had a movie  night over the weekend in China, you might have thought you were living in  the 1950s.  The state broadcaster CCTV changed its programming lineup to  include three anti-American movies featuring China`s triumph over America  during a war to resist America and aide Korea on what Americans would call  the Korean War.  

And the communist party`s “Global Times” newspaper today said the  China/U.S. trade war reminds us of the war in Korea when our persistence in  the battlefield and continuous victories finally forced the Americans to  bow down at the negotiating table.  With negotiations still at a stalemate,  the anti-U.S. rhetoric is seen as a way to prepare the Chinese public for a  protracted trade war.  Sources told CNBC late last week that the latest  round of U.S.-China negotiations were in flux, and today, the foreign  ministry said the only hope for a break through would be negotiations  progressed with mutual respect.  

In the Chinese business community, there`s growing pessimism that the two  sides will get a trade deal and people here are telling me that if there  isn`t a trade deal by June, prepare for the fight to get even worse.  
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  

GRIFFETH:  The trade war with China could be a double whammy for Apple  (NASDAQ:AAPL) if it lasts for a while.  According to one Wall Street  analyst, ongoing tensions could prompt Chinese consumers to buy smart  phones from Chinese companies instead of from Apple (NASDAQ:AAPL).  And  even if Chinese consumers were still inclined to buy iPhones, a new wave of  tariffs could increase prices, which might reduce demand.  Apple  (NASDAQ:AAPL) was the worst performing Dow component today, falling more  than 3 percent.  

HERERA:  Apple (NASDAQ:AAPL) not only weighed on the Dow but also the  broader market.  The Nasdaq, as we mentioned, got hit the hardest.  Here  are the closing numbers: the Dow Jones Industrial Average fell 84 points to  25,679.  The Nasdaq was down 113.  The S&P 500 was off 19.  
But despite today`s pull back, it is good to remember that the market isn`t  all that far off of its all-time high.  
Mike Santoli has more.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The market owes its  resilience towards to a rush towards safer stocks and bonds as investors  migrate away from risk.  The S&P 500 index has managed to hold within about  3 percent of its recent record high, thanks in part to treasury yields  falling to 2019 lows, which has much to do with worry over global growth  and an expectation that the Federal Reserve will cut interest rates later  this year to support a vulnerable economy.  
Shares of stocks that act like bonds have been clear leaders.  Utilities  and steady consumer staple stocks have vastly outperformed industrial and  small cap stocks, groups more reliant on a better economy.  This has led  some strategists to argue that the broad stock indexes are sending a less  up beat message than would otherwise be a market up some 14 percent less  than five months into the year.  

Investor sentiment similarly seems more subdued than usual after such a  strong market recovery from the December lows.  Surveys of retail and  professional investors show a sharp drop in optimism in recent weeks, and  cash has continued to flow out of stock funds at a pretty heavy pace, a  sign of further investor caution.  Low bond yields and cautious investors  already braced for bad news could continue to help support stock as a  market supports details of a trade standoff.  

But that would probably require the economic data to hold up well enough to  counter recession fears.  But if the economy doesn`t falter enough for the  Fed to cut rates that the bond market seems to want, can those same safe  stocks keep holding up the market?  And could a shift in leadership to  riskier stocks happen without an all clear on the trade front?  These are  the questions facing an apprehensive Wall Street heading towards summer.  

GRIFFETH:  Dozens of shoe retailers are now asking the White House not to  raise tariffs on footwear.  Nike (NYSE:NKE), Adidas, Under Armour (NYSE:UA)  among others have asked the president to remove their products from the  proposed tariffs list on goods imported from China.  They say the 25  percent that`s proposed would be catastrophic for consumers and the  American economy as a whole.  

HERERA:  The head of the Atlanta Fed expressed confidence in the economy  but said he wasn`t sure if the next move in interest rates would be a hike  or a cut.  Raphael Bostic said that there are risks in the market that  speak to both scenarios.  

RAPHAEL BOSTIC, FEDERAL RESERVE BANK OF ATLANTA PRESIDENT:  There are risks  out there in the marketplace that would suggest the economy may perform  worse than we`d expect.  And in that case there — there are other risks  that would suggest the economy might do better.  Suppose that the trade  negotiations end up in a way that is beneficial for the U.S. economy.  We  might see a lot of the uncertainty being viewed as going away which could  trigger a lot of investment and really heat up the economy quite quickly.  

HERERA:  The market right now is pricing in just under a 50 percent chance  of a rate cut in September and a more than 70 percent chance of a move  lower before the end of the year.  

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

We begin with Target (NYSE:TGT) tonight.  That was upgraded at Morgan  Stanley (NYSE:MS) from equal weight to under weight.  The analyst says that  the retailer is showing that it can survive in an increasingly competitive  sector.  Price target now: $67.  Target (NYSE:TGT) grows more than 1.5  percent to $72.08.  

Morgan Stanley (NYSE:MS) also upgraded United Airlines to overweight from  equal weight.  The analyst cited management strategy and the airline`s  loyalty program.  Price target: $110, that stock was up a fraction to  $81.74.  

General Dynamics (NYSE:GD) was upgraded to buy from neutral at Goldman  Sachs (NYSE:GS).  The analyst cited improving cash flow, as well as the  stock`s valuation right now.  And that price target is now $204.  The stock  was up more than 1.5 percent to $169.29.  

HERERA:  Bristol-Myers Squibb (NYSE:BMY) was downgraded to hold from buy at  Argus Research.  The analyst cites concerns over the merger with Celgene  (NASDAQ:CELG) and specifically with Celgene`s drug pipeline.  The firm also  notes that Bristol`s loss of exclusivity for a number of drugs over the  next few years.  Shares fell 1 percent to $46.31.  
Tesla`s price target was cut to $230 at Wedbush Securities.  The analyst  cites concerns over the company`s 2019 delivery targets.  The rating  remains neutral.  Shares fell more than 2.5 percent and finished down below  that target at $205.36.  

GRIFFETH:  Still ahead, what happens when supply chains are soaked?  

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  I`m Contessa  Brewer on the Mississippi River between Illinois and Iowa.  Spring is a  crucial shipping time for the nation`s farmers and yet, here we are, and  there are no barges passing through these locks.  I`ll explain why, coming  up.  

HERERA:  Fannie Mae and Freddie Mac have to raise capital before they can  be privatized so said their head regulator at a conference today who also  noted there are a lot of options on the table.  

MARK CALABRIA, FHFA DIRECTOR:  Treasury has 80 percent of the stock via  warrants.  So, o we`re going to look at what Treasury is going to do.   We`re going to look what we can do to build equity.  One option on the  table is give a public offering.  But we don`t know.  That`s going to be  the option on the table for you to build large amount of capital.  

HERERA:  As we reported, the Trump administration wants to release the two  enterprises from federal control which they went into during the financial  crisis.  

GRIFFETH:  Oil prices rose today after OEC hinted at an extension of its  production cuts.  Member companies decided to explore options that will be  ultimately decided at the June summit coming up in Vienna.  Last December,  remember, the group moved to cut output by more than 1 million barrels per  day.  Domestic crude settled above $63 a barrel, just under 40 percent so  far this year.  

HERERA:  Ford is cutting 7,000 jobs.  That`s about 10 percent of its global  white collar work force.  The job cuts, which include voluntary buyouts,  are expected to save the company about $600 million annually and they are  part of the automaker`s broader restructuring plan.  Most of the layoffs  are overseas with about 2,300 coming from the U.S.  This round will not  impact Ford`s hourly factory workers.  

GRIFFETH:  Shipping has ground to a halt on the Mississippi River because  of historic spring flooding.  It`s a double hit for farmers.  They`ve  already been caught in a trade war and now, they are sitting on soy beans  without a way to get them down river.  
Contessa Brewer as you saw is in Rock Island, Illinois.  

BREWER:  It`s quiet on the Mississippi.  No barges moving through the  locks, though, this is a crucial time for shipping for the nation`s  farmers.  

MIKE STEENHOEK, SOY TRANSPORTATION COALITION:  One reason why farmers  located in the middle of the country like Davenport, Iowa, are  international entrepreneurs is because they have an effective water way  system that can move a lot of products, long distances at an economically  price point.  

BREWER:  Not so this spring.  The winter storm`s massive snow melt and rain  have inundated the farm fields, overflowed levies and swamped Davenport,  Iowa, with record breaking floods.  

TOM HEINHOLD, ROCK ISLAND DISTRICT U.S. ARMY CORPS OF ENGINEER:  Normally,  the water would not be quite so far up on these gates.  We are in flooding  condition right now.  

BREWER:  Earlier this month, the locks flooded.  High water has shut down  multiple locks for months and there are no detours around a closed lock.   So though a barge may move short distances on the Mississippi, it can`t run  the length of the river.  

HEINHOLD:  We would have expected in a normal year, all of the fertilizer  for all of the farm fields in Wisconsin, Minnesota, Iowa, Illinois,  Missouri, should be up here by now and actually on the fields.  

BREWER:  The Mississippi river is an important route for shipping grain,  steel, petroleum and other commodities, shuttling nearly $2 billion worth  every year.  But at Alter Logistics, the barges are empty, more at the  shoreline and the warehouse is bare.  

DOUG WEBER, ALTER LOGISTICS GENERAL MANAGER:  It`s impacting the whole  supply chain.  Makes you have to do different things.  The goods still have  to move.  

BREWER:  But switching shipping options is expensive.  It would require 16  rail cars or 62 semis to transport one barge load of soy beans.  And  overland shipping can double or even quadruple the costs.  And for farmers  already slammed by tariffs, the flooding and river closures add insult to  injury.  

WEBER:  It`s having an impact on farmer profitability, our ability to get  product to market.  

BREWER:  Barge operators were hoping commercial traffic would be fully  flowing once again on the Mississippi River this week.  Instead, with more  rain in the forecast and Davenport the sandbagging continues, it looks like  these locks will remain shut down for several weeks to come.  
In Rock Island, Illinois, Contessa Brewer, NIGHTLY BUSINESS REPORT. 

HERERA:  Sprint and T-Mobile get mixed messages.  That`s where we begin  tonight`s “Market Focus”.  

Earlier in the day, the FCC chairman said he planned to recommend the  agency approve the merger between the telecoms but then hours later, both  wireless companies received a different signal as the Department of Justice  is now leaning against the proposed merger.  Sources tell CNBC, the FCC  conditions on the merger may not resolve the DOJ`s antitrust concerns.   Sprint shares rose more than 18 percent to $7.34, while T-Mobile stock was  up nearly 4 percent to $78.29.  

Dish Network agreed to buy another chunk of EchoStar (NASDAQ:SATS)  Satellite Service assets valued at $800 million.  Dish will now acquire  nine direct broadcast satellites and some real estate properties in  exchange for nearly 23 million shares of Dish stock.  But Dish shares  slipped today almost 6 percent to $33.24.  

After an 18-month battle, Air New Zealand reportedly picks Boeing (NYSE:BA)  over its rival Airbus.  “Reuters” reports the airline decided to buy wide  bodied planes from Boeing (NYSE:BA) in a deal reportedly worth more than $2  billion.  Boeing (NYSE:BA) shares fell a fraction today to $352.79.  

GRIFFETH:  International game technology missed earnings and revenue  estimates but the maker of slot machines and other gambling products did  manage to return to profitability after reporting a loss last year.  The  industry is seeing good demand right now for its physical gaming machines  and online gambling services.  The stock today was down nearly 2 percent to  $13.83.  

XL Energy plans to shut down its two remaining coal plants in Minnesota a  decade earlier than scheduled, essentially putting the company on pace to  become coal-free in the Upper Midwest region by 2030.  The utility holding  company also said it`s going to keep its nuclear power plant running until  at least 2040 with the goal of delivering full carbon free electricity by  the year 2050.  Shares were up a fraction today to $58.39.  

HERERA:  Millennials are approaching middle age in worse financial shape  than every living generation ahead of them.  According to “The Wall Street  Journal”, Americans born between 1981 and 1996 have less wealth, own less  property, have lower marriage rates and are having fewer children than any  generation since the Great Depression.  
Joining us now to discuss what that might mean for the broader economy and  future generations is Scott Brown.  He is chief economist at Raymond James.  
Scott, welcome back.  Nice to have you here.  


HERERA:  Some of this is simply the time at which they were bosh and grew  up, right?  I mean, they — we weren`t necessarily in a depression but we  were in a downturn in the economy.  And that makes it tougher for  everybody.  

BROWN:  Well, two key issues here.  One is that even before the recession,  there was a trend where there was a squeeze going on really at the middle  class.  A lot of the bargaining power has shifted from employees to  employers.  You had a greater concentration of large firms.  You`ve got a  lower union membership and so on.  
But the great recession really made a lot of those trends a lot worse.  And  we know from studying past recessions that it tends to take a very, very  long time.  And in fact, even after the recession we had in the early `80s,  those wages were typically lower than people that graduated a couple years  later or earlier or even 10 or 20 years later.  So, it tends to have long  lasting effects.  And, obviously, this was a major, major recession.  

GRIFFETH:  And this could put pressure on social securities.  We talk about  they`re having fewer children.  That means fewer workers to pay into Social  Security when more of us, baby boomers and even the millennials when they  start to retire starts to draw money from Social Security, right?  

BROWN:  Well, you know, one of the big stories we have is that slower  population growth means slower labor force growth.  So, we`re looking at  much slower GDP growth than in previous decades when the baby boomers was  coming in, when female labor force participation was on the rise.  
So, we`re looking at labor growth.  We`re going the wrong way there.  Other  countries facing similar kinds of issues with the aging populations, and  how are they going to pay for people`s retirements and health care.  

HERERA:  So for the broader economy as we go forward, obviously, we had the  great recession.  We`ve come out of that now and the stock market is doing  pretty well and the economy is doing pretty well.  How long before we see  those ripple effects in those younger people who are coming up into the  work force now?  

BROWN:  It will take quite a while.  My hope is that the Federal Reserve  doesn`t really try to curtail the expansion too much, because if you do get  an increase in general wages, then that forces firms to reallocate labor.   You do get people moving up to higher positions.  And that paves the way  for younger workers to come in and get work experience and, you know, that  would all be very helpful.  
So, you know, we`re crossing our fingers, I think, that things are going to  continue to improve but I think I don`t want for the Fed to cut rates in  the month ahead to help keep this expansion going.  

HERERA:  Scott, thank you.  Scott Brown with Raymond James.  

GRIFFETH:  Certainly, many millennials may be saddled with student debt  right now, but a few hundred graduates of Morehouse College just hit the  student loan lottery.  
Robert Frank explains.

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Billionaire Robert  Smith surprised 396 graduates of Morehouse College yesterday of what could  be the greatest graduation gift ever.  

ROBERT F. SMITH, PHILANTHROPHIST:  My family is making a grant to eliminate  their student loans.  

FRANK:  Now, the exact amount of paying off all those loans is still being  negotiated, but Morehouse says it could be in the tens of millions of  dollars.  Now, many asking today, who is Robert Smith?  Well, he is the  richest African-American in the country with a net worth of about $4.5 to  $5 billion.  
His fortune comes from private equity.  He`s the founder of Vista Equity  Partners in Austin, Texas, which focuses on enterprise software and data  companies.  Now, Smith once said that of his nearly 300 buyout deals at  Vista, he has never lost money.  
Now, Smith grew up in Denver where his parents were teachers.  He went to  Cornell and then to Columbia for his MBA.  He started out as a chemical  engineer at Kraft (NYSE:KFT) and Goodyear and went on to do Goldman Sachs  (NYSE:GS) in San Francisco before founding Vista in 2000.  
He has used his wealth for biggest gestures.  He bought the most expensive  home sold in downtown Manhattan last year, the $59 million penthouse of the  new Getty Building.  He also owns homes in Malibu and Austin, Texas.  
He was the first African-American to sign the Warren Buffet/Bill Gates  pledge, promising to give away at least half of his fortune during his  lifetime.  He gave $50 million to Cornell, donated the former homes of  Martin Luther King to the National Park Service and has given generously to  the Smithsonian and Carnegie Hall.  
Many of the Morehouse students said they plan to honor Smith`s request to  pay it forward.  One student who had $25,000 in loans said, quote, this  gives me a new start on life.  

HERERA:  Still ahead, do you know more about economics than a high  schooler?  Well, we`ll soon find out.  

HERERA:  The IRS audit rate dropped again.  According to new figures, the  agency audited about 0.6 percent of individual tax returns last year.   That`s the seventh consecutive annual decline.  Audits of wealthy  households dropped to their lowest levels since the IRS began reporting the  data in 2008.  The agency, which has been hit by budget cuts, is in the  process of asking Congress for a funding increase.  

GRIFFETH:  Well, the best and brightest high school students are putting  their economic knowledge to test.  Teams today competed in the national  economic challenge in New York, and this year, Andrew Ross Sorkin moderated  the event and crowned the next potential Jerome Powell or Janet Yellen.  

ANDREW ROSS SORKIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  At the 19th  annual national economic challenge put on each year by the Council for  Economic Education, students are quizzed on principles in economics.  
Land is a factor of production.  What are the other three factors?  

UNIDENTIFIED MALE:  Capital, entrepreneurship, and labor.  

SORKIN:  That is correct.  
And put to the test to apply these principles to the real world.  
Assume a consumer is maximizing utility in the consumption of bread and  cheese.  Further assume that these are the only two goods being consumed.   What will happen to the marginal utility of bread if the price of cheese  decreases?  

UNIDENTIFIED MALE:  It increases.  

SORKIN:  That is correct.  
These are the brightest economic students in the nation who competed in a  field of 11,000 teens to reach the championships here in New York City.  
What is the most likely cause of an inverted yield curve?

UNIDENTIFIED FEMALE:  An impending recession and the yield on longer term  bonds being lower than the yield on shorter term bonds.  

SORKIN:  This year, Mt. Hebron High School won the David Ricardo division  and Adam Smith Divisions, a first in competition history for one school to  take home both trophies.  
How did you guys get into economics to begin with?  

LORELEI LORAINE, MT. HEBRON HIGH SCHOOL:  It`s actually really fun to learn  and it`s not just something you do for a competition.  So that would be my  moment.  

SORKIN:  OK.  So, we`re not just nerding out here is the point.  
Nan Morrison, head of the Council for Economic Education explains the value  of this competition.  

NAN MORRISON, COUNCIL FOR ECONOMIC EDUCATION CEO:  Their learning goes far  beyond just a recitation of facts.  They really understand how this stuff  works and it`s incredibly rewarding to watch them.  

SORKIN:  What do economists call a good that is a rival and non-excludable?  

UNIDENTIFIED MALE:  A common resource.  

UNIDENTIFIED MALE:  Common good.  

UNIDENTIFIED MALE:  You are both correct.  

SORKIN:  For the third year in a row, the U.S. face off against China and  China was victorious in both rounds.  
For NIGHTLY BUSINESS REPORT, I`m Andrew Ross Sorkin.  

HERERA:  And finally tonight, “The Game of Thrones” series finale set an  all-time ratings record for HBO.  The show drew 13.6 million viewers in the  initial airing of the episode last night.  If you add in replays and early  streaming, that figure climbs to more than 19 million.  

GRIFFETH:  No spoilers here.  
Before we go, let`s take a final look at the day on Wall Street.  The Dow  was down 84 points to 25,679.  It was the Nasdaq that got hit the hardest  with semiconductor stocks leading the way, down 113 points and the S&P was  down 19.  
And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks  for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  We`ll 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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