Transcript: Nightly Business Report – June 7, 2019

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


SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Bad news is good news.  Fewer  jobs were created last month than expected, but stocks took off despite the  surprisingly low number.  


BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Setting the tone.  China`s  president changes his language when talking about trade, a reversal from  all of the recent, harsh rhetoric.  


HERERA:  House hunters.  Flippers are getting help from an unexpected  source — Uber drivers.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday,  June 7th.  


GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
The stock market soared again today ending a week-long rebound rally that  was fueled by hopes that the Federal Reserve is going cut interest rates  sooner rather than later.  Also lifting the market was hope that tariffs on  all those Mexican imports into the U.S. scheduled to go into effect on  Monday can be averted.  


Mix it together, stocks had their best week of the year this week.  Today,  the Dow was up 263 points, up to 25,983.  The Nasdaq added 126, the S&P was  up 29.  And for the week, all of the major averages saw solid gains.  
HERERA:  That big lift in the stock market, believe it or not, was driven  by a lousy jobs report.  Employers tapped the brakes on hiring last month  potentially signaling a slowdown in the 10-year economic expansion which  could, in turn, prompt the Federal Reserve to cut interest rates.
And as we all know, low interest rates have been a pillar of support for  the bull market.  
Steve Liesman has the details.  
(BEGIN VIDEOTAPE)


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The May jobs report  missing the mark by a long way and raising concerns about the economic  outlook and one of the trade wars hurting the jobs market already.  Just  75,000 jobs created in May, Wall Street had been forecasting 180,000.  The  unemployment rate remained low and unchanged at 3.6 percent, but wage  growth grows a lukewarm 0.2 percent and downward revisions to the job  growth in the prior two months reduced it by 75,000 and that equaled all of  the jobs created in May.
On Wall Street, all of the talk focused on whether the trade war was  dragging down the job market.  


Morgan Stanley (NYSE:MS) wrote: This report will add to evidence gathered  ahead of the June Fed meeting showing that economic policy uncertainty may  be increasingly weighing on growth prospects.  


JAN HATZIUS, GOLDMAN SACHS CHIEF ECONOMIST:  I think it raises the question  about whether the trade uncertainty was already having some impact on the  economy, you know, prior to the latest escalation as far as Mexico is  concerned.  This, you know, came after the original tweets about China, and  I do think it raises that question.  


LIESMAN:  The details of the report show government shed 15,000 jobs and  these were mostly state and local education workers.  Retail, which has  been losing lots of jobs every month, lost another 8,000, and manufacturing  which had been strong, grew a tepid 4,000.  


The weak reports raising the prospect that the Federal Reserve will be  cutting interest rates and cutting them soon.  The chance of a Fed rate cut  for July now around 80 percent in the Fed funds futures market, and the  market is now banking on multiple Fed rate cuts this year.
It`s an aggressive call, one that may only hit the mark if the jobs report  keeps missing the mark.  
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.  
(END VIDEOTAPE)


GRIFFETH:  And joining us to talk more about the jobs report today and what  it may mean for the Fed, Satyam Panday is senior U.S. economist at S&P.  
Good to see you again.  Welcome back.  


SATYAM PANDAY, S&P SENIOR U.S. ECONOMIST: Thank you for having me.


GRIFFETH:  I`ll cut to the chase.  Do you think the Fed is going to cut  rates maybe as early as July?  


PANDAY:  Well, was there a report out today.  It didn`t really help  establishing any confidence into raising rates.  So the odds of cutting  rates have moved up, but I wouldn`t go so far as calling it in July, though  — maybe perhaps in September or for a later date in September.  But yes,  the odds of a rate cut has moved up.  


HERERA:  The manufacturing number was especially weak and the Fed has said  in the past that they are watching manufacturing and the impact from all of  these global trade tensions and weaker global growth.  
How closely are they going to be scrutinizing the details of that?  


PANDAY:  I think this is the key point here.  How much of a spill over  effect from the industrial sector is going to seep into the much bigger  service sector of the economy.  We have seen manufacturing being — you  know, decelerating over the year and it seems like from the labor report  that came out today, we haven`t really added as many jobs as we had last  year.  
So, the Fed will be looking through it very carefully, both the activity  numbers and the labor markets in manufacturing.  And the new tariffs, the  escalation, and the potential of it certainly doesn`t help in the outlook  of manufacturing.  


GRIFFETH:  The Mexican tariffs aside, we still have Chinese tariffs in  place, and there`s no sign that they`re going to end any time soon.  That  can be inflationary.  Do you see much in the way of inflation coming our  way?  


PANDAY:  Well, there are two ways to look at it.  You know, you may see a  one-time bump up in the inflation numbers if these tariffs were to go  through at a 25 percent rate, that, you know, they have been talking about.   But at the same time if it really affects the disposable income of a  regular consumer, then the demand side effect might actually hold back the  inflationary pressure.  


So, net-net, it seems like inflation is really not moving up as fast to the  2 percent growth rate that the Fed had anticipated earlier in the year.  


GRIFFETH:  Very good.  


Satyam Panday, again, with the S&P — thanks for joining us tonight.  


PANDAY:  Thank you.


HERERA:  Chinese President Xi and Russian President Putin presented a  unified economic front during a conference in St. Petersburg.  As we  reported yesterday, the two countries have been coming together to sign  deals and today, another twist.  And it had to do with President Xi`s tone  when it comes to trade with the U.S. 
Geoff Cutmore is there.  
(BEGIN VIDEOTAPE)


GEOFF CUTMORE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  This was an  opportunity to deepen ties and look stronger together, the building of an  alliance in the face of tension with the United States.  


President Putin used his keynote address here to criticize the United  States` position on Huawei, suggesting that`s the beginning of a tech war.   He also felt that the U.S. had overextended its legal authority and it`s  important to note that one of the deals done here among the $20 billion  worth signed was with Huawei to bring 5G technology to the Russian market.  


President Xi also spoke while on the stage here at St. Petersburg, but I  would say his language on trade was very measured, perhaps an indication  that he doesn`t want to use a venue like this to upset the delicate,  ongoing trade negotiations.  


And the reality is, of course, that of all of the talk in St. Petersburg,  the size of trade between Russia and China is significantly smaller than  that done between the U.S. and China, perhaps the reason why President Xi`s  language was cautious and ultimately he described both President Putin and  President Trump as his friend.  


This is Jeff Cutmore in St. Petersburg, for the NIGHTLY BUSINESS REPORT.  
(END VIDEOTAPE)


GRIFFETH:  And now to another issue that affects investors, that would be  the capital gains tax.  Billionaire hedge fund manager Stanley  Druckenmiller said today he doesn`t have a problem with the higher capital  gains and he explained why.  
(BEGIN VIDEO CLIP)


STANLEY DRUCKENMILLER, DUQUESNE FAMILY OFFICE:  I don`t really think  capital gains promote investment as much as advertised out there and it`s  hard for me to believe that Larry Page and Mark Zuckerberg and Jeff Bezos  would have said, oh, my god, the capital gains is going to be 35 percent,  I`m not going to try to fund Amazon (NASDAQ:AMZN) or Google (NASDAQ:GOOG).   So, I don`t have a problem with it.  
(END VIDEO CLIP)


GRIFFETH:  Druckenmiller also said that ongoing trade tensions could  potentially kill the market`s animal spirits.  


HERERA:  It is time to take a look at some of today`s “Upgrades and  Downgrades”.


Exelon (NYSE:EXC) was upgraded to buy from neutral at Goldman Sachs  (NYSE:GS).  The analyst cites the company`s free cash flow and calls the  stock a top utility idea.  The price target is $52.  Despite, though, the  stock fell a fraction to $49.95.  


Schlumberger (NYSE:SLB) was upgraded to buy from hold at Stifel Nicolaus.   The analyst says Schlumberger (NYSE:SLB) will benefit as business activity  increases outside of North America.  The price target is $50.  The stock  was up 1.5 percent to $35.60. 

 
And the arts and crafts retailer Michael`s was downgraded to neutral from  outperform at Credit Suisse.  The analyst cites a softer outlook and  uncertainty regarding the impact of tariffs.  The price target is $11.  The  stock fell slightly to $8.17.  


GRIFFETH:  As we have been reporting, big tech`s power and influence is  facing scrutiny in Washington these days, with some calling for breakups,  others calling for more regulation.  Well, tonight, we take a closer look  at Google (NASDAQ:GOOG) and what officials may be eyeing in that company.  
Aditi Roy is in San Francisco for us.  
(BEGIN VIDEOTAPE)


ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  In the two decades  Google (NASDAQ:GOOG) has been in existence, it`s climbed up the ranks of  top U.S. companies, raking in more than $130 billion worth of revenue last  year.  Now, its dominance could be threatened as the company faces a  government antitrust probe.  


RICHARD HAMILTON, FORMER DOJ ANTITRUST ATTORNEY:  The United States  Department of Justice and particularly the Antitrust Division, they don`t  deal with argument.  They deal with evidence.  


ROY:  In order to prove an antitrust case against Google (NASDAQ:GOOG), the  company would have to prove that Google (NASDAQ:GOOG) owns at least 30  percent or 40 percent of the relevant market.  Google (NASDAQ:GOOG) owns  nearly 90 percent of the search market, according to Satistica, and about  three quarters of search ad sales according to eMarketer.  


The DOJ would also have to show that Google (NASDAQ:GOOG) preempts the  competition by optimizing platforms like search.  That`s precisely what  some third party competitors of Google (NASDAQ:GOOG) assert.  For years,  Yelp CEO Jeremy Stoppelman has been particularly vigilant against the  company, saying Google (NASDAQ:GOOG) squeezes out the competition by  favoring its own web offerings by placing them at the top of search  results.  


Trip Adviser CEO Stephen Kaufer also says in a statement that the company  remains concerned about Google`s practices in the U.S., the E.U., and the  world.  Adding: We welcome any renewed interest by U.S. regulators into  Google`s anti-competitive behavior.  
And Expedia (NASDAQ:EXPE) Group Chair Barry Diller also spoke out about  Google (NASDAQ:GOOG) last fall.  


BARRY DILLER, EXPEDIA GROUP CHAIRMAN:  Whenever you have that kind of  control over the world that can`t go any place else, to get their stuff to  a consumer, you also have to — you — inevitably, all monopolies behave  the same and you`ve got to have regulation of what they do once they get to  that stage.  


ROY:  Legal experts say the arguments the third parties are making could  carry a great deal of weight if they could prove them in testimony or  contracts.  


HAMILTON:  They`re going to look at what the contracts show.  Do the  contracts limit?  Do they prohibit?  Do they foreclose opportunities in the  markets for either customers that Google (NASDAQ:GOOG) is dealing with, or  for other market participants?  And the devil is in the contracts  themselves.  


ROY:  Insiders also say the European Union`s investigation into Alphabet  could also help U.S. investigators by providing a framework for their  arguments.  


For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.  
(END VIDEOTAPE)


HERERA:  Still ahead, our market monitor goes bargain hunting.  
(MUSIC)


GRIFFETH:  Walmart wants to take home delivery a step further.  The world`s  largest retailer is rolling out a new program where employees deliver fresh  groceries right to your refrigerator.  Shares got a lift today along with  the broader market.  


We should point out, though, that when Walmart announces new initiatives  like this, many of them don`t last very long or they don`t go very far.  


Courtney Reagan has our story in Fayetteville, Arkansas, tonight.  
(BEGIN VIDEOTAPE)


COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Walmart  Shareholders Week is an annual tradition in northwest Arkansas.   Executives, board members, employers and media from around the world, and  this year, even presidential candidate Bernie Sanders come to the  retailer`s home turf to vote on shareholder business, give the latest  corporate updates, and celebrate the year`s accomplishments.  


In recent years, Walmart has also used the event to announce new e-commerce  test programs.  This year, it`s Walmart in-home delivery where store  employees will deliver online grocery sword orders directly into shoppers`  fridges, available for 1 million shoppers in St. Louis, Pittsburgh, and  Vero Beach, Florida, this fall.  


MARC LORE, WALMART U.S. E-COMMERCE CEO:  We`ll come in and install the lock  and give you a four-digit unique code only used during certain specified  times that you allow.  We have our associates, the W-2 employees that have  been with Walmart for more than a year.  We have a camera that`s on their  vest when they walk in and customers can actually watch on their app and  come into their home, put the stuff into their fridge, and then leave.  


REAGAN:  The in-home delivery announcement is grabbing a lot of attention,  just like the other past Walmart Shareholders Weeks` announcement, but they  haven`t all ended up making a material difference to the business.  


At the 2016 shareholder event, the retailer announced a partnership with  Uber and Lyft, testing grocery delivery in Denver and Phoenix.  Two years  later, Postmates and DoorDash were added.  


By May 2018, Walmart ended its partnership with Uber and Lyft, though it  still uses other crowdsource delivery partners.  At shareholders 2017,  Walmart said it was testing store employees delivering online orders on  their way home from work in New Jersey and Arkansas, through the use of a  proprietary app.  Around six months later, it quietly ended that program.  


Last year, Walmart launched text message shopping concierge service  JetBlack in New York City.  It is ongoing and there`s a wait list, but  still only in New York City.  


LORE:  We`ve been trying a lot of new things lately.  Our goal isn`t to  have a perfect track record.  It`s to make sure we`re moving fast, taking  smart risks.  We want to continually learn, adapt and push the limit of  what`s possible.  At the end of the day, everything we`re doing adds up to  something really special.  


REAGAN:  So while in-home delivery is Walmart`s latest risk, it remains to  be seen if it will pay a material reward.  
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Fayetteville, Arkansas.  
(END VIDEOTAPE)


HERERA:  A new chapter for Barnes & Noble (NYSE:NE) (NYSE:BKS), and that`s  where we begin tonight`s “Market Focus”.  
The company has been acquired by hedge fund Elliott Advisers for $683  million.  The nation`s largest bookstore chain has been struggling for the  past five years, losing more than $1 billion in market value.  Elliott  recently bought Britain`s largest bookseller Waterstones as well.  The  shares rose more than 11 percent to $6.62.  


Norwegian Cruise Line said it would be cutting its full-year earnings  outlook due to the impact of the Trump administration`s ban on cruises  visiting Cuba.  Cruise operators are modifying their itineraries and would  offer substantial discounts to guests to remain on their booked cruises  despite the ban, but the shares were up more than 1 percent today to  $52.59.  


GRIFFETH:  Online fashion retailer revolve group soared in its trading  debut today.  This company focuses on millennial customers and attracts  many of them through social media.  Priced at shares of $18 and they closed  at $34.  That would be up nearly 89 percent in today`s debut.  
Pharmaceutical giant Sanofi has hired Novartis executive Paul Hudson as its  new CEO.  Sanofi`s current CEO Olivier Brandicourt is retiring in  September.  Shares rose more than 5 percent today to $44.21.  


HERERA:  It is time now for our weekly market monitor who likes stocks with  dividend yields.  He has names that he says are severely undervalued in  this low interest rate environment.  
Joining us now is Jordan Posner.  He`s senior portfolio manager at Matrix  Asset Advisers.  


Jordan, welcome back.  Nice to have you here.  
JORDAN POSNER, MATRIX ASSET ADVISORS SR. PORTFOLIO MANAGER:  Great to be  back.  


HERERA:  You`re a value investor, bottoms up process and you like value  dividends.  


So, let`s start with your first pick which is CVS (NYSE:CVS) Health and, of  course, their acquisition of Aetna (NYSE:AET), you say, is kind of a game  changer.  


POSNER:  Well, it really has reconfigured business to be a much broader  player.  Just earlier this week, on Wednesday, they had an investor day  when they rolled out a lot of the strategy and the financial guidance for  that business overall, and I think it was pretty well-received and they`re  transforming the healthcare business with a concept called health hubs  which is really taking space in many of their stores and converting them to  an urgent care type of clinic, but with more services than they can use.   We think the stock is modestly valued at less than eight times earnings and  has the yield of over 3.5 percent.  


GRIFFETH:  Home Depot (NYSE:HD), I was looking at a longer term chart of  this company.  Now, you`re looking for value, but a few years ago, this was  a $75 stock.  Today, it`s a $200 stock.  There`s still value in there?  


POSNER:  There certainly is.  The stock is actually down from its high  within the last year, and what`s happened there is that the housings market  pressure from last year depressed some of their results, drove the stock  down and management there is very focused on shareholders at the lower  interest rate environment and we expect that demand for housing and home  improvement should do much better.


The stock is certainly more expensive than some.  It trades above a market  multiple under 18 times, but still pays the 2.8 percent yield.  They`re  repurchasing stock and we`ll increase that dividend going forward.  


HERERA:  Your next pick a really nice dividend, 6.4 percent in terms of its  yield, and that is AT&T (NYSE:T).  You`re saying basically that they are a  key player with 5G coming up, but also the street is not really  appreciating that Time Warner (NYSE:TWX) deal that they did.  


POSNER:  Right.  Now, of course, was a big marquee deal that got a lot of  attention and people kind of thought of it as, what could they do with it  other than destroy the franchise?  And actually, although there`s been some  management change there, the business seems to be operating quite well and  generating a lot of free cash and contribution to the company.  
Now, with that and the HBO business and the Turner businesses together,  they`re going to be launching an over-the-top service.  We think that that  actually has the potential to be valuable.  The stock trades at a very low  valuation under nine times and the core wireless business is a terrific  franchise and we think they can continue to operate very well.  


HERERA:  On that note, Jordan, thank you so much.  Jordan Posner with  Matrix Asset Advisers.  


GRIFFETH:  And coming up, they`re called drive-by flippers.  They`re part  of America`s changing workforce.  
(MUSIC)


GRIFFETH:  In today`s tight and pricey housing market, home flipping has  been fizzling.  The business is no longer as lucrative as it once was, but  for those who are still in the game, a new strategy is taking shape and it  relies on the shared economy.  You`re going to love this.  
Diana Olick explains.  
(BEGIN VIDEOTAPE)


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  David Amanzur (ph) is  a part-time Uber driver in D.C., and part of the time he`s driving, he`s  scouting homes for an investor.  


UNIDENTIFIED MALE:  Of course, you have somewhat of a tree or a limb that  may have fallen or something growing up there.  


OLICK:  So, this says to you, this could be an opportunity.  


UNIDENTIFIED MALE:  This could be an opportunity.


OLICK:  An opportunity for Daniel Digiacomo, an investor who hired him to  scout properties.  Digiacomo has been flipping homes for a decade but has  never seen the market this tough.  


DANIEL DIGIACOMO, INVESTOR:  As the prices are as high as they are now, the  margins on our flips are pretty slim.  


OLICK:  Nationwide, flippers saw an average return on their investment of  about 39 percent in the first quarter of this year, down from 42.5 percent  in the previous quarter and nearly 49 percent a year ago, the lowest return  in eight years, according to Atom Data Solutions.  


The number of flips are down 8 percent annually so the stakes are up,  precisely why Digiacomo has 150 drivers scouring the streets for  opportunities.  


DIGIACOMO:  The best deals are always the deal that we put our eyes on and  I can`t put miles on every single deal.  So, Uber drivers are out there,  they`re looking at kinds of neighborhoods.  They`re putting their eyes on  many houses.


OLICK:  Digiacomo used to go to options, but he says there are too many  bidders there, driving prices even higher.  As for listings, low mortgage  rates have too many regular buyers competing with him, that`s why he`ll pay  a driver $500 for a lead that turns into a seal.  


DIGIACOMO:  This, that 150 group has put about 2,200 leads and we normally  close a deal one per 100, or 150 leads.  


OLICK:  Amanzur who dabbles in real estate himself sees it as easy money  because he knows what to look for.  


UNIDENTIFIED MALE:  Windows are broken.  It`s not updated.  You may see  some exterior outside AC unit sticking out of the window.  There`s tons of  mail, overgrown grass.  


OLICK:   And when he finds one —  


UNIDENTIFIED MALE:  The property next door is a corner lot which is a great  opportunity for investors.  


OLICK:  He just takes a picture on the special app that pin points the  property and sends it to Digiacomo.  
If it sells —  


UNIDENTIFIED MALE:  It`s 500 bucks and I just drove around.  


OLICK:  For NIGHTLY BUSINESS REPORT, I`m Diana Olick driving around  Washington.  
(END VIDEOTAPE)


HERERA:  And before we go, let`s take a look at the final day`s numbers on  Wall Street.  The Dow rose 263 points to 25,983, the Nasdaq added 126, and  the S&P 500 was up 29.  It was a good week.  
For the week, all of the major averages saw solid gains.  


And that does it for NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera,  thanks for watching.
We like to remind, this is the time of year your public television seeks  your support.  


GRIFFETH:  I`m Bill Griffeth and we thank you for your support.  Have a  great weekend, everybody.  We`ll see you Monday.  

END


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Nightly Business Report transcripts and video are available on-line post  broadcast at http://nbr.com. 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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