Transcript: Nightly Business Report – June 11, 2019

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

LETITIA JAMES (D), NEW YORK ATTORNEY GENERAL:  It`s time to say enough is  enough.  We need to re-think our approach to antitrust and to merger  approval.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Mergers in trouble?  Attorneys  general sue to block T-Mobile from merging with Sprint, and that`s not the  only deal being questioned.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Taking charge.  Best Buy  (NYSE:BBY) has a new CEO and she`s determined to pick up where the last  chief executive left off.  

HERERA:  Anytime, anywhere.  The future of gaming and the technology  powering it.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June  11th.  

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
We begin tonight with big corporate mergers and a push to stop some of  them.  Today, 10 state attorneys general sued to block the combination of  T-Mobile and Sprint which would be reducing the number of major U.S.  wireless telecom providers from four to three.  The mergers have been in  the works for years, but the New York A.G. said today that bigger is not  always better and that such a deal would be bad for consumers, innovation  and workers.  

JAMES:  The T-Mobile and Sprint merger would not only cause irreparable  harm to mobile subscribers nationwide by cutting access it affordable,  reliable wireless service for millions of Americans, but would particularly  affect lower income and minority communities here in New York and urban  areas across the country.  

GRIFFETH:  The FCC has yet to formally rule on the deal and the Justice  Department is still reviewing it, as well.  Today`s news sent shares of  both Sprint and T-Mobile lower.  

HERERA:  And CVS` $69 billion acquisition of Aetna (NYSE:AET) is facing a  potential legal challenge.  In an unusual case, the federal judge could  reportedly block the deal even though it already closed late last year.   Shares of CVS (NYSE:CVS) fell about 2 percent in today`s session.  
Bertha Coombs has more.  

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  CVS (NYSE:CVS) and  Aetna`s merger closed last November, but U.S. District Court Judge Richard  Leon still has not signed off on the Justice Department`s approval of the  deal, holding hearings on concerns from consumer groups who said the DOJ  did not go far enough to protect seniors.  The DOJ required the company for  the Aetna (NYSE:AET) 2 million member Medicare Part D drug plan business,  selling it to rival insurer WellCare.  “The New York Post” claims the judge  appears poised to block the merger citing an anonymous source close to CVS  (NYSE:CVS).  
CVS (NYSE:CVS) shot back, telling NIGHTLY BUSINESS REPORT that we, quote,  will not be distracted by rumors.  

David Balto, an attorney for consumer groups opposing the deal, says that  judge could ask further conditions on the divestitures.  He notes last  year, Judge Leon ruled against the Trump administration to block the AT&T  (NYSE:T)-Time Warner (NYSE:TWX) merger and that decision prevailed on  appeal.  

But in this case, some antitrust analyst say the judge cannot reverse the  CVS (NYSE:CVS) merger under legal statute known as the Tunney Act because  it goes beyond the scope of the settlement approval itself and such a  ruling would likely be reversed on appeal.  Final arguments in the case are  scheduled for mid-July.  

GRIFFETH:  Meanwhile, hedge fund manager Bill Ackman, who is a large United  Technology shareholder, today urged that company to call off its planned  merger with Raytheon (NYSE:RTN).  He says it makes no strategic sense and  as we reported yesterday, President Trump expressed concern that that deal  could kill competition.  

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  When I hear United and I  hear Raytheon (NYSE:RTN), which is another incredible company, the missile  systems they make are incredible.  When I hear they`re merging, does that  take away more competition?  It becomes one big, fat, beautiful company,  but I have to negotiate, meaning the United States has to buy things, and  does that make it less competitive?  Because it`s already non-competitive.

GRIFFETH:  Shares of both Raytheon (NYSE:RTN) and United Tech came under  pressure in today`s session.  

HERERA:  In Washington, Congress opened its antitrust investigation into  big tech.  The House Judiciary Committee planned several hearings and  interviews as part of its probe into whether the dominance of companies  like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and  Google (NASDAQ:GOOG) have decreased competition.  

REP. DAVID CICILLINE (D-RI):  I strongly believe that this investigation is  long overdue.  This subcommittee has a constitutional responsibility to  conduct oversight of our antitrust laws and competition system to ensure  that they`re probably working.  

HERERA:  The committee plans to explore a number of issues related to the  industry.  Today, the focus was on the big impact big tech has had on  publishers and also the news industry.  

GRIFFETH:  To the markets now.  On Wall Street, the Dow snapped its six-day  win streak.  The stocks had opened strong on reports of stimulus measures  taken by the Chinese government to juice its economy, but that rally  fizzled and the industrial average by the close was down 14 points to  26,048, the Nasdaq fell a fraction and the S&P was down one point.  
Today`s pullback has some investors wondering whether the recent rally can  be trusted.  
Mike Santoli is at the New York Stock Exchange tonight.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stocks have recovered  most of the ground they lost with the S&P 500 now less than 3 percent from  the record high, and investors seemed not ready to embrace this rebound  rally just yet.  Bank of America (NYSE:BAC) Merrill Lynch said its clients  sent a trickle of new cash each if the market is 4 percent.  An indicator  of investor sentiment calls the free gear index remains in the fearful zone  at 35 on a zero to 100 scale, and the so-called volatility index has not  declined in recent days as it usually does in a rising market, a sign that  traders continue to pay up for options that give protection against the  market drop over the next month. 

This persistent caution among investors likely has a lot to do with the  confusing economic crosscurrent and the series of crucial events that could  swing markets around in coming weeks.  Friday`s employment report  solidified expectations for a Federal Reserve rate cut in coming months and  with the Fed set to meet next week, plenty of suspense remains over its  intentions and whether a rate cut can support the economy and lift  inflation should be welcome.  

The G-20 meeting of world leaders in the end of June could be the site of a  meeting between President Trump and China`s President Xi to hammer out a  trade deal, but no firm plans are set, and the U.S. stands to ready to  extend tariffs to another $300 billion in Chinese imports around that time.  
Meantime, the S&P itself is near levels where it peaked three times since  January 2018, explaining some hesitation among investors to buy  aggressively right now today`s prices, sometimes a backdrop of caution and  skepticism is a positive for market performance looking forward, but only  if investors` worse fears are not realized.  
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock  Exchange.  

HERERA:  And a new report shows inflation ticked higher last month.  The  producer price index, which measures the wholesale prices businesses  received for their goods and services raised 5 percent compared to the  previous month.  That was in line with expectations.  Prices for consumer  services rose, led by an unusually large increase in hotel room rentals and  costs for medical care were also higher.  

GRIFFETH:  Jason Ware joins us now to talk about the inflation data, what  it means for the Fed and the economy.  He`s chief investment officer with  Albion Financial Group.  
Good to see you again.  Welcome back.  


GRIFFETH:  As you well know, there is a wide spectrum of forecasts on Wall  Street about what the Fed`s going to do with interest rates this year.   Barclays, for example, says three cuts before the end of the year, totaling  75 bases points.  Yesterday, Goldman Sachs (NYSE:GS) said no cuts at all  this year.  
Where do you fall on this, bearing in mind what we`re seeing about  inflation right now?  

WARE:  Right.  So, I think a lot of those targets and predictions are  reactionary to what the federal funds future market is saying that there`s  an expectation among market participants that the Fed is going to cut twice  this year.  

Our view is that while it`s certainly possible that they could cut once or  twice this year, that the likelihood of that happening is fairly low.  I  think odds on is that they continue to being patient with the economic  data.  I don`t think there`s any push for them to cut rates given the fact  that inflation while certainly slowing to some degree still continues to  bounce around within a range that we`ve seen for the better part of this  economic expansion, the 1.5 to 2 percent core.  

So, it`s certainly possible and I think if they were to make any move, it`s  probably a cut, more than a hike, but we`ll see what happens over the next  six, seven months.  

HERERA:  Do you see — as you mentioned, inflation is kind of all over the  board depending on which commodity or which measure you choose to look at,  but do you see inflation ticking up in your work?  

WARE:  So, the Fed prefers to look at core PCE.  We think that`s the right  measure to try to evaluate where inflation is.  There`s not much that we`re  seeing out there that suggests that we have any kind of hot inflation.   Certainly, having 2 percent is a reasonable inflation level, if economy is  well-balanced which it seems to be.  

The Fed seems to have — at least under Yellen — seemed to have a bit of a  tolerance to let it run hotter than that, but it`s consistently been under- target for the better part of the last ten years and I think it`s likely to  remain there given the body of evidence that we`ve seen.  

GRIFFETH:  And then you have the trade tensions with China.  The president  has certainly called for the Fed to cut rates to help in the trade war with  China.  It makes our goods cheaper, maybe the demand remains strong even as  the tariffs go up.  
Do you think that becomes a factor for the Fed at all?  

WARE:  I certainly think if the trade war were to be protracted and indeed  take up — pick up to another level, we might start to see a little bit of  inflation coming from the trade war and goods.  But I think it`s also worth  noting that if there`s any economic slowdown as a result of the trade war,  then that certainly runs counter to that and may provide inflation inertia.   What we`re seeing is rising wages when we look at the jobs reports, we are  still north of 3 percent, have been for 10 straight months.  I think that`s  probably more of an indicator to watch, where inflation could go from here.
But there are so many secular disinflationary forces out there that it`s  keeping a lid on inflation, but it`s hard for us to make a strong case to  make anything run, you know, 2-1/2, 3 percent anytime soon.  So, as long as  we stay sub 2 percent on core, I think the Fed is going to be fairly  patient and see where things go.  

GRIFFETH:  Jason Ware with Albion Financial Group, again, thanks for  joining us tonight.  
WARE:  Thank you.  

HERERA:  Well, you would think with all of the information online that  today`s potential homebuyers would be more informed about the mortgage  process than ever before, but that apparently is not the case.  
Diana Olick has the results of a new report.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  After the foreclosure  crisis a decade ago, mortgage lending tightened up and new regulations were  put in place.  But consumers today apparently think it`s a lot harder to  get a home loan than it really is, a growing number of consumers said they  had seen their credit score recently, thanks to a myriad of credit  monitoring sites, but nearly half couldn`t remember what this core was  according to a recent Fannie Mae survey.  

The survey also found that consumers either didn`t know or overestimated  the minimum credit score needed to qualify for a loan.  Half of those asked  were unsure and the third thought it needed to be higher than 620, but the  minimum is actually 550.  Both current home owners and renters were equally  uninformed.  
Consumers also overestimated the required down payment.  Most either didn`t  know or thought it had to be 10 percent or higher.  

UNIDENTIFIED FEMALE:  Maybe about 30 percent.  

UNIDENTIFIED FEMALE:  About 20 percent.  I`m assuming, but no, I don`t know  the details.  It`s very overwhelming.  

OLICK:  In reality, the FHA-backed loans with a minimum down payment of 3- 1/2 percent and there are other programs through the U.S. Department of  Agriculture and the Department of Veterans Affairs that offer zero down  payment option.  Consumers can qualify for a mortgage with as much as half  their income going toward debt payments, but the majority of consumers said  they didn`t know what the level was and most others said the limit was 40  percent.  

Fannie Mae`s chief economist said it`s impossible to know how many renters  don`t even consider buying because of these misperceptions, but he said it  had to be some.  
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  

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

We begin with shares of Facebook (NASDAQ:FB), which was downgraded to buy  from neutral at MoffettNathanson.  The analyst there cited the health of  Facebook`s core business and potential for growth.  The price target now  $210, that stock rose more than 1.5 percent today to $178.10.  
JetBlue was upgraded to buy from neutral at Citi.  The analyst cited  positive pricing trends right now and the price target $26.  That stock was  up 4 percent today to $19.09.  

HERERA:  Dollar Tree (NASDAQ:DLTR) was upgraded to overweight from neutral  at J.P. Morgan.  The analyst cites the potential for net income growth and  the generation for free cash flow.  The price target is $122.  The stock  gained more than 2 percent to $106.63.  

Wells Fargo (NYSE:WFC) was downgraded to underweight from neutral at  Atlantic Equities.  The analyst cites the deteriorating outlook for  interest rates.  The price target is $42.  The stock fell a fraction to  $46.26.  
GRIFFETH:  Still ahead, stocks that soared in a short period of time may  look like something you want to own, but should you?  

GRIFFETH:  There was a changing of guard at Best Buy (NYSE:BBY) today.   Corie Barry officially took over as CEO and she has some big shoes to fill.   The retailer has come back from the brink and has caused the stock to  outperform the broader market over the past five years, rising by 125  percent.  So, who is Corie Barry and what`s her plan to keep the streak  alive.  
Rahel Solomon takes a look for us.  

RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  At 44, Corie Barry  is among the youngest CEOs to run a major public company.  She`s also one  of 33 women.  

CORIE BARRY, BEST BUY CEO:  I am deeply grateful to Hubert and the rest of  the board of directors for their confidence in me and their clear belief  that this leadership evolution is in the best interest of Best Buy  (NYSE:BBY) and all its stakeholders.  

SOLOMON:  She said almost her entire career as Best Buy (NYSE:BBY) starting  in 1999 as financial analyst and most recently chief financial officer.   It`s an investment that`s paid off with the Minnesota native.  She`s been  with the retailer in darker days.  Seven years ago amid slumping sales and  management scandals, there were questions about its survival.  The company  brought an outsider Hubert Jolly.  

MICHAEL LASSER, UBS:  They`ve cut $2 billion of costs both on the operating  side and on the product side by being more efficient and doing more with  less.  Two, they partnered with their vendors to do more shop-in-shop, so  making the stores more inviting, more focused on products, more focused on  the reason for why consumers come in your consumer electronic store.  

SOLOMON:  They also invested heavily in tech services like geek squad,  total tech support and in-home advisers.  
And for those who are long time investors and have stuck with the company,  that`s an investment that`s paid off.  The stock has quadrupled since Jolly  took over in August 2012.  

LASSER:  Corie`s going to continue everything that they`ve been doing thus  far, because she was instrumental in helping to formulate the strategy and  execute the strategy.  So, I expect to see more focused on services, more  focused on smartphone, more focused on new populations like the baby  boomers and those are all going to be key tenants of Corie`s strategy  moving forward.  

SOLOMON:  That`s why headquarters are in Minnesota, so Barry will remain  close where she grew up and attended college, St. Benedict.  
She has said that she wants her market CEO to be increased employee  engagement, customer service that can`t be matched elsewhere, think Amazon  (NASDAQ:AMZN), and solution-oriented products.  

HERERA:  H&R Block (NYSE:HRB) posts an earnings beat and buys a Canadian  financial services firm and that`s where we begin tonight`s “Market Focus”.  
The tax preparation company topped analyst expectations and raised its  dividend, as well.  H&R block is also buying financial solutions platform  company Wave Financial for $405 million.  Shares of H&R block were up more  than 3 percent to $27.78.  

Chico`s FAS (NYSE:CHS (NASDAQ:CHSCP)) reported better than expected  earnings and revenue.  But the woman`s apparel retailer did see a drop in  comp store sales and it lowered its full-year guidance.  But the company  said it sees stronger sales trends in the second half of the year.  That  helped send the stock up more than 8 percent to $3.69.  

HD Supply beat expectations while revenue was in line.  The industrial  distributor had an increase in organic sales, but it did give some weak  guidance.  That sent the shares down more than 5 percent to $40.06.  

GRIFFETH:  Morgan Stanley (NYSE:MS) CEO said today that the bank`s second  quarter trading revenue is unlikely to beat its previous quarter.  Citi,  J.P. Morgan and Bank of America (NYSE:BAC) have already warned of a  possible trading slowdown for that second quarter, as well, but Morgan  Stanley (NYSE:MS) did rise a fraction in today`s trade at $43.67.  

After the bell, Dave & Buster`s (NASDAQ:PLAY) missed both earnings and  revenue expectations.  The entertainment company also fell short with comp  store sales and it lowered its full-year revenue guidance in the process.   Shares initially plummeted in the after-hours trading tonight, but did  close in the regular session up nearly 2 percent to $51.53.  

J.P. Morgan downgraded Beyond Meat`s stock to neutral from overweight,  saying that its price had exceeded Wall Street`s estimates.  The stock has  surged more than 600 percent from its $25 per share IPO price.  As a  result, a research firm report said that short sellers have lost more than  $400 million betting against that stock.  After today`s downgrade, though,  shares tumbled by 25 percent to $126.04.  

HERERA:  And Beyond Meat is not the first stock to skyrocket to levels that  make analysts and investors uncomfortable and it won`t be the last, either.   More recent high-profile examples include Netflix (NASDAQ:NFLX) and Tesla,  but what is an investor to do if you are tempted to buy a stock that has  risen 600 percent or what do you do if you already own it?
Joining us now is David Sowerby, portfolio manager at Ancora Advisers.  
Welcome, Dave.  Nice to have you here.  


FOLIO MANAGER:  My pleasure.  

HERERA:  I mean, Beyond Meat is the story really of the last couple of  months.  Do you view it as what they call a bubble stock?  And how would  you assess stocks that have gone too far, too fast?  

SOWERBY:  Well, first, I don`t own it because I can own stocks that have a  price to sales of almost 90 times sales negative cash flow, negative profit  margins, and I don`t think that there`s enough barriers to entry that make  that kind of valuation that`s priced for sainthood, frankly, something you  want to be long in your portfolio.  And it all comes back to when stocks  have excessive valuations, fundamentals don`t allow you to analyze and put  a true value on the stock when there`s what we`ll call FOMO, which is fear  of missing out, becomes — supersedes the desire to own a stock.  
All those lead me to the conclusion, whether it`s Beyond Meat or a Tesla or  a bit coin in January of 2018, those are all bubbles.  

GRIFFETH:  What do you do, though, David?  I mean, there is a definite  interest in plant-based foods right now.  You know, fake meat, if you will.  

SOWERBY:  Sure.  

GRIFFETH:  A lot of fast food chains are starting to offer it.  The health  issues that people face.  Right now, Beyond Meat is the pure play in that  category, but it`s too expensive for a lot of analysts out there.  
What do you do if want to invest in what you see as a growing trend right  now?  

SOWERBY:  Bill, I think it`s — I think in investing in general, investing  101 is always about discipline and patience and in this case, it`s even  more so which is simply wait a little while for the market to allow more  competition to enter and then find a company that has a better valuation  and fundamentals that I think are better to analyze and patience becomes  the virtue.  If you can`t be patient, then have the right size of this  which is small in your portfolio, and don`t be that person that leveraged  their own portfolio to own bit coin in January 2018, or Beyond Meat, even  after a great big run-up of the IPO, of June 2019.  

HERERA:  Are there areas of the market or sectors, if you will, where you  see too much enthusiasm and valuations that are out of line?  

SOWERBY:  Well, Sue, I think the FANG stocks still trade for the four FANG  stocks, A being Alphabet, the average P/E collectively is 65 times trailing  earnings, that`s still pretty expensive to me when the average stock in the  S&P is trading at 17, 18 times earnings and even less expensive than that.  
I think too many of those names are still expensive today, they`re priced  for perfection and priced for sainthood.


SOWERBY:  And those are names like it.  
Even on the debt side, quickly, the WeWorks, the Teslas, to own the company  debt, I think there are bubbles there, too.  


SOWERBY:  Overall, there aren`t many bubbles in the market, but there are  sure some in these pockets of the market.  

HERERA:  David Sowerby with Ancora Advisors, thank you so much for joining  us tonight.  

SOWERBY:  My pleasure.  

GRIFFETH:  We do have some sad news tonight in the world of economics and  finance.  Economist martin Feldstein has passed away.  His accomplishments  were numerous.  He first came to prominence as chairman of the Council of  Economic Advisers under Ronald Reagan.  He was also on President Obama`s  Economic Recovery Advisory Board.  He was president emeritus of the  National Bureau of Economic Research, and a longtime professor of economics  at Harvard University.  Martin Feldstein was 79 years old.  

HERERA:  The premiere event for the fast-growing videogame industry is  under way, and that`s where cutting-edge new technology is on display and  innovative new games are show cased and this year, a few new trends are e  merging.
Josh Lipton is in Los Angeles tonight.  

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  This year at E3, the  $166 billion video game industry is imagining a world where fans can play  games anytime anywhere.  No need for a PC or game console.  
Microsoft (NASDAQ:MSFT) talked about new technology called Project X Cloud  which will allow fans to stream complex and graphics-rich games over the  Internet and right to their mobile devices.  Other tech giants are pursuing  this same opportunity like Google (NASDAQ:GOOG) and reportedly Amazon  (NASDAQ:AMZN).  

Industry executives says the streaming technology sounds exciting, but  there are still a lot of questions.  

STRAUSS ZELNICK, TAKE-TWO INTERACTIVE CEO:  What is the experience like?   What is the business model like?  But anything that broadens the market,  and anything that brings more opportunities to consumers will be a good  thing for the industry.  

LIPTON:  There are also changes coming to the business model of video  games.  Fortnite proved that free to play games can be moneymakers.  Epic  Games, the private company that owns Fortnite, raked in $2.5 billion last  year, and Fortnite rival Apex Legend attracted more than 50 million unique  players in its first month.  

For all its success, though, the industry also faces real potential  challenges.  
Senator Josh Hawley of Missouri introduced legislation that would prohibit  video games played by minors from offering certain in-game purchases that  he says encouraged addictive behavior.  
If this bill were to pass, analysts say it could be financially devastating  for the industry because companies generate billions of dollars for these  features.  Hawley`s bill is moving forward with support from co-sponsors,  Senators Blumenthal and Markey.  

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, Los Angeles, California.  

GRIFFETH:  And finally tonight, the world`s most valuable brands,  advertising giant WPP (NASDAQ:WPPGY) and research agency Kantar released  their list today, and there`s a new company at the number one spot.  It`s  Amazon (NASDAQ:AMZN) which topped the list to do a variety of services it  offers right now.  Apple (NASDAQ:AAPL) came in second.  Google  (NASDAQ:GOOG) rounded out the top three.  
Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) had spent a combined 12 years  at the top of that list.  In fact, Google (NASDAQ:GOOG) was in the top spot  last year.  

HERERA:  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.  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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