ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Crude realities. Oil prices climb after two oil tankers were attacked in the Gulf of Oman and the White House says Iran is to blame.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Production shift. Some companies are moving operations out of China and into Vietnam to reduce the tariff impact, but is it a risky bet?
HERERA: Unconventional wisdom. When it comes to saving for retirement, is the traditional approach outdated?
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, June 13th.
GRIFFETH: And we do bid you a good evening, everybody, and welcome.
It`s been a while since the energy market was rattled like this. Oil prices today climbed after two oil tankers were attacked in the Gulf of Oman which is near the Strait of Hormuz, a crucial passageway for global crude shipments. The attack lifted the price of domestic crude by as much as 4 percent during the course of the day and it settled up 2 percent.
Now, this is a region between tensions between Saudi Arabia were running high lately anyway. And, in fact, late today, the White House blamed Iran for this latest attack.
Hadley Gamble reports for us tonight from the United Arab Emirates.
HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. Secretary of State Mike Pompeo blaming Tehran for the attacks on two tankers in the Gulf of Oman earlier today, but stopping short of calling for a military response.
MIKE POMPEO, SECRETARY OF STATE: It is the assessment of the United States government that the Islamic Republic of Iran is responsible for the attacks that occurred in the Gulf of Oman today. This assessment is based on intelligence, the weapons used and the level of expertise needed to execute the operation, recent similar Iranian attacks on shipping, and the fact that no proxy group operating in the area has the resources and proficiency to act with such a high degree of sophistication.
GAMBLE: The U.S. Fifth Fleet responding to distress calls around 6:00 and 7:00 a.m. local time today as the two tankers, the Front Altair, and the Japanese tanker Kokuka Sangyo were engulfed in flames. The two attacks took place just 70 miles from where we`re standing, on the coast of Fujairah in the United Arab Emirates, right in the middle of one of the busiest shipping lanes in the world, and coming just a month after a similar on four other tankers right off the coast of UAE, and as Japan`s Prime Minister Shinzo Abe was in Tehran looking to mediate.
Just hours after the attack, the president tweeting: While I very much appreciate Prime Minister Abe going to Iran to meet with the ayatollah, I personally feel that it`s too soon to even think about a deal. They are not ready and neither are we.
It`s a big shift for the president who over the last several months had said again and again that all he`s waiting for is a call from Iran. And while clearly, these attacks are singling a change of tone from the White House, there still hasn`t been much of a response from countries here in the region, like Saudi Arabia and the UAE.
For NIGHTLY BUSINESS REPORT, I`m Hadley Gamble in Fujairah.
HERERA: So, if these attacks continue to escalate, what will it mean for the price of oil and both the global and domestic economy?
We are joined tonight by Kyle Cooper, an analyst at Ion Energy.
Kyle, welcome. Nice to have you here.
KYLE COOPER, ION ENERGY ANALYST: Hi. Thank you.
HERERA: Many of us were surprised that we didn`t see a bigger reaction on the close in crude oil. Why do you think that is?
COOPER: Absolutely. I think the biggest overriding factor that is limiting these price increases is the recent trend in U.S. inventories. The proceeding 12 weeks have seen U.S. petroleum inventories rise 91 million barrels and that`s second only to a 92 — little over 92 million barrel increase registered all of the way back to June of 2001.
So, with ample inventories, there`s simply less fear that a supply disruption would truly cause a physical disruption.
GRIFFETH: Having said that, though, as we pointed out at the top, it`s been a while since energy prices have responded to a geopolitical event like this. Is the market trying to tell us something this time around, do you think?
COOPER: Yes, absolutely. And I think it goes back to the inventories. Quite simply, the world is more comfortable since U.S. inventories are so robust and also, they`re worried about the continuing implications of trade tariffs and what an escalation here would do to the global economy and thus demand. So, there`s been a huge demand focus and this while certainly highlighting the supply risk also points to the possibility of lower demand.
HERERA: And how much of a reaction would you see, do you think, on a global basis given what the president said that we`re not ready to make a deal. These attacks, and these are not the first attacks and we don`t have a trade deal yet with China. What are your longer term expectations?
COOPER: Right now, I`m still bearish in the near-term just because in general, if you look at the market over the last year or so, the market was bullish up until the October of `18 high of almost $77, and it collapsed into December to $42.36, and it ran up to $66.60 and now we have a bearish trend.
And right now, as I mentioned, you know, had this event happened two months ago, I think we would have been up $3 to $4, and it reflects the current sentiment that`s quite bearish across the market.
GRIFFETH: What do you think OPEC does with all of this? I mean, they`ve been trying to keep prices going up anyway as they hold the line on production cuts. But in light of what`s going on between Saudi Arabia and Iran, what do you think OPEC does with it.
COOPER: Absolutely. And the bare minimum, they`re going to try to keep the current production in place and to highlight the bearish sentiment is there was a report that Algeria was floating the idea of possibly increasing the current production cut from 1.2 million barrels to 1.8 million barrels, and the market just doesn`t believe it. So, at a minimum, they`re going to try to keep this level and I think Saudi Arabia would like to see even further production cuts.
HERERA: Does it have implications for monetary policy?
COOPER: Certainly does. I mean, while the Fed doesn`t say they react it and they a lot of times look at CPI (NYSE:CPY) excluding energy and food. Clearly, the sentiment would be detrimental if prices were to rise significantly as a result of a confrontation.
But right now, obviously, that`s not a problem. Import prices today were lower and even actually a little weaker than expected. So, right now, there`s not a problem with the inflation, but certainly could be and certainly if there was a true escalation that significantly spiked oil prices.
HERERA: All right. Kyle Cooper with Ion Energy — thank you very much.
COOPER: Thank you. Have a great day.
GRIFFETH: To the market now, the rise in oil prizes did help lift energy shares which, in turn, gave the overall stock market a boost. It was the first rise in three days for the major averages, as a matter of fact, with the Dow climbing 101 points to 26,106. The Nasdaq added 44. The S&P was up 11.
HERERA: The cost of imports fell in May for the first time this year. The import price index dropped 0.3 percent last month, reflecting a decline in the price of most foreign made goods, including those coming from China that had been hit with tariffs. Experts say Chinese suppliers may have had to cut prices to retain their market share. But the decline may also be the result of a broader slowdown in the global economy.
GRIFFETH: And as we`ve been reporting, the retail industry has a lot at stake when it comes to the trade war with China simply because they source so much of their products and materials from that country. Many companies have continually said that they`re watching the situation very closely and now some details of a tariff strategy in retail are emerging.
Seema Mody has our details.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home retailers are starting to outline just how they plan to get around higher tariffs. RH, parent of Restoration Hardware, said it`s selectively raising prices to offset higher tariff related costs, moving some production out of China, while also setting up its own manufacturing facilities in the U.S.
According to Wedbush Securities, approximately 25 percent of its merchandise value is sourced from China. RH joins a growing list of retailers that are proactively trying to decouple from China.
Williams Sonoma recently telling CNBC`s Jim Cramer that it`s looking to shift production to other countries in Asia.
LAURA ALBER, WILLIAMS-SONOMA CEO: We have a very sophisticated, vertically integrated supply chain with a lot of people all over Asia. And so, we have a great relationship with our vendors and we start seeing it happen and we start moving products.
JIM CRAMER, CNBC HOST, “MAD MONEY”: Moving what, from Vietnam?
ALBER: Moving products to Vietnam, to Indonesia, moving it to America, and then also renegotiating with our current Chinese manufacturers.
MODY: The question is whether the strategy of sourcing goods from countries outside of China will pay off. Analysts say there are risks of shifting productions especially to developing productions in Asia where you may not get the same level of quality.
SETH BASHAM, WEDBUSH: There`s also additional risk that if we start moving production out of China and roll back the tariffs from 25 percent to 20 percent or zero percent, you spent all of this time and effort moving production out of China and you go back to China? There are big question marks as to whether or not it is worth the effort at this stage of the game. Some are still taking a wait-and-see approach.
MODY: One of the benefits of shifting the supply chain is lower prices, but industry experts say the next six months will determine whether taking a proactive approach to get around tariffs was the right move.
For NIGHTLY BUSINESS REPORT, Seema Mody.
HERERA: As we`ve been reporting, there is a big push in Washington and among many states to examine the power of big tech. Senator and Democratic presidential candidate Cory Booker told John Harwood that while he doesn`t want to break up Facebook (NASDAQ:FB), he would like to see some type of crackdown.
(BEGIN VIDEO CLIP)
SEN. CORY BOOKER (D-NJ), PRESIDENTIAL CANDIDATE: Now, Facebook (NASDAQ:FB) is really problematic. They`re doing things that are — that all of us in America, we just saw the Mueller report that pointed to how foreign adversaries were using platforms like Facebook (NASDAQ:FB) —
JOHN HARWOOD, CNBC HOST: But you`re not willing to say Facebook (NASDAQ:FB) should be broken up?
BOOKER: I`m willing to say that we need to look at tech companies in general because we have a problem in this country with corporate concentrations of power that are undermining basic free market, basic democratic ideals. And so, if I am the leader of this country, which I hope I am, I`m going to be coming after hard these large monopolistic companies.
HARWOOD: But the fact that Zuckerberg was a supporter of your initiative in Newark with a lot of money, that`s not the reason why you will not specifically like Elizabeth Warren, say, break up that company?
BOOKER: Oh, there need to be a lot of companies in America that need to be broken up, but it needs to be done in a sober, systematic way. So, what I do have more of a problem with is the tech companies who are allowing China`s values on privacy, on security, using those tech platforms to squelch the human rights of others and to surveil their citizens. These are things I have a problem with and tech companies that are willing to sacrifice values for profit, that`s unacceptable to me.
(END VIDEO CLIP)
GRIFFETH: Time to take a look at some of today`s “Upgrades and Downgrades”.
We begin with shares of Lennar (NYSE:LEN), they were upgraded to outperform from neutral at Wedbush Securities. The analyst cited improving sales and lower interest rates right now. Price target $62. That stock rose nearly 2 percent today to $53.08.
Union Pacific (NYSE:UNP) was downgraded to equal weight from overweight at Barclays. The analyst cited a number of fundamental challenges facing the rail operator right now. Price target: $170. That stock fell more than 2 percent to $167.15.
And Morgan Stanley (NYSE:MS) has raised its price target on Disney (NYSE:DIS) to $160 a share. The analyst cited the company`s new streaming service which begins in November and expects total subscribers to reach 130 million by 2024. The firm has an overweight weighting on the stock and the shares rose 4 percent today to $141.74.
HERERA: Still ahead, what the dairy industry can do to improve its image with consumers.
GRIFFETH: Chewy is expected to price its initial public offering tonight and begin trading tomorrow. The online pet supply retailer is the latest in a string of companies to go public in what has been a very busy IPO market this year. And with some exceptions, the reception on Wall Street has been pretty positive.
Here`s Bob Pisani.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The IPO market just keeps getting hotter, but how much is really left? That`s the big question.
Look at cybersecurity company CrowdStrike. It priced and opened above its expected range. Online pet food retailer Chewy upsized its IPO ahead of its Friday debut.
You know, way back in February, a lot of people were fearful that an avalanche of IPOs would cause the market to crash, but the big tech IPOs, other unicorns, they`ve been all winners so far this year, with Beyond Meat clearly leading the pack up more than 400 percent. Zoom Video and PagerDuty up more than 100 percent each, it`s no wonder the Renaissance Capital IPO ETF, a basket of 60 biggest recent IPO, up 34 percent this year, double the S&P.
Prices are holding up well. Sixty-five IPOs priced this year, 40 percent priced at the high end of the range or above. Beyond Meat, Zoom, CrowdStrike, PagerDuty, what do they have in common? Fast growth and a large market opportunity.
Beyond Meat is disrupting the food industry. Zoom is profitable with huge potential for spin and video conferencing. CrowdStrike, end point security business, rapidly growing.
How about those unicorn disappointments? I know, Uber and Lyft, right? Uber is down 6 percent. Lyft`s down 20 percent, that tells us that investors are not impressed with ride hailing, specifically valuation issues and deep losses.
But there`s nothing like this up market to boost IPOs, the S&P up 15 percent a year. That means a lot of these IPOs vulnerable should there be a downturn.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: Mixed results for Broadcom (NASDAQ:BRCM). That`s where we begin tonight`s “Market Focus”.
After the bell, the chipmaker reported better than expected earnings, but it missed on revenue. The company warned of a broad-based slowdown in demand due to continued geopolitical uncertainties. Shares initially dropped in the after-hours trade, but closed the regular session up a fraction to $281.61.
Activist investor Jana Partners disclosed more than a 9 percent stake in Callaway and says it plans to talk with the golf equipment and apparel maker about selling all or part of the company. This despite Jana acknowledging Callaway`s innovations and durable market share. Callaway surged nearly 14-1/2 percent to $18.19.
And another activist investor Vintage Capital is offering to make a buyout bid for Red Robin. In a letter to Red Robin`s board of directors, Vintage said it is prepared to pay more than $40 a share in cash for the restaurant chain, and called on the company to launch a strategic review. Red Robin shares soared 31-1/2 percent to $33.48.
GRIFFETH: Target (NYSE:TGT) is trying to keep up with rivals like Amazon (NASDAQ:AMZN) and Walmart by now offering same-day delivery to more customers. Target (NYSE:TGT) shoppers in 47 states will now be able to get items delivered the same day by paying a flat fee of $9.99 per order. The retailer is using Shipt, that`s a delivery platform service that Target (NYSE:TGT) acquired back in 2017. Target (NYSE:TGT) shares were up a fraction today to $88.30.
And the country`s largest meat producer, Tyson Foods (NYSE:TSN), is going to begin selling plant-based nuggets this summer. It will be sold under the new company brand that will sell plant-based and blended meat products. Tyson shares rose a fraction to $82.53.
HERERA: The dairy industry is facing a number of challenges and not the least which is increased competition from non-dairy drinks like soy and almond milk. And now, the industry faces a very different challenge. There is a growing backlash from a video that has gone viral and we want to warn you some of the images are very disturbing.
Rahel Solomon has the story.
RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The video is hard to watch. Young calves in a farm in Indiana reportedly are being abused, kicked and in extreme heat. Our images also show them being choked and dragged.
But the undercover animal rights activists that filmed it at Fair Oaks Farm say abuse like this happens daily at dairy farms around the country.
RICHARD COUTO, ANIMAL RECOVERY MISSION FOUNDER: More than having arrests in this case is education, is showing the world not just what Fairlife has been doing to their animals in their dairies, but what the dairy industry is all about in general.
SOLOMON: The farm is the largest producer of dairy in Indiana and the alleged practice has now ensnarled one of the largest beverage companies in the world.
Because Coke distributes products from Fairlife, which receives dairy from Fair Oaks Farm. It`s an issue that`s important to millennials who tend to be more animal-friendly and also a major source of spending. Another challenge, in the past decade, sales of milk alternatives like nut-based beverages have soared.
ALEXIA HOWARD, BERNSTEIN ANALYST: If you look at the way that nut-based milk market develops, almond milk when it took over from soy milk, that`s taken about 15 percent of the market over the last ten years.
SOLOMON: Sales for cow`s milk was down 6 percent for the year ending June 2019.
Fairlife has said it will no longer use milk from the farm in question and are taking steps to ensure humane treatment of animals at its other suppliers.
Coke says any form of animal cruelty is unacceptable and that they`re investigating. Although it`s unclear that will be enough for some protesters.
UNIDENTIFIED FEMALE: We`re asking Coca-Cola (NYSE:KO), do the right thing and go to plant milk and not dairy.
SOLOMON: The Indiana incident, perhaps a black eye on an industry already under pressure and according to local media, the employees involved in that video have all been charged with misdemeanors.
Rahel Solomon, NIGHTLY BUSINESS REPORT.
HERERA: The National Dairy Council has this to say: The U.S. dairy community has a long standing and strong commitment to animal welfare and takes allegations of animal abuse very seriously. Like consumers, we are deeply disappointed and saddened by the actions shown in the video as animal abuse in any form is not tolerated on U.S. dairy farms. The recent videos released are in no way indicative of how our country`s dairy farm families operate. As a community, we are deeply committed to the continuous improvement in all aspects of animal care.
For the full statement, you can head to our Website, NBR.com.
GRIFFETH: Well, is a statement like that enough to help repair the dairy industry`s image and what else needs to be done in terms of damage control?
Joining us tonight is Karen Tiber Leland. She`s brand expert who runs her company, the Sterling Marketing Group.
Karen, thanks for joining us tonight.
KAREN TIBER LELAND, STERLING MARKETING GROUP: My pleasure.
GRIFFETH: You know, the problem they have is that social media works so quickly. The video goes viral before they have a chance to even respond to it, and most people will just see the video and not hear the response, right?
TIBER LELAND: Absolutely. And the truth is that we now live in a world where one of the trifecta of issues that people like the dairy industry has to deal with is the rapid social media where everything just goes instantly across. And I think it`s one of the things the dairy industry hasn`t taken into account in terms of their branding.
HERERA: So, what do they need to do? You say there are several things, three in particular, that they could do that might turn this around?
TIBER LELAND: Well, I think one of the things they need to do is they need to consider that we`re living in a different world. You know, a recent study showed that 60 percent of consumers are more concerned about animal welfare now than in the last few years. So I think they need to keep up- to-date with what`s actually happening with their consumer base.
Another survey showed that nine out of 10 millennials will change to another brand product if they believe more in the cause that that particular product is supporting.
So, I feel like one of the things they have to do is they have to get up to speed with how their consumers are now considering their product and their company now, and I don`t think the dairy industry is up to speed with that right now. That`s one of the things that they need to do.
GRIFFETH: And we`ve talked about the changing consumer taste going to non- dairy drinks as well.
TIBER LELAND: Not milks.
GRIFFETH: How well do you think they`ve responded to that?
TIBER LELAND: I think they respond to that very poorly. Last year, just in New York City alone, I remember there was — we were out of oat milk in all of the grocery stores and there was this uprising because there was no oat milk. And I think that the dairy industry has failed to realize that a huge percentage of their market sees an alternative now, and they just haven`t addressed that.
You know, if you think about it, milk is very iconic, right, in America. You think about pie with a glass of milk. You think about a hot glass of milk when you go to bed at night. But the reality is, is that there`s a whole bunch of alternatives that didn`t exist five or 10 years ago, and I don`t think the dairy industry has paid attention to that.
GRIFFETH: All right. Karen Tiber Leland with the Sterling Marketing Group — thanks again for joining us tonight. Appreciate it.
TIBER LELAND: My pleasure.
GRIFFETH: And coming up, an unconventional approach to saving for retirement.
GRIFFETH: Something unusual has been happening in this market lately as “The Wall Street Journal” points out, so-called safety stocks are not only rising along with the rest of the market, but they are also outperforming it right now. Experts say that investors are attracted to the group`s consistent dividend payments and lower volatility, and it just demonstrates how risk-averse investors have become.
HERERA: And risk aversion is what you may think of when it comes to retirement savings. Conventional wisdom says you should invest more conservatively as you get older by increasing your bond holdings, but there are some who say you should actually do the opposite.
Joining us to talk about this is Win Smathers. He is the managing director and financial adviser at Shorebridge Wealth Management.
Welcome. Nice to have you here.
WIN SMATHERS, SHOREBRIDGE WEALTH MANAGEMENT: My pleasure. Thank you.
HERERA: Are you one that recommends you do the opposite, or are you in the you-need-to-remain-nimble and flexible camp?
SMATHERS: I`m in the flexible camp. I think with today`s interest rate environment, at 40-year low yields, the traditional thought process of how you asset allocate has to change. And in retirement, it`s very difficult today to have a significant allocation to bonds like the old days, perhaps, 40 years ago, and be able to attain all of your objectives.
GRIFFETH: Yes. I mean, that was at a time when interest rates obviously were much higher and there were fewer products that you could garner income from. There were so many exchange traded funds and mutual funds and other things that can provide you with some income, in addition to growth, right?
SMATHERS: Well, that`s true. I mean, certainly, the product menu has expanded greatly in the last 20 years in particular, but in traditional asset allocation, you want to have your safe assets being the fixed income part of the portfolio and how you do that could be with ETFs, mutual funds, individual bonds. But the old days again, when you used to have 50, 60, 70 percent fixed income in a portfolio, you really can`t achieve your goals anymore and to do that to drive the income you need as well as to fight inflation. So, as a result, the equity component of a portfolio is more significant today.
HERERA: And how do you handle that? Obviously, every individual investor is different, but if you do increase your equity position, do you end up trading a little bit more? In other words, when you have a significant gain in a position, do you exit that position and bank the cash? How would you — how would you deal with portfolio management?
SMATHERS: Well, traditionally, we start with an asset allocation split between stocks and bonds, for example. The stock portfolio is the vehicle of how we try to exceed the rate of inflation and grow the portfolio principle. The bond portfolio, we tried to buy very secure, safe bonds.
The bond portfolio plays a role in our case of being an air bag so that when the stock market falls, which it inevitably will do, we have a reservoir of safe money to rebalance our portfolios.
SMATHERS: Yes. And the other way that we think about fixed income and this really resonates with our clients is that when we do our allocation, we consider maybe eight to ten years worth of their income needs in their bond portfolio.
On that note —
SMATHERS: So that way — I`m sorry.
HERERA: That`s OK. Win, we have to run. Thank you so much.
HERERA: Win Smathers with Shorebridge Wealth Management.
SMATHERS: Thank you very much. Bye.
GRIFFETH: Out of time.
GRIFFETH: Finally tonight, the St. Louis Blues are Stanley Cup champions for the first time in their franchise`s history, but the big winner may be one of the team`s fans. Back in January, that fan while in Las Vegas bet $400 that the Blues would win the Stanley Cup. Now that $400 has turned into $100,000. At the time he placed the bet, the Blues were in last place and the odds of them winning the cup were listed 250 to 1. Good for him.
HERERA: Talk about good luck.
And before we go, here`s a look at the day`s final numbers from Wall Street. The Dow climbed 101 points, the Nasdaq added 44, S&P 500 was up 11.
And that is NIGHTLY BUSINESS REPORT tonight. I’m Sue Herera. Thanks for joining us.
GRIFFETH: I’m Bill Griffeth. Have a good evening. See you tomorrow.
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.
<Copy: Content and programming copyright 2019 CNBC, Inc. Copyright 2019 ASC Services II Media, LLC. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of ASC Services II Media, LLC. You may not alter or remove any trademark, copyright or other notice from copies of the content.>