Transcript: Nightly Business Report – July 18, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Record revenue.  Microsoft (NASDAQ:MSFT)`s cloud computing business keeps growing, adding to the value of the trillion dollar company.

Big hit.  Boeing (NYSE:BA) is going to take a nearly $5 billion charge
related to the 737 MAX, putting a dollar figure on the cost of the

And the final frontier.  The nation enters a new era of space exploration,
50 years after mankind first stepped foot on the moon.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, July 18th.

And we do bid you a good evening, everybody, and welcome.  Sue is off

Microsoft (NASDAQ:MSFT) is on cloud nine.  The largest publicly traded
company today topped earnings estimates and reported record revenue, thanks to growth in its cloud computing unit called Azure.  It is clear that
Microsoft (NASDAQ:MSFT)`s big investment in the cloud appears to be paying off.  In fact, at least one analyst said the pace of growth at this scale
is unprecedented.  And that helped lift the stock and initial afterhours
trading tonight.  

Jon Fortt has more on Microsoft (NASDAQ:MSFT)`s quarter.  


JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, the one take away from Microsoft (NASDAQ:MSFT) earnings today is cloud momentum continues.

The company`s feet was really grounded in Azure`s strength.  But not just
that, Office and LinkedIn (NYSE:LNKD) also continue to be strong and
particularly that unit, including Office and LinkedIn (NYSE:LNKD), helped
the profitability of Microsoft (NASDAQ:MSFT), just get even stronger than
it had been in the past.  And that`s why this is a trillion dollar company
and still going on at the end of this fiscal year.  



GRIFFETH:  Now to Microsoft (NASDAQ:MSFT)`s fellow Dow component Boeing (NYSE:BA).  Late today, the aerospace company said it`s going to take a nearly $5 billion charge for problems associated with the grounded 737 MAX airplane.  It also said the cost to produce the 737 MAX is increasing. That sent the stock higher in initial afterhours trading tonight.

Phil LeBeau is on that story for us right now.

Phil, what does this charge cover?  What`s it for?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, they`re saying it`s for consideration and concessions they`re going to have to make to their customers not just the ones they`ve made in the second quarter, bill, but those that have to make over the next couple of years.  Remember, they have a number of airlines and aircraft leasing companies that were expecting to be flying the MAX, they are not flying it.  So, they have a reduced schedule.  Their revenue has taken a hit, and they just don`t have the full compliment of the fleet that they expected to fly.  That`s part of this charge.

And the most important thing that came out of this announcement, Bill, is
the fact that Boeing (NYSE:BA) is sticking with its plan or its assumption,
I should say, to see the 737 MAX back in service in the fourth quarter.  
There have been a number of people who said, you know what, I`m not sure this is going to fly in the fourth quarter.  Let`s push it out to 2020.
Boeing (NYSE:BA) is saying it is making the assumption based on its
discussions with regulators that it will return to service in the fourth

GRIFFETH:  And all U.S. airlines, to this point, cancelled their flights
until November 2nd which is smacked in the middle of that fourth quarter.  

LEBEAU:  Right.

GRIFFETH:  What happens if it goes beyond that?  

LEBEAU:  They have to push it out even further.  

One part that is a particular pain spot for the airlines is that they were
not only — look, they`ve lost the planes they have delivery of and they`re
parked and they can`t be flown.  But they were supposed to take delivery of more MAXes throughout 2019, Bill.  Those are likely not to be delivered
until well into 2020.  

GRIFFETH:  Right.  

LEBEAU:  If not late 2020.  So, they`re not going to have the full
compliment for some time.  

GRIFFETH:  Phil LeBeau on the Boeing (NYSE:BA) beat for us tonight —
thanks, Phil.  

Certainly you know one of the biggest risks the market now comes from
Washington.  Lawmakers must act to lift the federal debt ceiling, otherwise
the U.S. defaults on its obligations, jeopardizing the full faith and
credit of the U.S. government.  And today, there were some new developments on that story.

Ylan Mui reports for us tonight from our nation`s capital.


YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Treasury Secretary Steven Mnuchin signaling today that the White House and Congress are moving closer to a deal to lift the debt ceiling.  The outline of their agreement would raise the nation`s borrowing limit for two years.  It would also set two years of top line federal spending numbers and include offsets for spending increases.

STEVEN MNUCHIN, TREASURY SECRETARY:  I don`t think the market should be concerned.  I think that everybody is in agreement that we won`t do anything that puts the U.S. government at risk in terms of our issue of
defaulting and I think that nobody wants a shut down in any scenario.  So,
I don`t think the market should be concerned and we`re working hard.  We`ll get there one way or another.

MUI:  But a source inside the White House tells me there are still several
issues that need to be resolved: where to find roughly $150 billion offsets
or even more, how to constrain future spending after this deal expires, and
“poison pills” in the appropriations bill that have already passed the

The Treasury Department could run out of cash in early September while
Congress is still on recess.  So lawmakers are scrambling to pull together
a deal before they leave over the next two weeks.  

Mnuchin has been in regular contact with Capitol Hill, speaking with both
the Democratic and Republican leadership over the phone today.  

REP. KEVIN MCCARTHY (R-CA (NASDAQ:CA)):  We should not leave here without doing something on the debt ceiling.  If that`s even means 30 days, it should not come in doubt about the debt ceiling in any shape or form.

MUI:  Both parties caution that nothing is final until everything is final.  

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.


GRIFFETH:  And as Ylan just reported, and the treasury secretary did say
that investors should not be concerned about this.  But how have the
markets performed in the past during similar times of stress in D.C.?  

We asked Dominic Chu to take a look.  


DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Wall Street has not generally reacted well to fiscal uncertainty.  In the last decade, there
have been numerous cases where market volatility was the result of budget
and debt ceiling impasses.  

One happened in the summer of 2011, when lawmakers were stuck in
negotiations that could have lead to a government shut down.  Ultimately,
the worst was avoided but the concerns over America`s future fiscal path
led credit ratings agency Standard and Poor`s to cut its rating on the U.S.
for the first time in history.  

And let`s not forget the European debt crisis is raging at the time market
volatility surged.  In the fall of 2013, the government shut down.  The
week before, markets were weaker.  During that same time period, lawmakers were also grappling with the validity of the Affordable Care Act.

And at the end of last year, a bunch of impasse lead to the longest partial
government shut down in U.S. history.  At the same time, investors were
concerned about interest rate policy from a Federal Reserve that looks too
tight in financial conditions.  

In each of those scenarios, there were two common threads.  One, that
fiscal policy was surrounded by other negative market catalysts in play at
the time.  And, two, when a resolution was reached, eventually, the initial
volatility smoothed out and the markets ended up higher.  



GRIFFETH:  On Wall Street, stocks made only modest moves today despite a
focus on three things.  Earnings, which so far have been mixed, Iran, after
President Trump said the U.S. destroyed an Iranian drone over the Strait of
Hormuz, and the Fed, following comments today from a senior Fed official
who said the central bank will take a more aggressive stance to ease
monetary policy.  

But all of that was not enough to move the needle.  The Dow Industrial
Average was up just three points today to 27,222.  Nasdaq added 22 points
and the S&P rose by 10.  

Clearly, Wall Street has a huge wall of worry to deal with now, economic
and political issues both domestically and abroad.  But lately, the market
has not been reacting to a whole lot of that.  So what exactly is it
waiting for?  

We`re joined tonight by Chris Zaccarelli.  He`s chief investment officer at
Independent Advisor Alliance.  

Chris, thanks for joining us tonight.  


GRIFFETH:  We`ve had — you know, years ago, I would have contributed it to the summer doldrums, but anymore, we don`t have summer doldrums on Wall Street.  But it`s certainly acting that way right now.

Why do you think that is?  

ZACCARELLI:  Well, you see the market is going sideways.  They`re waiting
to see what is going to happen with corporate earnings where corporate
earnings really just they kicked off in the last couple of weeks.  We`re
about 10 percent of the way through the S&P 500 reporting season and about 3/4 of the companies are beating expectations.

But those expectations have been lowered.  And, in fact, earnings are
expected to be flat even slightly down for the first half of this year.  So
the markets are really not reacting positively or negatively off that news.  
It`s going to take some type a surprise whether a positive in earnings, or
negative surprise in earnings in order to move this market now that the
Federal Reserve and China seem to be on the back burner for the time being.  

GRIFFETH:  Yes.  I mean, today we should point out after Fed President
Williams said that he feels the Fed should be more aggressive with monetary policy, the Feds funds futures are anticipating a 50-basis point cut by the Fed later this month.  Is the market setting itself up with expectations or a bit too high, do you think?

ZACCARELLI:  It`s possible.  I think most of the market is probably saying
a 25 basis point cut, and to your point, it`s recently starting to price on
50 basis points.  It`s possible it`s a little bit too much for what the Fed
will do.  But if you listen to what the Fed president said today, he was
talking about making a drastic cut and making one in advance of it being
necessary.  So, really, they`re talking about insurance rate cut,
potentially doing more in a shorter period of time.  So he may have been
hinting that actually the market was right they were going to cut but
actually they were going to cut twice as much as expected.  

So, it`s possible the Fed in this case is leading the market and that`s why
I think you`re seeing a repricing in the Feds fund futures.

GRIFFETH:  And quickly, of course, as far as trade goes, expectations here
about as low as they can possibly get.  The administration has been guiding
lower, it seems, every day.  So I guess, if anything, the next move there
would be higher if we get some development on it, right?  

ZACCARELLI:  I think that`s exactly right.  I mean, the most likely
scenario is they kick the can down the road, continue to negotiate, and
neither talks completely fall apart nor an agreement is reached in the near
term.  In that case, I would expect us to go sideways.  

But you`re absolutely right.  If there`s any type of positive developments
in trade negotiations, a sign that we are getting closer to the end and an
agreement will eventually be reached, I think that would be very good for
the stock market.  

GRIFFETH:  Chris Zaccarelli with Independent Advisor Alliance, again,
thanks for joining us tonight.  

ZACCARELLI:  Thank you.

GRIFFETH:  The mantra in the media world for years, of course, has been the content is king and Netflix (NASDAQ:NFLX) may be learning that the hard way.  As we told you last night, the streaming service added fewer
subscribers than expected in the past three months.  And that sent the
stock down 10 percent today in part, the company said, because of its line
up of shows.  

Julia Boorstin has our details.  


(NASDAQ:NFLX) has seemingly endless content.  But turns out, it`s a hit-
driven business.  And in the second quarter, the company added 2 million
fewer subscribers than expected.  In the U.S., it actually lost subscribers
for the first time in eight years, which Netflix (NASDAQ:NFLX) says was in
part due to the fact it didn`t have enough big new shows.  

MARK MAHANEY, RBC CAPITAL MARKETS ANALYST:  What we learned is that original content, big hits drive subs.

BOORSTIN:  Hit shows “Stranger Things” returning at the beginning of the
third quarter kicks off a strong second half of the year, according to CEO
Reed Hastings.  A number of popular shows are returning with new seasons, such as “The Crown” and “13 Reasons Why.”

There`s also a Martin Scorsese movie, “The Irishmen”, debuting in December.  

MAHANEY:  If content is what describes subs, content is coming in the
second half of year.  This is going to be the strongest content they`ve had
in a long time.  That should lead to really good sub numbers.  

BOORSTIN:  One thing that could give Netflix (NASDAQ:NFLX)`s content slate an advantage, shows from the big TV producers such as Ryan Murphy and Shonda Rhimes is lured over from the networks with pricey exclusive deals. Ryan Murphy`s first show “The Politician” hits Netflix (NASDAQ:NFLX) in September.

Netflix (NASDAQ:NFLX) content chief Ted Sarandos said continuing to
innovate to create shows and movies that drive water cooler conversation
will be the company`s priority, especially as it loses some of its most
popular licensed shows such as “The Office” and “Friends” to coming rival

TED SARANDOS, NETFLIX CHIEF CONTENT OFFICER:  We grow through that by, we believe, by making these real investments in original programming and getting our consumers and our members much more attuned to the expectations that we`re going to create their next favorite show, not that we`re going to be a place we can get anything every time.

BOORSTIN:  And with Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) launching competitors in the fall, and then HBO Max and NBC Universal (NYSE:UVV) streaming services coming out next year, the competition to find the next favorite show is going to be more fierce than ever.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


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

We begin with shares of Apple (NASDAQ:AAPL).  They were upgraded to
outperform from market perform at Raymond James, with the analyst citing confidence in next year`s 5G iPhone cycle.  Price target $250.  The stock rose 1 percent to $205.66 today.

Advanced Micro Devices (NYSE:AMD) was downgraded to neutral from buy at Mizuho.  The analyst cited the stocks evaluation after a nearly 80 percent
gain so far this year.  Price target $37.  Shares fell more than 1.5
percent to $33.  

And Qualcomm (NASDAQ:QCOM) was downgraded to equal weight from overweight at Barclays.  The analyst says the stock will be range bound going into next year.  Price target $75.  That stock fell nearly 2 percent to $74.37.

Still ahead, the price of privacy.  An app goes viral and Washington calls
for an investigation.  


GRIFFETH:  The House today voted to raise the federal minimum wage for a first time in a decade.  The legislation moves it to $15 an hour by the
2025.  Now, some cities and states already made that move including
Seattle, San Francisco, New York, and all of California.  

Amazon (NASDAQ:AMZN) adopted the $15 minimum last year.  Other companies have done the same but experts say there`s little chance that these House measure will be taken up by the Senate.

President Trump said today that his administration is looking closely at a
cloud-computing contract the Pentagon is going to award soon.  Amazon
(NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) are the two finalists for the contract that could be worth $10 billion.  Mr. Trump said he`s received
complaints from other tech companies some of whom said such a large and
important contract should be awarded to more than one company.  

Also, in Washington, a wildly popular app is coming under scrutiny.  A
leading senator is calling for the FBI to investigate it and the Democratic
National Committee is warning against using it all together.  

Andrea Day explains why.  


ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s the app that can make you look decades older or younger in just seconds, with millions tapping into the technology, posting shots all over social media.

But the viral hit FaceApp is now under fire, with fears that personal data
could be shared with the Russian government.  The company behind it is
located in St. Petersburg.  

Brian Vecci is the field CTO at data security company, Varonis.  

BRIAN VECCI, VARONIS FIELD CHIEF TECHNOLOGY OFFICER:  This particular app is under fire because suddenly, people are realizing, I`m uploading potentially very personal information to a company in Russia.

DAY:  Senate Minority Leader Chuck Schumer already calling on the FBI and FTC to investigate, and the DNC urging presidential campaigns to delete the app immediately.  Late today, the app maker adding a warning that pops up when you take a photo, leaving users to decide if they still want to go

According to FaceApp, we only upload a photo selected by a user for
editing.  We never transfer any other images from the phone to the cloud.  
And most images are deleted from our server within 48 hours.  We don`t sell or share any user data with any third parties.  And even though the core
R&D team is loaded in Russia, the user data is not transferred to Russia.  

But Vecci still has concerns.  

VECCI:  We`re just going to have to assume that once we give somebody our data, they`re going to do whatever they want with it.

DAY:  And he says even using the app once and deleting it could still be an
issue.  And getting FaceApp to delete your data also takes some work.  You
have to click on settings and support and then send an e-mail and there`s
still no guarantee.  



GRIFFETH:  Let`s turn to Ian Sherr to talk more about the growing privacy
concerns involving FaceApp.  He`s, of course, executive editor at CNET.  

Welcome back.  Good to see you again.

IAN SHERR, CNET EXECUTIVE EDITOR:  Hi.  How are you doing?

GRIFFETH:  This has been around for awhile, this app.  What happened?  All of a sudden, it`s on everybody`s radar screen.

SHERR:  A couple of celebrities started posting online their photos of
their aged faces and it kind of took off.  It was really amazing.  

I saw it just starting to pop up in my Twitter timeline, a couple of my
friends did it.  So, the photo actually has the FaceApp logo in the bottom
right of the photo.  So, you automatically know where it came from.  You
search the App Store and download it, which is what I did, and I need to
take a photo, aged myself, and uploaded it.  

So, I was part of the whole thing, but it was a thing that took off in the
middle of the day.  

GRIFFETH:  Right.  But you`re not as concerned about the security issues
that some are.  I mean, Chuck Schumer, as we said, is calling for an FBI
investigation.  I guess mainly because this is developed by a Russian
developer, yes?  

SHERR:  Yes, I mean, I haven`t seen any hard evidence that shows that this
is something to worry about.  What I`m glad about, though, and this is
something we`ve talked about on CNET many times is you need — it`s
reminding people to be thoughtful about what permissions they`re giving
apps when they download them to your phone.  

You know, when you start up the app for the first time, it`ll ask you if
you can give it access to your photos, all of your photos.  And I said no,
of course, but a lot of people just press OK, because they`re used to that.  
And that`s one of the things it started this conversation, I think, is
really healthy, about where is our data going, who are we trusting it with
and how are we handling it?  And that`s not something we`ve all done very often in the past.

GRIFFETH:  We all have the memories of what came out of the 2016 election, the involvement of the Russian government or Russian developers of some kind.  I guess maybe we`re learning something but are we too paranoid about it at this point?

SHERR:  Well, that is — look, being too paranoid, at this point, I think
is not a bad thing when it comes to the app world.  The thing we have to be
reminded of there are unscrupulous developers out there, and if you don`t
know who you`re dealing with, you should be thoughtful about who you`re giving your data to.  And that is a good lesson to learn.

Now, just assuming that this is a bad company and a bad app because it
comes from Russia is a little over the line, right?  I would like to see
more evidence that it`s dangerous, first.  But I`m happy to see people
thinking about these things now instead of waiting for a big hack or some
other horrible thing to happen and say I should have thought about it

GRIFFETH:  Indeed.  

Ian Sherr with CNET, again, thanks for joining us tonight, Ian.  

SHERR:  Thanks for having me.  

GRIFFETH:  Elsewhere, UnitedHealth Group (NYSE:UNH) sees a growing —
growth in its membership, and that`s where we begin tonight`s “Market
Focus”, with the parent of the nation`s largest health insurer beating
estimates, helped by an increase in premiums and services.  The company
also raised its full year guidance.  But shares still fell more than 2
percent today to $260.60.  

Morgan Stanley (NYSE:MS) also reported better than expected earnings and
revenue, thanks in part to gains in its wealth management and fund
divisions.  But the company posted a 14 percent decline in revenue from
equities trading.  That was the steepest of all the major banks, as a
matter of fact.  Yet, the stock rose 1.5 percent to $44.43.  

Union Pacific (NYSE:UNP) topped earnings estimates, thanks to cost cuts and price increases to combat Midwest flooding and trade tensions between the U.S. and China.  Despite evidence of a slow down in the transportation
sector, Union Pacific (NYSE:UNP) CEO said today he is not concerned about a possible freight slump.


LANCE FRITZ, UNION PACIFIC CHAIRMAN AND CEO:  We see a little impact from the coal and energy markets, and then we do see a little impact from trade. But, you know, I don`t — I can`t say that we see some kind of inflection point occurring right now that would make me think that the third quarter or fourth quarter is getting much worse than what we see right now.


GRIFFETH:  Union Pacific (NYSE:UNP) rose nearly 6 percent today to $174.25.  

Philip Morris beat expectations as that tobacco company saw a growth in a
new product that heats tobacco instead of burning it.  The company also
raised its full year guidance and stock rose more than 8 percent today to

And then after the bell, online pet product company Chewy reported its
first result since going public and earnings and revenue were in line with
estimates.  Shares were volatile, though, in the after-hours trading
session tonight.  They closed the regular session up nearly 4 percent to

Coming up, the next lunar step.  The space economy is being redefined by a
new generation of explorers.  


GRIFFETH:  Volvo today warned that the U.S./China trade war could a dent in the profitability.  The automaker plans to cut cost due to the impact of
tariffs and pricing pressures.  It did say, though, that it expects to see
improvement in the second half of this year.  

Many carmakers have been coming under pressure from the trade tensions as well as big investments to develop electric and driverless cars.

Finally, tonight, of course, this weekend marked the 50th anniversary of
the Apollo 11 moon landing when astronaut Neil Armstrong took that one
small step for a man and one giant leap for mankind.  Well, five decades
later, a new era of commercial space flight is being ushered in fuelled by
some very wealthy entrepreneurs.  

Morgan Brennan takes us in to the final frontier.



UNIDENTIFIED MALE:  The eagle has landed.

BRENNAN:  — the first humans stepped foot on the moon.  The historic
Apollo 11 mission singed America`s dominance in space, a lead that
continues, but waned after the cold war closed.  Now, that`s changing.  


BRENNAN:  Companies like Elon Musk SpaceX pioneer reusable rockets that cut the price to go to orbit, ushering a new era of billionaire-backed space exploration that gives the U.S. more options as it rethinks the strategy
for the final frontier.  

MIKE PENCE, VICE PRESIDENT OF THE UNITED STATES:  Now comes a time for us to make the next giant leap and return American astronauts to the moon.

BRENNAN:  NASA`s the new lunar program is Artemis, named after Apollo`s twin sister, the Greek goddess of the moon.  It would send Americans back in five years, a feat that can only be achieved with the help of the private sector.

Chad Anderson, the CEO of early stage investment firm Space Angels says
we`re in an entrepreneurial space race.  

CHAD ANDERSON, SPACE ANGELS CEO:  We`ve gone from a dozen privately funded companies in the world to now 476 companies today.  They`ve raised $22 billion of equity capital.

BRENNAN:  One start up Space Angels has invested in, Astrobotic.  

ANDERSON:  It`s kind of like a railroad to the moon.  

BRENNAN:  Astrobotic which fill builds robotic landers has almost $100
million in contracts, including recent awards from NASA.  

JOHN THORNTON, ASTROBOTIC CEO:  We offered NASA a more affordable
opportunity to regularly fly payloads to the surface of the moon.  And
that`s going to open the doors wide open to scientists and explorers and
technology developers all over our country and all over the world to begin
to understand the moon in much better ways.  

BRENNAN:  It`s just one example.  Companies are focusing on everything from rockets to moon mining to habitats.

Jeff Bezos` Blue Origin has spent the last three years designing its own
lunar lander, Blue Moon.  Another example, the lunar gateway.  A space
station that would orbit the moon which several contractors including
privately held Sierra Nevada Corporation are competing to build.  

STEVE LINDSEY, SIERRA NEVADA VP OF SPACE EXPLORATION SYSTEMS:  The purpose for that is to launch exploration missions from there and support exploration of the moon and eventually other locations.

BRENNAN:  But it will all take more money, up to $30 billion over five
years, according to NASA.  For Sierra Nevada`s Lindsey, a former space
shuttle commander, it isn`t a matter of whether space goes mainstream, but a matter of when.

LINDSEY:  I want to someday walk into the school and say, I`m Steve.  I`m
an astronaut and all the kids look at me and said, big deal.  There`s a
gazillion of those.  That`s my goal.  



GRIFFETH:  And that is NBR for tonight.  I`m Bill Griffeth.  Thanks so much
for watching.  Have a great evening.  See you tomorrow.   


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