Transcript: Nightly Business Report – July 31, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  One and done?  The Federal  Reserve lowers interest rates for the first time in a decade, but a single  comment from the chairman sent stock on a volatile afternoon ride.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  That`s a wrap.  Trade talks  end with little progress made, leaving in place a major source of  uncertainty for the market.  

GRIFFETH:  Worker dividend.  That`s how a senator describes his bill that  targets corporate buybacks which could hit a record this year.  
Those stories and more on NIGHTLY BUSINESS REPORT for Wednesday, July 31st.  

HERERA:  Good evening, everyone, and welcome.  
The Federal Reserve hasn`t cut interest rates since 2008, that is until  today.  The move was a controversial one and it comes at a time when the  U.S. economy remains solid.  The risks come from a slowdown in global  growth, so the decision to lower rates is considered an insurance cut  designed to help stave off the possibility of an economic downturn.  
But the chairman signaled that this is not the start of a trend and stocks  dropped sharply.  The Dow Jones Industrial Average dropped 333 points to  26,864.  It had been down more than 450 points.  The Nasdaq slid 98 and the  S&P 500 was off by 32.  

Steve Liesman reports tonight from the Federal Reserve.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The Federal Reserve  cut interest rates for the first time since 2008, bringing the rate it  controls for overnight lending among banks down by one quarter percentage  point to a new range between 2 percent and 2.25 percent.  
That is largely what the market expected but in a press conference after  the statement came out, the Fed Chairman Jerome Powell appeared to dial  back expectations for future cuts.  

JEROME POWELL, FEDERAL RESERVE CHAIRMAN:  The committee is really thinking  of this as — as a way of adjusting policy to a somewhat more accommodative  stance.  We`re thinking of it as essentially in the nature of a mid-cycle  adjustment to policy.  

LIESMAN:  Stocks sold off immediately as the market began to question  whether the Fed will deliver the two additional rate cuts priced in.   Powell later went on to clarify, saying he did not mean to imply the Fed  was done after this single cut.  

And, importantly, the Fed also provided further easing by ending the  reduction of its balance sheet two months earlier than planned.  The Fed in  its statement explained that that rate cut comes amid a U.S. economy that`s  still growing, but with growing concerns about overseas weakness.  

POWELL:  To insure against down side risks to the outlook from weak global  growth and trade tensions.  So, that is — in a sense, that is a risk  management point, but that is a bit of insurance.  But we also feel like  weak global growth and trade tensions are having an effect on U.S. economy.   You see it now in the second quarter.  You see weak investment, you see  weak manufacturing.  So, support demand there, and also to support return  of inflation at 2 percent.  

LIESMAN:  Powell did not have the full support of his committee.  Two Fed  bank presidents dissented saying they wanted to hold interest rates  unchanged.  

Asked how investors can know what comes next for the Fed, Powell said there  is no experience among central banks in knowing how to respond to global  trade wars.  He said the Fed is, quote, learning by doing.  
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.  

GRIFFETH:  And joining us to talk more about the Fed, the economy and the  stock market reaction, we have with us tonight Richard Fisher, the former  president and CEO of the Federal Reserve Bank of Dallas, and Michael  Hartnett, the chief investment strategist at Bank of America (NYSE:BAC)  Merrill Lynch.  
Good to see you both.  Thanks for joining us tonight.



GRIFFETH:  Richard, if you were with the Fed, how would you have voted and  why?  

FISHER:  I would have accompanied Boston and Kansas City.  I think it was  an important thing for them to do.  It shows that there is not consensus on  the need to cut.  Eric Rosengren of Boston is particularly, one of the  great thought leaders on the Open Market Committee was when I was on the  committee, remain so.  And Esther in Kansas City is similarly well- respected.  

I think it was very important by the way to send a signal to the president  of the United States, whose reaction thus far has been fairly mild, that it  is an independent body.  The Federal Reserve Bank presidents are not  appointed by the president.  They`re not confirmed by the United States  Senate.  It is structured that way on the Open Market Committee so you can  have independent views, and I think it was actually a very important  development.  

So, there are two things that happened there.  One, it shows that there`s  not full consensus the economy is weakening, mainly because consumption is  strong.  Personal spending in the last report was up 4.1 percent the last  GDP report.  

GRIFFETH:  Right.  
FISHER:  Consumption drives the economy.  
And then, secondly, showing that it is an independent body and the  president cannot induce the committee to do what he wants for political  purposes.  I think it is a win/win decision.  I`m glad they did it the way  they did it and it is clear that they`re going to have to think about  things if they want to continue.  I think basically they`ve given back the  December rate increase.

FISHER:  And we`re now at the neutral rate, and I think they`re comfortable  with it.  

HERERA:  Michael, what did you make of the market`s reaction?  I mean, it  was widely anticipated that we would get exactly what we did in terms of an  interest rate cut today, but was it simply the messaging from the Fed  chief?  What is — what is responsible for the sell-off?  

HARTNETT:  I think the bottom line is they didn`t ease.  You know, when you  cut interest rates, you know, if you are really easing and providing  stimulus, your currency goes down, the yield curve steepens, and corporate  bond spreads, you know, forward.  None of those things happened today.  The  Fed cut 25 basis points, the dollar was up, spreads widened, the yield  curve flattened.  

So Wall Street`s view really is there was no easing of policy, you know,  today.  Wall Street clearly wanted more and Wall Street still has a problem  with the communication of the Fed and what the Fed is really trying to  identify as the thing that it will really anchor policy going forward.  

We all know inflation is incredibly low.  We know the global economy is not  doing well.  We know the U.S. economy is doing rather well.  So, you know,  people are very, very uncertain as to what the Fed`s intentions and what is  leading the Fed going forward from here.  

GRIFFETH:  Michael, does this change anything about your view of the stock  market, whether or not they — the market is expecting another rate cut in  September, by the way.- 

HARTNETT:  Yes, I mean, look, today was the 728th time that a central bank  has cut interest rates since Lehman Brothers went under.  In fact, Brazil  just cut rates, so 729 now.  

The markets are up massively since then.  The markets love interest rate  cuts.  The markets are addicted to liquidity.  
So, you know, I think that, you know, part of the reason, you know, we`ve  been very bullish this year is we`ve seen a pivot by the central banks,  everyone has been bearish.  You know, expectations that the global economy  will find a trough.  I think it tempers the upside for markets in the near  term without question.  We will have to just see what the credit markets  do.  That will be very important.  

HERERA:  Richard, the Fed chief made note of the fact that there`s some  uncharted territory here in terms of the trade negotiations, the trade  tensions and the situation between the U.S. and China.  How do you think  they`re going to navigate that?  

FISHER:  Well, I`m sort of doubly hexed because I was the U.S. trade  representative under President Clinton and then I was on the Federal  Reserve, FOMC for 10 years, when I was head of the Federal Reserve Bank of  Dallas.  I think it`s pretty clear, though, that monetary policy cannot  offset protectionism.  If they cut 100 basis points it wouldn`t change the  trade dialogue.  

So, they`re trying to think this thing through.  I think that`s one point.   The other point which I think is important to bear in mind is, just because  the European Central Bank and the Bank of Japan are following absolutely  unprecedented radical monetary policy, negative interest rate policy, it  doesn`t mean the Fed should follow suit.  And I think that`s one of the  assumption of the markets.

One of the things that I worry about, Sue, again, I ran a hedge fund for  ten years before I did all of this other stuff, is I really do believe  markets are hearing what they want to hear.  

GRIFFETH:  Right.  
FISHER:  They`re not listening to what`s actually being said.  
This has been signaled, Eric Rosengren in Boston had a good interview with  your folks at CNBC, making it very clear, very logical what he was spelling  out.  The market tends to ignore him.  
The market is wishing, wishing and wishing for help.  When you cut interest  rates it changes the way you discount the present value of future cash  flows.  

FISHER:  We did that deliberately when we poured on, went to zero interest  rates and poured on three rounds of quantitative easing.  That was the  purpose, sent a signal to the market.  Discount future cash flows in the  last February of 2009 literally to infinity and the market has been doing  that.  

Now, that process is slowly being unwound.  It is painful for the markets.   I don`t expect them to necessarily cut.  I think it is one and almost done  for a while.  It depends on the data as Powell has said.  

GRIFFETH:  Indeed, they`ve been data-independent for many years.  Richard  Fisher, Michael Hartnett, good to see you both.   Again, thanks for joining  us tonight.  
FISHER:  Thank you.  
HARTNETT:  Pleasure.  

HERERA:  More evidence that the U.S. economy remains steady.  According to  a new report, companies added more jobs than expected in July.  ADP says  private payrolls increased by 156,000, showing that firms are still willing  to hire despite economic uncertainties such as the ongoing trade fight with  China.  

GRIFFETH:  But there are more signs of slowing growth overseas.  For  example, the Eurozone`s economy expanded by just 0.2 percent in the second  quarter.  It was half of what the prior quarter`s growth rate was.  
This latest report increases the chances that the European Central Bank  will launch stimulus measures this fall.  And then in China, factory  activity there contracted in July for the third straight month,  deteriorating global demand led to a decline in export orders and total new  orders also moderated.  

HERERA:  Over in Shanghai, trade talks between the U.S. and China ended  with few signs of progress.  
Eamon Javers is at the White House.  

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It was smiles and  handshakes in Shanghai as U.S. and Chinese negotiators wrapped up two days  of conversations on the fate of the trade relationship between the economic  superpowers.  But while the body language was positive, the outcome was  less than clear.  The White House released a statement calling the talks  constructive but not listing any specific outcomes.  Instead they said the  two sides discussed a range of topics, including forced technology  transfer, intellectual property rights, services, nontariff barriers and  agriculture.  The U.S. also said the Chinese, quote, confirmed their  commitment, unquote, to increase purchases of United States agriculture  exports.  

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  We have people in China  right now.  

JAVERS:  As negotiators were on the ground in Shanghai, the president  suggested that the Chinese simply wanted to stall until after the 2020  presidential election.  The Chinese made an accusation of their own as  Chinese foreign ministry spokeswoman Hua Chunying said that the United  States continued to flip-flop.  

One concrete development that markets were looking for, the two sides said  talks will continue.  The next session will be in Washington in September.  
For NIGHTLY BUSINESS REPORT, I`m Ayman Javers at the White House.  

GRIFFETH:  Despite those ongoing concerns over trade and today`s pullback,  the major averages on Wall Street did close out July with gains for the  second straight month.  It was a month that saw the S&P and the Nasdaq both  reach new record highs.  
And still ahead, the fall-out from the grounding of Boeing (NYSE:BA) 737  MAX hit one of GE`s units.  

GRIFFETH:  General Electric (NYSE:GE) shareholders got welcome news today.   Earnings topped expectations and the company gave an upbeat outlook for its  cash flow.  That`s a key metric watched by investors which shows how much  money the company has left after paying for operating expenses and capital  spending.  The company said that the improvement came from a stabilization  in its struggling power business, but shares today were off a fraction to  close just above $10 a share.  

HERERA:  And analysts say if GE is to rebound further, it will need the  help of its aviation division which makes jet engines, but GE aviation is  wrestling with the impact of the grounding of Boeing (NYSE:BA) 737 MAX.   And it`s not just GE.  The fall-out is being felt from Washington to  Wichita.  
Here is Phil LeBeau.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Since the grounding of  the 737 MAX, Boeing (NYSE:BA) has cut monthly production from 52 to 42.   The ripple effect is being felt at GE`s plant in Cincinnati, Ohio, where it  is still building engines for the MAX.  But with delivery suspended, GE  expects a $400 million hit in both the third and fourth quarters.  

LARRY CULP, GENERAL ELECTRIC CEO:  The 400 million of cash pressure here in  the back half, 400 per quarter is, you know, what is likely to happen if we  do not see a return to service.  

LEBEAU:  In Wichita, Kansas, where Spirit Aerosystems builds the fuselage  for the MAX, they cut cost but have not laid off workers as they wait the  see what happens next with Boeing (NYSE:BA).  

TOM GENTILE, SPIRIT AEROSYSTEMS CEO:  We`ve looked at slowing down  production.  We`ve looked at doing some temporary pauses in production.  So  we have all of that prepared to be able to implement, depending on when the  MAX gets back into service.  

LEBEAU:  Boeing (NYSE:BA) expects the MAX to take off again later this  year, provided regulators sign off on a fix for the plane`s flight control  system.  At a hearing on Capitol Hill, looking into the FAA`s oversight of  the MAX, senators once again raised concerns about the plane`s future.  

SEN. JOE MANCHIN (D), WEST VIRGINIA:  I would say for the 737 MAX to get  back into the air, every Boeing (NYSE:BA) official should be flying that  plane for one month to make sure that we have the confidence for a  passenger to get back on the plane.  

LEBEAU:  Boeing (NYSE:BA), airlines and suppliers close to the MAX program  admit it will take some time to restore faith in the plane, when it is  finally determined to be safe to fly again.  

GRIFFETH:  Membership growth helped Humana (NYSE:HUM) post strong earnings,  and that`s where we begin tonight`s “Market Focus”, with the health care  company beating estimates, thanks to more sign-ups for its Medicare  Advantage health plan.  Humana (NYSE:HUM) also raised its full-year  guidance and announced a $1 billion share buyback program.  The stock rose  more than 4 percent today to $296.75.  

Southern (NYSE:SO) Company reported mixed results.  It beat earnings  estimates but missed on revenue, which was hit by the sale of Gulf Power  (NYSE:GUL) and other assets and by lower electricity sales and usage.   Shares rose more than 1 percent though to $56.20.  

And strong sales of pickup trucks pushed Fiat Chrysler pastes past  estimates.  Profits in North America helped the automaker offset weak sales  performance overseas.  The company also kept its full year outlook intact  and shares rose more than 1 percent to $13.19.

HERERA:  Molson Coors missed quarterly estimates due to unfavorable weather  conditions and declining demand, particularly its flagship brand Coors  Light.  Also, the brewers CEO will be retiring in September and will be  replaced by the head of Molson`s U.S. subsidiary Miller Coors.  Shares fell  more than 5 percent to $53.99.

Bloomin` Brands missed revenue target as they saw a decrease in same-store  sales at its Outback, Carrabba`s Italian Grill and Bonefish Grill  restaurants.  Shares fell more than 4 percent to $17.03.

And after the bell, Qualcomm (NASDAQ:QCOM) posted mixed results, beating  earnings estimates but they missed on revenue.  The chipmaker also issued  light full year guidance.  Shares initially dropped in after-hours trading.   They closed the regular session down more than 2 percent to $73.16.  

GRIFFETH:  Companies are on pace to buy back a record amount of their own  stock this year, and according to a new report from Goldman Sachs  (NYSE:GS), the cost of buybacks has started to exceed company`s free cash  flow for the first time since the financial crisis.  
Meanwhile, today in Washington a new proposal from a prominent senator want  share repurchase programs to directly benefit company employees.  
Ylan Mui has details.  

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  For Senator Sherrod Brown  buybacks are a symptom of a bigger problem on Wall Street.  

REP. SHERROD BROWN (D), OHIO:  Wall Street`s obsession for accumulating  wealth for the people who already have it comes at the direct expense of  American workers, all workers.  We need to reorient our economy from Wall  Street greed to the dignity of work.  

MUI:  To do that, the Democrat from Ohio proposed new legislation today  that would require publicly traded companies to give each of their workers  $1 for every $1 million spent on buying back their own stock.  Brown calls  this the worker dividend.  So if a company spends $20 billion in share  repurchases, each employee would get a one-time repayment of $20,000.  
Brown singled out Walmart and J.P. Morgan as notorious offenders.  
BROWN:  The entry level of a J.P. Morgan Chase teller is about $35,000.   You can`t support a family on that, compared to the $31 million the bank  paid its CEO last year.  

MUI:  The worker dividend would be paid directly to the employees after the  end of the fiscal year.  The proposal would also lower the cap on the  amount of shares that companies can repurchase from 25 percent of average  daily volume to 15 percent.  And the SEC would be in charge of enforcing  the new rules.  
But the U.S. Chamber of Commerce quickly opposed this idea as anti-growth.  

DAVID HIRSCHMANN, U.S. CHAMBER OF COMMERCE:  Putting the government in the  middle of those decisions would actually harm everybody, including the  employees who have a lot at stake, not only the future of their company and  economic growth, but also their own retirement plans.  

MUI:  Brown is not the only one on Capitol Hill who wants to target  buybacks.  A bill from Democratic senators Chuck Schumer and Bernie Sanders  requires companies to raise wages and provide more benefits in order to buy  back stock.  

Senator Chris Van Hollen wants to limit executives from trading after a  buyback.  Today, Brown acknowledged that his proposal won`t pass any time  soon, but he said he`s prepared for this fight to last years.  
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.  

HERERA:  Ed Clissold joins us now to talk more about this and the overall  trends that he is seeing in buybacks.  He is chief research strategist at  Ned Davis Research.  

Welcome, Ed.  Nice to have you here.  

HERERA:  Obviously, there`s a lot of angst on Capitol Hill about the  increased in buybacks and the consistency of some companies to buy back  their shares.  If Washington does get involved in some way, shape or from,  what would the impact be?  

CLISSOLD:  Well, I think that companies would then do is find other ways to  return capital to shareholders, and that`s really what buybacks have  become.  Because they are not taxed like dividends, companies have figured  out that`s a more tax efficient way to do that.  So, what you have seen is  buybacks suffering over the last four quarters.  They hit a record high of  $750 billion for the S&P 500 companies, and that`s — that`s a 50 percent  jump over what you saw before the tax cuts a couple of years ago.  

GRIFFETH:  Going back to that Goldman Sachs (NYSE:GS) report, the one stat  that caught my eye was the idea that we`re at a point now where sometimes  the cost of the buyback exceeds the cash flow that a company has.  

Are we getting to a point now — I mean, buybacks have been going on for a  number of years now and growing.  Are we getting to a tipping point now do  you think in the buyback process?  

CLISSOLD:  Well, I think there`s two things going on here.  One is that  companies could repatriate cash that had been overseas as a result of the  tax cut.  So you probably will see buybacks start to slow down as companies  burn through that repatriated cash or cash, again, that was overseas for a  long time.  

The other thing is that companies tend to continue to buy back until the  economy goes into a recession, and because that`s the quickest thing they  can do to start to conserve cash.  So I wouldn`t expect a huge drop-off in  buybacks until the next recession.  

HERERA:  Do you see that as the biggest risk, right?  
CLISSOLD:  Yes.  The biggest risk is — is, in fact, that when you get to  the next recession because one of the side effects over the last few years  is that buybacks have become a bigger and bigger percentage of daily  volume.  And so, if buybacks go away, obviously during a recession the  stock market tends to fall, earnings tend to fall, but then you are going  to take away a big buyer in the market, which had been companies buying  back their own shares.  So, that could make things even tougher during the  next recession.  

HERERA:  Ed, thank you so much.  Ed Clissold with Ned Davis Research.  
Coming up, why Democrats are divided over health care.  

GRIFFETH:  A large fire has hit an Exxon plant in Texas.  The Baytown  complex includes a 560,000 barrel a day refinery.  Its website says it is  one of the largest integrated and most technologically advanced refining in  petrol complexes in the world.  The facility sits along the Houston ship  channel, which is the nation`s largest energy port.  

HERERA:  The Trump administration is opening the door for allowing  prescription drugs to be imported from Canada and other countries.  The  proposal is part of the White House`s push to try to lower the cost of  medicines.  Health and Human Services Secretary Alex Azar says that the  process would be safe and effective with oversight from the FDA.  Details  were scarce however, and it`s unclear how soon consumers might see results.  

GRIFFETH:  Roughly half of the 2020 Democratic presidential hopefuls took  the debate stage last night and health care was in the spotlight.  

SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE:  It keeps working  great for the insurance companies and the drug companies.  What it is going  to take is real courage to fight back against them.  These insurance  companies do not have a God-given right to make $23 billion in profits.  

SEN. BERNIE SANDERS (I-VT), PRESIDENTIAL CANDIDATE:  The answer is to get  rid of the profiteering of the drug companies and insurance companies — 

GRIFFETH:  Clearly, the issue is dividing the party.  Some candidates  called the strategy of Medicare for All bad policy.  Others said it would  stabilize the system.  

John Harwood is in Detroit tonight where the rest of the candidates are  debating this evening.  
John, what did we learn about the Democratic candidate`s stand on health  care overall?  

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, we learned most  significantly that Elizabeth Warren is sticking strongly with her position  that the private insurance industry should effectively be abolished as part  of a Medicare-for-All plan.  That`s a key divide in the race.  It is not  popular with voters to propose getting rid of the insurance industry.  

Bernie Sanders is for it.  Elizabeth Warren is for it, but Joe Biden is  not.  She was challenged by other moderates on the stage last night — John  Delaney, Tim Ryan, Steve Bullock, people like that, who said, don`t go that  far, that`s too far for our electoral good.  It may be too far to get  through Congress.  


HARWOOD:  But Elizabeth Warren stayed there.  If she`s the nominee, she  will be hearing about that in 2020.  

HERERA:  What about the contrast on other economic issues, John?  

HARWOOD:  Well, you have a big tax contrast.  Elizabeth Warren again, the  policy leader in the race, proposed a wealth tax.  She jousted with John  Delaney over whether or not the wealth tax was a good idea.  
John Delaney, the moderate Democrat from Maryland said, yes, taxes on the  wealthy should go up but not in that way.  And Elizabeth Warren kind of  glee rubbed her hands together when she was talking about going after the  wealthy, Delaney`s money, again, a moment that she may see again when we  get to 2020.  

GRIFFETH:  And tonight, Joe Biden and Kamala Harris (NYSE:HRS) among those  taking the stage.  Do we expect anything different tonight?  

HARWOOD:  Well, I expect Joe Biden making the same contrast with Warren and  Sanders that the moderates last night made.  There`s an added dimension  though, in light, especially of President Trump`s behavior in recent days.   Joe Biden will be flanked by Kamala Harris (NYSE:HRS) and Cory Booker, two  senators from California and New Jersey who are African-American.  

The issue of race was put on the table by Kamala Harris (NYSE:HRS), given  Joe Biden`s long record in the first presidential debate on MSNBC.  They`re  going to go after him and he is going to try to respond on that.  That adds  a different and more volatile element to this contest.  

GRIFFETH:  John Harwood in Detroit — again, thanks, John.  

HERERA:  Before we go, here is another look at the day`s final numbers from  Wall Street.  The Dow dropped 333 points.  It had been down more than 450.   The Nasdaq slid 98 and the S&P 500 was off by 32.  The major averages were  all higher however in July.  

Welcome to August.  


HERERA:  That is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.   Thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have 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.

<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.>

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply