Transcript: Nightly Business Report – August 19, 2019

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


SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Big gains.  The week started  off on a high note, but will the days ahead usher in a new wave of  volatility?  


BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Mission statement.  CEOs  redefined the role of corporate America, saying it`s not always about  maximizing profits for shareholders.  


HERERA:  The American consumer is flexing its muscle and powering the  economy, but does it have the staying power to keep the country out of  recession?  


Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,  August 19th.  


GRIFFETH:  And we do bid you a good evening, everybody.  
And welcome.  Well, it was rally day on Wall Street today.  The rally was  broad.  Every sector was higher and there was some faint optimism over  trade which in turn helped ease some of last week`s concerns about a  potential recession.  


Overall, the trading day did have a much different feel from what we  experienced last week which had intense swings both higher and lower.  
Today, the industrial average was up 249 points to close back above 26,000.   Nasdaq added 160, S&P gained 34.  


But it`s only Monday.  And even though we`re in the dog days of summer,  this week promises to be anything but quiet.  
Bob Pisani starts us off tonight from the New York Stock Exchange.  
(BEGIN VIDEOTAPE)


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  We have had quite a  rally over the last couple of days.  The Dow has moved up roughly 800  points since Thursday`s bottom.  Stocks bottomed precisely when the ten  year treasury bottomed right at 1.47 percent, as yields came off their  lows, so did the stock market.  


Now, that shouldn`t be too surprising since stocks have been moving in  tandem with bond yields all month.  Much of today`s move higher can be tied  to fading fears of a possible recession in 2020, a point President Donald  Trump`s advisers repeatedly made over the weekend.  High hopes for  U.S./China relations are also adding fuel to the rally after the White  House decision to extend a reprieve given to Huawei given the Chinese  telecom giant 90 more days to buy supplies from American companies so it  can serve as existing customers.  


Naturally, cyclical sectors like semiconductors and banks and retail led  the rebound today.  Defensive sectors like REITs and utilities, they  underperformed.  That`s a reversal of what we`ve been seeing for the  quarter and for most of 2019.  Still, there`s no shortage of catalysts  ahead that could move the markets this week, including a handful of retail  and home building earnings, manufacturing data and new home sales.  
Plus, we`ll hear from global central banks.  Lots of chatter from Federal  Reserve officials at their annual meeting in Jackson Hole, Wyoming, plus  the latest minutes from both the Fed and European Central Bank.  Busy week  even though it`s August.  


For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.  
(END VIDEOTAPE)


HERERA:  So, let`s turn now to Burns McKinney to talk more about what lies  ahead this week in the market.  He is the portfolio manager with

Allianz  Global Investors.
Burns, nice to have you back.  Welcome.  


BURNS MCKINNEY, ALLIANZ GLOBAL INVESTORS PORTFOLIO MANAGER:  Thank you so  much.  


HERERA:  It does seem like it`s going to be a busy week even though we`re  in the middle of August.  And you think that the focus is going to be  firmly on the Fed later this week?  


MCKINNEY:  Absolutely.  There certainly is — there is a lot of economic  data.  We`ve been living in a market over the last several months that`s  really been moved by two primary factors.  Those being the rhetoric on  trade, and central bank activity and interest rates.  We spent the last  week and a half talking about trade and really we expect the markets to be  moved more than anything by what Jay Powell says in Jackson Hole this  Friday.  


GRIFFETH:  And the consumer has certainly had something to say about this  as well, maintaining a strength-based on the strong jobs market and we get  all these retail earnings out this week.  What are your expectations for  that?  


MCKINNEY:  Well, the consumer — one thing I learned long ago was that  you`re going to lose money if you bet against the American consumer and  likewise the American consumer`s willingness to spend beyond their means.   And consumers have been strong.  


I mean, you do have a very strong job situation.  Unemployment is near a  50-year low.  Consumer confidence is high.  Consumer balance sheets are  fairly clean right now as well.  


And so, you know, we expect to see some good signs from the retail numbers  and, of course, there`s also been some divergence.  I mean, there`s been  winners and losers within retail.  You saw just over the past couple of  weeks, you saw a company like Macy`s (NYSE:M) that got hit hard versus you  saw Walmart actually report very strong and very good same store sales.  


I think you do have certain players like the Walmarts of the world that  have been really disrupting retail alongside Amazon (NASDAQ:AMZN) that have  been gaining shares for a lot of other retailers.  


HERERA:  Where do you come down in terms of the debate that`s out there  right now about whether or not we`re in for a slowdown or we`re actually  going to go into recession?  


MCKINNEY:  We don`t — we don`t see a recession happening, at least over  the next 12 months.  You know, the market — you know, the economy  certainly is slowing with the inversion of the yield curve, you know,  basically, to put it simply, that`s typically one of the best indicators of  a recession.  And so, that`s something that`s gotten investors a little bit  cautious.  


But really in this case, it`s had a lot to do with being, you know,  interest rates being moved by race overseas.  And, you know, simply put  what it means is that that we do see the economic growth slowing.  We don`t  expect it to tip into recessionary territory, but probably just kind of dip  back into that that percent annual economic rut that we`ve had over the  last, really, hopefully, the last decade or so, which — you know, it`s the  type of environment for which investors can still do fairly well.


HERERA:  All right.  On that note, Burns, thanks so much.


MCKINNEY:  Thank you.


HERERA:  Burns McKinney with Allianz Global Investors.
And speaking of which, there are reports late tonight that White House  aides are looking at a payroll tax cut to help offset a weaker economy.   This follows a big push by the administration to ease fears of a possible  recession. 
Eamon Javers picks up the story from their reporting tonight from the White  House.
(BEGIN VIDEOTAPE)


EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The White House went  into full messaging mode this weekend to try to push back on the idea that  there`s a recession coming just around the corner.  Call it all the  president`s economic men as the economic team here swarmed the broadcast  and cable nets with their upbeat economic message.  


Between them, National Economic Council Director Larry Kudlow and trade  advisor Peter Navarro appeared on four television networks in two days in  the wake of an extremely volatile week on Wall Street. 


LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR:  I tell you what, I sure  don`t see recession.  We had some blockbuster retail sales, consumer  numbers towards the back end of last week really blockbuster numbers.


JAVERS:  Navarro disputed the widely held idea that the yield curve  inverted last week which is often a sign that a recession is coming.


PETER NAVARRO, WHITE HOUSE TRADE ADVISOR:  Technically, we did not have a  yield curve inversion.  An inverted yield curve requires a big spread  between the short and long end.


JAVERS:  And President Trump said it`s not the White House that`s limiting  economic growth, it`s the Fed.


DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  Interest rates are low.  I  think I could be helped out by the Fed, but the Fed doesn`t like helping me  too much.  


JAVERS:  The PR offensive continues again tomorrow off-air.  Larry Kudlow  is scheduled to host two conference calls tomorrow for business, state and  local leaders all about the president`s economic agenda.  The White House  says these calls were long planned and have nothing to do with recent  economic concerns.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.
(END VIDEOTAPE)


HERERA:  The president of the Boston Fed today signaled that he is not in  favor of further interest rate cuts.  Eric Rosengren cited current economic  conditions that he described as good.  He also said that easing monetary  policy could encourage people to take on more risk and build up debt, and  that he said could worsen the next downturn and leave the Fed with few  policy tools.


GRIFFETH:  Meantime, China is joining the chorus of global central banks  that are cutting interest rates but it`s not lowering them directly.   Instead, the Chinese central bank is reforming its interest rate policy by  gradually replacing its fixed benchmark lending rate with one that  fluctuates.  The hope is that it will lower borrowing costs for companies  and support growth.


HERERA:  America`s biggest companies are making a new pledge and  shareholder return is no longer the main objective.  The Business  Roundtable is changing its statement of, quote, the purpose of a  corporation, end quote.  The influential business group says decisions  should no longer be based solely on whether they will yield higher profits  for all shareholders.  Instead they should take all stakeholders into  account, including employees, customers and community.


GRIFFETH:  So what could this new change to the corporate mission statement  potentially mean for you?
Joining us to talk about it is Charles Elson.  He`s director of the  Weinberg Center for Corporate Governance at the University of Delaware.  
Thanks for joining us tonight.


CHARLES ELSON, UNIVERSITY OF DELAWARE:  Great to be with you.


GRIFFETH:  You`re not exactly enamored of this change in the mission  statement, are you?


ELSON:  Not at all.  It, frankly, is a rerun of the mission statements that  you saw many corporations thirty years ago which led to the whole corporate  governance movement, civil rights movement, because frankly, the more  people you are, quote, accountable to, the less likely a bad decision we`ll  ever have any consequence to you.  


It`s like your watch.  The watch stops, it still gets the time right twice  a day.  You`ve got multiple constituencies you answer to, you`re going to  get right for somebody but that doesn`t mean a healthy business.  


And for shareholders, being deep sixed like this, particularly given the  fact that today, everyone`s a shareholder through the retirement plan,  state pension plans and whatnot, it really will harm I think accountability  of management to the shareholders and the public frankly.


HERERA:  Those who support this move though say it`s a recognition that  corporations need to do more to help balance out the ever-growing income  inequality and that may mean engaging more with their employees and their  community.  But it doesn`t sound like, like you would be a fan of that?


ELSON:  Well, you know today a good shareholder profit corporation has to  take into account its employees in the community.  You`re never going to  get long-term profitability, which is what Delaware law has always said is  the is the raison d`etre of the corporation, to get to profitability unless  you take care of the stakes, where the employees, the community, customers  and suppliers.  Everyone does that.


But to change the polestar to reflect everybody, if you will, loses a sense  of accountability and ultimately creates a real mess.  Again, you know,  we`re all shareholders today.
GRIFFETH:  Right.


ELSON:  We all benefit when the company does well, and I think that they`ve  done is going back years which and that was really that the climate then  created the economic dislocations that resulted what we`re doing today.  If  they feel that strongly about it on pay and whatnot, let them cut their pay  by a two-thirds or so and give it back to their employees.  But they`re not  going to do that.


GRIFFETH:  Yes.


ELSON:  And that`s the — that`s what that`s why this thing is a little  disingenuous.  I`ve great respect for the Business Roundtable but this  thing was a bit self-serving in my view.


GRIFFETH:  Charles Olsen with the University of Delaware, thanks for your  thoughts tonight.  I appreciate it.


OLSEN:  Thank you.


GRIFFETH:  And speaking of new missions, Google`s original slogan was do no  evil when it went public years ago today.  Later in our program tonight,  we`re going to look at why Google`s strategy for the next 15 may be very  different.  


HERERA:  But, first, the power of the American consumer.  As it changes, an  entire industry is remade.
(MUSIC)


GRIFFETH:  If you ever needed evidence of just how powerful the consumer  can be, take a look at the retail sector right now.  Looks a lot different  today than it did just a few years ago because as our buying habits  changed, a whole industry was transformed.  
And tonight, Courtney Reagan takes a look at the American consumer.
(BEGIN VIDEOTAPE)


COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  While there are  many signs economic activity is slowing, the U.S. consumer remains strong.   Retail sales just posted the strongest five-month growth streak in more  than 13 years.  The consumer may be what`s holding up the us economy since  70 percent of economic activity is tied to consumer spending.


But where we shop in what we buy has changed.  More than a quarter of the  country`s malls have closed since retails real estate peak.  And today,  walk into any mall and you`ll see empty stores.  In less than three years,  there are 9,400 fewer stores overall.


Last year, more than 500 apartment stores closed their doors for good.   Bon-Ton liquidated, Sears (NASDAQ:SHLD) filed for bankruptcy and closed  hundreds of locations, JCPenney and Macy`s (NYSE:M) also went through a  store closure program.  We simply spend less at department stores than we  used to.


VINCE TIBONE, GREEN STREET ANALYST:  We do think there will be much more  department store closures over the next five to ten years.  Macy`s (NYSE:M)  has also had its, you know, struggles, but we think there`s a — JCPenney  is really the most imminent concern from the department store front.


REAGAN:  The shift to online shopping and a higher portion of spending on  experiences instead of stuff has also pressured physical stores.  Put  together, the U.S. needs less retail space.  Online shopping accounts for  three-quarters of U.S. retail growth and half of all online shopping is  done on Amazon (NASDAQ:AMZN) alone.


LINDA KIRKPATRICK, MASTERCARD EVP:  Retail is not that.  It`s very much  alive.  It`s just morphing.  It`s morphing to, again, become more digital  and morphing to accommodate the digital consumer who`s very savvy online  and understands how to get what they need and how to curate the products  that they need using the channels that they`re most comfortable with.


REAGAN:  When U.S. consumers aren`t waiting for online orders to arrive,  they`re spending on experiences.  In the 1960s, less than half of our  spending, which is services.  Now, it accounts for two-thirds.  
Retail success takes more than just a strong consumer.  Shoppers have more  choices than ever before.  The winners have a mix of the right merchandise,  the right environment and the right experiences.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New York City.
(END VIDEOTAPE)


HERERA:  So, can the consumer keep fueling this economy.
We`re joined now by Anthony Chukumba, managing director at Loop Capital.


Anthony, welcome.  Nice to have you here.


ANTHONY CHUKUMBA, LOOP CAPITAL MANAGING DIRECTOR:  Thanks for having me.


HERERA:  I guess that is the question.  I mean, Courtney laid it out  beautifully for us there.  Do you think that the consumer has staying power  and will continue to keep the economy healthy?


CHUKUMBA:  We think so.  The three main indicators that we look at to gauge  the health of the consumer are, first off, unemployment, which is that a  50-year low, wage growth which is at a 10-year high, and consumer  confidence was at a multi-year high.  So just as long as those three  indicators stay strong we see no reason that the consumer spending would  slow significantly anytime soon.


GRIFFETH:  But Courtney also highlighted the store closures that we`ve seen  just breathtaking numbers over the last three years and it looks like we  could be in for another record number of closures this year.  Where are we  in that cycle right now, do you think?


I think that we`re getting to the middle, maybe toward the late innings of  that.  I mean, you know look the us was overstored even before the advent  of e-commerce.  But clearly, with more and more shopping going online, you  just don`t need as many physical stores.


Now one thing to remember is that there always are going to be some  retailers that are growing their stores, but, you know, but it`s — but it  really isn`t a case-by-case basis.  So, for example, I cover five below  which has a very, very unique concept offering approximate below for teens  and tweens, and they`re growing and then part of that is the fact that that  it`s value, which a lot of consumers like and it`s also pretty sort of  Amazon (NASDAQ:AMZN) resistant.


In general, do you think that the many of the retailers have as one guest  put it morphed and embraced the new ways that consumers shop?


CHUKUMBA:  The smart ones certainly have.  So I think about a company, for  example, like spy which is really significantly invested in their e- commerce channel.  But I`ll also figure out a great way to leverage the  store, so a significant portion of their online orders are actually picked  up in score — in store.  Or I think of a couple like our RH which has made  their stores big and beautiful and very sort of experiential, they have  restaurants in their stores.  But they do 50 percent of their sales online.  


So, the retailers that have the staying power from my perspective are the  ones who have adjusted to this new omnichannel reality that we`re living  in.


GRIFFETH:  And this — there may be no answer to this, but what will be the  right mix of brick-and-mortar versus online for in — you know, particulars  stores out there to achieve success in this environment?


CHUKUMBA:  You know, that`s a good question.  I agree with you.  It`s  probably tough to come up with a precise answer.  But — I mean, I do have  retailers like RH, like Williams Sonoma that do about 50 percent of their  sales online, so maybe that`s the right answer, right?  It`s 50 percent of  your sales online, 50 percent of the stores, and just really being able to  integrate the two of them and integrate those experiences.


HERERA:  Anthony, thanks so much for spending time with us.
Anthony —  


(CROSSTALK)


CHUKUMBA:  Anytime.


HERERA:  Sorry, Anthony.  Chukumba, with Loop Capital, I`ll get it next  time.


GRIFFETH:  Meantime, Estee Lauder looks good to investors and that`s where  we begin tonight`s “Market Focus”.


The cosmetics maker topped estimates thanks to growth in its skincare,  makeup and fragrance products.  Company also raised its full-year outlook,  but did say escalating U.S. and China trade tensions, Brexit and the Hong  Kong protests are still potential risks right now.  Estee Lauder though was  the best performing stock in the S&P 500 today, up more than 12 percent to  $201.65.


Microsoft (NASDAQ:MSFT) is giving Minecraft video game more realistic  graphics by adding technology from chip maker Nvidia.  The new graphics  will bring improved upgrades to that game.  Nvidia shares jump seven  percent to $170.78.


And Chinese social media company Weibo reported what it called a notable  acceleration and user growth, which helped it top analyst earnings  estimates even though it narrowly missed on revenue.  Weibo also increased  its full-year revenue outlook.  Stock jumped more than 14 percent today to  $42.31.


HERERA:  PG&E fell today after a judge ruled a jury could decide whether  the utility is responsible for a massive wildfire that killed 22 people and  damaged more than 5,000 buildings two years ago.  The company could face up  to billion $18 dollars in damages as the blaze was the second worst  wildfire in California history.  PG&E shares lost more than a quarter of  their value.  They closed at $10.67.


Twitter suspended more than 900 accounts it believes are tied to China  running a disinformation campaign against the Hong Kong protests.  Twitter  also said it would no longer receive advertising from state-controlled news  media entities.  Shares rose more than two percent to $41.70.


And after the bell, Baidu`s results topped expectations as the Chinese  Internet giant saw an increase in its daily app users.  Shares initially  rose in after-hours trading and they closed the regular session up nearly 8  percent to $104.22.


GRIFFETH:  And coming up, Google (NASDAQ:GOOG) made big acquisitions in its  first years as a publicly traded company but the next 15 may be different.
(MUSIC)


GRIFFETH:  Various state attorneys general are reportedly moving forward  with an antitrust investigation into big tech.  According to “The Wall  Street Journal”, that probe is likely to focus on whether a handful of  companies are using their power to stifle competition.  The investigation  apparently could be launched as soon as next month.


HERERA:  It has been years since Google (NASDAQ:GOOG) went public.  The  company started trading at $85 a share.  Since then the stock has surged  more than 2,600 percent.  And as Josh Lipton reports, that`s due in part to  its acquisition strategy.
(BEGIN VIDEOTAPE)


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A $1,000 investment in  Google (NASDAQ:GOOG) at the time of its IPO would now be worth about  $28,000 in part because of its major acquisitions.  There`s YouTube which  the company bought for more than one and a half billion dollars in 2006.   The video streaming powerhouse now generates an estimated $20 billion in ad  revenue per year.  There`s also Double Click which it bought for over $3  billion in 2007, that advertising platform helps power Google`s ad  business, which still accounts for the vast majority of Alphabet`s total  revenue.


But its biggest acquisition so far, more than $12 billion for Motorola  Mobility in 2012.  Less than two years later, it`s sold Motorola`s  smartphone business to Lenovo for just under $3 billion, but Google  (NASDAQ:GOOG) did get to keep most of Motorola`s portfolio of mobile  patents, offering the company legal protection for its android operating  system.


To date, Alphabet has spent over $32 billion on acquisitions, 40 percent  more than Amazon (NASDAQ:AMZN), almost 500 percent more than Apple  (NASDAQ:AAPL).


But what about the quarters and years ahead?  Some analysts think  increasing regulatory scrutiny both here and abroad will hamper Google`s  ability to do some deals.


MARK MAHANEY, RBC CAPITAL MARKETS:  Them attempting to do a large $10  billion to $20 billion, $30 billion acquisition, a vertical integration  acquisition in the internet advertising space off the table.  Twitter —  Google (NASDAQ:GOOG) for Twitter off the table and the reason is the  concentration, the large market share they already have in online  advertising.  Google (NASDAQ:GOOG) accounts for, you know, close to 50  percent of Internet ads spend in some markets.  It just wouldn`t be  allowed.  They wouldn`t be allowed to increase that share.


LIPTON:  Mahaney does think Google (NASDAQ:GOOG) can still do relatively  smaller deals to build out its growing cloud business as it looks to close  the gap with industry leaders like Amazon (NASDAQ:AMZN) and Microsoft  (NASDAQ:MSFT).  In fact, Google`s new cloud chief has already made it clear  that acquisitions will be an important part of his strategy, recently  announcing that Google (NASDAQ:GOOG) will buy a data analytics company  called Looker for nearly $3 billion.


For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
(END VIDEOTAPE)


GRIFFETH:  And finally tonight, an auction blunder.  On Friday, we told you  about this rare 1939 Porsche type 64 that went up for auction in Monterey  over the weekend.  It was expected to fetch at least $20 million.  
But a misunderstanding caused some expensive confusion.  The bidding  started at $13 million, but the giant screen displaying bids in the room  showed $30 million.  When the bid hit $14 million, the big screen showed  $40 million, and when it got to $17 million and the auctioneer saw the big  screen displaying $70 million, he stopped the auction.  


And since $17 million was below the reserve price, RM Sotheby`s pulled the  lot.  And the auction house said later this was in no way intentional on  behalf of anyone at RM Sotheby`s, rather an unfortunate misunderstanding  amplified by excitement in the room.
Ouch. 


HERERA:  Before we go, here`s a look at the day`s final numbers from Wall  Street.  The Dow was up 249 points to close back above 26,000.  Nasdaq  added 106, S&P 500 gained 34.  


And that is NIGHTLY BUSINESS REPORT tonight, I`m Sue Herera.  Thanks for  joining us.  We want to remind you that this is the time of year your  public television station seeks your support.


GRIFFETH:  I`m Bill Griffeth.  We always thank you for all of your support.   Have a great evening.  We`ll see you tomorrow.

END


END
Nightly Business Report transcripts and video are available on-line post  broadcast at http://nbr.com. The program is transcribed by ASC Services II  Media, LLC. Updates may be posted at a later date. The views of our guests  and commentators are their own and do not necessarily represent the views  of Nightly Business Report, or CNBC, Inc. Information presented on Nightly  Business Report is not and should not be considered as investment advice.  (c) 2019 CNBC, Inc.


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