Transcript: Nightly Business Report – August 22, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  To cut or not to cut.  A  divided Federal Reserve meets thousands of miles from Wall Street in what`s  turning into a high-stakes event for investors.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Caught in the middle. President Trump is on one side, California on the other, and Ford finds  itself walking a fine line.  

GRIFFETH:  Is cash king again?  Investors are hiding out in safe, low-risk  funds, but is that the best place for your money?  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for  Thursday, August 22nd.  

HERERA:  Good evening, everyone, and welcome.  It is not unusual for global  central bankers to meet.  
It is unusual for global central bankers to meet when the markets are  volatile, trade tensions are heightened, the global economy is slowing, the  bond market is flashing a warning sign, and there`s a lot of uncertainty  over interest rate policy.  

But that`s exactly what is happening in Jackson Hole, Wyoming, and the  stakes are high.  This annual gathering of federal officials is turning  into one of the most-anticipated of all, especially given the deep  divisions among policymakers.  
Steve Liesman is there.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As the Fed gathers  in the shadow of the Teton Mountains for the annual Jackson Hole meeting,  the first officials to speak didn`t tell the markets what they wanted to  hear about the need for deep interest rates cuts in the months ahead.  

PATRICK HARKER, PHILADEPHIA FED PRESIDENT i didn`t think the cut was  appropriate necessarily but I went along with it to get back to neutral,  but I`m on hold right now.  My forecast is just to hold.  

ESTHER GEORGE, KANSAS CITY FED PRESIDENT:  My sense was we`ve added  accommodation. 

LIESMAN:  Right.  
GEORGE:  And it wasn`t — it wasn`t required in my view.  I think we`re in  a good place relative to the mandates that we`re asked to achieve.  

LIESMAN:  Dallas Fed President Robert Kaplan said he wants to avoid cutting  rates if he can.  But he is concerned that the deep decline is sending the  fed a message it should not ignore.  

ROBERT KAPLAN, DALLAS FED PRESIDENT:  The whole curve has moved down over  the last 3-1/2 months and the fund rate at 2 to 2-1/4 is above every rate  along the curve which to me is a little bit of a reality check that says,  it`s possible our monetary setting is tighter than I would have thought  three or four months ago.  

LIESMAN:  The comments from the three Fed presidents highlight divisions in  the rate-setting Federal Open Market Committee about where to put interest  rates right now.  Eight to 10 voting members supported a rate cut in July,  but there were two dissents in the minutes of released Wednesday showed the  dissenters had backing from some of the nonvoters. 

Meanwhile, markets are banking on several rate cuts this year and President  Trump insults the Fed almost daily in the tweets, urging the Fed to cut  rates.  He recently called the fed clueless.  

All of this raising the stakes for Fed Chairman Jerome Powell who will  deliver a keynote speech tomorrow at the Jackson Hole Summit.  In deciding  what to do with rates, Powell has to navigate around 2 percent and global  economies that are weak, a U.S. consumer who is strong, but manufacturing  which is slowing, and several members of his committee who are divided  about whether to hold rates or cut them.  

Another factor, if the Fed doesn`t cut rates, it could ignite another sell- off in markets that forced the central bank earlier this year to reverse  policy.  It`s not a set of easy choices to face in the bucolic setting of  the Teton Mountains.  

GRIFFETH:  Sarah Hunt joins now to talk more about the markets, the Fed and  what Chairman Powell might say when he speaks tomorrow at Jackson Hole.   She is portfolio manager at Alpine Woods Capital Investors.  
Sarah, good to see you again.  Welcome back.  

GRIFFETH:  What do you think Wall Street wants to hear Jay Powell say  tomorrow?  

HUNT:  Well, I think that the bond market is trying to telegraph that they  expect Chair Powell to cut rates again.  I think that`s why you are seeing  such low rates across the curve.  I think the difficult thing is that you  just had three weeks ago a press conference that he gave where he was  trying very quietly to thread the needle and say, look, I think we needed  to have one cut, I don`t think we need to have more unless we see data  that`s very difficult.  So, I think, right now, he is in a little bit of a  tough spot. 

HERERA:  He`s also in the spotlight certainly with the administration, and  specifically the president.  So he has to walk that fine line and not be  seen as caving in to an administration but also if he needs to cut rates  for the economy do that.  So might he talk about other instruments that the  Fed has in the tool box?  

HUNT:  I think there could be some discussion of other possibilities that  the Fed could use.  I think globally you have low rates across the world,  and I think that`s part of the problem for the U.S., is that U.S. rates are  being driven down because you have negative-yielding assets across most of  Europe right now.  

I also think they`re going to try to talk a little bit about what the other  possibilities are in terms of what other kind of policies such as fiscal  policies like a stimulus or something else that governments can do besides  the central banks and try to get the discussion away from central bank  policy as the only tool that governments have across the globe. 

GRIFFETH:  It`s not just the bond market that`s anticipating cuts.  I mean,  we`ve been seeing some of the interest-sensitive sectors of the stock  market do well as well.  Does that last for a while?  Do they become more  attractive to you necessarily?  Do you become more defensive in your  portfolio?  

HUNT:  Well, I think when you look a global rates, global interest rates  being low across so much of the world, I think you have to look at things  like utilities and REITs and the places where you get some sort of a yield,  because investors are looking for yield.  In many places, the government  bond market, which is where you used to be able to find it, you can`t find  it.  

So, I think there`s an element of defensiveness just in going after  dividend stocks to begin with, but also some of the areas where if you  think rates are going to be lower for longer, they stay attractive, which  is why you have valuations higher than you would normally see.  

GRIFFETH:  We will see what happens tomorrow.  Sarah Hunt with Alpine Woods  Capital Investors — again, thanks for joining us tonight.  
HUNT:  Thank you.  

HERERA:  And stocks seesawed on concerns over the direction of interest  rates and ahead of Fed Chair Powell`s speech tomorrow.  Tech stocks fell,  bank stocks rose, and early in the trading session, the yield curve  inverted once again, meaning the yield on the ten-year treasury briefly  fell below the two-year.  

The Dow Jones Industrial Average finished the day up 49 points to 26,252.   The Nasdaq fell 28, and the S&P 500 was down one.  

GRIFFETH:  Meantime, today`s economic reports painted a mixed picture of  the economy, on the one hand we had a number of Americans filing for  jobless benefits that fell more than expected last week, back near a half  century low.  It is a sign of labor market strength.  On the other hand,  the manufacturing sector shrank for the first time in nearly a decade.  New  orders were weaker, which offset slightly faster output.  

HERERA:  Boeing (NYSE:BA) is reportedly discussing its 737 MAX jet  production rate with suppliers.  According to reports, the company says it  will resume producing 52 aircraft per month in February of 2020.  It will  then increase that rate to 57.  

However, the company added that this production schedule assumes that  regulators approve the plane to fly again commercially in the fourth  quarter.  And as we`ve reported, regulators say there is no timeline for  its return.  

Boeing (NYSE:BA) shares rose 4 percent in today`s session, making it the  top performing stock in the Dow index.  Supplier Spirit Aerosystems rose on  the report as well.  

GRIFFETH:  President Trump is taking on Ford Motor (NYSE:F) again.  This  time he is going after the automaker for agreeing to meet fuel economy  standards set by California.  Those standards are much more restrictive  than the ones being considered by the president.  
Phil LeBeau has more.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There`s a fight  brewing between California and President Trump.  Caught in the middle is  Ford and other automakers.  It all revolves around the fuel economy  standards for our cars and trucks.  The current standards which target 54.5  miles per gallon by 2025 are being rewritten.  

The president wants a far lower fuel efficiency target, reportedly less  than 40 miles per gallon.  But California, which can legally set its own  standards, want vehicles to hit 50 miles per gallon by 2026, a move Ford  agrees with which prompted the president to tweet: Henry Ford would be  disappointed if he saw his modern-day descendants wanting to build a car a  much more expensive car that is far less safe and doesn`t work as well,  because execs don`t want to fight California regulators.  

Ford responded by saying: We have consistently supported one 50-state  resolution for regulating fuel economy standards.  And this agreement with  California provides regulatory stability while reducing CO2 more than  complying with two different standards.  

Since becoming, President Trump has met with auto executives many times.   And his public comments on them had swung widely from high praise to nasty  ridicule.  Whether the latest shot with Ford leaves bruises depends on what  happens between the battle over fuel economy standards and the Trump  administration and California.  

Before you make too much out of the latest tweet from the president  targeting Ford, remember that the president has a well-established track  record of bashing companies one day and turning around and praising them a  few days later.  

HERERA:  It is time to take a look at some of today`s “Upgrades and  Downgrades”.  
Target (NYSE:TGT) was upgraded to buy from neutral at Citi.  The analyst  calls the company a winner in the current retail environment and says the  stock could see further gains.  The price target is $130.  Shares gained 3  percent after yesterday`s 20 percent rise which we told you about last  night.  

Wayfair was upgraded to buy from hold at Stifel Nicolaus.  The analyst  there cites the 12 percent decline in the stock price since Wayfair`s last  earnings report.  The price target is $150.  The stock gained nearly 2  percent to $117.20.  

Toll Brothers (NYSE:TOL) was downgraded to market perform from out perform  at Wells Fargo (NYSE:WFC).  The analyst cites a lack of a catalyst for the  stock over the near and intermediate term.  The price target is $39.  The  stock rose 2 percent to $36 even.  

GRIFFETH:  Still ahead, sweating it out.  Are Americans spending a lot on  fitness these days?  But for how long?  

HERERA:  Some late-day merger activity to tell you about.  
VMware announcing two of them, in fact.  The company is buying security  software firm Carbon Black.  It is also going forward on its plan to  acquire the outstanding shares of Pivotal Software.  The deals together are  valued at more than $4.5 billion.  

And Hasbro (NYSE:HAS) has agreed to buy Entertainment One, which is the  maker of preschool brands like Peppa Pig for about $4 billion.  The company  says the deal will improve its growth outlook.  

GRIFFETH:  Peppa Pig.  
HERERA:  Indeed.  

GRIFFETH:  With all of the volatility in the stock market right now, people  are pouring money into low-risk investments.  According to a recent report,  money market funds assets hit the highest level in a decade last week.   Taxable money funds which are considered as safe as bank savings accounts,  they`re offering higher yields than most treasuries.  That`s a result of  that so-called inverted yield curve we have been talking about when short  term securities pay more than long-term securities, which often occurs when  the market begins to anticipate a slowdown in the economy.  

HERERA:  And August has been a pretty volatile month so far for equities.   With all of the recent volatility in the market, some investors may be  stockpiling cash.  But is that a good idea or a mistake?  
Joining us to talk about the right cash strategy for you is Christine Benz.   She`s director of personal finance over at Morningstar (NASDAQ:MORN).  
Christine, welcome back.  Nice to have you here.  

CHRISTINE BENZ, MORNINGSTAR DIRECTOR OF PERSONAL FINANCE:  Sue, it is great  to be here.  Thank you.  

HERERA:  And you say, first and foremost, you have to look at a couple of  key factors, where you are in terms of your life stages, correct?  

BENZ:  That`s right.  So, working people who have a regular salary need  much less of a cash cushion on an ongoing basis.  I think they can fall  back on the usual three to six-months worth of living expenses.  

You probably don`t want to get too tactical if you are a long-term investor  with a long-time horizon until retirement.  You probably want to hold a  fairly skinny cash cushion and keep the rest of the money working for you  in long-term assets.  

GRIFFETH:  Retired people?  
BENZ:  Retired people need more of a cash cushion in my opinion.  So I like  the idea of one to two-years worth of portfolio withdrawals in cash.  So,  in retirement, you are probably getting income from some other sources,  whether Social Security or a pension, but the amount of money you would  normally take out of your portfolio, I would keep one to two-years worth of  those withdrawals in cash.  

The idea is that Armageddon could occur with the stock and bond markets,  but you would have that cash reserve set aside to meet your living  expenses.  I think that can provide a ton of peace of mind in volatile times.  

HERERA:  There`s that middle sector though, those who work in the gig  economy or the sharing economy, where working may not be as consistent as  it is in other places, if you are an independent contractor.  
What do you do then?  

BENZ:  Those paychecks can be really lumpy.  Some of those gig economy  workers can be quite highly paid, but there I think you do need to set  aside a larger emergency reserve.  It seems like a heavy lift, but I do  think that one year, one year`s worth of living expenses in cash  instruments — and this can be a variety of accounts, CDs, money market  accounts and so forth.  

But one year`s worth of living expenses seems reasonable.  That way if you  do get caught in some sort of an income disruption, you will have at least  some of your living expenses set aside.  So I think that that can provide a  lot of peace of mind.  Again, you won`t need to raid your long-term  retirement assets.  

GRIFFETH:  Very quickly, should individual investors think of cash the same  way money managers do?  Professional money managers go to cash because  they`re worried about the markets or, you know, whatever.  That gets into  market timing.  
What about individual investors though?  

BENZ:  I think they can fall into the same trap, but individual investors  seem to like the idea of retreating to cash in volatile markets, and it  does provide sort of a short-term relief.  But the problem is that`s  replaced with what`s immediately a nagging sense of, is it time to get back  in.  

GRIFFETH:  Right, right.  
BENZ:  And so, you have kind of swapped one worry for another.  I think it  is a loser`s game.  Even professional money managers have trouble pulling  those bets off with consistency.  

HERERA:  On that note, Christine Benz, thanks so much, Christine, with  Morningstar (NASDAQ:MORN).  
BENZ:  Thank you.  

GRIFFETH:  BJ Wholesale`s digital strategies paying off.  That`s where we  begin tonight`s “Market Focus” with the warehouse retailer topping earnings  estimate thanks to an increase in membership fees.  The company said  investments in same day delivery, digital coupons and its buy online, pick  up in store strategy, they`re all helping to attract new customers.  That  stock soared more than 17 percent today to $26.42.  

Hormel reported better than expected earnings but it also listed a number  of challenges, including the higher cost of avocados and volatile pork  prices.  That ate into profits in the grocery business, but the company was  able to reaffirm the full-year outlook and the stock rose nearly 5 percent  today to $42.95.  

Dick`s Sporting Goods (NYSE:DKS) reported higher same-store sales for the  first time in two years.  The retailer topped earnings estimates and raised  its full-year guidance.  The company also plans to open new stores and says  it is less worried right now about the impact of tariffs on consumers than  it once was.  Shares were up more than 3 percent today to $34.15.  

HERERA:  1-800-Flowers lost money in the most recent quarter despite  reporting a rise in revenue.  The company saw strong demand for its gourmet  food and gift baskets, but it wasn`t enough for investors.  The stock  wilted — forgive the pun — nearly 12 percent to $17.06.  

And then after the bell, sales and profit slipped at the Gap (NYSE:GPS).   It is Old Navy brand saw the worst comparable sales figure in three years.   The retailer described the current environment as, quote, challenging.   Shares were volatile in after hours trading and it closed the regular  session up more than 4 percent to $17.75.  

Also after the bell, Salesforce reported better than expected profit and  sales on higher demand for its cloud software.  The company also raised its  full-year guidance.  Shares initially rose in after hours trading.  They  closed the regular session up a fraction to $148.24.  

GRIFFETH:  All week, we have been focusing on the consumer and how changing  buying habits are affecting the economy in different sectors.  And tonight,  we look at the fitness industry.  People are spending a lot of money on  their health right now, but it could be the first expense to take a hit if  the economy falters.  
Diana Olick tonight takes a look at the American consumer.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The business of sweat  is heating up.  

UNIDENTIFIED FEMALE:  Currently, fitness is my priority.  
OLICK:  A record 71 million consumers use some kind of health club last  year.  

UNIDENTIFIED MALE:  Because I felt like health is wealth.  

OLICK:  But they`re not just doing it in big box gyms.  The biggest growth  sector is boutique, name`s like Barry`s Bootcamp, SoulCycle, Orange Theory,  Zengo, Pure Barre, Solidcore, Club Pilates, Shadow Box, Rumble, Platefit,  just to name a few.  
Since last year, health club industry profit is up 8 percent to just $32  billion, according to the International Health, Bracket and Sports Club  Association. 

But in 2017, boutique made up 40 percent of the market, up 121 percent in  five years.  Compare this to 18 percent growth for big gyms.  And boutique  consumers pay twice as much a month.  
Streaming home fitness is also growing past.  Peloton, Beach Body, Gaia,  Tracy Anderson, The Daily Burn, The Mirror.  

UNIDENTIFIED FEMALE:  Tight, tight, tight.  
OLICK:  In a survey of “A Sweat Life`s” largely millennial readership, last  year, 21 percent of respondents were spending on digital, more than twice  the share in 2016.  Peloton is the giant with plans to go public.   Investors have put about $94 million into Peloton and the company is valued  at $4.15 billion, according to an interview with CNBC early this year.  

Planet Fitness is one of the few publicly traded companies.  Its stock is  way up year-to-date with strong sales and it has doubled its locations in  nearly 2,000 since 2014, in all 50 states.  But analysts are warning of a  slowdown if we go into a recession.  

TAMMIE BODDIE, GYM MEMBER:  I wouldn`t be able to probably afford the gym  membership I have now.  It is like $20 a month.  I probably would have to  drop it down to the $10 a month.  

DWAYNE THOMAS, GYM MEMBERA:  I think I probably would have to make some  adjustment, maybe work out without the gym if it was that much of hard  times that I fell on.  

OLICK:  Most fitness is backed by big private capital, but with spending on  fitness so high and rising, most investors are not sweating a potential  turn.  
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  

HERERA:  Coming up, a look inside a spaceport that is out of this world.  
HERERA:  There are reports tonight that the Trump administration is  preparing to release a plan which would return Freddie Mac and Fannie Mae  to private ownership.  The mortgage companies have been under government  control since the financial crisis.  According to the “Wall Street  Journal”, the plan would feature a recapitalization of both companies and  possibly a public stock offering to help bolster their balance sheets.  The  process could take several years.  

GRIFFETH:  Speaking of which, mortgage rates are still at a three-year low  according to Freddie Mac.  Borrowing costs on the 30-year fixed rate are at  3.55 percent.  The 15-year is at 3.03 percent.  Mortgages loosely tracked  the yield on that ten-year treasury, which as you know has been declining  sharply.  

HERERA:  Telecom companies and attorneys general in every state are teaming  up to fight robocalls.  The companies are pledging to work to prevent  illegal calls on their networks and they say that they will work with law  enforcement to investigate the calls` origins.  The attorney general of  North Carolina says that he hopes that agreement will help shine a light on  the shady activity.  

GRIFFETH:  Finally tonight, a peek into the future.  Where do you picture  yourself waiting before you board a flight into space?  
Morgan Brennan recently got a look inside Virgin Galactic`s new spaceport.  

GEORGE WHITESIDES, VIRGIN GALACTIC CEO:  This is important data to share  with you some of the progress and to declare operational readiness for  Spaceport America.  

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The Gateway to  Space, that`s what Virgin Galactic is calling the new home in the New  Mexican desert, the world`s first ever commercial space port.  

UNIDENTIFIED MALE:  Departing gateway to space.  
BRENNAN:  Billionaire Richard Branson`s spaceflight startup has officially  moved the team from over 100 employees from the Mohave Desert to Spaceport  America, as it gets ready to open for business.  It`s hoping to send paying  customers to the tune of $250,000 to the edge of space starting next year.   Virgin Galactic`s CEO George Whitesides says this new facility will help  the company achieve those ambitious goals.  

WHITESIDES:  We are focused on the operations here in southern new Mexico.   There are unique advantages to Spaceport America, number one being  restricted airspace.  That is terrific and will allow us to operate at a  high flight rate.  Obviously, it is a tremendously exciting time for  commercial space around the planet.  

BRENNAN:  Virgin Galactic is unveiling phase one of its facility.  The top  floor will be home to its operational functions, including mission control  which will house up to 30 engineers and other employees during flights,  while the bottom floor has been transform into a lounge and waiting area  for customers, friends and family.  

With this big unveil, Virgin Galactic is not only pitching customers but  investors as well, since it is in the process of merging with social  capital to become the first publicly traded commercial human space flight  company.  CEO George Whitesides says with more than 600 customers signed up  and thousand more potential customers inquiring, he sees a path to  profitability.  

WHITESIDES:  I think it is probably evidence in some of the financial  projections that we`ve put out there.  We think it is a very profitable  business once we start commercial operations.  Obviously, this is not  something that you can go do very — in any other places, right?  So, there  are premiums attached to that.  But obviously, our number one focus is on  safe operations right from the start.  

BRENNAN:  Though the actual spaceship is not yet in New Mexico, the mother  ship, the duel fuselage aircraft that carries the space plane to an  altitude to launch is already there.  Virgin says it`s currently building  two more spacecraft and will have room in the hangar to eventually fit two  mother ships and five spaceships.  
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.  

HERERA:  And before we go, here is a look at the day`s final numbers from  Wall Street.  The Dow finished the day up 49 points to 26,252, the Nasdaq  fell 28 and the S&P 500 was down one. 

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

GRIFFETH:  I`m Bill Griffeth.  Thank you for that support.  Have a great  evening.  See you tomorrow.  

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

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