Transcript: Nightly Business Report – August 27, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Opioid settlement.  OxyContin  maker Purdue Pharma is reportedly in talks to settle thousands of lawsuits  against that company for billions of dollars.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Reunited.  Philip Morris  and Altria are in talks to merge.  A deal that would bring back together  two companies facing declining demand.  

HERERA:  U-turn.  Why more drivers are turning off the very features  designed to keep them safe.  
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,  August 27th.  

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  
We begin tonight with something a little different, something that has held  the attention of the whole country for a while and something that we have  been reporting on for quite sometime, that is the opioid epidemic.  NBC  News reported late this afternoon that Purdue Pharma is offering between  $10 billion and $12 billion to settle more than 2,000 lawsuits connected to  its role in the crisis.  Purdue Pharma, you may know, is the maker of  OxyContin, the powerful pain killer that has been at the center of the  opioid epidemic.  

The reported offer to settle come one day after a landmark ruling against  Johnson & Johnson (NYSE:JNJ) which, as we reported last night, was ordered  to pay half a billion dollars to the state of Oklahoma for helping ignite  one of the worst drug epidemics in American history.  
Ylan Mui has today`s developments from Washington.  

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  NBC News is reporting  that Purdue Pharma and the Sackler family are negotiating to settle the  flood of lawsuit against them from between $10 billion to $12 billion.   About 2,000 cases have been consolidated in federal court in Ohio, accusing  the company and the Sacklers for starting and sustaining the opioid crisis.  

NBC reports that Purdue has proposed filing for bankruptcy and then  restructuring into a for-profit trust.  That trust would pay out between $7  billion and $8 billion, including about $4 billion of in-kind drugs to  local governments, including medications that help rescue users from  overdoses.  The Sacklers would then pay an additional $3 billion to $4.5  billion dollars.  

Now, this could be an important step in reaching a global settlement for  other companies as well, similar to the $250 billion tobacco settlement in  1998.  

In a statement, Purdue said that it sees little good coming from years of  wasteful litigation and appeals, and that a constructive global resolution  is the best path forward.  The Sackler family did not provide a comment to  NBC.  
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.  

GRIFFETH:  And later in our program this evening, Meg Tirrell will take a  closer look at the opioid litigation that is still pending and explain its  importance.  

HERERA:  On Wall Street, stocks dropped as bond yields moved lower and  inverted, a technical phenomenon we`ve been telling you about that has  preceded recessions in the past.  That sent bank shares lower and if you  add in concerns over trade, you have a down day for stocks.  
The Dow Jones Industrial Average fell 120 points to 25,777.  The Nasdaq was  down 26, and the S&P 500 slid nine.  

So, let`s turn now to Mike Ryan to talk more about the stock and the bond  market.  He is chief investment officer at UBS Global Wealth Management  Americas.  
Mike, welcome.  Nice to have you here.  


HERERA:  You do not see a recession coming.  You think the U.S. can avoid a  recession, but you are paring back some of your equity positions?  

RYAN:  We are.  Again, we don`t see a recession, at least not over the  course of the next six to twelve months, even though we are seeing some  signs of weakening in the manufacturing side.  Certainly the global economy  has decelerated, yet you balance it off, it`s very strong labor market  conditions in the U.S. and a pretty healthy consumer sector as well.  

So, the risks of recession are still fairly low in our estimate.  That  doesn`t mean however that we don`t want to pare our risks back a bit  because of the uncertainty around trade.  We have taken some of our risk  exposure off with regard to equity markets and just got me a little bit  more defensive in terms of our portfolio position.  

GRIFFETH:  Mike, I want to ask you about something that happened today.  It  is only the second time it has happened in the last 40-plus years, and that  is the yield on the 30-year treasury bond dipped below the yield of the S&P  500 index.  Now, what we are looking here is a chart that takes us back to  the late `70s, and you see that the spread between the two has been  narrowing for years, and now the 30-year yield is less than the stock  market.  
What does that mean to you and the outlook for stocks?  

RYAN:  Well, Bill, I think we have to be careful here because I`m not sure  it tells you a lot.  It`s more coincidence than it is really a sense of a  cause and effect, because remember, there were certainly periods in the  past where we`ve had recessions and bear markets where the 30-year bond was  materially higher than what we had the S&P yield.  So, the notion somehow  because it has dropped below a technical level, it is suggestive of  recession or bear market, we have to be careful not to over-interpret it.  
That said — 

GRIFFETH:  Well, I would point out that the last time it happened, the only  other time it happened was in March of `09 and that was a major bottom for  the stock market.  

RYAN:  Yes, that`s true.  But remember there were other bonds in the stock  market when you are the yield on the 30-year when it was materially higher.   So, the notion that the spread between the 30-year bond and the yield that  exists on S&P 500 that it is a forecast vehicle or somehow going to  indicate recession or bear market, we have to be careful not to over- interpret that.  

What I will say, though, is, as yield fall, what it is a sign of, is that  there`s concerns about global growth and also there`s concerns about the  Fed`s ability to generate a level of inflation that`s more in line with the  target of 2 percent.  

HERERA:  That was going to be my question but you answered it for it.   Thanks, Mike.  Appreciate it.
RYAN:  Thanks, Sue.

HERERA:  Mike Ryan with UBS Global Wealth Management Americas.  
GRIFFETH:  To the economy now and a new report on consumer confidence,  which showed optimism dipping slightly in August, but it does remain  historically high.  And when confidence is high, consumers are more likely  to buy big ticket items like houses.  The latest read on home prices still  shows that the market is cooling off, but as Diana Olick reports, that may  be about to change.  

UNIDENTIFIED FEMALE:  I would take this in a second.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Home buyers out  shopping this spring finally started to get the upper hand, at least in  terms of prices.  The supply of homes for sale is still very low, but  prices started to ease.  Home prices nationally were up just 3.1 percent  annually in June, according to the S&P Case Shiller index.  That is half  the gain they were seeing a year ago. 

In some markets like San Francisco, New York City, Chicago and Los Angeles,  they were barely higher.  And Seattle prices were actually 1 percent lower.  

But Case Shiller is based on a three-month average ending in June, so it  does not take into account the huge drop in mortgage rates since May.  The  average rate on the 30-year fixed is now a full percentage point lower than  it was a year ago.  Lower rates give consumer`s more purchasing power which  helps boost sales and in turn can push prices higher again.  

FRANK NOTHAFT, CORELOGIC CHIEF ECONOMIST:  I do think now with the pickup  in home buying activity spurred by low mortgage rates, we`re going to see  that turn around and we`ll probably see some quickening in home price  growth over the next 12 months.  

OLICK:  More recent home price reads have, in fact, shown home prices  heating up again.  Sales of both new and existing homes are now showing  improvement after a slower than expected spring, and while fall is not  usually a busy as spring is for housing, there could be some pent-up demand  ready to pounce thanks to those lower rates.  

The wild card, as always, is supply.  There are far too few homes for sale  on the lower end of the market, and that`s where buyers depend most on even  the smallest moves in mortgage rates.  If rates should tick up again, all  bets are off.  
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  

HERERA:  Odeta Kushi joining us to talk more about the housing market.  She  is deputy chief economist at the First American (NYSE:FAF) Financial.  
Welcome, Odeta.  Nice to see you again.  


HERERA:  You I think believe or agree rather with what Diana just  mentioned, healthy — pretty healthy housing market and maybe a longer  period of time where consumers are going to be competing for homes.  

KUSHI:  Absolutely.  Consumers are in a great position.  They have lower  mortgage rates.  The labor market continues to be at 50-year bests, and you  know we`re seeing house appreciation kind of moderate.  

And so, affordability is really on the consumer side right now, and so we  expect to see a little bit of an extended summer selling season, maybe into  the fall, but that could lead to some higher house price appreciation.  As  we know, pent-up demand against limited supply means faster house  appreciation.  

GRIFFETH:  What about that limited supply?  I think you and I talked about  it the last time you were here.  I mean, homebuilders have been shy about  building much more with the uncertainty in the markets here.  Do you expect  that to pick up at all at some point?  

KUSHI:  So we`re seeing that builder confidence is actually quite high and  a lot of that is due to the lower mortgage rates, and we did see single  family housing starts were higher this month compared to last year.  So,  we`re anticipating that building will pickup in response to the lower  mortgage rates, which will be a huge relief for the housing market.  


HERERA:  We have lower mortgage rates certainly, but there are those out  there who were saying what the bond market is doing, which is driving rates  lower, is telling us that there may be some underlying concerns with the  overall economy.  
What do you think about that and could all of the volatility we`ve been  seeing recently affect home buyers?  

KUSHI:  Certainly consumer sentiment is a big part of making one of the  biggest financial decisions you will ever make in your life, but I think it  is important to note that the economic fundamentals are there.  Consumers  do have more equity than they`ve ever had in history, and, again,  affordability is high.  So, ultimately, that may work to kind of trump some  of the dampening in consumer confidence that`s stemming from a lot of the  trade uncertainties.  

HERERA:  Odeta, thank you so much.
KUSHI:  Thank you.
HERERA:  Odeta Kushi with First American (NYSE:FAF) Financial.  
GRIFFETH:  Time to take a look at some of today`s “Upgrades and  Downgrades”.  

We begin with shares of Verizon (NYSE:VZ).  They were upgraded to  outperform from perform at Oppenheimer.  The analyst says that Verizon  (NYSE:VZ) should be early and successful with its 5G network.  The price  target, $70.  That stock rose a fraction today to $57.18.  

But Oppenheim downgraded Verizon`s smaller rival T-Mobile to perform from  out perform.  The analyst expects t-mobile to have a difficult time as it  merges with Sprint.  In fact, the firm pulled its price target on that  stock.  Shares fell 1 percent today to $77.12.  

HERERA:  Zynga (NASDAQ:ZNGA) was added to Wedbush`s best ideas list with an  outperform rating.  The list represents stocks with the potential for 20  percent gains in six months.  The analyst saying Zynga`s new releases could  push results past estimates.  Price target is $9.  The stock rose 2 percent  to $5.72.  

Red Robin Gourmet was downgraded to underperform from neutral at Bank of  America (NYSE:BAC) Merrill Lynch.  The analyst believes earnings growth  will materially miss consensus expectations next year.  The price target is  $30.  The stock fell more than 7.5 percent to $31.70. 

GRIFFETH:  Still ahead, a decade after being apart, Altria and Philip  Morris may be looking to get back together.  

GRIFFETH:  A former Google (NASDAQ:GOOG) employee has been charged with  stealing trade secrets from Google (NASDAQ:GOOG) and then taking them to  Uber.  According to the complaint, the former employee downloaded more than  14,000 files related to Google`s autonomous car project before resigning  from the company.  He then created a start-up that was acquired by Uber.   Both Uber and Google (NASDAQ:GOOG) cooperated with the government officials  in that investigation.  

HERERA:  Altria and Philip Morris are in talks to merge.  Such a deal would  reunite them after more than a decade apart, and it comes as both see sales  fall.  Investors weren`t too enthusiastic about the idea.  Both stocks fell  in trading today.  
Frank Holland has more.  

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As cigarette sales  continue to fall globally, tobacco companies are looking for new products  such as e-cigarettes and heated tobacco to reignite the industry.  Now, a  potential merger between Philip Morris and Altria could reunite these  companies after a split in 2008, bringing Marlboro, Juul and the newly  approved IQOS heated tobacco product under one roof.  
Philip Morris sells Marlboro outside of the U.S. and has a strong  international distribution network.  IQOS was approved for U.S. sale by the  FDA in April.  Altria will handle the marketing and distribution.  In  December, Altria also bought a 35 percent stake in Juul, the market leader  for e-cigarettes in the U.S. 

Wells Fargo (NYSE:WFC) analyst Bonnie Herzog forecast a possible deal ahead  of the announcement on Tuesday, citing benefits of scale, improved and  accelerated rollout of Juul and IQOS globally, better cash flow for the  combined company.  

Jefferies analyst Brian Tomkins said there are sizable revenue  opportunities and a merger would create better international distribution  for Juul and better U.S. rollout for IQOS.  The merger would create the  biggest tobacco company in the world with the two fastest selling products  in the industry and the most extensive distribution network, according to  analysts.  

Sources say the two companies are still actively discussing the possible  deal and the discussions are expected to continue for several more weeks.   One question mark here is cannabis.  Altria purchased a 45 percent stake in  cannabis producer Cronos last year.  It is not clear how that investment  would be handled by a combined company.  

GRIFFETH:  Lower prices hurt J.M. Smucker`s results, and that`s where we  begin tonight`s “Market Focus”, with the food company missing earnings  expectations as prices for two of its key products, coffee and peanut  butter, fell.  It is also facing increased competition in its competitive  food business for pets.  The company cut its full-year forecast as a result  and that sent shares lower by more than 8 percent to $103.69.  

AstraZeneca was granted fast track approval status by the FDA for one of  its drug drugs.  The company attempted to get its popular diabetes  treatment approved for use in preventing heart and kidney failure for  patients who have chronic kidney disease.  The stock was up a fraction  today to $44.88.  

And a report out today says that Revlon (NYSE:REV) is going to begin  reaching out to potential bidders next month as it looks for a buyer that  it hopes can turn around the struggling cosmetics company.  The company has  been exploring either a sale of the entire company or of its major brands.   Shares rose nearly 1.5 percent today to $16.38.  

HERERA:  The pizza chain Papa John`s has named Arby`s president Rob Lynch  as its new president and CEO.  Lynch will replace Papa John`s interim CEO  who took over last year after the company`s founder resigned.  The company  is in the midst of a turnaround, trying to change its image and shore up  sales.  Shares jumped more than 9 percent to $48 even.  

Taiwan Semiconductor is being sued for patent infringement by rival chip  maker Global Foundries.  Global Foundries is looking to stop Taiwan Semi`s  customers which include Apple (NASDAQ:AAPL) from importing affected  products to the U.S. and Germany.  Taiwan Semiconductor stock was up a  fraction to $41.35.  

BP agreed to sell its Alaskan operations to privately-held Hilcorp for more  than $5 billion.  The decision is part of its plan to raise $10 billion  over the next two years to strengthen its balance sheet.  BP has operated  in that region for about 50 years.  The shares were up a fraction to  $36.60.  

GRIFFETH:  As reported at the top of the program, Purdue Pharma is  reportedly offering as much as $12 billion to settle opioid claims.  Now,  this follows last night`s ruling against Johnson & Johnson (NYSE:JNJ) for  its role in this epidemic.  

And as Meg Tirrell reports now from Norman, Oklahoma, there is still a lot  more litigation ahead.  

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Austin Box was 22, a  linebacker for the University of Oklahoma.  His dad Craig said that was  Austin`s dream.  

CRAIG BOX, FATHER OF OPIOID OVERDOSE VICTIM:  He was a tremendous student  and athlete.  He graduated high school early.  He was recruited heavily to  play baseball and football at various colleges.  

TIRRELL:  After an injury, Austin took opioid painkillers prescribed for a  ruptured disk.  But it was a shock to his parents when in 2011, he died and  opioids were found in his system.  

BOX:  There were four or five different kinds in his system at the time of  his death.  

TIRRELL:  Craig Box testified in a landmark trial in Oklahoma that reached  its conclusion this week.  A judge here ruled Johnson & Johnson (NYSE:JNJ)  was responsible for the state`s opioid crisis.  

JUDGE:  Those actions compromised the health and safety of thousands of  Oklahomans.  

TIRRELL:  And ordered the company to pay $572 million to help abate it.   Purdue Pharma and Teva had settled before the trial began.  
The Oklahoma case was just the first to go to trial of thousands pending  across the country, seeking to hold the drug industry accountable for the  opioid epidemic.  Attention now turns to a massive set of federal cases,  consolidated in Ohio in what is known as a multi-district litigation or  MDL, brought by thousands of cities, counties and others.  
An attorney for J&J said the Oklahoma results should have no bearing on  those cases.  

SABRINA STRONG, JOHNSON & JOHNSON ATTORNEY:  The cases that are  consolidated in the MDL proceeding in Cleveland, Ohio, are under a  different law.  They have different parties, different theories, and so we  do believe that those are very different.  

TIRRELL:  Yet stocks of companies involved in that litigation jumped last  night on J&J`s ruling, which was smaller than Wall Street anticipated.   Oklahoma`s attorney general said that`s the wrong take.  

MIKE HUNTER, OKLAHOMA ATTORNEY GENERAL:  The multiplier effect around the  country is considerable.  There are 2,000 plaintiffs in the MDL and 50  other states.  For those analysts to be characterizing this as a win, they  need to go back to business school.  

TIRRELL:  That Ohio case will bring scrutiny to more players in the opioid  crisis, not just drugmakers but distributors and pharmacies as well.  A  massive DEA database central to those cases details the sheer number of  opioid pills that were dispensed and where.  

Here in Cleveland County, Oklahoma, for example, more than 70 million  prescription pain pills were supplied between 2006 and 2012, and that`s 41  pills per person for year.  This Walgreen`s in Norman received the highest  number of pills, almost 4 million.  

The judge in the federal case in Ohio is pushing for a settlement, which  analysts expect could top $100 billion.  Craig Box says it would be the  best outcome to make a dent in the epidemic.  

BOX:  I hope that this is a message to the opioid companies.  Candidly, it  maybe will force settlement to some of the cases so the states can receive  funds to address the problem quicker than having to go through a trial like  this.  

TIRELL:  J&J, though it went to trial in Oklahoma, said it is open to a  potential settlement in the federal cases.  The first trial is set to begin  October 21st.  
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in Norman, Oklahoma.  

HERERA:  Still ahead, Amtrak`s big makeover.  

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  I`m Seema Mody in  Newcastle, Delaware, where Amtrak is working to modernize and speed up its  trains.  The question is whether these upgrades will pay off.  That story  next on NIGHTLY BUSINESS REPORT.  

GRIFFETH:  A Russian company has now become the first Boeing (NYSE:BA)  customer to sue the plane maker over the grounding of its 737 MAX.  The  company agreed to purchase 35 planes several years ago and alleges that  Boeing (NYSE:BA) breached that contract by misrepresenting how safe the  plane was to fly.  It also claims that Boeing (NYSE:BA) put profits ahead  of safety.  The jet, of course, as you know has been grounded since mid- March, and regulators say that there is no timetable for its return.  

HERERA:  From planes to trains.  Amtrak wants your next trip to be by rail,  so it is making a lot of changes to attract new travelers, but there`s one  big challenge.  
Seema Mody is in Newcastle, Delaware, tonight.  

MODY:  Seeking to attract more business travelers, Amtrak is spending offer  $2 billion to modernize its Acela fleet, with 28 new high-speed trains that  are designed to operate at a faster speed of $160 miles per hour, up from  150 on the current Acela.  The next generation trains are being built by a  French manufacturer, Alstom, but are being manufactured in facilities in  Upstate New York.  In total, creating more than 1,300 jobs.  

They promise to accommodate 30 percent more passengers and be 20 percent  more efficient, thanks to new lightweight technology.  
In this new Alstom factory in Newcastle, Delaware, we are getting a look at  the new Acela train which comes into service in 2021.  Amtrak rolling out  features like updated Wi-Fi, USB ports, personal outlets and an adjustable  reading light in every seat.  

Amtrak says the goal is to make trains more competitive with planes, cars  and other forms of public transit, while also addressing safety concerns  following several fatal accidents over the past five years.  

CAROLINE DECKER, AMTRAK VP OF NORTHEAST CORRIDOR SERVICE LINE:  Seventy- five percent of travelers between air and rail are choosing Amtrak, and on  the north end, which is between New York and Boston, we are just over 50  percent.  We see a lot of opportunity for growth on the north end.  There`s  an awful lot of business that is growing in the Boston area.  

MODY:  Amtrak is betting the new upgrades will pay off.  The northeastern  corridor runs from Boston to Washington and currently carries roughly 12  million passengers a year.  It accounts for nearly 40 percent of the U.S.  railroad`s traffic, and Amtrak is hoping a new non-stop service between New  York and D.C. will increase bookings.  

But experts say the future of American high-speed rail will be challenged  by the aging infrastructure.  Amtrak executives have been urging the White  House and lawmakers to allocate more federal funds to its railroads,  bridges and tunnels, but President Trump has pushed back, saying the  individual states should make these updates.  

DECKER:  There`s absolutely a risk.  I often say once the new trains enter  service, we will have the highest generation, the fifth generation of high- speed rail technology operating on 19th century infrastructure in some  places.  For instance, we have tunnels, a tunnel in Baltimore that dates  back to the late 1800s, and it is safe, it is operable, but we have to  operate at very slow speeds.  

MODY:  And with no timeline on a U.S. infrastructure bill, experts say  lawmakers need to find a solution to ensure customers remain safe and these  new trains can operate smoothly.  
For NIGHTLY BUSINESS REPORT, Seema Mody, Newcastle, Delaware.  

GRIFFETH:  And, finally, from trains to cars.  As automobile makers add  more features to keep drivers safe, a growing number of those drivers are  turning them off.  Why?  Because drivers are fed-up with the warning.  
Phil LeBeau has that story.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  If you have a new car  or truck and have drifted out of your lane or failed to signal, you have  seen the warning, stay in your lane.  
J.D. Power says lane departure warning are built into almost two-thirds of  the current models, and in a survey of 20,000 owners, almost a fourth of  them said they don`t like those warnings, and 30 percent have turned it  off.  

KRISTIN KOLODGE, J.D. POWER:  What we`re seeing is a higher degree of  consumers expressing their level of annoyance and these systems being  bothersome.  

LEBEAU:  This is not what automakers had in mind when they started building  vehicles with technology to help drivers avoid collision, from automatic  emergency braking to adaptive cruise control.  Cars now make decisions to  keep us safe before we do something wrong behind the wheel.  

All of these features sound great in the showroom, but out on the road, if  a warning goes off or the steering wheel vibrates a lot of people don`t  like it.  

KOLODGE:  We get the feedback from consumers saying that sometimes it feels  like I`m fighting against the vehicle.  Those are the elements where it  really is not feeling like a partnered-type of driving situation.  

LEBEAU:  It`s not just lane departure systems drivers are turning off.   They`re also disabling adaptive cruise control and rear auto emergency  braking, which raises the question, if drivers don`t like the decisions  their cars are making right now, will they get irritated in autonomous  vehicles that may not drive or handle situations the way we would behind  the wheel.  

This type of technology is not going away.  In fact, it`s become more  pronounced, which means more drivers will be turning off the safety  features designed to keep them safe.

HERERA:  And before we go, here`s a look at the day`s final numbers from  Wall Street.  The Dow fell 120 points to 25,777.  The Nasdaq was down 26  and the S&P 500 slid by nine.  

And that is NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  Thanks for  joining us.  

GRIFFETH:  I`m Bill Griffeth.  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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