Transcript: Nightly Business Report – October 9, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Trade optimism.  Talks between the U.S. and China resume tomorrow.  The stakes are high.  The relationship complicated.  But stocks rise on hopes progress will be made.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Losing its edge.  The U.S. is less competitive than it was a year ago after Singapore knocks it out of the top spot.  

HERERA:  Frozen pensions.  What you should know if your employer changes the terms of your retirement plan.  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for
Wednesday, October 9th.  

GRIFFETH:  And we do bid you a good evening, everybody and welcome.

So, on the eve of the critical trade talks, there was muted optimism on
Wall Street today amid more mixed signals.  First thing this morning, there
were reports that China was open to reaching at least a partial deal.  But
late today, there were additional reports that even those expectations were
being lowered by Chinese officials.  

Investors lately have been getting used to such mixed messages.  But,
clearly, any time there`s even a hint of a potential truce, intentions
between the world`s two largest economies, stock rise.  And that`s what
happened today.  

The Dow Industrial Average rose 181 points, grew to 26,346.  Nasdaq gained
79.  The S&P was up 26.  

Kayla Tausche tells us what to expect when the two sides meet tomorrow.  

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  For first time since May, the U.S. trade representative and treasury secretary will receive China`s vice premiere on their home turf to continue negotiations for a 13th round as the trade war drags on.  

“Reuters” reporting expectations from China for a deal are low, after U.S.
banned business with eight Chinese tech giants.  

Here`s how President Trump responded to that.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  I think that they feel that I`m driving a tough bargain.  But I have to.  

TAUSCHE:  In earlier reports, Chinese officials suggested they are still
open to a partial deal and are willing to buy more soy beans from U.S.
farmers after pausing purchases this year.  That potential sent soy bean
prizes soaring.  The administration says that`s not enough.  But a truce
would bring a welcome calm, says one former White House negotiator.

CLETE WILLEMS, FORMER WHITE HOUSE INTERNATIONAL ECONOMICS ADVISER:  I think it`s the way the president can essentially have his cake and eat it, too.  He can say, look, I made progress on some real significant things.  I`m still tougher than anyone else has ever been with $250 billion in tariffs in place.  

TAUSCHE:  The specter of tariffs rising next week is just one of many
pressure points both Beijing and Washington have added in the days leading up to talks to try to get more concessions.  Both sides have announced new visa restrictions.  Economists, though, doubt China will back down.  

JOHN RUTLEDGE, CIO SAFANAD:  What`s not there is support for them to stop supporting their state-owned companies and — which is basically their
welfare system, or to shut down their new technology efforts.  

TAUSCHE:  The principles begin those negotiations Thursday morning and
extend through Friday afternoon. Tariffs on $250 billion in Chinese goods
rise to 30 percent on Tuesday.  

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.

(END VIDEOTAPE)

HERERA:  Investors are always looking for clues as to what the Federal
Reserve might do next.  But at the last meeting of policymakers, some
expressed concern that market expectations may be out of whack with what central bankers plan to deliver.  

Ylan Mui has more.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The minutes of the Federal Reserve`s latest meeting show division not just over the September rate cut but over how to talk about the panel of policy going forward.  And during the meeting, a few officials argue the market appears to be factoring in more Fed rate cuts that they believe is appropriate.  These
officials said it could become necessary for the committee to, quote, seek
a better alignment of market expectations and policymaker expectations.  

In addition, several participants urged Fed Chairman Jay Powell to provide
more clarity about when this period of recalibration could come to an end.  

Now, Powell has pointed a couple of times, including during his speech this
week, to the late 1990s when the Fed cut rates multiple times at
consecutive meetings, but not for an extended period of time.  He`s called
that experience successful but said the policy is not on a preset course.  

Now, on the other hand, a couple of officials have argued for a bigger rate
cut of 50 basis points, possibly accompanied by forward guidance, that they
believe to prevent the U.S. economy from slipping into stagnation.  
Throughout the meeting, there were references to trades tensions and a
concern that the uncertainty that`s weighing on business investment and
manufacturing could translate into a slowdown in hiring and ultimately hit
the consumer.  

Finally, on the volatility in overnight funding markets, there were stock
presentations and official discussion and a broad agreement that there
needs to be a decision about the appropriate level of reserves.  

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

(END VIDEOTAPE)

GRIFFETH:  And what it all means as the interest rates are expected to
remain low for some time.  So, how should you be investing in this
environment?

Eric Marshall is back with us.  He`s portfolio manager at Hodges Capital in
Dallas.

And we ask this question all the time, Eric.  I mean, especially difficult
if you`re investing for income.  What do you say to people who are trying
to make some monthly income in low interest rate environment?

ERIC MARSHALL, HODGES CAPITAL PORTFOLIO MANAGER:  Well, as long as the economy continues to grow, albeit at a slower pace and we don`t have inflation interest rates are likely to stay down and we think stocks look
very attractive relative to the other alternatives out there right now.  If
you look at the interest rate on a 10-year treasury, it`s about one and a
half percent today compared to the earnings yield on the S&P 500 is a
little over six percent.  So, that tells us that stocks offer a good risk
reward if we stay in this low interest rate environment.

HERERA:  And you specifically think that dividend paying stocks are where
investors should be looking.  Any particular ones that you like?

MARSHALL:  Well for income certainly, depending on investors risk appetite we like things like, you know, Coca-Cola (NYSE:KO) on the larger cap companies, International Paper (NYSE:IP) Companies that pay dividends that are higher than the yield on the 10-year treasury look pretty attractive. And you can find investment grade securities today that do that.

On the small cap side, we see opportunities as well.

GRIFFETH:  Yes, what about small caps?  I mean, your feeling is that
they`re due at some point to outperform the large caps.  Or you have to be
pretty patient with that, don`t you?

MARSHALL:  You do and you obviously take more risk with small caps, but
small caps have underperformed the broader market by about 13 percent
through the end of the last quarter.  And there`s only been three other
times post-World War II where you saw more than a 10 percent lag in small
caps versus the broader market.  And in each of those three times, we saw
the market catch up over the next year.

So, we think small caps over the next year are likely to catch up with the
broader market and we can find opportunities and things like materials and home builders and certain areas within consumer stocks.

GRIFFETH:  Very good.  Eric Marshall with Hodges Capital — again, thanks
for joining us tonight, Eric.

MARSHALL:  Thank you.

HERERA:  The number of job openings nationwide fell in August.  According to the Labor Department, openings now stand at 7 million, which is a one and a half year low and is the third straight month of declines.  But that number still easily exceeds the 5.8 million Americans officially classified as unemployed.

GRIFFETH:  Meanwhile, wholesale inventories increased less than initially
estimated back in August.  The Commerce Department said today that point
they rose 0.2 percent which is below the 0.4 percent previously reported.  
The report suggests that inventory investment could remain a drag on
economic growth in the third quarter.

HERERA:  A legal setback for Johnson and Johnson.  Last night, we told you
that a Pennsylvania jury awarded a man $8 billion in punitive damages.  
Investors sent the stock down about 2 percent, making it the worst
performing stock in the Dow today.  And though J&J finds itself in court
over a number of issues, this particular verdict caught many off guard.

Meg Tirrell has more for us tonight.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Johnson & Johnson (NYSE:JNJ) is no stranger to the courtroom.  The healthcare giant has been fighting legal battles on multiple fronts, most recently on its talcum powder and opioids businesses.  But the news late yesterday was unexpected. A Philadelphia jury said J&J must pay $8 billion in punitive damages, in a case involving its anti-psychotic drug Risperdal.  The damages are to a man who claims J&J downplayed risks that the drug could cause breast growth in boys.  He already won $680,000 in a compensatory award.  J&J called the award, quote, grossly disproportionate and a clear violation of due process and said it will move to have it set aside.  

The sheer size of the jury`s award though may be a symptom of the public
suspicion of the pharmaceutical industry, says University of Michigan
business professor Erik Gordon.

ERIK GORDON, UNIVERSITY OF MICHIGAN ROSS SCHOOL OF BUSINESS PROFESSOR:  The verdict shows how much we hate pharmaceutical companies.  We have gone from thinking of them as the people who provide the diabetes medicine and heart pills that keep our grandmother`s alive to the people who are gouging us with prices, lying to us about safety problems.  

TIRRELL:  The drug industry is now the least popular in the United States,
this year unseating the federal government, has most-hated in a Gallup
poll.  

GORDON:  They`ve gone from being heroes to being bums in the eyes of a lot of us, including jurors.

TIRRELL:  For J&J, more litigation is on the horizon another Risperdal
trial is set to begin in Philadelphia in December while there`s an ongoing
trial in the health giant`s home state of New Jersey concerning its talcum
powder and ovarian cancer.  And beyond that, J&J is still named in more
than 2,000 opioid lawsuits.  

The company just reached a settlement to avoid the first federal opioid
trial set to begin later this month in Ohio.  It paid $20 million to two
counties.  That`s after a $572 million loss in an opioid trial in the state
of Oklahoma.  Some of its talc verdicts have been larger, including one for
$4.7 billion last year.  

The company is appealing the cases it`s lost.  And while Wall Street
analyst has generally shrugged off the $8 billion verdict, saying it`s very
likely to be overturned, investors wiped more than 2 percent from J&J`s
stock price.  That amounts to more than $8 billion in market value.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

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

We begin with shares of Roku.  They were upgraded to outperform from
neutral at Macquarie today.  The analyst there sees growth opportunities
for the company in connected TVs, in advertising and expansion overseas.  
Price target now, $130.  Shares of Roku rose 9 percent today to $117.79.

Chipotle was upgraded to hold from underperform at Gordon Haskett.  The
analyst cited the company`s push into digital ordering and said that the
bear case on that stock right now is increasingly untenable, his quote.  
Price target, $740.  That stock gained more than two and a half percent
today to $827.29.

HERERA:  FedEx (NYSE:FDX) was downgraded to market perform from outperform at Bernstein.  The analyst says results could get worse before they get better.  The price target is $153.  Shares rose a fraction to $139.25.

Coverage of Peloton was initiated with an outperform rating at Baird.  The
analyst says the company has created a better fitness model and sees a
sizeable potential market.  The price target is $28.  The stock was up more
than 3 percent to $24 even.

GRIFFETH:  Still ahead, more companies are freezing pensions and leaving
workers with some often confusing sounding choices.

(MUSIC)

HERERA:  American Airlines has pulled Boeing (NYSE:BA) 737 MAX from its
schedule until mid-January.  That date is later than any other airline.  
Regulators have not said when they will allow airlines to operate that jet
again.  The airplane has been grounded since mid-March and has forced
carriers to cancel thousands of flights, driving up their costs.

GRIFFETH:  Thousands of northern California residents stand to lose power
over the next several days.  PG&E has begun cutting electricity to areas
where wildfire threats are high.  The bankrupt utility says that up to
800,000 customers will be affected, including parts of Napa.  

Classes today were canceled at the University of California-Berkeley, as
well as at other schools.  Area airports and transit systems say they will
not be affected.

And, by the way, late tonight, a new development.  Shares of PG&E fell
sharply after a judge opened the door to a rival bankruptcy plan.

HERERA:  Singapore has knocked the U.S. out of the top spot as the world`s
most competitive economy.  That`s according to the World Economic Forum`s annual competitiveness report.  The United States, the world`s largest conomy, is down to second place this year.

So, does this mean that the U.S. is losing its competitive edge?

We`re joined now by Michael Yoshikami.  He is founder and CEO of
Destination Wealth Management.

Good to see you again, Michael.  Welcome back.

MICHAEL YOSHIKAMI, FOUNDER & CEO, DESTINATION WEALTH:  Hi, Sue.

HERERA:  You do not think it means that the U.S. is losing its
competitiveness.  Why?

YOSHIKAMI:  Well, first of all, if you`ve been in Silicon Valley, the
degree of creativity and innovation that still exists in that location is
pretty incredible.  

Let me tell you also something about Singapore.  I used to be a college
professor in MBA program in Singapore, and that college offered innovation and technology creativity classes for executives all around Asia that would fly into Singapore as I was the instructor.  And you know what they were there to learn to do?  To be able to be as creative as the United States.  

So I think in the end, yes, I think certainly Singapore, Vietnam are
catching up, but I still think the United States is number one.

GRIFFETH:  But it begs the question, though, do you look elsewhere in the
world for investment opportunities if there are aggressive countries that
are working to increase their competitive edge against the United States?

YOSHIKAMI:  The answer is yes.  I think you do expand your reach outside of just the United States you certainly in terms of creative creativity and
innovation, even though their issues are related to China obviously now,
you do have other areas in Asia, as I mentioned on Singapore and Vietnam, I think that are compelling opportunities.  But again, I think it`s really a
matter of scale.  

Do you put most of your money in those type of markets or most of your
money in the creativity that exists in the United States?  And I vote for
the United States.

HERERA:  Where would you be looking for that opportunity from an investment standpoint?  And how much would you allocate to some of those other countries?

YOSHIKAMI:  Well, I think that you want to look at obviously the growth
areas, artificial intelligence, which is not only autonomous driving but
also what people are starting to be able to do with their phones.  I had an
opportunity the other day with Amazon (NASDAQ:AMZN) to ask customer service question, expecting a person to chat with me and it was an automated chat response which was really just as effective actually as chatting with a person.

So I think you want to look at companies that are really expanding focused
on innovation and Apple (NASDAQ:AAPL) is theoretically going to come out
with smart glasses next year, and then you want to look and see what`s
happening in Singapore, Vietnam.  Remember these are — these countries —
Vietnam is more about manufacturing, Singapore is where there`s a lot of
V.C. activity.  So, there`s opportunities there as well.

HERERA:  Venture capital, yes, indeed.

Michael, thank you very much.  

YOSHIKAMI:  All right.  Thank you.

HERERA:  Michael Yoshikami with Destination Wealth Management.

GRIFFETH:  FireEye`s revenue looks red-hot.  That`s where we begin
tonight`s “Market Focus”.

The cybersecurity company says that its revenue is going to come in at the
high end of its forecasted range when it reports earnings later this month.  
And separately, FireEye introduced new cloud security products that will be available on Amazon`s web services marketplace.  Shares were up about 5 percent to $14.53 today.

Fitbit is shifting its manufacturing operations out of China to avoid
tariffs.  The wearable device maker says that starting in January, none of
its trackers and smart watchers will be made in China.  Shares were
unchanged today at $3.69.

And AT&T (NYSE:T) is selling its businesses in Puerto Rico and the U.S.
Virgin Islands to Liberty Latin America.  It`s a deal worth nearly $2
billion.  That move allows AT&T (NYSE:T) to pay down some of its debt, and
shares rows of fraction today to $37.05.

HERERA:  Insurer James River Group is canceling its auto policies with an
Uber subsidiary.  That subsidiary handles and processes payments to Uber
drivers and as James River`s largest customer.  The insurer`s CEO said the
account did not meet profit expectations.  Shares plummeted more than 22
percent to $37.88.

Some changes at U.S. Steel.  The company said it plans to cut about $200
million of fixed costs by the year 2022.  It also named a new chief
financial officer.  The shares dropped to more than 8.5 percent to finish
at $10.09.

And after the bell, Costco (NASDAQ:COST) said comparable store sales for
this month were up more than five percent from a year ago.  Shares were
relatively unchanged in initial after-hours trading, but they closed the
regular session up nearly 2 percent to $296.90.

Also after the bell, Bed Bath & Beyond (NASDAQ:BBBY) said that it hired
targets chief merchandising officer Mark Tritton as its new president and
CEO, which takes effect next month.  Shares initially rose in after-hours
trading, but they closed the regular session down a fraction at $9.94.

GRIFFETH:  Pensions, once the holy grail of a secure retirement, are
quickly becoming a thing of the past.  “Forbes” magazine estimates that
only 16 percent of Fortune 500 companies offer a pension to new hires.  
Twenty years ago, roughly 60 percent did.  

And just this week, General Electric (NYSE:GE) froze pension benefits for
roughly 20,000 of its salaried workers and it plans to offer lump sums to
100,000 former employees who have yet to start receiving their pension
benefits, all to reduce its debt and future obligations.

But in the meantime, it can be all very confusing for individual workers
when it comes to making that important decision about how to take those
benefits.  Joining us with some advice, Marguerita Chang is the CEO of Blue
Ocean Global Wealth.

Marguerita, thanks for joining us tonight.

MARGUERITA CHENG, BLUE OCEAN GLOBAL WEALTH CEO:  Thank you so much for having me.

GRIFFETH:  Often, it comes down to lump sum now or the income stream in the future.  And for you, it`s not a clear-cut answer.  There`s no right or
wrong, right?

CHENG:  Correct.  I mean, it depends on the situation, but there are times
in which you would want to choose one option over the other.

GRIFFETH:  And it has to do with your age, for example, where you are and
how much you would be receiving.

CHENG:  That is correct.  So if you are 65 and getting ready to retire, you
will be collecting your pension benefits soon as opposed to later.  So, you
may feel more comfortable taking that income stream.  

If you`re 45, you may say, you know what, I`m going to just take the lump
sum.  I think that I can invest better.

HERERA:  You also say evaluate the payout options and specifically the —
you have a formula with the payout option and the insurance, and what`s
covered.

CHENG:  Absolutely.  So another consideration is, if your pension is larger
than the annual amount that the Pension Benefit Guaranty Corporation
insures, you may very well want to take the money and invest it for
yourself.  The other option is when you are presented with this decision,
you want to ask what your pale options are.

So, here`s what I mean — what amount would you receive lump sum and then if you decide that you want to collect a pension in the future, what amount you would receive for your life and then maybe 20 years certain?  It`s also important to ask what your loved ones would receive as well.

GRIFFETH:  We should point out the amount that the PBGC, the guaranty
corporation of the government, the amount that is insured is about, what,
$5,600 a month or about $67,000 a year, right?

CHENG:  That is correct.

GRIFFETH:  So, if the amount you would be receiving each month in that
payout is less than that, then you`re pretty in pretty good shape then,
right?  

CHENG:  Correct.  I mean, when your pension is frozen, it means that the
benefit will no longer grow.  But it is still going to be insured by PBGC.  
The question to take the lump sum or receive income stream, it`s very
personal.  

GRIFFETH:  Right.

CHENG:  Based on your unique circumstances.

HERERA:  You also point out on benefits, you have to make sure who is
covered if you pass and does — are they covered, depending on the
situation of the company and why it froze the pensions?

CHENG:  That`s correct.  So it`s important to find out what your benefits
are for you, as well as your loved ones.

GRIFFETH:  And what are the tax implications in all of this?  Is that a
consideration?

CHENG:  Absolutely. So, if you decide that you want to take the lump sum,
it`s best to roll that over to an IRA so that you`re not taxed on the full
amount.  You would only be taxed on when you start to receive the amount.

GRIFFETH:  All right.  Seminar is over.

Marguerita Cheng with Blue Ocean Global Wealth — again, thanks for joining us tonight.

CHENG:  Thank you.

HERERA:  Coming up, vision quest.  A high-tech way to keep your eye on the ball.

(MUSIC)

HERERA:  Facebook (NASDAQ:FB) CEO is now scheduled to testify before the House Financial Services Committee on October 23rd.  Mark Zuckerberg will be the sole witness at the hearing, which will focus on the company`s
digital currency project called Libra.  Lawmakers want to know more about Libra`s potential impact on financial services and the housing sector.

GRIFFETH:  Activision Blizzard`s new game “Call of Duty: Mobile” has become the biggest mobile game launch ever.  According to a data analytics firm, the game has seen more than 100 million downloads since going live at the beginning of October.  The game is initially free-to-play but it comes with those in-app purchases that have become popular.  The number of downloads topped the previous record holders, Nintendo`s “Mario Kart Tour” and “Pokemon Go”.

GRIFFETH:  October baseball is here.  The World Series is just around the
corner.  But it`s also the time of year when young prospects work hard to
improve their game.  For some, that includes using a high-tech vision test
that aims to find the best players and improve the ones that need help.

Eric Chemi takes a swing for us.

(BEGIN VIDEOTAPE)

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A portable computer with infrared eye tracking cameras is changing the game.

BARBARA BARCLAY, RIGHTEYE PRESIDENT:  Now, we`re just going to calibrate your eyes.  

CHEMI:  RightEye is the standard for baseballs prospect development
pipeline, a program to evaluate amateur players.  A 5-minute series of
visual tests requires users to focus on specific spots track quickly moving
targets and make rapid decisions based on random visual actions.  A report
is generated immediately that evaluates eye tracking speed and accuracy,
hand-eye reaction time and eye stability.  More than 4,000 league baseball
prospects have been tested to date and the results help doctors prescribe
eye exercises to improve player performance.

BARCLAY:  It actually is such a great asset for a player because if you can
find out that when you look to the left, maybe one eye is just a little bit
over, and that slows you down over here just 10 milliseconds, but it`s the
difference between you being able to bat against a right-handed pitcher
over here and a left-handed pitcher over here, you`re going to want to
improve it.

CHEMI:  But the applications go further than just and even other pro
sports.  

These sports is a rapidly growing use case, as is health care where vision
testing can find evidence of brain trauma like concussions or strokes.  

RightEye can also help zero-in on learning disabilities.  That`s one of the
reasons vision insurance provider VSP is a major investor in the company
which has raised more than $12 million since its launch five years ago.

RightEye is also exploring big data applications.

BARCLAY:  If you think about what we really have in addition to the tests
we have — 200,000 people who have taken the same test and we know that
Alzheimer`s, that MS, that ADHD, that dyslexia, are all ultimately
something that can be diagnosed or at least monitored by eye-tracking
technology.

CHEMI:  One machine can cost up to $15,000 with around $5,000 additional
per year for annual fees and training exercises.

For NIGHTLY BUSINESS REPORT, I`m Eric Chemi.

(END VIDEOTAPE)

GRIFFETH:  And before we go, a final look of the day on Wall Street.  Ahead
of the trade talks tomorrow, the Dow rose 181 points, Nasdaq gained 79, the
S&P was up 26.

HERERA:  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.

END

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