Transcript: Nightly Business Report – February 15, 2016

NBR-ThumANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Good evening and welcome
to a special edition of NIGHTLY BUSINESS REPORT.

Well, you know, Groundhog`s Day was a few weeks ago, Sue.  But every day in
the stock market this year has felt like investors have been reliving a
nightmare, seemingly day after day.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  It sure does.  But believe it
or not, spring is coming.  And that leads to thinking about your taxes or
even the spring selling season for housing.  It`s an eventful time and it`s
only President`s Day.

MATHISEN:  That`s right, it`s President`s Day.  But it also happens to be
the year when we elect a new president.  And as Dom Chu tells us, the
markets have nothing to say about it, but it`s the last thing a jittery
market needs right now.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As if the stock market
didn`t already enough to deal with, one of the big concerns for traders and
investors is how to deal with the upcoming presidential election.  After
all, the man in the White House could have a lot of influence on how our
nation`s economy functions and what opportunities could arise.

DAVID BAHNSEN, HIGHTOWER MANAGING DIRECTOR:  Those opportunities could
potentially be different depending on various election outcomes, different
candidates and different policy agendas.  But we certainly believe that
there are opportunities in any number of these political scenarios that
could unfold.  The market is either going to impact the election or the
election is going to end up impacting the market.

CHU:  The market is a discounting mechanism.  Now, that just means that
prices today reflect anticipated future events.  So, as we get closer and
closer to the election, stocks could fluctuate depending on who is
perceived to be getting closer to winning the presidency.

ROBERT LUNA, SUNVEST WEALTH MANAGEMENT:  I think from a trading perspective
it does matter.  So, for example, if you see the Democrats starting to take
the lead you`ll start to see sectors like alternative energy take off;
where if it`s a Republican, areas like defense stocks will do better.  But
I`ll caution viewers those always tend to be a buy on the rumor, sell on
the news type of trade.  If you`re somebody who`s not going to be able to
time that efficiently, it`s probably better left staying away from those
types of trades.

CHU:  There will be different views and interpretations of the elections
development in the coming months and the markets are going to be a
battleground for debate on which companies could benefit more or less
depending who`s president.

On the other hand, though, there are investors who believe these shorter-
term catalysts and events shouldn`t have an effect on your longer-term
financial playbook.

MARK TRAVIS, INTREPID CAPITAL FUNDS:  I don`t think that top-down history
affects us a great deal as far as how we allocate our shareholder capital
between equity or death or cash.

CHU:  There is no doubt that the upcoming election will generate more than
its fair share of controversy and headlines, but it doesn`t necessarily
mean that investors should react to every detail and development, unless
they`re prepared to watch every detail and development.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA:  So, let`s talk more about the election issues the markets might be
worrying over.  And for that, we turn to John Harwood who joins us from
Washington.

Good to see you as always.

You know, I think one of the things that the market is most, I guess,
worried and concerned about is the fact that the candidates they thought
were going to do well on either side of the ticket aren`t doing as well as
some of the, quote-unquote, “outlying candidates”.  That`s brought a lot of
confusion into the markets.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Certainly, the
failure of Hillary Clinton to consolidate her position so far, the failure
of Jeb Bush, Marco Rubio, those mainstream candidates who we thought were
going to rise at the beginning, adds to some uncertainty in the markets.

But we`re just at beginning of this process.  Hillary Clinton is still the
favorite.  And perhaps if Bernie Sanders makes the market nervous, Hillary
Clinton will calm it down a little bit if she, as expected, takes control
of the Democratic race.

Republican race is more uncertain.  You`ve got Donald Trump and Ted Cruz,
two choices on the Republican side that the markets hadn`t planned on.
They`re still in the driver`s seat in this race.  And so, we may have to
live with a little bit of that uncertainty, and that may have to be
factored in as we move forward during the spring.

MATHISEN:  You know, John, it`s early to be speculating about what sort of
sectors of the economy might be affected one way or another depending who
wins the White House.  But it does occur to me based on what the rhetoric
has been so far, the health care sector would be one that you`d have to
look at closely.  On the one hand, on the Democratic side, there`s concern
about the drug pricing issue, and as also on the Republican side I should
say.  But Republicans have vowed to dismantle the Affordable Care Act.

HARWOOD:  Well, it is going to be very difficult for them to dismantle the
Affordable Care Act.  We have heard that for quite some time.  The
Republican Congress has tried to affect that for quite some time.  But you
do have both Donald Trump, the Republican front runner, and Bernie Sanders
on the Democratic side, and Hillary Clinton, talking about making
pharmaceutical companies negotiate drug prices with government health care
programs like Medicare.  That`s something that you certainly have to
consider.

You`ve also got to think about tax policy.  Bernie Sanders and Hillary
Clinton both want to raise taxes at the top level.  And there`s a wide
variation between what they`re proposing and what Republicans have
proposed, which are very deep tax cuts.  Donald Trump proposed to take the
top rate down to 25 percent.  Other — some other Republicans don`t go that
far but Ted Cruz has a, in essence, a value-added tax and a flat tax on
personal income.  So, you`ve got some potentially wide springs in how
business income is going to be tax, how wealthy individuals are going to be
taxed.

MATHISEN:  All right.  John, stay with us, as we bring in Ed Mills to our
discussion.  He`s senior financial policy analyst at FBR capital markets.

Ed, welcome.

I assume you`ve heard what John was just saying.  It occurs to all of us
that, you know, the markets, as the saying goes, they don`t like
uncertainty.  But that`s what they`re going to have to deal with the next
couple of months, right?

ED MILLS, FBR CAPITAL MARKETS SR. POLICY ANALYST:  Yes, this is the “expect
the unexpected” election.  And as you mentioned, the market does love
certainty.  And so, kind of what the market would like is a Hillary Clinton
ticket on the Democratic side and maybe a Rubio and Bush on the Republican
side.

Now, as was mentioned, Trump and Cruz are in the driver`s seat and Bernie
Sanders is having a much tougher than expected — or much stronger than
expected challenge to Hillary Clinton.  If it looks like we`re going to
have a Donald Trump and Sanders nominee on either side, the market will not
like that.  That`s when I think the market would get very nervous about
this and looks to possibly the entrance into a third party candidate.

HERERA:  For the first time in a long time we`re hearing the words brokered
convention bandied about.  What do you think the market reaction would be
if indeed for the first time we got a brokered convention?

MILLS:  Yes, I think the brokered convention is much more likely on the
Republican side, because what we do see is that Trump and Cruz are doing
well, and then there`s this fight for that kind of, quote-unquote,
“establishment lane”.

Most of these delegates are giving out on a proportional basis.  And unlike
past years, most of these candidates have a lot of money, not only in their
internal campaign funds but also through super PACs to stay in longer.  And
no one thinks it`s their time to get out.

So, if we get that that convention that is a lot of up certainty the market
would not like.  I do think it`s probably going toward a more mainstream
candidate if you get to that point, but does that launch a likelihood of a
Trump third-party run at that point.

MATHISEN:  Yes, John, that`s what I was going to ask you, to react to that,
John.  What would it mean if there were a brokered convention on the GOP
side and what if there is a third-party candidate, whether it could
possibly be Mr. Trump or Michael Bloomberg who`s making noises?

HARWOOD:  A couple points, Tyler.  First of all, I think we have to note
the primary calendar turns toward winner take all in mid-March.  So, it
will — if somebody can really separate from the pack, if Donald Trump can
hold his lead, he could start racking up delegates in a hurry.  I still
think a brokered convention is not a likely scenario.

If you do get a third party, it could be Trump, if somebody else beats him
for the Republican nomination, that would likely deliver the election to
the Democratic candidate because Donald Trump would siphon off a lot of
those working class voters that he`s been attracting in Republican contests
so far.

If it`s Bloomberg, on the other hand, that would likely guarantee a
Republican victory, because Michael Bloomberg would draw some of those
upscale, suburban, college-educated voters who are more inclined to vote
with the Democrats and it might look to Bloomberg as a reasonable middle
ground between the two.  So, a lot of variation in those scenarios.  We do
have to remember that it`s very difficult for a third-party candidate to
get elected.  They can be a spoiler.

HERERA:  Would you like to react to that, Ed?  Specifically the Bloomberg
reference?

MILLS:  Yes.  No, I think one of the things that you have to remember about
the third-party reference is that kind of the winner of the presidential
election is the person who gets 270 electoral votes.  We have a very
complex system in terms of how you get the nomination and then how you get
the presidency.

One of my concerns is if there is a third-party candidate, is does someone
fail to get that majority?  And does this get thrown to the house?  So, in
some sense, you could have a Donald Trump as a third-party candidate and
the Republican still wins in that scenario.  It`s not the assured
Democratic victory in that case.

MATHISEN:  I want to come back very quickly, Ed, to something we began
with, John talking about that is the repeal which the GOP have been talking
about of the American — the Affordable Care Act.  If a Republican has the
White House, Republicans probably won`t lose either house of Congress, they
wouldn`t have main the ability to drive everything through.  But is it more
— is it possible that the ACA could get repealed?

MILLS:  I think it`s more possible that the ACA would see some changes.  I
think you always have to look at the fact that anything that gets through
the Senate needs 60 votes.  There are some changes that you could do on a
51-vote majority.  But one of the big fights, part of the reason
Republicans fought so hard against Obamacare after it was passed is that
once you give someone a benefit, you`re not going to just see a wholesale
removal of that benefit for millions of Americans.  So, the ACA and most of
those benefits are set regardless of who wins here.

MATHISEN:  All right.  John Harwood, thanks very much.

Ed Mills with FBR Capital Markets (NASDAQ:FBCM), we appreciate your time.

MILLS:  Thank you.

HERERA:  It is that time of year again, it`s tax season.  But we will get
you ready with everything you need to know coming up next.

(MUSIC)

HERERA:  Today is February 15th.  Normally, we would be exactly two months
from the day our taxes are due.  But if you didn`t figure it out from our
last segment, this is not a normal year.  Since 2016 is a leap year,
everyone gets one extra day, February 29th.

But wait, there`s more.  This year, Friday, April 15th, is a legal holiday
in our nation`s capital.  The 154th anniversary of when President Lincoln
signed the Compensated Emancipation Act which freed 3,000 slaves in the
District of Columbia.  That pushes the tax dead line for most of us to the
next business day, or Monday the 18th.

But if you live in Maine or Massachusetts, the 18th is Patriots Day.  So
residents of those states get until the 19th.  Got all that?  We`re going
to have a quiz later in the show.

MATHISEN:  My head is spinning, or I`m going to move to Massachusetts.

But since it`s tax season, the inspector general for the IRS is now warning
taxpayers of a new and costly scam.  And our Eamon Javers has the details.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE:  IRS is calling me?  Is this for real?

TIM CAMUS, U.S. TREASURY DEPUTY I.G.:  Fraud is real.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A new series of
public service announcements warning Americans of an age-old tax scam
that`s taking more and more new victims to the cleaners.  In the scam,
criminals call American taxpayers pretending to be IRS agents and demand
phony back taxes.

Often, the criminals threaten to call the police if the taxpayer hangs up
the phone.

CAMUS:  It makes me angry, because I feel personally bad for the victims.
And then I feel angry that these criminals are using the IRS as a means to
scare people into paying them money.

JAVERS:  The inspector general for the IRS says as many as 5,000 victims
have paid as much as $26.5 million to the scam artists who can be located
inside the United States or around the world.

The scam began by targeting new immigrants to the United States and
threatening deportation and other penalties.  But the inspector general
says it has since mutated and now, it`s targeting every demographic group.

CAMUS:  Early in the scam, the callers had some sort of information about
you.  They may have four digits of your Social Security now.  Now they`re
randomly making blankets.  They`ve shifted to also calling cell phones.

JAVERS:  That`s why the agency has released five new videos in English and
Spanish telling people the IRS will not call you out of the blue and
threaten to arrest you.  And the government has one piece of advice for
anyone getting such a call —

UNIDENTIFIED MALE:  Hang up on fraud.

CAMUS:  You can`t be tricked into giving personal information if you hang
up the phone.  And you certainly can`t be tricked into paying them money,
harassed or intimidated into paying them, if you simply just hang up the
phone.

JAVERS:  But what if the caller really was from the U.S. government?  Well,
the inspector general says not to worry.  The IRS won`t be offended if you
hang up on them.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.

(END VIDEOTAPE)

HERERA:  Diahnn Lassus joins us now to talk more about what you need to
know this tax season from avoiding scams and surprises to what`s new as you
prepare to file your taxes.  She is president of Lassus Wherley, a wealth
management firm.

Always good to see you, Diahnn.  Welcome back.

DIAHNN LASSUS, LASSUS WHERLEY PRESIDENT:  Thank you, Sue.  It`s great to be
back.

HERERA:  I know you would agree with the just hang up the phone, certainly.
But what else can people do to protect themselves from scams?

LASSUS:  Bottom line is, file your tax return as early as you can file it.
And avoid all those people trying to file for you.  That`s one.

Also, not only hanging up the phone if the IRS says they`re calling, but
also e-mails.  Don`t click on those links when the IRS sends you an e-mail
and says, click on this link, we need extra information to process your
return.  Make sure you don`t click on those links.  They`re just trying to
steal your information.

MATHISEN:  Let`s talk, Diahnn, if we might about what`s new this year.  Are
there anything that are different in the filing season this time around?

LASSUS:  Not super different.  But there are extensions that are really
important and now permanent.  One is the IRA distribution to a charity.
That`s a wonderful opportunity.  If you have to take required minimum
distributions at 70 1/2 and you want to give it to your charity, you can do
that now tax-free.  And it applies to your required minimum distribution.

The other is to the state and local —

HERERA:  State and local state taxes, right?

LASSUS:  Thank you, exactly.

And there are states that don`t have state income taxes.  And it makes
perfect sense to keep track of those sales taxes in states like Florida and
Texas that don`t have a state income tax.  It can be a really good tax
benefit.  That`s now a permanent.

HERERA:  And also, you were saying that basically six digits issued by the
IRS and PINs, that there are PINs that they are going to be either
allocating or asking you to use when you — when you file.

LASSUS:  The IRS has started doing that as a trial in several states.  And
now, they`re trying to use them for people whose identity has been stolen,
so that they can try to add an extra layer of protection.  Some states are
trying to do things like that also and include a request for your driver`s
license to file for e-filing in your tax return.

So, a lot of the government entities are trying to provide extra layers of
protection for us.

HERERA:  All right.  On that good note, thank you so much, Diahnn.  Diahnn
Lassus with Lassus Wherley.

MATHISEN:  It`s also a tax time not just for individuals for businesses.
And while most traditional businesses do have established plans for paying
their taxes, the fledgling marijuana industry is feeling its way around the
process.

As Jane Wells tells us, it could be a taxing issue for some entrepreneurs.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s tax time in the
cannabis industry.  And for many new in the business, their IRS bill could
leave them dazed and confused.

DEREK PETERSON, TERRA TECH CEO:  Companies are paying anywhere from 40
percent, 50 percent, 70 percent depending on what demographic they happen
to be on.

WELLS:  Even though marijuana is illegal at the federal level, the IRS
still insist these companies pay income taxes.  At the same time, the
agency bars them from making most normal business deductions.

JEREMY CARR, BLAZENOW CEO:  You know, you could end up with tax bill far
more than, you know, any potential profit you could ever make.

WELLS:  Jeremy Carr of a dispensary in West Hollywood said that could start
to happen as legalization is bringing down prices and margins.

CARR:  I`ve seen the profit margins drop about 40 percent in the last five
years.

WELLS:  Here`s the irony, the IRS does low deductions for the cost of
growing marijuana, but it does not allow deductions for the retail cost of
selling it, things like rent, advertising, payroll.

PETERSON:  You know, fortunately, the margins are there, at least in
northern California where we operate.

WELLS:  Derek Peterson left Wall Street to start Terra Tech, a publicly
traded holding company which owns a variety of cannabis companies,
including the bloom dispensary in Oakland.

But Terra Tech also owns other companies which don`t directly involve pot,
like one which provides growing equipment or a firm which sells regular
produce to retailers.  He makes sure businesses are segregated in their tax
reporting and puts as many costs as legally possible into areas where
deductions are allowed.

PETERSON:  A lot of business still is one leg in the black market.  We`re
not able to do that because we`re a publicly traded company and everything
is audited on an annual basis.  But there`s a lot of providers out there
that because of this headwind are still operating with one foot in the
black market, one foot in a more overt and regulated market.

WELLS:  Those trying to be legit accused the IRS of hypocrisy.  Tim Cullen
owns the Colorado Harvest Company in Denver, which did about $10 million in
sales in 2015.  He says the lack of normal deductions will cost him a
million and half dollars more in taxes.

TIM CULLEN, COLORADO HARVEST CO. CEO:  If we`re licensed and legal in
Colorado, that should be good enough for the IRS.  But they certainly cash
our checks every month.

WELLS:  For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

HERERA:  And coming up, why February is the start of spring.  At least when
it comes to houses.  We`ll explain.

(MUSIC)

MATHISEN:  U.S. markets were closed today but here`s what to watch this
week.  On Wednesday, we get minutes from last month`s Federal Reserve
meeting.  Investors will focus on what the committee had to say about the
economy and the future of interest rates.  With oil such a focus of
investors, Thursday`s inventory numbers could trigger a big reaction in the
market.  And we get a look at the inflation picture Friday when the
consumer price index comes out.  And that is some of what to watch this
week.

HERERA:  Believe it or not, Presidents` Day weekend marks the start of the
spring housing market, or at least according to most real estate agents.
Buyers and sellers alike are facing kind of a mixed bag — high prices, low
supply, and a growing conundrum over the best strategy.  Do you buy or do
you rent?

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  On a snowy Tuesday in
a suburb north of D.C., Jesse and Mike Sciulli tried to get a jump on the
spring housing market.  A one-week jump at least.

JESSE SCIULLI, SHOPPING FOR HOME:  I feel there`s not a lot of inventory
right now.  So that does make us a little bit nervous.  Because we think
there`s going to be a lot more offered maybe in two or three weeks.  So,
I`d say for sure we feel that stress.

OLICK:  The Sciullis are relocating from Hong Kong.  So, in two days, they
toured 19 homes.  This one wasn`t even listed yet, but the agent convinced
the sellers to show it anyway.

JANE FAIRWEATHER, COLDWELL BANKER:  I think inventory`s going to remain
tight.  So, I think the closer you are to urban centers, the tighter the
inventory, because the demand is strong.  And a lot of that stuff gets
scooped up before it hits the market.

OLICK:  Prices are still going up here and across the nation, not because
incomes are rising but because demand is strong and supply is just so
tight.

It begs the question, why not rent?

J. SCIULLI:  We do want to have that as an option.  If we can`t find
something that we love, we don`t want to be locked into a house and three
or four months down the road, decide we made a bad decision.

OLICK:  Of course, rents are rising as well.  So, does it make better
financial sense to buy or rent?  As with everything else in real estate,
that depends on location.

Nationally, home buyers can break even, that is, spend as much to own as to
rent, in less than two years, according to Zillow.  That factors in
mortgage rates, down payments and taxes.  In pricey D.C. it will take much
longer, four and a half years.  But in Dallas, just over one year.

Of course, some still have that old-fashioned notion that a home can make
them money.

MIKE SCIULLI, SHOPPING FOR HOME:  I like to buy, hold, not only view it as
my home but as a potential investment opportunity going forward.  So, I`m
more a buyer than a renter.

OLICK:  With mortgage rates falling to near-record lows the math on buying
is making more sense.

J. SCIULLI:  The craftsmanship is spectacular.

OLICK:  That is if what little is out there fits the bill.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN:  Nela Richardson joins us now to talk more about the upcoming
spring selling season.  She`s the chief economist at Redfin.

Nela, good to see you.

Why is there so little inventory in so many markets?

NELA RICHARDSON, REDFIN CHIEF ECONOMIST:  Well, it`s a combination of three
real big factors.  One, there`s been a lack of new construction that would
keep up with population increases.  New construction of single family and
apartments are down 50 percent from where they were in their peak.

Second, as was highlighted, there`s a lot of demand out there.  Mortgage
rates are really, really low.  And a lot of people want to buy now.

Third, there`s this idea that not only can I own, I can rent my home.

So, what a lot of homeowners have done when they`ve traded up or moved up
is they`ve rented their previous home while buying the new one.  And that
takes supply off the market.

Finally, we`re also in addition to those three seeing people stay in their
home longer.  Renovating instead of relocating.

HERERA:  You know, you also say there is good news in this scenario for the
buyers anyway, because of the sellers` pricing strategy.  There`s been a
shift in that.

RICHARDSON:  Right. Redfin recently did a survey of sellers and we found
that more sellers are pricing in the middle of the comparables in their
neighborhood.  That`s a shift from what we saw in the fall when more
sellers were pricing at the top, or high end of those comparables.

So, sellers are getting the message buyers are not going to pay top dollar
for much longer on anything and they have to price realistically, even
though there`s a shortage in the market.

MATHISEN:  If I`m going to sell this spring, what little things can I do to
get my house ready for sale so that I can put my best door forward?

RICHARDSON:  For what the most important thing you can do is price right.
We know that you get more views in the first two weeks of a listing than
any time after.  So, homes that are overpriced, they miss that initial
opportunity to make a great first impression.

But beyond that, it`s really simple things.  Clear out the clutter.  Make
sure that your home can pass inspections.  That`s really important.  And
just make sure you`re working with someone who knows their local market,
because every market is different.

HERERA:  And, you know,  with winter still here, even though this marks the
start of the spring selling season, I think a lot of people who want to
sell their home, they wait until the weather turns.  They wait until April
or May.  Is that too long?

RICHARDSON:  It`s too long.  In fact, there is demand in the market now.
We know that, we measure demand by how many people go on tours, how many
people attend open houses.

If you really want to get the jump on competition as a seller, you need to
start marketing your home now while there`s very little competition,
especially if you`re going to then turn around and buy a new home.  You
want to make sure your sale is in the works and that way that frees you up
to look for that next-level home, if you need equity in that home to
purchase your new home.

MATHISEN:  Nela, thanks so much.  Nela Richardson, chief economist at
Redfin.

And folks that is, that is NIGHTLY BUSINESS REPORT for tonight.  I`m Tyler
Mathisen, thanks for watching.

HERERA:  And I`m Sue Herera.  Have a great evening.  We will see you right
back here tomorrow.

END

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