Transcript: Nightly Business Report – March 14, 2016

 

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  It`s the economy.  How the
raucous tone of the presidential campaign impacts a key issue this election cycle.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Checking in.  A major Chinese
company is making a big push into U.S. real estate and it`s hungry for
American hotels.

MATHISEN:  At a crossroad.  Two companies and two CEOs returning from
medical leave and lots of big hurdles ahead.

All of that and more tonight on NIGHTLY BUSINESS REPORT for Monday, March
14th.

HERERA:  Good evening, everyone, and welcome.

A new survey tonight shows that the chaotic presidential campaign trail is
changing the way people feel about the economy and not for the better.
According to CNBC, the current climate is negatively impacting the outlook
for the American economy, which includes everything from taxes to jobs to
foreign trade.  And these forecasts are something investors are watching
closely since the economy only grew at 1 percent in the final three months
of last year.

Steve Liesman breaks down the results of the survey.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Some interesting
results from the CNBC Fed survey in this presidential campaign season.  We
asked a bunch of political questions and what you see is of our 42
respondents, 56 percent say the campaign is negative for the economic
outlook.  Five percent say it`s positive and 39 percent say it has no
effect.

As for party choice, which party winning would be best for the economy, 18
percent say Democrats, 40 percent say Republicans but a large 42 percent
here say it doesn`t matter or they are not sure, which is higher than we`ve
seen in other surveys.

How about the candidate who will be best for the economy here?  Zero
percent say Sanders, 8 percent, Rubio, 11 percent, 13 percent Trump, 16
percent Clinton and 42 percent Governor John Kasich is seen as being best
for the economy.

How about best for Wall Street?  Again, similar results here: 11 percent
for Rubio, zero for Cruz, 14 percent for Trump, 22 for Clinton and 35 for
Governor Kasich.  You can see here again, Kasich loses a little bit,
Clinton gains it when it comes to the stock market.

But again Clinton in that number two position, Kasich number one, and Trump
only number three.  Unclear in this anti-establishment, anti-Wall Street
campaign if candidates wear this as a badge of honor or the other, you can
imagine Sanders crowing about the idea that zero percent of our respondents
see him as good for the stock market or the economy.

Back to you, guys.

(END VIDEOTAPE)

MATHISEN:  Steve Liesman reporting.

John Harwood covers Washington and the campaign for us.

Good evening, John.

Is it possible that the harshness and unruliness of the campaign, as Steve
just described, is actually unsettling people as they make economic or
investment decisions?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Sure.  It`s possible.
Look, markets don`t like uncertainty and one of the things that we have is
a Republican Party that`s been torn apart in the prospect of a Republican
nominee who takes a position antithetical to traditional Republican
positions on issues like trade, like entitlement reform, and immigration.

HERERA:  So, that begs the question, can anyone really stop Trump at this
point?

HARWOOD:  Yes.  Well, we`re going to find out tomorrow, Sue.  You`ve got
jackpots available in both Ohio and Florida.  Those will be a portion on a
winner-take-all basis.

Marco Rubio is trying to stop Donald Trump in Florida.  It does not look
like he`s going to be able to.  He`s way behind in the polls.

But John Kasich is running ahead of Donald Trump in Ohio.  If he can hold
that crop of delegates, that will make it more difficult for Donald Trump
to get the majority he needs to be nominated on the first ballot in
Cleveland.

MATHISEN:  Two questions in one here.  What happened to Trump`s lead in
Ohio?  He had one not long ago.  And second, if Rubio loses Florida, and do
the so-called establishment Republicans want him to drop out?

HARWOOD:  As far as Rubio goes, there`s some debate about that because if
Rubio drops out, his delegates might be relieved and that would allow
Donald Trump to potentially get some of those ahead of time.  So, the more
votes that are held and possessed by candidates not Donald Trump, the
easier to deny him a majority.

In terms of Ohio, John Kasich is a popular governor.  He was recently re-
elected easily.  The fact that Donald Trump is competitive with him is a
sign of how strong Donald Trump`s candidacy is, but John Kasich is a
popular politician and it`s no surprise really that at the end of the
campaign, he`s going to exert some of that underlying strength.

HERERA:  We haven`t mentioned Bernie Sanders.  What is the chance that Mr.
Sanders could pull off a surprise and top Mrs. Clinton as he did in
Michigan last week?

HARWOOD:  The polls, Sue, were way off in Michigan last week.  When we read
the polls now, they say that Bernie Sanders is well behind in both Ohio, in
North Carolina, and also in Florida.  But he`s hoping to pull an upset.
The challenge is, he`s way ahead in delegates and he needs not just
victories, but big victories in order to make up that delegate gap.

MATHISEN:  John Harwood reporting tonight in Washington.

HERERA:  On Wall Street, stocks closed mix on very light volume as
investors digested deal news.  Look ahead o the Fed meeting this week, and
mostly brush off lower oil prices.  The Dow Jones Industrial Average added
15 points to 17,229, he NASDAQ rose fractionally, and the S&P 500 lost 2
1/2.

Oil prices fell as Iran dashed hopes of a coordinated production freeze
anytime soon.  Domestic crude settled down more than 3 percent.  As for oil
stocks, they have racked up some big losses over the past year, but,
believe it or not, they`ve also come back a lot in recent weeks.

Morgan Brennan drills down on the energy sector.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Energy stocks may
have turned a corner.  The sector is outperforming the broader market, up 2
percent so far this year versus the S&P 500`s 1 percent decline.  Think the
recent rise of oil prices, which despite losses today, have jumped nearly
25 percent in the past month.

Still, energy stocks have a long way to go.  They`re still down by a third
since the end of 2013, when oil was trading closer to $100 a barrel and
down more than 40 percent since the bull market began back in 2009.

Michael Kelly, an analyst at Seaport Global Security, likes oil and gas
producers, including Pioneer Natural Resources, Parsley Energy and RSP
Permian.

MIKE KELLY, SEAPORT GLOBAL SECURITIES ANALYST:  If you get to $50 long
term, these are companies that really strive and thrive and have no balance
sheet concerns and make a lot of money at $50.  We`re not going to
subscribe any value beyond that.  We think that`s maybe where you`re long
term price goes to and that — those are going to be the names that have
exposures to the Permian Basin, best oil basin out there in the U.S.

BRENNAN:  Since the start of 2016, 19 energy companies with market caps of
$500 million or more have reduced or completely suspended their payouts,
according to S&P Capital IQ.  Yet, many have been winners in the sector`s
recent rally.  Anadarko Petroleum slashed its payout by over 80 percent,
yet shares popped nearly 50 percent since late January.  And Diamond
Offshore Drilling, which suspended its dividend altogether, has seen stock
soar nearly 40 percent.

Analysts say rising oil means companies can begin to make money or at least
not lose as much.  Coupled with steep spending cuts and cash flow story
that plays out most quickly with the companies hit the hardest.

KELLY:  I think that was the prudent financial move by these companies to
just, you know, shelf the dividend for the time being and I think, you
know, the investors we talked with pretty much understand that and we`re
happy with that.

BRENNAN:  But one group has not partaken in the run-up, independent
refiners.  Shares of Marathon Petroleum, Tesoro and Valero have all tumbled
since the 2016 start, pressured by higher crude prices and lower margins
and lower recession fears.

But peek driving season is just around the corner and analysts say that
could fuel gain for some of these names.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN:  To merger news now, the private equity firm Apollo Global agrees
to buy Fresh Market for more than $1 billion.  This deal comes about six
months after Fresh Market said it was looking possibly to sell itself.  The
takeover sent shares of Fresh Market up more than 23 percent.

HERERA:  A Chinese investment group wants to buy up U.S. real estate and
it`s going after Starwood and made an unsolicited offer for the hotel chain
operator, threatening a pending deal with Marriott.  That sent shares of
both Starwood and Marriott higher.

But as Susan Li reports, this bid is part of a bigger wave of Chinese
companies acquiring U.S. assets.

(BEGIN VIDEOTAPE)

SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Not one but two
multibillion dollar hotel deals led by the same Chinese company, fresh off
the 2014 purchase of the historic Waldorf Astoria Hotel, Anbang Group now
has its eye on the operator of W Hotels, Westin`s and Sheratons, the
Starwood Hotel and Resorts group.

Now, back in November, Marriott had agreed to buy Starwood for close to $11
billion to build the world`s largest hotel operator.  But now, Anbang is
leading a counter bid, along with Primavera and J.C. Flowers offering more
money for Starwood.  And that`s on top of a separate deal being negotiated
with Anbang by Strategic Hotels and Resorts for close to $6.5 billion.
Strategic owns 16 properties across the country, including the famous Essex
Hotel right here in New York.  The current trend of Chinese money buying
into U.S. real estate is an encouraging sign.

SPENCER LEVY, CBRE AMERICAS HEAD OF RESEARCH:  Given the volatility that
we`ve seen in the global markets and in China in the last couple of months,
some commercial real estate investors had a loss of confidence of sorts of
Chinese investment coming here to the state.

But this is a real vote of confidence not only in U.S. real estate, but
also the strength of Chinese investors coming here as well.

LI:  2016 is expected to be a record year for Chinese mergers and
acquisitions outside of China.  Just three months into this year and we`re
already sitting at $105 billion in deals and counting, according to
Dialogic.  And that`s basically the same amount that we saw in the entirety
of 2015 which was the highest recorded in history for Chinese M&A.  And
it`s not just going into real estate and properties.

This year, we saw GE selling off its appliance division to China`s Haier
Group in a $5.4 billion deal.

Another high-profile China acquisition so far in 2016, China`s richest man
and his company Dalian Wanda paying up $3.5 billion for Hollywood producer
Legendary Entertainment.  You may remember Dalian Wanda as a company that
bought theater chain AMC just a few years ago and then listed it back in
New York.  And who can forget the pork deal in 2012 which at the time was
the largest Chinese purchase in the U.S., Shuanghui by Smithfield for $4.7
billion.

And given the current conditions, it might be safe to say that we can
expect more Chinese money chasing U.S. assets in the future.

For NIGHTLY BUSINESS REPORT, I`m Susan Li.

(END VIDEOTAPE)

MATHISEN:  Still ahead, bad credit?  No problem.  The sign and drive sliver
of the U.S. credit market that`s making some investors nervous.

(MUSIC)

HERERA:  An update now on the investigation into the crash that killed
former Chesapeake CEO Aubrey McClendon.  Officials say his SUV was going
roughly 78 miles per hour when it hit a concrete bridge earlier this month.
Data from the vehicle`s black box show that he tapped his brakes but not in
the 31 feet before the impact.  Investigators found tire tracks but no skid
marks as he was not wearing a seat belt.

MATHISEN:  To companies at a crossroad, Valeant and United.  Valeant is one
of the most widely held stocks by hedge funds.  United, one of the most
recognizable brands in the world and both are facing mounting challenges.

We begin with United whose CEO is back at work today, two months after a
heart transplant that followed a massive heart attack last fall.

When Oscar Munoz can`t ease back into his old job — as Phil LeBeau
reports, he has big tasks ahead.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It may look like
business at usual at United Airlines, but at that company`s headquarters,
it`s not a normal day.

CEO Oscar Munoz is back in the office and immediately tackling a persistent
problem at United: poor labor relations.  In a letter to employee, Munoz
wrote, “I have many priorities on my first day back but at the top of my
list is my meeting today with our labor leaders.  I believe that together,
we can resolve our contract issues.”

Those issues, including the amount of a proposed pay raise, led more than
90 percent of United`s mechanics to reject its most recent contract offer.
When union members voiced their complaint at an analyst meeting in New York
last week, some admitted they are optimistic about working with Munoz.

UNIDENTIFIED MALE:  He seems like he`s a pretty decent CEO than what we had
in the past, but we hope he does the right thing for us.

UNIDENTIFIED FEMALE:  Oscar is saying the right thing.  We`re waiting for
the delivery.

LEBEAU:  If Munoz and United unions can get on the same page, the airline
could finally improve its performance.  For years, it`s trailed other
carriers in on-time arrivals, customer satisfaction and profitability.  But
that could change under Munoz, according to the co-founder of southwest
airlines.

HERB KELLEHER, SOUTHWEST AIRLINES CO-FOUNDER:  I`m a big admirer of the new
CEO, Oscar Munoz, and everything that I`ve seen him send out to his
employees, it manifests the same humanistic spirit that Southwest Airlines
does.

LEBEAU:  If Munoz can improve their performance, it can go a long way
towards resolving another issue facing at the airline, dealing with two
hedge funds that are pushing for new leadership on the United board of
directors.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA:  And now to Valeant, whose CEO, fresh from medical leave, faces
numerous problems from death to federal investigations and its recently
delayed the earnings report due out tomorrow.

Meg Tirrell runs through the challenges facing CEO Michael Pearson.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s been three months
since the street heard from Valeant CEO Mike Pearson and investors will be
listening closely tomorrow for clues about the drugmaker`s future.  His
return at the end of the February from a two-month medical leave of
absence, he`s recovered from severe pneumonia and other complications, and
now has his work cutout for him.  Analysts say he needs to make sure that
the company has no more surprises in store.

Valeant`s stock has lost more than 60 percent in the last year after a
series of seemingly never-ending setbacks.  Scrutiny over its pricing
practices, federal investigations, accusations of accounting fraud and
finally, Pearson`s illness.

But even his return brought with it negative surprises.  Valeant postponed
its scheduled fourth quarter earnings release and conference call and the
SEC filing on last year`s results will be delayed even further.  News of
another federal investigation also came to light that day depressing shares
even more.

Investors are now awaiting the outcome of a board investigation into
Valeant`s relationship with a specialty pharmacy Philidor, the source of
investors` accounting questions, as well as a delayed 10K.  The company
says it`s focused on paying down its $31 billion of debt and in the
meantime will make fewer acquisitions.  Investors are also concerned that
health insurers and pharmacy benefit managers will increase their push-
backs on covering Valeant`s drugs.

Analysts say what investors most want from Pearson`s return is improved
communication and, most of all, a smoother road ahead.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN:  GW Pharmaceutical reports a successful phase three trial of an
experimental epilepsy drug, and that`s where we begin tonight`s “Market
Focus”.

The British drug company has been testing a cannabis-based drug to treat
children with severe epilepsy and it reported promising results in curbing
seizures.  The company intends to seek approval from the FDA to sell the
treatment in the U.S.  The news sent the company`s shares soaring 120
percent today to $84.71.

3D Systems reporting better than expected earnings said it has plans to
expand into health care and automatic complications.  Analysts had expected
a steeper loss from the maker of 3D printers.  Shares jumping more than 24
percent on the day to $14.39.  Best day for the company in five years.

HERERA:  Drugmaker Lannett is reviewing its sales forecast for the year as
the company says it is currently seeing unanticipated market softness and
the loss of an unnamed key customer is also expected to impact its sales.
Shares down nearly 5.5 percent to $21.19.

Red Box owner Outerwall announcing today that its board had decided to
explore strategic alternatives for the company.  The company also said it
is doubling its quarterly dividend to 60 cents per year as part of its plan
to continue returning cash to investors and retiring debt.  Shares of the
company ending marginally higher during the trading day to $34.39 and then
initially spiked in after-hours spending.

MATHISEN:  Fears are rising over U.S. car loan delinquencies.  According to
“The Wall Street Journal”, subprime auto loans overdue by more than 60 days
rose to 5.16 percent last month, reaching the highest level in two decades,
raising concerns now about the health of the auto industry.

Joining us to discuss what this means for the hot auto sector is Melinda
Zabritski, director of automotive finance at Experian Automotive.

Melinda, welcome.  Good to have you with us.

How worried are you about this rise in delinquencies for subprime auto
loans, namely, those that go to people with less than pristine credit?

MELINDA ZABRITSKI, EXPERIAN AUTOMOTIVE DIR. AUTOMOTIVE FINANCE:  Well, we
certainly look at delinquency and while there is an increase overall, we
do, of course, see an increase in subprime but we also look at the overall
performance of the entire market and, yes, it is up, but from an historical
standpoint, if you go back ten years, we`re still at lower levels for the
entire market than we were even prerecession.

HERERA:  How much lower?  Because, you know how these events sometimes
unfold.  You see the subprime issues start to kind of fester, if you will,
and then all of a sudden you do have an issue.  So where are we in terms of
the range?

ZABRITSKI:  Well, right now, when we look at 60 day delinquency, for
example, it`s about 0.77 percent.  So, prerecession you would see it about
0.84 percent.  And then when you look at the percentage of the total market
that is subprime, it`s about 24.5 percent of all auto finance subprime.  If
you compare that to prerecession, it was closer to 30 percent, 35 percent.
Yes, we`ve been growing subprime but historically, it`s still at very low
levels.

MATHISEN:  So, of all of the auto loans out there, prime, subprime,
whatever, 0.77 are delinquent, of all the subprime loans that are out
there, as I understand it, what has got people concern is rising
delinquencies among those that are then packaged off and sold as bonds.  Is
the problem really concentrated in those loans, the ones that are packaged
or in all subprime loans?

ZABRITSKI:  Well, unfortunately, I don`t have much visibility to what would
be packaged versus what would not be packaged.

MATHISEN:  Uh-huh.

ZABRITSKI:  But, of course, where the delinquency customers, it`s in the
subprime population and there are higher rates of delinquency and we do see
those rates rising in subprime.  We spend more time looking at the total
market, the average lender that has a very broad spectrum portfolio and
they balance the risks that they know is going to occur in subprime and
having stronger focus in the near prime population.

MATHISEN:  Any final thought here?  We all remember the mortgage-backed
securities that sort of vibrated through the financial system and caused
such distress.  Can you see that happening with these bonds that are backed
by auto loans?

ZABRITSKI:  Well, not necessarily.  It`s, of course, a much different
product.  The average debt level is going to be considerably lower,
especially when you`re looking at subprime debt.  The average — probably
the average balance on those loans is $18,000 to $20,000 so considerably
different versus a couple hundred thousand dollar mortgage.  Plus, of
course, there`s going to be residual value left on those cars so when they
do go delinquent, they`re, of course, going to sell at auction and still
get, you know, get $10,000, $12,000 back.

MATHISEN:  All right.  Melinda, thank you very much.  Melinda Zabritski
with Experian Automotive.

ZABRITSKI:  Thank you.

HERERA:  Coming up, why the entertainment industry wants to blur the lines
between content and technology.

(MUSIC)

HERERA:  South by Southwest started out as a music festival, but today it`s
much more.  Some of the brightest minds in technology regularly attend this
annual gathering, looking for the next big thing.  This year, it`s the
entertainment industry that`s going high tech to lure new fans.

Julia Boorstin reports from Austin, Texas.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Content is front
and center at South By Southwest, with virtual reality on display and
content sharing startups like Anchor and KnowMe generating buzz.

And this tech-savvy scene is a valuable audience for traditional media
companies as well.  USA`s Mr. Robot hosting this Ferris wheel and arcade.
AMC turning this church upside down to draw attention to it`s upcoming
launch of “Preacher”.

And HBO`s “Silicon Valley” plastered the town with signs for fictional
company Pied Piper.  According to the show`s star, Thomas Middleditch,
tapping into the tech world is increasingly important.

THOMAS MIDDLEDITCH, “SILICON VALLEY” STAR:  I think the industry is big
enough that if everyone in that industry likes something, it`s big enough
to move a needle.  Like I think just so many people are involved in tech,
being a startup or just working for a company or even in an office where
it`s kind of tacky kind of.  It applies to you in a way, right?

BOORSTIN:  This “Game of Throne” attraction from HBO drew over 1,200 fans
in its first day.  HBO investing in this attraction that uses technology to
put visitors` pictures into the hall of faces, hoping people will share
their photos of social media.

JOANNA SCHOLL, HBO:  You`re not only hitting that one influence, you`re
hitting every single person and that kind of continues to have a halo
effect.  So, it helps us to amplify our marketing message.  We like to do
things that are more tapping into the technology which really speaks to
this tech audience here at South by Southwest.

BOORSTIN:  HBO, AMC and USA are looking to boost the social conversation,
promoting the hashtags for Facebook, Twitter and Instagram and hoping to
generate buzz on Snapchat as the line between technology continues to blur.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Austin, Texas.

(END VIDEOTAPE)

HERERA:  And that does it tonight for NIGHTLY BUSINESS REPORT.  I`m Sue
Herera.  Thanks for watching.  We want to remind you.  This is the time of
year your public television station seeks your report.

MATHISEN:  And we thank you for it.  I`m Tyler Mathisen.  Have a great
evening, everybody.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by CQRC
Transcriptions, 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) 2016 CNBC, Inc.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply