Transcript: Nightly Business Report – May 24, 2016

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

Americans are buying new homes at the fastest pace in eight years, as the  spring selling season picks up                                                                       momentum.

Borrowing is up for the things we need, such as houses and cars and
education.  But are consumers taking on too much debt?

EPPERSON:  Power and speed.  They`re iconic.  They`re fast.  But are muscle
cars strong enough to protect you during common collisions?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, May

Good evening, everyone.  I`m Sharon Epperson, in tonight for Sue Herera.

MATHISEN:  And welcome.  I`m Tyler Mathisen.

A powerful rally on the street and it wasn`t just one thing that pushed
stocks higher today, but rather a combination of factors.  Housing data was
strong.  Oil prices went up, new highs for the year.  And there seems to be
an increase in confidence that higher interest rates likely won`t hurt
stock prices very much, if at all.

The Dow Jones Industrial Average climbed 213 points to close at 17,706.
NASDAQ added 95.  And the S&P 500 rose 28.

Mary Thompson has more on today`s big gain.


strong on the back of a big gain in April`s new home sales and on the back
of strength in the European markets.  The U.S. markets rallying from the
opening bell.  This after a new poll showed that Britons are less likely to
vote to leave the E.U. in what is known as a Brexit.

Add to that, the government reported that new home sales for the month of
April rose to their highest levels in eight years.  That data, along with
the news that prices for those new homes were very high levels and the news
that the luxury home builder Toll Brothers (NYSE:TOL) came in with stronger
than expected earnings, all adding fuel to the market`s rally.

Pacing the gains today, strength in health care, in finance and tech
stocks, especially semiconductors.  These sectors though among the poorest-
performing sectors of the year.  And this led some traders to point out
this could be a short covering rally or when investors who bet these stocks
would fall, reverse their wages.  Well, impressive in its all-day staying
power traders still remain cautious about today`s rally in large part
because they say the markets continue to face a number of headwinds,
including the potential for higher interest rates and pricy evaluations.

Up in New York Stock Exchange, I`m Mary Thompson for NIGHTLY BUSINESS


EPPERSON:  As Mary just mentioned, those strong new home sales put
investors in a buying mood.  The Commerce Department said new home sales
climbed more than 16.5 percent in April to a seasonally adjusted annual
rate of 619,000 units.  That`s an eight-year high.  Prices also hit a

Diana Olick has more on what`s shaping up to be a very strong spring


enough homes for sale.  That`s one reason builders are seeing big demand.
Supplies of existing homes are falling nationwide and especially in major
cities.  Inventories down double digits in Seattle, Atlanta, Portland,
Charlotte, Dallas, and Kansas City just to make a few.

New listings are down as well as potential sellers are afraid they won`t be
able to find anything to buy.

ROBERT WETENHALL, RBC CAPITAL MARKETS:  We got healing in the housing
market because of the Fed, super-tight inventories creating demand and
massive job growth.  This is a great setup for a slow and steady recovery.

OLICK:  Slow, yes, but not so steady.  Sales of newly built homes jumps
nearly 17 percent in April after falling in the months before.

But it`s not just that headline turning heads.  It`s the price.  The median
price of a newly built home soared nearly 10 percent to $321,100, the
highest reading on record.  The last peak was in 2006.

Not only is demand pushing home prices higher, builders are basically
absent from the starter home market because most of the action is on the
pricier end, which in turn skews that median number higher.

That was clear in a big quarterly earnings beat by luxury builder Toll
Brothers (NYSE:TOL), raising expectations for 2016 sales and seeing its
already pricey price head even higher to well over $800,000.

or people of that age and deferral in marriage and waiting to buy.  And
then when they buy, they`re much older and therefore not a starter home
buyer anymore.

OLICK:  It all bodes well for builders, but not so much for buyers as
prices will likely continue to heat up right along with the mercury this

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


EPPERSON:  To read more about supply and demand in housing, head to our

MATHISEN:  Of course, most of those people who bought new homes had to take
out mortgages to get them.  That was one of the reasons why household debt,
which also includes auto and student loans, rose in the first quarter of
the year.  But unlike the period of time leading up to the financial
crisis, increased borrowing may not be such a bad thing this time around.

Steve Liesman explains.


climbing a slim 1.1 percent in the first quarter to $12.25 trillion.  It`s
the seventh straight quarterly rise, and the biggest increase in mortgage
debt since the Great Recession.  That`s according to the report from the
New York Federal Reserve Bank.

There are also increases in auto and student loans, but declines in credit
card and home equity debt.

So, is consumer debt a problem?  Are we in the middle of a consumer debt
bubble?  Hardly.  Total debt remains more than $400 billion below the peak
of 2008.  That means per capita debt continues to decline since the
population is bigger now, and credit quality continues to improve.

New foreclosures and bankruptcies both fell.  Newly delinquent loans rose
by the least since 2005, up $138 billion.  In the teeth of a recession,
delinquent debt surged by more than $400 billion a quarter.  Delinquencies
are down because banks continue to lend to those Americans with just the
best credit.

Before the recession, people with the best credit scores got 24 percent of
all mortgages and the worst got 13 percent, in part because of subprime
lending.  Now the best credits get nearly 60 percent of all new mortgages.
The second tier has fallen in half and there`s virtually no mortgage money
for Americans with the lowest credit scores.  It races questions whether
banks are too sheepish in their lending or regulations are too tough.

Some problem areas remain in consider debt.  Total auto and student loan
debts remain above $1 trillion.  The percent of loans that are 90-days plus
delinquent rose slightly for autos but fell for mortgages, credit cards and
even for student loans.  Overall, it`s not a worrisome picture of consumer
and debt, certainly not one that suggests we`re in the later innings of a
credit or economic cycle.



EPPERSON:  Jack McIntyre joins to us talk more about household debt, the
consumer, and the economy.  He`s the fixed income portfolio manager at
Brandywine Global.

And, Jack, listening to Steve Liesman`s report there, it appears that we`re
doing better here in managing our debt as consumers.  Why is that?  And why
are consumers doing a better Jonathan before the financial crisis?

think there`s a couple of things.  And Steve pointed out, I think — you
know, first of all, I think lending standards have been ratcheted up since
the global financial crisis.  So, it`s a little more difficult to take on
debt.  But I think more importantly, the debt is in the hands of the
consumer, that is in a better position to be able to service and pay back
that debt.

And the other part which I think is certainly as important, that debt, it`s
mortgage debt.  It`s going into housing.  Housing is an asset that should
appreciate over time.  So, there will be some wealth created along with

So, I think the takeaway: it`s gradual increase in debt and that it`s not –
– borrowing and people that are just overextended, the people that already
have pretty good balance sheets.

MATHISEN:  So loans being made to better borrowers.

Let`s talk a little bit about what effect rising interest rates might have
on those borrowers.  Is it going to pinch them in any sort of meaningful

MCINTYRE:  I don`t think in the end, initial phase, because I do — I`m in
the camp, I think actually if the fed is in a position to slowly — I think
it`s important to go slow in terms of tightening policy — that that`s
associated with the U.S. economy that`s doing better and as part of that
economy doing better, wages should start to move higher.  So, it`s a little
bit of a battle between a consumer that has better income versus, OK, hey,
maybe I have to pay a little bit more for that mortgage or credit card or
whatever type of debt it might be.

EPPERSON:  So what point, Jack, should we be concerned about the level of
household debt?  So, when did debt become bad?

MCINTYRE:  Yes.  So, debt becomes bad when the U.S. economy teeters on a
recession.  We`re not there yet.

And again, I think we have had a kind of cultural shift in terms of how
consumers think about debt.  I think — yes, I just don`t see the days that
we are borrowing to consume anywhere like we were ten years ago.  I think
consumption`s going to be more a function of income, of wages, which means
that we should have a little bit less economic volatility.

But no, if the fed makes a policy mistake, U.S. dollar rallies sharply, you
know, the U.S. economy slows down to a recession, obviously debt, it`s not
going to be your friend in that kind of environment.

EPPERSON:  Yes.  But right now, it seems like we`re on a good track.  So
hope that continues.

Jack McIntyre with Brandywine Global Investments — thank you.

MCINTYRE:  Thanks.

MATHISEN:  The president of the Philadelphia Federal Reserve is echoing
recent comments of other Fed officials.  Patrick Harker said the central
bank should raise interest rates at the next policy meeting in June.  That
is unless there`s a shift in the economic data between now and then.  He
added that he can easily see two to three more interest rate hikes this

EPPERSON:  And an update to a potential merger that we`ve been reporting
on.  Monsanto (NYSE:MON) has rejected Bayer`s $62 billion offer, calling
it, quote, “financially inadequate.”  Monsanto`s CEO also said the initial
offer failed to address financing and regulatory risks.  However, the
world`s largest seed company is open to continuing talks with Bayer.  And
Bayer says it`s looking forward to engaging in constructive discussion.
Shares of Monsanto (NYSE:MON) climbed more than 3 percent.

MATHISEN:  You know, the deal news, Hewlett-Packard (NYSE:HPQ) Enterprises
will spin off its enterprise services business and merge it with Computer
Sciences (NYSE:CSC) Corporation.  The combination creates a company with
$26 billion in annual revenue.  It`s expected to deliver $8.5 billion to HP
Enterprise shareholders.

Separately, Hewlett-Packard (NYSE:HPQ) Enterprises which is itself a
spinoff of Hewlett-Packard (NYSE:HPQ) reported earnings in line with Wall
Street estimates.  Shares of HPE rose sharply in after-hour trading on news
of the deal.  Shares of Computer Sciences (NYSE:CSC) also spiked as you see

EPPERSON:  Still ahead, a high-stakes trial in Silicon Valley that has the
entire tech industry on edge.


MATHISEN:  Oracle (NASDAQ:ORCL) and Google (NASDAQ:GOOG), two of the
world`s biggest tech companies, are battling it out in court and the
outcome could extend far beyond these two companies.

Deidre Bosa at the courthouse in San Francisco tells us what`s at stake.


billion.  And a decision that could send shock waves across the industry.
The stakes are high in the Oracle (NASDAQ:ORCL) versus Google (NASDAQ:GOOG)
lawsuit that now rests with a jury.  Oracle (NASDAQ:ORCL) claims that
Google (NASDAQ:GOOG) violated its copyright when it used java programming
to create Android, now the most popular operating system in the world.
Google (NASDAQ:GOOG) contends it was fair use of that code.

But the case goes beyond the two companies.  At its heart is open source, a
pillar of the software industry that a huge community of developers and
startups rely on.  And they may not be able to defend themselves as Google
(NASDAQ:GOOG) can if Oracle (NASDAQ:ORCL) wins.

CHRIS CARANI, MCANDRES HELD & MALLOY:  If indeed the fair use defense is
not set to hold here and the jury does find Google`s liable, companies and
software programmers are going to have to sure that they secure the rights,
not just go along assuming that no one`s going to call them to the carpet
and when there`s time for infringement.

BOSA:  This trial has been dragging on for nearly six years.  And as
lawyers made their closing statements, the rhetoric became increasingly

Oracle`s lawyer told the jury, you don`t take people`s property without
permission and use it for your own benefit.  Google (NASDAQ:GOOG) took a
shortcut, and they took a shortcut at Oracle`s expense.  Meanwhile,
Google`s attorney told jurors that oracle is accusing Google (NASDAQ:GOOG)
of unfair copying because it failed in its own attempts to enter the
smartphone market.  He said, “They now want all the credit and a whole lot
of money.  That is not fair.”

Now, that is up for the ten jurors to decide and it needs to be unanimous.
Until then, the tech industry remains on edge.

Deirdre Bosa for NIGHTLY BUSINESS REPORT in San Francisco.


EPPERSON:  Meanwhile, Google`s former CEO Eric Schmidt spoke about Google`s
legal fight with Oracle (NASDAQ:ORCL) at a major conference in Europe,
designed to help startups grow faster.  He made the comments to our Julia
Chatterley who interviewed a number of other well-known business leaders.

She has more now from Amsterdam.


for the 2016 startup fest Europe.  This is effectively speed-dating between
European startups in the tech sector and potential investors.  There are a
whole host of speakers today.

Tim Cook of Apple (NASDAQ:AAPL) kicked off the proceedings.  He spent a
great deal of time talking about recent privacy issues.

TIM COOK, APPLE CEO:  We think if you send a message, we`re more like the
FedEx (NYSE:FDX) carrier, right?  We take the message sealed and bring it
over.  And so, that`s our point of view and it`s not a new point of view.
It`s a point of view that we`ve had and we`ve constantly added more and
more security.

And I realize that some people have a different view.  But I hope the
people that do at least understand where we`re coming from.

CHATTERLEY:  I also got the chance to speak to the Alphabet chairman Eric
Schmidt.  We talked about today`s court case between Oracle (NASDAQ:ORCL)
and the company and he says if the ruling goes in Oracle`s favor, there`s
only one loser.

movement.  So I think it really hurts Oracle (NASDAQ:ORCL), because they
own Java and they need to promote it into this new world.  And it just
doesn`t make sense to me that they`re in that path.

CHATTERLEY:  I couldn`t let Eric leave without talking about U.S. politics.
Now, it`s pretty common knowledge that he`s backing a startup that`s
looking at data analytics for Hillary, the same for President Obama.  I
picked up on Donald Trump`s recent comments that data is overrated.

I asked Eric for his views.

SCHMIDT:  Let us start by saying with Donald Trump that his candidacy has
largely been fueled by Twitter, last time of which I checked was a tech
company that used a lot of data.

CHATTERLEY:  So, the speed dating here in Amsterdam is going to continue
for the week throughout the country.  It may be the first event of its
kind.  But the hope here is if you can attract talent like Tim Cook and
Eric Schmidt, it certainly won`t be the last.

For NIGHTLY BUSINESS REPORT, I`m Julia Chatterley.


MATHISEN:  A fast-growing Silicon Valley startup could soon be valued at
more than $20 billion.  Snapchat, the popular messaging app, is seeking at
least $200 million in investment capital and that`s according to Tech
Crunch.  That number implies that whopper of a valuation.  Just three years
ago, Facebook (NASDAQ:FB) offered to buy Snapchat for $4 billion.  The
company has about 100 million daily users.

EPPERSON:  Best Buy (NYSE:BBY) warns of a profit slowdown.  And that`s
where we begin tonight`s “Market Focus.”

The electronics retailer posted better than expected quarterly results but
sees profit in its quarter falling below expectations after an earthquake
in Japan impacted the supply of its high-margin products.  Best Buy
(NYSE:BBY) also said its chief financial officer is stepping down.  Shares
fell more than 7 percent to $30.55.

Verizon (NYSE:VZ) is warning of ongoing labor strike may negatively impact
its second-quarter results.  The telecom giant said while it has been able
to manage maintenance requests, it has not been able to meet new customer
demands.  Nearly 40,000 employees have been striking since April 13th.
Shares finished the day up almost 1 percent to $49.58.

Pharmaceutical do Eli Lilly (NYSE:LLY) says it has the potential to launch
14 new drugs by 2023, in areas like diabetes and oncology.

The company`s CE thinks Lilly is well-positioned over the next decade.


JOHN LECHLEITER, ELI LILY CHAIRMAN & CEO:  We`re finally able to take the
science and turn it into products and demographics are in our favor.  I
mean, two-thirds of the medicine that you take in your lifetime, you`re
going to take after the age of 65.  So, people are going to need the
products that come out of our labs.  I think that`s a great sort of lineup
to have as we look 10 or 20 years into the future.


EPPERSON:  Shares rose a little over 1 percent to $74.99.

MATHISEN:  Under Armour (NYSE:UA) is upping its game signing what`s
believed to be the largest apparel deal in NCAA history.  It is a 15-year
arrangement with UCLA.  It`s worth $280 million.  The new partnership
begins in July 2017.  Shares of Under Armour (NYSE:UA) up more than 2
percent to $38.22.

Domino`s Pizza (NYSE:DPZ) might owe some of its employees a lot of dough,
that`s because of the New York attorney general who is suing the nation`s
largest pizza delivery chain and three of its franchisees, alleging that
employees at 10 New York locations were underpaid by more than $500,000.

Investigation by the state found the company was knowingly using a computer
system for years that inaccurately calculated workers` wages.  Shares of
Domino`s up fractionally at $122.52.

And AutoZone`s latest results hit a speed bump.  Profit rose nearly 6
percent at the automotive parts retailer AutoZone (NYSE:AZO), but that
wasn`t good enough to beat estimates.  Revenue also missed as the company
cited a legal charge and bad weather in several of the regions of the
country it serves.  Nonetheless, shares of AutoZone (NYSE:AZO) up nearly
2.5 percent to $760.42.

EPPERSON:  The fast-growing industry of competitive video gaming just took
a big step forward.  This Friday, you`ll be able to watch other people play
games on your living room television, before it had just been available on
your computer.  But is e-sports popular enough to be the next big sports

Julia Boorstin tells us whether it is ready for primetime.


220 million people love to watch other people play video games.  Now,
they`ll be able to watch these e-sports face-offs on television.  Today
kicks off the first tournament hosted by e-league, a partnership between
turner and agency WME.

After four days of streaming competitions that will be played in front of
live audiences in Atlanta, the finals will air Friday on TBS.  First of 20
e-sports events Turner plans to broadcast on television this year, chasing
a younger demographic, particularly desirable for advertisers.

CRAIG BARRY, TURNER SPORTS:  They`re going to see a very high-end product
with a lot of engagement from a very sought-after demo.  And eventually,
we`ll see a conversion of advertisers moving into this space.

BOORSTIN:  The e-league sponsors include Arby`s, Buffalo`s Wild Wings, and
Credit Karma.  Coca-cola is an ongoing partner of Riot Games League of
Legends competition.  The CEO of the Imortals team says e-sports has a big

NOAH WHINSTON, IMORTALS CEO:  I think what a lot of brands are realizing if
you`re trying to reach an 18 to 34-year-old male demographic it`s this or
Netflix (NASDAQ:NFLX) and Netflix (NASDAQ:NFLX) doesn`t sell advertising.

BOORSTIN:  Former NBA player Rick Fox who owns a team competing in today`s
e-league says this tournament is a turning point for e-sports, another way
that teams can cash in on their growing fan base.

RICK FOX, FORMER NBA PLAYER:  There`s traditional sports, the traditional
sport attack to it, which is your ticket sales, your media rights, your
sponsorship, and merchandising, all the ancillary and traditional ways you
would see a traditional sporting franchise capitalize on their investment.

BOORSTIN:  And the range of media, game, and tech giants are betting on e-
sports` appeal, ESPN launching an online vertical dedicated to e-sports.
Both Activision and Electronic Arts (NASDAQ:ERTS) are investing in new e-
sports division.  Google`s YouTube is building its app for watching game
play.  Amazon (NASDAQ:AMZN) spent $1 billion nearly two years ago to buy
Twitch, the leading destination for streaming video games.

DEVIN NASH, COUNTER LOGIC GAMING CEO:  On Twitch, you`re averaging 80 to 90
minutes of engagement, in the 18 to 35 demographic, which is what everyone
wants to hit.

BOORSTIN:  The e-sports industry is projected to grow to $1.9 billion in
2018, up from $750 million last year.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


MATHISEN:  Coming up, do muscle cars live up to their names when put to the
crash tests?


MATHISEN:  The head of security for the TSA is out.  Kelly Hoggan was
removed from his post as frustration mounts over long security lines at
airport checkpoints.  Hoggan also came under fire from bonus payments he
received.  During his tenure, a Homeland Security report found TSA failed
to spot 95 percent of concealed weapons and explosives.

EPPERSON:  Toyota (NYSE:TM) and Uber are teaming up.  The world`s largest
car manufacturer is establishing a strategic partnership with the world`s
largest ride sharing app.  The collaboration includes an investment by the
automaker in Uber.  Under the agreement, Uber drivers will lease their
vehicles from Toyota (NYSE:TM) and cover their payments through earnings
made while driving for Uber.

MATHISEN:  Volkswagen also getting into the ride-sharing market.  The
German automaker investing in an Israeli startup, Get, considered to be a
rival to Uber.  Separately, a federal judge said VW is making progress
toward a final settlement in its diesel emissions scandal.  It will include
compensation for owners of more than 480,000 vehicles whose exhaust systems
were rigged to foil emissions tests.  The deal is expected before late

MATHISEN:  A new series of crash tests is raising questions about the
safety of muscle cars.  We`re not talking about classic versions of the
cars that first became popular in the late `60s.  No, these tests focus on
the newest muscle cars that are packed with more horsepower and more
features to help protect you in a crash.

Phil LeBeau has more.


like the Chevy Camaro, the latest version of Ford`s Mustang, or the
redesigned Dodge Challenger, are primarily about power and speed.  They all
come with versions packing more than 500 horsepower.

But how safe are they?

The Insurance Institute for Highway Safety put these muscle cars to a
series of crash tests and the results were mixed.

muscle cars faster.  More horsepower we put in, the faster we see vehicles
go.  And that means they`re going to crash at higher speeds and they need
state-of-the-art crash protection.

LEBEAU:  One particular test which replicates a common and deadly collision
with the front corner of the car raised some concerns.  The IIHS rated
Chevy`s Camaro as good and Ford`s Mustang as acceptable.  But the Dodge
Challenger`s performance was called marginal by the IIHS.

A spokesperson for Dodge says, “No single test determines overall vehicle
safety.  FCA U.S. vehicles meet or exceed all applicable government safety

None of the muscle cars tested did well enough to earn the Insurance
Institute`s best rating of top safety pick.  But it`s unlikely that will
slow down their popularity.  Since 2009, the Camaro, Mustang, and
Challenger have all seen strong sales growth.  And that`s likely to
continue with new models of these muscle cars on the way.

The big three know speed and power still sell, which is why more than
250,000 muscle cars were sold in the U.S. last year.  And this year, that
number is expected to be even higher.



EPPERSON:  To read more about the muscle car crash test, head to our

MATHISEN:  And before we go, here`s another look at the big rally on Wall
Street today helped by a strong report on housing.  Look at the Dow, up 213
points, more than 1.2 percent, 17,606.  NASDAQ, 2 percent higher, up 95.
The S&P 500 up 28.

EPPERSON:  That`s NIGHTLY BUSINESS REPORT for tonight.  I`m Sharon
Epperson.  Thanks so much for watching.

MATHISEN:  And thanks from me.  I`m Tyler Mathisen.  Have a great evening,
everybody, and we`ll see you right back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post
broadcast at 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.

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