Funded in part by HSS.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Rally pauses. The recent
stock surge seems to have seen to have taken a breather. But will the
bulls remain in control and send the Dow to 20,000?
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Golden age. Why a well-known
investor says bank stocks are entering a gilded era.
GRIFFETH: Billion-dollar fraud. Hedge fund executives are accused of
bilking investors in what`s being called a Bernie Madoff-like Ponzi scheme.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Monday,
December the 19th.
Good evening, everybody. Welcome. I`m Bill Griffeth, in tonight for Tyler
HERERA: Great to have you here.
GRIFFETH: Thank you.
HERERA: I`m Sue Herera.
Well, Dow 20,000 remains within reach. But after a few attempts, the blue
chip index has fallen short of that landmark level. Today, gains were
trimmed when report surfaced that Russia`s ambassador to Turkey was shot
and killed in Ankara. Investors were also rattled this afternoon when
several people were killed by a truck which drove into a Christmas market
in Berlin, Germany.
So, with one eye on overseas events, the Dow Jones Industrial Average rose
39 points to 19,883. The NASDAQ was up 20, the S&P 500 gained 4.
Today`s modest moves mirror those of the past few days.
And as Bob Pisani explains, some investors may be questioning the strength
of the recent rally.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks were a little
change today, with the Dow up only fractionally today and in the last five
days. The association of the Russian ambassador to Turkey may have taken
some winds of the out modest morning rally.
Still, it`s been a remarkable five weeks since the election, with the
markets up about 6 percent, largely on a belief that a proposed combination
of tax cuts, fewer regulations and a massive stimulus program will somehow
translate into a surge in corporate profits in 2017.
But that hope can only push stocks so far. There is a battle going on.
Instead of bulls versus bears, let`s call it the pragmatists versus the
optimists. The pragmatist is saying, the stock market going too fast, we
don`t know how tax reduction, stimulus programs are going to impact
earnings because we don`t know what the numbers are going to be or the
programs will be. The optimists are saying, use your imagination. We
don`t have to have all of the numbers, but we know all of this is going to
be good for stocks.
Now, this may be a very flimsy foundation for a stock rally. But that`s
essentially where we are now. And that flimsiness may be why the market is
starting to look trendless. Former market leaders like banks and
industrials and materials that went up big in November, they sort of
stopped rallying, and while November laggards like consumer staples and
utilities are trying to make up for the difference, investors in the past
week haven`t been buying with quite the same enthusiasm as the prior month.
Now, a pause after such a big rally is certainly in order and you can
perhaps forgive investors who are being a bit uncertain. Should they buy
more or sit tight or take profits and hope the markets will drop so they
can buy lower? There is no agreement on the direction right now.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: You know, since the election, the financial sector has been the
best performing sector overall. Banks are benefitting, of course, from
higher interest rates, and they`re rallying on the assumption that a
Republican administration will reduce those regulations that were put in
place after the financial crisis. Financials are up 17 percent since
November 8th and they have advanced more than 20 percent just this year.
And in an interview today on CNBC, a well-known investor who correctly bet
against subprime mortgage securities during the financial crisis, well,
today, he said he`s now very bullish on the banks.
(BEGIN VIDEO CLIP)
STEVE EISMAN, NEUBERGER BERMAN: What I think is going to happen is I think
the right risks — financial system is going to be — at least partially
deregulated. I think over the next couple years, there`ll be more
leverage. And this will be a golden age of investing in financial stocks.
INTERVIEWER: So, you would be very long right now, on financial stocks?
EISMAN: As long as I could be.
INTERVIEWER: As long as — and is that what you are?
EISMAN: And that is what I am.
(END VIDEO CLIP)
GRIFFETH: So, is it time to invest in the banking sector for the long-
term? And if so, what should you know before you do?
Joining us tonight to talk about that, Eric Wasserstrom is managing
director at Guggenheim Securities.
Good to see you. Thanks for joining us tonight.
ERIC WASSERSTROM, GUGGENHEIM SECURITIES MANAGING DIRECTOR: Thanks for
GRIFFETH: Are you as bullish on the banks as Steve Eisman is right now?
WASSERSTROM: You know, I`m afraid I`m not. You know, I think if I were to
categorize myself relative to what Bob just discussed in your previous
segment, I`m more in the pragmatist camp.
And while we`ve seen a couple of positive things happened, particularly
with respect with the shape of the yield curve, many of the other things
that I would argue as being discounted in bank stocks are still I think
very early, and I`m in a little more of a wait and see mode to see if they,
in fact, benefit future earnings.
HERERA: One of the things that has been pointed out by a number of
analysts as a bullish scenario is regulatory reform. But you seem to think
that perhaps not as much reform is going to happen as a lot of people
WASSERSTROM: Yes, Sue. That`s correct. So, the big debate is really
around the repeal of Dodd/Frank. And I would say quite flatly that the
likelihood of repeal or even significant reform to Dodd/Frank is zero.
The one thing you could see is some new legislation targeted at regulatory
relief for smaller community and regional banks. But broadly speaking, I
don`t see a big — a high likelihood of deregulation, as long as that
requires 60 votes in the U.S. Senate, which it will.
GRIFFETH: Having said all of this, Eric, you still have buyer
recommendations on big banks. You`ve got on Citi, on Morgan Stanley
(NYSE:MS) and some of the regionals. So, put this in perspective for us.
Are you buying them now or what are you doing with them?
WASSERSTROM: Well, generally speaking, I would argue that the space
broadly is now certainly at the top end of our range of fair value. Within
that, we continue to fight for the names where there is actually an
idiosyncratic reason why we think the earnings will go higher rather than a
dependence on just improvement on the macro environment, which we find at
this point a very uncompelling case, given the run in the stock.
HERERA: What about earnings? You mention that had. And, you know, one of
the issues for the market has been the expectations that earnings are going
to continue to deliver on perhaps the top end of estimates. Would you fall
into that camp, or are you equally as cautious on the earnings front?
WASSERSTROM: Well, I think you have to sort of parse a bit what the
drivers of earnings may be. So, probably the most significant one, of
course, is the net interest margin, which responds to the shape of the
yield curve. The yield curve has steepened, so that`s positive for banks
and the short end may come up through rate hikes, also positive. Net-net,
we think those things contribute about 4 to 5 percent of earnings.
Obviously, that alone wouldn`t explain a roughly 25 percent move in the
stocks. So, we think what`s also being discounted is things like more
robust capital markets, and a lower corporate tax rate, and, again, we
would he see it`s just very early to conclude that those things are
GRIFFETH: Eric Wasserstrom from Guggenheim Securities, good to see you
again. Thank you for joining us again.
WASSERSTROM: Thank you for having me.
GRIFFETH: You bet.
HERERA: Well, it`s almost the end of the year. And the past few Januarys
have anything but kind to investors. The market seemed to suffer from a
New Year`s hangover. But will 2017 be different?
Mike Santoli takes a look.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: As investors prepare
for 2017, the ghost of January`s past might soon disturb their sleep. The
stock market has finished strong in December the past three years. But in
each case, stocks stumbled into the New Year. Losing an average of nearly
4 percent in the month of January since 2014.
This year`s January drop led ultimately to a harsh 15 percent down turn
into February. Wall Street is now trying to figure out if the market is
again set up for a similar hangover following the current rally.
The bad news, the Dow does seem right for at least a pullback after an 8
percent surge since Election Day and the rush of investor optimism that`s
accompanied it. But a variety of economic and financial factors are in
better shape now than they were heading into the market skid a year ago.
For example, the current rally is quite broad with a majority of stocks
taking part in the gains, while last year`s market was driven only by a
small handful of big stocks.
Analysts are also impressed the sector is geared to economic acceleration
are in the lead. This include semiconductors, banks and transportation
stocks. The bond market is better behaved, too. The recent lift in ten-
year treasury yields to 2.5 percent builds in a better growth in inflation
outlook, and the corporate bond market is quite strong in contrast to last
year when risky corporate bonds were tumbling in value as oil collapsed and
global industry slowed.
On the corporate front, earnings are projected to grow again over the next
few quarters, unlike a year ago when companies are in the middle of a long
stretch of declining profits. All these factors suggest any different
stocks over the coming weeks is less likely to be as dangerous as last
winter`s selloff. Now, that doesn`t mean all risks have been banished.
Stocks are about as expensive relative to corporate earnings as they have
been the entire market cycle dating to 2009.
The U.S. dollar for its part is at a 14-year high against world currencies.
This will restrain profit growth from U.S. multinationals and could
destabilize the emerging market economies and exacerbate trade tensions
And, of course, it`s far from clear exactly where tax spending policies in
the Trump administration will propose or get through Congress. The first
year of a presidency, historically, has been bumpy for markets.
All things considered though, Wall Street seems better prepared to avoid a
nasty hangover from its year-end celebration come January.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock
GRIFFETH: Elsewhere, Deutsche Bank could settle with Department of Justice
this week. And at least according to “Reuters”, the amount they settle for
could be less than the $14 billion originally reported. This settlement,
of course, relates to the sale of toxic mortgage debt that contributed to
the 2008 financial crisis. Back in September, there were reports that
surfaced that Deutsche Bank could face that $14 billion penalty and it
prompted the bank to deny speculation that it needed any bailout from the
HERERA: The head of the International Monetary Fund has been found guilty
on criminal charges linked to the misuse of public funds. The case is
linked to Christine Lagarde`s time as France`s finance minister. The
judges did not impose a fine or sentence. Experts say that may allow her
to keep her position at the IMF. But the organization`s board will have
the final say.
GRIFFETH: A hedge fund founder and other executives were charged today
with defrauding investors, making it one of the largest alleged scams since
Bernie Madoff`s Ponzi scheme.
Andrea Day has our story tonight.
ROBERT CAPERS, U.S. ATTORNEY, NY: Today, we`re announcing the arrest of
seven individuals associated with New York-based hedge fund called Platinum
ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: An alleged billion
dollar fraud with many high-level executives taken into custody early this
CAPERS: Mark Nordlicht, Platinum`s founder and chief investment officer,
and co-defendant David Levy, Platinum`s co-chief investment officer, are
both charged together with three other co-defendants.
DAY: Investigators say the billion-dollar scheme worked like a classic
Ponzi. And when the money started to dry up, some executives at Platinum
Partners panicked and booked flights out of the country.
CAPERS: These defendants defrauded Platinum`s investors by falsely
portraying their flagship hedge fund, PPVA, was thriving when, in fact, it
DAY: Investors were left desperate for their money. According to the
indictment, one writing in an e-mail to executives at the firm, “I don`t
know who is in charge now, but I know it is unacceptable.”
CAPERS: Platinum created a PPVA fund in 2003, and every year since then,
through 2015, it reported on average positive annual returns of 16.8
percent, and not a single down year.
DAY: In its prime, the New York-based fund had nearly $2 billion in assets
under management. But prosecutors say in the past years, executives lied
to investors and plotted ways to cover it up.
CAPERS: Between 2012 and 2016, Platinum collected $100 hundred million in
fees from the fund based on their inflated valuations. Platinum Partners
had no value more than a tarnished piece of cheap metal.
DAY: And the SEC and court documents today saying executives at the firm
paid back their favorite investors first, allegedly describing what was
happening internally at the firm as Hail Mary time.
In Brooklyn, I`m Andrea Day for NIGHTLY BUSINESS REPORT.
HERERA: Still ahead, perfect timing? The encouraging message of the share
of the Federal Reserve has for recent college graduates.
GRIFFETH: Major cities across northern China were under a blanket of smog
on Monday. In fact, it was so bad businesses were shut down and air and
ground traffic was disrupted, more than 20 cities, issued red alerts, which
were expected to remain in effect through Wednesday. And this all comes as
political and economic tensions continue to linger between the world`s two
largest economies following the seizure of that U.S. naval drone last week.
Eunice Yoon has more for us tonight from Beijing.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China`s foreign
ministry attempted to ease tensions over the drones, saying that the
Chinese and U.S. militaries were in direct talks to negotiate the handover
of the drones. The ministry also cautiously defended Beijing`s actions,
saying, “China`s navy had a responsible and professional attitude to
identify and ascertain this object, if you discover or pick something up
from the street, you have to examine it.”
That was a very different tone from what was coming out of the state media,
which both defended Beijing`s actions strongly and mocked Donald Trump.
“The People`s Daily” called the U.S. survey ship a serial offender, spying
against China. The official pressed more broadly, attacked the president-
elect, calling him emotional for tweeting that Beijing should keep the
drone. “The Nationalist Global Times” said Trump`s tweets add fuel to the
fire and said Trump is not behaving as a president and has no sense of how
to lead a super power.
Trump has indicated that he wants to become much more aggressive on the
South China Sea. His choice for a secretary of state, Rex Tillerson, also
suggests a tougher line. Under Tillerson, Exxon teamed up with Vietnam for
oil exploration of the South China Sea, drawing protests from Beijing.
Now, analysts I speak to say that Beijing is officially showing some
restraint. However, they believe that if Trump were to carry out his
aggressive stance and turning that into official policy, Beijing would also
react with stronger action. Some of the ideas are that Beijing could
recall its ambassador or perhaps even cut diplomatic ties.
Now, the state media appear its to be attempting to steer Trump away from
confrontation. “The China Daily” said that Trump should take President
Obama`s advice and think through what the consequences are before up-ending
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon, in Beijing.
HERERA: President-elect Donald Trump has picked a conservative congressman
to be his budget chief. And run one of the most powerful and influential
economic agencies. Mick Mulvaney is a fierce deficit hawk, with a record
of pushing deep expending cuts to balance the budget.
Eamon Javers is covering the story for us tonight from Washington.
Good to see you, Eamon.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Sue.
HERERA: So, if Mick Mulvaney is a fiscal conservative, how is that going
to gel, or will it gel, with Mr. Trump`s calls for massive infrastructure
JAVERS: Yes, that`s going to be the fascinating point of tension. Mick
Mulvaney is one of the members of the Freedom Caucus up on Capitol Hill.
He`s a Republican from South Carolina. Very conservative. He`s even
billed himself as a member of the shutdown caucus. He doesn`t want to see
any spending not paid for by any other spending cuts, traditionally.
The question is, how is he going to view Donald Trump`s infrastructure
spending plans? Will they be able to come up with a way to cut as much as
they spend, and where will they find those other cuts. That`s going to be
on Mick Mulvaney`s plate when he gets on the OMB in January. It`s going to
be a very, very tough task.
GRIFFETH: Then, on the other hand, Eamon, you have the president-elect`s
criticism of some of the aerospace contracts we have. Most importantly,
the Air Force One deal that he claimed was $4 billion. How does that jive
with Mr. Mulvaney`s strategies?
JAVERS: Well, that`s an interesting one that you mentioned, Bill, because
Mulvaney has been one of the few Republicans who are willing to call for
cuts in defense spending, as well as in other domestic discretionary
spending. So, traditionally, you see a lot of Republicans call for
spending cuts, but on the Pentagon. Mulvaney has said that he would like
to see defense cuts, as well.
That seems to align pretty well with what Donald Trump has been saying
about some of these defense contracts. They`re too expensive, and the
contractors are sort of having one on with the U.S. taxpayers here. So,
that could be an area of convergence.
But the whole question of transportation and infrastructure is really a
prickly one and we`re going to have to wait and see how they resolve it.
HERERA: Eamon, thank you, as always.
JAVERS: You bet.
HERERA: Eamon Javers in Washington.
GRIFFETH: Meantime, apple appeals that European Union`s nearly $14 billion
tax order, and that`s where we begin tonight`s “Market Focus”.
Back in August, you recall the E.U. slapped the tech giant with the
multibillion dollar tax bill, alleging that the company accepted illegal
state aid from Ireland in return for creating jobs in that country. Today,
though, Apple (NASDAQ:AAPL) said it has now formally appealed the E.U.`s
decision, adding the agency retroactively changed the rules and also
disregarded decades of Irish tax law. Shares of Apple (NASDAQ:AAPL) rose
fractionally today to $116.64.
Meanwhile, home builder Lennar (NYSE:LEN) said today that an increase in
orders and higher average selling prices helped that company post better
than expected earnings. The company also said that it expects to perform
well under a Trump administration, even if the fed does continue to hike
interest rates. Shares of Lennar (NYSE:LEN) down 2 cents to $43.40.
And shares of Clovis Oncology got a lift today following the FDA`s early
approval of the drug maker`s treatment for ovarian cancer. The medication
is intended to treat woman who have an advanced form of the disease and who
have specific between gene mutations. Shares surged more than 8.5 percent
today to $40.48.
HERERA: Lands` End has named a new CEO, Jerome Griffith. Not Bill
Griffith, who is former chief executive of the luggage maker Tumi Holdings.
He will take the helm of the clothing retailer in March, succeeding the
company`s two interim CEOs. Lands` End shares rose nearly 4 percent to
And Boeing (NYSE:BA) warned that it may cut additional positions next year
in an effort to cut costs. The aircraft maker said some of its cuts will
be a part of a voluntary layoff program in one of its units but the company
did not disclose how many jobs will be lost. Shares rose 1 percent to
GRIFFETH: The share of the Federal Reserve has some encouraging words for
new college graduates. The class of 2016 is entering the strongest job
market in nearly a decade.
Steve Liesman has more.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Chair Janet
Yellen had a mid-year message for college students, stay in school and get
that degree. In a commencement speech at the University of Baltimore,
Yellen told graduates that the pay gap between those with college degrees
and those are high school diplomas has widened from just 20 percent in
1980, to a whopping 70 percent now.
But graduates only get those benefits if they, well, actually get the
JANET YELLEN, FEDERAL RESERVE CHAIR: Research shows that a large share of
the benefits I`ve described from higher education comes only to those who
graduate. Even those completing three or more years of college benefit
much less when they don`t get a degree.
LIESMAN: For example, Yellen said that college graduates usually find jobs
that allow them to pay off their student loans, and there`s more.
YELLEN: Beyond these advantages, research also shows that a college or
graduate degree typically leads to a happier, healthier and longer life.
LIESMAN: Those college degrees will b needed more and more because of
globalization and advances in technology. The Fed chair offered a fairly
upbeat assessment about the U.S. job market overall. She said the U.S. has
the strongest job market in nearly a decade, that job creation is solid,
wage growth is picking up, the layoff rate is steady and there are more job
openings. But she cautioned the economy still faces challenges, including
low economic growth and weak productivity gains.
While Yellen made no comments on monetary policy, a Fed chair who sees a
healthier job market tends to be more inclined, not less, to hike interest
rates. But you don`t rally need a college degree to figure that out. You
just need one for everything else.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: Coming up, point, click, shop. What the nation`s biggest
shippers are doing during their busiest days to make sure you get your
holiday packages on time.
GRIFFETH: BlackBerry is switching gears. The company, of course, known
for its mobile phones with the keyboard is opening a research center for
self-driving cars located in Ottawa, Ontario. BlackBerry will invest $75
million. The company which has been building software to run in-car
entertainment systems will now also build software to run self-driving
HERERA: It`s crunch time for the shippers and companies like FedEx
(NYSE:FDX) and UPS are pulling out all of the stops like mobilizing field
staff and adding Sunday deliveries. It`s all to keep up with a record-
breaking number of items ordered online.
And as Morgan Brennan reports, the pressure is on to get packages where
they need to go.
MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The countdown is
on. As UPS, FedEx (NYSE:FDX) and the U.S. Postal Service scramble to
deliver an avalanche of packages over the coming days. Today will likely
be the busiest day for UPS and one of the busiest at FedEx (NYSE:FDX), with
both companies handling double the average daily package volume. It will
also be the busiest mailing day for the U.S. Postal Service which expects
Thursday to be its peak delivery day.
UNIDENTIFIED MALE: I`m a traditionalist and also I like the post office.
They themselves get in a day or so.
UNIDENTIFIED MALE: I shipped about six packages out — FedEx (NYSE:FDX)
things here and there, but mostly Christmas cards at this point because so
much goes on Amazon (NASDAQ:AMZN).
UNIDENTIFIED FEMALE: I think we rely pretty heavily on Amazon
(NASDAQ:AMZN) Prime, as a company to get everything here in time.
BRENNAN: Combined, the Postal Service, UPS and FedEx (NYSE:FDX) plan to
ship an estimated 1.8 billion packages this holiday season. To handle it,
they began prepping back in January. Adding new facilities, new tracking
technology, mobile sorting stations, new planes and trucks and extended
operating hours, including some Sunday deliveries and in the case of the
Postal Service, even service on Christmas Day.
Shipping software developers ShipMatrix says, so far, UPS and FedEx
(NYSE:FDX) are posting solid on-time delivery performances, for the last
week`s express service rates on par with the same period in 2015.
SATIGH JINDEL, SHIPMATRIX PRESIDENT: As long as we don`t have severe bad
weather, a snowstorm, they should be able to hold on to the service levels
they have. And the other is, consumers waiting until the day before, until
the 22nd or 23rd for the last minute, that is very difficult to overcome.
BRENNAN: That as all three parcel carriers anticipate a double digit
growth of holiday volumes versus last year. So far, both UPS and the
Postal Service say they are on track to hit their growth targets, which
include forecast for 700 million and 750 million packages respectively this
FedEx (NYSE:FDX) has been less forthcoming, though analysts do expect an
update when quarterly earnings are released tomorrow. But with just days
to go until Christmas and Hanukkah, a lot could still go wrong, especially
if, once again, consumers turn to the Internet for last-minute shopping.
For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in New York City.
GRIFFETH: Oh, look at that. I have a package waiting for me at home.
HERERA: I`m going to go home and wrap. I`m behind.
GRIFFETH: Hurry up.
HERERA: That does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.
GRIFFETH: I`m Bill Griffith. Have a great evening. We`ll see you
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.