Transcript: Nightly Business Report – August 17, 2017

ANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Stocks rocked.  The Dow falls nearly 275 points.  Investors run for cover and wonder if the rally is starting to crack.

at most retailers, at Walmart, sales are up.  Its major investments are
paying off.  So, why is the stock trading lower?

HERERA:  Risky business?  With inventory low and prices high, are home
buyers turning to nontraditional mortgages to get their deals done?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
August 17th.

MATHISEN:  Good evening, everyone, and welcome.

Wall Street had not seen a down day like this in three months.  The selling
was broad and intense, with the retail and tech sector suffering some of
the deepest losses.  Investors dumped stocks, Dow, S&P, Nasdaq, it didn`t
matter.  They bought bonds, sending yields lower.  They also put money into
gold, a so-called safe haven.

Let`s get right to the closing numbers for this Thursday.  The Dow Jones
Industrial Average plunged 274 points to 21750.  Nasdaq tumbled 123.  And
the S&P 500 was off by 38.

It wasn`t just one reason for the selloff today.  Washington uncertainty
contributed, so did some weak earnings reports.  And the losses intensified
midday on news of a deadly terror attack in the heart of Barcelona.

Bob Pisani watched the selloff today from the floor of the New York Stock


trouble?  Well, not yet.  But there`s some cracks.

We`ve seen something in the last two weeks we haven`t seen in some time.  A
selloff last week and another one this week.  That`s starting to do some
technical damage.  The small cap Russell 2000 and the Dow Transports both
broke below a key level, along with almost half of all NYSE stocks.

What`s causing this?  Several events have come together.

First, there`s leadership doubts about President Donald Trump starting to
emerge.  The markets drifted lower today on an erroneous rumor that
national economic council head Gary Cohn might resign.  The White House
later said he was staying.

And later in the day, the markets took another dip lower when Senator Bob
Corker told reporters that the president has yet to show the stability or
competence, his words, necessary to be a successful leader.  That`s not
good for stocks.  Traders are still very focused on tax cuts and they want
the White House and Congress to get it together soon.

Second, the stock market is not cheap right now and leadership looks a
little tired.  So, Amazon (NASDAQ:AMZN), for example, is 11 percent off its
high.  But it`s still up 28 percent for the year.

Third, earnings may be topping.  The S&P 500 is only expected to post
earnings gains of 6 percent in the third quarter after double-digit gains
in the first and second quarter.

Finally, the Federal Reserve, which has been such a help for many years for
stocks is now mostly perceived to be neutral.  The risk is that the Feds
may tighten too much and that would drop stocks for sure.

The next few days will be an important test.  All this year, people have
been set to buy when the stock market falls.  There hasn`t been much of

We had a huge run in the markets now, may be a good time to get a pullback.
What`s a pullback?  In today`s context, 5 percent would be notable.  We
haven`t had that in a long time.

You have to go back to Brexit in June of 2016.  A 5 percent drop in the
recent closing high of 2480 would bring us to 2356.  That would be the
levels we saw in May?  It seems like a long time ago, doesn`t it?

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.


HERERA:  Sarah Hunt joins us now to talk more about today`s market selloff,
and what she sees ahead for stocks.  She is portfolio manager at Alpine

Welcome back, Sarah.  Nice to have you here.


HERERA:  Bob Pisani laid out some of the reasons that the market sold off.
Of those, one, do grow agree?  And two, of those, which was the most
important factor do you think from your point of view?

HUNT:  Well, I think that you have a couple of things going on.  And he
elaborated on a lot of them.  I think what the Fed is going to do going
forward is an important issue.  I think the issue that has happened with
the Council of Economic Advisers and some of the people that were on some
of those government councils, I think that has unnerved people a little bit
with the agenda going forward.

And so, the U.S., it`s really going to be about the economy and it`s going
to be about earnings and the Fed.  So, I think that the destabilizing
factors, not to down play any of other parts, because obviously what
happened in Barcelona today was also very terrible.  But I think that going
forward, for the market, it`s going to see some underpinnings on the
economic front that it can count on.

MATHISEN:  You know, we`d had — we went a long time without a 100-point
down day.  We had one or two last week.  We`ve now had a nearly 300-point
down day this week.  Should investors just get ready for more of these and
more volatility as we move into the fall and later part of the year?

HUNT:  Well, I think what`s interesting is that we were all collectively
looking for more volatility after the elections were over and the
administrations started.  And we really didn`t get very much.  And I think
that the anticipation of some of the programs that may come has been part
of what`s been driving the market.

But I think earnings has also been a very big part of that.  So, we
outperformed in the second quarter what the expectations were in the
beginning of the year.  We can see what happens with earnings in the third

I think that`s going to be important.  And I think that volatility, it
should not be a surprise for a little bit to come back.  It`s been
surprising how quiet it has been for the last few months.

HERERA:  You know, today notwithstanding, we`ve been making new highs in
the market on a pretty consistent basis.  And the discussion has been, are
we overvalued?  Are we fairly valued?

How do you feel about that aspect of the market?  And are you finding
opportunities to?

HUNT:  Well, we`re a dividend fund, so we`re always looking for dividend
opportunities.  We think there are some place where you`ve seen some —
energy for one is an area that`s had some problems, but I think there`s
good opportunities there.  We look at BP in that space.

And also, obviously and fortunately, defense stocks, even though they`ve
had a good run, also look like they`re going to have some earnings growth
into the next few years.  So, there are places that you can definitely look
there will be earnings and dividends.  And we think that that`s where you
need to be looking.

MATHISEN:  Energy and defense are two areas you like.  What about fixed
income?  A lot of individual investors have a lot of their money tied up in
fixed income products.

HUNT:  Well, and there`s always been a question of when people are going to
be moved out of fixed income and into stocks.  I think what you`ve been
seeing recently is the other way, where people have been moving back into
fixed income, because even though rates are still low, I think that`s a
little bit of a safety trade.  And I think that`s the tough part.  I think
that`s why people are going for dividend stocks hey can`t get yield in the
fixed income markets.  So, it`s going to be — it`s got to be a combination

HERERA:  On that note, Sarah, thank you so much.  Sarah Hunt with Alpine

MATHISEN:  As the retail industry struggles, the world`s largest store,
Walmart, saw sales rise and beat both profit and revenue estimates for the
quarter.  Now, that`s not an easy thing to do in this environment.  But
like Home Depot (NYSE:HD) earlier this week, the results were not enough,
good as they were, not enough for investors.  They were disappointed by the
adjusted earnings and the outlook.

Courtney has more on Walmart`s quarter.


steady as she goes for the world`s largest retailer.  Walmart putting up
another solid quarter nearly across the board, leading the discounter to
raise its profit expectations for the year.  But in the most recent
quarter, profits were capped because of big investments to improve e-
commerce, increase wages and lower prices for shoppers.  However, the
investments seem to be working.

MICHAEL GOULD, FORMER BLOOMINGDALE CEO:  Their improvement of the way the
stores look, the assortments in the food area, the quality, the service,
the friendliness, I`ll tell you something, dramatically different than a
year ago.  And that was even better than the year before that.

REAGAN:  While other retailers have seen inconsistent sales trends, Walmart
has reported a string of sales gains, marking 12 straight quarters of
growth.  U.S. store traffic also continues to improve, and analysts think
profit margins may start to grow again soon.

DANIEL BINDER, JEFFERIES:  In a world where Amazon (NASDAQ:AMZN) seems to
be taking over, if you can have a player like Walmart not only accelerate
comp store sales but also increase margins, you know, this will be a pretty
good story.

REAGAN:  While still a much smaller part of the business, Walmart`s U.S.
online sales grew 60 percent from last year, just slightly below last
quarter`s growth.  Walmart says the sales strength in the quarter was
broad-based, but it did call out grocery, noting the best performance in
five years.  Since food is more than half of the discounter`s sales, most
analysts agree, it`s the most important category for growth and a big focus
for Walmart.

Discounter`s online grocery with parking lot pickup has been well-received
and will be in more than 1,000 stores by year-end.

(on camera):  An important opportunity, especially as competitors like Aldi
add stores, Lidl enters the U.S., and Amazon (NASDAQ:AMZN) buys Whole



HERERA:  The leading economic index, a broad measure of how well the
economy is performing climbed in July.  It also signaled potentially faster
growth in the second half of the year.  According to the conference board,
the index rose 0.3 percent last month, but there was an outlier as well.
Housing permits were weak and that`s not something the housing market wants
to see.  As we`ve been reporting, the lack of supply of houses for sale has
helped push home prices higher.

MATHISEN:  Mortgage rates continue to slide ongoing economic uncertainty,
kept a lid on bond yields, which mortgage rates tend to track.  According
to Freddie Mac, the rate on the 30-year fix loan average just 3.89 percent.
That`s right around its low for the year.

HERERA:  And the end of the summer slow down in the housing market has been
made even worse by high home prices and little for sale.  That has some
buyers turning to riskier loans to get their deal done.

Diana Olick reports.


houses have been packed all summer and all that demand has only pushed home
prices even higher.  The trouble is, so much of the demand is from younger
buyers, who are already struggling to get into homeownership.  That`s why
more and more are using low down payment loans.

about 40 percent cumulatively since 2012.  And at the same time, there are
a lot of people now with jobs, with wages increasing and they see housing
as an appreciating asset.  And so, getting a low down payment loan is one
of the ways to get into one of these appreciating houses.

OLICK:  In the past 12 months, 1.5 million borrowers bought their homes
with down payments of less than 10 percent, marking a seven-year high,
according to Black Knight Financial Services.   They now account for 40
percent of purchase lending.

While FHA had been the low down payment loan of choice for young borrowers,
Fannie Mae and Freddie Mac also have 3 percent down options and are gaining
market share.

GRABOSKE:  Loans with less equity have higher risk of default because
there`s less skin in the game.

OLICK (on camera):  The less skin in the game, the more risky the loan is,
house prices should suddenly take a U-turn.  Borrowers are more likely to
default on a loan if they have less equity in the home.

(voice-over):  Along with low down payment loans, adjustable rate loans are
also back in favor, up 13 percent compared to a year ago, according to the
Mortgage Bankers Association.  That is likely because they are cheaper than
fixed rate loans.  While both of these loans are riskier, the good news is,
today`s borrowers have much better credit scores than those during the last
housing boom and are thus less likely to have trouble making monthly
payments, no matter where home prices head.

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


MATHISEN:  So, what do these risky mortgages mean for the housing market

Susan Wachter is professor of real estate and finance at the University of
Pennsylvania`s Wharton School of Business.

Professor, welcome.  Good as always to see you.

You know more about this stuff than anybody else I know.


MATHISEN:  One and half million loans in the last year with low down
payments below 10 percent.  I heard Diana mention 3 percent down loans.
Should we be worried about this?  Are we repeating history?

WACHTER:  We`re not repeating history.  We`re not in bubble territory.
Should we be worried?  No.  But should we watch this trend?  Absolutely.
It bears watching.

This is real demand forces out there.  It`s not irrational expectations
like it`s driving prices higher.  But if we have a rate spike, if we have a
recession, prices will fall.

HERERA:  How do you feel about the economy in that sense?  Because the
Federal Reserve just yesterday said there wasn`t basically enough inflation
in there, and it`s maybe putting off its interest rate hike.  But there are
those who say, we are going to eventually head into a recession.  How do
you feel about it and how might that affect housing?

WACHTER:  Well, recessions, you know, we`ve not outlawed recessions.
Business cycles will be with us.  It will happen.  Not — there`s no sign
of it happening now.  And interest rate spike, a large interest spike,
there`s no sign of that either.

The problem is with ARMs, there`s a much greater vulnerability to an
interest rate spike.  So, that`s the combination to be aware of.  Low down
mortgages so that LTB is 95 percent pervasively, 5 percent price decline,
which is not uncommon.  It could be a problem.

But right now, that`s the marginal buyer.  It`s not overall.  It bears
watching going forward.

MATHISEN:  So, in the housing crisis, a couple of things happen.  Number
one, that some of the buyers, the lenders didn`t really check them out.
They didn`t look at whether they had the incomes they said they had.  There
were the liar loans and so on and so forth.

The other thing that was going on was that the appraisers were putting
really outlandish numbers.  They weren`t just going ahead and say, yes, the
houses worth that.  Have those two things been corrected?

WACHTER:  They have.  But that doesn`t mean that we`ve prevented any future
bubble by any means, but you can get a bubble simply out of an increase in
ARMS and low down payment loans, that leads to self-perpetuating
expectation of price increases and further reduction of further rise loan
values, further reduction debt income.  We`ve seen it happened in other
countries.  It could happen.

We`re not in that territory.  Prices reflect fundamentals.  They reflect
current low interest rates and high rents and job gains.

HERERA:  How would you characterize the market at this point?  Because
Diana has pointed out in her reporting earlier in the year, some are
calling it the tightest market in history.  Do you agree with that?  Are
you seeing any loosening in that?  Or any relief in that?  Or not?

WACHTER:  Yes, it absolutely is the tightest market.  Diana is right about
that.  It`s because of the low inventory.  Where there is some loosening
going forward is huge increase in multifamily building.  And that`s going
to put a lid on rent growth to some extent.  And that will open up the
market, make renting more affordable, easier to save for a down payment.

So, we should find some easing of high rents, which then will hopefully
feed into lower price.

MATHISEN:  Susan Wachter, one the best, with the University of
Pennsylvania`s Wharton School.

WACHTER:  Thank you.

MATHISEN:  Thank you.

HERERA:  Still ahead tonight, the uncertain future of nuclear power.


natural gas doing what a nuclear disaster couldn`t do to Three-Mile Island.



MATHISEN:  House Democrats are launching an investigation into why prices
for multiple sclerosis treatments have almost quadrupled since 2004.  The
lawmakers sent letters to seven drug makers, including Teva, Sanofi,
Novartis and Biogen, requesting information.  They want to determine
whether the drug companies all raised prices at about the same time.

HERERA:  EpiPen maker Mylan (NASDAQ:MYL) has finalized with a deal with the
Department of Justice.  The drug maker has agreed to pay more than $460
million to settle charges that the company overcharged the government for
the injection allergy medication.  The agreement ends the investigation,
which found that Mylan (NASDAQ:MYL) avoided paying state Medicaid programs
higher rebates by re-categorizing the brand medicine as generic.  According
to investigators, Mylan (NASDAQ:MYL) raised EpiPen prices by about 400
percent between the years 2010 and 2016.

MATHISEN:  Express (NYSE:EXPR) Scripts is instituting a new opioid
management program, but it is drawing criticism from members of the
American Medical Association.  The program limits the strength and amount
of the drugs prescribed for first-time users.  The goal is to help prevent
the overuse and then abuse of the medicine.  But according to “The
Associated Press”, doctors say treatment plans should be left to physicians
and their patients.  Express (NYSE:EXPR) Scripts competitor CVS (NYSE:CVS)
Caremark has a similar program.

HERERA:  The Gap (NYSE:GPS) lift its full year earnings forecast and that`s
where we begin tonight`s “Market Focus”.

The apparel retailer said its stronger than expected results are the a
result of the company`s investments in products and customer service.  Gap
(NYSE:GPS) also said same-store sales climbed higher, largely thanks to
strength in its Old Navy brand.  Shares initially rose in the extended
session and also ended the regular day up fractionally to $22.68.

After the bell, Ross Stores (NASDAQ:ROST) reported profits and sales that
beat analyst expectations.  The retailer said it expects same store sales
for the current quarter to rise 1 percent to 2 percent.  Shares initially
took off in after-hours.  They ended the regular session down nearly 2
percent to $53.33.

And the Chinese e-commerce company Alibaba saw sales rise as more shoppers
made purchases online.  Net income nearly doubled, and the company said its
technology is driving significant growth across its business.  Shares were
up nearly 3 percent to $163.92.

MATHISEN:  Morgan Stanley (NYSE:MS) raised its rating on Molina Healthcare
(NYSE:MOH) from underweight to overweight, also raising its price target on
the stock.  The bank`s bullish sentiment toward Molina is attributed to the
company`s restructuring plan that Morgan Stanley (NYSE:MS) says will lead
to Molina`s growth.  Molina Healthcare (NYSE:MOH) shares rose almost 5
percent on this very negative day to $59.51.

Madison Square Garden (NASDAQ:MSG) posted a wider than expected loss as the
entertainment and sports company faced higher costs and lower sales at
several of its venues.  Revenue, though, ahead of expectations.  Shares
down more than 4 percent to $208.15.

And the activist investor, Bill Ackman unveiled his plan to double the
stock price of payroll processor ADP over the next five years.  The
billionaire recently disclosed his hedge fund, it`s Pershing Square, has
taken an 8 percent square in ADP and is pushing for changes at the company.

The proposed plan includes layoffs, cost cuts, technology investments, ADP
said, uh-uh.  We disagree with the strategy.  Shares of ADP down more than
5 percent, finishing the day at $104.68.

HERERA:  A number of nuclear power plants in the U.S. have made a decision
to shut down and more expected to do so.  One of those plants is Three Mile
Island and it`s at the center of a new debate over the future of nuclear

Jackie DeAngelis reports tonight from Middletown, Pennsylvania.


DEANGELIS (voice-over):  Cheap natural gas may do what the worst nuclear
power accident in U.S. history couldn`t — shut down Three Mile Island.
Safety concerns aside, cheap natural gas has made it so plants like this
one are no longer profitable.  Five nuclear facilities have closed in the
U.S. since 2013.  Three Mile Island is one of the handful that`s expected
to close in the future.

Proponents for the shutdown say these plants are dangerous and need to go,
but this community feels differently.

MIKE PRIES, DAUPHIN COUNTY COMMISSIONER:  I lived here in 1979 when the
meltdown occurred.  I never felt safer living here.

DEANGELIS:  Exelon (NYSE:EXC) executive VP, Joe Dominguez, highlights what
he calls long-term value.

JOE DOMINGUEZ, EXELON EXECUTIVE:  These plants are designed to operate 60
and as much as 80 years.  So, yes, we are at a point where natural gas
prices are relatively low, but as you pointed out, history tells us that
we`ve got to be careful about that because natural gas prices could go up
very rapidly.

DEANGELIS:  The difference between profitability and not is about $2 in
natural gas price.  Nat gas at $3, this plant loses money, but at $5, it
doesn`t.  In the past decade, prices shot up to low teens.

If this plant continues to lose money, it will close, impacting workers
like Christine DeSantis who works here with her husband.

perspective, my husband also works here.  So, it`s a big impact on us.  We
just had our second daughter.  So, we have to decide what we`re going to do
if TMI does shut down.

DEANGELIS:  And, of course, it`s not just Christine and her husband.  Three
Mile Island employs over 650 people.

PRIES:  There`s 675 full-time jobs, family-sustaining jobs, good-paying
jobs that total $60 million payroll per year.  In addition, they pay $1
million in tax revenue to the lower Dauphin school district, the Derry
Township and to Dauphin County.  Every year including this year, starting
next month, 1,000 union labor jobs come in and work on the site.

DEANGELIS (on camera):  It could take more than two years to shut down a
plant like this one.  And once it`s shut down, it cannot be reopened.  It`s
a permanent decision to shift away from nuclear energy.  But still, the
state, even the federal government, could step in and change this plant`s

DOMINGUEZ:  The Trump administration came out with the Department of Energy
to do a study on the flaws in the market design.  And the Department of
Energy recognizes these flaws.  And so, that`s what we hope the Trump
administration, the new commission at the federal Energy Regulatory
Commission, new commissioners will be able to accomplish.

DEANGELIS:  Market design means cleaner energy sources.  Nuclear has come a
long way to compete.  Whether in favor of nuclear energy or not, it does
offer diversity to the U.S. grid, another option to balance energy
generation and usage.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis, in Middletown,


MATHISEN:  Coming up, granny pods.  A new and, some might call, odd way to
care for America`s rapidly aging population.


MATHISEN:  They`re small, they`re unusual and they`re helping older
Americans age in place, kind of.

Jane Wells tells us about granny pods from Oakland, California.


JANE BALDWIN, 67-YEAR-OLD:  We have living room, dining room, with large
windows for light.

seven-year-old Jane Baldwin is on the move, making a big change.

(on camera):  How`s your health?

BALDWIN:  My health is perfect now that I`ve gotten my second hip replaced.

WELLS (voice-over):  Baldwin raised a family in Wyoming, but now her son is
raising his own family in Oakland, California.  And she wants to be close
to help, but not too close.

BALDWIN:  That wouldn`t work long term living with my son under the same

WELLS:  Instead, she built a tiny 400-square foot house in her son`s
backyard, nicknamed a granny pod.  The Census Bureau predicts 1 in 5
Americans will be over the age of 65 by 2030 and most of them will
eventually need some sort of assisted care.  There isn`t enough assisted
living to meet demand.

UNIDENTIFIED FEMALE:  You figure out where everything is going to go?


WELLS:  So, architects have discovered a new niche business, granny pods.
The ones that Carrie Shores builds for Inspired Independence costs 250
grand, which is still cheap for Bay Area housings and seniors are often
buying them to plan ahead.

other night.  Their adult son would live in the in-law (ph) unit, but we`re
designing an aging place so that when they`re tired of maintaining their
home and the large property that they`re not using or climbing up the
stairs, they`ll move in there.  And at that point, he might be married and
have kids and move into the main house.

WELLS (on camera):  Laws in six states now specifically allow granny pods,
but in many cases, they have to be temporary structures.  This one is a
permanent one.  And because they`re so expensive, if it`s only temporary,
it may not be for everyone.

age at home, it`s much healthier and the family is happier, but it can be
very expensive.  Granny pods can cost anywhere from $100,000 to $250,000.
So, you`ve got to weigh longevity in there with it.

WELLS (voice-over):  Carolyn McClanahan also says they may not be right for
a parent with dementia who needs more intensive care.  These structures may
also raise your property taxes.  And then there are neighbors.

In Baldwin`s case —

BALDWIN:  I have plenty of storage.

WELLS:  Her structure is under 500-square feet, so zoning laws did not
require neighbor approval.

BALDWIN:  I look forward to living smaller.  I just think all of us, but
myself in particular have too much stuff in our lives.

WELLS:  For NIGHTLY BUSINESS REPORT, Jane Wells, Oakland, California.


HERERA:  And finally tonight, “Fortune Magazine” is out with its 40 under
40 list.  It ranks the most influential young leaders in business and
government.  Topping the list is the president of France, Emmanuel Macron.
Facebook`s Mark Zuckerberg is number two.  And rounding out the top three
are the cofounders of China`s leading ride-sharing company.  That list also
includes the CEO and cofounders of Airbnb, the Lyft cofounders and the CEO
of Restaurant Brands.

And that will do it for NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.
Thanks for joining us.

MATHISEN:  I`m heading back to my pod now.

HERERA:  You`re heading to your pod?  You go, granny.

MATHISEN:  I`m Tyler Mathisen.  Have a great evening, everybody.  We`ll see
you tomorrow.


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