Transcript: Nightly Business Report – September 15, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big week. The Dow has its
best week of the year. But there appear to be geopolitical rumblings just
beneath the surface.

New controversy. Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) may have
enabled advertisers to direct ads to people with violent and anti-Semitic
views. As the issues pile up, what does that mean for investors?

Flat fee. In this competitive housing market, brokers are changing
traditional models. That could mean big savings for buyers and sellers.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
September 15th.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is
off tonight.

A record setting week. The blue chip index recorded its best week of 2017.
The S&P 500 broke through 2500 for the first time ever, sending both
indexes to all time highs. Boeing (NYSE:BA), the best performing Dow stock
this year, accounted for nearly half of the gains, after a Wall Street firm
raised its price target on the stock ahead of that company`s investor
meeting next week.

Today, the Dow Jones Industrial Average added 64 points to 22268. The
Nasdaq rose 19. The S&P 500 was up four.

For the week, the Dow logged the biggest gain of the three major averages,
up more than 2 percent.

Late in the day, stocks were unfazed by the United Kingdom`s decision to
raise the terror threat level to critical. Prime Minister Theresa May said
armed police and members of the military would be seen on the streets in
the coming days. Now, this follows a bomb explosion in a London subway car
this morning, injuring at least 22 rush hour commuters. As of this
evening, police are still looking for the assailant.

And there are other geopolitical rumblings that investors are watching,
namely North Korea. President Trump and his top national security adviser
said there are military options for dealing with that country after it
fired a missile over Japan last night.

(BEGIN VIDEO CLIP)

H.R. MCMASTER, NATIONAL SECURITY ADVISOR: There is a military option.
Now, it`s not what we prefer to do. So, what we have to do is call on all
nations, call on everyone to do everything we can to address this global
problem, short of war.

(END VIDEO CLIP)

HERERA: We have two reports tonight from the region. First, in Seoul, is
Chary Kang.

(BEGIN VIDEOTAPE)

CHARY KANG, NIGHTLY BUSINESS REPORT CORRESPONDENT: North Korea`s latest
missile that flew overt northern part of Japan for the second time in three
weeks serves a couple of different purposes for the regime.

First, it sends a message to Washington that its missile can indeed reach
U.S. territory of Guam if fired in the right direction. This particular
missile traveled 3,700 kilometers. That very well covers the distance
between North Korea and Guam.

And two, it defies the latest U.N. Security Council resolutions and its
sanctions.

And three, it gets to test its missiles. Its latest focus seems to be
launching its missiles in the normal angle. But in terms of the reaction
coming from the relevant countries, it`s stayed pretty much the same.

South Korea conducted its own missile exercise. Japan says this is not
going to be tolerated. The United States called for direct action from
Russia and China. China, in the meantime, says this is between Washington
and Pyongyang.

For NIGHTLY BUSINESS REPORT, Chary Kang, Seoul.

(END VIDEOTAPE)

HERERA: But as Chary mentioned, Washington wants China to play a bigger
role in the North Korean crisis, and that complicates an already
complicated economic relationship between the world`s first and second
largest economies.

Eunice Yoon has more from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pressure is mounting
on China to do more to rein in North Korea, including from U.S. Secretary
of State Rex Tillerson. China responded today, saying that Beijing
shouldn`t be the one held responsible.

At a regular press briefing, the foreign ministry said China is not at the
center of the conflict. China is not a driver of the escalation of
tensions. And China does not hold the key to solving the issue. The
ministry was reacting to Secretary Tillerson`s statement after North
Korea`s missile test, when he said China and Russia must indicate their
intolerance for these reckless missile launches by taking direct actions of
their own.

Tillerson had said that the U.S. had pushed for an oil embargo to be
included as part of tougher U.N. sanctions but watered down the demands to
get China and Russia on board. He said he hoped China would, quote, take
it upon themselves to use the very powerful tool of oil supply to persuade
North Korea to reconsider.

China had some suggestions of its own for the U.S. The foreign ministry
said today: We think the relevant parties should take responsibilities for
their duties and fulfill their obligations.

From China`s perspectives, those parties are the U.S. and South Korea and
North Korea.

All this week, the Chinese state press has been full of commentaries saying
that the U.S. and South Korea should end their military exercises. Beijing
has argued that Pyongyang needs a reason to join the international
community and feel secure giving up its weapons program. China believes
these drills are being interpreted as threats. That argument was stressed
in the state media again today. “The Global Times,” the communist party
paper, ran an editorial with a headline that reads: The International
Community Should Not Panic. The U.S. and South Korea hold the power to
change the Korean peninsula.”

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: To the economy now, and retail sales which fell in August as
Americans spent less at the end of the summer. Sales at retailers
nationwide fell 0.2 percent. That is the biggest decline since March and
the second drop in three months. The slower pace of spending reflects the
outsize importance on the U.S. auto industry since it accounts for 1/5 of
all sales. In August, sales at auto dealerships were off 1.5 percent.

A separate report showed a decline in consumer sentiment due to concerns
over the outlook for the national economy.

Industrial production declined for the first time since January. An
increase was expected. Some of that drop was due in part to Hurricane
Harvey, which battered oil, gas, and chemical plants along the Gulf Coast.
And a cool summer in the east caused a decline in utility usage.

But there was some positive news. A gauge of New York area manufacturing
remained near a three-year high in September.

In Washington, Senator Orrin Hatch, the top Senate tax writer, doubts that
the 15 percent corporate tax rate sought by President Trump is realistic.
Senator Hatch is the chair of the Senate Finance Committee and one of the
so-called big six congressional and White House officials leading the
effort on tax reform. He admits that overhauling the tax code is much
harder than overhauling health care.

(BEGIN VIDEO CLIP)

SEN. ORRIN HATCH (R), UTAH: It requires a lot of intellectual acumen to be
able to handle these matters. Plus, there`s a lot of differences, a lot of
difference of opinion of various aspects of the code. Democrats want more
revenue so they can spend more money. Republicans want less revenue so we
can bolster and increase the economy and get more jobs and opportunities
for people. You know, those two philosophies seem to collide all the time
in this particular area.

(END VIDEO CLIP)

HERERA: Despite those differences, Senator Hatch said he believes tax
reform can get done this year.

Congress is also keeping a closer watch over Silicon Valley. This week,
lawmakers said they are likely to call for public hearings to examine
whether Facebook (NASDAQ:FB) and other social media companies were used by
foreign governments, specifically Russia, to manipulate last year`s U.S.
presidential election. Senator Mark Warner called social media the, quote,
wild, wild west with very few rules. Some members of Congress may also be
considering new legislation to tackle online spending by foreign
adversaries.

Facebook (NASDAQ:FB) has admitted that it still doesn`t know the full
extent of Russia`s ad purchases during the 2016 elections. And if that
wasn`t enough, it was also discovered that advertisers could pay to reach
almost any kind of Facebook (NASDAQ:FB) user, including anti-Semites.
Google (NASDAQ:GOOG) is reportedly having similar issues, putting the two
largest ad companies at the center of a new controversy.

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Jew-
haters and how to burn Jews. Jewish parasites and black people ruin
everything. These bigoted slurs were some of the targeting categories
Facebook (NASDAQ:FB) and Google`s self-service ad platforms offered
advertisers.

Both the ad giants removed these options, Facebook (NASDAQ:FB) changing its
targeting process after being contacted by “ProPublica”, Google
(NASDAQ:GOOG) responding to a “BuzzFeed” report.

“ProPublica” documented a test of promoting post over 2,000 people who
expressed interest in anti-Semitic topics.

JULIA ANGWIN, PROPUBLICA SR. REPORTER: They`re essentially an ad company.
If there`s one thing they should be policing, it would be the things that
they sell for money. And the fact that they didn`t have a review system in
place or at least not a particularly good one is surprising.

BOORSTIN: Facebook (NASDAQ:FB) removed those categories and changed its
policies, issuing a statement including, quote: We prohibit advertisers
from discriminating people based on religion and other attributes. Keeping
our community safe is critical to our mission.

STEVE VASSALLO, FOUNDATION CAPITAL: I don`t think this was a question of
bad intent. I think it is one where there is oversight issues. I think
it`s absolutely the case that they can apply some technology to this, but
in the interim, they`re going to have to throw human bodies at this and
really snuff it out.

BOORSTIN: Google (NASDAQ:GOOG) also facing scrutiny after “BuzzFeed News”
reported advertisers can target racist and anti-Semitic keywords in
phrases.

Google (NASDAQ:GOOG) says their goal is to stop any offensive ads
appearing. We didn`t catch all the offensive suggestions. That`s not good
enough and we`re not making excuses and will work harder to stop this from
happening again.

(on camera): With Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) drawing
about two-thirds of all digital ad dollars, questions about their
advertising policies are sure to remain a hot button topic.

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

(END VIDEOTAPE)

HERERA: And there are other issues as well. Former Google (NASDAQ:GOOG)
employees yesterday filed a class action lawsuit against the company,
arguing that it pays women less for similar work. Separately, Google
(NASDAQ:GOOG) also faces a big antitrust backlash in Europe, having just
been ordered to pay a multibillion dollar fine to the European Union.

Well, so far, tech investors have paid little attention to these issues.
The sector has helped lift the market to record levels. But at what point
might that change?

Brent Bill is the managing director of internet research at Jeffries and he
joins us now to talk more about that.

Brent, nice to have you with us. Welcome to the program tonight.

BRENT HILL, MANAGING DIRECTOR OF INTERNET RESEARCH, JEFFERIES: Thanks,
Sue.

HERERA: Do you anticipate the underpinnings of these companies changing,
especially if we see Washington getting involved in some of these very
separate issues and companies?

HILL: I don`t. I think it`s headline risk versus fundamental risk.
They`re both obviously huge global platforms. And I think we`ve seen, you
know, concerns come through both these names over the past few years. And
we don`t think it`s going to have any fundamental impact.

I think they`ll deal with these in a proactive way, in a positive way. But
I don`t see any major impact to what`s happening at the core company. I
don`t think advertisers are going to change their approach and I certainly
don`t think Google (NASDAQ:GOOG) is going to have — or Facebook
(NASDAQ:FB) is going to have to change, you know, the underlying
fundamentals of their companies because of this.

HERERA: Headline risk, though, quite frequently brings with it a lot of
volatility, especially if, as expected, some of these executives are called
on Capitol Hill to testify, and those are, you know, televised, usually.
For the average investor, do they need to be prepared for more volatility
based on that headline risk?

HILL: Yes, I think the headline risk creates short term volatility. I
would go back to, you know, covering Microsoft (NASDAQ:MSFT) for almost 20
years, Microsoft (NASDAQ:MSFT) has had a lot of these headline risks with
fines and changes they had to make to their operating system. And if you
kind of look back, you know, those issues were when the stock was 25 or 30
and we`re now north of 70 in Microsoft (NASDAQ:MSFT).

So, I think, you know, I lived through those, covering Microsoft
(NASDAQ:MSFT) for many years. So, I think it`s all how you deal with this,
right? I think the way that other Internet companies have dealt with past
challenges have not been the way that I think I would handle them or Google
(NASDAQ:GOOG) or Facebook (NASDAQ:FB), the way they`re going to handle
this.

So, my view is that when you look at kind of maturity of these teams,
they`re probably on a different playing field than a lot of the other
companies I actually follow in the Internet space. So, I don`t anticipate
a big issue here.

HERERA: Would that change, with your opinion change if increased
regulation was imposed on these companies? That`s being bandied about on
Capitol Hill. We quoted Senator Warner as saying it`s the Wild, Wild West.
And there has been speculation that because it`s such a broad swath of
Silicon Valley, that maybe more regulation is need.

Does that change the equation or not?

HILL: Yes, I mean, we would — we would look at that. I mean, I think
you`re looking at two companies, right, Facebook`s growing 40 plus percent,
Google (NASDAQ:GOOG) is growing 20 plus percent. They`re massively
outperforming a lot of names. In the case of Google (NASDAQ:GOOG), they
don`t trade at a very big multiple relative to the market. Actually
trading close to a market multiple.

So, if there was something that they imposed on their business that would
change the way they do business, we would — we would reconsider. But we
haven`t seen that yet. So, this is all speculation.

Again, we`ve heard these cries in the past, but I don`t necessarily think
there`s been a major change to the company`s business. Remember, they have
multiple businesses that are in place.

HERERA: Yes.

HILL: So, Google (NASDAQ:GOOG) has an autonomous driving business. They
have YouTube. They have the Google (NASDAQ:GOOG) Cloud, which is the
commercial cloud. They have a lot of other businesses that are not tied to
directly advertising.

So, I do think they are very diversified businesses. I think the way that
they`ve dealt with past issues has been, they`ve dealt with them like
grownups and admitted they`ve had issues and moved on. Again, I don`t
believe that all the companies we work with have had that approach in the
past. So —

HERERA: On that note, we will see. Thank you so much, Brent, for spending
time with us.

HILL: Thanks. Have a good weekend.

HERERA: Brent Hill with Jefferies. You too.

Straight ahead, steady and reliable. Those are the types of stocks our
market monitor says you should own, and he has a list of names to recommend
for you.

(MUSIC)

HERERA: A rising number of Americans are falling behind on their credit
card payments. Several large U.S. banks reported a rise in delinquency
rates for August, that`s the second consecutive monthly rise. While rates
remain below financial crisis levels, it could become a problem for the
banks and result in higher loan losses for some lenders.

Equifax (NYSE:EFX) is making changes to its executive ranks in the wake of
its massive data breach. The company said its chief information officer
and chief security officer are retiring effective immediately. Senator
Elizabeth Warren along with other Democrats introduced a bill today that
would force credit reporting bureaus like Equifax (NYSE:EFX) to allow
consumers to freeze and unfreeze their credit for free. Credit reporting
companies charge consumers for those services.

Senator Warren also signaled that the Consumer Financial Protection Bureau
may require extra powers in order to ensure closer federal oversight of
credit reporting agencies. And in a letter to Equifax (NYSE:EFX) and its
rivals, she asked for information to see if new federal legislation was
needed to protect consumers.

Google`s parent company Alphabet is reportedly considering investing $1
billion in Lyft, which is Uber`s biggest competitor. According to news
website “Axios”, talks are being driven by top officials at Alphabet. The
two companies already have ties. Earlier this year, Alphabet`s self-
driving car unit Waymo signed a deal with Lyft to collaborate on autonomous
vehicle technology.

JPMorgan (NYSE:JPM) gives its take on the airlines, and that`s where we
begin tonight`s “Market Focus”.

Analysts at JPMorgan (NYSE:JPM) lowered their rating on American Airlines
and United Continental from overweight to neutral on concerns over domestic
pricing weakness and higher fuel costs. But the firm upgraded Southwest to
overweight, citing an attractive valuation. Shares of American fell
fractionally to $46 even. United was off 2 percent to $59.80. And
Southwest was up more than half a percent to $54.72.

Analysts at Evercore think chip maker Nvidia has more room to run. The
firm raised its price target on Nvidia stock, from $180 to $250, saying the
company is creating the industry standard in artificial intelligence
systems. In its note, Evercore went on to say that Nvidia will likely
maintain its leadership in the space. So, shares of the stock took off,
rising 6 percent to $180.11.

Anthem says it is reversing an earlier decision to exit from the Affordable
Care Act exchange in Virginia. The health insurer said it will instead
grow its presence in the state after learning that its exit would leave
more than 60 counties without Obamacare coverage. Anthem shares were off
slightly to $186.59.

And automotive seat supplier Adient saw its shares take off after activist
investor Blue Harbor disclosed a more than 60 percent stake in the company.
Blue Harbor said it made the investment due to the belief that Adient will
improve its margins, expand share buybacks and grow its business in China.
Adient shares finish the day up 5 percent to $80.26.

Time now for our market monitor who says this is not the time to be chasing
growth stocks in this market. He says investors should be looking at names
that are much sturdier.

He is Matthew Roddy, portfolio manager at Rockland Trust.

Welcome, Matt. Nice to have you here.

MATTHEW RODDY, PORTFOLIO MANAGER, ROCKLAND TRUST: Thank you for having me.

HERERA: How do you define studier?

RODDY: We look for companies with pristine balance sheets, consistently
able to grow their dividends, really companies that have been through all
types of market events and come out stronger on the other side. I think
that`s what we`re looking for, leadership, certainly in their industries.
That`s obviously very important too.

HERERA: All right. Well, let`s get to your picks. And it strikes me that
all three of these actually benefit because of all the rebuilding that has
to take place in Florida and in Houston.

Home Depot (NYSE:HD) is the first one. You say consistently strong revenue
and same-store sales growth.

RODDY: Yes, I mean, it is true that they benefit. We`ve owned Home Depot
(NYSE:HD) long before this and this is in the trade on that for sure. But,
you know, they`ve got 6 percent top line growth, 14 percent earnings
growth.

They`ve got 6 percent same-store comps. Other retails would be so jealous
to have those numbers. They`ve got 23 percent growth in their online
business. And half of that is picked up at the store. So, it`s pretty
protected from the Amazons of the world.

They`ve grown their dividend at 170 percent over the last six years. So, a
lot to like about this company as far as how they run their business and
execute it.

HERERA: You like Walmart. That`s your second pick. You say basically
it`s not getting enough credit from the street. Why?

RODDY: Yes, that`s true. I mean, this is the sturdiest of the oaks. If
you`re not going to reach out on the highest branch for growth, this is
really a sturdy oak you can kind of lean against. You know, when you look
at this business, it`s having its best run of same-store sales in a while
and traffic.

Their online business is doing exceptional well too. It`s been growing 67
percent last quarter. Really, they`ve grown to be 12 percent of their
overall business. And most of the growth is coming through walmart.com.
Even though they made great strategic acquisitions with some of the smaller
parts of the business, I think they`re doing a good job and they`re just
not getting enough credit, consistently delivering.

And, you know, if you look at Walmart`s valuation, it`s making more money
than Amazon (NASDAQ:AMZN). It`s $80 a share. And Amazon (NASDAQ:AMZN) is
priced at almost a thousand. So, that`s a pretty big valuation gap, I`d
say.

HERERA: Yes, it certainly is.

We round it out with Sherwin-Williams (NYSE:SHW), that you say they have a
great direct to consumer relationship. And they have pricing power, too.

RODDY: Yes, you know, they did have some raw material costs sort of creep
up in 2015, `16. They acquired Valspar (NYSE:VAL) I think to help with
some of that. They`ve been raising their prices this year.

They found a lot of cost synergies in the Valspar (NYSE:VAL) acquisition,
which has allowed them to grow their top line, 20 percent and cut out
costs. This is the year their earnings are really starting to pick up for
them. And we see that going out to 2018 and `19.

On top of that, they`ve grown their dividend 130 percent in the last six
years as well. They`ve been growing dividends for 41 years. The company
has been around since 1866, I believe. So, it`s a rock solid company,
leadership position.

HERERA: On that note, thanks so much, Matt, for joining us tonight.

RODDY: Thank you.

HERERA: Matthew Roddy with Rockland Trust.

Coming up, in this high competitive housing market, some brokers are trying
to revamp the real estate business.

(MUSIC)

HERERA: Here`s a look at what to watch for next week. On Monday, FedEx
(NYSE:FDX), which is viewed as a barometer for the global economy, will
report earnings. On Tuesday, we`ll find out if residential constructions
rebounded in August from a decline that month before. And on Wednesday,
the Fed will release its decision on interest rates, followed by a news
conference with Fed chair Janet Yellen. That`s what to watch for coming up
next week.

Macy`s (NYSE:M) is trimming the number of holiday hires this year by about
4 percent. But even though overall holiday hiring will be down, it is
increasing the number of workers at its distribution and warehouses in
order to keep up with the growth of online sales. The overall decline
stands in contrast to target, which earlier this week said it was hiring
100,000 people to work at its stores.

The women`s footwear chain Aerosoles is filing for bankruptcy protection.
That retailer plans to close most of its stores and focus on its wholesale
and e-commerce businesses. Aerosoles is blaming a decline in mall traffic,
markdowns and a shift towards online shopping. The company`s CEO says the
restructuring will enable Aerosoles to become stronger and return to
growth.

Well, home sellers may be in the drivers seat in today`s real estate
market. But that doesn`t mean they`re exempt from paying real estate
agents hefty commissions to get the job done. But what if there was just a
flat fee? Some are betting that`s the wave of the future. And it`s
starting already.

Diana Olick has more.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The signs
are everywhere. Competition is fierce for real estate agents. With the
number of listings historically low, agents are doing all they can to lure
sellers. And that means changing the business model.

ERIC ECKARDT, U.S. CEO, PURPLEBRICKS: For Purplebricks, again, I think
what`s great about our model, it is new in the U.S., but it`s been proven
in the U.K. within three years.

OLICK: London-based Purplebricks launched in Los Angeles today with $60
million in investor backing. It is a flat fee brokerage, charging $3,200
to sell your home.

The traditional broker fee is 6 percent of the sale price of a home. For a
homeowner that sells for around $250,000, which is near the median sale
price in the U.S., that means a commission of around $15,000.

ECKARDT: I think what will make it successful abroad and what will make it
successful here in the U.S. is the true hybrid nature of the model. So,
yes, we do use technology. But at the same time, we believe a real estate
agent will be the center of the transaction.

OLICK: It uses all the technology that is fast becoming standard in the
business. 3D home tours, appointment portals to schedule showings, and
help in staging.

But there is a local agent working closely with each seller and
Purplebricks is enticing those agents, offering them exclusive territories.

ECKARDT: We`re going to assign a group of territories defined by zip codes
that no one in our office can compete with. So, as an agent, you own that
market.

OLICK: Purplebricks is not alone, really launched recently with a very
similar model in the San Francisco Bay area. Its flat fee is higher, just
under $5,000. But home prices there are higher too. Really, the CEO says
as the company expands to other markets, it may lower that fee. But the
model is still very new.

Last year, just 2 percent of commissions were paid as a flat fee.
Consumers are still split on the idea.

UNIDENTIFIED FEMALE: Because they`re getting paid the $3,200, nothing —
they`re not working for something.

UNIDENTIFIED MALE: We would have thought about it, sure. You look at a
$6,000 commission versus $3,200. You would have to say, what am I getting
for that money?

OLICK (on camera): One thing certain, as long as the supply of homes for
sale remains so very low, competition among agents will stay very high,
which could mean more new models to save consumers more money.

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

(END VIDEOTAPE)

HERERA: And to read more about the growing wave of flat fee real estate
brokers, head to our website, NBR.com.

That will do it for us tonight on NBR. I`m Sue Herera. Thanks for joining
us. Have a great weekend. We`ll see you right back here on Monday.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, 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) 2017 CNBC, Inc.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply