Transcript: Nightly Business Report – October 4, 2017

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

on Wall Street, increased optimism on Main Street, even as the recent
hurricanes dent the job market.

surprise drug approval sends one stock soaring and one falling. And it may
be part of the FDA`s plan to try to lower the cost of medicine.

GRIFFETH: Muni mayhem? Municipal bond investors woke up to a big surprise
after President Trump said that Puerto Rico`s debt could be wiped out.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, October the 4th.

Good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen,
coming to you once again from the New York Stock Exchange.

Hi, Sue.

HERERA: Hi, Bill. Good to see you. I`m Sue Herera.

A record close for stocks. But we begin tonight with the job market. And
the potentially unprecedented impact that Hurricanes Irma and Harvey could
have on the labor market, at least in the short term.

Today, we learned that American employers created fewer jobs in September
than they had in any single month in nearly a year, primarily because of
Hurricanes Harvey and Irma.

As Hampton Pearson reports, the disruptions are expected to show up in the
monthly government jobs report as well.


Today`s private sector hiring survey is the first indicator of just how
much of an impact Hurricanes Harvey and Irma had on the job market last
month. Only 135,000 new hires in August, the lowest in nearly a year.
Small businesses were hurt the most, losing from 50,000 to 60,000 jobs,
according to payroll processor ADP.

Leading economists say Fed Chair Janet Yellen has already indicated
monetary policymakers are anticipating the hurricanes` impact.

know the data is going to be noisy and expect some weakness. I think we in
consensus are saying, look, roughly the average hurricane since the mid-
`80s takes about 60,000 off of employment growth. This one feels like it`s
a little stronger than average.

PEARSON (on camera): Those same economists say construction hiring, on the
rebound after two months of decline, will accelerate with post-hurricane
rebuilding. And they say other key sectors of the economy are in recovery
as well.

(voice-over): Auto sales were up more than 6 percent last month, topping
1.5 million, as Americans began replacing destroyed vehicles. New
manufacturing data out today shows the service sector of the economy
expanding at its fastest pace in more than a decade.

ISM, both the service sector and the manufacturing sector, are also looking
forward to after the hurricanes and were both quite strong.

PEARSON: Market watchers and economists say any setback in job growth from
the hurricanes will be temporary and reversible.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.


GRIFFETH: And as Hampton alluded to there, while job growth may be slowing
temporarily, as he said, activity in the service sector last month rose to
a 12-year high. The Institute for Supply Management said this morning, the
surge was driven by increases in both new orders and business activity.
The services sector makes up the bulk of our economy and includes
everything from health care to financial services to construction.

HERERA: American optimism on the economy is at an all-time high. The
third quarter CNBC All America Survey found that a record number of
Americans, more than 40 percent, believe that the economy is excellent or
good. The four-quarter average for every major economic metric in the
poll, including housing and wages, and the stock market, are also at

GRIFFETH: And that optimism is part of the reason why stocks just keep
climbing. Today, as we mentioned, the three major indexes closed at yet
another record. And each has now set at least 40 all-time highs this year
alone. The Dow itself has set 45. That was today, up another 20 points to
20661. The Nasdaq, the S&P, both added about three points today.

HERERA: Meantime, Bill, on Capitol Hill, it was the Senate`s turn to
question the former CEO of Equifax (NYSE:EFX) about that data breach which
impacted 145 million Americans. Yesterday, Richard Smith faced questions
from a House panel on the company`s response to that breach. Today,
senators grilled him on another issue, a report that Equifax (NYSE:EFX) was
awarded a $7 million no-bid contract from the IRS.


SEN. BEN SASSE (R), NEVADA: It`s being reported in the media this morning
that you`ve just received a no-bid contract from the IRS for fraud
prevention. Can you explain to the American people, not just as consumers
who have been exposed and breached here, but as taxpayers, why in the world
should you get no-bid contract right now?

RICHARD SMITH, FORMER EQUIFAX CEO: I`m not sure it was a no-bid. My
understanding, I don`t profess to have the details, Senator, it`s with the
IRS. It`s a contract we`ve had in the past. I think it`s being renewed.

SEN. JOHN NEELY KENNEDY (R), LOUISIANA: You realize to many Americans
right now that looks like we`re giving Lindsay (NYSE:LNN) Lohan the keys to
the mini bar.

SMITH: I understand your point.


HERERA: Under the IRS contract, Equifax (NYSE:EFX) will verify taxpayer
identities and help prevent fraud for the tax agency.

GRIFFETH: Last night, we reported that the FCC was considering making
millions of dollars available to repair communication networks in Puerto
Rico. And today, $77 million was in fact approved. The fund provides
subsidies to companies that will make communications services more
accessible and affordable in places where costs on that island are just so
high right now.

HERERA: And Puerto Rico was bankrupt even before Hurricane Maria hit.
After touring the devastation yesterday, the president said the country`s
mountain of debt would have to be wiped out. That statement sent shock
waves through the nation`s $3.8 trillion municipal bond market.

Michelle Caruso-Cabrera has more.


Trump visiting Puerto Rico yesterday, surveying the damage from Hurricane
Maria. And during his visit, he said this about the island`s large debt

whole debt structure. You know, they owe a lot of money to your friends on
Wall Street. And we`re going to have to wipe that out. That`s going to
have to be — you know, you can say goodbye to that. I don`t know if it`s
Goldman Sachs (NYSE:GS). But whoever it is, you can wave goodbye to that.

CARUSO-CABRERA: As a result, Puerto Rico`s bonds fell sharply in today`s
market. This is the benchmark bond for Puerto Rico. We got hammered
falling these comments, falling to as low as 32 cents on the dollar in
today`s session.

When investors think a bond is going to be paid in full, it trades near 100
cents on the dollar. And take a look at companies like Ambac, MBIA
(NYSE:MBI), and Assured Guaranty (NYSE:AGO). These are all bond insurers.

In other words, they issue insurance. If the issuer of the bond doesn`t
pay, they do. They all took a huge hit because they have large exposures
to Puerto Rico. Puerto Rico is struggling with massive debt with the
inability to get the power back on in the wake of Hurricane Maria.

And what`s become clear since the hurricanes, despite borrowing lots and
lots and lots of money, the island did not invest in its energy
infrastructure. The median plant age in Puerto Rico is 44 years old
compared to only 18 years old on the mainland United States. These plants
are so old, they have to run on imported oil, many of them.

In fact, 47 percent of Puerto Rico`s energy grid is powered by petroleum
which all has to be shipped into the island. That number in the mainland
is only 0.6 percent. As a result, Puerto Ricans spend a lot more per
kilowatt hour for their energy, 21 cents versus 11 cents on the mainland in
the United States.

For NIGHTLY BUSINESS REPORT, I`m Michelle Caruso-Cabrera.


GRIFFETH: And it`s not just hedge funds that are invested in Puerto Rican
debt. Individual investors also own a lot of muni funds through mutual
funds or directly. So, how concerned should you be if you own those bonds?

Alexandra Lebenthal is a muni bond expert. Her family has been in the
business since 1920s?


GRIFFETH: I knew your grandmother started the business about that time.
This is such a complicated story now. The bankruptcy, now, the hurricane.
They`ve been negotiating with creditors to try and figure out how quickly
they`re going to get back.

How likely though is that the debt can just be wiped out?

LEBENTHAL: You know, I consider this the equivalent of Ford`s drop dead to
New York City comment, which was the headline in “The Daily News” back in
the 1970s. Except in that case, he had the ability to do something for New
York City.

In this case, it doesn`t make sense. It`s not really possible for the
federal government to eliminate the debt of a municipality. And you
mentioned hedge funds. Let`s talk about them for a second. That`s from
individual investors.

Those hedge funds are very savvy investors —


LEBENTHAL: — who have been in the process of suing or negotiating and
trying to figure out how — what they`re going to get back on their

And, by the way, Trump knows extremely well what it`s like to deal with
bondholders who are savvy bondholders who don`t just say, OK, fine, you
know, we`ll wipe the debt away and call it a day.

GRIFFETH: Yes, he`s been through that before in New York City.

LEBENTHAL: Yes, he`s been through it, didn`t exactly work out that way.

HERERA: Right.


HERERA: Alexandra, if you`re an individual investor and say you have
exposure through mutual funds or ETFs or the like, given the fluidity of
the situation down there, how concerned should you be?

LEBETHAL: So, that`s a really interesting question, because you were
showing that graph before of the Puerto Rico eight (ph), they were already
trading 44 cents on the dollar, went down to 30. You`re coming into a bad
situation already.

Now, the good thing is there are not individual Puerto Rico municipal bond
funds. Puerto Rico bonds are a component of other funds. There are some
funds like Oppenheim which also is the old Rochester Fund which has a large
percentage relative to other funds.

So, people have already seen the value of those funds go down.

GRIFFETH: They`re already worried about getting the money back anyway
because of the bankruptcy.

LEBENTHAL: Right. I mean, it was bad enough, the hurricane made it worse.


LEBENTHAL: And what Trump`s comments didn`t necessarily make the situation
worse in terms of getting repaid. It just added on, piled on.

GRIFFETH: One other sidebar to this, Alexandra, are the other
municipalities that are in dire straits that are watching carefully to see
how this has handled. I think of the state of Illinois that has had very
difficult financial situations for the last year or so. They`re watching
this very carefully as well, as are their muni bondholders, right?

LEBENTHAL: Yes. You know, I`ve said for the last couple of years that
every situation that`s occurred in municipal bond, whether it`s Detroit, or
something like California issuers, Illinois, Chicago, Puerto Rico, was an
issue unto itself.


LEBENTHAL: And yet, you`re absolutely right, there is, you know, an effect
of, gee, what`s happening over there. There are all these different
components, like in Illinois, you don`t have the situation of the aging
infrastructure, and those numbers obviously are staggering. You do have
the pension situation and financial instability.


LEBENTHAL: But yes, I mean, it does give you an idea. And that did not
used to be the case. I mean, you had New York City in the `70s, that was
its own experience, until Orange County, California, in `94, I think. And
that was its own. And then in the last few years, you`ve had this tumbling
one situation after another.

This Puerto Rico situation, that was the hurricane obviously, and that`s
important thing there is that the hurricane is stopping really the ability
of all those bonds to pay interest, because there`s no sales tax.


LEBENTHAL: People aren`t buying things.

GRIFFETH: Their infrastructure is not paying it.

LEBENTHAL: There`s no electric power revenues. There`s no electricity.
So, it`s really heartbreaking. It`s a such a great island and it really
breaks my heart, having been so intimately involved with it over the years.

GRIFFETH: It is a very difficult situation. Alexandra, thanks for the
thoughts tonight.

LEBENTHAL: Thank you.

GRIFFETH: Alexandra Lebenthal joining us tonight.


HERERA: Bill, the president today made his way to Las Vegas to visit
shooting victims and praise the first responders and the medical teams who
responded to the worst mass shooting in this country`s history.

Jane Wells is covering the story for us.


second day in a row, the president came to a place of heartbreak to praise
those who had rushed in to help.

TRUMP: Americans dashed into a hail of bullets to rescue total strangers.

WELLS: He also met privately with victims of Sunday night`s massacre, even
as investigators continue to process the well-armed lair Stephen Paddock
created inside his Las Vegas hotel room, complete with cameras to surveil
the hallway. Newly released police body cam video shows what the chaos was
like as officers responded Sunday night.

The gunfire lasted nine to 11 minutes. When a SWAT team finally broke into
Paddock`s hotel room an hour later, they found him dead, a suicide.

Meantime, his girlfriend returned to the U.S. from the Philippines and was
questioned by the FBI in Los Angeles in hopes of finding out a motive,
something the bureau says is eluding them.

ANDREW MCCABE, FBI DEPUTY DIRECTOR: This individual and this attack didn`t
leave the sort of immediately accessible thumb prints that you find on some
mass casualty attacks.

WELLS (on camera): Las Vegas probably has more cameras per square foot
than any nongovernmental place for surveillance, technology, security. Is
it enough? That was top of mind this week at the Global Gaming Expo, a
massive tech conference here.

industry, we don`t have a thriving Las Vegas if people don`t feel safe.

WELLS: Some compare the situation in Vegas to the MGM Grand Hotel fire in
1980 which killed 85 people and led to an overhaul in building and safety
codes. Could this shooting lead to a similar sea change? Whatever
happened, it will be too late for the 58 murdered victims including an off-
duty police officer Charleston Hartfield who was at the concert Sunday
night with his wife. And when the gunfire started, he tried to protect

and two children. We`re very grateful for his sacrifice.

WELLS: A reminder that while many heroes lived, some did not.



GRIFFETH: Still ahead, a new roadmap and Ford`s decision to move away from
traditional cars.


GRIFFETH: European Union regulators are going after two U.S. tech
companies. The E.U. has ordered Amazon (NASDAQ:AMZN) to pay nearly $300
million in back taxes. The commissioner also took Ireland to court for
failing to collect about $15 billion in taxes from Apple (NASDAQ:AAPL).
Authorities are arguing that Apple (NASDAQ:AAPL), like Amazon
(NASDAQ:AMZN), profited from a system allowing it to avoid taxes that the
E.U. feels should have been paid.

HERERA: The FDA wants to speed you want amount of time it takes to get
generic versions of complex drugs to market. The theory is that increased
competition means lower prices. And the agency is wasting no time. Late
last night, it approved Mylan (NASDAQ:MYL)`s generic version of Teva`s
blockbuster multiple sclerosis drug.

And look what happened to the stocks. Mylan (NASDAQ:MYL) soared. Teva

Meg Tirrell explains why this could be the first of more drug approvals to


Administration doesn`t control the price of drugs. But it does control
whether drugs are approved. And that`s a key part of the agency`s strategy
to lower the cost of medicine.

to do is use market forces in the form of more competition, to put pressure
on drug prices. Obviously when things go generic, the prices of the drugs

TIRRELL: Late Tuesday, the FDA approved a generic version of a
multibillion dollar drug for multiple sclerosis. The medicine is Copaxone,
made by Israeli drugmaker Teva Pharmaceutical. The newly approved generic
version is from Mylan (NASDAQ:MYL). The medicine is considered a complex
generic, one that`s harder to copy under traditional approaches, and Mylan
(NASDAQ:MYL) had been delayed several times at the FDA, making last night`s
approval a surprise.

FUNTLEYDER: One of the bottlenecks at the FDA was so-called complex
generics which are hard to make, or have some unusual tweak to them that
are different than your typical white solid pill.

TIRRELL: Analysts estimate Mylan (NASDAQ:MYL) could price the generic at a
40 percent discount to branded Copaxone, now priced at $80,000 to $90,000 a
year. They say it could capture as much as 45 percent of the market. The
news drove Mylan (NASDAQ:MYL)`s stock higher.

For Teva, it was the opposite story. Copaxone accounted for almost 20
percent of its $22 billion in 2016 revenue. With the new competition, Teva
said today it expects fourth quarter earnings per share will be reduced by
25 cents. The stock sank.

Mylan (NASDAQ:MYL)`s approval came just two days after the FDA issued new
guidance for approvals of complex generic drugs. And analysts say more
approvals could be on the horizon, including for generic copies of
GlaxoSmithKline`s asthma drug Advair and Mylan (NASDAQ:MYL)`s EpiPen,
itself the subject of scrutiny over its price.

FUNTLEYDER: All of the big troublemakers that we`ve read about in the news
have probably been in this area.

TIRRELL: In a blog post this week, FDA commissioner, Dr. Scott Gottlieb,
said the agency plans to introduce additional policies, to bring more
competition and lower prices to the drug market, promising, quote, we`re
just getting started.



GRIFFETH: Frito-Lay helps lift the bottom line at Pepsi. And that`s where
we begin tonight`s “Market Focus”.

The food giant reported a better than expected profit, thanks to — in part
to selling more snacks. But weakness in its North American beverage
business caused overall sales to disappoint. The chief financial officer
of the company says it focused too much of its marketing efforts on newer
products, and it will fix that mistake.


HUGH JOHNSTON, PEPSICO CFO: We really had a strong pipeline of innovation
this year. And we probably just moved too many resources from our core
businesses of Pepsi and dwell into these new products. And frankly, that
cost us competitively for the quarter. So, we`ll need to balance that out
a little bit better over the next couple of quarters.


GRIFFETH: Pepsi shares finished up 21 cents today to $109.34.

Office Depot (NYSE:ODP) is buying I.T. provider CompuCom for $1 billion.
That move is part of Office Depot (NYSE:ODP)`s plan to transition from a
traditional office supplier retailer to a broader business services and
technology provider. The company also said it was cutting its guidance for
2017 due to hurricane disruptions. Office Depot (NYSE:ODP) shares were off
almost 18 percent to $3.78.

HERERA: Shares of GoPro got crushed today after Google (NASDAQ:GOOG)
unveiled its new clip-on camera which could rival GoPro`s products. And
they did it at a cheaper price. Google (NASDAQ:GOOG)`s new device will
retail for about $250, compared to $500 for GoPro`s newest model. GoPro`s
shares were off 6 percent to $10.39.

And after the bell, Bloomberg reported that SeaWorld is reportedly being
approached by England-based theme park operator Merlin about a potential
merger. SeaWorld is said to be discussing a sale with advisers. And
Merlin is not the only potential buyer. Shares initially rose in after-
hours trading and also ended the regular session up 4 percent to $14.11.

GRIFFETH: As we reported last night, Ford is shifting gears, mapping out a
new strategy for staying competitive in a rapidly changing automotive
business. The automaker says it will now focus more on trucks, SUVs, and
electric vehicles.

Phil LeBeau has our story for us tonight.


Oval is getting a makeover. New CEO Jim Hackett is repositioning Ford to
compete in a world where electric, connected, and autonomous drive vehicles
will change how we get around.

JIM HACKETT, CEO, FORD MOTOR COMPANY: The mandate here is that Ford must
compete. Companies never choose to die. And yet many, by not evolving,
are enabling that kind of fate.

LEBEAU: While Ford invests in future vehicles, it`s slashing costs by $14
billion. At the same time it will push more trucks and SUVs, the most
popular vehicles it sells, while cutting back on cars, which are far less

But the biggest change is Ford investing heavily in self-driving and
electric vehicles. That`s because Ford needs to compete in China, the
world`s largest auto market, where the government is aggressively pushing
its residents to plug in their cars.

MICHELLE KREBS, AUTOTRADER: They`ve got to focus on the now, with cutting
costs and producing more SUVs, because those are popular all over the
world. But they`ve also got to be investing in the future technologies
like electronic vehicles, like connectivity in cars. And that`s not going
to pay off for a while.

LEBEAU: Ford`s chairman Bill Ford hired Hackett to shake up the automaker.
But he knows shifting gears at a company that`s built cars and trucks for a
century will take time. Still, Hackett knows he`s on the clock.

HACKETT: I want to declare to you that I get up every day feeling my time
could be wasted here if we don`t get moving. So, I feel a real sense of

LEBEAU (on camera): Ford investors also feel a sense of urgency. Their
shares have lagged other automakers and the market as a whole over the last
couple of years.



HERERA: Coming up, will malls have to look a lot less like malls to keep
shoppers coming in this holiday season?


GRIFFETH: Consumers are expected to spend more this holiday season,
according to a recent forecast from the National Retail Federation, sales
may increase as much as 4 percent compared to last year. That`s important
because the holiday season, of course, can account for 20 percent to 40
percent of annual sales for many retailers. But with stores closing and
foot traffic in decline, how are the nation`s malls holding up as we head
into this important holiday season?

Courtney Reagan is in Los Angeles.


far this year, at least 20 retailers have filed for bankruptcy and more
than 6,100 stores are closing. But that doesn`t mean the mall is dead. In
fact, most malls are holding up OK. They`re just changing, investing a lot
of money to keep up with the shifting consumer.

(on camera): This was the old Century City Mall in Los Angeles. It just
got a billion dollar makeover and expansion, because of the variety of
stores, location, appeal and sales, it`s one of the highest rated malls in
the country. And there are more restaurant and specialty food options here
than they are clothing stores.

(voice-over): There are fitness clubs, lots of stores that cater to health
and beauty, a Tesla showroom, Apple (NASDAQ:AAPL) Store, Amazon
(NASDAQ:AMZN) Books, and much more.

PETER LOWY, WESTFIELD CO-CEO: A lot of the malls in the country and a lot
of the physical assets are aging. You do need to upgrade the mall. You
need to have the best retailers.

And every 20 years or so, you need to spend that kind of capital to remake
the mall. Here at Century City, I believe we have the mall of the 21st
century in what used to be the city of the 20th century.

The idea is to keep the customer coming back, give the customer something
that they like to do, and not just come to shop, but come to a place where
they want to be. They want to relax. They want to meet their friends.
They want to create their own physical social, networks.

REAGAN: At a recent events in New York City, mall owners and operators
spoke about the state of the mall today and how it`s changing.

JOSEPH CORADINO, PREIT CEO: The business is detoxing. And we`re replacing
the weak with the stronger. And as a result, we`ll be stronger when we`re

STEPHEN LEBOVITZ, CBL & ASSOCIATES CEO: We`re expanding. We`re doing
cosmetics and wellness and fitness and service and value and food and
beverage and entertainment. And all these other types of categories are
coming into our property.

REAGAN: Revamped malls will be put to the test with Black Friday less than
two months away, as online shopping is expected to break new records this
holiday season. Shopping center manager JLL CEO of America`s retail says
the changing mall tenants will help lift holiday sales, but the broader
economic picture will act as Santa`s helper too.

GREG MALONEY, JLL RETAIL AMERICA`S CEO: This is going to be one of the
best holiday seasons for sales that we`ve had in the last four to five
years. I think consumer confidence is at an all-time high. When consumer
confidence is high and people feel good about themselves, that affects
retail sales.

REAGAN: As mall owners ship away from clothing and toward experience and
services, many malls are starting to look, well, a lot less like malls,
hoping that`s what keeps shoppers coming.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Los Angeles,


HERERA: And that does it for us tonight. I`m Sue Herera. Thanks for
joining us.

GRIFFETH: And I`m Bill Griffeth. Have a great evening. We`ll see you


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.


This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply