Transcript: Nightly Business Report – September 14, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Trade and tech — two
things that have mattered to the market but a third issue is now taking
shape that could make it harder for stocks to hit new highs.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Florence arrives, bringing
with it heavy rains, dangerous storm surge and cost estimates in the
billions.

GRIFFETH: Sitting on cash. The amount of money available for homeowners
to tap has now reached a record $6 trillion.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday,
September 14th.

HERERA: Good evening, everyone, and welcome.

Investors were reminded once again of what matters most to the markets —
trade. Stocks took a fast and sharp dip midday when reports surfaced that
the president wanted to move ahead with his threat to impose tariffs on
$200 billion dollars worth of Chinese imports. That remained the focus
even as traders kept an eye on the guilty plea by former Trump campaign
manager Paul Manafort and the hurricane pounding the Carolinas. So, by the
close, stocks drifted higher, the Dow Jones Industrial Average rose eight
points to 26,154, the Nasdaq fell three and the S&P 500 was up a fraction.

Bob Pisani has more for us tonight from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We started the day with
markets just below historic highs and it looked like we were going to get
there until more tariff stories hit the wires, this time reports that
President Trump was telling advisors to proceed with his threatened billion
dollars in China tariffs this on top of the billion already in effect this
kind of action has become a fact of life for stock market watchers trade
and tariff issues have become the marginal mover of the markets, that is
markets move up when it looks like trade disputes are getting resolved and
markets move down when it looks like they`re getting worse or that more
tariffs are coming.

The other mover of the market has been tech leadership. When market
leaders like semiconductors or Apple (NASDAQ:AAPL) or social media stocks
like Facebook (NASDAQ:FB) and Twitter falter, the market falters because so
many momentum players are in that space. Still, there are signs it may be
getting tougher for the markets to push to new highs. One big problem is
this, after being market leaders earlier in the year, banks have done
nothing for months. The problem is the yield curve, the difference between
shorter data maturities like the two-year treasury and longer-dated like
the year have been flat or declining, making it tougher for banks to make
money. The other major source of income for banks, which is loans has been
utterly anemic this year, despite the strength in the economy.

That`s a bit of a problem.

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

(END VIDEOTAPE)

GRIFFETH: And interestingly over the past three months, the market has
gradually taken on a more defensive tone.

Mike Santoli tells us now whether that`s sending a message to investors.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The major stock
indexes are near record highs and U.S. economic growth is on track for
another strong showing this quarter and yet a close look below the indexes
shows a pronounced defensive tone to the market this summer, creating a bit
of confusion over the markets message. Since mid-June, the leading S&P 500
sectors have been utilities health care and consumer staples, groups that
typically do well in a slow economy or when investors are seeking
stability.

And an index of large cap stocks with the lowest historical volatility has
outperformed its counterpart gauge of the most aggressive and volatile
stocks by seven percentage points over the past three months. The
interpretation of this pattern varies among Wall Street observers. While
defensive leadership is often a characteristic of a market nearing a peak
and downturn, there are a few broader signs of financial or economic stress
to support this scenario, perhaps it simply reflects the fact that 10-year
treasury bond yields retreated a bit starting in mid-June supporting more
conservative stocks.

Global markets have also been weak in recent months in part on trade war
fears and a strong U.S. dollar. This could have pushed investors to less
aggressive sectors too. The question now is whether this defensive action
has been a simple interlude with steadier stocks supporting the market for
a while as many big technology and industrial sectors absorb overdue pull
backs. It`s worth noting that in the past week, the U.S. dollar has dipped
from recent highs, the 10-year treasury is making another run up toward 3
percent, and global equity markets have enjoyed sharp rebounds.

There are still a couple of to go in the sometimes treacherous month of
September and many key trade issues remain unresolved but there is at least
a chance that investors will take another turn on offense as the year
enters its final quarter.

For NIGHTLY BUSINESS REPORT, I am Mike Santoli.

(END VIDEOTAPE)

HERERA: Tropical Storm Florence is pounding the Carolinas with deadly
force, though downgraded from hurricane status, it remains a huge and slow-
moving storm. Estimates of insured losses range from about $5 billion to
$9 billion.

We have two reports tonight. Contessa Brewer is in Myrtle Beach, South
Carolina, but we begin with Jackie DeAngelis who spent the day in the
hurricane winds and rain in Carolina beach, North Carolina.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It took some time
for Hurricane Florence to arrive on the coast of North Carolina but making
her way here this morning around 7:15 a.m., she came with a fury.

GOV. ROY COOPER (D), NORTH CAROLINA: You have a hard time finding a North
Carolinian who is not going to be affected by this storm in some way.

DEANGELIS: The powerful storm bringing with it heavy hurricane-strength
winds in some places, gusts measuring close to 100 miles an hour,
unrelenting rain and deadly flash flooding, like the small city of New
Bern, North Carolina, flanked by two rivers battered by torrential
downpour. Some neighborhoods under 10 feet of water, the roads nearly
impassable.

With 200 already moved to safety, a hundred and fifty stranded residents in
cars, attics and on roofs desperately waiting for emergency responders to
arrive and escort them to shelter.

UNIDENTIFIED FEMALE: I`ve never been so terrified in my entire life. It
was horrifying just wondering what`s going on and where the water is going
to go and how high it`s going to go and how we`re going to get out, and if
we were going to get trapped in the attic or not, and have to go out on the
roof about that deep.

DEANGELIS: Downed power lines also causing massive outages across the
region. More than half a million customers without power in North Carolina
alone. Officials say restoration could take weeks.

By late Friday afternoon, the direction of Florence`s winds were shifting
away from New Bern and heading south.

But just how long Hurricane Florence will linger and just how much damage
it will cause has many fearing that the worst is yet to come.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis, Carolina Beach, North
Carolina.

(END VIDEOTAPE)

GRIFFETH: Contessa continues our coverage now of the storm from Myrtle
Beach.

(BEGIN VIDEOTAPE)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The effects of
Hurricane Florence arrive hours after it first makes landfall in North
Carolina here in Myrtle Beach, South Carolina, with flash flood warnings
and warnings about storm surge as well. Here, the waves are becoming
higher, the wind is pounding and the rain is incessant.

And this is just the beginning. The National Weather Service has told
people living here it`s a marathon, not a sprint tropical storm force
conditions through Saturday, severe storms and rain through Sunday and
rivers are not even expected to crest until Tuesday. If they crest at the
expected height of between and 24 feet, there`s a possibility they could
even flood I-95, and everyone living near those rivers would be in danger.

Tourism accounts for $25 billion dollars in South Carolina one out of every
ten jobs depends on those visitors coming here and spending the dollars.
So, how quickly the grand strand gets back up and operating after this
severe weather will be the economic livelihood of this place. They`re
depending on the dunes here to help protect the businesses from the storm
surge. The question is, how bad will it get and for how long?

In Myrtle Beach, South Carolina, I`m Contessa Brewer, NIGHTLY BUSINESS
REPORT.

(END VIDEOTAPE)

HERERA: To the economy now where retail sales posted the smallest gain in
six months. Sales edged up 0.1 percent in August, as consumers cut back on
purchases of motor vehicles and clothing following a surge in July.
Despite the soft report though, economists say spending overall is still
strong.

GRIFFETH: As you know, we`ve been marking the tenth anniversary of the
financial crisis all this week and a lot has changed financially and
economically here in the us over the last decade, especially in the housing
market. Back then, prices cratered and defaults rose sharply. But today,
homeowners are once again reaping the rewards of rising home values.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: As home values
continue to rise, so does the amount of home equity available for
homeowners to tap, and it has now reached a record some.

U.S. homeowners were sitting on over $6 trillion worth of collective
tapable home equity at the end of June, according to Black Knight. Tapable
equity is the amount most lenders will allow borrowers to cash out while
still keeping 20 percent equity in the home.

Borrowers gained $636 billion in the first half of 2018, pushing the total
amount to nearly three times as much equity as there was at the housing
markets bottom in 2012.

Approximately 44 million homeowners with mortgages can now access cash
through cash out refinances or home equity lines of credit. On average,
per person, that`s about $138,000. Homeowners withdrew about $65 billion
collectively in the second quarter of this year, the draw was actually down
3 percent from a year ago.

Home equity lending is not increasing as much as one might imagine given
the potential windfall. Part of the reason may be that homeowners today
remember what happened to the housing market a decade ago and have no
desire to treat their homes like ATMs. Another factor is likely rising
interest rates.

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

(END VIDEOTAPE)

GRIFFETH: And to read more about homeowner equity right now, you can head
to our website at NBR.com.

HERERA: And from housing to retirement savings, both took a beating 10
years ago, but how people changed the way they save for their later years.
Financial advisor Diahann Lassus, president of Lassus Wherley, a subsidiary
of Peapack-Gladstone Bank, joins us now to talk about that.

Great to see you, Diane. Welcome back.

DIAHANN LASSUS, PRESIDENT, LASSUS WHERLEY: Thank you, Sue. It`s great to
be back.

HERERA: Now, from your perspective, what would you see is the biggest
change in the way people approach their retirement savings?

LASSUS: I think the biggest change is that they`re much more realistic
about how they make their decisions. The reality is they`ve lived through
it one time they recognize there are no guarantees and they really focus on
on making a difference for themselves. They save more, take less risk,
really look at what the longer term means to them, and the fact that they
don`t want to revisit what happened in 2008.

GRIFFETH: I know that people notoriously are sometimes too conservative in
their 401k plans or their retirement accounts overall. They don`t put
enough equity in there.

But even now, you realize the value of cash after what we went through ten
years ago, right?

LASSUS: Absolutely, that was one of our ahas as financial advisors is cash
can be really important to help people sleep at night and to cushion the
shock of downturns. You really have to make sure you have that cash
reserve set aside.

HERERA: Also, you say investors are worried about the rollback of
regulation. Why?

LASSUS: I think a lot of investors believe that was the real reason for
the crisis in 2008, was the rollback, too much rollback of federal
regulation. So, they`re not as worried about the ups and downs in the
market as they are about approaching or something happening that could take
us back to that.

GRIFFETH: We`ve been itemizing all week things that could cause the
financial crisis, another financial crisis to return. I mean — and this
is something that investors deal with all the time. But I guess your
message is stay the course, keep a strategy in place no matter what`s going
on, right?

LASSUS: Absolutely. It`s critical that you have an overall target asset
allocation diversification. You know, those magic words to make sure that
you stay in line with your long-term goals.

HERERA: How do you feel about the market overall, Dianne? What are you
hearing from your clients about how they feel about this market?

LASSUS: A lot of people, you have two sides. You have the side that has
flipped the switch and instead of thinking the world`s falling apart, they
think the market is going to go up forever. Those folks want to increase
risk, right?

You have the flip side of that or the people that say sooner or later the
other shoes going to drop. Those folks are a little more concerned and
want to make sure they have the cash reserve they need and are a little
more conservative and in their investing strategy.

HERERA: All right. On that note, Diahann, great to see you again.
Diahann Lassus with Lassus Wherley.

GRIFFETH: Time to take a look now at some of today`s upgrades and
downgrades.

We begin tonight with Costco (NASDAQ:COST). They`re rating was cut to
market reform from outperform at Wells Fargo (NYSE:WFC). After a strong
run, the analysts there says that this may be as good as it gets for that
stock. Price target now, $235, and that`s where that stock essentially
closed today at $235.38.

Then, Dunkin Brands was downgraded to sector performed from outperform at
RBC Capital. The analyst says that the coffee and doughnut change
turnaround is now reflected in that stock price already. Price target now
is $75, the stock fell 2 percent today to $74.27.

HERERA: VF Corp was upgraded to outperform from market perform at Cowen.
The analyst cites better operating margins at the company`s Vans brands.
The price target is $106. Despite the upgrade though, the stock fell a
fraction to $91.17.

Corning (NYSE:GLW) was upgraded to buy from neutral at Citi. The analysts
cites the potential for margin and earnings expansion. The price target is
$40, and the stock rose fractionally to $35.27.

GRIFFETH: Still ahead, investing in real estate without buying a home.
Our market monitor will show you how.

(MUSIC)

HERERA: The governor of Massachusetts has declared a state of emergency
following dozens of explosions outside of Boston which killed one person
and caused thousands of people to be evacuated from their communities.
Though the cause has not been confirmed, there are reports it was due to
over pressurization of a gas main run by Columbia Gas, a subsidiary of
NiSource (NYSE:NI). That sent shares of NiSource (NYSE:NI) 11 percent
lower and the governor put a rival utility in charge of the response to
that explosion.

GRIFFETH: UPS wants to make more money on its shipping and that`s where we
begin tonight`s “Market Focus”.

Company`s going to double down on shipments between businesses that tends
to be a more profitable segment for them. It`s all part of a billion
dollar overhaul that also focuses on technology.

(BEGIN VIDEO CLIP)

DAVID ABNEY, UPS CEO: We`re also looking at technology as the fuel to fund
this transformation because there`s just so many opportunities out there
that we can modernize and transform our business. The charges over the
next four years or so and what the benefits will be coming throughout that
entire process.

(END VIDEO CLIP)

GRIFFETH: UPS shares were up a half a percent today to $120.39.

Caterpillar (NYSE:CAT) saw global demands slow for its machines last month.
The Dow component reported weaker revenue growth for worldwide sales but
momentum here in North America did remain intact. Caterpillar (NYSE:CAT)
shares finished down a fraction today to $144.90.

AMC Entertainment says it has received a $600 million investment from
Silver Lake Partners. The private equity firm will also appoint a new
member to the Movie Theater Operators Board. AMC said it`s going to use
those proceeds from the deal to buy back shares owned by the company`s
current majority shareholder the Chinese conglomerate Dalian Wanda Group.
Shares were off about one and a half percent today to $19.80.

L Brands, the owner of Victoria`s Secret, said it was closing the doors of
the luxury retailer Henri Bendel this January, after 123 years of business,
due to disappointing sales growth. L Brands said it will focus now on its
brands that have greater growth potential. Shares of L Brands rose 5
percent to $28.97.

Same store sales improved at Dave and Busters — my kids helped on that —
helping overall revenue and earnings to top estimates. The gaming and
restaurant chain also raised its full-year guidance. Shares finished up
nearly 8 percent to $62.05.

And Revlon (NYSE:REV) shares got a lift on news that the cosmetic maker
director Ronald Perelman bought 20,000 shares of that company. The
transaction was valued at more than $400,000. Revlon (NYSE:REV) shares
popped 8 percent to $22.85.

GRIFFETH: Now to our weekly market monitor. He continues to find
opportunities in real estate investment trusts or REITs. Last time he was
with us was about a year ago this month. He liked at that time, Regency
Centers (NYSE:REG) and Terreno. Both of which have risen about 4 percent
since his last visit, and Invitation Homes, which is about 5 percent higher
over that time.

Jeung Hyun is the portfolio manager at Adelante Capital Management. He
returns to us tonight.

Jeung, good to see you. Thanks for joining us tonight.

JEUNG HYUN, ADELANTE CAPITAL MANAGEMENT PORTFOLIO MANAGER: Thanks for
having me again.

GRIFFETH: Let me start with one of your picks this time around. Simon
Property Group (NYSE:SPG) famous for their retail holdings in in malls and
outlet centers. That`s a distressed industry though. Retailers have been
closing. Malls have been closing.

How risky is this investment right now?

HYUN: Well, our thesis is that actually, the REITs have rebounded in
performance in 2018 because the reality is that retail is not all going to
go get shut down, and so, sentiment or bricks-and-mortar has turned. These
are very sound investments. This is high-quality portfolio of regional
malls and outlet centers, and that should persist in an environment where
retailers being very choosy about their locations.

GRIFFETH: All right. Let`s go to your second pick, Prologis, some say
Prologis. Why do you like it?

HYUN: Well, they own about 750 million square feet of warehouse space
where demand has been really boosted by e-commerce. With Prologis, you get
a broad diversified portfolio of industrial square footage, but a third of
that is still last mile or last touch and that`s — and that should be
good.

GRIFFETH: You`re sticking with —

(CROSSTALK)

GRIFFETH: Go ahead. Finish your thought.

HYUN: I`m sorry. And Prologis, they also completed the acquisition of a
large rival, so that should benefit shareholders as well.

GRIFFETH: All right, and then you`re sticking with Invitation Homes which
you mentioned last year. This is a REIT that was famously started by the
Blackstone Group over just after the financial crisis. They went out and
bought out a lot of those homes that were underwater and rented them out.

Is this still a viable business for you right now?

HYUN: Yes, we`re still sticking with this pick. The thesis is still
intact. Invitation owns 82,000 homes in fast growing markets in the United
States. These are areas where household formation has outpaced the
national average, but there hasn`t been enough affordable housing that`s
been built.

And so, that imbalance should be favorable for Invitation for the
foreseeable future.

HERERA: Talk to me about interest rates which are edging higher. How does
that affect your picks as the Fed continues to take away accommodation?

HYUN: So, the Feds raising rates because the economy`s doing well. We`re
approaching full employment and they`re concerned about inflation.

Well, there`s a lot in there that`s actually positive for REITs. One, as
the economy does well, the building`s are full and the landlords have
pricing power. Two, if you do have inflation, you have construction costs
that are going up and so that curtails the competitive supply that`s coming
into the marketplace.

So, there`s actually a lot that`s positive there for REITs, and I think
that`s a misunderstood dynamic.

GRIFFETH: Jeung Hyun with the Adelante Capital Management — good to see
again. Thanks for joining us tonight.

HYUN: Great. Thanks for having me again.

GRIFFETH: And you can read more about his picks on our website at NBR.com.

HERERA: Coming up, help wanted in the manufacturing sector.

(BEGIN VIDEO CLIP)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Kate Rogers
(NYSE:ROG) in Twinsburg, Ohio, and tonight on NIGHTLY BUSINESS REPORT,
we`re going to tell you why there`s a huge shortage of laborers within the
manufacturing industry and what companies like this one are doing to fill
the gap.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: Even though Amazon (NASDAQ:AMZN) is in the news a lot, we don`t
often hear from its founder and CEO. But yesterday, Jeff Bezos spoke at
the Economic Club of Washington and he described what it`s like to be the
world`s wealthiest man.

(BEGIN VIDEO CLIP)

JEFF BEZOS, AMAZON CHAIRMAN & CEO: I would much rather if they said like
you know inventor Jeff Bezos or entrepreneur Jeff Bezos or you know father
Jeff Bezos — those kinds of things are much more meaningful to me and the
— you know, the — it`s an output measure that if you look at the
financial success of Amazon (NASDAQ:AMZN) and the stock, I own 16 percent
of Amazon (NASDAQ:AMZN) and Amazon (NASDAQ:AMZN) is worth roughly a
trillion dollars, that means that what we have built over 20 years, we have
built $840 billion of wealth for other people.

(END VIDEO CLIP)

GRIFFETH: As you know, shares of Amazon (NASDAQ:AMZN) have been on a
tremendous run this year, advancing about 68 percent just since January
1st.

HERERA: With the unemployment rate near an historic low, companies are
going to new lengths to find workers, and that`s not an easy task
especially in the manufacturing sector which is not only in need of
employees but also highly skilled employees.

Kate Rogers (NYSE:ROG) is in Twinsburg, Ohio.

(BEGIN VIDEOTAPE)

ROGERS: Modern manufacturing is sleek, clean and technology-driven.
Nowhere is that truer than the Rockwell Automation (NYSE:ROK) plant in
Twinsburg, Ohio, but for a business that builds automation parts for
everyone from Ford to Pfizer (NYSE:PFE), finding enough skilled workers can
be a challenge.

ERIC CRUMP, ROCKWELL NORTH AMERICNA MANUFACTURING DIRECTOR: We want to
bring people in that we could train and so, because of our robust training
process, we can bring people in with no skills, we can develop them to have
certification and then go through various process within the plant and get
more certification and allow them to grow in their career.

ROGERS: Despite the technology and reliance on machines, Rockwell needs
people to run them and is looking to hire nearly 150 workers in
manufacturing.

BLAKE MORET, ROCKWELL AUTOMATION CHAIRMAN & CEO: Even though we`re an
automation company, people are in fact our most valuable asset and so, it`s
people working in close concert with technology but still using what people
do best using their ingenuity and their decision-making skills to be able
to add additional productivity on top of the basic technology.

ROGERS: Though the manufacturing industry faces some uncertainty regarding
tariffs and ongoing trade negotiations, skilled laborers are still in high
demand. Since the Great Recession, more than one million people have been
hired in manufacturing roles, but experts say an additional 500,000 workers
are still needed.

Companies are competing for workers by offering high starting salaries with
room to move up quickly, tuition reimbursement and generous benefits on day
one. Filling those jobs isn`t just an issue here at Rockwell, but
industry-wide.

CAROLYN LEE, THE MANUFACTURING INSITUTE EXECUTIVE DIRECTOR: It has been
one of the top three issues, the need of a skilled workforce and the
concern surrounding that need for a skilled workforce and not being able to
find those workers has been a concern are the top three concerns for
companies in the NAM outlook survey for the last seven years.

ROGERS: Once companies find the right employees, they need constant
training to keep up with the changing technology.

MORET: Making sure that we provide new employees with the skills to do not
only the job they came on board to do but also soon after they begin to be
able to provide them with the cross training so that their jobs are
durable. And so that technology may change, our needs may change but we
have employees who are flexible and willing to learn new skills so that
they can have long-term careers with our organization.

ROGERS: That training makes for more than just a job for team lead Taylor
Williams.

TAYLOR WILLIAMS, ROCKWELL AUTOMATION TEAM LEAD: I like that they invested
in me. That means a lot to me. They told me leadership skills, time
management skills and collaboration.

ROGERS: For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG),
Twinsburg, Ohio.

(END VIDEOTAPE)

GRIFFETH: And before we go, one final look at the day on Wall Street, kind
of a mixed day not much movement. The Dow rose just eight points at
26,154, the Nasdaq fell three, the S&P eked out again to make it five
straight up days this week.

HERERA: On that note, that`ll do it for this Friday edition of NIGHTLY
BUSINESS REPORT. I`m Sue Herera. Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great weekend. See you 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) 2018 CNBC, Inc.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply