Transcript: Nightly Business Report – October 31, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tricks and treats. Stocks
surge the final two days of the month. But October was still one of the
worst for stocks in recent memory. So where do we go from here?

Opportunity knocks. Did October`s free fall create bargains for investors?
We`ll take a look at possibilities.

And room service. An exclusive look inside the country`s most expensive
hotel room with a jaw-dropping price tag.

Those stories and much more for this Halloween edition of NIGHTLY BUSINESS
REPORT, Wednesday, October the 31st.

And we do bid you good evening, everybody, and welcome. Sue has the night
off.

Halloween — by most accounts, its origin is traced to an ancient Celtic
festival when people would dress up to ward off spirits. Well, fast
forward more than 2,000 years and you may find investors hoping to ward off
ghosts of this October and put it to rest because this month was not for
the faint of heart. Today, stocks did rally strongly for a second straight
day. The Dow rose 241 points, back up above 25,000. The Nasdaq climbed 2
percent or 144 points, and the S&P 500 added 29.

And while the Dow added nearly 700 points the past two trading sessions it
softened the blow of the one of the worst months we have seen recently. In
fact now might be a good time to cover your eyes, because for all of the
month of October, the Dow fell by 5 percent, its worst month since January
of 2016. The S&P 500 was off just about 7 percent, its biggest one month
slide since September of 2011. And the Nasdaq really took it on the chin,
down more than 9 percent, its worst showing in decade.

All in all, the U.S. stock market lost around $2 trillion of value this
month.

Even oil prices were not spared. They were done nearly 11 percent, the
worst monthly loss we`ve seen in two years.

And as Bob Pisani tells us now, many on the street just want the calendar
to change.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: After the roller
coaster stock market we saw in October, many traders are crying out get us
into November and good news plenty of reason to believe that November will
be a better month than October. We have witnessed dramatically oversold
conditions in the market. And already there has been a turn around.

Many sectors, particularly semiconductors, home builders, metals, energy
stocks way oversold and given the huge selloff in October, pension funds
will likely rebalance and pour more money back into stocks in November.

Buybacks should also give the markets a boost. November typically is the
most active for buybacks and activity will likely pick up as CEOs seek to
use the large cash horde still on hand to buy pack back stock at lower
prices.

Finally, seasonal flow should be improved. The S&P 500 hand has been
higher from the October lows until the ended of the year every time during
a midterm election year going back to World War II. That`s a good number.

And there are the hopeful outcomes, even a modest decline in volatility get
the VIX down below 20, that will dramatically lower concerns and a hint of
progress also on trade will lift China stocks and global sentiment.

But some of the skeptics are asking if any of this will keep 2019`s earning
expectations which are still high at 10 percent from being knocked down to,
say, zero or 5 percent growth. Because that`s what the market seems to be
implying. That`s something we still have to figure out.

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

(END VIDEOTAPE)

GRIFFETH: Strong earnings before the bell from General Motors (NYSE:GM)
set the tone for this day. The auto maker posted much stronger earnings
than expected. In fact, GM`s third quarter profit was 62 cents better than
the estimates on Wall Street. Shares rose 9 percent on the day.

Phil LeBeau tells us what drove the company`s huge quarter.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Motors
(NYSE:GM) latest earnings are a testament to the automaker strength in its
two biggest markets, the U.S. and China. In both countries, profits are
surging. Take the U.S. where GM`s new full size pickups are help it earn
more money per vehicle, because customers are paying higher prices.

DAVE WHISTON, MORNINGSTAR: GM`s product cycle is really well-timed now.
They`ve got the launch cost of the full size new generation pickup truck
done that truck launched in August. Then you can use the platform for the
highly lucrative full size SUVs, like Cadillac Escalade (NASDAQ:ESCA),
Chevy Tahoe. So, there`s — for now at least, there`s quite a bit of
pricing power.

LEBEAU: In China where GM has been pushing the Cadillac brand, the company
earned nearly a half billion-dollars.

DHIVYA SURYADEVERA, GM CFO: We`ve had record Cadillac sales in China. And
we`re up 20 percent year over year in a overall strong luxury market,
Cadillac is doing exceptionally well as well.

LEBEAU: While GM profits are rolling right now, it still faces plenty of
issues. Higher interest rates will drive up monthly payments for auto
loans. Commodity prices for steel and aluminum are rising due to tariffs.

And what happens if America`s appetite for new cars and trucks cools off?

All of that is why CEO Mary Barra says GM needs to remain as lean as
possible, which is why the company is offering buyouts to about 18,000
salaried workers. If enough employees take the deal, GM says it will not
have to resort to layoffs.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

GRIFFETH: One company that Wall Street will be laser focused on when it
reports after the bell tomorrow is Apple (NASDAQ:AAPL). The tech giant has
held up better than its peers this month down a mere 3 percent. So what
should investors expect?

Josh Lipton takes a look.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A key question for
Apple (NASDAQ:AAPL) is what initial demand looks like for its latest and
greatest smartphones. The iPhone XS and XS Max. Bulls have high hopes
that these two new devices will be big hits with consumers, driving revenue
and average selling provides higher.

Investors will also make a bee line for the company`s revenue guidance.

MICHAEL OLSON, PIPER JAFFRAY: Revenue guidance is important for the
December quarter because it will tell us the level of confidence that Apple
(NASDAQ:AAPL) has in the XS and XS Max which shipped at the very end of
September.

The other thing it will do is provide us an indication for how the XR is
performing after launching October 26th. We think that`s important given
we expect the XR is the number one selling iPhone in this coming year.

LIPTON: Beyond Apple`s hardware, investors are also very focused on its
faster growing higher margin service business, which includes its App
Store. Wall Street thinks that business drew 20 percent to more than $10
billion in the quarter.

And given increasing trade tensions, mainland China will be a hot topic.
Apple (NASDAQ:AAPL) is in fifth place in the smartphone market in that
country. On Apple`s last conference call, CEO Tim Cook said that the
company`s products had not been impacted by tariffs imposed by the Trump
administration.

But are their subtler impacts? Has Cook seen any negative impact on
consumer sentiment in China towards his company because of these escalating
trade tensions? Investors should have a better idea tomorrow.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

GRIFFETH: Another strong reading on the labor market. Private payroll
company ADP this morning said the 227,000 new jobs were created in the
private sector in October. That far outpaced the 189,000 positions that
were expected by most economists. The bulk of the gains came from the
services industry, followed by construction and manufacturing.

In addition, September`s payroll account was revised downward to 218,000
from the previous report of 230,000.

One of the big things the market has been concerned with is slowing global
growth. And at the heart of that is naturally China. One of the big
numbers out today was a reading on that country`s manufacturing sector.

And as Eunice Yoon tells us now, the data will not exactly calm the fears
of China slowing down.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: October is the first
full month after the U.S. and China imposed their latest round of tariffs
and official data show that factory growth at weakest pace in two years,
slipping to 50.2 from 50.8 in September, just a hair short of a
contraction. A number lower than 50 indicates a contraction.

New export orders which gives us a sense of future business contracted at
their fastest pace in a year. The sub index dropped to 46.89 from 48.
Factories are getting hit by slowing domestic demand and deteriorating
trade ties with the U.S.

Reflecting the stress in the economy, the central bank set the Yuan at its
lowest level in a decade, sparking more debate here if the policy makers
will allow the Yuan to weaken past the 7 mark. The stock market held up
but shares of top corporate or WH groups slid in Hong Kong. The company
shares in Hong Kong down 40 percent since Beijing first threaten to slap on
the tariffs.

The owners of Smithfield in U.S. says earnings in third quarter fell by 31
percent from a year ago because of high supplies and China`s retaliatory 25
percent tariff on U.S. pork products. The average price of pork in the
U.S. dropped by 12 percent.

The news is adding to growing concerns about the economy here, with more
analysts expecting Beijing to ramp up measures to stabilize growth in the
coming months.

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

(END VIDEOTAPE)

GRIFFETH: So, as we head to the new month, let`s turn to a bull and a bear
for their opposing views on this market right now. Our bull is David
Lefkowitz. He`s a senior equity strategist at UBS Wealth Management. And
our bear is Barry James, the president of James Investment Research.

Good to see you both. Thanks for joining us tonight.

Barry, I`m going to start with you.

You feel like the action we saw in October is a hallmark of topping action
in this market, right?

BARRY JAMES, JAMES INVESTMENT RESEARCH PRESIDENT: We do. Although I will
say that there was a good buying opportunity last week which we tried to
take advantage of to some extent for our clients. But one of the things
that we see as we look at the market, why we think we`re on a topping pace,
number one, valuation. At a — at a fair market bottom, P/Es are less than
10. Price to book less than 1 and dividend yields over six. We`re nowhere
close to that.

The other thing that we have, of course, is now quantitative tightening not
easing. Easing was responsible for a lot of market run up and we don`t
have that.

Lastly, there`s a mania going on through September, companies with no
earnings, losing money were up 27 percent, while those with earnings were
only up 8 percent. And that`s been kind of a theme that we have seen for a
while, just a few stocks running and that`s made things very difficult.

And then just lastly, when we look at the markets today, we`ve had a
trillion dollars of buybacks and we`ve spectacular earnings, the market has
gone no where. Next year, we`re not having either of those. What would
that mean for the future of the market?

GRIFFETH: David, there`s quite a laundry list of concerns that Barry has.
Why are you still you will bullish at this point?

DAVID LEFKOWITZ, UBS WEALTH MANAGEMENT SENIOR EQUITY STRATEGIST: Yes, I
mean I think what we have seen in this selloff is just a bit of an
overreaction. I mean, for sure, there are a couple of cracks in the
facade, the trade tensions between U.S. and China are ramping up. You do
have pockets of softness. We just heard about what`s happening in China.
And the market is contending with higher interest rates.

But that being said, I still think the global expansion remains solidly on
track. You`ve got China ramping up its stimulus. We think that`s going to
gain traction in the months ahead. And the tariffs while a headwind are
not going to derail the global expansion or the U.S. expansion.

So I think we are in a transition period. But I still think we`re going to
see continued economic and corporate profit growth.

GRIFFETH: And having said that, though, David, I — we have noticed this
summer a transition to use your term away from growth stocks to more
defensive issues in this market. And they seem to have been leading the
market higher. Have you done the same thing?

LEFKOWITZ: Yes, we have noticed that transition as well. And at this
point we think value stocks look more interesting. I think we`re going
threw a bit of a growth scare right now. And as we come out of in growth
scare, it`s going to be the economically sensitive parts of the market that
lead us out of this. And that tends to be value stocks. On top of that,
value stocks look very cheap relative to growth stocks and that`s another
support for I think a nice outperformance in the months ahead.

GRIFFETH: Barry, I assume you are not 100 percent in cash. You said you
found some bargains last week. Where do you go to invest right now when
you`re not that high on the whole market?

JAMES: Well, in the — in the shorter run as David was saying, it`s an
upward market. We have a lot of momentum and a good economy. So, I — I
agree that probably areas, the cyclical areas, maybe the energy areas, that
have gotten beaten up here pretty much lately would offer some
opportunities.

But I agree wholeheartedly about the value side, completely ignored nobody
wants it. And that`s generally the best time to buy something.

GRIFFETH: Technology had been a huge leader. I want to ask both of you
before we go here, FANG stocks especially. Barry, they started to show
wear and tear the last couple of months here. Do you like them as
bargains? Or you wouldn`t touch them? What do you say about them?

JAMES: Well, there are some I like. Like Apple (NASDAQ:AAPL). The others
I`m not too interested in.

I had a client earlier this year sold our conservative fund, bought one
stock Amazon (NASDAQ:AMZN) and said it`s because it only goes up. We know
that`s not always true.

So we think that they are cutting dangerous ground right now. And we would
prefer to move back into the other types of stocks. Maybe even an IBM or
Intel (NASDAQ:INTC) for that matter as opposed to the FANG stocks.

GRIFFETH: All right. David, what about you on FANG stocks?

LEFKOWITZ: We have a similar position. We`re neutral on technology and
communications services. And that`s the sectors where most of the FANG
stocks reside.
That being said, I think what`s most important is maybe distinguishing
absolute between these — these different stocks. Some of them look
actually pretty interesting and pretty attractive at this point. But
overall, our preferred sectors are now energy and financials, and tech is
not — we`re neutral on tech, not one of the preferred sectors.

GRIFFETH: All right. Gentlemen, good to see you both. Thank you for
joining us.

David Lefkowitz with UBS Wealth Management and Barry James with James
Investment Research.

Coming up, where to find opportunity after the worst month in nearly a
decade?

And then, Jane Wells trash-talking.

(BEGIN VIDEO CLIP)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m in Anaheim,
California, where these folks are busy pulling stuff out that has no
business being in the recycle bin. Like this. Who knew? The recycling
business model is broken. How to fix it? We talk trash, coming up.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: As we close the books on what was one of the worst Octobers in
nearly a decade for the market, our next guest says this global selloff may
have yielded some mouth watering opportunities for investors.

Joining us tonight, David Dietze, the president of Point View Wealth
Management.

Welcome back, David.

DAVID DIETZE, POINT VIEW WEALTH MANAGEMENT PRESIDENT: Thank you, Bill.

GRIFFETH: I know you`re one of the great contrarians out there. So, when
most are bullish, you are not. But now that we`ve had this bad month, you
are starting to look for some opportunities here, aren`t you?

DIETZE: Yes, absolutely. It`s been a brutal month with both bonds and
stocks going down. But when you start looking at the whole investment
landscape, really, that`s the time to roll up sleeves and start looking for
some bargains.

We`re old fashioned. We like to pay the least for each dollar of earnings
and dollar of sales. We like to get the best dividend yield. And, you
know, there are some great swaths of opportunity out there.

GRIFFETH: Well, let, let`s put it in terms of some exchange traded funds,
some ETFs that you like here that have had a tough time. Vanguard`s total
international stock ETF has had a tough year but you are sniff around on
this one.

DIETZE: Absolutely. You know, I love how people say, I just want to
index. But, you know, it`s dependent this year as to where you index. If
you index overseas from its January high, you are now down 20 percent in
the low cost Vanguard international index. But when you start looking —
you know, unpacking, do you have? A 1.8 percent dividend, domestic stocks,
3 percent over there. One third less in terms of price to earnings price
to sales.

So, I`m thinking to myself, you know, getting more income, same growth, a
lot less for the financial metrics go for it.

GRIFFETH: Same thing here with the Vanguard FTSE emerging market ETF.
Emerging markets have suffered greatly, you are looking at them.

DIETZE: Yes, absolutely. I mean, here, of course, people will say, well,
don`t forget about growth. You know, but when it comes to growth, the
emerging markets are growing about one third to 50 percent faster than
here. There you get the greater dividend yield.

You know, 3.2 versus 1.8 at almost 60 percent more growth, what am I
missing, Bill?

GRIFFETH: And finally here, as far as ETFs go. IShare has the S&P 500
value ETF, and a greoth ETF, which — I`m guessing you`re going to go for
the value at this point.

DIETZE: You know, it seems like I`m echoing your former guest there. But,
you know, year to date, the value is down about 6 or 7 percent while the
growth is up. And so, you know, I`m using that as a way to just continue
to go into the value areas.

Remember over the last 100 years, value stocks have outperformed. Now,
when we`re about a decade stretch where values underperformed. People say,
well, how long can you hang into the value stocks? Well, if it`s been down
for a decade, perhaps you have a decade of outperformance coming.

GRIFFETH: Very quickly. A lot of viewers like dividend-paying stocks for
income and so forth, but in the rising interest rate period, it`s tough to
buy some of those dividend-paying stocks, isn`t it?

DIETZE: Well, it is. But, you know, the only thing worse than a good
dividend paying stock is a stock with no income being paid out because
that`s going to be even less competitive to higher bond yields. The two we
would recommend, Exxon and Caterpillar (NYSE:CAT), as your quintessential
value stocks that dominate their markets with dividends. Three percent for
Caterpillar (NYSE:CAT), over 4 percent for Exxon.

GRIFFETH: Very good. David Dietze, always love talking to you. Thanks
for joining us tonight.

DIETZE: Thank you.

GRIFFETH: David with Point View Wealth Management joining us here.

Elsewhere, Kellogg (NYSE:K) cut its full year forecast, and that`s where we
begin tonight`s “Market Focus”.

After reporting a quarterly sales miss caused by weakness in several of its
U.S. businesses, the snacking giant tempered Wall Street expectations with
a revised profit outlook for 2018. Kellogg`s said the new guidance
reflected increased spending on advertising, a strategy that it says will
lead to better revenue growth. Shares plunged, though, today by 9 percent
almost to $65.48.

Yum Brands (NYSE:YUM) said that its new menu items like $1 nacho fries and
pickle fried chicken drew for customers into its KFC and Taco Bell chains,
helping overall earnings topped expectations. The company also said that
those two restaurants experienced strong performance overseas. Yum brands
finished up more than 4 percent today to $90.41.

Estee Lauder said stronger demand for its La Mer skincare and MAC makeup
helped sales rise and topped estimates. The cosmetics company which also
reported a rise in profits said that emerging markets and the Asia region
saw robust growth. Shares rose more than 4 percent to $137.44.

And after the bell tonight, wearable device maker Fitbit reported a
surprise profit and stronger than expected sales, as it sold more products.
The company also said it expects results for the current period to surpass
analyst estimates. So, the shares initially rose in the after hours and
they also finished the regular session up 7 percent to $4.73.

Waste management company Republic Services (NYSE:RSG) said that it has seen
the stock rise nearly 65 percent over the last three years, crediting its
success to its trash services. But recycling has been weak, in fact so
weak that Republic says the country`s whole recycling model needs to be
scrapped.

Jane Wells explains from Anaheim, California, for us tonight.

(BEGIN VIDEOTAPE)

WELLS: The recycling business is getting trashed.

DON SLAGER, REPUBLIC SERVICES CEO: Well, the recycling model right now in
the U.S. is broken.

WELLS: Don Slager is CEO of Republic Services (NYSE:RSG), a waste
management company that`s doing very well with its regular garbage
business, not so well with recycling.

And they`re not alone. For years, the garbage man has collected our
recyclables curbside often at a loss because he made good money reselling a
lot of the materials overseas especially to China. But now, China has an
air pollution problem. So, it has stopped buying things like our old
cardboard boxes. And the value of the commodities plummeted from $200 a
ton to half that.

At the same time, the values of these commodities are coming count more and
more consumers are putting a wrong stuff in the recycle bin. These people
pull out the bad stuff, the stuff that shouldn`t be in there. For example
plastic bottles are fine. Plastic bags, no, they gum up the machine.

And get this, while clean cardboard is great, if you put in the greasy part
of your pizza box, you could contaminate the entire load.

SLAGER: Contamination levels are as much as 30 percent. So, we are
sending in separate trucks to the home to collect what should be clean
recyclables and we`re having to spend a lot of additional time, effort and
money frankly cost in cleaning that material up.

WELLS: Republic Services (NYSE:RSG) has invested in technology to improve
sorting, but it warns that if the resale value stays low collection rates
at the curb will rise. Though they might rise more slowly if people learn
what goes in the blue bin and what doesn`t. Think loose paper, clean cans
and bottles, because the company says here`s the ugly truth, for all of our
good intentions, nearly a third of what comes in here these days ends up in
the landfill any how.

For NIGHTLY BUSINESS REPORT, Jane Wells, Anaheim, California.

(END VIDEOTAPE)

GRIFFETH: Coming up, the most expensive hotel room in the country. And
wait until you see the bill.

(MUSIC)

GRIFFETH: Finally, tonight, it is the priciest hotel room in America. And
will you not believe what you get for the price.

Our Robert Frank got the first ever on camera tour.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Straight through the
Mark Hotel lobby and up 16 floors is the most expensive hotel room in
America.

OLIVIER LORDONNOIS, THE MARK HOTEL GENERAL MANAGER: Welcome to the
Markland House.

FRANK: I wish I brought my bag.

General manager Olivier Lordonnois is giving the first ever on camera tour
of the $75,000 a night hotel suite.

How big is this whole suite?

LORDONNOIS: Ten thousand square feet. It is the biggest in the city.

FRANK: The hotel room`s interiors are by French designer Jacques Grange
whose portfolio of clients includes royalty and some of the biggest names
in fashion.

LORDONNOIS: So, this is the main living room of the penthouse. The
ceiling height is 26 feet.

FRANK: There are five bedrooms, including not one but two master suites.
And heads up in the master bath where water flows right out of the ceiling.

LORDONNOIS: Let me show you the best views of the house upstairs.

FRANK: One flight up past the sun lit lounge area is a 2,500 square foot
wrap around terrace.

This is a great roof for the big party.

LORDONNOIS: This is a perfect roof for an amazing party.

FRANK: And the view is here, I mean, you get Midtown, you get Central
Park.

LORDONNOIS: There`s nothing like it in New York.

FRANK: So, what`s included in this hotel room?

LORDONNOIS: Absolutely nothing, except this wonderful space.

FRANK: $75,000 a night, I would assume that includes breakfast.

LORDONNOIS: If you are a potential client, it`s not a question that you
would ask. If you ask for it, I`d be happy to include it.

FRANK: The truth is, penthouse guests blow past $75,000 per night and
spend even more money on the hotel`s over the top perks.

LORDONNOIS: We have an agreement with Bergdorf Goodman that allows you to
basically get something at any time of the night and day, and we can take
you to several downtowns and have you sail along the Hudson River for a few
hours.

FRANK: What if I really like hotdogs?

LORDONNOIS: There is actually a hotdog stand outside the hotel that`s
selling the most amazing hotdogs created by Jean-Georges, our chef.

FRANK: That`s right, the hotel chef who has a two-star Michelin restaurant
also runs a hotdog cart.

What`s the longest stay that you`ve ever had here?

LORDONNOIS: Sixteen months.

FRANK: Sixteen — you said months?

LORDONNOIS: Months.

FRANK: Not days.

LORDONNOIS: Months. You heard me.

FRANK: That`s a big hotel bill.

LORDONNOIS: It is, but obviously, they could afford it.

FRANK: For NIGHTLY BUSINESS REPORT, Robert Frank, New York.

(END VIDEOTAPE)

GRIFFETH: Must be nice.

Before we go, let`s take a final look at the day on Wall Street. A few
more people were able to afford that hotel room with the Dow up 241 points
at 25,115, the Nasdaq climbed 2 percent, and the S&P added 29.

But the indexes all had their worst monthly declines in several years. And
the Nasdaq`s 9 percent decline was its biggest in a decade.

That is NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thanks so
much for watching. Have a great evening. We`ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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