Transcript: Nightly Business Report – November 9, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Stocks slide. Markets
finish the week with losses as a further decline in oil prices spark
concerns of a global economic slowdown.

Picking up steam. A key gauge of inflation rose at its fastest pace in
about six years and it did not go unnoticed by investors or the Fed.

Up for auction. The priciest listing in the country will soon be owned by
the highest bidder.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Friday,
November the 9th.

And we do bid you good evening, everybody. Welcome. Sue is off tonight.

A fresh round of selling hit Wall Street today. Stock prices were once
again led lower by technology shares, and by energy stocks after oil fell
for a tenth straight session, its longest losing streak in 34 years. Here
are the closing numbers today.

The Dow was down 2010 points back below 26,000. The Nasdaq fell by 123.
The S&P declined by 25.

But after this very busy week with the midterm elections, the Fed meeting
and more earnings reports, the major averages were all higher, thanks in
part to that big monster rally on Wednesday.

Not so for oil, though. Today, domestic crude settled just above $60 a
barrel. A stunning reversal from just a month ago when it hit the four-
year high around $76. Now even though oil prices have been falling
overall, producer prices have been rising. A lot, the closely watched
inflation gauge rose at the fastest pace since 2012 last month, added to
concerns about the path of interest rate increases by the Federal Reserve.

Steve Liesman has details for us tonight.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A hotter than
expected report on when will sale prices has economists wondering: Does the
U.S. have a brewing inflation problem?

With higher wage costs, tariffs and faster economic growth, economists
think it`s a concern at least worth taking seriously. The government
reported a 0.6 percent rise in the October producer price index, compared
to last month. That is twice what was expected by economists. The PPI was
fueled by gains in transportation and warehousing costs and wholesale goods
and foods.

Economist Stephen Stanley with Amherst Pierpont wrote, quote, food
commodity prices finally turned higher after several months of significant
declines as farmers were struggling in the wake of retaliatory tariffs on
their products by China. When companies face higher prices, they have
three choices, reduce their profits, pass along the costs to consumers or
try to increase efficiencies.

MARK VITNER, WELLS FARGO: Businesses have not been able to pass their
higher costs on to consumers. And you see that in some of the recent
announcements where you see the chains are consolidating operations, in
some ways to get a handle on labor costs and to get more efficient
operations. So, they are trying to squeeze a little bit more efficiency
out of their operations because any can`t pass through their higher costs.

LIESMAN: The PPI is up 2.9 percent year over year but with several quirks
on the data. Economists like Vitner are reluctant to embrace the outsize
gains as a full-fledged inflation threat, especially with oil prices
falling. Instead, they`d be looking to next week`s consumer price report.

PHILLIP SWAGEL, UNIVERSITY OF MARYLAND: It looks like the Fed is pretty
locked into December. Obviously, the PPI running hot as you said will, you
know, will help lock them in. The CPI (NYSE:CPY) next week, you know,
probably is going to be a touch on the hot side.

LIESMAN: So to the question of whether there really is an inflation
problem, it`s probably too soon to tell, but definitely worth keeping your
eye on the price.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GRIFFETH: So how concerned should consumers and investor be about
inflation and its impact on our fed policy and the markets?

Joining us tonight, Jason Ware. He`s chief investment officer and chief
economist at Albion Financial Group.

Jason, good to see. Thanks for joining us tonight.

JASON WARE, ALBION FINANCIAL CIO & CHIEF ECONOMIST: Yes, good to be with
you.

GRIFFETH: You`re not that concerned yet about inflation, are you?

WARE: You know, we`re not. If we look at the broad preponderance of
inflation data, the evidence is suggesting that we`re still running pretty
close to what the Fed were considered to be target inflation, that`s in and
around 2 percent, particularly if you look at it on a core basis, whether
that`s PPI as you guys are mentioning or whether that`s consumer prices,
CPI (NYSE:CPY), preferred measure for the Fed PCE.

Things are still looking like they are in check. So, we`re not terribly
concerned for now.

GRIFFETH: I mean, is there a number that concerns you? Is there a level
we get to where you say now we are having a problem?

WARE: Yes, there is. I think as we see inflation creep up closer to 3
percent, both the stock market and the Fed will take I think a more direct
notice at inflation running at those levels.

And again, headlines can be noisy. So, it`s important to pay attention to
core inflation numbers. And I think as we get close to 3 percent, if we
were get to get close to 3 percent, that would be something that would have
us more concerned. And in particular watching wages and labor costs as an
indication of that.

GRIFFETH: Now, we often just characterized inflation as a bad thing,
something to be avoided. But there are sometimes winners in inflationary
periods. And you sent us a list of some.

I want to run through those quickly and maybe get you to comment on a
couple of them here. You talk about companies with pricing power or firms
that produce themselves, for example, chemicals, oil companies. Then there
are raw materials producers, real estate firms, real estate investment
trusts, and index inflation — or inflation indexed bonds.

Are any of those looking to be attractive to you yet? Are these things you
want to think about investing in as you anticipate inflation?

WARE: You know, not so much. And here is why. One, because, again we`re
not terribly concerned about inflation running hot. Two, because, you
know, investors should have a diversified portfolio that captures the
upside if we do get inflation in a more natural way, more of a natural
posture.

So, instead of trying to predict whether inflation is going to go up over
the short run, which really as much as we tried to do that with evidence
nobody can do, you know, repeatedly over time. I think it`s important that
investors have a portfolio that has some exposure to areas where — that
will do well when inflation goes up. But also has exposure to areas that
will do better when inflation is in check like it is today.

So, I wouldn`t be loading up on any sectors in that list, although that`s
typically the who`s who of suspects that do well in inflation. Every
environment, every cycle is different. So, the variables to return are
difficult to calculate and don`t always show up in the same way each time.
So, just having a diversified portfolio to capture the returns in the
market is probably the best way for investors to position themselves.

GRIFFETH: Very good. Jason Ware with Albion Financial, good to see you
again. Thanks for joining us.

WARE: Yes. Good to see you. Thank you.

GRIFFETH: Elsewhere, Disney (NYSE:DIS) was the best performing Dow
component today. Shares rose more than 1.5 percent after reporting those
strong quarterly results last night that we told you about.

And while the company studio business powered its bottom line in the most
recent quarter, the company is making a high stakes push into digital as it
looks for future growth.

Julia Boorstin has more on Disney`s strategy.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Disney (NYSE:DIS)
CEO Bob Iger announcing that Disney (NYSE:DIS) Plus is the name of the
streaming app launching next year, featuring Disney`s major brands, plus
Fox`s National Geographic.

BOB IGER, DISNEY CHAIRMAN & CEO: We`re winning ourselves with third party
licensing, which has already started. So, that the product appears on our
service and not on third party services.

BOORSTIN: As for Disney`s first direct to consumer app, ESPN Plus, Iger
says it`s doing extremely well.

WALTER ISAACSON, WEINBERG PARTNERS: He understands that the fundamental
thing about a digital economy is that you can go direct to consumer. And
he is not burdened by having a cable network — I mean a cable, you know,
operator. But he has ESPN. And he is shifting that away so that it can go
direct to consumer.

BOORSTIN: Iger says the company is also planning to invest in Hulu and
hoping to grow it internationally.

Iger telling me that after Disney`s acquisition of Fox closes, he would be
interested in buying the remaining 40 percent of Hulu from NBCUniversal and
AT&T`s Warner Media.

IGER: Our plan is to invest in all three services, the ESPN service,
Disney (NYSE:DIS) service and Hulu service so that we achieve our goals in
terms of not just going into the direct to consumers space but transforming
the company by being in that space.

BOORSTIN: With so many streaming options including Netflix (NASDAQ:NFLX)
and Amazon (NASDAQ:AMZN) investing heavily in content, the question is how
many of these services customers will be willing to pay for.

FARHAD MANJOO, NEW YORK TIMES: The competitors, especially Netflix
(NASDAQ:NFLX), are kind of entrenched here. So, you know, you`ll get
additional sign-ups for Disney (NYSE:DIS). But it`s sort of still will be
like a thing where you subscribe to many services I think.

BOORSTIN: Iger saying he sees a huge family audience to target with Disney
(NYSE:DIS) Plus. And now, they`re working to have enough volume of quality
content to attract subscribers.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in San Francisco.

(END VIDEOTAPE)

GRIFFETH: Big changes are coming to another Dow component. That would be
Procter & Gamble (NYSE:PG).

A new CEO is shaking things up at that company. He says he is willing to
change anything and everything to increase results and create value for
shareholders. Investors apparently like that idea. They sent the stock
higher on this otherwise down day.

Sara Eisen is in Cincinnati where P&G is headquartered.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Procter & Gamble
(NYSE:PG) announcing what it is calling the biggest organizational shake-up
in more than 20 years. It`s dividing up the company into six different
business units like grooming, and beauty that cover the biggest market like
the U.S. and China. It`s a shift in the way P&G does business to make
things more simple, less complex and lead to faster decision making and
better innovation.

CEO David Taylor says it`s the latest step in a multi-year turn around.

DAVID TAYLOR, P&G CHAIRMAN AND CEO: Without a question, the goal for all
that we`re doing, both our superiority strategy and organizational change
is to get the balance growth and value creation. We believe strongly the
path we`re on which is leveraging superiority of the product, the package,
our go to market capability, our communications and consumer and customer
value, doing that right will cause us to win. A big part of winning going
to market is making sure we`re agile to serve the customers and
distributors in this market.

EISEN: And the turnaround is bearing fruit. P&G does posted its best
quarterly sales growth in five years, despite the fact that the
macroeconomic conditions are tough. That hurts P&G in the form of a
stronger U.S. dollar, higher commodity costs, and, yes, the trade war.

TAYLOR: What I worry most about with the trade war is if it destroy
consumer confidence in American brands. And I have not seen that. As long
as you are producing in China and most of our brands, we do — then the
tariffs don`t have a huge impact.

Do I think tariffs — you know, I would love to see this be resolved. I
think it would be good for the global economy, good for our country, good
for China, for a productive and constructive resolution of this. It`s not
good. I believe and our company believes in free and open trade. We think
that raises all boats.

EISEN: And while Taylor is worried about the impact of the trade war,
particularly confidence in brands, he says the dollar hurts more and that
the global economy looks to be in good shape. All ten categories he says
are growing not just in the U.S. but globally and even in China where there
are widespread reports of a slowdown.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen in Cincinnati.

(END VIDEOTAPE)

GRIFFETH: Turning now to California and that raging wildfire — two of
them actually across the state in the southern part. There is concern that
the Santa Ana winds will fuel the fire storm even further. Evacuations
have been mounting in Ventura and Los Angeles Counties.

In the north, a deadly fire there nearly quadrupled in size overnight,
wiping out the entire town of Paradise and it caused tens of thousands of
homes and businesses to lose power. In fact, shares of PG&E, which is the
state`s largest utility, fell by 16 percent today, its biggest one-day
decline since at least 2002.

And Edison International (NYSE:EIX), the parent of Southern (NYSE:SO)
California Edison, fell by 12 percent in today`s trade.

Time to look at some of today`s “Upgrades and Downgrades”.

We start with G.E. shares. Their price target was cut to $6 from $10 at
J.P. Morgan. The analyst cited G.E.`s recent quarterly results which he
said were worse than he expected. The firm is maintaining its underweight
rating. Shares fell by 5 percent to $8.58, its lowest close since the
financial crisis of a decade ago.

Monster beverage was added to the conviction buy list at Goldman Sachs
(NYSE:GS). The analyst says the concerns over a competing drink from Coke
are overblown. Price target, $66. The stock rose by 5 percent to $56.84.

Yelp was downgraded by a number of firms today, including Raymond James,
which cut its rating to market perform from outperform. The analyst says
that the bull case for this stock has come to an end following its
disappointing quarterly results which we showed you last night. The firm
also pointed to Yelp`s productivity problems. The stock tanked by 26
percent to $33.93.

Still ahead, with the decline in oil prices you might not have the stomach
to buy stocks in that sector. But our market monitor this week says there
are some names worth owning.

(MUSIC)

GRIFETH: A judge in Montana has blocked construction of the controversial
Keystone oil pipeline. The ruling said that the Trump administration which
approved this construction did not take into account the effect the project
would have on climate change. The pipeline is designed to carry heavy
crude oil from Canada into the United States. TransCanada, the company
behind the project, though, says it does remain committed to building the
pipeline. But investors were skeptical. They sent shares down in today`s
trading.

Everyone is waiting for official word from Amazon (NASDAQ:AMZN) on where
its second headquarters is going to land. Reports earlier this week said
that it could be split into two locations, one in Long Island City New
York, the other in Crystal City, Virginia.

In the meantime, investors are keeping an eye on a group much stocks that
could be impacted the most if HQ2 is split in two.

Diana Olick has more for us.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The signs look pretty
good for Long Island City, New York, and Crystal City, Virginia. Amazon
(NASDAQ:AMZN) has not confirmed its choice or choices for HQ2, but
investors are honing in on the stock that could benefit. So, apartment
REITs are in play.

For Long Island City, Avalon Bay is a clear winner. They have direct
exposure there. The stock jumped higher Monday after reports last weekend
that Crystal City was in the lead and then Long Island City could share the
project. Avalon has been in Long Island City for over a decade with
several higher rises.

For Manhattan overall, which is just across the bridge, other beneficiaries
are UDR and Equity Residential (NYSE:EQR). They have about 10 percent of
the portfolio exposure in Manhattan and Brooklyn.

ALEXANDER GOLDFARB, SANDLER O`NEILL: Picking Long Island City is huge for
Manhattan. I mean, let`s face it. There`s a tremendous amount of supply
that`s been built in Manhattan, along with the boroughs and rent growth has
not been great this cycle in part because of the glut of high-end
apartments.

OLICK: And the same is true in the D.C. area around Crystal City. REITs
that could benefit there, also Avalon Bay and Camden Property Trust
(NYSE:CPT). Although it`s based in Houston, its overall D.C. exposure is
close to 20 percent and Northern Virginia is 6 percent alone.

JAMES SULLIVAN, BTIG REIT ANALYST: Instead of getting for example rent
growth of, let`s say for the sake of argument, 1 percent or, you know, 0.5
percent, the rent growth could be in the 2 to 3 percent for those REITs
owning assets in that market. So, that would be pretty significant.

OLICK: But most important for apartment REITs here in Crystal City and in
Long Island City is how many of the new Amazon (NASDAQ:AMZN) employees will
come from within the market it picks and how many will move in and take up
new space?

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

(END VIDEOTAPE)

GRIFFETH: Revlon (NYSE:REV) shares are photo-ready, and that`s where we
begin tonight`s “Market Focus”.

The beauty products maker reported a narrower loss than expected and
outlined a restructuring plan. The goal is to improve productivity,
profitability and cash flow. Shares soared by 31 percent to $28.61.

Tribune Media`s profit got a lift from higher ad spending, especially
political spending. The company topped earnings estimates and saw revenue
rise double digits from a year ago. And that stock rose a fraction today
to $39.25.

EW Scripps reported better than expected earnings and revenue in the most
recent quarter with the media company helped in part by the networks that
it purchased last year. Scripps expects revenue from local media to rise
by at least 30 percent in the current quarter. But investors apparently
wanted more. That stock fell 5 percent to $16.85.

And sandwich chain Potbelly reported earnings and sales that missed
expectations. That company also issued disappointing earnings guidance for
the full year. The CEO says that Potbelly will continue to make
investments to try and increase brand awareness. The stock was down 6
percent today to $10.86.

This week`s market monitor has three energy picks that he says all offer
something different. There`s value, there`s growth, and a bargain. It`s
his first time joining us as market monitor.

He is Rob Thummel. He`s managing director and portfolio manager at
Tortoise.

Rob, good to see you again. Welcome back.

ROBERT THUMMEL, MANAGING DIRECTOR & PORTFOLIO MANAGER, TORTOISE: Thank
you.

GRIFFETH: The three — we`re getting them to them in just a moment. Any
don`t have anything to do with oil. So, you`re playing it differently in
the energy sector, aren`t you?

THUMMEL: Yes, Bill, we do see opportunities here at Tortoise of investing
in the energy sector that aren`t associated with oil prices, believe it or
not.

GRIFFETH: So, you go with Cheniere Energy, for example, with liquefied
natural gas. Why do you like that one?

THUMMEL: Yes. So, Bill, with Tortoise, here is how we look at the U.S.
energy sector. We see — over the next decade, we see increasing
production of U.S. produced oil, natural gas and natural gas liquids every
single year, year after year. We also see growing consumption of those
same commodities.

But this is the game changer, Bill. We see growing exports of liquefied
natural gas and crude oil going forward. And that`s where Cheniere comes
into play. So, Cheniere is the purest way to play the growing demand for
liquefied natural gas exports. Global liquefied natural gas demand is
going to increase, actually double, over the next couple of decades.

The U.S. is actually going to be the second or third largest supplier of
liquefied natural gas to the rest of the world. Cheniere is the only way
to play that right now and we think it`s an excellent way for investors to
get exposure.

GRIFFETH: And if you expect increase in production you move it from place
to place. So you`re going with one of the pipeline companies, Enterprise
Products Partners (NYSE:EPD), right?

THUMMEL: Yes, exactly. So, what we like about Enterprise, it`s a
diversified company that operates really essential energy infrastructure
assets across the entire U.S. basically. So, if production is going to
grow as you mentioned year after year, you need to move that oil and gas.
You need to transport it.

That`s what Enterprise does. They have a stable business model that allows
them to pay investors a 6.4 percent effectively dividend yield. We`ve
owned the stock for over a decade. Enterprise has grown that dividend
every single quarter we`ve owned the stock.

So, as the U.S. energy infrastructure network continues to expand,
Enterprise will really play a critical role and is a stock that investors
want to hold as well.

GRIFFETH: Finally, and quickly if we can, this is the bargain. This is a
company that`s involved in natural gas. EQT (NYSE:EQT) Corporation, but
the stock is down 44 percent this year. I guess you`re expecting them to
come back.

Are you expecting natural gas prices to come back?

THUMMEL: So, it starts with natural gas prices, and if you notice, natural
gas prices have been on fire this week. They have gone up significantly.
You know, we have entered the winter heating season with natural gas
inventories at the lowest level since 2005.

So, the background for inventories are pretty good for pricing. But EQT
(NYSE:EQT) is more than just about prices. They are the largest natural
gas producer in the U.S., number one. Number two, they own some of the
best assets in the coveted Marcella shale region.

GRIFFETH: OK.

THUMMEL: Now, they`ve had some operational hiccups. That`s why the stock
is down. The management has made some changes.

We think that that due to the management changes, the back drop for rising
natural gas prices. But this stock is really set up for a pretty good
turnaround story of whether it`s 2018 or 2019.

GRIFFETH: Very good. Rob Thummel with Tortoise — good to see you.
Thanks, again, for joining us tonight.

THUMMEL: Thank you.

GRIFFETH: And to read more about Rob`s pick, you can head to our website
at NBR.com.

Coming up, calling all bidders.

(BEGIN VIDEO CLIP)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Robert Frank.
This is there is a flood of mansions on the market, and that`s leading more
and more of them to head to auction. We`ll take you inside the most
expensive home ever to sell at auction, coming up on NIGHTLY BUSINESS
REPORT.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: Here is what we`re watching for next week on Monday.

Lawmakers return to Washington with a full agenda which includes funding
the government and that potential fight over the border wall. On Tuesday,
OPEC`s monthly report will be in focus, given the decline in oil prices.
On Wednesday, Dow component Cisco (NASDAQ:CSCO) reports earnings and
investors are expecting to see growth. That`s where we`re watching in
part, coming up next week.

The FDA reportedly plans to sharply restrict sales of flavored e-cigarettes
by pulling them from convenience stores and gas stations. The agency`s
action could come next week and it`s aimed to limit access to e-cigarettes
among children and teens. Preliminary federal data do show that use among
high schoolers has risen by 70 percent since last year.

Christie`s plans to auction a pink diamond that could fetch $50 million.
The 19 carat rectangular cut gemstone is the largest vivid pink diamond
that the auction house has ever sold. It once belonged to the Oppenheimer
Diamond Family and Christie`s says it will be the standout offering at the
fall jewelry auction in Geneva on Tuesday.

So, what goes best with an auction for a pink diamond? Well, how about an
auction for a multimillion dollar mansion?

Robert Frank went to Hillsboro, Florida, to give us a tour.

(BEGIN VIDEOTAPE)

FRANK: Four years ago, this was the most expensive home for sale in the
United States, listed at $139 million. Next week, it heads to auction for
no reserve, marking a dramatic turn for one of the most opulent estates in
the country. And it`s a story that`s becoming increasingly common in the
struggling market for high end real estate.

Simply put, America has a mansion glut. There are too many giant homes
with too many big prices up for sale. After the financial crisis, builders
went big, targeting the rich with ever larger and more expensive homes.

But now, overseas buyers are fading stock markets are volatile and prices
ran up way too fast. So, buyers are sitting on the sidelines. The most
expensive homes in the top 40 market in the U.S. took nearly a year and a
half to sell in 2017.

So, sellers are now turning to auctions usually associated with distressed
real estate. Real estate auction companies say businesses is up 20 to 50
percent this year, driven mainly by high end homes.

LAURA BRADY, CONCIERGE AUCTIONS CO-FOUNDER & PRESIDNET: When sellers call
us, number one, they`re motivated. They want the property to sell. And
that`s why they`re calling an auction company to help to create that sale
within and accelerated time frame.

But number two, they also want the best price, right? These are smart
people. They own valuable properties because they earned the ability to
own them. And they don`t want to give them away.

FRANK: But the price drops can be dramatic. This house in Dallas had been
listed for just under $50 million and sold for $36 million at auction.

A home outside of Los Angeles which became famous for its massive
underground complex of spas, pools and tennis courts was listed for $53
million and just sold at auction for $23 million.

Famed investor Peter Lynch is putting his golf home in Scottsdale, Arizona,
up for auction next month after it languished on the market for two years
at $14 million.

Now, auctions don`t always work. Michael Jordan tried to auction off his
Chicago mansion in 2012 with no takers.

But the owners of this house called Playa Vista Isle have high hopes that
it will become the most expensive home ever to sell at auction. No one has
ever lived here. It was built on speck in 2014 and came on the market for
$139 million, then put back on at $159 before being pulled off the market
in 2016.

It is 58,000 square feet with 11 bedrooms, 22 bathrooms, a private IMAX
theater, 20-car garage, 500 feet of ocean frontage with a private yacht
dock on the intercoastal. It takes about 150,000 gallons of water just for
the pool.

Now, bidding starts online on November 12th. But you need a check of
$250,000 just to qualify to bid.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

GRIFFETH: Before we go, a quick look at the day on Wall Street, down day.
The Dow back below 26,000.

That`s NBR for Friday. Thanks for joining us. I`m Bill Griffeth. Sue`s
back on Monday. Hope you are too. Have a good weekend.

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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