Transcript: Nightly Business Report – December 11, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Dizzying day. The Dow
swinging more than 500 points as volatility continues to be the new normal
on Wall Street.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: The last time, Chuck, you
shut it down.

SEN. CHUCK SCHUMER (D), NEW YORK: No, no. Twenty times —

TRUMP: And then you went — I don`t know what to do what you did.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Oval Office showdown. The
president and Democratic leadership have a very public, very heated spat
over how your taxpayer dollars should be spent.

GRIFFETH: Switching gears. Ford revives a discontinued model with the
hope that a smaller pickup truck will drive big sales.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Tuesday, December the 11th.

HERERA: Good evening, everyone. And welcome.

Well, if you`re trying to figure out why the market is behaving the way it
is, you probably have a big headache by now. It was another day of sharp
rallies and sudden selloffs with the fight between the bulls and bears
resulting in stomach turning volatility. Reports on trade and the
possibility of improved relations between the U.S. and China sent stocks
higher. But they didn`t stay there.

And by the end of the trading session, the Dow Jones Industrial Average
fell 53 points after swinging more than 500, the Nasdaq was up 11 and the
S&P 500 was off a fraction. So, if the market has been acting confused
lately, it may be because it is.

Bob Pisani explains.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: An early rally fizzled
out by late morning with the Dow wiping out a gain of more than 360 points
in one fell swoop. We did have a modest midday rally but ended slightly to
the downside. The markets have a new problem. Investors are indecisive
and positive trade talk is starting to run a course as a market mover.

Just look what happened today. Stocks opened as President Trump tweeted to
watch for some important announcement on China and trade. That lasted for
an hour after the markets opened, but the market lost most of its gains
before 11:00 a.m. Eastern and took a decisive the downturn after on camera
clash with the House Minority Leader Nancy Pelosi and Senate Minority
Leader Chuck Schumer over a border wall and possible government shutdown.

The D.C. drama did nothing to convince investors that any positive
legislation including infrastructure spending might come in the next two
years. But the rally lost steam before that meeting. Big industrial names
like Caterpillar and Boeing, they`re flat. The Dow going into the
president`s meeting just before noon, as was energy stocks, and bank
stocks, tech stocks.

What`s going on? Many traders now believe this constant stream of tweets
on positive trade negotiations is no longer having the magical effect it
had a few weeks ago. The trade story is starting to take a much clearer
toll. The markets are going, wait a minute, you know, we`ve heard this
story before. This time, we really need to see some results.

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

(END VIDEOTAPE)

GRIFFETH: And as Bob mentioned, investors did breathe a sigh of relief at
one point today when it was reported that the U.S. and China were talking
once again about trade.

Eunice Yoon un has the details on the call between the world`s two largest
economies.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: China reaffirmed that
trade talks with the U.S. are on. In a brief statement on its website, the
Commerce Ministry confirmed the pre-arranged phone conversation between
Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer, as
well as Treasury Secretary Steven Mnuchin.

The ministry said that the three senior officials outlined ways to push
forward the timetable and road map for the next stage of economic and trade
consultations. The phone call sent a signal to many people here that the
negotiators want to prevent the trade talks from getting sidetracked by
Chinese outrage over the arrest of the Huawei CFO. Her arrests is being
seen here as a political decision, even though officially the Chinese have
not linked the two events.

Separately, the foreign minister the reiterated to state TV the importance
of the U.S. and China working together to overcome their trade differences,
saying if China and the United States are antagonistic, then there are no
winners. Another sign that China wants the trade war to end.

Vice Premier Liu He, the lead negotiator for the Chinese, is expected to
head to Washington after the New Year.

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

(END VIDEOTAPE)

HERERA: There are also reports tonight that China has reportedly agreed to
reduce tariffs on American auto imports to 15 percent from 40 percent.
China had raised its tariffs on U.S. autos as part of a tit-for-tat
exchange of duties earlier this year. According to the “Wall Street
Journal”, it is not clear when the change would take effect but Washington
is pushing Beijing to make it start as soon as possible. And that lifted
the shares of the major auto makers, GM, Fiat Chrysler and Ford.

GRIFFETH: Now to Washington and that remarkable Oval Office meeting that
played out on national television. The president was there, so was Vice
President Mike Pence, along with congressional Democratic leaders Chuck
Schumer and Nancy Pelosi. On the agenda, funding a border wall and a
potential government shut down.

As Eamon Javers reports, no one could have predicted what happened next.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the first time
since Democrats won control of the House of Representatives back in
November, Speaker of the House Designate Nancy Pelosi, along with her
Senate counterpart Chuck Schumer came to the White House today to negotiate
with President Donald Trump on keeping the government open. But things
went badly from the beginning starting with the moment in which Pelosi
suggested that any shutdown would be his fault.

REP. NANCY PELOSI (D-CA), MINORITY LEADER: I think the American people
recognize that we must keep government open. But a shut down is not worth
anything. And that we should not have a Trump shut down.

TRUMP: Did you say Trump —

PELOSI: You have a White House. You have the Senate. You have the House
of Representatives. You have the votes. You should pass it.

JAVERS: As all sides continued to argue past each other, even disagreeing
on some fundamental facts in the debate, we had this moment in which the
Democrats seemed to lure the president into suggesting that he would accept
the political blame for any government shut down that happened.

TRUMP: Yes. If we don`t get what we want one way or the other whether
it`s through you, through a military, through anything you want to call, I
will shut down the government.

SCHUMER: OK, fair enough.

TRUMP: And I am proud. I`ll tell what you. I am proud to shut down the
government for border security, Chuck. Because the people of in country
don`t want criminals and people that have lots of problems and drugs
pouring in our country. I will take the mantle. I will be the one to shut
it down. I`m not going to blame you for it.

The last time you shut it down, it didn`t work. I will take the mantle of
shutting down. I`m going to shut it down for border security.

SCHUMER: You shouldn`t shut it down.

JAVERS: So, where does that leave things?

Well, as of now, a shutdown looms after December 21st. Democrats have
offered $1.6 billion in funding for border security generally but not the
specifically for President Trump`s wall. The president would like $5
billion in funding for that wall. As of now, both sides are at an impasse.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.

(END VIDEOTAPE)

HERERA: Heated political discussions are also taking place across the
Atlantic. One day after British Prime Minister Theresa May delayed a
Brexit vote due to lack of support, her government faces the possibility of
a no confidence vote led by the opposition party. Today, May spent the day
lobbying European leaders in a bid to save Britain`s deal to exit the
European Union.

But German Leader Angela Merkel ruled out further negotiations, as did the
head of the European Commission. The United Kingdom is set to leave in
March which could affect the global economy.

GRIFFETH: Back here at home, a gauge of inflation rose slightly last
month. The producer price index, which measures the price businesses
receive, that was up 0.1 percent in November, slowing down from October`s
0.6 percent gain, and increase in the cost of services was offset by a
decline in energy prices. But overall, prices are up 2.5 percent compared
to last year this time.

HERERA: And market watchers aren`t just watching inflation but also rising
corporate debt levels. Bond investor Jeff Gundlach recently talked about
it and JPMorgan also noted the economic risk due to the increase. And in
an interview last night, former Fed Chair Janet Yellen added her name to
the list.

(BEGIN VIDEO CLIP)

JANET YELLEN, FORMER FEDERAL RESERVE CHAIR: Corporate indebtedness is now
quite high. And I think it`s a danger that if there is something else that
causes a downturn that high levels of corporate leverage could prolong the
downturn and lead to lots of bankruptcies in the non-financial corporate
sector.

(END VIDEO CLIP)

HERERA: Companies today carry a $9 trillion debt load compared to $4.9
trillion in 2007. And that could become a headache for corporations should
interest rates continue to rise.

GRIFFETH: So why are corporate debt levels rising? It is it something
that investors should be concerned about yet?

Joining us tonight, Collin Martin, he`s director of fixed income strategy
at Charles Schwab.

Good to see you. Thanks for joining us tonight.

COLLIN MARTIN, CHARLES SCHWAB DIRECTOR OF FIXED INCOME STRATEGY: Thanks
for having me.

GRIFFETH: Why have they gone up as much — why has corporate debt gone up
as much as it has in the last decade? And is it a level that makes you
nervous yet?

MARTIN: We are not nervous just yet. We do think the risks are growing.
We think for now, they`re relatively well-contained.

We have seen the huge debt in corporate debt outstanding because of the low
interest environment. Corporations issued more debt at historically low
interest rates. But now, the risk is, at some point, the debt needs to be
repaid at some point and refinanced and likely at higher interest rates now
that rates have risen not just for treasury markets but for corporations.

HERERA: And for the average investor who maybe watching this program, it`s
important to them, why?

MARTIN: Well, it poses a risk specifically for corporate bond investors.
The question arises, will the corporations be able to pay me back, to pay
that bond back? But it also has broader risks for the economy and other
markets as well.

As the amount of debt outstanding rises and interest expenses rise, that
takes away potential money that can be invested elsewhere in capital
spending, in wages, in compensation. So, it really can have spillover
effects on the economy as a whole.

GRIFFETH: So, when will you get nervous? What will you watch for to say
that we are getting to a level you get sweaty palms?

MARTIN: We`re looking at corporate profitability, the level of credit
rating downgrades, and the price of oil. For corporate profitability
remains strong but as the calendar turns comparisons on a year over year
basis, it will get a little bit more difficult because we`ve already seen
that tax effect.

We`ll be focusing a lot on credit rating downgrades. In the corporate
market, you have the investment grade market, and the high-yield market and
those are broken down by credit ratings. It`s like a credit score that
consumer has based on what their borrowing levels are. Now, a big risk is
the amount of triple B rated bonds, the lowest running of the investment
grade market. If we see them downgrade into high-yield or junk territory,
that poses a risk for the broad market.

GRIFFETH: And why oil?

MARTIN: So, a big chunk of the high-yield market is allocated in the
energy sector, energy issuers. So, as the price of oil comes down, that
impacts cash flows and then therefore the ability of these corporations to
repay their debts as they come due.

GRIFFETH: All right. So, some things to be mindful of, but we`re not
there yet.

MARTIN: Not yet.

GRIFFETH: Collin Martin from Charles Schwab, good to see. Thanks for
joining us tonight.

MARTIN: Thank you.

HERERA: It is time to take a look at some of today`s “Upgrades and
Downgrades”.

Pfizer was downgraded to neutral from overweight at JPMorgan. The analyst
cites concerns over the loss of exclusivity of one of its key pain
treatments. The price target is $46. Shares of the Dow component fell a
fraction to $44.01.

AT&T was upgraded to buy from neutral at Citi. The analyst cites a number
of positive trends around its wireless business. The price target is $34.
Nonetheless, shares fell a fraction to $29.70.

And CVS was initiated with outperform in new coverage at Leerink. The
analyst there cites optimism surrounding its acquisition of the health
insurer Aetna. The price target is $100. And shares rose slightly to
$73.41.

GRIFFETH: Still ahead, a Silicon Valley giant testifies op Capitol Hill
for the first time amid growing distrust among some lawmakers.

(MUSIC)

GRIFFETH: The CEO of Google today told lawmakers on Capitol Hill that his
company has no plans to launch a search engine in China. Sundar Pichai
would only describe the program as an internal Google project which critics
say if launched in that country would knowingly be subject to state
censorship. Pichai made those comments during his first ever congressional
testimony that focused on data privacy and potential bias in its search
results.

Ylan Mui has more for us tonight from Washington.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sundar Pichai testified
for three and a half straight hours today before a House committee. He
defended the company against accusations against political bias and denied
that a crowd-out competition and mishandles user data.

SUNDAR PICHAI, GOOGLE CEO: Protecting the privacy and security of users
has long been an essential part of our mission. We have invested enormous
work over the years to bring choice, transparency and control to users.
These values are built into every product we make.

MUI: Some lawmakers weren`t sold. They demanded answers on exactly what
data Google collects and what happens to it?

REP. TED POE (R), TEXAS: Does Google through this phone know that I have
moved here and moved over to the left? It`s either yes or no?

PICHAI: Not by default. There may be a Google service which you`ve opted
in to use and if —

POE: So Google knows that I am moving over there? It`s not a trick
question. You know you make $100 million a year. You ought to be able to
answer that question.

MUI: There were tough questions on China, where Google had been
contemplating doing business. Pichai said these talks were part of limited
internal discussions and for now, they`re on hold.

PICHAI: Right now, we have no plans to launch in China. We don`t have a
search product there. Our core mission is to provide users access to
information. And getting access to information is an important human
right. So, we are always compelled across the world to try hard to provide
that information. And — but right now, there are no plans to launch
search in China.

MUI: Pichai framed Google as an American success story. He referenced his
personal journey as an Indian immigrant now turned CEO. And he said he is
thankful for the freedom and opportunities that he has received.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

HERERA: And from one big company to another. Coke has its work cut out
for it just like many other packaged goods companies. The Dow component
has older brands that need to stay fresh.

And as Sara Eisen reports from Atlanta, the management team has a new
strategy that it hopes will do just that.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This isn`t the Coca-
Cola we grew up. Under the new leadership of James Quincy, the CEO and
soon to be chairman in April, the company has undergone a major
transformation.

A trip down the grocery aisle tells the story. Coke spreading to new
categories like Fair Life with milk. New products like Body Armor and new
innovation in key products like Simply Light Juices.

It`s moving away from soda and the core Coca-Cola and Diet Coke. Wall
Street is embracing the strategy.

JAMES QUINCY, COCA-COLA CEO: I think you saw out of the summer it became a
little softer as we got into September. And so we did see a little decline
in September. Again, 2019 I think is uncertain. You know, you got lots of
forecasts out there, whether the U.S. or globally, saying there is growth
next year, maybe not as much as 2018. A little bit slower but still growth
— still growth in U.S., still growth in the global economy.

So, we think the consumers will have the money. And so we are bullish on
our plan.

EISEN: And that diversification is a key. Soda consumption in the U.S.
has been declining every year since 2002. That`s only picking up pace.
It`s coming at the expense of the rise and bottled water, juices, teas, and
coffees, all places that Coca-Cola is going, which represents a major
cultural shift for this 132-year-old company that once only focused on
brand Coke.

JOHN MURPHY, COCA-COLA CEO: Refocusing on the consumer production has had
a wonderful effect on our flagship brand Coca-Cola. It`s leading the
growth equation around the world this year. Secondly, I think we have been
more disciplined about how we invest and innovate in the newer categories.
I think we have learned many lessons from around the world over the last
number of years. And with some of the changes that have taken place in
leadership in key positions, I think we have got the — both the capability
and focus to pursue the new opportunities in the right way.

EISEN: There is also the macroeconomic environment which is getting more
challenging, as we speak. Rising political uncertainty, trade wars, all
cause the dollar to strengthen which cuts into the profitability at Coca-
Cola which gets most of its business overseas.

The U.S. consumer has also softened up the last few months. All of this is
why Quincy says he is focused on what he can control, namely diversifying
the product portfolio, technology and personalization, building that into
beverage experience, all in an effort to attract younger consumers.

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

(END VIDEOTAPE)

GRIFFETH: DSW puts its best foot forward and that is where we begin
tonight`s “Market Focus”.

The shoe retailer reported better than expected earnings, revenue and
comparable store sales and it also raised its full year guidance. The
company attributed the strong results in part to the rollout of the kids
shoe department. Shares jumped by 8 percent today to $25 and a penny.

CBS shareholders elected a revamped 11-member board at the company annual
meeting today. The new board`s first task will be to decide whether former
CEO Les Moonves should receive a $120 million severance package at the
meeting they adjourned without discussion of the investigation into sexual
misconduct claims against Moonves. CBS shares fell by 3 percent to $48.24.

And WPP is embarking on a major restructuring. The world`s biggest
advertising agency plans to cut thousands of jobs and shut or emerge almost
many 200 offices. The decision comes months after the departure of its
founder and CEO, Sir Martin Sorrell. Shares of WPP climbed by 2 percent
today to $52.38.

HERERA: We told you yesterday that thousands of Verizon workers agreed to
voluntary buyouts. Today, we know how much it`s going to cost the Dow
component. The company says the price tag could be about $2 billion. And
it will be recorded in the fourth quarter. It will also take a $4 billion
charge related to its Oath Media business. Verizon shares rose 1 percent
to $58.85.

Biotech Portola Pharma said its treatment for bleeding which is already
approved in the U.S. will continue to be reviewed by European officials
before it`s given the green light. Officials are seeking additional
information regarding the company`s marketing applications. Investors were
disappointed and they sent the shares lower by more than 6 percent to
$19.50.

And after the bell, American Eagle reported another quarter of same store
sales growth. But it wasn`t good enough to top Wall Street`s revenue
expectations. The clothing retailer also gave disappointing guidance for
the current quarter. Shares initially fell in the afterhours and it
finished the regular day down 2.5 percent to $19.03.

GRIFFETH: Health care could be in for major changes in the New Year.
According to a new report, the industry is making a big push to go digital.

Bertha Coombs has the details.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For years, health
care has been playing catch-up with other businesses when it comes to
technology. But in 2019 the health industry is investing more in
artificial intelligence, robotics and mobile tech.

KAREN YOUNG, PWC PARTNER, PHARMACEUTICAL & LIFE SCIENCES: We see pharma
spending a lot of investment dollars in digitally upscaling their R&D
portfolios and trying to find better faster ways to get drugs to market.

COOMBS: Researchers from consulting firm PWC say the FDA is poised to
approve new digital technology companies from drug makers partnered with
tech next year. Just this week, a new treatment app by Pear Therapeutics
and Novartis` Sandoz unit was approved, which augments drug treatment for
opioid abuse with adherent support.

Then there are entrants like Amazon which already dominates in the digital
world. It`s ramping up its online pharmacy PillPack, a new venture with
JPMorgan and Berkshire Hathaway.

And Apple, which is rolling out more health features on the iPhone and
watch, like its new heart rhythm monitor. Both are positioning to be
central health care players.

DR. DAVID FRIEND, BDO MANAGING DIRECTOR: Apple engineers has been publicly
reported are working on trying to figure out if they can use the watch to
measure blood pressure. So, for example, if that were to occur or if
another mobile technology provider could do that, that would be
revolutionary.

COOMBS: CVS Health now merged with Aetna wants to revolutionize consumer
health care with things like digital health records that make care easier
to access at pharmacies, or also providing doctors and nurses on demand
available online.

YOUNG: We`re excited to see those new operating models come out in order
to really help drive better costs affordability within the overall health
care economy. There`s been a lot of focus on drug pricing.

COOMBS: The verdict is out on how quickly these new options can deliver on
lowering costs for consumers. But Washington will be a big factor in drug
pricing in 2019. The Trump administration`s first proposals to lower
Medicare drug costs are expected to be finalized around mid-year. The
analysts expect more drug regulation to follow.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs, New York.

(END VIDEOTAPE)

GRIFFETH: Coming up, Ford`s move to rev up U.S. sales.

(BEGIN VIDEO CLIP)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Ranger is back,
what it`s all about, and who`s going to buy this mid-size pickup?

I`m Phil LeBeau. We take you for a test drive with the new Ranger coming
up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

GRIFFETH: We reported earlier that Ford shares got a lift today on reports
that China may cut those tariffs on U.S. auto imports. Well, Ford is also
hoping to get a sales lift from a return of its smaller pickup, the Ranger.

Phil LeBeau, as you saw, takes us to Southern California for a ride in
Ford`s newest old truck.

(BEGIN VIDEOTAPE)

LEBEAU: The Ranger rides again. Ford`s newest model is a midsize pickup
geared to capitalize on America`s growing demand for a smaller, sportier
truck.

KARL BRAUER, COX AUTOMOTIVE EXECUTIVE PUBLISHER: These vehicles serve a
lot of functional purposes out there. But there is also enough kind of
disposable income and prosperity that people are also buying for lifestyle
reasons, for fun on the weekends, to tow their toys.

LEBEAU: The midsize pickup market is geared towards the lifestyle buyer, a
person who may want to take it off road, which is why Ford built the Ranger
to be able to handle extreme driving conditions.

The Ranger may be rugged enough for offroading but a bigger challenge would
be taking on other midsize pickups like the popular Chevy Colorado or the
Gladiator, the new Jeep pickup coming out in spring.

BRAUER: This is a crowded market. A lot of great product out there. Ford
will get a certain amount of volume simply because the brand and history.
But they might have missed out some additional volume they could have had a
few years ago if they came earlier.

LEBEAEU: As Ford CEO Jim Hackett wrestles with the possibility of cutting
thousands of jobs and restructuring Ford, the auto maker will lean more on
its strength in trucks. Ford`s best selling F series should help spark
interest in the Ranger. Being slightly smaller and starting at just under
$26,000 will also attract buyers looking for a pickup and the new trails
that may lead them down.

Phil LeBeau, NIGHTLY BUSINESS REPORT, outside San Diego, California.

(END VIDEOTAPE)

HERERA: Well, this probably comes as no surprise. A record number of
Americans are expected to fly in holiday season. Industry trade group
Airlines for America projects nearly $46 million passengers will travel on
U.S. airlines between December 20th and January 6th. And in each of the
last five years, the industry has topped the previous year`s record.

GRIFFETH: Before we go, a final look at the day on Wall Street. Another
one of those days, a little volatility. The Dow swinging 500 points fell
53 points at the close. The Nasdaq rose 11. The S&P was off a fraction
today.

Keep an eye on situation in the U.K.

HERERA: Absolutely.

GRIFFETH: It will be interesting tomorrow.

HERERA: Yes. And we will have that for you.

That is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for
joining us.

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

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.

 

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