Transcript: Nightly Business Report – September 23, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Calm before the storm.  The  market is closing in on new highs.  But will the slow and steady climb  result in a year end rally, or a bout of volatility?  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  House rich.  Today`s  homeowners are sitting on a record amount of potential cash and they`re not  tapping it.  

GRIFFETH:  Sudden shutdown.  The world`s oldest travel company collapses  and the impact is being felt in local economies around the world.  
Those stories on much more tonight on NIGHTLY BUSINESS REPORT for this  Monday, September 23rd.  

HERERA:  Good evening, everyone, and welcome.  
As we start a new week, it may seem like the market is one step forward and  two steps back.  Yes, there have been bouts of volatility and head  scratching moves.  But overall, stocks have been on a slow and steady climb  higher, now standing within reach of new highs.

Today, the gains were capped because of lingering concerns about the global  economy.  But both the Dow and the S&P 500 remain just 1 1/2 percent away  from their records.  The Dow Jones Industrial Average rose 14 points to  26,949.  The Nasdaq fell five and the S&P 500 was flat.  
Mike Santoli takes a look at whether this market calm will give way to  something else.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Despite several good  excuses for skittishness this month, steadiness has been the rule on Wall  Street.  The S&P 500 remains within 2 percent of its record high and up  nearly 20 percent this year, despite an oil spike on Middle East  hostilities, ongoing trade frictions and the Fed meeting that failed to  clarify the interest path forward.  Markets that refused convenient reasons  to sell off are typically seen as well-supported by resolute investors  looking ahead to improving fundamental developments.  

The rally from the August lows has been broad with investors apparently  happy to bet that U.S. economic activity will continue to improve as it has  recently along the housing, retail sales and industrial fronts.  The  markets valuation today is about the same as one year ago, which, of  course, proved to be the 2018 peak ahead of a bruising fourth quarter  downturn, yet one year ago, bond yields were more than one percentage  points higher and the Fed was still in tightening mode while now the Fed is  easing back on interest rates.

And investor expectations for growth have been reset lower which can help  support stocks through short-term uncertainty.  
Still, it remains September historically a tough month for stocks and the  Fed might only keep cutting rates if the news from the trade policy arena  turns bad and growth falters.  This will keep investors on alert for signs  of weakness, but if the market sneaks through September unscathed, the talk  of a year-end rally will no doubt grow louder.

GRIFFETH:  It was weak economic data out of Europe today that kept a lid on  market gains and contributed to those concerns about the global economy  that Sue mentioned.  Manufacturing activity in the eurozone fell to a six- year low while services grew at their slowest pace in months and  manufacturing in Germany, which is Europe`s largest economy, that fell to  its lowest level since the financial crisis of a decade ago.  Economists  attribute the slow down to Brexit concerns and a decline in trade which the  incoming head of the ECB today called a major hurdle.

CHRISTINE LAGARDE, INCOMING EUROPEAN CENTRAL BANK PRESIDENT:  Trade,  instead of being that sort of big window of opportunities for those  economies that want to compete with each other, it weighs like a big dark  cloud on the global economy.

GRIFFETH:  Lagarde said the U.S. economy with its low unemployment is in a  very good place right now.

HERERA:  And we learned today that activity in the U.S. manufacturing  sector was better than expected hitting a five-month high.  The growth  shows the U.S. is having an easier time withstanding the trade war than  Europe, but that report also points to concerns about future orders.

GRIFFETH:  As you know, the housing market looks like it`s starting to pick  up once again.  We had recent reports showing an uptick in both sales and  home prices.  And when you couple that with the conservative borrowing  habits of many homeowners these days, the result is a record amount of home  equity.
Diana Olick has more.

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Homeowners today are  becoming wealthier.  Those with a mortgage saw their home equity increase  by almost five percent annually at the end of the second quarter.  That`s a  collective gain of nearly $428 billion, according to CoreLogic (NYSE:CLGX).   Home equity is now at a record high.
Break it down by borrower, and the average homeowner with a mortgage gained  $4,900 in home equity in just one year.

FRANK NOTHAFT, CORELOGIC:  What it means for homeowners that have a high  level of home equity is that really gives them additional flexibility.  If  they need to make investments in their home, they can tap into that home  equity to get the proceeds they need.

OLICK:  The amount of equity available for homeowners to tap also reached a  record-high $6.3 trillion, according to a separate report from Black  Knight.  It defines tappable equity as the amount homeowners can cash out  while still holding 20 percent equity in the home.  

Homeowners, however, are sitting on their equity more than they have in the  past, even with mortgage rates near record lows.  Just $54 billion in  equity was withdrawn in the first quarter of this year, less than 1 percent  of what was available.  That is the lowest volume in four years and the  lowest share of available equity tapped since black night began tracking  this metric in 2008.

NOTHAFT:  Because of the housing crash, I think that`s in the memories of  so many homeowners.  It left a lot of financial scars on people.  And so, I  think they are a little bit more hesitant and even though we have seen  homeowners tap into home equity for home improvement purposes, they`re not  doing it at all at the pace that we saw in 2005, 2006, 2007.

OLICK:  Home prices had been cooling off earlier this year, but now are  heating up again.  That means home equity will continue to rise and  homeowners will continue to be in the money.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

HERERA:  It is time to take a look at some of today`s “Upgrades and  Downgrades”.
Chewy was upgraded to buy from neutral at Nomura.  The analyst calls margin  concerns overblown.  The price target is $36.  The stock rose 4 percent to  $27.50.

Kimberly-Clark (NYSE:KMB) was upgraded to overweight from equal weight at  Barclays.  The analyst cites the potential for improved revenue growth.   The price target is $152, and the stock rose 1 percent to $136.83.

GRIFFETH:  But Barclays downgraded Clorox (NYSE:CLX) to underweight from  equal weight with the analysts citing the potential for softer revenue  growth that could impact earnings.  Price target now $141, and that stock  fell 1 percent today to $150.23.

Alcoa (NYSE:AA) was downgraded to neutral from buy at Goldman Sachs  (NYSE:GS).  The analyst cited lower aluminum prices in the near term.   Price target, $25.  The shares fell more than one and a half percent today  to $21.30.

HERERA:  Still ahead, the sudden demise of the largest travel group is  being felt around the world.

HERERA:  General Motors (NYSE:GM) has furloughed another 1,200 workers as a  result of the labor strike that has now entered its second week.  The  latest round is on top of an estimated 4,500 temporary layoffs the  automaker and its suppliers handed out on Friday.  Those affected are from  an engine facility in Ohio and a power train plant in Ontario. 

GRIFFETH:  Meanwhile, European automakers are warning of what they call  catastrophic consequences should Britain leave the European Union without a  deal in place to protect trade.  Twenty-three industry associations across  Europe say that a so-called no-deal Brexit could have an immediate and  devastating impact on the auto industry by not only disrupting carmakers  but their suppliers as well.

HERERA:  A dramatic collapse of the world`s oldest travel company.  The  tour operator Thomas Cook, a behemoth that ran its own hotels and flights,  is no longer in operation, leaving hundreds of thousands of travelers  stranded and setting in motion the biggest peacetime repatriation in  British history.
Willem Marx is in London tonight.

WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s the end of summer  and the end of an era for Britain`s oldest travel agency.

PETER FANKHAUSER, THOMAS COOK CEO:  Despite huge efforts over a number of  months and further intense negotiations in recent days, we have not been  able to secure a deal to save our business.

MARX:  After a multibillion dollar rescue plan failed to take off this  weekend, Thomas Cook simply ran out of financial runway.  That left  hundreds of thousands of its stranded customers feeling out-of-pocket and  out of options.

UNIDENTIFIED FEMALE:  We were told that all Thomas Cook flights canceled  and the firm was no longer operating.  So, we actually were told to go  home.

MARX:  Victorian entrepreneur Thomas Cook began selling railway excursions  in the 1840s.  A century later, the firm he`d built helped create the  market for post-war package vacations.  It grew until it was sending around  19 million passengers a year to their dream destinations.  But no longer.

UNIDENTIFIED MALE:  Nightmare, they mean stress, not what we wanted really  what`s going on.  So, but what can you do?  All that people have lost their  jobs.  So, we`re not as bad as some other people.

MARX:  The company`s overnight collapse has left hundreds of suppliers  unpaid, from hotel owners in Bulgaria, two aircraft crews in Tunisia.  And  it sparked extraordinary interventions from governments across Europe  especially the U.K.

GRANT SHAPPS, BRITISH TRANSPORT SECRETARY:  People need to be back for  work, for their families, all sorts of reasons.  We can`t just leave, you  know, Brits stranded abroad and we need to bring people home.  A hundred  and fifty thousand people, it`s the biggest peacetime repatriation this  country`s ever known and we`ll try and do it as quickly and as smoothly as  possible that when we`ll be plain sailing I know.

MARX:  Critics say British authorities could have acted earlier to avoid  vacation heartache and preserve thousands of jobs.

UNIDENTIFIED MALE:  There should be some sort of legislation is in as much  as if a – especially within this tourist industry, you face anyway, an  operator can`t fulfill its commitments, or it doesn`t look likely to  fulfill its commitments financially or to its customers, it shouldn`t be  taken on more work.

MARX:  The British government may now be on the hook for some pretty hefty  costs, but it insists it was the right decision not to plow more than $300  million of rescue funds into a firm with $2.1 billion of debt.  Ministers  have argued Thomas Cook was not a strategic part of the U.K. economy and  had simply failed to adapt to the travel industry`s changing landscape.
For those holidaymakers that went hunting for some September warmth, that  kind of calculated analysis may prove cold comfort, as they now simply hope  to get home.
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in London.

GRIFFETH:  And as you can imagine, the collapse of Thomas Cook is rippling  through the travel sector overall.  Shares of cruise line operators we`re  lower today, even though some analysts believe that the damage could be  limited given the cruise operators` ability to source revenue from other  places.

HERERA:  So what kind of impact do these tour operators have on local  economies?

Mark Ellwood is the contributing editor with “Conde Nast Traveler”, and he  joins us now to talk about this.
Welcome, it`s nice to have you here, Mark.


HERERA:  Let`s start with Thomas Cook and then broaden it out to the  industry overall.  What kind of impact is the demise of Thomas Cook going  to have on the local economies where it — where it functioned?

ELLWOOD:  It`s good to be — it`s quite significant in the short term.   Remember, you know, 20,000 people employed by Thomas Cook around the world,  not just in Britain.  So that will have an impact.

And then several holiday hotspots places like Crete, other areas in Greece,  Florida, the hotels there will be paid in arrears.  So, in other words,  once the vacationers have left, the hotels received their money.  So, at  the moment, we`re not quite sure what will happen to those hotels, what  monies will be forthcoming.

So you can see that there is quite a short-term shock in several economies.   It shows how tourism is so interconnected around the world.

GRIFFETH:  But it comes at a time when so many people are booking their  vacations and holidays online using other services, digital services that  the Travelocities and the Pricelines and so forth.  So, from that  standpoint, Thomas Cook was a bit of an anomaly or a throwback to the 20th  century, right?

ELLWOOD:  It`s strange to say throwback to the 20th century but exactly.  I  heard someone describe it to me and say, you know, Thomas Cook made a lot  of missteps in the last 10 years or so, and it doubled down on bricks and  mortar, had several mergers where it got more and more shops.  And one  person said to me, Thomas Cook doubled down on brochures when the rest of  the world moved to barcode.

ELLWOOD:  And I think it`s — I think it is important to remember, Thomas  Cook is a very specific example.  It`s an icon in Britain.  The sell  slogan: don`t just book it, Thomas Cook it” part of my childhood.  But it  isn`t necessarily representative of a wider problem.  It is very specific.

HERERA:  But given that, you mentioned Crete, you mentioned a couple of  other places that are feeling the impact of Thomas Cook.  What do they have  to do now as local economies to make up for the gap that will be present  and the lack of income and revenue that will be present with or without  Thomas Cook?

ELLWOOD:  That`s a great question.  I know the Greek government has  actually convened a cabinet meeting to discuss this because again, it`s a  reminder that tourism is a very important economic driver.  It`s not just  that frothy fun thing we do.  

The Greek government has posited it might actually enact some tax cuts to  stimulate its economy in the wake of this.  I think there are a lot of  insurance — there are a lot of insurances and it look like Thomas Cook  might follow through with some of the payments.

But longer term, they`ll have to turn to different markets.  This was very  much northern Europeans, Scandinavians, Germans, especially Brits, looking  for warm weather destinations.  They`re going to be looking for different  sources of customers.  They can look further to China, to America, to maybe  to markets that they didn`t traditionally focus on to fill those rooms.

HERERA:  Mark Ellwood with “Conde Nast Traveler”, Mark, thank you so much.

ELLMAN:  Pleasure.

GRIFFETH:  American Express (NYSE:EXPR) (NYSE:AXP) hikes its dividend and  that is where we begin tonight`s “Market Focus”, with the company  increasing its quarterly payout by 10 percent to 43 cents a share.  It`s  also buying back up to 120 million shares of its own stock.  AmEx was up  more than 1 percent today to $118.24.

Boeing (NYSE:BA) said today it plans to pay the families of those killed in  the two crashes involving its 737 MAX plane about $145,000 each.  The money  will come from the company`s financial assistance fund.  Family members  will not be required to waive their right to litigate though.  Those two  crashes killed 346 people, and as you know, the 737 MAX has been grounded  since March.  Shares fell a fraction today to $377.03.

Three drugmaker Mallinckrodt said that it has met its goal during clinical  tests of a synthetic human tissue to treat burns.  Mallinckrodt plans to  submit the therapy to the FDA next year for approval.  That stock was up a  fraction to $2.45.

And the FDA has approved drug maker Exact Sciences at home colon cancer  screening tests for patients as young now as 45.  It had been approved for  patients who were at least 50 years old up to this point.  Stock fell a  fraction today to $103.77.

HERERA:  Retailer PriceSmart (NASDAQ:PSMT) will be added to the S&P Small  Cap 600 Index replacing Finisar (NASDAQ:FNSR).  PriceSmart`s stock has run  up nearly 40 percent over the past three months, and today, shares jumped  about 20 percent to $72.38.

Take-Two Interactive says it sold more than 5 million units of its  “Borderlands 3” video game in its first days on the market, while initial  sales totaled — or top rather the company`s internal expectations.  It was  only in line with Wall Street`s forecasts.  So take to drop nearly 4  percent to $125.73.

GRIFFETH:  A number of Democratic presidential candidates have proposed new  taxes on the wealthy as a way to pay for other programs.  But one of  Senator Elizabeth Warren`s proposals may have an unintended consequence.   It may actually fuel divorces among the ultra-rich.
Robert Frank explains.

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Some are calling it  the million dollar marriage penalty and it could create a new incentive for  the ultra wealthy to file for divorce.  Elizabeth Warren`s wealth tax is a  2 percent tax on wealth over $50 million.

SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE:  Your first $50  million, don`t worry, you`re in the clear.  But for your $50 million and  first dollar, you got to pitch in 2 cents, and 2 cents for every dollar  after that, just 2 cents.

FRANK:  And tax analysts say that couples with a hundred million dollars or  less could avoid the tax by divorcing, splitting that fortune in half, and  putting each taxpayer below the threshold.  A couple worth $100 million  dollars would pay $1 million annual wealth tax, but if they divorce, they  pay nothing.

Now, a couple could even divorce on paper and still live the same lives in  the same house since the IRS does not challenge legal divorces for tax  reasons.  As Greg Mankiw of Harvard explained, the Warren proposal entails  a $1 million a year marriage penalty.  He said the divorce loophole is one  of countless ways the wealthy would game any wealth tax generating far less  revenue than the $200 billion a year that Warren is projecting.

Now one of the economists advising Warren on the wealth tax, Emmanuel Saez  told me they could shrink this loophole by taxing single taxpayers for any  wealth over $25 million, and he said that percent of top wealth holders are  married, so they have not yet focused on the issue.  You can bet that  divorce attorneys are certainly already working on it.

HERERA:  And from one break-up to another, if your investment returns are  lagging even with the market near new highs, you may be rethinking the  advice that you`re getting and there are certain things to consider before  splitting from your financial advisor.
Our senior personal finance correspondent Sharon Epperson joins us with  some answers.

So, what`s more most important to investors when they`re seeking that  advice from their financial advisor?

SHARON EPPERSON, NIGHTLY BUSINESS REPORT SENIOR PERSONAL FINANCE  CORRESPONDENT:  Well, you know, the investment returns the portfolio value,  that certainly provides the foundation.  But vanguard recently did a survey  of a hundred thousand of its clients who use the personal advisory  services, and it`s not just the portfolio.  They want financial planning.   They want to find out whether or not their goals are being met and whether  or not the advisors helping them set those goals.
And then there`s the emotional value do they trust this advisor and is  there a connection there to help them reach their goals.

GRIFFETH:  But that doesn`t always mean that they`re going to leave that  advisor generally speaking.  Why do investors end up leaving a financial  planner or some kind?

EPPERSON:  It`s usually because of a life change and that creates some type  of financial change, whether they`re changing jobs, whether they are  getting married, having a child, maybe they`ve received an inheritance —  all these things paint a new financial picture for them and they want to  make sure that the advice meets that.

When it doesn`t, when it`s the same advice they`ve gotten for the last ten  years, then maybe it`s time to make a switch.  

HERERA:  Is that one of the warning signs and are there other warning signs  about why you might want to consider changing advisors? 

EPPERSON:  Absolutely.  Life changes and financial changes have to go hand- in-hand so make sure the advice that you`re receiving really reflects where  you are right now in your life.  Make sure that the advisor also is  communicating with you regularly as practices grow, sometimes the advisor  may take you for granted a bit.  You might get a newsletter instead that  phone call, or you only get a phone call if they`re trying to sell you  something.  That`s something also to be wary of.

And if they do not explain the fees — again the financial value should  uphold a fiduciary standard, meaning they should put your interests first  above their own ability to make a commission or make money off of you.  So,  if they`re not doing that, that`s a problem.
GRIFFETH:  Quickly, what`s the best way to do this if you decide you want  to leave?

EPPERSON:  Get all the documents that you have, all the investment  documents you have, tax returns as well, insurance documents.  You want  them to give you a full financial picture.  Talk to your old adviser.  And  if you`re still not happy with it, close the account.

HERERA:  Sharon Epperson, thank you so much — 
HERERA:  — as always.
EPPERSON:  My pleasure.
GRIFFETH:  Coming up, your order is being delivered like few have seen  before.

HERERA:  Federal prosecutors in California have reportedly opened a  criminal probe into e-cigarette maker Juul.  According to “The Wall Street  Journal”, the investigation is in the early stages and the exact focus is  unclear. Juul has come under criticism for fueling a teen vaping epidemic.   It has also been reported that the FTC is examining whether Juul used  deceptive marketing and targeted minors.

GRIFFETH:  Fake videos of House Speaker Nancy Pelosi, Facebook (NASDAQ:FB)  CEO Mark Zuckerberg, actor Tom Cruise, they`ve all been going viral on  social media recently, highlighting the power and reach of so-called deep  fake videos.  Artificial intelligence is making it easier for anyone with a  laptop and simple web tools to create them. 
So, technology companies and politicians are speaking out now about the  potential for these videos to do harm especially as we near the 2020  election. 
Aditi Roy takes a look at deep fake content and how social media companies  are responding.

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  This fake video of  comedian Bill Hader morphing into Tom Cruise went viral last month showing  just how sophisticated and far reaching deep fake content has become. 

The technology is also accessible and cheap the Chinese face swapping app  Zao has become that country`s top smartphone app.  But it`s also brought  privacy issues to the forefront.

HANY FARID, U.C. BERKELEY PROFESSOR:  We can literally carpet-bomb the  Internet with misinformation.

ROY:  U.C. Berkeley professor Hany Farid, a leading deep fake expert, has  been hired by Facebook (NASDAQ:FB) to help weed out fake content.

FARID:  So both of those sound like Joe Rogan.  One of those is completely  synthesized.

ROY:  Other tech companies are also on the offensive.  Twitter recently  acquired Fabula AI to help detect manipulated content.  

And Google (NASDAQ:GOOG) says it`s exploring and investing in ways to  address synthetic media.
But Farid says the good guys are outgunned in this arms race.

FARID:  We`re sort of playing catch-up.  We`re going to catch up, but  here`s what I can tell you is the end game.  The end game is people like me  will lose.
ROY:  For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

HERERA:  The SEC reached a deal with Nissan to settle allegations of  underreporting compensation to its former chairman, Carlos Ghosn.  The  automaker will pay a $15 million fine to settle the civil fraud charges.   Ghosn agreed to pay a million dollar penalty and did not admit to any  wrongdoing.  The settlement is the latest fallout from Ghosn`s arrest last  November.  He faces criminal charges in Japan where he is currently out on  bail.

GRIFFETH:  If you are someone who orders out a lot, here`s something you  might see the next time your food is delivered, an autonomous vehicle  bringing that meal to your door.  It`s the future of home delivery. 
Phil LeBeau tells us about the rush to make deliveries driverless.

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  This may be the future  of ordering out, a small autonomous rover bringing your food.  Postmates —  the on-demand delivery firm which has grown rapidly since 2011 — is  testing driverless rovers that travel at low speeds and have the ability to  maneuver down sidewalks.  If there`s a problem, a Postmate`s employee back  at the company offices can step in and take control.

The technology to monitor and drive Postmates delivery rovers is being  developed by Phantom Auto, which has been working on teleoperation of  vehicles for a couple of years.  Drivers have a degree view of a vehicle.   They can steer it as if they`re sitting behind the wheel.  
Other delivery firms like DoorDash are also working on autonomous  deliveries.

Meanwhile, the tech firm Nuro has partnered with grocery chains and  Domino`s Pizza (NYSE:DPZ) on driverless delivery vehicles.
And automakers like Ford are also testing the waters.
But the key to autonomous deliveries rolling into more neighborhoods is  having a way to ensure someone can monitor and if needed take control in  certain situations.

For now, Postmates and Phantom Auto are testing autonomous deliveries on a  small scale in Los Angeles and San Francisco.  But as the technology  develops, don`t be surprised if an autonomous rover is delivering the next  meal you order.

HERERA:  Finally tonight, the most powerful women in business.  “Fortune”  is out with its 22nd annual ranking.  

In the top spot for the second year is Marillyn Hewson, the CEO of Lockheed  Martin (NYSE:LMT), who saw sales grow last year on a record number of  orders.  GM CEO Mary Barra is number two, with a goal of having twenty new  electric vehicle models on the market by the year 2023.  In third place,  Fidelity`s CEO Abigail Johnson, who saw a 20 percent increase in new client  money last year.

And that is NIGHTLY BUSINESS REPORT tonight, I`m Sue Herera. Thanks for joining us.

GRIFFETH:  I`m Bill Griffeth.  Have a great evening. See you tomorrow.

Nightly Business Report transcripts and video are available on-line post  broadcast at 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) 2019 CNBC, Inc.

<Copy: Content and programming copyright 2019 CNBC, Inc. Copyright 2019 ASC  Services II Media, LLC. All materials herein are protected by United States  copyright law and may not be reproduced, distributed, transmitted,  displayed, published or broadcast without the prior written permission of  ASC Services II Media, LLC. You may not alter or remove any trademark,  copyright or other notice from copies of the content.>

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply