Transcript: Nightly Business Report – October 18, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Double whammy.  Bad news from big names Boeing and Johnson & Johnson drag those stocks lower and take the Dow with them.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  A piece of the action.  Schwab wants to offer fractions of shares to investors.  But does it make sense for you?  

GRIFFETH:  And the hunt for yield.  This week’s monitor has a trio of names he thinks will do well for investors in a low interest rate world.  
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday, October 18th.  

HERERA:  Good evening, everyone, and welcome.  
Call it a Dow downer.  Stocks sold off today after negative news from a pair of Dow components dragged things lower.  The loss on the Dow trying reported by and comprised mostly of Boeing and Johnson & Johnson.  
First, the final numbers.  Dow lost 255 points to 26,770, the Nasdaq dropped 67.  Netflix was a big loser there.  And the S&P 500 dropped 11.  
J&J dropped 6 percent after the company recalled a single lot of baby powder after an FDA test found traces of asbestos.  

And then the one that really got things going south, that was Boeing.  It fell about 7 percent after “Reuters” reported employee messages suggested the company misled the FAA about its grounded 737 MAX.  
Phil LeBeau has been on the story for us.  

Good evening, Phil.  And what exactly happened here?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Sue, we’re talking about the former chief technical pilot at Boeing, and some emails which we have copies of, as well as some instant messages, which we also have copies of.  Both of those sent by the FAA over to congressional committees that are looking into the 737 MAX.  

We’re not going to read all of them.  But in November of 2016, there are two instant messages that certainly raises eyebrows on Capitol Hill in terms of what the former chief technical pilot had to say.  He writes to a coworker: Oh shocker alert.  MCAS.  

And remember, MCAS is the flight control system at the heart of the issues with the 737 MAX.  

MCAS is now active down to M.2.  It’s running rampant in the sim on me.  
The sim meaning the simulator.  

Again they’re in the process of working on the software for MCAS.  So, this is the development phase.  

A couple of messages later, he then writes the same coworker: So I basically lied to the regulators.  And then he puts in parenthesis, unknowingly.  

We reached out to the attorney for the former chief technical pilot.  His name is for Mark Forkner.  That’s the pilot.  

The attorney, David Gerger, says: If you read the chat it’s obvious there was no lie.  The simulator was not reading right and had to be fixed to fly like the real plane.  Mark’s career at Air Force, at FAA, at Boeing, was about safety.  He would never put anyone in an unsafe plane.  

All of this comes just a couple weeks before Dennis Muilenburg, CEO of Boeing, will be testifying on Capitol Hill first in front of a Senate committee and then in front of the House committee.  And, guys, you can bet, these messages, these emails, he will be asked about those.  

GRIFFETH:  But what the FAA is upset about, Phil, is that Boeing apparently uncovered the messages months ago.  

LEBEAU:  Right.  

GRIFFETH:  And only gave them to the FAA yesterday.  

LEBEAU:  Right and if all revolved around the question of Boeing did share these with the Department of Justice, which is conducting a criminal investigation of both Boeing, as well as the Department of Transportation and FAA.  So, the question becomes, should Boeing have, you know, released these to everyone?  Or was Boeing acting at the behest of the Department of Justice?  That’s unclear at this point.  


LEBEAU:  But certainly people are looking at this and saying, what did they know and when did they know it.  

HERERA:  Uh-huh, exactly.  
Phil, thank you so much.  Phil LeBeau in Chicago for us.  

LEBEAU:  You bet.

GRIFFETH:  Well, the biggest gainer in the Dow today was Coca-Cola.  The beverage company revenue beat expectations, thanks to a bounce back in soda demand, especially for its Coke Zero Sugar brand.  Shares rose almost 2 percent on the day.

Dominic Chu digs into the numbers for us tonight.  

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  For Coca-Cola, less is more, at least when it comes to calories.  The non-alcoholic beverage giant reported earnings on Friday that matched analyst estimates, but sales were better than expected due in part to stronger sales of low to no calorie drinks.  As well as growth in drinks and smaller can sizes, something Coca-Cola CEO James Quincy highlighted during the company’s earnings call with analysts.  

JAMES QUINCEY, COCA-COLA PRESIDENT AND CEO:  In addition to great marketing campaigns, consumer centric innovation has been a key factor, especially over the last few years.  This includes smaller packaging such as mini cans, which are growing at a rate of more than 15 percent year to date in the U.S.  It includes lower and no calorie variants that help consumers moderate their sugar intake.  

CHU:  More broadly speaking, Coca-Cola’s key product units all showed modest gains with positive performance during the quarter in sparkling soft drinks, juice, dairy and plant-based beverages, water and sports drinks, and teas and coffees.  That broad base strength is part of the reason is raised full-year forecast for organic sales growth, growth that doesn’t factor in currency exchange rates or the effect of acquisitions.  

The key for Coca-Cola is whether or not it keeps up the moment up.  It will be relying on the rollout of new products like Coca-Cola Energy, which is the company’s first branded energy, as well as Coca-Cola Plus Coffee, a premix beverage of its iconic cola and coffee which is being rolled out in 20 markets globally.  

Investors will be watching closely to see if those results can help the stock catch up with competitor PepsiCo, which has outperformed Coca-Cola so far in 2019, as well as over the past 12 months.  

HERERA:  Last night, Steve Liesman told us the Federal Reserve is contemplating pausing interest rates cuts.  A lot of that depends on economic data.  But now, Steve tells us the Fed will watching corporate earnings and what they tell us.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The Fed has a data problem.  It’s meeting in under two weeks but several critical economic report like the jobs report and closely watched surveys of manufacturing and services don’t come out until after the Fed issues its decision.  

What’s the Fed to do?  In this case, it might want to watch corporate earnings more closely than normal.  Next week is the peak of earnings season with more than a quarter of the S&P 500 set to report.  

Earnings from household names like Ford, Caterpillar, McDonald’s and Amazon, they can help the Fed answer two key questions.  First, has the U.S. consumer remained strong despite a broader economic slowdown?  And second, how much is the trade war hurting companies leaving investment to be cut back.  

RICHARD CLARIDA, FED VICE CHAIR:  Businesses fixed investment has slowed notably since last year.  Exports are contracting on a year over year basis.  And indicators of manufacturing activity are weakening.  
Global growth estimates continue to be marked down and global disinflationary pressures cloud the outlook for U.S. inflation.  

LIESMAN:  Fed Vice Chair Clarida said Friday that the Fed is making decisions meeting by meeting.  There is some chance the Fed pausing in cutting rates after the October meeting or more likely after it cuts one more time.  

Compounding the Fed’s trouble in setting rates, Presidents Trump and Xi could meet in Chile two weeks after the Fed meets to hash out trade and the outcome is uncertain.  

So, the Fed has a data problem, and earnings can provide some help, but there is no help in figuring out what the two presidents will decide on trade.  And that’s arguably the most critical issue affecting the outlook and where the Fed should set rates.  


GRIFFETH:  And those trade issues that Steve referred to seemed to have an impact in China.  That country’s economic activity came in below expectations for the third quarter, continuing a slowdown that we have seen there this year.  
Eunice Yoon is in Beijing on what it means.  

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Prepare for Chinese policymakers to roll out more stimulus and to do it soon.  Third quarter GDP missed at 6 percent and that’s because of weak demand overseas and at home.  The trade war is will also weighing on factory output.  

September’s data showed a rebound but sluggish demand and uncertainty over the trade deal threaten the outlook.  Even the Statistics Bureau sounded gloomy, saying China faced a big downward pressure, a complex serious situation, and a rise in external uncertainties.  The bureau said China planned to front load special local government bonds earmarked for 2020 to this year to keep China’s economy steady in the fourth quarter.  

Despite the weak data, China looks let’s less willing to make concessions on a trade deal.  Sources close to the trade talks told me the phase one could include changes to IPR and the financial sector, since the Chinese see these reforms as extension to existing Chinese policy.  

But officials are resistant to committing to specific targets on agricultural purchases or touching subsidies, and important U.S. demand.  
Separately, Apple CEO Tim Cook is in town featured on state TV today attending a Tsinghua University event with Vice President Wang Qishan.  Cook is a board member and frequently comes to the China for the school’s events.  He also met with the chief of the market regulator where the regulator said the two discussed expanding investment in China.  

The visit comes about a week after Apple was criticized by state media for an app that allows Hong Kong protestors to track police.  Apple has pulled the app.  
For NIGHTLY BUSINESS REPORT, Eunice Yoon in Beijing.  

HERERA:  On another trade front, tariffs on European goods went into effect today.  And one sector bracing for impact imported specialty foods.  
And as Rahel Solomon tells us, shoppers here could see their grocery bills go up just in time for the holidays.  

RAHEL SOLOMON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Starting today, your favorite premium food items such as French wines and Italian cheeses could come at, well, an additional premium.  Among them, European produce like Sicilian Clementine, Spanish olive oil and Scottish cookies.  

PHIL KAFARAKIS, SPECIALTY FOOD ASSOCIATION PRESIDENT:  This isn’t just gourmet foods that is expensive and is appealing to only a small group of the 1 percenters.  This is mainstream foods.  

SOLOMON:  The tariffs are 10 percent for European planes and 25 percent for agricultural goods.  It follows a decision in early October when the World Trade Organization granted the U.S. permission to tax annually $7.5 billion worth of European goods.  This is after it found the European Union had provided illegal subsidies to European plane maker Airbus.  The tariff now forcing gourmet grocers to question how much of that they can absorb and how much they may need to pass on to the consumer.  

ANTONIO ACOSTA, CATEGORY MANAGEMENT DIRECTOR:  We’re going to have to take a real look hard at all the items and take it on a cost by cost basis.  We’re hopeful that the suppliers and distributors, all those guys are going to help, you know, pull back a little bit of their margins.  

SOLOMON:  For customers here at King’s Food Market in New Jersey, the reaction is mixed.  Some say they would be willing to pay 25 percent more for their favorite imported robiola, which for this would be about $3.  Others say, not so much and they’d probably purchase their imported products a little less often 

UNIDENTIFIED FEMALE:  Depending of the occasion, but yes, but maybe not as often.  

UNIDENTIFIED MALE:  Probably would because that’s what I kind of like and maybe we save someplace else.  

UNIDENTIFIED FEMALE:  I probably would pay a little more but not a lot more.  

SOLOMON:  In a statement, U.S. Trade Representative Robert Lighthizer says, for years, Europe has been providing massive subsidies to Airbus that has seriously injured U.S. aerospace industry and our workers.  Later adding: We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.
But until such agreement is reached, the tariffs are likely to remain.  

For its part, Airbus claims the U.S. also provides subsidies to Boeing.  It too has lodged a complaint with the WTO, which says it hopes to rule on that early next year.  The E.U. has also said it’s prepared to slap its own retaliatory tariffs on American goods.  No timeline on that.  
For NIGHTLY BUSINESS REPORT, I’m Rahel Solomon, New Jersey.  

GRIFFETH:  Charles Schwab announced this week that it’s going to allow its customers to buy and sell fractions of shares, and a strategy designed to attract younger investors who are more familiar with the stocks like Apple or Amazon or Chipotle that have high prices.  

Joining us to talk about what this means for individual investors and for the brokerage industry, Anders Jones is the co-founder and CEO of the financial planning firm Facet Wealth.  
Anders, thanks for joining us tonight.  

ANDERS JONES, FACET WEALTH CO-FOUNDER & CEO:  Hey, Bill.  Great to be here.  Thank you.  

GRIFFETH:  You’re not a fan of this for individual investors.  Why?  
JONES:  So I think it’s an interesting innovation for an investment product.  It’s kind of cool for people to be able to own a share or part of a share of a company like Berkshire Hathaway, which is largely inaccessible to most Americans.  But, by and large, the vast majority of consumers really need a diversified portfolio and any shouldn’t have a concentration in any one particular equity.  

And so, I think it’s an interesting move by Schwab.  But I think it’s largely meaningless for the vast majority of consumers.  

Also, I think there is another point which is important to make, which is that it’s possible to — to have this sort of fractional exposure currently through exchange traded funds.  And so, that — that sort of mechanism already exists.  

HERERA:  You know, there are those who are also critical of this type of a move, because they say it encourages investors who should be long-term invested to buy and sell shares and its — you know, even the pros have a hard time finding the right in-point and out-point, and it could actually be detrimental to their financial health.  

JONES:  Yes.  I mean, I think for the vast majority of consumers, it really needs to start with thinking about your long-term financial goals and taking a more planning centric-approach and then figuring out the investment that make sense.  And so, again, for most folks, day trading or trading in and out of equities in a short term time horizon is really not supportive of their longer term goals.  

So, again, I always think that consumers should come back to planning first and then figure out what investments make sense to support the long-term plan.  

GRIFFETH:  But to be fair, Charles Schwab is saying what they’re trying to do is broaden the net to reach those people who would otherwise not feel like they could afford to invest in companies that they’re familiar with.  As I said before, like an Amazon or, you know, any of the FANG stocks out there, that they use the products they want to buy those stocks.  
What about that?  

JONES:  Yes, that’s — I think that’s a fair sort of a marketing approach.  I would, again, go back to the argument that you already have exposure to the stock through ETFs.  It’s not the same as logging into your Schwab account and seeing the Apple ticker symbol in your portfolio.  But, you know, you can have a broadly diversified portfolio and still have access to all the stocks.  

GRIFFETH:  All right.  Understood.  Anders Jones with Facet Wealth, again, thanks for joining us tonight.  
JONES:  Thank you.  

GRIFFETH:  Some sad news from the business world tonight.  Oracle’s co-CEO Mark Hurd has died.  He went on medical leave five weeks ago due to unspecified health reasons.  

Hurd was also CEO at Hewlett-Packard from 2005 to 2010.  His tenure there was defined by a stock price that doubled but also several scandals.  Prior to HP, he was the CEO of ATM and cash register company NCR.  Hurd became co-CEO at Oracle in 2017 where he revamped Oracle’s sales force for the cloud era and became Oracle’s most visible leader.  
Mark Hurd was 62.  

GRIFFETH:  Oil prices dipped 20 cents today as that slowdown in the Chinese economy raised concerns about demand, especially here in this country as well.  But one area related to oil that’s generally overlooked by many investors but seen as a powerful stealth rally lately, the oil tanker business.  The rates charged to charter those tankers have surged.  But why?  And can it continue?  
Brian Sullivan takes a look.  

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It’s really been an incredible story and incredible run for the shipping stocks.  In the last couple of weeks, the rates to charter giant oil tanker ships have gone as one ship broker put it to me, insane.  Now, the biggest ships are known very unoriginally as VLCCs, very large crude carriers.  

Now, a month ago, you could sort of rent one, charter one for $25,000 to $28,000 per day.  Right now, that same ship could cost you at the low end $125,000 per day or more.  That’s a 400 percent jump.  

So, why is this happening?  Well, two reasons.  Number one, you have higher insurance costs due to recent attacks in the Straits of Hormuz.  
But the second reason is really the big one, and that is sanctions.  The Trump administration slapped sanctions on six Chinese companies for doing business with Iran, those include COSCO, which operates one of the biggest oil tanker fleets in the world.  

Shippers are also avoiding nearly any ship that has recently done business in Venezuela.  You can call that a black gold blacklist.  

Now, as charter rates have spiked, the shipping company stocks have really started steaming.  Look at the returns on these stocks this month.  Nordic American Tankers nearly doubled.  TK Tankers up 50 percent.  
Jefferies analysts think that those two stocks may have come too far too fast but there are some lesser known names that they still see some value in.  Those include Diamond S Shipping, International Seaways, Euronav and Scorpio Tankers.  

The question, of course, is how long can all this last, and will shippers keep paying?  

Well, everybody that we have spoken with says that unless there is a major shift on the Trump administration to ease up on Iran, it could be a long time, because the oil buyers and the oil sellers need to get their product to market.  One broker I spoke with told me of a job he recently fixed between the Arabian Gulf and India at the equivalent of $385,000 per day.  It was $25,000 to $28,000 per day just a month ago.  
For NIGHTLY BUSINESS REPORT, I’m Brian Sullivan.  

HERERA:  American Express sees strong results.  That’s where we begin tonight’s “Market Focus”.  

The credit card issuer topped expectations driven by cardholder spending more and paying more of their balances.  American Express also reaffirmed its guidance, but the CFO says the company is seeing, quote, signs of caution in commercial spending.  Shares fell nearly 2 percent to $116.76.  

Caterpillar was downgraded by Morgan Stanley as the bank sees signs of increasing downside risks to Cat’s construction, energy and transportation businesses.  Morgan Stanley also believes the construction equipment maker peaked this year — market rather peaked this year, but will eventually tail off next year.  Caterpillar fell a fraction to $130.71.  

GRIFFETH:  The parent company of Victory Secret, Lbrands, was downgraded to under perform from neutral by Credit Suisse due to the firm’s cautious outlook for the upcoming holiday season.  Credit Suisse also lowered its price targets for The Gap and for Macy’s.  Lbrands shares dropped nearly 10 percent today, while both Gap and Macy’s fell about 4 percent.  

And increase in refined fuel products and liquid petroleum gas shipments to Mexico helped Kansas City Southern top profit expectations.  But the railway company admitted that it had been affected by the General Motors strike because of fewer vehicle shipments.  But shares still rose more than 7 percent today to $145.25.  

HERERA:  It’s time for our weekly market monitor who has names of dividend paying stocks he says you may want to consider for your portfolio in this low interest rate environment.  

Joining us, Bob Phillips, managing director and partner at Carson Wealth.  
Welcome, Bob.  Nice to have you here.  

HERERA:  You say dividend payers are the cheapest versus non-payers in 15 years, and Masco is your first pick for us.  
Why do you like it?  

PHILLIPS:  They have that done a great job restructuring the business and cutting out high cost businesses over the last five years or so.  They have great tailwind with great demographic and housing starts I think will be picking up with housing formation getting larger going forward.  

GRIFFETH:  Texas Instruments, I mean, semiconductor industry in many parts has had some headwinds in the last few years.  But it’s tough to see that in this stock here.  It’s a good ride, hasn’t it?  

PHILLIPS:  It has, Bill.  And they’re a cash flow machine.  I think their free cash flow is close to 40 percent of sales.  And they’ve done an incredible job given that cash flow back to stockholders through increasing dividends and stock buy backs.  

Since — I think they reduced the number of outstanding shares close to 49 percent since 2004 with buybacks.  

HERERA:  And JPMorgan Chase is a stock that you recommended a year ago.  And the dividends have increased steadily since then.  

PHILLIPS:  They have and I think they’ll keep doing that going forward, Sue.  You know it’s a global bank.  And I think that the strongest of the global banks, so as the overseas banks pull back JPMorgan has great opportunity to keep expanding.  So, people are concerned and fearful of banks in this low interest rate environment, but I think they’re currently paying a 3 percent dividend and I think that will increase 8 to 10 percent a year going forward.  

GRIFFETH:  Quickly, we should clarify.  It’s not just a dividend payer that you’re looking for, it’s a dividend grower that you like, right?
PHILLIPS:  Absolutely, Bill.  I think the — in this world be, the question is where does the cash flow in the future come from?  And particularly high dividend paying stocks aren’t going to be increasing those.  And they tend to be risky.  

So, you want companies that have an ability to grow sales.  Have a desire to give the cash back to stockholders through dividends and/or buybacks.  And also have strong balance sheets.  

HERERA:  Bob Phillips with Carson Wealth, thanks so much.  Have a great weekend.  
PHILLIPS:  Thank you.  
GRIFFETH:  And up next, the big business reason that streaming companies want releases on the big screen, first.  

HERERA:  And finally tonight, another first for Apple.  The company is releasing a movie in theaters today, two weeks before it’s available on the streaming service.  But Apple isn’t alone.  
Julia Boorstin tells us why the battle for streaming is starting in the theaters.  

UNIDENTIFIED FEMALE:  Here you are.  Enjoy.  
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Movie theaters are the new battleground for the streaming giants, to draw subscribers and content creators, because you need to put movies on the big screen to qualify for awards.  

Apple’s major documentary “Elephant Queen” opens today in ten cities in the U.S. and U.K. before it’s included in Apple TV Plus’ November 1st launch.  The film drawing arrive reviews which Apple assured a highlight to proposals in the new service.  

This is one of three Apple releases in fall.  Followed by indie feature “Hala” in November and crime drama, “The Banker”, in December.  Amazon is releasing five films and Netflix is releasing 10 films, its most ever in this key fall season.  

SIMON GALLAGHER, SPG GLOBAL PRINCIPAL:  The streamers are doing theatrical releases because they have a tremendous — they’re high profile titles.  They engage audiences, they have a real pop and ability to stand out in the marketing clutter.  So, they’ll drive a big audience.  

BOORSTIN:  Perhaps the most high profile of the films is Netflix’s “The Irishman” from Martin Scorsese.  On November 1st, the same day as Apple TV Plus launches, Netflix will offer this drama in independent theaters before streaming at the end of the month.  

None of these films will stream the same day they launch in theaters.  Netflix theatrical windows are less than a month, so none of the big theater chains which demand a three-month window will run its films.  Apple for now is also doing limited releases.  

Amazon is the outlier, doing three traditional releases this fall, including for Shia LaBeouf’s “Honey Boy”.  The gives those films access to the big theater chains, while Amazon does limited releases with short runs for two films, including “The Aeronauts”.  

GALLAGHER:  Amazon, perhaps, had a different opinion on that.  They’re also, from what I’m seen, is — seems to be more of — a willingness to work with Apple and to work wit Amazon with theatrical exhibiters.  

BOORSTIN:  One thing the streamers all have in common is the hope to capture awards and critical acclaim to promote their services to subscribers and top talent, who don’t want work lost in a crush of content online.  

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.  

GRIFFETH:  And before we go, one final look at the day on Wall Street.  Minus signs for the Dow mainly because of Johnson & Johnson and Boeing, it was down 255 points.  Nasdaq down 67.  Netflix was the big loser there.  The S&P dropped by 11.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I’m Bill Griffeth.  Thanks for watching.  

HERERA:  I’m Sue Herera.  Have a great weekend.  We’ll see you Monday. 

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.

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