Transcript: Nightly Business Report – October 21, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Growing skepticism.  Boeing`s  737 MAX crisis seems to be getting worse and the stock once resilient is  coming under pressure.  

Last-minute deal.  A settlement was reached just before a major opioid  trial was set to begin but the story is far from over.  

Backyard bungalows.  Second homes are cropping up in backyards across  America and some homeowners are reaping the financial rewards.  
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,  October 21st.  

Good evening, everyone.  And welcome.  Bill has the evening off.  
Boeing (NYSE:BA) shareholders are getting used to rough days, but the past  two have been doozies.  The stock is down about 10 percent during that  time, enough for any investor to take notice.  Today, it fell almost 4  percent amid mounting questions over the company`s 737 MAX.  

It was about one year ago when the Lion airplane crash in Indonesia  followed a few months later by another fatal crash and then the grounding  worldwide of Boeing`s most popular jet liner.  
Tonight, pressure mounts as investors try to figure out if new revelations  will return its date to service.  
Here`s Phil LeBeau.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  There`s growing  skepticism that 737 MAX will be back in the air before the end of the year  which remains the guidance of CEO Dennis Muilenburg.  With the release of  emails and instant messages from a Boeing (NYSE:BA) technical pilot  suggesting he may have misled regulators while the MAX was in development  has analysts questioning if the FAA will slow down the process of improving  the MAX to fly again.  

Credit Suisse downgraded Boeing (NYSE:BA), saying we can no longer defend  the shares in light of the latest discoveries, discoveries which  significantly increase the risk profile for investors.

UBS also downgraded Boeing (NYSE:BA), writing: We think a push out of the  return to service could increase the likelihood of a pause on the 737 MAX  production system.  
Meanwhile, Boeing (NYSE:BA) is wrestling with a crisis that seems to be  getting worse.  

ERIC DEZENHALL, DEZENHALL RESOURCES CEO:  Then you have the theater of  crisis management which is like an episode of succession where everybody is  sitting around figuring who goes on TV and does the interview and who goes  before Congress because whoever goes, whoever is public ends up losing  their job.  

LEBEAU:  Analysts are openly speculating about the future of Boeing  (NYSE:BA) CEO Dennis Muilenburg.  There are also questions about Kevin  McAllister who runs the commercial airplane division.  Boeing (NYSE:BA)  says there are no plans to replace either executive even as the MAX remains  parked and the company`s stock slump close to a three-month low.  

Still, some believe with global demand for air travel continuing to grow,  Boeing (NYSE:BA) will eventually come through this crisis with plenty of  orders including many for the revamped MAX.  

DOUG STEENLAND, FORMER NORTHWEST CEO:  I would view this almost as a buying  opportunity that you would then hold and keep for the long term just given  the dynamic of the business.  

LEBEAU:  We`ll get a sense of Boeing`s outlook and exactly how much the 737  MAX grounding has cost the company when reports Q3 earnings on Wednesday.   That`s also when analysts from Wall Street will hear from CEO Dennis  Muilenburg for the first time in a couple of weeks.  

HERERA:  So let`s turn now to Ivan Feinseth to talk more about Boeing  (NYSE:BA) under pressure and if you should own the stock.  He is the chief  investment officer and director of research with Tigress Financial  Partners.  

Good to see you again, Ivan.  Welcome back.  

HERERA:  We should note you are bullish longer term on Boeing (NYSE:BA).  
FEINSETH:  Very much.  

HERERA:  Let`s look a little shorter term though.  There are a number of  key hurdles that the company has to overcome, not the smallest of which is  appearing on Capitol Hill.  What do you think happens near term to Boeing  (NYSE:BA) stock?  

FEINSETH:  Well, I think it may be under pressure through this process and  it could be under pressure into the end of the year as people who have  losses sell it to book end `18.  And then I think the stock bounces back —  I`m sorry, 2019, bounces back in 2020 and I think that they should, as they  say, get close to getting this plane back into service by the end of the  year.  

It`s a very important plane for the industry and for Boeing (NYSE:BA).  And  it unfortunately, the problem does not only affect the shareholders of  Boeing (NYSE:BA).  It affects a very large consistency of stakeholders that  include Boeing (NYSE:BA) employees, Boeing (NYSE:BA) shareholders, Boeing  (NYSE:BA) customers, the customers, shareholders and employees of the  airlines and the suppliers.  This has been very damaging to the airline  industry and to the consumer because it has caused a big increase in cost  of flights.  

HERERA:  Uh-huh.  What do you expect to happen to management?  Or what do  you think as you analyze this company should happen to the current  management?  

FEINSETH:  Well, I think, overall, you want to buy good companies when  they`re having a hard time or a bad time.  That`s why I think there`s a  buying opportunity here, because as Phil LeBeau said, the industry is so  capacity constrained they need the planes.  

However, this has taken very long and I think a lot of what`s going on now  is a lot of people at Boeing (NYSE:BA) trying to cover themselves by  saying, I told you there was a problem, you didn`t listen to me.  So,  that`s causing a lot of these emails and messages that are surfacing.  

However, I think that one of the keys of managing a crisis is get in front  of it and fix it as fast as possible.  

HERERA:  So, you anticipate more volatility as we see Boeing (NYSE:BA) have  to navigate this landscape.  But you have a pretty bullish forecast for the  stock six months from now.  

FEINSETH:  I think within six months that the plane — the MAX goes back  into service, the stock will probably be above $450 a share.  

HERERA:  You also like it for the dividend which we — 

HERERA:  — should note they maintained today?  
FEINSETH:  Yes.  Well, I think any company that has a dividend of over 2  percent with a 10-year Treasury at 1.5 percent and the average yield on the  S&P 500 at just below 2 percent.  So, any company that has a good dividend  and over the years a significant amount of total return from companies have  come from their dividends.  

HERERA:  All right.  Ivan Feinseth, thank you so much.  Good to see you  again.  

FEINSETH:  Thank you.  
HERERA:  Ivan Feinseth is the chief investment officer and director of  research with Tigress Financial Partners.  

And even if you don`t own shares of Boeing (NYSE:BA) outright, you might  own them in a fund.  According to Morningstar (NASDAQ:MORN), the biggest  holders are the Vanguard Total Stock Market Index, Vanguard 500 Index  Investor and American Funds Washington Mutual.  
The decline in Boeing (NYSE:BA) shares capped broader market gains today,  but the major indexes did move higher to start this busy earnings week.   And they`re closing in on record levels.  The Dow Jones Industrial Average  rose 57 points to 26,827.  The Nasdaq was up 73 and the S&P 500 added 20.  

So what might it take for the market to continue to rally and reach those  new highs?  
Mike Santoli identifies three things.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  With the stock market  emerging from a late summer slump and stalling for weeks just short of its  record highs, bulls and bears agree on the basics.  Earnings are flattish,  growth has slowed and the Fed will likely cut rates again this month.  With  this as a backdrop, the possibility of a fourth quarter rally now hinges on  three crucial debates involving credit markets, crowd psychology and  calendar patterns.  

The bond market was at the center of august recession scare with the ten  year treasury yield plunging towards record lows but the market for  corporate debt never signaled much concern.  Something it often does as  economic stress builds.  Investors have continued to demand relatively  modest extra yields from companies even riskier ones. 

Such firm credit decisions tend to support equity values giving companies  flexibility to issue and refinance debt.  Should investors trust this  credit market message?  Crowd sentiment has remained quite subdued despite  the S&P 500 recovering to within 1 percent of the July levels.  Investor  survey, stock fund and measures of equity exposure by professional traders  all show persistent skepticism.  

This tends to be a bullish factor leaving investors more open to positive  news than negative surprises.  So, is the crowd correct this time in its  pessimism?  

And the calendar is about to turn friendly again.  We had October through  December, it`s one of the strongest stretches of the year throughout  history.  The positive seasonal forces did not arrive last year when stocks  had a rare fourth quarter collapse losing as much as 20 percent by late  December.  

Still, one year ago there was much talk of a likely fourth quarter rally  while this year expectations are much more muted.  So, investors must now  ask what are the chances a traditional year end up side bias failed to take  hold two years in a row?  

HERERA:  An 11th hour deal averted for now at least.  The first federal  trial related to the opioid crisis.  The settlement sent shares of the  nation`s three biggest drug distributors lower.  But Teva shares gained on  word of a deal with four states though questions remain about that.  
Meg Tirrell went to Cleveland to report on the happenings inside the  courthouse but instead has the story of what happened outside.  

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The jury was selected,  the courtroom packed, but just minutes before the first federal trial over  the nation`s opioid crisis was set to begin this morning, word came of a  settlement.  The trial was off.  

But it`s more of a delay than a reprieve.  Four defendants, three big drug  distributors and drugmaker Teva reached a settlement with the two Ohio  counties that were plaintiffs in this trial.  It`s worth about $260 million  and adds to the $66 million settlements already reached with four other  drugmakers.  

But more than 2,000 cases against drug companies remain brought by cities,  counties, Native American tribes, states and others.  Work towards a  broader settlement was underway late last week and over the weekend, and  this afternoon the state attorneys general leading those talks said they  had reached a broad settlement framework with five companies.  It includes  $18 billion in cash over 18 years from the three drug distributors, $4  billion cash over two to three years from Johnson & Johnson (NYSE:JNJ), as  well as provision of $23 billion worth of addiction treatment drugs from  Teva over 10 years.  

But the plaintiff cities and counties said they haven`t signed on.  Joe  Rice, co-lead attorney for those parties, said part of the issue is $18  billion over 18 years from the distributors is too little and too slow.  

JOE RICE, SUMMIT COUNTY AND CO-LEAD COUNSEL:  You take $1 billion and  spread out over this country, these counties were slated if you make an  assumption they would have gotten, you know, a few hundred thousand dollars  a year.  That`s not going to help us.  We need the money up front.  It`s  got to be more money.  

TIRRELL:  There are more than a dozen drug companies, distributors named in  the suits.  They claimed pharma companies deceptively marketed it and that  the distributors and pharmacies reached enormous profit from failing to  monitor and report suspicious activity.  

As part of the settlements, the companies admit no wrongdoing and as work  continues towards a potential broader settlement for the counties here in  Ohio, the deals mean immediate funds towards fighting the crisis. 

ARMOND BUDISH, CUYAHOGA COUNTY EXECUTIVE:  We`ve got the problems now.   People are suffering now.  People are dying now.  We have to deal with  these issues now.  So the fact that we were able to get the money in a  short time frame is very helpful and that`s one of the motivations for  settling this.  

TIRRELL:  The next trials aren`t scheduled until next year and unless  cities and states can come together on a broader agreement, these piece-by- piece deals may be community`s best hope for relief.  
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in Cleveland.  

HERERA:  It is time to take a look at some of today`s “Upgrades and  Downgrades”.  
IBM was downgraded to neutral from buy at UBS.  The analyst expects the  company to have trouble sustaining mid single digit revenue growth given  the pressures facing its legacy businesses.  The price target is $140.  The  stock fell 1 percent to 132.58.  

EBay was downgraded to hold from buy at Deutsche Bank.  The analyst sites a  challenging competitive environment expects the stock to be range bound.   The price target is $42.  The stock was up 1 percent to $39.26.  
Apple`s price target was hiked to $280 at Raymond James, which is the  highest on Wall Street.  The analyst says 5G, Apple`s biggest opportunity,  and raised the iPhone sales estimates.  The firm has an outperform rating  on the stock.  The shares rose more than 1.5 percent to $240.51.  
And now to Britain`s exit from the European Union or Brexit.  

Tonight, a new twist in the ongoing drama.  Willem Marx is in London.  

WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT:  When British Prime  Minister Boris Johnson left Downing Street this past weekend —  
REPORTER:  Were you still leaving on the 31st?

MARX:  — it was to join lawmakers for their first Saturday session in 37  years, in the hope of finally resolving an historic standoff.  

BORIS JOHNSON, BRITISH PRIME MINISTER:  This is the second deal and the  fourth vote 3 1/2 years after the nation voted for Brexit.  And during  those years, friendships have been strained, families divided and the  attention of this house consumed by a single issue that has at times felt  incapable of resolution.  

MARX:  Tens of thousands of anti-Brexit protestors pounded the pavement  around Westminster Palace while the man who championed the campaign to  leave the E.U. pressed parliamentarians to soothe this national sore.  

JOHNSON:  It is now so urgent for us to move on and to build a new  relationship with our friends in the E.U. on the basis of a new deal, a  deal that can heal the rift in British politics.  

MARX:  The response from opposition lawmakers, not conciliatory but  critical.  

JEREMY CORBYN, LABOUR PARTY:  He has renegotiated the withdrawal agreement  and made it even worse.  

MARX:  Even as while allies from Northern Ireland slammed the British  leaders` Brexit inconsistencies.  

NIGEL DODDS, DEMOCRATIC UNIONIST PARTY DEPUTY LEADER:  Please reconsider  the fact that we must leave as one nation together.  

MARX:  But the most concrete challenge inside the chamber came from a  fellow conservative.  

OLIVER LETWIN, BRITISH LAWMAKER:  Despite my support for the prime  minister`s deal, do not believe that it is responsible to put the nation at  risk by making that threat.  

MARX:  Former Minister Oliver Letwin proposing that parliament postpone its  approval in principle until all Brexit legislation successfully passes.  

LETWIN:  We can be secure in the knowledge that the U.K. will have  requested an extension tonight which, if granted, can be used if and to the  extent necessary and only the extent necessary to prevent a no deal exit.  

MARX:  Johnson said he would rather be dead in a ditch than ask Brussels  for another delay.  

BERCOW:  The ayes to the right, 322.  The nos to the left, 306.  So the  ayes have it.  The ayes have it.  

MARX:  The vote on Saturday left him little legal alternative.  
So, after parliaments waste the weekend, the government today sought a  second vote, after a separate setback.  

The speaker of the House of Commons insisted Monday afternoon that to allow  an up or down vote on Boris Johnson`s Brexit deal would be disorderly and  repetitive.  The legislature he said already debated and voted on the exact  same plan just 48 hours earlier.  

While the E.U. continues to watch and wait, the U.K. government must now  attempt another parliamentary approach to win approval for Johnson`s deal.  
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in London, England.  

HERERA:  Still ahead, why this week will see the intersection of earnings,  trade and the economy.  

HERERA:  There was some optimism today over U.S./China trade.  And the  upbeat sentiment came from Beijing, both the tone was different.
Eunice Yoon has more.  

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  China is sending a  positive signal on the trade talks.  Over the weekend, Vice Premiere Liu He  was China`s chief negotiator with the U.S. made a rare public speech on the  talks, suggesting progress.  

At a tech event he said, China-U.S. have made substantial progress in many  aspects and laid an important progress for a phase one agreement.  China is  willing to work in concert with the U.S. to address each other`s core  concerns.  

The comment sounds like standard lines out of the government on the talks,  but the state media descriptions are not.  The Communist Party paper, “The  Global Times”, described the remarks as Beijing`s most clear and  authoritative on progress.  State media blog Taoran closely watched by  trade experts said Liu`s comments indicate the negotiators are, quote,  approaching a phase one agreement.  

The official press have been managing expectations down and now the tone  slightly optimistic that an agreement can be reached.  

That optimism helps support the Chinese stock market today, which largely  shrugged off a surprise decision by the central bank.  The PBOC left its  new benchmark lending rate for banks, the LPR, unchanged in October.  Some  analysts believe this means policy makers are cautious about loosening  policy because of the high debt here.  

But with the economy slowing, most expect rates to drop further by the end  of the year.  
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  

HERERA:  And this week, we may find out how those trade tensions have  impacted the industrial sector when Caterpillar (NYSE:CAT), United  Technologies (NYSE:UTX) and 3M (NYSE:MMM) report earnings.  That group is  often viewed as a barometer of the global economy which is why investors  will be paying close attention.  
Seema Mody has more.  

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It`s all about demand.   Large American manufacturers and other industrial firms have enjoyed strong  sales for many years, but as the global economy slows down, that may start  to change while a slowdown in China has been evident for a couple of  quarters, recent data on the U.S. economy has raised concerns about a more  intense slowdown here and a looming effect on profit and capital spending.  

Economists are blaming the trade war and a softening agricultural sector.   Reports show farmers are holding back on purchases of big ticket items like  tractors and other farm-related equipment due to the uncertainty around  trade and whether they will receive support from the government in 2020.   As worries grow, analysts are bringing down their expectations.  
Ahead of Caterpillar (NYSE:CAT) earnings on Wednesday, Morgan Stanley  (NYSE:MS) downgraded the stocks saying the construction equipment market  peeked this year while the oil and mining industry, Caterpillar (NYSE:CAT)  Services, continues to weaken.  

It`s not just Caterpillar (NYSE:CAT).  Third quarter estimates for the  broader industrial sector had them lower from 6 percent in early July to  just 0.9 percent today.  That has some investors staying away from the  space altogether.  

JOHN DAVI, ASTORIA PORTFOLIO ADVISORS FOUNDER & CIO:  I agree it`s cheap,  but I think it`s cheap for a reason.  When I look at a lot of the macro  indicators, ISM is rolling over, OECD, lean economic indicators have rolled  over.  I prefer other sectors more so than industrial.  So, we`re very  defensively positioned at Astoria Portfolio Advisors.  Until those  indicators stabilize, I`d avoid industrials.  

MODY:  But other investors see opportunity.  

DAVE NADIG, ETF.COM MANAGING DIRECTOR:  I think you have to think about  industrials as being the canary in the coal mine for really all of next  year.  It`s one of the only portions of the S&P 500 where we`re expecting  positive earnings this season.  The rest of the S&P is really weighed  pretty heavily down.  

MODY:  As big manufacturers report earnings, shareholders will be listening  for any commentary regarding the potential detente between the U.S. and  China over trade and whether that could lift sentiment.  
For NIGHTLY BUSINESS REPORT, I`m Seema Mody at the New York Stock Exchange.  

HERERA:  Halliburton (NYSE:HAL) sees more cost cuts coming, and that`s  where we begin tonight`s “Market Focus”.

The oil field services company is looking to combat slow demand from its  North American shale drilling which helped cause a bigger than expected  decline in revenue.  Halliburton (NYSE:HAL) did match analysts` earnings  estimates.  The shares rose nearly 6-1/2 percent to $19.61.  

Coty is exploring options and possibly selling its beauty products brand  such as Clairol, Wella and OPI in an effort to help pay down debt.  Several  of the brands were part of Coty`s acquisition of Procter and Gamble`s  beauty unit earlier in the year.  Shares of Coty rose about 13.5 percent to  $11.48.  

Shares of Alexion Pharmaceuticals (NASDAQ:ALXN) rose today after the FDA  approved the company`s Ultomiris drug for a second rare blood disorder.   The new approval will help treat patients with abnormal blood clots in  their kidney blood vessels.  Alexion shares rose more than 2 percent to  $173.  

Microsoft (NASDAQ:MSFT) and Humana (NYSE:HUM) will be teaming up in a  multiyear deal.  Microsoft (NASDAQ:MSFT) will serve as Humana`s preferred  cloud provider and will provide artificial intelligence to the health  insurer to help improve care options for the members.  Microsoft  (NASDAQ:MSFT) shares were up a fraction to $138.43.  Humana (NYSE:HUM)  shares were down a fraction to $287.15.  

And after the bell, TD Ameritrade (NASDAQ:AMTD) reported better than  expected results.  The online broker also sees next year`s full revenue  above estimates.  Despite the company previously saying the elimination of  trading commissions would put a dent in first quarter results.  Shares  initially rose in after-hours trading after closing the regular session up  more than 2 percent to $37.65.  
Coming up, small houses are big business for homeowners and builders.  

HERERA:  Here`s a look at what to watch for tomorrow.  
Dow components McDonald`s, P&G, Travelers and United Technologies  (NYSE:UTX) all report earnings.  Existing home sales for September will  show whether lower mortgage rates entice buyers.  Opening statements are  expected in Exxon`s climate change trial.
And that is what to watch for on Tuesday.  

The world`s millionaires now own close to half of the world`s wealth.   According to a new study, there are nearly 47 million millionaires with a  combined worth of $158 trillion.  The U.S. leads the world in total number  creating 675,000 new millionaires over the past year.  China added 158,000.  

Well, forget she sheds and he sheds, more homeowners are building real  second homes in their backyard and reaping the rewards of rental income.  
Diana Olick has our story.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Lisa and Chris  Puchalla recently tore down their garage and built a second home in its  place.  

LISA PUCHALLA, ADU OWNER:  We lived in it for ten months while we renovated  our main house and we loved it.  

OLICK:  And they love the rental income it generates even more.  
CHRIS PUCHALLA, ADU OWNER:  So the accessory dwelling unit, you know, sort  of movement, income producing, yes.  So, you know, you can live in an area  that`s very nice and generate income.  

OLICK:  As states and local municipalities relax zoning laws, more  homeowners with extra backyard space are building small auxiliary dwelling  units or ADUs either for family members or to use as income properties.  

That means huge growth for PrefabADU.  A Bay Area builder which built and  installed about 100 ADUs this year and could expand to at least 1,500 next  year and possibly even 3,000.  

As for pricing, the most common product at Prefab is a 288-square-foot home  which goes for about $105,000 installed.  

STEVE VALLEJOS, PREFABADU CEO:  Inquiries are split probably 50/50 from  people who are looking to address housing for family members, whether it`s  adult children who are struggling to survive or it`s, you know, a senior  family member who`s weighing this against the cost of doing assisted  living.  And then we have other people who are looking for the rental  income.  

OLICK:  While zoning rules are changing as cities try to create more  affordable housing, there are still roadblocks to greater growth in the ADU  industry, especially when it comes to costs.  

VALLEJOS:  ADU is still really for the most part an affluent homeowner  product being that you have to have cash on hand to take this on.  And  until we — until we really solve some of the financing issues out there in  this space, we`re really not going to tap into a larger portion of this  market and expand into, you know, a whole different homeowner profile.  

OLICK:  There is also local push back in some communities as homeowners  fear an influx of renters could lower property values and change the  dynamic of the neighborhood.  The Puchallas were definitely sensitive to  that.  

L. PUCHALLA:  Before we built it, we talked to all of our surrounding  neighbors and sent them the plans.  This is what we`re thinking of doing  and we`re going to be using it for family and friends, may rent it short  term and everybody was on the same page and really nice throughout the  entire process.  

OLICK:  And after it was finished, several neighbors came by to check it  out and see if it might work in their backyards.  

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

HERERA:  Before we go, here`s another look at today`s final numbers on Wall  Street.  The Dow rose 57, the Nasdaq was up 73 and the S&P 500 added 20.  

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

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