Transcript: Nightly Business Report – October 31, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Trick or treat?  Stocks were a  Halloween trick as the Dow sold off triple digits, but are investors in for  a treat for the rest of the 2019?  

Up in smoke.  Altria cuts the value of its stake in Juul to $4.5 billion.   So, now what?  

And the forest from the trees.  The strategy of investing in the health of  forests with the added hope of preventing wildfires.  
All that and more tonight on NIGHTLY BUSINESS REPORT for this Halloween  Thursday, October 31st.  

Good evening, everyone, and welcome.  Bill has the night off.  
Halloween is at a time for creepy things — goblins, ghouls, monsters.   Well, today, investors were seeing ghosts — ghosts of a weakening economy.   Soft economic data, particularly manufacturing spooked the markets and  we`ll have more on that in just a minute.  

And ghosts of failed trade talks.  One news report said the Chinese are  casting doubt over whether there really can be a long-term trade deal.  
Kayla Tausche starts us off.  

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  China continues to  signal that the U.S. must roll back all tariffs in order to get a long term  or phase two deal.  But the White House says that shouldn`t hold up phase  one, where talks are still moving forward.  The president tweeting today: A  new location to sign the deal will be announced soon, and suggesting the  deal will include more than half the chapters that have been under  discussion.  

There are a couple of summits already on the calendar.  President Xi  Jinping will in Brazil in two weeks and both leaders are invited to the  World Economic Forum in Davos.  But the looming December tariffs are viewed  as a deadline.  

Tomorrow, the principals will speak by phone in a conversation that could  yield new details and next steps.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.  

(END VIDEOTAPE) HERERA:  Add it all up, and you have a witch`s brew.  The Dow fell 140  points to 27,046, the Nasdaq dropped 11, and the S&P 500 was off nine.  For  the month, all the averages were up.  The Dow just a fraction.  But the  Nasdaq added 3.5 percent and the S&P 2 percent.  
Bob Pisani has more.  

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  October ended with a  thud, hurt by more weak manufacturing numbers and a report that China is  hesitant to make a long-term trade deal with the United States.  

But it was actually a pretty strong month overall for the averages,  considering we avoided any scary October crashes or major market plunges.   S&P 500 sitting near historic highs.  And although the Federal Reserve is  taking on passive stance on interest rates, the market is confident enough  that the back stop is there, meaning the Fed is going to step in and cut  rates if it needs to.  

Trade talks are presumably still on between President Donald Trump and  Chinese President Xi Jinping.  Though the market has lost some faith in the  prospect of a long-term deal today, the market has lost some faith in the  prospects of a long term deal today, the market is entering its seasonally  strongest two month period of the year.  That`s important.  November is the  second best month for the S&P since 1950.  December is number one.  That`s  according to the stock traders almanac.  

The problem is there are still bitter memories of the disastrous December  last year.  That conviction for a rally from here is remarkably lacking.   Trading volumes have been very light in the last couple weeks because a lot  of traders are sitting on the sidelines.  Some feel it they had good enough  returns and would like to lock in returns now rather than chase further  advances.  And the news flow from the White House on trade is very  confusing.  

So next up is the Friday`s jobs report, likely taking a hit from the GM  strike this month.  After that, it`s all about trading.  Removing all  tariffs is probably too optimistic, but there are still some hopes that the  December 15th tariff hikes can be put off.  

What about those bitter memories of last December?  There`s a key  difference here.  Last year, everyone was worried the Fed would begin a  cycle of rate hikes.  That was a big factor in the December drop.  That is  not a factor this December.  
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.  

HERERA:  So, what can we expect from the market for the rest of the year?  
We`re joined by Sandip Bhagat.  He`s the chief investment officer at  Whittier Trust.  
Welcome.  Nice to have you here.  


HERERA:  I see from these notes that you`re looking for a continuation of  the rally but a more modest move in the Dow.  Is that a correct read?  

BHAGAT:  That is fair.  And the biggest development in recent weeks, Sue,  is that we have seen a decline in uncertainty and a de-escalation of  tensions on so many fronts.  So these come to mind right away.  
It seems like we will avoid a no-deal Brexit.  We seem to be on track for a  phase one deal with China by the end of the year.  The Fed has clearly  communicated where they stand.  And most importantly, all those fears about  an imminent recession, well, they seem to have receded because growth is  still coming in above expectations.  
And so, against that back drop, I think the path of least resistance is  still to march upon higher but it will be a slow grind.  Maybe two, three  percent more to the upside.  

HERERA:  Uh-hmm.  
BHAGAT:  Which is about 800 Dow points and 85 S&P 500 points.  
HERERA:  So, you`re still sticking with your 3,125 target on the S&P?  
BHAGAT:  Yes, ma`am.  And it`s based really on these key views and  assumptions.  No recession any time soon.  So, none in 2020.  
We should see a modest pickup in growth both of the economic and the  earnings variety.  Why do we say that?  It will be boosted by all the  easing that all the central banks have done.  That should begin to pay off.  
We do some resolution, partial as it may be on the trade front.  And that  should spur growth.  And then inflation is muted and that means interest  rates will remain roe.  

HERERA:  So what areas of the market do you think are still fairly valued  and perhaps will retain leadership as the market moves higher?  

BHAGAT:  Sue, let`s take this all the way from the top, right?  So you have  the first big stock bond decision to make.  Interest rates are extremely  low.  They`re not justified just by the slowdown in growth.  I think  investors are seeking safety and liquidity in great doses and they have  overpaid for those.  
So, we think actually the bond market is overvalued.  The stock market is  fairly and fully valued.

HERERA:  All right.

BHAGAT:  So, that leads to picking stocks over bonds.  Underneath that, we  still like the U.S. stock market than the foreign stock markets.  And then  if you had to pick sectors, we would take cyclical like technology —  

BHAGAT:  — consumer discretionary and financials over staples and  utilities.  

HERERA:  On that note, thank you so much, Sandip.  Nice to see you again.  

BHAGAT:  Likewise.

HERERA:  Sandip Bhagat, chief investment officer at Whittier Trust.  
A big batch of economic data out today, some good and some bad.  Here`s a  run through.  The number of Americans filing for first time unemployment  benefits rose last week as the wildfires in California likely played a key  part.  

Personal income and spending in September rose slightly and they were in  line with estimates.  Consumer spending accounts for more than two thirds  of economic activity.  It was driven last month by purchases of vehicles  and spending on health care.  

Inflation was muted last month as consumer prices measured by the personal  consumption expenditures index or PCE were unchanged.  The PCE is the  Federal Reserve`s preferred measure of inflation.  

But the weight on stocks, manufacturing, as the Chicago PMI which measures  manufacturing activity in the Midwest dropped to its lowest level since  December of 2015.  

So let`s turn now to Joe Brusuelas to talk more about what all this means  for the overall economy.  He is the chief economist at RSM U.S.  
Welcome.  Nice to see you, Joe.

JOE BRUSUELAS, RSM U.S. CHIEF ECONOMIST:  Good All Hallows Eve to you.  

HERERA:  All right.  Let`s start with manufacturing and I want to broaden  it out to the overall economy.  You`re one who thinks that we`ve been in a  recession in manufacturing for some time now.  

BRUSUELAS:  That`s right, for at least three months.  The approximate cause  is the trade war and the self-inflicted problems at Boeing (NYSE:BA).  You  can see it now both in the sentiment data and the hard data.  What we saw  today in the Chicago PMI was an outsize decline.  

Much of it had to do with GM.  However, there are real problems in the  survey that point directly to the trade war.  

HERERA:  So, a lot of people when they see the employment report tomorrow  may write it off because of the GM strike.  But you`re one who says not  quite so fast.  

BRUSUELAS:  Right.  So, look, there is a loss of about 50,000 jobs in goods  producing and manufacturing which is suppressed the top line.  I`m  expecting 75,000 net gain in employment.  

But once we back out the distortion, we`ll want to look under the hood to  see what`s going on in business services, government, education and health  hiring which is really beginning to drive overall hiring.  We will see  further problems, though, linked to the trade war.  Hiring is slowing by  the end of the year.  We should see 100,000 per month on average.  And by  Election Day 2020, it will be about 50, and the unemployment rate will be  going up.  

HERERA:  But you do not expect a recession, correct?  

BRUSUELAS:  No, I don`t.  It would take a further policy err in re trade,  i.e. slapping tariffs on all the auto imports from the E.U. and the U.K.,  or a large exogenous shock.  

All we`re doing is following back the trend.  We`re at 1.8 percent right  now, that`s fine.  First half of next year will be around 1 percent.  Not  quite stall speed but slow enough to cause material discomfort across some  portions of the manufacturing sector.

HERERA:  So, what external events or perhaps events on your radar might  derail that scenario?  

BRUSUELAS:  Well, six weeks ago, the Iranian took out half of all Saudi oil  production.  I`m actually surprised we haven`t had more distortion because  of that.  Should there be further hostilities with Iran in the Middle East,  that could be a large enough exogenous shock to tip the economy into  recession.  But probably the more proximate cause would be an  intensification of the trade war either with China or new front with  Europe.  

HERERA:  On that note, Joe Brusuelas, thanks so much.  
BRUSUELAS:  Thank you.
HERERA:  Joe is with RSM U.S.  

Late last night, Ford and the United Auto Workers reached a tentative deal.   That agreement comes less than a week after GM workers returned to work  following a 40-day strike over a new contract.  Once the Ford deal is  ratified, the union will turn to Fiat Chrysler.  

And Fiat Chrysler and the European automaker PSA, which is the parent of  Peugeot, are planning a merger.  

And as Phil LeBeau tells us, the deal if approved would create a global  auto giant with plenty of advantages and some sizable challenges.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  At Fiat Chrysler U.S.  headquarters outside Detroit, it may be time to change the sign, again.   The parent of classic American brands like Jeep and Ram trucks plans to  merge with Paris-based automaker PSA, which sells Peugeot and Citroen, two  popular brands in Europe.  It would be a 50-50 merger, creating the world`s  fourth largest auto maker, selling a combined 8.7 million vehicles last year.  

For PSA, adding Jeep and Ram brands, along with their strong sales in the  U.S., is attractive.  Meanwhile, Fiat Chrysler would move into a company  with the size and scale to afford the massive costs of developing electric  vehicles.  

After reporting better than expected earnings in the third quarter, FCA CEO  Mike Manly would not discuss the proposed merger.  Instead, he talked about  the opportunity to grow sales of electric vehicles, particularly in Europe.  

MIKE MANLEY, FCA CEO:  When I looked at the pricing in Europe in particular  for electrified vehicles, I`m actually much more encouraged now than I was  a few months ago, particularly on the full battery electric side.  

LEBEAU:  EV sales will become more important over the next few years as  Europe forces auto makers to meet lower emission standards.  EVs will also  be critical to growing sales in China, where Jeep has a limited presence  and Peugeot has struggled to breakthrough.  

If this merger gets approved by the U.S. and French governments, it could  lead to more deals among other automakers, as the industry looks to offset  the rising cost of developing electric and autonomous vehicles.  

HERERA:  Coming up, the House is moving ahead with its impeachment inquiry  and that puts it on a collision course with another crucial one, keeping  the government up and running.  

HERERA:  Tobacco producer Altria`s quarterly results beat estimates for its  third quarter.  But the company took a big write-down or reduction of value  of its stake in the e-cigarette maker Juul, taking a $4.5 billion charge  against earnings.  As a result, Altria shares fell more than 2 percent on  the day.  
Frank Holland has more.  

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As vaping concerns  continue to rise, Marlboro maker Altria is lowering the value of its  investment in e-cigarette Juul.  Less than a year after the tobacco giant  made a nearly $13 billion investment in Juul for 35 percent stake, Altria  CEO Howard Willard said on the earnings call that investment is now worth  35 percent less.  

HOWARD WILLARD, ALTRIA GROUP CEO:  While we had a range of scenarios when  we made our investment in Juul, we did not anticipate this dramatic a  change in the e-vapor category.  Certainly, the lung injury I think was  something we had not predicted, and the pretty dramatic potential,  regulatory change.  

HOLLAND:  Today, the CDC announcing 37 people have died from vaping-related  illnesses, three more than just last week.  The illness numbers also  climbing to nearly 1,900, a more than 17 percent increase.  

Both the FDA and CDC continue to investigate the cause of this epidemic as  congressional leaders push for a ban on all flavored vaping products.  
REP. RAJA KRISHNAMOORTHI (D), ILLINOIS:  It`s so important that we put this  in effect ASAP to prevent more kids from vaping.  

HOLLAND:  Illinois Representative Raja Krishnamoorthi is leading the push  in Congress and says he and other congressmen sent a letter urging the  White House to enact the flavor ban if proposed in September.  

KRISHNAMOORTHI:  It`s very disturbing to know that a company would in the  first place sell such products.  And then secondly, continue to do the  thing we uncovered in our investigations, such as going into schools,  paying high school districts and other schools, actually go in and actually  present their products as safer than they are.  

HOLLAND:  The write-down getting mixed reaction from analyst.  
Owen Bennett from Jeffries says: The Juul impairment says money was not  wisely invested.  Furthermore, with cigarette share continuing to face  headwinds, it looks like the outlook will remain pressured.  
However, Christopher Growe from Stifel wrote: The $4.5 billion write-down  in Juul was already contemplated in the stock price, in our view, and  likely more.  We continue with our buy rating.  

Altria says it expects profit from 2020 to 2022 to be impacted by issues  with Juul, as well as the continued decline in cigarette sales.  

HERERA:  Dunkin` Brands is betting on its new menu.  And that`s where we  begin tonight`s “Market Focus”.  

The restaurant chain topped earnings expectations but fell short on  revenue.  U.S. sales were helped by strong demand for premium breakfast  sandwiches and specialty coffees.  Dunkin` raised its full year guidance as  it looks to introduce new menu items which include Beyond Meat breakfast  sandwiches.  Shares rose more than 6 percent to $78.62.

Technology hardware company Universal (NYSE:UVV) Display`s quarterly  results beat analyst expectations.  The key supplier for Apple  (NASDAQ:AAPL) says it saw strength on a global sale and will be raising its  revenue guidance.  Shares rose more than 15 percent to $200.18.  

Kraft (NYSE:KFT) Heinz reported better than expected profits thanks to  lower costs.  The food company also said it`s looking to increase marketing  for its flagship brands whose major products include Heinz ketchup and  Velveeta cheese.  The shares climbed nearly 13.5 percent to $32.33.  
And rolling power blackouts in California helped demand for Generac`s  generators as the company topped analyst estimates.  Generac also raised  its guidance.  The stock was up more than 4 percent to $96.58.  
After the bell, Pinterest missed revenue expectations.  But the image  sharing site did see growth in global monthly active users.  But that  revenue miss sent shares initially down initially down more than 15 percent  after hours.  They closing the regulation session down about 3 percent to  $25.14.  

The House passed a resolution formalizing the impeachment inquiry against  President Trump.  This establishes a road map of the process and makes it  more public.  And while this is going on, the deadline to fund and not  shutdown the government is rapidly approaching.  
Ylan Mui has more on this collision course.  

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The atmosphere on Capitol  Hill was charged after House Democrats voted to formalize their impeachment  investigation into President Trump.  

REP. ADAM SCHIFF (D-CA (NASDAQ:CA)), INTELLIGENCE COMMITTEE CHAIR:  We take  no joy in having to move down this road and proceed with the impeachment  inquiry.  But neither do we shrink from it.  

REP. STEVE SCALISE (R-LA), MINORITY WHIP:  Every single Republican reject  the Soviet-style impeachment process.  

MUI:  The next phase of the investigation will include open hearings,  possibly with new witnesses.  The Intelligence Committee will put together  a final report and then the Judiciary Committee will decide whether to move  forward with articles of impeachment.  

It will be a bitter and partisan fight.  But amid all of that, Republicans  and Democrats will have to find a way to work together to keep the lights  on in Washington and prevent another government shutdown.  

MARC GOLDWEIN, COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET:  We need to fund  the government every year.  And Congress and the president are always going  to find an excuse to kick the can on the deadline.  So we have to — we  have to be able to walk and chew gum at the same time.  

MUI:  There are just eight working days left in the House before the  government runs out of month on November 21st.  House Speaker Nancy Pelosi  and Senate Majority Leader Mitch McConnell spoke on the phone about this  earlier this week.  But today, McConnell accused Democrats of playing  politics, particularly with funding for the military.  

SEN. MITCH MCCONNELL (R-KY):  The core message here is hard to miss.  Our  Democratic colleagues have a priority list, picking fights with the White  House is priority number one.  Number one.  And our men and women in  uniform fall somewhat further down.  

MUI:  Democrats say there is no time line for the impeachment investigation  just yet.  And they`re committed to funding the government.  But there is a  broad expectation that Congress will have to resort to a stopgap spending  measure and kick the can down the road once again.  
For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

HERERA:  And politics is at the forefront for social media companies.  We  told you last night that Twitter said it will ban political ads from its  platform.  And as Julia Boorstin tells us, that stance in stark contrast to  Facebook`s stance.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  At the same moment  Facebook (NASDAQ:FB) released its earnings Wednesday afternoon, Jack Dorsey  tweeted that he is banning all political and issue ads from Twitter to stop  the spread of misinformation.  Tweeting quote, a political message earns  reach when people decide to follow an account or retweet.  Paying for reach  removes that decision, forcing highly optimized and targeted political  messages on people.  We believe this decision should not be comprised by  money.  

Political ads comprised a tiny percent of Twitter`s revenue.  It generated  $3 million from political ads during the 2018 midterm elections, and the  company says this does not impact its guidance for the fourth quarter.  
Fresh on the heels of Dorsey`s announcement, Facebook (NASDAQ:FB) CEO Mark  Zuckerberg defended his decision to run political ads on Facebook`s  platform and to not fact check them.  Zuckerberg saying in Facebook`s  earnings call that political ads are key for free speech.  

MARK ZUCKERBERG, FACEBOOK CEO:  We estimate that these ads from politicians  will be less than 0.5 percent of our revenue next year.  That`s not why  we`re doing this.  To put this in perspective, the FEC find that the same  critic said wouldn`t be enough to change our incentives was more than 10X  bigger than this.  The reality is we believe deeply that political speech  is important and that`s what`s driving this.  

BOORSTIN:  A lot of reaction in Washington, D.C. to Twitter`s new policy,  with the Trump campaign blasting the decision, calling it yet another  attempt to silence conservatives.  Presidential candidate Amy Klobuchar  pointing to lack of consistent policies across social media as evidence of  the need for regulation.  

But Twitter has its defenders including Hillary Clinton and Congresswoman  Alexandria Ocasio-Cortez.  They say Dorsey is making the right call.  

This overshadowing the headline about Facebook`s far better than expected  results.  It beat expectations across financial metrics, grew users faster  than expected and gave guidance that was better than analysts` projections.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.  

HERERA:  Coming up, an investment strategy to help prevent wildfires, like  the ones in California.  

HERERA:  In addition to the fires that have been burning, a new blaze has  firefighters battling a wind-driven wildfire in San Bernardino, California.   The so-called Hillside Fire has destroyed or damaged six homes and two out  buildings.  Five hundred homes have been evacuated.  It is one of two  wildfires burning east of Los Angeles.  And hotter, dryer weather combined  with overgrown forests have contributed to the most destructive fires in  history in just the past few years.  

Now there is a new strategy to prevent these fires that has investors  piling in.  

Diana Olick explains in the latest the installment of the series on the  rising risk to real estate.  


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As wildfires now rip  through thousands of acres of California real estate on the heels of record  setting destruction last year, a unique financial strategy to prevent such  fires is underway in nearby Tahoe National Forest.  A bond that provides  immediate much needed funding for fast restoration of the now overly dense,  dry and dangerous forests.  

I see a beautiful forest in front of me.  What do you see out there?  
ZACH KNIGHT, BLUE FOREIGN CONSERVATION MANAGING PARTNER:  It is strikingly  beautiful.  But what we really have right now is an overstocked forest.  

OLICK:  Zach Knight is managing partner of the non-profit Blue Forest  Conservation and the brains behind the first of its kind bond.  

KNIGHT:  It`s really a public private partnership where we have engaged  investors like pension plans, insurance companies, to help cover the up- front costs of doing this needed forest restoration work with the primary  goal of reducing risk of catastrophic wildfire.  

OLICK:  Here is how it works.  Investors buy into the bond.  In this case,  a $4 million loan held by Blue Forest.  It gives the money to contractors  who do the forest thinning.  Investors are then paid back over five years  with 4 percent interest by those who benefit from the work and have  contracted with Blue Forest like the Forest Service, state attentions and  Yuba Water, whose reservoirs receive water from the forest.  

WILLIE WHITTLESEY, YUBA WATER AGENCY DIRECTOR:  There`s about 300,000 acres  upstream of our reservoir here that our water comes from and we care about  the quality and quantity of that water from the forest.

OLICK:  Willie Whittlesey says it`s worth it for Yuba to pay a little bit  more over time because of the invaluable benefit of getting the work done  now.  

WHITTLESEY:  The need for funds is immediate.  We have a longer summer  season or shorter wet season.  And we have significant north winds that are  in effect of climate change.  We need to do something now. 

OLICK:  Yuba can`t rely on funds from the Forest Service anymore because  the service is spending more than half its budget fighting fires.  And  climate change could push that higher.  

KNIGHT:  It creates this vicious cycle where we`re spending all this money  to fight fires and that takes money away from the preventative work that  could stop the fires in the first place.  

OLICK:  The driving force behind this is an increasingly popular type of  investing, called ESG, environmental, social and corporate governance.   It`s investing for the greater good.  In this case, buying into the health  of the forest but still making money.  

JENNIFER PRYCE, CALVERT IMPACT CAPITAL PRESIDENT:  Our investors are  looking for an impact and a financial return.  And this is off the charts  when you look at what it`s giving back.  

OLICK:  Jennifer Pryce says her investors want to align capital with their  values.  And fighting the effects of climate change is number one on their  agenda.  

PRYCE:  It`s a little bit harder, I do find for people to buy into at  times, preventing rather than mitigating and taking it away or stopping,  but we prevent it from even happening.  

OLICK:  The greatest risk she says is if they don`t do more bonds like this  one.  

PRYCE:  Because if this transaction isn`t replicated or if there isn`t  other funds allocated to do the forest clearing, the forest fires can still  rage.  
OLICK:  For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Tahoe National  Forest.

HERERA:  Before we go, here`s another look at the day`s final numbers from  Wall Street.  The Dow fell 140 points, the Nasdaq dropped 11 and the S&P  500 was off nine.  For the month, all of the averages were up.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks  for joining us.  Have a great evening.  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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