Transcript: Nightly Business Report – December 20, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Flexing its muscle.  The stock market extends its record on new signs the economy is strengthening.  

From bad to worse.  Boeing`s troubles mount, but this time it`s because the company launched its new space capsule into the wrong orbit.  
Finding value.  It`s not easy with stocks at new highs, but our market monitor has a list of names you might want to consider.  
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this Friday, December 20th.  

Good evening, everyone, and welcome.  Bill has the evening off.  
Stocks powered to new highs to finish the week, putting the major averages on track for a blockbuster 2019.  The trade truce with China last week put investors in a buying mood and the buying really hasn`t stopped.  Today, positive news on the economy helped lift sentiment.  

And by the close, the Dow Jones Industrial Average was up 78 points to 28,455.  The Nasdaq rose 37, its seventh consecutive record close.  And the S&P 500 added 15.  All major averages were higher for the week.  
The economy appears to be regaining some of its footing.  Today, we learned that household spending rose in November.  According to the Commerce Department, personal income increased 0.5 percent and spending rose 0.4 percent.  Economists say the numbers support a strong consumer which has been driving the economy.  And stronger consumer spending helped economic growth in the third quarter rise 2.1 percent.  That in turned helping offset weaker business investment.  

Consumer sentiment rose in December, according to the University of Michigan index.  Consumers are now more optimistic about current and future economic conditions.  But will that feeling extend into 2020?  
Steve Liesman went in search of the answer.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  When it comes to economic growth, Americas was feeling is it as much as any time in the past eight years.  The CNBC all America Economic Survey interview Americans across the nation finds that 48 percent say they felt real indications the economy improved a lot or at least somewhat.  Only 42 percent say said only a little improvement or none at all.  Ten percent unsure.  

Well, it was not the highest level that`s been gauged.  It`s the lowest level among those saying none or little growth since the question was first asked in 2011.  

Like many of the responses when it comes to the economy, it`s driven mainly but not entirely by partisan views.  Seventy-seven percent of Republicans say the economy has improved a lot or somewhat, compared to just 28 percent of Democrats.  Independents, right in the middle at 44 percent.  

For the 2020 outlook, the survey asked, is next year a year for expansion and opportunity for you and your family, or a time to hold back and save because harder times are ahead?  Thirty-five percent took the rosy view of 2020.  The highest is since the question was asked going back to 1998.  Still, 52 percent remained concerned and said they`ll be holding back.  Maybe a sign of underlying caution to the American psyche when it comes to the economy.  

Just about every demographic group is net negative in response to this question.  Among those who are positive, Republicans, those who will spend $1,000 or more for holiday shopping season, and those who think now is a good time to invest in stocks.  

HERERA:  The market may have been up even more today if not for Boeing (NYSE:BA).  Shares fell more than 1.5 percent after a 1-2 punch of negative news.  Boeing`s Starliner rocket failed a key NASA mission during its first trip to space.  We`ll have more on that just a moment.  
But we begin with its troubled 737 MAX.  United pulled the plane from the schedule again.  And now, the MAX will not be back in the United fleet until the start of the summer travel season.  
Phil LeBeau has more.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  With the grounding of the Boeing (NYSE:BA) 737 MAX expected to stretch several weeks into next year, United Airlines is pushing back plans for the plane.  Another three months so the airline won`t fly the plane until June 4th, two months later than Southwest and American.  

With MAX planes set to be grounded for more than a year, cancellations are piling up.  In fact, U.S. airlines are now scrapped almost 150,000 MAX flights.  And it could go higher.  Since the head of the FAA says there is no time line for approving fixes for the troubled plane.  

As a result, Boeing (NYSE:BA) is halting MAX production next month.  And so is Spirit Aerosystems which building the fuselage.  At the company`s plant in Wichita, Kansas, there are already 100 MAX fuselages that had been built but not yet delivered.  Meanwhile, it`s still unclear if G.E. Aviation, building MAX engines in partnership with a French firm will slow or shut down its engine production.  

Will the bad news for Boeing (NYSE:BA) and the 737 MAX finally come to an end in the New Year?  Well, it`s too soon to tell.  But almost everyone agrees, the 737 MAX will fly again.  The question is when.  

HERERA:  Space is also a part of Boeing`s business but we don`t often focus on it.  Today, we are, after its Starliner spacecraft failed on its first launch.  
Morgan Brennan is at the Kennedy Space Center in Florida.  

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  A critical test Boeing (NYSE:BA) hopes will end 2019 on a high note.  Instead, a setback for its Starliner spacecraft.  

JIM BRIDENSTINE, NASA ADMINISTRATOR:  The Starliner itself on its way to the International Space challenge had a challenge.  

BRENNAN:  The unmanned launch took place just before day break at Cape Canaveral.  
ANNOUNCER:  And liftoff, the rise of Starliner and new era of human space life.  

BRENNAN:  And went according to plan.  The trouble arose after Starliner separated from the upper stage of the United launch alliances Atlas 5 rocket.  When an automated timer error prevented Starliner from reaching the orbit necessary to meet with the space station.  
In a statement, Boeing (NYSE:BA) saying quote, further root cause analysis is needed.  And that quote, the combined Boeing (NYSE:BA) and NASA team now plan to work together to define test flight objectives for the remainder of the mission while preparing the Starliner landing.  

Boeing (NYSE:BA) and NASA officials saying if humans had been onboard, they would have been safe the whole time and that the journey to the space station may have continued as planned.  
Something NASA astronaut Nicole Mann who will be on the Starliner`s crude flight detailed 

NICOLE MANN, STARLINER ASTRONAUT:  This vehicle is a new level of automation we have not seen before.  And so, what we`re really doing is we`re testing that automation.  And that`s why you have test pilots onboard, especially for these early missions.  That`s our job.  That`s what we`re trained to do.  

BRENNAN:  Still, the setback in the Boeing`s defense, space and security business coming during to a tough week for the aerospace giant on the commercial side, as it halted 737 MAX production.  With the timeline for Starliner now set to slip even further, NASA administrator Jim Bridenstine says there is no doubt there will be financial impact.  

BRIDENSTINE:  When there is a setback obviously that can have a feedback when it comes to maybe a provider not being able to win the next contract, whether its NASA or some other another commercial company that wants access to space for the value of microgravity.  So, that`s up to those commercial companies to figure out.  

BRENNAN:  Starliner is part of the NASA`s commercial Crew Program alongside SpaceX which has one more safety test of its own before humans can ride in its Crew Dragon capsule.  

For SpaceX, the first manned flight is expected early next year.  As for Starliner it`s unclear what the next steps will be, with the focus on bringing it back to earth as soon as Sunday.  

BRIDENSTINE:  It`s not a failure.  I would say it`s certainly that we wanted to see happen.  But it`s also true that we test for a reason, because we want to be able to learn these things that we need to learn so when we do put humans onboard, they can go and be safe.  
BRENNAN:  For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the Kennedy Space Center in Florida.  

HERERA:  It is time to take a look at some of today`s “Upgrades and Downgrades”.  
Kellogg`s was upgraded to buy from neutral at Bank of America (NYSE:BAC) Merrill Lynch.  The analyst cites improved sales growth which should help profits.  The price target is $70.  The shares rose more than 2.5 percent to $68.64.  

Dunkin Brands was upgraded to buy from neutral at Guggenheim Securities.  The analyst says the remolding of stores will help increase their sales.  The price target $83.  The stock was up nearly 2 percent to $74.98.  
Michaels was downgraded to underweight from equal weight at Morgan Stanley (NYSE:MS).  The analyst cites declining comparable sales and rising competition.  The price target is $5.  Shares of the small cap stock dropped nearly 8 percent today to $6.17.  

In the meantime something caught our attention in Nike`s earnings report.  Yes, they reported better than expected profit and revenue which we told you about last night.  But the company also said its Michael Jordan brand had its first ever billion-dollar quarter.  Not bad for someone who hasn`t played professional basketball in more than 15 years.  

Jabari Young is the sports reporter for and he joins us now. 
Jabari, welcome.  Pleasure to have you here.  
What is it about the Jordan brand that continues to drive it to these record levels?  

JABARI YOUNG, CNBC.COM SPORTS BUSINESS REPORTER:  First of all, thanks for having me sitting next to a legend.  I appreciate that.  
But, you know, listen, it goes to the Jordan brand has a history.  It`s perfection.  

I was talking to a PR person today representing Jordan brand at one time and he said, listen, they are like Disney (NYSE:DIS).  Everybody knows what the Jordan brand.  You walk into stores, you`re going to clubs, you`re going to lounges, most time you look at people`s feet, particularly younger people, even older, they have on a pair of Jordans if there is a pair of sneakers.  

You know, you don`t see those other brands as much as you see the Jordan brand and Nike (NYSE:NKE).  I think that history, the perfection, the fact that people know what it is.  
HERERA:  Right.  

YOUNG:  I owned a pair of Jordans.  I looked at my closet I got $2,000 of Jordan in my closet.  That`s because, you know what, that`s the brand that we recognize, especially a young urban guy coming from north Philly.  I wore Jordans.  That`s all I want.  

You go to school, you had a nice pair of Jordan, a new pair of Jordans, listen.
HERERA:  You rock, right?

YOUNG:  You`re the man.  You got a date, everything was fine.  Listen, the Jordan brand, I mean, that`s what it is.  The history, they`re connected to the culture, it connects to hip hop culture, and as long as they present and continue to uphold that, I think they`ll never go anywhere.  It`s not surprising any got the billion-dollar quarter.  

HERERA:  But compare it to the shoes that Steph Curry put out or the shoes that LeBron put out which were also hot. 

YOUNG:  Yes.  
HERERA:  But differentiate for me if you can.  
YOUNG:  History.  People — LeBron`s sneaker is good.  Steph Curry is coming, OK?  Listen, Puma, I love Puma, they`re on the rise.  Adidas is also there. 

But they`re not touching Michael Jordan Nike (NYSE:NKE) right now.  That`s the number one brand.  That`s perfection.  The difference is, is that as an agent told me, when you sign to the Jordan Brand as a player.  You got to recognize something it`s not your brand.  

It`s Michael Jordans.  You`re just a part of it, and you won`t — Kawhi Leonard is a classic example of that, went over to the Jordan brand, now he`s with new balance.  

But, you know, you see those other brands come.  But they don`t have the history, they don`t have the culture, they don`t have the impact that Jordan has, and that`s exactly why Jordan continues to see success and will for a long time.  

HERERA:  Well, congratulations to them.  
YOUNG:  Yes.  
HERERA:  Jabari Young, thanks so much.  
YOUNG:  Thanks for having me.  Appreciate it.  
HERERA:  Appreciate it.

Well, still ahead, big changes could be coming for millions of California workers on January 1st.  But it`s not entirely clear what those changes are.

HERERA:  The U.K. parliament is moving forward on a Brexit bill, all but assuring a January exit from the European Union.  Members approved the withdrawal agreement that Prime Minister Boris Johnson negotiated with the E.U. in October.  Today`s action paves the way for Britain to leave at the end of next month.  

A new California law goes into effect on January 1st that could change the way millions of people work.  It was designed to protect so-called gig economy employees.  But there could be unintended consequences for many more living and working in the fifth largest economy.  
Deirdre Bosa is in San Francisco.  

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT:  On January 1st, California will implement a bill that could upend the gig economy, Assembly Bill 5 also known as AB5 will require employers in industries like ride-sharing and food delivery to reclassify independent contractors as employees.  It could change the employment status of more than a million workers here in California.  

Right now, though, less than two weeks from its implementation, there is more confusion than there is clarity.  

UNIDENTIFIED MALE:  No, I don`t.  I didn`t know about the AB5 bill, what`s it consist of?  

UNIDENTIFIED MALE:  All the drivers such as Uber and Lyft and Doordash delivery drivers that current under AB5 bill.  

UNIDENTIFIED MALE:  Not 100 percent certain but if that`s the case I will probably say bye-bye because I don`t think they are giving me what I can make potentially as a salary.  

BOSA:  The law is meant to empower gig economy workers and give them protections they haven`t had access to.  But at the same time, it could hinder flexibility.  

UNIDENTIFIED MALE:  I think the most important thing is people should have the opportunity to decide if they want to be an employee.  
BOSA:  There are carve-outs for a contract lawyer, doctors and engineers, but not so for truck drivers and freelance journalists.  Uber, Lyft and Doordash failing to secure a carve-out for drivers are vowing to spend $90 on a ballot initiative to counter the effects of AB5.  

Meanwhile, Uber and Lyft have outed the bill as a risk factor in SEC filings as analyst predict it could cost them hundreds of millions of dollars.  Uber and Lyft say that their drivers will remain contractors when the law goes into effect, likely leading to a slew of lawsuits.  What happens here when AB5 goes no effect will have important implications for the gig economy in the rest of the country.  Other states are considering similar legislation.  In California could be just the beginning.  

NIGHTLY BUSINESS REPORT, Deirdre Bosa, San Francisco.  

HERERA:  Matthew Bidwell joins us now to talk more about what this could potentially mean for workers and the overall economy.  He is a professor of economics at the University of Pennsylvania`s Wharton School of Business.  
Matt, welcome.  Nice to have you here.  


HERERA:  I`m great, thank you.  
Medium term, short and medium-term.  Net, net, what impact do you think this will have on the overall economy?  
BIDWELL:  I mean, on the overall economy, I would have thought tiny.  Although we see more gig workers than we used to.  They`re still a small fraction of the economy.  

And the proportion of them that are going to be affected by this probably even smaller.  So, it`s going to be very disruptive for small numbers of people.  You know, if you are affected, it`s a big deal.  But I think overall economy is not going to have a massive effect.  

HERERA:  And for the San Francisco economy, which is sizable, do we know yet what the impact might be?  

BIDWELL:  We don`t.  I mean, as the report mentioned, there is a sense that the big companies that use these contractors potentially gong to see major new costs.  You know, assuming that they do reclassify them as employees, I understand that Uber and Lyft are sticking to their guns and saying the people are contractors.  So, in the immediate terms, it`s going to be more about lawsuits than it is about kind ever concrete consequences.  So, there is a potential for big costs.  

HERERA:  So, if you had to divide it up into winners and losers, would you put employers strongly in the loser category?  

BIDWELL:  Yes, I mean, some of these companies have created business models based on the idea they can treat these workers as independent contractors and potentially will be seeing big costs.  You know, some of these costs may come down as they figure out how to organize their work around treating people as employees.  But in the short-term, yes they face costs.  That`s why they`d be fighting this.  

HERERA:  So, who are the winners, the individual employees depending on how they view themselves?  

BIDWELL:  Absolutely.  I mean, I think in the government survey that was done a couple years ago, about half of the people working as contractors and contingent workers said they wanted to be contingent workers and about half would rather regular employment relationships.  Those people are kind of forced into this who would rather be regular employees.  They are winners.  

I think the other people who are likely winners are people whose employers might otherwise be thinking about could we cut costs by making these people contractors instead?  So, I think the fact you don`t have the competition from low wage contracting could be good for a large number of people as well.

HERERA:  Matthew Bidwell with the University of Pennsylvania`s Wharton School of Business — thanks for joining us tonight.  

BIDWELL:  Thank you.  
HERERA:  Strong results for BlackBerry.  That`s where with he begin tonight`s “Market Focus”.  

The provider of the security software and services beat analyst expectations thanks to strong sales in its patent listening and cybersecurity businesses.  The company also saw sequential revenue growth across all of its software units.  Shares claimed more than 12 percent to $653.  

Revenue growth at Winnebago was much stronger than expected, thanks to a rise in demand for its motor homes and its towables.  The company says it benefitted from its recent acquisition of RV firm Newmar and has now topped estimates for seven quarters.  The stock gained nearly 8 percent to $51.91.  

A mixed quarter for CarMax (NYSE:KMX).  The auto retailer reported better than expected revenue, thanks to a strong comparable dealer sales and rise in used car sales.  But the company fell short of profit estimates due to higher expenses.  The shares slid more than 6 percent to $92.71.  
And Merck (NYSE:MRK) received approval from the FDA for its Ebola vaccine.  This marks the first FDA approved vaccine for that deadly virus, something Merck (NYSE:MRK) calls an important milestone.  The vaccine approved by the European commission last month.  The stock was up nearly 27 percent to $91.58.  

Well, all week, we`ve been getting ready for the New Year by bringing back some familiar market monitor guests.  Tonight`s guest is a five-star value fund investor and he has three names he says belongs in your portfolio.  The last time he was on, he recommended Johnson & Johnson (NYSE:JNJ), which is up 48 percent.  Chevron (NYSE:CVX), up 51 percent, and Intel (NASDAQ:INTC) is 114 percent higher.  

Joining us once again is Randall Eley.  He is the president and chief investment officer of Edgar Lomax Company.  
Welcome back, Randall.  Nice to have you here.


HERERA:  So, you are still finding some value out there even with the market at all-time highs.  

ELEY:  Absolutely.  When you have Treasury — and this is 10-year Treasury interest rates at less than 2 percent, it makes stocks more attractive than would normally be the case.  

HERERA:  First pick is Allstate (NYSE:ALL).  They have had a strong year.  We`ve had a number of natural disasters, but they`ve been very resilient in the face of that.  

ELEY:  That`s right.  I think many value players assume that a strong year in price means you can`t have a second strong year.  But this is a cheap stock still.  They`ve got lots of — lots of cash, you know, strong financial position.  

And the fact is that they don`t have to grow earnings over the next year to be a good investment.  

HERERA:  How long would you typically hold some of the stocks?  
ELEY:  Oh, we buy nothing unless we think we can hold at least three years.  But ideally we like to hold ten years or longer.  
HERERA:  OK.  Exxon next on the list, the energy sector has had tough sledding though.  
ELEY:  That`s right.  
HERERA:  Why do you like Exxon?  

ELEY:  No doubt.  But here, you get the 5 percent dividend.  So the management is talking with their action.  But the fact is energy prices are not going down forever.  So you had oil prices down on average.  And so earnings slid.  People see it as a high P/E stock because it`s 20.  But the facts of life is all you need is oil prices to bounce a little and suddenly you bought it as a lower than normal P/E.  

HERERA:  And Pfizer (NYSE:PFE) facing some concerns about the loss of patent and longtime selling drugs.  They certainly not the only drug stock facing that particular challenge.  But you find other reasons to buy it, the pipeline.  

ELEY:  Oh, yes, this is a company that has — they have a culture of dealing with these challenges that drugs go off patent, and they have drugs in the pipeline.  And they are also looking at what others are doing.  They also have, you know, very strong financial position.  So, they can withstand the ups and downs of the market.  

HERERA:  And what about the dividend?  
ELEY:  Oh, what I like about them you got the low P/E ratio, 14 and high dividend yield about 4 percent.  

HERERA:  Very quickly on the market do you like the market overall.  
ELEY:  Generally, I would be afraid of it because of valuation.  Price to book ratio, 3.5 percent, almost twice normal.  But the fact is it`s the fourth year of the four-year cycle.  And that`s usually good for stocks. 
Also, the Fed is easy.  That`s good for stocks.  I think it should be a sane market but be prepared for something worse.  
HERERA:  Volatility?  
ELEY:  Yes.  

HERERA:  Because of the election year coming up or just the fact that we`re at these lofty levels?  

ELEY:  The fact we`re at the lofty levels.  I think the election year actually should be helpful.  
HERERA:  On that note, thank you so much, Randall.  
ELEY:  Thank you.  

HERERA:  Nice to have you here.  
Randall Eley with The Edgar Lomax Company.  
Coming up, the world`s biggest gaming Mecca turns 20 but the next 20 could look a lot different.  

HERERA:  The convenience store chain Wawa hit with a large scale data breach, potentially affecting all locations.  Malware was discovered on the company`s payment processing servers earlier this month.  Now, the company says the card information was swiped, including credit and debit numbers, expiration dates and card holder names.  It is unclear, however, how many customers were actually affected.  

HERERA:  Macau, a former Portuguese colony, was handed back to China 20 years ago.  And since then, the small city has become a major force in the global gaming economy.  
Contessa Brewer has more.  

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Chinese President Xi Jinping is in the world`s biggest gaming Mecca of Macau to mark the 20th anniversary of the region`s handover from Portugal to China.  He`s praising Macau`s polite behavior and what`s largely received as a rebuke to Hong Kong`s disruptive protest.  

And he`s dangled the promise of fewer financial restrictions for the special administrative region, just this week expanding the amount of money gamblers can take from Macau to mainland China.  But gaming analysts here say it would have had more impact for money to freely flow the other way.  There have been reports Beijing will establish a securities exchange center in Macau dominated by the Yuan in an effort to diversify Macau`s economy beyond gaming.  

Sources in the gaming industry told me it seems particularly ambitious.  They see it as a shot across the bow to Asia`s finance center, Hong Kong.  

Lawrence Ho talked to CNBC Asia about the possibility.  

LAWRENCE HO, MELCO CEO:  As Macau continues to integrate within the greater bay area, there are more and more opportunities.  And, you know, if the Renminbi`s stock exchange or all that comes to materialize, I think that`s another avenue for Macau to diversify going forward.  

BREWER:  Casino companies themselves are working to expand beyond gaming with huge investments and cultural institutions, dining and entertainment.  Wynn Resort CEO Matt Maddox says we believe the investment we are making in our transformative Crystal Pavilion expansion in Macau, coupled with the government policies to accelerate growth in the greater bay area makes us even more optimistic about the future of a diversified Macau economy.  

The casinos are due for concession renewal in 2022.  In the here and now, the visit by Xi Jinping is expected to hit December revenues hard because of restrictions on visas and limit on overnight visits.  Sources tell me December is looking like it will be off 14 to 17 percent for the full month and the valuable VIP segment down more than 30 years year over year.  That`s largely due to the Beijing policies cracking down on junkets that bring those lucrative high rollers into Macau.  
Casinos with exposure to Macau have a reason to celebrate 2019.  Their stock prices have all exceeded the broader S&P.  
For NIGHTLY BUSINESS REPORT, I`m Contessa Brewer.  

HERERA:  And before we go, let`s take another look at the record day on Wall Street.  The Dow was up 78 points, the Nasdaq rose 37, its seventh consecutive record close, and the S&P 500 added 15.  All of the major averages were higher for the week.  

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