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NIGHTLY BUSINESS REPORT for February 11, 2019, PBS - Part 1

February 12, 2019



<Date: February 11, 2019>

<Time: 18:30:00>

<Tran: 021101cb.118>

<Type: SHOW>

<Head: NIGHTLY BUSINESS REPORT for February 11, 2019, PBS - Part 1>

<Sect: News; Financial>

<Byline: Sue Herera, Bill Griffeth, Ylan Mui, Eunice Yoon, Bob Pisani,

Diana Olick, Sharon Epperson, Robert Frank>

<Guest: Kevin Caron, David Nelson>

<Spec: Economy; Government; Policies; Business; Trade; Taxes; Elderly;

Housing; Real Estate>

<Time: 18:30:00>

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wait and see. That`s what investors seem to be doing as they look for more clarity on two big issues: shutdown talks and trade.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tax surprise. As filers calculate their taxes, some say it`s not what they expected.

HERERA: Aging in place. More older Americans are doing it, but it`s complicating things for potential home buyers.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, February 11th.

GRIFFETH: And we do bid you a good evening, everybody, and welcome.

Investors spent much of this day watching and waiting. They anxiously watched the government shutdown meetings in Washington, and those discussions on trade in Beijing, and they waited for new developments on both. With earnings season winding down and the Fed apparently on hold, the government spending battle and trade talks are now the two most important events for the market.

But today, after all of the watching and waiting, there`s still only fog, and that resulted in a mixed finish for stocks today. The Dow fell just 53 points, never strayed far from unchanged. The Nasdaq rose nine. And the S&P added just two.

HERERA: So, let`s begin tonight with the shutdown. Lawmakers from both parties met this afternoon, after reports over the weekend that budget negotiations have stalled. Remember, the deadline to fund parts of the government is this Friday. The sticking point remains border security. If the president doesn`t sign a deal into law by the deadline, parts of the government will shut down again.

Ylan Mui is covering the story for us from Capitol Hill.

Good to see you, Ylan. Where do things stand at this hour?

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Sue, the negotiations have going on through the evening. As you mentioned, the top two Republicans and the top two Democrats on the shutdown committee did meet this afternoon to restart some of those discussions. Now, they came out of that meeting, at least the Democrats did, sounding fairly optimistic. Democrats have offered to pay more money for physical barriers in exchange for limiting the number of the detention beds use for immigration enforcement.

Republicans, however, have called that a poison pill and nonstarter in these negotiations. So, we will see if they`re able to break through this latest logjam.

GRIFFETH: So, what are the federal workers telling you right now? I mean, they`ve already been through what was once the longest shutdown in U.S. history?

MUI: Well, they`re certainly not very happy. What we heard today was workers saying that they want lawmakers to reach a deal. They want to make sure the federal government stays open however, it has to happen.

We saw workers fanning out across Capitol Hill today to take the message to lawmakers -- folks at Bureau of Prisons, folks who work for flight attendants union. They all had that same message. They`ve been through this once before. They don`t want to be here again.

HERERA: Understandably so. Ylan Mui on Capitol Hill -- Ylan, thank you.

GRIFFETH: Now to trade preparations, they are under way ahead of an important meeting later this week between high-level officials from the two world`s largest economies. Those meetings are taking place in Beijing and that`s where we find our Eunice Yoon tonight.


EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The trade talks are under way in Beijing. Deputy level officials have arrived and they`re setting the stage for some of the higher level discussions for the Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin. The talks last all week, and by the end of it, we should have a clearer idea if a deal is in the cards by March 1st.

At “China Today”, it says it`s hopeful for a good result, but the question is, will the Chinese make major concessions on issues that are important to the U.S., structurally issues like state subsidies for technology transfers. So far, they haven`t moved much. And they dominant opinion among China watchers is that the Chinese won`t move on these issues. They don`t like the outside pressure, and they consider industrial policy too important to give up.

The other opinion, which is a Trump`s administration`s view, is if the U.S. squeezes China enough economically, when the economy is down, Beijing will come to the table. And on that front, we got some data which show the consumer isn`t so confident here. Lunar New Year sales grew at their slowest pace in more than a decade. The sales are a gauge of the Chinese consumer, China`s equivalent to Christmas shopping. Retail sales and domestic travel dropped to the single digits. And that could put pressure on the negotiators on the Chinese side.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.


HERERA: So, we have the trade talks in China, shutdown negotiations happening in Washington and data -- inflation data out later in the week. All of this could potentially be events for the market in this new trading week.

So, Kevin Caron joins us, senior portfolio manager with Washington Crossing Advisors to talk about this week ahead.

Good to see you, Kevin, as always.


HERERA: Of those that I listed, which do you think is going to be potentially the most market-moving?

CARON: It`s got to be trade, because it`s the biggest issue. It`s been a lingering issue for the global economy and the financial markets for most of the last year. So, I have to finger trade as being the biggest potential worry. But all of the others, the shutdown does have implications because it pushes up against the debt ceiling ultimately.

And then later in the month, we`re going to be confronted with Brexit. So, there are a lot of events that could move the market one way or the other.

GRIFFETH: You would think after the long shutdown we had, and the implications it has for the economy that they would find a way to avoid it. Although what we are hearing is that it`s entirely possible that they just sign another continuing resolution and kick the can down the road.

CARON: Yes. The market also has been rallying into this. So, with all of these events, it seems as if the market`s expressing the idea cooler heads will prevail. Of course, these are thorny issues taken one at a time. The debt ceiling and the shutdown, the potential shutdown, is among the thorniest. So, we`ll have to see how it goes. But it has a big impact on market psychology. That`s for sure.

GRIFFETH: What about data? We had the big Fed meeting where it looks like we won`t get the kind of rate hikes that the market had been factoring in before this New Year. How important is the data?

CARON: Well, the data is very important. The Fed essentially gave in on the idea that the economy was overheating and has folded into a much more dovish Fed, and the outlook has been reduced in terms of interest rate increases. So, if we got, for example, inflation date that was to run hot, that might put pressure on the Fed to come back and raise rates again. That could be a problem.

So, yes, the Fed is paying close attention to the data that comes out on inflation or retail sales and consumer confidence in the next several days.

GRIFFETH: By the way, before we let you, we have highlighted on this program in the past, the consumer staple sector which was highly regarded over the summer as defensive move, defensive sector move. With the rally in January, a lot of people were moving away from the defensive sectors, you still like consumer staples, don`t you?

CARON: Yes. At Washington Crossings Advisors, we have a barometer that we`ve constructed that measures changes in the economy and financial markets and from about a year ago, we began to see it decline in that barometer and we followed that.

So, our best indicators at this point are suggesting that we still need to be somewhat cautious. We`ve not seen a turn the data yet. So, consequently, the consumer, a more steady part of the economy or even utilities where yields have back up, to us, seem very attractive.

HERERA: Kevin Caron, thank you. Kevin is with Washington Crossing Advisors.

GRIFFETH: Well, exchange-traded funds, believe it or not, have been around since 1993, but it`s only in the past five years that their popularity has grown exponentially now with more than $3.3 trillion in assets under management. So, it`s no surprise that influential investment managers are attending the annual gathering of the ETF industry.

And as Bob Pisani reports, a few key themes are emerging. He`s in Hollywood, Florida, for us tonight.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m here at the 12th Annual Inside ETF Conference, the biggest ETF conference in the world where roughly 2,500 investment professionals are gathered to talk about the most important trend in 2019.

Chief among them: concerns about a global growth slowdown. It`s the number one topic here. The head of the New York Stock Exchange says that optimism about growth in the U.S. will help outweigh the slowdowns in Europe and the nation.

STACEY CUNNINGHAM, NYSE PRESIDENT: You mentioned Davos. When I was out there, it was apparent that there was a little more optimism from some of the U.S. CEOs than there were from some of the European CEOs and again, there`s just a lot of issues there that are unfolding.

So, how they unfold and how quickly they unfold will contribute to what the growth looks like.

PISANI: But while many have downgraded their forecast for growth here in the U.S. and abroad, one key player says that a recession is not imminent.

GREG DAVIS, VANGUARD CIO: We upgraded our risk for recession in 2019 because of policy uncertainty from 30 percent to 35 percent. We see the risk rising as we go into 2020 where we expect it to be somewhere between 40 percent, 50 percent chance of recession in 2020.

PISANI: And finally, I sat down with the investing legend Paul Tudor Jones who is looking to make a big push in another theme that`s gaining traction among ETFs, socially responsible investing.

PAUL TUDOR JONES, TUDOR INVESTMENT FOUNDER: Since 2008, 92 percent of corporate profits have gone to shareholders. It`s the exact photo negative of what the American public thinks a just company should do. So, you`ve got a big disconnect between what the American public thinks and what corporate boardrooms and C-suite are actually doing.

PISANI: Jones believes that the American public strongly supports the principles of socially responsible investing which includes fair pay for workers, reducing pollution and creating and maintaining jobs. That`s all a far cry from the old mantra that the sole purpose of a corporation is to maximize return for shareholders.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani in Hollywood, Florida.


HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.

Tesla was upgraded to buy from hold at Canaccord Genuity. The analysts cites improving demand for electric vehicles. The price target is $450. The stock rose more than 2 percent, $312.84.

Electronic Arts (NASDAQ:ERTS) was upgraded to buy from neutral at Bank of America (NYSE:BAC) Merrill Lynch. The analyst cites positive reception of EA`s new game, “Apex Legends”, which we told you about last week. The game is considered a rival to “Fortnite”. The price target is $110. Despite the upgrade though, the stock fell a fraction to $97.24.

GRIFFETH: Avis budget was upgraded to buy from sell at Goldman Sachs (NYSE:GS). The analyst cited the stocks valuation and potential benefits that would come from the company`s cost-saving efforts. Price target now $35 and that stock rose more than 7 percent today to $278.58.

Nvidia was downgraded to market perform from outperform at Bernstein. The analyst says that the semiconductor company is facing severe challenges to growth. Price target $175 and that stock fell another 1 percent today $146.45.

HERERA: Coming up, making a comeback. Stocks kicked out of the Dow and rebounding strong. We`ll tell which ones and why this tends to happen.


GRIFFETH: Very late today, Amazon (NASDAQ:AMZN) said it`s buying a Wi-Fi start-up called Aero. Aero makes home routers to help customers better connect smart home devices. Terms of the deal were not disclosed. As you know, Amazon (NASDAQ:AMZN) has been making a big push into the smart home business. It says that this deal will help define the future of home.

HERERA: Social media company Reddit is now valued at $3 billion, following its latest funding round, which raised $300 million. Reddit plans to use that investment to improve its website and try and increase its digital ad sales. Reddit calls itself the front page of the Internet is said to have more than 330 million monthly active users.

GRIFFETH: Well, you know about the dogs of the Dow. But what about the Dow dinosaurs?

Now, these are companies like AT&T (NYSE:T), General Electric (NYSE:GE), General Motors (NYSE:GM) that were once highly regarded components of the Dow Jones Industrial Average but are no longer. And while most of them were down sharply in 2018, they have done very well, so far, in 2019. Can that last?

Joining us tonight, David Nelson. He`s chief strategist at Belpointe Asset Management.

David, good to see you. Welcome. Thank you.


GRIFFETH: We should give credit to Barrons. They ran a story about something like this over the weekend. What happens typically when a company is taken out of the Dow? What happens on Wall Street then?

NELSON: Well, it`s some of a washout, you know? To be fair, you know, when Dow Jones takes a stock out of the index, likely, a lot of the bad news is priced in. In G.E.`s case, you know, it`s down 80 percent, you know, from the highs of 2000.

So, a lot of sellers are gone. And when the index funds actually kick it out, now you have a big plus. So, what happens in the following year is very often, any good news at all is enough to drive the shares higher. In some cases like G.E., that was pretty dramatic.

GRIFFETH: It has been pretty dramatic. What about AT&T (NYSE:T)?

NELSON: You know, AT&T`s probably the least of them all. Up marginally this year, less than what the market.

I`m not that excited about AT&T (NYSE:T). Yes, it has a great dividend. A lot of free cash flow, but historically has made a lot of very bad acquisitions. One in particular, DirecTV was just an enormously -- well, proved to be enormously unprofitable choice for them. I think they`re going to end taking -- this is going to be looked at a big error.

GRIFFETH: Then there`s General Motors (NYSE:GM), which has had a very different journey from the other two companies we just mentioned. They went into bankruptcy with a financial crisis. And then they reissued stock. It`s been sideway since they came out in 2011 or thereabouts.

But you like this company. In fact, I think you own shares of this one, don`t you?

NELSON: We own shares -- that`s true, we own shares of this company. It`s the one like and for the following reasons. Mary Barra gets it.

I like the CEO. I like this management team. I think what she understands is that right now, there`s about over 80 million cars produced annually, new cars every year in the world.

We`re just moving into another world. We`re not going to need that. It`s not an efficient use of capital.

The average automobile sits unused 23 hours out of every day. We need a different plan. And what`s starting to happen, we`re moving into a new society, an on-demand world, an Uber-like world. And I think she understands that. I think cars of future will be on the road a lot longer, and we`re going to need a lot of less of them.

I think they`re gearing up for that, so they`re retrenching here. They`re making their footprint smaller. They`re reducing capacity. And I think it will be moved into next generation vehicles. I think it`s a very smart move on their part.

GRIFFETH: All right. There we are we three of the Dow`s dinosaurs tonight.

David Nelson with Belpointe Asset Management, thanks again for joining us.

NELSON: Thanks for having me.

HERERA: Investors cheered Norfolk Southern`s new strategy. That`s where we begin tonight`s “Market Focus”.

The railroad operator said changes are being made at company that will result in an increase in productivity, efficiency and sales growth. The CEO says that lower costs will help it deliver stronger margins. It`s also aiming for revenue growth at compound annual rate of 5 percent through the year 2021. Norfolk Southern (NYSE:SO) was up 3 percent today to $176.95.

Restaurant Brands reported better than expect the earnings, along with strong same store sales figures. The CEO says the company`s focus on technology, delivery, kiosks and its mobile app has started to pay off. The parent company of Burger King and Tim Hortons (NYSE:THI) also raised its dividend. The shares rose more than 1.5 percent to $63.72. It touched a 52-week high during the session as well.

And the videogame company Activision Blizzard (NASDAQ:ATVI) reportedly is planning to cut hundreds of jobs. Bloomberg says Activision, which makes the popular games “Call of Duty” and “Warcraft”, is facing slowing sales and increased competition. The lay-offs expected Tuesday when the company reports earnings said to be aimed at lifting profit and centralizing operations. Activision shares fell more than 7.5 percent today to close at $40.11. They hit one-year low during the session.

GRIFFETH: Morgan Stanley (NYSE:MS) is buying Solium Capital. This is a Canadian company that prepares stock plans for start-ups. Price tag: nearly $1 billion. And the deal gives Morgan increased exposure to more potential wealth management customers. It is Morgan Stanley`s largest acquisition since the financial crisis in 2008. Shares dropped more than 1.5 percent today to $40.21.

Drugmaker Sanofi and Regeneron are slashing the price of their injectable cholesterol drug Praluent by 60 percent. Now, the original price tag of $14,000 a year will now be cut down to just over $5,800 a year. The out of pocket costs for Medicare Part-D patients will be between $25 and $150 per month.

By the way, rival Amgen (NASDAQ:AMGN) made a similar move with its competing drug Repatha back in October.

Sanofi was down a fraction today $42.43. Regeneron rose slightly to $408.51. And while we`re at it, Amgen (NASDAQ:AMGN) was also off a tick at $185.79.

Chegg reported a rise in profit and revenue in its fourth quarter. The online education company said its subscriber count grew by more than 30 percent. So, as a result, it`s increasing revenue guidance for this year. And that sent the stock higher in initial after-hours trading this evening. It finished the regular session up 1 percent to $34.80.

HERERA: It used to be that older Americans would sell homes and downsize once the kids moved out. But today, an increasing number are choosing to age in place, and that is having an impact on home buyers of all ages.

Diana Olick has our report.


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sixty-four-year-old Louis Tenenbaum is busy building an elevator into his small Maryland home.

LOUIS TENENBAUM, HOUSING ADVOCATE: I took this middle line between the upper levels and the lower level, and opened the shaft which I put a lift in so that this house can really be an aging place friendly house.

OLICK: Tenenbaum says he plans to grow old in his current neighborhood as long as he can and he is not alone.

TENENBAUM: People age in place because they love their homes. It`s their chief investment. They love their neighborhoods and their communities. And they love the control that they get in their own house.

OLICK: The trend however is removing an estimated 1.6 million homes from a housing market already in critical need of more homes for sales, according to Freddie Mac. That is about the same number of new single family and multifamily housing units built each year.

JANE FAIRWEATHER, REAL ESTATE AGENT: There`s a stalemate. You know, we can`t get enough housing for the couples that want to put their kids in good public school systems.

OLICK: Rea estate agent Jane Fairweather sees the problem every day. Not enough listings for the high demand of move up family buyers. But she says it`s not just home owners like Tenenbaum choosing to stay put, others have no choice.

FAIRWEATHER: For some people, there`s nothing affordable to move to, so they`ve decided we have to stay here.

OLICK: And given how pricey today`s market is, in some cases, the math just works in favor of staying put.

FAIRWEATHER: But if they have to spend another million dollars in order to get one quarter of the space, the house starts to look reasonable. And the maintenance on it looks reasonable.

OLICK: This trend is likely to grow especially as more homes are renovated to make it possible. Tenenbaum lowered a kitchen counter so he could sit and cook if he needed to, and also moved switches to make it possible.

You planned out for everything?

TENENBAUM: I hope I planned out for quite a bit.

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


HERERA: And to read more about the aging in place trend, you can always head to our website, NBR.com.

GRIFFETH: Coming up, should the rich pay more in taxes? It`s a hot topic in Washington right now and it`s done before.


GRIFFETH: As we all know, it is tax filing season and no one wants an unpleasant surprise. But apparently, that`s exactly what some early filers have been getting.

Sharon Epperson is with us tonight to explain what is happening and maybe how to avoid the same scenario next year.

And right away, what we heard today from the IRS is that the average refund is smaller than it was last year.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is smaller. We`ve talked about the tax law changes and impact that could have on your taxes. Another big change was a change to withholding tables. So people were not having as much tax withheld. And so, it`s not necessarily that they`re paying more tax, but they may be and they may not have had enough withheld and that`s why they`re seeing impact on that refund that they expected to get or maybe even owe. The difference that we`re seeing is significant. If you look at what --

HERERA: Whoa, that is!

EPPERSON: The average refund was at the end of February 1st, the first week that you could turn into your tax return, you`re looking at $18,000, a little bit over -- sorry, 1,800, a little bit more. Either number showing the first week in February last year. But the average refund overall last year was over 2,800. So, it`s a big difference in what people are getting back.

HERERA: So, which taxpayers, maybe segment of taxpayers, is most likely to be affected by this?

EPPERSON: It`s the ones who will be probably under-withheld and did not pay enough throughout the year and have the withholding problem. And so, those are people who itemize and do not have dependents, people who live in a high tax state because of the cap now on the state and local tax deductions of $10,000.

And people who have unreimbursed business expenses because so many of those itemized deductions and expenses are no being deducted and claimed. So, that`s a big change for a lot of people.

GRIFFETH: So, what do you do to make sure this doesn`t happen next year?

EPPERSON: So, now what? So, now what? So, this is what I need to. This is what you need to do.


GRIFFETH: Take a look at your W4, right?

EPPERSON: Exactly, exactly.

So what you need do, there`s a withholding calculator at IRS.gov. It is very helpful. Have your pay stub, have your tax return, so you have the accurate information to fill in and see what it says in terms of what your withholding should be.

If it`s not -- if it doesn`t say that right now on your W4, go to the employer, change that W4 form, make sure you`re in a better place for 2019 than you were for 2018. There`s nothing you can do now to dial it back. If you didn`t have the right withholding tax taken out, but you can make that change for 2019 if you go to those steps.

HERERA: And it`s early in the year.

EPPERSON: It`s early in the year, exactly.

GRIFFETH: Sharon Epperson, as always, thank you very much.

EPPERSON: Well, not only are taxes on everybody`s minds but so are tax rates, especially now that some lawmakers are talking about hiking them on the wealthy.

And as Robert Frank reports, that is not a new idea.


ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: New proposals for taxing the wealthy are being called radical, socialist and extreme, even by some Democrats. The plans being floated have some precedent in American history. Representative Alexandria Ocasio-Cortez discussing a top income rate of the high as 70 percent was almost twice the current top tax rate. Conservatives say her plan and similar ones from Senators Warren and Sanders threaten economic growth and investment.

ARTHUR LAFFER, LAFFER ASSOCIATES CHAIRMAN: Tax rates matter and they matter a lot. When you get a lower rate, broader base flat tax, economic growth ensues and a lot of the benefits go to the poor, the minorities and the disenfranchised. Those people who are getting jobs right now.

FRANK: But America has seen much higher rates before. Between World War II and 1980, the top tax rate was between 70 percent and 91 percent. Bernie Sanders` estate tax which would lower the exemption from the current $11.4 million to just $3.5 million would mark a return to 2009 levels.

But some say taxes on estates and wealth are needed to reduce growing inequality.

CHRIS HUGHES, ECONOMIC SECURITY PROJECT: Let`s be clear about the rates are. They are historically low, much lower than for the 40 years after the Second World War. And as a member of that 1 percent, 0.1 percent, I can tell you, I can afford higher taxes and it would make my life better.

FRANK: All of which may help explain why a majority of Americans support higher taxes on the wealthy. Three quarters of those polled by “Politico” and Morning Consult supporting increasing top tax rate to 70 percent. A Fox News poll found a majority of Republicans even backed higher tacks on those making more than $10 million.

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