Transcripts For KQEH Nightly Business Report 20160818

Those stories and more tonight for nightly Business Report, on wednesday, august 17th. Good evening, everyone, and welcome. A house divided. That is the unmistakable conclusion to be drawn from todays release of the minutes of the latest meeting of Federal Reserve policy makers last month. Several members of the Interest Rate setting open Market Committee felt an urgent need to raise rates soon. Others said, not so fast. Lets wait for more data, especially on inflation, which remains below the feds target. But investors, of course, dont have the luxury of waiting. Hampton pearson reports tonight from washington on the fed and the mixed reporter when Monetary Policy makers met in late june, job growth had rebounded and market tuberculos, following the june 23rd vote by Great Britain to leave the european union, had subsided. So janet yellin and her fellow Monetary Policy makers concluded, quote, another interest in the fed funds rate was or would soon be warranted. But there was no consensus on timing. And a split on what combination of Economic Conditions would be needed for the fed to pull the rate hike trigger. This is a fed with 17 participants and i would say 17 different opinions, and right now, the chair has not really imposed her will. According to the minutes, the key policy speed bump holding back a rate hike appears to be inflation. Still running well below the feds 2 target. Other concerns, sluggish Overall Economic growth, especially lagging business investment, Global Concerns include economic weakness in europe, and chinas slow growt i think its still data dependent. I dont th thats changed. I think theres still a lot of disconnect between the fed and the market. A lot less than there was at the start of the year. Reporter while the fed minutes say a rate hike is warranted, theres still no consensus among Monetary Policy makers on the timing. So once again, all eyes will turn to fed chair, janet yellin, and the annual Federal Reserve gathering at jackson hole, wyoming, next week. In washington, im hampton pearso for nightly Business Report. That word soon in the fed minutes did not move the market, as you might expect. Any expectation that the central bank is close to hiking rates would usually result in a fall in stocks, but not today. In fact, the t major indexes closed higher. The Dow Jones Industrial average added nearly 22 points to 18,573. The nasdaq gained 1. 5, and the s p 500 was up 4. Bob pisani has more on todays peculiar market reaction. Reporter stocks were a little changed on the release of the fed minutes, and with good reason. The markets already believe that unlikely, and the minutesas only confirmed that feeling. The markets dont believe the fed will move in september, because the fed has clearly telegraphed its concern that inflation is below their targets. Now, bond yields and the dollar both moved down on this news, although a couple members indicated they wanted to raise rates, the market chose to focus on the line that the members voted prudent to accumulate more data before they acted. Now, most importantly, traders believe that janet yellin is in that cautious camp, and will again strike a dovish tone at her speech in jackson hole on au 25th. So heres the bottom line. The waitandsee theme is still very dominant at the fed, and that keeps traders believing that a rate hike is still well down the road. For nightly Business Report, im at the new york stock exchange. While stocks hit high of h company in particular thats getting a lot of mt p buzz. The s. E. C. Recently suspended trading in an obscure outfit called neuromama. It trades over the counter, but its value has more than quadrupled there year to 35 billion on hardly any volume. It has no revenue, it last filed Financial Information with the s. E. C. In early 2014. Its got about 1,000 in cash on hand and its based in a Beach Community netijuana, mexico. Regulators halted trading on monday because of potentially manipulative stock transactions and questions about the identity of the people in charge. So, what does neuromama do . A lot of things. It says its a search engine. Its also on amazon and ebay, it has an ent ven in las vegas and its investing in atomic fusion. So what exactly happened here . Eamon javers has been looking into this story for us. Good to see you, eamon, as always. Apparently, there were some red flags for this for some time. Why did the s. E. C. Move now to suspend the shares of neuromama . The s. E. C. s Investigative Unit will take action whenever they feel like investors will get hurt. You can look at that stock chart and sense that quadrupling in value and you can sense something was going on with this tiny little stock. Thats probably why the Enforcement Division stepped in and stopped this thing. They might have been worried other people were going to get hurt, and they might have had evidence that false information was being spread about that stock. So, youve done some digging and found another company with huge mar cap, very low volume, and kind of an odd background. What is it . Yeah, this is story that sort of illustrates the danger for investors of poking around in the pink sheets. Those are those overthecounter stocks that are lightly regulated by the s. E. C. The one we found today is called bigfoot projinvestment an the company is this to go out and find bigfoot, the big, hairy monster, and to make dvds about that, sell tshirts, and conduct explorations all around north america, looking for bigfoot. I spoke to the ceo, tom descardi. The company, as of this morning, had a market capitalization on the data sheets of 10 billion. And thats largely due to an accounting fiction that has nothing to do with bigfoot, itself. Bigfoot, all of its s1s are out there for everyone to look at. The company says its going to find bigfoot. It says its got a skeleton of bigfoot. It says its got plaster casts of bigfoots footprints. Those are the assets listed in the s. E. C. s filings of this company. As of this afternoon, though, otc markets had removed the price from the stock, indicating its not, in fact, worth 50 a share, and therefore it is no longer, officially, a 10 billion company. I think neuromama and bigfoot should mate and create a Company Worth 100 million. There you go. Eamon, thank you so much. Eamon javers in washington. Lets turn now to a former security a Exchange Commission official. Andr is the former s. E. C. Deputy council. Hes currently a professor at the university virginias school of law. Professor, always good to have a fell wahwhat wahoo on our air. How could Something Like this, like neuromama with such a sketchy pedigree trade for so long, seemingly under the noses of american regulators . We want investors to be able to trade, and we want them to trade as easily as we can make it. That helps capital formation. But the key is adequate and accurate information. So the system builds in a variety of methods to provide adequate and accurate information. And the systems dont always work. Some of the problem that we see here with neuromama and thats one of the reasons that even a small amount of activity in a lightlytraded stock can make those prices stock prices go up very quickly in a very short time. Now, obviously, its a very gray market. The binge sheets, the overthecounter market. Eamon found yet another company that has a very large reported market capitalization. How Many Companies do you think are out there with that type of profile, and how long does it take the s. E. C. To find them . And what can they do if they do find them . We, of course, dont have an accurate count. We know that for many years, including as long ago as when i was at the s. E. C. , theres an active program to look for companies that are not providing the minimum and accurate amounts of information the markets need. Since that time, i was at the s. E. C. Until early 2009, and Many Companies were had their trading rights suspended or revoked. There have been Something Like 800 recently, taken off the markets. So we dont know. Its in the hundreds, im sure. Maybe mind. A quick thought, if yo what advice would you give to an individual investor, who may be stumbling upon one of these companies, with huge performance numbers. Real quick . Investors need to do their homework. They need to look into the companies, be skeptical, keep your with its about you. And dont be driven by specule frenzies. Andrew, thank you very much. Andrew vollmer with the university of virginias law school. My pleasure. And as mr. Vollmer has outlined, penny stocks seems like a bargain to investors, but there are, indeed, very real risks. Tim mallard, president of personal finance at bam alliance joins us to talk more about that. Yo the a big difference here between investing and gambling. There absol is, sue. Investing in penny stocks is actually gambling. Youre taking a big chance. And i get it. We understand that we all would love to have that story that youre telling in a Cocktail Party about your new yacht that is named bigfoot mama, because you bought this stock for pennies on the dollar and it went up over thousands of dollars. I understand the draw to that. And, believe it or not, the draw makes sense, in one way. And that is that Small Company stocks have historically outperformed Large Company stocks. The problem is, that its a very, very small number of those Small Company stocks that make up that outperformance. Considered to be less than 1 . Therefore, your chances of stumbling upon that one individual stock are extremely low. Way to gain exposure and benefit from the smallcap premium is to do so with broadly based index funds. Lets talk a little bit about the overall words of advice here. Can you generalize and say the smaller the stock, the higher the risk . Well, thats what the evidence would suggest. Yes, that the smaller the stock, the higher the volatility, the higher the risk. Thats what weve seen in the past. And it absolutely does make sense. There are many more questions to be answered about the Smaller Company than the large one thats been around for quite some time. So, at this point, if youre an individual investor, you basically need to come to terms with the fact that if youre going to put this money into a neuromama or a big foot, whatever it is, that its gone. Just, you know, if you get a return, fine, but just count on the fact that you have to be willing to lose that money and not be emotional about it. Yeah, i wouldnt recommend investing any more in a penny stock that you would be willing to take to your buddys house for poker night where you anticipate walking away with nothing. I think there is no greater chance that you will apt to benefit from a penny stock in a really, really significant way, the way that one would hope. Lets not develop an emotional attachment to the story of some new company that you will be the next google or apple. I know lets look at it more rationally. But i know were going to hear from viewers who said, i bought a 4cent stock and it quadrupled or went up 100 . What do you say to them, quick . If it werent for stories, tyler, we wouldnt be talking about this at all. Every once in a while it happens. Every once in while, someone gets bit by a shark and struck by lightning at the same time. But the chances are not high. On that note, thank you, tim, as always. Still ahead, donald trump beefs up his campaign with a former Goldman Sachs banker turned media mogul and a polling pro. What it means for the rac aetna says it did not threaten the department of t it would cut its participation in the Health Exchanges should regulators block its proposed merger with humanna, those numerous reports quoted a letter adregulators. As we announced last night, aetna announced plans to withdraw from 11 of the 15 exchanges where it supplies plans. Aetna told cnbc, that letter was in response to specific doj questions about the potential impact on its Affordable Care act participation, if the deal were blocked. Aetna says its decision was. Cisco plans layoffs. The dow component will cut 5,500 employees. Thats nearly 7 of its workforce. The s largest networking gear maker says the reduction is part of its shift away from switches and routers and toward areas such as security and the cloud. The company made the announcement when it reported its earnings today. Cisco did earn 63 cents a share in the most recent quarter. That was 3 cents better than estimates. Revenue down in ciscos traditional router business, but overall, revenue was up roughly 2 from a year ago, at 12. 6 billion. As for shares, they fell in initial afterhours trading in response to that profit report. Viacom and Sumner Redstone are reportedly back in settlement talks. According to the wall street journal, their litigation, change the board, and lead to the exit of current viacom ceo, phillippe domon. As part of the compromise, viacoms operating officer, tom dooley, would be promoted to ceo. One roadblock is the potential sale of paramount, which redstone and his daughter, shari, believe is core to viacoms future. A deal would end one of the most bitter boardroom legal battles in history. Target slashes its fullyear outlook and thats where we begin tonights market focus. Citing a difficult retail environment, the retailer said both profit and revenue declined in the latest quarter. Earnings did, however, manage to top expectations, while sales were roughly in line. The company lowered its Earnings Guidance and said samestore sales are expected to continue to decline for the rest of 2016. Shares finished the day down 6 at 70. 63. Lowes also cut its guidance for the year, after hosting disappointing quarterlies. Sales rise, but ent company saw those results were shy of street targets. Cited lower demand for lawn and garden products, for its disappointing quarter, and that outlook. Shares off more than 5. 5 , to 76. 88. Jcpenney, meanwhile, has a plan to improve profit and growth in the next few years. Ceo marvin ellisson says the retailer plans to focus on home goods, jewelry, and ex we have a couple of huge initiatives that we belie will net positive, not only in the fall season, but for the next three years. Were going to expand our cosmetics business more aggressively. Its been a wonderful business, attracting a new millennial customer. Were rolling out appliances in 500 stores this year. And we see continued growth over. The company said it also has plans for a larger push into ecommerce. Shares, though, off more than 3. 5 on the day, at 10. 75. Staples swung to a loss and forecast its 15th straight Quarterly Sales decline. In the most recent quarter, the biggest u. S. Office supplies quarter announced a steeper than expected drop in revenues and took nearly 1 billion in charges. Those tied to the companys failed merger with office depot. Shares were down 63 cents at 870. Sales at American Eagle continue to grow. The teen retailer said Comparable Store sales, profit, and revenue all increased in e latest quarter. Earnings topped expectations, which helped extend its turnaround, after a twoyear slump. Despite the strong results, shares fell 3 to 18. 33. Shares of Urban Outfitters had its best day in year, thanks to strong earnings from the teen retailer. The Company Topped expectations in the latest quarter, as sales in retailers home and music categories helped results. The company also reported an unexpected rise in samestore sales. Shares surged more than 15 , 36. 05. Performance food groups saw a net profit fall in the latest quarter, as falling food prices and a charge related to a failed acquisition hit the results. The food distributor is the latest to report headwinds from deflation across commodities like meat, cheese, and eggs. Shares fell more than 4. 5 to 25. 21. Hedge funds continue to underperform the broader market, by a long shot, according to the researcher, hfr. The average hedge fund is up 3 this year, through the end of july. The s p, double that return over the same time frame. The Hedge Fund Sector has now experienced three consecutive quarters of net withdrawals, and thats the first time thats happened since the financial crisis in 2009. Casino mogul steve nguyen is getting set to open a new 4 billion resort in macau. This will be the chinese territorys most expensive casino yet, and it comes as gambling revenues hit a fiveyear low. Macau has been hit by a corruption crackdown, which is forcing chinese high rollers to play in but in an interview with cnbc asia, nguyen did not seem all that concerned. In our business, it is not a zero sum game. Even in a market thats not as robust as it was a few years ago, the stronger macau is, the better it is for everybody. During that interview, wynn also denied that hes serving as an adviser to donald trump, who hes known for about 30 years. When asked who he supports in the president ial race, nguyen said he hadnt yet c donald trump has beefed up his president ial campaign witn until election day. Hes adding two officials to top posts, nominally under Campaign Chairman Paul Manafort. John harwood is following the developments from washington. John, trumps people says manafort, who was supposed to oversee the transition of trump into a general electio candidate, is still in charge. Is he really . No, i dont think so. Steve bannon, the Breitbart News executive whos come on has the title, chief executive of the campaign, i think chief executive is a term that means something in Donald Trumps world. And i would expect the pugnacious style that he showed at breitbart to take precedence now over the more mainstream style that Paul Manafort was trying to impose on trump. The problem, of course, was that, a, it wasnt working in the polls. Donald trump is behind significantly in the battleground states. And donald trump didnt like it. He said just yesterday, i dont want to pivot, i dont want to change. Tell us a little bit more about Kellyanne Conway. Apparently, she has a gentler way of deali Kellyanne Conway is a longtime fixture in republican politics. Shes worked as a pollster and a message strategist. She has the title of Campaign Manager, but it appears from her description and that of others, that her role is going to be less actually Campaign Manager, but more the a person who travels with the candidate, who consults with the candidate on the road. Corey lewandowski, who was the First Campaign manager for donald trump, said she has a calming influence on donald trump and may also be able to help him with a gender gap in terms of his messaging on a daytoday basis. The gender gap is proving to be a very big problem for trump. Women have turned away from him in very large numbers. What are democrats and trmps fellow republicans saying about the changes . Well, what the Clinton Campaign is sayin is this means were going to get a campaign driven by more of the Conspiracy Theory kind of talk that has flourished on the breitbart site, and that donald trump himself has indulged in. Remember, he came to National Prominence most recently in the realm, questioning president obamas birth. Whether youve heard in the united states, or not. Robby mook, the Campaign Manager for hillary clinton, said the southern poverty law center, as noted that the breitbart site trafficked in racist and antisemitic material. So theyre trying to put a marker down on that. And as for other republicans, i think this is likely to accelerate the move of republican resources from the president ial race to house and senate races, because more and more republicans running for the house and senate are worried theyre going to be dragged down. They dont see these moves today as an answer thats going to help them. All right, john, thank you very much. John harwood in this fascinating po. Coming up, hitting the gas. Only one automaker has grown sales every year in the u. S. Since 2008. Can yo at t is phasing out coverage over its charges for wireless customers as part of its new mobile plan. Customers who use all of their highspeed data will have their data speed reduced or can pay for extra data. At t and its rivals are locked in an aggressive battle for subscribers. Demand nor mortgages hit a sixmonth low, despite historically low Interest Rates on fixed rate home loans. The Mortgage Bankers Association Says total application volume fell 4 from a week earlier. Mortgage applications are considered a leading gauge of home sales. Applications to refinance existing mortgages also fell. Pop quiz for you. Name the only automaker to grow sales in the u. S. Every single year since 2008. Tick, tick, tick. Th answer is subaru. The japanese automakers sales have been quietly growing for years and now the Company Plans to expand production and its presence in the u. S. Phil lebeau reports from lafayette, indiana. Reporter subaru is on a role. Its doubled the number of cars and crossoverst builds at its plant in indiana, as it moves to keep up with demand. In fact, subaru sales in the u. S. Are growing twice as fast as the industry overall. Just ask rocky dechristafano, whose subaru dealership in tucson has been red hot. Starting in about 2010, the subaru brand just really started taking off. That was actually the year that my brother and i purchased our store here in tucson, arizona, and you know, weve been at a record pace ever since. Reporter subaru may be heating up in the southwest, but its strongest sales per capita are in the northeast, and montana, where it appeals to a strong, loyal base. But thats changing, thanks to subaru models getting high marks for reliability, from independent firms like the Insurance Institute for highway safety, a reputation for quality subaru is now using to win over buyers. Love. Were okay. Its what makes a subaru a subaru. Theyre really focused on their messaging, really focused on their products, and they really tailor them to what the consumer is looking for. Theyve got a really competitive brand now. The product is the right size, its been at price for a long time. And it offers a great value. And our consumers certainly recognize that. As subaru hits the gas here in the u. S. , its trying to do something many automakers have failed to do in the past. Grow sales while keeping quality and reliability from slipping. For nightly Business Report, im phil lebeau in lafayette, and finally tonight, Paul Mccartney has signed a worldwide recording agreement from capital records, the same label that made him and the beatles a household name in the 1960s. The deal will encompass mccartneys entire catalog of postbeatles work. It does not include beatles music. 74year is currently working on a new studio album and he is now back to where he once belonged. Cant wait cool. Still making music at 74. Good for him. Thats nightly Business Report for tonight. Im sue herrera. Thanks for joining us. And thanks from me, as well. Im tyler mathis. Announcer the following program contains mature content which may not be suitable for all audiences. Viewer discretion is advised. I must say, i find mr. Hereward very agreeable. Julienne this is a happy day. Sister mary cynthia, welcome home. Im not sure its a good idea, patrick. We can help with the birth and after, all free. Oh, sorry. Can you translate all that . Of course. Its like something you could see after a car accident or some other great force, such as an assault. [theme music playing] is provided by contributions to your pbs stations from