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NIGHTLY BUSINESS REPORT for March 2, 2016, PBS - Part 1




Economy; Elections; Government; Politics; Stock Markets; Business;

ExxonMobil (NYSE:XOM)>

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Shocking death. The controversial former CEO of Chesapeake Energy (NYSE:CHK) dies in a car crash, one day after being indicted by a federal grand jury.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Market reset. Now that the presidential front-runners have strengthened their lead, should investors shift their focus?

HERERA: Message to investors. What the CEO of ExxonMobil (NYSE:XOM) wants long-term shareholders to know.

All that and more tonight on NIGHTLY BUSINESS REPORT for tonight.

MATHISEN: Good evening, everyone.

A controversial figure in the shale boom. A man many considered a visionary pioneer and others, an incautious renegade, is dead. The former Chesapeake Energy (NYSE:CHK) CEO, Aubrey McClendon, died after a car he was driving crashed at high speed in Oklahoma City this morning. The accident more shocking because it came one day after McClendon was indicted by a federal grand jury on charges of antitrust and conspiracy.


MATHISEN: Aubrey McClendon was a natural gas titan who revolutionized the energy industry. He died this morning in a single car crash in Oklahoma City -- the only occupant in a sport utility vehicle that slammed into a concrete bridge support.

PACO BALDERRAMA, OKC PD PUBLIC INFORMATION OFFICER: He went left of center, traveling at a high rate of speed, and collided into the west embankment wall of the overpass. His vehicle was engulfed in flames immediately, and he did not survive the accident.

MATHISEN: McClendon`s death follows an announcement on Tuesday that he had been indicted for allegedly conspiring to rig bids to buy oil and natural gas leases in northwest Oklahoma between December of 2007 and March 2012. McClendon, a key player in the U.S. shale boom, helped to found Chesapeake Energy (NYSE:CHK) in 1989, before stepping down in 2013 after a series of investigations into his business practices. Chesapeake filed a lawsuit against him in 2015, accusing him of misappropriating company data.

He founded American Energy Partners (NYSE:EPL) after leaving Chesapeake where he served as chief executive. The company put out this statement, "Aubrey`s tremendous leadership, vision, and passion for the energy industry had an impact on the community, the country, and the world. We are tremendously proud of his legacy and will continue to work hard to live up to the unmatched standards he set for excellence and integrity."

McClendon, a Duke graduate, was a part owner of the National Basketball Association`s Oklahoma City Thunder. He denied the charges filed against him yesterday. He was 56 years old.


MATHISEN: And the Department of Justice released this statement on word of McClendon`s death. "The Department of Justice is saddened to hear about the death of Aubrey McClendon. We offer our condolence to his family and loved ones."

HERERA: Now to Wall Street where today looked nothing like yesterday`s furious rally. Instead, stocks were quiet. Little changed, in fact, as investors digested more upbeat economic data, higher oil prices and results of Super Tuesday`s contest. By the closing bell, the Dow Jones Industrial Average rose 34 points to 16,899, NASDAQ gained 13, S&P 500 added eight.

MATHISEN: The markets are also getting their first chance to digest results from Super Tuesday. Many investors were looking for clarity and last night, some may say they got it. The front-runner strengthened their leads. Donald Trump and Hillary Clinton rolled over their rivals in many states.

And as John Harwood tells us, the two are already looking ahead to the next big primary contests.


JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: You can look at the Super Tuesday primaries in two ways: did they snuff out Hillary Clinton`s competition for the Democratic presidential nomination and Donald Trump`s for the Republican nod? No, they didn`t. But did this push Clinton and Trump further down the road to victory? Yes, they did.

Let`s go to the map.

First, the Democrats. Bernie Sanders won four states, Colorado, Minnesota, Oklahoma, and his home base of Vermont. That`s OK, but Hillary Clinton won seven including the biggest ones, Texas, Virginia, Georgia, Massachusetts, Alabama, Arkansas, and Tennessee. That widened her delegate lead as the contest moves Midwest.

Now the Republican map. Ted Cruz held his home base of Texas and won in Oklahoma and Alaska, too. That keeps his nomination hopes alive. Marco Rubio grabbed his first win in Minnesota and now moves to fight for his home state of Florida on March 15th. John Kasich finished second in Vermont and Massachusetts, and now defends his home state of Ohio on March 15th.

But look at Donald Trump`s list of victories -- Alabama, Arkansas, Georgia, Massachusetts, Tennessee, Virginia, and Vermont. Trump not only leads in delegates but he also leads the polls in every big state coming up -- Michigan, Ohio, Florida, and North Carolina.

It adds up to strong momentum for both front runners and just two weeks left for their opponents to stop it.



HERERA: Art Hogan joins us now to talk more about the presidential run and if the market will reset now that we have some clarity, at least, on the campaign trail. He`s the chief market strategist at Wunderlich Securities.

Good to see you again, Art. Welcome back.

You know --


HERERA: You say in your note it`s a great time to be a political junkie but a nervous time to be an investor. I think that really pretty much sums it up.

Did the market get some clarity last night or not quite yet?

HOGAN: I think, you know, on the Democratic side, I think we can say there`s enough runway in front of Hillary Clinton to say that this is hers to lose. So you sort of put that aside, but that`s not the contentious race.

On the Republican side, we started with 16 or 17 candidates, we`re down to, you know, call it four today and that`s still not enough clarity. At the end of the day, I think there is a -- there`s a belief that there is somebody other than Trump that can make a run at this, but it can`t happen if we continue to have, you know, three people splitting up the other 2/3 of the votes. So, you know, right now, that`s still the untold story.

Now, that said, let`s say we get through the next two weeks and you got Rubio not winning Florida and Kasich not winning Ohio and Michigan. You know, both of these guys can make a pretty strong case to not have a path to victory and get out of the race. Then you got a two-man race or, you know, really lot easier sledding for Trump going forward.

Then, the market can settle in to say, what does this sound like in a general election? General elections get much closer to the center. Primary elections are very much out around the edges. We talk about things that are far left and far right. We get to the primary election, we start talking about policy, economics, things on my platforms what I can do to make my country better and stronger.

MATHISEN: Will the markets be more comfortable with one candidate or another among those who remain on either side?

HOGAN: I certainly think that the markets will be more comfortable with a traditional candidate, you know. So, right now, if you look at the group, we have nontraditional candidates, the obvious Bernie Sanders is certainly nontraditional, Donald Trump is nontraditional. The markets probably the least comfortable with those.

You know, I think the known quantities are a little more comforting to the market, whether it`s Hillary Clinton or a Kasich or Rubio or a Cruz. So, you know, it`s hard to stack that up.

But if we get down to a Hillary/Trump race, oddly enough this would be a situation where you`d say Hillary is probably more market friendly. She`s a known known. We know what we are going to get. We`ll probably get more gridlock, you`ll have a Democratic administration and a Republican Congress, you know, or some sort of a divide there. That`s actually worked out for both the economy and the markets --

HERERA: Right.

HOGAN: -- over history, right? We don`t get major changes, we don`t try to get major platform agendas put through and I think if you get a Hillary Clinton and a Paul Ryan working in concert, you probably get more things done than not done and certainly more things done than we`ve seen over the last eight years.

HERERA: So if you`re a longer-term investor, is it wise to continue with your plan and continue putting money into this market, Art? Or do you wait until we really know who the two candidates are?

HOGAN: Sue, I think that`s the best question I`ve heard all day and really this is a lot of entertainment. At the end of the day, we keep moving forward. You stick to your plan. You know, elections are exciting. They`re only part of the narrative right now. It is interesting.

But, you know, what`s really going to happen is the economy improving, are we going to have a 2 percent to 2.5 GDP growth rate? Will earnings grow? And is the best asset class to be in equities for long-term investors?

It probably is. Some balance investment strategy of 60 percent stocks and 40 percent bonds should be, you know, kept to.

This is entertaining. It moves the market around. It will continue to do so. But it shouldn`t change your investment plans. You need to stick to your plan and watch this on the side for fun.

HERERA: All right. On that advice, we`ll leave it there, Art, thanks so much.

HOGAN: Thanks, Sue.

HERERA: Art Hogan with Wunderlich Securities.

MATHISEN: Many agree this campaign season is unlike any they`ve seen before not just because of the anti-establishment sentiment but also because both the left and the right have found some common ground in their dislike of big business and Wall Street. That is a theme that has been repeated over and over on the campaign trail.


HILARY CLINTON (D), PRESIDENTIAL CANDIDATE: Johnson Controls (NYSE:JCI), an auto parts company from Wisconsin, that all of us, we taxpayers, helped to bail out with the auto rescue back in 2008. Now, they`re turning their back on America.

I want to go after the pharmaceutical companies like Valeant that are increasing prices without any regard to the impact on people`s health.

SEN. BERNIE SANDERS (I-VT), PRESIDENTIAL CANDIDATE: While our people are working so hard, almost all of the new wealth and income generated in America is going to the top 1 percent.

You have companies like Goldman Sachs (NYSE:GS) who just recently paid a settlement fine with the federal government.

SEN. TED CRUZ (R-TX), PRESIDENTIAL CANDIDATE: I will stand with the people of this country and end corporate welfare, adopt a flat tax, and abolish the IRS.

DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: I`m going to get Apple (NASDAQ:AAPL) to start making their computers and their iPhones on our land, not in China. How does it help us when they make it in China? So I`m going to create jobs.


MATHISEN: So, should big business and Wall Street be worried that they`re disliked by both sides, the left and the right, in this presidential run?

Andrew Friedman is principal at the Washington Update, and joins us to discuss what this will ultimately mean for business.

Mr. Friedman, welcome back. Good to see you.


MATHISEN: You know, the primary season is a time for hot rhetoric. Would any of these candidates really follow-through or be able to follow through on some of the business whacking that they have -- that they`ve campaigned on?

FRIEDMAN: I think the answer to that, Tyler, is largely no. I think Clinton is more pragmatic than she`s been showing.

And regardless of that, I agree we`re going to have a Republican House of Representatives. I think the Senate will go the same way as the White House. But the Republicans will be in the house.

So, I don`t really see how she would be able to implement the kind of agenda that would make businesses nervous. So, I don`t think on her side, there`s that great an issue that something gets done.

Trump, he`s a populist. He`s a progressive. But he`s certainly not anti-business. So, again, I don`t see him doing something that roils the markets as far as business is concerned.

HERERA: Doesn`t it come down to control of Congress? No matter who wins?

FRIEDMAN: Yes, I think it does, particularly the House. Again, I think the Senate goes where the White House goes.

But you get a Clinton and you get a Republican House, we`re just going to see a repeat of what we`ve had the last eight years. I think there`s going to be disagreement and we get to a deadline, and we have a short-term fix and we kick the can down the road.

Trump, if he`s president, or any Republican, is going to have a friendly Congress. But, again, you wonder how much he desires making changes in business.

I think the issue with both of them are the fiscal issues. So, I think, again, with Clinton, you don`t get a lot done. She`ll want to raise taxes. She`ll want to increase entitlement programs and other sort of domestic programs. But that will never get through the House, so we`ll compromise.

With Trump, the issue is we might see big tax decreases, we might see an increase in military spending, we will see an increase in Social Security and Medicare just because people are aging. That`s going to void the markets for a while.

But down the road, particularly if you lessen restrictions on Wall Street, do you end up with a George Bush situation? Do you follow the arc of the George Bush presidency? Stimulus at the beginning, problems at the end as this all comes home to roost.

I think that`s the big issue long term with a Trump presidency.

MATHISEN: Very quickly, Andy, would business -- is business more comfortable with the idea of gridlock and deadlock in Washington, than it would be with a clear path for either party?

FRIEDMAN: Yes. I think particularly with a Trump. With a Clinton, you have that deadlock. You have small deals that are made at the last minute.

With Trump, he`s so unpredictable, and markets just don`t like that. So I think markets would struggle with a Trump particularly with a Republican Congress that can`t stop him very well. I think that`s a bigger issue.

MATHISEN: Andy, we`ll see you many times between now and November, I`m sure.

FRIEDMAN: I`ll look forward to it.

MATHISEN: Andrew Friedman with "The Washington Update".

FRIEDMAN: Take care.

HERERA: Still ahead, the new economic report on the labor market today put to rest any of those lingering recession concerns?


MATHISEN: Sports Authority has filed for Chapter 11 bankruptcy protection. The company says it will close 140 stores almost immediately. That`s nearly a third of the total. The big box chain which is owned by a private equity firm said it lost market share to online retailers among others. It`s got more than $1 billion in debt and didn`t keep up with changing trends. The CEO says the bankruptcy process will be used to streamline and strengthen the ongoing business.

HERERA: With oil prices low, ExxonMobil (NYSE:XOM) is shifting its strategy. The CEO outlined his plans for the full year ahead at a meeting with analysts which included possible acquisitions and maintaining its AAA rating and its dividend.

Investors liked what they heard. Shares rose nearly 2 percent.

Morgan Brennan takes a look at what`s in store for one of the most widely owned stocks by individual investors.


MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: ExxonMobil (NYSE:XOM) reaffirmed plans to cut capital spending by 25 percent this year, reductions that will come primarily from oil and gas, with another decrease expected in 2017 in part from chemical operations.

On the heels of the massive $12 billion bond sale earlier this week, CEO Rex Tillerson saying the world`s largest publicly traded energy company is on the prowl for assets, a process that may take some time to play out.

REX TILLERSON, EXXONMOBIL CHMN., PRES, AND CEO: Valuations, believe it or not, are still not aligned in terms of what companies want, versus what we see the value to be. They`ve taken on additional leverage. They`ve issued additional shares, diluting their existing shareholders. And in some respects in doing that, they`ve destroyed some of the inherent value. So when we look at the assets, we love their assets, but when I look at the balance sheet, I`m buying a house that`s got a huge mortgage on it.

BRENNAN: Potential deals aside, Exxon expects its production to be 4 million to 4.2 million equivalent barrels per day annually, through 2020 or basically flat from 2015 levels.

But cash flow is expected to grow over that period and not just as crude prices eventually recover, but due to operational efficiencies as well. Still, some analysts have concerns.

ANISH KAPADIA, TUDOR, PICKERING, HOLT & CO.: Exxon continues to tread on a large multiple premium versus the other six majors, and I think it`s hard to justify now when you look at the deterioration in returns relative and cash flow relative, distributions relative.

So, Exxon talked about previously unmatched shareholder returns has now got the lowest dividend yield amongst the integrateds with no buybacks.

BRENNAN: Exxon results put on credit watch by several agencies last month, raising concerns about the future of the energy giant`s coveted AAA credit rating. Still, the company maintains it will continue to pay a reliable and growing dividend, stressing the business is raw for people to own XOM shares for a long period of time.

TILLERSON: The dividend is safe. We have -- again, as part of what we felt is the obligation to our shareholders.

BRENNAN: For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in New York City.


MATHISEN: Agriculture giant cut its earnings outlook for the year and that is where we begin tonight`s "Market Focus".

Monsanto (NYSE:MON) blamed ongoing impacts from currency headwinds and lower commodity prices for the forecast, which also included downbeat guidance for the current quarter. Despite a challenging macro environment, the company said it sees strong long-term growth opportunities, shares of Monsanto (NYSE:MON) fell nearly 8 percent to $85.30.

Canadian Specific Railway reportedly explored a potential $20 billion merger with CSX (NYSE:CSX) back in January, even as it pursued its own solicited bid for Norfolk Southern (NYSE:SO). "The Wall Street Journal" says that although CSX (NYSE:CSX) rejected the deal, Canadian Pacific remains interested. Shares of CP fell 2.5 percent to $199.95, while CSX (NYSE:CSX) was down a tick to $24.55.

Abercrombie and Fitch (NYSE:ANF) saw same-store sales rise for the first time in three years, thanks in part to a strong performance at its Hollister Brand. The retailer also posted earnings and revenue above analysts estimates. However, the company said it expects same-store sales for the year to be flat but just slightly positive. Abercrombie was up more than 4 percent to $30.41.

HERERA: Checkpoint Systems surged after label and packaging maker CCL Industries said it would buy the company for more than $400 million. Checkpoint Systems makes surveillance equipment and anti-theft tags for retailers. Shares soared 29 percent to $10.20.

General Dynamics (NYSE:GD) raising its quarterly dividend 10 percent to 76 cents per share from 69 cents. The aerospace and defense company is also buying back an additional 10 million shares. General Dynamics (NYSE:GD) fell nearly 2 percent to $135.61.

MATHISEN: Economic activity increased across most of the country, that according to Federal Reserve`s regional survey of economic conditions. Consumer spending was reported to have increased across most of the central bank`s 12 districts and labor market conditions continue to improve.

Housing is strong. Manufacturing activity, a little bit sluggish.

HERERA: Meantime, the president of the San Francisco Fed says the economy faces little risk of recession. John Williams said the U.S. is powering through headwinds from abroad. He also added that some monetary policy accommodation is appropriate and that rates should be raised gradually.

MATHISEN: Private sector hiring picked up in February. ADP`s monthly survey showed a rise of 214,000 last month, more than expected. The report is based on data collected from ADP clients. The services sector of the economy contributed to most of the job gains. Manufacturing employment fell. The release comes ahead of Friday`s monthly employment report.

HERERA: Which brings us to Drew Matus. He joins us now to talk more about the labor market and whether or not he thinks we`ll get more good news this Friday when monthly report comes out from the government. He`s an economist with UBS.

Good to see you, again, Drew.


HERERA: All right. ADP was good. Does that mean that Friday`s number will be as good?

MATUS: Well, it doesn`t mean that, but it`s another thing to hope for and I think we should look at ADP by itself, right? It`s a great series and it`s an independent survey, and it`s telling you that things are going well and I think that`s something you can take into Friday which is things are going well and most likely we`ll get a good report.

MATHISEN: Are we at full moment or so close that it really doesn`t matter anymore? And what does that imply if we are there for the future trend of wages?

MATUS: I think we`re at or below full employment, and I think what that implies for wages is wages will start to move higher soon. We see an increase in quits. So, people are beginning to quit their jobs. There`s a high level of job openings. And that combination usually results in higher wages as firms try to protect their employees from poaching.

HERERA: So, what does that mean for a lot of the focus is moving to the next meeting. Does it make it more likely in your view that they will feel that they have the room to move up a notch on rates or not?

MATUS: I think they`re going to play it cautious and I think most people are arguing they`re not going to two March among them -- too much market instability, too many concerns from overseas. But as people like Williams have pointed out, we`ve been doing okay despite those and there is certainly a path to March. Although, you know, it`s kind of a rocky and twisty path to get there.

So, we think it`s much more likely the Fed stays on hold, stays on hold until kind of the second half of the year, and then moves forward from there. After markets have had a chance to calm down and fears of recession in the U.S., which are pretty much unfounded begin to fade that much more from people`s psyche.

MATHISEN: I want to go back to the question of wage growth, because certainly while it hadn`t really been highlighted on the campaign trail, it seems to me stagnant wages are one of the really generational stories about the American economy. When you say ultimately that this is going to turn into higher wages if we continue at close to or even below full employment, what are we talking about here? What kind of level of wage growth can we expect and how long might it persist?

MATUS: Well, so UBS we`re expecting you`ll get to 3 percent by the end of the year. Usually wages grow by somewhere between 1 percent and 4 percent, so slightly elevated. When they get to 4 percent, things overheat, the fed`s tightening and we actually pull down the labor market a little bit and loosen things up.

So, you usually never stay at 4 percent and usually don`t stay at 1 percent and you`re somewhere in between. Right now, we`re 2 percent, going to 3 percent, pretty much the sweet spot for wages. In particular, if you think about how low inflation is, the fact that we`re getting nominal wage growth at this level means that real wages, people`s standard of living, are improving pretty rapidly and that`s the true sign of whether or not the labor market`s tight or not is whether real wages are rising and they are at this point.

HERERA: All right, Drew. Thank you so much for your perspective. We appreciate it.

MATUS: Thank you.

HERERA: Drew Matus with UBS.

MATHISEN: Coming up, why the world`s super rich were less super rich last year.


MATHISEN: Here`s what to watch tomorrow, folks. Last batch of economic data ahead of Friday`s unemployment report due out including productivity, factory orders, initial jobless claims.

Disney (NYSE:DIS) hosts the annual meeting. There will be lots of characters at the breakfast. It`s the deadline to file a legal brief in support of apple in its privacy fight with the FBI. That`s what to watch tomorrow.

HERERA: Something happened to the world`s ultra wealthy that hasn`t happened in years. According to a new report, it`s becoming harder to get rich and stay super rich.