NIGHTLY BUSINESS REPORT for August 15, 2016, PBS

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Reagan, Eunice Yoon, Phil LeBeau, Bill Frank>

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Slow motion rally. The three major stock indexes kicked the week off with a record close. And this modest melt-up comes during the calmest market in 75 years.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Apartment mega merger. Why today`s $4 billion deal could be a sign that landlords are worried the rental market is starting to slow.

HERERA: Taking off. After a summer of long lines and delays, air travelers may finally have something to smile about this fall.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, August 15th.

MATHISEN: Good evening, everyone, and welcome. Glad you could join us.

Well, call it a hat trick, call it a trifecta, a triple, call it whatever you want, but whatever you do call it, make sure you describe today as one of those rarest of stock market sessions.

For only the second time in more than 15 years, the other was just last week, all three major market barometers finished the day at record highs. They sent intraday highs as well. Now, who really knows why stocks rise or fall on any given day?

As good an explanation as any today is that oil prices were up. In fact, West Texas crude gained almost 3 percent. It finished at a one-month high of $45.35 a barrel.

Commodity linked shares got a boost from one of those rise and oils gain in turn was fueled by last week`s signals that major producers may cap production.

Here are the final stock market numbers for a low volume but record-setting Monday in August. The Dow rose 60 to finish at 18,636. The NASDAQ was up 0.6 of a percent or 29 points, outperforming the Dow and the S&P to close the day at 5,262, and the S&P 500 jumped 6 to 2,190.

HERERA: This melt-up has been slow and steady. Some might even call it boring. But as Mike Santoli tells us, some want to know if this is the calm before another market storm.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market`s recent move to record highs has been unusually subdued. By some measures, the past month has seen the calmest market in 75 years. That`s based on the uncommonly narrow trading range.

In all but two days in the past four weeks, the S&P has gained or lost less than half a percent. And this quite pattern is not simply a matter of late summer doldrums. August, in fact, often seize erratic trading and has been among the weakest month for stocks in recent years.

So, what explains the surprising lack of volatility now?

Several forces have turned in the market`s favor at once. Traders saw the brief market selloff after the vote by the U.K. in June to leave the European Union was over done, to pick up beaten down stocks. Around the same time, U.S. economic data brightened considerably and companies began surpassing profit forecast. Even as investors gained confidence that the Federal Reserve would not lift interest rates soon. Yields on government bonds meantime have remained near record lows, helping to support all financial markets.

The resulting slow-motion rally has confounded many forecasts of continued unsettled markets following the sharp wintertime downturn. The question now is whether this lull is simply the calm before another market storm. The odds do seem to favor some pickup in volatility into September which even in strong markets has been a time for Wall Street dips and dives.

Incoming data could easily upset the tight consensus about future Fed moves or the strength of the U.S. consumer. But itself, history says a low drama market is not necessarily something to be feared. Perhaps investors should try to enjoy the quiet while it lasts.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: With interest rates low and likely to stay that way, a Federal Reserve official suggests that the central bank should consider raising its inflation target. John Williams says the current target does not work in a low interest rate environment because there`s not enough room to cut rates in the event of an economic downturn. A higher target would give the Fed more room to maneuver, he thinks.

The head of the San Francisco Fed also suggested that the Fed could simply target nominal economic output or that government spending programs should kick in automatically during downturns.

HERERA: Home builders are feeling better about the economy. According to the National Association of Home Builders, sentiment improved this month, especially when it comes to current and future sales. The housing market is being supported by those historically low mortgage rates, and increase in household formation and the solid labor market.

MATHISEN: An apartment mega merger to tell you about. Mid American apartment communities will buy Post Properties (NYSE:PPS) for about $4 billion. The deals sent shares of post higher by 9 percent, Mid American lower by 4 percent. The combination creates the largest publicly traded apartment real estate by number of units.

But is it a sign that landlords are starting to scramble in a slowing market?

Diana Olick takes a look.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The assets are highly complimentary, and that, say the CEOs of MAA and Post Properties (NYSE:PPS) is why merging the two apartment companies makes sense.

MAA will buy Post for roughly $4 billion, resulting in a combined portfolio of 105,000 apartments in 317 properties. That will make MAA the largest apartment REIT in the nation.

TAYO OKUSANYA, JEFFERIES & COMPANY: When you have an entity that large you can get economies of scale to reduce a whole bunch of operating expenses.

OLICK: The new MAA will have its largest foothold in the Sun Belt, where rental demand is still comparatively strong. MAA chairman and CEO H. Eric Bolton Jr. said in the release, the combined company will capture a broader market and submarket footprints, with improved rental price point diversification.

The merger comes at some of a turning point. Rents and occupancy are still strong but starting to slip, especially in major metropolitan areas like here in D.C., where an abundance of luxury supply is hitting the market.

OKUSANYA: When you have more supply, it definitely puts pressures on rent so again. We do think you end up seeing fundamental slowing going forward, which again I think makes this merger even more critical now that they can actually reduce upward expenses if the top line will not be growing as fast as it was over the past 12 to 24 months.

OLICK: The cost of things like maintenance, advertising and insurance can be combined and cut, meaning better returns for investors.

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

(END VIDEOTAPE)

HERERA: It is a big week for retail earnings. Over the next few days, we`ll hear from companies like Target (NYSE:TGT), Home Depot (NYSE:HD), the Gap (NYSE:GPS), Foot Locker, and the world`s largest retailer, Walmart.

These reports follow the better than expected results last week from Macy`s (NYSE:M), Kohl`s (NYSE:KSS) and Nordstrom (NYSE:JWN).

And as Courtney Reagan reports, many are now trying to figure out if that struggling sector is really starting to turn.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s safe to say retail has been a mixed bag over the last year and the rough patches in the sector like department stores have been struggling. But recent retail earnings show signs of healthy consumer spending in a different direction, away from spending on homes and automobiles and possibly back to apparel.

The big box retailers, including the biggest box, will report this week along with many others and analysts are warning investors not to abandon their patients just yet. Investors certainly care about each quarter, but when it comes to Wall Street, the strategy has been geared towards winning in the long run, especially as consumer shifts to more online purchasing.

Details on Walmart`s acquisition of e-commerce startup Jet.com will be particularly important this week, but Wall Street of late is putting more emphasis on long-term results.

DAN BINDER, JEFFERIES SR. RETAIL ANALYST: I think that Doug McMillon is doing a great job here in trying to position the company for the next 50 years rather than just the next quarter. So, I think he`s on the right track. Too early to tell on jet.com in terms of how that will turn out. I think in a few years time, we may look back and say it was brilliant.

REAGAN: When it comes to the consumer, there`s no doubt spending is strong. Walmart CEO Doug McMillon said last week on CNBC, he sees encouraging signs from shoppers and that low fuel prices do help. Similarly, Macy CEO Terry Lundgren agrees, but thinks consumers have been spending only in concentrated categories that benefit Home Depot (NYSE:HD) and Lowe`s. We`ll find out this week whether that continues or if consumer dollars of shifting once again.

Department store results were better than expected, though on low expectations. Clothing spending has been weak, so even a little positive news got a lot of attention.

And if early back-to-school clothing spending has been good for Kohl`s (NYSE:KSS) and denim is good for Macy`s (NYSE:M), maybe American Eagle, Gap (NYSE:GPS) and Urban Outfitters (NASDAQ:URBN) will see similar results, and maybe too early to tell if retail is seeing a full pledge resurgence. But at least for now, there are signs of renewed life.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: We turn to the devastating floods in Louisiana. Tens of thousands of residents have been rescued from their homes. About 10,000 are in shelters until the waters recede. At least five deaths are linked to the flooding.

The governor declared a state of emergency over the weekend and described the floods as unprecedented and historic. The hardest-hit areas have been around Baton Rouge where 20 inches of rain fell over the weekend and where more is expected.

HERERA: And from floods to heat -- heat that`s blanketing the east coast and much of the country and bringing high temperatures to some of the country`s biggest cities. With the heat comes high demand for electricity, which is testing our nation`s power grid.

Jeff Dagle is the chief electrical engineer for Pacific Northwest National Laboratory, he leads research projects for the U.S. Department of Energy, and oversees new technologies that improve the power grid.

Thanks for joining us. It`s a pleasure that have you here, Jeff.

JEFF DAGLE, PACIFIC NORTHWEST NATIONAL LABORATORY: Thanks, Sue. Good evening.

HERERA: So, tell me how the power grid is now. Give me the status of it as compared with, say, a few years ago when we did have rolling outages when the weather would get this hot.

DAGLE: Yes, certainly, there`s two aspects of grid reliability we pay attention to. One is availability. And that`s the availability of resources or supply to meet the demand. This year, the grid is actually doing pretty well in that area. The grid operators pay close attention to forecasts, demand forecasts, and then they schedule the supply to meet that demand.

MATHISEN: So, Jeff, there`s been a lot of talk in the political campaigns about improving the nation`s infrastructure. How would you rate the electric infrastructure in this country if you had to grade it A to F, and what needs to be done to bring it up to a higher grade if it`s not already there?

DAGLE: Well, we`re certainly working very hard on that. The U.S. Department of Energy has recently unveiled a grid modernization initiative. The secretary of energy announced that in January with over $200 million of funding to a consortium of national laboratories. We`re going to be working on enhancing the resilience, the reliability and security of the electric power grid.

I lead the area in system operations and control. So, I`ll be focusing research in that area to improve the ability of the grid operators to operate and manage the power grid.

MATHISEN: How would you grade it today if you had to, Professor?

DAGLE: We don`t really necessarily give it a grade. I know the civil engineers give different infrastructures grades. I would say that it`s in pretty good shape but we`re always looking for areas of improvement.

HERERA: And what about security? Because, of course, the world is a dangerous place and the electrical grid is one area that might be susceptible to security breaches. How do you think the grid is in terms of that?

DAGLE: Absolutely. That`s something that is of high concern to grid operators and the government alike. There have been some incidents in the past that have raised awareness of this issue. There`s some new government and industry standards that the utility operators are needing to follow to enhance the physical security as well as cyber security initiatives that we`ve been focused on for a number of years.

This is a concern that has been with us for a while. I think the threat is hard to gauge, so our strategy is to be prepared and try to accommodate those types of threats that we can manage them, if they occur.

HERERA: All right. We`ll let you go, Jeff. Thank you so much for joining us. Jeff Dagle with Pacific Northwest National Laboratory.

MATHISEN: And still ahead, why Google`s Fiber may be slowing down the rollout of its high-speed Internet business.

(MUSIC)

HERERA: Google`s parent, Alphabet, is reportedly rethinking its high-speed Internet business. The fiber lines are proving very expensive and very time-consuming to install.

And as Aditi Roy reports, the company may now be considering other ways to deliver broadband access.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Google (NASDAQ:GOOG) Fiber has been welcomed by cities like Charlotte as a critical tool for getting residents and businesses on literally the fast track to cutting- edge technology. But now, it may be facing roadblocks.

"The Wall Street Journal" reports that Google (NASDAQ:GOOG) is rethinking its high-speed Internet business because it`s too costly and time consuming. Now, in six cities nationwide, Alphabet`s high-speed internet arm promises connection speeds up to 100 times faster than current basic broadband technology. But launching the service has required hundreds of millions of dollars to lay fiber optic cables in its subscriber cities.

Now, Google (NASDAQ:GOOG) is reportedly trying to cut cost by leasing existing fiber, asking cities to build networks and in some cases abandon cables altogether and use wireless technology.

GENE MUNSTER, PIPER JAFFRAY: Google (NASDAQ:GOOG) getting into fiber is a huge step out of their core advertising business and that`s why they`re going at it slow and that`s why it`s costing more money for them to do it. When you think about laying fiber, this is really dirty business, figuratively and literally. You`re rolling trucks, you`re digging up yards, you`re posting lines through -- on telephone poles.

This is something that you have a storm and you can have outages. The amount of customer calls is much dramatically different than getting calls from advertisers.

ROY: Google (NASDAQ:GOOG) Fiber launched six years ago and is in six U.S. cities, but has plans to expand to as many as 16 new locations.

Palo Alto is one of those cities but its chief information officer recently learned that those plans have been delayed.

Jonathan Reichental tells CNBC that Google (NASDAQ:GOOG) Fiber informed the city that efforts would be delayed by six months.

In a statement, a Google (NASDAQ:GOOG) spokesperson tells CNBC, "We`re continuing to work with city leaders to explore the possibility of bringing Google (NASDAQ:GOOG) Fiber to many cities. This means deploying the latest technologies in alignment with our product road map, while understanding local considerations which takes time."

Fiber is part of Alphabet`s other bets unit which has drawn attention with the departure of several senior level executives from Google (NASDAQ:GOOG) Ventures, Nest, and the company`s self-driving unit. While other bets still make up a small percentage of Alphabet`s total revenue, just $185 million last quarter, with an operating loss of $859 million, analysts say that the Fiber business is still a smart investment.

MUNSTER: I think that this is a brilliant move by Google (NASDAQ:GOOG) to talk more about fiber. And to really scare and intimidate the existing providers to providing better, faster, cheaper service to consumers, because it`s been proven since the beginning of the Internet that when internet access improves, whether it`s speed or cost declines, that Google (NASDAQ:GOOG) wins.

So, give credit to Google (NASDAQ:GOOG) for playing this game wisely.

ROY: On Alphabet`s most recent earnings called, Google (NASDAQ:GOOG) CFO Ruth Porat says the company continues to see fiber as a huge market opportunity and will continue to work closely with cities exploring both fiber and wireless.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

MATHISEN: The Department of Justice has reportedly found evidence of possible criminal wrongdoing at Volkswagen. According to "The Wall Street Journal", officials are negotiating a settlement with the automaker over its diesel emissions scandal. That settlement is expected to result in charges and financial penalties. The report says that prosecutors have not yet settled on which criminal charges they might bring against the automaker.

HERERA: Tesla has restored the word "auto pilot" to its website in China. The company said the temporary removal of that term was a mistake. Tesla did say it revised some language on its site to make it clear to drivers that auto pilot was a driver-assist system and not a self-driving system. A Beijing driver recently crashed his car in auto pilot mode and that accident fortunately did not result in any injuries.

MATHISEN: A number of other Chinese companies are scrambling to compete with Tesla. China, now the world`s number one auto market, and there`s a big push to make it number one for electric vehicles as well.

Eunice Yoon reports tonight from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: You probably haven`t heard of CH-Auto and for good reason. From its headquarters in Beijing, the company has designed and produced cars for other Chinese car makers until it made this. The Qiantu K50, China`s first homegrown battery powered roadster and competitor to Tesla`s Model S. The K50 is the brain child of Founder Lu Qun.

An engineer by trade, Lu worked at Jeep in China. Then he traded his own brand, Qiantu, which means the future in Chinese.

LU QUN, CH-AUTO CHIARMAN: China is already the auto market in the world and without a doubt will be the biggest market for electric vehicles. We think it`s very good that in such a fast-growing market, the Chinese government has provided guidance and incentives through its policies.

YOON: Beijing is targeting new energy cars for special state support. It wants locally made hybrids and electric cars to expand tenfold to 3 million by 2025 to reduce pollution and help China become a technology leader. Several I.T. and car companies, including CH-Auto are rushing in to compete.

QUN: You can see here our engineering prototype.

YOON: What`s your competitive edge over Tesla.

QUN (through translator): The exterior is made of carbon fiber materials and the interior is mostly aluminum alloy. The structure is completely different from Tesla and other AUVs.

YOON: The lightweight carbon body and aluminum frame are meant to improve performance.

One of the challenges that the government faces is that it has to roll out all the infrastructure to make sure that energy-efficient cars are appealing to the public. The government has already set up charging stations like this one in big cities like Beijing but it has a long way to go.

Even so, CH-Auto is investigating more than $300 million into a new factory to produce the K50, which Lu says could price higher than Tesla when the Chinese car debuts in 2017.

QUN: People often think made in China cars sell at the low end, which leaves the impression that Chinese cars are cheap and poor quality. We want to change that impression.

YOON: Along with the future of China`s car industry

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

(END VIDEOTAPE)

HERERA: Twitter and Apple (NASDAQ:AAPL) may be close to striking a deal, and that`s where we begin tonight`s "Market Focus".

According to "The New York Times (NYSE:NYT)", Twitter is in talks with Apple (NASDAQ:AAPL) to launch its app on Apple (NASDAQ:AAPL) TV. That app would allow viewers to stream National Football League games. Twitter recently signed a $10 million deal with the NFL to stream ten Thursday night games during the 2016 season.

Shares of Twitter soared more than 6 percent to $20.86. Shares of Apple (NASDAQ:AAPL) were up 1 percent to $109.51.

Computer company IBM said it has signed a seven-year deal with business software maker Workday. Workday is expected to tap into IBM`s cloud computing services to create new programs. Shares of IBM fell seven cents to $161.88. Workday shares rose fractionally to $83.65.

MATHISEN: Profit nearly tripled at Cisco (NASDAQ:CSCO). The food distributor for restaurants and schools said lower food costs helped drive profit as well as sales higher in the latest quarter. Separately after the bell on Friday, the hedge fund Trian Fund Management said it upped its stake in that company. Shares finished the day down a tick to $52.18.

Shares of Time Inc. meanwhile surged today after a regulatory filing revealed that hedge fund JANA Partners bought 5 million shares of the magazine. Both Time Inc. upped more than 5 1/2 percent to $14.42.

And AIG will part ways with its mortgage insurance business. The insurance giant will sell the division to Arch Capital for $3.5 billion. The deal, which is not guaranteed to close, could nevertheless be finalized this week. AIG shares rose marginally on the news to $59.22.

HERERA: A hotel operator that runs a number of popular brands says its payment processing system has been breached. The ATI Hotels and Resorts which includes Hyatt, Sheraton, Marriott and Western says it may have impacted 20 hotels in ten states and the District of Columbia. Malware was installed to capture credit card information at the point of purchase.

MATHISEN: Here`s something that will get the attention of travelers. Airfares this fall are expected to fall, a lot. That`s according to researchers who track how much it costs to fly. While this is good news if you`re booking a flight, it`s not great news if you own airline stocks.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you`re packing your bags for a trip this fall, you might have a little extra money to spend when you take off. That`s the prediction of the travel website Hopper, which expects domestic fares to drop more than 8 percent through October. It`s the continuation of a trend the industry has seen over the last three years. As domestic airfares have steadily declined, hitting an average of $232 for a round-trip ticket in July.

Why are fares falling? Partially because airlines have added more seats on more routes, so there`s plenty of capacity. And airlines will drop ticket prices to keep those seats filled, especially in the fall, which is traditionally one of the slowest seasons for travel.

Another factor is the drop in jet fuel prices. That allows carriers to lower fares but still make a profit. But this trend is not good for airlines. Passenger revenue per available seat mile, a primary factor investors use to gauge the growth of airlines, has been down for most of the last year.

As a result, investors have not been excited about airline stocks and they have lagged the market overall. While everyone enjoys a good fare sale, not every flight will feature lower ticket prices. If you`re booking a trip to a popular destination at a popular time, say Labor Day weekend, you may not see much of a discount.

For NIGHTLY BUSINESS REPORT, I`m Phil LeBeau, Chicago.

(END VIDEOTAPE)

MATHISEN: Phil has got that one right.

HERERA: Yes.

(LAUGHTER)

MATHISEN: To find out how to find a cheap flight this fall, head to our website, NBR.com.

HERERA: Coming up, the maker of the world`s most expensive watches has reached the new extreme.

(MUSIC)

HERERA: Finally tonight, what happens when you combine the work of a graffiti artist and a watch maker? The answer is very, very expensive.

Robert Frank has the story of one of the world`s priciest time .

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Richard Mille makes the most expensive watches in the world with an average sale price of $185,000. Yet, Mille`s newest model marks a new extreme. A piece of graffiti for your wrist for $800,000. It`s called the RM 68-01, a collaboration of French street artist Cyril Kongo. Instead of tagging trains and walls with spray cans, Kongo used tiny air brushes to color each part of the Tourbillon watch.

He goes around the streets, he paints vans, he paints bridges -- big illegal art.

RICHARD MILLE, LUXURY WATCHMAKER: Exactly.

FRANK: Mille is making only 30 of the watches and they`re already sold out. While the luxury watch industry is slowing, Mille can`t keep up with demand.

MILLE: We can satisfy everybody. The watch business has very much turned into volume. People are obsessed by volume. I`m not.

FRANK: For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA: And Richard Mille`s watches are known as the billionaire`s secret handshakes since the brand is known mainly among the super rich. And while sales of Swiss luxury watches fell 16 percent in June, continuing a long slide, Richard Mille is set to have another record-breaking year.

MATHISEN: I`ve never had that handshake and never will.

HERERA: Nope.

MATHISEN: Before we go, here`s another look at the record close on Wall Street. The Dow up 60 to finish at 18,636. The NASDAQ higher by 29, outperforming the Dow and the S&P to close at 5,262. And the S&P 500 jump six.

HERERA: That kind of -- I just want a classic watch.

MATHISEN: Simple watch. Simple is good.

HERERA: Simple is always good.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us.

MATHISEN: I`m Tyler Mathisen. Thanks for me as well. Have a great evening, everybody. We`ll see you back here Tuesday.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, 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) 2016 CNBC, Inc.

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