NIGHTLY BUSINESS REPORT for September 12, 2016, PBS - Part 1

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Santoli, John Harwood, Bertha Coombs, Julia Boorstin, Dominic Chu>

and Medicine; Insurance; Cantor Fitzgerald; Charity>

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT: Stocks take off. Wall Street rallies after a voting member of the Federal Reserve warned against moving too quickly on interest rate hikes.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Is there a fix? Why it may take something really big to keep insurers participating in the health care exchanges in many parts of the country.

MATHISEN: And giving back. Sports stars and celebrities line Cantor Fitzgerald`s trading floor to raise money to honor the victims of the September 11th attacks.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, September 12th.

HERERA: Good evening, everyone, and welcome.

A Fed-fueled rally and September just got a lot more interesting. Stocks soared after a Fed governor warned against moving too quickly on interest rates. That alleviated some of the concern in the market that we saw on Friday. When stocks tumbled when another Fed official said an interest rate hike may be just around the corner.

But today`s speech by Lael Brainard was the last appearance from a Federal Reserve official ahead of next week`s meeting of policy makers. Her cautious language sent stocks sharply higher. The Dow Jones Industrial Average climbed 239 points to 18,325. The NASDAQ added 85, and the S&P 500 jumped 31.

We begin with two reports tonight. Bob Pisani tells us why the markets are being whip sawed by the Fed, but first, Steve Liesman on what exactly central bank officials said and where the Fed`s voting members stand.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lots of Fed speak today, but the market taking its cue from Fed Governor Lael Brainard who made a full-throated case for the Fed not to hike rates. Brainerd who is a governor has a permanent vote on the Open Market Committee said the Fed has not been hitting its inflation targets and there are risks from abroad and a stronger dollar that the Fed should watch carefully.

LAEL BRAINARD, FEDERAL RESERVE GOVERNOR: To the extent that the effect on installation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling.

LIESMAN: Her comments followed those by Minneapolis Fed President Neel Kashkari, he also made dovish remarks in an interview on CNBC this morning.

NEEL KASHKARI, MINNEAPOLIS FED PRESIDENT: My view is, there doesn`t appear to be huge urgency to do anything, frankly, and let`s get as much data as we can and let`s try to get our inflation back up. Again, look around the world. Around the world, inflation generally is coming up low. This is a global phenomenon. It`s not just a U.S. phenomenon.

That`s why I think we need to understand, what are those drivers? Why are interest rates over the last 30 years, why have they been falling?

LIESMAN: Only Atlanta Fed President Dennis Lockhart sounded hawkish. He said, quote, "I`m satisfied at this point that conditions warrant serious discussion," end quote, of a rate hike.

Here is one reporter`s subjective view of where the ten voters at the meeting stand on hiking rates, based on their previous comments. Four look likely to vote for a hike, and three, including Fed chair, Janet Yellen, are possible supporters. Two Fed governors, Brainard and Dan Tarullo, seemed unlikely hikers and one Fed Governor Jay Powell is unknown.

But it`s likely that all the Fed governors will side with the chair once she makes up her mind as it`s rare for governors to dissent, as opposed to Fed bank presidents who dissent more often.

So, it all now depends on Fed Chair Janet Yellen. She had said in August that the case was strengthening for a rate hike. There had been some lukewarm data since then. But we`ll find out only next Wednesday if she`s changed her mind.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Teddy, the professional trader, who has to come in every day and put money on the line. They are obsessed about what the Fed will be doing because interest rates at such extreme lows given the improving economy that traders believe there has to be some kind of big move in stocks and bonds and the dollar if and when the Fed moves again.

But the last two trading days has not helped them understand the situation at all. Traders went from complacent on Friday morning to a mild panic midday Friday, from not caring to suddenly shorting the market. And then on Monday, the traders had reversed their positions.

This is all in two trading days. How could you make money on this -- on a daily basis when one important Fed voter says they want to raise rates on Friday and then on Monday, another important Fed voter says they likely will not raise rates?

The short answer is, you really can`t. Maybe Fed officials should just shut up and stop confusing everyone. We now have nine days before we`re gong to learn what the Fed is going to do, and most traders are no closer to having a firm conviction about what will happen than they did last week.

Is the Fed data-dependent or not? And what is the data telling us, anyway? They`re all so confused down here. Welcome to the new world of Fed communication.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: The head of the largest U.S. bank assets wants the Federal Reserve to get on with it. Speaking at the Economic Club of Washington, JPMorgan (NYSE:JPM) Chase CEO Jamie Dimon said he wants to see Fed Chief Janet Yellen raise interest rates sooner rather than later.

(BEGIN VIDEO CLIP)

JAMIE DIMON, JPMORGAN CHASE CHAIRMAN & CEO: My own personal view, and she does not call me for advice, by the way. But 25 basis points is a drop in the bucket. You know, we always -- we say to you all, 25 base points going really slow, don`t worry about it. Let`s just raise rates.

(END VIDEO CLIP)

MATHISEN: An interest rate hike means banks can charge a higher percentage to borrowers, and that in turn could help bank stocks.

HERERA: Michael Hanson joins us now to talk more about the Fed, the economy and the market. He is senior economist with Bank of America (NYSE:BAC) Global Research.

Nice to have you here.

MICHAEL HANSON, BANK OF AMERICA GLOBAL RESEARCH SR. ECONOMIST: Thank you.

HERERA: So, Michael, where do you come down on this? In term -- we have had a lot of cross currents -- I`m trying to be polite -- in terms of what the differing Fed officials are saying. But what`s the official stance from Bank of America (NYSE:BAC) Global?

HANSON: Our expectation is we`ll likely get a Fed hike in September. I think September is probably a little bit too soon for some Fed officials, as we heard. And it doesn`t seem that even the ones that may be leaning that -- rate hike might be OK. Don`t really see a cost to waiting.

And so, for that reason, I think it`s probably likely that consensus -- I really do think that Chair Yellen wants to get consensus in the committee as much as she can, and will likely be to not go in September, and can wait until December.

MATHISEN: You know, today these days we hear more and more from Fed governors, from Fed regional bank presidents. So we know what they`re thinking. I can`t say that I can remember a time when I have looked at the Fed and it seems as divided as it is today.

HANSON: Well, I think we had a lot of division around QE1 and QE2 in particular, right? So, I do think it comes and goes in waves. Remember, the Fed is probably the most decentralized central bank on the planet. They all get the ability to say their views, and I think the market was probably leaning a little bit in the direction of thinking that Brainard today was going to be kind of a spokesman for the committee and I think that`s not right. I think they all give their own individual --

MATHISEN: She`s been a dove, and she was certainly a, quote, "dove", meaning for lower for longer interest rates.

HANSON: That`s right. I think she was trying to persuade her fellow committee members. She had five points she wanted to lay out on why she thought it made sense to wait. So, I think that was really who her audience was.

HERERA: What about Neel Kashkari`s comments that we heard in Steve Liesman`s report, which is that the low inflation rate that we have here is a global phenomenon, and not specific to the United States? And how much should that influence, if at all, the Federal Reserve?

HANSON: Well, I think it matters. The Fed is focused obviously on U.S. inflation, but it matters why U.S. inflation is low and whether it`s going to come back up or not. And so, there is a large debate in the committee whether the tightening labor market in the U.S. alone will help bring inflation up and she is skeptical, or whether it is global factors and other things that may continue to keep inflation lower for longer. And I think that`s really one of the central debates in the committee right now.

MATHISEN: How much would higher interest rates help banks?

HANSON: It`s a good question. I mean, 25 basis points probably in the grand scheme of things is fairly modest, but, you know, the market right now is looking for some signs that rates will be going up as a favorable indicator towards bank stocks. I`d say the market rally today, despite that, because I think by and large, I think most in the stock market are hoping the Fed will continue to keep a punch bowl full for longer.

HERERA: Yes. Michael, thank you so much. Appreciate it very much.

Michael Hanson with Bank of America (NYSE:BAC) Global Research.

MATHISEN: Well, the bond market has been rattled by the big debate over interest rates. After defying predictions of a rise for years, bond yields around the world have started to climb from historic lows. But are the moves a head fake or something more?

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Have we finally seen the bottom for interest rates?

An abrupt selloff in the past week has lifted bond yields across world markets and raised this question. From Japan to Europe to the U.S., investors have stepped back from bonds, they question central banks continued willingness to suppress borrowing cost near historic lows. This is a reversal of the sentiment that took hold over the summer when trillions of dollars worth of bonds traded with negative yields and investors bet that central banks in Japan and Europe would continue buying government debt indefinitely.

Meantime, Federal Reserve officials continue to suggest the rate increases likely before the year is out. If not after next week`s policy meeting, perhaps in December. Of course, many have incorrectly predicted rates would start to climb for years now and the rise in the ten-year treasury yield from a low of 1.6 percent in early July to just above 6.5 percent now is hardly a dramatic move in the larger picture. That benchmark yield ended above 2.25 percent.

This could prove to be yet another fleeting balance in yield and even if the rates have been seen, low global growth and inflation should keep them from rising too far or too fast. Still, a growing fatigue with central bank policies and softening command for low yielding bonds provides a jolt for investors who have been rushing into dividend-paying stocks, believing those low bond rates insulated them from severe losses.

One bright spot of the recent lift in longer-term bond yields, it helps banks on the better return on loans and is carried bank stocks higher. As for the broad stock market, higher rates can usually be absorbed if they come with improved economic growth and corporate earnings, as is the hope.

But until such a growth pickup is confirmed, fatter bond yields could upset an equity market that`s going reliant on an assumption that rates would remain lower for longer.

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

(END VIDEOTAPE)

HERERA: Republican presidential candidate, Donald Trump, directed his criticism at the Federal Reserve. In an interview today on CNBC, he questioned the Central Bank`s independence, and said the Fed chief was keeping interest rates low to help President Obama.

(BEGIN VIDEO CLIP)

DONALD TRUMP (R), PRESIDENTIAL NOMINEE (via telephone): She`s keeping them artificially low to get Obama retired. Watch what`s going to happen afterwards. It`s a very serious problem. And I think it`s very political. I think she`s very political, and to a certain extent, I think she should be ashamed of herself.

(END VIDEO CLIP)

HERERA: John Harwood joins us now from Washington.

Good to see you, John.

So, how did Mr. Trump`s comments about the Fed compare to what he has said previously?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s odd, Sue. On the very same show, just a few months ago, Donald Trump said that people he knew had a very high regard for her, she was a very capable person, she`s just doing her job, she`s a low interest rate person, just like I am.

And today, when we`re in the heat of the general election, he says she`s very political and she should be ashamed of herself. He seems to be impulsive and react in the moment based on the stimuli he`s getting at the time, as opposed to having a consistent judgment of her or anybody else for that matter.

MATHISEN: Let`s to Hillary Clinton, following the disclosure of her pneumonia diagnosis. And what seemed to be a sort of going weak in the knees at the very least on yesterday. How serious is her illness, and what do we -- when do we expect her to resume a full schedule?

HARWOOD: Well, it`s not clear how serious the illness is. The images look very serious yesterday. Her knees just didn`t buckle. She collapsed.

Now, her aides have not described just what kind of pneumonia she has, and potentially it could be treated successfully by the antibiotics. The bigger challenge immediately, Tyler, is that this undercuts the argument that she`s been trying to make that she is, in fact, straight forward and not dishonest and not holding back information the way critics say.

Her -- she and her aides encouraged that belief by not disclosing the pneumonia diagnosis, which they now say was made on Friday. Not altering her schedule and going through saying nothing, having her collapse and then waiting until the end of the day to disclose that information.

HERERA: Yes, people have been talking a lot about that today, John. Do you think this will have a long-lasting effect on the race?

HARWOOD: I doubt it. But you don`t know. The race is relatively close.

We have seen in "The Post"/ABC -- "Washington Post (NYSE:WPO)"/ABC News poll over the weekend, she had a five-point lead, that`s down from eight before among likely voters. It`s substantial but it`s not an overwhelming advantage.

And when you`re a 68-year-old candidate, if you give people reason to doubt your physical fitness to take on the job, that`s a problem.

HERERA: Indeed. John, thank you very much.

HARWOOD: You bet.

HERERA: John Harwood, in Washington.

MATHISEN: The coming election is one reason why businesses are reluctant to increase investment or higher at a stronger pace. That`s the finding of the Business Roundtable`s quarterly survey of chief executives. Most leaders of America`s largest companies think the economy will continue to grow slowly and they don`t think the election will increase economic momentum.

HERERA: Still ahead, why Silicon Valley and all of those fast-growing startups may be at a turning point.

(MUSIC)

HERERA: Congressional leaders working towards temporarily funding the government past the end of the current fiscal year and providing money to battle the Zika virus. Senate majority leader, Mitch McConnell, said a lot of progress has been made and then he expects to advance the legislation in the Senate next week. He did not, however, provide any other details.

MATHISEN: Last week, we told you about a county in Arizona that has only one insurer offering a health plan on the Affordable Care Act exchanges. The lack of more than one option is not sitting well with some.

And as Bertha Coombs reports from Florence, Arizona, many want to know if the problem can be fixed.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: This summer, the Pinal County was the epicenter of upheaval in the Affordable Care Act market. Until Blue Cross of Arizona stepped in, no insurers offered plans for 2017.

Broker Teresa Ferrin is bracing clients for the fact they`ll now have access to just one insurer.

TERESA FERRIN, INSURANCE BROKER: I try to help my clients and I feel like I`m a source that they can call to look at what`s happening in the industry. And right now, I don`t have a lot to offer them.

COOMBS: One big reason insurers nationally are cutting back on the ACA now is funding for the government risk and reinsurance program that was meant to backstop big losses on high-cost claims expires in 2017. And that funding has been a fraction of what was expected in part because of the political impasse over the law in Congress.

CECI CONNOLLY, ALLIANCE OF COMMUNITY HEALTH PLANS CEO: Paying more than 12 cents on the dollar in the risk corridors, that`s just not right, if I promised you $100, and I handed you 12, you`d be a little disappointed.

COOMBS: To fix the problem, analysts and insurers say Congress needs to enact changes to make the ACA more like the Medicare market, which has a permanently funded reinsurance program. Enrollment rules need to be tightened to stop patients who only sign up for just a short time.

And insurers say they need flexibility to charge older, sicker parents a bit more and offer younger, healthier ones, lower cost, leaner plans. Analysts say that`s just a start.

LARRY LEVITT, KAISER FAMILY FOUNDATION: I think, you know, widening the age bans and allowing insurers to offer skinnier coverage could get some more people signed up. But I think -- I think those fixes alone probably are not enough.

COOMBS: Those measures will require legislative change in Washington, but ultimately, the ACA markets will only stabilize if enrollment grows. And that requires insurers to adapt, says consultant Jim Hammond.

JIM HAMMOND, PRO HEALHCARE SOLUTIONS, LLC: If we want everybody to get in, and we want the younger and healthier people to get into an insurance product, we have to give them a reason to do that.

COOMBS: Analysts say if Washington doesn`t come up with a real fix by this time next year, we could see more communities like Pinal County, Arizona, facing the prospect of no ACA coverage in 2018.

Bertha Coombs, NIGHTLY BUSINESS REPORT, Florence, Arizona.

(END VIDEOTAPE)

HERERA: Potash and Agrium (NYSE:AGU) merged to become an agricultural giant. And that`s where we begin tonight`s "Market Focus".

We recently told you that Canada-based fertilizer makers were in talks regarding a potential tie-up and now they have. The companies will merge to create a company with a total value worth $36 billion. Shares of Agrium (NYSE:AGU) down 2 percent to $19.64. Potash shares fell 1 percent to $16.76.

Hedge fund Starboard Value disclosed a more than 4 percent stake in Perrigo (NASDAQ:PRGO) and called for change at the drug maker. Over the weekend, the activist investor sent Perrigo (NASDAQ:PRGO) a letter, saying the company`s financial results have been poor since it fought off a hostile bid from Mylan (NASDAQ:MYL) last year. Perrigo (NASDAQ:PRGO) has responded, saying it will enter into constructive and productive talks with Starboard. The shares pop 7 percent to $95.23.

Horizon Pharma said it would expand its business through an $800 million acquisition of Raptar Pharmaceuticals. The deal allows the biotech company to strengthen its portfolio for rare disease treatment and increase its focus in that market. The Horizon Pharma shares rose 9 percent to $18.89, and Raptor shares soared 20 percent to $8.98.

MATHISEN: Tesla will launch upgrades to the autopilot feature that will include the use of advanced radar and will rely less on conventional cameras. The move comes after a fatal crash in May while the vehicle`s semi autonomous system was on. The new features are aimed at improving driver safety, something that CEO Elon Musk is betting on.

(BEGIN VIDEO CLIP)

ELON MUSK, CEO, TESLA: The 8.0 set of improvements, radar, inclusive of the others, probably cuts the accident rates in more than half. That`s my guess. It would make the Model S by far Model S and the X -- I mean, by far the safest car on the road.

(END VIDEO CLIP)

MATHISEN: Tesla shares up you nearly 2 percent on the day to $198.30.

The French drug maker, Sanofi, will launch a joint venture with a division of Google`s parent, Alphabet, to take on diabetes. The companies will inject $500 million into the new company called Onduo, which is expected to focus on treatment for the disease. Shares of Alphabet up 1 percent, $798.82. Shares of Sanofi up 63 cents to $39.82.

HP is buying Samsung`s printer business for $1 billion. The computer maker said the deal is aimed at reinventing and disrupting the copier industry. After the transaction is finalized, Samsung will invest as much as $300 million in HP. HP shares were up nearly 4 percent to $14.49.

And Taro Pharmaceuticals disclosed in a filing late Friday that the drug maker and two of its executives received a subpoena from the Department of Justice. Officials are seeking documents regarding employee records, generic drug pricing and sales. Taro said it will cooperate with the investigation. Meantime, the news sent shares down nearly 4 percent to $119.42.

HERERA: Silicon Valley may be at a turning point. The number of deals are falling, and the majority of venture capital is not going to the newest players. What happens next was a big topic of conversation at the Tech Crunch Disrupt Conference.

Julia Boorstin has more tonight from San Francisco.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This year`s Tech Crunch Disrupt brings together 500 startups, competing for investors` attention at a time when it`s increasingly tough for the little guys here to take their business to the next level.

Venture deal volume declined in the second quarter, and though overall venture capital investment rose slightly, the majority went to private giants, such as Uber and Snapchat, rather than newer players, raising the bar for startups.

JAGER MCCONNELL, CRUNCHBASE CEO: You need to have a business model that makes sense, and in my opinion, that`s good. It`s sort of a survival of the fittest now, right? You coal out the ridiculous companies that probably shouldn`t exist in the first place, now, we`re all thinking from the beginning, what is our business model? How do we make money?

BOORSTIN: Startups here including Airmule, a company that allows travelers to rent out their luggage space, says it`s harder to secure funding.

RORY FELTON, AIRMULE CEO: We`re finding that it`s taking more meetings than it probably would have a few years ago to close this route.

BOORSTIN: Another factor, all the folks here have been watching, this has been a slow year for IPOs. Through August 1st, it`s been the slowest year since 2009.

Jerry Huang, COO of Shanghai-based iTutorGroup, which has a valuation greater that a billion dollars, says his company sees the advantages of staying private longer.

JERRY HUANG, ITUTOR GROUP COO: There`s an opportunity for a lot of these organizations to grow at a significantly fast pace by staying with private funding. So, companies like Uber, even companies like ourselves, what we can do is really invest heavily on cutting-edge technology, solutions that really drive results.

BOORSTIN: But industry-watchers say this IPO drought can`t continue, as investors are looking to cash out.

MCCONNELL: I think there`s a lot of pressure to not go public right now, just why you see this. Not going public. But I think that temperature is slowly changing, where the investors are saying, when do I get my money back, right? When is my return on my investment?

BOORSTIN: The mostly early stage companies here are far from an IPO. But eager to get on the radar of investors who come here to discover what could be the next generation of unicorn, or companies worth more than $1 billion.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in San Francisco.

(END VIDEOTAPE)

MATHISEN: Coming up, Wall Street remembers and gives back to commemorate the anniversary of the September 11th attacks.

(MUSIC)

HERERA: One day after the 15th anniversary of the September 11th attacks, Cantor Fitzgerald is continuing its tradition of giving back. That firm, which lost more than 650 employees on that day, is hosting its annual charity day.

And Dominic Chu was there.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Sometimes, to tell them and certain people laugh that DMC mean that Darrell makes cash!

(CHEERS)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Brokerage and banking firm Cantor Fitzgerald lost the majority of its New York-based employees in the 9/11 attacks and now uses the anniversary to raise money for charity.

HOWARD LUTNICK, CANTOR FITZGERALD CHMN. AND CEO: Fifteen years ago, we lost 650 people, and so when we rebuilt the company, we said we would have a charity day. We ask all our employees to waive their day`s pay and ask all our clients to do as much business as they can. And we don`t give away our profits. We give away every dollar of revenue. Last year, raised $12 million on that day, $125 million so far.

UNIDENTIFIED MALE: $7 million.

UNIDENTIFIED MALE: $7 million.

UNIDENTIFIED MALE: All right. Done.

CHU: Every dollar collected in commission revenue for the day goes to charity. And a host of celebrities in the worlds of sports, arts and entertainment turn out to help the cause.

UNIDENTIFIED FEMALE: I`m trading away. Making lots of moolah.

CHU: From football players like Eli and Peyton Manning and Brandon Marshall, to baseball players Dellin Betances to super models like Lily Aldridge to actors like Steve Buscemi and others.

BRANDON MARSHALL, N.Y. JETS: It`s not just about professional athletes. It`s about every human being on this plane. It`s as you climb the ladder, can you lift someone else up with you?

CHU: All day, seasoned traders sat alongside celebrities to get deals done for stocks and bonds.

UNIDENTIFIED MALE: 101.

UNIDENTIFIED MALE: 101.

UNIDENTIFIED MALE: Done?

UNIDENTIFIED MALE: And nobody told me to say that.

CHU: The Cantor Fitzgerald relief fund was originally set up to help some of the families directly affected by 9/11. But today, it helps a variety of other charities.

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