REPO-01
Fujita, Deirdre Bosa, Julia Boorstin, Meg Tirrell>
Estate; Health and Medicine; Science; Technology>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: Flexing some muscle. That`s what the U.S. economy seems to be doing in the second quarter after an anemic start to the year.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Three percent down for a house? Sound familiar? The nation`s largest mortgage lender is bringing back low down payment loans. But are they as risky as they once were?
(BEGIN VIDEO CLIP)
LISS MURPHY, DEEP BRAIN STIMULATION PATIENT: Brain surgery sounds so dramatic and severe and intense and my greatest hope that day was that I would die on the table.
(END VIDEO CLIP)
EPPERSON: But she didn`t. And the unconventional surgery to implant a device in her brain, her very last hope actually worked. The second part of our series "Modern Medicine". Tonight on NIGHTLY BUSINESS REPORT, for Thursday, May 26th.
Good evening, everyone. I`m Sharon Epperson, in tonight for Sue Herera.
MATHISEN: And I`m Tyler Mathisen. Welcome, everybody.
Well, signs of strength to tell you about from the factory floor to housing data to the labor market. New numbers out today show the world`s largest economy is rebounding in the second quarter from that slow start to the year. And you can be sure that the Federal Reserve, which says data drives decision-making is paying very close attention.
Let`s start with jobs. The number of Americans applying for unemployment benefits fell last week, more than expected. According to the Labor Department, jobless claims were down 10,000 to a seasonally adjusted 268,000. That is the second straight week of declines following a choppy spring.
EPPERSON: To the factories, where orders for long lasting manufactured goods surged in April, according to the Commerce Department. Strong demand for transportation equipment helped lift durable goods orders nearly 3.5 percent. And that was well above expectations. However, a key proxy for business investments continued to show signs of weakness.
MATHISEN: And the housing market continues to power right along this spring. The number of homes that went under contract to be sold climbed to the highest level in more than a decade. The National Association of Realtors says pending home sales in April rose more than 5 percent. That`s easily exceeded expectations.
But as we have been reporting, one of the issues plaguing the housing market is affordability. As home prices rise, many just can`t afford to buy, let alone make a down payment. So, Wells Fargo (NYSE:WFC) has decided now to launch a new low down payment mortgage program.
But as Diana Olick reports, skeptics wonder just how many first time home buyers the program will really help.
(BEGIN VIDEOTAPE)
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The new home loan from the nation`s largest lender requires just 3 percent down payment for a conventional fixed rate loan funded by Fannie Mae.
BRAD BLACKWELL, WELLS FARGO HOME MORTGAGE: We`re offering a simplified product that is less expensive and we think a far better way for someone to buy their first home.
OLICK: The down payments can come from a gift, perhaps from parents or community down payment assistance programs. Borrowers do not have to complete a home buyer education course, but if they do, they can get their interest rate slightly reduced. Borrowers must have at least a 620 FICO score and need mortgage insurance.
Critics argue this is a return to a time when borrowers didn`t have enough skin in the game. But Wells Fargo (NYSE:WFC) claims it is still low risk to the banks.
BLACKWELL: With this product, we`re being very clear that they have to have the ability to repay the mortgage, we have to make sure that they have a history of repaying debt, or at the very least, responsible management of their finances.
OLICK: But there are a couple of hitches with that. First, Fannie Mae loans are exempt from the so-called ability to repay rules that federal regulators put in place after the credit crisis. Borrowers can have much higher debt levels compared to their incomes through Fannie Mae. Second, a 620 FICO score means you don`t have a good history of repaying debt or managing finances, which means very few borrowers would qualify at that score unless they brought something else to the table.
GUY CECALA, INSIDE MORTGAGE FINANCE: You need something like big down payment, which you`re not having with this loan, or big bank account, which is unlikely with somebody who is lower income and have a lower credit score.
OLICK: He says he does not think this will be a game changer for first time borrowers but could bring big banks back into an area they mostly abandoned since the financial crisis.
CECALA: The reason the Wells Fargo (NYSE:WFC) was doing this is not just it`s public conscience, but the fact that the regulators are looking at them and saying, what are you doing to serve lower income minority, borrowers in areas where you collect deposits.
OLICK: This new loans is Wells Fargo`s answer as long as the borrowers who ask for it qualify.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
(END VIDEOTAPE)
MATHISEN: Stocks took a breather today after two days of triple digit gains. Here are the numbers for the session. The Dow Jones Industrial Average declined 23 points, 17,828 was the close there. NASDAQ, however, added about 7 points to 4,901. The S&P 500, it was down, but just by .02.
Despite today`s small moves, stocks are working their way back toward their 2016 highs. This market isn`t the same as the one just a few weeks ago.
Mike Santoli explains.
(BEGIN VIDEOTAPE)
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the surface, not much is different. The corporate profit outlook for this year is about the same. The yield on the ten-year treasury was below 2 percent then and it`s hardly budged. But oil prices have continued climbing, up more than 10 percent in the past five weeks to reach $50 a barrel. This helped the market for riskier bonds to strengthen further, which offers better support for stocks.
And shares of big banks often viewed as a bellwether are up nicely since the broad S&P 500 index was last at the 2,100 mark. These factors suggest the market is on slightly firmer ground than it was in April. Perhaps the biggest change comes in investors perception of the U.S. economy and the federal reserve`s plans for raising interest rates.
Consumer and industrial data have been good enough to support the case for a second quarter pickup in growth and Federal Reserve officials have consistently suggested in recent weeks that another boost to short-term rates could come in June or July if the economic data keep improving.
The Wall Street consensus had discounted this possibility in part due to the impending vote on Britain`s E.U. membership and the unsettled presidential campaign. While the bond market hasn`t fully priced in the prospect of a rate hike within two months, it moved in that direction.
So, is it a good sign that stocks have been able to recover while odds of a rate hike have climbed? Indicating investor comfort with the possibility? Or would markets react badly to another close call on rates the way they did last September when the Fed stood pat and after the December rate boost.
These are the questions that will likely animate summertime trading in a resilient market that now faces an obstacle course of high stakes events.
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.
(END VIDEOTAPE)
EPPERSON: Oil prices broke a key milestone today. Domestic crude hit $50 a barrel before pulling back a bit and that`s its highest level since October of last year. Since oil`s lows in February, oil prices have climbed 80 percent and incredible assent helped by supply outages overseas, as well as recent reports that show a decrease in stockpiles.
MATHISEN: Now, the question becomes can oil continue to rise? Our next guest last year predicted oil would dip into the high teens. For a while there, he looked like he would be right. Then crude moved against him.
Here to discuss what he sees now is our friend John Kilduff, founding partner. I almost called you a founding father, of Again Capital. You are a founding father, so to speak.
JOHN KILDUFF, AGAIN CAPITAL FOUNDING PARTNER: Absolutely.
MATHISEN: When you said high teens last year, I thought Kllduff is crazy. Then oil went down into 26, $27, I thought not so crazy. Crazy like a fox.
So, what happened that caused oil to rebound and spring up the way it is and are we near an intermediate term peek?
KILDUFF: Thanks for having me back.
MATHISEN: Thanks for reminding me.
KILDFUFF: This is the last bastion of accountability right here, NIGHTLY BUSINESS REPORT.
MATHISEN: That`s right.
KILDUFF: I do believe that we`re nearing a peek. I mean, a lot of influences have come together here to produce this $50 price print -- exogenous things like this massive Canadian wildfire knocked a million barrels off the market.
MATHISEN: U.S. production is down.
KILDUFF: U.S. production is down. Actually, that is the one key fundamental that I can`t argue with and if I underestimated anything, it was how rapid the shale guys would shut down and shut down incredibly quickly. I mean, they had just abandoned the place, there are counties that were flourishing with oil production activity that are at zero. And we`re down 800,000 barrels.
MATHISEN: Nigeria, Libya.
EPPERSON: But those are issues that have always been on the table. So are they even more concern now, is that why we`re seeing oil prices rise in terms of some of the geopolitical fears?
KILDUFF: Well, the U.S. barrels that we lost were the cushion, let`s call it that. So, now, Nigeria barrels, they were begging for a home to sell to for many months over the past year. The Libyan situation, though, looks like it`s coming back. There has been a deal there for government. There are ships loading oil as we speak. Their production is rebounding.
But I think what we`re going to be reminded of here are two things. A, the OPEC meeting next week will show the cartel is very much in disarray still, that the Saudis, Iranians, the Iraqis are in the process of ramping up oil production, not lowering it, more than offsetting the U.S. loss.
MATHISEN: Very quickly, where does oil end the year in your view?
KILDUFF: I still think there is a possibility for a significant washout. I think the production cuts have put a floor on things, $35 to $40 I think.
MATHISEN: John Kilduff, thanks very much.
KILDUFF: Thank you.
MATHISEN: Have a great long weekend.
KILDUFF: You too.
EPPERSON: President Obama and leaders of the group of 7 leading industrialized nations met today in Japan. The big topic was how to accelerate the global economy.
But as Akiko Fujita reports, not all are in agreement on how to respond.
(BEGIN VIDEOTAPE)
AKIKO FUJITA, NIGHTLY BUSINESS REPORT CORRESPONDENT: The health of the global economy dominated talks in this first day of the G7 Summit. The leaders were in disagreement over where they believed the recovery stands.
Germany`s Angela Merkel coming out and saying she believes the global economy is showing a certain amount of stable growth while Prime Minister Shinzo Abe here in Japan warning of a lean and like event, specifically citing the growth rate in emerging markets and commodity prices, saying they`re at levels not seen at the financial crisis since 2008.
The TPP also on the agenda here, with the trade deal yet to be ratified, leaders agreeing to speed up the process, aiming to have the deal finalized by the fall and take effect as early as next year. As for geopolitical risks, China and territorial disputes in the South China Sea dominate in discussions. President Obama saying G7 leaders also expressed concerns about the U.S. presidential election.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: They`re rattled by him and for good reason. Because a lot of the proposals that he`s made display either ignorance of world affairs or cavalier attitude or an interest in getting tweets and headlines instead of actually thinking through what it is that is required to keep America safe.
FUJITA: Tomorrow, the attention shifts to Hiroshima where President Obama will become the first sitting U.S. president to visit the site of the nuclear attack. He has made it clear there will be no apology, but the president said today that this visit would be a reminder that the job still isn`t done when it comes to reducing conflict in the prospect of nuclear war in the future.
For NIGHTLY BUSINESS REPORT, Akiko Fujita, Ise-Shima, Japan.
(END VIDEOTAPE)
EPPERSON: Still ahead, could rising wages for fast food workers back fire on the very people they`re meant to help.
(MUSIC)
MATHISEN: A legal victory for Google (NASDAQ:GOOG). A jury sided with Google`s parent Alphabet, in its long running copyright lawsuit against Oracle (NASDAQ:ORCL). The other day, we told you the outcome of the trial could ripple through the entire software industry.
Deirdre Bosa has the details from the courthouse now in San Francisco.
(BEGIN VIDEOTAPE)
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: After six years of litigation and plenty of increasingly heated back and forth between two tech titans, the jury in the courthouse behind me has decided in favor of Google (NASDAQ:GOOG). Essentially, they have decided that the company did not violate Oracle`s copyright when it used java programming to create Android.
We have since heard from both companies giving statements. Let me read you the first from Oracle (NASDAQ:ORCL). They said they brought this lawsuit to put a stop to Google`s illegal behavior. We believe there are numerous grounds for appeal.
Google (NASDAQ:GOOG) for their part issued this statement, "Today`s verdict that Android makes fair use of Java API`s represents a win for the Android ecosystem so the Java programming community and for software developers who rely on open and free programming languages."
So, Google (NASDAQ:GOOG) will not have to pay $9 billion and there is likely a sigh of relief among the huge community of developers and startups that rely on open source. That is the software at the heart of the nearly 6-year lawsuit.
As for what`s next -- well, likely a lengthy appeals process as Oracle (NASDAQ:ORCL) alluded to, but for now, a victory for Google (NASDAQ:GOOG) whose lawyers shortly after their decision was handed down said they were going out to celebrate.
Deirdre Bosa for NIGHTLY BUSINESS REPORT in San Francisco.
(END VIDEOTAPE)
EPPERSON: McDonald`s (NYSE:MCD) temporarily shut its headquarters outside Chicago because of demonstrators. The protesters were marching for $15 an hour minimum wage and rights to form a union, on the same day the company was hosting its annual shareholders meeting. This is a third year in a row the burger chain had to ask headquarter workers to stay home for the day.
MATHISEN: And as fast food workers around the country do push for that $15 an hour minimum wage, McDonald`s (NYSE:MCD) USA former CEO Ed Renzi says it`s cheaper to invest in new technology and automation rather than increase worker wages. Others in the restaurant industry agree with him.
(BEGIN VIDEO CLIP)
TILMAN FERTITTA, LANDRY`S INC. CHAIRMAN & CEO: People are going to look to automate everything they can, especially in the kitchen, where you can build equipment to do certain things for you. If the government and states continue to push this $15 wage and not give tip credit for the waiters, you are going to see a huge layoff in people.
When you look at the payout over a number of years, you cannot pay somebody $15 an hour when somebody is buying a burger for $4. It does not work.
(END VIDEO CLIP)
MATHISEN: And joining us now to discuss this is Erik Brynjolfsson. He`s a professor of management at MIT Sloan School, director of MIT`s initiative on the digital economy.
Professor, welcome. Good to have you with us.
Automation is coming, whether there is a hike in the minimum wage or not. How disruptive, transformative, maybe, is it going to be in the restaurant business?
ERIK BRYNJOLFSSON, MIT PROFESSOR: I think it`s going to be very big. We have already seen that technology is having some big effects in terms of medium wages, stagnated for a while. And the technologies that are in the pipeline will be able to automate a lot more tasks the next ten years than they did the last ten.
HERERA: One of the things that you pointed out in the research is that divergence that we`ve seen over the years in terms of productivity growth and employment growth.
We`re looking at jobs today from taking tolls at the highway to restaurant workers, to people even taking their blood pressure. All those jobs have gone away and now been replaced by machines.
How is this divergence between productivity and employment really played into what we`re seeing?
BRYNJOLFSSON: Well, that`s exactly right. Historically, as productivity grew and the pie got bigger, there was a rising tide that lifted everybody. Wages rose for everybody.
But for the past 20 years or so, median income stagnated, even fallen. There has been a falling share of the people who are working. And there are many reasons for that.
But part of it is the technology that is automating a lot of routine repetitive jobs. There is still more demand for data scientists, for creative people, for caring and nurturing, but people doing routine work are finding it harder and harder to compete with machines.
MATHISEN: Let`s go back to the restaurant business. I presume that as automation comes in, whether it is taking orders, bagging French fries at McDonald`s (NYSE:MCD) or Wendy`s or wherever, that is going to mean fewer jobs in those locations. Is that race towards fewer jobs going to be accelerated by a rise in the median wage, in other words, are companies going to accelerate the use of automation, costing jobs as wages rise?
BRYNJOLFSSON: There will be some of that.
To keep this in perspective, we should understand that technology has been destroying jobs, it always has been creating jobs. There is a balance, a turn there that is natural and healthy. In fact, that`s how the economy becomes more productive and that`s how our living standards rise as people move from one area to the other.
But it is true that if you push up the wages, say, through a minimum wage, that does increase the incentive for companies to automate faster than they otherwise would have.
MATHISEN: All right. Professor, thank you very much. I`m sure this will be an ongoing conversation. We hope to have you back soon.
Erik Brynjolfsson with MIT.
EPPERSON: Total sales slide for the 13th straight quarter at Abercrombie and Fitch (NYSE:ANF). And that`s where we begin tonight`s "Market Focus".
The fashion retailer also reported a decline in profit as fewer shoppers hit the stores. The results fell short of expectations. Abercrombie also says the current quarter will remain challenging. Shares plummeted more than 15 percent to $21.14.
Sears (NASDAQ:SHLD) says it will explore options for its iconic Kenmore, Craftsman and Diehard brands by expanding availability outside of the stores. The news comes as the retailer posted a continued decline in earnings and revenue. Company announced the departure of its chief financial officer. Investors seem to be pleased with the news, shares rose 6.5 percent to $13.34.
And sales soared at discount chain Dollar Tree (NASDAQ:DLTR), prompting the company to raise its guidance for the year. Profit also rose in top estimates driven in part by the company`s addition of nearly 8,000 stores, from its acquisition of rival Family Dollar. Shares were up more than 12.5 percent to $88.37.
MATHISEN: Profit rose a whopping 46 percent at Burlington stores, which helped the off price retailer top estimates today. Sales were also higher and above estimates. The strong quarter prompted the company to raise its full year outlook. Shares finished today up nearly 7.5 percent to $60.03.
An increase in new members and membership fees drove profit higher at Costco (NASDAQ:COST) despite the positive news. Comparable store sales remain flat for the quarter, well below the 2 percent gain analysts were expecting. Nonetheless, shares rose 3.5 percent, 149.71 was the close there.
And U.S. Foods made a splash today in its first day as a public company. The food services outfit raised more than a billion dollars in one of the biggest initial public offerings so far this year. Shares up better than 8 percent to $24.91.
And a top Apple (NASDAQ:AAPL) executive reportedly raised the idea of buying Time Warner (NYSE:TWX) at a meeting between the two companies. But the idea never got off the ground. "The Financial Times" says apple would likely be more inclined to buy a video streaming company.
Do any names come to mind? How about Netflix (NASDAQ:NFLX)? As it looks to increase its spending on original content. Apple (NASDAQ:AAPL), Time Warner (NYSE:TWX), Netflix (NASDAQ:NFLX), all up on the day.
EPPERSON: You know, "Mad Men" may have left the air a year ago, but fans of the retro show can now bring a piece of it home. Part of a rising trend of auctioning Hollywood memorabilia, and that`s creating a new source of revenue for studios.
Julia Boorstin has the story from Los Angeles.
(BEGIN VIDEOTAPE)
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Want Peggy Olson`s typewriter on Don Draper`s lighter? There are over 1,500 "Mad Men" props and set pieces up for sale, sold on behalf of Lionsgate from "Mad Men`s" 92 episodes over seven seasons.
Screenbid and Auction Houses specializes in items from TV shows will start the auction on Wednesday. Many items starting at less than $100. Fans can bid online and auction winners receive a certificate of authenticity and a screen shot of where the product was within the show. Screen bid charges a buyers fee and takes a cut, delivering the rest to Lionsgate.
BILL BLOCK, SCREENBID CHAIRMAN: Here is a brand-new monetization for you. And beyond just the, you know, incremental dollars and cents that will fall to your bottom line, it is a wonderful marketing engagement and cultural extension.
BOORSTIN: Lionsgate and other studios benefit not just from incremental revenue from selling items like don draper`s glasses or lighter, but also the fact that auctions like these help drum up attention for shows long after they have left the air. Inspiring fans to download episodes on iTunes or Amazon (NASDAQ:AMZN) or to stream them on Netflix (NASDAQ:NFLX), helping media giants extend the life of their brands.
The fact that it is now easy for people to binge on shows long after they leave the air grows the potential fan base for these kinds of auctions.
JEFFREY DASH, SCREENBID CEO: The availability of the streaming services for people to access the show wherever they want and to revisit these characters, revisit these storylines is going to make the demand really high.
BOORSTIN: There are no official estimates, but the business of selling Hollywood memorabilia generates at least a billion dollars in annual sales, according to Screenbid`s chairman.
A sale of "Breaking Bad" props brought in more than $65,000 for Walter White`s copy of leaves of grass alone. So, some of these items could get up into the tens or even hundreds of thousands of dollars, for something like Don Draper`s car.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
(END VIDEOTAPE)
MATHISEN: Coming up, why researchers may have a whole new set of options when it comes to treating depression, substance abuse, even PTSD. The second part of our "Modern Medicine" series is next.
(MUSIC)
MATHISEN: The human brain, a miracle, of course, and in many ways still a medical mystery. But now, technology is helping doctors understand how the brain really works. And in the process, he`s unlocking new treatments.
Meg Tirrell has the second part of our series, `Modern Medicine".
(BEGIN VIDEOTAPE)
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: As many as one in five veterans return from war with post traumatic stress disorder. Their current options for treatment: behavioral therapy and medicine.
But those options don`t address the electrical circuitry governing our bodies and brains.
DR. DARIN DOUGHERTY, MASSACHUSETTS GENERAL HOSPITAL: We focused a lot on the chemical side because in the mid-20th century, we began to develop the first medications that affected neurotransmitters.
TIRRELL: Dr. Darin Dougherty is director of the division of neuro therapeutics and the department of psychiatry at Massachusetts General Hospital.
DOUGHERTY: The other side is the electrical and that`s been less exploited as a treatment potential.
TIRRELL: Dougherty and others are working to change that, with funding from the Defense Advance Research Project Agency or DARPA. Scientists are working to build new ways to treat psychiatric disorders, like PTSD, through deeper understandings of the electrical signals in our brains.
DR. JUSTIN SANCHEZ, DARPA BTO DIRECTOR: What it really boils down to is precision and reaction with the neurons of the brain that are involved in neuropsychiatric illness.
TIRRELL: Already, patients are using early models. Deep brain stimulation is FDA approved for the treatment of Parkinson`s disease symptoms, as well as obsessive-compulsive disorder.
Liss Murphy had a deep brain stimulation device implanted ten years ago to treat her severe depression. She calls it a life saver.
LISS MURPHY, DEEP BRAIN STIMULATION PATIENT: This episode started in August of 2004 and nothing could budge, budge it. I have a resume of like seven pages with all the drugs I tried. And I did 30 rounds and nothing made a dent, just getting worse and worse and worse.
TIRRELL: Out of options, Murphy agreed to try deep brain stimulation. Not FDA approved for depression. It is a serious procedure, requiring brain surgery to put in place.
MURPHY: Brain surgery sounds so dramatic and severe and intense and my greatest hope that day was that I would die on the table. I just had no -- it`s going to be my last shot, you know? I`ll do this and if it doesn`t work, I can say I tried everything, but it worked.
TIRRELL: The device Murphy has sends a constant electrical charge to her brain. The newer prototype being developed will be a closed loop system. Sensing misfires among neurons and sending corrective charges when need.
DOUGHERTY: When it reaches a certain threshold, it would stimulate another brain area that when it activates would suppress those neurons and the symptoms associated with it.
