>> announcer: this is "nightly busi with tyler math rising rates. as treasury yields move higher, will the red-hot bull run in the stock market start to cool? and then there were two. 87-year-old warren buffett is one step closer to naming his successor after elevating two key figures at his sprawling conglomerate. > newman's own tax trouble. the well-known brand faces a 200% tax hike and a lot of questions now about its future. those stories and more tonight on "nightly business r for wednesday, j good evening, everyone, and welcome. stocks faltered a bit today after a strong start to the year. the s&p 500 and the nasdaq

closed lower for the first time in 2018. some are attributing the decline to good old fashioned profit taking. others pointed to nervousness that higher inflation could force the fed to be more aggressive when it comes to hiking interest rates. the result was a drop in stocks. the dow fell 16 points. the nasdaq was off ten. and the s&p was down three. investors are paying more attention to the bond market these days. yields have been rising. that could usher in big changes for stocks and the economy. steve . >> reporter: interest rates are rising, presentin a challenge to economic growth and to the stock market. but some look at the recent rise and ask, what took so long? the fed hiked interest rates three times last year. budged.ten-year bond yield if fell through much of 2017. it comes amid a report that china is rethinking how much it buys. it comes amid better growth,

rising expectations, and a coming boost to the deficit bill, the tax cut bill. >> yields are low. they should be higher. they're nowhere near where they ought to be given the economic environment, given the global central bank pressure on keeping rates low. >> reporter: the rate increase represents a modest problem for companies. corporate bond yields have risen so some of the tax cut benefits could be reduced by higher rates s have been modest and rates still seem to be available around the 4% rate for would be probl for the market, some investors think a yield of around 2.6% is a better bet than buying stocks, meaning they pull money out of the equities. this does solve a problem for the federal reserve. some officials were starting to be concerned that rates in the y were failing to re it was hiking the short term funds rate and

reducing its balance sheet. for "nightly business r the great bond bull market that began 25 years ago may, may, be coming to an end, so says janice henderson's bill gross, often referred to as the bond king. >> it's not a strong colombian bear market. it's a decaffeinated bear market where yields rise 25 to 30 basis points for the year. >> but rising rates don't necessarily mean falling stocks, at least not according to bill miller who is known for beating the market 15 years in a row when he worked at legg mason. >> those ten-year yields head towards 3, we could have the meltup we had in 2013. >> rising interest rates are

sure to be a theme this year. what impact might they have open companies and their stock price? that's up for debate. on guests says rising rates pressures stock valuations. here to talk about how rising rates might hurt stocks is christina hooper, global market strategist at invesco. and steve dudash joining us to take the other side of that debate. welcome, pleasure to have both of you here. >> thank you. >> christina, you think it might put pressure on profit margins. at current interest rate levels, or if they move decidedly higher? >> if they move decidedly higher, borrowing costs will increase. that will definity put pressure on profit margins, in addition to other precious we're likely to see like an increase in wages. >> let me turn to you, steve. you say among other things that on the whole, rising rates are

going to be a net positive for equities. i can see where it's going to help financial companies, their net interest margins will expand as they're able to charge more because, by the way, they usually charge more for loans than they pay you in deposit accounts. but how else is it going to help stocks? >> umm, well, okay. let me take a slightly different approach. if we're not going to raise interest rates, when are we? we just came off a year when the market is up 20%, 3% gdp, unemployment very, very low right now. what else do we need to do in this goldilocks period to make people comfortable with a rate hike? our economy is better off if we i'm not talking a where they are in the '70s or '80s. we all know something is going to happen sooner or later. it gives us some protection for when something bad takes place.

if something happens today, we don't have a lot of wiggle room to protect us or help out on that. so get rates up there. again, we're at 500-year lows in rates right now, a little bit more of a rate hike isn't going to really hurt things in the long term that much. >> christina, let's talk about the point steve just made, about the fact that in indeed we do have a market event, that it gives the fed more wiggle room. others say rising rates complicate this for the fed. what do you think? >> i think he's absolutely right, that certainly you get some dry powder by raising rates. but th doesn't dismiss the fact that it does put pressure on valuations. when you think of major valuation models for stocks, the inputs are earnings or expected earnings, and interest rates. and you're discounting the earnings by the interest rate. so if interest rates are higher,

typically that will put pressure on valuations. now, if you have modest rate increases, it won't have a very material impact. but it does have some, and it certainly has an impact on the bond market as well. having said all that, it doesn't mean that it's not healthy to have a few rate hikes. we just have to be prepared for the fact that we could see some valuation compression if earnings don't deliver. >> address that, steven. i take your point, the idea that if not now, when are we going to raise interest rates with them this low. >> right. >> but my initial question was explain to me how these higher rates are not going to hu but i indeed actually help them but higher. >> your guest is 100% right, it's going to hurt valuations a little, no doubt about it. but we don't need another 20% market return. don't get me wrong, everyone is happy, but that's not healthy.

bottom line profits didn't go up enough to justify what took place. if it happens again next year, we might have an issue. valuations might bring down what the total returns might be in the market, she's right on the math on that. but if the grand scheme, if the garago do this long term, grow this economy the right way, we don't want 20% returns over and over again. if this hurts valuation, fine, who cares? we're better off in the long term if we have a single digit year. she's right, it's going to hurt bonds. but that actually ends up helping the stock market because people aren't making money on bonds will rotate into the stock >> all right. the conversation is not over yet, certainly. it will continue. thanks so much for joining us, christina hooper, steve dudash. the federal reserve

delivered more than $80 billion to the treasury department. the central bank remits its profits to the treasury every year. and while $80 billion sounds like a lot, it was the second straight year of profit declines primarily due to rising short term interest rates. and speaking of billions, warren buffett's succession plan is getting a bit clearer. for years many wondered who d f shoes. no. betsy quick is in omaha t. >> reporter: the news today is the closest we've ever gotten from berkshire hathaway in terms of a succession announcement of who would take over when warren buffett leaves. the news is greg abel, who has been running berkshire hathaway and energy, and g. james, will each be taking over as vice chairman of the company, in

addition to the existing vice chairmanrllie munger, who at 94 years old is going nowhere. they'll be joining the board of berkshire hathaway, moving the number of directors from 14 to 12. warren buffett tells us that will be very good for each of them to get that expedience. >> they're bo have berkshire in their blood. they know the company, they have the operations like the back of their hand. it's good for berkshire and even better for me. >> reporter: we asked about some of the individual holdings, major stock holdings that berkshire has. they don't hav to tell us anything, they don't to file with the sec what they've been doing in the fourth quarter until february 15th. he was coy on what he thought about apple. >> we've added to our holdings

consistently up through all the published reports. and we'll publisher some more on -- see, the market does not get saturated, i want to point that o when tim cooke sent me a christmas card this year talking about the i phone, when i actually buy it, it's all over, folks. >> reporte buffett still has a flip phone made by samsung that he keeps with him at all times. we'll see if he buys an iphone. we asked him about shares of general electric. berkshire is not a shareholder in general electric. but would it be something he would see and like at some price? the answer is yes, at some price. the quest is what. >> diffee have diff views on what that price would be. but if you came to me and said we'll sell you the whole general electr at x and x was the right number, we would like to buy it, and if we buy little pieces in the market, we would

think about it. >> r he did say ge is a big, strong economy. i'm becky quick in omaha, nebraska. concerns about the future of nafta reverberated through parts of the stock market today. reuters reported that canada is becoming, quote, increasingly convd that the u.s. will exit that long standing trade agreement. that sent shares of a canadian and mexican etf lower. gm also under pressure you s yo see there, since it imports from mexico full size pickup trucks, which are among its most profitable products. kansas city southern, which has an extensive network in mexico, is off 3.5%. the clock is ticking for the trump administ to defend american manufacturers priced out of the chinese market. as kayla tausche reports, that action could include some tariffs. >> reporte in his first 100 days, president trump launched

an investigation into steel and aluminum dumping under a rarely used national security statute. the hypothesis, chinese-owned companies flood the market with cheap commodities and put american companies out of business. commerce secretary wilbur ross must now decide whether such actions imperil american industries and if so, how to penalize them. in the last nine months, the issue caused friction among advisers with varying viewpoints, some whom have now left the white house. >> i think there's a great struggle with what's going on inside this administration. >> reporter: tom conway represents the united steel workers union. >> we're going to rely on the president to do what he said, because we don't kn who's working there anymore. >> reporter: the president has 90 days after the commerce reports are due this month to make a decision. industry observers expect it to be a tough one, citing his ramped-up criticism of china following his november visit. >> we will not remain silent as american companies are targeted

by state affiliated actors for economic gain. >> reporter: in a december national security strategy describing china as a dangerous competitor, companies like century aluminum want to fight the imbalance with tariffs. the ceo supports a levy of 20%. >> there's a million tons, a million tons of u.s. capacity representing thousands of jobs that's ready to restart as soon as a comprehensive relief is granted in the playing field and it's made level. >> reporter: relief may have its limits. u.s. allies would likely be excluded from tariffs and it may be temporary in nature. it could cause china to retaliate against u.s. farmers, throwing anoth industry off balance. for "nightly business r still ahead, more issues for apple over its older, slower iphones and

two japanese automakers will build a $1.5 billion plant in alabama. toyota and mazda will together build a factory that's expected to employ about 4,000 people, producin cars each year. that plant could make alabama the fourth biggest state in the u.s. when it comes to auto manufacturing. >> get this. the lights went out at the world's largest consumer electronics show. literally, they went out! the conference at the las vegas convention center's main hall was dark for about -- who plugged in t hr dryer? the outage impacted hundreds of companies includi samsung, sony, and lg, one day after it

rained in the desert city, flooding the streets. the cause of the outage was a faulty transformer. apple last month admitted to deliberately slowing down iphones with older batteries. that resulted in lawsuits, customer complaints, and now some questions from a u.s. senator. >> reporter: apple's ceo tim cooke made a decision last year that is now attracting a lot of attention. his company introduced new software which can slow the performance of iphones with older declining batteries. apple says that was necessary because of a very real technical challenge. batteries decline over time. as they age, they can have a tougher time handling the power demands of devices, and can unexpectedly shu down. but cooke now finds himself fielding questions about his decision from powerful politicians on capitol hill, including senator john thune, chairman of the senate commerce

committee. senator thune questions whether apple has been as forthcoming as thing we want to . get at is the transparency issue. if they deny they're trying to force people to buy the next phone, we want to make sure that that's true. >> reporter: senator thune sent cooke a letter demanding to know whether apple tracks consumer complaints about processing performae and whether the paid full price ing whether for a replacement battery before the price cut should now receive a rebate. what happens if apple's answers aren't satisfactory? senator thune says he could call a hearing and elevate this further. apple counters its critics are wrong, saying first and foremost, we have never and would never do anything to intentionally shorten the life of any apple product or degrade the user experience to drive customer upgrades.

our goal has always been to create products that our customers love and making iphones last as long as possible is an important part of that. apple's point is that it's not trying to force consumers to buy new iphones by crippling older ones. it's just the opposite. it's taking steps to make those older iphones last longer. still, cooke's company finds itself facing questions on both sides of the atlantic. in france, the paris prosecutor's office has also reportedly opened an investigation into issue. for "nightly business r" i'm josh lipton, san francisco. lennar says demand is strong, and that is where we begin tonight's market focus. the nation's second largest homebuilder said buyers were eager to purchase new homes in the latest period at hire price points. the company beat revenue expectations but missed the market when it came to market, saying the delay of a strategic transaction caused that miss. still, shares finished the day up 2% at $68.26.

after the bell, rival kb homes said profits were helped by an increase in average selling prices and an uptick in deliveries. sh initially rose after hours and finished the day up a fraction to $34.35. medical device maker intuitive surgical excited wall street today with the release of its fourth quarter preliminary results. the company expects to report revenue that tops its own guidance as well as analysts' expectations. shar up 6% to finish the day at $423.76. ss&g technologies, a software company, is reportedly in talks to buy dst systems. lawyers say ss&g is interested in a potential deal so it can expand its reach and enter the health care techn markets. shares of dst popped 22% to

$79.89. ss&g shares rose nearly 13% to $47.69. 21st century fox is reportedly close to finalizing a deal that will give it ownership of ten tv stations operated by sinclair broadcast group. according to reuters, sinclair made the move to win regulatory approval for its nearly $4 million acquisition of tribune media. the deal gives fox more markets potentially giving it more revenue. shar of sinclair jumped almost 9% to $38.75. banks have always been wary of working with the legal marijuana business, mostly because it is still illegal federally. now one week after the attorney genera announced a bit of a crackdown, that problem could be worsening. >> reporter: reaction to the crackdown has been mixed. some in the pot industry have been fearful.

for others, it's business as usual. one thing is certain, the industry's relationshi with banks will be even more stressed. a recent report estimates that just 5% of all financial institutio are working with cannabis businesses but only 1% are actually servicing them. that means that pot businesses can't easily deposit money they've earned. >> before, banks were very reluctant to do any business based upon the loosely defined guidance. now it just raises more uncertainty. >> rep that memo was issued by the obama administrati to ease some of the stress between banks and the pot industry. banks were wary then and now could be even more so. uncertainty could create an opportunit for the security industry. mo cash not in banks requires more protection. one company offers valuating and security consulting. he's received calls from clients old and new seeking advice and new business. >> a lot of our clients are concerned about whether their

security is adequate at this time in their locations, whether it's a growth facility or a dispensary. new clients that are looking to come on board wanted to know what kind of security are they going to be required to have going forward. >> reporter: one thing not offered, growth projections. sales will hit $6 billion this year with growth tripling over the next four to five years. some say those numbers are conservative. >> basically you have a freight train moving at 200 miles an hour. jeff sessions is jumping out a bush, trying to stick his leg in the way to slow this down. it's just going to run him over. i think it might have some type of chilling effect in certain areas. but in general, i mean, the industry is going to continue moving and growing quickly and moving forward. >> reporter: despite new challenges, advocates, analysts, and entrepreneurs are moving ahead with plans in this budding industry. fo coming up, newman's own

faces a massive tax bill and po. newman's own is a different kind of company. it gives away 100% of its after-tax profits through a foundati started by the late actor paul newman. but that uniqueness is now getting complicated. and the company faces a massive tax bill. it's complicated. ylan >> reporter: one of america's favorite makers of pasta sauce is now finding itself in hot

water. newman's own is facing a crushing tax penalty this year. the company executives say it will force them to put the business up for sale unless congress can come up with a solution. >> they can force you to break up the company. i use those terms deliberately. the only alternative to getting this legislative support, and again, for us and for these other companies, is that we would have to divest newman's own. >> reporter: hollywood star paul newman established his namesake company more than 35 years ago. it's best known for make marinara sauce. it also makes salad dressings, lemonade, and hundreds of other pantry products. it's now worth $500 million. and it's technically considered a for-profit company, even though all its earnings are funneled into newman's private foundation which then uses the money to fund charities around

the world. that model worked well while newman was alive, but when he died, tax laws kicked in that prohibited his foundation from owning more than 20% of a private company. now if the private foundation doesn't give up control of the business, it will be hit with a fine worth 200% of the value of the company. >> the equity of the brand is about our social purpose, our 100% of profittocharity. anybody trying to buy newman's own has to deal with that particular issue. what will be the consumer's reaction if that company is not giving 100% of its profits to charity? it's hard to figure. >> the tax cuts and jobs act is passed. >> reporter: congress tried to tuck some legislative relief for newman's own into the sweeping tax plan that passed late last year. but it was struck at the last minute for procedural reasons. so today, top officials from newman's own came to washington in hopes of finding an alternative, and fast.

executives say they need an answer by the end of the first quarter or the credits could roll on newman's own. for "nightly business r" i'm ylan mui in washington. >> to read more about newman's own tax issue, head to our website, nbr.com. >> we'll keep track of that story. >> it's a good story. " for tonight.ghtly business i'm sue herera. thanks for joi us. >> thanks from me as well, i'm tyler mathisen. have a great evening, everybody. we'll .

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