. this is "nightly business report" with bill griffeth and sue herera. hen companies get where they're sort of living by so-called making the numbers, they do a lot of things that are counter to the ng-term interest of the business. warren buffet and jamie cedimon join f to change wall street's short-term focus but is ending quarterly guidanc in the st interests. apartment glut. there may not be enough homes for sale but there appears to be an over supply of new rental units. taking off. why this summer's must-have ticket is a flight to europe. those stories andore tonight for "nightly business report" for thursday, june 7th. and we b do you good evening, everybody. we begin tonight with developments on geo politicsnd

trade. issues that certainly have moved the markets over the past few weeks. first, secretary of state mike pompeo said t todayt north korea has confirmed its willingness toma dle its nuclear arsenal. that revelation comes just days, of course, before theul sch summit with president trump and kim jong-un. before the president heads to singapore for that he will be meeting with g-7 allies in canada where contentious discussions over trade and ilriffs are expected. it certainlybe a big event for investors and the market which today finished mixed as bond yields dip. the dow jones industrial and averages are advancing 95 points. the nasdaq cooled after a serie of record closes down 54 points today with e s&p off about 2. the ucs. has s a deal with chinese telecom company ztb which home a lynchpin in

trade relations between the u.s. and china. some say this may point to progress in the high speed trade talks. wilbur ross says lzte w pay a $1 billion fine in return for ending sanctions on the firm. >> it imposes the most strict compliance that we've ever had on any company, american or foreign. we are literallydi emb a compliance department of our choosing into the company to monitor it going iforward. april the u. smps. banned exports for making sales to north korea and iran. am warren buffet and dimon are setting out to dismantle one of the bedrocks of tradition. the two powerful business leaders are urging companies to stop iuing short-term guidance and instead focus their thinking on the long term. becky quick spoke with both of

them exclusively and b started asking mr. dimon why he thinks this issue is so important. >> we all feel a tremendous obligation to diver in the long run, to build great companies and that, therefore, corporate governanc important. and one important step, i learned this by listening to s warren,ome of the ills and problems of people making short-term forecasts, particularly quarterly ar forecasts,ngs forecasts, not transparency, openness, not having quarterly reporting. it can often put a company in a position where management from the ceo down fls obligated to deliver earnings and therefore may do thingsthat they would otherwise have done. so if you have a good board, you know, the board will say if you have a great invention opportunity, you say it's going to cost me anothhu couple red dollars this quarter, someone like warren will say, absolutely do it. that's futur earnings. don't hurt your company because you're trying to meet a short-term thing. >> warren, this is something you've been preaching about for a long time, too. at's an example of where you've seen it gone wrong?

>> well, when cpanies get where they're sort of living by so-called making the numbers, they do a lot of things that really are counter to the long-ter interests of the business, and i've never seen a has ny lowhose performance been improved by some forecast out there by the ceo that we'ree going ton x because it's sending -- not only sending the wrong message and delivering the wrong results to the company and to the country, it's also teaching the people that work unde him or her that quarterly performance is the end-the e -- end game. i tell our managers p is the only business you're going to earn for 50 years and you can'touell it andl make the right decisions. >> have you seen this play out the wrong way either in theds boou've sat in or the companies that you've owned, other friends that you've owned? >> becky, i'v been on 20 boards

of publicly owned cpanies not counting berkshire, and i have seen -- inave s managements that i really think well of rsonally. i'd be glad if they married my daughter ore w named as executors of my will or moved in next door, but they get tempted by this -- t predictions that have been made. their ego getsinvolved, and when they find they can't make the numbers, sometimes they make up thenumbers. and it's a -- it's a bad -- it's a very, very bad practice and once it gets going, it feeds on it self because it's your investorsar relations dent tells you that we put out you're going to earn $1.08, you get this reputation f makingour numbers, beating your numbers, you're going to do some very stupid things at some point because business just doesn't work that way. >> now this isn't the first te

th buffet and diamond have criticized earnings guidance. they signed ar back in 2016 which addressed the issue and advocated for better corporate governance standards. >> and it is not just warren buffet and jamie dimon who are proponents ofti elimi short-term guidance, tesla's ceo elon mus had some thoughts on it as well recently. >> get too focused on like what's happening in the space of a few weeks or a few months, there's an old maxim of investing. you should not be focused on short-term thing. >> back in 16 blackrock ceo larry sink sent a letter to 500 ceos urging them to stop providing quarterly earnings forecasts. so should companies provides investith short-term guidance? whore joined by william lee says, no, not always and another gentleman w says s, companies should. gentlemen, nice to have you

here. a pleasu. rahan, i'm going to start with you. i think mr. buffet and mr. dimon id out the reasons why perhaps you should not provide as a ceoh t-term guidance. briefly tell me why you think most companies should? >> there are a number of reasons. firstf all, let m point out that most ceos would prefer to put out asittle information as possible. they would prefer to put out only what's required andotng more, but the reason they give earnings guidance, which is notr re, is because the investors demand the information. and investors are telli corporations that if you don't give me earnings guidance, if you don't disclose the informion, i may not pay as much forour stock. and that's the same thing as cost that the company' of capital goes higher. now this isn't a key issue for a company likeerkshire hathaway who has a star like warren buffet running the company. berkshire hathaway shareholder doesn't really care about guidan r because theylly trust the ceo. this is a more important issue for smaller companies.

furthermore, guidance comes directly from the horse's mouth. it comes from the management of the company. if management stops giving guidance, wall street analysts are still going to come out with their estimates but what's guaranteed ise that t estimates are going to be less accurate. >> okay. >> because they don't haveme mana guiding them. and furthermore, the other issue is transparency and disclosure. this is information, and we are in an era where the sec wants more transparency and disclosure so why hide the information. >> william lee, youh agree w buffet and dimon, make the case for short-term guidance. >> the only people interested are the investment analysts out there making theirwn forecasts. companies need to anchor the forecasts beforeec theye too wild. as an investor what we're interested in is the strategy behind the numbers. what is it that the management is doing, planning to do and how did it do it. one of the risks is the narrative, the critical part that every investor has to be inte nsted in. thber is just the number. what we need to know, the

rationale behind the as long-term investors, you say it's a sequence of short-term events that make up the long term. absolutelyright. >> right. >> we do need information but information that's relevant for the operation of a firm and let the managers d theirjob. don't micromanage their numbers. >> right. >> one of the things thatha we called up in disclosure, we need informed disclosure. that ces with a narrative, not a number. >> we did a study of the s&p 500 companies. ose, 170 don't provide short-term guidance, but we looked at the five-year performance comparing those companies that do provide short-term versus those that don'trovide short term, and if you're thinking about the impact this has on individual investors, it's almost a wash. tois there an argument then keep the short-term guidance? >> yeah. there's a difference between companieshat don't provide guidance and conditions that previously provided guidance and stopped. i mean, berkshire hathaway, for xample, has never provide guidance, but there are academic studies that show that companies

that provided guidance, when they stoppedda providing ge you have a negative stock price reaction. furthermore, fewer cover the stock and the accuracy of the estimates deteriorates.he an argument that's often made, by the way, is that we want these longerm valuations so stop giving us guidance and give us more information about what the comrny is worth o the long term. these studies show that that does not happen and, furthermore, there's no evidence that these companies m investe money in things like research and development that would increase the value over the long rm. >> william, did you want to say something and respond to that? >> t key is do we reduce market to market volatility? and hitting number, focusing on a number does exactly that. absolutelyidance, no question about it. we need information on what the company is doing. but we don't need a number, we need a range of numbers and we need management to tell us why they're at the up side or down nt is r why the environ there and the change in strategy. that's the kind of information that's relevantor marketsnd relevant for investors to assess

whether they want to be in thato company orer company. >> there are very few companies that give us a number. most companies do give us a nge to begin with. >> it's a narrative. i don't care about the numbers, i want the narrative and story behind the numbers. that's something that the short-term investoty commu doesn't focus on. >> you also mentioned volatility. that's what people are really most upset aut. investoret very upset when a company misses the earnings estimate by a few pennies and the stock falls 10%. that's what gets them upset. eliminating guidance is not going to get rid of that problem. >> let me give you ametaphor. the fed. w they didn't put a number of dots up there wld have a debate on how they're going to get through inflation. that's what's relevant for keeping them calm and guiding the companies. >> i had an ilexample,am lee, i looked at kroger. they recently announced that their profit margins were going to be squeezed because they were making more investments in the ecommerce business and immediately eluding to what rahan said, that stock dropped

by 11%. you have to think hat plays with the ceo's mind. that might make a difference if they know the stock is going to suffer in the short term. >> absolutely. they make short-term conservative bets and not long term. look at amazon. they hadisable earnings numbers and yet everyone believes amazon is a success story. >> you guys need your own cable show or just come back on ours. thanks so much. william lee with millkin initute and rahan with greenwich investment. household wealth in the u.s. has topped $100 trillion for the first time. according to a new report from the fedal reserve, rising home prices lifted wells in the first quarter and that offset a decline in the stock market. meanwhe, householdebt remains stable staying in a range that it has been in for the last few years. the number of americans filing for new unemployment benefits fell last week. the report signals continued strength in the labor market.

sinitial jobless cla considered a proxy for layoffs fell by 1,000 to a seasonally adjusted222,000. as we reported, the unemployment rate currently stands at 3.8%, the lowest since april of s2000 the unemployment rate continues to decline, more and more companies struggled to find workers. last night we took you to louisville, kentucky, to introduce you to a unique pting tothat is att solve that problem. well, we take you back there this evening toee how some big companies are getting involved. steve liesman once again has our story. >> reporter: it may seem strange and little out of the box, but a cardboard boat race in uisville, kentucky, is seen as part of a solution to a national worker's shortage problem. it all looks like f andgames, but behind it are some serious high school students studying computer assisted design or cad.

>> never knew i was in engineering. once i got to the cad, i was like, wow, ieally like this. i could do this. i'm really good at it. >> reporter: the cardboard boat regatta is the cap stone event for students studying auto cad and cnc machines. their task, float a boat using nothing but cardboard and duct tape. h kiley ander classmates are al handfuf the more than 17,000 students pursuing career specific education through the nnovative academies of louisville program. the city's answer to the economic challenges it faces with a low 3.4% unemployment rate. it's not far off the national rate at 8% near a two-decade low. >> business is used to havingr laow up at the door to go. there was more availability of labor and business wasn't as complicated. 85 reporter: so far businesses, including ups, general electric and norton

health care partnered with the public school system. >> it's one of the best-kept we have here for louisville is that we have an aviation program. an aviation program that's very rare. i think it's probly if not the only one but the very few that's in the count where a young person can come as a middle schoolt, studo all the way through high school and obtain their lice pe. >> wevide that specialized training but also those other skills that we want kids to have, t communications skills, the collaboration skills, theis persnce. >> reporter: skills you might learn in ard cardboa boat race. where some of the boats sank and others go on to win, but the kids learning aittle something along the way about computer designs, the limitations and possibilities of duct tape, the job market and life. for "nightly business report" from low juisvilllouisville, ke steve liesman. we hear about the shortage of homes on the marketut can

there actually be a glut of apartments? mortgage rates moved lower again this week for the second week in a row. this is only the second time this year that rates haveallen in back-to-back weeks. freddie mac says it slipped to 4.5%. it may be short lived since interest rates are expected to resume their march higher. we haveoueen telling lately about the shortage of skilled workers in the labor market. the construction industry in particular is feeling the effects of that, but it's having a strange impact on the nation's aparent market. supply.using an over how is that possible? dia olick explains. >> reporter: across america single family homes and apartment buildings are going

up, but the process is slow and expensive because of a severe shortage of skilled construction labor. developers small and large are feeling the pain, even warren buffet.av >> we six or so home building operations in vious places, kansas city and denver and austin, texas, and there is requirege of the labor in home building throughout the country. >> reporter: in the apartment market the shortage is actually causing an over s of new building. that may sound backwards, but here's why. first, the construction industry lost over a million skilled workers during the housing crash and most never returned. then, after therash when homeownership was at a record low, developers tried to meet the high demand for rental apartments, but it took them ag really lime to build what they started because they didn't have enough labor so a lot of the new buildings that were supposed to behe finished

demand was high were not. >> so what happened, supply that was supposed to come out in 16 what came on in 17 got pushed into 18. what's supposed to come this year isrobably going to push to '19. for apartment investors it's been a realng chal every year we think, aha, this is the peak supply and it's going to decrease.el unfortun what happens is it gets bumped into the following year. >> reporter: the numbeen of apar completed in the u.s. hit a 30-year high accordingo al page but occupancy was still good at 95%. the concern n is going forward. more apartments coming to the market with less demand will mean concessions and lower rents, great for renters but not for developers who are already paying top dollar for lean labor to top off their projects. for "nightly businesseport," i' diana olick in >>washington. mcdonald's is cutting jobs and that's where we begin tonight's market focus. the fast food chain saidul it layoff an undisclosed number of workers in an attempt

to streamline operations and reduce costs by the endf 2019. mcdonald's said it would end iidance on the number on positionsacted by the town hall meeting which is set for june 12th. mcdonald's shares rose to $169.48. j.m. smucker's said weeker demand causedrofit and sales to disappoint. the maker of jiffy and pillsbury said the increase in marketing costs would cause the earnings for the year to come inr wea than expected. shares were off 5% to $100.80. ralph lauren is hiking the dividends 25%. they expect sales to rise at a compound annuaate in the low to mid single digits. operating margins are growing in the mid teens. shares, nonetheless, were 1% to the down side to furniture retailer kanns turned a profit and saw revenues

rise. the company cited increase in same-store sales and improved margins. kanns sees same-store sales coming in better than expected as well.es sh popped more than 24% today to $31.95. vail resorts sold more season passes and that helped earnings rise and top they said that the strong quarter gives it confidence that it can expand into more u.s. markets and shares climbed more than 4% today to $270.72. >>rv maker thor industry reported weaker than expected earnings. they were concerned about the steel and aluminumri s. they said they were already seeing an increase in raw material costs and is taking actions to try and offset those increases. shares initially fell on that news but then recovered rising by 2% to $100.80. coming up, globe trotting. why airlines areping up

service in the busy trans atlaic market. transatlantic marc maet. transatlantic market. airlines have recently started warning passengers that fares may soin be up. you can blame increasing jet fuel prices which have risen more than 50% over the past year. fuel is the sine large expense for most airlines accounting for about 1/4 ofg operatcosts. the potential rise in airfares comes after four years tugh of declining prices. what is the hottest ticket for a summer vacyeion this ? well, it might be going to europe. in fact, a number of transatlantic flights have skyrocketed as low cost and legacy carriers add new routes to new markets. phil lebeau has more. >> reporter: when iceland air

made its initial flight to daas last month, water cannons not only signaled the beginning alsorvice torakovic, they marked the boom of flights from texas to iceland. recently low-cost carrier wow, which is also based i iceland, started flying to dallas. not to be outdone in its home market, american airlines has added daily flights from dlas to rakovic. is there really that much demand to visit iceland? the fact is, airlines big and small are expanding servicero the atlantic, not only to rakovic, but to a of europe. in the summer of 2014, there were 168,000 transatlantic fligs. it's been steadily increasing and this year there will be more than 215,000, most flown by legacyirne like delta or lufthansa. increasingly low-cost carriers like wow are adding chief flights from europe to the u.s., so as low as $99.

>> we don't know if all of thesv airlines financial staying power so this may be a great summer. >> reporter: the stron economy means there's plenty of people ready to take a trip to europe, but with fuel prices skyrocketing, it's costing airlines more to fly across the atlanticnd industry veterans wonder if higher costs will force airlines to cut >> if, indeed, i think it becomes clear this is a new normal, i think you would see over time less capacity growth in the dustry, therefore, higher prices, but there's nothing -- i don't think it's going to happen in the very near frm. >> reporter: soar legacy airlines have shown they will not give up market share flyin europe and for good reason. the legacy airlines have all panded their service to customers willing to pay more for things like business class. flying to europe is still a very lucrative business. phil lebeau, "ghtly business port," chicago. and before we go, another lookt the d on wall street. mixed day, the dow advanced by

95 points. still above25,000. the nasdaq cooled off, down 54 with the s&p down about 2 points ooday. that willt for us tonight on "nightly business report." i'm sue herera. thanks for wathing. we w to remind you this is the time of year your public ations seek your support. >> i'm bill griffeth and we do thank you for that great support. have a wonderful evening. we'll see you tomorrow. is

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