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QUEST MEANS BUSINESS

Obama Exclusive Interview; Volatile Markets

Aired January 31, 2014 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(APPLAUSE)

MAGGIE LAKE, HOST: It's the end of a dramatic day and month on the markets. The closing bell is about to ring on Wall Street. I'm Maggie Lake in New York. We'll have much more on that later this hour. Tonight, though --

(NEW YORK STOCK EXCHANGE CLOSING BELL)

LAKE: -- we go first to the president of the United States and an exclusive interview with CNN's Jake Tapper.

(NEW YORK STOCK EXCHANGE CLOSING BELL)

(APPLAUSE)

(JAKE TAPPER "THE LEAD" INTERVIEW WITH PRESIDENT OBAMA)

LAKE: US president Barack Obama there in an exclusive and wide- ranging interview with CNN's Jake Tapper, the first after his State of the Union address this week.

Welcome back to QUEST MEANS BUSINESS, I'm Maggie Lake in New York. First tonight, so much for that stock market rebound. After snapping a five-day losing streak Thursday, stocks were down again on Friday to close out a volatile first month for 2014. The Dow dropped 5 percent, its worst January since all the way back in 2009.

And let's just chart the progress through the month, and you can see, it was a tough month. The recent slide down was due to disappointing corporate results and volatility in emerging markets. Zain Asher joins us now, live from the New York Stock Exchange.

And Zain, I throw in there the fact that a lot of people were looking for a correction after that stock market went straight up last year. So, some of that involved here, too.

ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Yes, so people are asking themselves, is this the seeds -- are we seeing the seeds of basically a pull-back? Now, technically, a market correction is defined as when the markets drop by 10 percent or more.

If you look at the S&P 500 for this month, we're down 4 percent, but traders are telling me, expect to see volatility going forward, especially this year. Definitely different from what we saw last year, Maggie.

But yes, we have seen sharp swings this week. Traders are also telling me if it wasn't for the fact that we had longterm investors buying into the market, those swings would've been even more dramatic.

Essentially, what we're dealing with right now is basically the perfect storm. You have investors running for cover out of emerging markets. You have weak manufacturing data out of China, we see economic growth in China has been slowing down for quite some time now. And then, the Fed taking $10 billion -- another $10 billion off the table as well.

But one thing, quickly, I do find interesting about today is that today we had more than a billion shares traded. Maggie, that is double the average for the months. A billion shares traded. So, it seems as though all that volatility has really brought people to the table, really brought investors -- more participants to the market. So, it's going to be interesting to see what happens going forward. Maggie?

LAKE: That's a very important point. People are going to ask, is this the washout that they've been looking for and a sort of close to the correction, or are people getting more concerned? Zain, thank you so much.

ASHER: Of course.

LAKE: Have a fantastic weekend.

ASHER: You, too.

LAKE: Well, much more on the global market turmoil in a moment. Stay with QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

LAKE: Welcome back, I'm Maggie Lake. This is CNN, and now an update of the news headlines.

A U.N. envoy, Lakhdar Brahimi, says both sides in the Syrian war are starting to see common ground but he acknowledged that the first week of direct talks hasn't produced any breakthroughs. The opposition has agreed to meet again February 10th. Syria's government hasn't committed itself.

Ukrainian president Viktor Yanukovych has signed a bill granting amnesty to anti-government protesters. Many are still camping out I Kiev. The interior ministry says police are investigating claims that a street activist who was missing for a week was kidnapped and tortured.

Amanda Knox says she was shocked that an Italian court reinstated murder convictions for her and her former boyfriend, Raffaele Sollecito. Both vowed to appeal. Italian police picked up Sollecito near the border with Austria and Slovenia hours after the verdict. His lawyer says he was not on the run. A scare just two days before the Super Bowl. Hazmat teams and bomb squads were deployed after six letters containing white powder were discovered at three hotels near the site of Sunday's game. The mayor of East Rutherford, New Jersey where the stadium is located said the powder was found to be cornstarch.

The U.S. State Department says the Keystone XL pipeline would have little impact on overall carbon emissions. Its report released today did not arrive at a final conclusion on the merits of the controversial project. President Obama has said the pipeline should be approved only if it is carbon-neutral.

In the Eurozone, an interest rate cut could be just around the corner as the ogre of deflation threatens to spoil the recovery. Inflation in the region dropped to a weaker-than-expected 0.7 percent in January, down slightly from December. This has reignited worries that the region is heading for a period of falling consumer prices. Last week in Davos, Richard Quest asked the head of the International Monetary Fund, Christine Lagarde, whether the prospect of deflation was worse than inflation.

(BEGIN VIDEOCLIP)

CHRISTINE LAGARDE, MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND: It's a far worse risk because it is very difficult to put it back into the bottle, if you will, once deflation is out, economists are hard- pressed to find ways to get out of deflation as Japan is trying to do it at the moment after 10 years of deflation.

(END VIDEOCLIP)

LAKE: Well on the back of those inflation figures, no surprise that European markets closed the day and the first month of 2014 down. The FTSE 100 had its worst January since 2009. It has been a tough month for global equities. Well, joining me now is Evariste Lefeuvre who's a chief economist at the investment bank, Natixis. Thank you so much for joining us today, Everest. Talk to me first about this issue of deflation. I hear to two things. I hear people very concerned about it, and that camp seems to be getting louder.

EVARISTE LEFEUVRE, CHIEF ECONOMIST, NATIXIS: Yes.

LAKE: And then other people who insist this is just because of temporary factors. Where do you come down on this? Is deflation a threat for the Eurozone?

LEFEUVRE: So far, the real risk is a very slow inflation which is really different and the reason for the slow inflation now is temporary factors as you just mentioned, oil prices weighing down on consumers' prices, the other part of it is huge level of capacity that's used. I mean, take the labor market, you have a 12 percent unemployment. You don't have an inflation if you don't have any pressure on wages. So the ECB - for the Central Bank - I mean, the challenge is therefore to wait for the confirmation that inflation is going down, down, down and close to zero or (inaudible) is thrifty. And we get the answer next week whether they will try to axe -- cut -- rates, but rates already at .25 so they can go down to .1, .15. So it's a very limited move, it cannot do anything or just cross finger for inflation figure to increase somewhat in the year - in the second part of the year. And it's complicated because you have good news on the economic front --

LAKE: Right.

LEFEUVRE: -- in Germany, but very bad news because the credit is still going down.

LAKE: The question though is - if you're at a tipping point or not, I think people worry about not being preemptive. I want to read to you something that the International Monetary Fund has said about this in terms of acting on this turmoil, in emerging markets especially. An IMS spokesman said in a statement today, "The turbulence highlights the need for coherent macroeconomic and financial policies, good communication and in some cases the need for urgent policy action to improve policy credibility."

The problem, of course, is that if you're facing the threat of deflation, whether or not it's true, volatility in emerging markets and nervous investors who are quick to pull their capital - shouldn't you err in that environment with a fragile recovery of being preemptive and taking a strike, even if you have to roll it back?

LEFEUVRE: Yes, but as you say, there is some emergency measure to tackle some structural problems, --

LAKE: Yes.

LEFEUVRE: -- and this is exactly the time issue. I mean, you have to act very swiftly to avoid a collapse of your currency, increasing interest rates, trying to control, to curb the outflow of portfolio - of (inaudible) investments. And on the other way around, the reason why you are under attack, is just because you don't have any political leeway and because your economy's what - is in a place what - as we call the middle income trap. Many emerging market now are just facing a very dire situation where they are not in a (inaudible).

LAKE: So you're saying that central banks are not the right place for action?

LEFEUVRE: And that's a possibility for those, but the other problem on the communication that (inaudible) had the advanced country - communication - and action, and if you look at the Fed this week - the Federal Reserve decided to go on its tightening monetary policy without taking account what was going on in the emerging market. So that's exactly the kind of situation that we have. We have a crisis which is very different from the one that had this summer. Last summer, a sharp increase in interest rates in the U.S. -

LAKE: Right.

LEFEUVRE: -- triggered some fear of you know 1994 crisis.

LAKE: Right.

LEFEUVRE: -- this time it's completely different. The crisis comes from the fact that investor realize that a lot of emerging market country economies are facing some problems - political problems, economic problem, that - but they don't the economic policy to tackle to get rid of them. And that's the big issue and that's why.

LAKE: It's a - it's a tough situation - where we've grown used to very active central banks stepping in and filling the void when really what we need is political action. Evariste, thank you very much for joining us today. Great to see you. Well still to come on "Quest Means Business," this man could be Microsoft's next CEO. We don't know yet for sure and some people are already saying he's too conservative to give the company the shakeup it needs.

(COMMERCIAL BREAK)

LAKE: Microsoft is close to picking a new CEO according to reports, and this man - Satya Nadella -- is said to be the frontrunner for the job. He would replace the outgoing Microsoft chief Steve Ballmer who is retiring. So let's take a look at Nadalla's resume and find out a little bit more about who he is. First of all, he was born in India, in Hyderabad, India back in 1976 (1967). His educational achievements include a Bachelor's Degree in engineering and electronics and communication from Manipal University in India. He also holds a Master's in computer science and business administration from University of Wisconsin Milwaukee, as well as - as if that's not enough - an MBA from the Chicago -- University of Chicago -- Booth School of Business.

His first job after graduation was at Sun Microsystems, very much matching with his engineering and computer science background. But the bulk of his career has really been spent at Microsoft. He is an insider. He joined the company back in 1992 and has held key roles in the Microsoft Office and Bing search engine teams In 2011 he became president of the company's server and tools business and his current title is executive vice president of Cloud and Enterprise - and that is a very fast-growing area of business for Microsoft. So he's really served in many of these different units. Now investors responded positively to reports of the new CEO for Microsoft. If you take a look at the share, they've ended the day up just a little over 2 and 1/2 percent.

Well, Shelly Palmer, the author of "Digital Wisdom" joins me now live in the studio to discuss this. Shelly, what do you think? We're hearing a lot of divisions about this. Is this the guy that's going to sort of rock things, shake things up and lead Microsoft into the brave new future?

SHELLY PALMER, AUTHOR, "DIGITAL WISDOM": Such a great question. You know, Microsoft is not a company, it's a country.

LAKE: Yes (LAUGHTER) that's true.

PALMER: And it's got a government and it's got states that are siloed and have their own way of doing things. And so, I think what the market's saying is while any change from Steve Ballmer `s going to be a great change and no offense to my good friend Steve Ballmer, but any change from where we are to where we're going to be is going to be awesome. But the company is so huge and so siloed and so lumbering and so wealthy.

LAKE: Well, here's the thing -

PALMER: (LAUGHTER) .

LAKE: -- and that's such a good thing and bad thing. One - somebody once said to me a long time ago about a completely different thing that sometimes it's good to be a dinosaur because it takes a long time to starve. You know, you have this sort of bulk to make it through. But they do need to find their way. Their size has been their strength, but their weakness because they're bureaucratic, they're seen as not being innovators. You know, he's an insider so he knows the company well. I think he gets that time that he doesn't have to learn all the people's names and all that. But, can he lead that innovation? Does he have the right background? I mean, he's an engineer -

PALMER: Look, when you -

LAKE: -- and science guy.

PALMER: -- when you talk about innovation and you talk about Microsoft, these really have nothing to do with one another.

LAKE: Right.

PALMER: Microsoft iterates and they iterate as well a company that size.

LAKE: Should they - do they need to innovate?

PALMER: By the way, that is a fantastic strategic question. And what they are charged with and where they go - it's a schizophrenic company. You look at what they do at Xbox which is as cutting -edge as there is a thing to do -

LAKE: That's right, they had - they do have an innovative --

PALMER: I mean, they are --

LAKE: - they don't get credit for that often.

PALMER: -- there are things that Microsoft does that just blow your mind, they're so cool, and then there's stuff that's so old school, that it makes -- it puts the old in old school. And so, look, I don't know that one human being can actually move a culture - especially a culture as entrenched as Microsoft. But any movement will be positive movement. I think, look, an outsider like (Allen Melalie) or maybe (Steven Allot) coming in would've been interesting -

LAKE: Maybe that would've been too much change too soon. Could it be that not that he's an interim, and no offense to Nadalla - he may surprise us all - but that this is part of the transition? Their also may be talking about taking Gates, giving him even less of a profile, maybe of the board. This would be a massive shift.

PALMER: Right, there is some talk that John Thompson, who's the independent lead director who actually was leading the search committee, would possibly replace Bill Gates as the chairman. So, look, change is good. Adapting to change is important. Microsoft is in a place where it could sorely use some change.

LAKE: You mentioned Ballmer being out and that being a good thing, because I mean people were looking for it - but he was such a larger-than- life character -

PALMER: He is a larger- --

LAKE: -- in some ways, you know, he was really the sort of sales and marketing force, the enthusiasm. Is something going to be lost by that with somebody who, again, we don't know well. You know, and if it turns out to be confirmed to be Nadalla -

PALMER: Here's the issue - and the - and there's no way to get around this. Microsoft is the number one operating system organization in the world - 92 percent of the computers on this planet run some version of Microsoft Windows or Windows operating system -- or Microsoft operating system. They act like they're number two all the time.

LAKE: Right.

PALMER: And as enthusiastic, as awesome Steve is in person - I mean, you meet him in person and you are just instantly taken by how charismatic and awesome he is in every way - the organization is everything but that. It is not awesome. There were pockets of awesomeness, but it is not awesome. And what has to go on at Microsoft right now is they have to either a) adapt to the world in which we are living - and by the way, their Cloud and Enterprise Group is cutting edge -

(CROSS TALK)

PALMER: -- right where it needs to be -

LAKE: -- earnings were great.

PALMER: -- So I, you know, think the market will respond positively to this. I think you have to give Microsoft the benefit of the doubt. In this case, they have done everything right no matter what anybody says. This is what computing is in the world.

LAKE: Yes. It's computing, right and then --

PALMER: Computing is Microsoft. We could sit here and talk about whether it's good or bad or Monday-morning-quarterback or not, they have the responsibility -

LAKE: Right.

PALMER: -- to literally run the computers on the planet, and so far, they've done an awesome job of doing that except for the blue screens of death - which are -

(CROSSTALK)

PALMER: -- somehow minimized nowadays.

LAKE: It's certainly going to be fun to watch ==

PALMER: It is going to be fun to watch.

LAKE: -- the transition, and we'll have you back on again --

PALMER: All right.

LAKE: To give us the rundown. Thank you so much, Shelly.

PALMER: All right.

LAKE: Well, let's talk - switch to weather. We can't stop talking about it because no matter where you are, it seems like it has been extreme. And Jenny Harrison is at the CNN International Weather Center with the very latest. Hi, Jenny.

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: Hello to you, Maggie, nice to see you. But you're quite right of course, no matter where we are in the world, there's always something going on. And right now it is about the weather conditions particularly in central Europe. There's another system coming in to the northwest. We'll talk about that in just a moment. But it's this system here across the central Med with all of this activity just pushing up from the south as you can see. Now, we've seen some very heavy amounts of rain, heavy snow as well, and there's more of both to come. But look at this - in Rome itself, right in the city of Rome - 135 millimeters of rain, 124 millimeters into Aviano and then up into Austria, 102 centimeters of snow - over a meter of snow in just the last 24 hours. And as I say, there's more of that to come. The system responsible is not moving very farther. Look at these pictures because this will give you an idea of just how much rain that was and obviously how significant that amount of rain has been in such a short space of time.

All of this that you're looking at is to regions very close to Rome - literally just to the north of there, and as I say, the flood waters - it was so instant, we saw flash floods - and just look at the amount of water that is on the ground-that bridge just about (inaudible) over the top clearing those flood waters. And you can see also here down on the streets, as I said, (inaudible). In fact, further north and (inaudible) into the northeast, we've had some very heavy amounts of snow. This landslide - this mudslide here - that was actually in the city of Valero. You might have heard that - it's where of course they filmed the Twilight series - those films, that's where they were filmed. And then look at this snow - look at the amount of snow on the top of that car. But that's what happens when you have an extra meter of snow into some of these areas.

As I come out to the weather map and I'll tell you obviously what is going on next and what we can expect, because this system will stay very, very slow moving. But this system is heading in towards the northwest. But this is what I mean - look at all this rain continuing to come across the same region and yet more in the way of snow. We can expect some very heavy amounts of snow as well. But the warnings are in place with very heavy amounts of rain. We might even have some waterspouts and certainly some very, very strong winds. And all these areas in red is where it's likely to be worse. And you'll notice as well across the northwest we have got some warnings in place there as well.

This is that system, it's already on its way. It will continue throughout the weekend. Heavy rain but also some very high and dangerous waves further out there towards the west. And this is actually how far - how high - they've been up until this particular timeframe. Look at this - 12 meters or more. And as I say, that is also very significant. Eventually of course those waves will be reaching those coastal areas. Very heavy rain, we've got more in the way of snow as well all the way into the high elevations. But even Glasgow for example could see some heavy amounts of snow. The winds once again, at times they could be in excess of 90 kilometers an hour. At the same time, it's very, very cold. With the wind chill it feels like -27 in Kiev, -10 in Vienna and so because of that, we will see some more very heavy amounts of snow, particularly along the line of the Alps. Look at that - 77 centimeters expected in Lienz and (Inaudible) in Austria. And that, Maggie, is on top of what they already have. Great for the skiers, just a little bit hard to deal with in such a short space of time.

LAKE: It certainly is. There is nowhere to hide, that's for sure. Jenny, thank you so much. Well, it's a superstar of sporting events. Next up, the cost of watching the Super Bowl and another big game kicking off in the economic world.

(COMMERCIAL BREAK)

LAKE: Well excitement is building for Sunday's Super Bowl. It seems like so are prices as fans gear up for the annual sports fest. The average selling price of a Super Bowl ticket was $2,808 earlier today. It isn't the only fixture where fans will need to empty their wallets though. July's World Cup Final in Brazil will set you back up to $990 - that's the maximum price. Meanwhile, a stay at the Winter Olympics in Sochi might also leave sports lovers feeling a little cold. Top-price tickets for the opening ceremony next week come in at more than $1,400. Ouch, that hurts. Along with the Super Bowl come tourists and their cash, then there are those who simply want to cash in - the black market for Super Bowl merchandise is still a red-hot problem. Poppy Harlow reports.

(BEGIN VIDEOCLIP)

POPPY HARLOW, JOURNALIST FOR CNN: Along with the big game come the big bucks.

Male: (Inaudible). You know we got no - no UPCs here. No holograms.

Male: You got any NFL stuff? Any Super Bowl stuff?

HARLOW: Federal agents getting a leg up on criminals peddling fake jerseys, hats, even fake Super Bowl tickets. This undercover agent is texting an unsuspecting seller.

UNDERCOVER AGENT: He said, "Yes, I have them, it's ready to go."

HARLOW: In Jersey City, Feds found this.

UNDERCOVER AGENT: It's going to be at least 500 pieces, maybe 500 to 1,000.

HARLOW: Are these real?

Male: Um.

HARLOW: Did you know that they're not real?

Male: I just ordered them.

HARLOW: Hundreds and hundreds of fake jerseys and fake Super Bowl gear for sale in plain sight.

UNDERCOVER AGENT: This should have been lasered on. The tag here at the end, it's stitched on. Very substandard product.

HARLOW: About how many did you sell?

Male: Probably say about - probably say about 100.

HARLOW: Raking in hefty profits, he bought these for $15 a pop online and sold them for up to $70. But the real deal will often cost you hundreds.

HARLOW: Why is this worth taxpayer money? Why have all of these agents out here take this guy down - why is it worth it?

BRAD GREENBERG, SPECIAL AGENT, I.C.E.: It's taking away jobs from the American public and money is being moved through various criminal organizations and being funneled back for the use of drugs, weapons.

HARLOW: Why are we seeing more big criminal enterprises getting involved in the counterfeit game - not just drugs anymore?

GREENBERG: They're getting involved in the counterfeit game because of the profits that are involved.

HARLOW: Higher than - higher profit margin than drugs?

GREENBERG: Yes, absolutely.

HARLOW: Higher profits and sweetening the deal for criminals, often much less if any jail time if they're caught.

ANASTACIA DANIAS, V.P., LEGAL AFFAIRS, NFL: I think certainly having harsher penalties will always be a disincentive.

HARLOW: Anastacia Danias leads the NFL's fight against counterfeits. This is a Broncos jersey - number 88 -

DANIAS: Yes.

HARLOW: -- that we bought yesterday. Is it real?

DANIAS: Well, I'm not seeing any of the telltale security features like the NFL hologram, some of the stitching is coming off.

HARLOW: So this is fake?

DANIAS: I believe that this is fake, yes.

HARLOW: It's not just jerseys - fake Super Bowl tickets scam people out of thousands of dollars.

DANIAS: First line of defense is the hologram. This graphic is painted in what's known as thermo chromic ink, so if you heat up the ink, it'll disappear.

Female: Number 81.

HARLOW: Online, the fight is even harder with the burgeoning multi- billion dollar market for fake.

GREENBERG: It's a fast and safe delivery. Anybody who is selling genuine product would not be worried about safe delivery. If it's too good to be true, it probably is.

HARLOW: Twenty-eight bucks.

Male: Twenty-eight bucks for a jersey that typically is $300.

HARLOW: And some say the telling fakes are doing so with the sole purpose of stealing your credit card information.

Female: OK, this is $30.

HARLOW: It's an uphill battle for agents against a fierce black market seemingly unafraid of the consequences. Why risk it?

BRAD GREENBERG, SPECIAL AGENT, I.C.E.: Money. It's about greed.

HARLOW: Poppy Harlow, CNN New York.

LAKE: Well there is another big kickoff this weekend as Janet Yellen starts her long game against a team of economic challenges. Here's what - a look at what - Yellen could be facing when she takes over as the head of the U.S. Federal Reserve.

(BEGIN VIDEOCLIP)

LAKE: In matters of the Fed and football, the pregame is all about talking tough.

JANET YELLEN, INCOMING FEDERAL RESERVE CHAIRWOMAN: I pledge to do my utmost. More needs to be done to strengthen the recovery.

LAKE: As she heads onto the field on Saturday, Yellen will have to choose her plays carefully.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: She doesn't have a crystal ball, but what she does have is a keen understanding about how markets and the economy work.

LAKE: Running with growth momentum on her side, she may start with an opening drive into more tapering.

YELLEN: The longer this program continues, the more we will need to worry about those risks.

LAKE: She'll have to make an early tackle with the jobs report in her first week, where valuable economic yards could be lost --

YELLEN: We have all to many people who appear to have dropped out of the labor force.

LAKE: -- and may take a hit from Congress in another scrimmage over the debt ceiling.

OBAMA: We're not going to negotiate for Congress to pay bills that is approved.

LAKE: Whatever the economy throws at her, her play book is limited.

YELLEN: The tools available to monetary policy should the economy falter or limit it given the short-term interest rates are at zero.

LAKE: In this game of four years, she'll have the markets watching closely from the stand, and she'll have to keep that economic end zone -

YELLEN: Business as usual and a normal monetary policy.

LAKE: -- firmly in her sights.

(END VIDEOCLIP)

LAKE: Now, if you were wondering why Janet Yellen's jersey has the number 46 on it, that's the year she was born - 1946. Still to come on "Quest Means Business," players of a different kind of football boycott their own game. We'll have more on that story next.

(COMMERCIAL BREAK)

LAKE: The football transfer window closes today, but not all footballers are concerned with trying to get the biggest bucks. Some would just be happy to get paid. In this video you can see the Racing Santander team stopping play in the middle of a quarter final game. The players say they boycotted because - the game because - they hadn't been paid in months. Overcome with emotion, Racing Santander Mamadou Kone tweeted in Spanish, "Finally we are free. Time to fight to move forward all together! Let's go racing!" His joy may have been short-lived. Because of the team's boycott, Racing Santander has been thrown out of next season's Copa Del Rey. Well some news just in. Moody's has downgraded Ukraine from CAA2 to CAA1, and it has assigned it a negative outlook. It cited the escalation of social and political risks in the country.

Let's take a final look at how the U.S. markets closed today. It's been a tough week, and a tough month, down 149 points, but it is a loss of about 1 percent. That's it for "Quest Means Business," I'm Maggie Lake in New York. Thanks for watching. Have a great weekend.

END