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Quest Means Business
Markets Navigate Volatile 2014; October the Cruelest Month; October's Whipsaw Week; The Fall of Oil Prices; Western Sanctions Hurt Russian Banks; Russia Rocked by Falling Ruble
Aired December 31, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN HOST (voice-over): Hello and welcome to this special edition of QUEST MEANS BUSINESS from the New York Stock Exchange.
As we look back on 2014, a year that's been dominated by market volatility.
Since February, the Dow has added on more than 2,000 points. That's despite unrest in Ukraine, dramatically falling oil prices and the threat
of Ebola. For investors, 2014 was about moving past whatever challenge came along.
There was the case of all aboard the market roller coaster.
(MUSIC PLAYING)
QUEST (voice-over): From a distance, the roller coasters at Six Flags in Atlanta look like fearsome beasts. And once you're strapped in, there's
no going back.
The same can be said for investors riding the Dow. Up and down, side to side, investors have held on tight. And whatever twists and turns come
their way, the stocks keep clawing out the gains. Taper came without turmoil and traders bid a fond farewell to Ben Bernanke. A steady course
he'd set for the eventual end of Fed stimulus.
For his successor, a foreign threat was waiting.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: The bears taking over as soon as the opening bell rang. It is all about those currencies -- it's
the currencies in emerging markets selling off today.
QUEST (voice-over): Markets worldwide went into risk-off mode, as emerging markets tumbled. Economists called it a perfect storm. Yellin
was sworn in on the Dow's lowest day of 2014. Since then, the only way's been up. Keep your arms in the car, please.
From the highs to the lows, the intraday volatility, it was the extreme turbulence that was enough to make investors feel queasy. After a
series of bumps at the beginning of the year and over the summer, volatility spiked in October. Price fluctuations were the biggest in
nearly two years. Investors saw the year's gains wiped out.
A host of factors all came together to produce one overriding emotion: fear.
What we're seeing in both Europe and in the United States, the market's responding to a cocktail of risks. Let me show you what those
cocktails are. First of all, we have the rumors and the news around the warnings about the spread of Ebola. Now that, of course, has made things
extremely uneven, questioning the rate of growth in Africa, the horrific numbers that we're seeing.
In Europe, we are seeing fears of declining growth and uncertainty about the best way to fight it. German numbers were worrying, growth has
been reduced. We know PMI numbers are lower, the market is extremely unsteady on European growth.
Worries about the effect of sanctions and counter-sanctions with Russia, as regards to Ukraine, particularly as it relates to Germany. And
in Iraq and in Syria, the rapid rise of ISIS and the plummeting price of oil.
Throw into this very toxic cocktail China, over at the far corner, with China's slowdown after years of strong growth. Combine all the factors
together, and that is the word that clearly is what's driving the markets at the moment.
Throughout this volatility our goal and ambition was to make sense of it all. To understand why the market was making these dramatic swings we
were joined by the best in the business, Sir Martin Sorrell, the chief executive of WPP, the world's largest advertising company. And PIMCO's
chief strategist, Richard Clarida. They helped us understand what was going on.
(BEGIN VIDEOTAPE)
MARTIN SORRELL, CEO, WPP: This is the combination of a few months of increased geopolitical uncertainty. It's not really about what's been
happening economically. But our clients face increasing uncertainty.
The big uncertainty at the end of August, when I was at the World Economic Forum summer meeting in Geneva was the Ukraine. That quickly
switched to China. I actually think the tipping point was Hong Kong and the development of that situation. And then, that's been reinforced, if
that's the right word, by Ebola.
So, all this -- all these things add to all the uncertainties that we've had for many years. Hard-soft landing in the BRICS, the U.S. and the
U.S. recovery, the deficit, leverage, the Middle East, and then the European situation. And the European situation appeared to be under
control, but we see --
QUEST: But it was not.
SORRELL: Well, today, the recovery is partly due because he does have some clothes.
(LAUGHTER)
RICHARD CLARIDA, GLOBAL STRATEGIC ADVISOR, PIMCO: I think Sir Martin said it well. I think we had a repricing in the last week of the global
outlook. It was a very downcast IMF meeting, the new mediocrity, as Christine Lagarde said it. You had Stanley Fischer there saying that's in
play for the Fed, talking about the dollar, Ebola; It all comes together.
QUEST: It all comes together, and it chose to come together over the last 10 days.
But are economies, Richard, that weak?
CLARIDA: Well, they're weaker than folks thought. We could be in the third recession in five years in Europe. People keep marking down -- we
marked down our outlook for China. And then you throw into this mix the fact that policymakers are worried, Stan Fischer, Christine Lagarde. And
then Ebola on top of it. So, yes, you've had a re-pricing of risk and a repricing of the outlook, absolutely.
SORRELL: And I would say that's confirmed by what we see in a third quarter was not as good as the second quarter or the first quarter for many
of our clients. And you've seen a general tightening, Richard, as a result of this increased uncertainty.
Europe -- you look at Europe, look at the key economies. Germany, not in great shape. The U.K., some people are even saying the U.K., although
it's growing at about 3.5 percent, 4 percent, may be tailing off. France, big problem. Italy, Renzi came in, a little bit of optimism, but then, it
goes backwards. Spain is probably the only economy --
QUEST: How --
SORRELL: -- that's really recovering.
QUEST: How many countries are you in?
SORRELL: One hundred eleven.
QUEST: One hundred eleven.
SORRELL: It would've been 112 if Scotland had gone independent.
(LAUGHTER)
QUEST: Let's leave that -- enough on our table tonight without that.
Of those 111 --
SORRELL: Yes?
QUEST: -- which ones are giving you concern?
SORRELL: Well, Brazil in terms -- Russia, obviously, right? And the Ukraine. Brazil, depends on what happens in the election. If Neves wins,
which the polls are running 51-49 in favor Neves, it's going to be very tight. And Dilma has the purse strings, and she can pull a few levers, but
those are the countries -- I'm worried about Western continental Europe. I'm worried about France. I'm worried to some extent about Italy, I'm very
bullish about Renzi, but it's a question about whether he can get it.
India is very -- the expectations are very high. Modi has made a big difference. And then China, which is the real delta in our growth as an
industry, providing about a third of the growth, that's the key one.
QUEST: China?
SORRELL: What happens in China, yes.
QUEST: What happens in China is the key, but what happens in China, what does it do for economies elsewhere? Because we've had a slowdown,
it's factored in, the Fed's factoring all these factors, so they say.
CLARIDA: So they say. Which of course is a bit of a breath of fresh air for the Fed. I think the thing with China that's tricky is they're
trying to navigate this transition from an export model to consumer model. But they're also trying to navigate a transition on reliance on a shadow
banking-levered scheme that they were trying unwind.
So, I think the verdict is out, but I'm betting on Chinese to pull it off. But obviously, China at 7 [c is not China at 10 percent or 12 percent
growth, which is what we had in the old normal.
SORRELL: But it's China, which is much bigger --
CLARIDA: Exactly.
SORRELL: So, 7 percent on the bigger is better than 10 percent on the smaller.
CLARIDA: Absolutely, yes.
QUEST: Tonight, viewers watching around the world are saying, well, this is all very interesting, but are these men worried?
Are -- and if they are worried, should I be worried?
SORRELL: Well, I'm always worried, Richard.
QUEST: Well, then let's start --
SORRELL: It pays to be paranoid.
QUEST: Sorry?
SORRELL: It pays to be paranoid.
QUEST: You're paranoid and worried?
SORRELL: Well, Andy Grove famously said that. No, I think what we see is growth sub-trend worldwide. Certainly before Lehman. Post-Lehman,
post-2008, the world is not growing as fast in nominal terms as it did before.
QUEST: Nor will it.
SORRELL: Nor will it, I agree with you. And I think rates will stay lower longer.
CLARIDA: Yes.
SORRELL: I think people -- we've got a taper tantrum going on here, basically, in the markets, I think, to some extent.
CLARIDA: That's our view, is that we're no longer recovering from the big recession, we're converging, but to very disappointing growth rates.
So much lower in the US, Europe, Japan, and China than before Lehman Brothers. That's a key factor.
And also, we completely agree, because of this leverage overhang and because of this reality, central banks are on hold, and those that are
hiking, like the Fed, will do so at a very modest pace.
QUEST: Are you worried?
CLARIDA: I think the left tail risk tends to get under -- so this summer, when the VIX and volatility numbers got down to these levels, I --
whenever you see people getting complacent, you get worried. And some of that's been taken out.
SORRELL: Now, there is the opposite view as well, which is IMF was so depressed and everybody was so unanimously depressed, now this is the time
--
CLARIDA: Let me say the area where I'm actually optimistic is the U.S. I think the outlook for the U.S., relative to the rest of the world,
is as good as it's been in a long time.
(END VIDEOTAPE)
QUEST: Sir Martin Sorrell and Richard Clarida.
If the year was marked by volatility, one month stood out more than most. It was the investors' dreaded month of October. Of course when we
saw the largest moves and we'll explain and explore in a moment.
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(COMMERCIAL BREAK)
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QUEST (voice-over): Welcome back to QUEST MEANS BUSINESS at the New York Stock Exchange. For an institution that's 222 years old since the
Burton-Wood agreement was signed, the New York Stock Exchange has done a remarkably good job of keeping itself up to date. Here we have the
traditional grand trading room and now of course they're expanding with even greater areas.
For the traders who are here, 2014 was an exceptionally difficult year and no month more so than October, when it seemed volatility was out of
control.
(BEGIN VIDEOTAPE)
(MUSIC PLAYING)
TOM PEREZ, U.S. SECRETARY OF LABOR: A year ago, it was 7.2 percent, the unemployment rate. Now we're at 5.9 percent.
QUEST: It's the worst day of the year so far.
One of the worst offenders is Europe.
What do they need to do?
CHRISTINE LAGARDE, MANAGING DIRECTOR, IMF: Get on with it and do it.
QUEST: The selling was brutal, nearly all the gains of 2014 have been erased.
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: What you see right now is that the paradigm is changing.
QUEST: Down, down, down, down, down. And on it went.
ALAN VALDES, DIRECTOR OF FLOOR TRADING, DME SECURITIES: These are emotions on steroids right now.
QUEST: The market is up but what a turbulent time we've had.
SORRELL: This is the combination of a few months of increased geopolitical uncertainty, the tipping point was Hong Kong and the
development of that situation. And then that's been reinforced, if that's the right word, by Ebola.
KEN ROGOFF, FORMER CHIEF ECONOMIST, INTERNATIONAL MONETARY FUND: I suspect they're slowing more than the official numbers report.
QUEST: It was a chippy, choppy sort of start to the week.
Think of it as QE RIP.
BEN WILLIS, PRINCETON SECURITIES GROUP: The Fed had made a decision that it was time to take the punch bowl away. But they're going to let the
music play a little bit longer.
Overall, the glass is more than half-full.
QUEST: If October was bad, there were four days in the middle of the month that were worse than the rest. That was when the Dow Jones fell 400
points. And for those like Mohamed el-Erian, the chief investment adviser at Allianz, it left him thinking the paradigms of the market had changed.
We needed to hear more.
(BEGIN VIDEOTAPE)
EL-ERIAN: There are three significant issues going on, all of which destabilized the construct, the paradigm that investors were comfortable
with.
Remember what had happened?
Fundamentals were sluggish, but prices were driven up here. They were decoupled by the action of central banks. And in the last few weeks,
including today, the perfect storm occurred.
First, fundamentals instead of converging and validating prices, they got worse, particularly in Europe, particularly in Germany. Second,
volatility returned to the markets, which meant people were less willing to put cash to work.
And then the middle, the wedge, the central banks, the confidence that markets have in that was eroded when Mr. Draghi was not able to implement
the sort of policies that markets had unreasonably expected. And there's a lot of divisions, both within the ECB and outside.
QUEST: Right.
EL-ERIAN: So, what you're seeing right now is that the paradigm is changing. And when paradigms change, technical disruptions occur,
liquidity disappears, and we get the incredibly wild markets that we saw today, Richard.
QUEST: So, is this a time for rebalancing of portfolios? Is it a time for rethinking structures? Or is this just something that market
participants get up to, and the normal investors, the ordinary investor, should just sit quietly?
EL-ERIAN: Well, it depends where the normal investor is sitting. If they are 100 percent in equities, it's a very different position than if
they're well diversified.
The biggest fear, Richard, is that this financial volatility is going to be an additional headwind to the real economy. And if that occurs, then
fundamentals will weaken, and then what will happen at that point is not only do prices come down, they will overshoot the fundamentals.
So, it's really important that this financial instability, this excessive risk-taking that's now being covered, that this does not
contaminate the fundamentals. If it does, then investors are facing not only volatility, but they're facing more downward pressure.
QUEST: Right, but that's a similar, to some extent, to 2008, 2009, because there comes a point when fundamentals cannot withstand a market
either in such volatile fervor or such sharp falls. Now, we're a long way off that, I think you'd probably agree at the moment. But eventually, this
overwhelms the fundamentals.
EL-ERIAN: Correct. But 2008 was what's called a sudden stop. Or if you think of it as a massive heart attack.
Why? Because the payments and settlement system that is absolutely critical to any economy was under threat.
Today, this is about risk outside the banking system. This is about the risk that has migrated to non-bank institution, and it's a different
type of risk. So, I think it is disruptive, but it's not 2008.
(END VIDEOTAPE)
QUEST: Despite all the volatility, the market still continued to rise. It seemed as if the bulls were firmly in control with a little
wobble every now and again. There was one market in 2014 that went in a very different direction: oil, which fell dramatically. When we come
back, we'll look at the implications of the price of oil falling and the battle between the old and the new guard in producing oil.
(MUSIC PLAYING)
(COMMERCIAL BREAK)
(MUSIC PLAYING)
QUEST (voice-over): Welcome back to QUEST MEANS BUSINESS at the New York Stock Exchange, where we're looking at the financial year. There was
one market that fell more than most: oil. Wherever you look from June onwards, it seemed the price was going one way: down.
The reasons for the fall in oil were many. There was a glut of shale oil being produced in the United States. There was the weakening of demand
as economic outlooks turned sour. And there was OPEC's refusal to cut supplies.
Put them all together and this is what happens. A barrel of oil that cost $115 in June was now worth 40 percent less only six months later.
What was truly fascinating about the oil drop in 2014 is how it pitted two sets of oil producers against each other. There was the OPEC
countries, particularly those in the Middle East and the Gulf versus the new shale oil producers in the United States, who were pumping like billy-
o.
When you're talking oil, there's no one better to hear from than T. Boone Pickens, who says when it comes to the U.S., it's time to cut OPEC
out of the market altogether.
(BEGIN VIDEOTAPE)
T. BOONE PICKENS, FOUNDER AND CHAIRMAN, BP CAPITAL ENERGY: Well, whatever their analysis or whatever they said, they should look at the
United States as a customer, OPEC. We still use 3.2 million barrels a day from OPEC. So we're importing oil in the United States. And what they
don't like is three years ago it was 6.5 million barrels a day. So you've cut OPEC's sales of crude to the United States in half.
Good. I want to cut OPEC clear out, because I think you're paying for both sides of the war by using OPEC crude. But, you know, it's interesting
they are very, very I guess selfish in their attitude about the United States as a market. We're still importing about 8 million barrels of oil a
day totally.
Most of that comes from Canada and Mexico and then the 3 million from OPEC. But, you know, we're importing oil, they're exporting oil. So we
have two positions that are not compatible but are compatible. We are buying their oil.
QUEST: When you look at the price, you're quoted as saying you think the price will rebound within the next 12 to 18 months -- possibly back to
$100 a barrel.
What drives that rebound?
Is it the demand side of the equation or eventually does supply slow down?
PICKENS: Well, demand first; supply will slow down because if you're not drilling the wells, you will start to experience declining production,
which will bring supply down. So it's three factors; one, the rigs, some of the rigs will be laid down, not drilling, not economic for the producer
and at the same time, the production that you have will decline.
And three -- and the overpowering one is demand.
QUEST: You have seen, sir, you have seen many oil cycles. You have seen boom, you have seen bust. You've seen prices well over $100 and down
in the teens.
So what do you make of this?
PICKENS: Oh wait a minute, wait a minute, lower, lower than the teens. You won't talk to anybody today who's had more experience in the
business than I've had. I've seen more cycles than anybody. But I win that because I'm the oldest guy out there. But, listen, I've seen oil --
I've seen oil at $3 a barrel. So I've seen it from $3 to $143.
And what do I make of it? You're in a cycle right now that will clear itself out and it'll be 12 to 18 months. I would like to get off OPEC
crude and not import any oil from the Middle East.
(END VIDEOTAPE)
QUEST: As the oil price continued to fall, one country that was particularly hardest hit -- Russia. With the country already heading
towards recession and with it being hit by sanctions over Ukraine, along with high inflation, the fall in the price of oil for its vital export
commodity was serious business indeed. It's not surprising the ruble fell out of bed.
The man who runs VTB Bank, which is Russia's second largest, is Andrey Kostin. He told me companies like his were being held hostage by the
crisis.
(BEGIN VIDEOTAPE)
ANDREY KOSTIN, CEO, VTB: It does harm us, but at the moment we can cope with the help of the Russian central bank, of course, which provide
additional refinancing for Russian banks, including VTB and also the Russian government. The Russian treasury also provide additional funding.
QUEST: If you're going to grow your global business, you have to hope that these sanctions are lifted and soon.
KOSTIN: Richard, of course. Of course you are right. But, you know, we did not invent the sanctions. We did not introduce the sanctions. So
we are the hostage or we believe geopolitical situation.
So as any hostage, we can't very much influence the situation. We going to either be killed or paid out or something should -- will happen.
But I'm afraid we have to adjust to the situation now in trying to continue our business.
QUEST: Are you making representations to government, to the president, to President Putin? To anyone who'll listen maybe that the
situation with Ukraine is getting serious for the economy and for your business?
KOSTIN: Richard, we have quite a different view what's happened in Ukraine. Unfortunately, I mean, unfortunately we see that this was done
with a great assistance. It was an artificial problem and it was done by the West, and we don't know why. We very much would like to change the
situation.
We're very much concerned that the more the sanctions taking place is the more we have a situation we might lead to -- it might lead to the
situation of hostility between Russia and the West -- between the Russian people and the Western people. And we of course, the businessmen, we would
like to avoid the situation.
QUEST: This fall in the value of the ruble accelerated as the year drew to the close. With the Russian central bank having to take dramatic
action to try and stave off further losses. It's not surprising in Moscow this was being viewed as a crisis, as Matthew Chance now reports.
(BEGIN VIDEOTAPE)
MATTHEW CHANCE, CNN SR. INTL. CORRESPONDENT (voice-over): On the streets of Moscow, there's no real panic, just a sense of impending doom,
particularly at this curbside currency exchange, where Russians buy dollars, despite the skyrocketing rates.
UNIDENTIFIED MALE (through translator): An hour ago, it was 60. Now it's like 85. I'm afraid because we got our wages in rubles and they don't
pay in dollars. It's scary.
CHANCE (voice-over): It was to halt the ruble's slide that the Russian central bank hiked its key interest rates so dramatically, up 6.5
points to 17 percent. But the underlying problems, a plunging oil price and international sanctions, weren't tackled, let alone solved.
ELVIRA NABIULLINA, GOVERNOR, RUSSIAN CENTRAL BANK (through translator): We must learn to live in a new zone and to focus more on our
own sources of financing and to give import substitution a chance.
CHANCE (voice-over): At this supermarket in Moscow, shoppers are stocking up on imported goods, like tea and coffee, ahead of expected price
rises. It's here in the country's shopping aisles that Russia's economic pain is starting to be felt.
"I can't afford to travel abroad, nor buy any of the imported products I'm used to," says this man.
This woman blames Crimea for the crisis. It was annexed by Russia earlier this year.
"But can our government afford it?" she asks.
That's the criticism we heard at the weekend, too, at this rare social protest, bringing doctors and teachers onto the street.
CHANCE: You can see that despite the cold weather here, hundreds of people have turned out into the center of Moscow to protest first and
foremost against the healthcare reforms that are being implemented in this country. Now the government says that in order to make the healthcare
services better, it will be closing hospitals and many people including lots of doctors will be losing their jobs. But in the bleak economic
climate in Russia, many of these people believe that it's just about saving money and that their futures are being sacrificed.
Female: All this reform as they say is because of economical crisis because they don't have money for medicine. They have money for war in
Ukraine, but they don't have money for medicine, for education and people here (stars) don't understand.
CHANCE: It may still be a fringe view in a country where President Putin remains hugely popular. But as this economic crisis starts to bite,
discontent could quickly spread. Matthew Chance, CNN Moscow.
(END VIDEOCLIP)
QUEST, CNN INTERNATIONAL ANCHOR AND REPORTER HOST OF "QUEST MEANS BUSINESS" SHOW: The financial world sometimes seemed like it was in a mess
during 2014, and there was one place that seemed more messier than anywhere else -- Europe where Mario Draghi throughout the year continued to
promise to do whatever it would take to rescue Europe's economy.
(COMMERCIAL BREAK)
QUEST: Welcome back to "Quest Means Business." We're at the New York Stock Exchange. This is the balcony overlooking the trading floor. In the
financial world, it's often very useful to rise yourself above the day-to- day hustle and bustle and get a wider view on what's happening. And we had to do that in 2014 time and again with the Eurozone. The month of
September was particularly important for Mario Draghi and the European Central Bank. That's when they had to make crucial decisions on avoiding
deflation and getting European growth moving again. It was a bit like the fashion editors for whom the September issue is crucial.
(BEGIN VIDEOCLIP)
ANNA WINTOUR, EDITOR-IN-CHIEF, "VOGUE" MAGAZINE: Fashion's not about looking back. It's always about looking forward. Do you really feel that
this the most important message to put in the September issue?
QUEST: Anna Wintour, in this documentary discussing her big September issue. For now, the head of the European Central Bank who also has just
one chance in September. On the cover, it's the 'Russia Effect,' and it's making for some muted colors this season. There's talk of a new crisis
leading to a looser style of monetary policy.
CHRIS SIMS, PROFESSOR, PRINCETON UNIVERSITY ECONOMICS DEPARTMENT: The ECB is very worried because despite some continued deficits in the EC - in
the Euro area - the inflation rate continues to drift down.
QUEST: Draghi's style is on the cover, but he must balance different views inside. There's a strongly-worded letter from the editor - Francois
Hollande. The "Emperor has no clothes" claimed his National Front opponent Marine Le Pen. Hollande is fighting back, promising bold, new colors.
Think reshuffle and reform.
FRANCOIS HOLLAND, FRENCH PRESIDENT, VIA INTERPRETER: Because the Euro is too high and because Europe is threatened by a long and possibly
interminable stagnation if we do nothing.
QUEST: In the "Up Front" section of course, the German chancellor who still believes austerity's in vogue, even as the German economy is looking
less than glossy. And people are talking about a newcomer to the middle pages. Matteo Renzi. The Italian P.M. is seeing red this season. Red for
recession, red tape and bureaucracy and his style, unlike the French and Germans, is to spend, build confidence.
For the man on the cover with his September issue, it's about the right style at the right time. And if he has some difficulty getting his
timing right, heed the advice of a truly experienced hand.
WINTOUR: It's usually the same kind of minimal approach. And so it would be great if we could break out.
Female: Thanks.
(END VIDEOCLIP)
QUEST: Mario Draghi made his big move in September and for the rest of the year everybody kept asking when he'd do more. When would there be
quantitative easing, buying government bonds on a grand scale because the economic data in the Eurozone continued to get worse. Inflation, growth,
purchasing managers, unemployment. It didn't matter where you looked, it seemed the economics chickens are coming home to roost.
But first of course structural reforms. Italy and France facing a -
(SOUND OF ROOSTER CROWING)
QUEST: -- there's the chicken on its way. Italy and France facing a showdown with the European Commission over its budget plan. Then you have
the next chicken in the air blowing home, banking reforms. The ECB's admitted this week banks are still week. And finally, the big turkey if it
could fly - the chicken -
(SOUND OF CHICKEN CROWING)
QUEST: -- Thank you - whatever it takes the ECB - Mario Draghi - he said whatever it takes last year, but he's simply not able to implement it
and there is many questions of whether the ECB can actually deliver on its promise to restore or at least to get inflation back up to target and
restore growth. Yesterday on this program, you heard a derogation (ph) of the ECB's position from Diane Swonk.
(BEGIN VIDEOCLIP)
DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: -- still chewing gum and rubber bands. I mean, this is still not a functional currency zone and
that's what we're - was - being revealed today. And the bet was it was always a put on Mario Draghi being able to break the law and do whatever it
takes and an Angela Merkel delivering Germany to back up the rest of the bonds in the region. And that's not what we're seeing right now. In fact,
we're seeing push back.
(END VIDEOCLIP)
QUEST: We need to put this into perspective how lucky we are today. Stephanie Flanders is with us - global strategist at JP Morgan Asset
Management. Stephanie, good to have you in to help us understand in this special program what is going on from the European perspective. You heard
the chickens coming home to roost. Why has it taken Europe so long and of course it was inevitable it was going to go wrong.
STEPHANIE FLANDERS, GLOBAL MARKET STRATEGIST, JP MORGAN ASSET MANAGEMENT: Well, I mean. Your - I've been enjoying your chickens because
I think you've identified the key issues. I guess the interesting question when you look at what's going on in markets is that, you know, Europe faces
some really tough challenges. It faced some really tough challenges at the start of the year, it also faced tough challenges in the summer.
Why investors have decided to focus on them quite so closely in the last few week I think is a bit of a question. We've seen a slowdown in the
European recovery. We knew we were going to have a sort of moderate to mediocre recovery - or we thought we knew. We haven't seen that or at
least we're starting to see a loss of momentum going through from the summer. And we've seen the European Central Bank say it was going to do
some more. So that was a positive -
QUEST: Right.
FLANDERS: -- at the end of the summer. The problem is that as you know, Mario Draghi, the head of the ECB, he said will do whatever it takes.
But you know what? Whatever the ECB can do is not enough to fix Europe's problems. We need those other pieces to come -
QUEST: Right.
FLANDERS: -- into play. I'm a little bit more optimistic than maybe some in the markets in that I think that banking piece is maybe going to
fall into place over the next few months.
QUEST: Right.
FLANDERS: Europeans have been terribly slow to fix their banking problems but there is some sight of that now in the next few weeks.
What'll be key is some of the language coming out of these governments.
(END VIDEOCLIP)
QUEST: If trading was challenging in 2014, well here at the stock exchange, these walls have seen it all before. When we come back, lessons
from the past and how the stock exchange survived the Great War.
(COMMERCIAL BREAK)
QUEST: There are plaques over the entrance of the trading floor at the stock exchange in memory of those who lost their lives in both World
Wars. In 1914, the market was actually closed for a period of time because of the exceptional volatility. The Dow then stood at around 100 points and
exceptional measures had to be taken to protect the U.S. economy.
(BEGIN VIDEOCLIP)
QUEST: In December 1914, a very ordinary looking ticker tape appeared in New York's financial pages. It was anything but. This was the report
of the first time the New York Stock Exchange had been opened in four and a half months. The outbreak of war in Europe sent a shock to Wall Street.
It led to turmoil and crisis.
WILLIAM SILBER, AUTHOR, "WHEN WASHINGTON SHUT DOWN WALL STREET": There was a huge sale of American securities that forced stocks down by 6
percent and almost all of that came from European sellers.
QUEST: Drastic action was required. The then-secretary of the U.S. treasury, William McAdoo believed his only option was to close the exchange
all together.
SILBER: He really did bludgeon the crisis. This was taking a sledge hammer and saying, 'I'm not going to allow gold exports.'
QUEST: McAdoo's sledge hammer approach led the way in 2008.
BEN BERNANKE, FORMER FEDERAL RESERVE CHAIRMAN: We will not stand down until we have achieved our goals of repairing and reforming our financial
system. Ben Bernanke, faced with a global crisis and plummeting markets.
SILBER: The lesson that McAdoo delivered and was in fact implemented in 2008 was act quickly.
BERNANKE: The actions today are aimed with restoring confidence in our institutions and markets.
QUEST: In 1914 and in 2008, it was decisive action that averted disaster. In both cases, returning to normal posed big challenges.
SILBER: The New York Stock Exchange established a committee called the Committee of Five to monitor individuals and members of the exchange,
preventing them from trading.
QUEST: These five men were also in charge of reopening the exchange. They chose to do it in stages. Bonds first in November, then stocks in
December. So today getting momentary policy back to normal, is the job of the Fed.
JANET YELLEN, FEDERAL RESERVE CHAIR: I do believe that we have the tools to remove monetary accommodation at an appropriate time.
QUEST: Janet Yellen has presided over the end of QE. She's yet to reach the stage policymakers were at a century ago.
SILBER: I think the Federal Reserve is afraid to let rates start to go up. I'm not quite sure the United States learned the lesson of 1914
yet.
(END VIDEOCLIP)
QUEST: A century on and with the bruises of the latest crisis still hurting, financial leaders are starting to plan how they would handle the
next big crash. Leaders from the United States and the United Kingdom held a war game session over Columbus Day weekend as they would scope out a
variety of scenarios of bank failures and economic collapse. The governor of the Bank of England, Mark Carney, explained what he hoped to gain from
such war games.
(BEGIN VIDEOCLIP)
MARK CARNEY, GOVERNOR, BANK OF ENGLAND: What happens if a bank makes a series of mistakes, goes to the wall and has to over a weekend be
resolved? And that's what we'll go through. And my basic point is that authorities at the highest level, including the chancellor of the
exchequer, myself, the head of the FDIC, the head of the Federal Reserve, the U.S. treasury secretary work through these processes to make sure that
they actually will work.
QUEST: What will you be doing? I mean, are you all going to sort of sit on the phones and sort of say, 'Let it go. No, save it. Bail it out'?
I mean, how realistic is this going to be?
CARNEY: Well, it's as realistic - look, we're giving up our Columbus Day to do this, Richard. I'm sure you have the day off. But we're giving
it up -
QUEST: I (inaudible).
CARNEY: -- to go through the specifics of an institution is moving towards failure. Which bits of that institution are going to be saved so
to speak so they'll be continuing function? Where are equity holders going to be written down, probably written off. Which members of the capital
structure are going to become the new equity holders? How is funding going to happen into resolution? A series of crucial technical decisions that
have to be taken over the course of a weekend to ensure that on the Monday - in this case we're doing it on the Monday.
But it starts on the proverbial Friday instead of on a Monday that there is a continuing institution that depositors in which they want to
keep their deposits, that customers whether they're retail customers or businesses still want to transact with and that market participants have -
in which they have confidence. But also in a way that doesn't involve public funds and it ensures that management and shareholders and if
necessary debt holders bear the consequences of that failure.
QUEST: Have you ever done one of these before ?
CARNEY: We have done similarly at the FSB - we're reviewing all the resolution plans -
QUEST: Full scale with the central banks (inaudible).
CARNEY: This is the first time that the principals - so at the chancellor level, the central bank governor level, etc. are - we're -
getting together to do it. But this is a sign of how much progress we've made and how seriously we take this task.
(END VIDEOCLIP)
QUEST: I've been on the floor of the New York Stock Exchange many times over the years. But there's one place I've never been. It's over
here - it's where they ring the closing bell. And I was going to get a chance to push the button. I've been warned - you have to have a certain
finesse, a certain style to ring the closing bell. And if you get it wrong, they'll boo.
(COMMERCIAL BREAK)
QUEST: This is the post where Alibaba has traded at the New York Stock Exchange. When the Chinese e-commerce giant IPO'd , it was the
largest public offering in history.
(STOCK EXCHANGE BELL)
QUEST: Alibaba began trading on September the 19th after shares were offered at $68 each. The IPO raised $25 billion. By the end of day one,
stock was up 38 percent. Alison Kosik spoke to the head of capital markets for the New York Stock Exchange.
(BEGIN VIDEOCLIP)
DAVID ETHRIDGE, SENIOR VICE PRESIDENT, NYSE EURONEXT: -- textbook. I mean it really was a terrific opening debut of this company. And the best
thing we can do is create a good first impression with this new set of stakeholders. There's no stock trades on valuation when they start their
trading life. They trade on sentiment. And so the way it was handled today went really well, nice debut, well above where they went public, so
closing at nearly $94 of about 38 percent is terrific.
ALISON KOSIK, BUSINESS CORRESPONDENT FOR CNN BASED IN NEW YORK: Now it took about two and a half hours for the stock to actually get out of the
gate.
ETHRIDGE: Right.
KOSIK: There was some talk that there was a delayed of - by what?
ETHRIDGE: No delay at all actually. It's what we expected. We told the media earlier, particularly the media that had come over from China -
there were like 130 people from China alone - that you shouldn't expect this to open right away. And that's what differentiates this process
versus every other exchange in the world. You've got the human judgment there with all the best systems in the world. So you look at all the
supply and demand and say, 'Ok, where's this thing going to level out?' And use their judgment to say what's the right price? And what's the right
time to get it started in a way that creates a good positive sentiment amongst this new set of stakeholders? And we were able to achieve that
today.
KOSIK: Two big IPOs under the NYSE belt - it's Twitter and Alibaba - what's next? Who's next?
ETHRIDGE: Well you know it's great that you say that because it's not just those two deals this year. We've had a tremendous IPO market, and
right now we've got another 12 IPOs that are keyed up for the next two weeks. And as I look into October, last year was a record - October was a
record month for us. We had 19 deals last October, raising just around $10 billion. This year I see that we've got 15 to 20 already in queue for
October. And when I look at it, it's really robust. It's every sector, it's every company size and it's from companies around the world.
(END VIDEOCLIP)
QUEST: Alibaba wasn't the only one to have a first at the New York Stock Exchange in 2014. I too had a first. I was able to stand on that
famous podium and ring the closing bell as part of the celebrations for the re-launch of CNNMoney.com. To say I was nervous is an understatement.
(BEGIN VIDEOCLIP)
(APPLAUSE)
(BELL RINGS)
(APPLAUSE)
QUEST: We gathered in the splendor of the stock exchange boardroom. Small talk and handshakes. The CNN chief executive Jeff Zucker leading the
way. This was a moment to savor and so were the souvenirs of the occasion - especially minted metals. The first time I walked down these corridors
was after Black Monday in 1987. Ever since then, I've watched the bell being rung and thought just once I'd like to push that button. It's a
history that's fascinating from the Buttonwood Agreement of 1792, the stock market crash of the 1920s, the war years, the dotcom boom and bust, the
great recession. And throughout, this room and this market has financed so much of the global economy. The ringing of the closing bell at 4 p.m. is
an institution, a tradition in the financial world. Because when New York finishes trading, it brings to a close the global trading day. There's no
other major market open. And with a suitable eye on publicity, the New York Stock Exchange always makes sure for something to watch when the bell
rings.
(BEGIN VIDEOCLIP)
QUEST: In the fast-paced world of trading stocks, this is a moment to sing.
SCOTT CUTLER, HEAD OF GLOBAL LISTINGS, NYSE: So the camera in front is our guide. At 3:59 and 20 seconds - give or take - you'll hear someone
clapping. That'll be me.
(LAUGHTER)
CUTLER: You know, what's amazing about the opening bell is it's the same for everybody - 3:59:45 you're going to push the green button. It's
such an important achievement in the life of an entrepreneur. I've seen entrepreneurs up there literally with tears in their eyes.
(RINGING NEW YORK STOCK EXCHANGE OPENING BELL)
QUEST: Twice a day, like clockwork, the New York Stock Exchange posts a small piece of corporate history.
CUTLER: Companies can come here to at the New York Stock Exchange, launch a product, launch an initiative, open that initiative with the
opening bell or the closing bell, have that seen by millions of people around the world. So this is the bell that's been ringing since 1903, made
in Pittsfield, Maine 1872.
QUEST: The bell wasn't always rung by special guests. In 1956, a ten-year-old boy named Leonard Ross became the first after winning a
television quiz show. It took another 30 years and a sitting president to help turn the tide permanently.
RONALD REAGAN, FORMER PRESIDENT OF THE UNITED STATES: We're going to turn the bull lose.
(APPLAUSE, CHEERING)
QUEST: Heads of state, CEOS, stars of stage and screen are all regulars now in the balcony.
PATRICK STEWART, ACTOR: It was thrilling to be in this environment at such a time. It is very exciting and quite a privilege.
QUEST: It's a privilege not limited to the two-legged and certainly not to the gray-suited CEO.
CUTLER: One of the great stories that I do remember being up here was Snoop Dogg. And Snoop Dogg was asked whether or not he ever expected
growing up in Long Beach that he would be here to ring the opening bell. And he just said, "Why not?"
Female: (SINGING GOD BLESS AMERICA).
QUEST: It's a symbol of success and also of resilience in the wake of disaster.
CUTLER: After 9-11, the entire world was watching for when the markets would open with the New York Stock Exchange opening bell.
Male: Had 100 million people watch the closing bell around the world. No pressure.
QUEST: On the bell podium, nerves run high and there's no room for error through boom or bust, rally or racked (ph), markets know they can
always count on this sound.
(RINGING NEW YORK STOCK EXCHANGE BELL)
(END VIDEOCLIP)
QUEST: From one bell ceremony to another because that's "Quest Means Business." For this special markets financial world edition, I'm Richard
Quest at the New York Stock Exchange. Whatever you're up to in the year ahead, (RINGS BELL) I hope it's profitable. And I'll see you next year.
END
