Return to Transcripts main page


Massive Sell-Off: Dow Down 588 Points; North, South Korea Reach Deal. Aired 4-4:30p ET

Aired August 24, 2015 - 16:00   ET


[16:00:03] CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: We're going to see the market -- we're going to see the market stick around here trying to find its footing on the close.

JOHN BERMAN, CNN GUEST HOST: I think what you saw there was displeasure on the floor. They stopped ringing the bell until it was 4:00 exactly, maybe not the enthusiasm that they normally like to see here. But very understandable.

We're going to settle in right now at 584 points down at 4:00. That's on top of the 500-point loss that we saw earlier this week. But let me just make this point. 580 points is a bad, awful, no-good day, as they would say.

ROMANS: It is. And --

BERMAN: However, it's not 1,000 points.


BERMAN: As what we saw this morning.

ROMANS: Look, there -- if you looked at the Opening Bell this morning and saw 1,000 points down on the Dow and then you looked at the close, you say, well, this is better than I thought. Perspective here, 500- point decline in the stock market is a lot. A 4 percent, almost 4 percent move is a big move in one day and there are big fears about what happens for the rest of the week.

The big stocks that moved, the most heavily traded stock today. Bank of America, Apple, Netflix. Some household names that you probably had in your portfolio. Apple in particular had an insane day. At one point it was positive, it was up several percent, and then was down again. So when you look at some of these names, you just see the irrational fear, and then greed, and then fear again in a stock market.

BERMAN: Fear, greed, loss of confidence, loss of confidence in particular in China. No one really understands or knows what or feels like they understand what's happening in China. You've seen perhaps the slowdown in the growth. That's going to be less than 7 percent.

ROMANS: That's right.

BERMAN: There is that fear right now, manufacturing slowdown. ROMANS: When you look at the S&P 500, you know, that's what you're

likely invested in your 401(k), half of the profits in the S&P 500, and revenue actually comes from overseas, so it matters. What happens in China matters, and there's great concern that the Chinese have been trying so hard to manage the slowdown in their economy.

BERMAN: Right.

ROMANS: And they might not have the tools for it.

BERMAN: They don't have the controls that a lot of people thought they had where there's lack of confidence, there is fear. Where there is fear, you see drops like we're looking at today.

Romans, stick around one moment.


BERMAN: I'm going to go to Cristina Alesci, who's with us in another part of the New York Stock Exchange.

Cristina, we talked about China, we talked about the fears of growth there, maybe not as far and as fast as people thought, but there are other concerns weighing down this market. The Fed. What will the Fed do in September? Will they still cut rates or raise rates, I'm sorry, like everyone thought? And oil prices, commodity prices in general, but particularly oil falling so far over the last several months.

CRISTINA ALESCI, CNN MONEY CORRESPONDENT: That's right, John. And oil, as you know, is a barometer for global economic growth. And right now it's tanking. That is not helping this market. And also, you mentioned the Fed. The Fed was supposed to raise rates in September, possibly December. Now there are a lot of questions, can the Fed -- will the Fed raise rates in the middle of this kind of volatility?

And the answer to that is it probably will. Maybe it will do it a bit later than it has planned, but also an important question when it comes to the Fed is when they do -- when it does decide to raise rates, by how much and how fast? And that is really going to determine what happens to the market from there, because as you know zero interest rates have really acted as a stimulus to this economy. So once that is gone, that is going to be a real headwind for a lot of traders and investors.

Now speaking to some of the traders on the floor today, they were very concerned about China, not just about a slowdown, but as you mentioned, whether they can trust the data coming out of that country, and we saw those issues come up in a White House press conference. A lot of those questions. I frankly had not heard those kinds of questions about, is China in a crisis? Will we have an emerging market meltdown?

I had not heard those until about last week really bubble up to the surface of mainstream discussion. These were things that professionals were talking about, but now we're seeing it bubble up into the mainstream discussion, which is also very disconcerting. Two things we know from here for sure after having been on the floor all day. Volatility is back. That means we're not going to have the kind of market that we had for the last four years, which it had a few bumps, but it was relatively on a straight shot up.

Secondly, we're going to -- investors are going to have to be patient with this. Because the market is trying to find a floor, a low price where it will hit, and those are the two things that we're going -- is still an open question. We're going to pay attention to Asian trading overnight.

BERMAN: That's right.

ALESCI: And we'll be on the story tomorrow as well.

BERMAN: That's right. And the floor was not 1,000 points down. It rose off of that, about 588 points down now.

Cristina Alesci, thanks so much.

Christine Romans is still here with me. We're talking about oil prices, commodity prices and the general.

ROMANS: Right.

BERMAN: One of the reasons, lack of demand. China doesn't need it or want it as much as they did before.

ROMANS: And we're producing a whole lot of it all around the world. So we're producing something at the same time, there's less demand from China, and that is, you know, economics 101. That means the price declines. You're seeing below $40 oil now and many people are seeing $30 could be within sight, barring anything unusual happening and we even had a call last week for CNN Money, the top analysts saying they saw $15.

[16:05:03] That's really good for gas prices and for consumer spending, it's terrible for companies in your 401(k) who are in the oil business. It's also really bad for these countries and economies who deal in oil, who produce oil and needs to sell into the global market. So the oil crash is good for you and me, not so good in terms of stability for the economy.

BERMAN: Anything that goes down this far people begin to worry.

ROMANS: That's right.

BERMAN: Hang on one second. I'm joined now by Rana Faroohar, CNN's financial analyst.

Rana, first of all, what a day. Let me get your general impressions on that.

RANA FAROOHAR, CNN GLOBAL ECONOMIC ANALYST: Well, you know, I'm not surprised in some ways. We have been waiting for this kind of correction for a number of years. We haven't even had a 10 percent correction since 2011, so I think that the markets knew this was coming for some time. I think the jitters you've seen in China over the last few weeks and the really schizophrenic way in which policy decisions are being taken in the Chinese economy is what triggered today's route.

China is having a debt crisis, to put it plain and simple. A crisis that buried similar to the U.S. subprime crisis. They've brewed up a debt bubble over the last few years of epic proportions. The debt to GDP ratio in China is about 300 percent now. That's more than three times what it is in the U.S., just to give you a sense of what's happening. That's now bursting. And the fallout you're seeing is because of that.

BERMAN: And Rana, we saw Josh Earnest from the White House podium being asked questions about the strength of the economy. Whenever the stock market is down, you know, 1,000 points in two days, whenever you see a drop of 1,000 points in 10 minutes, people get nervous. So Josh Earnest, the White House press secretary was asked, hey, how are things? Are you nervous? Has the president been briefed?

And what he essentially said is look, the economy is a lot better off now than it was several years ago. Things are moving in the right track. Is that still the case or is today, is what happened Friday, are those reasons to be at least a little bit concerned?

FAROOHAR: In U.S. economy, the underlying story hasn't changed. There's still slow-and-steady job growth. It's not a great recovery, but it's an OK recovery. But two things are different now. China has slowed precipitously. And China makes up about three times the amount of the global economy, as it did 10 years ago. So it's a much bigger deal now when China slows down, about 30 percent of U.S. corporate profits come from emerging markets namely China. So that's a big deal.

The other thing is this constraints what the Fed might be able to do with interest rates. And that brings up what I think is the really key point here which is we're hearing the echoes of the 2008 debt crisis. You know, when U.S. companies and consumers deleveraged and got rid of debt on their balance sheet, it didn't disappear. It went to China and it went to governments who picked up all the spending to get the global economy back on track. They're out of ammo now.

The Fed is going to be raising rates soon, probably not quickly, but there's no more money left, there's no more ammo left to do the kind of monetary and fiscal stimulus that we had right after 2008.

BERMAN: Without the ammo here in the U.S. and without the trust that China can pick it up, it's a bad cocktail which leads to the fear we saw today.

Rana Faroohar, thank you so much.

Joining me now on the floor here on the Exchange is Alison Kosik.

Alison, you've been here all day with these traders. These poor traders who I think could probably use up all the Thumbs in all the local grocery stores around here because what a day. I mean, down 1,000, then it's --


BERMAN: You know, went up another 800, then down where we are right now. Down 588 points.

KOSIK: This is why they make those neck braces for days like this.


KOSIK: When you go through these roller coaster moves. And in fact talking to some of these traders, when they saw the opening bell and saw the Dow drop over a thousand points in a matter of minutes, they were shocked. Traders told me that you could hear the noise level in this -- on this exchange go up.


BERMAN: They were genuinely surprised that this happened.

KOSIK: Yes, I mean --

BERMAN: This was not another weird day. This was oh my god.

KOSIK: Yes. He said he was about to pass out, this one trader told me. He was about to pass out when he heard -- when he saw this number go so low. Because this really wasn't expected. I mean, yes, the selloff was expected, but not something like this. And then of course it went through these roller coaster moves. And everybody sort of knows here on the floor that we haven't seen the end of it yet. There's still more to fall, at least according to some of these traders.

BERMAN: Not the end of it yet. What do you mean by that?

KOSIK: That you could expect to see more selling tomorrow, unless of course something is done. Maybe China is going to come out and make some sort of bold move. Maybe even the Fed will come out and say, look, we're not going to ahead and tighten, we're not going to go ahead and raise rates. Those kinds of things could add some calm to the market, some necessary calm, but until you see some sort of drastic move made by the Chinese government or even the Fed, what this market is really looking for is some sort of something, some sort of climactic event to sort of put a stop to the selling that we see, to the bloodshed that we've been seeing.

BERMAN: The bloodshed. Let's get it in perspective, though. We're down about 3.5, 3.58 points today.

KOSIK: Absolutely.

BERMAN: It was down about that much on Friday.

KOSIK: Right.

BERMAN: Black Monday, back in 1987, that was what? 22 percent in one day.

KOSIK: Right.

BERMAN: So the people here old enough to remember that know, as bad as it is right now, it could be a heck of a lot worse.

KOSIK: Right. Absolutely. And keep in mind that when we saw the Dow drop over 1,000 points, many really believe that that was a knee-jerk reaction based on what we saw happen in stocks in China.

BERMAN: Right.

[16:10:00] KOSIK: That huge 8.5 percent drop on their major exchange. That was really a shock to the market here. So what we're also going to want to watch is tonight when the Asian markets open. Let's see if we see more follow-through, yet more selling. Once again, though, if China does come out and do something drastic, it could finally put a stop to it.

BERMAN: All right. Alison Kosik, thanks so much. We have four hours, by the way. Four plus hours until these Asian markets open. So four plus hours to worry about that.

And I know what you're all thinking. We're here on the exchange. We've talked to people about the global set up here. What about me? What about you? What about your 401(k)? What should you be doing now? What should you be doing tonight before those Asian markets open? We'll discuss that, coming up next.


BERMAN: All right. John Berman on the floor of the New York Stock Exchange.

The market closed just a few minutes ago, down 588 points today. I know that sounds bad, but you know what?

[16:15:00] Not as bad as it could have been, not as bad as it looked in the 10 first minutes of trading today, when the market dropped more than 1,000 points in just ten minutes. It has never done it that badly, that quickly in the history of the stock market.

Joining us to talk about what this means for you, what this means for your investments, your retirement, your 529s, college planning, I'm joined now by Mark Zandi, chief economist at Moody's Analytics, and Diane Swank, senior managing director and chief economist at Mesirow. I'm also joined by CNN's chief business correspondent and my early morning colleague, Christine Romans.

Diane Swonk, let me start with you.

Diane, you're sitting at home right now. You're seeing 588 points down on Monday. On Friday, it was down 500 points. That looks bad. If you're like me, you're like, I want to do something. I want to try to fix this. What do you do?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: You know, I don't know how to fix it. If I could wave a magic wand, I certainly would.

I think the important thing is, to focus in this kind of uncertainty on what you know. What do we know? We know that employment has been up. We know that prices at the pump are plummeting, all except in my backyard in Chicago where we've got refining problems. And we also know that the housing market is picking up with home values and many markets now above their previous high.

That's what matters to the overwhelming majority of households. This is really hard. I won't discount that, but we are moving into this storm with some tailwinds that will leave us battered, but not beaten as we get through it.

CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: Mark Zandi, Christine Romans here, we've been expecting that the Federal Reserve was very close to raising the interest rates, which would signal that the Fed thinks that the U.S. economy is back to normal, things are fine here, they could get back to a normal -- a normal monetary policy. Is that on hold now? Is it wise to raise interest rates when we've seen this kind of turmoil?

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: Christine, before I answer that question, let me answer John's question about what you should do. And my answer is -- nothing. Because if you're invested in the stock market, you should have a horizon of four to five years, and you should be able to and should look through the ups and downs in the stock market.

You know, the market goes up, it goes down, it goes all around. But if your horizon is at least four to five years, then you should look completely through this and you should do nothing. There's no reason to panic.


ROMANS: You know, Mark, I always say if you're looking for your 401(k) log-in, if you're looking for your 401k on a day like today, you shouldn't be looking at it.

ZANDI: Don't look. Christine, don't look.

SWONK: You shouldn't be looking at it. No, I don't look at it today.


ROMANS: That's it. Does the Fed raise rates?

ZANDI: Yes, OK. So odds are much lower today than they say a week ago before all this turmoil that the Fed is going to start to raise interest rates, but you know, I think the story is still being written here.

I mean, if what we have seen is what's going to happen, down 10 percent as a typical garden variety stock market, we've had many of them over the years, in a week or two if the market settles in, there will be no effect on the economy, and the fed will go the path it has set for itself, start to raise rates in September.

Now, I don't know what's going to happen. So, in the next week or two, if things keep going south, then yes, they're not going to raise rates in September. We don't know that. At this point, this feels like a garden variety kind of correction to me.

BERMAN: You guys are all financial people, all so freaking calm right now. I'm going the market dropped 1,000 points in the last two days.

SWONK: We're watching the Chinese markets.


BERMAN: And I understand. And this is good advice, this is really good advice. I'm glad they're listening to you, not me at home.

But, Diane Swonk, let's give the glass half empty here, at least when it comes to China.

These are now serious concerns, the confidence you now see from investors, and what we're being told by China, if their economy is really growing, as fast as we thought, if they can really handle the economic blip, is something that might last more than a day or two, Diane?

SWONK: I do think it's something that lasts more than a day or two. I think the Fed is now taking September off the table, but December is still in the table. We had actually Fed President Lockhart talk today, and he still wants to get a rate hike this year. Really, the Fed is very deep seated desire to get lift off by the end of this year, even if just in the last calendar days of the year. I think that's important.

That said, there's a lot of turmoil out there, a lot of uncertainly. And the Fed compounded that by being sort of wishy-washy about what they're thinking about in their most recent minutes, in their most recent statements. And I think they need to take that uncertainty off the table for now.

The China situation, what really is important about it, this is a big consumers market. They don't even need a hard landing. They can still be growing 5 to 6 percent, and have their middle class shrink. That means we're not selling the cars, and all those consumers electronics to them. They're the consumer of last resort now. They're not going to be that in the world.

BERMAN: Diane Swonk, Mark Zandi, Christine Romans --

ROMANS: Thank you, John.

BERMAN: -- thanks for walking us through this, guiding us, holding our hand in this moment of need.

Coming up next for us, Joe Biden, a step closer perhaps to running for president for real?

And, Jeb Bush heading to the border?

[16:20:01] What does Donald Trump think about that?

Stay with us.


BERMAN: Welcome back to THE LEAD.

John Berman here live from the New York Stock Exchange, where there has been a tumultuous day down here, the market down 580 points. That's bad. We're keeping our eye on that.

Also in our world lead, signs that North and South Korea are pulling back now from the brink of war. There is a new deal between the two hated enemies.

We're also learning just how close North Korea might have come to firing a missile and how serious the U.S. took the possibility of an all-out war there on the peninsula.

[16:25:05] CNN Pentagon correspondent Barbara Starr broke the story, joins us now live with the exclusive details -- Barbara.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: John, we now know much more about why the United States has been so worried since the weekend.


STARR (voice-over): Young North Koreans signing up to join the military as tensions rose over the weekend.

UNIDENTIFIED FEMALE (through translator): We, the young generation, are waiting to wipe out the United States.

STARR: Now, there is a peace agreement.

JOHN KIRBY, STATE DEPARTMENT SPOKESPERSON: It was a very tense several days and we're mindful of that.

STARR: CNN has learned just how worried top U.S. commanders were that North Korean threats of military action were getting real.

VICTOR CHA, KOREA CHAIR AT CSIS: The United States and South Korea do have a counter-provocation plan to deal with exactly these sort of situations, situation short of all-out war.

STARR: When the U.S. saw the North Koreans mobilize key military units, U.S. commanders took the rare step over the weekend of ordering an immediate review of the war plan to defend the South.

MICHAEL O'HANLON, BROOKINGS INSTITUTION: Anytime the North Koreans start playing games like this, you've got to take it seriously, because you don't know what their next step will be. STARR: Beginning late Thursday, U.S. intelligence satellite imagery

and electronic signals monitoring show disturbing North Korean military movements, including activation of some air defense radars that might be able to detect incoming aircraft, deployment of additional artillery pieces near the DMZ.

The concern, North Korean artillery could hit population centers such as Seoul in the South. Signs of a potential preparation for a Scud missile launch and dozens of warships and submarines headed out to sea.

KIRBY: Now, it's up to the North to act and not simply just make assurances with respect to their own military activities there along the border.

STARR: U.S. officials tell CNN they had two major worries -- first, the North Koreans took the unusual step of giving a specific deadline for threatening to attack the south if it did not stop loud speaker propaganda broadcasts. And second, that the South Korean government was considering military retaliation in addition to artillery shells it lobbed at an empty field there at the DMZ after its soldiers were hurt in a mine attack from the North.


STARR: Now, U.S. officials are telling me that they also pressed the South Koreans to try to work with the North, to talk to them, to try and de-escalate the situation. The hope obviously is this peace agreement will last -- John.

BERMAN: Barbara Starr at the Pentagon, thanks so much.

Four heroes honor honored today from saving a train-full of passengers from a suspected terrorist authorities say was planning a massacre. And we're just now learning the identity of the other American involved. That's next.