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QUEST MEANS BUSINESS
Washington Is Driving Wall Street; Elon Musk Is To Have A New Boss; Rather When President Trump Fired Jeff Sessions, There Was One Market Impact That Was Immediate, It Was The Rise In The Price Of Marijuana Stocks; Jeff Sessions Interim Replacement As Us Attorney General, His Name Is Matthew Whitaker. Aired: 3-4p ET
Aired November 8, 2018 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: We're in the last hour of trade on Wall Street. The Dow has been bouncing around. A range of about 200
points down and up and now, we are currently lower, but a rally is under way. Put it together, what's happening in the market. This is what has
been driving the day. The markets in Washington have been marching each other, everybody is watching the Fed. Rates on hold after the midterms and
now the Dow's winning streak must be questioned, again.
Pot stocks are going haywire after Jeff Sessions got fired, Jordan Belfort, the real wolf of Wall Street will give his views on pot stocks. And from
Silicon Valley to the concrete jungle, Google follows Amazon to New York City. It's Thursday, November the 8th. I'm Richard Quest, tonight, live
in London where, of course, I still mean business.
Good evening. Let us begin with the markets in this final hour and the Dow is steady. That was the Dow, well, the Dow was steady before the rate
decision. And then after the rate decision, which came just about an hour ago, the market has fallen off. Now, the issue here will be, of course,
how it manages to hold its own over the course of what it did. The Fed did what investors expected and held rates steady.
So, the Feds - Federal Funds overnight rate remains at 2% to 2.25%. With the labor market remaining strong, the Fed said business investment was
slowing. But, it did pretty much, the way the rates and the way the statement goes, pretty much price is in that rate rise in December, which
everybody is talking about.
Now, Washington is driving Wall Street. So, have a look and come and see exactly. These are the issues that relate Wall Street to Washington.
First of all, the rate rises themselves. Now, the rate rise is under pressure from some. The Fed is at least to slow things down. But as I
alluded, that seems unlikely December rate rise, which I think will be the fault this year is now pretty much priced into the market.
In fact, if the Fed didn't move in December, that would be a surprise. And now you've got the Democrats in control of the committees. Now, that means
because they are now in charge of the House, they will have control of the spending because the House has the power of the purse, which is tax and
banking legislation and, of course, attendant upon that any investigations into Donald Trump's finance would also get swept up, as well.
And the other investigation, of course, the Mueller investigation preparing a report to the future and the actual, the report is being prepared at the
moment. The issue is the future of the Mueller investigation. Will the new acting Attorney General work to stifle it and stymie it or not?
Joining me now Vincent Reinhart is the Chief Economist at Standish Mellon Asset Management. These three factors very much show the relationship now
that Washington has with Wall Street and in many ways, Vincent, the way in which Washington can damage the bull market now.
VINCENT REINHART, CHIEF ECONOMIST, STANDISH MELLON ASSET MANAGEMENT: Yes, but you have to ask yourself how much of it was priced in. Essentially
American voters decided on a divided government. A divided government is one in gridlock. The House might pass legislation, might pass a draft, but
the Senate won't, a Republican-led Senate won't validate them and besides President Trump would use the powers to veto.
So, we're basically just got told that nothing legislatively will happen for the next two years. There is going to be a drag on activity associated
with elevated uncertainty. But we're starting from a pretty strong economy. The FOMC statement emphasized the vigor to the expansion. We
worked out - all resources were grown above trend.
QUEST: So, factoring in that. The idea that a gridlock, it sounds somewhat perverse, but a gridlock government will actually be good for the
market. If you look historically, that has been the case. Do you buy that for the future?
REINHART: So, it is better than a bad alternative.
REINHART: Imagine what would have happened in the either extreme of a red wave or Republican House and Senate or a blue wave all Democratic House and
Senate. We would be most likely getting legislation that encouraged spending permanent, the household tax cuts permanent and tended to further
worsen a bad budget deficit. That would also mean the Federal Reserve would have to be further in play tightening even faster than market
participants currently expect. That would be tough on markets.
QUEST: With an employment - excuse me - at 3.7% or thereabout, there isn't much more room. I mean, yes, for that particular headline number to go
down, you can tinker around maybe with number of hours worked, with the amount to pay and you can try and increase those who are working part-time
into full time. But the US does have now a shortage of labor.
REINHART: We have a state of access demand. The unemployment rate is probably three quarters of a percentage point below what FOMC participants
thinks is this natural rate and we're still growing above our trend rate so the unemployment rate is going to go down some further. That's why we're
seeing cost pressures. That's why the Fed is in motion.
QUEST: And do you think - do you think that none of the economic rules, if you like, have been repealed. And that eventually inflation does rear its
head, again. I'm not saying rates go up to slow down to the point of recession or a soft landing, but that we will soon be seeing a more
traditional performing economy.
REINHART: So we will be working in the direction that tradition dictates. It's tough to repeal economic laws. But it's also true that the US is a
more global economy. Our trading partners are bigger. We're a smaller share of global GDP and, so, price dynamics aren't influenced by the fact,
we're not the price setter that we used to be. So, inflation is going to rise. Cost pressures will rise. It's probably going to rise a little bit
more slowly than you would have expected 20 or 30 years ago if the unemployment rate were this low.
QUEST: Vincent, good to see you, sir. Thank you. Much appreciated.
REINHART: Same here. Thank you.
QUEST: Elon Musk is to have a new boss. It's Robyn Denholm who has been appointed as the Chair of Tesla. Now, Musk had to vacate the role as part
of the settlement with the SEC following his infamous tweet claiming he had secured funding to take Tesla private. Now, you'll recall, this is history
you're being familiar with. The SEC filed a lawsuit and it alleged that Musk inflated the stock price with his tweet without any funding in place,
in effect, he ramped up the price.
Denholm's responsibilities as the chairwoman will be to represent shareholders and oversee Musk who remains as the CEO. So, he continues to
be the face of the company and determines its strategy. Clare Sebastian is in New York.
How on earth did they manage to choose this as the chair? I mean, an existing director, but what was the things in favor?
CLARE SEBASTIAN, CORRESPONDENT, CNN: Well, Richard, she has a lot of relevant experience. She's worked for many years in corporate finance
roles which actually is a complement to Elon Musk's more technical and designed background. She's worked across software. Telecom is where she
currently is. She has even worked for Toyota in Australia as the Finance Manager, so she has experience in the auto sector.
But I think, there are real questions here. She is an insider. She has been on the board for four years and there are real questions here about
just how much of a check this will be on Musk's power.
(BEGIN VIDEO TAPE)
SEBASTIAN: For a man intoxicated with power, the kind that fuels electric cars and help solve rolling Australian blackouts, coping with a reduction
in his own power is new for Elon Musk. Steve Westley is a former Tesla board member and early investor.
Do you think there is a part of this that will irk him a little bit?
STEVE WESTLEY, FORMER TESLA BOARD MEMBER: Look, I think Elon loves being spurred on. As you know, he has just posted historic results and I think
he is using the SEC and the government as a foil. I think he's trying to be the champion innovator in Silicon Valley.
SEBASTIAN: Musk isn't just giving up the chairmanship of Tesla after 14 years. The SEC settlement also seeks to rein in his favorite form of self-
expression, Twitter. A prospect he addressed in a recent Recode podcast.
KARA SWISHER, PODCASTER: Will you have to change your Twitter behavior?
ELON MUSK, CEO, TESLA: Not really. I think it's mostly just if there's something might cause a substantial movement in the stock during trading
WESTLEY: if he's smart, he will do what the SEC tells him. He can continue to be on the cutting edge. He can continue to be on the cutting
edge. He can continue to be a visionary but at the end of the day, you don't want to mess with the SEC or the Department of Justice and I think he
SEBASTIAN: Others are less convinced.
SCOTT STRINGER, NEW YORK CITY COMPTROLLER: Elon Musk has been erratic and the governance structure of Tesla needs to be reformed.
SEBASTIAN: New York City Comptroller, Scott Stringer manages the public pension fund of which $75 million is invested in Tesla.
STRINGER: I think it would be prudent to permanently separate the chair position and the CEO position. By the way, I think it would serve the
interest of an Elon Musk because when you have two positions, no one's watching him. And, so, when you make a bad decision, you really pay for
MUSK: I sleep on the couch over there.
SEBASTIAN: Musk has been open about the personal toll of his job showing CBS earlier this year where he spent nights sleeping on the factory floor
and revealing to the "New York Times" he uses Ambien.
WESTLEY: It could well be that the SEC has done him a favor to bring in a stronger chairman. I think the Board, and I know them well, it's a solid
board and I think they will bring in strong senior management and end and I think it will end up propelling the company forward.
(END VIDEO TAPE)
QUEST: So, Clare, now obviously, the SEC signed off on this. It was all part of the agreement. The thought had been, as you rightly point out,
that they would not accept an insider and certainly not the insider that was originally going to be put forward who they rejected. What was it do
you think, about Robyn Denholm that allowed them to go forward with her?
SEBASTIAN: Well, Richard, I think perhaps, being - having been on the Board for four years helps with her relationship with Musk, plus if you
look at the Board, Richard, has people like Elon Musk's own brother and the former CFO of Solar City. She is among the most independent members of
this Board. But there's more work for Tesla to do to keep up its end of the bargain with the SEC. They still have to install two independent
directors, two new ones. They still need a special committee to oversee Musk's tweets, his communications with investors.
So, there is more work to be done and there are many people who feel that it's not just about the Board that they need to install some kind of COO,
some kind of second in command to help Musk with the day-to-day running of the company to try and ease the burdens and stop him from burning out,
QUEST: Clare Sebastian who is in New York. Clare, thank you. As we continue tonight, the wolf of Wall Street weighs in on the question of pot
and pot stocks. Live for us tonight from Los Angeles, we have Jordan Belfort about the media and the up and downs of marijuana stocks and, also,
just about - does the bull market still have life in it?
QUEST: So, when they fired Jeff Sessions or rather when President Trump fired Jeff Sessions, there was one market impact that was immediate, it was
the rise in the price of marijuana stocks. And that followed on with volatility. Because Jeff Sessions, as Attorney General and senator before
that was a marijuana hardliner. By that I mean, he was adamantly against it and was going to use the full weight of the Federal government to ensure
the enforcement of existing laws against it.
Tilray which is a pot co, the Tilray shares surged after the sacking. It went - they roared up and what happened before followed on today. A big
selloff in the sector today. Look at that. Very sharply. Tilray actually is the worst. It was down 15%. Canopy also, Cronos, you see them all. So
this was the case, not so much of buy on the rumor, sell on the news - it was buy on the news, and sell afterwards.
If there is one man who knows about volatile investments and legal troubles and narcotics, Jordan Belfort joins me. Last year, he was talking on this
program about Bitcoin and with Bitcoin, he worried bubbles can come and go rather quickly once main stream investors get involved.
(BEGIN VIDEO CLIP)
JORDAN BELFORT, AMERICAN AUTHOR: If you were the most disciplined person, you could really have this with - get in and get out of this probably a
window, a short window to make some money. But that's not human nature. It's not psychology. People, they will get in and they make some money and
they want to make more money and people have a tendency -- tulip bubble, right? Remember, in the tulip bubble, the beginning of the end was when
they started trading futures on tulips. That's how it started to - and that was another move up and then all of a sudden, boom, it collapses and
it's all over.
(END VIDEO CLIP)
QUEST: Jordan Belfort joins me now from Los Angeles. Perfect analogy. Tulip mania. Something right out of the ground and now we have pot o'
mania, marijuana mania. Whatever you want to call it. Do you believe that, well, explain what you think is going on with pot stocks.
BELFORT: Sure, well you know I was a huge bear on crypto and I had a great call and it was at $20,000.00. I thought it was going to crash and burn
and it did and I think it still goes. But the pot, the marijuana is very, very different. I mean, you know, it's a real business. So, what you're
going to see here is that you're going to have some very big winners and a lot of losers.
So, you know, you've got to be very, very careful not to get caught up in these huge high bubbles and pump and dumps, as well. But there is going to
be some companies that really do have long-term sustained growth and there will be fortunes made because it is a legitimate business. There is a huge
demand for it. There is really, you know, large margins right now. Those will collapse as the bigger plays get in, but there is definitely
opportunities to make money because it is legit and also, it seems the regulatory headwinds are diminishing every day and then eventually, it will
Federally legal and I then I think, will really take off.
Right now the action more on the Canadian exchanges although the legal here, the stocks really are traded there.
QUEST: Right. And the talking of those because the other avenue into is ETFs and the ETFs on marijuana stocks were extremely volatile over the next
few days. Is this an area of investing for widows and orphans?
BELFORT: Only if you invest what you can afford to lose - all of your money. I mean, look, again, I'm actually bullish on it, but you have to be
very careful. It's going to be like anything else, there is going to be unscrupulous players that get in there and try to make the quick in and
out, right, but here's the thing. I would really focus - if you look in - I'm not going to record any particular kind, but just be careful about
companies where you don't really know, the management has no track record or there is not a big player behind it that has a banking connection. You
have to be really careful with that stuff.
But if you get involved with solid players and that have real IP, I think you could really make money here, but you have got to be careful and don't
risk more than you can afford to lose because there's be a lot of zeros along the way, but some big winners. It's legit.
QUEST: Look, I'm fascinated on this idea of whether the bull market is resting, exhausted about to have another run or dead.
BELFORT: Well, big question, right? If I really knew that for sure, I could make a lot of money. But here's the deal, I think that - right, but
given the outcome of the midterms, it really is going to locked in with the pen on is it going to be investigation after investigator or legislation.
BELFORT: I think that when legislation happens, you'll have a really long, sustained rally here. But if it turns into a fight between Democrats and
Republicans, it could get really ugly really quick because a lot of the rally is based on - and the economic rally is based on consumer confidence.
And if it starts to become massive gridlock and in-fine - more in-fine than gridlock. Gridlock is not terrible, but in-fine where everyone is
subpoenaing and that could be a real disaster at the moment. I hope it doesn't happen.
QUEST: Hang on. We were talking to our earlier guest about this. He was an economist about this issue of gridlock and the market likes gridlock.
You represent the market. Do you like? Do you like gridlock? Did your eyes light up and your heart flutter at the thought of the US government
becoming a gridlock for the foreseeable?
BELFORT: Gridlock is not good for the long term. But remember, what gridlock means is nothing is really happening which means there is
certainty, right, and the market likes certainty. So if people think things are going to stay the same that represents certainty, which means
stocks will probably tend to rise.
Unfortunately, there are looming issues like a massive deficit that has to be addressed. So, you can't ignore this forever. Kick the can down the
road until my kids are having kids, right. But gridlock for the short term would probably, again, no guarantees, probably lead to higher prices. My
QUEST: I notice what you say your kids having kids. Does that mean you're getting soft in your investment strategies? Does that mean -hang on, has
the wolf been tamed? Are you now starting to think about defensive stock rather than high alpha stock that was going to run off to the races?
QUEST: Never, never. I'm like a risk taker at heart. I love the action. But I record this in all seriousness. I recommend people as they - I'm
getting older, by the way, I am 56 years old now and I feel 56 sometimes when I wake up in the morning, but I think that listen, again with
investing, you know, especially in the sector that you talked about with marijuana. There's a lot of money to be made. But you have got to be
really careful because a lot of people, you know, you can't - just like you saw yesterday, the stocks rise up and they crash back down. You have to
take a longer term outlook on that for like one to two years and look for - a lot of these companies have huge market caps, right?
But that's not necessarily that terrible for this industry because what these companies do is they use their stock to make acquisitions. So, while
the market cap might be very high and is overvalued right now, if they're smart and they have good management, they'll use it to snap up these
smaller companies and sort of back fill the value. So, don't look just at market cap. You want to look at the management, it's the most important
thing and also the - do they have any intellectual property that really is sustainable and separates them from the pack?
So I think that there's some opportunities, but be very, very careful.
QUEST: And less of the worries about being 56. It's a wonderful age. Some of us are - it could not be better. And, finally, you know, when I
look at the market and I hear about pot stocks, I hear about this idea of rotate out of tech, where tech has been beaten up. You see Amazon, which
we all still use on a daily basis.
I see Amazon down 25% to 30%. Nothing justified the overvaluations, but nothing really justified the sharp falls either other than that the wind
BELFORT: Yes, well, listen, I saw a commercial on YouTube about something with Google Assistant. This radical breakthrough where the computer now
sounds like it's human. I'm like, it's like "The Terminator." I mean, I don't think you could say the tech rally or anything with tech is - I think
it's just beginning. I mean, the advances are so extreme right now that I wouldn't look at any tech company and say that the end is nigh. I think
it's probably the beginning, honestly. We're going to go to a place I think we could hardly imagine. That is my opinion.
QUEST: And it's an opinion we want to hear more often. Jordan, good to see you, sir. I appreciate it.
BELFORT: My pleasure.
QUEST: Thank you for taking the time. We've got to get you and me in the same studio probably in New York or out in Los Angeles. How about that?
BELFORT: I'll be there in a couple weeks for Thanksgiving to see my family.
QUEST: Excellent. Thank you very much, indeed. Jordan Belfort joining us.
BELFORT: Thank you, Richard.
QUEST: Now, we are learning more about Jeff Sessions interim replacement as US Attorney General, his name is Matthew Whitaker and he served on the
advisory board and received campaign contributions from a company that was shut down and fined by the US government. World Patent Marketing promised
to help investors get patents. The FTC - the Federal Trade Commission of the United States said (inaudible) paid thousands of dollars and got
nothing in return. Documents show the company of Whitaker even threatened legal action against customers who complained. Whitaker declined to
comment to CNN.
Lawmakers are focused on how Matt Whitaker will handle the Mueller probe. He is now also responsible for the Justice Department's portfolio of
business-related investigations. So, for instance, you've got the net neutrality fight with California, you have the anti-trust case against our
own parent company, AT&T ...
QUEST: ... when they bought Time Warner and the possible probe of social media giants. For instance, Facebook and the like and Google, which
President Trump has said there could be anti-trust activities and they may be need to be looked at to be broken up. And then lawsuits from the
financial crisis. UBS expecting a lawsuit over mortgage bonds. Put this together and joining me now, Elie Honig who served as US Federal State
Prosecutor and now CNN legal analyst. Well, I gave a rough taste of the issues and does Whitaker pass muster or is he conflicted?
ELI HONIG, LEGAL ANALYST, CNN: Whitaker could have conflicts on a couple of different levels. First and foremost, the one that jumps out to me is -
look, the most important case he is going to be overseeing is the Mueller probe of Russia interference with the 2016 election and Whitaker has been
out there publicly on CNN and elsewhere writing opinion pieces and speaking on shows like this about how he believes that the Mueller investigation had
gone too far, had crossed over lines, should be starved of budget and resources. How he thinks that certain facts that the Trump Tower meeting
in June 2016 was not at all criminal.
So, he's already on record with where he stands on a lot of this. I think there's a real conflict issue there. That said, I don't think there is any
way he recuses himself. That's the number one original sin that Jeff Sessions committed that probably ultimately got him fired or pushed out the
QUEST: So what does he do?
HONIG: What does Whitaker do?
QUEST: What does he do? I mean, yes, I mean, he may not do it the first day on the job while he's still - I mean, he is already being deputy, so he
knows where the photo copier and the men's room is. He knows his way around the building. At what point do you think, he makes his first move
that gives us an indication of how he's going to treat the Mueller investigation.
HONIG: It's a good question because a lot of the important decisions could be happening at least initially behind closed doors. Usually the public is
not privy to the kind of decisions that prosecutors will make. So, for example, if Mueller sits down with Whitaker later this week, tomorrow, next
week and says, "Okay, look, here's a couple people I'm about to indict," and Whitaker says, "No, I'm not approving those indictments." We wouldn't
necessarily know that unless somebody leaked and we know Mueller has runs a tight shop or unless eventually, the now Democratic-controlled Congress
starts subpoenaing people and digging into why certain decisions were made and who authorized them.
So these decisions, these are prosecutorial strategic decisions that won't necessarily be happening wide out in the open.
QUEST: But we're sure you'll get wind of them and when you do, you'll come and talk to us about them here on "Quest Means Business."
HONIG: Yes, you know, things have a way of coming out and the reporters have been very good on this story. So, I have a feeling, I agree with you,
I have a feeling, a lot of what happens behind closed doors will come out in the public eye.
QUEST: Good to see you, sir. Thank you. As we continue tonight from London. New York City could get a big vote of confidence from two of the
world's biggest tech companies. Amazon and Google are expected to beef up their presence in the Big Apple but are doing so in very different ways.
[15:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I'm Richard Quest, there is more QUEST MEANS BUSINESS, quite a lot more in fact as we
continue when Britain's former Finance Minister George Osborne tells me a hard Brexit would be catastrophic for the U.K.
And Google's chief executive says he'll make big HR changes, that's after the companywide walkout. As you and I continue tonight, you are watching
Cnn and here the facts always come first.
A police officer named Ron Helus was one of the 12 people killed in a brutal gun attack at a California bar late on Wednesday. Helus was on the
scene within minutes and was hit by the gunman's bullet when he entered the building, later dying at hospital. He was a veteran officer with three
decades of experience.
Democrats are demanding that the new U.S. Attorney General recuse himself from the Russia investigation. However, sources tell Cnn, White House
officials see no need. Matt Whitaker has called special counsel Robert Mueller's appointment ridiculous and suggested his investigation be
curtailed. Now Whitaker, who was being appointed by Donald Trump after the president forced out Jeff Sessions.
France says it will not pay tribute to a Nazi collaborator after President Emmanuel Macron came under fire for saying it was legitimate to honor
Marshal Philippe Petain. The town was considered a hero for his role in the first World War, when told to be jailed for treason after working with
the Nazis during World War II.
The U.S. Supreme Court Justice Ruth Bader Ginsburg is in hospital suffering three fractured ribs. A court statement says the 85-year-old justice fell
in her office on Wednesday night. Miss Ginsburg went home but was uncomfortable during the night and was admitted to Washington hospital this
It seems Amazon is not the only tech giant planning to grow its presence in New York City. Google could also be planning to add as many as 12,000
jobs. Now that would effectively double the head count in the city. It's almost on the par with Amazon who is expected to announce 25,000 new jobs
in a new facility in Queens.
The two announcements, Google and Amazon could cement New York's position as a tech hub to rival Silicon Valley. Scott Galloway is the author of
"The Fall". He joins me now from Los Angeles. And you are not surprised, are you? You're not vested with the Amazon. You said on this program that
they were going to go for Washington. So, you're not surprised.
SCOTT GALLOWAY, AUTHOR: No, I don't think this was a contest. I think it was a con, I think it was over before it started. The one thing these two
headquarters have in common that, if you can call them headquarters that Amazon has selected is they're both within six miles of the Bezos homes in
D.C. and New York.
So the only criteria that ever mattered was where a 54-year-old worth $165 billion wants to live. This was, in my views, Richard, this was an abuse
of the commonwealth.
QUEST: Except why did everybody else go along with it. I mean, there must have been savvy advisors to governors and mayors around the country that
must have said to them what you've said to me.
[15:35:00] GALLOWAY: I think they took them at their word, and the temptation to detonate a prosperity bomb in town square is irresistible for
238 cities. And when you have a ruse that's well played out including officials from Amazon visiting new cities in a thoughtful RFP, you, it's
easy to talk yourself into believing, yes, we have a shot --
QUEST: Yes --
GALLOWAY: At this and then you have cities taking out billboards and sending them Cacti. You literally have tens of thousands of hours on
behalf of municipal employees who probably should have been allocating those scanned resources elsewhere. This was -- like I said, this was over
before it started.
QUEST: Let's now look at New York, New York City gets Amazon and it gets more from Google in very different ways. Google is just going to quietly
expand Amazon doing it with trumpets. But what does it mean to have these two giants increasing their footprint?
GALLOWAY: Well, it means a lot of things on a very macro level, you could say it's a disturbing trend, but not only do we see the 1 percent in our
population pulling away from the other 99 percent, we see certain key metros pulling away from others.
There are 450 metros in the United States and five of them account for about a quarter of all the economic growth over the last ten years. And by
the way, two of those five are the D.C. and New York metros. So, from a broader kind of U.S. standpoint, the haves and the haves not continue to
So -- but, in terms of the city, there's no arguing, this would be good on most dimensions for New York and you have to credit Mayor Bloomberg's
vision to go through there and make requisite investments to get a third university. The one thing or one of the things that is common among any
company that's been able to add tens of billions of dollars in shareholder value in a matter of years, not decades is that they're all headquartered
within a bike ride of a world class engineering university.
And now you have three of them within a bike ride of these new headquarters in New York, Columbia, NYU and Cornell. So the mother's milk of growth is
young, engineering, savvy talent --
QUEST: Yes --
GALLOWAY: And we have a lot of it in New York.
QUEST: And let's talk, that point was raised by a tech investor who is based in New York. He tweeted, this investor said, crazy to think about
the long-term impact of the NYC start-up echo system of 12,000 new Google, 25 New Amazon workers.
Almost bottomless pools of talent for New York's start-ups. And does it since -- I'm not suggesting -- maybe I am suggesting that New York starts
to rival Silicon Valley if only because we've got or you've got -- when I'm back in New York, we've got the financing. The financing structures.
Wall Street is there, the multi-media industry is there, it has -- it's more than just the tech and that will be appealing to tech.
GALLOWAY: There's a lot of stuff. The proximity to Europe, as you said access to other industries. Young people want to live in cities. If you
think about every 18 or 20-year-old stem outstanding college grad or even valedictorians, there's very few people that don't dream of at some point
living in New York at some point in their life.
And when you look at the impact that San Francisco, how impacted it is, New York City becomes increasingly attractive. There's -- you know, this --
the technology world continues to eat the economy, 12 years ago, only one of the five most valuable companies in the world was tech, now it's five of
So it just makes sense that every large city, if it wants to maintain its viscosity, its growth, its attractiveness to young, successful people
whether it's London or Hong Kong, they've got to figure out a way to attract these --
QUEST: Right --
GALLOWAY: Technology companies and they are.
QUEST: Scott, thank you, you and I need to go on a walk about or at least to drive about and eat about or something about that shows the
attractiveness of New York for these companies. Here's the deal, you agree to go along and I'll agree to pick up the bill.
GALLOWAY: All right, you do London, I'll do New York, Richard, it's a date.
QUEST: All right, excellent. thank you. As we continue --
GALLOWAY: Thank you --
QUEST: Now, there's another story developing at Google at the moment. The company says it's making a number of internal changes in response to
protests from its employees over the company's handling of sexual harassment. Heather Kelly is with me, joins us from San Francisco to put
this -- good to see you.
Heather, the -- how much of the changes come from the fact that Google was somewhat shocked that they went out on strike or at least walked out for a
HEATHER KELLY, CNN TECHNOLOGY REPORTER: I mean, it's unclear exactly what's going behind the scenes at Google. An interesting thing about
today's letter that Sundar Pichai sent out to employees is that it didn't actually mention the walkout by name.
[15:40:00] It didn't mention that employees had officially organized, it said, you know, something kind of generic about, you know, things to recent
feedback from our employees. So I think it maybe rattled them a little bit definitely, and it was exactly one week ago. So I think it's directly
responsible for these changes.
QUEST: I mean, I suppose we'll never know whether they would have done it anyway. But this -- the CEO's statement specifically refers to what
they've done, and I think it's important. He also basically says we got it wrong. We have been wrong. I only wonder what difference it makes these
KELLY: I mean, the changes are -- they're a lot of what the protesters were asking for, it's not everything and they've said before today that
they're going to -- now that they've organized, they're going to continue pushing for changes at Google and you know, Google is not unionized.
But it could even go in that direction. And I wonder how much, you know, management is trying to kind of hold off any more organization among its
employees by making these big changes --
QUEST: Any --
KELLY: Right now.
QUEST: From our -- from our new bureau on the West Coast, any signs, any grumblings, anything you hear that suggest other companies might be facing
-- we know they're facing similar problems, but might face the same reaction from staff and have to do the same sort of things.
KELLY: Oh, I think absolutely. I mean, it's kind of been like the Summer and now Fall of tech-lash which is a lot of employees at these big tech
companies are just waking up to the fact that they have a lot of power if they disagree with the projects their companies are taking on like Amazon
and Microsoft and Google.
They're going to speak up about it, and they're going to hold walkouts, and it's led to some contracts being canceled at big companies. And I think
other employees might see what's happened in the past week with Google and absolutely be inspired to take the same routes for their own workers'
QUEST: Good to see you, now you're there, we expect to see more of you on QUEST MEANS BUSINESS --
KELLY: You see me any time you want --
QUEST: As we -- anytime we want as we increase our coverage of course on tech in the West Coast. Coming up in a moment after the break, I'll be
speaking to Kenya's Treasury Minister, it's about a controversial tax. Now, it's interesting, Kenya's most innovative industry really relates to
mobile phones and the like, the mobile banking sector.
But Kenya sees this as a cash machine for government spending. After the break.
[15:45:00] (COMMERCIAL BREAK)
QUEST: Kenya's economy is on track for a banner year, 6 percent growth according to the IMF. Now, part of the economic success clearly can be
attributed to its innovative banking sector, we talked about it last week. In some ways, it's years ahead of everywhere else.
The mobile banking system has to be seen to be believed in that country which is why a new government plan to hike taxes on mobile transactions.
It makes perfect sense if you are the government, but it's highly controversial otherwise. On my recent visit to Nairobi, I asked Kenya's
Treasury Minister about why he is taxing one of the most innovative parts of the Kenyan economy.
(BEGIN VIDEO CLIP)
HENY ROTICH, TREASURY SECRETARY, KENYA: Kenya has been a leader in our city, particularly in the mobile technology and also sending money through
the cellular phones. And this is where majority of Kenyans now are really transacting, you know.
So our person in charge of treasury yields want to make sure always you wait and you attack space as much as possible, and this is where a lot of
transactions are happening. But, of course, we are very sensitive to ensure that we practice it in a manner that we don't discourage the
innovation that we have achieved and the financial inclusion that we have actually achieved as a country. So it's a very --
QUEST: So come on, come on, come on, minister --
ROTICH: Balancing --
QUEST: You found, you found a new gravy train, and it's nice to get onboard.
ROTICH: Well, and yes, and also to finance one of the big agenda of the president which you just mentioned, universal healthcare, very important
initiative, and, of course, we need to fund that.
QUEST: But what about the suggestion --
ROTICH: Yes --
QUEST: The valid suggestion, I think, that the mobile money tax, transfer tax is a regressive tax. Now, to some extent, all consumptive taxes are
aggressive because they hit the poorer people as a percentage of their income harder. There were other ways when you don't even have a capital
gains tax, but you could have raised sizable revenues without hitting the poor.
ROTICH: Yes, we've also introduced capital gains, that's in some areas which is but still very low. These cap for that. We currently -- we're
actually finalizing a new income tax law which will deal with the issues of capital gain and also make the tax more progressive -- income tax more
So we're doing a sort of -- lots of reforms in our taxation system to ensure that we achieve progressivity and of course equity and fairness and,
of course, taking care of the poor.
QUEST: Parliament decided it was a good idea to have an interest rate cap. Nobody else thinks it was a good idea. The governor is not in favor, the
investment community is not in favor, is the minister in favor?
ROTICH: Well, look, I have been the first to really engage parliament when this issue came, and we tried as much as possible to explain the
consequences that it will bring, which is really what we are really beginning to see. The unintended consequences was parliament had reports
they were helping the poor.
But what we are beginning to see is that the credit to that sector they were trying to project is not happening. So we are engaging in parliament
now that we have detail. We have -- we have seen its consequence. I believe now the debate will be more enriched and the people will believe us
more than before because there was a thinking that, look, this thing will work and all that.
So now, we're in a better place to --
QUEST: It's a terrible idea, then it's not working at all, correct?
ROTICH: Well, to some extent, we've seen, you know, people -- you know, getting credit at a low price. But the problem is a lot of other people
are cut off from the credit market. So that is a -- fortunately though, the M-Pesa and the -- you know, the innovation and the financial system has
also helped because we have -- we have not controlled --
QUEST: Right --
ROTICH: We have not controlled into stress, that is just in the banks.
(END VIDEO CLIP)
QUEST: When we return, Britain's economy slips down the growth league tables as it prepares to leave the EU, I speak to the former Finance
Minister George Osborne about getting it back on track.
[15:50:00] (COMMERCIAL BREAK)
QUEST: Britain's economy slipping behind its European neighbors, falling at the bottom of the growth league as it prepares to leave the EU.
European Commissions -- Britain's economic growth was slowed to just 1.2 percent next year and that's amongst the lowest of European nations.
It puts it by Italy. Now, by 2020, Britain is expected to underperform every EU member state when Italy phases out with a 1.3 percent. Much of
Britain's economic future depends on the kind of Brexit deal that will agree with Brussels. I was joined by the former Finance Osborne George
Osborne; the man charged with overseeing the British economy in the lead up to the Brexit referendum.
He left this job shortly after the election. I asked him how he sees Brexit playing out.
(BEGIN VIDEO CLIP)
GEORGE OSBORNE, FORMER FINANCE MINISTER, UNITED KINGDOM: I think what's actually going to happen is that we are going to be in a transition period,
a so-called transition period where we will mirror these arrangements, but they will never be permanently settled.
So in practice, we'll be in the single market, in the Customs Union for potentially a very long period to come without anyone being sure that
that's the lasting arrangement. And crucially without formal mechanisms to interact with the EU and help determine the rules that will then be on us -
QUEST: Which is the -- which is the worst possible arrangement.
OSBORNE: Well, I'm not sure it's as bad as crashing out with no arrangement.
OSBORNE: I mean, well, because I think the consequences for the British economy in the short-term would be very severe, that is the general view,
by the way, of investors around the world and indeed the government's own forecasters. And there are sort of basic issues which arise about whether
airplanes can fly and pharmaceutical products are legal and what's going to happen at the port.
And you know, though I think leaving with no arrangement and I suspect this is a view held very strongly by the senior members of the British
government, although they're careful not to say it in public, it would be pretty catastrophic for Britain.
QUEST: Did you ever discuss that with officials when you were at the Treasury? Did you ever sort of say, hey, what's your best guess if we have
a fallout of the EU without an agreement?
OSBORNE: If we had -- you know, we produced some forecasts of what would happen if we left the EU, and one of them was a shock scenario.
QUEST: Yes, well, that's -- that was one of the ones who came up in the referendum that was widely discredited, well, as being fear tactics. That
OSBORNE: I think it was a -- you know, the opponents in that referendum were not great fans of those forecasts, but actually, if you look over the
last couple of years, and we haven't of course left the EU, those forecasts were predicated on near immediate departure.
[15:55:00] You do see the British economy, even on the official governor estimates now being 2.5 percent of served GDP smaller and with otherwise
have been -- you've seen the currency here devalued by over 10 percent. You've seen inflation rise as import costs have gone up and that's squeezed
So the idea that there's been no economic effect is in a way -- you know, the government I was part of, was delivering the fastest growing economy of
the G7, we're now among the slowest growing economies, not just the G7 but the EU.
QUEST: You know, every time you say that, I keep coming back to -- and this wouldn't have happened if it hadn't been for you and your team.
OSBORNE: Well, it wouldn't have happened if in my view, the country hadn't voted to leave the EU.
(END VIDEO CLIP)
QUEST: And you can hear more from George Osborne on that side of our discussion next week including how he made the switch from finance minister
to newspaper editor. Before we finish on a profitable moment, the market is -- the Dow is clawing back, but it's not really telling you the full
If you look at the Dow 30, you'll start to see a much more different events taking place. Amongst the 30 you have, you have the -- you have technology
stocks being very badly hit. So the Nasdaq is down and the FANG stocks are down. And if you look at oil stocks, Exxon Mobil, Chevron, they are off
because oil is now in a bear market.
The price of oil has fallen sharply, as you can see down 2 percent for West Texas. All of this means you've got a broad-based rally but a very much --
when it comes to technology stocks they are very much being hit. Profitable moment after the break.
QUEST: Tonight's profitable moment, drawn to the point the midterms might be over and the Fed still has to decide on rate in December, so make no
bones about it, the volatility we have seen of late is most certainly likely to continue into the future.
There is no reason to assume the bull market is over, but there's certainly plenty of call for indigestion that investors that you and me and everybody
else need to watch carefully. And so that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in London. Whatever you're up to in the hours
ahead, I hope it's profitable.
The Dow is barely down, the bell is ringing, the day is done.