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China has sneezed, Apple catches the cold; A Giant Medical Merger Sees One Share Price Surge, The Other One Falls Sharply; Leading The Democrats In The House Of Representatives Is Speaker Nancy Pelosi; Democrat Nancy Pelosi Elected U.S. House Speaker; Trial Underway for Suspects Accused in Khashoggi Murder; There's Speculation North Korean Diplomat has Defected; U.S. Issues Travel Warning for China; Chinese Probe Lands on Far Side of Moon; Dow Slides After Apple Delivers Bombshell China Warning; Democrats Take Control of House and Committees; European Markets Shaken By Apple Warning; U.S. Pharma Under Pressure to Lower Prices; U.K. Pharmacies Prepare for Possible Hard Brexit; Stocks Down Sharply in Final Moments of Trade. Aired 3-4p ET

Aired January 3, 2019 - 15:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: We are an hour away from the closing bell, and things do not look pretty on Wall Street. The Dow is off

its lows of 677 points, but we are down 608, and the selling does seem to have increased over the last hour or so. The S&P 500 is off a similar

amount in percentage terms, and the NASDAQ is even worse, down the best part of 3%, and the stock of course, everybody is watching is down 9%,

that's off the lows, but Apple is still being very badly hit, more than $15.00 off the share.

All the reasons today for this malaise and misery in the markets. China has sneezed, Apple catches the cold, and Tim Cook sends a warning to the

rest of the business world. The top White House economist tells us, more companies will suffer as a result of the China slowdown; and the Dow is

near the lows of the day. And a giant medical merger sees one share price surge, the other one falls sharply, but which is which?

We're live in the world's financial capital, New York City, on Thursday, January 3rd. I'm Richard Quest, I mean business.

Breaking news at this hour. We are in the final hour of trading, and as you can see from the markets, extremely sharply lower the. The Dow is off

more than 600 or now at 599. It's bouncing around that level. But in this last hour is exactly the point upon which you start to see sharp moves.

Investors have been responding over the course of the day to two main threats -- weak U.S. manufacturing data and Apple's warnings about sales in

China. By the way, that warning, that first cut in revenues since 2002, that came late last night. The share price was halted in trading on West

Coast and other exchanges, while Tim Cook brought out a three-page letter resulting in the share price falling, the worst day in six years.

Analysts have been slashing price targets left, right and center. The issue is whether Apple is the canary in the coal mine. The Chairman of the

President's Council of Economic Advisers says the damage will spread - the damage that is of China's slowdown will spread if the trade war drags on.


KEVIN HASSETT, CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: The rest of the world is slowing, and that is having an impact on earnings. It's not going

to be just Apple. I think that there are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching

their earnings be downgraded next year until we get a deal with China.


QUEST: And these are some of the shares of which you might be thinking about. The revenue that comes from China. Let's look at who is most

exposed. On the tech side, obviously, you've got Qualcomm, 65% from China; Texas Instruments, 43%; Intel, 23%; NVIDIA - this is just in the tech area,

and Apple which is 18%.

So if you look down the list, further down the list, you will see the financial firms also which will feel it. You've got fast food. You've got

Boeing, Starbucks, and you've got Tapestry, Yum brands, Bisa, McDonald's -- all of these companies get at least 10% or more of their sales from China.

So Alison Kosik is tracking the market effects from the Stock Exchange and when you see those companies that are -- that have wide exposure to China,

we shouldn't be surprised at the reaction.

ALISON KOSIK, CORRESPONDENT, CNN: No, don't be surprised at the reaction. We are about what? Two and a half weeks away from another earnings season.

And actually, listening to those numbers about how much exposure these multinational companies have to China, I was just thinking, it is going to

be a rough earnings season. That's just my guess.

You know, Apple, you talked a lot about Apple. Apple really winds up being that poster child for all the worries that have weighed on Wall Street for


You know Wall Street has been worried about China's economy slowing down. It's been worried about the U.S./China trade situation that remains

unresolved. Well guess what? Those worries are now coming to fruition, in a big package called Apple. And soon, those other companies that you just

mentioned, I have a feeling they will be following suit, Richard.


QUEST: Alison, is there any - the argument would be normally at this point that it's a buying opportunity. A major stock like Apple down 10%, that's

a time to get in. But the consensus seems to be no.

KOSIK: Yes, the consensus is no because we're lacking that confidence, that conviction to buy and keep that momentum going, you know, that fresh

money that comes in, it's not necessarily staying in. A lot of what's undercutting confidence, Richard, is the uncertainty in the political


I'm talking about Washington, Washington policy. What will President Trump do next? There's the uncertainty about what the President will do, it's

also undercutting that confidence to buy the dips and stay in and see that momentum build, Richard?

QUEST: Thank you, Alison Kosik who is at the exchange. This was the letter from Tim Cook to Apple investors. "Today, we are revising our

guidance." And he goes through in great detail the various reasons. And we are going to take this letter as the basis of understanding what is

happening now.

By and large, most of Apple's decline was pinned on global factors. Global factors, not those related to the iPhone replacement batteries and those

sorts of things. We will deal with them in a moment.

But factor one in the letter was the strong U.S. dollar. That forced price increases outside the United States. Apple - it manufactures overseas, it

sends components over there to be brought back, but essentially, the sales of course are in dollars from wholesalers to manufacturers - strong U.S.


And then, the second factor in the letter, the weakness in emerging markets. Greater impact than have previously been expected because

remember, this and the third, the big factor, the mounting uncertainty in China.

Remember, only in November, Apple had warned about these, but said they believed it was all under control. Which of course will raise the

question, how can something happen at the beginning of November look so radically different in early January.

Apple's reasoning of these reasons of global economics is borne out by what the President's chief economist said. The slowdown in growth in China is



HASSETT: I think that one of the reasons is - you know, frankly, their economy is looking for them, it might be called a recession. It's slowing

down in a way they haven't seen in more than a decade.


QUEST: David Dollar served as the U.S. Treasury's emissary to China. He is now a senior fellow at the Brookings Institution. Good to see you, sir,

as always, good to see you, thank you. Is Apple right? Why do you think they are seeing - explaining such a dramatic slowdown from what they were

seeing in November to suddenly at the end of the year?

DAVID DOLLAR, FORMER U.S. TREASURY EMISSARY TO CHINA: Right, so the prospects for China's economy have definitely diminished over the last

couple of months. Everyone knew the economy was slowing, but it slowed down more than was expected. The most recent PMI's in China are quite

disappointing. We don't have the fourth quarter data yet, but it seems there's quite a significant slowdown.

You see it not just in Apple sales, you see it in automobile sales, for example. So it's broad based, so I think the main thing that's going on is

the Chinese economy slowing down.

QUEST: Let us pause then to ask ourselves why? A million times during the course of the day, I have said it, others have said it, you've just said

it, the Chinese economy is slowing. Why is it slowing?

DOLLAR: Right. So main reason is self-inflicted. For a long time, the economy was growing based on excessive growth of credit, and now they're

trying to get that under control. They've been doing that for nearly a year now with some success in terms of deleveraging. But that is slowing

down investment, having a spillover effect on consumption.

So mainly it's their own macro policies. And then you add the trade war on top of that and the trade war creates a lot of uncertainty. Hasn't had

that much direct effect on the Chinese economy, but it's definitely undermining confidence. And I think now, there's a worry that it's going

to escalate. The trade war is going to escalate and this is all just going to get more serious.

QUEST: We'll pause for a second to listen to what Tim Cook said on that very point.


TIM COOK, CEO, APPLE: If we look at what's going on in China, the - it's clear that the economy began to slow there for the second half, and what I

believe to be the case is the trade tensions between the United States and China put additional pressure on their economy.


QUEST: These trade tensions, these trade measures, the tariffs in place, I mean, they seem to be taking an effect or having an effect much more

quickly than usual.


DOLLAR: Well, I think it's interesting. Whatever is happening with Apple can't be directly related to the tariffs because there's no tariff involved

in this case of Apple's sales in China. So this really has to be coming from the slowdown of the economy and maybe the indirect effect of the trade


Now, it's also interesting, you mentioned at the top of the hour that the U.S. manufacturing PMI's were very disappointing and that is probably some

of the direct effect of the trade war. A lot to of what we import from China are parts and components, and that's being taxed. And so that seems

to be affecting US. Manufacturing, but so far, the direct effect should be small and I think we're getting sentiment more than anything.

QUEST: And that sentiment is keeping consumers, as Tim Cook said, when they go into the shops that sentiment is keeping consumers away from

spending. But from the Chinese perspective, since you are an expert in that area, how are they now viewing this trade war? Are they prepared in

your view to see this through? Since from what I understand, they are going to bear the brunt of the pain.

DOLLAR: Well, at the moment it looks like the U.S. economy is absorbing some of the pain as well. So it's bad for both sides. But, clearly, it

has the potential to be very serious for China. I think the Chinese have been clear that they're willing to make some changes in order to

accommodate the U.S., but they're not willing to do everything that the U.S. is asking and they are willing to take some pain.

They have some macro measures they can roll out to try to stimulate the economy a bit. So I don't think we should get too gloomy about where the

Chinese economy is going. But it was certainly their best case scenario is that they make a deal. I think they're willing to do a fair amount to make

a deal, but they are not willing to do everything the U.S. wants.

QUEST: David, we have much more that we can and will in the future discuss, and as this trade hopefully doesn't get too much worse, but if it

does, hopefully you'll be with us to help us understand what is going on. We much appreciate your time.

DOLLAR: Okay. Thank you.

QUEST: Now, while, Tim Cook - well and truly upset the Apple cart today in the markets so to speak, we're still talking about a company with revenues

of $84 billion last quarter, and margins of 38%. That's enough to buy Goldman Sachs or Tesla and have change left over for the taxi home.

So the letter has raised legitimate concerns about whether Apple has reached finally peak iPhone, as you might say. The share price certainly

seems to think so. Look at the way it has fallen from October right the way down to now.

Tim Cook admits sales of the latest iPhone have not been as strong as he would have hoped. He blamed fewer subsidies, a stronger dollar and users

replacing their battery instead of the entire phone. This is what I was talking to about, one of the reasons he gave in the letter.

Some investors were worry the new iPhone lineup was simply priced too high. What is going to happen next?

Shelly Palmer is with me. Good to see you. You look younger every year.

SHELLY PALMER, CEO, THE PALMER GROUP: Hi, Richard. That's my whole trick.

QUEST: Absolutely. Good to see you, sir.

PALMER: Good to see you.

QUEST: I mean, forget please, we've dealt and dwelt in detail on the macro economics of China.

PALMER: Yes, we did.

QUEST: I would like you, sir, to deal with the iPhone specific reasons that he's given. Replacement of batteries and other things.

PALMER: So ultimately, it's a really expensive iteration and nobody needed it; and you can't make someone need something. There was a time Apple as a

fashion accessory was a must have, and in China, too because they love and covered western brands in China, and Apple is one of the most

quintessential western brands, and so yes, people had to have an iPhone.

But when the Xs Max came out, the Xs came out which was their two flagship phones for right now, they were iterations on the X. They were expensive,

and unless you had an iPhone 5 or an early 6, there was no reason whatsoever. If you had a 7, 7 plus, 8, or 8 plus, don't do it. There was

no point. And so this has come back to bite them a little bit.

QUEST: Particularly since, there's a thousand and done places that will put a new battery in here for me.

PALMER: And that actually is the biggest problem with your iPhone, right, that the battery gets old and sad.

QUEST: Don't we all? The market - he comes up with a strategy though, doesn't he in all of this?


QUEST: In which he talks about what he is going to be doing. He says we're going to doing - marketing policies are going to change. We are

going to have payment plans, and we will have trade-ins.

PALMER: Wow, Apple has to start acting like a marketer that has to drive demand. They are going to have to actually drive demand because demand was

driving itself.


PALMER: Now, one of the things I think everybody has to pay attention to that is more important probably than the conversation we are having this

second, is that you are making an assumption that handsets matter in the long-term for Apple.

Now, Tim Cook didn't say one word to make us believe otherwise, but we have got to be close to the end of handsets, Richard. The reason that the

iPhone Xs and Xs Max are iterations is because there is nothing new.

So what is new is going to be eye wear, some kind of implant, contact lenses. Whatever is next, it's not a handset.

QUEST: Services generated $10.8 billion in revenue. Now, that's nothing to sneeze at. All right, but the services in many ways are parasitic on

the phone.

PALMER: Yes, without question.

QUEST: I mean, there aren't too many non- well I don't know is the answer. Whether a non-iPhone user is going to go to Apple Music versus Spotify.

PALMER: That would be - I think that's de minimis, but understand, there aren't less Apple iPhone owners. There are less people who bought a new

iPhone. And so the managed services and the App store and all the places where Apple is making tons of money, not selling hardware, they're still

making tons of money and they still have their audience. They misread the market.

QUEST: But if the new iPhone replacements, totality, if the iPhone replacements do not take off and there is no more new stuff coming into the

market, can they grow on services?

PALMER: I think they will grow on services. And by the way, phones get old and die and break, and need to be replaced. And so the question is, at

what pace? And it's the growth story that everyone is concerned about here, right? It's not the profit margin, it's the growth. Can they make


QUEST: Final blunt question. Because I've read so much over the last 24 hours about Apple. Is this wither Apple?

PALMER: No. The short answer is no. I would never sell that company short. And believe me, I am not a fan boy and I am as mad as Apple for

things they have done in the last two years to the Macbook, to the new iPad Pro which is an abomination, to the iPhone Xs Max, which is kind of

terrible. I am mad at Apple, but I would never count them out. These guys - they are having a glitch. They made a mistake. They'll get over it.

QUEST: And should Tim Cook stay?

PALMER: Why not?

QUEST: All right, fair enough. Good to see you.

PALMER: Good to see you, too.

QUEST: We have got a lot more tonight. It's a very busy day as you can tell. On any other day, we would be leading on this next story, but not

today. Bristol-Myers Squibb unveils a $74 billion deal which would reshape the U.S. pharmaceutical industry, and yet, BMS's own shareholders didn't

like it.

Also, Nancy Pelosi, there she is, splendid in pink, and is now the House Speaker for the second time. Two firsts in one. After the break.



QUEST: You would be forgiven with all the market turbulence for missing one of the biggest pharmaceutical deals in history. The drug maker

Bristol-Myers Squibb said it has agreed to pay - buy Celgene, a biotech company for $74 billion. Now, this deal on its own right will change the

shape of the industry.

Guru La Monica is going to explain to us how that will be. But look at the difference in reactions to this. Now, Celgene went up 23%. So obviously,

there's the issue of how much they paid. But BMS down 13% at the same time. You often see a split reaction. You don't often see it being quite

so pronounced.

Which brings me to Guru La Monica to explain why, sir, you think that's the case.

PAUL LA MONICA, CORRESPONDENT, CNN: I think that Bristol-Myers Squibb is paying a pretty hefty premium for Celgene, and that's one of the reasons

why investors in BMS are probably not too thrilled with the price tag. But this is kind of a darned if you do, darned if you don't so to speak sort of


Bristol-Myers Squibb has to do something to get more growth, and by buying Celgene they get a nice pipeline of cancer oncology drugs that I think

compliment what Bristol-Myers Squibb already owns. And that gives them --

QUEST: A lot of money.

LA MONICA: It's a lot of money.

QUEST: And I seem to recall that two to two and a half years ago, Bristol- Myers had a dud, a dud Squibb in one of their major tests that did not come through, and the share price cratered after that.

LA MONICA: Yes, that is always going to be one of the biggest problems that pharma companies face because they have to be aggressive. They have

to be investing in research and development to find new blockbuster drugs. Because if they don't or if something fails, then they wind up suffering

the wrath of shareholders.

QUEST: There's an argument that would say that the people who are going to be paying this is - are the patients because the price of the purchase

eventually goes up and goes on the price of the drugs.

LA MONICA: Yes, I mean, I think that is something that will come into play once you have the requisite regulatory agencies in Washington look to

approve or not approve this merger. Obviously, that is something that always comes into play with healthcare deals. You don't want to see

consumers - patients particularly for drugs that are life-saving, cancer drugs having to pay a lot more money for some of these treatments.

QUEST: So tell me, looking at airlines, the airlines had a particularly awful day today. Delta had effectively a trading warning, and you're

seeing there the price down 9% for Delta. American, Southwest - the best of the day and so is Spirit which is not on there, was off 7% and United

Continental down 5%.

LA MONICA: Yes, I think this just feeds in to some of the fears that we've already talked about with Apple about a global economic slowdown and

whether or not the airlines are potentially be going to be a part of any slowdown as well.

QUEST: But with the airlines, I think - surely, the deal here is not so much about the slowdown, it's whether they have pricing pressure because

planes are full. So there's an element of pretty much capacity is already up there in terms of load factors.

LA MONICA: Right, yes, demand has been healthy.

QUEST: But you question the pricing front.

LA MONICA: Right, the question always has been with the airline industry is whether or not they were going to be cutting prices too aggressively.

The fare wars of old have often really hurt profit margins, leading the losses for many of the big airlines. I don't think we're there yet, but

clearly investors are very nervous right now.

QUEST: We say to you, sir, thank you very much, indeed.

LA MONICA: Thank you.

QUEST: For the first time in Donald Trump's presidency, America has a divided government. Leading the Democrats in the House of Representatives

is Speaker Nancy Pelosi. As she accepted the Speaker's gavel, of course, I did have a gavel here somewhere. As she accepted the gavel, she promised

to help retool the U.S. economy.


NANCY PELOSI, SPEAKER OF THE HOUSE OF REPRESENTATIVES: We had heard from too many families who wonder in this time of innovation and globalization

if they have a place in the economy of the future. We must remove all doubt that they do and say to them individually, "We will have an economy

that works for you."


QUEST: I knew I would find it somewhere. Let's gavel in Phil Mattingly on Capitol Hill. Phil, the irony of today is that there's great talk of

committee bipartisanship.


QUEST: I thank my learned friend, I thank the fellow on the opposite said, but it's a load old utter nonsense. They're going to be going hammer and

tongs over the government shutdown before the end of the day.

PHIL MATTINGLY, U.S. CONGRESSIONAL CORRESPONDENT, CNN: Yes, I think the interesting thing overhanging all of the pomp and circumstance of the day

is this is the 13th day of the government shutdown and there's no solution in sight whatsoever.

And while both now, the new Minority Leader, Kevin McCarthy, the Republican; and Nancy Pelosi came to the dais earlier today and talked

about bipartisanship, talked about working together, the ideologies frankly, and the policy proposals from these parties are enormously

divergent at this moment.

And so, if you can't figure out how to just keep 25% of the Federal government open, how are you going to agree on any type of bigger picture

particularly on the economy, bigger picture ideas in the near future.

QUEST: Also worryingly is the Senate in all of this. Because was all - I mean, the House has always been a rambunctious group who will go their own

way and start a fire in the corner. But the Senate has always been seen as the sensible ones. That's not the case anymore really.

MATTINGLY: Yes, it's always been the cooling saucer. That's where - you know, it's simple majority in the House, Majority rules, they can pass

whatever they want, fire it over to the Senate and the Senate is supposed to kind calm things down, maybe find a bipartisan solution to whatever the

issue is and then send it to the President's desk.

I think the real question right now is in the past, historically divided government has been able to kind of reestablish that. And if that is going

to be the case this time around. Senate Majority Leader Mitch McConnell has worked through divided government before, so has Chuck Schumer, the

Democratic leader over on the Senate side, but the big question now going into things, particularly going into a presidential election is if that's

even possible.

QUEST: You have been elegant in skirting around the elephant in the room in all of this, which of course is President Trump. Yes, everybody is used

to divided government of those you mentioned, but not with a mercurial President like the existing incumbent.

MATTINGLY: It's the most complicating factor, not just in the 116th Congress, the one we're going into; but the 115th Congress as well, when

Republicans controlled both chambers. Richard, I had a very senior White House - or sorry, Republican aide on Capitol Hill tell me early on in 2017,

you can't say there's a White House position on anything. This is when they were negotiating on both healthcare and tax policy, because nothing

matters until the President tweets, and you're seeing it right now with the government shutdown, when the Senate unanimously passed something to keep

the government open, the President decided to reject that.

So I think the big question now, particularly as Democrats in the House ramp up investigations, start throwing subpoenas towards the White House's

way, is can the President grasp his new reality and figure out a way to make the deals that he campaigned on that he would be able to make, or are

things going to devolve further into kind of the morass that we've seen over the last two years.

QUEST: Good to see you, Phil Mattingly in Washington. Thank you, sir. You have got a very busy time ahead.

We'll have a look at the markets before we take a short break, and as you can see, the markets - I confess, I'm slightly surprised. The Dow is

holding itself at this low level. We're not getting direction, which is interesting to weigh the last 32 minutes will go.

As we come back after the break, I can't decide, which do I prefer? The bell or the gavel? Maybe both.


[15:30:00] QUEST: Hello, I'm Richard Quest, there's a lot more QUEST MEANS BUSINESS in a moment. When one trader tells me, it's time to start getting

worried about the fundamentals. The Dow is up more than 600 points, we need to understand what's going on underneath.

Drug prices are heading higher in the United States, and that could be going up across the Atlantic as well in the event of a no deal Brexit.

We'll have a report on that. This is, of course, Cnn, and before we get those stories, we need to have the news because on this network, the facts

always come first.

In the United States, there's a new leader in the House of Representatives. Nancy Pelosi won the race to be the speaker just moments after the

Democrats officially took control of the House for the first time in ten years.

The Democratic majority House is poised to challenge and investigate President Trump in ways so far he's not seen during his presidency. The

murder trial has begun in Saudi Arabia for the men accused of killing the journalist Jamal Khashoggi.

A Saudi press agency reports prosecutors are seeking the death penalty for five of the 11 suspects on trial in Riyadh. Khashoggi was killed and

allegedly dismembered in the Saudi Consulate in Istanbul, Turkey in October.

There's speculation that North Korea's top diplomat in Italy may have defected. A South Korean lawmaker says Jo Song Gil and his wife

disappeared in early November. Italy's Foreign Ministry was not aware of any asylum request. But a South Korean newspaper reported he was seeking

protection in the west.

The U.S. government is warning travelers to be extra cautious when visiting China. The travel advisory says Beijing is growing increasingly bold about

preventing Americans visitors from leaving China especially people with dual U.S.-Chinese residency.

And staying with matters in China, for the first time ever, we're getting a grand level look at the far side of the moon. A Chinese spacecraft landed

there several hours ago while earlier space missions have flown the far by and far side of the moon, this is the first time one's touched down.

Really, QUEST MEANS BUSINESS trading pair says we're into the final half hour on Wall Street and stocks are approaching the lows of the day. The

Dow is bouncing anywhere between 560 and 630 down. Warren Buffett by the way has lost nearly $4 billion.

He kept buying Apple, now he's lost 4 billion on his -- that investment alone. So Josh, the lightning bosh, bosh sounds quite good. Let's have a

red, please, I think all three are down, without doubt, we are off 2.5 percent there. There's no Cnn Business fear and greed index, just a little


We're 12 years today, so we're up a bit, but really, we're still way down in the annals of extreme fear. And it's not just Apple that's turning the

market rotten. You had U.S. manufacturing data is the biggest drop on the index since 2008 and the crisis therein.

It confirms that investors are fearful of a slowdown, the ISM at 54.1. And Treasury yields, now we talk about this a lot, the 10-year is down nearly 9

basis points at 2.57.

[15:35:00] It's inching towards an inversion, and we're not at inversion yet. Inversion would be at around 2.46, which is where the ten would

invert against the five. The five's already inverted as against the three. So, we're now looking to see this next stage.

Alan Valdes says he is starting to worry about the economic fundamentals.


ALAN VALDES, SENIOR PARTNER, SILVERBEAR CAPITAL: Not that we love the market down, but there's a reason behind it, it scales back to the old

fundamentals. The slow sales, the iPhone works out so they're selling more(ph). And that, we mentioned on your show-list, is our biggest fear.

Not so much the tariffs. I mean, there's still be a -- but it's a general slowdown around the world. So China is starting to slow down, Germany

slowing down, France is slowing down. I mean, the reason we're so bullish on this market is because we're the best house in the worst neighborhood.

I mean, I'm with a Hong Kong firm. Shanghai was down 25 percent last year. Shenzhen down 33 percent, France, London, all down double digits this year

in their markets. So the money is still coming here, and I think we'll have slow growth, but growth nonetheless.


QUEST: Ben Phillips is the Chief Investment Officer at EventShares, he joins me now live from Los Angeles. Good to see you as it has always been,

thank you, happy new year, I wish it was under more pleasant market circumstances. But do you believe Apple's warning last night is the canary

in the mine warning the rest of us?

BEN PHILLIPS, CHIEF INVESTMENT OFFICER, EVENTSHARES: Well, I don't know if it's the canary saying that the consumer is weakening or anything like

that. I think what we're seeing is supply chain issues caused by U.S. and China trade disputes, and that's impacting companies, it's impacting

manufacturing companies primarily in China but also some of the U.S. manufacturing companies.

You have to remember though, manufacturing is less than 10 percent of the U.S. economy. The consumer is what matters. And in the U.S., the consumer

is still I think shrugging this off and it's still pretty healthy.

QUEST: Right, but the technical reasons, if you like, of the supply chain may be dwarfed in China by the economic reasons. If people feel things are

getting worse, if they're worried about the trade war, then there's -- this is what Tim Cook was saying, is they are stopping spending.

PHILLIPS: Yes, I think that's right. But I mean, just from what the -- what the conversations we're having, people we're talking to, the surveys

we're looking at, the consumer is still pretty rosy. We saw really strong retail sales last month, don't forget, right?

So, the consumer is still feeling pretty healthy, they're seeing wage growth, there's not that -- you know, there's a lot of jobs out there

available. So you know, you're seeing this wage inflation, you're seeing people making more money, and the consumer still feeling pretty good.

They aren't as tied to the stock market as you and me are, you know, looking at it day-in and day-out.

QUEST: When we look at other companies that are related or affected or potentially will be affected by what's happening in China -- actually,

let's not limit it to China, a global slowdown that's currently underway. If we look at that sort of list and you see those companies, you've got

FedEx, you've got Daimler, Tiffany on the luxury side, Land Rover, Jaguar, BMW.

Do you have concern, not just for those, but for those companies that are engaged in global trade?

PHILLIPS: We do, we do. I mean, we still think global trade is the biggest risk to markets. We've been saying that for 12-plus months now,

and it's funny that, in Q4, that's when everyone else kind of woke up to -- oh, yes, this trade does matter, it's impacting companies, it's impacting

their margins, it's impacting their earnings.

So it is a global issue. China trades with the whole world, and they're a big part of the global economy now. And so we have to be mindful of U.S.

and China and how these relationships --

QUEST: Right --

PHILLIPS: Are developing.

QUEST: What about --

PHILLIPS: Right now, it's contentious.

QUEST: What about the U.S. government shutdown? Day 13, you know, I have no doubt it is harming those families and employees involved. But does it

have wider economic impacts?

PHILLIPS: It doesn't yet. What we've normally seen is the market tends to shrug it off until it gets to about 20, 25 days of a shutdown. So, we're

still underneath that threshold. If we do see it extend and really become a prolonged shutdown, that's when you see an actual economic impact, and

you also could weigh on consumer sentiment.

QUEST: Ben, I'm aware of what you're showing on the screen, your title, chief investment officer. So tell me, give us the advice that we need,

that our viewers need on investment strategies for the next quarter -- this quarter, next quarter, half year.

PHILLIPS: OK, yes, I was going to -- I was -- the first thing I was going to say is, let's look longer than a quarter, let's try to position, you

know, and think about over the next few years. I mean, we try to say where a market is going to be in 6 months, 12 months, three years, five years and

really look out.

Our view is near term, this volatility is probably here to stay for a while until we get some resolution on China. So we're a little more defensive,

we've been getting more defensive, that means raising some cash and you know, we've done that on market rallies I wouldn't be selling today, I

don't think.

But we've been raising some cash, we've got a little more defensive in our positioning, some more healthcare, we've got some more utilities and the

portfolio too.

[15:40:00] They're all policy-related plays, but we have ways to get a little more defensive around our policy themes that we're expressing the

PLCY portfolio.

QUEST: And yesterday, our question that we were asking viewers was, are you optimistic, pessimistic or realistic? How would you define yourself?

PHILLIPS: I would say we're realistic. I mean, we're optimistic on just U.S. growth and U.S. economy long-term, but we're pretty pessimistic on

trade, I would say. China, we think is going to be a longer prolonged dispute unless Trump changes course and wants to get a deal done quickly.

We think --

QUEST: Right --

PHILLIPS: He still has 18 months to do so though, but he has shown some impetus to support the markets, and I think he knows that China is really

the big issue now.

QUEST: Looking forward to talking to you many more times over the course of the year as we pass --

PHILLIPS: Thanks, Richard --

QUEST: And we get in touch with the markets. Thank you very much indeed. Following on from what Ben was saying, we will look and see exactly what

Nancy Pelosi faces. By the way, I'm just conscious, I just wonder as we look to the year, we keep a track record of records, but if everything we

hear is true, I just doubt we will see many if any records on the markets this year. Still, it's only January, plenty of time to go.


QUEST: Order -- I can get used to this. With control of the House, Democrats now hold sway over important committees, right the way down in

fact to which rooms, apparently, the Democrats will now be able to schedule themselves to the nearest and most convenient meeting rooms.

Well, that's not necessarily going to be worrying President Trump. But the fact they have control of the committees, that will be a danger for the

U.S. president. So which ones for example? The Judiciary Committee handles Robert Mueller's report and will be in charge of any Democratic impeachment

effort if they tried it.

The Intelligence Committee, one of Donald Trump's favorite Twitter targets, Adam Schiff wants to restart the committee's Russia investigation. And

over at financial services, Maxine Waters could cross Trump's red line and probe his finances and his tax returns.

Rebecca Buck joins me from Washington. Good to see you. How aware -- how aware though, are the Democrats that if they overplay this hand then it

could backfire and actually they'll get blamed for being nasty.

[15:45:00] REBECCA BUCK, CNN POLITICAL REPORTER: They're hyper aware of that, Richard. They remember what happened to Newt Gingrich and the House

Republicans in the '90s with President Bill Clinton and those impeachment proceedings.

And that's one of the reasons why if you look back to the midterm elections that just concluded in November here in the United States, Democrats on the

campaign trail and here in Washington were very cautious, not to even utter that "i" word that you mentioned, impeachment just to not overplay their


So they're certainly moving ahead with these investigations, potentially into the president, telling us that they are going to use their subpoena

power to look into this administration. But in terms of impeaching the president, in terms of what will happen after Mueller releases his report,

they are being extremely cautious --

QUEST: Right --

BUCK: About that.

QUEST: Give us a feeling for just how big a difference it is today or will be. I think I was reading some report over the weekend that says it really

does come down to, you know, being -- for the Republicans, being in the minority will be completely different way of life.

They are sort of the incidentals on the way to the main show.

BUCK: Absolutely. For the House Republicans, it's now an era of obscurity that they're entering into. They don't matter. And so the best that they

can do is to make a lot of noise, to make things uncomfortable for the Democratic majority.

And of course, they still have the presidency, they still have the Senate majority, and so that limits of course what Democrats are able to do on the

House side. But we were talking of course about the subpoena power that Democrats have in the House and how complicated and challenging that will

be --

QUEST: Right --

BUCK: And potentially damaging for the president and Republicans in the White House. And so House Republicans are going to have to try to do

everything they can to make noise about that, just slow Democrats down in the House, and to make their case essentially.

And they'll try to win back the House in the --

QUEST: So --

BUCK: Next election, so they'll be laying the ground work for that as well.

QUEST: So Nancy Pelosi, I think she's 78, has got a remarkable achievement of not only being the first female speaker, but the only one of two or

three speakers that have held the job twice. But she -- I look, -- I was looking today, even amongst her own party, she didn't get unanimity.

BUCK: Yes --

QUEST: That alone, so is she weakened?

BUCK: Not weakened, Richard, but what I would say is this, look, when you take back the majority your adding numbers to your ranks by definition.

There are more Democrats in the House this Congress than there were last Congress. It's just math.

But what happens when you add Democrats is you're getting some new, more progressive members. You're getting a wider spectrum of Democrats that you

have to deal with. And so, Nancy Pelosi now has to deal with some --

QUEST: Right --

BUCK: Members that don't necessarily want to go along with her agenda. You have very progressive, fresh men members like Alexandria Ocasio-Cortez

from New York getting a lot of attention here in Washington as a freshman. And she wants to shape things up a bit.

And so Nancy Pelosi needs to balance essentially what members like Alexandria Ocasio-Cortez want and what she wants to do. And it's

definitely bouncing act when you're a leader.

QUEST: Right, so finally, the -- I think a lot of people overseas outside of the United States don't really understand that it's quite normal --

well, not normal, but it's not abnormal to vote against your own party, or to be --

BUCK: No --

QUEST: So truculent. I mean, in many cases, you have a three-line rip, and you stick to the party line. That's not the case particularly in the

House of Representatives.

BUCK: That's right. Past speakers have said it can be like herding cats, trying to get everyone in your party into line, supporting the same thing.

Republicans have struggled with this mightily even in the past Congress with the Republican --

QUEST: Right --

BUCK: Majority in Congress. They weren't able to get some of their priorities passed because you had --

QUEST: Right --

BUCK: Such a wide swath of Republicans, many of whom disagreed with what the leadership wanted to do, and it's going to be the same challenge for

Democrats. It's not always easy to get your party in line. You have various members with --

QUEST: Right --

BUCK: Various priorities.

QUEST: Good to see you.

BUCK: Good to see you too.

QUEST: I know we're going to talk many more times as this thing moves on. Thank you very much indeed. I've been debating --

BUCK: Thank you --

QUEST: What's better, the gavel or the bell. The reality is both.


In the United Kingdom, pharmacies are stockpiling insulin and other critical drugs, the fear is of a no-deal Brexit. We'll talk about it

after the break.


QUEST: Wall Street is preparing to close other brutal session. In Europe, stocks didn't fair much better. The German and the French stocks are the

worst of the day's losses. Apple suppliers in Europe were also hit. The Austrian chipmaker AMS fell 23 percent.

Swiss firm STMicroelectronics was down 12 percent at the close. Bristol- Myers Squibb's deal to buy Celgene as we talked earlier is now stoking fears of higher prices for prescription drugs. It comes at a time when the

president -- U.S. president and other U.S. lawmakers are putting pressure on companies to rein in prices.

A few months now, of course, the U.K. may find itself in a similar situation. A no-deal Brexit could push prices up sharply, and supply

chains stretching across Europe may come under threat as Cnn's Samuel Burke reports.


UNIDENTIFIED MALE: So there you go. So it's routine.

SAMUEL BURKE, CNN BUSINESS & TECHNOLOGY CORRESPONDENT (voice-over): Routines that are part of the fabric of the U.K.'s national health service.

The supply chain for prescription drugs for conditions like these anchored in the European Union for more than 40 years.

Now, that arrangement is at risk under a no-deal Brexit. The Brexit Health Alliance; a non-political group representing the health sector says 37

million patient packs including prescriptions are imported from the EU every month, 45 million are exported to the EU.

UNIDENTIFIED MALE: But if you look at the insulin, you can see it's been made in Denmark.

BURKE (on camera): the de-valued pound then makes that much more expensive.


BURKE (voice-over): Pharmacists are also facing uncertainty over future drug supplies from the EU. Now Britain's health ministry advises that in

the unlikely event of a shortage, pharmacists can provide an appropriate alternative medicine to their patients.

UNIDENTIFIED FEMALE: We've got a lot of people coming in with prescriptions where we turn them away and say, look, I can't get a hold of

this item. But we fear we're going to get a lot more shortages. The medicines that we're worried about are mainly the anti-diabetics, the

inhalers, they tend to be out of stock.

BURKE: The health ministry says it's planning for the worst 500 companies that supply medicines and medical supplies told to increase stockpiles by

another six weeks to expect delays of up to six months at the borders due to new customs checks.

To seek alternate routes of shipment for drugs, including air freight, and increase additional warehouse capacity for drugs at ports. That also

includes increasing refrigerator capacity at warehouses to stockpile medicines like insulin that must be kept at low temperatures.

(on camera): But what about people who say that we're scaremongering, talking about stockpiling drugs?

LAYLA MCCAY, BREXIT HEALTH ALLIANCE: I think having pharmaceutical companies stockpiling is in order to reduce the risk of scaremongering. We

need to know that in the worst case scenario, if there is no deal, and there is lots of disruption at the borders, then we have put the right

plans in place.

[15:55:00] BURKE (voice-over): The fear is real, but the Brexit Health Alliance says if Theresa May gets her plan through, it would meet the major

concerns of the health industry. Medicines and medical supplies would continue to cross borders without customs checks during a transition


Still for James Moore, who also takes multiple injections of insulin every day, he is planning his own contingencies while Britain is still in the EU.

JAMES MOORE, DIABETES PATIENT: I could take my prescription, go into a French pharmacy and cash it. It is possible to conceive of hopping across

the channel and doing or flying across to Ireland.

BURKE: This holiday season, the one gift James and many others desire above all, an end to the uncertainty for what comes after Brexit. Samuel

Burke, Cnn, London.


QUEST: Last few moments on Wall Street, and the Dow is off, it's holding around there, 630 points. You know, it's a pretty grim day when you look

at the actual 30 itself. Look at that. When Verizon is the only spot of green, and the reason of course people go to Verizon is, it's almost

utility-like because of its revenue stream.

But there's Apple, way down at the bottom, down 9.7 percent, and not -- Boeing is holding its own. The market -- this market is absolutely

reflective of the wider economic issues as we've been reporting on today. We'll put it all together and have some thoughts with our profitable

moment which comes after this short break.


QUEST: Tonight's profitable moment. Notice something about today's selling. The market went down and pretty much stayed down, and that tells

you something important. Today's selling and today's down numbers have real value behind them because they are based on the theory of what

companies will do.

This is not just about ways about China or future growth or -- and nebulous things like this. This is worried about whether it's corporate earnings

and whether companies will be able to sustain the earnings necessary to justify these share prices.

The so-called PE ratios, earnings per shares and the like. And the truth is they can't, and they won't and they're not going to and it's already

begun. The earnings season starts in three weeks from now. We're likely to see a lot more of this sort of stuff.

And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable.

Never mind, good gavel, bell, whatever that --


The bell is ringing, the day is done. Brianna Keilar with "THE LEAD" is next.