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QUEST MEANS BUSINESS

Bond Yield Blues Hit Wall Street Once Again; GE Shares Are Sinking Over Claims Of Major Fraud; Hong Kong's Government Announces A Stimulus Package To Cushion The Blow From The Ongoing Protest And Trade War; Israel Bans Rashida Tlaib and Ilhan Omar from Entering the Country; Gibraltar's Supreme Court Frees Seized Iranian Oil Tanker; Russian Airliner Makes Emergency Landing in Cornfield. Aired 3-4p ET

Aired August 15, 2019 - 15:00   ET

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


ZAIN ASHER, CNN INTERNATIONAL HOST: Look at the seesaw day on Wall Street. The Dow bouncing between positive and negative territory. We did get good

numbers when it came to retail sales and also productivity. But still so much uncertainty about this trade war with China. The Dow is up 56 points

or so. This is what is moving the market.

Bond yield blues hit Wall Street once again. Stocks are struggling for direction as we approach the closing bell. And GE shares are sinking over

claims of major fraud. A whistleblower calls them worse than Enron. And keep calm and carry on shopping. There is a sliver of hope in U.S. retail

sales.

Live from the world's financial capital here in New York City. It is Thursday, the 15th of August. I'm Zain Asher in for Richard Quest, and

this is QUEST MEANS BUSINESS.

Good evening, everyone. I'm Zain Asher. Tonight, whiplash on Wall Street with less than an hour left to trade. Investors do not know where to look.

The Dow is up 90 points or so. There are mixed messages when it comes to trade from China. Strong retail sales and earnings from Walmart or bond

yields dipping in to their lowest point in three years.

It is a day of major volatility, and it's anybody's guess where exactly the Dow is going to be closing. You can see it's up 80 points, but who knows?

It could actually dip into the red in an hour or so from now.

Mixed signals had been the norm this week. The Dows losses on Monday were wiped away on Tuesday, but then came Wednesday and a selloff that ranked as

the worst of the year. Clare Sebastian is following. So Clare, when you look at the today, the seesaw we are seeing on Wall Street, what has been

the major sort of factor that is affecting everything today?

CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: I think trade continues to be something that the markets are really looking at. As you say, we've got

those mixed signals. China's Finance Ministry threatening to retaliate against these tariffs that haven't yet come into force that the Trump

administration has delayed.

Some of them are saying they are going to bring in countermeasures. Then we get the Foreign Ministry coming in trying to calm things, saying they

are still hopeful of a deal.

And Zain, if you look at that dip into the red in the afternoon, the biggest one of the day that was caused by the bond market. That was when

we saw the U.S. 10-year Treasury yield curve below 1.5 percent. That was a three-year low.

The two-year yields are also falling. They've come back up a bit now, and we see that stocks have followed them up a bit. But those are the two

things. It's trade, and it's those global growth concerns that continue to send investors out of stocks and into bonds.

ASHER: When you look at earnings, say for example, from Walmart, they came in pretty good showing that the U.S. American consumer is still relatively

strong at this point.

SEBASTIAN: Right, and that's really important. The consumer spending is about 70 percent of the U.S. economy. So it's crucial to look at that, and

that's why we saw stocks open higher partly.

Walmart really delivered a very strong set of results. Their same store sales went up 2.8 percent. E-commerce, which is something they've been

really piling investment into was up 37 percent, and they're really investing in grocery as well.

This is an area where they're battling it out with Amazon, but Walmart is kind of winning at this point, I would say. They've got pick up from 2,700

stores in the U.S.; 1,100 stores are offering one-day delivery. And they say that they've been able to even factoring in the latest list of tariffs

that will affect some of their products. They've been able to raise their guidance for the year. So this is a really solid report.

ASHER: It's still a challenging environment for companies that are sensitive to this trade war with China because we don't know what's going

to happen in terms of resolution.

SEBASTIAN: Absolutely. And as a counterpoint to Walmart today, Cisco was out with earnings last night and they have revised down their outlook.

They say that their sales in China fell by 25 percent there. They are struggling under some of this, as well as other global growth concerns.

So we're in a situation now where for every positive earnings report, you can also pick up a negative earnings report. For every positive data

point, you can also find the negative one. I think that's why you see days like this on the market. There's so much mixed information out there.

ASHER: Impossible to predict where the Dow is going to go, even just today, let alone, to end the week on. Clare Sebastian live for us there.

Thank you so much.

Volatility has been the story of the week in the markets. On Monday, warnings about rising fears of a recession along with protests in Hong Kong

pushed the Dow sharply lower. On Tuesday, investors cheered the delay in the U.S. tariffs on Chinese goods.

Then came Wednesday and fears of recession rushed back into the market. An inversion of the yield curve showed investors aren't that confident about

the health of the U.S. economy, and Thursday has been -- today has been of an up and down day with investors digesting mixed messages from China,

strong earnings from Walmart and a fall in bond yields as well.

Joining me live now Lindsey Piegza, Chief Economist at the independent financial services company, Stifel. So thank you so much, Lindsey for

being with us. So is the market overreacting when it comes to fears of a recession? What are your thoughts?

[15:05:04] LINDSEY PIEGZA, CHIEF ECONOMIST, STIFEL: I don't think so. I think there's very good reason for the market to be concerned. When we

look at what's happening on the international front, we see a rapid deterioration in the data across a number of different countries, from

Italy, to France, to Germany, and of course, then extending over to Asia.

So there is a lot of concern and a lot of real data that suggests that growth is slowing, particularly amid a deteriorating trade environment from

a global perspective.

Now, I do think that the market needs to differentiate, however, between the outright weakness that we're seeing overseas, and some of the mild,

early signs of weakness bubbling underneath the surface here in the U.S.

The U.S. economy is still on moderate footing, as we saw this morning, a very solid report for the consumer. It doesn't mean that contagion could

not impact the U.S. economy. But I do think there's a clear differential between the outright weakness that we're already seeing abroad, and some of

the early signs of weakness in the United States economy.

ASHER: Is the U.S. economy strong enough, though, to withstand an escalating trade war with China?

PIEGZA: I don't think it is. I do think that the U.S. economy is already showing very clear signs of deterioration. When we look at manufacturing

being pushed closer to that contractionary level, when we look at declines in terms of housing investment, business investment, really the only

component -- the sole component-- supporting the U.S. economy at this point is the consumer.

And it's going to be increasingly difficult for the consumer to alone support the economy in the second half of the year, particularly as we've

already seen confidence and wages peak. The consumer is still on sound footing, but we're not seeing that robust level of expenditure just spread

out into other sectors of the economy.

We really need to see some of those key sectors again -- housing, business investment, manufacturing -- start to gain momentum in order to suppose

that the expansion will continue in the second half.

ASHER: So if the U.S. consumer right now is relatively robust, we saw those retail sales numbers. What happens when the trade escalates to a

point where companies have no other choice than to pass on higher prices to consumers? I mean, can consumers weather price increases right now?

PIEGZA: Well, businesses are certainly going to try and absorb a lot of those cost increases through cost cutting, through efficiencies, through

lowering the level of employment or lowering wages. So already there's going to be an indirect impact.

But consumers are going to really be looking for that direct impact in terms of price increases. And as of now, we really haven't seen that

trickle down to hit the consumer directly.

We did see the latest CPI Report tick up a little higher than expected, but still very well anchored around the Fed's two percent target. And when we

look at the broader measure of the PCE, the Fed's preferred inflation measure with both the headline and the core, which excludes food and energy

are well below the Fed's two percent target.

So, so far, businesses have relied on the former, that indirect absorption of the cost increases, as opposed to directly passing that price increase

on to consumers.

ASHER: So if the U.S. economy isn't necessarily strong enough to withstand the escalating trade war between the U.S. and China, if the Fed does end up

sort of rapidly cutting interest rates, how does that change the trajectory of the U.S. economy going forward?

PIEGZA: Well, I do think the Fed is going to struggle to provide enough stimulus to keep the U.S. economy afloat. They certainly will help

stabilize the economy in the near term. But remember, we're starting from an extremely low level.

Before that first round July cut, we were just an upper bound of two and a half percent. Compare that to previous recessions when the Federal Reserve

cut 400 to 500 basis points.

So this time around, arguably, their arsenal is cut in half, meaning that as they chase rates down to that near zero, low bound, it's likely that

they have to resort to non-traditional metrics, i.e. outright asset purchases in order to really provide enough stimulus to stabilize the

economy, as we do look out to a probable recession sometime in 2020.

ASHER: So beyond the Fed cutting rates, what are the options does this economy have -- does the administration have to really help the American

consumer weather the storm of an escalating trade war?

PIEGZA: Well, I do think the administration took steps early on to try and help support the consumer with the Trump Tax code or excuse me, the Trump

tax cut. But other programs that were on the wayside could have provided additional stimulus.

When we look at the infrastructure spending proposals that had been on the docket for months -- that could have been a very large stimulus. But

unfortunately, we don't see both sides of the aisle coming together to provide that additional leverage for the economy.

So I do think that fiscal policy, unfortunately, is not going to be providing much stimulus in the near term. And we do have to rely on

monetary policy to do the heavy lifting.

ASHER: All right, Lindsey Piegza, live for us there. Thank you so much. Appreciate it.

President Trump is blaming the media for the volatility. He tweeted, "The fake news media is doing everything they can to try to crash the economy

because they think that it will be bad for me and my reelection. The problem is that the economy is way too strong, and we will soon be winning

big on trade. And everyone knows that including China."

I want you to join the conversation. Get out your phones and go to cnn.com/join. Tonight, we are asking, are fears of a U.S. recession

overblown? That is the question we're asking you. Are fears of a U.S. recession overblown?

As I mentioned, go to cnn.com/join. And you'll see the results shortly on your screen. David Gergen joins us live now. He has advised U.S.

Presidents Nixon, Ford, Reagan and Clinton and helped found the Center for Public Leadership at Harvard. Mr. Gergen joins us live now.

So thank you so much for being with us. So how does the weight of the presidency change under a recession?

[15:10:58] DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: How does the weight of the presidency -- how would he be doing?

ASHER: How does it affect the presidency, if we go through a recession? The sort of pressure that Trump would be under?

GERGEN: Sure. I think the President is already coming under increasing pressure, and this could be the source of his undoing if he is not careful

if the economy falls apart.

You know, we have many, many voters in this country who do not like the President's behavior, but they continue to support him because they believe

he has done a good job with the economy.

Some 26 percent of voters say that the main reason they support the President is because of his performance on the economy.

So if you knock that out and if that goes from being a positive factor into becoming a neutral or negative factor, you can imagine how much that

jeopardizes his campaign for reelection.

He is already running slightly behind. He does not have this this election under control at all. But if he lost the economy, it would be really,

really hard for him to win reelection.

ASHER: But there is such a -- there's a huge swath of the population that will support President Trump no matter what, and in their mind, it is party

over country. I mean, does that still count? Even recession?

GERGEN: Yes, sure. Yes. That would still count under recession, but it would be under -- a lot of the people continue to stick with him.

Evangelicals, for example, people who come from Egypt, the evangelical religious viewpoint, they will continue to stick with him come hell or high

water.

But there are a lot of independents and here is where he has got to be careful. It is the independents where he is finding some vulnerability on

the economy, and they might well flee and that could cost him the election.

So he has enormous amount riding on this, and in the meantime, you know what he is doing with his tweets, whenever the economy looks up, you know,

he takes all the credit. And whenever things have a darker hue, he heaps all blame on the Federal Reserve, and now today on the media.

You know, that just doesn't fly with most voters. You know, if you're taking credit on one hand; you can't you can't have it both ways.

And I do think that his continuous interference in the Federal Reserve is a mistake. I've worked for Presidents in the past who have really wanted to

go out and beat up on a Federal Reserve, but their top advisers persuaded him not to do that, not do that in public.

I remember, particularly Bill Clinton, when he got really angry about the high interest rates at the Fed, Bob Rubin, who came out of Goldman Sachs,

he had been a CEO there, a very good one, would persuade him, "No, Mr. President, the more you challenge the manhood of the Fed, the more they

will go just the opposite direction of what you want. So don't go public with it."

And most Presidents have respected the independence of the Fed. And they served them well politically.

ASHER: Yes, I mean, obviously, it is unprecedented, sort of having the U.S. President squarely blame Jerome Powell on Twitter saying that he

should be cutting interest rates more aggressively.

GERGEN: Yes.

ASHER: But how do Democrats take advantage of the economic uncertainty in this country right now?

GERGEN: Well, I don't think it's very hard. They can certainly challenge the tax cuts. But you know, the tax cuts were sold in this country -- the

Trump tax cuts -- as bringing long term lift to the American economy.

And you can argue that that has not always turned out to be the case, particularly in the industrial sector. Now, you know, where things have --

it looks more and more like the tax cuts, especially were sugar highs. They were not long term vitamins for the economy. And that I think is --

that argument is pretty easy to make right now.

Look, but we are a long way from the elections. This economy, you know, just because we've had this inverted yield curve, we should not assume that

we will be in a recession during the election season.

There are many other issues to fight this thing out over. We don't know quite how this is ultimately going to balance the market for -- you know,

the stock market were in better shape today here in this country. But the long-term bond markets went down over this last trading day, which is not a

good signal for the economy.

[15:15:10] GERGEN: But we simply don't know yet how this is all going to turn out. When we were -- when the stock market was at a high this year in

May, it was about 17 percent higher than when the year started.

Even with these falls yesterday, we went down, it was still 11 percent higher than when we started, so don't count the President out, but these

are definitely warning signals to him and to his campaign.

ASHER: David Gergen, live for us there. Thank you so much. Okay, so right now most of you voting on cnn.com/join actually do not think fears of

a U.S. recession are overblown. You actually think that it's possibly likely. You still have time to vote. Just go to cnn.com/join.

GE suffers its biggest selloff since the financial crisis on allegation that it committed accounting fraud. And the Hong Kong government is

pumping in $2 billion to cushion the economic blow from the political crisis. That's next.

(COMMERCIAL BREAK)

ASHER: Shares of General Electric are on track to suffer their worst day since the financial crisis after an independent investigator actually

accused GE of masking nearly $40 billion in losses. GE shares are down in the double digits after the new report by the whistleblower behind Bernie

Madoff's Ponzi scheme.

You see that General Electric shares are down 10 percent or so. Harry Markopolos says GE has committed fraud, in his words, bigger than Enron and

Worldcom combined. GE is pushing back calling the claim meritless.

Paul La Monica joins us live now. So what is GE being accused of hiding?

PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, GE is being accused by Markopolos of hiding some losses in the insurance unit, which is massive

for the company as well as the energy subsidiary that it has with Baker Hughes -- BHGE. So add it all up, and it's nearly $40 billion, which as

Markopolos points out would dwarf the accounting scandals that we had at Enron and Worldcom and I think that's why a lot of investors are running

scared from GE today.

But GE as you pointed out, they have said that there is nothing at all to these accusations and these claims. And, you know, clearly the market

disagrees right now, but you know, GE prior to the day had had a nice run up this year along with the broader market because the new CEO, Larry Culp

has come in, he's cleaned house. That's an important thing to note.

[15:20:11] LA MONICA: This is not a legacy GE insider calling the shots the way you did with Welch obviously, and then Immelt falling him and then

Flannery after that.

ASHER: So actually, I want to read a statement you mentioned that GE says that these allegations are not true. In the statement, these are the exact

words. "The claims made by Mr. Markopopolos are meritless. The company has never met, spoken to or had contact with Mr. Markopolos, and we are

extremely disappointed that an individual with no direct knowledge of GE would choose to make such a serious and unsubstantiated claims."

"GE operates at the highest level of integrity and stands behind its financial reporting." So I should ask you, what are Mr. Markopolos'

claims? What are they based on in terms of evidence?

LA MONICA: Yes, he has a more than 150-page report going through a lot of these financials in intricate detail. So according to this report, he

thinks that he's got the quote unquote, "smoking gun," if you will, about some of the accounting shenanigans for lack of a better word that GE may

have been taking part in, although the company denies all of it.

What's also interesting to note here is we're not really sure yet whether or not the SEC or any other regulators will get involved because GE was

quick to point out that, you know, Markopolos is may be doing this research on the behalf of short sellers that are trying to push GE shares down.

So if that's the case, it might be kind of classic "he said, she said" sort of scenario where we just don't know whether or not there's really anything

there.

And again, I think it's important to note that Culp is the new guy, he might be tackling a lot of these issues already and you know, it could be a

moot point.

ASHER: But you know, overall, either way, this is the last thing, you see their share prices down 10 percent. This is the last thing they need.

When you think about what's happened to their share price over the past two years. The leadership changes. I mean, this is the last thing they need

on this.

LA MONICA: It is the last thing they needed, because when Culp came in, a lot of people on Wall Street, it was the proverbial breathing a sigh of

relief, because finally you have someone that's not part of this entrenched GE corporate culture calling the shots.

So you have someone who is not going to be afraid to sell off assets, to make moves that might be unpopular within the GE ranks because Culp, at the

end of the day, has to restore this company to glory.

The only way he is going to do it is to really shrink it down. GE got very bloated. We all know that there's a discount for these multi-conglomerates

right now. The market doesn't like these companies that are just unwieldy and have businesses all across the board.

ASHER: Paul La Monica live for us. Thank you so much. Hong Kong's government announced a $2.4 billion stimulus package on Thursday to cushion

the blow from the ongoing protest and trade war.

Hong Kong's economy has been badly hit. It grew by just 0.6 percent last quarter. Nicholas Lardy is here. He is a Senior Fellow at the Peterson

Institute for International Economics. Mr. Lardy, thank you so much for being with us. So what needs to happen for Hong Kong's economy to recover

from all of this, do you think?

NICHOLAS LARDY, SENIOR FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: Well, I think recovery is going to be a long time coming and

the tourist industry is hurt. We'll have to see if the demonstrations continue to disrupt the city. Some corporates may move out of the city in

favor of Singapore, for example. So I think this will have a lasting effect on Hong Kong, recovery will be slow.

ASHER: And what sort of impact will it have on Hong Kong's international reputation as a major financial hub in the region?

LARDY: Well, I think it will be measurable. It won't be catastrophic, unless there's a dramatic escalation in the violence. But when you have a

situation where movement in and out of this city is curtailed substantially for a period of days, then that makes it a less viable place for financial

institutions.

ASHER: So they have announced a $2.4 billion stimulus package, what does that money need to be spent on to really have a measurable impact?

LARDY: Well, I think the Hong Kong economy is very peculiar in the way that it's structured. It doesn't have any manufacturing. It's a service

economy. And I think a stimulus program that's stretching towards services will not be so effective. So, I think it remains to be seen.

ASHER: And just in terms of other news that you've got out of China, Alibaba actually reported their earnings, they did extremely well, which

was interesting, given the sort of Chinese sort of economic slowdown that everyone has been talking about. How have they managed it?

[15:25:00] LARDY: The Chinese economy have been managing pretty well. I think they have a very strong consumption demand. There's high consumer

confidence and the trade war has had some effect on the economy, but it's been relatively small so far.

ASHER: And looking at China's response to this trade war, obviously the Chinese came out today and said they are indeed going to -- they are indeed

going to be retaliating. At one point, they said that today that they are indeed going to be retaliating given Trump's threats of tariffs. Is that a

smart move by the Chinese given that it's their economy that is suffering the most in this trade war?

LARDY: Well, you know, I think they've been very moderate in their responses. They have responded less in terms of tariffs and other measures

against trade than the United States.

So, I think we'll have to wait and see exactly what they do in response to the tariffs that will take effect on September 1st, but I think it's likely

to be not proportion, it would be less than proportionate.

ASHER: And do you have high hopes, given the Chinese delegation is coming in September, that something, some kind of truce will come out of that?

LARDY: Perhaps, but it may not be very long lasting. You know, there's a lot of volatility on both sides. And I think quite frankly, one of the

main difficulties now is that it's probably more difficult. Xi Jinping is under pressure from what's happening in Hong Kong. He does not want to

have an agreement with the United States on trade that looks like he is capitulating to U.S. demand.

So I think it makes it tougher for the Chinese to agree to a set of measures that would satisfy the United States. So my view is that the

possibility for a really sustained substantial agreement is still going down.

ASHER: All right, Nicholas Lardy, thank you so much. Appreciate it. In Europe, stocks finished Thursday's session lower. U.K. stocks fell the

most closing down over one percent. Investors in Europe have been dealing with a slew of weak economic data recently.

As recession fears are keeping Wall Street on its toes, there is a cause for anxiety in the White House. A downturn could strike with the worst

political timing for Donald Trump.

(COMMERCIAL BREAK)

[15:30:00] ZAIN ASHER, HOST, QUEST MEANS BUSINESS: Hello everyone, I'm Zain Asher, there's more QUEST MEANS BUSINESS in a moment when American

farmers tell us why they're insulted by some of Donald Trump's trade war rhetoric.

And there's still time for you to vote on our question of the day. We are asking you, do you think the fears of a U.S. recession are overblown? All

you have to do is go to cnn.com-slash-join to get your votes in. Before all of that though, these are the headlines we are bringing to you at this

hour.

Israel says it will not let two U.S. lawmakers into the country for a visit. Congresswomen Rashida Tlaib and Ilhan Omar have supported a boycott

of Israel. The decision was announced after U.S. President Donald Trump tweeted that letting in the lawmakers would show great weakness.

And Gibraltar's Supreme Court has freed an Iranian oil tanker. U.K. Royal Marines had seized the Grace 1 last month on suspicion of carrying oil to

Syria to violate EU sanctions. The court says the tanker is no longer covered by those sanctions after Iran promised it will not go to Syria.

Earlier, the U.S. put in a request to seize the tanker for unspecified violations, the status of that request remains unclear.

And a Russian airliner carrying 226 passengers was forced to make an emergency landing in a cornfield outside of Moscow after hitting a flock of

birds. Reports say dozens of people were taken to the hospital, but everybody survived. The pilot and co-pilot are being praised for their

professionalism.

In a "Washington Post" reports an autopsy performed on child sex offender Jeffrey Epstein shows he sustained multiple breaks in his neck bone. The

medical examiner is waiting for toxicology reports before officially ruling on Epstein's death in a New York jail cell. Authorities have said they're

investigating it as an apparent suicide.

And police are revealing the autopsy results of the British teenage girl who went missing from a jungle resort in Malaysia while on holiday. They

say Nora Quoirin may have died from internal bleeding caused by starvation and stress. The family says she had learning and developmental

disabilities.

Larry Summers says a number of negative indicators are converging and causing investors to lose confidence in the U.S. economy. The former U.S.

Treasury Secretary says a recession is likely coming and there is little the Trump administration can do about it.

(BEGIN VIDEO CLIP)

LAWRENCE SUMMERS, FORMER U.S. TREASURY SECRETARY: Over just below 50-50 that a recession will start in the next year, but that's the range we're in

and it's hard for people to have confidence in the resilience of the economy. Hard because interest rates are so low that there's not much room

for the Fed to cut them further, hard because we have already fired the fiscal cannon on a misguided tax cut, targeted to the highest income,

people who least need the money.

And hard, frankly, because of doubts about the competence of the economic team in place.

(END VIDEO CLIP)

ASHER: As we've been discussing a bright red warning signal is flashing in the bond market. The two-year yield has climbed above the 10-year just

like it has before the last five recessions. The time between this inversion and when the recession actually hit can actually vary. It was

less than a year in 1991, it took two full years for the great recession to strike in 2007.

The average time is about 16 months, and that takes us to November 2020. Yes, really close to the presidential election here in the United States.

Catherine Rampell is here, she's an opinion columnist at the "Washington Post" and a CNN economic commentator. Catherine, thank you so much for

being here.

So, here's the thing, Donald Trump has obviously made a calculation here that being tough on China makes more sense for him politically than what

happens to the economy. Is he right?

CATHERINE RAMPELL, COLUMNIST, WASHINGTON POST: Well, I think he's a little bit confused about what being tough on China means, and what it means for

the economy. In his conception of the world, getting tough on China would be good for the economy. He thinks that the real issue at play here is

that we have this large trade deficit with China, which of course, we do, but that's not because China's cheating us necessarily.

They've been -- you know, badly behaved in certain things, but the trade deficit is not necessarily a reflection of whether the playing field is

fair or not.

[15:35:00] And he believes that the main thing we should be doing is just boosting our exports and that's the key to economic growth or at least that

seems to be his calculus here. So, if you -- you know, think a few steps down the road, he was probably considering that, well, if he starts this

trade war with China, he'll get them to capitulate, suddenly, the trade deficit will magically close even though no economists believe that is

possible and we'll have this burst of economic growth.

Of course, that didn't happen. Instead, what happened was what basically any economist could have told you would happen, which is that our

manufacturers suffered, our retailers suffered and many of them as well as our farmers are suffering this sort of tit-for-tat retaliation from China

and not just China, but the EU and Japan and for a while from Canada and Mexico and other trading partners. So, you know, I think he was thinking

that these two goals were aligned when in fact, they were very deeply in conflict.

ASHER: Well, it's interesting you mentioned farmers because obviously this trade war is hurting the very people that vote and support the president.

If we do end up in a recession before the election next year, is -- are his base so Trump-focused that they will support him no matter what even in a

recession?

RAMPELL: Look, it's very hard to say. Right now, the economy is arguably the only thing keeping him afloat. It's the only metric on which he's

above water in terms of favorability on a host of issues. That -- you know, his CNN polling shows that as does others. And so, you could imagine

that a lot of the public including members of his base might suddenly realize, hey, the jig is up, whatever strong economic numbers we've had

until now are not so much due to his skill, as well as good luck -- as much as good-luck.

And once that luck turns or once he forces that luck to turn, potentially, by having these escalating trade wars which could contribute to a

recession, you know, they could suddenly decide that he's not our guy any more. But you know, in terms of farmers, he's basically bought them off.

He's had two rounds of bailouts, he's been --

ASHER: Right --

RAMPELL: Reportedly considering a third bailout. So, they are at least somewhat shielded --

ASHER: Trying to keep them sweet --

RAMPELL: If there's a broader recession, you could imagine the pain would be more widespread.

ASHER: OK, so the "Wall Street Journal" editorial board is calling this the Navarro recession, referring to the White House trade adviser Peter

Navarro. They say "someone should tell Mr. Trump that incumbent presidents who preside over recessions within two years of an election rarely get a

second term."

"A", does that apply to this president? And "B", how do the Democrats take advantage of this?

RAMPELL: So, it's hard to say, right? I mean, a lot of the rules of physics or any way election physics, whatever you want to call it, don't

seem to apply to this --

ASHER: Right --

RAMPELL: President --

ASHER: Right --

RAMPELL: So, who knows? Like I said, maybe they'll stand by him especially if he's bought them off as he has with farmers, but he can't do that for

everyone. I think the bigger risk, both politically and economically, is not just that we have a down-turn which happens, it's very painful, we

don't like it, but it happens. It's tolerable.

But that we have a downturn that is very badly mismanaged, and that's what I'm worried about, that's what Larry Summers talked about in that clip that

we don't have a lot of powder left in the keg in terms of fiscal policy. The interest rates are already relatively low, so, you know, the --

ASHER: There's not much room for the Fed --

RAMPELL: There's not that much room for the Fed to act, there are not competent personnel within the White House right now trying to come up with

a plan, and even if they could come up with a plan for what to do in case of a recession, it's not clear that Trump would listen to it. So, even if,

you know, his public -- his adoring fans decide, well, he's not to blame for the recession, you could imagine that a series of missteps that make a

recession much worse would be --

ASHER: Right --

RAMPELL: Much harder to forget.

ASHER: Catherine Rampell live for us, thank you so much. The U.S. President did try to stem some of the growing frustration among American

farmers. Earlier today, he tweeted "our great farmers know how important it is to win on trade." CNN's Vanessa Yurkevich spoke with some of the

farmers caught in this trade war, she joins us live now from Renville, Minnesota. So, Vanessa, what are these farmers saying?

VANESSA YURKEVICH, CNN BUSINESS CORRESPONDENT: Hi, Zain, well, this is not the first time the president has said this or tweeted about this. And we

actually asked Gary Wertish whose farm we're on right now, whether or not he thought American farmers were actually winning. Take a listen to what

he said.

(BEGIN VIDEO CLIP)

GARY WERTISH, PRESIDENT, MINNESOTA FARMERS UNION: Some of the callous comments coming especially from the president, and, you know, that farmers

are winning, you know, we're great patriots, that's very insulting. That's coming from somebody that's never faced the challenges of a family farmer.

I go into the bank and I tell the farmer -- a little lender that I can't make my payment because we lost our market.

[15:40:00] The banker is not going to tell me, you don't have to make your payment because you're a patriot.

(END VIDEO CLIP)

YURKEVICH: And you hear that disconnect from the president who is tweeting that farmers are winning, but then when we speak to farmers here in

Minnesota like Gary, he doesn't think that farmers here are winning, and that's the disconnect between how the president feels and how farmers here

feel, feeling like the president doesn't really have their best interest at heart and doesn't really understand. Ultimately, what the American farmer

is really dealing with, Zain.

ASHER: And how long will it take American farmers to rebuild their trading relationship with China?

YURKEVICH: The farmers we've spoken to here in Minnesota say that their market is gone. That market is not going to come back in the way that it

was a year and a half ago before this trade war. China has really focused now its attention on buying from other places like Brazil, Europe, and

other countries like Japan.

And the farmers that we've spoken to say that there's just too much time that has gone by, they're never going to be able to make that market up,

and that leaves a lot of uncertainty for farmers here in terms of where they go now. What do they do now? Even if the trade war, Zain, was --

ended tomorrow, it would take them a very long time to get any sort of market back, that would get them back to where they were before this all

started, Zain.

ASHER: So, what is the one thing that these farmers want from President Trump right now?

YURKEVICH: They want USMCA signed. They're really hoping that, that can be brought to the floor, and there can be some movement on that because if

they don't have China to trade with, at least, they can have Canada and Mexico to trade with. I mean, they're so desperate to sell their crops.

They have crops sitting in silos that are in jeopardy of souring, they won't be able to sell them.

The 2019 crop that is in the ground just behind me, they don't know where that's going. So, opening those trade agreements between at least the U.S.

and Mexico through that deal is a really good first step to get these farmers going again, Zain.

ASHER: All right, Vanessa Yurkevich live for us there, thank you so much. You'd been forgiven for having Whiplash trying to beat the TV and its

economy, global growth is slowing, the trade war is uncertain, but consumers seem unfazed. Stuck in the middle is the Federal Reserve, we'll

explain next.

(COMMERCIAL BREAK)

[15:45:00] ASHER: Warning signs are flashing all over the bond market. A 30-year yield is now at a record low below 2 percent for the first time

ever. The plunge in longer-term yields like this are symptom of investor anxiety, they fall when investors buy more bonds, investors buy bonds

during a flight to safety even when they're nervous about the health of the overall market.

A reminder of our question on cnn.com-slash-join. Tonight, we are asking you guys at home, are fears of a U.S. recession overblown? All you have to

do -- if you want to vote, if you want to participate is, go to cnn.com- slash-join. The question is are fears of the U.S. recession overblown? Right now, most of you seem to think that those fears are not overblown,

that perhaps, it is real and likely that we may indeed see a recession in this country.

Robert Tipp is here; he is the chief investment strategist at PGIM Fixed Income. Robert, thank you so much for being with us. So, let me ask that

question to you. Do you think that fears of a recession in this country are overblown?

ROBERT TIPP, CHIEF INVESTMENT STRATEGIST, PGIM FIXED INCOME: I think they are. I think that the market is swaying on fear and greed, and right now,

as you mentioned, fear is running high, there's anxiety about trade and during those moments of anxiety, the markets will go to extreme.

The underlying fundamentals though have probably driven most of the declines in yield. People have probably underestimated impact of secular

factors like demographics, the high burden of debt that's risen in the economy over the last 50 years. And so those things structurally are

coming home to roost, and the anxiety over trade and some of the slower data, particularly outside of the United States and the level of yields

outside of the United States, those are probably the bigger drivers here pushing down yields.

ASHER: So, how low do you think yields can really go in this environment? Alan Greenspan seems to think that they can go to negative territory in

this country. There's nothing stopping it going into negative territory, I should say.

TIPP: Right, well, that's a wise call given that probably most of the developed country economies, GDP-wise in the entire Euro zone is below

zero, negative 71 basis points on the --

ASHER: You can see that in this country, too?

TIPP: Japan, negative 23. So, what may happen in the long run, the Fed would like to avoid negative rates, and I think that's a good choice. I

think it's very difficult for savers, for investors, and there's a limit at zero that they're right to try to respect. In the long run though, if a

lot of other countries end up trapped below zero, the dollar would depreciate, and eventually, the Fed would then be forced to somehow compete

in order to stop an excessive appreciation of the dollar, and in that case, they could be forced.

ASHER: With all this talk about the inverted yield curve, what's happened is that the yield curve inverts temporarily and then goes back. So, how

long does the yield have to stay inverted for it to really be a sign of a recession imminent?

TIPP: Sure, well, I think that the reason people are very concerned about a recession is because our more recent history, say the last 20, 30 years

has been one of where the Fed would aggressively raise rates, so, you have a high interest rates structure, they would move there rapidly, they wanted

to prevent an overheating economy, so they would almost intentionally get rates too high, the short rates would rise and then you would eventually

crash in go into recession and have a slowdown.

But that's not the environment we're in. They hydrate very slowly, they got to 2.4 percent, they did not want to create a slowdown, they began to

bring rates down. So, rates are not crushingly high to begin with, and the influence on the back end of the curve is largely foreign. All of the

negative rates abroad, U.S. rates very high.

And so we have a subtle inversion, but it's bringing that knee jerk anxiety. When you look back at the 19th century in the United Kingdom as

an example of a place, they have the gold standard, they had real markets, they had globalization in the economy, the economy was flat on average,

steep sometimes, inverted other times.

And we may be in an environment that's much more like that where you have flat-yield curves, a little bit of inversion, a little bit of slope,

doesn't necessarily tell you that much.

ASHER: In this environment, I mean, what should investors do in terms of shielding themselves of all the volatility we're seeing for example in the

stock market. Obviously, yield is extremely in the bond market, but the stock market, even just today has been bouncing between positive and

negative. Is the name of the game precious metals at this point, gold?

TIPP: I think that's a bit of a long shot. That really, the environment that we've been in, it is a lower return environment, and that when yields

are lower, over the long run, the return from bonds are going to be lower. Fortunately, there's still positive in this country. The best advice

probably is to stay with your long-term strategic --

ASHER: Yes --

[15:50:00] TIPP: Asset allocation that if the economy is growing, that generally being in equities since having some mix of stocks and bonds and

whatever in a portfolio has typically given you some balances, has given you the best results over time, and as low as interest rates seem, this is

basically been our call that rates would decline, these structural factors would bring rates down to about right where they are now.

So, I think we may remain range-bound, and that people that stay in the markets over the long run will probably get the best returns.

ASHER: Yes, just depends on what you can actually stomach.

TIPP: Absolutely --

ASHER: You can just sit still --

TIPP: The volatility is likely to be on --

ASHER: Put your seatbelt on and just pray that things will get better.

TIPP: That's right --

ASHER: Robert Tipp --

TIPP: It will be volatile.

ASHER: Thank you so much for being with us, appreciate it. The opinions from my guests tonight have been divided, you've been voting throughout the

show, and most of you voting at cnn.com-slash-join say that fears of a recession are not overblown, most of you actually, to translate, think that

a recession could indeed be possible in this country, that's 80 percent or so of you say that.

All right, after the break, a new administrator at the helm of the U.S. aviation watchdog, the FAA, he is dealing with a very old problem, how to

return the 737 Max 8 aircraft to service. We'll update you on the FAA's progress after the break.

(COMMERCIAL BREAK)

ASHER: The new head of the Federal Aviation Administration has received what sources say is a comprehensive briefing on the problems facing the

grounded Boeing 737 Max. There's been a back and forth between the regulator and the plane maker on potential fixes, and there's talk about

rebranding the plane altogether. Rene Marsh is watching all of this live from Washington. So, Rene, how long until the FAA actually, officially

signs off on the 737 fixes?

RENE MARSH, CNN AVIATION CORRESPONDENT: So, that is the big mystery, we just don't know. We know that Boeing has said that they plan on submitting

the software fix to the FAA somewhere, sometime during the September time frame. And of course, once they submit that, then the FAA will do its

review and ultimately make the decision as to whether this plane can fly again.

But how long will that decision-making process last? We really don't know, but it's telling that day two on the job, this new FAA administrator dove

right into this issue, which will be a major issue for him as the head of the agency which is getting briefed on where things stand with the Boeing

737 Max and FAA's review.

I mean, Zain, if we put this in perspective, this is the longest, most impactful grounding of an aircraft by a major manufacturer that we have

seen, period.

[15:55:00] And you know, many unions who represent many of these flight crews that have to be on these planes, they're skeptical now of the FAA

because they simply believed that FAA took too long to act, and that these planes should have been grounded a lot sooner than they were.

So, there is this, you know, tainted trust, this broken trust between these flight crews will eventually have to get back on these planes and the

agency that will have to green-light the plane. So, that's another issue that Boeing and the FAA are going to have to get past.

ASHER: And so for Boeing, it's the smart thing to do to rebrand the plane completely as a way of reassuring the flying public?

MARSH: Well, you know, I spoke to two aviation sources who say, you know, it's not something that you -- let's put it like this -- two of these

sources are saying it is certainly something that airlines are thinking about. Now, Boeing itself has said that it doesn't plan on rebranding the

plane. However, you could see airlines do just that.

And what we're hearing is that, certain airlines may decide to call it the 737-8 or 737-9 and drop that Max reference. We're not hearing U.S.

carriers like American and Southwest planning on doing that. However, United did not comment when we asked them. And the parent company for

British Airways, for example, they didn't close the door on rebranding either. So, we'll have to wait and see, but it's certainly a possibility.

ASHER: Yes, there's been so much disruption, especially in this busy sort of Summer travel period --

MARSH: Yes --

ASHER: All right, Rene Marsh live for us there, thank you so much. There are moments left to trade on Wall Street, we'll have the final numbers and

the closing bell right after this break, don't go away.

(COMMERCIAL BREAK)

ASHER: There are just moments left to trade on Wall Street, the Dow is set to close higher about 108 points or so after a very volatile session, and

investors are reacting to a variety of factors, mixed messages on trade from China as well as U.S. bond yields dipping to a three-year low, that's

what caused markets to go into the red earlier today.

But also, you have a strong earnings report from Wal-Mart. And that is QUEST MEANS BUSINESS, I'm Zain Asher in New York, the closing bell is about

to ring on Wall Street, "THE LEAD" with my colleague Jake Tapper starts right now.

(BELL RINGING)

END