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FIRST MOVE WITH JULIA CHATTERLEY
Beijing's Turn To Order A U.S. Consulate To Be Closed; Goldman Sachs Is To Pay $4 Billion To The Malaysian Government Over 1MDB; New Problems For Existing 737 Planes That Have Been In Storage. Aired 9-10a ET
Aired July 24, 2020 - 09:00:00 ET
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RICHARD QUEST, CNN BUSINESS ANCHOR: Live from London, I'm Richard Quest, in for Julia Chatterley and this is your Friday need to know.
China tensions. Now, it's Beijing's turn to order a U.S. consulate this time to be closed.
Paying the price of fraud. Goldman Sachs is to pay $4 billion to the Malaysian government over 1MDB.
And a new 737 probe. New problems for existing planes that have been in storage. We will explain what's gone wrong.
It is Friday and this is FIRST MOVE.
Julia is off today. It's Friday, at the end of the week, I'm at the helm. And an interesting day, and it's all about China and it's all about
tensions as a result of the Chinese decision to order the closure of an American consulate in China, tit-for-tat and now the markets are giving
There are tensions over these fresh moves by China ordering the closure of the consulate in Chengdu. The biggest reaction, take a look, 3.8 percent
down in Shanghai, 2.2 percent off in Hong Kong, and the Shanghai Composite was sharply lower.
In Wall Street, there, we're set to drop for a second session. It is the tech stocks that are the weakest in premarket, but they are all pretty much
Look if quarter-on-quarter -- three quarters all right for the NASDAQ. Intel is set also to fall after, perhaps down as much as 14 percent. It's
offered weak Q3 guidance, and Thursday's weak jobs data and the U.S. stimulus uncertainty -- that is also giving a lot of concern as well. More
than a thousand new COVID deaths in the United States on Thursday -- a thousand at this stage in the pandemic.
Europe is weak despite new signs of an economy that might be recovering. The European services and manufacturing sectors were back into expansion,
but so much of that can just be regarded as the bounce back from the extreme lows that they saw.
As a result, all of at least one percent with Germany of more than one and a half percent, the German of course has specific factors that relate to
all of this.
Here we go back to today, and these are the drivers. China has ordered the United States to close its consulate in Chengdu. It is retaliation for the
U.S. ordering the Chinese to close the consulate in Houston in Texas.
Now, this is Mike Pompeo's criticism of the Chinese Communist Party.
(BEGIN VIDEO CLIP)
MIKE POMPEO, U.S. SECRETARY OF STATE: President Reagan said that he dealt with the Soviet Union on the basis of trust but verify.
When it comes to the CCP, I say we must distrust and verify.
We must induce China to change in more creative and assertive ways because Beijing's actions threaten our people, and our prosperity.
(END VIDEO CLIP)
QUEST: David Culver is in Beijing. David is with me now. All right, the U.S. did theirs, China has done theirs in retaliation. Does it stop here?
Do both sides withdraw to fight another day?
DAVID CULVER, CNN CORRESPONDENT: The reality is we were expecting, Richard, this retaliation because quite frankly, China told us they were going to
retaliate in some manner, this obviously being their response and closing the Chengdu consulate. Does it stop here? I think you just need to listen
to the words of Secretary of State Mike Pompeo, and you heard some of it there at how he is even shifting how he looks at the Chinese Communist
No longer using the Reagan trust, but verify as Reagan did with the Soviet Union, but instead distrust, but verify. He goes on to say, while he
recognizes the difficulty in confronting China, and he is always saying this to try to rally up other nations as well.
We saw him as he traveled to the U.K. and he traveled to Denmark just this past week. He is saying that it's difficult to sever the ties, and he is
not calling for that. He says there is still engagement, but he goes on to say that because of the economic ties, something that we've talked about a
good amount, and how integrated China is into the global economy, he believes that China will ultimately come around because he says they are
more reliant on the U.S. than the U.S. is on China.
That's their perspective, the Chinese Foreign Ministry is saying they're going to hold their ground. They are not budging on this and they seem to
be committed to at least rhetoric, in rhetoric how they're approaching this, continue pushing back against it.
The question is going to be, you know, if the U.S. acts farther, and goes a little bit more into this and perhaps closes another consulate, where does
China act from there? Because they were feeling the pressure for this one.
CULVER: I mean, domestically, they were feeling the pressure that they had to act and this was their decision to close the Chengdu consulate, not the
biggest consulate for the U.S. here, not the largest loss from a diplomatic standpoint, but nonetheless significant -- Richard.
QUEST: Right, but David, when it comes to China and the U.S., we have Huawei, we have the allegations of camps, work labor camps. We've got human
rights abuses. We've now got this business with the consulates. The list goes -- of course, to say we've got the extradition, of course, Huawei's
CFO, the list goes on and on and we've got the trade tariffs.
Is China looking to find common ground to put it right? Or is China happy with the fact or at least can live with the fact that there is this
poisoned well of relations between the two?
CULVER: And I could add to that list, South China Sea and the pandemic as well. So, you're right, there's a long list. I think from the way that
we're hearing the Chinese Foreign Ministry come out against this is that they seem a bit unsettled.
I mean, they're certainly bringing forth the rhetoric. This was the first time in recent weeks that they've actually stepped up with the action. But
I think, again, they had to from the nationalist rising here that they couldn't push against, and state media certainly suggests that this is what
it's going to be like in the near future as we run up to November.
If you're looking at kind of an exit ramp from all of this, perhaps it is the November election, but even then, there's still bipartisan support in
confronting China, if not on the economic issues like Trump as, perhaps more on national security.
So they're still going to face some sort of strong end on the U.S. side that they're going to have to try to negotiate with.
QUEST: David Culver, who is in Beijing, David, thank you. Now to Washington, everybody knows that a stimulus deal will be done. It's just a
question of when and what the final price will be, as long -- as well as its components.
The issue of course, the most pressing one is the $600.00 a week unemployment benefit -- extra -- that expires at the end of this month, at
a time of rising unemployment, it would appear once again. Phil Mattingly is with me. They would dearly love -- Republicans would dearly love to
somehow get rid of it. They say it is a disincentive to going back to work. But they can't. Not yet. So what happens?
PHIL MATTINGLY, CNN U.S. CONGRESSIONAL CORRESPONDENT: Yes, look, I think they're just as cognizant of the unemployment kind of view or environment
throughout the country as everybody else is, and they also know that they need Democratic support for anything they want to pass and therefore,
Democrats who want to extend this flat $600.00, through the end of the year are going to have a voice in this.
What Republicans are looking at right now is essentially, instead of a flat rate, they want to try and use a percentage. What they're trying to do is
make sure the states which obviously run state based unemployment checks can be able to factor in about 70 percent of wage replacement, as opposed
to what Democrats were looking for in that initial flat rate of $600.00 was about 100 percent, and in many cases, it has gone above a hundred percent.
The issue here, Richard, and I think, you know, this is nobody has set out to have a $600.00 flat rate. The reason why they ended up at that level, at
that number and at a flat rate is because the state unemployment systems are too antiquated to actually do anything more technical than that.
So how this all plays out over the course of the next couple of weeks is going to be really, really fascinating, and also enormously important, you
mentioned the deadline July 31st. Some of those checks will stop coming on Friday or Saturday today or tomorrow.
There are real people who really want and need this money. Lawmakers agree that something is going to be extended. It's just a matter of what and
right now when.
QUEST: Phil Mattingly on Capitol Hill. I think, Phil, that the words ringing in my ears from what you said, real people that need this real
money, because I would just add, they have real bills to pay. Thank you, Phil Mattingly in Washington.
To New York and Clare Sebastian. Goldman Sachs is paying $4 billion to the Malaysian government over 1MDB, and so this is a huge amount of money for
some pretty egregious behavior when Goldman basically facilitated fraud on a vast scale.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Richard. I think this is more than some were expecting. The fine isn't all in cash, though, it's
$2.5 billion in a payment directly to the Malaysian government. $1.4 billion of this comes from proceeds from assets seized by governments
around the world as a part of this scandal.
SEBASTIAN: So that doesn't come at a cost to government, but still, the number is very large. Their stock, they are up slightly today, I think
there's a bit of relief that part of this cloud hanging over the company has now been lifted.
But while this absolves government of any criminal responsibility in Malaysia along with their subsidiaries, and certain directors, it does not
end the saga. They still need to try to find some resolution with the U.S. Justice Department, which has been investigating this.
There are two former bankers who have faced charges, one of them particularly now awaiting sentencing in the U.S. So, this is a closing of
an important chapter, but it doesn't end this saga, which has been hanging over Goldman now for the past several years, and they will, Richard, have
to set aside more money than they had originally provisioned to pay for this.
QUEST: Anybody who has read "Billion Dollar Whale" leaves the whole issue feeling, good grief, how on Earth did Goldman get this so wrong and allow
themselves to enmesh themselves in what would appear to have been such naked and obvious fraud?
SEBASTIAN: Yes, I mean, I think that Goldman's side of the story all along has been that this this wasn't, you know, something that was systemic to
the firm. This was too rogue or several rogue employees who have now pleaded guilty, at least one of them to paying bribes and violating the
Foreign Corrupt Practices Act in doing this.
But they did say today, Richard, there are lessons to be learned. I think there is a sense of humility, of course, coming down on the other side of
this and of course, the big unknown here is this Malaysian financier, Jho Low, who was de facto in charge of 1MDB, who is also being charged in
relation to this.
It was his lavish lifestyle, of course, that led to these funds allegedly being siphoned off and used for things like Picasso paintings and funding
"The Wolf of Wall Street." It isn't actually clear where he is or how he is going to be made to be accountable for his role in this yet.
QUEST: And, of course, Jho Low, who was the man behind it all supposedly has reached agreements with the authorities, but we haven't heard much more
on that either since the beginning of the year.
All right, Clare Sebastian. Clare, thank you.
There's a lot happening around the world today. These are the other stories making news. Iranian media says several people were injured after a U.S.
fighter jet made a close approach to an Iranian fighter jet.
According to an Iranian passenger plane in midair, the incident over Syria caused panic on board and forced the Iranian plane to descend rapidly. The
U.S. says its pilot inspected the jet to ensure it was not a threat to U.S.-led forces in the area.
President Trump is scrapping plans to hold part of his presidential convention in Jacksonville, Florida. It's a major U-turn for the President,
who previously said he would give his acceptance speech in front of big crowds there.
The event has already been moved from the City of Charlotte after North Carolina's governor voiced public health concerns. Now, the President is
admitting it's a problem in Florida, too.
(BEGIN VIDEO CLIP)
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I looked at my team and I said, the timing for this event is not right. It's just not right with
what's happened recently, the flare up in Florida. To have a big convention is not the right time.
It's really something that for me, I have to protect the American people. That's what I've always done. That's what I always will do. That's what I'm
(END VIDEO CLIP)
QUEST: In England, the new mask mandate came into force today for shops and enclosed public spaces. At the same time, there was economic data that show
that retail sales rebounded strongly last month back where they were before the pandemic.
Anna Stewart is with me. We'll deal with retail sales second, let's first of all deal with the mask mandate. So what are the rules in England now?
ANNA STEWART, CNN REPORTER: So you know, Richard, you have to wear a face covering, it doesn't have to be a surgical mask, but some sort of covering
across your nose and mouth in shops and some other public enclosed spaces like airports, train stations, the Post Office and so on.
Now failure to do so could, I say could, result in a fine of 100 pounds, that's a little over $125.00, but enforcement isn't expected to be very
strict. It certainly hasn't been on public transport, where this has already been the law for a few weeks.
Retailers today such as Sainsbury's, the supermarket chain here have already said that they encourage their customers to wear a mask, but they
will not be enforcing this themselves and the police, you know, actually can issue a fine and can enforce this, have said for instance, the London
Met Police have said they will not have facemask patrols.
This is something they will only intervene as a sort of last resort if there's some sort of aggressive incident in a shop.
STEWART: Currently, three out of 10 people in England and the U.K. wear a face mask, that's according to a poll by Ipsos MORI, but Richard apparently
nine out of 10 do support this new measure, so perhaps the tide will turn there.
QUEST: All of these retail sales, I had to read this story several times to make sure I was fully understanding. Are you really -- are we really been
told that retail sales even though people haven't been able to go shopping as freely have bounced back to the point where they were before the
STEWART: Well, yes, overall retail sales nearly at pre-lockdown levels, but don't get too excited. I've spoken to economists, what we're seeing here is
yes, a boost for online sales, a boost for food sales.
If you look at some of the brick and mortar stores that sell clothes, that sell shoes, they are still down 35 percent from February and also what is
kind of retail sales game is non-retail sales pace.
So people may be buying more food to eat at home, they're not spending that money going to the restaurant. They might buy a lovely expensive exercise
bike, but they are not spending money going to the gym and so on.
Hospitality has taken a massive dive and speaking to one economist just now, they said, just to add a little bit more gloom to this view, Richard,
in real time, the CHAPS payment data has already tailed off in July. That is data you get in real time from the Bank of England, so it suggests that
purse strings are actually already tightening and that's not a surprise as we consider the furlough scheme that's due to end in October and mass
unemployment potentially looms -- Richard.
QUEST: I am not surprised, Anna Stewart. Pent up demand followed by tightening of purse strings. Anna Stewart.
One other headline to bring you, the top U.S. infectious disease expert, of course, Dr. Fauci failed to impress with baseball skills. He threw the
ceremonial first pitch of the season over in Washington Thursday night. His toss was far off the mark.
But it doesn't matter, the game was between the Washington Nationals and the New York Yankees.
Coming up on FIRST MOVE. Wall Street has it wrong, says Stephen Roach, my next guest. He predicts there will be a double dip recession and we'll
discuss the data behind that prognostication.
And corporate leadership in the age of COVID-19. John Cote led Honeywell to the financial crisis, "Winning Now, Winning Later," but short termism
versus long termism, how can you plan long term when you don't really know what's going to happen next week.
It's all coming up. Its FIRST MOVE. I'm Richard, in for Julia.
QUEST: Welcome back. It's FIRST MOVE today coming live from London. I'm Richard Quest, I am in for Julia who is having a long weekend.
The futures are lower, which is not surprising when you think about all that's going on at the moment. Down there in Asia, down there in Europe and
the U.S. is not going to be able to buck that trend at the moment with the NASDAQ having the worst of it, off over one percent, and that's because --
the reason why, and it's all to do with U.S.-China relations, excuse me, which sets the text for disappointing losses.
Intel is set to fall more than 13 percent on earnings, which it beat, but offered weak guidance and it is all about guidance, and it's also delaying
the rollout of its next generation chips.
To gold -- gold is moving higher once again. It's approaching $1,900.00 at the moment. Silver is also higher, and that's on its track for its best
weekly gain in decades. Again, it's always safe havens.
Stephen Roach is at with me, a senior fellow at Yale University and former chairman of Morgan Stanley Asia. Steven, Thank you, sir. I appreciate your
time today. The market is on a tear. The market has these hiccups when China or something comes along, but it seems to have set a tone of rising
that you think might be way overdone.
STEPHEN ROACH, SENIOR FELLOW, YALE UNIVERSITY: That's correct, Richard. First of all, good to see you and I'm glad to hear that you're hopefully
QUEST: Thank you.
ROACH: The markets are priced for what we call a V-shaped recovery, a short recession followed by an explosive, unrelenting upward rebound. That's
unlikely to be the case.
First of all, in the United States, if you look at our recession since the end of World War II, there have been nine of them, and eight of them have
been so-called double dips, where the economy goes up for a quarter in recovery, seems strong and then falls back and tracks and then resumes
Two of the nine have actually been triple dips. We've seen this twice in the mid-70s, and again in the early 80s. And today, you don't want to just
go on the basis of history. But we have what I think is going to be a very difficult normalization post-COVID.
You just reported in your earlier segment a sharp rebound in retail sales in the U.K. The problem with that series is, it only covers spending on
goods, but does not cover spending on services where the behavioral shock is likely to be enduring in travel, leisure, restaurants and the likes.
So watch out for a double dip. I think it's coming in the U.S. and probably in the U.K. as well.
QUEST: Which begs and raises the question, the dollar? The dollar has been strong and the knee jerk reaction is, well, of course it is. It is the safe
haven. The reserve currency et cetera, et cetera, et cetera.
The threat to that comes from where? The Euro? Nah, Europe can't get its act together even when it does do a deal. China? Still very much in
But you believe the dollar is set for a fall, why?
ROACH: Three reasons, Richard. One, macroeconomic. We have entered this pandemic in the United States with an extremely low domestic savings rate,
one and a half percent of national income in the first quarter of 2020 courtesy of exploding budget deficits that domestic savings rate is going
sharply negative. It'll blow up our current account into a record deficit and that creates a weaker dollar.
Secondly, we have squandered our leadership role in the world. We're leading the charge in de-globalization, decoupling, protectionism. We've
blown it on COVID containment. We have a racial problem the likes of which none of us have ever seen.
ROACH: And thirdly, I would challenge you in your view that there is no alternative to the dollar. That's the so called TINA defense -- there is no
I've been a Eurosceptic all my life. I'm no longer that because I think this deal is a big deal. It gave the European Monetary Union the missing
piece in its arsenal of policy tools, fiscal policy, and a sovereign bond issuance to go along with it.
I like the euro. It's undervalued. The dollar is overvalued and a major correction is coming.
QUEST: Stephen, as we face the potential of a double dip, as you say, and we do look forward. Briefly, Stephen, is there a glimmer of optimism? As we
come on a Friday, let's try -- is there some optimism that you can leave me with?
ROACH: There's always optimism. I think the optimism has been in the spirit of humanity, Americans, Brits, even Chinese who are being vilified by
American statesman, so-called statesman as never before, they also have a lot of spirit.
I think if we allow that human spirit to take over, we'll do better than our political leaders are in the direction they're taking us, which is
quite unfortunate right now in the United States.
QUEST: Stephen, thank you, sir. I always appreciate it. I'm grateful. Have a good weekend.
ROACH: You, too.
QUEST: Thank you very much. We're going to have a very quick look at the futures before we leave you. These are the futures and the way they're
trading at the moment.
We are going to be down. The NASDAQ is going to have the worst of it all. It is now off one percent, but we've had such good gains really, that one
really has to put that all into perspective.
Anyway, the opening bell on Wall Street will be with us after this short break. This is FIRST MOVE on a Friday.
QUEST: And we are off to the races. Today, the trading day has begun in New York. A warm welcome to FIRST MOVE. U.S. stocks are up and running and
exactly as predicted, they are down.
Well now, as you can see, the Dow is off over half a percent. We will expect the NASDAQ to be down even more. The NASDAQ was lower by one percent
in futures trading, and so that's how we are at the beginning. Now, let's see 1.5 percent for the NASDAQ. Now, let's see how it moves further as it
Intel is tumbling on weak outlook. They may have to outsource its next generation of chips, which will be fairly dramatic for a chip making
And the big challenges for investors next week, four FAANG stocks are reporting. You've got Apple, Amazon, Facebook Alphabet. The Federal Reserve
holds a policy meeting, and of course, it's all the question of stimulus.
Today though, is the F.A.A. has ordered emergency inspections on Boeing 737 NG -- next generation -- and classic models. They're the ones, the majority
of them that are flying. The MAX of course, is grounded.
They've been in storage as many airlines have decided to stop or have been forced to store planes because there's simply not demand. But apparently
these inactive planes have had problems in the engines.
Pete Muntean is with me from Washington. It's all to do with the fifth stage bleed air check which apparently, because the planes have been
stalled for more than seven days. Well, what happens? What's the risk with the fifth stage bleed air check?
PETE MUNTEAN, CNN AVIATION CORRESPONDENT: Well, it's a tiny valve within the jet engines, Richard, that are supposed to automatically close
eventually. But what's happening is, these planes have been sitting for so long, the valves have corroded. They've rusted. And that could cause jet
engines to fail in flight, essentially turning a 737, a hundred and fifty- thousand-pound airplane into a glider, possibly one of the worst possible scenarios for a flight crew to experience.
You know, this emergency action by the F.A.A. is huge in scope. It affects more than two thousand 737s registered here in the United States, and
what's so interesting is the F.A.A. says, this is an unintended side effect of the pandemic, just like an old car that's been sitting, problems start
to creep in. That is exactly what's happening in this case.
I want to read you part of this emergency action by the F.A.A., which says these problems can cause compressor stalls in the jet engine, dual engine
power loss without the ability to restart in the air, which could result in a forced off airport landing, a very serious situation for any flight crew.
The F.A.A. is ordering the airlines who fly 737s to go and inspect airplanes that have been sitting for longer than a week and that has a lot
of them. Airlines have parked planes in every nook and cranny, closed runways and taxiways at airports across the country.
You know, people were looking for reasons to not fly because of the pandemic, and now they just found one more reason to skip commercial air
travel -- Richard.
QUEST: So they obviously just -- I mean, one wonders how they even thought to look at the particular thing to check it. It's such a small piece of the
aircraft, but they did and by all accounts, it is relatively straightforward, repair or at least maintenance to do.
MUNTEAN: Yes, relatively straightforward. Although, the incidents were relatively large, at least large enough for the F.A.A. to issue this order.
They said that there were four incidents in a row, which ended up leading to this emergency action, which is very rare for the F.A.A. And the scope
of this is so rare as well.
It will be a straightforward fix for the airlines. They've been staying on top of this. I have seen United's long term storage facility at Dulles
where they've been looking at airplanes trying to keep them safe and ready to go. Now, they just have one more thing to do.
QUEST: And I have to -- I do love that phrase off airport landing. I mean, talk about the masters of the understatement at the F.A.A. It is a serious
matter, Pete Muntean.
Finally, should we expect other issues and problems as aircraft are brought back into service?
MUNTEAN: Well, there's so many airplanes that have been parked and airlines were sort of banking on this recovery to come that they have not quite
seen. They've not seen the V-recovery that they had hoped, but it's not just 737s that are parked. There are 757s, 767s, 777s that I saw in just my
visit at Dulles, where there were only a few dozen airplanes parked.
MUNTEAN: But we know that situation is repeated at airports across the country. So no doubt that this could creep in as a problem in other
You know, when airplanes sit, it's a problem, especially in moist environments where things can rust and cause corrosion, and that can be
really serious. That's why we see airplanes parked more often in desert, dry environments, big boneyards like in Mojave, California and in Tucson.
So this is an issue because the airlines have had to find space to put these airplanes away, sometimes not ideal places.
QUEST: Pete Muntean, thank you. Pete is reporting from Washington, D.C.
The announcement on the 737 came before my interview with Gary Kelly, which I did last night, the CEO of Southwest, which is somewhat unfortunate,
because Southwest has an all 737 fleet. So obviously I would have asked him about it, but it happened. That interview was last night, so that's why he
doesn't answer in this particular interview.
We did talk about the recovery that was taking place that has now stalled, and I asked him what this meant for Southwest.
GARY KELLY, CEO, SOUTHWEST AIRLINES: Certainly not welcome news. We were on a really improving, a very nice trajectory, really a line of sight to the
end of the year if things kept continuing to getting back to breakeven cash flow.
And, yes, we've lost hundreds of millions of dollars of momentum here in the third quarter. So I don't think we've taken a step backwards, we've
just lost momentum.
And I think it's, you know, directly correlated with the spike in COVID-19 cases here in the United States. That's very disappointing to see that.
And, you know, you can see the direct correlation with travel and future bookings.
QUEST: The issue of air travel, passengers still don't believe, no matter how many times you tell them about HEPA filters, and the like, and
passengers are still worried about flying the middle seat, and so forth, aren't they?
KELLY: I think there's some degree of anxiety there. But I think more important than that is people who travel for a purpose, they want to go
places. They want to be able to do things when they get there.
And you look around the world and there are no sporting events. Businesses aren't having meetings. There aren't conventions. And a lot of
entertainment venues are either closed or very limited. There are quarantines in place in certain states.
So all of that, you know very much provides a deterrent. That's on the more consumer side of travel. Then on the business side of travel, large
corporations, in particular have travel bans in place.
So, I think we need to have very modest expectations in the near term here about travel until we get to the point where there's a vaccine or
QUEST: Finally, Gary, what's your gut telling you about the situation? When all of the numbers have been put in front of you by the CFO, and the COO
has given you the operating numbers, and you've seen the revenue forecast, and you've digested it all, what's your gut telling you?
KELLY: Well, I think in the end, I feel like there's every reason to be hopeful with Southwest Airlines. We are the strongest in the industry. We
came into this crisis with the least amount of balance sheet leverage we've had in our history.
We have plentiful levels of cash to see our way through. We're still in investment grade credit. We have outstanding service that our people offer
every single day. We have very high brand rankings from our customers and we have low cost on an operating basis in what is a very low fare
environment. And I think it's going to be this way for a long time.
So we're very well prepared for the crisis. I'm confident, I'm encouraged, and I'm hopeful what is -- what we also know is that this too shall pass.
There will be a vaccine. We will defeat this virus.
We can put a man on the moon 50 years ago, we can beat this coronavirus. So we just need to be smart and manage our way through this.
QUEST: We needed some optimism on a Friday as we go into the weekend.
In a moment, after the break, more optimism from the former head and CEO of Honeywell who has written a new book that is rapidly becoming the go-to and
well, the definitive word on short termism versus long termism, and how the CEO needs to negotiate both.
After the break there. We'll discuss "Winning Now, Winning Later" in a COVID-19 environment. David Cote is with me after.
QUEST: We've got earnings numbers from the industrial giant, Honeywell this morning. Better than expected. It was interesting. Higher than expected
profits, even though there was a 19 percent plunge in sales.
But of course, we can all understand, we don't need to waste too much time talking about the sales side of the equation with the virus.
But Honeywell has pulled full-year guidance because of COVID-19, along with many other companies as CEOs are grappling with uncertain environments, and
my next guest has written this book, which is rapidly -- well, the reviews all in, and the consensus seems to be that it is extremely useful, the
advice that he is giving, "Winning Now, Winning Later."
The former CEO of Honeywell is David Cote and he joins me now. David, it is good to have you. Thank you. I wonder, the strategy, bearing in mind what
you've said in your book of short termism versus long termism, how you have to balance those two, in this era of the quarterly report.
How would you have balanced those two in a COVID crisis?
DAVID COTE, AUTHOR, "WINNING NOW, WINNING LATER": I would say first of all, it's not so much a matter of balance as it is, how do you achieve two
seemingly conflicting things at the same time, which is a concept we ran Honeywell on.
You think of it this way, do you want good long term results, good short term results? Do you want people closest to the action empowered or do you
want good controls so nothing bad happens? Do you want low inventory? Do you want good customer service? And in every case you want both.
In any crisis, you still need to be thinking about both whether it's a recession or anything else. So while you need to take the short term
actions that you have to take to maintain viability of the entity, the business, at the same time, you want to make sure that you're still focused
on what's important for the long term.
COTE: And there's this old adage that I like and it says, when you're up to your button alligators, it's tough to remember the original goal was to
drain the swamp. However, if you're a leader at a time like this, you still have to find that small amount of time to get your head above the fray and
be looking for where are you going? Are you still doing the right things that are going to make you successful for the long term?
QUEST: Now, I'm hearing numerous CEOs trying to do that, but the extent of this crisis is so big and existential for so many companies, it's almost,
almost impossible to even find that small space to think of the future or to think about, you know, opportunities.
What would your advice be to a CEO who are finding themselves firefighting?
COTE: Well, I would say, you know, each company circumstances are going to be different. So, it's tough for me to kind of give a blanket statement
that applies to a hundred percent of companies.
However, I would say that, again, as a leader, part of your job is to make sure that you're still looking out for the long term, because eventually
the long term becomes the short term.
You don't want a pyrrhic victory when you finally are done with the crisis and this crisis is severe. I mean, the depth of this recession and
hopefully, it's a short one, but the depth of it has been severe.
That being said, you still need to be thinking about the future. You can't ignore that at the same time you're fighting your current balance.
QUEST: Right. Now, did you ever just simply want to say to analysts to the street, you know, get your head out of the quarterly report? Can you not
see what I am doing here?
You know, the Chinese are brilliant, not worrying about tomorrow, because they're too busy worrying to make sure that the whole thing is still there
in a hundred years, how do we improve our own view in that sense?
COTE: I'd be lying if I didn't say that I felt some of that frustration at times, especially in the beginning. However, again, my point is not ignore
the short term to the benefit of the long term, it is how do you find a way to generate enough of a return in the short term, so that you can be
investing in the long term at the same time, and you have to generate income flexibility.
And that's why I was a big believer in growing sales and holding fixed costs constant, which is a much easier thing to say. It's easy to do the
math, but it's not so easy to do, but it's important.
QUEST: Dave, I want to get your take on work-life balance, because the one thing that -- maybe the pandemic has made this because we're working from
home, I don't know.
But the traditional view of we've got a great workaholic over there. Look at Jim or look at Jane. Ah, they never stop. But do you need to be working
in an almost addictive fashion to get to the top? It's not healthy is it? How do you balance work and life?
COTE: Well, that's one that everybody needs to make a decision on their own because everybody's circumstances are different.
However, I can say that when it came to how did I accomplish those two seemingly conflicting things, having a good professional life and a good
family life? I looked at it and said, well, there's really three things that demand my time -- a professional life, a family life, and social life.
And I felt like I had enough time for two of them, though I pretty much didn't have much of a social life as I was growing up in my career, saying
I was going to focus on those two, and you find a way to do it, but everybody's circumstances are different. Everybody has to figure it out.
But you have to let something go on amongst those three. I think it's impossible to do all three.
QUEST: It's just a question of which one is not -- so, if there is a kernel, a nugget that you would imply part to somebody watching now, who is
just starting, who may be their own business. What would it be?
COTE: Well, I'd probably go back to the advice my mom and dad used to give me. My dad always used to say, be a leader, not a follower. My mom used to
say, think for yourself. And as a kid, it sounds pretty irritating to hear that a bunch of times, but I can say that the older I've gotten and the
more I progressed professionally, the more I realized the ability to think independently was a lot more rare than being smart.
There were all kinds of smart people who could explain why things were the way they were. It was much tougher to find people who could look at the
same set of circumstances, same facts, get all the same opinions, and come to a different conclusion that might actually make a lot more sense and not
be consistent with conventional wisdom.
So my advice would be to always think independently.
QUEST: Dave, great to have you. I appreciate your time, sir. Thank you very much indeed. Thank you.
And just listening to Dave reminded me of course, of the three things. I think it's "Sex in the City" where you can have a great apartment, you can
have a great job, you can have a great love life. You can have any two, but you can't have all three at the same time.
In a moment, Americans change how they get their burritos. A huge American chain of Mexican restaurants and the shift it's going to digital sales, in
QUEST: We're talking about just a moment ago about short termism versus long termism and how you have to balance the two.
Take for example Chipotle, the Mexican restaurant, which has shifted its business quite dramatically towards digitization, managing to do delivery
and take out to make up the difference.
I spoke to the CEO, Brian Niccol who explained the theory and why the company had to make the changes.
BRIAN NICCOL, CEO, CHIPOTLE: Obviously, what we want to do is make sure that as we operate during these challenging times, we do it in a safe way
and then we do it in a way where we can provide people access to, you know, the food that they want to have access to, whether it's delivery, takeout,
give it to them off premise, so they can potentially enjoy it at home or outside where they feel safe eating meals.
QUEST: Are you at the point now of saying for the foreseeable future, off premise and delivery is going to be the significant, particularly delivery
is going to be an area where you're going to have to put more focus -- even more focus.
NICCOL: Yes, you know, I think it's going to be a balancing act between being able to order ahead and get food for takeout as well as delivery.
You know, I think some people still prefer to have the control of that experience where, you know, they control what time they pick it up and what
happens with their food from the moment it leaves the restaurant until it gets home.
NICCOL: And then for those occasions where you know, you've got the time to wait for a delivery driver, you know, the good news is, we can create
contactless delivery and give people access to food that way, but I definitely think for the time being, people are going to put a real premium
on the idea of having a safe eating experience, which, for a lot of people, that psychology right now is still an off premise experience where they can
kind of control more of the environment of those that are around them and where they're choosing to eat their meals.
QUEST: You did you deal with Grubhub and Uber, they are of course, are drivers, but in the sense that you have -- I mean, at Chipotle, do you have
to be agnostic as to the delivery service?
NICCOL: Yes, I mean, what we've found is for Chipotle, a lot of people want to have access to our food for delivery, and obviously, the aggregators
that you mentioned, in order for them to be, you know, a compelling aggregator, they want to have all the restaurant options that customers
So this works out really well, where we want to be on their sites, they want us to be on their site, and the customer wants us to show up in all of
So we enjoy the fact that we have partnerships with Doordash, Grubhub, UberEATS, and Postmates. You know, they're the big players. And you know,
we need each other to give the customers a great delivery experience.
So we're working really well with each of them, and we're really happy with the experiences that we're providing customers right now.
QUEST: And that FIRST MOVE for today. I'm Richard Quest. Julia is back with you on Monday.
"Quest Means Business" five hours from now.