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Global Markets Bounce Back; President Obama Unveiled Proposed Budget; Would Ukraine's Military Stand a Chance?; Obama Budget to Offer Tax Breaks for Poor, Middle Class Americans; Ukrainian Warship on Way to Black Sea

Aired March 04, 2014 - 09:30   ET

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

JAKE TAPPER, CNN: Now we're going to go to the Opening Bell. You hear that right now.

Investors may be able to breathe a little easier today as you hear that bell. Global markets bouncing back from yesterday's losses despite continued fears over the crisis in Ukraine. U.S. stocks are expected to follow worldwide gains. The Dow and Nasdaq are both pointing to a higher open. Meanwhile, the S&P 500 is within reach of a record high.

So what triggered the quick comeback?

Well, I'm joined by CNN chief business correspondent Christine Romans now and CNN's global economics analyst, Rana Faroohar.

Rana, let me start with you. Why has this crisis in Ukraine had such a tight grip on the global market?

RANA FAROOHAR, CNN GLOBAL ECONOMICS ANALYST: Well, you know, any kind of political instability rattles global markets and in particular global stocks. I think that the real worries were about energy. And in particular was the conflict in the Ukraine potentially going to cut off energy supply in Europe?

The big -- the big economic question here is that Europe gets 40 percent of its energy supply from Russia. And a lot of that goes through pipelines that run through Ukraine. So the worry was, are those going to get shut off? And how is that going to affect the European economy, energy companies, banks that have investments in the area?

But now what you're seeing is as soon as Putin said OK, go back to your barracks, European markets went up a little bit and I think that you're going to recovery in the U.S. today, too.

TAPPER: Christine, how long do you think market volatility will last, won't last, as long the crisis does?

(LAUGHTER)

ROMANS: . It will. It really will. And don't forget this bull market on U.S. stocks is five years old, Jake. So this is a bull that is long in the tooth. You've got a jobs report in this country on Friday so at some point you'll see the focus shift from the tensions in Ukraine between Europe and the U.S. and Russia and then again the strength of the U.S. economy. So I'm expecting a lot of volatility here.

Matt McCall from Penn Financial Group told me yesterday there are a lot of people looking for a moment to buy stocks. He said unless there are bombs flying right now, you're going to see -- seriously, you're going to see markets sort of calm down and try to look more internally at the U.S. -- at the U.S. fundamentals.

But remember yesterday Russian stocks fell very sharply, 10 percent. Today they came back 5 percent, bringing back about half of their losses. Remember, you know, the government of Russia spent about $50 billion to build out Sochi, right, for the Olympics? Just yesterday Russian companies and investors on paper at least lost $60 billion in stock market value. They brought some of that back up today.

But the pressure within Russia because of the volatility in the financial markets is going to be a really powerful player here.

TAPPER: Rana, is there anything specifically you're going to be watching today?

FAROOHAR: I'm going to be looking at U.S. financial stocks. Citibank, for example, has the biggest operations of any U.S. bank in Russia. I'll be looking to see whether that stock continues to correct or whether there's an upswing.

Also energy stocks and in general companies -- U.S. export companies that have a lot of exposure to Europe are going to be the most vulnerable. But I do think that U.S. stocks are going to -- and the dollar and U.S. bonds are going to remain a reasonably safe haven in a very tumultuous world.

That's what you've seen a lot of in the past few years is that even if we think our markets are getting a little bit frothy, we still look pretty good compared to places Europe, Asia which is slowing. So I think that we get a sort of prettiest house on the ugly block up tick effect.

TAPPER: All right, Christine Romans and Rana Faroohar, thank you so much.

ROMANS: You're welcome.

FAROOHAR: Thank you.

TAPPER: Still to come, does the Ukraine military stand a fighting chance if a full pledge war with Russia actually erupted? We'll compare the fighting power of the countries right after this break.

(COMMERCIAL BREAK)

TAPPER: Welcome back to CNN's continuing coverage of the crisis in Ukraine. I'm Jake Tapper. So what if a full pledged war erupted between Russia and Ukraine? Could a nation roughly the size of Texas stand a fighting chance against Russia's military might?

Tom Foreman joins me now -- Tom.

TOM FOREMAN, CNN CORRESPONDENT: As a simple answer, Jake, no they cannot. That's why we're talking about sanctions so much. And the economic impact of all of this. Because there is no military fight to be had here.

Think about what the general told you a short while ago. This is all the border that Russia shares with Ukraine. It's a tremendous amount of space from which Russia could come in any way it wanted to if it wanted to try such a thing. So far what we have is down here, we have the Crimea which basically has been taken down here.

The rest of it is up for grabs here. But what if somebody wanted to go to war over this? What if the Ukrainians, for all their blusters, said we're going to actually stand up to the Russians? How would this stack-up?

We'll take a look at the comparison here. Troops, 160,000 Ukraine, more than 766,000 in Russia in active duty right now. And trust me, these troops are a lot better off than these troops in terms training, preparation, what they can bring to the table.

Beyond that, what about the reserves? A million in Ukraine. But to get to this million number, people who they could call, you basically have to take all sorts of people under the age of 40, almost anyone you can grab. Over here in Russia, almost 2.5 million. And this would be a better selecting pool because it's just a much bigger country, with people better prepared for this.

What about weapons that they might be able to draw out there. If you look at aircraft 400 in the Ukraine, again, not state of the art, not the vest, in Russia, if you go beyond that to something like tanks over here, you're going to get a very different number as well. Four thousand Ukraine. These are all Soviet issued, not the best out there. Russia you easily go over 15,000. And if you look at the overall expenditures of it, in the Ukraine you're going to have a very small number compared to what you're going over in the -- in the Russian side.

You're going to get lesson a few bill over here where you're going to have all close to 70 or 80 billion over here per year being spent to support their military.

One more thing to bear in mind about all of this that I think is really worthwhile. If you look at overall situation in this country. This area that we've been talking about so much. As the general pointed out, they don't really need to go into the area because it's so heavily Russian any way.

It's a problem for western Ukraine. The Russians don't have to go in. But if they did, this is generally very open land over here. It's all forested over here. Here it's much more open with farm fields, big wide open spaces, perfect places for tanks and air assault, and troops moving in.

This is one reason why when you talk about the military option, there is no option here. The Russians would absolutely rule the day unless a lot of other countries wanted to come in and risk a much, much bigger conflict -- Jake.

TAPPER: All right, sobering, sobering thoughts, from Tom Foreman. Thank you so much.

We're going to take a quick break. We'll be right back.

(COMMERCIAL BREAK)

TAPPER: Welcome back to CNN's special coverage of the crisis in Ukraine. Today during a trip to Washington Elementary School President Obama will unveil his latest budget proposal that calls for expansion of tax credits for the middle class and working poor which the White House says is part of his State of the Union pledge to boost economic opportunity for all Americans.

Michelle Kosinski joins us now from the White House.

Michelle, how do you think this is going to play out politically considering how gridlocked things are in Washington right now?

MICHELLE KOSINSKI, CNN WHITE HOUSE CORRESPONDENT: Yes, does this have a chance of passing, you're asking, right? Well, in a word, and you may already know the answer to this, no. But in presenting this budget proposal, President Barack Obama wants to address some of the most difficult issues Americans face in making a living and paying for cost of living.

You mentioned the working poor, people working minimum wage, working full time. Well, they don't have the kinds of tax credits that workers who have children do. So Obama wants to expand those credits to workers without children, younger workers. In fact this budget contains $60 billion worth of expanded tax credit, although it doesn't increase the budget very much at all over this year. Obama wants to help Americans pay for child care, expanding tax credits for people with very young children, helping pay for education and save for retirement.

But going into this Republicans have problems with it in specifics like closing tax loopholes to pay for things like infrastructure and in a broader sense. I mean some Congressional Republicans have said this proposed budget does absolutely nothing to address the looming debt crisis in this country, doesn't cut Social Security.

Well yes closing tax loopholes for the very wealthy, people who work in private equity and venture capital and the self-employed is how Obama wants to pay for these tax credits. And the administration has said sure the second you mention closing tax loopholes that's when Republicans walk away. So there's virtually no chance of this budget being taken up by Congress and passed. But what it does make a sort of Democratic platform for helping middle class workers that we will definitely hear a lot more about going into midterm elections -- Jake.

TAPPER: Michelle, as you know, there was already a budget agreement locking in basic spending for the next two years. So this is even more purely a political document than a budget normally is even though they're always almost purely political documents. Has anybody at the White House said that the President is going to actually push for any of these provisions to become law even though the budget is already locked in? Is this going to be more than just a list of priorities?

KOSINSKI: Well the changes are in there. There are a number of changes. Even though the spending level has been locked in, he wants to shift things. You know, expanding tax credits while closing tax loopholes. That is always a huge market contention for Republicans. And they're going to fight this. And I don't -- we haven't spoken to the White House on this leading up to the actual presentation today.

But as we said virtually no chance of these things going through but the President -- especially in his second term, he really wants to push for putting the focus on the middle class while they don't have the kinds of loopholes and even tax credits that wealthier workers do.

TAPPER: Michelle Kosinski at the White House. Thank you so much.

Still to come, a Ukrainian navy warship is steaming toward the Black Sea. CNN's Ivan Watson is chasing it. We'll have more in a moment after this quick break.

(COMMERCIAL BREAK)

TAPPER: Welcome back to CNN's continuing coverage of the crisis in Ukraine.

This just in Ukraine border guards say Russian naval ships are blocking both ends of the Kerch Strait which separates Russia from the Crimea. And a potential Russian/Ukrainian naval confrontation could take place in the Black Sea; the flagship of the Ukrainian Navy Black Sea fleet is on its way there. According to Reuters, two Russian warships are also steaming in that direction.

Before the Ukrainian frigate reaches the Black Sea, it crosses Istanbul's Bosporus Strait. And that's where we find CNN's Ivan Watson, who is also afloat -- Ivan what are you witnessing now?

IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, we're following right now a flagship of the Ukrainian Black Sea Fleet, of its navy. The headman (AUDIO GAP) which has moved a little bit ahead of our ship -- we are trying to show you of our boat here. Now it's coming through Istanbul. Jake, this is the only way that any ship or warship can use to get to the Black Sea and to get to Crimea, the contested part of the Ukrainian territory.

Now the Ukrainians are making a big show of their flagships coming in because there had been some reports in the Russian media that the ship had defected and joined the Russians. As you can see the white, the yellow and blue flag of the Ukrainian government is flying from this vessel as well as the Turkish, red and white crescent flag.

So the Ukrainians want to make a big show here, a point that their military is still intact. Though the commander of the Ukrainian Navy did defect to the Russians they insist that the rest of the armed forces are still intact and still loyal and even though this (AUDIO GAP) the flagship of the Ukrainian navy will not be returning to its home base in Crimea.

The Ukrainian Ambassador to Turkey Jake he tells me that a number of Ukrainian naval vessels have to move near the port of Odessa. (AUDIO GAP) Crimea is overrun with Russian troops right now -- Jake.

TAPPER: And Ivan what are you hearing about the two Russian warships that we've heard are also steaming in a similar direction?

WATSON: That's right. This morning, two Russian warships also steamed up this narrow channel, also headed towards the Black Sea and presumably they too are headed towards Crimea, where we know there is a substantial Russian military buildup right now. So, more vessels (AUDIO GAP) from the navy headed in that direction presumably to reinforce the Russian presence there right now.

The Ukrainian officials that I've talked to have tried to insist that they are not sending their navy in right now to try to confront the Russians. They are insisting that they are going to operate like Gandhi, be peaceful, not fire the first shot but make their presence known.

So to continue this very (AUDIO GAP) that harkens back to some of the 19th century conflicts that Bosporus for control of the Crimea and the Black Sea, it's remarkable to be here (AUDIO GAP) warships traveling through this narrow and very strategic reach to the Crimea, much as warships did 150 years ago.

Now there is an added wrinkle to this -- the Turkish military. And I have to remind you and our viewers, we are off the coast of Istanbul, Turkey's largest city. The Turkish military just announced that it scrambled 8 F-16 fighter jets in response to a Russian reconnaissance plane that was flying in international air space off of Turkey's Black Sea Coast.

That does occur occasionally in the past. We hear about scrambling of Turkish jets but not of eight such F-16s. And it is also perhaps a sign of how tensions are ratcheting in this area in the Black Sea Basin in connection with this crisis and the Russian military deployment around Crimea -- Jake.

TAPPER: Ivan, if you could, because I'm not sure that all of our viewers are entirely familiar with the geography of this region, explain exactly where you are, where the Ukrainian ship is going to and where it's coming from. And the same thing with the Russian warships, the two ships that went through the same straits. We are showing a map right now of the region. So just walk us through where you are exactly.

WATSON: That's right the Black Sea is basically a pond. And the only way they get ships in and out of there be they commercial traffic, anchor ships or warship is by sailing up this 25-mile narrow channel of Istanbul, the biggest city in Turkey.

Now this morning two Russian warships came up this channel on their way to the Black Sea. And we have to recall, the headquarters of Russia's is in Crimea. It was rented from the Ukrainians.

We have another military vessel off the coast here. I can't identify it just now, Jake. I'm sorry. So the two Russian warships steamed through this morning. Now, hours later, the flagship of the Ukrainian navy steaming through the same body of water headed towards the Black Sea. Ukrainian government officials I have spoken to say that that Ukrainian vessel was cooperating with a coalition of warships off the coast of the Horn of Africa -- anti-piracy operations. And now, it is coming back.

The reason why it is so symbolic again for the Ukrainians is to show to the rest of the world and to Russia that the Ukrainian navy is intact. That there have not been defections and that this vessel is still following the orders of Kiev. This will be an important channel of water to follow as the tension in the military standoff continues in the Crimea -- Jake.

TAPPER: And Ivan, obviously the Russians have a naval base in the Crimea, is there any indication from the Russian government why these two naval vessels, Russian naval vessels, were heading into the Black Sea? Are they just going as might be routine, to their naval base in the Crimea or are they not saying? Is the Russian government not commenting yet on these two ships?

WATSON: We don't have a direct explanation for that right now. According to a number of reports, I hadn't been able to confirm, the Russians were in the eastern Mediterranean off the coast of Syria, which is of course, the Syrian government, an ally of the Russian government. The Russians have been supporting the regime of Syrian president, Bashar al-Assad throughout the horrific civil war that's been taking place there.

Now according to a 1936 naval convention called the Montreaux Convention, the Turkish government has to allow naval vessels to sail through here if they are members, it if they are from Black Sea government countries. But they are supposed to be given and eight-day warning if they're going to come through. The Turks said these vessels are performing normal, routine maneuvers.

We're being escorted here. This appears to be a Turkish warship following not very hard behind the flagship of the Ukrainian navy on route back to the Ukraine right now -- Jake.

TAPPER: Ivan Watson with some amazing on the -- well not on the ground -- on the water reporting. Thank you so much. We appreciate it.

The next hour of CNN NEWSROOM begins after a break.

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