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First Move with Julia Chatterley
President Trump Reportedly Going To Block Foreign Telecoms It Deems A Threat; Facebook Tightens Its Livestream Policies; A Booming Meatless Market. Aired: 9-10a ET
Aired May 15, 2019 - 09:00 ET
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ZAIN ASHER, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange, I'm Zain Asher, in for my colleague Julia Chatterley, and here's
what you need to know.
Trade war tactic. President Trump reportedly going to block foreign telecoms it deems a threat. Stricter rules. Facebook tightens its
livestream policies and a booming meatless market. Why all of a sudden the beef with beef? It is Wednesday and this my friends, is FIRST MOVE.
All right, a warm welcome to all of you at home this Wednesday, concerns about the U.S.-China trade wars impacts on global growth remains front and
center on investors' minds today is really what people are focusing on.
Futures, let's take a look here, have been weakening over the past few hours and are now pointing to a lower open across the board for U.S.
stocks, a drop of more than half a percent. Yesterday, stocks actually clawed back some of Monday's losses. We ended up in the green yesterday.
The NASDAQ rose over 1 percent, and to put all of this into context for you, over the past five trading sessions, the Dow and the S&P have both
fallen over one and a half percent and the NASDAQ is down by almost 3 percent.
In the meantime, let's take a look at Europe here. Stocks mostly lower across the board are in Europe. Asia finished the day higher. The
Shanghai Composite rose almost 2 percent as disappointing economic data raised hopes for new stimulus. Chinese industrial production and retail
sales missed expectations by a wide margin.
Retail Sales grew at the weakest pace in 16 years, and newly released U.S. retail numbers were weak as well falling a fifth of one percent last month.
All right, let's turn to our main driver. It is the battle over Huawei.
President Trump is apparently poised to sign an executive order effectively banning or prohibiting some U.S. companies from using Huawei equipment.
Sources say the order would not mention specific companies by name or countries by name, but the President has been delaying the order partly
because it does not want to jeopardize a trade deal with China.
CNN's Christine Romans joins us live now. So if this -- if this deal actually is signed by the President, how will that end up jeopardizing the
potential trade deal with China -- Christine.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: Well, you know, there are so many different prongs to this trade war. I mean, this
is something that the Chinese have been adamant about that Huawei is not used for spying and doesn't have technology that can be used for spying,
and that's something that the White House and Intelligence officials and frankly, other countries just disagree with. They see Huawei as a
potential national security threat.
So if as Reuters reports, Trump would sign this order, paving the way for Huawei to be banned on U.S. telecoms, that would further rankle the
relationship between the United States and China. And it's a relationship that I'll tell you by the hour, there are new indications of just how much
of a stalemate the United States and China are in.
I mean, we just heard from Chinese President Xi for the first time since, you know, since these new tariffs and counter tariffs were announced and he
says this, and this is clearly a warning today in the States, "No civilization is superior over others. The thought that one's own race and
civilization are superior and the inclination to remold or replace other civilizations are just stupid."
From the Chinese perspective, there is this nationalism wave that is rising because you know, the China-state owned business model is what has made
China a developed nation, you know, a developed economy. And the United States is asking them to change that because it simply isn't fair.
So every day, we have these new revelations of risk and really friction in this relationship. I will give you some perspective though that I think
it's really important to remember.
From the highs, since we've really begin to internalize just how serious the President of the United States is about tariffs and how long this could
last, from the highs, the Dow is down about 5 percent, S&P 500, down by about 3.8 percent, the NASDAQ down about 5 percent. And mostly the markets
are pretty flat compared with last summer when the whole trade war started.
So you can look at that two different ways, Zain, you could look at that, well, investors must think the U.S. can weather this, the $20 trillion
economy can weather whatever this trade war is, or you can look at it that stock market investors really haven't faced the reality here that we could
be facing a long -- a much longer, deeper trade war with China and there's further to go in terms of selling.
ASHER: Yes, I mean, that is really the story that is driving the markets today, but just in terms of Huawei, if the President does end up signing
this order when it comes to Huawei. How will that impact or strain the U.S. relationship with other countries who are actually willing to do
business with Huawei, specifically, the U.K. and Germany? What are your thoughts, Christine?
[09:05:11] ROMANS: That's a really good point, too. And this is something that critics of the President's trade strategy have long held that the
United States should be with its allies working in tandem to address these complaints about China not going by yourself, so that in fact, you are at
odds with your other allies about how you handle Huawei in particular.
There are a lot of other countries though that have raised concerns about Huawei and what it could mean for their telecom networks. But there are
those who say that you know, the Chinese have invested so much and this is such a backbone of you know, the race to 5G that not adopting Huawei
technologies actually might hobble you and your nation going forward.
So there's a lot to unpack here on this. But no question, if the President does sign this executive order using a national emergency as the grounds,
it would further hurt U.S.-China relations, no question.
ASHER: All right, Christine Romans live for us there, thank you so much. All right so Alibaba is well-placed to reap the benefits of the trade war.
So says the company's Executive Vice Chairman. He tackled the issue head on during the company's quarterly earnings call.
I want to bring in Clare Sebastian, who joins us live now from New York. So just explain to us what exactly he said about how tensions between the
United States and China would likely to impact Alibaba going forward? Did they offer any sort of guidance for investors whatsoever?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Absolutely, Zain, well, this was an issue clearly that Alibaba as China's biggest e-commerce company
couldn't ignore, and so Joe Tsai on the call today called it the elephant in the room, he tackled it head on.
And his message was very clear. Rather than a major challenge for Alibaba, Alibaba is extremely well-placed to benefit from this and here is why he
says that -- he says that he says that, as China commits to help reduce the U.S. trade deficit to import more products from outside. Alibaba is the
largest e-commerce platform. It is extremely well-placed to deal with that, to welcome foreign brands. That is something he says China is also
going to be doing more of, opening up its marketplace to foreign companies.
Alibaba's TMall platform, which is one of its e-commerce platforms is already quite popular among foreign brands, and he looked at the issue of
IP protection as well. This is something that Alibaba has been criticized for in the past for having counterfeits on its site. He says they are
already at the forefront of tackling this.
So as China potentially commits to tackle IP more as part of its trade negotiations with the U.S., Alibaba will be very well-placed to deal with
that. Now, of course, if -- you know, they have to say this, Alibaba is a stock that has very much traded as a proxy for the Chinese economy. So it
is in their interest to say this, but this came as they reported earnings today and they were very strong, Zain.
ASHER: Yes, but as you mentioned, they would have to say that when it comes to just giving investors optimism when it comes to U.S.-China trade
relations, but just looking at the earnings more specifically, Clare when you dig deeper, they beat solidly partly thanks to e-commerce and Cloud
computing as well.
SEBASTIAN: Absolutely, yes. Fifty one percent increase in revenue in the past year that was driven, as you say, partly by their e-commerce business.
They added 100 million new users in the past year, 654 million users on their retail platforms now. Then that in context is about double the size
of the entire U.S. population.
I think it's worth taking a step back and just realizing the scale of this company. But Cloud is another area that they're really moving into, very
Amazon-esque in that regard. It is still only about 7 percent of their revenues, but that grew 74 percent year-on-year. So very strong results for
Alibaba.
One slight question that analysts had going forward was that revenue guidance for the next fiscal year was only 33 percent increase, that's
after an increase north of 50 percent over the last three years, so that could be a sign of a potential slowdown there, but overall, a set of very
strong results.
You know, the sign of the strength continuing of the Chinese consumer despite worries about a slowdown there.
ASHER: All right, Clare Sebastian live for us. Thank you so much. All right, so Facebook is tightening its live streaming rules this coming two
months since a gunman essentially livestreamed his mass shooting attack on two mosques in New Zealand.
Now the social media giant is introducing new restrictions that it says would have actually stopped the alleged Christchurch shooter from
broadcasting the massacre live.
Samuel Burke is joining us live now from London. So Samuel, just explain to us what exactly these restrictions are and essentially, they would
restrict or limit who is capable of livestreaming on the platform?
SAMUEL BURKE, CNN BUSINESS TECHNOLOGY CORRESPONDENT: Zain, once again, it looks like Facebook is on the right path, but lacking details. They say
once again, because if you recall, just a couple of weeks ago, we were talking about the right-wing and left-wing extremists that Facebook had
removed from the platform, but I was saying I'm right on this show that they really hadn't given us an explanation why. So not really setting the
standard.
In this case, they're saying that they're going to have something closer to a one strike type of policy that if people violate the most serious rules
on their platform, they might ban them for 30 days from their livestreaming video capacity, which was used in the shooting that you were referencing.
[09:10:14] BURKE: But they don't say specifically which policies and we don't know what it will take to get somebody completely off the platform.
Now our own CNN, Christiane Amanpour has been speaking to the Prime Minister of New Zealand about conversations that she's had with Mark
Zuckerberg. Let's take a listen to what the Prime Minister told Christiane.
(BEGIN VIDEO CLIP)
JACINDA ARDERN, NEW ZEALAND PRIME MINISTER: I've spoken to Mark Zuckerberg directly, twice now. And actually we've had good ongoing engagement with
Facebook and the last time I spoke to him a matter of days ago, he did give Facebook support to this call to action.
(END VIDEO CLIP)
BURKE: So this is called the Christchurch Call and this is really about social media companies like Facebook working closer with countries which
oftentimes tell me they don't feel like they have that direct line with the social network. So maybe now people like the Prime Minister of New Zealand
developing those said they can coordinate their efforts in the wake of an attack like the one in Christchurch more closely.
ASHER: All right, Samuel Burke live for us. Thank you so much for bringing that story to us. Okay, so these are the stories making headlines
around the world. The U.S. state of Alabama has passed the bill to make abortion illegal in almost every situation. It would only allow abortions
if there are serious health risks to the woman or the fetus has a lethal birth defect.
Lawmakers voted not to exempt rape and incest victims. The bill must now be signed by the State's Governor. More than a dozen U.S. states are in
the process of trying to curb abortion laws.
And the U.K. Prime Minister Theresa May will once again tried to push through her Brexit deal putting it to a Parliamentary vote on the first
week of June and it follows weeks of cross party talks. The Prime Minister is already facing increasing pressure to quit. If she fails to get her
bill through this time, it could see her own departure date brought forward.
Isa Soares is joining us live now from London. So one of the big questions that lawmakers are no doubt going to have Isa, is whether or not anything
has fundamentally changed on this withdrawal bill that lawmakers have voted on three times in the past.
ISA SOARES, CNN INTERNATIONAL CORRESPONDENT: Exactly. And I feel, Zain that you and I and many voters, we have many people here, anyone watching
feel like -- they're probably going round in circles because in reality, nothing has really changed from meaningful vote 2.5 or meaningful vote 3 if
you want to call it that.
So here we have Theresa May yet again, throwing everything plus the kitchen sink as we have seen her do the same thing for the last three times hoping
that her withdrawal bill will be passed sometime in beginning of June. But the reality is, Zain, like you said, nothing has changed. She has no
majority whatsoever in Parliament for her deal.
In fact, there's no majority for any sort of Brexit plan. Those cross party talks with the leader of the opposition with Jeremy Corbyn of Labour,
they have been useful. They have been constructive, that's what we've been hearing, but actually, nothing has changed and no ground has been gained.
And the sticking points remain when it comes to a permanent Customs Union, no one is prepared really, Theresa May is not prepared to budge on that.
And then on top of that, there are reports that Labour will perhaps not back Theresa May's meaningful vote four -- number four, unless there is
some sort of agreement.
So what it does do is like you clearly pointed out in your introduction to me, Zain, is it puts her position in a more untenable situation because if
there is no -- if it doesn't pass, then here we have Theresa May again, perhaps we're looking at no Brexit deal or revoking Article 50. So all up
in the air as to what regards his strategy, Zain.
ASHER: Yes, I mean, just explain to us what her thinking is behind this. As you mentioned, the stakes are extremely high if the vote is rejected for
a fourth time and that could mean a no-deal Brexit. What is her thinking here?
SOARES: Well, some will say that within her party, there is no strategy. But look, at the timeline that we've just put up on your screen. A lot
happening before that vote. So we've got elections on June the sixth; next week, and actually on Thursday, we have European elections. And
interestingly enough, we've also got -- we also have -- it's not showing there, President Trump's visit there on the third and fifth.
But look with those European elections next Thursday that is interesting, Zain, because the feeling is that the Conservative Party and Labour Party
won't do that well. Instead, the Brexit Party of Nigel Farage will gain most ground. In fact they are billing at the top at the moment or expected
to gain more. Why are they gaining? Perhaps, they will gain more because people feel that both the Conservative Party has not delivered on Brexit
and Labour and the Conservatives just haven't seen eye to eye.
So perhaps her strategy, if there is a strategy, Zain, let's put it out there is perhaps to really push both sides to agree to a deal given that we
could be looking at a no-deal Brexit or an Article 50.
[09:15:19] SOARES: But of course, you know, this is the last throw of the dice. We've been here before and maybe this will mobilize both sides,
Zain. We don't know.
ASHER: All right, Isa Soares live for us. Thank you so much. Appreciate that. Okay, so still ahead here on FIRST MOVE. Berlin gets a boost.
Germany's recession fears are over for now.
And beefing up investors taste for veganism, we look at the plant-based opportunities that are sprouting up. That's next on FIRST MOVE.
(COMMERCIAL BREAK)
ASHER: All right, welcome back to FIRST MOVE, everyone. Live from the New York Stock Exchange, let's take another quick check of the market. So we
are just a few minutes before the opening bell, in about 12 minutes here on Wall Street.
Still looking like relatively a weak open for U.S. stocks following Tuesday's bounce, Tuesday's rally. Weak U.S. retail sales are certainly
weighing on sentiment. So a quick check of Treasuries for you. The yield on the benchmark, 10-year U.S. Treasury is under pressure again today.
It's currently below 2.4 percent. A drop of around 2 percent.
Investors are still flocking to safety of government bonds especially with all the concern about slowing global growth. Germany's benchmark 10-year
bond fell to its lowest level in more than two years.
Joining me now to discuss all of this, especially the market is Steven Englander. He is the Global Head of G10 FX Research at Standard Chartered,
thank you so much for being with us, Steven.
STEVEN ENGLANDER, GLOBAL HEAD OF G10 FX RESEARCH: It's a pleasure.
ASHER: Let's just talk specifically about the trade war that is really what is weighing on investors right now. If this trade war was to go
horribly wrong, what do you anticipate the Feds' response to be? Do you expect them to switch course when it comes to interest rate height,
potentially even a cut?
ENGLANDER: Definitely. I think that the -- from their perspective, a tariff is like a cigarette tax. It has nothing to do with supply and
demand in the market.
[09:20:12] ENGLANDER: And what they would be focused on would be the impact on production, the impact on demand. So they would be much more
likely to ease than to hike and they would look past certainly the first round of inflation prints that we get.
ASHER: Okay, and when you look at bond yields being lower, especially coming out of Italy that is really weighing on U.S. stocks today.
ENGLANDER: Yes, that's the story because in fact, the trade war sentiment seemed to be slightly better until the European open. And then the concern
about the Italian budget and the likely battle that they're going to have renewed with the European Commission took bond yields down in Europe, it
took equity markets down in U.S. bonds -- bond yields and equities have been following. Then of course, you had retail sales which are soft and
just exacerbated that.
ASHER: And with tariffs obviously comes price hike, especially if companies here in the United States choose to pass off the rising prices to
U.S. consumers. What's sort of impact do you expect that to have on inflation?
ENGLANDER: I think at the end of the day, the impact will be relatively modest. It's not going to be 1 percent. It's not going to be -- it goes
from 1.8 to 2.8, it could be a tenth or two tenths of a percent.
But I think that the second round will be more visible than the first round because deliberately, the first set of tariffs affected non-consumer goods,
good where you could buy your socks or your ties from Vietnam or Bangladesh, you didn't have to buy them from China. What's left to be
tariffed are the goods that China is actually relatively specialized in and demand is concentrated. So the ability to evade the tariffs will be less.
ASHER: So which sector specifically do you think are going to be hurt here in the United States from the worsening U.S.-China's trade war?
ENGLANDER: I'd say that, you know, you're probably going to have, you know, anyone who makes plane, anyone who sells into China --
ASHER: So Boeing, Boeing obviously in jeopardy. For a number of reasons, but especially that.
ENGLANDER: You know, basically the firm's that sell into China, I think, you know, I've heard talks that toy makers -- because we import a bunch of
toys, things like that, where China really has a niche, those guys are going to be pretty vulnerable.
And the second part is that if China retaliates, U.S. firms that actually work in China, sell into China, operate in China, may face some pushback
from China.
ASHER: So just -- if you look at this week, right, we had a selloff on Monday. Tuesday, obviously, we rallied. Just in terms of investor
thinking, what is next on the horizon? What are investors concerned about in terms of news when it comes to the U.S.-China trade war? What are they
watching for this week?
ENGLANDER: I think that they want to see both sides continue to talk. There's been a difference between what you read in the newspapers and let's
say, second tier officials versus the most senior officials involved in trade, saying, "We're still talking. We're still going to -- you know, get
a deal. These things happen." They've been relatively restrained.
So if that relatively restrained discussion -- discourse -- at the highest level dissipates, I think markets will grow be very fearful. The second
thing, I think that they really do think that the consequences of going into this next round of tariffs, like tariffing up the last $250 billion to
$300 billion of Chinese goods at 25 percent. That would be a bridge that would be hard to walk back quickly.
ASHER: I see. I see. Even though there's a lot at stake for President Trump, especially as we come up to 2020, there's still a lot of fear as
well as to where this -- where a deal could be coming from next.
ENGLANDER: Well, there's a lot at stake for China as well. And that's why the market remains optimistic because they see that both sides will be
better off with a deal even if it's not a perfect deal.
ASHER: Okay, Steven Englander, live for us. Thank you so much.
ENGLANDER: My great pleasure.
Asher: Okay, so Germany returned to growth last quarter. GDP rose 0.4 percent, easing fears of an imminent recession. Let's bring in Atika
Schubert who is joining us live now from Berlin.
So Germany did relatively well, especially compared to the past when it came to economic growth. Just walk us through -- is Germany completely out
of the woods, Atika, when it comes to fears of a recession?
ATIKA SHUBERT, CNN SENIOR INTERNATIONAL CORRESPONDENT: No, I don't think that it is. I mean, it has fended off the recession for now. I remember
in the third quarter of last year, it definitely shrunk the GDP and then a flat-lined, and that was blamed on declining car sales at the time.
This time, the GDP seems to have at least grown at that 0.4 percent and that's due largely to increased household spending and to a boom in
construction. So that's good news.
But the Economy Minister Peter Altmaier was only cautiously optimistic. He said, "Yes, this is a ray of hope." But he cautioned that he was still
very concerned about those international trade disputes you were just talking about. U.S. and China's tit-for-tat will have a major impact on
Germany because those are two major German markets.
[09:25:10 ] SHUBERT: But also, there is still of course, that looming threat from the Trump administration to impose tariffs on European car
imports, and that would have a huge impact on Germany's car industry.
ASHER: And let's talk about some of the news that we got, bank raids happening across Frankfurt. What more can you tell us?
SHUBERT: Yes, this was very interesting. We saw a number of raids happening this morning. We called the Frankfurt Prosecutor's Office and
they confirmed to us that a number of residences, eight residences, I believe, 11 banks, four tax consultants and six asset managers all had
their offices raided. It's part of a very wide ranging investigation as to tax evasion through offshore accounts.
Remember last year in November, Deutsche Bank was also raided. It was part of the same investigation. This time Deutsche Bank was not one of the
banks raided, but it goes to show this investigation is not over and it is still continuing.
ASHER: So there's a focus though on specific wealthy individuals. I understand about eight wealthy individuals are being targeted. What are
prosecutors looking for in all of this?
SHUBERT: Well, they're looking -- really what they're trying to do is trace whatever they can, showing what was happening with these eight
presumably clients of these various banks as they funneled money through offshore accounts. And this all came about through those offshore leaks
that came out last year, a number of very prominent individuals were exposed and so they're looking at -- we don't know the exact number, but
prosecutors are say roughly, yes, you're right, we've heard that number eight. And they're basically looking for any paper trail they can find.
ASHER: All right, Atika Shubert live for us there. Thank you so much. Okay, we've got about five minutes until the opening bell on Wall Street.
We bring you that, next.
(COMMERCIAL BREAK)
[09:30:00] ASHER: Oh, that vigorous round of applause there for the opening bell. Welcome back to FIRST MOVE. I'm Zain Asher coming to you
live from the New York Stock Exchange. As I mentioned, that was the opening bell. U.S. stocks are lower in early trading today. Global growth
concerns continue to weigh on sentiment. We actually received two pieces of weak Chinese economic data today showing how the ongoing trade war
continues to pressure China's economy.
Let's take a look at global movers. Macy's -- let's start with Macy's. Shares up. Best quarter earnings and same store sales beat expectations.
The retailer boosted efforts to refresh outdated stores and increase shopping using its mobile app. The company reaffirmed its profit outlook
for 2019.
Also in focus, cannabis Stocks, Aurora and Tilray. Aurora shares are tumbling after quarterly revenue missed expectations. It comes as
regulators limited the number of retail outlets. The company did however see a surge in revenue from a year earlier. Meantime, Tilray is trading
higher. Revenue beat expectations as Canada becomes the first industrialized nation to legalize recreational use of cannabis. The
company was also helped by growth in the medical markets as well.
All right, let's turn to another story that we are following. Officials at the FAA, the Federal Aviation Administration will face questions -- tough
questions -- on Capitol Hill today about how the Boeing 737 MAX airliner was certified as safe to enter service -- it is safe to fly.
Newly released audio reveals American Airlines pilots angrily confronting a Boeing official just weeks after a Lion Air 737 MAX 8 crashed in a sea off
of Indonesia. Take a look listen to this.
(BEGIN AUDIO CLIP)
UNIDENTIFIED MALE: We flat out deserve to know what is on our airplanes.
UNIDENTIFIED MALE: I don't disagree.
UNIDENTIFIED MALE: These guys didn't even know the damn system was on the airplane - nor did anybody else.
UNIDENTIFIED MALE: I don't know that understanding this system would've changed the outcome of this. In a million miles, you're going to be flying
this airplane, maybe once you're going to see this ever.
So we try not to overload the crews with information that's unnecessary so they actually know the information we believe is important.
(END AUDIO CLIP)
ASHER: All right, CNN's Tom Foreman joins us live now. So Tom, the acting FAA chief is going to be facing a grilling on Capitol Hill today. Just
walk us through how much credibility has the FAA lost? Some people are concerned that the FAA has too much of a cozy relationship with Boeing.
What are your thoughts?
TOM FOREMAN, CNN CORRESPONDENT: Well, I think it's going to depend on who is doing the grilling. Certainly, there have been a lot of people in
Congress here in recent years, who have leaned toward the side of saying look, let industry be what industry is and it will correct itself. I don't
think many of those very pro-business people even now are going to jump on the FAA very hard.
And we're sure the FAA is going to present the case that look, it's mainly up to these companies to decide if their products are safe. All we can do
is look at the data later and say, where they right or not, and take corrective action.
But, but there will be others who will listen to that very tape you just talked about, who will look at all these reports. Remember that tape was
recorded after the first crash of one of these MAX jets, not the more recent one in Ethiopia and some of those will hit them very hard and say,
"You are the government inspectors, you're the ones who supposed to be paying attention. Where were you? Why were you not aware of this and why
didn't you ground these planes a lot sooner than the second crash, or if after the second crash, at least not more immediately," Zain.
ASHER: And Boeing is of course just suffering financially as a result of all this. They actually received no new orders for the 737 MAX, the 787
Dreamliner or the 777 in April. No new orders. Clearly, the company has such a long way to go when it comes to regaining trust.
FOREMAN: Yes. And they've been hit with something new like this every few weeks really since the Ethiopia crash. There's been some new emergence of
something that makes it look like Boeing was much more interested in just keeping these planes flying, keeping the orders moving out there, because
remember, this really was the flagship of the new age of Boeing, and they're making a ton of money off these things.
So it does not look good for Boeing right now. And, yes, Boeing needs to get these planes recertified. It needs to get them into the air. That's
sort of an existential question for them. But to do that first, Zain, they must overcome this question of trust from regulators, from the airline
industry, and from passengers and at the moment, it doesn't look like they're even close to succeeding on that front.
ASHER: All right, Tom Foreman, live for there. Thank you so much. Appreciate that.
Okay, a dip in demand for new cars is driving down U.S. retail sales. April numbers declined unexpectedly as car dealers and Home and Garden
stores saw business go into a reverse.
[09:35:10] ASHER: Retail sales as a whole went down a fifth of a percent. Economists were actually expecting a rise. Simeon Siegel is a senior
equity analyst at Nomura. Simeon, thank you so much for being with us. So, U.S. retail sales came in relatively weak. On the other hand, though,
we've got Macy's earnings, and they're basically saying that they believe that the U.S. consumer is healthy despite all of this, would you agree?
SIMEON SIEGEL, SENIOR EQUITY ANALYST, NOMURA: We're in this really interesting spot where we're talking about middle of an earnings period, a
monthly backward looking retail sales data. At the same time, the companies are trying to plan business models based on tweets.
So this fascinating thing in retail right now and in general going around is where is this retail environment? The retail environment is not great.
The consumer is healthy. The question is who has the power here? And I think as we look forward beyond that, we're going to get disappointments
and we're going to get positive surprises and that's what this does.
In the scheme of things, if you can't own your brand, if you can't own your distribution channel and own that customer, you're going to be in trouble
and you're probably going to get small.
ASHER: So what is the solution for retail? I mean, we had about 6,000 brick and mortar stores closed so far this year --
SIEGEL: And counting.
ASHER: And counting -- is solution, you know, revitalizing loyalty programs to get customers back into the store? Is it about refurbishing
brick and mortar stores? What do they need to do to just protect themselves from Amazon?
SIEGEL: So -- and by the way, it's not just Amazon, think about it as Amazon does what they do, but the reality is, it's the limitless new
competition. It's the startups. It's the fact that you and I could start a retailer overnight if we wanted to. We need a sewing machine and a
website.
So when you're operating against irrational competition that can afford to lose money because their investors allow it that makes it very hard to try
to sell for real. Fortunately, that's been slowing. So to your question of what do we do now? You need to have a critical focus on who your
customer is and who you are. And you need to give them the product that they want.
ASHER: Also focusing on digital ecosystem, too, no?
SIEGEL: Yes, listen, the reality is the best companies in the world, the best retailers in the world have very small e-commerce. So if think about
who you keep hearing is doing great. It's off price. So it's TJX, raw stores, tiny e-commerce, Costco, tiny e-commerce. So it's making sure
you're not putting your head in the sand, but still figuring out why people are coming to your store.
If you're not fortunate enough to be born into a category that is e-com proof, you need to make sure that you have a fantastic customer experience.
But you need to make sure you're doing it at a profit.
ASHER: The biggest headwind, you know, from my perspective facing American retailers right now is of course this pending cable with China. Do you
anticipate that U.S. retailers are going to sort of pass on any price rises to the consumer? Are they going to absorb it? Are they going to pass it
off to vendors? What are your thoughts?
SIEGEL: I think they would love to. I think that's the easiest answer. This conversation happened a year ago, and it happened a year before that
via border tax, right, the BAT. Back then, the retailers were in a better position or they were in a presumed better position because inventories
were light.
When inventories are light, it's easy to pass on price. They're not light right now. I mean, look at the retail sales now. Look at what we're
talking about. I think the power has shifted back to the consumer. So what that means from these brands is that assuming these tariffs stay
enforced and assuming they impact the way they seem to be impacting, which could be crippling, they're going to have to figure out can they push up to
the suppliers or down to the reef? To the customers?
And I think the reality is that they're going to find it very hard to raise price. We're going to be talking about a deflationary environment, not
growth of those things.
ASHER: Okay. So when -- just help me understand something. So when Macy's comes out and says that the U.S. consumer is still healthy, how much
of a link is there between U.S. consumer spending, and also retail sales specifically?
SIEGEL: So remember, the retail sales just came out this April. So Macy's is giving you a quarterly period that we're a little bit further along.
The consumer, macro-wise is healthy and they've been healthy for the last several years.
So the question becomes this dichotomy, there is a zero sum game between the retailers that are selling something and the consumers that are buying
something.
So the health of the consumer is a great instance for the retailer. But who believes they have power? Who believe they have the upper hand? As
customers, I think you and I expect to get deals right now.
ASHER: Right, of course.
SIEGEL: And last year, we were willing to pay up. And that's because if there's very little inventory in the flow, if you walk into Macy's, and
there's very few sweaters, you're going to pay up. There's a lot of sweaters now.
ASHER: Yes.
SIEGEL: Regardless of how well the customer is doing.
ASHER: And if inventory is a problem -- inventory is a problem. So just, you know, if you're the head of a retail brand, and you see this looming
trade war on the horizon, what can you do before it gets worse, to shield yourself?
SIEGEL: So fortunately, a lot of the apparel and accessory retailers and brands have been shifting out of China. So they got ahead of this to an
extent. If you are not -- so if your costs are about to skyrocket, figure out a way to ensure that your brand is going to be worth something to the
consumer that allows you to take price.
So either figure out a way to go back to your suppliers and say we both need to bear this otherwise, I'm not going to be around to pay your bills,
or go back to the consumer and say there is something special about what I do that suggests you should pay up. I think the first half of that is an
easier equation.
[09:40:05] ASHER: All right, Simeon, thank you so much for being with us. Appreciate that. All right, still to come here on FIRST MOVE, a future in
blockchain. We speak to the chief executive of Overstock, as the firm branches out from e- commerce to cryptocurrencies. We will have that live,
next.
(COMMERCIAL BREAK)
ASHER: Here is today's boardroom brief. The world's largest gaming company, Tencent has beast forecast to post a 17 percent jump in first
quarter profit. The company resumed selling games at the start of this year following a temporary ban by the Chinese government. Tencent's
earnings were also boosted by its financial services and Cloud computing sectors as well.
Despite its proximity to Silicon Valley, San Francisco has become the first American city to ban the use of facial recognition by city departments such
as the police. Under the order, departments will have to ask for permission first, if they want to use the technology; however, the airport
and port as well as private businesses and residents are exempt.
And the world's biggest retailer, Walmart says it is seriously considering a stock market listing for its British supermarket ASDA. It is the first
time a U.S. retail giant has directly acknowledged the future strategy of ASDA since it proposed merger with Sainsbury's was blocked by regulators
and Walmart is a major competitor to U.S. internet retailer Overstock.
For now, the company has big plans to branching out into blockchain and cryptocurrencies as well. Its chief executive, Patrick Byrne joins us live
now here at the New York Stock Exchange.
So, before we get to cryptocurrencies and blockchain, I do want to talk to you about the health of the U.S. consumer especially when it comes to
retail sales. You guys reported earnings last week, but you issued very sort of upbeat, optimistic guidance. What was that based on?
PATRICK BYRNE, CEO, OVERTONE: Well, we've historically been, I think the most consistently profitable B to C of pure play e-commerce buyer.
[09:45:08] BYRNE: A couple of years ago, in the face of this onslaught of this competitor Wayfarer, we decided, "Well, we've got to play the same
game." And last year, I really hit the throttle and just tried, and the truth is, it doesn't work for me.
Wall Street, I have a long history and they don't care if I can get the business growing 20 percent. They don't like me. So it's not going to
work.
So I've said at the beginning of this year or near the end of last year, we're just going to return to profitability. We're not going to worry
about growth, and we've already come back hard.
This year, I predicted we will make $10 million of positive operating cash flow. I just recently raised it $15 million, maybe $20 million or $25
million if things get going.
ASHER: So what is your path to profitability specifically?
BYRNE: Well, it isn't as hard as people think because most of it was being driven just by just hitting the afterburners on marketing. Well, it's
easier to flip it. I mean, we were able to flip that switch off as well.
So and it's also there was a tightening, we took about 30 percent out of our G&A structure, tighten up the expenses of the company. And we've also
introduced machine learning everywhere, which was working beautifully for us, so we're kind of at the leading edge of that.
So it's all just coming back. You know, we did I think eight years of straight gap profitability or so. And it's not that hard for us to get
back into that kind of shape.
ASHER: Everybody who knows you knows that yes, you are in retail, but your real passion is of course, blockchain and cryptocurrencies as well. Do you
actually plan to sell overstock.com to focus specifically on blockchain?
BYRNE: I could do. It's absolutely, we announced that a year ago. I've worked on -- I've been working on it. It's been a little harder to get
across the finish line than I hoped. I love our retail business and if I get it back to make me something that is spitting out 50 million bucks a
year, which I think we can do next year that's a fine thing to own. It's a lot of fun.
It's also very valuable to have 40 million people a month coming to that site, but all that said, it really belongs to hybridize with a brick and
mortar chain. It looks like there's $200 million to $300 million of expense savings in logistics if it could be part of the brick and mortar.
So we want to find the right suitor and make that happen. And I mentioned in our shareholders meeting, a couple of people have shown up in the last
month, but I had been on the verge of saying we're discontinuing the effort to the end of the year and then two people showed up. So now you know
everything I know, Zain. And so I wouldn't count on it, but it could happen.
ASHER: Okay, so just in terms of focusing on blockchain more specifically, and you have some really interesting, somewhat radical views on how
blockchain can just completely transform the way we do business, specifically, government services, how would government be transformed if
they relied more heavily on blockchain do you think?
BYRNE: Well, there's a number of government services I would start with first land governance, land titling. And then the next layer is central
banking and then the next layer is well, like a capital market -- a regulated, well-functioning capital market, then supply chains and voting.
So we -- I think of these as layers of a technology stack. And for over the last four or five years, we've been investing in and funding or else
sometimes just starting companies that work in those areas like blockchain meets voting, blockchain meets Wall Street, blockchain meets land
governance. I'm very excited about.
We have a blockchain central banking company that just signed a deal with the Eastern Caribbean Central Bank and they're creating a blockchain
version of their national currency.
So blockchain is going to infiltrate all of these areas of really government and private business.
ASHER: But it could also, according to you, transform even global crises, like what's happening in Venezuela.
BYRNE: Oh, yes. Well, we already are -- we're very close to the point of being able to say in a place like Venezuela -- boy, you really do your
homework, Zain, don't you?
ASHER: I try, I try.
BYRNE: We could fly into a place like Caracas with a central bank on a laptop, so you take a collapsed country -- Syria, a collapsed system or
Venezuela, we go in with this the central bank on a laptop. Madam Central Banker, for now and when you wish to issue your currency, your bolivars or
whatever they have in Venezuela, you issue them on -- just type your key here and issue them, everyone in your country downloads a free app on their
phone.
And now in this phone, you have mobile money, but with no underlying bank accounts and this is already the case in Barbados. It is the only country
in the world and soon -- people are walking around with mobile money that's not tied to underlying bank accounts through the magic of blockchain and
cryptography.
So you can have in 20 --
ASHER: Because Venezuela suffer deeply because of inflation.
BYRNE: Yes, you can have overnight institute a brand new, entirely new financial system that would in the sense be the most advanced and friction-
free in the world.
ASHER: I was going to ask you about Bitcoin, but unfortunately, we have run out of time. I am sorry.
BYRNE: I talk too much. Thank you, Zain.
ASHER: No, no. Thank you so much, Patrick. Appreciate that. CEO of overstock.com. Thank you. All right, still to come, appetite for change.
We try out the meatless burger that is sizzling on Wall Street. That's next.
(COMMERCIAL BREAK)
[09:52:10] ASHER: All right, welcome back. More and more people are facing up to climate change by turning their backs on meat. Beyond Meat
became the first veggie meat company to test investors' appetite. It's made its Wall Street debut earlier this month after an IPO at $25.00 a
share. Here's what happened when the stock hit the market. It more than doubled -- more than doubled on the first day of trade. Clare Sebastian
has been finding out what makes meatless burgers so hot.
(BEGIN VIDEOTAPE)
SEBASTIAN (voice over): The unmistakable sizzle of meat on the grill, the real meat and the Beyond Meat.
(BEGIN VIDEO CLIP)
NICK BUCCIERO, DIGITAL MARKETING MANAGER, BAREBURGER: We have our Beyond burger over here and we have our beef burger over here. Once you dress
them up, it's impossible tell the difference.
(END VIDEO CLIP)
SEBASTIAN (voice over): At this Bareburger restaurant in Manhattan, burgers made from plant protein makeup a meaty portion of its sales.
(BEGIN VIDEO CLIP)
BUCCIERO: The response has been great. It's been so great in fact that our menu is now 50 percent vegan.
(END VIDEO CLIP)
SEBASTIAN (voice over): For first timers, it takes a little getting used to.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: A little smoky.
UNIDENTIFIED FEMALE: It's like crispy.
UNIDENTIFIED MALE: And very crispy, yes, but it doesn't taste like a real --
UNIDENTIFIED FEMALE: It doesn't taste like a burger.
(END VIDEO CLIP)
SEBASTIAN (voice over): Investors though had no trouble taking their first bite. Beyond Meat's beefy IPOs sold 160 percent on its first day of
trading on May 2nd. The best IPO jump of a major U.S. company since the financial crisis.
Analysts believe it is part of a veggie revolution that is just getting started.
(BEGIN VIDEO CLIP)
ALEXIA HOWARD, EQUITY ANALYST, BERNSTEIN & CO.: If it follows the same path that the plant-based beverage market followed, you'd see it growing
from roughly $13 billion -- $14 billion today up to potentially over $40 billion over the next decade.
(END VIDEO CLIP)
SEBASTIAN (voice over): While Beyond Meat is not yet profitable, its revenues are up more than 130 percent in each of the past three years, and
it's expanding into new product categories like meatless sausage.
(BEGIN VIDEO CLIP)
ETHAN BROWN, CEO, BEYOND MEAT: It's not just vegans or vegetarians that are interested in this. In fact, 93 percent of the people that are putting
the Beyond Burger in their cart at the nation's largest grocer are also putting animal protein in their cart. It's a tremendous sign that we're
able to grow the business.
SEBASTIAN (on camera): Thank you very much. Now the Beyond Burger, it does have some competition mainly from this one, which is the Impossible
Burger from Impossible Foods.
SEBASTIAN (voice over): That's already on the menu at Burger King, which is rolling out the Impossible Whopper. McDonald's is also selling a
meatless burger in Germany made by Nestle and Tyson Foods, one of the world's biggest meat producers is also set to launch a fake meat.
(BEGIN VIDEO CLIP)
SEBASTIAN: Both of them smell like meat.
(END VIDEO CLIP)
SEBASTIAN (voice over): As for my first bite, well, it felt like eating a burger just a little less beefy.
(BEGIN VIDEO CLIP)
SEBASTIAN: But I quite like them. They're not exactly like meat, but they are something interesting and I do think this might be a taste of things to
come.
(END VIDEO CLIP)
SEBASTIAN (voice over): Clare Sebastian, CNN, New York.
(END VIDEOTAPE)
ASHER: And Burger King is jumping on the meatless bandwagon and rolling out the impossible Whopper made from Impossible Meats plant-based patties.
Richard Quest spoke to the company's CFO.
(BEGIN VIDEO CLIP)
DAVID LEE, CHIEF FINANCIAL OFFICER, IMPOSSIBLE FOODS: With so much wonderful momentum from those who are disclosing valuation from Beyond Meat
who recently went public, it's very clear that investors -- public and private -- are extremely interested in the change we can make.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Why are they interested? I mean, Beyond Meat, which is your competitor, or sort of your competitor -- we can
discuss that in a second -- opened higher, terrible valuation on the pricing the way it roared up. But it's held its gains pretty much.
LEE: Well, investors look at a $1.5 trillion meat and dairy market globally and they're recognizing the meat eaters, and we see this every
day, consumers of the Impossible Whopper are saying, you know what, we want something better. And that's a huge opportunity for the business as well
as the mission to make the world a better place.
(END VIDEO CLIP)
ASHER: Much more of Richard's interview with the CFO of Impossible Burgers tonight on "Quest Means Business." And thank you so much for watching.
I'm Zain Asher. IDesk continues with Robyn Curnow after this short break.
(COMMERCIAL BREAK)
[10:00:00]
END
