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First Move with Julia Chatterley
Deutsche Bank Announcing 18,000 Job Cuts And Abandons Global Equity Trading; President Erdogan Removes His Central Bank Governor, Turkish Assets Stumble; Equal Pay For Equal Play As The Women's Football World Cup Champions Call For Action. Aired: 9-10a ET
Aired July 08, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here is
your need to know.
Drastic measures. Deutsche Bank announcing 18,000 job cuts and abandons global equity trading. You're fired. President Erdogan removes his
Central Bank Governor, Turkish assets stumble. And equal pay for equal play. The women's football World Cup champions calling for action. It's
Monday. Let's make a move.
Welcome once again to FIRST MOVE this Monday. Really great to be back in action. I can't describe it enough. Congratulations, of course, too, to
Team USA. Some incredibly fancy footwork from the women's team this weekend.
Let's hope the Fed Chair Jay Powell has been taking note, of course, because we don't want any own goals when he testifies in front of Congress
later this week. I'm going to have lots of analogies like that this show.
Right now, we're looking like a softer open for U.S. equities this morning as we kick off a new trading week. It's probably some choppy trading,
though, in the session on Friday after that strong jobs number. Clearly, it was good news for the U.S. economy here. But I think it's forcing a bit
of a rethink for global investors about the justification here for rate cuts.
It's simply going to come down to how Jay Powell frames the debate, perhaps no surprise, though, that Asian stocks fell in the session on Monday, too,
but I do think there's a risk of overthinking this guy. Powell, I think will once again point out the longer term challenges here that he's been
reiterating for months and months.
Look at the statement that we got in the session on Friday, the latest report to Congress shows low inflation, trade uncertainty and manufacturing
weakness, none of these risks right now have gone away.
And as we keep saying on FIRST MOVE here, you know, I like this context is everything. It's just one jobs report. It's just one data point. And
what we've got now is a market that's fully priced, if not slightly more for a rate cut come the end of July, not cutting if the Fed doesn't decide
to cut rates that would create some kind of market volatility and something that Jay Powell is clearly trying to avoid here, too.
It's not going to stop questions, though, about political interference, though. But on the bright side, at least Jay Powell has a job, unlike the
Turkish Central Bank Governor of course that was ousted over the weekend, something like that could never happen here.
All right, let's get to the drivers. Enough being naughty. Deutsche Bank announcing an $8 billion plus overhaul including 18,000 job cuts. Shares
right now lower than more than three percent.
Anna Stewart joins us now on this story. Anna, I think for anyone that's been watching this over the last decade and the struggles that this bank
has faced, it comes as no surprise, but it's really tough reading, particularly as far as job losses are concerned. Talk me through it.
ANNA STEWART, CNN REPORTER: Yes, 18,000 is a really quite extraordinary number. It counts for nearly one in five Deutsche Bank jobs. And while
the scale of this restructuring, which I'll get into has actually taken some analysts by surprise, the area in focus here has been investment
banking. It was always going to be the case, wasn't it?
We don't have a regional breakdown of those 18,000 jobs. But we understand that most of them are likely to be in the United States. The bank did tell
us they were communicating redundancies to employees starting off across Asia early this morning.
Plenty of media reports now about people leaving the London office with their boxes full of their belongings, all very sad. Now in addition to
shrinking the investment bank, they are creating a bad bank of course, to wind down some $83 billion worth of assets.
I mention that number because that is much bigger than many analysts had thought and they are also surprised that they are closing the entire equity
sales and trading division even in Europe. That's another little nugget that took some people by surprise.
But essentially, in many ways, this is making a return to what Deutsche Bank started off as a corporate bank. And I think many people are quite
happy to see this, as JPMorgan put it, as resizing to where it came from.
CHATTERLEY: Yes, it's interesting, Anna. I mean, you mentioned all the key points here. The other thing for me that when I look at it is, you're
not going to get a dividend as a shareholder for the next two years.
A lot of the action that we're seeing is back loaded. The execution risk here after so many failed attempts to turn this around is a real problem as
far as I'm concerned. If I were looking at this as a shareholder in particular.
And the other thing of course, here, one of the key challenges is going to be going forward. What's the growth driver if we go back to the past and
go back to being a corporate bank that's lending to small companies as important as that is? What the growth and the profitable driver here for
the company going forward?
[09:05:17] CHATTERLEY: Because this is what analysts are saying, too.
STEWART: This is absolutely at the heart of what we're seeing today because there was a small relief rally, I think, due to the absence of a
capital raise on the announcement. Of course, a lot of it was baked in already. We've been expecting an announcement for days and days.
But if you look at the share price, now, Julia, it was down last time I checked around four percent. It really came off that relief rally pretty
quickly; over four percent now, and speaking to analysts, two main concerns here.
Firstly, this is not a cheap plan, it's going to cost them $8 billion. That's a lot more than many people expected. Definitely at the higher end.
And also some analysts I spoke to like Credit Suisse just question the bank's projections for, as you say, revenue growth, particularly in this
new core bank, given the scale of these cost cuts, and also the fact that this is a very grand radical restructuring, but it is the umpteenth, they
want to see it in execution.
CHATTERLEY: Yes, they do. And of course, Anna, to your point as well, hearts go out to those who are losing their jobs and lost them today in
particular. Anna Stewart, thank you so much for that.
All right. Let's move on to our next driver and the Turkish Lira losing some ground versus the U.S. dollar today. Tech bonds also under a bit of
pressure.
President Erdogan, sacking his Central Bank chief over the weekend, raising fresh concerns about the bank's independence.
Matt Egan joins me now. A slight eyebrow raise on that, Matt. I'm not sure that this Central Bank have any ounce for credibility left, quite
frankly, after recent months.
But talk us through this decision and the replacement and what that will mean for the Central Bank now.
MATT EGAN, CNN BUSINESS LEAD WRITER: Julia, Erdogan who is really -- you know, he is playing a dangerous game here, because this could actually
backfire in two different ways.
One, it is already undermining the credibility and the independence of the Central Bank of Turkey, which is a big deal anywhere, but especially in
emerging markets where you could have inflation flare up with little notice.
The other problem is that as you mentioned, it's causing the Turkish Lira to lose ground, which could actually limit the ability of the Central Bank
to do the rate cuts that Erdogan wants in the first place.
So no official reason was given for the decision to oust the Central Bank Chief whose term wasn't set to expire until the end of 2020.
But you know, it's important to think about the backstory here. Turkey's President has called himself the enemy of interest rates. He has this sort
of fringe idea that high rates actually cause high inflation, and so he was very upset with the high interest rates in Turkey.
Win Thin of Brown Brothers Harriman said in a recent report over the weekend, that you know, the only crime of the Central Bank Chief was the
fact that he refused to cut interest rates. And that this move shows who is really pulling the strings at the Central Bank.
Now, it's no surprise to see that the lira initially plunged by about four percent against the U.S. dollar, it has come back and cut those losses in
about half. I think that is probably a reflection of the fact that Turkey's 10-year yield still is at about 16 percent, and so some investors
are willing to gamble on it, because you've got negative rates in Germany and in France and the U.S. 10-year is just that two percent.
So it's possible that, you know, all of the Central Bank policies elsewhere is actually -- they're actually masking the impact of the firing over the
weekend.
CHATTERLEY: Oh, you make such a great point. In a world of zero rates, yes, you face risks with this country. But oh, boy, is there some degree
of compensation relative to other countries right now.
But I think to your point as well, investors got really furious with this Central Bank governor that he was too slow, to raise rates to try and
stabilize some of the currency volatility that we saw in the selloff last summer. So we had his own President lambasting him for not cutting rates.
Investors saying he was too slow to raise rates last year.
It's a tough gig. But to your point, the politicization here of Central Banks, whether it's here in the United States and the risks of Jay Powell
and the pressure he faces from President Trump or what we're seeing in Turkey -- a really fine line that you walk here with investors amid
concerns of politicization and political interference here. It's a huge risk.
EGAN: That's right, Julia, you know, it is a tough job. They are walking a very fine line. And so the next big event in Turkey is when the Central
Bank meets again in July 25th. Now, Rabobank said in a research report that they think that Turkey's new Central Bank Chief could actually cut
rates by several percentage points at this meeting to appease the President of Turkey.
Now, they say that that would actually be a big mistake because of the currency weakness. Now, as you mentioned, all of this is occurring in the
backdrop of President Trump repeatedly attacking the U.S. Federal Reserve.
So I don't know Julia, maybe we're entering a new world where politicians have greater say over Central Bank policy, but it's hard to see how that's
going to turn out well.
[09:10:13] CHATTERLEY: Yes, shipping Christine Lagarde. Unfortunately, she's already got the job with the ECB in Europe. Matt Egan, thank you so
much for that. We'll see. Okay, let's move on to our next driver.
U.S. women's football team of course making history this weekend with a fourth World Cup when they beat Netherlands in the final -- thrilling final
-- two nil. CNN's sports analyst Christine Brennan. Great to have you with us, Christine. Huge win for women's football. Huge win I think
global women's football and the challenge here, but it has turned into a bit of a political football here over equal pay. So talk me through the
success this weekend and also the challenges I think that follow here.
CHRISTINE BRENNAN, CNN SPORTS ANALYST: Julia, if the U.S. team was trying to devise the best strategy possible to get to the bargaining table to
fight for equal pay with the U.S. Soccer Federation, the national governing body for the sport, this would have been exactly it. This month-long march
to victory, with Donald Trump chiming in and Megan Rapinoe going after Donald Trump and some of her teammates doing that as well.
And obviously, look who won that one in the end. It looks like the women's soccer team certainly got the better of that, in terms of playing --
backing it up with their great play with the fact that U.S. jersey, the women's Jersey is the best-selling soccer jersey and United States ever
according to Nike. With the fact that TV ratings not just in the U.S., but around the world were sky high. They figure a billion people watched.
That's one out of eight people on the planet watching women's football.
All these things thrown together, plus all the headlines. I was at CNN earlier today here in the D.C. Bureau and every single big newspaper, "New
York Times," "Washington Post," "Wall Street Journal," "USA Today," front and center, the biggest picture, top of the page, A-1 women's soccer.
I think this is a pretty good -- they have a pretty good argument now when they take that to the bargaining table.
CHATTERLEY: You know, I couldn't agree more with you. It's great to see the publicity that we're seeing. But if we bring it back to the numbers
here, I mean, the prize and this is what they're arguing about for the 2018 Men's World Cup was $400 million. The female players get $30 million. So
there is a huge disparity.
But then if I look at the revenues generated by the Men's World Cup, $6 billion last year. We're talking $131 million for women's football. So
yes, there's a pay gap. These are incredibly skilled athletes. But when you look at the kind of money that the sport itself is generating, there is
a huge disparity. So how do you sort of square that circle or circle that square?
BRENNAN: That's the international conversation and you're right. I mean, FIFA has been dominated by men for generations. I think it's the most
sexist organization I have ever seen in sports, in covering sports for over 35 years. And it's -- they've kept the women down. They haven't supported
the women. I mean, how is it that England for generations did not allow women to play soccer? The nation that gave us soccer.
Argentina? Where have you been for all these years with the women's game? Spain now of course is there. Netherlands obviously cares, but they didn't
for generations and shame on FIFA for not throwing money and not demanding that every single governing body for these federations and in these various
countries didn't do 10, 15, 20, 25 percent of its budget for women's football 30 to 20 years ago. That's that side of the argument.
What we're talking about with this equal pay fight, Julia, is the United States. And there, it is about as crystal clear as can be. "The Wall
Street Journal" reported that over the last three years, the U.S. women's team made more money, game revenue than the U.S. men's team.
Obviously, the U.S. women's team is far superior to the men's team in terms of play, winning World Cups, winning Olympic gold medals. The U.S. men
didn't even qualify for the last World Cup.
So on all those measures within the United States, that's where the women have their argument, and that's where the battle will be joint.
CHATTERLEY: Yes, go the girls. Christine Brennan, great to have you with us. Thank you so much for that.
All right, take you up to speed now, with some of the other stories that we are following around the world. Greece's new center-right Prime Minister
has been sworn in following a landslide win in snap elections this weekend. The party Kyriakos Mitsotakis won 39.6 percent of the vote on a pledge to
reignite the country's recovering economy. He said his priority now is to boost investment while slashing taxes and regulations.
Donald Trump has lash back at the British Ambassador who described him as quote, "incompetent and insecure." The U.S. President said Kim Darroch has
not served the U.S. well in his role as Ambassador to Washington. His comments about President Trump was supposed to be confidential, but came to
light when diplomatic cables were leaked.
[09:15:11] CHATTERLEY: Iran has announced it has breached its uranium enrichment limit set in the landmark 2015 nuclear deal. Tehran had warned
it would do so unless sanctions on its banking and all sectors were eased. It follows Donald Trump's decision last year to pull out of the nuclear
deal.
Nic Robertson joins us now live. Nic, we are expecting U.S. Secretary of State Mike Pompeo to speak any moment. The question is, what will he say
if indeed he says something about this, but just talk us through what we saw and heard from the Iranians at the weekend because this is expressly
what a few months ago, Mike Pompeo said would not happen that the Iranians would not do this, as a result of the U.S. withdrawal.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: The Iranians have been very explicit in laying out an exact timeline and timeframe for when they
would breach the terms of the JPOA, that international joint nuclear agreement that the United States pulled out over a year ago.
It was 60 days ago yesterday that they said that they would announce on July 7th, their changes to how they would meet or not meet the terms of
that agreement. And they had indicated back then that they may enrich uranium above the maximum threshold that they're allowed to enrich it to.
They announced today that they were now enriching it to 4.5 percent, which is above the 3.67 percent threshold they were allowed. And that was
something that they had said that they were going to consider that they would announce it on that date. They announced it on that day.
And today, they laid down a further warning, if you will, saying in a further 60 days, they will announce -- potentially announce another way
that they're breaking the terms of that agreement.
So at the moment, there are two ways that they're breaking the agreement, one by having over the allowed amount of low-enriched uranium, 300
kilograms. They've said they've gone up on that level. They've gone now above the percentage of low enriched uranium that they are allowed --
CHATTERLEY: Actually, Nic, I am just going to get in there because Mike Pompei has actually began speaking. Let's listen in to what he has to say.
MIKE POMPEO, U.S. SECRETARY OF STATE: I made clear that the Trump administration has embarked on a foreign policy that takes seriously the
founders' ideas of individual liberty and constitutional government. Those principles have long played a prominent role in our country's foreign
policy, and rightly so.
But as that great admirer of the American experiment, Alex de Tocqueville noted, democracies have a tendency to lose sight of the big picture in the
hurly-burly of everyday affairs.
Every once in a while, we need to step back and reflect seriously on where we are, where we've been, and whether we're headed in the right direction,
and that's why I'm pleased to announce today the formation of a Commission on Unalienable Rights.
The commission is composed of human rights experts, philosophers, and activists, Republicans, Democrats, and Independents of varied background
and beliefs, who will provide me with advice on human rights grounded in our nation's founding principles and the principles of the 1948 Universal
Declaration of Human Rights.
An American commitment to uphold human rights played a major role in transforming the moral landscape of the international relations after World
War II, something all Americans can rightly be proud of. Under the leadership of Eleanor Roosevelt, the 1948 Universal Declaration on Human
Rights ended forever the notion that nations could abuse their citizens without attracting notice or repercussions.
With the indispensable support of President Ronald Reagan, a human rights revolution toppled the totalitarian regimes of the former Soviet Union.
CHATTERLEY: Okay, that was the U.S. Secretary of State Mike Pompeo there. If he mentions anything about Iran, we will bring that to you and update
you probably a bit later on in the show, but for now, we're going to take a quick break here on FIRST MOVE.
Coming up though, June's strong jobs report here in the United States may be a boost for the economy, but it's a challenge for markets right now. Do
they get the cuts they want? We'll be talking about that.
And Boeing can't seem to get a lift off. What Saudis deal with the Airbus spells for embattled old airliner? When we return, stay with us.
(COMMERCIAL BREAK)
[09:22:27] CHATTERLEY: Welcome back to FIRST MOVE live from the floor of the New York Stock Exchange. We're counting down to the market open as
always. I'm with Kristina Hooper, Global Market Strategist at Invesco. Great to have you with us.
KRISTINA HOOPER, GLOBAL MARKET STRATEGIST, INVESCO: Great to be here.
CHATTERLEY: Happy Monday. Let's talk about the jobs reports. Because we did see a bit of recalibration in the market. Certainly, we were talking
about 50 -- half a percent cut from the Federal Reserve. That's getting you a bit excitable, surely.
HOOPER: That absolutely was off the table, I think and really was never a possibility.
CHATTERLEY: No, it was never on the table.
HOOPER: Yes, exactly.
CHATTERLEY: Okay. Does it make it more difficult for Jay Powell even to justify at this stage cutting rates, in light of what we're seeing? The
consumer is such a huge part of the economy. The jobs market is really strong.
HOOPER: Well, that's certainly what the market reaction suggests that we saw on Friday. But I would argue that there are other reasons. So there
are justifications for the Fed cutting rates in July. First of all, the Fed could easily just say they're moving the inflation target, let's raise
it; and then economic conditions don't have to change.
CHATTERLEY: Okay.
HOOPER: But also, if you look at the jobs report, one area that is somewhat lackluster is actually wage growth. We're still at about 3.1
percent, we really should be three and a half percent or higher at this stage in the economic cycle. So for that reason, you could make the case
that maybe there's also a need to cut rates.
CHATTERLEY: You know, it is interesting, I was making the point earlier that we're in a situation now when the market has fully priced something,
very difficult for any Central Bank Governor to suddenly about turn and do something different. It creates a huge amount volatility just in doing it
and is there the justification there the risk of the question again, about the politicization of the Fed and of Jay Powell being backed into a
situation either by the markets or by the White House here to cut rates when absolutely not necessary.
HOOPER: Oh, absolutely. I think anytime we see a Central Bank make an about face, do any kind of dramatic change, it creates economic policy
uncertainty. And in particular, of course, we're seeing all this political pressure being heaped on Central Banks. And it's not just the Fed. Of
course, we've seen it in Turkey Earlier today.
CHATTERLEY: Right.
HOOPER: But also, we've seen it in India. And perhaps that is just adding to the economic policy uncertainty out there and the lack of credibility
that we could see for Central Banks.
CHATTERLEY: Is it smart then for the European Central Bank to say, "Hey, in this case, we'll have Christine Legarde and we'll go for someone who
perhaps understands the sort of tightrope that you have to walk between economic policy and politics here."
HOOPER: Well, that's the great irony. By appointing a career politician, you might actually be able to navigate the political scene much better as
head of the ECB.
[09:25:08] CHATTERLEY: What questions are investors asking you at this stage? What are the big concerns? Because we are now in the third quarter
of the year. And people obviously want to either hold on to the gains that they've made, the money that they've made so far this year, but also not
just getting chopped around in the back half of the year, too.
HOOPER: Oh there are really two key questions. The first, of course, is what's the Fed going to do? Is it really going to cut rates in the near
term?
CHATTERLEY: Yes.
HOOPER: And secondly, of course, when is recession coming?
CHATTERLEY: Right. And your argument and call here on recession, because you said, look, we're not looking at recession.
HOOPER: We're not seeing recession. We certainly see a slowdown, but our expectation is the Fed is going to be dovish. It may not give the market
what it wants, but it will give the market what it needs. And in doing that, it should be supportive enough, that we will see a slowdown, but we
won't go into recession in the next year.
CHATTERLEY: We're heading into earning season, too. And we've seen investors and analysts also paring back their expectations, particularly
for profit growth. Have we raised the likelihood, actually, therefore, that we beat expectations, and we perhaps give some tailwind to this market
higher?
HOOPER: That could certainly happen, especially since we have seen so many downward revisions. So that is certainly a distinct possibility. I think
will skate by this earning season as well, without any kind of huge disappointments, ultimately.
CHATTERLEY: Big risk?
HOOPER: A big risk going forward, of course, is I think, the potential that the trade wars get worse. Just because we have had some sort of an
abatement, a truce so to speak in the U.S.-China trade war, it doesn't mean that the situation is going to get better. In fact, I would argue that it
will ultimately get worse. But it's not just the U.S.-China trade war, right? We also have now the U.S. and the European Union looking like
they're headed for something worse.
CHATTERLEY: Watch this space, Kristina Hooper. But thank you so much for that. The market opens next. Stay with us.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE. That was the opening bell here from the New York Stock Exchange for the first trading session of
the new week. It is the first full week of course of Q3 trading here on Wall Street, too. And we are looking at a softer open to the markets.
Jay Powell, front and center this week. His testimony before Congress is going to be a key market event. That's coming Wednesday, Thursday. Of
course, we've also got the minutes of the Federal Reserve's last policy meeting. So gaining some further details from that, too.
We have got ongoing concerns about global growth as we were just discussing there with Kristina Hooper, still justification here for that rate cut
despite the strong jobs numbers on Friday.
Morgan Stanley also turning caution on stocks worldwide. It is cutting its global equity allocation to its lowest level in five years. That's
interesting. It says the outlook for stocks over the next three months is not so good.
All right. Let me walk you through some of the individual movers in the session today. Apple in focus. The stock was downgraded by Rosenblatt
Securities, for neutral to sell. They say there is right now less reward quote "for owning the stock." They believe Apple will face deterioration
over the next six to 12 months. However, they did maintain their 12-month $150.00 price target. China of course and the challenges there, most
likely front and center.
Pepsi, a touch lower in the session. The beverage giant is set to report earnings tomorrow. It's one of the first U.S. companies of course to
report this season and investors are expecting pretty strong results, though some modest results compared to Q1 where it reported its fastest
growth in multiple years. They're predicting earnings will be drop by one percent in fiscal 2019.
Verizon also in focus today. The stock was downgraded by Citi from buy to neutral. The firm citing a potential lower wireless pricing in the future,
though, again, it maintained its $62.00 price target.
All right, let's move on to one of today's also top stories. Billionaire Jeffrey Epstein is set to appear in a Manhattan Federal Court today. He is
expected to be charged with sex trafficking involving minors.
Epstein has escaped similar charges more than a decade ago, thanks to a controversial plea deal. Shimon Prokupecz joins us now. I mean, this is
an explosive story, an explosive case, Shimon for many reasons. I mean, the plea deal a decade ago that the victims involved and those that accused
him didn't know about, but also just the links to business moguls, right up to the White House. Talk us through what we're expecting today and why
there's so much focus on this case.
SHIMON PROKUPECZ, CNN CRIME AND JUSTICE REPORTER: It's significant in many ways, because when you think about there were so many victims here who
cooperated with investigators in 2008, and they had expected that there would be charges. They expected that they would have their day in court.
And then all of a sudden there was this plea deal that they didn't know about that prosecutors there in Florida, in 2008, the Federal prosecutor
there who was now the -- who now works for the U.S. government, essentially, for the Trump administration struck this secret deal with
Jeffrey Epstein. That is essentially, where he avoided a significant amount of jail time. The victims never got an opportunity to talk to
court.
Now today, what's happened is, U.S. prosecutors here in New York in the Southern District of New York have brought their own case against Epstein
from 2002 to 2005. They allege that he ran his sex trafficking enterprise, that he paid hundreds of dollars to underage girls, some as young as 14,
and really deplorable disgusting acts that were going on inside his home.
In some cases, they say that he'd say, "Oh, come over for a massage, I'll pay you for a massage." And then things would quickly escalate according
to prosecutors, and then he would engage in sexual activity with these underage girls. He also used other girls to recruit other potential
victims, people who he would engage in sex with.
So this is significant on many levels because it took many years to finally bring this case. For victims, it will definitely be something of a moment.
Finally, they have their day in court. And obviously you have all of the political ramifications of who he is, his connections to politicians, to
very wealthy people, and some think that that's what allowed him to get away with this for so many years.
Well, the Southern District of New York has finally said you know, enough is enough. They brought their own case and we expect to see him here in
court later this afternoon. And we'll see. We'll see if a judge decides to allow him to go free or if he is going to remain in jail as he awaits a
trial here.
[09:35:12] CHATTERLEY: Fascinating in the #MeToo era that more hasn't been done in the in the past 10 years. But now perhaps, some of those people
that have challenged him and accused him of crimes, at least have their voices heard. We'll see how this goes. Shimon, great to have you with us.
Thank you so much for that. Plenty more to come on FIRST MOVE. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Now, I happen to love math. But mathematical formulas are not the route to happiness for most people. But
one man claims to have equations that enter the least mathematical among us will appreciate. Joining us is Scott Galloway. He's author of "The
Algebra of Happiness," and professor at NYU Stern School of Business. Great to have you with us.
SCOTT GALLOWAY, AUTHOR AND PROFESSOR, NYU STERN SCHOOL OF BUSINESS: Good to see you, Julia.
CHATTERLEY: I love the book.
GALLOWAY: Oh, thanks. Thanks for saying that.
CHATTERLEY: It's basically -- a sort of ode to being successful. How to be successful and not to listen to billionaires, not to listen to
interesting people who say "Find your passion." Because actually that's not going to work.
GALLOWAY: I find that that's the worst advice you can get. At NYU, we have two types of people who come speak to us -- interesting people and
billionaires -- because there's an assumption that if you've aggregated a billion dollars, you have insider wisdom and the advice always ends with,
"Follow your passion." And the guy on stage has usually made his billions in iron ore smelting and he is telling you to follow your passion.
So what I tell young people is their job isn't to find their passion, but find something they're good at and then invest the requisite perseverance,
hard work, thousands of hours to become great at it and the accouterments of being great at it: Success, economic security, relevance, opportunities
will make you passionate about whatever it is.
Jay-Z followed his passion and became a billionaire. Assume you are not Jay-Z, find something you're good at and you will become passionate about
it.
CHATTERLEY: I mean, you were in Cannes for the sort of media festival there and you made some great comments and I pulled them out. The best tax
lawyers, you were talking about tax lawyers and your quote was, "The best tax lawyers in the world fly in private jets and find people better looking
than them to marry which makes them passionate about tax law."
[09:40:10] GALLOWAY: Well, there's still 12-year-olds who say, "I'm going to be a tax lawyer." But there's people who have wonderful lives because
they're great at tax law.
So again, this notion of being great at something gives you unbelievable opportunities, and you will become passionate about whatever it is. The
passion in the sectors -- sports, food, nightlife -- typically are over invested. It's like any asset class, when there's too much investment, the
return goes down.
So if you want to manage a nightclub or go to work for "Vogue," just to ensure you get a ton of psychic income, because on a risk adjusted basis,
your efforts are not going to be well rewarded.
CHATTERLEY: I guess, their argument though is if you're passionate about something you'll put the time in because in the end, we only get good at
something if we put the time in, so in essence, one follows the other.
GALLOWAY: Yes.
CHATTERLEY: You hope.
GALLOWAY: Well, you can't hate what you do, right, but I think some people love numbers. Some people love medicine. Some people love, you know
whatever it might be -- teaching -- and those might not be considered passions. But in fact, if you're good at it, the money will follow, the
relevance and the passion will follow.
So the key is to find something you're good at and to say, find me economic security so you can pursue your passions on the weekend. The majority of
people telling you to follow your passions are already rich.
CHATTERLEY: My father always says, money doesn't buy you happiness, but you can be miserable in comfort.
GALLOWAY: Well, there's a lot of research showing that unfortunately, money can buy you happiness. Middle income people are happier than lower
income. Affluent are happier the middle income, but it tops out at a certain level. Once you get to a point that you can afford housing, absorb
an economic shock, have healthcare, send your kids to good schools, which in most U.S. cities is about $100,000.00 to $150,000.00 a year in household
income. I would argue here in New York, it is closer to a million dollars a year.
But once you get to that point, happiness tops out. And that is once you're economically somewhat secure, getting more money won't make you any
happier. Money is the ink in your pen. It can write different stories. It can make certain stories burn brighter, but it's not your story.
So bust a move in a capitalist society to some level of economic security. But then figure out beyond that what makes you happy, what drives -- what
drives reward and satisfaction in your life.
CHATTERLEY: It's a really interesting book. So you've said don't listen to interesting people and billionaires basically who say, "Follow your
passion." What happens because this also happened at Cannes when Facebook or Mark Zuckerberg says, "We're going to launch a new cryptocurrency called
Libra." What do you say?
GALLOWAY: Well, that's you know what happens when Michael Jackson shows up to babysit your kids. Anything that goes wrong is your fault. They've
done such a great job with our media and our information, we're going to give them control of our economy? We are rightfully concerned.
This is an organization that has shown gross negligence around information and media. The takeover society. This has gotten very serious very
quickly. The takeover society has three legs of a stool. First, you get control of the media, then the control of the money, and that leads to
control of the military.
Facebook has not done a great job taking control of the media. And let's be honest, they have control of most of the narrative in the media right
now. Do we really want to give them control of our money and our economy? Buyer beware. Anything goes wrong here, it is our fault.
CHATTERLEY: But it's interesting though. I mean, they do have 2.4 billion users.
GALLOWAY: Yes.
CHATTERLEY: Half of those, a quarter of those actually use it. You have a currency here that would be --
GALLOWAY: A new default currency.
CHATTERLEY: Yes, a new reserve currency. So they arguably have the power and to your point, you know, we don't care enough about our privacy, to
delete our user profiles, even if we delete the app, so the potential here is huge.
GALLOWAY: We're supposed to have a government that prevents us from a tragedy of the commons. And I'd like to think that the immunities are
kicking in. We haven't had what I would say the referees on the field to make sure that Facebook doesn't get weaponized by foreign actors, respects
our privacy. The government hasn't done a great job regulating Facebook around unintended consequences.
CHATTERLEY: It's done a terrible job.
GALLOWAY: So I think this is an opportunity for us to press the reset button and really say, "Do we really want this organization potentially in
charge of the default currency?" Because the one thing capitalists fear more than the weaponization of our elections is recession.
CHATTERLEY: Right.
GALLOWAY: We could have the mother of all negative unintended consequences if we let Facebook established a new default currency.
CHATTERLEY: Do you think this is one area then where the regulators will step in and go, "Hang on a second." Rather than the situation and we'll go
into this about regulating Big Tech and the question about the breakup of Big Tech and the fact that the argument is regulators are way behind the
curve here. It will still take years for them to act. Is this someway, given the potency potentially of this, where they'll act first and perhaps
learn more later?
GALLOWAY: I hope so. I mean, we are already seeing it. We've had regulators across Europe express concern. Everyone from the head of the
Senate panel on banking to Representative Maxine Waters out of Los Angeles has expressed concerns, so I think you're naturally seeing what I would
call a well-deserved and well-earned gag reflex around this idea.
So they're trying to do everything right, set up an independent body in Switzerland, make it a nonprofit, but there's one problem, Julia, it comes
from Facebook, and people are just sort of like, you know, burn me a million times, shame on me; burn me a million and time times. Or excuse
me, shame on you, burn me a million and one times, shame on me. So I think the natural response is the correct one and that's one of mild horror.
[09:45:17] CHATTERLEY: You know, it's interesting every time I talk about Facebook and the challenges Facebook represents or face themselves, I end
up talking myself into buying the stock, because I just don't think there's incentive anywhere to tackle it. Final question on Big Tech. What are we
missing here? Do you think ultimately, and you've talked about your Amazon, we've just had the 25th Anniversary. We've talked about breakup.
We've talked about the threat, perhaps they represent to democracy. In the end though, how does this play out?
GALLOWAY: Well, I'd say that if you ask me what is the thing we've missed? And given where we are overlooking the NYSE, I would say the thing that
markets got wrong is on the day that the D.O.J. and the F.T.C. announced that we're going to seriously look at these companies, their stocks on a
combined aggregate basis like the market capitalization of Boeing.
The market has got it wrong, Julia. These companies are going to skyrocket once the analysts get out their pencils and realize that broken up, these
companies and these stocks are worth more. WhatsApp, Instagram, YouTube, all the amazing independent companies, if you look at all the big breakups
of the past in our economy, post three, five years post the breakup, the companies are worth more disaggregated, so these stocks are going to
skyrocket once breakup actually becomes a reality.
CHATTERLEY: But activist shareholders and investors are going to have to force that because the companies themselves ultimately are not going to get
to that point surely.
GALLOWAY: I don't think it's an activist because most of these companies are two-class shareholder companies. They have a controlling shareholder.
I think it's the government that's going to break them up. I think the D.O.J. is going to keep these lights green for a while if they do the right
thing and that is moving and oxygenate the economy by breaking these guys up. It's good for the planet, good for the economy.
CHATTERLEY: And Jeff Bezos and Mark Zuckerberg end up far richer.
GALLOWAY: Richer.
CHATTERLEY: Yes, how to be successful and happy. Scott, fantastic to have you with us.
GALLOWAY: Thanks for having me.
CHATTERLEY: And great book. It's worth reading. Scott Galloway there. All right, more trouble for Boeing, the playmaker losing a deal with
billions to Airbus as it struggles to get its embattled 737 MAX jet back in the air. All the details, next. Stay with us.
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CHATTERLEY: Welcome back to FIRST MOVE. Boeing in focus. The plane maker has lost a deal with a Saudi Arabian airline to buy some of its 737 MAX
jets. The carrier Flyadeal says it will now fly an all Airbus fleet.
Clare Sebastian joins us on this story. Clare, this is fascinating because the order book is everything to Boeing on this MAX jet. What do we know
about this story? And how easy is it to transfer to Airbus here for this company?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, so Flyadeal, as you say is the less than two-year-old low cost carrier that's owned by the
parent company of Saudis national carrier Saudia. Now, we know back in December that they made a commitment with Boeing by up to fifty 737 MAX
jets for a price of almost $6 billion. It now seems that commitment is well and truly off although they haven't said so in so many words.
[09:50:10] SEBASTIAN: They are now going to buy they say up to fifty eight 320 Neo planes, which is the direct competitor to the 737 MAX. The
critical line in the statement, this order will result in Flyadeal operating all Airbus A320 fleet in the future.
So they have not said it in so many words, but made it abundantly clear, but I will say, Julia, this is more of a problem reputationally to Boeing
than it is commercially. They still have about four and a half thousand of these planes on order that haven't yet been delivered which shows that most
airlines are still holding out for a fix to that software problems. They are still waiting this out.
CHATTERLEY: Absolutely, and it's a waiting game if you want to transfer to Airbus. I was looking at the numbers here and we've made this comment all
the way along. As of February of this year, the order backlog over Airbus for the comparative plane, the Neo, 5,962 for that single aisle jet.
You're going to have to wait years and years and years if you want to transfer. And we have to give context here, too. AIG, of course, the
owner of British Airways signed a letter of intent to buy 200 MAX a couple of weeks ago, so some perhaps pulling away, others are saying, "Look, we'll
still buy these." I just hope they've got a big discount.
SEBASTIAN: It certainly seems that they would have gotten a big discount, Julia. But yes, context is really important. That deal with AIG announced
at the Paris Air Show for 200 planes which means that even though Flyadeal made a deal to buy 50 Airbus jets in replacement of the Boeing 737 MAX at
Paris, Boeing still comes out of Paris at a net positive. The stock is still up on the year. Its order book is still four and a half thousand.
But as you say, switching to Airbus not that easy. They have a backlog of about 5,800 Airbus A320 Neo jets. The CEO in their recent shareholder
meeting said that ramping up production of the A320 Neo is one of their top priorities. But either way, whether it's the Boeing 737 MAX, they are
waiting for it as they work with the regulators on a fix or the A320 Neo, this is definitely a waiting game for these airlines.
SEBASTIAN: Yes, watch this space. Clare Sebastian, thank you so much for that. All right. Speaking of British Airways, the British Airways owner
AIG is facing a record $230 million fine. The proposed penalty follows a massive data breach back in 2017, which saw hackers steal the personal
details of half a million customers.
The fine would amount to one and a half percent of BA's revenues that year. Hadas Gold joins us on this story. Hadas, the message there is actually it
could have been worse under the new proposals, but far higher a fine that it would have been under the old ones.
HADAS GOLD, CNN BUSINESS REPORTER: Julia, that's right. If this fine is actually imposed, because this is sort of a notification that they intend
to impose this fine. If this fine by the ICO actually goes through of $230,000.00, it would represent the highest ever fine the ICO , the
Information Commissioner's Office has ever levied against any company.
But you're right, it's not actually the maximum penalty that they could have imposed. Its 1.5 percent of British Airways revenues for 2018. When
actually according to GDPR, that data protection law that rules over Europe, they could have imposed fines of up to four percent of those
revenues. So not as bad as it could have been. But compared to what the old rules were, the maximum they could have fined them was 500,000 pounds,
which the difference to what they've been fined -- potentially fined now, it is quite a big difference.
Now, you're right, this stemmed from a data breach from last year where about 500,000 customers' personal information, everything from logins to
credit cards, to their names and addresses were leaked because of malware that was placed on British Airways' website that somehow redirected the
traffic to a fraudulent website.
And no British Airways made the breach public. The GDPR laws and the ICO said that they did not protect their users' data well enough and that's why
they imposed this fine.
Now, British Airways CEO Alex Cruz said that they are surprised and disappointed, and that they will plan to appeal the fine once it goes
through -- Julia.
CHATTERLEY: Yes, you know, I still think it's peanuts when you're talking about four percent of global revenues. But I do think that some of these
big tech companies, Facebook, we've just been talking about them. You've got to think very carefully about your privacy policies given past data
breaches. This is a far more material fine than it's ever been.
GOLD: That's exactly right. And actually what this lesson proves to companies is that these data breaches aren't just public relations
nightmares, it is that now they actually carry some significant financial liabilities, as well. And we're seeing the British Airways parent company
stock prices be slightly affected by this. It's down about 1.6 percent.
But as we've seen, if they can go up to four percent of annual revenues, this is going to be more than just the pocket change in terms of those
fines that we've seen in the past for people like Facebook, where it's 500,000 pounds. They could easily pay that off. This is going to get
companies to start to sit up and pay more attention. It is at least what the regulators hope.
CHATTERLEY: Yes, the question is, do users. Hadas Gold thank you so much for joining us on that story.
[09:55:08] CHATTERLEY: All right, I want to give you a quick update now on Jeffrey Epstein, of course, the billionaire Jeffrey Epstein has just been
indicted in New York with having operated a sex trafficking ring involving minors.
According to the indictment, Epstein ran a trafficking enterprise between 2002 and 2005 in which he paid hundreds of dollars in cash to girls as
young as 14 years old for sex. He is being charged with one count of sex trafficking of minors and one count, conspiracy to engage in sex
trafficking of minors. We will continue to follow that story. 10 years it seems in the making.
All right. Let me give you a look at what we're seeing for the market here. The U.S. majors as we get to -- this session shaping up to be --
well we're seeing losses right now. Six tenths of one percent and NASDAQ under more broad pressure. Nine tenths of one percent, Jay Powell is going
to be the key this week. What does he say to justify what the market has priced? And of course, that rate cut later this month.
That's it for me. I'm Julia Chatterley. You've been watching FIRST MOVE. Time to make yours. Happy Monday.
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