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First Move with Julia Chatterley
The U.S. Hits Back Up To China's Move To Weaken Their Currency; Four Former Fed Chiefs Say The Central Bank Must Remain Free Of Political Pressure; The U.S. Imposing A Full Economic Embargo On Venezuela. Aired 9- 10a ET
Aired August 06, 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: Live from the New York Stock Exchange. I'm Julia Chatterley. This is FIRST MOVE. And here's your need
to know.
Currency manipulator: The U.S. hits back up to China's move to weaken their currency. Fed Fury: Four former Fed Chiefs say the Central Bank must
remain free of political pressure. And a total freeze: The U.S. imposing a full economic embargo on Venezuela. It's Tuesday. Let's make a move.
Welcome once again to FIRST MOVE where there's so many moves going on. It's tough to keep up, at the heart of it, a move by China to weaken their
currency, and then a response from the United States to denote them a currency manipulator. We will break down all the details.
For now, though, take a look at futures right now. And I can tell you we were a lot lower earlier, following the worst session for U.S. stocks of
2019. The Dow and the S&P losing some three percent, the NASDAQ losing more.
So the question is why the turnaround? I think here, it's the lack of follow through on yesterday's currency weakness from China. What we saw
today is the setting their Delancey currency fixing at a stronger level than feared. They also told foreign exporters, the currency won't we can
further.
This of course, coming just one day after they allowed the currency to breach that psychologically important seven level versus the U.S. dollar.
We aren't below that level right now, but it's stabilized. And I think this is key. The big question, of course, what does the United States do
now? Do we see more tariff threats? A higher rate on those tariffs? Chinese state media has argued that it won't devalue to offset the impact
of those trade tariffs.
They also argue, and this is an interesting one that this move is merely a catch up. The other currencies hit by the trade war have weakened versus
the dollar. Think of the South Korean won, it's lost over eight percent versus the value of the U.S. dollar year-to-date, versus China's loss of
2.6 percent. I think that's a pretty fair point.
We also should point out the China's -- the challenge here for China -- getting my C's mixed up -- it's fine. They can weaken the currency, but
the risk is that they spook domestic investors and they see capital outflows with people afraid that the value of their assets will fall going
forward if the currency is weakening. It's a delicate balance.
Let's get to the drivers and get some context. Christine Romans joins us now, Matt Rivers is also standing by for is in Hong Kong. Christine to you
first, whatever you think of currency manipulation or not, the bottom line for global investors was they were looking at this and thinking, how on
earth do you sign a trade deal under these conditions?
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: You know, trade wars are really hard to win. And guess what? They're even harder to
stop. I mean, this is why so many people were afraid at the beginning of this onset a year ago of this trade war.
And you look at stocks yesterday, and they're from the highs six percent for the S&P and for the Dow seven percent from the highs from the NASDAQ.
That is the bite taken out of what had been record highs by concerns that this trade war won't end anytime soon.
And I've been saying this morning, Julia, there's really no end in sight. I mean, Goldman Sachs telling its clients that now after this latest round
of escalation, they don't expect the trade war to be over before the 2020 election. So, where is their progress?
I mean, at this point, there's a meeting of level -- a meeting of the two delegations in September. That means trade headlines are going to be risky
until then.
CHATTERLEY: Absolutely. And you've got both sides here. So, we're gearing up for a longer term battle here in a trade war becoming a currency
war here.
Matt, to you. The Chinese have said, look, we're not going to devalue to offset the trade tariffs, whether or not it helps ultimately.
But the point they're I'm making is that they're just playing catch up, that actually other currencies in the region have weakened, and why
shouldn't China's? I'd argue they've got a point here.
MATT RIVERS, CNN INTERNATIONAL CORRESPONDENT: Yes, I mean, that's certainly something that the Chinese government might look to. But you
know, your point right off the top, Julia, is really important that the Chinese government is fully aware that a currency war, you know, is not
going to be a good thing for China.
Capital outflow in China has been a major concern for years now. There have been capital, you know, restrictions in terms of how much money you
can take out of China, how much money the average Chinese person can take out of China for a long time now.
In fact, here in Hong Kong, there have been, you know, schemes, if you will, for a long time for ordinary Chinese inside the mainland to work with
people here based in Hong Kong to try and get their money out.
[09:05:10] RIVERS: So this is something that China has been worried about for a very, very long time. And I think that's part of the reason why, you
know, we see that the yuan trades a little bit lower in terms of -- in relation to the dollar in offshore trading. Inside mainland, the trading
is a little bit more tightly restricted, and the Chinese government today didn't let it go past that seven mark.
And I think that shows you that the Chinese you know, we have an article on our website right now saying China blinked first. And I think that's an
apt description, because China knows that if it continues to let the yuan weekend to a major way, in a major way, investors are going to get really
concerned, they're going to have to fight those capital outflows, and that's not something they want to do.
CHATTERLEY: Yes, you make a great point. It's got to look controlled. You can let the currency weaken to some degree, but the moment it looks out
of control, then you've got a real problem. Welcome to 2015. We saw the impact it had.
Christine, the question is, if China did blink, here as Matt perhaps points out, what does that the U.S. President and what does the White House do in
response? Because if they threaten, as a result of now denoting China a currency manipulator, more tariffs, higher tariffs, where does that leave
us? Because they could -- they could add more pressure here. And ultimately, where does that leave the U.S. consumer?
ROMANS: There is another trench. I mean, this $300 billion that they put 10 percent tariffs on that will begin in September, they could go further
on that, and they could tariff everything or tax everything at 25 percent. The U.S. could.
There's also though, you know, it is interesting -- I think there's going to be a fight over labeling China a currency manipulator. The IMF,
Christine Lagarde just last month said that China's external position is in line with fundamentals and desirable policies.
So the IMF does not see that same -- that same view there. And there are those who are arguing this morning and calling it a currency manipulator
was reflexive and sort of out of the norm for the U.S. They have been threatening to do this many times.
I mean, the administration has had what? Five reports to Congress, windows in which it is supposed to label it currency manipulator and didn't. And
this time doing so outside of that normal window, you guys.
CHATTERLEY: Yes, absolutely, and you've got the European Central Bank, you've got the Swiss National Bank, the Bank of Japan all with negative
interest rates, and yet, China is the only bad guy around here. It's quite fascinating.
Matt, let's come back to you finally, how does China handle this? Because as you said, delicate balancing act. They've got to be very careful. But
under these conditions, everything you know about the culture in China, the lack of willingness to back down here, can they agree, some kind of trade
deal under these conditions?
RIVERS: No, I mean, I think there's no way that we're looking at a trade deal anytime soon. The next time that they're going to meet is in
September, I don't think anyone is going to be optimistic that there's going to be some sort of substantive deal struck there.
They could lay the groundwork for some sort of signing ceremony between Donald Trump and Xi Jinping, I think you should saw China allow its
currency to devalue to a certain respect to send the message. They're not going to, you know, commit economic suicide by letting it go too far. But
they are willing to fight this out.
Everything that we're seeing in state media, everything that we're seeing in public statements from the Chinese government, they are ready to dig in
on this issue, and it's worth remembering, we are not far away from a U.S. election in which President Trump certainly stands an even chance of losing
if not a greater chance than even, we don't know how that's going to play out.
But the Chinese government could be betting that maybe the next President doesn't really want to take on China in the way that Trump administration
has. They're not going to campaign on China the way Donald Trump did, and so they're going to wait this out.
Remember that the Chinese government does not plan in months, they plan in years and in decades in a lot of cases, and so maybe they're looking for
the route, they can ride this out. They feel their economy is okay for now, and they're digging in.
So a trade deal? You know, the optimism over a trade deal is way lower than it was even last Wednesday.
CHATTERLEY: Yes, zero sum game. Christine Romans, to point, trade wars are not easy to win and everybody hurts. Christine Romans and Matt Rivers,
guys, thank you so much for that.
All right, when President Trump was tweeting yesterday, talking about China being a currency manipulator, he also said he hopes the Fed is listening.
Well, a response, four former Fed Chairs now warning over Central Bank independence, they wrote an op-ed in "The Wall Street Journal," listen to
this, quote, "Even the perception that monetary policy decisions are politically motivated or influenced by threats that policymakers won't be
able to serve out there terms of office can undermine public confidence that the Central Bank is acting in the best interest of the economy. That
can lead to unstable financial markets and worse economic outcomes."
Matt Egan joins us now. Matt, they couldn't have said it more cleanly, even though they didn't name names. This doesn't help tackle the
vulnerabilities in the U.S. economy.
[09:10:00] MATT EGAN, CNN BUSINESS LEAD WRITER: That's right, Julia. The overarching message here is, "Don't mess with the Fed." That's what the
four living Central Bank Chiefs -- former Central Bank Chiefs have all said in this really remarkable "Wall Street Journal" op-ed, and the message is
clearly directed at President Trump who, you know, more than any of his predecessors, kind of has forgotten that the Fed is not really there to
serve at his whims and certainly not on any sort of a political calendar.
Now, at the top of this op-ed in "The Wall Street Journal," the four former Fed Chiefs, they say explicitly that the Fed, they are united in their
belief that the Fed must be free from short-term political pressure, and they specifically say that that includes the threat of being fired or
demoted for political reasons.
Now, clearly, that is a reference to this battle between President Trump and Jerome Powell. Now, I think it really is remarkable that they felt the
need to come out and say this, it really speaks to how threatened they believe the independence of the Fed is in the Trump era.
Trump obviously has really taken pride in sort of knocking down norms and barriers, both in economics and outside. But the Fed Chiefs think that,
you know, this is problematic.
I also think it's important to note that these are not just, you know, four lifelong Democrats, they were actually appointed by six different
Presidents, both Republicans and Democrats, and then clued several legends.
I mean, Paul Volcker, who famously tamed inflation in the 70s; Ben Bernanke, who led the Fed during the financial crisis. And one of the
really important point here, Julia is the fact that, you know, President Trump is having this, this really epic battle with the Fed, but it's really
with his own hand-picked Chairman. Right?
I mean, he could have kept Janet Yellen in charge. Janet Yellen was extremely dovish and Trump had said that he liked that Janet Yellen had low
interest rates. Instead, he wanted to make his own mark, he went with Jerome Powell, who has arguably have been more hawkish than some of his
predecessors. And clearly, that has not worked out well as far as Trump's relationship with the Fed goes.
CHATTERLEY: Yes, it's quite fascinating. You know, we tackle this. I spoke several months ago to former Fed Chair, Alan Greenspan, and I asked
him about the risk -- the perception risk here if you've got political interference, even if the structure of the Fed doesn't allow for it.
Listen to what you have to say.
(BEGIN VIDEO CLIP)
ALAN GREENSPAN, FORMER U.S. FEDERAL RESERVE CHIEF: The culture of the Federal Reserve System just does not allow that through a very long period
of time, which I -- as I said, figurative ear muffs. On the ground, I was acutely aware of the fact that we were doing nothing, never could remotely
indicate we're doing something other than what the statute says we are doing.
And unless you can make that point, you can't impeach a governor. And as far as I am concerned, that's probably the case today.
(END VIDEO CLIP)
CHATTERLEY: Yes, we can withstand the noise of political interference, but the perception: market perception, consumer perception, perhaps outweighs
that, and that's why they've chosen to speak up now, Matt. It's a critical moment, I think.
EGAN: No, I agree. Absolutely. Because, I mean, obviously, the Fed takes this idea of independence so seriously, but it's actually not entirely up
to them. Right?
If suddenly, investors and other market participants believe that the Fed is no longer doing what it sees is best, well, then they do lose some of
that independence.
And you know, we only have to look to what just happened in Turkey, right? Turkey Central Bank was slow to raise interest rates to fight inflation,
inflation spiked. Erdogan then removed the Central Bank Chief and then put it in a new person who quickly lowered interest rates dramatically.
And so that is an example of what can happen when investors no longer have full confidence I the independence of a Central Bank and clearly, we don't
want that to happen with the Federal Reserve.
CHATTERLEY: Yes, absolutely. Matt Egan, thank you so much for that. All right. Let me bring you up to speed now with some of the other stories
that we're following around the world.
President Trump is set to visit the two U.S. cities that experienced mass shootings over the weekend. He is expected to head to El Paso, Texas on
Wednesday where 22 people lost their lives. He'll also be visiting Dayton, Ohio where nine people were killed. The visit comes as debate over Federal
gun controls intensifies.
Rosa Flores is in El Paso, Texas where thousands gathers to remember the victims on Monday night. Rosa, just describe what we saw last night and
what people are saying at this point? It's still a community, I'm sure in in shock and of course in mourning.
ROSA FLORES, CNN CORRESPONDENT: You know, Julia, there's a lot of raw emotion here in El Paso. A lot of people who are visiting the memorials --
there's a memorial behind me --that keeps on growing.
There are so many candles that have been brought here that as you walk by, you can smell the scent of the candles. That's how -- that's the
outpouring that has been seen here at the scene.
[09:15:18] FLORES: Now, there is another visitor that is expected and that's the President of the United States, Donald Trump.
And from talking to people here in El Paso, there are mixed emotions about him visiting this city at this very painful time. Some individuals feel
that they can't reconcile the words that President Trump has used to refer to immigrants, to refer to the caravan of migrants.
And also they can't reconcile his immigration policies with him visiting this site, for example, The-Remain-In-Mexico Policy, which has hundreds of
Central Americans just a few miles south of me here who are waiting for asylum. And that policy, of course, forces asylum seekers to wait in
Mexico until their immigration appointment is set in the United States.
So, there's a lot of emotion and a lot of pain, and people here in El Paso, some of them feel that it is his duty to visit this site because of the
pain and because he is the President of the United States.
Now, I met one woman who is from El Paso, and she is not very happy with President Trump visiting her city. But she hopes that something positive
does come out of it. Take a listen.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: It is his responsibility to show up when something like this happens in a city. When there's any type of tragedy, I think it
is part of his responsibility as the leader of the United States.
However, I have seen his recent commentaries and his responses to this tragedy. I don't think he has -- it's really coming from him from, you
know, the goodness of his heart and I'm hoping for the best. I would hate for any more violent acts to happen with his visit, but I do appreciate
that he is coming down.
(END VIDEO CLIP)
FLORES: As she mentioned, one of the biggest concerns are violent acts. They want those violent acts to stop.
CHATTERLEY: Yes, Rosa Flores in El Paso, Texas; and our hearts go out to everyone involved. All right, let's move on. A United Nations report says
North Korea has earned as much as $2 billion through cyberattacks on financial institutions.
A summary obtained by CNN suggests that Pyongyang may be using the illegal revenue to fund its weapons program. U.S. military officials say the North
Koreans launched two more projectiles early Tuesday.
Indian-controlled Kashmir is in a second day of lockdown, this after it was stripped of a special status, giving it significant autonomy.
The Indian government has cut telephone lines and the internet. They have placed several prominent politicians under house arrest. Tensions are high
after to India moved to assert more control over the region that's also claimed by Pakistan.
All right, still to come here on FIRST MOVE. Venezuela in an economic vice, President Trump stepping up sanctions. And Tencent turning up the
tunes. The Chinese internet titan in talks to buy a state in Universal Music Group. That's all coming up. Stay with CNN.
(COMMERCIAL BREAK)
[09:21:34] CHATTERLEY: Welcome back to FIRST MOVE, and we're joined by Dan David, founder of Wolfpack Research. Dan, you're a real China specialist,
or at least some of the downsides; the darker side perhaps of investing in China. What do you make of what we've seen from China in the last couple
of days and the ship lowering the currency? It was a signal?
DAN DAVID, FOUNDER, WOLFPACK RESEARCH: Yes. So, it was one of the quick levers that they could pull right away. And as far as them being labeled a
currency manipulator, they do manipulate their currency, but not in the way we're describing it. They defend it, like they did last night. I think
where did it end? Seven spot, four or five?
CHATTERLEY: Yes.
DAVID: They came in and defended it.
CHATTERLEY: It could have been a lot worse.
DAVID: Well, if they it flow, where would it go? Eight? Ten? You don't know. So, the tariffs are going to affect the common Chinese citizen now,
as Trump has said, from the beginning. I don't think he envisioned it happening this way.
CHATTERLEY: Yes.
DAVID: But yes, I think this is something they could do quickly. They don't have a whole lot that they could do right away.
CHATTERLEY: You know, a lot of people and I think global investors were looking at this and saying, and we've been discussing on the show, how on
earth do you sign a trade deal under these kinds of conditions, given what we know about the culture in China? What we know about this President in
particular. What do you make of that? Do you think it's right to be tackling China at this moment?
DAVID: Which President are we talking about? We're talking about President Xi or President Trump?
CHATTERLEY: You can take your pick.
DAVID: Yes, right. You could take your pick. So, I think that we count this as a trade deal, it's really a trade and an investment deal. It's a
relationship deal.
We now have an opportunity with China to reset our relationship. We took their word for it 20 years ago. And here we are and we've seen where we --
what's happened. We don't have justice reform in China, where companies can have civil litigation there and fairness. So we have fraud. It is
pervasive there, and it is pervasive here coming out of China.
CHATTERLEY: I mean, you're incredibly well-known for your work trying to shed light on corporate corruption in China and the risks that U.S.
investors face in things like investing in IPOs -- in Chinese IPOs in the United States. It works far broader.
But do you think that's something that perhaps this White House should look at, at this stage and say, you know, what, we're not going to allow Chinese
companies like an Alibaba, like Luckin Coffee, for example, to IPO and to raise money in the United States, taking U.S. investment, and then shipping
it back off to China to help build their companies. It will be a strong move, a bold move. Do you think it's the right move?
DAVID: It is the right move. And I think they are looking at that. Justice reform is on the table, and we talk a lot about farmers and how
much they're losing, and we talk a lot about tariffs.
But what is on the table are a lot of different issues in this trade negotiation, justice reform being a part of it; IP theft, being a part of
it. You wouldn't think that's notionally part of trade, but it is. IP theft, force technology transfer is a part of it. That's why I say this is
a relationship reset, and China is in a weakened position.
This is the -- really the only time we can do this. And if we don't do it now, if we don't start to put our values forward the way China has to their
credit, they put their values forward. Now, we have to put our values forward.
CHATTERLEY: Define weakened position here for China, because that's one of the big debates we have. How resilient is the U.S. economy, the U.S.
consumer in the face of tariffs versus China's economy? And actually, what very little we know about what's going on in terms of the economics there,
the banking sector. What's your sense from all the work that you do? How vulnerable are they?
[09:25:10] DAVID: I think they're very vulnerable. You've seen in the last couple of months, Baoshang Bank, have to get taken over by the state.
That hasn't happened since '94. Another bank, Huaxia Bank had to be recapitalized, and they're asking the big four banks in China to look at
regional banks.
And like we've seen this movie play out in the United States in the savings and loan crisis, there were just a few. It was isolated, no problem.
Well, then there was a lot.
We look at Bear Stearns back in 2008. It was just Bear Stearns, no problem, nothing to see here. Lehman Brothers collapsed. Their banking
issues are vast, and then we've got a real estate bubble. And the currency devaluation doesn't help that. A lot of the real estate loans are
denominated in the dollar.
So there are positions that we can exploit as they would do and have done to us.
CHATTERLEY: How important is Hong Kong and the protests that we've seen?
DAVID: Vital.
CHATTERLEY: Very quickly, talk to me about this and the vital importance of this, and the protest that we're seeing is part of the whole story here.
DAVID: Well, it's all about freedom of speech, and it's all about freedom of expression, and they don't want to give it up. They've had it and they
understand that taking it off the table for now means that China is going to come back and just make it a law overnight, six months or a year from
now, and they're not going to put up with it.
And I fear there's going to be bloodshed over it, but Hong Kong is a part of China and China is going to force that issue. It's going to be a mess.
CHATTERLEY: The timing.
DAVID: Yes.
CHATTERLEY: Dan, fantastic to have you on.
DAVID: Thank you.
CHATTERLEY: Dan David, we will get you back because there's plenty more to discuss here. Dan David, founder of Wolfpack Research. The market open is
next. Stay with FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE here from the New York Stock Exchange. That was the opening bell in Tuesday's session, a higher
open for stocks clawing back some of the losses yesterday after we saw the worst day on Wall Street this year.
The Dow and the S&P falling some three percent. The NASDAQ falling three and a half percent. We are also just keeping an eye on the FAANGs here,
too. They also are bouncing back after Monday's losses.
Apple was in fact the worst performing FAANG name, down over five percent. Remember China exposure there, front and center, so always sensitive when
we see Chinese headlines. The 10-year Treasury yield is also a little bit higher as well, above that 1.7 percent bouncing off three-year lows.
The three-month and the 10-year inversion. Remember when the three-month is above the 10-years yield -- that inversion widened on Monday to its most
extreme levels since 2017. In previous times that denoted a recession warning, though, you can argue the technicals on this one.
Let's talk it all through because there's a lot going on. Dryden Pence, Chief Investment Officer at Pence Capital Management joins us now.
Dryden, fantastic to have you with us. I'm sure you've got one or two phone calls yesterday from investors going, "What on Earth is going on?
And what do you think here?"
DRYDEN PENCE, CHIEF INVESTMENT OFFICER, PENCE CAPITAL MANAGEMENT: Well, we did and I think part of the issue is we normally get these five to 10
percent drawdowns. It can happen a couple of times a year.
CHATTERLEY: Right.
PENCE: And the China issue was just the catalyst for something that we thought was kind of setup to happen anyway. So that's kind of what started
it. And here you go, and then it levels off.
CHATTERLEY: It's fascinating, you say that. There's been a lot of people coming on this show saying, "Look, we are ripe at this stage for five or 10
percent pullback. Don't panic. We've just forgotten that these things actually are normal in the grand sweep of a broader stock market rally
here." Is that a forgotten act?
PENCE: Exactly. I mean, if you look at the last several years, it takes maybe 10 days to drop seven to 10 percent, and then probably 60 to 70 days
to recover. Sometimes it's speeding up and getting faster than that.
So this is the normal battle rhythm of the market, and people forget that. So, I think that we just have to recognize there will be a catalyst. The
market will go down. And then we'll go back up to what's supported by earnings in normal business cycles.
CHATTERLEY: You can say that, but then if you look at what's going on as far as fears of currency wars are concerned, the threatening by the White
House at the Federal Reserve here that's trying to manage the economy. There are a lot of risks here that pose longer term risks, particularly to
the U.S. consumer, when we're talking about tariffs that actually aren't going away anytime soon.
How are you confident to be able to say, let's bring it back to the fundamentals and focus on what drive stock markets higher over a longer
term?
PENCE: It's what drives the economy and what drives -- I mean, even the markets, it's what is driving the underlying economy. The American
consumers are making more money than they've ever made, more people working than they ever have. And that is 70 percent of our economy. It is kind of
driving this underpinning of a really decent foundation. Everything is just bouncing around on the top of that.
CHATTERLEY: And what about China? Because you mentioned, and you mentioned in your notes that when you look at the noises coming from China
about companies that are adapting to the conditions, they're looking at alternatives to China.
So whatever we see going on right now, the trade war is having an impact domestically in China.
PENCE: Absolutely. As a matter of fact, every day that goes by, this is our opinion, every day that goes by, China gets weaker, and the U.S. either
gets stronger or stays the same. Because companies are moving away, so that seven out of 10 companies are looking to move.
And every day this goes on, they move production away from China. And that weakens them long term. They don't have as much time as they think they do
to roll this out. And that's really, really important because once those companies move production to Vietnam or somewhere else, it's not going to
come back.
CHATTERLEY: So, you're taking -- take some of the fear out of this, and again, look at the fundamentals and look at the reaction. And it's an
argument for ultimately coming to a deal here of some sorts?
PENCE: Both parties. On the China and U.S. -- both parties benefit from a deal. Everybody wants to make a deal. But it is kind of how do we get to
the final terms? And I think most of this noise is actually in my mind beginning to make the markets a little bit numb to it because these things
have got to work their way through.
But in the end, the U.S. has a much stronger hand than China does. Every day that goes by, more production moves away from China and not to it.
They are now our third largest trading partner, not our largest. So their position is deteriorating much faster than anybody else's.
CHATTERLEY: Yes, behind Mexico and Canada. Okay, so a company that really would like a resolution here, they've said it many times is Apple, one of
your top picks. Why are you still confident in this environment?
[09:35:03] PENCE: We think about Apple very, very long term. They're going to be able to reallocate production where they need to. They're
moving some to India and all of those things. Obviously, there's some domestic sales of Apple into China.
But when you think about what Apple is doing strategically, we are dependent upon the device, and now they want to make us dependent upon the
services, so that it not only has it become an appendage of our daily life, it's wrapped up into everything we do.
CHATTERLEY: So even in a worst case scenario, ratcheting up further of tensions between China and the United States, a fall-off in iPhone sales --
Dan Ives, one analyst said we could see six to eight million fewer iPhones sold less next year as a result of the trade tax, you're still comfortable
longer term with Apple here?
PENCE: Still comfortable long term with Apple and probably look at this volatility as more of an opportunity.
CHATTERLEY: To buy more.
PENCE: Exactly.
CHATTERLEY: Interesting. Let's talk Disney.
PENCE: Absolutely.
CHATTERLEY: Earnings after the close tonight. And I know this is your topic, tell me why.
PENCE: Disney now has one third of the box office. When they bought 21st Century -- and they have all of these great characters, all of this rich
content that they're able to have to capture the imagination of the public, whether it's in the U.S. or globally for generations. A good story is a
good story is a good story. And they own those.
And I think that Disney now has the ability to really expand and run the table when it comes to content, and I think that we're really excited about
them long term.
CHATTERLEY: Can anyone touch them here? To your point where they've gathered a huge wealth of content here, whether it's Marvel, whether it's
the products that they already had. We've not even seen Disney Plus yet, and it's coming in at a cheaper price point than Netflix. There is a lot
of excitement here. What might they get wrong?
PENCE: What they could get wrong is you could get a technical rollout problem. They don't do that very often, right?
CHATTERLEY: What time? They've had time to perfect it.
PENCE: So anything that they get wrong, they probably are able to fix over a short period of time.
CHATTERLEY: Right.
PENCE: They tend to not get big things wrong. And so that's one reason why we're very, very confident about that. They're going to be able to
capture the imagination of children, they're going to be able to capture the imagination of adults, and that's what's going to happen for a very
long period of time.
CHATTERLEY: Watch this space. What was your price target -- very quickly on -- that on that? On Disney?
PENCE: We only can publish price --
CHATTERLEY: Higher?
PENCE: It is higher. The short answer is it is higher.
CHATTERLEY: Dryden Pence, thank you.
PENCE: Thank you.
CHATTERLEY: From Pence Capital Management there. All right. We're going to take a quick break here, too. But coming up, we're heading live to
Caracas, as the U.S. imposes a total embargo now, a total economic embargo on Venezuela. What does this mean? Stay with us for all the details.
We're back in two.
(COMMERCIAL BREAK)
[09:40:55] CHATTERLEY: We are ten minutes now into the trading day and U.S. stocks do appear to be holding in positive territory recovering from a
punishing Monday after the U.S.-China trade tensions heightened further and the notion of China as a currency manipulator by the U.S. Things do appear
to be stabilizing with the yuan back to over seven one per dollar here. Hopes of a trade deal though between the two countries. Right now,
allaying taxes.
Greg Valliere is the Chief U.S. Policy Strategist at AGF Investments. Greg, I don't even know where to start, quite frankly, given action over
the last few days. But what do you make of what we've seen just in the last 24 hours between China and the United States? How do they sign a
trade deal under these conditions?
GREG VALLIERE, CHIEF U.S. POLICY STRATEGIST, AGF INVESTMENTS: Well, first of all, I think is way too premature to say China blinked. I think that
would be a mistake, cocky that they caved because I don't think that's certain.
I think the talks are still in real trouble, and I would add one other element that I haven't heard a lot of people talk about, and that's what's
going on in Hong Kong. The Chinese are saying the U.S. is instigating these protests, these riots.
The Chinese are hinting they might move to crush the insurrection. So, that to me is background noise that could become a real irritant as the
talks continue to drag on.
CHATTERLEY: What's the probability that they risk that to your point on Hong Kong? I mean, we have China now with protests on its doorstep.
They're very sensitive to that domestically as well. And this is a financial conduit for China, in and out of the mainland here. Do we really
think they'd risk that at this moment in time?
VALLIERE: There was a great story over the weekend, I forget which newspaper talking about the Communist Party, which has their big annual
meeting in a couple of weeks, really tightening the screws domestically in China suppressing all dissent.
So, if these riots continue in Hong Kong, I think that the Revolutionary Army could be -- it could become a factor.
CHATTERLEY: So, they just move to suppress the protest because they don't want to look like their authority is being flouted here.
VALLIERE: Well, if they don't suppress the protest, could it metastasize? Could it move into the mainland? I mean, that's the last thing that a
communist dictatorship wants is to see some serious public dissent.
CHATTERLEY: And just to be clear, Greg, to your point, the Chinese are blaming the United States and saying, actually, they're inciting the
protest here to try and destabilize that region. Do we believe that?
VALLIERE: No, I think that's for analysts. I don't think we have any -- certainly, no overt -- I don't even think covert involvement in Hong Kong.
I don't believe it at all. But the Chinese government is trying to stir people up.
And then just to go back to the trade talks themselves, Julia, I think the ill will is so pervasive between the two countries that it's really
unrealistic to expect any kind of breakthrough on trade for months and months to come.
CHATTERLEY: So this is just one domestic problem that President Trump is now facing, the threat of more tariffs, the pressure that places on the
U.S. consumer.
We've also had a weekend of horrific killings in two areas in the United States as well, in Dayton, Ohio, of course, in El Paso, Texas. What do we
make of the President's handling of this because the broader sway that the United States does want to see some form of action to curtail semi-
automatic rifles, and the President here has been reticent?
VALLIERE: I would say very quickly, there are three issues where he looks out of touch, Julia. Number one, global warming. You look at those scenes
from Greenland in the Arctic Circle, of the melting and he doesn't even acknowledge there's a problem.
Number two, we just discussed trade. I think that's going to be an ongoing irritant for him. But now, of course, we see the gun deaths, the white
nationalism, and I think he said what he had to say on the teleprompter yesterday, but he is, I think, yet to convince the public that he gets it.
[09:45:03] VALLIERE: When you've got 80 percent to 90 percent of the public wanting more background checks, and Mitch McConnell and Trump refuse
to even allow a vote. There's a problem for the Republicans.
CHATTERLEY: Climate change, trade, if it impacts the consumer and gun control as well. The counter to your point would be Biden messed up on the
areas where they were sending sympathies as well.
VALLIERE: Yes.
CHATTERLEY: To your point, if this becomes a vote for change in 2020, you could argue that perhaps Trump is not the winner, but Biden also looks a
bit out of touch here, too.
VALLIERE: Isn't that a great irony that the Democrats you would think would be doing better? Joe Biden a couple days ago, offered condolences to
the people of Houston and Michigan. Of course, Trump yesterday offered condolences to the people of Toledo, not Dayton.
So, you've got two leaders who don't seem to be as plugged in as you'd like to see.
CHATTERLEY: Yes, we need to see another game changer perhaps. Greg Valliere, we will get you back to talk about this. We have to move on now.
Greg Valliere, AGF Investments.
VALLIERE: Okay, you bet.
CHATTERLEY: All right. Breaking News now. The Pulitzer Prize and Nobel winning author, Toni Morrison has died. Morrison was a prolific writer of
the African-American experience. Her prose was like poetry, writing such memorable lines as, "If you surrender to the air, you can ride it."
Morrison won the Pulitzer along with the American Book Award for her 1987 novel, "Beloved." Toni Morrison was 88 years old.
All right, let's turn now to Venezuela. Another front in which the U.S. is ramping up the pressure, the President issued an executive order on Monday
that freezes all Venezuelan government assets in the United States.
Stefano Pozzebon is in Caracas and has more. Stefano, my understanding is now that this is a total economic embargo. So it puts Venezuela on a par
with the likes of Iran, Cuba, Syria, is that right? And what is this going to mean for a country that's already particularly for the population here
in deep trauma?
STEFANO POZZEBON, JOURNALIST: Yes, exactly, exactly, Julia. This is yet another turn of the screw, if you want to call it that way from the U.S.
administration to try isolate the government of embattled President Nicolas Maduro even further. This time by essentially freezing every single asset
that the Bolivarian Republic of Venezuela has in the United States.
And let's remember, importantly, for United States, for the stock market and for oil analysts and observers that Venezuela control has a stake into
the United States refinery, Citgo, which of course, means concrete effects at the gas station for millions of Americans.
This stake is now in an international arbitrary, is into court between -- in a battle between the government of embattled President Nicolas Maduro
and the administration of Juan Guaido, the leader of the opposition, whom the United States consider is the rightful leader of Venezuela.
How these measure and frankly last night, late on Monday night will inflict on -- what will it imply for the trial on Citgo and for the many other
assets that Venezuela has in the United States is yet to be understood, it is yet to be cleared out.
But also another question is what happens to the American companies that have business here in Venezuela. Just the last week, Chevron was given
three months of new licenses, three months postponement of their license to do business here in Venezuela.
One option could be that the Venezuelans retaliate by expropriating the Chevron assets here in Caracas that, of course, has not happened yet. But
with reaction coming up from the government of Nicolas Maduro expected later today, we will be watching it very, very closely, because the
implications of these moves are very, very important -- Julia.
CHATTERLEY: Yes, Stefano, you're asking all the right questions, I think, but for me, it comes down to the people. I mean, Nicolas Maduro, all the
way along has blamed the United States and foreign actors for the economic crisis in the country as a result of the sanctions.
At what point do the people go, "You know what, we've had enough." And ultimately rise up and we see the military doing the same because for all
the flare ups, we've not seen that pivotal moment where they decide enough is enough.
POZZEBON: Perhaps, yes, we have not seen it that pivotal moment where the coalition, if you want to call it that way, the organism of power that
supports Nicolas Maduro trembles under the effect of such an intense international pressure.
We have seen people taking on to the streets and actually screaming "enough is enough" for many, many years, at least since 2014 and 2017. The
dramatic effect of these economic crisis seems to have no end in sight. It is really affecting the people, but not the coalition that is supporting
Nicolas Maduro.
Perhaps these new move by the United States, especially if followed up by partners in Europe, Canada, the rest of Latin America who are meeting in in
Lima, the capital of Peru as we speak in yet another International Summit to try to broker a solution to the Venezuelan stalemate, if those leaders
will follow through and Maduro finds himself more and more isolated, perhaps, but only perhaps the coalition that puts him in power will crumble
and Venezuela could finally see an end to these dramatic power struggle at the heart of the state -- Julia.
CHATTERLEY: Yes, we'll watch that, but for the people, it's a never ending crisis. Stefano, great to have you with us. Thank you so much for that.
All right, we're going to take a quick break here, but up next, not selling first a song. China's Tencent wants a piece of label at Universal Music
Group, but how much will it pay for a stake in Swift, Drake, Gaga and co. That's up next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE with a look at today's "Boardroom Brief." Apple's credit card has arrived, but only to a select few.
Apple randomly selected a limited number of people to use the card ahead of its launch later this month. The credit card is issued by Goldman Sachs
and will be powered by MasterCard's network.
Vendee hit the right note with investors, Tuesday. Shares are up over five percent after the French Media Company announced it is in talks to sell a
stake in Universal Music Group to China's Tencent.
Lady Gaga, Taylor Swift and Drake are among the artists represented by UMG. Paul La Monica joins us now. Paul, talk us through the details. Ten
percent stake, but with the option to acquire a further 10 percent, I believe.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, this obviously creates a global music giant and the China angle is what is really interesting, of
course, because of Tencent. This would be, you know, valued at about $34 billion in the U.S. which is more than what Spotify is currently valued at.
And I think this deal, really what it's about, Julia, is streaming because what's interesting is that Tencent actually has a stake in Spotify. And
Spotify also owns a stake in Tencent Music, the subsidiary of Tencent that is the music side of the business.
So I think this really shows that if this deal goes through, it is yet another threat to potentially, Apple Music and really would possibly
strengthen Spotify.
[09:55:03] CHATTERLEY: Yes, interesting. Two things for me here, they wanted to sell 50 percent, so who else do they find and are the regulators
going to have a problem with this? This is still a Chinese company, it's still a U.S. company that they're investing in. Interesting timing.
LA MONICA: Yes. Given the timing right now, with all of the trade rhetoric and the tension between the U.S. and China, it's possible that
this deal gets looked at a lot more closely by regulators.
But if it does, in fact, go through, then it would be interesting to see, because Tencent has, you know, all these users, millions of users in the
Chinese market that could be a much bigger play for Western music companies to cater to. And I think it's obviously again, good news for Spotify;
potentially bad news for Apple.
CHATTERLEY: Yes, access to that lucrative Chinese market. Paul La Monica, thank you so much for that.
All right. Let me give you a quick look of what we're seeing for markets right now. We are holding in positive territory after what was a steep
sell-off in U.S. equities yesterday. Can we hold on to it? I will be back in a couple of hours to check. But for now, you've been watching FIRST
MOVE. Time to go make yours.
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