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First Move with Julia Chatterley
The White House Dismisses Fears Of A Slowdown Despite The Warning Last Week In The Bond Markets; Trump's Team Say The Deadline Has Been Extended On Huawei, The President Says He'll Decide Today; Famous Short Seller Andrew Left Wades In On The Ge Whistleblower Report. Aired 9-10a ET
Aired August 19, 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's
your need to know.
What recession? The White House dismisses fears of a slowdown despite the warning last week in the bond markets. Which way on Huawei? Trump's team
say the deadline has been extended. The President says he'll decide today. And aggressive accounting or fraud? Famous short seller Andrew Left wades
in on the GE whistleblower report. It's Monday, let's make a move.
Welcome once again to FIRST MOVE where there's certainly no sign of Monday blues this morning for the global markets. Take a look at what we're
seeing for U.S. futures at this moment. We are significantly higher premarket following the gains that we saw in both Asia and Europe.
Now, just for perspective. The Dow down around two and a half percent this month. But certainly fears of a looming global recession have turned over
the weekend almost as quickly as the weather in New York this weekend to hopes for a shower of renewed stimulus support.
Two key developments I want to bring to your attention. First, over in China, the Central Bank introducing fresh interest rate reforms that are
widely seen as a move to help lower corporate borrowing costs. Stimulus, the watchword there.
Then, there's Germany. Yes, you heard me right, just a week after the headlines bemoaned the end of the Golden Decade of economic growth in
Germany, the nation's Finance Minister says they are ready to unleash the full force of government funding -- even the Bundesbank this morning
confirming the recession risks.
Let's not though forget the United States hereto. We had a chorus of voices this weekend declaring recession fears are exaggerated. Larry
Kudlow, the White House economic adviser even suggesting more tax cuts here as still an option. Just don't look at the deficit. All of this comes
ahead of this week's Central Bank set piece. The so-called Jackson Hole meeting in Wyoming.
Fed Chair Jay Powell is set to speak on Friday after the market close. Will he confirm market pricing of more than two additional rate cuts this
year? And will he acknowledge that the trade risks here have gone from a simmer -- that's what he called it -- to a boiling point, and perhaps even
back down again.
Let's get to the drivers. The Trump administration playing down fears of a recession, despite last week's steep drop in financial markets. Over the
weekend, the President and other top White House officials dismissing those economic growth concerns and insisting the trade war with China is not
damaging the U.S. economy.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: I don't think we're having a recession. We're doing tremendously well. Our consumers are
rich. I gave a tremendous tax cut, and they're loaded up with money.
LARRY KUDLOW, WHITE HOUSE CHIEF ECONOMIC ADVISER: Well, I'll tell you what? I sure don't see a recession. Consumers are working at higher
wages, they are spending at a rapid pace. They're actually saving also while they're spending as an ideal situation. Let's not be afraid of
optimism.
PETER NAVARRO, WHITE HOUSE TRADE ADVISER: Technically, we did not have a yield curve inversion. In this case, the flat curve is actually the result
of very strong Trump economy. What we see now is foreign capital coming to the best game on the globe, which is the Trump economy. It is going into
our stock market.
But when it goes into the bond market on the long end, it bids up on prices and bids down yields and you get the flat curve.
(END VIDEO CLIP)
CHATTERLEY: Matt Egan joins us now. Matt, as you can see, the White House out in full force over the weekend playing down those border concerns about
economic weakness here in the United States.
Even a dinner between President Trump and the CEO of Apple as well, where they talked about the potential impact of tariffs. The mission here is to
play down the trade war risks.
[09:05:20] MATT EGAN, CNN BUSINESS LEAD WRITER: Julia, I think we should take this full-throated economic optimism from the Trump administration
with a little bit of a grain of salt here, because while they are painting a very rosy picture, there are legitimate reasons to be concerned here.
The U.S. economy is starting to look a little bit shaky. The global economy looks much worse. If you actually look at the numbers -- the
economic numbers -- that had been released, I think it paints a mixed picture, because unemployment is really low, near a 49-year low and that
has allowed consumer spending to continue. I mean, the July retail sales figures were impressive.
However, consumer sentiment took a hit in early August falling to a seven- month low. So that raises questions about how long consumer spending will continue, business spending has been a little bit more muted, and that is
because of in large part because of the trade war. Manufacturing has been weak and that also is because of the trade war.
Now the bond market, despite what Peter Navarro said, I think that the bond market is really flashing red lights. I mean, we see the 30-year Treasury
rate at near an all-time low. The inversion between the two-year and the 10-year which has been an ominous signal in the past, and those are reasons
to be concerned.
Another point, though, about Larry Kudlow, he said that he sees no recession coming. We should remind everyone that in December of 2007, he
wrote, "No recession coming, the Bush boom is alive and well." And as we now know, that was the same month that the Great Recession began.
So none of this is to say a recession is definitely in the cards. But the risks are clearly rising. The economy is vulnerable to shocks, and few
people in Washington normally see a recession coming before it actually arrived.
CHATTERLEY: Yes, and that is a good point. Although I did like Larry Kudlow's line about we are seeing spending and saving from U.S. consumers,
and we'll talk about that later on in the show.
But you do get a sense here that they recognize economic weakness is not the way to head into the 2020 elections here. Far shorter term, though,
Jay Powell, the market pricing more than two rate cuts by the end of this year. How does he play this? Or does he try to avoid being pretty
contentious either confirming or not confirming what the market wants right now in terms of more stimulus here -- Matt.
EGAN: Julia, I do not envy the job ahead for Jay Powell, because he needs to thread this needle, right? He has to show investors that he is taking
these risks seriously. But he also wants to reassure them, and not actually confirm and reignite these fears of recession.
And so he has got to show that the Fed is willing to come to the rescue if it is needed. But he also doesn't want to get ahead of the case, either.
So I think it's a very difficult task. He is speaking in Jackson Hole on Friday, and everyone will be tuned in.
It has the potential to really move the market, and I think it'll be -- you know, it's really clear that Jay Powell has the toughest job in Washington,
because no matter what he does, he is not really going to satisfy everyone, and certainly not President Trump, who wants really massive interest rate
cuts. And so you know, it's a very difficult task for Jay Powell.
CHATTERLEY: Yes, tough to give everybody what they need, and not necessarily what they want. Matt Egan, thank you so much for that. All
right. Let's move on now.
Another reprieve for Huawei, perhaps another reprieve for U.S. companies doing business with them because we do believe U.S. firms will get another
90 days to trade with the Chinese tech giant.
Clare Sebastian joins me. A bit of confusion over this, Clare, Secretary Ross saying this morning in fact on an alternative network that there will
be an extension, but the President says yesterday that he will decide today. Where are we?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, and there will be an extension, Julia. The Commerce Department has now confirmed that, but they
are not painting this as a reprieve on Huawei. They're doing the very best effort not to appear like they're contradicting the President.
The lead line from the Commerce Department is that they're adding another 46 Huawei subsidiaries to the entity list. This is the restriction on
doing business with U.S. companies that came in in May and the second line in that is that there will be a 90-day extension to the current 90-day
reprieve that allows limited business with Huawei despite this ban.
That is designed according to the Commerce Secretary to give a little -- a little more space to rural telecoms carriers who rely on Huawei equipment,
in his words, until they have a bit more time to wean themselves off Huawei equipment. So they now have another three months.
But I think taking in the context of the broader trade discussions, we saw the delay on some of those tariffs. Remember that $300 billion in Chinese
because the Trump administration is now promising to tariff. But it looks like that trying to insulate U.S. businesses and U.S. consumers while at
the same time possibly giving China a better chance of coming to the table in the mood to compromise if those talks do resume in September -- Julia.
[09:10:14] CHATTERLEY: Absolutely. And to your point as well, a reprieve for Huawei looks more like a reprieve for those U.S. businesses that are
saying, look, we still need to trade with these guys, and it limits our businesses, too.
There was an interesting poll at the weekend, and I want to throw this in here. NBC-Wall Street Journal saying that a record 64 percent of Americans
that responded said free trade is a positive thing for the U.S. economy. That was 15 percent in 2017.
Interesting to see, perhaps a strengthening of sentiment that ultimately we do need trade to support a strong economy here in the United States. Where
does that leave ongoing trade talks, Clare? Where are we?
SEBASTIAN: Yes, Julia. I think this is a measure of you don't know the value of something until it looks like you're going to lose it. Obviously
back in 2017, which we are comparing this poll to things where chugging along nicely. This trade dispute really didn't get underway until the
beginning of 2018 with those tariffs on solar panels and washing machines, which feel like a very long way away right now.
Now, we're in a situation where we could see pretty much everything that the U.S. imports from China hit with extra tariffs, extra being the
operative word. Some of them are already facing high tariffs and always was.
This is a situation that has put a cloud of uncertainty not only over U.S. businesses, but over U.S. consumers, and it's now roiled the markets and
threatens to possibly hasten the decline of this economy into a recession.
So I think this is really -- so this poll will concentrate at the mind of the Trump administration and his campaign staff.
CHATTERLEY: Yes, I should say 27 percent of those that responded did say it wasn't a good idea. Free trade wasn't a good idea. But yes, focus
minds. Very true. Clare Sebastian, thank you for that.
All right. Let's move on to our next driver. The U.K. opposition leader Jeremy Corbyn calling for fresh elections to stop the Brexit crisis. He
has promised a second referendum if he wins. This follows a leaked report warning of no deal dangers. Nina dos Santos joins us on this story.
So he is saying, look, we should call fresh elections. We should have another referendum. But where does Labour stand if we have that second
referendum -- Nina.
NINA DOS SANTOS, CNN EUROPE EDITOR: Well, he made a speech earlier on today in North Hampton, Julia, and during which she said Labour believes
the decision on how to resolve the Brexit process is eventually to put the options on the table back to the British people, so essentially have a
second referendum.
But again, it shouldn't necessarily be a second referendum just like the one in 2016 with the same questions on the plate there. They should have a
range of options to make sure that it's not a rerun of 2016.
And not to give, let's say political capital to those people who say it will be undemocratic to have the same thing on the sheet. But in the
meantime, before even holding that, Jeremy Corbyn has got to try and rally the troops to get forward a no confidence vote to try and oust the current
British Prime Minister.
It is really not said and done that he has the support of the Liberal Democrats in particular who have made it clear that they'd like to see
somebody else installed as a caretaker government for a limited time period before a snap election is called as per Jeremy Corbyn his plan.
And in the meantime, as you said before, this current government of Boris Johnson is one that is pushing ahead with plans for leaving by October 31st
come what may. Boris Johnson is going to be taking that message to Germany on Wednesday to meet with Angela Merkel, then over to France to meet with
Emmanuel Macron, and he is also going to have a chance to speak to other future trading partners inside the E.U., and crucially outside of the E.U.
where we would like to trade deals with other G-7 throughout the course of the weekend.
But Corbyn using this political vacuum in the summer to try and up the ante, put the pressure on the government to make sure that Parliament does
what it can to try and stop that no deal Brexit -- Julia.
CHATTERLEY: Yes, it just lacks umpf and an alternative option for the Brits, I feel here. And still the clock ticks down. Nina dos Santos,
thank you so much for that.
All right. Let me bring you up to speed with some of the other stories that we're following here around the world. Sudan's ousted President faces
corruption challenges as his trial begins in Khartoum.
Omar al-Bashir was forced from power back in April after months of protests. His trial comes as opposition leaders and military generals
signed a landmark power sharing agreement this weekend.
An Iranian oil tanker seized by the U.K. is now sailing the open seas of the Mediterranean. Authorities in Gibraltar held the ship for more than a
month. It's not clear where it's headed now though it is believed to be Greece. Iran will only confirm it won't be going to Syria, which would
violate E.U. sanctions.
Hundreds of thousands of peaceful protesters took to the streets of Hong Kong on Sunday, a massive show of support for protesters who have been
demonstrating now for 11 straight weeks. Organizers claim as many as 1.7 million people joined the rally while local police but the numbers have to
a far more modest 128,000 at the rallies starting point. Ben Wedeman joins us now from Hong Kong.
[09:15:10] CHATTERLEY: Ben, so significant differences in the estimates here of how many protests were out there. But the key part, I think, of
this is that they were peaceful. Have the authorities now got a handle on those that were inciting violence over the past few weeks?
BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: No, they don't, Julia. But essentially what has happened is that after the closure of Hong
Kong Airport on Monday and Tuesday, there was a bit of a backlash against the protest movement. There was a feeling among many that they had gone a
bit too far.
So this was an opportunity for the broader movement of protest in Hong Kong, not just the young radicals, so to speak, but what we saw in the
streets was families, older people, children coming out to join this protest, and this is a message to the government that regardless of what
might have happened at the airport last week that this movement is continuing. It perhaps is changing its tactics, bringing out -- you know,
you talk about the numbers, the organizers say 1.7 million, the police say 128,000, but that was in Victoria Park at its peak.
So the number is probably somewhere in between, but the sheer, massive people who took to the streets of Hong Kong on Sunday is a clear indication
that as many as a quarter of Hong Kong's population was willing to come out despite the rain, and make it clear that they want the government here in
Hong Kong to change its position to finally dispose of this extradition law all together.
But one of their demands is universal suffrage, so it is essentially a demand for greater democratization here and it's not at all clear if the
government is willing to give ground on that very specific demand -- Julia.
CHATTERLEY: Yes, and to your point, they're not losing energy here, the protesters. They're still out there. Ben Wedeman, thank you so much for
that.
All right, we're going to take a quick break here on FIRST MOVE, but coming up, after this, taking sides after last week's explosive Markopolos report,
we speak to a famous short seller coming to GE's defense.
And is this the Netflix of hotels? OYO says the future of lodging is all about data science. We've got the CEO with all the details, stay with us.
(COMMERCIAL BREAK)
[09:20:47] CHATTERLEY: Welcome back to FIRST MOVE, live from the floor of the New York Stock Exchange where we are looking at a solidly higher open
for U.S. majors this morning. This after a barrage of White House commentary this weekend playing down fears of an imminent recession.
We are also keeping an eye on the end of the week, of course, Jay Powell, the Federal Reserve Chief speaking at Jackson Hole. What will he say about
the prospect of future rate cuts? But also, of course, trade tensions, a little bit different since he last spoke.
Bond yields also pushing a little bit higher in the session. Hopes amid more stimulus for major economies like China, like Germany's. We discussed
early on in the show, the German Finance Minister saying the government is ready to unleash the full force of spending. Yes, Germany, you heard it
right.
And of course China bring in fresh reforms to boost or to cheapen loans for the business sector. Let's get some context here. Troy Gayeski is partner
in chief -- Co-Chief Investment Officer at Skybridge Capital, having a bit of issues getting my teeth into here.
TROY GAYESKI, CO-CHIEF INVESTMENT OFFICER AT SKY BRIDGE CAPITAL: Great to see you, Julia. Good to be here.
CHATTERLEY: Great to have you on the show. All right. What do you make of what we're seeing right now? Because we did see a whole host of names
from the White House out over the weekend saying, "Look, don't panic about imminent recession here in the United States."
GAYESKI: You know, we have to qualify. Some of that is cheerleading, but the facts as we see them right now is there's roughly a one in three
probability that the trade war escalates further, stays the same that leads to a recession. There's also the base case that the consumer is still so
strong that even with ongoing trade conflict, we can avoid recession.
But last but not least, there's the one in three probability that a face saving trade deal is done between Xi and Trump and all the forestalled
CapEx of the slowdown materially recently comes roaring back and we end up with another leg to this growth period.
CHATTERLEY: We'll explore that in a second or two. Just one in three chance of a recession over what time period because that feels quite high.
GAYESKI: Yes, so it's certainly the highest it's been since the Eurozone crisis in our opinion. We got it up to about one and four during the 15-16
years of China devaluation and hard landing in that period. And again, the main driver is that the trade conflict has caused fixed investment in the
U.S. both CapEx and other business fixed investments to basically go from eight percent growth rates to basically flat lining.
CHATTERLEY: Right.
GAYESKI: And that could potentially spill over into the labor market at some point. We don't see that yet. So in terms of timing, it would be at
least nine months if not further, because unless the labor market starts to deteriorate, like tomorrow, and that's how fast we have to be, we're not
going to have a consumer that's weak enough to allow that to happen.
CHATTERLEY: Yes, because there's a lag.
GAYESKI: There's a -- that's right.
CHATTERLEY: When you start to see that feedback. Okay. Interesting comment, and it's something that you touched on and I've seen you say it.
It was what Larry Kudlow said at the weekend, he said, "Look, the consumer is both spending right now and saving in the United States. Such an
important point. Talk me through that.
GAYESKI: Yes, it's really fascinating, Julia. It is a combination of what is now a red hot labor market, we were white hot, and our red hot, we've
had meaningful wage gains, you know, low three percent, which isn't fantastic, but it's the best we've had in the crisis. Total comp gains
around five percent.
What you've seen is that consumers are able to spend around a three percent plus or minus rate, so not booming spending, but healthy at the same time
they continue to de-lever, which means they're reducing their outstanding debt as a function of income and GDP. At the same time, they're saving
more.
So this is a very powerful cocktail in order to enable the consumer to continue to support the economy going forward.
CHATTERLEY: And this is two thirds of the economy.
GAYESKI: That's right.
CHATTERLEY: This serves as a set -- so long as we continue to see this kind of behavior, it's pretty solid for the economy for the half of the
year.
GAYESKI: You need to see massive deterioration CapEx and inventory liquidation and less labor market deteriorates. So our eyes are very much
focused on initial claims. The initial claims have been hovering between 200,000 and 250,000. They have to go up to 250 to 300 before we even start
to think about a meaningful deterioration of the labor market, and obviously, we focus on non-farm payroll. For the time being, the consumer
is in excellent shape.
CHATTERLEY: Oh, it's interesting. So those are the things that we have to watch.
GAYESKI: Yes.
CHATTERLEY: All right, go back to what you were saying about this idea that perhaps there's a one in three possibility that we do see some kind of
trade deal, and suddenly all that pent up demand kicks into the economy and actually provides a further lift.
GAYESKI: Yes. So that's one of the things that markets are grappling with, right? You have the bear case, the base case and the bull case. The
bull case is that look, since Q3 of last year, due to the trade conflict, booming CapEx has turned into flat-lining CapEx.
CHATTERLEY: Yes.
GAYESKI: And so everything that every -- you know, small, medium and large businesses are looking and saying, "We need clarity, we need clarity."
[09:25:10] GAYESKI: If that clarity is reached, even if it's just a face saving deal, at some point late this year or early next, what you'll see is
CapEx pick back up, business fixed investment start to boom again, which means we have another big leg of growth left in this recovery.
CHATTERLEY: I mean, this is the problem that investors are grappling with.
GAYESKI: A hundred percent.
CHATTERLEY: Because they know that this White House is very sensitive to stock market, to the political pressures of a 2020 election and perhaps the
risk of economic deterioration if they don't make a deal. What does this mean for investors? What do you do here?
GAYESKI: So in our opinion, what you want to do is not taking excessive level risk, because again, recession risk is high and equities are still
relatively expensive, about 16 and a half times for earnings.
We're mainly focused on consumer credit and the credit of regional community banks, because our belief there is that even if we had a mild
recession, realized losses will be relatively mild and you could outperform most of their investments.
CHATTERLEY: Yes.
GAYESKI: The downside though with that strategy is if we do get that one third bullish outcome, where you know, Trump calls off the trade wars. Xi
calls off the trade war. Business investment booms and equities are up 20, we've certainly underperformed equities in an environment. We're more than
happy to underperform if things go extremely well for our investors.
CHATTERLEY: And that's the key, isn't it?
GAYESKI: That's right.
CHATTERLEY: You're kind of hedged appropriately basically.
GAYESKI: That's correct. Yes.
CHATTERLEY: Troy, fantastic to have you on.
GAYESKI: Great to see you, Julia.
CHATTERLEY: Thank you so much for coming.
GAYESKI: Great to be here.
CHATTERLEY: Troy Gayeski there, a partner and Co-Chief Investment Officer at Skybridge Capital. All right, we are counting down to the market open
this morning. A stronger open anticipated for U.S. stocks.
We're also going to be talking about the recovery in GE stock price, too, as Andrew Left, famed short seller jumps to GE's defense in light of the
volatility. That's after this.
We're counting down to the market open this morning. It's Monday and you're watching FIRST MOVE. Stay with us.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange and the opening bell this morning for the first session of
the week. A solidly higher open.
Optimism carry over from the Asia session, from the European session. Germany talking about providing more stimulus. Noises from China as well
about making borrowing costs lower for corporate, there's a real sense here that perhaps as the global economic outlook dims, Central Banks and
governments are ready to step up and try and support their economies.
With hopes of renewed stimulus support, of course, and we've got Jackson Hole coming up as well. What will Fed Chief Jay Powell say about the
outlook hereto? Watch this space.
Let me take you through the global movers today, too. NVIDIA in focus. They announced a partnership with Microsoft to provide more realistic
graphics for popular world building games, Minecraft. The companies did not disclose any financial details of the tie-up.
Estee Lauder also in focus. Their quarterly earnings beating estimates. They boosted their sales jumping its skincare business by some 15 percent.
They expect four-year sales to grow between seven and eight percent. They also said the forecast takes into account issues such as the Hong Kong
protests, Brexit and the U.S.-China trade war. So being conservative there on the risks or the upcoming risks.
GE, we're also keeping our eyes on this one, too. General Electric shares continue to recover following last week's fraud accusations. The trouble
began last Thursday after the forensic accountant, Harry Markopolos accused the company of hiding nearly $40 billion worth of losses.
General Electric fired back saying his accusations were quote, "meritless."
Now famed short seller Andrew Left has entered the fray. He is the founder of Citron Research, and he is backing GE saying that aggressive accounting
is not fraud. Andrew Left joins us now from Los Angeles.
Andrew, always a pleasure to have you on the show. Just describe to me why you felt it was important to wade in here and say, "Look, this is the wrong
way to handle this."
ANDREW LEFT, FOUNDER, CITRON RESEARCH: First of all, fraud means intent. If you look at any of the frauds that have come out from Enron, to Madoff,
whatever it may be, it was a small group of people who were able to go ahead and change it and have that intent.
If GE were to be committing fraud versus aggressive accounting, that would mean over 20 years, thousands of people have all been in on it, not wanting
to be whistleblower. It's just completely -- it's wrong. It's intellectually dishonest.
So, could they have aggressive accounting? Sure, but so does half the stock market. So I just think Markopolos used this as an opportunist. He
was paid by an unnamed hedge fund. He wouldn't disclose it. He used his reputation off Madoff to try to create hysteria in General Electric and I
think it was disingenuous.
CHATTERLEY: Okay, we're going to go into all the details of that as well, because the secrecy is strange, but I did ask -- I did ask him for a
comment on the idea of the difference between aggressive accounting and fraud here and his statement says, "How quickly we forget the 2007-2009
global financial crisis, where a conspiracy on a grand scale by accountants, auditors, rating agencies, real estate agents, appraisers on
Wall Street banks bought the world economy to its knees. GE's accountants, auditors, and CFO all somehow never notice GE's WMC subprime mortgage unit
was committing fraud, a fraud for which GE paid $1.5 billion fine to the Justice Department on April 12, 2019."
I guess his point is that they have previous here.
LEFT: I mean, the point sounds like hyperbole to me. It actually shows that they did pay a fine. So it was noticed by the SEC, and it has been
rectified. Saying that the company has been having a cover-up for 20 years; that alone -- I mean, think of the amount of people and the amount
of operating divisions and countries that would have to been in on it. It's not plausible.
He is talking -- he wants to compare it versus a black swan outlier that we saw in 2008. Again, it just not intellectually honest.
CHATTERLEY: Talk to me about the decision for him to provide research to a fund then decided to short -- that he gets a benefit. Because you're upset
about this, too, the secrecy around this?
LEFT: I've been an activist short seller for 18 or 19 years, one of the longest activist short sellers. I have never been paid ever by a fund to
write a story. And more importantly, it would never pass my compliance. I don't think it would pass the compliance of any fund as well.
So whoever paid him, they should just come out and say it or he should say it, and I guarantee it's not a fund that you've heard of or a brand name
fund. I think Markopolos used this as an opportunity to make himself a little bit of money. I think he covered probably already. I would highly
doubt if he's still short to stock and I just wish the story would blow over and let GE operate.
If the stock goes lower, let it go lower. If it goes higher, let it go higher in its own merits. But this is a complete non-event that receives
way too much attention that it deserves.
CHATTERLEY: Okay, I spoke to Harry last week, I just want to play you -- because I said to him, and talked to him about the interaction with the
hedge fund and why the secrecy. Listen to what he had to say about this.
(BEGIN VIDEO CLIP)
HARRY MARKOPOLOS, FINANCIAL FRAUD INVESTIGATOR: I can't do that. They wanted confidentiality. It's a U.S. based East Coast hedge fund, a very
reputable company, not normally known for shorting, actually. They're paying a percentage of the net trading profits for early access to my
report, and I have two other means of payments. One is the SEC whistleblower program. And the other is the Department of Justice
Whistleblower Program.
CHATTERLEY: Where did they go short? Can you tell me that? What level did they go short?
MARKOPOLOS: I don't know. They never told us what they're trading. I'm assuming it's shares. But they don't tell me what or when. I just do the
report. I'm a fraud examiner. I do not trade on Wall Street any longer. I left that business 15 years ago.
CHATTERLEY: But you are arguably trading this because you benefit. You're taking a cut of the winnings here. So --
MARKOPOLOS: Indirectly, I have tangential benefit, correct.
(END VIDEO CLIP)
CHATTERLEY: Andrew, this is to your point. I mean, he wouldn't say the name. Are people talking about it?
LEFT: And that just sounds wrong. He is taking a percentage of the profit, but he doesn't know how much has been shorted. He has no activity
in the trading. He actually said at one time, he started to look at GE because they started to operate out of Massachusetts, and that's his home
state.
So if they committed a fraud, not in his home state, it would have been okay. But he actually took personal offense to it as if he is the local
sheriff. Everything about it doesn't pass the smell test for activist short selling.
I don't believe this is work that he has done that he just decided, I believe the hedge fund did some work, didn't like the accounting that, how
are we going to get some publicity on it? They gave it to Harry. He put it out. They gave a percentage of the profits. And it's as simple as
that. I believe most of it has already been covered.
And the name will probably come out because there will probably be a shareholder lawsuit around this, against GE and in a backward way, and a
shareholder lawsuit against GE, the first thing that will get subpoenaed is Harry and who is behind him.
CHATTERLEY: Are people talking about who they think it is, or at this stage are we all just guessing?
LEFT: That's the big mystery on Wall Street. I think it'll be a big letdown. Like I said, it won't pass compliance of most major funds. You
can't just start paying someone to writing reports calling General Electrical a fraud and tell your lawyers, "Hey, can we do this?" They say
yes.
So I think -- I think we will be disappointed when we find out who it is. But more importantly, it's a non-story. Let GE go back to their business.
If you want to buy the stock, but it; if you want to short it based on the aggressive accounting, it's fine, but this is a sideshow to their larger
business.
CHATTERLEY: You know, it is interesting. In Harry's defense, I could argue that yes, he tried to blow the whistle on Madoff and no one listened,
so this is I guess, one way of drawing attention to the situation if you think there's a problem.
LEFT: I mean, do understand, nobody was looking at Madoff. No one cared about Madoff. You couldn't short Madoff. You couldn't make money on
Madoff. So no one really had their eyes on him.
If you would have showed me someone returning those consistent returns, I could have told you. Anyone could have told you, but no one cared. This
is General Electric. Let's not confuse the two. They shouldn't put in the same sentence.
CHATTERLEY: Okay, okay. But a lot of investors lost a lot of money, so it's a shame people didn't pay more attention, but I want to bring it back
to GE here. You bought stock last week on the dip, did you? Are you still long?
LEFT: Yes, I'm still long. I'm long half. I sold that. It was a trade. I mean, the stock was down I think like eight to nine percent because of
this report. I saw him start speaking and I said, "Oh God. There's no there, there." So I just bought, no doubt.
CHATTERLEY: Where did you take profit?
LEFT: I haven't seen since this markets opened up and talking to you. But in this area, I sold half of it.
CHATTERLEY: Okay, watch this space. Andrew, fantastic to have you on as always. We'll get you back soon, no doubt. Andrew Left, Citron Research
there with a robust defense of GE this morning. Thank you so much.
All right, we're going to take a quick break, but up next, the unicorn calling itself the Netflix of the hospitality industry. I speak to the CEO
of OYO. Stay with us, that's after this.
(COMMERCIAL BREAK)
[09:42:33] CHATTERLEY: Welcome back to FIRST MOVE and straight into the "Chatt Room" with a six-year old startup that says it's using data to
revolutionize the hotel industry. OYO was founded in 2013 by Ritesh Agarwal. He is backed by investors including Sequoia Capital and Softbank.
The Indian unicorn is now the country's largest hospitality chain with more than 13,000 hotels across six different countries all operated under the
OYO brand. I asked the CEO why the hotel industry was so ripe for disruption.
(BEGIN VIDEO CLIP)
RITESH AGARWAL, FOUNDER AND CEO, OYO: I'll break this down into two different parts. The first bit is talking about what is the problem
statement. Now, all of us would imagine that we have a bunch of budget hotel options. But we also acknowledge that majority of the economy hotels
in this country or otherwise, are rated very lowly. The rooms are very dim and the quality of experience is pretty substandard for the price point
that we end up paying.
And I felt that was unfair. I felt, why should we get an experience like that regardless of the price point that the consumer pays whether it is
$50.00 or $300.00 a night? And that belief of saying that why should majority of hotels be less than three star in rating? And why can't we
deliver a four-star or five-star experience to customers really got us started in the early days in terms of belief.
Today, we manage OYO Hotels and homes across 80 countries across the world, all across Europe, North America, Asia-Pacific and a few other locations.
The belief honestly, on the other hand, also came from the entrepreneurial spirit. I was 19 and right out of high school when Peter Thiel who started
PayPal and was an early investor in Facebook, he gave me $100,000.00 as a part of the Thiel Fellowship, to drop out of university and start and do
the project that I was very excited about.
And I think from that time on, I genuinely had this belief that changing something that had a substantial opportunity of like that of great quality
living spaces is a fantastic opportunity. And by means of creating the secret sauces that we've created, we've been able to create a positive
impact.
But as you know, I think this one million rooms in our view is just a starting point and we're very excited about the long-term opportunity this
company holds for us.
(END VIDEO CLIP)
CHATTERLEY: Ritesh calls it his secret sauce, I call it data. That's what he argues is simply what distinguishes OYO from the competition. I asked
how the company uses it to get edge here.
[09:45:10] AGARWAL: So we have hundreds of data scientists, with hundreds of millions of data points. We're constantly looking at each street and
neighborhood across the world in 800 cities that we operate in, and constantly predict that in this street, what is the potential revenue now?
What is the economic upcycle and down cycle? During both of those in the last 40 years, what were the revenues like? What were the operating costs
like? And what were the potential NOIs? And then predict -- for what quality of interior design very similar to Netflix originals?
They see that Adam Sandler movies sell. So they just hired Adam Sandler for most of the movies. Sorry, I'm just saying that in zest. But in a
similar perspective, we know what interior design gives us the best revenues because of the data sciences and we just keep replicating that
interior design.
Versus old school real estate companies who potentially just predict by human intervention that what interior design might or might not work
without any data points.
So our ability to use data and use AI to constantly predict what design works is very special.
(END VIDEO CLIP)
CHATTERLEY: OYO's unique approach to the hospitality industry has won it customers and attracted the attention of some pretty high profile backers,
Softbank and Sequoia Capital are among the better known investors. I asked him how he attracts that capital. And obviously key question for a unicorn
right now, are they profitable?
(BEGIN VIDEO CLIP)
AGARWAL: We of course pride ourselves in the 50 million customers we serve and make sure that every night, there are over half a million customers,
right from Texas to Tokyo who use our services and appreciate it.
But at the same time, I think, we are thankful for the support we've received from shareholders. We've raised to date, a couple of billion
dollars in venture financing. And I think the reason why we've been able to raise this is because consumers really appreciate the product quality
and price point that we're able to give them.
More often than not for most of these capital providers for us, they have reached out to us to invest capital, rather than we reached out to them in
most situations. Because when people saw that in every street in China, in India, in Europe, and increasingly in the United States, OYO Hotels are
showing up, and they were running with such high occupancies, the felt, "This looks interesting, let us reach out to the entrepreneurs and find out
what this company does."
And over time, we got to know each other better and got the opportunity to partner. So I have to hazard a guess as to what they saw in us. And my
view is, what they really saw in us is fundamentally there are few companies that are transforming industries, like entertainment was
transformed by Netflix. Companies such as Amazon transformed e-commerce.
Probably they saw that OYO was fundamentally transforming better quality of life. That is you don't have to live in a Tribeca or a Soho to have a
beautiful living space. You could be anywhere and still deserve a great quality living space, and that's what we're trying to solve here at OYO.
CHATTERLEY: Are you profitable? Is the company profitable yet?
AGARWAL: So, we make profit in our buildings worldwide. So on an average, every building across the world sends us profit at our headquarters. But
understandably, because you're investing in our software engineering, as well as our data sciences capabilities in the central office, we are loss
making as a group, but at the same time at a building level, we definitely make very attractive profits.
(END VIDEO CLIP)
CHATTERLEY: This is an idea that he came up with as a 19-year-old and we're only what? Six years on. Quite fascinating and most definitely a
company to watch. The CEO of OYO there.
All right, more money, more problems. Sotheby's pulls the plug as a vintage car auction descends into abject confusion. All the details next.
You're with FIRST MOVE.
(COMMERCIAL BREAK)
[09:51:12] CHATTERLEY: Welcome back to FIRST MOVE and a look at today's "Boardroom Brief." China's leading search engine Baidu is revving up to
reveal Q2 earnings after the close today. The company's stock has seen half its value lost over the past year and Wall Street is predicting a
plunge in second quarter earnings. We will watch for that.
When a 1930s Porsche hit the auction block on Saturday, excitement was running high until the Sotheby's auctioneer had to quickly hit the brakes.
The audience got all worked up when they thought the bidding had reached $70 million only for the balloon to burst when the auctioneer realized
everyone was mishearing him.
He stopped the bidding and clarified it was it $17 million, just a minor difference there. Not. Clare Sebastian joins me now. Clare, what a
disaster this was. Talk us through it because, it's truly a worst nightmare quite frankly to be misheard like this -- and whopping numbers.
SEBASTIAN: Right. Misheard and then the numbers -- the $20 million, $40 million all flashed up on the screen. You know, this is still for sale,
this car, Julia on the Sotheby's auction site despite the fact that they then had to call off the auction and it didn't end up being bought.
They described it as the most historically important Porsche ever publicly offered. I think now it will go down in history for some of the wrong
reasons. But take a look at how this unfolded and how the audience reacted there.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: $16 million. $16,500,000.00 -- that's sixteen five. $16,500,000.00. The bid is $16.5 -- that's $16,500.00 -- $17 million?
That's $17 million. That's $17 million. $17 million now. Again, it is now $17 million. $17 million. The bid is up $17 million.
UNIDENTIFIED MALE: (INAUDIBLE).
UNIDENTIFIED MALE: It is not 70 guys, it's 17. It's been exciting to write seven zero. It might be my pronunciation. We are at $17 million.
The bid is at seventeen, $17 million.
(END VIDEO CLIP)
SEBASTIAN: Yes, it would have been probably exciting, Julia, if it was $70 million. That would have made it the most expensive car ever sold
anywhere.
But as it stands, Sotheby's put out a statement, they said this was in no way a joke or stumped on behalf of anyone at Sotheby's, rather an
unfortunate misunderstanding, amplified by excitement in the room. As I said, the car did not end up selling.
CHATTERLEY: I know, I mean, I've listened to it a couple of times now and I'm having trouble distinguishing between the teen and the tee. It's one
of my worst nightmares actually from being on the trading floor is making that kind of error.
I know people were thinking about the Banksy example as well, where the picture shredded after the auction. But a lot of people here saying this
was no joke. It was incredibly embarrassing here for the Auction House.
SEBASTIAN: Incredibly embarrassing, Julia. And I think that's why they had to put out a statement explicitly saying this was in no way a joke or a
stunt.
But you know, this was a very historical car. There was a lot of hype around it. It's the Type 64, not officially a Porsche. It was actually
built about a decade before Porsche officially set up shop. It was designed to take part in a road race from Berlin to Rome in September of
1939, which is of course, the same month that World War II broke out. So it never ended up taking part in that race.
This is actually officially the third Type 64 ever built. But it was built on the frame of the first one after that car was crashed. So a lot of this
Julia, a lot of links to Nazi Germany, which makes it somewhat controversial.
So, again, a lot of hype surrounding this auction and it didn't end up selling.
CHATTERLEY: Yes, I have to say not a best time to be holding an auction after the volatility that we saw in the markets last week. A lot of people
will have lighter pockets as a result. And then you go into a weekend like this with a high priced auction and then it goes wrong. You're bound to
see people a little bit more cautious after the kind of week that we've had in the markets, too.
[09:55:05] SEBASTIAN: Yes, absolutely. I think this was another factor playing in there. And that's why you saw the attendees on their feet. The
phones out when they started to see the price going as high as $70 million, wondering where those bids were coming from.
They said that the car was supposed to fetch around $20 million. They did end up selling other cars as part of this special week that Sotheby's is
holding in Monterey, California, but not this one, sadly, Julia.
And I think you're right you know, I think this is a very volatile time for the economy -- recession worries, trade worries, and I think perhaps that
will lead to some caution when it comes to these luxury items.
CHATTERLEY: Yes, I think gross totals were down some 25 percent by Friday already. Clare Sebastian, great knowledge. Keeping you busy once again,
thank you so much for that.
All right. Let's take a look at what we're seeing for the markets because we have seen a solidly positive start to at the market session this
morning.
As you can see, the NASDAQ outperforming, up some one and a quarter percent right now. Can we hold on to this morning's momentum? We shall see. I'm
wearing the right dress for it, at least to urge the markets on here. I'll be back in a couple of hours' time with "The Express." But for now, you've
been watching FIRST MOVE. Time to go make yours. Have a great Monday.
(COMMERCIAL BREAK)
[10:00:00]
END
