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First Move with Julia Chatterley
Prime Minister Boris Johnson Asks The Queen To Suspend Parliament; Purdue Pharma Looking To End 2,000 Lawsuits Triggered By The Opioid Epidemic; A Former Google Exec Arrested For Allegedly Technology Theft. Aired 9-10a ET
Aired August 28, 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 New York, I'm Julia Chatterley. This is FIRST MOVE and he is your need to
know. A constitutional outrage. Prime Minister Boris Johnson asks the Queen to suspend Parliament. Settlement Talks: Purdue Pharma looking to
end 2,000 lawsuits triggered by the opioid epidemic. And Stealing Secrets. A former Google Exec arrested for allegedly technology theft. It's
Wednesday, let's make a move.
A warm welcome once again to FIRST MOVE. No time to lose though because Brexit is back and threatening to reach boiling point. The latest boiling
point. We've also got the trade wars of course set to escalate this weekend and the flight to safety in the bond market continues. Amid all of
this, what we're seeing in the U.S. stock futures right now. They've been steadily weakening following a lower close yesterday, too, as you can see
there. What? A couple of tenths of a percent for each of the markets here where we shed gains around midday of course in yesterday's session as bond
yields tick lower. Still the focus on bond markets. That move continuing today.
We've got 10-year yields heading lower once again; still below that one and a half percent for the U.S. 10-year yield. The yield curve, of course no
longer flirting with inversion here, that's the move when we see short term rates moving higher than longer term rates. We're simply seeing it now.
And like it or not, that's raising fresh recession fears.
Now a game changer here would be some kind of tariffs suspension or a trade truce before those fresh tariffs rises hit this Sunday. China though, in
the meantime, not hanging around. They've issued new directives intending to boost consumer demand and making the supply chains less reliant on the
United States, too.
The Editor-in-Chief of China's "Global Times" saying strengthening China's economy here from the inside will mean placing less emphasis on the trade
talks. No one wants to look like they need a deal here. We keep reiterating that. Right now, though, bigger other geopolitical risks to
worry about, at least in the short term.
Over in the U.K., the pound currently down against the U.S. dollar as you can see. This as the U.K. Government moves to suspend Parliament ahead of
the October 31st Brexit deadline and that's where we're going to begin today's drivers. That decision to suspend Parliament causing outrage among
many lawmakers in the U.K. They say the government is attempting to force a no-deal Brexit without giving them the chance to even debate it.
Prime Minister Boris Johnson says that's not what he's doing.
(BEGIN VIDEO CLIP)
BORIS JOHNSON, BRITISH PRIME MINISTER: There will be ample time on both sides of that crucial October the 17th Summit -- ample time in Parliament
for MPs to debate the E.U. debate, Brexit and all the other issues -- ample time.
(END VIDEO CLIP)
CHATTERLEY: Nic Robertson is outside the Houses of Parliament in London for us. Nic, great to have you with us. I called it earlier a
constitutional outrage. That clearly one of the cries coming from the remainer camp here, but just spell out what this decision does and why
there are many Members of Parliament here that are outraged about their ability now to try and prevent a no-deal Brexit here.
NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: You're right. The constitutional outrage accusations are coming from the remain camp, but
actually this is the remain camp within Boris Johnson's own party. The other criticisms from within his own party are unprecedented, undemocratic.
Without doubt the battle lines on Brexit have been drawn deeper. Boris Johnson, if you will, sort of going to a much stronger -- viewed as a war
footing on this. What became very clear yesterday with a meeting of the opposition was that, they would move to block Boris Johnson's efforts and
the potential for a no-deal Brexit once Parliament began session, and it seems very clear that he has reacted and responded to that.
So the criticism from the remainers within his own party, but from the opposition party, the language has been even stronger. It is being called
a British coup, a coup against Parliament or how some in the Labour Party - - opposition Labour Party have responded. And the leader of the Labour Party spoke a little time ago, Jeremy Corbyn outlining how he sees Boris
Johnson's move on what his plans are to try to defeat it.
(BEGIN VIDEO CLIP)
JEREMY CORBYN, BRITISH MEMBER OF PARLIAMENT, LABOUR PARTY: Suspending Parliament is not acceptable. It's not on. What the Prime Minister is
doing is a sort of smash and grab on our democracy in order to force through a no-deal exit from the European Union.
[09:05:08] CORBYN: What is he so afraid of that he needs to suspend Parliament, to prevent Parliament discussing these matters?
So when Parliament does meet on his timetable very briefly next week, the first thing we'll do is attempt legislation to prevent what he is doing.
And secondly, to challenge him a motion of confidence at some point.
(END VIDEO CLIP)
ROBERTSON: But what Boris Johnson's move does do is strengthen Boris Johnson's hand in his negotiations with the European Union. One of the
things that as you know, Julia, that undermined his predecessor, Theresa May, was the belief in Brussels that Parliament would block the sort of no
deal the hardline Brexit path.
Boris Johnson has certainly created the understanding, both in Britain and in Europe, that this is what he intends to do. But if Brussels was
thinking that Parliament could stop him on that track, this move by Johnson now, potentially will make them rethink that and that his threat is real.
Does that actually mean that they're going to back down in their negotiating position at the moment, which is the withdrawal agreement as it
stands, stands with no changes? Boris Johnson, of course, demanding changes at the moment, the E.U. saying that this is a British matter, they
are standing firm.
CHATTERLEY: Absolutely, Nic, but in your first sentence there, you said war footing. And I couldn't agree more on your point about if you want to
take the fight to the E.U. here, you've got to look like you mean it. And this is Boris Johnson, a classic Churchillian moment where he's like, "Do
or die" and he said that about Brexit on the 31st of October.
How restricted though is the timetable here for Parliament to perhaps come together to try and legislate to prevent a no-deal exit here because by my
understanding, Parliament was only scheduled to be sitting of the three days of the total time that's going to be lost here anyway.
ROBERTSON: That's correct. So what Boris Johnson has now sort of scheduled in terms of the timetable that he is calling for will be a couple
of days before the European Council meets.
So whatever plan Boris Johnson has come up with and put to the European Union in the coming weeks about what a withdrawal deal could look like, a
new one or the old one, there will be a couple of days going into that European Council Session for Parliament to meet and discuss that.
So there's an opportunity they're willing to do, I think --and after the E.U. has made his decision on any changes Boris Johnson may have made to
that withdrawal agreement, anything that they might like to go along with and support or maybe just turn the whole thing down again, that leaves just
a matter of days, about five days before that 31st of October deadline for Parliament to react to what Boris Johnson has proposed, react to the
European Union's response to that and decide what to do.
It is, as we've seen, the pace that Parliament works at is not a lot of time. So even a loss of a few days in percentage terms is being seen as
significant. And I think you're absolutely right, Johnson sees this through the sort of Churchillian eyes. He has gone on to a war footing.
The trenches are deeper. The anger is deeper. The bitterness is deeper. The division is getting bigger and stronger. And you hear in the
background, there are a little bit of sort of public anger being expressed about all of this.
CHATTERLEY: Yes, absolutely. I just want to bring it back to the opposition parties here. I mean, Jeremy Corbyn there again, not really
being direct about the what-next and what they can do. What's the likelihood that now, despite the discussions that we saw yesterday and
their apparent inability or indecision over calling a confidence vote here, what are the options surrounding that perhaps, too?
Because perhaps that is a way here if Boris Johnson did lose confidence because this is the only thing that Parliament can agree on, to try and
roll out a no-deal Brexit here that perhaps this is a way forward, and if so, what will that then mean?
ROBERTSON: Well, Nigel Farage, leader of the Brexit Party, which is obviously a sort of a challenge to Boris Johnson on the right wing, if you
will, that Johnson is very much aware of here with his latest maneuvers, as well, has said that -- Nigel Farage has said that he thinks that a vote of
no confidence, that that vote is more likely than a general election is more likely.
What we've heard from the Scottish National Party as well, who've called you know, Johnson's moves outrageous. They've said that this makes it more
likely that there will be a second independence referendum in Scotland.
The disunity within Parliament as a whole, I suppose, one can say is greater, but can Corbyn galvanize all that opposition to Johnson even
though he has a weak position himself to block him with legislation or a vote of no confidence?
And yesterday, the assessment was the vote of no confidence wasn't there. However, some remain party members within Johnson's own party may now take
a different view to what they had yesterday -- Julia.
CHATTERLEY: Yes, Nic Robertson, thank you so much for breaking it down. What a mess and the mess continues. Thank you for that. All right. Let's
move on to our next driver. Drug maker, Purdue Pharma is in talks to settle more than 2,000 lawsuits it faces over the opioid epidemic. The
maker of the opioid pain killer OxyContin said it is considering a payment of as much as $12 billion and Chapter 11 bankruptcy. Alex Field joins us
now on this.
Alex, we were talking about this yesterday and how quickly things are moving with this story of Purdue Pharma and the owners of course, the
Sackler family stepping up here and saying, "Look, this could potentially be this kind of settlement we're talking about here, and it's a big one."
ALEXANDRA FIELD, CNN CORRESPONDENT: Yes, it appears that the settlement discussions have been in the works for some time. But of course,
pharmaceutical companies are absolutely taking notice of the ruling in Oklahoma, when a judge sided in favor of State, blamed Johnson & Johnson
for fueling the opioid epidemic there.
Now, you've got this other Federal case that's set to begin in the fall. It involves thousands of claims against Purdue Pharmaceuticals and others,
but Purdue is really the one that is accused of launching the opioid epidemic in the U.S. with its introduction of OxyContin back in 1996.
It has faced allegations before. Now, there are reports from "The Washington Post" and "The New York Times" and NBC that the settlement could
number as high as $12 billion. That $3 billion could come from the Sackler family itself.
We've heard from the Sackler family before as they have faced allegations. ProPublica obtained some video of a deposition from Dr. Richard Sackler
back in 2015 when you faced another lawsuit.
(BEGIN VIDEO CLIP)
QUESTION: Do you know how much the Sackler family has made off the sale of OxyContin?
RICHARD SACKLER, BOARD MEMBER, PURDUE PHARMA: I don't know.
QUESTION: Fair to say it's over a billion dollars.
SACKLER: It would be fair to say that, yes.
QUESTION: Do you know if it's over $10 billion?
SACKLER: I don't think so.
QUESTION: You know if it is over $5 billion?
SACKLER: I don't know.
(END VIDEO CLIP)
FIELD:L Purdue Pharma settled that lawsuit. Now, as for the reported discussions about another settlement in this upcoming Federal case, Purdue
has put out a statement saying this, "While Purdue Pharma is prepared to defend itself vigorously in the opioid litigation, the company has made
clear that it sees little good coming from years of wasteful litigation and appeals, the people and communities affected by the opioid crisis need help
now."
So Julia, we will be following this to see if a settlement is reached before that October trial date.
CHATTERLEY: Yes, absolutely. It's going to be fascinating to watch. I mean, we were talking yesterday about Oklahoma. And I was just looking at
some of the numbers here, one percent approximately of the U.S. population here. And, you know, you and I were speculating on the kind of size of
total settlement we could see and whether or not we can compare and contrast with the size of the tobacco settlement, of course, that we saw so
many years ago now.
What's your gauge based on just what we're seeing again, here now, a $10 billion to $12 billion being talked about, just in the case of Purdue here?
FIELD: Purdue obviously being a big fish in this trial. The Federal case involves 2,000 claims from cities and counties. There are also these
separate suits that have been followed by states. But really, when you talk about the opioid epidemic in the U.S., a lot of fingers are pointed at
Purdue, which has, of course, faced litigation, as I mentioned before and settled in the past.
This is a very large sum. Look, the State of Oklahoma was going for $17 billion from Johnson & Johnson. When the judge ruled, it was ultimately a
very small fraction of that, just $572 million, but Purdue seems to be in discussions according to the reporting to possibly move forward with a
settlement as large as $12 billion, which would perhaps protect the Sackler family from other claims in the future, and which would go toward resolving
so many of these outstanding claims right now.
CHATTERLEY: Yes, we shall continue to watch it. Alex Field. Thank you so much for that update there.
All right. Next driver, secrets and subterfuge in Silicon Valley. A former Google engineer has been charged with stealing files from Alphabet's
self-driving car project and taking them to Uber, his new employer at that time.
Dan Simon joins us now on this story. Dan, actually, this is a story that keeps coming back quite frankly, because there was a civil case that was
settled between WayMo or Alphabet and Uber. This is now criminal. Talk us through what we're seeing here.
DAN SIMON, CNN CORRESPONDENT: Yes, that's right, Julia. You know, this is all about the alleged theft of trade secrets from one of the biggest and
most well-known companies in the world -- Google, and specifically it involves a former lead engineer of Google's self-driving car unit, Anthony
Levandowski.
[09:15:06] SIMON: Now, he is accused of using his personal laptop in downloading more than 14,000 files from Google's servers before he abruptly
left the company in January of 2016, and then went to one of Google's biggest competitors in that space, Uber.
Now, I can tell you that Levandowksi did appear in court yesterday. He pleaded not guilty. His attorney says these charges are completely bogus
that when he took these files, he had total access to them and not a single one of them actually went to Uber.
Now prosecutors believe that Levandowski is actually a flight risk. He was granted bail, but during this time, while this is pending, he has to wear
an ankle bracelet. And right now he is free on bail. But no question, Julia, this is a case that is rocking Silicon Valley.
CHATTERLEY: Yes, the importance of technology secrets here, 33 different violations. What are we talking about in terms of sentencing if he is
found guilty here?
SIMON: Well, you're right, we're talking about 33 charges, and each one of them carries a possible sentence of up to 10 years in prison. So do the
math, you're looking at maybe 330 years. Of course, he would never be sentenced to that amount. It would be up to the judge. But these are very
serious charges, indeed.
CHATTERLEY: Yes. We'll be talking about this more in the show. Dan Simon, for now, thank you so much for that update there.
All right. Let me bring you up to speed now is some of the other stories that are making headlines around the world. A state of emergency has been
declared in Puerto Rico. Tropical Storm Dorian is expected to reach the island in the coming hours bringing powerful wins and heavy rain. The
biggest concern now is flooding. Puerto Rico is still recovering, of course, from the devastation left by Hurricane Maria just two years ago.
Brazil says it now open to accepting foreign aid to fight fires raging in the Amazon rainforest. Earlier, the Brazilian President rejected a $20
million offer from the G7 amid a spat with the French President. The government now says Brazil will accept the funds so long as it can
administer them.
Hong Kong's Federation of Trade Unions staged a demonstration to condemn the behavior of the airline, Cathay Pacific. Protesters demand that the
Hong Kong based company reinstate employees it fired for expressing support for anti-government rallies. The airline sees it doesn't discriminate
against union members or their activities.
All right, we're going to take a quick break here on FIRST MOVE, but coming up, mergers plans in ashes. Talks between Altria and Philip Morris fell to
catch fire with investors.
And the fitness company that needs to prove its fit for Wall Street, Peloton reveals widening losses ahead of its planned IPOs. Since when did
losses matter? We will discuss. Stay with us. We're back in two.
(COMMERCIAL BREAK)
[09:21:10] CHATTERLEY: Welcome back to FIRST MOVE. Take a look at what we're seeing for U.S. features this morning on Wall Street, a pretty
cautious start. There's certainly lots to watch. Actually, I'll call that flat. Hey, let's not be pessimistic.
There's a grand belief that Britain is headed for a no-deal Brexit and that's certainly something to watch today. We're also closely watching the
bond market yet again where yields continue to fall. We've got the 10-year yield currently sitting at 1.45 percent as you can see there. Thirty-year
yields in the United States now significantly below that two percent level, hitting fresh all-time lows.
In the meantime, the United States yield curve is inverted to levels not seen since just before the last recession. That said, former New York Fed
President Bill Dudley urging the Fed to hold fire on fresh rate cuts.
He says further cuts will get President Trump and his administration new room to fight the trade war with China, which he calls an economic disaster
in the making. Greg Valliere joining us from Washington. He is the Chief U.S. Policy Strategist at AGF Investments. Fantastic to have you with us,
Greg, as always.
You made the point in a note this week that actually what we saw in terms of the market pressure on Friday, the pressure that we're seeing on the
bond market yields sent a warning shot to leaders at the G7 and the administration right now, what do you mean by that?
GREG VALLIERE, CHIEF U.S. POLICY STRATEGIST, AGF INVESTMENTS: Well, I think starting with Donald Trump who desperately wants to win reelection,
there's now a realization that the markets are going to take over and that the markets are saying, "Enough is enough." I think this eventually will
push Trump toward getting a deal. But I think we've got months to go before a trade deal with China actually occurs.
CHATTERLEY: You know, it's interesting, I've been making the point all week that neither side here, neither China nor the United States wants to
look like they need a deal here. You can want one, you can't need one.
You go straight in there and say actually, whether it's for economic reasons, or whether it's for political reasons right now, a deal needs to
get done. Do you think the President recognizes that? Because that's not really the display we got from the G7?
VALLIERE: Well, yes, I would say two things, though. Number one, I think the selloff last Friday was deeply unnerving for a lot of leaders,
including Trump. He has to realize that selloffs like that could jeopardize his reelection.
Secondly, as you just mentioned, Julia, I think the comments yesterday by Bill Dudley, the former New York Fed President were really significant
indicating that within the Fed, and maybe some Fed veterans, there's a growing consensus that Trump has to be confronted.
That Jerome Powell just can't sit there like a pinata getting hit, that there has got to be a response, and that response may be the Fed in effect,
saying, "Fine, you can do what you want. But we're not going to keep cutting rates just to accommodate your trade war." That adds a whole new
angle to this narrative.
CHATTERLEY: I mean, he went as far as pointing to the politics here and a choice about, you know, who wins at the 2020 election here. I mean, whoa.
Do we really agree with that? The idea that actually, despite the political interference, the Fed perhaps has to be political themselves?
Surely, their job is to react to the economy as it stands.
VALLIERE: I mean, in normal times, this would be unheard of. But these, of course, are not normal times. And I think that everything changed last
Friday, when Donald Trump said that Jerome Powell is the enemy. Is he the worst enemy or is it Xi of China?
For Trump to say something like that about the Chairman of the Fed, push this into a whole new realm, and I think the Fed has decided that they're
going to have to hit back.
CHATTERLEY: What do you think of the polls that we're seeing right now? Because this is another consideration right now. We've had a whole host of
polls showing that Joe Biden remains out there in front. We then had that Monmouth poll earlier this week that suddenly showed actually the top three
pretty much aligned.
How closely are we watching that right now and perhaps Joe Biden here have to be a bit cautious?
[09:25:08] VALLIERE: And cautious is the right word. And I think that people who follow the polls have to realize that the methodology on some
polls isn't as good as others, that the polling sample is a small sample. So I'm not sure Biden has dropped that much. He has dropped a bit. He's
made a lot of gaffes, there are concerns that he might not be the strongest possible candidate.
But what I look at, there's an indicator called RealClearPolitics, it's a great website. They publish almost daily an aggregate of all the polls.
That's the more accurate poll to look at. It shows some weakening by Biden, but I still think he is the front runner -- shaky front runner --
but I still think he's the front runner to win the nomination.
CHATTERLEY: You know, it was interesting, I also looked at the latest poll we got today as well and the top five here, in terms of voting intentions,
or looking like -- and admittedly, it's early days -- that they've got higher ratings than Donald Trump here.
We know the President watches these things. We know he watches the media in this country talking about these things. Again, does it precipitate
him? Does it push him towards sort of looking towards doing some kind of deal here, Greg, or are we just clutching at straws here?
VALLIERE: I mean, logically, you would say that he has to be looking at the polls, showing especially Michigan, Pennsylvania, Wisconsin, him
trailing if those states flip, he could lose reelection.
So he has to be looking at this, and he has to know that these very volatile markets, talk of recession yield curve, all his stuff is not
helping him. But logic doesn't apply all the time. And I think that he is going to hang in there for months to come with China. And as long as he
does, I think this extraordinary volatility, especially in the bond market will continue.
CHATTERLEY: Yes, unprecedented times, to use your words. Greg Valliere, I was going to ask you about Brexit, but we don't have time. Fortunately for
you, I think. Thanks for joining us from Washington.
VALLIERE: Good to see you.
CHATTERLEY: The market open is next.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE. I'm Julia Chatterley, and that was the opening bell back at the New York Stock Exchange. Kids
Eat Right Month in August of 2019. Kids should eat right every month, I think.
Anyway, we're got a mostly flat open on Wall Street right now. Lots to focus on fears, of course, of a no-deal Brexit or the increasing
probability perhaps of that. And as always, I think stock market investors watching what's going on with global bond yields, particularly in the
United States and that being a key driver of sentiment right now.
U.K. stocks. Let's take a look at those as well. Yes, a little bit tilted to the downside here. The pound, though, under a bit of pressure here
versus the U.S. dollar, as you can see as the U.K. Government moves to suspend Parliament ahead of that October 31st Brexit deadline.
What about Italy, too? We're keeping an eye on these yields, on the Italian 10-year bond falling to record lows today. Coalition talks over
there continuing, raising hopes that snap elections can be avoided. So we're keeping an eye on that, too.
What about our global movers today? Well, Tiffany is in focus. Revenues for the luxury retail are missing expectations. But actually earnings
easily beating estimates. Tiffany reported double digit sales growth in China, and it is maintaining its 2019 outlook. Right now, down some four
and a half percent.
Retail Express shares also in focus. The company reporting a second quarter loss and they issued weaker than expected guidance, but revenues
managed to top estimates. So right now, up just over two percent.
Movado. Wow. Look at them, down some 24 percent in the session. The watchmaker reporting earnings and revenues that were significantly weaker
than unexpected. It also lowered its outlook for the rest of the year. What did it cite? Well, it cited the impact of tariffs and global economic
uncertainty.
JetBlue Airways are up some four tenths of one percent. Deutsche Bank saying the sharp pullback in the airline shares over the past few weeks is
now overdone, and it says the company's strong balance sheet simply makes the stock look attractive here. As I said, up some four tenths of one
percent.
All right, let's move on. A former Google engineer has been indicted on charges of stealing trade secrets from his old employer. The documents
relate to Alphabet's WaMo project and the case underlines the high stakes involved, as companies compete to develop self-driving cars. Tasha Keeney,
analyst at ARK Invest joins us now.
Tasha, always great to have you on. We'll talk about the details on this because it is quite fascinating. But you also underline this point the
protection, the intellectual property and the emphasis that these companies place on the future of autonomous vehicle technology here, I think
undiscovered by this case.
TASHA KENNEY, ANALYST, ARK INVEST: Absolutely. I mean, we think that autonomous cars should be valued at $2 trillion today in the equity
markets, and it's pretty much not accounted for. So it's not surprising that what WayMo would pursue this case, it's very important to them.
What is surprising is we actually are not fully convinced that the component that they're accusing Levandowski of stealing secrets for is
completely necessary for autonomous driving. That's called LIDAR. It's a system of lasers that sits on top of the car.
Tesla is not using this component, and there's a case to be made that if you collect enough data, you can actually train your car well enough to
drive with just cameras and radar. So it could be sort of, you know, a lot of money and sort of a lot of time and court time over something that's not
even necessary.
CHATTERLEY: I mean, that's quite astonishing to me. Is it just the principle then that's being chased here? Or does this perhaps say
something about WayMo and WayMo's technology that they're fighting over the theft of something that perhaps other makers out there is saying, "We can
circumvent here, we have perhaps better ways to do this"?
KEENEY: You know, I think you're exactly right. I think it says something about WayMo. I mean, so Google in the early days wasn't the clear
technology leader in autonomous driving. Last year, they said they would commercialize that technology, and basically what they did is commercialize
a very watered down version of that.
They still have safety drivers in the car, so it's not even fully autonomous. And we've really seen them struggle. I mean, we just got
reports yesterday that the cars are still having trouble in Arizona and in California.
So that sort of leaves the space open for players like Tesla that are amassing great quantities of data. Their data library surpasses anyone
else. WayMo has driven 15 million miles roughly in its prototypes; Tesla has about 10 billion miles of autopilot data that it could pull from if it
wanted to.
So we think this is really the advantage, and that's what's going to get it across the finish line without a component like this.
[09:35:07] CHATTERLEY: You know, it's interesting, the Uber CEO, or the former Uber CEO, Travis Kalanick also said, Uber in this process because of
course, this is where the worker went from WayMo to Uber, just need to make sure our viewers are clear on this, that Uber needs autonomous driving to
survive. An interesting point in Uber's life cycle hereto. What do we make of that comment, and do you agree?
KEENEY: I think he is absolutely right. Uber does need autonomous to survive. But the interesting thing is, they likely will not be, I think a
leader in the technology development. You know, they hit a pedestrian. They had to slow down that development effort. And we really just haven't
seen a lot of progress out of that unit.
I think Uber's best bet is partnering with a technology player. But when they do that, they're going to lose out on the economics that they enjoy
today.
So right now they take about a 20 percent cut of gross revenues off of the ride hailing service. We think that the majority of that cut will go to
the autonomous technology provider.
So in that situation, Uber will just get, say, a few percentage points off of each ride. So when we look at a company like Uber, we think it's
extremely overvalued today, given that future dynamic.
CHATTERLEY: Yes, it's going to be fascinating to watch. I mean, I guess the critics here will be like, "Look, we know how you guys feel about
Tesla. We know that you've hung on in there, despite all sorts of fears, criticisms, and of Tesla, specifically here.
I guess my question would be, to your point, and we'll go full circle here. You said that this is a $2 trillion value, at least as far as the equity
markets are concerned? How do we go from zero basically, valuation today to people understanding to accepting what the opportunities are here?
Because that will also be critical for Tesla's valuation as well, going forward.
KEENEY: You know, we're seeing some early signs of investors recognizing this opportunity. You know, this past year, we just started seeing sell
side reports that are actually valuing WayMo.
You know, often we don't see Tesla talked about as the autonomy leader and I think at ARK Invest, you know, we think that that's incorrect. They
could clearly be one of the forefront players in this race.
But I think -- so right now, if you look at valuations, a lot of the valuations go to -- a lot of that value goes to the ride hailing players.
And again, we think in the future, that's going to shift sort toward the technology owners, as investors recognize this opportunity.
Basically, we think autonomous vehicles are going to be so cheap to the consumer, just 22 cents per mile at scale, it's less than half of the cost
that you pay to drive your personal car in the U.S. and it's less than a 10th of the cost of a taxi.
So we think basically, these are going to be so cheap, that's what's going to make them extremely attractive. It's going to supercharge the ride
hailing trend, and everyone that owns -- everyone that's in a one car house today will eventually go to zero cars as this takes hold.
And then again, as investors recognize that opportunity, we think that the value will be ascribed to players like Tesla. WayMo still has, you know, a
foot in the game. GM is certainly working hard at it. So we'll see what happens over the next year or so.
CHATTERLEY: Oh, you know, Tasha, we are going to get you back just to discuss this because I know you've written out a whole comprehensive note
which actually I read last night and I loved, but we're out of time. I will get you back on this because it's fascinating. Tasha Keeney there of
ARK Invest.
KEENEY: I'll be back.
CHATTERLEY: Thank you so much for joining us. All right, let's move on because fitness startup, Peloton is filing for its initial public offering.
The company made $915 million in revenue in the last fiscal year, but -- so a massive increase in net losses up to around $150 million. Matt Egan
joins me for more.
Quite frankly, this company is losing money faster than you lose calories on the bike. But Matt, you've spotted something else. What exactly is
this company? Talk us through it?
MATT EGAN, CNN BUSINESS LEAD WRITER: Well, Julia, finally there's an IPO that's all about getting people in shape. Now, Peloton calls itself the
world's largest interactive fitness platform. It says it's got more than 1.4 million members.
Now it's known for these $2,000.00 indoor bikes and $4,000.00 treadmills that have HD screens allowing gym rats to take part in taped and live
fitness classes. It was founded in 2012, and last August, it had a $4 billion valuation.
Now, where would this company fit in the stock market is a good question because in the IPO filing, Peloton calls itself a tech media software
product, experience fitness design, retail, apparel and logistics company. You got all of that, Julia?
Now, no matter the sector, as you mentioned, you know, like other unicorns, Peloton is growing rapidly, and it's losing a ton of money because revenue
doubled in the most recent fiscal year to just over $900 million. But loss has quadrupled, to nearly $200 million. And Peloton warned that it may
never turn a profit.
Julia, I think the biggest risk here is that you know, consumer taste are very fickle and Peloton faces a lot of competition in the fitness space.
And the other thing is that Peloton admits that it has operated almost exclusively in a strong economy. It's easy to see that in a recession, the
market for $4,000.00 treadmills will probably vanish pretty quickly.
[09:40:44] CHATTERLEY: A $4,000.00 treadmill, and you have to pay the monthly subscription to your point as well to keep it up here. But I mean,
for me, I was trying to keep up there. But I struggled quite frankly, of all the different opportunities clearly that they think this company
represents. What's the feedback been on this, Matt? What do we think here?
EGAN: Well, I think like so many of these other IPOs. It's going to all be about the valuation. We don't know that yet. I think Peloton is going
to have to be very careful with how they value this IPO because clearly, people are concerned about the economy, the bond market is flashing all
these red lights.
And so I think that people are going to be a little bit worried about buying into this IPO if the company is very richly valued particularly
because it's never made a profit, and as I mentioned, it warned that it may never.
And one other point here, Julia is Peloton is also exposed to the credit markets because it said that most of its products are sold and they are
financed by third parties. And so they warned that you know, if the credit markets turn in a market downturn or an economic downturn that that could
pose some problems as well. So that's another risk to watch out for.
CHATTERLEY: Yes, I'm a hundred percent with you. We'll see on this one. I'm not sure I'm buying it. Matt Egan, I'm a runner, though, not a biker.
Matt Egan, thank you so much.
EGAN: Same here.
CHATTERLEY: Yes. Okay, coming up on the show. Boris Johnson accused of a coup and creating a constitutional outrage as he opens a new front in the
Brexit battle. Did he really? We will discuss. Stay with us.
(COMMERCIAL BREAK)
[09:45:30] CHATTERLEY: Welcome back to the show. Philip Morris shares are up around two percent as you can see why Altria trading a bit lower here.
That's after Monday's news of a possible merger proved extremely unhealthy for your wealth. Investors slashed some $13 billion dollars of the
company's combined market value. There are fears that regulatory and litigation issues could handicap and enlarge the company the same issues
that saw the tobacco makers split up over a decade ago. Paul La Monica joins me now. Paul, we talked about this yesterday. Talk me through it.
What are the key issues here that investors are perhaps looking at and going, "Not sure this works here"?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, I think there are a couple of issues. You mentioned the regulatory and legal problems that could arise
if they were to reunite. There's also speculation that Philip Morris and Altria, if a deal were to go through that there wouldn't be much premium
attached so shareholders of both companies can't expect a big payout from the two of them combining, I think that's another reason why the stocks are
falling.
But simply put, Julia, if you look at the combined company, and both of them with Philip Morris and their international strength and Altria here in
the U.S., revenue growth and profit growth is extremely slow because people aren't smoking cigarettes the way they used to. And they're trying to find
growth in new areas, smokeless areas, Philip Morris is really hitching your wagon to this iQos product, which would, you know, still have nicotine but
is more like a vaping type of product.
And then Altria, they've got a big stake in the U.S. vaping giant Jewel, as well as Canadian cannabis company Cronos. So, clearly, these are companies
looking to go beyond the cigarette market for new areas of growth.
CHATTERLEY: You know, even if we just look at the monetary value here and the point I made about the $13 billion of value that was wiped off here. I
just -- I'm not even sure about the economics here. I mean, PMI just is that much bigger, actually on a relative basis here that have to be part of
money changing hands.
I just wonder whether they've left it too long here. I think we can make arguments for reuniting here, I just wonder whether we've kind of waited
too long here.
LA MONICA: Yes, I think that is certainly possible. This could be the type of thing that is a proverbial trial balloon, Julia. So both
companies, there were rumors that they were talking and then they confirmed that the discussions are taking place.
But now that you see what Wall Street's reaction is to the possibility of a merger happening, maybe they decide, "Well, guess what? I guess Wall
Street voted with their feet. They sold their stocks yesterday, it maybe doesn't make sense to do this deal." So I don't think it's any guarantee
that they're going to recombine.
And you're right, maybe Philip Morris, which would have a higher stake in the combined entity has to go back to Altria, and maybe up the premium a
little bit to entice Altria investors to actually like this deal.
CHATTERLEY: Yes. And then I think you recover perhaps some of the value that we saw smoked away in the stock market yesterday.
LA MONICA: Well played.
CHATTERLEY: I know, I couldn't help myself there. But the bottom line is, I think the message from this deal whether they choose to do it or not, is
that to your point, and you were making this so well, yesterday, the future is not in traditional cigarettes, it's in everything else that they can
look at here, whether it's a cannabis situation of the future, or whether it's the alternatives that these guys have already invested so heavily in.
LA MONICA: Yes, and there are concerns still there, Julia, because obviously, I mean cannabis is legal in Canada recreationally and in some
American states, but not federally yet. And then when it looks -- when you come to vaping I mean, the FDA and the CDC have some serious concerns still
about whether or not vaping is really something that is healthy as well, so they may be replacing one business that isn't good for you with two others.
CHATTERLEY: Yes, gamble. Whichever way you look at it here. Paul La Monica, thank you so much for that. All right. We'll continue after this.
Stay with us. We're back in two. You're watching FIRST MOVE.
(COMMERCIAL BREAK)
[09:51:34] CHATTERLEY: Welcome back to FIRST MOVE and as we've been discussing throughout the show, one of the major political challenges that
President Trump faces in his reelection bid is the impact of fallout from the trade war with China.
Well, many farmers supported him back in 2016. But now they're caught in the crossfire -- collateral damage -- in the escalating battle between
Washington and Beijing. As Martin Savidge reports, some people's patience is now wearing thin.
(BEGIN VIDEOTAPE)
MARTIN SAVIDGE, CNN CORRESPONDENT (voice over): I'm halfway between Green Bay and Milwaukee deep in dairy land where the cows are black and white,
the field is green, and the boaters red as their barns.
(BEGIN VIDEO CLIP)
DAN NATZKE, DAIRY FARMER: The dairy farming business is a challenge.
HANK WAGNER, DAIRY FARMER: Dairy farming has its challenges.
SHELLY MAYER, DAIRY FARMER: More of a challenge than what we expected in our careers.
STEVEN ORTH, DAIRY FARMER: It's challenging.
(END VIDEO CLIP)
SAVIDGE (voice over): The average price for milk to run $16.00 per 100 pounds. For most farmers, that is less than the cost for them to produce
it, and way down from $24.00 per 100 pounds they were getting five years ago.
(BEGIN VIDEO CLIP)
ORTH: It means there's not as much money to go around at the end of the month.
(END VIDEO CLIP)
SAVIDGE (voice over): Last year, some 700 farms in Wisconsin closed, nearly two a day.
(BEGIN VIDEO CLIP)
JANET CLARK, DAIRY FARMER: And some of those farmers I call my friends.
(END VIDEO CLIP)
SAVIDGE (voice over): To ensure that didn't happen to her, Janet Clark quit an insurance job and moved back to the farm that's been in their
family five generations. Like a lot of dairy farmers, she voted for President Trump.
(BEGIN VIDEO CLIP)
CLARK: I don't have second thoughts of my decision in 2016. I'm on the fence of what my decision is going to be in 2020.
(END VIDEO CLIP)
SAVIDGE (voice over): Trump's trade disputes have hurt dairy prices and dairy exports. To diversify, dairy farms started growing crops, corn, soy,
whose prices have also been hurt by trade tariffs.
(BEGIN VIDEO CLIP)
SAVIDGE (on camera): So your backup business is also suffering at the same time your main business is suffering.
CLARK: You're correct.
(END VIDEO CLIP)
SAVIDGE (voice over): There are concerns that oppressed milk prices and trade disputes will drag in the next year.
(BEGIN VIDEO CLIP)
SAVIDGE (on camera): Do you think that's going to have an impact on how dairy farmers vote?
ORTH: Yes, I think it will have an effect. Yes.
(END VIDEO CLIP)
SAVIDGE (voice over): But the President still has fans here.
(BEGIN VIDEO CLIP)
SAVIDGE (on camera): Do you blame this administration for any kind of financial difficulty you may face?
NATZKE: No. No, I don't, because things happen. And just because it's this President in the situation he is doesn't mean it's all on his
shoulders.
(END VIDEO CLIP)
SAVIDGE (voice over): Despite their suffering, some still see the trade disputes as necessary to even the trade playing field.
(BEGIN VIDEO CLIP)
WAGNER: I'm still confident that we're going to come out of this better, not just as us in agriculture, but as a country.
(END VIDEO CLIP)
SAVIDGE (voice over): Janet Clark says if she's going to vote for Trump, again, she needs something from him.
(BEGIN VIDEO CLIP)
CLARK: I need some hope. I need to see some light at the end of the tunnel which I haven't seen in four years.
(END VIDEO CLIP)
SAVIDGE (voice over): Without that, it'll be harder for Wisconsin farmers to hang on which could make the President's reelection hopes here, in a
word, challenging.
(END VIDEOTAPE)
CHATTERLEY: We'll see. All right. Let me bring you up to speed now with today's "Boardroom Brief." Costco is cutting down on customers. The
company's new store in Shanghai had to introduce a maximum headcount of 2,000 after it was overrun when it opened on Tuesday. The company
apologized for the inconvenience caused to its customers after it had to close early. Wow.
Facebook is tightening its rules for political ads in the U.S. ahead of the 2020 election. It says it will require parties wanting to post political
ads to show government issued credentials so that Facebook can label their messages as coming from a confirmed organization.
[09:55:14] CHATTERLEY: China's Fosun Tourism buying a majority stake in Britain's Thomas Cook. In a deal to keep Thomas Cook from going bust,
Fosun is investing around $550 million for a 75 percent stake in the British company's holiday operations and a minority share in its airline.
Thomas Cook shares are under pressure as you can see, down almost 15 percent as the deal heavily dilutes existing shareholders.
All right, so let me have a look at what's going on as well over in the U.K., if we've got it. I want to give you a quick look at the pound of
course and the U.K. markets because that of course, one of our top stories today, too, amid the new Prime Minister Boris Johnson's request to the
Queen to suspend Parliament -- all sorts of outrage being caused as a result of that.
The question is, is it of course when the majority -- slim majority - of the U.K. population voted for Brexit? We'll discuss. There's plenty more
coverage from London after this with Max Foster. Stay with us.
(COMMERCIAL BREAK)
[10:00:00]
END
