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First Move with Julia Chatterley
Zimbabwean Former President Robert Mugabe Has Died; U.S. August Jobs Report Released Is A Bit Weaker Than Expected; U.K. Opposition Parties Are Refusing The Prime Minister's Call It For Early Elections. Aired 9-10a ET
Aired September 06, 2019 - 09:00 ET
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[09:00:03]
ANNOUNCER: This is CNN Breaking News.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Welcome to the show. We begin once again with Breaking News, this time out of Zimbabwe
where former President Robert Mugabe has died, age 95. Mugabe held power for more than 30 years before being deposed in 2017. At the start of his
tenure, he was lauded as a hero of the liberation struggle, but he then ruled with an iron fist and left Zimbabwe's economy in ruins.
Eleni Giokos joins us now from Cape Town. Eleni, great to have you with us. To some, he was a revolutionary war hero; to others, he was an evil
dictator. What is the legacy here of Robert Mugabe?
ELENI GIOKOS, CNN BUSINESS AFRICA CORRESPONDENT: Yes, it's such a good question. Because if you have to go back to the 80s and to the early years
of Robert Mugabe's presidency, you would say, he is a liberator. He is a man that offered education to all Zimbabweans and, of course, created a
very strong agriculture sector. And in fact, the country was named the breadbasket of the continents. It had fantastic exports, it had a strong
manufacturing sector.
And then you fast forward to the late 90s and early 2000s, and then you had aggressive land redistribution policies that came into play. And that's
when you saw investors dumping Zimbabwe very quickly. That then descended into economic demise, hyperinflation of over a million percent, food
shortages.
You're talking about massive job losses, and of course, a huge exodus of skills. And that's the reality and the legacy that average Zimbabweans
need to deal with right now. And that is what Emmerson Mnangagwa, the current President of Zimbabwe is trying to fix.
And he is not able to do that, Julia, because the country is facing a recession once again. And also importantly, what you've also seen, a very
difficult situation on inflation that has now increased to over 200 percent. It's not easy. Their country still facing sanctions. So if you
look at the current situation, it's not a good picture.
CHATTERLEY: No, I mean, he was in power for 37 years, a lot of damage wrought over that time. But you know, we can all remember that the ousting
of Robert Mugabe back in 2017, and the hopes, the optimism, the belief that actually someone fresh here could be such a game changer, whether it was
the economy or whether it was the ongoing violence that we've seen, too; to your point, it's simply proved incredibly tough to achieve here. Why?
GIOKOS: You know, it's such a good question because when Emmerson Mnangagwa came in, you know, people were saying, "Great. We finally have
gotten a new dawn ahead of us."
But Emmerson Mnangagwa was very much entrenched in the Zimbabwean political dynamic. So of course, there was skepticism and I promise you, every
single conference I have attended over the last couple of years, we've seen Emmerson Mnangagwa coming out and saying, "Zimbabwe is open for business.
Come and invest. We're going to fix the economy."
It has not happened, and this is the big issue. They are trying to fix systemic problems in the country, structural issues that they haven't been
able to sort out. So it's a confidence crisis. It's a crisis of the fact that they don't have a manufacturing base, they don't have good policies to
try and attract investment.
And of course, Zimbabwe is competing with other most stable economies around the world, and they also don't have a very strong -- their own
currency. They only recently bought in their own currency. They were relying on the U.S. dollar. I could give you a laundry list of problems.
But you know what it comes down to? Is whether Emmerson Mnangagwa and the people around him that were also part of the previous administration are
able to create an environment where people feel comfortable to invest back into Zimbabwe, without thinking that policy is going to change overnight,
something that they had become accustomed to with Robert Mugabe.
So it's really such a difficult one, Julia, because we are dealing with hyperinflation once again, and the currency you cannot trust, who is going
to open a business in the country?
CHATTERLEY: So resource rich, such potential and yet mismanaged for so long.
GIOKOS: Yes.
CHATTERLEY: Eleni Giokos, thank you so much for that. Robert Mugabe, former president has died at age 95. All right. Let's put it back to our
business news stories now. The United States releasing its latest jobs report for August. Let's take a quick look at this as well, a bit weaker
than expected as far as the headline was concerned.
A hundred thirty thousand jobs created last month, many of those temporary government census jobs in fact. The unemployment rate unchanged, wage
growth, a touch higher than expected here. Nothing, as far as I'm concerned here to deter the Federal Reserve from a rate cut this month.
Christine Romans will join us in a second to give us more context here. But I think the message is what I just mentioned there or at least that's
what investors are seeing as we're looking at premarket here for stocks, potentially adding to gains from yesterday of more than one percent for the
U.S. majors, too, a relief rally there tied to fresh trade talk. Hopes those talks of course set to take place in October at least for now.
[09:05:05]
CHATTERLEY: While stocks rose, bonds fell. Not just in the United States, but globally and we continue to keep an eye on those. Ten-year U.S.
Treasury yields had the biggest one day jump in fact, in almost three years. We're now approaching 1.6 percent. Also, I think helping the mood
today, too, fresh Chinese stimulus.
In a pretty well-telegraphed move, Beijing cutting its reserve ratio by some half a percent. What does that mean? Well, it means banks have more
money available to lend or more incentive to push that money out to the real economy.
Also coming up today, as well, and we'll be watching this. Fed Chair, Jay Powell speaking over in Switzerland. His last public comments, in fact,
before that rate decision later this month, also going to be important for that calculus and that decision -- the jobs number.
So on that note, Christine Romans joins us now. Christine, you heard what I thought there. What do you make of these numbers here?
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS CORRESPONDENT: You know, I mean, this is an economy that is still producing a job market that is
moving forward, but it's moving forward more slowly than it has been recently. And that's something that I think is really interesting here,
130,000 net new jobs.
When you look at the broad chart of the last couple of years, you can see that the pace is slowing down. On average this year, about 158,000 net new
jobs a month. Last year was something like 223,000. And in fact, the six million jobs created in the first 29 to 30 months of the Trump presidency
are just trailing slightly what we saw in job creation in the last 29 to 30 months of the Obama presidency. So this is a robust job market that feels
like it's beginning to slow a little bit.
Let's talk about where the jobs were created, Business and Information Services. For those of you who has a kid in college, computer systems
design apparently, is where there is steady and consistent hiring with very well paid jobs. Also jobs increasing in healthcare. That has been a
bright spot for years now. Very important the American economy.
But here's what I'm worried about, Julia, I'm looking at 3,000 net new jobs in manufacturing compared with 12,000 last month, and really a petering out
of manufacturing jobs growth over the past year. That plays into that manufacturing, that factory story we've been talking about this week.
You lay those numbers, that graph right on top of when the President started his trade war, you see a manufacturing sector, a factory sector in
the United States that appears to be sputtering here because of the higher costs from tariffs and the tough trade war the President has embarked on.
CHATTERLEY: It is such a great point, and it fits with the data that we've had this week, too. That's a recessionary feel in the manufacturing
sector, but we just have to remember that it's such a small fraction ...
ROMANS: That's right.
CHATTERLEY: ... of the US economy relative to services and the consumer here.
ROMANS: That's a very good point as well, but it politically it is a very important part of the economy for this President. Right? And he is -- he
has made big, big promises that he so far has not been able to deliver on in terms of manufacturing. Mining jobs also declining in the most recent
month, and that has been a weak spot as well.
Yesterday, we heard from the Miners Union President saying that, you know, nobody saved coal. You know, coal is still in trouble in this country and
coal, we will lose more coal jobs.
So the very part of the economy, weaknesses in the economy that the President exploited to be elected are in this data, at least, still showing
they have not been fixed.
CHATTERLEY: Yes, all those campaign promises proving tough to fulfill. Christine Romans, thank you so much for that. All right. We're going to
head to the U.K. now where the opposition parties are refusing the Prime Minister's call it for early elections. The Prime Minister, meanwhile,
saying he'll get a fresh, a new Brexit deal in October.
Bianca Nobilo joins us from London. Bianca, great to have you with us. I can't help feel like this is a gamble on the part of the opposition parties
here because if Boris Johnson does manage to get a fresh Brexit deal here, he goes into a fresh election campaign as the guy that did deliver Brexit
surely.
BIANCA NOBILO, CNN CORRESPONDENT: Well, the cast of characters at the front of Brexit all seem to be gamblers at the moment, Julia, because Boris
Johnson obviously took a big strategic gamble by trying to call their bluff and asking for this election.
It then backfired because now the power seems that it's in the Labour's hands, but Jeremy Corbyn is taking something of a gamble. But then if we
listen to any of the noises coming out of the European Union negotiating teams and from my sources within the U.K., there isn't a lot of progress to
be seen there.
And Boris Johnson and his government have maintained that the best way to get a deal --bearing in mind that the United Kingdom hasn't been successful
in finding a deal that can get majority support so far, is to keep that no deal option on the table.
But then Parliament is thwarting Boris Johnson in doing that. So without his key negotiating ploy, without any progress coming out of the existing
talks, it doesn't seem likely that Boris Johnson is going to be able to get a deal before the date scheduled for Brexit on the 31st of October, in
which case Parliament will stop Boris Johnson from being able to leave the United Kingdom without a deal and their hope is then he would have reneged
on the promise that he's made to the people to take Britain out by the 31st of October.
[09:10:12]
NOBILO: So then if there's a general election, after that point, it will harm Boris Johnson and cause a big spike of support for the Brexit Party,
which will mean a very unlikely scenario of Boris Johnson returning to Parliament by that calculus, and more likely the opposition parties think
it would be something like a Labour, SNP, anti no-deal coalition of parties.
CHATTERLEY: Bianca, very quickly, you know, these characters so well, I was watching him yesterday. He looked exhausted. Do you think he feels
like a hostage now in in Number 10 Downing Street?
NOBILO: Well, he did sound quite hoarse this morning. I was listening up in Aberdeenshire when he was trying to reiterate his message regardless of
all of the events of this week that Britain would be leaving on the 31st of October, it was almost a display, Julia of the New Age psychological
concept of acting as if.
He hasn't gotten an election and yet, he is out there in a pseudo election campaign trying to speak to people, pound the pavements and convince them
that Britain is still coming out on the 31st of October, despite the fact that Parliament has shown that it is not willing to allow Britain to come
out without a deal.
So the Prime Minister in that sense, doesn't seem entirely in touch with the political reality, but he is continuing with that defiant rhetoric.
CHATTERLEY: There's a great deal of unreality, I have to say about this situation, Bianca, and it will continue. Thank you so much for that.
Bianca Nobilo there.
All right. Let me bring you up to speed now, with some of the other stories that we're following around the world. In the Bahamas, the death
toll from Hurricane Dorian has increased to at least 30 with hundreds of people still missing.
The Health Minister warned people to prepare for a quote "unimaginable death toll." Paula Newton spent a day in the hard hit Abaco and sent this
report.
(BEGIN VIDEOTAPE)
PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT (voice over): It is so much worse than they had feared. The Abaco Islands forever scarred now by mass
destruction. Home after home, entire rooftops blown away, debris scattered in unrecognizable heaps, boats tossed like confetti. The images belie the
obvious question: How could anyone survive this?
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Okay, okay, okay, okay. You're okay. It's going to be okay. We're going to be okay.
(END VIDEO CLIP)
NEWTON (voice over): We arrived by helicopter in Man-o-War in Abaco with Billy Aubrey (ph), embracing his wife Shauna (ph) after days of not knowing
if she was dead or alive.
Shauna (ph) hunkered down with friends in their Seaside home until the roof blew off and they all scrambled to find anything still standing.
(BEGIN VIDEO CLIP)
NEWTON (on camera): So Nancy, this is what kept you guys alive. This little --
UNIDENTIFIED FEMALE: This little room kept us alive. This is it. We came in and hunkered down, and Shauna (ph) was on the ground crying, and we were
just trying to --
UNIDENTIFIED FEMALE: I was hysterical.
NEWTON: What did it sound like in here at the time?
UNIDENTIFIED FEMALE: It was loud.
UNIDENTIFIED FEMALE: Well, there was a lot of crashing and banging and whirling.
UNIDENTIFIED FEMALE: Stuff, we thought, was coming through this wall.
(END VIDEO CLIP)
NEWTON (voice-over): So many in the Abaco Islands lived through hours that resembled a horror movie, exposed to winds that topped 250 miles an hour
like tornadoes touching down every minute.
(BEGIN VIDEO CLIP)
SHERRIE ROBERTS, SURVIVOR: Words can't describe it. I don't wish it on nobody. Nobody, words can't describe it. Because they could never
categorize -- categorize this, never.
UNIDENTIFIED MALE: My grandfather ran out in the middle --
ROBERTS: It was like an atomic bomb went off.
(END VIDEO CLIP)
NEWTON (voice over): Residents here tell me their little island paradise is unrecognizable, even to them. They are resourceful and self-reliant,
they say, but they could have never imagined a storm as powerful as Dorian.
(BEGIN VIDEO CLIP)
NEWTON (on camera): You know, there's no better way to describe to you the force of Hurricane Dorian to be right here where people rode out the storm
in their living rooms, in their dining rooms.
I mean, look at this. The roof blew off the house here. The entire kitchen came down. Their refrigerator ended up here on the ground. Their
living room and dining room furniture is strewn all over. People describe these things being tossed around the island like projectiles. They all
cowered, hovered in their bathrooms and closets, anything they could find to take shelter.
(END VIDEO CLIP)
NEWTON (voice-over): There are now the beginnings of recovery but only the basics: medical attention, private helicopters to take out those who are
sick, the elderly, young families.
(BEGIN VIDEO CLIP)
JEREMY SWEETING, ABACO ISLAND COUNCILOR: I'm sure it will never be the same again. But I mean, the people are strong here, and we're going to try
to do our best to rebuild the best way we can. But we know it will never be the same.
(END VIDEO CLIP)
NEWTON (voice over): This was a storm of biblical proportions, Abaconians tell me, and yes, they worry, it will take a miracle to recover from it
all.
(END VIDEOTAPE)
CHATTERLEY: And Paula joins us now. Paula, unimaginable damage, we keep saying it, you know, I've watched that five times now and it still gives me
the same reaction, hair raises on my arms and a frog in my throat. Talk about it. Tell us how you're doing?
NEWTON: You know, for very good reason, Julia, and I'll tell you why. Remember, we showed that drone footage to families on the island, to the
Cruz family who had, you know, so incredibly put us up for the evening when we were on the island.
They were pointing out buildings that they did not recognize, Julia, and as you said, a lump in your throat. And the reason that continues is that
when you see people who have survived this, they still can't believe that they did survive it. And they know that friends and relatives are missing.
Now remember that the death toll now, the Ministry here already saying that it could be staggering. And for that reason, everybody is already bracing
for the worst, while trying to figure out should they stay? Should they continue to wait for aid to come in? Or is the place just too devastated
to actually live in their homes anymore? Perhaps not for months or even years?
The task at hand right now, beyond trying to get too many of these people is trying to figure out exactly where those missing people are and moving
things from a search and rescue to -- I hate to say it, Julia, but a search and recovery, and that is also important.
Many people told me they are now worried about diseases like cholera, as this continues to play out day by day. The other thing I will say is that
in terms of staging, you know, the Bahamian government is doing all they can along with the help of the United States, and Julia, there are so many
private companies that are also trying to bring all of this together, but the magnitude of the need is immense.
CHATTERLEY: Yes, immense. Paula Newton, thank you for joining us on that, and our thoughts of course with everyone who is involved or impacted.
All right. Meanwhile, in the United States, almost 400,000 people without power as Dorian hovers near the East Coast. It just made landfall along
North Carolina's Outer Banks. It did weaken overnight, making it now a Category 1 storm, but winds of 145 kilometers per hour and heavy rain are
still set to continue for the next few hours. After that, Dorian is expected to move into the Atlantic.
All right, be sure to stay with CNN as we continue to get images out of this hard hit area. And if you want to help, this is the key, if you want
to help the hurricane victims, you can visit our website cnn.com/impact -- all the details there. Whatever you can do to help, if you should want to.
All right, thanks take a break here on CNN. But coming up, the U.S. jobs market keeps on growing, but we'll have a look at the other side of the
coin. How hard is it for businesses to find the candidates they want?
And later in the show, mind the skills gap, a warning that millions will be needed to retrain because of artificial intelligence and automation. We
will discuss with IBM. Stay with us. We're back in two.
(COMMERCIAL BREAK)
[09:21:24]
CHATTERLEY: Welcome back to FIRST MOVE. We're joined by Tom Porcelli. He is Chief U.S. Economist at RBC Capital Markets. Great to have you with us.
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS: Good to be with you.
CHATTERLEY: Happy Friday.
PORCELLI: Yes, indeed.
CHATTERLEY: Let's talk jobs.
PORCELLI: Yes.
CHATTERLEY: What's your assessment of the numbers this morning?
PORCELLI: I think if you are going to myopically look at this report, just in terms of the head count game, yes, you might walk away disappointed.
But that's completely the wrong way of thinking about this.
CHATTERLEY: I think I have myopia on this show.
PORCELLI: No one should. I think what we have to keep an eye on is that there's always a lot of moving parts with this payroll report, and when you
drill down, what you see is that the numbers are actually pretty good.
Average hourly earnings beat by actually pretty decent amount. The spatial rate was up. Unemployment rate actually even drifted lower, out to the
third decimal. And again, I'm not trying to draw it any other idea other than don't just look at 130. You like, look at everything.
And I think when you do that, the sum of the parts is actually pretty decent.
CHATTERLEY: Are we over sensitive at this moment for many reasons -- trade concerns, concerns about manufacturing, slowing growth potential in the
United States. We fixate on this job's number. But when the labor market is so tight, it gets harder to add new jobs.
PORCELLI: You know, so that's without question. True. And I don't think anyone should be surprised. Job growth is slowing. It has already slowed
this year from last year, like we're averaging about you know, 150,000 jobs for the year. That is actually more or less per month.
CHATTERLEY: Per month.
PORCELLI: Yes, thank you. That's more or less in line with our thinking. So I struggle with what people are -- what is the argument people are
trying to build? That we're about to fall into a recession?
Because simply slowing from a job growth perspective, that is not your smoking gun. You need a lot more to happen than that.
But again, in the context of companies now having a really hard time finding workers. Yes, job growth is going to necessarily slow down. But
sorry, if I can make one other point, I think this is pretty cool.
There's so much asymmetry in place. Now, before anyone's eyes glaze over. I mean, all that basically means is, people are more willing to latch on to
the negative than they are to the positive. And yesterday was a great example of this.
You know, we had an ADP that killed it relative to expectations, claims that remain near all-time lows and ISM Services Report that also killed it.
Yet, all they want to talk about were like the little nuances within those reports that, by the way, have no leading properties at all.
So I just think that that defines really perfectly where we are.
CHATTERLEY: Where are we then? Why are we doing that?
PORCELLI: I think -- I think there's a lot of -- there are a lot of reasons. One, I think if you think about it from an overarching
perspective, look, we're 10 years into the recovery. I think most people think that 10 years is sort of long in the tooth. And as a result, the
recession is probably near us.
As I hope your viewers and I'm sure everyone here knows, you know, recoveries don't die of old age, they die of an imbalance. That means, so
when we take a step back and try to understand where the imbalances are, we just don't see any significant imbalances in the United States that would
take us down.
Two, trade. I mean, there's no question that trade is weighing on sentiment. It's dinging CapEx, we know that for sure. But the consumer
continues to chug along and this report that we got today is very consistent with the consumer being able to continue to chug along.
CHATTERLEY: You know, you make a great point as well about small businesses. They're saying they simply can't find the workers to hire. So
arguably, if the jobs numbers are weakening, it's perhaps because they can't find the employees, not that they're necessarily are firing workers
or don't want them to.
PORCELLI: I think that's a critically important point. Because again, when I think about people who talk about the slowdown story, they are
necessarily saying that they think that consumption is going to collapse or fall sharply.
But when you have 130,000 people being employed, which is a pretty material number, and their wage gains continue to accelerate. That actually more
than makes up for the fact that we are slowing from a job growth perspective.
So there is still momentum from a consumption perspective. This is the idea that then gets completely lost in the conversation.
[09:25:07]
CHATTERLEY: Okay, so I'm incredibly optimistic now. Everything is sparkly and shiny. This is fabulous. It's a Friday. Why on Earth would the
Federal Reserve be cutting rates? And why on Earth have we been talking about them cutting, potentially even entertain the idea that they cut half
a percentage point if what you say is true?
PORCELLI: So what I say is true. So what I would say is the Fed is really worried. They're really worried about what's happening outside of our
borders, washing up on our shores in terms of tightening and in financial conditions.
So they think that by you know, sort of unloading some cuts --
CHATTERLEY: Many other countries are slowing.
PORCELLI: Yes. Exactly. So by giving us some cuts, we can sort of -- that acts as a buffer to some extent. The problem, though for the Fed in
this instance is what's happening in the United States, if you can lay claim to the idea that trade is actually already having an impact on CapEx
and manufacturing, which it is.
CHATTERLEY: Yes.
PORCELLI: That's not a monetary policy problem. That's a trade policy problem. And so, the way you fix that is by correcting the trade policy,
you know, let's call it error that's being made right now. Monetary policy can't do anything to sort of buffer this.
CHATTERLEY: Yes. Jay Powell is not going to hit back at President Trump here for his trade policy, even if I tried.
PORCELLI: No.
CHATTERLEY: Tom, fantastic to have you on the show.
PORCELLI: Always good to be with you.
CHATTERLEY: We like it. We're very optimistic now. Tom Porcelli there, Chief U.S. Economist at RBC Capital Markets.
We are counting down to the market open this morning, expecting another positive session following a broadly positive session in Europe, too.
Plenty more to come here on FIRST MOVE.
We're going to be talking more about jobs. We're going to be talking about the skills gap, too and addressing it and some surprises in some of the
survey data thereto. Stay with us. We're back in three.
(COMMERCIAL BREAK)
[09:30:00]
CHATTERLEY: Welcome back to FIRST MOVE and the opening bell here at the New York Stock Exchange for the final session this week. As expected, a
higher open for the U.S. major markets here. This follows a slightly weaker as we've been discussing on the show already, headline read for U.S.
payroll numbers, U.S. employment 130,000 jobs added to the economy last month. Many of those are temporary government Census jobs.
We also saw private payroll growth slowing to a three-month low, too, but as you heard from Tom Porcelli there, he said, dig beneath the details,
wages look stronger hereto and at this point in the business cycle, it does get harder to add jobs.
Also adding, it is linked to sentiment here as well. China announcing it fresh stimulus, cutting interest rates to push the banks in the economy to
lend more to the real economy here, to businesses and to consumers.
We could be talking up to $120 plus billion worth of cash freed up for fresh loans. Also keeping an eye on the bond markets as we continue to do
over the past few weeks.
Bond yields jumping on Thursday around the world, particularly here in the United States on hopes that those U.S.-China trade talks will resume soon.
Again, Tom telling us, put less emphasis perhaps on the trade talks amid a strong U.S. consumer. We keep saying it, too, but we will continue to
watch of course for that as well.
All right, let me walk you through the global movers today, too. Shares of cloud software firm Domo tumbling today. It posted a narrower than
expected last in the second quarter. But the key here, it lowered its 2019 guidance.
What about footwear and accessories firm, Genesco, too? Higher in the session reporting a surprise second quarter profit and strong sales, also
raising its full year guidance. Perhaps, that's what investors are reacting to, in particular here.
What about Lululemon, too? Also moving higher. The athletic clothing firm reporting stronger than expected second quarter earnings and revenues. It
also boosted its full year guidance. Men's wear in fact, the key driver for this stock this morning, too in the earnings performance in the
quarter.
Facebook also in focus. The New York Attorney General's Office saying it is leading a multi-state investigation into possible antitrust violations
by Facebook. The Attorneys General of seven states plus the District of Columbia have joined the investigation centering on whether the company has
stifled competition and put users at risk. Paul La Monica joins us now on this story.
Everyone is jumping on the bandwagon. We've got what? The House Judiciary Committee, the Senate Judiciary Committee, the Department of Justice, and
now State Attorneys Generals, too? Paul, what else do we know here?
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, what's really interesting here, this comment coming from New York Attorney General Letitia James, the
states are doing this. It is a bipartisan effort. And it's not just about what you would expect from a typical antitrust investigation that looks at
whether or not competitors are being harmed. Obviously, that's part of it as well, whether or not ad rates are being affected and hurting the
competition in the social media landscape.
But also what it means for consumers, as you pointed out. Are consumers at risk because of some of the high profile problems Facebook has had with its
data and the handling of things like you know, the Cambridge Analytica scandal, so that I think is something that is going to come under increased
focus.
And as you point out, it's not just Facebook that is a company that's being looked at by regulators. Google owner, Alphabet, is also being
investigated by State Attorney Generals as well as at a Federal level because of possible anti-competitive practices in the advertising business.
CHATTERLEY: Yes, it's interesting, isn't it? I mean, probe after probe and assessment of whether or not consumers are hurt, which ultimately is
what you need, if you want to prove anti-competitive behavior, or at least antitrust grounds.
Paul, every analyst I speak to says even if they do take action, it's going to take years.
LA MONICA: Yes, this is not something that is going to be resolved anytime soon. We obviously saw that in the past couple of decades with regulatory
action against Microsoft and before that, AT&T, our now parent company back in the old Ma Bell days when it was broken up.
These things take a lot of time. It's very possible that any resolution will come well after the current administration has left office, whether or
not that happens in 2020 or even 2024.
So obviously, I think there are going to be many people watching this for how it plays out over a period of years, and what these companies --
Facebook, Google, don't forget Amazon as well -- whether or not they make enough proactive changes to possibly satisfy regulators before they are hit
with massive fines or maybe even being broken up.
[09:35:11]
CHATTERLEY: Yes. And in the meantime buy on dips. Hmm. Paul La Monica, thank you so much for that. All right. We're going to take a quick break
here on the FIRST MOVE, but coming up from a distance, Hong Kong's problems might feel like a domestic crisis, but our next guest argues that the
ongoing protests and the wider trade war will be felt far and wide. We will discuss. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE, the credit rating agency Fitch is cutting its main rating on Hong Kong as months of antigovernment protest
weakened its economy.
Fitch is the first credit rating agency to downgrade Hong Kong since this year's unrest. It is also the first Fitch downgrade for Hong Kong since
'95 before its handover China.
Fitch says the recent political turmoil is testing Hong Kong's One Country Two Systems framework of governance. Many other problems.
Let's talk this through. Joining us down, Bill Campbell, Co-Portfolio Manager of DoubleLine Global Bond Strategy. Bill, fantastic to have you on
the show. You've just written a great op-ed for CNN Business talking about the fact that you see Hong Kong and the protests that we've seen there as
an underappreciated risk here by investors, but also the impact it can have on the global economy.
Is what we saw from Carrie Lam removing the Extradition Bill this week change anything in your mind, or are we still under appreciating the risks
here?
BILL CAMPBELL, CO-PORTFOLIO MANAGER, DOUBLELINE GLOBAL BOND STRATEGY: Well, I don't think it mitigates the risk too dramatically because if you
look at the protesters demands, a removal of it, the Extradition Bill was only one of their demands.
You know, they do want to have, you know, more say in their elected leadership. They want to have amnesty for the protesters. So I don't
think that the actions of Carrie Lam this week, you know, mitigate the protesters' initiative to continue this movement going forward.
[09:40:14]
CAMPBELL: And as you highlighted, I think Fitch kind of corroborates what we've been seeing that these protests are having a significant impact on
the economy. And what we wanted to note in the article is that it's not just a domestic issue for Hong Kong.
Hong Kong is a systemically important area for trade and finance. It's the eighth largest merchandise trade exporter across the globe and it's one of
the most important Asian financial centers.
CHATTERLEY: You make such a great point. Actually, in your article, you quantify it essentially, I think better than I've seen anybody do, you make
the point that as a result of the 1992 Hong Kong Policy Act, any tariffs that we see apply between the United States and China are exempt as far as
trade that flows through Hong Kong, and we're talking what? Forty percent of China's foreign trade.
This is so important when we're talking about the connection between the Hong Kong protests, Hong Kong itself, and the broader trade battle, just
talk me through this?
CAMPBELL: Well, so I think it's important to note that ever since the handoff of Hong Kong from the United Kingdom to China, the United States
has afforded Hong Kong special rights and those were afforded in the 1992 Hong Kong Policy Act like you refer to.
Now, trade originating out of Hong Kong is exempt. But, you know, there are exemptions for trade that comes out of China into Hong Kong and then on
to another country, you can actually do -- you can get a little bit of reduction on the tariffs that are currently in place, via those type of
transactions and maneuvers as well.
The important thing to note is that in the past several months, we've seen an unprecedented bipartisan movement in the United States to stand on the
side of the Hong Kong protesters and stand on the side of Hong Kong democracy.
Both Senate Majority Leader Mitch McConnell and you know, Democratic Leader Nancy Pelosi both said that they stand by the Hong Kong protesters, and
that, you know, if the Chinese take a more active role in Hong Kong; that this 1992 Policy Act needs to be revisited.
And more importantly, if this Act is revisited, there's a lot of foreign investment that comes -- both that funnels into China through Hong Kong
through the Shanghai Stock Connect and Bond Connect Programs. And a lot of these special, you know, financial arrangements have been set up with the
foundation being around the Policy Act that the United States has with Hong Kong.
So the more that this is discussed, and the more that this Policy Act is at risk, I think that you know, it's going to put, you know, potential
pressure not only on Hong Kong and China, but in the region in general.
And I think we need to put this in the broader context that it's the global industrial sector that's slowing down. And it's slowing down due to all
the trade frictions that are increasing.
And most of the trade frictions have been due to the negotiations between China and the United States. But this Hong Kong issue is now an exogenous
event to those United States and Chinese talks.
Although we're starting to, you know, get concerned that the Hong Kong Democracy Movement might get put into the overall trade agreement. Slowing
in Hong Kong is an independent risk to the Asian trade outlook and to the global industrial outlook outside of the trade negotiations, outside of
just the specific United States-China trade negotiations.
CHATTERLEY: What should investors watch for at this stage? If you're saying it's underappreciated here, what's the key here that investors need
to watch for and how should they react?
CAMPBELL: Well, I think that we need to see how these protests continue over this weekend and the coming weekends. We also need to make sure that
there aren't any material disruptions in the Hong Kong port.
I think that we've already seen the Q2 GDP number come out at minus 0.4 percent, so you're seeing the impact already on the local Hong Kong
economy.
The longer this goes on, I think that, you know, the worst that this situation potentially will get, and I think that that is basically what
Fitch was pointing to as well in their downgrade.
CHATTERLEY: You know, it's interesting, there are people who have looked at the situation with the trade talks between the United States and China
and said it's no coincidence that those trade talks now are going to take place in October after the Federal Reserve has to make to make a decision
on rate cuts here, agree or disagree?
[09:45:12]
CAMPBELL: Well, I think that we need to view trade talks and the Fed in two different lanes, and that's the way I'm really viewing it.
I think that the politicization of the Fed needs to stop. The Fed needs to support price stability and full employment growth. And given the jobs
numbers today, I think a 25 basis point cut is likely.
The trade negotiations, they are dealing with some major systemic issues, whether it's IP theft or fair entry of U.S. and international firms into
Chinese markets, when we start trying to put the two together, and know, we had Bill Dudley come out with an op-ed, you know, we're talking about the
Fed maybe shouldn't give the U.S. administration leeway to negotiate trade. I think that's wrong.
I think, really, we need to keep the Fed in its lane to support its dual mandate. And on the trade side, you know, I think that these issues that
have been growing over the course of the decade do need to be addressed. So, given the fact that trade is weighing on global industrial -- the
global industrial sector, policymakers are going to need to, you know, figure out new and creative ways or they're going to need to step up with
more stimulus.
So we're expecting a Fed cut. We're expecting the ECB to do more in September, probably with a 10 to 20 basis point, cut in the depot rate.
We're expecting what we've already seen that the PBOC, the Chinese Central Bank, reduce their reserve ratio by 50 basis points. And the State Council
meeting yesterday encouraged or actually mandated that local governments start pushing forward, you know, more infrastructure and local projects.
So we're starting to see the signs that policymakers are beginning to address this slowdown in other areas. But I think it's important to
separate the two and I don't like the idea of, you know, politicizing or trying to put political influence in Central Bank actions.
CHATTERLEY: Yes, I agree with you. And to your point, it's a great way of putting it to getting creative here with Central Banks and increasingly so.
Bill, we'll get you back to talk about your portfolio more broadly. But thank you so much, because your op-ed was really great and worth reading.
Bill Campbell there from DoubleLine Funds and you can read his take on the Hong Kong crisis, an underappreciated risk on our website, CNN Business.
It's a fascinating read.
All right, let me bring you up to speed with today's "Boardroom Brief." Now, Huawei is pushing ahead with plans to launch a new smartphone that
doesn't rely on U.S. technology.
The Chinese tech firm which is subject to U.S. sanctions unveiled a new 5G chip, which it says it's superior to rivals Samsung and Qualcomm. It's
still not clear if its upcoming phones will be able to run Google's Android operating system.
China's two big tech companies are going head-to-head in online music. Alibaba has just invested $700 million in a streaming firm. It wants to
challenge the dominance of its big rival, Tencent, which is the current market leader in China.
Former Starbuck's CEO, Howard Schultz has officially dropped plans to stand for President. Schultz had announced in January that he was considering
running as an Independent in 2020. He was supposed to take the summer off to recover from back surgery.
All right, we're going to take a quick break, but coming up, future proofing the workforce, millions of people will need training as AI
dramatically reshapes the world of work. So says IBM. We will talk to the company about how to go about it.
(COMMERCIAL BREAK)
[09:51:06]
CHATTERLEY: Welcome back to FIRST MOVE and the message is, "Don't panic. Robots are not coming for your job just yet." However, at least 120
million workers will need to be retrained over the next three years as a result of artificial intelligence and automation.
That's according to a recent survey from tech giant, IBM. And there's more bad news. It takes more than 10 times as long to retrain you today than it
did in 2014. That's 36 days compared to three. Wow.
Diane Gherson, Chief Human Resources Officer at IBM joins me now. There's so many great stats in there that we will go through, but just talk to me
about how you built the survey because it's what? Forty eight different countries --
DIANE GHERSON, CHIEF HUMAN RESOURCES OFFICER, IBM: Forty eight countries, about 5,500 executives from different companies. And this is the second
time we've run it. We've run it a couple of years ago.
CHATTERLEY: Okay. One of the things that stood out to me, if you go back a few years, people were saying, "You need to learn how to use computers,
you need to be able to code." These shows things like technical and digital proficiencies dropping down the rankings here of what's important.
And I think, actually surprising things, potentially arising. Talk us through that.
GHERSON: Well, I think the first thing that executives realize is they needed new skills. They were entering into the digital era, "Oh my
goodness. I need more computer skills. More people who can do software programming, and so forth." And so they went out and they hired them.
But then they realized, "Wait a minute, I'm in the digital era. I have to do work differently." And these people have to continue to learn and they
need to work together in a collaborative way, they have to be open to new ways of working. That's a whole other set of skills I haven't been looking
for.
And so I think what happened was, number one and two work, the computer skills, and the STEM skills and software programming. And now they've
dropped down to number six and eight and above that you've got openness to adaptability, add agility, working as teams, time management. Why?
Because we're working in a much less industrialized environment. The digital era requires that we work in an iterative way, that we work in
teams, that we're constantly adapting to external signals and pivoting.
CHATTERLEY: I saw that statistic from the World Economic Forum, 65 percent of the children entering Primary School in 2017 will have jobs that do not
yet exist, and for which their education will fail to prepare them.
I mean, some part of that you can argue is a failure of education. But another part then, it goes to your point, you just have to be flexible,
because you literally don't know what the future holds.
GHERSON: That's right. And it's called mental fluidity or adaptability and this is becoming really, really important. And it's something that
NPTech, which is one of the concepts of new kinds of schools where you don't need a four-year degree.
CHATTERLEY: Yes.
GHERSON: That's the major thing that they're training people in because they realize, they are training them for jobs that don't exist yet.
CHATTERLEY: Okay. The other thing was the timing, it's taking 10 times more to learn those soft skills. How do you teach somebody to be
empathetic, to be a great team player, if they're not -- if they haven't already got that in them?
GHERSON: Now, look, it's a culture. It's not just an individual. You know, you need the whole group, right to operate in a different way. And I
think that's really what was coming through. This is no longer send them off to some episodic training program, it's actually going to do work
differently.
CHATTERLEY: The other part -- revealing part of your survey was that 41 percent of the CEOs are saying they don't have the people, the resources to
tackle this.
GHERSON: That's right.
CHATTERLEY: I call this a crisis. We're looking aty 120 million jobs -- three years.
GHERSON: Right. We've got a huge talent shortage looming, and they have not yet attacked it.
CHATTERLEY: What do we need to be doing? Because I know IBM is spending a lot of money -- big companies spending a lot of money. What about for the
smaller ones? Now, how do you even approach tackling this?
GHERSON: Well, look, I mean, I think it's time for us to put skills at the center of our talent strategy. Too often, I mean, you look at any company,
do they have a head of skills in there? Probably not. Right? They spend a lot of time figuring out what job is bigger than another one.
[09:55:10]
GHERSON: That's the industrial era. Now, it's what skills are deeper than the next person. That's the kind of thing we need to invest in.
CHATTERLEY: Stop judging people by their grades potentially.
GHERSON: That's right.
CHATTERLEY: And actually, look for some of the softer skills.
GHERSON: Because that matters more. That's the currency for advancement.
CHATTERLEY: You've got to be flexible.
GHERSON: Right.
CHATTERLEY: Lesson in life. We're always going to be learning. I don't know if I would be happy or sad about that, quite frankly. But it's the
reality. Diane, it's fantastic to have you with you us. Thank you so much.
GHERSON: Thank you, Julia.
CHATTERLEY: Diane Gherson there. Great job with that discussion. All right. Let me give you a look at what we're seeing for the U.S. markets
right now.
As you can see, we are -- well, we're hanging on to gains for the Dow and the S&P 500, I call that relatively flat. It could be an interesting
session, I think for the final one this week.
We are some two percent away from record highs for these markets. We have to remember that despite all the volatility that we've seen.
All right, that just about wraps up the show. We will be back in a couple of hours with "The Express," but for now, I'm Julia Chatterley, and you've
been watching FIRST MOVE, time to go make yours. Have a great Friday and a great weekend.
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[10:00:00]
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